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Tag: trading mistakes

  • The three biggest mistakes to avoid as an intraday trader

    Intraday trading can be a challenging and rewarding pursuit, but it’s not without its risks and pitfalls. In this article, we will discuss five of the biggest mistakes to avoid as an intraday trader, as well as a few additional points to consider. By understanding and avoiding these common mistakes, you can improve your chances of success and maximize your profits.

    Lack of discipline: One of the biggest mistakes that intraday traders make is a lack of discipline. Trading without a plan or system, chasing after every opportunity, and making impulsive decisions can all lead to poor results and losses. To avoid this mistake, it’s essential to develop a trading plan and stick to it, with clear rules for entry, exit, and risk management. This will help you stay focused and disciplined, and improve your chances of success.

    Over-trading: Another common mistake among intraday traders is over-trading, which refers to taking too many trades or holding onto positions for too long. Over-trading can lead to excessive risk and losses, as well as missed opportunities and a lack of focus. To avoid this mistake, it’s important to manage your position size and trade frequency, and to only take trades that meet your criteria and offer a good risk-reward ratio.

    Poor risk management: A third mistake that intraday traders often make is poor risk management. This can include things like not using stop-loss orders, not setting clear risk limits, or taking on too much leverage. Poor risk management can lead to catastrophic losses and can quickly wipe out your trading account. To avoid this mistake, it’s essential to have a clear understanding of your risk tolerance and to manage your risk carefully, using stop-loss orders and other risk management tools.

    Not staying up-to-date: Another mistake that intraday traders can make is not staying up-to-date with market news and developments. This can be especially important in fast-moving markets, where news events and economic releases can have a significant impact on prices. To avoid this mistake, it’s important to keep an eye on the news and to be prepared to adjust your strategy as needed.

    Not learning from your mistakes: Finally, a mistake that many intraday traders make is not learning from their mistakes. Instead of analyzing their trades and looking for ways to improve, they may simply blame external factors or make excuses for their losses. To avoid this mistake, it’s important to be honest with yourself and to look for ways to improve your performance. This can include keeping a trading journal, reviewing your trades, and seeking feedback from other traders.

    In conclusion, avoiding these mistakes can help you improve your chances of success as an intraday trader. With the right mindset and approach, you can succeed as an intraday trader.

  • Common Options Trading Mistakes And How To Avoid Them – Part 3

    In our journey to list the common options trading mistakes that beginner traders make, we are at the very end. In this article, we will cover the final 4 common mistakes that options traders make and how you can avoid them by trading smarter.

    Before we begin though, you need to understand that options can help you grow a small account into a much larger one. However, you can enjoy all of that with the lowest brokerage you can find for options trading. Zebu gives you this and more. As one of the best brokerage firms in the country, you also get the best trading accounts from us. Please get in touch with us to know more.

    7. Failure to Factor Upcoming Events

    When you trade options, there are two things you need to keep an eye on: the earnings and dividend dates for the stock you’re betting on.

    If a dividend is coming up and you have sold calls, there is a higher chance that your premium will rise due to positive market sentiments. As the holder of an option, you are also not entitled to the dividends of the company. Therefore, you have to cover your call option and buy the underlying stock.

    The smarter way to trade

    Be sure to factor in upcoming events. Also, unless you’re ready to take a larger risk of assignment, avoid selling options contracts with upcoming dividends.

    Trading during earnings season usually means you’ll see more volatility in the underlying stock and pay more for the option. If you want to buy an option during earnings season, you can create a spread by buying one option and selling another.

    Understanding implied volatility can also help you make better decisions about the current price of an option contract and its anticipated future fluctuations. Implied volatility is calculated from the price of an option and reveals what the market thinks about the stock’s future volatility. While implied volatility cannot predict which way a stock will move, it can help you determine whether it will move significantly or only slightly. It’s important to remember that the bigger the option premium, the greater the implied volatility.

    8. Legging Into Spreads
    Most rookie options traders attempt to “leg into” a spread by purchasing one option first and then selling the other. They’re attempting to reduce the price by a few pennies. It simply isn’t worth taking the chance.

    This scenario has also burnt many seasoned options traders, who have learnt their lessons the hard way.

    The smarter way to trade

    If you want to trade a spread, don’t “leg in.” Spreads can be traded as a single deal. Don’t take on unnecessary market risk.

    You might, for example, buy a call and then try to time the selling of another call to get a slightly higher price on the second leg. If market circumstances deteriorate, you won’t be able to cover your spread, so this is a losing strategy. You can be stuck on a long call with no plan to follow.

    If you want to try out this trading method, don’t buy a spread and wait for the market to move in your favour. You may believe that you will be able to resell it at a greater price later, but this is an unrealistic expectation.

    Always treat a spread as a single trade rather than try to deal with the details of timing. You have to get into the trade before the market starts going down.

    9 Ignoring Index Options for Neutral Trades

    Individual stocks can be quite volatile. For example, if there is a major unforeseen news event in a company, it could rock the stock for a few days. On the other hand, even serious turmoil in a major company that’s part of the Nifty50 probably wouldn’t cause that index to fluctuate very much.

    What’s the moral of the story?

