Category Archives: Second Entry

Fool?

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I don’t mind.

What?

Being called that.

Why?

For me, it’s an indicator.

How?

When someone in my environment expresses that he / she considers me foolish, this acts for me like a guage.

Where?

In order formulation.

Which?

Good till traded orders.

Explain.

Ok. Let’s say someone considered my 787 GTT HDFC Bank entry foolish. With price having fallen to 745, and still not showing signs of stability, someone might consider me foolish for having entered ‘early’ at 787. I want this to happen. I want to sense this attitude in another person’s behaviour.

Then?

Simple. Formulate and enter next GTT for HDFC Bank at 690.

What’s the logic?

That’s just the way I use this indicator.

Position-sized small quantum?

Absolutely.

Considered bulk-entry at bottom?

What’s the bottom? Who claims to know the bottom?

499?

No idea. How do you know you’ll catch the bottom? What if you miss entry altogether?

What if I get full entry in lumpsum, at 499?

What if price stays below 400 for a month after that? Your lumpsum entry will hardwire you to your terminal, and it’s one month of sleepless nights, I can promise you that. Neurosis. Psychosis. Freeze. God knows how long it will be before you can take another rational decision.

And your staggered full entry with a higher buying average will not cause all these things?

That’s the whole point. It will not.

It will not? How?

Market psychology is counter-intuitive. When are you going to understand this one basic point? Going in, let’s say ten times, between 800 and 499, over three months, at every new entry, the nervous system forgets older price. It focuses on newer price, not even on buying average. It actively registers one small quantum entry at 499 as per this strategy, and forgets other entries above, at least forgets them well enough to suit the purpose. Bottomline – such a nervous system is poised to avoid neurosis, psychosis and the like.

You’re just making this up.

Try it out. This is what works for me towards full strategy implementation. I am able to successfully fool my nervous system into buying maximum units without setting it up to hurt itself, should the market fall more, and stay lower for longish periods. This is my win, and a cornerstone of my lowering the buying average strategy in high conviction stocks during crises. Tested successfully during CoViD. No more testing. Current crisis is about full implementation. Will keep this buying strategy on through the entire crisis, or till fully invested, whatever comes first.

Why put in everything?

This is money sidelined to go in. It’s not daily resources money, or college fund money, or family expenses money. It is investing money. It’s supposed to go in. What’s better for it than to go in low?

Where is the courage coming from?

High conviction is a state of mind. It’s a reflex. Over time and over many, many studies, observations, behaviour analyses etc., you develop it for a stock. Once you have high conviction in a stock, nothing should come in between you and full entry, if price allows.

Am still trying to decided whether you look foolish or intelligent?

Though I don’t care for your opinion, I don’t mind it either if you give it to me, for I will use the encounter as an indicator.

Is that what you’ve gravitated down to, using ridiculous and self-concocted indicators to navigate the markets?

Doing things which no one else has before sets me up for vindication no one else has gotten before. No more questions, do the math.

Three Ways to Double Down

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To win big as a trader, one needs to understand and implement a strategy of doubling down when things are looking good.

The difference between mediocre success and mega-success as a trader is linked to a trader’s ability to double down at the proper time.

We’ve discussed position-sizing. That’s one way to double down.

A day-trader, or a very short-term trader has the luxury of seeing one trade culminate and the next trade start off after the first one culminates at its logical conclusion. For most longer-term traders, many trades can be occurring simultaneously, because started trades have not yet come to their logical end, and new opportunities have cropped up before trades commenced have come to their logical end.

What do such traders do? I mean, they do not know the final outcome of the preceeding trades.

Yeah, how could such traders position-size properly?

Well, a trade might not have come to its logical conclusion, but you do know how much profit or loss you are sitting on at any given point of time. The calculation of the traded value for the next trade is simply a function of this profit or loss you are sitting on. Simple, right?

Well, what if you don’t like to position-size in that manner?

What if you say, that here I am, and I’ve finally identified a scrip that is moving, and that I’m invested in it, and am sitting on a profit. Now that I know that this scrip is moving, I’d like to invest more in this very scrip.

Good thinking. Nothing wrong at all with the thinking process.

You now pinpoint a technical level for second entry into the scrip. Once your level is there, you go in. No heavy or deep thinking required. As a trader, you are now accustomed to plunging after trade identification and upon setup arrival.

Question is, how much do you go in with?

Is your second entry a position-sized new trade? Or, do you see how much profit you are sitting on, and enter with the exact amount of profit you are sitting on? The latter approach is called pyramiding, by the way. Pyramiding is a close cousin of position-sizing. Normally, one speaks about pyramiding into one very scrip, when the trader buys more of that very scrip after showing a profit in that scrip. Once could, however, also pyramid one’s profits into different scrips.

When you’re pyramiding into one very scrip, you’re putting many eggs in one basket. Right, the risk of loss is higher. The thing going for you is that this risk for loss is higher at a time when your profits are up in a scrip that’s on its way up. Therefore, the risk during a downslide is higher, but the probability of that risk’s ability to result in an overall loss for you is lower than normal. You understand that you have balanced your risk equation, and with that understanding, you don’t have a problem putting many eggs in the same basket. After all, it’s a basket you are watching closely. Yeah, you know your basket inside out. You are mentally and strategically prepared to take that higher risk.

There’s yet another way to double down. I’d like to call this the “stubborn-bull trading approach”.

Let’s say you are sitting on a profitable trade. Yeah, let’s say you are deep in the money.

Now, a safe player would start raising the stop as the scrip in question keeps going higher and higher.

On the other hand, a trader with an appetite for risk could risk more and more in the scrip as it keeps going higher and higher – by not raising the stop, till a multibagger is captured. On the other hand, this trader would also be setting him- or herself up to give back hard-earned profits. Yeah, no risk – no gain.

What’s the difference between the stubborn-bull trading approach (SBTA) and investing?

When you’re adopting the SBTA, you’ll cut the trade once it loses more than your stop. You’ll sit on it stubbornly only after it has shown you multibagger-potential, let’s say by being up 20-50% in a very short time. You’ll keep sitting on it stubbornly till your pre-determined two-bagger, three-bagger or x-bagger target-level is reached. After that, you’ll start raising the stop aggressively, as the scrip goes still higher. Eventually, the market will throw you out of your big winning trade. You see, the SBTA strategy is very different from an investment strategy. For starters, your entry into this scrip has been at a trading level, not at an undervalued investment level. Undervalued scrips normally don’t start dancing about like that immediately.

Let’s be very clear – to reap big profits in the long run, you, as a trader, will need to adopt at least one of these doubling down strategies – position-sizing, pyramiding and / or the stubborn-bull trading approach.

Have a profitable trading day / week / month / career! 🙂