Today 18-Apr-2018 was a non-trending day for stock markets. See this pic:

Nifty on 18-Apr-2018

See the pic clearly. Till 1.45 pm all intraday traders must be long trying to make quick bucks. But then what happened?

STOP LOSS

I can bet ALL TECHNICAL INDICATORS – those 5 min charts, 15 min charts, 1 hours charts, candle sticks, bollinger bands, Moving average convergence divergence (MACD), and any other indicator that I am missing must be giving only one signal

GO LONG

And then when the trader goes long thanking the technical indicators, the software that they bought for a few lakhs or paying a monthly fees goes bust (fails) all of a sudden.

Can you kick your software? Are they to be blamed? NO. Then whom to blame? Yourself.

What makes you believe that the 5 min charts that only gives signals based on last 5 minutes will be correct for the next 5 minutes? Or one hour chart giving signals based on last 1 hour will be correct for the next 1 hour.

What about a stock giving great return for the last 1 year? Is there a gurantee that it will give the same return in next 1 year? NO.

Technical Indicators just give signals based on whats happening NOT what will happen.

Stop spending money on software producing beautiful charts. If you still do not believe me and want to stick to charts moneycontrol makes free charts.

Here is ITC Technical Chart:

ITC Stock Chart

Source:
http://www.moneycontrol.com/india/stockpricequote/cigarettes/itc/charts/technical-chart-analysis/ITC

In this post I will discuss some points on how to avoid huge trading losses that most traders suffer almost everyday.

Forcing Yourself To Trade:

This is a BIG Mistake. How many times you have forced yourself into a trade and lost huge money? I am sure many times. And why you do that? To make money or to lose money? If you are losing money then why you force yourself to trade?

Stop Forcing Yourself To Trade

You are in control of trading – neither brokers nor tip providers (if you are taking tips and wasting your money) are forcing you to trade then why you do that on the first place?

The market will do what most people will do. I mean if on a certain time there are more buyers than sellers then markets will go up, but if there are more sellers than buyers, then markets will go down. That’s the reason you see ups and down in Nifty in a single trading day.

You do not have control over the stock markets but you have control over your finances. So focus on your trades and control it. Taking a trading decision itself is as important as doing the trade. If your research is not complete do not trade.
Try to keep your stop losses to half or less of your profits. Read this article to know more.

Do Not Show Ego To Stock Markets

When we do something wrong as humans we are not willing to admit. We try to prove ourselves right next time and increase our trading capacity thereby increasing our risk. By increasing the risk we forget that losses can also increase. But we only think about the profits not losses. The result is obvious. More loss.

Our ego is a huge barrier to success in trading.

So how do you not show ego to stock markets? Do not increase your risk capacity to do revenge trading. You mat end up losing more money.

Do Not Trade With Money You Cannot Afford To Lose

You must trade with money that you do not need for at least next 6 months else you will be forced to make money and you will trade in panic.

Trading in Fear Results In Losses

Imagine your fingers tumbling while putting a trade. Do you think you will ever make a profit?

When you trade with money you cannot afford to lose you will stop out as soon as you see a loss. MTM (Mark to Margin) is almost guaranteed in every trade. In fear when you see MTM you will take a stop loss. Now combine 10-20 small stop loss + brokerages. This is a huge loss.

Trading losses SHOULD NOT Effect Your Net Worth

Do Not Add Money To A Losing Position

This is a very common practice among traders. In hope of a recovery they add trades to a losing position to average out and come out as a winner.

This is a Trading Blunder

The longer you are in a losing a trade, the bigger will be your losses. Therefore instead of averaging out and increasing the risk you must stop out of the trade. If you average out you will end up taking an even bigger loss.

It should be the other way round – you should be adding positions when a trade is going in your favor.

Plan Your Trades Well – Stop Loss and Profit Target Must Be Known Before Taking The Trade

I think the sub-heading is self sufficient. Most traders decide stop loss and profit booking but when they see a trade not going in their favor or even going in their favor they change their plan. This results in huge losses and small profits. This is very common among traders all around the world.

I hope the above post will help you reduce your trading losses.

Conservative Nifty Option Course

You can do my Conservative Nifty Option Course and learn strategies which will help you generate a monthly income without ever taking a huge loss. The losses are well protected by hedging. Whether you are an option trader or a future trader you will learn how to protect your losses and keep making profits most of the times. You can read about the course here. Fees is here. If you want to know anything about the course you can contact me.

