In this video, we will talk about the 7 biggest mistakes that traders make in order entry.

If you are someone who is new to the world of stock market, or if you’re someone who is new to the world of trading, then you need to watch this video very carefully because this video will protect you from making some very expensive mistakes.

Since this video is so important, we are going to explain everything using practical, real life, examples and real-life trades, so that you can actually see what those mistakes are and how to avoid them. Without any further ado, let’s get started.

So, let’s start with Mistake number 1, which is not cancelling pending orders.

Now, what are Pending orders? Well, for any position or any trade, we can potentially place two types of orders, stop loss orders and target orders. When we place these orders, we don’t expect them to get executed immediately and so they are just sitting there waiting to get executed.

What happens in real life is that as a trader, you will be hyper-focused on the position screen and since this is where all the action is happening, i.e., prices are going up and down, profits are going up and down. Hence your whole attention is there on the position screen and very little attention is actually paid on the order screen. What can happen is that let’s say you decide to exit a position.

You think you have made enough money and think it’s now time for me to get out and do something else. But here is a problem. There are these pending orders that are still in the system and if you’re lucky, nothing will happen at the end of the day and they will automatically get cancelled. However, if you are unlucky, then one of these orders can get executed and initiate a new trade, which you did not plan for.

The shocking part is that you probably will not be even aware of this if you don’t log back into the system and this is one of the most common mistakes that I’ve seen people making. One of the traders who I know lost 70,000 rupees, just this month because of this issue. He had an account with Sharekhan where he made around 8,000 rupees, but he forgot that there were a couple of orders that were out there and unfortunately those orders got triggered. By the end of the day, when he actually realized after logging into the system, he lost Rs. 70,000.

One of the thumb rules is that as soon as you get out of your position, you need to immediately go and cancel all your pending orders.

Mistake number 2 is mixing intra-day and delivery orders. Now, what happens is that when we are placing an order, we don’t normally realize what kind of order type we are placing.

Sometimes we pick MIS, CNC or sometimes NRML. Normally it’s not that big of a deal, but sometimes it can become a problem. Let me explain you why.

So right now, as you can see that I’m in a position here with the product type as NRML. If I have to get out of this position, I need to make sure that the product type is also NRML and only then will my quantity will go back to zero.

However, if I decide to choose a different product type, let’s say, MIS in this case, then what will happen? Well, that will create a different position altogether. As you can see that here, instead of closing this position, my order has actually created a new position. So now I’m in two positions. One is an Original short position, and other is a new, long position.

Now what happens is that let’s say if everything is happening in front of your eyes, then of course you will realize the mistake and then you’re going to come out of both the positions one by one, but there is one scenario in which you can get in trouble.

That scenario is if you placed your target order of a different product type, or if you placed a stop-loss order of a different prototype, which doesn’t get executed in front of you, then what can happen is that let’s say later in the day, a stop-loss order got triggered and that stop loss order instead of squaring off your position, opened a new position.

Assume you did not pay attention to that by 3:30 PM. Then one of those positions, which was an intra-day position will get squared off and the other position will get carried over to the next day. Please always make sure that for any open position, you always choose the same product type.For NRML, it should be NRML, for CNC, it should be CNC and for MIS, it should be MIS.

Next, the 3^rd most common mistake that I have seen people making is the case of additional zeroes. What happens is that when we are in a hurry, for example, you are watching a stock and the stock takes a big plunge which usually happens to everyone.

I am in front of the market all day long and sometimes I see that a stock has fallen down, let’s say 8%, 10%. Sometimes we get excited and feel that this is a great opportunity to buy this stock and we  want to quickly go and punch the order and take a position. In haste, what can happen is that let’s say you wanted to buy a hundred shares of reliance and in haste, you punch those additional shares and you make it to 10000.

It’s quite possible that you may add in one or two additional zeroes. So instead of let’s say buying stocks for two lakh rupees, you can end up buying stocks for twenty lakh rupees. It is possible and it happens all the time because when you are entering the zeros, it’s very, very hard to remember how many zeroes you have entered.

Your focus is on the stock and the charts. You are not focusing way too much on the order, and that is where the problem can happen. Now, this problem of zero can also potentially happen in price, but the good thing is that whenever we are adding another additional zero on the price, the stock exchange will immediately give you the message that this is out of the price band.

Hence, price related issues will not happen, but quantity related issues can easily happen. So please make sure that you’re counting your zeros and are double checking it to make sure that you’re not buying or selling something more than you intended to.

Now Mistake number 4, which again, is very common and that is wrong stop loss order settings.

It is really surprising to me that a lot of people who have been in this stock market for let’s say a couple of years, still don’t know exactly how to use stop loss orders. Sometimes people place stop-loss orders that get executed immediately and others will place a stop loss orders where it doesn’t even get executed at all.

Further, there is so much confusion regarding stop-loss limit orders and stop-loss market order, what is a trigger price and how is that different from the limit price date?

One of the variations that I’ve seen where people get really confused is when they have to place the stop loss orders for a short trade. When you’re doing a long trade, it is actually very easy to think about the stop-loss, but when you are taking a short trade, it becomes a little counter-intuitive because you have to place a stop loss order above the price that you have shorted.

