What Successful Traders Know Than Normal Traders Do Not?

22 October 2014

What Successful Traders Know Than Normal Traders Do Not? Recipe of Making Your New Year – Prosperous

Greetings from Hitesh! Wish you and your family a Happy Diwali and Seasons Greetings. If you always wanted to know what makes successful traders successful, here is the list. I suggest you print and keep it for your ready reference. The best thing would be to read it aloud for 21 days before you go to the market or open your trading terminal. It’s our way of making your New Year - Prosperous.

Trading Survival Rate:-

I have come across an interesting statistics about traders. All start with a dream to get rich quick when they come to trading. 40% die in the first month only. 80% goes out in another 2 years and only 7% remains after 5 years!!

In our experience also we have seen the similar trend.....most investor gets out of the market in 1^st year only.....very few remains till 3 years....and those who remain active for 3 years – they make tons of money and remains forever!!

Let us see the secrets for playing a long haul and be successful.

Big Profits V/s. Big Bets:-

In 1992, I had bought my first share on the recommendations of my boss – I G Petrochem at Rs.27. It became Rs.54 in just 15 days!! It was a physical share market and I had not received my shares also. I asked my boss – Sir, Don’t you think I should have bought 1000 shares? (I had Rs.27000 to buy 1000 shares). His reply was my first lesson.

He asked – what would have happened had the share fallen down to Rs.20 or Rs.10? I said – I would have lost Rs.7000 or Rs.17000. He said – “No. You would have lost Rs.1000 for every Rs.1 down!!”

Many times I see my clients bet big in expectations to get rich quick!! Say he has Rs.100000 and I had asked to buy Reliance ind. He would buy one lot of 250 shares – paying Rs.100000 as a margin. I would buy 100 shares paying for buy value!!

His logic – If reliance moves by Rs.100, he would make Rs.25000 on Rs.1 lakh, that is 25% profit!! I would make Rs.10000, that is 10% profit.

But if reliance does not perform as per expectation – he would lose substantial part of his trading capital in a month. I will recover my capital in another month or two when reliance moves in next month!!

Lesson 1: - Go for Big Profits and Small Losses. Do not BET BIG to get rich quick. You will die.

You Can Go Wrong:-

Yes, you have to accept that you can go wrong. When you go wrong – Do not think - market is wrong and you are right.

You also have to accept that you can go wrong as much as 10 times or more in a row!! Just think if this happens with you – what would your account look like? If you see this scenario – you would understand the importance of small losses!!

In last 22 years – I have seen 5 cycles of worst Mandi in market. Acceptance of above principle made me survive this time while prospering during TEJI.

Lesson Two:- Accept that you can go wrong and you can go wrong for a longer period of time than you think!!

Trading is a Profession:-

Trading is not for making easy money. Like other profession, trading is also a profession and you will have to give time and take rigorous efforts to master it.  Get ready to work for free and pay tuition fees in terms of losses till you master the art of trading. You may take years to develop these skill sets.

Trading is not gambling......for gambling Las Vegas is best!! For serious money maker – gambling is also a profession!!

Lesson Three:- Do not consider Trading a Cheap Activity. Give Respect of a profession to it and it will give you rewards of tons of money.

Let Winners Ride:-

Have you seen that normal investors book profit for Rs.1 to Rs.10....but hold losses for Rs.10 to Rs.100 per shares? It’s normal behaviour, isn’t it?

You would have seen that you sell your profit making shares to pay for losses you book.

Real traders do not sell their profit making shares. They hold it. They pay for losses by arranging the funds. E.g. If you have booked losses in reliance and you are selling ITC which is in up trend....you have two losses. One in Reliance and other is opportunity loss in ITC. Had you hold ITC, which was in up-trend, you would have covered your reliance losses fast.

Other behaviour is to average the losses. You buy at 100 / add more at 80 / add more at 60. Now your trading position has become your investments!!

Lesson Four:- Never sell winning stocks and never average losing stocks while you TRADE.

Taking Revenge With Market:-

I have seen unique pattern of behaviour with normal guys.....they lose Rs.1 lakh.....they arrange another Rs.1 lakh and come back to market to cover their loss of Rs.1 lakh!!

Many take aggressive bets to cover their losses. The end result is the loss of new capital also!!

You can’t take revenge with market. It does not care for your profit or losses. In fact, market does not know you at all. You are nobody for market. So, come out of the revenge mentality.  

Moreover, when you enter the market to take Revenge – your concentration is on revenge and not on protecting your cpaital!!

Lesson Five:- Do not get even with the market. You will get wiped out.

Use of Leverage:-

Many use margin funding and leverage to buy shares. Say you have Rs.1 lakh and your broker gives you Rs.2 lakhs margin – now you have Rs.3 lakhs. You buy shares worth Rs.3 lakhs or you use Rs.3 lakhs and buy stocks worth Rs. 15 lakhs in futures!!

If your portfolio of Rs.15 lakhs goes down by even 7%- you lose your capital!!

This situation is very common with the novice investors and they learn hard way in the market.

Ideal way to use leverage is use it as a hedging. You have Rs.15 lakhs stocks and it is moving up. You do not want to sell them. So, you do above and in the worst case you can sell these shares and pay for your losses.

Most investor play naked and they get wiped out.

Lesson Six:- Leverage is two way sword. It can kill other or you can get killed. Be alert when you use.

Snake Turned out to be a Rope:-

On 17^th Oct we wrote “what is our view of the market at this juncture?” In the same we had said – many times we see a rope as a snake in the darkness and when power come back- we laugh that it was a rope!! Market came up from 7750 to 8020 with in 3 days..........this is market and this is life.

What Next?

If you really want to make money in trading or investments – just follow us. Work with us for 3 years and we assure you – you will never have to work for money again!!

If you follow above principles – you will surely have Prosperous New Year.

Follow me on Twitter @hiteshmparikh Or on Whatsapp - +91-9869425399.

Live With Passion…Invest With Passion.

Hitesh Parikh.