Thoughts on Risk Management

DanPickUp

Well-Known Member
Hi

Would the question here not be : So how do we do it on next Monday ?

How do we control our feelings when entering a trade ? As some of us do not have time, we have to find a way quickly to solve the problem, mentioned in the last three post.

Here my part to that, which should help to manage that problem until Monday.

Here it goes :

http://www.traderji.com/beginners-guide/39632-come-into-traders-den-20.html#post433027 ( Wheel of success )

http://www.traderji.com/beginners-guide/39632-come-into-traders-den-26.html#post436096 ( What kind of trader do we want to be )

http://www.traderji.com/beginners-guide/39632-come-into-traders-den-42.html#post451281 ( Understanding risk reward ratio )

http://www.traderji.com/beginners-guide/39632-come-into-traders-den-42.html#post449267 ( A definition for ever )

http://www.traderji.com/beginners-guide/39632-come-into-traders-den-39.html#post446048 ( Maths on the subject )

http://www.traderji.com/beginners-guide/39632-come-into-traders-den-2.html#post423704 ( How to set a goal )

http://www.traderji.com/beginners-guide/39632-come-into-traders-den-42.html#post448259 ( Books and how to be light years ahead in terms of ? )

After reading that, you should be in a position to understand your self better. Print some post and read it in the next few weeks, when ever you have time. It will help you, to understand your feelings in trading.

Even then, Monday will come and you have to start trading again.

There is one post, which points on that stuff. Even than, if you not read the other stuff, you will not manage your problem, about being emotional when in a trade.

Finally : Start with the smallest unit, you can lose for a few times in a row. ( 5 - 10 times )

Do not get greedy after one win. Do not double and triple after the first win.

Start with a very large time frame to get used to your trading stress.

Be clear, that your trading plan is made for this time frame and not for an other one.

At the moment, you make consistently money, you will have enough time to develop new trading strategies on shorter time frames.

Be careful, when you try to copy other traders trading style. Better find your own way of trading style, as you then know what made you taking this and this decision. In that way, you can reduce your fearness about trading.

Have a nice weekend and a good start on Monday

DanPickUp
 
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oilman5

Well-Known Member
Since this is a nice thread........let me do some compilation.
...................................................................................
1]thoughts on risk management................Your stoploss is the best insurance available to you....once you put it in the system.....nothing can make you loose more than that...and that turns your fear into confidence and you have taken one step towards winning in this game called "trading.
2]I see trading/investing as a business point.

business need to have some capital/ input / process /output / profit.

input in this business is stock-in-trade or positions trader/investor holds

process is his views/knowledge/skills/intuition/learning that makes input to a output of profitable/losing proposition

output is the time+process on the input (every business has it the same way)

profit is the outcome of business, and is dependant on all above

so in the insurance aw10 talking about will cover capital, input, output,profit.
3]when we know that Trading is a Business, then how many of us have backup plan for our laptop/pc, for datafeed, for historical data, for all customised indicators, dashboards that we create in our TA software or trading software ?

It is quite exhaustive topic on its own.. Topic about ensuring continuty of out trading business, which goes far beyond a single trade, or single trading account.

Personally, I still have long way to go in this field. Recently my laptop crashed, and had to format the harddisk. And it took me more then a week to comeback to my regular trading setup that I need. That means my trading buss factory was shut for 5 days while I was recovring from disaster.
Hopefully next time, it will not be down for more then a day.
4]Risk is a potential loss of any business event. The potential loss exists in future, and not in point of time of business event takes place. 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
High frequency high severity which is practically nil for any business, (may be except in agriculture)
4]Risk management is not just about taking well calculated risks. calculated risks is just the start of it. One must also be capable of 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..............Well said, you are indicating a scientific way of making a risk-return trade-off. RM is about this trade-off, also about minimising down-side risks
5] Discuss risk and money management techniques and methods to protect your trading capital. " is caption of this section. I was trying to talk about risk management techniques.

A few more elobarations i wish to make now, to see more light into the topic.

One such thing comes to my mind, the role of economic factors in risk management. By economic factors i mean the macro-economic inputs that is a must for risk management processes.

i consider the GDP, a sufficient indicator of the growth for the world economy or a country's economy.

secondly money supply in the financial system,

interest rates
.....................................The subject Risk Management is all about taking the risks in a measured way.

6]Please suggest your answers for the following problem on risk Management

Funds to Manage - 40 Crs.
Expected return - 20% (annualised - Post tax)
Fund Managers commission (2%)
Risk appetite - low
Performance evaluation frequency - Monthly
VAR - 1% on (daily MTM)

Since the risk appetite is low, the expected return is also low. 20% post tax and post commission, gives a tgt of 33% per year, which is very reasonable.

