During my initial days, I used to think that once I master technical analysis, I’ll become unstoppable and a great trader. I guess I was not alone believing this especially when you’re new to markets.
So I devoted myself to all the books and material I could find to learn technical analysis. I had Kindle unlimited subscription and there were a hell lot of trading books included in it. On finishing every book, I was recommended 5 other trading books that were available on Kindle. I must have easily finished 50-60 books within few weeks. Then I moved on to other popular books which I could not find on Kindle (not included in Kindle Unlimited plan). I read and re-read “Technical Analysis of Stock Trends” by Edwards and Magee at least thrice. I must say that this is probably the best TA book you would ever find. In fact, now when I look back, this was probably the only book I needed for grasping all TA concepts. Rest of the things you can only learn by experience. I also read many books on candlesticks patterns, one book which I really like is “How to Make Money Trading Candlestick Charts” by Balkrishna Sadekar. I still refer to both of these books as and when I need to clear any doubts.
Books were not the only thing I spent my time on. I also consumed countless videos and blogs. Now when I think about it – if I studied like this with similar dedication after my 12th, I could have easily cleared IIT 😀
Anyhow, all this study gave me some confidence to start trading with real money. I thought I am ready to take the markets head on. I used to paper trade using TradingView free account when I was learning TA and was fairly successful trading common patterns in longer timeframes. In my experience, paper trading is alright just to get a hang of how to trade, but too much of it is useless as it would never prepare you to deal with trading when real money is involved.
Since real money was involved and those were early days, I was very cautious but at the same time eager to get into trades to test my knowledge. I was fairly confident that I knew enough to make money. Every day, I would take a few trades with small quantity based on simple setups like MA crossovers and previous swing high breakouts applying basic price action. As soon as I entered into a trade, I was simply unable to keep myself away from chart and P/L screen. Even though I was trading small quantities and with SL, my heartbeat would go crazily high when P/L showed in red. I kept fearing that my SL will be hit and numerous times I moved my SL further away from original stop and ended up taking much larger loss than planned on most of the trades that didn’t go my way. On the other hand, if my trade came in green by any chance, I wouldn’t be able to stop myself from trailing the SL aggressively to just below the most recent price so I won’t lose the little money trade was making till that point. In essence, I was doing the exact opposite of – Cut your Losses Early, Let your Profits Run. Instead, I was letting my losses run hoping that the trade would eventually turn into a profitable one and was cutting my profits early fearing that whatever little I am making will also be gone 🫣
In those days, my SL used to be around ₹500 and target ₹1000 (RR of 1:2) and I used to position size accordingly. After nearly 50 trades in a month or so, my average winners were around ₹300 and average losers were around ₹900 with a winning rate of just under 40%. (Wondering how do I remember this even now? One good thing I did from day one was that I started journaling my trades. In fact, I built a journaling app for my personal use, which is now available for everyone without any cost – Trade Central).
As you will notice, I rarely allowed my trades to hit target and closed them early almost as soon as they went in green. And did the opposite when they went in red. Point is – with same winning percentage, if I just followed and stuck with my targets and SLs then I wouldn’t have lost much even if not all winning trades would have hit the target. But I ended up taking a loss of ₹21000 (excluding brokerage/taxes). It’s not a lot of money but I certainly did not expect to do this bad. What made it worse if that it’s not as if I didn’t know that I had to stick with the plan. I knew it well and I have read it 100s of times in books, blogs and everywhere else. But still doing it in practise was so much harder. Despite knowing that I am doing it wrong by extending my stop in a losing trade and by closing my position too early in a winning trade, I was barely able to control it.
The thing which I thought would be much harder in trading was TA and I never gave much thought to the psychology aspect of trading. In terms of TA, I didn’t do too bad in my first month of trading even though I didn’t wait to see how many of them hit the target. The primary reason why I lost money was indiscipline and not being able to control my emotions (hope, fomo, fear, greed). And believe me, majority of traders lose money due to these same reasons and not because their trading strategy sucks. An average strategy is good enough to make money if you can diligently execute it as planned.
Indiscipline and not being able to control emotions (having the right mindset or trading psychology) cause traders to lose money, even the most experienced ones. It would be safe to say that almost all traders lose money because of one of the reasons mentioned below and not because they aren’t good at TA.
- Taking impulsive / unplanned trades (FOMO)
- Exiting early (Fear)
- Staying longer than expected in lost trade (Fear)
- Overtrading (Greed, sometimes frustration)
- Revenge trading (Anger/frustration)
- Setting overtly aggressively targets (Greed)
Even today, I would be lying if I said I have now mastered discipline and overcome my emotions. I haven’t. I still make those mistakes every now and then but do it less often, especially when I am trading with larger quantity.
So, there you have it. Just learning TA won’t make you a great trader. Having sound TA knowledge and a great trading strategy definitely helps, but only if you are disciplined and can control your emotions to stick with the plan.
That’s all for this first post in the education series. Happy trading folks!
