surviving "heavy loss" phobia

4 things that can help u protect yourself from crippling effects of "heavy loss-phobia"

a. sound trading system which goes right around 7 times out of 10 and has well defined point (call it stoploss or SAR) where it auto signals reversal.

b. psychological strength to stick to the method.

c. enough buffer funds to keep you going in case of those 3 odd failures or unforeseen situations including circuits.

d. continuously improving the trading system.

e. not trading your own trades. asking someone to trigger those on your behalf so that you are psychologically free to focus on trade signals without bias. not counting lost pennies everytime of those 3 out of 10 trades.

similar situation, different decision

http://www.mudraa.com/trading/143227/0/btst-30july-js.html

dear murliji,

thanks for asking and sound like the echo of my self talk.

1. why i terminated both calls of yday in 10-15 points

= there was a strong "undercurrent" signals for slide down. so i took the intraday downward position. but as is often possible near sma 34 lines, those strong signals are bulldozed. for 1-2 hours, it seemed that the upward movement was a bluff. so while i let the first short position drift without sl, at sufficient high intraday position, i gave my shorts a second shot but this time with stop loss. i went for a stoploss for 2 reasons - a)second trade was more in-the-money and costlier, b)if the market was to still continue to drift up (as it eventually did), i didn't need longer signal to accept that the "undercurrent" was false and an upward rally was in store. therefore, the second short trade was with a tight (but well thought of) 10 point one. the first one was costlier @ 15

2. why i let today's trade ride the roller coster

= yesterday's bulldozing of "short" signal was enough signal of an upward rally. so i had little doubt of going long for overnight. 1% asian market buoyancy in morning hinted that i was right. but the rbi policy was a factor that stood in-between. besides the overnight bullish hints, there were enough signals in the morning that hinted that upward movement was inevitable. i was jittery to see the markets dip in the pre-lunch session, but frankly, i was not surprised. i rechecked the signals and saw buoyant forces again. and i was sure that operators / market forces couldn't bulldoze opposite side signals on consecutive days. plus there were 1-2 more reasons. by now, it was obvious that market forces had used rbi news to play the intraday game. buying and adding to the long positions at the intraday lows was an excellent idea (which i decided against, for some reasons).

i checked signals again after 3 and saw clear btst invitation.

so while squaring yday trades was the acceptance of the limit of adverse trade setup, not squaring today's intraday adverse trade was a tough put-my-foot-down deliberate decision to stick to my understanding.

and all this time, i was almost ready with the backup plan. 

how to lose money the right way?

http://traderfeed.blogspot.in/2009/05/how-to-lose-money-right-way.html

key to profit lies in the heap of losses!

many of you
must have been in stock market
since many years.

if i ask you point blank
"what would be the rough total of your winning trades?"
what figure would you give?

and then if i asked you
"what would be the rough total of your losing trades?"
what figure would you give?

chances are
that the sum total of the profitable trades will not be zero.
some decent figure would be there.

and the sum total of the losing trades will be huge
much more than the sum total of the winning trades.

and what would be the net total
(after combining the two figures).

again the chances are
that you would have slipped non stop
in all these years!

well, what's my point?

its plain and simple.

the above facts contain
two part-solution to your problem.

first,
if you were to only reduce and minimize your losing trade frequency and size
especially the size,
your balance sheet will dramatically improve!
who knows, by now, you might have been only marginally in the red, if not in the green,
with a treasure of experience as the base for the final flight!!!

as dr. brett steernbarger says
"If there is a holy grail to successful trading, it probably is risk management."

and now
the part-two of the solution-

why and when did you book the profit
of your few profitable trades?

was it fear of losing the profit
or was it a clear red signal to the rally?

again, chances are
you have a habit of
blinking first!

the cause of fear of losing the profit
like the cause of any other fear
is
darkness
and excitement.

darkness caused by absence of a method
and excitement caused by desperation.

think about it!

anything to lose!

want to be successful in trading?
here is a simple way.
"make mistakes!"
but you won't.
so i hereby, change my wording
"stick to your convictions of a trade"
only 2 things are possible
- either ur conviction will be proved right
- or ur system's chinks will be exposed, hence paving way for improvement.
--
in his masterpiece
"6 success forces"
 joseph sugarman had included one success force as
"do anything to fail"
--
if , however
you don't believe in admitting the mistake
and don't believe in improving your trading system
or,
don't have a trading system in first place
i have only one advice
"don't make mistakes at all!"
there is only one way of doing that
don't trade.




