Investing in stock market can be a profitable and enjoyable proposition. It requires a great deal of patience and discipline.
Right attitude and having proper tools is a must in the financial markets. Most traders loose because they do not do their homework and they don’t plan their trades.
They also don’t realize that they are playing against the best brains in the business. One win alone force them to shed their skepticism and next trade comes out of a jubilant but ignorant and biased mind. To understand the result, one need not to study rocket science.
Most don’t understand the value of having proper tools of the trade. Some play on inside information some play on fundamentals and few play on technical. Total percentage of all these together is not more than 15%. Rest play on their whims and fancy.
That’s why only 5 to 7% make money trading. I often ask traders if they have studied any book on trading or trader’s psychology or any other relevant subject. Shockingly 95% says no and most are not willing to buy and read.
To control greed and fears one must understand the traders or gamblers psychology. Books give you wisdom and one can become a better trader or investor by applying knowledge.
YOU DON'T KNOW WHAT YOU DON'T KNOW. Knowing and applying is the key.
I would love to see those 95% do what they do when they start any other business venture. They do some market research about of the field concerned. They build or rent a shop or office. They buy furniture and stationary appoint some help and do many more things required to run that shop / office efficiently.
But would like to point it out once again “See around you. You know many of these guys. What infrastructure do they have for this business? My experience is that they have (most of these if not all out of those 95%) a copy of the pink paper in their hands every day. It is their total net worth as far as infrastructure for the trading is concerned.
One important aspect they do not realize about losing money is Draw downs. It is simple math unknown to them. Drawdowns are the biggest enemy of traders. Let me explain the term draw downs and how it is one of the most important facts of trading to know.
Suppose one start trading with a capital of Rs 100000 and loses Rs 40000. It means that he lost 40% of his capital Right? There is nothing special here but point to know and remember is coming now. You ask him how much he must win in percentage term to break even. I am sure he would think about how stupid the question is because even a child would know that a gain of 40% would be required to break even.
Unfortunately it is not the reality. I wish it was. Actually he needed to win 66.66 percent to break even of the remainder capital. Now let’s examine different scenarios.
Losses grow exponentially. I have been asked what these 95% traders should do. An answer is nothing but keeps loosing so that remaining 5% can enjoy life and secure their future. It’s another cruel fact of life. Let me elaborate. There are two categories of people in life not only in financial markets. Winners and losers. Who fits where depends on the attitude and attitude only. Only those can move out of the bigger lot who were ignorant about the requirement and once they realize what is to be done and actually they take corrective steps. Just plain lip service would not do. Knowledge is power. How many believes is a powerful statement. To me it is incomplete and as it is of no use. The complete phrase is Applied knowledge is power.
Winner would do whatever it takes to be successful. Looser will find excuses that books are costly. Software’s and data cost are too high and who has time to read books or scan through charts. You suggest that why you don’t take services of a professional. He would find another excuse here too, saying if I have that much money why would I need to trade? Or surely I would take his services but let me make that much money from the market. List never ends and soon enough his trading account ends.
On the contrary winners think otherwise. He think that I am new or I don’t know all the things and I must invest in learning either for reading books or learning for a mentor by taking some trading course.
Let me give you a very straight forward example of importance of tools of the trade. Imagine yourself as a brand new dentist. You are ready to setup your dental clinic. You have taken a shop and put up a sign board so your first patient drops in with a cavity. You ask him to sit on a stool and examine his cavity and ready to fill that one. But you have to drill a bit. Now you take out a hand drill your patient get up asking what you are up to Doctor Sahib. Don’t you have a proper machine? What would happen if you tell him that I am a new doctor and would setup my clinic when I earn enough money? Here it looks funny but it happens in the market every day and everywhere. Every nook and corner of the street you can meet such traders.
In general if one has to setup a conventional business they know tools are required first. Employees have to be hired and machinery must be commissioned first before they get even a single order. But they do not treat trading or investing money as a business. Most lose money elsewhere and come to the stock market for the want of available leverage. Pay 5% margin and trade for 100% value.
In a setup like that where you play for leverage, odds are stacked always against you. You have to do lot of preparation to get trading odds in your favor. That cost time and money. When it comes to putting time and money, traders avoid them and put themselves in the category of the losers. It is again an attitude problem.
Many people ask me for tips and I give them too. But GOD has a rule. There is no free lunch. Information that is available free often loses value and conviction. If there is no conviction you would not act or not act timely in a market where time is money. If you have paid for the information or you have put in efforts to get that piece of information you would have conviction and courage to act on it. Profit cannot be made on sitting on that info. One has to act on it.
Money management strategies are not on the priority list of this group. List is quite long. Why they remain where they are and then they vanished cribbing the market for their misfortune.
PLAN YOUR TRADE AND TRADE YOUR PLAN.