Today I am going to talk about 2 traders who have same amount to trade and have same trading system. But end of the month when we look at their net balance you find one of them loosing 40%(let us call him Looser) and the other gaining 30% (Let us call
him Winner). Let us analyze why they lost/ gained.
Looser always looks for perfect trading system and he keeps upgrading or changing his trading system and blames the system for his losses. He belives toomuch on his trading system and hardly uses stoplosses. On the other hand our Winner have a average trading system which he uses to full affect and makes small profits every day. He accepts the mistakes committed during the trading day and tries to rectify them in next trading day. For him every loosing trade is one of the series of trades he is going to do over the longer term.
Looser happily sleeps till market opens and makes the trade decisions around the market opening time and quickly changes his
plans by looking at the screen every second. He increases his trading amount after every loss making trade to cover the loss quickly. He will be greedy with the price dancing around in front of his eyes during the day. Screen gets the grip of him.
Our winner wakes up little bit early and before his trading day starts he prepares the plan and visualizes the scenarios for each trade and writes it down. He strictly sticks to the plan and puts proper stoplosses and trades with little % of trading capital. No matter what happends to his trade he sticks to his plan and enters and exits trade as planned. Winner's strategy has limited risk as he is not investing much on day trading so he will not loose much. Whereas our Looser is a big gambler who might win huge chunk on his winning day but might get out of the market forever on a big loosing trade.
Winner never looks for the absolute amount he made rather looks for the number of points he won. Whereas our Looser will always think in terms of absolute amount he make, in the process he will never take smaller profits even when he know his trade is not going to give big amount. He will never look at risk reward ratio. Winner always evaluate the risk involved in and enters the trade only when risk reward ratio is favourable to him.
Looser always trades for his ego and attaches lot of emotional value to his trades. He would never want to be a looser. He gets irritable with markets and blames the market makers,blames the life ,blames the time (mera time nahi chal raha hai)etc. These are real signals of Looser. His ego gets hurt with each loosing trade and he puts more trades in order to cover up his losses and gets into the emotional spiral and damages his account.
On the other side our Winner is emotionally detached with the losses and profits he makes in the course of the day. He sticks to
2 to 3 trades a day no matter what his trades does he might loose some and gain some but for his they are all same(series of trades in the bigger horizon). He will not look at the screen every second, he will trade first few hours of market opening and last half hour, where momentum will be there for day trader. Remaining time he spends for his personal work and family. After all we all trade for making money which will give good life. We should not trade at the expense of life.
Problem with our Looser is that he always uses the weaker words like Loss(for money lost in trades) etc... Wherewas our Winner terms the loosing trade as EXPENSE and winning trade as INCOME. He feels like a real professional who is doing business in stock market. It helps him in keeping his composure during loosing trades.
End of it whatever we do in stock market is for making Profits. If we want to play there are lot of other games available to us to play at lesses price. We should never think like a Looser and should stick to the disciplined approach followed by the Winner. It is more important especially when you are a day trader where every minute screen oscillates and gives you a different direction. Keeping your kool and sticking to the day's trading plan which was prepared before will give you the winning trade on some day. Always look at the big horizon and don't bother about the individual trades. They are part of series of trades you made and you are going to make during that big horizon. Ultimately total amount you make on that bigger horizon makes all the difference. So don't worry about loosing trades and have a happy day trading.
Monday, July 13, 2009
Tuesday, January 20, 2009
Futures trading made profitable?
Nowadays everyone wants to make money fast. People are willing to take the risk to multiply their money fast. So futures trading attracts most people with risk appetite. There is nothing wrong in trading Futures and Options, but first we should ascertain whether we have the qualities required for a profitable futures trader. It also requires basic knowledge of futures trading as well as some technical analysis skills though. According to me basic qualities required for a trader are patience, decision making, willingness to accept mistakes and a brave enough heart to take more losses than profits. Here are some tips/suggestions to be more profitable futures trader with my experience.
1. Decide how much capital you want to commit for trading. This amount should not affect your personal finances even if you loose whole amount.
2. Never trade for fun. Money making is a serious business. Never take your money light. It is hard earned money, never risk it without knowing what you are doing. Have clear cut goals and targets in place before opening a position.
3. Before opening a position decide when you want to exit if it goes as per plan. Also decide the exit point no matter what happens when your position goes wrong. Main quality of a successful trader is to accept that he made a mistake by opening loosing trade. Early you accept the fact, lesser your loss. If you are egoist and never accept your mistake then don't trade in financial market. This is not your cup of tea.
4. All the successful traders have more loosing trades than winning trades. Only differentiating factor between them and loosing trader is that they cut their losses early and ride their profits for long. So when you look at the net amount earned, they will still be profitable. Let us say they lost 10 trades with avg trade loss of Rs 2 and won 3 trades with average profit of Rs 8 their net profit is still Rs 4 after total of 13 trades. It is not about how many trades we win, but about how much profit you make in those winning trades and how early you got out of loosing trades. This is where success of a trader is hidden.
