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Master the Market: Top Secrets to Prevent Losses in Any Trend!


Common Reasons Why Traders Lose Money Even in an Uptrend

Not Setting Stop-Loss:
Not Conducting Technical Analysis:
Going Against the Trends:
Following the Herd:
Being Impatient:
Not Doing Homework or Research:
Averaging on Losing Position:

'Buy low, sell high' is the motto. As simple as it sounds, why do most people lose money trading or investing?

There are four major mistakes that most beginners make:

Excessive Confidence
This stems from the belief that individuals are uniquely gifted. They think they can 'crack the code' in the stock market that 99.9% of people fail to, with the goal of making a living from trading and investing. However, given that more people lose money in the market, this wishful thinking is akin to walking into a casino feeling lucky. You might get lucky and win big a few times, but ultimately, the house always wins.
Distorted Judgments
While simplicity is key, most beginners approach trading and investing with overly simplistic methods, hardly qualifying as trading logic or investment reasoning. They might spot a few recurring patterns in the market, akin to discovering fire. However, they soon realize that these "patterns" were not based on solid reasoning or, worse, were not patterns at all.
Herding Behavior
This behavior is rooted in a gambling mindset. Beginners are lured by the prospect of a single trade or investment that will turn them into millionaires. Yet, they fail to understand that trading and investing are not like winning the lottery. It's about making consistent profits that compound over time. While people should look for assets with high liquidity and some volatility, the get-rich-quick mentality leads to investing in overextended or overbought stocks that eventually plummet.
Risk Aversion
Risk aversion is a psychological trait embedded in human DNA. Winning is enjoyable, but we can't tolerate losing. As a result, many beginners take small profits, fearing they might close their positions at a loss, leading to trading with a poor risk-reward ratio. Over time, this reluctance to take risks results in losses.

Depending on price action, traders go through seven psychological stages:
  • Anxiety
  • Interest
  • Confidence
  • Greed
  • Doubt
  • Concern
  • Regret


Lack of Discipline
An intraday trader must adhere to a well-defined plan. A comprehensive intraday trading plan includes profit targets, considerations, methods for setting stop losses, and optimal trading hours. Such a plan offers an overview of how trading should be executed. Keeping a daily record of trades with performance analysis helps identify and correct weaknesses in your strategy. Discipline is crucial in trading to minimize losses and preserve capital.

Not Setting Proper Trading Limits
Success in intraday trading hinges on risk management. You should predefine a stop loss and profit target before entering a trade. This is a part of trading discipline where many fail. For example, if you suffer a loss in the first hour, you should close your trading terminal for the day. Setting an overall capital loss limit also protects against further trading losses.

Compensating for a Rapid Loss
A common mistake among traders is attempting to average down a position or overtrade to recover losses. This often leads to greater losses. Instead of overtrading, accept the loss, analyze your strategy, and make improvements for the next trading session.

Heavy Dependency on Tips
With the abundance of intraday tips on digital media, it's tempting for traders to rely on these external sources. However, it's advisable to avoid this. The best way to learn intraday trading is by understanding how to read charts, recognize structures, and interpret results independently. Tools like the Beyond App by Nirmal Bang provide insightful market research, but practical experience is irreplaceable.

Not Keeping Track of Current Affairs
News, events, and global market performances influence stock movements. Intraday traders should monitor both Indian and global markets. Make trades after announcements rather than speculating based on news.

Intraday trading is a skill, not a gamble, requiring time to develop proficiency. Expecting rapid results is unrealistic. The reasons listed above are why many intraday traders lose money; discipline, strategy adherence, and regular strategy analysis are key to success.

We will discuss 3 classic trading strategies and stop placement rules:

Trend Line Strategy
  • Buying: Identify the previous low; place your stop loss strictly below that.
  • Selling: Identify the previous high; place your stop loss strictly above that.
  • Breakout Trading Strategy
  • Buying: Identify the previous low when buying a breakout of resistance; stop loss below that.
  • Selling: Identify the previous high when selling a breakout of support; stop loss above that.
  • Range Trading Strategy
  • Buying: Place stop loss strictly below the lowest point of support.
  • Selling: Place stop loss strictly above the highest point of resistance.


These stop placement techniques are simple but effective in avoiding stop hunts and market manipulations.

What Is a Stop-Loss Order?
A stop-loss order is placed with a broker to buy or sell a stock once it reaches a predetermined price, designed to limit an investor's loss. For instance, setting a stop-loss at 10% below your purchase price limits your loss to 10%. If you bought Microsoft (MSFT) at $20 per share, placing a stop-loss at $18 would trigger a sale at the market price if the stock falls below $18.

Stop-Limit Orders are similar but have a limit on the execution price, involving two prices: the stop price, which turns the order into a sell order, and the limit price, which specifies the minimum acceptable price for execution.

Advantages of the Stop-Loss Order
Cost-Effective: No cost until the stop price is hit.
Convenience: No need for daily market monitoring.
Emotional Insulation: Helps maintain discipline and prevent emotional trading decisions.
Strategy Enforcement: Ensures adherence to your investment strategy, though less useful for strict buy-and-hold investors.

Types of Stop-Loss Orders
Fixed Stop Loss: Triggered at a set price or time, ideal for giving trades room to develop.
Trailing Stop-Loss Order: Adjusts with price increases to protect gains while allowing for market downturns.

Stop-Loss Order vs. Market Order
Stop-Loss: Aimed at reducing risk by selling at a specific price.
Market Order: For buying or selling at the current market price to increase liquidity.

Stop-Loss Order and Limit Order
Limit Order: Executes trades at or better than a specified price to maximize profit or minimize losses.

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