# Playing Over-hot Underlyings with the Call Butterfly

A call butterfly is a fully hedged options trade …

… with an upwards bias.

It consists of four call options.

…and 2 sells.

One can play any overtly rising underlying with the call butterfly, without batting an eyelid.

Why?

Firstly, and most importantly, one is fully hedged.

Meaning?

At first look, the call butterfly seems market neutral as far as basic mathematics is concerned, that is +1, -2, +1, net net 0.

So, net net, one isn’t looking at a large loss if one is wrong.

When is one wrong here?

If the underlying doesn’t move, or if it falls, in the stipulated period, then one is wrong,…

…and one will incur a loss.

However, the loss will be relatively small, because of the call butterfly’s structural market neutrality.

And that’s magic, at least to my ears.

Method to enter anything flying off the handle with the chance of a small loss?

Will take it.

Then, also very importantly, the margin requirement is relatively less, when one uses the following chronology.

Then come the sells.

Upon the upholding of this chronology, the market regulator is lenient with one on margin requirement, as long as the trade-construct is market neutral.

Typically, for one butterfly, total margin requirement is in the range of 50 to a 100k.

Now let’s talk about what one is looking to make.

5k per single-lot trade-construct, if it’s fast, as in execute today, square-off tomorrow, or even intraday, if expiry is close.

10k if slow, as in 7 to 10 days.

If the butterfly is not yielding because the underlying is not moving, then one is looking to exit, typically with a minus of under 3k.

Just do the math. Numbers are great.

What kind of a maximum loss are we looking at, if things go badly wrong, as in if the underlying sinks?

5k to 10k.

Can the loss be more?

If the trade construct is such that the butterfly can even give 40 odd k till expiry, one could even be looking at a max loss of about 15k too.

Here’s an example of a call butterfly trade that can lose around 15-16k, but has the potential to make upto around 45k till expiry. The graphical representation is courtesy Sensibull.

I mean, it’s all still acceptable.

Tweaks?

Let’s say one is losing.

Sells will be in biggish plus.

Square-off the sells. Yeah, break the hedge.

They are losing big.

With some time to go till expiry, if the underlying goes back up, the buys gain.

What one makes off the trade is proportional to how much the underlying goes up.

It’s riskier. Correspondingly, profit potential is higher.

Money risked here will be up to double of the fully hedged version of the trade, and one could lose this amount if the underlying does not come back up appropriately and in time. Pocketed premium of the squared-off sells softens the hit.

Therefore, it makes more sense to pull this tweak with at least ten days to go before expiry, giving the underlying time to recoup.

Got another tweak.

Underlying’s on a roll, and you want to make the most possible off the opportunity.

Square-off the sells at a huge loss.

Let the buys, which are winning big, run for some part of the day.

Chances of them yielding more are very high.

If the underlying promises to close on a high, square-off the out-of-the-money buy before close of trade, and take the in-the-money buy overnight.

Risky, though.

You could lessen your risk, and increase your chances of taking most profits off the table by squaring off the in-the-money buy and taking the out-of-the-money buy overnight.

Square-off the overnight buy next morning on a high, or wherever feasible.

With this particular tweak, the trade becomes somewhat more like a lesser exposed futures transaction, at least for some time, after the hedge is broken.

There’s another thing one can do with the call butterfly.

One can adjust it as per the level of perceived bullishness.

If -1 and -1 are set at the same level, one trades for averagely perceived bullishness.

If one -1 is closer to the lower +1, and the other -1 is above this first -1, then one trades for below average perceived bullishness.

If one -1 is closer to the upper +1, and the other -1 is below this first -1, then one trades for above average perceived bullishness.

Anything else worth mentioning?

Volume. Need it.

Scaling up needs to correspond to one’s risk-profile, requirement, temperament and acumen.

One can make it an income thing by scaling up, during bull runs, or generally, just in case an up move is tending to pan out.

One can make the call butterfly do a lot of things.

It’s a very versatile trade to play a rising market, with low risk and low capital requirement.