Options are liquid only in nifty and a hand picked few stocks and relatively safe trades are possible only if options are used to build / safeguard positions. At least 40% of the AUM should remain in cash, to implement the exit strategy, should it be required. That means the tgt per qtr of 9% on the balance 60% of the capital which is exposed to the market.

This is assuming, 2% commission is on the AUM and profit is taken off the table periodically.

Its a matter of formulating the right trading strategy, with clear exit points, action required for every possible what if scenario and execution of the trading plan.
AUM = 40 cr
20% target (post expenses+tax ) = 8 cr
Assuming comm as 2% of AUM means, comm = 2% x 40 cr = 80 L
Max exposure limit is 60% of AUM = 24 cr
You need to make 55% profit on 24 cr, means profit = 13.2 cr
Profit, After tax @ 33%, = 8.8 cr
profit after comm = 8.8 - 0.8 = 8 cr = TGT met

Now, what instrument to trade in ?
One can trade in equity / derivative segment. Personally, i prefer instruments where options are liquid. That give me flexibility to adjust my risk per trade. I prefer Nifty as that has good liquidity at wider range of strike price.

Options if used wisely can generate 90-95% probability trades. It also helps in minimizing risk at the cost of potential profit...

Personally, i trade in Nifty and nifty options only. My profit target 15% per qtr and i have a very low risk appetite.
7]logic of trading is simple.

you buy something at X rs and try to sell the same thing at X+pt Rs

pt must cover for other expenses incidental to transactions (buy and sell)..let us call them transaction costs.

so pt = trcost+pft
so 1)buy at X sell at 2) X+trcost+pft

now the timing .. either 1) can happen first or 2) can happen first or both can happen simulatneously

some ppl tell me that they bought at X but X+trcost+pft never occured

some ppl tell me they sold at X+trcost+pft and X never occured

ppl like linkon, and other experts say that they read some charts, and find out some possible X values, which will always force 1) and 2) happen and at time when the fail in their faith, they do either 1) or 2) at value less than X or

there were many books, many softwares written on finding out such X values

I think we should split X into two components now

X = nx

n = number of units
x = price of individual unit

I feel the value of n has some effect on x and vice versa

so our 1) is now buy @ nx and 2) is now sell @nx+trcost+pft

we cant load the trcost+pft in n so we change the second equation 2) n(x+trcost+pft)

smaller the value of trcost+pft, higher the probability of 1) and 2) occuring.

Let me know in this simple logic, where does risk and risk management fit in?
8]a core pt r presented here.'how to lose money in stockmarket'......pl avoid them
.................................................. .........................................
1]Trade in options without understanding and context of present market condition
2]not use stoploss
3]Cut your profits short and let the losses run
4]Select a method and start trading it because you are in a hurry to trade, not because the method is sound
5]Don't use any method or plan at all! ... Just buy as much as you can or short as much as you can
6]Take a position and go to sleep!
7]Listen and trade according to CNBC calls........JUST REVERSE ,ITS GOOD EARNING METHOD.
8] Never use your own brain for trading ... Never try to learn anything but taking position and squaring it off! Search extensively secret underground sources for TIP ...
9]Trade against trend ..........BUT THIS IS ONE OF MY EARNING METHOD.
10]Engage in extra-curricular activities during market hours AND Forget your commitment of trading seriously/mindfully .
11]Always assume that you are always right..even when proved wrong..take it as temporary setback and start with fresh vigor resuming your assumption that you are and will be always right..
12]There is only one rule....that is....TRADE WITHOUT RULE.....you will reach your goal.
13] If the basic hypothesis upon which a trade is entered does not exist, then one has to remain in the trade, hoping the situation to get more worse!
14] Emotions aka false ego....
Emotions aka i know all i longed/shorted this script and its going to follow me,i longed/shorted this script coz i know all about markets,always remember markets are not supreme,its the false ego in me.
.................................................. ....
Avoiding the methods of losing money mentioned in this thread would be quite helpful to become a successful trader
so as per modern concept key idea is
1] understand sentiment of present market
2] psychological neutrality
3] effective risk management
4] add/leverage when right.
5] where to put stop....../when not to play
6] preparation.......then only u can execute.....u have to develop a system which suits u
7] learn to play in atleast 3 types of market.......trend UP /DOWN ; VOLATILE , SIDEWAYS market.........mixing of them can be learnt later.
use very simple indicator..........but master over it.understand......price variation can be reflected in them.......so that......by seeing change in Indicator........u can develop to predict Right side of chart.
MA- X simply suggest trendliness, momentum tools use for strength.......support/resistance breaking tells us about future of a stock.
8] future of NIFTY and MONEYFLOW.......comes before everything.
.........
to be contd
 

oilman5

Well-Known Member
Implementation of Risk Management according to me is quite simple and doesn't require much thought. However to derive a process could take time and research and could depend from individual to individual.

