Which One is Good Stoploss or Hedging The Position in share market

I will always vote for hedging than a stop loss while trading. Since I almost always trade nifty options, I will restrict my discussion to options and try to reason why hedging suits me better than a stop loss.

Here are a few reasons why I will always vouch for hedging:

1. No need to worry about your positions. If your view is wrong – the hedged trade is making money. Effectively that is working as a stop loss.

2. You decide when to get out of trade – not a stop loss. In fact you can book profits in one position and leave another position open or initiate another hedge / stop loss strategy.

3. No need to baby-sit the market. You can take time off and feel better. Spend time with you family while still making money. You can leave the trades and go on with your work. Come back after some time to see where you stand and take a decision. In a stop loss, unfortunately though you can leave the system – the stop loss is such a devil that you want to keep watching it and hoping it does not get hit. Eventually it does.

4. Watching one position making money 100% of the time gives more joy.Compare this to the feeling of a position that has just hit a stop loss. 100% loss – no profits.

5. If the trend changes after the stop-loss is hit – there is nothing on this earth you can do about it – except writing a mail to NSE and beg them to reverse the trade which they will not do under any circumstances even if it was their fault. For example afreak trade. You just made a loss and system closed the position. With a hedged position you can leave the trades open for the next hour or day or even few days. More often than not – the trend changes and you can close the trade in profit.

6. You can sleep better in the night as overnight positions can do no harm – remember one positions always keeps you protected. In a stop loss if there is a huge gap opening against your open positions – you will take a stop loss in a market position and see a lot of your money wiped out. It will be a big set back. Some of them can take you out of trading business forever. Hedging will keep you in the game.

7. Sometimes stop loss does not gets executed if the stock/nifty jumps. You are then left at the mercy of the market. Taking a market stop loss will kill you. You will feel miserable for months and will not gather the strength to trade for a long time. This isn’t the case with a hedged position. You will laugh with joy seeing your hedge make a lot of money in a freak second though the other position will be making huge losses. But it will give you time to breath. You won’t freak and press the panic button.

8. Knowing in advance the losses you can make will help you not bother much about your trades so you can take bold decisions and large positions. With a stop loss you can never scale your trades. This is my personal experience that people who put a stop loss never exceed a trade of more than 1 lac. How much will your money grow if you cannot compound? Can you trade 50 lots of nifty call options at Rs. 100.00 even with a stop loss? You have to put Rs. Two lacks and Fifty Thousand on the line. If you somehow felt sick and forgot about the trade and your options expires worthless – all your money is gone. But what happens when you sell a call option with Rs. 75.00 and buy a call option of Value Rs. 100.00? Your maximum loss is 25 points. Now can you trade 50 or even 100 lots? Yes you can.

9. Hedging allows you to do some other work when the markets are open. For instance you can do a part-time or a regular job and still make money. Because there is no need baby-sit your trades. No need to sit six and a half hours in front of your screen. You have to agree with me here – most traders keep watching a trade if there is a stop loss in the system. You cannot do any other job. Your mind will always be with stop-loss. Period.

Some people ask me how to hedge when they are trading stocks in cash intraday. You can but you need to buy/sell a stock that has options available. For example you can buy the stock in cash/futures market if you think it will go up and simultaneously buy a ATM put option. So if your view is wrong the put will make money. In fact if you had bought futures and think that eventually the stock will go up – you can leave this position open overnight and see for the next few days. If the stock rises – you can close the position in profit. Had there been a stop-loss you would have never been able to close it in profit as you have already closed the position in a loss.

Some points to remember:

Hedging should be done simultaneously. Suppose you have bought a call you should sell a call at the same time for the hedge to work effectively.

I have seen many traders get greedy and do not buy a hedge at the same time. They think when the time will come they will buy the hedge. That time never comes and they close the position in a loss.

Hedge gets costly over time if not bought simultaneously. For example if you have bought a call and not sold an OTM call at the same time. If your view was wrong – the OTM calls will get less in value and the money you pocket will be less when you close the potion. So your loss will be bigger.

Suppose you had bought a nifty future and did not buy an ATM put at the same time, and nifty falls. The future has already lost some money that the put option may never be able to recover. Again your losses will be bigger.

Suppose you sold a naked call option and did not hedge and the position is going against you. The calls you want to buy for hedging will become costlier (Nifty is rising) and your profits on the calls will be smaller – again your losses will be bigger than what it would have been had you bought the OTM call as soon as you sold the call.

