Taking a loss is one of the coolest thing in Trading!!

Yes! You read that right. You must have probably read that heading a couple of times just to make sure you read it right. There are a few axioms associated with Successful Boring Trading and Taking a loss and being cool about it is one of them.

At the outset let me make it amply clear (you already know this) that you are going to have a loss at some point of time in your trading. Now this could be once in a while (depending on how good your trading system/approach is) or it could be a string of losses (I will address how to handle a losing streak in a separate article). Either ways YOU WILL HAVE A LOSS AND YOU HAVE TO DEAL WITH IT. PERIOD.

How you deal with a loss determines what kind of a trader you are. The great ones just love taking a loss. They love it because they understand, appreciate and realise that they or their system have gone wrong and the predetermined loss point has hit. They take the loss and move on to the next trade. Almost with robot like precision. And it has to be robotlike. You can’t harp on a losing trade cause you would lose the next money making opportunity which presents itself.

As a Boring Trader, I think taking a loss is the coolest thing. It makes me realise, rather quickly, that I have made a mistake and lets me get out with MINIMUM DAMAGE. How cool is that? This is possible by having a predetermined Stop Loss. I will address various Stop Loss techniques in a separate post. But seriously, think about it. You are in the midst of a trade which you are reasonably confident about, yet it goes the other way and hits your stop loss. You take the loss, think for a moment or two if the reverse position needs to be taken and move on. Cool as a Cucumber. It’s that easy…..You think so? Nah, it is not that easy because it involves losing MONEY and nothing is easy when money is involved, especially losing it.

Taking a loss

So how am I so cool about losing. Easy..Remember Discipline??? YOU have to inculcate the DISCIPLINE of cutting your losses short and let your profits run (I might add).

So the next time you put on a trade and it goes the other way and hits your stop..be cool about it..know that it could have gone much worse..think if a reverse trade needs to be taken and move on…This will take practise..a lot of it but trust me you will be glad you did it in the end.

Go ahead..Be Boring and Make some 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!!!