OVERCOMING TRADING SETBACKS Premium

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Trading is unique profession in the world, where easy money is earned the hard way.

In no other business, you can scale in so fast, and really stand a chance to make 100-1000x.

But uncertainty, risk, emotional upheaval makes this business extremely risky and Probability of success making even 5-10x impossible for most of the beginners.

From execution risk to market risk, there are so many hidden and unaccounted risks lurking in the dark to catch a trader by surprise.

This makes, emotional set-backs very common in the business.
Most of us learn quickly to manage and sail through minor set-backs by following discipline and process.

But What about major ones?

Here are the tools We use to manage them:

 

  1. Realization that major Drawdown, both expected and unexpected are part of the business, I have written it on my wall.
  2. Having maximum loss limit for the day [We consider 2% of Capital] and max loss limit for month [For us: 10%] makes you avoid days and months which are simply not suitable for your type of trading.
  3. Just like everything in life, set-backs also follow a pattern, so writing a trading journal and finding patterns in these upsetting events, makes me avoid them in future.
  4. Whenever I feel extreme stress, though trigger is not obvious, I get out of my position, can always re-enter, right?
  5. At times. In spite of doing everything right, PNL doesn’t go green and streak of bad luck never ends,
    So reducing position size to half and then half, really helps in not only sailing through the bad phase of DD but also helps manage emotional roller coaster.
  6. Trading is a lonely business, operationally you don’t need anyone. But you need right set of friends to vent out your feelings, your anger when things go wrong and you are not at fault, for instance~ broker ditching you, so cultivating such circle goes a long way.
  7. When we lose money, we get depressed and we don’t want to talk to anyone, even to people who are trying to help, watching our behavior and amending frequently with people helps not only PNL but also prevents burn-out in the long run.
  8. Set-back also gets magnified when we are using leverage, so don’t trade with borrowed capital, even if you have borrowed from your parents.
  9. Nothing teaches as much as a Loss-making streak, so try to learn as much as possible during that phase. Go back to basics, underline the books and finish chapters which were pending for long. Sense of accomplishment will make the flow of right hormones easy for mood recovery. 
  10. Lastly, nothing heals you from a set-back as much as talking to loved ones, even if they are not into the Markets.

TOP 10 TRADING MISTAKES THAT WE ALL MAKE

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We all make mistakes but what’s most important is to correct them at the earliest opportunity and learn from them.

  1. NOT UNDERSTANDING TRADING AS A BUSINESS

Most of us treat trading just like a hobby~ When it’s not or maybe even if it is, it’s a pretty expensive one.

We can acquire knowledge acquire experience but the lack of professional business approach doesn’t make it last long.

  1. TREATING TRADING LIKE A GET-RICH-SCHEME

Trading requires skill that takes time to learn. It’s not like winning lottery or inheriting money.

There are no shortcuts to it.

By consistent hard work and practice; Find a method that you know inside and out & execute objectively.

  1. PRESSURE OF SETTING FINANCIAL GOALS IN A TRADE

Being a trader comes in with a lot of self-awareness.

Until we know ourselves, we can’t really strive to make a specific amount.

Or we’ll fall into traps & lose it all.

Have patience, discipline & know what works for you.

  1. POSITION SIZING & SL

This is where we open big trades each time.

While it could make a lot of money, it also exposes us to heavy losses.

Having a mental SL is the worst thing we do to ourselves & let our a/c bleed.

Avoid leaving trades unprotected. Trade what you see.

  1. NOT KEEPING A RECORD

Success doesn’t come in without practicing, planning or evaluating your trades & psychology that follows.

We tend to skip journaling not realizing the fact~ it helps to track our progress & learn from the mistakes we made when entering/exiting a trade.

  1. AVERAGING ON LOSERS

We have a tendency to not only hold on to our losses but we try to bring down the cost price by averaging the losers.

In the hope of squaring off at break-even we collect and hold all such stocks that we never thought we’d invest in.

Ride your Winners.

  1. FOMO

Emotions are a key driving force behind FOMO.

