Nath on Trading – IV – We’ve got Stamina

61). We’re able to take many, many small losses, without flinching.

62). Only that sets us up for the big wins.

63). We don’t second guess our stops.

64). In fact, we want the stop to hit. As in, hit me, if you’ve got the *****.

65). When the trade moves in our direction, we let it. We’re doing other stuff.

66). When the trade moves against us, we let it. We’re doing other stuff.

67). That’s because we fully understand the function of our stop. It will take us out of the market, whether in loss or in profit. It’s dynamic, you see. It moves with the market as per the definition provided by us while punching in the trade.

68). We’re not afraid that our stop could be jumped. Can happen, in a panic. Hopefully, our technicals will have placed us in the right trade direction before huge and fast moves. It comes to mind that this kind of move occured at least twice in the last six years, once with the swiss franc, and once during Brexit. If we start worrying about such one-offs, we won’t trade at all. 

69). We look at the technicals, and we listen to what they’re saying. The trend is our friend. We trade with the trend, either on fresh highs (fresh lows) or on pullbacks, depending upon the conditions.

70). This is trading, so I personally don’t look at fundamentals. However, cook your curry the way you like it.

71). We might zero into tradable underlyings with screens or searches, but…

72). …we eyeball into final trade selection.

73). Yes, the chart needs to look and feel just right. All but the one tradable entity are rejected by the look and feel of the chart. The one remaining is the one we trade. If none remains, we don’t trade. 

74). Price is king. We’re into price action.

75). Indicators only indicate. Price does the talking.

76). What the price is saying will reflect in the indicator, but with a time-lag.

77). Do we want this time-lag? I don’t.

78). Thus, price action it is, for me. However, everyone is looking at the same price.

79). Therefore, we need to think slightly out of the box, to make money.

80). Edge + out of the box thinking + stamina nails it.

 

 

 

 

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.

9). Keep sharpening your system. 

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. 

 

 

 

Using Doubt as an Asset

Is this really working?

Have I thought this through enough?

Is my strategy sound enough to hold?

Am I going to look like a fool?

Should I just scrap it?

What if I’d followed that other strategy, where the other fellow said he was making tons of money with? (Like hullo, just forget the other fellow, period).

Questions…

…crop up…

…when a strategy stalls, or doesn’t behave like you want it to.

Doubt is par for the course.

Doubt is good.

Keep it at good.

Control doubt.

Don’t let it control you.

I have a great strategy for when doubt crops up.

Nothing.

I do nothing.

I sit on the strategy in question, and occupy my mind with other things.

Now, two things can happen.

Either the strategy starts to work again,…

…or things remain status quo.

If your patience is over, fine, scrap it.

However, mostly, things do get back to normal.

You’ve taken your time to develop something.

Effort and sweat have gone in.

Don’t be in a hurry to scrap something valuable.

A new strategy will take long to develop. Be prepared for that.

Remember, no strategy works all the time.

You’re well served by one that works more than it doesn’t work.

Doubt serves like a stop-loss.

As doubt overshoots critical mass, you start to change things.

Use doubt as an asset.

Till it is overshooting critical mass, keep observing it, but don’t act.

Manual has a Tendency to Enslave

There is something about things by rote.

They create a groove.

We enter the groove on a repeated basis.

Entering becomes a given.

Our system has aligned itself to entering.

Our system gets comfortable.

It wants to stay there.

It wants more.

How does one extract oneself from this vicious cycle?

Firstly, why do we wish to extract ourselves?

We wish to control Manual, and we don’t want to let Manual control us.

If there’s too much of Manual, our day is gone, and we are not able to attend to more important things in life, like family, extra-curricular activities and all the jazz.

How to go about it is a question of awareness and setting limits.

Thus, you find yourself saying that you will engage to this particular level, and no more, and once this level of engagement is reached, you will put the strategy on auto, and disengage, and remain disengaged till the next screening is due.

Easier said than done, sure.

How is one able to stick to this plan?

If the day is busy, with multiple engagements, one forgets about the activity of the morning by afternoon, because the afternoon has brought with itself a whole new set of activities. Stay busy.

Learn to take small losses in stride. That’ll line you up for the big wins. Strategies left on auto till next screening can incur losses and then get stopped out. That’s part of the deal. Have faith in your stop. You have placed it at a strategic location, where it can not be reached so easily. For your stop to be reached, the market will have to go out of its way. If the market is doing that, you don’t wish to be in the trade anyways. You’re stopped out, and that’s good. That saves you from big losses. Have faith in this philosophy.

So, you’re busy, and you have faith in your philosophy.

You engage, disengage and move on.

You don’t look behind.

That’s how you keep Manual from enslaving you.

A Little Bit of Manual is a Good Thing

Sure.

