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“Control your emotions or be consumed by them.” This is exactly how the financial markets play. You need to be cautious enough to surf the wave of emotions described below:-

1. Optimism:
   It is the hopefulness and confidence about the future or the success of something. We step in the markets and have the hope and confidence of succeeding against all odds.
   
   
2. Excitement:
   Excitement drives in when the market moves in the direction we hoped. Excitement also brings motivation for future endeavors.
   
   
3. Thrill:
   When the momentum carries on, the gains that we’ve made give us thrill and we further expect higher returns.
   
   
4. Euphoria:
   As the cycle tops, there comes the state of utmost satisfaction where we start to believe that we made smart moves and the same will continue without realizing the uncertain nature of the markets. We tend to fool ourselves by now playing beyond our appetite. At this point, the financial risk is at it maximum, like the possible financial gain.
   
   
5. Denial:
   When the market turns, we watch intently for a favorable move so as to save ourselves from being a victim of loss.
   
   
6. Anxiety:
   As the market continues to plunge, anxiety sets in. We see our investment values declining and this is the first time that you experience the market going against you. You now hold onto the investment as you don’t want to book losses and here in, you see yourself as a long term investor.
   
   
7. Fear:
   When the losses accelerate, fear kicks in. At this point, we might even pick riskier choices to recover our losses.
   
   
8. Depression:
   The reality of the bear market makes us depressed and question our conscience about the moves we made. We become desperate to overcome it.
   
   
9. Panic:
   Having no idea of what to do next and thinking that we had a chance to book our profits makes us panic-stricken and at this point, we might make unusual decisions that may cause further damage.
   
   
10. Capitulation:
    Understanding that the market isn’t predictable, we feel helpless and dump our investments.
    
    
11. Despondency:
    Having booked losses, We now reflect the choices we made and wonder whether we should have invested in the first place? We now have low spirit and confidence and this is the point when we miss out great financial opportunities. Hence, It is the point of Maximum financial opportunity.
    
    
12. Skepticism:
    As the market starts making higher lows and higher highs, We’re in doubt and stay cautious to outlook if the trend will last.
    
    
13. Hope:
    The uptrend remains intact, we might feel reluctant to re-invest but looking at the attractive scope, We hope to make gains.
    
    
14. Relief:
    The market now seems to be recovering. For the ones who let their emotions take control, the cycle might again begin.
    
    
    
    An illustration as to how quickly our emotions change with respect to the market movement has been explained below with the help of NIFTY’s weekly chart.
    Now that you’re well versed with the emotional cycle, What emotional stage are you on? Drop down your answers in the comments.

We get bound by our emotions and the investment traps. We seek instantaneous profits and follow along with everyone which in turn alters our thought process.
Buying low and selling high is still one of the best strategies to build wealth and become a successful investor over the years. Being aware is the key to acing it.

Read about investing traps-https://www.tradetales.in/investing-traps-to-be-aware-of/

Human psyche is incredible yet dangerous as we fall victim to it. It is very easy to cling to mistakes over and over again in the pursuit of a changed result. In the heat of the moment, we get confused and fall into the traps that we should be avoiding.
In investing, wrong perception, delusions can cost you handsomely. So Beware!

Trap 1:- Anchoring:

Describes the tendency to only rely on top piece of information and getting anchored to it while decision-making. It causes a lot of oscillation and hinders the decision-making ability.

For instance, you had a good return on a stock in the past, your perception on the future returns would be similar, even when the prices might take a dive.

Escape the trap:

1. Acknowledge the bias
2. Delay the decision
3. Drop down the anchor

Trap 2:- Loss Aversion

Is the tendency of going to extreme lengths to prevent losses. Suppose we buy a stock for ₹100, and then it falls by10%. We are sitting on a loss. Human psychology doesn’t like encountering a loss-so we hold onto the stock hoping to make a profit on our decision. However, if there is bad news about the stock. it is more sensible to sell and minimize our losses.

Avoid Loss Aversion:

1. Speak to a financial advisor
2. Systematic trading plan
3. Hedging the investment.

Trap 3:- Herding:

In simple words, Consider there is a riot and despite of it being worthy or not; people pledge to join it and follow without their own research. That’s exactly what herding is.

