Tuesday, March 31, 2009

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Does A Share Trader Undergo Hibernation?

If you are into share trading like me you will understand that there will be times when we have to sit idle without trading any shares for a long period time. For many stock traders and even investors and gamblers out there, one time or another just stop trading. But there is a difference between prolonged gap and a casual break from trading.

does a share trader undergo hibernation
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The First Ventures

When you start your ventures into the stock market, you will be very excited. Stock market appears to hold all the hidden treasures and the easy path to your financial goals. This is how many traders start and the phenomenon continues like that everyday as the percentage of traders who involve with stock market is very less part of the population. It is said that there was only 2% of Indian population that had owned shares on the exchange a decade back. But now after the bull market of a life time this percent has gone up to 4. In US the penetration is actually 50%. But then again, the traders in the US are the most persistent traders.

For many traders, the first few trades get completed within no time. As most start carefully, their conservativeness initially helps them. They take the profits that come along their way. Of course there are some unfortunate starters who end up with a big loss in the first trade itself. For them it is hard to reconsider another trade. But for others the little profits that look not so little propel them forward to start multiple trades at the same time.

In the stock market there is nothing like first impression is best impression or first trade is that defines the future. It is like a circle of trades from which we randomly get a trade no matter who starts or when they start. Every trader has to go through the same lessons before they come to the next stage of trading. That is the beauty of the stock market. The first loss is not very far and it often comes turns out to be more than all the first few profits they make.

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This is where the stock trader considers a short break. What many traders typically do is to let the stocks recover on their own instead of closing trade with losses. This is a fundamental mistake almost every trader does atleast once. It is the “Venna tho pettina Vidya” (butter-lessons) for many. Even after more than two years of share trading experience I myself find doing this sometimes.

Going Back Home Never to Return

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When I started my trading two years back, I took a month long break just after few days of trading. I resumed trading again after realizing how stocks were moving up on average (10%) in a month. For many people who started at the tip of the Everest of the last bull market in January or March 2008, I bet that the first trade was their last trade. For them they never consider quitting the first trade. It is very difficult position to be in. But very few realize that it is a kind of lesson that our life also teaches us on the way. These people do not have the hope of returning to stock trading. They go back to become workaholics again.

But when you pass through these occasional breaks, conservatively trading shares still there comes a time to stop and look back. Even the reputed traders in history have taken long breaks from trading or stopped to look back at where they are really going. For the turn of the century trader Jesse Livermose, his trading career was of a cyclical type. He made money, maintained a costly life style, lost money, went into debt and again made money trading He continued like this for few times before ending his life.

When a stock trader undergoes hibernation it is to say that he is taking a longer break from trading than normal. He is always conscious of trading in the future. He always knows what works best in the market, whether there are any treasures in the market and how to get them. But still he considers a break after a long sequence of trades that taught him various types of lessons.

In a typical break, the trader takes break after booking a loss or a profit, so as to reconsider the situation before coming back. But the hibernation is due to something that stops the trader from doing what he does before. He encounters a reality where it is no longer the same perceptions that he had traded with earlier. The obstacle stopping him appears larger than and considers various options to pass that obstacle before resuming trading. Having learned so many lessons, there appears to be something that has to be not learnt but conquered with inaction. Most the time spent by a successful trader is actually doing nothing.

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Hibernation of A Share Trader

Of all the novice traders that start at the stock market, very few survive through their first few losses to become regular traders. Many will go back with no intention to ever trade again. These people of course keep the blood flowing in the market with some fresh money added regularly. But the blood suckers are the regular traders. Sometimes they do not stop, take profits and go away, but pause for considerably longer time. That can be due to recession effects, other work creating timing conflict, some paradigm shift created from within oneself. These people know that they will come back some day to trade again.

For my particular case, having learnt to trade from short term trades to quick intraday trades, now I find it hard to identify the goals of a trade that is initiated. Is it for a day trade to be closed in any time, or is it for short term trading? Either types should give good results when traded with discipline. But what is holding me back is my vacillation between day trading and short term trading. Once into a trade one should adhere to the primary plan assigned to that trade. Another thing is the extra difficulties of a recession added with a day job, make it hard to keep focus on trading whether it is short term or medium term. So I considered hibernation since November 2008, that was the month when the world first time woke up to the reality of a Great Depression-2.0.

If you are also one of such trader going hibernation, I would like to know what made you take a pause in the trading journey.


Sunny Depp said...

makes perfect sense ! you are spot on my friend. the fact remains... "you will learn more when you lose".

on the contrary.... I have resumed my trading last month. this time i am in the process of experimenting/trying different strategies(not from any book though). my transition from a short term trader to day/margin trader has been amazing so far. in this months time i have learnt more than what i have learnt(hopefully) so far !

Narender said...

@Sunny Depp,

Thanks for sharing your experience. I am happy to see that you have resumed trading. These are not bad days. But be cautious as we had a streak of up days all through the last month. That is good duration for counter trends in the bear markets.

Experimenting on our own is the best way to improve our trading though costly. But always stoploss must be followed strictly at any rate.

Are you keeping trading records? You must be checking the details of your transaction in your trading account. It is a good practice to do that because it helps you remember the lessons you learnt sometime in the future. So consider doing this. I will be posting an article on this topic in the future.

I am still hibernating. May be you had enough of your break and started again. Remember I traded happily till May last year. When you find an article saying "The Return of The Stock Trader", you can presume that I resumed my trading, ending the hibernation game. Till then I am upto something else..