The major reason why traders lose money is they make the same mistake over and over again. They do not realize that if you do the same mistake again you may get the same result again.

Here are two biggest mistake traders do:

1) Hoping of a reversal and not taking stop loss when it comes, and
2) Taking profits early in the fear of making a loss if you do not take out the profit.

Other Mistakes:

3) Averaging a losing trade : This is again a blunder. You should just take a stop loss that is all. Averaging a losing trade means you will lose more.

4) Adjusting a losing position : Well this does not only cost money but cost brokerages as well. Adjusting a losing trade is nothing but taking a loss in one trade and making another trade.

5) Taking Tips from unknown sources : In India unlike the developed nations advisory services are given by unknown people. It does not end here. They claim of making 3000 to 5000 a day (some claim 1.5 Lakh in a single trade) on investment of mere 50k is unfortunately believed by even the educated people. What happens next is a pitfall of losses. I have written a lot in my blog not to take tips. You can read this one as why taking tips will not make you rich.

6) Freely available YouTube strategies : Today no one wants to read. Everyone is interested in YouTube. XYZ makes a video – uploads it – you see it and take a trade based on that next day. Do you even think twice before taking the trade?

7) Reading a tip on a website and trading based on that. This one is silly.

If you can stop doing such mistakes you will become a better trader in 2019.

A trader has to take some important decisions when a trade is going on like to hold or not, buy or sell, exit with profit or with stop loss etc.

You cannot get emotional when you take such decisions. If you do not have good skills to take correct decisions you will almost always take bad decisions.

Make this year your goal to keep creating winning habits and keep away the losing ones.

Here is some more reality on why traders lose money when they start trading.

99 out of 100 traders do not know even the basics of stock markets. They just think that since they have invested money, they will make money. It does not end here – they start dreaming big like if they start with 10k investment they will end up with over one lakh in one year. This is 10 times the invested money – all that they dream of making in just one year. All this without even knowing the basics of stock markets.

After few losses they realize they are inherently bad at trading. Then a long journey taking tips and advisory service starts. Media and social media also plays a very bad role in the minds of traders. It is very common to see Telegram channels filled with thousands of subscribers where huge profits are shown on a stock. The traders who join these channels start believing the same.

Here is a trick to show great profits in stock future trading in Telegram channels:

Open two accounts. In one account short any stock. In other account at the same time buy the same stock future. Wait for a couple of hours. In one there will be huge profit – in other account same loss. So the Telegram channel operator loses only the brokerage but is able to take a great profit making screenshot and show to his channel members/subscribers. So easy. The subscribers get spell-bound by seeing the profits and readily pay upward of 30k for a course in some hotel with breakfast, tea and lunch. After they come out from attending the course they practice the same – but its obvious what happens next. They lose money trading the same strategy they were thought in the seminar.

Well I get calls from traders who have done many courses but yet are failing – so what I have said above is pure experience.

You can check testimonials in my site – this my customers are saying not me. Its obvious my customers will not take one strategy in one account and another strategy in another account and send me the profitable screen-shot. They will tell me what exactly they are making.

Despite what you may see on the internet, no one became a consistently profitable trader overnight. It takes a lot of time and effort to become a good trader.

In order to become a successful trader, you must have basic knowledge of how stock markets work, how options and futures behave, what are the risks involved, trade plan and lot of other things like risk management that a normal trader does not know. And of course you must have the psychology to conquer greed, speculative and over trading.

Here are some belief systems that you must change to become a good trader:

• The market owes me money today because I am a good trader I work very hard I know everything (ego)
• Everyone else is buying, so I will also buy (speculation)
• It’s not a loss until I decide to take loss (bad trade management)
• The market is manipulated by HIIs (blaming others for their own problems)
• I need to make back the money I just lost (revenge trading)
• I’m a terrible trader because I lost on on trade (decision based on just one trade not statistical analysis)
• I’m a successful trader because I put on a winning trade (decision based on just one trade not statistical analysis)

Here are some belief systems that you must have to become a good trader:

• The market owes me nothing, I need to prepare and learn to trade and earn (willingness to learn and no ego)
• The crowd is usually wrong, I will trade what my research says is correct (willingness to research and trade not copy)
• Taking small losses (when stop loss is hit) is necessary for profitable trading (trade management)
• The loss was my fault, not anyone else’s and I will not repeat this mistake ever again (taking the blame and learning from it)
• Wins and losses are randomly distributed, one win or loss doesn’t define a trader is good or bad (decision based on statistical analysis)
• No worthwhile result in life comes in one or two months – it takes years for real results to show (understanding that it takes time to make money in stock markets)

What you learn from the above is to accept responsibility for every trade. You have sacrifice short term pleasure for long term success. Remember that in trading (and in life), the more responsibility you take for your outcomes, the more you can control and improve them.

