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INFIBEAM CASE- A CASE DEPICTING IMPORTANCE OF EMOTIONS MANAGEMENT

OVER ANALYSIS.

PROFESSIONAL TRADING IS ALL ABOUT MANAGING TRADES & EMOTIONS AND


NOT ABOUT ANALYSIS AND BEING RIGHT. ONLY ROOKIES AND BEGINNERS
FOCUS ON ANALYSIS & PREDICTION, NOT PROFESSIONALS. PROFESSIONALS
FOCUS ON MANAGEMENT.

You all must have heard this from me several times and thought to yourself, "Cut
the crap man. It's all about analysis." Almost everyone who starts trading, starts
with thinking that ANALYSIS IS EVERYTHING. This is the worst advice that anyone
can give to you or you can give to yourself. So, if you want to graduate yourself to
the next level, first understand the limitations of analysis.

The reason that analysis is just a small part of the whole game is that in analysis,
we try to forecast whether price will move up or down. But the truth of the
matter is that WE DO NOT CONTROL PRICE. We only look at probabilities of WHAT
MAY HAPPEN based upon price action and indicators/oscillators. But the truth
remains, that ANYTHING CAN HAPPEN. SO, WHEN ANYTHING CAN HAPPEN, YOU
CAN'T RELY 100% ON YOUR STUDY OF WHAT MAY HAPPEN.

Then what matters? MANAGEMENT MATTERS. The broader word is TRADE


MANAGEMENT. But when you break it, there are several important things to
manage while in the trade but the biggest ones are POSITION MANAGEMENT &
MIND MANAGEMENT. And if you ask me the most important part, it's actually
MIND MANAGEMENT. Everyone with a little intelligence can learn to analyse but
it takes years of self-understanding, contemplation and inner dialogue to be able
to control your mind and emotions. Let me come onto a live example of MIND
MANAGEMENT.
1. Based on initial ANALYSIS, I went long on 27th December 2017 at around
168.05 January Futures. (CHART-1). Note, Spot chart is attached so as to
keep it simple.

2. I also did an intraday long trade yesterday which was also a losing trade. I
bought 1 contract at 167.05 which I squared off at 163.90 booking a loss of
12,600. So, post intraday square off, net net I was long 1 contract which I
entered initially.

3. Today, 29th December 2017, price adversely moved against the position
(Chart-2) and made a low of 98.30 in futures, i.e., 41% down from my initial
entry of 168.05. Considering that lot size is 4000 shares, it means MTM loss
of 2,72,800.
4. However, I closed my long position at 156.90 booking a loss of 44600.

5. Further, looking at the fresh situation of the chart when my thesis broke, I
went short. Remember, it's not that one should always go opposite when
original thesis fails. But I could see the momentum and order flow
favouring a short and I made a short at 156.50, just 9 seconds after closing
my losing longs.

6. In less than 5 minutes, I covered my shorts at 115.45 making a profit of


1,64,200 on the short position.

TODAY’S ORDER SHEET

This is the order sheet. The last row is when I covered my longs in losses. Then as
you can see in the middle row, I went short and then covered as depicted in the
first line.

Note: This order sheet does not contain initial entry as well as yesterday’s intra-
day trade as it is only today’s order sheet.
P&L MATHEMATICS

Ignore the 8000 in Net Buy/Net Sell Quantity and also ignore the prices given.
That’s because since I had taken a 3 total of 3 trades, one initial long, second the
intraday long and third the today’s short one, Zerodha has an internal
methodology of averaging the prices and displaying the confusions. So, don’t get
confused, I’d dissect the P&L in a couple of minutes.

Zerodha is showing the Realized MTM of 132200 because of this:

a. The loss for long which I closed today in loss at 156.90 is calculated from
yesterday’s close rather than actual entry. So, though my actual long
position was taken at 168.05, yesterday’s close was 164.90. So today’s loss
in long trade was calculated from 164.90 to 156.90 that makes the loss
figure as 32000.

b. The profit for today’s short from 156.50 to 115.45 is calculated as 1,64,200.

c. Hence net net, it is displayed at 1,32,200.


ACTUAL P&L (NET)

This is the actual line wise, trade wise P&L calculation. So, effectively, a net profit
of 1,07,000 was generated in Infibeam trade over a period of 3 days and 3 trades.
LEARNING

As you can see that despite the analysis being completely thrashed and
destroyed, a lot of money was made in the trade. Every beginner must place
himself in this position and imagine himself in the trade. He should think, would
he have made money even when analysis is destroyed. Generally, the answer
would be NO. There are 4 major reasons for this:

1. We as a society are full of opinions. We have opinions about everything,


politics, cricket, business, people, relationships and so on. In fact, in our
society a person with opinions is respected and a person with no opinion is
not given importance. This is the biggest hurdle in the game of trading. One
has to completely re-program his mental make-up if he has to succeed in
the game of trading. In trading, an opinionated person is punished while a
flexible, no opinion person is rewarded. This is why even otherwise
successful people fail in trading. They think that they are successful doctors,
lawyers or managers, so they can be successful traders too. Nothing is far
from reality. Success in trading requires a complete overhaul in habits.

2. Ego is another factor. Lots of beginners do not cut losses because they feel
that they have done lots of ANALYSIS and it can’t go wrong. So, when it
goes wrong, they start hoping that it will come back.

3. Third factor is lack of rationality. Beginners are too much attached to


AMOUNTS OF MONEY that they win or lose. So, their view of the situation
gets distorted depending upon whether their position is making money or
losing money. They don’t see the situation rationally. Thus, if a beginner
will enter a long position which ends up in a loss of 45-50k, he will be
frozen. His mind will be filled with hundreds of emotions. And in such a
state, he either he won’t cut the loss and keep hoping or two, cut it at the
wrong time.

4. When one decision gets failed and a beginner gets punished by the market,
he becomes apprehensive of taking another decision. That is why it
becomes very difficult for a rookie to close a position in significant loss and
still be able to see the situation rationally and take another action.
FINAL WORDS

I don't remember who said it but I heard it long back when I started trading
almost a decade back. It went like, "I made most of my big money in my worst
trades." If you see the statement it makes a lot of sense.

I mean, there is no limit to being right but there surely is a limit of being wrong.

YOU KNOW WHEN YOU ARE WRONG.

Hence, you must make big money when you are wrong because YOU KNOW IT.
See, let’s say RSI is coming from 70-80 and taking support at 40, which is bullish.
Price is also taking support at a demand zone. You have a long thesis on the trade.

Now, there can be two situations:

1. Your thesis proves to be right.

2. Your thesis proves to be wrong.

In case of being right, there is no sure shot way to know that WHAT IS THE LIMIT
OF BEING RIGHT. What I mean to say is that, based on the above conditions, let’s
say you entered into a long trade and price started rising and RSI started rising
too, you know that you are right but you don’t know the extent of being right. I
mean, price and RSI can keep on rising for a long time. RSI can remain overbought
for a long time while price may keep rising.

But, the beauty about being wrong is that YOU KNOW WHEN YOU ARE WRONG.
The moment your price and RSI breaks support, you know you’re wrong. And
logic says, KNOWLEDGE IS POWER. So, that converts to a principle that you
must always remember if you want to be successful in trading:

KNOWING THAT YOU ARE WRONG CAN BE MUCH BETTER AND PROFITABLE
THAN BEING DOUBTFULLY RIGHT, PROVIDED THAT YOU CAN KEEP EMOTIONS
AT BAY AND TAKE DECISIONS RATIONALLY.

NISHANT ARORA

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