Oh my boy nac ! It is not the drawdown that has surprised me most, it can happen to anyone but I am baffled how did you have 27% loss in One Single Day, did you get into a "Death Spiral", where after a losing trade, one trades with increased position size thinking to square-off previous loss which in turn makes loss and position size increases further (or frequency of trade increases).
Remember when you are bleeding, first thing to do is to STOP the BLEEDING, not jump into another attack which may cause further wounds and thus more bleeding.
Have you not set Daily & Weekly & Monthly Loss Limits !! I understand it is very difficult to close the day after loss, but there have been days when i was out of market by 9:30 because of Daily Limit. If you are trading to recover loss, there is only one thing you will get MORE LOSS.
If you haven't set these limits, then do so and adhere to them religiously (shut the computer and read some trading book, and if you are disciplined enough then have Paper Trades).
Paper Trades reminds me of
www.tradingsim.com , bro my earnest advice, login to the site, make that $ 50K into $ 75K before you even log into your terminal.
Also trading with borrowed money is really dangerous as you are more scared of losing which gives your more chances of losing the same. Do you see the irony here nac, the more scared you are to loose, the more you don't want to loose more you will !!
A windfall of change came into my trading the day i realized, I am not going to make lots of money overnight, I am not going to hit only home runs, i will not cover all my loss in a day, it takes time, a baby step at a time. Also i keep in mind, there is tomorrow and market will be there.
keep in mind, there are OLD traders and there are BOLD traders but there are no OLD BOLD Traders (i think it was said by ed seyokta, it reminds me he has written a nice article on Risk Management, you will find in his website , google it)
I just hope you will come to the realization that Trading is more about understanding Risk and giving it the respect it deserves and not about signals or tips or guts.
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This writing was always there on the wall and some, Sanjay and others including me had already predicted so.
And the pace was also quite expected looking at the way you had mentioned your trading method and habit in earlier posts.
What I feel sad to know that your casual announcement that "one has to refill the trading account number of times before making profit consistently". Pls understand that this is no prerequiste to success in trading. Ofcourse most of the traders undergo this, but you taking 'pride' in wiping out your capital just to make your count of refilling start is unwelcome.
Grow up Nac, that's what I can say, you have long long way to go. If time permits visit some of my comments on my Risk Management in the thread 'Thoughts on Risk Management" (post # 61 onwards). Also review commnets made by veterans/regulars viz Oilman5, AW10, Linkon7, Vijay and others in the same thread, you will get much needed perspective.
Regards,
p.s.: Trading is all about managing Risk, Risk and Risk. It's a game and your SOLE objective is to REMAIN IN THE GAME for long long time. PROFIT is the byproduct in the due course.
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.
............PL READ CAREFULLY.........GEM R ON TOP............
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To improve your understand on risk management please read the pdf by Dr. Van Tharp "Your way to financial freedom". And to practice the concepts he has devised a wonderful trading game (Its called TradingGame, you can get it from iitm.com). Challenge yourself to complete all the levels before you can think of trading in real again. (this weekend is gr8 time to start). Remember to follow the rules on position sizing each time you trade (in the game) and try to cross the level with least DRAWDOWN.
Why don't you also post your tradingsim.com score here regulary (this will make you feel responsible and careful) (i am suggesting to post tradingsim.com results and not your personal trading results, so i hope tnsn will permit you that).
If any of the word of anyone here incl mine, tnsn or anyone else sounds harsh to you remember it is for your good and it's some of our experience that is advising you.
Nothing would make me or anyone else for that matter more happier than to see a trader rise from abyss and trade into financial freedom as Dr. Van tharp would like to put
................This story I am going to tell you was told to me by a very brilliant mind. I like the story better the way I like to tell it but will tell it the way it was told to me.
One year a math teacher in the geometry class had more students that usual. Thirty-eight students were just too many to have the time to give one-on-one guidance as required. Not only were there too many students in this particular class but the teacher also had more bad students than usual.
One particular student had never gotten grades above Ds in all his school years. His name was Robbie, short from Robert. Robbie was the class clown and had been his entire life because that is what the other students expected of him. He had no interest in school and would brag he would quit school at the age of 16 in a few short months.
The teacher had three Robert's in his class: Rob, Robbie and Robert. It was pretty easy for the teacher after two weeks to keep the Robert's clear, as the one who went by Robert was the top student in math.
Five weeks into the school year the first PTA meeting was coming up. The teacher told each of the students to have their parents come to the PTA meeting. That night only about a third of the parents showed up. The teacher knew by how well the students were doing just which parents would most likely show up at the meeting. The teacher took three to five minutes with each set of parents to chat and find out a little about them.
