Category Archives: Common Sense

Cool & the Bean-Counters

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Cheer up, people, it’s another Mr. Cool story, yayyyy!!

We need to catch up on his life, especially because that’s Mr. Cool there, pulling in to the parking in his spanking new X5!

And oh, that hot, blonde babe seated next to him must be his new girl-friend.

Who are those suited blokes in the back?

Well, they are his bean-counters. You’ve met one before, his broker, Mr. Ever So Clever. The other two are his accountant and his banker, respectively.

Why are they called bean-counters?

Well, they count the beans he spends on them, through them and with them.

Why weren’t they there before?

Because he didn’t have any beans? In fact, he owed beans to his very bean-counters.

So what happened?

You see that hot blonde over there?

Yup, can’t miss her.

Well, she’s not only hot, she’s got brains too.

Really?

Yeah, she’s an analyst with Sax.

Wow! I thought she was his girl-friend.

Ya, that too, but only after he hit the bean-fountain.

So how did he do that?

The story revolves around Miss Sax. She gets around. She is privy to a lot of inside info, but is intelligent enough to not get caught, yet.

How does she get the inside info?

You’ll need to use your imagination. What’s she got that a holder of inside info might want?

I see. And then?

Well, she sells the info to the highest bidder. For the last one month, that’s been our friend Mr. Cool.

How did he manage to assemble funds in the first place? I mean, the last time we saw him, he was in the dumps, out of money, heavily in debt, and contemplating suicide for all we know.

Which is when he was approached by the bean-counters. They had easy access to funds for hours at a stretch without anyone noticing, provided they’d put the funds back before someone would look. They needed an external face to deal with Miss Sax and to place their trades.

Ingenious. This way, they’d never be in trouble if something went wrong.

Correct. The only risk they took was for the first few hours that they embezzled funds. It was very necessary for that principal to be put back in time.

So that must have obviously gone off well, huh?

Yeah, their first trade based on Miss Sax’s inside info clocked two million in an hour. They cashed out, put the principal back into banks, trading accounts and other private accounts where it was embezzled from, and from there onwards, they pulled all their future trades on the back of their profits.

And it’s all been going good, is it?

Well, Miss Sax is dishing out million dollar tips week after week.

What if they get caught?

Hmmm, actually, I’m only worried about Mr. Cool.

Why?

She’ll get out of any jam. She’s too smooth to get caught. Even if she’s implicated, she’s capable enough to get herself off the hook. Then, the bean-counters don’t even have a trail leading to them. All the dealing is in Mr. Cool’s name. The four of them needed a front-runner who will take the hit if their scheme is busted.

And that’s our dear friend Mr. Cool, right?

Yeah, and he’s dumb enough not to realize it.

How does he pay them their share?

In cash. There’s no paper or electronic trail. They spend it in an inconspicuous manner. These are highly intelligent people with crooked minds.

Yeah, the only one flashing red flags is our friend Mr. Cool. The new X5, Armani suits, expensive holidays, plus the grapevine says he’s planning to buy a new penthouse.

Yup, he’s never heard of saving when times are good. Because of these red-flags, he’s eventually going to get caught. The authorities keep scanning for insider-trading, and the very people they scrutinize are the ones making quick and big expenditures, as our candidate is doing.

So are you saying that, very soon, we’ll be seeing Mr. Cool in the dumps again?

There’s a very high chance of that.

With no bean-counters and no Sax around?

Oh, they’ll be long gone, looking for their next front-runner.

Dealing With a Bully

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I know a way of dealing with a bully – sock the bully a real tight one in the solar plexus. Inside, there’s only air, and that one tight punch is going to burst the balloon and reduce the bully to his real self, i.e. a meek failure.

What if this bully is the government itself?

Let’s just caste a very quick glance at the track-records of the governments of independent India till date.

Education has been a total failure. Whatever meaningful education is being imparted in India is being done so mostly by private institutions, at least till high school level, if not even after that.

Healthcare – another very big failure. The government’s hospitals, just like its schools, are a disgrace.

Left to the government, infrastructure would have been a massive failure too, which it was, till the private sector stepped in.

Let’s not even start speaking about the governmental airline carrier, Air India. Words fail me here.

You want to avoid the police lest they stick you one at a time when you have other problems.

You want to settle any disputes out of court, because the semi-dysfunctional judicial system will, in all probability, stretch the issue over decades, with much ensuing harassment.

I mean, I could go on and on. Point of the matter is, governance in independent India has been an overall and disastrous failure.

We are not a democracy – we are a joke.

Over the last few years, these and more blunders are coming to light. They are being flashed over the papers and on television, nationally and internationally. People are getting to see and know the quality of people that has been governing the country. Citizens are disgusted.

Instead of charting a course of rectification, what does the bully do?

It tries to hide its own failures by passing on the responsibility to private institutions. Governments and governments have robbed common citizens of their basic rights to education, healthcare etc. over decades. Now, when the deprivation has become too glaring, they want private institutions to accomodate the deprived, and that too quasi-free of cost. I’m talking about the current developments in the education sector. Rest assured, other sectors will be affected too, if one goes by the governmental mind-set.

The government is bullying private schools into reserving 25% (number could vary for different states) of their capacities for kids from backward classes. The government says it’s going to pay for this partly, but knowing the value of its words, this money is never going to come. Basically, it wants want private schools to lift this burden and pay for it too. Unbelievable.

The government’s massive failure in the field of education has caused downtrodden classes to finally start asking, “What have you done for us?” and “Where is our education?” and “Why is the quality of the schools built for us by you so pathetic?” and “Where does the education cess go, which you charge along with every monetary transaction in the country?” and again, “Where is our education?”

Now the government gets really cute, and says, “You see those private educational institutions over there, look at them, they are doing so well, they will make your kids rise, we will steam-roll them into admitting your kids, there is your education!”

Laws in India are basically stacked up against private institutions and in favour of the government. One false move here or there, and you could be breaking a law as a private player. Hence, as a private player, you are always in the government’s grip. To function smoothly and not show a loss, you could end up slightly bending a rule or two. The government agrees to look the other way, and lets you function, but then you have to mutually agree to get bullied by it every now and then. Sometimes, the bullying takes on ridiculous levels, like it has for the education sector. My remedy to deal with a bully (given at the top) like the government is not going to work, because I just wouldn’t know how to implement it. I wouldn’t even know what to implement.

And that’s the story, people. India Inc. is heavily burdened by its failure watchdogs. You need to incorporate this fact into any investment strategy that concerns India Inc. Right within its purchase price, any investment in India needs to discount for the governmental failure that will inevitably be patched onto the private institution that you are planning on buying into.

What does that mean for governmental institutions as investments? Frankly, looking at the mess, one can’t even think of buying into these, unless one wants to own companies with Ph.D.s in inefficiency and mismanagement.