share your style of managing Risk on your individual trades, trading capital and on your total portfolio i.e. for each stage what has been your process, has it been different for each stage and how you implement it, pit falls during implementation and control /audit mechanism, if any.
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:

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 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.
'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.
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)

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.
......................
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.
...................................................
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.
............................
read Ryan .............his site smarttrading.com........if u think to master MM
Be a student of FRM.......financial risk management
for simple learning KISS on risk management/money management.......be a member of paid site www.masteroftrading.com........where good pro teaches .
USE stator-afm as software if u like.
................I have heard that trading is 70% psychology, 20% money management and 10% how you trade. If you are 'guessing' that the problem is money management you may be missing a more important reason.

Suggest that you review previous trades, successes and losing streak and see what you did or how you thought differently. Perhaps over trading, guessing, not having firm plan, not following plan etc etc.

What do you think you did wrong money management wise?
focus of money mgmt is - SURVIVAL. As a trader, we can survive to fight the battle on next day, only when we control the amount that we are going to loose.
We got to set the rules and follow.. (if we don't have the rules, then there is no question of following them). It is not just matter of knowing this number in our head.. but I prefer to keep it in writing so where and also refer to them regularly and monitor them during the market hours.

In my trading, I have various loss limits as % of my trading account size.. i.e.

- Risk per trade 1%,
- Risk per day - 4%,
- Risk per Week - 8%,
- Risk per month - 10%.

At the start of month I calculate these number and then they are reset only on next month begining.

You can have different % here. But higher the number, difficult it gets to recover the loss. In my approach even if I am down 10% in a month, I can easily recover in next month.. but if I am down 30% in a month (i.e from 100, i have come down to 70), then I will need a RoR of 45 to 50% to recover.. which is not practical in a month. So, I keep fighting for 2/3 months just to get back my loss.. Not a good trading loop where I want to be in.

The Must rule for me is to stop trading for as soon as any of the loss limit is hit.
If I have 4 loosing trades in a day, my trading day is over. If I have 1 4% lossing day, and next day again I loose 4 trades, I am on holiday for a week. No more trading, no fighting with mkt to recover my loss.. Psychological impact of losses on our decision making is very different topic.
I 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..
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.
........... in trading , u dont have to be genius , but a copy master. Copying what is done already and try to protect u from already proven failed system IS major part for in journey of a trader.
Next is what fits u.when u get by using a system ,however peculiar may it look by others, if its give u consistent money atleast for 1 yr ,in real time trading,........that should be your edge,Now with discipline stick to that system in proven market condition.
AGAIN prepare another system .......not for its betterment, but which may work in future changed market condition.
Trading is not a place of innovation,already more than 120 yr enough experiment has clearly put in black & white.........what works
 

tnsn2345

Well-Known Member
Well said tnsn.....these things are repeated by me and everyone who unable to hold mind....trying hard to not to repeat it but till now am unsuccess in this mind aproach......how you people get out from these type of mind set....
please share sure it will help a lot...
Dear Vjay,

The compilation work done by Oilman should help you get started and eventually you will be able to chalk out your own path to train your mind.

Actual methodoloy and tools being used by individual traders may be proprietary in nature and hence may not be disclosed here (or anywhere). But the inputs on this and related threads should set the ball rolling in the right direction.

Regards,
 

oilman5

Well-Known Member
Here i write a small learning of trade vision.
In 2001.....we r told a man from ministry is going to take charge namely SUBIR RAHA.
After some month .........price suddenly moves 15-20 % up.........accepting better mangement,.........My foolish brain with basic Knowledge gathered by Dr Prasanna Chandra ,........calculate valuation with bullish scenario + oil industry may decontrol.I forget how i made calculation........but it fair value 480-500 within 2003.
Since i am a novice in finance , i approached a superior officier with CA + IIMC ,mba Finance senior,.......see my calculation ,,,,,also what shall be value according him.
................HE taught Market dont work this way/that way.......value as per him 320-350/-
I was disheartened, after all a good student from one of TOP place to study in india is telling.
So even at ............240-250 , i didnot buy and as quickly in reaches 290-310.......i understand i may not be right & market is behaving crazy. YES i dont earn i single rupee .
BUT i am confident and learnt most imp lesson of trading,.......If the top most college IIMC , laggs so the knowledge of Topper student with double degree ...........Yes i can reading myself better........YES it may take time. NEXT fundamental data or its study .....dont work ......unless u know how to look future.
Pl learn from own experience , better to READ price,........so i read CFA books ,also later MBA-Finance ,.......all availaable lecture @ BSE ,..........but trade on PRICE.
Fortunately..........Tnsn2345........clarifies well, also i have understood now Raunak is great.
...........................So in trade learning Patience pays.Developing right mindset very imp.
Regards to all
oilman5
 

linkon7

Well-Known Member
Little Knowledge would do fine, often.