The last parents were a little backwards and shy, but the teacher shook their hands and made them feel at ease. The teacher never got an answer when they were asked their name so the answer was never known. The parents asked the teacher, "How is my Robert doing in class?"
The teacher thought and then answered, "I have never had such a good student in my class who takes so much interest and is a delight to have as an example to my other students. Why, your son is a living example of those who will be leaders in our future. It's just wonderful to know that in our lifetime we will see youngsters like Robert grow up to make us all proud to have known him!"
The parents of Robert stood a little taller and smiled as they left the PTA meeting that night.
Over the next three months going into the end of the first semester the teacher noticed his students doing better than he had expected up to this point. Trying to comprehend how his teaching had improved and what he had done differently, the teacher spent more time trying to improve. At the end of the school year, the teacher was in his own glory as no student had failed -- not even the class clown Robbie. In fact, Robbie had gotten all his assignments done, taken a math scholarship exam and finished with the top score nationwide. He had won a math scholarship as a sophomore. The teacher was really proud to have taught so well.
The last day of class, Robbie waited until everyone had left and then headed to the teacher's desk to talk. Robbie held out his hand and said, "My Mother told me what you said about me! I have never had anyone ever want me in their class before or even cared if I learned. Thank you for giving me insight into my life!"
The teacher began to cry as all the efforts to improve as a teacher reflected back to the PTA meeting at the beginning the year. You see, the teacher thought that, when the parents asked how Robert was doing, it was Robert's parents and not Robbie's parents. The teacher had made the biggest mistake of his life at that PTA meeting by assuming he was talking about the right Robert. Not only was it the biggest mistake but it also was the best mistake of his life.
Can you imagine a grown adult crying? Isn't it refreshing to know we as adults can learn from youngsters and it's ok for us to cry! At one time or another in life we see a flash of light in thought looking back and realize what we have just been given.
ALS: Pretty touching. You say you like to tell it differently?
POP: I like to substitute Robbie's name and instead use "a brilliant trader." You must understand that somewhere as a trader the light must come on for you. There will be a point that the biggest mistake of your trading career will be the best mistake you have ever made................
...............And the story you point is exactly what I was saying. That we all have illusions about overselves (can be both ways, like overestimating our real ability or like underestimating our real ability). But most of us can realise the truth when pointed out, like in Robbies case he realised his true ability when pointed out. Story is good so far. Important thing is that Robbie had inherent ability all the time, but what if he really did not have the ability?
I will give you an illustration:
Lets take some television programme like Indian Idol. There are some contestants who come for auditons, and from very begining it is clear that they cannot sing no matter what. And these contestants consider themselves to be best singers and keep insisting it. These types make fool of themselves. Now, ther are other types. They may not sing their best, but have the ability. So after few applause encouragement they begin to show big improvement in their singing.
I have found two things in him which maybe the reason he is making losses(if he really is). One he is very stubborn, and second he is not using common sense otherwise 27% losses in single day in this market is next to impossible for person trying to make profits.
If I were to make a suggestion to him then i'll tell him to be more flexible and use his own common sense. All the stuff that you read in the books can be fu..ed.
One needs to always encourage right person, but not everyone. The Pig can never become beautiful no matter how much makeup you put on it.
Also, if someone says i'm going to commit suicide and don't stop me from doing so. What will you do? If you read carefully i'm telling him to use his own common sense/judgement whatever you call it . Every ones perception of risk is different and hence their management of it is different.
Now coming to next point, larvae of butterfly will become butterfly but larvae of housefly cannot become butterfly.
See, all of our intentions are same. We do not want him to lose much now. Which ever way it happens, either by cautious trading or by giving up all
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Well many seasoned and successful traders might see Nac's performance, attitude only as their own history some years ago.
If Nac has lost big, now he has the ability to bid and win big too (which most of small-loss-profit traders may not develop over years) only if he can learn asset allocation and risk management in times to come. He can still evolve and do better.
If sun rises in east (it is a given fact) you can't question or change that. Similarly, Money management (asset allocation) and Risk Management cannot change either you are full time or part time trader.
If you are good at the above two, I guess no one can stop you from becoming a net profitable trader. The quantum of profit and RoI will depend on your method and instruments you use.
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Originally Posted by nac
I am not much of a reader.
, buddy if you want to last long, there is no way you can loathe reading, it must be your hobby, passion, desire and indispensable thing. And anytime you are short of reading materials, do let me know. I have tons of them.
These days i am reading Patel's "Mind of a Trader", Norman's "Stock market logic" and Taylor's "Mastering Derivatives Maket". and I highly suggest these books.
Quote:
I'll show everyone that I can change.
