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oilman5

Well-Known Member
#11
what may work in indian stock market
.................................................. ...
1] tipstars days r over..stock stars DAYS r coming
2] definitely VOLATILITY play [prepare a tool/plan to use it...i try to learn now,till date failed]
3] result play...try to know estimate before hand....compare its surprise factor
4] rumor play...who is sponsoring...operator..behind any game...
mind is its RUMOR..
5]buy at pullback
6]longterm contrarian view...what goes up must come down..
7]fund flow...fii..rbi policy
8]YOUR CONFIDENCE..FLEXIBILITY..EXECUTION SKILL
What is Fundamental Analysis

Fundamental analysis is the process of looking at a business at the basic or fundamental financial level. This type of analysis examines key ratios of a business to determine its financial health and gives you an idea of the value its stock.

Many investors use fundamental analysis alone or in combination with other tools to evaluate stocks for investment purposes. The goal is to determine the current worth and, more importantly, how the market values the stock.

Earnings
Its all about earnings. When you come to the bottom line, thats what investors want to know. How much money is the company making and how much is it going to make in the future.

Earnings are profits. It may be complicated to calculate, but thats what buying a company is about. Increasing earnings generally leads to a higher stock price and, in some cases, a regular dividend.

When earnings fall short, the market may hammer the stock. Every quarter, companies report earnings. Analysts follow major companies closely and if they fall short of projected earnings, sound the alarm.


While earnings are important, by themselves they dont tell you anything about how the market values the stock. To begin building a picture of how the stock is valued you need to use some fundamental analysis tools.

Fundamental Analysis Tools
These are the most popular tools of fundamental analysis. They focus on earnings, growth, and value in the market.

Earnings per Share EPS
Price to Earnings Ratio P/E
Projected Earning Growth PEG
Price to Sales P/S
Price to Book P/B
Dividend Payout Ratio
Dividend Yield
Book Value
Return on Equity

No single number from this list is a magic bullet that will give you a buy or sell recommendation by itself, however as you begin developing a picture of what you want in a stock, these numbers will become benchmarks to measure the worth of potential investments.
Mohan,

One has to observe all the ratios over a 3-5 year period and observe how they are increasing/decreasing.

One should also compare all with different companies of the same industry to get a good relative idea. For example the P/E ratio can be compared to the p/e ratios of other companies and p/e ratio of industry.

Another parameter is capital:Free reserves which makes the company a suitable bonus candiadate. Free reserves are out the the earnings of the company and not revaluation of assets.

Stock prices are determined in the marketplace, where seller supply meets buyer demand. There is no clean equation that tells us exactly how a stock price will behave, but we do know a few things about the forces that move a stock up or down. These forces fall into three categories: fundamental factors, technical factors, and market sentiment.

Fundamental Factors
In an efficient market, stock prices would be determined primarily by fundamentals, which, at the basic level, refer to a combination of two things: 1) An earnings base (EPS, for example) and 2) a valuation multiple (a P/E ratio, for example).



An owner of a common stock has a claim on earnings, and earnings per share (EPS) is the owner's return on his or her investment. So, when you buy a stock you are purchasing a proportional share of an entire future stream of earnings. That's the reason for the valuation multiple: it is the price you are willing to pay for the future stream of earnings.

Part of these earnings may be distributed as a dividend, while the remainder will be retained by the company (on your behalf) for reinvestment. We can think of the future earnings stream as a function of both the current level of earnings and the expected growth in this earnings base.

As shown in the diagram, the valuation multiple (P/E), or the stock price as some multiple of EPS, is a way of representing the discounted present value of the anticipated future earnings stream.

Although we are using EPS, an accounting measure, to illustrate the concept of earnings base, there are other measures of earnings power. Many argue that cash-flow based measures are superior. For example, free cash flow per share is used as an alternative measure of earnings power.

The way earnings power is measured may also depend on the type of company. Many industries have their own tailored metrics. Real estate investment trusts (REITs), for example, use a special measure of earnings power called funds from operations (FFO). Relatively mature companies are often measured by dividends per share, which represents what the shareholder actually receives.

About the Valuation Multiple
The valuation multiple expresses expectations about the future. As we already explained, it is fundamentally based on the discounted present value of the future earnings stream. Therefore, the two key factors here are 1) the expected growth in the earnings base, and 2) the discount rate, which is used to calculate the present value of the future stream of earnings. A higher growth rate will earn the stock a higher multiple, but a higher discount rate will earn a lower multiple.

What determines the discount rate? First, it is a function of perceived risk. A riskier stock earns a higher discount rate, which in turn earns a lower multiple. Second, it is a function of inflation (or interest rates, arguably). Higher inflation earns a higher discount rate, which earns a lower multiple (meaning the future earnings are worth less in inflationary environments).

In summary, the key fundamental factors are the following: the level of the earnings base (represented by measures such as EPS, cash flow per share, dividends per share); the expected growth in the earnings base; and the discount rate--which is itself a function of inflation and the perceived risk of the stock.

Forces That Move Stock PricesOctober 8, 2004 | By David Harper, (Contributing Editor - Investopedia Advisor) Email this Article Print this Article Comments Add to del.icio.us
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Stock prices are determined in the marketplace, where seller supply meets buyer demand. There is no clean equation that tells us exactly how a stock price will behave, but we do know a few things about the forces that move a stock up or down. These forces fall into three categories: fundamental factors, technical factors, and market sentiment.Fundamental FactorsIn an efficient market, stock prices would be determined primarily by fundamentals, which, at the basic level, refer to a combination of two things: 1) An earnings base (EPS, for example) and 2) a valuation multiple (a P/E ratio, for example).
An owner of a common stock has a claim on earnings, and earnings per share (EPS) is the owner's return on his or her investment. So, when you buy a stock you are purchasing a proportional share of an entire future stream of earnings. That's the reason for the valuation multiple: it is the price you are willing to pay for the future stream of earnings.Part of these earnings may be distributed as a dividend, while the remainder will be retained by the company (on your behalf) for reinvestment. We can think of the future earnings stream as a function of both the current level of earnings and the expected growth in this earnings base.As shown in the diagram, the valuation multiple (P/E), or the stock price as some multiple of EPS, is a way of representing the discounted present value of the anticipated future earnings stream. (To learn about present value, see "Understanding the Time Value of Money.") About the Earnings BaseAlthough we are using EPS, an accounting measure, to illustrate the concept of earnings base, there are other measures of earnings power. Many argue that cash-flow based measures are superior. For example, free cash flow per share is used as an alternative measure of earnings power.The way earnings power is measured may also depend on the type of company. Many industries have their own tailored metrics. Real estate investment trusts (REITs), for example, use a special measure of earnings power called funds from operations (FFO). Relatively mature companies are often measured by dividends per share, which represents what the shareholder actually receives.About the Valuation MultipleThe valuation multiple expresses expectations about the future. As we already explained, it is fundamentally based on the discounted present value of the future earnings stream. Therefore, the two key factors here are 1) the expected growth in the earnings base, and 2) the discount rate, which is used to calculate the present value of the future stream of earnings. A higher growth rate will earn the stock a higher multiple, but a higher discount rate will earn a lower multiple.What determines the discount rate? First, it is a function of perceived risk. A riskier stock earns a higher discount rate, which in turn earns a lower multiple. Second, it is a function of inflation (or interest rates, arguably). Higher inflation earns a higher discount rate, which earns a lower multiple (meaning the future earnings are worth less in inflationary environments).In summary, the key fundamental factors are the following: the level of the earnings base (represented by measures such as EPS, cash flow per share, dividends per share); the expected growth in the earnings base; and the discount rate--which is itself a function of inflation and the perceived risk of the stock.ADVERTISEMENTGet your choice of several FREE Investing Education kits mailed Today!
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Technical FactorsThings would be easier if only fundamental factors set stock prices! Technical factors are the mix of external conditions that alters the supply of and demand for a company's stock. Some of these indirectly affect fundamentals. (For example, economic growth indirectly contributes to earnings growth.) Technical factors include the following: Inflation - We mentioned inflation as an input into the valuation multiple. But inflation is a huge driver from a technical perspective as well. Historically, low inflation has had a strong inverse correlation with valuations (low inflation drives high multiples, and high inflation drives low multiples). Deflation, on the other hand, is generally bad for stocks because it signifies a loss in pricing power for companies. Economic strength of market and peers - Company stocks tend to track with the market and with their sector or industry peers. Some prominent investment firms argue that the combination of overall market and sector movements--as opposed to a company's individual performance--determines a majority of a stock's movement. (There has been research cited that suggests the economic/market factors account for 90%!) For example, a suddenly negative outlook for one retail stock often hurts other retail stocks as "guilt by association" drags down demand for the whole sector. Substitutes - Companies compete for investment dollars with other asset classes on a global stage. These include corporate bonds, government bonds, commodities, real estate, and foreign equities. The relation between demand for U.S. equities and their substitutes is hard to figure, but it plays an important role. Incidental transactions - Incidental transactions are purchases or sales of a stock that are motivated by something other than belief in the intrinsic value of the stock. These transactions include executive insider transactions, which are often pre-scheduled or driven by portfolio objectives. Another example is an institution buying or shorting a stock to hedge some other investment. Although these transactions may not represent official "votes cast" for or against the stock, they do impact supply and demand and therefore can move the price.

these two dynamics: 1) middle-aged investors are peak earners who tend to invest in the stock market, while 2) older investors tend to pull out of the market in order to meet the demands of retirement. The hypothesis is that the greater the proportion of middle-aged investors among the investing population, the greater the demand for equities and the higher the valuation multiples.

Trends - Often a stock simply moves according to a short-term trend. On the one hand, a stock that is moving up can gather momentum, as "success breeds success" and popularity buoys the stock higher. On the other hand, a stock sometimes behaves the opposite way in a trend and does what is called "reverting to the mean." Unfortunately, because trends cut both ways and are more obvious in hindsight, knowing that stocks are "trendy" does not help us predict the future. (Note: trends could also be classified under market sentiment.)

Liquidity - Liquidity is an important and sometimes under-appreciated factor. It refers to how much investor interest and attention a specific stock has. Wal-Mart's stock is highly liquid and therefore highly responsive to material news; the average small-cap company is less so. Trading volume is one proxy for liquidity. But it is also a function of corporate communications (that is, the degree to which the company is getting attention from the investor community). Large-cap stocks have high liquidity: they are well followed and heavily transacted. Many small-cap stocks suffer from an almost permanent "liquidity discount" because they simply are not on investors' radar screens.

Market Sentiment
Market sentiment refers to the psychology of market participants, individually and collectively. This is perhaps the most vexing category because we know it matters critically, but we are only beginning to understand it. Market sentiment is often subjective, biased, and obstinate. For example, you can make a solid judgment about a stock's future growth prospects, and the future may even confirm your projections, but in the meantime the market may myopically dwell on a single piece of news that keeps the stock artificially high or low. And you can sometimes wait a long time in the hopes that other investors will notice the fundamentals.

Market sentiment is being explored by the relatively new field of behavioral finance. It starts with the assumption that markets are apparently not efficient much of the time, and this inefficiency can be explained by psychology and other social sciences. The idea of applying social science to finance was fully legitimized when Daniel Kahneman, a psychologist, won the 2002 Nobel Prize in Economics. (He was the first psychologist to do so.) Many of the ideas in behavioral finance confirm observable suspicions: that investors tend to overemphasize data that come easily to mind; that many investors react with greater pain to losses than with pleasure to equivalent gains; and that investors tend to persist in a mistake.

Some investors claim to be able to capitalize on the theory of behavioral finance. For the majority, however, the field is new enough to serve as the "catch-all" category: everything we cannot explain is deposited into this inexplicable category.

Summary If one could work out a formula to give you a concrete answer on a stock, the markets wouldnt exist and money wouldnt change hands. Bottomline is recognition and understanding comes via experience and after years of trading. Beyond the figures and the analysis one has to trust one s gut, and take calculated risks. That in my opinion is the only way to understand the share pr movements.

lower p/e ratio coupled with high book value is very good for LONG term investments. Whereas if the scrip is a FANCIED scrip, even with high p/e, it may quote more. those scrips may be good for short term. hence, companies with low p/e ratio which are not fancied may take a long time to appreciate. but they are worth investing for long term
The Little Book That Beats the Market - Joel Greenblatt

Contrary to efficient-market naysayers, this engaging investment primer contends that ordinary stock-market investors can indeed get better-than-market returns over the long haul. Greenblatt (You Can Be a Stock Market Genius), a Columbia Business School adjunct professor, touts a "value-oriented" approach that looks for bargain stocks whose share price is cheap relative to the company's profitability. His version is a "magic formula" that ranks stocks on the basis of two variablesthe earnings yield and the business's return on capital. His Web site, magicformulainvesting.com, virtually automates the procedure for novices. Greenblatt offers lots of statistical proof of the formula's success, but emphasizes the importance of faith in seeing the investor through inevitable short-term downturns: "It will be your belief in the overwhelming logic of the magic formula that will make the formula work for you in the long run." He conveys his ideas through a lucid if rudimentary and rather corny explanation of basic investment concepts about risk, return, interest and business valuation. Although the fabulous returns he touts seem too good to be true, Greenblatt's formula is a reasonable variant of mainstream value-investing methods. Investors seeking a little more hands-on excitement than the average mutual fund offers won't go too far wrong following his advice. (Jan.)
Hallo,
I accept the importance of TA in trading, but Funda is Funda, cannot be ignored.
When mkt goes up up & up i.e. because of Fii,s Dealings also & same thing in case of Downnnn

So i think FII net purchse & sale trend should also be considered.

I salute to all my investor friends, and i wonder is you know something about CANSLIM strategy by William O'Neil and his book "How to make money in stocks" if you got a copy of that book in a pdf format. I really appreciate

PEG is the ratio of the Price Earnings Ratio to the expected Growth of the companies earnings per share.
PEG < 1 is a great Buy
A very high PEG means the stock is overvalued.
A PEG=1 implies fair valuation
Try 'Investment Valuation' and 'Damodaran on Valuation' by Aswath Damodaran. Here is a link of the second edition of 'Investment

It's an unfortunate fact that few investors can consistently beat the market. That's because it often takes one or more of the following rare traits...

1)The vision to identify breakthrough products, leaders, and brands

2)The knowledge to spot an undervalued gem in a sea of glass

3)The courage to buy and hold when others are running scared

Occasionally, you'll come across an investor with one of these valuable characteristics. And it's likely that person does quite well. But almost no one I know of can offer all three. That would take two very different possibly even fiercely competitive approaches...

4) The courage to not get depressed when everyone around him is making money and he is not (the investor is not envious).
What underlies every chart, every quote? - A COMPANY. Buy into that company my friend, where you find some value, not just some figures & pictures.
Warren Buffet doesn't ever needs charts he buy & holds onto a stock as long as he finds value in it. (And finding value is not bereft of arithmetic but it's a different kind of arithmetic

Try www.indiaearnings.com. Registration required
The best things in life are said to be free and the same holds true for cash flow! Investors love companies that produce plenty of free cash flow (FCF). It signals a company's ability to repay debt, pay dividends, buy back stock and facilitate the growth of business all important undertakings from an investor's point of view. In the past we have given our readers a perspective on valuation parameters like price to earnings (P/E) and price to book value (P/BV). While both these valuation parameters reflect the present earning capabilities, they do not signal the future prospects.
How and what of FCF
The formula for calculating Free Cash Flow (FCF) is as:
Net Profit + Depreciation Capital expenditure Changes in working capital Dividend
FCF takes into account not only the earnings of the company but also the past (depreciation) and present capital expenditures, capital inflows and investment in working capital. Growing free cash flows are frequently a prelude to increased earnings. Companies that experience surging FCF due to revenue growth, efficiency improvements, cost reductions, share buy backs, dividend distribution (from subsidiaries) or debt elimination can reward investors in the future. Better free cash flows are therefore a reason for the investment community to cherish. On the other hand, an insufficient FCF for earnings growth can force a company to boost its debt levels. Even worse, a company without enough FCF may not have the liquidity to stay in business
From a companys point
better FCF definitely indicates better efficiency on the part of the company. But what is pertinent for investors to note is that simply assessing the FCF on the basis of its absolute value is not prudent. It is imperative to also assess as to what components have contributed to the same.
Let us take a hypothetical example of two companies, A and B, both of which have garnered the same FCF for the current financial year.
Estimated free cash flow
(Rs) Company A Company B
Net profit 75 120
Add: depreciation / amortisation 20 5
Less: Capital expenditure 5 15
Add/ (Less): Decrease /(Increase)in wkg capital 10 (10)
Less: Dividend 20 20
Free cash flow 80 80
Prima facie although appearing similar, if you delve a little deeper there is a stark difference in their performances. While company A, despite having lower earnings has benefited by adding back depreciation and decrease in working capital, company B has invested in capex and working capital. This indicates that while company B is investing for future growth, company A is not sufficiently geared up for the impending challenges. This also means that investors in company B can expect rewards in
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OUTLOOK ARENA >> VIEWS ON NEWS >> MAY 13, 2005

Free cash flow: Is it free after all?
MYSTOCKS | FREE NEWSLETTER

The best things in life are said to be free and the same holds true for cash flow! Investors love companies that produce plenty of free cash flow (FCF). It signals a company's ability to repay debt, pay dividends, buy back stock and facilitate the growth of business all important undertakings from an investor's point of view. In the past we have given our readers a perspective on valuation parameters like price to earnings (P/E) and price to book value (P/BV). While both these valuation parameters reflect the present earning capabilities, they do not signal the future prospects.
How and what of FCF
The formula for calculating Free Cash Flow (FCF) is as:
Net Profit + Depreciation Capital expenditure Changes in working capital Dividend
FCF takes into account not only the earnings of the company but also the past (depreciation) and present capital expenditures, capital inflows and investment in working capital. Growing free cash flows are frequently a prelude to increased earnings. Companies that experience surging FCF due to revenue growth, efficiency improvements, cost reductions, share buy backs, dividend distribution (from subsidiaries) or debt elimination can reward investors in the future. Better free cash flows are therefore a reason for the investment community to cherish. On the other hand, an insufficient FCF for earnings growth can force a company to boost its debt levels. Even worse, a company without enough FCF may not have the liquidity to stay in business
From a companys point of view
A better FCF definitely indicates better efficiency on the part of the company. But what is pertinent for investors to note is that simply assessing the FCF on the basis of its absolute value is not prudent. It is imperative to also assess as to what components have contributed to the same.
Let us take a hypothetical example of two companies, A and B, both of which have garnered the same FCF for the current financial year.
Estimated free cash flow
(Rs) Company A Company B
Net profit 75 120
Add: depreciation / amortisation 20 5
Less: Capital expenditure 5 15
Add/ (Less): Decrease /(Increase)in wkg capital 10 (10)
Less: Dividend 20 20
Free cash flow 80 80
Prima facie although appearing similar, if you delve a little deeper there is a stark difference in their performances. While company A, despite having lower earnings has benefited by adding back depreciation and decrease in working capital, company B has invested in capex and working capital. This indicates that while company B is investing for future growth, company A is not sufficiently geared up for the impending challenges. This also means that investors in company B can expect rewards in future while those in company A should sit up and take notice of what is ailing it.

FY06E Price FCF P/FCF
SBI 612 203.9 3.0
ONGC 874 131.3 6.7
Tisco 354 26.2 13.5
BHEL 831 31.6 26.3
Infosys 2039 51 40.0
Ranbaxy 965 19.6 49.2
HLL 132 1.9 69.5

From a sectors point of view
As explained earlier, cash flows are dependant on the capital expenditure and working capital liabilities borne by the company. This however, differs as per the dynamics of the sector in which the company is operating and should be seen in that light. While sectors like banking require minimum expenditure on capex (as a % of their turnover) those in pharma, engineering, FMCG or commodity sectors require to invest a substantial amount in R&D and capacity expansions. Thus, you would find SBI trading at a very attractive price to free cash flow valuation of 3 times, while an equally competitive Infosys is trading at 40 times (due to lower cash flows).
To conclude...
FCF is not only a mirror image of the present but also a sneak preview into the future. The implications of the components of cash flow may not be explained in the annual reports, but is left to the investors prudence to diligently scrutinize the same and try to read between the lines. The legendry investor Benjamin Graham once said, The individual investor should act consistently as an investor and not as a speculator. This means that he should be able to justify every purchase he makes and each price he pays by impersonal, objective reasoning that satisfies him that he is getting more than worth his purchase

What Is Free Cash Flow?
By establishing how much cash a company has after paying its bills for ongoing activities and growth, FCF is a measure that aims to cut through the arbitrariness and "guesstimations" involved in reported earnings. Regardless of whether a cash outlay is counted as an expense in the calculation of income or turned into an asset on the balance sheet, free cash flow tracks the money.

To calculate FCF, make a beeline for the company's cash flow statement and balance sheet. There you will find the item cash flow from operations (also referred to as "operating cash"). From this number subtract estimated capital expenditure required for current operations:
Cash Flow From Operations (Operating Cash) - Capital Expenditure ---------------------------= Free Cash Flow

To do it another way, grab the income statement and balance sheet. Start with net income and add back charges for depreciation and amortization. Make an additional adjustment for changes in working capital, which is done by subtracting current liabilities from current assets. Then subtract capital expenditure, or spending on plants and equipment
By establishing how much cash a company has after paying its bills for ongoing activities and growth, FCF is a measure that aims to cut through the arbitrariness and "guesstimations" involved in reported earnings. Regardless of whether a cash outlay is counted as an expense in the calculation of income or turned into an asset on the balance sheet, free cash flow tracks the money.

To calculate FCF, make a beeline for the company's cash flow statement and balance sheet. There you will find the item cash flow from operations (also referred to as "operating cash"). From this number subtract estimated capital expenditure required for current operations:
Cash Flow From Operations (Operating Cash) - Capital Expenditure ---------------------------= Free Cash Flow

To do it another way, grab the income statement and balance sheet. Start with net income and add back charges for depreciation and amortization. Make an additional adjustment for changes in working capital, which is done by subtracting current liabilities from current assets. Then subtract capital expenditure, or spending on plants and equipment
Net income + Depreciation/Amortization - Change in Working Capital - Capital Expenditure ---------------------------- = Free Cash Flow


It might seem odd to add back depreciation/amortization since it accounts for capital spending. The reasoning behind the adjustment, however, is that free cash flow is meant to measure money being spent right now, not transactions that happened in the past. This makes FCF a useful instrument for identifying growing companies with high up-front costs, which may eat into earnings now but have the potential to pay off later.

What Does Free Cash Flow Indicate?
Growing free cash flows are frequently a prelude to increased earnings. Companies that experience surging FCF - due to revenue growth, efficiency improvements, cost reductions, share buy backs, dividend distributions or debt elimination - can reward investors tomorrow. That is why many in the investment community cherish FCF as a measure of value. When a firm's share price is low and free cash flow is on the rise, the odds are good that earnings and share value will soon be on the up.

By contrast, shrinking FCF signals trouble ahead. In the absence of decent free cash flow, companies are unable to sustain earnings growth. An insufficient FCF for earnings growth can force a company to boost its debt levels. Even worse, a company without enough FCF may not have the liquidity to stay in business.

Free Cash Flow: Free, But Not Always EasySeptember 17, 2003 | By Ben McClure, Contributor - Investopedia Advisor Email this Article Print this Article Comments Add to del.icio.us
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The best things in life are free, and the same holds true for cash flow. Smart investors love companies that produce plenty of free cash flow (FCF). It signals a company's ability to pay debt, pay dividends, buy back stock and facilitate the growth of business - all important undertakings from an investor's perspective. However, while free cash flow is a great gauge of corporate health, it does have its limits and is not immune to accounting trickery. What Is Free Cash Flow? By establishing how much cash a company has after paying its bills for ongoing activities and growth, FCF is a measure that aims to cut through the arbitrariness and "guesstimations" involved in reported earnings. Regardless of whether a cash outlay is counted as an expense in the calculation of income or turned into an asset on the balance sheet, free cash flow tracks the money. To calculate FCF, make a beeline for the company's cash flow statement and balance sheet. There you will find the item cash flow from operations (also referred to as "operating cash"). From this number subtract estimated capital expenditure required for current operations: Cash Flow From Operations (Operating Cash) - Capital Expenditure ---------------------------= Free Cash Flow
To do it another way, grab the income statement and balance sheet. Start with net income and add back charges for depreciation and amortization. Make an additional adjustment for changes in working capital, which is done by subtracting current liabilities from current assets. Then subtract capital expenditure, or spending on plants and equipment: Net income + Depreciation/Amortization - Change in Working Capital - Capital Expenditure ---------------------------- = Free Cash Flow
It might seem odd to add back depreciation/amortization since it accounts for capital spending. The reasoning behind the adjustment, however, is that free cash flow is meant to measure money being spent right now, not transactions that happened in the past. This makes FCF a useful instrument for identifying growing companies with high up-front costs, which may eat into earnings now but have the potential to pay off later. What Does Free Cash Flow Indicate? Growing free cash flows are frequently a prelude to increased earnings. Companies that experience surging FCF - due to revenue growth, efficiency improvements, cost reductions, share buy backs, dividend distributions or debt elimination - can reward investors tomorrow. That is why many in the investment community cherish FCF as a measure of value. When a firm's share price is low and free cash flow is on the rise, the odds are good that earnings and share value will soon be on the up. By contrast, shrinking FCF signals trouble ahead. In the absence of decent free cash flow, companies are unable to sustain earnings growth. An insufficient FCF for earnings growth can force a company to boost its debt levels. Even worse, a company without enough FCF may not have the liquidity to stay in business. Is Free Cash Flow Foolproof? Although it provides a wealth of valuable information that investors really appreciate, FCF is not infallible. Crafty companies still have leeway when it comes to accounting sleight of hand. Without a regulatory standard for determining FCF, investors often disagree on exactly which items should and should not be treated as capital expenditures. Investors must therefore keep an eye on companies with high levels of FCF to see if these companies are under-reporting capital expenditure and R&D. Companies can also temporarily boost FCF by stretching out their payments, tightening payment collection policies and depleting inventories. These activities diminish current liabilities and changes to working capital. But the impacts are likely to be temporary. The Trick of Hiding Receivables Let's look at yet another example of FCF tomfoolery, which involves specious calculations of the current accounts receivable. When a company reports revenue, it records an account receivable, which represents cash that is yet to be received. The revenues then increase net income and cash from operations, but that increase is typically offset by an increase in current accounts receivable, which are then subtracted from cash from operations. When companies record their revenues as such, the net impact on cash from operations and free cash flow should be zero since no cash has been received.
Secondly, Cash Flow Statement can give an idea about cash-generation capability of the business. Thus, it's helpful for those who are interested in knowing the liquidity position of the organization like creditors or those shareholders who are interested in Dividends. However, it's not really a tool of detecting fraud. We must remember that both Enron & Worldcom used to provide Cash Flow Statement.



The gap between Cash Flow and Earnings has to be seen in light with that during the previous financial years as well as the average for the industry. Besides, year end window-dressing will certainly not generate any cash flow for the year but current year's Cash Flow will certainly include cash generated as a result of window dressing which took place at the end of the previous year.

A wide gap between cash flow and earnings may indicate that all is not well for the company but one can't jump to the conclusion only on the basis of this gap that the accounts have been manipulated.

try on icicidirect.com in research "multex global"

Most traders ignore reward/risk ratios, hoping that luck will save them when things start to go bad.

This is probably the main reason so many of them are destined to fail. It's really dumb when you think about it, because reward/risk is the easiest way to get a definable edge on the market house.

The reward/risk equation builds a safety net around your open positions. It's designed to tell you how much can be won, or lost, on each trade you take. The secondary purpose is to remove emotion so you can focus squarely on the cold, hard numbers.

Let's look at 15 ways that reward/risk will improve your trading performance.

1. Every setup carries a directional probability that reflects a specific pattern. Always execute positions in the highest-odds direction. Exit your trades when a price fails to respond according to your expectations.

2. Every setup has a price level that violates the pattern. Only take trades where price needs to move a short distance to hit this "risk target." Look the other way and find the "reward target" at the next support or resistance level. Trade positions with the highest reward target to risk target ratios.

3. Markets move in trend and countertrend waves. Many traders panic during countertrends and exit good positions out of fear. After every trend in your favor, decide how much you're willing to give back when things turn against you.

4. What you don't see will hurt you. Back up and look for past highs and lows your trade must pass through to get to the reward target. Each price level will present an obstacle that must be overcome.

5. Time impacts reward/risk as efficiently as price. Choose a holding period based on the distance from your entry to the reward target. Then use price and time for stop-loss management. Also use time to exit trades even when price stops haven't been hit.

6. Forgo marginal positions and wait for the best opportunities. Prepare to experience long periods of boredom between frantic surges of concentration. Expect to stand aside, wait and watch when the markets have nothing to offer.

7. Good setups come in various shades of gray. Analyze conflicting information and jump in when enough ducks line up in a row. Often the best thing to do is calculate how much you'll lose if you're wrong, and then take the trade.

8. Careful stock selection controls risk better than any stop-loss system. Realize that standing aside requires as much deliberation as an entry or an exit, and must be considered on every setup.

9. Every trader has a different risk tolerance. Follow your natural tendencies rather than chasing the crowd. If you can't sleep at night, you're trading over your head and need to cut your risk. Lot of talk the past few months regarding these three....especially on stagflation.Few interesting reads.........

http://www.investopedia.com/universi...inflation1.asp

http://www.investopedia.com/terms/d/deflation.asp

http://www.investopedia.com/ask/answers/202.asp

http://www.investopedia.com/terms/s/stagflation.asp

http://www.indiadaily.com/editorial/2119.asp

http://www.safehaven.com/article-2829.htm


10. Never enter a position without knowing the exit. Trading is never a buy-and-hold exercise. Define your exit price in advance, and then stick to it when the stock gets there.

11. Information doesn't equal profit. Charts evolve slowly from one setup to the next. In between, they emit noise in which elements of risk and reward conflict with each other.

12. Don't be fooled by beginner's luck. Trading longevity requires strict self-discipline. It's easy to make money for short periods of time. The markets will take back every penny until you develop a sound risk-management plan.

13. Enter positions at low risk and exit them at high risk. This often parallels to buying at support and selling at resistance, but it can also be used to trade momentum with safety and precision.

14. Look to exit in wild times in order to increase your reward. Wait for price acceleration and feed your position into the hungry hands of other traders just as the price pushes into a high-risk zone.

15. Manage risk on both sides of the trade. Focus on optimizing entry and exit points and specialize in single, direct price waves. Remember that the execution of low-risk entries into bad positions allows more flexibility than high-risk entries into good positions.

Do some research on the basis of EPS, PE and their competitors in the sector also company future plans and past growth. You will get fair idea about your query.
...........................................
 

oilman5

Well-Known Member
#12
The 24 Most Important Rules Of Trading

1. Always Cut your losses and let your profits run. Take small losses and large wins.
2. Once you have defined the trend, trade only in that direction.
3. Always have a game plane. Never enter a trade unless you know where you should get in and where you should get out.
4. Always use a protective stop to limit your losses.
5. Be patient. Wait for the right opportunities. Don't just trade for the sake of trading.
6. If the reason you entered the trade is no longer there, get out.
7. Do your homework. By the time you enter a trade you should already know what you are going to do and what you expect from the trade. Placing a trade should be the easiest part of trading. If you are still trying to work things out when you enter the trade you are not ready for that trade.
8. If your method of trading is working, don't change it.
9. The market is never too high to buy or to low to sell.
10. Every trader has losses, don't let your losses get to you psychologically.
11. There is no such thing as an indicator that is a 100% right all the time. Use common sense along with your method of trading. If your indicators are telling you one thing but the market is obviously doing something else, listen to the market.
12. The market is always right.
13. Use money management in your trading.
14. Only trade markets you are sufficiently capitalized for.
15. Never trade with money you cannot afford to lose.
16. Be disciplined.
17. If you hit your target profit, take it. Don't get greedy and hope that you will make more.
18. Don't try and regain all your losses in one trade.
19. Don't blindly follow someone else's recommendations. Do your own homework.
20. If it's not going well, take a break for a few days or weeks. Make sure you are in the right psychological frame of mind before you start trading again.

21. Don't trade to many markets. It's better to be an expert in one market than a novice in many.
22. Never meet a margin call. If you have a margin call it means something went wrong with your trade.
23. By the time everyone knows it's a bull or bear market, it's probably to late.
24. Loses in trading have no bearing on you as a person

......................................................
1. Trade for success, not for money.

Your motivation should be first and foremost to make a well-executed trade. If money alone is your motivation you will severely limit your chance of success. Why? Because focusing on money will raise all kinds of emotional issues, from fear to greed. It will make you afraid of losses to the point that you will abandon your discipline. It will tempt you to trade too often, too large and with too much risk. Whereas if you focus on making solid, well-executed trades - even if the result is a losing trade that you exit quickly - you will reinforce your discipline and increase your trading potential.

2. Discipline is the one quality that all traders must possess above all others.

The ability to master your mind, your body and your emotions is the key to trading. The disciplined trader - regardless of profit or loss - comes back to trade another day. A great intellect, the ability to take on risk, or even a sense that you're somehow 'lucky' mean nothing without discipline. For a trader, discipline means the ability to devise a trading plan, execute according to that plan, and to never deviate from that plan.

3. Know yourself.

Do you break out in a cold sweat at the mere thought of risking something - such as your own capital? Do you think of trading like 'gambling,' a long shot to make a million? Or can you handle risk in a disciplined fashion, knowing how much is 'too much' for both your capital and your constitution?

Trading is not for everyone. If risk makes you ill, on the one hand, or if taking a risk brings out the recklessness in you, then trading is probably not for you. But if you can handle risk with discipline, then perhaps you can find a vocation or avocation as a trader. Only you can answer that question.

4. Lose your ego.

No matter how much success you enjoy as a trader, you'll never outsmart the market. If you think you can, you're in for a very humbling experience. The market rules, always, and for everyone.

You need to silence your ego in order to listen to the market, to follow what your technical analysis is indicating - and not what your intellect (and your ego) think should happen. To trade effectively, you need to put yourself aside. At the same time, you cannot be so emotionally fragile that unprofitable trades shatter your confidence. Don't be crushed by the market, but don't ever think you've mastered it, either.

5. There's no such thing as hoping, wishing or praying.
I've seen too many traders staring panic-stricken at the computer screen and begging the market to move their way. Why? Because they have lost their discipline and allowed what was a small loss to turn into a much bigger one. They keep hanging on, hoping, wishing and praying for things to turn around. The reality is on the screen. When the market hits your stop-loss level (the price at which you'll cut your losses at a pre-determined level), get out.

6. Let your profits run and cut your losses quickly.

When the market goes against you and you hit your pre-determined stop, exit the trade. Period. Exit when the loss is a small one. Then reevaluate your strategy and execute a new trade. Keeping your losses small will keep you in the game. Profits take care of themselves, as long as you execute according to your plan. When you place a trade, know in advance where you'll exit for a profit. When the market reaches that level, exit the position. If your technical analysis tells you the market still has some room to move, then scale out of the position. But execute according to your plan. Remember, you'll never go broke taking a profit.

7. Know when to trade and when to wait.

Trade when your analysis, your system and your strategy say that you have a buy or sell to execute. If the market doesn't have a clear direction, then wait on the sidelines until it does. Keep your mind on the market, but keep your money out of it.
. Love your losers like you love your winners.

Losing trades will be your best teachers. When you have a losing trade, it's because of some flaw in your analysis or your judgment. Or perhaps the market simply didn't do what you thought it would. When you have a losing trade, something is out of sync with the market. Examine what went wrong - objectively - then adjust your thinking, if necessary, and enter the trade again.

9. After three losing trades in a row, take a break.

This is not the time to take on more risk, but rather to become extremely disciplined. Sit on the sidelines for a while. Watch the market. Clear your head. Re-evaluate your strategy, and then put on another trade. Losses can shake your confidence and tempt you to become emotional (fear/greed) But if you take a break, you can gather your wits and regain your composure more quickly than if you become very emotional and angry at yourself and the market.

10. The unbreakable rule.

You can break a rule and get away with it once in a while. But one day, the rules will break you. If you continually violate these 'commandments' of trading, you will eventually pay for it with your profits. That's the unbreakable rule. If you have trouble with any of them, come back and read this one. Then read it again.
1. Loss of opportunity is preferable to loss of capital.

There was a time when I felt it was my duty to be personally involved in every wrinkle of the S&P. I've traded this market since it's inception in 82. It took quite a while for me to realise that picking safe, readable, and high probability winning trades was the way to go.

2. Use Logical Profit Objectives for all positions.

The concept of using and executing LPOs is one of the most important I know of. It keeps your percentage of winning trades high and gets you back to the computer the next day. Everyone enjoys a pay day. With the correct concepts this is something you can do.

3. Place your Logical Profit Objectives in the market ahead of time. Markets are squirrelly animals. If you know how to calculate your profit objectives, get them in the market ahead of market action. If you wait for the alert to go off, hoping to capture more, it's likely the market will move away from your exit before you have time to execute your order.

4. Enter markets on retracements.

Don't buy new highs or sell new lows. Wait for the market to come to you. Precalculate your entries and be patient. If you miss the move another bus will come by shortly.

5. Above all, follow your trading plan
Having a clearly defined trading plan is the single most important aspect of profitable speculation. Never trade without one and once you have it, following it is more important than any single profit or loss.

6. Trade quietly.

With the exception of a mentor, tell no one about your positions, profits, or losses. Especially those close to you, like your wife, husband, or friends. This self-gratification process or sharing process puts you under psychological pressure to win on every trade and can be a primary reason for failure to follow your plan.

