Trading Table
Trading trap helps you to avoid common mistakes of trading. It’s very easy to say; keep Stop Loss & Target in every trade but, practically it’s very difficult to execute. Trading table will help you to execute these concepts in a disciplined manner. I would like to ask you a very simple question:-
What is more important for a trader, Knowledge or Discipline? Take some time & think about it…
Of course, discipline is success mantra for a trader. Knowledge will help you increase the size of the profit number. But only knowledge without discipline is nothing and is considered useless for a trader. Practically it’s very difficult to follow the discipline on a consistent basis. An exit is decided in a particular trade; but the trader may not hit the same & he will carry the position which will eventually turn into a disaster. Trading table will help you to follow discipline in every trade, every day on a consistent basis. This is not all, but it will also help to increase the size of the profit number & improve the efficiency to make you a better trader every time. The concept of trading table is based on two important aspects of trading discipline i.e. Stop Loss & Target. First, I would like to describe these two concepts in detail.
Stop Loss:
Stop Loss is nothing but knowing your risk. Every trader has a different risk appetite; they need to decide their risk boundaries before entering into financial markets. Stop loss will not only protect your money but it also provides an opportunity to make money in other volatile stocks. By exercising stop loss a trader would never be taken out of this market. Following are the features of the Stop Loss:-
- ‘Stop Loss is not a loss but its insurance against your loss.’ Generally, we insure our cars, bikes, houses or businesses etc.; there is no guarantee that these will prone to accident or will be damaged. But insurance will cover your losses in case of unexpected situations. The insurance premium is paid every year but these incidents may occur once in many years. Always consider that stop loss is the premium you are paying for insuring your position against unexpected swings in the markets.
- A good trader may be right 8 times out of 10 times but he can’t be right all the times. Even a person who is right in most of the trades may lose out all his profits if he doesn’t keep a stop loss. ‘If you are a bad trader always keep a stop loss to protect your money; if you are a good trader even then always keep a stop loss to protect & built upon your profits.’
- Stop loss helps to get out of a bad trade & enter a good trade. You can’t keep your money stuck into a bad stock or a bad trade for a long time. Try to get out of it as soon as possible & re-establish in a better stock to recover the losses.
- Stop loss gives the confidence to enter a position at the earliest level. Quick decision making is necessary to become a successful trader & stop loss boost up the confidence to enter a stock at the right level. You can’t wait long time to enter a position & it may push to enter at the end of the move.
- Averaging down is the most dangerous thing for a trader which would result into disaster most of the times. Stop loss keeps you away from averaging by making you exit from the position with a small loss in case if you are wrong.
- Never ever over-expose or carry the margin positions. Stop loss would not allow your money to become nil. Stop loss will make you a better and disciplined trader.
In short, “whether you are a good trader or a bad trader if you want to earn profits through successful trading; Stop Loss is must”.
Target:
Market may take several swings during the day with the flow of the information from various sources. ‘Exit a position at a level where you can re-establish at a better price.’ In trading, it’s very important to book profits at the right level & use the funds in the most effective manner. A stock may move upto a certain level & it may stuck there for quite some time. A trader may book profits in such stocks & utilize the funds to make money in other active stocks. Once the earlier stocks gets out of the range or gets a break-out, the trader may re-enter & enjoy the move. Following are the features of the Target:
- Target is important as good traders exit a position where they can re-establish at a better price. A stock may not continue to fall or rise for the whole day; it would give pullbacks & bounces, so it becomes important for a trader to book profits at a particular level.
- Target should not be unrealistic. You can’t keep very high targets which may not possible to achieve under normal circumstances. For example, a 20% target for intra-day trade may not be possible to reach for a stock.
- Target should not be very small. It should cover your transaction cost along with a decent profit. Small profits would not allow covering losses of earlier trades. A disciplined trader allows their profit positions to ride & cut their losses. A profit of less than 0.5% may not be good enough for a trader.
- There may be more than one target. Once target-1 is achieved, you can trail your stop loss to cost & wait for the target-2. It would help a trader to take bigger profits on a single trade. This is called trailing the stop loss.
- Target helps to manage the funds in most effective manner. In trading, it’s very important to utilize the funds in most trending & active stocks. Once target of a stock is achieved, the trader should book full or partial profits in the same.
