So, you have decided to take your first step into the stock market. You have the funds. As for the knowledge, you have managed to pick some from people you know, some from online sources, and well, some you just know. But the question is: are they all true. I compiled a list of 10 such popular myths and the truth behind them (if any!).
Myth 1: I need to have a lot of funds to trade
No. You just need enough money to buy one share. Of course, the value of the share will determine how much you need. And if you are planning on intraday trading, you can start with as less as Rs. 5,000. What you do need, however, is a Demat account.
Myth 2: Trading is a lot like gambling
Trading is not like gambling at all. When you gamble, you only know the odds of your success. You make your move and hope for the best. Trading is something where you can scale your risk factor, as per your appetite, and also set target returns. The best part of trading is that more money is made in trading by focusing on risk rather than on returns.
Myth 3: This stock has corrected 80% and so has no downside risk
Trading is not as simple as jumping in and buying any stock that sees a price correction. A bad stock is not worth buying at any price. Focus on the quality of stock you are buying and the level at which you are buying. Avoid the temptation of catching falling knives.
Myth 4: Stop losses can be set afterwards
If you are serious about trading, always put stop losses when you initiate the trade. In fact, even your profit targets should be inputted in the system at the time of trade initiation. Otherwise, sudden bouts of volatility can leave you with a big hole in your trading capital. These cover orders will also enable you to get higher margin leverage while trading.
Myth 5: To be a good trader, I need to outsmart the market
Buying low and selling high is a contrarian approach, and it is not the best idea for a trader. As a trader, the trend is always your friend. If you have a view on the market and it goes against your view, then it is actually trying to tell you something. As a smart trader, you must listen to the market and fine tune your strategy accordingly.
Myth 6: Trading is a high risk/high return game
Trading in equities surely involves risk but that is the nature of the stock market. It is volatile and that is what brings the risk factor. But trading is not about taking on higher risk. It is actually about managing risk. Set realistic expectations for returns and manage risks accordingly. Other things will automatically fall in place.
Myth 7: It looks like a great trade; let me take a loan and invest
That is never a good idea. Always trade with funds you can manage. And if you think that a buy is worth the risk, bank on the leverage that your broker offers you. Discount brokers like Upstox even offer you Margin Trading Facility, with which you can buy stocks ever if you have just 50% the price.
Myth 8: I just need to follow what the star traders are doing
A star trader may have a different level of risk appetite. Unless you have that kind of risk appetite, you will be exposing yourself to unnecessary risk. Trade according to your risk appetite.
Myth 9: I will pay my home loan EMI with trading profits
Don’t even think of it! Trading profits are uncertain. So, never hope to pay off your certain liabilities with uncertain trading profits. Keep trading profits entirely separate from any of your fixed commitments.
Myth 10: Trading is all about broker calls and hot tips
Firstly, if you want to be a trader, learn to analyse things. Keep your eyes and ears open for industry developments. It is not rocket science, so you can do it. Secondly, most hot tips have an axe to grind. Just avoid them!
Ready to trade? Then open your Demat account with Upstox. With brokerage as low as Rs. 20/order, you can focus on bettering your ROI and making the most out of the stock market.
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