D E M O C R A T I Z I N G W E A L T H C R E A T I O N

Resolutions To Make You A Better Trader

Resolutions To Make You

A Better Trader

Nothing succeeds without a plan. This is the truth of any enterprise that you undertake. Therefore,
if you decide to trade in the stock market, remember that certain guidelines will help you trade
effectively and not get into losses arising out of sheer ignorance or foolhardiness

T
he New Year has kicked off with a bang and the Indian equity
market has witnessed a rollercoaster ride as key indices have
swung between gains and losses during the opening half of
January 2015. Every year, a lot of people across the globe make New
Year resolutions. Some view this as a point to start fresh and work
hard to accomplish their professional and personal goals. There are a
range of
popular resolutions - some will revolve around giving up bad habits
like smoking or drinking, other typical ones include losing weight
and making money. However, there is misconception among
individuals that New Year’s resolutions have to start when the clock
strikes midnight on December 31. You can always begin the following
resolutions as and when need be.
There is no parameter saying that a person cannot make a new
resolution any time of the year or restart the one they have already
broken. So, to all the individuals who set New Year’s resolutions but
are already facing a slowdown or have broken some of them, here’s
some pretty good news! The year is still young. There are still loads of
days to achieve your 2015 goal. The January Barometer theory states
that the movement of the market during the month of January sets
the market’s direction for the year as benchmark indices will have
made major twists and turns on or around this time of the year and
therefore like 2014 this year i.e. 2015 is expected to be a reasonably
exciting journey.
So when it comes to making money consistently in trading or
investing it’s important to have a perfect road map or a proper
resolution to follow. Considering this, Dalal Street Investment
Journal, along with several market experts, has framed some
important trading resolutions which will help you to have an edge in
making money consistently in the stock market.

Crystal Clear Plan

“I will plan my trade well and money will follow automatically.”

E
very individual makes a plan whether he or she is a business
entrepreneur, filmmaker, architect, or whatever. Sometimes
things turn up as we have planned and at times things turn
upside down and plans fails due to uncertain events. A proper plan
will not ensure a desirable result, but it will help us to minimise the
impact of uncertain events. In trading it is true there is no Holy Grail
and plans do fail, but a trader following a proper trading plan will be
far more likely to succeed than the one who doesn’t follow any plan.
As a trader ask yourself the following questions and refine them until
you have a crystal clear framework for moving forward as a trader.
n What is my motivation to become a trader?
n What would be the impact on my life if I don’t give my 100 per
cent in becoming a trader starting right now?
n What is my current financial situation?
n How much capital do I need to retain to support myself, my
family, and current lifestyle?
The answers should be honest and this will help you make a
framework to embark on a successful journey of making money.

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 D E M O C R A T I Z I N G W E A L T H C R E A T I O N
Resolutions To Make You A Better Trader

Discipline is Secret to Achievement

“Having a trading discipline is the beginning; keeping discipline is the
progress; staying disciplined is the success.”

D
iscipline or lack of discipline has a great impact on the
outcome of trading. Research shows that most traders fail in
the game of trading due to lack of discipline. Here is a classic
situation for a trader without discipline. You take a position based on
an impulsive decision that is not of your trading plan, and the trade
starts to tick up in your favour with a small gain but all of a sudden
after a few moments your trade drops beneath the entry price. Since
you did not make the decision for entry within the parameter of the
trading plan, you have no proper exit strategy. Now the mind starts to
wobble; it will be telling you to not take the loss and that the scrip will
bounce and that even if you get out you would be happy but then it
drops further. This dilemma in the mind and lack of discipline will
wipe out your trading capital. Always remember that the market pays
you to be disciplined.

Manage Money and Risk

“I am aware that the more I risk in trading the more likely I am to blow
out my trading capital.”

M
oney management or risk management is the key element
that differentiates a successful trader and a loser. In general
when people start trading, unfortunately they overlook the
risk element that they are taking; they only dream of potential rewards.
People should understand that risk and reward are two sides of the
same coin. Not risking too much money on any given trade is crucial
for a trader or investor. If as a trader you lose a small amount on every
transaction, won’t you stay in the game a bit lot longer than taking huge
losses in one single trade? This is primary logic and yet people end up
with a lot of stress and prematurely end the journey of trading. A
thumb rule says that an individual should not risk more than
2 to 5 per cent of his or her capital on any given trade.

Siddarth Bhamre
Head of Research (Equity Derivatives and Technicals)
in them makes lot of sense to me. Being Don’t Be Average
focused always pays off in the long run Averaging a loss-making trade has been the
rather than running around everywhere. prime reason for people to have distrust of
So trade in selected stocks only. this market. Averaging is for investors who
strongly believe in their investment ideas
Don’t Over-Eat and not for a trader, no matter how strong

T
he following five rules may sound
general but actually are the main
rules of trading. The irony is most
traders still don’t follow them.
Know Your Stock
My personal opinion is that just like you
need to be with a person to know him
better, similarly you should know how a
stock reacts in different situations. You
can’t practically understand every stock
and hence selecting 20-30 large-cap stocks
and 15-20 mid-cap stocks and trading only
Trade within limits. Over-leveraging is the
main cause of traders losing big money in
short time. One highly leveraged trade can
throw a trader out of the markets forever or
till the time he brings in more money to
repeat the same mistake again.
Get Out When You Should
This is said by many and followed by few.
We all go wrong and its important to accept
that we have gone wrong and move out of
the trade. Following ‘stop loss’ is one of the
key ingredients of which a successful trader
is made up of.
the company fundamentals are. Try
averaging a profit-making trade - difficult
but effective.
Don’t Be a Stone
Be open to new ideas of analysing this
market. The same way of research which
people have been doing since ages is not
going to give fruitful results in today’s
globalised and dynamic market scenarios.
Read more. Today, to understand equity
you need to understand a lot of other
markets as well.