Note: In some trades however stop-loss makes sense. For example if you are a small trader and you trade only with RS. 10000 intraday cash. Then you have no other option but to put a stop loss in the system. You don’t have enough cash to hedge your position.

Most important note: I like hedging better than stop loss. But that is me not you. Everyone has their own psychology while trading. Some like to work with stop loss and some with hedging. Whatever they are comfortable with. This is my choice and not necessary that you should follow it too. Just try both for some time to decide which one works best for your trades and follow it.

But whatever you do – please please please – either put a stop loss or hedge your position or do both. But never play your trades naked. Stock markets are risky investments and should never be traded without proper insurance. Your insurance can be either a stop loss or a hedged position.

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Pair Trading explained with small Example

Lets say there is Long ICICI and Short Bank Nifty Signal. I will decide which has more probability. If i feel ICICI going up is more probable than banknifty falling, then I would buy ICICI fut and buy bank nifty put. I will replace the doubtful leg with option. So when ICICI goes up by 5% and bank nifty goes up by 2%, I would have made better profit then shorting bank nifty fut. On the other hand by buying put i am reducing my risk in one leg. 

If I am in this position
I would buy ICICI Fut and Sell ICICI High strike
and buy one Bank Nifty Put
when using options the overall risk definitely gets reduced.

Favourite Pair Stocks for Pair Trading

So fair in last 2 years of pair trading, these have been my top 4 favorites. I have also added the backtest results.

HDFC vs HDFC Bank - 35/35 Winners - Biggest Hit - All time favorite
Colpal vs Dabur - 18/18 Winners
DR Reddy vs Lupin - 20/21 Winners
Gail vs Ongc - 32/33 Winners - nowadays lot of oil related news so i avoid

sources : Traderji

Investment Rules

Rule 1: Bulls, Bears Make Money, Pigs Get Slaughtered

It's essential for all traders to know when to take some off the table. 

Rule 2: It's OK to Pay the Taxes

Stop fearing the tax man and start fearing the loss man because gains can be fleeting. 

Rule 3: Don't Buy All at Once

To maximize your profits, stage your buys, work your orders and try to get the best price over time. 

Rule 4: Buy Damaged Stocks, Not Damaged Companies

There are no refunds on Wall Street, so do your research and focus your trades on damaged stocks rather than companies. 

Rule 5: Diversify to Control Risk

If you control the downside and diversify your holdings, the upside will take care of itself.

Rule 6: Do Your Stock Homework

Before you buy any stock, it's important to research all aspects of the company. 

Rule 7: No One Made a Dime by Panicking

There will always be a better time to leave the table, so it is best to avoid the fleeing masses.

Rule 8: Buy Best-of-Breed Companies

Investing in the more expensive stock is invariably worth it because you get piece of mind. 

Rule 9: Defend Some Stocks, Not All

When trading gets tough, pick your favorite stocks and defend only those. 

Rule 10: Bad Buys Won't Become Takeovers

Bad companies never get bids, so it's the good fundamentals you need to focus on. 

Rule 11: Don't Own Too Many Names

It can be constraining, but it's better to have a few positions you know well and like. 

Rule 12: Cash Is for Winners

If you don't like the market or have anything compelling to buy, it's never wrong to go with cash. 

Rule 13: No Woulda, Shoulda, Couldas

This damaging emotion is destructive to the positive mindset needed to make investment decisions.

Rule 14: Expect, Don't Fear Corrections

It is not always clear when a correction will strike, so expect and be prepared for one at all times. 

Rule 15: Don't Forget Bonds

It's important to watch more than stocks, and bonds are stocks' direct competition.

Rule 16: Never Subsidize Losers With Winners

Any trader stuck in this position would do well to sell sinking stocks and wait a day. 

Rule 17: Check Hope at the Door

Hope is emotion, pure and simple, and trading is not a game of emotion.

Rule 18: Be Flexible

Recognize and be open to the unexpected shifts in the market because business, by nature, is dynamic, not static. 

Rule 19: When the Chiefs Retreat, So Should You

High-level executives don't quit a company for personal reasons, so that is a sign something is wrong.

Rule 20: Giving Up on Value Is a Sin

If you don't have patience, think about letting someone who does run your money. 

Rule 21: Be a TV Critic

Accept that what you hear on television is probably right, but no more than that.

