Trading and Capital preservation

Capital Preservation

Very simple. If you don’t have money, you cannot trade. This means protecting your money is your prime concern when you trade frequently. Profits will come eventually. The best way to minimize risk is not to trade when conditions are not to your liking. Also, trading in a sideways market is not healthy for a professional trader. Volatility is alright as long as you know how to manage risk. Use leverage only if you can trade responsibly, not recklessly. Leverage is a curse for those who do not trade responsibly.It is famously said that you should trade money that you can lose. For most of us, that amount is very difficult to define. You should spend a lot of time to think what it is for you. There are established money management calculations to help in doing this. Before starting to trade, you should indulge in judicious planning. When you have started active trading, never forget to keep the concepts of Money Management in you mind all the time.

Trading is Boring

The popular myth that draws most people to the stock markets is because they think that trading is easy and exciting. This is as far as it can get from the thruth. Trading is boring to professionals when executed well. There is Buying and Selling. But the most time should be spent in Waiting. Waiting for the right opportunity to surface, waiting while holding good positions. If you seek thrill, try the roller-coaster ride, your kids too can enjoy !

Breathing and virtues

Breathing

Patterns in Day TradingWatch your breath when you take a position in day trading. It will definitely not be normal. My observation is that more brittle the emotional make-up of the individual, more hurried is the breathing. In any case do emotional traders really survive eventually ? Maybe if they learn to channelize it into useful energy. But that is a hard and long story. We will deal with that some other time.

Humility

Being Humble is not just a heavenly virtue heard in churches. The mature trader is always humble, after being battered time and again in the markets. So why not start it a bit earlier ? Believe me, it pays to be humble, otherwise one goes to the market every day with confidence only to be smashed time and again. This is very common among traders early in their career.

More on Trading Emotions

Confidence
Without confidence it is not possible to achieve much in other streams of life. In the equity markets, it is doubly true. If you lack in self-confidence, doubts may creep up in your mind. This may lead to indecision, which in turn lead to missed opportunities and losses. For day-trading and short interval trades, confidence is of utmost importance.On the other hand, on down days be careful. In many instances, you may be tempted to book small profits just to make your day balance sheet look pretty. This is not the issue. When you are faced with loss-making trades sooner or later, that same daily balance sheet will not look pretty at all.Never be far away from the correct principles of trading no matter what your mind is tempted to think. It is just too painful to reinvent the wheel.
Discipline
In order to be a successful investor/trader, you must be very disciplined. Stick to the plan of action. This means that you will stick to trading policies, trading plans and so on. Know your objective and work accordingly.
Ideas
Do not seek to implement new ideas that come all the time during markets. Remember, ideas are just ideas. If you feel there is value in them, they have to be thought about, refined, tested and then brought to the trading room. If you try to implement new ideas immediately to trading all you will do is to erode capital and confidence.
Hope
Do not allow hope to loiter anywhere close to your trading system. Hope has the potential to do maximum damage to your capital.