my last thread
- Thread starter oilman5
- Start date
- Status
Let me write some observation on development on trader
................................................................................
1] survival first.you know ..u have to save ur risk capital...to fight for anather day.
2] trading discipline very imp.u must develop u to throw out ....emotion out of u.this can be by developing objectivity and treating trade as business.
3] To understand this,...........first know urself,...........in detail how u behave/react in certain circumstance, particularly facing potential danger and uncertainity.Actually here u reqd strong behavior modification.stress should be more on following system and a place /method to DECIDE.....choice for OPPURTUNITY/how u decide danger............so go to safe mode to save maxm money to fight another day.
4] this reqd continous development of self with auto-loop mode using trade journal.
5] Must distinguish shortterm and longterm r 2different thing.ITS not RIGHT is imp, but earn more when RIGHT is aim.LOSS is part of trading, only u should less.
6]Must create environment to work with minimum stress.
7] For longterm development as trader.........use some confirmation/affirmation method.
.........................to earn continuous basis from market, u have to be extraordinary cautious and knowledgable with forecasting ability
................................................................................
1] survival first.you know ..u have to save ur risk capital...to fight for anather day.
2] trading discipline very imp.u must develop u to throw out ....emotion out of u.this can be by developing objectivity and treating trade as business.
3] To understand this,...........first know urself,...........in detail how u behave/react in certain circumstance, particularly facing potential danger and uncertainity.Actually here u reqd strong behavior modification.stress should be more on following system and a place /method to DECIDE.....choice for OPPURTUNITY/how u decide danger............so go to safe mode to save maxm money to fight another day.
4] this reqd continous development of self with auto-loop mode using trade journal.
5] Must distinguish shortterm and longterm r 2different thing.ITS not RIGHT is imp, but earn more when RIGHT is aim.LOSS is part of trading, only u should less.
6]Must create environment to work with minimum stress.
7] For longterm development as trader.........use some confirmation/affirmation method.
.........................to earn continuous basis from market, u have to be extraordinary cautious and knowledgable with forecasting ability
Last edited:
Now i am planning some copy paste of a tough but very high callibre parttime trader in traderji.He has solved clarity & psychological issues in trading.Many a gem....
..........................................
No sympathies to you. Absoulutely no sympathies.
On the contrary I congratulate you on making a GREAT start to your trading / jobbing career. You are down JUST 26% and you are feeling sh*t.
THIS IS THE EXPERIENCE or even worse if you lose more here after, which I really wish, if you sincerely want to make this to be your livelyhood activity.
THIS FEELING can never be felt anywhere else, not by listening, reading books, hearing. Belive me this EXPERIENCE is a MUST and is the foundation stone for trading career.
A few suggestion I would like to make to you:
1) Don't be vocal / expressive of all your feelings in public - you will dilute the learning experience and would commit same or graver mistakes in future. It is your experience and you need to go through it. Enjoy it, feel it, nuture it - get your body, mind and soul adjust to this experience. By sharing it publicly you are losing a big opportunity of learning. You may share it subsequently once you are out of the experience. This applies to Good experience as well as "Learning" experience.
2) Don't be overconfident - getting back with a bang in the market seldom wins. Vengeance trading is a sure receipe of failure.
3) Never target an amount or % gain - i.e. if you are down 26%, don't target to recover it first and so on. Returns - gains (or losses) are market dependedent. Hence adjust yourself to the market on a particular trading day/period instead of adjusting your expected returns to the market.
4) Never ever quit - other than going on vacation or personal engagements. Even if you are feeling down (like now) don't quit. But REDUCE your volume, if need be trade 1/10th, 1/20th, 1/50th or even 1/100th of our normal volume. But don't quit. You may take a break to address the strain / boredom of trading but not due to booked large losses (or even profits otherwise too)
Finally, we all have read /heard it thousands of time. Successful people don't do different things, they do (same) things differently.
p.s. : Tip on Trading: Even for the most successful traders in the world 2 /3trades out of 10 are wrong. Brace with a fact that not all your trades will produce profits. Means SOME (anything above 2 trades out of 10 trades) will CERTAINTLY be wrong. Means exit the wrong trade IMMEDIATELY.
..................
Hard lessons are learnt only when they are forced onto yourself. To learn from an experience, you need a stable mind not a cool mind.
By being expressive you may gain nothing but sympathy (is this your objective or definition of being a trader / jobber) or advices/suggestion from people whom you don't know. (not that I am doubting TJ members integrity and honesty). More importantly, these suggestions may be from people who might not have had being in such a situation in their lives. And still may have a word or two on this situation to you. This is nothing but noise, which you need to eliminate and not create.
You may want a shoulder at this point of time, but if you get one, you will always need one. Being independent means totally, independent. Supertraders are completely detached to what is happening to their positions, similarly you will need this independence.
Instead, I would suggest you IMMEDIATELY (before you forget in this noise) LIST down things that went wrong, how did you act and how should you have reacted. READ, RE-READ, RE-READ endlessly and basis this write down your own rules, dos and don'ts. Memorise them, paste in front of your computer screen. Read it in the loo. Take a morning jog or a evening walk and rememorise it. BUT DO IT ALL ALONE.
Remember this will be your FIRST list, similarly you will have many such more lists, till you consolidate your learnings into a SMALL set of trading rules which will finally suit YOUR OWN personality. And only after this, you will be ADMITTED to traders category. This could take several months or even years.
Regards,
p.s.: Tip on Trading : By nature and default everyone has bad trading habit, over a period and through OWN learning experiences one can keep bad trading habits away. But still, NO ONE is immune to them, the moment one is lazy or callous they will return.
.....................................
Two more points that could assist you:
1) RESET YOUR MIND: Like any disciplined child, when we START our trading day we are well behaved i.e. the initial trades of the day will be governed by our set rules or entry / exit / stop loss etc. because our overnight revision and committment to adhere to our rules is afresh. As we get into more trades we tend to ignore rules, break them and by the end we realise that it was a messed up day. Hence after each few trades take a pause, reset your mind to the same level as it was at the beginning of the day. You may want to take this pause at a preset time then set alarm on your machine / mobile which will alert you to reset your mind. At this moment it could also help you exit immediately if you are holding a losing position due to non adherence of your rules.
2) RESET YOUR MONEY TO 100: Either winning or losing reset your trading amount to 100. You being down by 32% has immediately prompted your mind to analyse and send you a message that you are 1/3 down from your capital (you have mentioned that in your last post). This figure would play a pivotal role in your trading decisions all the times. Also the mind would always be tempted to recover all the lost amount in one trade (which does not happen). Hence reset your trading account balance to 100 (even if were in profits). Base your trading calls, quantity, risk-reward w.r.t. to 100. In other words, make all your daily calculations in % terms of your trading account balance rather than the starting capital. This will make life much easier and would help you to focus on your actions rather than on results. This may take some time and little practise but it is certainly not as hard as sticking to ones trading rules.
...............................
In trading there are two important things:
1. Plan - Instrument, Quantity (basis Risk:Reward), Entry, Exit (in profit), Exit (in loss), holding period/time
2. Rules - defining all of the above
To be a successful trader you will need to be ALWAYS RIGHT on BOTH the above things. Definition of ALWAYS RIGHT means 10/10. Anything other than 10/10 is equivalent to ALWAYS WRONG. Hence 0/10 = 5/10 = 8/10 = 9/10 = ALWAYS WRONG.
If you can UNDERSTAND the simple definition of ALWAYS WRONG then you have won the battle before it begins.
I will give you a simple but very effective tool to assess what is going wrong with your trading. i.e. the first point - PLAN or the second one - RULES
1. Decide ONE (only one) instrument you have been trading since last few days. There is no logic here, any random pick is fine, but you need to select only ONE instrument.
2. Decide minimum permissible quantity/lot you can trade in that instrument.
3. Decide holding period/time as per your existing rules. For a jobber it could be 1 minute. You may decide 5 / 10 mins etc but you need to select ONE holding period.
3. Take a 1 rupee coin having clearly defined Heads and Tails
4. Now don't look at the market, your charts, your indicators or any tool that you use. Absolutely NOTHING. Now toss the coin.
5. If it is Heads you BUY the decided quantity of decided instrument and if it is Tails you SELL (or do nothing incase you do not short otherwise) the decided quantity of decided instrument.
6. Once this is done: Refer all your indicators, charts, etc to arrive at the BEST EXIT price. The BEST EXIT price could be in PROFIT or even LOSS, as you have entered the trade randomly.
7. If your BEST EXIT price is achieved during the decided holding period, then EXIT at that price
8. If your BEST EXIT price is not achieved during the decided holding period, then EXIT at the end of the decided holding period. For this purpose of EXIT at the end of the decided holding period, you may use an alarm clock on you machine/mobile, which will prompt your to exit.
9. Repeat this activity by tossing the coin again number of times, you may do it constantly i.e. back to back or after pausing for sometime between trades.
Illustration:
1. Decided instrument : Nifty Futures
2. Decided quanity : 50
3. Decided holding period : 5 mins
(Entry Time) (Max. Exit Time) (Toss) (Action) (Entry Price) (BEST EXIT Price) (BEST EXIT Price Achieved) (Actual EXIT time) (Actual Exit Price) (P/L)
10:00 10:05 Heads Buy 5145 5152 No 10:05 5140 -5
10:15 10:20 Heads Buy 5150 5159 Yes 10:18 5159 9
10:30 10:35 Tails Sell 5162 5154 Yes 10:34 5154 8
10:45 10:50 Heads Buy 5144 5144 Yes 10:45 5144 0
11:00 11:05 Tails Sell 5152 5143 No 11:05 5150 2
11:15 11:20 Tails Sell 5136 5130 No 11:20 5142 -6
11:30 11:35 Heads Buy 5125 5129 No 11:35 5122 -3
Total Profit / Loss 5
Total Investment 40000
ROI 0.01%
Now let us analyse the results:
1. If summation of all trades done in the above fashion is lesser loss or in profit (calculation to be done strictly on % terms to investment made) than your historic daily loss (again in % terms to your trading account balance) then - YOUR "RULES" ARE RIGHT BUT YOU NEED TO IMPROVE/CHANGE YOUR "PLAN"
2. If summation of the above is similar or nearer to your historic daily loss then - YOU "PLAN" IS RIGHT BUT YOU NEED TO IMPROVE/ CHANGE YOUR "RULES"
Regards,
p.s. I know that the above tool will not be exciting to use as any other trading day, but if you look behind you will notice that exciting trading days have mostly produced losses. The only way to make profit and consistent profits is to make trading activity as boring as possible.
.............................................
Originally Posted by nac
I thought about start trading this week. But my internet connection has facing much problem, I traded and lost some. (its because of failure in net connection). I better stay off till this problem solves and come back to trading.
A classic example of denying the writing on the wall. Nac, why trade when you know systems are not up and running? Successful traders blame no one for their losses but themselves. I hope you understand the point
This month I broke my own record i.e. worst loss ever in my trading history. Around 27% loss on one trading day. While my best is just 5% profit. No. of trading days which end up in profit is high but the losing days eat up all my profit. Here is a snap of my performance chart.
.....
Dear Nac,
This writing was always there on the wall and some, Sanjay and others including me had already predicted so.
And the pace was also quite expected looking at the way you had mentioned your trading method and habit in earlier posts.
What I feel sad to know that your casual announcement that "one has to refill the trading account number of times before making profit consistently". Pls understand that this is no prerequiste to success in trading. Ofcourse most of the traders undergo this, but you taking 'pride' in wiping out your capital just to make your count of refilling start is unwelcome.
Grow up Nac, that's what I can say, you have long long way to go. If time permits visit some of my comments on my Risk Management in the thread 'Thoughts on Risk Management" (post # 61 onwards). Also review commnets made by veterans/regulars viz Oilman5, AW10, Linkon7, Vijay and others in the same thread, you will get much needed perspective.
..............................A cue you may take here which may help you in your trading - be more observant, wait for 'opportunities' to come to you instead of you searching them in the dark.
In trading, 'opportunities' have NO OPTION but to come to people WHO WAIT for them. Strike at the right time and strike hard.
Well many seasoned and successful traders might see Nac's performance, attitude only as their own history some years ago.
If Nac has lost big, now he has the ability to bid and win big too (which most of small-loss-profit traders may not develop over years) only if he can learn asset allocation and risk management in times to come. He can still evolve and do better.
Regards,
p.s. If we are all too good at our methods and best in our judgement about others, what are we doing here???
...............................
If sun rises in east (it is a given fact) you can't question or change that. Similarly, Money management (asset allocation) and Risk Management cannot change either you are full time or part time trader.
If you are good at the above two, I guess no one can stop you from becoming a net profitable trader. The quantum of profit and RoI will depend on your method and instruments you use.
..............................
Aditya has put it very nicely. this statement of urs shows arrogance. it seems u want 2 get back at 'them', but believe me there is no 'them ' in this market, there is only 'me'.the market is very impassionate towards my profits or losses.
I am powerless in this market. when I put in a trade to buy a stock, it is obvious that I want the stock to move up,but the market does not have any respect for my desires. it is not in my power to move the stock even one tick above the price that I have bought it for.now if I am so powerless,where do I get the edge to make money in this market.
I have one tool with me which all the power and might of this market cannot take away from me and that is my stoploss. so start taking care of ur losses and ur profits will automatically start to take care of themselves
...................
Quote:
Originally Posted by nac
I am not much of a reader.
, buddy if you want to last long, there is no way you can loathe reading, it must be your hobby, passion, desire and indispensable thing. And anytime you are short of reading materials, do let me know. I have tons of them.
These days i am reading Patel's "Mind of a Trader", Norman's "Stock market logic" and Taylor's "Mastering Derivatives Maket". and I highly suggest these books.
Quote:
I'll show everyone that I can change.
That's my boy. Keep the attitude but never be arrogant. Market knows zillion ways to humble traders.
Quote:
Sorry, I guess, my posts are like casual approach to you. It ain't, actually its too painfull. Thanks for your suggestion, but I am gonna continue with more caution.
It's the pain of such days which makes a lasting impression and stops us from breaking our rules.
Quote:
My daily stop limit is 1%.
Isn't 1% little less !! Don't be so afraid that you don't risk the required size to make a comeback.
Quote:
Everybody will have their chance, now its market's (taking from me). Soon I will have my turn, then I take it from the market I lost.
Get rid of this thinking/attitude as soon as you can. This will destroy you. Market rewards you for your discipline on trade after trade, on your prudence decision making and on your ability to keep cool. Personally I never got too far with this thinking "I take it from Maket".
We would be glad to know your weekly results (just you ended in green or red would be sufficient, I hope this much will be fine with tnsn also)
All the best on getting rewarded ( Remember, Market is for reverance and not revenge)
........................................I have gut that you may develop into a successful trader. I don't know why but just sensing it somehow. The most important thing I think is you are very open to ideas and always ready to adapt to change. This is a great trait indeed for a trader atleast.
To come to your point directly, if you do not leverage, making substantial gains from day trading for living is less likely. Even if you have large sum as your trading capital. I would focus on monthly returns or RoI as a measure of how much money one can make in the market. Hence leveraging is necessary for day trading. How much to leverage will depend on your MM and Risk Management. More so, if you have different time frames of trading other then day trading (like in my case) your RoI will be different, as you are more focusing on MM. Hence your day trading may help you make double than your longer time frames method.
Adding to what Aaditya mentioned "sky is the limit", YOU can decide how much to make from the market. If your method produces say even 15% RoI p.m. and is scalable then who is stopping you to borrow @ 2% pm and pocket the difference. You can make money without having money. BTW this is only an example I am providing and am against trading on borrowed money.
So your method's RoI and scalability is what you need to define to arrive at how much on an average you could make every month.
.................................
Very rightly said 'Time cures everthing'. So Nac take your time, and do some homework till then. This is your best time to prepare for future.
.....................
..........................................
No sympathies to you. Absoulutely no sympathies.
On the contrary I congratulate you on making a GREAT start to your trading / jobbing career. You are down JUST 26% and you are feeling sh*t.
THIS IS THE EXPERIENCE or even worse if you lose more here after, which I really wish, if you sincerely want to make this to be your livelyhood activity.
THIS FEELING can never be felt anywhere else, not by listening, reading books, hearing. Belive me this EXPERIENCE is a MUST and is the foundation stone for trading career.
A few suggestion I would like to make to you:
1) Don't be vocal / expressive of all your feelings in public - you will dilute the learning experience and would commit same or graver mistakes in future. It is your experience and you need to go through it. Enjoy it, feel it, nuture it - get your body, mind and soul adjust to this experience. By sharing it publicly you are losing a big opportunity of learning. You may share it subsequently once you are out of the experience. This applies to Good experience as well as "Learning" experience.
2) Don't be overconfident - getting back with a bang in the market seldom wins. Vengeance trading is a sure receipe of failure.
3) Never target an amount or % gain - i.e. if you are down 26%, don't target to recover it first and so on. Returns - gains (or losses) are market dependedent. Hence adjust yourself to the market on a particular trading day/period instead of adjusting your expected returns to the market.
4) Never ever quit - other than going on vacation or personal engagements. Even if you are feeling down (like now) don't quit. But REDUCE your volume, if need be trade 1/10th, 1/20th, 1/50th or even 1/100th of our normal volume. But don't quit. You may take a break to address the strain / boredom of trading but not due to booked large losses (or even profits otherwise too)
Finally, we all have read /heard it thousands of time. Successful people don't do different things, they do (same) things differently.
p.s. : Tip on Trading: Even for the most successful traders in the world 2 /3trades out of 10 are wrong. Brace with a fact that not all your trades will produce profits. Means SOME (anything above 2 trades out of 10 trades) will CERTAINTLY be wrong. Means exit the wrong trade IMMEDIATELY.
..................
Hard lessons are learnt only when they are forced onto yourself. To learn from an experience, you need a stable mind not a cool mind.
By being expressive you may gain nothing but sympathy (is this your objective or definition of being a trader / jobber) or advices/suggestion from people whom you don't know. (not that I am doubting TJ members integrity and honesty). More importantly, these suggestions may be from people who might not have had being in such a situation in their lives. And still may have a word or two on this situation to you. This is nothing but noise, which you need to eliminate and not create.
You may want a shoulder at this point of time, but if you get one, you will always need one. Being independent means totally, independent. Supertraders are completely detached to what is happening to their positions, similarly you will need this independence.
Instead, I would suggest you IMMEDIATELY (before you forget in this noise) LIST down things that went wrong, how did you act and how should you have reacted. READ, RE-READ, RE-READ endlessly and basis this write down your own rules, dos and don'ts. Memorise them, paste in front of your computer screen. Read it in the loo. Take a morning jog or a evening walk and rememorise it. BUT DO IT ALL ALONE.
Remember this will be your FIRST list, similarly you will have many such more lists, till you consolidate your learnings into a SMALL set of trading rules which will finally suit YOUR OWN personality. And only after this, you will be ADMITTED to traders category. This could take several months or even years.
Regards,
p.s.: Tip on Trading : By nature and default everyone has bad trading habit, over a period and through OWN learning experiences one can keep bad trading habits away. But still, NO ONE is immune to them, the moment one is lazy or callous they will return.
.....................................
Two more points that could assist you:
1) RESET YOUR MIND: Like any disciplined child, when we START our trading day we are well behaved i.e. the initial trades of the day will be governed by our set rules or entry / exit / stop loss etc. because our overnight revision and committment to adhere to our rules is afresh. As we get into more trades we tend to ignore rules, break them and by the end we realise that it was a messed up day. Hence after each few trades take a pause, reset your mind to the same level as it was at the beginning of the day. You may want to take this pause at a preset time then set alarm on your machine / mobile which will alert you to reset your mind. At this moment it could also help you exit immediately if you are holding a losing position due to non adherence of your rules.
2) RESET YOUR MONEY TO 100: Either winning or losing reset your trading amount to 100. You being down by 32% has immediately prompted your mind to analyse and send you a message that you are 1/3 down from your capital (you have mentioned that in your last post). This figure would play a pivotal role in your trading decisions all the times. Also the mind would always be tempted to recover all the lost amount in one trade (which does not happen). Hence reset your trading account balance to 100 (even if were in profits). Base your trading calls, quantity, risk-reward w.r.t. to 100. In other words, make all your daily calculations in % terms of your trading account balance rather than the starting capital. This will make life much easier and would help you to focus on your actions rather than on results. This may take some time and little practise but it is certainly not as hard as sticking to ones trading rules.
...............................
In trading there are two important things:
1. Plan - Instrument, Quantity (basis Risk:Reward), Entry, Exit (in profit), Exit (in loss), holding period/time
2. Rules - defining all of the above
To be a successful trader you will need to be ALWAYS RIGHT on BOTH the above things. Definition of ALWAYS RIGHT means 10/10. Anything other than 10/10 is equivalent to ALWAYS WRONG. Hence 0/10 = 5/10 = 8/10 = 9/10 = ALWAYS WRONG.
If you can UNDERSTAND the simple definition of ALWAYS WRONG then you have won the battle before it begins.
I will give you a simple but very effective tool to assess what is going wrong with your trading. i.e. the first point - PLAN or the second one - RULES
1. Decide ONE (only one) instrument you have been trading since last few days. There is no logic here, any random pick is fine, but you need to select only ONE instrument.
2. Decide minimum permissible quantity/lot you can trade in that instrument.
3. Decide holding period/time as per your existing rules. For a jobber it could be 1 minute. You may decide 5 / 10 mins etc but you need to select ONE holding period.
3. Take a 1 rupee coin having clearly defined Heads and Tails
4. Now don't look at the market, your charts, your indicators or any tool that you use. Absolutely NOTHING. Now toss the coin.
5. If it is Heads you BUY the decided quantity of decided instrument and if it is Tails you SELL (or do nothing incase you do not short otherwise) the decided quantity of decided instrument.
6. Once this is done: Refer all your indicators, charts, etc to arrive at the BEST EXIT price. The BEST EXIT price could be in PROFIT or even LOSS, as you have entered the trade randomly.
7. If your BEST EXIT price is achieved during the decided holding period, then EXIT at that price
8. If your BEST EXIT price is not achieved during the decided holding period, then EXIT at the end of the decided holding period. For this purpose of EXIT at the end of the decided holding period, you may use an alarm clock on you machine/mobile, which will prompt your to exit.
9. Repeat this activity by tossing the coin again number of times, you may do it constantly i.e. back to back or after pausing for sometime between trades.
Illustration:
1. Decided instrument : Nifty Futures
2. Decided quanity : 50
3. Decided holding period : 5 mins
(Entry Time) (Max. Exit Time) (Toss) (Action) (Entry Price) (BEST EXIT Price) (BEST EXIT Price Achieved) (Actual EXIT time) (Actual Exit Price) (P/L)
10:00 10:05 Heads Buy 5145 5152 No 10:05 5140 -5
10:15 10:20 Heads Buy 5150 5159 Yes 10:18 5159 9
10:30 10:35 Tails Sell 5162 5154 Yes 10:34 5154 8
10:45 10:50 Heads Buy 5144 5144 Yes 10:45 5144 0
11:00 11:05 Tails Sell 5152 5143 No 11:05 5150 2
11:15 11:20 Tails Sell 5136 5130 No 11:20 5142 -6
11:30 11:35 Heads Buy 5125 5129 No 11:35 5122 -3
Total Profit / Loss 5
Total Investment 40000
ROI 0.01%
Now let us analyse the results:
1. If summation of all trades done in the above fashion is lesser loss or in profit (calculation to be done strictly on % terms to investment made) than your historic daily loss (again in % terms to your trading account balance) then - YOUR "RULES" ARE RIGHT BUT YOU NEED TO IMPROVE/CHANGE YOUR "PLAN"
2. If summation of the above is similar or nearer to your historic daily loss then - YOU "PLAN" IS RIGHT BUT YOU NEED TO IMPROVE/ CHANGE YOUR "RULES"
Regards,
p.s. I know that the above tool will not be exciting to use as any other trading day, but if you look behind you will notice that exciting trading days have mostly produced losses. The only way to make profit and consistent profits is to make trading activity as boring as possible.
.............................................
Originally Posted by nac
I thought about start trading this week. But my internet connection has facing much problem, I traded and lost some. (its because of failure in net connection). I better stay off till this problem solves and come back to trading.
A classic example of denying the writing on the wall. Nac, why trade when you know systems are not up and running? Successful traders blame no one for their losses but themselves. I hope you understand the point
This month I broke my own record i.e. worst loss ever in my trading history. Around 27% loss on one trading day. While my best is just 5% profit. No. of trading days which end up in profit is high but the losing days eat up all my profit. Here is a snap of my performance chart.
.....
Dear Nac,
This writing was always there on the wall and some, Sanjay and others including me had already predicted so.
And the pace was also quite expected looking at the way you had mentioned your trading method and habit in earlier posts.
What I feel sad to know that your casual announcement that "one has to refill the trading account number of times before making profit consistently". Pls understand that this is no prerequiste to success in trading. Ofcourse most of the traders undergo this, but you taking 'pride' in wiping out your capital just to make your count of refilling start is unwelcome.
Grow up Nac, that's what I can say, you have long long way to go. If time permits visit some of my comments on my Risk Management in the thread 'Thoughts on Risk Management" (post # 61 onwards). Also review commnets made by veterans/regulars viz Oilman5, AW10, Linkon7, Vijay and others in the same thread, you will get much needed perspective.
..............................A cue you may take here which may help you in your trading - be more observant, wait for 'opportunities' to come to you instead of you searching them in the dark.
In trading, 'opportunities' have NO OPTION but to come to people WHO WAIT for them. Strike at the right time and strike hard.
Well many seasoned and successful traders might see Nac's performance, attitude only as their own history some years ago.
If Nac has lost big, now he has the ability to bid and win big too (which most of small-loss-profit traders may not develop over years) only if he can learn asset allocation and risk management in times to come. He can still evolve and do better.
Regards,
p.s. If we are all too good at our methods and best in our judgement about others, what are we doing here???
...............................
If sun rises in east (it is a given fact) you can't question or change that. Similarly, Money management (asset allocation) and Risk Management cannot change either you are full time or part time trader.
If you are good at the above two, I guess no one can stop you from becoming a net profitable trader. The quantum of profit and RoI will depend on your method and instruments you use.
..............................
Aditya has put it very nicely. this statement of urs shows arrogance. it seems u want 2 get back at 'them', but believe me there is no 'them ' in this market, there is only 'me'.the market is very impassionate towards my profits or losses.
I am powerless in this market. when I put in a trade to buy a stock, it is obvious that I want the stock to move up,but the market does not have any respect for my desires. it is not in my power to move the stock even one tick above the price that I have bought it for.now if I am so powerless,where do I get the edge to make money in this market.
I have one tool with me which all the power and might of this market cannot take away from me and that is my stoploss. so start taking care of ur losses and ur profits will automatically start to take care of themselves
...................
Quote:
Originally Posted by nac
I am not much of a reader.
, buddy if you want to last long, there is no way you can loathe reading, it must be your hobby, passion, desire and indispensable thing. And anytime you are short of reading materials, do let me know. I have tons of them.
These days i am reading Patel's "Mind of a Trader", Norman's "Stock market logic" and Taylor's "Mastering Derivatives Maket". and I highly suggest these books.
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I'll show everyone that I can change.
That's my boy. Keep the attitude but never be arrogant. Market knows zillion ways to humble traders.
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Sorry, I guess, my posts are like casual approach to you. It ain't, actually its too painfull. Thanks for your suggestion, but I am gonna continue with more caution.
It's the pain of such days which makes a lasting impression and stops us from breaking our rules.
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My daily stop limit is 1%.
Isn't 1% little less !! Don't be so afraid that you don't risk the required size to make a comeback.
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Everybody will have their chance, now its market's (taking from me). Soon I will have my turn, then I take it from the market I lost.
Get rid of this thinking/attitude as soon as you can. This will destroy you. Market rewards you for your discipline on trade after trade, on your prudence decision making and on your ability to keep cool. Personally I never got too far with this thinking "I take it from Maket".
We would be glad to know your weekly results (just you ended in green or red would be sufficient, I hope this much will be fine with tnsn also)
All the best on getting rewarded ( Remember, Market is for reverance and not revenge)
........................................I have gut that you may develop into a successful trader. I don't know why but just sensing it somehow. The most important thing I think is you are very open to ideas and always ready to adapt to change. This is a great trait indeed for a trader atleast.
To come to your point directly, if you do not leverage, making substantial gains from day trading for living is less likely. Even if you have large sum as your trading capital. I would focus on monthly returns or RoI as a measure of how much money one can make in the market. Hence leveraging is necessary for day trading. How much to leverage will depend on your MM and Risk Management. More so, if you have different time frames of trading other then day trading (like in my case) your RoI will be different, as you are more focusing on MM. Hence your day trading may help you make double than your longer time frames method.
Adding to what Aaditya mentioned "sky is the limit", YOU can decide how much to make from the market. If your method produces say even 15% RoI p.m. and is scalable then who is stopping you to borrow @ 2% pm and pocket the difference. You can make money without having money. BTW this is only an example I am providing and am against trading on borrowed money.
So your method's RoI and scalability is what you need to define to arrive at how much on an average you could make every month.
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Very rightly said 'Time cures everthing'. So Nac take your time, and do some homework till then. This is your best time to prepare for future.
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If you are just starting and havent' mastered any form (infact mastering is a life long process, i meant consistent in profits) then it is not good idea to jumble different styles of trading. (i hope you know the parable how donkey was created ).
There is no problem in trading more than one style but you should know the difference and never jumble them. Don't enter thinking you will scalp it but then you stayed longer seeing the profit rise. And vice-versa, don't scalp if you entered for trend.
Infact i see the market condition, which decides my form (very rarely both style of trading comes into picture in the same day).
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In trading one does not blow out due to losses but due to unability to manage losses makes him think in the wrong direction, taking wrong decisions which leads to deeper mess.
LOSSES ARE PART OF TRADING
(or for that matter any business) for one and all, you, me and everybody. But only those come out successfully who manage themselves during this phase.
If one can learn how to LIVE with losses one will start booking loss IMMEDIATELY after identifying a wrong trade. And what can be a key than this to be successful in trading. Profits will always come how so ever dumb one is.
Ironically, some know this, few understand it and even fewer remember it. And those traders consistently trade 'net' profitably
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Originally Posted by sanjay1876
Well said!!!!. This is one of my strong points from day one. I've never modified stop loss on losing side. I just simply take the hit as it is. Acoording to me it is important reason for my survival here.
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Originally Posted by iamaaditya
That's very true Sanjay, infact my own system has winning ratio of only 35%, so only way to make money in such a system will be "CUT THE LOSERS & LET WINNERS RIDE" (It's not easy as it sounds, but after some behavioral change its possible).
Also the reason, i didn't get into Jobbing was, it requires HIGH PROBABILITY setup which i find tough to find (or implement in REALTIME). High Probability is necessitated because of LOW PROFIT (R:R = 1:1 or max 1:1.5).
I bet on LOW PROBABILITY & HIGH PROFIT setup. I have done hours of backtesting of several systems and realised it is possible to find or make a decent system with Low winning Ratio (and with discipline it can be made to high profit).
Dear Friends,
Stop Loss is grossly misused term to exit your WRONG TRADES.
I beg to differ almost all authors, traders, 'experts' who proclaim that SL (Stop Loss) is the most important part of their Risk Management strategy. And can, have and would vociferously engage into a debate with them. Also I doubt if SL management would ever create successful trader.
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That's very true Sanjay, infact my own system has winning ratio of only 35%, so only way to make money in such a system will be "CUT THE LOSERS & LET WINNERS RIDE" (It's not easy as it sounds, but after some behavioral change its possible).
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Sounds logical, but more than answering how? more importantly, should you allow your winners to ride or wait for maximum possible profit?
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hi tnsn
over the years I have found 'stop loss' to be the most potent tool in my arsenal. the first advantage that I can think of is that in ur initail formative years, it keeps u in the game always.
I feel that my loss is the only thing that I can control in the mkt.
as regards jobbing, I am very clear that jobbing without stoploss is like driving a car at high speed without brakes. crash is imminent.
now since I am not jobbing actively anymore,all the systems that I trade these days are based purely on stop loss ie. I do not have a price target but always a stop loss.
having said that, after going thru a few of ur posts, I found them to be practical and informative. hence am eager to know ur point of view on this.
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partially do agree that Stop Loss is slighly misused and grossly misunderstood.
Keeping the stop-loss for the trade and waiting till the stop-loss hits is like looking forward to Stop being hit.
In almost all the cases my position is greatly reduced before it reaches to the point of STOP.
Exiting the Trade with stop loss means you don't have strategy for exit (for trades which are in not in your favour ofcourse). It is better to devise some rules based on weakness of trend (if you are a trend player), peircing of Bolinger Band (if you are a ranger) and based on tape (if you are a jobber). This will give you more control over the trade.
BUT this doesn't mean that there will be NO STOP LOSS. STOP LOSS must there to save you from catastrophe. Let's say your internet connection is gone or no electricity, system crashes, thunder, and worst (one case i know) Heart Attack .
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Stoploss is the most important tool to prevent runaway losses. Also when i said i do not modify stoploss, i meant i do not expect the losing trade to suddenly turn into winning one. If trade moves in opposite direction of what you expected there is always option of exiting the trade before the stoploss is hit.
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Yup, you are right. I did'nt mean to say having stop loss is bad. I always have one.
It's this that I prefer to exit a trade with a reason where reason is something other than "stop loss being hit".
Disclaimer to everyone (specially newbies into the field of trading), Please do not read my words as favour against not keeping STOP LOSS. Always have stop loss, but then there are other facets to exiting a trade. Moreover don't take a position where a smaller runaway scares you (or your Trading equity)
suppose you meant "should you take profits or wait for maximum profit (by allowing your winners to ride).
This is where Trading becomes ART, and is mastered with Experience. It's the greatest Dialemma especially for Trend Players (Positional/Swing/Intra-Day).
I prefer to take 50% of profit at first sign of weakness (opposite candle to my trade direction). Deciding on this weakness also happens after multiple TFA (sometime decision is settled by 1 min candle). Then i take 25% of profit where i see smaller pullback or rally (depeding on side of trade) forming. Last 25% happens either at b/e (if trade was already in profit) or at EOD (since i am intraday trader, i square off all trades by EOD, and no exception even if trade is in huge profit or huge loss)
But then the scope of improvement is always around, everday after the market in hindsight looking at chart it seems i could have done better, or sometimes waited little longer or sometimes booked little earlier, but these are knowledge of hindsight which doesn't come into picture during REAL TIME trading.
Every profession after some degree (i.e initial learning of rules) becomes Subjective i.e a matter of skill (or ART if you will)
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Following are the assumptions before I get into this topic:
1. Traders trade basis TA (charts, indicators, volume etc) and not FA. Hence Jobbers will be exclued here as they generally do not use either TA or FA
2. A Trading Plan is in place before entering into a trade. A typical Trading Plan will include:
- Awareness of market condition
- Entry reason, instrument, time, price
- EXIT TIME (holding period of the position, if the position is in favour)
- Review period interval of the position (viz charts, indicators whatever your method uses)
- Adjustment plan (adds, reduction, status quo)
- Estimation of Maximum drawdown at the end of first review period (this can be done basis the volatility). Your quantity, exposure etc will depend on this
- Stop Loss : For 'traders' who religiously follow this practice and arrive at the SL amount on whatever calculation they do
3. Trader here is not a novice and has had fair experience of trading including undergoing trauma of living through losses for extended period of time
4. Trader here has a reasonable strike rates derived from his method(s) i.e. range between 40% to 70%
The Precursor:
Most of us have learnt to ride a bicycle in our childhood. We have fallen, got hurt, scared, demotivated to quit, but the fun of riding the bicycle always made us to take a jig at it again and again, till we perfected it.
In the process we have had bruises, scars and even fractures. This is almost similar to trading without Stop Loss as there is not protection for you when you lose balance and you crash getting hurt. (Ever wondered that you could prefect riding a bicycle despite without a SL, but have taken so many years to perfect Trading even putting SL???)
Suddenly, some smart man suggested that we should have ‘Stop Loss’ on bicycles so kids don’t injure themselves while learning. So he put a pair of small wheels along the rear wheel, so the bicycle was actually a four wheeler than two. These two super supporting small wheels kept the ‘kids’ (I guess most of us have not learnt riding on such ‘four’ wheelers, anyways) from falling on either side, hence protecting them from injuries. A good idea indeed !!
But as the kids grow up and they learn ‘balancing’ on their own they would get rid of the first small wheel and a few days later the second small wheel. Now they are riding a bicycle (two wheeler !!) in the real sense. We have all seen this right, so there is no excitement till now. But I would like to ask here, why do you remove the small side wheels after you have learnt balancing???? You can very well keep them as it is, why remove it???
Yes, why we remove it? Why we remove this ‘Stop Loss’ forever and never use it…..
Fair assumption would that the wheels are removed because the kids have learnt riding the bicycle. This does not mean that the kid will not fall now, he can still fall but now the fall would be mostly triggered not due to his own misadventure but by some external factors viz, some one banging him from rear, tyre burst while riding, a stray dog suddenly running across the road, unnoticed potholes etc etc…
But still we have decided to remove the wheels not because the kid will now NEVER FALL but he when is likely to ‘fall’ he will use his own FOOT to prevent the fall. He will not rely on EXTERNAL small wheels (‘Stop Loss’) which used to protect him till now while he was still learning.
The ‘small wheels’ are physical Stop Loss, while the feet is the mental Stop Loss. Using his feet to halt the bicycle at his ‘destination’ or in between to prevent himself from falling comes NATURALLY to the kid. There is NO THINKING involved when to put the FOOT DOWN. It comes naturally!!!. On the contrary if there were the small wheels on the bicycle forever, they would always act as artificial external way to hinder the driving process and would always prevent him from taking those sharp turns, do the ‘wheelie’, race the empty road, race through the slopes freely or struggle hard upway. The ‘small wheels’ just cause obstruction than help him now since he has now perfected doing the balancing act !!!
Market conditions are not same all the time (I am not covering this here), so you will sometimes have to face sharp turns, do the ‘wheelie’, travel downhill or struggle uphill. Again you will never know what could happen next as the conditions may or may not change suddenly.
It is trader’s mentality to keep trading in various kinds of market conditions and all the time. Of these traders there are some smart traders who have different methods to trade different market conditions. And unfortunately for most of these ‘smart’ traders the methods get overlapped or interchanged. And then so does their SL. But while I am saying this, the SL they put is most likely arrived in a RANDOM fashion or on the basis of % risk per trade (..ha…ha..). How on the earth would the Markets know YOUR risk per trade % and move in your favour keeping it in mind that YOUR SL should not be hit (I wonder..) As it is random pricing of SL and further even illogical (read sentimental) concept of trailing SL, it is often called that ‘SL management is art than science’ (you may read ‘abstract art’. Abstract art : No one understands it, but do not want others to know about it hence you start appreciating it. The next guy also does the same. So no one argues.)
The very fact that you have put the SL in the first place makes you feel that you are IMMUNE to everything happening in the market. You start feeling that nothing can happen to you now as worst is that you will exit at the SL. You act God. This feeling deprives you of the ‘opportunity’ to exit your WRONG trades much earlier as you always have the feeling that you have the SL in place and this SL will HELP you make profit and the SL will never be hit. Invariably the SL is hit. And hit. And hit. Then you increase the SL gap as you feel that the earlier SLs were too close (having seen market reverse after hitting your SLs).
Using SL for trading, you take 1 step down, x steps up, 2 down, x up, 2 down, 1 down, x up, 2 down, x up……and so on. At the end of the month either you are down or at par or at best marginally up. But is it worth all the effort, time and opportunity one had all during the month.
On similar lines, what is the use of a helmet when you ride a motorcycle? Why is the safety net in the circus? …..and their analogy in trading…will write more tomorrow..
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The very fact that you have put the SL in the first place makes you feel that you are IMMUNE to everything happening in the market. You start feeling that nothing can happen to you now as worst is that you will exit at the SL. You act God. This feeling deprives you of the ‘opportunity’ to exit your WRONG trades much earlier as you always have the feeling that you have the SL in place and this SL will HELP you make profit and the SL will never be hit. Invariably the SL is hit. And hit. And hit. Then you increase the SL gap as you feel that the earlier SLs were too close (having seen market reverse after hitting your SLs
hi..
Interesting analysis. but the way I think is that if I put on a trade with a predetermined SL and later on find that the market does not behave in the manner that I expected it to and squrare off my position before my SL is hit. what am I doing..... I am still booking my loss . hence I am still executing my SL albeit I have raised my SL closer to my entry price. hence the debate now is not whether having a SL is good or bad, the debate here is whether the SL should be fixed at a preconcived point or should it be raised or lowered according to the way the market reacts (or the way I percieve the market) after putting on my trade.
It is trader’s mentality to keep trading in various kinds of market conditions and all the time. Of these traders there are some smart traders who have different methods to trade different market conditions. And unfortunately for most of these ‘smart’ traders the methods get overlapped or interchanged. And then so does their SL. But while I am saying this, the SL they put is most likely arrived in a RANDOM fashion or on the basis of % risk per trade (..ha…ha..). How on the earth would the Markets know YOUR risk per trade % and move in your favour keeping it in mind that YOUR SL should not be hit (I wonder..) As it is random pricing of SL and further even illogical (read sentimental) concept of trailing SL, it is often called that ‘SL management is art than science’ (you may read ‘abstract art’. Abstract art : No one understands it, but do not want others to know about it hence you start appreciating it. The next guy also does the same. So no one argues
there are a lot of guys around who feel that all price movement is random.I also subscribe to the same school of thought.I beleive that all price movement is random with a few trends thrown in, as would be the case if we try to chart the outcome of a simple coin toss. the general outcome would be random with a series of successive heads or tails thrown in between.this series of successive heads or tails is what I consider as 'trends'. I totally agree here that the market would not respect any random SL, but beleive me it would not even respect any 'pivot low or high' or any 'fibonacci levels' if it doesnt want to. hence I do not beleive that there is any harm in putting a random SL initially and then moving it later on according to the way the mkt moves .
just my thoughts. the intention is not to counter u but initiate a healthy debate.
Also stoploss is used to prevent runaway losses especially during sharp move in opposite direction of trade.
Now coming to your analogy of bicycle. Everyone has his own prespective and sees the world accordingly. In my view the smaller wheels are like extra caution, e.g. like someone uses 1 indicator to trade with 40% chance also when he has 2 indicators giving same signal his chances get to say 55%. So he trades only when both indicators give same signal. So he obviously misses some oppurtunity as well. So in my view inherent precautions in ones system are the two smaller wheels.
Now what is stoploss then?
Stoploss is the brakes. It is used to prevent falling in pothole. Now whether you drive 2 or 4 wheeler brakes are paramount. Also its importance increases with increase in stakes. Like one can drive bicycle withot brakes but what about driving a car without brakes!
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I always (of course not always, after initial hiccups in trading) had a view that One should have Discipline enough to Cut the losers on Will and not depend on Stop-Loss (which in a way kind of forces you, though some novice traders horribly move their stop down which is another crime completely).
but all said, no one can expect a novice Trader to mature soon enough (without hitting some stones) to a discipline where he can put the legs down automatically without any hesitation, so everyone has to go with the phase where you use "Extra wheels".
Also we should never discount the possibility of "Black Swan" occurring (for the completely uninitiated, its events with very low probability but very high impact say October 19, 1987 when Dow crashed 22%) and for such scenario's there must be a stop loss , which according to me should be at level where it doesn't come into play on normal days.
Extending the analogy, i would like to call these kind of black swan stops as "helmets" and not "extra wheels" (this is first time when i am deliberately trying to fore-run your thoughts, i hope i am getting it right ?), though a bike rider doesn't expect to hit an accident everyday and by probability chances of it occurring (even in is complete lifetime) is very low so he would rather not use one and rather enjoy free ride but then one accident without helmet could kill him ending any further progress (analogical to getting bankrupt). So the question is, Is it worth to wear helmet everyday where expectancy of life killing accident is very small, i firmly say yes.
If you guys are aware, the author of "black swan" Nassim Nicholas Taleb , used to be a trader and fund manager. In fact he opened a Fund (Empirica), just to capitalize on such black swan events. Every day he used to buy Very Very far Out of the money options (but sadly couldn't make much money and eventually Fund was sold out and he returned to writing books)
.......................Your definitions of SL is right but different.
While Aaditya you are putting SL to address a catastrophe, Anurag is defining moving his unrealised expected loss (defined by his initial random SL) closer to lesser loss in the event of identifying a wrong trade. Sanjay is a fence sitter with one leg on Aaditya's definition and other on Anurag's.
While Aaditya definition is similar to wearing helmet riding a motorcycle (or the safety net in a circus) where the idea is not to get down from the bike head-down first. The helmet is just to protect us from any UNFORSEEN circumstances which are out of our control (aptly defined by Aaditya in his post w.r.t. trading). It is still the feet which we use to get down from the bike when we reach our destination or are interupted before reaching it. This definition can be termed as CSL - catastrophe stop loss and not SL which is widely used in trading.
Anurag, with your definition, which most of the traders would do there is an element (howsoever small) of unconviction when you enter a trade. No one likes to see his position going down immediately one enters the trade. But is happens many (or most) of the time, especially to traders who put the SL (as per your definition) as the decision to trade is taken on the basis of R:R rather than probabilitiy of the trade. I would always take a large position even if the reward were very small than the risk (maximum draw down till the end of first review period) if the probability is very very high.
The moment you have the SL idea in the mind, the trades with not very high probability, equal probability or even low probability are undertaken as you evaluate the decision to enter on the basis of R:R and not the probability of outcome.
Not using SL (certainly one should use the CSL though) will direct all your engery and focus on taking the HIGH probability trades. You wait till you have a pattern/trend in the random movement of the market and grab the opportunity with both the hands.
Another analogy here is the Law of the land, which states that the law may not punish a criminal (by giving benefit of doubt) just to ensure that no innocent is punished. Similarly, there one would let go and lose many high probability trades (as one may not be fully convinced at that point of time) but this would ensure that wrong trades are not undertaken.
And it is much easier to exit such fully convinced trades too, because it is very very easy to identify the indications that your predicted direction may not happen. Hence, easier to exit immediately and abort the mission praising the Law of the land.
My conclusions:
- Putting SL on trades directs you to undertake any probability trade as primarily there is a soothing feeling that you will be stopped soon and not bear large loss. (Forgetting that the whole idea here is to make money and not exit at 'small' loss)
- Lot of such 'small' loss (due to poor selection of trades) result into a sizeable loss, which may get covered in some good trades, but we have lost time and other great opportunities in between. End of the month where are we? At the same place, or just somewhere near.
- And this make a lot of difference between a super trader (who wins many, loses some), a regular net profitable trader (who wins some, loses some) or a net loser trader (who wins some, loses many)
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The definition of SL is clearly your unrealised expected loss in case the trade is wrong. This forms the basis of quantity or exposure you may want to take on a trade. The definition of wrong trade is not necessarily move in the wrong direction but the outcome is not as per EXPECTION.
The second point of large runaway losses in the opposite direction can be termed as something happening exactly opposite to your thinking and the outcome is UNEXPECTED.
If one is using a same SL for both of the above objectives than he may end up taking many low or equal probable trades than higher probable trades. Effectively the success rate of trades may be compromised. See only MM and discipline alone cannot create substantial wealth for a trader. Higher success rate of trades is also a prerequiste to become a successful trader.
