DO NOT MIX INTRADAY TRADING AND LONG-TERM INVESTMENT
IF YOU BUY A STOCK FOR INVESTMENT AND THE SAME STARTS GIVING A PROFIT OF 5 % TO 6 % ON THE SAME DAY OR AFTER 1-2 DAYS, YOU SELL THE SAME THINKING THAT YOU WOULD BUY THE SAME BACK WHEN THE PRICE COMES DOWN AGAIN, BUT, IT'S NOT POSSIBLE EVERY TIME. HENCE, NEVER MIX DAY TRADING WITH LONG-TERM INVESTMENT. HENCE, NEVER MIX DAY TRADING WITH LONG-TERM INVESTMENT. KEEP, NEVER MIX DAY TRADING WITH LONG-TERM TRADING, SHORT-TERM INVESTMENT. KEEP YOUR CAPITAL SEGREGATED ONTO DAY TRADING, SHORT-TERM INVESTMENT AND LONG-TERM INVESTMENT SEGMENTS, AND DO NOT MIX THEM.
AS FAR AS MY ADVICE IS CONCERNED, I FEEL THE SWING TRADE METHOD MAY BE MORE BENEFICIAL FOR YOU AS COMPARED TO BOTH INTRADAY TRADING AND LONG-TERM INVETSMENT.
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IF SWING TRADE IS DONE IS GOOD BLUECHIP STOCKS AND YOU ARE ABLE TO GENERATE AN AVERAGE RETURN OF 2 % PER MONTH FROM THE SAME, YOU MAY EARN 26.82 % IN A YEAR CALCULATING THE RETURN BASED ON COMPOUND RATE. WHEREAS, IT IS POSSIBLE THAT EVEN THOUGH YOU SELECTED A GOOD STOCK FOR LONG-TERM INVESTMENT, THE SAME MAY NOT PERFORM WELL DURING THAT YEAR AND YOU MAY NOT BE ABLE TO MAKE ANY MONEY, INSTEAD YOUR STOCK MAY EVEN GO IN LOSS. HOWEVER, UNDER SWING TRADE (DETAILS OF WHICH ARE DISCUSSED LATER ). YOUR RETURN FOR THREE YEARS, CALCULATED AT COMPOUND RATE, MAY GO UP TO 103.99 % IF YOU ARE ABLE TO MANAGE 2 % RETURN ON A MONTHLY BASIS. YOU CAN UNDERSTAND THAT THERE IS NO GUARANTEE OF YOUR STOCK SELECTED FRO LONG-TERM INVESTMENT GOING UP BY 103.99 % IN THREE YEARS, WHEREAS, EVEN IF YOU EARN HALF ON YOUR TARGET IN YOUR SWING TRADES, YOU WOULD DEFINITELY EARN AT LEAST 50 % IN THREE YEARS.
DO NOT GET WORRIED, THE ENTIRE PROCESS OF SWING TRADE WOULD BE EXPLAINED IN SUBSEQUENT TIPS.
DO NOT FIGHT THE MARKET
A TRADER SHOULD BE FREE FROM THE EMOTIONS OF GREED, FEAR AND EGO. YOU WOULD HAVE TO TRADE LIKE A ROBOT TO BECOME A SUCCESSFUL TRADER. DO NOT MIX EMOTIONS WITH YOUR TRADE. YOU MAY BE WONDERING NOW AS TO WHY I HAVE STARTED PREACHING SO MUCH!
YOU WOULD BE ABLE TO UNDERSTAND MY LESSON AFTER GOING THROUGH THE STORY OF LALIT PRAHAPET. LALIT PRAJAPAT HAD DISCOVERED A MARVALOUS WAY OF TRADING. INFACT, GETTING USED TO SHOOTING IN THE DARK, HE THOUGHT OF A STRAGEGY - LET'S ME TREAT PREVIOUS DAY'S CLOSE PRICES FOR SOME TIME, THE STOCKS STARTED FALLING BELOW THOSE PRICES, LALIT TOOK SHORT POSITIONS THE MOMENT THEIR PRICES CAME BELOW PREVIOUS DAY'S CLOSE PRICES, AND HE MADE GOOD AMOUNT OF MONEY AS STOCKS FELL FURTHER DOWN.
NEXT DAY, LALIT LALIT ATTEMPTED THE SAME STRATEGY WITH DOUBLE THE MARGIN MONEY. FOR STOCKS THAT STARTED BELOW PREVIOUS DAY'S CLOSE PRICES, HE KEPT ON TAKING "BUY" POSITIONS THE MOMENT THEY MOVED ABOVE THEIR CLOSE PRICES, AND SIMILARLY, FOR STOCKS THAT WERE MOVING ABOVE THEIR PREVIOUS DAY'S CLOSE PRICES, HE KEPT ON TAKING "SELL" POSITIONS THE MOMENT THEY FELL BELOW THEIR CLOSE PRICES. HE MADE GOOD PROFIT THAT SECOND DAY ALSO.