That's my boy. Keep the attitude but never be arrogant. Market knows zillion ways to humble traders.
Quote:
Sorry, I guess, my posts are like casual approach to you. It ain't, actually its too painfull. Thanks for your suggestion, but I am gonna continue with more caution.
It's the pain of such days which makes a lasting impression and stops us from breaking our rules.
Quote:
My daily stop limit is 1%.
Isn't 1% little less !! Don't be so afraid that you don't risk the required size to make a comeback.
Quote:
Everybody will have their chance, now its market's (taking from me). Soon I will have my turn, then I take it from the market I lost.
Get rid of this thinking/attitude as soon as you can. This will destroy you. Market rewards you for your discipline on trade after trade, on your prudence decision making and on your ability to keep cool. Personally I never got too far with this thinking "I take it from Maket".
We would be glad to know your weekly results (just you ended in green or red would be sufficient, I hope this much will be fine with tnsn also)
All the best on getting rewarded ( Remember, Market is for reverance and not revenge)
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Aditya has put it very nicely. this statement of urs shows arrogance. it seems u want 2 get back at 'them', but believe me there is no 'them ' in this market, there is only 'me'.the market is very impassionate towards my profits or losses.
I am powerless in this market. when I put in a trade to buy a stock, it is obvious that I want the stock to move up,but the market does not have any respect for my desires. it is not in my power to move the stock even one tick above the price that I have bought it for.now if I am so powerless,where do I get the edge to make money in this market.
I have one tool with me which all the power and might of this market cannot take away from me and that is my stoploss. so start taking care of ur losses and ur profits will automatically start to take care of themselves.
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Dude, there are few books which are must call it Bible in Trading if you will.
1. Reminiscences Of A Stock Operator (Story of Jesse Livermore, for me personally, Newton
hysics :: Livermore:Trading)
2. Market Wizards (3 books, Interviews of Greatest Traders of all time)
3. Trading for a Living (Elder Alexander)
4. The Disciplined Trader (Mark Douglas)
Please, Please, Please read above books. I can't explain what you are missing, once you have read above books your views and perception will align to what is necessary for success.
anyone who is into trading and have not read above books, my humble request Please read them (and in the order mentioned)
All the best NAC for tommorrow's trade. Never forget Capital Preservation is more important than Capital Appreciation.
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"Press your winners hard exclusively" means When you know trade has proved to be correct, you should add into that. Now POP (Phantom Of Pit) suggests to enter into a trade with only 1/3rd of the position initially and add into it only when the trade is behaving according to your plan. This will save you from larger losses as if you have a loss, it will be only for 1/3rd of the position.
Remember this technique may not be applicable for all forms of trading like jobbing which our nac in into, here you may not get oppurtunity to add later. But if you are trend day trader and/or position trader, its quite effective technique.
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RULE ONE:
WE ARE WRONG UNTIL PROVEN CORRECT! (We do not assume we are correct until proven wrong.) POSITIONS ESTABLISHED MUST BE REDUCED AND REMOVED UNTIL OR UNLESS THE MARKET PROVES THE POSITION CORRECT! (We allow the market to verify correct positions.)
RULE TWO:
PRESS YOUR WINNERS CORRECTLY WITHOUT EXCEPTION
.................................There is a difference between GURU and BOOK. You follow GURU on whatever he says and you don't listen to anybody else (There are some forums/chat rooms, some paid/some free, where such GURU's exist). In that case what you said is mostly right. If you are following a GURU and also listening to Others confusion is bound to occur.
I do not believe in SPOON FEEDING, thus I loathe such a concept.
Coming to Books, there is bound to be different opinions according to style of trading (Jobbing vs Range Day trading vs Trend Day Trading vs Swing Trading vs position trading), also according to risk apetite (aggresive vs moderate vs conservative), also in different time frames. Thus you need to know What category you fall into and then go by the advice. If you are a Day trader and follow a swing trading guidelines religiously I am afraid you may end up not very happy.
Also please bear in mind trading is not a binary work (0|1), it's a lot of fuzzy logic, Aren't you amaze by the Market Dynamics, that when you are buying a stock you believe it is going up and the person who is selling you belives it is going down (you know only one can be right , BUT THIS DOES NOT MEAN THAT BOTH CANNOT MAKE MONEY).
Personally I have been a bibliophile and love reading books. If you read classics and some great books, they will open your horizon of thought, they will show you more ways into freedom.
If you also do not believe in blindly following GURU's then go ahead and read the books i have mentioned, believe me you will be a much better trader (in terms of judgement and rationale) after reading them. How much money you will make will eventually be decided by your Behavior Modification after gainng knowledge.
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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.
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Good to know that you are able to manage different Trading Styles.
