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Greed is Not Good in Stock Market Trading

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I hear a lot of stories on how people lose money trading options. Most of them are not worth sharing. But this one stands out and I thought I should share this with visitors of my website who are looking to buy that option for a big home-run.

Update: 40 lakhs looks too small compared to this aggressive trader who lost more than Rs. 2 crores trading options aggressively. You must read about this trader too.

I do not think anyone in this world exists who has had a real home-run buying options (I mean made so much money buying options that they can now stop trading and live a comfortable life). Yes, you will find people who are doing well trading options – but they have a solid strategy that they master.

Note: I have also written earlier why buying options will not make money over a long time. This post gives you a real example how things can go horribly wrong.

Recently I received an email from one one person from a small town in West Bengal, India. I have got his permission to share his email with this website visitors. If you are also looking for that home-run buying options you should read it:

Hello Mr. Dilip,

I stumbled upon your website from Google after searching for a low-risk options trading strategy for Nifty. And today, the whole day I was reading almost all stuff at your site. I can remember, while reading at your Yes Bank and IDBI trade, I myself and my uncle made an options purchase from a veteran trader’s call in a stock trading forum, that gradually worth around 6 lakhs went to zero, and we ended up loosing everything.

That was start few years back and by now I have donated most of the money to the market what I have earned from my now dysfunctional business – around 40 lakhs or more. Tried everything, Commodity, Futures, Pair-Trading. Less tried are Currency derivatives and Equity.

Now I can’t take any unknown risk. And at this moment, I am at a very crucial point of my life. I am 41 years old, have wife and two little kids. I have no job except some 15 lakhs FD that earns some interest, and around a 5 lakh trading A/c.

Right at this moment, I can’t have the luxury of loosing money any more. I know, whatever I have given to the market is just my mistake, I accept all the responsibility, because always I have placed large bets even after reading Van Tharp position sizing book. How silly I am – I always wanted to have that big home-run.

And I burnt my hand always.

Now I think it is the time to get all those money back with a constant rate. I do not want very high return, but a 5-6% per month steady return as per your strategy in any market condition and peace of mind will just do. Because, right at this moment, I am just looking to take care of my family, at least 30K per month is enough for me at this time.

Can you please help me?

Regards,
Name withheld

Isn’t this sad to read? Not only he lost lots of money, but he also lost a lot of time. Money can come back, time will never. A person who was once making 2 Lakhs per month is now dying to make 30 thousand per month. I know its painful, but greed took all money from this investor.

I asked him to first look for a job as a high priority. He has two kids and he is responsible for their well being and giving them good education. My course can of course come later.

I also told him if it was possible then he should again start that old business. He must be good at it that is why he was making so much money. That business was making him more than 2 lakhs per month, I see no reason why it cannot make 25% of that now.

Even a job paying 15-20k per month should be fine for him now. It will help him to meet the monthly expenses of his family. This will also ensure that he need not touch his bank fixed deposits.

If you are reading this and are in a similar situation, please take up a job as soon as possible. Then learn trading and start trading in small quantity. Once you are confident, only then increase your trading size. Do not fall for greed.

When I asked him why he did not stop at around 10 lakhs loss which is still bearable, he gave me a good reply.

Dilip, if you study Quantum physics, you will find that everything is vibration. When I earned that money month after month, it was my disbelief or low vibration about money in my Subconscious Mind that self-sabotaged me and took away all the money. At that stage, when I was earning even more than 2 lakhs per month in some months, my Subconscious Mind definitely rejected that idea or vibe – thought it was artificial or inflated and found a way to destroy that wealth and led me to join Stock market.

During six-month study period of your course, I must raise my vibration to a much higher level and must match those frequency at which that amount of money will manifest; otherwise nothing is going to happen for sure.

You may not believe, but it is true, if you wish, you can read a book called “Psycho-Cybernetics” by Maxwell Maltz.

http://en.wikipedia.org/wiki/Psycho-Cybernetics

OK may be this is true, but I still feel one should put a stop to ones greed.

Lets assume that he actually made 80 lakhs by buying options using the 40 lakhs money he had in his trading account. Do you think he would have stopped there? NO. His next target would be 160 lakhs and so on. Do you think he would have been successful every time he traded? Eventually he would have bought some option that would have expired worthless. He would still say the same story. It does not matter if he made 80 lakhs from 40 lakhs then lost it all – what matters is that he lost and he lost due to greed.

So, what are the lessons we can learn from this story?

1. Greed is bad in trading. Stick to your profit target or loss. Do not hesitate to take a stop loss if trade is not going in your favor. Also when the required profit target is met, do not hesitate to book profits. Waiting for more profits may take the trade back to losses. Similarly waiting for the trade to turn in your favor is futile – you will incur more losses.