Based on what I’ve seen, people make a lot of mistakes while placing their stop-loss orders and because of that, they unnecessarily take losses. So please make sure that you educate yourself on how to use stop loss orders effectively. This is a basic concept and there is absolutely no excuse for anyone to not spend one or two hours to completely understand how these orders behave. We also have made a bunch of videos on stop-loss order and you might want to go and watch them to clarify your concepts.

Mistake number 5, which has happened to me recently is not changing that default setting for long-term investing. What happens is that whenever we place an order at the broker’s terminal, the broker remembers the last setting that we selected. Let’s say throughout the day, if I have been placing MIS orders, then the next time I’m going to place an order, it will automatically assume that it will be an MIS order, but here is where the problem can arise.

For example, you have been trading on intraday basis all day long, but at the end of the day, you want to buy some stocks for your long-term portfolio, or let’s say for swing trading and you want to carry that position to the next reading session.

When you will open that order, let’s say in this particular case, I want to buy 46 shares of BPCL and if I do not change their default setting, which is right now as intraday, what can happen is that once I buy these shares, what can happen is that if the product type stays as MIS by 3:20, this position will get auto squared off.

It means, Zerodha will assume that it was an intraday trade and you did not intend to carry it to the next day and so they will automatically square it off.

You bought this stock for a long-term perspective, whereas by the end of the day, you will realize that you already were pushed out of that position. In a worst-case scenario, 2, 3 or even 4 days later you will wonder why are those shares that you bought are not showing up. In order to avoid this mistake, you always have to make sure that for a long-term investment or for any positional or a swing trade, you always have to have the product type as NRML or CNC and it should definitely not be MIS.

Mistake number 6 and this sounds a little silly, but it happens. It has happened to me as well and sometimes we place sell orders when we have to place a Buy order and vice versa. Now, you may be wondering how is it possible that you can do the opposite? Well, I will give you 2 different scenarios.

Scenario number 1, which happens to a lot of people who are beginners is that sometimes, we are looking at the chart so intensely that we are, half conscious when we place the order.

So sometimes instead of clicking the B or the buy button, we click the Sell button and we place the order. We don’t realize what we have done until we actually go to the position screen and see what has happened. A more common scenario that I have seen is in option traders. There is option buying and option selling and sometimes selling off an option can be a little counter-intuitive.

For example, if I am selling a put option, I have a long position and a long side bias of that particular index or stock. Now, usually whenever we start in trading, we associate a long position with buying and we associate a short position with selling. What I’ve seen is that a lot of traders do this, especially in put options, and instead of selling a put option, when they have to create a long position, they end up buying a put option.

As mentioned earlier, Buying is associated with long position. Hence, please make sure that you are clear, you know, exactly what you have to do i.e., selling or buying. This is of course, tricky in options and until you have a complete understanding of how these things behave, you should not be trading in options.

The last mistake is something which has happened to me and that is the case of hotlink. Now, what exactly is a hotlink? Whenever we are doing algo trading, we establish a link between the algo platform which can be Ami broker, Trading view or any other platform or Python with your broker’s terminal.

What happened to me was that I was doing some testing in the after-market hours. I was trying some strategies in Ami broker and was trying to see whether everything was going fine. The orders were coming from Ami broker to my broker, Alice blue, but this was happening outside the market hours. So whatever orders were going there, I was not bothered about them because, they were automatically getting rejected.

One thing which I did not realize was that that link was still established when the market was open and normally, I don’t trade using Alice Blue. I mostly trade with Zerodha, but then what happened was that in the middle of the day, I started hearing some pinging sounds related to order execution.

Whenever an order is placed in Alice blue, there’s a sound and I started to wonder. Since I was not in any position in Zerodha, I was starting to wonder where exactly this sound came from and then I realized that the algo that I was testing in the off-market hours was still active and it was sending buy and sell signals to Alice blue.

Now, fortunately, I was able to track that issue right in time because had I not known that this system was sending the orders to Alice blue, I probably would have incurred a big loss. Hence please keep in mind that whenever you are doing this kind of testing between any algo platform and your broker, you always have to make sure that you log off, you break that hotlink so that without your knowledge, no order should be executed.

So, guys, this is it. These are the seven common mistakes that I have seen people make and this is part of a series of videos where we want to educate our fellow traders so that they are not making expensive mistakes.

We have made a similar video for technical analysis. You might want to check that out as well and we want to keep doing this right. I want to make videos about the common mistakes that people make in fundamental analysis, in chart reading, in price action, in broker selection, etc as there are so many other topics that we can talk about.

However, depending on how you guys, give us feedback, how much we get this encouragement for these kinds of videos, we will decide what to do next time.

Lastly guys, there is a quiz in the description of this video through which you can test your understanding of order entry. I strongly recommend you to take that quiz and see how well you understand orders, different types of orders and how they behave in real life.

Right. So, with that said, guys, I hope that you found this video useful and you will use some of this knowledge in your practical day-to-day trading.