7. Don't carry a sizeable position while traveling.

It will catch you!! The laptop won't work. The hotel internet connection will break. The cell phone battery will run out. The plane won't land! I know you'll try it anyway. It's good for the markets, we need to spread the money around a bit.

8. 'You are only one trade away from humility.'

For over 15 years this tattered hand-written sign, scrawled with bold black strokes with a magic marker, has hung over my trading table. A swelled head does not belong on a trader's shoulders.

9. Add to your knowledge before attempting to add to your wallet.

a person if plans to come to stock market...
must decide first...what to choose...a pro's path..
an amateur's approach of part time...

NONE OF THEM ARE EASY..................
here..i find CV....IS A PRO
SH50 IS AN AM AMATEUR

i have a plan to move little bit them [copy paste their view so that ordinarymortal can follow them]

after development of your interest in market..u must check whether u suit here or not.....
pentagonal peg and 5sided hole...an easy ? quick check up pt...

1]your risk profile...market risk concept
2]your fund...your plan increase it ..proper utilisation of fund,when to sit idle....when to play aggressive
3]your knowledge bank...steadily u have to increase..judicious use of it
4] understanding market shalloffer oppurtunity...patience and discipline your two weapon
5] a stable analysis power , when to play PREDICTABILITY when to
use RANDOMNESS
 

oilman5

Well-Known Member
#13
after this test u have to ...say yes,to
ALL
....OR MODIFY YOU...
GIVE TIME IT MAY BE SOME YR, or simply quit...
indian defence dont take who not fit their criteria

so now comes your journey as trading cadet
u r lucky, if u r in trading industry.., U can make all experiment in others money
sharpening your skill without self injury. commited money here and there
a good senior . can help you a lot......
or join a correspondence course. like me test your idea on market.
..
market shall teach u by PROFIT /loss ..howfar u learned

EVALUATE IN YOUR DIARY AND YOUR FEELING /HOW FAR u have modify your poor habit..
some exceptional HELP U MAY GET....OTHERS FROM TOP READILY GIVE ADVISE, if they think u have capability...in a puzzle..[i doubt after reading this 90% loss of episode in traderji forum..an MP CHAP STORY
..............................................
SO SKELITON IS FORMED....
now other thing r easy...[patience man , still u reqd. some yr]

next step...
open your past trade report........
on what condition u trade right..
on what time u have best profit utilisation
day...high low range..
week ..5 day high low
3week 15 day high low..
2month 40day high low....
.....................this way it can go..
BASIC IDEA IS YOUR PROFIT/ HIGH..LOW..OF THAT TIME FRAME
THIS IS YOUR EFFICIENCY....[ SHOULD BE >30%]

IF BELOW 30, ENJOY AMATEUR STATUS..NEVER DREAM BIG...
now check wrong part of trade...
how far its for silly reason...
i]like believing infallibility..of an indicator...
ii] sudden lack of concentration on OTHER PRIORITY of life

can u eliminate? condition of when NOT TO TRADE...

SO u r developing an approach..
stick with your winning habit...
throwing out..unproductive one...

NOW COME OPTIMISATION OF YOUR APPROACH
AT WHAT PREMISES U TRADE BETTER...
AT WHAT STOP LOSS STYLE...STOP % ..YOUR OVERALL RETURN IS GOOD
SIMPLY STICK ON IT....
this process atleast 1yr
now comes imp aspect of trading
...............................................
its not trading but timemanagement..and stress control
your daily routine...
how far u r discipline ..in personal life..
how far u can take stress...know your elasticity band

your time management skill...alotted time for study
study market...
analysis for trade...
scanning of idea. based on news...
stock scanning based on chart..
plan of action what other trader may plan ..how far they follow u after entry..
what r DANGER ALERM signal?

here actually pro beats amateur easily

pro sees reality..amateur eyes mostly with spec of greed/fear/hope..
pro study 3-4 hr... amateur hardly 2hr
pro watches market, improving would have,could have..for 6hr a day..
amateur..some phone call, others version..some momentarysnap decision...
no man no match ...only watchable..foolish young pro vs..exprienced
visionary amateur..
back to tm...for an amateur..two hr per day+ 3hr on holiday...
time utilisation of 2hr...
what your favourite indicator telling
what close price indicating..
any particular sector has any new fundamental improvement..
sudden volume surge why??
so 2 hr is over....
but pro...NOW CREATE A SUITABLE PLAN TO EARN MONEY..
A WINNING STRATEGY...AND ITS TACTICAL IMPLEMENTATION
DURING MARKET HR FOR NEXT DAY....

for amateur...week end study..must...
to study new implementable idea..
bill analysis..why u enter and exit aparticular trade...

how u would have used your mm technique..to make more profit...
i definitely suggest NEVER TO USE MARGIN in 1st 3 yr of trading..
a simple idea..use 50% money idle..add aggressively on winner only

stock scan model
.........................
volume + price increment...definitely good model

for momentum player..aggressive style..
for swing trader.. swing indicator better..
keep an eye on nifty..and fii money flow..

rbi policy..
result out play plan must be planned in detail before it comes..
so that u can execute..as and when necessary depending upon your risk appetite..

--------------------------------------------------------------------------------

all of us know..exit is imp ......
i personally feel implementation of exit must be studied in detail..
its just like postmortem...atleast 1month..after..day trade...
3month after swing trade

in a cool brain no distorted vision...u can judge your trade strength

REGARDING INVESTMENT CONCEPT..
..................................................
SYUDYING YOUR MISTAKE
........................................
its another imp place for self improvement...
FORTUNATELY..MANY CLASSICS R AVAILABLE
JUST READ THEM....

SEARCH HOW MANY MISTAKE U FOLLOW now...
just try LEVEL BEST to eliminate them...ONE AT A TIME...
IF ITS MORE THAN 5, SIMPLY TURN BACK FROM INVEST & TRADE ARENA...
consider GRAPES R SOUR...
BELIEVE ME IT SHALL SAVE YOUR TIME & LIFE...
in personal journey i have seen around 300 old experimental veteran
ask any failed attempt..ias candidate...if he ever open his/her heart..
...........u shall understand[ i have my part
.......................................some testing idea
..........Some idea of trade science
………………………………..
you have to work on them to use effectly …

1]market model is like river…….trend model+ cycle mode

ma…basically lagging. Ema improves…

momentum. …..it helps to define turning pt

I] continues….rare..
Ii]step up …may seen
Iii] jerk element….normally seen in volatile Indian market..

5bar momentum. Has shown some predictiveness

COMPLEX VARIABLE
………………………..
measuring cycle period……..phase..

noise[randomness]


sinewave…

trendline [instantaneous ]

remember marketmode = trend + cycle


DESIGN AUTO SYSTEM [MECHANICAL ]

1]MONEY MANAGEMENT STOP

2] GROSS PROFIT – { COMMISION + TAX} = NET PROFIT

3]LARGEST LOSS….AV. LOSS
4]LARGEST PROFIT AV PROFIT..

5] NO OF WINNING CALL…

THIS U HAVE TO TAKE FROM PAST…

NEXT ELEMENTS…
LOGIC OR PREMISES…
FILTER [ FINITE CONCEPT]…WORK IN A RESTRICTION
Improvement from lagging indicator…TO ZERO LAG INDICATOR
ZEMA = EMA + MOMENTUM

ADAPTIVE MA…WORKS IN NOISY MARKET…

MESA + ADAPTIVE MA = MAMA

Simple signal…ema up as filter..
15 ema/ 18 ema…good…

CONCEPT OF MARKET SPECTRA/MESA
…………………………………………………..


trend



detrend




Reverse trend


Phase change….forward shift…optimization of this develop predictive mode…
Detrend +45 o
Help advance study…
Dema ,smoothening ema..throw out error of ma..

Visualization by technical indicator helps…

Or u may study independently TREND MODE…CYCLE MODE..
AT WHAT LEVEL MARKET/INDIVIDUAL STOCK @ PRESENT…

RSI..STOCKASTIC….HELPS TO INTERPRET FURTHER[ provided u know how to use them on case basis]

Ref…system element and modern ta..
those who enjoy trading/ hobby pl read...
wiley trading
FINANCIAL RISK TRADING
AN INTRODUCTION TO THE
PSYCHOLOGY OF TRADING AND BEHAVIORIAL FINANCE

author..mike elvin
...........................................
 

oilman5

Well-Known Member
#14
Stages of a Trader

This is where the neophyte trader begins. He has little or no understanding of market structure. He has no concept of the interrelationship among markets, much less between markets and the economy. Price charts are a meaningless mish-mash of colored lines and squiggles that look more like a painting from the MOMA than anything that contains information. Anyone who can make even a guess about price direction based on this tangle must be using black magic, or voodoo.

Stage Two: The Hot Pot Stage

You scan the markets every day. After a while (sometimes a good long while), you notice a particular phenomenon which pops up regularly and seems to "work" pretty well. You focus on this pattern. You begin to find more and more instances of it and all of them work! Your confidence in the pattern grows and you decide to take it the very next time it appears. You take it, and almost immediately your stop is hit, and you're underwater for the total amount of your stoploss.

So you back off and study this pattern further. And the very next time it appears, it works. And again. And yet again. So you decide to try again. And you take the full hit on your stoploss.

Practically everyone goes through this, but few understand that this is all part of the win-lose cycle. They do not yet understand that loss is an inevitable part of any system/strategy/method/whathaveyou, that is, there is no such thing as a 100% win approach. When they gauge the success of a particular pattern or setup, they get caught up in the win cycle. They don't wait for the "lose" cycle to see how long it lasts or what the win/lose pattern is. Instead, they keep touching the pot and getting burned, never understanding that it's not the pot (pattern/setup) that's the problem, but a failure on their part to understand that it's the heat from the stove (the market) that they're paying no attention to whatsoever. So instead of trying to understand the nature of thermal transfer (the market), they avoid the pot (the pattern), moving on to another pattern/setup without bothering to find out whether or not the stove is on.

Stage Three: The Cynical Skepticism Stage

You've studied so hard and put so much effort into your trading and this universal failure in the patterns only when you take them causes you to feel betrayed by the market, the books and materials and gurus you tried to learn from. Everybody claims their ideas lead to profitability, but every time you take a trade, it's a loser, even though the setups all worked perfectly before you played them. And since one of the most painful experiences is to fail when success looks easy, this embarrassment is transformed into anger: anger at the gurus, anger at the vendors, anger at the writers, the seminars, the courses, the brokers, the market makers, the specialists, the "manipulators". What's the point in trying to analyze and improve your own trading when there are so many dark forces out to get you?

This excuse-driven blame game is a dead-end viewpoint, and explains a lot of what you find on message boards. Those who can't pull themselves out of it will quit.

Stage Four: The Squiggle Trader Stage

If you don't quit, you'll move into the "squiggle trader" phase. Since you failed with patterns and so on, you figure there's some "secret weapon", a "holy grail" that's known to the select few, something that will help you filter out all those bad trades. Once you find this magical key, your profits will explode and you'll achieve every dream you ever had.

You begin an obsessive study of every method and every indicator that is new to you. You buy every book, attend every course, sign up for every newsletter and advisory service, register for every trading website and every chat room. You buy more elaborate software. You buy off-the-shelf systems. You spend whatever it takes to buy success.

Unfortunately, you stack so much onto your charts that you become paralyzed. With so many inputs, you can't make a decision, particularly since they rarely agree. So you focus on those which agree with the direction of the trade you've taken (or, if you're the fearful sort, you look only for those which will prove to you how much of a loser you think you are).



This is all characteristic of scared money. Without a genuine acceptance of the fact of loss and of the risks involved in trading, you flit around like a butterfly in search of anything or anybody who will tell you that you know what you're doing. This serves two purposes: (1) it transfers to others the responsibility for the trade and (2) it shakes you out of trades as your indicators begin to conflict. The MACD says buy, the sto says sell. The ADX says the market is trending, the OBV says it's overbought. By the end of the day, your brain is jelly.

This process can be useful if the trader learns from it what is popular, i.e., what other traders are doing, and, if he lasts, how to trade traps and panic/euphoria. And even though he may decide that much of it is crap, he will, if he doesn't slip back into the Cynical Skepticism Stage, have a more profound appreciation -- achieved through personal experience -- of what is sensible and logical and what is nonsense. He might also learn something more about the kind of trader he is, what "style" suits him best, learn to distinguish between what is desirable and what is practical.

But the vast majority of traders never leave this stage. They spend their "careers" searching for the answer, and even though they may eventually achieve piddling profits (if they don't, they will of course eventually no longer be trading), they never become truly successful, and this has its own insidious consequences.

Stage Five: The Inwardly-Bound Stage

The trader who is able to pry himself out of Stage Four uses his experiences there productively. The trader learns, as stated earlier, what styles, techniques, tactics are popular. But instead of focusing entirely on what's "out there", he begins to ask himself some questions:

What exactly does he want? What is he trying to accomplish?

What sort of trading makes the most sense to him? Long or intermediate-term trading? Short-term trading? Day-trading? Trend-trading? Scalping? Which is most comfortable?

What instrument -- futures, stocks, ETFs, bonds, options -- provides the range and volatility he requires but is not outside his risk tolerance? Did he learn anything at all about indicators in Stage Four that he might be able to use?


CreditViolet
--------------------------------------------------------------------------------

And so he "auditions" all of this in order to determine what suits him, taking all that he has learned so far and experimenting with it.

He begins to incorporate the "scientific method" into his efforts in order to develop a trading plan, including risk management and trade management. He learns the value of curiosity, of detached interest, of persistence and perseverance, of taking bits and pieces from here and there in order to fashion a trading plan and strategy that are uniquely his, one in which he has complete confidence because he has tested it thoroughly and knows from his own experience that it is consistently profitable.

He accepts fully the responsibility for his trades, including the losses, which is to say that he understands that losses are inevitable and unavoidable. Rather than be thrown by them, he accepts them for what they are, a part of the natural course of business. He examines them, of course, in order to determine whether or not some error was made, particularly one that can be corrected, though true trading errors are rare. But, if not, he simply shrugs off the loss and goes on about his business. He understands, after all, that he is in control of his risk in the market.

He doesn't rant about his broker or the specialist or the market maker or that vast conspiracy of everyone who's trying to cheat him out of his money. He doesn't attempt revenge against the market. He doesn't fret. He doesn't fume. He doesn't succumb to hope, fear, greed. Impulsive, emotional trades are gone. Instead, he just trades.
At this level, the trader achieves an almost Zen-like trading state. Planning, analysis, research are the focus of his time and his effort. When the trading day opens, he's ready for it. He's calm, he's relaxed, he's centered.

Trading becomes effortless. He is thoroughly familiar with his plan. He knows exactly what he will do in any given situation, even if the doing means exiting immediately upon a completely unexpected development. He understands the inevitability of loss and accepts it as a natural part of the business of trading. No one can hurt him because he's protected by his rules and his discipline.

He is sensitive to and in tune with the ebb and flow of market behavior and the natural actions and reactions to it that his research has taught him will optimize his edge*. He is "available". He doesn't have to know what the market will do next because he knows how he will react to anything the market does and is confident in his ability to react correctly.

He understands and practices "active inaction", knowing exactly what it is he wants, exactly what it is he's looking for, and waiting, patiently, for exactly the right opportunity. If and when that opportunity presents itself, he acts decisively and without hesitation, then waits, patiently, again, for the next opportunity.

He does not convince himself that he is right. He watches price movement and draws his conclusions. When market behavior changes, so do his tactics. He acknowledges that market movement is the ultimate truth. He doesn't try to outsmart or outguess it.

He is, in a sense, outside himself, acting as his own coach, asking himself questions and explaining to himself without rationalization what he's waiting for, what he's doing, reminding himself of this or that, keeping himself centered and focused, taking distractions in stride. He doesn't get overexcited about winning trades; he doesn't get depressed about losing trades. He accepts that price does what it does and the market is what it is. His performance has nothing to do with his self-worth.

It is during this stage that the "intuitive" sense begins to manifest itself. As infrequent as it may be, he learns to experiment with it and to build trust in it.

And at the end of the day, he reviews his work, makes whatever adjustments are necessary, if any, and begins his preparation for the following day, satisfied with himself for having traded well.
........................
...You have to put indicators in context. Theyre background information never the primary reason for a trade.

............Figuratively speaking, . . . the small trader should imagine himself as a hitch-hiker in the market. For the ordinary hitch-hiker, someone else supplies the car, chauffeur, oil and gas. When he thinks the car is about to go in his direction, he jumps aboard and rides as far as he thinks the car will go. When he notices the machine has been stopped by a red light, or is about to turn a corner and go in some other direction, or that the car is running out of gas, or the brakes failing to work properly, he steps off and figures he has secured about as long a ride as he may expect. All he has supplied in this transaction is a modest commission and whatever brains were necessary to observe and recognize the opportunity when to get on and off.



. . . the experience of the past few years has emphasized the value of disregarding all considerations except those which relate to price movement, volume and time. If one is endeavoring to realize profits from the principal swings in prices of stocks, it is my opinion that he should disregard fundamental as well as corporate statistics relating to the stocks in which he is trading, stick closely to a study of the action of the market and become deaf and blind to everything else.



Your judgment will become poorer from the very time when you decide that you know more about the market than the market is telling you. From that moment your results will be unsatisfactory, for in this trading business the tape is the boss. You must learn to obey its orders, doing exactly what it tells you. When you can accomplish this, you are on the high road to success in your stock trading.
By Brett Steenbarger

1) Situation-focused talk vs. Emotion-focused talk - Traders who talk trading situations out loud--shifts in prices, looming exits, etc.--perform much better than traders whose conversations are ventings of emotion (positive or negative). From the vantage point of cognitive neuroscience, this makes sense: when we're problem-focused, we're activating frontal regions of the brain associated with the executive functions of planning, judgment, and decision-making. When we're in the throes of emotion, those same regions, key to trading behavior, are deactivated. Gladwell, in Blink!, points out that our access to the brain's frontal regions decreases dramatically as our heart rate elevates. Emotion-focused talk sustains physiological arousal, which impairs cognitive functioning.

2) "I" talk vs. "Me" talk - I'm convinced that this subtle measure may be the best gauge of trader self-priming of all. Traders who are more likely to be successful talk about "I". Traders in trouble refer to "me". The reason for this is that "I" reflects an active tense: "I" do things in relationships, in markets, in life. But things happen to "me". When I'm in the "me" mode, I'm the passive recipient of events; circumstances influence me. When I'm in first-person mode, I am the author of life's events. Successful traders experience themselves as efficacious; they prime themselves to feel in control. Unsuccessful traders exhibit an external locus of control. They are primed to feel that situations control them.

3) On-task talk vs. off-task talk - Successful traders, I've found, display tenacity and a superior capacity for concentration. They can focus on markets from opening bell to the close. Unsuccessful traders lack this intense focus. Much of their talk is off-task: it has nothing to do with markets. Less successful traders IM during the trading day, surf the Web, chat with buddies on bulletin boards, e-mail, and engage in a host of activities that take them away from the flow of market activity. Successful traders talk the market: who is in the market, how the market is trading, how they're adapting their strategy, etc. They are primed for trading and competition; the less successful traders are primed for avoidance.
There is only one way to achieve success in speculationthrough hard work, persistently hard work. If there is any easy money lying around, no one is going to try and give it to methis I know. My satisfaction always came from beating the market, solving the puzzle. The money was the reward, but it was not the main reason I loved the market. The stock market is the greatest, most complex puzzle ever invented, and it pays the biggest jackpot - Jesse Livermore
You will always be your worst enemy in futures trading, not your luck, not other traders, not unexpected news events and not the "markets." But this is actually more good news. Because you cannot do anything about luck, other traders, the news or market behavior; but you can do a great deal about yourself. - Chick Goslin
Futures trading can be a very brutal business. If you let it, futures trading has the potential to destroy you. Fortunes far, far greater than yours have been lost in this business by individuals at least as clever as you. Never, ever underestimate the dangers of trading the futures markets. They are populated by people and organizations who will not flinch in the slightest as they take everything they can from you. Futures trading is for consenting adults only. A passion for the truth is the essential element of a sound approach to trading. - Chick Goslin
The average trader focuses too much on big payoffs. This is a stock market mentality, i.e., buy it and ride it to the sky, or sell it before the crash. Trading is not about predicting and catching the "big" moves. This is "fantasy" trading. It is the "lottery" approach to trading which, in the end, pays off only for a very, very few. Trading is about "seeing" momentum and positioning with it, "seeing" trend and following it.

The average trader relies too much on feel, on intuition. The possibility that any one of us is a natural market genius is realistically somewhere between zero and none. Accept that you will never be a world class athlete, sing a perfect musical note, or find a theory beyond relativity; and neither will you ever reliably predict the future. But be aware that you can know the past and see the present.

If you're going to trade futures, you might as well do it correctly; and doing it correctly means doing it intelligently. Look at reality. Futures trading is a competition. It is financial warfare. You are trading against thousands of smart, aggressive, extremely well-informed, very well financed, extensively experienced professionals. Look at the facts! Over eighty percent lose; so by definition the average trader (even the well above average trader) is going to lose--eventually. - Chick Goslin
Every trader will be tested emotionally, mentally and monetarily to varying degrees in his career. Most times, itll be extremely unpleasant and youd most likely want to quit right there and then. Only those who can endure this kind of hardship, learn from their mistakes and persevere on will make it.
Ive experienced big losses, but have always been able to come back with a winning streak. So, I am no longer that sensitive about losses. I know that I can make them back. Because of this, I am more willing to stop trading on bad days and take small or medium losses.

One of my strengths is the ability to become more aggressive during winning streaks and to do the opposite during a losing streak. This goes against what most people do. You should have a person who has nothing to do with trading who will turn off the trading terminal after a certain amount of losses and send you home; that would save traders thousands.

I am constantly adjusting my trading style to match specific market conditions. For example, on volatile days I generally put fewer orders into the market and execute more directional trades, although I mostly hold them for only a few seconds.

I always set strict daily targets and limits for my profit and loss. The most important element is the stop limit, or simply the size of the loss, which will cause me to turn off my trading screen. I try to liquidate my positions as soon as they start going against me.

A guru or analyst might have to stick to his opinion, but a trader should not have an opinion at all. The stronger your opinion is, the more problems one has when its time to close a losing position.

We trade only price. We do not trade information. We do not trade knowledge (of the asset being traded). Nor do we trade computing power or expertise. We do not trade anything at all other than price: ie: the number. Therefore since the only factor that counts in this game is the price, it is only smart to focus all, or almost all, our attention on this number on the pice and its movement; in other words, what the price has done in the past and is doing in the present. Approach the game/business of trading in this manner - an up down number game where the focus is on what the price does and not why - and you will be on the right path to succss as a trader

You are trading against the wealthiest and most knowledgeable people and organizations in the world.Do not delude yourself, you cannot compete on their terms: information, knowledge, experience, staying power, and so on.Do not spend time and energy trying to figure out why a price moves.Focus all your attention and energy solely on what the price is doing.You are a trader. A trader does not get paid to understand or explain why something has happened. The question "why?" deals with the past. The question "what?" deals with the present and provides the best clues to the future. And never forget that you are trading "futures," not "pasts." Discovering the supposed "why" of a price move will provide you with little more than temporary intellectual comfort. Whereas observing and focusing on what the price has done and is doing will help you anticipate what the price will do in the future. Leave the intellectualizing to those paid for their words not their deeds, i.e., journalists and brokerage house analysts

Predictions tend to lock you into a preconceived scenario of the future making it more difficult for you to adapt to unforeseen events.Futures trading is not like betting on a horse race. In futures trading you can change your bet as the race progresses. In trading, as soon as you make a specific prediction about where a market is going, you sacrifice your freedom. A trader must always feel free to change trading positions on very short notice. And most importantly, you do not need to be good at predicting to do well at trading. If making predictions can be quite harmful and you do not need to be good at predicting in order to be successful, why bother with predicting at all? - Chick Goslin
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A young basketball player is fascinated with The Shot. He doesnt think about the footwork he needs to get to the shot. Hes not aware of position on the court or even body position in the constant tactical encounters at each end of the court. These fundamentals can make for easy buckets or, alternatively, the continual need to pull a great shot out of nowhere time after time. (As a trader, which mode would you prefer?)
Neither is the young player aware of the substitution pattern, game pace, or matchups except as he faces them momentarily on the court or while sitting on the bench. The game plan is completely subordinate to hitting the shot and not getting beaten to the hoop.
It is the same in trading. - John Sweeney
The problems to which traders have set their faces have developed because their aspirations are infinitely expansible; the solutions lie in the hope that their knowledge and behavior are infinitely perfectible. In between the recognition of the problems and the acquisition of the quantitative and qualitative skills needed for their solutions lies a series of searches athat must,many times, include the experience of failure.Indeed, no successful traders I have known can follow their paths backward very far without running into failure.Its is not the act of failure, however, that differentiates the ultimately successful or unsuccessful traders.Rather, it is that the successful traders get up, spend a few days healing, reaffirm what they know, and go about the business of adding to their store of wisdom. In such a growth process the quality of persistence looms large and is virtually irreplaceable.
In the high-risk areas of the world of finance, the cold facts of probabilities cannot be changed by wishful thinking or by bemoaning the cruel realities of life.Some people win frequently and accumulate large sums.Others are destined to lose frequently and at least as a group, lose the large sums that are won by the smaller group of winners.The chance of success may be helped by thinking straight, negotiating low execution costs, dealing with a broker who observes high standards of performance, and setting reasonable goals. Regardless of their intellectual capacity and the strength of their personal discipline, however, most players in the futures game are destined to lose to the few.Those who cannot accept this truism are well advised to turn their attention elsewhere.
The person involved responsibly, both intellectually and behaviorally, with the experience of trading may, to paraphrase Theodre Roosevelt, know at his best the triumph of high achievement, but if he fails, he will have failed while daring greatly, and so his place will never be with those timid souls who know neither victory nor defeat. Perhaps, then, in the final analysis, it may be as rewarding to travel as it is to arrive. -------------- Richard TewelesThat's the problem with amateurs, they only have half a plan, the easy half. They know how much of a profit they're willing to take, but they don't have the foggiest idea how much they're willing to lose. They're like deer in the headlights, they just freeze and wait to get run over. Their plan for a position that goes south is, "Please God, let me out of this and I'll never do it again" but that's bullshit, because if by chance the position turns around, they'll soon forget about God. They'll go back to thinking that they're geniuses, and they'll always do it again, which means that they're sure to get caught, and get caught bad. What most people fail to understand is that while you're losing your money, you're also losing your objectivity. It's like being at the craps table in Vegas, and the fat bleached blonde in the sequined dress is rolling the dice, and you're losing, and you're determined that you're not going to let her beat you. What you've forgotten is that she doesn't care about you, she's just rolling the dice. Whenever you have jealousy as an emotion, or greed, or envy, it distorts your judgment. The market's like the bleached blonde in Vegas, it doesn't care about you. That's why you have to put aside your ego and get out. If you have trouble doing that, as most people do, be like Odysseus: tie yourself to the mast with an automatic stop and take your emotions out of play ---------------------------------------------------------------------------------
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The typical trader will do most anything to avoid creating definition and rules because he does not want to take responsibility for the results of his trading. If he knows exactly what he is going to do and under what conditions, then he would have something by which to measure his performance, thus making himself accountable to himself. This is exactly what most traders don't want to do, preferring instead to keep their relationship with the market somewhat mysterious.

This creates a real psychological paradox for traders, because the only way to learn how to trade effectively is to make oneself accountable by creating structure: but, with accountability comes responsibility.

The crowd neither wants nor seeks knowledge, and the leaders of the crowd, in their own interests, try to strengthen its fear and dislike of everything new and unknown. The slavery in which mankind lives is based upon this fear-----------------------------------G. I. Gurdjieff
Speculators and investors who simply guess, follow tips,rumors, newspaper talk and so-called inside information"have no chance of ever making a success - WD Gann
No man can learn all their is to know about the forecasting of trends of stocks in 3,5,10 or 20 years,but if he is a deep student and a hard worker,he learns more and knowledge comes easier after years of experience"--- W D GANN in the "New stock trend Detector:
To make a success in speculation you cannot expect to buy low and sell high. You will make money when you do just the opposite of what the average man or woman tries to do and makes a failure and loses as a result of what they are trying to do. You will make profits when you learn to buy high and sell low. You must learn to follow the trend in progress. . .
Racers are always looking for the quick and easy way to win. They're looking for the magic spring or the secret camshaft. Those things might exist, but I couldn't begin to tell you where to go and find them. If those things do exist. they won't make you a consistent winner. The people who win consistently aren't wasting their time looking for those things; they spend their time refining the basics and making sure they are prepared
Everyone is looking for a multibagger,For the next Infosys,For the next .......!!Get rich quick.
Truth is their is'nt any such stock,and even if their is one you would not know of it or maybe had it and sold it.
Don't see only the rainbows,just WALK.
1) Focus on being profitable for the week - Individual trades may go against you and individual trading days can offer little opportunity. As a senior trader once explained to me, for the active trader, however, there are enough fresh opportunities in a week to make it reasonable to set a goal of being profitable for the week. You won't reach your goal every single week, but the mere act of setting the goal keeps you focused. For example, you don't want to lose so much money in a single day that you can't make it back during the other days of the week. You also don't want to lose so much money on a single trade that you can't come back during the remainder of the day. When you really push yourself to be profitable every week, you don't let individual days get away from you. And when you don't let individual days get away from you, you start managing each trade carefully to ensure that your largest loss won't exceed your largest gain. Time and again I've seen a consistent sign of progress among developing traders: they stop digging themselves into holes.

2) Take what the market gives you - Today I peeled out of several short positions after a spate of very negative TICK readings in the afternoon. I've learned that such concentrated selling often precedes nasty short-covering rallies. My S&P position hadn't made as much profit as my NASDAQ and Russell positions, but the market doesn't care about that. I took what the market gave me and started the week green. Did the market go down even further after I exited? Absolutely. As one experienced trader explained to me, when the market rewards your position right off the bat, you want to take something off the table. You might let a piece of your position ride if you have a longer-term opinion, but never give green a chance to become red. A winner that turns into a loser is a double loss.

3) Always have something to "lean on" - Scalpers will notice heavy and persistent selling at a certain tick, accompanied by large offers in the order book. They'll lean on that information to find a good entry to sell the market. If the offers disappear from the book or if new buyers start lifting those offers in size, they can get out quickly. Knowing you have something to lean on, however, allows you to ride out the noise between entry and exit. As long as what you're leaning on doesn't vanish, you stay with your idea. Today I leaned on the inability of the Russell to make new highs on Friday. When we got some morning buying, but could not break above the early AM highs (and also above Friday's highs), I added to my shorts and vowed to stay short unless we broke the highs with expanded buying. Leaning on the pattern of Russell weakness enabled me to stick with a good trade idea during a choppy morning.

So let's restate the pieces of wisdom in reverse order:

1) Before you put your capital at risk, have a well-formed trade idea;
2) When your idea pays you out quickly, take some profits;
3) Don't get caught up in individual trades; focus on profitability over a series of trades and days.

I know, I know. These things sound ridiculously simple. But it's only been in the last couple of years that I can look myself in the mirror and say that I'm doing all three consistently. The spinning reverse dunks get the attention in basketball; the long touchdown pass makes the evening replays; and the big winning trades are the ones we like to talk about. The greater part of success, however, boils down to Xs and Os on the basketball court; blocking and tackling on the football field; and following basic fundamentals about framing and managing trades. It may not be sexy to execute on the fundamentals, but it gets the job done day after day and builds a career.
My review of expert performers in such fields as chess, military, athletics, and performing arts--as well as my research review of exemplary performers--suggests that success is not simply a function of qualities of the individual. Rather, it is the fit between the talents (inborn abilities), skills (acquired competencies), interests, and opportunities afforded by a field that creates accelerated development and eventual mastery.

What does this mean for trading?

It means that success will not be found in better indicators, improved self-help techniques, or any of the endless parade of chart patterns, wave formations, numerology schemes, or moving average arrays.

Rather, success is achieved when we find markets and styles of trading that take maximum advantage of our skills and talents. That keeps us focused on markets and absorbed in them, enabling us--over time--to internalize their patterns.

Many, many times, traders do not live up to their potential simply because they are trading markets and methods that do not draw upon their strengths. Without that fit, they are not absorbed in what they do; frustration replaces focus and learning suffers.

If my book accomplishes nothing else, I hope that it assists you in thinking about where your niche might lie, not just in trading, but in life. The days pass by quickly; life is too short to waste on anything that you're not passionate about and good at.
Rich people don't make big bets. Really rich-and smart-people don't make big bets. First they are not out to "prove" anything, they are out to make more money, and second, they know that risk control is as important as the other two legs of speculation, selection and timing. That is all this business of commodity trading gets down to, selection, timing, and risk control. - Larry Williams
Spotting the next Infosys et al is not a get rich quick scheme.

It takes courage, conviction, dilligence & above all patience.

Dilligence is needed to spot the company & then constantly monitor it's performance to see if it's living upto expectation.
Courage as an equivalent of risk appetite 'coz you can always go wrong. The company might just fizzle out after that initial promise; or produce that occasional spark but not consistenly enough to raise itself to the big league.
Conviction to hold on through the numerous ups & downs of the mkts.
And, above all patience, as it doesn't happen overnight.
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A Trader's Morning Prayer -

May my assessment of today's price action be based upon the facts, all of the facts and nothing but the facts. May I not be influenced by fear, greed or the ill-advised comments of others, which may be made in their interests and not my own. May I take into account the past history laid before me on this chart and make my assessment based on my knowledge, and logic, and not my emotions.
philosophy of lifeEverything happens. All that appears in the life of a man, all that is done through him, all that comes from him; all this happens. Man is a machine. All that he does, all his actions, his words, thoughts, feelings, convictions, opinions, habits are the result of exterior influences ... popular movements, wars, revolutions, change of governments, everything happens. Man does not love, does not desire, does not hate -everything happens.

It always seems to people that others invariably do things wrongly, not in the way they should be done. Everybody always thinks he could do it better. They do not understand, and do not want to understand, that what is being done, and particularly what has already been done in one way, cannot be, and could not have been, done in another way.

Scientific or not scientific is all the same to me. I want you to understand what I am saying. Look, all those people you see, (he pointed along the street), are simply machinesnothing more. - G.I Gurdjieff
"Tape reading was an important part of the game; so was beginning at the right time; so was sticking to your position. But my greatest discovery was that a man must study general conditions, to size them so as to be able to anticipate probabilities." Reminiscences of a Stock Operator
1) You must know your own weaknesses. Each of us brings strengths and weaknesses to our own trading. Some find it exceedingly difficult not to tinker or play around with the markets when trading and in the process we don't follow our systems; some find it difficult to pull the trigger; some find it difficult to endure drawdowns of any size. Unless you know how you react to the markets and the pressures and elations of trading, you cannot compensate for your weaknesses.

2) You must understand statistics well enough to understand the limitations of trading using only history as our guide. I am constantly surprised by how many people get this wrong. Even the so-called "experts" in trading.

3) You must learn about trading systems, many of them, many different kinds of systems. In this process, you will learn that there are many answers, many paths to profits, but none of them are as neat and palatable as we might wish.

4) You must learn about brokers, markets, execution, risk, slippage, and other operational issues that affect trading profits. The best way to learn these issues is to start trading somewhere using a small account. It needs to be big enough that the losses matter but not so big that you will bankrupt yourself if you lose the entire account.

5) You must learn about yourself and how you react to all the items 1 to 4 above. This is perhaps the most important knowledge. How to fit your own personality, weaknesses and strengths, into the trading ecosystem. You might find you are bored with long-term system, or that you can't stand looking at screens, or that you need a robobroker to execute since you won't follow your systems closely enough. You will only learn this by being honest with yourself and by reflecting on what works and doesn't.

The best possible way to learn is to sit side by side with someone who knows what they are doing, but this is not possible for most, so you will likely need to find another way.

As far as a specific course of action, which is what you have asked for, I will offer one way that I think works pretty well. If you persevere and if you reflect on your own condition honestly, you have a good chance at success if you follow this course.

1) Buy some testing software and learn some of the well-known systems that work. There are many examples of systems that work out there. Play around with them, change them and see what happens. I'm obviously biased in my opinion of what software you should buy but I leave that decision to you.

2) Read and Study Trading. Initially, I suggest buying the Modus course. It is a very good foundation for people who don't know where to begin.

3) Start trading as soon as you think you are ready. Start small and don't worry about the profits, worry about what you learn about the markets and yourself. Consider your initial losses as tuition that all traders pay.

4) Honestly assess yourself on a regular basis. What did you learn? what are you having trouble with? What do you need to compensate for?

5) Repeat starting at 1).

One thing that troubles many people is the high cost of software and courses. Consider however, the high cost of trading incorretly as the alternative. If you can't afford software, save up until you can. If you can't afford money for a course, you likely can't afford to lose as much money as you will if you start trading without understanding what you are doing.

Last of all, don't be afraid to ask for the advice of others, even to pay for it where appropriate.

Keep one thing in mind, however, sometimes even successful traders are wrong about the reasons for their success. Trader A might think his success is due to his fancy computers and sophisticated algorithms when in reality his success is due to his having a solid foundation and good operational execution.

