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The Indian Trading League team has an endeavour to empower every investor and trader in the country to do better in the markets. We have a philosophy to motivate people to invest and trade methodically and not recklessly. With this in mind, we are outlining some guidelines that investors and traders across the country should follow since after all, it is your hard earned money and it should be channelled wisely. Some of the thoughts mentioned herein have been uttered by the greatest investors and traders in the world.
The markets are a brain game Like Chess or like chasing a cricket match in the second innings and to win this game, you will need to create a plan. The most important thing will be to follow the plan religiously and not deviate from the same. What should your plan have. Defining how much to risk or how much to lose on a single trade is the firststep towards risk management. Based on the available trading or investing capital oneshould decide prudent limits one is comfortable losing, this is all the more importantbecause if one knows realistically the loss taking capacity, then trades will be donewithout FEAR of losing, and when fear is not disturbing, one can take decision from themind without any emotions attached.
Fear of LOSS is the biggest hurdle in trading andinvesting and the only way to overcome is pre defining the risk rules in the form of losslimits.
Size of the Trade: Too often people, either, bet everything on one trade and go broke orbet too little to make any meaning full profits to remain in the business.
Both will drivethem off the markets. In the first case there will be too much emotional attachment orthe greed, but when the trade goes against, it will be hard to press exit button and theygo broke because the position was huge.
On a trading capital of sayRs 1 lac, one can afford to lose max Rs , therefore say for example ACC is trading at and stop loss is identified at , therefore max loss per share would be For capital of Rs. The above rules are notmathematical rules of exactness, but suggestive and are followed elsewhere as bestpractices in the industry. In trading one must have an exit strategy, i. Indecision will not help. Some have pre defined profit target of three times riskfor example if risk per trade is assumed at Rs.
Similarly there are different waysof exiting the trade, it is essential to have the exit strategy in place before entering thebattlefield called the stock market. In trading this is even more importantbecause leverage is used. One generally keeps a stop exit when price adversely moves beyond say 2 times Average true range ATR or crosses key support or resistance areas. Whatever may bethe strategy it is a must to exit a losing trade. Every time no one is right all the time.
Trading or Investment, both require different set of skills, mental attitude, and divergent rules. In order to be best in the class, one can therefore either be a Trader or an Investor.
The important decision making points wherein strategy differs are Stop Loss or hold on, long term or short term, analyzing price or analyzing value, to follow the market or to predict are some of the contrasting and opposite action points which needs to be applied to either investing or trading to the exclusion of each other.
Markets are not one way up, after bull market, bear market is going to follow, so one should not be biased towards only long trades, selling short should also be done with the same ease. By refusing to sell short one forgoes huge opportunity to make money when the markets are in bear zone. Always remember, money can be made in 2 ways a. Buying Low and Selling High! Selling High and Buying Low! The hardest thing in the financial markets is the ability to consistently execute the plan with the iron fist discipline, but which rarely happens and that is why results are so poor.
It is said majority of the people do not make money, because people lack discipline. Whoever does it has the riches. Trading and Investing are essentially interlinked with human emotions.
It the human being that makes the decision but the emotions act as a gatekeeper which filters out decisions. Any money making skills has to be self acquired , no one can forever depend on others, that they will make money for them.
Similarly by depending on forecasters one constantly postpones efforts to self learn the art of making money through hard work and self study. There is no substitute for self acquired knowledge and experience. You will have to write your own exam in the markets. No amount of copying, cheating will help you ace the exam! The economics of profit is simple, reduce costs, profits will automatically increase, other things remaining same.
The flat fees of Rs. This may seem irrational but it is possible because of advent of technology, businesses are now becoming digital driving down their cost of operations dramatically.
The flat fee brokers like SAMCO are just passing on the benefits of cost reduction at their end which every trader and investor must avail off in order to reduce costs and increase profits dramatically. It is far more difficult to swim against the flow of the river, but very easy to flow with it. Similarly once the phase of the market is identified bull or bear, then one should trade or invest in that direction.
Also, it is not necessary to trade compulsively all the time. More trading doesn't mean more return. In fact, there goes a saying by Mr. Warren Buffett, "As investor motion increases, return decreases".
Sometimes if there is no clear trend in the markets, it might be better to be a spectator than be a compulsory speculator. Like many things in life, simple and uncomplicated things are more effective, similarly in trading or investing, the strategy should be simple and easily understood.
The rules of entry exit, the risk management policies, discipline to stick to the plan and the ability to control emotions are the key to success. There is no other rocket science to success in the markets. We'd like to close with a Peter Lynch Quote - "Everyone has the brain power to follow the stock markets. If you made it through 5th Standard Math, You can do it. We believe all our participants will cross new frontiers and reach new highs in their ability to make money in the markets.
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