Learnings Diary

Trading Plan by Jagan

Dear Taiki,

Posting a sample trading plan.
Which I found in my system.Not sure where and when I downloaded after modifying.

Change according to your beliefs,system and style.May be Dan,Anurag ji and other friends will help us to improve this.

Trading plan

Trading Objective:

My object is to become one of the best professional day trader and make a living from trading.

Trading Beliefs:

I believe in classical TA.
I believe that discretionary trading is better than system trading.
All the trading decision is taken by the set of rules which are discretionary and hence has some human emotion element in trading. Sometimes I exit discretionarily which needs improvement.
Intention is to have intraday system, where I square off the trades at the target.

I prefer to wait for the trades than aggressively chasing the markets.

My Strengths

My weakness

System Display for Easy decision making:

I intend to use Amibroker for this.
The system should be helpful to make decision making with out much noise.

I prefer to use fixed Volume based bars to eliminate the candle stick price noise.

System should display only the trade in progress, long or short., entry price, stoploss, Quantity that is traded.No scaling in the initial periods till I achieve my first milestone.
Support Resistances,Trade location, price bar on which trade occurred target(s), stoploss need to be plotted.

Trade Setup

Structure provides us the support and resistance (or turning point) of nifty.
Trading time frame provides us direction of trade.
Timing time frame provides us the entry / exit signal.

Trading time frame : 10 minute
Timing time frame : 2 minute

Stop loss is a fixed percentage or trading time frame pivot + filter.
No mental stop loss.
Place the Stop loss immediately after placing the order.

Structure time frame:60 minutes

Pivots on 60 min time frame gives us a good Entry/exit location.
I define the trend by MA's.
Candle stick analysis is a good health indicator of the trade in progress.

Trading time frame : 10 min

Trend is defined on this time frame.
A series of higher visual pivot indicates Up Trend.
A series of Lower visual pivot indicates Down Trend.

Rules for trading Choppy Days

Rules for trading Gap Days

Rules for trading Trending Days

Rules of the trade when momentum/volatility is very high

Rules for the trade on a news day

Rules for the trade on Expiry

Rules for Re entry of trade if stop is hit


My system has a historical statistical RR ratio of 1:3 and win rate of 65 %.
And hence I am able to trade with confidence and without Fear.

• I will never risk more than 1% of my capital in any trade.
• I will never risk more than 5% of my trading capital in a week.
• I will never risk more than 10% of my trading capital in a month.

Milestone 1

To follow and execute my system flawlessly till I get full faith confidence and belief in my trading system.First 100 days of training.

Milestone 2

On successful achievement of milestone 1.
Add Scaling in and out rules for my system

Milestone 3

Add instruments to trading as per the system for first 2 milestones are achieved.

Daily routines

I will read my trading plan daily.
Check for important news events.
Check the Asian Markets opening daily.
From Madan sir.

Topic # 6 – Psychology of trading and the misconceptions around it

How many times have we heard this word ‘psychology’ getting associated with trading profession? Innumerable times. To the uninitiated, it seems to be an over-rated (probably abused) word. I will make an attempt to give a different perspective about psychology’s part in trading as there are lot of literature that talks about clichéd topics like ‘handling fear/greed and discipline issues’. We will not focus on those items in this post.

To all the readers reading this post, have you ever had any of the following issues? :

1. Not taking a trade in your plan because you did not think it would work (after a couple of losses in a row)?
2. Taking a trade immediately after a loss that is not in your plan? And then after another loss, another trade not in your plan?
3. Chasing a price move because you are afraid it is going to run without you only to see it reverse after you jump in?
4. Averaging into a losing position because you just believe you are right and price will come back to where you bought?
5. Moving your stop further away from your original stop to give the trade more room or moving to breakeven too early?
6. Continuous counter trend trades because you feel price has moved too far and you expect a reversal?
7. Refusal to close out a losing trade and holding it until later in the day or the next day taking a bigger loss than your original stop?

