Dear Fellow Traders,
I am writing this to share my experiences of discipline and money management which has helped me a lot.
To give a brief background, I generally trade Future and Options, intraday and positional calls. I dont have as much experience in the markets as some of the more experienced seniors in this forum as I am actively trading only since the last one year. But this has been enough to come to a strategy of discipline and money which literally changed my whole approach to trading.
Trust me friends, all strategies, every tool of Technical Analysis is of no use if Discipline and Money Management is not followed.
Let me share what I follow and this has made a huge difference not only to my account balance
but also my psychology while trading.:thumb:
Rule 1: Before taking any trade, keep a notebook and write down the buying price, Target Price and Stop Loss price. Next calculate the amount that you are investing and next to TP and SL price write down your amount of gain or loss on that trade. Also write down the time frame ( intraday of do you expect the target in 3-4 days, months, etc). When you write the loss amount, you are psychologically prepared to take that loss if it doesnt go your way. This may seem like I am suggesting something very school teacher like, but whenever I have broken this rule, there has been only one loser---thats me.
I normally deal in multiple lots so I keep TP 1, TP2, SL1 and SL2. This works better as half the targets are booked or losses minimised and gives more span to work on.
Rule 2: Respect what you have written in the book. Sometimes staring at the terminal may give you a lot of tension if you see your price going near the stop loss price, there is a tendency to minimise that loss looking at movement on the screen. I have succeeded in avoiding this by simply saying " Its a trade that either has to hit the target or the Stop Loss. If neither of them are being hit, no need to panic.This will also give you more peace of mind to concentrate on other opportunities rather than keep worrying about when is the SL being hit.
Rule 3: There may be a need to revise targets only in case of positional trades, where charts give indications over a few days but this can be done to reduce the SL or increase the TP, but not the other way round. Or else one ends up having a larger SL and tends to book profit early. Only exception to this would be for day trading positions where you may simply need to close at end of the day with marginal profit or loss.
Rule 4: Money Management most important.
Decide a ratio for yourself. Say of 5 positions, 2 go in my favour and 3 against. But the SL percent of capital would be 10-15% and Tagets would be in the range of 40-60%.( these are percentages for options, please calculate respectively yourself for stocks, commodities, etc).
Which essentially means that 1 trade in your favour should be able to negate 3 that didnt.
Again go back to that notebook and make 2 columns, SLs hit and TPs achieved. Also write the amounts lost vs the amount gained. You will be surprised.
Money Management is a huge topic and do try to read as much on the same as possible
Rule 5: Never trade with entire Capital
This has really helped me one month when obviously I wasn't following what I have written above and trading recklessly. I lost nearly a quarter of my capital due to undisciplined approach and no proper money management. Thankfully there was Capital to trade with the next month where I was much more cautious and trying to recover the Capital,discovered the "school teacher basics" described above. It did take me 2 months to recover whatever I had lost.
There have been many times when Targets have been hit and the price gone much more than expected. I have learned to overcome those feelings as I look at it as " When I took the trade, this is what I expected, wrote it down also,got it, so the trades closed" Which is why with multiples lots one can keep having higher targets for the TP2s, but definitely not TP1. Thats the greed factor which keeps creeping in time to time.
I may sound like I am repeating something, but will surely like doing so for the benefit of friends who may learn from my past mistakes
Hope I have been able to share some valuable inputs.
Happy Trading!!!
I am writing this to share my experiences of discipline and money management which has helped me a lot.
To give a brief background, I generally trade Future and Options, intraday and positional calls. I dont have as much experience in the markets as some of the more experienced seniors in this forum as I am actively trading only since the last one year. But this has been enough to come to a strategy of discipline and money which literally changed my whole approach to trading.
Trust me friends, all strategies, every tool of Technical Analysis is of no use if Discipline and Money Management is not followed.
Let me share what I follow and this has made a huge difference not only to my account balance
but also my psychology while trading.:thumb:Rule 1: Before taking any trade, keep a notebook and write down the buying price, Target Price and Stop Loss price. Next calculate the amount that you are investing and next to TP and SL price write down your amount of gain or loss on that trade. Also write down the time frame ( intraday of do you expect the target in 3-4 days, months, etc). When you write the loss amount, you are psychologically prepared to take that loss if it doesnt go your way. This may seem like I am suggesting something very school teacher like, but whenever I have broken this rule, there has been only one loser---thats me.
I normally deal in multiple lots so I keep TP 1, TP2, SL1 and SL2. This works better as half the targets are booked or losses minimised and gives more span to work on.
Rule 2: Respect what you have written in the book. Sometimes staring at the terminal may give you a lot of tension if you see your price going near the stop loss price, there is a tendency to minimise that loss looking at movement on the screen. I have succeeded in avoiding this by simply saying " Its a trade that either has to hit the target or the Stop Loss. If neither of them are being hit, no need to panic.This will also give you more peace of mind to concentrate on other opportunities rather than keep worrying about when is the SL being hit.
Rule 3: There may be a need to revise targets only in case of positional trades, where charts give indications over a few days but this can be done to reduce the SL or increase the TP, but not the other way round. Or else one ends up having a larger SL and tends to book profit early. Only exception to this would be for day trading positions where you may simply need to close at end of the day with marginal profit or loss.
Rule 4: Money Management most important.
Decide a ratio for yourself. Say of 5 positions, 2 go in my favour and 3 against. But the SL percent of capital would be 10-15% and Tagets would be in the range of 40-60%.( these are percentages for options, please calculate respectively yourself for stocks, commodities, etc).
Which essentially means that 1 trade in your favour should be able to negate 3 that didnt.
Again go back to that notebook and make 2 columns, SLs hit and TPs achieved. Also write the amounts lost vs the amount gained. You will be surprised.
Money Management is a huge topic and do try to read as much on the same as possible
Rule 5: Never trade with entire Capital
This has really helped me one month when obviously I wasn't following what I have written above and trading recklessly. I lost nearly a quarter of my capital due to undisciplined approach and no proper money management. Thankfully there was Capital to trade with the next month where I was much more cautious and trying to recover the Capital,discovered the "school teacher basics" described above. It did take me 2 months to recover whatever I had lost.
There have been many times when Targets have been hit and the price gone much more than expected. I have learned to overcome those feelings as I look at it as " When I took the trade, this is what I expected, wrote it down also,got it, so the trades closed" Which is why with multiples lots one can keep having higher targets for the TP2s, but definitely not TP1. Thats the greed factor which keeps creeping in time to time.
I may sound like I am repeating something, but will surely like doing so for the benefit of friends who may learn from my past mistakes
Hope I have been able to share some valuable inputs.
Happy Trading!!!