Please note that it takes some time to get our habits change. It takes on average 66 days before a new habit becomes integrated in our brains.

So if you have read the above article just now and start formatting these habits from today – you will not see any significant change in one day. It will take approx 2-3 months for the change to be seen.

Here is what you can do right from today – keep a stop loss of 5% on the margin blocked on all your next 10 trades.

Whats the max risk? 5*10 = 50% of your money gone if all the time your trades hits a stop loss. But this will have a major impact. You will always take a stop loss on 5% on every trade. Can you see how habits works like magic?

So if you decide the above you may have to pay a small price in the short term to eliminate a habit that could make it impossible for you to become a profitable trader in the long run.

Changing habits is a very difficult and long process, which most of us fail at. If it was easy, everyone would be rich and successful – if not rich at least happy in life. Do you know to be happy in life you do not need millions of rupees? If you can shed your ego you will become 50% more happy than what you are now.

Well I can write a book on how to be happy in life that will include a lot of things but lets leave it for another day.

Most of the people who set New Year’s resolutions give up by February. If you are reading this just tell yourself that nothing worthwhile is an overnight process – and help yourself to change your habits especially trading habits and see how you will change in next two months.

I am ending this post with the hope that you live a better life as a trader after reading this post.

Budget is tomorrow 1-Feb-2019 please trade carefully.

Read this article to know what you should trade on a budget day.

Important for option traders:

Do not sell options especially if you do not know how to hedge. And if you buy options please keep in mind that India VIX will keep falling thought the day as the budget progresses so option prices will not increase the way they normally do. In fact if the move is slow then option buyers may suffer a loss even if the direction is correct.

Suggestion for Derivative Traders:

I would suggest directional traders wait for the markets to take a direction then trade. No one is forcing you to trade, it’s better to wait for the correct opportunity to trade.

But if you still want to trade then try the long strangle. Please keep your stop loss and profit target in the system not in mind.

Those who have done my bank nifty course may do the future and option strategy in financial stocks except HDFC bank or any other stock that may move due to effect of budget. Do not jump into a trade – wait for the budget to get over – try to know its effect on different sectors – then choose a stock and trade.

Suggestion for Stock Investors:

For people who only buy stocks I suggest wait for your favorite stocks to react to the budget news. Some will fall and some will gain. Buy the one that you feel comfortable with – but only after the budget is over.

If you already hold any stock make sure to buy ATM put to hedge against a huge fall. Buy a married put only if you hold more than 3 lakhs of the stock.

Hope it helps you trade well on the budget day.

Have you ever done a course and got so much confidence that you are ask your mentor on how to deploy a capital of 8 lakhs with the strategies learned?

Here is one such customer of mine who is willing to do that:

How do you feel when you do a course worth a 5 or 6k and think about deploying 8 lakhs after see that these strategies work and can be compounded to make money month after month for your entire life?

Here was my reply to him:

This is his email in text if you found it hard to read on image:
==================
Hope you are doing well. Attached file contains the strategies I bought from you so far. I’ve used these strategies for some time and found them good (particularly Conservative Non-Directional Strategies on NIFTY options). Later I was not regular in applying these strategies month on month as I had to move my funds to another asset class. Now, I got 8 lacs capital to trade on these strategies and I would like to use this capital only for options strategies month on month. So, based on your views, feedback from your customers and based on the returns they have provided can you please suggest me which strategy I can deploy month on month. Also, are there any New or Modified or fine tuned strategies for above strategies I can consider?

