Weekly Educational Series - PART 1

Jan 21, 2017

For the benefit of other traders,
I am starting a weekly educational series where i will be covering lots of topics related to trading which everyone should abide by.
It will be in simple language and easy explanation so that everyone can understand.

There will be further detailed explanation of nuances if required by the members.

So, starting with the first post,

BASICS OF TRADING | PART - 1

Technical analysis is a part of trading.
It doesn't make money in itself,
but how you actually use that analysis and then trade,
is what makes money.

Many traders believe the myth of timing, and hope that one day they will be perfect in analysis and start making money.

But trading is not hope, it's math.

We come here, to earn money, and how we do that consistently ? By using math.
Let me explain you how.

No matter what indicator you choose, what timeframe you trade in, you trade options, futures or commodities; basically, anything you do in trading, you should remember these 3 things which will help you be profitable in the long run.

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1. Risk Reward Ratio :

How much are you risking to get estimated reward ?
Are you risking 5 Rupees to gain 15 Rupees ?

Then your ratio would be 3:1 .

( Remember this is a R multiple and not rupees
So, a 3:1 ratio can be any of these,

risking 10 to get 30
risking 100 to get 300
risking 500 to get 1500 )

Easy ?

Just calculate how much you want to risk for every reward you hope to get.

Be it,
2:1
3:1
5:1

doesn't matter,
according to your trading style, determine this.

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2. Winrate :

So, once you have decided, how are you going to trade,
and fixed your risk reward ratio,
then you take only those trades which fit the Risk Reward Ratio criteria.

Then, do, at least 25-30 trades, on paper or for real, as suitable.

Analyze your results.

What percentage of the trades were winners and hit target ?
and what percentage of the trades were losers and hit stoploss ?

Assuming you followed the risk reward ratio criteria properly,
let's say,
you find out that,

18 out of 30 trades , you achieved your target ; and ,
12 out of 30 trades, you hit your stop loss.

This, gives us a 60% of winrate.
(18/30) * 100 , that is,

( no. of winners/ total no. of trades) * 100


Once you have got the results of this,
we move on to the third step.

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Continued on Part 2 . There's a limit on description length.
I''ll link it below.
Thanks.