All posts by Madan

Intraday options trading account – Performance report

Started trading Nifty intraday options in a 3 lacs trading account from March 1st 2019

1. Plan is to aggressively compound this account live to build the account from 3 lacs to 1 crore

2. All these option trades are based on the futures price.

3. These are exact option trade entry/exit points according to the contract note from the broker. This is not just gross MTM 🙂 (The broker and govt take their share) – Trades will be updated daily EOD in the sheet.

All costs are deducted and contract note’s net amount payable/receivable is what you see in the ‘P/L in rupee value’ column of the excel sheet.

4. Tradebook screenshot (from KITE) is uploaded in the ‘Tradebook’ column – Kindly click the link in the corresponding cell.

5. If there is no trade seen against any particular trading day, then it is a NO TRADE DAY .

6. This trading account will be compounded and lot size will be increased accordingly. It is a tiny effort to show how compounding works in real account in real time (with tradebook updates) – not just in excel sheet 🙂

7. Plan is to do the following —

3L to 15L –> Options buying
15L to 30L –> Options selling
30L to 50L –> Synthetic futures

Am as curious as you are to see how things will unfold in the coming months/quarters !!

Click Here to open detailed report in a separate window (Updated daily)

One day Webinar Agenda

Morning Session topics

1. Why price action based trading & Structural pivots
2. Identifying trends based on structural pivots method(SPM)
3. System building process – Intraday/Positional price action concept with possible set of entry/exit rules. Participants can choose the best set of rules based on their psychological comfort level
4. How i turned 3L to 24L(as of Apr 30, 2020) in intraday – a whopping 700% in 14 months and how am gonna turn 24L to 1 crore in the next several months – the process of compounding explained

Intraday option trades Excel sheet with tradebook can be found here –>

Intraday options trading account – Performance report

5. Backtesting a system – how to start, what to look for and pitfalls(curve-fitting)
6. How to evaluate backtesting results to find the optimal risk to be taken per trade & exact capital needed per lot?

Afternoon Session Topics – executing the strategy to trade profitably (albeit consistently)

1. What is an ‘edge’ in a system? How to quantify an ‘edge’? Do I really have an edge in my system?
2. What is Money Management and how it acts as a guiding principle to navigate through our trading career
3. 2% risk per trade does not work(like the way it is suggested in popular books) and why? Then what to do?
4. How Backtesting influences the Money Management process to lay down some solid foundations on the capital deployed
5. If trading system is all we need, why 99% could not trade bigger lot sizes?
6. The real holy grail of trading – Execution
7. Part time trading vs Full time trading – Differences and their effect on our P/L
8. How Psychology plays an important role beyond any rules and how it helped me navigate through my trading career

Important Points

1. If you are looking for a holygrail or readymade intraday/positional system or non-committal to work after webinar, this webinar is not for you. Good amount of work(learning to mark pivots, backtesting manually bar-bar) involved after webinar.

2. If you are looking to become an independent trader with proper price action knowledge, backtesting, Money management and psychological traits(needed for successful trading), then this webinar is for you – You are in for a treat !!

3. Last but not the least – my intention is to make sure that you dont have to attend another workshop/seminar/webinar in your trading career after this one. What you gain out of this webinar should be good enough to create a consistently successful trading career.

Price action based + System trading Webinar

Introduction

As many of you know, i have been trading just the price (a.k.a price action trading) for the last 14+ years and during this lockdown, i have been getting requests from all over the globe for conducting online webinar on how I do price action trading in a mechanical way (absolutely no discretion involved).

In this one day webinar, i would be covering Structural pivots(price action concept i trade for the last 12 years now),Positional/Intraday trading (any underlying instrument that moves), Compounding a small account, Backtesting, Money management and psychology

Webinar Agenda and participants feedback

Please click on One day webinar Agenda for complete details on agenda.

