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.
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COMMENTS ON A TRADE-LEARNER’S LOSS-VALUES OF EXPERIENCE
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, nurture 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 - going 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. SO exit the wrong trade IMMEDIATELY.
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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 ?) or advices/suggestion from people whom you don't know. …. 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.
p.s.: Tip on Trading : By nature and default everyone has bad trading habit, over a period and through OWN learning experiences one can control 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 commitment 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 . 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.
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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"
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.
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A classic example 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.
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". Please 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 refilling and start again is unwelcome...............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.
…many seasoned and successful traders might see their past performance, attitude as their own history .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.
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 whether 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 trade
........................this statement of yours shows arrogance. 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 Market"……….it seems u want 2 get back at 'them'who has taken your money, 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…………… 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 Market". and I highly suggest these books.
Always say-I'll show everyone that I can change.
Keep the attitude but never be arrogant. Market knows zillion ways to humble traders.
Sorry, I guess, my posts are like casual approach to you. …., actually its too painful. It's the pain of such days which makes a lasting impression and stops us from breaking our rules.
( 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……….."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 take your time, and do some homework till then. This is your best time to prepare for future.If you are just starting and havent' mastered any form (infact mastering is a life long process, i mean consistent in profits) then it is not good idea to jumble different styles of trading.
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).
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. ……..a key 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
. 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 .If a 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 HIGH PROFIT setup. I have done hours of backtesting of several systems and realised it is possible to find or make a decent system and with discipline it can made high profit.
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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A QUESTION FOR A TRADER
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.
ANSWER:
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), piercing of Bollinger 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 ….Heart Attack .
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.
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 newbees 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 Dilemma 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 (depending 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……………..
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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 like 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
….. 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 square 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 preconceived point or should it be raised or lowered according to the way the market reacts (or the way I perceive 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 . 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’ ………..: 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 believe me it would not even respect any 'pivot low or high' or any 'fibonacci levels' if it doesnt want to. hence I do not believe that there is any harm in putting a random SL initially and then moving it later on according to the way the market moves .
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!
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 own 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 disciplined trader where he can put the legs down automatically without any hesitation, so everyone has to go with the phase where you use "Extra wheels". 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.
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.
While Aaditya you are putting SL to address a catastrophe, Anurag is defining by 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 .
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 interrupted 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)
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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What tnsn 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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What about profit booking ?
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 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.
yes I do carry the element of unconviction every time I enter a trade because,as I said earlier, I believe 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…….. 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.
ON QUESTION OF ASKING SUGGESTION
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
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.
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 SWITCH UP TF, 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 be serious : Giving up after one week is really not some thing, which shows of your personality. Weak, weak
exclusively use CandleStick 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).
……………….. just see the logic and strong near perfect psychology of this trader
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)
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?
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.
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.
......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.
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
...... 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."
-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.
- 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 .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 from 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 from doing an average turnover of 20 cr a day to 2cr a day in a weeks' time and going totally flat the next week.
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Draw very clear 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.
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 focused 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 impossible to be a multi facet trader. Yes it is not easier either, 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 belief……… 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, 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
Discipline comes from knowing what to do and then having the courage to do it when the time comes...
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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Ok, I will start again. I now have four sheets ( Time / Direction / Length / Time entry )
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 ?
Soln....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 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 taught. Some times like this and some times like that.
on a trade thought process developer by tnsn2345
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Discussion topics:
1. What is trading?
2. Who is a trader?
3. How much to put at stake?
4. Where to put the stake?
5. What is the process?
6. What are the skills?
7. What are the tools?
8. Show me the Data
9. Do not learn !
10. Practice defeat !
11. Special occasions, windfall opportunities – is it trading?
12. The Report card
13. Reward yourself
14. Trading portfolio models
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In the financial world, Trading is defined as distribution or accumulation of wealth, in the end it is a zero sum game. Einstein said the energy cannot be created or destroyed it can be transferred from one form to the other, in financial trading money is not created nor destroyed. It is just transferred from one to the another.
Simply to define it, Trading is Cheating !!! If you get this one definition right in your head, you will go a long way in this profession. Once we have defined this definition, now comes the next question, who do you think you can cheat?
Get into a real life scenario, think of people around you whom you would find difficult to cheat and those whom you can cheat easily. You will get the answer. Yes will agree that it is difficult to cheat someone who is a bully, informed, smart, aggressive, but quite likely that you can cheat someone who is fearful, a simpleton, a fool. Yes, there you are, you can cheat fools, and they are there in plenty. What is easier to do to pick a pocket or bend down and take out some coins from blind man’s bowl. I know I am sounding grose. The latter is easy, and we need to do it, because as defined trading is cheating. You will make little from him but you will make it daily. Unlike pick pocketing – where you can probably make more, but if you are caught, you will be thrashed and some day your hand will be cut, then you can’t even pick up the coins from the blind man’s bowl.
