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Trading System - Key To Success In Stock Market

by Admin 24. September 2015 20:19

 Fear and greed are the two basic emotions which drive the markets. Fear causes the markets to fall whereas greed pushes the markets up. The very fact that 90% of traders consistently lose money into the markets points to the fact that markets are driven primarily by emotions.

What causes these emotions and the pain of losses thereafter?

A faulty trading system, non-adherence to a good trading system or the absence of a trading system completely.

A faulty trading system prevents one from entering the trade at the most opportune time. A late entry causes one to miss out on a sizable amount of profit.

Not adhering to a trading system compels one to continue staying in a trade way past it’s time thereby giving back to the market a sizable amount of profit which could have been locked otherwise.

Not having a trading system is like gambling with a no limit account.

Thus, it is extremely important to formulate a trading strategy and see it through to the very end of the trade, irrespective of the outcome. Once the trading system is tried and tested and found to fulfil all the required criteria, it should be strictly adhered to.

A good trading system is one which allows an early entry and the latest possible exit. Besides this, it also has a strict point of exit with a minimum loss should the trade not go in the desired direction (stop loss). A good system allows one to lock profits at regular intervals without getting stopped out. It also allows room for re-entering the trade should one get stopped out.

Trading systematically results in minimizing losses and maximizing profits and a good trader is one who always puts the potential loss before the potential gain.

By thus trading correctly with a good system, one is able to overcome both greed and fear and becomes a part of those 10% who actually earn consistent profits from the markets.

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Trading and Investing Objectively

by Admin 21. September 2015 08:05

 Trading & Investing is about making money. That is about all that is there to trading. If a trader has any other objective to his trading he will most certainly fail for he will have deviated from his objective. Having said that, one may classify traders into two broad categories:

The trader who trades to see how much the markets wish to give him 

AND

The trader who decides how much he wishes to take from the markets.

The first trader takes his position and then moves and flows with the market locking his gains as he moves along until his trail is hit and he is thrown out of the trade. He becomes a victim of market corrections and pull backs and always loses out that little more he could have earned if he had chosen to exit at will instead of allowing the market to throw him out.

The second trader takes his position with a certain financial objective in mind and exits his position as soon as the same is achieved. He too locks his gains as the trade moves along but exits his position as soon as his objective is achieved. He does not care what happens to the trade after that and moves ahead looking for another trade. Such a trader sometimes loses out on a big move just because of his premature exit.

Yet, both are content and happy as they have achieved their objectives. The first trader waited for the market to decide how much it wished to give him and is happy taking whatever was given to him. The second trader, on the other hand, decided what he wanted and took it and hence has no regrets and is happy too.

But to a novice trader, both the above traders are losers in their own respective styles as they have left/given back a sizeable part of their gains. He feels that had these traders spent more time on analysing their trades before execution they could have gained much more.

What the novice trader fails to realise is that markets are unpredictable and the greatest of experts have failed in accurately predicting the markets. The markets are driven by innumerable factors the greater ones being fear and greed. How can fear or greed be quantified?

Traders A and B have spent years trading the markets and know that it is not the accuracy of one’s prediction or assumption about a trade that makes one a successful trader but it is the ability to consistently pull out money from the markets that makes the cash registers look green. Hence they prefer to leave a trade in profit, even if it is less on various occasions.

Consistently making profits, besides boosting the morale of the trader and building his confidence then becomes the stepping stone for the next step – increasing the capital for greater profits.

If a trader has been trading objectively and is earning, say, 10% profit per month on his trades consistently for a year, he may then consider the possibility of increasing his trading capital thereby increasing the amount of profit. By this time he is confident of earning 10% per month from the markets and can take any further risk that is involved. He becomes a cash machine which churns out 10% consistently. Or 20% or 50% or even 100%.

There is no limit to the amount one can make in the capital market. It is all a matter of persistence, patience, discipline and consistency.

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