20 things you need to know about Trading

These thoughts are my random musings and there might not be a clear/coherent flow in the points mentioned but nevertheless, i believe these are some important things to keep in mind if you are trading the markets.

1. Have you taken a loss? Forget it quickly. Have you taken a profit? Forget it even quicker
Everything passes away – both success and failures

2. Chart patterns are as much art as science. If 25 people look at a chart and all 25 of them come to the same conclusion, then it becomes objective. If they dont come to the same conclusion, then its subjective

3. The market kindles your emotions. It pushes all our buttons of fear and greed – it ferrets out all. I found out very early in my career that i was not temperamentally too suited to be a great trader. The way i found to overcome this shortcoming is to have a definite set of entry/exit rules

4. Read a lot, test a lot and dont trade until you have a trading plan. Make sure your trading methodology is objective in nature as you have better odds of success stacked in your favor.

5. Learn to limit your risk – if we can stay in the game long enough, we will learn how to become successful in trading.

I always tell this to folks – if you can trade profitably for 10 yrs in trading and increased size steadily, you would have already amassed a small wealth or would amass it within the next couple of years

6. If one is following a system(mechanical)/methodology(discretionary) consistently and making money, how do we make more money then?

We have 2 options – more leverage or bigger size. My vote is for the latter as the former has decimated more accounts than what we can imagine. It will take a while to build size but it has to be done incrementally (and not exponentially with the use of leverage)

7. Many new traders wonder – what’s the best way to trade. Let me assure you that its an impossible question to answer. Nobody can tell you what’s going to suit you (except you).

Whatever methodology you use, it has to fit your personality. This is why copying somebody else’s system never works (almost) but one can derive ideas from it.

8. Every professional (irrespective of their profession) go through slumps.

Let it be Virat Kohli or Kobe Bryant or Tiger Woods or Lionel Messi – Slumps are inevitable but once we have come out of slump, no matter how long it takes, we know that we can do it again. If something is done once, we know it is a repeatable act. So, embrace slumps as that knowledge of digging ourselves out of slump is invaluable in the long run.

9. It is prudent to focus on exits rather than entries. There is only so much one can do in entries but they can do lot of variations in exits. It is impossible to tell in advance which trades will be the good ones.

Some folks say “take only the high probability trades” and they tend to forget the random nature of distribution of trades. We are better off taking all the trades if we are following a system.

10. You need to be willing to take small losses. Taking a small loss reinforces a trader’s sense of discipline and control. Losses are not failures – please etch this in your mind

11. Two primary reasons for why we focus on being right.

First, we are conditioned to be right by our school system.

Second, everyone in the trading industry gives people what they want – ways to be right (high winrate system is the main culprit) and that perpetuates the myth. The traders who identify this early in their career do really well.

12. The difficult thing for many traders is that we have so many choices on timeframes, different instruments/markets, to trade the trend/counter trend/non-directional(delta neutral) but guess what, we can’t do it all.

So, we have to sit down and decide the type of trading we will pursue upon. A lot of traders (atleast for few initial months/years) are trying to do it all.

13. Many ask me about what books to read – i recommend Market wizards book as it gives an idea to the new trader that there are dozens of traders who were doing different things but still able to do it well.

Think about it – you dont have to be only a 100 meter sprint runner to make it in athletics

14. All new traders will ‘have to pay their dues’ to the market – no exceptions here. They have to learn about excitement, fear and hope in trading. They have to make their own mistakes (I don’t believe in learning from mistakes of others in trading as trading is an experiential task)

15. If you are a trend follower, by and large, having profit targets wont work as the price of your underlying instrument can keep changing over the years and trust me, reframing the profit target is no easy task. So, start with the right thought-process if you are a trend follower (by exiting only when the trend bends)

16. I would highly suggest trading a breakout system initially as it teaches us to do things that are hard to do naturally – like buying high and selling higher or selling low and buying back lower.

17. If you are a pullback trader, check your trades over a long period of time (backtesting) – you will be surprised to find the best breakouts wont give you pullbacks to enter the trade. You are either in the trade or you are not.

18. Big gaps are always a problem – one can expect short term volatility and hence, wider stoplosses (market driven) are possible. In short term trading, if you are stopped out of your trade after a big gap up/down, the reversal trade is usually very profitable.

