Key to be successful in Trading

Till now we have understood what trading is all about and how it works. What it takes to setup a successful trade. By now it seems to be mouthwatering as we all can anticipate that a gold mine is awaiting us!!!

But do you know what the harsh reality is? 90% of the people lose money in trading!!! Yes, it is the retail investors who loses money and it is the smart money who profits.

So the only success mantra in intraday trading is "Trade with the smart money or the market".

But all said and done there are a few habits that as a trader you need to develop and follow religiously to be successful in the stock market.

Risk to Reward Ratio (RRR)

This means how much profit you are generating against the amount you have risked. It is of utmost importance to be successful in trading.

Let us look why? People always make a mistake of looking for accuracy. i.e. getting the maximum number of trades correct. But that is not at all important, what matters at the end of the day is how much profit I am making.

Let us look at the below examples:

Case 1:

·                     Assuming that RRR is 1:2, i.e. I am making a profit of Rs. 2000 against Rs. 1000 that I have risked.

·                     My success rate is 40%.

·                     I do 5 trades at a time

With all the above assumptions my income is:

3 losing trades - loss of Rs. (3*1000) = 3000
2 winning trades - profit of Rs. (2*2000) = 4000

Net profit = Rs. 4000 - Rs. 3000 = Rs. 1000

So I am a profitable trader with even as low as 40% accuracy!!!

Case 2: 

·                     Assuming that RRR is 1:2, i.e. I am making a profit of Rs. 2000 against Rs. 1000 that I have risked.

·                     My success rate is 50%.

·                     I do 4 trades at a time

With all the above assumptions my income is:

2 losing trades - loss of Rs. (2*1000) = 2000
2 winning trades - profit of Rs. (2*2000) = 4000

Net profit = Rs. 4000 - Rs. 2000 = Rs. 2000

So I am a profitable trader with even 50% accuracy and just an increase of 10% accuracy doubles my profit !!!

So now you understand the importance of RRR.

Discipline

You need to be disciplined in the first place. Trading is 70% discipline and 30% strategy. Sounds weird, right? But that's the bottom line. The few good habits to be developed are:

Trade timing in Intraday

You need to set your timings that in which sessions of the market you are going to trade. Many traders prefer the first hour or couple of hours to trade and then leave the market. Many choose to enter the market after the first half an hour and some even after the first hour. It all depends on your psychology, trading style and how you can handle your emotions. Some even prefers to trade in the first and the last hour.

Follow the strategy like a Robot

If you have setup a strategy and locked it, then do not look elsewhere and retest the same. This applies to intraday, swing or positional trading. Many of the traders have fallen into the trap of "paralysis by analysis" in search of a perfect system. No system, in the share market can be 100% accurate. There is no holy grail. If the system gives you an entry signal with checklist being ticked, then enter the trade, put the SL as per the system and exit when only you encounter an exit signal.

Emotions

The biggest challenge for a day trader is to control their emotions. We tend to cut profits early and ride the loss with a hope that the trade will at some point turn in our favour.

It should always be the other way out. You should train your brain to control your emotions and not to get carried away with the profits as then you will never ever be able to make big profits in the market. You should learn to ride your profits and cut your loses early.

Once you have closed a trade with a loss or profit, immediately wipe it off the memory and move on to the next trade.

Measure yourself

You as a trader need to improve always on a continuous basis. This can only be achieved through introspection and analysis. Improve your profitability gradually. Improve your stability of nerves to increase your risk amount. Improve on your RRR (Risk to Reward Ratio).

But never try to modify your strategy to justify a failure or to incorporate something that was good but did not fit your strategy. E.g. you might not get a signal for a stock which was performing well on a particular day. Do not alter your strategy to incorporate something into your system so that you can enter them in future. This syndrome is called FOMO - "Fear Of Missing Out". Remember, that there exist hundreds of strategies which will work their own way in the market and no single strategy can identify every opportunity.

Risk Management

The most crucial point behind failure of every trader. People do not know how to manage their money and end up losing all of them. There is a very common trader's psychology to "make up for the loss".  This is the deadliest of all. If you have lost money in one trade then do not increase your bet in the next trade to recover the loss or do not forcefully enter a trade to recover. At the end, inevitably you will land up losing all your money.

The best way to manage your fund is to manage your risk. Risk amount (i.e. the amount of money you are risking per trade) should never be more than 1.5% of your total account value. This way you can fight your loses and make profit from other trades and eventually be a profitable trader.

Remember, you cannot win all the trades but you need to be overall winner. I can be a successful trader even with 50% win rate if my RRR is 2 or above.

Now let's divulge into the TradeWizard system which will do all for us except make us discipline and control our emotions. Those are the habits that we need to develop as a trader.