Mindset Personal Finance
Investment
Trading
MONEY & TRADING
4 Quadrant
OF MONEY
Value of Slow Investment
Vehicles
Intraday Trading
Strategy + Money Management + Psychology
Difference
Class - 2
BASIC OF OPTIONS
OPTIONS
1. What Are Options?
Options are financial contracts that give you the
WHAT IT IS ? right, but not the obligation, to buy or sell an asset
at a predetermined price before a specific date.
Underlying Asset: This is what the option is based
on, like stocks, indices, commodities, or
currencies.
Call Options: Give you the right to buy the
underlying asset at a specific price (called the
strike price) before the option expires.
Types of Options Put Options: Give you the right to sell the
underlying asset at the strike price before the
option expires.
Terminologies
Key Terms to Know
Strike Price: The price at which you can buy (call) or
sell (put) the underlying asset.
OPTIONS Expiration Date: The date by which you must
decide whether to exercise the option (buy or sell
the underlying asset).
Premium: The price you pay to purchase the
option. It’s like a fee for the right to buy or sell the
asset.
How Options Work
How Options
Buying a Call Option: You expect the price of the
asset to go up. If the price goes above the strike
Work ?
price, you can buy the asset at the lower strike
price and sell it at the current higher market price.
Buying a Put Option: You expect the price of the
asset to go down. If the price drops below the
strike price, you can sell the asset at the higher
strike price and buy it back at the lower market
price.
Profit and Loss
PROFIT & Call Option: Your profit increases as the asset’s
price rises above the strike price. The maximum
LOSS loss is the premium paid.
Put Option: Your profit increases as the asset’s
price falls below the strike price. The maximum
loss is the premium paid.
RISK
Risks
Time Decay: As the expiration date approaches,
the value of the option can decrease, especially if
the underlying asset’s price isn’t moving in your
favor.
Volatility: Options prices can be very sensitive to
changes in the underlying asset’s price, which can
lead to significant gains or losses.
Option Chain
Option Greeks
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our Link otherwise No Problem - No Pressure .
Practical Problems While
Executing Orders
System Building & Parameters
Revealed Worth Rs.1 Lac
Discretion Vs Systematic
Setups Vs Systems
Aspect Trading Setups Trading Systems
Specific conditions or patterns that trigger a trade, often based on technical analysis or A comprehensive, rule-based approach that governs all aspects of trading, including entries, exits, risk
Definition
market behavior. management, and position sizing.
Structure More flexible; often a part of a broader strategy. Rigid; defined by strict rules that dictate every action.
Flexibility High; traders can adapt setups to changing market conditions. Low; the system follows predefined rules, regardless of market conditions.
Decision-Making Based on specific conditions, but still allows for trader discretion. Entirely rule-based with little to no discretion involved.
Complexity Relatively simple; focuses on specific market conditions or patterns. More complex; involves a full set of rules covering every aspect of trading.
Consistency Inconsistent; depends on the trader's ability to recognize and act on setups. Consistent; applies the same rules across all trades.
Emotional Influence Higher; prone to emotional biases as traders decide when to enter or exit trades. Lower; reduces emotional influence by automating decisions.
Speed Moderate; can be quick but relies on trader recognition and action. Fast; can execute trades instantly based on predefined rules.
Learning Curve Steeper; requires knowledge of specific market behaviors and patterns. Steep, especially in system development and backtesting.
Customization Highly customizable; traders can adapt setups to their preferences. Limited to the initial design of the system; difficult to adjust on the fly.
Scalability Limited; managing multiple setups across different markets can be challenging. Highly scalable; can be applied across multiple markets with ease.
Risk Management Often less formalized; risk management is typically more discretionary. Integrated and consistent; risk management is built into the system.
Objective Identifying specific market opportunities based on certain criteria. Achieving consistent results by following a comprehensive trading plan.
Best for traders who prefer a hands-on approach and can adapt quickly to changing
Use Case Ideal for traders who prefer automation and consistency, with less manual intervention
markets.
