What Exactly is a Decent Trade?

A decent trade should yield you money, right?

Not necessarily so.

Am I crazy?

No.

So why am I saying this?

Am I not in the business to be in the green?

Of course I am, so let’s delve a little deeper.

As is slowly becoming clear to you, Mrs. Market is a schizophrenic. Her behaviour is mostly looney, and more often that not, she traverses an unexpected trajectory.

In the business of trading, there lie before you a set of circumstances, and your trading decisions are based upon these.

Thus, you outline your trade.

You plan the entry.

You plan the exit.

You define the reward : risk ratio.

You draw up a trade management plan, as outlined by your system. You preplan your response to all possible movements of Mrs. Market.

Can you do more?

No.

Can you predict Mrs. Market’s future behaviour?

No.

You have an idea about what she might do, based upon past behaviour, but does that make her future path certain?

No.

So that’s it, you enter a trade offering a high reward : risk ratio, based upon information from the past and a probabilistic idea about the future. A high reward : risk means that if there is a payout, it will be high in comparison to the loss you might bear if the trade goes against you. Something like 2 : 1 (possible profit : possible loss), or at least more than 1 : 1.

So what’s going to make your trade decent?

Just stick to your systematic plan, and you’ll have traded well.

Notice, no talk of any money here.

We’ve only spoken of sticking to our system-outlined trading plan.

We are not focusing on money. We are focusing on trading well.

Money is a side-effect to decent trading.

Trade decently, do the right thing, and money will follow as a side-effect, seen over the long run.

If your trade-management plan says you are cutting the trade below point X, and if point X is pierced by Mrs. M as she moves against you, well, the right thing to do would be to cut the trade.

So what if the trade didn’t yield you money?

It was a trade well executed, AS PER YOUR SYSTEM-OUTLINED TRADING PLAN.

What would have made this trade an indecent one would be if you hadn’t cut the trade below point X, irrespective of where Mrs. M went after that.

Why would the trade then be “bad”?

Because you didn’t follow your system’s advice.

You second-guessed yourself.

That means that you don’t have faith in your trade-management abilities, and / or that you succumbed to your emotions. You begun to hope that Mrs. M would start to move your way after piercing point X during her move against your trade direction.

If you did follow your system, you actually didn’t let any hope enter the equation.

Decent.

You had faith in your system, and did not second-guess yourself.

Very decent.

Such faith in one’s system is absolutely essential, and you’ll realize that as you start to scale up in trade-size.

Let’s look at the other part of your trade-management plan.

Let’s say that you decided that if Mrs. M moved in your directon, then you would stay in the trade till you saw the scrip giving at least one sign that it was stagnating. Only then would you book profits, upon such a signal from Mrs. M.

Assume then, that after entry there’s a spike in your direction, and you are in the money.

What do you do now?

Do you get greedy, forget about your trade-management plan, and book the trade? Would such a money-yielding trade be considered decent?

No.

Firstly, you got greedy.

Indecent.

Then, you forgot about your system-outlined trading plan.

Very indecent.

So what if you made money?

Sticking to your system’s advice would have given you the chance to make more, perhaps much more.

It is difficult enough to pinpoint a scrip which is about to explode.

Then, when you land such a scrip, the last thing that you want to be doing to yourself is nipping the explosion in the bud.

You nipped potential profits, even if you took a portion home.

Very, very indecent.

There you have it, people.

Use your common-sense, and, trade decently.

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Do You Believe in You(rself) ?

Still not hit the success button?

Suffering from an inferiority complex?

Market got you down?

Is it over for you?

Which brings us to the more important question : Do you believe in YOU?

Wrong English, I know, I know. Sometimes I misuse the language for effect. The effect is more important to me than how silly I look because of bad grammar.

Ok, so you want to succeed, make it big in the markets, blah blah blah.

Who doesn’t?

You obviously can’t last out if you don’t believe in yourself. Markets are draining, and tend to suck the living blood out of one’s body, so one needs to last. Market forces exhaust the system. It’s something about them, something electronic. This something consumes your stamina. So, no two ways, you need to last out. 20, 30, 40 years maybe…

I’m not saying it’s going to take you that long to succeed. For all I know you’re the next Jesse Livermore in a few years. Getting there is one thing, but staying there is another. Consistency. Maintaining success for many years in a row. That’s big. Something like that can be, and probably is, a trader’s lifetime goal.

It all starts with belief.

Baby steps.

First, weave a safety net around you. This involves the creation of a regular source of income to sustain your family’s basic needs. Such income needs to be independent of the market, any market. Your trading is not really begging you to earn your basic income. It can well do without that extra pressure. A comfortable slot for your trading to be in is when it can generate additional and bonus income for you. That’s the sweet-spot, and you want to be in it, with a comfortable safety net around you, free to trade the markets with no extra pressure.

Then, create a reliable system to trade the markets.

This can even take many years. I mean, some of us take seven odd years to recognize their basic risk-profile. Good, at least we are recognizing our risk-profile, because everything else is going to be built up on top of that.