Rule 22: Wait 30 Days After Preannouncements

Preannouncements signal ongoing weakness, wait 30 days to see if anything has gotten better before you pull the trigger to buy. More

Rule 23: Beware of Wall Street Hype

Never underestimate the promotion machine because analysts get behind stocks and can keep them propelled in an up direction well beyond reason. 

Rule 24: Explain Your Picks

Buying stocks is a solitary event, too solitary in fact, so always make sure you can articulate your reasoning to someone else. More

Rule 25: There's Always a Bull Market

It's OK if you have to work hard to find it, just don't default to what's in bear mode because you are time-constrained or intellectually lazy. 

Todays Share Market explained in story

If anyone has difficulty understanding the current world financial situation, the following should help.... Once upon a time in a village in India, a man announced to the villagers that he would buy monkeys for $10. The villagers seeing there were many monkeys around, went out to the forest and started catching them.

The man bought thousands at $10, but, as the supply started to diminish, the villagers stopped their efforts. The man further announced that he would now buy at $20. This renewed the efforts of the villagers and they started catching monkeys again.

Soon the supply diminished even further and people started going back to their farms. The offer rate increased to $25 and the supply of monkeys became so little that it was an effort to even see a monkey, let alone catch it!

The man now announced that he would buy monkeys at $50! However, since he had to go to the city on some business, his assistant would now act as buyer, on his behalf.

In the absence of the man, the assistant told the villagers: 'Look at all these monkeys in the big cage that the man has collected. I will sell them to you at $35 and when he returns from the city, you can sell them back to him for $50.'

The villagers squeezed together their savings and bought all the monkeys.

Then they never saw the man or his assistant again, only monkeys everywhere! 

Larry Williams's Investing Rules

1. It's all about survival:
No platitudes here, speculating is very dangerous business. It is not about winning or losing, it is about surviving the lows and the highs. If you don't survive, you can't win.

The first requirement of survival is that you must have a premise to speculate upon. Rumors, tips, full moons and feelings are not a premise. A premise suggests there is an underlying truth to what you are taking action upon. A short-term trader's premise may be different from a long-term player's but they both need to have proven logic and tools. Most investors and traders spend more time figuring out which laptop to buy than they do before plunking down tens of thousands of dollars on a snap decision, or one based upon totally fallacious reasoning.

There is some rhyme and reason to how, why and when markets move - not enough - but it is there. The problem is that there are more techniques that don't work, than there are techniques that do. I suggest you spend an immense and inordinate amount of time and effort learning these critical elements before entering the foray of financial frolics.

So, you have money management under control, have a valid system, approach or premise to act upon - you still need control of yourself.


2. Ultimately this is an emotional game - always has been, always will be:
Anytime money is involved - your money - blood boils, sweaty hands prevail, and mental processes are shortcircuited by illogical emotions. Just when most traders buy, they should have sold! Or, fear, a major emotion, scares them away from a great trade/investment. Or, their bet is way too big. The money management decision becomes an emotional one, not one of logic.


3. Greed prevails - proving you are more motivated by greed than fear and understanding the difference:
The mere fact you are a speculator means you have less fear than a 'normal' person does. You are more motivated by making money. Other people are more motivated by not losing.

Greed is the trader's Achilles' heel. Greed will keep hopes alive, encourage you to hold on to losing trades and nail down winners too soon. Hope is your worst enemy because it causes you to dream of great profits, to enter an unreal world. Trust me, the world of speculating is very real, people lose all they have, marriages are broken up, families tossed asunder by either enormous gains or losses.

My approach to this is to not take any of it very seriously; the winnings may be fleeting, always pursued by the taxman, lawyers and nefarious investment schemes.

How you handle greed is different than I do, so I cannot give an absolute maxim here, but I can tell you this, you must get it in control or you will not survive.


4. Fear inhibits risk taking - just when you should take risk:
Fear causes you to not do what you should do. You frighten yourself out of trades that are winners in deference to trades that lose or go nowhere. Succinctly stated, greed causes you to do what we should not do, fear causes us to not do what we should do.

Fear, psychologists say, causes you to freeze up. Speculators act like a deer caught in the headlights of a car. They can see the car - a losing trade, coming at them - at 120 miles per hour - but they fail to take the action they should.

