By Pradeep Suryavanshi,
Director
Bestmate Investment Services Pvt Ltd.
SEBI Registration Number: IN000015996
In the world of trading, common phrases like “Kitna badega?”, “Bahut ho gaya, ab bech deta hun” reflect a prevalent mindset among many traders. This speculative thinking, which translates to “How much more will it rise?” and “It’s enough, I’ll sell now,” is significantly influencing the market’s upward movements. However, it’s crucial to understand that there are no logical boundaries to how much the market can rise or fall. The reality is that the market can move far beyond traders’ expectations, both on the upside and the downside.
The Misleading Logic of Market Movements
The belief that one can accurately predict the market’s peak or trough is a common fallacy. Traders often try to time the market, but the logic behind “kitna badega” (how much will it rise) or “kitna ghatega” (how much will it fall) frequently fails. The market operates on the principles of liquidity, demand, and supply. When traders start speculating about the extent of the market’s rise, they begin to book profits and may even start shorting. This behavior, especially when the market fundamentals are strong, can lead to a liquidity crunch.
The Role of Liquidity in Market Movements
In situations where the market’s fundamentals are robust and supply becomes constrained, it is the scarcity of liquidity that propels the market higher. This scenario often results in a short squeeze, where short sellers are forced to cover their positions, adding further buying pressure. The same dynamics apply to market downturns. When the market starts to fall, the selling pressure can exacerbate the decline, driven by the same liquidity constraints.
Common Mistakes of Retail Traders
One of the biggest mistakes retail traders make is trying to predict “kitna badega” (how much will it rise) and “kitna ghatega” (how much will it fall). This speculative approach often leads to suboptimal trading decisions. The market’s movements are influenced by numerous factors, and trying to time these movements based on perceived peaks and troughs can be perilous.
Conclusion
The market is an unpredictable entity, driven by complex factors beyond simple logic. Traders must recognize that their expectations may often be exceeded in both directions. Understanding that the market operates on liquidity, demand, and supply can help in making more informed trading decisions. Instead of attempting to predict exact highs and lows, focusing on market fundamentals and liquidity can provide a more reliable basis for trading strategies.