- In trading less is more. When I am saying less is more, it says that keep some sort of target when establishing a position for the purpose of trading. This would help you to recover your principal amount & then build up wealth for future.
- Everyday 1% means more than 300% in a year. If a trader is able to make average profits of 1% everyday, there can be nothing better than that. No other investment in the world can give you more than 20% (per annum) returns on consistent basis.
As said earlier it’s very easy to say follow the principle of stop loss & target in every trade but, when it comes to trading it’s very difficult to implement. Keeping in mind the same conception, the trading table is introduced here. There are three different tables used in the concept of trading table. The tables used are as follows:-
- The Beginner’s Table,
- The Expert Table, &
- The Genius Table
Further each table is divided into sub-sections. The traders should use this table in a very systematic manner. They should try to climb up the ladder step by step. If you will try to jump the ladder, it may hurt you. Now, each table is described in detail.
The Beginner’s Table
This is a table for the new entrants in the profession of trading. This table is based on the concept that no trader is perfect.
“If you are good trader you can be right 8 out of 10 times, but you are never going to be right in every trade.”
The winner is not the one who makes maximum profitable trades; but is one who control losses during bad trades & make maximum out of good trades. A trader may make 5 good trades & lose away everything in the next 2 bad trades. On the other hand, another trader may have lost money in last 5 trades & recover the same in the next 2 trades. This table will help you to follow discipline in controlling losses & maximizing profits. As stated earlier, it is most important for a trader to manage stop loss & book profits at the right levels.
| Profit Loss Ratio= 2:1 | ||||||
| No: of Trades | Amount | Net | Kind of Trader | Colours | ||
| Profit | Loss | Profit | Loss | (P – L) | ||
| 8 | 2 | 16 | 2 | 14 | Excellent | Green |
| 7 | 3 | 14 | 3 | 11 | Very Good | Green |
| 6 | 4 | 12 | 4 | 8 | Good | Blue |
| 5 | 5 | 10 | 5 | 5 | Average | Blue |
| 4 | 6 | 8 | 6 | 2 | Below Average | Yellow |
| 3 | 7 | 6 | 7 | -1 | Bad | Yellow |
| 2 | 8 | 4 | 8 | -4 | Stay Out | Red |
Explanation of the Table:-
- The table is based on the concept of stop loss & target. The table says that if a trader is keeping a stop loss of Rs. 1 in a trade then he should keep a target of Rs. 2.
- If a trader is making 10 trades in a day; in best of the cases he may make 8 profit trades & 2 loss trades whereas in worst of the situations it would be exactly opposite, it means 8 loss trades & 2 profit trades.
- Calculation of profit & loss is very simple. As mentioned above, the trader is keeping a stop loss of Rs. 1 & target of Rs. 2 in every trade. There are different probabilities for number of profit or loss trades. If a trader is making 10 trades in a day, 4 profit trades & 6 loss trades; the calculation would be as follows.
Profit: 4×2 = Rs. 8
Loss: 6×1 = Rs. 6
Net (Profit –Loss) = Rs. 2
Every trader would find himself in any of the category mentioned above in the table. The one thing he needs to follow is the discipline. Slowly & steadily he may improve his performance.
The table is divided into four important sections:
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- The Red Section: This is the lowest section of this table. It says that if you are regularly making most of the loss trades it means there is something wrong with you. A trader in this section is losing money on a regular basis. So, he should stay out of the market for sometime or hire services of a professional consultant. Avoid trading & stick to long-term investment with proper consultation & guidance.
- The Yellow Section: Most of the new traders would find themselves in this section. In this category you are making more loss trades in comparison to profit trades. Due to lack of knowledge & wrong entry & exit points a trader may find it difficult to make profitable trades. But if you control your losses & ride your profits, the trading table can help you to become a successful trader from here onwards. If you are in this section, you may not be losing anything. But learning without losing will help you to improve & start making profits. So, in this section protect your money & built upon the basics of trading strategies.
