The Virtue of Patience !!

Patience is a virtue many have but few can actually bring into practice. After Discipline, Patience has proved to be the ultimate Achilles heel of many stock market traders. Patience is the first cousin of Discipline if I can say that. If you haven’t yet mastered these two, trust me, you are not going to last long in this game.

Patience 1

So what exactly do I mean by patience and how does it integrate with trading. Let me give you my example. I have a trading system in Amibroker which displays possible buy and sell ranges. Unlike most systems, mine does not show Buy -Sell arrows. I am not comfortable with the idea of relying on a fully automated system, one which places the order on the exchange once the corresponding buy-sell is generated. I want to have the final say before placing the order. That’s just me. Now, once my system shows the buy-sell range, I look for some confirming indicators which I have added. I will not take the trade unless I get confirmation from them. Does that mean I lose out on trading opportunities? Hell no. It just delays my entry. I am happy to get in a trade I am pretty confident about instead of one where I have some doubt. Once I am in the trade, these very indicators help me stay in the trade long after my system has given the exit range.

You might be wondering where does Patience fit in all this? Patience helps me to stay on the sidelines until all my conditions are met. Sure, I can take the trade when the system spits out the first signal but that would entail me not following my trading rules (Discipline). Patience also helps me stay in the trade till my indicators are telling me to do so.

Patience 3

Trading is as much about staying on the sidelines as it about getting in. You have to recognize this. Patience is the bridge which helps you to successfully cross these sides. As much as I would like to deny it, Trading is a highly emotional game and that’s what makes it so very interesting. If you cannot control your emotions, this game is not for you. I always give the Cheetah analogy for trading. A trader should be like a Cheetah. A Cheetah will wait for hours together for the perfect set up, till all the conditions are favourable. He will wait for everything to align so that he can make a successful kill. He has the patience to wait for it. Once every condition is met, he doesn’t hold back or wastes time. He goes and makes the kill. A trader should be just that. Have patience till the perfect set up emerges and then get in the trade without thinking twice. This is what all successful traders do, day in and day out.

Patience 2

To summarize, you need loads of Patience before and after you get in a trade. Like Discipline, Patience is a must have in every traders emotional toolbox. Only YOU can develop patience. Once you have built a Trading system or trading Rules try to Paper trade them for at least a month. Check your Patience level when following the rules. It will take some time to develop, especially if you are the impatient types naturally. Trust me, you will notice a huge positive change in your trading once you master the art and virtue of Patience.

Have Patience, follow your rules and Make money.

To your Boring Success.

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Accept and Respect Risk!!!

At the outset let me state the blatant truth – “You can lose your entire capital in trading”. There is a tremendous amount of risk involved while trading, be it Day or Positional trading. I am not including Long term passive investing here as the primary focus of this blog is Day and Positional Trading.

Note – In the course of this post, henceforth, trading would imply Day trading unless specified.

The markets are plagued with uncertainty all the time. You have a lot of the so-called experts shouting their guts out where Nifty is headed next. Everyone wants to know when the Sensex and Nifty will hit new highs. Retail investors who have burnt their hands in the 2008 carnage are itching to get in the market. No one knows when is the right time. Often, what is perceived as the right time, turns out to be the worst time to get in. This has been happening in the market since centuries and it will continue as long as humans have emotions.

Risk 1

So how do you Accept and Respect risk???

You accept risk by understanding and imbibing the thought that the market can swallow your entire trading capital. That is the maximum loss you can incur at any given point unless you bring in more capital.

You respect risk by following proper money management. Placing Stop Loss for each and every trade you take. Trailing your Stop Losses once the trade moves in your favour. Not over leveraging on your trades.

To be a money-making trader a.k.a Boring trader you have to accept and respect risk. If you don’t, trust me you will find it very difficult to accept that you don’t have any capital left to trade.

To safeguard trading capital your trading plan should include proper risk and money management plans. Never go overboard vis-a-vis your trading capital. The adage “We live to fight another day” is apt for trading. It requires a ton of Discipline and practise.

So the next time before putting on a trade ask your self if your risk and money management permit it. Is the risk you are taking worth the profit potential? If the answer is a resounding YES, go ahead with the trade or else abort it and look for the next best opportunity.

Once you accept and respect risk, your trading will elevate to a whole new dimension.

To your Boring Success!!!

The Game of Discipline!!!

“Plan your trade and trade your Plan” is an old adage on Dalal/Wall street.

Discipline 1

Planning your trade and trading that plan are 2 totally different things. Most of us are adept at making a fairly decent trading plan. Let me digress for a moment here. Most traders DO NOT have a plan. The earlier statement was for those who do. Ok, back to the topic now.

The following are a few basic pointers of a trading plan.

  1. You know which stock(s)/index(s) you are going to trade.
  2. You roughly know where you are getting in.
  3. You know the Stop Loss and Trailing Stop Loss for the trade.
  4. And finally, you know when to get out.

Now, that is the most basic trading plan. A simple yet effective plan. Yet, why do traders lose money. I mean, money more than their Stop Loss amount. I am reminded of a line written by Bob Dylan which says “The answer my friend is blowing in the wind, the answer is blowing in the wind”. The answer is Lack of Discipline. Discipline to stick to your plan. Discipline to be honest to yourself. Discipline to admit you are wrong. Discipline to pull the trigger. Discipline to take profits. This last one surprised you din’t it?? You know your profit target has been achieved yet you don’t cut the position. You hold on to it thinking it will go up. That’s when Discipline’s step brother Greed comes in the picture. Greed is what doesn’t let you take profits and the trade ends up being a losing one.

Trading in the stock market is not Rocket Science as many analysts or financial media makes it out to be. Trading is an activity where you stand to gain financially by sticking to your trading plan. Discipline is the fuel which runs the trading system (if you have one).

So the million dollar question is how do you develop discipline. Again it’s not Rocket Science. Only YOU can develop your discipline. Why? Because ONLY YOU are responsible for your trading success. It could be as simple as having a snippet of your trading plan stuck to your monitor screen which keeps reminding you to follow your rules. You could promise yourself a treat if you followed your trading plan. The list is endless. Only YOU can inculcate discipline in yourself.

Discipline 2

Trust me, if you don’t have DISCIPLINE in this game, you are going to be dead and gone in no time. I have seen many so-called traders eat dust just because they did not have the discipline to trade. Trading is one of the most difficult and competitive activity there is. Period. You will need all the discipline to fight it. It has to be a major weapon in your armoury.

Go on. Take the first step. Use your imagination. Get disciplined.

To your Boring Success!!!