How Frustration Causes More Harm Than Losing Money While Trading

Frustration is the antithesis of confidence and euphoria. It can cripple you and distract you from your sense of persistence and determination. Unlike other teachers, I don’t put a negative connotation on euphoria – as long as you don’t abandon your trading rules, have at it. You can avoid frustration in the first place by “not” having expectations of the outcomes of anything (or any trades). This is not the same thing as Expected Value, but an emotional expectation about the result of something you’re endeavoring – such as trading.

trading

One sure-fire way to decrease frustration in your trading is to make sure that you’re protective stop is not placed inside the 20-day ATR of the instrument that you’re trading. For example, say you’re trading an instrument that has a 20-day ATR of 15 points. If you’re long and the current market value is 535 and you’ve placed your stop at 530 because you have set 5 points as your max loss point, you are more than likely to get stopped given that you’re stop is well within the ATR. Many times, traders with smaller accounts do just this because they don’t want bigger losses. This is respectable and totally understandable.

In the above example, you can trade a smaller position and give your smaller position a greater latitude by placing your protective stop at 520 (535-15). You can test this strategy. You might find that you are not getting knocked out of as many such trades and, if you are trading in strong trends, take the risk home overnight and let the market forces, time, and leverage work for you.

In our coaching and teaching, we’ve found that traders disregard the daily vol of the instrument their trading as if it was going to change because the trader put a trade on. This leads us to believe that the feeling of frustration is going to be an integral part of a particular trader’s emotional system until they change their trading behavior.

We can’t change the nature of things. The instrument that you’re trading isn’t going to change how it behaves just because you’re in the trade. Chart readers put faith in patterns without knowing the expected values of the trades, but put the trades on anyway. In order to avoid the frustration that you get from having blind faith, you can always backtest your rules or stop trading pattern altogether.

Let the feeling of frustration become an “early warning system” for you to put a halt to whatever you’re doing, especially if it arises from your trading. Frustration can lead to “revenge trading” and most people who did so, didn’t want to burn through their trading capital because they were angry in retrospect. Most find this out too late.

Frustration stems from your behavior, not the instrument that you’re trading. If you’ve put faith or belief system in a chart pattern but you don’t know the expected value of the trade, you can eliminate the frustration by putting an “emotional stop” in place and not do the behavior in the first place. You can’t experience frustration from paper trading, but you can get a bumper crop of it from trying to day trade.

– MartinKronicle.com

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2017 – A Recap

1. I became a father to a baby girl on 23 November 2017 just 2 months after my brother became a father to a baby boy for the first time. Double celebration at home. That just about sums up the whole year.

2. All certifications and education came to a complete halt this whole year. Nothing moved on that front.

recap

3. Just read one book in the whole year. Though read tons of super-texts, research documents, company annual reports and investment documents.

4. Watched more than 100 movies. Across multiple languages. Not to mention a lot many TV series too. Hardly went to the theaters.

5. Traveling was also just about absent. Just one trip to Bangalore to see my nephew.

6. Exercising and going for walks/jogs didn’t happen. Instead i got a fitness band to at least clock 10000 steps per day. Except a few times, even that was a downer. But i consistently managed to clock more than 8000 steps on most days. Best thing was that my weight stayed constant throughout the year. The only positive.

7. For the 6th year running, the annualized returns of my equity portfolio beat the annualized returns of the BSE Sensex. I had my first ever 10 bagger in the form of Dabur. Its the oldest surviving stock in my portfolio. Took more than 10 years to hit the 10 bagger target.  The other best performers have been Bharat Forge, Mayur Uniquoters, Skipper, Titan, Wipro, M&M, Deepak Nitrite and L&T.

8. For the first time ever kept a small budget to dabble in stocks that were running up frequently. Or as they are more commonly known as “momentum stocks”. Didn’t have any great returns, so i will reconsider this effort going forward.

9. Instead of waiting for that elusive stock market crash to happen, i stuck to my SIPs religiously. Moved to direct investing in Mutual Funds without going through ICICIDirect through whom i used to invest earlier.

Wishing and hoping that the new year brings in much happiness and success to everyone

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Life Updates – 2

Attending the ISMS Lead Auditor course from today.  Course will run till Monday.  On the last day is the certification exam.  Hope i can pass.  Keeping my fingers crossed.