So my friends, though I may call you one, in the market we actually aren’t, every day I am looking how to get your money and similarly you need to do the same with me too
Cheat the fools, look out for them, keep searching, there are many every where and they always will be.
Who is a fool, does a fool remain sacrosant, i.e. does a fool always remain a fool or does he evolve and become smart. Like wise, does a smart and intelligent guy remain so throught his life. The answer is a big NO.
There is nothing constant and everything changes with time, experience and the environment. Yes, the environment, this is the key word. The circumstances around can make swap the fool and the intelligent.
As we go ahead we will try and explore and find ways / tools to handle different circumstances so that we remain smart, intelligent, unbaised and are not swap with fools.
What is trading? contd....
How is stock or financial product trading (commodities, currencies, bonds, interest futures, derivatives, etc) different than conventional trading (like a small time grocery store or a wholesale grain trader).
The conventional traders are
- Long only
- Non levered
- Flow with the trend (will buy umbrellas before monsoon and firecrackers before diwali to trade, and not viceaverca)
The financial product traders are
- Long, Short (simply to put - not sure what to do)
- Levered (Margin trading, derivatives, worse - trading Options, which is like trading a perishable commodity)
- Flow with or against the trend
You will find very rarely a conventional trader failing and very rarely a financial product trader succeeding.
....So the first step in trading is first be a convetional trader... a successful conventional trader and then try to reach out for mastery in financial product trading.
It is difficult, but believe you me, even if you start tomorrow, with Non-levered, Long Only, Trend flowing method, you will make a good trader in far less time than what one is doning, (Long / Short, Levered, With / against the trend)
When we come to asset allocation part (portfolio management) you will realise that the major allocation of the Wealth portfolio has to be built on the above premise of a convetional trader and it cannot be simpler than that.
Who is a trader?
We all are in real life trading almost everything we can see and also what we cannot !
But who is a successful trader? He is like a Don (pls avoid laughing, though I am at this moment), who has a network of informers (khabari), henchmen (executors) and advisors (right hand / left hand of the Don himself).
The Don himself does not do anything, he just directs. Similarly for a successful trader, he does not do anything, he directs. He builds his network (either through people or through system – in our case), this network tells him what, where and how much is the opportunity. The Don – Trader decides when to strike, he directs his henchmen to do it, so is far away from the action point (and hence can do course correction) including elimination of his own henchmen if required.
The trader himself, like the Don is always underground and works discreetly, not attracting any attention from the common man. But his is at work always.
A successful trader may portray a cool and serene image (that is a smart coverup) but IMO he is quite a restless person, all the times, he has a wagering mind. A mind which keeps on fluctuating, randomly and non - randomly. But the best part is he has a clear focus on what and how to act, his wagering mind keeps on processing new information which keeps on coming all the times.
Multi TF trading portfolio helps to keep mind wagering, which is what is required. Because when you have some TF earning, there are some TF which are losing, (ofcourse overall you want to the whold portfolio to be positive and that is achived by proper allocation of funds - which I will write later)
A waggering mind creates, non emotion to the holdings, exit in profit or at loss does not create anxiety in the mind.
Hence such a trader will find opportunities in Bullish, Bearish and non moving markets.
Next we will come to more specific topic of Portfolio management - How much to put at stake and where to put the stake.
I think I will write first on the process, skills, tools and then about the portfolio management. Will also quote how I started and so on..
What is the process? Process of trading, portfolio management.
Technically speaking, managing money is a full time activity. And there are professional who do it for wealthy individuals (HNIs), but for a lot of non - HNIs, this job is done by themselves.
It is not uncommon to see that common man does not manage is money the way it should be optimally been done, almost most of them will not do it.
Before coming to the risk profiles of individuals (which differs from one person to another) every individual has different goals in life. Goals are defined as a given thing achived at a particular time. Goals would include, marraige, buying a house, a car, a vacation, a jewelry, childeren's education etc. And all beyond these goals there could be some aspirational goals, like buying a yatch, a resort, a casino is Las Vegas, a private jet etc. Nothing wrong I would say to aspire luxuries in life, infact only if you dream can you make it come true.
All goals, basic or aspirational have to be defined in monetary terms, that is what is it worth today. (We will discuss about NPV (Net Present Value) and FV (Future Value) of money in the tools section, and how Excel can help us in simplifying this task)
Now comes the income and earnings and risk profile, these two define how much of the basic goals and aspirational goals can be achieved. If earnings are not much but risk taking ability is high, some more goals can be met. Conversely, if income is high and risk taking ability is less / moderate, still a lot of goals can be met. So it is a permutation and combination of ones earnings and risk taking ability which can conclude how many of the persons goals can be acheived.
