Your Perfect Emotional Setup Explained Part--3

Without wasting any time lets continue our discussion.

·       Never trade more than your account size.

Unfortunately many traders lose money just because

they are unaware or they do not care about the basic concept of capital management. This might sound childish to you but believe me applying the capital management theory to you trading will boost your portfolio. Let us start with it.

“Not risking too much money on a single trade”—this is the single most important point around which the entire theory revolves. The first step in this direction is to decide the maximum amount of percentage of the total capital that any particular transaction will bear. This short step will increase your life in the markets. A percent equal to 5 or 6 is the fair maximum.  For example your total capital is 50000 then the maximum loss you should allow for a single trade should not be more than 2500 or 3000. What happens is you increase your capability to take more trade. Taking 10 trades risking 3000 in each trade is better than risking 30000 in a single trade. In this way even if 6 out of 10 trades turn right, you win. Decide your maximum risk today and start trading accordingly.

·       Look at the broader picture even before taking a short term call

Ignore the long term trend and markets will ignore you. I have had to experience this quite often in the earlier years of my trading. Many people argue that why to look into long term charts if we want to take a one month call? My answer to them is simple enough; if the long term picture is bearish you can’t expect a stock to show real strength in the short term. The stock may have some upticks but that will be mere apparition and short lived. As Warren Buffet rightly explained, buy only that stock for which you don’t worry even if the markets close for 10 years. In the similar manner looking at the short term charts is very important while taking a long term call. Why? Come on, suppose a stock is quoted  at 100 and you gonna include that in your portfolio as a long term call, but if the short term charts suggest that the stock can fall down to 72 levels; would not it be wise enough to wait? Think yourself.

·       Don’t let the three idiots influence you.

Ah! This one is the topic I love writing about. In fact I have dedicated an entire article on this.(If you haven’t read it click here to read). The 3 idiot, the self believer, the gambler and the self promoter; these 3 people are always ready to spoil your trading psychology. Don’t let any word from them enter your mind. Just think of them as a loser’s advice to lose. We are well trained to identify the kind of idiot that we are facing. If you have read myearlier article, you will be able to categorize them within minutes of them opening their mouths.

What you need to do is to counter each and every statement made by them. Never ponder upon what they just talked about, for you its all crap. Once you learn how to tackle them, your entire emotional setup is free from any possible malfunction..!  ;)

Part –4 Coming soon!