Stock Trading Mistakes To Avoid

On Friday, 10th of July, 2015 I received an interesting email from one of first time visitor’s to my site. I get a lot of emails everyday of stories of mistakes done while trading, but this one stands out as this person kept on repeating his mistakes in an act of revenge to get back his lost money from the stock markets. Too see the end result you will have to read his investing and trading story. In the end I have something to say. Please read that as well. I have also added my observations in between in round brackets to make it an interesting read.

Note: This article is almost 3000 words so take a cup of tea or coffee and read at your leisure. 🙂
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Hi Dilip,

I had a Demat account with yyy securities. (Name of the brokerage company deleted to hide identity. Its my job to give you correct advice and education, not to defame anyone.)

I had 720 equity shares of L&T – after split they became 1080. I had other shares as well – 500 of HUL, 302 of Yes Bank, 300 of Bharti Airtel, and 100 of HDIL.

Then one day in August 2013, my broker called from a mobile phone number and said that some trades had wrongly happened in my account and they will be corrected tomorrow, without disclosing much details. I did not have an idea as to the extent it would be. He also requested me to confirm at 3.30 pm that I have been informed. At 3.30 pm, I got a confirmation call and without suspecting anything fishy, I mentioned that a representative had called and informed me.

Next day was 15th August, I called the guy who called from his mobile and asked him about what had exactly happened. He informed that rectification would be done the next day when markets open – but did not give any explicit information.

Next morning he called me again from his mobile phone and told me that the loss has become 4 lakhs, I asked him which loss? He replied that the positions were carried forward. He asked me if I want him to square of my positions. I told him that just stop this. He then visited my office personally and assured me that he would settle my account within a week.

(Something is not clear here – exactly why his account was in a loss if he had shares in his Demat account? The shares can go down in value – but you never get a margin call from broker to sell the shares as they are fully paid. I suspect something wrong was done on his account either with his permission or without OR something is hidden here which he does not want to tell – maybe he gave his brokers permission to trade in F&O without his permission on the trades. I think when they called him, they might have told him about Futures or Options trading that he did not understand and agreed.)

(Mistake 1 – Do not leave your account to be managed by someone else even if its your broker. He is a broker not a derivative trading or stock investment expert. You are responsible for your money so you should take all the decisions.)

I waited for a week and nothing happened.

I mailed the compliance but there was no reply. Then I visited the broker myself and they managed to instill fear in me to a point where I thought as if I myself had done some mistake. They told me that the only way I could recover the loss is by trading under their guidance.

Here is where I committed my biggest mistake.

(Mistake 2 – When in matters of money do not believe anyone – do your own research.)

They then made me buy Nifty 800 qty, and it fell by 60 points to extend my loss by Rs. 48,000.

I committed another mistake post this. I got the software installed and started trading myself. Till 2 weeks back,I was not aware that a thing called trading exists (In hindsight, at times ignorance is bliss), and here I was without a clue indulging in trading and putting at stake such a huge amount.

(Mistake 3 – No risk management – he is just trading huge quantity with thinking about the losses in his first week of trading itself. Just because you have a software does not mean you will become a successful trader. You really don’t need a software to trade – you need your brains. Hey everyone of us can buy software and trade and make money. Do you think its possible?)

My equity holding before this loss was 18 lakhs, but besides the loss of 4.48 lakhs plus brokerage, the shares had also corrected by more than 12 percent which made my account shrink to around 11 lakhs. I felt a lot of pressure.

Then, I traded myself like a mad man aggressively. And in 3 successive days, just by shorting Reliance Communications, I earned 195,000.

(Mistake 4 – So what if he made money – this was fluke – he was speculating and that’s a mistake.)

I thought I could cover this loss of 4.48 lakhs myself.

Then, I simply thought shorting was the way and blindly shorted everything that had increased substantially in the last few weeks.

(Mistake 5 – Shorting stocks just because they had increased in value. Shorting Futures or Calls on paper is real unlimited loss as the stock can rise infinitely.)

One such stock happened to be Aurobindo Pharma, it was a lot of 2000 then and I shorted it at around 260 and averaged it at every 9 rupee increase. So I had 4 lots at average of 275. It just did not come close to my average at that time and I feared averaging further. I hoped it would fall, but it never did. Finally, I squared it off after rolling over once, when it reached 337. Losing a whopping 5 lakhs in this trade alone. (Like I always say shorting naked Futures or Options (without hedge) is good till it lasts – one bad trade can take out months of profits. You end up repeating the same cycle for years.)

I also shorted Tata Steel and Tech Mahindra and lost a further 2 lakhs.

My loss had only compounded. And finally I discussed it with friends who advised me to file a complaint with SEBI against yyy securities.

I did so, but at the arbitration as well everything went against me. From acknowledging trades to continuing trading with them, I had no other option.

In frustration, I sold of all my equity holdings in Feb 2014, just before the Modi Bull run was about to gain momentum, and made a net loss of 11.20 lakhs and exited the stock market. I wish I had stopped there.