I would like to use 3 lacs for aggressive strategies and 5 lacs for moderate or conservative strategies. Appreciate your help and guidance in this regard.
==================

My reply to his email:
==================

Nice to know you have made good profits from my strategies and taking the second step to success – trading with more lots.

3 Lakhs for Nifty Conservative

3 Lakhs for Bank Nifty Conservative

2 Lakhs for Bank Nifty Aggressive

Expected return a month from 8 Lakhs is 24k to 30k a month.
==================

Please see above how I have deployed the capital, giving more importance to the conservative strategies and less to the aggressive.

Note that aggressive strategies in the bank nifty course has high reward to risk ratio. Conservative ones have low risk and low reward.

So why I gave more importance to the conservative strategies? Because when more capital is at stake its better to first look at safety than the returns.

There is another point you should note that I have divided the money into three strategies and not asked him to trade only one strategy. The reason is financial management – Don’t Put All your Eggs in One Basket. I am sure you must have heard this phrase many times in your life or read it many times – but the question is DO YOU FOLLOW it?

If no you just got another reason why you are losing money in stock markets.

This is what happens – you win in one trade and double your stake in next. If you win again you triple your capital. But this time you lose. Now to take revenge you take another trade with four times the capital. Even if you succeed one one revenge trading it will not bring back all the money you lost. This can bring in mental issues. This is the reason I emphasis on hedging all your trades so that even if you lose money it will be small amount that will not bother you much.

Its really frustrating to bounce back from bad trading but its not impossible.

Here is another trader looking to trade 15-20 lots in Nifty using my rare loss strategy:

Here is my reply:

Now some words on risk management and why its important. Well financial risk management is not only limited to trading but to whatever you earn in life from your job or business. I follow the 25-25-25-25 rule that you may check here – now to follow it or not is your choice but at least make a rule that is comfortable for your lifestyle and earnings vis-a-vis your expenditure and savings.

Here is an important advice for HNI traders (High Net Worth Traders)

By high net worth I mean at least 7 Lakh and above. Yes some people trade with 10 Lakhs or more but I feel anything above 7 lakh comes under above average trading account.

Here are some rules that a high net worth trader must follow:

1. Never enter a trade without any plan. You have high risk at stake – you should not trade just to trade because you have a lot of money. You should know why you are taking a trade.

2. Do not trade with all the money in any one trade. Limit it to 25% of your entire money. Now even if you lose 10% of this money you lose just 2.5% of your trading account. This is manageable and you will be able to stay in the game for long. I have nothing more to say on this – its explained well above. One loss in a single trade will bring your account back by a big percentage.

3. Depending on the trade set up you may increase or decrease the risk. Here is some explanation. For example if its an Intraday trade you may increase the risk if you see that you are good at it after some practice. But if you are taking an entirely new Intraday trade with different set ups – then reduce the risk unless you get comfortable in the new set up. Do not forget to put the target and stop loss in the system.

4. Depending on the trade set up you may increase or decrease the risk. Hedge your positional trades. Naked trading without hedge that too positional derivative trading is equal to financial destruction. No matter how good trader you are – you cannot do anything with the gap up and down the next day. Its only the hedging – a proper hedging that will save you from huge losses.

5. Never do revenge trading – its a pitfall from where you will never recover. Trader with a lot of money have a lot of ego too. Once they make a loss they bring more money to the table to take revenge on markets and make more. Well they lose more. Revenge trading a never ending loophole of losses. Its better to take small profits consistently on small capital rather than try to make a big home run of profits.

Conclusion:

HNI traders or traders with large capital have more responsibility than traders with small accounts. One mistake can cost them a life time of pain. So if you are a trader with huge capital you must ensure you are trading with your brains not your heart. Speculative trading, trading without hedge, trading on tips, and trading without planning is a big no no.

Part of my newsletter to my subscribers dated 29-Nov-18

I have written this before that Nifty and India VIX are inversely proportional. Today I want to just write again because it has again proved that they both are inversely proportional.

See last 3 months graph of India VIX and Nifty – Source: MoneyControl.com:

Can you see from Sep to Nov 18 India VIX kept on rising and Nifty in the same period kept on falling?

If you read my emails thank you. Hope you remember what I said on 27-Nov-18 that Nifty at 10600 is looking very strong and at the time of writing this email on 29-Nov-18 Nifty is at 10824.25.