2. Do not force yourself to trade. Just because you think an option will double in few days time does not mean you are correct. If you are not comfortable, just do not trade. Ask yourself before placing any trade – are you taking a big gamble? If the answer is yes – you are getting greedy and you should not trade.

3. If you want to speculate – then speculate for the worst possible outcome from a trade. Keep a plan ready when it actually happens. Stop loss or adjustments – keep it in writing.

4. Discipline is important. If you have only 10 lakhs to trade and have decided not to bring in any more money to your trading account, then do not bring any new money into it. That money may turn to one crore or zero. At least you will have the rest of the money to live your life and support your family. Read this to know how to manage your financial portfolio.

5. Money made from the stock markets is not free money. It comes with education, stress, strategy, planning and discipline. Do not disrespect this money. Psycho-Cybernetics or whatever is only an excuse – your money will not come back neither the time. If you are reaching your goals, slowly start withdrawing the profits from the trading account and put it in a liquid fund or bank FDs. Life has a limit – what makes you think that you will be trading forever and making money?

6. Share your profits and losses with your spouse. They have a different psychology and mindset than yours. I am sure he did not share his losses with his wife. Had he done that she would have asked hom to stop and concentrate in his business rather than the stock markets.

7. Always hedge your positions. That way even if you lose in one trade, the other trade will bring in some profits. If you are playing naked options, and if there is a huge gap up/down and your position is not hedged, you may lose massive money. You may never even get to take the stop loss because you will have lost it all.

8. Get some trading education. If you feel you are comfortable buying stocks – learn which stocks to buy and when. If you love future trading – know how to hedge them in the best possible way. If you love options trading – learn how they work, what are the best strategies that work.

9. Give the biggest priority to the source that generates the most income. If its your job – take it seriously. Work hard. Try to increase your salary. If its some business then read more about it. Master the craft. Become the best businessman in that field. If its stock market trading then do not stop learning even if you are the best in the world. Target small profits every month and be satisfied with them. Small profits will add up a huge amount in few years. Do not try for a home-run. It will slowly bleed you to financial bankruptcy and believe me you will never know. You will only realize when you will have already lost a substantial amount.

10. Greed and Fear both are your biggest enemies in trading. I am sure many of you are good traders but just do not trade because of the fear of losing. Interestingly even those who fear lose money. If you are good in trading but fear increasing your lot size then over a period of time you will end up losing even more than what greedy traders lose. Unfortunately you will never know. Don’t we hear stories from our friends/relatives who say, “Alas, if I had invested in so and so stock at that time I would have been a crorepati by now”. Well that was fear. Can you see one lost investment here is equal to one crore?

With this article if I am able to help you understand that Greed is not good neither is fear then I feel I have done my job. Learn to balance them and I bet you will become a good trader.

All the Best!


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About the author: I started trading stock markets since 2007. However my first 3 years were losses. Then I dedicated almost 1 year on studying, researching, paper trading options and learned a lot in that time. Since 2011 I am trading Nifty options profitably. Call me if you need any help trading options on 9051143004.

{ 9 comments… add one }
  • Ravindra October 11, 2014, 5:29 pm

    Hi, Mr.Dilip,

    I am continuously reading your articles. All of your articles are practicable proven and it happened in my trading life also. After losing so much money I learnt trading lessons at the cost of huge loss.

    Your article is like a mirror to each and every trader and reflects their mistakes in trading.

    I always do home work on trading strategy and read so many books and now I am involved in doing research about profitable trading concepts – especially in Options trading. Now, I rectified all my previous mistakes- Greed, Panic & Fear. I have found out some simple option trading concepts & strategies and trading whenever market gives good signal or opportunity for making profit.

    Just I am investing Rs.10,000/- in option trading and monthly I am making minimum 25% profit in 10-12 trades. I will do it for another 3-4 months. If my strategy found successful I will invest in more trading.

    I am very much happy to read your all articles and learnt so many things and now making profit.

    Thanks a lot for your good articles.

    Ravindra, Bangalore

  • Dilip Shaw October 11, 2014, 6:10 pm

    Hi Mr. Ravindra,

    Thank You Very Much!

    Much Appreciated πŸ™‚

    Yes you are absolutely right. If you can control Greed, Panic & Fear you can become a good trader. Education helps too. I donÒ€ℒt target 25% per month as I am comfortable with my non-directional trades. Neither do I like trading too much. But as long as your strategies make money, it is good.

    Just be a bit cautious as I feel you are taking directional calls. And I also feel that making 25% in one or two months is fine, but not sure if you can sustain that over a period of time.