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Now coming to your analogy of bicycle. Everyone has his own prespective and sees the world accordingly. In my view the smaller wheels are like extra caution, e.g. like someone uses 1 indicator to trade with 40% chance also when he has 2 indicators giving same signal his chances get to say 55%. So he trades only when both indicators give same signal. So he obviously misses some oppurtunity as well. So in my view inherent precautions in ones system are the two smaller wheels.
Now what is stoploss then?
Stoploss is the brakes. It is used to prevent falling in pothole. Now whether you drive 2 or 4 wheeler brakes are paramount. Also its importance increases with increase in stakes. Like one can drive bicycle withot brakes but what about driving a car without brakes!
The small wheels are post facto hence they will not come into play till the rider decides to ride the the bicycle and sits on it and starts paddling. The brakes are reduction in you position as there is uncertainty whether you will reach the destination by the stipulated time. Paddling is adds to the position. Putting foot down due to sudden hinderence is actual exit from your position at that point of time (either in loss or profit whatever it is), slowing down as you reach the destination, stepping down your positions (likely in profit) culminating into final touch down at destination, exiting fully.
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What tn is emphasizing is that once we start to identify high probable trades ,we would not need to depend heavily on the stop loss. Also he means that by using Risk Return ,we may choose trades that are of low probability. But more importantly we have to choose higher probability trades of even low RR . This way we end the month positive rather than have small losses every day only to take stock at the end of the month and start worrying.
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Open book - Kinda market depth, which shows the depth of the market.
Print - Kinda tick list, shows price and quantity traded.
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Thank you Aloyraj and tnsn sir for your great thinking. I now understand what you fellows think about good trading decision making. So the thing here is that if we start with a good trading decision we not has to depend on things like stop loss and if i learn that the trade is wrong i will come out quickly.
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What about profit booking ? I would love to know your, sanjay's, alroyraj's and anurag's Profit Booking Strategy.
I believe this is where experience makes it different, as its more ART than LOGIC (or SYSTEM). Infact Even Saint uses more discretionary while booking profit. May be after day's day's of Retrospection on Trades, we finally get the "Sweet Spot".
Mine's strategy is to book some on first sign of weakness (as i find many a times this is a critical pivot), then some on failure of pullback/rally and then I delibrately leave some part till the END or Breakeven just to ride the trend to maximum.
Especailly most of my trades are NOT SAR, it becomes even more discretionary.
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yes I do carry the element of unconviction every time I enter a trade because,as I said earlier, I beleive that price movement is random." i believe that my position is wrong untill proven right". there are a lot of examples in the real trading world which show that u can have a very small percentage of winning trades and still be very profitable. a case in point would be Richard Dennis. I think even Aaditya mentioned that his winning trades are not more than 35% of his total trades but still on balance he is profitable.
To me having a large percentage of my trades to be winners is not important.(when I am not jobbing), but what is important is how do I extract the maximum juice out of my profitable trades, even though they may be few as compared to my loosing trades. hence I am always comfortable working with a SL, whether it be in the mkt. or it be mental.
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I think this is the main point to master, how to book profits...and another complicated thing is where ( at which point) to add in the winners...you dont want to add in the winning trade , just to see the trade reverse....
everybody has two types of trade only..
one type is wrong trade..here you can exit 1) through SL, 2) before SL hit, or 3) not exit by hoping that trade will move in your favour and in the process averaging at lower levels..the first two exit methods will keep your losses small, but the third method of averaging will kill you in the long run..because the loosing trade may move once in a while in your favour but most of the times it will force you to accept large losses, which quickly eat your trading capital. and most of times traders try to average...because no one wants to accept defeat or take losses, its human tendency..
second type of trade is winning trade..now trade moves in your direction..what most of the traders do now..at the first sign of reversing traders exit by pocketing their profit by moving trailing SL...only to see trade again reversed and goes higher and higher and higher or as may be the case...oh my GOD..itna mil jaata..haath se nikal gaya...mood kharab ho gaya....now next time you again in this situation...now you book profit only @ 50 % at the first sign of reversing, and what happens, the trade is going down the drain..and your next 50 % position will be either in very small profit or breakeven or in the red ...dragging overall trade in red... oh my GOD...isse accha toh pehle hi 100 % profit le lete..jitna mil raha tha theek toh tha..jyada ke chakkar mein aadha bhi gaya...
therefore those traders who master the art of booking maximum profit ie not run with small profit, they survive the longest run. My hats off to those traders. Everbody has some lossing trades, some winning trades. but those traders will survive only who take losses small and ride their winners till the end. but generally traders mentality is just opposite, they quickly take profits early (baad mein yeh bhi nahin milega mentality)..and take losses big (dont want to accept they just entered in a wrong trade , kabhi toh upper jayege mentality).
so only two rules to remember in trading ( but how many master these ?)
1) take your losses small - exit from your wrong trades quikly.
2) ride your winners - take maximum juice out of your winners.
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To me there is no iota of doubt that will allow me to ride my winners / to take maximum profit possible. I will not earn any thing free in the market.
And this is not the egoistic me which is saying this but the years of experience in this area. But for the simple reason as we hold on the habit of letting our winners ride (due to reasons other than our method/thought) we may also do the same with our losers. When you leave riding your winners to the market you are 'subconsiously learning' speculating. Today you have allowed your winner to ride, the same 'habit' will one day (just one day or just one trade) ride your loser to the place where you started or beyond that. So it's again 2-1-1+3-2+1-1+3-2+6-2+1-5....and it gets you nowhere.
SPECULATING IN TRADING IS DANGEROUS !!!! (Either with losses or with PROFITS)
In the randomness of the market there are times when you will have trends when you "KNOW" what will happen next. This is the only time to trade. There is no speculation here. When this trend/pattern gives away to randomness, it's TIME TO EXIT. Effectively you are in the market only at the start (or just after start) and are out (just before end) or at the end of the logical move that the trend / pattern is 'most certainly' likely to exhibit.
I can vouch that you can make lots and lots of money by being observant of the market most of the times, staying out of the market most of the times and in it only for a small period - when there is 'CERTAINITY' of the outcome.
Staying Out = Money 'Earned' (the simple old definition : 'money saved is money earned')
Coming to my style, I have had written broadly in another thread "Thoughts on Risk Management" which I am pasting here for your reference.
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I would like to explain in very simple terms and easy to understand by pro and novice et al.
Step I:
1) Decide on Portfolio Allocation: Portfolio allocation starts with defining Financial Objectives : How much money you would need and when? Your assets, liabilities, income and expenditure. This is a different subject altogether but still ultimately one (even a trader) has to start here.
(a) Variable (positive / negative): Equity, Real estate, Gold, F&O (Directional positions)
(b) Variable (positive but unsteady returns) : F&O (multilegged strategies primarily using Options)
(c) Fixed (positive) : FDs, NSCs, PPF etc
2) Decide on time frame to adjust Protfolio Allocation : Could be quarterly, half yearly or yearly. Depending on your portfolio performance, income from other sources/job/inheritance etc
Step II: Here I am zeroing on the aggressive part of portfolio allocation - Trading in Options:
1) Risk = Uncertainty of DESIRED outcome
2) Desired Outcome = (a) + (b)
(a) Primary Desired Outcome = For position taken at Time T0, price CHANGES in favour of position taken at Time T1
(b) Secondary Desired Outcome = MAGNITUDE of price change from P0 (at Time T0) to P1 (at Time T1)
Hence at Time T0 and Price P0, we need to define both, T1 and P1.
For a one market, one instrument, one trading plan trader (like me) T1 is sacrosant (FIXED), P1 is the only variable.
P1 is defined before trade initiation. P1 is defined both for positive outcome and for negative outcome.
Eg If I am buying Nifty Options @ time Time T0 at price P0 (Rs. 100), and defined is P1 is Rs. 95 (worst drawdown) or Rs. 107 (best outcome), my Risk is Rs. 5. (Rs. 250 for one lot).
If my trading capital (which is PART of my Portfolio) is say 10 L and I decide to RISK 2% per trade (this % is decided at the end of each week for the next week depending on the performance in the week gone by. The range of Risk / trade is between 1% to 4%), then I would buy 80 lots of Nifty Options.
At time T1, the probable outcome of Option prices could be:
93 : Exit fully (2.8% loss of trading capital : 80 x 50 x (-7) = -28000)
95 : Exit fully (2% loss of trading capital : 80 x 50 x (-5) = -20000)
97 : Exit fully (1.2% loss of trading capital : 80 x 50 x (-3) = -12000)
100: Exit fully (0% loss of trading capital : 80 x 50 x 0 = 0)
103: Exit 75% (0.9% profit to trading capital : 60 x 50 x (+3) = +9000)
106: Exit 50% (1.2% profit to trading capital : 40 x 50 x (+6) = + 12000)
109: Exit 25% (0.9% profit to trading capital : 20 x 50 X (+9) = +9000)
You would notice that if the price at Time T1 is less than 100 I exit fully and on some occasions the loss could be higher then anticipated 2% in this case if I exit at 93. But this margin of error in my risk management is acceptable since I exit at Time T1.
Secondly you would notice that at price levels > 100 (i.e. 103, 106, 109) I have partially exited. But these exit % are NOT RANDOM.
If the price is > 100 at Time T1, then this T1 becomes new T0 and the current price say 103 become new P0. From here I would again calculate new P1 (both worst drawdown and best outcome scenario) and accordingly adjust the quantity.
Step III: Later today/tomorrow...:
Regards,
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Step III:
Treat your profitable trade and non-profitable trades seperately. The MOMENT I close my profitable trade, the profit made on the trade flies off out of my trading capital account and rests in a different account which is my Variable - steady profit funding account, where I use multilegged Options strategy with low risk and average returns as the time frame used in these strategies is quite larger (almost 2 to 3 weeks or sometimes till near month expiry). Most common strategy is Covered Call, which may be covered in detail in some thread on this forum. Also sometimes, strangle or straddle or simply deep OTM call/put writing, depending on the market condition. HOWEVER here too, my RISK management techinique is quite similiar to the one mentioned in step II of trading naked options. i.e. P0 at T0 and defining P1 at T1. i.e. fundamentally though the strategy has changed as the funds are from different account, but RISK management is still the same.
Now as I keep withdrawing the profits from my trading capital account, and continue trading eventually my trading capital would tend to cease some point of time as there are some loss making trades which eats the trading capital. Yes this is what could happen eventually, hence with each passing period, my trade size reduces as my trading capital reduces. Though my Trading capital could tend to be zero it doesn't happen, WHY?
Because, remember adjustment in Portfolio Allocation (Step I), which I do every calendar quarter end. Hence basically I have to live with my trading capital for a period of 3 months, the better I trade I get more quantity to trade and then quantity decreases gradually. Profits keep going out.
When Portfolio Allocation adjustment happens at the quarter end, Trading Capital is top-uped up STRICLY on the basis of trading performance in the last quarter, hence if I started with 10 L trading capital which was reduced to 5L in three months and has generated profit of 8 L then I may be entitled to top up to 10 L or even higher depending on my overall Portfolio performance in the quarter gone by. Alternatively instead of 8 Lacs if the profit generated was 4 Lacs, then my trading capital can be top-uped to a max of 9 L it could be generally be lower viz, 8 L or 7 L as performance was NOT ACCEPTABLE.
STEP IV:
At the quarter end review and portfolio allocation adjustment, majority of the incremental profits generated by Trading, Variable (steady profit) strategy are allocated another account which funds conservative investment account. The investment made through this account essentially follow simple 100 days / 200 days moving averages which are held for longer period of time.
STEP V: The most important….will follow later today.
Regards,
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STEP V: THE PURPOSE!!!!!
Why do we do all this? i.e. trading, portfolio allocation, risk management etc. Do we want to grow our wealth to Eternity and leave it for someone after we are gone. NO.
I am working as a portfolio manager (or better still - a hedge fund manger) then I should be paid for my services. This is what precisely I do when I levy PMS charges every quarter end and take out that amount from the Portfolio to my 'personal account' for my personal consumption. The charges I levy are similar to any PMS charges which includes, fixed and performance linked payouts over a hurdle rate of return every quarter.
p.s. :
1) To maintain simplicity here I have not covered Portfolio performance parameters, weekly volatility (standard deviation) of portfolio etc. These are the parameters against which I evaluate my performance every month and do course correction. My remuneration is linked to some of these parameters.
2) All the above mentioned steps of Portfolio and trade management are documented in black and white for reference and remove conflict of interest.
3) For all different strategies and aspect of my wealth management, I have given them names and there are really funny names which makes it very easy to implement them.
4) As all actions (tradewise) are documented. I conduct a monthly audit of these documents and for actions inappropriate or outside the defined parameters of my scheme of managment, penalties are imposed, which include ban from trading for a period, cut in remuneration etc.
...because no one wants to accept defeat or take losses, its human tendency...
Simply be inhumane (and I am not joking) because the market is. This is what detached trading is all about. Be ruthless with the outcome of your trades be it profit or loss, you decide fast before market decides for you.
therefore those traders who master the art of booking maximum profit ie not run with small profit, they survive the longest run.
In my opinion they are speculators. I don't speculate. You said it right they may 'survive' (just survive) the longest. But this is the intermidiary state of a traders' life, what next? How does he evolve and grow?
2) ride your winners - take maximum juice out of your winners
Doesn't fit my scheme of thoughts 'now', so no intention of 'mastering' it. Because earlier when I wanted to do it, I mastered it but alongwith, I also mastered how to ride my losers, so effectively as you mentioned, I survived and survived, but just survived.
Regards,
p.s. Kindly excuse me if my statements are bit blunt. But that's how trading life is.
Everyone please give me definition of successful trade according to you.
Too difficult to answer the same.
May be what kind of trade you desire would be easier to answer, something on likes of what Ranger123 has answered.
In my early days i believed Trading like battlefield where i would enter hit my traget and runway with the winning money (read gorilla warfare), there i considered being able to ambush and not getting trapped as Successful Trade, then realised that was fun but not business.
These days, i feel equally happy to exit the trade if not working on my side.
So, if i have to define successful trade, I would say where i can enter and exit at the positions i want (predetermined) (and exit could be with profit/loss). I hate sometimes (even on Intraday) , the price jumps (gaps) too far away from my position and I feel pain in exit (as this wasn't the level in my mind, and also it screws with my R:R).
Some of you may be wondering what about Stop loss (it gets hit, but since it is market order stop loss, i get the worst fill).
Also successful trade would be where I have time and judgement to add of pullbacks and rallies (what greater success than that) [but sadly sometimes (read often) the rally/pullback turns out to be Trend Reversal and sometimes no pullback/rally at all.
there can be 2 types of trades
1. winning trade
2. loosing trade
to me a winning trade does not necessarily mean a successful trade and a loosing trade does not necessarily mean an unsucessful trade.
a trade where I have followed my rules (whether it be winning or loosing) is to me a 'sucessful trade'.
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Remember keeping stop loss you may lose litle of money more often but you will never lose a lot of money (which if happened will make a dent in your Equity from which it will be an herculean task to recover)
Quote:
Originally Posted by ranger123
I take more trade with out looking at postive probabilty and was doing on R:R but still I ended in looses.
This is the hard fact of Trading (read: All kind of probability game).
Only because probability of success in that particular trade (or anything for that matter) was greater does not mean it will give you success. That is why pros never worry about every individual trader. To let the probability work you will have to take them in lots (I always see weekly numbers, and then decide the probability of the system).
I hope some of the following words from Saint will be helpful. I have copied this from his blog (visit http://tradersaint.com for more)
Quote:
Not only cut the Losses,but Ride the Profits.
Adherence to stop losses is important and vital,but allowing a trend trade to run its course before tampering with it is as important,if not more………Let us take another Trader.Unlike our Trader friend above,this Trader is more disciplined,more ruthless.He knows the importance of stops,he realises the importance of his capital and its preservation,…….he therefore adheres to his stops.Not only does he adhere but he realises that stops are to be placed at vital points(talking Tech Trading).He takes on the Market and after 10 trades,he makes 5 losses,and 5 wins ie 5x-5x=0.He has lost commissions,and misc charges and made nothing.His next 10 trades have 6 losses and 4 gains…all gains are about x,and losses at x each.He ends this on a losing note as well.
This Trader has gotten it better than the previous guy……..he is following half the Wisdom and finds himself perenially at Breakeven to Mild losses.After 20 such trades,he realises that his fallacy was in placing stops in the first place.The next 10 sees him hurtling down and joining the previous Trader in his ranks……..what has happened is a slow breakdown of the discipline by the Market,which is nothing but a Totality of Minds in action.Frustrated and disappointed,he thinks that his fault lies in the method,his system,and runs around in circles collecting this afl and that.
So too,at the end of the month,when we look at our Trade Analysis,we kick ourselves for not adhering to our stops……We notice instantly that our stops of x was not adhered to a few times and that led to the downfall in that month…….Nothing could be further than the truth.What the Month end analysis does not show is that the profits earned of say x or 2x was in a move of 10x or 12x…..to put it crisply,we did not capitalise on the move.Not capitalising sends the mind into Regret.Regret sends the Mind into Wrong Decision.Trades are taken when they should not have been.Stops are placed at incorrect points.Multiple useless,unnecessary trades are put,and the broker instead laughs all the way to the bank.Even if stops are taken,the trader does not make enough to cover the losses sustained.Sustained lack of victories sends the Mind into Defeat Mode and he then finds every possible way to shoot himself in the foot…..
The Wisdom of the Ancients has always been to cut the losses,and to ride the Profits…..Somehow,the 2nd half of that great wisdom stands neglected……Obey that Wisdom,and great profits follow.Neglect it,and Peril will follow in a matter of time.
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The best part I like about this man is his simplicity, flexibility and adaptibility. In my opinion these are the only things (in order) to be successful in any sphere of life (including trading). Some possess it naturally, some eventually get there but at the fag end of their lives, while most are 'determined' not to possess it.
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Well, I am always here. But more of an observer than a player. I guess this is similar to my trading trait. I agree that most of the active members on this thread have gone into hibernation as it often happens when there is nothing 'interesting' happening. But I am sure they will return soon.
Good to learn that you are profiting consistently. Keep doing the same thing again and again, get bored doing it, don't try anything new. You will soon realise that you are getting 'paid' to get bored. I also liked your approach and subscribe to the theory of trading one instrument. You see, there is no excitement here too, as you are tracking and trading only one scrip, come what may. This is a THE approach to make money in trading.
A friend known to me for over 12 years has been trading/investing/speculating/hedging etc etc only on one stock (part of Nifty and Sensex) and this he has been doing even before I knew him. He doesn't know (or rather want to know) what DJI, FTSE, HSI etc is, neither the US job market/housing data or closer at home, what is GDP growth projection, monsoon failure/success, composition of Nifty, OI, rollover, A/D, PCR etc or what is the Sensex level or even when are the General elections? For him the day starts with this stock and ends with it. And yes, he has only but grown wealthy all these years.
At worst in life one can still not be one woman man, but for successful trading one need to be one scrip (per market/method) man.
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I consumed almost first three years of my trading career to get my objective close to your objective. And after going down the hill all during this time, I realised that my objective of getting super rich or quick rich was wrong. Only once I set my objective as similar as yours there was no looking back.
Your post just reminded me about about THE WORST trading mistake that I have ever committed. Being modest is one thing that can only help make money in trading.
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As suggested by Ranger, I am replying to some of his queries here:
1) Currently I have 5 allocations of my funds, spread over different time horizons, least being for intraday and highest being 9 months - 1 year horizon.
2) Over 70% of my investments are in F&O. The shorter term allocations including intraday are 100% in F&O.
3) 2 of my allocations are fully built with Options strategies
4) I do not use stop loss for any of my positions (Yes Catastrophe Stop Loss is always on).
5) I do not use any FA for trading decisions. Infact the only TA tool which I use is candlestick chart. I DO NOT use any indicators / statistics, just a plain candlestick chart. Even for Options greeks - vega, theta and delta I use candlestick chart. When I started trading I used almost every tool and indicator availabe on earth and after years I found solace with a plain candlestick chart. (So I am not a MD, MBBS, BAMS or even BHMS, I am just a Hakim )
6) For me there is a predefined limited time to see the chart and make a decision to enter, hold or exit i.e. I get a LIMITED time to observe the chart. e.g. for intraday, I can see the 5 min candlestick chart only for 4 seconds to make a decision, then the chart vanishes (I have software programmes for this), similarly for daily candlestick chart I get 1 min to decide before the chart vanishes. You see, I am not involved in the market in between the review periods. As the time to observe and decide is limited, there is rarely any conflict in the decision making process. The decision - right or wrong is FIRM.
7) I do NOT know what price I have bought or sold (again programmes to give limit orders without punching the price and quantity), so I do not trade prices but just the charts. The contract notes and bills are checked every Saturday that is when I would know the buying-selling price and also the account balance.
8) I trade on high to very high probable trades and with no/zero focus on Risk : Reward ratio etc. My average success rate for all 5 allocations for the quarter ended June'10 was 73%, for quarter ending Mar'10 it was 77% and for quarter ending Dec'09 it was 71%.
9) Since I do not focus on R:R, I do not target returns. Returns on my allocations are not co-linear. So on QoQ the returns could vary.
10) I am not a full-time trader, but make more than what I am paid at work.
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Much delighted to see your reply on something which had put me at crossroads in my life earlier and I think would also have impacted all us traders.
While I can go a couple of steps back and start discussion on : Why do we trade? What is a personality of a trader? Did we undertake trading profession just because we are not asked questions, no one supervises us, no one gives us instructions, deadlines, targets and there is no appraisal etc. or more realistically are we incompetent at other professions?
But I will leave it for everybody to ponder over the above.
Coming to the point of making trading as a full time profession, I pose a simple question:
What do we need for a living, I mean, a good living?... MONEY !!! But is money everything which can get us all what we need in life?
While initially a decade ago I thought so, but then I realized that it isn’t the only thing. All traders want to make money, more money and even more money but what about the life you are leading. I have met many traders in my life a few of them very successful. They have tons of money but I fear what kind of social life they lead for themselves their society and do they have a sense of satisfaction of having done or helped someone or their community. If they indulge in parties or donations to show off their wealth, it is all short lived. People around them do not understand their profession and are not interested in knowing it either and most disturbing is that these successful full time traders do not find any thing in common to discuss at social gatherings, marriages or even during morning jogs. They are all aloof for the rest of the world and their world is either 10x10 office or a tiny room of their big houses.
Some of you may not agree with what I have written because the immediate thought that would come is all the above is absurd and we all can lead a good social life as we will have lots of money and more and more free time to devote to our families and society. But just imagine what happens after 6 months, 1 year, 5 years, 10 years would you still feel the same.
Man is a SOCIAL ANIMAL, and we all need people to talk, listen, love and confide. Trading is one profession which does not involve anybody else than you. You live with yourself. You are your best friend, the worst enemy, it is you and only you. The people around you give you a skip and you don’t understand them as you have mentality of a trader which they don’t have so there is no compatibility. You can’t teach them trading too as your strategies and methods will not work for them, even if someone does trades as per your advise, he will still lose in the long run as your personality and risk taking ability is different to theirs. So you are all alone again.
Thanks to technological advancement, most of the full time traders will find ‘virtual’ friends, enemies on such forums, some will become ‘virtual’ mentors. Their lives will be confined to a monitor for trading during the day and seeking peace by surfing the net during the night. A few may write books, newsletters which will contain nothing different than thousands of trading books available today. - A point to ponder again!!!
The problem with most of the part time traders (who are also doing jobs) is that they WANT TO LEAVE their jobs and do full time trading but are still hooked on the job (for whatever reasons) due to this conflict in their minds they fail in trading and at job too. I being one of them a few years ago, when redefined my objective (by incorporating the initials discussion above) of NOT wanting to leave my job and doing only part time trading, I could see U turn, both at trading and at work.
I find it worthwhile to lead a neutral life, make money by trading part time and still feel complete by being just another man going out to work every day morning.
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A life is nothing but change and change for betterment (remember Kaizen - continuos improvement) - could you list 2 or 3 things that you have decided to change from your ealier experience and how you plan to implement/adhere to those changes? This will enlighten readers about the process of life cycle of a trader and will also help you endorse it in your mind to stick to it all the times.
Perhaps the most important thing to remember is not to short a strongly bullish instrument or in other words to trade against the trend.
At the back of our minds,we are expecting a correction or we are hoping there would be a fall so we can pocket the break downwards. It is an assumption,it is better to trade waht we see. Today for example, nifty peaked by 10 and fell by 10:40, so based on technical parameter based on volumes it could have been traded well. These days the main action is at open till 10:30 .In fact if you cannot enter by 10:30 or latest 12 there seems very little to do in terms of catching a reasonable move.
I hope you have some technical platform with indicators as far as i know you would be trading blindfold without it. I think IIFL TTAdvance does not have TA so I am concerned -any of these Angel,Indiabulls or Sharekhan is necessary.
Starting off you can confirm a move then trade for a couple of points. A thorough understanding of BB and candlesticks is good. ADX is quite solid too.
One takes higher and bolder steps when the foundation is strong and tested. We know your trading hasn't been successful , rather an utter failure (writing this word purposefully) hence apart from changing certain habits (which only you would have known by now) you need to cut back and reduce risk on your trades.
One way is to reduce quantity of stock/value you used to trade earlier. Hence you should restart with your fresh funds without leveraging. Try it with your favourite stock or one/two large cap Index based stocks. By not levarging you will know if you have adapted the changes you planned and can evaluate the results. Only after a sustained period of time and consistently favourable results (by 'result' I do not mean profit, but successful adherence to your trading plan and method) you can get back to your initial quantity/value per trade.
Derivatives is much complex subject (especially Options) and there are various F&O statistics which can misguide you if you are new to it. Even experienced derivative traders too are not sure of interpretation of these numbers. Also theory is different than practice. Trading derivatives without much experience can simply evaporate your capital before you know it happen.
Somewhere I am getting a feeling that you want to catch up your lost capital and hence are getting from jobbing/scalping to stocks to derivatives in a span of less than 5 months. You are into full time trading so you need to be more careful of failure and set back as there aren't any/much option for you in case of wipeout.
So stick to stocks and reduce the quanity of your trade.
Quote:
Originally Posted by alroyraj
Welcome back,nac. It is a rather challenging time,now. Selection of the security to be traded is paramount in trading equity derivatives. And second,there are some derivatives that you can understand the movement and other that you dont. Start with the nifty and the most liquid counters-it seems the action has shifted to the largecap names. And thirdly,your time in the trade can be made dependent on your allocated capital (especially for the margin heavy contracts).
Sorry Alroyraj, but my post could interrupt your discussion, but that was not my intention.
Do what you think is right as per your trading method, seeking advise/cofirmation on trading calls is no good for either the seeker or giver. If you mix two of the best traders, you will get the worst of them (quote from some book I seem to have forgotten the title
You are right. If I wasn't good at reducing/cut back mistakes with the lesser risky instrument, how would I survive with the higher one without rectifying those mistakes. Definitely this will evaporate my trading capital.
But I made this decision after considering the risk factor in derivatives. It's solely because I felt that I could trade index better than a stock. May I am wrong here. Not because of wanted to earn what I lost.
Correction I dont think Angel has any technical indicators. Basically if one follows Bolinger Bands default 20,2 or Savant settings 9,2 along with 5,6 SMA,it is the best place to start.
For say atleast 3 days, simulate your trades with the nifty. This is vital. You need to see whether your system and your intuition is correct .
The key thing with derivatives as with other securities is to know the state of the market: trending ,or rangebound and/or with a possible negative/positive bias. The nifty has made a major move as of now so it is waiting for breathe. Also the time frame is a key consideration start with 5 min TF and then go down to 2/3 min TF to place the trades then switch back.
Most of you spent years to learn your jobs and now they think, they can trade in a few days by reading in a forum and even will make the same money as they do in there jobs or even more, just by doing that.
Nobody can help such minds !!
Only tipping on there own heads with there own fingers can heal that. ( By the way, I do not speak about you, I speak to the readers which have this mind )
I do not know what you trade : Futures or options. Any way, check the trends of longer time frames like months, go down to two weeks and plan your trade at the begin on a weekly time frame or maybe two or three day time frame.
Give your self time to feel comfortable to the time frame you trade and if you feel, you are comfortable with this time frame, you slowly, and I mean slowly test a shorter time frame.
Ask your self then, if you feel comfortable with that and so on. Test your time frame.
But real serious : Giving up after one week is really not some thing, which shows any strength of your personality. Weak, weak, weak. ............DAN
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exclusively use CS for different TF trades including intraday. While I DO NOT follow any of the book patterns, I have developed my own set of patterns (over a period of time) which works well for me (even of multiple underlyings).
There is no problem in trading more than one style but you should know the difference and never jumble them. Don't enter thinking you will scalp it but then you stayed longer seeing the profit rise. And vice-versa, don't scalp if you entered for trend.
Infact i see the market condition, which decides my form (very rarely both style of trading comes into picture in the same day).
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In trading one does not blow out due to losses but due to unability to manage losses makes him think in the wrong direction, taking wrong decisions which leads to deeper mess.
LOSSES ARE PART OF TRADING
(or for that matter any business) for one and all, you, me and everybody. But only those come out successfully who manage themselves during this phase.
If one can learn how to LIVE with losses one will start booking loss IMMEDIATELY after identifying a wrong trade. And what can be a key than this to be successful in trading. Profits will always come how so ever dumb one is.
Ironically, some know this, few understand it and even fewer remember it. And those traders consistently trade 'net' profitably
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Originally Posted by sanjay1876
Well said!!!!. This is one of my strong points from day one. I've never modified stop loss on losing side. I just simply take the hit as it is. Acoording to me it is important reason for my survival here.
Quote:
Originally Posted by iamaaditya
That's very true Sanjay, infact my own system has winning ratio of only 35%, so only way to make money in such a system will be "CUT THE LOSERS & LET WINNERS RIDE" (It's not easy as it sounds, but after some behavioral change its possible).
Also the reason, i didn't get into Jobbing was, it requires HIGH PROBABILITY setup which i find tough to find (or implement in REALTIME). High Probability is necessitated because of LOW PROFIT (R:R = 1:1 or max 1:1.5).
I bet on LOW PROBABILITY & HIGH PROFIT setup. I have done hours of backtesting of several systems and realised it is possible to find or make a decent system with Low winning Ratio (and with discipline it can be made to high profit).
Dear Friends,
Stop Loss is grossly misused term to exit your WRONG TRADES.
I beg to differ almost all authors, traders, 'experts' who proclaim that SL (Stop Loss) is the most important part of their Risk Management strategy. And can, have and would vociferously engage into a debate with them. Also I doubt if SL management would ever create successful trader.
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That's very true Sanjay, infact my own system has winning ratio of only 35%, so only way to make money in such a system will be "CUT THE LOSERS & LET WINNERS RIDE" (It's not easy as it sounds, but after some behavioral change its possible).
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Sounds logical, but more than answering how? more importantly, should you allow your winners to ride or wait for maximum possible profit?
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hi tnsn
over the years I have found 'stop loss' to be the most potent tool in my arsenal. the first advantage that I can think of is that in ur initail formative years, it keeps u in the game always.
I feel that my loss is the only thing that I can control in the mkt.
as regards jobbing, I am very clear that jobbing without stoploss is like driving a car at high speed without brakes. crash is imminent.
now since I am not jobbing actively anymore,all the systems that I trade these days are based purely on stop loss ie. I do not have a price target but always a stop loss.
having said that, after going thru a few of ur posts, I found them to be practical and informative. hence am eager to know ur point of view on this.
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partially do agree that Stop Loss is slighly misused and grossly misunderstood.
Keeping the stop-loss for the trade and waiting till the stop-loss hits is like looking forward to Stop being hit.
In almost all the cases my position is greatly reduced before it reaches to the point of STOP.
Exiting the Trade with stop loss means you don't have strategy for exit (for trades which are in not in your favour ofcourse). It is better to devise some rules based on weakness of trend (if you are a trend player), peircing of Bolinger Band (if you are a ranger) and based on tape (if you are a jobber). This will give you more control over the trade.
BUT this doesn't mean that there will be NO STOP LOSS. STOP LOSS must there to save you from catastrophe. Let's say your internet connection is gone or no electricity, system crashes, thunder, and worst (one case i know) Heart Attack .
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Stoploss is the most important tool to prevent runaway losses. Also when i said i do not modify stoploss, i meant i do not expect the losing trade to suddenly turn into winning one. If trade moves in opposite direction of what you expected there is always option of exiting the trade before the stoploss is hit.
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Yup, you are right. I did'nt mean to say having stop loss is bad. I always have one.
It's this that I prefer to exit a trade with a reason where reason is something other than "stop loss being hit".
Disclaimer to everyone (specially newbies into the field of trading), Please do not read my words as favour against not keeping STOP LOSS. Always have stop loss, but then there are other facets to exiting a trade. Moreover don't take a position where a smaller runaway scares you (or your Trading equity)
suppose you meant "should you take profits or wait for maximum profit (by allowing your winners to ride).
This is where Trading becomes ART, and is mastered with Experience. It's the greatest Dialemma especially for Trend Players (Positional/Swing/Intra-Day).
I prefer to take 50% of profit at first sign of weakness (opposite candle to my trade direction). Deciding on this weakness also happens after multiple TFA (sometime decision is settled by 1 min candle). Then i take 25% of profit where i see smaller pullback or rally (depeding on side of trade) forming. Last 25% happens either at b/e (if trade was already in profit) or at EOD (since i am intraday trader, i square off all trades by EOD, and no exception even if trade is in huge profit or huge loss)
But then the scope of improvement is always around, everday after the market in hindsight looking at chart it seems i could have done better, or sometimes waited little longer or sometimes booked little earlier, but these are knowledge of hindsight which doesn't come into picture during REAL TIME trading.
Every profession after some degree (i.e initial learning of rules) becomes Subjective i.e a matter of skill (or ART if you will)
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Following are the assumptions before I get into this topic:
1. Traders trade basis TA (charts, indicators, volume etc) and not FA. Hence Jobbers will be exclued here as they generally do not use either TA or FA
2. A Trading Plan is in place before entering into a trade. A typical Trading Plan will include:
- Awareness of market condition
- Entry reason, instrument, time, price
- EXIT TIME (holding period of the position, if the position is in favour)
- Review period interval of the position (viz charts, indicators whatever your method uses)
- Adjustment plan (adds, reduction, status quo)
- Estimation of Maximum drawdown at the end of first review period (this can be done basis the volatility). Your quantity, exposure etc will depend on this
- Stop Loss : For 'traders' who religiously follow this practice and arrive at the SL amount on whatever calculation they do
3. Trader here is not a novice and has had fair experience of trading including undergoing trauma of living through losses for extended period of time
4. Trader here has a reasonable strike rates derived from his method(s) i.e. range between 40% to 70%
The Precursor:
Most of us have learnt to ride a bicycle in our childhood. We have fallen, got hurt, scared, demotivated to quit, but the fun of riding the bicycle always made us to take a jig at it again and again, till we perfected it.
In the process we have had bruises, scars and even fractures. This is almost similar to trading without Stop Loss as there is not protection for you when you lose balance and you crash getting hurt. (Ever wondered that you could prefect riding a bicycle despite without a SL, but have taken so many years to perfect Trading even putting SL???)
Suddenly, some smart man suggested that we should have ‘Stop Loss’ on bicycles so kids don’t injure themselves while learning. So he put a pair of small wheels along the rear wheel, so the bicycle was actually a four wheeler than two. These two super supporting small wheels kept the ‘kids’ (I guess most of us have not learnt riding on such ‘four’ wheelers, anyways) from falling on either side, hence protecting them from injuries. A good idea indeed !!
But as the kids grow up and they learn ‘balancing’ on their own they would get rid of the first small wheel and a few days later the second small wheel. Now they are riding a bicycle (two wheeler !!) in the real sense. We have all seen this right, so there is no excitement till now. But I would like to ask here, why do you remove the small side wheels after you have learnt balancing???? You can very well keep them as it is, why remove it???
Yes, why we remove it? Why we remove this ‘Stop Loss’ forever and never use it…..
Fair assumption would that the wheels are removed because the kids have learnt riding the bicycle. This does not mean that the kid will not fall now, he can still fall but now the fall would be mostly triggered not due to his own misadventure but by some external factors viz, some one banging him from rear, tyre burst while riding, a stray dog suddenly running across the road, unnoticed potholes etc etc…
But still we have decided to remove the wheels not because the kid will now NEVER FALL but he when is likely to ‘fall’ he will use his own FOOT to prevent the fall. He will not rely on EXTERNAL small wheels (‘Stop Loss’) which used to protect him till now while he was still learning.
The ‘small wheels’ are physical Stop Loss, while the feet is the mental Stop Loss. Using his feet to halt the bicycle at his ‘destination’ or in between to prevent himself from falling comes NATURALLY to the kid. There is NO THINKING involved when to put the FOOT DOWN. It comes naturally!!!. On the contrary if there were the small wheels on the bicycle forever, they would always act as artificial external way to hinder the driving process and would always prevent him from taking those sharp turns, do the ‘wheelie’, race the empty road, race through the slopes freely or struggle hard upway. The ‘small wheels’ just cause obstruction than help him now since he has now perfected doing the balancing act !!!
Market conditions are not same all the time (I am not covering this here), so you will sometimes have to face sharp turns, do the ‘wheelie’, travel downhill or struggle uphill. Again you will never know what could happen next as the conditions may or may not change suddenly.
It is trader’s mentality to keep trading in various kinds of market conditions and all the time. Of these traders there are some smart traders who have different methods to trade different market conditions. And unfortunately for most of these ‘smart’ traders the methods get overlapped or interchanged. And then so does their SL. But while I am saying this, the SL they put is most likely arrived in a RANDOM fashion or on the basis of % risk per trade (..ha…ha..). How on the earth would the Markets know YOUR risk per trade % and move in your favour keeping it in mind that YOUR SL should not be hit (I wonder..) As it is random pricing of SL and further even illogical (read sentimental) concept of trailing SL, it is often called that ‘SL management is art than science’ (you may read ‘abstract art’. Abstract art : No one understands it, but do not want others to know about it hence you start appreciating it. The next guy also does the same. So no one argues.)
The very fact that you have put the SL in the first place makes you feel that you are IMMUNE to everything happening in the market. You start feeling that nothing can happen to you now as worst is that you will exit at the SL. You act God. This feeling deprives you of the ‘opportunity’ to exit your WRONG trades much earlier as you always have the feeling that you have the SL in place and this SL will HELP you make profit and the SL will never be hit. Invariably the SL is hit. And hit. And hit. Then you increase the SL gap as you feel that the earlier SLs were too close (having seen market reverse after hitting your SLs).
Using SL for trading, you take 1 step down, x steps up, 2 down, x up, 2 down, 1 down, x up, 2 down, x up……and so on. At the end of the month either you are down or at par or at best marginally up. But is it worth all the effort, time and opportunity one had all during the month.
On similar lines, what is the use of a helmet when you ride a motorcycle? Why is the safety net in the circus? …..and their analogy in trading…will write more tomorrow..
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The very fact that you have put the SL in the first place makes you feel that you are IMMUNE to everything happening in the market. You start feeling that nothing can happen to you now as worst is that you will exit at the SL. You act God. This feeling deprives you of the ‘opportunity’ to exit your WRONG trades much earlier as you always have the feeling that you have the SL in place and this SL will HELP you make profit and the SL will never be hit. Invariably the SL is hit. And hit. And hit. Then you increase the SL gap as you feel that the earlier SLs were too close (having seen market reverse after hitting your SLs
hi..
Interesting analysis. but the way I think is that if I put on a trade with a predetermined SL and later on find that the market does not behave in the manner that I expected it to and squrare off my position before my SL is hit. what am I doing..... I am still booking my loss . hence I am still executing my SL albeit I have raised my SL closer to my entry price. hence the debate now is not whether having a SL is good or bad, the debate here is whether the SL should be fixed at a preconcived point or should it be raised or lowered according to the way the market reacts (or the way I percieve the market) after putting on my trade.
It is trader’s mentality to keep trading in various kinds of market conditions and all the time. Of these traders there are some smart traders who have different methods to trade different market conditions. And unfortunately for most of these ‘smart’ traders the methods get overlapped or interchanged. And then so does their SL. But while I am saying this, the SL they put is most likely arrived in a RANDOM fashion or on the basis of % risk per trade (..ha…ha..). How on the earth would the Markets know YOUR risk per trade % and move in your favour keeping it in mind that YOUR SL should not be hit (I wonder..) As it is random pricing of SL and further even illogical (read sentimental) concept of trailing SL, it is often called that ‘SL management is art than science’ (you may read ‘abstract art’. Abstract art : No one understands it, but do not want others to know about it hence you start appreciating it. The next guy also does the same. So no one argues
there are a lot of guys around who feel that all price movement is random.I also subscribe to the same school of thought.I beleive that all price movement is random with a few trends thrown in, as would be the case if we try to chart the outcome of a simple coin toss. the general outcome would be random with a series of successive heads or tails thrown in between.this series of successive heads or tails is what I consider as 'trends'. I totally agree here that the market would not respect any random SL, but beleive me it would not even respect any 'pivot low or high' or any 'fibonacci levels' if it doesnt want to. hence I do not beleive that there is any harm in putting a random SL initially and then moving it later on according to the way the mkt moves .
just my thoughts. the intention is not to counter u but initiate a healthy debate.
Also stoploss is used to prevent runaway losses especially during sharp move in opposite direction of trade.
Now coming to your analogy of bicycle. Everyone has his own prespective and sees the world accordingly. In my view the smaller wheels are like extra caution, e.g. like someone uses 1 indicator to trade with 40% chance also when he has 2 indicators giving same signal his chances get to say 55%. So he trades only when both indicators give same signal. So he obviously misses some oppurtunity as well. So in my view inherent precautions in ones system are the two smaller wheels.
Now what is stoploss then?
Stoploss is the brakes. It is used to prevent falling in pothole. Now whether you drive 2 or 4 wheeler brakes are paramount. Also its importance increases with increase in stakes. Like one can drive bicycle withot brakes but what about driving a car without brakes!
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I always (of course not always, after initial hiccups in trading) had a view that One should have Discipline enough to Cut the losers on Will and not depend on Stop-Loss (which in a way kind of forces you, though some novice traders horribly move their stop down which is another crime completely).
but all said, no one can expect a novice Trader to mature soon enough (without hitting some stones) to a discipline where he can put the legs down automatically without any hesitation, so everyone has to go with the phase where you use "Extra wheels".
Also we should never discount the possibility of "Black Swan" occurring (for the completely uninitiated, its events with very low probability but very high impact say October 19, 1987 when Dow crashed 22%) and for such scenario's there must be a stop loss , which according to me should be at level where it doesn't come into play on normal days.
Extending the analogy, i would like to call these kind of black swan stops as "helmets" and not "extra wheels" (this is first time when i am deliberately trying to fore-run your thoughts, i hope i am getting it right ?), though a bike rider doesn't expect to hit an accident everyday and by probability chances of it occurring (even in is complete lifetime) is very low so he would rather not use one and rather enjoy free ride but then one accident without helmet could kill him ending any further progress (analogical to getting bankrupt). So the question is, Is it worth to wear helmet everyday where expectancy of life killing accident is very small, i firmly say yes.
If you guys are aware, the author of "black swan" Nassim Nicholas Taleb , used to be a trader and fund manager. In fact he opened a Fund (Empirica), just to capitalize on such black swan events. Every day he used to buy Very Very far Out of the money options (but sadly couldn't make much money and eventually Fund was sold out and he returned to writing books)
.......................Your definitions of SL is right but different.
While Aaditya you are putting SL to address a catastrophe, Anurag is defining moving his unrealised expected loss (defined by his initial random SL) closer to lesser loss in the event of identifying a wrong trade. Sanjay is a fence sitter with one leg on Aaditya's definition and other on Anurag's.
While Aaditya definition is similar to wearing helmet riding a motorcycle (or the safety net in a circus) where the idea is not to get down from the bike head-down first. The helmet is just to protect us from any UNFORSEEN circumstances which are out of our control (aptly defined by Aaditya in his post w.r.t. trading). It is still the feet which we use to get down from the bike when we reach our destination or are interupted before reaching it. This definition can be termed as CSL - catastrophe stop loss and not SL which is widely used in trading.
Anurag, with your definition, which most of the traders would do there is an element (howsoever small) of unconviction when you enter a trade. No one likes to see his position going down immediately one enters the trade. But is happens many (or most) of the time, especially to traders who put the SL (as per your definition) as the decision to trade is taken on the basis of R:R rather than probabilitiy of the trade. I would always take a large position even if the reward were very small than the risk (maximum draw down till the end of first review period) if the probability is very very high.
The moment you have the SL idea in the mind, the trades with not very high probability, equal probability or even low probability are undertaken as you evaluate the decision to enter on the basis of R:R and not the probability of outcome.
Not using SL (certainly one should use the CSL though) will direct all your engery and focus on taking the HIGH probability trades. You wait till you have a pattern/trend in the random movement of the market and grab the opportunity with both the hands.
Another analogy here is the Law of the land, which states that the law may not punish a criminal (by giving benefit of doubt) just to ensure that no innocent is punished. Similarly, there one would let go and lose many high probability trades (as one may not be fully convinced at that point of time) but this would ensure that wrong trades are not undertaken.
And it is much easier to exit such fully convinced trades too, because it is very very easy to identify the indications that your predicted direction may not happen. Hence, easier to exit immediately and abort the mission praising the Law of the land.
My conclusions:
- Putting SL on trades directs you to undertake any probability trade as primarily there is a soothing feeling that you will be stopped soon and not bear large loss. (Forgetting that the whole idea here is to make money and not exit at 'small' loss)
- Lot of such 'small' loss (due to poor selection of trades) result into a sizeable loss, which may get covered in some good trades, but we have lost time and other great opportunities in between. End of the month where are we? At the same place, or just somewhere near.
- And this make a lot of difference between a super trader (who wins many, loses some), a regular net profitable trader (who wins some, loses some) or a net loser trader (who wins some, loses many)
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The definition of SL is clearly your unrealised expected loss in case the trade is wrong. This forms the basis of quantity or exposure you may want to take on a trade. The definition of wrong trade is not necessarily move in the wrong direction but the outcome is not as per EXPECTION.
The second point of large runaway losses in the opposite direction can be termed as something happening exactly opposite to your thinking and the outcome is UNEXPECTED.
If one is using a same SL for both of the above objectives than he may end up taking many low or equal probable trades than higher probable trades. Effectively the success rate of trades may be compromised. See only MM and discipline alone cannot create substantial wealth for a trader. Higher success rate of trades is also a prerequiste to become a successful trader.
Quote:
Now coming to your analogy of bicycle. Everyone has his own prespective and sees the world accordingly. In my view the smaller wheels are like extra caution, e.g. like someone uses 1 indicator to trade with 40% chance also when he has 2 indicators giving same signal his chances get to say 55%. So he trades only when both indicators give same signal. So he obviously misses some oppurtunity as well. So in my view inherent precautions in ones system are the two smaller wheels.
Now what is stoploss then?
Stoploss is the brakes. It is used to prevent falling in pothole. Now whether you drive 2 or 4 wheeler brakes are paramount. Also its importance increases with increase in stakes. Like one can drive bicycle withot brakes but what about driving a car without brakes!