Trading well is not easy, but it is something you can learn if you have the perseverance combined with the humility to be realistic about your own strengths and weaknesses. - Curtis Faith ( Turtle Trader )


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People, unless they are naturally well disciplined, are extremely open to suggestion. Folks like to be given, tips, listen to the news stories, seek out rumours in internet chat rooms, or maybe subscribe to secret information leaked from unknown sources.
For the most part, professional traders, syndicate traders, and the specialists, do not look at these things. They simply do not have the time. Professionals have to act swiftly, as soon as market conditions change, because they are up against other professionals who will act immediately against their interests if they are too slow in reacting to the market. The only way they can respond that fast is to understand and react, almost instinctively, to what the market is telling them. They read the market through volume and its relationship to price action. - Tom Williams
Know the enemy and know yourself; in a hundred battles you will never be in peril. When you are ignorant of the enemy, but know yourself, your chances of winning or losing are equal. If ignorant both of your enemy and yourself, you are certain in every battle to be in peril.

What is of the greatest importance in war is extraordinary speed: One cannot afford to neglect opportunity
The symbol of all relationships among such men, the moral symbol of respect for human beings, is the trader. We, who live by values, not by loot are traders, both in manner and spirit. A trader is a man who earns what he gets and does not give or take the undeserved. A trader does not ask to be paid for his failures, nor does he ask to be loved for his flaws. A trader does not squander his body as fodder, or his soul as alms. Just as he does not give his work except in trade for material values, so he does not give the values of his spirithis love, his friendship, his esteemexcept in payment and in trade for human virtue, in payment for his own selfish pleasure, which he receives from men he can respect. The mystic parasites who have, throughout the ages, reviled the trader and held him in contempt, while honoring the beggars and the looters, have known the secret motive of the sneers: a trader is the entity they dreada man of justice.

Contradictions do not exist. Whenever you think that you are facing a contradiction, check your premises. You will find that one of them is wrong
 

oilman5

Well-Known Member
#15
now the famous DESIGN A SYSTEM
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First consideration - Time Frame
It is important to decide the timeframe that u are going to work towards in ur system. This really comes down to how much time u are prepared to spend trading and how active u require the system to be in terms of the number of trades. Broadly speaking there are four main timeframes:

Timeframe--------Period------------Data Used
Long-Term--------Months----------End of Day
Medium-Term------Weeks----------End of Day
Short-Term--------Days-----------Intra Day
Day-Trade------Up to 1 day-------Intra Day

Long Term trading systems will save on commission costs and have larger profits per trade. Shorter term trading systems will rack up the commission costs and generally make less per trade but the frequency of trading opportunities will make up for this. For example:

System 1 makes an average of 250 points per trade but only trades 4 times a year.

System 2 only makes an average of 10 points per trade but trades 200 times a year.

System 1 makes 1,000 pts a year but system 2 makes 2,000 points a year. However if we allow 5 pts per trade for commission and slippage then system 1 costs 20 pts/year whereas system 2 costs 1,000 pts/year.
System 2 only makes an average of 10 points per trade but trades 200 times a year.

System 1 makes 1,000 pts a year but system 2 makes 2,000 points a year. However if we allow 5 pts per trade for commission and slippage then system 1 costs 20 pts/year whereas system 2 costs 1,000 pts/year.

Both systems make a similar net profit over the course of a year however there are a number of points to bear in mind:

* With only 4 trades per year for system 1 every trade is important and must be taken. It is likely that the bulk of the profits will come from only one of the trades so this must not be missed. With system 2 producing a new signal every day it is not so reliant on individual trades.

* System 1 will require a larger capital base to trade as the trades will have to ride wider swings.

* System 2 will require a lot more work to trade as intra day data will have to be monitored.

* System 2 will be psychologically easier to trade as the equity draw down periods will be shorter. Well designed and robust day trading systems will rarely have losing months.

The frequency of trading is an essential element of any trading system and our choice of timeframe will help to determine it. There is no right answer it is very much a case of what suits the individual trader.
Choosing an Instrument to Trade
The next thing u need to do when designing a trading system is to decide what u are actually going to trade to match your objectives. There is a huge range of instruments available to traders from the underlying instruments such as stocks or currencies to derivatives such as futures or options

In order to develop a trading strategy it is extremely important to obtain historical data for the actual instrument that we intend to trade. Although derivatives based on the same underlying instrument will move generally in tandem with each other it will not be exact. The futures will move more quickly and to greater extremes than the underlying cash index. U cannot, therefore, develop a system using the cash index and expect it to perform to the same degree when trading futures or any other derivative.
Third step
This is the meaty part about trade setup.Will get back with this tomorrow.Meanwhile couple of important terms to remember

Expectation/Expectancy of a trade = (PW * AW) - (PL * AL)
Expectation of profit factor = (PW * AW) / (PL * AL)

where

PW = probability of a winning trade
AW = average size of winning trade
PL = probability of a loss
AL = average size of a loss

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Now coming to the next step we need a framework with precise entry and exit signals which is commonly called a setup.There are as many setups as there are traders,infact I have to keep them indexed to keep track of them.I would post couple of them having good risk to reward ratio.I had better start a new thread and link it here as this thread will become very difficult to read otherwise.There will be a lot of new terms introduced and it will be difficult for me to explain each and everyone of them in detail so I will provide links or suggest books regarding those.
Also one point I would mention here is that if you are serious enough to have your own system than there can be no half measures,every part right from setup to position management has to be written down and double checked so as to avoid any contradictions or errors.Those who dont have access to charting software can have tape based strategy as trade setup while keeping the other parts similar to those mentioned here.Minimum requirement will be access to excel and notepad.

Another important about setup selection bfore we go on to the next step is about mixing different non-correlated strategies.People who have trendfollowing systems will do better only if they add some sort of contra trend setups which may help them trade in markets which are moving sideways.By merely looking at a chart many can conclude that markets do move sideways for considerable period.My support for the theories of gann,fibonacci and elliott is precisely for that reason.They add a new dimension to market forecasting which is not possible with normal market indicators.Also a very important thing to consider is that these theories focus entirely on price itself unlike various other theories which derive their relationship from price without considering it in its entirety.Tony Plummer books are good read explaining them.

So lets get on with it with the setups
Inside bar - current bar's range is within the previous bar's range ie an inside bar has a low greater than the previous bar's low and a high less than the previous bar's high.

See the attached pic for various inside bar setups.These can also be done on OHLC bars as well.

After you see inside bar setup, a filter need to be added .Can be a momentum indicator like a stochastic.The thing for look will be a stochastic crossover as the insidebar unfolds.It can act as a confirmation to your entry signal.

Its a very good pattern to trade.Many reasons.For one, an inside bar means that there was just not enough interest in the stock to move it decisively one way or another. As sure as day follows night, so does an increase in volatility follow the restricted trading of an inside day.Whenever you have an IB the market is consolidating into a tight range of low volatility.A market will always explode out of a tight range. A market will not explode out of a market that has already run up. The natural market cycle is to go from low volatility to high volatility and back again.

Ok to sum it up one by one
Buy Setup
1.Wait for an IB to form
2.One you have identified the IB then you need to have a stochastic cross confirmation to the upside before you can enter.
3.To find confirmation look at the stochastic in the chart that you look for IBsIf upward cross present than you can enter in the indicated direciton.

Sell Setup is exact opposite of this.


Will get back with couple more setups before proceeding to other parts
.What to buy
2.When to buy

Now comes the next step of how much to buy.
There are many different ways to vary the number of contracts or shares when trading. Some of the most commonly used methods are listed below.

1.Fixed number of contracts. The same number of contracts or shares is applied to each trade; e.g., two contracts per trade.
2.Fixed dollar amount per contract. A fixed dollar amount of account equity is needed for each contract or share; e.g.,5000Rs of account equity per contract.
3.Fixed fractional (also known as fixed risk). The number of contracts or shares is determined so that each trade risks a specified fraction of the account equity; e.g., 2% of account equity is risked on each trade.
4.Fixed ratio. The number of contracts or shares increases by one for each "delta" amount of profit earned per contract. For example, if the delta is 3000Rs, and the current number of contracts is two, you'll need 6000Rs of profit before increasing the number of contracts to three.

That goes for position sizing.Eventually it depends on the amount of capital in your account as some sizing rules require certain size for consistent account growth.
So in our inside bar setup,you can choose a sizing rule which suits you.For eg sake we will use the fixed fractional strategy fixed to 2% of account equity.
Note however this is different than setting stoploss which we will cover next.
Many people confuse stoplosses with moneymanagement.That part may well be callled position management.

For good system my suggestion is to watch as many charts as possible preferrably realtime, make note of your observations and then test them out in a controlled environment.

1)I have a doubt - "People who have trendfollowing systems will do better only if they add some sort of contra trend setups which may help them trade in markets which are moving sideways"?
We have two options
a) we use a trend following system, and also a contra trend system.

b) we use some conformatory market direction signals togetther with some price range to filter out the sideways movement of prices. That is if the mkt direction is + and STock direction is + then enter buy otherwise filter out as sideways.

Can be use the second option. Will that be better?


There is nothing like an anti-trend system
Even those methods that fade trends are actually betting on a trend in the opposite direction.
Systems can be broadly categorized into 2 categories
1. TrendFollowing ( MAs, Breakouts etc)
2. Mean Reversion ( Oscillators, PairTrading etc)

Also perhaps a few words on a 'premise' focussed trading system development vs a 'if it works it must be good' system development.

LBR's Turtle Soup is a good eg of a counter trend system.
Identifying market exhaustion is a tricky area.Intraday its actually much easier identifying exhaustion than looking for breakouts

the basic Turtle Methodology has no directional bias.When dealing with systems, the long-short thing takes a backseat..its all about pattern matching and proper betsizing around that opportunity.

Ok to sum it up one by one
Buy Setup
1.Wait for an IB to form
2.One you have identified the IB then you need to have a stochastic cross confirmation to the upside before you can enter.
3.To find confirmation look at the stochastic in the chart that you look for IBs.
4.If upward cross present than you can enter in the indicated direciton.

Sell Setup is exact opposite of this.
When designing a trading system its wise to distribute the various functions like Entry, Exit, MM etc into different modules.Helps you in backtesting and to pinpoint the system efficiency.
Different modules could be--
Position Sizing Module
Filter Module (based on diff crieteria)
Entry Module
Trade Management Module (scaling in and out for eg)
Exit Module

Two or more modules can be combined together for eg the Trade Mgmt and Exit Modules.

So coming back to the system described earlier, entry on breakout of ID obviously comes under the Entry Module.Whether to hold it the next day or reverse is independent of the entry factor. To answer that question you will have to backtest on your chosen instrument.Options could be - End of Day Exit, Trailing stops, SAR ( stop and reverse ...
Money management is the process of analyzing trades for risk and potential profits, determining how much risk, if any, is acceptable and managing a trade position (if taken) to control risk and maximize profitability.
Many traders pay lip service to money management while spending the bulk of their time and energy trying to find the perfect (read: imaginary) trading system or entry method. But traders ignore money management at their own peril.

The importance of money management can best be shown through drawdown analysis.
Drawdown
Drawdown is simply the amount of money you lose trading, expressed as a percentage of your total trading equity. If all your trades were profitable, you would never experience a drawdown. Drawdown does not measure overall performance, only the money lost while achieving that performance. Its calculation begins only with a losing trade and continues as long as the account hits new equity lows.


Suppose you begin with an account of 10,000 and lose 2,000. Your drawdown would be 20%. On the 8,000 that remains, if you subsequently make 1,000, then lose 2,000, you now have a drawdown of 30% (8,000 + 1,000 - 2,000 =7,000, a 30% loss on the original equity stake of 10,000). But, if you made 4,000 after the initial 2,000 loss (increasing your account equity to 12,000), then lost another 3,000, your drawdown would be 25% (12,000 - 3,000 = 9,000, a 25% drop from the new equity high of 12,000).

Maximum drawdown is the largest percentage drop in your account between equity peaks. In other words, it's how much money you lose until you get back to breakeven. If you began with 10,000 and lost 4,000 before getting back to breakeven, your maximum drawdown would be 40%. Keep in mind that no matter how much you are up in your account at any given time--100%, 200%, 300%--a 100% drawdown will wipe out your trading account. This leads us to our next topic: the difficulty of recovering from drawdowns.

Even worse is that as the drawdowns deepen, the recovery percentage begins to grow geometrically. For example, a 50% loss requires a 100% return just to get back to break even (see Table 1 and Figure 1 for details).

Professional traders and money mangers are well aware of how difficult it is to recover from drawdowns. Those who succeed long term have the utmost respect for risk. They get on top and stay on top, not by being gunslingers and taking huge risks, but by controlling risk through proper money management. Sure, we all like to read about famous traders who parlay small sums into fortunes, but what these stories fail to mention is that many such traders, through lack of respect for risk, are eventually wiped out.


Guidelines that should help your long-term trading success.
1. Risk only a small percentage of total equity on each trade, preferably no more than 2% of your portfolio value. I know of two traders who have been actively trading for over 15 years, both of whom have amassed small fortunes during this time. In fact, both have paid for their dream homes with cash out of their trading accounts. I was amazed to find out that one rarely trades over 1,000 shares of stock and the other rarely trades more than two or three futures contracts at a time. Both use extremely tight stops and risk less than 1% per trade.

2. Limit your total portfolio risk to 20%. In other words, if you were stopped out on every open position in your account at the same time, you would still retain 80% of your original trading capital.

3. Keep your reward-to-risk ratio at a minimum of 2:1, and preferably 3:1 or higher. In other words, if you are risking 1 point on each trade, you should be making, on average, at least 2 points. An S&P futures system I recently saw did just the opposite: It risked 3 points to make only 1. That is, for every losing trade, it took 3 winners make up for it. The first drawdown (string of losses) would wipe out all of the trader's money.

4. Be realistic about the amount of risk required to properly trade a given market. For instance, don't kid yourself by thinking you are only risking a small amount if you are position trading (holding overnight) in a high-flying technology stock or a highly leveraged and volatile market like the S&P futures.

5. Understand the volatility of the market you are trading and adjust position size accordingly. That is, take smaller positions in more volatile stocks and futures. Also, be aware that volatility is constantly changing as markets heat up and cool off.

6. Understand position correlation. If you are long heating oil, crude oil and unleaded gas, in reality you do not have three positions. Because these markets are so highly correlated (meaning their price moves are very similar), you really have one position in energy with three times the risk of a single position. It would essentially be the same as trading three crude, three heating oil, or three unleaded gas contracts.

7. Lock in at least a portion of windfall profits. If you are fortunate enough to catch a substantial move in a short amount of time, liquidate at least part of your position. This is especially true for short-term trading, for which large gains are few and far between.

8. The more active a trader you are, the less you should risk per trade. Obviously, if you are making dozens of trades a day you can't afford to risk even 2% per trade--one really bad day could virtually wipe you out. Longer-term traders who may make three to four trades per year could risk more, say 3-5% per trade. Regardless of how active you are, just limit total portfolio risk to 20% (rule #2).

9. Make sure you are adequately capitalized. There is no "Holy Grail" in trading. However, if there was one, I think it would be having enough money to trade and taking small risks. These principles help you survive long enough to prosper. I know of many successful traders who wiped out small accounts early in their careers. It was only until they became adequately capitalized and took reasonable risks that they survived as long term traders.

10. Never add to or "average down" a losing position. If you are wrong, admit it and get out. Two wrongs do not make a right.

11. Avoid pyramiding altogether or only pyramid properly. By "properly," I mean only adding to profitable positions and establishing the largest position first. In other words the position should look like an actual pyramid. For example, if your typical total position size in a stock is 1000 shares then you might initially buy 600 shares, add 300 (if the initial position is profitable), then 100 more as the position moves in your direction. In addition, if you do pyramid, make sure the total position risk is within the guidelines outlined earlier (i.e., 2% on the entire position, total portfolio risk no more that 20%, etc.).

12. Always have an actual stop in the market. "Mental stops" do not work.

13. Be willing to take money off the table as a position moves in your favor; "2-for-1 money management1" is a good start. Essentially, once your profits exceed your initial risk, exit half of your position and move your stop to breakeven on the remainder of your position. This way, barring overnight gaps, you are ensured, at worst, a breakeven trade, and you still have the potential for gains on the remainder of the position.

14. Understand the market you are trading. This is especially true in derivative trading (i.e. options, futures).

15. Strive to keep maximum drawdowns between 20 and 25%. Once drawdowns exceed this amount it becomes increasingly difficult, if not impossible, to completely recover. The importance of keeping drawdowns within reason was illustrated in the first installment of this series.

16. Be willing to stop trading and re-evaluate the markets and your methodology when you encounter a string of losses. The markets will always be there. Gann said it best in his book, How to Make Profits in Commodities, published over 50 years ago: "When you make one to three trades that show losses, whether they be large or small, something is wrong with you and not the market. Your trend may have changed. My rule is to get out and wait. Study the reason for your losses. Remember, you will never lose any money by being out of the market."

17. Consider the psychological impact of losing money. Unlike most of the other techniques discussed here, this one can't be quantified. Obviously, no one likes to lose money. However, each individual reacts differently. You must honestly ask yourself, What would happen if I lose X%? Would it have a material effect on my lifestyle, my family or my mental well being? You should be willing to accept the consequences of being stopped out on any or all of your trades. Emotionally, you should be completely comfortable with the risks you are taking.

The main point is that money management doesn't have to be rocket science. It all boils down to understanding the risk of the investment, risking only a small percentage on any one trade (or trading approach) and keeping total exposure within reason. While the list above is not exhaustive, I believe it will help keep you out of the majority of trouble spots. Those who survive to become successful traders not only study methodologies for trading, but they also study the risks associated with them. I strongly urge you to do the same.
SO IS MM FROM CV
Trading is unique in many ways. It is not by accident that many of the people who are drawn to trading are successful people from other walks of life. After all, to trade you need some free capital. Many obtain this from running or selling successful businesses, or from high paying professions. The problem is that trading is unique from most other businesses...

Most of your previous successes in life will likely not be able to help you in trading. The things you have learned are often not transferable to trading. Worse than that, they may be harmful. Take the successful doctor. Every time his stop hits, he decides to add more shares. Why? To the skilled trader, this is a crime. To the doctor, this is a way of life; it is bred into his system. What is he thinking? He is thinking about 'saving the patient'. He is taught that the object of his attention must be saved at all costs, at all measures. To trade he has to adopt the philosophy of 'killing the patient at the first signs of ill health'. This appalls him at some level.

Consider the skilled lawyer. Taught to make a case and an argument for any possible situation. As his stock begins to fall, he comes up with dozens of ways to justify the position. He is skilled at 'making the case' and he does so for the stock as it begins to fall. 'They just had good news, the fundamentals are excellent, this is just a shake out, the operators are playing games'. He will use a thousand different arguments to stay with a loser............................................. ..............................................
Consider any successful businessman. Often in the beginning, success came by simply working harder. Putting in more hours, taking on more personally. Doing whatever it takes. Unfortunately, 'trading harder' is not even a working concept.

Consider the accountant. The accountant is a perfectionist with numbers. The thought of having 'red ink' on a trade can be hard to take. It forms the need to not take small stops, hoping that the ledger can show all winners today.

Consider the professional athlete. Losing is not an option. Unfortunately, in trading, losing is mandatory. Losing the right way is what matters, small amount on appropriate trades. Once a trade has stopped, it is a loss and the trader moves on. The trader knows that what matters is process that delivers winners over a period of times, not what happens on one trade. To the athlete, losing is not acceptable. It must be avoided at all costs, at all levels.

So what is helpful? Learning the whole process of trading. Learning from those who have been through it, or having the ability to learn and adapt quickly as you go. Having the mindset of having a plan, being able to adjust that plan, and carrying out the plan until the results are reached. Then constantly evaluating the process, eliminating mistakes and being mindful of the need to change and be flexible.

"Nothing in this world can take the place of persistence. Talent will not; nothing is more common than unsuccessful people with talent. Genius will not; unrewarded genius is almost a proverb. Education will not; the world is full of educated derelicts. Persistence and determination alone are omnipotent. The slogan 'press on' has solved and always will solve the problems of the human race."
This is a good warning to all. Many talents you may have may not directly contribute to your trading. An open mind, coupled with persistence and determination in your goal are keys to trading.
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1.Trading with money you cant afford to loose: One of the greatest obstacles to successful trading is using money that you really cant afford to lose. Ultimately what happens is that when someone knows in the back of their mind that they are risking the money they can not afford to lose, they trade out of fear and emotion versus logic and no emotion. If you are in this situation It is highly recommend that you stop trading until you earn enough to put into an account that you truly can afford to lose without causing major financial setbacks.

2.Lack Of Research Work: People just jump in. Without having the proper knowledge of the stock or dont knows about chart or never cares to view chart in the right time frame. They dont have time to do some research work. They follow tips blindly and then gaze at night sky!

3.No Trading Plan (dont know entry, exit, stop loss, profit target): A trader with no trading plan is flying in the sky ready to crash any time. Successful traders always keep their Trading Plans ready before entering into any transactions.

4.Not Learning From Losses take advantage of each loss to improve your knowledge of the market.

5.Lack Of Discipline- Never allow emotions to rule your trading decisions, which often lead to bad decisions and unacceptable trading losses.
6.Lack Of Money Management Lack of proper money management is a major cause of failure among new traders.
(Out of 10 Trades, if 6 are loser with 5% loss & 4 are winner with 10% PROFIT, Net Results GAIN.)

7.Never Apply STOP LOSS Most common mistakes made by traders is that they let their losses grow too large. Nobody likes to take a loss, but failing to take a small loss early will often result in being forced to take a large loss later.

8.Never Fall In LOVE With A Stock Many traders fall in love with one or two stock and look opportunities to trade in those stocks only ignoring the other profitable trading opportunities.

9.Not Keeping RECORDS Always keep records of your trading results and analyze the results.

10.Over-Trading Trading in too many markets at one time is a mistake espically if you are racking up losses............................................ .........
11.Not Preserving Capital: It is the part of money management so as to enable one to live to trade another day.

12.Under funding-Not enough capital to invest (this can sink the ship) know well that there is a minimum amount to be invested.

13.Blaming the Market: Dont blame the market for your losses. You are the sole reason for losses.

14.Adding to a losing Position - Never add to a losing position. It is a prescription for disaster.

15.Not getting a bigger view/perspective on Market One can look at daily chart for short-term, but by looking at the weekly or monthly chart for longer-term can reveal great secrets of the market.
16.Trading with a high EGO A person who do not expect that he would be wrong and refuse to get out of bad trades. This ego becomes the downfall.

17.Never use these things - HOPE, PRAYER THAT PRICE WILL MOVE UP

18. Ignoring the five basic pillars of trading :

Trade with trend,
Cut losses fast,
Let profits run,
Trade selectively,
Trade in the major index direction.

19.The key to wealth in trading is simplicity. Avoid techniques you don't understand.

20.Big movements take time to develop. Stay always PATIENT.
We Have Choices
Everything we do involves making choices. As human beings, we have the freedom and ability to choose. Some things are easier to choose than others because they involve less effort, energy or resources; but easy choices are rarely the right choices. For example, if you want to get yourself into better physical shape then when your alarm goes off at 5:00am, you have a choice:

* Get up and go to the gym or
* Hit the snooze button and stay in bed for another 45 minutes

Hmm, which is the "easier" choice? And which do think is the right choice? Exactly!

Now, as traders, you sometimes make good trades or trading decisions and end up with a bad P & L. Once again, you have a choice:

* Lose your focus by getting mad at the market, ruminating, beating yourself up or
* Shift your attention to the PROCESS (things you CAN control) and re-establish your belief in your skills/talent/data points

Which is "easier" and which is the right choice?

What We Can Control
Elements outside of our control, are just that - OUTSIDE of our control and therefore, there is little point in wasting emotional capital on them. Trust me, I know how "easy" it is to get caught up in the noise - especially when times get tough - but you have to understand that it serves no positive value to you or you or your trading.

If the referee makes a bad call you can be angry for a few seconds, but GET OVER IT and MOVE ON. Why? Because the ref's call is OUT OF YOUR CONTROL.

Moving forward, I challenge you to start making the harder, right choices and use your emotional capital to focus on the PROCESS and things that are WITHIN your control.

Keep your eye on the ball and your head in the game!
Trading for a living requires a lot of discipline. It also requires a lot of streets smart if you trade discretionarily. One thing that many beginners missed is a basic concept of having multiple setups learned and practiced correctly.

Many beginners misunderstand that they can master a single setup and then can trade for a living. That is not likely the case. For each specific setup, you need to spend time to understand its reasoning behind, learn the chart pattern available in historical charts, and then practice in real-time or at least using simulation so that you know how to handle the setup in all possible situations.
stop loss is where u stop before losses stop u from trading ever (not a wise crack, think about it)...now modify this...
stop loss is at a % loss of my capital (on one trade or out of your total capital) where I stop before losses stop me from trading ever (becomes so big that it takes away a big chunk of your capital).
elder says 2% max on individual trade and 6% of ur capital in a month...there is a beautiful thread here on stop loss...search it

Trading on the stock exchange is all about playing against the mind of the masses. The big guys and operators successfully will beat your mind by making you think, think and think. Is the right time to get in, will the market fall, and so many times people have asked me when the BIG correction is going to come?

Many people have gone short in this Bull Run and felt the heat. 'Go short' that is what your mind will tell you when the NIFTY makes 3% over 2-4 days.

There are many traders who suffer from this mental gridlock. Chances are that you are one of them. Human beings excel at pattern recognition but when coupled with risking money, they fail miserably. Fear or greed gets in their way of thinking. It is your ability to recognize charts, without needing conviction from another trader or CNBC that will separate you from the rest.
Predicting is a curse that is thrust on a trader, because normal thinking tells you that to make money you have to be able to predict a movement in a certain direction.

This is where you take out the emotion and thinking from trading. Use the best charting software and setup a tri-state signaling system that should tell you when to long, short or be out of the markets. It doesnt matter if you following a trend trading system or a breakout system. You will be probably fit into one of these categories of a trend trader or a breakout trader. It is for you to choose. The master can be both. Once the decision-making is handled by emotionless software, which work tirelessly for you, most of your time you can spend on money and risk management. Stop thinking about whether the buy/sell signal is valid or not. Just make sure that the difference between entry point and the stop loss is acceptable by your risk management system. Focus most of your on capital management. Things will become easier for you. Stick with your system and dont keep changing it. Do as many as a test you would like before applying it to your trading style.

You will still not be successful if you dont develop a good profit taking mechanism. You or your system be may be very good at generating 80-95% perfect buy or sell signals, but unless a good stop loss and profit taking strategy is not is place you will be out of the game maybe not soon enough but later. A sloppy stop loss is all that is needed to make things go against you accumulation. On the other hand your impatience will not let your ride the full Monty. There is no way to tell if this is a top or a bottom if you have made it on the right side of the trend. The best way is to change the stop loss of your first lot above your or below your entry point using time as a parameter. The rest you can exit when your decision system tell you to. The more time you allow your trade to flow more are the chances that it makes you a good bundle.

You will perfect your system by surviving in the market. Taking a small hit today is the best strategy. Learn and device your risk and money management techniques and leave alone making entry decisions, because there is no perfect signaling system and there will not be one. There are plenty of tools available out there that can do better than you. Making money in our markets or for that in any conventional market is the art of capital and risk management.

Remember
Neal Hughes is basically daytrader trading 60minute and 5 minute time frames etc. Now What about using his tactics on a long term basis specially when you trade long term on darvas box theory momentum trading?
The concept can still be applied. but you need to look at breakouts on weekly charts of the stock in question and then drop down to daily chart
to implement pullback buying as dilineated in the examples.
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If you want perfect trades, perfect your trading plan. Neal Hughes
"FibMaster
Thanks to an excellent video from NEAL-IT opens doors to new thinking.
Re-think breakout strategy.
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Generally breakout occurs and just above the breakout people place their buy orders, and short sellers place their sell orders.others have their covering orders.
So the breakout area is a high activity zone.More of a danger zone.
and by observation you will see most breakouts fail fast and the buyers get stuck. THis happens to the Darvas box theory followers more often.
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Small example
Look at what happened to breakout buyers on 29th or 30th october2006

As an example you may see the iNDIACEMENTS stock which made a breakout over 221 and reached 222+, (false breakout,then faded down all the way on 31october to 214.70

Look at what happened to clever buyers who bought after breakout failed.

BUT IF YOU LOOK AT THE PEOPLE WHO WAITED FOR THE BREAKOUT TO FAIL
they bought Indiacements at 214 to 216 rupees price.
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But we have a rescue mission here for those people failing in false breakouts.
Hint buy on pullback at fibonacci support

Want to know about it?
Why not!!!!!!!!!!!!!!!
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see the video

http://207.6.227.129:8080/lessons/Tr...roduction.html

what to do?

Normally over70% of breakouts fail and pullback
BECAUSE YOU HAVE FALSE BREAKOUTS.

You can filter out false breakouts using fibonacci techniques

DONT enter blindly on a breakout on impulsive thinking

Instead wait for beakout to prove itself
drop down to a lower timeframe
enter only on a pullback at a fibonacci support.

YOUR CHANCES OF FAILURE MAY GREATLY REDUCE.

rvlv
rethink your old action style!!!!!!!!!

Note
Trading Breakouts.
Breakouts can be highly rewarding, because they often indicate the start of a major move. However, most breakouts fail.
This Trader Tip will teach you how to avoid the losers, and bank the winners!
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Breakout Trading as they say is not for tech newbies. Here is my humble experience about trading them :

1) Whenever prices break a imp. s/r level its a breakout. So the important thing about picking them is to judge the importance of those levels. But more important is the pattern that suggests a breakout. There are many-many patterns and each of them has a specific set of criteria. Sometimes prices survive double tops, wedges or similarly others. Thus it requires experience of reading innumerous charts. Price targets are determined from the pattern how the s/r levels are breached. Volumes are equally important. And again retracements and extension levels are very impotant, but i condider them important in all trading decisions, momentum based or after completion of a pattern.
2) Once the risk factor is conceived they are the most profitable trades. Thus if one can identify a single out of 200 stocks, they are worth the trouble,that is.

In a day to day breakout trading, we go for buying on breakout of yesterdays high, and selling of a stock on break below yesterday low.
Now the prices cheat on us and do the exact reversals etc.
How can we find out that a certain breakout of a particular stock price is genuine and not a fake one -so that we trade on that?

shall I pick up the rising volume as a supporting thing?
shall I pick the crossing above a regular pivot level as a strong guidance?
OR SHALL I base my decision on stockhastics or roc?
IMHO, first things first: I do not suggest in anyways trading only on breakout, I dont practise that myself. I dont suggest buying simply on breakouts of yeasterday high, and selling of a stock on break below yesterday low. Things can never be that simple in the market.

At the time of breakout the volume goes high and prices move with great force. Momentum based strategies work here.
Yes, more important is what if prices cheat on us. If the risk element is well taken care of only rewards are left.Let me elaborate.

Prices have some amount of randomness, and the amount of randomness exactly at a point of time should be judged. Say if we are about to buy, the prices have some definite probability to move up, and a definite probability to move down. A picture says more than a thousand words.
http://www.traderji.com/57594-post48.html
I had suggested a long position on NALCO since it had been under a very clear accumulation. What shall an analyst have said about the probability of moving down? 0.5? then he is not an analyst. The prices had little chances of moving down from there, say less than 0.1. The breakout did not happen at that particular time. But they did not move with countertrend either. They make noise for sometime, and then start giving me profits. And so i won.

Next consider the chart of TITAN, I have been suggesting it tens of times in the chatroom the past week. What does one judge about its probability of moving up? Open for criticism, just like BOMBAYDYEIN.

Now about the rewards. Once a breakout-trade becomes successful it is suggested to start pyramiding up as much portfolio as risk/reward allows.Even if one one breakout can be identified in a month it is worth the efforts, that is.

Now more about picking up a possible candidate for breakout. IMHO, prices and volumes are the most important thing. Everything else follows. Thats why I said pattern study is most important. I do not use stochs or MACD or MAs. I use only Bollinger Bands, that too just because they help me visualize faster and easier. Please dont ask me to give my full system for public criticism.
ANY TRADER MUST SEE THESE Q ..ANSWERED..
.................................................. ................
How to know where to put your stop loss and when to move it

Learn the key to understanding & applying volume

How really understanding volume can deliver larger profits

Which indicators work best

How to properly combine indicators for outstanding reliability

Charting mistakes that can cause you to miss some of the best trades

Advanced support and resistance techniques

How to keep from getting whipsawed out of a trade
Stocks you should avoid like the plague

How to profit no matter which direction the market is going

The best way to stay in a profitable trade (swings & trends)

The logistics of opening and closing trades

The Achilles Heel of traders, "Money Management" including;

How improper capitalization can sink your ship

Proper position sizing

How to get the most out of your brokerage account

How record keeping can increase your profits

Demonstrates how simple successful trading can be

How the understanding of an indicator can produce superior profits
 

oilman5

Well-Known Member
#16
Money Management
Volatility Stop Loss
One of the common ways to set an initial stop loss is to use a volatility method.
The volatility method I consider uses a concept (also a technical indicator) called Average True Range (ATR). If you are not familiar with it, it would be best to read up on ATR, then come back here.
Using a volatility method, you are prepared after entry, for the price to fall a distance which is based on the volatility of that one stock (or how far it normally moves on a day to day basis).
Taking material from the ATR article - to use ATR for exits, you would normally use a multiple of the ATR to ensure a sufficient gap between your exit and the stock's normal price movement. Therefore, using the ATR without any modification (the ATR value itself, eg. 5 cents) would have your stop loss too close to the price and would not allow the stock you are trading sufficient room to move and behave naturally.
INITIAL STOPLOSS
THIS IS TO BE USED ONLY SO FAR AS YOU MOVE INTO PROFIT ZONE.
Depending on your trading style, you would normally consider using something in the order of 2 - 3.5 multiplied by the ATR as a suitable initial stop loss. If you used what is referred to as a ‘2.5 ATR stop’, then your initial stop loss will be 2.5 multiplied by the ATR below your entry price.

As an example, we purchase XYZ Corporation at $2.20, and we use a 3ATR initial stop loss. The ATR is 5.4 cents.

We work out what the ATR multiplied by 3 is and then subtract that from the entry price.

Using the example detailed above, the exit price is calculated as follows:

Initial stop loss
= $2.20 - 3 x ATR
= $2.20 - 3 x $0.054
= $2.20 - $0.162 (round down to $0.16)
= $2.04

NB: Yes you could have rounded the $0.162 up to $0.17 however it is not worth discussing. Let me assure you that the 1 cent up for grabs won't really matter in the long run.

So in the above example, our initial stop loss for our trade with an entry price of $2.20 would be $2.04.

Remember, the advantage of this method is that it considers the volatility of the stock you are purchasing and tailors the initial stop loss accordingly.
Of course, you can use any range of numbers, eg. 1.5ATR through to 4 - 5ATR. The items to consider are the same as using different percentages.

If you use a 1.5ATR initial stop loss, you are obviously not allowing your stock to fall as far before you consider it a loser and exit the trade at a loss. This can be a disadvantage as you are potentially not allowing your stock the freedom to move above normally and perhaps continue its medium term trend.

On the other side, if you use a 4ATR initial stop loss, you are providing the stock ample opportunity to move in your anticipated direction before you consider it a loser and exit the trade at a loss.

Let's consider the 4ATR initial stop loss for a moment then - you might be reading this and think "but if I give back all that movement before I exit, I am going to lose more money!"

Fair comment - however it depends.

If you commit an equal amount of money to each trade, then yes, you are correct. Having your initial stop loss further away will result in a greater loss.

However, using a better position sizing model, ensures that regardless of how far your initial stop loss is away, you only lose the same amount of money. This is what money management is all about.
This method can be quite effective and you will naturally discover what multiple of the ATR is best for you. This is all there has to be with calculating an initial stop loss, if that is it, then it makes you wonder why more people don't use it and cut their losses.
Let me reiterate - one of the most important things you can do trading is to cut your losses."Learn to take losses. The most important thing in making money is not letting your losses get out of hand."

Courtesy
Marty Schwartz


Where can you get ATR?
Visit www.icharts.in

Remember each stock has its own ATR, that of infosys is not same as that of
Maruti.
There are 3 most factors that effect a Investor or a Trader in the Markets.
Of them are Greed, Fear and Hope. I will list a breif description of each of the below.

Greed: taking the meaning from Webster's (noun)
1. Excessive desire to acquire or possess more (esp material wealth) than one needs or deserves.
2. Reprehensible acquisitiveness; insatiable desire for wealth (personified as one of the deadly sins).
Greed always says, wait a little more so that the holding will rise and can make more Money.

Fear: taking the meaning from Webster's (verb, felt more appropriate)
1. Be afraid or feel anxious or apprehensive about a possible or probable situation or event (example: If I dont enter this stock now, I will loose on it).

Hope: from Webste'rs (verb, best suited for Markets)
1. Be optimistic; be full of hope; have hopes; "I am still hoping that all will turn out well".
2. Intend with some possibility of fulfilment; "I hope to have finished this work by tomorrow evening".

Well holding a loosing position even if it down to 20-30% ? This is Hope, that make you feel that the stock will go up and you can recover your lossess.


No one can shy away or exempted from these 3 factors when involved in the Marktes. Let it be those FII's, Fund Managers or our new breed of Tech Savvy Brokers, Professional Traders or the Retail Investors.

When this thought comes that, which breed of Traders/Investors get killed or maimed in a Steep Correction? The answer was simple, 90% of the time, the retail investors followed by Professional Traders, Mutual Funds (unless, they have a really Bad Manager like me ) and very minismal are the FII's.

