After the bumper profit of March 2020, the last two months have been losers. In April there was a good reason of very high volatility and high premiums and the trend going against our trades.

In May series, market had moved lower, yet none of the PUT trades worked. The only CALL trade also failed after showing a good profit.

There were some good exchanges in the comments:

Within two months, a successful method is being called a disaster. Losses can do that to us. Create doubts. It is not easy to handle doubts.

My response to the above comment:

To give credit where it is due, there was a response to my reply:

The typical attitude of the society to the stock market profits.

You are lucky when you made money but you are stupid when you lose money. I accept being stupid while losing money but should there not be something more than luck involved when earning profits.

Let us not accept fairness from those who judge you. You will be judged harshly at all times. Make profits, it was just luck. Make losses, your method is a disaster.

Who said life was fair to a trader?

There are sane voices also.

It is a trader’s duty to review what went wrong and whether any correction to the approach is required.

My basic approach has been to wait for the profits– big profits. That does not happen very often. With a success rate of just about 34% right trades, big profits will be seen in about 10% of the trades. Those big gains and the normal gains from the other successful trades will keep us profitable over a longer period of time.

This approach has worked over good times and bad both. There have been instances when the loss of 5 months was converted into a good profit by success over next 2 months. We are looking at a failed trade rate of about 66%. At times we are sure to get 100% losing trades in a month. Part of the game.

At other times, we may get 80-90% trades right ( maybe once in a year ) which we shall grab with both hands. That is the month we are waiting for all the time.

This method can become uncomfortable. It can lead to doubts and lack of belief. The key is to stay with the belief and the method. Those who quit, never get back into the game.

My approach is not developed overnight. After seeing multiple failures of a number of trades in options buying, it was necessary to do something different. That something different turns out to be —- wait patiently for a big profit.

Profit is to be given by the market, not taken by us. It is difficult to grasp this concept and more difficult to practice it.

But doing anything else in option buying was never making money.

We do not give up on a method which has worked in the past. We do not get perturbed by the occasional loss or successive losses. The trend is bound to change at some point and that is when we grab the benefit.

I call it a method of trading, you may call it waiting for a lottery, someone else may call it utter bull shit. The reality is that this method works. Does not work smoothly but life is not perfect, we know that.

I had written something on Quora much before this blog was started.

Sharing that again today:

Small Profits Vs Large Gains :

A typical traders dilemma.

Do we book the small profits we see on the trading screen or let it ride for a bigger gain ?

I am a believer in this principle:

My reasons :

(1) It is inevitable that at some point of time a big loss will happen either due to lack of money management or because of some unforeseen event. One big loss takes away the profit of many small trades and the trader is looking at a balance sheet which is in the red.

No one can be getting enough small profits to overcome the big loss when it happens.

(2) What do you do after booking a small profit in a trade ?

As far as I know, traders do not take Sanyas and go to Himalayas for meditation after booking a profit.

Within few minutes they are into another trade.

This new trade has as much chance of success or failure as the previous trade exited just now.

The reason for exiting the trade was that it is giving some profit which may be lost if it goes wrong.

Perfectly good reason. But what is the guarantee that new trade can not go wrong?

All trades have equal chance of being right or wrong. We quit something that was doing well for us and move on to another unknown. It does not make our chances better. We get only temporary satisfaction of booking a small profit.

(3) Trading or Investing it is all the same as far as profit taking is concerned.

Everyone sings praises of Warren Buffet, the greatest investor world has known.

We would not have heard his name if he had booked small profits because then he would have been among those 90% of people who do not make money in the stock markets.

To Summarize :

It is better to go for large gains. If the market is willing to give us big profits why should we run away from them? It is not everyday that markets are in a generous mood.

Try to control your losses, leave the profit to the markets is the golden principle.

Thanks for reading.


Back To Present:

Looking back helps us in reviewing the present. It helps us get a long term picture of the present situation. It helps us in keeping the belief.

We stay on course. The journey is long. We need not be distracted by the occasional hurdles.

Thanks for reading.

Be back tomorrow for more.

Stay safe, stay healthy.