Common sense can be brutally honest sometimes. As traders we get so focused on the little inconsequential detaisl sometimes that we miss the world around us. I have had this discussion with too many people over the last two months that told me they were bearish on the market and were taking a beating on the “high probability” that the market would reverse. Who sets those odds by the way? Are trends more likely to reverse than persist? If so, why the hell are we studying technical analysis?
Take a look over these trading rules I stumbled across last year and see if there are any realities that surface from them. Each time I look these over it reminds me of the realities of what we do here.
1. No matter what you read about trading, until you use an approach and test it with your money on the line you will never learn how to trade. Paper Trading is NOT Trading!!!!!
2. If it were really possible to “Buy Low Sell High” or “Cut your Losses and Let your Winners Run”, then almost everyone would be making money rather than losing it.
3. Remember that there is ALWAYS someone on the other side of your trade who is using a trading technique exactly the opposite of yours who hopes to make money with his system.
4. If 90% of all traders lose money, they must be following generally accepted trading rules. The 10% who win do not!
5. You trade your beliefs and your beliefs about your system. If you have a problem with yourself, fix yourself first.
6. Impatience, Fear and Greed will make you poor. Any need to trade is rooted in greed and impatience.
7. If you really understand the markets then YOU KNOW that there is the same opportunity on every time frame, in every market, every single day.
8. Waiting for the perfect trade is “chickening out”, and caused by your lack of faith in yourself or your system.
9. Any hardwired, automated trading system sold that truly works 70 or 80 or 90 percent of the time in every market would be worth hundreds of millions of dollars and would not be for sale at any price.
10. Asking “How small an account do I need to begin trading” is asking to be wiped out.
11. Having a series of winning trades early can be more hazardous to your account than a series of small losses.
12. Learn to trade before you trade. If you win or lose without understanding why, you will never develop a winning strategy.
13. Ninety five percent of everything you hear from everyone about the markets and the markets “reasons” for doing what it did or will do are lies. Neither you nor anyone can predict the future. You can only make educated guesses about potentialities.
14. Asking someone (such as using a service) for advice on where the market is going is a sign you should be on the sidelines until you understand the market better. If the upcoming market direction is not obvious to you, you should not be risking.your money You will lose often enough even when you are right.
15. There is NO GUARANTEED way of making money in the Markets or anywhere else. NONE, NADA, ZIP, ZERO! All you can do is increase your knowledge about yourself and how to estimate the probability of placing a winning trade. Then trade by taking controlled and measured risks.
STOPLOSS STOPLOSS STOPLOSS STOPLOSS STOPLOSS STOPLOSS
Posted by WOLF at 9:30 PM 0 comments
“no sl reqd”… This line takes me back to the times of late 2007, an year that witnessed Indian market’s biggest fresh rally after harshad Mehta. I remember crazy euphoria all around… You name a price level for astock and vola!! It used to come. Ppl were trading in huge leveraged positions, and the theme used to be buy and sell in every 5%. thousands were made, no doubt. The uptrend was so stiff and sustained, that it taught people that no point booking loss on sl and just hold. “sl lagana hai rakh lei”? was the mantra.
Then the inevitable crash happened. i had advised to my frnds strictly at 6200 that tgt 6354 then 5900. Same thing happened, nifty went up to 6358 then cracked to 5900. Ppl said it’s rpower and don’t worry… This taken for granted attitude was something fii was hunting out for and hell broke loose. We advised 4400 tgt and nifty went there.. But still many of my frnds incurred terribly huge losses. When ppl revisited what went wrong, they understood. It wasn’t adviser’s mistake, rather they didn’t keep the little word ‘sl’!
That was a turning point. Now having a lesson learnt, ppl don’t dare to trade without sl. Infact now they ask sl first and tgt later. But this compulsification of stoploss isn’t right thing either. First, there are different kind of trades; Second, this has given rise to a trend of breaking support and then a rally (wolfwave).
There are different kinds of trade. Some are buy on dips, some are accumulative, some are buy above or buy at a level. What is stoploss? It’s a level beyond which the assumption goes useless. It’s certainly not that loss ho gaya bhaago bhaago… It is applicable only in the case of buy above or buy below or otherwise. Stoploss means that the basis is no longer valid hence no point holding bcz of that reason. It nowhere means that the stock will fall bcz some other reason might be supportive. But one must be disciplined and shd execute stoploss. There are trades based on larger sudden undervalutions or overvaluations. If suzlon has fallen from 200 to 50, the sudden price correction is a valid reason to buy and even if it goes to 40, the reason of buying remains intact. So basically stoploss is the conditional argument of a trading idea and is not necessarily indicator of total risk. Big money is made only when you buy on major dips… Then there are self hedged and hedged trades too.
This over precaution by Indian traders has made fii use it as an opportunity. In 2007 mkts used to respect support levels much more than what they do today. Now supports break, people exit and stocks rally. This is called a wolf wave, and this disturbs the overall pattern a lot.
Timing the stoploss: nowadays there are spikes. Hence now atleast 1 min movement must be locally seen to ensure that it wasn’t a spike. Reliance on bse went to 840 for minutes and pulled back. How to handle that?
So in my view, stoploss should be maintained in the trades it is critically required. One must also be open to ideas which do not carry a stoploss. But not putting a stoploss does not mean to expose yourself to huge risk… You can manage the risk by many ways.
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