When literally everyone is giving you tips on buying and
selling, something is really wrong with the analysis
or the intentions. Understanding the capital markets
needed a lifetime for many investors and traders,
however in the era of snackable vertical entertainment.
Trading, investing and anything to do with stocks or
crypto seems so easy. So, what’s the catch?
An irrational man believes in luck; an intelligent
man understands probability. - Charles Babbage
If you delve in deeper and understand the psyche
behind those ‘analysis’ and ‘get rich quick' videos,
you will understand that much of what they preach is
difficult to follow in absolute terms. Much of what is
propagated is ideally book knowledge with lesser
possibilities of actual application. Or, sometimes is
just a sly act of gambling. Why would you risk your
time and effort to bet against all odds and then lose
money as well?
The next few minutes of reading this piece will help
answer many fundamental issues regarding the
plaguing issue of losing money to the stock market.
Just one word of caution: do not take any information
as investment advice. It would be great if one uses this
knowledge and remains aware and vigilant in the markets.
If you are not a trader and investor, you may still connect
to many points on this blog.
Buying the tip, or buying the dip: Thanks to the crypto crashes
and the corrective phases in the global indices. Many
self-proclaimed gurus have given the mandate that one
should start buying the dip. This essentially means that
you buy when there is fear in the market and you sell
when there is greed in the market. This way they (the gurus)
can quote Warren Buffet and make you feel like you have
done what most people would not dare to even think.
Thereby you have been secretly lauded by the market
Gods for this bravery and you will be henceforth rewarded
for the risk, you have taken.
In reality, the markets are a game of probability
and you would never know if your price was a good price to
buy or not. You will never know until the markets reversed in
your direction and rallied for a good few weeks.
So, then what is the point of getting into a bet with such
low probabilities? You may still want to be a high-risk taker
and get into the trade or the investment decision as per your
telegram advisory. But, what about the protection of capital?
What would you do when markets slide farther down? Do you
get out or does your tip provider has some fresh suggestion to
buy more at lower prices? Are you still averaging, what is the
strategy? When will you ever come out of the loop of buying
lows or buying cheap?
Always stick to the rule of margin of safety.
Now, very rationally, you could have just exited when
there was a breakdown of important demand or supply zones.
In case of a long position get out when the price has already
broken through important support zones. In case you have
shorted the market and the market is still shooting up, just
get out when you can clearly see that the market has broken
the supply zones. Don’t be caught in the opposite trends for long.
Quit with losses, without having your ego hurt in the process.
Never try and justify with different settings of indicators or setups.
Some traders or investors still try to justify a losing position to
themselves, through the use of exponential moving averages,
MACD crossovers, or Bollinger band breaks. Before you know
price will bend the variables against your position and you will
still not get an exit signal from them. Be extra cautious and look
at your Market-to-market profit and loss, before taking any
suggestion from anyone, including this blog.
Moving Averages are not magic wands: Just check out
all the instruments or at least the most liquid ones from your
markets. Check it with any set of moving averages, do they
follow the same amount of bending and contraction, or do
they have variance? Price acts differently as the asset class
and the liquidity variables change. You should not blindly put
faith in a system that is not rigid as your sentiment for the market.
The best option is to have a different set of parameters for the
indicators to work for you in every single scrip that you trade
or invest, it may be harrowing to the mind and the eyes, and
you may not be able to achieve it by yourself. So, don’t put
your setups to be so complicated that it is tough to follow
in the long run. Keep it simple and sweet to the point.
Understand there are no ways a golden crossover or a death
cross can help you out when the market itself is not following
the same level of volatility that it used to have in the past.
When the VIX value changes or when there is a significant
event around, you can expect the indicators to go crazy.
Trade with caution in those areas. Backtesting or historical
data can be proven useless in a matter of seconds.
Leverage trading: Of course, you would need leverage
while trading the markets intraday or even in investing.
Brokers like this give you margin trading benefits too.
Many stock market winners have used leverage to their
advantage through proper risk management and understanding
of the market forces.
One should use leverage to the point where it doesn’t hurt
their sleep and sanity. Greed is a tough competitor for your money,
it never lets your money grow beyond a point as it has the
tendency to drag your returns down. The idea is to be
conservative with your greed at the initial stages of your
investing career. Once you cross the threshold,
your risk appetite and ways to make the most out of
setups will improve. Just try and use your common sense,
and you would never have to look beyond means to take
risks and make returns in the market. Start today with
the mindset that leverage is not easy money. In fact,
it will cost you more if you go wrong even once.
