Top 7 Mistakes Beginners Make in Intraday Trading
In this session, we will talk about the 7 deadly sins of intraday trading.
The reason they are deadly is that any one of these mistakes can potentially kill your dream of becoming a successful trader.
So, let’s get started.
1-Short Delivery
This is one of the least understood yet extremely deadly mistakes newcomers make. In case you don’t know what short delivery is, we have made an entire video on this topic. Check out the description below.
Anyway, short delivery means shorting a stock intraday and not covering the position (that is buy it back) before the end of the trading session.
It can happen for a couple of reasons:
- The stock you shorted hits the upper circuit and hence no further buying is allowed
- You thought your broker will auto square off your short position but they didn’t because not every broker auto squares off the position.
What people don’t know about short delivery is that it is a really expensive mistake. At the end of the trading session, all these short-delivered cases are sent for auction by the stock exchanges and you are responsible for whatever price they settle for. On top of that, exchange imposes a penalty on you. How much you end up losing is anyone’s guess but I recently worked with a trader who lost about 60,000 rupees on a short delivery while his account had a total of 1 lakh rupees. ! Ouch!
The easiest way to avoid getting into short delivery is to
- Don’t short hot stocks…the stock that shows unusual price-volume momentum
- Always check for the upper circuit of the stocks before shorting them
- Always keep a stop loss market order below the upper circuit limit price
From the tactical mistake, let’s come to some more fundamental sins.
2- Excess Leverage
In this day in age where brokers are offering 10 times, 20 times and even 40 times leverage, it is easy to get carried away and take trades that are way above your risk level.
I meet with traders who have 1 lakh in their trading account and are taking trades of 10 times their capacity.
The obvious reason why traders do that is greed…make money quickly.
The problem is that Leverage is a two-edged sword. It cuts both ways. A trade that could potentially give you 100% gains can also wipe off 50% of your capital!
Another problem is that when a trader with 1 lakh rupees can not possibly see his position losing say 30k and consequently get scared and books losses- only to find later on that the stock turned around and they could have made profits.
Here is what you should do to not commit this sin:
- Never take trades more than 5 times of your capital
- Before entering into the trade, ask yourself if you are comfortable losing 2% of the traded amount. If not, you are not supposed to take the trade
3- Addiction to Trading
Some traders get addicted to trading just like people get addicted to gambling or smoking- they need that adrenaline rush to every trade and without that, they feel immense boredom and emptiness.
If you are one of those traders who starts acting like a gambler the moment the stock market opens then be ready, it is just a matter of time you will be out of money.
Addiction to trading is a serious problem and I strongly advise you to take professional help if you find yourself trading excessively.
Taking 4-6 trades per day is ideal and it is mandatory to take a day off in a week.
4- Adding More Money to Losing Position
This sin doesn’t sound like a sin, but trust me, it is. So much so, that we have made 2 videos entirely on this topic. Check out their links in the description below.
When a trade is not working out, traders sometimes tend to keep putting more money into the trade to get their average prices down. But they don’t realize that they are only digging a deeper hole by throwing good money after bad.
If your trade is giving losses, just accept that it was not a good trade, take a modest loss and get out. Do not keep messing around with it by adding more capital to it or one day the market will cut you very deep.
5- Not Putting a Stop Loss
Not putting a stop-loss is like walking on a tight rope without a safety net. Maybe a few times you can get away with it but when you lose your balance, the consequences can be very brutal.
Stop-loss forces you to cut your losses when they are small and admit that you were wrong. Without them, the losses would just keep on piling and sometimes irreversible damages can happen to a trader’s account.
6- Trading on Tips
The moment you open a Trading account, you will be bombarded with these so-called “stock tip services”. Buy this stock, short that stock….100% guaranteed or money back…blah blah blah.
A lot of beginners get sucked into these scams and these services are plain and simple fraud operations.
On the same lines, ignore the buy and sell recommendations on TV. They are designed for suckers and if you are serious about trading, start thinking for yourself.
7- Trading with Scared Capital
Scared capital is the money that you cannot afford to lose. It may be money that you borrowed from friends or family or it may be money that you would need to pay children’s school fees or for taking care of parents.
When you trade with scared capital every loss comes with a debilitating fear of what will I do now? In this desperation, people get into the mindset of how to recover the losses and take riskier trades. Do you see the pattern here? Looks very similar to our friend who is a gambler, doesn’t it?
So, follow this simple rule: don’t trade with money that you can not afford to lose.
Alright, guys, this is it. Stay away from these 7 sins and you will have much better odds of success in Trading.
In this race of the stock market, the tortoise will always win the race. In other words, don’t take shortcuts. Get rich slowly but surely.
If you have any questions about this session or the stock market in general, leave that in the comments section below and we will try to answer them. All the best, take care!