As your system starts to perform, your belief in yourself gets stronger. Good going, stranger, now do humanity a favour and support others who are struggling to find themselves. In any way you can. It’s good Karma, and will help you further on your own path.

Then, you hit it big-time, your system catches some huge market swings, and you are there.

Now, other things start happening. Success brings with it its own entourage.

Remain on the ground, please. That’s how you are going to last out. Keep trading. Hitting the magic spot is not enough, you need to milk it as long as possible. Your new status of “successful” will bring many to your doorstep. The crowd wants to acquire the magic formula from you. People want your time. Deal with it, buddy. In a manner that still keeps you performing in the Zone, trade after trade. Also, in a manner that keeps you from hurting anybody’s feelings. I know, thin line, difficult to do, but you don’t additionally want the remnant emotional baggage of hurting people to affect your trading.

Apart from fame, there are other members in the entourage of success, and I’m just classifying them ad-hoc under the header “extra-curricular activities”. Yup, these will come your way. That’s part of being successful and famous. Well, do what you want, you’re a grown-up, nobody’s going to tell you where to draw the line. All one can say is, that if any extra-curricular baggage starts seeping into your trading, you’re going down Sir. Period.

Oh, where did it all start? Belief, right. Look where it can get you.

So come on, get up from your drawdown. Drawdowns happen. They are part of the learning process. The earlier they happen, the better it is for you. Now, you probably won’t let them happen when the stakes are big. When a future drawdown looms, you are prepared, and nip it in the bud. You don’t let it grow into an ulcer. That’s what your earlier drawdowns have taught you.

So get up and give it another shot.

All it takes is a bit of belief.

Mentally Speaking

The trader’s biggest enemy is…

…his or her own mind.

The good news is, that one’s mind can be trained … to become one’s friend.

Between these two sentences lies a path.

Some never make it.

For some, this path is arduous.

Other, more disciplined ones make it through.

However, that’s not the end.

Once there, one needs to stay there.

Emotions get in the way.

Fear. Greed. Hubris. Hope. Impatience. Insecurity. Despair …

… you got the drift.

Knock them out, people. Once in the market, stamp all emotion out of your (market) life.

Listen to your system. First make your system.

It doesn’t matter if it’s a technical one, or a fundamental one, or whether it is techno-fundamental, or for that matter funda-technological.

It is your system.

You have spent time putting it together.

You have lost money recognizing its pitfalls, and have tweaked these pitfalls away after they were recognized by you.

Since it has reaped you rewards, you have begun to trust it.

Stay with the trust. Don’t let your mind play tricks on you. It likes to.

Once your trusted system identifies a setup, take it. Period.

Your mind will suddenly switch on. What if this, and what if that?

Ignore.

Only use the mind’s intellect portion to perfect your system. That’s the friendly part for you. Together with it, you construct a system that is capable of identifying setup after setup, from one properly executable trade to another.

You see a setup, and you take it. No ifs, no buts, no what-ifs.

Similary, when your system identifies a stop or a target, and when this is hit, you are out of the trade. Period.

No procrastination. No waiting. No fear. No hoping. No greed.

No mind …

… from entry to trade management to exit.

Switch your mind back on when you have wound up your market activities for the day.

Switch your mind on amidst family. It’ll be fresh.

That’s the path between the two sentences at the top.

Here’s wishing that it’s an easy one for you.

The Cat that Survives Curiosity

So, what are the Joneses upto?

Or the Smiths?

Naths?

You know something, who cares?

You’re trading, right?

Fine, then just mind your own business, and focus on your return.

I mean, people, let’s just go beyond poking our noses into others’ businesses.

Don’t we have our own businesses to take care of?

Isn’t that enough for us?

If not, and if we start poking around, seeing what kind of return XYZ has made, or for that matter how many winning trades ABC has pulled off, well, we are doing ourselves a great disservice.

For starters, we don’t seem to have much confidence in our own trading system, if we’re poking around like that.

You should be pulling off the winning trades, you.

And XYZ’s or ABC’s performances should have no meaning for you.

They are trading according to their system. Let them be. What’s good for them is not necessarily good for you.

You are trading according to your system. Period.

Not minding your own business can seriously affect even a successful system which has temporarily hit a string of losing trades.

Random losses in a row happen. A winning system can well yield ten losses in a row, for example. Improbable, but not impossible.

Ask a coin, which functons at 50:50. On average, you’re flipping heads and tails equally. Nevertheless, you could land heads (or tails) ten times in a row over many, many coin-flips. Part of the game. Accept it.

Since you have a system, you’re functioning well beyond 50:50, right?

Thus, chances of a large number of losses in a row are even lesser for you.

Tweak at your system if you feel it’s lost its market-edge.

To remind you, an edge starts occurring when one functions beyond 50:50.

After a while, one gets bored, and tells oneself, that from now on, one wants to function at 55:45 and beyond (for example), come what may.

One then tweaks at one’s system, and raises the bar.

Tweak at your system if you feel the urgent need to raise the bar.

Keep raising the bar to your comfort level.

Leave other people alone. Don’t bother with their systems. Focus on your own trading.

Be the cat that survives curiosity.