Continuing with my previous week article Trading Lesson Learnt From my Trading Guru
I hope many traders who are trading or willing to start trading will be facing with the same dilemma and confusion so today am sharing few fundas i got from my trading guru. Use them and see the change in your trading.
As a traders its not mandatory to be in market all the time.
The basic mindset of amateur trader is we are supposed to have a position, in market all the time.
My GURU Answer: Emphatic NO.
This is one of the most difficult things to learn. Psychologically, it feels strange to have no position. It can feel like we aren’t working or that we don’t have a view on the markets.
My Guru said if you didn’t have a strong view on any market, then stay out of market. Money Saved is money earned. When there was nothing to do, he did nothing. He would say “It’s better to have no position than a dumb one”. By allowing himself to skip dumb that were driven by boredom frustration, he avoided trades that were likely to lose him money Thus, he could wait comfortably until the really profitable trades appeared and get the most out of it.
While such an approach seemingly demands the patience of a saint, it is actually easier to sustain long-term. Once you have a methodology and are comfortable with it, Like our PAC strategy , Once we are in the trend we just sit on our positions and let the market reward for our patience.
Thus, the ability not to have a position is a reflection of you doing something else right—having a methodology and a rigorous, disciplined adherence to it.
If you want to make big money Sit of to your positions
I keep using the above term in my Facebook page .My Guru told me if you want to get long term sucees in Stock Market inculcate this habit
When you have a position on, watching the price movements can become quite emotional. The process of making money on a position can be exhilarating and exciting and Losing money can be agony, even if it’s only in the midst of a correction to that trend.
When you open a position, you have in certain reasons for getting in to the trade. If the position is making money and the reasons are still valid, then sit on it and let it make you money. In the midst of that, there can be some seemingly painful short-term periods. Keep your eye on the big picture.
To Elaborate let me give an example: We discussed Axis Bank Example on 11 Sep Any close above 1008 will give target of 1076. Call got activated on 11 Sep and Target got achieved on 13 Sep when Axis made high of 1073. On 12 Sep Axis made low pf 1004 and on 13 Sep it made low of 1000, As our SL is on closing basis and both days it closed above 1008. Now many traders would have panicked seeing price of 1000 and 1004, But reasons for trade were still valid we need to hold on to our positions. So never get dithered by short term correction and always keep an eye on larger picture.
Too often, we have a winning position on and if it begins to correct, we can feel like it’s the end of the world. Watching it go against us, just for a day, can leave us panicked. We feel like our profits are melting away. We get anxious and close it out just to stop the pain. OK, we stopped the pain. But was that a good trade? Did closing that position make sense? Under the panicked circumstances—doubtful.
My Guru was great at catching the whole move. He would calmly sit through corrections, even multi-week corrections, if he was confident that everything still made sense. He could always recount the reasons that he had gotten into a trade and was still in it. Tellingly, those reasons would never vary. When we reviewed historical charts and the huge trends that he had caught, he would highlight the small corrections against him, asking the question, “See, what was the big deal?”.
My Guru has a unique way of doing this.
Every day, he would ask himself why he was in a position. He would then ask pertinent questions like, “What could go wrong?” . If it still made sense and nothing had changed, then he would hold on to the position, even if there was short-term volatility.
Ultimately, as traders, we earn our profits by making good risk/reward decisions. A process like this one, where we are focusing only on why we get in and out of positions and can think through various scenarios, helps us to make better decisions. It also blunts the emotional impact of any adverse short-term price action, leaving us better prepared to tackle the markets.
When looking back on a winning trend, we can rest assured that not every single tick went our way all the time. While losing money for a couple of days may have felt excruciating at that very time, it was not actually that much pain. Missing out on the big trend that we had nailed early on? That’s far more painful.
I have most of the attributes mentioned, but there is some kind of impatience inside. Recently got stuck with Axis Bank which was eventually RB’ed for the rest of the expiry. And I had spotted many other trades where I could have potentially gained something in that time. Although its rare, most of the times I miss on timing the market. A trait am looking for. Is there any method Sir Brahmesh for timing it or does it come from experience. Coz for now I am quite trying to understand, that different stocks are like different girlfriends. They have so many varied patterns like a womens mind, that you dont try to understand them but instead observe and follow them.
@Varun, I guess…if one is not confortable with CBSL…then he could opt for sl trigger and buy once above the entry again. Though it will be a lil expensive, but worth it considering your definite gains
Just a question ?? What is meant by STOP LOSS on CLOSING BASIS ? Do u mean, apply stop loss only towards close – say 3 p.m. and close the trade, if SL is more than 2 % ?
What should be done, say, if STOP loss comes during the day between say 10 a.m. and 3 p.m. ?
If you are holding DLF with SL of 200 on closing basis, means till 3:30 if it close above 200.2 we can hold to our trade, INtraday it can dip till 195 but can recover on closing basis to close above 200 we will hold on to our position.
Just to make your point clear. For eg of trading capital of 10000 (2% is 200). So for any trade never have a stop with risk more than 200 rs.
I buy a stock of 100rs ,my stop on closing basis is 98 so as per my risk my position size would be 200 shares. if the market goes below 98 suppose to 95 what do you do. wait for closing or close the trade??
In this volatile market if you wait for the closing to determine whether you are stopped out of the trade or not, can be risky.
My view is stop should not be on closing basis but on trigger price as this way you have more control on your risk capital. It may result in a small position size; however you can always scale in once the trade moves in your favor.
Every business requires a seed capital to start with and it should be “substantial”,If a trader traders with a capital of 10K fear of losing will stop you from taking trades.
Risk is always inherent in trading and if XYZ does not have stomach to take such risks trading is not your cup of tea, better avoid it.
You views of Stoploss is based on your risk profile, mine are based on my trading system. If somehow you do not feel comfortable just avoid it.
Thanks for your excellent post, however, I have a question on the example you stated. You mentioned that one shouldn’t have closed his position when AXIS bank touched 1004 or 1000 since the S/L was on a closing basis.
What do you suggest to put as a S/L in the system for such situations, since you don’t know whether the stock would recover after touching our closing level S/L or not. It is very much possible that once it touched 1000, it could have tanked all the way to say 980 or 950, and, not recovered to close again above 1008?
Note: I have only used your example to understand how to put the S/L effectively, I don’t really trade the AXIS bank stock.
Thanks for any comments you can make!
SL is decided on your trading system.To answer your question never have sl of more than 2% in any trade taken when SL is on closing basis.