Worse yet, they take a pass on the winning trades. Why, I do not know. But I do know this: the more frightened I am of taking a trade the greater the probabilities are it will be a winning trade. Most investors scare themselves out of greatness.


5. Money management is the creation of wealth:
Sure, you can make money as a trader or investor, have a good time, and get some great stories to tell. But, the extrapolation of profits will not come as much from your trading and investing skills as how you manage your money.

I'm probably best known for winning the Robbins World Cup Trading Championship, turning $10,000 into $1,100,000.00 in 12 months. That was real money, real trades, and real time performance. For years people have asked for my trades to figure out how I did it. I gladly oblige them, they will learn little there - what created the gargantuan gain was not great trading ability nearly as much as the very aggressive form of money management I used. The approach was to buy more contracts when I had more equity in my account, cut back when I had less. That's what made the cool million smackers - not some great trading skill. Ten years later my 16-year-old daughter won the same trading contest taking $10,000 to $110,000.00 (The second best performance in the 20-year history of the championship). Did she have any trading secret, any magical chart, line, and formula? No. She simply followed a decent system of trading, backed with a superior form of money management.


6. Big money does not make big bets:
You have probably read the stories of what I call the swashbuckler traders, like Jesse Livermore, John 'bet a millions' Gates, Niederhoffer, Frankie Joe and the like. They all ultimately made big bets and lost big time.

Smart money never bets big. Why should it? You can win big on small bets, see #5 above, but eventually if you bet big you will lose - and you will lose big.

It's like Russian Roulette. You may well spin the chamber holding the bullet many times and never lose. But spin it often enough and there can be only one result: death. If you make big bets you are destined to be a big loser. Plunging is a loser's game; it can only set you up for failure. I never bet big (I used to - been there and done that and trust me, it is no way to live). I bet a small per cent of my account, bankroll if you will. that way I have controlled loss. There can be no survival without damage control.


7. God may delay but God does not deny:
I never know when during a year I will make my money. It may be on the first trade of the year, or the last (though I hope not). Victory is out there to be grasped, but you must be prepared to do battle for a long period of time.

Additionally, while far from a religious person, I think the belief in a much higher power, God, is critical to success as a trader. It helps puts wins and losses into perspective, enables you to persevere through lots of pain and punishment when you know that ultimately all will be right or rewarded in some fashion. God and the markets is not a fashionable concept - I would never abuse what little connection I have with God to pray for profits. Yet that connection is what keeps people going in times of strife, in fox holes and commodity pits.


8. I believe the trade I'm in right now will be a loser:
This is my most powerful belief and asset as a trader. Most would be wannabes are certain they will make a killing on their next trade. These folks have been to some 'Pump 'em up, plastic coat their lives' motivational meeting where they were told to think positive thoughts. They took lessons in affirming their future would be great. They believe their next trade will be a winner.

Not me! I believe at the bottom of my core it will be a loser. I ask you this question - who will have their stops in and take right action, me or the fellow pumped up on an irrational belief he's figured out the market? Who will plunge, the positive affirmer or me?

If you have not figured that one out - I'll tell you; I will succeed simply because I am under no delusion that I will win. Accordingly, my action will be that of an impeccable warrior. I will protect myself in all fashion, at all times - I will not become run away with hope and unreality.


9. Your fortune will come from your focus - focus on one market or one technique:
A jack of all trades will never become a winning tradee. Why? Because a trader must zero in on the markets, paying attention to the details of trading without allowing his emotions to intervene.

A moment of distraction is costly in this business. Lack of attention may mean you don't take the trade you should, or neglect a trade that leads to great cost.

Focus, to me, means not only focusing on the task at hand but also narrowing your scope of trading to either one or two markets or to the specific approach of a trading technique.

Have you ever tried juggling? It's pretty hard to learn to keep three balls in the area at one time. Most people can learn to watch those 'details' after about 3 hours or practice. Add one ball, one more detail to the mess, and few, very few, people can make it as a juggler. It's precisely that difficult to keep your eyes on just one more 'chunk' of data.

Looks at the great athletes - they focus on one sport. Artists work on one primary business, musicians don't sing country western and Opera and become stars. The better your focus, in whatever you do, the greater your success will become.


10. When in doubt, or all else fails - go back to Rule One.

Nifty option writing

What is the strategy --- SHORT GUT : sell CALL from lower strike and sell PUT from higher strike (strike price higher than current price of underlying).