It is quite likely that many of the to goals will have to curtailed or sacrifised because both earnings and risk do not support acheiving those goals.
Ok now coming to Traders specific profiles, where we all fail (including me...when I started trading) was inability to define why I am trading.
We enter trading, without any financial objective, it is initially like a game, where you make money and lose money, (like a video parlour), then you start beliveing that you have found a Money making machine and then suddendly one aspires for all unrealistic goals, without even bothering about the basic goals.
I also presume we all have blown our accounts, not once but many times (atleast I have). And if this hypothesis is true, then where is the question of setting goals, basic or otherwise. The only goal in such a case is to recover the lost money first and then recover the interest earned on that money. Infact, as a day trader, who would have lost a large chunk of money in a year or two or three, still every day a day trader thinks of getting it all in that one day itself. Isn't is like banging your head against a wall....
Why day trade, because, you want to be in the action, you think that you are losing opportunity if you do not day trade. And this feeling of losing opportunity is where one gets hooked and allocat almost everything or all capital to this activity.
Is day trading dangerous? Yes and No.
The biggest drawback of day trading is (espcially for all of us who have resorted to it to recover losses and feel that we are losing opportunity every minute) is it prohibits learning. It kills the student in you. You are a drop fromt the school. And dear friends, this simple fact, I learnt after many years, though I paid a good amount of 'fees' to the market, I was not a student, Day Trading - Prohibits Learning....keep it in mind and memorise...
Yes day trading can be profitable, when...once you have learnt it by not doing day trading and learning how things work, when you build a system, know your instruments, your personality.
The point what I wanted to make was on allocation of money for trading. Trading starts with how much to allocate, even before you start trading, then how much you allocate when you make money after trading or and how much you allocate when you lose money by trading.
If this is done right, half the battle is won. Trading skills, method, systems all other thing will likely fall in place to then win the war.
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I have a feeling that money management/risk management and position sizing is a very important aspect of trading successfully which most newbees miss out on. My trading experience is miniscule as compared to many out here neverthless as a person who has started out in the field with an aim to make it a full time profession, i thought i share my views to.
During initial days of my very short trading career, I found that I did make good calls and end up making profits most f the days, but one or two wrong calls were enough to erode all my profits. Soon enough thanks to numerous threads on mm here I realised that controling the risk on your portfolio is an equally important task in the whole process of trading and I made adjusments necessary. In the following days I did have bad days but even then collectively they fell short of what I managed to lose on one or two days during the initial period. I was lucky to realise the importance of risk management, many newbees dont focus on it. Rather they put their energies to find methods that ll give them 100 percent positive results failing to understand there is no 100 pc fool proof method.
By the time they realise the importance of MM its all about unlearning what they learnt till now. So I guess the sooner the better. One should atleast have an idea of what mm and position sizing is so that he can have a realistic chance of making it to the top league. Else he may not even survive.
Agree fully...I am glad to learn that you have a clear understanding so early, now you are prepared for the second half of the battle - finding methods, systems, sharpening skills, which will give you edge of others in the market.
I will brush upon the skills part and the methods later as we go further.
Day Trading - Prohibits Learning....keep it in mind and memorise...
Yes day trading can be profitable, when...once you have learnt it by not doing day trading and learning how things work, when you build a system, know your instruments, your personality.
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What do you need to learn, a good teacher / mentor and importantly environment.
Just think of standing in a crowded place in your city reading a book, and then reading a book in a public garden and then in a library and then reading a book in a reading room boarding school at a school in Shimla, Dehradun, Mahableshwar.
In tranquility you not only learn by grasp the subject and you are always right.
Starting a trading career (full time / part time) with day trading, is like reading a book in a crowded place. There is lot of noise, the anxiety of losses, esctasy of profits, the emotions, happiness, everything that you should not have for a good learning, it is all there.
When you do not day-trade, and start with larger TFs, you get more time to think, react, learn, note things, register in mind and in a book too. Also you develop a good observational skills if you just observe intra-day charts (though you should not day trade), develop - patience - the most important characteristic of a trader. You can control the urge to jump in a trade immediately. You gain control of holding on to a profitable position and not exit in a jerk.
Hope this helps...I know probably there could be somethings I may not be able to explain in words, what I can do by talking, gestures and body language, but that is a constraint we will have to live with. I am constantly being bothered now how I may be effectively be able to glide through the more concerned topics to follow. But I appreciate and welcome questionig and clarification seeking, as I said these are my belief and practise, I may also learn from a healthly discussion by participation of readers.