5. As i explained in previous post, trade with the trend. For investing this point may be wrong sometimes, as some investors basically go against the tide and make money. But for a trader it is always safe to go with the tide.
1. Decide how much capital you want to commit for trading. This amount should not affect your personal finances even if you loose whole amount.
2. Never trade for fun. Money making is a serious business. Never take your money light. It is hard earned money, never risk it without knowing what you are doing. Have clear cut goals and targets in place before opening a position.
3. Before opening a position decide when you want to exit if it goes as per plan. Also decide the exit point no matter what happens when your position goes wrong. Main quality of a successful trader is to accept that he made a mistake by opening loosing trade. Early you accept the fact, lesser your loss. If you are egoist and never accept your mistake then don't trade in financial market. This is not your cup of tea.
4. All the successful traders have more loosing trades than winning trades. Only differentiating factor between them and loosing trader is that they cut their losses early and ride their profits for long. So when you look at the net amount earned, they will still be profitable. Let us say they lost 10 trades with avg trade loss of Rs 2 and won 3 trades with average profit of Rs 8 their net profit is still Rs 4 after total of 13 trades. It is not about how many trades we win, but about how much profit you make in those winning trades and how early you got out of loosing trades. This is where success of a trader is hidden.
5. As i explained in previous post, trade with the trend. For investing this point may be wrong sometimes, as some investors basically go against the tide and make money. But for a trader it is always safe to go with the tide.
Sunday, January 18, 2009
10 Ways to lose money in trading.
Every trader have ups and downs in his trading career. But the successful trader is the one who doesn't make the same mistake again and learn from his loosing trades. New traders need not lose too much money to learn if they take a leaf out of previous traders' advises. Here are some things which a trader can avoid from making. Which were made by previous traders including me.
1. Don't do intraday trading without much knowledge in it. Don't just jump on to intraday trading. It takes a lot of time to understand successful trading strategy no matter how much you know by reading books and doing courses. New investor or trader should have a medium to long term outlook to start with. To start with allocate only 15% of your capital for trading and invest remaining 85% in good quality stocks for medium to long term.
2.Going against the trend in the market is the best way to lose money.
Don't go against the trend in the market. Going against the trend might fetch you results in one or two occasions but 80% of the time traders lose going against the trend.
3. Trying to master the techniques which you don't know much about and try applying them without testing is another way to lose money.
Make your trades simple enough and don't use complex systems and methods which are not your cup of tea. Knowing some of the technical analysis and fundamental analysis tools is OK. But over relying on them and blindly following them may take your trading capital away from you.
You should know when to use what. Otherwise don't use them at all.
Remember !!!!!!! Half knowledge is more dangerous.
4. Watching the TV channels and following the recommendations and predictions given there is the most common way in which Indians lose their money in market.
Loosing traders watch CNBC TV18, NDTV profit ,nowadays UTVi most of the time, may be due to depression or because of anxiety to cover up their losses quickly. Watching these channels is of no harm , but watching them 24x7 is a cause of concern. You don't get much out of it except few shows in them where some experts give their comments(not recommendations).
Real experts never predict the future. They just go with the market and follow the trend to make money.
5. Never go by the targets and predictions given by different channels, ironically they will never match with each other. If they match, that target will never be reached. Market is mysterious and excites most people by giving surprises which no one could catch till now. Whenever you invest or trade, just look at risk reward ratio. And decide whether you want to go with it or not by your risk appetite. Never buy a stock just because others are buying it.
6. Getting emotions into trading makes losses for traders. Never buy something just because you are feeling good that day. Market has nothing to do with your emotions. If you want to win the market, then keep you emotions away while trading . Have a clear cut strategy and act in accordance with the strategy no matter what happens in your personal life. Sticking to the strategy will help you most of the times as compared to switching strategies. In case of some extraordinary situations in markets, if you feel volatility is high then keep yourself away from market and close existing trades in minimum possible losses. Taking a smaller loss is always better than loosing your trading capital fully. This is where stop losses help you. Keep stop losses while trading.
Don't watch Business channels especially on the days of market crashes. These channels aggravate the situation and talks as if that day is the end of markets.
7. Trying to be junjhanwala or Warren buffet or a great trader is another way to lose money.
Every trader is different and have his own individuality. Having targets to reach the heights which they have reached is fine, but emulating their style may not suit us because of our very less risk appetite. Moreover the point where they started and where we are starting is totally different and the strategies which worked in their days may not work for us. But, listening to their advise is not harmful though.
8. Shifting strategy everyday is another way to losses. Have your own strategy for the markets in place and go with it. If your strategy is now working don't change it immediately, have a look at it and analyze why it is not working and try to modify it with changed market conditions.