Betting Your Monsters and Checking Ace-High

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Blah, blah, blah, I know, poker terminology yet again…

Can’t help it, people, it’s just so valid…

When you’re holding a monster hand, you bet out on the next street to build up the pot. Similarly, when a trade starts to run, you’re looking to load up some more on the scrip at the appropriate point.

When you’re holding air, or a mere bluff-catching hand like ace-high, you check it down through the river. Likewise, if the scrip you’ve just bought into stagnates, or moves a bit down, you do not double up on your trade. Instead, you just wait for your stop to be hit, or if before that your time-stop has run out, you square-off the trade.

An aggressive-passive style?

Who cares?

Recipe for winning in the long run?

Yes.

Right, then we’re taking it.

Two out of ten trades may start to run big. It’s taken you time, money and effort to identify those two. You are in the trade. You can feel the adrenaline pumping. Now’s not the time to sit passively. Spade-work’s all done. Right, put some more money on the winning scrip. Point is, when?

Additional points of entry are tricky.

I prefer a little margin of safety here. I like to double up at a point where there’s been some correction, and possibly when a Fibonacci level has been hit. After that, I want to see the scrip going up back through the level, and I’d like to see volume go up simultaneously. That’s my point of second entry.

You can be more aggressive, no one’s stopping you.

You can even choose to enter the second time above some kind of a previous high or above the breaking of a resistance with volume.

Risky?

Yes.

You do, however, stand a good chance of catching a big move in a very short time.

You see, at this particular point, where you’re choosing to enter, the scrip is pretty hot. People are plunging in. There is no resistance from above. Upward movement is smooth.

Downside is, that those who’ve been sitting on notional profits might start to book these anytime. When that happens, the scrip might plunge well below your high entry and hit your stop. That’s a risk you have to take, since you have decided to enter above a high.

No risk, no gain.

At my more conservative second entry point, the scrip is not as hot. It is meeting with overhead resistance from recent entrants who entered high to then find the scrip correcting, and who are now happy to exit at their entry points as the scrip retraces its upward move. So, I will have to wait longer for a possible second run of the scrip to develop, and this might or might not develop. That’s a chance I have to take. That’s the price of being conservative during second entry. I’m comfortable.

Staying in your comfort-zone at all times adds a lot of value to the rest of your life, even after you shut down your computer. One does carry over one’s emotions, and it’s best if these are under control when you reach home. By trading in your comfort-zone at all times, you make sure that you come home in an emotionally balanced state.

If you can take the second entry above a high or above a resistance while still remaining in your comfort-zone, by all means, please do so. It’s an exciting play, capable of yielding large and quick rewards. I’ve tried it at times, but cannot get a grip on the excitement levels. Thus, I normally choose the more conservative play mentioned above. It’s just a personal choice.

Similarly, I’m very comfortable checking my ace-high trades down through the river. If I’m in a trade and it’s not running, I don’t jump about trying to pull stuff out of a hat in an effort to make the trade run.

If it’s not running, it’s not running. Feed in a trigger stop and shut the computer.

Once you are alerted that the stop’s been hit, look for a new trade.

Keep it simple. That’s another recipe for winning.

Recognizing and Reacting to A-Grade Tomfoolery

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Air India and Kingfisher Airlines (KFA) … can you name two things these two have in common?

They’re both loss-making airlines.

Furthermore, there’s lack of will-power to make them profit-making, from the very top.

The problem with a government job is that you can’t kick the government servant out. The government servant thus enjoys complete job-safety and total lack of accountability. That’s been India’s recipe for ineffectivity and loss-making government institutions for decades. In Air India’s case, add to this massive subsidization by the government. Whenever the Maharaja can’t pay his bills, which is like every month, the government of India chips in with tax-payer money. There’s no real policy being pushed through to effectively earn something. Government servants travel free, big-time. If there’s a shortage of seats, honest, real-money paying citizens are off-loaded and left stranded to accommodate the highly evolved souls that rule our country.

Seriously, why do you still travel Air India? Because it’s cheap? Don’t you see through the tomfoolery? Are you blind? They might wake up upon sensing a complete lack of interest amongst travellers. Until that happens, and until they start performing with no ad-hoc cancellations and off-loading, travellers need to give them that wake-up call by using other airlines and by not subscribing to any money-raising gimmicks or IPOs that the company might come out with.

Cut to KFA. What’s wrong with Mr. Mallya? Unpaid pilots, unpaid fuel bills, unpaid taxes, seriously!?!

Vijay Mallya’s story is not about lack of efficiency. It’s about flamboyance. At the cost of his shareholders? Perhaps.

His liquor business is performing well. A little hand-holding through initial turbulence would have seen KFA through. One pays one’s pilots. Period. You don’t just hire scores of great pilots and buy a huge fleet of aircraft, and then stop paying your pilots. Such flamboyance is going to result in a loss-making enterprise for a few years, isn’t that common-sense? In that period, the hand-holding comes into play from the promoter’s other profit-making enterprises, right? Does that seem to have happened here? Unlikely, looking at the current status of KFA’s balance-sheet. Quarterly losses of 100 million USD and growing coupled with a burgeoning debt, Jesus Christ…

The airline industry involves a very precarious vicious-cycle. If you can avoid falling into it from the start, you are through. Prime example is Indigo Airlines.

The first signs of letting up tighten the noose one more notch. Unpaid pilots result in strikes leading to delays and cancellations. A traveller who has been bitten once decides to travel with the competition. Numbers fall. Now, fuel bills can’t be met. More problems, more delays and cancellations. Finally, you can’t pay your taxes. That’s when the tax department steps in. Headlines go ballistic. Huge bad publicity. Twitter battles. What was that? You want the same mollycoddling as Air India? You want government subsidization? Which world do you live in? Not happening!

Money needs to flow into KFA, not loaned money, but clean money, out of the parent-group’s own coffers. Any usage of KFA revenues to fund the parent-group’s activities is a strict no-no. For example, if the Kingfisher Formula 1 team or the group’s IPL Cricket team were even partly funded by KFA revenues, that would be a huge, huge red flag, given the financial condition of KFA. As of now, shareholders need to see some will-power emanating from the top to control the bleeding. The Street can even short the KFA stock down to zero if the promoter’s attitude does not change. Perhaps such an image-beating would be a wake-up call for the promoter.

Learning to Draw

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Life’s about reaching out.

There’s not a single bridge that’s been built without someone having to reach out first.

A child connects the dots of life to find that it’s looking at a roadmap. Walking on a known parameter is then easy. One knows where to tread.

Mrs. Market is a conceited lady.

She needs you to reach out to her.

Till you don’t, she doesn’t care about your existence either.

When you do, she starts concerning herself with you, but only after you make the first move towards her.

You have to take the first step. You have to build the bridge.

In the world of trading, you do that by putting on a trade.