The small wheels are post facto hence they will not come into play till the rider decides to ride the the bicycle and sits on it and starts paddling. The brakes are reduction in you position as there is uncertainty whether you will reach the destination by the stipulated time. Paddling is adds to the position. Putting foot down due to sudden hinderence is actual exit from your position at that point of time (either in loss or profit whatever it is), slowing down as you reach the destination, stepping down your positions (likely in profit) culminating into final touch down at destination, exiting fully.
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What tn is emphasizing is that once we start to identify high probable trades ,we would not need to depend heavily on the stop loss. Also he means that by using Risk Return ,we may choose trades that are of low probability. But more importantly we have to choose higher probability trades of even low RR . This way we end the month positive rather than have small losses every day only to take stock at the end of the month and start worrying.
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Open book - Kinda market depth, which shows the depth of the market.
Print - Kinda tick list, shows price and quantity traded.
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Thank you Aloyraj and tnsn sir for your great thinking. I now understand what you fellows think about good trading decision making. So the thing here is that if we start with a good trading decision we not has to depend on things like stop loss and if i learn that the trade is wrong i will come out quickly.
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What about profit booking ? I would love to know your, sanjay's, alroyraj's and anurag's Profit Booking Strategy.
I believe this is where experience makes it different, as its more ART than LOGIC (or SYSTEM). Infact Even Saint uses more discretionary while booking profit. May be after day's day's of Retrospection on Trades, we finally get the "Sweet Spot".
Mine's strategy is to book some on first sign of weakness (as i find many a times this is a critical pivot), then some on failure of pullback/rally and then I delibrately leave some part till the END or Breakeven just to ride the trend to maximum.
Especailly most of my trades are NOT SAR, it becomes even more discretionary.
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yes I do carry the element of unconviction every time I enter a trade because,as I said earlier, I beleive that price movement is random." i believe that my position is wrong untill proven right". there are a lot of examples in the real trading world which show that u can have a very small percentage of winning trades and still be very profitable. a case in point would be Richard Dennis. I think even Aaditya mentioned that his winning trades are not more than 35% of his total trades but still on balance he is profitable.
To me having a large percentage of my trades to be winners is not important.(when I am not jobbing), but what is important is how do I extract the maximum juice out of my profitable trades, even though they may be few as compared to my loosing trades. hence I am always comfortable working with a SL, whether it be in the mkt. or it be mental.
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I think this is the main point to master, how to book profits...and another complicated thing is where ( at which point) to add in the winners...you dont want to add in the winning trade , just to see the trade reverse....
everybody has two types of trade only..
one type is wrong trade..here you can exit 1) through SL, 2) before SL hit, or 3) not exit by hoping that trade will move in your favour and in the process averaging at lower levels..the first two exit methods will keep your losses small, but the third method of averaging will kill you in the long run..because the loosing trade may move once in a while in your favour but most of the times it will force you to accept large losses, which quickly eat your trading capital. and most of times traders try to average...because no one wants to accept defeat or take losses, its human tendency..
second type of trade is winning trade..now trade moves in your direction..what most of the traders do now..at the first sign of reversing traders exit by pocketing their profit by moving trailing SL...only to see trade again reversed and goes higher and higher and higher or as may be the case...oh my GOD..itna mil jaata..haath se nikal gaya...mood kharab ho gaya....now next time you again in this situation...now you book profit only @ 50 % at the first sign of reversing, and what happens, the trade is going down the drain..and your next 50 % position will be either in very small profit or breakeven or in the red ...dragging overall trade in red... oh my GOD...isse accha toh pehle hi 100 % profit le lete..jitna mil raha tha theek toh tha..jyada ke chakkar mein aadha bhi gaya...
therefore those traders who master the art of booking maximum profit ie not run with small profit, they survive the longest run. My hats off to those traders. Everbody has some lossing trades, some winning trades. but those traders will survive only who take losses small and ride their winners till the end. but generally traders mentality is just opposite, they quickly take profits early (baad mein yeh bhi nahin milega mentality)..and take losses big (dont want to accept they just entered in a wrong trade , kabhi toh upper jayege mentality).
so only two rules to remember in trading ( but how many master these ?)
1) take your losses small - exit from your wrong trades quikly.
2) ride your winners - take maximum juice out of your winners.
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To me there is no iota of doubt that will allow me to ride my winners / to take maximum profit possible. I will not earn any thing free in the market.
And this is not the egoistic me which is saying this but the years of experience in this area. But for the simple reason as we hold on the habit of letting our winners ride (due to reasons other than our method/thought) we may also do the same with our losers. When you leave riding your winners to the market you are 'subconsiously learning' speculating. Today you have allowed your winner to ride, the same 'habit' will one day (just one day or just one trade) ride your loser to the place where you started or beyond that. So it's again 2-1-1+3-2+1-1+3-2+6-2+1-5....and it gets you nowhere.
SPECULATING IN TRADING IS DANGEROUS !!!! (Either with losses or with PROFITS)
In the randomness of the market there are times when you will have trends when you "KNOW" what will happen next. This is the only time to trade. There is no speculation here. When this trend/pattern gives away to randomness, it's TIME TO EXIT. Effectively you are in the market only at the start (or just after start) and are out (just before end) or at the end of the logical move that the trend / pattern is 'most certainly' likely to exhibit.
I can vouch that you can make lots and lots of money by being observant of the market most of the times, staying out of the market most of the times and in it only for a small period - when there is 'CERTAINITY' of the outcome.
Staying Out = Money 'Earned' (the simple old definition : 'money saved is money earned')
Coming to my style, I have had written broadly in another thread "Thoughts on Risk Management" which I am pasting here for your reference.
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I would like to explain in very simple terms and easy to understand by pro and novice et al.
Step I:
1) Decide on Portfolio Allocation: Portfolio allocation starts with defining Financial Objectives : How much money you would need and when? Your assets, liabilities, income and expenditure. This is a different subject altogether but still ultimately one (even a trader) has to start here.
(a) Variable (positive / negative): Equity, Real estate, Gold, F&O (Directional positions)
(b) Variable (positive but unsteady returns) : F&O (multilegged strategies primarily using Options)
(c) Fixed (positive) : FDs, NSCs, PPF etc
2) Decide on time frame to adjust Protfolio Allocation : Could be quarterly, half yearly or yearly. Depending on your portfolio performance, income from other sources/job/inheritance etc
Step II: Here I am zeroing on the aggressive part of portfolio allocation - Trading in Options:
1) Risk = Uncertainty of DESIRED outcome
2) Desired Outcome = (a) + (b)
(a) Primary Desired Outcome = For position taken at Time T0, price CHANGES in favour of position taken at Time T1
(b) Secondary Desired Outcome = MAGNITUDE of price change from P0 (at Time T0) to P1 (at Time T1)
Hence at Time T0 and Price P0, we need to define both, T1 and P1.
For a one market, one instrument, one trading plan trader (like me) T1 is sacrosant (FIXED), P1 is the only variable.
P1 is defined before trade initiation. P1 is defined both for positive outcome and for negative outcome.
Eg If I am buying Nifty Options @ time Time T0 at price P0 (Rs. 100), and defined is P1 is Rs. 95 (worst drawdown) or Rs. 107 (best outcome), my Risk is Rs. 5. (Rs. 250 for one lot).
If my trading capital (which is PART of my Portfolio) is say 10 L and I decide to RISK 2% per trade (this % is decided at the end of each week for the next week depending on the performance in the week gone by. The range of Risk / trade is between 1% to 4%), then I would buy 80 lots of Nifty Options.
At time T1, the probable outcome of Option prices could be:
93 : Exit fully (2.8% loss of trading capital : 80 x 50 x (-7) = -28000)
95 : Exit fully (2% loss of trading capital : 80 x 50 x (-5) = -20000)
97 : Exit fully (1.2% loss of trading capital : 80 x 50 x (-3) = -12000)
100: Exit fully (0% loss of trading capital : 80 x 50 x 0 = 0)
103: Exit 75% (0.9% profit to trading capital : 60 x 50 x (+3) = +9000)
106: Exit 50% (1.2% profit to trading capital : 40 x 50 x (+6) = + 12000)
109: Exit 25% (0.9% profit to trading capital : 20 x 50 X (+9) = +9000)
You would notice that if the price at Time T1 is less than 100 I exit fully and on some occasions the loss could be higher then anticipated 2% in this case if I exit at 93. But this margin of error in my risk management is acceptable since I exit at Time T1.
Secondly you would notice that at price levels > 100 (i.e. 103, 106, 109) I have partially exited. But these exit % are NOT RANDOM.
If the price is > 100 at Time T1, then this T1 becomes new T0 and the current price say 103 become new P0. From here I would again calculate new P1 (both worst drawdown and best outcome scenario) and accordingly adjust the quantity.
Step III: Later today/tomorrow...:
Regards,
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Step III:
Treat your profitable trade and non-profitable trades seperately. The MOMENT I close my profitable trade, the profit made on the trade flies off out of my trading capital account and rests in a different account which is my Variable - steady profit funding account, where I use multilegged Options strategy with low risk and average returns as the time frame used in these strategies is quite larger (almost 2 to 3 weeks or sometimes till near month expiry). Most common strategy is Covered Call, which may be covered in detail in some thread on this forum. Also sometimes, strangle or straddle or simply deep OTM call/put writing, depending on the market condition. HOWEVER here too, my RISK management techinique is quite similiar to the one mentioned in step II of trading naked options. i.e. P0 at T0 and defining P1 at T1. i.e. fundamentally though the strategy has changed as the funds are from different account, but RISK management is still the same.
Now as I keep withdrawing the profits from my trading capital account, and continue trading eventually my trading capital would tend to cease some point of time as there are some loss making trades which eats the trading capital. Yes this is what could happen eventually, hence with each passing period, my trade size reduces as my trading capital reduces. Though my Trading capital could tend to be zero it doesn't happen, WHY?
Because, remember adjustment in Portfolio Allocation (Step I), which I do every calendar quarter end. Hence basically I have to live with my trading capital for a period of 3 months, the better I trade I get more quantity to trade and then quantity decreases gradually. Profits keep going out.
When Portfolio Allocation adjustment happens at the quarter end, Trading Capital is top-uped up STRICLY on the basis of trading performance in the last quarter, hence if I started with 10 L trading capital which was reduced to 5L in three months and has generated profit of 8 L then I may be entitled to top up to 10 L or even higher depending on my overall Portfolio performance in the quarter gone by. Alternatively instead of 8 Lacs if the profit generated was 4 Lacs, then my trading capital can be top-uped to a max of 9 L it could be generally be lower viz, 8 L or 7 L as performance was NOT ACCEPTABLE.
STEP IV:
At the quarter end review and portfolio allocation adjustment, majority of the incremental profits generated by Trading, Variable (steady profit) strategy are allocated another account which funds conservative investment account. The investment made through this account essentially follow simple 100 days / 200 days moving averages which are held for longer period of time.
STEP V: The most important….will follow later today.
Regards,
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STEP V: THE PURPOSE!!!!!
Why do we do all this? i.e. trading, portfolio allocation, risk management etc. Do we want to grow our wealth to Eternity and leave it for someone after we are gone. NO.
I am working as a portfolio manager (or better still - a hedge fund manger) then I should be paid for my services. This is what precisely I do when I levy PMS charges every quarter end and take out that amount from the Portfolio to my 'personal account' for my personal consumption. The charges I levy are similar to any PMS charges which includes, fixed and performance linked payouts over a hurdle rate of return every quarter.
p.s. :
1) To maintain simplicity here I have not covered Portfolio performance parameters, weekly volatility (standard deviation) of portfolio etc. These are the parameters against which I evaluate my performance every month and do course correction. My remuneration is linked to some of these parameters.
2) All the above mentioned steps of Portfolio and trade management are documented in black and white for reference and remove conflict of interest.
3) For all different strategies and aspect of my wealth management, I have given them names and there are really funny names which makes it very easy to implement them.
4) As all actions (tradewise) are documented. I conduct a monthly audit of these documents and for actions inappropriate or outside the defined parameters of my scheme of managment, penalties are imposed, which include ban from trading for a period, cut in remuneration etc.
...because no one wants to accept defeat or take losses, its human tendency...
Simply be inhumane (and I am not joking) because the market is. This is what detached trading is all about. Be ruthless with the outcome of your trades be it profit or loss, you decide fast before market decides for you.
therefore those traders who master the art of booking maximum profit ie not run with small profit, they survive the longest run.
In my opinion they are speculators. I don't speculate. You said it right they may 'survive' (just survive) the longest. But this is the intermidiary state of a traders' life, what next? How does he evolve and grow?
2) ride your winners - take maximum juice out of your winners
Doesn't fit my scheme of thoughts 'now', so no intention of 'mastering' it. Because earlier when I wanted to do it, I mastered it but alongwith, I also mastered how to ride my losers, so effectively as you mentioned, I survived and survived, but just survived.
Regards,
p.s. Kindly excuse me if my statements are bit blunt. But that's how trading life is.
Everyone please give me definition of successful trade according to you.
Too difficult to answer the same.
May be what kind of trade you desire would be easier to answer, something on likes of what Ranger123 has answered.
In my early days i believed Trading like battlefield where i would enter hit my traget and runway with the winning money (read gorilla warfare), there i considered being able to ambush and not getting trapped as Successful Trade, then realised that was fun but not business.
These days, i feel equally happy to exit the trade if not working on my side.
So, if i have to define successful trade, I would say where i can enter and exit at the positions i want (predetermined) (and exit could be with profit/loss). I hate sometimes (even on Intraday) , the price jumps (gaps) too far away from my position and I feel pain in exit (as this wasn't the level in my mind, and also it screws with my R:R).
Some of you may be wondering what about Stop loss (it gets hit, but since it is market order stop loss, i get the worst fill).
Also successful trade would be where I have time and judgement to add of pullbacks and rallies (what greater success than that) [but sadly sometimes (read often) the rally/pullback turns out to be Trend Reversal and sometimes no pullback/rally at all.
there can be 2 types of trades
1. winning trade
2. loosing trade
to me a winning trade does not necessarily mean a successful trade and a loosing trade does not necessarily mean an unsucessful trade.
a trade where I have followed my rules (whether it be winning or loosing) is to me a 'sucessful trade'.
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Remember keeping stop loss you may lose litle of money more often but you will never lose a lot of money (which if happened will make a dent in your Equity from which it will be an herculean task to recover)
Quote:
Originally Posted by ranger123
I take more trade with out looking at postive probabilty and was doing on R:R but still I ended in looses.
This is the hard fact of Trading (read: All kind of probability game).
Only because probability of success in that particular trade (or anything for that matter) was greater does not mean it will give you success. That is why pros never worry about every individual trader. To let the probability work you will have to take them in lots (I always see weekly numbers, and then decide the probability of the system).
I hope some of the following words from Saint will be helpful. I have copied this from his blog (visit http://tradersaint.com for more)
Quote:
Not only cut the Losses,but Ride the Profits.
Adherence to stop losses is important and vital,but allowing a trend trade to run its course before tampering with it is as important,if not more………Let us take another Trader.Unlike our Trader friend above,this Trader is more disciplined,more ruthless.He knows the importance of stops,he realises the importance of his capital and its preservation,…….he therefore adheres to his stops.Not only does he adhere but he realises that stops are to be placed at vital points(talking Tech Trading).He takes on the Market and after 10 trades,he makes 5 losses,and 5 wins ie 5x-5x=0.He has lost commissions,and misc charges and made nothing.His next 10 trades have 6 losses and 4 gains…all gains are about x,and losses at x each.He ends this on a losing note as well.
This Trader has gotten it better than the previous guy……..he is following half the Wisdom and finds himself perenially at Breakeven to Mild losses.After 20 such trades,he realises that his fallacy was in placing stops in the first place.The next 10 sees him hurtling down and joining the previous Trader in his ranks……..what has happened is a slow breakdown of the discipline by the Market,which is nothing but a Totality of Minds in action.Frustrated and disappointed,he thinks that his fault lies in the method,his system,and runs around in circles collecting this afl and that.
So too,at the end of the month,when we look at our Trade Analysis,we kick ourselves for not adhering to our stops……We notice instantly that our stops of x was not adhered to a few times and that led to the downfall in that month…….Nothing could be further than the truth.What the Month end analysis does not show is that the profits earned of say x or 2x was in a move of 10x or 12x…..to put it crisply,we did not capitalise on the move.Not capitalising sends the mind into Regret.Regret sends the Mind into Wrong Decision.Trades are taken when they should not have been.Stops are placed at incorrect points.Multiple useless,unnecessary trades are put,and the broker instead laughs all the way to the bank.Even if stops are taken,the trader does not make enough to cover the losses sustained.Sustained lack of victories sends the Mind into Defeat Mode and he then finds every possible way to shoot himself in the foot…..
The Wisdom of the Ancients has always been to cut the losses,and to ride the Profits…..Somehow,the 2nd half of that great wisdom stands neglected……Obey that Wisdom,and great profits follow.Neglect it,and Peril will follow in a matter of time.
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The best part I like about this man is his simplicity, flexibility and adaptibility. In my opinion these are the only things (in order) to be successful in any sphere of life (including trading). Some possess it naturally, some eventually get there but at the fag end of their lives, while most are 'determined' not to possess it.
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Well, I am always here. But more of an observer than a player. I guess this is similar to my trading trait. I agree that most of the active members on this thread have gone into hibernation as it often happens when there is nothing 'interesting' happening. But I am sure they will return soon.
Good to learn that you are profiting consistently. Keep doing the same thing again and again, get bored doing it, don't try anything new. You will soon realise that you are getting 'paid' to get bored. I also liked your approach and subscribe to the theory of trading one instrument. You see, there is no excitement here too, as you are tracking and trading only one scrip, come what may. This is a THE approach to make money in trading.
A friend known to me for over 12 years has been trading/investing/speculating/hedging etc etc only on one stock (part of Nifty and Sensex) and this he has been doing even before I knew him. He doesn't know (or rather want to know) what DJI, FTSE, HSI etc is, neither the US job market/housing data or closer at home, what is GDP growth projection, monsoon failure/success, composition of Nifty, OI, rollover, A/D, PCR etc or what is the Sensex level or even when are the General elections? For him the day starts with this stock and ends with it. And yes, he has only but grown wealthy all these years.
At worst in life one can still not be one woman man, but for successful trading one need to be one scrip (per market/method) man.
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I consumed almost first three years of my trading career to get my objective close to your objective. And after going down the hill all during this time, I realised that my objective of getting super rich or quick rich was wrong. Only once I set my objective as similar as yours there was no looking back.
Your post just reminded me about about THE WORST trading mistake that I have ever committed. Being modest is one thing that can only help make money in trading.
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As suggested by Ranger, I am replying to some of his queries here:
1) Currently I have 5 allocations of my funds, spread over different time horizons, least being for intraday and highest being 9 months - 1 year horizon.
2) Over 70% of my investments are in F&O. The shorter term allocations including intraday are 100% in F&O.
3) 2 of my allocations are fully built with Options strategies
4) I do not use stop loss for any of my positions (Yes Catastrophe Stop Loss is always on).
5) I do not use any FA for trading decisions. Infact the only TA tool which I use is candlestick chart. I DO NOT use any indicators / statistics, just a plain candlestick chart. Even for Options greeks - vega, theta and delta I use candlestick chart. When I started trading I used almost every tool and indicator availabe on earth and after years I found solace with a plain candlestick chart. (So I am not a MD, MBBS, BAMS or even BHMS, I am just a Hakim )
6) For me there is a predefined limited time to see the chart and make a decision to enter, hold or exit i.e. I get a LIMITED time to observe the chart. e.g. for intraday, I can see the 5 min candlestick chart only for 4 seconds to make a decision, then the chart vanishes (I have software programmes for this), similarly for daily candlestick chart I get 1 min to decide before the chart vanishes. You see, I am not involved in the market in between the review periods. As the time to observe and decide is limited, there is rarely any conflict in the decision making process. The decision - right or wrong is FIRM.
7) I do NOT know what price I have bought or sold (again programmes to give limit orders without punching the price and quantity), so I do not trade prices but just the charts. The contract notes and bills are checked every Saturday that is when I would know the buying-selling price and also the account balance.
8) I trade on high to very high probable trades and with no/zero focus on Risk : Reward ratio etc. My average success rate for all 5 allocations for the quarter ended June'10 was 73%, for quarter ending Mar'10 it was 77% and for quarter ending Dec'09 it was 71%.
9) Since I do not focus on R:R, I do not target returns. Returns on my allocations are not co-linear. So on QoQ the returns could vary.
10) I am not a full-time trader, but make more than what I am paid at work.
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Much delighted to see your reply on something which had put me at crossroads in my life earlier and I think would also have impacted all us traders.
While I can go a couple of steps back and start discussion on : Why do we trade? What is a personality of a trader? Did we undertake trading profession just because we are not asked questions, no one supervises us, no one gives us instructions, deadlines, targets and there is no appraisal etc. or more realistically are we incompetent at other professions?
But I will leave it for everybody to ponder over the above.
Coming to the point of making trading as a full time profession, I pose a simple question:
What do we need for a living, I mean, a good living?... MONEY !!! But is money everything which can get us all what we need in life?
While initially a decade ago I thought so, but then I realized that it isn’t the only thing. All traders want to make money, more money and even more money but what about the life you are leading. I have met many traders in my life a few of them very successful. They have tons of money but I fear what kind of social life they lead for themselves their society and do they have a sense of satisfaction of having done or helped someone or their community. If they indulge in parties or donations to show off their wealth, it is all short lived. People around them do not understand their profession and are not interested in knowing it either and most disturbing is that these successful full time traders do not find any thing in common to discuss at social gatherings, marriages or even during morning jogs. They are all aloof for the rest of the world and their world is either 10x10 office or a tiny room of their big houses.
Some of you may not agree with what I have written because the immediate thought that would come is all the above is absurd and we all can lead a good social life as we will have lots of money and more and more free time to devote to our families and society. But just imagine what happens after 6 months, 1 year, 5 years, 10 years would you still feel the same.
Man is a SOCIAL ANIMAL, and we all need people to talk, listen, love and confide. Trading is one profession which does not involve anybody else than you. You live with yourself. You are your best friend, the worst enemy, it is you and only you. The people around you give you a skip and you don’t understand them as you have mentality of a trader which they don’t have so there is no compatibility. You can’t teach them trading too as your strategies and methods will not work for them, even if someone does trades as per your advise, he will still lose in the long run as your personality and risk taking ability is different to theirs. So you are all alone again.
Thanks to technological advancement, most of the full time traders will find ‘virtual’ friends, enemies on such forums, some will become ‘virtual’ mentors. Their lives will be confined to a monitor for trading during the day and seeking peace by surfing the net during the night. A few may write books, newsletters which will contain nothing different than thousands of trading books available today. - A point to ponder again!!!
The problem with most of the part time traders (who are also doing jobs) is that they WANT TO LEAVE their jobs and do full time trading but are still hooked on the job (for whatever reasons) due to this conflict in their minds they fail in trading and at job too. I being one of them a few years ago, when redefined my objective (by incorporating the initials discussion above) of NOT wanting to leave my job and doing only part time trading, I could see U turn, both at trading and at work.
I find it worthwhile to lead a neutral life, make money by trading part time and still feel complete by being just another man going out to work every day morning.
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A life is nothing but change and change for betterment (remember Kaizen - continuos improvement) - could you list 2 or 3 things that you have decided to change from your ealier experience and how you plan to implement/adhere to those changes? This will enlighten readers about the process of life cycle of a trader and will also help you endorse it in your mind to stick to it all the times.
Perhaps the most important thing to remember is not to short a strongly bullish instrument or in other words to trade against the trend.
At the back of our minds,we are expecting a correction or we are hoping there would be a fall so we can pocket the break downwards. It is an assumption,it is better to trade waht we see. Today for example, nifty peaked by 10 and fell by 10:40, so based on technical parameter based on volumes it could have been traded well. These days the main action is at open till 10:30 .In fact if you cannot enter by 10:30 or latest 12 there seems very little to do in terms of catching a reasonable move.
I hope you have some technical platform with indicators as far as i know you would be trading blindfold without it. I think IIFL TTAdvance does not have TA so I am concerned -any of these Angel,Indiabulls or Sharekhan is necessary.
Starting off you can confirm a move then trade for a couple of points. A thorough understanding of BB and candlesticks is good. ADX is quite solid too.
One takes higher and bolder steps when the foundation is strong and tested. We know your trading hasn't been successful , rather an utter failure (writing this word purposefully) hence apart from changing certain habits (which only you would have known by now) you need to cut back and reduce risk on your trades.
One way is to reduce quantity of stock/value you used to trade earlier. Hence you should restart with your fresh funds without leveraging. Try it with your favourite stock or one/two large cap Index based stocks. By not levarging you will know if you have adapted the changes you planned and can evaluate the results. Only after a sustained period of time and consistently favourable results (by 'result' I do not mean profit, but successful adherence to your trading plan and method) you can get back to your initial quantity/value per trade.
Derivatives is much complex subject (especially Options) and there are various F&O statistics which can misguide you if you are new to it. Even experienced derivative traders too are not sure of interpretation of these numbers. Also theory is different than practice. Trading derivatives without much experience can simply evaporate your capital before you know it happen.
Somewhere I am getting a feeling that you want to catch up your lost capital and hence are getting from jobbing/scalping to stocks to derivatives in a span of less than 5 months. You are into full time trading so you need to be more careful of failure and set back as there aren't any/much option for you in case of wipeout.
So stick to stocks and reduce the quanity of your trade.
Quote:
Originally Posted by alroyraj
Welcome back,nac. It is a rather challenging time,now. Selection of the security to be traded is paramount in trading equity derivatives. And second,there are some derivatives that you can understand the movement and other that you dont. Start with the nifty and the most liquid counters-it seems the action has shifted to the largecap names. And thirdly,your time in the trade can be made dependent on your allocated capital (especially for the margin heavy contracts).
Sorry Alroyraj, but my post could interrupt your discussion, but that was not my intention.
Do what you think is right as per your trading method, seeking advise/cofirmation on trading calls is no good for either the seeker or giver. If you mix two of the best traders, you will get the worst of them (quote from some book I seem to have forgotten the title
You are right. If I wasn't good at reducing/cut back mistakes with the lesser risky instrument, how would I survive with the higher one without rectifying those mistakes. Definitely this will evaporate my trading capital.
But I made this decision after considering the risk factor in derivatives. It's solely because I felt that I could trade index better than a stock. May I am wrong here. Not because of wanted to earn what I lost.
Correction I dont think Angel has any technical indicators. Basically if one follows Bolinger Bands default 20,2 or Savant settings 9,2 along with 5,6 SMA,it is the best place to start.
For say atleast 3 days, simulate your trades with the nifty. This is vital. You need to see whether your system and your intuition is correct .
The key thing with derivatives as with other securities is to know the state of the market: trending ,or rangebound and/or with a possible negative/positive bias. The nifty has made a major move as of now so it is waiting for breathe. Also the time frame is a key consideration start with 5 min TF and then go down to 2/3 min TF to place the trades then switch back.
Most of you spent years to learn your jobs and now they think, they can trade in a few days by reading in a forum and even will make the same money as they do in there jobs or even more, just by doing that.
Nobody can help such minds !!
Only tipping on there own heads with there own fingers can heal that. ( By the way, I do not speak about you, I speak to the readers which have this mind )
I do not know what you trade : Futures or options. Any way, check the trends of longer time frames like months, go down to two weeks and plan your trade at the begin on a weekly time frame or maybe two or three day time frame.
Give your self time to feel comfortable to the time frame you trade and if you feel, you are comfortable with this time frame, you slowly, and I mean slowly test a shorter time frame.
Ask your self then, if you feel comfortable with that and so on. Test your time frame.
But real serious : Giving up after one week is really not some thing, which shows any strength of your personality. Weak, weak, weak. ............DAN
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exclusively use CS for different TF trades including intraday. While I DO NOT follow any of the book patterns, I have developed my own set of patterns (over a period of time) which works well for me (even of multiple underlyings).
Here again compilation from tnsn2345, just see the logic and strong near perfect psychology of this trader
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So the question of risk management is not avoid the risk, but it is about managing the risk.
Managing the risk is based on the measures of severity and frequency.
1. low frequency and low severity. (For eg. opportunity losses in trading due to non-availabilty of connectivity, executing personnel - which can be managed by placing adequate stand by (backup) arrangements.)
2. high frequency low severity (For eg. trading losses due to short term fluctuations in market prices, which traders manage generally with the help of stop losses, appropriate trading strategies)
3. low frequency high severity (For example system crashes, software system failures , absence of key personnel etc which needs to be managed with insurance, which we were trying to discuss in detail
4. High frequency high severity which is practically nil for any business, (may be except in agriculture)
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managing it when the so called calculated risk goes wild.
A stoloss is not an insurance, it mere a pallatative way of quitting before it gets wilder. The market may not give a chance to exit at your stoploss, like opening gap.
Hedging with options is a viable way to get insured without nullifying your profits, provided you are not hedged throughout. Though risks are an intricate part of trading, it is usually well defined with peaks and troughs at certain points, where hedging is indicated.
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first understand enterpreneurship in trading.
In trading .......knowledge /discipline/adaptability/understanding market/objectivity r supreme.......u have to acquire or learn it.
It takes time.......according to me 10yr atleast.
then understand risk involve in trade........basic difference is here risk is not potential but ACTUAL, where as profit is potential .Newcomer never understand it.
Next prepare an Edge.......anybody against u should be loser.
Use that EDGE , which timeframe suits u.......that modality of fitment by real time trade & analysis.
Where & when u r right ........just keep that one...........all others r to be unlearned.THEN can u learn Pyramiding/leverage that edge.......
again practice Discipline........only to stick to it,......may codify/or just follow it.Dont allow other variable to distract.
actually in trading is thorough put,u continuously buy/sell in a discrete manner.......based on ur understanding/experiment/luck factor. Key is hold winner and throw loser early..........when u take a position ,i dont know what shall happen, so based on market observation , i shall book loss as per my criteria,.......best is can i add to winner.keep the ball/money so far u understand and getting return.....if its not, just stay out,.......sharpen ur skill and again comeback
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In trade its very imp to to create a risk-shield.............u r ready to protect ur money like knight.
after that learn.....what way u r comfortable............since u plan to continue as a marathan runner in market to earn atleast next 10yr........after successful trade learning.
indicators basic purpose is to give u confidence,........definitely momentum, understand exhausion of trend is imp,.........toughest learning is switch from one timeframe analysis to another time frame...........as accuracy may vary drastically ..........both +/-.
Mind it sensex is indicator of growth.
order book is indicator of profit potential and research is indicator of longterm sustainability.
toughest learning is switch from one timeframe analysis to another time frame...."
can you explain this a little more?
ya explaining it.
Ans : In normal 3 yr of learning ,all novices start to learn some method of entry, may be long term......bull entry, may be intraday.......% move and then profit book, similarly some swing buy.....like buy in pullback ie.bottom of a cup pattern.
Soon ie. after 3yr , its not suffient to earn from market is now known to him.......unless by God gifted luck he had made enough and left out Market.
So other method . other timeframe play, other forecasting idea like.......fundamental.ta or psychological + bookish random variable entry/exit system.....quantum method/fractal theory.........r read and variable strategy for different market condition which one to be applied.............r practiced for mastering.
Another problem is to fit ,where he fits naturally.........thats timeframe and style gives higher return with better strike rate.
In this search and learning ,he found out........its difficult to erase ......first pick up learning , it may be say break out play. So he has learnt it early......its with him now,........so even after 7 yr , .....if he finds a break out play in present market condition with poor probability , he may actually trade it only to lose money ,.......as he enjoys the thrill of early learning days.SIMILARLY its the time frame,.........many trader starts early as investor,........that backgroud stops not to trade at certain condition, because of complex RISK..NONO. THose who starts strong as dealer,......can not hold a 3day profit run..........knowing fully well it will move another 15% ,but block with condition of max 5%profit book, more than that u r greedy,,,,,,,,scalpers curse.
Similarly a trained swing trader of booking around 10-12 % profit ,.......can not move down to 3-5 %profit in random time frame mode so easily.
YES IT IS THE HARDEST THING TO DO
Trading starts with excesses.........excess knowledge/excess time/excess money.
3places u have to fight..............self/other traders/market.
Your other life.......should not fight with your trade learning life,this environment is imp.
then comes choise of system /strategy/timeframe.
variable market condition.......up/down/volatile/nontrend small move .
Which one to be done by you.......as per ur expectation......buy/hold/sell.
What price is telling u to do? .....buy/hold/sell
Now understand to prepare trade journal.........its tool of tuning,understand what u r supposed to do vs what u have done actually.
What is ur info source......can u nullify any hearsay from market..........your decision making skill should not be variable.....it must be sharpen constantly.
how u handle stress generated out of trading.
ALL this must be writen and followed just like breathing, then u r a trader
Journey of a trader starts from novice to beginner to advance level to expert. then comes Master.Now between advance level and expert.............its really very slippery,.......i forgot to count how many times i flawed........mostly when i think i know market..........i am humbled to basic.........fortunately like cat has 9 lives........again i move. Humilation ,to face it........discipline ,recoup energy and walk again.
this view is because.............we r by birth not at all trader,......say first doing ur swot.........u know what u r,......so from somewhere u r transforming u a trader.
First i am giving a hypothetical case,.......a math postgraduation topper, shifting to a trader. As to learn trading,......it takes time,........so u r doing some formula - model to know ,what may work as a trader for u.
U may choose.......arbitrage model, or simple random mean reversion, even excel based fundamental equity based.......forecasting proforma model. Now u find , based on actual what is gap,........ie. error,.......but being trained mathematician,......u cant take.......possibility for absolute number to change, objectivity works for u,........but since system itself is variable,.........u have to understand.........block with number itself is harmful for ur development as trader,......conceptually to take 300pt up, followed by 450pt down within 3 days......tells either ur programming is wrong OR ur mathematical idea-notion is wrong.............this is a type of internal fight.
similarly u understand........u have u learn certain thing,.......but time constraint or other priority ..........makes u choose...........so again come fight against U.
Next i am telling my chess case,.......in chess as i have learnt in childhood.....understand pattern , but for competition...........u must fight till death,........use ur best defence skill ......when playing against GM.
.............now understand the problem with me,.......i was known as av chess player........my rank was within single digit,in my state in 1975.......and after that with chess study of 10 yr.........later i am shifting to tradelearning,........
YES u r not supposed to fight,.........but i can not take loss,.........simple a trade loss is nothing.........just wont hold it,.........or else face mother of all loses...........a la 5lakh..............i know how much bleed by it.
In trade ,pure small losing trade should be thrown out first...........but due to my different conditioning i showing fight back attitude,......create trouble for my trading a/c..........this i call fight within self.
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Yes against other trader means opposite direction u have to commit with money.
But against Market...........particularly flow of FII?MF.......i should be with nor against them.
FOR stopping newspaper/tv .......only to follow by price..........it takes me lot restriction .......more than 3 yr........here also i faced internal fight in mind.
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can you share your thoughts on portfolio management?
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This is the topic.......i am interested to learn. Definitely some indians know it , i have not seen to talk ..........literature may be strictly secret.
Bookish View;........dont put egg in one busket.
3 case scenario..........cash -bond- stock
Ur edge-risk taking capacity,holding period.......interrelation,alfa/beta
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Actual case sofar i smell.........sector rotation
when risk is higher........u may sit on cash.
if u dont know, u have to learn..........make no investment.....be cynic.
better be contrarian.........atleast against media hype.
Simple strategy of playing aggressive on winner gives better return.
Savant/Traderji/AW10......may have some idea........they may help, but in public whether they shall post?.....i dont know
btw...........PMS persons in india .....some pie chart......with least inter dependency sectors.............r wrong thing to copy.
Only literature i have seen by Mr Boucher.......trainers of fund manager
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sector rotation is a simple concept for efficient market.......many MF cannot totally get out of market , and they actually put back in some sector which was dumped earlier........normally cycle varies.........10month to 20month to moneyflow back in a sector,........also swing flow is possible 1month to month gap .
Playing aggressive on winner.........MM strategy
PMS ...portfolio management service
Pie chart........representation by circle , fund allocation....bookish idea of 1952
Mark Boucher.........authority on practical appln of financial managent normally trains billion $ handling fund managers.......in 1994-2002.
search in suitable place like 4shared/tradingmarkets.
the logic of risk management and simplicity in trading is absolutely right.
But for stock trading.......pms exists ........and believe me ,fundamental really counts.
Result of stock/news has some role to play.
its the big fish .......they decide market.........so from certain characteristic & moneyflow u can with high accuracy tell.........where in particular direction trade is possible.Infact ur theory best work in forex........u may play there.
we study Trend to understand ..........trend reversal in near future possible or not..........so that's an oppurtunity.Be ready for possible scenario.
Again by seeing a Trend , check if in higher timeframe Continuity is possible(highly probable)........so that we shall not exit from a position,........if momentum also supporting then we may add........in Trend continuation.So trend itself not imp.......but Trend continuation -trend reversal.......chance of each of them happening and moving the same principle to higher timetrame........key theme of usefulness of trend.
when u understand trend exhaustion ,,,,,,,,,,,,so money making possible.Actually another 2MM principle is imp......Marginal trade & opputunity trade.
Marginal trade concept :you r in a position .......trade move in ur direction, u earn by booking profit..........only to see later ........trend is continuing ie. by simply holding u could have earn more.So u have to consider ur trade profit potential by creating ratio by profit booking ,divided by total move of stock in just next highertime frame.
OPPurtunity trade concept : here u r holding some position , so u r seeing some new oppurtunity , since ur money is blocked........u can not enter in potential trade, after some in ur time frame.......trade is making desired profit,......but for its on paper ,as u can not take the real trade,so restraint of fund .Similarly 3oppurtunity comes ,u put money on 2,......after some only to see thirdone gives better move.......alas for u its again a paper profit........TRADE oppurunity .
Elimination of this 2 mistake can improve ur trade return dramatically
A child even can earn with Discipline , when its long term Bull market starts,by utilising 2weeklyMA with 8weekly MA '........its a tool to suggest for bull market arrived and shall exist atleast for some time.
Counter-trend system is a traders tool, algother in different market context.For short term reversal study,5day DEMA .....its slope is sufficient to tell ,when the market is changing its characterisic.For oppurtunity search , even simple Scan based on 10d William%r ........is sufficiently ok to give u ,candidate to Right trade.
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when market enters in volatile zone,............its futile to use trend/nontrend systems.
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to earn......believe in own system & use stop,........or simply switch to different system which work in present market context.
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understand context first, u have data ........just see WHAT its telling.pl believe KISS
recently i read in professional traders' coaching .....this hypes r created to serve illusion to newbees to lure TRADING IS EASY.....ensuring suppliers of fools,.......so the industry can earn,its a coldblooded fact in industry, as if indian solders were cannonfeeder in 1st world war for britishers.
imp of basic programming for trade learner
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if u ask me whether as a trader,..........u give programming or mba which comes first...........ofcourse programming . but programmer must know trading first.........so it creates oppurtunity to isolate.......wrong trade vs. profit making trade .
It cuts out sensitivity in trading and develop objective view.ASK Traderji why he is great ?........ofcourse mastraders' programming skill help them to reach icon status. so price speaks for them.......what may happen now.............Next various scanner search /give them oppurtunity in real time,.......just like a sharp shooter fights against sword champion from a distance.......... SO WINNERS R EXPECTED ........mind it many extra night they r awoke to prepare /test the tools in market.
the problem of new learner........they dont know what is winning idea in present market.......so their programming skill fails , instead what if scenario preparation, should study.........background of price movement.......from stable to a new zone,........after that high/close and X function and some strength study formula preparation can make a candidate for trial-trader
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after stoploss, only 2 things r left..............leverage on winner,keep urself with healthy attitude..................for av learner, reaching +ive expectency ' consistently earning out of market..........brings further quest.........bringing big winner. here on he become a discreationary trader(i know some of my friend dont like this word)......winning trade is a filter.........and he adds if he finds momentum /accln in volume or quickly reaching target.........yes this alone give u high return.........just check yourself with trend continuation idea.
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Healthy attitude........starts by questioning do i follow trade journal ?my right trade how far due to my execution skill/market favors me randomly........
next is how far smoothly i can trade and can it be transferred to others.......or otherwise unique to self.
WITH THIS WE R COMPLETING TRADE LEARNING.........next is practice.do it urself
In short term trade ,we search for bias ........bias for direction. imp is pivot.........pt of conflict.......known seller /buyer may take position to test market........based on their system.........actual system of earning is ........how bull/bear is losing battle ......so comes Oppurtunity........say yesterday,,.....upside conflict at Nifty 5280.......tells me many 3% probable upside trade exist for monday 5th april,but which has potential to go 8% ........they r to be taken.
Remember the flowers idea.........its the continuity ........breaking of higher pivot.......potential trade exists.
problem is in daystyle ........many may buy there,where as higher timeframe players r actually fading............so unless u know beforehand who may win..........mostly u shall in loser side,including self.
so u have to add some filter say simple 20dma with a some 1/2 hr price bar for continuation + volume accln filter..........u see winning trades r looking at u.
core pt r presented here.'how to lose money in stockmarket'......pl avoid them
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1]Trade in options without understanding and context of present market condition
2]not use stoploss
3]Cut your profits short and let the losses run
4]Select a method and start trading it because you are in a hurry to trade, not because the method is sound
5]Don't use any method or plan at all! ... Just buy as much as you can or short as much as you can
6]Take a position and go to sleep!
7]Listen and trade according to CNBC calls........JUST REVERSE ,ITS GOOD EARNING METHOD.
8] Never use your own brain for trading ... Never try to learn anything but taking position and squaring it off! Search extensively secret underground sources for TIP ...
9]Trade against trend ..........BUT THIS IS ONE OF MY EARNING METHOD.
10]Engage in extra-curricular activities during market hours AND Forget your commitment of trading seriously/mindfully .
11]Always assume that you are always right..even when proved wrong..take it as temporary setback and start with fresh vigor resuming your assumption that you are and will be always right..
12]There is only one rule....that is....TRADE WITHOUT RULE.....you will reach your goal.
13] If the basic hypothesis upon which a trade is entered does not exist, then one has to remain in the trade, hoping the situation to get more worse!
14] Emotions aka false ego....
Emotions aka i know all i longed/shorted this script and its going to follow me,i longed/shorted this script coz i know all about markets,always remember markets are not supreme,its the false ego in me.
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Avoiding the methods of losing money mentioned in this thread would be quite helpful to become a successful trader
so as per modern concept key idea is
1] understand sentiment of present market
2] psychological neutrality
3] effective risk management
4] add/leverage when right.
5] where to put stop....../when not to play
6] preparation.......then only u can execute.....u have to develop a system which suits u
7] learn to play in atleast 3 types of market.......trend UP /DOWN ; VOLATILE , SIDEWAYS market.........mixing of them can be learnt later.
use very simple indicator..........but master over it.understand......price variation can be reflected in them.......so that......by seeing change in Indicator........u can develop to predict Right side of chart.
MA- X simply suggest trendliness, momentum tools use for strength.......support/resistance breaking tells us about future of a stock.
8] future of NIFTY and MONEYFLOW.......comes before everything.
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SO NOW ITS STARTING.............Oilman, you have given quite a broader persepctive on this subject covering almost everything from as many sources as possible. Appreciate if you could share your style of managing Risk on your individual trades, trading capital and on your total portfolio i.e. for each stage what has been your process, has it been different for each stage and how you implement it, pit falls during implementation and control /audit mechanism, if any,...........PL UNDERSTAND ,RISK @ INDIVIDUAL TRADE/RISK ON TOTAL PORTFOLIO AND IMPLEMENTATION IN ACTUAL MARKET.
..................this views r expressed as someone has asked to know something.............most of thing r expressed to enlighten that part.
i have expressed nothing on risk management.
if u ask me personally.........i try check whether high probability exists.
for intraday ........if i see , i am not getting my target.........time stop.
For swing , depends on particular stock..........time/particular % fall.......stop triggering
for intermediate term......its the fundamental reason of trade /or sudden big reversal .....then i trigger stop.
Naturally i have different A/c in broking house for that purpose.
For first 10 yr...........i have various approach and fouling.........not now.
If i am not on screen , no intraday.
If i dont understand reason behind trade, no trade.
.........so taking less trade,is my main risk management technique.
......................TNSN2345.........
Step I:
1) Decide on Portfolio Allocation: Portfolio allocation starts with defining Financial Objectives : How much money you would need and when? Your assets, liabilities, income and expenditure. This is a different subject altogether but still ultimately one (even a trader) has to start here.
(a) Variable (positive / negative): Equity, Real estate, Gold, F&O (Directional positions)
(b) Variable (positive but unsteady returns) : F&O (multilegged strategies primarily using Options)
(c) Fixed (positive) : FDs, NSCs, PPF etc
2) Decide on time frame to adjust Protfolio Allocation : Could be quarterly, half yearly or yearly. Depending on your portfolio performance, income from other sources/job/inheritance etc
Step II: Here I am zeroing on the aggressive part of portfolio allocation - Trading in Options:
1) Risk = Uncertainty of DESIRED outcome
2) Desired Outcome = (a) + (b)
(a) Primary Desired Outcome = For position taken at Time T0, price CHANGES in favour of position taken at Time T1
(b) Secondary Desired Outcome = MAGNITUDE of price change from P0 (at Time T0) to P1 (at Time T1)
Hence at Time T0 and Price P0, we need to define both, T1 and P1.
For a one market, one instrument, one trading plan trader (like me) T1 is sacrosant (FIXED), P1 is the only variable.
P1 is defined before trade initiation. P1 is defined both for positive outcome and for negative outcome.
Eg If I am buying Nifty Options @ time Time T0 at price P0 (Rs. 100), and defined is P1 is Rs. 95 (worst drawdown) or Rs. 107 (best outcome), my Risk is Rs. 5. (Rs. 250 for one lot).
If my trading capital (which is PART of my Portfolio) is say 10 L and I decide to RISK 2% per trade (this % is decided at the end of each week for the next week depending on the performance in the week gone by. The range of Risk / trade is between 1% to 4%), then I would buy 80 lots of Nifty Options.
At time T1, the probable outcome of Option prices could be:
93 : Exit fully (2.8% loss of trading capital : 80 x 50 x (-7) = -28000)
95 : Exit fully (2% loss of trading capital : 80 x 50 x (-5) = -20000)
97 : Exit fully (1.2% loss of trading capital : 80 x 50 x (-3) = -12000)
100: Exit fully (0% loss of trading capital : 80 x 50 x 0 = 0)
103: Exit 75% (0.9% profit to trading capital : 60 x 50 x (+3) = +9000)
106: Exit 50% (1.2% profit to trading capital : 40 x 50 x (+6) = + 12000)
109: Exit 25% (0.9% profit to trading capital : 20 x 50 X (+9) = +9000)
You would notice that if the price at Time T1 is less than 100 I exit fully and on some occasions the loss could be higher then anticipated 2% in this case if I exit at 93. But this margin of error in my risk management is acceptable since I exit at Time T1.
Secondly you would notice that at price levels > 100 (i.e. 103, 106, 109) I have partially exited. But these exit % are NOT RANDOM.
If the price is > 100 at Time T1, then this T1 becomes new T0 and the current price say 103 become new P0. From here I would again calculate new P1 (both worst drawdown and best outcome scenario) and accordingly adjust the quantity.
