The Covid-19 outbreak in 2020 saw the Indian economy slipping into a recession, pushing millions of middle-class Indians into unemployment and poverty. But the country’s stock market has taken an entirely different trajectory. Financial year 2021-22 saw the stock brokerage industry notching up an income close to Rs 28,500 crore ($3.6 billion), more than a third above the previous year’s income.
The financial year also saw millions of new investors entering the stock market, enticed by the gains made by benchmark indices Sensex and Nifty in the last 12 months. The year saw the opening of a record 14.2 million demat accounts, nearly three times the figure in the previous year.
The year saw a large number of millennials moving towards dual or multiple income sources, and the stock market seemed to be a great investment option. A majority of those who opened demat accounts this year are in the age group of 20-30 years. This shows that Indians are restructuring their finances and looking for new opportunities to make money.
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Young Indians enter stock market
The lockdown period has been a time when Indian investors, old or new, came into the equity market in large numbers. As more investors decided to dabble in stocks as they stayed indoors and got more free time to follow the stock market. Trading volumes, too, rose accordingly. But, a majority of the new participants who entered have no knowledge of stock analysis and end up losing money rather than gaining. This is why the stock market is quoted as a gamblers den or satta bazaar.
New age investors and traders often look for ways to make a quick buck which brings them into stock market. The desire to make quick profits often leads them to losses. They have no idea of risk management, trading psychology or capital preservation. It is the money that lures them into trading. But, trading, in itself, is much more than just money.
The key element of trading is not the capital, psychology or risk. Rather, it is the way one looks at it. Trading is a demanding path in terms of mental and emotion health. If one does not have a healthy outlook about trading, one cannot survive on that path.
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Needed: Trading outlook
Trading as a business has always been a fascinating domain. It is not only profitable and scalable, but also is sustainable. But only a few people associate trading and business together and often the absence of this thought process leads to failure. Just like any other business, trading also requires time, patience and an edge. A few initial drawdowns should never be treated as losses. They should be treated as business expenses. Similarly, all profits should be reinvested in your business to make it more scalable and more profitable.
Moreover, there are a number of factors that affect a trader’s performance such as technology, news, and surroundings. Even the mood affects the journey of a trader, being happy after a profit or sad after a loss sets the course of performance for the next trading day. Being overconfident or underconfident often leads to taking wrong decisions. Many stock market players often correlate their moods with their PnLs, which should not be the case. Being neutral under every circumstance is a super power when it comes to trading.
Also, one needs to consciously approach trading as a business, in case one intends to advance from an average trader to a successful one.
A number of people want to pursue trading as a career or as a side hustle, but have no proper vision either due to lack of resources or lack of guidance. Trading can be a fulltime job, if one is dedicated enough. No, it is not recommended to leave your current job and immediately start trading. Invest some time in gaining the required skills and then plan for the future course of action.
Five lessons for aspiring traders
- Start with small capital
- More focus on gaining knowledge
- Consider losses to be tuition fee for market
- Follow the process and not the money
- At least 6 months of learning before earning
Presently, 90% of the traders end up losing their capital in the first month of trading due to lack of knowledge about risk management, position sizing, and trading plan. Trading is much more a game of emotions than it is of numbers. It is the emotions that help traders to stay in the game after few bad numbers.
The simplest way to improve one’s trading skills is by learning from people who already are full time traders or by being a part of communities that constantly share knowledge on a regular basis. Often a number of people fall prey to false channel mediums claiming to be experts in trading. One must also stay away from such mediums.
To be part of the other 10%, one must do what those 90% are not doing. Trading is a long-term game that should be played with a test match temperament rather than a T-20 mindset. Hard work, patience, resilience and dedication are some qualities that win test matches.
(Dr Badri Narayanan Gopalakrishnan is founder and director at Infinite Sum Modelling. Anish Uppal is a researcher at Infinite Sum Modelling and founder, The Trader’s Journal.)
Dr Badri Narayanan Gopalakrishnan is Lead Adviser and Head, Trade and Commerce, NITI Aayog. Views expressed are personal.