This is one of the most common question I am asked by most traders since I started this website in 2015. Is It Possible To Become A Full Time Stock Market Trader?

Read this article to know if it’s possible to become a full time stock market trader. Basically if you are a good trader and making consistent profits then yes its possible. By consistent I mean in 6 months of trading you must be in profit of at least 10%. Which means if you can make over 20% a year you can become a full time trader, else its better to continue your job and trade.

What You Need To Become A Full Time Trader?

1. Read above I have already said that you should be able to make at least 20% per year from stock trading alone. If you pass this criteria then you can think of being a full time trader.

2. You must have a work ethic. You must be thinking yes you have. Work ethic is setting a proper time for different jobs related to trading like research, plan, risk management etc. There are lots of traders who trade Intraday trading without any plan and think they have a great work ethic. But its not. How many times you trade in a month is not important. What you are trading, how you are trading, your trade plan is important.

3. Trading needs a right mindset. Lots of people trade on hope that one day will come when they become successful trader. They keep losing money trading on hope. This is not a right mindset. Right mindset is knowing very well that trading on hope never makes money.

4. Patience is required. Not every trade will make money – this the trader should know and not panic unnecessary when loss is struck and not do revenge trading. Some traders give up after losing money. But those with patience keep trading but you should know that your success rate is good over time.

5. Finance is required: With 10000 to trade you can not become a full time trader. I do get questions from trader who have only 10k or 25k to trade but want to become full time traders. Once a person called me and said one of his friends is making 25000 from 10000 since last 2 years. I asked him then why he is still trading with 10k only, why he is not increasing the amount? He could not answer my question. Either he or his friend was lying. This is a myth that 10% or more per month is possible from trading.

Since 2-3% per month is possible, you must have the capital to trade so that you can take out money from the trading account every month to run your house.

If you have done my course and making 2-3% a month, increase your capital to trade to make a full time income.

6. Leave some money to take the compounding effect: You should take some money out if you have become a full time trader to run your family and leave some to get the compounding effect to make more in time to come else you will have a constant income. Just like your salary the monthly income from trading should also increase.

Conclusion:

Becoming a full time trader is not difficult if you can make at least 20% CAGR (Compound Annual Growth Rate) on your trading account and keep increasing the trading size by investing more or compounding. Once you are comfortable with your monthly profits you can become a full time trader. If you do my course you will learn strategies to make more than 20% CAGR (Compound Annual Growth Rate) trading options.

Bad news of PNB, SBI and Union Bank of India, the war between world’s top two largest countries US and China over trade tariff leading to Japan’s Nikkei, Dow Jones and S&P 500 plunging 5-6 percent each will certainly have an effect on our stock markets as well.

Now based on this opportunity market pundits will start telling different stories in business channels and news portals online. Some will say go short Nifty might see 9600 in days to come, some will say go long Nifty will bounce back soon. Whom to listen?

Can any of these so called experts pin-point the immediate bottom? No. Why? Why these things happen? Because they see different technical indicators. Problem with too many technical indicators is that they give different signals.

Every technical indicator will tell a different story. Moving Averages will show something, Pivot Points will say something else, and all these indicators will say a total different story:

RSI, STOCH, STOCHRSI, MACD, ADX, Williams %R, CCI, ATR, Ultimate Oscillator, ROC, Bull/Bear Power, etc.

Why these technical analysis tell a different story? Because they all look at different things so obviously all will draw a different picture.

Read this – Technical Analysis Does It Make Money.

This is the reason traders lose money – either speculations, or tips, or I think so but it did not happen 🙁, or some technical indicator or some trading software, algo trading – the list is endless.

So who makes money? A person who keeps things simple – does not goes for these fast indicators and speculations. Keeping things simple always makes money in stock markets. And this is what you will learn in my course. And if anything goes wrong then hedging takes care that losses are arrested.

You can enroll for my course here and invest in leaning. Remember education will help you for life.

All traders see losing days. I do not think there is a single trader who has never lost while trading options/futures or equities. If you take too much stress then trading is not for you. These days will come for sure, you cannot avoid them. If you get frustrated due to losses you will start doing revenge trading – revenge trading is a sure shot way to lose more in the stock markets. Even if you succeed one one revenge trading it will not bring back all the money 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. You can do my course and learn hedging in a proper way plus you will learn strategies to make a monthly income.

So How To Bounce Back From Bad Trading Days?

