Challenging The Supremacy
I got a call from an unknown number saying they wanted to meet me and discuss about investing. They gave reference of one of my old client.
It was a couple with wife being a teacher & husband being a software engineer. Both of them were drawing decent salaries to sustain a good lifestyle. I started the discussion with introducing myself & services that I offered. I asked them if they had any existing investments or they were new to all this. To my surprise the couple had good knowledge about stock market trading. They explained me about their process of trading & technical analysis & price action & all the words that I didn’t knew much about. I asked them about the motto of this meeting as they seemed to be doing quite great. Turns out, they had made good returns by trading stocks & futures during pandemic uptrend but entire gains along with major portion of their capital was wiped out during the correction that came post rally.
They were seeking my help to just recover the capital & post that they would stop trading & invest only for long-term goals.
They seemed to be so confident while explaining those things to me that I wondered how it could all go wrong for them.
I’m not really an expert at trading as I never understood all the technical jargons but what I do know is you have to respect the signals from market & trade accordingly.
I have heard about people having systems & processes in place to ensure they don’t lose their capital while trading then how did this couple lose it.
After discussion, I got to know that they bought a stock in futures which started going down immediately. Instead of booking loss when their stoploss got hit, they doubled their position & bought more on the dip. One fine day, the stock opens up in lower circuit & 90% of the capital is wiped out. They somehow managed to close the position in deep losses & again started buying it after a few days only to book loss again. They fell into a trap called Revenge Trading.
They kept on buying thinking that it would rise someday & recover their entire capital, however, they didn’t realize that the position was too heavy for their capital to stay afloat. They kept on challenging the signals of market (by buying every dip without thinking about risk management) & ended up with losing their savings.
We often do things that we know are detrimental to our own interests but still do it to expect a miracle. In case of trading, if a position becomes loss making, one should respect it & book the loss as per the system. Taking bigger positions in the same direction is like challenging the direction of the market.
If you lose 90% of your capital, you have to get 1000% return on your investment to get back your capital.
Moral of the story:
Always keep in mind that market is supreme and in order to be successful you have to respect the sentiments & trade accordingly.
Personal finance is really PERSONAL. What suits others may not suit you. Confused about where to invest your money?
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