Been trading for long now. Sometimes I feel that it might be better to just get a job with higher salary and be done with it. But I am trying. I am getting weak though. Making too many mistakes. Trade and test recycle helps, but its slow.

The learn and test (re)cycle

I don't know everything about stocks. So, I have to keep learning. But at the same time, there are numerous theories about the behaviour speculation of the stocks, many of them contradict each other. So, its not wise to blindly follow any of those. The right thing to do must be to learn and test.

This learn and test is a cyclical process. I start with a high rated book, and when I am done reading it, I come back to market to test the new knowledge I gained. I start with dummy trades, everytime, and move to actual money trades only if the dummy trades worked. I try not to overwrite techniques, instead I always try to let multiple theories work in parallel for me, as long as they don't contradict each other.

But on some days, the different techniques or the indicators do contradict each other. I get extra careful on those days, becsuse the stock might turn in either way, and the movement would be justified by like half of the indicators. So I try to make a buy or sell decision when a majority of the indicators are in sync and ask me to do the same thing.

But not always. If the graph pattern indicaters a strong rise or fall, it usually overrides all other indicators, for a brief period, from minutes to about an hour. I do take risks in such cases and put real money in such graphically justified trades. For intraday or very short term trading, The visual investor has been the most useful book for me, so far.

Btw, as I was saying, after I test the theory, successfully or unsuccessfully, I get back to the learning. This is a continuos process, and should sustain as long as I plan to stay in this business.

10 percent per week

I am learning this business for five years now. During all these years, I never had a target. All I wanted was to learn. Money earned, lesson learnt. Money lost, lesson learnt. Actually, I have never cared about the gains or losses. May be because I was investing so little money in the stocks that it did not matter. Or may be, I was considering myself an amateur trader, with the sole intention of learning, not earning.

So thus, years passed by, without any worthy returns. Well, I'm not being honest here if I say that the returns were not worthy. My lowest per annum returns were my first year's, 17%. It has never been less than 20% after that. Just so that you can compare, Warren Buffet's average returns are 20%. So I think its pretty decent. You agree?

Anyways, since I have started, I have focused all my Stock market investment on Stocks. I have bought and sold them under special opportunities like IPO, FPO or buy backs. But, I have always traded stocks only.

Last year, I learnt a very special market instrument, the Option. Simply stated, its like a horse bet. Very risky, and very rewarding too. Since then I am trying to learn this new device of money making.

But thats not a very good strategy, is it? I have spent the last five years on learning to trade the stocks, now suddenly, when it became fruitful, I am jumping ships. Doesn't seem like a wise decision, eh!

Exactly. So, I have planned to keep investing in stocks, but as I am an experienced trader now, I can invest bigger chunks of money, and still keep earning that decent 20% per annum. So what about Options? If you are investing in stocks and options both, aren't you having too much risk exposure in stocks? Well, as compared to options, the stocks are as safe as government bonds for me. I just can't seem to loose any money in the stock trading. In fact, I have not made any losing trade for almost a year now. So that takes out the risk factor on my majority investments in the stocks.

Now coming to options, they are highly complex in nature and I would suggest any one trying to enter options trading at least 1 month of paper trading in options, before playing with actual money. I am almost a year into it now. I have made profits of epic proportions, withing days, thats the power of options. Maybe I got lucky, may be I was informed, I don't take the credit.

I have made losses too, but the losses I have made were not in huge chunks, they were more like death by a thousand cuts. So the question before me was how to minimize the losses and get consistent profits, in a planned way, not just because I got lucky.

So, now I have decided to set myself targets: for options trading. I am extremely careful in the trades I make and I exit the trade as soon as I hit my target. My first target was earning 10%, regardless of the timeframe. The purpose was to analyse how much I can earn, in a planned manner. To earn 10%, I could have either made 4 trades of 2.5% each or a single trade of 10%. As I knew from my experience, earning more than 10% in a day would be a lucky trade, not what I am looking for. So, I decided to go with 4 trades of 2.5%.

I achieved that in 4 days.

After that, I kept my target of 10% the same, but now, I gave myself the target of a week to make those 4 trades. Another week went past, and I successfully hit the target of 10 again.

It has been six weeks since I started the target based options trading, earning more than 10% every week, as planned. Also, I got lucky in a few trades, thus taking my overall returns for the past six weeks from 60% to 100%.

I WAS ABLE TO DOUBLE MY INVESTMENT IN SIX WEEKS.

In the process, I have developed algorithms to filter out risky and stupid trades. The algorithms are so efficient that I have not lost any money in this financial year. None of my trades in the past one and a half months have been in loss.

So with this increased knowledge, tools and confidence, I am planning to increase my risk appetite now. Now, the risk exposure can be increased in two ways: either I should increase my investment, keeping my target rate of return constant at 10%, or I can keep my investment the same, but increasing my target rate of return to 15 or 20%.

The decision is simple. The algorithms I have, that are generating sure money, are designed to return 10%. They make me get out of the market before I lose money. I don't have any tested algorithm that gives me more returns in the same one week period. So, I have decided to double my investment.  Remember, the extra money I am about to invest from tomorrow, was earned in the past six weeks. If the algorithms continue to work, it would allow me to double my money in the next one to two months, i.e. my actual investments would be four times within three months. Sounds too good to be true right? Agreed. But it has worked so far, there seems to be no reason that it might stop working now.

So, the target now is to earn 20%, but with doubled invested money, the trades have to be made for only 10%. Lets see what happens. Sit tight.

You win, when you don't have the fear of losing anymore.

Continuation and reversal patterns

There are two types of recognizable trend patterns: continuation and reversal.

Continuation patterns indicate that the stock would continue to go in the same direction. It may be up or down.

The reversal pattern indicate that the trend is about to reverse. So put your money in the opposite direction.

Can't buy me love

Being a stock trader doesn't mean that you are not human anymore. I am still the boy who never tied his shoelaces. I get sad, I regret, I weep. Let me tell you all one thing, money can't buy you happiness. And you know what, I was never under the delusion that it can. I need money because some things demand money. But the most precious things are for free, like love.

P.s. The title to this post is a reference to a Beatles song.

The Rat race

Ever seen that white lab rat running inside a wheel? That poor guy keeps running and running, though he stays exactly where he is!

At the end of the day, he is tired, but happy because of all the hardwork he did. He is sad because he ended at the same place as yesterday, yet he feels proud of his loyalty for the wheel.

He feels secure while running the wheel, because he knows exactly how to do it. His belief that he is the only one able to run the wheel gives him strength. He is irreplacable.

He is not accomplishing anything, no rewards or recognition for his hard work, he knows that. He could try to run outside the wheel, but he is not sure where to to go. So he tries harder, runs for longer hours, without tea-brakes, no time waste.

And he wakes up every morning, gets ready for work, rushes to his wheel, runs it all day, gets tired, and goes to sleep everynight. All he hopes is that ìt would be good enough.

He stays at the same place for all his life, without any rewards, without reaching anywhere. And one day when he dies, he is replaced by another rat to run the wheel.

This is the rat race. Sticking with the same job, knowing it is not providing what you wish for or not taking where you want to reach, only because it is safer and comfy.

Rat race is always voluntary. Circumstances may hold you back for some time, but not forever. There is only one way to get stuck into the rat race-do nothing. And there is only one way out-do something.