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​The Mindful Trader Newsletter !​
​Issue #3 - May 13, 2023

This newsletter is a bit long but, do yourself a favour of spending 10 to 15 min of quality time to read and absorb it fully.

Trading is no joke; being a trader is not as simple as it looks.

If you are trying it part-time or as a casual thing, then it’s not that stressful. But it’s quite challenging if you are on a journey to become an independent and successful profitable trader.

It can take months to years to figure out and understand the game of trading and your mindset.

Even if you are a beginner or experienced trader, stress will be there in a trade, especially when real money is at stake, and you are in a losing position.

Accept and understand that It’s practically difficult to eliminate stress from trading completely, but there are ways to manage it much better.
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Having a mild amount of concern/worry is a good thing. Otherwise, you might not care about anything and start taking random trades with random lot sizes.

The main problem is when the stress goes beyond control and starts making things worst:

In my experience, six significant types of stress can hamper your trading performance. Let’s look into them in detail and also discuss the practical solutions for the same:

6. Overnight Stress:

The Problem:

Say you took a Positional Call Option in Nifty, and after the market hours, you noticed that SGX Nifty is down by 200 points. You may face a significant loss if Nifty makes a gap-down opening tomorrow. You might have a sleep-less night thing about the potential loss.

No matter how much you worry about the loss, you can’t change anything because the markets are closed, and you can’t even close the position. This type of stress is called overnight stress, as you carry an open position.

Equity traders, Option buyers, and even the non-directional Option Sellers also have this overnight stress because they have an undefined loss if the markets make a gap up / gap down opening the next day.

The Practical Solution:

You need to limit your overnight loss exposure. This has to be done before entering the trade and not after that.

Before entering the trade, you need first to calculate the worst-case scenario and then decide how many Lots / Qty you need to take (Position Sizing)

E.g. say you identified the worst case as “Nifty may make a Gap down opening by 1%” Now you need to calculate your potential loss if that happens. This can be done by using any option strategy builders.

Even in that worst scenario, you must ensure that your loss must not more than 1 or 2% of your capital. Depending on that, you can calculate the position size and the strike to be selected.

Once you are ready for the worst, there is no need to worry much about the market opening against you, as you will face an acceptable loss.

5. The Stress of Making Money:

The Problem:

Many traders have this constant pressure to earn money quickly from trading. Some traders do not have any secondary source of income and rely entirely on trading profits to manage their expenses.

This is never the right way to approach trading. Remember the Irony concept that I mentioned at the beginning of this newsletter? The least bothers about making money tend to make money from trading.

The Practical Solution:

It’s a fact that you need enough money to start trading, and if you are a beginner ( having 0 - 6 months of experience ), treat your initial capital as a cost/fee to learn to trade because its 99% sure that the initial capital will be lost while learning.

Nothing comes for free; everything has value, be it your TIME or MONEY. It’s not only the money you lose but also your time. The return you get is “EXPERIENCE” & “LEARNINGS.”

When you start the next time with new capital and make the same mistakes you did before, you get the same results and blow up the capital.

I recommend learning the stuff initially & practice as much as possible to test them in the live market with as little as one lot or one share. Don’t be in a rush to start making money immediately after watching a few youtube videos or taking some random courses.

Videos / Courses and a Good mentor may help you save time and effort. Still, there is no guarantee that you will become a profitable trader because no matter how good the strategy is, you can mess it up if your emotions overtake logic.

Save enough capital to fund your trading account at least three times.

First time: 20% Second time: 30% Third time: 50%

Add capital in incremental phases until you have enough confidence to trade independently.

Also, until you can generate decent returns from trading for at least six months, never depend on your trading profits to manage your monthly expenses / EMIs.

Also, it is highly suggested not to borrow capital to trade as it can create psychological pressure not to lose money in any trade. (Will discuss more on this in the type 3 problem)

4. The Stoploss Stress

The Problem:

When you enter a trade - you want it to hit the target and not stop loss.

Before you enter the trade, you can do whatever analysis you want to and place the perfect stop loss etc. But after you enter, the result of a trade depends on how the price moves. You obviously can’t control it.

When the price starts moving towards your stop loss, you tend to become nervous with the fear of losing a trade because you initially had the urge to win the trade.

The Practical Solution:

I’ll share the hack that I follow:

I do all the necessary analysis before taking the trade and place the right stop loss once I enter the trade as per my acceptable risk.