If you haven't had any of these issues, please stop reading this post further - you are either a master/legendary trader or have never traded before!! Chances are if we have had several of these happen to us, we either have no trading plan or should not be trading or our mindset around trading needs some work. We can call it psychology, call it mindset, call it mental discipline, or whatever suits our fancy. My guess is that is what needs work if we are doing any of the items very frequently above and they are not specified in our trading plan.

The difference between unsuccessful traders, net profitable traders, and big money making traders is smaller than we think. It usually boils down to a small but perceptible edge, and while it can be related to poor money management, inadequate funds, or a bad methodology, it is usually an internal factor - a lack of discipline, emotional control, patience, and especially an improper attitude about losing and risk. Mind you, all these factors collectively called as ‘trading psychology’. So, it does not matter what we call it, but the intrinsic difficulties are real and they reflect in our trading P&L.

But to understand this phenomenon more deeply, we need to understand how mind works and how it relates to trading profession. Let's start by dividing the mind into three divisions - inner subconscious mind, the subconscious mind and the conscious mind. We're not going to talk about the inner subconscious mind (it’s function is to run our organs automatically) and the conscious mind (as our emotions are not relevant to them). Our focus will be on the ‘sub-conscious mind’. On a daily basis, we spend about 1-5% in the conscious mind. The rest is spent in the subconscious mind. The conscious mind perceives about 40 bits of information per second and on the contrary, the subconscious mind about 20 million bits of information/second. As they say -”your brain (subconscious mind) sees even when you don’t”. And it's never dormant. In fact, it has been awake and recording since the time we were a fetus.

Subconscious mind and the way it works

Subconscious mind can be divided into 3 subsections -

1. The Memory Mind - It has recorded all your memories, all events, and actions, everything that ever happened in your life since the time you were a fetus. Think of it as a video camera with five senses. All of your memories, since ever are there and they are there constantly in every moment of your life.

2. The Emotional Mind - It's the part that contains all of your emotions. Whenever we act, react on an emotional basis, the subconscious mind is involved. Have you ever thought of that situation when you reacted so silly, and you asked yourself later, why in the whole world did I react like that, or why did I say that? It's because of the emotive information that's stored in our subconscious mind. Remember, that conscious mind has no role here – analytical brain cannot even start processing yet.

3. The Protective Mind - It has the role of protecting you against what it perceives as dangerous.

The basis for sub-conscious mind is created from day zero of your life till the age of about 7. That's because, your brain waves, in that period are in a kind of hypnotic state. They move very slowly, and your whole subconscious is very much completely open. You lack the critical factor –the analytical and rational mind. And that means that every little thing that's put there (not that it stays there) creates the fundamentals of your character, and your outcomes in life.

Who's putting in the information? Well, most of it comes from our parents or the people who raise us up. They are the ones in charge of our lives. One of our primate need is the 'need for security'. As I have a 4 month old baby now, I can give an example w.r.t to a baby. Normally, when a baby starts crying, it is taken up by the mother, it continues to cry. The mother checks the diaper, changes it. The baby keeps on crying. The last step - the one that always works - is to bring the baby to the bosom and feed it with breast milk (or stick a bottle with milk in its mouth). That's when the baby finally stops crying.

What's actually happening? The need for security is fulfilled. Being brought up to the bosom, the baby feels the warmth and care from the mother and the need for security is fulfilled. The only problem, is that it creates an association. The brain creates that association to food. In other words, when I get food, then I'm secure. We grow up, and every time, we had a stressed day or we feel depressed, we find ourselves putting something in your mouth. If we start to abuse food, we give birth to obesity. But remember it has to do with the need of fulfilling ones security. Other quick examples are classical as well. Just think of how many parents out there are telling their children, things like "you're not worthy", "you can't do that", "you're bad", "you'll never be able to" and so on and so forth.

The real us, is our subconscious mind, because we're spending there about 95% of our daily lives. The subconscious mind is this device ‘playing on’ the program we got and it is put there by our parents and by society.