🙂

# Nath on Trading – II – Building up on Basics

21). You started small, right?

22). Ultimately, you’re staying consistently in the green, correct?

23). Then it’s time to scale up. Slowly does it.

24). Why the whole spiel about starting small? You make your biggest mistakes in the first seven years.

25). Hopefully, you don’t repeat a mistake once it has happened, and once you’ve learnt from it.

26). However, mistakes are good, because they teach you. Nothing else can teach you with incorporation into DNA. Mistakes can.

27). No university can teach you. No books. No professor. Play the market, make the mistake, and learn.

28). A big break early in the markets is a recipe for disaster. More likely than not, you’ll blow up later, when it matters.

29). The best possible way to scale up is using position-sizing as delineated by Dr. Van Tharp.

30). The good thing about position-sizing is that it makes you scale down, when trading corpus goes below par.

31). Day trading takes up the day. You’re exhausted and are not able to do much else.

32). Short-term trading also keeps you riveted to the terminal, mostly.

33). However, position trading and longer time frames keep you in the line for whatever else you wish to achieve.

34). Market TV makes it a video game. Switch it off.

35). Trading with targets caps big-win potential.

38). …selling low and buying back lower…

39). …as opposed to successful investing, which is buying low, not selling for the longest time, and then selling for a multiple.

40). Read points 16 to 19 again.

# Nath on Trading – Basics Win

1). Put yourself out there. Again and again. Take the next trade.

2). Keep yourself in a position to take the next trade. How?

3). Take small losses. Have a stop in place. Always. Have the guts to have it in place physically.

4). Trade with money that doesn’t hurt you if it’s gone.

5). Don’t exhaust stamina. Put trade in place with smart stop that moves as per definition, and then forget it.

6). Keep yourself physically and mentally fit. Good health will make you take the next trade. Bad health won’t.

7). Have a system…

8). …with an edge, and even a slight edge will do.

10). Don’t listen to anyone. You’ve got your system, remember? Sc#@w tips. God has given you a brain. Use it.

11). Let profit run. Don’t nip it in the bud. PLEASE.

12). A big profit doesn’t mean you’re it. It can become bigger. And bigger. Remember that.

13). What’s going to keep your account in the green over the long run are the big winning trades. LET THEM HAPPEN. How?

14). You exit when the market stops you out. Period. Your trailing stop on auto is fully capable of locking in big gains and then some.

15). Similarly, make the market make you enter. Entries are to be triggered by the market. Use trigger-entries on your platform.

16). When a trade is triggered, you’re done with it, till it’s stopped out, in profit or in loss. Can you follow that?

17). Your trade identification skills are going to improve over time. Get through that time without giving up.

18). Despair is bad, but euphoria is worse. Guard yourself against euphoria after a big win. Why?

19). Big wins are often followed by recklessness and deviations from one’s system that is already working. NO.

20). Use your common-sense. Is your calculator saying the right thing? Can this underlying be at that price? Keep asking questions that require common-sense to respond. Keep your common-sense awake.

# What’s bothering you today?

Get it out of the way.

Why?

Bother takes a toll.

Focus goes away.

That’s a pathetic condition to be in…

…you need to monitor the trade.

How will you monitor a trade…

…if you don’t feel like looking at your screen?

Bio-chemistry.

Resulting from?

The spot of bother.

That’s why, get it out of the way.

Kill it.

Spouse problem?

Child matter.

Deal with it.

Bring your environment to an immediate logical conclusion…

…if you can.

Why?

…or a queen…

… whatever title you prefer.

You’ll see clearly.

You’ll want to open your terminal.

You’ll be making money.

That’s why.

# MP vs MoS : the lowdown on Trade-Entry

Margin of Safety (MoS)…

… hmmm…

… wasn’t that in investing?

Well – surprise – it’s in trading too.

You can enter a trade with MoS.

How?

Ok.

ID the trend.

Wait for a minor reversal.

