"Stop Loss Essentials: Preventing Losses in Uptrends"

2023년 11월 18일

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Common Reasons Why Traders Lose Money Even in an Uptrend

#Not Setting Stop-Loss:
#Not Conducting Technical Analysis:
#Going against the Trends:
#Following the Herd:
#Being Impatient:
#Not doing Homework or Research:
#Averaging on Losing Position:

Buy low sell high' is the motto. As simple as it sounds, why do most people lose money trading or investing?

There are four major mistakes that most beginners make:
1. Excessive Confidence
This stems from the idea that people think of themselves as special. They think they can 'crack the code' in the stock market that 99.9% of people fail to, and eventually make a living trading and investing. However, taking into consideration the fact that more people lose money in the market, this form of wishful thinking is the same mentality as going into a casino feeling lucky. You may actually get lucky and win big the first few times, but in the end, the house always wins.

2. Distorted Judgements
While simplicity is key, the approach most beginners make in trading and investing are too simplistic, to the extend where it's hard to even call it a trading logic or reason to invest. They spot a few reoccurring patterns within the market, and this is almost as if they discovered fire. It doesn't take long to realize that the "pattern" they spotted was never based on any solid reasoning, or worse, wasn't even a pattern at all in the first place.

3. Herding Behavior
The fundamentals of this is also deeply rooted in a gambling mindset. Beginners are attracted to the idea of a single trade or investment that will make them a millionaire. However, they fail to realize that there is no such thing. Trading and investing is nothing like winning the lottery. It's about making consistent profits that compound throughout time. While people should definitely look for assets that have high liquidity and some volatility , the get-rich-quick mentality drags irrational beginners into overextended/overbought stocks that eventually drop drastically.

4. Risk Aversion
Risk aversion is a psychological trait embedded within all of mankind's DNA. Winning is fun, but we can't tolerate losing. We tend to avoid risk, even when the potential reward is worth pursuing. As such, many beginners take extremely small amounts of profits, in fear that they might close their position at a loss, trading with a terrible risk reward ratio. In the long run, their willingness to not take any risks leads to losses.

Depending on the price action, they also go through seven phases of psychological stages:
- Anxiety
- Interest
- Confidence
- Greed
- Doubt
- Concern
- Regret


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Lack of Discipline
An intraday trader must stick to a proper plan. A full-fledged intraday plan includes profit targets, factors to consider, methods to put a stop loss, and ways to select the right trading hours. The trading plan provides a comprehensive overview of how trading should be executed. Also, you can keep a record of trades executed during the day with the performance analysis of each stock at the end of the day. Such records help you identify the weak areas in your trading strategy and correct them. It is very important to be disciplined as a trader, the proper discipline will help you minimize the losses and maintain your capital.

Not Setting Proper Trading Limits
In intraday trading, the success lies in managing the risk. You should pre-define a stop loss and profit target when entering intraday trading. This strategy itself is an important part of trading discipline and this is where most people fail. For instance, if you incur a loss in the first hour itself, you should shut down the trading terminal for the rest of the day. You should also have an overall capital loss limit in place, it will safeguard you against trading losses.

Compensating for a Rapid Loss
This is one of the common mistakes in the trading community. When a trader incurs a loss, he/she either tries to average a position or overtrades excessively to recover the loss. This further leads to a greater loss and put them into more trouble. Losses are a part of intraday trading, instead of overtrading, it is wise to accept the loss, analyze the strategy and make improvements from the next day.

Heavy Dependency on Tips
Nowadays, there are ample of intraday tips flowing everywhere on the digital media. It is a common phenomenon for a trader to rely on these external tips, however, this needs to be avoided. The best way to learn intraday trading is by gradually learning how to read charts, understanding structures, and interpreting results on your own. Many traders refrain from taking these efforts and because of this, they end up on the losing side. The Beyond App by Nirmal Bang provides deeper insights into the market, the technical research offered by Nirmal Bang is spot on. You can use that research for reference, however, nothing can beat practical experience.

Not Keeping Track of Current Affairs
The external news, events, and tragedies do have an impact on the stock market. Hence, it is important for an intraday trader to keep a track of the Indian as well as global markets. Even the performance of global markets has an impact on the movement of Indian markets. Make your trade after the news or event has been announced, do not try to speculate the market based on the news.

There are even instances when traders do not have any sound trading strategy, they just make decisions based on gut feelings or emotions. One needs to remember that intraday trading in itself is a skill, it is not a gamble, it takes time to develop proficiency, you cannot expect rapid results. The above are some of the major reasons why intraday traders lose money, ensure that you are disciplined enough, stick to a proper strategy, analyze your strategy at regular intervals, and things will fall in place.

we will discuss 3 classic trading strategies and stop placement rules.