Given that you don’t want to lose your pants to a tough cookie like Mrs. M, you need to first look at the stuff that’s working in your favour. Before reaching out, that is.

You are able to connect to her with hardware. As long as the hardware functions, there are no further issues there.

The approach with which you connect is your strategy. It has been developed upon observing the behaviour of Mrs. M, and as her behaviour has changed from time to time, so has your strategy reinvented itself in tandem. The software with which you programme your strategy has highly maneuverable algorithms that are able to alert you instantly upon any of Mrs. M’s behavioural changes. Once you’ve identified her pace and style of movement, you know what kind of a bridge you need, to connect with. You know what kind of a trade you need to put on.

Putting on the proper trade at the proper time is the name of the game. When Mrs. M is trending, your trade time-frame, trade-size and stop are all different from when she is moving in a range. When she is falling, the pace of your trade needs to be fast, real fast. Your instrument needs to be options, not pure equity, since the latter is tougher to move through. When she is flat, take a break, don’t build any more bridges for a while.

Each bridge, that you are capable of building, should give you an edge over Mrs. M. If that’s not the case, then the bridge is faulty, for even a coin-flip is giving you an even-steven 50:50 shot at Mrs. M. Therefore, your bridges need to be in the 60:40 plus category. Bridges take time and effort to build. Thus, they must yield you ample profit once they have been built.

After a while, she gets bored with your approach, and changes her pattern. Your bridge is not able to connect well. You notice this when your trades start going awry. Your systems need to adapt, and new bridges need to be built to account for her new avatar.

And what is this whole exercise?

Just like the child who connects the dots, you are learning to draw at Mrs. M.

And you’re doing it well.

You’re drawing at her with systems that give you a good edge as long as they work. When they falter, you tweak them to adapt to her, so that they continue to allow you to draw at her with an edge.

You don’t draw at Mrs. M without an edge. Period.

If you can learn this one basic fact, you’ve learnt a lot.

The Concept of Satmya

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This one’s from the world of Ayurveda, folks.

We’re not geeks.

We move around amongst all segments of life, grab whatever is useful, and then try and apply its usefulness into our world of applied finance.

And that’s exactly what we’re going to do with the concept of Satmya.

Imagine in your minds a first-time smoker. The first puff breaks him or her out into a coughing flurry. A new stimulus is choking the respiratory system. The body rejects it.

That’s roughly the story for any first-time stimulus which is disturbing.

Upon repeated exposure to the stimulus, the body slowly gets habituated. Ultimately, rejection recedes. One’s tissues are now not only bathing in the stimulus, they are enjoying it. In fact, they want more.

Habituation is where we want to keep it at, no further. That’s the point of Satmya. At the point of Satmya, you enjoy the stimulus without falling sick, since your body-chemistry can now deal with the stimulus without getting imbalanced.

When we put on a live trade in any market, we expose ourselves to market-forces. A gamut of emotions comes alive inside of us. The level of reaction in our system is proportional to the size of the trade. First exposure makes us erratic. Therefore, it is very important to keep this first exposure small.

Markets swing. Joy wells inside of us with notional profit. Sorrow consumes us upon notional loss. Body-chemistry now needs to adapt.

If losses are kept small owing to the usage of stops, one’s system gets used to small losses. Meaning to say, small losses don’t shake you anymore. Market exposure results in small losses all the time, provided you’re using stops. Once these don’t shake you, and your entire world is still balanced despite them, you’re not afraid to put on the next trade, even after a string of losses. This very next trade could well turn out to be a multi-bagger, so you need to put it on. If you’re afraid to put on the next trade, you take yourself out of circulation, and fail to catch a big market move.

A habituated system makes one put on the next trade.

When the market swings in your favour, your notional profit causes you to become emotionally imbalanced. The first time this happens, you effervescently go about promising everyone the world, and get into situations you can’t deliver upon later. You might even make the other mistake of booking your profit early, not allowing the underlying to yield even more profit. Why, why, why?

Get used to sitting on a profit. Let it happen many, many times. Don’t go jumping about when it happens. Take it in your stride. Let the trade develop into a multi-bagger so that it can make up for your many small losses and yield even more beyond your overall break-even point. Such a state of mind is only earned once your system is habituated with regard to profit-yielding situations.

Another big mistake we make after a profitable trade is to put on a disproportionately large position-size in the next trade. Habituate your system to not increase position-size disproportionately. Calm it down after a profitable trade. Then coolly calculate your new position-size, taking total equity and steady maximum-loss percentage into account. Only increase position-size as per the mathematics of your trading strategy, not according to how good you are feeling after a profitable trade.

Habituation will also fine-tune you while lessening position-size after a string of losses. On the one level your math proposes a new lower size to trade in such a situation. On the second level, your body-chemistry will signal to you from inside whether you are comfortable with this size in a new position. Listen to your body and mind. If they are not able to take more than a certain quantum of market-forces at a given time, they will tell you. If you are able to listen to them and then can adjust your position-size further down to a level that body and mind are comfortable with, you are then taking the concept of position-sizing to a metaphysical level.

So, see what the concept of Satmya or habituation has done to your trading. It has made trading holistic for you. With the incorporation of this concept, you are trading in a manner that is comfortable for your mind and body.

The net result is that you don’t fall sick because of trading, and because you stay in the game, you are able to catch the big winners when they come.

Happy Trading! 🙂

Moments Before the Plunge

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A very common sight right through school and college was last minute cramming. It was an epidemic. I was more the odd one out, walking around without any books a day before any exam. Reason was, I was convinced that if I was unsure of myself a day before an exam, delving into course-material at that stage would make me feel even more insecure.

“Do you have any coffee?”, whispered someone. This fellow woke me up in the middle of the night, leaving with my entire bottle of instant coffee-powder. He was doing an all-nighter before some board exam. At the cost of not being super-prepared, I preffered to sleep the night.

Interestingly enough, I’ve had the chance to speak to some brides and grooms hours before the knot was tied. Jitters, man. Everyone was jittery, well almost. The most common feeling was “… what if this is the wrong step?” This was followed by “…what if we don’t get along?”

Seriously, people, why moments before the plunge? Why does the human being expose him- or herself to destabilizing thoughts just before pulling the trigger? There’s ample time much, much before, to sort all the destabilizing stuff out while deciding whether one goes ahead with a particular action. Similarly, there’s ample time to study for an exam if one starts from day one. Just an hour a day, throughout the term, and there’s no need for any all-nighters.

If you’re all sorted out and well rested to boot, you then have the best chance of seeing peak-performance emanating from your system.

And that’s what we are looking to be, just before opening a market position.

We’ve sorted out our worries and fears. We know how much risk we can handle, and have systems in place to manage this risk, i.e. we know what we have to do if our trade goes bad. Also, we know how to behave when a trade does well. We are aware about the size of the position we need to put on as an appropriate ratio to our stack-size. We’ve tuned in to the idea of position-sizing, and are practising it as we win more or lose more. Basically, we have our basics in order.