How much one can earn is directly proportional to Knowledge he has gained, Screen Time he has acquired, Discipline He has managed and Passion he has for Trading.
I am sure you would say, everyone says such philosophy but no one answers is clearly. But before i answer my daily/monthly income, I have one important question,
will my earning daily/monthly, going to affect your TRADING ? if yes, i am more than happy to answer to you.
I trade my own money + manage friends money. (kind of hedge fund
)
I leverage 1:10 for day trading, and 1:2 for positional trades. it is not good to tell you daily return (as for day trading it varies from one extreme to other), but on monthly basis it's good enough for me to survive and good enough to allure friends to give money to me instead of any MF , ULIP or FD(i don't know why i am hesitating in giving the number). I am into full time trading + full time job (now don't ask me how ), but soon planning to leave the job.
I know people who have made millions, so as far as your fear goes, let me re-assure you "SKY is THE LIMIT". But focussing too much on money in initial days can be deadly. If you can manage b/e in initial few months i am sure you will have a great laugh in the end. I dont' say one must make mistakes and/or loss in the initial days, but then there are learnings which comes only after burnings (don't kill me for rhyming it
), and sure it is good to lose when accout is small and desire to change is more.
Remember to LEARN before you can EARN.
P.S: You can make trading a full time job but don't hurry into it, if Great Traders like Saint waited few years even after turning so successful, then why should you and me.
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If you are just starting and havent' mastered any form (infact mastering is a life long process, i meant consistent in profits) then it is not good idea to jumble different styles of trading. (i hope you know the parable how donkey was created ).
There is no problem in trading more than one style but you should know the difference and never jumble them. Don't enter thinking you will scalp it but then you stayed longer seeing the profit rise. And vice-versa, don't scalp if you entered for trend.
Infact i see the market condition, which decides my form (very rarely both style of trading comes into picture in the same day
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To come to your point directly, if you do not leverage, making substantial gains from day trading for living is less likely. Even if you have large sum as your trading capital. I would focus on monthly returns or RoI as a measure of how much money one can make in the market. Hence leveraging is necessary for day trading. How much to leverage will depend on your MM and Risk Management. More so, if you have different time frames of trading other then day trading (like in my case) your RoI will be different, as you are more focusing on MM. Hence your day trading may help you make double than your longer time frames method.
Adding to what Aaditya mentioned "sky is the limit", YOU can decide how much to make from the market. If your method produces say even 15% RoI p.m. and is scalable then who is stopping you to borrow @ 2% pm and pocket the difference. You can make money without having money. BTW this is only an example I am providing and am against trading on borrowed money.
So your method's RoI and scalability is what you need to define to arrive at how much on an average you could make every month.
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PL READ CAREFULLY.................In trading one does not blow out due to losses but due to unability to manage losses makes him think in the wrong direction, taking wrong decisions which leads to deeper mess.
LOSSES ARE PART OF TRADING
(or for that matter any business) for one and all, you, me and everybody. But only those come out successfully who manage themselves during this phase.
If one can learn how to LIVE with losses one will start booking loss IMMEDIATELY after identifying a wrong trade. And what can be a key than this to be successful in trading. Profits will always come how so ever dumb one is.
Ironically, some know this, few understand it and even fewer remember it. And those traders consistently trade 'net' profitably.
Taking loss is the biggest Asset in Trading. It is hard because it goes against the human psychology (and that is why most people fail in trading) .
Trading is The Loser's Game (i hope you guys have read Phantom of Pit), that is the best loser (or worst loser, depends how you see it) wins.
As tnsn2345 said, One has to be able to live with that. The idea which i found helpful was that I must be able to close the week in Green and not concentrate on Each and Every Trade to be a winner. If I have system of positive Expectancy (say, a biased coin), i am going to win in overall context, but i cannot decide on the correct sequence. Say i have a biased coin (head comes 6/10 times), so i will win eventually (provided i have proper MM), but i can't say the next toss will be winner or the one after that. But i have to stick to the system.
Newbies leave the system as soon as they face small drawdown (i confess, i have done it too), and they don't give system the chance to recover.infact my own system has winning ratio of only 35%, so only way to make money in such a system will be "CUT THE LOSERS & LET WINNERS RIDE" (It's not easy as it sounds, but after some behavioral change its possible).
Also the reason, i didn't get into Jobbing was, it requires HIGH PROBABILITY setup which i find tough to find (or implement in REALTIME). High Probability is necessitated because of LOW PROFIT (R:R = 1:1 or max 1:1.5).
I bet on LOW PROBABILITY & HIGH PROFIT setup. I have done hours of backtesting of several systems and realised it is possible to find or make a decent system with Low winning Ratio (and with discipline it can be made to high profit).