Do Not Focus On Intraday Results – Your Monthly/Quarterly & Yearly Results Matter

Traders keep a constant watch on their trades. This is a BIG mistake. Constant watching is actually dangerous for trading. When you watch constantly you are most likely to take bad trading decisions when the trade goes against you. What occurs in one second or one trade is not a final result and dopes not make you a good or bad trader. It takes weeks or moths to know how you are as a trader. If after three trading months you are in losses, then you need improvement. If you are in the green after three trading days, you are a good trader – but your profits should far exceed current inflation of your country. In India current inflation in Feb 2018 is approx 5%, so your profits in a year of trading should exceed three times inflation which is more then 15%. If you are not making more than 15% a year then you still need improvements. Ideally a good trader is someone who can make at least 25% a year.

If you have a back up data of your trades then check your bad trades and see of they all have something in common. If yes you need to work on that weakness. In fact you should check the good trades as well and if you see that they have something in common then you must try to repeat those trades or trade them more often.

Do Not Keep A Week Mind & Body

A trader needs to be healthy. Any botheration about your heath will show on your trades. If you are having a severe headache do not trade or if you are not feeling well do not trade. For that you need to eat healthy food and exercise for half an hour everyday.

Physical exercise like running about a kilometer is one of the best ways to relieve stress after a losing day. As a trader we need to sit in front of our laptops from 9 am to 3.30 pm (life it tougher for Commodity & Forex traders). This is bad for both your physical and mental health. Note: The strategies in my course are such that when you trade, you need not monitor them continuously every second. You can set them and forget them till the next day. Monitoring twice a day is more than enough.

For traders who constantly keep a watch on their trades – trading is time-consuming, mentally and physically exhausting. If they exercise it will keep them healthy. A traders needs to follow a discipline in their trading as well as health.

Do Not Keep A Constant Watch On Your Trades You Will Most Likely Take A Bad Decision

Need I say anything more on that? How many times you have taken a stop loss against your plan just because you were watching your trade going negative. We are humans and its obvious that if you see making a loss you will sure come out of it only to see that the trade went in your favor just after you took a stop loss. There is no point in repenting later. Mistake was done because you were constantly watching your trade.

Its better to stay away from you trades for some time. Let the markets decide the result of your trade – you have no control over it so why watch continuously? You may over trade and destroy your wealth.

End Of Day Study Your Trades

If you made a loss you need to study why you made a loss. Write it down on a peace of paper. Never repeat that mistake. Please keep in mind that not all losses are because of bad trading decisions. Some can be good trade but bad luck. You need to figure out mistakes from bad trade even if it made a profit.

Study Your Past Win Trades

Studying the winning trades are also important just like studying the losing ones. They will help you know exactly what you need to do in order to replicate that success.

What You Can Do If You Are Losing Money Trading Options

If you are losing money trading options and on a revenge trading path then you are on a path of financial suicide. Do not get on this path of financial destruction. Learn conservative trading. Learn to make small profits first like 2-3% a month then try to make 5-7% a month. Both of which can be learned in my options course. Hedging will ensure that your losses are capped but profits soar.

When a trader begins option trading they are bugged by payoff charts and diagrams. They try to know everything possible under the sun and try to make money. This is mainly with highly educated option traders.

By educated I mean traders just passed out from colleges who have access to smart phones etc. No there is nothing wrong in reading about options or futures or payoff graphs, Greeks etc., but having a wrong assumption about it is wrong.

What is a Payoff Diagram?

A Payoff diagram is a graphical representation of the potential outcomes of a option strategy. What can be the profit or loss and sometimes the success percentage of the strategy. It gives a visual representation of the possible outcome of a strategy if played at that time on a stock or indices.

A lot of Option traders rely on these payoff diagrams to plan their trades. It also helps them to evaluate how a strategy may perform over a range of prices, thereby gaining an understanding of potential outcomes.

But is a payoff diagram really helpful? I will discuss in this article.

Here is an email I got from one of site visitors:

The Email:

Hi Dilip,

I want to deploy more capital and earn consistent income from trading option strategies. And I am under the impression even after a trade is placed, you need constant adjustments to minimize your loss or maximize your profits. And for that you need knowledge of Greeks etc. Otherwise adjustments will be difficult to do.

Am I correct ?

Thanks.

Read this article to see how by just investing Rs.10,000 could have made any of your senior relative, one of the richest man in India. I am sure at that time the payoff graphs for investing in ITC and WIPRO might be same as investing in any other company – one straight line – which is same as buying any stock. But payoff worked wonders for these two stocks only – for the rest payoff charts and diagrams failed.