Please click on Past workshop participants feedback

Fees and Timings

Date: June 07, 2020 (Sunday)

Fees : Rs.10000/person (Ten thousands)

Webinar Timings : 9:30AM – 5:30PM

Morning break – 11:00AM to 11:15AM
Lunch Break: 01:00PM to 02:00PM
Evening break: 04:00 to 04:15PM

Payment details

To confirm your registration, please pay Rs.10000 to the below mentioned Instamojo ID (all kinds of payments like Bank transfer, Credit/Debit cards, UPI, Wallets are accepted) – If you use Instamojo, there will be an extra small 3% convenience fee charged by Instamojo

https://www.instamojo.com/@marketswithmadan

or

Pay to marketswithmadan@axisbank UPI ID

Kindly mention “June 7th 2020 Webinar’ in ‘Purpose of payment’ and send the screenshot of the payment window along with your name to marketswithmadan@gmail.com for further reconciliation and registration process.

Location

Online

Additional perks of attending the webinar

Telegram support group for the attendees (7 days duration) to clear out workshop related doubts via Daily videos.

Important points before making the payment

1. Government ID proof(Driving license, PAN or Aadhaar) of your current country of residence is **MANDATORY** for registering for the webinar. If you are not willing to share ID, please dont pay for the webinar as you will not be allowed to participate in the webinar (Money will be refunded back to you within 3 days after your payment)

A google registration form will be sent after your payment and Govt ID can be uploaded in the form.

2. Access to the webinar recording + DailyVideos will be granted for 7 days (On June 14th 2020, all video access will be revoked).

3. Irrespective of the reason, no refund will be given for not showing up and if there is a technical snag during the webinar, we will use another weekend to compensate the lost time.

4. I might conduct 2 days physical workshops in the future (after Covid19 situation eases) and if you have attended this 1 day webinar, you can join the 2 days workshop by just paying the differential amount.

Contact details

If you have further questions, please email me at marketswithmadan@gmail.com or whatsapp at 9677036689

Backtesting an idea/system

Traders

Backtesting is a topic that always attracts one set of traders and despised by the others 🙂 The topic is pretty vast and this blogpost is just a basic primer on Backtesting. It is gonna be a long one but i believe, it will be worth your time 🙂

Let us etch something in our mind very clearly before getting into details – Discretionary trading methodologies/ideas cannot be backtested. You need a set of rigid entry/exit rules to backtest the idea. There are no 2 ways about it. One can act smart and twist words around it but there is no backtesting for discretionary systems – period.

Introduction

Backtesting an idea (in trading terms) is to gauge how a set of trading rules performed on historical data. But, many folks who come into trading just do data mining. Data mining simply scans historical dataset for rules that would have worked in the past. We have read this disclaimer various times that ‘past performance does not guarantee future results’ But still, the professed value of backtesting is based on the premise that historical tendencies/patterns repeat.

Backtesting and its efficacy

So, the popular question is if ‘past performance does not guarantee future results, why backtest an idea/system in the first place? One could very well save the time, effort and sleepless nights right?’ This is an argument that has some validity, up to a point. It is definitely true that past performance is not indicative of future results. But does it therefore mean that historical testing has no validity? I don’t think so.

Here is a case in point. Let’s say you want to build a model of the sun rising. Every day for a month, you get up before dawn, and wait for the sun to appear. Every day, it rises in the east. So, you build your model, run it for tomorrow, and it “predicts” that the sun will rise in the east. Will it? Who knows for certain? Some strange axis switching or earth rotation reversing could occur overnight or a cosmic phenomenon might occur (which could be understood only by Late Stephen Hawkings 🙂 ) and the sun could rise in the north, south, or west. Highly unlikely, yes, but so was the financial crisis of 2008, Nifty flash crash in Oct 2012 and the recent coronovirus debacle. Outlier and unexpected events can and do happen.

If such a calamity occurs, does it mean that the model is useless and never should have been built? No, but certainly you would have to now take into account that the world you modeled has changed significantly. So, having a model based on history is much better than completely guessing. With guessing, you are likely to be looking the wrong way when the sun rises tomorrow morning 🙂

Strategy and psyche

Before getting into the nitty-gritty of backtesting, I would like to clear few hitches of system development. It is imperative that the trader should come up with a system to backtest based on his/her traits and psyche.

1. Let us say that you are a profit-target based trader and dont believe in trailing the profits much. If someone gives you a profitable(system with positive expectancy) blackbox system to trade, sooner or later, you will abandon the system or will tweak it in few trades. Reason is very simple. The system skeleton and ideologies are not attuned to your psychology(the belief you have about how markets operate). A profit target based trader cannot trade ‘trailing stoploss’ based system (and vice-versa is also true) as there will be internal conflict. Please understand that psychology is like fingerprint – it is unique. Hence, it is very important that we choose a system that is attuned to our psychology.