Why so the retail investors get killed, when the same GFH Factor governs one and all? Well, the answer is simple, if you understand the markets very well and for the laymen it goes this way.

The simple difference between Life and Death in the Stock Market is controlling the GHF Factor. The less the GFH Factor, the more the Survival here.

That is the reason, why the FII's, Mutual Fund Manager and Professional Traders survive here more than retail investors. Since they know how to control their GFH Factors.

Variably or Invariably why others can control their GFH factor and why not the retail? at the end all are human beings! The thing is there are checks and balances in terms of methodologies to control the GFH for the Big Guys, there is no one to control a retail as he his a Boss for himself. Thats how the self destruction starts.

The 3'Ms: The 3'M ( Mind, Money & Methodologies) will help you control the GFH Factor. I am lifiting this straight way from Alexander Elder's book (Trading for A Living & Welcome Into My Trading Room).

1. Control the Mind and overcoming the emtions ( GFH Factor).
2. Protect your Money( mazimize profits and cut lossess by Proper Entry and Exit Plans)
3. using Methodologies ( Pyramiding, Reverse-Scale Techniques, Stop Losses)

Also, these days Trading Systems are available for dirt cheap. If you want to make money, be ready to spend money to get your proper setup.

Like
1. For a swing or short-term trader, a EOD Charting Software is more than Enough
2. For a Day-Trader, access to Real-Time data is crucial, even a 5 min delay can kill you.


I may have presented this not in a orderly fashion, but most of them I learnt some myself, some reading books and some from the Traderji forum.

Satya
Expected or unexpected eventualities though unpleasant happen at times even with all the forces trying to prevent it. With increasing stress between Left and UPA, a trouble in the government cannot be ruled out entirely at the present time. This probability led me to put this thread here. Market reacts to this kind of stuff sharply and then recover in a short timeframe (according to a study on rediff.com which I could not locate now, average time of recovery to previous levels in US market is around 4 days... hope my memory is not very bad). Now when it happens, this, though unfortunate an event, gives opportunity to capitalize intraday or in short term. That was the good part of a bad thing. Now the bad part of the same bad thing is that just at that right moment, our emotions take control and decision-making capability is smashed. We are confused and in yo-yo situation, shall we sell, shall we buy. If we can develop a rule (intraday as well as delivery) for these eventualities, then that would make up for our decreased insight during such time.

I would request readers to put their valuable opinion and share experiences, especially senior members who have huge collection of such experiences.

Thanks

Ravi S Ghosh
Step One: Unconscious Incompetence.

This is the first step you take when starting to look into trading. you know that its a good way of making money cos you've heard so many things about it and heard of so many millionaires.Unfortunately, just like when you first desire to drive a car you think it will be easy - after all, how hard can it be?? - price either moves up or down - what's the big secret to that then - lets get cracking!

unfortunately, just as when you first take your place in front of a steering wheel you find very quickly that you haven't got the first clue about what you're trying to do. you take lots of trades and lots of risks. when you enter a trade it turns against you so you reverse and it turns again .. and again, and again.

you try to turn around your losses by doubling up every time you trade - sometimes you'll get away with it but more often than not you will come away scathed and bruised

Well this is stage one - you are totally oblivious to your incompetence at trading.Stage one can last for a week or two of trading but the market is usually swift and you move onto stage two.

Stage Two - Conscious Incompetence

Stage two is where you realise that there is more work involved in this and that you might actually have to work a few things out.

you consciously realise that you are an incompetent trader - you don't have the skills or the insight to turn a regular profit.

During this phase you will buy systems and e-books galore, read websites based everywhere from Russia to the Ukraine. and begin your search for the holy grail.

During this time you will be a system whore - you will flick from method to method day by day and week by week never sticking with one long enough to actually see if it does work. every time you came upon a new indicator you'll be ecstatic that this is the one that will make all the difference.

you will test out automated systems on Autotraders, you'll play with moving averages, Fibonacci lines, support & resistance, Pivots, Fractals, Divergence, DMI, ADX, and a hundred other things all in the vein hope that your 'magic system' starts today.

you'll be a top and bottom picker, trying to find the exact point of reversal with your indicators and you'll find yourself chasing losing trades and even adding to them cos you are so sure you are right.

You'll go into the live chat room and see other traders making pips and you want to know why it's not you - you'll ask a million questions, some of which are so dumb that looking back you feel a bit silly. You'll then reach the point where you think all the ones who are calling pips after pips are liars - they cant be making that amount cos you've studied and you don't make that, you know as much as they do and they must be lying. but they're in there day after day and their account just grows whilst yours falls.

You will be like a teenager - the traders that make money will freely give you advice but you're stubborn and think that you know best - you take no notice and over leverage your account even though everyone says you are mad to - but you know better.

you'll consider following the calls that others make but even then it wont work so you try paying for signals from someone else - they don't work for you either.

This phase can last ages and ages - in fact in reality it can last well over a year - My own period lasted about 18 months.

Eventually you do begin to come out of this phase. You've probably committed more time and money than you ever thought you would, lost 2 or 3 loaded accounts and all but given up maybe 3 or 4 times.

Then comes stage 3

Stage 3 - The Eureka Moment

Towards the end of stage two you begin to realise that it's not the system that is making the difference.

you realise that its actually possible to make money with a simple moving average and nothing else IF you can get your head and money management right

You start to read books on the psychology of trading and identify with the characters portrayed in those books.

Finally comes the eureka moment.

The eureka moment causes a new connection to be made in your brain.

you suddenly realise that neither you, nor anyone else can accurately predict what the market will do in the next ten seconds
and you define your risk threshold.

You start to take every trade that your 'edge' shows has a good probability of winning with.

when the trade turns bad you don't get angry or even because you know in your head that as you couldn't possibly predict it it isn't your fault - as soon as you realise that the trade is bad you close it . The next trade will have higher odds of success cos you know your simple system works.

You have realised in an instant that the trading game is about one thing - consistency of your 'edge' and your discipline to take all the trades no matter what.

You learn about proper money management and leverage - risk of account etc etc - and this time it actually soaks in and you think back to those who advised the same thing a year ago with a smile

you weren't ready then, but you are now.

The eureka moment came the moment that you truly accepted that you cannot predict the market.

Then comes stage four

Stage 4 - Conscious Competence

Ok, now you are making trades whenever your system tells you to.

you take losses just as easily as you take wins

you now let your winners run to their conclusion fully accepting the risk and knowing that your system makes more money than it loses and when you're on a loser you close it swiftly with little pain to your account

You are now at a point where you break even most of the time - day in day out, you will have weeks where you make 100 pips and weeks where you lose 100 pips - generally you are breaking even and not losing money.

you are now conscious of the fact that you are making calls that are generally good and you are getting respect from other traders as you chat the day away.

You still have to work at it and think about your trades but as this continues you begin to make more money than you lose consistently.

you'll start the day on a 20 pip win, take a 35 pip loss and have no feelings that you've given those pips back because you know that it will come back again.

you will now begin to make consistent pips week in and week out 25 pips one week, 50 the next and so on.

this lasts about 6 months

then comes Stage Five

Stage Five - Unconscious Competence

Now were cooking - just like driving a car, every day you get in your seat and trade - you do everything now on an unconscious level.

you are running on autopilot. You start to pick the really big trades and getting 100 pips in a day is becoming quite normal to you.

This is trading utopia - you have mastered your emotions and you are now a trader with a rapidly growing account.
you're a star in the trading chat room and people listen to what you say. you recognise yourself in their questions from about two years ago.

you pass on your advice but you know most of it is futile cos they're teenagers - some of them will get to where you are - some will do it fast and others will be slower - literally dozens and dozens will never get past stage two but a few will.

Trading is no longer exciting - in fact it's probably boring you to bits - like everything in life when you get good at it or do it for your job - it gets boring - you're doing your job and that's that.

You can now say with your head held high "I'm a trader
traders experience a rite of passage and baptism by fire during the first few months after opening up a trading account; emotional mismanagement combined with a general sense of complete and utter confusion as a stock appears to trade in a manner opposite of what they would think in light of the fundamental research.

A perfect example: Taser International (TASR: news, chart, profile).

Even if you are completely new to the world of trading or investing, there is a good chance that this developer and manufacturer of less-lethal self-defense devices has entered your trading universe. The real question is, "How can a trader effectively filter out the noise and look at TASR shares objectively?"

Do not buy TASR! Why? Well, for one, prisoner-rights group Amnesty International said stun guns are needlessly deadly and more testing is needed. A red flag. Moreover, many articles and reports have surfaced, especially in the New York Times, raising questions about safety and adding to the specter of debilitating lawsuits in the future.

In addition, it has been said that corporate insiders have sold 1.3 million shares, worth roughly $68.4 million, and this coupled with over 50 deaths associated with these "less-lethal" guns must have bullish traders running to the hills. Additionally, quarter-to-quarter sales growth has fallen from 24 percent to 16 percent in the third quarter. Do not buy!

If these reasons were not enough, consider that as of November 15th there were over 15.9 million shares short; thus making it clear many traders are in fact betting prices will fall. How can they be wrong?
This should be a proverbial slam dunk for bears; however, I feel it only makes prudent sense to explore another angle on TASR before coming to a decision. In fact, most true trading professionals only look at an objective, pragmatic analysis of the market, by studying supply and demand on a chart -- Technical Analysis (TA). Almost all the aforementioned information was simply subjective "news" that elicits emotions that run contrary to profitable thought. Do you remember when the bad news about Enron hit the marketplace? Trust me, it wasn't near the top and only a clear knowledge of charts patterns would have given a trader a "real" read of emotions.

Technical analysis paints the psychological picture from A to Z, and if a stock is in an uptrend in spite of a negatively spun fundamental story, technicians can easily look past the fundamental theme because they are comfortable with certain chart patterns that they have seen over time that allow them to define risk vs. reward and make clear what the path of least resistance is.

In the short-term, which is less influenced by the fundamental company performance, money flow and psychology are the underlying factors that technicians can use to get a sense where the money is going and what current psychology is. They may soon become more favorable to accepting the risk of an upside move vs. a downside slide. With that said, before we submit orders to go short TASR, let's explore the technicals.

As of this writing TASR is currently trading above its 10-, 20-, 50-,100- and 200-day moving averages (DMA). With the 50 DMA rising, a technician can conclude that shares have been traversing higher and that the path of least resistance is higher. Additionally, these moving averages are all pointed higher and they are aligned in such a way that the 10 DMA is above the 20 DMA and the 20 DMA is above the 50 DMA, and the 50 above the 100, and so on. Alignment in this fashion is bullish and reinforces the objectiveness of the trend -- bullish. What is more relevant to a trader, a bad news story or price action? Emotional traders generally follow the former.

Continuing on, there was a failed attempt in early November to take out the yearly highs of $32.08 and during the last month shares have been creating a symmetrical triangle and appear poised to breakout higher. Of course, who will fuel the demand? Well, for one, traders that have been selling TASR short (borrowing shares with an obligation to deliver shares back to the brokerage house, and a trader is forced to cover -- "called away" -- if the lender wants the shares back) may all rush in to cover at once if the primary trend continues.

Simplicity is the market's greatest disguise. Traders turn on the TV, gulp five cups of espresso, and then sometimes trade based upon information that most traders have fully dissected hours, sometimes days, ago. I have found that taking the subjectiveness out of the equation and using technical analysis can turn the opaque into the transparent. As the saying goes, "Trade what you observe, not what you believe." I observe price action in TASR as bullish and giving an antithesis reaction to recent fundamental negativity. And the best part of all is that, as a trader, I can limit my bullish risk via stop loss order and, if triggered, listen to the market. Of course, odds are I am right. Buy TASR.
david nasar
An anatomy of the Stock Market! - Bull & Bear Market Cycles

In financial markets, the “majority is always wrong.” When the investing majority or the crowd is overly bearish, this is the best time to be buying stocks. When the crowd is overly exuberant, this is the time to be selling stocks. The financial markets work in this ironic way because not everyone can win in the market.

The Start of a Bull Market

The bottom of the market starts at a time when the stock market is weak and the general population is pessimistic. At this point most investors sell after having endured a long and torturous bear market. This extreme pessimism found at a bottom is always irrational and undeserved. Now the market is undervalued and is a bargain. Savvy investors, the “smart money”, buy bargain stocks knowing that they will be able to sell them higher in the near future. Smart money buying, called accumulation, causes stocks to rise.

The smart money often consists of operators, and corporate insiders (promoters of companies). These traders have access to information that the general public does not.

Rising stocks eventually gain the respect of institutional investors, as billions of dollars of capital is introduced into the market place. Mutual fund investment causes the stock market to advance in a powerful manner. Much of the steady large trends are powered by institutional investors. After the stock market has gained, stocks are now fairly valued and are no longer considered bargains. The smart money is now sitting on a large profit, as well. The average investor is still skeptical, however.

As bull market events unfold, retail investors begin to take interest in stocks. Retail investors, or the unsophisticated little guy, make up the vast majority of investors. This group does not invest for a living. Retail investors often make investment decisions based on what they read in financial magazines, from their brokers and from tips from friends. As the flood of retail capital is invested, the market soars, causing great euphoria. At this point in the cycle, many companies become public, or launch an IPO. Companies go public when investor sentiment is most optimistic so as to gain the highest possible stock price. IPO’s generate even more optimism as unsophisticated investors buy into the fallacious thoughts of instant riches. Now is the time when many small investors become wealthy. In this phase, stocks are doubling and tripling as the media cheers on the advancing bull market.

At this point, the smart money sells, or distributes, the now overvalued stocks to overconfident retail investors. The smart money knows that overvalued stocks are no longer worthy investments, and will soon drop in value. Widespread greed always occurs, in some form, at stock market tops. Sometimes this greed takes form as stock market scams and fraud. These immoral activities can take place because irrational retail investors will buy a stock simply because it is glamorous. To compound the problems, investors will now start to use margin, or leverage, to further accelerate gains. All caution is thrown to the wind as investors think “the old rules don’t apply”

The Start of a Bear Market

After mutual funds and retail investors are fully invested, the market is overbought. This means that there is no more cash to fuel the rally. The market can only go in one direction: down. All it takes is just a hint of negative news and the market collapses under its own weight. Investors quickly realize the market is made of smoke and mirrors, as frauds or other scams come to light.

When panic selling starts, a market will always fall quicker than it had risen. Oftentimes, as everyone heads for the exit at the same time, there isn’t anyone willing to buy the stock. This can be especially disastrous for margin users as they grow deeply indebted to their brokers. Bankruptcy is the usual result for these foolish gamblers. The majority of retail investors don’t sell even as the market is plummeting. This crowd keeps holding on to stocks in hopes that the market will recover. As the market plummets 25%, then 50% the average retail investor foolishly holds on, in complete denial that the bull market is over. Finally retail investors sell every stock they own plummeting the market even further. This mass exodus is called capitulation.

The Cycle Starts Again

It is at this point that stocks are undervalued once again. The smart money is accumulating and stocks rise. The majority of retail investors bought at the top and sold at the very bottom. This is the very essence of the “dumb money”. They are perpetually late into the game. This cycle continues over and over. Only the smart money actually “buys low and sells high”. After trading in this manner, the dumb money will adhere to adages such as, “the stock market is risky”. In reality, however, the stock market is only risky if you trade like the mindless majority
How does one know that the market is topping. Though I am no expert, these are my observations(nifty/sensex):-

1) Monthly charts at all time high
2) Momentum indicators in weekly charts showing overbought levels or prices falling below 30 week average
3) Prices falling below the 200 day moving average or below the two-thirds fibonnacci retracement of the primary market trend
I don’t know how much fibonacci applies to weekly charts in this respect

Following the ripple, wave, tide syndrome, you probably identify the tide change by looking at the monthly/weekly charts and look for intraday turnarounds beginning with looking for bearish reversal patternos on 30 min charts?
I should add that When the market peaks and one wants to sell, one can apply a 20day moving average as a trailing stop loss.?

One can always get further intellectual satisfaction by tracking US interest rates, FII and mutual activity etc.

For identifying market bottoms, it would be reverse of the above. I have always been fascinated by how investors use technical analysis and traderji has come with a really good post. However unless we have specific and correct pinpointed information, such posts cannot stop trailing losses to us small,little,tiny investors. Its David v/s Goliath and you gotta support the underdog.

I am not much of an expert at all this and so any corrections would be as welcome as corrections to primary trends are to detect a new trend. Weekly specifications of stochastics/RSI and others applicable also would be appreciated.

Come to think of it, I have not seen any monthly chart attachment on any of the posts and weekly chart also comes in once in a blue moon. Anybody wants to criticize what I have written or contribute anything on Techincal analysis for investing, please do so. Sometimes, TA seems better at timing investment profits then following the short term hocus pocus. However TA itself is a conglomerate of indicators and so the more precise and clear the info, the better. Lets create a new trend for the small guy. If we create understanding, the small guy will no longer remain a puppy between the bulls and the bears.

Quote:
If the analyst action observes market action to be bullish for a number of months, mkt is bullish and all retracements will find support at lower prices. Otherwise they will not find support"

This explains the two- thirds fibonacci

Elsewhere in the book, the author has explained in little more detail what traderji has explained above. He says there are three categories of stocks-primary, secondary, tertiary. When the mkt bottoms out, savvy investors first pick up the primary stocks or blue chips as a sign of revival. They being blue chips, others cannot afford at the end of bear cycle. Then after a while they dump them to others and switch to secondary stocks and when both peak they sell both and sit pretty waiting for the market to bottom again. There too the primary stocks are the last to fall and when they begin falling it can be a sign of doomsday.The five wave Elliot wave theory probably explains this phenomenan but unfortunately the wave count is too bloody confusing.I know that profits are made mostly in the third and fifth impulse waves. I think at the end of the first impulse wave, primary issues peak, third impulse wave-primary/secondary issues peak and fifth impulse wave- all peak and the market tops. This is my guess but if some enlightened person from among you can illuminate this phenomenan, that would be the height of illumination/elnightenment.Otherwise it would be the mother of all confusions which we can do without since we already have the mkt.

Us little guys unfortunately try to get in at every tom, dick and harry stock(in all the three categories)are at a peak and get rodgered in the process unless we are lucky.
One of the most ROBUST & RELIABLE WAY to identify BULL & BEAR Markets are as follows:

A BULL MARKET can be defined when the major Indices (BSE SENSEX, NSE NIFTY, etc) form a series of rising peaks and rising troughs (higher highs and higher lows) in the WEEKLY CHARTS.

A BEAR MARKET can be identified when the major Indices (BSE SENSEX, NSE NIFTY, etc) form a series of declining peaks and declining troughs (lower highs and lower lows) in the WEEKLY CHARTS.
__________________TRADERJI
Since v are talking about the Bulls and the Bears..im inclined to comment on the current market scenario....
There is a lot of caution within the circles of "know how"....these are the people with lot more knowledge and money invested in the market...
These are the people who are talking about terms such as "evaluations and overstretched"...
These are the BEARS of the market in the current scenario...who are trying to time their exit from the market now rather then their next multibagger...

At the same time v find the BULLS...these are momentum players and huge individual swing traders.....Average investers as me and majority of the members are a part of this club...V are the people who probably boarded the train a bit late and are yet to realise the huge profits that would satisfy us...and v keep throwin in more and more to keep the fire burning..

This market is close to crossroad with the BULLS and BEARS tugging it out...
As of now the BULLS are heavy with the market showing little appetite for corrections....Apart from one week in between the markets have closed in positive on a weekly basis...
But as is mentioned in the previous article...as the market grows in confidence...gravity will finally will take over...there WILL BE a downfall...but for optimist like me that will just be the start and foundation for another BULL RUN....

Never risk more than 10% of your trading capital in a single trade.

Always use stop loss orders.( Here you should know your loss you can give in a situation where the trade starts going against you.)

Never do overtrading.

Never let a profit run into a loss.

Don't enter a trade if you are unsure of the trend.

When in doubt, get out, and don't get in when in doubt.

Never limit your orders. Trade at the markets.

Extra monies from successful trades should be placed in a separate account.

Never trade to scalp a profit.

Never average
Never get out of the market because you have lost patience, or get in because you are anxiously waiting.

Avoid taking small profits and large losses.

Never cancel a stop loss after you have placed it.

Avoid getting in and out of the market too soon.

Be willing to make money from both sides of the market.

Never buy or sell just because the price is low or high.

Never hedge a losing position.

Never change your position without a good reason.

Avoid trading after long periods of success or failure.

Don't try to guess tops or bottoms.

Don't follow a blind man's advice.

Avoid getting in wrong and out wrong; or getting in right and out wrong. This is making a double mistake.

When you lose don't blame it on luck.
.................................................................................
 

oilman5

Well-Known Member
#17
Money Management
Volatility Stop Loss
One of the common ways to set an initial stop loss is to use a volatility method.
The volatility method I consider uses a concept (also a technical indicator) called Average True Range (ATR). If you are not familiar with it, it would be best to read up on ATR, then come back here.
Using a volatility method, you are prepared after entry, for the price to fall a distance which is based on the volatility of that one stock (or how far it normally moves on a day to day basis).
Taking material from the ATR article - to use ATR for exits, you would normally use a multiple of the ATR to ensure a sufficient gap between your exit and the stock's normal price movement. Therefore, using the ATR without any modification (the ATR value itself, eg. 5 cents) would have your stop loss too close to the price and would not allow the stock you are trading sufficient room to move and behave naturally.
INITIAL STOPLOSS
THIS IS TO BE USED ONLY SO FAR AS YOU MOVE INTO PROFIT ZONE.
Depending on your trading style, you would normally consider using something in the order of 2 - 3.5 multiplied by the ATR as a suitable initial stop loss. If you used what is referred to as a 2.5 ATR stop, then your initial stop loss will be 2.5 multiplied by the ATR below your entry price.

As an example, we purchase XYZ Corporation at $2.20, and we use a 3ATR initial stop loss. The ATR is 5.4 cents.

We work out what the ATR multiplied by 3 is and then subtract that from the entry price.

Using the example detailed above, the exit price is calculated as follows:

Initial stop loss
= $2.20 - 3 x ATR
= $2.20 - 3 x $0.054
= $2.20 - $0.162 (round down to $0.16)
= $2.04

NB: Yes you could have rounded the $0.162 up to $0.17 however it is not worth discussing. Let me assure you that the 1 cent up for grabs won't really matter in the long run.

So in the above example, our initial stop loss for our trade with an entry price of $2.20 would be $2.04.

Remember, the advantage of this method is that it considers the volatility of the stock you are purchasing and tailors the initial stop loss accordingly.
Of course, you can use any range of numbers, eg. 1.5ATR through to 4 - 5ATR. The items to consider are the same as using different percentages.

If you use a 1.5ATR initial stop loss, you are obviously not allowing your stock to fall as far before you consider it a loser and exit the trade at a loss. This can be a disadvantage as you are potentially not allowing your stock the freedom to move above normally and perhaps continue its medium term trend.

On the other side, if you use a 4ATR initial stop loss, you are providing the stock ample opportunity to move in your anticipated direction before you consider it a loser and exit the trade at a loss.

Let's consider the 4ATR initial stop loss for a moment then - you might be reading this and think "but if I give back all that movement before I exit, I am going to lose more money!"

Fair comment - however it depends.

If you commit an equal amount of money to each trade, then yes, you are correct. Having your initial stop loss further away will result in a greater loss.

However, using a better position sizing model, ensures that regardless of how far your initial stop loss is away, you only lose the same amount of money. This is what money management is all about.
This method can be quite effective and you will naturally discover what multiple of the ATR is best for you. This is all there has to be with calculating an initial stop loss, if that is it, then it makes you wonder why more people don't use it and cut their losses.
Let me reiterate - one of the most important things you can do trading is to cut your losses."Learn to take losses. The most important thing in making money is not letting your losses get out of hand."

Courtesy
Marty Schwartz


Where can you get ATR?
Visit www.icharts.in

Remember each stock has its own ATR, that of infosys is not same as that of
Maruti.
There are 3 most factors that effect a Investor or a Trader in the Markets.
Of them are Greed, Fear and Hope. I will list a breif description of each of the below.

Greed: taking the meaning from Webster's (noun)
1. Excessive desire to acquire or possess more (esp material wealth) than one needs or deserves.
2. Reprehensible acquisitiveness; insatiable desire for wealth (personified as one of the deadly sins).
Greed always says, wait a little more so that the holding will rise and can make more Money.

Fear: taking the meaning from Webster's (verb, felt more appropriate)
1. Be afraid or feel anxious or apprehensive about a possible or probable situation or event (example: If I dont enter this stock now, I will loose on it).

Hope: from Webste'rs (verb, best suited for Markets)
1. Be optimistic; be full of hope; have hopes; "I am still hoping that all will turn out well".
2. Intend with some possibility of fulfilment; "I hope to have finished this work by tomorrow evening".

Well holding a loosing position even if it down to 20-30% ? This is Hope, that make you feel that the stock will go up and you can recover your lossess.


No one can shy away or exempted from these 3 factors when involved in the Marktes. Let it be those FII's, Fund Managers or our new breed of Tech Savvy Brokers, Professional Traders or the Retail Investors.

When this thought comes that, which breed of Traders/Investors get killed or maimed in a Steep Correction? The answer was simple, 90% of the time, the retail investors followed by Professional Traders, Mutual Funds (unless, they have a really Bad Manager like me ) and very minismal are the FII's.

Why so the retail investors get killed, when the same GFH Factor governs one and all? Well, the answer is simple, if you understand the markets very well and for the laymen it goes this way.

The simple difference between Life and Death in the Stock Market is controlling the GHF Factor. The less the GFH Factor, the more the Survival here.

That is the reason, why the FII's, Mutual Fund Manager and Professional Traders survive here more than retail investors. Since they know how to control their GFH Factors.

Variably or Invariably why others can control their GFH factor and why not the retail? at the end all are human beings! The thing is there are checks and balances in terms of methodologies to control the GFH for the Big Guys, there is no one to control a retail as he his a Boss for himself. Thats how the self destruction starts.

The 3'Ms: The 3'M ( Mind, Money & Methodologies) will help you control the GFH Factor. I am lifiting this straight way from Alexander Elder's book (Trading for A Living & Welcome Into My Trading Room).

1. Control the Mind and overcoming the emtions ( GFH Factor).
2. Protect your Money( mazimize profits and cut lossess by Proper Entry and Exit Plans)
3. using Methodologies ( Pyramiding, Reverse-Scale Techniques, Stop Losses)

Also, these days Trading Systems are available for dirt cheap. If you want to make money, be ready to spend money to get your proper setup.

Like
1. For a swing or short-term trader, a EOD Charting Software is more than Enough
2. For a Day-Trader, access to Real-Time data is crucial, even a 5 min delay can kill you.


I may have presented this not in a orderly fashion, but most of them I learnt some myself, some reading books and some from the Traderji forum.

Satya
Expected or unexpected eventualities though unpleasant happen at times even with all the forces trying to prevent it. With increasing stress between Left and UPA, a trouble in the government cannot be ruled out entirely at the present time. This probability led me to put this thread here. Market reacts to this kind of stuff sharply and then recover in a short timeframe (according to a study on rediff.com which I could not locate now, average time of recovery to previous levels in US market is around 4 days... hope my memory is not very bad). Now when it happens, this, though unfortunate an event, gives opportunity to capitalize intraday or in short term. That was the good part of a bad thing. Now the bad part of the same bad thing is that just at that right moment, our emotions take control and decision-making capability is smashed. We are confused and in yo-yo situation, shall we sell, shall we buy. If we can develop a rule (intraday as well as delivery) for these eventualities, then that would make up for our decreased insight during such time.

I would request readers to put their valuable opinion and share experiences, especially senior members who have huge collection of such experiences.

Thanks

Ravi S Ghosh
Step One: Unconscious Incompetence.

This is the first step you take when starting to look into trading. you know that its a good way of making money cos you've heard so many things about it and heard of so many millionaires.Unfortunately, just like when you first desire to drive a car you think it will be easy - after all, how hard can it be?? - price either moves up or down - what's the big secret to that then - lets get cracking!

unfortunately, just as when you first take your place in front of a steering wheel you find very quickly that you haven't got the first clue about what you're trying to do. you take lots of trades and lots of risks. when you enter a trade it turns against you so you reverse and it turns again .. and again, and again.

you try to turn around your losses by doubling up every time you trade - sometimes you'll get away with it but more often than not you will come away scathed and bruised

Well this is stage one - you are totally oblivious to your incompetence at trading.Stage one can last for a week or two of trading but the market is usually swift and you move onto stage two.

Stage Two - Conscious Incompetence

Stage two is where you realise that there is more work involved in this and that you might actually have to work a few things out.

you consciously realise that you are an incompetent trader - you don't have the skills or the insight to turn a regular profit.

During this phase you will buy systems and e-books galore, read websites based everywhere from Russia to the Ukraine. and begin your search for the holy grail.

During this time you will be a system whore - you will flick from method to method day by day and week by week never sticking with one long enough to actually see if it does work. every time you came upon a new indicator you'll be ecstatic that this is the one that will make all the difference.

you will test out automated systems on Autotraders, you'll play with moving averages, Fibonacci lines, support & resistance, Pivots, Fractals, Divergence, DMI, ADX, and a hundred other things all in the vein hope that your 'magic system' starts today.

you'll be a top and bottom picker, trying to find the exact point of reversal with your indicators and you'll find yourself chasing losing trades and even adding to them cos you are so sure you are right.

You'll go into the live chat room and see other traders making pips and you want to know why it's not you - you'll ask a million questions, some of which are so dumb that looking back you feel a bit silly. You'll then reach the point where you think all the ones who are calling pips after pips are liars - they cant be making that amount cos you've studied and you don't make that, you know as much as they do and they must be lying. but they're in there day after day and their account just grows whilst yours falls.

You will be like a teenager - the traders that make money will freely give you advice but you're stubborn and think that you know best - you take no notice and over leverage your account even though everyone says you are mad to - but you know better.

you'll consider following the calls that others make but even then it wont work so you try paying for signals from someone else - they don't work for you either.

This phase can last ages and ages - in fact in reality it can last well over a year - My own period lasted about 18 months.

Eventually you do begin to come out of this phase. You've probably committed more time and money than you ever thought you would, lost 2 or 3 loaded accounts and all but given up maybe 3 or 4 times.

Then comes stage 3

Stage 3 - The Eureka Moment

Towards the end of stage two you begin to realise that it's not the system that is making the difference.

you realise that its actually possible to make money with a simple moving average and nothing else IF you can get your head and money management right

You start to read books on the psychology of trading and identify with the characters portrayed in those books.

Finally comes the eureka moment.

The eureka moment causes a new connection to be made in your brain.

you suddenly realise that neither you, nor anyone else can accurately predict what the market will do in the next ten seconds
and you define your risk threshold.

You start to take every trade that your 'edge' shows has a good probability of winning with.

when the trade turns bad you don't get angry or even because you know in your head that as you couldn't possibly predict it it isn't your fault - as soon as you realise that the trade is bad you close it . The next trade will have higher odds of success cos you know your simple system works.

You have realised in an instant that the trading game is about one thing - consistency of your 'edge' and your discipline to take all the trades no matter what.

You learn about proper money management and leverage - risk of account etc etc - and this time it actually soaks in and you think back to those who advised the same thing a year ago with a smile

you weren't ready then, but you are now.

The eureka moment came the moment that you truly accepted that you cannot predict the market.

Then comes stage four

Stage 4 - Conscious Competence

Ok, now you are making trades whenever your system tells you to.

you take losses just as easily as you take wins

you now let your winners run to their conclusion fully accepting the risk and knowing that your system makes more money than it loses and when you're on a loser you close it swiftly with little pain to your account

You are now at a point where you break even most of the time - day in day out, you will have weeks where you make 100 pips and weeks where you lose 100 pips - generally you are breaking even and not losing money.

you are now conscious of the fact that you are making calls that are generally good and you are getting respect from other traders as you chat the day away.

You still have to work at it and think about your trades but as this continues you begin to make more money than you lose consistently.

you'll start the day on a 20 pip win, take a 35 pip loss and have no feelings that you've given those pips back because you know that it will come back again.

you will now begin to make consistent pips week in and week out 25 pips one week, 50 the next and so on.

this lasts about 6 months

then comes Stage Five

Stage Five - Unconscious Competence

Now were cooking - just like driving a car, every day you get in your seat and trade - you do everything now on an unconscious level.

you are running on autopilot. You start to pick the really big trades and getting 100 pips in a day is becoming quite normal to you.

This is trading utopia - you have mastered your emotions and you are now a trader with a rapidly growing account.
you're a star in the trading chat room and people listen to what you say. you recognise yourself in their questions from about two years ago.

you pass on your advice but you know most of it is futile cos they're teenagers - some of them will get to where you are - some will do it fast and others will be slower - literally dozens and dozens will never get past stage two but a few will.

Trading is no longer exciting - in fact it's probably boring you to bits - like everything in life when you get good at it or do it for your job - it gets boring - you're doing your job and that's that.

You can now say with your head held high "I'm a trader
traders experience a rite of passage and baptism by fire during the first few months after opening up a trading account; emotional mismanagement combined with a general sense of complete and utter confusion as a stock appears to trade in a manner opposite of what they would think in light of the fundamental research.

A perfect example: Taser International (TASR: news, chart, profile).

Even if you are completely new to the world of trading or investing, there is a good chance that this developer and manufacturer of less-lethal self-defense devices has entered your trading universe. The real question is, "How can a trader effectively filter out the noise and look at TASR shares objectively?"

Do not buy TASR! Why? Well, for one, prisoner-rights group Amnesty International said stun guns are needlessly deadly and more testing is needed. A red flag. Moreover, many articles and reports have surfaced, especially in the New York Times, raising questions about safety and adding to the specter of debilitating lawsuits in the future.

In addition, it has been said that corporate insiders have sold 1.3 million shares, worth roughly $68.4 million, and this coupled with over 50 deaths associated with these "less-lethal" guns must have bullish traders running to the hills. Additionally, quarter-to-quarter sales growth has fallen from 24 percent to 16 percent in the third quarter. Do not buy!

If these reasons were not enough, consider that as of November 15th there were over 15.9 million shares short; thus making it clear many traders are in fact betting prices will fall. How can they be wrong?
This should be a proverbial slam dunk for bears; however, I feel it only makes prudent sense to explore another angle on TASR before coming to a decision. In fact, most true trading professionals only look at an objective, pragmatic analysis of the market, by studying supply and demand on a chart -- Technical Analysis (TA). Almost all the aforementioned information was simply subjective "news" that elicits emotions that run contrary to profitable thought. Do you remember when the bad news about Enron hit the marketplace? Trust me, it wasn't near the top and only a clear knowledge of charts patterns would have given a trader a "real" read of emotions.

Technical analysis paints the psychological picture from A to Z, and if a stock is in an uptrend in spite of a negatively spun fundamental story, technicians can easily look past the fundamental theme because they are comfortable with certain chart patterns that they have seen over time that allow them to define risk vs. reward and make clear what the path of least resistance is.

In the short-term, which is less influenced by the fundamental company performance, money flow and psychology are the underlying factors that technicians can use to get a sense where the money is going and what current psychology is. They may soon become more favorable to accepting the risk of an upside move vs. a downside slide. With that said, before we submit orders to go short TASR, let's explore the technicals.

As of this writing TASR is currently trading above its 10-, 20-, 50-,100- and 200-day moving averages (DMA). With the 50 DMA rising, a technician can conclude that shares have been traversing higher and that the path of least resistance is higher. Additionally, these moving averages are all pointed higher and they are aligned in such a way that the 10 DMA is above the 20 DMA and the 20 DMA is above the 50 DMA, and the 50 above the 100, and so on. Alignment in this fashion is bullish and reinforces the objectiveness of the trend -- bullish. What is more relevant to a trader, a bad news story or price action? Emotional traders generally follow the former.

Continuing on, there was a failed attempt in early November to take out the yearly highs of $32.08 and during the last month shares have been creating a symmetrical triangle and appear poised to breakout higher. Of course, who will fuel the demand? Well, for one, traders that have been selling TASR short (borrowing shares with an obligation to deliver shares back to the brokerage house, and a trader is forced to cover -- "called away" -- if the lender wants the shares back) may all rush in to cover at once if the primary trend continues.

Simplicity is the market's greatest disguise. Traders turn on the TV, gulp five cups of espresso, and then sometimes trade based upon information that most traders have fully dissected hours, sometimes days, ago. I have found that taking the subjectiveness out of the equation and using technical analysis can turn the opaque into the transparent. As the saying goes, "Trade what you observe, not what you believe." I observe price action in TASR as bullish and giving an antithesis reaction to recent fundamental negativity. And the best part of all is that, as a trader, I can limit my bullish risk via stop loss order and, if triggered, listen to the market. Of course, odds are I am right. Buy TASR.
david nasar
An anatomy of the Stock Market! - Bull & Bear Market Cycles

In financial markets, the majority is always wrong. When the investing majority or the crowd is overly bearish, this is the best time to be buying stocks. When the crowd is overly exuberant, this is the time to be selling stocks. The financial markets work in this ironic way because not everyone can win in the market.

The Start of a Bull Market

The bottom of the market starts at a time when the stock market is weak and the general population is pessimistic. At this point most investors sell after having endured a long and torturous bear market. This extreme pessimism found at a bottom is always irrational and undeserved. Now the market is undervalued and is a bargain. Savvy investors, the smart money, buy bargain stocks knowing that they will be able to sell them higher in the near future. Smart money buying, called accumulation, causes stocks to rise.

