Trading Rule – “Please, no Ifs and Buts in trading”…

Remember a very important rule of trading; you need to take responsibility for your trades. You can argue that prices went down due to factors beyond your control. But that does not help! As a trader or an investor in the stock markets, the buck stops with you and you alone. You may not have control over events but you surely have control over managing your risk and that is what you are expected to do. But, no excuses please!

THE IMPORTANCE OF TAKING REPONSIBILITY FOR YOUR TRADES…

When Mayank Gupta started trading in the market he was very clear about the maximum loss that he was willing to take upon himself. Each trade of his and his overall approach to markets was driven by managing risk of trades. While he had a bad start, his discipline helped him to tide through the tough times and come out a winner at the end of 1 year. What is important is that Mayank never tried to pass the buck for the outcomes to the market or to extraneous factors. Remember, every trader and investor faces extraneous risks. It is the trader who acknowledges and manages it best who comes out a winner!

FIVE KEY STEPS TO BEING ACCOUNTABLE FOR YOUR TRADES…

Merely telling a trader there no ifs and buts appears to be theoretical. Don’t worry; there is a practical approach to it. Here are the 5 key steps. Firstly, realize that every trade has a return and risk dimension. Understand these two dimensions and position your trade accordingly. Secondly, there will be extraneous macro and micro factors and that is where creating a Plan-B comes in handy. Thirdly, focus on managing your risk and checking your losses. You can never predict profits but you can surely predict losses and manage them. Fourthly, monitor your trades on a regular basis. There are some trades that will show higher degree of volatility and they signify higher risk. Immediately initiate action on these stocks. Lastly, be quick to act once a decision is made. That is your best shield. Procrastination is not a great idea when it comes to the markets. Once you have decided that a particular position has to be cut or added on to, just move in and do it!

“In the stock markets you are just as good or as bad as your last trade. Learn to be consistent in the markets” – Anon

6 THEMES UNDERLYING THE “NO IFS AND BUTS” RULE…

  1. The first theme you need to be aware is that you need to treat your trading or your investment activity as a full-fledged business. You need to show the same degree of passion, commitment and fiscal discipline that you would show in your own business. Treating the stock markets as a supplementary activity is never a great idea to make money. On the contrary, it is a recipe for making losses. You have no control over whether eventually you will make profits or losses. But by treating your trading like a business, you stand a better chance of being profitable in the markets.
  1. Focus more on strategy rather than on opinion. The legendary Warren Buffet once said that, “Wall Street is the only place where businessmen travel in limousines to seek advice from young men and women who take the tube”. The crux of this quote is that opinions are as worthless as they are available in plenty. As a trader or an investor, your primary focus should always be on your strategy. You are going to win some trades and you are going to lose some trades. What you do when you win and what you do when you lose is what matters. You obviously know the possible scenarios before you go into trade. Try to envisage the possible scenarios and evaluate your trade sensitivity. Have a back-up plan for each possibility. That is the best you can do as a trader and that is exactly what you should focus on.
  1. Trading never was hypothetical and never will be. It is always real as it involves real money and that money belongs to you. There is no point taking a trade hoping that the Fed will hike rates or the RBI will cut rates. Your focus should be more on what happens if your expectation does not materialize. Once you are prepared for the worst, then the rest will following logically.
  1. Move quickly on the losers and move slowly on the winners. Surprisingly, most traders do the contrary. They stay too long on losers and move out of winners too early. The best of traders will only get a few of their trades right and so make the best of it. That is where you have to strategize based on the macros, the risk factors and the use of trailing stop losses. Don’t waste your time over what could have happened!
  1. Always focus on that which cannot be controlled. Why worry about whether BREXIT will happen and whether the Fed will announce a tapering of the bond portfolio. Frankly, you do not have any control over either of these events. Your approach should be to get your stock selection right and then have a back-up plan to cover your risk if anything untoward was to happen. That makes your job a lot simpler.
  1. Invest heavily in reading, analysing and continuously upgrading your skills. You live in a dynamic world where ideas and technologies are changing on a daily basis. Your biggest investment should be on constantly upgrading your skills. To understand some of the new technologies and identify investment opportunities, you need to be very well equipped intellectually. Only continuous learning can be of help!

THERE REALLY ARE NO IFS AND BUTS IN TRADING…

If you observe some of the finest traders in India and around the world, you will find that what distinguishes them is their willingness to take responsibility for their trades and always trade with a Plan-B in place. At the end of the day, risk is what you can realistically control and therefore that should be your sole focus. Excuses and justifications will not help you along the way. It is time to get accountable for your trades!

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