Writing this article on a Topic TRANSFORM YOUR TRADING PSYCHOLOGY BY DERISKING YOUR TRADE USING “PARTIAL BOOKING” METHODOLOGY
Let’s say you do your analysis and find a trade as follows:
Just take a look at the above cases keenly, what happened to the price at the Level…..
Case (1) it BOUNCES first,
Case (2) MOVES in expected direction AND/OR
Case (3) Hits STOPLOSS
Obviously in CASE (3) scenario , Stoploss hits and we are out of trade, book LOSS, what about the other two?
yes, in CASE (2) price moves in favor and we make money as per predicted direction… Then What about CASE (1) and what if CASE (1) and (3) happen back to back?? Just think about this for a while.. How would u play your position or protect ur trade ?
ONE of the effective/Conservative ways to play with a level is to use a method of PARTIAL BOOKING TO “DERISK” A TRADE AT 1:1 OR 2:1 once price arrives at ur entry and gives a bounce…
How do we Do That? Lets learn it today
Lets say, u identify a level to buy or Sell (Can be any trade Intraday / Positional ) , EXAMPLE: your trade STOPLOSS is 1 rupee (RISK) , Estimated Target is 3 Rupees PROFIT (REWARD) , you now have a trade with a REWARD to RISK of 3:1
Lets say its a long trade and we buy 100 Shares. our risk amount is Rs 100 (if STOPLOSS is hit after entry), Maximum Reward is 100 X profit 3 rupees = Rs. 300 if trade works fully in favor as planned
To DERISK the trade on bounce, We must plan to book 50% quantity at 1:1 or at 2:1 (That is when stock bounces by 1 rupee in first case or by rupees in second case) and Trail the balance 50% quantity at cost or even maintain at original SL waiting for Full Target
Let’s Say we partbook at 1:1, what happens to the trade? we earn 50 shares x Re 1 = 50 Rupees, and holding 50 shares on hand
NOW…CASE 1 : WE are trailing remaining 50 shares at original stoploss , IF price turns and hits STOPLOSS , we dont LOSE anything on the Trade as the trade is totally DERISKED
CASE 2: We are trailing remaining 50 shares at cost and price returns and hits the trailing stoploss. We exit the Trade at 50 x Re 1 + 50 x 0 = Rs. 50 Earned in Total
CASE 3 : Finally, if the trade hits its full Target , We Earn (50 X 1) + (50 X 3) = 50+150 = Rs 200 PROFIT per trade
The DERISKED profit done by part booking may yield a lesser overall profit of Rs. 200 Vs MAX profit (100 x Rs 3 = Rs. 300)… BUT.. Think of it as a STRATEGY. Which you play on EVERY TRADE
It can turn your entire Psychology of Trading with Lesser risk and Least EMOTIONS… Infarct this can help you play the second quantity for even bigger targets as price marches ahead.. that too without any RISK of carrying the trade…
FOR CASH PLAYERS: its very easy to moderate the Position Sizing to Part book for DERISKING ,
FOR FUTURES PLAYERS– one needs to have multitude of Lots (as position is offered in specific lot sizes). Hence Risk appetite is needed along with capital to buy more than one lot.
Before Entering a position, Clearly define your risk (Quantity or Lot Size ) X (Entry price minus Stoploss price) and see if you can afford the risk as per your TRADE PLAN, The Quantity can be adjusted as per your RISK per trade before entering ANY trade and you can follow this strategy of DERISKING Trades by Part Booking
Though this is a Conservative approach, we need to act Aggressively with a predetermined plan to partbook as a RULE on every trade, Starting with 1:! first and later can improvise it as per experience and HOW best is your analysis..
The better is your Analytic Skills and Expertise in earmarking your targets, you can moderate the partbook % qty and tailor make it too for various target points…. but do not recommend to moderate for those who are starting this practice as newbies… Do Experience this Strategy in your next 25-50 Trades dedicately and Share your experience and transformation in psychology of trading with us !
Hope the above article will be helpful to you all and useful.. Do write your feedbacks at https://advancedtradingstrategies.com/contact-form
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