NOW, ON THE THIRD DAY, HE INCREASED HIS MARGIN MONEY FURTHER AND FOLLOWED THE SAME PROCESS. BUT, MARKET WAS QUITE VOLATILE THAT DAY, I.E, THE MARKET DID NOT MOVE IN THE SAME DIRECTION, INSTEAD, IT FELL FIRST AND THEN WENT UP FAST. THUS, WHEN HE TOOK SHORT POSITIONS FOR STOCKS THAT HAD MOVED BELOW PREVIOUS DAY'S CLOSE PRICES AFTER HOVERING ABOVE THOSE PRICES, THE STOCKS MOVED UP WITH DOUBLE THE SPEED AFTER SOME TIME AND THEY CLOSED ALSO AT HIGHER LEVELS. MR. LALIT HAD TO SUFFER A GOOD AMOUNT OF LOSS.
NOW, LALIT FELT - MY METHOD WAS NOT WRONG (THIS IS WHAT IS CALLED THE SENSE OF EGO). I JUST DID NOT SET STOP-LOSS. I SHOULD SURELY TAKE A SHORT POSITION WHEN A STOCK GOES BELOW PREVIOUS CLOSE PRICE, BUT I WOULD SET A STOP-LOSS OF PREVIOUS CLOSE PRICE JUST IN CASE THE STOCK MOVES UP AGAIN'.
BUT, HOW TO RECOVER THE LOSS INCURRED IN SUCH POSITIONS? LALIT THOUGH OVER THE SAME AND TOOK A DECISION - IF AFTER FALLING BELOW PREVIOUS CLOSE, THE STOCK STARTS MOVING UP AGAIN, I WOULD CLOSE MY SHORT POSITION AT PREVIOUS CLOSE PRICE AND TAKE A LONG POSITION (BUY POSITION) FOR DOUBLE QUANTITY. THE DOUBLE PROFIT THAT I MAKE FROM THIS POSITION WOULD BE ENOUGH TO SET OFF MY ABOVE LOSS FROM STOP-LOSS AND STILL PROVIDE ME SOME EARNING (THIS WAS THE SENSE OF GREED).
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NEXT DAY, HE CHOSE THE STOCK A . ITS PREVIOUS CLOSE PRICE WAS $340.80. THE STOCK OPENED AT $342.40. AFTER TRADING FOR SOME TIME, IT CAME BELOW $340.80 TO $ 340.70. LALITJI FOLLOWED HIS METHOD AND SOLD 100 STOCKS. THE PRICE FELL DOWN FURTHER TO $337, BUT HE DID NOT BOOK PROFIT. HE THOUGHT, "NOW THAT THE STOCK HAS FALLEN THAT MUCH, WHERE IS THE CHANCE OF ITS GOING UP? LET IT FALL FURTHER AND INCREASE MY PROFIT (THE EMOTION OF GREED)". BUT JUST THE REVERSE HAPPENED. AFTER A SHORT TIME, THE STOCK SHOT UPWARDS AND FROM $340.70, IT WENT UP TO $341.30. LALITJI BOOKED LOSS IN HIS SHORT POSITION FOR DOUBLE THE QUANTITY). AFTER GOING UP, THE STOCK SUDDENLY WENT DOWN. HE HAD NOT SET ANY STOP-LOSS FOR THIS POSITION AND THE STOCK CAME DOWN TO $336. NOW, HE GOT SWAYED BY FEAR. HE IMMEDIATELY SOLD POSITION OF 200 STOCKS AND CREATED A SHORT POSITION FOR 400 STOCKS. BEFORE HE COULD SET A STOP-LOSS FOR THE SAME, THE STOCK CAME BACK TO $341. NOW, LALITJI STARTED FIGHTING THE MARKET. IF THE PRICE OF THE STOCK FELL, HE WOULD SHORT FOR DOUBLE THE QUANTITY AND IF THE PRICE WENT UP, HE WOULD BUY FOUR TIMES THE QUANTITY. AND, FIGHTING LIKE THAT, HE COULD NOT EVEN NOTICE THAT HE HAD INCURRED ASIZEABLE LOSS ON THE DAY MARRED BY WIDE FLUCTUATIONS.
IT IS POSSIBLE THAT MANY OF THE TRADERS, WHO HAVE LOST MONEY FLIGHTING THE MARKET, MAY FIND THIS STORY TO BE THEIR OWN, BUT THIS MAY HAPPEN WITH ANYBODY AFTER GETTING SWAYED BY EMOTIONS.
THUS, THE LESSON OF THE DAY IS - DO NOT FREQUENTLY CHANGE YOUR STRATEGY ON THE SAME DAY TO FIGHT THE MARKET. JUST REMEMBER THAT NONE OF THE STRATEGIES IS 100% CORRECT. IF YOU COULD NOT MAKE MONEY IN THE MARKET ON A DAY, JUST KEEP IN MIND THAT THE MARKET IS GOING TO OPEN AGAIN THE NEXT DAY.
KEEP YOUR STOP-LOSS AND PROFIT TARGET FIXED. KEEP CONTROL OVER YOUR EGO, GREED, FEAR AND ANGER.
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