When to enter --- this is the real trick which suddenly struck me. Enter SHORT GUT in the middle of earlier month of expiry (e.g. For July expiry sell CE and PE around mid-June) and in next 20 - 25 days one can easily cover both positions about 100-120 points lower.

Example - On 20 Feb Nifty spot was 8800 so sold 8500 CE and 9000 PE for March expiry for a total premium of about 750 and by 10 Mar covered the same for 550 (profit of 200)

On 20 Mar Nifty spot was 8600 so sold 8300 CE and 8800 PE for April expiry for a total premium of about 650 and by 17 Apr covered the same for 530 (profit of 120)

On 20 Apr Nifty spot was 8450 so sold 8200 CE and 8700 PE for May expiry for a total premium of about 640 and by 20 May covered the same for 520 (profit of 120).

It so happened that in between the total premium went higher but since this GAME is for 20-25 days, one can wait patiently. But somehow if the premium remains on higher side till two days before expiry (which means NIFTY has swung outside no-loss zone), then add some capital to sell more CE or PE (as the case may be) so as to get out at least in no profit no loss manner.

So, are we game for July expiry?

It looks like till mid-July NIFTY will remain range-bound between 8000 and 8500. Thus, I am planning to sell July 8000 CE and 8500 PE late next week for a premium of about 680 - 700 points and then cover the positions for about 550 points by 10-15 July.

comments invited.

How to write option successfully

WRITING OPTIONS 

Writing out-of-money options allows you to garner small and consistent returns, during adverse market conditions. Read on to figure out what these options are and how you can make a quick buck on them 

WHAT are the chances of SBI touching Rs 780 by the end of this month? Not very bright, you might say.Then, why not write an SBI Rs 780 call option and earn some low risk income? This practice is popularly known as writing out-of-money options. As a result, you can hope to make some decent income in the form of the premium received on writing the option. 

Writing options 

First, you must be familiar with option basics. An option can be either out-of-money, in-the-money or at-the-money. A call option is said to be in-the-money if the current market value of the underlying share is above the strike price of the option. Similarly, a put option is said to be in-the-money if the current market value of the underlying asset is below the strike price of the option. For instance, if the current price of Infosys is Rs 2,100, an Infosys 2,000 call option (strike price is Rs 2,000) and Infosys 2200 put option (strike price is Rs 2200) are in-the-money. 

At-the-money simply means that the current market value of the underlying asset is the same as the strike price. For instance, if the current price of Infosys is Rs 2,100, then Infosys 2100 call and put options (strike price is Rs 2,100) are at-the-money. 

A call option is said to be out-of-money if the current price of the underlying share is below the strike price of the option. A put option is said to be out-of-money if the current market value of the underlying share is above the strike price of the option. For instance, if the price of Infosys is currently Rs 2,100, then an Infosys 2,200 call option (strike price is Rs 2,200) and Infosys 2,000 put option (strike price is Rs 2,000) are outof-money. 

Out of money options 

Logically, you should write a call option when you expect the underlying stock to stay at the same level or fall. Similarly, you could write a put option when you expect the price to stay at the same level or rise. As an option buyer, your risk/ loss is limited to the premium that you have paid. On the other hand, as an option seller, your risk is unlimited whereas your gains are limited to the premiums that you earn. 

Hence, writing call and put options are considered to be quite risky as the losses can be unlimited, if the value of the underlying asset increases above the exercise price. For instance, if you write or sell one Infosys 1 month at-the-money call option at a strike price of Rs 2,100, when the cash price is also Rs 2,100, you would get a decent premium 
of anywhere between Rs 50-70. But the risk 
you would be carrying is quite high. If the 
price of Infosys rises to more than Rs 2,400 on expiry, then you could stand to lose anywhere between Rs 220-250 per share (Since, the option is cash-settled, the loss will be the cash settlement amount, reduced by the premium). 

However, it is always less risky to write out-of-money options, as the strike price is at a premium to the spot price. For instance, if you had written an April call option on SBI at Rs 740, on the March 29, 2005 (when the cash price was Rs 640), you would have received a premium of Rs 5.35 per share.The writer of such options gains because of the erosion of time value of options. As on April 11, 2005, the premium on the same Rs 740 call option falls to Rs 2.45, as the time to maturity narrows down. So, you could just wait till the option matures (at the end of April), hoping that it will expire as worthless. Or, if you feel that would be risky, then you could even square up your position, and earn a net of around Rs 3. 