I believe there are only two ways of making money in the mkts..
one is where u have a very high percentage of ur trades as winners..while datytrading , since u are trading a very small TF, u have to keep that win percentage very high since trading smaller Tfs, u do multiple trades and subsequently pay a high cost..
the other way to make money is to 'let ur profits run', add to ur winning trades... "daytrading" by its very nature is not suitable fr this kind of trading..as generally a daytrader would be out of his position before the close even though the trade may be in good profit.. u have to give some room to ur winners to be consistently profitable.. and if u are 'daytrading', u cannot afford that luxary very often..
Ok, now as we go further in this thread, just a small recap of the above two trades, one taken yesterday and one today. For the benefit of non-options traders, may I ask some options trader reader to state the payoff (risk, reward and the reason why the above trades where taken, which of the two trades were correct 1) From the beginning, 2) In the interim and 3) in the end. There is some strong, stong message I want to give (and this is for all traders - non-option traders too). This is one trade secret or something which will give a new dimention to your thinking for any TF trading, especially for the starters and non-consistently successful or experienced but struggling traders.
So, please some one dissect the above trade and then I will give you something that will change the way you trade.
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Risk - around 30 pts till UL is below 5690 or so. Beyond 5690, risk would exponentially shoot up. That is in theory - you should be able to close out the position much before that. So in essence for me, Risk is 30 points.
Reward - around 70 points when the UL is below 5500.
Reason for taking the trade - Hitting a strong resistance of around 5540 on daily charts after a sustained up move (?)
Given the neutral to bearish view, this trade looked correct from the beginning. In the interim during the spike up today, this trade was still under control - we would have been loosing less than 25 points or so. Ideally today EOD, this position would have been closed out, since there is nothing remaining to milk out.
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How does the below sound:
- How to convert your losers into winners
- Capital guaranteed trading
- Remember someone is watching your trades - how to fool them
- Whatever your expectation - I have a model
- Whatever your risk - I have a mitigation tool
...................trade condition..............Risk - Would start to loose money either side of 5450 and 5650. I would quantify the maximum risk as maximum 50 points realistically.
Reward - (53 points of time-decay divided by 5 trading days) + (some dampening in IVs) = maybe a maximum of 15 points
Reason - Gap up and then back to 5550 - Creating a broad range of 5500 (decent Support on intraday charts) to 5600 for the day
With NF at 5550 around that time, the 5600CE-5500PE short strangle would have given lesser rewards given that they would have had lesser premiums. But the BE points may just have been a bit further away.
This trade looked fine as long as we are above that support of 5500, below which this trade would have been in trouble. In the interim - at around 1 pm, we would have been around 5500 and trending down.
By EOD we would have lost around 15 points on this one.
This is just the price action, since I have no clue on how the IVs moved intra-day.
Yes, the first trade was profitable (but not from the beginning), infact at the day open till 1 hour it was negative to almost 26 points, but since the holding time for this trade was till Tuesday EOD and review time was EOD today this much volalitliy has to be figured in. But in the end the trade was much positive with 46 points. But is this the point....NO....
Ok, the second trade, was quite simple and though you have tried analysing it for holding peirod till expiry, if you relook I had mentioned that it was an intraday trade with closing by EOD today are review period of 1300, 1400 hrs and EOD. This trade focused only on time decay which would have been of max. around 9-10 points at the EOD, had the IV remained constant.
This trade as correctly mentioned was almost in the positive territory since beginning and maginally negative occasionally, ranging from -2 points to + 7 points. Then we had a downside post 1330 hrs and if the trade was held till EOD would have resulted in loss. But is this the point... NO ...
So what is it that I want to demonstrate here. Even for non-options traders this applies. Once I explain the motive to demonstrate these two trades, need be I will demonstarte live equity/stock trade next week, so it may be clear for non-options traders.
He just mentioned about neutral strategies, didn't he. Well it may look like that initially but they are not, infact both are not. Why because when I initiated a setup I had some 'idea' about to movement of the UL (let us say bearish in the first case) as per my decision making system, but I could be wrong, could I be. Yes, we all do make wrong entry decisions, but then how do I ensure that my decision (say bearish) in this case is correct and I am not caught in a wrong move upside. What is an upside move happens, 1) Immediately 2) In the interim period of my holding period??????????
How do than I cut my loss making trade? How? How? How much loss should I take? etc etc (We will talk about portfolio mangement and RM later), so I thought why not take only the correct trades (you think I am insane to make such statement) Well I also thought so initially, but then I thought that I need to develop something which will help me always to get into a right trade..what is it I am talking about? No I am not talking about my decision making system, that is my system, yours could be different. I may, if I think appropriate, may write on it maybe later, or maybe not.
