Limits will keep you Safe

Safety is under-rated.

People scoff… at safety.

Ask someone to belt-up.

Or, ask xyz to take a backup.

Emergency fund, anyone?

Insurance?

Plan B?

Is anyone really interested?

Ok, don’t have a plan B. Fine.

Then, you need to watch your plan A like a hawk.

You need to install safety nets.

One such net is a limit.

Limit movement of funds.

Nowadays, this takes but a few online clicks. Setting fund-movement limits in your netbanking is not difficult at all.

What does a limit do?

It says ballyhoo to your emotions.

Greedy?

Too bad, fellow, funds more than your defined limits can’t leave your savings account, in case you wished these to depart for your trading account.

So, greed is in check. With force. Order of the day.

Limits will keep you safe.

Over-optimistic?

Same check.

Limits will keep you safe.

So on and so forth.

A little self-control is required though.

You’re not going to tamper with your limit, right?

Right.

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Connection & Disconnection

Sizzling hot stuff is best kept at an arm’s length … … something I learnt along the path … …

You reach for it at a conducive time, do what you need to do, and then you let it be. This way it doesn’t burn you. 

When you’ve let it be, you’re not thinking about it. Your mind has switched off from it. It is utilising its resources to do other stuff … … till it’s time to work with your sizzling hot stuff again. 

Now replace sizzling hot stuff with Mrs. Market.

There’s no doubt in my mind that Mrs. Market can burn you. You need to work with it in a manner that it doesn’t. 

You’ve understood that whole deal about the establishment of an emergency fund. Such a fund will render any burns only temporary. You have to have an emergency fund going first up, before you enter Mrs. Market. The income generated from this fund needs to cater for the basic requirements of your core family. Period.

Ok, good, so now you’ve got your protective gear on. Till you’re getting it on, you are absolutely disconnected from Mrs. Market.

Now let’s talk constant connection and disconnection. 

Why allow something or someone to control your moods?

No!

You are absolutely not giving Mrs. M that much power. 

Therefore, play small. 

How small?

Small enough to not lose any sleep over Mrs. M. 

Play with stops. These allow you to disconnect from Mrs. M and focus on other work. Other work is as important as Mrs. M, or perhaps more important. Yeah, show Mrs. M her place in your life. This way she’ll behave herself. Giver her any more leeway, and she’ll take over your life, and you don’t want that, right?

So, connect to Mr. M, do your work, place your stops, and disconnect. 

Don’t think about Mrs. M till you connect to her again. 

The period in between connection and disconnection is your time. Use it for any activity that has nothing to do with Mrs. M.

Day in, day out.

 

 

We Like to Move it Move it

We do our home-work.

We know our risk-profile.

Our systems are in place. 

We know the exact market-segments we are tapping into, and those we are leaving alone. 

Our fund-allocation profile is at the back of our palms. We know where what is, and when. We know how to move it. 

In our identified segment of activity, we have a feel for the underlying. We can sense it. We don’t need to preempt the underlying, but we can if we want to. 

We are not afraid of small loss. It can happen again, and again, and again, as far as we are concerned. 

We use stops. Definition of risk is our abc. 

We try not to follow news. It gives us a bias. We trade the setup we are observing on the chart of the underlying. Everything else is “egal”, as they say in German, as far as the trade is concerned. We are not going to be biased while trading. We are going to take the setup, in whichever direction it presents itself. 

We are nice to our families. We gel with them, and have enough time for them. We are happy in their company. They are not a distraction to our work, but a welcome change. We’ve got a substantial-sized emergency fund going for them, which more than takes care of their needs. This fund generates regular incomes for our families, and we don’t touch the emergency fund, come what may. We might keep adding to it, though. 

We take high risks with a very small size of our networths, everyday. Our risks are calculated, and can generate high returns. They can also result in total losses. We practise sound money-management, and put ourselves in line for big profits, again, and again and again. 

Yeah, we like to move it move it …

… from one trade setup to another, to another, to yet another, an so on and so forth. 

Why Emergency Fund?

Why do you wear a seat-belt while driving?

Why do you purchase medical insurance?

Why does one carry two parachutes while jumping off a plane?

Why do you keep your spouse happy?

So you can live in peace, right?

Peace of mind – so important…

Without peace of mind, market decisions are warped. Disturbing factors cause you to take wrong decisions.

Once faced with a market decision, it is extremely easy to go wrong. There are many telling you what to do. Some have agendas, others speak wthout an agenda, for the sake of speaking. Topping that, Mrs. Market starts playing tricks on you. She’s almost always catching you on the wrong foot. You needs to be mentally alert to identify your initial error and correct it as per your outlined strategy. If your mind-control is compromised, you step deeper into the delusive web of Mrs. Market by not being able to identify your initial error, and then the error can get bigger, and bigger, and even bigger, till it has the capability to consume you.