Once upon a time there was a high IQ cheetah who couldn’t run at a top speed of 120 km per hour. As a result, the Thompson’s gazelles that he chose to chase easily outran him and he was never able to get hold of one. Thus, in order to survive, he was forced to catch rodents and frogs and other small animals which lived in the Serengeti.
Of course he had to do this surreptitiously because if any of the other cheetahs ever found out it would be terribly humiliating for him. “What’s the use of being the fastest land animal in the world,” he would often say to himself, “if I can’t even run down a decent high speed deer for dinner?”

So one day he went to a cheetah who was renowned for her astonishing speed and blurted out his predicament. “I have all the evolutionary adaptations that enable our species to run as fast as we do, including large nostrils that allow for increased oxygen intake, and an enlarged heart and lungs which work together to circulate oxygen efficiently. Also, during a typical chase when I can accelerate from zero to 100 in three seconds my respiratory rate increases from 60 to 150 breaths per minute.
"And, while running, in addition to having good traction due to my semi-retractable claws, I use the tail as a rudder for steering which allows me to make razor sharp turns, necessary to outflank prey who often make such turns. And yet”, he concluded lamely, “I can’t manage a top speed of 120 km an hour no matter how hard I try.”

“That’s interesting,” said the other cheetah who was staring at him wide-eyed by now. “Because you know, all this time I thought my nostrils were for only for smelling and my heart and lungs for keeping me alive. During a chase all I ever had time to notice was that the surroundings became a blur, my breathing increasingly deep and heavy, and by the time it’s over I’m pooped for the rest of the day.
"As for my claws and tail, I just try to keep them clean. But, like I said, this is amazing stuff. If we were to live together I could do the hunting while you can teach me things about myself and the world so that I too can become as knowledgeable as you.”
So the two hitched up and soon the Serengeti had two cheetahs that couldn’t run at a top speed of 120 km an hour and had to live off rats and frogs instead of gazelles to the end of their days.

Moral: A lot of knowledge is also a dangerous thing.
 
Little Knowledge would do fine, often.


Once upon a time there was a high IQ cheetah who couldn’t run at a top speed of 120 km per hour. As a result, the Thompson’s gazelles that he chose to chase easily outran him and he was never able to get hold of one. Thus, in order to survive, he was forced to catch rodents and frogs and other small animals which lived in the Serengeti.
Of course he had to do this surreptitiously because if any of the other cheetahs ever found out it would be terribly humiliating for him. “What’s the use of being the fastest land animal in the world,” he would often say to himself, “if I can’t even run down a decent high speed deer for dinner?”

So one day he went to a cheetah who was renowned for her astonishing speed and blurted out his predicament. “I have all the evolutionary adaptations that enable our species to run as fast as we do, including large nostrils that allow for increased oxygen intake, and an enlarged heart and lungs which work together to circulate oxygen efficiently. Also, during a typical chase when I can accelerate from zero to 100 in three seconds my respiratory rate increases from 60 to 150 breaths per minute.
"And, while running, in addition to having good traction due to my semi-retractable claws, I use the tail as a rudder for steering which allows me to make razor sharp turns, necessary to outflank prey who often make such turns. And yet”, he concluded lamely, “I can’t manage a top speed of 120 km an hour no matter how hard I try.”

“That’s interesting,” said the other cheetah who was staring at him wide-eyed by now. “Because you know, all this time I thought my nostrils were for only for smelling and my heart and lungs for keeping me alive. During a chase all I ever had time to notice was that the surroundings became a blur, my breathing increasingly deep and heavy, and by the time it’s over I’m pooped for the rest of the day.
"As for my claws and tail, I just try to keep them clean. But, like I said, this is amazing stuff. If we were to live together I could do the hunting while you can teach me things about myself and the world so that I too can become as knowledgeable as you.”
So the two hitched up and soon the Serengeti had two cheetahs that couldn’t run at a top speed of 120 km an hour and had to live off rats and frogs instead of gazelles to the end of their days.

Moral: A lot of knowledge is also a dangerous thing.
This is fantastic, hat off to you linkon... (dont assume that anyone of us resemble or similar to either of the two!!!!)
 

linkon7

Well-Known Member
This is fantastic, hat off to you linkon... (dont assume that anyone of us resemble or similar to either of the two!!!!)
I was the first cheatah... Always suffering from "analysis paralysis"...

Discipline comes from knowing what to do and then having the courage to do it when the time comes...

My trading system still indicator based and looks very colorful...but now i dont jump into a trade... and if sl hits... it doesnt bother me anymore... So that's progress....! everything i need to know is there in the chart and i dont have to think any more...! so no fear...!
 

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