The world of stock market trading is undeniably filled with aspiration. A similar interest caught Manish Hathiramani’s eye when he was 13. Today, a technical analyst and index trader with Deen Dayal Investments, if there’s one thing Hathiramani has learned over the course of the past 20 years is the importance of practising the art and nurturing the skill. “Practice makes progress,” especially when you take up trading as a career choice, he says.
As a portfolio manager via his venture, Hathiramani gave us some rudimentary dos and don’ts for first-time and new traders.
Do your homework
The thumb rule of trading is to make sure you are well-prepared. Good homework will equip you to face the qualms of the market. Consistently creating notes, revisiting theories and implementation of lessons, lead to better handling of market situations. During market hours, your focus should only be on the charts, and your homework is before and after market hours.
Keeping the human psyche in mind — when you have a live market in front of you, you tend to be biased. For example, if you feel a stock price is going up from 100 to 102, you will be tempted to invest in those stocks thinking that your prediction is right. In such a case, one forgets to keep track of the small aspects [such as the sector, or any government decisions], that have been a part of the notes and simply rely on instincts, resulting in a bad trade.
Whether you incorporate all your learning during the trade hours or not, a trader needs to keep track of things even during non-trading hours. Doing the homework and analysis over the weekend is a good way to be prepared for challenges.
Upgrade your skill-set
In terms of regularly feeding your knowledge, you must attend workshops, seminars, and try to embellish your skills. Through these workshops, you will realise that there is immense literature out there that needs your attention to have sound enactment while trading. For example, the term sideways markets, where markets get stuck in a range. How do you detect a range-bound movement? Although it might occur for only 5 days in the entire month, if you have not read about it or you don’t know how to trade them, you will be lost and caught off guard. By regularly attending workshops you are abreast of all these concepts.
Maintaining a routine
One advice of my mentor that I swear by is following a routine. A routine not only streamlines the general lifestyle but also brings trading hygiene. It is a work-life balance that you have to strike. A trader has no option but to keep a stringent eye on the news, economic calendars, analyse market indices, and important charts that are key. Always keep in mind that you don’t want to be overwhelmed with the news, it is just to get an overview of the key movements in the market. For traders who intend on trading on different stock exchanges, keeping a track of currency moments is a plus which can be done through the economic calendars. Analysing market indices helps a trader understand the bias as well as create a decision when it comes to investment.
Due to the enticing nature of the stock movement, one frequently falls prey to breaking the rules, or discipline in trading and faces the brunt of it. Having said that no one has ever claimed a 100 per cent strike rate by being disciplined. At the end of the day, the risk exists.
However, Indiscipline, on the other hand, is when you have done things without following the rules to the T and then lost money. For example, if you are asked to go from gear 1 to 3 directly, your car will break down without a doubt. And you can only blame your indiscipline for not following the basic rules of driving. Similarly, in the stock market, indiscipline has a very high price to pay. It will cost you real money leading to a financial loss. Unless you are not clear, conscientious, and particular about the dos and don’ts, I recommend avoiding trading altogether.
Don’t let success get to your head
Let’s say you start practising and succeeding but be careful to not let that get to your head. The minute air starts hitting your ears; you will start skipping rules and the finer points, it could increase your risk of losing money. Keeping yourself calm and composed at any given moment is key to be consistently successful
There is no timeline in this profession and people often succumb to the anxiety and stress it creates. Being patient and accepting towards every possible market action and reaction is crucial. You must realize that the markets are not going to function as per your whims and fancies. For example, if I’m buying on a Monday, I might have a projection in mind that my target should be achieved by Thursday. But if that does not happen, the market is not answerable to me. Supposing, Thursday got extended to next Thursday, most people, especially those who are in the fraternity of trading, tend to lose their patience and as a result, they just close up their trade sometimes at a very marginal profit or loss and later realize that if they had followed the rules they could have avoided the loss or made more profit!
These are very categorical layman terms and emotions that any trader goes through. A violation of any of these can cost you money. This is the key here, as the minute you start to lose the money you start to lose confidence. If it keeps happening, you will be scared to go back to the markets for a brief or extended period of time, depending on the quantum of loss and the temporarily deterred confidence levels.