Maintain the stop-loss rule as part of your plan of attack
Although everyone understands the importance of stopping loss, it is rarely used in everyday life. We eventually become so sure of the trades that we choose to disregard the stop loss. When we propose to hold onto our position for a longer period, on the other hand, we do not think a stop loss has much value. We may also believe that we can stop out of our positions later on when the markets move against us. Each of the aforementioned arguments is risky. Just a few days of unfavourable market conditions can cause your losses to grow and deplete your capital. People lost a lot of money even during the bull market from 2003 to 2008 because they did not practise stop loss discipline during the periodic corrections.
This method enables you to set a stop-loss order to buy or sell a particular stock when it reaches a certain price level. Consider purchasing shares of the company XYZ for Rs. 50 each. You place a stop-loss order with a share price of Rs. 48 to limit your losses. Your lost shares will therefore be sold off if the prices drop to Rs 48 to prevent any further losses. You can also set up a trailing stop loss, which is crucial if you want to hold onto your gains. As the price of equity increases in a trailing stop loss, the stop loss level shifts.
Identification of exit point
Finding an exit point for the stock is equally important for closing a position. Exit points are strategically placed to limit losses or meet predetermined profit goals. You can easily recover your lost share. Simply use a market order to sell the stock at any time, or place a stop-loss order if the trend is going against you.
Establish the amount of your capital that you are willing to risk
Your capital is depleted with each loss you suffer. Not everyone is fortunate enough to succeed in their first trade. If your initial trades were profitable, try estimating your maximum loss based on how much of your profits you are willing to give up. You can now view risk more clearly as a result.
Nobody made money by over-trading
Another crucial guideline is this one. Your natural tendency is to overtrade in an attempt to make up lost ground. Because you are already making decisions in a panicked state, that will only make things worse. You must first refrain from trading in a panic. When you lose shares in IEPF, don't rush to get them back right away; instead, wait for the market to present you with the chance to do so. One of the trading trade secrets is that you don't make money by trading every percentage point of volatility that comes up; rather, you make money by patiently waiting for your opportunity.
Focus on managing risk; returns will take care of themselves
Few traders or even investors typically take this rule very seriously. Your main concern as a trader should be the risks to which you are exposed. This risk could take the form of the maximum loss on a trade or the percentage of your capital that you're willing to put at risk. This risk might also relate to when you should be trading and when you should be staying out of it. Risk can also come from deciding how much of your equity should be invested and how much should be used for trading. Focus should be placed on increased allocation of investment capital when markets are egregiously undervalued, such as in 2009 or 2013. With little additional work, you can earn much more money.
Focus on the art of selling
In markets, no one profited from purchases. Selling is the only way to profit. You should consider booking profits as a trader at regular intervals. Averaging is a losing endeavour. Averaging your position has no beneficial side effects; all it does is compound your mistakes. Recognize turning points where you should sell and get out of your position. As soon as the profits exceed your expectations, you should sell your trading positions. When volatility and uncertainty are at an excessive level, you must also sell and leave your position. Always sell in doubt; never buy in doubt. To keep your liquidity register ringing when it comes to investing, concentrate on the art of rolling stop losses and break profits. you can easily recover shares from it.
Try to closely analyze where you went wrong
This is vitally important. Even the best traders and investors make mistakes and lose money occasionally. Smart traders and investors, on the other hand, reflect on their actions and learn from them. It's possible that you arrived too soon or too late. Alternatively, by moving quickly through the trade, you might not have bothered to get the right price. Here, it's important to keep in mind that while hope is good for breakfast, it's not so great for dinner. It doesn't help to merely wish for a better tomorrow. You must identify precisely where you made a mistake.
Accept responsibility for your trades
Although it may seem straightforward, there is a lot more complexity involved than you might realise. The majority of us typically tend to attribute any losses to the market or another outside factor. Never forget that risk management is in your control. You must therefore assume responsibility for each trade and consciously determine the risk management needed for it. Keep in mind that neither investing nor trading requires any kind of rocket science. Getting the fundamentals right is important. You can always choose equity funds if you think that is too complicated. However, these actions will make your job much simpler.
It is wise to invest in a variety of stocks that are diverse in terms of industry, market cap, and other important variables. If a stock declines in a specific circumstance, the portfolio's other stocks must remain unaffected and be able to at least offset the losses.