Category Archives: Winning

Only the Lonely

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You are unique.

Are we still debating this?

No, right?

If we are, then sit yourself down.

Alone.

Reflect.

Please see how you are… unique, and that you are… unique.

Moving on, what does that mean for you?

Specifically, what does it mean for your market strategy?

A newbie starts off with very generalized market strategies.

What’s good for the goose, is good for the gander types.

Ones that treat donkeys and horses alike, to literally translate from Hindi.

Slowly but surely, you realize that you don’t want donkey treatment anymore. Mrs. Market has kicked you around and converted you from a donkey into an intelligent market player.

An intelligent market player requires a fine-tuned, risk-profile specific strategy.

That’s where you either step in or you don’t.

Choice is, as they say, now yours.

Do you want to continue with generalized, text-book level donkey strategies, or do you want to spiral up to the level of exclusive strategy tailoring and fine-tuning.

People who approach the market as a secondary or tertiary activity don’t generally spiral up. Most of them are unhappy with their returns, but since they already have primary (and probably successful) professions going for themselves, they choose to remain where they are as far as the markets are concerned, and they don’t aspire to rise any higher.

You see, they don’t have the time to take this spiral plunge.

Now it’s decision time for you, buddy.

Do you wish to remain at the average donkey level all your life as far as the markets are concerned? If not, read on.

You need to spend some alone-time, as long as it takes.

Go over all your market activity till date.

Develop a feel for your risk-taking ability.

What bothers you? What do you like? What kind of a “line” are you capable of stomaching? For how long? How do you react to a loss? To a profit? Are you emotionally stable? Can you remain stable for long? How long? What gets you on tilt? Once you make a rule for yourself, are you able to follow it? Or, do you keep second-guessing yourself? What kind on income are you looking for from the markets? Have you learnt to sit on cash? Can you stay invested for long periods? Can you let your profits run? Do you respect your stop? Do you know what a stop is? Do you know how to manage a trade? Have you fully understood basic money-management? After what level of income do you start functioning smoothly?

Etcetera, etcetera, etcetera.

Ask yourself these and many more such questions.

Let the answers come from within.

Listen to those answers.

Understand who you are.

Then, devise a unique and fine-tuned market strategy for yourself.

Keep working on this strategy, fine-tuning it till it is in tandem with your unique self.

At that point, it will become a successful strategy, and will yield above-average results.

Being above-average in the markets is a winning scenario.

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.

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! 🙂