19. When trading a trend following break out, your two best friends are ‘whipsaws and ‘law of large numbers’. If you dont understand whipsaws are part of Trend following-Breakout trading, then trading will be a mystery all the time

To accept whipsaws are part of Trend following-Breakout trading, one needs to understand the ‘Law of large numbers’.

A quick blogpost on ‘Law of large numbers’ here

Law of Large numbers and its implication in Trading

20. Last but not least – when you have a losing trade, it is ‘just’ a losing trade.

Many have difficulty in separating the reality of a losing trade from the psychological sense of feeling like a loser.

They equate losing with being a loser. This frustrates/depresses/creates anxiety about his P/L so much that it would start affecting his self-image. So, losing is part of trading and that does not make you a loser

Hope it helps someone out there and happy trading all !!


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Improving a system and system jumping

Introduction

As a trader, everyone goes through the urge (multiple times) of improving themselves and more importantly, to improve the trading idea/strategy/mechanical system they trade.

Conventionally speaking, new traders and some experienced traders go through these thoughts at least few times in their trading career (however short that maybe 🙂 ) –

1. “I already have a trading system in place but i seem to get attracted towards other systems i see in social media/online
2. “I went through an elongated time/points drawdown and i think is should change my system to keep drawdown to the minimum
3. “This quarter was not as good as my previous quarters and i picked up 3 great ideas(based on this year’s market movement – Recency bias in play here) which i would implement from next trading day”

This begets an inevitable question in a trader’s mind – improving(adding/modifying or creating a new one) one’s parameters is good right? But, is it not system jumping? This is an interesting question as system jumping is a topic that flash across every new/experienced trader’s mind sooner or later

Is Improving a system bad?

We all have read somewhere that ‘system jumping’ is bad 100 times from various resources. So, one should never try to better his own system?

1. Typically, when we are bombarded with new ideas/information about trading via social media/books/seminars, 2 schools of thoughts can arise —

A) If we start implementing ideas we see in a public domain/book or elsewhere, does it not amount to system jumping? If not, then what is system jumping?

B) What is wrong in improving my Risk:Reward/win ratio or other parameters (if i can)?

If we look into point A, we will understand that there is no definite answer for this dilemma. The answer lies in the belief we have about trading. As we have heard enough about ‘not jumping like a monkey from 1 tree to another’, we would have ingrained ‘system hopping’ is bad ?

And it is. Our minds habitually want to get away from discomfort/uncertainty. Human beings love certainty and the inherent nature of trading is full of uncertainties. In the pursuit of seeking certainty, folks jump from system 1 to system 2 seeking certainty. It is searching for a cotton candy seller in thunderstorm. Unless we relish the uncertainties that is inherent to trading, this profession would make us regret why did we ever come into it.

With my limited experience in the markets, i can say with a reasonable certainty that a new trader stands absolutely no chance against the deluge of info (promising the ‘holy grail’ system) that flows around everyday. He is bound to look for greener pasture.

I had written a blogpost on ‘Social media and its impact on the mindset of a trader’ sometime ago. Here is the blogpost

Social media and its impact on the mindset of a trader

2. When we are bombarded with these kind of information, it would be natural to think that the system we have (35% WR with 1:3.5RR) is the reason behind not making money in the markets. Nothing could be further from the truth. Think about it for a second.

If we look at point2, it is actually a valid thought. After all, we constantly endeavor to drive a better car, live in a better house, wear better clothes, eat better food. So, why not having something better than what we already have? Why trading system should be an exception? Great question.

Truth – Sticking to a system is much more difficult than jumping systems

Guess what – here are the real questions –

When do we stop? When we hit 80-90% winning system? or when we start making money?

Traders do system jumping as they strongly believe that ‘poor system’ is the reason for them to not make money in the markets.

a) Please understand that once we start to make money in our system (real money and not backtested excel money), that thought should dissipate slowly. Loitering on other people systems (available online and in forums) does not help the cause as well.

b) When we are in the process of building a system, any idea is worth looking into it. One can get inspired/derive ideas from other’s system – no issues with it. But. it is imperative that we understand the subtle difference between building a system based on a idea and jumping system because your social media hero made crores this year with his system.

c) I also know few traders who keep on testing systems (not to deploy more non-correlated systems for diversity but to jump the existing one – i have a differing thought on diversifying but thats for another day).

d) Unless we live in an isolated environment(without family/friends), this backtesting/improving system idea should stop somewhere (or it would be forcibly stopped by your family/spouse ? ) Trying new ideas forever would definitely rob us of the time we could spend with them.

e) This leads us to the most basic question of all – why did we come into this trading profession?

