A FORTUNATE TUESDAY

FROM AN EXPERIENCE

“Ninety-five percent of the trading errors you are likely to make—causing the money to just evaporate before your eyes—will stem from your attitudes about being wrong, losing money, missing out, and leaving money on the table. What I call the four primary trading fears.” -Mark Douglas

As Mark Douglas points out in his great book about trading psychology is that the majority of traders lose because of wrong thinking, misplaced emotions, and wanting to be right. We know fear and greed drive the market prices far more than fundamentals do. However fear makes traders do the wrong things at the wrong time. Here are four great examples of fear over ruling sound trading strategies.

Here are more thoughts about these four fears:

The fear of being wrong: Traders fear being wrong so much they will hold a small loss until it becomes a huge loss. Even adding to the loss in the hopes of it coming back and getting to even. Don’t do this, holding on to a loser after it hits your predetermined stop loss is like being a reverse trend trader. Do not be afraid of being wrong small be afraid of being wrong BIG.

The fear of losing money: New traders hate to lose money, they do not quite understand yet that they will lose 40%-60% of the time in the long term. We should come to expect the small losses and wait for the big wins patiently. Many times traders fear this so much that they have a hard time taking an entry out of fear of losing. If you can’t handle the losses as part of the business, you can’t trade.

The fear of missing out: The opposite of the fear of losing money is the fear of losing potential profits. This causes traders to watch a stock go up and up, miss the primary trend, then not being able to take it any more and get in late just in time for the trend to reverse and lose money. Trade at your systems proper entry point do not chase a stock because you are afraid to miss out on some profits.

The fear of leaving money on the table: When your trailing stop is hit get out of the trade. If your rules tell you to get out after a parabolic run up and stall then exit. You must be disciplined on taking money off the table while it is there. Being greedy for that last few dollars when your system says to sell could lead to major losses of paper profits. Let your winners run but when the runner gets to tired to continue: bank your profits.

So what would be the components of a trading plan:
1. Entering a trade: You must know clearly at what price you plan to enter your trade. Will it be a break through resistance, a bounce off support, or a specific price, or based on indicators? You need to be specific.
2. Exiting a trade: At what level will you know you are wrong? Loss of support, a price level, a trailing stop, or a stop loss? Know where you are getting out before you get in.
3. Stop placement: You must either have a mental stop, a stop loss entered, or a time stop alone, or a time stop with an indicator.
4. Position sizing: You determine how much you are willing to risk on any one trade before you decide how many shares to trade. How much you can risk will determine how much you can buy based on the equities price and volatility.
5. Money management parameters : Never risk more than 1% of your total capital on any one trade. (2% maximum for aggressive traders who can handle bigger draw downs.)

The markets have a clearly defined zero-value. This has several 

important implications. First, traders often discount the possibility of 

something becoming absolutely worthless (i.e. going to zero) – 

so the more the price goes 

down, the greater the traders’ tendency is to believe that it has a higher 

probability of going up again. 

The temptation to catch the bottom and go long becomes compelling 

(despite its irrationality). Traders must realize that how they are 

hardwired to think as people is not necessarily the way they should 

think as a trader. 

There is a reason why 90% of everyone who attempts to make a living 

as a trader ends up failing and it’s not because of intelligence, 

information, technology or effort. 

In a nutshell, I believe failure in trading is due to a lack of self-awareness.

The solution is to compartmentalize your thinking.When you are interacting 

in society or at home, let yourself think like a person;but when you sit 

down to trade, you need to think objectively by evaluating risk/reward 

as a trader should.

WHAT HAPPENED TO OUR PREDICTION THIS MONTH

As exactly predicted, aggressive bulls and the possible levels 

in the previous post, Nifty Futures registered its high as 5700 on Friday 

Already on 10th of FEB our subscribers are advised to buy 5600 CE of FEB

@ 13.30 in tons and carrying the position still - Now its above 50Rs- OUR TARGET is whatever the price of the option when NF kisses 5835

and 5800 CE of MARCH @ 38.30 (that too in 90% profit already)

but decided it to carry till 10th of March

- Just wait and watch the MAGIC

DESPITE this Bulls ride (as mentioned in earlier posts), we were selling 

PRAKASHCON everyday from 139 for the past 2 weeks ended up with 25% profit - 

in that scrip alone - Now it is below 100

BELIEVE IT OR NOT - THIS IS OUR STYLE OF TRADING

JOIN US & ENJOY THE BENEFITS or JUST WATCH - CHOICE IS YOURS

       NIFTY FUTURES INTRADAY LEVELS (FEB 21)

Now what will happen today..?

Day’s Resistance @ 5658 

Day’s Support @ 5550 & 5499

                                                        No problem above 5573 for NF to kiss 5650

                                                                               If cuts & trades below 5572 for 5 minutes NF would kiss 5553

                                                                              Below 5555 for 5 minutes means more slide upto 5492

SNIPER LESSONS FOR TRADERS

One of the trader’s biggest psychological barriers to overcome is over trading. Of course, over trading is relative depending on the type of trader you are and the time frame(s) used to make trading decisions. However, if you have a well formulated trading plan, you will know from past experience when you are walking the line between planned trading and over trading.

Here are some of the symptoms of over trading:

1. not sticking to a plan or system

2. taking trades for no clear reason

3. taking on larger than normal positions

4. second guessing your system

5. jumping the gun (entering a trade in anticipation of an affirmative signal/pattern)

6. obligatory trading (if I am not in a trade, then I am not working)

The underlying cause of over trading is purely a lack of confidence either in yourself and/or your system. If you truly believe that your trading strategy provides X number of high probability set-ups over X number of days, then why would you waste your energy (and capital) taking high risk, low probability trades? The answer: lack of confidence. The solution: think and train like a sniper.

According to the dictionary a sniper is a skilled military shooter detailed to spot and pick off enemy soldiers from a concealed place using long-range small arms. The word originates from the snipe, a game bird difficult for hunters to sneak up on.

Looking at just the statistics, more is not necessarily better when seeking to kill an enemy soldier on the battlefield. Here are the stats when looking at the ratio of bullets fired to enemies killed in several major wars:

WAR BULLETS FIRED TO KILL ONE ENEMY SOLDIER

WWII 25,000 TO 1

KOREA 50,000 TO 1

VIETNAM 200,000 TO 1

And the sniper’s stats: 1.3 bullets to kill an enemy soldier!

Charles Sasser, in his book ONE SHOT-ONE KILL, says of the sniper: “In stalking the enemy like big game hunters, these marksmen live out the philosophy that one accurate shot, one bullet costing a few cents, fired with deliberate surgical precision is more deadly and more effective against an enemy than a one thousand-pound bomb dropped indiscriminately” (2).

Let’s contrast, then, the symptoms of over trading as described above and the discipline of the sniper. According to the Sniper Training Field Manual No. 23-10, successful sniping is based on:

1. highly accurate rifle fire against enemy targets

2. the development of basic skills to a high degree of perfection

3. repetitiously practicing the basic skills until mastered

4. highly specialized training to ensure maximum effectiveness with minimum risk

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