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Step III:
Treat your profitable trade and non-profitable trades seperately. The MOMENT I close my profitable trade, the profit made on the trade flies off out of my trading capital account and rests in a different account which is my Variable - steady profit funding account, where I use multilegged Options strategy with low risk and average returns as the time frame used in these strategies is quite larger (almost 2 to 3 weeks or sometimes till near month expiry). Most common strategy is Covered Call, which may be covered in detail in some thread on this forum. Also sometimes, strangle or straddle or simply deep OTM call/put writing, depending on the market condition. HOWEVER here too, my RISK management techinique is quite similiar to the one mentioned in step II of trading naked options. i.e. P0 at T0 and defining P1 at T1. i.e. fundamentally though the strategy has changed as the funds are from different account, but RISK management is still the same.
Now as I keep withdrawing the profits from my trading capital account, and continue trading eventually my trading capital would tend to cease some point of time as there are some loss making trades which eats the trading capital. Yes this is what could happen eventually, hence with each passing period, my trade size reduces as my trading capital reduces. Though my Trading capital could tend to be zero it doesn't happen, WHY?
Because, remember adjustment in Portfolio Allocation (Step I), which I do every calendar quarter end. Hence basically I have to live with my trading capital for a period of 3 months, the better I trade I get more quantity to trade and then quantity decreases gradually. Profits keep going out.
When Portfolio Allocation adjustment happens at the quarter end, Trading Capital is top-uped up STRICLY on the basis of trading performance in the last quarter, hence if I started with 10 L trading capital which was reduced to 5L in three months and has generated profit of 8 L then I may be entitled to top up to 10 L or even higher depending on my overall Portfolio performance in the quarter gone by. Alternatively instead of 8 Lacs if the profit generated was 4 Lacs, then my trading capital can be top-uped to a max of 9 L it could be generally be lower viz, 8 L or 7 L as performance was NOT ACCEPTABLE.
STEP IV:
At the quarter end review and portfolio allocation adjustment, majority of the incremental profits generated by Trading, Variable (steady profit) strategy are allocated another account which funds conservative investment account. The investment made through this account essentially follow simple 100 days / 200 days moving averages which are held for longer period of time.
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This marginal trade and oppurtunity trade r excellent money management concept........an advance level learner on market practices.......first one is how much more he can squeeze out of same trade.opportunity trade in mm is spill bean concept.........both r subjective.
By the way, similar name trade exists ........both r used by momentum traders.......a volume set up , then a trigger on price......a quick small profit execution.u can do it mathematically.
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'Execution' (or say implementation) is one area which has taken many years and money for me to tame. Over a period I have managed to create a system which is devoid of interference of various functions of Trading and portfolio management.
Having read various books on related subjects, the basis of this system is dervied from a very simple and a small book titled - Six Thinking Hats : Edward de Bono. You can find jist of this small and wonderful book on the net.
STEP V: THE PURPOSE!!!!!
Why do we do all this? i.e. trading, portfolio allocation, risk management etc. Do we want to grow our wealth to Eternity and leave it for someone after we are gone. NO.
I am working as a portfolio manager (or better still - a hedge fund manger) then I should be paid for my services. This is what precisely I do when I levy PMS charges every quarter end and take out that amount from the Portfolio to my 'personal account' for my personal consumption. The charges I levy are similar to any PMS charges which includes, fixed and performance linked payouts over a hurdle rate of return every quarter.
p.s. :
1) To maintain simplicity here I have not covered Portfolio performance parameters, weekly volatility (standard deviation) of portfolio etc. These are the parameters against which I evaluate my performance every month and do course correction. My remuneration is linked to some of these parameters.
2) All the above mentioned steps of Portfolio and trade management are documented in black and white for reference and remove conflict of interest.
3) For all different strategies and aspect of my wealth management, I have given them names and there are really funny names which makes it very easy to implement them.
4) As all actions (tradewise) are documented. I conduct a monthly audit of these documents and for actions inappropriate or outside the defined parameters of my scheme of managment, penalties are imposed, which include ban from trading for a period, cut in remuneration etc.
The concept is wearing one 'hat' a time and thinking only on those lines what is indicated by the colour of the 'hat'.
Trading, like any other corporate business comprises of various 'people' who are instrumental in running the business (read trading here) smoothly.
In any corporate, you have the core decision making team comprising of the MD, the senior management team - the think tank. Within The think tank you will have Product Development, Risk, Compliance, Legal guys etc.
Then you have a set of field managers, who are implementors/executors whose job is to just sell the product.
In the intermediary you also have Process team, who defines the company's process policies etc and finally the HR team too.
If you define Trading as a "BUSINESS", you will have to relate and allocate all the above roles to different 'people' of this business. But the irony is there is only one indiviudal - "I" who has to do all these roles constanly, day in day out and this is where we fail in initial years in this business as there is a constant overlap, haphazard, random thinking and interchaning of roles which we are not able to define and regulate and ultimately blaming our 'emotions' to the losses we accumulate in the initial years.
Coming to specifics, I run a virtual Corporate entity in myself.
The decision making, implenting, process, operations, risk, compliance, legal and HR is all rolled in ONE person. The only difference is the way all these 'different' people function. And this is where the concept of 'Six Thinking Hats' comes. Each individual function is taken 'INDEPENDENTLY' by physical objects (small toys) which are placed in front of me at a time, which directs to think only on and through that respective roles. Once the outcome is reached it is written on the scrible note and passed on the next role and so on.
I know it may be sounding weird but it works, one can get into a specific role mindset by making the environment look like that and physical objects makes it more easier. Also documenting the outcome helps the cause. For e.g. if the 'decision making team' makes a buy call, defining time frame, drawdown, payoffs etc. it is written on the note and then passed on to the 'execution team'. The role of this team is to just execute as per the instructions written in the note. Post this, they would write a note stating 'job done'. This is just one example which I have stated. This is how the entire machiney works, which includes, operations team, whose job is to ensure that systems, net, broking house matters are taken care without hassles. The accounting team takes care of contract notes, bills, bank statements, charges etc on weekly basis for storage. Any special observations by these 'teams' during their course of action are noted and taken up at the review meeting which is generally on a weekend.
Sounds funny... but it works as the thinking, execution, etc is compartmentalised with no overlap. It is nothing but Keeping it Simple (here it is not necessarily Short, but who cares if this is what works for me well)
Red hat is also important, once you put it on, you ask yourself how you are 'feeling' / 'intuition' at the point of taking the trade...this could be relating to the trade in question, trade closed earlier or even not related to trading viz, the ac is not working, there is some external unexpected disturbance .
Be focused
Keep things simple
Follow Kaizen - continuous improvement
Adapt to change (Again a very small book - "Who moved my Cheese?", would help)
And most importantly, keep smile.
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wearing the red hat...', kudos. If you can adapt this concept in your trading profession, you can effectively address many areas viz risk, money management through this.
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yaap i believe & traded this .......basically potential intermediate term trade.
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since u have asked.........see Chola......its move from 62/-------90/-- presently 150+
case 2.........MERK........build up 410/-.........presently 750
case 3........apollo hospital..........u can see all cases in EOD & weekly chart.
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basically its @potential resistance how its happening ........that chance of wide bar......and follow thrugh.
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Actually to study failure , u can see abhishek .......18/- break out attempt failed , presently 16/+.
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i have studied this through tradingmarkets.com in 2002 ...breakout trading
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Before entry.........Reason i reqd.......some bias/edge to trade, which r normally fulfilled .
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4th one.........here cv's view is right.
define ur purpose,......i prefer meta/omni.
my experiment with adgeteod/mtpredictor not good.
since studying beyond technical analysis/creating some condition for biases r helpful.
I do some preliminary check through equitymaster.com
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on experimental basis to create EDGE ,WAY TO TRADE........pl follow.
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Personally i give immense stress on psychology/probabilistic analysis .
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Basic of breakout trade is some market condition.
Also some stock sp behavior.........this 2 i say as SET UP.
now in set up , u take a position............
mind it, its a potential........so failure of not happening is high........key word is how handling resistance,.......go to smaller time frame,......just see how things r unfolding.
.........so potential candidate has high probability or lower one ,u can follow.
BOOK loss on failed one,
Now the key.........while wide bar forming in your expected direction simply buy in BIG volume.
Example......see HPCL eod,........position at 340-350 to be added to make quickly 100/- per share.
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Thoughts on Money and Risk Management. Money Management is simple if we create a rule and strictly follow it with extreme discipline. Everything will become confusing if we do not maintain extreme Discipline. I follow a simple Money Management technique, and stick to it, at any cost. I made a Risk to Reward Ratio at 1:2. I maintain 5 p.c. Stop Loss and 10 p.c. gain. I never put in more than 10 p.c. of my equity in one counter. When there is a loss in one counter, I take a gap of 10 days to re-enter provided signals are good. I only invest those money which if lost doesn't change my lifestyle. I lost money on various occasions, but only to my Risk to Reward Ratio principle, but I am still comfortable trading due to the fact that I do make lot of winning trades also. Its my R-R ratio that helps me stay in trade
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You are right. There is no real key. There are only sums of data and information's which give us for a certain trade enough cross over information to be more sure, that the odds are in our favor to take the trade."
Like I say, do not take it personal but I had to write this here after reading your post, which by the way all are always ambitious to read.
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so i try to help though nobody can help one unless change happens from innerself.
Its the confidence.........one should have to take the trade ,actually price behavior study @one time frame lower than ur trading choice ,helps to understand whether potential Resistance can be broken or not.
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-Secrets of Top Trading Performance-
Much of a trader's early education is concentrated on strategies and market analysis. But what are the necessary ingredients for peak performance? What are the tools for both mastering the mental side of the game and busting out of the inevitable slumps that can occur along the way?
There are several key common ingredients when you are performing your best, no matter what the field.
EXPECT success.
It begins initially with your self-talk. Do you get down on yourself when you make a mistake? - or do you say to yourself - next time I will do better because I have great trade management and am a superior trader! Be your own best motivator and believer in yourself. Positive Self Talk leads to positive BELIEFS. If you believe you can do something, you WILL eventually find a way. When you have a positive belief system that the eventual outcome will be OK, then you are more mentally and physically relaxed. You then have better concentration, which leads to smoother execution, which of course leads to peak performance.
Be Prepared
All of the above factors deal with external factors and internal belief systems. Now let's get down to the DOING part! Every trader should be prepared before the markets open because they already did their homework - right?! One of the most impressive points in the Rogue Warrior book was this veteran navy seal's obsession for being totally prepared for Mr. Murphy! There was always a backup plan for everything and this is what kept him alive. Prepare your daily game plan by looking for both new setups and preparing strategies for managing existing positions.
So, assuming that you have done your daily homework as a trader, the next step is to learn how to get into the groove. There is no better tool for this than having routines and rituals. Pre-market rituals help calm the nerves, get you into a rhythm, and also help to turn off the logical part of your brain - the part that wants to over analyze everything.
Here is another helpful factor: A healthy body keeps a healthy mind. EXERCISE! This gets oxygen to the brain and keeps the blood flowing. How can you expect to be a peak performer when you are eating junk food and going through insulin swings? Or perhaps you drank too much wine the night before or are jittery from drinking too much coffee. How can you concentrate well if you are not getting a full decent night's sleep? Sure, most of these are minor factors but they can all add up to major bumps in your performance. One moment of sloppiness can lead to forgetting to place stops or letting a bad trade go too long. Then when damage is done, your confidence gets chipped away. You must treat your confidence level as something to be protected. Good habits will keep your confidence level high. Once you have good habits, it will allow you to increase your trading size.
Goal Setting
* Flexibility. Be flexible - if what you are doing isn't working, change what you are doing!
* Confidence. When down, get a little rhythm and confidence going. Don't worry about being too ambitious.
* Concentration. Stay with your game. Don't let outside distractions bother you. They take energy and break your concentration.
* Know Yourself. Match your particular strengths to the type of market conditions.
The battleground isn't the markets but what's within you!!!
And on that last note, remember that ATTITUDE is everything. How you frame out an individual experience or event will affect your success in the long run. Do you see a trading loss or bad draw down period as a major setback, or do you see it as a learning experience from which you can figure out how to be on the RIGHT side of a trade instead of the wrong side the next time around. Many great traders use periods after draw downs to go back to the drawing board. Some of the best systems and trading ideas have come after periods of adversity. What incentive is there to learn and improve ourselves when everything is smooth sailing and we are fat and happy? But when times are tough, that is when we can rise to the occasion and prove that we can overcome any OBSTACLE set down in our path.
So many great athletes have been able to come from behind when they are down because they have learned how to seize that one opening or opportunity and CONVERT. They latch on to the tiniest shift in momentum and milk it for all it is worth. Latch on to that next winning trade and convert. The first small moral victory is the first step towards reaching the top of Mt. Everest. And if you keep making small steady steps, you will eventually reach the top. Sometimes for a trader, the greatest feeling in the world can be making back those losses, no matter how long it takes, because once you have done that, you realize you can do anything.
Source : from Brad Gilbert's book, Winning Ugly
read Ryan .............his site smarttrading.com........if u think to master MM
Be a student of FRM.......financial risk management
for simple learning KISS on risk management/money management.......be a member of paid site www.masteroftrading.com........where good pro teaches .
USE stator-afm as software if u like.
Ali, focus of money mgmt is - SURVIVAL. As a trader, we can survive to fight the battle on next day, only when we control the amount that we are going to loose.
We got to set the rules and follow.. (if we don't have the rules, then there is no question of following them). It is not just matter of knowing this number in our head.. but I prefer to keep it in writing so where and also refer to them regularly and monitor them during the market hours.
In my trading, I have various loss limits as % of my trading account size.. i.e.
- Risk per trade 1%,
- Risk per day - 4%,
- Risk per Week - 8%,
- Risk per month - 10%.
At the start of month I calculate these number and then they are reset only on next month begining.
You can have different % here. But higher the number, difficult it gets to recover the loss. In my approach even if I am down 10% in a month, I can easily recover in next month.. but if I am down 30% in a month (i.e from 100, i have come down to 70), then I will need a RoR of 45 to 50% to recover.. which is not practical in a month. So, I keep fighting for 2/3 months just to get back my loss.. Not a good trading loop where I want to be in.
The Must rule for me is to stop trading for as soon as any of the loss limit is hit.
If I have 4 loosing trades in a day, my trading day is over. If I have 1 4% lossing day, and next day again I loose 4 trades, I am on holiday for a week. No more trading, no fighting with mkt to recover my loss.. Psychological impact of losses on our decision making is very different topic.
follow following MM rules in my trading :
1) The initial risk in any trade should not exceed 1% of the trading capital...with adds it should not exceed 1.5 %
2) Max risk at any point on all open daytrading positions should not exceed 3%
I will also suggest the following to follow in the loosing streak :
1) Trade small till you get on the winning streak and get back your confidence because loosing streak not only dents your trading account but it dents your confidence,clarity of thoughts,judgement etc
2) You must learn to hold on to your positions when they are going in your favour...also add to your profitable positions...this is the key to trading profits....no amount of brilliant thinking will do that for you ....it is your adding and sitting with profitable positions which will make enough money in your succesful trades much more than your losses in loosing trades....and this applies to daytrading as well you can have 2-3 profitable adds during the day.
3) Wait for proper set ups to develop before you take a trade...this is particularly necessary in loosing streaks..
I am sure you will get out of this loosing streak and get on to rocking streak soon. Look at it from positive perspective that after this loosing streak,the winning period is round the corner....so cheer up and go for it
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It is obvious that if you ask questions about money management instead of techniques, then you need just some fine tuning, attitude building to make things up.
Calculate Risk and Reward before entering every trade and write it down on paper. This would help you to define clear, technical stops/targets and most of the time, I have changed my mind when I wrote Risk/Reward ratio on paper.
Try to preserve what you have earned, does not matter how little they are, on day to day basis
Keep survival alone as your trading goal, you will be doing great money management. Once you have seasoned, you will automatically trade for big profits. Till that time comes, don't push yourself. Be slow and just learn to survive.
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I feel at times we tend to make simple things complicated. when we speak of day trading, why think in terms of a/c size. when u r trading, u r either trading some system or ur intution. either way, trade so small initially that even a string of losses does not upset u financially or emotionally. once u r confidant that on balance u r taking money frm the market, keep on increasing ur positions steadly. we all know what the power of compounding can do. after a winning streak if u again encounter a string of losses, start cutting back on ur position size. this way u would be able to keep a part of the money that u have made and would also be able to rationally analyze ur mistakes. I have personally gone down frm doing an average turnover of 20 cr a day to 2cr a day in a weeks' time and going totally flat the next week.
hope this helps
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Ali, I am just guessing, (hope I am wrong), that ur startegy is not correct.
Draw very clear rules .. (u can chk out first few posts of my NR7 thread where I have posted sample rules).. Lets accept the fact, as human being, none of us are wired to be successful trading. To succeed in Trading, we got to do things very differently. And clear cut rules does help a lot..
Once u have a set of rules (don't worry, even if they are not perfect, or they are wrong.. just start somewhere),, then plz backtest them on last the chart of 1 stock first and then on few more stocks.. If you find that it these sets of rules make money on paper, then only u can expect them to work with real moeny in future.. Else u are kidding yourself.
Paper trading /backtesting is similar to what doctors / we as driver/ pilot/ fighter plan pilot all go thru in their simulated training.. Once they reach a level of success then only they are given the real stuff.. Unfortunately, trading is so easy that we all feel no need of all this..
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No in trading , u dont have to be genius , but a copy master. Copying what is done already and try to protect u from already proven failed system IS major part for in journey of a trader.
Next is what fits u.when u get by using a system ,however peculiar may it look by others, if its give u consistent money atleast for 1 yr ,in real time trading,........that should be your edge,Now with discipline stick to that system in proven market condition.
AGAIN prepare another system .......not for its betterment, but which may work in future changed market condition.
Trading is not a place of innovation,already more than 120 yr enough experiment has clearly put in black & white.........what works.
Since u know chess,.......i shall quote great Mr B ,......who suggests playing against ladies is easy. as instead already studying/assimilating great works of past masters.......they obviously introduce.......new idea , which is basically 3rd grade.......can be easily defended by Masters.
So in present if u really want learn...........learn on how to play with volatility.
To explain further,
why i loss in option,...........as i am ignorant.
Why i can not follow arbitrage...........i am poor to understand.
Then how i shall earn from market..........its because i have speculative directional idea, which, when confirmed by price is an oppurtunity .
So today i play for Arvind around 4% up ,taken entry..........get out @ 7% = 3% profit.
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This is because , by playing many yr chess ,i can find here lies my strength.
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Chess has given me structured thought process, what to do NOW........its no way with intelligence.
As alternate scenario always to be evaluated ,........so change in situation(read market condition can be easily exploited)
IT teaches value of offence,as well as in case sudden scenario change u have switch in defensive mode(read stoploss activation)
Third thing it helps to use patience .......not to play aggressive ,when situation is not favourable.
..........Since it takes of 10 yr learning to play in national level.........it helps to start my journey to be new student of market ........for atleast 10yr.......being slow learner its my 20th yr.
only drawback i find is stubborness .
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As Dan mentioned that we all have certain set of traits / personalities and eventually we settle our trading methods to it.
For me too (I guess with most of the novice traders too) the initial failures could be attributed to the clash of thought process within self. There is no firmness to the thought that goes in the mind once you intiate a position, hence a short TF position would become a long term investment if the immediate move was against the position, similarly a long term call would be closed immediately looking at profits. And here it all starts - the chaos in the mind, which continues for long long time, until there is a concentrated and focussed effort to address it (which again I have rarely seen people try). The more the chaos, more deeper we go in and harder to come out.
Nevertheless, coming to the point of matching trading style / method to our personalitiy / traits is what we should aim first. But in my opinion things should not end here, infact start from here. It is not imposssible to be a multi facet trader. Yes it is not easier either. Refering to Oilman that we need to find different models / plans which may not be improvisation of our existing methods but altogether different. And this is what I call Research. Looking out constantly to new things, finding them, testing, improvising, customising and then making it suitable for ourselves or else then rejecting if it does not match our beliefs.
Coming to Dan's remarks (don't recollect where he had mentioned those) on my trading style, I do it all, from being long on stocks (primarily contrarian stocks- holding over 9 m - 1 year or beyond), do the momemtum plays, indulge in hedging strategies (through F&O), go directional with Index Futures, and also sometimes a raw specualtor by buying deep OTM stock options (aka jackpot options).
It has been a long journey friends, but I am happy that I could manage and still able to handle it quite effectively (...efficiently..I do not know)..
books by Van tharp can also do well.
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if nothing available READ way to trade,.......an excellent start pt.
Next.......read POP phantom of pit.
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Alternate idea......Believe it is not possible for normal human being.so u r taking extra care to learn it.Its because we associate ourself with success/win .Instead anchor u to follow discipline/systematic trading.
THIS is nothing but a writen documents .....for set up condition in market, entry trigger, exit at profit guidance/exit at loss if situation is not favourable.
Next study.........trade journal to create some guidance for behavior modification.
.............After this we join to RESEARCH as mentioned by great Tnsn2345
Here i write a small learning of trade vision.
In 2001.....we r told a man from ministry is going to take charge namely SUBIR RAHA.
After some month .........price suddenly moves 15-20 % up.........accepting better mangement,.........My foolish brain with basic Knowledge gathered by Dr Prasanna Chandra ,........calculate valuation with bullish scenario + oil industry may decontrol.I forget how i made calculation........but it fair value 480-500 within 2003.
Since i am a novice in finance , i approached a superior officier with CA + IIMC ,mba Finance senior,.......see my calculation ,,,,,also what shall be value according him.
................HE taught Market dont work this way/that way.......value as per him 320-350/-
I was disheartened, after all a good student from one of TOP place to study in india is telling.
So even at ............240-250 , i didnot buy and as quickly in reaches 290-310.......i understand i may not be right & market is behaving crazy. YES i dont earn i single rupee .
BUT i am confident and learnt most imp lesson of trading,.......If the top most college IIMC , laggs so the knowledge of Topper student with double degree ...........Yes i can reading myself better........YES it may take time. NEXT fundamental data or its study .....dont work ......unless u know how to look future.
Pl learn from own experience , better to READ price,........so i read CFA books ,also later MBA-Finance ,.......all availaable lecture @ BSE ,..........but trade on PRICE.
Fortunately..........Tnsn2345........clarifies well, also i have understood now Raunak is great.
...........................So in trade learning Patience pays.Developing right mindset very imp.
I was the first cheatah... Always suffering from "analysis paralysis"...
Discipline comes from knowing what to do and then having the courage to do it when the time comes...
My trading system still indicator based and looks very colorful...but now i dont jump into a trade... and if sl hits... it doesnt bother me anymore... So that's progress....! everything i need to know is there in the chart and i dont have to think any more...! so no fear...!
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So the question of risk management is not avoid the risk, but it is about managing the risk.
Managing the risk is based on the measures of severity and frequency.
1. low frequency and low severity. (For eg. opportunity losses in trading due to non-availabilty of connectivity, executing personnel - which can be managed by placing adequate stand by (backup) arrangements.)
2. high frequency low severity (For eg. trading losses due to short term fluctuations in market prices, which traders manage generally with the help of stop losses, appropriate trading strategies)
3. low frequency high severity (For example system crashes, software system failures , absence of key personnel etc which needs to be managed with insurance, which we were trying to discuss in detail
4. High frequency high severity which is practically nil for any business, (may be except in agriculture)
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managing it when the so called calculated risk goes wild.
A stoloss is not an insurance, it mere a pallatative way of quitting before it gets wilder. The market may not give a chance to exit at your stoploss, like opening gap.
Hedging with options is a viable way to get insured without nullifying your profits, provided you are not hedged throughout. Though risks are an intricate part of trading, it is usually well defined with peaks and troughs at certain points, where hedging is indicated.
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first understand enterpreneurship in trading.
In trading .......knowledge /discipline/adaptability/understanding market/objectivity r supreme.......u have to acquire or learn it.
It takes time.......according to me 10yr atleast.
then understand risk involve in trade........basic difference is here risk is not potential but ACTUAL, where as profit is potential .Newcomer never understand it.
Next prepare an Edge.......anybody against u should be loser.
Use that EDGE , which timeframe suits u.......that modality of fitment by real time trade & analysis.
Where & when u r right ........just keep that one...........all others r to be unlearned.THEN can u learn Pyramiding/leverage that edge.......
again practice Discipline........only to stick to it,......may codify/or just follow it.Dont allow other variable to distract.
actually in trading is thorough put,u continuously buy/sell in a discrete manner.......based on ur understanding/experiment/luck factor. Key is hold winner and throw loser early..........when u take a position ,i dont know what shall happen, so based on market observation , i shall book loss as per my criteria,.......best is can i add to winner.keep the ball/money so far u understand and getting return.....if its not, just stay out,.......sharpen ur skill and again comeback
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In trade its very imp to to create a risk-shield.............u r ready to protect ur money like knight.
after that learn.....what way u r comfortable............since u plan to continue as a marathan runner in market to earn atleast next 10yr........after successful trade learning.
indicators basic purpose is to give u confidence,........definitely momentum, understand exhausion of trend is imp,.........toughest learning is switch from one timeframe analysis to another time frame...........as accuracy may vary drastically ..........both +/-.
Mind it sensex is indicator of growth.
order book is indicator of profit potential and research is indicator of longterm sustainability.
toughest learning is switch from one timeframe analysis to another time frame...."
can you explain this a little more?
ya explaining it.
Ans : In normal 3 yr of learning ,all novices start to learn some method of entry, may be long term......bull entry, may be intraday.......% move and then profit book, similarly some swing buy.....like buy in pullback ie.bottom of a cup pattern.
Soon ie. after 3yr , its not suffient to earn from market is now known to him.......unless by God gifted luck he had made enough and left out Market.
So other method . other timeframe play, other forecasting idea like.......fundamental.ta or psychological + bookish random variable entry/exit system.....quantum method/fractal theory.........r read and variable strategy for different market condition which one to be applied.............r practiced for mastering.
Another problem is to fit ,where he fits naturally.........thats timeframe and style gives higher return with better strike rate.
In this search and learning ,he found out........its difficult to erase ......first pick up learning , it may be say break out play. So he has learnt it early......its with him now,........so even after 7 yr , .....if he finds a break out play in present market condition with poor probability , he may actually trade it only to lose money ,.......as he enjoys the thrill of early learning days.SIMILARLY its the time frame,.........many trader starts early as investor,........that backgroud stops not to trade at certain condition, because of complex RISK..NONO. THose who starts strong as dealer,......can not hold a 3day profit run..........knowing fully well it will move another 15% ,but block with condition of max 5%profit book, more than that u r greedy,,,,,,,,scalpers curse.
Similarly a trained swing trader of booking around 10-12 % profit ,.......can not move down to 3-5 %profit in random time frame mode so easily.
YES IT IS THE HARDEST THING TO DO
Trading starts with excesses.........excess knowledge/excess time/excess money.
3places u have to fight..............self/other traders/market.
Your other life.......should not fight with your trade learning life,this environment is imp.
then comes choise of system /strategy/timeframe.
variable market condition.......up/down/volatile/nontrend small move .
Which one to be done by you.......as per ur expectation......buy/hold/sell.
What price is telling u to do? .....buy/hold/sell
Now understand to prepare trade journal.........its tool of tuning,understand what u r supposed to do vs what u have done actually.
What is ur info source......can u nullify any hearsay from market..........your decision making skill should not be variable.....it must be sharpen constantly.
how u handle stress generated out of trading.
ALL this must be writen and followed just like breathing, then u r a trader
Journey of a trader starts from novice to beginner to advance level to expert. then comes Master.Now between advance level and expert.............its really very slippery,.......i forgot to count how many times i flawed........mostly when i think i know market..........i am humbled to basic.........fortunately like cat has 9 lives........again i move. Humilation ,to face it........discipline ,recoup energy and walk again.
this view is because.............we r by birth not at all trader,......say first doing ur swot.........u know what u r,......so from somewhere u r transforming u a trader.
First i am giving a hypothetical case,.......a math postgraduation topper, shifting to a trader. As to learn trading,......it takes time,........so u r doing some formula - model to know ,what may work as a trader for u.
U may choose.......arbitrage model, or simple random mean reversion, even excel based fundamental equity based.......forecasting proforma model. Now u find , based on actual what is gap,........ie. error,.......but being trained mathematician,......u cant take.......possibility for absolute number to change, objectivity works for u,........but since system itself is variable,.........u have to understand.........block with number itself is harmful for ur development as trader,......conceptually to take 300pt up, followed by 450pt down within 3 days......tells either ur programming is wrong OR ur mathematical idea-notion is wrong.............this is a type of internal fight.
similarly u understand........u have u learn certain thing,.......but time constraint or other priority ..........makes u choose...........so again come fight against U.
Next i am telling my chess case,.......in chess as i have learnt in childhood.....understand pattern , but for competition...........u must fight till death,........use ur best defence skill ......when playing against GM.
.............now understand the problem with me,.......i was known as av chess player........my rank was within single digit,in my state in 1975.......and after that with chess study of 10 yr.........later i am shifting to tradelearning,........
YES u r not supposed to fight,.........but i can not take loss,.........simple a trade loss is nothing.........just wont hold it,.........or else face mother of all loses...........a la 5lakh..............i know how much bleed by it.
In trade ,pure small losing trade should be thrown out first...........but due to my different conditioning i showing fight back attitude,......create trouble for my trading a/c..........this i call fight within self.
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Yes against other trader means opposite direction u have to commit with money.
But against Market...........particularly flow of FII?MF.......i should be with nor against them.
FOR stopping newspaper/tv .......only to follow by price..........it takes me lot restriction .......more than 3 yr........here also i faced internal fight in mind.
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can you share your thoughts on portfolio management?
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This is the topic.......i am interested to learn. Definitely some indians know it , i have not seen to talk ..........literature may be strictly secret.
Bookish View;........dont put egg in one busket.
3 case scenario..........cash -bond- stock
Ur edge-risk taking capacity,holding period.......interrelation,alfa/beta
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Actual case sofar i smell.........sector rotation
when risk is higher........u may sit on cash.
if u dont know, u have to learn..........make no investment.....be cynic.
better be contrarian.........atleast against media hype.
Simple strategy of playing aggressive on winner gives better return.
Savant/Traderji/AW10......may have some idea........they may help, but in public whether they shall post?.....i dont know
btw...........PMS persons in india .....some pie chart......with least inter dependency sectors.............r wrong thing to copy.
Only literature i have seen by Mr Boucher.......trainers of fund manager
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sector rotation is a simple concept for efficient market.......many MF cannot totally get out of market , and they actually put back in some sector which was dumped earlier........normally cycle varies.........10month to 20month to moneyflow back in a sector,........also swing flow is possible 1month to month gap .
Playing aggressive on winner.........MM strategy
PMS ...portfolio management service
Pie chart........representation by circle , fund allocation....bookish idea of 1952
Mark Boucher.........authority on practical appln of financial managent normally trains billion $ handling fund managers.......in 1994-2002.
search in suitable place like 4shared/tradingmarkets.
the logic of risk management and simplicity in trading is absolutely right.
But for stock trading.......pms exists ........and believe me ,fundamental really counts.
Result of stock/news has some role to play.
its the big fish .......they decide market.........so from certain characteristic & moneyflow u can with high accuracy tell.........where in particular direction trade is possible.Infact ur theory best work in forex........u may play there.
we study Trend to understand ..........trend reversal in near future possible or not..........so that's an oppurtunity.Be ready for possible scenario.
Again by seeing a Trend , check if in higher timeframe Continuity is possible(highly probable)........so that we shall not exit from a position,........if momentum also supporting then we may add........in Trend continuation.So trend itself not imp.......but Trend continuation -trend reversal.......chance of each of them happening and moving the same principle to higher timetrame........key theme of usefulness of trend.
when u understand trend exhaustion ,,,,,,,,,,,,so money making possible.Actually another 2MM principle is imp......Marginal trade & opputunity trade.
Marginal trade concept :you r in a position .......trade move in ur direction, u earn by booking profit..........only to see later ........trend is continuing ie. by simply holding u could have earn more.So u have to consider ur trade profit potential by creating ratio by profit booking ,divided by total move of stock in just next highertime frame.
OPPurtunity trade concept : here u r holding some position , so u r seeing some new oppurtunity , since ur money is blocked........u can not enter in potential trade, after some in ur time frame.......trade is making desired profit,......but for its on paper ,as u can not take the real trade,so restraint of fund .Similarly 3oppurtunity comes ,u put money on 2,......after some only to see thirdone gives better move.......alas for u its again a paper profit........TRADE oppurunity .
Elimination of this 2 mistake can improve ur trade return dramatically
A child even can earn with Discipline , when its long term Bull market starts,by utilising 2weeklyMA with 8weekly MA '........its a tool to suggest for bull market arrived and shall exist atleast for some time.
Counter-trend system is a traders tool, algother in different market context.For short term reversal study,5day DEMA .....its slope is sufficient to tell ,when the market is changing its characterisic.For oppurtunity search , even simple Scan based on 10d William%r ........is sufficiently ok to give u ,candidate to Right trade.
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when market enters in volatile zone,............its futile to use trend/nontrend systems.
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to earn......believe in own system & use stop,........or simply switch to different system which work in present market context.
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understand context first, u have data ........just see WHAT its telling.pl believe KISS
recently i read in professional traders' coaching .....this hypes r created to serve illusion to newbees to lure TRADING IS EASY.....ensuring suppliers of fools,.......so the industry can earn,its a coldblooded fact in industry, as if indian solders were cannonfeeder in 1st world war for britishers.
imp of basic programming for trade learner
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if u ask me whether as a trader,..........u give programming or mba which comes first...........ofcourse programming . but programmer must know trading first.........so it creates oppurtunity to isolate.......wrong trade vs. profit making trade .
It cuts out sensitivity in trading and develop objective view.ASK Traderji why he is great ?........ofcourse mastraders' programming skill help them to reach icon status. so price speaks for them.......what may happen now.............Next various scanner search /give them oppurtunity in real time,.......just like a sharp shooter fights against sword champion from a distance.......... SO WINNERS R EXPECTED ........mind it many extra night they r awoke to prepare /test the tools in market.
the problem of new learner........they dont know what is winning idea in present market.......so their programming skill fails , instead what if scenario preparation, should study.........background of price movement.......from stable to a new zone,........after that high/close and X function and some strength study formula preparation can make a candidate for trial-trader
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after stoploss, only 2 things r left..............leverage on winner,keep urself with healthy attitude..................for av learner, reaching +ive expectency ' consistently earning out of market..........brings further quest.........bringing big winner. here on he become a discreationary trader(i know some of my friend dont like this word)......winning trade is a filter.........and he adds if he finds momentum /accln in volume or quickly reaching target.........yes this alone give u high return.........just check yourself with trend continuation idea.
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Healthy attitude........starts by questioning do i follow trade journal ?my right trade how far due to my execution skill/market favors me randomly........
next is how far smoothly i can trade and can it be transferred to others.......or otherwise unique to self.
WITH THIS WE R COMPLETING TRADE LEARNING.........next is practice.do it urself
In short term trade ,we search for bias ........bias for direction. imp is pivot.........pt of conflict.......known seller /buyer may take position to test market........based on their system.........actual system of earning is ........how bull/bear is losing battle ......so comes Oppurtunity........say yesterday,,.....upside conflict at Nifty 5280.......tells me many 3% probable upside trade exist for monday 5th april,but which has potential to go 8% ........they r to be taken.
Remember the flowers idea.........its the continuity ........breaking of higher pivot.......potential trade exists.
problem is in daystyle ........many may buy there,where as higher timeframe players r actually fading............so unless u know beforehand who may win..........mostly u shall in loser side,including self.
so u have to add some filter say simple 20dma with a some 1/2 hr price bar for continuation + volume accln filter..........u see winning trades r looking at u.
core pt r presented here.'how to lose money in stockmarket'......pl avoid them
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1]Trade in options without understanding and context of present market condition
2]not use stoploss
3]Cut your profits short and let the losses run
4]Select a method and start trading it because you are in a hurry to trade, not because the method is sound
5]Don't use any method or plan at all! ... Just buy as much as you can or short as much as you can
6]Take a position and go to sleep!
7]Listen and trade according to CNBC calls........JUST REVERSE ,ITS GOOD EARNING METHOD.
8] Never use your own brain for trading ... Never try to learn anything but taking position and squaring it off! Search extensively secret underground sources for TIP ...
9]Trade against trend ..........BUT THIS IS ONE OF MY EARNING METHOD.
10]Engage in extra-curricular activities during market hours AND Forget your commitment of trading seriously/mindfully .
11]Always assume that you are always right..even when proved wrong..take it as temporary setback and start with fresh vigor resuming your assumption that you are and will be always right..
12]There is only one rule....that is....TRADE WITHOUT RULE.....you will reach your goal.
13] If the basic hypothesis upon which a trade is entered does not exist, then one has to remain in the trade, hoping the situation to get more worse!
14] Emotions aka false ego....
Emotions aka i know all i longed/shorted this script and its going to follow me,i longed/shorted this script coz i know all about markets,always remember markets are not supreme,its the false ego in me.
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Avoiding the methods of losing money mentioned in this thread would be quite helpful to become a successful trader
so as per modern concept key idea is
1] understand sentiment of present market
2] psychological neutrality
3] effective risk management
4] add/leverage when right.
5] where to put stop....../when not to play
6] preparation.......then only u can execute.....u have to develop a system which suits u
7] learn to play in atleast 3 types of market.......trend UP /DOWN ; VOLATILE , SIDEWAYS market.........mixing of them can be learnt later.
use very simple indicator..........but master over it.understand......price variation can be reflected in them.......so that......by seeing change in Indicator........u can develop to predict Right side of chart.
MA- X simply suggest trendliness, momentum tools use for strength.......support/resistance breaking tells us about future of a stock.
8] future of NIFTY and MONEYFLOW.......comes before everything.
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SO NOW ITS STARTING.............Oilman, you have given quite a broader persepctive on this subject covering almost everything from as many sources as possible. Appreciate if you could share your style of managing Risk on your individual trades, trading capital and on your total portfolio i.e. for each stage what has been your process, has it been different for each stage and how you implement it, pit falls during implementation and control /audit mechanism, if any,...........PL UNDERSTAND ,RISK @ INDIVIDUAL TRADE/RISK ON TOTAL PORTFOLIO AND IMPLEMENTATION IN ACTUAL MARKET.
..................this views r expressed as someone has asked to know something.............most of thing r expressed to enlighten that part.
i have expressed nothing on risk management.
if u ask me personally.........i try check whether high probability exists.
for intraday ........if i see , i am not getting my target.........time stop.
For swing , depends on particular stock..........time/particular % fall.......stop triggering
for intermediate term......its the fundamental reason of trade /or sudden big reversal .....then i trigger stop.
Naturally i have different A/c in broking house for that purpose.
For first 10 yr...........i have various approach and fouling.........not now.
If i am not on screen , no intraday.
If i dont understand reason behind trade, no trade.
.........so taking less trade,is my main risk management technique.
......................TNSN2345.........
Step I:
1) Decide on Portfolio Allocation: Portfolio allocation starts with defining Financial Objectives : How much money you would need and when? Your assets, liabilities, income and expenditure. This is a different subject altogether but still ultimately one (even a trader) has to start here.
(a) Variable (positive / negative): Equity, Real estate, Gold, F&O (Directional positions)
(b) Variable (positive but unsteady returns) : F&O (multilegged strategies primarily using Options)
(c) Fixed (positive) : FDs, NSCs, PPF etc
2) Decide on time frame to adjust Protfolio Allocation : Could be quarterly, half yearly or yearly. Depending on your portfolio performance, income from other sources/job/inheritance etc
Step II: Here I am zeroing on the aggressive part of portfolio allocation - Trading in Options:
1) Risk = Uncertainty of DESIRED outcome
2) Desired Outcome = (a) + (b)
(a) Primary Desired Outcome = For position taken at Time T0, price CHANGES in favour of position taken at Time T1
(b) Secondary Desired Outcome = MAGNITUDE of price change from P0 (at Time T0) to P1 (at Time T1)
Hence at Time T0 and Price P0, we need to define both, T1 and P1.
For a one market, one instrument, one trading plan trader (like me) T1 is sacrosant (FIXED), P1 is the only variable.
P1 is defined before trade initiation. P1 is defined both for positive outcome and for negative outcome.
Eg If I am buying Nifty Options @ time Time T0 at price P0 (Rs. 100), and defined is P1 is Rs. 95 (worst drawdown) or Rs. 107 (best outcome), my Risk is Rs. 5. (Rs. 250 for one lot).
If my trading capital (which is PART of my Portfolio) is say 10 L and I decide to RISK 2% per trade (this % is decided at the end of each week for the next week depending on the performance in the week gone by. The range of Risk / trade is between 1% to 4%), then I would buy 80 lots of Nifty Options.
At time T1, the probable outcome of Option prices could be:
93 : Exit fully (2.8% loss of trading capital : 80 x 50 x (-7) = -28000)
95 : Exit fully (2% loss of trading capital : 80 x 50 x (-5) = -20000)
97 : Exit fully (1.2% loss of trading capital : 80 x 50 x (-3) = -12000)
100: Exit fully (0% loss of trading capital : 80 x 50 x 0 = 0)
103: Exit 75% (0.9% profit to trading capital : 60 x 50 x (+3) = +9000)
106: Exit 50% (1.2% profit to trading capital : 40 x 50 x (+6) = + 12000)
109: Exit 25% (0.9% profit to trading capital : 20 x 50 X (+9) = +9000)
You would notice that if the price at Time T1 is less than 100 I exit fully and on some occasions the loss could be higher then anticipated 2% in this case if I exit at 93. But this margin of error in my risk management is acceptable since I exit at Time T1.
Secondly you would notice that at price levels > 100 (i.e. 103, 106, 109) I have partially exited. But these exit % are NOT RANDOM.
If the price is > 100 at Time T1, then this T1 becomes new T0 and the current price say 103 become new P0. From here I would again calculate new P1 (both worst drawdown and best outcome scenario) and accordingly adjust the quantity.
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Step III:
Treat your profitable trade and non-profitable trades seperately. The MOMENT I close my profitable trade, the profit made on the trade flies off out of my trading capital account and rests in a different account which is my Variable - steady profit funding account, where I use multilegged Options strategy with low risk and average returns as the time frame used in these strategies is quite larger (almost 2 to 3 weeks or sometimes till near month expiry). Most common strategy is Covered Call, which may be covered in detail in some thread on this forum. Also sometimes, strangle or straddle or simply deep OTM call/put writing, depending on the market condition. HOWEVER here too, my RISK management techinique is quite similiar to the one mentioned in step II of trading naked options. i.e. P0 at T0 and defining P1 at T1. i.e. fundamentally though the strategy has changed as the funds are from different account, but RISK management is still the same.
Now as I keep withdrawing the profits from my trading capital account, and continue trading eventually my trading capital would tend to cease some point of time as there are some loss making trades which eats the trading capital. Yes this is what could happen eventually, hence with each passing period, my trade size reduces as my trading capital reduces. Though my Trading capital could tend to be zero it doesn't happen, WHY?
Because, remember adjustment in Portfolio Allocation (Step I), which I do every calendar quarter end. Hence basically I have to live with my trading capital for a period of 3 months, the better I trade I get more quantity to trade and then quantity decreases gradually. Profits keep going out.
When Portfolio Allocation adjustment happens at the quarter end, Trading Capital is top-uped up STRICLY on the basis of trading performance in the last quarter, hence if I started with 10 L trading capital which was reduced to 5L in three months and has generated profit of 8 L then I may be entitled to top up to 10 L or even higher depending on my overall Portfolio performance in the quarter gone by. Alternatively instead of 8 Lacs if the profit generated was 4 Lacs, then my trading capital can be top-uped to a max of 9 L it could be generally be lower viz, 8 L or 7 L as performance was NOT ACCEPTABLE.
STEP IV:
At the quarter end review and portfolio allocation adjustment, majority of the incremental profits generated by Trading, Variable (steady profit) strategy are allocated another account which funds conservative investment account. The investment made through this account essentially follow simple 100 days / 200 days moving averages which are held for longer period of time.
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This marginal trade and oppurtunity trade r excellent money management concept........an advance level learner on market practices.......first one is how much more he can squeeze out of same trade.opportunity trade in mm is spill bean concept.........both r subjective.
By the way, similar name trade exists ........both r used by momentum traders.......a volume set up , then a trigger on price......a quick small profit execution.u can do it mathematically.
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'Execution' (or say implementation) is one area which has taken many years and money for me to tame. Over a period I have managed to create a system which is devoid of interference of various functions of Trading and portfolio management.
Having read various books on related subjects, the basis of this system is dervied from a very simple and a small book titled - Six Thinking Hats : Edward de Bono. You can find jist of this small and wonderful book on the net.
STEP V: THE PURPOSE!!!!!
Why do we do all this? i.e. trading, portfolio allocation, risk management etc. Do we want to grow our wealth to Eternity and leave it for someone after we are gone. NO.
I am working as a portfolio manager (or better still - a hedge fund manger) then I should be paid for my services. This is what precisely I do when I levy PMS charges every quarter end and take out that amount from the Portfolio to my 'personal account' for my personal consumption. The charges I levy are similar to any PMS charges which includes, fixed and performance linked payouts over a hurdle rate of return every quarter.
p.s. :
1) To maintain simplicity here I have not covered Portfolio performance parameters, weekly volatility (standard deviation) of portfolio etc. These are the parameters against which I evaluate my performance every month and do course correction. My remuneration is linked to some of these parameters.
2) All the above mentioned steps of Portfolio and trade management are documented in black and white for reference and remove conflict of interest.
3) For all different strategies and aspect of my wealth management, I have given them names and there are really funny names which makes it very easy to implement them.
4) As all actions (tradewise) are documented. I conduct a monthly audit of these documents and for actions inappropriate or outside the defined parameters of my scheme of managment, penalties are imposed, which include ban from trading for a period, cut in remuneration etc.
The concept is wearing one 'hat' a time and thinking only on those lines what is indicated by the colour of the 'hat'.
Trading, like any other corporate business comprises of various 'people' who are instrumental in running the business (read trading here) smoothly.
In any corporate, you have the core decision making team comprising of the MD, the senior management team - the think tank. Within The think tank you will have Product Development, Risk, Compliance, Legal guys etc.
Then you have a set of field managers, who are implementors/executors whose job is to just sell the product.
In the intermediary you also have Process team, who defines the company's process policies etc and finally the HR team too.
If you define Trading as a "BUSINESS", you will have to relate and allocate all the above roles to different 'people' of this business. But the irony is there is only one indiviudal - "I" who has to do all these roles constanly, day in day out and this is where we fail in initial years in this business as there is a constant overlap, haphazard, random thinking and interchaning of roles which we are not able to define and regulate and ultimately blaming our 'emotions' to the losses we accumulate in the initial years.
Coming to specifics, I run a virtual Corporate entity in myself.
The decision making, implenting, process, operations, risk, compliance, legal and HR is all rolled in ONE person. The only difference is the way all these 'different' people function. And this is where the concept of 'Six Thinking Hats' comes. Each individual function is taken 'INDEPENDENTLY' by physical objects (small toys) which are placed in front of me at a time, which directs to think only on and through that respective roles. Once the outcome is reached it is written on the scrible note and passed on the next role and so on.