Ok great!! But, what does all this has to do with trading then? Have you guys ever heard of, fear of success? We do want to make money, we love money, we love trading but we’re still losing money. What we're experiencing here is a conflict between the conscious mind and the subconscious mind. Remember, who the real you is! We're actually the sum of all our programming. Funny thing right? We got a lot of programmers in here :) So, being the sum of all our programs and subconscious mind has the role of protecting us - Bingo, we got a great recipe!! It doesn't allow us to make money. Because somewhere in the program, you've got a bad experience that has a negative charge and it keeps holding us back from getting hurt again.

See this innocuous looking statement – “In order to earn money, you have to work hard”. It has probably been put there, somewhere between the age of 0-7. Unfortunately, our parents became parents without getting any instruction manual on how to raise kids and we have the social construction as well in the picture. Nothing against the parents here but just wanted to put the facts across. Our parents inadvertently created ‘reward and punishment’ mechanism. They punish us when we're not following their instruction and reward us when we do as we're told. The kind of reward we get is, acceptance. When we get that acceptance, we then fulfill one of our basic needs. Remember- the need for security.

This creates a dogged association here –‘In order to earn money, we have to work hard’ which in turn equalizes to ‘safety’. We grow up, and start to work, and eventually we find out that, working hard equals earning money. And the safety need is fulfilled. Now, fast forward few years and you enter the arena of trading. We get into situations that can make us money easily, without having to work hard. BANG - That's when we blow it!

It is very difficult to buy this concept. Personally, it took me a while before, I finally had the courage to face it, and to understand that, it doesn't matter how I take it or perceive it, by my conscious mind. The subconscious plays the lead here. And no matter how much I refused to accept that, it wasn't that way. Any amount of self-talk and affirmations were not helping here and the subconscious mind just snickered back at me by decreasing my account. This was of course a very basic example but am sure you get the drift. There are various ways of overcoming this obstacle – NLP (Neuro-linguistics programming), Hypnosis and many more. I do not want to dwell in to those vast topics but I hope I have enabled the readers to think in that direction.

Bottom line, discounting psychology is the same as discounting your mental health. Psychology doesn't mean seeing a shrink. It means being aware of your mind and its behaviors. Surely, we are not going to try and make an argument that mental health is unimportant. Skill is composed of more things than just physical prowess. There is also mental aptitude. And in order to exercise our mind, we must at least accept that psychology is not a "prank".
Specialists get paid well, while those who know a little about many things
make good conversation at parties.

Mastery requires sacrifices; therefore, something must come first.
Make a list, prioritize, and pursue accordingly: Focus, achieve, and then
move to the next big goal.
From Madan Sir

1 B – Amount needed to be a full-time trader

Once we know the minimum account value needed per lot, we can move on to the subjective part (depends on individual's needs) of withdrawing money for expenses from the trading account. Sooner or later, a FT trader will be doing a withdrawal on a regular basis.

So, without going into further details, one should take his average yearly returns into account and calculate his family expenses (it’s better to adjust it for inflation and multiply it by 1.5..we always need more than we think..actually it should be 2x or 3x..am being conservative here). Once we have these numbers, its simple math to determine the account size needed. For example, if I had to pull 1 lac from my trading account every month (it doesn’t have to every month..it can be once in a quarter or 6 months), then I need 12 lacs net(after taxes) per year. Let’s multiply it by 1.5 and it takes us to 18 lacs. As we need to pay taxes, we should approx. make 24 lacs to have 18 lacs net income. If your system has made 50% every year for the past 10 years, then capital needed is 50 lacs to trade full time. One important point to remember here is that you can trade only 5000000/112500 worth of lots (from the previous section calculation) here and calculate your returns accordingly. So, number of lots comes to 44.

I understand that this might not fall in line of understanding for many but math does not lie. We need to plan this profession like any other business and accounting/ledger/contingency planning/expansion ideas is key to survival and long-term success. This calculation is the starting point before considering trading for a living.