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D E M O C R A T I Z I N G W E A L T H C R E A T I O N
Resolutions To Make You A Better Trader

Stick with Trading System or Methodology

“I will think less and keep practicing a trading system which suits my
trading style.”

B
ruce Lee, one of the greatest action heroes, once said, “I fear not
the man who has practiced 10,000 kicks once, but I fear the
man who has practiced one kick 10,000 times.” In trading we
have a number of tools, techniques, and studies available to our
exposure for trading in different asset classes. Traders keeps on trying
different tools and techniques to make profit in quick succession and
in this process he or she acts like a monkey who jumps from one tree
to another in search of a banana - from one method to another method
or from one methodology to another methodology – and this is one of
the major reasons many traders struggle to make consistent money as
they don’t have a clear direction. A trader should follow Bruce Lee’s
philosophy that instead of jumping from one system to another, try
and practice one system or methodology over and over again. An
individual needs to commit oneself to 12 months of continuous study
of one particular system. Yes, every system or methodology will have
failures as markets are not static and volatility will test your patience.
However, even in the hardship you need to be committed to your
trading system and keep going.

Patience is Key to Success

“In 2015 I will wait patiently for picture-perfect trade and once
I get that I will let my profit run.”

D
ennis Gartman, a successful trader and publisher of ‘The
Gartman Letter’ has this to say about the value of patience:
“Proper patience is needed throughout the lifecycle of the
trade, at entry, while holding, and exit.” One of the most useful
weapons in the trading arsenal to help fight the most common of
trading errors i.e. over –trading and over-leveraging is ‘patience’. All
successful traders possess a certain degree of patience. As a trader you
have to wait for the right opportunities in the same way a sniper waits
to take a perfect shot.
A successful trader waits patiently and tracks every action of his or her
trading system or methodology. He waits for a picture-perfect trading
set-up. He tempers his impatient urge to make impulsive entries into
the market. When the moment arrives he is there waiting to score a
home run. He has achieved his goal. So this is how a wise trader acts.
Exercising patience will help to reach the ultimate goal. The ‘now or
never’ mentality is the worst nightmare for anyone who wishes to
make money in the market consistently over longer period
of time.

Cardinal Rules of Investing

We are in a bull market. During a bull market a buy and hold strategy
1 will easily outperform short-term trading strategies.

The best way to invest is to add stocks incrementally to your portfolio.

2 For instance, investing some more into the stocks you own a month.

Have a reasonably good understanding of the company you plan to

3 buy into. Do not buy a stock because there is a lot of hype about it.
Deepak Mohoni
If you have 10-20 stocks you will have a reasonably diversified
Founder, trendwatchindia.com 4 portfolio, and this will reduce your overall risk.

This bull market has been around for some time now, so buy solid
5 companies (blue chips) to keep your downside risk to a minimum.

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 D E M O C R A T I Z I N G W E A L T H C R E A T I O N
Resolutions To Make You A Better Trader

Maintain a Trading Journal

“I will write down my daily trading records and I will read them to
myself each morning and night to keep myself focused and on course.”

A
trading journal is just like a diary; it keeps a record of all your
trading actions. It is important to maintain a precise record of
your trading results because this allows you to monitor the
overall performance of your trading decisions and how effective your
methodology or system is. Over time a trading journal will help to:
n Know the number of trades taken
n Risk/reward per trade
n Identify the trade set-ups that are most profitable for you
n Find out the overall success ratio
n Record your experiences before and after the trade.
A trader should analyse and review his trading journal each day before
he looks at the market as it can be a very good way to keep you focused
and on course. It will act as a daily reminder to yourself of what you
need to do to achieve success or your pre-defined goal. It’s important
for a trader to record correct and accurate data; if he fails to do this the
purpose of a trading journal would not be fulfilled.

Accept Losses But Learn From Them

“I am aware that trading doesn’t start until one makes losses and I will
learn from my losses.”

T
rading is a game of numbers and volatility and as such nothing
is 100 per cent certain; no one likes to lose money and the
occurrence can be painful both financially and emotionally,
especially if the loss is a huge one. The first step in learning to accept
trading losses is to adopt the correct trading mindset. All buy and sell
set-ups are based on probabilities. This means that a set-up can
produce both results i.e. wining trade as well as losing trade. A loss
does not constantly occur because the trader made an “awful trade”.
When we look with awareness and analyse a loss it will often tell us
something of high importance, something we can learn from. For
example, the loss may tell us about the current volatility of the market.
Likewise, it may also expose something about our approach and
mental behaviour while trading.
From your failures you may learn a lot. For example, the trading set-up
has a low probability of success in a particular market condition than
any other. It may also tell you that you are trading under stress – this
may be personal or professional. In short, a trader ought to learn about
oneself and where he is falling short to achieve mammoth success in
trading. Always make it a habit to note down every losing trade, take a
printout of the chart and study what went wrong. This is one of the
approaches followed by modern day athletes. For example, in a cricket
match you see a batsman getting out on a bouncer ball and when he
walks back to the dressing room he practices the shot he should have
played and avoided the mistake. He sits down with his coach and
analyses the video and his shot selection and practices hard to avoid
failure in the future.

Summary
The above road map of resolution is like a ladder to reach your ultimate
objective of making money consistently and a trader should approach it
with one foot in front of the other. A trader shouldn’t aim to conquer all
the resolutions in quick succession. To be successful for a longer term a
trader should do the right things each day, week, and month. If you are
serious about this goal, write down all the pointers mentioned above
and keep them in front of you, making sure that you follow them
religiously. Over time you will feel confident that you are on the right
path of conquering your dream of becoming a successful and wise
trader.

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