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Trading Lesson Learnt From my Trading Guru Part-III

28 September 2013 1,814 views 4 Comments

In Continuation with the previous 2 articles

Trading Lesson Learnt From my Trading Guru

Valuable Trading Lesson Learnt From my Trading Guru Part-II

Before starting the article a small note, If You Really Enjoy my article, Could you please do me a ‘Huge favor’ after you have finished reading today’s lesson. Please click the Facebook Link below this article. Most importantly, make sure you share your feedback by using the comment box below. I appreciate your support.

 “Have the courage to trade in big quantity ”

He meant the willingness to carry a very, very large position when you have a high degree of conviction and the risk/reward makes sense.

This is actually the flip side of  My Guru’s last pearl of wisdom- when there’s nothing to do, do nothing. But when there’s something worth doing, then do it in size.

Geroge Soros frequently talks about this, because it’s a common trait of all great traders. In order to be a big winner, you have to be very, very large in the positions that have the best risk/reward. Considering that most traders make their year on two or three big trades, then you have to pile in when you see an opportunity.

The key question is: how do you judge when to trade big quantity ?

The answer: you have to rank your positions in terms of overall attractiveness/conviction and then size them accordingly. Once a trade meets all of the minimum criteria for you to put it on, then you go further and rank it on a scale of 1-5 of overall attractiveness.

To simplify, I have the following criteria:

-          Strong chart—breaking out of a base of at least six weeks’ duration on 2x average daily volume

-          An overall stock market that’s trending higher

-          Buy coming as per Price Action Strategy after 2-3 Whipsaw

-          Chopad levels signalling a Buy/Sell

-          Higher Time Frame and Smaller Time Frame in Sync

-          Buy as per Stock Positional System

If  stock/Nifty could just barely meet your criteria, In this case, you would rate it a 1 out of 5 (the lowest). On the other hand,if stock/Nifty This would merit a 5 out of 5.

How would your position size vary depending on the rankings? For a “5”, you would want a position size that’s several times larger than for a “1”. That means you could put a “1” at 1-2% of your trading capital, which you would feel comfortable putting on a “5” at 6-10%. After all, you would feel most comfortable betting more on a position where things couldn’t be better, rather than in something that’s barely meeting your entry criteria.

That’s how my trading guru did it. Whenever he found a trade where all of the stars were aligned and he felt that the risk/reward was skewed in his favor, he would put on a gigantic position. And while it wouldn’t always work, the gains on his winners would far, far outweigh his losers, leaving him a substantial winner.

Conclusion:

As discussed  in all 3 article  methodology was quite simple. He would only trust his trading strategy , looking for trades that fit his methodology. When he had no ideas, he would do nothing; when he had a smattering of decent ideas, he would take some risk; and when he had a fabulous idea, he would put on a large position.

It sounds simple enough, but executing it is properly is another matter. As a matter of fact, despite his fabulous example and education,Many traders will be net loser. Why?

When push came to shove, I didn’t have a well-defined methodology for how to approach trades.  Ultimately, no amount of advice will help you when you don’t really have a clear game plan.

As Brett Steenbarger says, the biggest barrier to trading success is usually a methodology problem. Hopefully, my example will show you importance of getting the very basics right.

After that, I hope that the My trading guru advice will help you to transform your trading to the level of the greats.

 

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4 Comments »

  • vk said:

    Thanks
    Vk

  • Raja Mohan said:

    Excellent article and very valuable suggestions sir.

  • Parimal Devnath said:

    Dear Sir
    i am a regular reader of all your articles which are highly educative.
    thanks a lot for your tireless endevour. this iii article highlights the correct strategy to be applied only when the right opportunity knocks.
    kind regards
    Parimal.

  • jagdish said:

    Thanks, Sir. keep in mind this lessons. Thanks ones again.

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