.........................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.
more importantly, should you allow your winners to ride or wait for maximum possible profit?
..............over the years I have found 'stop loss' to be the most potent tool in my arsenal. the first advantage that I can think of is that in ur initail formative years, it keeps u in the game always.
I feel that my loss is the only thing that I can control in the mkt.
as regards jobbing, I am very clear that jobbing without stoploss is like driving a car at high speed without brakes. crash is imminent.
now since I am not jobbing actively anymore,all the systems that I trade these days are based purely on stop loss ie. I do not have a price target but always a stop loss.
having said that, after going thru a few of ur posts, I found them to be practical and informative. hence am eager to know ur point of view on this.
I learnt much from your thinking and method but I think that stop loss is very much important to exit from trade. I always exit my position by setting tailing stop loss orders only. I am not very old in trading carrier but I am in learning phase and I am planning to make full time carrier in this line if I make succuss. Your thinking on stop loss is very different then my and fellows who are in this line. How has your success in this line and how you evalue your performance if you not use stop loss then.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 partially do agree that Stop Loss is slighly misused and grossly misunderstood.
Keeping the stop-loss for the trade and waiting till the stop-loss hits is like looking forward to Stop being hit.
In almost all the cases my position is greatly reduced before it reaches to the point of STOP.
Exiting the Trade with stop loss means you don't have strategy for exit (for trades which are in not in your favour ofcourse). It is better to devise some rules based on weakness of trend (if you are a trend player), peircing of Bolinger Band (if you are a ranger) and based on tape (if you are a jobber). This will give you more control over the trade.
BUT this doesn't mean that there will be NO STOP LOSS. STOP LOSS must there to save you from catastrophe. Let's say your internet connection is gone or no electricity, system crashes, thunder, and worst (one case i know) Heart Attack (or other medical emergency)
BE READY...............
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I suppose you meant "should you take profits or wait for maximum profit (by allowing your winners to ride).
This is where Trading becomes ART, and is mastered with Experience. It's the greatest Dialemma especially for Trend Players (Positional/Swing/Intra-Day).
I prefer to take 50% of profit at first sign of weakness (opposite candle to my trade direction). Deciding on this weakness also happens after multiple TFA (sometime decision is settled by 1 min candle). Then i take 25% of profit where i see smaller pullback or rally (depeding on side of trade) forming. Last 25% happens either at b/e (if trade was already in profit) or at EOD (since i am intraday trader, i square off all trades by EOD, and no exception even if trade is in huge profit or huge loss)
But then the scope of improvement is always around, everday after the market in hindsight looking at chart it seems i could have done better, or sometimes waited little longer or sometimes booked little earlier, but these are knowledge of hindsight which doesn't come into picture during REAL TIME trading.
Every profession after some degree (i.e initial learning of rules) becomes Subjective i.e a matter of skill (or ART if you will)
...............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…..
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Fair assumption would that the wheels are removed because the kids have learnt riding the bicycle. This does not mean that the kid will not fall now, he can still fall but now the fall would be mostly triggered not due to his own misadventure but by some external factors viz, some one banging him from rear, tyre burst while riding, a stray dog suddenly running across the road, unnoticed potholes etc etc…
But still we have decided to remove the wheels not because the kid will now NEVER FALL but he when is likely to ‘fall’ he will use his own FOOT to prevent the fall. He will not rely on EXTERNAL small wheels (‘Stop Loss’) which used to protect him till now while he was still learning.
The ‘small wheels’ are physical Stop Loss, while the feet is the mental Stop Loss. Using his feet to halt the bicycle at his ‘destination’ or in between to prevent himself from falling comes NATURALLY to the kid. There is NO THINKING involved when to put the FOOT DOWN. It comes naturally!!!. On the contrary if there were the small wheels on the bicycle forever, they would always act as artificial external way to hinder the driving process and would always prevent him from taking those sharp turns, do the ‘wheelie’, race the empty road, race through the slopes freely or struggle hard upway. The ‘small wheels’ just cause obstruction than help him now since he has now perfected doing the balancing act !!!
Market conditions are not same all the time (I am not covering this here), so you will sometimes have to face sharp turns, do the ‘wheelie’, travel downhill or struggle uphill. Again you will never know what could happen next as the conditions may or may not change suddenly.