Nifty 29-11-18

Here is the image of my email on 27-Nov-18:

Email dated 27-11-18

This is good – but what next?

Now Nifty has reached a point where it gets difficult to guess where it will go. So the best way out is hedge your directional trades too.

See this testimonial of the Nifty course directional strategy – where a trader learns to hedge a directional trade:

Results may vary for users

Rs.12,500.00 profit is a single trade on just 2 days on 1 Lakh margin block. 12.5% ROI.

Hedging is a beauty – it saves you when you are wrong and it keeps you strong when right. And of course if you want stay away from trading direction you will also learn the non-directional strategies in my course.

Naked trading is dangerous, it can ruin your wealth. You cannot win every-time – when you lose it takes away whatever you made in last few trades. For overnight protection hedging is very important.

Good news is India VIX is falling down after being near 19 in last two months.

You can see India VIX here. Please note that India VIX will change when you see. When I was writing this post it was near 17 falling from 19 a few days back.

This means that Nifty will become more stable now if India VIX does not increase.

Let us hope for the best.

Do you see India VIX and trade or you just trade on hope? Do write in the comments section below.

Traders who short options profusely have a misconception that over 80% of options that are traded expire worthless. Let us see option chain for Banknifty expiring on 22-Nov-18.

Option Chain Banknifty 22-Nov-18

Source: https://www1.nseindia.com/live_market/dynaContent/live_watch/option_chain/optionKeys.jsp?symbolCode=-9999&symbol=BANKNIFTY&symbol=BANKNIFTY&instrument=OPTIDX&date=-&segmentLink=17&segmentLink=17

Please note that the options colored in yellow are all In The Money (ITM) when this screen-shot was taken at 1.02 pm on 19-Nov-18.

So lets use some logic. Suppose even if 80% of the call options that were traded for this expiry, expire worthless – in that case 80% of the put options will not expire worthless and will be In The Money (ITM) on the expiry day.

Therefore its a misconception that over 80% of the options expire worthless.

Another interesting note – can you see that at the bottom its written – Note : 10% interest rate is applied while computing implied volatility. So it looks like to keep the calculations simple to arrive at the price of options. Implied volatility is one of six inputs used in an options pricing model. The inputs used in an options pricing are known as Option Greeks which you can find in this pdf file. Download and read.

Yes it is a fact that most professionals, high net-worth individuals mostly sell options to take benefit of time value and the thinking that 75-80% of options expire worthless, but that does not mean all of them expire worthless. It depends on what options you have sold.

There is another reason high net-worth individuals sell options – can you buy any option worth a crore knowing very well that one crore may become ZERO within few days/hours? Putting that much money at stake to make money is very foolish – so they mostly sell options.

Fact is naked selling or buying options, both come with risk. A trader must learn to manage risk.

For example selling options as a measure of covered calls is also ok, still the number of stocks must match the lot size of the option otherwise the trade becomes a bit risky. Covered calls is selling naked options against stock holding in your demat account. Please note have not said trading account. Well a trading account is used to place buy or sell orders in the stock market. The demat account is similar to a bank where shares bought are deposited in, and where shares sold are taken from out of your demat account.

And buying options are better used as married puts to save losses from stock crashing. But its very important to know the loss that may arise if the stock doesn’t crash. Married puts are put buying to save losses due to a crash in your share holdings.

At least in the above examples it makes sense to sell or buy an option but just selling naked options or buying naked options is very risky.

Sellers sell option thinking 75% options expire worthless and buyers buy options thinking option buy is unlimited profits. Both of these are wrong.

Writing covered calls is a good strategy for high net worth individuals who have a lot of stocks in their portfolio, but risky for traders with less stocks.

In India not much research is done on how many options that are traded expire worthless but research has been done by OCC – The Office of the Comptroller of the Currency (OCC) is a division of the U.S. Treasury. A research done in the year 2015 by OCC found that options held and allowed to expire worthless till expiry was 21.7% only. Plese note that in US the volume is very high in options trading. And moreover US traders are more educated than average Indian trader. So I am sure the data must be same in India too.

