When in Doubt, Stay Out!!

I have talked to a lot of traders over over the years, an found some very common traits among the winners, as well as the losers. New entrants into the market come for various reasons. Their ambitions run from just earning enough to pay the telephone bill, to earning a living out of trading. But most of the ambition usually ends up in trying to get rich within a very short span of time. These traders are generally the ones who are destined to lose in the market.

When I talk to the winning traders of the market, the one common thing I find in them is the acceptance that Market is Supreme. While this statement is pretty common to all the traders, it is very hard to practice. Lets look at examples, when a Trade goes wrong for a winning and a losing trader.

Wiinning trader: He expects the market to correct and prices to go down. Takes a short trade, at the right level with good Risk: Reward Ratio and proper stoploss. The stoploss gets hit and He is out of the trade. He realizes that the markets has beaten him and is heading higher. He is still biased on the short side, based on his study, and hence Do Not Enter Long Trades. However, he has also understood that the market has acted against his expectation, and hence decides to wait patiently until the market again gives him a Selling Opportunity. Most probably, on the next trade, he will be able to recover his small loss and make decent profits.

Losing Trader: Same thing happens to him. However, this person cannot stay out of the market. Instead of waiting for the next opportunity, He would almost immediately re-enter the trade, either on the Long Side or the Short Side. The first trade was based on studies and logic. However, the second trade is based on Emotions. It is the act of not accepting that the Market is Supreme. Such type of traders would usually end up on the Losing Side in the Long Run.

In Trading, it is very important to know when to Stay Out of the Market. Even if you do Intraday Trading, it does not mean that you have to trade Daily. Trade only on those days when you See clear Direction/ Trend in the market. Else, stay out. A Winning Trader is not the one who is always right in the market. Instead, he is the one who is right in taking the decision of whether to be "In" or "Out" of the Market. Different type of traders follow different methods/ time frames to gauge the Nature of the Market and to Speculate about its direction. All methods would not give Buy/Sell at the same time.

Remember, When in Doubt, Stay Out! Follow this one simple rule, and you will be able to trade much more peacefully and logically than ever.

Intraday Nifty Tips