The Dos and Don’ts of great trading

Trading

1. Trading is not gambling.
2. Trading is years of hard work, learning, and discipline. If you are looking for a place to make money easily, look elsewhere.
3. Trading is purely a game of psychology and discipline. Numbers data etc are secondary
4. Never trade with a profit target in mind. Trade because the trade is the right thing to do at that point of time
5. Capital preservation is the only job you have as a trader. You need to preserve your capital for great trades with a high probability of high profit. If you lose money on poor trades, you will not have any money to take the great ones
6. There is a life outside of trading. It is easy to lose sight of that and get addicted to gambling.

Planning

1. A trade is not just up or down. It is a complete plan
2. Most of the trading happens outside the market hours. The actual trade is just 5% of the work. Do your homework and plan your trades at least the previous day. If something seemed like a good idea to you this morning, it is often a bad idea
3. Keep your trading plan simple. Just look at 3–4 indicators. More numbers equals more complications

Trade Selection

1. Remember, there is always the next trade. Don’t take stupid risks in the current one
2. It is okay to miss an opportunity. It is not okay to lose money because of impatience
3. Not having a position is a position. Some of the best trades in life are the ones you do not take.
4. Most of the times the best strategy is to sit and watch on the sidelines
5. This trade is one trade of the many trades of a month of the many months of a year of the many years of your trading life. Treat it that way. Do not be attached to a trade. Learn to let go
6. If you are stuck in the wrong trade, you will miss the right trade

Trend following

1. Reversal in a trend happens only once. If you bet on a reversal you will be right only once. If you bet on continuations, you will be right most of the times
2. Never buy a stock because its price has come down. Never sell a stock because it has gone up.
3. Never catch falling knives. Corollary — never short shooting rockets.
4. Buy a technically strong stock, ideally on dips, and sell a technically weak stock ideally on upticks.

Bet Sizing

Risk only what you can afford to lose. Trade with the money you can throw away tomorrow and feel nothing about it.

If you cannot sleep peacefully with a position, you need to scale down

Do not have too many positions open. You will not be able to monitor them or think straight

Trade with enough buffer margin. Keep at least 30% extra margin.

Stop Losses

Let your profits run, cut your losses short.

Always keep a stoploss. Your stoploss is not a number in your mind. It is an order in your trading terminal. Keep a stoploss as soon as you place the order.

Holding on to a losing trade is not courage. Getting out of that trade with the belief that you will make it back in another trade is courage

Never let a winning trade become a losing trade. Always keep a trailing stop loss

Never

Never gamble on events

Never listen to someone else, especially tipsters

Never trade when you are in an emotionally unstable place

Never trade to recover lost money. It is extremely dangerous

Never average. Averaging is an easy way to make twice the losses. Stay away from it as much as you can

Never look at the markets or look at your floating P&L all the time

Never try to catch the top or bottom

Good practices

Always learn something new. Do not let a day go by without learning.

Write down your plan and stick to the plan once the market starts. Do not change your plan

Do a post-trade analysis — always. Keep a trading journal

Keep taking breaks. If you are always trading, you are doing it wrong. After a big win, cool off and take a break. After a loss, take a break for at least a day or two. After a big loss, take a week off.

Option Trading

Buy Options ONLY if your move is quick and big

Do not buy options close to expiry

Do not play OTM unless you are d*** sure about it

Option sellers win in the long run. Do not let anyone else tell you anything different