2. If a trader cannot digest 10 losses in a row of a trend following system, there is no point devising one and backtesting it. If your psychology/understanding about the markets do not match what the system can offer, then you shouldn’t be trading that system. Manipulating the rules because you are intolerant with the results can turn a winning system into a big losing one. If you can’t live within the anticipated parameters, then you need to develop or find another system. If one is devising a system for intraday to backtest and he is known to hesitate on taking quick decisions, then it could prove costly in live trading. If a trader vacillates for even two minutes to enter a trade in an intraday system, then that could be the deciding factor between a winner and a loser. With a longer-term trading system, the entry is generally not so critical and hesitation errors are forgiven usually.

Ways of producing backtesting results

Before venturing into the topics in detail, i would like to state that am a big proponent of ‘bar-by-bar’ backtesting as it has number of advantages (but takes a lot of time) compared to automated backtesting (using code).

1. Historical backtesting

This is a kind of testing done by most of the charting software nowadays. You create a few lines of code and they spit out the results with myriad number of statistical parameters. This kind of testing also encapsulates the major problem in backtesting – over-optimisation and curve-fitting (did not get into the definition of these terms as they are commonly known). There is virtually no chance that the results in the future will be close to the ‘optimized’ results. The results are just too “tuned” to the data used in the test.

If a system has indicators (with parameter numbers) incorporated in it, there is higher chance of optimization and curve fitting. Once can play from 1 to 500 as value of the moving average and the s/w will spit out results in seconds. A trader will be tempted to choose the best MA (say 283) out of 500 MAs and guess what, real trading would suck big time as curve-fitting has been done nicely with the past data.

2. Out of sample testing (OOS)

If one is persistent on optimization in backtesting, this kind of testing can be a savior. So, here a trader can test 3 years of historical data testing (automated) and run numerous iterations of optimization but run the following year bar-by-bar. Of course, nothing can beat bar-by-bar testing of a well formed idea (with zero optimization) but this will help those folks who are a bit lazy in backtesting bar-by-bar.

3. Walk forward testing

Walk‐forward analysis is simply the aggregate of many out‐of‐sample periods, stitched together. So, 2 years of automated testing + 1 year of OOS testing followed by 2 years of automated testing followed by 1 year of OOS testing. Once we have a set of 4-5 years of OOS testing, we put them all together and create the statistical parameters. In this testing method, we can get the best of both worlds – a bit of bar-by-bar testing and optimization (if needed)

Importance of data in backtesting

For an accurate evaluation of any system, the data must be impeccable. Online free data will not cut it (a saying flashes through my mind right now – ‘penny wise, pound foolish’). Without correct data, system testing is useless.

Purity of data is another very crucial requirement. Any anomalies or mispriced quotes will have a direct impact on the system’s test results and can skew the results extensively. Cleaning of data is not an easy task and often must be relegated to professional data providers.

Parameters to look out in backtesting

As most of these terms are self-explanatory, I would just like to list out the most important parameters to watch out for.

Percentage profitable, Total number of trades, Max consecutive winning/losing trades, Net points (after cost), Maximum drawdown, max time take to come out of DD (Recovery factor), Ratio of average yearly profit to max DD (Calmar ratio). Max loss and max profit are not that important to me as they are singular events.

I am not a big fan of the popularized ratio – Sharpe ratio. There are 3 reasons for it.

1. It does not include the actual annual return but only the average monthly return. Thus, irregularities in the return are not recognized.

2. It does not distinguish between upside and downside fluctuations. As a result, it penalizes upside fluctuations in the same way as downside fluctuations.

3. It does not distinguish between intermittent and consecutive losses.

Optimization of backtested system

Once we have a trading methodology and an initial set of parameters, it is time to fine tune our approach. The principal folly of optimization is the tendency to curve fit. The problem is more pronounced with systems that involve indicators with numbers (like moving averages, RSI, etc). So, if one is dogged to optimize using a software, use the walk forward testing technique discussed earlier. By doing this testing, one can easily assuage the apprehension of curve fitting to a large extent. Word of caution here – fine-tuning a system just increases the level of false confidence that eventually will be dashed in real time when the system fails. I have backtested numerous systems in the past and have always followed this route – take a concept/idea, create rules based on the concept and test it bar-by-bar without optimization even a single time. Yes – it is an arduous task but in my opinion, it’s well worth the effort and time.

