Trading Jugaad- Dos and Don'ts- Don'ts (Day 15)

 Trading Jugaad- Dos and Don'ts- Don'ts

• Don't turn a trading position into an investment:
  This is one of the biggest psychological traps for traders. You take a position for trading, but when it starts going in losses, you keep holding it, like an investment position. This is not proper in the Jugaad approach. Remember when I compared trading to flirting? Now assume, you are flirting in real life. The person you are flirting with turns out to be no fun, boring, and like a wrong move. How stupid it would be to get married to that person? I am sure you wouldn't do that in real life; but in trading, most of us do that ;) I turn a wrong flirt in a marriage.  It is okay to get married to someone after some flirting; but only when the person turns out to be fun and worth living life together. 
• Don't let losses keep running:
  If you have 3 or 5 trades going against you, take a break in trading for some time. If you had 3 losing trades in a stock, accept that you don't know the stock well. That flirt is not good for you. 
• Don't trade against the trend:
  I know some of us are adventurous. They find fun in swimming against the trend, despite the fact that swimming with the trend is easy.
  The same is true in trading. The goal is to make money. Do you want to make money easily, with less risk, or you want to take more risk, as an adventure? It is easier to make money with the trend. If the stock is going up, is in an uptrend, trade the stock long instead of going short! 
• Don't think a stock is too expensive, or too cheap:
  Leave that to investors. The biggest damages are done in trading when a trader says the stock is too expensive, or too cheap. An expensive stock can keep getting expensive, and a cheap stock can keep getting cheaper. 
  If you think the stock has become too expensive, too risky, stay away; don't short. 
  If you think a stock has become too cheap, don't start buying right away. Keep watching it. When the stock starts showing strength, the volume starts picking, you can start buying.
• Don't Average up or Down in a Losing position: 
  It is common in investing to double up or average down the price is dropping after the purchase. Don't do this in trading. When you are proven wrong in the first trade, don't argue with the market. Accept that you were stupid, an idiot to trade that stock at that time, at that price. You don't have to prove to the world that you are right, or smart. You are in trading to make money and if the market said that you were stupid to trade that stock, accept the defeat and walk away. If the person you were flirting with kicked into your ass, leave that person. No need to bring your ass closer to her right away. Maybe you can come back and get closer again but only after you have some positive indications and you feel that he/she deserves a second chance.
• Don't brag about your killer trades. If you must, for every winner you talk about, tell about your losing trades too.
  Please keep the temptation to brag about your killer trades to yourself. It is poisonous.
  * Except for a rarely good friend, most people don't feel happy to hear about your successes. They are likely to feel jealous, frustrated, or label you a big mouth.
  * I strongly believe that ego always gets one in trouble. It is not a good thing. 
  * Like the cycle of life, day and night, there are bad days after good days. There are bad trades after good trades. So if you are making very good money, stay humble. It is not always your smartness, that helps you make money. Many times, it is a stroke of luck, or the result of some good karma.
• Don't trade to make the market pay for something you want.
  Let us say you want to buy the new Apple iPhone. Instead of paying for it, sometimes, we get tempted to make the market pay for it!  We decide to trade Apple stock to make enough money to buy the phone. This is wrong because you are forcing yourself to trade the stock, despite of the merit in the trades you are doing.
  
• Don't Short unless the stock has negative technicals. Don't confuse Technicals with Fundamentals.
  Most Short selling happens in stocks because the stock seems too expensive, and fundamentals don't seem to support the price. Stay away from that bullshit!! You short a stock when technical indicators show that the stock is in a downtrend!