Work is too hectic.  Been more than a week into the new position.  Lots of responsibilities and lots to learn.  Challenging no doubt, but happy that Iam learning a lot.  Been stuck in the rut for some time now.  Took this leap of faith and till now, its been pretty satisfying.

The markets have been on a roller coaster.  Up one day and down the next 2 days.  Havent had time to look at my portfolio which has been red when i saw last week.  Not thinking much about it.  Bought some good companies (i believe) on the dips and i will now wait for the market to go up.  There are indications that it might go down further.  No worries.  Will wait for it to go up.

Meanwhile, the cricket world cup is in full flow.  India is now on the top of the table, but had just one challenging match (against England).  The match against South Africa this weekend will be the one to watch out for.

Meanwhile reading a lot of finance / investment books.   Am in the process of making changes to my career and life in general.  As and when significant changes happen, i will update here.  Till  then, let things drift.

There was a time when i had trouble reading one book.  Today, am simultaneously reading 4 books, 2 magazines and books related to the course iam attending.  Not to mention technical documents related to work.   I cant believe that i have time to do all that.  Wifey hasnt had any complaints that iam not spending time with her.  In the past few months, have gone to the Zoo, Bird Park, Marina Bay Sands, Singapore Science Center and a few other places with her.  More places here in Singapore to explore.  Wanted to go overseas for a holiday, but am waiting for some time for me to get settled into the new job responsibilities.

Time isnt a hindrance if one plans properly.  Earlier, i was too lethargic. This year of the rabbit has been too good for me already.  Hope the luck stays.  I need it.  Have a lot to achieve this year.

The woods are lovely, dark and deep,
But I have promises to keep,
And miles to go before I sleep,
And miles to go before I sleep.
– Robert Frost

A big thank you and wishes to all the women who have touched me in some way and been a part of my life.  Thanks a million.  Wishing the best on the centenary celebrations of the International Womens Day – 2011.

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Blood on the floor

What a change a few weeks can do in the life of a stock market.  At the begining of the year, there were predictions of the BSE Sensex reaching 24,000.  Post the battering that the markets have received in the past 2 odd weeks, it would be great if the markets can come back to 21,000 levels.

Of course nothing can be predicted about the future.  The market conditions might become better, the Egypt political crisis might be solved, the companies could come out with better results in the next few quarters, the government might get tough on graft and a few politicians & their crony businessmen might end up in jail.

BSE Sensex performance in the past 1 month (courtesy: Yahoo finance)

Meanwhile, some of the best blue chip stocks and companies with strong fundamentals have been beaten down 20-40%.  This is another of the great time for a fence sitter to invest.  I have done too.

Bought a few stocks of Sintex Industries, Punjab & Sind Bank, Kanoria Chemicals, Noida Toll Bridge and averaged out the badly battered stocks of  MIC Electronics & 3I Infotech.

At the end of last year sold off Suzlon Energy, Reliance Communications (my worst investment ever. I would never buy any Anil Ambani companies again) and Punj Lloyd (another laggard not only on the stock market, but also in business).   I had sold them off for a loss.  It would have been a bigger loss if i had held them on as all 3 of them have been beaten down very badly.

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Just Read – Common Stocks & Uncommon Profits – Philip A Fisher

Happened to lay my hands on the audio file of this book and managed to finish the audio / book in 2 days flat. Its obviously an advantage getting the audio of books so that i can just transfer the files to my mp3 player and listen to them on my travels to work. Holding a book in hand; trying to read them during rush hour is a chore and these audio books are indeed coming handy for me.

Philip Arthur Fisher was an American stock investor who wrote this book Common Stocks and Uncommon Profits way back in 1958.  Just like Benjamin Graham’s bible of investing, The Intelligent Investor, this book is also considered to be a must read for anyone planning to invest in the stock markets.

Philip Fisher is considered a pioneer in the field of growth investing. Morningstar has called him “one of the great investors of all time”. In Common Stocks and Uncommon Profits, Fisher said that the best time to sell a stock was “almost never”. His most famous investment was his purchase of Motorola, a company he bought in 1955 when it was a radio manufacturer and held until his death in 2004.