This is a question that needs to be asked to oneself in frequent interval. It is very easy to get lost in the information overload world we live in.

f) In my opinion, the improvement should happen in the trading size and it should happen in the execution (and not in the existing trading system with a positive expectancy). This thought process is very crucial.

Conclusion

There is not much difference between a system with 50% winrate and a system with 40% winrate (assuming RR/ number of trades are equal and systems have a positive edge/makes money in the long run).

Once we settle down, money management can fill the gap between these two systems nicely and over a period of 10 yrs, both these systems could have given a small fortune to a trader who respects risk. One can learn 100 books about psychology but nothing can beat the experiential learning aspects of handling ourselves when we traverse through the treacherous waters of trading ?

After all, your sub-conscious knows that you, yourself, cannot be trusted after breaking so many plans and giving up on so many goals.

Kindly sit on this thread (content) for a while. This will make lot of sense once we understand the mental framework behind this phenomenon.

Happy trading all !!


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Trading plan and why we dont follow it?

“By failing to prepare, you prepare to fail” – Benjamin Franklin
“Give me six hours to chop down a tree and I will spend 1st four sharpening the axe” – Abraham Lincoln

We all know the importance of Trading plan and many of us already have a well-defined trading plan. But, why do we fail to follow it? Have you ever thought about it?

This is a quick blogpost elucidating the reasons behind that phenomenon.

» More »


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Price Action Based + System Trading Webinar

Introduction

As many of you know, I have been trading just the price (aka price action trading) for the last 17+ years.

In this one day webinar, I will cover Structural pivots(price action concept I have been trading for the last 15 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/Webinar participants feedback

Fees and Timings

Date: xxx

Fees : xxx

Webinar Timings : 9:30AM – 5:00PM

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

Payment details

**REGISTRATIONS CLOSED**

Location

Online

Additional perks of attending the webinar

Telegram support group for the attendees (7 days duration) to clear out webinar-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 your ID, please don’t 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 (as a reply to your payment screenshot email) after your payment, and Govt ID should be uploaded in that form.

2. Access to the webinar recording + DailyVideos will be granted for 7 days post-webinar. (On xxx, 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 for the lost time. Kindly note that there will be NO refunds.

4. As a lot of time gets wasted by folks interrupting unnecessarily, I have pre-recorded what I wanted to cover, constituting 50-60% of the webinar. The remaining time will be utilized to answer questions live. I get around 150+ Qs in a webinar typically. This is a WIN-WIN situation as I could cover what I want to share with the participants in a structured way & participants get the maximum out of the webinar.

5. I am not a systems seller and not selling a readymade intraday/positional system. If you are looking for a readymade system with buy/sell triggers, my webinar will not suit you – please don’t join.

6. Price action concept part makes up 20% of the webinar time. Backtesting, money management(MM) and trading psychology comprise the remaining 80%.

Contact details

If you have further questions, please email me at xxx or WhatsApp at xxx


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Twitter poll on expectancy

Trading Journal

I had put a poll on twitter yesterday with options to choose from various combinations of Winrate and Risk:Reward(RR) » More »


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Social media and its impact on the mindset of a trader

I have been active in Twitter for the past 6 months and this side of world seems to be filled with overly-expressive folks, especially, when it comes to trading. Traders bicker with each other like kids for everything under the roof and keep fighting that their method is the best in the markets. Even a 5-year experienced trader knows that there are many ways to skin a cat and one method is not superior to other. » More »


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Trading Q&A Audio/Video 2

Audio/Video response to a set of questions i received in a private facebook group

Here is the A/V link:


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Trading journal – why should a trader maintain it

Introduction

Journaling our trades or in rudimentary terms, record-keeping is simply recording the trades with different set of values but it is not as simple as that. Now, I can hear some voices – ‘What is the big deal about journaling my trades? I have the best method in the world which is raking in 10% profits per week and so, I don’t need them” Fair enough. Happy for you!! » More »


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Trading Q&A – Discipline

Mentoring

Someone asked me a question on ‘how to be disciplined all the time?’ and there was no easy answer. He was disciplined in following his plan most of the times but could not do it 100%. Tried my best to address this typical mindset. » More »


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