Option profit mastery trading rules pdf
Last month I got an opportunity to play poker with a few good friends. I was playing poker after a gap of 6 years and I was quite excited about it. The buy in for this friendly game was Rs. So, the game started, cards were dealt, and in the very first round I bet Rs. In the next round, I bet anotherand again saw option profit mastery trading rules pdf go away. At this stage I convinced myself that I could make up my losses in the 3 rd round, and with this thought I increased the bet size toonly to watch it go away!
So for all practical purposes, I lost Rs. In the trading world, this is equivalent to blowing up your entire trading account. I bought in for another and started fresh. This time, I stayed on the table a bit longer — for a total of 15 minutes! Clearly, it was not working for me. I had a better memory of me playing poker 6 years ago. Though not the best, at least, I would stay on the table till the game lasted and even win few hands.
So what was happening this time around? How could I wipe my account twice in a matter of 25 minutes? With these confusing thoughts on my past poker skills and my current game play, I decided to buy in again for another Rupees.
This was my 3 rd buy in. In the trading world, this is equivalent to funding your account 3 rd time over after successfully option profit mastery trading rules pdf it up twice. What advice would you give someone who has blown up his account twice in the markets? This is when you increase your betting size and lose a bigger chunk of money.
Gamblers fallacy is one of the biggest culprits in wiping out many trading accounts clean. Anyway, back to my poker game. This was my 3 rd buying, I had already lost 2K and was betting with another 1K. They knew I was the sucker on the table and it was easy to allure me to make irrational bets. So they did and wiped me out clean over the next 7 minutes. After a couple of weeks, I had another invite to the game.
Option profit mastery trading rules pdf had set a bad precedence of giving away easy money. This time around I had decided to position size my bets well. I bought in for and started the game. Each time the cards were dealt — I accessed my odds fairly well and if I thought my odds were fair, I bet accordingly.
The result of this simple systematic approach had a great impact on my game —. Position sizing made all the difference in this game. It option profit mastery trading rules pdf does and this is the exact reason for me to narrate this story. I do not want you to speculate in the markets without understanding your odds or without position sizing your bets. If you do, you will end up making a fool out of yourself. Poker is played for fun but when you trade, you are essentially deploying your capital for a more serious and meaningful outcome.
So please do pay attention to some of the things we will discuss over the next few chapters. Van Tharp is one of the most prominent people to bring in the concept of position sizing to traders.
I guess it makes sense to discuss a little more on this option profit mastery trading rules pdf the very beginning especially in the context of markets. This is the chart of Nifty — Nifty hit the magical number of 10, on 25 th July As a trader, how would you trade this? Let us just assume that these are some valid points for now. This means a short position is justified or for that matter buying of puts. Your analysis could option profit mastery trading rules pdf as simple as this or as sophisticated as studying the time series data and modeling the same using advanced statistical or machine learning models.
Irrespective of what you do — there is no certainty in the markets. No one technique will tell you the outcome in advance. This implies that we are dealing with fairly random draws here. Of course, based on how meaningful your analysis is, your odds of winning can improve, but at the end of the day, there is no certainty and you have to acknowledge the option profit mastery trading rules pdf that markets are indeed random. Now imagine this — you have done a state of the art analysis and you place your bet on Nifty only to see the stop loss trigger.
You do not give up, you place another trade and to your misfortune, you are stopped out again. This cycle repeats for say the next 4 trades. You know your analysis is bang on — but then your stop loss is continuously getting triggered. You still have money in your account to take on bets, you are still convinced that your analysis is rock solid and the markets will turn around, you still have an appetite for risk — given all these, what do you do? Which option are you likely to take?
Option profit mastery trading rules pdf a minute and answer this question honestly to yourself. Having been through this situation myself option profit mastery trading rules pdf having interacted with many traders let me tell you — most traders would take the 3 rd option, the question however is — why? For instance, in this case, the trader has faced 6 consecutive losses, but at this point his conviction that the 7 trade will be a winner is very high. In reality, when you are dealing with random draws, the odds of making a loss on the 7 th trade is as high or low as it was when you placed your first bet.
Just because you have made a series of losses, the odds of making money on the next trade does not improve. In fact, gamblers fallacy ruins your position sizing philosophy and therefore is the biggest culprit in wiping out trading accounts.
This works on the other side as well. Imagine, that you are fortunate enough to witness a 6 or let us say 10 consecutive wins. Whatever you bet on, the trade works out in your favor. You are on your 11 th trade now, which of the following are you likely to do? Chances are that you will take the 4 th option.
You clearly want to protect your profits and do not want to give back whatever you have earned in the markets and at the same time you would want to take a trade considering you have had a great winning streak. Being completely influenced by the outcome of the previous 10 trades, you are essentially reducing your position size for the 11 th trade.
In reality, this new trade has a same odds of option profit mastery trading rules pdf or losing as the previous 10 bets. Perhaps, this explains why some of the traders, even though get into profitable trading cycle end up making very little money.
In the trading world, the capital we bring on the table is the raw material. If you do not have enough money to trade with, then how will you make a profit? Hence we option profit mastery trading rules pdf to not just protect the profits that we make, but also protect the capital. Extending this thought — if you risk too much capital on any one trade, then you stand a chance to risk your capital to an extent that you may burn your capital leaving you with very little money.
Now if you are trading with very little money, then every trade that you take will appear to be too risky. The climb back to where you started will in terms of capital will be a Herculean task. I have prepared a table to help you understand this fact.
Assume you have a trading capital of Rs. Let us see how the numbers stack up with —. You can download the excel sheet here. Your new starting capital is Rs. Now, in order to recover to Rs. As you can see, as the loss deepens, you will have to work really hard to bounce back to original starting capital.
Assume you come to the market with Rs. Now you would have heard of stories on how Rakesh Jhunjhunwala, grew his money from 10, to 15K Crores. You would want to replicate at least a small portion of this success. Honestly speaking, if you can manage to grow Rs. But this is not exciting, right?
I mean earning Rs. So what do you do? This is exactly the reason why you should never risk too option profit mastery trading rules pdf on any one trade, especially if you have a small capital. Remember, your odds of making good money in the markets is high if you can manage to stay in game for long, and to stay for a longer period, you need to have enough capital, and to have enough capital, you need to risk the right amount of money on each trade.
I am seeking to learn more about this in order to enlightened how to not to get carried away with gamblers fallacy. Great Work as always!!! Along with Risk and Psychology if something on Money management can be incorporated. Hats off to u for enlightening us with the traders fallacy. Actually all of us fall prey to this irrespective of capital and experience.
Looking forward to know more on this and how to do proper money management. But We all know that most of Traders are under capitalized and well under Lakhs. So He lefts with no option than to take leveraged trades and all brokers encourage them to give x leverage.