The smart money often consists of operators, and corporate insiders (promoters of companies). These traders have access to information that the general public does not.

Rising stocks eventually gain the respect of institutional investors, as billions of dollars of capital is introduced into the market place. Mutual fund investment causes the stock market to advance in a powerful manner. Much of the steady large trends are powered by institutional investors. After the stock market has gained, stocks are now fairly valued and are no longer considered bargains. The smart money is now sitting on a large profit, as well. The average investor is still skeptical, however.

As bull market events unfold, retail investors begin to take interest in stocks. Retail investors, or the unsophisticated little guy, make up the vast majority of investors. This group does not invest for a living. Retail investors often make investment decisions based on what they read in financial magazines, from their brokers and from tips from friends. As the flood of retail capital is invested, the market soars, causing great euphoria. At this point in the cycle, many companies become public, or launch an IPO. Companies go public when investor sentiment is most optimistic so as to gain the highest possible stock price. IPOs generate even more optimism as unsophisticated investors buy into the fallacious thoughts of instant riches. Now is the time when many small investors become wealthy. In this phase, stocks are doubling and tripling as the media cheers on the advancing bull market.

At this point, the smart money sells, or distributes, the now overvalued stocks to overconfident retail investors. The smart money knows that overvalued stocks are no longer worthy investments, and will soon drop in value. Widespread greed always occurs, in some form, at stock market tops. Sometimes this greed takes form as stock market scams and fraud. These immoral activities can take place because irrational retail investors will buy a stock simply because it is glamorous. To compound the problems, investors will now start to use margin, or leverage, to further accelerate gains. All caution is thrown to the wind as investors think the old rules dont apply

The Start of a Bear Market

After mutual funds and retail investors are fully invested, the market is overbought. This means that there is no more cash to fuel the rally. The market can only go in one direction: down. All it takes is just a hint of negative news and the market collapses under its own weight. Investors quickly realize the market is made of smoke and mirrors, as frauds or other scams come to light.

When panic selling starts, a market will always fall quicker than it had risen. Oftentimes, as everyone heads for the exit at the same time, there isnt anyone willing to buy the stock. This can be especially disastrous for margin users as they grow deeply indebted to their brokers. Bankruptcy is the usual result for these foolish gamblers. The majority of retail investors dont sell even as the market is plummeting. This crowd keeps holding on to stocks in hopes that the market will recover. As the market plummets 25%, then 50% the average retail investor foolishly holds on, in complete denial that the bull market is over. Finally retail investors sell every stock they own plummeting the market even further. This mass exodus is called capitulation.

The Cycle Starts Again

It is at this point that stocks are undervalued once again. The smart money is accumulating and stocks rise. The majority of retail investors bought at the top and sold at the very bottom. This is the very essence of the dumb money. They are perpetually late into the game. This cycle continues over and over. Only the smart money actually buys low and sells high. After trading in this manner, the dumb money will adhere to adages such as, the stock market is risky. In reality, however, the stock market is only risky if you trade like the mindless majority
How does one know that the market is topping. Though I am no expert, these are my observations(nifty/sensex):-

1) Monthly charts at all time high
2) Momentum indicators in weekly charts showing overbought levels or prices falling below 30 week average
3) Prices falling below the 200 day moving average or below the two-thirds fibonnacci retracement of the primary market trend
I dont know how much fibonacci applies to weekly charts in this respect

Following the ripple, wave, tide syndrome, you probably identify the tide change by looking at the monthly/weekly charts and look for intraday turnarounds beginning with looking for bearish reversal patternos on 30 min charts?
I should add that When the market peaks and one wants to sell, one can apply a 20day moving average as a trailing stop loss.?

One can always get further intellectual satisfaction by tracking US interest rates, FII and mutual activity etc.

For identifying market bottoms, it would be reverse of the above. I have always been fascinated by how investors use technical analysis and traderji has come with a really good post. However unless we have specific and correct pinpointed information, such posts cannot stop trailing losses to us small,little,tiny investors. Its David v/s Goliath and you gotta support the underdog.

I am not much of an expert at all this and so any corrections would be as welcome as corrections to primary trends are to detect a new trend. Weekly specifications of stochastics/RSI and others applicable also would be appreciated.

Come to think of it, I have not seen any monthly chart attachment on any of the posts and weekly chart also comes in once in a blue moon. Anybody wants to criticize what I have written or contribute anything on Techincal analysis for investing, please do so. Sometimes, TA seems better at timing investment profits then following the short term hocus pocus. However TA itself is a conglomerate of indicators and so the more precise and clear the info, the better. Lets create a new trend for the small guy. If we create understanding, the small guy will no longer remain a puppy between the bulls and the bears.

Quote:
If the analyst action observes market action to be bullish for a number of months, mkt is bullish and all retracements will find support at lower prices. Otherwise they will not find support"

This explains the two- thirds fibonacci

Elsewhere in the book, the author has explained in little more detail what traderji has explained above. He says there are three categories of stocks-primary, secondary, tertiary. When the mkt bottoms out, savvy investors first pick up the primary stocks or blue chips as a sign of revival. They being blue chips, others cannot afford at the end of bear cycle. Then after a while they dump them to others and switch to secondary stocks and when both peak they sell both and sit pretty waiting for the market to bottom again. There too the primary stocks are the last to fall and when they begin falling it can be a sign of doomsday.The five wave Elliot wave theory probably explains this phenomenan but unfortunately the wave count is too bloody confusing.I know that profits are made mostly in the third and fifth impulse waves. I think at the end of the first impulse wave, primary issues peak, third impulse wave-primary/secondary issues peak and fifth impulse wave- all peak and the market tops. This is my guess but if some enlightened person from among you can illuminate this phenomenan, that would be the height of illumination/elnightenment.Otherwise it would be the mother of all confusions which we can do without since we already have the mkt.

Us little guys unfortunately try to get in at every tom, dick and harry stock(in all the three categories)are at a peak and get rodgered in the process unless we are lucky.
One of the most ROBUST & RELIABLE WAY to identify BULL & BEAR Markets are as follows:

A BULL MARKET can be defined when the major Indices (BSE SENSEX, NSE NIFTY, etc) form a series of rising peaks and rising troughs (higher highs and higher lows) in the WEEKLY CHARTS.

A BEAR MARKET can be identified when the major Indices (BSE SENSEX, NSE NIFTY, etc) form a series of declining peaks and declining troughs (lower highs and lower lows) in the WEEKLY CHARTS.
__________________TRADERJI
Since v are talking about the Bulls and the Bears..im inclined to comment on the current market scenario....
There is a lot of caution within the circles of "know how"....these are the people with lot more knowledge and money invested in the market...
These are the people who are talking about terms such as "evaluations and overstretched"...
These are the BEARS of the market in the current scenario...who are trying to time their exit from the market now rather then their next multibagger...

At the same time v find the BULLS...these are momentum players and huge individual swing traders.....Average investers as me and majority of the members are a part of this club...V are the people who probably boarded the train a bit late and are yet to realise the huge profits that would satisfy us...and v keep throwin in more and more to keep the fire burning..

This market is close to crossroad with the BULLS and BEARS tugging it out...
As of now the BULLS are heavy with the market showing little appetite for corrections....Apart from one week in between the markets have closed in positive on a weekly basis...
But as is mentioned in the previous article...as the market grows in confidence...gravity will finally will take over...there WILL BE a downfall...but for optimist like me that will just be the start and foundation for another BULL RUN....

Never risk more than 10% of your trading capital in a single trade.

Always use stop loss orders.( Here you should know your loss you can give in a situation where the trade starts going against you.)

Never do overtrading.

Never let a profit run into a loss.

Don't enter a trade if you are unsure of the trend.

When in doubt, get out, and don't get in when in doubt.

Never limit your orders. Trade at the markets.

Extra monies from successful trades should be placed in a separate account.

Never trade to scalp a profit.

Never average
Never get out of the market because you have lost patience, or get in because you are anxiously waiting.

Avoid taking small profits and large losses.

Never cancel a stop loss after you have placed it.

Avoid getting in and out of the market too soon.

Be willing to make money from both sides of the market.

Never buy or sell just because the price is low or high.

Never hedge a losing position.

Never change your position without a good reason.

Avoid trading after long periods of success or failure.

Don't try to guess tops or bottoms.

Don't follow a blind man's advice.

Avoid getting in wrong and out wrong; or getting in right and out wrong. This is making a double mistake.

When you lose don't blame it on luck.
.................................................................................
 

oilman5

Well-Known Member
#18
J. Welles Wilder developed the Average Directional Index (ADX) in order to evaluate the strength of the current trend, be it up or down. It's important to detemine whether the market is trending or trading (moving sideways), because certain indicators give more useful results depending on the market doing one or the other.
ADX is an oscillator that fluctuates between 0 and 100. Even though the scale is from 0 to 100, readings above 60 are relatively rare. Low readings, below 20, indicate a weak trend and high readings, above 40, indicate a strong trend. The indicator does not grade the trend as bullish or bearish, but merely assesses the strength of the current trend. A reading above 40 can indicate a strong downtrend as well as a strong uptrend.
ADX can also be used to identify potential changes in a market from trending to non-trending. When ADX begins to strengthen from below 20 and/or moves above 20, it is a sign that the trading range is ending and a trend could be developing

ADX is derived from two other indicators, also developed by Wilder, called the Positive Directional Indicator (sometimes written +DI) and the Negative Directional Indicator (-DI).
When the ADX Indicator is selected, SharpCharts plots the Positive Directional Indicator (+DI), Negative Directional Indicator (-DI) and Average Directional Index (ADX). With the Red, White and Green color scheme on SharpCharts, ADX is the thick black line with less fluctuation, +DI is green and -DI is red. +DI measures the force of the up moves and -DI measures the force of the down moves over a set period. The default setting is 14 periods, but users are encouraged to modify these settings according to their personal preferences.
In its most basic form, buy and sell signals can be generated by +DI/-DI crosses. A buy signal occurs when +DI moves above -DI and a sell signal when -DI moves above the +DI. Be careful, though; when a security is in a trading range, this system may produce many whipsaws. As with most technical indicators, +DI/-DI crosses should be used in conjunction with other aspects of technical analysis.
ADX combines +DI with -DI and then smooths the data with a moving average to provide a measurement of trend strength. Because it uses both +DI and -DI, ADX does not offer any indication of trend direction, just strength. Generally, readings above 40 indicate a strong trend and readings below 20 a weak trend. To catch a trend in its early stages, you might look for stocks with ADX that advances above 20. Conversely, an ADX decline from above 40 might signal that the current trend is weakening and a trading range may develop.

In my view, ADX is well explained in Alexander Elders book Trading for a living

The latest book by Ashwini Gujral("How to make money trading derivatives) also has a comprehensive table on what all to do when ADX < 20, ADX 15-25,ADX > 30, ADX>=45 and ADX declining below 30. I have not seen Adx explained so specifically anywhere else.
This is also interesting by some other author

The Extreme Point Rule
Identify a trigger point at the extreme price on the bar the lines cross. If it's a bullish crossing (+DI cross above -DI), you would wait for the price to rise above this extreme price (the high price on the day the lines crossed) on a subsequent bar. If it's a bearish crossing (+DI crosses below -DI), the extreme point is defined as the low price on the bar the lines cross. You would then wait for price to break below this extreme price on a subsequent bar before entering into a short position.

Since trending and oscilatting is all what we track, I would request traderji or other senior member to cover indicators like Aroon, CMO, CCI etcetc. Some books give the impression that they are mere substitutes. If they are for specific situations, kindly let us know.


Yes it's too damn lagging.

A better way to use it would be to use a pair - one for the short term & another one for the longer term, like say a 10d & a 30d ADX. So if the short term ADX is below 30 while the longer term is above it (with off course +DI above -DI), what we get is a short term pullback in a longer term uptrend that is still intact and may actually be a buying opportunity. Another way would be to have one on the weekly & another one on the daily and enter on pullbacks on the daily while the weekly trend is still intact.

Alexander Elder has also devised an interesting indicator called the FORCE INDEX. This one factors in both price & vol movements & can be pretty useful particularly for short term trading; but many TA s/w's do not have this indicator.

Regards,
Kalyan

On one of my walks, I got a bolt from the blue- just as seminars tried to infuse too much theory without much practical experience, were not chatrooms(yahoo conference chat) doing the opposite; giving too much practical knowledge without making the right conceptual foundation. I had read in an article on dieting that people run after proteins and carbohydrates but the fact remains that fats are also required in the right proportion. So though practical experience maybe more important, making a conceptual base is also important
There was only one instance about entries when the market was very high once. Boss instructed us to buy but the concerned member said that let the mkt fall by 25 points and then he will enter. Two members told me privately that they were not doing nifty at all which was strange considering that boss had repeatedly stated that nifty was his specialization and in his experience we should focus 80 percent on nifty and 20% on individual stocks. There he was absolutely right because I burnt my fingers badly doing individual stock futures and so did some of the others.

Gradually it dawned on me that if you make a loss because of some beginners mistake or something like that, it becomes too tempting to square off the position to neutralize the loss. Boss by and large followed the policy of Let the profits run and to goad us to do the same would say things like Jo dar gaya, samjho mar gaya . However the fact remains that nothing in the market works or does not work all the time and so at times Discretion is better part of valor used to work quite well, at least with me. I was to have interactions with several people who would use their own discretion where exits were concerned. In fact the more I think about how people used their own prerogative to exit, the more I realize that whatever is said in the attached file Individual is absolutely true.

Twenty years of management experience has taught me that even going against the immediate boss can be dicey unless you are able to prove your smartness to the top boss. Going against the top boss in public is like going against the primary trend. At the same time, this is not a standard boss-subordinate relationship and the concerned member, being a customer for all practical purposes could have been treated with more dignity. They should have just sorted it out in private in my view.
It is often said that treat trading like a business. Strategic gurus Christopher Barlett and Samantha Ghoshal are famous for making the policy Think Globally but act locally famous and is followed by several multinationalss. Boss had this penchant for giving the example of cricketer Virendra Schewag Schewagg never analyses. He hits . Dont analyse too much which is true in the relevant context. Current captain Rahul Dravid had said of Virendra Schewag His is a unique game. We dont try and impose any technique on him because it will never work. Every individual has his unique style and his is a unique case. This would be true to a lesser degree for other players also.

What u think?
one book I read that if you took your wife/girlfriend to watch a match at a jampacked stadium , lost them and tried to find them,(everyone may not try) that is trying to find the relevant information from irrelevant information. To me this applies to the sharemarket more than anything else. Even Lee Iaacocaa and Winston Churchill demanded one page summarized reports.

The most important in fundamental analysis to my mind is ratio analysis. Among all the sites that I know, www.indiainfoline.com gives the most comprehensive ratio analysis. In the inclosed file iinfo.doc, the analysis of Bongaigaon refineries is given. Per share ratios, profitability ratios, liquidity ratios, payout ratios etc one can figure out. However coverage, component and leverage ratios are bound to be different for different industries. It would be interesting if people could throw some line on that.

I think the market capitalization ratios are missing in this analysis apart from price earning ratios. Is anything else missing?It would be interesting to pinpoint both general and specific points for each industry.
As an intelligent person you try to understand the basics of any situation:you ask who, what, when, where and why. The markets because it is composed of infinite variables, raise many more who, what , when, where and why. This can create more confusion than clarification yet it does not deny the need to know about the markets. In order to forecast imminent price moves, we absorb as much information as we can. There is danger however if we go to the extreme and learn more than is needed to trade the mkts successfully

the main thing was to earn money and each individual should be free to choose his own preference.

I see no conflict betwen the two. Buy and hold(not a full time occupation for non professionals) and while doing that avail of trading opportunities. It is like funds flow statement-short term funds for short term objectives and long term for long term objectives.

Over the last 3-4 months, I have been trying to learn TA and have repeatedly come across how subjective it is and how important it was to pinpoint one's trading style. Today I read that well known investor Benjamin Graham laid the said emphasis for investing..

Goerge Soros, regarded by many as the worlds greatest investor did both investing and trading well.

Even on the metastock company Equis website, it was given that it was rare to come across a short term trader who was not an equally good longterm investor and vice-versa.

In light of all this, I strongly feel that we would have been better of with something like traderji-investorji.com at least in the initial stages to encourage more and more people to participate. There a re a plethora of websites in America imparting investor education.

Here too, we could have articles on value investing, growth investing, CAGR, approach of some of the worlds greatest investors which were mentioned in the CNBC camp.

Despite being an MBA(Finance) and a son of a chartered accountant who has been very successful investor, I dont know things like Discounted dividends model, projected earnings, PEG being done practically. There is no Indian website which displays them in their ratio analysis.

I read an interesting article on Warren Buffet which stated that till today nobody knows how he calculated the intrinsic value. I think investing too should be made a little more comprehensible and transparent for the common man. In Investments books also it is written that in the stock market there is no such thing as an expert in the true sense.
Market price movement is highly random with a trend component.

Unsuccessful and frustrated traders want to believe there is an order to the markets. They think prices move in systematic ways (Elliott Waves) that are highly disguised. They want to believe they can somehow acquire the "secret" to the price system that will give them an advantage. They think successful trading will result from highly effective methods of predicting future price direction. They have been falling for sureshot methods and systems since the beginning of civilization (or when markets started trading).

The truth is that the markets are not predictable except in the most general way. Luckily, successful trading does not require effective prediction mechanisms. Successful trading involves following trends in whatever time frame you choose. The trend is your edge. If you follow trends with proper money management methods and good market selection, you will make money in the long run. Good market selection refers to selecting good trending markets generally rather than selecting a particular situation likely to result in an immediate trend.

There are two related problems for traders. The first is following a good method with enough consistency to have a statistical edge. The second is following the method long enough for the edge to manifest itself.
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TRADERJI
I had read 3-4 books on Technical analysis before the Seminar. I think the most important thing about the seminar from the perspective of a beginner is the emphasis and the sequence of usage of TA tools. They began by emphaisisng on one's own observation. It began with bar-reversals which I did not know was so important as it was only in one book. Traderji can probably explain the basics better through diagrams but the finer point was that an upward bar reversal has relevance only if preceded by a downward trend and vice-versa.


Then the importance of Gaps which again for some strange reason I did not read. The finer point I remember is that even the experts find it difficult to distiguish between exhaustion and runaway gaps.


A basic general principle was that once you master the principles of technical analysis- they remain the same for everything be is intraday or other type of trading only the time frame is different.


They obviously covered moving averages, supports and resistance, trend reversals and indicators very well(for 2days). I was not so satisfied with the coverage of continuation patterns. Eliot waves and Derivatives were convered in the end. Again, I have read 3-4 books on derivatives also and I am not satisfied.

Day one- Trends and Channels, supports and Reistnace, Moving Averages and Bar Reversals- Followed by practicals by the students on computers(SOC) and live trading experiences(LTE).
Day Two- Trend Reversals and Contiunation patterns followed by soc and LTE
DaY Three- Major oscillators/ indicators followed by SOC and LTE- Some insight into how to build one's own oscillator.
Day Four- Applications like Derivatives and commodity futures or others follwed by SOC,LTE
Day five- Final combination with proper theory and practical exams to ensure what is learnt is digested.

Traderji's comments on the above? Since SOC and LTE in an expert's presence were totally absent, one could not get a proper insight into metastock. I can also conduct a two day seminar on fundamental analysis but I cannot imagine doing so without giving hands on experience on the computer on the best software. I have even written to equis why they don't try to create metastock professionals just the way we have Tally graduates and there microsoft certified professionals.

Some of these observations proved true when the next day I came across www.tradingacademy.com where they have a seven day instead of a five day course but by Indian Standards is extremely expensive. I would suggest beginners to listen to their free online courses like the "Seven pillars of Trading".
concluding, let me share the best thing I learnt. In India, Sitar is an instrument

S-Support
I-Indicator
t-Trends
a-Averages
r-Resistance

This is what one is supposed to study but before that:-

Inside Bar
Rversal Bar
Gaps
Volumes
Primary

Traderji's comments on the above. I know there is no definite sequence but this is a good sort of direction.
request traderji's comments on one partiular issue. Is trading so simple that after giving an orientation, one can afford not to monitor. For instance can I start drawing continuation patterns, supports and Resistances etc and others correctly. Should not an expert monitor that it is being done correctly. Is metastock also so simple that it does not require any practical training.

I think beginners should either go the whole hog since money is involved or avoid such seminars. Very few people know about professional trading in India. It could be a good dormant market provided the right kind of training is provided. Even with metastock, I feel like an untrained soldier with a very good weapon which can prove counterproductive.

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Being successful at trading involves tremendous amount of dedication, motivation, patience and discipline apart from a voracious appetite for reading and and of course a certain amount of trading capital to pay for losses (akin to tution fees) in the markets.

Most beginners end up losing their entire trading capital within their first year of trading.

When they start out, most beginners are extremely excited. They dream of success and the recognition that huge profits will bring. Some achieve early success, but many soon discover that achieving consistent profitability is elusive. Many are drawn to trading, but few can trade profitability. The winning trader is a special breed, a person who is highly motivated, but at the same time, he or she is realistic and able to persist in the face of adversity.

It's easy to get yourself "psyched up" when you first start out trading: One can merely convince himself or herself, "All I have to do is apply myself and I'll achieve profitability." This can often be a useful positive attitude, but the "power of positive thinking" doesn't usually go very far in terms of achieving trading success. It makes you feel good in the short term, but then you find that mere hard work and persistence doesn't pay off.
To be successful it is necessary to use sound trading strategies, expose yourself to a variety of market conditions, and hone your trading skills. Successful trading requires talent, and there's no way to develop one's talents without extensive practice (which involves losing money in the process).

Although a positive attitude is useful, a healthy skepticism is paramount. When it comes to trading, you can't believe anything your read or hear. Even when a so called professional at a seminar teaches you the "conventional wisdom," it is essential to remember that so-called conventional wisdom is true only when it is true; it is false the rest of the time.

History in the markets only repeats itself when it does. And the only time you actually know that you've stumbled upon a profitable trading strategy is when it, indeed, produces a profit. Convincing yourself you can master the markets with sheer determination and willpower isn't going to get you very far. You must accept the fact that, in the end, trading is like a game.

You've got to take it seriously on the one hand, but learn to enjoy the process on the other. Traders take the game seriously in that they acknowledge that real money is on the line and it is likely that real losses can wipe out one's trading account. They address this issue through risk management. On the other hand, they know that no trading strategy is foolproof. They realize that despite all their efforts, it is quite possible that some unforeseen adverse event can go against their trade, or that market conditions may just not be conducive to one's trading plan.

That's where a happy-go-lucky attitude is useful. It is vital to view trading like a sport. If you score the winning point, fine. But if you miss it, don't get too bogged down. Just pick yourself up and try again. Eventually, with enough practice and experience, many novices will move into the realm of the seasoned professional. It is not going to happen over night, however. It will take time and practice. That's where the motivation comes in.

It is easy to stay motivated for a short time, if you think the payoff will be large and relatively immediate. But trading is a profession where years can go by with little progress.

It takes several years to achieve consistent profitability. Over the years, a great deal of money will be spent on commissions, losses, books, software and other instructional materials.

The would-be professional trader isn't fazed by it all, though. He or she views the money spent on trading as similar to what any professional spends on college tuition. He or she believes that eventually, his or her time and effort will pay off.

The winning trader is highly motivated. He or she admits that trading is a challenge and that success is far from assured. Despite this harsh reality, the winning trader persists until he or she achieves consistent profitability

TRADERJI..
One way to learn how to trade correctly is to find a successful trader (mentor) and have him or her teach you exactly how they do it. So a course followed by a live trading experience would be great!

However, this is not guaranteed to make you a successful trader. You might not have the capital necessary to trade the way they do. You would definitely not have the years of experience they had developing their successful approach. You might not have the personality profile necessary to execute their style of trading.

Another way to learn is by trial and error. This can be done by applying what you have read and learnt in the markets using REAL MONEY! This is the method of choice for most people although they probably don't realize it.

The most obvious and practical way to learn how to trade correctly is to read books. Find the best books by the most respected authors and the best traders and learn from them. This will expose you to ideas of other professional traders and the way they think and react under different market conditions.


Finally learning to trade is a combination of being exposed to ideas plus practical experience watching the markets on a day-to-day basis. This is not something that can happen in only a few weeks. Professional trader and money manager Russell Sands describes the makeup of a successful trader: "Intelligence alone does not make a great trader. Success is equal parts of intellect, applied psychology, practice, discipline, bankroll, self-understanding and emotional control."

To be successful you don't have to invent some complex approach that only a nuclear physicist could understand. In fact, successful trading plans tend to be simple. They follow the general principles of correct trading in a more or less unique way.
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don't like to risk more than 2% of the account equity on any single trade

Look for a 3-1 profit objective.

Obviously the bigger risk you take when you trade, the bigger the reward if you're right. But equally, the smaller you trade, the less chance you will go bust," says Sands. The Turtle philosophy is to trade many times as small as possible in order to stay trading forever. This is important, says Sands, because 60 to 70 per cent of the time the identified trends fizzle out and traders wind up losing a small amount of money. The compensation comes when a solid trend is identified which rewards the trader handsomely. "Maybe 30 per cent of the time you are right and when I win with Turtle I can make between five to 10 times what I've previously lost," claims Sands.

By the same token, traders find it hard to resist taking profits too fast. One of the most successful big traders in the currency and interest-rate markets says that he expects that 70 percent of his trades will be losers. But when he loses he loses small, and when he wins he wins big. Others who work in his trading room will say that they are profitable on 70 percent of their trades-but most of them lose money, because they grab for small winnings.
He thought the best discipline for young traders was "spreading"-taking long positions in one contract against short positions in another, to exploit changes in relative prices that would disappear as normal patterns reasserted themselves.

You should never be willing to let a position go against you by more than 8%. Remember, all stock are bad, unless they go up. Cut your losses at 8% and move on.
If your are disciplined enough to cut losses at 8% while taking profits at 20% - 25%, you can't possibly lose money over time as this law of mathematics cannot be broken. with these two simple rules, you can lose three times and win only once and still not get into financial trouble. Now, if you can't produce 1 winning trade out of every 3, you don't belong in the market

Once you're up 6% or more, decide never to be down in that position again.
Once you have a 15% gain and you have moved your stop to protect 10% of your profits, determine the exact price at which you will sell at least 1/2 of your position. . The remaining half can stay in as long as the stock stays above it's 50 period simple moving average (sum of last 50 closing prices divided by 50).
Winners cut their losses short and move on to the next winning trade. Losers hold on to falling stocks 1/4 point by 1/4 point until the very ability to make a rational decision has been zapped from their bodies


Needless to mention, you can add what you want
The Stop Loss Order
What is a Stop Loss Order?

It is an order placed with a broker to buy or sell once the stock reaches a certain price. A stop loss is designed to limit an investor's loss on a security position. Setting a stop loss order for 10% below the price at which you bought the stock will limit your loss to 10%. For example, let's say you just purchased RELIANCE at Rs.500.00 per share. Right after buying the stock you enter a stop loss market order for Rs. 450.00. This means that if the stock falls below Rs. 450.00 per share your shares will then be sold at the prevailing market price.

Positives and Negatives

The advantage of a stop order is you don't have to monitor on a daily basis how a security is performing. This is especially handy when you are on vacation or having a full time job that prevents you from watching your security for an extended period of time.

The disadvantage is that the stop price could be activated by a short-term fluctuation in a securities price. The key is picking a stop-loss percentage that allows a security to fluctuate day-to-day while preventing as much downside risk as possible. Setting a 5% stop-loss on a security that has a history of fluctuating 10% or more is not the best strategy: you will most likely just lose money on the commissions generated from the execution of your stop-loss orders. There are no hard and fast rules for the level at which stops should be placed. This totally depends on your individual investing style: an active trader might use 5% while a long term investor might choose 15% or more.

Another thing to keep in mind is that once your stop price is reached, your stop order is a market order, the price at which you sell may be much different from the stop price. This is especially true in a fast-moving market where stock prices can change rapidly
Not just for Preventing Losses

Stop loss orders are traditionally thought of as a way to prevent losses. (After all, it's called a "stop loss" for a reason.) Another use of this tool, though, is to lock-in profits, in which case it is sometimes referred to as a trailing stop.

In all forms of long-term investing and short-term trading, deciding the appropriate time to exit a position is just as important as, if not more important than, determining the best time to enter into your position. Buying (or selling, in the case of a short position) is a relatively less emotional action than selling (or buying, in the case of a short position). When you enter a position, the potential for realized profits is but a dream and the possibility of losses is only a vaguely considered nightmare.

By contrast, when it comes time to exit the position your profits are staring you directly in the face, but perhaps they are telling you that there is potential for even greater profitability if you were just to ride the tide and exercise a little bit more patience. In the unthinkable case of paper losses, your heart tells you to hold tight, to wait until your losses reverse and the passage of time brings you into a profitable position once again.

But such emotional responses are hardly the best means by which to make your selling (or buying) decisions. They are purely unscientific, and the presence of emotion brings you as far from a disciplined trading system as can be imagined.

Trailing Stop Loss

The most basic technique for establishing an appropriate exit point is the trailing stop technique. Very simply, the trailing stop maintains a stop-loss order at a precise percentage below the market price (or above, in the case of a short position). The stop-loss order is adjusted continually based on fluctuations in the market price, always maintaining the same percentage below (or above) the market price. The trader is then "guaranteed" to know the exact minimum profit that his position will garner.

Here, the stop-loss order is set at a percentage level below not the price at which you bought it but the current market price. The price of the stop loss adjusted as the stock price fluctuates. Remember, if a stock goes up, what you have is an unrealized gain, which means you don't have the cash in hand until you sell. Using a trailing stop allows you to let profits run while at the same time guaranteeing at least some realized capital gain.

To use our Reliance example from above, say you set a trailing stop order for 10% below the current price, and the stock skyrockets to Rs. 800.00 within a month. Your trailing stop order would then lock-in at Rs.720.00 per share (Rs.800 - (10% x Rs.800) = Rs.720). This is the worst price you would receive, so even if the stock takes an unexpected dip, you won't be in the red.

Limiting Losses

It is simply not possible for any trader--whether amateur, professional or anywhere in between--to avoid every single loss. The disciplined trader is fully cognizant of the inevitability of losing hard-earned profits and, as such, is able to accept losses without emotional upheaval. At the same time, however, there are systematic methods by which you can ensure that losses are kept to a minimum.

A 2% Limit of Loss

A common level of acceptable loss for one's trading account is 2% of equity in the trading account. The capital in your trading account is your risk capital, the capital that you employ (that you risk) on a day-to-day basis to try to garner profits for your enterprise.

The loss-limit system can even be implemented before entering a trade. When you are deciding how much of a particular trading instrument to purchase, you would simultaneously calculate how much in losses you could sustain on that trade without breaching your 2% rule. When establishing your position, you would also place a stop order within a maximum of 2% loss of the total equity in your account. Of course, your stop can be anywhere from a 0% to 2% total loss. A lower level of risk is perfectly acceptable if the individual trade or philosophy demands it.

Every trader has a different reaction to the 2% rule of thumb. Many traders think that a 2% risk limit is too small and that it stifles their ability to engage in riskier trading decisions with a larger portion of their trading accounts. On the other hand, most professionals think that 2% is a ridiculously high level of risk and prefer losses to be limited to around half or one-quarter of a percent of their portfolios. Granted, the pros would naturally be more risk averse than those with smaller accounts--a 2% loss on a large portfolio is a devastating blow. Regardless of the size of your capital, it is wise to be conservative rather than aggressive when first devising your trading strategy.
Monthly Loss Limit of 6%

So, you have now established a system whereby your loss from each individual trade is limited to 2% of your risk capital. But it doesn't take a rocket scientist to realize that even losing a moderate 1% of your account's value in ten days within a month results in a rather devastating 10% of your account's value within that month (notwithstanding any profits that you might have made in the other twelve-odd trading days within the month). In addition to limiting losses from individual trades, we must establish a circuit breaker that prevents extensive overall losses during a period of time.

A useful rule of thumb for overall monthly losses is a maximum of 6% of your portfolio. As soon as your account equity dips to 6% below that which it registered on the last day of the previous month, stop trading! Yes, you heard me correctly. When you have hit your 6% loss limit, cease trading entirely for the rest of the month. In fact, when your 6% circuit breaker is tripped, go even further and close all of your outstanding positions, and spend the rest of the month on the sidelines. Take the last days of the month to regroup, analyze the problems, observe the markets, and prepare for re-entry when you are confident that you can prevent a similar occurrence in the following month
How do you go about instituting the 6% loss-limiting system? You have to calculate your equity each and every day. This includes all of the cash in your trading account, cash equivalents, and the current market value of all open positions in your account. Compare this daily total with your equity total on the last trading day of the previous month and, if you are approaching the 6% threshold, prepare to cease trading.

Employing a 6% monthly loss limit allows the trader to hold three open positions with potential for 2% losses each, or six open positions with a potential for 1% losses each, and so forth.

Making Necessary Adjustments

Of course, the fluid nature of both the 2% single trade limit and the 6% monthly loss limit means that you must re-calibrate your trading positions every month. If, for example, you enter a new month having realized significant profits the previous month, you will adjust your stops and the sizes of your orders so that no more than 2% of the newly calculated total equity is exposed to a risk of losses. At the same time, when your account rises in value by the end of the month, the 6% rule of thumb will allow you to trade with larger positions the following month. Unfortunately, the reverse is also true: if you lose money in a month, the smaller capital base the following month will ensure that your trading positions are smaller.

Both the 2% and the 6% rule allow you to pyramid, or add to your winning positions when you are on a roll. If your position runs into positive territory, you can move your stop above break-even and then buy more of the same stock--as long as the risk on the new aggregate position is no more than 2% of your account equity, and your total account risk is less than 6%. Adding a system of pyramiding into the equation allows you to extend profitable positions with absolutely no commensurate increase in your risk thresholds.

Why Do We Recommend the Stop Loss Order?

First of all, the beauty of the stop-loss order is that it costs nothing to implement. Your regular commission is charged only once the stop-loss price has been reached and the stock must be sold. It's like a free insurance policy!

Secondly, but most importantly, a stop-loss allows decision making to be free from any emotional influences. People tend to fall in love with stocks; we believe that if we give a stock another chance, it will come around. This causes us to procrastinate and delay, giving the stock yet another chance and then yet another. In the meantime, the losses mount....

No matter what type of investor you are, you should know why you own a stock. A value investor's criteria will be different from that of a growth investor, which will be different still from an active trader. Any one strategy may work, but only if you stick to the strategy. This also means that if you are a hardcore buy and hold investor, your stop-loss orders are next to useless. If you plan on holding a stock for the next decade there is no reason to place a stop. The point here is to be confident in your strategy and carry through with your plan. Stop-loss orders help us stay on track without clouding our judgment with emotion.

Finally, it's important to realize that stop-loss orders do not guarantee you'll make money in the stock market; you still have to make intelligent investment or trading decisions. If you don't, you'll lose just as much money as you would without a stop-loss, only at a much slower rate.

Conclusion

The 2% and the 6% rules of thumb are highly recommended for all traders, especially those who are prone to the emotional pain of experienced losses. If you are more risk averse, by all means, adjust the percentage loss limiters to lower numbers than 2% and 6%. It is not recommended, however, that you increase your thresholds--the pros rarely stray above such potential for losses, so do think twice before you increase your risk thresholds.

A stop loss order is such a simple little tool, yet so many traders fail to use it. Whether to prevent excessive losses or to lock-in profits, nearly all investing styles can benefit from this trade. Think of a stop loss as an insurance policy: you hope you never have to use it, but it's good to know you have the protection if you need it.
COURSEY..TRADINGPICK
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Trailing Stop Loss

A trailing stop-loss order is a stoploss order in which the stop loss price is set at some fixed percentage below the current market price.

If the market price rises, the stop loss price rises proportionately, but if the stock price falls, the stop loss price doesn't change.

This robust stoploss technique allows an investor to set a limit on the maximum possible loss without setting a limit on the maximum possible gain, and without requiring paying attention to the investment on an ongoing basis.

The trailing stop-loss order is continually adjusted based on market volatility and trend always keeps at a certain distance to the market price.

I personally use the TradersEdgeIndia.com trend trading indicator as a trailing stoploss indicator for all my trades.

Please see attached chart of how I was able to hold on to my long position in an uncertain market condition.

As can seen on the chart the magenta coloured dotted line is a trailing stoploss and it trails the stock at a distance moving only in the direction of the profitable trend.

This stoploss either only moves up or sideways to help you lock in as much profits as possible.

understand market is primarily random with a small trend component.

This fact is extremely important to those desiring to pursue day trading in a rational, scientific manner. It means that any attempt to trade short-term patterns and methods not based on trend are doomed to failure. It also explains why day trading is so difficult.

The shorter the time frame (day trading), the smaller the trend component.

Novice traders get lured to day trading because the price patterns on intra-day charts are similiar to the price patterns on long term charts. This similarity in chart appearance convinces novice traders that they can day trade successfully with the same tools they use on longer-term charts.

However, the trend-following tools and indicators that work in intermediate to long-term time frames won't work in day trading. This is because the trend component is so very small during the day that it is very unlikely for a novice day trader to make enough profits to overcome the costs of day trading.

In longer-term trading, you can let your profits run. In day trading you can only let your profits run to the end of the day. Thus your average profit per trade is much smaller.

Also, your costs of trading--slippage, the bid/asked spread and mistakes--stay roughly the same on a per trade basis. Thus, your day trading system must be much more consistent and robust to stay ahead of the costs of trading than would an intermediate to long-term system.