How to then convert your loss making trade at initiation into profit???
What do you think, do I have any such method to take just the right trades or convert a loss making trade into a winning trade, what is your opinion....
if it is difficult for you to guess, then kindly refer to my earlier two example trades, which appeared to be market Neutral at initiation with my view also mentioning something like that, but I had very specific view on the direction of the market, which was not disclosed...now you would say both the position were good the first resulted in a good profit at the end of the day and the second was good till half time of the day...
In both the cases, what do you think would I have done with the entire setup, would I have kept my longs/ short (of respecitve trades) open through out....????
I have already given some hints, and now if someone could either point out what I want to disclose further would really earn brownie points. I repeat I had a specific view (but maybe since I could be wrong in my view) I had.....and then mid way I .... so ended in substaintail gains at the end of the day more than the respective setups could have given because.........
Options trading (covered, open, writing, options strategies) is itself a vast subject and I guess it may not practically be possible to teach A to Z on this subject on such forums or atleast I am not capable of expressing myself in this forum as there are a lot of things you keep checking different numbers, graphs and not just the graph / price of the UL. It is like flying an jet watching all those funny meters, which can't be done on paper.
Also not many may be interested in Options trading at this point of time as the basic prerequiste for trading them IMO is to have a consistently successful or large stock trading background.
Like any trader, you have a view on the UL, bearish, bullish, sideways and in stock you can make money either in bullish or bearish movements (sideways is for Options...so we will not talk about it here).
So there are only two views to profit, bullish or bearish (we are not talking about the speed of change). It is just a plain view of the UL reaching a particular price up in case of bullish view and a particular price down in case of bearish view and by a 'specific time'. For every system of ours, this is important that the view has to be till a specific time, either 10 mins, 30 mins, till EOD, for 3 days, a week, a month etc.
But since we are no God, can we exactly define the end of the 'specific time' or can we define that our entry is just the right time and move will happen exactly after we have taken a position. Am I talking about catching the bottom or tops to take the best entry position - which by inate human desire we all want, yes...to a large extent, but then we need a confirmation too that we have indeed caught the best entry position and that too WITHOUT incurring loss..so the question is how do we do it, eating the cake and keeping it too...
When we arrive at a decision point (and say our view is bullish) we generally enter long, we generally enter at a point where the bears have just climaxed but are the bulls ready to charge....generally no. Though ideally we should have entered after a pause to let the climaxed bears, breathe easy and cool down and just as the bulls show signs of charging. But most of the traders are not so paitent to do so, and since we always want to be in the market, we take long position just when the bears have climaxed and then hold on our position till the bulls start charging....this waiting period of waiting and hoping that our position will flourish is the culprit and lot of things keep running in our minds during this time. We consider the time invested is too long and hence even when there is small up move, we tend to exit as we are restless, since we were kept waiting for so long for the bulls to charge. Alternatively if the bears decide to march further down south, there are high chances that the position is held on, since you are married to the position as you have been holding it for so long long time and the long holding period does not allow you to exit even when you know that the movement is not in your desired direction.
So though the best thing is to enter just when the bulls are ready to charge (in case of bullish view) or just when bears are ready to attack (in case of bearish view), we can succumb to our urge to enter the market and 'Get into the Action' and 'Get the first hand feel' by ENTERING NEUTRAL POSITIONS. Yes ENTER NEUTRAL.
So in the above example in both the position I have initiated the trades in Neutral Gear that means that the ignition of my car is ON and I am standby in a Netural Gear.
I had a view, in both the trades I mentioned - and that was bearish, but since I did not for sure knew when that would likely be triggered, I entered Neutral - so I am in the market and already in the action..till the time the market were moving in a limited range, my setups were not in much loss nor in much profit. As the time passed, and your conviction as per your system, charts and price action suggest that the desired movement has started, which can be anytime from the initiation time to the intermidiate time, I CLOSE THE LOSS MAKING POSITION from the NEUTRAL POSTION that I had at initiation. And than now I have a directional position, as per the trend in the market.
So out of the two sides, say for example, I do not spend my time and energy to keep analysing, which side is right and then move to side, BUT I AM IN THERE sitting on the fence all the times with one leg on each side, and swings my legs merrying in the air. The moment one side shows action, I pull out my leg from the other side, it is very fast and very easy.
How does this help...
- It meets the basic trader's instict of being in the market all the times (and the Netural position help you to be in the market, but without bearing any loss as you are market Neutral)
- As you exit your loss making position because of a movement in your anticipation, you develop habit of exiting trades in early loss - another requirement to be a successful trader.