(niftyshots.blogspot.com)

secret of day trading success

which of the following trading scenario would you prefer
A. (total 375 points profit in 7 trades) + (total 95 points loss in 8 trades)
B. (280 points profit in 7 trades with no loss)
(*brokerage adjusted profit and loss)
well, on the face of it
both the above scenario look same.
rather, scenario B looks better than scenario A which looks scary!
but, the reality is
that
1. scenario B is just a mirage....it doesn;t happen pratically.
2. scenario A is not only practical but is the best way to be successful in trading.
3. even scenario A doesn't happen
instead scenario C happens as below
C.  (total 175 points profit in 7 trades) + (total 375 points loss in 8 trades)
why?
cutting winning trades early
and cutting losing trades late!
------------------------------------------------------
there is nothing called opportunity without risk.
and where risk is there, there has to be loss.
"cutting loss early, letting profit go on till max possible and trying to increase percentage winner trades"
is the secret of trading success.
------------------------------------------------------

in the above example (scenario A) which is close to reality, you will notice that trade success ratio isless than 50% but the net result is good! this fact speaks volumes. traders are so scared of loss as well as losing trades that they miss the real thing....the net profit!

same thing happens in life. we are so obsessed with the hardships and troubles that we miss the real things.........!!! 

(niftyshots.blogspot.com)

a bad day at trading?

http://www.youtube.com/watch?v=gH476CxJxfg
Where is the moment we needed the most ?
You kick up the leaves and the magic is lost
You tell me your blue skies fade to grey
You tell me your passion's gone away and I don't need no carryin' on
You stand in the line just to hit a new low
You're faking a smile with the coffee to go
You tell me your life's been way off line
You're falling to pieces everytime and I don't need no carryin' on

Because you had a bad day, you're taking one down
You sing a sad song just to turn it around
You say you don't know, you tell me don't lie
You work at a smile and you go for a ride
You had a bad day, the camera don't lie
You're coming back down and you really don't mind
You had a bad day, you had a bad day

Well, you need a blue sky holiday
The point is they laugh at what you say
And I don't need no carryin' on

You had a bad day, you're taking one down
You sing a sad song just to turn it around
You say you don't know, you tell me don't lie
You work at a smile and you go for a ride
You had a bad day, the camera don't lie
You're coming back down and you really don't mind
You had a bad day, oh... Holiday...

Sometimes the system goes on the blink
And the whole thing turns out wrong
You might not make it back and you know
That you could be well oh that strong and I'm not wrong, ahhh...

So where is the passion when you need it the most ?
Oh, you and I, you kick up the leaves and the magic is lost

'Cause you had a bad day, you're taking one down
You sing a sad song just to turn it around
You say you don't know, you tell me don't lie
You work at a smile and you go for a ride
You had a bad day, you've seen what you like
And how does it feel for one more time
You had a bad day, you had a bad day

(Oh, yeah, yeaaah, yeah) Had a bad day
(Oh, had a bad day) Had a bad day
(Oh, yeah, yeah, yeeeeah) Had a bad day
(Oh, had a bad day) Had a bad day, had a bad day...
- Daniel Powter

how much to safeguard?

dear ganeshji,

i am of the opinion that all ur money should be protected, not half.

2 nifty put options to hedge 2 bank nifty is what i recommend.

of course, this way you may not make money for small movement of BN,

but why play for small movement?

BN gives a move of 1000 points 8 out of 12 months.

and these moves can be gauged using indicators

(not option data of operators - one reason why technicals are indispensable).

out of 1000 move

assuming u manage to gain 800,

150 odd points will be the cost of hedging.

even that can be recovered if you can walk step by step in tandem with on-the-way fluctuations/volatility.

e.g. i booked BN profit at 9652 on 27th and bought again at 9496 yday.

this has resulted in my hedged nifty puts becoming "free of cost" till the end of october series.

i can take whatever "panga" with my godfather "mr.hedge" behind my back.

if u don't hedge all ur "wealth on the trading table" fear will get the better of you.

