Trading Mindset
I Am a Software Developer and a Passionate Trader
Over the past five years, I have explored nearly every aspect of trading—technical analysis, intraday trading, MTF, pre-IPO investments, options selling, F&O, hedging, swing trading, long-term investing, and even commodities like gold and crude oil.
Through this journey, I realized that **technical analysis is only about 20% of the equation**. The real game is **psychology and mindset**.
I have distilled my learnings into concise points below—insights that have shaped my approach and will continue to guide me in my version 2.0 of trading. I hope they prove valuable to you as well.
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### **Position Sizing**
One of the most important aspects of trading is choosing the right position size. Your trade should never be so large that it causes stress or worry. Keep it at a level where you can stay calm, no matter how the market moves.
### **Set Stop-Loss and Target Before Placing a Trade**
Decide in advance when you will exit a trade—both at a loss (**stop-loss**) and at a profit (**target**). This helps maintain emotional balance, preventing extreme excitement or frustration.
### **How to Calculate Position Size**
- Use **technical analysis** to identify your **stop-loss** and **target**.
- Example: If CMP is ₹100 and your stop-loss is at ₹94 (₹6 risk per share), determine your risk tolerance:
- ₹3,000 risk ➝ **500 shares** (₹3,000 ÷ ₹6)
- ₹1,200 risk ➝ **200 shares** (₹1,200 ÷ ₹6)
- Adjust quantity based on how much you're willing to risk.
### **Setting Target Price & Risk-Reward Ratio**
The most important factor in setting a target is the **risk-reward ratio**. If your stop-loss is ₹6, your target should be at least **₹6, ₹9, or ₹12**.
### **Why Is Risk-Reward Important?**
Let’s say you take **10 trades**—5 go in your favor, and 5 go against you. If your risk-reward ratio isn’t favorable, you could end up in a loss.
Example:
- You **lose ₹6** in two trades → ₹12 total loss
- You **gain ₹3** in three trades → ₹9 total profit
- **Net result: -₹3 loss**
To ensure profitability, your **reward should be equal to or greater than your risk**. A **1.5x or 2x risk-reward ratio** is ideal.
### **Flexibility in Targets**
Even when the price reaches **Target 1**, you can **book partial profits** and let the rest run with a **trailing stop-loss**.
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### **Managing Multiple Trades**
This is **very important**. If you're a beginner, **limit yourself to 2 trades**, and even if you're a pro, **avoid more than 3-5 positions**.
**Example:** If you have **₹2 lakh**, make sure you have **only 2 trades open at a time**. Add a third stock **only when you close another position**.
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### **How to Deploy Capital**
Patience is key. If you have **₹1 lakh**, **divide it into 4-5 parts** and buy **in small chunks over time**.
**Why?**
The **nature of stocks** is to move in waves—rising, facing profit booking, then breaking previous highs. Instead of investing everything at once, **buy in staggered amounts** to ensure your **average price stays close to CMP**.
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### **Avoid Market Noise**
When trading, **stay in your zone**.
Social media posts can make you feel **slow compared to others**, but they don't show the full picture. Avoid distractions like:
- Direct stock tips from **news channels**
- P&L snapshots from traders
- Following too many **analysts on social media**
Instead, **listen to expert views**, but stay disciplined with **your own strategy**.
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### **Stock Selection**
Stock selection has **two elements—technical and fundamental** (I'll write a separate post on this).
Always **buy a stock that you can hold even in your darkest times**.
**Example:**
- Choose **blue-chip stocks** with **high market caps & strong promoter holdings**
- Never **buy a stock just because it’s in momentum**
- If a stock **turns into a forced SIP**, it’s not a good buy
Pick stocks with **a long-term story**—even if you fail to exit at the right time, you should be comfortable holding them.
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### **Accept That It’s the Market, Not You**
Many traders fail because they **don’t admit that the market is unpredictable**.
Losses happen because of volatility, not necessarily poor strategy. **Example:**
- You lose a trade and **try improving your method** but face another hit
- Some losses **are simply beyond your control**
Most of what happens in the market is **not in your hands**—including stop-loss triggers. **Accept this reality,** and focus on **risk management** instead of revenge trading.
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### **Keep Separate Trading & Investment Accounts**
Trading and investing **are different**. If you keep them **in the same account**, you’ll:
- **Book small profits** on investments
- **Hold short-term trades in losses**
Having **separate accounts** keeps **your goals clear**.
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### **Don’t Let the Market Dominate You**
Even full-time traders **shouldn’t obsess over the market**.
Limit your **screen time to 2-3 hours during market hours**.
**Why?**
- You can’t **act on global markets until 9:15 AM IST**
- Even if a **war or tariff issue** arises, **you can’t do anything until market open**
- Overthinking leads to **over-trading**, which drains money
Instead, **invest time in developing new skills**.
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### **Do What Suits You, Not Others**
If you're good at **swings, stick to swings**. If you're good at **intraday, do intraday**.
Don't follow **what works for a friend—trade based on what suits you**.
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### **Avoid FOMO**
Don't **stress** if a stock jumps **20% in a day**.
Stock **accumulation zones, demand/supply areas, profit booking**, and **retests** happen **regularly**—opportunities will always come.
Even traders who claim they made **20% in a day** **don’t share how often they got trapped chasing stocks**.
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### **Stop-Loss Is Your Best Friend**
No, stop-loss is your **best friend for life**.
**Example:**
- Suppose you **enter 10 trades in a month**.
- **6 do well** and you book profits.
- **4 go against you**, but instead of exiting, **you hold** because you believe they’ll recover.
- Next month, you **repeat this cycle**—adding more positions.
Over time, **this builds a portfolio of lagging stocks**, and suddenly, **your losses dominate your portfolio**.
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Even Experts Face Losses
Even professionals with **advanced research teams lose money**.
Retail traders often **believe they can avoid losses by analyzing a few ratios**, but **losses are part of trading**.
A stop-loss ensures **you stay in the game long-term**—instead of holding onto losing trades indefinitely.
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Take a Break & Restart
Taking breaks is **crucial**. If everything is going wrong, **don’t hesitate to press the reset button**—step back, analyze, and refine your approach. A fresh mindset leads to better trading decisions. (I’ll write a detailed post on this soon.)
