Learnings from mistakes....

Shall we learn from Friday’s Price movement…. It was nightmare for most of the traders on Friday. Indeed it was the Black Friday, proved to be unlucky for many more traders. In the morning, Infy result failed to pressure overall market in decline zone and remained in bullish mode. Considering Thursday’s upward journey, traders remained in long trade and found themselves safe from unlucky 13th Friday. But at noon suddenly in just few seconds heavy selling emerged and Nifty drifted to 5185 from high of 5306 in just 5 minutes….!!! Considering strong up move many more had cut their shorts and taken long and not even book partially…..even though they were intraday traders…. Many more had not even booked partially …many more even failed to put stop loss for their long trade…Whipsaw resulted into heavy losses for many more……Most of the traders were busy in finding the reasons behind the fall….watching TV, read SMS and telephoning their friends …to know the reasons for this sudden fall…. Even I got so many rings and messages at that time….all were busy in analyzing the reasons instead of cutting their trades at the psychological stop loss level, and ultimately suffered heavy loss. Those who have booked partially saved…Where is the mistake….? Keeping psychological stop loss creates hesitation to cut the trade when price reaches to that level and weakens our determination power. It is better to put stop loss (even though you feel it is wrong SL level) in the system. If your wrong stop loss is eaten away by the market, you can again take new position, if you feel so…but if you have not put SL in the system, the loss may become unbearable that you fear to take new position. After taking position, always keep already opened the “order” window so that you can immediately put the order. If you had long position, keep opened “sell” window and if you have short position, keep opened “buy” window….you have to just fill in the quantity and price only so as to save the time. This is so because most of the traders are not so fast in executing orders while watching price movement on the screen. As per usual habit they go on analyzing the reasons and waste time in thinking instead of concentrating on price movement. Even the positional trader should put stop loss daily at the beginning, if their entry is near to the current price level. If possible and get chance, they should not miss an opportunity to book partially in the gap up / gap down market and put stop loss for the rest of their holdings. An intraday trader must remain not only alert, but also remain fast in -             -     picking scrip,             -     executing buy/sell order along with stop loss,             -     booking profit at successive stages, and             -     trailing stop loss. Here I emphasize the word “fast” ….. He has to sit tight and also tight his sit belts while observing price movement on the screen. He should not feel any hesitation while booking profit partially or booking loss resulting due to stop loss. Intra day trading is beneficial only to those who are in a position to watch price movement on the screen during market hours.   If he is compelled to leave the screen for any personal or unavoidable circumstances, he must put stop loss order for his holding, and then should leave the terminal. This is the most compulsory step which he must follow. After leaving the terminal or screen, he must remain in touch with his friends, mates, or broker etc just to know the current price levels of his holdings, and if required, should take action accordingly. Many a times intraday traders hardly do this. Even positional trader should keep such habit. Again an intraday traders should not trade in so many scrips, but should select only few scrips to trade so that price movement can be observed easily, and orders can be put at right time. If he trades a number of scrips at the same time, it becomes very difficult for him to observe price movement of all and remain fast in putting order for the same. Why price is important…? Price is determined by the buyer and sellers in the market. Means demand and supply play an important in determining price level in all the market. There are so many factors affecting demand and supply and thereby affecting price. All these factors are reflected in price determination. And analyzing price is easier that to analyzing all these factors. If a trader wastes time in analyzing reasons for rise and decline, he most of the time fails to execute order in time. If the power of bad factor is too much, the price will definitely go below the support level, if the power of good factor is too much, it will definitely go above the resistance level. Then why should a trader waste time in finding which factor proved wrong and which proved right. Being a trader he should analyze price and price only and should not go deep in analyzing factors affecting price, otherwise he will be lost in the vicious circle of findings and findings …and trapped in it in such a way that he neither trade efficiently nor analyze any factor. An intraday trader should do some home work after market hours for study purpose. He should keep ready all the related numbers like daily–weekly pivots, daily–weekly high/low emas, high/low made during last few days and try to co-relate all these numbers with the price movements. Though these numbers are ready in my computer, my personal habit is to put these numbers in black and white in a note book page and keep ready while watching screen, because an impression for the route of price journey is automatically created in the mind while writing these numbers on a paper. And once such an impression is created, mind feels less hesitation in taking trading decisions for entry and exit, either fully or partially. A trader whether intra day or positional, should keep full record of his trades done and evaluate them during certain interval of time.  Many traders do not keep records of their trades and then fail to find out mistakes they committed. They simply look at their funds only, if their fund rises, they become happy, becomes joyful and go on enjoying profits earned …but if fund deteriorates, they become unhappy, become fearful, lose confidence (which most of the cases happens).....they fail to rectify their mistakes only due to lack of records. They fail to learn from their mistakes committed in the past. (to be continued…)