- It helps to hold your positions for long time, since after an move in your direction, if there is a pause, you can reinitiate the opposite position and then then again get back to the market neutral position, keeping the original position in profit.
- And most importantly when you are having a market Netural position, and the movement subsequently happens in the OPPOSITE direction of your anticipation, you can either exit the entire NEUTRAL position or exit your loss making position (the position which you originally wanted to hold and profit) and continue with you NOW profit making position (originally which you did not anticipate to be in profit). So now you got it how to make your loss making position run into profits. This is despite the movement happening in the opposited direction to your anticipation.
There are a few more ways do this, but won't be stating them here...so other time.....
Hope you have understood what I wanted to convey, the Options trade was just an example, hence in those two trades, I have earned, but the original set up was exited midway and loss making trades where shun out, holding just the directional profit making position and profiting from the momemtum of the fall (in this case) or in some other cases would be a bull run.
To make things simpler for stock traders, it is like, If I am bullish on stock 'A', I go long stock 'A' and at the same time I go short say, stock 'B' (assuming they have be same Beta and are strongly correlated). And then I wait, from my initiation to the intermidate time (almost till half time of my original holding period) and just when the bull run starts during this period and I can see it on charts and price, I cover stock B and let stock A run in the money. And, if the bulls fail to take off till my holding period, i get out of both the stock. And conversley, if bears decide to take control in the interim, I either exit both the positions or cover the long stock A and continue holding short stock B.
Hope this help to convey my motive. Practise it, practise it, you can use it with your existing decision making system. And convert you loss making trades in to winners.
Whenever anyone enters into a trade, be it plain options or spreads, strategies or plain stock and/or futures, 3 things are can happen,
1. The move is in their direction
2. The move is opposite to ones logic for entering the trade
3. There is no move at all (as in it constantly keeps hovering near your levels and keeps fooling)
Now in all the three cases, if before entering any trade one has his mind set as to what he is going to do on all the three occasions(i started by writing it), trades and trading will become more easier.
Only in the case of the no.2 and no.3 is where the max learning takes place.
Cos its really sets one thinking as to what will i do if the trade goes against me. And there come all the trade managing fundas.
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Entering neutral inspite of having a inherent bias is an eye-opener for predominantly futures traders like me with primarily trend or price action following systems.
One immediate question that comes to my mind is another of trader's itches - to do something more about the position before the review time. Your EOD trade for e.g - correctly had review periods at EOD Friday till Tuesday. Would you have tweaked something in the trade had there been a gap down in your favor on Friday morning itself and by noon, the trade was clearly deep in money? Or would the tweaking either because of loss or gain happen only at the review time, given your belief in what your system is telling for that given TF. Or are "level" based reviews better? Like a review at 5600 or at 5450 etc .
................yes if you are targeting Absoulte Alpha Returns, then you need to be constantly in the markets going long, going short quite regularly, if the amount is large then the TF becomes larger, but the position in the market is mostly likely always there, through the above Neutral Entry example you may choose to be in the market all the times, from Netural to Long, to Netural to Short, to Netural to Short and so on. I also term is as a Spiderman trades you are out of one and then into another, just like that swinging spiderman from one building to the another. Would probably write more on spiderman trades later in subsequent topics. Also related to this subject is a 'spy trade' (kindly remind me, incase I miss out to explain you this as we go further)
...............there are other better ideas to make more money and 'with equal amount or lesser risk or without losing money'.
On the first part of this being an eye - opener, I would say that I developed this techinque as I found that once I had developed an opnion (essentially at the resistance or support, I would be keen to take a reversal trade, in many such occasion the trend would continue after some time and then though it seem a sure continuation of trend, since my orginal decision was reversal I would not take a position in continuation of the trend as it was not what I had anticipitated, through this techinque, since I am already in a Netural Trade, I could exit my loss making reversal trade (which was my main position) and continue holding the trend continuing position as it ran into profits.
The above techinques given large room to accomodate, right decision making errors and hence would advise it to starters, till they have developed a good strike rate sytem which gives high probablity of right signals on entry. Even today, I am stuck on lot of occasion when my system though it me some indications and I do not have conviction on that indication, I enter a Netural Trade first only to then release the loss making trade out and continue holding the profit making trade till the end of holding period.
On the second part, of reviewing the position at the end of review period, I can only tell that once you have done your trading portfolio allocation properly, (which is nothing but portfolio managment - we will discuss later) I do not see any reason for me to jump into any intermiate review. If you are thingking that the losses could be large due to gap up / gap down, that such volatility is factors in that time period portfolio and the overall effect on the total portfolio is small, even if that particular trading portfolio postion goes into a deep loss (which generally does not happen - once you have rigid and dynamic decision making trading system / method.
