Trading -- Five Common Psycho-HurdlesFear of Missing Out
------------------------
You missed a great opportunity yesterday. You take it as a mistake and don’t want to repeat it. So, today you enter in a hurry, deviating from your edge/strategy thinking that you will nail it this time. But that might not be the case.
Missing an opportunity, because it was not in-line with your back tested strategy, was perfectly fine. You were still following the right path. But after missing a couple of rallies, you decided not to miss the next one. This leads to disaster.
If you are missing too many opportunities and want to deal with it, then think of modifying and back testing your strategy.
Revenge Trading
---------------------
You take a long trade in the morning and stopped out in the just 15 minutes. You don’t digest this loss and want to recover quickly. So, you not just reverse your position but also double it. In the next candle market again stops you out, multiplying your losses.
Your first loss was still ok to bear with. But reversing and doubling was an absolute blunder. If you enter into a position as, per your edge, and got stopped out then consider it as a drawdown that one can face in any strategies. There are no peak without a valley. If you miss a valley, you will surely miss the peak too.
Greed Entering your Mind
--------------------------------
“If you do not book profits, you will book loss.”
You need to define two things while trading: risk involved and potential gain. If you have taken a trade and its not in favor, just do not average to bring down the cost. This oversize your position and eventually multiplies the risk.
Also, if you have set targets (price target or profit amount target), just exit (at least partially) there. Taking out profit from the market is of utmost importance as this is the prime objective of this business.
Waiting for too long, when in profit, may bring you back to breakeven in a volatile event. But if your strategy says to trail a profitable position, its perfectly fine to do so as you will be locking your profits.
Paper loss is Not Real
---------------------------
Suppose you entered a trade at 500 and your stop loss is 490. The stock starts turning down and your PnL is in red. The stock is at 492 but your brain says its loss. This impression is so powerful that you could not stop yourself from closing the trade.
You placed the SL as per your plan. Any loss that you see before your SL hits is just a paper loss. You SL defines your real loss.
Lack of Discipline
----------------------
All the above hurdles result into lack of discipline, which stops you from being profitable.
You have to have a strategy/edge in the market with some back testing. Then you need to strictly follow that edge. You may tinker a bit with your edge if it is needed.
Discipline is nothing more than religiously following your plan of action. Putting efforts to train your brain against all the above psychological hurdles can make you a disciplined trader over a period of time.
There might be more psychological hurdles but I think these are the crucial ones to deal with.
Do like and share for such posts in future.
Revengetrading
The Biggest Intraday Trading Myths and RealitiesLet's discuss..
Intraday Traders are losers
Ohkay..let me mend this statement a bit. " The Indisciplined Intrday Traders Are Losers "..now it seems correct. Not just in trading but in any field of life, if one is not disciplined he will be a loser. Then why such hate for day trading..well !! we live in a free country and everyone has right to speech and expression. But don't get misguided by the false notions. It just needs learning, Time and Practice-- the LTP if you may allow me to call it. One needs time to learn and practice before the latter two make you perfect or good enough. One do not need Lakhs to enter into trading business. A handful of money would work. Its just that with very lesser funds it would take more time to build up the money-base large enough to take trades which can yield fair amount of profits.
Avoid first 15-30min and last 15-30min
Open any chart and you see big moves during above mentioned time only. The basis here should not be -- when to avoid, but when not to avoid. Many a times the chart patterns are formed in the last few candles of the day, in intraday charts. Due to time constraint and overnight uncertainties, the traders do not want to take risk and leave it for the next day. So the first few minutes provide an opportunity window in those cases. Of course we would not trade any random pick in the morning..right?? But if it is well researched..just do it.
Always place stoploss orders
Rather I would say, " NEVER PLACE HARD STOPS ". This helps in avoiding those one to two flash trades which take the stops, especially when the stop is too tight. Its not that some one is watching your stop order to be placed and he will sell off just to have 'your' shares. Its because the stop might be too small to handle stock volatility. Its better to watch the chart instead and concentrate on candle closings for deciding stops in 'mind'. Hope we can do that much as our hard earned money is involved..right?? If a trade seems too risky..just reduce the quantity. If you feel very uncomfortable without stop orders in place, have stock's daily range in mind.
Volatility kills
Will you buy a stock which does not move at all? I hope you would say NO, unless you want to practice how to place buy, sell and stop orders. Volatility is traders' friend. The stock should move in either direction in sufficient magnitude to make potential buy or sell trades in it. Unless the stock can't rush Adrenaline in your brain, its not volatile. I suggest drink plenty of water and do stress relieving Yoga to trade intraday volatility :D
Avoid less liquid stocks
Once the trader has a grip over reading charts and tape, he can take up less liquid stocks. I don't say trade any Tom, Dick and Harry category of stock; but traders' favourite. Normally highly volatile stocks are traders favourite and there are many less liquid stock which are highly volatile. Just keep in mind to trade with LIMIT orders and not MARKET orders in these stocks. Reason being the Bid-Ask spread is sometimes too wide in these stock so inorder to avoid loss trade these stocks at your KEY price.
Do not Reenter after loss..its revenge trading
The stopped out situation is bad for a trader and inability to enter a good setup in same stock due to fear is the worst. The only psychological condition to avoid is the revenge attitude..that's right. If one can take every trade as a fresh trade forgetting losses made in the past, without fear, then one may not miss many good setups. Many a times the worst looking trade may come out to be the best trade of the day.
Do hit like and share your thoughts in the comment section.
Trade safe, be healthy
Regards
Bravetotrade
