Saturday, April 28, 2012

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My Stock Trading Plan

Without a definite plan it is difficult to make fast progress in any endeavor. I have decided to set out my plans or goals, whatever, so that I can go on autopilot. The more things I do on auto pilot, the lesser I would feel like I am busy. Daily plans can make a huge difference after a prolonged period of time.

There are certain tasks that can’t be done in one sitting and need many days for completion. That doesn’t mean they require lot of time everyday. They just need little of our time everyday. Actually there are many things in our life in that way. Even academic education is like that. It is not easy for kids to learn one subject in one month and complete their six subjects in six months or even 8 months with revision. Instead they would be given one chapter in each subject per day or week and all subjects would be taught by giving an hour for each subject per day. This should make them less stressed. However the current scenario of academic education is totally screwed up (with tuition business, grading and all).

There may be certain activities that we need to do occasionally which don’t fit into a routine, but we can have a master plan for a longer period say weekly plan. Then these also get into autopilot mode. In my career, goals are set every year and one of such goal may include making a patentable invention one per year (I wish I had thought this way long time back). Once all your activities are on autopilot mode, you would begin to feel that you are free every day and every week at least for a small amount of time per day/week.

While stock trading seems like a chaotic endeavor, this too can be modeled like that. For less active stock traders, there won’t be excitement in trading without a scheduled plan. If they have a plan they can look forward to doing that everyday. They can also continue other parallel endeavors such as a job or business.

For a long time I used to think that I must get out of the rat race so that I can fully dedicate my time for trading stocks. I have experienced, though few times, how exciting short term trading is. The risk remains either way and there is no question of getting out of the rat race in the foreseeable future. Once I accepted that I looked at my options and started solving hurdles for cutting losses. I wrote a script that fetches CMP of any stock periodically and sends me an alert and email whenever a price trigger event happens for the particular stock (with tolerable delay). This should distract me from whatever I am doing so that I can place the stop loss orders either to buy or sell. This is easier done than said.

Most of my best trades happened with stop orders atleast for one of entry and exit. That’s the best way to avoid becoming like Ivan Pavlov’s dogs (conditioning). Let me get this straight, if you say you don’t have time to trade stocks, you are simply putting technology to shame. So much for all the technological progress (I too was like that for quite a while). Armed with the alert script, alerts from Moneycontrol and Yahoo Finance (for diversification of alerts to make sure I am alerted in a span of 15 minutes no matter where I am), I can now create a master plan for trading.
  • One intra-day trade every week. Atleast one.
  • One delivery based trade every two weeks. This is because of T+2 settlement delay problems with Sharekhan. I will make it one per week if I go with Indiabulls. But for now one per fortnight.
  • One margin based delivery trade per month with margin up to 50%.
  • One maximum margin intra-day trade per month with minimum margin of 25% and up to 10%.
While setting this kind of action plan would look like useless as this can may create pressure to trade regardless of market conditions. That's why I never got around to making such plans. So I am allowing such flexibility into my plan to skip trades during major market events.

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