Difference between Loss and Risk

Can you trade without a loss ? No one can assure that every trade will be profitable. But for a trader losses are the cost of doing business... And as long as losses are not eating up your Capital , it is not a loss actually.

A loss occurs because of careless money management. The trader is fully responsible for such careless behavior. You must trade with the objective of zero losses.

Alexander Elder, in his book - Come Into my Trading Room, gives an example:

Imagine you’re not trading but running a fruit and vegetable stand.You take a risk each time you buy a crate of tomatoes. If your customersdo not buy them, that crate will rot on you. That’s a normalbusiness risk—you expect to sell most of your inventory, but some fruitand vegetables will spoil. As long as you buy carefully, keeping theunsold spoiled fruit to a small percentage of your daily volume, yourbusiness stays profitable.

Imagine that a wholesaler brings a tractor-trailer full of exotic fruit toyour stand and tries to sell you the entire load. He says that you canearn more in the next two days than you made in the previous sixmonths. It sounds great—but what if your customers don’t buy thatexotic fruit? A rotting tractor-trailer load can hurt your business andendanger its survival. It’s no longer a businessman’s risk—it’s a loss.

The Successful trader respects his money. She will never allow losses to overwhelm her capital. Many trades will not work out, and there will be small losses. Sometimes, there is a run of losses when several trades do not work out. That's trading.
The amateur trader will throw his money at wild ideas. As beginners luck, he is likely to make money initially, then lose his entire capital when the market refuses to give him money for his stupidity.
Understand the difference between loss and risk. trading is about management of risk, and zero allowance for losses.

PS: My biggest mistake ... I had bought 2 lots ( 2500 ) of GMR infra from 165 which I did not book @ 170 high for that day and carried them till 95 ... I kept ignoring all market clues and assuming every downfall as bottom price. I keep on writing cheques to my broker every week and margin ate up all my capital :)

FAST n FURIOUS :)

what a trading session these last two days were for me , I tried to play wid so many trades both ways , luckily I ended up in right direction.... Bulls are in full control and market is showing strength & confidence is back :)


Yesterday, As I was expecting that this short term downtrend will end sometime on Monday and we may see a bounce back of around 150 points atleast from 2810 and 2800 will not break so easily.

Let me share my experience of trading last two days , how everything changes so quickly and how emotions gets over my trades :)...

Monday 29.12.2008
1. Nifty opened at 2870 , I though of shorting for a target of 2820 , but was bullish so decided to wait and will take only long positions.

2. When nifty tried to move from 2820 low , I decided to enter market and took 2 positions which I thought were very safer bets.
a) Nifty bought 1 lot @ 2830, stoploss if goes below 2810...
b) SBI bought 1 lot @ 1212 , it was the best buy no stop loss was expecting to touch 1280.

3. After few minutes Nifty reach 2846 and SBI 1226... 2k profits in few minutes thought of not booking as I was expecting another 100 points rally if it goes above 2850.

4. Nifty could not break 2850 upwards and moves a little down to gain strenght and retry :)

5. I got a false signal when nifty goes slightly below 2820 and just did not stick to my original support 2810 and I exit all longs fearing a bood bath if goes below 2800 :(
Also , switched my positions from longs to shorts ...
shorted 2 lots of nifty @ 2920 with a stoploss of 2832.

6 . Again I was in wrong foot and jumped into trade very early ...:) Nifty did not break 2820 downwards and was ready for a big rally from here ....
I booked loss and covered my shorts...

7. I picked up 2 lots of nifty @ 2834 and 1 lot of SBI @ 1220 ...... so my original expectation for upmove was strengtened. But somewhere inside me I got scared and was not ready for next failure in any trade ... there i made a mistake :((

8. I dont know why but ... I booked all my positions at a very small profit and got satisfied that dint loose anything today. Sold nifty @ 2842 and SBI @ 1234 and went to sleep thinking it is not my day today :)


End day Result ....

Nifty

closed 2936
SBI closed 1280

Virtually I lost 10 -15 K .. haha but also I had covered shorts in right time so survived virtal loss of 10 -15K.

I took it as No profit No losss :)

P.S. I took BTST call 2 lots of Suzlon @ 60.70 just before closing assuming a upmove next day.


Tuesday 29.12.2008

If Monday was intresting day ... Today , it was much bigger ! My fortune and trading stategy was swinging with every tick like pendulam.

