Lessons from Mr. Market

Having extensively studied the market for couple of years and consistently trading since last 2 and half years, Mr. Market has taught me plethora of lessons.

  • Know this, Trading is Gambling, don’t believe anyone who say otherwise. It’s a game of chance, where you bet for uncertain outcome. BUT, to survive and thrive, all you need to do is rig the trading system in your favor with a decent and sustainable edge. Just like in the casino, how the house always wins. Similarly, try and apply the rules here.
  • You will lose on some days. You cannot be profitable daily.
  • Having a win rate of 54–60% is very very good. There are only few people or systems with win rate more than this.
  • You cannot hope to be rich in a year or two from trading. It takes time.
  • Most indicators are just distraction.
  • If you trade in futures and options without knowledge. You will have No Future and you will be left with NO Options. There’s no way you can de-risk your position while trading in this segment.
  • Developing a strategy for a system takes lot more than just time. Reading few blogs or books wouldn’t be much of a help. Instead, observe charts on a daily basis for hours and hours, then maybe someday, something, might click.
  • Results of back-testing and live-testing will be different unless you completely automate it. If not, the discipline needed is immense.
  • Meditation is a must thing before you sit to trade.
  • Nothing lasts for ever, this applies to your system as well someday it’ll become obsolete. In short, you can’t sit and trade with just 1 system forever, be creative and keep working on something new. There’s always a faster gun. There’s no system which operates at zenith level of perfection forever (excluding arbitraging systems).
  • Don’t be prone to taking short positions just because you loved, “The Big Short”
  • Trend is your friend, don’t try and time the market or go against it.
  • SMA (Simple moving avg) > EMA (Exponential moving avg) (Read, SMA is better than EMA)
  • There will be certain days where you will make 2–3 month’s salary combined in a single day and then there will be few days or weeks of a draw down period as well. Accept it, Embrace it.
  • Don’t join courses or workshops in a hope that you’ll get a new strategy for the money, nobody will give it to you.
  • On the investing side, never exit your holding completely, always keep 5% holding for ever. You’ll be amazed of what that 5% could turn into in years.
  • Never catch a falling knife, it takes time to stop the momentum, a car running at 100 MPH doesn’t stop in an instant and reverse.
  • You can be in handsome profits for the day and then the odds can change against you within fraction of a second so always be humble and never rejoice before you close all your positions for the day.
  • Range bound or bear markets are a nightmare.
  • In my view, any system with equal risk:reward is very difficult to practice for a long time. Except if the win rate is 80% or more.

And the most important lesson of all, Learn to manage Risk, without it you cannot devise a system. Trading is purest form of risk management. I cannot stress this enough.

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