"Don't change the trading rules after every trade."

If you do change them frequently then this thread is for you.

Let's talk about the law of large numbers and how it benefits traders to be profitable.

[Thread]👇👇👇

Most people start tweaking the rules, chart settings and the indicator settings because now they think they have found the holy grail.

But they again end up changing them after next losing trade.

If you believe in the law of large numbers then;

Changing the buying rule from buy 1 point above the breakout to buy above 5 points or any tweak like that will not make much difference in the long run.

Law of large numbers is best illustrated by the example of a coin flip :

It has a 50% chance of landing on heads.

If we flip the coin twice, we have almost exactly equal chances of any scenario happening: heads twice, tails two evenly split.

The probability of getting 5 heads and 5 tails on ten flips is just 8% but that probability keeps increasing as we increase the sample size.

If one flips the coin 100 times, the probability of getting 50 heads and 50 tails (P=0.5) increases to 70% and so on.

When the market conditions are not in favour of a strategy, it's normal that it will suffer from drawdown.

In this period most traders can't face the heat,

How to use Moving averages like a Pro.👇

https://t.co/7VbuGovmee

The four stages of markets-

1. Accumulation
2. Markup
3. Distribution
4. Decline

Thread-

1. Accumulation phase-

This phase starts after the completion of a downtrend.

In this phase the furious selling activity of downtrend comes to a rest.

During this phase there is a gradual shift from sellers to a more neutral environment .

Institutions starts to show interest in stock, Because they can not buy the stock in one time ;they buy it slowly over a long period of time.

Sometimes it takes years for a stock to come out of this phase.

The easiest way to recognize if a stock is in this phase is that the Longer term moving averages will start go decline even when the stock bounce higher.

This shows that there is indecision and there is no powerful force present In the stock at this time.

But, Its super risky to buy in this phase because it can also be a second distribution zone , and the stock may again go lower in many cases.

The first signs of an accumulation zone is the stock will try to make higher lows and try not to break the swing lows often .

How even after knowing everything about your work, a series of emotional judgments can place you in a difficult situation.

A thread on how loss Aversion causes us to take irrational decisions-

An experiment by professor Bazerman of Harvard.

On the first day of class, Professor Bazerman announces a game that seems innocuous enough. Waving a twenty-dollar bill in the air, he offers it up for auction.

Everybody is free to bid; there are only two rules. The first is that bids are to be made in $1 increments. The second rule 30 The Swamp of Commitment is a little trickier.

The winner of the auction, of course, wins the bill. But the runner-up must still honor his or her bid,

while receiving nothing in return.

In other words,this is a situation where second best finishes last. Indeed, at the beginning of the auction, as people sniff out an opportunity to get a $20 bill for a bargain, the hands quickly shoot up, and the auction is officially under way

A flurry of bids follows. As Bazerman described it, "The pattern is always the same. The bidding starts out fast and furious until it reaches the $12 to $16 range." At this point,

Objectivity- Undistorted by emotions or personal bias.

What is objective Trading?

Trading in which decisions are taken on pre-decide rules, decisions in objective trading are not decided by Feelings or opinions.

What is subjective trading?

It is discretionary trading, in which one uses his intuitions and Analysis to take trading decisions.

Is one superior to other?

The rules in a mechanical system are going to be decided by you, the plan is going to be made by you,

the positions sizing and all other aspects are going to be made by you.

So your psychology is going to filter the information coming towards you, even in a mechanical system as well as in discretion.

WHATS THE USE OF OBJECTIVITY-

I am a Discretionary - Rule based trader.

So, I take trades based on my analysis, my entries are discretion based, but the exits , position sizing and Risk management rules are pre decided.

WHY USE SUBJECTIVE TRADING?

The biggest benefit that objective trading do is that it makes the chances of you thinking less during the time of taking an execution decision.

As a beginner trader you will not have much experience, and you will inevitably do a lot of mistakes.

"Start your Trading day with a fresh and empty mind."

Ever faced stress and strong emotions after having loss day and under-performance for a long time after that?

Thread on Emotion and how to control them with help of trading journal

Poker players calls it TILT.

Tilt is pretty much any reason for you to trade sub-optimally.

Greed and fear are tilts in trading.

When normally you have a stressful day (not in trading) and you go to bed with a bad mood, the next day you wake up fine without much stress .

So where did the emotion go?

The brain absorbs and digests all the emotions.

But, when you have a big emotional and loss day , and then a sleepless night, the brain cant digest those emotions as easily.

The next day you wake up to trade , you don’t feel quite right, you feel fear.

So, now you are not starting with an empty cup.

Now your tilt threshold level ( the level where your decision making ability reduces and you take bad decisions ) decreases.

Now, you will be angry a little faster then normally and feel fear more then you do.

So,how to empty your mind after having a bad or even a good day?

By using a Trading journal.

Breakout Trading 101, All you really need to know. 👇
https://t.co/DhDE4H1Oiz

When tops are formed , two things happen The public is buying and the big boys are selling, and vice-versa when bottoms are formed.

In simple words Volume climax is the last "AHA" movement for the public before the stock make a top or bottom.

Thread-

What is Volume climax?

• Volume climax appears at the extreme of a trend, or when top or bottoms are formed.

• Most of the time volume climax appears when breakouts happens after a long extending move, and then fails to hold at higher levels.