- The Blue Section: This is the most competitive section. There is competition among traders to win & make maximum profits. Traders in this section are more disciplined, more selective & precisely more intelligent. They keep themselves updated & make a plan for everyday. Their stock selection is better & they are aware of activities, news, and announcements etc. during the day. Most of the successful traders lie in this category.
- The Green Section: This is the dream category at the top of the table. Everyone wants to be in this category. Once a trader has reached this section, it’s very difficult for him to stay there. A trader may be passing through best of the times when he stays in the green section. They are experienced, disciplined & successful traders. They are aware of trading strategies & advanced tools like chart study, earnings analysis etc. They should start sharing their success secrets with other professional traders around them.
Initially, it may be difficult for traders to be in green or blue section consistently. There may be days when he is there in any of these sections. But always remember consistency is the mantra of success. A trader should try to surpass red section & be at or above yellow section. At yellow section, he should try to learn discipline. Being in yellow section will help you to protect your money & lose a little or nothing. If you don’t lose & exercises discipline on a consistent basis, you would soon start making handsome profits. After some time you would realize that you are shifted to blue section from the yellow section.
How to use this table?
A trader doesn’t need to be very intelligent to become a successful trader. Any average person can participate in the trading competition & emerges as a winner. The most important thing he needs to follow from the very first day & very first trade is ‘discipline’. The trader should have a game plan for every trade. He should pick up entry & exit points very carefully. Trading is all about managing risk-reward. Initially, a trader may keep a ratio of 1:2 for risk-reward. It means he can keep a stop loss at 1% & target at 2%. If he is keeping a target of 1%, his stop loss shouldn’t be more than 0.5%. He needs to decide the quantum of stop-loss & target as per his trading personality. But, the ratio would be the same; i.e. 1:2.
We expect that a trader may not straight forward enter in blue or green section. He can start trading with limited number of shares & limited number of trades in a day. He can also fix up the amount to be invested in each trade. He should start trading & keep a record of the same. After 10 trading sessions he should calculate his success ratio. Success ratio means number of profitable trades in comparison to total trades. If success ratio is more than 30%, he is in the yellow section of the beginner’s table. He should keep trading from here onwards & try to improve on the trading basics like stock selection, entry & exit points etc. If he falls in the red section after 10 trading sessions, he may quit trading & move to long-term investments. This process will help you to identify whether trading is your cup of tea or not? Every trader wants to be at the top of the table. But it’s not easy to reach & stay at the top. The trader should try to climb up the table step by step.
Generally a trader is placed at yellow section when he is new entrant in the profession of trading. At this section the trader is making around 0 to 2 points every-day. He should try to reach at the upper end of the blue section or lower end of the green section. At this section he is making 8 to 10 points every-day. He is getting a success ratio of around 60% to 70%. If you can do the same, anyone can earn 10% to 20% returns every month or may be much more than that. Many of the traders are satisfied with this. But getting better accuracy of more than 70% is extremely difficult. One may get 70% or more on a particular day but maintaining the same on daily basis is a dream for everyone. So, how to improve from here onwards? This is a big question; but, don’t worry, you can look the second table of trading table concept i.e. ‘The Expert Table’.
The Expert Table:
In the beginner’s table you were trading at the upper end of the blue section or lower end of the green section. It means you were making around 8 to 10 points on daily basis. Now, to get better results you should change your table & shift to the expert table. Here you need to be better in terms of knowledge, awareness & analysis. You can learn the techniques of stock selection; learn technical analysis & use advanced trading & analysis softwares.
| Profit Loss Ratio= 3:1 | ||||||
| No: of Trades | Amount | Net | Kind of Trader | Colours | ||
| Profit | Loss | Profit | Loss | |||
| 8 | 2 | 24 | 2 | 22 | Exceptional | Green |
| 7 | 3 | 21 | 3 | 18 | Excellent | Green |
| 6 | 4 | 18 | 4 | 14 | Very Good | Green |
| 5 | 5 | 15 | 5 | 10 | Good | Blue |
| 4 | 6 | 12 | 6 | 6 | Average | Blue |
| 3 | 7 | 9 | 7 | 2 | Below Average | Yellow |
| 2 | 8 | 6 | 8 | -2 | Bad | Yellow |
Explanation of the table:-
- This table is different from the beginner’s table. The ratio of risk-reward is increased from 1:2 to 1:3. It means if you are keeping a stop loss of Rs. 1 the target should be Rs. 3.
