When an aspiring trader asks me to recommend books on technical analysis he or she is often surprised at my answer. While I do have a technical favourite or two (besides my own) I am quick to redirect him or her to books on trading psychology.
Technical analysis is worthless without a thorough understanding of the psychology behind winning and losing, buying and selling, fear and greed, risk versus reward, the past versus the future, the knowable versus the unknowable. Technical analysis is best used as a psychological tool to help the trader manage random price action and the emotions associated with it, not as a way to predict price action and thus confirm the trader’s egotistical need to be right. Psychology first; technical second.
One of my favourite “go to” authors on trading psychology is Mark Douglas. Although he is best known for his book Trading In The Zone, Mr Douglas’ first book The Disciplined Trader is a gem of a read also. I recommend both but start with The Disciplined Trader. It will help you better understand and appreciate the principles discussed in Trading in the Zone.
The following is from the INTRODUCTION and provides the thesis for the book. In it, Douglas discusses the following:
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If as a TRADER you want to have disciplined and profitable trading, The Core Concept you need to Understand is
As a Trader, you do not have any control on the market.
Nil Control on Market
You’ve either figured out or you will figure out the fact that not much at all remains under your control as a trader. Dealing with an endless set of variables using a mind that’s geared by nature to defining constants is a tough task. Most of traders focus on returns and not focusing on the process of trading.
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Traders generally buy and sell securities more frequently and hold positions for much shorter periods than investors. Such frequent trading and shorter holding periods can result in mistakes that can wipe out a new trader’s investing capital quickly. Here are the ten worst mistakes made by beginner traders:
1. Letting Losses Mount
One of the defining characteristics of successful traders is their ability to take a small loss quickly if a trade is not working out and move on to the next trade idea. Unsuccessful traders, on the other hand, get paralyzed if a trade goes against them. Rather than taking quick action to cap a loss, they may hold on to a losing position in the hope that the trade will eventually work out. In addition to tying up trading capital for an inordinate period of time in a losing trade, such inaction may result in mounting losses and severe depletion of capital.
2. Failure to Implement Stop-Loss Orders
Stop-loss orders are crucial for trading success, and failure to implement them is one of the worst mistakes that can be made by a novice trader. Tight stop losses generally ensure that losses are capped before they become sizeable. While there is a risk that a stop order on long positions may be implemented at levels well below those specified if the security gaps lower, the benefits of such orders outweigh this risk. A corollary to this common trading mistake is when a trader cancels a stop order on a losing trade just before it can be triggered because he or she believes that the security is getting to a point where it will reverse course imminently and enable the trade to still be successful.
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The original article is written by Steve Burns and is available here.
As a trader, your #1 goal is to keep your current trading capital safe and secure. Your goal as a a trader is to make money and not lose money. Many new traders lose their trading capital in the first year, but these ten tips will help you keep your capital intact so you can make it grow.
- Do not start trading until you have fully educated yourself. Trading tuition is expensive when you trade first and learn later.
- Do not trade an account so small that commissions will end up being a big drag on your returns.
- Do not trade until you have a well developed trading plan.
- Trade a position size that does not cause your emotions to become so loud you can’t hear your trading plan.
- Only trade in markets you fully understand.
- Only take valid entry signals and do not chase. Let your entry point trigger first.
- Only trade in liquid markets so bid/ask spreads do not devour your account.
- Never risk losing more than 1% of your total trading capital on any one trade through proper position sizing, and by placing stop losses at the correct price levels.
- Never expose your total trading account to more than a 3% loss of total trading capital at any one time, on one day.
- Never move a stop loss. Take the exit the first time it is triggered.
This is a post by Mastermind, Bramesh Bhandari. The original post appears here.
If you are a LOSS making trader, answer the below question to yourself honestly.
What is the main Reason for Your Trading Loss? We are running a poll on Twitter Please participate
- Unable to Understand Market Trend as it moves from Sideways to Trending or
- Is it your system or strategy? You are not having the Right Strategy and Losing
- You — By repeating the same mistakes again and again
As per my experience with trading over 12+ years and also talking with 1000’s of traders over a period of time, my understating is
Traders are often their own worst enemies. The simple reason being most of the traders after doing a big loss will turn to charts and try to find their mistake. What I missed in catching this move, should I apply more indicators or should I learn something new to catch big moves etc. Readers can go back to thought process they went once they took a big loss or missed a major rally.
It’s easier to look at charts and imagine what the market might do or find an excuse , compared to turning inward and engaging in self-examination to determine if any changes in your approach to trading are required.
A very simple exercise will make you understand this
Go back to your past traders, highlight the trades where you made maximum losses, analyse all the loss making trades. You will observe over a period of time you have repeated the same mistake again and again. Be It taking an impulsive trade, trying to find top or bottom, not putting SL , taking over-sized position etc.
What would happen if you identified a recurring mistake? Would you do anything differently while trading, as a result? Would you need or use some type of structure or process to assist you in not repeating the same mistake?
The only thing we actually have any control over is our behaviour. The market will do what it will do. If one is truly interested in maximising / improving P&L, then focus on not to repeat your mistakes again. We may not be able to control our emotions, but we can learn to manage them.
Trading Journal is one of the tools which can help you in understanding your mistakes and over a period of time not repeating them.
This post is authored by Mastermind, Deepak Shenoy and appears here.
Mauritius based entities that Invest in India – from Private Equity investors, VC funds, and investment pass-through vehicles (which issue participatory notes) will start to see taxation apply to them from April 1, 2017. This is due to a treaty change between India and Mauritius.
Here’s the full text of the treaty change.
Okay. Here’s the deal.
Currently, if you are a foreign investor, you can invest in Indian companies – both listed and unlisted. When you sell them, you would pay capital gains taxes in India (as many NRIs do) and some of those gains are withheld before you get the money.
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