Nath on Trading – V – Make that a Hundred

81). Paper trading has limited value.

82). That’s because money on the line activates your emotions.

83). Is there a holy grail? No. Stop looking for it.

84). Small edges taken to the nth – that’s what cuts it.

85). Most advisories make more money advising and less money trading.

86). Many advisories ignore sheer basics such as risk : reward.

87). Advisories are after commission and management fees rather than your long-term benefit.

88). If you’re lookig for an advisory, look hard, and don’t be afraid to keep rejecting till you find someone who knows the game and is not greedy.

89). Everything is out there, for you, for the taking, on the internet.

90). Most of this everything is free, if you just make that extra effort to get it.

91). Disclosure laws are so strict, that you can get into the un*erp*nts of a management today, literally at the speed of thought.

92). Thus, to play the market, any market, all you need is funds, due diligence and a device.

93). Due diligence gives you confidence to hold the line.

94). Funds need to be saved first. What goes into trading is that portion of your savings which you are not going to need – at all, at best.

95). Your device needs to become a seamless extension of you. Work on your device till it becomes that.

96). The best ideas are born in silence.

97). The best ideas are also the simplest in nature.

98). Sophistication is a net-net loser’s game.

99). If you’re doing it right, and if you’re not a day-trader by profession, trading takes up only a small portion of your day.

100). Life has myriads of avenues, trading being one small such aspect. Being a trader doesn’t mean losing out on life’s countless drawing boards. Trade. Fine. Live too, and live well. Do all-round justice to your opportunity.
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Frozen

Frozen? 

It’s ok. 

Breathe. 

You need to acknowledge that you’re frozen. 

Without that, the next step won’t come. 

It’s normal to freeze sometimes. Just acknowledge it. Then learn. 

For example, I acknowledge that I’m currently frozen wrt to the USDINR short trade. Missed entry. Next opportunity to enter never developed for me, and the underlying is currently in free fall. Don’t have the guts to short it at this level. Yeah, I’m frozen all right.

However, the fact that I’m acknowledging it opens up the learning window. 

Why did I miss entry?

I know why I froze. Fear. What I need to understand is why I allowed a situation to develop that would lead to fear. 

Ok. 

Was running super busy. 

Neglected the underlying. 

Kept postponing entry… 

… till free-fall started. 

It’s good to be busy. 

Hmmm, so this can happen again. 

How do I stop this from happening again? 

If I ID a setup, I need to take it. 

No second-guessing. 

What about strategy? 

Meaning, am I going with a short strategy for USDINR? Or am I keeping the window open for a long strategy?

See, that’s it.

Keeping short and long windows open makes me second-guess all the time. 

So can I go in one-direction wrt USDINR all the time? 

What speaks for it? 

Underlying is falling from a height. Good. 

Short only means no second-guessing. You just go short, period. 

Stoploss will save ruin. 

Not nipping profits in the bud will amass fortunes. 

Can the underlying keep falling over the next few years? 

Why not? Modi’s looking set for 2019. 

Hmmm, so a short only strategy has a lot going for itself. 

There’s more. Future month contracts are quoted at a premium. The premium evaporates over the current month. This move is in your favour if you’re short. 

Ok, enough. 

Yeah, there’s enough on the table to warrant a short only strategy for USDINR. 

SEE? 

Learning process. 

Why did it happen?

Because I acknowledged that I had frozen. 

Now, my strategy is more fine-tuned and I’m probably less prone to second-guessing. 

You need to pull off such stuff when you freeze. 

Use the freeze to evolve. 

Multiples obey skewed mathematics

Income-oriented linear growth… 

… is single-digit. 

There’s something safe about it. 

It’s going to be there tomorrow, and after that. 

Safety means less return. 

You’re ok with that as far as basic income is concerned. 

Not so the case when it comes to wealth. 

With wealth, the multiple comes into play. 

Multiples dance to a different tune. 

The search for multiples can lead to negative return – for a while at least. 

It’s risky. 

The level of reward is coupled to a corresponding level of risk. 

In comes time. 

Wealth-play is palatable because of time not pushing you to the wall. 

With time on your side, the ingredients of your cooking-pot have ample opportunity to sprout and grow into big trees. 

If growth is not able to take off owing to lack of circumstance, this becomes the breeding ground for negative return. High deductibles add to the bleeding. After all, it’s wealth you’re seeking to generate, and there will be a little blood. 

Such is the game. 

If you can’t stomach the ride till the multiples emerge, play the income-game full-time instead. 

However, once you start to digest the wealth-game, you realize that is really quite headache-free and pretty much an auto-pilot avenue. 

You’ll even start to like it when the first multiples emerge! 

Dealing from a Position of Weakness 

When you’re losing… 

… you downsize your position. 

Why? 

To save your corpus. 