Let the reversal continue towards a pivot, or a support or a what have you.

During this reversal, whenever you feel that you have considerable MoS, well – enter.

Why shouldn’t you wait for the pivot to get touched?

Things happen real fast at a pivot. Upon a pivot-touch, you can lose your comfort-zone even within minutes.

Two vital things can happen at a pivot.

Either there’s a quick bounce-back, or the pivot gets broken.

Pivot-break is not a worry for you.

Why?

Because you’ve placed your stop slightly below pivot, after the noise.

Upon pivot-break, you get stopped out. You take the small hit and move on to your next trade.

Eventually, things heat up.

There is movement.

Tops get taken out.

How do you enter here? (Needless to say, for shorts, everything is to be understood reversed).

Momentum play (MP)…

… is the weapon of choice.

You set up a trigger entry after a top or a resistance or a what have you, and wait for price to pierce, and for your entry to get triggered. Then you place your stop, below top or resistance or what have you.

MP vs MoS is a matter of style.

If you’re not comfortable changing your trading style to adapt to times, that’s fine too. Stick to one style.

If you’re conservative, stick to MoS.

In a frenzy, however, MoS might almost never happen.

In a frenzy, entry will be triggered exclusively through MP.

You call the shots.

# Did you invite the f-word?

… yeah…
… take it.
What?
Can’t?
Why?
Afraid of what might happen.
That’s the whole thing.
You see a setup – you trade the setup.
When you see a setup, there are no more what-ifs, supposings or anything. Then, it’s just you and the trade. Take the trade.
No room for f-(ear). It’s the new f-word.
How do you drive fear out of the equation?
Don’t allow anyone else’s negativity to creep in. Don’t talk to people. Trade on your own. No room for tips.
Don’t listen to your broker. Tell him what to do.
Once in the trade, lose the mini-bias that got you in. Now, just manage the trade.
Stop hit? You’re out.
Run?
Raise stop.
Running?
Keep raising stop.
Losing some of your notional profits? Market throws you out?
Good. That’s a proper exit.
See, fear wasn’t allowed to the party.
Look for next setup.
And so on and so forth.
Ok. Don’t trade. Till you’re up to it.

Demons out of the way?

See the next setup?

Take it.

# The Department of no-frills

Markets can be played in holes.

No disrespect to the “hole”.

Let’s put it this way.

I trade the markets from a “bucket shop”. It’s actually a small brokerage. Parallels a bucket-shop, and all legit.

There’s twenty odd people.

Basic desktops. One gets to use them even with medium-sized accounts. A large account holder can walk into the manager’s office and get the manager to trade his or her strategy for him or her for the day. A three minute daily discussion is all it takes. This discussion can even happen on Whatsapp.

If required, food comes from the street-vendors below, in newspapers and plastic cups.

Welcome to the department of no-frills.

No business-class travel or fancy-schmanzy wining-dining is required here. It’s sheer trading with no BS.

Why?

No constant terminal monitoring. Someone’s doing it for you.

Safety? Yes. Trust. Long-term relationship. Email and sms security measures. No nonsense.

One doesn’t talk to the twenty odd people.

Trading for you isn’t really about building a consensus. You just trade. If then the market builds a consensus, that’s a different thing. You then trade the consensus. For or against is your call.

This is as raw as it gets.

If your inquiry is in the correct direction, you get rewarded. If not, you lose a part of your money.

Goes without saying, that overall, you try to win more than you lose.

Department of no-frills cuts to the chase without useless paraphernalia.

# Market-maker

Manipulation.

Recognition.

Alignment.

Spike.

Out.

How does one recognize manipulation?

On the charts.

After eyeballing many many charts, one gets a feel for it.

Manipulated strike-points become pivot points.

It’s a push from a fund-heavy conglomerate. Push becomes a cascade as traders join in.

After the spike, the market-maker pulls out funds so cleverly that rates don’t fall.

Funds are now ready for the next push. The same funds.

Repeat. Same loop.

Till strategy fails.