Final thoughts on backtesting

Traders are especially captivated of the percent profitability, or accuracy of a system. In practice, we should not target a specific win/loss ratio – the goal is to create a profitable system (= system with positive expectancy) in accordance with the trader’s psyche. It doesn’t matter whether you get there via relatively few but comparatively large winners, as is the case of trend-following systems, or smaller wins with a tendency to compensate losses and much more. It also could be a combination of the above. Eventually, the totality of the system is all that matters.

Please be cognizant of the fact that several trading luminaries have owed their successful careers to simple trend-following systems. These systems tend to produce winning trades close to 30%. And there is almost always some giveback of profit before a winning trade is closed out. A position’s equity high is never anticipated and profit targets are not used. It’s therefore easier for a trade to wind up as a loser. So essentially, the cardinal parameters of a system (with positive expectancy) could vary from trader to trader but search for the holy-grail system has to stop sometime.

Happy backtesting all !!

Procrastination and ways to overcome it

Traders

I always wondered why traders never get to the point of creating a solid trading plan/system and the reasons behind this phenomenon.

I love writing articles about trading psychology and this topic made me come out of hibernation. This blogpost is a small attempt to see the probable reasons behind procrastinating in formulating a system – from a psychological perspective.

Introduction

Procrastination – we all know what it means and many even admit that they are procrastinators. In the world of trading, many get convinced that a proper trading plan/system is the first and pivotal step to be taken (at least the majority of us :)) but when we try to develop a system, we face this ‘procrastination’ demon. They never start developing one or drop the ball on the way.

Many a times, becoming aware of why something happens is the first step towards changing that pattern.

Procrastination and fear of failure

In my opinion, the primary reason for procrastinating in developing a system is ‘fear of failure’. This fear can manifest itself into various forms –

a) If someone had ventured into trading without a methodology/plan (99% start this way), they would have either blown the account or figured out how risky trading could be. So, part of us may be very scared of the consequences of trading any more that we will have difficulty in starting to develop the system.

b) More often than not, folks would have quit their job to start trading fulltime (or trading for a living – by the way, both are different things 🙂 ), but we are so afraid of the results of not trading well (that happened in the past) that we cannot complete the job of developing our system.

c) Lack of self-confidence – Based on past experiences, we might be uncertain of our ability to perform or just a general lack of self confidence, and this leads to procrastination.

d) If the time pressure to perform is greater, then it will invariably create more fear of failure and let us procrastinate on the things that are needed to develop a trading plan.

Procrastination and fear of success

This point will be counter-intuitive to many but lets face it.

a) Fear of change that success brings in – People fear success because it will bring something new. A change from status-quo.

Lets say that we become rich (by your own definition) and based on our 3rd party experience, we dont like the implications of what it means to be rich. One of the implications could be that your friends no longer want to associate with you as your lifestyle has changed

b) We might have a notion that wealthy people are evil-minded and parsimonious in their ways. If one does not want to be stingy or evil-minded, then there will be internal resistance in making money and hence keep procrastinating a probable way/process involved in making lot of money (trading with a plan/system)

Procrastination and fear of work/lack of interest

a) It is easy to just log into the computer in the morning, enter some random trade based on somebody’s recommendation/news and exit whenever there is a ‘feel’ of profit/loss is enough 🙂 . It takes lot of strenuous effort and commitment from a trader to create a well-thought out plan without any major loopholes.

On top of that, many loathe the sheer amount of work involved in backtesting the system for 10+ years. We have started enjoying the luxuries of modern vagaries that it feels almost archaic to go back to the basics and do things the hard way.

b) If someone told us to create a system and if we don’t like that person (for whatever reason), we tend to feel resentment towards developing a system. We don’t want to be like that person and hence we keep procrastinating. The more we dislike the idea of developing the trading system, the more we tend to push it away.