I recollect mentioning somewhere on this forum that I am like a baker, baking breads to cakes, to cookies in different ovens, and for different baking products, you need different temprature and time settings, I just need to open and check those ovens at those set time and not in between. As such when the timer of different oven stops as per what is being baked inside, i.e. end of my holding period, I exit automatically.
One more method of Netural trade entry is place two SL type entry orders (one short and other long) of the same stock just above the the current price of the stock and keep on changing them in the range - band fashion (something like BB bands) where you have a line above and a line below the price line. At some big price action (either up or down) your one order is triggered and that trend is likely to continue, so hold on. Additionally, once your position is initiated in this fashion of entry, you can then put a SL to this position with twice the quantity, that means that if your SL is hit, than you are out from the original position quantity and now have a reverse position with the original quantity.
e.g. For Stock A, if the stock has fallen from Rs. 110 to current price is Rs. 100 and you have a bullish view now 'as per your system' (especially a trend reversal thinking), you can put a buy SL order of Rs. 102 (1000 qty) and a sell SL order of Rs. 98. (1000 qty)
Now if the stock rises to 102, you will automatically enter a long position at 102 for 1000 qty, then in such a case, since you have created a directional position, you can set a SL at 99 with 2000 quantity.. so incase if the the SL is hit you are now short @ 99 with 1000 quantity. And with this directional position you can then again set a new SL....and so on till the time the chart, your system or price action suggest a strong and most certain direction of the stock till the end of your holding period.
Hope this helps, there are a few more ways to do such things till you have developed a good successful system. And even after you have a robust trading method / system many times, you feel that such entry is beneficial, I still do it many times, even after so many years in trading. This way the profits may be less, but almost certainly there won't be losses. You will need to practice this, which isn't that difficult. But you will need patience with this method. If can control your losses you are still in the game and milking.
Still if there is some disconnect, would like to throw more light / give more live examples, pls PM me if required, and we will take it off line.
Regards,
..ok...now I would close this ice breaker discussion on trade entry here and continue with the subject from next post...on second thoughts I feel that such bit - off track topics may make the flow vibrant and not monotonous or monologue. Also please excuse for wrong spellings, wrong grammer (though I am good at the language) but many times thoughts run faster than the fingers on the keypad.
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Am I worried after I initiate a trade, am I happy or nevous when I exit the trade, you would guess rightly that I would say NO...is it because I am making this statement and not some other budding trader???
What makes me detached from the positions, is it because of good high success trading system? How can I do more research on my existing system and how am I able to refine it, do I refine it regularly. Or use the same system?
The answer to all this lies in how much I put at stake, how much I allocate to my that trading portfolio. So you may ask what is 'that' trading portfolio. Do I have different trading portfolios, if yes, why and what are those, how are they build, what is the basis of funds allocation to them.
When I started I had one trading allocation yes 100% to one TF trading. No prizes for guessing the results, when you have such most skewed allocation and that too without much proven or with just semi successful trading method. So post the results, (as I had mentioned this somewhere on this forum, restating)..."In the dark, the eye begins to see".
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Trading is a job...a daily business and wealth cannot be created by doing a job or daily business...this is the first and foremost thing to remember.
Yes you cannot create wealth by trading !!!
Wealthh is relative, wealth for you may be different than for me.
How do you define Wealth, for someone earning a 10k a month, wealth could be 50 L, someone earning 1 L a month, wealth could be 5 Crs and for 10 L a months the wealth could be 50 Crs, so wealth is relative term and hence I said that you cannot create wealth from trading.
So if I make 5 L a month from trading, and my aspiration of wealth is to have a worth of 25 Crs, can I make it from trading itself in my workable life time. Infact mathematically, it would take me another 41 years to do it (at 5 L a month). Yes workable life time, if you are surprised by this term than rethink, what you are doing today, you will not be able to do after 5 years, those of your successful methods / models will not be fool proof then, it would require constant upgradation and pass survival and expiry tests. The health and agility will not keep upto the levels today. If you are afraid than so be it...
So effecitively saying I cannot accumulate 25 Crs just by doing the same thing for the next 40 years. Even if I redifine my wealth definition to half the amount, it will take me 20 more years.
So how is wealth created, it is created by investing or trading your savings for longer TF (earnings minus expenses or trading income minus trading losses). One more rule (I have mentioned this again on this forum). BIG MONEY IS MADE IN BIG TIME FRAME.
