Investing in stock market can be a
profitable and enjoyable proposition. It requires a great deal of patience and
discipline.
Right attitude and having proper tools is a
must in the financial markets. Most traders loose because they do not
do their homework and they don’t plan their trades.
They also don’t realize that they are
playing against the best brains in the business. One win alone force them to
shed their skepticism and next trade comes out of a jubilant but ignorant and
biased mind. To understand the result, one need not to study rocket science.
Most don’t understand the value of having
proper tools of the trade. Some play on inside information some play on
fundamentals and few play on technical. Total percentage of all these together
is not more than 15%. Rest play on their whims and fancy.
That’s why only 5 to 7% make money trading.
I often ask traders if they have studied any book on trading or trader’s
psychology or any other relevant subject. Shockingly 95% says no and
most are not willing to buy and read.
To control greed and fears one must
understand the traders or gamblers psychology. Books give you wisdom and one
can become a better trader or investor by applying knowledge.
YOU DON'T KNOW WHAT YOU DON'T KNOW. Knowing
and applying is the key.
I would love to see those 95% do what they
do when they start any other business venture. They do some market research
about of the field concerned. They build or rent a shop or office. They buy
furniture and stationary appoint some help and do many more things required to
run that shop / office efficiently.
But would like to point it out once again
“See around you. You know many of these guys. What infrastructure do they have
for this business? My experience is that they have (most of these if not all
out of those 95%) a copy of the pink paper in their hands every day. It is
their total net worth as far as infrastructure for the trading is concerned.
One important aspect they do not realize
about losing money is Draw downs. It is simple math unknown to them. Drawdowns
are the biggest enemy of traders. Let me explain the term draw downs and how it
is one of the most important facts of trading to know.
Suppose one start trading with a capital of
Rs 100000 and loses Rs 40000. It means that he lost 40% of his capital Right?
There is nothing special here but point to know and remember is coming now. You
ask him how much he must win in percentage term to break even. I am sure he
would think about how stupid the question is because even a child would know
that a gain of 40% would be required to break even.
Unfortunately it is not the reality. I wish
it was. Actually he needed to win 66.66 percent to break even of the remainder
capital. Now let’s examine different scenarios.
Losses grow exponentially. I have been
asked what these 95% traders should do. An answer is nothing but keeps loosing
so that remaining 5% can enjoy life and secure their future. It’s another cruel
fact of life. Let me elaborate. There are two categories of people in life not
only in financial markets. Winners and losers. Who fits where depends on the
attitude and attitude only. Only those can move out of the bigger lot who were
ignorant about the requirement and once they realize what is to be done and
actually they take corrective steps. Just plain lip service would not do.
Knowledge is power. How many believes is a powerful statement. To me it is
incomplete and as it is of no use. The complete phrase is Applied knowledge is
power.
Winner would do whatever it takes to be
successful. Looser will find excuses that books are costly. Software’s and data
cost are too high and who has time to read books or scan through charts. You
suggest that why you don’t take services of a professional. He would find
another excuse here too, saying if I have that much money why would I need to
trade? Or surely I would take his services but let me make that much money from
the market. List never ends and soon enough his trading account ends.
On the contrary winners think otherwise. He
think that I am new or I don’t know all the things and I must invest in
learning either for reading books or learning for a mentor by taking some
trading course.
Let me give you a very straight forward
example of importance of tools of the trade. Imagine yourself as a brand new
dentist. You are ready to setup your dental clinic. You have taken a shop and
put up a sign board so your first patient drops in with a cavity. You ask him
to sit on a stool and examine his cavity and ready to fill that one. But you
have to drill a bit. Now you take out a hand drill your patient get up asking
what you are up to Doctor Sahib. Don’t you have a proper machine? What would
happen if you tell him that I am a new doctor and would setup my clinic when I
earn enough money? Here it looks funny but it happens in the market every day
and everywhere. Every nook and corner of the street you can meet such traders.
In general if one has to setup a
conventional business they know tools are required first. Employees have to be
hired and machinery must be commissioned first before they get even a single
order. But they do not treat trading or investing money as a business. Most lose
money elsewhere and come to the stock market for the want of available
leverage. Pay 5% margin and trade for 100% value.
In a setup like that where you play for
leverage, odds are stacked always against you. You have to do lot of
preparation to get trading odds in your favor. That cost time and money. When
it comes to putting time and money, traders avoid them and put themselves in
the category of the losers. It is again an attitude problem.
Many people ask me for tips and I give them
too. But GOD has a rule. There is no free lunch. Information that is available
free often loses value and conviction. If there is no conviction you would not
act or not act timely in a market where time is money. If you have paid for the
information or you have put in efforts to get that piece of information you
would have conviction and courage to act on it. Profit cannot be made on
sitting on that info. One has to act on it.
Money management strategies are not on the
priority list of this group. List is quite long. Why they remain where they are
and then they vanished cribbing the market for their misfortune.
PLAN YOUR TRADE AND TRADE YOUR PLAN.
