How to get consistent Trading Profitability.

Trading is a war and there may be few battles which may get lost, losing a battle do not means you have lost the war. Trading is not about one day, one week, or even one year. Trading is about taking money out of the markets over and over again, consistently.

When I have bad days and series of losing streak in trading one thing which has helped me time and time again is  I look at my long term track record of my trading curve , and that gives me confidence in myself as a trader, and my trading methodology.

So if you want to make long term profitability as stock trader, and option trader, here are principles that will help you to be profitable in the long term as a trader.

·        Trade with the trend, Market is a irrational beast and it can keep going in a single direction so always try to be with the trend. As Humans emotions overpower you, as a trader you need to control your emotions in making your trading decisions.

·        Have a trading plan and trade as per your plan. Do your Homework before you begin trading.

·        Trade based on quantifiable facts, not your own emotions. Trader should react based on price action, not based on my feelings.

·        Trader should learn from other people’s experiences, instead of losing his own money and learning the hard way.

·        Trader should study historical charts of stocks/Index in different time frames, to know short, medium and long term trend. Always back tested your trading strategy before entering market.

·        Trader should develop a trading plan to give him rules to follow to instill discipline in trading.

·        Trader should have passion for trading and “Never give up” attitude.

·        Trader should develop a trading methodology that fits my own personality and risk tolerance parameters.

What separates the 10% that make money from the 90% that don’t?

Must read for every kind of trader. Enjoy your weekend!

What separates the 10% that make money from the 90% that don’t?

10,000 hours.

The key to success in any cognitively complex field is, to a large extent, a matter of practicing a specific task for a total of around 10,000 hours. 10,000 hours equates to around 4hrs a day for 10 years. For some reason most people that ‘try their hand’ at trading view it as a get rich quick scheme. That in a very short space of time, they will be able to turn 500000 into 10 Lakhs! It is precisely this mindset due to which most of traders fail !!

The greatest traders understand that trading much like being a doctor, engineer or any other focused and technical endeavor requires time to develop and hone the skill set. Now you wouldn’t see a doctor performing open heart surgery after 3 months on a surgery simulator. Why would trading as a technical undertaking require less time?

Trading success, comes from screen time and experience, you have to put the hours in!

Education, education, education.

The old cliché touted by politicians when they can’t think of anything clever to say to their audience. The importance of education to success in trading cannot be placed on a high enough pedestal. You have to learn to earn, the best traders work obsessively to refine their edge further to stay ahead of the curve.

Think for yourself.

“NO! NO! NO!”… “Do not Sell Real Estate Stocks, Market will go Higher”…”Don’t move your money from Stocks! That’s just silly! Don’t be silly!”

A quote from well-known stock guru SP Tulsian aired on CNBC days before 2008 crash, many traders/investor lost 90% of its value. Many followed this call and felt the obvious pain as a result. As the old saying goes, “too many cooks spoil the broth” it is very much the same in trading. Successful traders blinker themselves from the opinions of others; they focus on their own analysis of fundamental and technical information.

Adapt or Die.

Market conditions change and technology advances, thus the conditions for trading are always evolving, the rise in mechanical trading is testament to that. The very best traders through a process of education and adaptation are constantly staying ahead of the curve and creating ever new and ingenious methods to profit from the markets evolution.

Fail to plan, you plan to fail.

The best traders have a well-documented plan; they know exactly what they are looking for and follow that plan to the letter. Their preparation for a trade starts long before the market open, it is this meticulous planning and importantly adherence to that plan that helps them avoid the biggest demons for any trader, over trading and revenge trading.

“Be like Machine”

As human beings emotions pay a key role in our existence, for a trader emotions can be a source of great pain. Trading psychology and the management of your emotions in a trade play a key role in overall success. Fear and greed can cut your winners short and let your losers run. Dealing with emotions follows on from your plan; the more robust your plan the less likely you are to fall into the emotional mine field.