I hope you understand an accurate data suggest that only 21.7% options expire worthless. Please note this data is combined data of Calls, Puts, Index and Stocks.

Even If 75% of Options Expire Worthless – The Data is Not Correct

Let me start with open interest (OI). A lot of traders look at open interest (OI) to decide the options to buy/sell, but what they do not know is that open interest (OI) keeps changing every minute. So let us take an example.

On 29-Nov-18 the November 18 series options will expire. Assuming that on 28-Nov-18 (one day prior to expiration day) open interest (OI) was 150 and on 29-Nov-18 the open interest (OI) was reduced to 50 and with time as the expiration time comes closer it gets reduced further. This means that a lot of options DID NOT expire worthless but were CLOSED. Note that on the expiry day only those options expire worthless or remain in the money (ITM) which were left to trade on the last day of expiry. This means we are measuring only a portion of the options that expire worthless of the total options traded. This clearly means that whatever percentage of options expire worthless is a flawed data.

So people who claim that over 75% of options expire worthless either do not know that they are only talking about a portion of options traded or just want to hide this fact.

Fact is that a high percentage of the open interest (OI) that remains to be traded or were not closed until expiration day expires worthless. This is a very different number than the total open interest right from the day the trading began in that expiry.

After I sent this post as an email to my subscribers someone wrote me back that only 50.02% option expire worthless:

I can understand his thinking. Call options – any option strike above the current strike on expiry day expire worthless and any strikes below the current strike expire in the money, and vice versa for put options. Well this is the common belief. Fact is something else.

Note that only those options are counted that were not closed on the expiry day. It is not just the strikes but open positions that did not get closed and expire worthless are counted.

Say for example someone closed their position at 0.50 and that was the last option trade on that strike – then it will not be counted.

Lets assume an impossible but a technically correct thing. Lets assume in Nifty on any expiry day if everyone closed their option trades anytime before the markets close, then 100% of options will be considered NOT expiring worthless neither expiring In The Money. Its just that all options that were traded were closed.

Note: This is part of my newsletter sent to my Nifty Course subscribers only. Some part which are part of my strategies may not be posted here.

Date of newsletter: 13-Nov-2018

See India VIX:

India VIX 13-Nov-18

India VIX from some strange reason is not going below 19 even though Nifty to some extend has stabilized since last few days.

I would suggest stick to conservative strategies in my course.

Either Nifty or Bank Nifty conservative strategies.

If you are a stock trader you can try conservative strategies in ITC or HDFC Bank – they are great candidates for both the conservative strategies. The bank nifty conservative in Nifty is a breeze. Easy money 🙂

If India VIX is high its always better to be seller of options.

If you have not done my course you can contact me and ask the details.

Before I say anything please see this:

Here is the chat in text:

Trader: Sir today I paid the money for both course. Now advise me how to trade in options with safe guarding capital amount. Genuinely I tell about myself I am in Market since 1997 but single pie I haven’t earned anything. The examples what you are saying in your mail’s all I experienced in my entire 20 years time.

Now with your guidance I may get change my trading pattern. Guide me properly.

Me: I have sent you three emails please check.

You have not earned a single pie but have you lost? If yes can you please tell me how much?

Trader: Yah! Lost almost Rs.20.00 lakhs in my 20 years experience something on my own decisions and something on others advises. Now I stopped all. I want to start a fresh beginning.

Me: Sad… Thousand times and it’s you to be blamed not anyone else. Had you just kept that money in liquid funds your money would have be at least 50 lakhs by now.

Trader: Yes Sir I agree.

Me: Anyway now start reading the course.
=======================

Though he did not tell in details what mistakes he did, neither I wanted to ask because its not that 20 lakhs that matters – what matters is 20 years that has gone down the drain. 🙁

If you do some math 20 lakhs in 20 years is loss of Rs.8333.33 per month. 20 years back it was 1997-1998. In those days Rs.8333.33 per month was considered a high salary. This person lost that in stock markets.

If you read the mistakes I did and the common mistakes of stock market investors you will know some of the mistakes he may have done. Fact is if you are reading this you also may be doing some of the mistakes now.

If you stop doing these mistakes at least you will stop losing huge amount of money.