It is trader’s mentality to keep trading in various kinds of market conditions and all the time. Of these traders there are some smart traders who have different methods to trade different market conditions. And unfortunately for most of these ‘smart’ traders the methods get overlapped or interchanged. And then so does their SL. But while I am saying this, the SL they put is most likely arrived in a RANDOM fashion or on the basis of % risk per trade (..ha…ha..). How on the earth would the Markets know YOUR risk per trade % and move in your favour keeping it in mind that YOUR SL should not be hit (I wonder..) As it is random pricing of SL and further even illogical (read sentimental) concept of trailing SL, it is often called that ‘SL management is art than science’ (you may read ‘abstract art’. Abstract art : No one understands it, but do not want others to know about it hence you start appreciating it. The next guy also does the same. So no one argues.)
The very fact that you have put the SL in the first place makes you feel that you are IMMUNE to everything happening in the market. You start feeling that nothing can happen to you now as worst is that you will exit at the SL. You act God. This feeling deprives you of the ‘opportunity’ to exit your WRONG trades much earlier as you always have the feeling that you have the SL in place and this SL will HELP you make profit and the SL will never be hit. Invariably the SL is hit. And hit. And hit. Then you increase the SL gap as you feel that the earlier SLs were too close (having seen market reverse after hitting your SLs).
Using SL for trading, you take 1 step down, x steps up, 2 down, x up, 2 down, 1 down, x up, 2 down, x up……and so on. At the end of the month either you are down or at par or at best marginally up. But is it worth all the effort, time and opportunity one had all during the month.
On similar lines, what is the use of a helmet when you ride a motorcycle? Why is the safety net in the circus? …..and their analogy in trading…will write more tomorrow..
........................some query.................The very fact that you have put the SL in the first place makes you feel that you are IMMUNE to everything happening in the market. You start feeling that nothing can happen to you now as worst is that you will exit at the SL. You act God. This feeling deprives you of the ‘opportunity’ to exit your WRONG trades much earlier as you always have the feeling that you have the SL in place and this SL will HELP you make profit and the SL will never be hit. Invariably the SL is hit. And hit. And hit. Then you increase the SL gap as you feel that the earlier SLs were too close (having seen market reverse after hitting your SLs
hi..
Interesting analysis. but the way I think is that if I put on a trade with a predetermined SL and later on find that the market does not behave in the manner that I expected it to and squrare off my position before my SL is hit. what am I doing..... I am still booking my loss . hence I am still executing my SL albeit I have raised my SL closer to my entry price. hence the debate now is not whether having a SL is good or bad, the debate here is whether the SL should be fixed at a preconcived point or should it be raised or lowered according to the way the market reacts (or the way I percieve the market) after putting on my trade.
It is trader’s mentality to keep trading in various kinds of market conditions and all the time. Of these traders there are some smart traders who have different methods to trade different market conditions. And unfortunately for most of these ‘smart’ traders the methods get overlapped or interchanged. And then so does their SL. But while I am saying this, the SL they put is most likely arrived in a RANDOM fashion or on the basis of % risk per trade (..ha…ha..). How on the earth would the Markets know YOUR risk per trade % and move in your favour keeping it in mind that YOUR SL should not be hit (I wonder..) As it is random pricing of SL and further even illogical (read sentimental) concept of trailing SL, it is often called that ‘SL management is art than science’ (you may read ‘abstract art’. Abstract art : No one understands it, but do not want others to know about it hence you start appreciating it. The next guy also does the same. So no one argues
there are a lot of guys around who feel that all price movement is random.I also subscribe to the same school of thought.I beleive that all price movement is random with a few trends thrown in, as would be the case if we try to chart the outcome of a simple coin toss. the general outcome would be random with a series of successive heads or tails thrown in between.this series of successive heads or tails is what I consider as 'trends'. I totally agree here that the market would not respect any random SL, but beleive me it would not even respect any 'pivot low or high' or any 'fibonacci levels' if it doesnt want to. hence I do not beleive that there is any harm in putting a random SL initially and then moving it later on according to the way the mkt moves .
just my thoughts. the intention is not to counter u but initiate a healthy debate.
You are making assumption that everyone simply waits for stoploss to be hit. As in my previous post I have clarified and as Anurag has also mentioned that choice of exiting the trade before stoploss is hit is always open and often exercised. 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 Will and not depend on Stop-Loss (which in a way kind of forces you, though some novice traders horribly move their stop down which is another crime completely).
but all said, no one can expect a novice Trader to mature soon enough (without hitting some stones) to a discipline where he can put the legs down automatically without any hesitation, so everyone has to go with the phase where you use "Extra wheels".
Also we should never discount the possibility of "Black Swan" occurring (for the completely uninitiated, its events with very low probability but very high impact say October 19, 1987 when Dow crashed 22%) and for such scenario's there must be a stop loss , which according to me should be at level where it doesn't come into play on normal days.
