Here's a question for you: do you think you're a better trader than the average trader?
Chances are, you do.
Of course, this could be true. If you're doing fantastically well, kudos! You can go ahead and ignore this article. Unfortunately, most traders do not beat the Sensex! If you fall in that category, don't worry- you can always learn from your mistakes.
Here are 3 tricks you can use to ensure that you're doing at least as well as the overall markets.
- Don't try to time your trade
This might come as a surprise, but many, if not most, traders try to time their trades. What we mean by this is that, say you have a trade opportunity to buy Nifty Futures. Instead of trying to time the trade "just right", buy as soon as you trading strategy gives you the buy signal. It sounds simple, yet few do this. Many traders assume that they know better than the market and try to buy at a "low price", and end up buying at higher prices because of this irrational behavior.
- Don't assume you know something the market does not
Once again, this sounds obvious- yet a large majority of traders make their decisions to buy and sell based on information they assume is not priced in. This might sound like a nice idea, but it actually ends up hurting returns. Unless one has "insider" information, it is highly unlikely that the market has not priced in the information.Instead, develop a trading strategy that makes buy/sell decisions independently from the price of the trading product. In other words, do not factor in the price into your trading decision (there are certain instances where the price can be taken into accounts, such as a price action signal or a technical analysis strategy involving price. But even in these situations, the signal should be generated independently from the trader through automation).
- Don't overlook the importance of all costs
At Upstox, you will be equipped with the lowest brokerage costs in the industry. That's good news for you.But a low brokerage structure does not ensure profitability. If you're a high volume trader, costs are probably the most important aspect of your trading strategy. If you're already trading through Upstox and you're not profitable, the first step is to see how you can cut costs.And one incredibly simple way to do that is by minimizing "slippage". Slippage refers to not getting filled at the price you requested (you trade "slips" and gets executed at a worse price than you wanted).The first rule to minimize slippage is to always try to place limit orders instead of market orders.The four factors that affect slippage are volatility, liquidity, time of the day, and the size of your position.
- Volatility: The more volatile the stock is, the higher the slippage. If the market is highly volatile, wait! Patience is key.
- Liquidity: When you are buying/selling, see the depth of the book. An easy way to increase costs is by executing an order when the liquidity is low.
- Time of the day: This gets overlooked a lot! Volatility (and slippage) is generally higher during the morning and closing times of the market, but liquidity is also higher during those times. So you need to try to time the trade just right so that you get a fair balance between both. If you're executing during the morning/closing time, watch out for volatility. If you're executing during the day during nonvolatile times, keep a lookout for the liquidity.
- Position size: This is incredibly important. Gauge liquidity to see the depth of the book. For example, if you see that there is a total of 100 shares on level 1, don't place a trade with a position size greater than 100. The higher your position size, the higher the chances for slippage.
And that's it! Keep these three simple ideas in mind at all times, and you will notice an improvement in your overall profitability.
- Don't try to time your trade
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