Playing since 2005 lost 13+3 lakhs
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I meant I am not having much time to post here due to tight project schedules at my job which is essentially "grunt work" exported by overleveraged Americans who do the decision making and idea generation work.
Tomorrow is a rare opportunity to do intra-day trading here. I will try. I am confident of doing intra-day trading, but i haven't worked out a plan to compensate the huge & complex risk it entails. Anyway I failed there. Atleast someday I can spend less time on "grunt work" or no time and more on my personal interests, intellectual and spiritual pursuits.
There is sometime over the weekends, but it usually doesn't appear to be there
Tomorrow is a rare opportunity to do intra-day trading here. I will try. I am confident of doing intra-day trading, but i haven't worked out a plan to compensate the huge & complex risk it entails. Anyway I failed there. Atleast someday I can spend less time on "grunt work" or no time and more on my personal interests, intellectual and spiritual pursuits.
There is sometime over the weekends, but it usually doesn't appear to be there
If you are trading equity then it becomes easier. Based on this, 12% profit on capital is better than when I was assuming your trading to be in options. With options owing to leverage & premiums, 12k wouldn’t look like a 12% gain. It would be smaller for the leverage. However still I can’t say it is good without looking at the whole distribution of your gains and losses. But losses seem to be coming under control. We need to see how often large gains and large losses happen. Small profits and losses happen all the time. Keep it going.
Now that you told you are trading equities, can you tell what your exit strategy is? How is it decided? Is it based on a certain % pullback from the highs or entry price or breach of support levels etc.? Exit strategy is the most important. It determines the risk control and how far you will let the profits run. The other thing is entry strategy.
[here I guess phycology is the biggest enemy .. let as assume we opt for loss 1$ a day and gain $1000 on one day. in this strategy after losing 500$ in 500 days and on 501th day (the day we are waiting for) how to keep ourselves calm when profit running beyond 500$. on every dollar we would have a urge to get out to save capital. I hear some where ... in violence, fear, sex etc only some basic knowledge will work (instead of six) .. So it is impossible to control our self under fear or greed as we will lost our thinking ability and our state of mind will be different to that of normal ...]
You had altered this a bit from what I mentioned. Although we are looking for positive expectation, it may not happen the same way like a stretch, instead of $1 for 99 days, extending to 500 days and then gaining $1000 one day. But it can happen sometimes like prolonged bear market and you started trading a month or two before it started. If we are seeing the case of extended bear markets, we have no choice but to wait it out. We need to have a exposure reduction strategy when hit with a streak of losses. Our entry strategy and exit strategy should look independent not similar nor opposite. Entry should be for the case of stocks that are showing strength or resistance to selling pressure in the face of weakness in the broader markets. Exit should be based on statistical, money management approach.
I wouldn’t concern myself with the fundamentals because that complicates the matter with another variable. Fundamentals too are variables. Its not like a good business environment will remain good. Companies and executives sometimes will make unexpected choices which when not in our control, is essentially a random variable just like stock movement. It is rather much better to follow the price action which simplifies and reduces the random variable to only one: stock price. All other randomness (having higher dimensions owing to multiple random variables of reality) eventually gets mapped to stock price movements i.e. one dimension which is much easier to process.
Its true we will have psychological issues. Everyone faces that. But stripping yourself of your emotions won’t get you anywhere. Without emotions you won’t be able to make any decisions, you would end up with deadlocks. In the specific case you mentioned, we should be checking whether we are facing such extended period of daily losses despite the good broader market conditions. You wouldn’t end up in such case, if you have stop loss strategy. In the other bear market case, you will limit the number of times you take a streak of losses. You will also reduce the capital exposure with each streak of losses. As long as you know that what is happening is a rare event, you can wait it out. It will be difficult to wait it out (you will run over by emotions only when you realize that you are doing bad despite good market conditions and good opportunities but for your repeated mistakes without any learning).
After making losses for a stretch of time than you initially expected, you will feel the urge to get out at $500 profit, if you are conditioned by the stretch of losses. If you noticed that as abnormal occurrence, then your perception of odds for profits wouldn’t be disturbed. It is important to not disturb your perception of odds based on what happened so far. Past is one possibility, future still holds all possibility. One day or the other expected possibility will happen. But if you are conditioned by the past events, you will make choices and regret missing up trending markets. In fact, after prolonged bear markets if your entry strategy filters good stocks, you would see unusually persistent trends that make it easier to ride all the way up.