Extending the analogy, i would like to call these kind of black swan stops as "helmets" and not "extra wheels" (this is first time when i am deliberately trying to fore-run your thoughts, i hope i am getting it right ?), though a bike rider doesn't expect to hit an accident everyday and by probability chances of it occurring (even in is complete lifetime) is very low so he would rather not use one and rather enjoy free ride but then one accident without helmet could kill him ending any further progress (analogical to getting bankrupt). So the question is, Is it worth to wear helmet everyday where expectancy of life killing accident is very small, i firmly say yes.
If you guys are aware, the author of "black swan" Nassim Nicholas Taleb , used to be a trader and fund manager. In fact he opened a Fund (Empirica), just to capitalize on such black swan events. Every day he used to buy Very Very far Out of the money options (but sadly couldn't make much money and eventually Fund was sold out and he returned to writing books)
......................................again comes the answer............
Your definitions of SL is right but different.
While Aaditya you are putting SL to address a catastrophe, Anurag is defining moving his unrealised expected loss (defined by his initial random SL) closer to lesser loss in the event of identifying a wrong trade. Sanjay is a fence sitter with one leg on Aaditya's definition and other on Anurag's.
While Aaditya definition is similar to wearing helmet riding a motorcycle (or the safety net in a circus) where the idea is not to get down from the bike head-down first. The helmet is just to protect us from any UNFORSEEN circumstances which are out of our control (aptly defined by Aaditya in his post w.r.t. trading). It is still the feet which we use to get down from the bike when we reach our destination or are interupted before reaching it. This definition can be termed as CSL - catastrophe stop loss and not SL which is widely used in trading.
Anurag, with your definition, which most of the traders would do there is an element (howsoever small) of unconviction when you enter a trade. No one likes to see his position going down immediately one enters the trade. But is happens many (or most) of the time, especially to traders who put the SL (as per your definition) as the decision to trade is taken on the basis of R:R rather than probabilitiy of the trade. I would always take a large position even if the reward were very small than the risk (maximum draw down till the end of first review period) if the probability is very very high.
The moment you have the SL idea in the mind, the trades with not very high probability, equal probability or even low probability are undertaken as you evaluate the decision to enter on the basis of R:R and not the probability of outcome.
Not using SL (certainly one should use the CSL though) will direct all your engery and focus on taking the HIGH probability trades. You wait till you have a pattern/trend in the random movement of the market and grab the opportunity with both the hands.
Another analogy here is the Law of the land, which states that the law may not punish a criminal (by giving benefit of doubt) just to ensure that no innocent is punished. Similarly, there one would let go and lose many high probability trades (as one may not be fully convinced at that point of time) but this would ensure that wrong trades are not undertaken.
And it is much easier to exit such fully convinced trades too, because it is very very easy to identify the indications that your predicted direction may not happen. Hence, easier to exit immediately and abort the mission praising the Law of the land.
My conclusions:
- Putting SL on trades directs you to undertake any probability trade as primarily there is a soothing feeling that you will be stopped soon and not bear large loss. (Forgetting that the whole idea here is to make money and not exit at 'small' loss)
- Lot of such 'small' loss (due to poor selection of trades) result into a sizeable loss, which may get covered in some good trades, but we have lost time and other great opportunities in between. End of the month where are we? At the same place, or just somewhere near.
- And this make a lot of difference between a super trader (who wins many, loses some), a regular net profitable trader (who wins some, loses some) or a net loser trader (who wins some, loses many)
The definition of SL is clearly your unrealised expected loss in case the trade is wrong. This forms the basis of quantity or exposure you may want to take on a trade. The definition of wrong trade is not necessarily move in the wrong direction but the outcome is not as per EXPECTION.
The second point of large runaway losses in the opposite direction can be termed as something happening exactly opposite to your thinking and the outcome is UNEXPECTED.
If one is using a same SL for both of the above objectives than he may end up taking many low or equal probable trades than higher probable trades. Effectively the success rate of trades may be compromised. See only MM and discipline alone cannot create substantial wealth for a trader. Higher success rate of trades is also a prerequiste to become a successful trader.
Quote:
Now coming to your analogy of bicycle. Everyone has his own prespective and sees the world accordingly. In my view the smaller wheels are like extra caution, e.g. like someone uses 1 indicator to trade with 40% chance also when he has 2 indicators giving same signal his chances get to say 55%. So he trades only when both indicators give same signal. So he obviously misses some oppurtunity as well. So in my view inherent precautions in ones system are the two smaller wheels.
Now what is stoploss then?
Stoploss is the brakes. It is used to prevent falling in pothole. Now whether you drive 2 or 4 wheeler brakes are paramount. Also its importance increases with increase in stakes. Like one can drive bicycle withot brakes but what about driving a car without brakes!