Top 7 Mistakes Beginners Make in Intraday Trading
In this session, we will talk about the 7 deadly sins of intraday trading.
The reason they are deadly is that any one of these mistakes can potentially kill your dream of becoming a successful trader.
So, let’s get started.
1-Short Delivery
This is one of the least understood yet extremely deadly mistakes newcomers make. In case you don’t know what short delivery is, we have made an entire video on this topic. Check out the description below.
Anyway, short delivery means shorting a stock intraday and not covering the position (that is buy it back) before the end of the trading session.
It can happen for a couple of reasons:
- The stock you shorted hits the upper circuit and hence no further buying is allowed
- You thought your broker will auto square off your short position but they didn’t because not every broker auto squares off the position.
What people don’t know about short delivery is that it is a really expensive mistake. At the end of the trading session, all these short-delivered cases are sent for auction by the stock exchanges and you are responsible for whatever price they settle for. On top of that, exchange imposes a penalty on you. How much you end up losing is anyone’s guess but I recently worked with a trader who lost about 60,000 rupees on a short delivery while his account had a total of 1 lakh rupees. ! Ouch!
The easiest way to avoid getting into short delivery is to
- Don’t short hot stocks…the stock that shows unusual price-volume momentum
- Always check for the upper circuit of the stocks before shorting them
- Always keep a stop loss market order below the upper circuit limit price
From the tactical mistake, let’s come to some more fundamental sins.
2- Excess Leverage
In this day in age where brokers are offering 10 times, 20 times and even 40 times leverage, it is easy to get carried away and take trades that are way above your risk level.
I meet with traders who have 1 lakh in their trading account and are taking trades of 10 times their capacity.
The obvious reason why traders do that is greed…make money quickly.
The problem is that Leverage is a two-edged sword. It cuts both ways. A trade that could potentially give you 100% gains can also wipe off 50% of your capital!
Another problem is that when a trader with 1 lakh rupees can not possibly see his position losing say 30k and consequently get scared and books losses- only to find later on that the stock turned around and they could have made profits.
Here is what you should do to not commit this sin:
- Never take trades more than 5 times of your capital
- Before entering into the trade, ask yourself if you are comfortable losing 2% of the traded amount. If not, you are not supposed to take the trade
3- Addiction to Trading
Some traders get addicted to trading just like people get addicted to gambling or smoking- they need that adrenaline rush to every trade and without that, they feel immense boredom and emptiness.
If you are one of those traders who starts acting like a gambler the moment the stock market opens then be ready, it is just a matter of time you will be out of money.
Addiction to trading is a serious problem and I strongly advise you to take professional help if you find yourself trading excessively.
Taking 4-6 trades per day is ideal and it is mandatory to take a day off in a week.
4- Adding More Money to Losing Position
This sin doesn’t sound like a sin, but trust me, it is. So much so, that we have made 2 videos entirely on this topic. Check out their links in the description below.
When a trade is not working out, traders sometimes tend to keep putting more money into the trade to get their average prices down. But they don’t realize that they are only digging a deeper hole by throwing good money after bad.
If your trade is giving losses, just accept that it was not a good trade, take a modest loss and get out. Do not keep messing around with it by adding more capital to it or one day the market will cut you very deep.
5- Not Putting a Stop Loss
Not putting a stop-loss is like walking on a tight rope without a safety net. Maybe a few times you can get away with it but when you lose your balance, the consequences can be very brutal.
Stop-loss forces you to cut your losses when they are small and admit that you were wrong. Without them, the losses would just keep on piling and sometimes irreversible damages can happen to a trader’s account.
6- Trading on Tips
The moment you open a Trading account, you will be bombarded with these so-called “stock tip services”. Buy this stock, short that stock….100% guaranteed or money back…blah blah blah.
A lot of beginners get sucked into these scams and these services are plain and simple fraud operations.
On the same lines, ignore the buy and sell recommendations on TV. They are designed for suckers and if you are serious about trading, start thinking for yourself.
7- Trading with Scared Capital
Scared capital is the money that you cannot afford to lose. It may be money that you borrowed from friends or family or it may be money that you would need to pay children’s school fees or for taking care of parents.
When you trade with scared capital every loss comes with a debilitating fear of what will I do now? In this desperation, people get into the mindset of how to recover the losses and take riskier trades. Do you see the pattern here? Looks very similar to our friend who is a gambler, doesn’t it?
So, follow this simple rule: don’t trade with money that you can not afford to lose.
Alright, guys, this is it. Stay away from these 7 sins and you will have much better odds of success in Trading.
In this race of the stock market, the tortoise will always win the race. In other words, don’t take shortcuts. Get rich slowly but surely.
If you have any questions about this session or the stock market in general, leave that in the comments section below and we will try to answer them. All the best, take care!
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