Stock Trading ( Day Trading)-3

                                           iii. Why losses? - It is not that Simple-

Some say- “Trading my friend is simple. You buy low, you sell high.”. “So, what happens if you buy low, and it goes still lower?”  “You buy some more.” And so on. Simple huh. Just do not over-complicate it. It is very easy to cover up(your) lack of adequacy by claiming someone else is over complicating it. Maybe they are, but there is also a large probability that the person claiming that (simplicity), is ignorant of (your/own) why. You see simplicity is not arrived at by simple thinking. That is a delusion. Most people do not think enough. And that includes traders.

 

So, the relevant question is “Do they think enough?” And if they reach judgements very quickly, then they are almost certainly not just not thinking enough, but not thinking much at all. Einstein’s Principle of Equivalence is so simple, and so easy to state. And yet if anyone thinks that it was the product of simple thoughts, they are delusional. Traders generally avoid thinking, form half-baked impressions, and make up strange ad hoc rules and go off in strange directions. Is that complicating? Or is that not doing enough careful thinking.

 

Fact is most traders come across this career seeing a successful friend or colleague or from a story or video they read on the internet. That is basically setting them up for failure immediately. Imagine you watched a pro baseball player win a game and at the end of the day you joined a Rec League to learn and decided to go pro a month later. You would be eaten alive. However, because the barrier to entry is so low (for trading), people do just that. As a result, the washout rate is going to be extremely high, 90% plus leave within 24 months. No one knows what works for them when they start so they try it all. Breakouts, pullbacks, ranges, equities, forex, options. They are chasing 13 strategies at a time and going nowhere.  What one need to realize first is that the average window it takes to learn this career and all the nuances and specifics you need to succeed here is between 5–10 years. But one get frustrated if he cannot learn how (to success) in 6 months of weekend work and /or buying a course for Rs.1997.

 

Remember five deadliest factors that cause traders to fail are self-inflicted. The 5 deadly O’s of trading-Overconfidence*(also see below Dunning Kruger effect)- One must have the confidence to trade but this must be balanced with intellectual humility. Over Leveraging-The higher your leverage, the greater your risk on each trade, likely resulting in irrational decision making. Overriding stops- If the market hits your planned stop, then your trade is done. Take the hit and move on to the next opportunity. Over Exposure- You need to be familiar with how currency co-relations can affect the amount of risk you are exposing your trading account to. Over Trading- Do not stress over one loss or even losing a couple days in a row. Stay focused on your trading performance over the coming months and years.

{*The Dunning Kruger effect (is a cognitive bias in which people with limited competence in a particular domain overestimate their abilities.) We know so little about how markets work that we are incapable of assessing our own lack of competence. We believe we know tons about the markets and how they work. But most of what we know is nonsense taught to us by people who did not know anything either, and like us, they lacked a clear view of their lack of competence. There are so many factors that go into the stock market that nobody knows everything.}

 

In another words most people who lose money do things that greatly decrease probability of success. SO DO NOT: a. Think You Will “Get Rich Quick”:                b. Buy Penny Stocks:                c. Take advice from random message boards:               d. Gamble:               e. Involve friends/family: Listen to Talking Heads:  g. Use Money You Can Not Afford to Lose:             h. FOMO:             i. Fight the Market:             j. Think Technical Analysis is All You Need: (If big news about a stock or market comes out, the technical are irreverent, so always keep watch for headlines). k. Lose Control of Your Emotions:     

 

One more thing must be remembered that, what you know or what is your competence is not important, but what is important is where you stand against the persons and groups with whom you are competing. Retail traders must compete with firms and corporates engaged in stock market who have better capability (manpower, infrastructure) to get advance information (if not inside trading) and analyse its effect for price action. So, if your expectations are not moderated with this reality, it is sure way to failure.

 

Further it is one thing being profitable and another thing is to remain profitable. Any amateur can make money in trading but only professionals keep it. Professional knows how to keep the money he or she makes and puts major emphasis on risk management. He or she understands that playing good defence is the only way to stay in this game long term. If the market gets hot, they may be more aggressive but they also recognize when things are cooling off and know how to take their foot off the gas when they need to, to protect those profits. A professional stays grounded head on a swivel at all the times. On the other hand, Amateurs get greedy. He /she do not respect stop losses, has his/her head in the clouds. Clouded by greed and fear.

To conclude section in short -Human emotions are biggest enemy of day trading. Unluckiest person can make profit in day trading provided he follows a back-tested winning strategy 100%. Why algorithm always make profit in market because they are running on logics and strategies.