Quote of the day from Pulkit ...
" when eveyone says BYE its time to BUY :) "

1. As I was carrying last days position 2 lots of SUZLON @ 60.7 ... my only aim today was to booked some profits with these and get out as soon as possible. But unfortunately market never gives you that 1% so easily though 90% people trades with the hope of getting this quick 1% :)

U buy, market will run and you book profit ... itna easy nahi hota BOSS ... upar jane ke liye pehle neeche ka stoploss khakar ata hai market :)

2. Market was consolidating at 2920 levels and I thought 2900 would not break that easily ... At this time I bought 1 more lot of Suzlon @ 59.55 which was a mistake ... I jumped in too early and bloked my self to counter any downfall from here :(
P. S. Also took 1 lot nifty @ 2907 lowest point of day but sold at 2920 as was carrying too many positions.
Also shorted RELCAPITAL to hedge my positions but covered as it was signaling no weekness.

3. Nifty was stable and consolidating around 2920 but Suzlon was giving me scary looks as it touches a low of 58.25 ...
At this time i was holding 3000 Suzlon so by every 1 Re dip from here meant 3K loss. So I managed to sell 2000 Suzlon @ 59 .. to keep my positions in a limit.

4 . The clock was showing 12.30 and I was bearish ....
But there was something big waiting which was destined for this time :)


I saw this message flashing on ActiveTrades Notepad www.notepad.activetrades.in
RNRL... Big blast may come above 56 stop 54 tgt 60 65 70 71. Low capital traders may take a call option of far strike price. Risk is not too high.

A spark of hope caught up my mind as the calls given by active trades are very good . and this time RNRL was quaoting @ 54.8 so if go by stoploss stategy ... its not a risky call.

I bought 1 lot ( 1788 )of RNRL @ 54.9 but i jumped in too early as they suggested to initiate trade only if goes above 56 ....
Market again teaches me this lesson U buy, market will run and you book profit ... itna easy nahi hota BOSS ... upar jane ke liye pehle neeche ka stoploss khakar ata hai market :)

RNRL diped to 54.10 which means my stoploss was about to triggered and I ended up selling it at 54.15 :( .... At this time my loss for today reached 5k and all my trades went wrong.. I was feeling helpless ... and decided to go to sleep again :)

But ... here goes the dialogue from OM SHANTI OM... Picture abhi baki hai mere dost ... and this was time to make up all my loss when mrket signalled signs of upmove at 1 pm and RNRL again jumps back to 54. 90 ...

I dont know its LUCK , Destiny or what made me to buy RNRL again and I bought 1 lot @ 54.95 which was higher than my previous buy.

Nifty jumped 50 points and was trading at 2970 ... but RNRL was still glued to 55. I told to myself have patience buddy ... it is going to blast anytime :) And it did .... 55 , 55.50 , 56, 57 to 58.70 which was day's high . It was a very profitable trade and I sold RNRL @ 58.5 minting overall profit of 5K :))


Before closing I again picked up my Suzlon 1 lot @ 60.2 and it jumped to 62 just few seconds before closing ....
All well that ends well !!!

Moral of d story : Did you missed d bus ? don't try to catch it ... there will be next one coming :)

Lets see.. what experience Wednesday brings in for me :)

teejay

My trading Rules

> Be patient—wait for the opportunity.
> Trade on your own ideas and style.
> Never trade impulsively, especially on other people's advice.
>Don't risk too much on one event or company.
> Stay focused, especially when the markets are moving.
> Anticipate, don't react.
> Listen to the market, not outside opinions.
> Think trades through, including profit/loss exit points, before you
put them on.
> If you are unsure about a position, just get out.
> Force yourself to trade against the consensus.
> Trade pattern recognition.
> Look past tomorrow; develop a six-month and one-year outlook.
> Prices move before fundamentals.
> It is a warning flag if the market is not responding to data correctly.
> Be totally flexible; be able to admit when you are wrong.
> You will be wrong often; recognize winners and losers fast.
> Start each day from last night's close, not your original cost.
> Adding to losers is easy but usually wrong.
>Force yourself to buy on extreme weakness and sell on extreme
strength.
> Get rid of all distractions.
> Remain confident — the opportunities never stop.

Happy Trading :)

teejay...

