What it takes to be a good trader:Characteristics of Markets

If one wants to be a trader then he should remember that market hates traders and by its very nature markets are designed to get rid of weak traders. By weak traders we mean who indulges in leverage trades and cant afford to bear loss beyond 2-3%. Market lure traders to get into wrong position and then triggers their SL that's the reason only 3-5% traders are able to make money in markets. There are few pointers which I have learnt (taught by markets actually) and would like to share 

• "Bulls make Money, Bears make money but pigs make nothing". This quote mean one should either be Bull or Bear but not a Pig. Pig is a confused trader, someone who is bullish in morning, bearish in afternoon and back to bullish by end of day. Of course one shouldnt be Just a Bear or Bull all the time and view should be changed based on market trend but it should not be changed very frequently.Identify the trend of the market and then stick with it dont be a confused traders. Trust your analysis and keep a view which is slightly longer ( 5-7 days atleast).

• Trade only on the right side of market: If the trend is up never short the markets, doesnt matter how convinced you are that its the top area. Let people on TV and youtube shout as much as they want to about market in overbought/overpriced territory. Keep a trailing SL book your profits (part or whole) but dont go against the trend. Similiary never buy when markets are in bearish trend (doesnt matter how lucrative the prices appears to be).

• Target never works: In market keeping a target never works, if Nifty is trading around 10000 and target area is 11K then rest assured Nifty will either touch 11500 or turn back from 10700 itself. Target is simply a myth and should be avoided, no one knows for how long markets will continue to move up. Keeping a target will always make you exit at wrong times. Instead keep trailing Stoplosses and continue to ride the trend for as long as it lasts. Dont be fixated on a number and be dynamic.

• No Intraday: Intraday forces a trader to take too many trading calls. One cannot time the market hence take a directional view and a positional trade only. More trading calls you take, more the chances of suffering losses ( don't be a Pig).

• Markets wont wait for you to enter: Trend reversal usually happens very sharply. If market drops to its support area and start hanging there consolidating then its very likely that the support area will be broken and trend will continue on the downside. Reversals are sharp  markets will just kiss the area and move back up. Its common sense, if market wants to move up why would it hang around at same spot for traders to enter into long position??. Remember- motive of the markets is to lure & suck traders into wrong trades.

• Avoid easy trades, leave gut feeling at home: Many times some trades seems 'easy' like for ex Nifty support area is 9500, market drops there and one feel its safe to go long here. Next thing you see market trading at 9200. Or Market opens with a gapup of 150 points. Easy trade will be to short market for 20-30 points ( Common thought: "after all its already up 150 points surely it will come down by 20-30 points its easy money isnt it"?). By the end of day Nifty is up by 250 points and instead of 20-30 points profit now one is sitting with a loss of 100 points.

• Be disciplined: Always stick to your rules ( if you don't have rules then make some), going against your own rules will occasionally earn you some profit but it will create a wrong habits and you would find that in long run your losses are far more than your profits. Markets will take everything in just one wrong trade.

These may sound simple, but will take you a lot of time to learn and implement. Even seasoned and experienced traders are not able to follow them all the time.Trading needs patience and give your self ateast 3-5 years ( in some cases even 10 years) to learn these simple traits and then apply in real life scenarios. If you want to make money then you have to do what 5% are doing and not what other 95%  are doing

Happy Trading!

Buying Calls and Put? Big No No

Why Buying 'out of Money' Calls and Puts are not recommended

Lot of people keep asking me why we always go for Nifty Futures and recommend only writing ( selling) options and never recommend buying them. Well there are plenty of reasons, let me try and put few here for every ones benefit

Main cause of Leveraging and overtrade: Buying 'out of money call/put does create a leveraged position. If some has 1 lakh capital and he is trading in 'out of money option he would go and buy 10 lots of 100 Rs. If he is buying just 1 lot then its fine as only 10% of his capital is at stake. However people trade big and buy multiple lots and put 100% capital at risk. If you write call/put( i.e. sell first) then you can buy/sell only one lot with around 1 lakh capital so you are automatically restricted by exchanges to leverage. General rule of mkt is 1 lakh for one lot ( if you want to trade in 5 lots you should have 5 lakh capital) but how many people do you think do that? Every one want to trade 10-20 lot with 50K

Premium loss:  When you buy a out of money call/put you pay a premium. Lets say nifty is at 10800 and 10800 put is available at 200 Rs. Now nifty has to fall below 10600 in order for you to make any realistic profit. There is no guarantee that Nifty will start moving down the moment you buy puts. When you sell Nifty future you lose only when Nifty moves up (so chances of losing are 50-50). Now if you buy puts you lose when a) when nifty goes up and you lose b) when nifty does nothing and stay at same place so chances of you losing increases to 66%.. Now see what happens  when you sell puts. You gain when nifty moves up and you gain when Nifty does nothing. you only lose when Nifty falls ( so chances of losing drastically reduces to just 33%)

Math and odds are not on your side: like mentioned above, please remember that markets don't move or dont do anything 80% of times they move in big trends only 20% of time. So 80% of the times your put and call will become zero. If you buy call/puts then 4 out 5 times you will end up incurring losses its simple math. You might make money occasionally buying puts and calls ( if you are intraday trader) but if you are a positional trader and trading in out of money call/put then I am afraid you are going to lose most of the times. Premium you pay keep deteriorating every hour every day If the movement of market is not as per your expectations.

In nutshell you need 2 things to be in your favour if you want to make money by buying Calls and Puts a) Overall trend and b) speed of rise/fall and  if neither of this happens then you are done.