In the same manner, if you had written out a Rs 600 April put option on SBI, you would have earned a premium of Rs 7. As on April 11, 2005, the premium on this option was around Rs 3.5. Currently, there is a Rs 780 April call option on SBI, which could earn you a premium of Rs 1.95. Even though you stand to get a much lower premium than you would earn, by writing options quoting nearer the current market price, the risk is also much less, in such options. 

Many a times, it gets difficult for investors to exit positions that they have built over a period of time. At such times, they could look at selling �out of the money� call options to hedge themselves and get an additional cushion on the portfolio values. Besides, a study of the options market shows that 80-90 per cent of options expire worthless. Hence, by following the strategy of writing out-of-money options, you can garner small and consistent returns, during adverse market conditions. 

IN BRIEF

An option can be either out-of-money, inthe-money or at-the-money. 

A call option is said to be out-of-money if the current price of the underlying share is below the strike price of the option. 

It is always less risky to write out-ofmoney options as the strike price is at a premium to the spot price. 

The writer of such options gains because of erosion of the time value of options. 

Although the premium earned on such options is not much, the risk is also low. 

A study of the options market shows that 80-90 per cent of options expire worthless.

Option writing for Delivery shares

BUY LOT QUANITY IN DELIVERY

HOLD ON DELIVERY

FIX A TARGET PRICE

SHORT CALL OPTION OF TARGET PRICE

EXAAMPLE IF ANY BODY LONG IN HINDALCO AND HIS TARGET PRICE IS 130

THEN SHORT 130CALL AND ENJOY PRIMIUM AS DIVIDEND OF JULY MONTH

June 2015

Totally three calls this month

Sell Hindalco 115 CE @ 6.9 , SL 9,                  profit  +6K

Sell Nifty 8600 PE @ 220                                  profit +1k

Sell Dabur 260 ce @ 12, SL 16                         loss    -2k

                                                               Total profit   + 5K                                             

Wanna become successful trader, follow these..

 To become a trader , this is enough,

1.A sytem with more than 60% accuracy. 

2.proper money management method

3.good risk reward ratio

4.Discipline

5.Sticking to these rules 

Option Shorters

sell Dabur 260 ce @ 12, SL 16

If you follow this you too can become succesfull trader

 Learn the Basics

Yes this is a simple one but it has to be said. A man has the pleasure of talking to scores of new traders on a daily basis. If there is one thing I have learned it’s that most newbies forego the basic training and jump straight into the warzone. This is of course a fatal error, on their part, so if you’re a newbie LEARN THE DAMN BASICS!

 You Won’t Get Rich Quick, Experience Makes You Rich

If you’re here to get rich quick you’re just a clueless tourist. Don’t be naive. Trading is all about experience. As is the case with any career, the longer you do it the more efficient you become. The journey to becoming a trader is a long one so be prepared to stick it out for 1-3 years before you’re consistently profitable. Always remember, Forex/any trading is a career not a get rich quick scheme.

Do Your Own Analysis

Continuing from the last call, blindly following others will make you blind. Your goal should be to become a successful trader, not a pigeon following others around for scraps of information.

As a trader you need to pick a method and learn to analyse the market. Being able to do your own analysis will bring you closer to being a pro trader. Doing your own analysis allows you to:

1. Be self reliant.
2. Actually learn to trade.

If you choose to blindly follow some self-proclaimed guru all you are is a pigeon. How will you make the money when the guru stops giving CALLS or the CALLS stop working? Will you even understand why they worked in the first place and why they no longer work

 Stick to Your Method

Every trading method has its ups and downs. No trading system, method or style will be 100% profitable, all year round. My method, for example, has on average an 80% success rate. Some periods of the year I will win only 6 in 10 trades (60%). Other periods in the year I win 100% of trades for a month or two.

I know each year, I will have some bad periods in which case I lose more trades than normal. I do not lose faith though. I stick it out and keep on trading. The problem with most newbie’s is they will give up on a method after its first bad week.

 Keep It Simple

This is an easy one. Keep it simple!

There is no reason to complicate trading. For example, my trading method is extremely simple yet extremely effective. I spend 2-5 hours per week trading and the rest of the week enjoying life.

Your method does not have to be incredibly complex to work. Keeping it simple will allows you to:

1. Work much more efficiently
2. Work less
3. Speed up your learning (KISS)

If you remember nothing else from this article, remember this…..