- Getting profit of 3 points against stop loss of 1 point is not easy. The trader should be experienced & knowledgeable before entering into this table. This table is called expert table as stock selection, entry & exit points, market awareness is crucial for a trader to become successful in this table. He is more disciplined & active in the market in comparison to other traders.
- The trader can learn following concepts to become successful trader in this table:
- Technical analysis
- Concept of easy money hard money
- Earnings analysis (Quarterly & Annual Results)
- Analysis of economic events like GDP data, employment data, interest rates, inflation etc.The calculation of profit & loss would be simple & same here as given in the first table. For example, a trader is making 10 trades in a day, 5 profit trades & 5 loss trades & he is keeping a stop loss of Rs. 1 and target of Rs. 3 in every trade; the calculation of profit or loss would be as follows:
Profit: 5×3 = Rs. 15
Loss: 5×1 = Rs. 5
Net: (Profit – Loss) = Rs. 10
This table is divided into three small sections. There is no red section in this table. This is an expert table & the person who is trading according to this table is no more a beginner. That’s why there is no scope to stay out or stay away from the trading.
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- The Yellow Section: This section belongs to the traders who were not consistent performers in the beginner’s table. A trader may fall in this section for few days in a month. As said earlier, in this section a trader would be losing a little or making a little. There may be few bad days for a trader. An expert trader falls in this section during his bad days.
- The Blue Section: There is direct entry for good traders from the beginner’s table. A trader, who was making 6-7 profit trades in the beginner’s table, may not continue the same show in the expert table. But he may continue making 4-5 profit trades & earn the similar profits what he was earning there. A trader who was making 8-10 points in the beginner’s table; he would lose a little on the profits by making 6-10 points in this table, but his efficiency would improve which would show results in the future.
- The Green Section: This is again a dream section for the experienced & expert traders. A trader can make 15-20 points daily in this section. It seems very easy but very difficult to achieve. Besides knowledge & discipline, it would require lots of passion to reach green section of the expert table & stay there. Once you reach at this section, you would feel at the top of the world.
This table is named the expert table. There is no one who can directly enter into this table & achieve success consistently. This is my sincere advice for all new entrants; don’t try to enter directly into the expert table, you may get trapped. Start from the beginner’s table, spend some time there, achieve blue or green section, show some consistency & then move to the expert table.
How to use this table?
The trading experts from the beginner’s table are placed in this table. Good traders would be placed in the blue section & bad traders would be placed in the yellow section. If you are placed in yellow section, you would be either making a little or losing a little. But every loss will add to your knowledge. Good traders would be making around 6 to 10 points on daily basis. This would give you the same amount of profit what you were making in the previous table. That’s the best what you could make there. But this table would help you to improve efficiency & increase the size of the profit number.
Once you have become successful in the beginner’s table & trading at the upper end of the table, you can shift to expert table. This can be done by changing the risk-reward ratio to 1:3. You can trade regularly for 10 days with the risk reward ratio as mentioned in the expert table i.e. 1:3. Then try to find out the success ratio. You would find yourself either in the yellow section or blue section. Most of the traders would find themselves in the blue section. As said earlier, they can now improve upon trading basics & spend time more passionately in the equity markets. Passion would help you to improve understanding of the markets & achieve better results.
The target of every trader should be to reach green section & stay there. In green section of the expert table a trader would be making 6 to 8 profit trades & 2 to 4 loss trades which would give him a net profit of around 15 to 20 points. Any professional trader who is earning 15 to 20 points would be very much satisfied with his performance. This is the dream section of every professional trader. This is the milestone for any trader when he reaches here first time. According to the principles of the trading table, a trader should spend a long-time in the green section of the expert table.
Now, we will move to our next table & the heaven of the trading profession i.e. ‘The Genius Table’.