Then, maker starts manipulating in opposite direction.

Life’s busy for the maker.

There’s trouble with the authorities. Ends on a compromise. Maker will step in when authorities need to prop the market.

No maker – no market.

Why do you think there’s always a quote to your underlying?

Because of the maker.

After a market has crossed critical mass, makers sit on their spikes. They roll-over on expiries, and enjoy the ride.

Ride is not always smooth.

Makers often get greedy and break their own rules. Functioning with no safeties, many makers get wiped out. To add to their woes, a large percentage functions on borrowed money.

Makers have an electronic life, which loops from cellphone to terminal and back. It’s a life that’s punctuated by headaches, physical and mental.

Don’t envy a maker.

He or she is just doing his or her job. That’s all.

# How I Wish to Trade

Tension?

No.

Hassle-free?

Yes.

Profit?

Yes.

Fun?

Too.

I want it to make me want to come back.

In the background?

Yes.

Part of my normal life?

No.

Disturbing me in the night?

No?

Terminal on – ideally once a day. Max twice. That’s it.

Protection?

Yes. Stops for forex. Hedges for options. No naked options.

Exits?

Make me exit. Yeah, Mrs. Market needs to make me exit. I don’t wish to exit on my own. She needs to throw me out of a trade.

Fear?

None.

Why?

Surplus can potentially become zero. Will I still take the next trade?

Yes. After scanning strategy for errors.

Loss?

Will take small ones, again and again and again. That’s the only way to find the large profit moves.

Once profit sets in, what then?

Nothing then.

Normal.

Behaving as if nothing has happened.

It needs to make even more profit.

It is a potential multi-x trade. Why should I nip it in the bud? As I said, make me exit. Throw me out.

Family life?

Balanced.

None.

When yes, stop trading. Trading should never be allowed to disturb family life.

Evolutionary?

Forever. Learning, learning, learning.

Bias?

None.

News?

No.

Tips?

None.

Peers?

Maybe to start a strategy with. After strategy is made to fit – no peers any more.

Discussion?

None. Hopefully.

Don’t like to discuss trades after terminal shuts.

Losses piling up?

Profits piling up?

Great. Do nothing.

Are you getting the gist?

Similarly, you need to figure out how you might want to trade.

Many things I might be doing will not suit you automatically.

You need to make things fit.

If something doesn’t fit, discard it.

Look for something new that might fit.

Make a trading strategy that’s lucrative and gels with you and your lifestyle and environment.

Such a strategy will blossom. For you.

# I Don’t Want the Cancer

Are you hurt?

A.

Do you want the cancer?

B.

I do get hurt. Yeah, things hurt me. I’m an emotionally penetrable human being.

Fine. That’s me.

What I definitely don’t want is option B.

Who wants option B?

Can’t think of anyone.

Who gets option B?

Many.

But who?

Those who can’t forget the hurt. Yeah, people who’re unable to move on.

To forget the hurt and move on, simultaneously saving ourselves from the cancer, we need to forgive.

Someone’s misbehaved. Hurt you. Are you going to ruin your future days? No.

Forgive. Forget. Move on.

Just remove the mould in which cancer can potentially set in.

What makes you think it’s different in the markets?

A loss is a hurt.

Need I say more?

You can do the math.

# Can I Really Really Really Do Without Fundamentals?

I like to trade without a bias.

Lack of bias means freedom…

… freedom to think independently…

… not falling prey to another person’s opinion…

… which then allows you to listen to your system…

…setup demarcation…

…trigger-entry…

… trigger-exit…

… exited.

That’s it, move on to the next trade.

News gives me a bias.

No news.

You know what else gives me a bias?

Fundamentals.

I don’t wish to look at fundamentals.

If my eyes are seeing a setup in the EuroDollar, I would like to take it without the nagging thought of “what will happen if Scotland says NO or YES”.

I don’t want to care about inflation numbers, or job figures, or industrial output or what have you.

I mean…can I just …do it?

