As you are here, we can assure you this is one of the most unanswered questions in the share market. And as you know when we find questions like these, the one and only person to help us is Harry chacha. When we asked Harry chacha this question, his eyes shined a little bit, it was like we have asked something really meaningful.
And as usual Harry chacha threw some typical questions to us, which we need to understand. What is the age of the trader (and when I am saying age, I am saying both from the birthdate point of view and also the time spent since you were doing trading)? It takes a lot of discipline to be a successful trader. There is not a single trader who has not encountered loss, but to take the loss in the stride and continuing the journey to the profit is the journey to the successful trading system
First what you need to do is, you need to establish and believe in the trading system you are doing the trading. I hope you have gone through enough back-testing with sufficient data to analyze the market. So when you are trading in the market you have established one thing, only one thing, that is your trading system and your belief system in your system. I believe you have a lot of charts and graphs from past knowledge experience all mixed and jinxed :-) together in a single simplified trading pattern.
Everybody may have different formulas based on the same graph-based on different patterns and everybody might be successful. How is it even possible?
Let me give you another example for better understanding. If somebody has a chest pain and goes to a doctor, the doctor will ask, in most cases, to do an ECG. Once the doctor looks into the report then only he will start giving an opinion about the health of the patient's heart. It doesn't matter whether the patient has a very good physique with six-packs or is zero figure or a family pack with a full tummy it does make an iota of difference. It is only the ECG report which will speak.
The same analogy goes for traders. Also, it boils down to the calculation which you as a trader have formulated to do actual trade. There might be losses here and there, but you will see that the wins will overcome the losses by too much ratio, and obviously, you will succeed. When you make a loss don't think of that loss as of a particular trade, take the overall picture and you will see that you are in profit if your trading system is correct.
To boost the psychology of the trading system, what you should do is, you should write down each trade you have taken. Let's assume in a month, there are 22 trading days and you traded around 25 to 50 times in the month. Out of those 50 trades, you might see and 10 have given you losses but 40 given a profit. So ultimately you have taken individual trades which you are at loss or win. But when you club them to get an overall view, you will find that you have an 80% success rate, and you deserve a pat on your back... have an ice cream or chocolate or whatever you like. As a treat to yourself at the year-end, these gestures will be enough and I repeat, more than enough to give you a big smile on your lips.
Boxing out of losses... this is the biggest or the best thing you can do to progress yourself. Let's say you are taken as a share of X at the price of Y, and it has hit stop loss at the price of 0.75 Y then the first thing you need to do is accept the stop loss Stop looking at that and start searching the new share according to your chart which you think will give you much more profit. But if you start thinking, as X has given me the loss, now let me sell it and recover the losses and gain from it... to recover and get profit then rest assured you will be getting too much more loss.
The first thing you need to do is limit your losses, accept that it has taken the stop-loss, try to see if the calculation that we use is correct or not, and accept it and leave it like that. It is not a war, but learning. Moreover, you are not going to disclose to everyone that you have made a great loss and if you do you are so loser and the stock market should not be your field. Stay away from the stock market as early as possible. The ideal way to box your losses is to forget about the loss that you have made and move on that's why it is known as boxing out of the loss box your loss pack it and send it home do not even bother to look at it
Overcoming the Greed An old saying is that the greedy pigs always get slaughtered first. This refers to the habit that once, you are in a profitable position and your chart looks good, you don't know where to stop it. Once you make the profit you intended to take the profit get out of that particular trade hanging onto the last page to get much more profit, will eat-out the profit because no matter whatever the upwards group trend is it is going to be reversed and you need to make sure that you are not caught in the web of those tentacles.
Do not break the rules Once in the share market, you have established a risk to reward ratio the moment you hit the reward ratio, take out your profit, and get out of the trade. Let me give an example, you bought a share in 100 rupees, your goal is to make a 10% profit out of it. Once in the upward direction, your share reaches 110... and according to the chart pattern you are following it should move more up, and hypothetically within a fraction of a second, it moves to 112. The best you can do is put your stop loss at 112, and see how it goes. What the ideal way to go ahead is to book a 12% profit and get out of the trade. Because ultimately you got your intended profit and you should be more than happy with it. Remember that the risk-reward ratio is set to maintain not to break and you break it a couple of times then the obvious is going to happen it will break your entire strategy
Out of all of our exercises and all discussions with Harry chacha today he was more serious. I don't know why and that was the last question for today from my side to him and that was the first time for today I saw him smiling. His answer was if Psychology is correct then everything is going to be correct. So you need to treat yourself or get your Psych calculations perfectly fine-tuned to get optimum results for yourself.
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