Herd instinct occurs when investors begin following the crowd instead of their own analysis. It is said to create bubbles or crashes in the financial markets due to panic buying or panic selling. Following the crowd can cause amplification of fundamentals.

Let’s say the price of stock ABC started escalating quickly and went beyond the intrinsic value. Because everyone is panic buying, you also decide to hop in but at a higher price. At this moment, Investors are not willing to buy and the stock collapses.

Avoid Herding:

1. Make investments based on sound strategies.
2. Don’t fall prey of escalating prices.
3. Do your research.

Trap 4:- Superiority Trap:

The moment ‘confidence’ changes into ‘over-confidence’, Nothing remains. A lot if investors like to think that they’re better than others and this thinking precedes the reality and they’ve ended up losing fortunes. Feeling that you know more than others or than you actually do is a crucial mistake.

Someone with a Ph.D in finance may end up delivering the wrong perspective being clouded with superiority but on the flip side, A high-school graduate might have an amazing way with the markets.

Avoid Superiority trap:

1. Learn from the mistakes of others. You can’t live long enough to make them all yourself.

Trap 5:- Pseudo-Certainty Trap:

When most people start to see their portfolios turn red, they often act out of desperation. They pile on risk to try and win it all back. This is a huge mistake. Most likely, it won’t pay off. Rather you’re risking it all.
Just as you can’t catch a falling knife. Projecting the fall and trying to cover up your loss, you might end up losing more.

Avoid Pseudo-Certainty trap

1. As mentioned in the chart below, Ride the trend and avoid when It’s against.

Trap 6:- Sunk Cost Trap

We’ve all been victims of the sunk cost trap at some point of time.

Ever sat in the movie theatre and realised that you’re not enjoying it but you refuse to walk away because you’ve paid for it.
Ever kept clothes in your closet that don’t fit you anymore and refuse to give them away simply because you put in a great deal of money into them.

Similarly, The sunk cost trap occurs when we’re holding onto a bad investment and refusing to sell it off. We see the stock plunging but try to average it out in the hope that the prices will eventually go higher.

Avoid Sunk Cost Trap :

1. Set investment goals.
2. Have a strict Stop-loss.

The bottom line is- It’s easier said than done. Human emotions can be very challenging but you’ve to take control of them or else you’ll end up falling prey of one of these traps and losing your hard earned money. Be aware and realistic about the investments you make.

I’m not emotional about investments. Investment is something where you have to be purely rational and don’t let your emotions affect your decision making – just the facts.”

-Bill Ackman

It’s impossible to predict the stock market’s movement, but amidst the unpredictability, the benefits of investing in stocks remain unchanged. What needs to be changed is the people’s perspective towards the risk and reward in the markets. You don’t need a million rupees to invest, rather you can just begin by investing the amount that you last spent on Dinner.

In the last few years, investors have started to look for ways through which they can take their investments to skyrocket levels. Who doesn’t want to see their money grow? The stock markets can be the right personification of a money plant if you invest right, make informed decisions, and consider the risks associated.

“If you don’t find a way to make money while you sleep, you will work until you die.”

Read On to understand the hard fact-based reasons to invest in stocks:-

1. Monetary Growth :

When done right, you can grow the money you invest by anywhere from 7% — 10% per year over in the long run.

If you invest ₹10,000 in the stock market today and it gains roughly 7% per year, you’ll turn that ₹10,000 into ₹20,000 in just 10 years.

Think about that.

2. Invest because History repeats itself

Historically stocks have Gone up. Though there have been crashes, pullbacks and corrections but they’ve kept up along with the growth in economies.
For example: Here NIFTY 50– a benchmark Indian stock market index that represents the weighted average of 50 of the largest Indian companies from July 1990 to May 2021.

While there are a lot of fluctuations but the Uptrend remains intact, Imagine having invested for a period of 20 years; You would have made a handsome amount of money.

3. Enables Compounding

In simple terms; Compounding means to re-invest the money that you’ve made in terms of capital gains or interest to generate additional returns.

Imagine having invested the amount of ₹10,000 at an annual growth rate of 10%. By the end of the year you’ll be standing at ₹11,000 and if you do not withdraw the return and re-invest ₹11,000 over again at a growth rate of 10% By another year your investment would have grown into ₹12,100. That’s how compounding works.

