Lessons to better my investment and trading skills

As I am on my pursuit of learning and sharpening my saw on stock markets, investing, trading, I read books, listen to eminent people who are stalwarts in the space and also follow people who have been running ahead of me on learning curve in life…

In the last year and half of my re-entry into the markets after almost 3 decades, I have grown a little in understanding the markets and I have a lot more to learn..and when youngsters are interacting, I realize that I can share a few of my learnings as much as failures…that gets reflected in sharing of those running ahead of me. Learning from others mistakes is always wise…

Here is a notes I made from one such person I stumbled upon on twitter @RajarshitaS… I have clubbed a few tweets of hers to create this story that I found valuable to me…Hope this works for you too..

In her own words…

Untangling Luck and skill in trading!!!

Today, I will share with you all, story of my struggling days as a trader. Like most, I too had bouts of negative thoughts prominent being, ” will I ever make a cut in the field of trading in stocks”

While I knew the nuances of trading, self-doubt was largely a function of uncertainty associated with market. This led me to question the role of luck in trading. I guess lots of traders who fail put the onus of failure on luck.

Following pointers shall share, how I resolved the issue and thereby untangling role of luck and skill in trading.

•Uncertainty is omnipresent and so is luck. With every single trading day, some fortunes are made and some fortunes are lost forever and uncertainty/luck does play a role in the same. Uncertainty is nothing but possibility of random outcome from range of possibilities visualised as well as not visualised by the trader.Thus, uncertainty encompasses the range of probabilities. Luck is nothing but hitting the worst case possibility from the range

•The next set of questions which spring up in the mind originate from the role of luck and skill. Someone once, questioned me – Is not luck a predominant factor in markets as only 5% to 10% of total traders end up making money.

My reply was – “A trade or series of trades is 100% dependent on luck but trading is not dependent on luck to a meaningful extent”.

•What I mean in here is, a trade or series of trades can go right or wrong for best of the traders, despite application of best of the techniques. To put this in cricketing parlance, if Virat Kohli fails in an inning or even for 10-15 innings continuously, management will always send him above Jasprit Bumrah any day to score in final over. This brings in the clear case that skill scores over luck.

Bhagavad Gita’s Chapter 18’s 14 verse: (Gita) says: The result of any action depends upon five factors
1. Place of action (adhistaanam) – where
2. The doer (karta) – who / you, your attitude and mindset
3. Instrument (Karanam) – what tools
4. Various kinds of efforts (Vividhascha) – which skills
and
5. supreme soul (daivam) – superpower/luck/destiny

Applicability of the same in trading is

1. Place of action as where are you acting in the trend
2. Doer – Mind set, physical fitness and firmness of thought of trader
3. Instrument – Identifying the right stock,
4. Various kinds of efforts – skill set of the trader. How sharpened your saw is.
5. Supreme soul which includes looks at your efforts and your Luck to provide an outcome.

God himself, gave first 4 factors are key to success and laid luck or destiny as the last point.

Try not to get discouraged if you are not seeing immediate results. You can’t toss a coin a dozen times and expect it to fall on heads every single time. You got to keep tossing. Specialize in 1 or 2 setups. That’s enough.Try to get as much as possible experience with those setups.

Trading is all about personal evolution. To stand a chance, you’ve got to be willing to work on yourself; Invest in learning. Read. Read. Apply. Apply. You’ve got to bring the change..

And the Guru mantra which I learned over these years is,p key to success in market is adhering to STOPLOSS !!

Here are a few lessons from my journey of trading…A few of the statements may be repetitive, but that actually is meant for emphasis and I retained!

Lesson 1 ————-

#Trading mistakes I did as Novice:

1) System hopping
2) No proper Trading Rules
3) Too many Positions (Fomo Trading)
4) Ignoring market trend
5) No control over psychology
6) Traded in FNO from Day 1
8) Too much Leveraging
9) No journaling of trades
10) Searched Holy Grail

Lesson 2 ——–
Few tips for novice Traders:-

1) Start with Larger TimeFrame Charts
2) Take small position stick to cash trading avoid FNO (future and options)
3) Avoid system-hopping
4) Honor stop-loss.
5) Work on your Trading Mindset
6) Read Books and Google stuff
7) Track and analyze your trades via Journaling

Lesson 3 ——
#Trading Results can change if :-

1) Stop listening to others & stop searching Tips
2) Focus initially on 1/2 set-ups, master them
3) Reduce no of trades weekly to 2 to start with
4) Manage risk; avoid Big drawdowns at all cost
5) Invest in Books, high value skills & like-minded people

Lesson 4 ——
Steps for a novice Trader to improve your #trading
1) Honor stop loss with Small position
2) Track 5/6 stocks min 6 Months(Nifty basket preferably)
3) Avoid Trading in penny stocks
4) Avoid Future and Options (FnO)
5) Ignore stocks <200 MA
6) Risk only 1% of your capital
7)Maintain a trading journal

Lesson 5 ———-
Your trading journal should certainly have
. Stock Name + Qty(size)+ Date
. Long/short + Strategy used
. Remarks (Trgt/SL)
. Reason if success/Failure
To review your trading edge, you need to identify patterns which lead to winners/losers!

Lesson 6 —–
How to determine the position size-

Capital =1,00,000
CMP of stock = 100 ; Risk =2%; SL=95
Risk = 2 % of 100000 (2000)

Position = 2000/ (Entry-Sl) = 2000/(100-95)=400 (share you shall buy)

PS: Always start with a qty which will not ruin ur mental peace!!

Lesson 7 —– Importance of #Stoploss 

No more damage …. You shall make up elsewhere

5 Methods for Keeping stoploss:-

1) Moving averages
2) Average True Range Stop
3) Pivot Points– S/R
4) Breakdown of Trendline support converging with Fibonacci %
5) SuperTrend Signal

Lesson 8 ——-

Time Frame (TF) and their usage :-

Positional = Weekly, Daily, 4H
Swing = Daily, 4H, 1H
Scalpers/Day traders= 30mins, 15mins, 5mins

Trend analysis is done at highest TF (Time Frame),
support/resistance used in Middle TF and
lowest TF is used for trade execution..!!

Lesson 9 —–

Simple Steps for a Swing Trader:-

1) Wait for a Pullback entry towards 21DMA/50 DMA (daily moving average)
2) Ideally should choose stocks which are trading above 200DMA( Long)
3) Confirm wth Volumes & candlestick patterns like Engulfing or hammer near supports wth adx
4)RSI value Preferably above 55

Lesson 10 ——–
Best cheatsheet on technicals.

– Inside bar patterns
– Volume analysis
– Wedge pattern and Waves
– 4 types of confirmation