Now once you are clear of this definition, the next question is does the stock market provide me will all TF and different risks instruments are there different assets I will have to study and deploy my savings for longer TF trading / investing portfolio. I am not sure about you all, but I found them all in the stock market, where you have MF (diversified, index, thematic, contra, momemtum, small cap, mid cap etc etc etc funds), direct equity - Index stocks, non index, small, mid, large, penny etc stock, Derivatives, Futures and Options. And everything mentioned above are standalone ingridients. If you can develop into a master chef (I am not talking about trading method / system here, this is discussion is above that) then you can create any receipe mixing these ingridients. Yes, I hence do not have to trade in bonds, or interest rate futures, or currecieis or commodities to diversify my trading portfolio. I can do it all on the stock market itself with various instruments and all within 9.15 am till 3.30 pm. Not tracking other assets which are traded 24 hrs or world wide. So for me it is a focused activity to understand, learn and master everything at one place and then create whatever I want, absoultely whatever I want can be created. Hence for different risk, different returns, different volatility, different TF, it all can be created on the stock market using different products and mixing them to suit my requirement.
And then wealth creation does not end in the financial markets alone, for some of your wealth you can invest in a start up PE, be an investor in a restaurant run by your friend or a relative, create and run business that can be run by managers and without owners involvement and take stock of the situation every weekend. Take up a retail franchise of brands - fastfoods and and get managers to manage it. Buy properties and lent it, hire managers for it's maintenance and rent collection etc, buy fleet of tourist cars and rent it, set up a company to run it and...the list is endless....And keep trading still your core business, your daily job...your daily involving business...
BIG MONEY IS MADE IN BIG TIME FRAME....with less volatile returns...trading income (less trading losses) is feeder to the longer TF assets.
if allocation is done right, then you conquer the fear of trades going wrong (ofcourse you need to have a good trading method though first).
If the thought ever comes to the mind that for all this large money is required, then may just beg to differ, all can say it is never too late to make a right start. You can start this with any amount of money you may have, the success is exponential, and any target can be met.
No enough of the gyan, let us come to practise (unfortunately today everyone wants results) so let us come to real life scenario.
Say I have 1 L with me now and I want to buy a car after 3 years worth 3 L. This could be one goal, defined in financial terms (3 L) and a defined time ( 3 years), so now lets get cracking....
You have 5 assets to invest and the following are the risk return
Asset Expected Return (p.a.) Risk (defined as Standard Deviation)
A1.............10%.........................?
A2.............30%.........................?
A3.............50%..........................?
A4.............80%..........................?
A5............120%.........................?
If you invest only in A1, you will end up with Rs. 1.30 L at the end of 3 years (30 K returns and 1 L capital) for simplicity we are ignoring compounding effect.
Similarly if you invest fully only in A5, then you may end up 4.6 L at the end of 3 years (3.6 L returns and 1 L capital)
So how much you invest in the above assets, what should be the allocation, should it be constant through out, what is the risk (Standard Deviation) and Probability (0 to 1) of returns as mentioned above for each assets??
To simplify and make things easier for no math and stat readers. The asset allocation should be simply higher in high risk asset and lower in the low risk asset, since you have time of 3 years, so even there is high SD in the portfolio you need not worry as you do not want the money now, you need it at the end of 3 years only.
Hence you could have started as
Asset ...Allocatioin
A1 ..........0 (0 k)
A2..........10% (10 k)
A3..........20% (20 k)
A4..........25% (25 k)
A5..........45% (45 k)
Total investment 1 L
At the end of the first quarter when you review the performance of the portfolio and depending on the returns of different asset you would make readjustments, say now your total portfolio has increased from 1 L to 1.10 L after the first quarter, your readjusment would be as below:
Asset ...Allocatioin
A1 ..........0 (0 k)
A2..........10% (11 k)
A3..........20% (22 k)
A4..........30% (33 k)
A5..........40% (44 k)
Total investment 1.10 L
What have we done in the first review is reduced the allocation of A5 from 45% to 40%, reduction of SD from the total portfolio.
And so on...every quarter
After 2 and half years it would look like:
Asset ...Allocatioin
A1 .........45% (1.12 L)
A2..........35% (0.88 L)
A3..........20% (0.50 L )
A4..........0% (0 L)
A5..........0% (0 L)
Total investment 2.5 L (assuming this the worth of the portfolio then)
At the beginning of the last quarter it would be :
Asset ...Allocatioin
A1 .........70% (1.9 L)
A2..........30% (0.81 L)
A3.......... 0% (0 L)
A4..........0% (0 L)
A5..........0% (0 L)
Total investment 2.70 L (assuming this the worth of the portfolio then)
So effectively what is being done here is as the financial goal come near the high risk asset, with high SD are reduced as we cannot offered that much volalility as we touch down. Hence what we started during a take off, it is opposite for a smooth landing....