Earlier we talked about how a dancer earned millions from the stock market. In today’s blog we are going to find out how did a common investor made a huge loss in the share market within 16 months. If you wish to find out how and why did he lose the money, then let’s find out.
Today’s story is about Ajay and this is a true story (the name of the original character is changed). So Mr. Ajay had invested in the shares of Yes Bank in 2018 when it was at Rs. 250 and the current price of that share today is Rs. 16 ( 6th March 2020). Today he is facing a huge loss on this investment. Now why is Ajay facing this huge loss? Let us understand it in a step-by-step manner.
The first reason is investment in the wrong share. Ajay is an employee by profession and he also trades in the share market for a passive income. If you want to become a successful trader then it is important to invest in the right share. And for that you need to first check the market valuation then check the market direction and then finally check the direction of the share in which you are investing.
In September 2018 when Ajay chose to trade in the shares of Yes Bank, his main reason behind opting for this share was that the share was available at a cheaper price. And we have already said that falling prices of shares are not any kind of indicators to opt for them. Also, on 22nd September in our video we had mentioned that currently it is not the right time to invest in Yes Bank when Yes Bank share had already witnessed a huge fall in the market. So why did we say that? We said that because according to the technical chart when the share of Yes Bank had witnessed a huge fall on 21st September 2018, it had given out a signal of downtrend. We had clearly mentioned that this share has gone in downtrend, so you should avoid making any kind of investments here. But Ajay didn’t gave any importance to analyze the chart before buying the shares of Yes Bank. According to him, there is only one reason to buy any share and that is he was getting the share at a cheaper rate. So that if the share goes up from here, he’ll make a good profit. But instead of going up, the share went even down. Thus, making it even cheaper.
So what we learn from this is if you want to become a successful trader in the market then a share getting cheaper is no indicator for buying it instead you should always opt for the share that is in uptrend. Also, even after opting for the share that is in uptrend, our prediction may go wrong. Hence, it is always important to place a stop-loss while trading. So Ajay firstly chose a share that was in downtrend and the other mistake that he made was that he didn’t have a stop-loss in place. While trading if we don’t have a stop-loss in place then we won’t be able to stop our loss ever. So it is important to have a stop-loss.
Now, the third mistake he made was that after the share fell down even more, he again bought more shares of Yes Bank there. Again he bought more shares when the share got even cheaper. When we asked Ajay what was he doing? He answered saying he was ‘averaging’. It seems Ajay was stubborn about making money only from the Yes Bank share. If we become stubborn and keep buying the wrong share then later there won’t be left any option other than sitting and crying over it.
After warning on 22nd September 2018 when the share continued going in downtrend, we uploaded not one or two but three videos saying that a cheaper share can get even cheaper in future so this logic isn’t any parameter for buying any share. Till the share doesn’t make a shift from downtrend to uptrend, one should not trade in that share.
In this manner, Ajay made three big mistakes. First, he opted for the wrong share. Second, he didn’t place a stop-loss and third, he kept on re-purchasing shares for averaging out. This is the reason why Ajay is facing a huge loss. We have already mentioned that till the time the share does not shift from downtrend to uptrend, you shouldn’t trade in that share.
The companies whose business is cyclical in nature such as Auto, Metal, Oil and Gas, so if you wish to trade and make returns here then for that you need to first carry-out the analysis of the chart here. So how to do the chart analysis, how to opt for the right share, how to place a stop-loss, how to do money management, etc. If you wish to learn all this along with examples and case-studies, then you can download the Aryaamoney app today and subscribe to both the training programs i.e. Gateway to Wealth and Smart Investor. Also, if you wish to invest for the long-term then you can follow the proven formula that is you can invest in the non-cyclical companies in a step-by-step manner by following the market valuation thus forming a pyramid of your investments and you can earn good returns there.
Until next time…
Happy Trading, Happy Investing!!!
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