"never trade with scared money"

and

"never trade out of fear, never fear to trade."

11 laws of averaging declining stocks

1. average only the fundamentally strong stocks. never average the weak.

2. time the averaging on the basis of technical indicators.

3. never average blindly the losers. all losers are not worth averaging. fundamentally weak should be handled as per the law 4.

4. average the fundamentally strong losers by selling the fundamentally weak losers.

5. averaging is not bad. rather, it is an opportunity. you get an opportunity to accumulate more of the good stock at even lower price.

6. never average if you want quick results. don't average for the short term.

7. don't average if you can't digest the stock slipping further.

8. never average in one go. average in steps.

9. don't hesitate to average the fundamentally strong stocks even in bear markets.

10. there is no end to the number of times you can keep averaging a fundamentally strong stock. provided, ofcourse, your judgement of the fundamental strength of the stock is correct.

11. never average in f&o. average only in delivery.

cheetahs and sparrows

(excerpts from interview with mark weinstein)

"........i have a real fear of the markets.

i have found that the greatest traders are the ones

who are most afraid of the markets.

my fear of the markets has forced me

to hone my timing with great precision.

when I am trading properly,

it is like a pool player running racks.

if my gut feel of market conditions is not right,

i don't trade.

my timing is a combination of experience

and my nervous system.

if my nervous system tells me to get out of the position,

it is because the market action triggers something in my knowledge

and experience that I have seen before.

i also don't lose much on my trades,

because I wait for the exact right moment.

most people will not wait for an environment to tip itself off.

they will walk into the forest when it is still dark,

while I wait until it gets light.

although the cheetah is the fastest animal in the world

and can catch any animal on the plains,

it will wait until it is absolutely sure it can catch its prey.

it may hide in the bush for a week,

waiting for just the right moment.

it will wait for a baby antelope,

and not just any baby antelope,

preferably one that is sick or lame.

only then, when there is no chance it can lose it's prey,

does it attack.

that, to me, is the epitome of professional trading.

when I trade at home, I often watch the sparrows in my garden.
when feed them bread, they take just a little piece at a time

and fly away.

they keep on flying back and forth, taking small bits of bread.

they may have to make a hunderd stabs at a piece of bread to get what a
pigeon gets at one time,

but that is why a pigeon is a pigeon.

you will never be able to shoot a sparrow,

it is just too fast.

that is the way I day trade."

(the cheetah is the analogy to position trading
and the sparrow for day trading.
both animals will wait for the can't-lose circumstances.)

trading essentials - I

"being wrong is acceptable.

but staying wrong is totally unacceptable.

being wrong isn’t a choice,

but staying wrong is.

to play any game successfully,

you have to have some skill,

an edge,

but beyond that it is money management.

good traders manage the downside;

they don’t worry the upside."


- mark minervini

fed-up with trading mistakes?

fed-up with trading mistakes?

read this

"if a (trader) is both wise and lucky,
he will not make the same mistake twice.
but he will make
any one of the
ten thousand brothers or cousins
of the original (mistake).

the mistake family
is so large
that there is always one of them around........."

- reminiscences of a stock operator

----------

forget about unintentional mistakes

just like

great tennis players forget about

unforced errors.

even champions tennis stars can't eliminate unforced errors

just like champion traders can't eliminate mistakes.

focus, instead,

on forced winners

and triumph!

who wants to lose?

nobody!

nobody wants to lose.

nobody likes the feeling of a loss.

result?

we don't admit that we have lost!

and hence keep on going down.

--

i am reading

Reminiscences of a Stock Operator

a 1923 classic novel by Edwin Lefevre

(disguised biography of Jesse Livermore, ranked #15 on 'Fortune's 75 The Smartest Books We Know').

what i found very interesting was

the admission of jesse livermore

that he never mind losing

as he knew that he would

always make good profit "on balance".

--

only good losers can ultimately make it large in trading

not the bad losers!

the art of booking loss & profit!

traders are great athletes as well as great spectators!

when they run

they are a treat to watch........running like an obsessed creature....full of fear!

like a fugitive involved in a hit and run case!



and when they are not running

they are great spectators

cursing themselves as to why they are not in the race!



there are 4 types of trade athletes!