I know it may be sounding weird but it works, one can get into a specific role mindset by making the environment look like that and physical objects makes it more easier. Also documenting the outcome helps the cause. For e.g. if the 'decision making team' makes a buy call, defining time frame, drawdown, payoffs etc. it is written on the note and then passed on to the 'execution team'. The role of this team is to just execute as per the instructions written in the note. Post this, they would write a note stating 'job done'. This is just one example which I have stated. This is how the entire machiney works, which includes, operations team, whose job is to ensure that systems, net, broking house matters are taken care without hassles. The accounting team takes care of contract notes, bills, bank statements, charges etc on weekly basis for storage. Any special observations by these 'teams' during their course of action are noted and taken up at the review meeting which is generally on a weekend.
Sounds funny... but it works as the thinking, execution, etc is compartmentalised with no overlap. It is nothing but Keeping it Simple (here it is not necessarily Short, but who cares if this is what works for me well)
Red hat is also important, once you put it on, you ask yourself how you are 'feeling' / 'intuition' at the point of taking the trade...this could be relating to the trade in question, trade closed earlier or even not related to trading viz, the ac is not working, there is some external unexpected disturbance .
Be focused
Keep things simple
Follow Kaizen - continuous improvement
Adapt to change (Again a very small book - "Who moved my Cheese?", would help)
And most importantly, keep smile.
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wearing the red hat...', kudos. If you can adapt this concept in your trading profession, you can effectively address many areas viz risk, money management through this.
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yaap i believe & traded this .......basically potential intermediate term trade.
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since u have asked.........see Chola......its move from 62/-------90/-- presently 150+
case 2.........MERK........build up 410/-.........presently 750
case 3........apollo hospital..........u can see all cases in EOD & weekly chart.
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basically its @potential resistance how its happening ........that chance of wide bar......and follow thrugh.
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Actually to study failure , u can see abhishek .......18/- break out attempt failed , presently 16/+.
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i have studied this through tradingmarkets.com in 2002 ...breakout trading
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Before entry.........Reason i reqd.......some bias/edge to trade, which r normally fulfilled .
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4th one.........here cv's view is right.
define ur purpose,......i prefer meta/omni.
my experiment with adgeteod/mtpredictor not good.
since studying beyond technical analysis/creating some condition for biases r helpful.
I do some preliminary check through equitymaster.com
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on experimental basis to create EDGE ,WAY TO TRADE........pl follow.
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Personally i give immense stress on psychology/probabilistic analysis .
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Basic of breakout trade is some market condition.
Also some stock sp behavior.........this 2 i say as SET UP.
now in set up , u take a position............
mind it, its a potential........so failure of not happening is high........key word is how handling resistance,.......go to smaller time frame,......just see how things r unfolding.
.........so potential candidate has high probability or lower one ,u can follow.
BOOK loss on failed one,
Now the key.........while wide bar forming in your expected direction simply buy in BIG volume.
Example......see HPCL eod,........position at 340-350 to be added to make quickly 100/- per share.
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Thoughts on Money and Risk Management. Money Management is simple if we create a rule and strictly follow it with extreme discipline. Everything will become confusing if we do not maintain extreme Discipline. I follow a simple Money Management technique, and stick to it, at any cost. I made a Risk to Reward Ratio at 1:2. I maintain 5 p.c. Stop Loss and 10 p.c. gain. I never put in more than 10 p.c. of my equity in one counter. When there is a loss in one counter, I take a gap of 10 days to re-enter provided signals are good. I only invest those money which if lost doesn't change my lifestyle. I lost money on various occasions, but only to my Risk to Reward Ratio principle, but I am still comfortable trading due to the fact that I do make lot of winning trades also. Its my R-R ratio that helps me stay in trade
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You are right. There is no real key. There are only sums of data and information's which give us for a certain trade enough cross over information to be more sure, that the odds are in our favor to take the trade."
Like I say, do not take it personal but I had to write this here after reading your post, which by the way all are always ambitious to read.
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so i try to help though nobody can help one unless change happens from innerself.
Its the confidence.........one should have to take the trade ,actually price behavior study @one time frame lower than ur trading choice ,helps to understand whether potential Resistance can be broken or not.
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-Secrets of Top Trading Performance-
Much of a trader's early education is concentrated on strategies and market analysis. But what are the necessary ingredients for peak performance? What are the tools for both mastering the mental side of the game and busting out of the inevitable slumps that can occur along the way?
There are several key common ingredients when you are performing your best, no matter what the field.
EXPECT success.
It begins initially with your self-talk. Do you get down on yourself when you make a mistake? - or do you say to yourself - next time I will do better because I have great trade management and am a superior trader! Be your own best motivator and believer in yourself. Positive Self Talk leads to positive BELIEFS. If you believe you can do something, you WILL eventually find a way. When you have a positive belief system that the eventual outcome will be OK, then you are more mentally and physically relaxed. You then have better concentration, which leads to smoother execution, which of course leads to peak performance.
Be Prepared
All of the above factors deal with external factors and internal belief systems. Now let's get down to the DOING part! Every trader should be prepared before the markets open because they already did their homework - right?! One of the most impressive points in the Rogue Warrior book was this veteran navy seal's obsession for being totally prepared for Mr. Murphy! There was always a backup plan for everything and this is what kept him alive. Prepare your daily game plan by looking for both new setups and preparing strategies for managing existing positions.
So, assuming that you have done your daily homework as a trader, the next step is to learn how to get into the groove. There is no better tool for this than having routines and rituals. Pre-market rituals help calm the nerves, get you into a rhythm, and also help to turn off the logical part of your brain - the part that wants to over analyze everything.
Here is another helpful factor: A healthy body keeps a healthy mind. EXERCISE! This gets oxygen to the brain and keeps the blood flowing. How can you expect to be a peak performer when you are eating junk food and going through insulin swings? Or perhaps you drank too much wine the night before or are jittery from drinking too much coffee. How can you concentrate well if you are not getting a full decent night's sleep? Sure, most of these are minor factors but they can all add up to major bumps in your performance. One moment of sloppiness can lead to forgetting to place stops or letting a bad trade go too long. Then when damage is done, your confidence gets chipped away. You must treat your confidence level as something to be protected. Good habits will keep your confidence level high. Once you have good habits, it will allow you to increase your trading size.
Goal Setting
* Flexibility. Be flexible - if what you are doing isn't working, change what you are doing!
* Confidence. When down, get a little rhythm and confidence going. Don't worry about being too ambitious.
* Concentration. Stay with your game. Don't let outside distractions bother you. They take energy and break your concentration.
* Know Yourself. Match your particular strengths to the type of market conditions.
The battleground isn't the markets but what's within you!!!
And on that last note, remember that ATTITUDE is everything. How you frame out an individual experience or event will affect your success in the long run. Do you see a trading loss or bad draw down period as a major setback, or do you see it as a learning experience from which you can figure out how to be on the RIGHT side of a trade instead of the wrong side the next time around. Many great traders use periods after draw downs to go back to the drawing board. Some of the best systems and trading ideas have come after periods of adversity. What incentive is there to learn and improve ourselves when everything is smooth sailing and we are fat and happy? But when times are tough, that is when we can rise to the occasion and prove that we can overcome any OBSTACLE set down in our path.
So many great athletes have been able to come from behind when they are down because they have learned how to seize that one opening or opportunity and CONVERT. They latch on to the tiniest shift in momentum and milk it for all it is worth. Latch on to that next winning trade and convert. The first small moral victory is the first step towards reaching the top of Mt. Everest. And if you keep making small steady steps, you will eventually reach the top. Sometimes for a trader, the greatest feeling in the world can be making back those losses, no matter how long it takes, because once you have done that, you realize you can do anything.
Source : from Brad Gilbert's book, Winning Ugly
read Ryan .............his site smarttrading.com........if u think to master MM
Be a student of FRM.......financial risk management
for simple learning KISS on risk management/money management.......be a member of paid site www.masteroftrading.com........where good pro teaches .
USE stator-afm as software if u like.
Ali, focus of money mgmt is - SURVIVAL. As a trader, we can survive to fight the battle on next day, only when we control the amount that we are going to loose.
We got to set the rules and follow.. (if we don't have the rules, then there is no question of following them). It is not just matter of knowing this number in our head.. but I prefer to keep it in writing so where and also refer to them regularly and monitor them during the market hours.
In my trading, I have various loss limits as % of my trading account size.. i.e.
- Risk per trade 1%,
- Risk per day - 4%,
- Risk per Week - 8%,
- Risk per month - 10%.
At the start of month I calculate these number and then they are reset only on next month begining.
You can have different % here. But higher the number, difficult it gets to recover the loss. In my approach even if I am down 10% in a month, I can easily recover in next month.. but if I am down 30% in a month (i.e from 100, i have come down to 70), then I will need a RoR of 45 to 50% to recover.. which is not practical in a month. So, I keep fighting for 2/3 months just to get back my loss.. Not a good trading loop where I want to be in.
The Must rule for me is to stop trading for as soon as any of the loss limit is hit.
If I have 4 loosing trades in a day, my trading day is over. If I have 1 4% lossing day, and next day again I loose 4 trades, I am on holiday for a week. No more trading, no fighting with mkt to recover my loss.. Psychological impact of losses on our decision making is very different topic.
follow following MM rules in my trading :
1) The initial risk in any trade should not exceed 1% of the trading capital...with adds it should not exceed 1.5 %
2) Max risk at any point on all open daytrading positions should not exceed 3%
I will also suggest the following to follow in the loosing streak :
1) Trade small till you get on the winning streak and get back your confidence because loosing streak not only dents your trading account but it dents your confidence,clarity of thoughts,judgement etc
2) You must learn to hold on to your positions when they are going in your favour...also add to your profitable positions...this is the key to trading profits....no amount of brilliant thinking will do that for you ....it is your adding and sitting with profitable positions which will make enough money in your succesful trades much more than your losses in loosing trades....and this applies to daytrading as well you can have 2-3 profitable adds during the day.
3) Wait for proper set ups to develop before you take a trade...this is particularly necessary in loosing streaks..
I am sure you will get out of this loosing streak and get on to rocking streak soon. Look at it from positive perspective that after this loosing streak,the winning period is round the corner....so cheer up and go for it
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It is obvious that if you ask questions about money management instead of techniques, then you need just some fine tuning, attitude building to make things up.
Calculate Risk and Reward before entering every trade and write it down on paper. This would help you to define clear, technical stops/targets and most of the time, I have changed my mind when I wrote Risk/Reward ratio on paper.
Try to preserve what you have earned, does not matter how little they are, on day to day basis
Keep survival alone as your trading goal, you will be doing great money management. Once you have seasoned, you will automatically trade for big profits. Till that time comes, don't push yourself. Be slow and just learn to survive.
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I feel at times we tend to make simple things complicated. when we speak of day trading, why think in terms of a/c size. when u r trading, u r either trading some system or ur intution. either way, trade so small initially that even a string of losses does not upset u financially or emotionally. once u r confidant that on balance u r taking money frm the market, keep on increasing ur positions steadly. we all know what the power of compounding can do. after a winning streak if u again encounter a string of losses, start cutting back on ur position size. this way u would be able to keep a part of the money that u have made and would also be able to rationally analyze ur mistakes. I have personally gone down frm doing an average turnover of 20 cr a day to 2cr a day in a weeks' time and going totally flat the next week.
hope this helps
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Ali, I am just guessing, (hope I am wrong), that ur startegy is not correct.
Draw very clear rules .. (u can chk out first few posts of my NR7 thread where I have posted sample rules).. Lets accept the fact, as human being, none of us are wired to be successful trading. To succeed in Trading, we got to do things very differently. And clear cut rules does help a lot..
Once u have a set of rules (don't worry, even if they are not perfect, or they are wrong.. just start somewhere),, then plz backtest them on last the chart of 1 stock first and then on few more stocks.. If you find that it these sets of rules make money on paper, then only u can expect them to work with real moeny in future.. Else u are kidding yourself.
Paper trading /backtesting is similar to what doctors / we as driver/ pilot/ fighter plan pilot all go thru in their simulated training.. Once they reach a level of success then only they are given the real stuff.. Unfortunately, trading is so easy that we all feel no need of all this..
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No in trading , u dont have to be genius , but a copy master. Copying what is done already and try to protect u from already proven failed system IS major part for in journey of a trader.
Next is what fits u.when u get by using a system ,however peculiar may it look by others, if its give u consistent money atleast for 1 yr ,in real time trading,........that should be your edge,Now with discipline stick to that system in proven market condition.
AGAIN prepare another system .......not for its betterment, but which may work in future changed market condition.
Trading is not a place of innovation,already more than 120 yr enough experiment has clearly put in black & white.........what works.
Since u know chess,.......i shall quote great Mr B ,......who suggests playing against ladies is easy. as instead already studying/assimilating great works of past masters.......they obviously introduce.......new idea , which is basically 3rd grade.......can be easily defended by Masters.
So in present if u really want learn...........learn on how to play with volatility.
To explain further,
why i loss in option,...........as i am ignorant.
Why i can not follow arbitrage...........i am poor to understand.
Then how i shall earn from market..........its because i have speculative directional idea, which, when confirmed by price is an oppurtunity .
So today i play for Arvind around 4% up ,taken entry..........get out @ 7% = 3% profit.
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This is because , by playing many yr chess ,i can find here lies my strength.
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Chess has given me structured thought process, what to do NOW........its no way with intelligence.
As alternate scenario always to be evaluated ,........so change in situation(read market condition can be easily exploited)
IT teaches value of offence,as well as in case sudden scenario change u have switch in defensive mode(read stoploss activation)
Third thing it helps to use patience .......not to play aggressive ,when situation is not favourable.
..........Since it takes of 10 yr learning to play in national level.........it helps to start my journey to be new student of market ........for atleast 10yr.......being slow learner its my 20th yr.
only drawback i find is stubborness .
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As Dan mentioned that we all have certain set of traits / personalities and eventually we settle our trading methods to it.
For me too (I guess with most of the novice traders too) the initial failures could be attributed to the clash of thought process within self. There is no firmness to the thought that goes in the mind once you intiate a position, hence a short TF position would become a long term investment if the immediate move was against the position, similarly a long term call would be closed immediately looking at profits. And here it all starts - the chaos in the mind, which continues for long long time, until there is a concentrated and focussed effort to address it (which again I have rarely seen people try). The more the chaos, more deeper we go in and harder to come out.
Nevertheless, coming to the point of matching trading style / method to our personalitiy / traits is what we should aim first. But in my opinion things should not end here, infact start from here. It is not imposssible to be a multi facet trader. Yes it is not easier either. Refering to Oilman that we need to find different models / plans which may not be improvisation of our existing methods but altogether different. And this is what I call Research. Looking out constantly to new things, finding them, testing, improvising, customising and then making it suitable for ourselves or else then rejecting if it does not match our beliefs.
Coming to Dan's remarks (don't recollect where he had mentioned those) on my trading style, I do it all, from being long on stocks (primarily contrarian stocks- holding over 9 m - 1 year or beyond), do the momemtum plays, indulge in hedging strategies (through F&O), go directional with Index Futures, and also sometimes a raw specualtor by buying deep OTM stock options (aka jackpot options).
It has been a long journey friends, but I am happy that I could manage and still able to handle it quite effectively (...efficiently..I do not know)..
books by Van tharp can also do well.
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if nothing available READ way to trade,.......an excellent start pt.
Next.......read POP phantom of pit.
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Alternate idea......Believe it is not possible for normal human being.so u r taking extra care to learn it.Its because we associate ourself with success/win .Instead anchor u to follow discipline/systematic trading.
THIS is nothing but a writen documents .....for set up condition in market, entry trigger, exit at profit guidance/exit at loss if situation is not favourable.
Next study.........trade journal to create some guidance for behavior modification.
.............After this we join to RESEARCH as mentioned by great Tnsn2345
Here i write a small learning of trade vision.
In 2001.....we r told a man from ministry is going to take charge namely SUBIR RAHA.
After some month .........price suddenly moves 15-20 % up.........accepting better mangement,.........My foolish brain with basic Knowledge gathered by Dr Prasanna Chandra ,........calculate valuation with bullish scenario + oil industry may decontrol.I forget how i made calculation........but it fair value 480-500 within 2003.
Since i am a novice in finance , i approached a superior officier with CA + IIMC ,mba Finance senior,.......see my calculation ,,,,,also what shall be value according him.
................HE taught Market dont work this way/that way.......value as per him 320-350/-
I was disheartened, after all a good student from one of TOP place to study in india is telling.
So even at ............240-250 , i didnot buy and as quickly in reaches 290-310.......i understand i may not be right & market is behaving crazy. YES i dont earn i single rupee .
BUT i am confident and learnt most imp lesson of trading,.......If the top most college IIMC , laggs so the knowledge of Topper student with double degree ...........Yes i can reading myself better........YES it may take time. NEXT fundamental data or its study .....dont work ......unless u know how to look future.
Pl learn from own experience , better to READ price,........so i read CFA books ,also later MBA-Finance ,.......all availaable lecture @ BSE ,..........but trade on PRICE.
Fortunately..........Tnsn2345........clarifies well, also i have understood now Raunak is great.
...........................So in trade learning Patience pays.Developing right mindset very imp.
I was the first cheatah... Always suffering from "analysis paralysis"...
Discipline comes from knowing what to do and then having the courage to do it when the time comes...
My trading system still indicator based and looks very colorful...but now i dont jump into a trade... and if sl hits... it doesnt bother me anymore... So that's progress....! everything i need to know is there in the chart and i dont have to think any more...! so no fear...!
Further views from a great trader..........REF ...........come into trader's den
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When you pause to think for a moment, you realise that to make money in the market you have to get three things right: direction, time and length of the move. Direction is obvious. If you have a system of setting target for a move you will also set a stop loss. The target has to be hit before the SL is hit. That would define the direction. Same way you will have the time frame of your trade in your mind. If you are a day trader, the target has to be achieved the same day. That hold true for any time frame that you trade in. For a trade to be successful, each of the three parameters, direction, length of move and time of move has to be correct. If we look at all options, here I go with my favourite current theme of probability
D L T
C C C
C W W
C W C
C C W
W W W
W C C
W C W
W W C
The header of the column standing for D (Direction), L (Length of move) and T (Time of move). C stands for correct and W for wrong. Half the time you may get the direction right, but that is not enough. If you got the direction right but the time or the length wrong you sink. Money gets made when we hit C C C for all the three parameters. That chance is one in eight. 12% of the time.
Just some food for thought.
..................Direction we trade with stop loss or synthetic.
Length we trade with probability, volatility or some other maths.
Time we define on the chart we trade.
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TT I enjoy your "probability" oriented posts a lot. Keep them going.
Anyway, I don't think the combinations you mentioned are practically valid. Now, going by what Dan has mentioned, there are two things which are in our hands out of the three mentioned. THat is, we know which Time we trade (hence we also know what our targets should likely be), we also know what volatility should do (keeping in mind that volatility is more easily predictable than price).
We are left with Direction, which in my opinion forms the crux. Statistically predicting direction holds a 50-50 odd, but in reality, it is here where majority of traders go wrong. Once one figures out a way to get direction right, then Time and volatility can contribute further to enhance profitability.
Of the three D, L and T. Only T (time) is what we can be 100% sure and which is by all means within our CONTROL. But most of the traders, novice, experienced, inconsistent traders mess with this simple and controlable aspect of trading.
While novice traders are not able to get the 'D' right, so L and T are irrelevant. After a few years of experience and different methods, experienced traders get the 'D' right. But in the quest of getting the 'L' right they modify the controlable 'T' and eventually prove right 'D' to wrong by holding the position from profit to loss just to achieve the wrongly defined 'L'.
Successuful and consistently profitable traders focus (in order of priority) :
T : 50%
D : 40%
L : 10 %
Defining correct 'T' is so very important as your method and tools should be able go give you the most porbable outcome within a defined time period. 'L' is inconsequential. I would not mind to earn the smallest of small profit (L) in the shortest possible time (T) with highest probablity of direction (D)
.............Interesting post. Even then, I am still not clear, why should I value any entry of a trade in the market with 50% T / 40% D and 10% L.
Many times it is written in this forum, that it is a learning forum.
I may, as I know you, have understood some thing wrong or I may explained it the wrong way by my self. I know the deepness of your thinking and so I write down my thought's as you did. As long as there are discussions witch show the look from different angel, then we learn.
I sit now in front of my screen and I think about different trading plans which can be traded under different circumstances.
I then tried to value them in priority to what you explained. I asked my self : Does this plan belong more to time or direction or length ?
I then decided to make three sheets and put this plans in it.
As you say : Successful and consistently profitable traders focus (in order of priority) T : 50% / D : 40% / L : 10 %
Finally I am a little bit confused. There are situations, I prefer to implement on breakouts. There are situations I prefer to trade a range. There are situations I prefer to trade a possible event. There are situations I just place orders on possibility. There are situation I just like to follow a trend. There are situations I like to enter the trade naked. Some other times with synthetics and other times with spreads.
With other words: A whole mess. No such result that I would see that all this trading plans would belong in the mentioned line you explained successful and consistently and profitable traders trade.
Is it maybe, that every trader still has his own profile and this profile we not just can put in a drawer and say : So it is ?
Just some thoughts
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Its quite interesting what you stated in the above post , specially the above line . I do understand that you have a wide variety of strategies in your armory but i am quite curious to know how do you really determine which is more important in any strategy ? (i.e if you don't mind telling us)
Now coming back to basics , why is there so much emphasis on only direction ? Determining the direction is not even 5% of the equation , its clubbing this direction with an entry which is suitable in terms of risk management and reward anticipation. This entry is almost 70% of the game since a good entry puts the account in green in hardly any time.
Surely time and length are quite important. Trading the length of a trend is directly proportional to the mentality of the trader and specially the ability to read charts correctly in real time. Some would exit at a pre-determined point based on money management while the cream traders would trade the majority of the directional movement and exit when they perceive that exhaustion is taking place.
Time does play an important role specially while trading extremely volatile assets like certain commodities , USD etc. But isn't time most useful when an important economic announcement is due. So often almost everyone talks about catalyst and the impact of the announcement on direction of prices. I'm sorry to say this but i really fail to understand this mentality of judging direction based on some announcements. One should just be glad that volatility will pick up and so will the chance for increasing bank balance. The direction should be determined without any outside influences and solely based on demand/supply. If that means order flow analysis then so be it if not then anything which helps in anticipating the direction.
There is so much amazing stuff on the internet that it amazes me. If one just takes some time and studies the work of Richard D Wyckoff , Tom Williams , Jesse Livermore , Nicholas Darvas , William O'Neil , Larry Williams , Peter Steidlmayer etc , then most of the problems that one is going through will seem so fragile and get eliminated. Maybe i got carried away and wrote more than i should have but i hope it helps whoever is looking for help.
Cheers And Happy Trading
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Most traders plan only for the probability side and that, to them, is always what they consider the winning side. This is the biggest mistake you can make in trading. Instead, you must plan for the losing side - Phantom Of The Pits
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If I combine, I will get a word like : time entry.
Ok, I will start again. I now have four sheets ( Time / Direction / Length / Time entry
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Ok let me explain this, when we decide on a pattern, entry point basis our method, charts etc there is one thing we are SURE of (at least in mind) about the outcome likely to happen for the NEXT FEW MORE observation periods, e.g. if you are trading 5 min chart and a pattern suggests you something, you are sure of that outcome say for a period of 10 min or at max 15 mins time horizon, it is not easy or the probability of predicting what could happen after 20 - 30 mins or beyond is difficult to guess on the basis of 5 mins chart, in our given example.
So once we decide on an entry point (ideally it should be the point at which the movement will happen in your favour either continual or reversal) we decide on the likely outcome of the movement within the DEFINED period of time. And this is the ONLY THING we can likely define. I do not know the length, but I LIKELY know the direction and SURELY know the time by which it HAS TO HAPPEN. Now what happens during this time period could be either what I HAD predicted, NOT what I predicted or OPPOSITE to what I predicted. In any of the three outcomes, I am exiting at the end of the holding period. I am happy to earn, lose or exit at par the end of the holding period on the basis of my judgement rather than hold and ride the profits if there is a sudden move in my favour and is likely to continue even after the holding period is over. This orientation is the BASIS for not holding and riding into major losses if there is a sudden move not in my favour.
My decision and thinking till the end of holding period is only on the basis of pattern TILL THE TIME OF ENTRY. The new additions to the pattern, charts etc are IGNORED as they bring in the noise and emotions and they invariably to give you a call to hold you positions.
I trade on simple and minimal trading plans and spend most of the time just observing (sometimes even feeling sleepy while observing) if I can't define the time and the likely direction I stay put. Only when almost sure, would I enter, observe the movement during the holding period, adjust the positions and exit at the end of the holding period.
But all this was learnt the hard way when a simple definition helped me in define my trading objective :
The most important objective for me is:
1. Do not lose money : So the movement I am in trade i.e. I have TAKEN the risk, from the first review period of the position after a predefined time interval , I start REDUCING the risk, reduce risk, reduce risk....
2. Do what you know: I trade only on FAMILIAR market conditions and not all the times. Infact most of the times I am not holding a position but always have eye, mind and soul in the underlying instrument. And wait for THAT opportunity to strike big and strike hard.
3. Know what you do: Trade on simple and manageable plan/method including my Options holdings.
Hope the above helps to remove some confusion.
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If you are a multi specaility trader (trading different conditions) here too, if you define 'Time' for your event to occur - viz, a breakout to happen, range bound movement to continue or stop, volatility to continue/ increase/ decrease, a possible news event to occur etc, then your decision making will be in a controlled environment with specific thing likely to happen by SPECIFIC TIME.
Initially I also traded various conditions as stated by you and then carried positions from one condition to another and ended losing or carrying loss making trade longer. Till I refined myself to trade only 'FAMILIAR' conditions and wait for them. The opportunities are lesser, the profits are smaller, but the losses are even smaller, and the kitty grows. For me it is better than being in the market all the times, profiting some, losing some, and eventually heading nowhere at the end of the month.
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if you define 'Time' for your event to occur - viz, a breakout to happen, range bound movement to continue or stop, volatility to continue/ increase/ decrease, a possible news event to occur etc, then your decision making will be in a controlled environment with specific thing likely to happen by SPECIFIC TIME.
This whole concept of setting max time and min time is very intriguing actually. How exactly do you determine how much time to give every trade to work out or not work out ? Was it through back testing data over a period of time or by tracking the ability to get impatient after a particular point of time or any other method ?
Sorry for asking all these semi retarded questions. The way you look at "time" is quite different and refreshing. Would like to hear more from you.
......................For Intraday Traders....
Be A Reluctant Buyer & Eager Seller
For Positional Traders....
Be A Reluctant Buyer & Patient Seller
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I think over a period of time every trader develops a method which will give him a reasonable indication of what I discussed above. Now to what extent the definition of time is accurate would depend some thought and analysis of circumstances prevailing at that point of time. It will all depend on the method one uses for trading, I had mentioned somewhere on this forum that I use just plain candlesticks (after using and dumping most of the indicators, charts available), for me it is now a 'glimpse' of a candlestick chart which helps me tap the pulse of the underlying. For you it could be something else.
The initial predictions of Time may not be accurate or may be partially right or partially wrong but over a period of time consistency will increase. There will be a lot of heartburn when your desired direction and movement happens after you have exited at the end of your holding period i.e. your defined Time. But with patience and practice one can overcome this.
Again, I have quoted somewhere on this forum : Treat trading decisions as per Indian legal system which states that - the law can afford to acquit a guilty due to benefit of doubt /lack of evidence just to ensure that an innocent is not convicted. Similarly, in trading, we can afford to let go a very high 'probable' opportunity due to some 'element of doubt/lack of compelling evidence' just to 'ensure' that we don't pick the wrong trades and lose.
guess, now I have to bring my part as I started the whole journey. I hope, it was not to provocative. Thanks for the post from you and thanks to SG for his final word. ( I was hopping, that he once gives a comment on a topic which is discussed here in the trader Dan and I was hopping it is this time )
For my part, I have learned with all this post's you made and so I have to say thank you to you and thanks to take the time to write thoughts down. If you learned only by watching us discussing that subject, so it has done its work also for you.
I do not value any strategy for what ever. For me, it doe's not make any sense a toll. For what should I value any strategy to be nearest at any thought's, which points in a direction which is not really valuable for me ( As I only can talk for me and not for others ).
In my opinion it is as oilmen mentioned : it is discretionary.
There are trading plans for different market situations and I or you implement them when you think, that the odds are in the favor.
Timing the entries and placing the entries on probability is what I do and is what I was teached. Some times like this and some times like that.
Tnsn2345 has mentioned the importances to understand such variable strategies. I do not say, that any body has to understand such an amount of different strategies which I showed. I would recommend three. As the market only can go three ways: Up or down or sideways.
Placebo has mentioned the timing entry which in certain cases are a big bangs. Pull backs are only one of this events for such big bangs.
As I trade options and hedged futures, I look at certain things surely different than pure future traders. That is what I also recognized during the time I am in traderji.
Finally, SG has brought it to the point ( At least in my mind ) :
For Intraday Traders.... Be A Reluctant Buyer & Eager Seller
For Positional Traders.... Be A Reluctant Buyer & Patient Seller
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As there was a cross over, the time you posted some post and I wrote some other stuff, it is after you to decide.
I am clear about what I have learned here or in other words, how I have to explain and keep certain thought's as simple as possible by being involved in the last short journey.
Some times in trading, we all know, that we know this and this but we not have the right words for it. So we go for explanations around the world to the moon and come back.
Suddenly, there is some body from outside and just pumps in a few tiny words and we recognize, that are the words we were locking for.
This kind of determination of our thoughts makes us becoming more successful traders.
If you doubt this kind of spirit, you may have to think over the reasons, why to post like you do.
I am clear, that also posting is not always as friendly as we may hope it will be recognized by others. ( And you can believe me, that I some times go very angry about that ) Finally, I always compare it to trading. How many times we wanted the market to be friendly to us and then we learned, that is not the way the market act.
Posting in an open forum is a journey and a risk at the same time. As you got equal informations ( and you surely did with the last post from us here in the Den's room ), we give and we take.
So, let the flow go to the next topic and hope, that the ones which only read and never give maybe once have the courage to post like we posters do at the moment.
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Very Doubtful....Whether, Anybody Will Remember All That Is Written Here... Chances Are That Those Two Lines Cannot Be Easily Forgotten
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Absolutely no doubt about what you have said and more so that it is easy to remember crisp statements, quotes, rhymes and all.
But you would agree that the essence of learning, transmission of thoughts/ideas and impact a book can have in one's life cannot be had by reading the backcover of a book which gives the jist of the book and recommedation by critics and admirers et al. But by turning page after page and putting bookmarks before we doze off in deeper thoughts offered on a particular page.
Dear All,
Through discussions, debates we learn, we share some, take some and leave some. It is for one to pick and choose what suits best for him in this crowd of information. Some find it easy to choose, some difficult, some have clarity of thought, some need more inputs. We will find all types of personalities here. Slow or fast we all are learners here.
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generalised strategy for stock trading
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1] market /nifty has upbiased.............appln , play break out or strong stock in strong sector.
2] Bearish market/nifty down bias ..........appln, play reversal from top for good stock OR break down in laggard sector
3] volatile or narrow range market.......appln,first here play only the stock u know/the sector u work,..u know where support is,.......just correlate to find dynamic support,......simply buy........if price is holding.......then book profit at 7-8 % profit.
Dont choose break out/break down NOW.Pl see the relation between result out vs. price reaction on expected result.
This shall give enough profit strategically in present indian market.
Its very simple,.......i have written because presently Indian Market is in 3rd state.
So how to play? NONO to bullish or Bearish style.
Come to Range bound market......Suitable style is BUY on support.....or intra week swing.
Make a small Target.....Use momentum......just enter & exit with small profit.
skill of execution is Imp now.........just see Raunak's trade on nifty ( available in some other thread...explained by a picture clearly)
since discussion has move up philosophical , let us comeback to earth .
Modifying the post to create an Index for easy Navigation, (will add links later)
Longish Term Methods
Trading the Primary Uptrend, by SAINT (post # 2)
Trading the Intermediate Trend, by SAINT (post # 3)
Trading using Trend Lines, by Satyajit (post # 4)
Intraday Methods
Trading using Trend Lines by Satyajit (post # 4)
Trading Intraday with 5 Mins Using 15/30 mins as prespective, by SAINT (post # 5)
Trading Gaps, by Saint (post # 6)
Trading Using Modified Kolkata Indicator (post # 7)
Trading using rate of change of (TBQ) Total Buy Quantity and (TSQ) Total Sell Quantity
Everything in between Term Methods
NIFTY Futures Mechanical Trading by Vinod Nadoda (post # 14)
Trading methods using CCI by rhimadri (post # 15)
Stop & Reverse with 60 Min Pivots by SAINT (post # 16)
Trading Options
Options Trading by Ghosh (post # 37)
Delta Neutral Trading (post # 38)
Important Reads
Threads by CreditViolet (post # 50)
Threads by Karthik (post # 51) ...................SGM
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The comments r childish.........searching/planning by arbitrager, In reality applicable or not i dont like to comment.
Yes Understanding is main theme.
I firmly believe............understand first country............then only sector.
Since Global data is easily available,.........so strength of country index,.........comparative simple tools ,.........country actually still enjoy good money flow or not...............is seen.
Since i am from India,.........after covering .........above i see,..........which sector r showing strength,............So country-sector..........where money flow is already i get.
Company in that sectors............here i follow, mostly past experience...........who r outperformer of a sector+ fundamental knowledge of company[down up -studying detail in a particular company, where it takes more than decade to build up knowledge , equitymaster.com or capitalmarket.com........some data based fundamental research company may help in gathering,.........in your country similar thing definitely exists]
NOW comes TIMING
Many theory exists.........but what suits one more imp.
1] buy on dip........fib
2] buy on dip , but reversal confirmed by price
3] buy on breakout,......then coming back to old resistance zone.
4] buy on certain % up ,usually playing for momentum
5] buy after a crital Volume has occured
6] buy on half saucer pattern
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All of them has + expectency.
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btw trading on breakout...........from small range, or range expansion mode........
i think u can do being an Expert in option.
Personally since i am in stock....i hold more days....to get superior return , thats all.
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I never was sure, if you fellow people do understand how market makers work. I posted in earlier times about that and there was no respond at toll.
Here again an example how real market makers work and what kind of role the play in the whole game :
Trades outside the bid ask market.
eg; speculators are trading in nat gas, and the hedging type market makers decide to hedge/spread in the crude market, and the heating oil market.
eg; a long term holder of an equity (say a bank stock) always sells calls against their holdings every two months, and either rolls these calls or sells them against their holdings each time. the market makers generally buy these calls and to hedge in their books sell the underlying stock.
eg; a client requires an average price swap over the period of a week in a particular instrument as part of a portfolio, and sometimes the averaging of portfolios - depending on the exchange reporting requirements - see these prices be executed at close to but not exactly within the market, in order to report the entire portfolio at the one time.
Take care, have a nice weekend.
DanPickUp
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Going a bit further, I'd say, If anyone indeed needs to know how markets work, then he should refer to "Trading and Exchanges" by Larry Harris. I think it is a beautiful piece of literature which one must read atleast once. The concept of how markets work and the role of participants within the market is highlighted thoughtfully.
The reason perhaps traders here don't pay attention to this kind of stuff is mainly because this has no relevance with profitability of a trader. Obviously, if someone actually wants to chalk out a detailed plan to take advantages of how market works, or how its participants work, then it would indeed be beneficial. But for those who are momentum driven players, such knowledgeable stuff has absolutely no significance.
As an Investor, am inclined towards learning more and more about the functioning of the stock markets. However, at this very moment, the trader inside me is absolutely disgruntled with my opinion.
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May I say : Hi my friend.
Thanks to show me the thoughts of a future trader. What you explained, will be adaptable to other markets in the world.
Me, specially as an option trader and hedger, have to deal in an other way with those guys.
A future is a future. Market makers can not do much against a certain price in a short moment.
So, momentum driven players on futures surely do not care about such stuff.
( I am clear now about that, Thanks )
Options are different and here lays the different to the whole thoughts and must know knowledge. I only can talk about my experience in options as I am not a real future trader. As you know after some post in your thread from me, I use future as an other derivative beside any option I trade.
I am a hedger in any thinkable way any body can imagine. That is my strength as your strengths is direct future trading and trading with stocks. So, each one of us has his strength and some times we learn from each others as I did now with this post from you.
Options are like chewing gums. The market marker, which has to give me the guarantee of any execution at any time, will put in his risk ( time, delta, volatility, future outlook and so on ) in his created derivative and so I have to understand his possibility to cheat or accept me and I have to understand, how he creates his derivative, means option, which he will sell or buy from me.
Finally : Option traders and hedgers like me must know about this guys and as you mentioned, only future traders do may not need all that knowledge, even if it is always good to know, what is going on on the other side of the river. ( Just my way of living and thinking )
The following is explained only by the look at volatility and not in conjunctions with other market informations. There are different reasons for that. Here two main answers for your question.
First : Check the volatility from the past. Where has it been, before it started to get up ? Was it already on a very high level or was the volatility on a very low level, compare to the rest of the last few month ?
If it was on a very low level for a certain time and now jumped up, we have a break out of the market.
The market was settled and the participants have agreed with the actual price. Now it went up, and the participants do not agree with what is going on and they are afraid of what is going on. They are not sure about the situation and so they pay what so ever to protect them selfs against what ever could/would come. If the price of the future now starts to stay in an other higher range, the buyers and sellers of the markets are arranged and they wait for what is going on next. During this time, the volatility will come back to is average level, called historic volatility.
Second : If the volatility is already high and still goes higher, then something is in the bush/market.
We usually are on the top/down of a trend and market participants know that. They do not know when it ends and when the fall/push up or pull back will come. So they also pay more for there insurance then they would, if the signals would be clear, that market would move in either direction. Implied volatility will also here come back to normal, when the situation is settled down.
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To some extent you are right in your thoughts. The reason being, the writer of the post (not only restricted to me) would be writing the matter in certain conditions and mental frame which the reader may not be sync with.
Without a precusor it may become difficult for readers to gauge the gravity, meaning and the context of the implied message. Due to time connstraints and unability to be so expressive with written communication (over verbal) writers may tend to skip the background/precusor to their thoughts. However, knowledgable and serious readers could still take home the message almost in the form it was meant. And lesser privileged, in some modified version.
Relating to my trading style, some information in bits and pieces has been put up on different threads but not to the extent what you have questioned. And I think this is good enough in a public forum.
Readers and posters should look to share ideas and thoughts on the process on developing winning strategies for themselves and the research leading to them. You just need a spark to start a fire. Just a little spark. No matter even if the spark came from a worthless, discarded cigarette butt. If it has caused a fire in you, it is worth a millon dollars.
.......I DID IT MY WAY
This post is going to be very different from what I usually post. I want to write about my experience on becoming a system designer and systematic trader. Why now? I’m about to pass 4.000h of system development and trading. Yes, I’m maintaining a time log. However, it’s been an amazing journey from a personal growth point of view as well as emotional perspective. It feels like riding in a gigantic roller coaster.
Let me give you some background about investment history. I’m a burned child of the DOT-COM times. In the mid 90’s I started to invest (yes, invest) without knowing what I was doing. Then things (money) accelerated during DOT-COM phase, and again I did not know what I was doing. After burning my hands (and money) I stayed in the market and regained a lot until 2008, the point where I decided to withdraw from the markets and my past investment style. What made me change my way: actually a book from Jim Cramer. Jim’s first book got me really started. I read more and more books. Eventually i figured a thing called Technical Analysis.
During that phase i also run into Van Tharp’s books (a trading coach focused on trading psychology) and visited two of his workshops. One of his workshops turned me into a systematic trader. During his workshop we were playing a game about position sizing. One knew the expectancy of a system and had to set the position size accordingly. To make a long story short, I recognized it will be emotionally easier for me to trade when I know the in’s and out’s (expectancy) of my strategy rather than following the technical analysis path. Don’t get me wrong, technical analysis might work for some people, but not for me! Why not for me? In my opinion technical analysis is too ambiguous. That’s been an important “light bulb” moment, the fire got started and never went off. I decided to focus on systematic (quantitative) trading, despite my less than optimal background. I’ve been a real rookie as my background is in business administration and marketing.
Let me elaborate on some of the key learning’s during MY adventure. Why am I sharing those with you? I do hope you can avoid or bypass some of my challenges by reading this post.
Have a master plan! What are the big points you want to achieve over the next year. All activities should support the achievement of your big points. By big points I mean for example: “By 2011 I want to have two trading systems with a distinct investment style. I expect each of them to return XY% per year.”. I know this isn’t rocket science, though it’s so easy getting lost in narrow focused system optimization.
Make it a process! Focus on getting better day in day out, eventually results will show up. Build a methodology how you want to develop a system. In the past I often heard, we don’t have time for processes; we have to create products now. Know what you do before you start and don’t describe what you did after you have finished. I often fall into the trap (especially in the first year) to JUST test an idea and hours passed away without noticing. Follow your master plan!
Stay focused! There are only a very few different trading systems (styles) out there. In the beginning I made the mistake having up to 10 “different” systems (all focused on equities). In reality it’s been one system with different setups. I thought having a swing trading system on the German DAX is a different thing than having a swing trading system on the SPY. Of course it isn’t! But I had to learn this the hard way. Furthermore I spent way too much time on trying to develop an intraday system. I believe creating good intraday systems is more difficult than creating solid EOD systems. Hindsight I should have focused on EOD systems right from the beginning.
Don’t read too many books! (before you start). I should have started earlier by getting my hands dirty in system development. In my opinion there is too much money made in selling redundant trading books. System developers can learn as they test (to some extend). Of course education is important, but don’t underestimate the power of hands-on experience.
There is no way of getting rich quickly! … Only one of getting poor. Things are going to take time, at least for me. I’ve invested about 4000 hours of system development (not counting the endless hours of reading books). I’m still not there, I feel like I’m an intermediate. I expect to need 10.000h in order to reach expert level ground. There is a great book about this topic (non trading related), it’s called “Outliers: The story of success”. The essence of the book: talent isn’t born, it’s a process and takes time. At least 10.000 hours.
A system is more than an entry! Do not underestimate the power of money management. Invest time in researching about when is the right time to increase or decrease your position size. Eventually this is going to set you apart from the crowd.
Trading has to be painful (sometimes)! Trust your system. Often times I questioned the entries of my system, because it’s been to painful to execute the trade (into deeply oversold setups) as everybody was talking about the world coming to an end (finally). Of course that would have been the perfect time to make BIG money.
Don’t wait until it’s perfect! Once you have a solid first version of your system begin trading. Start with small position size. This way you learn how to execute the system. This is something that’s totally overlooked in my opinion. You will figure out if you can emotionally execute the trade, have the time or if it’s at all possible to execute the trade as your back tested result suggested. Furthermore you will run into some issues and make mistakes. That’s good. It’s better to make them early (while you maintain a small position size). Believe me; I made every possible mistake one can make during the course of such a journey. I’m not proud of these mistakes, but at least I’m trying to not make them a second time.
Be honest with yourself! There is only one person in the world you can’t lie to. Don’t look for the shortcut, there isn’t one. Focus on the concept and don’t spend endless hours on over optimizing results. I know it’s tempting.
Find a mentor! Get support early in the process. Have somebody that has experience in the field of system design and trading. He or she can guide you without giving you the shortcuts. I believe this has been the single most important factor in improving my system design and trading. Working with this expert required me to be more explicit in my thinking and system design.
The list isn’t complete yet. I’m expecting to make more mistakes and hopefully learn from those.
As you can see: I did it my way. Certainly not the perfect way, but I’m still healthy and alive. I know I’ve to continue learn and excel in order to succeed AND pass the 10.000 hours.
Frank -
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Couple of observations:
1. A beginner has to gather knowledge on what markets are about and in this respect certain amount of study is required before embarking on any system development.
You are right, over reading can be counterproductive.
2. At the outset it is crucial to remember that markets are made up of people, human beings and no indicators or systems can address all the nuances of human behaviour.
3. The fundamental law governing all markets, in any time frame, (intraday(1min-240min) or EOD(weekly, monthly, yearly) is Supply and Demand. Many think it is perceived value via fundamental analysis and news reports, world events etc but all these perceptions have to eventually materialise on a chart as price and investors/traders have to enter the market with either buy or sell orders which in turn creates the Buying and Selling pressure ie. Supply and Demand.
4. Hence I would suggest that a beginner would do well to study Wyckoff, It is 100yrs old but the principles outlined therein will remain valid in any decade. The teachings have remained out of public domain for a very long time. Only in the past 10 or so years the work has come to light and gained prominence.
5. Wyckoff's work provides insight into the workings of the market, the market manipulation etc and how price action can be read through range ie. price movement and activity ie. Volume. Volume is the Effort and Price is the Result.
Alongside it would also be prudent to undertake a systematic study of Taylor
It is a gem, however it is a very hard read, Taylor was foremost a trader and writer second. Most find it so difficult to grasp that they walk away casting his work as antiquated but have patience and persistence and the light will come on.
6. Once this background is in place, one can set about constructing strategies and tactics to create an edge to take advantage of the opportunities that the market provides. Then all the steps you outline come into play.
.............................When you are in stock markets, you need to think rationally and not like a non investor. You are in a profession, where no gains on capital is also a gain. Non erosion of capital in itself is an achievement. Do you know how many fund managers lose money and how many seriously under perform? If you begin to dig deep in this, you will be shocked to know the stats.
Don't calculate returns the way you are calculating. Keeping money in your account is actually saving money since you don't find the market environment appropriate to invest. Hence, be realistic and realize that you are in a profession where bulk of the gains sometimes comes in one year. This is why stock market returns follow Log Normal distributions and not perfect Normal distributions. A solution to your problem would be to invest the 50% funds in 1 month fixed deposits. This is not hard to do as these days flexibility in FD investments is available. Returns wont be much, but at least psychologically you will be fine.
P.S. - If you don't mind, I would like to tell you one more thing. Don't take it the other way.
If you have 50% money in your account at the moment, then this means you are lacking some planning in your investments. A complete trader is one who is ready with every situation the market bestows upon him. His plan covers all aspects and certainly one aspect is to see that money is never idle. ...........RAUNAK
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Holding on to capital and not trading/investing is probably the biggest psychological barrier one has to overcome. This is the only thing which distinguishes a trader/investor to a risk averse person who wants safety. Get used to handling risk and just go for it without hesitation.
Most people sit on the sidelines not because of lack of opportunity but rather due to lack of conviction. There is always an opportunity to mint money , one has to just take a closer look at things.
And why care so much about some fund manager somewhere and his/her goals or performance. Most of the stats that are freely available are usually no good.
.................This kind of Mental make up is what separates the best from the rest. But I agree to what you have said as it applies to the majority. And read the Fund managers report, I was referring to research reports which by the way are a lot costlier and full of accurate information.
In the end it depends on how an Individual thinks. Everyone can think differently and still be profitable. ...........Raunak
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Trading in the financial markets can be fun and profitable. Trading is a skill that can be learned over time. It takes a period of trying different methodologies and acquiring market knowledge. Usually, the beginning trader is confronted with a myriad of strategies and information. The number of various instructive materials to choose from is mind-boggling to say the least. It is no wonder that the beginner and even more experienced traders become confused and frustrated.
