Trading with money I cannt afford to lose

My story: I have been in the stock market for more than a year. During this period, the stock market has only gone up with minor hiccups or should I call correction. 9 out of 10 times the stock which I know will go up, which I have bought at a lower level, has gone up dramatically after my sale. My only consolation is that I have made more than if it had been in my bank account. My worst enemy

TRADING WITH MONEY I CAN'T AFFORD TO LOSE
One of the greatest obstacles to successful trading is using money that you really can’t afford to lose. Ultimately what happens is that when someone knows in the back of their mind that they are risking the money they can not afford to lose, they trade out of fear and emotion versus logic and no emotion and make early exit. It is highly recommended that you stop trading until you earn enough to put into an account that you truly can afford to lose without causing major financial setbacks

Would appreciate feedbacks from members.

I know something from here and there about stock market and am at learning stage. My plan is to learn the basics quickly and then to open a demo account with virtual money (I am still looking for a website with demo and virtual money, could anybody help??).

Meanwhile during learning and demoing, I plan to earmark a decent sum from my earnings. If the demo does well, then upgrading myself to second stage of actual market and actual money.

And finally, in actual market, if I loose it completely (just an assumption, not a pessimistic approach) by a single day's trading, I could console myself that the worst didn't happen.

I read this approach somewhere (or is it on traderji itself) and I think, its right approach.

Hi Hometypist:

The first rule of trading is "Do not trade if you are trading with the money you cannot afford to lose".

Having said that you must not become discouraged. There are several things that you can do:

1) Study the markets even if you cannot trade them this will give you all the confidence necessary when you are in a position to trade. While you are studying device strategies that have a "high positive mathematical expectancy" of winning. Work on developing strategies that would allow you to determine good risk/reward ratios when you finally come to trade. These two will give you an edge over most traders to begin with.
2) As Tariq has mentioned above while you are studying the markets practice "paper trading" or dummy trading to see how effective your strategies are and whether you can improve on them.
3) In the mean time carry on with your carreer and earn enough "Risk capital" so that you can start trading. Risk capital by definition is the amount of money that you can affort to lose without losing sleep over it, it must not impact your normal day to day life style, or your domestic harmony. You must NEVER trade with borrowed capital - no matter how strong the market tip or the desire - remember borrowed money has to be paid back.
4) When you are ready to trade - you must first make a trading plan (which must contain everything about your trade ie. what you are going to trade, how much you expect to make out of that trade, what stop-loss level are you going to use etc). You can start trading small positions on intra-day basis so that you do not have any overnight market risk. All trades must have stop-losses and they must be executed. You will find that the moment you have stop-loss in the market you will feel relaxed and comfortable and not emotional.
4) Once your risk capital improves then you can think of going for position trades where you would be comfortable with overnight risks.
5) You should try and make a trade "risk free" as quickly as possible - this will always give you a psychological edge in the markets. How do you achieve this - you do this by trading multiple contracts/shares etc. Assume for eg. that you have decided to use a stop-loss of Rs 5 on your original "Buy" position. If the market runs up very quickly and suddenly it is Rs 5 in your favour then in order to make the trade "risk free" you sell 50% of your position. This will allow you to "bank" Rs 5 profit on 50% of your position - this process now makes your remaining 50% position a "risk free" trade. How? assume the worst case scenario and the market instead of running up further; suddenly drops violently and goes through your stop-loss - what you have is a "scratch" trade or a break even trade - and you have not sustained any damage to your capital. But instead, if the market carries on rising further then you still have your original 50% position and you are now riding the market without any worries and moving your stops up as the market rises further.
6) Finally remember that "one special" trade that every one is looking for to make a fortune is very illusive. When it arrives most traders will not have the courage to take it because it only occurs in panic situation and it just "looks" too dangerous or suicidal for most people to attempt!! Trading involves series of trades and what you are interested is the cumulative result of series of efficiently plannes and executed trades.
7) If you remember to plan your trade precisely and execute it as per your plans then you would become successful. If trades are planned then there are no bad trades (even if you lose) - only lesson trades - one can learn from!