1) The first trading strategy is a trend line strategy.
The technique implies buying/selling the touch of strong trend lines, expecting a strong bullish/bearish reaction from that.

If you are buying a trend line, you should identify the previous low.
Your stop loss should lie strictly below that.

If you are selling a trend line, you should identify the previous high.
Your stop loss should lie strictly above that.

2) The second trading strategy is a breakout trading strategy.
The technique implies buying/selling the breakout of a structure,
expecting a further bullish/bearish continuation.

If you are buying a breakout of resistance, you should identify the previous low. Your stop loss should lie strictly below that.

If you are selling a breakout of support, you should identify the previous high. Your stop loss should lie strictly above that.

3) The third trading strategy is a range trading strategy.
The technique implies buying/selling the boundaries of horizontal ranges, expecting a bullish/bearish reaction from them.

If you are buying the support of the range, your stop loss should strictly lie below the lowest point of support.

If you are selling the resistance of the range, your stop loss should strictly lie above the highest point of resistance.

As you can see, these stop-placement techniques are very simple. Following them, you will avoid a lot of stop hunts and manipulations.



What Is a Stop-Loss Order?
A stop-loss order is an order placed with a broker to buy or sell a specific stock once the stock reaches a certain price. A stop-loss is designed to limit an investor's loss on a security position. For example, setting a stop-loss order for 10% below the price at which you bought the stock will limit your loss to 10%. Suppose you just purchased Microsoft (MSFT) at $20 per share. Right after buying the stock, you enter a stop-loss order for $18. If the stock falls below $18, your shares will then be sold at the prevailing market price.

Stop-limit orders are similar to stop-loss orders. However, as their name states, there is a limit on the price at which they will execute. There are then two prices specified in a stop-limit order: the stop price, which will convert the order to a sell order, and the limit price. Instead of the order becoming a market order to sell, the sell order becomes a limit order that will only execute at the limit price (or better).

Advantages of the Stop-Loss Order
The most important benefit of a stop-loss order is that it costs nothing to implement. Your regular commission is charged only once the stop-loss price has been reached and the stock must be sold.
3

One way to think of a stop-loss order is as a free insurance policy.

Additionally, when it comes to stop-loss orders, you don't have to monitor how a stock is performing daily. This convenience is especially handy when you are on vacation or in a situation that prevents you from watching your stocks for an extended period.
4

Stop-loss orders also help insulate your decision-making from emotional influences. People tend to "fall in love" with stocks. For example, they may maintain the false belief that if they give a stock another chance, it will come around. In actuality, this delay may only cause losses to mount.
5

No matter what type of investor you are, you should be able to easily identify why you own a stock. A value investor's criteria will be different from the criteria of a growth investor, which will be different from the criteria of an active trader. No matter what the strategy is, the strategy will only work if you stick to it. So, if you are a hardcore buy-and-hold investor, your stop-loss orders are next to useless.

At the end of the day, if you are going to be a successful investor, you have to be confident in your strategy. This means carrying through with your plan. The advantage of stop-loss orders is that they can help you stay on track and prevent your judgment from getting clouded with emotion.
2

Finally, it's important to realize that stop-loss orders do not guarantee you'll make money in the stock market; you still have to make intelligent investment decisions. If you don't, you'll lose just as much money as you would without a stop-loss (only at a much slower rate.)



Types of Stop-Loss orders
Fixed Stop Loss
The fixed stop is a stop loss order triggered when a particular pre-determined price is hit. Fixed stops can also be timed-based and are most commonly used as soon as the trade is placed.

Time-bound fixed stops are useful for investors who want to provide the position with a pre-set amount of time to profit prior to moving on to the next trade.

Only utilize time-based stops when positioned sized properly to permit major adverse swings in share price.

Trailing Stop-Loss Order
Trailing order caters to the capital gains protection of an investor, while simultaneously providing a hedge against any unexpected price downturns. It is set as a percentage of the total asset price, and the order to sell is triggered in case market prices fall below the stipulated level. However, in the case of a price rise, the trailing order adjusts automatically in tune with an overall increase in market valuation.

Suppose, in a trailing stop-loss market, an order for execution is set if the price of a security falls below 10% of the market value. Assuming the purchase price is 100 an order to sell the security is executed automatically by an authorised broker if the price falls below 90.

In case the share prices rise to 120, the trailing order stands at 10% of the current market price, which is 108. Hence, if prices consequently start falling after peaking at. 120, a stop-loss order will be executed at 108. It allows an individual to enjoy a capital gain of 8 (108 – 100) on his/her investment corpus.

