Recent studies have shown that most people with above average income hate their jobs. They don’t like to be bossed around and they want financial freedom as soon as possible. There is nothing wrong in working towards Financial freedom, but the problem is they think stock market is an easy way to achieve that financial freedom. Retailers believe that trading is some sort of relaxed thing where one can generate passive money just by clicking the Buy button.
The reality is far far away. If you want to earn free money without doing any work at all in the stock market, then simply invest in a passive index fund and relax. Most passive investors beat the active investors only because of the lack of sincere efforts from the latter.
Trading is one of the most tiring jobs that will smack the hell out of you before you even start to see some profits. And it will take some more from you before you see those profits consistently. But, the good news is Trading is an art with some math, if properly learnt can reap you a fortune. But for that one needs to work hard, day in and day out.
Hard work, delayed gratification, gradual improvement, persistence and focus are highly underrated in the world of trading. Ask a real successful trader he/she will tell how much effort it was needed to become successful consistently. Any fool can become a success at one point of time in life – but to retain that success requires real efforts. As the adage says “ Failing to plan is nothing, but planning to fail”.
One should plan and set goals, to achieve the desired result. More important is that your goals should be realistic. An unrealistic goal will not only become unfulfilled but it will also hinder your progress. By unrealistic goals I don’t mean difficult goals. Our goals should always be far away from our comfort zone. But at the same time it should be achievable.
See the image below:
Imagine if you are the baby in the picture, will you set a goal to lift those weights? That’s what being unrealistic is. In this article, I will share my thoughts on how to set goals in a realistic way and how one can become a super trader by following those simple goals.
Setting Realistic Time for the learning curve:
When I started my trading career one of the questions I had in my mind was “How long will it take to learn trading?” Well, there is no specific time one can tell for that. It completely depends upon the individual and the effort he/she is willing to put in. The theoretical part of trading like trading patterns, candlestick patterns, different trading strategies, position sizing, risk management anybody can learn in two to three months if one puts in efforts continuously.
However, the difficult and important part comes when you start to trade in real time with real money. You should put your real money into learning this game.
The most realistic timeframe one can have in mind is at least three years, since the market runs in cycles. One should get accustomed to trade and find their edge in all market cycles. Whether it is a bull market, bear market or sideways one should know what the market is doing. You should know when to throttle your ride and when to slow down.
Even in recent times, traders who came into trading after the Covid fall, would have thought that trading is very easy till Oct 2021. The market was going in a one way direction till Oct 2021, only to whip them off in the year 2022. If one was a serious trader, he would have spent time in learning these cycles and adapting to the different market cycles.
Apart from market cycles, our emotions also goes into a cycle where one starts from unrealistic optimism and finally ends in realistic optimism.
See the image below:
Setting the Realistic Time Frame to trade:
The next thing one has to decide is what time frame to trade on. If you are a beginner or a part time trader, you should stick with longer time frames like weekly Time Frame (TF) or at least daily TF. Trading in a longer time frame has its own advantages.
When I first started trading, like everyone I started with day trading. I used to look at the 5 min charts / 15 min charts. I noticed the urge to see the chart screen whenever possible even during my work. I also noticed that my emotions, involved with trading, started to affect my focus on my work. I decided once for all that I should not do day trading and I should be realistic about my trading TF.
Though I am not completely against day training, I was lucky enough to understand that I cannot do day trading. Understanding my weakness helped me to trade in higher time frames.
If you are working somewhere, then you should definitely avoid trading in lower TF like 5,15 min. It is not worth it. If you are in a job where you can see the charts then and now without affecting your focus, then you can trade in 1 Hour / Daily TF.
But, if your job demands your full focus and responsibility, then stick on to weekly TF. At least stick to this TF initially and then when you become more comfortable, you can switch to Daily TF. Or, if you have accumulated proper account size you can think of becoming a full time trader also.
Setting Realistic Targets and Stop Losses:
My trading has improved a lot when I changed my approach from return based to reality based. Return based approach is when you are expecting the stock to move to a level where you can see a good profit. However, it is completely not in our hands. We cannot make a stock to go up to a level we want. Market will only do what it will do.
Once we enter the stock the only thing that is in our hand is to control losses. We should have a realistic target and stop losses. This reality based approach helps me to keep my emotion in check.
Imagine you are trading in an hourly TF. Your stop loss (SL) is fixed based on that TF. If your SL is fixed at 5% then the most realistic target should be fixed anywhere between 10-15%. That gives you the favorable risk reward ratio of 1:3 or in other words a R multiple of 3R. Once the stock reaches that level then you should start to look for opportunities to sell the stock or at least book some profits.
Similarly, if you are trading in a weekly TF, you cannot always expect to keep a SL of 5% and then enjoy a ride of 60-100%. Unless you are in a very strong bull market a SL of 5% will shake you out often. A realistic SL of 10-20% should be kept so that you allow the stock to move up and down in volatile conditions without you being shaken out. Also, you should position size your trades accordingly.
See, the chart below:
This is the weekly chart of IT index. I had already maintained in my previous article of sector rotation that IT is a relatively poor performer and I am not in favor of IT stocks now.
However, recent days have shown some momentum in the IT sector and the stock really broke out of a good long weekly consolidation (red arrow), entering into stage 2 structure.
However, see the immediate rejection. Most of the traders would have been shaken out or would be worrying now. But if a trader has understood that the market is still volatile and the IT sector is not in a clear stage 2, he would have kept the SL at least 15-16% from the entry point. He would now wait for the structure to mature or even add positions to average his buy price.
Be realistic about failures:
Swami Vivekananda says “ Think of yourself in the situation of failure before starting any work. Think of all the possibilities of failures and how you will manage it. If you have a clear plan of how you will manage them then failure is nothing for you”
We all keep on reading that 90% of the traders fail in the stock market. However, each one of us thinks that we won’t be in that 90% and will be in that 10%. Be realistic that it is possible for us to be in that 90% also. Think of it as a possibility. This thought itself will make one more aware of the decisions he /she makes.
Imagine all the possibilities of failures, like what you will do when the stocks gaps down 30% the next day?
What will you do if your internet goes down for two days? What will you do if your brokerage terminal is not working for a day in case you are a day trader? What would you do if you met with an accident and cannot see the current situation of the market for a few days or weeks?
Setting Realistic Mindset:
Lord Krishna says in Bhagavad Gita,
One who conquers mind, conquers the world.Bhagavad Gita
Nothing can be more true than this. Having a clear mind and a trading plan is the only way to success. Trade your journals perfectly to understand your strengths and weaknesses.
When I first started trading, I used to keep on looking into the profit/loss screen. Whenever I get to pick my phone I will immediately start looking at it. If my portfolio was in green I would have an adrenaline rush to trade more. Thoughts like I am going to make big in a very short time, trading is very easy, let me trade futures also, will flash all over my mind.
Similarly if my portfolio was in red I would become frustrated and depressed. But, later I understood that profit is secondary. I started to focus on my process. Timing the entry, waiting for a better entry point to add on positions become my priority. Nowadays, I see only the charts. I had set an alert which will remind me if the stock goes near to my SL point. That’s it. This has improved my decision making skills a lot.
“ The more mechanical you become, the more often you will be on the right side of the trade“ – Stan Weinstein
So, let us be realistic in both our thoughts and actions and will try to become a super trader. Happy Investing !!!
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