1506. Lost in Market
DIFFICULT TO RECOVER LOSSES
Having your money earn more money for you is the name of the game in the stock market. Market teaches us that impact of compounding interest is very powerful especially when your money is in the pool longer. When we take a huge draw down (loss) in our portfolio that money is no longer available to earn money for us. After losing more than 80% of the trading capital, is it practically possible to rise from the dead and make money?
1. Determine what made you lose money.
You need to reflect on why you lost money in the first innings. In most cases, its relying on TV news, listening to the experts on the channels, listening to the broker, following SMS, Messenger from unregulated entities who promise unrealistic profit, being cajoled by a friend into a stock, a rush of adrenalin at seeing a stock rise every day for a long period or a sheer gut feel to get into invest or just getting over confident or rash?. Are these any of the reasons why one loses so much money? But what do the above do to cause such huge losses? I would put it the other way around. If you still have some money left after being affected by any of the symptoms described above, consider yourself lucky. Such symptoms normally cause terminal financial illness resulting in untimely and abrupt death of capital.
2. Do your Home-work.
Why the money was lost in the earlier investments— it just makes no senses assigning an emotional reason. The reason has to be something one can correct with the next invetstment. It’s important to see where in the investment process the tactical error crept in. It’ll prevent you from rash investments, and deter you from throwing good money after bad. Have profit and stop-loss level in mind even before you initiate trade (preferably in the ratio of 1:3).
3. To begin afresh, do some paper trading and gradually get your confidence back.
After a string of loses — or one huge blow — the confidence will evaporate. So this time around don’t start with real money. It would help to start by initiating paper trades. Don’t do the paper trades without caution just because it’s “fake money.” You need to trade and be so intense that it should seem like the real thing.
4. Get back into the investing mode. Start investing again with money you can afford to lose.
Now, the fourth and most difficult step is to begin investing again with the money you still have left with you. If the entire capital has been washed out, you’ll have to save up a starting balance again. If you still have some of the moolah left over —trust you me, you’re in a much better position! However, ensure that you trade only the money you can afford to lose. Like all investments, make no mistake, there is a significant risk involved with stock market investment, and you need to be aware of your risk appetite and ratio too (preferably 1:3). If you don't want to put stop-loss, then refer my earlier post about 'Safe Investment (Time-averaging instead of price averaging)'.
So: Here we go. Back in the thick of things again, you are now armed with your investing discipline; follow it. The confidence is back on track; don’t let it get the better of you. Stick to your investing plan. Remember, Failing to Plan is Planning to Fail.
5. Make learning, tweaking, and perfecting an ongoing process. Keep evolving your investment system
The final frontier is perhaps the simplest: Keep learning and never stagnate at what you do.
Always be in a learning mode. Always keep practicing with zeal. Always keep monitoring your results and keep making the necessary adjustments so that you get better results time and time again. It would not be out of place to expect double the capital in a very short span of time. The key words are patience, courage, spreading out risk, taking the profits off the table and an iron clad stop loss. You should know the entry and exit levels as also the risk reward ratio.
All the best and remember – INVESTMENT IS NOT A ZERO GAME, ITS ALL ABOUT ADDING ZEROES. There is money in it, you should develop technique to grab money from market just like miners dig gems out of sea. Search your money from the place (here, read stock market) from where you lost. Loosing here & searching for your money elsewhere is not a good idea.
Zerodha (Trading Account)
RHP
