Tutorials

A General Trading Concept

Most swing traders assume the “Trend is my friend” and trade with the main trade with the main trend of the chart. If the security is in an uptrend, the online trader will “go long” that security by buying shares, Call option, or futures contracts. If the overall trend is down then the traders could Sell Deliveries or short futures contract or buy put options.
As bullish swing trader, you should look for an initial movement upwards as the major part of a trend, followed by a reversal or pull back, also known as “counter trend” Then, following the counter trend you will want to see a resumption of the initial upwards movement.
Trending stocks rarely move in straight line, but instead in a step-like pattern. For example, a stock might go up for several days, followed by a few steps back during the next few days before heading north again. If several of these zigzag patterns are strung together & the chart appears to be moving higher with some degree of predictability, the stock is said to be an uptrend.
Traders should accept that trade sometimes dont work, in fact trade fail more often than those sustain. Since there is no method of foretelling which trade will work, you have to be consistent & discipline in the market to be profitable.

Focus Should Be On Losses

Time to time, we give trades mostly in direction of trades. Sometimes trade gets stopped out & sometimes it met with its target.
Getting stopped out is not an indication of trade being wrong & trend is terminated. Stops are used only to protect our capital & limit risk.
Trading is all about managing risk. Even though if you are right 50% of the time, you will still end up making some money in long run provided you cut your losses short and let your profits run.
In order to be successful trader, you need to focus on losses that profits. Rather than stressing on great entry strategy traders should focus on money management.
Successful trader predetermine where they will get out of trade that against them. Such an approach allows them to limit their losses to a well defined risk level.

“Profit always take care of themselves but losses never do”

Following the Trend

Trend following is a strategy that attempts to capture gains through the analysis of an asset’s momentum in particular direction. The trend trader enters in to a long position when a stock is trending upward (successively higher highs). Conversely, a short position is taken when the stock is in a down trend (successively lower highs).
This strategy assumes that the present direction of the stock will continue in to the future, It can be used by short, Intermediate or long term traders. Regardless of their chosen time frame, traders will remain in their position until they believe the trend has reversed – but reversal may occur at different times for each time frame.
Following the trend is an essential strategy for successful traders, determine the rtend and follow it. Make sure you trade in the direction of the trend. Buy dips if trend is up and sell rallies when trend is down. Let the longer time frame chart determine the direction of trend and use the short term chart for timing.
Sometimes in such a strong trending stock prices hits the stop. This does not mean that the trend is changed. We use stop to manage our risk only. In such a scenario we should wait for another buying opportunity.

Trading In Choppy Market

It is important to stay focused on the big picture when trading. A losing trade should not surprise us. It is a part of trading. Likewise, a winning trade is just one step along the path to profitable trading. It is the cumulative profits that make a difference.
Once a trader accepts wins and losses as part of the business, emotions will have less of an effect on trading performance. That is not to say that we can not be excited about particularly fruitful trade, but we must keep in mind that losing trade is not far off.

For most traders, choppy markets are very difficult to trade. In such an environment profitability of profitable trades reduced substantially. Whenever markets gets choppy most traders loose most of their gains which they earned in a trending market.

Participation during choppy market leads to overtrading. One of the best way to trade choppy market is to avoid them completely at times you also need to know when to stop trading which can eliminate most of their losing trades.

Managing The Risk

Risk is the corner store of trading. Trading is all about managing risk. We focus too much about “How much profit we can make” rather than “How much we can lose”. An astute and smart trader takes those risks that will not put him out of business even if he makes several mistakes in row. There is no fixed amount of money you can lose in a trade. An acceptable risk depends upon the size of your trading account. Before making trade, you have to define your trading risk on that particular trade which is the maximum amount of money you are willing to risk / lose. Sometimes we are right, sometimes we are wrong. At times we make money, at times we lose. But what if we are wrong and still end up making money? Risk management teaches us how we can do this. You can control risk by proper money management. Proper position of sizing mean not risking more than 1-2% of your equity on any single trade. If you risk too much on trade and it goes against you, easiest way to wipe out your trading account. Trader should accept the fact that most trades don’t work and one which works they take care of small losses. If most trades wont work why risk a large percent on an account on one trade. Trend is your Friend Can we predict how long the trend will last? There is nothing concrete with trend i.e. its close to impossible to predict how long the trend will last, So rather than spending too much time on predicting, its better to sit and take advantage of it when they occur. The trick is to identify a trending market so that you can get the most out of it. Whenever you enter a trade, you need to have a predetermine Stop Losses. This is the way to graduate from an amateur to a professional trade. You should know where you will get out before getting in a trade. How much amount to risk on a trade should be determined by the Stop loss & stop loss should be determined on Technical basis. Traders should accept that trade sometimes don’t work, in fact trade fail more often that those sustain. Since there is no methods of foretelling which trade will work, you have to be consistent and discipline in the market to be profitable. Trading is a marathon. Wonderful opportunity comes to those who trade with patience and thoughtful plan with effective use of their available capital. Great trades sometime come with small losses. Keeping losses in check is a key to successful trading.

Money Management Rules For Traders

Money management is of great importance for successful trading. Without predefined money management rules its very hard make money consistently.
Money management is also being reffered as risk management or bet sizing, which help you protect your capital from loosing trades and its one of the most important yet highly ignored trading skills.
In order to master these rules you need to llok at the answers to these questions :
How much money you can bet on a single trade? So that you don’t end up loosing a large portion of your capital. The best and shrewd traders never risk more than 1 – 2% of their trading capital on one trade.
You must limit the maximum number of open position, as it become too difficult to handle / manage trades when market changes its direction. Limit the number of open position to you capital sizing & risk appetite.
It states how much capital a trader is willing to risk in order to gain a potential reward.
If you risk Rs. 100 to potentially make Rs. 200, the risk reward ratio is 1:2, Never try to have a risk reward ratio less than 1:2.

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