So it is impossible to control our self under fear or greed as we will lost our thinking ability and our state of mind will be different to that of normal ...]
So this is where the other emotion "hope" should be used.
It is indeed hard to overcome the psychological effects of this profession. Traders get burned out by the second guessing after the facts. (Sometimes this made me think a job is better). We would be thinking if only I didn’t buy at that price or waited a little longer before selling, etc. You need an emotion to compensate for these emotions. Recently I was reading “The Black Swan” of N.N. Taleb. He pointed out this case and says, to counter the negative effects of second guessing, you should convince yourself that what happened was unavoidable. Then you won’t feel so bad. However lack of a positive emotion can still make you feel like something is not good. You can derive positive emotional compensation by sitting tight on a stock that is range trading and expecting that it will make a big gain someday. In case it is going down outside of range, you apply stop loss and sit tight on cash, still expecting to make re-entry when the dust settles.
When you start looking at big picture and using emotions to show you the positive part of the future it will be possible to wait it out. Because the reality is like that. There is asymmetry in the probability of big movements when a stock is trending upwards.
I noticed this with all stocks that are going up to heaven. They make big moves once in a month or two, either a large single day percentage gain or a concurrent uptrend for 2/3/4 days giving large cumulative percentage gain. Rest of the times it falls, rises within a price range. Opposite kind of movement happens with stocks that are going down to hell. Most of the time they behave as if they don’t want to fall. You can look at Bharti Airtel. It hardly moves an inch. It inches upwards slowly, but when it shows it real movement you will see how fast it moves in a single day or on set of consecutive days.
I asked you to try pushing your strategy for even more profits only on the assumption that you are trading in options, as you mentioned in the threads from beginning of the year till June. In equity it is hard to expect 2500% kind of gains. Even in the year prior to 2008 crash, the largest gain a stock made in 2007 was 1600% in Jindalswhl (refer: http://nextgoodbets.blogspot.in/2009/10/stocks-vs-gains-how-much-can-you-expect.html). Such occurrences being rare, the loss of not hitting such a stock can cumulate to large value. But I am not sure if it will be worth it in a longer time span, assuming you will hit it in a 50 year kind of time span. That’s too much of a time period.
To allow us to have more options like - instead of having just one stock making 1600% and rest making only 100% in a good year, we are given a “market”. It will provide more options, like there were many stocks giving 400% profits, with the average (about 400 stocks out of 1000) giving 100%. Most traders could’ve made 100% gain during that year while few unfortunate made losses.
Try to look at how it decides the entries and exits. How does it filter which stock to trade?
Now that you told you are trading equities, can you tell what your exit strategy is? How is it decided? Is it based on a certain % pullback from the highs or entry price or breach of support levels etc.? Exit strategy is the most important. It determines the risk control and how far you will let the profits run. The other thing is entry strategy.
[here I guess phycology is the biggest enemy .. let as assume we opt for loss 1$ a day and gain $1000 on one day. in this strategy after losing 500$ in 500 days and on 501th day (the day we are waiting for) how to keep ourselves calm when profit running beyond 500$. on every dollar we would have a urge to get out to save capital. I hear some where ... in violence, fear, sex etc only some basic knowledge will work (instead of six) .. So it is impossible to control our self under fear or greed as we will lost our thinking ability and our state of mind will be different to that of normal ...]
You had altered this a bit from what I mentioned. Although we are looking for positive expectation, it may not happen the same way like a stretch, instead of $1 for 99 days, extending to 500 days and then gaining $1000 one day. But it can happen sometimes like prolonged bear market and you started trading a month or two before it started. If we are seeing the case of extended bear markets, we have no choice but to wait it out. We need to have a exposure reduction strategy when hit with a streak of losses. Our entry strategy and exit strategy should look independent not similar nor opposite. Entry should be for the case of stocks that are showing strength or resistance to selling pressure in the face of weakness in the broader markets. Exit should be based on statistical, money management approach.
I wouldn’t concern myself with the fundamentals because that complicates the matter with another variable. Fundamentals too are variables. Its not like a good business environment will remain good. Companies and executives sometimes will make unexpected choices which when not in our control, is essentially a random variable just like stock movement. It is rather much better to follow the price action which simplifies and reduces the random variable to only one: stock price. All other randomness (having higher dimensions owing to multiple random variables of reality) eventually gets mapped to stock price movements i.e. one dimension which is much easier to process.
