“Euclid” the great mathematician said, there is no royal road or short cut to
geometry. Similarly there is no royal road or short cut to success in stock
trading. So, what is the secret success formula that we are looking for? The
secret to trading success is completely with us.
Many fabulous trader, has arranged a complete set of rules for success in
the stock markets. If we summarize all these trading secrets, we can put them
into four key points.
As a trader, always listen to the markets
As a trader, it is our primary job to interpret the market cues and trade
accordingly. The trader has to base his performance on facts and not on
opinions. As a trader, we must avoid the attraction of trying to be reverse in
the market. If you are bullish and the market is falling, it is basically
giving you a message that you have missed out key factors. Listen to the
message and modify stance accordingly.
Remember the words of Warren Buffet:
“We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.”
“We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.”
Always be systematic in your research
We always believe that traders do not have to research stocks and it is
only for the long term investors. That is not true. Even a trader needs to
understand the many aspects of the stock like Fundamentals, impact of news
flows, technical charts etc. That is the only way you can interpret signals and
project how the stock will react to news and earning flows. One of the basic
secrets here is to start small and then build positions as you build your opinion.
Remember that profits are never made in all trades but in a handful of trades. Hold
on to your profits long enough and shorten your losses fast. That is only
possible conclude in-depth research into stocks and markets.
Remember the words of Warren Buffet:
“Rule No.1: Never lose money. Rule No.2: Never forget rule No.1.”
“Rule No.1: Never lose money. Rule No.2: Never forget rule No.1.”
Supper your trades effectively
Don’t ponder all your capital on just a few stocks. E.g., if all your
trades are focused on banks, NBFCs, autos and realty, then your trades are
really complex to interest rates. If the RBI announces a hike in the repo rates
then all your trading positions will be impacted and losses could be larger
than you expected. The idea of diversification in trading is to ensure that
your trading book is not dependent on just one or two events.
Remember the words of Warren Buffet:
“It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”
“It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”
Outcome, all swellings down to discipline
You cannot make success of your stock trading activity unless you instil discipline at every level. Firstly, you need
discipline on capital protection. Work out the various levels of losses that
you are willing to take on an intraday, weekly and overall basis. The moment
these levels are hit, have the discipline to shut down your terminal and
revisit your strategy. Secondly, stop loss and profit targets are an absolute
necessity. You can never be a successful trader unless these two disciplines
are implanted. Thirdly, have the discipline of separating capital money and
profit money
Fatefully, the best of traders are those who get these basic rules right.
Trading is not about adding on risks but a lot more about managing risks. Take
care of the risks and the returns will take care of itself!
Remember the words of Warren Buffet:
“Risk comes from not knowing what you're doing.”
“Risk comes from not knowing what you're doing.”
Tags
Fundamental