My good friend Mr Murthy asked me one day to advise him what to do with 3000 Tata power stocks he purchased at Rs 90 and now that it fell to 79/-.Dilema and confusion have paralyzing impact on anyone as there seem to be no clear answer as future price is unpredictable.Multiple choices are Hold ,Sell or Average.Beneath this paralysis as I interpreted is the key question –can I find a customer and when?My answer to him is to wait till Diwali or at least next result then decide.But NIFTY has bullish outlook-he responded.Yes he is now biased and he wants to hold.Once bullish.always bullish.So we Hold as long as we want to play for our entertainment but not to get our refund from market at the deadline.We chose to have no deadline at all for refund !!! Its after all self service and if you don’t take in time, buffet feast is going to be over. And you only have to help yourself to take timely refund .Save your trading Capital not unsafe trade.Trades are mere extensions of your capital and like fruits in your tree .Pluck them off when they go sour or rot.
Controlling your Failure In-spite of your Psychology
Following is commonly heard as to trading fate.Virtually all human beings including successful traders are wired the same way.We all are programmed to take small profits and large losses .We tend to receive less and give away more.Environment control your sensory nerves and adrenaline flow which in turn control your mind.So external environment can enable and disable your likes by force. In fact with your hands in hot water you can not keep calm and we are forced to exit with heavy losses.Shocking consequences of hanging on to losses.Apparently hostile market environments where market conditions are always changing from volatile to stable and from trending to choppy so nothing works in all market environments ,one always easily predict heavy losses not only due to market but due to our human nature. But remember You have to make it safe to be wrong a few times in a row and not lose all your trading capital.But This requirement runs counter to your psychology.So fate for most traders are condemned from beginning. only the mentally, emotionally and psychologically strong can enter this arena, survive and thrive. Failure rates of traders are higher than ~ 85% .To control your failure you have to predict your losses.However you can neither predict profit nor losses but we can control our losses in advance before entry.With fixed losses ,you have fixed downside and unlimited upside.And now you are in successful 15% safely in spite of your Psychology.
Day Trading Hazard Analysis(#Moral +Market Hazards)
1. MARKET & HIDDEN TRENCHES OF WAR.
Stock market is about winning ownership of wealth in a free for all market.Historically kings had to wage and win wars to claim ownership of a territory.And war is hostile conflict between enemies and has a winner and loser.Likewise trading is to be taken as sequence of fights for wining ownership of money and no less than war in terms of resources and emotions.Right of ownership can not be expected without fight.When your territory is lost ,you can not wish to retrieve from enemy and you have to quit.In war your exit is defined .So also you exits have to be well defined in Trade and yet you prefer to hang on and get wiped out.
2. LIKE A BOXER IN THE RING
With trading comes emotional blows with constant volatility of market .Fear and pain are predominant and ever present emotional forces .Like in ring happiness and pleasure could be rare or nonexistent.Your toughness in the face of pain decides your survival.To survive in boxing ring ,your toughness to tolerate all the blows is the only choice and your joy comes from your blows.An exchange of Pain not an exchange of happiness happens in the end as both winners and losers do end up with body ache.To be tough is to chose to live unhappy life.But we hate unhappy life and quit.Therefore like it happens in boxing ring ,we tend to fail in trading because we hang on to our losses and keep taking blows until we are completely bloodied.Like in boxing ring ,when you can not take blows any longer you throw up in towel ,the same fate awaits traders who infact demand their money back from market by hanging on.
3.SPECULATION AND PUNISHMENT.
Well it rhymes like Crime and punishment and it is literally so.Why are speculators invariably punished and more so the late comers to party?Market is always going to be hostile not friendly to speculators no matter whatever business channels brag about to work you up for obvious reasons.Market is designed to hurt speculators and therefore holy grail does not exist.Market can always find a super antibiotic for super bug..Don’t confuse that failure of your tricks have anything to do with fault of tricks but a possible victim or prey of Long hands.You can ignore this at your own peril.Speculator bashing is always a favorite pastime in media and in practice..Speculators can only be punished with cost and pain.Speculators are left with little choice.So expecting to get wounded in fight is being pragmatic instead of being surprised and horrified ,but do try to escape unhurt .Quick to learn when being double crossed.Speculation and smuggling share same dubious fame. And are not treated respectfully by free market as most like to believe.It ever remains dark and shady in our psyche. This explains why speculation invites harsh punishment. Many fail to accept this.
