Maintain a Trading Journal to track your Skill Level - Download Link at Bottom

If you don't want Stress in  Your Trading then learn How to manage your Trade - Now most of the traders know how to enter in the market (with their own wish - But don't know how to exit - how to manage the trade once we are into the trade -how to handle the chaos )  either we enter with our 

• Trading System Rules 
• Due to our Excitement level to do something 
• On news base 
• Tips Provider 
• Gut feeling 
• Random Entry Etc 

 We can enter in the market with our own  wish - and  once we are enter the real game starts -if the trade goes against us most of us don't know how to handle the Chaos - Say for example this market is like a Riots what we call  DANGAL a civil disorder by a group of people - In Riots our first Priority is to Protect our selves with the Damages and to be safe at our place - This Market is also same once the Market is open the Dangal (Riots)  Starts  and we are enter into this place - and once we are enter the unexpected things starts to happen -and we are trap in human emotions and our thinking may get paralyzed  Now here your Skill comes into play -how you handle this Chaos Skillfully and be safe -  When the trade starts to go against us we become Emotionally Unresponsive - we keep on hoping that the Stock will come again to break even - and we keep on damaging our Account with this attitude 

Detachment and  Be a Observer is the key - For better Decision Making 

Say for Example on the Street you are going and a accident takes places of a vehicle and you are the witness of that Incident (A observer) - Now those two people who met with the accident can be able to give correct justification of who's fault is it ?

Answer is No 

Cause their Ego and attachment comes in their way 

Then who can Give it ?
Its You 
Cause you are the Observer without any  attachment towards both of them and you can easily recognize  who;s  fault it is 

Same Approach we should  maintain in trading - just be a observer of the things and you will instantly recognize you current state   

Probability of trading outcomes with Proper Risk management  

We will take the most simple  Trading system (Fliping the coin )  -with proper money management rules

Our Rules
Cut your losses
And let the profit Runs

Say we have 10 trading outcomes with risk reward ratio of 1:3

Heads we win = and we gain 3 points
Tails we loose = and we lost 1 points

Now here we don't know what will be the sequence of outcome that when the head will arrive or when the tail will arrive - but our stop loss (Risk)  is define that is one point

First flip Tails = loss one point 

Second Flip Tails  = loss one point 

Third Flip Tails = Loss one point 

Fourth Flip Heads= You win 3 points 

Fifth flip Tails =You loose one point 

Sixth Flip Tails = You Win 3 points 

 Seventh Flip Heads =You win 3 points 

Eighth Flip Tails = You loose one point 

Ninth Flip heads  = You win 3 points 

Tenth flip Tails = You loose one point 

If we notice in the above trading out come our winning Ratio is only 40 %
And we have lost 60% of the time and still we are making 6 points Gain 

i.e. = 4 head profits = 4*3= 12 points
= 6 tails loss = 1*6 = 6 points
 Therefore Gain of 6 points


To track our trading skill i have created a Trading journal - which i fell very important for traders to maintain it on each trade - which in turn will help us to understand our skill level in long term
also i have given explanation for   R multiple % and Expectancy in the Sheet - if you want more understanding on this above concept please read the books of Van tharp


In the  trading excel sheet i have given some examples to understand the sheet and its outcome over 30 trades

If you have any further suggestions on the trading journal sheet please share - so that we can make a better trade management system


Trading Journal link
http://www.4shared.com/file/DSpXNWd-ce/tj_online.html?


A Nice video on Trading Psychology
https://www.youtube.com/watch?v=lNrFx3vnjWo

Basic Mathematical Approach for understanding Risk Management & Position Sizing

What are our Trading outcomes ?

• Break even
• Small loss 
• Large profit 
• Small profit 

Never :- LARGE LOSS 

You should Never Suffer a large loss 

• Because its harder to recover a loss than it is to make the loss 
• It takes a higher percentage win to recover a loss  

Lets see some basic Mathematics in detail to understand 

Example one 

Loss of 50 % and win of 50 % 

In the above example when the first trade we make its a loss of 50 % and in  second we have a win of 50 % - so if we are thinking that the account will be at break even - then we are wrong because we have have draw down of 25 percent (actually its little more than that cause i have not included brokerage in it )

Example two 
Now if you think that as we have made loss first so we have lost 25 % - then lets reverse it and see the result

Win of 50 % and Loss of 50%

Now in the above example even when the first trade we make is profit of 50 % and our account size grows to 15000 in the next trade we make a loss of 50 % on 15000 and our account reduces to 7500
result is the same - A draw down  of  25 % exactly the same result

Example Three 

The fact is that if you loose 50 percent of your capital -then your require 100 % profit to recover the looses and to right back where you started   - and its lot harder to make 100 % on your 50 % draw down account

Lets See Some Percentage Required to get the account size  to break even 

• Respect the Risk in the market 
• Make capital preservation your number one goal 
• learn with small accounts 
• In cooperate money management rules in your trading system according to your risk appetite  

Position  Sizing 

What is position sizing ?

Position sizing Specifically refers to how much should i risk on each trade -that means whether i should buy 5 lots of nifty or 10 lots of nifty -how should i determine - for this we should know three things 

• Our Account size 
• What % of our account size we are willing to risk ( it depends upon us some traders willing to risk 1 to 3 % - some risk 5 to 10 % it totally depend upon our Risk Tolerance ) but its better to start with small percentage (also by back testing your Stock or index over a period of 10- 15 years we will come to know the maximum draw down on that Script and accordingly we can fix the Risk  Percentage 
• Stop loss in rupees 

So the Formula for Position Sizing is 

Lets Understand  taking nifty as a Example 

Say for example our account size is 100000

Our % of Risk Tolerance is 2%

Our Stop loss is Rupee say 500 rupees  (10 points) 

So in the above case we can trade with 4 lots of nifty as 2 % risk for the trade