Once I place the stop loss, I think that even if his trade hits my stop loss, I am entirely okay with it, and it won’t make much difference to me. If I win that trade, it’s a bonus for me.

This mindset will help you detach from the trade result and not constantly worry about the result. Of course, your mind can’t accept this if you risk more than what you can afford to lose. Sp risk management & Position size is key here also.

I usually don’t even try to look at the P&L once I enter the trade. I keep alerts near target & stop loss levels, and once they trigger, will review if there need to be any modifications to be done like stop loss trailing or existing etc.

3. Losing Streak Stress

The Problem: ​
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It’s an undeniable fact that the returns from trading are mostly uncertain. Some months, it will be good, and sometimes you will have continuous bad weeks or bad months.

When you lose the trades continuously, you tend to make even more mistakes, and your entire confidence can negatively affect you. I had this experience a few times.

Most traders try to fight with the market or make risky trades to make huge returns which can make up for the losses.

The trade’s decisions will become more emotional than logical; you don’t trust your strategies and analysis and try to go by your gut feeling, which can worsen things.

The Practical Solution:
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When this happens, I try to reduce my position size to half. If I generally risk 2% per trade, I make it 1%.

Also, I will reduce the number of trades I take; I try not to take impulsive revenge trades to recover the loss.

Ill might even stop trading for a few days and sit back and review all the mistakes I have made in the last 30 days and see if I am doing worse or if the markets are generally imperfect (volatile markets).

It’s most important not to lose hope and confidence during this time.

Sometimes even if you are giving your best, the markets can be bad; the only thing that can help in these situations is to slow down, reduce position sizing and reflect on your mistakes.

2. Comparision Stress

The Problem: ​
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It’s a general human tendency to compare with others. The comparison itself is not bad, but the wrong comparison surely is.

Say you made 1k profit out of 10k capital, and you saw a youtube video where a trader made 20k on that day; the immediate thing you do is to compare your return with theirs and feel that your return is very less.

Also, If you made a loss on any day and you see many profit screenshots on the same day who all made profits, you may feel not good about your strategies and performance.

The Practical Solution:

Do not believe everything you see on the internet, especially the profit screenshots; many of them can be fake, stop focusing on others and start working on yourself first.

First, you might not know that person’s capital size; it can be 5 Lakhs or 10 Lakhs; if you check in terms of percentage, you are much better from an ROI point of view.

Never compare your profits with others; even if you never use absolute amounts, always prefer percentages.

If you are comparing your analysis with others and starting new strategies or techniques, then it’s a healthy comparison. Still, constantly worrying about others’ profits will not let you grow in trading.

If you want to compare, you need to do it with yourself, compare your previous month’s performance with the current month, see how many mistakes you worked on, analyse how your win rate is improving, etc. **

1. Emotional Trading Stress

The Problem:
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This stress mostly comes when emotional thinking and decisions overtake your logical thinking and decisions.

You know what is right and wrong to do in trading, but still, you can’t apply that in the live market due to fear/greed/frustration etc.

The Practical Solution:

First, remember that there is no quick-fix solution for this; it’s a gradual process of getting better with your trading mindset.

To manage emotions better, first, you must have some basic discipline and a proper risk management system.

Also, you need to think from a long-term perspective about how small improvements can lead to a better ROI over time and how even small emotional mistakes repeated over time can blow up your account in no time.

Think about the compounding effect; every impulsive, emotional decision you take indirectly feeds your subconscious mind, and it will eventually become your habit. Once taking impulsive, emotional trade decisions becomes a habit, it might become difficult to change those patterns in mind.

Things like :

These are some things where your emotions will take over a logical and practical thinking process.

The first step is to identify your emotional weakness by being aware of every single action you do in trading; then, it will become easier to rectify it.

Final Thoughts:

Trading stress can also be reduced by controlling the stresses/pressures/tensions in your personal life. Having a healthy diet, regular workouts & human connections have helped improve my trading performance.

Since the results from these lifestyle changes are not directly visible, many traders do not even focus on that. Ultimately what’s the point of even becoming a successful trader when you are not in good health or bonding?

Trading must be seen as one of the means to make money to get your time freedom. Do not hamper your personal & financial health badly because of it.

Be a Responsible & Mindful trader.

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Until next time, cheers!

- Arun Bau

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