The would-be-trader or investor has to keep in mind that much of this confusion is created for a reason. The purpose of this disorder is to urge you to seek professional help. Books, trading courses, stock gurus, TV, brokers and advisors all stand ready to pluck your wallet in exchange for giving you the secrets of making money. As with most everything else, some of this advice is useful and much of it is not. Perhaps there is something a little bit different and simpler. One key to successful trading is to keep things simple.
How can a trader make his trading life easier? By having to make fewer decisions in regards to every trade. Contrary to what most experts say, it is very possible to trade with fewer inputs. Inputs would be areas like financial news, world news, and economy related news. It might also include the number of indicators and charting tools that are used for discovering and managing trades. Another input that could be avoided is listening to other's opinions about what or when to make a trade.
Whenever you listen to the news and the opinions of others, you then have to filter that data through your thinking process. You actually have to make some kind of decision concerning all those tidbits of information you come across. And attempting to understand how all those various inputs will affect the markets is usually difficult to manage. Predicting how other traders and investors will react to the multitude of news items is often futile. It is really a guessing game that most so-called experts are unable to consistently figure out.
If a trader is aware of his thinking, often he will find himself second-guessing a possible trade set-up. That piece of information he came across yesterday is affecting his thinking. Or, he heard some news today that has his contemplating future events. It is extremely rare that all the inputs will point in one direction at the same time. In effect, the more data points that you try to use in your methodology, the more chance for conflicting and confusing findings. This opens the door for more mistakes and losses from trading.
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Please do not believe everything you read on an online forum over the internet. Test it thoroughly to find out the flaws in it. Knowing the limitations will do you more good than a hundred lads bragging about how good it is or how much money it had made them.
Whenever i get into a discussion there is one thing i always emphasize. Markets are dynamic by nature and hence they inevitably change their nature at some point of time or the other. So check the overall economic/general conditions in which things have looked pretty and where they look dull.
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When you pause to think for a moment, you realise that to make money in the market you have to get three things right: direction, time and length of the move. Direction is obvious. If you have a system of setting target for a move you will also set a stop loss. The target has to be hit before the SL is hit. That would define the direction. Same way you will have the time frame of your trade in your mind. If you are a day trader, the target has to be achieved the same day. That hold true for any time frame that you trade in. For a trade to be successful, each of the three parameters, direction, length of move and time of move has to be correct. If we look at all options, here I go with my favourite current theme of probability
D L T
C C C
C W W
C W C
C C W
W W W
W C C
W C W
W W C
The header of the column standing for D (Direction), L (Length of move) and T (Time of move). C stands for correct and W for wrong. Half the time you may get the direction right, but that is not enough. If you got the direction right but the time or the length wrong you sink. Money gets made when we hit C C C for all the three parameters. That chance is one in eight. 12% of the time.
Just some food for thought.
..................Direction we trade with stop loss or synthetic.
Length we trade with probability, volatility or some other maths.
Time we define on the chart we trade.
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TT I enjoy your "probability" oriented posts a lot. Keep them going.
Anyway, I don't think the combinations you mentioned are practically valid. Now, going by what Dan has mentioned, there are two things which are in our hands out of the three mentioned. THat is, we know which Time we trade (hence we also know what our targets should likely be), we also know what volatility should do (keeping in mind that volatility is more easily predictable than price).
We are left with Direction, which in my opinion forms the crux. Statistically predicting direction holds a 50-50 odd, but in reality, it is here where majority of traders go wrong. Once one figures out a way to get direction right, then Time and volatility can contribute further to enhance profitability.
Of the three D, L and T. Only T (time) is what we can be 100% sure and which is by all means within our CONTROL. But most of the traders, novice, experienced, inconsistent traders mess with this simple and controlable aspect of trading.
While novice traders are not able to get the 'D' right, so L and T are irrelevant. After a few years of experience and different methods, experienced traders get the 'D' right. But in the quest of getting the 'L' right they modify the controlable 'T' and eventually prove right 'D' to wrong by holding the position from profit to loss just to achieve the wrongly defined 'L'.
Successuful and consistently profitable traders focus (in order of priority) :
T : 50%
D : 40%
L : 10 %
Defining correct 'T' is so very important as your method and tools should be able go give you the most porbable outcome within a defined time period. 'L' is inconsequential. I would not mind to earn the smallest of small profit (L) in the shortest possible time (T) with highest probablity of direction (D)
.............Interesting post. Even then, I am still not clear, why should I value any entry of a trade in the market with 50% T / 40% D and 10% L.
Many times it is written in this forum, that it is a learning forum.
I may, as I know you, have understood some thing wrong or I may explained it the wrong way by my self. I know the deepness of your thinking and so I write down my thought's as you did. As long as there are discussions witch show the look from different angel, then we learn.
I sit now in front of my screen and I think about different trading plans which can be traded under different circumstances.
I then tried to value them in priority to what you explained. I asked my self : Does this plan belong more to time or direction or length ?
I then decided to make three sheets and put this plans in it.
As you say : Successful and consistently profitable traders focus (in order of priority) T : 50% / D : 40% / L : 10 %
Finally I am a little bit confused. There are situations, I prefer to implement on breakouts. There are situations I prefer to trade a range. There are situations I prefer to trade a possible event. There are situations I just place orders on possibility. There are situation I just like to follow a trend. There are situations I like to enter the trade naked. Some other times with synthetics and other times with spreads.
With other words: A whole mess. No such result that I would see that all this trading plans would belong in the mentioned line you explained successful and consistently and profitable traders trade.
Is it maybe, that every trader still has his own profile and this profile we not just can put in a drawer and say : So it is ?
Just some thoughts
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Its quite interesting what you stated in the above post , specially the above line . I do understand that you have a wide variety of strategies in your armory but i am quite curious to know how do you really determine which is more important in any strategy ? (i.e if you don't mind telling us)
Now coming back to basics , why is there so much emphasis on only direction ? Determining the direction is not even 5% of the equation , its clubbing this direction with an entry which is suitable in terms of risk management and reward anticipation. This entry is almost 70% of the game since a good entry puts the account in green in hardly any time.
Surely time and length are quite important. Trading the length of a trend is directly proportional to the mentality of the trader and specially the ability to read charts correctly in real time. Some would exit at a pre-determined point based on money management while the cream traders would trade the majority of the directional movement and exit when they perceive that exhaustion is taking place.
Time does play an important role specially while trading extremely volatile assets like certain commodities , USD etc. But isn't time most useful when an important economic announcement is due. So often almost everyone talks about catalyst and the impact of the announcement on direction of prices. I'm sorry to say this but i really fail to understand this mentality of judging direction based on some announcements. One should just be glad that volatility will pick up and so will the chance for increasing bank balance. The direction should be determined without any outside influences and solely based on demand/supply. If that means order flow analysis then so be it if not then anything which helps in anticipating the direction.
There is so much amazing stuff on the internet that it amazes me. If one just takes some time and studies the work of Richard D Wyckoff , Tom Williams , Jesse Livermore , Nicholas Darvas , William O'Neil , Larry Williams , Peter Steidlmayer etc , then most of the problems that one is going through will seem so fragile and get eliminated. Maybe i got carried away and wrote more than i should have but i hope it helps whoever is looking for help.
Cheers And Happy Trading
__________________
Most traders plan only for the probability side and that, to them, is always what they consider the winning side. This is the biggest mistake you can make in trading. Instead, you must plan for the losing side - Phantom Of The Pits
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If I combine, I will get a word like : time entry.
Ok, I will start again. I now have four sheets ( Time / Direction / Length / Time entry
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Ok let me explain this, when we decide on a pattern, entry point basis our method, charts etc there is one thing we are SURE of (at least in mind) about the outcome likely to happen for the NEXT FEW MORE observation periods, e.g. if you are trading 5 min chart and a pattern suggests you something, you are sure of that outcome say for a period of 10 min or at max 15 mins time horizon, it is not easy or the probability of predicting what could happen after 20 - 30 mins or beyond is difficult to guess on the basis of 5 mins chart, in our given example.
So once we decide on an entry point (ideally it should be the point at which the movement will happen in your favour either continual or reversal) we decide on the likely outcome of the movement within the DEFINED period of time. And this is the ONLY THING we can likely define. I do not know the length, but I LIKELY know the direction and SURELY know the time by which it HAS TO HAPPEN. Now what happens during this time period could be either what I HAD predicted, NOT what I predicted or OPPOSITE to what I predicted. In any of the three outcomes, I am exiting at the end of the holding period. I am happy to earn, lose or exit at par the end of the holding period on the basis of my judgement rather than hold and ride the profits if there is a sudden move in my favour and is likely to continue even after the holding period is over. This orientation is the BASIS for not holding and riding into major losses if there is a sudden move not in my favour.
My decision and thinking till the end of holding period is only on the basis of pattern TILL THE TIME OF ENTRY. The new additions to the pattern, charts etc are IGNORED as they bring in the noise and emotions and they invariably to give you a call to hold you positions.
I trade on simple and minimal trading plans and spend most of the time just observing (sometimes even feeling sleepy while observing) if I can't define the time and the likely direction I stay put. Only when almost sure, would I enter, observe the movement during the holding period, adjust the positions and exit at the end of the holding period.
But all this was learnt the hard way when a simple definition helped me in define my trading objective :
The most important objective for me is:
1. Do not lose money : So the movement I am in trade i.e. I have TAKEN the risk, from the first review period of the position after a predefined time interval , I start REDUCING the risk, reduce risk, reduce risk....
2. Do what you know: I trade only on FAMILIAR market conditions and not all the times. Infact most of the times I am not holding a position but always have eye, mind and soul in the underlying instrument. And wait for THAT opportunity to strike big and strike hard.
3. Know what you do: Trade on simple and manageable plan/method including my Options holdings.
Hope the above helps to remove some confusion.
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If you are a multi specaility trader (trading different conditions) here too, if you define 'Time' for your event to occur - viz, a breakout to happen, range bound movement to continue or stop, volatility to continue/ increase/ decrease, a possible news event to occur etc, then your decision making will be in a controlled environment with specific thing likely to happen by SPECIFIC TIME.
Initially I also traded various conditions as stated by you and then carried positions from one condition to another and ended losing or carrying loss making trade longer. Till I refined myself to trade only 'FAMILIAR' conditions and wait for them. The opportunities are lesser, the profits are smaller, but the losses are even smaller, and the kitty grows. For me it is better than being in the market all the times, profiting some, losing some, and eventually heading nowhere at the end of the month.
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if you define 'Time' for your event to occur - viz, a breakout to happen, range bound movement to continue or stop, volatility to continue/ increase/ decrease, a possible news event to occur etc, then your decision making will be in a controlled environment with specific thing likely to happen by SPECIFIC TIME.
This whole concept of setting max time and min time is very intriguing actually. How exactly do you determine how much time to give every trade to work out or not work out ? Was it through back testing data over a period of time or by tracking the ability to get impatient after a particular point of time or any other method ?
Sorry for asking all these semi retarded questions. The way you look at "time" is quite different and refreshing. Would like to hear more from you.
......................For Intraday Traders....
Be A Reluctant Buyer & Eager Seller
For Positional Traders....
Be A Reluctant Buyer & Patient Seller
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I think over a period of time every trader develops a method which will give him a reasonable indication of what I discussed above. Now to what extent the definition of time is accurate would depend some thought and analysis of circumstances prevailing at that point of time. It will all depend on the method one uses for trading, I had mentioned somewhere on this forum that I use just plain candlesticks (after using and dumping most of the indicators, charts available), for me it is now a 'glimpse' of a candlestick chart which helps me tap the pulse of the underlying. For you it could be something else.
The initial predictions of Time may not be accurate or may be partially right or partially wrong but over a period of time consistency will increase. There will be a lot of heartburn when your desired direction and movement happens after you have exited at the end of your holding period i.e. your defined Time. But with patience and practice one can overcome this.
Again, I have quoted somewhere on this forum : Treat trading decisions as per Indian legal system which states that - the law can afford to acquit a guilty due to benefit of doubt /lack of evidence just to ensure that an innocent is not convicted. Similarly, in trading, we can afford to let go a very high 'probable' opportunity due to some 'element of doubt/lack of compelling evidence' just to 'ensure' that we don't pick the wrong trades and lose.
guess, now I have to bring my part as I started the whole journey. I hope, it was not to provocative. Thanks for the post from you and thanks to SG for his final word. ( I was hopping, that he once gives a comment on a topic which is discussed here in the trader Dan and I was hopping it is this time )
For my part, I have learned with all this post's you made and so I have to say thank you to you and thanks to take the time to write thoughts down. If you learned only by watching us discussing that subject, so it has done its work also for you.
I do not value any strategy for what ever. For me, it doe's not make any sense a toll. For what should I value any strategy to be nearest at any thought's, which points in a direction which is not really valuable for me ( As I only can talk for me and not for others ).
In my opinion it is as oilmen mentioned : it is discretionary.
There are trading plans for different market situations and I or you implement them when you think, that the odds are in the favor.
Timing the entries and placing the entries on probability is what I do and is what I was teached. Some times like this and some times like that.
Tnsn2345 has mentioned the importances to understand such variable strategies. I do not say, that any body has to understand such an amount of different strategies which I showed. I would recommend three. As the market only can go three ways: Up or down or sideways.
Placebo has mentioned the timing entry which in certain cases are a big bangs. Pull backs are only one of this events for such big bangs.
As I trade options and hedged futures, I look at certain things surely different than pure future traders. That is what I also recognized during the time I am in traderji.
Finally, SG has brought it to the point ( At least in my mind ) :
For Intraday Traders.... Be A Reluctant Buyer & Eager Seller
For Positional Traders.... Be A Reluctant Buyer & Patient Seller
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As there was a cross over, the time you posted some post and I wrote some other stuff, it is after you to decide.
I am clear about what I have learned here or in other words, how I have to explain and keep certain thought's as simple as possible by being involved in the last short journey.
Some times in trading, we all know, that we know this and this but we not have the right words for it. So we go for explanations around the world to the moon and come back.
Suddenly, there is some body from outside and just pumps in a few tiny words and we recognize, that are the words we were locking for.
This kind of determination of our thoughts makes us becoming more successful traders.
If you doubt this kind of spirit, you may have to think over the reasons, why to post like you do.
I am clear, that also posting is not always as friendly as we may hope it will be recognized by others. ( And you can believe me, that I some times go very angry about that ) Finally, I always compare it to trading. How many times we wanted the market to be friendly to us and then we learned, that is not the way the market act.
Posting in an open forum is a journey and a risk at the same time. As you got equal informations ( and you surely did with the last post from us here in the Den's room ), we give and we take.
So, let the flow go to the next topic and hope, that the ones which only read and never give maybe once have the courage to post like we posters do at the moment.
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Very Doubtful....Whether, Anybody Will Remember All That Is Written Here... Chances Are That Those Two Lines Cannot Be Easily Forgotten
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Absolutely no doubt about what you have said and more so that it is easy to remember crisp statements, quotes, rhymes and all.
But you would agree that the essence of learning, transmission of thoughts/ideas and impact a book can have in one's life cannot be had by reading the backcover of a book which gives the jist of the book and recommedation by critics and admirers et al. But by turning page after page and putting bookmarks before we doze off in deeper thoughts offered on a particular page.
Dear All,
Through discussions, debates we learn, we share some, take some and leave some. It is for one to pick and choose what suits best for him in this crowd of information. Some find it easy to choose, some difficult, some have clarity of thought, some need more inputs. We will find all types of personalities here. Slow or fast we all are learners here.
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generalised strategy for stock trading
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1] market /nifty has upbiased.............appln , play break out or strong stock in strong sector.
2] Bearish market/nifty down bias ..........appln, play reversal from top for good stock OR break down in laggard sector
3] volatile or narrow range market.......appln,first here play only the stock u know/the sector u work,..u know where support is,.......just correlate to find dynamic support,......simply buy........if price is holding.......then book profit at 7-8 % profit.
Dont choose break out/break down NOW.Pl see the relation between result out vs. price reaction on expected result.
This shall give enough profit strategically in present indian market.
Its very simple,.......i have written because presently Indian Market is in 3rd state.
So how to play? NONO to bullish or Bearish style.
Come to Range bound market......Suitable style is BUY on support.....or intra week swing.
Make a small Target.....Use momentum......just enter & exit with small profit.
skill of execution is Imp now.........just see Raunak's trade on nifty ( available in some other thread...explained by a picture clearly)
since discussion has move up philosophical , let us comeback to earth .
Modifying the post to create an Index for easy Navigation, (will add links later)
Longish Term Methods
Trading the Primary Uptrend, by SAINT (post # 2)
Trading the Intermediate Trend, by SAINT (post # 3)
Trading using Trend Lines, by Satyajit (post # 4)
Intraday Methods
Trading using Trend Lines by Satyajit (post # 4)
Trading Intraday with 5 Mins Using 15/30 mins as prespective, by SAINT (post # 5)
Trading Gaps, by Saint (post # 6)
Trading Using Modified Kolkata Indicator (post # 7)
Trading using rate of change of (TBQ) Total Buy Quantity and (TSQ) Total Sell Quantity
Everything in between Term Methods
NIFTY Futures Mechanical Trading by Vinod Nadoda (post # 14)
Trading methods using CCI by rhimadri (post # 15)
Stop & Reverse with 60 Min Pivots by SAINT (post # 16)
Trading Options
Options Trading by Ghosh (post # 37)
Delta Neutral Trading (post # 38)
Important Reads
Threads by CreditViolet (post # 50)
Threads by Karthik (post # 51) ...................SGM
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The comments r childish.........searching/planning by arbitrager, In reality applicable or not i dont like to comment.
Yes Understanding is main theme.
I firmly believe............understand first country............then only sector.
Since Global data is easily available,.........so strength of country index,.........comparative simple tools ,.........country actually still enjoy good money flow or not...............is seen.
Since i am from India,.........after covering .........above i see,..........which sector r showing strength,............So country-sector..........where money flow is already i get.
Company in that sectors............here i follow, mostly past experience...........who r outperformer of a sector+ fundamental knowledge of company[down up -studying detail in a particular company, where it takes more than decade to build up knowledge , equitymaster.com or capitalmarket.com........some data based fundamental research company may help in gathering,.........in your country similar thing definitely exists]
NOW comes TIMING
Many theory exists.........but what suits one more imp.
1] buy on dip........fib
2] buy on dip , but reversal confirmed by price
3] buy on breakout,......then coming back to old resistance zone.
4] buy on certain % up ,usually playing for momentum
5] buy after a crital Volume has occured
6] buy on half saucer pattern
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All of them has + expectency.
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btw trading on breakout...........from small range, or range expansion mode........
i think u can do being an Expert in option.
Personally since i am in stock....i hold more days....to get superior return , thats all.
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I never was sure, if you fellow people do understand how market makers work. I posted in earlier times about that and there was no respond at toll.
Here again an example how real market makers work and what kind of role the play in the whole game :
Trades outside the bid ask market.
eg; speculators are trading in nat gas, and the hedging type market makers decide to hedge/spread in the crude market, and the heating oil market.
eg; a long term holder of an equity (say a bank stock) always sells calls against their holdings every two months, and either rolls these calls or sells them against their holdings each time. the market makers generally buy these calls and to hedge in their books sell the underlying stock.
eg; a client requires an average price swap over the period of a week in a particular instrument as part of a portfolio, and sometimes the averaging of portfolios - depending on the exchange reporting requirements - see these prices be executed at close to but not exactly within the market, in order to report the entire portfolio at the one time.
Take care, have a nice weekend.
DanPickUp
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Going a bit further, I'd say, If anyone indeed needs to know how markets work, then he should refer to "Trading and Exchanges" by Larry Harris. I think it is a beautiful piece of literature which one must read atleast once. The concept of how markets work and the role of participants within the market is highlighted thoughtfully.
The reason perhaps traders here don't pay attention to this kind of stuff is mainly because this has no relevance with profitability of a trader. Obviously, if someone actually wants to chalk out a detailed plan to take advantages of how market works, or how its participants work, then it would indeed be beneficial. But for those who are momentum driven players, such knowledgeable stuff has absolutely no significance.
As an Investor, am inclined towards learning more and more about the functioning of the stock markets. However, at this very moment, the trader inside me is absolutely disgruntled with my opinion.
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May I say : Hi my friend.
Thanks to show me the thoughts of a future trader. What you explained, will be adaptable to other markets in the world.
Me, specially as an option trader and hedger, have to deal in an other way with those guys.
A future is a future. Market makers can not do much against a certain price in a short moment.
So, momentum driven players on futures surely do not care about such stuff.
( I am clear now about that, Thanks )
Options are different and here lays the different to the whole thoughts and must know knowledge. I only can talk about my experience in options as I am not a real future trader. As you know after some post in your thread from me, I use future as an other derivative beside any option I trade.
I am a hedger in any thinkable way any body can imagine. That is my strength as your strengths is direct future trading and trading with stocks. So, each one of us has his strength and some times we learn from each others as I did now with this post from you.
Options are like chewing gums. The market marker, which has to give me the guarantee of any execution at any time, will put in his risk ( time, delta, volatility, future outlook and so on ) in his created derivative and so I have to understand his possibility to cheat or accept me and I have to understand, how he creates his derivative, means option, which he will sell or buy from me.
Finally : Option traders and hedgers like me must know about this guys and as you mentioned, only future traders do may not need all that knowledge, even if it is always good to know, what is going on on the other side of the river. ( Just my way of living and thinking )
The following is explained only by the look at volatility and not in conjunctions with other market informations. There are different reasons for that. Here two main answers for your question.
First : Check the volatility from the past. Where has it been, before it started to get up ? Was it already on a very high level or was the volatility on a very low level, compare to the rest of the last few month ?
If it was on a very low level for a certain time and now jumped up, we have a break out of the market.
The market was settled and the participants have agreed with the actual price. Now it went up, and the participants do not agree with what is going on and they are afraid of what is going on. They are not sure about the situation and so they pay what so ever to protect them selfs against what ever could/would come. If the price of the future now starts to stay in an other higher range, the buyers and sellers of the markets are arranged and they wait for what is going on next. During this time, the volatility will come back to is average level, called historic volatility.
Second : If the volatility is already high and still goes higher, then something is in the bush/market.
We usually are on the top/down of a trend and market participants know that. They do not know when it ends and when the fall/push up or pull back will come. So they also pay more for there insurance then they would, if the signals would be clear, that market would move in either direction. Implied volatility will also here come back to normal, when the situation is settled down.
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To some extent you are right in your thoughts. The reason being, the writer of the post (not only restricted to me) would be writing the matter in certain conditions and mental frame which the reader may not be sync with.
Without a precusor it may become difficult for readers to gauge the gravity, meaning and the context of the implied message. Due to time connstraints and unability to be so expressive with written communication (over verbal) writers may tend to skip the background/precusor to their thoughts. However, knowledgable and serious readers could still take home the message almost in the form it was meant. And lesser privileged, in some modified version.
Relating to my trading style, some information in bits and pieces has been put up on different threads but not to the extent what you have questioned. And I think this is good enough in a public forum.
Readers and posters should look to share ideas and thoughts on the process on developing winning strategies for themselves and the research leading to them. You just need a spark to start a fire. Just a little spark. No matter even if the spark came from a worthless, discarded cigarette butt. If it has caused a fire in you, it is worth a millon dollars.
.......I DID IT MY WAY
This post is going to be very different from what I usually post. I want to write about my experience on becoming a system designer and systematic trader. Why now? I’m about to pass 4.000h of system development and trading. Yes, I’m maintaining a time log. However, it’s been an amazing journey from a personal growth point of view as well as emotional perspective. It feels like riding in a gigantic roller coaster.
Let me give you some background about investment history. I’m a burned child of the DOT-COM times. In the mid 90’s I started to invest (yes, invest) without knowing what I was doing. Then things (money) accelerated during DOT-COM phase, and again I did not know what I was doing. After burning my hands (and money) I stayed in the market and regained a lot until 2008, the point where I decided to withdraw from the markets and my past investment style. What made me change my way: actually a book from Jim Cramer. Jim’s first book got me really started. I read more and more books. Eventually i figured a thing called Technical Analysis.
During that phase i also run into Van Tharp’s books (a trading coach focused on trading psychology) and visited two of his workshops. One of his workshops turned me into a systematic trader. During his workshop we were playing a game about position sizing. One knew the expectancy of a system and had to set the position size accordingly. To make a long story short, I recognized it will be emotionally easier for me to trade when I know the in’s and out’s (expectancy) of my strategy rather than following the technical analysis path. Don’t get me wrong, technical analysis might work for some people, but not for me! Why not for me? In my opinion technical analysis is too ambiguous. That’s been an important “light bulb” moment, the fire got started and never went off. I decided to focus on systematic (quantitative) trading, despite my less than optimal background. I’ve been a real rookie as my background is in business administration and marketing.
Let me elaborate on some of the key learning’s during MY adventure. Why am I sharing those with you? I do hope you can avoid or bypass some of my challenges by reading this post.
Have a master plan! What are the big points you want to achieve over the next year. All activities should support the achievement of your big points. By big points I mean for example: “By 2011 I want to have two trading systems with a distinct investment style. I expect each of them to return XY% per year.”. I know this isn’t rocket science, though it’s so easy getting lost in narrow focused system optimization.
Make it a process! Focus on getting better day in day out, eventually results will show up. Build a methodology how you want to develop a system. In the past I often heard, we don’t have time for processes; we have to create products now. Know what you do before you start and don’t describe what you did after you have finished. I often fall into the trap (especially in the first year) to JUST test an idea and hours passed away without noticing. Follow your master plan!
Stay focused! There are only a very few different trading systems (styles) out there. In the beginning I made the mistake having up to 10 “different” systems (all focused on equities). In reality it’s been one system with different setups. I thought having a swing trading system on the German DAX is a different thing than having a swing trading system on the SPY. Of course it isn’t! But I had to learn this the hard way. Furthermore I spent way too much time on trying to develop an intraday system. I believe creating good intraday systems is more difficult than creating solid EOD systems. Hindsight I should have focused on EOD systems right from the beginning.
Don’t read too many books! (before you start). I should have started earlier by getting my hands dirty in system development. In my opinion there is too much money made in selling redundant trading books. System developers can learn as they test (to some extend). Of course education is important, but don’t underestimate the power of hands-on experience.
There is no way of getting rich quickly! … Only one of getting poor. Things are going to take time, at least for me. I’ve invested about 4000 hours of system development (not counting the endless hours of reading books). I’m still not there, I feel like I’m an intermediate. I expect to need 10.000h in order to reach expert level ground. There is a great book about this topic (non trading related), it’s called “Outliers: The story of success”. The essence of the book: talent isn’t born, it’s a process and takes time. At least 10.000 hours.
A system is more than an entry! Do not underestimate the power of money management. Invest time in researching about when is the right time to increase or decrease your position size. Eventually this is going to set you apart from the crowd.
Trading has to be painful (sometimes)! Trust your system. Often times I questioned the entries of my system, because it’s been to painful to execute the trade (into deeply oversold setups) as everybody was talking about the world coming to an end (finally). Of course that would have been the perfect time to make BIG money.
Don’t wait until it’s perfect! Once you have a solid first version of your system begin trading. Start with small position size. This way you learn how to execute the system. This is something that’s totally overlooked in my opinion. You will figure out if you can emotionally execute the trade, have the time or if it’s at all possible to execute the trade as your back tested result suggested. Furthermore you will run into some issues and make mistakes. That’s good. It’s better to make them early (while you maintain a small position size). Believe me; I made every possible mistake one can make during the course of such a journey. I’m not proud of these mistakes, but at least I’m trying to not make them a second time.
Be honest with yourself! There is only one person in the world you can’t lie to. Don’t look for the shortcut, there isn’t one. Focus on the concept and don’t spend endless hours on over optimizing results. I know it’s tempting.
Find a mentor! Get support early in the process. Have somebody that has experience in the field of system design and trading. He or she can guide you without giving you the shortcuts. I believe this has been the single most important factor in improving my system design and trading. Working with this expert required me to be more explicit in my thinking and system design.
The list isn’t complete yet. I’m expecting to make more mistakes and hopefully learn from those.
As you can see: I did it my way. Certainly not the perfect way, but I’m still healthy and alive. I know I’ve to continue learn and excel in order to succeed AND pass the 10.000 hours.
Frank -
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Couple of observations:
1. A beginner has to gather knowledge on what markets are about and in this respect certain amount of study is required before embarking on any system development.
You are right, over reading can be counterproductive.
2. At the outset it is crucial to remember that markets are made up of people, human beings and no indicators or systems can address all the nuances of human behaviour.
3. The fundamental law governing all markets, in any time frame, (intraday(1min-240min) or EOD(weekly, monthly, yearly) is Supply and Demand. Many think it is perceived value via fundamental analysis and news reports, world events etc but all these perceptions have to eventually materialise on a chart as price and investors/traders have to enter the market with either buy or sell orders which in turn creates the Buying and Selling pressure ie. Supply and Demand.
4. Hence I would suggest that a beginner would do well to study Wyckoff, It is 100yrs old but the principles outlined therein will remain valid in any decade. The teachings have remained out of public domain for a very long time. Only in the past 10 or so years the work has come to light and gained prominence.
5. Wyckoff's work provides insight into the workings of the market, the market manipulation etc and how price action can be read through range ie. price movement and activity ie. Volume. Volume is the Effort and Price is the Result.
Alongside it would also be prudent to undertake a systematic study of Taylor
It is a gem, however it is a very hard read, Taylor was foremost a trader and writer second. Most find it so difficult to grasp that they walk away casting his work as antiquated but have patience and persistence and the light will come on.
6. Once this background is in place, one can set about constructing strategies and tactics to create an edge to take advantage of the opportunities that the market provides. Then all the steps you outline come into play.
.............................When you are in stock markets, you need to think rationally and not like a non investor. You are in a profession, where no gains on capital is also a gain. Non erosion of capital in itself is an achievement. Do you know how many fund managers lose money and how many seriously under perform? If you begin to dig deep in this, you will be shocked to know the stats.
Don't calculate returns the way you are calculating. Keeping money in your account is actually saving money since you don't find the market environment appropriate to invest. Hence, be realistic and realize that you are in a profession where bulk of the gains sometimes comes in one year. This is why stock market returns follow Log Normal distributions and not perfect Normal distributions. A solution to your problem would be to invest the 50% funds in 1 month fixed deposits. This is not hard to do as these days flexibility in FD investments is available. Returns wont be much, but at least psychologically you will be fine.
P.S. - If you don't mind, I would like to tell you one more thing. Don't take it the other way.
If you have 50% money in your account at the moment, then this means you are lacking some planning in your investments. A complete trader is one who is ready with every situation the market bestows upon him. His plan covers all aspects and certainly one aspect is to see that money is never idle. ...........RAUNAK
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Holding on to capital and not trading/investing is probably the biggest psychological barrier one has to overcome. This is the only thing which distinguishes a trader/investor to a risk averse person who wants safety. Get used to handling risk and just go for it without hesitation.
Most people sit on the sidelines not because of lack of opportunity but rather due to lack of conviction. There is always an opportunity to mint money , one has to just take a closer look at things.
And why care so much about some fund manager somewhere and his/her goals or performance. Most of the stats that are freely available are usually no good.
.................This kind of Mental make up is what separates the best from the rest. But I agree to what you have said as it applies to the majority. And read the Fund managers report, I was referring to research reports which by the way are a lot costlier and full of accurate information.
In the end it depends on how an Individual thinks. Everyone can think differently and still be profitable. ...........Raunak
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Trading in the financial markets can be fun and profitable. Trading is a skill that can be learned over time. It takes a period of trying different methodologies and acquiring market knowledge. Usually, the beginning trader is confronted with a myriad of strategies and information. The number of various instructive materials to choose from is mind-boggling to say the least. It is no wonder that the beginner and even more experienced traders become confused and frustrated.
The would-be-trader or investor has to keep in mind that much of this confusion is created for a reason. The purpose of this disorder is to urge you to seek professional help. Books, trading courses, stock gurus, TV, brokers and advisors all stand ready to pluck your wallet in exchange for giving you the secrets of making money. As with most everything else, some of this advice is useful and much of it is not. Perhaps there is something a little bit different and simpler. One key to successful trading is to keep things simple.
How can a trader make his trading life easier? By having to make fewer decisions in regards to every trade. Contrary to what most experts say, it is very possible to trade with fewer inputs. Inputs would be areas like financial news, world news, and economy related news. It might also include the number of indicators and charting tools that are used for discovering and managing trades. Another input that could be avoided is listening to other's opinions about what or when to make a trade.
Whenever you listen to the news and the opinions of others, you then have to filter that data through your thinking process. You actually have to make some kind of decision concerning all those tidbits of information you come across. And attempting to understand how all those various inputs will affect the markets is usually difficult to manage. Predicting how other traders and investors will react to the multitude of news items is often futile. It is really a guessing game that most so-called experts are unable to consistently figure out.
If a trader is aware of his thinking, often he will find himself second-guessing a possible trade set-up. That piece of information he came across yesterday is affecting his thinking. Or, he heard some news today that has his contemplating future events. It is extremely rare that all the inputs will point in one direction at the same time. In effect, the more data points that you try to use in your methodology, the more chance for conflicting and confusing findings. This opens the door for more mistakes and losses from trading.
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Please do not believe everything you read on an online forum over the internet. Test it thoroughly to find out the flaws in it. Knowing the limitations will do you more good than a hundred lads bragging about how good it is or how much money it had made them.
Whenever i get into a discussion there is one thing i always emphasize. Markets are dynamic by nature and hence they inevitably change their nature at some point of time or the other. So check the overall economic/general conditions in which things have looked pretty and where they look dull.
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We spend disproportionate time on intraday trading yet delivery based trading is more profitable in todays bullish market conditions.
An important consideration would be dividing the trades based on the type eg swing,fundamental calls based on some news warranting a re-rating,breakout trades
.................Trading is a jigsaw puzzle.Persons reqd exceptional ability to persevere.......discipline....patience.
Clarity of thought process another key theme.
Prerequestee........knowledge on TA -FA, business,sector,economy,psychology,Self,oppurtunit y analysis,closing a position in contingency
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With this i am coming back to topic 1
Delivery - When to buy and when to sell
....................
Being in practical trading u may have use concept of Investment
Where Future is bright........How much present market has discounted it.
So std FA is used what to BUY
Since........delivery play is holding for long haul, u must define.........holding period that suit u.
So result play/order play......economic change.......these r key background strength of a positional trader.
Let me explain by simplicity......a trader plays on technical chart.......though positional trader........u try to copy him,........learn from him.Ask simply .....how he trades....But u can not follow his logic[his inner core heart/experience, unless u know.......he has dual degree of MBA-finance & CMT]......so learner has to put that HAT to understand the thinking process of being RIGHT by the man when he is seeing CHART......what he is interpreting in price.
So simply its BUY........when market condition is greedy......Reflected by NIFTY study.
The candidate is showing better strength.........3rd factor........Money is entering in that stock.Higher level expert also try to confirm........whether is strong Hand buying.........so that its for Long haul.
When to sell.........a particular profit target.......a SAR to allow profit run.
If fundamental for 2 quarter turn -,Entire sensex......showing big possible downtrend.
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Tools........Use weekly chart always for........to study strength
Use a momentum tool which suits u for entry,.......alternatively Buy on pullback or Cup & handle pattern.
Another one Break out trade.........play for continuation with strict stop.
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as far as i know the way to know about the resistance and support can be: -
1. Using pivots on weekly monthly or daily charts.
2. Finding the regions or price points where price always resisted the upmove and pulled back, or from where always the support comes and price bounces back.
Weekly chart ........pivot is very good for........postional play.
Just understand coincidence of June2010...result out with 2;nd Aug'10...Just see the candle @ resistance........key bar,........then Big volume splash..........Result is 150/- profit.
Yes a theoritical discussion.........i could not trade as presently i am not this sector.
moreover..........i miss it.
But its an excellent approach for positional trade.
Key pt........Result/greed/moneyflow........at resistance Break clearly SEEN
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While daytrading/ swing trading is good for earning the living income to monthly expense, delivery based long term positions should be part of your wealth accumulation for any trader. Your income stream would dry-out if u don't sit infront of the terminal and trade actively, but wealth stream keeps flowing even when you are not so actively involved in it.
Personally, I use technical analysis, risk mgmt, position sizing, instrument allocation, concept of short term trading, for longer term as well.. It is important to capture big picture, change in socio-economic dynamics, inter-market analysis etc for this.
I don't use fundamental analysis, company balace sheet analysis for this cause (as per my belief and I might be wrong)
- balance sheet is subjected to accountant's creativity to serve the purpose of mgmt and accountants are expert in that
- when mkt is bullish, mgmt, analayst, accountant, all human being are bullish. majority of them will break the ice and dare to show earning downgrade in growing market even if that is reality of the company. And that is what is reflected in media and other communication.
- I am trader, and my skills as fundamental analyst is limited. So I would rather encash on my existing strength, and outsource the fundamental analysis to someone else. I do check stock recommendation from broker/analysts to flag some growing companies. and then I filter them thru my selection criteria.
For me it is easier way to build watchlist of fundamentally good companies.
While you are reading on this, i would suggest to start making your trading plan for wealth accumulation and start writing your rules there as u learn. Give it a timeline, and within one or two months of the time, u will have a document that hardly 2/3% of investors would be having.
ofcourse this trading plan is living doucment and will keep changing with your experience.
Focus on position sizing, risk mgmt, Exits, read the litrature of successful hedge fund managers, inter mkt analysis, make your info database (far beyond the ohlc price data of stock), and develop some strategies.
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Learning delivery trading and investing creates a lot of dilemma because of the tools which are available for analysis. I am not a fan of TA , on the contrary ... Aah forget it lets not get into that. That being said i firmly believe that the chart contains all the information as long as one knows how to read it correctly without mumbo jumbo patterns and tools.
But when it comes to stocks even raw action of price , price movement and volumes is not sufficient. Some more variables have to be considered which fall outside the chart. There is where FA comes into play. A lot of assumptions have to built in while analyzing FCF's and trying to value the worth of the company. Relative valuation helps in determining which company has outperformed its competitors as long as there is a level playing field.
A combination of Chart Reading And FA would stack the chances because the chart shows micro changes and balance sheet/income statement reflects macro changes. As a rule of the thumb anything that is selected for long term in the portfolio should first get the approval from fundamental data. Entry/Exits should then be based on the best possible available place on the chart.
.....................As far as my knowledge goes, Support and Resistances are determined through
1. Visual observation of Pivots.
2. Mathematical calculation of Pivots.
3. Moving Averages.
4. Fibonnaci
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Just few of my observations on point 1 opened by you...when to take delivery.... To answer this question we need to understand different trends at play at the same time in the markets.... for our trading purpose following 3 trends are important.
1) Minor Trends : We use them for trading intraday.
2) Visual Trends : We use them for swing trades.
3) Major Trends : We use them for positional trades or delivery trades
These 3 trends are interacting with each other in any timeframe...if one can master the interplay of these trends he has the holy grail of trading.
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small clarification to put it in the right direction.
1. Trends are related to technicals. (You are already know much of it)
2. Fundamentals are related to outlook, financials and / or rhythemic cycles.
(I feel if somebody who is proficient in studying fundamentals contribute here life will be much easier).
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Nothing can beat what you have put here. This is simply saying that you cannot be two sides of the same coin at the same time.
In my opinion it would practically not be possible to play both the roles (FA and TA) for a sustained period of times in a life of a traders. Eventually either you are follow FA or TA. Time horizon will not matter, so if you follow TA, you could use it for intraday (5 min data) or a monthly / quarterly / yearly data for longer periods of holdings. Yes there would be tuning required when you look at different periods of data on the same charts, indicators etc. But still it can be done.
I am a true follower of TA and have my own set of charts, indicators and singals which I have developed over a period of time, which holds good for me for short term trades (intraday, swing, monthly trades) and equally for holdings which go a year and beyond. But yes, for longer period holdings, I have a certain set of very simple indicators which assist my basic charts and tools. e.g. 50/100/200 day simple moving average. These are the very basic curved trendlines which can really act wonders if used religiously. And nothing can beat them, it would provide you with much needed information to trade (read invest) for longer periods. Apart from the pivots, moving averages also assist in identifying resistance and support levelsk / indices.
For identifying stocks for long term investments, as AW10 has said that the best thing is to outsource something which is not your core area. Apart from research reports of a few broking house, best way is to check the daily financial news papers and check for stocks which appear regularly in high volume section, then test these stock against the TA and your tools to check if they qualify your TA tests.
To assist me in identifying high momemtum stock I have developed a stock scanner (on the basis of a certain mathematical model) which scans all companies of BSE 200 and BSE 500 and throws 8 - 10 stocks which exhibit tremedous momentum play on the basis of preceeding 3 months data. These momemtum plays can continue for another 6 - 8 months period after which it would die. I would run this scanner at the end of each month and identify such stocks. But again these stock will undergo my basic TA test and only half of these would qualify as worth riding. A large part of my portfolio consists of such momentum stocks.
Another component to build up a long term stock portfolio could also comprise of contrarian stocks i.e. buying into laggards stock of high growth sectors. The investments in such stocks should be with a time horizon of atleast 2 - 3 years +. To augment the contra stocks, the long term stock portfolio could be built with identifying sunrise industry stocks and allocating a small percentage of the portfolio to a few of such stocks. But personally I do not own a contra / sunrise industry stocks.
Delivery based Investing will certainly take you a long way. Just be sure that you indeed want to carry on with this. Many traders or investors fail to realize which style of investing suites them the best. I have seen many good traders who fail to invest for sustained period of times but yet draw similar incomes from the market just by swing trading regularly. Delivery based trading requires a completely different psychological make up and I sincerely hope you have that make up within your subconscious mind.
As AW10 advised, make sure you start maintaining your trading journal and come out with rules. Whatever rules you make, try and let the market give you feedbacks for the same. It is only on markets feedback that you should change or modify your rules. Don't modify your rules based on your own anticipation. Delivery based investing has a lot to do with identifying the broader market, outperforming sectors within that market and finally identifying outperforming stocks within those sectors. It is not as simple as the 20/50 cross or 2/20 cross which traders normally use. It has lot to do with identifying a broad framework and finally working within that framework. Good investors are always aware of what is going on and you need to imbibe that within your mind.
You views are baised depicting that for delivery based trading (investing) one has to necessarily follow FA and have a thorough knowledge of the economy, sector, industry, company etc (the top down approach etc etc). A good grasp of PE, EPS, PBV, earnings, discounted cash flow etc etc.
This is just a one sided view, delivery based investing can be done even with TA and just zero knowledge of FA or anything about the ecomony and other stuff. The monthly, quarterly, yearly charts can still give you patterns, trends, break outs, resistance, support and all what we follow for intraday, swing trade and all. Taking delivery means you want to hold it for a large period of time than what the dervatives contract would allow and without levearging so there is no pressure of MTM losses / margin calls.
The charts talk : irrespective of what TF we look at.
On your comment on deciding what TF a trader wants to trade. Refer AW10 comment that short term trading (Intraday, swing) can help meet your living expenses but cannot create wealth. Big money is made in big time frame.. So as the fund size increases, one will have to allocate funds to higher TF investing / trading, which is essentially nothing but delivery based investing, which could be for a period of 6 months, a year or two or more too. e.g. as a day trader, say I have a method which is scalable to use upto 20 L of trading capital, for swing trading I may scale up to use another 50 L, but what if I have 2 - 3 -5 Cr ...at my disposal, I cannot deploy them to day trade because my method and resources are not scalable to handle this amount. Hence necessarily I will have to invest it for larger period (and also 'safer' assets - by not leveraging) through delivery based trading. And there is no conflict in ones mind as you need not track such investments daily, probably once a month or twice a month is good enough.
To sum it up, as I have quite often written elsewhere, it is the fund allocation which is the key for success even for day traders to create wealth. So even for a day trader or a jobber his bread may come from his daily activity, his butter will come from long TF investments / trades.
In trading or investing, there is nothing called as cheap or expensive, hence irrespective of the price you buy you aren't a fool as long as you know there is another one willing to pay even higher price for it.
In case of Suzlon, if I were you I would go long if the TA indicated so, however if you are looking at longer period of holding, I suggest you to check out monthly and quarertly charts. Daily chart is strictly no - no.
Without a framework one cannot survive in Delivery based trading (investing). Framework does not mean P/E, EPS etc. It means awareness about one's own self and how that self is interacting with what is going around. Sooner investors realize this, the better it is for their investments.
It is not an absolute necessity to invest to create wealth. Wealth can be created through regular trading as well. It's just a matter of personal choice. Its just a matter of how skilled you are. There's no definite rule for this. Ultimately, what I think about markets does not have to coincide with what some other trader thinks about the markets. We all can execute our own beliefs and still be successful. In terms of probability, mutual exclusivity in terms of thought process does not exist within any markets. As traders/investors, we never trade our markets. We only trade our beliefs.
.....delivery based trading.........i come here for a comment.
Here i personally think.......in delivery based trading fundamental grasp is must.
let us talk........Trader A.......definitely can understand.........what is coming due to change in economy/sector/company management/order flow...........Now whether to get that understanding......he gets it through Delegation(buying report/exceptional individual who understand sector/individual company revival)........or through self analysis.......or buying seeing higher time frame chart.....in which MA showing particular inclination OR REL STRENGTH IN COMPARISON.........Mode may be different.......PURPOSE IS SEARCH FOR CANDIDATE OF LONG HAUL.
YES ITS REQD........LITTLE BIT DIFFERENT MIND FRAME THAN SHORT TERM TRADE.
simplest literature........i think of MARK BOUCHER.......trainer of Fund Manager.
Raunakji's view on SKILL development ......very imp.
"To sum it up, as I have quite often written elsewhere, it is the fund allocation which is the key for success even for day traders to create wealth. So even for a day trader or a jobber his bread may come from his daily activity, his butter will come from long TF investments / trades".....comments of TNSN2345..........should be aimed only after learning proper trade,not mixing different time frame,Discipline mastery(here i lagg).........
being laggard........my role only to be a learner.
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no 1..........understanding in fundamental ..........whether Money shall come in the country.
No2.........if money comes , which sector.........which particular company??
no3.........whether u can make SWOT on that sector.....or if other good FA has
done for u,....but u can check that like auditor.
no4.......At what condition /visualisation major stake holder/promoter buy or selling that counter?
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Time again i have told.........past data......has no value in fundamental .So modelling dont work in financial market,apart from M &A.
Presently a pure fundamental play probably Satyam.
...........Fundamental helps to create a value zone.......which may be useful to buy at big fall, provided u understand that fall is tempotary.
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I am an old fashion trader, using old indicators and enjoy looking at all that new stuff.
( I have a source for ninja trader, to get many individual, not official files and I see how it looks. But it did not improve my trading style. As I any way never know exactly, where market will head to, I stay with what I like and understand and with what I make money.Some times it works and other times I have to adjust the strategy in to an other one, if I am not in a loss. If I am in a loss, then I am out. I then prepare the next entry step and then lets go again. I am not a typical day trader. I even hate to trade short time frames, expect it is a clear range like we many times have in the currencies. Then it can be like money machine. Short, long, short, long and so on.
