A "Holiday"from trading

With the markets in "Hold" or "Let's see what next" mode, why don't members post something different in this forum? This is the right category to do so. The pre-budget run-up is on & the budget proposal count-down has begun. Nothing nobody can do about this, not even the hard-core Analyst, Expert, etc. (maybe even the FM). The Stock Market is a group of Human Beings clambering to Buy or Sell to each other, not anyone from the Moon or Mars. So, with all the short-comings of the Human race, the Stock Market will exhibit all the characteristics of a mob, a Human mob. That's what it is doing right now. I write this out of my own experiences & more so, my immediate & current experience. You will all be amazed (maybe dissappointed) if I try to list out the contradictions between the views/predictions/recomendations of experts/Analysts/ etc., etc... & the actual daily happenings in our Stock Markets. You can analyse, you can predict, you can do whatever but the Markets will do & behave as the "Mob" dictates. I dare say that nobody in this August forum would shoot down this contention of mine with any real conviction. I stand corrected & maybe admonished but definitely not demeaned by this posting of mine.

Before anyone decides to take a pot-shot at me, just take note of the fact that I don't read much about T/A but mostly just use the grey matter that I have been bestowed by Nature & also, most importantly try to borrow the thinkings & musings of knowledgables in the business (Equity Trading). Maybe Leechish but Life is all about sharing, so everyone says. Anyone wants to share what I know, try me & see.

I am glad you highlighted this. I too have realized that Technical Analysis is more of a “Andho me kana raja” . It may enable you to buy correctly but what the share does thereafter is pure luck. The share may retrace, stay there or sprint after more or less the same buy signal at the same price- nobody can never tell because how can one figure out how millions will buy and sell. Many books recommend buying/selling calls because the market may trace back after stop loss gets triggered. I used to think that one has to know technicals to do derivatives but actually it’s a chicken and egg syndrome; vice-versa equally true- “You scratch my back and I scratch yours”. I don't think anybody can do without hedging inititally at least.
There should be a “Beginners beware” where all this should be posted.

If you observe, TA analysts never say that the market will go here or there. They say that if the market goes here, it is likely to go there. That frees them of their accountability. I saw the derivatives report of investmart yesterday. There also it says that the market “could” or “should” but never “would” . Talking of accountability, with the exception of technicaltrends and investmart, nobody gives reasoning for trading recommendations. I find that strange since trading is three times more complicated than investing because of the smaller time frame.

About a week back, some expert said on CNBC that it is impossible to forecast markets on a month to month basis. Recently, I met the Branch manager of Investmart India, a subsidiary or IL&FS who said very clearly,” In the short run, nobody can really tell”:-

Many people sob
They complain that the stock market tends to rob
They don’t realize that irrespective of experience or high profile investment job
Nobody can consistently and successfully trace or track the mob

You are referring to a holiday
The day they discover a Holy grail will be actually a Holy day
That would really be the d-day
I complete one year at Traderji; for the markets too it would be a new birthday

After liberalization, budget is more style than substance; at least the hullabaloo relieves the day to day monotony.

In order to be a successful trader, you must understand the true realities of the markets. Most traders indulge in trading only to lose a substantial portion of their capital and then leave trading without ever having a correct perception of what good trading is all about.

Mathematicians have conclusively shown the financial markets to be what are called non-linear, dynamic systems. Chaos theory is the mathematics of analyzing such non-linear, dynamic systems. Stock markets are chaotic systems. Such systems can produce random-looking results that are not truly random. Chaos research has proved that the markets are not efficient, and they are not forecastable. Stock market price movement is highly random with a small trend component.

Most beginning traders assume that the way to make money is to learn how to predict where market prices are going next. As chaos theory suggests, the truth is that the markets are not predictable except in the most general way.

In his book, Methods of a Wall Street Master, famous trader Vic Sperandeo, whose nickname is "Trader Vic," warns: "Many people make the mistake of thinking that market behavior is truly predictable. Nonsense. Trading in the markets is an odds game, and the object is always keep the odds in your favor."

Luckily, as Trader Vic suggests, successful trading does not require effective prediction mechanisms. Good trading involves following trends in a time frame where you can be profitable.

The trend is your edge. If you follow trends with proper risk management methods and good market selection, you will make money in the long run. Good market selection refers to trading in good trending markets generally rather than selecting a particular situation likely to result in an immediate trend.

There are three related hurdles for traders. The first is finding a trading method that actually has a statistical edge. Second is following it with consistency. Third is consistently following the method long enough for the edge to manifest itself on the bottom line.

This statistical edge is what separates speculating from gambling. In fact, effective trading is actually like the gambling casino rather than the gambling customer.

Successful trading must be based on the simple premise that no one really knows what the markets are going to do. We can guess, but we don't know. The best a trader can hope for is an approach which provides a slight edge. Like a gambling casino, the trader must earn his profits by exploiting that edge over an extended series of trades. But on any given trade, like an individual casino bet, the edge is pretty meaningless."