I know you must be thinking that payoff does not work for investing – it’s for options trading only. You are right but I am trying to give you some logic.

Here is the payoff diagram of the most dangerous trades done intraday/positional everyday by day & positional traders – the ATM Call or Put option buy according to their views:

The Long Option Payoff Diagram/Chart:

Long Call Option Payoff Diagram

The chart says: Limited Loss Unlimited Profit

But what is the FACT? This happens rarely – 80% options expire worthless.

But still a lot people rely on payoff graphs and take a trade. The result is known to them only after the trade is over.

Please remember – once the trade is over the stock takes over. Its now in the hands of the trader to take a profit or loss anywhere he likes. Now a payoff diagram is a trash/worthless.

Let me take another example. Make a payoff diagram or chart for Nifty Future buy and sell.

Both will be same but one payoff diagram will fail.

Don’t go for things that will confuse you. Blindly following anything is a mistake in stock trading.

Does Adjustments Work?

Fact is traders who keep adjusting their trades according to payoff charts or diagrams or any of the Greeks are bound to fail and make their brokers rich.

When automated trading has failed badly in the US how on Earth adjustments manually will work?

Read these articles to see how Automated adjustment trading has destroyed wealth:

The 7 worst automation failures

High-frequency trading and the $440 m mistake

That’s $440 million gone.

I have never seen a payoff diagram ever in my life. I have never adjusted a trade. Its either profit or loss for me – but I never panic and do any adjustments to a trade as I know all my trades are properly hedged – so why bother?

Adjustments Will Cost You Brokerage

Option Greeks will change for every 50 points move in Nifty. So for every 50 points move the trade will exit one position and get into another one. This is not free. He has to pay a brokerage for that and is it really an adjustment?

By shifting the trade he either took a profit or loss in the earlier trade. In most cases its a loss.

Basically he took a loss in one trade and entered into another trade. Where is adjustment?

Adjustments Will Give You Stress

As soon as the stock moves away – the trader will check option Greeks ans the stress follows. What to do now? Adjust? Ok done. Stock moves again. Stress for the trader. What to do now? Adjust. 🙁

While the broker will bless him a lot. 🙂

Adjustment is a psychological myth for a trader. Its the most foolish trade in the world.

Adjustments Will Cost You Brokerage

Conclusion:

According to most Technical Analysis Indicators, Nifty is now in a sell zone.

Moving averages for 5, 10 and 20 says STRONG SELL, however 50 and 100 says BUY.

So basically you can go short on Nifty for the short term. Success rate is 50%.

Why am I saying only 50%? Because this is what are Technical Indicators.

Technical Analysis Indicators Change Every Hour Every Day

They may also change EVERY Minute, Hour, Day or in a jerk due to the news.

We are not computers that we will keep automatically checking Technical Indicators every second or read news every minute. We have better jobs to do than to stick to our monitors and keep trading and keep changing our positions.

That’s simply not possible.

Therefore it is always better to be a non-directional trader.

What is non-directional trading?

Well before I explain that let me tell you something. 80% of all directional options trades expire worthless. Rarely anyone buys In The Money Options as it is equivalent to futures trading, except loss is limited but In The Money Options are very costly so most traders buy Out of Money Options. OTM options 80% of them expire worthless.

Hope I am clear now – this means all the money becomes ZERO.

Non directional trading is different.

Irrespective of a directional bias the trader takes a call. He does not know if the stock will go up or down but he still makes money.

Yes this is non directional trading. Whether the stock goes up or down the trader makes money. Since they do not have to take a directional call they are TENSION FREE unlike directional traders who have to take a call based on either tips, TA, speculation or news.

For how long will they make money if only 20% chance is in their favor?

Over the years, I have learned how to exploit this non-directional trend and put the 80% on my side, buying and selling options in different trade structures allowing me to create income streams for my clients regardless of the overall market conditions.

This is called non-directional trading and is meant to profit from the way options are made. Actually for what they were made to profit from and of course hedge them with options.

You can also learn non directional trading and profit 80% of the times irrespective of the direction. In fact even after 100 years if Nifty is between 10000 and 11000 you will still make 3% average a month from these trades.

You can do this course and learn non-directional strategies.

Today (Friday, February 23, 2018) is the first day of Mar 2018 derivatives (F&O) expiry and I am sure you will start with a “new plan”. Most speculative traders start their speculative strategies today. So what is you plan? Buy which Call or which Put or sell which Call and which Put? May I know why are you doing this trade? If your answer is “I think so”, then sorry to say you are gambling, not trading.