4.RECOURSE TO CRYING &PROTESTS
Giving free money and free labor does hurts and now you have tendency to argue with market to collect your loss .If you have given lot of free money to market ,you are going more bitter argument with market by forever averaging and forever waiting for imaginary bounce.But you tend to forget when you chose to stay longer in boxing ring ,you going to get more blows and outcome may remain unchanged.So in boxing ring ,our strategy should be controlling blows we can receive not braving blows hoping opponent to blink .That can kill you.
In the face of stress your inner self reacts for full freedom to relieve.and can not meet any demands of the moment called responsibility.Its like purging freely of something.We all have our typical stress relieving mechanisms called our personality traits.In stress we all have our typical behavioral problem also called our weaknesses. Alcoholism and all forms of addictive behavior are manifestation of our behavioral problems to relieve stress with full freedom.Stop losses or hedging prevents excess damages by market and your potential mistakes in stressful condition
1.SELL AT DISCOUNT AND NOT DEAD CHEAP
If market goes against your trade and you have no other choice but to sell at a loss ,you must preferably sell at its relative value not any cheaper.This you do by closing trade at any comfortable DMA of your choice and not arbitrarily.Moving average based trading systems helps you to do that.However you lose anyway.Looking differently ,if your losing trades are your buying price or cost price in a business, then winning trades are your selling price.Like in any business ,Trading too has cumulative costs and benefits not one off thing.Differently, if Index has returned 13% annually ,any trade can expect at most only this much as bona fide expectation.So your trade should not bear loss beyond this so as not to be arbitrary.When your losses are not fixed and arbitrary ,outcome is certainly going to be arbitrary and not predictable.
2.STOP LOSSES TO STOP OUR MISBEHAVIOUR OR MONKEY BEHAVIOUR
It is said when you can not control outcome of your trade ,then control your losses.We tend to enjoy freedom of doing things as per our wishes and wants.Our decision to do certain things are based on certain wants which are emotional or simply reaction of our inner self. Any violation or restriction to exercise our freedom is not acceptable and hate ,a painful emotion grips us.In other words,We don’t respect time as it restrict our freedom .Therefore in any competition we are allowed only fixed time to complete something in time.This prevents Emotional tendency to want more time or procrastinate or seek easy options that many times gets better of our external cost and benefits or return in the face of competition.Stop losses fixes your time of stay in advance.
3.PREDICT OUTCOME OVER A PERIOD BY ATR ,DMI AND RSI
Future Price is binary outcome and not predictable.Our prediction of targets like supports and resistances are in fact our assumptions.Your conviction and bias converts your assumptions into predictions.Once you assume you know outcome,your only choice is waiting until it hurts as you have predicted no schedule.So you have to predict or assume outcome over a period.ATR and DMI can be customized over a period of your chosing to this effect.ATR and DMI targeting ensures that your unrealized profits don’t turn into realized losses.RSI on the other hand can be used to identify stocks with relatively better outcomes over a certain period into future.
4.OBJECTIVE ENTRY AND EXITS IN SYSTEM TRADES
Not allowing freedom to oneself to do what one likes is called discipline as we tend to self destroy for we are lazy.Subjectivity and discretion always goes wrong as we tend to be biased and partial and we are not trust worthy.To ensure impartiality and fairness we have to bring objectivity and rationality which removes any discretion and subjectivity.Objectivity is common and valid for everyone and independent of persons.So system trades ensure objective entries and exits.No question of too early or too late arises afterwards.
5.EDGE AND SAFETY
Odds or high probability indicates your safety level called Edge.Your edge is enhanced with more riders you add.However edge and equity growth have trade offs and you have to chose optimal road map.
FOLLOW SAFE OPERATING PROCEDURE NOT YOUR GUT FEELING.
Best way to predict outcome to fix your losses before entry.You can neither predict losses nor profit.But you want maximum profit and minimum losses.Once you fix losses ,outcome becomes function of profits.So you can know where are you at the end.Successful day trader has to face many challenges and demands both external and internal.Knowing and anticipating those potential breakdowns of trade ,one can have a road map ready.Hazards study as outlined above are potential psychological and market risks and can help one create SOP or safe operating procedure to drive your trade or perfectly map your trade from beginning to end in day trading.