Out of money call/puts have no intrinsic value, its just a premium you pay to gamble on the underlying price and that premium keep on reducing everyday. If you really want to trade call/puts then go for 'in the money' options  like for example  nifty is trading at 10700 and 11200 put is available for 500rs (11200-10700= 500) so you pay NIL premium. Always see how much premium you are paying for calls and puts(premium is nothing but pure gamble).

Just see around yourself and ask any trader if hes made money consistently by buying and holding call and puts (its just not difficult its bloody impossible with odds and maths totally stacked against you). Why do you think people lose at casinos? its only because math is always tilted in the favour of casino owner and not in the favour of gambler. Same is here. For you to succeed bare minimum odds you need are 50:50 if its less than that then sorry you should not be interested. That's the reason big players always sell put/calls ( and collect premium)and retail investors buy them and lose it all.

I have seen lots of people wiping out their millions by buying calls and puts. if you are in stock markets purely for thrills and gamble then by all means go for call/puts. But if you mean business and serious about your trade then put your money where its worth.

Top 3 Reasons: Why Most Traders Lose Money in Stock Markets

Stock market is simple game It goes up and it goes down so chances of winning or losing is always 50-50. So even if you flip a coin and trade basis heads or a tail you should be fine and in long run you will probably end up being at a breakeven point i.e. no profit no loss. But if this is the case then why more than 90% of traders lose money in this market? What makes it so bloody difficult to trade? If you ask me this question then I would say this is because of the following 3 mistakes which every trader MUST avoid. 

Mistake#1 : Tendency to book small profits but inability to take small losses: To me this is the single most factor causing most traders to bleed big time in stock markets. Whenever we enter into a trade we are quick to book profits. We buy Nifty at 10500 it rises 20-30 points immediately our palms start itching and we book profit. So no harm done, good we have booked profits. But what happens when we buy Nifty and it starts falling? We wait. It falls 100 points we wait a little more. It falls 200 points. We wait a little more then in the evening Dow falls 500 points and there is panic all around Nifty opens with another 100 point gap down next day and our loss is 300 points now margin call is getting triggered what we do? We have no option but to exit. So we did two trades, made a profit of 30 points in trade 1 and took a hit of 300 points in trade  2. How long do you think one can survive like this? We have a target for profits but no target for losses. If your upside target is 50 points then your SL should not be more than 30points. So in long run you should always be 20 points up ( even if you are wrong 50% of times). Idea is 'cut your losses short and let your profits run' but we end up doing opposite. We immediately book profit and wait for losses to mount till they become so huge that we are unable to bear them. Basically we do not exit loss making trade on our own we wait for markets to kick us out.

Mistake#2 : Not having a trading plan and trading basis gut/News based trading- We either do not have a trading plan or we keep changing it frequently. We give too much importance to news flow and social media and analysts saying Nifty has made a top or bottom. Dow rises 400 points  next day we think Nifty will follow suit so we buy Nifty and then feel surprised when Nifty end up closing negative. We then start blaming speculators and operators and say this whole market is fixed. My advise is never change your stance by a single set of data point. Data point will keep changing frequently but market trend will rarely do so. "RBI hikes interest rate" or " BJP loses state election" is no reason to go and short this market. The one thing about News is that its not exclusively available to you, everyone already knows about it yet we act as if someone whispered this only in our ears. Do not do that. If markets want to go up it will go up regardless of BJP win or lose RBI hikes or reduces interest rates or crude is at 140USD or 50 USD. Everything comes secondary. news flow or data points can impact market movements for intraday or for very short term but soon it will resume the main trend. So try to catch the main trend always, Do not be impacted by change in data points or negative news flow cause it just does not work. Be a leader not a follower.

Mistake #3: Expecting markets to follow you instead of following Markets (Quick to call out top and bottoms)- Most traders have very narrow view of Market and they will keep looking at market with their predefined mindset only. The problem with predefined mindset is that whenever we see a fall of 500-700 point we assume its a good time to buy and we are quick to jump on the idea that bottom is in place and its a good opportunity to buy. Similarly when a stock has had a good run up we tend to say " it has gone up a lot now it must fall so lets sell". Please understand there is a reason a particular stock has gone up or down and even if a stock has gone up100% there is no reason why it cant go another 300% up. We should never assume the top is in place or bottom is formed. Market is supreme and there is always a reason why it goes up and down and till the time you do not understand that reason do not take a bet against it. Its always safe to assume that main trend will continue ( instead of assuming that trend will reverse now). Let market decide when it wants to change trend and when it does you simply bow to it and move out, you do not fight. We keep fighting markets by taking contrarian view and assuming it will change its trend. Trends can run for days months or even years. Simply follow markets do not expect it to follow you. Markets are way much bigger that what you and I think. Give it the respect it deserves, do not fight it. Simply listen to what it says and follow no question asked. Period.

I can go on and on and list out 10 more reasons but the broad undertone of what mistakes majority of traders make is covered in these 3 points already. Its very difficult to master 100% of these traits and even experienced traders fail to do so but even if you manage to follow them 70-80%  of the times it will be good enough for you. The key here is that as soon as one realises that he is wrong then he should move out immediately. Its better to sit out with NIL position and letting go of some the probable profits then getting into a wrong trade and suffering losses. After all money saved is money earned.

Stock market trading is nothing but a mind game. You need to be mentally strong to survive here so keep your emotions aside, market has no regard for what you or I think it has a mind of its own. It teaches humility, the moment you think you have figured it out you will be proven wrong. Its like a test match where wicket is totally favoring bowlers and you are batting on 5th day. So face every ball as if its the1st ball you are facing, doesn't matter if you are batting on 100 or 200. Just like the game of cricket, complacency can be fatal in stock markets too.