How many times you have lost money because you took a trade based on “I think so?”.

You have only 34 days to be correct (Mar 18 expiry is on 28-Mar-2018) – but what if not? I know then you will try Apr 18 expiry, to recover the money lost in May 18 expiry.

How long will you keep doing this? Until you retire?

Almost everyday I keep getting calls from traders who have lost money. No not almost everyday – now its everyday.

Yesterday only someone called and said he lost 17 lakhs. 🙁 Here is one trader who lost 3 crores.

Its sad that out of greed people are wiling to lose money, but are not wiling to learn.

If you will not learn you will either speculate or take some useless tips paying them money or plain do frustrated revenge trades.

DO NOT DO THIS – YOU WILL HARM YOURSELF.

As an options teacher I can only tell you the truth and try to save your money but ultimately its your money, you are authorized to take a call.

Hoping for your trading success.

If you are busy and cannot monitor your trades every second then you can do my conservative option course. Its very easy to learn and trade.

Fear is your biggest enemy in trading. In this article you will learn how to convert your fear into profits.

New traders start with greed but no fear. After a few losses their greed turns into fear and either they stop trading or they reduce the trading size quite considerably.

Stock trading is a calculated risk, people who take calculated risk almost always make money – those who do not take a risk or take too much risk almost always lose money.

If you fear trading you will never trade and never make any money or take a stop loss in panic losing money. Fear is responsible for a lot of mistakes new traders make.

Fear is of three types:

These are some tips to manage fear and become a better trader

Your past trades are your best teachers. Maintaining a trading journal is very important for a trader. If you will not maintain a trading journal you will forget your past trades and will never remember why you took that trade. Maintaining a record will help you to know which trades to take and which ones to avoid. If your confidence level is high you will not have any fear in trading.

If you do not have a record you will never know the probability of a trade and you will always fear trading.

No strategy wins 100% of the times, but any strategy that makes money 80% of the times and loses a small amount is considered a good trade. Positional trades needs hedging to make sure losses are small in case there is a gap opening against the trade. So you should learn hedging. You can learn hedging in my option trading course.

Once you know that the probability of success is 80% and losses if any will be very small then you will never fear trading.

Problem with new traders is that they do not know what to trade and end up speculating. Speculating is also one of your biggest enemy in trading. 100% of speculators lose money.

If you know the probability of success in your trades then the fear will vanish automatically. Jus5t make your set ups and ignore everything else. However if you cannot assign probability of success to a trade you are gambling not trading.

Markets move up and down but you must be well prepared for any situation. Preparation gives you confidence and eliminates fear. There should be a research time, there should be a time to take trade and there should be a time limit to take profits out. If nothing is planned you will speculate lose money.

Why you are taking the trade is more important that what you are trading.

If you know that a strategy works for you the your confidence level will increase you will not fear anything. By 9.15 am you must be ready with what to trade and wait for the opportunity.

You must also know how much you’re willing to risk on each trade, what direction you want to trade – long or short and why.

You must be ready with these questions before your trades go live:

1. What will I do if the stock opens weak?
2. What will I do if it opens strong?
3. How much money you are wiling to risk if what you thought did not happen. For example you may have thought about a trade if the stock opens gap up, but actually opens gap down etc.
4. If no.3 happens will you take the trade or not?

Being greedy and keeping all eggs in one basket just because you made money in last trade is WORST MISTAKE OF TRADING.

See this trader. He made Rs.19 Lakh in a few days and then lost Rs.36 Lakhs:

Rs.36 Lacs Loss after making a profit of 19.5 Lacs

So basically you win in a trade and lose control on risk management – greed takes over and you lose money.

Do Not Forget Risk Management – this will control both fear and greed.

Let me take an example. You think stock XYZ will fall and you shorted the stock with full margin in your account – after that you will tumble with fear. Even if stock moves up 1% from there you will fear and take a stop loss.

Later to find after taking the stop loss, the stock fell down as you had assumed. Had you managed your risk well, you may have waited for a reversal.

If you do the above mistakes you can do my course and learn hedging strategies to trade without fear and proper trading plan. You will learn which strikes to trade, what to sell and what to buy, when to enter and exit out of the trade. Hedge will manage your risk automatically so the trade will not bother you much as you will learn how to manage risk. The risk is just 1.5% of the margin block. Success rate is 80%. Over a long period you will make money without much stress. You can enroll for the course here.