After that, we have to see whether we actually feel like trading. Even when our trading system identifies a set-up, the innate go-ahead to trade might just not come from within. There can be some reason for this. For example, there could be some tension prevailing at home. Sort out the external disturbance to the level of closure if you can, or it might constantly disturb trading.

So, internal sorting out, external sorting out, then comes a trade set-up, and one takes the trade. No jitters, here, there, anywhere. All jitter-causing avenues have been chewed up and digested. That’s when triggers can be pulled when they appear.

When Mrs. Market asks you to ride alongside her, your bag should be packed already. You can then jump on to her motor-bike without worries, for you’ve packed well for the trip.

Moving on to a Higher Table

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You’ve started to rake in regular profits on your poker table, or, if you will, on your regular trade-size.

Common-sense now tells you, that you need to scale it up a bit. After all, you’d still be risking the same percentage of your stack-size per trade. Simultaneously, if your win-ratio remains constant, you’d be allowing your stack to grow at a faster pace.

You move on to a higher table.

Welcome to the concept of position-sizing.

Those who position-size can evolve into huge winners in minimum time. Even though the idea of position-sizing is so central to trading, it is still one of the most under-discussed of topics. We need to thank Dr. Van Tharp for teaching this concept properly.

Think about it. When you win, your principal increases. On the next trade, you then put the same principal percentage at risk like you’ve always done. Because your new principal was more, it allowed you to buy more. Thus, you put yourself on the line to win more.

What’s essential here is also to down-size your position when you are losing. Taken a few bad beats in a row? Move down to a lower table for a bit, man. Allow your stack to recuperate at this lower level and then some before moving back higher. With that, when you’re losing, you start to risk less. Crucial point.

Of the different methods available to you to position-size, here, we speak about increasing trade-size when a new trade starts.

The advantage you enjoy when you’re doing pure equity is that on each new trade, your position-size can pinpointedly be adjusted according to your stack-size. Scale-up, scale down, trade upon trade, as the situation demands. Beautiful.

Why does this work out so beautifully for you?

You see, your system gives you an edge. You are opening your positions on high-percentage winners only. Period. Simultaneously, you are cutting your losses at your pre-defined maximum. You are also allowing your winners to win more. And, you are taking your stops. Even if your system then gives you a 55:45 edge over Mrs. Market, you’re doing great. Over a large sample-size (many, many trades, or for that matter many, many poker hands), your stack will increase with a high level of probability. As it goes on increasing, you keep turning on the heat by increasing your position-size further and further.

What happens then? What do you see?

Something beautiful happens.

Your trading principal (what we’ve been calling stack-size all the time) starts to increase exponentially. Have you seen the progress of an exponential function as one travels from zero to the right on the x-axis (the x-axis here would stand for sample-size or the number of trades taken)? If not, check it out on the net.

A good system should give you a 60:40 market-edge. In the Zone, you’d probably trade at 70:30 or beyond. That’s 70 winning trades out of every 100 taken, and 30 losing ones. Imagine what that does to your trading principal over 1000 trades, if you adhere to position-sizing, let your winners ride and take your stop-losses.

The numbers will boggle your mind.

Go for it.

Going All-in Against Mrs. Market

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Yeah, yeah, I’ve been there.

And it backfired.

Luckily, my stack-size in those days was small. That’s the good part. The shocking bit was, that back then, I had defined my stack-size as my networth. Biggest mistake I’ve made till date in my market-career, and I was very lucky to escape relatively unhurt.

Wait a minute, why is all this poker terminology being used here, to describe action in the world of applied finance?

Well, poker and market action have so much in common. Specifically, No-Limit Hold-’em is deeply related to Mrs. Market. We’re talking about the cash-game, not tournament poker. It’s as if Hold-’em is telling Mrs. Market (with due respect to Madonna):

i’ve got the moves baby
u got the motion
if we got together
we’d be causing a commotion

A no-limit hold-’em hand is like one trade. Playing 20-50 hands a day is excellent market practice. You’ve got thousands of games available to you online, round the clock, and most of these are with play money. Even though the “line” is missing here because of no money on the line, this is a no-cost avenue for trade practice, and it’s entertaining to boot.

Back to stack-size? What is stack-size, exactly?

Well, your stack size is the sum of all your chips on the table. You play the game with your stack, and on the basis of your stack-size. The first thing you need to do before there’s any market action is to define your stack-size.

A healthy stack-size is one that allows you to play your game in a tension-free manner. My definition, you ask? Well, I’d start the game with a stack-size that’s no more than 5% of my networth. Segregate this amount in an account which is separate from the rest of your networth, and trade from this segregated account. That’s the wiser version of me speaking. Don’t be like the stupid version of yours truly by defining your entire networth as your stack-size.

In this 5% scenario, you have 20 opportunities to reload. It’s not going to come to that, because even if a couple of your all-in bets go bust, you will eventually catch some big market moves if your technical research is sound and if you move all-in when chances of winning are high.

Wait patiently for a good hand. Then move. One doesn’t just move all-in upon seeing one’s hole-cards. If these are strong, like pocket aces, or picture pocket pairs, one bets out a decent amount to build up the pot. Similarly, if a promising trade appears, and the underlying scrip breaks past a crucial resistance, pick up a decent portion of the scrip. Next, wait for the flop (further market action) to give you more information. Have you made a set on the flop? Right, then bet more, another decent amount, but not enough to commit you fully to the pot. Then comes the turn. The scrip continues to move in your direction. You’ve made quads, and you’re holding the nuts. Now you can commit yourself fully to the pot and move all-in. Or, you can do so on the river, checking on the turn to disguise your hand and to allow others to catch up with your nuts somewhat, so that they are able to fire some more bets into the pot on the river. Your quads win you a big pot. You fired all-in when the scrip had shown its true colours, when winning percentages were high. You exhibited patience before pot-commitment. You allowed others to fire up the pot (scrip) further, and you deservedly caught a big market move. Just get the exit right, i.e. somewhere around the peak, and you’re looking at an ideal trade strategy already, from entry to trade management to exit.

Fold your weak hands. If something’s not working out, give it up cheaply. Ten small losses against a mega-win is enough to cover you and then some.

Often, a promising trade just doesn’t take off after you enter. The underlying might even start to move below your entry price after having been up substantially. You had great hole cards, but didn’t catch a piece of the flop, and now there are two over-cards staring at you from the flop. Give up your trade. Muck your hand.

At other times, you move all-in and the underlying scrip tanks big against you in a matter of hours. Before you can let your trade go, you’re already down big. You’ve suffered a bad beat, where the percentages to win were in your favour, but the turn-out of events still caused the trade to go against you. Happens. That’s poker.

