I had come across this question on Quora last year.
We wish that making money was so easy.
Sharing my answer to this question here.
Who said stock trading is not easy?
It is one of the easiest tasks to perform.
Log into your trading account as the market opens, buy something, wait for the price to go up or down and exit with a profit and loss.
Some time it just takes a few seconds.
But trading stocks profitably is not easy.
The key word is profitably.
And everyone is searching for the holy grail.
The sure way of winning at this trading game which has a loser to winner ratio of about 90:10 and stays thereabouts.
You intend to follow smart people and make profits.
This is also a method like any other and as likely to fail or succeed as any other method.
Problem with following Smart Traders :
Timing the Trade:
Whether you act on your whims or an expert’s advice, stock price can go either up or down. With these movements, only possible results are a profit or loss. It is your efficiency in booking profits and losses which makes money and not the selection of stock.
Maybe a stock selected on the basis of some sort of technical analysis will make the anticipated move quickly but any other stock will also do the same, maybe in slightly different time frame.
When we follow the smart traders, we are not able to follow the timing of the trade. They already have that advantage.
Followers end up entering at wrong price points and the result is either a lower profit or a loss.
Aversion to Loss:
The experts trade with pre defined Stop Loss.
Most of the retail traders are averse to taking loss if the trade has gone wrong.
They keep on waiting for the trend to reverse, which results in bigger loss.
One should exit as dictated by the Stop Loss.
Smart traders do this, followers do not and end up losing money.
Chasing Too Many Stocks:
If you are following smart people, there are so many of them. Your stock list is likely to become too big with no corresponding advantage.
A trader should focus only on the price movement.
Number of stocks does not matter.
One can just follow one or two indices or stocks to trade and stay profitable.
Being in too many trades at the same time can cause missing the price movement in one of them.
Trade only in stocks whose price movement is familiar to you.
Taking Small Profits:
Many times I have seen expert advice suggesting to take 5 points profit while keeping 10 points Stop Loss.
While some such trades may work out, the risk to reward ratio is skewed towards losing money. One has to be quick witted and a fast trader to make money in such trades.
But if you are following smart traders, it is a given that you are not a sharp trader and would therefore end up losing money in such type of trades.
And experts also lose money.
What Should Be Done to Become a Profitable Trader:
Invest in yourself.
Spend time in observing the Index and Stock Price movement for 2–3 stocks for a few days.
Learn about the Support and Resistance points based on these movements.
Initiate trades based on your own understanding and analysis and observe them going right or wrong.
Exit quickly when they go wrong.
Stay with them, when right.
The few right trades with big profits will make you a profitable trader.
Chasing the trades based on TV Experts is not the way.
Have belief in yourself and your loss management. Execute the trades with confidence.
It is simple, though not easy.
Take care of your losses.
Do not be concerned with profits. They will surely follow once you know how to control the losses.
Add discipline and knowledge to your trading.
Now, you are the smart person.
For more thoughts on trading profitably please read here:
Thanks for reading.