“Trading is a gambling”
“Trading is like a magnet which will pull you towards it and eventually make you bankrupt”
“How can you even think of leaving your job and getting into trading”
“Trading makes you lose money, Investment does not. Get into Fundamental analysis instead”
These are some of the lines which I have often heard from the people around me.
With absolutely no knowledge about Trading or other financial instruments, these people show their expertise and announce verdicts based on their volition. What is it that makes people hate trading? What motivates people to keep their money in Fixed Deposit/Savings Account and actually reduce its value rather than creating wealth out of it? (For those who did not get this, 100 in a FD will give you 109 after one year. But a thing that was worth 100 last year would be worth 112 this year because of inflation. That means you would be paying 3 rs extra, thus eroding the value of your hard earned money)
First of all, let make this clear. This article won’t give you any secret of creating wealth overnight. I admit I don’t have any magic indicator which would give me dazzling returns immediately. If you are in search of this, I request you to visit Chaganpuri Baba, who sits near Byculla Fire Brigade, who would tell you a better way to achieve the same. Here I would be giving you a general idea of what Trading is and what is the right kind of approach that you need to achieve the goal of wealth creating.
We are monkeys! I think all of us agree. We are Monkeys. Our brain is soft wired to eat, sleep, drink and have sex. As an Indian, we have an extra brain wiring of Cricket. Emraan Hashmi’s brain is soft wired for the sole purpose of kissing. I guess enough examples to prove my point. But the point here is, we are not fined tuned to trade. Human Brain or “monkey” brain is not inherently made for money exchange to their own benefit. The fact that 90% of the people in Share Market lose money supports my earlier statement. But the second part of the story is that 5% of the people are making profits. Let me tell you, enormous profits. So are they born with some kind of a profitable deformity? What makes them go against the notorious herd mentality and make profits? Lets try and figure it out.
According to me, 50% of the actual process of Trading is governed by emotions. Some of the common emotions that traders display when they are on the battlefield are Optimism, Hope, Belief, Thrill, Euphoria, Complacency, Anxiety, Panic, Denial, Anger and Depression. There may be more, but these are the general ones which complete the cycle of losing money.
Common dialogues associated with each emotions:
Optimism: This Stock is gonna get high now!
Thrill: Fuck you Margin!
Euphoria: I didn’t know I was a genius. What Profits! I am Warren Nimbargi!
Anxiety: Margin is fucking me, Why is the dip getting longer.
Denial: That guy is a good CEO. He would take care of his stupid investors.
Panic: Is this bear maket? I am a bloody Polar bear now. Who shorted the market?
Depression: I will never return to market.
Thus Tejas Nimbargi who thought he was a Warren Nimbargi has now realized that he is Tejas Nimbargi.
This happens mainly because of Emotion Euphoria. There is a belief that we cannot go wrong. This feeling of proving oneself correct makes us hold on to a losing trade thus debilitating our position. Moreover euphoria is aggravated by the same people who tell you to stay away from Markets.
Take an example of Silver. The rally that we experienced some time back made us believe that Silver can never fall. Advises came from all directions to put the money is silver. People took loans to invest in the grey commodity and when reality stuck, it was tears all over. Fear of being left out if not participating actually made people lose money. Optimism and hope that we cannot be wrong makes people hold on to the losing trades. For example, statistics say that 50% of US couples get divorced, but if you ask them individually they will say their chance is zero! Human Body is designed to avoid pain and loss is a emotional pain. So they hold on to a trade and eventually see their equity getting eroded.
This can go on and on…
Now that we have sneaked into trader’s emotions, I am sure you must be wondering why I am writing about this. Well as a Trader, you should be completely averse to these emotions. Your emotion is nothing but energy in motion. This is not a positive energy and actually motivates you to do a financial suicide. But being a Trader it is not possible to really avoid emotions. So how do we do it? Let us answer these questions now.
Imagine one day you get up, go to a library near your house. You ask for a book on surgery, read it that day. Now tell me will you go and perform a live surgery on the Patient next day??? Certainly not, unless you are Rajnikanth. If this is so obvious, how can a person read a book on Trading and just start the whole process just because he has some money. He is bound to lose his money. Trading is the only profession where you actually have a 50% chance of making money. But that does not take away the need of preparation from the profession. Time for some important points now!
1) Trading requires enormous preparation. Enormous! You just cannot enter this profession for the excitement purpose.
2)Traders need to keep emotion out of the game, Remember what I told earlier. Our brain is not fine tuned for Trading. You have to keep you thinking shoes out of the Trading room.
Now I introduce the hero of the story. System Trading.
System Trading is nothing but a set of rules that a trader observes so that he can carry out a successful trade. This system is based on a general set of rules that follow probability of a certain event happening. Over a period of time the system gives profits and cuts losses. The system generally follows trend. Trend is when profits are maximized. The same can happen with losses. But system does not let that happen. The concept of stop loss enables us to cut losses immediately. Thus we can say that our system has Positive Expectancy. Thus the system is guaranteed to give profits because we are not trading based on discretion but based on pure statistics.( Please do not worry if you do not understand terms here. The article is only for giving a general idea of successful trading. Explanation of system trading to come soon)
To put things in a nutshell, system trading can be compared to a Casino. Casino System is rigged in their favor. A participant may win for 1 or 2 games but over a period of time, Casino wins! Here you are the Casino. You may lose some trades but eventually the whole system is rigged in your favor! Perfect roadway to make great wealth.
There is no easy way to success. Trading is a very very easy job! But to make it easy, rigorous preparations are required. Remember, when a runner is participating in Marathon, it looks as if he is running those long distances with ease. But behind that, is the huge amount of hard work and dedication that the runner has put in. This is very easy to preach but to learn and actually implement it is very important, Trading should follow one’s own personality and say no to herd mentality. Follow rules, maintain discipline and reap the benefits of the most beautiful thing in the world. Money!