Remember that market price action is mostly random and the tendency of most markets to trend is the only possible edge in trading!

To be successful
To be successful in trading one must use methods that exploit the non-random feature of market price action.

The trend component is certainly are not present every day. That is why the person who tries to day trade at least once every day, and perhaps even more often, is doomed to failure. The more often you day trade, the more likely it is that you will be a long-term loser.
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Best Wishes!

Traderji
There is nothing better than the experience and knowledge one can gain from real trading with one's own money
Well, I am a daytrader and daytrader by choice as well as compulsion.Though I have yet to achieve significant profits in this arena, I could not resist myself from writing overe here.

Well, day-trading is certainly not a lottery, it involves an armour of skills, tools and most importantly their application. Indicators--Yes, they do work but you need to keep your stop-loss pretty tight. One always need to trade in multiple time frames. Following a stock--Good till it's giving you profits, but till the time daytrading comes handy to you--it's better to avoid changing directions, may hit you hard. One should only change direction when the trend has reversed completely.

Again, in day-trading, if the trader has failed to catch a break-out in the very early stage, he should stay away otherwise he may end up buying/selling in overbought/oversold territory.

News is one area, a day-trader has to be very alert about. But one caveat is--Don't take action on TV/website news--They flash only when the action has taken place, One must watch the technical indicators after hearing the news and act. Rather one classical wisdom is--" Buy on Rumor and sell on News".

Yes, the traditional methods do fail in day-trading or sometimes one is never able to catch the moving fishes. The charting softwares need to be replaced by or assisted by some new breed of softwares which alert the users on parameters like volume break-outs, market makers' moves, Range-bound moves,etc. I am compling a list of items I would like in my software and perhaps 5 yrs down the line, my friends on the forum can use it. :)

And finally, yes there are traders who are well-off after being fully engaged in day-trading.
Reagrding, the brokers making money from jobbing and day-trading ---- They have a methodology which works for them only is doing what they have been doing for ages--- Playing the spreads. The are still applying the art learned during the historical period of Pit-trading to their benefit. However, it can't work for a trader 'coz of brokerage cost involved. Even the brokers are finding it difficult to sustain the spread play due to increasing transaction costs like stamp duty and STT. And yes, they do overtrade-- A broker will do 400 transactions per day playing the spread but he will never wait for technicals to tell him that the trend is still intact, resistance is at so-n-so level, till the time, market is above so and so level, it's just a correction. He will book loss (a small one), will ride the pullback (make some money over there) and will jump the wagon once again, the trend resumes. And when it comes to returns, if transaction costs are met while playing the spread game, Return on Investment(ROI) is more than what all the other kind of traders/investors can dream about only.

Hope, this is not a bad post.

Best Regards,
--Ashish
There is a stark parallel between an alcoholic and a trader whose account is being demolished by losses. He or she keeps changing trading tactics, acting like an alcoholic who tries to solve the problem by switching from hard liquor to beer. A loser denies that he has lost his or her course in the markets just as alcoholic denies that alcohol rules his life. "

Loss to a loser is what alcohol is to an alcoholic. A small loss is like a single drink. A big loss is like a bender. A series of losses is like an alcoholic binge. A loser keeps switching from different markets, gurus and trading systems. The losers equity shrinks while he or she is trying to recreate the pleasurable sensation of winning. Alcoholism is a curable disease- so is losing. Losers can change if they start using the principles of Alcoholics Anonymous. "

"Just like an alcoholic proceeds from social drinking to drunkenness, losers take bigger and bigger risks-they cross the line between business risk and gambling."

"A drunk wins once in a while thanks to luck but a sober person is the one to bet on. "
This was quite an interesting analogy. The remedy suggested was that one should define ones business losses clearly and keep proper records of trades. Just as past alcoholics still referred to themselves as alcoholics to not resume drinking there could be something called a losers anonymous instead of a traders anonymous. The negative connotation would be a constant reminder to what could happen if ones impulses and instincts got out of control.
SH50
 

oilman5

Well-Known Member
#19
Generally most of the people jump the gun, before they can dump the gun. I mean, we just rush ourselves into trading, hardly few people resolve why they are entering into this market and for what purpose.

1. We need to make sure whether we are an investor, trader or a mix of both
2. Based on what we decide, we need to make a strategy.
3. I say, banks give you 10% interest, even at the end of the year you make 20-30% profit in the market it is much more than that. for ex: last year august i bought Infosys @ 1450 and now the C.M.P is around 2600. A cool appreciation of close to 45%. No Technicals here, just invest in sound companies(Blue Chips) and forget, they will reap you profits in lots over a period of time. Unfortunately, to cover my lossess in day trading, I have to close my positions @ 2000 itself.
4. Day trading is very risky and so too F&O. Its not a child's play and often if caught on a wrong side, you are out of business.
5. For a peaceful trading, i feel positioning trading is the best, but be alert all the time.
6. I have sufferred sleepless nights because of the lossess i incurred in day trading and F&O. I have the confidence to recover, as any bad things just take a minute but for a good thing whole life is not sufficient.
7.Its upto a person to decide, whether to sit and watch or commit a suicide.

At present developing the right attitude for Trading and evolving my strategy of how to remain in the business.

Hope newcomers are listening
When we discuss position trading versus day trading let us not forget they are 2 sides of the same coin. The only difference is the risk/reward. The basics of the game remain the same. What do we need to have a trade?
1) Entry point
2) Stop loss
3) Exit
In other words a trading system. If we have the above we have a trade.

Further markets cannot be predicted in any time frame and we should not even attempt to do so.
Markets can only do 3 things namely:go up, go down, and remain where they are, and since what the markets do is beyond our control we can only control our reaction to what the markets do?
If you are ready with your reaction to the above you are ready to trade.

I would sum it all up to say "A good trader is a good trader in any time frame" and the vice versa also holds true.

Regards and trade well..VINCE
One of the biggest mistakes most traders make is that they are too concerned with what the market might do.

To be successful in trading you need only be concerned with what the market is doing!
__________________Knowing how to approach and play the game of trading well will only take you part way to ultimate success.

Knowing how to trade only makes you potentially competitive
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One of the primary reasons individual traders fail is an inability to act freely and decisively.

Freedom in action comes about when fear has been minimized. Trading small and diversifying neutralizes fear . Decisiveness in action comes from clarity.

Clarity is achieved through an understanding of natural laws and the resulting probabilities.
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In the first CNBC investor camp at New Delhi, well known investor Ramesh Dhamani said," One should stick to businesses one knows" which was more or lesss echoing some of Warren buffet's views. He futher elaborated that housewives could concentrate on FMCG and doctors could concentrate on pharmaceuticals because they are bound to know something about the business.

Equitymaster has a very good information on what to look for in different major sectors

http://www.equitymaster.com/outlook/identify.html

Since we are 1500 strong now, there are bound to be people from different backgrounds who can add to what equitymaster has to offer. I am sure it would add a lot of useful knowledge and enable people to know about businesses not affiliated to their own background.

Under fundamental analysis, different sections for different sectors would not be a bad idea. One can also focus on the sectors currently in vogue and discuss companies within a sector. Respected Traderji, kindly look into the possibility.(On the lines of subforums metals and energy under genreral commodity trends;there can be general sectoral trends)

Alternatively, if anybody knows about some other website which provides similar information, I would appreciate very much if they share the info. Quantitative analysis can be easily done by looking at the financials but qualitative analysis was something I thought only a pro could do but such information can prove otherwise. At least one can try.
Women are as wavering as the wind.( Unpredictablility about markets)
A woman either loves or hates in extremes. ( overbought/oversold)
Never trust a woman even though she may have borne you seven children.
(The mkt can turn against you anytime)
A ship and a woman are ever repairing.(mkt is constantly changing)

This is an interesting analysis where fundamentals like P/E and EPS among other ratios are plotted against one another on a graph:-

http://content.icicidirect.com/research/newchart.asp

I have always wondered why there are no graphs for FIIS/mutualfunds investments since they are reputed to drive the markets. If volume precedes price, they precede volume,do't they? There has to be a graph plot on them to enable us to know what they are plotting in the market:-
Swami Vivekanand, He who is overcautious falls into dangers at every step; he who is afraid of losing honor and respect gets only disgrace; he who is always afraid of loss always loses

This is an extract from the speaking tree of the spiritual columns of the times of India(4/4/2004). It further elaborates on how India lost the Bangalore test because of an overcautious approach.

Applied to the stockmarket, this is the paralysis due to analysis syndrome. Whether it is technical or fundamental analysis, the stockmarket presents a mass of information to deal with and unless one learns to be lean and mean and takes quick decisive action, success is not possible. Over information is bound to be a liability. Swami Vivekanands last line in the para above also literally applies to the stock market. Why be afraid of loss when we have strict stop losses
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For selecting any stock, there must have been a premise as to why the stock was purchased. This premise varies from person to person and from time to time.
My premise for holding this stock may differ from your premise and hence, a conclusion cannot be reached.
Since you are a newbie to trading, allow me to make 1 fact clear. You will hear a lot of noise on buy this and buy that...sell this and sell that but very few of these call givers actually disclose why they are giving the call to buy or sell. People who make money do it silently.
It's your money which is at stake and do you not think you should have a clear picture of your objectives and constraints than allowing others to do the same? It is only homework which matters a lot. Make the purpose of your trading clear and also put down in writing the maximum loss you can bear in worse case situations for each security...stick to it in case of adversities... use a stop loss.
hope you understand that some traders in this forum are system followers.
I'm no expert but I do wish to disclose my viewpoint.

There is a difference between the following:
1) Losing, and losing on a consistent basis
2) Building your own trading system and choosing other's systems
3) Using a trend follower and a zig zag indicator.

-->The trades disappeared because the trading system you used had a zig zag indicator.
--> Why don't you stick onto a few selected securities? The chances of losing in a consistent basis is relatively low...if not, impossible. You can diversify this list as you become more experienced.
--> No one likes to disclose their trading system/trades. It isn't nice to ask them that.
Your feelings have an immediate impact on your account equity. You may have a brilliant trading system, but if you feel frightened, arrogant, or upset, your account is sure to suffer. When you recognize that a gamblers high or fears is clouding your mind, stop trading. Your success or failure as a trader depends on controlling your emotions.

When you trade, you compete against the sharpest minds in the world. The field on which you compete has been slanted to ensure your failure. If you allow your emotions to interfere with your trading, the battle is over.

You are responsible for every trade that you make. A trade begins when you decide to enter the market and ends only when you decide to take your self out. Having a good trading system is not enough. Most traders with good systems wash out of the markets because psychologically they are not prepared to win.
Trading Tips-

-Remember that there is always another trader on the other side of the trade doing the exact opposite that you are doing. Only one of you can be right.

- Waiting around for the perfect trade or the perfect opportunity will guarantee that you never trade stocks.

- Trading stocks is about probabilities, NEVER certainties. You are not smart enough to predict, with consistency, what will come next.

- Conventional wisdom is usually wrong. Trade against the crowd, not with them.

- Money, trade, and self management has always been and will always be the holy grail to trading stocks.
hmmmm.........the question you need to find the answer to is:Can it be done?If Everest has been scaled before,even once,one cannot say that it cannot be done......one can surely say that he/she cannot do it,but not the other way around.If even one person can make money from the markets using TA,if even one person could consistently pull money out of the markets,then it can be done.

So,my friend,if you really wish to succeed at this(that's step no 1 actually,do you really have that burning desire to succeed and make the necessary sacrifices)........if you therefore wish to succeed,you have to take all the blame for it.Every time you lose because you didn't adhere to your rules,the blame is not the market's,not this forum's,not your wife's,not TA's or FA's.......yours and yours alone.Go back to your methods,your money management disciplines,your entry and exit criteria,your mind,your health......somewhere,there's a problem that you need to look into and rectify.

Been there,done that,my friend........ I can understand the frustration and agony.But don't allow your mind to settle for petty excuses.......take all the blame and look into what needs to be rectified.

And,as for people successfully making money out of TA.......There are many in this forum itself who are doing it.And as said before,if one person can do it,it can be done.

Whether you want to make the necessary sacrifices and undergo all the pain required is another question.

I hope you do........and wishing you all the best on this journey!

SAINT
Your fantastic success reinforces my belief that an analytical background is most suitable for a Technical trader - helps in the assembly of otherwise isolated components and also troubleshooting, refinement of the assembly and one or more of its individual componentsThere are external indicators that are as powerful (& on a given day more powerful) than the indicators on the charts.
KK
Many traders quickly come to acknowledge that despite being familiar with winning strategies, systems, and money management techniques, trading success is dependent on your psychological state of mind. If you're a trader just starting out, where do you find the initial confidence to pull the trigger? How do you deal with the down times without digging yourself deeper into the hole? If you are in a hole, how do you work your way back out? How do experienced traders push through the ceiling of profitability that caps their initial trading years and make a truly fabulous living?

Trading is a performance-oriented discipline. Stress and mental pressures can affect your ability to function and impact your bottom line. Much of what has been learned about achieving peak performance in both business and sports can be applied to trading. But before looking at some of these factors, let's first examine the ways that trading differs from other businesses.

Intellect has nothing to do with your ability as a trader. Success is not a function of how smart you are or how much you have applied yourself academically. This is hard to accept in a society that puts a premium on intellect.

There is no customer or client good will built up each day in your business. Customer relationships, traditionally important in American businesses, have little to do with a trader's profitability. Each day is a clean slate.
The traditionally 8-5 work ethic doesn't apply in this business! A trader could sit in front of a screen all day waiting for a recognizable pattern to occur and have nothing happen. There is a temptation to take marginal trades just so a trader can feel like he's doing something. There's also the dilemma of putting in constant hours of research, having nothing to show for it, and not getting paid for the work done. Yet if a trader works too hard, he risks burn- out. And what about those months where 19 out of 20 days are profitable, but the trader gives it all back in one or two bad days? How can a trader account for his productivity in these situations?

If you were to invest time, energy, and emotion into developing a business venture and backed out at the last minute, it would be considered a failure. However, you should be able to invest time and energy into researching a trading idea, and yet still be able to change your mind at the last minute. Market conditions change, and we cannot be expected to predict all the variables with foresight. Getting out of a bad trade with only a small loss should be considered a big success!
What IS the definition of a successful trader? He should feel good about himself and enjoy playing the game. You can make a few small trades a year as a hobby, generate some very modest profits, and be quite successful because you had fun. There are also aggressive traders who have had big years, but ultimately blow-out, ruin their health or lead miserable lives from all the stress they put themselves under.
Principles of Peak Performance
The first principle of peak performance is to put fun and passion first. Get the performance pressures out of your head. Forget about statistics, percentage returns, win/loss ratios, etc. Floor-traders scratch dozens of trades during the course of a day, but all that matters is whether they're up at the end of the month.
Don't think about TRYING to win the game - that goes for any sport or performance-oriented discipline. Stay involved in the process, the technique, the moment, the proverbial here and now.! A trader must concentrate on the present price action of the market. A good analogy is a professional tennis player who focuses only on the point at hand. He'll probably lose half the points he plays, but he doesn't allow himself to worry about whether or not he's down a set. He must have confidence that by concentrating on the techniques he's worked on in practice, the strengths in his game will prevail and he will be able to outlast his opponent.

The second principle of peak performance is confidence. in yourself, your methodology, and your ability to succeed. Some people are naturally born confident. Other people are able to translate success from another area in their life. Perhaps they were good in sports, music, or academics growing up. There's also the old-fashioned "hard work" way of getting confidence. Begin by researching and developing different systems or methodologies. Put in the hours of backtesting. Tweak and modify the systems so as to make them your own. Study the charts until you've memorized every significant swing high or low. Self-confidence comes from developing a methodology that YOU believe in.

Concentrate on the technical conditions. Have a clear game plan. Don't listen to CNBC, your broker, or a friend. You must do your own analysis and have confidence in your game plan to be a successful
Analyze the markets when they are closed. Your job during the day is to monitor markets, execute trades and manage positions. Traders should be like fighter pilots - make quick decisions and have quick reflexes. Their plan of attack is already predetermined, yet they must be ready to abort their mission at any stage of the game.

Just as you should put winning out of your mind, so should you put losing out of your mind - quickly. A bad trade doesn't mean you've blown your day. Get rid of the problem quickly and start making the money back. It's like cheating on a diet. You can't undo the damage that's been done. However, it doesn't mean you've blown your whole diet. Get back on track and you'll do fine.

For that matter, the better you are able to eliminate emotions from your day, the better off you will be. A certain amount of detachment adds a healthy dose of objectivity.

Trading is a great business because the markets close at the end of the day (at least some of them). This gives you a zero point from which to begin the next day - a clean slate. Each day is a new day. Forget about how you did the week before. What counts is how you do today!

Sometimes what will happen during the day comes down to knowing yourself. Are you relaxed or distracted? Are you prepared or not? If you can't trade that day, don't! - and don't overanalyze the reasons why or why not. Is psychoanalyzing your childhood going to help your trading? Nonsense!

The third important ingredient for achieving peak performance is attitude. Attitude is how you deal with the inevitable adverse situations that occur in the markets. Attitude is also how you handle the daily grind, the constant 2 steps forward and 2 steps back. Every professional has gone through long flat times. Slumps are inevitable for it's impossible to stay on top of your game 100% of the time. Once you've dug yourself out of a hole, no matter how long it takes, you know that you can do it again. If you've done something once, it is a repeatable act. That knowledge is a powerful weapon and can make you a much stronger trader.

Good trades don't always work out. A good trade is one that has the probabilities in its favor, but that doesn't mean that it will always work out. People who have a background in game theory understand this well. The statistics are only meaningful when looking at a string of numbers. For example, in professional football, not every play is going to gain yardage. What percentage of games do you need to win in order to make the playoffs? It's a number much smaller than most of us are willing to accept in our own win/loss ratios!

Here is an interesting question: should you look at a trade logically or psychologically? In other words, should every trade stand on its own merits? Theoretically, yes, but in real life it doesn't always work that way. A trader is likely to manage a position differently depending on whether the previous trade was a winner or a loser.
How does one know when to take profits on a good trade? You must ask yourself first how greedy do you want to be, or, how much money do you want to make? And also, does your pattern have a "perceived profit" or objective level? Why is it that we hear successful winning traders complain far more about getting out of good trades too soon than not getting out of bad trades soon enough? There's an old expression: "Profits are like eels, they slip away."

Successful traders are very defensive of their capital. They are far more likely to exit a trade that doesn't work right away than to give it the benefit of the doubt. The best trades work right away!

OK. Realistically, every trader has made a stubborn, big losing trade. What do you do if you're really caught in a pickle? The first thing is to offer a "prayer to the Gods". This means, immediately get rid of half your position. Cut down the size. Right off the bat you are taking action instead of freezing up. You are reducing your risk, and you have shifted the psychological balance to a win-win situation. If the market turns around, you still have part of your position on. If it continues against you, your loss will be more manageable. Usually, you will find that you wished you exited the whole position on the first order, but not everyone is able to do this.

At an annual Market Technician's conference, a famous trader was speaking and someone in the audience asked him what he did when he had terrible losing trades. He replied that when his stomach began to hurt, he'd "puke them at the lows along with everyone else." The point is, everyone makes mistakes but sooner or later you're going to have to exit that nasty losing position.

Feel good" trades help get one back in the game. It's nice to start the day with a winning scalp. It tends to give you more breathing room on the next trade. The day's psychology is shifted in your favor right away. This is also why it's so important to get rid of losing trades the day before. so you don't have to deal with them first thing in the morning. This is usually when the choice opportunity is and you want to be ready to take advantage of it.

A small profitable scalp is the easiest trade to make. The whole secret is to get in and get out of the market as quickly as possible. Enter in the direction of the market's last thrust or impulse. The shorter the period of time you are is the marketplace, the easier it is to make a winning trade. Of course, this strategy of making a small scalp is not substantial enough to make a living, but remember the object is to start the day out on the right foot.

If you are following a methodology consistently (key word), and making money, how do you make more money? You must build up the number of units traded without increasing the leverage. In other words, don't try going for the bigger trade, instead, trade more contracts. It just takes awhile to build up your account or the amount of capital under management. Proper leverage can be the key to your success and longevity in this business. Most traders who run into trouble have too big a trade on. Size influences your objectivity. Your main object should be to stay in the game.

Most people react differently when they're under pressure. They tend to be more emotional or reactive. They tense up and judgement is often impaired. Many talented athletes can't cut it because they choke when the pressure's on. You could be a brilliant analyst but a lousy trader. Consistency is far more important than brilliance. Just strive for consistency in what you do and let go of the performance expectations.

Master the Game
The last key to achieving mental mastery over the game is believing that you can actually do it. Everyone is capable of being a successful trader if they truly believe they can be. You must believe in the power of belief. If you're a recluse skeptic or self-doubter, begin by pretending to believe you can make it. Keep telling yourself that you'll make it even if it takes you five years. If a person's will is strong enough, they will always find a way.

If you admit to yourself that you truly don't have the will to win at this game, don't try to trade. It is too easy to lose too much money. Many people think that they'll enjoy trading when they really don't. It's boring at times, lonely during the day, mentally trying, with little structure or security. The markets are not a logical or fair playing ground. But there are numerous inefficiencies and patterns ready to be exploited, and there always will be.
.................................................
Logics of Trading
* What
o Buy and Sell to make profits
+ Profits means Gain - Expense - Loss - Costs (Business expenses, Tax, Cost of living...)
+ on
# short term
* taking into account the short term variance of the market
* taking into account errors
# long term
* implies
o taking into account the long term variances of the market
+ Normal or predictable variance
+ Abnormal or unpredictable variance
o Take into account
+ Inflation
+ Accidents
+ Insurance
o Risk analysis
+ Can I afford ?
# Capital Requirement
# Time Requirement
# Family obligation
# Competency
# Health
# Psychology
* How
o Preparation
+ Taking the time to study
+ Iterative process
# Plan the study
# Study
# Experiment
* on paper
* on simulator
* for real
o Knowledge
+ Probability
# are SIMPLIFIED THEORY not REALITY
+ Market
# insiders, manipulations, brokers...
# techniques
# models
+ Economy
# Interest rates
# Inflation
# Bonds auction
+ Business
# law of growth
# Risk
# Opportunity
# Diversification in Trading business is different from Normal Business
+ Methods (optimisation, organisation)
o Chance
+ If one enters at the beginning of a secular trend
# Bullish
* Easier + Probability
# Bearish
o Psychology
+ Stress Resistance
+ Patience
+ Intellectual Honesty
+ Logic
+ Intuition
+ Learning capability
o Physical Capability
+ Reflex
# required all the more for short term trading
+ Training by repetition
o Strategy
+ Period
# Intraday
# Daily
# Weekly
# Monthly
+ Horizon within each period
# Short term
based on knowledge and dynamic models (non-linear models, rules of thumbs)
# Long term
* based on knowledge and static models (statistical distributions)
# Mid term
* the most difficult since it is between the two
+ Global Money Management (Choosing leverage range)
+ Global Risk Management (Global loss limitation, Methodology to assess it at check points)
o Tactics
+ Analysis
# TA
* Candlestick
..............................................................................
The best way to find yourself your your niche is to actully put money in your trading system or ideas! It takes most traders anywhere from 3-5 years to discover what works for them and suits their own mental makeup.

Have you actually traded the markets with your own money yet? and what about the results? Have you kept a record of the trades?

If you have then go through the records and figure it for yourself on how to improve upon it. That is the best way any individual can become a professtional trader.

Learning to trade is a combination of being exposed to ideas plus practical experience watching the markets on a day-to-day basis. This is not something that can happen in only a few weeks or months. On the other hand, you can become a great trader even with only average intelligence. Professional trader and money manager Russell Sands describes the makeup of a successful trader: "Intelligence alone does not make a great trader. Success is equal parts of intellect, applied psychology, practice, discipline, bankroll, self-understanding and emotional control."

Furthermore, to be successful you don't have to invent some complex approach that only a nuclear physicist could understand. In fact, successful trading plans tend to be simple. They follow the general principles of correct trading in a more or less unique way
Mathematical analysis of historical market price action has shown that price changes are primarily random. There is a small trend component in most price action, however. It is this trend ingredient that allows traders to make money . . . but only if they follow trends.

Those who try to anticipate changes in trend rather than follow establish trends are doomed to failure. In addition, with only a few exceptions, trying to find bargains by buying weakness and selling strength is likewise a prescription for eventual disaster.

You get more ideas for your money from books. But don't assume that just because someone famous has written a book, all the ideas in it actually work. One of the unknown reasons why so many traders lose is that most of what you read in books, what I call "the conventional wisdom of trading," doesn't work. You must be extremely skeptical about everything you read. Insist on a rigorous demonstration that when the ideas are applied continuously for many years, they lead to profits. You almost never find this kind of proof in books.
TRADERJI
Trading is much like learning a risky sport, such as motocross, skateboarding, or skiing. In these sports, you play by yourself and try to stretch the limits. But if you try to perform beyond your skill level, you'll get hurt. If you try to make a jump before you even know how to maneuver around basic obstacles, in all likelihood, you'll fail when you make an attempt. It's better to take it slowly. Build up your skills through practice and preparation before trying something too difficult. This is a commonsense approach, but when it comes to trading, few follow it. It's as if they are thinking, "That doesn't look very hard. What can go wrong?" A lot can go wrong, however. If you risk too much money without taking proper precautions, you can take a substantial hit to your account, and be unable to recover. As with many things in life, it is wise to take slow, easy steps before taking a big risk and falling hard.
Success in trading depends upon hardware, software, trading strategy and last but not the least money management.

Managing money requires more skill than making it.

Risk in the market comes from what you don't know.

Mans most powerful discovery- Compound Interest It is never your thinking that makes big money, it is sitting.

When you combine ignorance and borrowed money, the consequences can be disastrous.

Money is made more due to understanding rather than information.

It is better to have a hen tomorrow, than an egg today.

The probability of outsized returns goes up, as the size of portfolio goes down.

Concentrate investments in a few great stocks and have fortitude to hold through price
fluctuations. Never leverage your focused portfolio.

Focus on what business will do in the years ahead instead of money managers in the days ahead.

Secret of sound investment is margin of safety
There are old traders and there are bold traders, but no old and bold traders.(Old is not gold here, it seems)

Traders know the price of everything and value of nothing,

Short term transactions frequently act as invisible foot, kicking society in the shin.

Timing is vital. It is much more important to buy cheap than to sell dear.

Behave according to what is rational rather than what is fashionable.

People tend to overreact to bad news and react slowly to good news.

Nobody gets market timing right even half the time.

When the gap between perception and reality is maximum, price is the best.

Stock will move above or below its business value depending more on emotions than economics.

When the degree of consensus was the greatest, the extent of error was the most pronounced.

One of the hardest things to imagine is that you are not smarter than average.

Group consensus can be so powerful that it erases critical past experience and common sense.

Passion is more powerful than brain power.

Disregard majority opinion; it is probably wrong.
QUOTE FROM MOTILAL ABOUT TRADING
INVESTING

Be greedy when others are fearful and be fearful, when others are greedy.

Four most dangerous words in investing- It is different this time

Great (Idea+Manager+Price)= Great investment results.

True investors realize that get rich quick usually means get poor quicker

Savings will not make you rich, only canny investments do that.

Wealth creation is the art of buying a rupee for 40 paise.

Own not the most, but the best.

Investing without research is like playing pocker without looking at the cards.

It is optimism that is the enemy of the rational buyer.

The definition of a great company is one that will remain great for many, many years.

Focus on return on equity, not on earning per share.

Business growth per se tells little about value.

The secret of long-term investment success is benign neglect. Dont try too hard. Much success can be attributed in inactivity.

Value of analysis diminishes, as element of chance increases.

The time to get interested in a stock is when no one else is.

An investors worst enemy is not the stock market but his own emotions.

There is no formula to figure out the intrinsic value of a stock. You have to know the business.

Temperament costs investors more than ignorance
In Investment, understanding is more important than information

.........................................Managing risks is in many ways the foundation of the entire process. Managing risk comes down to two things. First is how you are going to place your stops. That goes back to cutting your losses short. Consider trading as a business venture. Managing risk means recognizing what the costs of trading are. Make a comprehensive plan. Winning traders always treat their trading like a game, but they also look at the whole thing as a money-making business. GLEN RING


Most aspiring traders underestimate the time, work, and money required to become successful. To succeed as a trader, one needs complete commitment. Just as in any entrepreneurial venture, you must have a solid business plan, adequate financing, and a willingness to work long hours. Those seeking shortcuts are doomed to failure. And even if you do everything right, you should still expect to, lose money during the first five years losses that I view as tuition payments to be made to the school of trading. These are cold, hard facts that many would-be traders prefer not to hear or believe, but ignoring them doesnt change the reality. MARK D COOK
Consistent success is difficult to achieve because the trading environment differs in almost every way from the environment in which we live our everyday lives. For example, in our everyday lives our fears help us avoid unpleasant or painful experiences. In the trading environment, fear colors our perception of market information thereby influencing our actions. As incredible it may sound, fear of making a mistake, losing money or missing an opportunity, will actually cause us to create the very experiences we are trying to avoid. Consistency as a trader does not depend upon your knowledge of market behaviour, but rather upon a very unique mind-set. MARK DOUGLAS


We know that the random element in the market represents at least 40 to 60 percent activity. Therefore, its not logical to look at every tick or to think that every tick or every chart formation has meaning. They dont. There are too many traders trying to look at the markets from too stringent an analytical viewpoint. Most of what happens in the markets is meaningless. Why try to interpret every little movement, every little reversal, every little tick? In trying to do too much, theyre actually paying too much attention to the market. You have to keep a distance from the market. Only then will you have the psychological resources to let your profits ride. You wont be looking at every tick and interpreting it in a fearful way. JAKE BERNSTEIN
coursey sh50
.....................Market Volatility

Market volatility changes can warn of impending trend changes in price. Option and futures premiums increase due to an increase in volatility. There are two major Indices that track volatility. The first is the VIX or Volatility Index. Developed in 1993, the CBOE's volatility index is a measure of volatility of the US equity market. The VIX is calculated by taking the weighted average of the implied volatilities of eight OEX calls and puts with an average time to maturity of 30 days. Most often it is considered a contrarian indicator, where high reading are considered oversold territory and low readings are overbought. Notice as well that volatility measures often move inversely to the price trend of major indices.

Rising volatility often confirms expectation of declining markets and corresponds with downward moving prices. Falling volatility often accompanies rising markets and supports a bullish outlook in near term. These are only indications but can be used to help build supporting evidence of price trend. A confirming VIX reading supports price trend indications present in the markets. A VIX that is not confirming price trend may suggest that the price trend is suspect.

The second measure of volatility found in the market place is the CBOE Nasdaq Volatility Index. One use in tracking volatility for option traders is in recalculating option price projections based on projected changes in volatility. Determining the current volatility and extrapolating future possible values of volatility allows option traders to use option pricing systems like the Black Schoels to calculate possible price projections for an option given an expected volatility.

A declining volatility level over time suggest that bullish sentiment exists in the markets for the longer term price trend. A rising volatility level over time carries bearish sentiment. Tracking volatility allows a glimpse of what traders feel are the possibilities of price trend in the near term. Falling values in volatility suggest a bullish bias. Rising volatility levels suggest a bearish bias.

Take a look
Volatility usually moves inversely to price trends

cv
One important reason 95 percent of traders eventually lose is that they are too lazy to do the work it takes to be successful. Another reason is that they have no plan or method. They are guessing, gambling and hoping.

Trading in the stock markets one of the most difficult endeavors there is
traderji
(i) Trading on break out from Patterns
(ii) Trading in overbought/ oversold zone
(iii) Trading at support and resistance level
(iv) Trading at breaking of trend lines
(v) Trading at the percentage retracement.
(vi) Trading while making the use of gaps
(vii) Trading on negative and positive divergences

I think this forms a good broad summary about when to trade. Is there any other category, traderji? Getting out of traders would also involve all the above?

In the case of breakouts, one has to keep the 3% filter in mind apart from volume. I think with the exception of Gaps and to a lesser degree, percentage retracements, others have been covered. Any dos and donts, finer points or points to be kept in mind would be welcome. It is better to have them at one place rather than scattered in different posts.
Trading is a probability game so one should make sure that the odds are in one's favour before making a trade. This can be done by using a confirming indicator like volume
OBV- On Balance Volume is a running total of volume. It seeks to show if volume is flowing into or out of a security. When the security closes higher than the previous close, all of the day's volume is considered up-volume. When the security closes lower than the previous close, all of the day's volume is considered down-volume.

Accumulation/Distribution- A portion of each day's volume is added or subtracted from a cumulative total. The nearer the closing price is to the high for the day, the more volume added to the cumulative total. The nearer the closing price is to the low for the day, the more volume subtracted from the cumulative total. If the close is exactly between the high and low prices, nothing is added to the cumulative total.

Chakins oscillator-The closer a stock or average closes to its high, the more accumulation there was. Conversely, if a stock closes below its midpoint for the day, there was distribution on that day. The closer a stock closes to its low, the more distribution there was.

Chaikin Money Flow -Developed by Marc Chaikin, the Chaikin Money Flow oscillator is calculated from the daily readings of the Accumulation/Distribution Line. market strength is usually accompanied by prices closing in the upper half of their daily range with increasing volume. Likewise, market weakness is usually accompanied by prices closing in the lower half of their daily range with increasing volume.

In all of the above one is supposed to compare the volume advances/declines to prices though in chakin oscillator, one can look for divergences with A/D lines. It is obvious from the above that the accumulation distriubution was an improvement on obv which in and Chakins oscillator an improvement on Accumulation/distribution
The money flow index is like the RSI of volume

Volume oscillator is like the price oscillator:-

In rallies vo should rise. When it reverses from obt condition, indicative of some correction. When prices move sideways or decline, volume shld contract. The difference between V and P Osc is that an obt V reading can be and often is associated with an oversold mkt. Volume expands during a selling climax. It is a well known technical characteristic that an increase in price associated with declining volume is bearish.

Since volume precedes price and everything depends on volume for all practical purposes, hope more knowledgeable people will make handsome value additions
sh50
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The market is not your mother. It consists of tough men and women who look for ways to take money away from you instead of pouring milk into your mouth.


The markets offer many opportunities to self destruct without a safety net. Every trader tries to hit others. Every trader gets hit by others. The trading highway is littered with wrecks. Trading is the most dangerous human endeavour, short of war .

Trading is a minus sum game. Winners receive less than the losers lose because the industry drains money from the market. Better than average is not good enough. You have to be head and shoulders above the crowd to win a minus sum game

All losers knocked out of the game by a string of losses or a singly abysmally made trade. No matter how a good his system is, a streak of bad trades is sure to put the loser out of business.

A professional trader cannot afford illusions.

Some people have been critical of my criticizing seminars in the earlier post. Well, in my view seminar may be good to finetune if you already have good professional trading experience or you are an engineer with good spatial intelligence and programming background. As can be seen above one cannot afford not being thorough.Now I want to mention a constructive alternative in a new software I discovered.

It would not be out of place to mention here that Ashish who despite all his intelligence and all those promotions had to be trained in practical accounts both by me and the accountant since he had no exposure to that. Some of the mistakes he was making were in the nature of A small spark catches a big fire A small leak can sink a big ship and could have cost him his job. So no matter what the qualifications and intelligence, there are some things only practical experience under the right mentor can teach.

The Stocks and commodities people sent me a sample( their August2004) issue. In that issue, one MBA from Harvard who gave up his real estate business to become a very successful options trader says, If someone wants to be successful, they should follow somebody else who has done the same thing. If I am trading, I must find somebody who is good at it. If I want to become a restaurant manager, I need to find somebody whos done it before and done it well. . This new software is very effective for that. It seems like a pygmy compared to Metastock/ Tradestation but from learning and economics point of view is a giant which I why I had to give so many examples above.

The Seminar people are competent and knowledgeable but to transfer that knowledge to a rookie is a different ballgame altogether. I seem to have bumped into a good alternative.
Before I mention it, I would like to say that when you learn to know how to drive a car, all you have to know is the basic functions of what clutch, accelerator, brake, gear etc is and start driving. Otherwise with something like free knowledge on the internet available, if you get too lost into theory and start reading about cars, you may end up more confused. Technical analysis is very dangerous that way with the multiplicity of websites and indicators available which do not always indicate what they are supposed to indicate
Market Facilitation Index comes pretty close.It was developed by Bill Williams of trading chaos.Along with the paint bar studies of fake,squat etc they actually make a very good indicator though not a perfect one.A few of the useful one I find[cv]
All indicators have their own weakness and strength. Generally a complete trading system compromises of a set of indicators.

As I like to trade trends and in the direction of trends I think the single most robust and important indicator for me is the "moving average"! It helps me to visually identify trends at a single glance.
traderji
The Tape Reader, on the other hand, from his perch at the ticker, enjoys a bird's eye view of the whole field. When serious weakness develops in any quarter, he is quick to note, weigh and act.

Another advantage in favor of the Tape Reader: The tape tells the news minutes, hours and days before the news tickers, or newspapers, and before it can become gossip. Everything, from a foreign war to the passing of a dividend; from a Supreme Court decision to the ravages of the boll-weevil is reflected primarily upon the tape.

The insider who knows a dividend is to be jumped from 6 percent to 10 percent shows his hand on the tape when he starts to accumulate the stock, and the investor with 100 shares to sell makes his fractional impress upon the market price.