Perhaps the best-known of Fisher’s followers is Warren Buffett who has said on some occasions that “he is 85% Graham and 15% Fisher”.  (source: Wikipedia)

Fisher goes on to give a lot of Do’s and Don’ts for investors.  A few of the Do’nts include

  • Dont buy into promotional companies
  • Dont ignore a good stock just because its traded over the counter
  • Dont buy a stock just because you like the tone of its annual report
  • Dont overstress diversification
  • Dont be afraid to buying on a war scare
  • Dont fail to consider time as well as price in buying a true growth stock
  • Dont follow the crowd

Fisher also goes about sharing his ideas of how he goes about finding a growth stock.  Fisher talks about using the Scuttlebutt method to investing.  This means that the relative points of strength and weakness of each company in an industry can be obtained from a representative cross-section of the opinions of those who in one way or another are concerned with any particular company.  Also he talks about talking to the vendors, customers etc to find the correct information needed for your investment in that particular company.

Common Stocks and Uncommon Profits
Author – Philip Arthur Fisher
Pages – 271
Publisher – John Wiley & Sons

Above picture courtesy: Nickgogerty

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Equity Updates – Asahi Songwon Colours

Sold off Asahi Songwon for a very good profit.  The below shown chart should give you an idea of how much the stock grew in the past 1 year.

Also bought more stocks of MIC Electronics & Graphite India

This year the dividend payout has been pretty good. Add to that bonus shares from both Dabur (1:1) and & TVS Motors (1:1)

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Investing Updates

Been a while since i updated my equity portfolio.  Some of the stocks were already at their highs; and i felt it was appropriate time for me to liquidate them and invest in others.

Bought the following

Sold the following

Hoping for the markets to correct sharply once the much expected double dip recession hits the US economy.  There would be lots of great bargains out there then.

Above stock price history courtesy:  Yahoo Finance

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The markets are falling, what are you doing?

The stock markets have been on a free fall for some time now ever since the Greek debt crisis blew up.  The Euro has been going down vis-a-vis the US dollar.  The dollar has been gaining in strength even against gold. Does that mean all is hunky dory and that all the problems are over with the US dollar and the American economy?  No.  Whenever there is a crisis in the world economy, the money takes a flight to the US dollar.  And that’s what we are seeing now.  It doesnt mean that all the weaknesses inherent to the dollar have vanished

The situation now is mirroring the famous words said by some great soul “In the land of the blind, the one-eyed is the king“.

So, what does this crisis mean to people who want to invest for the long term?  Its the ripe time to buy.  Dont pump in all your money at once.  Buy good companies in small quantities.  The market might go down further from here. Buy some now and some more when the markets go down further.  Never try to time to market.  The markets might not go down further from here, and if you buy now, you would have still got some great stocks for cheap.

Am a big follower of Warren Buffett when he says “Buy when there is blood on the streets“.  It might not be complete mayhem now, but there are some great companies available for cheap.

I have bought a few more shares of the following companies

Alok Industries

Bharti Airtel

MIC Electronics

Punj Lloyd


I really hope that the markets fall further so that i can pick up some more good stocks at some great prices.

Important Note: Please dont follow my buy/sell advise blindly.  Do your own research or follow the advise of a certified financial planner before investing.  Iam not responsible for any profits or losses you make by following my investment strategy.

Above price charts courtesy:  Yahoo Finance

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Has the correction set in?

After a spectacular 100% rise from 2008 levels, the markets moved into a bubble territory.  The Greece debt downgrading to junk status might be the needle that would prick the bubble.

For an ordinary man on the street, its a disaster.  For the newscasters, its breaking news.  For a long term investor, its a good time to buy some great stocks at fabulous prices.

A leading credit agency lowered Greece’s rating to junk status, dealing a blow to an international rescue plan for the country and hammering U.S. and European stock markets.

The junk rating, unusual for a developed nation, deepened fears that big fiscal deficits and debt burdens elsewhere could threaten the economic recovery in Europe. Stock markets on both sides of the Atlantic tumbled about 2 percent or more after the downgrade by Standard & Poor’s.

The downgrade fanned investors’ doubts that the proposed economic reforms in Greece will go far enough to prevent the country from spiraling into even deeper trouble. It also presented a new obstacle to the planned $60 billion bailout from European governments and the International Monetary Fund.

Full news here

As i write, the BSE Sensex is more than 250 points down from yesterday’s close.  Portugal also has been downgraded. With Ireland, Italy, Spain also in the line, there seems to be long dark days ahead.

Hope the Sensex collapses some more over the next few weeks to settle around 15-16k. So that i can do some bargain hunting 😀

Above picture source: Tribune

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