An Open Letter from a Failed Trader Swastika
An Open Letter from a Failed Trader

An Open Letter from a Failed Trader

Note:

This is a fictionalized story. The events, characters and situations are fictitious but based on real experience. Any similarities or resemblances to actual people or person, living or dead is purely coincidental

Sometime in June 2007, I was working at  Google! Back when from campus placements. I was 26 yrs old, fresh into a dream job with an obvious promise of “making me well settled.” I had some weird notions about “Getting Very Rich Very Fast” back then. I was good with numbers, knew about stock markets basics and considered myself to be “analytical”, so I thought I am smart, very disciplined internally and can dominate the stock market.

Now, there was one more guy in our new joiners group who was equally enthusiastic about the stock market (that guy is now an IAS officer) and just like a smoker finds another smoker in a big group, we found each other and became buddies. We did the basics, opened a trading and demat account.

While we were ready to start our journey in stock markets. We got to know that there is something called Options (derivatives) apart from regular stocks. We got to know that it is a high risk/return thing, and like any greedy person, we didn’t focus too much on the “high risk” part, the only thing we could read was the “high return” part

Learning about Options trading opened up to a whole new world for us. We learned that options trading is an amazing leverage tool which was very fascinating. I learned about technical analysis also and used all my work time in downloading and learning about this (oh it was so amazingly easy!)

As we went head over heels, our greed went to the next level and our profit margin went really REALLY high (but we didn’t focus too much on the risk factor, in fact, we were not even clear on where we are entering into and how risky it can turn out to be).

So we’re all set with high energy but could not take any action because our trading account was still not active at that time and we were waiting for it.

In the beginning, I made Rs 2,500 profit, a 24% profit during just my LUNCHTIME! I was already planning to leave my job!

My overconfidence was rising way above the sky, and then there was only one way for me to go: DOWN!

Mistake #1 – I focused too much on Knowledge

I realized that “knowledge” is just a secondary element to trade successfully in stock markets. Almost all the good traders around the world agree that “knowledge” does not contribute more than 10-15% to being a successful trader. It’s an important thing, but certainly not the holy grail

I am not saying that one should not focus on the “knowledge” part. Too much knowledge leads to speculation, and that’s where I went horribly wrong. Always make sure to keep your Research Strong, and not to go with instinct alone.

Mistake #2 – I went against the Trend

What I have seen is that all the new traders somewhere want to challenge the markets and want to predict when markets will fall and when they will rise. They all want to time the market (and I did that all the time!)

This is the essence of where most of the failed traders are stuck. If markets are rising, somewhere inside me, I wanted to catch the top and wanted to prove as if I “almost” know that now markets will fall OR if markets were going down.

So just make sure that you never go against the flow in general. Try to identify the overall trend (upside, downside) and then make sure whatever is your trading style, be with the flow itself.

Conclusion

Today I have shared my mistakes I did when I traded OPTIONS and I hope you will learn from my mistakes. But this can just be a starting point only, you will only learn when you get on the ground and do the real trading. Till then it’s just a practice no matter what you do.

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