This essentially means that we will leave the toughest part of the job for that portion of the day when our energy level is low. We do this for any activity that we detest/lack interest in.

Procrastination and lack of understanding/objective

a) It is unfortunate that there is no proper understanding of how to create a trading plan/system. There is a structured process to follow in creating one and not much literature floating around on this less-discussed topic.

b) Traders who start trading usually does not know what they really want out of trading or a trading system. Getting our objectives down is 50% of the task. Until we have your objectives written down, we have no way of knowing what we want or knowing when we’ve got it.

How can we even monitor our advancement, a major factor in ongoing procrastination, until we know exactly what we want? On the contrary, once we know what we want, we can set deadlines for each phase of the system development.

Overcoming procrastination

1. First and foremost step is to realize that procrastination comes from us and we need to take control of the situation. Start today, however small the step/action maybe. There is no better day than today.

2. Worst case is you spent few hours/days/weeks of your time but let us think about the average/best case of start doing something today. We have spent/spending too much time on non-productive things anyways 😊

3. Don’t let the perfectionism get in our way. Even if the quality of the work is poor, it is very important to try something and fail rather than wondering what if.

4. Eat the elephant one bite at a time. Write down your objectives for trading (being vague kills clarity) and steps involved in developing a trading plan/system. Get to know the process involved in developing one. If developing a trading system looks onerous, break it into pieces and create smaller chunks to accomplish.

Final thoughts

None of the businesses started or flourished without proper due diligence/business plan. Why trading should be an exception? This begs to a very important question on our thought process about trading as a profession?

If one is serious about it and think money can be made through trading, not coming up with a plan/system is completely illogical.

As the popular saying goes – ‘ A journey of thousand miles begin with a single step’. We might delay but the time will not. So, lets kick that ‘procrastination’ bucket hard and take that first step today.

Good luck all in developing your trading plan/system !!

Trading addiction and its antidote

Traders

I have been running workshops couple of times in a quarter and get this question a lot – Is trading the markets an obsession/addiction? – Answer is both YES and NO.

Most of the books/articles/trading world luminaries dont talk about addiction a lot. This topic is shied away mostly. In my opinion, it is as real as it can get. So, let us delve deeper into it – embrace yourselves for a long post 🙂

Introduction

What is addiction actually? One of the definition says “Addiction is the repeated involvement with a substance/activity, despite the substantial harm it now causes, because that involvement was/is pleasurable and/or valuable.”

Let us look at it in trading perspective – When a person starts trading the markets, it is usually an harmless regular activity. When a trader opens the screen – he is welcomed with ticks moving every second and a possibility of making lacs every minute unfolds infront of him. Fair enough. But please read the last sentence again – “possibility of making’. This is what gets a trader hooked with the market instantly.

Trading and sleepless nights

Watching SGX nifty/DOW in the night (even though the trader knows that he cant do nothing when our markets are closed) is not just because of having positions more than they can handle. It is also due to the fact that the trader is addicted to watching everything related to markets. He just cant help it.

Many argue that only losing traders do this kind of watching activity. Not exactly – it is not about winning or losing. Typically, addicted traders absolutely have to be in the markets at all time – they feel that they have to assimilate all the information they could. They feel that they need to be trading every single day. No exceptions – it is like that wound that itches. You have to scratch it 🙂

Trading and stigma around money

Our brain acts differently when it ‘anticipates’ monetary reward. Behavioral psychology long ago demonstrated that the mind’s ability to choose rational thrills offering positive rewards over more intense thrills offering ridiculous, negative rewards is deplorable at best.

Usually addiction with alcohol/drugs or anything for that matter is a sickness but trading addiction is a bit different- the keyword separator here is ‘Money’. There is a social stigma around money albeit a big one. Folks will tell you everything about the most intimate details of their lives, but they will not tell you about their money – How much they have/How much they want/What they think about others who have more or less money than they do.

Actually, answers to these questions would reveal what they really think about money – What money really means to them? People have more feelings of shame, guilt, greed/lust around money than perhaps any other thing.