Its true we will have psychological issues. Everyone faces that. But stripping yourself of your emotions won’t get you anywhere. Without emotions you won’t be able to make any decisions, you would end up with deadlocks. In the specific case you mentioned, we should be checking whether we are facing such extended period of daily losses despite the good broader market conditions. You wouldn’t end up in such case, if you have stop loss strategy. In the other bear market case, you will limit the number of times you take a streak of losses. You will also reduce the capital exposure with each streak of losses. As long as you know that what is happening is a rare event, you can wait it out. It will be difficult to wait it out (you will run over by emotions only when you realize that you are doing bad despite good market conditions and good opportunities but for your repeated mistakes without any learning).
After making losses for a stretch of time than you initially expected, you will feel the urge to get out at $500 profit, if you are conditioned by the stretch of losses. If you noticed that as abnormal occurrence, then your perception of odds for profits wouldn’t be disturbed. It is important to not disturb your perception of odds based on what happened so far. Past is one possibility, future still holds all possibility. One day or the other expected possibility will happen. But if you are conditioned by the past events, you will make choices and regret missing up trending markets. In fact, after prolonged bear markets if your entry strategy filters good stocks, you would see unusually persistent trends that make it easier to ride all the way up.
So it is impossible to control our self under fear or greed as we will lost our thinking ability and our state of mind will be different to that of normal ...]
So this is where the other emotion "hope" should be used.
It is indeed hard to overcome the psychological effects of this profession. Traders get burned out by the second guessing after the facts. (Sometimes this made me think a job is better). We would be thinking if only I didn’t buy at that price or waited a little longer before selling, etc. You need an emotion to compensate for these emotions. Recently I was reading “The Black Swan” of N.N. Taleb. He pointed out this case and says, to counter the negative effects of second guessing, you should convince yourself that what happened was unavoidable. Then you won’t feel so bad. However lack of a positive emotion can still make you feel like something is not good. You can derive positive emotional compensation by sitting tight on a stock that is range trading and expecting that it will make a big gain someday. In case it is going down outside of range, you apply stop loss and sit tight on cash, still expecting to make re-entry when the dust settles.
When you start looking at big picture and using emotions to show you the positive part of the future it will be possible to wait it out. Because the reality is like that. There is asymmetry in the probability of big movements when a stock is trending upwards.
I noticed this with all stocks that are going up to heaven. They make big moves once in a month or two, either a large single day percentage gain or a concurrent uptrend for 2/3/4 days giving large cumulative percentage gain. Rest of the times it falls, rises within a price range. Opposite kind of movement happens with stocks that are going down to hell. Most of the time they behave as if they don’t want to fall. You can look at Bharti Airtel. It hardly moves an inch. It inches upwards slowly, but when it shows it real movement you will see how fast it moves in a single day or on set of consecutive days.
I asked you to try pushing your strategy for even more profits only on the assumption that you are trading in options, as you mentioned in the threads from beginning of the year till June. In equity it is hard to expect 2500% kind of gains. Even in the year prior to 2008 crash, the largest gain a stock made in 2007 was 1600% in Jindalswhl (refer: http://nextgoodbets.blogspot.in/2009/10/stocks-vs-gains-how-much-can-you-expect.html). Such occurrences being rare, the loss of not hitting such a stock can cumulate to large value. But I am not sure if it will be worth it in a longer time span, assuming you will hit it in a 50 year kind of time span. That’s too much of a time period.
To allow us to have more options like - instead of having just one stock making 1600% and rest making only 100% in a good year, we are given a “market”. It will provide more options, like there were many stocks giving 400% profits, with the average (about 400 stocks out of 1000) giving 100%. Most traders could’ve made 100% gain during that year while few unfortunate made losses.
Try to look at how it decides the entries and exits. How does it filter which stock to trade?
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On the $500 part again: we would have expectation of the net profit after the rare big gain happens. We wouldn't even start the trade if the expectation is not positive. So we must filter the stocks we enter into so that it has the prospect of a huge profit. You can only know that if the stock has made very fast rise after long period of range bound trading. There is nothing more bullish than a market that rises on strong momentum.