Meaning, can I just do away with fundamentals, and focus on technicals only, which is my area of specialization?

Sometimes, I get a little unsure.

I start looking around.

How are others doing it? The experts, that is.

My uncertainty gets fanned a little more, when I see experts not really ignoring fundamentals, even though they might be specialized in technicals. Hmmmm. I’m still not happy looking into fundamentals. I mean, why should I take time-out from my strong suit, and devote it to my very weak suit?

No, I decide. I’m really not going to look at fundamentals.

What’s the worst that could happen?

Let me just see if the worst that could happen is bearable.

Ok…I ID a trade…demarcate a setup…and the trade goes against me because of the announcement of some number in the afternoon. People looking at fundamentals would have waited for the announcement of the number and then traded. Fine.

In the world of trading, it is always good to have the worst-case scenario unwrapped and right before your eyes to see what it really means.

You know, I can take this.

Would you like to know why?

Firstly, I would like you to understand that we are looking at large sample-sizes here. Any sensible reasoning would only apply to large sample-sizes.

Over the long run, and over many, many trades, Mrs.Market will go either way after an announcement of a fundamental number with a chance of roughly 50:50.

If this is true, it is very good news for me, good enough to just kick fundamentals out of the equation.

At times, the market reacts as per the crowd’s anticipation.

At other times, it reacts in the opposite fashion.

I assume that the ratio of the above two directions taken by Mrs. Market over a very large sample-size would be 50:50.

I think my assumption is correct. I don’t want to go through the labour of proving it mathematically.

Ok, let’s assume that my assumption is correct. I then kick fundamentals, and go about my work while relying on my strong-suit, i.e. technicals. This trajectory will very probably have a happy ending.

Now let’s assume that my assumption is wrong.

What saves my day?

Technicals.

Technicals very often give setups that factor in crowd behaviour and crowd anticipation of market direction.

Technical setups get one into the build-up to an announcement.

More often than not, one is already in the trade, in the correct direction, enjoying the build-up to an announcement without even knowing that the announcement is coming, if one is not following fundamentals.

Technicals can actually do this for you. I’ve seen them do it. I mean, the GBPUSD has been giving short setups during the entire 1000 pip run-down recently. To have availed such a setup, people haven’t needed to know that a referendum is coming. All they’ve needed to do is to take the trade once they see the setup.

Actually, that’s it. I don’t need more.

I don’t need to reason anymore with myself. Everything is here.

I think I can let go of fundamentals safely.

Even this trajectory should have a happy ending.

# Dealing with Noise…the Old-Fashioned Way

There’s a sure-shot way to deal with noise…

Yeah, the best ideas in the world are – simple.

Let’s not complicate things, ok?

So, what kinda noise are we talking about here?

We’re not talking about audio, you got that right…!

The concept is related, though.

If you’re charting, you’ve dealt with noise.

Yeah, we’re talking about minute to minute, hour to hour or day to day fluctuations in a chart of any underlying.

Markets fluctuate.

While discussing noise, we are pointing towards relatively small fluctuations which generally don’t affect the long-term trend.

However, noise has the capability of deceiving our minds into believing that the long-term trend is turning, or is over.

Don’t let noise fool you.

When has the long-term trend changed?

When the chart proves it to you through pre-defined fashion. That’s it. You don’t let noise to get you to believe that the long-term trend has changed, or is changing. Ever.

Moving averages crossing over? Support broken? Resistance pierced? Trend-line shattered? ADX below 15? Fine, fine, FINE.

Take your pick. You have many avenues giving decent signals that the long-term trend has changed or is changing.

How about eyeballing? Works for some. Like I said, let’s keep this simple.

So let’s get noise out of the way.

Random numbers generate trends – you knew that, right?

You don’t need more.

Once you’ve identified a trend, that’s your cue to latch on to it.

We’re not talking about predicting here. We don’t need to predict. We just need to identify a trend, and latch on. That’s all. No predictions. Not required.

From this point on, two things can happen.