(Mistake 6 – Selling shares in frustration just because you had bad experience with derivatives trading. What was the mistake of your shares? Its like taking revenge on someone else because of mistakes done by you. Anyways, most of us sell shares just before they rally isn’t it?)

Then, on the day Modi became the PM, after taking a 3 month break and missing a major bull run, the value of my equity holdings itself would have increased by around 46%.

So, I began another unplanned madness journey with a small amount with another broker. On an investment of 1 lakh, I earned Rs. 42,000 in a month. I would however in this as well, add money in my trading account whenever I needed to average and then withdraw money after exiting the position.

But, I had to get trapped and I bought GMR infra in July and averaged it at very short gaps and had 150,000 quantity. Had go deposit 12 lakhs to hold in. It simultaneously came in F&O Ban. I asked the broker, what can be done in a ban to lower my average? He said you can only wait for the ban to be lifted. I waited till it came to Rs. 5 below my bought price. Finally, I exited at a loss of around 6.3 lakhs.

(Mistake 7 – Trading F&O in unpopular and high risk stocks like GMR Infra. Had he traded in something like SBI or HDFC do you think the regulators would have banned derivative trading on these shares? NEVER do derivative trading in small caps and high volatile stocks.)

Here, one lack of information increased my loss. I wasn’t aware that in ban period I could do intraday trades. I made a fresh loss of 6.3 lakhs, taking my net loss to 17.5 lakhs.

(I am not sure about this. I think when F&O is banned in a stock even Intraday trading is not allowed, because the system will not allow to buy or sell that stock in the F&O segment. Don’t know why he is saying this.)

I quit my job that paid me 1.5 lakhs per month post this and thought, I would rather explore the world and do things I love with my left savings of 26 lakhs. (Really dude – leaving a job paying almost 30,000 US Dollars per year in India needs guts that too after losing Rs. 17 lakhs. Kudos.)

I did a bag-packers trip to Europe, volunteered in an ashram, did trekking for 8 months and had a blissful time. The loss seemed little in front of the beauty of this existence. (Fantastic – great decision of traveling and doing things that you love for some time.)

But bad habits die hard, I came back in April and in May again indulged in trading, setting rules for myself.

I invested 2 lakhs, and in a month it increased by 1.3 lakhs. It looked as if this is going to be my time.

Then ,on June 2 this year, I carried forward 5 lots of JP Associates. Next morning when it fell, I deposited another 4 lakhs and added another 24 lots, making it 29 lots. I asked the RM (relationship manager) at the broker firm to inform me about any margin requirements. He said he will do so. But he had a family emergency and left without any Information. I also could not track the price. Then, it fell by 35% on that day, and all my money 7.3 lakhs was washed off without intimidating me, though I had the funds. It recovered within a day to reach just 20 paise short of my average price the very next day.

But I was washed. I argued with the broker firm, but they blamed it on the RMS system. (Risk Management System.)

I traded further and put all my balance of 20 lakhs to avoid such a situation.

(Mistake 8 – You just cannot put ALL the money you own in one type of investment even if you are the best investor in the world. I am sure even Warren Buffet would have had investments in instruments other than shares. Like they say, “don’t put all your eggs in one basket”.)

This time magically, within 3 days,I recovered 2.3 lakhs. Making my net loss to 5 lakhs. Desperation to cover this quickly set in, which is an enough ingredient for suicide in stock market.

(True – Mistake 9 – The urge to make money fast especially to recover losses will lead to more losses.)

I shorted Dish TV blindly at a gap of just 50 paise and had 76,000 qty (19 lots short) at an average of 102.5. I held it on for a week, hoping it will come down. It lingered around 107 for 5 days and suddenly it spiked to 117 in one day. I was loosing 11 lakhs in this trade alone and the broker advised me to square it off, saying it will rise further. I did not hedge it either.

(Mistake 10 – HUGE mistake not to hedge a Short Future in a high risk stock that too when a lot is at stake.)

Eventually, when it came to 113.10, I squared off all. In hindsight, a maniac behavior. I lost 8 lakhs in this trade alone, only to see it drop to 101 in two days.

I just couldn’t believe what had happened. After booking, it sinks in a lot more than while being in loss open ended.

After gaining 10-15,000 everyday for a week, I again traded aggressively.

(Mistake 11 – Again aggressive?? This guy just doesn’t seem to learn.)

Ashok Leyland, this time being the stock I shorted 48,000 at an average of 72.2 and booked loss when it reached 75.10 (the Dish TV phobia prompting to cover it at at loss of 140,000). I again saw it come to 71 in a couple of days.

I thought this was enough. (Oh – at last after he lost a fortune.)

I filed a complaint with NSE regarding the squaring off positions of JP on June 3 by the broker. The broker requested me to take back my complaint and was ready for a reconciliation. Though, the loss suffered was 7.3 lakhs, and this time I had denied the trades in the confirmation call, the maximum offer I got was 1 lakh rupees from them or continue with the case.