Good luck

Nautilus

Hi Natilus,
Very well said---Specially the last 2 points----r the gems-----But then I do not agree with u in everything u said----
Trading is someting which is a real time game----As much as u make dummy practices---the real situation is something completely different----Although there has been a lot of famous people who will shout in favour of paper trading----but I totally defy it---Instead of paper trading ----take part in the real market with as low amount as Rs.5000----with the attitude that this money u r going to pay tribute to the stk market----Confused!!!!Isnt !!!!
Well---Let me clarify a bit----When all of u had been in ur younger days----Yr parents sent u to the schools---and they--- many a times kept a tutor for u---with the beliefs that u would turn out to be Einstein(in ur respective fields) in future---May be most of u had not turned out to be that----but then--most of u have,even, been quite successful in life---In other words----All of u attained ur successes---but---by paying some tribute to someone else in ur life----Similar is the case with stkmarket----

Keep ur attention on small stks----withen 100-----buy in small amounts(say 5-6---to ---10- atmost--for 100 level stks---otherwise adjust the no . accordingly)--then fill the pain of the losses---or the Euphoria of the gains----with the attitude of learning at each and every step---and taking notes whenever possible----If u can really do this----as well as meditate whenever possible to make urself almost disspasionate----then for u ---sky will be the limit----But actually this is not so easy---even for the writer himself ----who many a times fails to follow the things which he states---but then seriously tries to rectify them----
Regards,
joy_mitali

Hi Joy_Mitali:

I fully agree with your assertion that trading is a "real time game", and simulations will never give one the feel for the "real" thing. I also agree with you that no amount of simualtion will ever prepare one for the "real" life except by going through the school of "hard knocks". The markets as you so subtly put will extract "fees" for participation and teaching/learning - its an inherent part of the markets.

But I also believe that simulation is essential for trading while one is learning the basic techniques, methodologies to check out whether one feels comfortable with what they are about to do on a "real time" basis.

If you look at the training of the soldiers,pilots, astronauts, cricketers, fire fighters, surgeons etc.- it all involves some form of simulated training before they are let loose on the real world. I believe simulation will give some idea to all these highly trained people - but the real life situations will be totally different and complex.

On a personal basis - when I started to learn about the markets "paper trading" helped me immensly as I started trading with a limited amount of capital. When I started trading the "real" markets it gave me some sort of comfort that I had done my theoretical bit and I was comfortable with my trading plan - but I guess this is very personal

Good trading

Nautilus

Hi
I Am A New Here And Have Just Started Intraday Trading To Get Practical And Real Knowledge .since I 'am Investing In Very Low Volume And Right Now Just Following Market Trend And Somewhat Technical Thing Like Ressistence And Support .is It Good Enough To Start With ?
Right Know My Only Concern Is Acquint Myself Since I Am Pursuing Study . Is It Advisable To Use The Exposure Facility Provided By My Broker .plz Seniors Guide Me To Become A Successful
Trader.
Tarique Youcan Enjoy Simulated Stock Game At Indiabulls.com

Regards
Mukeshsingh

This is in reply to hometypist's original post. First of all have remember the basic rule of trading minimize losses maximise profits. So trading with money which you cannot afford to lose is a paradox. Use stop loss in all your trading. While selling scrips you hold wait for the upward movement in that counter and then sell it after some time. for example you hold xyz Co. @ 100 you see it is going up gradually by 1 or 2 rs per day wait till u see a rally in it; then sell it the next day may be it reaches a high of 132 during the rally on next day you may sell it for 125 but be contended cos it may give you a chance to pick the same scrip at 110 levels. This is from my personal experience.
quintessence - be prepared to lose but have target for ur loss also.
Ram

Bottom line: Don't trade with money you can't afford to lose - PERIOD!

Nice and Crisp,Masterchief....and very true!