Trading and addict’s mindset

When the market opens, a typical addicted trader would feel like this – “Let me just put on a short trade as overnight DOW was red and Nifty has moved 50 points from the open. If I just chase it just this one time, it should be OK because it makes me feel so good when I see the price going down, and I am convinced that I can make a killing on this one. Why should I wait for the price to come to me? Waiting is for losers. Maybe the price wont pullback and I would have missed it all. There’s no fun in that – so, lets jump into the trade”

This feeling is supported by excess secretion of dopamine and the ‘feeling of high’ kicks in immediately. The possibility of making money is enough to kick dopamine – we dont have to actually make money. Well, it’s all good and wonderful until it isnt. Because the trader chased the trade, and market in its natural way of ebbing and flowing, comes down and the trader is in a loss right now.

Now, here comes the best part – the brain registers losses 5 times more intensely than it feels gains. A loss of 1 lac will feel like 5 lacs. Chasing caused pain, and now the pain is financial/physical and psychological. Immediately, dopamine shuts down and the fear begins to pop up in the brain. This leads to an emotional roller coaster in a traders mind – a feeling of high followed by low. Markets can bring this effect upon unseasoned/impatient traders very easily and things go south psychologically pretty fast.

It is important to understand that addicts dont know when to stop trading and when to not jump. This cycle keeps repeating. If you have experienced this before or know someone who has gone through this cycle, this is what is happening in the background.

Trading addiction and research

Two professors from University of California, San Diego (UCSD) did a research on stock market fall and the hospital admission rates. Their research says that if the market goes down 1.5%, there is a rise of patients in the hospitals by 0.28% on the same day (in the evening).

This research was mind-boggling, to say the least. So, the sickness can be physical not just psychological.

Full research paper here –

https://pdfs.semanticscholar.org/4111/4bea0b59b220f6d3c3575b7a8a19729db88d.pdf

Antidote to trading addiction

In my opinion, ‘following a well structured plan’ is the best antidote to this issue. Faith in our plan brings patience and patience is a key ingredient in following a well-defined plan.

Create a rigid plan (well thought out one) that has no ambiguity and follow it to the T. This is the only way out of despair and addiction with trading. The trading plan must be part of you – based on your psychology. Otherwise, it will be sacrificed for whims and moments of weakness.

Here is a blogpost i wrote on trading plan –

Basic pillars of trading success

As long as you work your plan, the plan will work for you and you will reach your goals eventually. There is no “get rich quick” plan.

Happy trading all !!

Participants Feedback

1 day webinar feedback

May 3rd 2020 Online webinar feedback from the participants

2 days workshop feedback

March 7/8 2020 Chennai workshop feedback from the participants

February 15/16 2020 Delhi workshop feedback from the participants

January 4/5 2020 Bangalore workshop feedback from the participants

December 7/8 2019 Mumbai workshop feedback from the participants

November 8/9 2019 Chennai workshop feedback from the participants

October 12/13 2019 Bangalore workshop feedback from the participants

1 day Workshop feedback

September 14 2019 Mumbai workshop feedback from the participants

August 25 2019 Delhi workshop feedback from the participants

July 13 2019 Chennai workshop feedback from the participants

June 15 2019 Bangalore workshop feedback from the participants

May 11 2019 Mumbai workshop feedback from the participants

January 05 2019 Chennai workshop feedback from the participants

October 06 2018 Pune workshop Feedback from the participants

September 29 2018 Mumbai workshop feedback from the participants

Master of one or Jack of all trades

Traders

Everybody wants to be a jack of all trades but many dont bother to master anything specific. This blogpost tries to analyse this topic from trading point of view.

Introduction

As an human being, we tend to naturally gravitate towards things that are complex and the situation worsens if we are an engineer 😊 (you know what i mean). As many believe, the complexity of trading is not in the charts, but it is nicely wrapped up in the mind. We see many wannabe traders and few experienced ones trying to be jack of all trades (in trading the markets).

Knowing to do a little bit of everything is very good in life as we ‘learn’ how to learn and we fit well in leadership roles. But it can also lead to lot of distractions and eventual burnout.

Trading the markets can be simple but not easy

Trading itself is not overly complicated. Well, lets look at it closer –

1) Markets only go up or down (they can consolidate, but they have to leave that state in a direction). Essentially, there are only two directions. Deciding how far, how much room to allow it to breathe can get complex, but it still comes down to one of two choices 😊

2) Markets will only move in one direction for so long before they change direction. Traders study on where the change of direction should most likely occur. Each trader might have different notion/concept for trend reversal but there has to be one.