Unsuccessful and frustrated traders want to believe there is an order to the markets. They think prices move in systematic ways that are highly disguised. They hope 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.

Books on how to trade commodities are famous for showing a few well-chosen examples where a described prediction method previously worked. They never show what would have happened if you had applied the method religiously for many years in numerous markets. Those who have tested these methods have found that in the long run almost all of them don't work. Be wary of any trading method unless you see a detailed demonstration showing that it has worked for at least five to ten years in a variety of different markets using exactly the same rules.

Futures trading is ultimately very simple. Any attempt to make trading complex is a smokescreen. Yet for self-serving reasons an army of greed-motivated analysts try to make things complicated. Too many market professionals consider it their mission in life to obfuscate. Why? Because in so doing they give the appearance that their efforts are scholarly and important. They create a need for more information, and then they fill it!

How rightly said.

Tough work!

Traderji's writeup is specific and explicit but such thing should be posted on beginners beware or something like good trading precautions which others were posted("Like Cigarette smoking being injurious to health"). Otherwise, how can a beginner know? In both the Viratech seminar and the CNBC's first investor camp, derivatives were covered at the fag end and in a superflous manner which when one considers the "sense of proportion" can give a completely misleading picture to a beginner who may be obsessed with TA. One gives attention on the basis of deemed importance. Besides, covering it like this is an insult to a wonderful subject and in the CNBC camp most people just walked out and rightly so becauuse how can anyone digest fancy strategies if the basics have not been digested first.

One heck of a write-up Traderji. To my mind, there could'nt be any better description of the markets, their analysis, the analysts & their inter-laced realities. Superb piece indeed. Softly speaking, I'd like to think of your write-up as a kind of vindication of my stand on this topic, perhaps a bit shoddily posted at the start of this thread but neverthless frank & downright honest in it's presentation.

Let me also follow you in all honesty as I do in poetry, Jaideep.

A word of caution here. It all boils down to what your definition of simplicity is. Such as Cricket pitches andd Tennis courts are different and require different responses from players, the word “subject” itself implies complexity because subjectivity automatically implies complexity which is why exercises like optimization are needed. One cannot oversimplify too and one has to try and read between the lines and note the finer points as the new posts of master trader in "Technical analysis" section suggest. How can anything which requires 4-5 indicators of diffferent types to corroborate be simple:-

Simplicity maybe good in principle
But here, anything that requires indicators so varied and multiple
can never really be simple
A more exhaustive edcation is required for TA to be understood by common people.

To my mind, one has to beware of artificial complexity. I read a book on traders where it was given that some of the new indicators are only a marginal improvement. Metastock maybe a better product than technicaltrends software from certain perspectives but from simplicity perspective, it is far better as only the relevant indicators are taken.

Even looking at fundamentals, one cannot say that lets keep it simple and restrict ourselves to financial accounting. One has to read the audit objections and when one does the management accounting exercise to know how profit was generated, only then can one estimate whether the profits are from business operations or investments/other sources. Window dressing in India is common and things like depreciation are routinely used to window dress. If you don't know what the difference between free and revaluation reserves, the data would be completly misleading.

Just as in the market the realist wins, reality has to be seen and addressed. In the “Tools of the bull” the travails of a small investor, “ Less money for backup and leverage, outdated information, higher commission and a mountain of data that is confusing as well as late”. The last one to my mind is complex- with internet being a “knowledge langar” and so many channels and books, it can be perplexing. One cannot ignore it either because trading education is unstructured in India and different books are good at different sub-topics. One can learn and it can be an exchange of one confusion for another which in any case we face in the market.

Hi

My two cents - to be successful in trading what you need is - above any TA or FA - mastery of self !!! Yes faith in yourself and faith in your trading system.Once you achieve that you would be confident in your trades and will not be deterred by any number of consecutive losing trades but would stay the course and feel the success - but there is a corollary - once you reach that cruising altitude you tend to visit forums like this less frequently and contribute even further less - generally because you have stopped searching for that elusive holy grail and the discussions and opinions etc are of no use to you or could even be detrimental in the sense that it may confuse you - it is like a machine that is tuned to the optimum level could be made worse by continued tweaking

K Kannamthanam

Reminds you of Maslow's hierarchy of needs- food-clothing-shelter, social, recognition and self actualization. In this context, you can't have faith in your trading system without being a good analyst. Sometimes I feel some people get carried away when they talk about psychology and money management becuase it sounds so intellectual that they are more important than analysis. When you attribute 70% sunccess to them, one wonders how true it is. A good analyst does not always make a good trader but it should be given its due importance.

I also strongly feel that just as in reading one should know what to skip, in analysis too management by exception should be the rule paradoxical though it may sound.