The toughest part of trading

The toughest part of trading is controlling one's emotions and being disciplined. If one is constantly wondering whether to buy or once in a trade whether to sell then it is not sytematic trading. It is random. It is like entering a casino and playing one round of black jack and then going to the next slot machine and trying one's luck there. Blowing up one's precious capital is guaranteed- its a matter of when.

How does one conquer one's emotions - trading a systematic plan. Have clear rules which are not written but carved in stone. The rules should be like this

Go Long: Condition 1
Stop Loss: Condition 2
Exit: Condition 3

Go Short: Condition 4
Stop Loss: Condition 5
Exit: Condition 6

Position Sizing/Money management: Condition 7

Such a system needs to be back tested, forward tested and traded live to build confidence.

Once one develops such a system the comfort level is immense. Trading will be more stress free than relaxing on the beach.

Happy trading!!

Using options to manage risk

Trading in Options has a lot of myths. If done professionally, Option trading offers traders the following advantages:
1) Can manage risk much better than by trading in Futures
2) Limits downside risk with unlimited upside potential
For example say someone is Long Nifty Futures and we have a gap down of 500 points like on 17 October 2007...this is a huge drawdown to the portfolio. But if one were to be holding a long call having paid a premium of 40 points then one would hardly blink an eye.

So by trading in options one can ride the trend and also limit downside risk. Because of this limit to risk one can leverage 3x-5x comfortably and still sleep like a baby at night!!

Nifty options are extremely liquid...this is critical to Options trading....not all stock specific counters are liquid...so if starting off new in this try to stick to Nifty.