3) Allowing winners to be larger than losers beat a lot of things that could go wrong.

These 3 simple things may require a lot of study/practice/patience and learning, but not anything that seems “complex”. Maybe price analysis, but even that can be simplified to far less than quantum physics 😊

Trading and real life analogies

Analogy Number 1

I have a 2 year old son who started walking few months ago. As humans, our ability to balance on 2 legs is complex (try programming a robot to do it as well as an human – a Robot can never walk as gracefully as a developed human). We had to practice that skill as babies until it became second nature.

But today, while there may be a lot of complexity occurring in the background for our bodies to maintain balance (and we could probably map all of that with tons of analysis and indicators/charts), if we stand up right now, does any of that really matter? Absolutely not !!

The complexity of balance is just going on silently in the background. The study of anything worthwhile can be complex, but is complexity a required point of focus? A big question to ponder.

Analogy Number 2

I have never done skiing but can draw one more analogy from it. Balance is mandatory for that wonderful sport, but that point should never enter the mind of a skier.

Gravity is also mandatory, and complex, but still not on my checklist. Skiing does not require me to be aware of the complexity. What does matter really is that ‘have I practiced enough to have the ability to ski safely?’ As simple as that. If the answer is ‘No’ to that question, then the prudent thing would be to get back to the basics/practice arena.

Conclusion

In the pursuit of simplicity, by focusing on one or two markets over time, it can harness the potential of a trader to somewhat “understand” what the market is saying at a particular moment. This cannot be immediately translated into profits but the trader can ascertain the nuances of his methodology in a more meaningful way.

Long story short – focus on a specialty instead of taking the shotgun approach and devote the attention to understanding your niche. I don’t think that the process of mastering something can be easy but I do believe it should be very simple if we follow a structured approach.

Focus on one instrument/idea, keep things simple and it pays off nicely in the long run 😇😇

Let me end this post with this quote – “Seek freedom and become captive of your desires. Seek discipline and find your liberty – Frank Herbert”

Happy trading !!

Professional vs Amateur trader

Traders

This blogpost is a small effort to delineate the thought process of a Professional in comparison to an amateur trader.

Introduction

It is a common understanding that trading profit on any given trade can be construed as the compensation we receive for the risk we took on the trade. Traders take risk, in the sense they routinely make judgments with uncertain outcomes. So it would follow then, that good traders don’t try to eliminate risk as much as manage it, and instead, can increase their chance of profitability by better reducing that uncertainty !!

This can be accomplished by making better trading decisions than those that are less informed, less knowledgeable, and less skilled. Ultimately, it is not what the trader knows, but who he is. The really consistently profitable traders are able to ignore or subvert their natural tendencies to do what feels comfortable, and instead, do what is necessary, to be optimally profitable over the long run.

Amateur traders

1. Watch what other traders do and be sure to follow the crowd. After all, they have been trading a lot longer than him/her and hence, naturally they should be more ‘smarter’

2. Never worry about using stop loss orders. When the time comes, he will be able to sell his open position(s) and take a loss. Our emotions won’t even come into play. Besides, stop loss orders are for weaklings 🙂

3. Setting high standards to achieve and feeling beaten when they fail to meet their expectations. Suddenly,they are disappointed/stressed out,and prone to make trading errors. Losses start to mount,mood worsens and before they know it, they find themselves in a deep psychological hole of despair.

4. They dislike regret more than losses. Their avoidance of regret is more powerful than the fear of loss. It’s one thing to make a losing trade, but it is quite another to feel that we’ve made a mistake, and continually berate ourselves for making it.

Professional traders

1. They don’t give a hoot about anything/anyones opinions of what the market will/might do.The very news/opinions that surround them becomes the mortar for their brick wall of defense that protects their completely independent thinking (Keyword here is ‘Independent’)

2. They have incredible discipline to not buckle under pressure. They have a perfectly clear head and understand fully what they do and how they do it. Battle wounds and memories of defeat are more valuable to them than the money.

3. Their self esteem do not rise and fall with trading results. Their self concept is strong/durable and not at the mercy of the current, last, or next trade.

