Technical Trading - Practicing the Theory

great initiative Ajay

hi ajay,
great to see you starting a thread, even when you are not at the best of your health.

looking forward for the learning process and will put in my words soon.

hope you have a speedy recovery.

cheers,
jdm.

Hi Ajay

Its great that you have now decided to share your knowledge, theoretical and practical, with the members and public at large.

I don't need any more sign of bullishness now that almost all the geniuses have returned to active duty SAINT, Karthik, Murthygaru, and now you.With you joining the delta force Amitbe would also surely reconsider his decision. Lesser mortals and shouting brigade or backbenchers would have to give way now.

I am worried abt your health. I am sure you must be doing your best but do take extra care before you put in additional effort here. I will pray for you.


regards
pankaj

Hi Ajay!
First AMITBE,then Saint,Then VV,then karthikkamar,then PKJHA and Now You! A neat bouquet of knowledgeable and openminded Flowers! All of you are beautiful creation of God. I salute you all for your sharing spirits friends!
Traderji forum is getting HOT!!
Great Going friends!
God Bless You all.
Disciple.

Sorry Guys!
I forgot to mention our super Moderator TRADERJI.He is also running a great thread.
God Bless You Traderji!
Disciple

Hi Friends,

Sorry for catching you up very late after starting this thread. All blame is to my ill health and not to me .

First appeal to the readers here is that this thread is not for the veterans here. I'm trying to give an insight to select the rule and also to practice it -keeping freshers as my first choice as everybody knows it is very easy to write better on a clean slate.

And another appeal to the readers who fail to practice the theory is to unlearn first what all has been practised so far and start afresh. Ofcourse I know it pretty well that it is very difficult to unlearn. We will discuss the unlearning practices in due course as we progress.

Now let me give you a little introduction part on to trading. Perhaps it might bore you. Still it is required. Here friends, even I mention it trading, please consider investing also is included in my view so is the investor when I call it a trader.

We all do trading to make money. So, whether one accepts it or not, it is a business. Like any other business it also has got certain prerequisites to be fulfilled, both qualitative and quantative.

Let's first discuss qualitative aspects. The very first quality required is to have certain principles, laws and byelaws to be adopted to run this business, as any other business. Fortunately unlike any other trade where lot of compliances are to be met with as required by the laws of the State, this business has got no major governing laws to be followed, except having a
PAN card and paying taxes to the Govt. So the one who chooses this business is really intelligent without any doubt.

But the first thought to be kept before starting this business is that the freedom of running this as per our wish is like a boon and curse as well. The choice what to make out of this is fully in our hands and so are the results. So friends, though you feel I'm boring you, I should give this as introduction. And sorry if I bored you.

The next quality is to adopt the predefined rules with discipline. Most of the traders fail here in adopting the rules, in practice.

Here the strange thing is that every one follows the rules as one's profession demands - whether it is a doctor, advocate, auditor or secretary or engineer or any other professional or an employee in a company or in the service of the govt.or running his/her own factory or wholesale or retail outlet or a house wife who keeps well all the family environment - but not the rules what are framed to run trading business.

Here the real culprit is again Freedom.Freedom from accountability on our actions. Freedom is like a double edged sword. We can use it for constructive purposes and distructive as well. So is the freedom of
actions in trading business. Please use the freedom for constructive purposes.

The lack of seriousness in identifying it as a business the is root of all the net losses in this trade. So, give a serious thought, before you enter into it, whether you can make use of your freedom well.

Enough for now friends. Will catch you up with the core contents from my next posts. Before that your inputs and feed back are the most required things here to be more focussed on the topic.

Thanks for bearing with me

AJAY

Dear Friends,

In the previous post I clearly mentioned that Trading is a Business and as the responce from your end is silence, I'm presuming that you all accepted that it is a business.

Practicing the theory is nothing but translating our trade signals on our charts to trades.

Dear friends, now what are these trade signals? They are nothing but buy/sell/exit Signals generated out of our trading mechanism. Now comes the question. How to decide that a particular mechanism suits to me?

