Trading in the stock market is one of the hardest things you can choose as a career. It’s a hard nut to crack. It becomes even more difficult when we trade in the indices like NIFTY and BANKNIFTY because of the mistakes we make in the process of making money.
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Option Trading in NIFTY/BANKNIFTY
Here are the 15 most common mistakes that option buyers make while trading in NIFTY and BANKNIFTY.
1. Trading Against the Trend
Reversal trades are lucrative because the stop losses are small. But big IV (implied volatility) crush occurs in reversal which is very dangerous for Option buyers. Better to avoid unless very certain.
2. Enter Early in the Trade
Most traders enter the trade without momentum. You must know momentum is the wind that will fuel the fire of your option prices. The Gamma will be high and reflect as huge greens in your P&L. So, no momentum, no fire!
3. Ignoring Greek Values
Greeks decide the price of option. Even if you’re right in the direction, you may lose because of them. Keep the Greeks in your favor. Here is how to calculate Greek.
4. Choosing Wrong Strike Price
When you are not very sure about the direction where the market can go? Then always go for ITM (in the money). If you are certain about the move, go for ATM (at the money), and if you are sure and very certain of the direction, only then go for slight OTM (out the money).
Sometimes traders choose the strike price according to the fund they have in their accounts which is totally wrong. They shouldn’t do it.
5. Overtrading
It’s practically impossible that you’ll be right every time, so why the eagerness to throw yourself under the bus the whole day. Decrease the number of trades and you’ll automatically go for high-quality ones.
6. Forced ‘BUY’
Many traders get restless when they do not see good opportunities to trade and they start buying forcefully. Unless you have at least 80% clarity regarding the direction, you shouldn’t slide the ‘buy’ button. Better to wait than burn.
7. Assuming You Know Everything
It is the truth. No one understand the market 100%. Each time you believe you know everything, the market will deceive you and teach a new lesson. So, don’t get trapped in the overconfidence. Be prepared with stop losses. Always!
8. Jumping Underprepared
The most easy and good trades are spotted after huge losses. But since you have not much capital and confidence left. And you’ve to let them go. To avoid such losses, practice restraint and learn to wait for the right opportunities.
9. Ignoring Your Strength
If you are good at something, stick to that. If you are good with stocks, trade them. If you are good with BANKNIFTY, trade that. You get the idea, right? Please don’t change your instruments because anyone else is doing better somewhere.
10. Not Having an Edge
Edge is something in your trading style that is related to the win probability to your side rather than the other guys. Identify it and improve it.
11. Trading Not in Sync with Your Personality
Not every trader does not have a strong heart which is ready to feel the thrill of scalping. Some are happy with laid-back swings, and some are fine with BTST. You should find your calling that sync with your personality and stick to that.
12. Not Making Adjustments in Trades
Because of the presence of weekly expiries, every day needs a different approach. Fridays and Mondays are usually trending with lesser spikes. Thursdays not so much. So, you have to make adjustments accordingly.
13. Unaware of the Market Events
RBI meet, FED meet, budget announcement, results; these are some of the many events that will affect your option prices via both VEGA and DELTA. Keep track of them.
14. Relying on News
Buy the rumor, sell the news.
This line is very famous for some obvious reasons.
Whenever you get any stock-related news and want to act upon that, you should know that the big players have already got that much before you. So, don’t be their victim.
Relying on charts is better than relying on news. Choice is yours!
15. Left with Hope
Sometimes traders realize that they have entered into wrong trade but they are not ready to accept it. And then even after seeing big losses, they do not exit the trade in the hope that tomorrow it will be recovered which never happens.
Make your decisions based on chart and technical analysis. Because hope becomes lethal in the stock market.