10 Sure shot ways to lose your capital in the markets
1. Holding an under-diversified portfolio overnight.
Traders generally tend to sell their winning investments while keeping
Holding on to their losing trades.
This behavior is known generally as DISPOSITION EFFECT.
2. Trading a new strategy with real money before first practicing it.
Traders get excited and amazed by the idea of making fast money.
In turn losing their capital in hurry of making quick bucks.
3. Expecting too much too soon.
Traders generally come with a wrong mindset into trading.
They think of the market as a short-term gain machine or where they can make a fortune overnight. Trading needs patience.
4. Trading your whole account without holding reserves.
Never keep you whole eggs in one basket. People have heard this saying, but reluctant to follow it. Never trade with 100% capital in a particular stock.
5. Thinking you are smarter than the rest of the market.
It is a human tendency to sometimes think smart and act dumb. Remember before doing anything that millions of people are out there to take money out from your pocket.So do not act without ever thinking or backtesting your plan or strategy.
6. Attempting to catch the absolute tops & bottoms of a stock price.
This one everyone loves to do because everyone wants to pick the trend earlier than others and pretend to be a superior. Wise men never try to predict anything, they just follow the trends.
7. Buying and selling stocks without using stocks & limits.
Without a stop-loss is like going to suicide mission If you do not know the levels or limits for getting in and out, then it is better not to do that trade. It is like sitting in your car and driving it without knowing of destination and how much time it will take.
8. Letting winners turn into losers.
I have seen many instances when people due to their greed or unwillingness do not sell stocks at the right time and thus letting their profits slump.
It can also be said that people who are unaware of levels, generally are affected by this phenomenon. (Read a post about it here)
9. Letting losers languish, Failing to review your trades so you can learn from your mistakes.
10. Trading without a specific plan and strategy.