Welcome to the world of trading. Pick yourself up. Dig out another stack from your networth. Don’t allow the bad beat to affect your future trades. If you are thinking about your bad beat, leave the table till you are fresh and can focus on the current trade at hand.

And then, give the current trade at hand the best you’ve got.

The Line

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In the world of applied finance, you will meet the “line”.

Though the line is an abstract phenomenon, it is very real.

Whenever you connect to Mrs. Market, you do so through the line, which comes into existence (you guessed it) when you put your money “on the line”.

Please be aware of the capabilities of the line. If you allow it to, it grabs hold of the emotional switches of your brain. When the price of the scrip you’re trading plunges, the line can turn on your depression switch. As the loss multiplies, the line makes you go into freeze mode. On the other hand, it can also make you go on a spending spree with your notional profits, if your scrip is doing well. If you allow it to, the line then controls how you interact with your family and for that matter with everyone else.

Why give it so much power? Let’s keep the line in its boots. When you’re flying a kite with strong winds prevailing, and the kite plunges downwards and out of control towards some electricity wires, what do you do? Obvious answer, let the string go. Well, not so obvious when you’re holding the string (substitute string for “line” if you wish). You could try and save your kite, or for that matter, your trade, at the cost of being electrocuted, or, in trading jargon, burnt.

When you’re holding the line, common-sense often goes out the window. You start thinking emotionally. Our society doesn’t teach us to embrace failure. We are taught to win. Thus, we want to turn every trade into a winning trade. Big mistake. We are not able to let the line go while any loss is still bearable.

Wins come. The fact remains, that in applied finance, many transactions will be failures. You’ve won if you can then let your line go at a digestible failure level.

When a win does come along, again one is completely misled by the teachings of modern society. “Book your success now, put it on your resume”. An even bigger mistake in applied finance.

A winning trade needs to be allowed room to win some more. After struggling with failures, you’ve finally identified a winning horse. Aren’t you going to let it win more (races)? Aren’t you going to continue holding the line to let a multibagger emerge, instead of letting the line go while you’re showing a small profit which doesn’t even cover your failed trades?

The line is an enigma concerning the discernment of befitting moments for attachment and detachment.

We need to let it go when it threatens to burn us. Also, we need to hold on to it, contrary to any public opinion, that “XYZ can’t possibly go any higher”.

There’s no way we’re playing the line according to public opinion or society rules.

Also, there are times when it doesn’t make sense to get a line going, because the kite just doesn’t take off. At other times, you need to put out one line after another into the sky, because your kites start to soar, one after another.

In the world of applied finance, you need to put your money on the line. There’s no other way to connect to Mrs. Market.

The “when” is up to you, when to get it going, when to let it go, when to hold on, when to scale it up.

And at that level, trading becomes an art.

Elephant in a China Shop

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Mr. Cool just plugged his trading exam.

Big time, and for the umpteenth time.

It all started out like this. He partied late night. Had one too many, of course. Slept till late morning. Woke up with a headache.

Then he made his first mistake of the new day. He decided to trade.

Why was this a mistake, you ask? After all, trading is his profession.

Two mistakes here, I’d say. Firstly, there was no market preparation. Secondly, health was not up to the mark. Deciding to trade after this backdrop – hmmm – bad call.

The next set of mistakes came right after that. Coolers asked his broker Mr. Ever So Clever the wrong question, this being “What’s moving, mate?”

True to his form was Mr. Cool-i-o. Two mistakes here again. Firstly, you don’t ask your broker technical questions. You tell your broker what to do. You instruct him or her. Asking your broker to instruct you is like asking the second hand car dealer to start ripping you off.

Next, if you are asking Mr. Ever So Clever anything at all, it can be about your funds in transit, or your equity in transit or basically something mechanical. You are not in this business to give Mr. Clever even an inch more of space by asking market questions like what’s moving or what’s going to move.

If you still do, as Mr. Coolovsky obviously proved, then of course Mr. Ever So Clever is going to tout to you what his other clients are squaring off. Specifically illiquid scrips. These need buyers, and if you’ve just announced yourself as a buyer and are asking what to buy, illiquid scrips that others are selling will definitely be touted to you for buying.

Also, a scrip doesn’t have to be illiquid to be touted. One can even be dealing with a very large order which a big player is looking to off-load at a relative peak. A whole set of brokers then does the rounds to get buyers interested.

The bottom-line is this – you are not giving your broker any kind of leeway with regards to what you are buying or selling. You need to do your own technicals, or fundamentals or whatever it is that you do, to gauge what is moving. You don’t ask what is moving.

On many occasions, rallies wind up soon after big players square off. This time was no different. Coolster had loaded himself with a scrip which had already peaked. With no buying pressure to push it up any further, its price started to sink.

Next set of mistakes.

He’d marked a vague stop-loss in his head because everyone had been ticking him off for not applying stops. Specifically our friend Mr. System Addict, remember him? He had been very vocal about it. Because the stop was vague, Mr. Cool wasn’t motivated enough to feed it into his trade as the price neared his stop.

Not feeding in a mental stop – mistake.

As the scrip’s price undershot his mental stop, Coolins did nothing except to hope it would climb back to his buy level, which is when he would exit.

Hoping in a trade – big mistake.

Not taking your loss once stop is undershot – even bigger mistake.

What happened after that can’t be called a mistake anymore (on humanitarian grounds), because Coolinsky had gone into freeze mode. The reason was the sinking scrip. Huge losses were piling up. Coolitzer answered two back to back margin calls in this frozen state of body and mind. He was frozen. Didn’t know what he was doing. Scrip didn’t turn back up before Mr. Cool was cleaned out.

This chronology of events is a kind of worst-case scenario. A grade F minus in an exam.

Every trade is an exam. One needs to tread carefully from step to step, from pre-trade preparation to actual trade to after-trade emotional wind-down.

Remember that, so you fare much, much … much, much better than our F minus candidate. And don’t worry about him, Mr. Cool-Dude will be back. He’s always able to get back, you’ve gotta give credit to Mr. Cool for that.

The Concept of “Sprachgefuehl”

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That’s a German word. And it’s deep.

Literally translated, “Sprachgefuehl” means “feeling for language”. In practical terms it would mean / entail achieving fluency in any language by getting a feel for its structure.

Life has a language.

Everything that makes up life has its own micro-language. All the micros add up to the macro.

Most of the time, we are stuck in the micro. We learn many micro-languages. With some, we experience difficulty. Ultimately, either we swim or we abandon the micro-cause.

Learning and expertise of these micro-languages makes up life for us as a whole. In our current multi-tasking scenario, flexibility and efficiency is required. To tackle this, there’s no better concept to implement than the concept of “Sprachgefuehl”.