It stems from the feeling that other traders are more successful.

It causes high expectations, lack of perspective, overconfidence/little confidence & an unwillingness to wait.

Be aware of the triggers and drive it out.

  1. SCALING UP TOO FAST

The rule is~ Never scale up based on a one-off scenario.

Once we get early success we try to become rich quickly & embrace too much of leverage.

Initially, We got lucky or maybe just gained false confidence. What now?

Have a plan rather than hot moves.

  1. ABANDONING STRATEGIES QUICKLY

Trading psychology or an unreliable process is why we quit our strategies too fast.

Furiously shifting from one strategy to another will only make the returns worse.

Let the strategy/system develop & monitor the results before making decisions.

  1. APPLYING WHAT HAPPENED YESTERDAY TODAY

The market is usually a dynamic place where things change regularly.

The sooner we understand it~ the better.

You can avoid this by looking the market & at what it indicates rather than basing out your choices out of no where.

In the end, Just like a child doesn’t learn to ride a bike without taking a few falls. No trader is perfect. The key to successful trading is:

~To identify & stick to an effective trading strategy/system.
~Never underestimate the market.
~Keep a detailed journal.
~Learn constantly.

Wyckoff’s Trading Cycle Premium

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Wyckoff trading cycle is a great frame work for analyzing and understanding the Market behavior. According to it, there are 4 stages namely- Accumulation, Mark-up, Distribution and Mark-down.

  • Accumulation Phase:
    Begins with institutional investors-such as mutual funds, large banks etc. There is Mass buying of shares of a given stock. Price forms a base as the shares of stock are accumulated at the bottom of a bear market. Market moves sideways in a range and is spread over a long time horizon. One of the Common accumulation pattern- Cup and Handle.
  • Markup Phase:
    When the price breaks out of a range and begins an uptrend, it is called to be a markup phase. This stage is when the price begins moving up. The big money has established a position and retail investors are now invited to join in the profit party. This is the most profitable time to own the stock.
  • Distribution Phase:
    The distribution phase begins as the markup phase ends and price enters another range period. Institutional investors who accumulated at the bottom begin to distribute/ sell before anyone else. This time, the sellers want to maintain higher prices until the shares are sold i.e selling off the shares to the ones entering at a high price. One of the common distribution pattern- Head and Shoulders.
  • Markdown Phase:
    The last phase of the stock cycle is the markdown phase. Markdown begins when the price makes a lower high and no new high. It is when institutions sell inventory, simply taking profit or to change position into another stock or sector. The markdown phase is a downtrend.
  • Naturally, the market doesn’t always follow these phases accurately. Though it’s an interesting framework but has certain limitations:

    1. It is a task to identify the accumulation and distribution phases. Sometimes, what seems to be accumulation turns out to be distribution and vice-versa.

    2. In a similar manner, It becomes difficult to plan a trade as the price moves in a range.

    3. The cycle doesn’t always follow:
    1. Accumulation 2. Mark-up 3. Distribution 4. Mark-down.
    It might go around like 1.Mark-up 2. Distribution 3. Mark-down.
  • In essence, the Wyckoff Method allows investors to make more logical decisions rather than acting out of emotions. But, One shouldn’t just rely on it, rather combine it with other price action strategies.

    Read about the cycle of market emotions- https://www.tradetales.in/the-cycle-of-market-emotions/

    ~For educational purposes only, the charts are used for reference to the content to ease explanation.

Golden Crossover

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A Golden crossover is a Technical way of forecasting the market using moving averages. Some traders and investors often combine it with other indicators and methods so that their risk reward ratio is favorable.

Most of the techniques in technical analysis can be used from 1min time frame to a monthly time frame horizon. There are no specific tools which are only to be used in monthly or weekly timeframe’s. It’s about ‘how you want to use it according to your own trading and investing style?’
Getting straight to the point; Golden crossover happens when, short to medium term 50DMA crosses the long term 200DMA.
DMA- Displayed moving average.