You lower the risk. 

Is risk quantifiable? 

You bet. 

Risk is no abstract entity without a body. 

In a trade, your risk is defined by your stop to stack-size ratio and the size of your one position. 

When you’re losing, you either lower the magnitude of your stop, or lower the quantity of your one position. 

Till when?

Till your corpus crosses par and then some. 

At par, you trade normal. 

Normal stop. 

Normal quantity. 

What is normal? 

Depends on you. 

What is normal for you? 

That’s what goes. 

Why the caution when below par? 

Lots works against you at this time. 

Sheer math for example. Downsizing sets this right. 

Emotions. 

Whoever’s got a remedy for those is king already. 

You. 

Your body-chemistry is affected. You’re sluggish. More prone to error. Nobody’s got a remedy for you, except you. Wait for your body to heal before trying out that perfect cover-drive, or what have you. 

Winning or losing in the markets depends a lot upon psychology, chronology, systems, strategy, application and adaptation of style. 

I like to call this “getting one’s meta-game together”. 

Let’s go people. 

Let’s get our meta-games together. 

Then we can scale it up. 

🙂 

How much is too much? 

Risk? 

Sure. 

No risk no gain. 

However… 

… I’m sure you’ve also heard… 

… “want gain not pain“.

How do we achieve that? 

It boils down to the level of risk. 

How much risk is too much? 

Do we have a measure? 

Sure. 

Meaning, without getting into any mathematics?

Yes. 

What’s a hands-on everyday TomDickHarry dumdum yet practical cum successful measure for risk without any hype or brouhaha? 

Sleep. 

Sleep? 

Yeah. 

How? 

Are we sleeping well? 

Is our sleep getting disturbed because of the risk we’ve taken? 

No? 

We’re fine. 

The risk we’ve taken is bearable. 

It’s not disturbing us enough to disturb our sleep. 

Yes? Sleep disturbed? Because of risk? 

We’ll, too much then. 

Reduce the risk. 

By how much? 

Till your sleep is not disturbed because of it. 

It’s as simple as that. 

When Do You Bet The Farm? 

Bread and butter. 

Safety-…

…-net.

Basics.

You gather yourself to carve out a comfortable life for your family. 

Build-up. 

Debt-free-ness. 

Yeah, zero-debt. 

Feel the freedom. 

Breathe. 

No bondage. 

No tension. 

You have to feel it. 

Surplus. 

First, small surplus. 

Then, big surplus. 

You’ve made sure that nobody ever will remind you to pay your bills. 

Great! Well done. Now… 

… keeping all basics intact… 

… you play with small surplus. 

Risk. Calculated. Digestible. 

Multiplier. 

Loss. Cut small. 

Win. Allowed to grow. 

Small surplus starts giving regular fruit. 

You put back the principal into your family’s basic corpus. 

Repeat. 

Many of your small surpluses have grown into fruit-bearing trees. 

Your farm is bursting with grain and fruit. 

Have you taken any big, indigestible risks? 

No. 

Have you ever put your family basics at risk? 

No. 

Have you ever thought about betting the farm? 

NO. 

Will you ever bet the farm, no matter how big the lure? 

NEVER. 

Nath on Equity : have stuff – will talk

Behind Equity, there’s 41). human capital. 

It’s human capital that keeps 42). adjusting equity for inflation.

43). No other asset-class quotes on an inflation-adjusted basis. 

That’s good news for you, because 44). equity takes care of the number one wealth-eater (inflation) for you. 

All world equity ever quoted, whether currently existing or not, has 45). returned 6% per annum compounded, adjusted for inflation. 

46). All equity ever quoted that still exists has yielded 11% per annum compounded, adjusted for inflation.

Equity selected with good due diligence, common-sense and adherence to basic rules listed here and in previous articles is 47). well-capable of yielding 15%+ per annum compounded, adjusted for inflation. 

However, equity is 48). a battle of nerves, at times. 

This asset-class is 49). more about creating long-term wealth. 

It can be used, though, to 50). generate income through trading. 

51). Trading, however, is burdened with more taxation, commission-generation and sheer tension. 

Trading equity 52). eats up your day. 

Investing in equity 53). gives you enough room to pursue many other activities during your day. 

Trading strategies are 54). diametrically opposite to investing strategies. 

55). It takes market-players the longest time to digest and fully comprehend 54).

For long-term players, 56). up-side is unlimited. This is a vital fact. 

Also, 57). downside is limited to input. Factor in good DD, and that very probably won’t even go half-way. 

58). Thus, 56). and 57). make for a very lucrative reward : risk ratio. 

Equity needs courage, to 59). enter when there’s blood on the streets. 

It also needs detachment, to 60). either exit when required for monetary reasons, or when everyone else is getting ultra-greedy and bidding the underlying up no-end.