A True Story of an IntraDay Trader…and How trader Emotions are Best Kept at Bay
I’m Pratik Patel.
Today I share with you a true story of a trader. The story is not based on any assumptions or hypotheses …it is simply the truth.
My close friend cum colleague Praveen Desai is one of the finest examples of intraday traders. He is also an ideal client for any broker… Of course, I’m being sarcastic.
Here is a man who is paying higher charges than even his profit-loss. For example, as per the six month’s data, his Profits are Rs.4205/-, his total charges are Rs.10209.98, while the balance Rs. -6004.53 goes toward brokerage fees, taxes, duties, etc.
Praveen Desai has been working with me for the past 10-11 years. He continues to be an intraday trader…and he is still unable to take positional trades.
I am not saying intraday trading is bad. But it’s like driving a car at the speed of 250-300 kph. Now, how many people manage to drive a car at the speed of 200 kph in India? No answer?
Ok, let’s go a step further, how many people can drive a car beyond the speed of 200 kph anywhere in the world?
Only one – Michael Schumacher. He drives at the speed of 247.58 kph. But he too is driving on a specific track.
Intraday trading is pretty similar. Even with discipline, few people can earn from the market by intraday trading. The ratio is almost 1:100. Others are merely helping brokers to run their businesses.
So, do you want to help brokers to run their businesses - like Mr. Praveen Desai - or do you want to become a successful investor?
But why is this happening to people like Praveen Desai, you ask? Let’s try and understand the situation better…
Praveen started working with me at the stock market, at around the same time… But there is a stark difference between us. He takes all the good opportunities with me, but after taking positions, he gets carried away and books profits early, with just a movement of Rs. 5 or 10. When stocks fall, he teases me that I am still holding, but he has also actually lost more and not booked much profit.
If he had enough foresight, in the long run, the positions that he took with a Rs. 5-10 movement could easily have touched Rs. 70-80 movements.
But his greedy nature does not allow him to hold on until that point.
And all this is happening to him after working with professional traders… Let me throw some more light on the issue.
Let’s start with some of the important things to keep in mind while investing. A famous saying goes:
Plan your strategies before the war (i.e. when you are out of the market)
Don’t plan during the war (i.e. when you have already taken positions)
Further, every investor needs to develop three key attributes:
But are these all not linked directly or indirectly to your emotions?
If so, it becomes important to control your greedy nature, when you are tempted to book profits early. It also becomes essential to control your fear of losing capital, when you are in loss-making positions.
Try one exercise to manage your emotions when in the stock market: observe yourself while investing, and note down points as to why you think you are not successful.
Also, don’t take your emotions for granted because your emotions are your biggest enemy. It is not the market, not the volatility, but your emotions that became a hurdle when investing.
But do you know why they came in the way? Because there is something lacking in your approach too…
Remember, the market does not know who you are? Even the market trend is the same for every investor. But the important part is how you make that trend an opportunity for your investments. Your action decides what you will get – profits or losses.
Everyone wants to become a successful investor, but for that, you have to survive the long-term in this market.
Do you know how successful investors have sustained the long term in this market…by focusing on themselves rather than their investments. Yes, this is the truth. To become a successful or professional investor, first, you have to focus on your mindset, psychology etc.
Majority of the investors are driven by their emotions and thus take wrong decisions.
For instance, If we talk about India’s best mutual fund i.e. Reliance Growth Fund managed by Sunil Singhaniya. It has given a return of 19.7% CAGR in last 20 years.
During the discussion with Mr. Sunil Singhaniya, he said that he had only one regret, that his fund had grown vastly, but when you look at the investor’s portfolio, it shows that only 2% of them have benefited from it.
This is because the remaining 98% had a short-term approach. These investors wanted quick money. But as an investor, you should have an investment horizon of at least 10 or 20 years. As Mr. Warren Buffett said: ‘Don’t try to time the market, give time to the market.’
Another reality is that majority of the investors/traders do not understand the market.
Without any prior knowledge, they jump into it and think they will become rich overnight. But there is no such thing as overnight success. If there was, Warren Buffett would not have to wait for 10-15 years to see success.
But Retail investors will still look at only one side of the story – that Warren Buffett’s stock moved 30% up in just 2-3 days. They fail to check the reality as to how long he was holding that particular stock.