Sprachgefuehl involves plunging in, as in immersing oneself into the thick of things without bothering about formal training. For a limited period, one takes in an overdoze of the micro-language. The idea is to allow one’s system to start speaking the language on auto-pilot. If there’s danger of sinking, one can always abort, but, as another German saying goes, “what doesn’t kill only toughens u up”.

The learning process is enhanced by one’s mistakes. Because of not adhering to boring, attention-deficit causing formal rules, many mistakes are made. Believe me, these very mistakes are your best teachers. The learning they impart is priceless and irreplaceable.

Why am I going on and on about this?

What does this have to do with the markets?

In fact, everything.

Sprachgefuehl involves getting into the Zone to be able to anticipate the movement and structure of a language.

Getting into the Zone is what its all about. We are able to reap profits from Mrs. Market because we are able to get into the Zone. If we lose that ability, Mrs. Market manhandles us. Period.

Sprachgefuehl keeps our instincts sharp. It’s great Zone-practice. Whatever you are doing in life, you can use this concept for entry into and proficiency at life in the Zone.

With that, any kind of market-play will also come naturally to you.

Things That Make Me Go Ufff!

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Pot-holes, potty pancakes, speed-breakers without warning, cars parked in the middle of the road…

Ghost-drivers, dangling electricity wires, open garbage piles, spiky iron-rods dangling from trucks…

Power-cuts, red-tape, policy paralysis, red-siren cars…

Politicians, their “Gandhi-mileage” fixation, mass-corruption, and highly selfish lives…

Negligence to the extent of culpable homicide, fire-brigades arriving late due to pathetic infrastructure, lack of facilities in government schools, over-flooded government hospitals…

Aid that doesn’t reach the needy, lack of development in states far away from the capital, mis-reporting of economic figures to paint good numbers, lack of political will to tackle inflation…

Spurious liquour that kills hundreds, a judicial system that makes you want to stay away, police that intimidates you instead of helping, religion that is used as a weapon…

The police-criminal nexus and profit-sharing, political rallies where “supporters” are paid to join the rally, the bullying of private organizations and non-government organizations by governmental agencies, extortion of small businesses by local government bosses…

Curriculums that cause school-going kids to become sick, no stray-animal policy imposition, lack of sewage infrastructure despite imposition of corresponding taxes, the embracing of nuclear power without possessing the precision and attitude to deal with it safely…

Traffic-cops that are fully focused on their own pockets, millions of bottle-necks that induce road-rage, a totally warped sex-ratio due to generations of male-bias in our society, the black-market in cooking-gas cyllinders…

The 440 V electric bursts that annihilate home-appliances despite surge-protection, slap-fixation by the media that makes one slap look like a million slaps, the fact that we Indians still haven’t learnt to queue up, the lack of realization by us that India is neither an oil-rich nor a water-rich nation…

Spurious everything, rotting food-grain, street-lamps burning in broad daylight, never-ending toll-tax even after an infrastructure has paid for itself…

The dizzy figures of each new corruption scam…

The speed at which an epidemic spreads owing to an overall lack of cleanliness…

A burgeoning population and zilch efforts to harness and enjoy its demographic dividend…

The gross misuse of one’s connections that one has to resort to, to beat the system and sometimes, to survive…

The lack of common-sense that prevails in our society…

These are some of the things that make me go ufff!

It’s because of many of the above-stated issues that the chances of India becoming a super-power in the near future are highly unlikely.

What happens after that depends on how well we tackle these and related matters.

Is This Blood?

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When there’s blood on the streets, that’s when you should go out and invest.

That’s an ancient proverb.

The 64 million dollar question is, IS THIS BLOOD?

I’m going to focus on India, because that’s my playground.

So ICICI Bank breached the 700 mark, did it? The 2009 low was around 250 bucks. At 700, it’s not blood. True, the banking sector is down. However, we are nowhere near blood levels. State Bank of India might have fallen around 50 % this year, but it’s still double the price of its 5 year low.

The Sensex shows an average price to earnings ratio of around 14. Remember 2008 and 2009? Average PE of about 9? Well, in my opinion, those are blood levels. These aren’t.

True, the mid-cap segment has taken a hammering. Let’s take Sintex Industries. At 75 levels, this stock has fallen big. Nevertheless, it’s still double the price of it’s 2009 low. At 98 rupees, Jain Irrigation has really fallen too. The PE ratio has come down from 35+ to around 14, and this looks attractive. Even Sintex’s sub-5 PE ratio looks very attractive, also because the company is aggressively pursuing water-purification and “green-innovation”. Agreed, attraction to invest is present, especially in the mid-cap arena, where you’re likely to find quality in management too, as opposed to the small-cap area, where this is less likely. However, to say that there’s overall mayhem here would be going too far.

The BSE small-cap index has halved since late 2010, but is again at double the 2009 low. Many small-cap stocks are bleeding badly, though. Most small-caps haven’t proven their pedigree yet. Thus, people are letting them bleed.

Then there are stocks like Karuturi Global and KS Oils, that have been hammered down to penny-stock levels. One has problems getting into such stocks, because the underlying story can be shady. With penny stocks, there’s always the danger of oblivion, i.e. they might cease to exist down the line. Such stocks need to be traded at best, with small amounts and for the short-term. In their present conditions, they are not investment-grade stocks.

The picture that emerges is that there are selective attractive bets being offered by Mrs. Market. There are good investments to be made for long-term investors, if you possess patience and holding-power. I’m short on patience, so I like to trade India. That should not deter you. If you are a long-termer, and have what it takes, well, then you are a long-termer. And this market is offering you some good bets, so be very selective and go for it, but don’t bet the farm, since we’re not seeing all-out blood on the street yet.

What Are We, Really? (Part 2)

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Negligence to the extent of culpable homicide not amounting to murder…

That’s the charge against the directors of AMRI hospital.

Papers say combustible waste was stored in the basement, which caught fire, resulting in mass carbon-monoxide poisoning through the A/C shaft, apart from the deaths due to fire.

Short cuts and lack of common-sense have become a way of life with us.

What are we, really?

A large bunch of idiot citizens? What kind of a hogwash country do we live in? Is anyone going to take India seriously for a longish period of time?

There are periods of performance, but eventually, the cracks in our system show up.

Negligence. Corruption. Apathy. Policy paralysis. Etc. etc.

What results for India is a volatile performance graph, with back to back upticks for some years in a row, till the cracks erupt. Then there are some big-time back to back downticks. India’s economic performance graph is the epitome of volatility. It is a trader’s dream.

India is not going to be a uniform ball game for a long time, till the India Inc. – Bharat divide is somewhat bridged and till the cracks are tackled intelligently and with resolve.

Till that happens, just sheer trade India, way up, way down. Trade, trade, trade. Treat India as a trade.

We live in a land of contrasts. Its political graph will thus show big contrasts, and so will its business graph.