4. Knock-off inflation

Inflation is the slow but steady force that makes things cost more over time. Remember how your grandparents could buy 10 candies for just ₹1 and now you just get 1 candy for ₹1. This means that over time money loses it’s value.

Today, if you’ve ₹1,00,000 and you keep it in a safe, After 10 years it won’t be worth what it is right now. If you can buy a Scooty with this amount right now, Maybe in 10 years, You’ll only be able to buy a bicycle.
Invest the money wisely that you’ve at hand and maybe over time you’ll be able to buy a BMW.

5. Save for retirement

If you start investing when you’re young, you can build a tremendous amount of wealth for when you’re older.

6. You can be a part owner of the company

When you buy even a single share of a company, you’re officially a part owner. Imagine having invested in TCS; Doesn’t it sound great to be a part owner of the company? Also it comes with great returns.

For example- You invested in TCS in 2009 at ₹100 per share, In 2021 TCS is trading at around ₹3,086; You could’ve been sitting over a return of around 2986% on your investment.

7. Invest to learn

Investing in stocks will teach you a ton!

You’ll learn a lot about the stock market, and how companies work, what makes them succeed or fail, how products come to market, how economies impact companies, and much more. It’ll widen your logical approach and will give you an edge over thoughtful reflection. You’ll log into your account one day and see how much you’ve made and be proud.

To Conclude, There’s no need to rush out right now and invest in the stock market. First, do your homework, set realistic goals and expectations, and figure out how to use the available information to your advantage. It takes commitment, patience, smart decisions, and steady work to make your money grow over time. Skip out on any of those things and you risk losing money in stocks.

Read about Investing- https://www.tradetales.in/what-is-investing-in-stocks/

When you think of investing the first thing that comes into mind is this complicated world of stock market. Where there are so many charts and numbers. It’s easy to get confused. So let’s break it down and let’s try to make sense out of it through an example.

How do you grow a plant? You first sow the seed in the soil. Give it as much water, sunshine. Then, one fine day, you see a small stem and the first few leaves crop up. Over time, the small stem grows large. The plant them blooms flowers and even fruits. For the rest of our life, you benefit from your initial efforts in planting the seed. Investing is similar.

Investing is the art of committing resources (Money) into some endeavor or thing (Financial investment) in the expectation of a positive return (More money). There are ‘N’ number of options available for allocating money but let’s primarily focus on stocks.

What is a stock?
A stock is an investment in a company. When you purchase a stock from a company, you become a shareholder, and the small piece you own is called a share. Thousands of stocks are available for anyone to buy and sell on public exchanges. For this reason, stock investments are some of the most well-known and popular ways to invest and build wealth.

How does Investing work?

Investors buy and own stocks in hopes that the company will succeed. When the company does well, its stock owners share in those profits. Conversely, shareholders can also expect their returns to be diminished if the company underperforms or declines. And in the worst-case scenario, a stock owner’s shares could become worthless if the company was to go bankrupt.

How are returns offered?

There are two primary ways that shareholders can earn returns on their investments: capital gains and dividends.

1.Capital Gains-

Let’s say that you bought 100 shares of ABC company at ₹ 50 per share for a ₹ 5,000 investment. Ten years later, ABC shares are trading at ₹ 100. If you sold your shares at that moment, you’d receive ₹ 10,000. You’d profit ₹ 5,000 for an annualized return of 7.18%.

2.Dividends-

You purchase 50 shares of XYZ company which pays a quarterly dividend of ₹ 1. In this example, you’d receive ₹ 50 per quarter and ₹ 200 per year in annual dividend payments from the company. If the company raised its quarterly dividend to ₹ 1.10, your quarterly payout would increase to ₹ 55 (₹ 50 x ₹ 1.10 = ₹ 55) and your annual dividend income would grow ₹ 220.

Dividends give investors a means of realizing income without having to sell any of their shares – even during years that the stock price declines.

Investors may focus heavily on a company’s fundamental and long-term prospects. When you invest in a stock, You’re betting that over time the company will grow. Ignore short term fluctuations. However, there are no guarantees. Whenever a public company fails, it’s stock investors are likely to suffer as well.

The amount of money, needed to invest depends largely on the type of investment and the investor’s financial position, needs, risk appetite and goals. Despite how you choose to invest or what you choose to invest in, Read and research over it and ‘Never invest in a business that you do not understand.’