Most important lesson of all, trade with the capital you have surplus.Dont trade with borrowed money, ie margin money.There are many opportunities, where you can earn enough,but one bad trade can wipe you out.This is the reason why many traders who have made enough money in a few trades go bankrupt in one bad trade.
Greed is the most important reason for over investing in a single trade.Always remember, if you have to continue trading and make some serious money, stay focused on your money management and risk management skills.
Nifty has been in red for the past few days and those who were on the long side lost money, if they were prudent enough, they would have limited their losses, but those who over traded would have lost it all.Dont jump into unnecessary trades, be focused and reap the benefits
Just when all hope was lost, short covering has lifted the markets. Candlestick pattern which has come to our help is Hammer.
A hammer is a candlestick which notes the end of a decline.It has to be confirmed with a gap up with expanding volume. Those who had the courage, entered long position today, but confirmation is needed before adding more longs.See the chart below and watch the magic of hammer in the coming days.
Head and shoulders pattern is suggested by a few analysts.Calculation is bit difficult, but you can see the chart and decide later how this scenario played out.
Trading nifty on the shortside was perfect for this week. On successfull completion of a trade try to introspect the positives and negatives so that you can make better decisions.
After the completion of trade in options I have done a bit of analysis on my trades and found out that, I could have done better.
1.Did not lose money
2.Predicted the market direction correctly
3.Correct entry price
1.Didn’t maximise profit.
2.Didn’t wait till the target to exit.
3.Spent lot of time on it.
Going forward, correcting these anomalies should be the main aim while trading.
One of time tested mantras in stock trading is, never try to catch a falling knife.
When you see that a stock you are holding is in free fall without any reason whatsoever. It will be our natural tendency to sell it or average it. Selling the stock can be a good idea, but you may regret the decision later because you never know when the stock is going to reverse.
Averaging the stock is good, but you should know when to buy more, because a stock which has fallen can lie dormant for many months or even years without any movement at all.
Averaging the stock when it is falling will hurt you in 2 ways
1.You will lose money
2.Your investment will be dead money for a long time.
I can give 2 examples
I bought this stock around 170 levels 3 years back, it corrected.Hoping for a bounce back, I averaged it at 148.It corrected till 90 levels and showed sideways movement until the breakout a few months back.My money was dead for 3 years.Once breakout happened, the I recouped the losses.
ESS DEE ALUMINIUM
I bought this share at 384, it had a freefall till 120 levels from 700 levels.I didn’t average the stock. The stock broke out from the lower levels within a few days and is in upper circuit day after day.Currently trading at 311.
The mistakes I made were
1.Averaged a stock when it was in free fall.
2.Didn’t buy when the stock broke out.
The message is simple, NEVER CATCH A FALLING KNIFE, CATCH IT AT THE HANDLE, WHILE THE BLADE IS UP.
Nifty made a late come back today, from the lows, it came back strongly to end above 8700.In identifying candlestick patterns I am a novice, and trying to learn. Yesterdays call was taken looking at bearish candle. I am not sure of the present candlestick.Since it does not imply a trend reversal, it may not signify much.I am in doubt whether this is a Hanging man or Hammer.A hammer signifies bullish reversal and hanging man signifies bearish reversal. It may be neither of these, anyway I am uploading the chart for future reference
Hope the trend continues and does not reverse in the bullish direction. Have to sell off the position if bullish gap up occurs.
I made a prediction of nifty going down yesterday.Today I was proved to be right. It was a volatile day, I watched nifty from beginning to end, it was negative throughout trade. I had bought 8500PE yesterday at 25, today it rallied till 43, and I unloaded part of my position at the high, but I also had to sell part of it near the end for sizing the position. In the end I followed the market from beginning till end and made only paltry profit. I could have done better, but in the end all that matters is not losing money on a trade.
Pros of today’s trade
1.Market moved in a big way in the favor of shorts even though the US , most of the Asian markets were in the green.It proves that no matter what, stick to your plan.
2.Did not lose money.
Cons of today’s trade
1.Took big position leading to panic due to fear of loss.
2.Spent lot of time in front of trading terminal, should have avoided that, considering all that matters is open and close.
3.Should have booked more profit at 41.5
Today I learned a lesson, stick to the plan, no matter what others think of it.
Do not panic when market gets volatile.In the end take the profit and walk away