How to build a Trading System ?
Step Description Example
1. Define Your Establish the purpose of your trading system, including your goals, profit targets, and Decide if your system will focus on day trading, swing trading, or long-term
Objectives acceptable risk levels. investing.
2. Choose a
Select the specific market (e.g., stocks, forex, commodities) and instruments (e.g.,
Market and Choose to trade in the forex market, focusing on major currency pairs like EUR/USD.
specific stocks, currency pairs) you wish to trade.
Instrument
3. Develop Entry Define the conditions under which you will enter a trade, based on technical indicators, Enter a trade when the 50-day moving average crosses above the 200-day moving
Criteria chart patterns, or fundamental analysis. average (Golden Cross).
4. Develop Exit
Specify the conditions for exiting a trade, including take-profit and stop-loss levels. Exit a trade when the RSI reaches 70 or when a 5% stop-loss is triggered.
Criteria
5. Risk Implement risk management strategies, including position sizing, stop-loss orders, and
Risk no more than 2% of your total capital on any single trade.
Management overall risk limits for your account.
Test your trading system using historical market data to evaluate its performance and Run your system on five years of historical data to see how it would have performed
6. Backtesting
identify potential weaknesses. in real-market conditions.
Fine-tune your system's parameters to improve performance while avoiding Adjust the moving average periods used in your entry criteria to find the optimal
7. Optimization
overfitting. settings.
8. Forward
Test your system in a live market environment using a demo account to ensure it Use a demo account to paper trade your system for several months before
Testing (Paper
performs well in real-time conditions without risking actual capital. committing real money.
Trading)
9. Begin trading with real money, using the system as designed, and monitor its Start trading with a small portion of your capital, gradually increasing as confidence
Implementation performance closely. in the system grows.
10. Continuous
Regularly review and refine your system based on performance metrics, market Adjust your system to account for new market conditions, such as increased
Monitoring and
changes, and emerging trends. volatility or changes in market structure.
Refinement
Terminologies of a Trading
System ?
Term Definition Example
Specific conditions or rules to initiate a
Entry Criteria Entering a trade when a stock’s price crosses above its 50-day moving average.
trade.
Exit Criteria Specific conditions or rules to close a trade. Exiting a trade when the RSI exceeds 70, indicating an overbought condition.
The process of controlling potential losses
Risk Management Implementing stop-loss orders to limit the amount of loss on any single trade.
in a trading system.
Determining the amount of capital to
Position Sizing Allocating 2% of total capital for each trade to manage risk.
allocate to each trade.
Testing a trading system using historical Running the system through five years of past market data to see how it would have
Backtesting
data to assess its performance. performed.
Fine-tuning a trading system’s parameters
Adjusting moving average periods to find the most profitable settings during
Optimization to improve performance based on historical
backtesting.
data.
The peak-to-trough decline in the equity
Drawdown A 10% drawdown occurs if an account’s value drops from $10,000 to $9,000.
curve of a trading account or system.
The percentage of winning trades relative to
Win Rate A 60% win rate means 60 out of every 100 trades are profitable.
the total number of trades.
The ratio of gross profits to gross losses in
Profit Factor A profit factor of 2 indicates that the system generates $2 of profit for every $1 of loss.
a trading system.
The ratio of potential profit to potential loss
Risk-Reward Ratio A risk-reward ratio of 1:3 means risking $100 to potentially make $300.
for a trade.
An order to automatically sell a security
Stop-Loss Order when it reaches a certain price to limit Setting a stop-loss at 5% below the entry price to cap potential losses.
losses.
An order to automatically sell a security
Take-Profit Order Setting a take-profit order at 10% above the entry price to lock in gains.
when it reaches a certain profit level.
Parameters of Our System
Daily Chart HK
21 Min- 21 EMA In a Area Format
3 Min Stochastic 34-5-21 With 60-40 Levels ATR-12
Thank You !
