This is a common trading error. Everybody, trading in commodity or equity or forex markets, may have made this mistake at least once in their life. Though this is said again and again, the traders do this mistake repeatedly. But any trader has first to stop doing overtrading.
Any person starts trading with a small part of his capital. In short time, he comes to know that he is earning good enough, and can earn more if he had more capital. So he adds more capital, may be more portion of his capital or he takes loan from someone or bank.
Now there can be two situations.
In first situation, say he is losing money. To cover the loss he has made, he will bring more funds by any means.
In second situation, say he is earning money. He now starts thinking that God is with him and now no one can stop him earning more money.
In any of the above situations, he increases fund in the market. Now the total introduced fund may or may not be in his reach.
In ancient times also it was said that from an income of Re. 1, save 25 paisa for old age or any emergency. Spend 25 paisa for education of your children, which also is an investment. Reinvest 25 paisa in your business to expand your business. And invest 25 paisa in risky trade / business.
Equity / Commodity markets are risky. So capital introduced for trading should never exceed 25% of his total capital. And as per the saying, HOPE FOR THE BEST AND BE PREPARED FOR THE WORST, if you lost all your money, introduced in the market, you should not run into financial problem. Your original business should run smoothly.
Do not love any stock or commodity. Keep on taking profit, when you get chance. Never think, I have shares of Reliance, and I will sell them on my daughter’s marriage. Do not be emotional for your trade. Profit is not when the prices go up, profit is when you sell your holdings and covert favourable prices into your profit.
If the price movement is not in your favour, exit at right time and use the fund for new trade. Do not hold it just to sell at huge loss.
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