Four major reasons you are losing money on short-term trading in Nepal’s Stock Market

-Krishna Khatiwada

In short-term trading sometimes trade goes on your favor and sometimes you end up losing but if you are losing consistently, then below mention things could be the reason for your losses.

Too much dependence on Nepse index

 We see indices for understanding the overall market sentiment but Nepse index could lead you to an illusion.

 Nepse index calculation includes non-tradable shares and most of the companies have on average 65% of non-tradable shares.  Companies like NTC with 15Cr shares do have a dominating effect on Nepse, although its tradable shares is around 9% i.e., 1.35 Crore shares. When NTC’s stock price goes up by Rs 1, the float market capitalization will increase by Rs 1.35 Crore but Nepse’s market capitalization will increase by Rs 15 Cr, creating a huge impact on the Nepse index. Big moves in large companies like NTC and Nabil Bank (which makes 12% of overall Nepse market capitalization) could increase Nepse index value. So if Nepse index is increasing, don’t assume overall market sentiment as positive because that movement could be from non-tradable stocks of big–fat companies.

Trading without predefined risk

 Many investors think trading and investment can be done by the same strategy but if you trade like investing then you are playing a twenty-twenty cricket match with test match strategy.

 In Nepal, many people buy stock for short-term trade but when it starts losing, they change their trade to investment and start holding, because as a Nepali we prefer to lose then exiting the market.

If you are in the market as a trader and trade without a proper stop-loss then there is no bigger mistake than that. Most of the traders in Nepal don’t have any concern about exiting the market, sometimes they exit in the middle of a major uptrend and sometimes they exit by losing all the paper profit. This happens when you trade without an exit strategy.  Predefined exits will manage your risk and save you from huge losses. Your predefined risk & reward should be based on technical analysis and make sure you make more money when a trade goes on your favor. There is a saying in a market that “you never make money by buying stocks but you make by selling it”

 No matter how smart you are, if you trade without proper money management you will never succeed in this market.   

Over-trading  

Over-trading is one of the main reasons why traders lose money in stock market all over the world and even if you are not losing from trading, broker’s commission and tax will take away your profit.

Nepal’s stock market is very small, sometimes you will not get the desired stock to buy and lack of patience, ends you up buying other stock without proper analysis, which can take away your money.  Always buy stock that you believe in and don’t panic if your trade doesn’t get executed on that day because market opens every other day and create opportunities.

A successful trader is one who takes position on genuine opportunities and before buying/selling any stocks, he thinks about other person’s perception, who is doing exactly opposite

Ignoring major trend

There is an old saying in capital market “Trend is your friend”; to be successful in market you have to predict the mass sentiment and that can be done by following the trend. If the major trend is downward that means most of investors are selling and if major trend is upward then most of the investors are buying. In bearish market we should take position for investment and in bullish market we should take position for trading but we ends up doing opposite.

 If you are a trader and market is bearish, then it’s a holiday for you, go for vacation.

Always respect the beauty of uncertainty in stock market and remember, despite of all your deep analysis on particular stock or market there is a possibility for potential loss because there are numerous unknown factors which influence stock market price.