Important Investing Tips

Never invest more than you are prepared to lose

As a starting point, you should never commit more than you are prepared to lose when investing capital. It is therefore important to fully appraise your financial circumstances before making a commitment, paying careful attention to: the chosen vehicle for investment, your disposable income levels, and any potential returns. Failing to adhere to this rule will create a debilitating cycle of debt and loss, and may eventually force you to take ill-advised risks in the quest to recoup your capital.

Get Rich for Beginners

1. Have longer term view

Buffet says money doesn’t grow overnight. ” No matter how great the talent or efforts, some things just take time. You can’t produce a baby in one month by getting nine women pregnant. ” So your investment planing should be done by considering longer terms goal. People go for futures & options with the hope of making quick money but they are actually the one who loses more money than average investors. All the big names who have made good money from the market are long term investors only. Buffet never did intra day or positional trading. Buffet also says if you cant own the stock for 10 years don’t even own it for 10 minutes.

2. Prefer quality stocks than cheap stocks

Lot of investors buy stocks just because they are cheap without understanding that cheap is not always better. Buffet learned from Charlie Munger that “it is far better to buy a wonderful business at a fair price than to buy a fair business at a wonderful price.” Chances of losing money in cheap stocks are very high comparing to investment in a fairly valued stock.

3. Have Contra View

Warren Buffet says “be fearful when others are greedy, and greedy when others are fearful.” That means buy when there is panic in the market when everyone is bearish. Sell when everyone is bullish on the market. Most of the people fail to follow this because of excessive fear when the market is going down and excessive greed when the market is going up. When the market is going up everyone speaks only about the positive side which increases the greed that makes people to carry their long position and also to take fresh position at higher levels. Fall from the higher levels is always very intense and most of the traders lose money.

The same goes when the market is falling down. During panic all experts and media talks only about the negative side. They speaks as if the market will always continue to fall forever. People keep waiting for the stocks to become cheaper and ultimately miss the right opportunity to buy.

4. Don’t invest in any company whose business you don’t understand

Many people invest their money just by hearing anything good about the particular company from others. By understanding the business, you can determine if there will be any associated financial problems in the future. There are many companies in the stock market whose business can be understood by any normal people.

5. Think like an owner

Evaluate stocks exactly the same way as if someone offered to sell you the entire company. Thinking like an owner changes your whole perspective on stock investing. If you are going to own a new car, you will think about its fair valuation, you will think about its features and you will compare it with cars offered by other manufactures from the same segment. Then after checking everything you will decide which one to buy. Like wise you should have same prospective with stocks.

6. Stay away from hot stocks

Some stocks always remain in news and grabs the attention of many. Stay away from such stocks which are highly volatile. Warren Buffett once said, “Most people get interested in stocks when everyone else is. The time to get interested is when no one else is. You can’t buy what is popular and do well.

7. Don’t keep the loss making shares.

When the share price has fallen down by 50%, many people choose to wait. They convince themselves and others by saying “It will definitely come back”. And many times people quickly book the profit when the stock price goes up by just 10% . If the fundamentals of the stocks become poor, exit it immediately don’t wait for anything and never average it. And stay invested if the fundamentals and future prospectus are strong. Don’t be in rush to book small profit in such stocks.

8. Avoid Borrowing

You can buy anything by taking loans and borrowing money, but you become rich by living on borrowed money. People initially think that they can manage their debts but not everyone can do so. One needs to have a solid plan to pay the debt back and not become its lifetime slave. A debt-free life is the best life. Buffet says I’ve seen more people fail because of liquor and leverage – leverage being borrowed money. You really don’t need leverage in this world much. If you’re smart, you’re going to make a lot of money without borrowing.

9. Spend you money wisely

Money saved is money earned. Warren Buffet says If you buy things you don’t need, you will soon sell things you need. Humans have the urge to have all the luxuries of the world . Every rupee spent on unnecessary urges contributes to lost wealth. Before spending money on anything ask few questions to yourself. Do I really need this? Am I overspending? Can I save some money without compromising on the value I want from a particular product/service?

10. Always be prepared for the worst.

Stock market is a place where nothing is certain. So always be prepared for the worst. Many tragedies can happen overnight that can destroy your capital. Problems doesn’t gives any warning before coming. Always save some funds for emergencies and never expose your full capital in any investment option.

By Warren Buffet