Many investors want quick money rather than big money. Also, they don’t do detailed research on the company, experience the products created by it, and see if they are useful or not.
These are some of the reasons why investors are unable to become profitable in the long run… Also, they have unreal expectations and want surety from every trade. As a result of this, they get into greed and start finding shortcuts to double their capital in just a few months or a year.
This approach eventually leads to them taking help from advisors and following daily tips. But they are not aware of the dangers of daily trading tips given by advisory firms. Read more on this subject here. Click here
But what is it that you want…to ‘become rich’ OR to just ‘feel rich’?
Most retail investors’ actions show that they just want to ‘feel rich’ and not really ‘become rich’. They take help from advisory firms, And then after facing losses, try to recover those losses from the market itself… To recover their capital as early as possible, they start taking huge risks. And, oblivious to market sentiments, they wipe out their whole capital.
If this also happening to you, here are some key points to understand how successful investors are handling the situations:
1. Discipline: Successful investors don’t do window shopping. This essentially means that when successful investors incur losses continuously for 2-3 trades, rather than switching to another strategy, they analyze what is going wrong there.
2. Patience: Successful investors hold onto their wins, while losers sell as early as they can. Retail traders operate in an exact opposite fashion from winners. Since they are unable to control their emotions, they sell the winning stock and hold onto the losing ones.
3. Knowledge: Retail investors are mostly focusing on P/V ratios & balance sheets. But long-term investors do in-depth research and understand details all the basic fundamentals of the company, and also conduct a technical analysis or macro analysis. Hence successful investors also make less number of trades.
#Insight. From all your trade, only 10% will give you 90% of your profits.
Let’s talk about the real-life example of Rakesh Jhunjhunwala (India’s Warren Buffett). He bought Sesa Goa shares in 1988. At first, he invested in 2.5 lakh shares @ Rs. 28. He later bought another 2.5 lakh of Sesa Goa @ Rs. 35. After 6 months, he booked profits @ Rs. 65. His total profits from the trade were around Rs. 1.67 Cr.
So what has he done in this trade? He held onto his winning stock till the trend continued, and exits when he found the correct time. He’s famous for his saying: ‘Have a broad idea of direction. Remember, the trend is your friend.’
#Proverb. Wise people think all they say, fools say all they think.
I hope you’ve you understood what we have discussed till now?
Successful investors are giving more attention to managing themselves rather than their investments. to understand this idea better
But the question is, how does one do this? Is there anybody who can help you? Also, should you have concerns while taking help from any person or company, like transparency and communication… Because I see many advisors talking about the risk of owning equities but very few talking about the risk of not owning them.
While surveying Investors, we found a few reasons as to why investors are unable to profit from the markets. Some are:
- Fear of losing money is preventing investors from investing in the market.
- Inability to control their emotions, and hence exiting their winning stocks too early.
- No proper response after registering with an investing firm.
- Inability to trust any other company because of their past bad experiences with tips provided by some investing firms.
To take care of these concerns, Nifty Millionaire has created one platform i.e. Nifty Millionaire Tribe… Here we are trying to solve this all problems via Real-time Platform.
Nifty Millionaire Tribe is a platform for members and professional traders to interact with each other easily and transparently.
It’s a place where professional traders can share their views on the market, and discuss any trade they are undertaking. They will guide investors and other members with detailed information about why they are taking a position in a particular stock. Also, members can discuss and share any queries on their existing portfolio.
There are different discussion forums or ‘channels’, like:
#actionableideas: In this, professional traders share their views about the market, and give a detailed analysis of the fundamentals and the technical analysis of any stock.
#askquestion: Where members share their portfolios, and professionals help them get rid of any dead or loss-making stock.
#technicalcharts: In this section, everyone shares charts of different stocks as per their understanding. Professionals then review them and tell them if they are wrong or right.
#knowledge: Here, everyone shares what they learn from the market, or if they have read any articles, blogs or books on the same.
There will be more channels, and many more avenues on Nifty Millionaire Tribe to help you in your wealth-building journey.
This is an exciting platform… As it helps you become a better and wiser investor. It also enhances your conviction on any stocks, increases your knowledge on the market, and brings together a community of like-minded people who have come to help each other… Remember, you are not alone anymore! Like Big investors who hire their own wealth managers, now you too have access to a personal advisor.