Beside that I go for some other individual indicators ( which every body can decide by him self, as there are so many around and I have posted in the traders Den, which mix you can use, when fellow traders not want to fall in the trap by using different indicators which give finally the same information, just with other names ). I also use mathematical plays, volatility, strike volumes, comparing time frames and market correlations and that is it in general.
One old trader told me once : Between earth and sky is not to much. So we better let it be like that and we always can bread.
As I do not know exactly what you trade, I just gave some inside look at how I organize my self. I know that I am some times a little bit harsh ( Every body has his behavior and that is my one ) so I guess you got used to it in the mean time.
The only thing I know, you must be one of the big guys here. My explanation was one in a nut shell and it just was my style of posting. I guess you are a direct stock and future trader. I am not.
Still, what I have become clear about here in this forum in the last few weeks ( also with the help of Savant Guarde, Tsnt234, oilman, Raunakagarwal and other ones - I mean your names are incredible and always a pain for me to tipe,, but thanks for your indirect response ) most of traders search for the same : They search for some kind of final indicators. I became now clear about that by being some times provocative and some times by giving from my side information.
I am clear about this now for ever :
THERE IS NO PERFECT INDICATOR !
Forget about that ! MM, a good business plan and positive live behaviors will do it.
.........................................Like I have written somewhere on this forum, I have researched, used, altered and later dumped all the indicators available on the earth (have now got so much insights on mathematical and technical parameters of all the proclaimed indicators, that I can author a book by myself) I now just follow basic charts (not even volumes stats !!!) and trade my daily, short TF and long TF investments. Yes for Options, still I get help of mathematical models but not for decision making but for building strategies. But again these are not indicators in any sense.
A good business plan (a trading plan is a subset of this) is what it takes for a stable and rock solid foundation. Now with a reasonable and consistent strike rate (by most of the traders standards) I couldn't but just agree on what you have written in the above post.
The best quote from your post still remains : ' I do what I like and understand and make money from it'.
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Kindly excuse me for being judgemental on your AFL but looking at the S/R lines, to me it largely resembles the Moving Average and BB lines and I guess your AFL may be still be primarily and largely based on this logic.
Like I had mentioned on this thread earlier that moving averages can provide you with S/R and entry/exit points for larger TF /delivery based investments/trades, I look forward to your logic.
........................1]why we take delivery.........because long haul will give better risk adjusted return.
2] higher timeframe is showing strong uptrend bias.
3]our aim is always buy in temporary fall , to catch better long term trend continuation.
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Indicator mostly give confidence to a trader..........a trader is nomore slave of indicator.........if he/she can read price properly.......what is expected to happen.
i]MA in weekly chart solve pt2
ii]support pt reversal buy solve pt1
3rd factor reqd some judgement + lower timeframe exhausion dimination.......apart from some fundamental clarification know ur stock.
...................so this normal use of them.
but u may use indicator.........as preliminary scanner.........for some timesaving device.
most imp use of indicator research...........is not indicator itself, but time spent on research.........so their uselessness and clarity of pure price study + amalgamation of various time frame picturesque...........
No doubt........support, MA , Fib,reversal bar, any momentum tool to understand reversal at bottom ...........i found them with some use.
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views r personal and it takes more than 10 yr to reach this view .
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AW10 gave clear ideas about this thread. You may read onces this here :
http://www.traderji.com/beginners-gu...tml#post423508
I will post some links to other threads for any special queries you have. This doe's not mean, that you not post here. Just follow the wishes the owner of the thread has . Ok
Here some ideas :
Thoughts for newbies :
http://www.traderji.com/beginners-gu...tml#post211725
or a PDF for beginners from an Indian pro :
http://www.traderji.com/technical-an...html#post38532
Trading mistakes made :
http://www.traderji.com/words-wisdom...tml#post279771
Day trading with price action :
http://www.traderji.com/equities/292...tml#post315305
or day trading with TA ( Thread will be open again in Januar 2011 )
http://www.traderji.com/technical-an...tml#post394723
or day trading with BB
http://www.traderji.com/day-trading/...tml#post291351
Money management :
http://www.traderji.com/risk-money-m...html#post31561
or an other one on money managment :
http://www.traderji.com/risk-money-m...t.html#post945
Finally the thread you posted now for Den thoughts. Here you can learn a lot. Just read through the thread.
If you are an option trader you go here :
http://www.traderji.com/options/3059...tml#post333541
or here :
http://www.traderji.com/options/1679...endations.html
If you are a future trader :
Search here : http://www.traderji.com/futures/
There is much, much more in the forum. Just search and you will find what you need. I gave only some ideas and other ones have other ideas.
I recommend you to choose one thread about Money management / one thread about trading psychology / one thread about any kind of trading technique you want to master / one thread for the derivative you trade and one thread like the den's room for thoughts, which have some thing to do with trading.
Stay in this threads and stick to them for maybe six month or longer. Start to read them from the beginning and make screen shots from every important post for you. You then can make your own PDF after a few months and this will be your personal lecture. By the way : If you like a post or learned some thing from it, there is a thank bottom to it. That is the only way here in the forum, we can show our respect to the poster and say thank you to him for her/his help in teaching us some thing new. I wish you a very nice Christmas and a happy new year.
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As we grow along our trading professions we need to change gears. I have been thinking over this for quite sometime now (even shared a few things with Dan) and have decided on the few things to shift my activity to a level higher.
In trading, as I see there are two functions, intellect and non-intellect. The intellect one does the research, analysis and gives the trading calls, while the non-intellect does the execution, operational part of trading. Generally a trader does both. Doing both together may effect the quality of outcome (in the earlier years this is one of the primary reasons for losses).
To take care of the non-intellect function, I have decided to hire a person whose only job will revolve around execution and related activity. He will also be responsible for all operational functions related to trading. This Assiatant is more like an exclusive broker who takes calls and executes your order. The execution speed which is the key is very fast, also the operational functions viz net, power back up, software updates etc etc are taken care by the assistant.
This arrangement will also give me a lot of free time to persue my other interests.
Initially I thought that the profile of this assistant should be an youngster around 25 years or less, but later zeroed in on an elderly person. Time invested to train this person would be large but the longitivity of his continuance with me would be more as lesser opportunities are available after a certain age. Cost wise there is no difference.
The main aspect I thought here was long term association because the biggest risk involved is once I get use to this system of trading, and if this person quits then it may become difficult to get back to the current system, also to get a new person and train him would need time.
................. used to tell my younger brother to execute trade and it works perfectly for me.
i think we should consider the option of educating family member to trade. the only problem i faced with this is that after sometime instead of following my advice blindly, he started questioning them. then, i told him bluntly that you are not supposed to think, just do what i am saying.
...................Some thoughts from outside and my personal experience with that. It doe's not answer your query. It may even produces more question. Hiring a person, which execute my trades :
- As an investors, I do so.
- As a position trader, I can do so.
- As a day trader I do not do so.
- As a mix of all, I do so.
Investor :
Today he has 500'000 Euro to invest in gold, silver, platinum. He then makes his analyses of this markets and tells his guy to invest that and that amount in each market. Execution is demanded to an other person, as there is no hurry. This man even can be a fond manager of any kind of fonds.
Position trader :
Makes his analyses from the market or the options he want to use. He then decides, where to place his orders on which time frame and on which strike levels. This orders, he writes down and gives them to the guy in the office, which is paid to do that job, means calling the broker and tells him what to look for. No real hurry, as the orders are placed on longer time frames. This guy can be an administrator of any kind in the financial sector.
Day trader :
I do not know any successful day trader, which hired a person to execute his orders. I speak here about the typical day traders, which doe's short time trades and uses intuition when deciding to go in and out of the market. If we are in day trading business, we sit in front of the screen. We recognizes the pattern ( If now with TA or PA or TR ) and jump in the market. Through our trading platform, our orders are executed with a click. ( If a day trader not has such a plat form, he is not able to do quick decisions ). Any derivative we trade is so executed. For other orders, we have the line to the guy on the floor or direct to the broker. There is no time to give orders to a person, which then should give the orders to the broker or to who ever. Impossible in day trading.
As I say, just my personal experience. Other ones have other experiences. It finally all depends on how much money we have to look after and how well organized we are.
..................Some of the newbies may want to start trading as a business in the new year. Linda Braschke is one of the best trading womans in the world. 1999 she published a business plan for newbies. Here her planning for success for 2010 ( Surprise, it is nearly the same like 1999 and that means, that this is a good plan she presents ! ) :
Planning for Success (reprint of 1999 article...not much changes!)
Your business plan is your personal blueprint for trading success. It includes not only your goals, but a detailed plan of how you plan to get there. This plan should go far beyond the details of your trading methodology. It should include structuring not only your trading environment, but your whole life. Your mind and psyche are your main trading assets. How do you plan to protect them throughout the year?
Your business plan should be structured to motivate you to make higher highs in your account equity. This sounds like a given, but you must truly fight to come back from each drawdown. You must have allowances in your plan not to give back more than a minimal percentage of profits. Your trading plan must include all the details such as which markets you will trade, which strategies you will follow, and what type of leverage you will use. Only by having a trading plan will you be able to avoid emotional trading decisions.
I am of the belief that it is never too late to start thinking about working on a business plan for the current year. It is also never too early to think about putting together a business plan for next year. This is because it will take you some time to think about the things that I am going to say, and work on your own program.
Trading is abstract and there are so many questions and decisions to be made that come up during the day. Your goal as a trader is to execute your plan and leave the thinking out of it. A daily plan helps to aid in providing ritual, organization and structure. But before you think about how to construct your daily game plan, you need to first put together a broader annual business plan. In setting up your larger business plan, you will be designing a trading program for yourself. Many of the questions our office receives pertain to what type of trading patterns to follow, what time frames to trade on, how to place orders, and which markets to trade. Your business plan should address these issues.
When you setup up your program, you should think of yourself as your own best client. Your account is a client. Your goal should ultimately be to design the type of program you could trade several accounts on, or, think if you wanted to add just one client. You would need a very specific type of program to present to that client, and then, assuming they would be monitoring your trading activity every day, you would be more conscientious about following your program. Leverage and money management issues would be addressed in this "program", as would markets traded, draw downs, types of trades made, etc. I will share with you some of the ways I design my program. Before I do, the business plan includes so much more. It must also include goals and motivational factors, as well as rules, guidelines, and plans to keep you away from trouble areas or spots that you are weakest in.
I find that as a trader caught up in the markets, it is hard to take time off. So it is easy for me to hit the burnout point. I have a tendency to put too many positions on. Taking positions into the last day of the quarter seems to be my Achilles heel and bite into my bottom line. So, I am making a very clear provision in my business plan for 2000 NOT to have big positions on going into the last day of the quarter. If you want to give yourself the liberty to take several weeks as you develop your plan to still break a few rules, think about it as you do it. Think which rules are really going to serve you best. This is why I said it might take some time to mull over a few things.
I will give you the essence of my program and then you will see how easy it is to design your goals around your plan. I divide my trading into separate programs. For example, one is day trades in the SPs. Another is 2-3 day swing trades. Next, I create goals for each program. For example, if the SPs are the only market you are trading, one goal could be to include a range of expected activity level in making SP scalps. This could comprise your core program or be designated as supplemental activity. By having a goal to make a certain amount of scalp trades a week, you will challenge yourself a bit.
Will you include position trades, index options or GLOBEX activity in your program? Analyze your past trading performance. Are you more profitable sticking to short term scalps or holding longer-term positions? I like to keep my SP scalping activity separate, so for longer-term positions, I use the Russell futures or SP options as a separate trading vehicle. For trades made in the domestic futures markets, I try to hold trades anywhere from 2 - 8 days. Occasionally I will day-trade the bonds, but I try to play for overnight follow-through in most markets.
So, I essentially have three separate programs: SP scalping, short term swing positions based off classic chart patterns and 2-period Rate of Change pattern recognition, and long-term positions which can also include stocks, options, mutual funds, etc. You need to think about your mix that will work for you and be CLEARLY organized as to how you are going to manage your money. Some people prefer to keep different accounts for different programs. Don't over extend yourself or add so many things that positions can't be properly managed.
There should also be leverage guidelines and money management rules for each type of trade. Most of the time I do not use my full line. I trade 1 contract per "x" number dollars in my account. Determine a unit size for yourself. As your account grows, you can add another contract. These things should all be spelled out in your business plan.
As for goals, you can structure those two ways. Some people set a dollar amount goal for their trading activity. I have actually avoided doing this in the past, instead choosing to focus on maintaining a certain amount of activity level. I figured if I just did the best job I could each day, the profits would take care of themselves. Sometimes setting a dollar amount can be discouraging during drawdown periods or encourage you to force trades when nothing is going on.
For some people, a better goal might be to do "x" number of trades on a regular basis, or try for "x" number of SP points per week. This helps to reach the larger goals. Recognize that gains are unevenly distributed. If you set a target for yourself to make 3 SP points per day for each contract you trade, then do you quit when you make these three points? It doesn't quite work that way. When you are hot, you are in synch and should keep trading. If your 3 points come easy to you, than why would you quit on the day? You could very easily have a scratch day the next day...or even a losing day.
But you must have SOME sort of guideline. This will serve as your motivation to make a trade in the first place! You must have some reason to pull the trigger because for some folks, it is too easy to hold back on being aggressive. Set a goal that you can not only reach, but that you can exceed. So again, if you are a newer trader starting out with a small account, perhaps your goal will be to take 8 SP points out per week. How are you going to achieve that? If you have a smaller amount of capital you do not want to trade on a longer time frame. You need to find 1-2 spots a day where you can go in and try for a few points.
Now you are breaking your goal down into bite size pieces. How much can you risk on each trade? When I make "short skirt" type trades, I automatically risk no more than three points. If you decide that you can't risk more than 2 points, you are going to have to be very careful on picking your spot. You must be able to see your risk point before you go in. See the market turn and then enter "at the market" or as close to that turn as you can. So, that might be a "program" that you can start out with. Now, what might happen if you start out with your scalping program, is that for a few days, the markets might be dull, choppy, Perhaps you feel like you are behind your goal a bit. But then one day, your 2 point trade turns into a 5 point one...or, you get motivated and make a few more trades and exceed your goal. OK?
Don't put pressure on yourself to make x-amount every day, but you must have a guideline for what you would like to achieve on a monthly basis. Then at the end of the month, you ask yourself, how is your performance standing up to your business plan? If it is falling short, what needs to be adjusted? The biggest things that keep a trader from meeting their plan are: getting sloppy a few times, forgetting to place a stop, or getting stubborn on one trade. These are the things I see. One mistake waiting to bite you in the rear.
But guess what...it is possible to make all these mistakes and yet STILL make money. Astonishingly, the markets can be more forgiving than we think. It just takes a bit of persistence. So, each month, set your goal to do a better job than the month before. All you have to do is work on making fewer mistakes.
OK!...on to some more parts of the plan - record keeping and structure. THIS IS AN EQUALLY IMPORTANT PART to your business plan. Here is why. Routines and rituals keep things automatic. Additionally, they help set up the daily Game Plan (which we will get to next). A trader needs to get to the point where picking up the phone is just one more thing he does during the day. At the end of the day, I log all my daily numbers. This might seem a useless endeavor since this data is already listed on my computer and I am merely writing it down on paper. But this ritual brings a certain amount of relief to me because I can shut down making all decisions and do some therapeutic grunt work. I thrive on menial tasks and grunt work because I do not have to think during this time. It is a ritual that wipes my mind clean of all the good and bad that happened during the day.
I also have sheets where I log each trade, and lately I am becoming more diligent about doing my P&L at the end of each day. I used to do this during the eighties but stopped the last few years. Part of my business plan for this year includes becoming even more involved in record keeping. I am monitoring the amount of slippage on each trade and the average holding time for each type of trade. You see, you must make it into as much of a detailed game as possible to draw yourself into the game, increase the intensity.
The object is not to burn yourself out either - wrong idea. You do not have to focus on every tick, but rather the opposite. Keep your monitoring of the markets a Zen type of thing, meaning stay loose and relaxed. Sometimes the best trades will happen out of the corner of your eye. For example, perhaps you have been watching a market for a few days. You have been doing your nightly homework watching a particular setup unfold. Then, when the market starts to act a certain way that confirms your analysis is correct, you should be all over it.
You can't force the trades, but when you are relaxed you will see them better. The best way to stay relaxed and loose is to be involved in some sort of ritual. Like the tennis player who bounces the ball up and down a few times before he serves, does a dance with his feet and wipes his brow - these are all rituals to keep his serve loose. The same tricks apply with trading. You can doodle and make swing charts on paper during the day, write down periodic readings of the ticks, or note extreme price levels.
I hope you are getting the basic idea so far, because I do not want to elaborate to the point of overkill. But here is one more example. The person I worked for when I first traded on the Philadelphia Exchange had been a physicist. He spent 1 1/2 hours at the exchange before the market opened and would be there for an hour and a half after the close. He was very methodical and organized, writing out tickets and orders in advance. He was quiet and unassuming, and as I found out later, he was also one of the most consistently profitable traders down there. The person who first backed me when I traded in San Francisco taught me to chart the 3/10 oscillator every night using Security Market Research charting service. He also taught me to log the daily trin, tick, breadth figures, etc., in addition to writing out orders for the next day. Both these guys are still trading today.
These are some of the common traits I have noticed among those traders who succeed. They all have daily routines and rituals. You must balance out the abstract conceptualizing process the market requires with some tangible activities.
Your business plan should include making a daily Game Plan for each day's trading. What type of strategy are you going to use for the next day? Is the market due for a consolidation type day, one that starts to form a small trading range? Or is it poised for a breakout, a potential trend day? Is there an opening play for the morning? For example, if there is an early morning sell off, will it setup a buying opportunity? Or should rallies be shorted? Your game plan could include looking to sell a test of the previous high or buy a pullback to the hourly moving average.
At night, it is easy to note where the hourly grail patterns might be in other markets. Write down imaginary orders..."Buy Silver at such and such a price if it retraces to EMA". You will be more likely to make the trade if you follow this practice. Perhaps there is a particular market you have been following with a directional bias. Write down the previous day's high or low and use that as your pivot.
When managing longer-term trades, you will be more likely to stay with them if you write out clear instructions for trailing a stop. Write down your stop level and continue to move it as the market moves in your favor. My favorite way to trail a stop is to use a two-bar channel stop, or to use hourly support and resistance levels. In a downtrend, I will trail it just above the last hourly swing high, but in an uptrend, I will give it more room and trail it beneath the hourly low of two levels ago. Trail your stop not on the last swing low but the one before that one. This is because up-trending markets are more prone to A-B-C type corrections. There is not a perfect way to trail a stop - they all have their flaw. A 2- bar trailing stop works well, on paper, but personally, I hate the give back on any trailing stop and usually look to exit on some sort of buying or selling climax.
Sometimes, trading in another market can be a good diversion to keep you from taking profits too early on a position that is working. You have to let time work FOR you in winning positions.
Game plan - Business plan - overall trading environment structure...just start thinking about the way you really go about things. Get yourself down to a one day at a time type of process. Even if you are a position trader, your job is not to think about too far into the future, it is still to take one day at a time, even if it is just a monitoring process. The tape is always in the here and the now. Your goal should be to do the best job you can that DAY. Follow your rules and your game plan for that day. If the market moves in ways that were not in your game plan, that is OK. The wrong game plan is always better than no game plan at all. At least if your game plan is wrong, you will know it fairly quickly and that in and of itself has forecasting value.
It is OK to miss a million trades, but it is not OK to miss that one setup on your game plan you have been waiting for. You can also adjust your game plan midday. Perhaps you were looking to sell a rally back to the hourly moving average, but the market blasts on through. It is OK to say, "because the market failed at that benchmark, it might mean there is a stronger move in the opposite direction". Perhaps then it would signal to switch gears and start looking for the first 5-minute grail buy. You get the idea!
Checklist
Here is a list of some of the types of things you can include in your annual business plan. This will give you something to work on. Start thinking about putting together a professional program, comprised of bite size pieces.
1. What methodology or patterns are you going to trade? It is OK to have a "library" of setups, but most people do best concentrating on a niche or particular technique. Learn to do one thing consistently well instead of trying to master too many styles.
2. Which markets are you going to trade? If you trade equities, think about keeping a "stable" of stocks to follow. Don't get caught up in scanning a database of too many issues that you are not familiar with. It invites unfortunate situations where there may be pending issues or reports in the company that you are unaware of. If you have not had much success trading soybeans or silver in the past, why try to continue to trade them in the future?
3. How much capital are you going to put into your trading accounts? Something I have to add here, stay away from looking at percentage returns when evaluating performance statistics, such as percent return or drawdowns, on your personal account. Concentrate instead on dollar amounts. What is your dollar amount tolerance? My stomach turns at a specific dollar amount drawdown. Percentages vary too much according to how much money you keep in your account. You might have a net worth of 1 mil and keep 100,000 in your trading account and your situation will be entirely different than a person who has 5 mil and keeps 100,000 in trading account. The person with the higher net worth will feel freer to use a different type of leverage. So think in terms of dollar amounts...how much are you willing to draw down to?
4. How do you plan to enter, exit, and manage trades? I like dividing my contract size into two units. Usually I go all in and then scale out in halves. Some positions I keep half on as a core and use the other unit as a scalping unit. Whatever style you choose, it should be written down into your plan.
5. What is your plan to manage drawdowns? How will you evaluate when you need to take time off?
6. What are your monthly goals? Are you going to strive to make a certain number of trades each week or perhaps a certain number of SP points? Remember, these are guidelines by which to measure your progress. Some months will be better than other months. The end of the month is a good time to do a periodic review. Most businesses do this on a monthly or quarterly basis.
7. Include a daily routine in your overall business plan. How are you going to evaluate your performance each day? Keep a notebook of the things you do RIGHT. Pat yourself on the back for small moral victories, such as exiting a losing position in a quick fashion. Note the small incremental improvements you make.
8. Create an office environment designed to facilitate performance. Eliminate distractions and outside influences. Reduce glare and get a comfortable chair. Invest in good equipment. Invest in an excellent data feed.
9. Include a provision that will keep you from trading if outside circumstances create an unusual stress, such as health, divorce, or a major move. You might as well just write a check out of your trading account and kiss it goodbye. This is a hard thing to recognize before it is too late. People LOSE money during times of 10 major stresses: death, taxes, divorce, moving, health...you get the point. Trading is a performance-oriented discipline. If you can't perform well, cancel the show... If a tennis player severely sprains his ankle, he cancels the match. Why do damage to your ratings? Why mar your statistical record with sub-optimal performance?
10. Record Keeping - Rate yourself on your routine and structure and nightly homework. Do you do research or have way of logging results? What type of research is included in your program or plan? My problem is I stack too many projects up on back burner. I need to streamline this area for myself. Or, I get diverted doing research, go off on a tangent late at night and stay up way too late. Then I am not in optimal condition the next day. My business plan includes a bedtime. I promise myself to adhere to it.
11. Rewards! All work, no play makes Jack a dull boy. You must have outside interests or hobbies to get your mind off the markets at the end of the day. You must treat yourself to something you really want. If you spend money on yourself you will eliminate subconscious poverty thoughts. I am serious. Treat yourself like a million bucks and you will be worth it soon. Maybe after a good week you treat yourself to a massage, or buy something you really want. I already have something in mind that I will do for myself if I meet my goals next year. It is something that does not cost too much but that I could never justify spending money on because it might seem frivolous. But the money comes from my trading account so nothing is frivolous!
12. LASTLY, What plans do you have to continually improve yourself? See yourself as a top-notch person, health-wise, performance wise, and attitude wise. How do you keep advancing in life? You know the old saying, if you are not going forward, you are going backward. Educational pursuit such as books and study courses are important, but don't neglect spiritual pursuit, or outside projects...perhaps building your own website, starting your own trading network, writing your own book on all the trials and tribulations of the business, or working with a charity.
All the above subjects are more important to your long-term success in staying in this business than any trading indicators or setups! People do not lose money from entering on bad setups. They lose money from getting sloppy in their trading and sloppy in their habits and life. They allow emotional trades to creep into their program because they have not done their homework and are not prepared. Your business plan is a contract with yourself. It is a contract to treat yourself as your own best client. Surrounding yourself with guidelines, rules, and an overall structure can be the vehicle that brings you freedom from performance anxiety and gives you the confidence that you can take your trading to the next level.
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for swing or positional trading the speed of execution and quick decision making is not required but analysis and a good strategy is a must.
I am a system's trader.I am strictly writing the below in the perspective of day trading.
Quick decision making is one of the key aspects to the success in day trading.
Most of the successful day traders hired by big firms are youngsters for they will have the speed and a clean mind.
One of the problems always I faced in day trading is the noise of the mind.
i.e Analytical mind or mind in general will tell one thing but markets will behave differently on a particular day and a particular time which the price and system alone will tell clearly.
Still I am missing the signals because of the noise of the mind due to my analytical mind,ego due to the analytical mind and false hopes.
IMO to become a successful day trader analytical mind has to be removed or in other words - where the analysis (Fundamental and technical) stops there the day trading begins.
Ie the technical analysis aspect should be handled by the system and not the mind.IMO this requires a extremely good system.
If the system is good and no of trades to be executed is expected to be less then the executioner old or young doesn't really matter else my vote is for a youngster.
But finding a trust worthy reliable person and the risk of exposing a good system cannot be avoided.
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Like they say don't mix business with pleasure or don't get work at home and home to work. So no scope of mixing family with trading, both are mutually exclusive and former more more important than later.
Dear Dan, Jagan,
I see my trading style is quite different from most of the traders here as I have multiple TF trading portfolios. As I had mentioned earlier somewhere, this is the basis for me to manage risk by diversification / asset allocation. This has been working effectively for me but I doubt the efficiency. I feel there is scope of improvement in efficiency.
For me it is like a baker who manages multiple ovens baking cookies to cakes – all set at different tempratures, different timers and for different sizes.
Also what takes a toll is physical aspect of record keeping, journal writing, et al, for review and analysis. Add to this managing multiple trading accounts also puts pressure. All this disconnects me from the core area of research, building anxiety sometimes not only resulting in financial compromise but more importantly affects the mental tranquility – which I think I should not compromise on.
Having referred to my records, I felt that outcome could have been generally improved consistently if I focused only on the intellect function and outsource operational function. I can be more effective, if I get everything ready in terms of analysis reports of activity, statements, journals on my table instead of spending time on creating those and then analysing.
Hence this Assistant is not merely an executor of trades but also responsible for all related activity of trading other than decision making – which is left to me.
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My trading results improved significantly once I started training and using dealers for my order execution after I left active scalping. I have experienced the more detached I am from the market and frm individual trades, the better my results are. but as u rightly said, it would become difficult to train another dealer or switch back to the original mode if ur dealer leaves u fr a better oppertunity or to trade fr his own. frm what I have seen, if ur trading system is such that, the trade is on for a short duration... the capital requirement is less... the speculative element is low, almost always ur dealer would leave u to trade fr his own, becos the day he would be confident that he understands the system and can explain it to a broker, he would find many brokers who would be ready to finance him for a share in the profits.
don't waste ur time n energy in such a scenario.
on the other hand, as u have mentioned that u trade multiple time frames, ur trading system is slightly complex ( may not be fr u , but fr someone watching frm outside)....the capital requirement is relatively large ...decent speculation is involved and the trades are on fr a relatively big time period or are continuous in nature, the chances of ur dealer leaving u are remote if he is being compensated adequately. go ahead with ur idea of training someone.
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We think quite similar I guess. As mentioned (by you and me) the biggest risk is losing this person will be due to he getting confidence that he can do it himself which is quite natural human tendency. Infact lot of people are lured to trading because it seems easy money for them. So even this person can develop this thinking.
Keeping this in mind, I decided that an elderly person, one who is not amibitious, has responsibilities for his family, a simpleton and discplined one can fit the bill. Someone who is typically a lower middle class types and someone for whom a fulltime job is a dream come true (incidently this is a 5 days week job, much like a govt job, and that too from 9 till 5 - 5.30, without any late sittings, ever). Hope you understood the personality of this person. Remuneration wise it would be a notch up above his capability and expecation.
Also as you rightly mentioned that since I have multiple TF holdings, 5 TF / 6 TF, on the face of all my holdings, no one can make out why it is held and for how long it would be held. Long, short, sometimes hedged, non hedged, leveraged (FO) and non-leveraged (Stocks) positions all are there at any point of time. Also correctly highlighted that these are continous in nature, something like rolling holdings. Still shorter TF holdings have lesser fund allocations than larger TF, so someone can make estimation of the pattern of trading strategies over a long period of observations. So he will know what trade I am in but not the strategies, the trade-secrets remains with me.
......................Refering to your statement highlighted in bold, for longer TF trades the decision taking time is very negligible to the execution time. I have seen Institutional dealers desk sometimes spend a week to accumulate a stock. When the amounts are large, you need to account the Impact Cost of acquisition. Not that my account is as large, but still to some extent I take time to enter (mid to long TF trades) over a considerable period of time at the price which I feel is 'right', hence multiple orders / undisclosed quantity orders need to be placed without impacting the order book of that stock. They are monitored, modified, cancelled, reentered, checked and so on. And the 'right' price is not static, if the Index suddently falls / rises, then the 'right' price also changes accordingly. And doing all this is just not fun, just not the core of me.
So more than the excitement, the object here is disintegration of a simple structure.
Don't try to learn the market, the trends, the indicators they are all secondary, if you want to make money from the market, first learn about yourself. Once you understand and define yourself, you will automatically find ways, means and approach to the market, which will then be nothing but a Cash Cow.
So the first step begins with knowing YOU and NOT the market.
That one secret, even though it appears to have nothing to do with trading, if traders master that very concept, it will make them money.
This is why trading is so personal, because we are all different. This might seem strange, but when I first started trading, I had to learn what my shortcomings were before I could be successful. A lot of times, you have to know what to avoid, rather than know what you think you want to plunge into.Part of trading is understanding the rhythm of the markets. In understanding the rhythm of the markets, you have to understand self, and to proprietize a methodology that will discern the rhythm, its trends, and reversals.
Understanding self is not in making money, even though we are all here to do that. If you have a methodology that is catered to you with a standardization of entries and exits, then the money is there without even thinking about it.
When I first started in July 2004, I had no idea who I was relative to the markets. As an example, there was issues relative to the kind of risk taker I am, how much margin I was willing to put up on each trade, the tenure of the trades that was best suited to me. After I began to get some conceptual answers, then I had to address the issues with a methodology for discerning the rhythms of the markets. It took 3 years for a complete collaboration of my methodology, along with addressing the other issues.
As the result, I have found, my methodology is perfect for me. It may be shunned by everyone else, just like I would shun other methodologies. My methodology came from the recognition of knowing who I am, and letting it be my guiding light in trading as opposed to my biases. As a result, I blindly follow my methodology, and the money follows. People tend to really get that mixed up. They want to plunge in just to grab the money, because that is the human lure. They want the methodology to conform to the money and to self, when it has to be exactly the opposite
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Markets everywhere in the world have mind of their own, something like how our mind functions, Markets function on the collective 'minds' of the participants. Hence like us, who behave logically, illogically, rationally, irrationally, emotionally, upbeat, depressed etc, markets also behave so.
Now if the Market has a Mind (from collective sources) then what we try doing all the times is to judge the thought process of the Market. Simultaneously at the same time there is another mind which is at work i.e. our own. And it is this mind that a novice trader never notices.
We all have a character, since our childhood, what we are, how we think, react, behave - in general. So either we are miser, generous, cunning, humble, fearful, foolhardy, gutsy, speculative, calculative, trustworthy, disloyal, wanderer, etc etc etc. If we look back in our own history we can build up a personality of our own selves by putting the pieces of our own behaviour during various events (good, bad, moderate) of our lives.
To earn from the market (which has it's own 'personality' like us), we need to fit our personality to the market and not vice-aversa. It is something like there are two random particles moving in the air, you hope that both will collide with each other. So what is more easier, studying our personality is much easier than judging the market's mind.
So eventually as a successful trader progresses in his life, we find different types of traders, some who try to pick the bottom, some who wait for reversal and some who wait for confirmation of the trend. All are there, but ultimately they have fit their ownself to the market. They trade ONLY when they think that their mind is in sync with the market's mind. The outcome of such trading (where you trade only if the market provides opportunities suiting your personality) is you take less trades, the trades are very high probable trades and outcome almost in most cases is favourble. I would simply put it like this, calculate the amount you have made, if you were to exclude all your loss making trades til date. To give benefit of doubt to random profits, even if you divide this amount by half you would still be a happy man. So know yourself, strive for high probable trades, even higher and even higher. (Did anyone hear me say...Six Sigma...
, noway I can produce those concepts here atleast)
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So far u have told........................
1] know thyself?
2] find superiority/edge for u in market.
3] Since u know urself,...........at market in certain condition........u may feel at home,.........definitely know before hand know what may happen in this type of scenario.take only those high probable trade.Reject other time /case...........SINCE lossmaking trades r rare event, money flow naturally high.
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clarity to quit trading
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What ever somebody is going to do after she/he leaves trading, will be build on thoughts, which may are not far away from thoughts she/he made at the time, when she/he decided to start trading.
The person, which leaves trading now, also needs clarity of thoughts. The term " Clarity of thoughts " was mentioned once from SG here in the forum and I think, it is a very good term. The term was used in conjunction with trading decisions. Using the term : "Clarity of thoughts", she/he also needs them about the following :
- In our lives, we have to accept responsibility for all our action, even it is a hard thing to do so.
- We have to conquer frustration and best do not make any decisions, when we are frustrated. It destroys objectivity.
- If possible, we should not look back too much, as it is a poisonous emotion we experience all too often.
- Exude confidence in our self in an unshakable way, is may best we can do against many draw downs in live.
- Maintain prosperity consciousness is an other thing to do. All relationship is a reflection of our relationship with ourself.
- Security is an illusion. Hardly spoken : “Life is either a daring adventure or nothing at all.” If we are attached to the concept of security, it will have the effect of making us feel insecure. An attachment to something outside of ourself is unfulfilling, because we feel empty without it.
- If we have to go new ways in live, why not write down what we want in our new live. We have to be specific, as the universe will deliver what we want. The universe will give us what we dwell upon. If we Dwell upon ambiguity it will give us just that.
Having clear thoughts about this, may points some people in some direction and leaving them trading with out any doubt. This are just some very little thoughts and she/he can add what ever is needed. On the other hand, exactly the same thoughts can be used when deciding to stay in trading.
To extract the crux related to the subject, a trader deciding to quit should seek to look out for things (or similar things) what he was doing earlier before he began to trade. I think this again is very relevant as it would be easier for him to get accustomed to a known terrain and would pick up things fast as compared to wander here and there (refered as 'non clarity of thoughts').
In nutshell, winners and losers both are necessary for the markets.As has been observed from your posts, you have lost quite a handsome amount and your trading volume is also good whereas your earnings are quite low..please sit alone and think about the style of your trading.This profession is not like other professions. First of all you will have to understand that there is nothing like CONSUMER/USER/CLIENT in this field, this is just like ISKI TOPI USKE SAR in F&O market and unfortunately F&O turnover is almost 6-8 times more than cash turnover in India. If someone made profit on a trade that means there is another one who have taken loss at the same time, thats why success rate is almost nil for a trader with limited cash/knowledge.
Despite all efforts to train if a misfit trader doesn't come up the curve (simply put it that he doesn't have essential ingredients) and DECIDES to quit what would your advise be on quitting, given that you are doing well in trading.
The question I have posed above is the one which any trader (established, struggling, amatuer trader) would not come terms to address because the mind has never given a thought to it. It is just one way thinking of trading, trading and trading (Results being immaterial)
As mentioned earlier in the thread, that people do not like to talk about ..............failure.
..................regards
oilman5
An important consideration would be dividing the trades based on the type eg swing,fundamental calls based on some news warranting a re-rating,breakout trades
.................Trading is a jigsaw puzzle.Persons reqd exceptional ability to persevere.......discipline....patience.
Clarity of thought process another key theme.
Prerequestee........knowledge on TA -FA, business,sector,economy,psychology,Self,oppurtunit y analysis,closing a position in contingency
...........................................
With this i am coming back to topic 1
Delivery - When to buy and when to sell
....................
Being in practical trading u may have use concept of Investment
Where Future is bright........How much present market has discounted it.
So std FA is used what to BUY
Since........delivery play is holding for long haul, u must define.........holding period that suit u.
So result play/order play......economic change.......these r key background strength of a positional trader.
Let me explain by simplicity......a trader plays on technical chart.......though positional trader........u try to copy him,........learn from him.Ask simply .....how he trades....But u can not follow his logic[his inner core heart/experience, unless u know.......he has dual degree of MBA-finance & CMT]......so learner has to put that HAT to understand the thinking process of being RIGHT by the man when he is seeing CHART......what he is interpreting in price.
So simply its BUY........when market condition is greedy......Reflected by NIFTY study.
The candidate is showing better strength.........3rd factor........Money is entering in that stock.Higher level expert also try to confirm........whether is strong Hand buying.........so that its for Long haul.
When to sell.........a particular profit target.......a SAR to allow profit run.
If fundamental for 2 quarter turn -,Entire sensex......showing big possible downtrend.
..............................................
Tools........Use weekly chart always for........to study strength
Use a momentum tool which suits u for entry,.......alternatively Buy on pullback or Cup & handle pattern.
Another one Break out trade.........play for continuation with strict stop.
..........................
as far as i know the way to know about the resistance and support can be: -
1. Using pivots on weekly monthly or daily charts.
2. Finding the regions or price points where price always resisted the upmove and pulled back, or from where always the support comes and price bounces back.
Weekly chart ........pivot is very good for........postional play.
Just understand coincidence of June2010...result out with 2;nd Aug'10...Just see the candle @ resistance........key bar,........then Big volume splash..........Result is 150/- profit.
Yes a theoritical discussion.........i could not trade as presently i am not this sector.
moreover..........i miss it.
But its an excellent approach for positional trade.
Key pt........Result/greed/moneyflow........at resistance Break clearly SEEN
...........
While daytrading/ swing trading is good for earning the living income to monthly expense, delivery based long term positions should be part of your wealth accumulation for any trader. Your income stream would dry-out if u don't sit infront of the terminal and trade actively, but wealth stream keeps flowing even when you are not so actively involved in it.
Personally, I use technical analysis, risk mgmt, position sizing, instrument allocation, concept of short term trading, for longer term as well.. It is important to capture big picture, change in socio-economic dynamics, inter-market analysis etc for this.
I don't use fundamental analysis, company balace sheet analysis for this cause (as per my belief and I might be wrong)
- balance sheet is subjected to accountant's creativity to serve the purpose of mgmt and accountants are expert in that
- when mkt is bullish, mgmt, analayst, accountant, all human being are bullish. majority of them will break the ice and dare to show earning downgrade in growing market even if that is reality of the company. And that is what is reflected in media and other communication.
- I am trader, and my skills as fundamental analyst is limited. So I would rather encash on my existing strength, and outsource the fundamental analysis to someone else. I do check stock recommendation from broker/analysts to flag some growing companies. and then I filter them thru my selection criteria.
For me it is easier way to build watchlist of fundamentally good companies.
While you are reading on this, i would suggest to start making your trading plan for wealth accumulation and start writing your rules there as u learn. Give it a timeline, and within one or two months of the time, u will have a document that hardly 2/3% of investors would be having.
ofcourse this trading plan is living doucment and will keep changing with your experience.
Focus on position sizing, risk mgmt, Exits, read the litrature of successful hedge fund managers, inter mkt analysis, make your info database (far beyond the ohlc price data of stock), and develop some strategies.
.......................
Learning delivery trading and investing creates a lot of dilemma because of the tools which are available for analysis. I am not a fan of TA , on the contrary ... Aah forget it lets not get into that. That being said i firmly believe that the chart contains all the information as long as one knows how to read it correctly without mumbo jumbo patterns and tools.
But when it comes to stocks even raw action of price , price movement and volumes is not sufficient. Some more variables have to be considered which fall outside the chart. There is where FA comes into play. A lot of assumptions have to built in while analyzing FCF's and trying to value the worth of the company. Relative valuation helps in determining which company has outperformed its competitors as long as there is a level playing field.
A combination of Chart Reading And FA would stack the chances because the chart shows micro changes and balance sheet/income statement reflects macro changes. As a rule of the thumb anything that is selected for long term in the portfolio should first get the approval from fundamental data. Entry/Exits should then be based on the best possible available place on the chart.
.....................As far as my knowledge goes, Support and Resistances are determined through
1. Visual observation of Pivots.
2. Mathematical calculation of Pivots.
3. Moving Averages.
4. Fibonnaci
.........................................
Just few of my observations on point 1 opened by you...when to take delivery.... To answer this question we need to understand different trends at play at the same time in the markets.... for our trading purpose following 3 trends are important.
1) Minor Trends : We use them for trading intraday.
2) Visual Trends : We use them for swing trades.
3) Major Trends : We use them for positional trades or delivery trades
These 3 trends are interacting with each other in any timeframe...if one can master the interplay of these trends he has the holy grail of trading.
...........................
small clarification to put it in the right direction.
1. Trends are related to technicals. (You are already know much of it)
2. Fundamentals are related to outlook, financials and / or rhythemic cycles.
(I feel if somebody who is proficient in studying fundamentals contribute here life will be much easier).
__________________
Nothing can beat what you have put here. This is simply saying that you cannot be two sides of the same coin at the same time.
In my opinion it would practically not be possible to play both the roles (FA and TA) for a sustained period of times in a life of a traders. Eventually either you are follow FA or TA. Time horizon will not matter, so if you follow TA, you could use it for intraday (5 min data) or a monthly / quarterly / yearly data for longer periods of holdings. Yes there would be tuning required when you look at different periods of data on the same charts, indicators etc. But still it can be done.
I am a true follower of TA and have my own set of charts, indicators and singals which I have developed over a period of time, which holds good for me for short term trades (intraday, swing, monthly trades) and equally for holdings which go a year and beyond. But yes, for longer period holdings, I have a certain set of very simple indicators which assist my basic charts and tools. e.g. 50/100/200 day simple moving average. These are the very basic curved trendlines which can really act wonders if used religiously. And nothing can beat them, it would provide you with much needed information to trade (read invest) for longer periods. Apart from the pivots, moving averages also assist in identifying resistance and support levelsk / indices.
For identifying stocks for long term investments, as AW10 has said that the best thing is to outsource something which is not your core area. Apart from research reports of a few broking house, best way is to check the daily financial news papers and check for stocks which appear regularly in high volume section, then test these stock against the TA and your tools to check if they qualify your TA tests.
To assist me in identifying high momemtum stock I have developed a stock scanner (on the basis of a certain mathematical model) which scans all companies of BSE 200 and BSE 500 and throws 8 - 10 stocks which exhibit tremedous momentum play on the basis of preceeding 3 months data. These momemtum plays can continue for another 6 - 8 months period after which it would die. I would run this scanner at the end of each month and identify such stocks. But again these stock will undergo my basic TA test and only half of these would qualify as worth riding. A large part of my portfolio consists of such momentum stocks.
Another component to build up a long term stock portfolio could also comprise of contrarian stocks i.e. buying into laggards stock of high growth sectors. The investments in such stocks should be with a time horizon of atleast 2 - 3 years +. To augment the contra stocks, the long term stock portfolio could be built with identifying sunrise industry stocks and allocating a small percentage of the portfolio to a few of such stocks. But personally I do not own a contra / sunrise industry stocks.
Delivery based Investing will certainly take you a long way. Just be sure that you indeed want to carry on with this. Many traders or investors fail to realize which style of investing suites them the best. I have seen many good traders who fail to invest for sustained period of times but yet draw similar incomes from the market just by swing trading regularly. Delivery based trading requires a completely different psychological make up and I sincerely hope you have that make up within your subconscious mind.
As AW10 advised, make sure you start maintaining your trading journal and come out with rules. Whatever rules you make, try and let the market give you feedbacks for the same. It is only on markets feedback that you should change or modify your rules. Don't modify your rules based on your own anticipation. Delivery based investing has a lot to do with identifying the broader market, outperforming sectors within that market and finally identifying outperforming stocks within those sectors. It is not as simple as the 20/50 cross or 2/20 cross which traders normally use. It has lot to do with identifying a broad framework and finally working within that framework. Good investors are always aware of what is going on and you need to imbibe that within your mind.
You views are baised depicting that for delivery based trading (investing) one has to necessarily follow FA and have a thorough knowledge of the economy, sector, industry, company etc (the top down approach etc etc). A good grasp of PE, EPS, PBV, earnings, discounted cash flow etc etc.
This is just a one sided view, delivery based investing can be done even with TA and just zero knowledge of FA or anything about the ecomony and other stuff. The monthly, quarterly, yearly charts can still give you patterns, trends, break outs, resistance, support and all what we follow for intraday, swing trade and all. Taking delivery means you want to hold it for a large period of time than what the dervatives contract would allow and without levearging so there is no pressure of MTM losses / margin calls.
The charts talk : irrespective of what TF we look at.
On your comment on deciding what TF a trader wants to trade. Refer AW10 comment that short term trading (Intraday, swing) can help meet your living expenses but cannot create wealth. Big money is made in big time frame.. So as the fund size increases, one will have to allocate funds to higher TF investing / trading, which is essentially nothing but delivery based investing, which could be for a period of 6 months, a year or two or more too. e.g. as a day trader, say I have a method which is scalable to use upto 20 L of trading capital, for swing trading I may scale up to use another 50 L, but what if I have 2 - 3 -5 Cr ...at my disposal, I cannot deploy them to day trade because my method and resources are not scalable to handle this amount. Hence necessarily I will have to invest it for larger period (and also 'safer' assets - by not leveraging) through delivery based trading. And there is no conflict in ones mind as you need not track such investments daily, probably once a month or twice a month is good enough.
To sum it up, as I have quite often written elsewhere, it is the fund allocation which is the key for success even for day traders to create wealth. So even for a day trader or a jobber his bread may come from his daily activity, his butter will come from long TF investments / trades.
In trading or investing, there is nothing called as cheap or expensive, hence irrespective of the price you buy you aren't a fool as long as you know there is another one willing to pay even higher price for it.
In case of Suzlon, if I were you I would go long if the TA indicated so, however if you are looking at longer period of holding, I suggest you to check out monthly and quarertly charts. Daily chart is strictly no - no.
Without a framework one cannot survive in Delivery based trading (investing). Framework does not mean P/E, EPS etc. It means awareness about one's own self and how that self is interacting with what is going around. Sooner investors realize this, the better it is for their investments.
It is not an absolute necessity to invest to create wealth. Wealth can be created through regular trading as well. It's just a matter of personal choice. Its just a matter of how skilled you are. There's no definite rule for this. Ultimately, what I think about markets does not have to coincide with what some other trader thinks about the markets. We all can execute our own beliefs and still be successful. In terms of probability, mutual exclusivity in terms of thought process does not exist within any markets. As traders/investors, we never trade our markets. We only trade our beliefs.
.....delivery based trading.........i come here for a comment.
Here i personally think.......in delivery based trading fundamental grasp is must.
let us talk........Trader A.......definitely can understand.........what is coming due to change in economy/sector/company management/order flow...........Now whether to get that understanding......he gets it through Delegation(buying report/exceptional individual who understand sector/individual company revival)........or through self analysis.......or buying seeing higher time frame chart.....in which MA showing particular inclination OR REL STRENGTH IN COMPARISON.........Mode may be different.......PURPOSE IS SEARCH FOR CANDIDATE OF LONG HAUL.