I decided to take whatever was being given and just trade with this amount.

(Mistake 12 – Just lost for words. I mean what can you call trading with money someone got as a compensation to withdraw a case?)

I took this money and gave them a resolution letter. With this amount, as a final thing, in this week I lost 60,000 again buying Vedanta. I again exited prematurely.

Have withdrawn the balance 40,000. (Mistake 13 – Dude you should have lost this as well – sorry this is not a mistake but my outburst on you. Sorry but all that happened is because of your mistakes. You paid the price for being greedy and egoistic. That’s why its very important to control greed.)

The loss this time is Rs. 30.5 lakhs in total and what a waste of time, energy and going through sleepless nights and turmoil. (The loss frankly is not that big considering the kind of trades you were doing. Traders have lost more – read here and here. But the real loss is sheer waste of time without learning anything out of it. I would never take any trade if it does not allow me to sleep well in the night. I would rather make small profit or a small loss but sleep well in the night not bothering about my trades.)

I have a savings left of 11.5 lakhs. Having lost 30.5 lakhs in total in irrational and suicidal trading.

To add salt to wounds, L&T, HUL, Bharti Airtel,Yes Bank closed to their highs. Today, I would have had 12 lakhs more from my initial equity holdings had they been in place.

So besides the 30.5 lakhs loss, and from the price I sold my equity holdings in Feb 2014, I would have had a total savings including equity holdings of an additional 19 lakhs.

Had that unauthorized trade by the broker yyy in 2013 not happened, I would have had a savings of nearly 60 lakhs plus interest on it.

Had I not indulged in trading myself, I could have maximum lost the 4 lakhs that they initially lost for me. Still 56 lakhs plus interest on it would have meant a saving of nearly 65-66 lakhs.

I have consistently taken rash decisions in this period. (True – Thank God you understand now.)

I am 29 now and had worked hard and done well for myself since turning 21 and saving that amount till I was 27. But that day in August 2013, changed the course of my life in a big way.

It’s primarily the huge risks that I took, which is responsible for where I am, but the broker firm has played its part. That loss of 4 lakhs was a trigger for me, and I know that had that not happened, I never had the need to trade. But more than that, what I did post that has done the maximum damage.

The only saving by the grace of God is, I am alive and if I do the right things, I can earn money. (Very good, very positive – that’s the way to think forward. All the Best. 🙂 )

But the pain of doing this stupidity thrice hurts, and the thought of what could have been had I exited at various stages, had I not re-entered, had I done it a little rationally.

With this 11.5 lakhs of savings, I have done an FD of 10 lakhs.

(Mistake 13 – FD means now you will lose even more. Some part of it should go into stocks investment gradually, and small leverage should be done with proper planning in derivatives trading. That is the way to invest money. The first part was Greed and the second part is Fear – now fear will make sure this guy losses even more. He has 30 years before he retires. Doing only FDs with money is suicidal too.)

I am alone and not planning to work for the time being. (WHY?) After a loss of this magnitude, the feeling of having lost what’s being earned with hard work in 6-7 years being wiped out and then working another 4-5 years to get back to where I could have been, doesn’t seem worth it at this stage.

(Hey dude just to cheer you up – even I lost 7 lakhs trading – and I had ONLY that money left in my bank when my wife was pregnant. I had to take a loan of 1 lakh to survive – but I never lost it in the mind – I came back strongly with hard word and a weapon called knowledge to make money. You have to rise up buddy there is no other option. So get up and look for a job first. Get some knowledge and trade with a plan. I bet you will make money.)

Perhaps, time will give more clarity.

Thank you for your platform for sharing.

I have not mentioned my name, but can speak to you if you can email me your number. Haven’t checked this page for your contact details.

Regards,
Shivashambho
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Thank you Mr. Shivashambho for sharing your trading journey. It will help a lot of people reading this not to get into irrational trading.

My advice: Not just stock trading, learn from any mistake you do in your life. Everyday is a learning experience – you don’t stop learning when you are 60 just because you have retired. People who have stopped learning are as good as dead. Why do you think in most companies people who constantly learn and work hard are the ones who keep getting promotions? Others may just crib, but the fact is you get what you deserve.

Stock trading is also a business where people who plan, go slow, who have the knowledge will almost always survive. Those who do irrational trading and speculation just because they want to make money will lose money and wither away.

My only objective to post his email as a post was that if you are in the middle of something like this then please STOP NOW. You may end up being even worse than what you just read. Please then do not blame your luck, broker or SEBI or even God.

And please do not fear the stock markets either. On a ten year scale the stock markets will return more than any other investment vehicle in this world including real state or gold. Yes there is risk, but if you learn to manage risk there is a lot of money to be made. Just plan your trading well.

Please share your story. You can contact me or just write in the comments section of this post.

Thanks for reading such a long post.

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