Auto is the motto.

Keep some pivotal stuff on manual, though.

It’ll give you something to do.

Because it’s pivotal stuff, it decides direction, or quantum, or what have you.

Position-sizing is ideally done on auto.

You can write an algorithm for it too.

Yeah.

You can take auto to the nth level and then some.

Keeping position-sizing on manual, though, for example, makes you remain in touch with portfolio expansion or contraction. Central.

In my opinion, setting risk:reward is a trade to trade thing, and depends upon the underlying chart. Hence, being manual here gives more dexterity.

Same goes for setting stop-losses.

Which auto strategy to look at, when, is by default a manual thing. It should be, anyways, in my opinion.

This adds spontaneity to life.

Spontaneity has a certain freshness to it which makes work fun.

Some strategies are better off when not looked at for days.

Manual helps here.

When an auto strategy stops working, one needs to manually fit it to work again.

If the strategy needs dumping, you’ll need to see to this yourself.

Creation of a new strategy – you got it – manual.

The manual stuff keeps you moving, and fit.

The auto stuff just goes on auto, and if that’s all there is for you, you’re going to start getting lazy.

Befriend manual, but don’t become a slave to manual.

A little bit of manual is a good thing.

Making Forex Go on Auto W/o Software Robotics

Charts.

Chart.

Identification…

…of trade.

Trigger Entry.

Feed in entry level.

Trigger Stop.

Choose between dynamic and fixed stop.

I like the fixed stop that keeps raising itself in chunks, chunk after chunk.

However, you might prefer a dynamic stop.

Trigger Limit. Not necessarily a must.

Put trade on.

Entry triggers.

You are now live…

…and your forex is now on auto,…

… whereby you’ve not used a software robot to achieve this.

Well done!

🙂

Dealing with the Nag

Sadly, one’s spouse is the butt of many jokes in life. 

However, at the outset, I wish to make it very clear, that this piece is not about a joke at the cost of my beloved spouse, who, by the way doesn’t even fall under the N-word category. 

Having gotten that out of the way, what kind of nag are we talking about. 

This one’s almost a constant, and starts off as soon as your money goes on the line. 

At first it’s a tug. 

What are the markets doing?

How is your holding faring?

Let’s have a look. 

Come on, come on…

The tug is very compelling. 

You have a look. 

You see that your holding is taking a hit. 

There is disappointment. 

You shut your terminal in disgust. 

You’re trying to do other stuff, to divert your mind, but your mind keeps flowing back to the status of your holding. 

The tug has become a nag. 

This is the nag we’re talking about. 

We wish to outline a strategy which takes the nag out of your way. 

So, how does one deal with the nag?

It will be there. However it won’t be in your way. How do we create this condition?

If you can manage by ignoring, that’s just great. This might not work though. Nag-value mostly defeats ignoring power. 

Enter small each time. You will take away greatly from the nag-factor. It won’t hit you as much. You will me waiting to enter again, small of course, in the event that your holding has fallen. This is long-term investing we’re talking about. You’ve done your due diligence, and are not afraid to repurchase umpteen times as long as you’re getting margin of safety. Re-entry upon a fall in price of the underlying does not work while trading. In fact, re-entry upon a fall while trading is a strict no-no. You exit your trade if the fall goes through your stop-loss. You don’t re-enter. However, the small entry quantum during long-term investing goes a long way in reducing the nag factor. 

How do we wash away what’s left of the factor?

Do many market activities, as in, play multiple markets. After you’re done with one market, forget about it and move on to another. Mind will genuinely be distracted. Nag value will be further reduced, and greatly. However, it will still be there, minutely. 

Once you are done with all your markets, close your connection to them for the rest of the day, and only open the connection during the next market session, and that too upon requirement only. Meanwhile, you’re doing other stuff. Life has so much to offer. All remnant nag will be washed under the rug. 

You need to now just hold it together and resist the lure of a nudge in your mind to see how the markets closed, or any similar urge. You’re done for the day, and don’t you forget it. Don’t fall back into the trap, or the rest of your day (and perhaps your night too) would be ruined. Ask yourself if that would be worth it. No? Then move on. Enjoy the rest of your day doing other stuff.

You’re done already!

🙂

Going for the Jugular

It’s time.

Why…is it time?

And, time for what?

It’s time to go for the jugular.

Meaning?

There comes a time, when, after working hard, struggling, doing the whole jig, the rigmarole, you achieve your basics. 

Well done. Pat on your back. 

Then you secure these basics. 

Forever. 

If you can. 

Wonderful. More pats.

Worry factor is now out of the equation. 

Your family is secure. 

Food, safety, education, all basics intact.