• In this, at time of breakout we see big volumes (atleast 2-3X more then normal volume) coming in stock when the stock is already extended.

• More volume is not always good, though retail traders doesn’t distinguish between them.

• After the Volume climax we may see a top/bottom or at-least the trend becomes sideways.

• The best setups are those in which we see full reversal candles with big range.

Example of volume climax-

1. The stock was in Uptrend, And has give a quite good run , Stock was giving a big move as you can see in last 2 candles, they were super extended.

2. But at the top candle, the bulls lost the control and the stock closes with a weak candle,

Richard dennis made "$80 Million " in 1986. That kind of money making put him squarely at the center of Wall Street .

How Richard dennis became one of the greatest trend follower of all time.

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1. Personality-

Though he made big profits in the year of 1986, but Profits and risk comes hand in hand.

He was down $10 million in a single day that year before bouncing back, a rollercoaster ride that would have made mere mortals lose serious sleep.

Yet Dennis cockily said that he slept like a baby during all that volatility.

His money making style was to go for the home runs and swing for the fences,But dennis was never a gambler.

Dennis was believer of the Empiricism philosophy.

Empiricism is rooted in the notion that knowledge is derived from experiment, observation, and experience

2. Family-

Dennis family was not of market operators. Dennis was always honest about his father’s “hatred” of the market, explaining,

“My grandfather had lost all his money in the stock market in the Depression. The urge to speculate kind of skipped a generation.”

"The 200 EMA play."

As most of you may know, that 200 EMA is mostly used to find the Value zone at any time frame, many times we see reversals happening at this zone.

Thread on How to use 200 EMA as a trading setup.

I use this setup mostly on daily and weekly time frames.

So ,what to look for -

1. First check whether the index is in uptrend or not, simple way to know this is if the index is above 20 and 50 DEMA then its in uptrend.

2. So if the index is in uptrend we will try to find the stocks for buying and if the index is in downtrend , find stocks for selling.

3. Now the best setup would be if the stocks is getting close to 200 EMA after a long time, buying/selling would be more furious in that case.

4. The best condition will be if the stock first touches the 200 EMA and shows rejection from that , it would be the ideal condition.

5. We have to buy above above the high of the rejection candle.

6. Stop loss can be 2 ATR away from the entry, ATR will be based on previous candle of the entry.

7. And trail sl with every 1R move in our favor.

Example 1 - Canara bank

Position sizing is most important aspect of system development, which makes a big difference in your returns.

Thread on Position sizing strategies-

Money management is not any of the following-

• It does not tell you how much you will lose on a trade.
• It does not tell you when to exit.
• It is not risk control.
• It is not risk avoidance.

What is Position sizing-

1. Position sizing is that par of your trading system that answers the question "HOW MUCH" throughout the course of the trade,

• It tells you how big a position you should have at a given time when you are in a trade.

• This 'How much' makes a whole lot of difference in a trader's performance.

* Position sizing strategies-

* There are two basic position sizing strategies -
• Martingale
• Anti-Martingale.

1. Martingale strategies increase one's bet when equity decreases.

2. Anti-martingale strategies increase one's bet when equity increases.

Casinos love people who uses Martingale strategies.

Lets see an example of Roulette where one uses the martingale strategy and double the bet every time he loses-

Why 90% of the traders even after winning 90% of the times gives it back to the markets?

Has this ever happened to you, That you are up 10% on the month and you feel crazy, but the next morning you give it all back to the markets?

What Causes You to Give It All Back?

Thread-

1. Euphoria-

It is the state of mind in which we can not perceive risk, In state of euphoria nothing can go wrong.

So when you are in this state of mind, you feel invincible and there is nothing in the world which can stop you from making money.

That’s why when most of the traders after a winning streak put a Huge position and then Boom, all the luck goes for a toss.

Think about it why most of the traders loose big money when the market starts to go in bear mode from bullish mode, because

when the markets are in a bull market, even if you take trades based on your neighbor recommendation most of them will be right

"Felling too good is not good for your trading"

Winning gives you dopamine rush, And when you trading to get right often you are just feeding your ego

The evolved trader recognizes that winning simply means that you landed on the right side of probability. That’s all. There is no reason to get excited.

It’s just probability and you have an edge that gives you an advantage in the randomness of probability.

Pyramiding 101 👇
https://t.co/p7EnhB2Ztr

Patience , A quality needed to be successful in markets.

But when the real capital is put at risk, The patience goes for a toss.

Thread on Why Emotions overtakes patience -

1. Mindsets-

Decisions are taken by either the Higher mind (Frontal lobe) or the Fear based mind .

When decisions are informed by our higher mind, they are more likely to lead to positive outcomes. decisions driven by survival instincts from the past can hold us back.

Primitive mindsets are characterized by a feeling of urgency, high stakes, rigidity, and repetitiveness.

The moment that real capital is put at risk in trading, everything changes ,Trading goes from a logical exercise to a game of emotions.

And after you experience a loss, your brain will start anticipating potential losses instead of gains.

Ever experienced fear of entry in a trade when you had a streak of losses previously, then you have experienced the power of Emotional mind over the rational mind.

2. Emotional Hijacking -

Emotions are not psychological they are biological in nature, that’s why they take over your logical ability and you cant control them even when you want.

Your brain’s prime directive is self-preservation – keeping you alive.