The day before Yesterday, as we discussed overtrading. How overtrading affects our portfolio and how does it impacts our returns in the market.
So today I want to share with you one of my friend’s experience that how your emotions are highly affecting your Investments. As majority traders always take decisions on the basis of their mood.
As we discussed when you are happy then you will buy huge quantity and when you are in the bad mood when you take less quantity. But the reality is no one knows that which trade will give them the whole year’s earning…
His name is Rahul and from his experience, he is in the market for last 7 years. And he is very good at identifying risk and trend of the market.
Even he has good knowledge about picking the right stock at right time. But the one place always he got failure i.e. The Trade Management.
That he is not able to understand that when he should hold his trade and when he should book. Like if he is in profits or whether he is in the loss he always asks me that yaar, what should I do? Hold or Book?
Whenever he booked his profits early then always that stock goes up like anything. And when he held in losses in the hope that he will cover sooner or later. That never comes up even at the break-even point. And always he has to pay for his emotions.
Do you also face the same problem?
Ok then Let me explain you that first of all you have to learn that how to identify the market trend as my friend Rahul did. Because when you think to do a trade then this is the first step which you have to climb first, then only you can able to go for the 2nd stage.
But what was the problem with Rahul’s strategy is, he has knowledge about identification about the right trend, right stocks etc. but he does not focus on risk management and money management.
That how much he should manage the risk and how to decide the quantity. The same things happening with you too, right?
So for that, you have to understand that if you are investing with 1 lakh Rs. Then you have to decide first that how much risk should be there? And then you have to focus on it’s no. the quantity that according to your capital and risk management how much quantity should be taken by you.
M.r Ramesh has the portfolio of 1 lac Rupees , He Decide to Buy Reliance at 850 & his sl 830 He is looking for target 950. As I have explained above 2nd step after identify is to do proper risk & money management. He want to take risk of 1% On his capital on this trade.1 % of 1 lac will be 1000 Rs. So as per risk management he should loss max 1000 Rs .According to his trading idea, Risk per share is 20 Rs ( Buying price 850 – SL 830). He can take maximum share (1000 Rs / Risk per share 20) = 50 . Now He also need to take care that he should not have large exposure in to one company. He need to do money management. As per professional rule, You should max allocate 25% for the positional trading idea. Lets check If he buy 50 share of Reliance his investment will be 42500 Rs (42% of his portfolio) Ideally he should not invest abv 25%. So he need to buy Reliance share worth 25000 Rs (25 % of his capital). Now lets calculate final Qty to trade ( 25000 / stock buying price 850) = 29 ShareAs per Trade management, He should buy 29 share of reliance. So He dont need to worry about what will happen & sleep less night , Because he know that if he is wrong , Will lose 1% of capital only & will able to execute the Trading plan without emotions attached to it.
But after this when you enter the second stage i.e. when you execute your trade then you have to follow your plan strictly i.e. without any second thought.
After the execution of the trade does not need to think. You simply have to follow your system and that whenever your system will update you for exit then you have to exit without giving a second thought to your trading mindset.
Then after the execution of the second stage i.e. squaring off the position, then you should give some time to yourself and your trading.
Then you can identify that what was the problem if you faced losses and if you were in profits then give focus that what are the parameters you have that affects your portfolio positively.
That’s why truly said,
Prepare the strategy before the war…
After the war, you just have to accept the results…
That’s why every trader should have sound risk & money management plan that can help you to control your emotions.
Because Emotions are the major factor that can make you the billionaire in the market or it can make your bagger in the market too.
So now you have to decide that how will you go to help yourself?
How will you manage your emotions?
For that, there is the one platform i.e. India’s first Risk & Money management Platform – ProfitGyan. It will help you to calculate your risk as per your capital and along with it will help you to decide no of quantity according to your capital and your Risk management.
*Professional investors/trader on niftymillionaire platform is Bindul shah. (Sebi Registered) Sebi Registration : INH000003663 (Bindul shah Sebi Registration : INH000003663)