India might not deserve to be invested in because of the above-mentioned cracks, but it definitely deserves to be traded.

In fact, it is literally screaming to be traded.

Survival Basics – Building a Baseline

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Who are you?

Do you really know that?

What’s your core reaction to stuff, let’s say market stuff?

How do you react to a crisis? Do you freak out? How much do you plan to avoid a crisis? How do you feel after hitting a home run? Do you get over-confident and start doing irresponsible things?

What happens to you when the scenario is dull? Do you get depressed? Can you take it?

If you’ve dealt with these and more of such questions, well, bully for you, because you’ve already gone about building your market baseline. And that’s a really proper / solid approach to Mrs. Market.

A baseline is a basic point of reference. It tells you how you normally react to a particular situation. It also lists the emotions you went through, and the consequences you had to suffer owing to your actions. As experience piles up, the number of situations you can refer for also increases.

So, let’s say something unusual happens in the markets. Hmmm, let’s say Greece officially goes bankrupt, and let’s say that you are net-net long, and have been caught unawares. What do you do with your positions? With all the mayhem around you, right, what do you do?

Basics of survival in the markets – in a crisis, refer to your baseline.

Your baseline takes you back to the Lehman default. You remember being net-net long, being caught unawares. You remember ignoring your stops, waiting for a rally. Futures wiped out your principal, didn’t they, because you answered margin calls and waited? You remember the long period of depression after that. Worth it? Naehhh.

So, after referring to your baseline, you don’t ignore your stops. Taking the immediate loss, you bail out of your positions. A large portion of your principal is still intact, living to fight another day.

What about euphoria? How do you deal with euphoria? A position turns into a winner, and you are sitting on a 25% profit in a few days. You are feeling really kicked, and are walking with a swagger. What do you do next?

Basics of prosperity in the markets – at the onset of euphoria, refer to your baseline.

Your baseline tells you, that your behaviour during your last big-winning trade was far from exemplary. In your euphoric state of mind, you were already imagining all the things you would buy with your notional profits. Then, you panicked at the thought of losing any of those notional profits, and you squared-off the trade, taking those profits home, only to see the scrip soar another 80%.

Right! You snap out of your euphoria because of your baseline memory. Then, you install a trigger-stop 8% below the scrip’s current market price. Good. In an effort to capture even more profits, you have put a small part of your existing profits at stake. That’s exemplary behaviour, because now there’s a good chance of capturing a part of the scrip’s further rise.

And boredom? What do you do when Mrs. Market bores you? As in, stops being hit both ways, going nowhere, no market strategy yielding profits? Happens, sometimes for many months in a row.

Basics of maturity in the markets – when Mrs. Market goes nowhere, refer to your baseline.

Oh how you wished you hadn’t ruined that family holiday, right, by continuing to take pot-shots at Mrs. Market the last time she went nowhere. That’s what your baseline is saying.

You switch off, go on another (this time enjoyable) family holiday, and come back refreshed to see that Mrs. Market is now trending, ready to take you for a drive in one set direction.

There’s no limit to baseline referrals.

Systematic players build a baseline, and keep referring to it.

Later, we remember them as successful players.

A Matter of Pride

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Eurozone this, Eurozone that…

Man, it’s getting irritating.

Can we, for one moment, imagine a world without the Euro? Yes. Why is it so difficult? What would the cost of that scenario be?

Deleveraging, people, that will be required. All of those nations that leveraged themselves into quasi financial extinction will need to deleverage massively, once the Euro is discontinued, for as long as it takes to pay off their debts.

What does deleveraging mean? It means not using leverage for as long as it takes. It means paying off one’s debts by working overtime and saving.

Do you think the Italians or the Greeks et al. are liking such suggestions. Of course not. That’s the thing with debt. If you can’t pay it off, you’re in deep sh*t. Nobody thinks of that while taking on debt.

When the Eurozone was formed, sovereign debt of financially weaker countries was sold worldwide using the Eurozone tag. As in “C’mon, it’s all Eurozone now, and these Greek bonds give a premium return as compared to German ones!” Ingenious way to market junk bonds. Meanwhile, citizens of these financially weaker Eurozone countries borrowed left, right and centre to build houses and to consume. As 2008 approached, many lost the earning power to pay back their monthly installments. Now, as more and more of this debt matures, these financially weaker Eurozone countries need to conjure up billions of Euros they do not have.

You’ve got to hand it to the marketeers. Pure genius. They always get you, don’t they.

The reason things are not really working is the looming idea of uncalled for hard work that the process of deleveraging requires. Even if one wants to put in hard work, where does one put it in, if there’s no work.

Thus, the only option remaining involves massive cutbacks, like you’re seeing in Greece just now. Consumer spending down to zero. Pension cuts. Medicare cuts. All-round cuts. To one level above slowdown, till the deleveraging process is over. Scenario will take long to smoothen.

After enjoying a penthouse suite, a 1-BHK feels pathetic.

Eurozone wants to remain alive financially, but are they willing to pay the harsh price?

What you’ve been seeing since this crisis exploded is infinite artificial maneuvering. This might stall the situation. The goal is to stall long enough so that the deleveraging process is over before the stalling process can be weaned off. And that’s a fatal error. Nobody understands deleveraging properly, because the world has never done it properly before, at least in modern financial times. Correct me if I’m wrong.

Deleveraging is going to take longer than all the stalling moves put together. That is my opinion. Stalling results in a false sense of security because of all the maneuvering to show that the economy is doing well. Owing to this false sense of security, people continue to consume. Instead of deleveraging, people leverage. Instead of decreasing, debt increases.

What’s the deal here? You see, pride and egos are at stake. Eurozone doesn’t want to become the laughing stock of the world, the focus of all jokes. Thus, for the sake of their pride, and to fan their egos, European leaders feel the need to keep the Euro alive, even if it costs them their elections, and their financial survival.

First Step is Yours, India Inc.

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Is this the end for Mama & Papa stores?

Foreign direct investment in retail. Tier II and Tier III cities gearing up for multi-brand big-ticket retailers, round 2. Upto 40 % discounts due to deals between manufacturer and retailer. Retailer operates on a 7-month payment cycle. Can Mom & Pop stores compete? Possibly not.

Broadly speaking, we live in two Indias. There’s India Inc., and there’s Bharat. No secret.

Citizens of India Inc. encounter Bharat at every second step. You’ve got bullock-carts, cycles and / or auto-rickshaws slowing down the spanking new highway. Do these bullock-cart fellows pay any road-tax? Power cuts. Countered with generators. Mosquitoes, flies. Long live repellents. Heat. Air-conditioners. Red-tape. Go with the flow. Corruption. Cut a deal. Movie at the mall. Call the manager and reserve the best tickets, away from the locals / villagers. The new fly-pass over your city congests traffic in the side-lanes, adding to the chaos in your city, while providing immense benefits to highway traffic. It’s under-area, which was meant to solve the parking woes of your city, is one long garden. It’s not being used for parking due to the threat of terrorism, as in someone might park a car with a bomb in it. The 10 km long fly-pass might have like 4 cross-to-the-other-side cuts for pedestrians / locals / villagers / labour. Net result is that pedestrians / locals / villagers / labour cross from anywhere, anytime.