Fantastic. You deserve an award. Not that anyone’s going to give you one. Frankly, nobody could care less. Never mind. You know in your mind that you’ve achieved a milestone, and that’s enough for you. 

Whats the next step…

…for you?

Jugular. 

What is this jugular?

Multiplier.

X-factor.

Call it what you will.

What does this mysterious thing do?

Better question is, what is it capable of?

You’re looking to multiply your networth. 

Isn’t everyone?

This is different.

Why?

Because it is coming as a logical conclusion, and not as a first-step with no experience and no secure basics. 

You’re keeping your head-earned basics secure. 

Nothing is touching these. You’ll be surprised at the kind of courage secure basics give you to act further. 

Next, you’ve identified an area where your skill-set can be leveraged into huge profits with minimal risk. 

Specifically in the market, these areas are abundant. 

So what exactly will you be doing?

Playing on a minuscule portion of your net worth. Let’s say not more than 2 %.

Leverage.

Stoploss.

Profit-run.

Position-sizing. Scaling up upon profits. Scaling down upon losses. 

Overcoming your demons. 

Fear.

Worry.

Hypertension.

Exuberance.

Hubris.

Complaecency. 

Going beyond. 

Multiplying.

Going for the jugular. 

Did you invite the f-word?

The next trade… 
… 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? 
Risk a miniscule fraction of your networth per trade. 
Don’t make trading your bread and butter. Make it your bonus. 
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.
Don’t trade under compulsion. 
Enjoy your trading. 
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. 
Position-size your entry. 
Take the next trade. 
And so on and so forth. 
Not upto trading?
Ok. Don’t trade. Till you’re up to it.
 
Demons out of the way? 
 
Up to trading again? 
 
See the next setup?
 
Take it.

Winning Marketplay, Anyone?

Two words. 

Psychology.

Strategy. 

That’s it. 

Prediction?

No. 

Prediction is not pivotal here. 

We’re getting psychology and strategy right. 

We want winning marketplay, right?

Prediction is for losing marketplay. Prediction might be wrong. That’s when strategy and psychology save you from big loss. A big loss can wipe you out. Thus, dependence upon sheer prediction brings a wipe-out into play. That’s why, prediction is almost always relegated to the bottom rank when one talks about winning marketplay.

We’ll travel with a hint of prediction, though. Just a hint. Doesn’t suffice for losing yet. 

For entry purposes. Only.

Even this hint of prediction is bias-giving, though. Once we enter, we need to quickly lose the bias. Yeah, once we enter, we only react to what we see. 

Our system has an edge. It helps us choose market direction. After that, psychology and strategy take over. 

Meaning, after we’ve entered, there’s no more prediction in play. 

So what’s in play then?

The raw trade. 

And you.

At this point, all your mental strength comes into play. 

Oh, and your strategy. 

You do have a strategy, right?

As in, if x happens, they y, and if a happens then b.

You need a stoploss too.

You don’t have to show it. It can be mental, provided you don’t fool yourself into not using it when the time comes.

You won’t execute your stop. 

Sure. 

Again and again. 

Till you teach yourself how to. 

Till you lose big. And are still left standing. To want to enter again. 

Learning to take a small hit, again and again and again – that’s winning marketplay. Requires huge psychological strength. You acquire this. You don’t have to be born with it. 

Now comes another punchline. 

That profit-sapling just emerging…see it? You will not nip it in the bud. 

You’ll still do it. 

And again. 

You’ll nip it in the bud. 

Again and again. 

Till you teach yourself not to. 

It’s not easy. 

95%+ of all market players continue to nip profits in the bud all their lives. 

To allow the sapling to grow into a tree is the most difficult of all market lessons. Learning to let profits run is winning market play. 

To want more profits, you have to risk some of your current profits. 

No more risk, no more gain. 

You want to quickly exit and post that 22% gain on your Excel sheet. Sure. Why can’t you let it grow into an 82% gain? God alone knows. That’s how the cookie crumbles. You nip the opportunity to make that 82%. 

What’s with 82?

Just a random number. 

Am trying to get a point across. There’s a run happening. In a direction. It’s crossing +22%. Fast. Momentum could see it to +102%, to then backtrack and settle at +82%. It’s a probable scenario. 

Anyways, there are some smarties that risk 12 of the 22% and stay in the trade. Soon the 22 can even go beyond 82. Lets say it does. What do you do?

Nip?

No. 

Not yet. 

You let it travel. Momentum is to be allowed free leeway, till it halts. Let’s say it halts at 102. You say to yourself that the winds might change if 102 goes back to 82, and tell your broker to exit if 82 is hit intraday.

That and that alone is the proper way to exit a winning trade. You exit it with the taste of loss. You let the market throw you out. For all you know, the market might be in the mood for 152. You want to give the trade that chance. Thus, a momentum target exit while the move is still on would be less lucrative for you in the long run, or so I think. 