Unknown edges: It is common for many to find
that elusive edge in the market. However, it is a safer
strategy to find your true soul purpose in the market first.
Find out, what you have really set out your goals for.
What can you do to make the most of your current setups
and most importantly who you are? This is perhaps one of
the most difficult aspects of making money in the stock market.
You can never know what you really enjoy doing in the markets
until you actually do that and succeed. Start asking questions
and see if you get an actionable outcome. Are you a
long-term investor or a 1-minute scalper? Do you enjoy making
money in futures and options, or do you just want to stay in the
bond markets? What is that one thing that truly keeps you at
your best game? Can it be replicated over a longer period of time?
Can you teach that to anybody easily
If it can be followed and repeated, it is probably very simple and
easy to not make mistakes? One should use such common
ways of identifying one’s edge in the market, Following the
books of legends and outliers will give you perspectives and
the know-how. But, to know oneself is tough, unless you have
faltered enough and lost some money in the mix-ups.
Never mind the time, follow the setup and risk-less amounts.
Your profits and losses are yours and no tip provider or
anybody else will want to partake in that. Be wise and you
will win eventually, don’t give in to nonsensical expectations
and fears.
Trading psychology horrors: Trading can be easy when the
rules are not that complicated for you. And, rules get complicated
when one brings emotion to the trading setup. What if your trading
stop loss and targets are set, and you are as good as your day or
as good as your mood always?
Take control of the most difficult aspect of the trading universe.
The emotional roller coasters of losses and profits can really
shake anybody, be that a well-learned professional or a newbie.
Experience keeps you immune to such upcycles and downcycles
in the journey. One can easily take leaps of faith in their selves
and think that they have mastered the art of psychology through
books, seminars, and lectures. But, it's a practical skill and
no bookish knowledge is perhaps enough. The only way to
learn is perhaps through the mistakes you do along the way
to your path of glory. Your psychology will be made across
multiple sessions, why would one give up in the middle of
the progress? Because their psychology might not be
updated as their day progresses in the market. It is crucial
to put your head and heart in the right place and take smaller
steps to profit. Discipline is a rocky mental game and it can
really be tough to ace. Building psychology comes through
various means and it starts through the morning session until
the end of the day. One loss a day or three, one always needs
to be equipped financially and mentally to come back the
next day and bounce harder. Setups will not lie over a course
of a period, but the most horrific part is that setups can dwindle
and die too soon if greed and fear decide to devour them.
Simple errors in the market can be improved upon and
eliminated by following a trading journal.
Books like this might help you in this process.
For Habit Creation and stacking
The easiest way to top this game of psychology is to give
up the attachment between the scrip and yourself. One can
turn off the attachment with strict discipline and practice.
Build habits that are easy to carry on and difficult to live
without. One can start to believe in the setups and the ways
the trades are undertaken, rather than following the profit and
loss statement on their tab. Once you are detached from the
company or the index that is being traded, it is all about the
numbers and your strategies. But, it's true that this is
easier said than done.
Risk-to-reward ratio nonsense: This particular concept is
so skewed and can have so many dimensions to it. Every
index and every instrument will have different volatility. Even
if you have a good risk reward setup, and you believe that
reward is supposed to be higher than your risk, it may not
hold true to the underlying instrument you are trading.
Why does it have to be so rigid when you have so many
opportunities to make or lose money in the market? An
ideal solution that many resorts to are simply following a
hard stop loss based on the percentage of their capital.
They exit a trade when their losses cross a threshold.
That can be a smart way to work around the tough terrains
of making money when you have so many odds against you.
The big downside is that you may not be holding onto your
own rules and giving to irrationality and emotions.
Then it all falls apart once again.
In Conclusion, it should be said that no matter how many
different sources of learning materials you use, it is never
enough to learn in the markets. Not every trader and investor
behaves the same. Some buy at a higher price to sell higher.
Some buy at lower prices to sell lower, and some buy a lot
and then dump it all. Let’s not get into the rug-pulling scams
here, but the point is that if anybody promises that you will
master the art of probability. They know what they take you as.
Perhaps, the best way to learn is through your past trades
and your past losses.
Read more market-related topics here
Options Strategy for both Buyers & Sellers
How to Put Stop Loss Correctly
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