The problem with the above kind of investors is that they are not wiling to learn. They think its a waste of time learning online, reading books, or doing a course. Agreed doing a course will cost a small fees but it can help you make better trading and investing decisions. This small investment in learning to trade is better than losing lakhs in your entire trading career.

If you are not willing to learn at least trade with very small amount. This will keep you in the game for long. I have seen investors trading with huge capital as soon as they win a small amount in any one trade – the next trade they want to hit a sixer (make a huge profit) with a huge amount. Unfortunately that one big trade ends up cleaned bowled (in a big loss).

Then they do another mistake – pay the tip providers. If a tip provider is good they will not employ marketing people to call you and ask you to pay for their services. In fact it will be other way round. With word of mouth they will get many clients a month. They know that a client will be their client for two months only – so they keep doing their marketing.

Do not do the mistakes written in the pages I have linked above, start small, research well and stick to a strategy that works well for you. Do not try to experiment something new with a huge amount unless you are successful 70% of times and have taken at least 10 trades.

Even if you want to increase your capital in trading, increase gradually. Like one lot each month. Do not put all your money in one trade. Hedge properly and keep an eye once at least in 2 hours in the trade.

Hope you become a good trader if you keep the above in mind.

Though it looks easy – buy and option/future and sell it at a higher price looks easy – fact is trading is one of the most difficult profession in the world. Actually it is not that difficult – your expectation makes it difficult.

I read quite a lot of newsletters on stock markets – mostly from USA traders. But there too it looks like traders’ mind-set is same as here in India – double money every month or something like that. See this newsletter from a Forex Trading Software provider I got today morning:

After reading the above I immediately deleted the email.

Let me warn you in bold & capital letters – THERE IS NO SOFTWARE/PERSON/TIP PROVIDER/ALGO TRADING SYSTEM THAT CAN DOUBLE YOUR OR THEIR OWN MONEY IN ONE MONTH – IN FACT LET ME BE EVEN MORE STERN – THERE IS NO SOFTWARE/PERSON/TIP PROVIDER/ALGO TRADING SYSTEM THAT CAN DOUBLE YOUR OR THEIR OWN MONEY IN ONE YEAR.

Read that again and keep that in your mind forever. I also offer a course but nowhere in my site or on whatsapp or on a phone call have I said the above. You can read my Nifty course and Bank Nifty course page to know yourself what you can achieve in one year.

After doing my courses you can make anywhere from 20% on the lower side and 40% on the higher side in one year. Some testimonials in my site are mind-boggling but they are mostly because the trader took some risk slightly different from my strategy – means changing the strikes or deviating from the strike selection to buy or sell as per the guidelines given in the course. This can be done but only after doing my course and getting some experience trading them. I do not take much credit for the mind boggling results in some trades given in the testimonials. 70% of the credit goes to the trader – but it was possible because they learned to hedge from my course and took a risky trader with confidence.

What I am trying to say is that the biggest roadblock that is negatively impacting your trading results is that you are expecting too much from the stock markets. This is forcing you to take huge risk in trading on top of that you are not wiling to hedge.

These are some roadblocks that you need to remove to become a better trader:

Please note that failure to become a good trader has many causes however I will write some of the major reasons here:

1. Inability to plan well:

Right from the very beginning the planning and execution is bad. You ”think” that a stock since its moving up will go further up and buy a call, or seeing it go down buy a put, or buy both. Only to see nothing is working.

Did you ever ask yourself why did you do this trade? If the reason is because you though – then the planning is wrong. Just because you think the stock will go up or down, it will not behave that way. Stock will behave on demand and supply.

2. Inability to manage risk:

Traders do not know whether to buy one lot or two lots or more. They do not take a second to decide how much to go for. Most of them buy with all the money in their trading account. Only to see all the money becoming zero. How much to invest in a trade is a very important decision – you must take that with proper thinking.

3. Trading something not suiting your lifestyle:

Most newbie traders choose intraday trading over positional trading. It’s interesting to note that most of them have a day job still they prefer intraday trading. You cannot execute both at one time. You have a job and some work associated with it so how can you do intraday trading. Does the nature of your job allows you to trade stock markets while on the job? If the answer is no you must take positional trading only. Positional trading involves only 5-10 minutes a day which you can easily take off time from your office. Go out of the office and trade on your mobile and go back to work. Day trading is not for busy people – it’s for people who have a night job or people who have a business and can afford to take time out from it. You need to pick a style of trading and stick to it. I have known traders who try a lot of things without much success.

