Excerpt: Ever thought of the stock market as a match of cricket? Think you know the no balls that you shouldn’t bowl? Maybe reading this will reveal the truth and debunk all those stock market myths that the media has been feeding you. You would be surprised to know how the stock market actually functions!
The stock market is like a match of cricket, where stock trading reflects your bowling capabilities and your decisions on the pitch will help you realize how many wickets you can take or get punished by the batsmen. Just like bowlers get penalized for no balls, traders too get penalized for crossing the lines and being too greedy for their own good.
5 No Balls you should absolutely avoid while trading:
No Ball #1: Don’t put all your Eggs in one Basket
This is a classic behavior exhibited by many investors, also known as plunging. So, why does this qualify as a no ball? Because, the bowler commits two mistakes at the same time. The first mistake he does is that he invests everything in one single stock or sector, thinking that it will yield him better returns. And, since he has already given in to his greed, he does that all at once, or “all in” in poker-tongue. It’s good to be confident about sectorial stocks but it is advisable to have a diversified multi cap portfolio made up of different sectors to get major returns. If the said sector runs into some sort of trouble, you will be the captain of a sinking ship in the middle of the sea during a maelstrom.
No Ball #2: Not Cutting Losses/ Selling Too Soon
Another classic rookie mistake that ends up in a no ball in this unforgiving game is not cutting losses at the right time. Having a diversified portfolio means there will be some stocks that will be losers and by losers we mean stocks that continue to devalue and slump down every day. And, when a stock is inside the vicious cycle of decline, it will be very difficult for it to come back up. Don’t hold on to these losers, let them go, they will bleed you dry and won’t really help you gain positive returns.
There’s another mistake that novice investors tend to commit, that is selling winning stock before it is fully appreciated, which robs him/her from huge profits. Understanding market fluctuations and reading the signs of winning stock will help you hold on to them. Even though you might receive good returns when you’re selling aforementioned stock but it might so happen that holding on to it for a while would have proved worthwhile.
No Ball #3 Choosing Declining Stock
Investors often tend to buy stocks that are declining. That’s probably the best time to pick up stocks. Sometimes it turns out to be a big mistake, refer to the first part of No Ball #2. Either the stock’s downward spiral has to end right after you buy which happens rarely or you have to buy it that exact moment when the decline would magically end, with big emphasis on magically.
No Ball #4: Adding to a Losing Position
Most rookie investors have the habit of investing more money in existing loser stocks. What investors think is that they are getting a good bargain with the prices at this point of time but what they don’t realize that it has now become part of the vicious cycle of price decline and it will take a really long time for the stock prices to come up to a profitable place.
No Ball #5: Paying too much attention to the tips
The news channels happen to fixate on short-term fluctuations which seems to be depressing at times. But you’re in the stock market for the long haul so not paying atten.tion can sometimes be the wisest thing to do. Investors are offered loads of free stock tips and most people fall in that trap. But needless to say those tips are for short term trading as well, which individual investors should avoid like the plague.