An Intelligent Gambler ?
Most people gamble at some point in their lives. For most it provides
entertainment, for some it becomes an addiction, while a few become
pros and make a living at it. Gambling provides a living for a very
small minority and entertainment for the masses, but a casual gambler
reaching for a quick buck has the same chance of success as an icecube
on a hot stove.Some famous investors like betting on horses. They include
PeterLynch, of Magellan Fund fame, and Warren Buffett, who used to publish a newsletter on handicapping. Some card games,such as baccarat, are based on chance alone, whereas others, such asblackjack, involve a degree of skill that attracts intelligent people.Professionals treat gambling as a job. They keep calculating oddsand act only when mathematics point in their favor. Losers, on the other hand, itch for the action and enter one game after another,switching between half-baked systems.When you gamble for entertainment, follow a set of money managementrules. The first rule is to limit how much youll risk in anygiven session. On a rare occasion when a friend pulls me into a casino,I put what I am willing to lose that night into my right pocket, and stuffmy winnings, if any, into the left one. I stop playing as soon as myright pocket is empty, without ever reaching into the left. Once in awhile I find more money in the left pocket than I had in my right, but I certainly do not count on it.A friend who is a successful businessman enjoys the glitter of LasVegas. Several times a year he takes $5,000 in cash and flies there for aweekend. When his bankroll runs out, he goes for a swim in the pool,enjoys a good dinner, and flies back home. He can afford to spend$5,000 on entertainment and never blows more than his initial stake.Lounging at a pool after his cash is gone, he differs from legions of compulsive gamblers who keep charging more chips on their credit cards, waiting for their luck to turn. A gambler with no money management is guaranteed to bust out.
Traders make money by betting on short-term price swings. The idea
is to buy when our reading of the market tells us prices are rising and
sell when the uptrend runs out of steam. Alternatively, we can bet on
a decline and sell short when our analysis points to a downtrend, covering
when the downtrend starts bottoming out. The concept is simple,
but implementing it is difficult. It is hard to become a good analyst, but harder to become a good trader. Beginners often assume they can make money because theyre smart, computer-literate and have a record of success in business. You can get a fast computer and even buy a backtested system from a vendor, but putting money on it is like trying to sit on a three-legged stool with two legs missing. The two other factors are psychology and money management. Balancing your mind is just as important as analyzing markets. Your personality influences your perceptions, making it a key aspect of your success or failure. Managing money in your trading account is essential for surviving the inevitable drawdowns and prospering in the long run. Psychology, market analysis, and money managementyou have to master all three to become a success.
A friend of mine used to have a dog-training business. Occasionally a
prospective client would call her and say, I want to train my dog to
come when called, but I do not want to train it to sit or lie down. And
shed answer, Training a dog to come off-leash is one of the hardest
things to teach; you must do a lot of obedience training first. What
youre saying sounds like, I want my dog be a neurosurgeon, but I do
not want it to go to high school. Many new traders expect to sit in front of their screens and make easy money day-trading. They skip high school and head straight for neurosurgery. Discipline is necessary for success in most endeavors, but especially in the markets because they have no external controls. You have to watch yourself because no one else will, except for the margin clerk. You may put on the stupidest and self-destructive trades, but as long as you have enough money in your account, no one will stop you. No one will say hold on, wait, think what youre doing! Your broker will repeat your order to confirm he got it right. Once your order hits the market, other traders will scramble for the privilege of taking your money. Most fields of human endeavor have rules, yardsticks, and professional bodies to enforce discipline. No matter how independent you feel, there is always some agency looking over your shoulder. If a doctor in private practice starts writing too many prescriptions for painkillers, hell soon hear from the health department. Markets impose no restrictions, as long as you have enough equity. Adding to losing positions is similar to overprescribing narcotics, but nobody will stop you. As a matter of fact, other market participants want you to be undisci-plined and impulsive. That makes it easier for them to get your money. Your defense against self-destructiveness is discipline. You have to set up your own rules and follow them in order to prevent self-sabotage.