Know your tools

Every trader has a set of tools they use, DOM, Charts, News feeds etc. These tools are a traders bread and butter; they are the most vital part of a traders arsenal, without which it would be impossible to trade. The best traders have mastered their order entry methodology, they know all about the features they need from their charts. This mastery of their tools, allows the trader to get the very best out of the resources they have available to them and ensures perfect execution of their trading ideas.

Know Thyself

Behind all the egos and excess, the best traders know their limitations; they focus on what can go wrong in a trade, and expend a lot of energy in limiting and controlling their risk before thinking about profits. They have a heightened sense of self-awareness and focus on incremental self-improvement.

Profit & Loss

The best traders focus on the trade itself rather than the P&L; they view each trade as a technical exercise and focus on getting the most out of the market in accordance with their plan. They do not think in terms of the grocery payment, the electric bill and the desire to make X amount to cover a loan payment. Focusing on the money behind a trade can cloud technical objectivity.

In Conclusion

The greatest traders work hard to get ahead and even harder to stay ahead. Through increased and niche knowledge they constantly adapt with the market and remain profitable in every environment. Drive, tenacity and the will to succeed is the greatest edge of every successful trader.

Trade Like a Casino House

Any quick drive through Goa Casino makes it pretty clear who is making in the money – the Casinos!

Why do gamblers keep going back despite losing most of the time?  Misplaced hope, fantasies about the big win, promising themselves they will walk away when they are up and still winning, and probably the inability to calculate probabilities. These symptoms may sound familiar to new traders who have lost money in the stock market, especially when we were new to trading and had delusions of grandeur about trading their way to prosperity quickly and easily.

In gambling there are really only two sides to choose to be on, either you are a gambler or you are the house. The gamblers have the long term odds stacked against them. The more they gamble, the more the odds are that they will inevitably lose. The casino has stacked the odds on their side over the long haul. The more the gambler keeps gambling, the more the odds shift in favor of the casino operator. The more they gamble the greater the chance the gambler will leave empty-handed.

Profitable traders operate like casinos, with the odds in their favor over the long term. They have learned to trade with historically, back-tested trading systems that put the odds on their side. Much like casino operators, they risk small amounts of equity per trade (around 1% – 2% of their accounts), so no one trade can hurt them financially and mentally for that matter.

Most unseasoned traders behave like gamblers, with no real advantage. They plunge large bets on stocks so haphazardly that they just have a 50-50 shot like a roulette wheel – red or black. Many times these traders hurt themselves even worse by buying into the market in a downtrend and shorting into a rally, believing that they can pick the bottom or top. Some new traders would love to have a 50/50 win ratio, many actually to all the wrong things and are nowhere near a 50% win rate.

New traders often have no concept of risk management and like gamblers they eventual give back all their winnings and then some. Richard Weismann’s book is about becoming the casino through trading using math and probabilities,  instead of emotions. We do this by not being emotionally invested in any one trading outcome. It shows traders the supreme importance of risk management and a positive expectancy model. Traders must control risk and manage odds in the same fashion that casinos do. Casinos set table limits so as not to expose themselves to the risk of ruin by allowing a gambler to hurt the casino’s bottom line on any one huge bet.

Traders must have the discipline to stick with positive expectancy models and risk management. Casinos do not get upset and change their rules trying to win back money from a gambler who goes on a lucky streak, as they know luck eventually runs out. Traders should never go off their trading plan to try to win back money quickly that they lost. Luck is what gamblers hope for while good traders are trading for a positive expectancy. Successful traders and casino operators consistently play the probabilities and manage risk so should you if you want to win.

Trade the market – not the money involved in your account. Each trade must be based on a proven trading system of entries and exits and not by how much we hope to make. Never let failed trades in the past force you to revenge trade and do not anticipate a signal. Let the market come to you and take it only when it is hit, utilizing rigid discipline.

Winning traders always stick with their historically proven trading system. Casinos do not close down if gamblers get on a winning streak because they have calculated the odds and play based on those odds. Trading like a Casino is truly a great book with a great analogy to explain how to win the trading game. The principles the book explains to use for winning in the markets are spot on and are easy to understand when associated with what many readers should be familiar with: casinos and how they take our money. If we can’t beat them, let’s join them; be the casino not the gambler.