vii. You can NOT be afraid to lose money. –
If you are
not mentally and emotionally prepared to lose money, you will never make money and this is why 95% are
not successful. Because of their weak psychology, (most traders take losses to
the heart and get frustrated why their trading strategy is not working) they(trader)
forget to understand that a loss is only a learning
lesson for trading. Remember one thing- every
day either you would earn or learn and you should be fine both ways.
Each loss will only help mould the successful trader you will become in future.
It is hard now, but in years, you will be grateful for it.
Profitability
is based on series of Transactions- Remember, if
you trade, you are going to lose (some trade). Losing is not that
catastrophic. There are strategies that give you a winning percentage of as
high as 90%. That means 10% loss. We make money
on a series of transactions (as explained below), not from a single transaction. But most associate losing with failure. They equate success to winning more trades than losing
trades. They ignore what matters most; the size
of your wins, not the frequency of your wins. A trader can win 1/3
of their trades and make millions, if they know what they are doing. They need
to follow and understand a simple formula. (avg win Rs) x (win %) must be
greater than (avg loss Rs) x (lose %). Your goal is
to increase your win amount, not win % and reduce your loss amount, not your
lose frequency.
The amount of loss is way
more important to your long-term success, then how often you lose. If you make
10 trades and lose Rs.1 on 8 of those trades, you only need to make Rs.4 on the
other 2 trades to breakeven. You could lose 80% of time without losing any
money (ignoring fees obviously). If you have a plan that keeps you loses small, and lets profits
run, and you trade enough, you WILL make money. How to ride your profits with your day trades
is the most challenging task in day trading.
Statistically you should
win about 50% of your trades, but most traders are just slightly less because
they exit loser early, which often may have been winners, so the % is skewed to the downside. You should risk Rs.1 to make Rs.2 on every
trade, at a minimum That means you never close a winner until it is at least twice your stop loss. This ONLY works if
you honour your stops. If you put on a trade and it at a Rs.1 loss, get the fuck out. We do not
care if it might come back. If you have a winner and it is a Rs.1 gain,
let it run. You will feel pressure to take it off,
but do not do it. Your emotions will kick in, especially when you see
price start to fall back, so you must fight back
the urge to take it off. We are looking for Rs.2 or more. When it hits
Rs. 2, maybe scale out and take off 2/3 and keep a 1/3 runner, but keep the
stop very tight or you can take the whole thing off. That is up to you.
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