Almost all the charting platforms provide this tool for free and you just have to plot these averages and look for 50DMA crossing 200DMA from below.
Majorly after a golden crossover in higher timeframe like weekly and monthly we can expect at least 2-3 years of bull market or more depending on other economical factors.

This is one of the best method’s to forecast the market phases and take positions accordingly. The rationale is also very simple: Let’s understand it with the help of example here- When price crosses 50DMA, It simply means that the last 50 day average price is crossed which was earlier acting as a resistance and now we can expect the next phase to be bullish or sideways with bullish bias.

In the same way when 50DMA crosses 200DMA, It means that the last 50 days average price has crossed above 200DMA and price is also above both of these averages.
We take it this way that the supply of over 50 and 200 days is now being cleared and a strong rally upside is due.

In the above chart red cord is 50DMA and blue cord is 200DMA and it’s quite clear what happened after the crossover.

We’ve explained this chart completely combining the other methods of estimating the next move because that’s where money is made. Isn’t it?
Link- https://www.tradetales.in/nifty-smlcap-100/

Do tell us in the comment box where you saw a golden crossover happening and how you traded it?

Disclaimer- This blog is for educational purposes only. Kindly refer to your financial advisor before taking decisions.
PEACE.

The Cycle of Market Emotions Premium

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“Control your emotions or be consumed by them.” This is exactly how the financial markets play. You need to be cautious enough to surf the wave of emotions described below:-

  1. Optimism:
    It is the hopefulness and confidence about the future or the success of something. We step in the markets and have the hope and confidence of succeeding against all odds.

  2. Excitement:
    Excitement drives in when the market moves in the direction we hoped. Excitement also brings motivation for future endeavors.

  3. Thrill:
    When the momentum carries on, the gains that we’ve made give us thrill and we further expect higher returns.

  4. Euphoria:
    As the cycle tops, there comes the state of utmost satisfaction where we start to believe that we made smart moves and the same will continue without realizing the uncertain nature of the markets. We tend to fool ourselves by now playing beyond our appetite. At this point, the financial risk is at it maximum, like the possible financial gain.

  5. Denial:
    When the market turns, we watch intently for a favorable move so as to save ourselves from being a victim of loss.

  6. Anxiety:
    As the market continues to plunge, anxiety sets in. We see our investment values declining and this is the first time that you experience the market going against you. You now hold onto the investment as you don’t want to book losses and here in, you see yourself as a long term investor.

  7. Fear:
    When the losses accelerate, fear kicks in. At this point, we might even pick riskier choices to recover our losses.

  8. Depression:
    The reality of the bear market makes us depressed and question our conscience about the moves we made. We become desperate to overcome it.

  9. Panic:
    Having no idea of what to do next and thinking that we had a chance to book our profits makes us panic-stricken and at this point, we might make unusual decisions that may cause further damage.

  10. Capitulation:
    Understanding that the market isn’t predictable, we feel helpless and dump our investments.

  11. Despondency:
    Having booked losses, We now reflect the choices we made and wonder whether we should have invested in the first place? We now have low spirit and confidence and this is the point when we miss out great financial opportunities. Hence, It is the point of Maximum financial opportunity.

  12. Skepticism:
    As the market starts making higher lows and higher highs, We’re in doubt and stay cautious to outlook if the trend will last.

  13. Hope:
    The uptrend remains intact, we might feel reluctant to re-invest but looking at the attractive scope, We hope to make gains.

  14. Relief:
    The market now seems to be recovering. For the ones who let their emotions take control, the cycle might again begin.



    An illustration as to how quickly our emotions change with respect to the market movement has been explained below with the help of NIFTY’s weekly chart.
    Now that you’re well versed with the emotional cycle, What emotional stage are you on? Drop down your answers in the comments.

We get bound by our emotions and the investment traps. We seek instantaneous profits and follow along with everyone which in turn alters our thought process.
Buying low and selling high is still one of the best strategies to build wealth and become a successful investor over the years. Being aware is the key to acing it.

Read about investing traps-https://www.tradetales.in/investing-traps-to-be-aware-of/

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