4. As they know that their experience in markets is a reflection of their personal life, they keep their personal life/finance in order as that will nicely percolate into their trading. They take care of their bodies with healthy diets/exercises, while understanding that recreation is a vital activity in keeping trading performance at peak level.

Conclusion

A budding trader’s goal should be to move from the 1st group (amateur trading) to 2nd group (professional trading) as early as possible. It is easier said than done though.

Please do remember that ‘Winning’ is just the culmination of lessons learned by making our own mistakes – not from other people’s mistakes. Many folks would disagree here and they believe that one can learn from the mistakes of others in trading. This statement is absurd, to say the least. Especially in an experiential profession like trading the markets where one has to go through the path on his own. Our biggest nemesis is in between the ears and one has to face their own demons(often unique) in trading.

Want to end this blogpost with this thought – ‘Professional traders attitude’ can be abbreviated as FEDCOP

Focused (on the trade only)
Emotionally Stable (treat winning and losing the same)
Disciplined (in trade management)
Confident (in methodology & risk management)
Objective (Unbiased)
Patient (to wait for the opportunity & to maximize profit)

Happy trading !!

Get comfortable being wrong

ComfortZone

Human nature is to be right all the time. Nobody likes to be wrong even in petty/useless arguments. This particular thought process is one of the primary reasons for many opting for methods that shows high winning percentage with abysmal Risk:Reward ratio. Many of the world’s renowned traders are trend followers and trend following usually delivers something that human brain is not used to – More losers than winners with superior Risk:Reward ratio.

Introduction

In trend following type of trading, the usual combination is low winning percentage with high Risk:Reward. This requires a trader to get comfortable with the fact that we will most likely be wrong more often than we are right.

That concept is tough for a lot of traders,as many of us believe that to be profitable we need to be right more than we are wrong. but nothing could be further from the truth. Yes, for scalping that is partially true, but for swing trading, with the proper risk to reward ratio, we can be profitable even if we are wrong more than we are right.

We just need to have the patience to wait for a trade to come, and also patience to wait for a trade to work.

Here is a blogpost on patience

Deliberate practice and patience

Trend following and surfing

Unlike surfing, we don’t get the luxury of knowing which direction the WAVE we are on is headed, but trust me, it is going somewhere and is not going to sit around in any one place for very long. This is the one and only guarantee in stock markets 😀

We may spend days watching for a sequence of events, enter a trade and get stopped out in minutes. But if we are a trend follower, we have to just get back up and start watching again. That is tough to swallow for traders who enjoy the adrenaline of a fast-paced trading environment

Trading and action

If a trader cannot wait and always in need of action, trend following will never work for him. For that matter, any kind of trading would be difficult.

Many traders love the frequent adrenaline rushes that come with trading. And, the more frequently they trade, the more they feel that they are hitting the fast forward button on their way to riches.

By the way, most successful traders and investors are systematic. Systematic sounds technical or quantitative but that’s far from the truth. All it means is that there is a process to guide proper decision making. When A happens they do Y, when B happens they do Z. Warren Buffett and Benjamin Graham has a very systematic process in searching for their stocks. Ray Dalio from Bridgewaters Associates has a very systematic fundamental approach to capital markets.

Trading and drudgery

Many a times, people ask this question to me. It always pops up in different ways –

Should i pursue the dream of becoming a successful/consistently profitable trader in spite of all these drudgery?

I remember a movie honcho once said that when people asked him if they should continue to pursue their dreams of movie stardom, he would always tell them ‘NO’. His reasoning was simple – no one destined for success would be dissuaded by him anyway, nor for that matter would they even have asked the question in the first place.

It’s that solitary “march to your own drummer” mentality that mark those ordained for success 🙂

Trading and negativity

So, to be effective in trading (and anything in life), kindly distance yourself from negative energy – no matter where it comes from. Let negative thoughts roll over like water. Negative thoughts, emotions, energy is destructive multiplier. It kills creative uni-directional thinking. Detach yourself from things, other people and immerse yourself in the price. Lose sense of time and space.

Think of an activity that you enjoy, we lose sense of time and space when we get involved right? So, let me ask this question then –

Why does trading have to be stressful, painful, edgy all the time?

Get comfortable being wrong and detach from negativity

Happy trading all !!