I have traded in India in stocks and commodities for the last 20 years. Studying the stocks and commodity markets world wide is my passion. Initially I started with Fundamentals than shifted to News based and Information based but when could not make much out of both, shifted to human behaviour and technicals for my analysis. The stocks which are fundamentally good are always good and will remain good, but their prices keep going up and down. (I believe that if the prices are going up, one should be long and if prices are coming down, one should be short ). I never recommend penny stocks or commodities in which good volumes is not there. I prefer to trade more in indices as there are less chances of them being manipulated than individual stocks. (But large cap stocks are also good.). In commodities I prefer Gold,Silver,Copper,Crude and some tradional commodites which have good volumes. In last one year I have taken around 30 seminars in various cities in India (India is a huge country) and my topic in all seminars is "How to stop giving losses in stocks and commodity trading and start earning". My belief is that if losses are stopped, then one can either earn or not earn but he will not lose. Till the time you are confident that if you are given 100 units of money and are asked to trade for six months, than you have to maintain that 100 units. I am not talking of making profits but saying that you should be confident of preserving those 100 units. When I put this question of how many investors in the seminar are confident that after 6 months of trading their money will remain the same at least, the answer is around 3% of people say yes. Best I would say is 1 out of every 20 is confident. If for majority of us, we are not confident of not losing, then how can we think of increasing our exposure or for that matter put all our money in trading. In Indian main language Hindi, share means Lion ( though actual Lion translation is sher but for my seminars I tell them it is share market or Lion in the market). The Lion never asks you to come to him in the jungle, it is the greed of investors which takes them to the Lion and obviously the Lion is going to eat most of them. (We are so afraid of the Lion that we do not even tell our father or son or wife that we are going to the broker to trade, the very fact that so many people hide from their family members that they are trading shows how vulnerable they are to giving losses - I do not know of other countries but in India this is a fact - No father wants his son to trade and vice versa.) Why is it that if I buy a stock A and sell stock B in morning, then mostly stock A comes down near closing and stock B goes up near closing. Next day I do the reverse trade and I find the opposite happening. Well, it has nothing to do with you but the big people who are taking opposite positions to you see to it that whatever they are plus in goes up and whatever they are short in goes down. After all you are playing against the big. And they can't easily lose. Well, luckily if you are sitting on their side, well you also win. If an investor's house is stolen of 10000 units of money, he will report to police or call his friends and would call his friends to search for it, but in stocks or commodities if he loses 100,000 also, he is mum and does not even tell others about it. What a paradox. When I speak this much, the first question i encounter is then how should we trade ? I start with my first principle is that Never lose more than 10% of your trading capital. (Well, this is my first point I elaborate and which I think is very important and has all to do with money management principle ) Here suppose you have 100,000 with you with which you can trade. Your first trade risk should be maximum of 10% of the capital i.e. 10,000 and should you lose that, you are left with 90,000. Next trading risk should be with 10% of 90,000. Here in next trade your maximum risk should be 9,000. Let us assume you lose this also. You are left with 81,000. Next trade maximum risk should be 8,100 and so on. This way you should go on trading. Just risk 10% of your capital. This way you will never lose out of money. Money will be endless as you will be always risking 10%. Assume at the moment that in first trade you earned 10,000, then in that case your money becomes 100,000 plus 10,000 ie.110,000. So next trade you can take a risk of 10% of 110,000 i.e. 11000 and not 21000. This way your capital will slowly increase. Remember trading is more psychological, once if all your money is in trading then it becomes a do or die situation, which will always go against you as fear and greed will play the maximum role in it. If you are able to grasp this 10% rule, you will be an all time trader and will slowly learn the art of trading. More rules of trading in my next positing as I have already written enough and more will follow depending on the feedback I get. Thanks
Quit losing: STOP all trading. Study at least 10 years till you have a system THAT WORKS. Most will not agree with me, but don't forget, most are chronic losers like you, posturing like winners. Hope that helps.
crnindia, Thanks for posting. Your 10% rule is extremely simple but still makes a lot of sense and the main obstacle to applying it is as you said human psychology. Traders want to make money with a system that will give them the feeling of having a unique edge and will be naturally suspiscious of any kind of approach that is accessible to everybody. Please, continue posting your ideas. Any rule or suggestion about how/when to get out of a position?
Stop losing and start earning.................stop trading and start giving seminars..........what a crook! How to get out of positions? use the frigging stops because systems have to be tested on using stops in the past otherwise it is not 100% mechanical system.
Base capital? Market? Which market can you apply your base capital to? Any? If you can not answer these simple questions...forget trading! Try something else. Try, mmm, let's see... WANKING?
Sorry, I meant when to get out of a winning position. For losing positions, your basic system makes it pretty clear.
There was an interesting article, I believe last Sunday NYT, which mentioned how there is a thriving Indian daytrading culture. By trading the markets, many of them can earn more than what they can in a day of hard labor. Isn't technology wonderful?