In my long stint in the financial market and the academic world I have come across many greenhorns who want to take up trading as a career option. They have dreams in their eyes and are lured by the dazzling screens, armed with Bio and Autobiographies of pundits of investments, with the flaring expectation to be rich fast.
Also I come across many traders who want to trade and make money but don’t know the way to do it; there is no process behind their trading actions. The decisions are ad hoc and tips driven.
Remember in trading it’s a marathon with everyday sprint, you will lose some and you will gain some but after every day you should analyse your decisions. Once you start analysing, detach the emotional hat and put on your logical traits to work; you should be your biggest critic. Trading is not a hobby, it’s a serious business like any other; you need to prepare with utmost dedication before taking the plunge. There is no pause just like a sportsman after taking the field just goes on and on. Even your local Chatwala prepares from last night or early morning for his next day sale. The rewards are big and huge in trading, the gratification is instantaneous.
Here are some of the things you should keep in mind before you start trading:
- Arrange for the capital like any other business. Avoid borrowed capital as it will put stress on you and make you take strange decisions.
- Convince yourself about the reason to trade in a particular scrip.
- Maintain your stop losses.
- Have a profit target and keep trailing stop losses to lock in profits.
- Never be shy. Admit your mistake and cut losses if you feel it’s not working, even if it is far away from stop loss figure.
- Allocate a % to each trade (you decide on the percentage or use statistical methods like Kelly’s)
The beauty of trading is the training is on the job, you learn about your own self, your risk appetite, your patience, your ego and obviously the greed and fear. There is no respite from rigorous preparation; even seasoned investors go through copious volumes of information. For beginners even you have not mastered the technical analysis, try to start with positional calls by doing some fundamental analysis. Hear all the tips and calls given by the TV pundits but before taking a call do your own bit of reasoning, it always boils down to YOU, nobody will pay or take your day end booty.
Don’t jump around and boast of your big gains or sulk if there is a loss. Analyse the decisions or lack of it (the common phenomenon among the traders when they face loss), you will certainly see a pattern.
Though you might sometime feel you missed a great deal, don’t chase it, there is no haste. With market open for more than 250 days a year you would be even lucky to catch a fraction of those. Discipline should be there in every step, it should be engraved on your manual.
And ultimately temper your expectation, especially in earlier days. Just like in any other job where you earn more as you progress, you can expect the same in trading. The more techniques you learn the larger would be you gains. So employ the capital with such expectations that will take care of your expenses and savings. Be a responsible trader, and just think of this as the place where you will spend your rest of life and earn your livelihood.
Image: ‘Stock Exchange‘