Stop-Loss Order Vs Market Order
While a stop-loss order performs a sale of underlying securities provided the price falls below a prescribed limit, a market order is issued to a broker to conduct trade (both buying and selling) at the prevailing market price. Stop-loss orders are designed to reduce the risk factor, while market orders aim to increase liquidity in the stock market by eradicating the bid-ask spread difference. A market order is the most basic form of trade order placed in a stock market.

Stop-Loss Order and Limit Order
Limit orders execute a trade of stipulated securities if the price reaches a pre-set value. While a buy limit order facilitates the purchase of any securities if the price falls below the given limit, a sell limit order is executed if the price rises above the value. Limit orders are designed to maximise the profitability of an investment venture by maximising the bid-ask spread. It is in contrast to stop-loss orders, which are implemented only if the price is equal to the limit stated by investors, as a method of minimising losses in a bear market.

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2023년 11월 19일

노트

2023년 11월 19일

노트

"Welcome to a fascinating journey into the world of trading with the Volatility Breakout Strategy – a method that offers you a glimpse into the wisdom of legendary trader Larry Williams. In this comprehensive guide, we'll unravel the strategy's intricacies step by step, giving you the tools to incorporate it into your own trading style.

Disclaimer: Before we dive in, a word of caution. This is not financial advice. It's designed for educational and entertainment purposes only. Your investment decisions should always be made with due diligence, and you bear the responsibility for any profits or losses incurred. Trade and invest wisely.

The Volatility Breakout Strategy

This time-tested strategy, crafted by the legendary Larry Williams, centers around the idea that trends tend to persist. In other words, what goes up often continues its ascent. The beauty of this strategy lies in its simplicity:

Strategy Breakdown:

Range Calculation: Begin by calculating the range, which is the difference between the daily high and low prices (Range = High - Low).

Base Price: Determine the base price or entry price for the next day. It's calculated as the previous day's candle close plus a constant multiplier (K) times the range. Typically, K hovers around 0.6 to account for market noise.

Entry Signal: If the current day's price surpasses the calculated base price, it's your signal to enter a position.

Exit: The following day, sell all your positions at the market's open price.

Let's Illustrate with an Example:

Consider an asset with a daily range of $100. Calculating the base price gives us $1020. If the asset's price surpasses $1020 on the second day, you buy and ride the momentum. On the third day, you sell all positions at the market open. If the price reaches $1100 on the third day, that's a remarkable 7.84% return. Even if it retraces to $1000 at the opening, you still incur only a 1.96% loss. This showcases not just an attractive risk/reward ratio but also a statistical edge thanks to following the trend.

Strengths of the Volatility Breakout Strategy:

This strategy's strengths lie in its ability to sidestep the emotional rollercoaster of market psychology. By focusing on volatility and executing short-term trades with precise entry and exit points, it enables traders to tune out market noise. Trends, which reflect market psychology, become our allies rather than foes. Unlike reversal strategies, this approach provides a statistical edge and an appealing risk/reward ratio.

Conclusion:

While applying this strategy directly in today's markets may require some adjustments, understanding how legendary traders like Larry Williams approached the market is invaluable. The key takeaway is to remove emotion from your trading equation, maintain strict rules, and define clear invalidation points. These principles are fundamental to finding success in the dynamic world of trading.

If you found this educational post insightful and engaging, don't forget to hit that like button and follow for more high-quality content. Feel free to share your thoughts and questions below—let's navigate the exciting world of trading together!"

2023년 11월 20일

노트

Squid Game, the sensational Netflix series that has taken the world by storm, offers a gripping mirror to human psychology, reflecting the intricate dance of emotions and decisions that we often encounter in the world of finance. Just as unsuspecting individuals are lured into the deadly games by the enigmatic subway stranger, many novice investors are drawn into the stock market by tales of friends striking it rich, often diving in headfirst without a hint of the rules of the game.

It's a rollercoaster ride from beginner's luck to the perilous cliffs of attribution bias. Beginner's luck, that elusive phenomenon where newcomers seem to outshine the experts, can be an enticing trap. It leads to overconfidence, a misplaced faith in gut feelings, and an overzealous desire to trade that often ends up costing a small fortune in fees. These overconfident traders become engrossed in their own world, neglecting the wisdom of statistics and putting all their eggs in a single, precarious basket.

Attribution bias, another insidious cognitive bias, rears its head as traders concoct explanations for their successes and failures. Profit? They're geniuses with uncanny foresight. Loss? Blame it on market conditions or mere bad luck. The mind constantly seeks excuses for every twist and turn.

Even great minds like Isaac Newton, who could unravel the mysteries of the cosmos, fell victim to the madness of financial markets, a glaring example of attribution bias in action.