The small wheels are post facto hence they will not come into play till the rider decides to ride the the bicycle and sits on it and starts paddling. The brakes are reduction in you position as there is uncertainty whether you will reach the destination by the stipulated time. Paddling is adds to the position. Putting foot down due to sudden hinderence is actual exit from your position at that point of time (either in loss or profit whatever it is), slowing down as you reach the destination, stepping down your positions (likely in profit) culminating into final touch down at destination, exiting fully.
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...........He ain't saying its wrong using stop loss order. He just asking "WHY" after you have learned to trade. Don't get confused with this. If you think you can do good and even better by using stop loss order, go ahead and use it. There is nothing wrong in it.
You were saying this "Only my nature has been that do what suites me and reject every things else". Now leave things which don't suits you. It's as simple as that...
I started to trade without watching chart or open book. I just see prints or LTP and I traded. After few months I started to use open book, now I started to look at open book not prints. I started to watch like this and continued for more than a year. After I was not provided open book, then I found hard to trade by seeing prints. It's all because what we are used to. I have been used to watch open book for a long period and couldn't adjust right away without open book.
And I don't think I can trade without watching charts even though I am not much into TA. But I was trading without watching it.
You are used with placing stop loss, and feel that you couldn't trade with out using it. So don't get confused. Think about it, try it and decide.
What tn is emphasizing is that once we start to identify high probable trades ,we would not need to depend heavily on the stop loss. Also he means that by using Risk Return ,we may choose trades that are of low probability. But more importantly we have to choose higher probability trades of even low RR . This way we end the month positive rather than have small losses every day only to take stock at the end of the month and start worrying.
I now understand what you fellows think about good trading decision making. So the thing here is that if we start with a good trading decision we not has to depend on things like stop loss and if i learn that the trade is wrong i will come out quickly.
Thank you sir for new thinking given to me. I will take time to use it as it is opposite to my trading method.
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What about profit booking ? I would love to know your, sanjay's, alroyraj's and anurag's Profit Booking Strategy.
I believe this is where experience makes it different, as its more ART than LOGIC (or SYSTEM). Infact Even Saint uses more discretionary while booking profit. May be after day's day's of Retrospection on Trades, we finally get the "Sweet Spot".
Mine's strategy is to book some on first sign of weakness (as i find many a times this is a critical pivot), then some on failure of pullback/rally and then I delibrately leave some part till the END or Breakeven just to ride the trend to maximum.
Especailly most of my trades are NOT SAR, it becomes even more discretionary.
...................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.
hi Tnsn
yes I do carry the element of unconviction every time I enter a trade because,as I said earlier, I beleive that price movement is random." i believe that my position is wrong untill proven right". there are a lot of examples in the real trading world which show that u can have a very small percentage of winning trades and still be very profitable. a case in point would be Richard Dennis. I think even Aaditya mentioned that his winning trades are not more than 35% of his total trades but still on balance he is profitable.
To me having a large percentage of my trades to be winners is not important.(when I am not jobbing), but what is important is how do I extract the maximum juice out of my profitable trades, even though they may be few as compared to my loosing trades. hence I am always comfortable working with a SL, whether it be in the mkt. or it be mental.
I do not book a profit on signs of weakness once the position has moved substantially in my favour, on the other hand I add to my position on such an occurance. of course I have a price in mind where I would get out of the total position if proven wrong.
..................What i see here is trading intra day or jobbing its all about how you do it. Everybody has a mental outlook like a blueprint of what they have learnt and what they will implement while trading. Because once the market starts and numbers start rolling on the screen 80% of the brain is occupied to search through an oppertuinty of entry & then exit now everything gets mixed here ones knowledge,pre analysis,pre outlook,news & intution. Trading or jobbing its a natural process which goes on with adding skills and honing sharpening the skills it goes on never stops its a life long process. So what i say...is Trader is born as a trader and dies as a trader and is always a trader its all about how ones do it...after all experience is the biggest teacher and a great mentor
So I always had a sense of respect for traders & Jobbers and because of there approch towards there profession that respect will always remain.
so if somebody ask me whats trading for you....my reply will be simple
Trading....Thats part of life part of me.
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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,
------>
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.
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.
.............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.
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.
..........................I don't know since how long you have been into trading neither how big you trade, but one thing for sure I could say that 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.
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.
Hope this would help you to know more about my trading and decision making process and could help you in some way or the other with your trading.
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.
Urge you to understand what I am writing below:
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.
^ Yeah, I don't find much liquidity other than nifty. I better stay with NIFTY.
How about shorting nifty? (Sep expiry)
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
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with this i complete my compilation of this thread. kudos to all traders
Regards
oilman5
