Its been a long time since i wrote some sunday thoughts. Did start on Sunday but its over now on Monday !
One of the most important things i have learned as a trader is --
Got to give back small part of the profits to the market and take back a lot of it home regularly.
Now what does this mean. Lets have a look into it.
-- > How many times have we seen portfolios soar by 100-200-300% and see them get back to deep negative.
-- >Many of the best traders have seen drawdowns or capital erosion.Leverage even takes them to pay more then their pockets.
-- >Investors/traders start making money and also keep booking profits but the same profits are re-invested in other stocks/instruments.
-- > Markets are bound to move up and down in a cycle but do investors/traders have a cycle to keep pace with the same !! ( I doubt ).
What does the above rule state.
-- > A trader can never be right all the time. Law of averages do catch up over a period of time. The trader needs to clean up the portfolio once often. Stoplosses are better executed in the system then by the fingers !!!
-- > Never can an investor/trader exit at peak of the portfolio gain or stay there for long and never ever should he keep waiting for that. Call up your broker call for some cheques to be drawn to feed your luxuries when the going is good.
-- > The amount of money bought back home often is what a trader makes of the market and not what you have in your trading account. Capital in the account is always supposed to be risked !
-- > After a good trading run there might be stoplosses taken in a hurry. Execute the stoplosses or some day the account would be executed.
In simpler words the rule means
-- >After a good run where in your trading portfolio increases from 5 lakhs to 12 lakhs peak u may be better of exitting at 11 lakhs then to wait for similar rates ( it may come but one bad cycle time and you are back to 6-8 where u may not have guts to exit ).
-- >Its easier to start with a fresh mind as a trader then to stick to losing trades and revaluation of strategies more often.
-- >As an investor you got to take back part of your gains every half year or annual and stuff it back into a fixed deposit or take that foreign tour. The best time to pull out is when you see a faster rate of growth.
-- >In the long run equity markets are bound to over perform but the cash generated regularly is supposed to pay for your requirements,luxuries and more.
The above rules may be conservative but in the long run its discipline which changes an amateur to a veteran.
Would like more shrewd and veteran investors to comment on the above ! . This is just a quick thought which may not be very useful