Why?

Statistics are defined by big wins. These matter. Big-time. Allow them to happen. Again and again and again. 

Now add position-sizing into your strategy. The ideology of position-sizing has been discovered and fantastically developed by Dr. Van Tharp. 

In a nutshell, position-sizing means that an increasing trading corpus due to winning should result in an increasing level risked. Also, correspondingly, a decreasing trading corpus due to losing should result in a decreasing level risked.

With position-sizing added to your arsenal, no one will be able to hinder your progress.

Psychological strength that comes from experiencing first-hand and digesting learning from varied market scenarios, coupled with a stoploss/profitrun position-sizing strategy – that’s a winning combination.

Wishing you happy and lucrative trading!

🙂 

What about Daddy Cool? 

Boney M sang this blockbuster hit in the ’70s.

I’m sure you’ve heard it, because it’s still the rage. 

he’s crazy like a fool – what about daddy cool? 

Who’s Daddy Cool? 

You tell me. 

Is it you, in a cool cucumber moment, slow to respond to stimulus, devoid of anger, master of your situation in a kinda non-bossy, non-micro-managing (cool) way? 

And what of Mr. Hyde’s Dr. Jekyll nature? 

We’re talking about your “like a fool” moment.

Just for your information, winning behaviour is often termed foolish by the crowd. 

Contrarian investing is one such example. 

Successful derivative trading is another. 

To cap it, let’s not even talk about private equity in real-estate. 

Did someone mention high-yield structured-debt? 

There are many examples of “foolish” behaviour. 

These same examples earn very well. 

So… 

… how do we do it? 

We maintain our cool. 

We keep all basics going, as they are. 

With a small portion of our surplus, we take calculated risks, in a controlled environment. 

Sure, these risks will appear foolish to someone on the outside. 

However, our controlled environment has installed riders for our safety. 

A balance-sheet might be stressed, but not stressed enough for bankruptcy. 

A lock-in might be ultra-short. 

A stop-loss might be in place. 

Collateral might be up to 4x.

There might be a highly reputed Trustee in between. 

What have you.

Have your Daddy Cool fool-moments. 

Take some calculated risks with small portions of your surplus. 

These should give your portfolios an extra-boost. 

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?

Bread and butter secured through other-than-trading instruments.

Trading with surplus.

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. 

Giving the trade room. 

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.

Remnant anger from trading?

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?

Review strategy. Discard, renew, implement, trade again. 

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. 

Stop-Loss vs Hedge – what’s what and how?

Insurance.

Makes you sleep easy.

Simultaneously, you are able to take a calculated risk.

Risk?

Why should you take a risk?

No risk no gain.

It’s as simple as that.

You have to put something on the line to possibly gain something.

That’s what market activity is all about.

You’re doing this all the time.

Day in, day out.

You’ve become used to a steady and dynamic LINE. Your line doesn’t harm you anymore. It doesn’t disrupt your life.

Well done.

How did you achieve this?

By using stops and hedges.

What’s the difference?

The difference is technical, and then practical.

For some mindsets and positions, a stop is more suited.

When you don’t mind exposing your market-play, and want to close your terminal and do other stuff, use a stop.

You get up from your desk, engage in other activity, and have forgotten about your position, because now you don’t need to tend to its needs for 24 hours, for example.

Great.

Your position will either play out, or it won’t.

If it doesn’t, your stop will automatically throw you out of your position.

The level of the stop is digestible.

Next morning, you simply move on to a new trade.

Let’s say you don’t want to to expose your market play, or, in some cases, when you don’t need to expose your market play – how do you then insure yourself?

Hedge.

A hedge maintains general market neutrality.

It leaves windows open for what-if scenarios.

For example, the trade could make money, and then the hedge could make money.

Or, vice-versa. As in lose-lose. Sure, there are win-loss and loss-win scenarios too.

The starting point is somewhat neutral, and then there are permutations and combinations.

Some people prefer this kind of play.

They like the possibility of maximizing profit from the total position at a calculated higher risk.

Also fine.

Generally, the idea is for your main position to make money and your hedge to lose money.

It might or might not play out like that.

Some like this uncertainty and know how to benefit from it.

A stop is sure-shot and straight-forward. It is low-risk as long as it is digestible.

Hedges open you to the risks of a meta-game. Play becomes more interesting, consuming, and possibly, more profitable, for experienced hedgers.

In my opinion, a hedge is slightly higher in risk than a stop.

However, both entities lower overall risk.

Currency pair forex trades are typically taken with a stop. However, they can be hedged too.

Market-neutral option-trades are typically taken using hedges.

Step into a trade with either or, for peace of mind and career longevity.

Cheers.

🙂