The market is like a slowly revolving wheel: Whether the wheel will continue to revolve in the same direction, stand still or reverse depends entirely upon the forces which come in contact with its hub and tread. Even when the contact is broken, and nothing remains to affect its course, the wheel retains a certain impulse from the most recent dominating force, and revolves until it comes to a standstill or is subjected to other influences.

The element of manipulation need not discourage any one. Manipulators are giant traders, wearing seven-leagued boots. The trained ear can detect the steady "clump, clump," as they progress, and the footprints are recognized in the fluctuations and the quantities of stock appearing on the tape. Little fellows are at liberty to tiptoe wherever the footprints lead, but they must be careful that the giants do not turn quickly.

The Tape Reader has many advantages over the long swing operator. He never ventures far from the shore; that is, he plays with a close stop, never laying himself open to a large loss. Accidents or catastrophes cannot seriously injure him because he can reverse his position in an instant, and follow the newly-formed stream from source to mouth. As his position on either the long or short side is confirmed and emphasized, he increases his line, thus following up the advantage gained."

This is the objective of the Tape Reader - to make an average profit. In a month's operations he may make $4,000 and lose $3,000 - a net profit of $1,000 to show for his work. If he can keep this average up, trading in 100-share lots, throughout a year, he has only to increase his unit to 200, 300, and 500 shares or more, and the results will be tremendous.

The amount of capital or the size of the order is of secondary importance to this question: Can you trade in and out of all kinds of markets and show an average profit over losses, commissions, etc.? If so, you are proficient in the art. If you can trade with only a small average loss per day, or come out even, you are rapidly getting there.

A Tape Reader abhors information and follows a definite and thoroughly tested plan, which, after months and years of practice, becomes second nature to him. His mind forms habits which operate automatically in guiding his market ventures.

Long practice will make the Tape Reader just as proficient in forecasting stock market events, but his intuition will be reinforced by logic, reason, and analysis.

Here we find the characteristics which distinguish the Tape Reader from the Scalper. The latter is essentially one who tries to grab a point or two profit "without rhyme or reason" - he don't care how, so long as he gets it. A Scalper will trade on a tip, a look, a guess, a hearsay, on what he thinks or what a friend of a friend of Morgan's says.

The Tape Reader evolves himself into an automaton which takes note of a situation, weighs it, decides upon a course and gives an order. There is no quickening of the pulse, no nerves, no hopes or fears. The result produces neither.

He must study the various swings and know where the market and the various stocks stand: must recognize the inherent weakness or strength in prices; understand the basis or logic of movements. He should recognize the turning points of themarket; see in his mind's eye what is happening on the floor. He must have the nerve to stand a series of losses: persistence to keep him at the work during adverse periods; self-control to avoid overtrading; a phlegmatic disposition to ballast and balance him at all times.

For perfect concentration as a protection from the tips, gossip and other influences which abound in a broker's office, he should, if possible, seclude himself. A small room with a ticker, a desk and private telephone connection with his broker's office are all the facilities required. The work requires such delicate balance of the faculties that the slightest influence either way may throw the result against the trader. He may say: "Nothing influences me," but unconsciously it does affect his judgment to know that another man is bearish at a point when he thinks stocks should be bought. The mere thought, "He may be right," has a deterrent influence upon him; he hesitates; the opportunity is lost. No matter how the market goes from that point, he has missed a cog and his mental machinery is thrown out of gear."

Having thus described our ideal Tape Reader in a general way, let us inquire into some of the requisite qualifications.

First, he must be absolutely self-reliant. A dependent person, whose judgment hangs upon that of others, will find himself swayed by a thousand outside influences. At critical points his judgment will be useless. He must be able to say: "The facts are these; the resulting indications are these; therefore I will do thus and so."

Next, he must be familiar with the technicalities of the market, so that every little incident affecting prices will be given due weight. He should know the history, earnings and financial condition of the companies in whose stock he is trading; the ways of the manipulators; the different kinds of markets; be able to measure the effect of news and rumors; know when and in what stocks it is best to trade; measure the forces behind them; know when to cut a loss and take a profit. Silence, therefore, is a much-needed lubricant to the Tape Readers mind.

The advisability of having even a news ticker in the room is a subject for discussion. The tape tells the present and future of the market. On the other hand, the news ticker records what has happened. It announces the cause for the effect which has already been more or less felt in the market.

Money is made in Tape Reading by anticipating what is coming - not by waiting till it happens and going with the crowd.

The effect of news is an entirely different proposition. Considerable light is thrown on the technical strength or weakness of the market and special stocks by their action in the face of important news. For the moment it seems to us that a news ticker might be admitted to the sanctum, provided its whispering are given only the weight to which they are entitled.

To evolve a practical method - one which any trader may use in his daily operations and which those with varying proficiency in the art of Tape Reading will find of value of assistance - such is the task we have set before us in this series.

--Clif Droke
Strictly defined, tape reading is the practice of interpreting price-to-volume configurations of listed securities on the various stock exchanges. Since trading volume is an extremely important (and frequently overlooked) element of stock trading, a major premise of tape reading is that buying and selling interest can most readily be identified and measured by looking at a stock's volume at any given time in relation to its trading range. In classical tape reading, price and volume are given equal weighting and each element can never be analyzed without the other.
An old Wall Street axiom, which you are no doubt familiar with, is that "the tape tells all." It simply means that any available information that will have an impact on the outlook for stocks, and for the economy as a whole, will be reflected in advance in the tape. This is because the people who have the greatest insight into "inside events" are sure to try to profit from their advanced knowledge by buying or selling stocks before such information trickles down to the public. By the time news of an important financial or political event reaches the trading public, the insiders who are savvy to the ways of the market, have already taken their profits, leaving the public holding the "bag." Most of us will never have the advantage of being insiders; however, with a firm knowledge of tape reading this isn't necessary to profit from the market. In fact, being able to read the tape means that you can trade right along with the insiders and participate in big moves before the trading public catches wind of what is going on. In order to provide you with a better idea of the basics of tape reading, we have excerpted below several paragraphs from the all-time classic book on tape reading, "Studies in Tape Reading," written in 1910 by Richard D. Wyckoff. Don't let the date discourage you from reading it - it is just as timely today as it was nearly 100 years ago:
The science of determining from the tape the immediate trend of prices.

It is a method of forecasting, from what appears on the tape now, what is likely to appear in the future.

Tape Reading is rapid-fire horse sense. Its object is to determine whether stocks are being accumulated or distributed, marked up or down, or whether they are neglected by the large interests. The Tape Reader aims to make deductions from each succeeding transaction - every shift of the market kaleidoscope to grasp a new situation, force it, lightning-like, through the weighing machine of the brain, and to reach a decision which can be acted with coolness and precision.

It is gauging the momentary supply and demand in particular stocks and in the whole market, comparing the forces behind each and their relationship, each to the other and to all.

The Tape Reader is like the manager of a department store; into his office are poured hundreds of reports of sales made by the various departments. He notes the general trend of business, whether demand is heavy or light throughout the store, but lends special attention to the lines in which demand is abnormally strong or weak. When he finds difficulty in keeping his shelves full in a certain department, he instructs his buyers, and they increase their buying orders; when certain goods do not move he knows there is little demand (market) for them; therefore, he lowers his prices as an inducement to possible purchases.

A floor trader who stands in one crowd all day is like the buyer for one department - he sees more quickly than anyone else the demand for that class of goods, but has no way of comparing it to that prevailing in other parts of the store.

He may be trading on the long side of Union Pacific, which has a strong upward trend, when suddenly a break in another stock will demoralize the market in Union Pacific, and he will be forced to compete with others who have stocks to sell.

sh50
Five minute bar charts are used by day traders, hourly or daily by swing traders, weekly charts by investors."

How exactly does the investor use the weekly chart? Should he see that the price is above the 30 week moving average or greater than 200DMA in the daily chart? What else should he see? Any oscillator? Looking at it one way, investing is nothing but trading on primary, isn't it?

"Monthly and weekly charts are chiefly used for determining important support and resistance levels and making long-term trends" How exactly does one use them?

During intra-day trading, I learnt that one is supposed to use end of day charts to mark support and resistance and see whether or not they are penetrated during the day.

Simmilarly are the supports and resistances marked on weekly charts monitored non a daily basis for end of day trading-whether they are penetrated or not?

Monthly charts are strictly for primary trend I suppose but they seem quite useless for end of day trading.
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The significance of the weekly and/or monthly charts are important when one wants to trade in the direction of the primary trend.

You can read more on Multiple Time Frame
__________________The same idea applies if you are trading any security on a daily basis, in which case, the weekly bars will be the basis for the trend as well as the important support and resistance points

What does the word daily imply here- end of day or intraday. I would presume end of day. In Intra day I was taught to use end of day resistances and supports and see whether the intra day priced crossed them or not?

How does Technical analysis help an investor when one says that "fundamentals tell you what to buy and technicals when to buy.and sell? I know about the price being greater or less than the 200 moving average.Can you add to that ? If one had a delivery of a few stocks, what all one should see?
TREND is the single most important factor to watch out for. If the trend is UP one can go long or hold on to their long positions. Once the trend turns down one should be out of their long positions and go short.

Trading with the trend is hard to do because a logical give-up exit point will be farther away, potentially causing a larger loss if you are wrong. This is a good example of why so few traders are successful. They can't bring themselves to trade in a psychologically difficult way.

When you trade in the direction of a trend, you are truly following the markets rather than predicting them. Most unsuccessful traders spend their entire careers looking for better ways to predict the markets.
Basically you see a higher market time frame( say end of day supports and resistances) and see whether they are penetrated or not in intra-day, isn't it? Similarly weekly Supports and resistances are penetrated end of day or not?

Please be specific on how an investor can use Technical analysis
It is much easier to see the major trend using weekly data, find the short-term direction on daily data, and time your entry using hourly bar

When the weekly trend is up, daily declines point to buying opportunities. When weekly trend is down, daily rallies point to shorting opportunities.
The problem with daily charts if u r trading intraday is that u get to look too far back.With weekly one it gets prehistoric i feel.
Lets look at an example
If say I have a system for daily bars and i use a trailing stop to lock in the profits after say 3% of opposite move.If the market moves higher then our trailing stop moves higher.This sounds good theoretically but this stop mechanism needs to know what occurred firstthe high or the low of the day; did the market open and then move higher and pull our trailing stop up and then move down and stop us out? Or did the market first move down and stop us out and then move up and make new highs? This type of information cannot be discerned from a daily bar.
The point i am trying to make is that daily and weekly charts give u a very unrealistic feel while trading intraday.Ofcourse they r useful to determine long term trend and key levels but they have serious limitations.
Also many people overlook the importance of intraday historical data.Fibonacci traders know this well while drawing retracement levels.The retracement levels are completely different when drawn on different time frames.
I figured out a year ago that systems backtested,optimized and curve fitted on daily bars look very rosy and show excellent performance but when they are tested on intraday bars which is when u actually trade the performance deteriorates considerably.It was very painful to watch all the work go down the drain.
Weekly charts are useful and u wil also see that many indicators actually show good performance in them but for intraday traders like me they dont offer much.If u r a investor then weekly charts are definitely for u but not otherwiseSo what is the right time frame for you? Well, it all depends on your personality.

You have to feel comfortable with the time frame you are trading in. You have to feel at home with that time frame. There is always a degree of pressure when you trade because there is the real potential for loss or gain and that will effect you to some degree. You should however not feel that the reason you are feeling pressure or frustration is because things are happening so fast that you find it difficult to make decisions or so slowly that you get frustrated.

The question is if you could make the same amount of money trading any time frame which time frame would you choose. You will of course have to take into consideration that the time frame you choose does generate enough trading opportunities for you to be happy with the results.

It is also worth noting that if your trading is going well and you are profitable then don't even think about changing time frames. As the saying goes ''if it ain't broke don't fix it.''

When you do eventually find the time frame you are happy with you can then start looking at multiple time frames to help your analysis of the market.
It is much easier to see the major trend using daily data, find the short-term direction on hourly data, and time your entry using five or ten minute bar. Hope this is corrrect. I have not done much day trading.

When the daily trend is up, hourly declines point to buying opportunities. When daily trend is down, hourly rallies point to shorting opportunities.

What about position trading. Monthly charts are too long term? Isn't swing trading a kind of postion trading only although there are three main categories-day,swing and position.
normally i operate based on trend positions. s1, s2, previous closing, current opening, r1,r2. I found the first one hour either the graph zooms up and comes down or declines and rises. around 12.30 or so the real trend starts. by1.45 the picture becomes clear. definitely by 2.50pm you can see what is going to happen. either r2 is crossed or s2 is over. this is the time to make quick money. for example yesterday (16th nov) around 2.50pm i noticed hsbc moving up and up and up. around 3.20 fell a little bit.
When deciding on a trade or investment, be it short, intermediate or long term, multiple time frame analysis can help clear the noise and offer a balanced view. Multiple time frame analysis!?! It sounds complicated and fancy, but it simply refers to the same chart with more than one time compression (e.g. daily or weekly). When both the weekly and the daily charts are in harmony, the chances of success can be greatly enhanced.
The essence of the strategy is easy: Use the higher time frame price activity to define the tradable trend as well as potential support and resistance levels.
Markets exist in several time frames simultaneously. They exist on a 10 minute chart, an hourly chart, a daily chart, a weekly chart, and any other chart. Traders often feel confused when they look at charts in different time frames and they see the markets going in several directions at once.
The market may look for a buy on a daily chart and a sell on the weekly chart, and vice versa. The signals in different time frames of the same market often contradict one another. Which of them will you follow? Most traders pick one time frame and close their eyes to others until a sudden move outside of their time frame hits them.
Daily charts are great, but participants can get caught up in the move of the moment. Even though daily charts can contain random movements, they do have their strengths. Once an underlying trend is identified, daily charts can be useful to pick entry and exit points. On the other hand, weekly charts filter out the random movements and can help identify the stronger under currents that are driving the price.
The same idea applies if you are trading any security on a daily basis, in which case, the weekly bars will be the basis for the trend as well as the important support and resistance points. That is the foundation of multiple time frame trading. Besides the effectiveness of using a method based on a multiple time frame approach, another advantage is the method need not be complicated. A trader can make his or her method as simple or as complicated as desired. For me, though, the simpler the application, the better the results.
The proper way to analyze any market is to analyze it in at least two or three time frames. If you analyze daily charts, you must first examine the weekly charts and so on. This search for greater perspective is one of the key principles of the Traders Edge Trading System.
Look at the daily chart of HFCL below. What does it tell you. Most traders would say that it is just the beginning of another uptrend. Well, most traders are not successful! To be successful in trading any market, one has to first examine the trend on a higher time frame.
compilation of sh50
As traders, we not only have to develop technical trading skills but also the emotional skills to trade successfully.

Emotional skills help the trader get through equity draw-down periods and multiple, consecutive trading losses that ALL trading systems experience if traded long enough. These tough events in trading will test the emotional fortitude of any trader.

This is where confidence in your tested trading system and trading with money you can afford to risk will play an important role. If the trader did not test his or her trading system, how do you think that trader will feel after four consecutive losses totaling approximately 8 percent of the trading accounts equity?

Now, compound this with the fact that it is not money this trader can afford to lose. And, compound this again if the person is day trading and losing 8 percent in one day! And, the 8 percent assumes that you are controlling your risk so that each loss is only a net maximum of 2 percent per loss.

Now, after all this, do you think the trader will feel anxiety and stress? I think so! Do you think that stress will create a good environment for successful trading? I think not! Do you think the trader will be afraid of taking another trade for fear of another possible loss? Perhaps it might because this kind of stress can cause the trader to second guess him or herself and the trading system, whatever it is. Traders who trade with confidence will keep trading and not second guess themselves OR their trading system.
As a trader you want to eliminate any and all emotions while trading. This even includes emotions generated by having too many market opinions. Emotions never help the trader! Keep emotions in your personal life and away from your trading life.

The best way to keep emotions in check is by creating a stress-free trading environment where you accept equity draw-down periods and can keep trading through them in a stress-free state. You do this by testing your trading system or approach

In my opinion, the best testing method is to paper trade for a long enough time that you come to know the best, and the worst, that your trading system produces. Paper trading (again, in my opinion) is better than computer back testing because it represents how YOU are actually trading the system or approach. Yet, its in a stress-free environment because no real money is being used.

I always tell traders, that, if they are not profitable paper trading, they will not be profitable trading with real money. In other words, they are not ready to actually trade! It is far better to know that you are not yet ready then to jump in head first and lose your shirt!

So, the first step in getting a handle on your emotions is to create a stress-free trading environment that provides a solid foundation for you to apply your trading skills and, then, access how you are doing. If youre the one creating your stressful trading environment, you are short-changing yourself before you ever even start actually trading

About Volume and Stock Markets

Stock Volume is the daily number of shares of a security that change hands between a buyer and a seller.

It is simply the amount of shares that trade hands from sellers to buyers as a measure of activity. If a buyer of a stock purchases 100 shares from a seller then the volume for that period increases by 100 shares based on that transaction.

Volume is an important indicator in technical analysis as it used to measure the worth of a market move. If the markets have made strong price move either up or down the perceived strength of that move depends on the volume for that period. The higher the volume during that price move the more significant the move.

Volume is a trader's best friend. Few technical indicators give the experienced trader a better feel for the minds of his fellow traders and investors. The heights of their greed, the depths of their fear, the loudness of their panic, and quietude of their ambivalence. All of these emotional states are seen with volume.
Volume also shows us the footprints of big money, and unlike footprints in the sand, these footprints are there for all to see...and long after the fact. More immediate and less ambiguous than any complex indicator, volume pinpoints extreme tops and bottoms -or the areas of them- with amazing accuracy.

Additionally, unlike many indicators, volume is applicable to every timeframe. How can this be? Simple. Volume is simply a measure of sentiment, of human nature. And fortunately for us, human nature is the one ever-present constant of the stock market. Never forget that fact. Once you have your own emotions under control as a trader, knowledge of this profound fact will guide you ever after as reliably as the Northern Star guides a lone sailor across a vast sea.

Why is volume a trader's best friend.

Volume offers a complete picture of the market.

Volume can help determine the health of an existing trend.

Specialty volume for indexes and volume-based technical analysis are very good indicators for predicting index shifts.

Volume is the indication of supply and demand. It's defined as the number of units traded during a time period. This number is significant in that it supports the prevailing price trend.

The technical analysis of volume is a basic yet very important element of market timing strategy. Volume provides clues as to the intensity of a given price movement.

Minute-by-minute trading volume shows the reversal points of the market, and therefore when to buy and sell!

Currently when a change in sentiment occurs in the market, most people dont find out until it is too late. This can be costly to an investor. Trading volume offers investors an invaluable tool to know when and where a change in sentiment is going to occur, and act accordingly.

Intraday volume helps you see where a stock is being repeatedly bought as it dips. Likewise, towards the end of a rally, a wide volume spike often signals that the move is at an end, at least short-term. If you weren't aware of it before, you should be starting to see why volume is a trader's best friend.

On-Balance Volume (OBV)
Devised by Joseph Granville, on-balance volume is a running total, which rises or falls every trading day, based on whether prices close higher or lower than on the previous day. OBV is a leading indicator, so it typically rises or falls before that of the actual prices. A new OBV high indicates the power of bulls, the weakness of bears and the likely resultant rise of prices. A new OBV low indicates an opposite pattern: the power of bears, weakness of bulls and a possible decrease in value. When OBV shows a signal differing from that of actual prices, it indicates that volume (emotion of the market) is not consistent with consensus of value (actual prices) - a shift in price, which would alleviate this imbalance, is imminent.

Accumulation/Distribution (A/D)
Accumulation/distribution is also a leading indicator pertaining to volume, but it takes opening and closing prices into account. A positive A/D indicates that prices were higher when they closed than when they opened; a negative A/D indicates the opposite. But the bull or bear winners are only credited with a fraction of each day's volume, depending on the day's range and the distance from opening to closing price. Obviously, a wide range between open and close produces a stronger signal A/D, but the pattern of A/D highs and lows is most important. If a market opens higher and closes lower, thereby causing A/D to turn down, an upward-trending market may be weaker than it initially appears.

The significance of accumulation/distribution lies in its insight into the activities of the distinct groups of professional and amateur traders. Amateurs as a group are more likely to influence the opening price of the market since these amateurs base their first trades on the financial news they have read overnight as well as on the corporate news that was issued by their favorite companies after market close. But as the trading day wears on, the professionals determine the day's ultimate results. If the professionals disagree with the amateurs' bullishness at the open, the professionals will drive prices lower for the close. When the pros are more bullish than amateurs, the pros will drive prices higher all day and into the close. As indicators for future trends, the activities of professionals are generally more important than that of the amateurs.
#1 4th May 2005, 05:58 PM
Traderji
Super Moderator Join Date: Jun 2004
Posts: 1,652


The Two Realities of Trading

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The Two Realities of Trading

There are two realities every trader must understand and accept before she/he can actually start trading for a living!

1) It Is Impossible to Predict Market Turns

It has become very common in the financial markets for analysts or "experts" to offer their "outlook", or predictions for various markets. In fact, it has become so common that many traders just assume that if so many people claim to be able to predict the future action of the markets, then it must be possible. Nothing could be further from the truth.

There are two great emotions at work in the markets - fear and greed. However, contrary to conventional thinking, greed is not always manifested as a lustful longing or need to make money. Quite often it is manifested in the form of "hope". And what could give a trader more "hope" than the belief that he may be able to know in advance what a given market is going to do? But, think about it for a moment. Can you think of any other endeavor where people can actually predict the future?

In order to be a successful futures trader, you must learn not to rely on predictions and forecasts. It is possible to find a person or committee or indicator or wave count which will occasionally offer a prediction which actually comes true. However, the fact of the matter is that there is no person, committee, indicator, or wave count, etc. which can consistently and accurately predict tops and bottoms in any market. It is simply not possible to do so on a regular basis.

Once you free yourself of this notion, you open up your mind to the more important task of determining the current trend in a given market. In the long run, such knowledge will be much more useful than a thousand forecasts.

2) Losing Trades are a Natural Part of Trading

Novice traders have a great deal of trouble accepting the notion that losing trades are a "natural" part of trading. Yet, if you are actively "cutting your losses" on trades that don't go in your favor, a losing trade can actually be thought of as a positive step, because it is the act of consistently limiting your losses to a manageable amount which allows you to keep coming back to trade another day. While losing money on a given trade is not in itself a good thing, the very act of keeping each individual loss to a minimum is a necessary step in trading profitably over the long run.

When starting out, traders often shoot for a high percentage of winning trades, even though that generally means taking profits quickly and missing some big winners. More experienced traders come to realize that the percentage of trades which are winners is often a meaningless statistic. In the end, the only thing that counts is if the amount earned on winning trades exceed the amount lost on losing trades. As long as that is the case, it matters little if 3 out of 10 trades are profitable or if 7 out of 10 trades are profitable. The key is to make alot when you win and to lose a little when you lose.
__________________
"The amateurs in most fields ask for forecasts,while professionals simply manage information and make decisions based on probabilities.Take medicine for example.Apatient is brought to an emergency room with a knife sticking out of his chest-and the anxious family members have only two questions:"Will he survive?" and "when can he go home?"They ask the doctor for a forecast.
But the doctor is not forecasting-he is taking care of the problems as they emerge.His first job is to prevent the patient from dying from shock,and so he gives him pain killersand starts an intravenous drip to replace lost blood.Then he removes the knife and sutures damaged organs.After that he has to watch against infection.He monitors the trend of a patient's health and takes measures to prevent complications.He is managing -not forecasting.When a family begs for a forecast,he may give it to them,but its practical value is low.
To make money trading,you do not need to forecast the future.You have to extract information from the market and find out whether bulls or bears are in control.You need to measure the strength of the dominant market group and decide how likey the current trend is to continue.You need to practice conservative money management aimed at long term survival and profit accumulation.You must observe how your mind works and avoid slipping into greed or fear.A trader who does all of this will succeed more than any forecaster.
My observations...

I have come to the conclusion that trading is not an exact science. You can't do X and get Y every time. It is as much an art as it is anything else. There is no magic formula. Trading is all about probability. It is the art of correctly applying a set of carefully thought out rules and allocating the probability of that event to result in success.

Each trade is an independent event. The market does not remember if you lost or made money the last time you traded.

The way you approach the market psychologically has as much to do with your success as any trading plan.

Risk management is crucial if you want to have any hope of becoming a successful trader.

Matching a method of trading with your personality is the only way you will ever feel comfortable in the markets.

.The two things I focus on in terms of method is always limiting risk/managing risk and compounding yield. We may agree on some of the strategies of entering and exiting trades, but the ONLY objective data i review and analyze is price, specifically macro price trends.

I'm just now getting into commodities with paper trades and have been able to translate my techniques from my stock and options trading with considerable success. But it requires patience and perseverance...an unattached, unwavering, unyielding, immovable determination. I liken it to the Terminator who in eveything he did, centered around negotiating the chief objective without vague, ambiguous, and oten eronious debate and reasoning. He was cold and calculating, always calculating mathematical probabilties as events unfolded. This is what I do and how I do it.

Others have their way, no doubt, but i find objective data and objective responses/reaction to be especially profitable and helpful in mitigating losses
An adequately funded account is necessary - not only to be able to take the trades you want, but also so you don't feel every trade is a live or die situation.

The journey to the road of successful trading will make you confront your deepest fears. Your armor on this journey will be confidence, knowledge and belief in yourself that you can achieve your dreams.

Never, equate your success or failure in the markets with who you are as a person!

Let me take this opportunity to congratulate you on a great attitude.Agree with you on all counts.......Forecasting ,having an opinion is great---great to write newsletters,great to present seminars,great to seem intelligent,great to make people feel one is an authority on the markets.Take a look at their records,one truly doubts if they are successful.The market is right...always right.The market is right when we think it should go in a particular direction.The market is right when it goes the other way.The market is never wrong.We are wrong if we went the wrong direction.One's opinion does not matter.To go with the flow of the market is everything........

Forecasting prevents vision.It prevents one from acting in the present because one's mind is rooted in the future.Once one is able to live in the present,one then gives up all resistance to the flow of the market.One then automatically takes stops and not go into hope mode.One then naturally lets the trade run with trail stops
...........................................
Exiting a trade

How not to loose too much of your trading capital.

Upon entering the trade, if you place a sell stop below the market if you're long (buy stop if you're short), you know right away how much money you will lose in any given trade. You should never trade without employing stops. Thus, you should never be in a trade and have a losing position and not know where your exit point is going to be.

How to lock in larger than normal PROFITS in a winning trade.

You should always stay with your profitable trades as long as possible because the trend is likely to continue and make your profits even larger.

This is easy to understand but not so easy to do when real money is involved. The difficulty is that although your profit may become much larger if you stay with a trade, it may also decrease and even disappear. Human nature is such that it values a sure profit much more highly than the probability of a much higher profit. Thus, traders are inclined to take their profits too soon which can be fatal to long-term success because big profits are necessary to overcome the inevitable collection of small losses.

There is a good way to let profits run while still guarding against the possibility that prices will turn around and take away much of your accumulated profits before the trend actually reverses. It is called a trailing stop. You include in your plan a method for moving an exit point along some distance behind your trade. As long as the trend keeps moving in your favor, you stay in the trade. If the market reverses direction by the amount of your trailing stop, you exit the trade at that point.

A trailing stop moves to lock in profits as the trade moves in the traders favour, it should never be moved backwards. There are many different ways to calculate a trailing stop:

Volatility - the stop is calculated as a percentage of the average true range of x periods.

Rupee Amount - A set amount determined before the trade is entered.

Channel breakout - exit a long position at the low of the last x bars.

Chart patterns - ie move the trailing stop behind each consolidation as it forms.
__________________
Do you stay with your profitable trades as long as possible because the trend is likely to continue and make your profits even larger?

This is easy to understand but not so easy to do when real money is involved. The difficulty is that although your profit may become much larger if you stay with a trade, it may also decrease and even disappear. Human nature is such that it values a sure profit much more highly than the probability of a much higher profit. Thus, traders are inclined to take their profits too soon. This can be fatal to long-term success because big profits are necessary to overcome the inevitable collection of small losses.

There is a good way to let profits run while still guarding against the possibility that prices will turn around and take away much of your accumulated profits before the trend actually reverses. It is called a trailing stop. You include in your plan a method for moving an exit point along some distance behind your trade. As long as the trend keeps moving in your favor, you stay in the trade. If the market reverses direction by the amount of your trailing stop, you exit the trade at that point. You would also offset your trade and reverse position if the trend reversed.

One way to set a trailing stop is to protect a certain percentage of the accumulated profit. That will always insure that you keep some profit on a good trade.
__________________The holy grails of trading are as follows:

1)keep your bets small
2)cut your losses short
3)let your profits run
4)follow the above rules with out question.

traderjiMost traders ignore reward/risk ratios, hoping that luck will save them when things start to go bad.

This is probably the main reason so many of them are destined to fail. It's really dumb when you think about it, because reward/risk is the easiest way to get a definable edge on the market house.

The reward/risk equation builds a safety net around your open positions. It's designed to tell you how much can be won, or lost, on each trade you take. The secondary purpose is to remove emotion so you can focus squarely on the cold, hard numbers.

Let's look at 15 ways that reward/risk will improve your trading performance.

1. Every setup carries a directional probability that reflects a specific pattern. Always execute positions in the highest-odds direction. Exit your trades when a price fails to respond according to your expectations.

2. Every setup has a price level that violates the pattern. Only take trades where price needs to move a short distance to hit this "risk target." Look the other way and find the "reward target" at the next support or resistance level. Trade positions with the highest reward target to risk target ratios.

3. Markets move in trend and countertrend waves. Many traders panic during countertrends and exit good positions out of fear. After every trend in your favor, decide how much you're willing to give back when things turn against you

4. What you don't see will hurt you. Back up and look for past highs and lows your trade must pass through to get to the reward target. Each price level will present an obstacle that must be overcome.

5. Time impacts reward/risk as efficiently as price. Choose a holding period based on the distance from your entry to the reward target. Then use price and time for stop-loss management. Also use time to exit trades even when price stops haven't been hit.

6. Forgo marginal positions and wait for the best opportunities. Prepare to experience long periods of boredom between frantic surges of concentration. Expect to stand aside, wait and watch when the markets have nothing to offer.

7. Good setups come in various shades of gray. Analyze conflicting information and jump in when enough ducks line up in a row. Often the best thing to do is calculate how much you'll lose if you're wrong, and then take the trade.

8. Careful stock selection controls risk better than any stop-loss system. Realize that standing aside requires as much deliberation as an entry or an exit, and must be considered on every setup.

9. Every trader has a different risk tolerance. Follow your natural tendencies rather than chasing the crowd. If you can't sleep at night, you're trading over your head and need to cut your risk.

10. Never enter a position without knowing the exit. Trading is never a buy-and-hold exercise. Define your exit price in advance, and then stick to it when the stock gets there
11. Information doesn't equal profit. Charts evolve slowly from one setup to the next. In between, they emit noise in which elements of risk and reward conflict with each other.

12. Don't be fooled by beginner's luck. Trading longevity requires strict self-discipline. It's easy to make money for short periods of time. The markets will take back every penny until you develop a sound risk-management plan.

13. Enter positions at low risk and exit them at high risk. This often parallels to buying at support and selling at resistance, but it can also be used to trade momentum with safety and precision.

14. Look to exit in wild times in order to increase your reward. Wait for price acceleration and feed your position into the hungry hands of other traders just as the price pushes into a high-risk zone.

15. Manage risk on both sides of the trade. Focus on optimizing entry and exit points and specialize in single, direct price waves. Remember that the execution of low-risk entries into bad positions allows more flexibility than high-risk entries into good positions.
To survive as a professional trader/investor your risk (loss) per trade should not exceed 2% of your total trading capital.

And if you loose more than 10% of your total trading capital in one month, stop trading and re-evalute your strategy.
tradersedge
......................................
RECENTLY I FACE TRADING CATASTROPHY...not by trading BUT by holding losers..buy and is hold dead man....so like phoenix..i shall ....
reason ..cockiness...[as usual play of bridge & chess]...ya.. i can not handle...so the ship ruins with captain...STOP IS FOR SISSIES...any rational individual must stop self sabotage first,....before..he thinks to be a trader

so i open my material ...start copy paste...
Before you make any commitment to begin or even to
continue trading , we believe you must
honestly ask yourself; "Is stock trading for me?"

Many programs will tell you any one can make money on the
stock market and I guess technically they are right. But
the reality is, for most, failure is inevitable.

You see, the major limits to your success are placed
there by you. As we have pointed out, trading is a mind
game. So to a large extent your success is controlled by
your beliefs and actions.

We want to examine this issue in some detail because,
although at the moment you may be skeptical, it really is
the key to your success or failure.

Apart from inadequate capital and poor money management,
novice traders usually fail
lack of commitment
lack of knowledge
self-limiting beliefs
ego
poor state of mind
lack of focus
undisciplined
no strategy
failure to accept responsibility
lack of perseverance.

Traders who don't address these issues will not survive.
And the statistics show this to be true
Many novice traders get frustrated when they don't have
instant success. Without real commitment they will not do
what is necessary to achieve success.

Knowledge Lack of knowledge, which is a major cause of
failure, is a result of an individual's attitude. How
anyone thinks they can enter the stock market without
training amazes us. Yet it happens all the time. People
who accept that golf lessons are necessary before they head
out onto the course will start trading with little or no
knowledge
Most novice traders fail to appreciate the level of skill
needed to trade successfully. They have no system and
resort to guessing or the use of tips from friends. They
are effectively gambling, not trading.

At the same time, too much information can lead to
overload and inaction. It is far better to narrow your
focus and concentrate on just a portion of the market.


Beliefs Traders who do not have a positive belief system
or cannot reconcile their beliefs to the actions of the
market do not survive.

Self-doubt will destroy you as a trader. In particular,
it is critical that you do not tie your self-worth to your
actions in the market. Despite the emotional attachment
that you might feel, you must accept that whether one of
your trades proves to be profitable or not, it is not a
reflection of your value as a person.

Your success or failure in the market depends on your
thoughts and feelings.

Don't tie your self-worth to any individual trade
Remember that you always have a choice in the stock market.

Ego Ego is one of the greatest enemies to stock market
success.

Your ego needs to win all the time and wants to win now,
if not sooner. It can't stand being wrong. And so it
rationalizes events and denies reality.

You must be able to perceive the market how it is, not how
you want to believe it is. But it is difficult to clearly
see price action if your ego is in the way.

Ego makes us take small profits but large losses. It
argues that even a small profit is a win. But a loss hurts
and instead of accepting a small loss we try and get it back.

Men in particular are prone to say, "I'm going to make
back that $1000 loss, no matter how long it takes!"

Ego makes us sell stocks that go up and keep the ones that
go down. If a stock price increases there is immediate
gratification in being right so taking quick profits feels
good. And we won't sell the bad ones because we have then
made a loss
Do you see the logic here? We tell ourselves that we
haven't made a loss until we sell. So if we don't sell, we
can't make a loss!

State of Mind The stock market is an unusual environment.
It is a pressure cooker type atmosphere for those
unfamiliar with it and it can generate emotional and
irrational behavior.

The market is a large group of people trading their
perceptions. Throw lots of money into the equation and it
is not surprising how emotionally charged an environment it
can be. The power of group psychology and the mob
mentality ensures that irrational action is commonplace.

At a personal level, fear and greed are the primary
emotions at work. And stress and anxiety are common issues
that need to be dealt with.

Probably the strongest mindset with novice traders (and
many who have traded for a long time) is the fear of
failure - the fear of loss
Fear blinds us to opportunity. Greed blinds us to danger.

Have a healthy regard for the market but don't be
intimidated or fearful. Find a balance between confidence
and respect.

Everyone is afraid. It is how you respond to that fear
that determines whether you succeed.

If there was one topic that we would stress above
most others it is focus.

The ability to concentrate on the present moment to the
exclusion of other distractions is vital when you are
trading. And one of the great things about focus is that
fear and anxiety actually disappear when you are
concentrating on the task at hand.

Traders who don't learn how to focus will be continually
distracted and will find it hard to make decisions
To trade well you must learn to stay in the present moment.
Focus eliminates fear.

Discipline is so important in trading. You
need it to do the things that you have to do, even when you
might not want to. Such things as analysis; risk control;
money management and record keeping. All are critical and
all require discipline.

Discipline is also necessary to maintain focus and to
follow your trading system. Most importantly, it is
critical when you suffer a string of losses. As it is
discipline that will get you back on the horse

The vast majority of traders lose money not
because of their trading strategy but because of their lack
of discipline
There are no rules in the market. You have to develop
your own. And then follow them.

Strategy You need to find a trading system that works but,
more importantly, one that you trust and are comfortable
with. You then have to apply it and this is where
discipline comes in.

But the truth is that most novice traders concentrate on
this subject and particularly entry signals, far too much.
The reality is that good risk and money management backed
by a supportive belief system is far more important.

Don't get us wrong. Having a valid trading system is
critical to your success. Just don't fall into the common
trap of thinking that it is all you need
Your state of mind is more important to your success than
your trading system
It is you, not your system that will determine your success.

Responsibility
Your trading success is in your hands. It
is your responsibility, no-one else's.

Traders who don't accept this will fail. Because they
will always be blaming someone or something for their
mistakes and never learning from them
You are responsible for your success. No one else.

Perseverance Without action, knowledge is useless. Massive
action is the key to real success.

Many traders begin with great enthusiasm but become easily
disillusioned. Perseverance is required to get beyond this
stage and to start to reap the rewards.
......................................................................
please understand, owning stock is
risky.