That’s why emergency fund!

You are not bigger than Mrs. Market. No one is bigger than Mrs. Market. You might start thinking you are, because of a few successes. As a result, you might start to play bigger. Over-confidence will first cause you to make a small mistake. Because you will not have identified the mistake as a mistake, owing to delusional conditions, the small mistake might get bigger and bigger, till it becomes bigger than you, and your market career is over.

That day, your emergency fund will feed your family.

So, firstly, make sure that an emergency fund exists for you.

It needs to be accessible, i.e. liquid.

It needs to be sufficiently large.

Its contents should be safely parked.

If it is generating some income of itself, even better, but the emergency fund should not be locked-in. If it is locked-in, you should be able to access it in a maximum of 24 hours, even if you need to pay a small monetary penalty for full and irreversible access.

Your spouse, who you’ve kept happy, should know about the emergency fund, and how to access its contents. If you’ve not kept him or her happy, he or she might access this fund anyhow, and blow it up beforehand. So, keep him or her happy and in a responsible state of mind. It is possible that he or she is just not interested in finance, right, so then what do you do? Wait for your child to grow up, wishing that he or she has an interest in finance! Anyways, someone you trust should know how to access the emergency fund. If nothing else, write out all details in a file, and inform the person you trust of the file’s existence.

Why am I being so extreme about all this?

I’m big on safety. I don’t like seeing a market player blowing up, because I wouldn’t want that to happen to myself. Have you been to a circus?

The acrobats do have a safety line, don’t they? I mean, they practice all their lives, and pull of the most amazing stunts, again and again, day after day, but at the back of their mind, they know it’s over if they make just one mistake. Unless they have a safety line. If and when a mistake occurs, their safety line will save them. The existence of a safety line allows them to perform with peace of mind, and perform well.

It is exactly like that in the markets. One big mistake, and it’s all over.

Unless there’s an emergency fund.

It’ll allow you to survive, recuperate, and get back on track. When you’re back, you’ll most definitely not repeat the big mistake you made. Also, the first thing you’ll do is regenerate the emergency fund, before you get back to proper market action.

Here’s wishing that you never need to access your emergency fund, but also wishing that it exists in the first place.

Here’s wishing that its presence gives you the necessary peace of mind to perform better.

So, When Does One Attack Here?

Ammunition.

Your game revolves around it.

We’re not talking war over here.

Or are we?

The marketplace is a war-zone, come to think of it.

Question is, how do you use you ammo?

Do you fire the bulk right away?

Who are you trying to scare?

This is the marketplace, people, overall, it’s not scared of your few rounds. There are just too many players, with varied interests and ideologies. Your few rounds might cause a mini-spike in the underlying concerned, but that’s about it. That mini-spike is not going to make it to tomorrow’s paper.

So, why bother? You don’t need to attack here. Straight away, that is. You can attack when the time is ripe, and when you are ripe too.

What does being ripe for an attack mean?

It means that your defences are fully in place and on auto-pilot. Your basic income is taken care of and suffices your family’s needs. Actually, let’s go a little further and say that your family is able to live comfortably on income generated by you which is independent from any of your speculative / risky activities. This is the first step. You need to work yourself into such a position, even if it takes you a long time. Without knowing that your family is safe, no matter how you fare in the marketplace, you will not be able to trade freely.

Then comes the second step in setting up your best defence. You need to have access to an emergency fund. Meaning, this kind of a fund needs to be salted away first. It then needs to be made accessible when required, and otherwise, it is to remain unused. Don’t let your emergency fund’s miniscule return bother you. In lieu of that, you are getting safety. Your emergency fund needs to remain safe, sound, and there, when you need it. This way, if and when something happens, and funds are required, a). you won’t have to tap into your family’s basic income, and b). you won’t have to tap into your trading corpus. You’ll access your emergency fund. Your family will remain financially undisturbed, and so will your trading, despite the emergency.

Now comes the final step, before you can get on with your trading, yes, even aggressively. In this step, the focus is on you. While setting up your family’s basic income and your emergency fund, you have struggled. Your health could have taken a knock. Your mind could be in a whirl. Normalize, my friend. Take time off. Stare at the wall. Get your body-chemistry back to equilibrium. Take a vacation. Take many vacations. Finally, when you are in shape, go for it.

Ok, so you’re in shape, and ripe for attack.

Now, the time needs to be ripe for attack too.

Mrs. Market has three basic modes of movement. She trends, moves in a range and then, she just plain goes nowhere, i.e. she’s flat.

Your aggression needs to be implemented only when she’s trending. Period.

That’s when it’ll yield mind-blowing returns.

Fire away when she’s flat or moving in a range, and you’ll keep getting stopped out.

How can you tell when she’s trending?

Through technical analysis.

So, study. Learn to differentiate between her three basic modes of movement.

Then, when she trends, and only then, use your ammo aggressively.