Investing in Stocks is not Gambling

• Gambling transfers wealth from a winner to a loser because it produces nothing. Investing increases overall wealth because the capital invested in stocks provides the initial funding for firms which exist for the purpose to producing goods and services.
• The value of stocks trends steadily upward over time. They do not seesaw back and forth in the same range forever. In the aggregate, stock investors demand and receive a return that is substantial and permanent.
• In gambling that longer duration you stay more the chances of you loosing whereas in Investing the longer you stay invested more you will earn. :)
  

Five Golden Rules For Traders

1. Invest in the direction of the Trend!
The fastest and most risk free way to make money in the markets is to identify a change of trend in the market as early as possible, take your position, ride the trend and close your position shortly after the trend reverses.
Any market professional will tell you that it is impossible to buy at the lows and sell at the highs (or sell at the highs and buy at the lows) consistently, but it is very possible to catch 60 to 80% of much intermediate term and long term market movements.

2. Cut Losses Quickly.
In order to keep investing, you must preserve your capital. It is therefore important to keep the individual losses small in relation to the overall size of your investment. Always put Strict Stop Loss.

3. Let Profits Grow…
Stay with profitable trends as long as possible because the trend is likely to continue and make your profits even larger.

Let profits run while still guarding against the possibility that prices will turn around and take away much of your accumulated profits before the trend actually reverses. It is called a "trailing stop loss". This "Trailing Stop Loss" level is always some distance behind your trade. As long as the trend keeps moving in your favor, you stay in the trade. If the market reverses direction by the amount of the "Stop Loss', you exit the trade at that point.
Thus the "Trailing Stop Loss" will always protect your profits by insuring that you keep 80% to 90% of the accumulated profit.

4. Diversify.
Spreading your risk between different securities across different sectors reduces your odds of losing your entire capital on a single stock or industry sector.

Diversifying across different sectors is important because when the economy is digging itself out of recession, certain sectors whose profits are particularly enhanced by falling interest rates put in their best price performance. Then as the economy moves into the terminal recovery phase, the outperforming issues start to decline, but the market averages are buoyed by previous under performing issues, which thrive in this kind of environment.

5. Manage Risk.
Risk Management Strategy covers the most important element of managing risk by keeping your losses as small 1% of your trading capital.

Risk management Strategy ensures that you as an investor can continue to invest in the markets even after a couple of incorrect decisions. In fact if you follow "risk management strategy" you can continue investing in the markets for as long as you live. You will never ever have to worry about losing your entire trading capital.

Happy Trading!!! :)

Undersanding Charts: Profitable Pattern #1

The Symmetrical Triangle: A Reliable Workhorse

You'll recognize the symmetrical triangle pattern when you see a stock’s price vacillating up and down and converging towards a single point. Its back and forth oscillations will become smaller and smaller until the stock reaches a critical price, breaks out of the pattern, and moves drastically up or down.

The symmetrical triangle pattern is formed when investors are unsure of a stock’s value. Once the pattern is broken, investors jump on the bandwagon, shooting the stock price north or south.

To form your symmetrical triangle pattern, draw two converging trendlines that bound the high and low prices. Your trendlines should form (you guessed it) a symmetrical triangle, lying on its side.

How to Profit from Symmetrical Triangles

Symmetrical triangles are very reliable. You can profit from upwards or downwards breakouts. You’ll learn more about how to earn from downtrends when we talk about maximizing profits.

If you see a symmetrical triangle forming, watch it closely. The sooner you catch the breakout, the more money you stand to make.

Watch For:

• Sideways movement, a period of rest, before the breakout.
• Price of the asset traveling between two converging trendlines.
• Breakout ¾ of the way to the apex.

Set Your Target Price:

As with all patterns, knowing when to get out is as important as knowing when to get in. Your target price is the safest time to sell, even if it looks like the trend may be continuing.

For symmetrical triangles, sell your stock at a target price of:

• Entry price plus the pattern’s height for an upward breakout.
• Entry price minus the pattern’s height for a downward breakout.

to be continued.... :)

Stock Market...

If you let the ups and downs of the stock market run your life, you should not be an investor. The number one control you must have to be an investor is control over yourself. If you cannot control yourself, the highs and lows of the market will run you and you will lose during one of those ups or downs. The number one reason people are not good investors is that they lack control over themselves and their emotions. Their desire for security and comfort takes control of their heart, their soul, their mind, their view of the world, and their actions. As I said, a true investor does not care which direction the market goes. A true investor will make money in either direction. So ‘control over yourself’ is the first and most important control. Got it?”