The Genius Table:
As the name itself suggests, the best performers from the trading professions can mark an entry into this table. Only few could make entry into this segment during their trading life. Many of them try to enter this table, but their survival time is very short & that pushes them back to the expert table. This is advisable here that a trader who is experienced, intelligent, active, adaptive, pragmatic & has spent lot of time in the green section of the expert table, should try to enter in this table. So, here is the genius table for you.
| Profit Loss Ratio= 5:1 | ||||||
| No: of Trades | Amount | Net | Kind of Trader | Colours | ||
| Profit | Loss | Profit | Loss | |||
| 8 | 2 | 40 | 2 | 38 | Exceptional | Green |
| 7 | 3 | 35 | 3 | 32 | Exceptional | Green |
| 6 | 4 | 30 | 4 | 26 | Excellent | Green |
| 5 | 5 | 25 | 5 | 20 | Very Good | Blue |
| 4 | 6 | 20 | 6 | 14 | Good | Blue |
| 3 | 7 | 15 | 7 | 8 | Average | Yellow |
| 2 | 8 | 10 | 8 | 2 | Below Average | Yellow |
Explanation of the table:-
- The risk-reward ratio in this table is increased from 1:3 to 1:5. It means if you are keeping a stop loss of 1%, the target should be fixed at 5%.
- Getting good results with this risk-reward ratio is very-very difficult. There are different strategies to be successful in this table. We would discuss the same, keep on reading & enjoy the journey to become a successful professional trader.
- Most of the trades in this table are executed on the basis of technical levels, news flow & planning. Each trade is separate & analyzed very carefully before executing the same.
- The calculation of profit or loss would be simple as given in the above tables. For example, if a trader is making 10 trades in a day, 4 profit trades & 6 loss trades. He is keeping a stop loss at Rs. 1 & target at Rs. 5, the calculation of profit and loss would be as follows:
Profit: 4×5 = Rs. 20
Loss: 6×1 = Rs. 6
Net: (Profit – Loss) = Rs. 14
This table is divided into three sections. Again, there is no scope for red section. Most of the traders in this table are matured, intelligent & successful. Three sections of this table are given below:
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- Yellow Section: This is the lower most section of the genius table. Only few traders in this table are found in this section. The traders in this section will either go back to the expert table or they would learn technical concepts to catch up the ladder step by step.
- Blue Section: The best performers from the expert table would directly come into this section. In this section accuracy of a trader would be 40% to 50% which would give you 15-20 points. This is the place where most of the traders in this table would exist.
- Green Section: If you exist in this section, it means you are at the top of the world. The accuracy is at its best which is 60% to 80%. Here a trader would be making 25 to 35 points every-day.
As discussed earlier, only few people could make entry into this table. Many of the traders from expert table try to enter into this table, if they continuously stay in the yellow section of the genius table; they have to go back to the expert table. The people in this table carry the name, fame & lots of money with them.
How to use this table?
Initially, a trader may not get direct entry into this table. From the expert table he can use the concept of trailing stop loss & move to the genius table. It means when you are establishing a position, keep stop loss at 1% target at 3%. Once target is achieved, don’t book profits at that level but you can trail your stop loss to cost & keep a further target of 5%. For example, if you are buying shares of ABC Ltd. at Rs. 750, you can keep a stop loss of Rs. 745 & a target of Rs. 765. Once target of Rs. 765 is achieved, you can trail your stop loss to 750 or 755 or 760 & keep a further target at Rs. 775. This process would help you to achieve better results & improve profitability with the concept of trailing stop loss.
So, the trading strategy here would be different. A trader can keep stop loss, target-1 & target-2 in a particular trade. This process would ensure you higher profitability & higher success ratio. It can be better understood with the chart given below. The stock is in the strong trend. A trader may buy the stock around 409 with a stop-loss of around 405. According to the expert table, target would be 3 times of the stop loss. Here stop loss is Rs. 4 (409 – 405), hence the target would be Rs. 12 (4×3); i.e. Rs. 421 (409+12). This can be considered as target – 1.
According to the genius table, the target would be 5 times of the stop loss, therefore target – 2 can be fixed at Rs. 20 (4×5); i.e. Rs. 429 (409+20). Once target -1 is achieved, we can wait for the target – 2. But, remember you don’t want to give up all your profits if trend of the stock is reversed before achieving target – 2. So, we can fix up trailing stop loss around 415. In case, if we are wrong, still we will be able to book a decent profit of Rs. 6 per share.