YES ITS REQD........LITTLE BIT DIFFERENT MIND FRAME THAN SHORT TERM TRADE.
simplest literature........i think of MARK BOUCHER.......trainer of Fund Manager.
Raunakji's view on SKILL development ......very imp.
"To sum it up, as I have quite often written elsewhere, it is the fund allocation which is the key for success even for day traders to create wealth. So even for a day trader or a jobber his bread may come from his daily activity, his butter will come from long TF investments / trades".....comments of TNSN2345..........should be aimed only after learning proper trade,not mixing different time frame,Discipline mastery(here i lagg).........
being laggard........my role only to be a learner.
.................................................. ......................
no 1..........understanding in fundamental ..........whether Money shall come in the country.
No2.........if money comes , which sector.........which particular company??
no3.........whether u can make SWOT on that sector.....or if other good FA has
done for u,....but u can check that like auditor.
no4.......At what condition /visualisation major stake holder/promoter buy or selling that counter?
...................................
Time again i have told.........past data......has no value in fundamental .So modelling dont work in financial market,apart from M &A.
Presently a pure fundamental play probably Satyam.
...........Fundamental helps to create a value zone.......which may be useful to buy at big fall, provided u understand that fall is tempotary.
...........................................
I am an old fashion trader, using old indicators and enjoy looking at all that new stuff.
( I have a source for ninja trader, to get many individual, not official files and I see how it looks. But it did not improve my trading style. As I any way never know exactly, where market will head to, I stay with what I like and understand and with what I make money.Some times it works and other times I have to adjust the strategy in to an other one, if I am not in a loss. If I am in a loss, then I am out. I then prepare the next entry step and then lets go again. I am not a typical day trader. I even hate to trade short time frames, expect it is a clear range like we many times have in the currencies. Then it can be like money machine. Short, long, short, long and so on.
Beside that I go for some other individual indicators ( which every body can decide by him self, as there are so many around and I have posted in the traders Den, which mix you can use, when fellow traders not want to fall in the trap by using different indicators which give finally the same information, just with other names ). I also use mathematical plays, volatility, strike volumes, comparing time frames and market correlations and that is it in general.
One old trader told me once : Between earth and sky is not to much. So we better let it be like that and we always can bread.
As I do not know exactly what you trade, I just gave some inside look at how I organize my self. I know that I am some times a little bit harsh ( Every body has his behavior and that is my one ) so I guess you got used to it in the mean time.
The only thing I know, you must be one of the big guys here. My explanation was one in a nut shell and it just was my style of posting. I guess you are a direct stock and future trader. I am not.
Still, what I have become clear about here in this forum in the last few weeks ( also with the help of Savant Guarde, Tsnt234, oilman, Raunakagarwal and other ones - I mean your names are incredible and always a pain for me to tipe,, but thanks for your indirect response ) most of traders search for the same : They search for some kind of final indicators. I became now clear about that by being some times provocative and some times by giving from my side information.
I am clear about this now for ever :
THERE IS NO PERFECT INDICATOR !
Forget about that ! MM, a good business plan and positive live behaviors will do it.
.........................................Like I have written somewhere on this forum, I have researched, used, altered and later dumped all the indicators available on the earth (have now got so much insights on mathematical and technical parameters of all the proclaimed indicators, that I can author a book by myself) I now just follow basic charts (not even volumes stats !!!) and trade my daily, short TF and long TF investments. Yes for Options, still I get help of mathematical models but not for decision making but for building strategies. But again these are not indicators in any sense.
A good business plan (a trading plan is a subset of this) is what it takes for a stable and rock solid foundation. Now with a reasonable and consistent strike rate (by most of the traders standards) I couldn't but just agree on what you have written in the above post.
The best quote from your post still remains : ' I do what I like and understand and make money from it'.
..................
Kindly excuse me for being judgemental on your AFL but looking at the S/R lines, to me it largely resembles the Moving Average and BB lines and I guess your AFL may be still be primarily and largely based on this logic.
Like I had mentioned on this thread earlier that moving averages can provide you with S/R and entry/exit points for larger TF /delivery based investments/trades, I look forward to your logic.
........................1]why we take delivery.........because long haul will give better risk adjusted return.
2] higher timeframe is showing strong uptrend bias.
3]our aim is always buy in temporary fall , to catch better long term trend continuation.
.............
Indicator mostly give confidence to a trader..........a trader is nomore slave of indicator.........if he/she can read price properly.......what is expected to happen.
i]MA in weekly chart solve pt2
ii]support pt reversal buy solve pt1
3rd factor reqd some judgement + lower timeframe exhausion dimination.......apart from some fundamental clarification know ur stock.
...................so this normal use of them.
but u may use indicator.........as preliminary scanner.........for some timesaving device.
most imp use of indicator research...........is not indicator itself, but time spent on research.........so their uselessness and clarity of pure price study + amalgamation of various time frame picturesque...........
No doubt........support, MA , Fib,reversal bar, any momentum tool to understand reversal at bottom ...........i found them with some use.
................
views r personal and it takes more than 10 yr to reach this view .
.............................
AW10 gave clear ideas about this thread. You may read onces this here :
http://www.traderji.com/beginners-gu...tml#post423508
I will post some links to other threads for any special queries you have. This doe's not mean, that you not post here. Just follow the wishes the owner of the thread has . Ok
Here some ideas :
Thoughts for newbies :
http://www.traderji.com/beginners-gu...tml#post211725
or a PDF for beginners from an Indian pro :
http://www.traderji.com/technical-an...html#post38532
Trading mistakes made :
http://www.traderji.com/words-wisdom...tml#post279771
Day trading with price action :
http://www.traderji.com/equities/292...tml#post315305
or day trading with TA ( Thread will be open again in Januar 2011 )
http://www.traderji.com/technical-an...tml#post394723
or day trading with BB
http://www.traderji.com/day-trading/...tml#post291351
Money management :
http://www.traderji.com/risk-money-m...html#post31561
or an other one on money managment :
http://www.traderji.com/risk-money-m...t.html#post945
Finally the thread you posted now for Den thoughts. Here you can learn a lot. Just read through the thread.
If you are an option trader you go here :
http://www.traderji.com/options/3059...tml#post333541
or here :
http://www.traderji.com/options/1679...endations.html
If you are a future trader :
Search here : http://www.traderji.com/futures/
There is much, much more in the forum. Just search and you will find what you need. I gave only some ideas and other ones have other ideas.
I recommend you to choose one thread about Money management / one thread about trading psychology / one thread about any kind of trading technique you want to master / one thread for the derivative you trade and one thread like the den's room for thoughts, which have some thing to do with trading.
Stay in this threads and stick to them for maybe six month or longer. Start to read them from the beginning and make screen shots from every important post for you. You then can make your own PDF after a few months and this will be your personal lecture. By the way : If you like a post or learned some thing from it, there is a thank bottom to it. That is the only way here in the forum, we can show our respect to the poster and say thank you to him for her/his help in teaching us some thing new. I wish you a very nice Christmas and a happy new year.
......................................
As we grow along our trading professions we need to change gears. I have been thinking over this for quite sometime now (even shared a few things with Dan) and have decided on the few things to shift my activity to a level higher.
In trading, as I see there are two functions, intellect and non-intellect. The intellect one does the research, analysis and gives the trading calls, while the non-intellect does the execution, operational part of trading. Generally a trader does both. Doing both together may effect the quality of outcome (in the earlier years this is one of the primary reasons for losses).
To take care of the non-intellect function, I have decided to hire a person whose only job will revolve around execution and related activity. He will also be responsible for all operational functions related to trading. This Assiatant is more like an exclusive broker who takes calls and executes your order. The execution speed which is the key is very fast, also the operational functions viz net, power back up, software updates etc etc are taken care by the assistant.
This arrangement will also give me a lot of free time to persue my other interests.
Initially I thought that the profile of this assistant should be an youngster around 25 years or less, but later zeroed in on an elderly person. Time invested to train this person would be large but the longitivity of his continuance with me would be more as lesser opportunities are available after a certain age. Cost wise there is no difference.
The main aspect I thought here was long term association because the biggest risk involved is once I get use to this system of trading, and if this person quits then it may become difficult to get back to the current system, also to get a new person and train him would need time.
................. used to tell my younger brother to execute trade and it works perfectly for me.
i think we should consider the option of educating family member to trade. the only problem i faced with this is that after sometime instead of following my advice blindly, he started questioning them. then, i told him bluntly that you are not supposed to think, just do what i am saying.
...................Some thoughts from outside and my personal experience with that. It doe's not answer your query. It may even produces more question. Hiring a person, which execute my trades :
- As an investors, I do so.
- As a position trader, I can do so.
- As a day trader I do not do so.
- As a mix of all, I do so.
Investor :
Today he has 500'000 Euro to invest in gold, silver, platinum. He then makes his analyses of this markets and tells his guy to invest that and that amount in each market. Execution is demanded to an other person, as there is no hurry. This man even can be a fond manager of any kind of fonds.
Position trader :
Makes his analyses from the market or the options he want to use. He then decides, where to place his orders on which time frame and on which strike levels. This orders, he writes down and gives them to the guy in the office, which is paid to do that job, means calling the broker and tells him what to look for. No real hurry, as the orders are placed on longer time frames. This guy can be an administrator of any kind in the financial sector.
Day trader :
I do not know any successful day trader, which hired a person to execute his orders. I speak here about the typical day traders, which doe's short time trades and uses intuition when deciding to go in and out of the market. If we are in day trading business, we sit in front of the screen. We recognizes the pattern ( If now with TA or PA or TR ) and jump in the market. Through our trading platform, our orders are executed with a click. ( If a day trader not has such a plat form, he is not able to do quick decisions ). Any derivative we trade is so executed. For other orders, we have the line to the guy on the floor or direct to the broker. There is no time to give orders to a person, which then should give the orders to the broker or to who ever. Impossible in day trading.
As I say, just my personal experience. Other ones have other experiences. It finally all depends on how much money we have to look after and how well organized we are.
..................Some of the newbies may want to start trading as a business in the new year. Linda Braschke is one of the best trading womans in the world. 1999 she published a business plan for newbies. Here her planning for success for 2010 ( Surprise, it is nearly the same like 1999 and that means, that this is a good plan she presents ! ) :
Planning for Success (reprint of 1999 article...not much changes!)
Your business plan is your personal blueprint for trading success. It includes not only your goals, but a detailed plan of how you plan to get there. This plan should go far beyond the details of your trading methodology. It should include structuring not only your trading environment, but your whole life. Your mind and psyche are your main trading assets. How do you plan to protect them throughout the year?
Your business plan should be structured to motivate you to make higher highs in your account equity. This sounds like a given, but you must truly fight to come back from each drawdown. You must have allowances in your plan not to give back more than a minimal percentage of profits. Your trading plan must include all the details such as which markets you will trade, which strategies you will follow, and what type of leverage you will use. Only by having a trading plan will you be able to avoid emotional trading decisions.
I am of the belief that it is never too late to start thinking about working on a business plan for the current year. It is also never too early to think about putting together a business plan for next year. This is because it will take you some time to think about the things that I am going to say, and work on your own program.
Trading is abstract and there are so many questions and decisions to be made that come up during the day. Your goal as a trader is to execute your plan and leave the thinking out of it. A daily plan helps to aid in providing ritual, organization and structure. But before you think about how to construct your daily game plan, you need to first put together a broader annual business plan. In setting up your larger business plan, you will be designing a trading program for yourself. Many of the questions our office receives pertain to what type of trading patterns to follow, what time frames to trade on, how to place orders, and which markets to trade. Your business plan should address these issues.
When you setup up your program, you should think of yourself as your own best client. Your account is a client. Your goal should ultimately be to design the type of program you could trade several accounts on, or, think if you wanted to add just one client. You would need a very specific type of program to present to that client, and then, assuming they would be monitoring your trading activity every day, you would be more conscientious about following your program. Leverage and money management issues would be addressed in this "program", as would markets traded, draw downs, types of trades made, etc. I will share with you some of the ways I design my program. Before I do, the business plan includes so much more. It must also include goals and motivational factors, as well as rules, guidelines, and plans to keep you away from trouble areas or spots that you are weakest in.
I find that as a trader caught up in the markets, it is hard to take time off. So it is easy for me to hit the burnout point. I have a tendency to put too many positions on. Taking positions into the last day of the quarter seems to be my Achilles heel and bite into my bottom line. So, I am making a very clear provision in my business plan for 2000 NOT to have big positions on going into the last day of the quarter. If you want to give yourself the liberty to take several weeks as you develop your plan to still break a few rules, think about it as you do it. Think which rules are really going to serve you best. This is why I said it might take some time to mull over a few things.
I will give you the essence of my program and then you will see how easy it is to design your goals around your plan. I divide my trading into separate programs. For example, one is day trades in the SPs. Another is 2-3 day swing trades. Next, I create goals for each program. For example, if the SPs are the only market you are trading, one goal could be to include a range of expected activity level in making SP scalps. This could comprise your core program or be designated as supplemental activity. By having a goal to make a certain amount of scalp trades a week, you will challenge yourself a bit.
Will you include position trades, index options or GLOBEX activity in your program? Analyze your past trading performance. Are you more profitable sticking to short term scalps or holding longer-term positions? I like to keep my SP scalping activity separate, so for longer-term positions, I use the Russell futures or SP options as a separate trading vehicle. For trades made in the domestic futures markets, I try to hold trades anywhere from 2 - 8 days. Occasionally I will day-trade the bonds, but I try to play for overnight follow-through in most markets.
So, I essentially have three separate programs: SP scalping, short term swing positions based off classic chart patterns and 2-period Rate of Change pattern recognition, and long-term positions which can also include stocks, options, mutual funds, etc. You need to think about your mix that will work for you and be CLEARLY organized as to how you are going to manage your money. Some people prefer to keep different accounts for different programs. Don't over extend yourself or add so many things that positions can't be properly managed.
There should also be leverage guidelines and money management rules for each type of trade. Most of the time I do not use my full line. I trade 1 contract per "x" number dollars in my account. Determine a unit size for yourself. As your account grows, you can add another contract. These things should all be spelled out in your business plan.
As for goals, you can structure those two ways. Some people set a dollar amount goal for their trading activity. I have actually avoided doing this in the past, instead choosing to focus on maintaining a certain amount of activity level. I figured if I just did the best job I could each day, the profits would take care of themselves. Sometimes setting a dollar amount can be discouraging during drawdown periods or encourage you to force trades when nothing is going on.
For some people, a better goal might be to do "x" number of trades on a regular basis, or try for "x" number of SP points per week. This helps to reach the larger goals. Recognize that gains are unevenly distributed. If you set a target for yourself to make 3 SP points per day for each contract you trade, then do you quit when you make these three points? It doesn't quite work that way. When you are hot, you are in synch and should keep trading. If your 3 points come easy to you, than why would you quit on the day? You could very easily have a scratch day the next day...or even a losing day.
But you must have SOME sort of guideline. This will serve as your motivation to make a trade in the first place! You must have some reason to pull the trigger because for some folks, it is too easy to hold back on being aggressive. Set a goal that you can not only reach, but that you can exceed. So again, if you are a newer trader starting out with a small account, perhaps your goal will be to take 8 SP points out per week. How are you going to achieve that? If you have a smaller amount of capital you do not want to trade on a longer time frame. You need to find 1-2 spots a day where you can go in and try for a few points.
Now you are breaking your goal down into bite size pieces. How much can you risk on each trade? When I make "short skirt" type trades, I automatically risk no more than three points. If you decide that you can't risk more than 2 points, you are going to have to be very careful on picking your spot. You must be able to see your risk point before you go in. See the market turn and then enter "at the market" or as close to that turn as you can. So, that might be a "program" that you can start out with. Now, what might happen if you start out with your scalping program, is that for a few days, the markets might be dull, choppy, Perhaps you feel like you are behind your goal a bit. But then one day, your 2 point trade turns into a 5 point one...or, you get motivated and make a few more trades and exceed your goal. OK?
Don't put pressure on yourself to make x-amount every day, but you must have a guideline for what you would like to achieve on a monthly basis. Then at the end of the month, you ask yourself, how is your performance standing up to your business plan? If it is falling short, what needs to be adjusted? The biggest things that keep a trader from meeting their plan are: getting sloppy a few times, forgetting to place a stop, or getting stubborn on one trade. These are the things I see. One mistake waiting to bite you in the rear.
But guess what...it is possible to make all these mistakes and yet STILL make money. Astonishingly, the markets can be more forgiving than we think. It just takes a bit of persistence. So, each month, set your goal to do a better job than the month before. All you have to do is work on making fewer mistakes.
OK!...on to some more parts of the plan - record keeping and structure. THIS IS AN EQUALLY IMPORTANT PART to your business plan. Here is why. Routines and rituals keep things automatic. Additionally, they help set up the daily Game Plan (which we will get to next). A trader needs to get to the point where picking up the phone is just one more thing he does during the day. At the end of the day, I log all my daily numbers. This might seem a useless endeavor since this data is already listed on my computer and I am merely writing it down on paper. But this ritual brings a certain amount of relief to me because I can shut down making all decisions and do some therapeutic grunt work. I thrive on menial tasks and grunt work because I do not have to think during this time. It is a ritual that wipes my mind clean of all the good and bad that happened during the day.
I also have sheets where I log each trade, and lately I am becoming more diligent about doing my P&L at the end of each day. I used to do this during the eighties but stopped the last few years. Part of my business plan for this year includes becoming even more involved in record keeping. I am monitoring the amount of slippage on each trade and the average holding time for each type of trade. You see, you must make it into as much of a detailed game as possible to draw yourself into the game, increase the intensity.
The object is not to burn yourself out either - wrong idea. You do not have to focus on every tick, but rather the opposite. Keep your monitoring of the markets a Zen type of thing, meaning stay loose and relaxed. Sometimes the best trades will happen out of the corner of your eye. For example, perhaps you have been watching a market for a few days. You have been doing your nightly homework watching a particular setup unfold. Then, when the market starts to act a certain way that confirms your analysis is correct, you should be all over it.
You can't force the trades, but when you are relaxed you will see them better. The best way to stay relaxed and loose is to be involved in some sort of ritual. Like the tennis player who bounces the ball up and down a few times before he serves, does a dance with his feet and wipes his brow - these are all rituals to keep his serve loose. The same tricks apply with trading. You can doodle and make swing charts on paper during the day, write down periodic readings of the ticks, or note extreme price levels.
I hope you are getting the basic idea so far, because I do not want to elaborate to the point of overkill. But here is one more example. The person I worked for when I first traded on the Philadelphia Exchange had been a physicist. He spent 1 1/2 hours at the exchange before the market opened and would be there for an hour and a half after the close. He was very methodical and organized, writing out tickets and orders in advance. He was quiet and unassuming, and as I found out later, he was also one of the most consistently profitable traders down there. The person who first backed me when I traded in San Francisco taught me to chart the 3/10 oscillator every night using Security Market Research charting service. He also taught me to log the daily trin, tick, breadth figures, etc., in addition to writing out orders for the next day. Both these guys are still trading today.
These are some of the common traits I have noticed among those traders who succeed. They all have daily routines and rituals. You must balance out the abstract conceptualizing process the market requires with some tangible activities.
Your business plan should include making a daily Game Plan for each day's trading. What type of strategy are you going to use for the next day? Is the market due for a consolidation type day, one that starts to form a small trading range? Or is it poised for a breakout, a potential trend day? Is there an opening play for the morning? For example, if there is an early morning sell off, will it setup a buying opportunity? Or should rallies be shorted? Your game plan could include looking to sell a test of the previous high or buy a pullback to the hourly moving average.
At night, it is easy to note where the hourly grail patterns might be in other markets. Write down imaginary orders..."Buy Silver at such and such a price if it retraces to EMA". You will be more likely to make the trade if you follow this practice. Perhaps there is a particular market you have been following with a directional bias. Write down the previous day's high or low and use that as your pivot.
When managing longer-term trades, you will be more likely to stay with them if you write out clear instructions for trailing a stop. Write down your stop level and continue to move it as the market moves in your favor. My favorite way to trail a stop is to use a two-bar channel stop, or to use hourly support and resistance levels. In a downtrend, I will trail it just above the last hourly swing high, but in an uptrend, I will give it more room and trail it beneath the hourly low of two levels ago. Trail your stop not on the last swing low but the one before that one. This is because up-trending markets are more prone to A-B-C type corrections. There is not a perfect way to trail a stop - they all have their flaw. A 2- bar trailing stop works well, on paper, but personally, I hate the give back on any trailing stop and usually look to exit on some sort of buying or selling climax.
Sometimes, trading in another market can be a good diversion to keep you from taking profits too early on a position that is working. You have to let time work FOR you in winning positions.
Game plan - Business plan - overall trading environment structure...just start thinking about the way you really go about things. Get yourself down to a one day at a time type of process. Even if you are a position trader, your job is not to think about too far into the future, it is still to take one day at a time, even if it is just a monitoring process. The tape is always in the here and the now. Your goal should be to do the best job you can that DAY. Follow your rules and your game plan for that day. If the market moves in ways that were not in your game plan, that is OK. The wrong game plan is always better than no game plan at all. At least if your game plan is wrong, you will know it fairly quickly and that in and of itself has forecasting value.
It is OK to miss a million trades, but it is not OK to miss that one setup on your game plan you have been waiting for. You can also adjust your game plan midday. Perhaps you were looking to sell a rally back to the hourly moving average, but the market blasts on through. It is OK to say, "because the market failed at that benchmark, it might mean there is a stronger move in the opposite direction". Perhaps then it would signal to switch gears and start looking for the first 5-minute grail buy. You get the idea!
Checklist
Here is a list of some of the types of things you can include in your annual business plan. This will give you something to work on. Start thinking about putting together a professional program, comprised of bite size pieces.
1. What methodology or patterns are you going to trade? It is OK to have a "library" of setups, but most people do best concentrating on a niche or particular technique. Learn to do one thing consistently well instead of trying to master too many styles.
2. Which markets are you going to trade? If you trade equities, think about keeping a "stable" of stocks to follow. Don't get caught up in scanning a database of too many issues that you are not familiar with. It invites unfortunate situations where there may be pending issues or reports in the company that you are unaware of. If you have not had much success trading soybeans or silver in the past, why try to continue to trade them in the future?
3. How much capital are you going to put into your trading accounts? Something I have to add here, stay away from looking at percentage returns when evaluating performance statistics, such as percent return or drawdowns, on your personal account. Concentrate instead on dollar amounts. What is your dollar amount tolerance? My stomach turns at a specific dollar amount drawdown. Percentages vary too much according to how much money you keep in your account. You might have a net worth of 1 mil and keep 100,000 in your trading account and your situation will be entirely different than a person who has 5 mil and keeps 100,000 in trading account. The person with the higher net worth will feel freer to use a different type of leverage. So think in terms of dollar amounts...how much are you willing to draw down to?
4. How do you plan to enter, exit, and manage trades? I like dividing my contract size into two units. Usually I go all in and then scale out in halves. Some positions I keep half on as a core and use the other unit as a scalping unit. Whatever style you choose, it should be written down into your plan.
5. What is your plan to manage drawdowns? How will you evaluate when you need to take time off?
6. What are your monthly goals? Are you going to strive to make a certain number of trades each week or perhaps a certain number of SP points? Remember, these are guidelines by which to measure your progress. Some months will be better than other months. The end of the month is a good time to do a periodic review. Most businesses do this on a monthly or quarterly basis.
7. Include a daily routine in your overall business plan. How are you going to evaluate your performance each day? Keep a notebook of the things you do RIGHT. Pat yourself on the back for small moral victories, such as exiting a losing position in a quick fashion. Note the small incremental improvements you make.
8. Create an office environment designed to facilitate performance. Eliminate distractions and outside influences. Reduce glare and get a comfortable chair. Invest in good equipment. Invest in an excellent data feed.
9. Include a provision that will keep you from trading if outside circumstances create an unusual stress, such as health, divorce, or a major move. You might as well just write a check out of your trading account and kiss it goodbye. This is a hard thing to recognize before it is too late. People LOSE money during times of 10 major stresses: death, taxes, divorce, moving, health...you get the point. Trading is a performance-oriented discipline. If you can't perform well, cancel the show... If a tennis player severely sprains his ankle, he cancels the match. Why do damage to your ratings? Why mar your statistical record with sub-optimal performance?
10. Record Keeping - Rate yourself on your routine and structure and nightly homework. Do you do research or have way of logging results? What type of research is included in your program or plan? My problem is I stack too many projects up on back burner. I need to streamline this area for myself. Or, I get diverted doing research, go off on a tangent late at night and stay up way too late. Then I am not in optimal condition the next day. My business plan includes a bedtime. I promise myself to adhere to it.
11. Rewards! All work, no play makes Jack a dull boy. You must have outside interests or hobbies to get your mind off the markets at the end of the day. You must treat yourself to something you really want. If you spend money on yourself you will eliminate subconscious poverty thoughts. I am serious. Treat yourself like a million bucks and you will be worth it soon. Maybe after a good week you treat yourself to a massage, or buy something you really want. I already have something in mind that I will do for myself if I meet my goals next year. It is something that does not cost too much but that I could never justify spending money on because it might seem frivolous. But the money comes from my trading account so nothing is frivolous!
12. LASTLY, What plans do you have to continually improve yourself? See yourself as a top-notch person, health-wise, performance wise, and attitude wise. How do you keep advancing in life? You know the old saying, if you are not going forward, you are going backward. Educational pursuit such as books and study courses are important, but don't neglect spiritual pursuit, or outside projects...perhaps building your own website, starting your own trading network, writing your own book on all the trials and tribulations of the business, or working with a charity.
All the above subjects are more important to your long-term success in staying in this business than any trading indicators or setups! People do not lose money from entering on bad setups. They lose money from getting sloppy in their trading and sloppy in their habits and life. They allow emotional trades to creep into their program because they have not done their homework and are not prepared. Your business plan is a contract with yourself. It is a contract to treat yourself as your own best client. Surrounding yourself with guidelines, rules, and an overall structure can be the vehicle that brings you freedom from performance anxiety and gives you the confidence that you can take your trading to the next level.
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for swing or positional trading the speed of execution and quick decision making is not required but analysis and a good strategy is a must.
I am a system's trader.I am strictly writing the below in the perspective of day trading.
Quick decision making is one of the key aspects to the success in day trading.
Most of the successful day traders hired by big firms are youngsters for they will have the speed and a clean mind.
One of the problems always I faced in day trading is the noise of the mind.
i.e Analytical mind or mind in general will tell one thing but markets will behave differently on a particular day and a particular time which the price and system alone will tell clearly.
Still I am missing the signals because of the noise of the mind due to my analytical mind,ego due to the analytical mind and false hopes.
IMO to become a successful day trader analytical mind has to be removed or in other words - where the analysis (Fundamental and technical) stops there the day trading begins.
Ie the technical analysis aspect should be handled by the system and not the mind.IMO this requires a extremely good system.
If the system is good and no of trades to be executed is expected to be less then the executioner old or young doesn't really matter else my vote is for a youngster.
But finding a trust worthy reliable person and the risk of exposing a good system cannot be avoided.
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Like they say don't mix business with pleasure or don't get work at home and home to work. So no scope of mixing family with trading, both are mutually exclusive and former more more important than later.
Dear Dan, Jagan,
I see my trading style is quite different from most of the traders here as I have multiple TF trading portfolios. As I had mentioned earlier somewhere, this is the basis for me to manage risk by diversification / asset allocation. This has been working effectively for me but I doubt the efficiency. I feel there is scope of improvement in efficiency.
For me it is like a baker who manages multiple ovens baking cookies to cakes – all set at different tempratures, different timers and for different sizes.
Also what takes a toll is physical aspect of record keeping, journal writing, et al, for review and analysis. Add to this managing multiple trading accounts also puts pressure. All this disconnects me from the core area of research, building anxiety sometimes not only resulting in financial compromise but more importantly affects the mental tranquility – which I think I should not compromise on.
Having referred to my records, I felt that outcome could have been generally improved consistently if I focused only on the intellect function and outsource operational function. I can be more effective, if I get everything ready in terms of analysis reports of activity, statements, journals on my table instead of spending time on creating those and then analysing.
Hence this Assistant is not merely an executor of trades but also responsible for all related activity of trading other than decision making – which is left to me.
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My trading results improved significantly once I started training and using dealers for my order execution after I left active scalping. I have experienced the more detached I am from the market and frm individual trades, the better my results are. but as u rightly said, it would become difficult to train another dealer or switch back to the original mode if ur dealer leaves u fr a better oppertunity or to trade fr his own. frm what I have seen, if ur trading system is such that, the trade is on for a short duration... the capital requirement is less... the speculative element is low, almost always ur dealer would leave u to trade fr his own, becos the day he would be confident that he understands the system and can explain it to a broker, he would find many brokers who would be ready to finance him for a share in the profits.
don't waste ur time n energy in such a scenario.
on the other hand, as u have mentioned that u trade multiple time frames, ur trading system is slightly complex ( may not be fr u , but fr someone watching frm outside)....the capital requirement is relatively large ...decent speculation is involved and the trades are on fr a relatively big time period or are continuous in nature, the chances of ur dealer leaving u are remote if he is being compensated adequately. go ahead with ur idea of training someone.
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We think quite similar I guess. As mentioned (by you and me) the biggest risk is losing this person will be due to he getting confidence that he can do it himself which is quite natural human tendency. Infact lot of people are lured to trading because it seems easy money for them. So even this person can develop this thinking.
Keeping this in mind, I decided that an elderly person, one who is not amibitious, has responsibilities for his family, a simpleton and discplined one can fit the bill. Someone who is typically a lower middle class types and someone for whom a fulltime job is a dream come true (incidently this is a 5 days week job, much like a govt job, and that too from 9 till 5 - 5.30, without any late sittings, ever). Hope you understood the personality of this person. Remuneration wise it would be a notch up above his capability and expecation.
Also as you rightly mentioned that since I have multiple TF holdings, 5 TF / 6 TF, on the face of all my holdings, no one can make out why it is held and for how long it would be held. Long, short, sometimes hedged, non hedged, leveraged (FO) and non-leveraged (Stocks) positions all are there at any point of time. Also correctly highlighted that these are continous in nature, something like rolling holdings. Still shorter TF holdings have lesser fund allocations than larger TF, so someone can make estimation of the pattern of trading strategies over a long period of observations. So he will know what trade I am in but not the strategies, the trade-secrets remains with me.
......................Refering to your statement highlighted in bold, for longer TF trades the decision taking time is very negligible to the execution time. I have seen Institutional dealers desk sometimes spend a week to accumulate a stock. When the amounts are large, you need to account the Impact Cost of acquisition. Not that my account is as large, but still to some extent I take time to enter (mid to long TF trades) over a considerable period of time at the price which I feel is 'right', hence multiple orders / undisclosed quantity orders need to be placed without impacting the order book of that stock. They are monitored, modified, cancelled, reentered, checked and so on. And the 'right' price is not static, if the Index suddently falls / rises, then the 'right' price also changes accordingly. And doing all this is just not fun, just not the core of me.
So more than the excitement, the object here is disintegration of a simple structure.
Don't try to learn the market, the trends, the indicators they are all secondary, if you want to make money from the market, first learn about yourself. Once you understand and define yourself, you will automatically find ways, means and approach to the market, which will then be nothing but a Cash Cow.
So the first step begins with knowing YOU and NOT the market.
That one secret, even though it appears to have nothing to do with trading, if traders master that very concept, it will make them money.
This is why trading is so personal, because we are all different. This might seem strange, but when I first started trading, I had to learn what my shortcomings were before I could be successful. A lot of times, you have to know what to avoid, rather than know what you think you want to plunge into.Part of trading is understanding the rhythm of the markets. In understanding the rhythm of the markets, you have to understand self, and to proprietize a methodology that will discern the rhythm, its trends, and reversals.
Understanding self is not in making money, even though we are all here to do that. If you have a methodology that is catered to you with a standardization of entries and exits, then the money is there without even thinking about it.
When I first started in July 2004, I had no idea who I was relative to the markets. As an example, there was issues relative to the kind of risk taker I am, how much margin I was willing to put up on each trade, the tenure of the trades that was best suited to me. After I began to get some conceptual answers, then I had to address the issues with a methodology for discerning the rhythms of the markets. It took 3 years for a complete collaboration of my methodology, along with addressing the other issues.
As the result, I have found, my methodology is perfect for me. It may be shunned by everyone else, just like I would shun other methodologies. My methodology came from the recognition of knowing who I am, and letting it be my guiding light in trading as opposed to my biases. As a result, I blindly follow my methodology, and the money follows. People tend to really get that mixed up. They want to plunge in just to grab the money, because that is the human lure. They want the methodology to conform to the money and to self, when it has to be exactly the opposite
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Markets everywhere in the world have mind of their own, something like how our mind functions, Markets function on the collective 'minds' of the participants. Hence like us, who behave logically, illogically, rationally, irrationally, emotionally, upbeat, depressed etc, markets also behave so.
Now if the Market has a Mind (from collective sources) then what we try doing all the times is to judge the thought process of the Market. Simultaneously at the same time there is another mind which is at work i.e. our own. And it is this mind that a novice trader never notices.
We all have a character, since our childhood, what we are, how we think, react, behave - in general. So either we are miser, generous, cunning, humble, fearful, foolhardy, gutsy, speculative, calculative, trustworthy, disloyal, wanderer, etc etc etc. If we look back in our own history we can build up a personality of our own selves by putting the pieces of our own behaviour during various events (good, bad, moderate) of our lives.
To earn from the market (which has it's own 'personality' like us), we need to fit our personality to the market and not vice-aversa. It is something like there are two random particles moving in the air, you hope that both will collide with each other. So what is more easier, studying our personality is much easier than judging the market's mind.
So eventually as a successful trader progresses in his life, we find different types of traders, some who try to pick the bottom, some who wait for reversal and some who wait for confirmation of the trend. All are there, but ultimately they have fit their ownself to the market. They trade ONLY when they think that their mind is in sync with the market's mind. The outcome of such trading (where you trade only if the market provides opportunities suiting your personality) is you take less trades, the trades are very high probable trades and outcome almost in most cases is favourble. I would simply put it like this, calculate the amount you have made, if you were to exclude all your loss making trades til date. To give benefit of doubt to random profits, even if you divide this amount by half you would still be a happy man. So know yourself, strive for high probable trades, even higher and even higher. (Did anyone hear me say...Six Sigma...
, noway I can produce those concepts here atleast) ....................................
So far u have told........................
1] know thyself?
2] find superiority/edge for u in market.
3] Since u know urself,...........at market in certain condition........u may feel at home,.........definitely know before hand know what may happen in this type of scenario.take only those high probable trade.Reject other time /case...........SINCE lossmaking trades r rare event, money flow naturally high.
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clarity to quit trading
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What ever somebody is going to do after she/he leaves trading, will be build on thoughts, which may are not far away from thoughts she/he made at the time, when she/he decided to start trading.
The person, which leaves trading now, also needs clarity of thoughts. The term " Clarity of thoughts " was mentioned once from SG here in the forum and I think, it is a very good term. The term was used in conjunction with trading decisions. Using the term : "Clarity of thoughts", she/he also needs them about the following :
- In our lives, we have to accept responsibility for all our action, even it is a hard thing to do so.
- We have to conquer frustration and best do not make any decisions, when we are frustrated. It destroys objectivity.
- If possible, we should not look back too much, as it is a poisonous emotion we experience all too often.
- Exude confidence in our self in an unshakable way, is may best we can do against many draw downs in live.
- Maintain prosperity consciousness is an other thing to do. All relationship is a reflection of our relationship with ourself.
- Security is an illusion. Hardly spoken : “Life is either a daring adventure or nothing at all.” If we are attached to the concept of security, it will have the effect of making us feel insecure. An attachment to something outside of ourself is unfulfilling, because we feel empty without it.
- If we have to go new ways in live, why not write down what we want in our new live. We have to be specific, as the universe will deliver what we want. The universe will give us what we dwell upon. If we Dwell upon ambiguity it will give us just that.
Having clear thoughts about this, may points some people in some direction and leaving them trading with out any doubt. This are just some very little thoughts and she/he can add what ever is needed. On the other hand, exactly the same thoughts can be used when deciding to stay in trading.
To extract the crux related to the subject, a trader deciding to quit should seek to look out for things (or similar things) what he was doing earlier before he began to trade. I think this again is very relevant as it would be easier for him to get accustomed to a known terrain and would pick up things fast as compared to wander here and there (refered as 'non clarity of thoughts').
In nutshell, winners and losers both are necessary for the markets.As has been observed from your posts, you have lost quite a handsome amount and your trading volume is also good whereas your earnings are quite low..please sit alone and think about the style of your trading.This profession is not like other professions. First of all you will have to understand that there is nothing like CONSUMER/USER/CLIENT in this field, this is just like ISKI TOPI USKE SAR in F&O market and unfortunately F&O turnover is almost 6-8 times more than cash turnover in India. If someone made profit on a trade that means there is another one who have taken loss at the same time, thats why success rate is almost nil for a trader with limited cash/knowledge.
Despite all efforts to train if a misfit trader doesn't come up the curve (simply put it that he doesn't have essential ingredients) and DECIDES to quit what would your advise be on quitting, given that you are doing well in trading.
The question I have posed above is the one which any trader (established, struggling, amatuer trader) would not come terms to address because the mind has never given a thought to it. It is just one way thinking of trading, trading and trading (Results being immaterial)
As mentioned earlier in the thread, that people do not like to talk about ..............failure.
..................regards
oilman5
Originally Posted by oilman5
IF fundamental and technicals r decoupling,..........u visualise some danger . AND the same , price structure tries to retract.........to reflect proper fundamental of country/sector.
With patience of a hunter , u wait ........tool is confirmation by price..........so now GRAB........direction is as perceived .........so this is ur money making oppurtunity ...........in short.
In may happen to stock specific/sector/index...........am i getting RIGHT in ur thought process??
REGARDS
Dear Oilman,
Back here we use valuation techniques to determine the fair value of Assets/Scripts/Indices/Countries. Following the same investment decisions are taken. Fair value of asset is more or less the "Ideal" market price which should be reflected by price. Once we get this, the next step is to determine how to profit from it. This is done through trading methods and strategic investment. For me, the long term direction always commands more weightage than shorter term trend. A short term trend in my eyes is only a "pullback" of varied magnitude which I look as a buying opportunity. In an year, we roughly get this opportunity 1-2 times. Therefore if long term structure is Bullish and short term structure is bearish (Like it was in November), I simply go with the long term trend and continue to do the needful. The trades are reasonably stress free because thought process is not clogged by day to day randomness. In any case however, there is always a level where I stop my trades if they are going wrong.
I would not like to share our business model here. I hope you understand. Similarly when I talk about targets achieved and other statistic, it would not be appropriate. In the past such figures have been perceived by some users as an act of self promotion and self appreciation and hence I will refrain from making such comments. May be sometime in future we will discuss about such things in private.
As far as your second post is concerned, your understanding of my decision making process is reasonably on track of how I actually execute my trades.
......................
Markets have essentially always remained the same. The key to get a grasp of it is to revisit history again and again. Hence, no matter what the situation is, I always revisit history to see what the markets have done during the same period. To understand and interpret that, one needs to be extremely sound with Fundamentals. And by Fundamentals, I don't mean some ratios and balance sheets. Fundamentals extend way beyond that and getting a grip of that is by no means an easy task. When fundamentals are concerned, I am lucky to have been trained by some of the leading Finance professors in the UK and hence it did help me to reach where I am today. Technicals on the other hand are used to confirm what the fundamentals are conveying. This is also true the other way round and this is why knowledge of both the fields is a must in my book. Let me give you an example of this.
In November 2010, I had written about Markets heading for 5700 from 6300 for a very short term. I knew in my mind that the correction which was about to come would be technical in nature and would provide good investment opportunity for the next 6 months. During same time, I had also written that going forward we need to see if this correction gets converted to a Fundamental one. I think a user named Trader_Man misinterpreted it as "Mumbo Jumbo" and did not follow what I was writing. Going forward, the "Fundamental Correction" has yet to come and it will come somewhere in 2011. Eventually, at 5780 I posted here that one must start accumulating Nifty and some stocks at this stage. This was only because the Technical aspect of correction was over and it was time for markets to head higher. Now, we are at 6100 + and some of the stocks which I had suggested (Hindalco, Tata Motors, Tata Steel, Biocon etc) are already up 10-20%.
To execute what I did one needs "clarity of thought". Once this comes, rest will automatically follow the same. Most important for any trader is to know what the markets are going to do in short term, medium term and in long term. For this, he needs to see how Technicals and Fundamentals are fitting together. Unless this clarity emerges, the long term net effect on one's account is always going to be mildly positive to largely negative. Hence, if you take it in consideration, I rarely go behind RR and I always go behind directional trades. As far as being discretionary is concerned, in my office I have 2 traders who purely trade on systems but I largely remain discretionary. Being a discretionary trader is difficult, but it is certainly more rewarding contrary to what many experts suggests. In a nutshell, if I have to sum up, I would say, my approach is a mix of Technicals and Fundamentals and to execute the same one has to be Psychologically strong and flexible. The former can be achieved with hard work, but the latter is not that easy to incorporate.
................................
IF fundamental and technicals r decoupling,..........u visualise some danger . AND the same , price structure tries to retract.........to reflect proper fundamental of country/sector.
With patience of a hunter , u wait ........tool is confirmation by price..........so now GRAB........direction is as perceived .........so this is ur money making oppurtunity ...........in short.
In may happen to stock specific/sector/index...........am i getting RIGHT in ur thought process??
REGARDS
Dear Oilman,
Back here we use valuation techniques to determine the fair value of Assets/Scripts/Indices/Countries. Following the same investment decisions are taken. Fair value of asset is more or less the "Ideal" market price which should be reflected by price. Once we get this, the next step is to determine how to profit from it. This is done through trading methods and strategic investment. For me, the long term direction always commands more weightage than shorter term trend. A short term trend in my eyes is only a "pullback" of varied magnitude which I look as a buying opportunity. In an year, we roughly get this opportunity 1-2 times. Therefore if long term structure is Bullish and short term structure is bearish (Like it was in November), I simply go with the long term trend and continue to do the needful. The trades are reasonably stress free because thought process is not clogged by day to day randomness. In any case however, there is always a level where I stop my trades if they are going wrong.
I would not like to share our business model here. I hope you understand. Similarly when I talk about targets achieved and other statistic, it would not be appropriate. In the past such figures have been perceived by some users as an act of self promotion and self appreciation and hence I will refrain from making such comments. May be sometime in future we will discuss about such things in private.
As far as your second post is concerned, your understanding of my decision making process is reasonably on track of how I actually execute my trades.
......................
Markets have essentially always remained the same. The key to get a grasp of it is to revisit history again and again. Hence, no matter what the situation is, I always revisit history to see what the markets have done during the same period. To understand and interpret that, one needs to be extremely sound with Fundamentals. And by Fundamentals, I don't mean some ratios and balance sheets. Fundamentals extend way beyond that and getting a grip of that is by no means an easy task. When fundamentals are concerned, I am lucky to have been trained by some of the leading Finance professors in the UK and hence it did help me to reach where I am today. Technicals on the other hand are used to confirm what the fundamentals are conveying. This is also true the other way round and this is why knowledge of both the fields is a must in my book. Let me give you an example of this.
In November 2010, I had written about Markets heading for 5700 from 6300 for a very short term. I knew in my mind that the correction which was about to come would be technical in nature and would provide good investment opportunity for the next 6 months. During same time, I had also written that going forward we need to see if this correction gets converted to a Fundamental one. I think a user named Trader_Man misinterpreted it as "Mumbo Jumbo" and did not follow what I was writing. Going forward, the "Fundamental Correction" has yet to come and it will come somewhere in 2011. Eventually, at 5780 I posted here that one must start accumulating Nifty and some stocks at this stage. This was only because the Technical aspect of correction was over and it was time for markets to head higher. Now, we are at 6100 + and some of the stocks which I had suggested (Hindalco, Tata Motors, Tata Steel, Biocon etc) are already up 10-20%.
To execute what I did one needs "clarity of thought". Once this comes, rest will automatically follow the same. Most important for any trader is to know what the markets are going to do in short term, medium term and in long term. For this, he needs to see how Technicals and Fundamentals are fitting together. Unless this clarity emerges, the long term net effect on one's account is always going to be mildly positive to largely negative. Hence, if you take it in consideration, I rarely go behind RR and I always go behind directional trades. As far as being discretionary is concerned, in my office I have 2 traders who purely trade on systems but I largely remain discretionary. Being a discretionary trader is difficult, but it is certainly more rewarding contrary to what many experts suggests. In a nutshell, if I have to sum up, I would say, my approach is a mix of Technicals and Fundamentals and to execute the same one has to be Psychologically strong and flexible. The former can be achieved with hard work, but the latter is not that easy to incorporate.
................................
pl read imp line from Raunak
...............................
Just wanted to share something.
Rather than predicting levels based on Fib levels, I think it is more viable to see what the Index has done in the past during similar circumstances. By similar circumstances, I mean a routine correction during a structural Bull market. If you look at a typical Bull market and the corrections within that, you'll see that there are three different types of corrections.
1. Valuations oriented correction - Ranging from 15% - 20% from 50 DMA
2. News/Events Oriented Corrections - Ranging from 10% - 15% from 50 DMA
3. Shakeout Corrections - Ranging from 4% -7% from 50 DMA
I would rule out valuations oriented corrections at this stage as India has consolidated well and has now relatively underperformed in comparison to its peers. This has given enough time for earnings to relatively stabilize. News/Events driven was something we witnessed from 6300 levels to 5700 in November. Roughly in the range of 10%. At present what I expect is a Shakeout correction which will range from 4-7% from 50 DMA. The 50 DMA is currently at 6017, which would mean a correction of 250 - 400 points from 6017. Hence the best case is 5700-5750 and the worst case in this case could be 5600. I'll start booking profits from the moment we enter the 5700 band and will probably carry just 10% lots ahead in order to see what fate has to offer.
Entire opinion is based on the assumption that we remain in a Structural Bull market. So let's wait and see what happens.
...............................
Just wanted to share something.
Rather than predicting levels based on Fib levels, I think it is more viable to see what the Index has done in the past during similar circumstances. By similar circumstances, I mean a routine correction during a structural Bull market. If you look at a typical Bull market and the corrections within that, you'll see that there are three different types of corrections.
1. Valuations oriented correction - Ranging from 15% - 20% from 50 DMA
2. News/Events Oriented Corrections - Ranging from 10% - 15% from 50 DMA
3. Shakeout Corrections - Ranging from 4% -7% from 50 DMA
I would rule out valuations oriented corrections at this stage as India has consolidated well and has now relatively underperformed in comparison to its peers. This has given enough time for earnings to relatively stabilize. News/Events driven was something we witnessed from 6300 levels to 5700 in November. Roughly in the range of 10%. At present what I expect is a Shakeout correction which will range from 4-7% from 50 DMA. The 50 DMA is currently at 6017, which would mean a correction of 250 - 400 points from 6017. Hence the best case is 5700-5750 and the worst case in this case could be 5600. I'll start booking profits from the moment we enter the 5700 band and will probably carry just 10% lots ahead in order to see what fate has to offer.
Entire opinion is based on the assumption that we remain in a Structural Bull market. So let's wait and see what happens.
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