Why Blindly Following Trading Tips Can Be Dangerous for Option Traders
Trading tips are very common today. You can find them on Telegram, WhatsApp, YouTube, social media, and trading groups. Most trading calls give you an entry price, target, and stop loss.
For a beginner, this may look easy. You get the trading call and follow the given levels. But blindly following trading tips can be risky, especially in option trading.
A trading call may look good when it is shared, but the price can change before you enter. Your trading capital and quantity may also be different from other traders. So, it is important to check the trade before entering.
The Entry Price Matters
Suppose a trading call says to buy an option at ₹100 with a target of ₹120 and a stop loss at ₹90. If you see the call late, the option may already be trading at ₹108.
Now you are entering at a higher price than the suggested entry. Your possible profit may be lower, while your risk may be higher. This is why you should always check the current price before entering a trade.
Option Prices Can Move Very Fast
Option prices can change very quickly. An option trading at ₹80 may move to ₹88 or ₹90 within a short time, especially during strong market moves, important news, or expiry days.
Because of this, the price given in the trading call may not be available when you try to enter. If the option has already moved too much, do not enter only because you are afraid of missing the trade. Sometimes, it is better to wait for another opportunity.
Your Trading Capital Matters
Every trader has different trading capital. A loss that is small for one trader may be very big for another.
For example, a ₹3,000 loss may be small for someone with ₹5 lakh in trading capital. But for someone with ₹30,000, the same ₹3,000 loss is 10% of the account. So, always check how much you can afford to lose before taking a trade.
Do Not Copy Someone Else's Trading Quantity
Some trading calls also tell you how many lots to trade. Do not blindly copy this quantity because your capital may be very different.
A trader with a large account may trade five lots, but five lots may be too risky for someone with a small account. Choose your quantity based on your own capital and risk. Even a good trading call can cause a big loss if you trade too many lots.
Know Why You Are Taking the Trade
Do not take a trade only because someone has shared an entry, target, and stop loss. Try to understand the basic reason behind the trade.
The call may be based on market direction, an important price level, option data, volatility, or a trading setup. You do not need to understand everything, but you should have a basic idea of why you are taking the trade. This can also help you understand what is happening if the market changes.
Always Follow Your Stop Loss
A stop loss helps you control your loss when a trade goes wrong. Suppose you buy an option at ₹100 with a stop loss at ₹80. If the price reaches ₹80, but you keep waiting instead of exiting, the price may fall further and your loss can become much bigger.
Do not ignore your stop loss just because you trust the trading call. Every trading call can go wrong.
Do Not Keep Changing Your Stop Loss
Some traders keep moving their stop loss when the price gets close to it. This can turn a small loss into a much bigger loss.
For example, you keep a stop loss at ₹100. When the price comes close to ₹100, you move it to ₹90. If the price keeps falling, you may move it again.
Then the stop loss is no longer doing its job. If you have already decided how much loss you can take, try to follow that plan.
Even a Good Trading Call Can Make a Loss
No trading call can make a profit every time. The market can suddenly change because of news, economic data, global markets, or strong buying and selling.
Option prices are also affected by time decay and volatility. So, even if your market direction is right, you may not always get the profit you expected. Good research can help you make better decisions, but it cannot remove market risk.
Do Not Enter Too Late
If you miss the suggested entry price, check the current price before entering.
Suppose an option was suggested at ₹150, but you see the call when the price has already reached ₹170. The price has already moved ₹20 from the suggested entry, so you may now be entering after a large part of the move has already happened.
The trade may have looked good at ₹150, but it may not be the same opportunity at ₹170. In such a situation, it may be better to skip the trade instead of entering late.
Do Not Take More Risk After a Few Profits
A few profitable calls can make you more confident. You may start trading more lots or taking every call without checking the risk properly.
This can be dangerous because a few profitable trades do not mean the next trade will also make a profit. Check the risk before every new trade, even if your previous trades were profitable.
Do Not Try to Recover a Loss Quickly
After a loss, you may feel like making the money back quickly. This can lead to another bad decision.
You may trade more lots in the next trade or enter another trade without checking the risk. If that trade also goes wrong, your loss can become even bigger. You do not need to recover a loss in the very next trade, so wait for a good opportunity and follow your normal trading plan.
Be Careful With "Sure Profit" Trading Tips
Be careful if you see words like "100% accurate," "sure profit," "fixed return," or "no loss." No trader, analyst, or trading system can predict every market move correctly.
Even experienced traders and Research Analysts can have losing trades. Option trading always involves risk, and no trading call can guarantee profit.
Check Who Is Giving the Trading Calls
Do not trust someone only because they have many Telegram members, YouTube subscribers, or social media followers. A large number of followers does not mean every trading call will be good.
If you are paying for research or trading recommendations, check the relevant registration details. Also read the fees, terms, disclosures, and risk information. Do not choose a trading service only because you see profit screenshots or claims of high accuracy.
Research Should Help You Make a Decision
Option trading research can help you understand the market and find possible trading opportunities. But you still need to manage your own risk.
A research provider may not know your trading capital, your actual entry price, or how much money you can afford to lose. Even if the research comes from a SEBI Registered Research Analyst, every recommendation cannot make a profit. SEBI registration does not remove market risk.
What Should You Check Before Following a Trading Call?
Before entering, first check the current option price. If the price has already moved too much from the suggested entry, think carefully before taking the trade.
Next, check the stop loss and calculate how much money you can lose if the stop loss is hit. Choose your trading quantity based on your own capital instead of copying someone else's quantity.
Also try to understand the basic reason behind the trade. You do not need to know everything, but you should know why you are taking the trade.
You also do not need to take every trading call. If you missed the entry, the risk is too high, or you do not understand the trade, you can simply avoid it. There will always be another trading opportunity.
Final Thoughts
Trading tips can be useful, but you should not follow them blindly. The option price may change before you enter, and the same trade may not be suitable for every trader.
Always check the current price, stop loss, possible loss, and trading quantity before entering. Avoid entering too late, do not take more risk than you can handle, and never believe that any trading call can guarantee profit.
A trading call can help you find an opportunity, but managing the risk is still your responsibility.
A trading call can show you an opportunity, but it cannot manage your risk for you. Always check the price, stop loss, and possible loss before taking any trade.