Here suitability comes as per your profession and your reactions to the situation.

Say you are engaged into some activity otherthan trading as your main profession. Then you may be having no time to look into markets. In those days never initiate entries in the markets. Don't get lured by the dialogues of your colleagues that they are making tons of money in the markets. Never feel that you are missing the bus. Markets will always be there and you too.
If any hasty entry is made in to the markets when you can't spend time towards reacting to the situation, you might miss the markets forever, with one big loss.

So here your trade signal is NEUTRAL ZONE. Just a vacuum. No issues you can fill it anytime once you feel you can accept this also as your profession perhaps say part time, by being able to spend time towards it.

So friends, Neutral Zones are not only there on charts but also there in practice as per our life style and interaction with the markets.

So, Point No. 1 in practising the theory is Keep away from markets, if you can't spare time to manage your money.

Now coming to the Second Level. Here you are engaged yourself in other profession, but also you can spare time to manage your moneys in the markets. Most of the Investing Community is of this Catogery.

Now comes the question, are you a position trader or day trader? If you look into markets more than twice a day during market hours, then you are a day trader by heart and position trader by practice. So either change yourself or change your profession. If you look at markets only once a day or only on close in the evening, you are a position trader both by heart and by practice.

Now how to design the trades.

Friends, sometimes as the context demands we should digress from the main topic and discuss the related ones. So, before going for trade design, a little amout of money management principles we better understand, which are to be practised.

And before money management, a little amount of trade practices we should discuss. Friends! you are all aware trading is a zero sum game.Means one's (notional)profits are other's (opportunity)losses. So is the investing. And acting in the financial markets is like fighting in a war. If one has any reservation that he/she fights with only his/ her favourite weapon, not
good but still no problem. But one has no right to expect the enemy to fight with only those weapons what one likes to face. So, one should learn the protective mechanism fisrt to protect from the sharks in the markets. And for this whether we like it or not, we should practice trading on both the sides- Long and Short. So, once you can trade both long and short, then presume you are with the weapon which protects you in the market games.

Now let's discuss a little money management. There are different theories to practice money management. More or less every theory says to have a spread in the investment at 10% of the equity in each security means 10 securities with 2% stop on the investment and thus say 20% of the equity as the maximum amount that can be risked in the markets. But my question is say for example if I get stopped in all my trades and lost 20% of my equity, does it mean I should quit the markets? I'm a disciplined trader, still got stopped and lost 20% of my equity. If I have to quit the markets just for this reason, then I don't even like to enter the markets. So what I suggest here is you take an exposure only to 10% of your equity and be with only one stock. And trade the moves, as per your theory. Whatever be the theory, any system gives entry only at the threshold points of Long or Short with a little stop value. Once you initiate the trade never give up. Take both long and short trades in that security depending on which side of the threshold it is. As the entry is finer, the chances for you getting stopped several times are very bleak. So, please keep in mind. Never change your rule of trade which stopped you, just for the reason that it stopped you several times. Recognise one thing. If your mechanism, which is tested, is stopping you many number of times, it means that the stock is struggling to decide on the direction. So, after the direction is decided, the moves in your favour will be wild and more rewarding. So, never give up the tested rule and never give up the security in which you got stopped. And even to initiate trades one clue what i give here is to wait for any pattern to form or any good behaviour of the bars to form once your rule tells you to initiate the trade. If you wait for these signals and initiate trades, even the chances to get stopped will be reduced to lessthan 10%. And friends all this is for those who have a tested trade system and who trade in a liquid security.

And friends, enough for now. Excuse me for not discussing trade design now. Wel will discuss it in the next post.

Thanks and happy practicing technicals

AJAY

Great read Ajay very practical suggestions

Ajay


You have brought up some really valid points. Knowing what you are, Position trader, long term investor or day trader is very important. Another is the importance of giving time for your money management. Give some tme to manage your money is very important even for long term investors.

This thread will be a very valuable one for all of use. Eagarly awaiting for more.

regards

karthik

Thanks marcus and karthik for your encouraging words. Will try to keep the posts as regular as possible.

Thanks

AJAY