In Squid Game, the players, after witnessing horrifying tragedies during 'Red Light Green Light,' are given a choice to continue playing or not. Overconfidence and attribution bias grip the survivors as they believe they are destined for victory, much like many traders who cling to the belief that improbable outcomes are within their grasp.

Mob psychology and the bandwagon effect rear their heads in the story, too. The players form alliances and teams based on earlier factions, mirroring the tendencies of investors to follow the crowd rather than adhere to their own strategies and analyses. Panic buying, selling frenzies, and susceptibility to pump-and-dump schemes ensue.

In the financial world, these psychological phenomena can lead us astray, costing us dearly. But unlike the brutal Squid Game, financial markets aren't a zero-sum game. With a solid understanding of market characteristics, rules, and diligent research, you can gain a statistical edge. As a trader, I'd argue that technical knowledge accounts for less than 5% of the equation; it's all about mastering your cognitive biases and maintaining emotional control.

So, just as the surviving players in Squid Game strive to outlast their competition, investors and traders should strive to outsmart their own psychological pitfalls. In the end, success in the market isn't about luck but about mastering the intricacies of the human mind in a complex financial world.

If you found this insightful, don't forget to like and follow for more quality content! Feel free to share your thoughts and questions below—let's navigate this financial journey together!"

This chart is inspired by Michael_Wang_Official
This chart is just for information

Never stop learning
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Thank you

2023년 11월 21일

노트

Hello traders, today we will talk about Types of market days

Some crucial aspects significantly influence technical analysis. The type of the market day is one of those crucial elements. Any trader who is actively trading in stocks, indices, cryptocurrencies, forex, derivatives, etc. may gain an advantage by properly analysing the type of market day.

Today, we'll talk about "6 different types of days" that could occur in the market. Please be aware that the six days differ greatly from one another. These patterns are not inviolate, thus they should only be used as a general indicator rather than a precise one for any given trade.


Types of market days:
# Trend day
# Double distribution trend day
# Typical day
# Expanded typical day
# Trading range day
# Sideways day

#Trend Day
The 'Trend day' is typically a volatile trading day with a definite bullish or negative momentum. On a day with a positive trend, the beginning candle typically represents the day's bottom, and the market subsequently slowly rises throughout the day. The day's high is typically marked by the opening candle on days with a negative trend, and the market then progressively decreases during the day.
Typically, a quiet day with range-bound movements comes before the trend day. Gives the possibility of a significant reward if correctly identified. Rarely, perhaps only a few times every month, do such trending days occur.

#Double distribution trend day
The 'Double distribution trend day' is a slightly complicated but incredibly effective strategy for executing aggressive trades. Because of this, institutions and experienced traders make extensive use of this method.
It is typically distinguished by being undecided at the start of the session. On a day like this, the market first moves in a narrow range. An initial balance is another name for it. The reference points are the initial balance high (IBH) and initial balance low (IBL). The day of the Double Distribution trend is quiet to start. The price eventually moves away from this range and tends in the direction of a new value, driven by buyers or sellers. When the market's momentum has subsided, another range-bound movement develops.Due to the fact that the majority of trading activity takes place at either extreme, this is where the phrase "Double Distribution trend day" originates.
Wide initial balances are more difficult to break than narrow initial balances.

#Typical Day
It is distinguished by a significant rise or fall at the start of the trading day. It might be a reaction to any significant macroeconomic news. Then, by adopting opposing positions, the market participants drive the price back in the opposite direction. The market simply trades within the range it generated earlier in the trading session when a broad range was formed in a relatively short period of time.

#Expanded Typical Day
It resembles that of the 'Typical Day' that was previously addressed. The beginning balance is not as large as on a "Typical Day," but the early price fluctuation is less erratic. This gives market participants the chance to break this constrained range. When this range is violated, either by an increase in selling pressure or purchasing pressure, the market then moves strongly in that direction.
The initial balance in this situation is greater than on a Double Distribution Trend Day but less than on a "Typical Day."

#Trading Range Day
Prices are being deliberately pushed up and down by buyers and sellers. Buyers and sellers who are responsive will try to enter at the extremes, driving prices back to the starting position. This kind of day offers both sides fantastic trading opportunities.

#Sideways Day
A "Sideways day" is one in which there is little movement in the price. As neither party makes any bold directional trades today, it is somewhat of a day of indecision for both parties. Option sellers typically enjoy trading on days like this since they can profit from time decay due to the non-directional, subdued action.

Although the Trading Range Day and the Sideways may appear to be identical, they differ greatly from one another. On a "Trading Range Day," both buyers and sellers are quite prevalent; however, this is not the case on a "Sideways Day."

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