Possible ways of losing money in Stock Markets – 1

Overview:

I have been active in the stock markets since 2017. In these four years, I witnessed many investors and traders losing a substantial amount of their investments and capital. It happened to me as well in my early days when I followed some financial websites and tips and strategies sold by self-proclaimed gurus on social media. It’s after the first two years of continuous losses and confusion I decided to pursue in-depth education. Being a research analyst in the equity segment I advise new investors to invest in blue-chip stocks and index funds. Trading is not meant as a part-time for professionals in other jobs. I am a stock and options trader. I had to lose a lot of my capital and spend more than 2000 hours on research and trading to gain expertise in trading before choosing it my career.

In this article, I would like to share a few tips that will help you not to fall in traps and lose your hard-earned money trading and investing penny stocks.

1. Following Fake gurus on social media
2. Trading penny stocks
3. Falling prey to Value Traps
4. Purchasing high premium stocks
5. Intraday trading with Margin money
6. Trading Options and Futures without prior knowledge
7. Investing in stocks that you don’t understand
8. Taking short term positions against the market move

1. Following Fake gurus on Social Media:

The first thing every one of us does when it comes to investing in stock markets is to search for a YouTube video. There are many informational videos on YouTube regarding investing and trading. I also follow some channels.

But we should be able to recognize which is a fake channel. I will share the three most common ways fraudsters use to get more views for their videos.

Flaunting that they made huge profits in their previous trades:

I can’t share the name but there is one person who comes out everyday gloating that he had long or short on the previous day. If you think carefully, anyone with basic knowledge of trading can read a previous day’s chart and say I have gone long or short and made a profit. This person points that he makes  ₹10 lakh profit in a single trading session. The best way for anyone to make such a high profit is through buying or selling futures of stocks or indices.

For example, to buy or sell Nifty index Futures (a lot of 75 shares), you need the capital of  ₹1,44,000/-. Suppose Nifty had fallen 200 points on a single day. If you had managed to capture 200 points by shorting Nifty futures that day, the maximum profit per one lot is  ₹15000/-. So if you have to make  ₹10,00,000/- profit as these YouTube fraudsters claim, you need to invest a capital worth  ₹96,00,000/-.  

Really, if I had  ₹96,00,000/-, I would safely deposit that amount in a fixed deposit or invest in high-quality stocks. Recently, I made a wrong move by shorting Nifty in the evening one day. The next day, Nifty rose by 220 points, I am at a loss of  ₹11000/- already. Since I hedged my position by buying call options, my loss is limited to a fixed amount. I can’t even imagine the anxiety of seeing the losses in lakhs of rupees. I know many skilled traders who deal in such huge amounts, but they don’t come out boasting of their grandeur. Only cheap fraudsters who want to make money from innocent viewers post such content.

Gloating about their wealth:

There is another well-known option trader who flaunts by posting his multi-million worth house, swimming pool, lounge, home theatre, etc. He also posts his private and corporate accounts profit and loss statements. I follow his twitter account; he blocks all those who make negative comments against him. We can’t say whether he is right or wrong, but what is the need for flaunting his net worth and wealth to retail traders. It only kills the confidence of juvenile traders who has a small capital of one or two lakh rupees. By the way, this gentleman charges around  ₹45000/- for his two-day workshop on options trading. At least, he clearly mentions that you need  ₹800000/- capital to follow his strategies. According to my calculations, he might use anywhere around  ₹10 crore capital to make such humungous profits.

Posting hatred content criticizing others:

Another category of fake gurus creates hatred videos criticizing other YouTube channels. There is one such trader who claims that he made a crore rupee profit in a month or so. He is the most adamant of all claiming that he is saving innocent investors from other fake gurus. I felt very bad about the language he uses. It is clear that he is an attention seeker. How come a person who makes an income of crores(₹10 million) in a month has time for criticizing others? His flaunting of making a live recording of trades is also questionable. His videos are of very low-quality information-wise, audibility, and visibility.

Conclusion:

It is up to you to understand if the content you are watching is true or fake. Maybe it’s easy for me to understand whether the video and content are fake or true. Many juvenile traders fall prey to these fake gurus. Mostly, these people want you to join their WhatsApp groups and subscribe to their channels. These tricksters post a YouTube video every day on how markets are going to behave the next day. In India, retail traders are so eager for what’s going to happen in the stock markets. Obviously, no matter how stupid the content is, it will get around 40000 views in a day if they had marketed their channel well.

For example, here’s how weekly prediction of Nifty looks like for the week 20/07/20 to 24/07/20. It may trade in the range of 10500 and 11200. Tomorrow, i.e. 20/07/20, the Nifty may trade between 10900 and 11100. It’s according to my calculations; there is no guarantee, and you are responsible for your trades. This is what every professional says on their channel or social media platform. Believe me, you do not need to be an expert or analyst to make this simple prediction of tomorrow’s market behavior.

Don’t be fooled by thousands of positive comments, likes, and subscribers for their content and videos. Anyone can get the subscribers, comments, and likes. It is a paid service provided on the internet.

That’s it, buddies! We shall discuss other points in the upcoming articles. I usually limit the size of my articles to 1000 words for better understanding. This topic might take another two to three articles to complete.

Note:

I provide the information and my views on the website only to educate new investors, stock market enthusiasts, and the common public on equity or stock market investments. Please consult your financial adviser before making any investments in the stock market. In case of any queries, you can contact me via email ID: shivakumar.lachapeta@valueinvesting.online.