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5 Mantras for Trading in Equities
5paisa Research Team
Last Updated: 24th August 2023 - 06:31 pm
Know the difference between trading and investing: The main difference between trading and investing is the timeframe for which you hold the trade. Generally, trading is more short-term in nature (can range from a few hours to a few weeks) while investing is more medium to long-term in nature (more than 1 year).
Make the market your friend: You must take the time and effort to learn about the markets. How they move, why they move, what impacts them? Markets are ever evolving, which means that you can potentially learn something new every day. Thus, learning about markets should be a consistent and life long process.
Only risk the capital that you can afford to lose: There is no hiding from the fact that trading is a risky proposition. Since markets can be volatile in the short-term, there is always a chance that you might end up with high losses. Thus, you should always ensure that the money you allocate to trading should not be earmarked for emergencies and other important goals. Basically, it should be money that you can afford to lose.
Always have a stop loss: The best way to reduce the risk of trading is to always have a stop loss. This is basically a price point that tells you that it is time to cut your losses and exit your trade. For example, if your stop loss on a buy trade is 2%, then you will exit the trade if the stock falls by more than 2%.
Make a trading plan and stick to it: Create a trading plan that can help you manage your trades better. Make a list of factors and metrics that will guide your trading strategy and the levels that will act as triggers for both entry and exit. More importantly, stick to your trading plan.
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