Further random numbers deepen the trend you’ve latched on to. You make money. Good.

Or, the next set of random numbers make your trade go against you, and your stop gets hit.

If your stop is getting hit, please let it get hit. Even that qualifies as a good trade.

What you’re not doing is letting noise throw you out of the trade by deceiving your mind.

So, here’s what you do.

Till when?

Don’t look at your trade till you’ve decided not to look at it. For the day-trader, this could be a couple of hours. For the positional trader, it could be days, or weeks.

By not looking, you won’t let noise deceive you.

If the trend doesn’t deepen, or goes against you, you lose the risked small amount.

Just remember one thing.

A loss has immense informational value. It teaches you about market behaviour patterns. It also highlights your trading errors. Many times, losses occur without any mistakes made by you.

Ultimately, if the trend deepens, you’ll have made good money, and can then further manage your trade after the stipulated period of not looking.

This is the sweet spot.

This is where you want to be, again, and again and again.

Sitting on a large profit gives you room to play for more profit by lifting your stop and your target simultaneously.

To reach this sweet spot again, and again and again, you have to position yourself out there and appropriately, again, and again and again.

This is also the nature of trading.

Wishing you happy and lucrative trading!

🙂

# Charting Charting Charting

Why don’t you just…

Not the level.

Not the expectancy of a turnaround.

And, although I still do this because it gives me a kick, why do we even trade corrections?

Why can’t we just trade the sheer chart?

Every chart is either going up, down or nowhere.

So it’s pretty obvio, that the first step would be to…

… to what?

… to decide where the chart is going.

Again, it should be pretty obvio, that if a chart is going nowhere, then you are doing… what?

Are you trading such a chart?

NO!

Wait for such a chart to break out in one particular direction.

Wait for the LTT to turn in this direction.

Then trade this chart. Not before.

Yeah, LTT stands for long-term trend.

Yeah, we’ve befriended the LTT so much, that we have an abbreviation going for it…

Once you’ve sorted out the direction, look for an entry setup.

Be patient.

If the entry setup hasn’t formed yet, wait for it. If you can’t stop your twiddling fingers from doing something, feed in a trigger entry in case of a hypothetical setup formation within the next few hours / days, if your trading station allows this.

There’s no up or down anymore, to be honest. You are going where the chart is going, period.

You are also not asking the stooopidest question of them all…

… you guessed it… “Did the sensory index go up, or down?”

Just forget about the sensory index, ok?

I mean, we’re so done with sensory indices in this space.

Why?

DLF could tank 20 bucks on a day the Sensex goes up. Dow Jones could be down 50 points, but Pfizer could just spring into a stellar upwards move. Why should we have lost the short-side opportunity that DLF hypothetically gave, or the long-side opportunity that Pfizer could present, for example? We will do exactly that, i.e. lose the opportunity, if our focus is on the sensory index.

Focus on the underlying.

To be more precise, focus on the chart of the underlying.

🙂

# And…How Much Connection Time Exactly?

Well, somebody’s got to ask these questions…

Don’t see very many around me doing so, so I just thought what the heck, let it be me…

This one’s not for all you test-tube jocks in the lab, you know…

Nevertheless, this is a very important question.

Answer it wrongly for yourself, and market-play will wreck your life – all avenues of your life, that is.

And, answer it correctly for yourself – lo and behold, you’ll actually start enjoying your market activity.

The human being ultimately excels in anything he or she enjoys doing.

This means that if you answer this question correctly, your market activity will yield you profits.

Told you. This question is important. Answer it.

Let me tell you how I’ve answered it for myself.

Before that, please understand, that my answer doesn’t have to apply to you.

However, for those who don’t know where to begin while trying to answer the question, it’s a start.

I detest giving Mrs. Market too much power. This was my clue initially, and I built up on this fact.

Initially, Mrs. M used to take over my life. She used to govern my emotions. It started to rub off on my family. I knew I had to draw a line.

I started to trade lightly – amounts which my mind could ignore. Then, I did one more thing.

