When not to trade
There are a few exceptional situations when you should be skeptical about taking a trade in a stock. Such cases are mentioned below:
Case A. If a stock is having an event in less than a week. These events consist of Dividends, Results (Earnings Disclosure), Bonuses, or Splits.
Reason: When you put yourself into the shoes of a retail investor or trader, you'll have the slightest idea of a dividend. You'll think that if I get somehow the dividend, I'll exit with profits. This is not a good strategy, as this might seem to be a logic-based trade, but there is no shield for you if bad news about the stock suddenly appears in the market. There is no SL.
The same happens in corporate actions like Earnings, Bonuses, or Splits. Due to lack of knowledge and nearby news, retail people rush to these stocks. And one thing you know the best- Retail never earns!
In the case of results, the results are not available in the market until the previous evening so simply buying the stocks doesn't seem to be a great idea. Though if you're experienced, you can use this information to take well-managed trades using straddles and strangles, churning profits the right way.
Enabling Events on TradingView: Chart Properties or Right-click on the chart and Settings > Events > Turn on Dividends, Splits, Earnings and Economic Events.
Case B. If a stock is in the news
Reason: If you're finding people with less or no knowledge about stock markets talking about a particular stock, or its name is getting flashed in "social channels for tips", it's better to stay away from such stocks. You'll find a distinctive feature in such tips - FOMO and pushing you to buy.
Case C. If the stock is in circuits
Reason: If the stock is in any type of circuit, then it means people holding that stock will not be able to trade in that stock. If it is an upper circuit, then people are not able to buy and if lower, then people are not able to sell. This is a bad symptom as stock should remain liquid at all times, and a bar on its liquidity is a serious threat of stock manipulation.
Moreover, if you're not able to exit from your position, your capital will depreciate in such a manner that your sleep will be blown away. Try imagining a situation where your stake decreases by 5 or 10% minimum a day, every day and you have no idea about when it will stop.
Moreover, if you're not able to exit from your position, your capital will depreciate in such a manner that your sleep will be blown away. Try imagining a situation where your stake decreases by 5 or 10% minimum a day, every day and you have no idea about when it will stop.
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