Wednesday, November 30, 2011

no gains, without (the right type of) pains

risk can't be separated from trading.
a trader must accept this fact.
once you accept this, it will be prudent to understand that there are four choices of trading risk you can take
1. small risk taken, small gain booked
2. small risk taken, maximum gain booked
3. large risk allowed, small gain booked
4. large risk allowed, large gain expected.
while type 4 risk remains a dream, rather a nightmare,
type 3 risk is what amateurs do on the way to becoming pro's (provided they survive)
type 2 risk taker is a pro
and type 1 risk is the sign of a maturing amateur.


Tuesday, November 29, 2011

my views on stop-loss

below, i share my notes about "stop loss".

- any trade is based on probability and not on certainty. so there is always a chance of the
trade not going the intended way. (however, better the trade anticipation theory, higher the
percentage of trades going the intended way)

- stop loss is not a irritant, it is not a necessary evil as well. it is, infact, the most potent
profit yielding tactical tool. you can take any promising trade with intelligently decided
stoploss. without stoploss, all trades are risky and with it, no trade is risky. since risk is a
perception, it is linked to fear. and fear kills more traders than loss. fear cripples your
ability to react to adverse market moves. stop loss is like the rope in the neck of a fierce
hound tied to a pole and threatening you. with that stop loss rope, u r always safe from that big
bite. stop loss is a safety assurance which invites you to take any trade. just as they say that
courage is the fear whose prayer has been said, profit is a trade whose homework has been done
and stop loss cleverly decided.

-personally, i don't use the word "stoploss", i call it "stop chase". this nick name is based on
the reason and logic behind my definition and usage of the stop loss. here is it = i take a trade
on the basis of a formation/indication. just at the time of entering the trade, i decide as to
what will be the point where the formation/indication to take the trade can be considered as
having been destroyed/disturbed/spoiled/over. that point i take as the stop loss (in my language
= "stop chase"). why stop the chase? because there is no point chasing when you realise that the
chase was false!!!

- one more thing, if the stoploss (or the stop-chase point) is too away, i tell myself that it is
not the best time to start the chase (i.e. to take the trade). i wait. this is what i call
setting an "intelligent" stop loss (stop-loss chase point)

- after breaking my head for months and years against market theories, indicators and tactics, i
have realised that a trader's edge depends as much on deciding the stop-chase pole location as
much as on his or her ability to identify trading opportunities. the successful and profitable
trader may not necessarily be more intelligent or knowledgable, but definitely smarter in picking
the chase and stop-chase points.

- a time comes in a trader's professional journey when there is little scope of further improving
the skill of identifying credible, dependable and sure trading oppotunities in an
ever-treachorous operator-driven markets, the only way to become a still better trader is by
practicing and improving and mastering the art of chosing better and intelligent and clever
stop-chase pillars!