Most new traders overtrade.
Overtrading is when you (hoping to receive the maximum possible profit) opens a huge position consisting of multiple lots.
Considering the typical market activity, it’s easy to lose half or even all your trading capital.
This problem is sometimes directly connected to insufficient trading capital.
But it’s more likely due to the trader lacking knowledge of money management principles, which means lack of competence to control their trading capital properly.
Your trading capital is used to earn money. You should treat each rupee is like a newborn baby.
Your first and foremost responsibility is to protect it. If you lose it, you have less to help you earn money.
When you take a hit, you have got to think your way through it logically.
Questions to ask yourself when you have taken a hit.
What is the lesson here???
What did I learn????
How can I avoid this next time????
What is my strategy the next time I encounter this situation????
Did I remember to pat myself on the back for the good trades this month?????
Did I remind myself that I have had many more successes this month??????
Did I remind myself that this is just an opportunity to do it better next time?????
Did I use proper discipline????????
Did I wait for a proper trade set-up??????
Did I follow my trading rules????????
How long am I going to wallow here???????
Did I remind myself that the market is very generous and will always give me plenty of opportunities for profit???????
Do I have more money now than I did at the beginning of the month???? (more…)
Expectancy along with position sizing are probably the two most important factors in trading/investing success. Sadly most people have never even heard of the concept.
Expectancy is the average amount you can expect to win (or lose) per rupee at risk.
Here’s the formula for expectancy:
Expectancy = (Probability of Win * Average Win) – (Probability of Loss * Average Loss)
As an example let’s say that a trader has a system that produces winning trades 30% of the time. That trader’s average winning trade nets 10% while losing trades lose 3%.
Expectancy, position-sizing and other aspects of money management are far more important than discovering the holy grail entry system or indicator(s). Unfortunately entry techniques are where the vast majority of books and talking heads focus their attention. You could have the greatest stock picking system in the world but unless you take these money management issue into consideration you may not have any money left to trade the system. Having a system that gives you a positive expectancy should be in the forefront of your mind when putting together a trading plan.
A few days ago, I printed myself a little label and adhered it to the base of my monitor:
Now, before I close a position, I glance at it. If necessary, I will say the phrase out loud (I stop at nothing to enforce discipline). That little sticker has already made me a lot of money. I suggest you consider one for yourself.
Foreign investors funneled more than $15 billion to Indian equities in 2009, sending stocks up more than 75% and strengthening the rupee . With expected positive growth rates for the year and higher interest rates differentials that favor emerging markets, investors are looking to India as a good place to stash their wealth.
The Reserve Bank of India (RBI) has already taken the necessary precautions to stave off a potential asset bubble forming in India’s stock and real estate markets. India’s officials are welcoming the fund inflows with open arms, but Finance Minister Pranab Mukherjee says monetary tools will be implemented if inflows become disruptive to the economy.
RBI could stem inflows by:
We are expecting very soon by Next month or First week Jan’10
- Imposing taxes on inflows; this is considered to be the most likely tactic the government would take, especially when it comes to inflows that could lead to a housing bubble
- Auctioning quotas for foreign credit to increase the cost of raising funds
- Using market intervention bonds and raising cash reserve ratios