3. Undercapitalization and borrowing money to trade

- If someone is under-capitalized, it generally stems from having too little access to money and trading is seen as a way to increase their money. I mean Richard Dennis turned $400 into $100 million, Ed Seykota $5k into $15 million and Michael Marcus $30k into $80 million. However, it does not mean that I or any other trader can accomplish that same feat. Accepting that a dream is unrealistic is difficult for most. It touches on emotions we quite often don't want to face. Saving up to be properly capitalized is probably one of the best moves one can do. But still does not guarantee success at trading - it merely means we can survive longer.

- Never borrow money to trade – two things happen. 1. Pressure builds up to make money (to pay it back) and our performance can go awry. This can lead to blowing up the account 2. Eventually, people will start asking the money back and if we are not in a situation to pay it back (as it is tied to the account or it is lost), that relationship is gone forever.

To summarize this topic, calculate your minimum money needed/lot and base your ‘money needed to survive full time’ decision based on that number. This is the hardest easy money in the world (money from trading profession) and while the successful consistent result attained by a VERY few looks glamorous, this is a bare knuckle back alley way to earn a living. The fool hearty, the unprepared, the arrogant, the easily discouraged, the thin skinned, the expert programmer with all the answers and no experience, the pop psychology trading author devotees, the demo trading heroes and awesome indicator groupies led to their demise and financial ruin.
some more from madan sir.

Post # 1 of Week 4 - Role of mentors/coaches in trading profession


Along with filling my tires with air and the tank with petrol, I always wash my car before embarking on a road trip. Not only is a clean machine more pleasing to the eyes, but a clean windshield is more transparent to the eyes. This pristine condition however, is about as ephemeral as that freshly filled tank of petrol. Between the smoke and dirt, to pollution and oil, it is amazing how quickly, dirt and gunk can collect on a clear windshield and morph it into an opaque sheet of glass. Even after, I generously apply my windshield washer fluid, I cannot attain the level of transparency I had achieved at the car wash.

Just like car windows, we go through life, and as we progress, we all collect some level of gunk on our souls and subconscious minds. This gunk consists of misinformation, prejudices, conflict, trauma, and myriad other experiences that form negative layers on our psyches. These layers form an opaque film that prevents us from seeing the world in the way it truly exists. And being unable to see reality clearly, will severely limit one from fulfilling their true potential.

This obscuration and its destructive effects, are often exposed and magnified when trading. Negative habits and emotions cause more trading losses, than misreading a chart or misinterpreting market fundamentals. It is often said that the eyes are the window to the soul, but anyone who has ever traded, knows that trading can expose one's weaknesses, and open up a Pandora's box of vulnerabilities, that are there for all to see and quantify.

The only way traders are able to shed this fabric of filth is through self-discovery. You can read as many books on trading as you desire, and create new indicators and ways of looking at, and analyzing the market, but if you don’t look at, and analyze yourself first, it will be difficult to find success.

The road to self-discovery inevitably leads to the path to success, but you must first be able to chip away at the layer that obscures you vision and clouds your view of the road. By determining and eliminating your weaknesses, negative habits, and negative emotions, you will then be able to trade with a clear head and clear vision. But, this is easier said than done. To ease out this ‘chipping away rough edges’ process, we tend to look out for a much more experienced/able person to teach/coach/mentor us. This is exactly where the process of mentoring can be extremely helpful (if not inevitable) in our trading profession.

This week topic has not been confabulated much in the trading books/seminars and articles but nevertheless, a very cardinal topic. As trading is a performance endeavor, it’s natural to think that a mentor can enhance a trader’s performance. Lot of folks actually say that they 'mentor' traders but it is actually just trader’s education. The fatal shortcoming of most efforts in trader education is that they provide teaching but not mentoring.