Holding onto a stock can be a very risky strategy.
Stock prices can move quickly and substantially to the
downside and can catch you out if you're not careful.
In fact the value of a stock can drop to zero! For
example, remember Enron?

And whilst stop losses can help protect you, they are not
foolproof. So the only way to really limit your risk is
to buy a very cheap stock (so that it can't fall very far).
But these are generally poor trading candidates because
they are erratic and have low liquidity.

So if you don't buy cheap stock, owning shares is also
quite expensive. You have to outlay thousands of dollars
to hold a reasonable amount. And so your involvement in
the market may be quite limited.

In addition, stock often doesn't move all that much. A
good trade might give you a 20% return. And this might
take several months. Given that some trades are going to
go against you, this doesn't provide
...............................
And finally, trading stock is limited. Most people are
only happy to trade stocks that are moving up. Short
selling (selling stocks that you expect to go down) is a
risky strategy and is a bit cumbersome. And sideways
markets cannot be traded.

So is there a better way?
Leverage - you can profit from a large amount of stock
for only small outlay.
2. Limited Risk - When you buy an option you know exactly
how much you are risking and it is only a fraction of
the cost of the actual share price. Great news I'm sure
you will agree?
Entry Doesn't Matter

Trade entry is not the most critical step in your trading plan.
Studies have indicated that random selection of trades matched with
strict money management can be quite successful.

Now, this is not to suggest that you shouldn't stack the odds further
in your favor by careful trade selection. Just realize that it is not
the most important step.

So choose a system or a combination of systems that appeals to you and
that you are comfortable with. And refine it over time as you gain
experience.

We have a strong preference, based on our experience. So we would
suggest that you give it consideration. But then add to it or
substitute with your own preference.

Market Cycles Markets tend to move in cycles. The problem is
identifying clearly what the time frame for these is and at what stage
the market is in the short-term.

W D Gann and Elliot Wave are the two main examples of cycle predicting
systems. You can find many proponents of both together with books and
software in a quick search of the internet.
Many traders are obsessive about market time cycles. We don't have the
patience for this. Whilst we are sure cycles exist and there have been
some significant predictions over the years, from a day to day trading
perspective, we believe they are pretty worthless.


We have looked at the work of WD Gann but could never get interested in
the complexity of his theories. He divided trends and time into
eighths,
with special importance placed on three-eighths (38%); 50% and
five-eighths (62%).

He also used various angles on charts and the squaring of price and
time
to predict future price levels. Many of his theories are intricate and
open to interpretation.

Wave theory stems from the work of RN Elliot who in turn was influenced
by the Dow Theory. Elliot believed that markets had well-defined waves
that can be used to predict price movement.

It is based on repetitive wave patterns and the Fibonacci ratio. This
approach permits traders to assess where the market is currently in
comparison to the overall predicted market movement.

For example, retracement levels are set at 38% and 62%. They can also
be
used as target levels for potential reversals. Interestingly these
percentages match Gann's analysis. And for that reason alone they are
worthy of consideration.

But whilst this is a fascinating area, our suggestion to the novice
trader is to forget about them for the moment. Just concentrate on
understanding price action until you feel the need to expand your
focusMarket cycles are very complex and of little value as a predictive
tool.
Novice traders should ignore them
News Some traders rely on news events to select stocks. They look for
significant announcements that they believe will affect either the
whole
market or a particular sector or stock.

The basic problem with this approach is that the market generally
anticipates rather than reacts to news. By this we mean that the stock
market is always looking forward and trying to predict what is going to
happen. And so the market has already factored the news into the
current price of the stock.

By the time the news is released the smart money has already moved on.

The other fact to realize is that news usually causes only one movement
of price. If this occurs before the actual news announcement, as a
result of rumors and expectations, then it is unlikely to be repeated
after the announcement.

Stated in another way, the actual news event is of little importance.
It is how the market anticipates or reacts to the event that matters
and that we can't know.

We therefore have no way of determining what influence news might
have or whether it is already priced into the stock. In addition,
news is not detailed enough for short term trading.

Never make a trading decision based solely on news
But there are some instances when news can have a significant and
immediate impact on the stock market. This is because the news events
were not anticipated.

Catastrophic news events are significant because they are unpredictable
and they affect sentiment.

Because these sort of news events cannot be anticipated, the market has
an immediate reaction. And whilst the direction of the move can often
be predicted, the extent of the move is very difficult to estimate.

So they are not particularly useful as a trading tool. But if you are
in a trade they are important signals for you to take appropriate
action.

But if cycles and news are not of much use, what can we use to narrow
down our trading selections? Traders generally use one of the
techniques
known as fundamental or technical analysis or a combination of the two
Fundamental analysis is a method of analyzing a stock through primary
economic data.

The analysis includes the study of the general economy; the industry
sector in question and information about the company itself. It
requires
an assessment of the financial and physical factors that may affect a
company's performance.

This information is analyzed and compared with the sectors performance
and then a decision is made about whether the company's stock price
indicates it is over or undervalued.

If this sounds like a convoluted process it is.

And whilst computer programs can simplify the analysis process, it is
still a subjective analysis in many ways. And the selection of criteria
is in many ways quite arbitrary.

But more importantly, it is not a particularly accurate measure of a
stocks price movement, particularly in the short term. The implication
is that price reflects the fundamental value of a company.

This is simply not true! Stock prices often have no relationship to a
company's fundamental economic data.

And the best example of this is the dot.com boom. During this time
many company's stock price bore no resemblance to the fundamental
value of the stock or to its future earning potential.

And the reason for this is that stock prices reflect sentiment not
economic theory. Traders don't always act rationally and it is people
that cause prices to move, not theoretical models.

So whilst fundamental analysis may provide a theoretical stock value
it is the sentiment of the market participants that sets the actual
price
So even though a fundamental analysis of prices may prove accurate in
the long term, the current price is a reflection of the current view
of all the people trading the stock. They may or may not change their
minds over time to more closely match the theoretical price. But at
the moment their view is different.

We don't know if the markets view will ever match the theoretical
price.
And guess what it doesn't matter because all we can do is trade the
actual, current price.

The truth is that the stock market does not respond to news or economic
factors in a predictable manner. If fundamental analysis were able to
predict price movements then every piece of news or information about
a company would be reflected in it stock price.

The reality is that economic news announced in any one week hardly ever
changes the long-term trend and it seldom helps toward knowing what to
buy or sell or when to do it.

A use for fundamental analysis.
Despite its limitations, you should not ignore fundamentals completely.

Some fundamental data does have a direct impact on the market. For
example, an interest rate increase will usually have a negative impact
whilst an increase in the rate of employment will typically cause the
market to rally, at least for the short term.

It is also important to realize that fundamental analysis is still
relied on by most institutional investors and brokers. You can
therefore
gain a better understanding of how the market may react by reviewing
fundamental data.

But from our perspective, the most useful application of fundamental
analysis is as a filtering device.

We use it to narrow down the stocks that we consider for further
considerationFundamental analysis is of limited use to a trader and should never
be used for timing trades.

Technical analysis is the interpretation of price action through the
use of charts and indicators calculated from the base stock price
information.

Whilst fundamental analysis seeks to understand the reasons for
stock prices going up or down, technical analysis doesn't care why
price is moving. It just wants to understand the actual movement.

So rather than using a filter of financial analysis to review a
company's stock price, technical analysis studies a stock's price
movement directly.

We believe that virtually all you need to know is in the price
action and represented on the price chart. Technical analysis
operates on the theory that price reflects all known factors
affecting supply and demand at that time.

We have made the point before that people make and move markets,
not balance sheets. So the price action of a particular stock
reflects the combined view of all those trading it.

Charting price action tells us what has happened in the past and
as the past tends to repeat itself it can give us an indication
of what might happen in the future
In fact, we find that technical analysis is the most powerful
tool in our trading plan. And because of this, technical
analysis provides the framework for a systematic approach to
trading.

More importantly, it gives us the confidence to make our trading
decisions. And both these aspects are critical for success.

And as distinct from fundamental analysis, technical analysis
provides precise mechanisms for trade entry and exit. So we
want to suggest to you that the best strategy for determining
the timing of your trades is technical analysis.

The only technique for timing trading decisions is technical
analysis
In summary, of the four analysis techniques, our strongly
preferred strategy is technical analysis.

Whilst certainly not foolproof, technical analysis is a valuable
tool in our trading and is particularly useful over the
short-term.

But also learn how stocks react to news events and understand
some of their fundamentals. You will then be way ahead of
those traders who limit themselves to only one method.

Risk Management

One of the keys to successful trading is risk control and
money management.

What is Risk Management?

Risk management is the process of identifying and managing the
factors that could adversely affect your trading and then
taking all reasonable steps to limit or eliminate the impact
of each factor.

The essential steps are: identify the risk rate the impact of
the risk rate the probability of the risk develop strategies to
control the risk manage the risk.

So some risks may have a high impact but are very improbable.
And other risks may have a low impact but are likely to occur.

So your response to them will vary. And some will be easier
to manage than others.

For example, it is fairly unlikely that your broker would cease
operating. But it could happen and the impact would be
substantial
So you need to manage this by having good records and an
alternate broker.

On the other hand, you will regularly have to pay more for your
trades than you had hoped. And the risk here is that it could
cost you a lot of money.

But, unless you are careless, the impact of this will be low.
And the strategy for managing it is straightforward.

Risk Tolerance
You need to find a level of risk that allows you
to sleep at night. We call this the sleep test.

And you are the only one that can decide what this level is.

So what is your tolerance to risk?

Are you able to accept higher risks for higher financial
rewards? Or are you conservative when it comes to money and
investing?

If you have a low risk tolerance you need to find a trading
style that matches
On the other hand, if you have a higher risk tolerance, you
could adopt a more aggressive trading approach. But be careful
that you don't take on unnecessary risk just because you feel
you can cope. That is a recipe for disaster!

So don't rush into using trading techniques that you are not
comfortable with. But accept that any type of trading will
feel strange at the beginning.

And realize that your risk tolerance can change with experience.
So don't feel that you can only ever trade in one way. With
increased confidence you can expand your trading repertoire.

Comfort Zone
With most things in life you need to leave your
comfort zone to be successful. This is certainly true of
trading.

And leaving your comfort zone involves risk.

But you won't learn anything and you can't earn anything without
taking risk and moving away from comfort
So whilst it is important that you don't over extend yourself at
the beginning, it is also critical that you not be too easy on
yourself.

Just as you need to push your boundaries to grow as a person,
you need to extend yourself to become a great trader.
If you can't sleep at night, reduce your risk.
Risk Control
The way to control risk is to take risks!

Now that may sound like nonsense but just hear us out.

The reality is that you can't avoid risk. And without risk
there are no rewards. So if rewards come with risk -to not
take risks is riskier!

Now this is not just semantics.

Because it is critical that you understand and accept that
the only way to control risk is to embrace it. Ignoring it
will not make it go away. So learn to deal with it.

You can minimize risk if you know what you are doing. But
realize that you can't eliminate risk, you can only control
it.

Risk control is essentially about survival. It is a way of
ensuring that you survive long enough to develop into a good
trader. And then long enough to become wealthy!
So your first goal in the market must be preservation of your
capital.

The key aspect of risk control is money management. But
before we discuss that topic, we would like to review some
broader issues.

Risk control is essential for your survival as a trader.
After trading psychology it is the most critical factor.
And unless you learn how to manage risk you will never achieve
trading success. It is that simple.

Know the Risks

Before you can deal with risk you need to identify it. And then
develop a strategy for managing it.

Some risks can be controlled and some you will have very little
control over. And risk can be divided into two different types, Avoidable Risk
These are risks that can be eliminated through
your trading rules or management techniques.

For example, trading illiquid markets (markets without sufficient
volume) is very risky. But having a rule that you won't trade
them eliminates that risk.

Another example of an avoidable risk is order placement.
If you use limit orders instead of market orders then you
automatically reduce your trading risk.


unavoidable.
Use limit orders whenever possible.
Unavoidable Risk
These are risks that cannot be eliminated.
And unavoidable risk can be further broken down into those
that can be controlled and those that can't.

An example of unavoidable risk that is controllable is trading
losses. There is no way you can eliminate loss. But you certainly
can control the size of your losses.

An example of a risk that appears uncontrollable is that a company
may go bankrupt whilst you hold their stock. But whilst this may
seem outside your control, the reality is that there are usually
signs leading up to a company failure. So the risk management
technique is to monitor all your trades for problem signs.

A truly uncontrollable risk event is something like 9/11.
But even here you can control the risk to some extent by your
ability to respond quickly and appropriately.

Types of Risks
So what are the risks you need to be aware of and
learn to manage?

Some of the most important for you to learn are:
Lack of Knowledge
No Plan
Market Risk
Market Sector
Individual Stock Actual Trade

you really should be across them before you start your trading.
It is a crucial area for you to understand if you are to be
successful in your trading.

say this so you can get the information you need to strike
a balance between embracing risk so you can make money and
avoiding the risks that could wipe you out financially
.........................
 

oilman5

Well-Known Member
#20
Take control! Make money quickly and safely
by doing what others don't.

Ever tried using the 'buy and hold' strategy? You have!

Are you a millionaire yet? Perhaps not!

Why Buy and Hold Doesn't Work.

At this point we need to make a clear distinction.

In this course we are talking about stock market trading
not stock market investing. The fundamental difference is
the time frame and the degree of active involvement.

The investor's approach is generally long term and they
are prepared to hold onto stock despite short-term
reversals.
A trader on the other hand is someone who buys and sells
stocks and derivatives on a regular basis with the aim of
profiting from short-term price movements.

Their perspective is short to medium term and they are
concerned about the opportunity cost involved in having
their funds tied up in stocks that aren't performing.

They also use different types of strategies so have greater
flexibility. Both approaches can be successful.

Our point of view is that trading provides greater
opportunity for profit and ironically greater risk control.

One aspect of a typical investor's approach is the strategy
known as buy and hold.

Essentially this involves holding onto stocks through
thick and thin on the basis that over the long haul they
are expected to increase in value.

This approach has two fundamental problems.

The first is that stocks move both up and down.

If you simply buy stocks you can only profit if they
increase in value.

Successful traders have strategies to trade both sides
of the market. So whether prices rise or fall, they can
make a profit.

More fundamentally, if you simply hold onto stocks,
there is no guarantee they will increase in value.

No matter how long you hold onto them. Even if you
choose so called good stocks this is no promise of
success. Indeed, this approach can be very dangerous,
even devastating.
Lots of investors lost an awful lot of money on these
stocks and others like them. You can see that simply
holding onto stocks can be very risky.

But we will show you how, if you know what you are
doing, trading can be a relatively low risk approach.

So how did buy and hold become such an unquestioned
piece of received wisdom? Like just about any strategy,
it worked when the market was going up.

Stocks rose for such a long time that the buy and hold
concept seemed flawless. But Stock prices can and do drop suddenly.

Buy and hold is really just buy and hope.

So stock market trading is our preferred strategy and
the one we will explain in this course.

But there are two key issues you need to appreciate
about this approach.

The first one is time.

Trading is more active than investing and so requires a
greater time commitment.

Depending on your style of trading this can vary from
a few hours a week to several hours a day. And some
strategies require you to be involved in the market
when it is open, whilst other methods can be managed
out of hours.

Our course covers a range of trading systems that can
suit your time frame.

The other issue is your mental attitude.

Trading requires a different mindset to investing.

It is not a set and forget approach.

You need to actively manage your trades and be
prepared to act quickly when the situation changes.
there
are only four analysis techniques for selecting stock
to trade.

Market Cycles
News
Fundamental Analysis
Technical Analysis

And you may also remember that of these four techniques
we prefer technical analysis.

As distinct from fundamental analysis, technical analysis
provides precise mechanisms for trade entry and exit.

And the critical decision we need to make on daily basis
is which stocks do we choose to trade and when is the
right time to get in.

So we want to suggest to you that the best strategy for
determining the timing of your trades is technical analysis.

What do we use in our technical analysis that works so
well for us?

Our trading system can be defined as simply:
Three Simple Strategies
Three Simple Setups
Three Simple Triggers.

These things help you to do the following activities which
will be the core of your system.

1. select the stock
2. time the entry
3. manage the trade
4. time the exit.
Selecting the stock involves the following criteria:

1. mid-cap or blue chip stocks only
2. optionable stocks only
3. price between $10 and $60 ($10 to $35 in Australia)
4. daily volume above one million
5. medium to high volatility (preferably high)

This last point regarding volatility is crucial.

We love volatility...for being on the right side of
moving markets is what makes us money.

A stagnant market means there's no opportunity for us
to make money.
[this is an australian guide]NOT RIGHT IN INDIAN CONTEXT..
we will outline in clear simple
terms exactly what strategies you need to use to
get started making profits for yourself.

We then show you exactly what Setups you need to look
for to decide what to trade.

We then give you the exact triggers you need to
use to time your entry and exit in order to protect your
capital and make profits.

That is what people have found so useful with our system.

They can protect that crucial capital that we all work
so hard to accumulate and yet still be in a winning
position
to capitalise on winning trades.

Here just a few of our rules you must follow to be
successful.
Only trade with money you can afford to lose.
Never trade with borrowed money.
Only trade when you are in the right physical and mental
state.
Only place a trade if you are at least 80% confident.
Do not trade without a stop loss.
Place your stop loss at the same time you place your trade.
Don't enter the market until you get a clear signal.
You need at least three setups and three triggers
all the knowledge in the
world will not amount to anything without action.
And unless and until you take action you will also
never know whether you can do something
The first step is critical.

You may know everything there is to know about parachuting
but unless you take that first step, you will never
experience what it means to be a parachutist.

In the same way you could read every book and attend
every course on trading and paper trade for years, but
until you step into the market you will never become a
trader.
And until you take that step you will never make a dime.
Knowledge alone is not enough. Massive action is necessary
for success.
One of the most significant dangers for novice traders
is procrastination.

The stock market is an endless source of information.
And there are huge numbers of people offering conflicting
advice.

It is easy to fall into the trap of too much thinking and
too much analysis that just leads to confusion. Or of
wanting everything to be absolutely perfect before placing
a trade
The only way to learn how to trade is to do it.
The reality in the market, as in most areas of life,
is that you can never know all there is to know. You
just have to take educated action. And then see what
results you get. Fine tune and try again.
If you wait until all conditions are perfect before
you trade, you'll never trade
Do not wait; the time will never be "just right".

If you have read all the material we have sent you,
you have analysed the trade according to our easy to
follow rules and it fits the criteria, then you have
already done all the hard stuff.

It's time to place the order.But What if I Lose on My First Trade? "

If this happens to you, and let's
face it, it is quite possible, what do you do?

Well, we would never tell you what to do with your money.
But we can however share with you what we do when we lose.

When we have a losing trade, we go back to the Genie Rules
and almost always there is something there we missed or
did wrong.

Other times, it is just the market and there really is
nothing we can do.

Losing is part of trading. And you must learn to accept it
as just an aspect of the game. Because trading is just
probabilities.

Like us, you will lose. No question about it.

But what matters is that when you win you win more than
when you lose.

The proportion of wins is not what is important. It is the
size of your wins compared to your losses.

However, if we lose three trades in a row we stop and take
a break from trading for a few days.

Some common mistakes that you might be making if you have a
losing trade are listed below.

Avoid the 12 Most Common Mistakes!

You can avoid the most common option trading mistakes if
you follow these
guidelines:
1. don't limit your strategy to calls - buy puts also and
overcome the bullish
bias
2. correctly determine the trend - up for calls, down for
puts; sideways for
covered calls
3. buy enough time - at least 4 to 6 weeks
4. exit with 2 weeks to expiration
6. don't underestimate the effect of volatility
7. don't over commit your funds - you can lose 100%, so limit
your exposure
8. don't put all your eggs in one basket - diversify over
several stocks and
use both calls and puts
9. don't trade without first determining a target profit
and exit point
10. never try and strike it rich from one trade
11. don't use market orders and don't trade at opening or
closing time
12. consider the next expiration month if you can't find a
suitable trade in the
current month.

It is wise to remember the following issues when trading
options.

1. they have their own risk/reward
2. time depleting asset
3. higher leverage
4. less liquidity
5. can have wide bid/ask spread
6. slippage in fast markets
Options Benefits
1. they are cheap to buy
2. flexibility - can trade both up and down trends
3. versatile strategies
4. limited risk - can't lose more than you have put in
5. leverage
6. can use them to hedge
7. limits number of stocks to review
8. can generate good cashflow
9. puts have less risk than short selling.

With covered calls there are a couple of particular
problems to avoid:
o don't buy small cap stocks - they can suddenly drop in
value
o don't become overextended on margin
o if the stock price drops beyond your stop loss, exit your position
and sell the stock.

We follow these rules and it helps cut our losing trades


Placing the order is the easy bit, you've already done
the hard work in selecting the options and analysing
the trade, now place yourself in a position to reap the
reward. Place the order.

If you only paper trade, you won't experience the emotional
ups and downs that you will go through once you have
REAL money at stake.

It is only then, that YOU begin to see how you trade.
It is only then, that YOU begin to make money.

We are all different and you need to see how you react
when you're winning and losing to see what sort of trader
you are and where you can improve on how much money you
take from the market
.......................These are insights gained as a trader and we are happy to share them with you. Some of the topics that will be covered are:

Picking your indicators

Trading psychology

Achieving maximum leverage

How we learn new trading skills

Recognizing a trading "Bubble"

Using probabilities to maximize your return

How to use multiple time frames

Pre and Post Trading Checklists

Pulling the trigger on your trades

Using Support and Resistance

How to evaluate a trading system
Psychological Keys to Success
Mass Psychology moves the market: Life is 90% mental and 10% physical.

The round of golf I just completed was a great reminder. Financial markets are the same, driven totally by human emotion. To be a successful trader, it is necessary to have a fundamental understanding that mass psychology of fear and greed is the biggest single factor you must understand if you expect to trade profitably on a consistent basis.

This emotional and psychological ingredient has absolutely nothing to do with the state of the economy, but it does have an overwhelming effect on the movement of the market.

The first rule is that rumors are the prime movers of the market. It's important to realize how quickly speculation of upcoming events can change the character of the current trend. Just the mention of inflation causes investors to rush for the exits in order to dump their holdings.

This fear causes a general market decline long before the economy changes. The market anticipates the movement of the economy and shows us in advance what we can expect with regard to corporate health, unemployment, interest rates and other financial trends. A crash in the market is usually caused by psychological, not economic factors.

One of the biggest problems most traders have is expecting too much from themselves initially. Setting outrageous goals is more harmfull than anything you can do. Trying to make $1 million on a $10,000 account in a year does nothing more that show you are in the clutches of greed and denial.

We recommend you start out trading 1 contract until you have confidence in your rules based system. You should develop the self discipline to trade until you reach a net two points for the day then stop. This approach will develop confidence in your system, give you some profit every day and teach you how to recognize your signals. Later you can trade larger, but initially you must learn the discipline and patience to only take the high probability signals outlined in our course.

The problems you face when not being realistic include:

Not believing you can lose

Over trading

Taking too much risk for your account size

Expecting every trade to be a winner

Things that can help you become realistic include:

Look for small consistent returns. Our goal is to hit singles and doubles not home runs.

Know you market and the average point per each move.

Practice with a Simbroker against the real market for three weeks and keep a detailed log and chart of each trade
Treat your trading like a business and include all the income and expenses so you can evaluate the true potential of your approach
Want to be a Millionaire Quickly? Use Maximum Leverage
Do you want to be a millionaire but don"t know how to get there? One thing all successful and profitable entrepreneurs, real estate investors and traders use is Leverage! Maximum Leverage is the key to all great fortunes. With leverage, you can move toward your goals many times faster than without leverage.

Futures trading allows you take advantage of positive leverage, but it's important to protect yourself against negative leverage at the same time.

How many of these leverage principles are you using?

Other people's money

Other people's experience

Other people's ideas

Other people's time

Other people's work

There are five methods to gain leverage


Find a Mentor who can provide Perspective, Patience and Proficiency

Maximize the use of tools and new skills provided by experts

Systematize your approach to everything by using checklists

Develop a Mastermind Team of like minded people who can contribute new ideas and optimize your approach.

Build a Support Network that will help maintain your positive attitude and support your goals.

If you are not using the five leverage principals listed above, the first thing to do is take a full personal inventory. After you have set your goals in the area that you intend to pursue, begin by eliminating everything that does not materially or psychologically contribute to the achievement of that goal. This will give you additional time and "clean out your closet" so you have eliminated most major distractions.

Next, add all five methods for gaining leverage. Finding a mentor will be the most challenging, and the most rewarding. You may find one by attending seminars or taking courses from experts in your field. Remember that this has to be a two way street so that the mentor receives equal value in return for helping you. Your Mastermind group may provide the support that your require
Build a Support Network that will help maintain your positive attitude and support your goals.

If you are not using the five leverage principals listed above, the first thing to do is take a full personal inventory. After you have set your goals in the area that you intend to pursue, begin by eliminating everything that does not materially or psychologically contribute to the achievement of that goal. This will give you additional time and "clean out your closet" so you have eliminated most major distractions.

Next, add all five methods for gaining leverage. Finding a mentor will be the most challenging, and the most rewarding. You may find one by attending seminars or taking courses from experts in your field. Remember that this has to be a two way street so that the mentor receives equal value in return for helping you. Your Mastermind group may provide the support that your require.

Finally, setting up a systematic approach to increasing your knowledge base, daily schedule and practice sessions will reap benefits far beyond the time you invest.

Most importantly, you must start immediately.

DO IT NOW! DO IT REGULARLY! AND DO IT WITH INTENSITY!

How to Use Maximum
How We Learn New Skills
The problem for most people who have traded for any period of time is that the losses they took learning to trade are a huge mental handicap to their future success. If you could erase memories of these losses from your subconscious and act on what you have learned since beginning a study program, trading would be much easier.

One of the most important concepts we have ever come across is the concept of "How We Learn New Skills".

Learning can be described as a four step process that will be covered here in a systematic approach. You can think of the process as a ladder and may want to invert the following explanations so you can visualize the process (Stage 1 is the first step of the ladder).

Unconscious Incompetence: You Don't Know What You Don't Know! Your first attempts at trading fail. It looked so easy!

Conscious Incompetence: You Know That You Don't Know! The search for the Holy Grail of Trading begins. That mechanical system that looked too good to be true failed. So did the newsletter and the chat room. Then you begin to learn for yourself.

Conscious Competence: You Know That You Know! You finally learn an approach well enough to make some money.

Unconscious Competence: You Don't Know That You Know! You are "trading in the zone" and do it automatically and effortlessly.

Clearly your goal is to create the shortcuts you need to get to stages three and four as quickly as possible. Here are several tips that helped us solidify our "vision" in how to execute our trading approach.

Your mind can be programmed to "hard wire" action patterns through repetition, if that repetition is consistent. For example, if you keep your charting program set constantly to the same colors, same indicators and same setup, you will have much more consistent success than if you change things constantly (the programming has to start over)

It may take up to 50,000 repetitions to totally automate a response. Think this is a lot? Don't be discouraged. Think of professional athletes and their practice routine. You can also look at other routines in your own life to see how you made the transition to step four in any of your competencies.

Using a SimBroker and monitoring your progress on win-loss ratios, profitability and consistency is one way to solidify recognition and action using your signals.

Practicing good money management in this practice session will help you automate your own system. When you do finally trade with your own funds, you will have mastered and automated two thirds of the equation. Your final goal will be to master your emotions
How to Recognize a Bubble
"Bubbles are invisible to those inside the bubbles" and we have been through one of the biggest economic bubble in history, but none of us saw it because we were inside that bubble. After the "Tech Wreck" of 2000 and other chaotic events, it's important to be aware of "Bubbles" and the "Stage of the Bubble" in order to get on the right side of the equation and to profit.

Previous Bubbles have included:

The Japanese "Take Over the World" Bubble of the late 1980's

The Asian Currency Bubble of the mid 1990's

The Internet/High Tech Bubble of the late 1990's

The Residential Real Estate Bubble of 2000-2004

The coming Inflationary Bubble caused by the U.S. Government's attempt to mitigate the effects of the crash of these Bubbles and 9/11.
How Bubbles Grow: 12 Easy Steps

A believable concept offers a revolutionary and unlimited path to growth.

Surplus of funds and lack of opportunities lead to buying or investing in anything available.

An idea is complex and cannot be totally explained or related to an investor.

The crowd imitates the leader. All Aboard! Even the gardener has a tip!?

Prices fluctuate from traditional level to overvalued level, THEN to all new ground and all time highs.

New levels are sanctioned by experts. "We are in a new Paradigm!"

Fear of missing the boat takes over. Cloning of the idea occurs as many new overvalued competitors enter the market.

Lending practices are eased. Money flows like water to anything or anyone with a new idea.

Cult figures emerge for the new paradigm. The media promotes lifestyles, not substance.

The Bubble lasts longer than expected. Critics are dismissed. The last suckers are sucked in.

Fraud emerges as partly responsible for the bubble as the first cracks show in the bubble
Finally, everyone has a reason why it cannot continue. But nobody dumps, and all hold onto their profits. No new buyers. Market stalls.

How a Bubble Bursts

A continued new supply of lower priced offerings occurs from rising prices. New IPO"s get bigger and bigger

There is a rise in interest costs. The Government declares "Excessive Exuberance" and tightens credit too quickly.

Prices collapse and everyone heads for the exits at the same time. With no more buyers, prices hit free fall.

Fraud is uncovered in many diverse industries, and in monitoring and auditing agencies. This leads to more selling.

Governments intervene and give investors time to get out before the real decline.

Rules to Live By

Do not extrapolate the future from the present.

Trends continue for a long time (2-5 years) and then suddenly reverse chaotically. Witness the Tech Bubble.

Intermittent secondary corrections occur at Fibonacci Levels of 38%, 50% and 62% that result in classic Bull or Bear Traps.

Bottom picking begins several different times, trying to restart the Bubble, but to no avail. Massive losses occur to professionals trying to manipulate the markets.

Finally, everyone recognizes that "Trends go further than you expect, and last longer than expected." Everyone gives up and sells.

As the volume of the decline decreases, a slow recovery begins.

How to Use this Information

Whenever you are involved in owning, investing or trading anything, review these macro-economic lessons. They may save you TONS of money and make you a TON of money in the long run.

All stocks, commodities, technologies, currencies and real estate are subject to local, national and international Bubble Behavior. Whenever you hear the phrase "you can"t lose on this...." Remember to start running the other direction.

.Probability of Success
The probability of your success in any particular trade or series of trades is dependent on how you use your charting program and technical indicators.

Understanding what your indicators are telling you is another key point. Study the formulas and compare the differences between MACD, CCI and a Stochastic indicators of the same length. Look at them visually as well as mathematically. Visually look at the differences between a normal, exponential, smoothed and weighted indicator.

Study until you know what each indicator is telling you.

One interesting concept is to actually calculate a few bars of these indicators from actual data in order to really understand what the indicator is doing and how it reacts to gaps, low volatility and regular price swings. Be sure to run the calculation until you lose a big bar as well. This skewing factor will let you know why many people distrust indicators. They do not understand the limitations of indicators in certain volatile market conditions.

Indicators are derivatives or second tiered smoothing of price action. Inherently, all indicators are lagging in one way or another. It is important to understand how they relate to price, potential future movement of price and how they are affected by past price spikes.

We tend to trade
by watching only our indicators. Watching price only, you can become hypnotized by the noise and miss the real moves. We consider the following four points whenever we are about to make a trade.

The number of indicators moving or about to move in your direction.

The angle and rate of change of these indicators.

The position of the indicators above or below 50% or the 20/80% level for oscillators.

The likelihood of continuation based on approaching Support and Resistance, length of previous move and the time of day.

If we see three indicators moving in our direction, we just say to ourselves "1, 2, 3, Go". It is as simple as that

Pre and Post Trading Checklists
One of the most important things you can do to improve your trading is to develop specific patterns of behavior. If you have ever watched a professional golfer get ready to hit a shot or pro basketball player take a free throw, you will see they have a very defined ritual or pattern they follow each and every time.

Since your goal is to be successful on every trade, profitable every day, month and year, you will need to develop routines used by professionals to ensure maximum consistency and success.

Develop Pre Trading Checklists, a Daily Schedule and System Setup (including disaster plans) and Post Trading Day review checklists.

Also snap pictures of your charts at the time of your trades for both entries and exits. You can then review and annotate them with how and why you took the trade and the exit. This is an excellent learning tool that will significantly improve our trading.

Once we decided to get serious about trading we established these rituals and keep them religiously. We measure our success on how well we follow our system and our trading signals. You will need a programmed Excel spreadsheet for a trading logs to help you monitor your progress as well as some way to compare various trading approaches for profitability, win-loss ratios, draw-downs and stop loss comparisons.

Note: You can use our measuring tools or develop your own. We provide bonus spread sheets to assist you in developing your own expectancy ratio

Are You Having Trouble Pulling the Trigger?
If so, ask yourself: How Do You Handle Fear and Greed?

When you've conquered fear and greed, you can "pull the trigger" with confidence.

Four things about fear.
First, a definition. Fear is the unreasonable assumption that an outcome of any action will be negative. And greed is just the flip side of the same coin. It is fear of success, not failure!

You can overcome fear and greed by becoming familiar and confident with just the understanding of what is causing you this fear. Analyze all the issues and see how you feel before, during and after an event.

Fear can be overcome by understanding the basis of the fear, but better yet the lack of understanding is caused by your lack of confidence in your system. You get confused. That is easy to do because all trading programs, gurus, time frames, etc. will give you conflicting signals. Until your conscious mind and your subconscious mind agree on your approach, you will not trust the signals you see, and either hesitate, jump to soon, or freeze totally. This is caused by the uncertainty you feel.

No one can predict the future. You can only intelligently guess with some level of probability that a certain outcome will occur. Since trading the eMini is really trading the psychology of thousands of traders from around the world, it's important to understand that that psychology goes through fairly predictable patterns.

Patterns
Patterns such as Fibonacci retracements occur very often because of fear and greed. Smart people know that and fade those retracements, which is why the Pesavento Patterns we talk about work. After trading and reevaluating certain patterns, we have discovered two very high probability trades and we have developed the patience and discipline to trade them.

We compare trading signals from four different trading system approaches to show you how similar they are to one another. We prove that the key to any trading success is based more on mental control and money management than trading signals
you can literally walk by the computer, see whether to be long, short or out. Take a trade, if appropriate, and exit on the next signal with a 2.3 point average profit Finally, when you begin to get results with 70% win loss ratios on the real charts but are still not using your own money, it is time to go for it with real money on a small account. As you get more confidence, you can grow both your trade size and your accounts
dual time frame trading system

we cannot control how you use the information provided. Can we guarantee that you will have the tools necessary to succeed? YES
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] price..dual ma x
2] momentum
3] money flow +

yes all yr observation r right...
however, i trade on ongc/ ..call whenever available for foward month...
reason..+impact on price rise...strong fundamental reason..
hence..its not discounted in price...works well in swing style..with
personal bias on direction...

most imp...timing of day...those who knows...best time for buy..or sell
first half and last half...style...opposite.. to gen market sentiment...as published in news paper...u can always..since u can view..how fool/ greedy can REACT....
but not applicable to ameteur...

yes now i am watching...[a reserve player]...
since idea is general...sp. context...ALWAYS SUPERIOR...
TECHNICALLY..CALLED..TACTICAL WIN OVER..STRATEGIST
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yes....again i am writing...does ta work?
yes...yes...yes..
i lost by not following ta...
trading has a random element..also.. trend factor...
known event..+ expected result ..is always discounted in price...
so u have to know..how to react in unknown...
ta ..visualisation..gives..fair idea...how MAJORITY MAY SHALL BEHAVE...
nothingmore, nothingless...
alterative scenario..must be in yr plan.....
if u apply ta in this context...u shall be always successful...
but...all other approach..to use...is NOT VALIDATED..
Q1]...TA AS PREDICTIVE TOOL....
no hardly 40% times correct...
ta as probabilistic model...definitely workable....
Q2] MOST IMP INDICATOR....
PRICE...
Q3] OTHER..HELPING HAND...IF ANY...
VOLUME...MOMENTUM STRENGTH
Q4] WHAT ABOUT PATTERN....
its subjective....experience helps...
q5]what about support/resistance..trendline....
THIS ARE TOOLS TO 'SEE' HOW OTHER TRADER SHALL BEHAVE...
so its purpose is to prepare trade strategy...
Q6]WHAT ABOUT MA...
better use it as a confirmation tool..., better is ma..X..
q7]divergence study....is it useful ?
without it u shall be aprilfool soon...
8]HOW TO STUDY STRENGTH?
correlate..expected...vs. ACTUAL...ANSWER lies there...
9]how can i learn better ta...
USE SOFTWARE.. TO SCAN...
SEE CHART....NEVER BE A PARROT..BY WATCHING TV...

DANGER OF TA
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WITH AV INTELLIGENCE..LIKE ME IT TAKES..3YR STUDY+2YR PRACTICING
expect another 2yr to mastery...
socalled callgivers...day time frame...suggest..for breakout...
elliot wave...predictive model ...most rubbish...
i use it to book profit..never for entry...
oversold zone..bullish candlepattern...NORMALLY SUCCESSFUL
but those who use sector rotation...
higher comparative strength with ..NIFTY...ALWAYS
MAKE PROFIT....

however concept of buyer strength VS. seller stength...
based on that WHO is winning...and JOIN WINNERS SIDE
NORMALLY GIVES PROFITABLE TRADE....
OILMAN5
 
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