Good traders keep good records. They keep them not just for their
accountants but as tools of learning and discipline. If you do not have
good records, how can you measure your performance, rate your
progress, and learn from your mistakes? Those who do not learn from
the past are doomed to repeat it.
When you decide to become a trader, you sign up for an expensive
course. By the time you figure out the game, its cost may equal that of
a college education, only most students never graduatethey drop out
and get nothing for their money except for memories of a few wild rides.
Whenever you decide to improve your performance in any area of
life, record keeping helps. If you want to become a better runner, keeping
records of your speeds is essential for designing better workouts.
If money is a problem, keeping and reviewing records of all expenditures
is certain to uncover wasteful tendencies. Keeping scrupulous
records turns a spotlight on a problem and allows you to improve.
Becoming a good trader means taking several coursespsychology,
technical analysis, and money management. Each course requires its
own set of records. Youll have to score high on all three in order to
Your first essential record is a spreadsheet of all your trades. You have
to keep track of entries and exits, slippage and commissions, as well
as profits and losses.
The Trading Battle
How much training you need depends on the job you want. If you
want to be a janitor, an hour of training might do. Just learn to attach
a mop to the right end of the broomstick and find a pail without holes.
If, on the other hand, you want to fly an airplane or do surgery, youll
have to learn a great deal more. Trading is closer to flying a plane than
to mopping a floor, meaning youll need to invest a lot of time and
energy in mastering this craft.
Society mandates extensive training for pilots and doctors because
their errors are so deadly. As a trader, you are free to be financially
deadly to yourselfsociety does not care, because your loss is someone
elses gain. Flying and medicine have standards and yardsticks, as
well as professional bodies to enforce them. In trading, you have to set
up your own rules and be your own enforcer.
Pilots and doctors learn from instructors who impose discipline on
them through tests and evaluations. Private traders have no external
system for learning, testing, or discipline. Our job is hard because we
must learn on our own, develop discipline, and test ourselves again
and again in the markets.Trading is an continuous battle of mind and
the one with emotionless thinking enjoys the cake.Trading requires
continuous updation of skills and thinking to get money out of mighty
We don’t give up easily…Do We?
have never ever in my life ventured to be this bold so publicly and more
so in print, but i feel like being one and saying something which might be
the last line of this mail.
And this mood is very rightly prompted by seeing the deluge of depressive
emails and the sentiment which has taken a beating and rightly so coz the
the bear phases and bear markets tend to beat you and your psyche more than the prices. That is the very definition of the bear phase or market. I have seen people stop buying capital market or other such magazines, papers , stop subscriptions and you name it. That is bear phase or market for you. There is total gloom ( it has yet to come in this market of 2006 ) and lasts painfully long.
People tend to be capital protective, the spending becomes less which adds
to the sentiment and economic slowdown.
But the bold and prudent ones which are cash rich venture out and pick up
the right kind of stocks and keep on adding them at all declines and are
ready to reap next-time when your paanwala or barber keeps ndtv profit or
cnbc channel on at his joint and stock markets are the ususal topic in
ladies kittie parties.
There is nothing wrong with India or its economy or its people or its
collective intelligence. We would surely grow in numbers (population – read consumers ) , intelligence, productivity, entrepreneurship coz we sure want more and we rightfully demand out place in the Sun. We worry about our own future and next generations more than any other nationality on earth.We are more family oriented and we are savers par excellence.
Yes, there are abberations, there are sometimes too many me-toos.
I could keep this rambling on and on, but to cut it short and coming to the
point, i would say, that having retired gracefully from my professional
life, I have lived quite a life and whatever little is left of it, i am
pretty sure that I would be here when the sensex / nifty hits newer
heights not yet seen or even mentioned.
You can mark these words for posterity to prove me wrong or otherwise
Courtsey : Rish Trader