Sometimes unlucky things happen and our stop loss limit is hit. We shouldn't take it as a bad lesson. We should see broader picture of multiple samples. If the pattern repeats again and again then it is not an outlier. We should allow only for rare outliers.
On the other hand, despite filtering good stocks, if it happens that we keep hitting stop losses one after another.. well, our luck could be getting very bad. Who knows, given today elections in US, we may just be waiting for that same scenario. Sometimes I think its not worth it. But its not too bad. Unlike other businesses having very long timeframes before which you can decide whether you failed totally or succeeded wildly, here we can have shorter cycles to decide the same. Despite its (streak of bad luck) least chances, we should sure account for this case. By default we have a backup for this: our primary source of income. In my case, I took even safer approach. I decided not to invest any of the money that I earned before April'12. And also not to invest too fast. I am going with systematic investment plan. I add 10k every month to my trading account (not directly into stocks). As my profits increase, I would be stepping the rate of capital infusion per month. Right now I stand at 80k. I have spent many years trading and also without trading.. waiting for few months or years more before my capital scales to significance is not a big deal. Time will pass anyway. The difference between the experienced and inexperienced is that the experienced (stands outside of time and also) sees the cycles of market as usual turbulence without much surprise. They come and go. In case unexpected bad luck strikes, I would be ready for that anytime. I am watching some stocks which fall under fundamental category as per Warren Buffet (well there are many fundamentals these days) and be ready to implement his principle of buying stocks with good fundamentals at bargain prices (in huge scale) which are never usually offered at bargains. This may or may not happen. I have to plan for both the possibilities. When it happens it will all be worth it and I would be glad to have prepared for it. In case it doesn't, not bad, I will move on.
With increasing globalization and advancement of technology we are more and more getting exposed to these drastic market crashes which can dramatically alter the lives of people who took too much exposure to market or too much of leverage. We should prepare ourselves for positive surprises and not to be surprised by negative ones.
Sometimes unlucky things happen and our stop loss limit is hit. We shouldn't take it as a bad lesson. We should see broader picture of multiple samples. If the pattern repeats again and again then it is not an outlier. We should allow only for rare outliers.
On the other hand, despite filtering good stocks, if it happens that we keep hitting stop losses one after another.. well, our luck could be getting very bad. Who knows, given today elections in US, we may just be waiting for that same scenario. Sometimes I think its not worth it. But its not too bad. Unlike other businesses having very long timeframes before which you can decide whether you failed totally or succeeded wildly, here we can have shorter cycles to decide the same. Despite its (streak of bad luck) least chances, we should sure account for this case. By default we have a backup for this: our primary source of income. In my case, I took even safer approach. I decided not to invest any of the money that I earned before April'12. And also not to invest too fast. I am going with systematic investment plan. I add 10k every month to my trading account (not directly into stocks). As my profits increase, I would be stepping the rate of capital infusion per month. Right now I stand at 80k. I have spent many years trading and also without trading.. waiting for few months or years more before my capital scales to significance is not a big deal. Time will pass anyway. The difference between the experienced and inexperienced is that the experienced (stands outside of time and also) sees the cycles of market as usual turbulence without much surprise. They come and go. In case unexpected bad luck strikes, I would be ready for that anytime. I am watching some stocks which fall under fundamental category as per Warren Buffet (well there are many fundamentals these days) and be ready to implement his principle of buying stocks with good fundamentals at bargain prices (in huge scale) which are never usually offered at bargains. This may or may not happen. I have to plan for both the possibilities. When it happens it will all be worth it and I would be glad to have prepared for it. In case it doesn't, not bad, I will move on.
With increasing globalization and advancement of technology we are more and more getting exposed to these drastic market crashes which can dramatically alter the lives of people who took too much exposure to market or too much of leverage. We should prepare ourselves for positive surprises and not to be surprised by negative ones.
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First, I can almost picture that you that you've spent 90% of time listening to others. Its ironic that I am advising you to "not listen to others" and then giving you some advice anyway. Stock Tips are sure-fire loss makers. I seriously started trading about 2 years ago and I've not made big money but I have not lost either. Perhaps on net-net, I may also be in negative but that is not due to lost trades. Whatever money I have earned from market, I spent on educating myself by investing in books, software and generally improving my insight. At this point, all my market related expenses come from market earnings. About the only thing that I will advice you to learn is Elliot Waves. That should form your backbone. MA (of all kinds) indicate what trend is. God-bless!!!!
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