I started to connect minimally. The was the key step, and it swung the emotional tussle in my favour. Mrs. M’s days of emotional control were over.

What does minimal connection mean?

You only connect when you have to. Period.

When you don’t have to connect, you just don’t.

I’ll tell you when all I connect to Mrs. M.

Order-feed – 0 to once a day. Very rarely twice for this in one day.

Connection for me is having my trading terminal on, and seeing live price-feeds face to face.

My market research is all offline, so that’s not a connection for me.

Squaring-off a position – again 0 to once a day. Very rarely twice a day.

Watching the live price-feed – 0 to once a day, and only if if I’m unclear about the buying-pressure versus selling pressure ratio.

That’s it.

When I don’t identify a potential trade in my offline research, I don’t connect at all.

When do I connect next?

Whenever I’ve identified the next trade, or a squaring-off situation, all offline.

There can be two or even three day stretches when I just don’t connect.

I use options, because they allow me this kind of play for Indian equities.

Why am I stressing upon the value of minimal connection?

Connection means exposure to the “Line”. You’ve met the Line before. If not, look up the link on the left (“The Line”).

Connection to the Line taxes your system, because market forces interfere with your bio-chem.

Keeping the connection minimal keeps you healthy, and you can go out and do other stuff in life, which rounds you off and refreshes you for your next market-play.

Keeping the connection minimal detaches you from Mrs. M. You are able to detach at will. This lets you focus on your family when your family members require your attention.

Keeping the connection minimal makes the task of swallowing your small losses smoother.

Lastly, keeping the connection minimal helps you let your profits run.

So, how does one define minimal?

Do the math, and come out with rules for your minimal connectivity, like the ones I’ve come out with above, for myself.

After that, while sticking to your rules for minimal connectivity, only connect to Mrs. M when you feel the burning desire to do so, like for example upon the identification of a sizzling hot trade, or for the order-feed of a trigger exit after a profit-run or something like that.

Yeah, you minimise even after your rules.

# How to Swallow Small Losses…

… as if nothing has happened … is one of my biggest trading goals.

You see, our society teaches us not to lose.

It doesn’t teach us that we can lose a bit 5 times, and after that we can win big, recovering all our losses and making money overall.

No.

It teaches us to try and win all the time.

That’s the exact reason 90%+ of all society members actually lose in the markets. They’ve not learnt how to lose small, move on, and take the next trade.

Mrs. Market won’t budge an inch for you. You’ll have to make the adjustment.

So how does one take a loss in one’s stride?

Only one type of loss is immediately digestible – a small one. Therefore, define your risk in the market. Cut and scoot when required. Don’t get married to your trade.

Then, once the small loss has happened, and has been taken, it will nag you.

It’ll be there, trying to bite your brain in the background.

Identification – Implementation – Entry – Management – Exit – Next Trade Identification – Implementation – Entry – Management – Exit – Next Trade Identification – Implementation – Entry – Management – Exit – … … [what’s the difference between implementation and entry? Well, you could be implementing the trade through a trigger, which is not equivalent to entry yet].

Don’t let the nagging bother you by keeping yourself busy with Identification – Implementation – Entry – Management – Exit – Next Trade Identification – Implementation – Entry – Management – Exit – Next Trade Identification – Implementation – Entry – Management – Exit – … …

If you give in to the nagging, it will grow, and will slow you down. You might snap at a family member. You might go into depression. You might freeze. DON’T. Don’t give in to the nagging. Don’t let it grow. Don’t let it slow you down. Maintain your family equilibrium at all costs. Move on.

The nagging is worst if there’s been a close below your stop, and the market is to open the next day, or after the weekend. You have to deal with this one. If you’re not able to deal with this particular situation, you’ll either need to expose your mental stop prematurely and feed it in intraday (before there’s been a close under it), or you’ll need to follow the progress of your trade from half an hour before next market open onwards.

Yes, this last one’s tough, and you need to absolutely work your way around it.