    What makes me happy that you are experimenting with only Rs. 10000.00. This I feel is a good risk management strategy as the max loss is only Rs 10k.

    Keep Learning.

    All The Very Best!

  • Nizar February 18, 2015, 11:26 am

    Sir,
    I am very much impressed with your articles on OPTIONs trading,
    and as you say that you send your course on e-mail, what is the period for full course? and I have a/c with HDFC bank online facility how I make payment directly in your a/c?
    Regards

    • Dilip Shaw February 18, 2015, 1:17 pm

      Nizar,

      It depends from trader to trader. Some might get their logic cleared in one month, while some can understand the whole strategies in a day.

      There is no definite time. But once the logic is clear, you will love trading the non-directional trades. Stress-less and easy. Make small profits every month instead of trying to make a million bucks in one trade. πŸ™‚

      All The Best!

  • Shivashambho July 11, 2015, 11:13 am

    Hi Dilip,

    Due to irrational & unplanned trading my loss this time is Rs. 30.5 lakhs in total and what a waste of time, energy and going through sleepless nights and turmoil.

    I have a savings left of 11.5 lakhs. I have consistently taken rash decisions in this period.

    I am 29 now and had worked hard and done well for myself since turning 21 and saving that amount till I was 27.

    It’s primarily the huge risks that I took, which is responsible for where I am.

    I am not working right now. After a loss of this magnitude, the feeling of having lost what’s being earned with hard work in 6-7 years being wiped out and then working another 4-5 years to get back to where I could have been, doesn’t seem worth it at this stage. Perhaps, time will give more clarity.

    Thank you for your platform for sharing.

    • Dilip Shaw July 13, 2015, 6:17 pm

      Shivashambho, Thanks for your comment. I have made a new post since I thought every trader who does aggressive trading should read the mistakes you did in your trading and avoid them.

      You can find your full comment (with small edits here):

      http://www.theoptioncourse.com/stock-trading-mistakes-to-avoid/

    • suresh May 21, 2016, 1:31 pm

      Hi Shiva,

      You are just 29 — whole world is in front of you …. do not get disheartened .. whatever you lost is not that big money .. you can earn . Try to work for few years and then you may even come back to trading with highly disciplined trader.
      One thing for sure .. everyone goes through such kind of phases in once life .. do not feel bad .. come out forcefully .. You will win

      Sorry .. if I have given unsolicited advice , please ignore my comments

  • suresh May 21, 2016, 1:25 pm

    Hi Dilip,

    first of all THANKS A LOT for writing such a beautiful article which represents mood of at least 95% people who trade.

    My first share maket experience was in 1994 I bought HLL paper share which was counterfit and getting the right one took me 90 days.

    Time has crossed .. I am always fascinated by stock market . Incidentally till today I work and earn 2 lakhs salary per month in IT company.

    I got an idea of F&O recently 2011. I was not knowing how it works although I bought and sold shares and invested in Mutual funds

    I started trading in futures and options starting with futures and options are considered to be dangerous etc.. I would have lost money close to around 5 lakhs over a period of last 6 years .. That I call as investment

    My strike rate for winning trade increasing and I would like to pass the 60 trading session no loss test.

    You article was very encouraging . especially long straddle and hedging the same. would like to try with only 1 lakh capital and see whether I can make money consistently. I made huge profit of 40 K in singe day and huge loss of 50 K in singe day purely by my mistake.

    I have a feeling , it is possible to make good cosistant money through proper risk management and discipline. Few are
    Only trade for 9:25 to 3:30 – do not trade for the whole day till 11:30 ( MCX Market )
    Take a break – do not think about market all the time
    Do not see CNBC TV before 8:45 AM and see only those news which matters like SGX NIFTY , previous day US market etc..
    Switch off TV audio and have calm environment
    be focused on two or three stocks etc..

    I writing for myself so when I see this once again , it reminds to be disciplined all the time
    Thanks a lot once again

    • Dilip Shaw May 21, 2016, 5:23 pm

      Mr. Suresh thanks for the comments. You are earning enough per month so frankly I do not understand why you want to take the F&O trading. You can invest a lot of money in good star mutual funds and make around 12% return a year or more. You can also collect decent stocks for the long term and keep them until you retire. I bet you will be net worth crores when you will be 60 years of age near retirement. F&O trading is for people who do not earn more than Rs. 60 thousand per month through their jobs or business. So that they can accumulate wealth for their old age and retire peacefully. The reason why they all lose is they cannot control greed and take too much of a risk which is not required. The money that they need after 30-40 years, they try to make in 3-4 years, how can Gods help them? Learn to build wealth slowly using the stock markets and you will succeed.

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