You see India Inc., Bharat doesn’t want to be left behind, in any manner. Bharat counters every move of yours with its own unique formula. No cut to cross to the other side of the highway? No problem. Bharat just crosses through the highway. See? You can’t side-step Bharat. There’s only one long-term formula for your success, and that involves the incorporation of Bharat into the scheme of things.

As of now, Bharat is rushing for really cheap goods that look exactly like their expensive originals. As in a 50 $ Blackberry replica. Or a 100 $ i-phone duplicate. Cheap tablets. Dirt-cheap watches that look like Rolexes, Tags and Breguets. There’s no end to it. China will make sure of that. See, Bharat doesn’t want to be left behind. It wants to move with you, but at its own price.

While India Inc. shops with credit cards, Bharat runs a parallel economy. Strictly cash. Come and go. Zilch savings, so no need for banks. If there are savings, there’s some brother in need and will borrow on interest. It’s a bristling parallel economy with unique dynamics.

Does one see a common trajectory between India Inc. and Bharat?

Fortunately, yes. Both are consumers. Also, both are producers. Bharat’s big on agriculture. India Inc. is about tech, innovation, management and competence. Bharat can’t afford most of what India Inc. produces, so it lives on duplicates, or on its own agricultural produce. And India Inc. needs to realize this.

Nobody’s expecting India Inc. to live the life of Bharat more than it needs to. But, and this is a big but, the need of the hour is to incorporate Bharat more and more into India Inc.’s supply chain.

Those are the magic words. If you’re innovative, show it now, India Inc. Your country’s progress is proportional to the progress of Bharat, because Bharat’s numbers are far larger than yours. Slowly, you’ll see, that Bharat will stop slowing you down, as it progresses. The bullock-cart fellow will progress to a tractor. Your cinema-going villager will be more civilized. Bharat will clean-up, and mosquitoes and flies will reduce. A random Bharat citizen will be satisfied enough to not want to bomb his own country. Etc. etc. etc. It’s a process. Yours is the initiation part. Get on with it. Stop cribbing. Incorporate Bharat into your master-plan as much as you can, and sooner than you think, you’ll be enjoying the then EDUCATED and CONSUMING demographic dividend.

Learning to Be

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Mrs. Market becomes an enigma, at times.

At such times, she’s very difficult to understand. She’s erratic and jumps around in an exaggerated fashion. She defies all logic, and flushes all analyses down the toilet.

I like such times.

Mrs. Market is not the only one who knows how to dump others. Over the years, she’s taught me the art of dumping. So, during incomprehensible stretches, I dump Mrs. Market.

The key to dumping her is learning to be. You need to be comfortable in just being. You roll out a few novels, or surf around, or even catch a few movies on your laptop. Or, you can close your eyes, envision something beautiful, focus on your breath, and listen to some music. At these times, there’s no need for any market- activity, and you’re not going to give her any.

Mostly, during these stretches, the rate of return in the debt segment is great. So, you identify safe debt instruments, park your funds, and go into hibernation mode. She’ll come around soon enough. Remember, you’re calling the shots and are not going to let her get into control mode. Otherwise, you’re fried.

Hibernation mode is a beautiful time. Your system recuperates. You even, perhaps, go on a holiday. Your off-spring enjoy the extra attention from you. And just because you’re not pushing Mrs. Market’s buttons for a bit does not mean you can bug your spouse that much more!

So, market people, learn to be. Nobody made a rule saying that one has to be market-active all the time. Do away with the norms, as long as you don’t injure anyone’s fundamental rights. Norms were made for average citizens. Are you satisfied being average?

The enemy of just being is boredom. You’re not going to get market-active just out of boredom. You’d rather wait for a conducive time to enter the market again.

In today’s world, there’s so much happening, that there’s no room for boredom. Thousands of hobbies are waiting to be tapped. Do something good for society. Help other people. Live life in a manner that you feel good about yourself. There are many ways to “just be”.

Or, just get acquainted with your inner-self and you’ll be amazed at the kind of avenues that open up.

Get with it people, dump your 24x7x365 market-activity compulsion, and just learn to be.

Burn-Out Notice

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Information overload.

Short circuit in the brain.

Black-out.

You want to move your left hand, but the right one reacts.

Your body needs re-wiring, and rest.

This set of circumstances comes with the territory of trading. Often.

Imagine plugging into the complex matrix of erratic market play. That’s what happens when your trade gets triggered. Your poor nervous-system then deals with a lot of load, which doesn’t recede till well after the trade. Joy at profits, sorrow at losses, life is one big emotional pendulum. And this is just one trade. A sluggish trader might take one trade a week. The over-active one could trade many times in a single day.

What are we dealing with here?

Basically, the writing on the wall is quite clear. If you’re not able to regularly offset the damage to your system due to trading, you’re looking at early burn-out. As in, very early burn-out.

Your method of recuperation needs to bring your system back to its base-line, and then some. Your recuperation savings account needs to be in the black, as much as possible. That’ll ensure longevity in the trading arena.

What happens if you are drained, and the next trading opportunity comes? For me, the answer is crystal clear. Don’t take the trade. Rest. Recuperate. You would have played it wrong anyway. You were drained even before the trade, remember?

Sometimes, periods of recuperation can be long. At these times you need to stop comparing yourselves to other traders who find unlimited energy to keep trading, from God knows where. You are you. They are they. Who gave you the right to compare? Why are you judging others playing to a different plan with different energy and time-set parameters. If you really want to judge, then judge yourself. That’s it.

So, if a prolonged recuperative time-frame announces itself, respect it.

Your system will last longer in the game.

Trading is about sticking to the ground-rules, and then lasting. Your market-edge plays out only over a large number of trades taken over a long time-frame. Over the long run, your market-edge makes you show winning numbers, because the sample-size is big enough, and the time-frame under consideration is sufficient for many big-hitter trades to occur. Your big-hitter trades give a tremendous impetus to your numbers.

Even the best of edges can show a loss over a small sample-size (i.e. number of total trades taken in one’s trading career). It’s statistically very possible to suffer ten losses in a row, for example. You can call a coin-flip wrong ten times in a row. Possible. And that’s a 50:50 shot per flip. Your market-edge gives you a 60:40 shot, or maybe even a 70:30 shot. Still not good enough to not suffer a losing streak.

Winning streaks occur with time, and with supportive sample-sizes. Because of your edge, the winning streaks outnumber the losing streaks.

In the world of trading, if you want to win, you need to last.