You can do it with a bit of practise.

🙂

# One Up on the Romans

Sometimes, words are hard to come by.

Like now.

It’s a dry spell.

Happens.

At other times, well, they burst forth as if a geyser’s exploded.

Then, I’m not able to stop their flow.

That also happens.

Welcome to the dual-natured environment of Earth.

While we’re steeped in this duality, there’s no option but to get used to it.

One can always go on to then master it.

Oh, I forgot, that’s optional.

I’ll tell you what I’ve done to master such fluctuating fortunes, as far as word-flow is concerned.

Two simple steps, that’s all.

When we’re dry,…, we’re dry. No PhDing over the fact that we’re dry. We’re just dry. Period. Accepted. Digested. We just go on to do other stuff. There are millions of other things that grab our interest on this dual planet.

When we’re up and running – that’s just it – we’re up and running. No PhDing over why we’re up and running. We let the flow happen. We can decide to make it happen even more. That’s optional…, but we don’t stop the flow… till the tap dries itself out.

Similarly, you can experience a string of losses in the markets. Losses make you hit your cut-off. A cut-off is a cut-off. You don’t keep on trading. Nature’s telling you to lay off till your mind and body align themselves with the flow of the markets again. Just do other stuff till you’re mentally and physically back.

On the other hand, when profits run, they can really run. PLEASE LET THEM RUN. Don’t PhD about the run. Let them run till they dry out.

When in dualism, the idea here is to first live through dualism, in order to understand its nature.

We’re one up on the Romans, though.

We’re trying to be masters over our fluctuating dualistic environment.

Yeah, in the markets, we’re getting through losing spells with minimal damage.

Simultaneously, we’re maximizing the potential of profit-runs.

That’s what we’re doing.

If not, then that’s exactly what we are going to do.

Cheers

🙂

# The Art of Emotional Recycling

Taken a hit?

If yes, at least admit it… to yourself and for your own sake.

People take hits at various times in their lives.
That’s the way of the market.

That’s how it teaches us to make money next time.

Think of your loss as tuition fees.

In my opinion, the best way forward is to take lots of small hits in the first seven years.

Then, in nine cases out of ten, you won’t fall for the big ones.

Big hits can decapacitate a player, especially when they come late, since there is no time for full recovery. Besides, emotional breakdown at a late stage is very difficult to get out of.

Make it a point never to take a big hit.

That’s only possible, if at any given time, the capital that is risked is within reasonable limits.

Let’s say you risk not more than 1% of your networth at any given time. What’s the maximum hit you will take at one time? Right, 1%.

That’s bearable.

That’s something you can shake yourself out of, and move on.

Moving on is a huge quality to possess in the markets.

Taken a hit?

All this while, you are putting any remnant emotional hurt in cold storage.

Yeah, there’s a certain portion of emotional hurt that won’t be nullified by family time, vacations, hobbies etc. We’re talking about the hurt to your ego. Only a big win will wash that away. Only then is your emotional recycling complete.

Put yourself in line for that win.

After a hit, rest, recuperate, grab your wits, focus, and…

… put on the next trade.

# Shaken, and not Stirred, Mr. Trader…

Does this shake you?

Please don’t let it. Models are meant to crumble.

Your belief in your model might be shaken, but you are not stirred, right? Helooooo, Mr. Trader, are you there?

Let’s get this straight – you are not stirred. You stand solid as a rock.

What allows you to do so?

Firstly, your safety net stands. Meaning, nothing’s making your safety net crumble. That’s the first thing you do as a trader – construct  a safety net that stands. Your safety net generates steady income and affords your family a comfortable lifestyle. Before that happens, not a single trade is pulled.

Secondly, ever since your safety net has been standing, you have been trading lightly. You’ve been chiselling away at this trading model, but are still a little uncertain about it, and thus, you’ve been going light. It’s recent crumbling has given you losses – which are also light. You are able to swallow such losses easily, since their magnitude is digestible. You’ve been very sensible in not scaling up prematurely.