    Index-based options trading can protect you from the massive swings that single news items might cause in individual stocks. Consider neutral trades on big indexes, and you can minimise the uncertain impact of market news.

    The smarter way to trade

    A short spread (also called a credit spread) on an index could be a good way to make money when the market doesn’t move. In comparison to other stocks, index moves are less dramatic and less prone to be influenced by the media.

    Short spreads are typically designed to profit even if the underlying price remains unchanged. Short call spreads are considered “neutral to bearish,” whereas short put spreads are considered “neutral to bullish.”

    Remember, spreads involve more than one option trade, and therefore incur more than one count of brokerage.

    As we have mentioned before, avoiding these mistakes while starting on your options trading journey can go a long way in protecting your capital. While you take care of your options trading strategy, we take care of the rest. As one of the fastest-growing brokerage firms in the country, we provide our clients with the best trading accounts as well as the lowest brokerages for options trading. To know more about our services and products, please get in touch with us now.

  • Common Options Trading Mistakes And How To Avoid Them – Part 2

    In the previous article, we saw 3 of the most common mistakes beginner options traders can make and the smarter ways to overcome them. This article is a continuation of the list and we will cover 3 more common mistakes that can be avoided by trading smartly.

    But do people make mistakes only with strategies? No, it is important to choose the right technologies as well. As one of the top brokers in the share market, we at Zebu offer trading accounts with lowest brokerage, and an online trading platform to help you focus only on executing your strategies efficiently.


    4. Not Trying Out New Strategies

    Out-of-the-money options and in-the-money options are two types of options that many traders say they won’t buy or sell. These rules don’t make sense until you’re in a trade that’s going against you.

    We’ve all been there. A lot of people break their own rules when they face this situation.

    You can find several options trading strategies that can be integrated into your own system. The most important point here is that buying a call option is so much different than buying a stock or its futures. But it can be a lucrative career if you are starting out with a smaller capital.

    The smarter way to trade

    Be willing to learn new ways to trade options. Remember that options aren’t the same thing as stocks. This means that their prices don’t move the same or even have the same properties as the stock they’re linked to. Time decay always needs to be taken into account when you make plans.

    Find a new trade that makes sense to you. Options can be a great way to get a lot of leverage on a small amount of money, but they can also quickly lose value if you dig yourself in too far. Be willing to lose a small amount of money if it gives you the chance to avoid a disaster in the long run.


    5. Trading illiquid options

    Liquidity is all about how quickly a trader can buy or sell something without creating a big change in the price. A liquid market is one with ready, active buyers and sellers at all times.

    Here’s another way to look at it: liquidity is the chance that the next trade will be done at the same price as the last one.

    It’s simple: Stock markets are more liquid than option markets because they have more people buying and selling them. Stock traders only trade one stock, but options traders may be able to choose from dozens of options contracts.

    If you want to trade stocks, you’ll only be able to buy one type of TCS stock. Options traders, on the other hand, can choose from 3 different expiration dates and a wide range of strike prices to trade. With these many options, the options market will probably not be as liquid as the stock market.

    Stock or options traders don’t have to worry about having enough of a stock like TCS because it’s usually a lot bigger than that. There is more of a problem with small stocks.

    If the stock is illiquid, the options of the same stock will likely be even more inactive. This is usually going to make the spread between the bid and ask price for the options look a little too big.

    For example, if the bid-ask spread is Rs 0.20 (bid = Rs 1.80, ask = Rs 2.00), and if you buy the Rs 2.00 contract, that’s a full 10 percent of the price paid to establish the position.

    It’s never a good idea to start your trade with a 10% loss right away, just by choosing an option with a wide bid-ask spread.

    The smarter way to trade

    It costs more to do business when you trade options that aren’t easy to sell. A simple rule you can follow is to make sure that the associated open interest for the strike price is at least equal to 40 times the number of contracts you want to trade.

    For example, if you want to trade a 10-lot, you should have at least 400 open orders. Open interest represents the number of outstanding options contracts of a strike price and expiration date that have been bought or sold to open a position. Any opening transactions increase open interest, while closing transactions decrease it. You can trade options that are easy to buy and sell. This will save you money and stress. Plenty of liquid opportunities exist.

    6. Waiting Too Long to Buy Back Short Options

    There is only one piece of advice for those who do not buy back short options and it is as straightforward as it gets: Be willing to buy back short options early.

    There are a lot of times when traders will wait too long to buy back the options they’ve sold. There are a million reasons why. For example:
    You don’t want to pay the commission.
    You’re betting the contract will expire worthlessly.
    You’re hoping to make just a little more profit out of the trade.

    The smarter way to trade

    Know when to buy back your short options. If your short option becomes OTM and you can buy it back to take the risk off the table profitably, do it.

    A Rs 100 premium option might go down to Rs 2 at expiry. You wouldn’t sell a Rs 2 option to begin with, because it just wouldn’t be worth it. Similarly, you shouldn’t think it’s worth it to squeeze the last few paisas out of this trade.

    Here’s a good rule of thumb: If you can keep 80 per cent or more of your initial gain from the sale of the option, you should consider buying it back. As one of the top brokers in the share market, we at Zebu offer trading accounts with lowest brokerage, and an online trading platform to execute your strategies. To know more, please get in touch with us now.