Professional Documents
Culture Documents
Foundation
Disclaimer
This book is about psychology and mind set needed for trading. It doesnt include strategies or cover
technical depth. This is a short book just to give insight about various pillars of successful trading. It
includes rules of the game and laws of risk management. This book is suited well for beginners and
can even help traders who are seeking an answer for their loss. So guys, just go through and check
out if you doing the basics right.
Benefits of trading
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Rules of trading
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Reward to risk ratio is key to success as you can lose 3 times to breakeven.
7 Pillars of Trading
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Fundamentals
1. Earning dates
2. Competence of management team
3. Relative sector strength
Technical
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Risk management
1. Professional traders focus on ELIMINATION of down side all together.
2. If Win and Lose are two variables than there are four mathematical possibilities
Big Winner
Small Winner
Big Loser
Small Loser
They try to eliminate Big Loser category.
Psychology of trading
1. Focus on how not to lose Money.
2. Take EMOTIONS out of trading decisions and focus on moment of trade.
Trading plan
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Defined goals
Daily Routine
System for selecting securities (stocks)
RMP (Risk Management Plan)
Defined trading strategies, entry and exit
Means of measuring success
Confidence in Analysis & Comfort in your Execution will take your anxiety and fear out.
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Risk of Analysis
Risk of Execution
Law 2:
1. When in doubt, get OUT! Deal with Reality.
2. If it doesnt behave like expected, get OUT! Immediately!!!
3. Flats are winners.
Law 3:
1. Learn the difference between Gambling and Trading.
2. No overnights. (Things you cant control). Never take home a Loser!
3. Dont short a stock just because its irrationally high. (Dont just buy because its
simply low.)
4. No positions before market opens. (Extended hours may be used for escape).
5. No positions before major market announcements.
6. Volatile stocks have blown more accounts than anything else.
Law 4:
Dont add to Losers. {Short term} To make profits.
Law 5:
Dont overtrade - (waste in brokerage).
Example: if your goal is 500$ profit/ day & your average gain is 0.5 $ on 100 shares
then 10 trades will get you there.
Law 6:
Dont increase share size to make up a losing trade. Its called Doubling downAnother gambling trick.
Law 7:
Have a daily loss limit
1-2 % of risk capital
Example: if 25000$ is the capital then 250-500 $ loss/ day is your loss limit.
I.e. 100 days of losses that you can sustain without having anything. Thats the worst
case.
But it gives you very essential experience, knowledge, market exposure and
skills that are valuable.
Law 8:
1. Be logical, not emotional.
2. Be unattached to outcome of your trades. Focus on your doing.
3. Scared Money never wins.
Law 9:
Dont trade if there are computer problems or slow quotes from NASDAQ
Go play golf, have nice time, read wall street journal but dont trade.
Start Early. Do check list.
Law 10:
Be Disciplined.
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Tip:
1. Write down your weaknesses and work on it. Make your plan and discipline
(customized one).
2. When youll remove all bad what will be left is all good.
3. Dont lose ..If cant escape.lose little!!!