9. Take joy in trading the markets. Trade only if you enjoy doing it, no matter what happens to you in market. Take everything in lighter note. Never ever let your market worries come into your personal life. You should be brave enough to laugh at yourself when you lose in the market. Only people who are ready to do above are supposed to be the trader. After all market is not the only way to earn money.
Best thing to do when you are loosing in the market is to take a break and stop watching at the ticker have a holiday in some beach city(if you are left with some money..:-))....... Come back and hit the bulls eye.
10. Final thing is never trade with money taken as loan. Always trade with your own money. Never go overshoot on the margins you take from your broker. This will increase the pressure which forces them to take wrong decisions that might ruin their trading career forever.
Happy investing......................................
1. Don't do intraday trading without much knowledge in it. Don't just jump on to intraday trading. It takes a lot of time to understand successful trading strategy no matter how much you know by reading books and doing courses. New investor or trader should have a medium to long term outlook to start with. To start with allocate only 15% of your capital for trading and invest remaining 85% in good quality stocks for medium to long term.
2.Going against the trend in the market is the best way to lose money.
Don't go against the trend in the market. Going against the trend might fetch you results in one or two occasions but 80% of the time traders lose going against the trend.
3. Trying to master the techniques which you don't know much about and try applying them without testing is another way to lose money.
Make your trades simple enough and don't use complex systems and methods which are not your cup of tea. Knowing some of the technical analysis and fundamental analysis tools is OK. But over relying on them and blindly following them may take your trading capital away from you.
You should know when to use what. Otherwise don't use them at all.
Remember !!!!!!! Half knowledge is more dangerous.
4. Watching the TV channels and following the recommendations and predictions given there is the most common way in which Indians lose their money in market.
Loosing traders watch CNBC TV18, NDTV profit ,nowadays UTVi most of the time, may be due to depression or because of anxiety to cover up their losses quickly. Watching these channels is of no harm , but watching them 24x7 is a cause of concern. You don't get much out of it except few shows in them where some experts give their comments(not recommendations).
Real experts never predict the future. They just go with the market and follow the trend to make money.
5. Never go by the targets and predictions given by different channels, ironically they will never match with each other. If they match, that target will never be reached. Market is mysterious and excites most people by giving surprises which no one could catch till now. Whenever you invest or trade, just look at risk reward ratio. And decide whether you want to go with it or not by your risk appetite. Never buy a stock just because others are buying it.
6. Getting emotions into trading makes losses for traders. Never buy something just because you are feeling good that day. Market has nothing to do with your emotions. If you want to win the market, then keep you emotions away while trading . Have a clear cut strategy and act in accordance with the strategy no matter what happens in your personal life. Sticking to the strategy will help you most of the times as compared to switching strategies. In case of some extraordinary situations in markets, if you feel volatility is high then keep yourself away from market and close existing trades in minimum possible losses. Taking a smaller loss is always better than loosing your trading capital fully. This is where stop losses help you. Keep stop losses while trading.
Don't watch Business channels especially on the days of market crashes. These channels aggravate the situation and talks as if that day is the end of markets.
7. Trying to be junjhanwala or Warren buffet or a great trader is another way to lose money.
Every trader is different and have his own individuality. Having targets to reach the heights which they have reached is fine, but emulating their style may not suit us because of our very less risk appetite. Moreover the point where they started and where we are starting is totally different and the strategies which worked in their days may not work for us. But, listening to their advise is not harmful though.
8. Shifting strategy everyday is another way to losses. Have your own strategy for the markets in place and go with it. If your strategy is now working don't change it immediately, have a look at it and analyze why it is not working and try to modify it with changed market conditions.
9. Take joy in trading the markets. Trade only if you enjoy doing it, no matter what happens to you in market. Take everything in lighter note. Never ever let your market worries come into your personal life. You should be brave enough to laugh at yourself when you lose in the market. Only people who are ready to do above are supposed to be the trader. After all market is not the only way to earn money.
Best thing to do when you are loosing in the market is to take a break and stop watching at the ticker have a holiday in some beach city(if you are left with some money..:-))....... Come back and hit the bulls eye.
10. Final thing is never trade with money taken as loan. Always trade with your own money. Never go overshoot on the margins you take from your broker. This will increase the pressure which forces them to take wrong decisions that might ruin their trading career forever.
Happy investing......................................
Saturday, January 17, 2009
First Step In Investing.
Trading in stocks in one of the most lucrative option to make money. Who don't want to see their money work as hard as they do for them. India have several exchanges in which NSE, BSE are the most traded ones. For trading in stock markets one needs to have a DMAT account (dematerialised account)with a depository participant. It is just like a savings account but only difference is instead of keeping money in it, you keep stocks. Once you have a DMAT account you can buy and sell the stocks. Click Here for the list of DPs registered with NSDL.
DPs are the ones who provide account to store the shares. Where as Brokers are the ones who buy or sell the shares from stock exchange on their client's behalf.
DPs are the ones who provide account to store the shares. Where as Brokers are the ones who buy or sell the shares from stock exchange on their client's behalf.
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