Difference between a mentor and coach

First of all, as we see trading as a performance endeavor, we need to understand the difference between a mentor and coach. In trading perspective, Coaches are people who help traders with the mental/emotional/psychological aspects of trading, including techniques for improving self-control and trading consistency. On the other hand, Mentors are people who help traders with the actual mechanics of trading - the ‘how-to’ aspects of defining setups, setting stops and price targets, position sizing and risk management and sometimes, play a role of a coach as well. So, a mentor can be a coach but a coach can never be a mentor.

The difference can also be understood with the fact that the mentor should be an open book to the mentee (opening up his trading logs, entries, exits, failures, money made, return, lessons and letdowns) but a coach does not have to be an open kimono :) With this thought in mind, we can define coaches function as counselors for traders and mentors function as trading teachers.

Benefits of mentorship/coaching

1. As mentors are dedicated to our success, it is an assumption that we can see him trade live. When we see an experienced person do it live in front of us, one automatically picks up clues on intangible things. Like a child learning from his parents or a observing a mechanic at work when his listens to an engine running. Mentor can shorten that learning curve dramatically but no mentor can completely replace live experience of seeing things unfold for ourselves :)

2. It's almost guaranteed that the nuances that a mentor has picked up over the years while looking endlessly at price action and patterns can never be observed/learned by a trainee reading a book or trying out himself until it’s too late.

3. The reason we see mentoring as a key ingredient in success across disciplines is that the right teaching guides learning trials toward optimal development. Great athletes don't just exercise daily - they perform the right exercises. That is equally true for developing traders.

4. Think about this scenario – we can spend a lifetime browsing trading forums, online articles and reading thousands of threads, books. If you are lucky you stumble upon the right material, recognize its value and stick with it. But a mentor/coach can build a solid base of knowledge and reasonable expectations. They can also give that gentle push if one is lethargic, minute course correction when we go off-course and much more.

Many a times, people wander from one moving average crossover system after another, buy one useless indicator after another or spend years deciphering the code left behind by W.D. Gann (no disrespect to Gann followers), figuring out the influence of Neptune, Uranus and Jupiter on the Nifty and blow up account after account to end up with debt, job loss, a divorce and drinking problems.

5. This game is just too difficult and too challenging that if we are not tenacious, it will be only a matter of time before the market chews you up, swallows you up whole, and spits you right out again (like that scene from Anaconda where that big snake spit out people after swallowing). The only way we're going to achieve great things in the markets, is to be tenacious to overcome these challenges. When times get tough, how will we gather our senses and get up? A right mentor can do that with ease. Think of a personal trainer in a gym. They will correct the exercises we are doing and introduce new ones. They will help us sustain effort when we lose momentum. Over the course of our gym workouts, we don't just improve our exercising skills. We also become a stronger person, someone more fit, and someone who feels better about themselves.

Problems faced by mentees while choosing a mentor

1. Mentee can never be sure about the success of a prospective mentor (especially, in an online world full of posers) before submitting himself fully into the relationship. And even if they are successful, they probably trade in a very different style and we would have to either relearn or get very aggravated and it would ultimately be a setback. In that sense, a coach is much easier to find than a mentor. But that is aggravating too because most of us just want someone to tell us when and how to trade.

2. If we are successful in identifying someone who is capable of mentoring and/or coaching, it would still be difficult to convince him/her to mentor/coach us. He might be able to do it for his friends/family but not for complete strangers online or someone we met in a coffee shop.

3. There are not many tools (more in the later part of this post) to evaluate a mentor.

4. Finding a mentor in a trading forum/social media is like finding a needle in a haystack. All of the information that a new trader needs to be successful is out there for the taking. But there is a thousand times as much useless and misleading hogwash than there is actionable/logical information.

5. Having a mentor will not guarantee success. It still comes down to the individual sitting in that chair, clicking that order into the market and keeping their cool no matter what happens and doing this day in and day out. So, no guaranteed success can lead to discouragement in searching for the mentor/coach

As TJ does not allow more than 10000 characters in a post, am splitting this voluminous post into two. Please continue reading the second post.

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