4. Less Capital:

This is also a big roadblock. How can you make money from very small amount? You cannot turn 1000 into 100,000 in a year. Just do not believe what you see in those, millions of telegram channel. They do not show the losses. Every option that you buy will not convert to gold. You need money to short options as well sometimes. For that money will be required. You cannot become a full time trader with 50,000 in your account. At least 10 lakh is required to become a full time trader.

You must start trading with at least 1 lakh capital with proper hedging and risk management.

5. Not trading with money you cannot afford to lose:

You should not trade with money you cannot afford to lose at least for next one year. Well up to 20% is fine but not more than that. Some traders trade with a big portion of their net worth to make too much money. And when they lose, they get into major financial problems.

Note that if you are trading with money you cannot afford to lose it will severely impact trading psychology and you are likely to do mistakes. A free mind can never trade. If you trade with money you need to pay your bills you will force yourself to trade. Forcing yourself to trade is a bad trading decision. You will panic every time the market goes even slightly against you because you cannot afford to lose the money. In panic you will go against the rule of the trade and press the stop loss button.

6. Taking Tips:

After losing money trading themselves traders turn to tip providers. This is the best way to lose double the money. You will trade in more lots thinking the person giving tips is awesome plus you will pay a monthly fees. You lose money in both your trading account and by paying to tip providers.

7. Not learning to trade:

Some people hate reading books or researching online. To become a good trader you must learn something every day so that after a few months you know a lot about trading, planning and risk management. This is one business where you cannot do a mistake even by mistake. One simple mistake will cost you money. So you must keep yourself updated.

New traders do not know how to trade the earnings season. This post will help you to trade the earnings season. If you do not know when the earning season comes – they fall end of fiscal quarter. This means that earnings seasons fall in January, April, July and October. Corporate earnings are released to the public during earning season – stocks move a lot during this season at least for 5 trading days after the result is out.

If you are a momentum trader you will find earning season to be a great time to enter trades. You can take the benefit of gap up and down in reaction to quarterly earnings reports. Especially the mid caps will give you great opportunity to trade. On top of that finding direction gets easy as well. If the earnings are as per expectation of the market the stock will likely go up, if the earnings are not as per expectation of the market or bad, the stock will go down. You can take trades accordingly.

There are plenty of stocks to trade so even if you miss an opportunity you will get another soon.

Why There Is Huge Volatility During Earnings Plays

Fact is that there are more speculative traders than non-speculative traders. Speculative traders take their positions much before the result is out. They just go as per the market expectation – this is the reason you will see that the stock starts moving a few days before the result is out.

Most of the speculative traders get the direction wrong and pay a price. Stops are hit and the stocks take a different direction. This is the reason sometimes stock does not go in the expected direction of the results.

Please also note that stocks gets too volatile during earnings season because everyone including long term investors, short term investors, swing traders and derivative traders gets active in a stock. Big players also enter here to make some money. Sudden volume increase makes the stock volatile.

What Strategy To Deploy To Take Benefit During Earnings Plays

Since the stock may move in either direction a long straddle may be deployed. A long straddle is when a trader buys both calls and puts to take benefit of the volatility. But note that long straddle may get risky if the stock does not move. Also a drop a VIX of the stock after the result is over may drastically drop the options premium too. This may also cause the damage. Therefore its better to hedge your positions. Still if you want to trade the long straddle then its better to reduce the lot size to take less risk.

Its better to enter stocks that are historically known to make 10% move the result week. Once the result is out these stocks will move 8-10% in one direction and then depending on the situation change the direction, stay there for some time or reverse direction. You can take benefit of this move and make some good money.

Some stocks move more than 10% – keep moving in the same direction for weeks or months. However if you are a trader you must take your profits out and exit the position and then look for another opportunity.

Earning season comes around four times a year, and usually lasts for 2-3 weeks. So you have enough time to make good money during this time.

Other Notes to Keep in Mind During Earnings Season