1. those who cut short their profitable runs but don't honour the stop loss hits

= typical newcomer unevolved trainee trader driven by 'fear of booked loss' and 'fear of loss of profit'. still, a good, necessary and inevitable phase for any new citizen of the market.

2. those who cut short their profitable runs but also honour the stop loss hits

= the first conscious effort of the budding trader. though he still can't overcome the fear of loss of profit, he definitely doesn't fear booking the loss. they keep ringing their piggy bank with coins till one mistake gets the better of them. such traders are less as this is more of an ideal state of a trainee mind.

3. those who not only let their profitable trades run but also don't honour their stop loss hits

= a wealthy newcomer who has got skin thick enough to bear the loss of accrued profit but not thick enough to accept that his calculation can go wrong. they win big and lose it all.....and finally blame the market.

4. those who let their profitable trades run till indication of trend reversal but honour their stop loss hits.

= matured seasoned silent emotionless egoless boring money machines. this stage comes with time but does come.

prepaid trading - V

if you don't know driving
what would you learn first?

a small car?
a truck?
a bull-dozer?

where would you test drive it?

open ground?
in the himalayas?
crowded chandni chowk?

--

ok.

now if you don't know trading
what amount would you test trade with?

1,000?
3,00,000?
30,000,00?

--

i know u said 1,000.

but i also know u traded
3,00,000
or 30,00,000

no wonder, the result was obvious!

--

below
i share with all new traders
a method
that one of my fellow trader friend uses!

every month
he sets aside 3000 bucks to trade!

"even if i lose all of this
i don't mind!
but i will neither add a penny
nor take out a penny
from this amount
for this month!"

what he does is simple.

using his method
he studies the graph
waits for the opportunity
and once he spots one
he buys a call or put option
(as the case may be)
worth 3000!

e.g. taking today's value
if he were to take a short position
he would have bought
5300 put (march series)
(52.5 x 50 = 2625 + 113 brokerage = 2738)

now suppose
the market were to go up
and he loses 1100 bucks
he would
be left with approx 1800.

he will learn his lesson
look for the net opportunity
and enter the next trade.

but with what amount?

1800!

taking today's rates

he would have bought one lot of
put 5200 (march series)
(34.9 x 50)

for the sake of example
suppose he again loses 700
he would be left with around 900
(after brokerage etc.)

now he would again search for an opportunity
to learn and hone his skills
and enter a trade!

but with how much money?

900!

taking today's rates
he would buy
a 5000 put
(13.75 x 50)

i took just the losing scenario.

if he were to profit,

he would buy the higher priced option.

this process would continue

till expiry!

next month

he would trade

with the opening account for that month

which would be the closing amount of last month

plus fresh fund infusion of 3000!!!

--

this way

he is learning

plus he is not afraid of losing too much

plus he is assured of a long stay in the market

plus he has a chance of making it big as well!

he knows what are his expense boundaries

he is trading prepaid!

just sell!

a trader
went into a jewellery shop
to buy a diamond necklace
for his wife
an evening before the valentine day!
--
he selected a dazzling one
paid 1.2 lacs
put the necklace in the bag
came out of the showroom
and was about to get into his car
when suddenly
he noticed four
well-built guys
staring
at him
from across the street!
--
first he thought
they were looking casually
but then his gut told him
that something was wrong about
the way they were looking at him!
--
he hurried to locate car-keys in his jacket
the guys leaped towards him
on seeing them coming
he abandoned his car
and started running fast
into the adjacent street!
--
the guys followed him
he started running faster
much faster
street after street
the guys kept running behind him!
--
he
then
suddenly
slipped into a very narrow street
and reached
a small time
jewellery shop!
--
an idea struck him.
he entered this shop
and offered to sell the jewellery
after showing the receipt
he had just got
from the previous jewellery showroom!
--
"i can pay 75000 for this!"
said the man across the counter.
"but i just paid 1.2 lacs for this!"
protested the trader!
"sorry!"
replied the busy salesman!
--
the trader refused to sell
the jewellery
at a loss!
he stood up
turned
and
saw outside
the four gentlemen
waiting for him!
--
the trader called the police
from his cell!
the policeman on the other side
was also into trading
part-time!
--
"i will be late! just sell!"
the trader in the uniform advised.
"never worry about the purchase rate
when the trade has gone wrong!"