M6 - Man, Mind, Money, Markets, Method & Madness

[vijayanscbe]

My last thread Market & Afterhours got ‘demoted’ to ‘chitchat’ and will not even appear in search. Reason? Most likely an inappropriate post by a member for which the thread got punished. No issues, we accept good and bad as a part of life, learn and move on. So this will be a new thread to focus on only the things related to what we do as traders. It's M6

Man : A trader
Mind : Pyschology
Money : An idea representing value of exchange. So Bitcoin is also included.
Markets : Let’s talks stocks, futures, options, commodities, currencies, and any other (alternative) investment and trading vehicle.
Method : Strategies, tools and techniques of trading and making money
Madness : Tying in all the above, passion for trading.

I love trading as well exchanging ideas. So I start off here. Request members to post all things of value, and lets keep out stuff unrelated. Thanks.

History is going to repeat.

 

[Snake.Head]

Kindly stick to topic of thread and take all non market related topic to General Chit Chat.

 

[Catch22]

The ‘Ten Commandments’ of Trading
f we sat down and had a conversation about trading in person, I would discuss the following ‘ten commandments’ of trading with you. What follows are ten of the most important aspects of trading that you need to understand, accept and implement if you want to trade successfully and profitably. So, without further ado, here they are…

1. Know what your trading strategy is and master it.
It’s always surprising to me how many people don’t actually even have a trading strategy but still try risking money in the market. If you do not have a strategy that you’re trading with, meaning a trading edge that gives you a better than random chance in the market, you are just gambling and may as well just go to the casino instead.
Having a strategy and mastering it, takes time, effort and discipline, which is also why many traders do not have one; they don’t want to put in that time, effort and discipline. If you think you will just ‘wing it’ and somehow make money in the market, you are wrong. Trading success is not the result of luck or an accident, it takes effort, dedication and passion.
Furthermore, once you have actually mastered an effective trading strategy, like price action, you have to stick to it, you cannot waffle and jump between trading strategies as many traders do. Trading involves both losses and wins, and you’ve got to be able to have the fortitude to keep focused during the losses. If you jump ship, and abandon your trading strategy after a couple losses, you haven’t given it the proper time to play out and work in your favour, and you will just be on a never-ending, futile quest for a ‘Holy Grail’ trading method that does not exist. Have a strategy, know it, master it, and stick to it.

2. Be honest with yourself.
If you’re drowning in a sea of debt and you really can’t afford to lose any money, you probably should not trade live any time soon (but you can learn and demo trading in the meantime). If you aren’t in a financial position to risk money in the market, you won’t be in a mental position to do so either.
What I mean is, people who are trying to trade but who also can’t really afford to lose any money, are already approaching the market with the wrong trading mindset. You will never be able to let a trade play out or properly absorb losses if you are constantly worried about losing money. Losing money is a part of trading, you will lose and win, and if you know what you’re doing, hopefully you will win more than you lose at years end. But, to do that, you must be in the right frame of mind, and this won’t happen if you can’t afford to trade. Be honest with yourself about this so that you aren’t starting with the wrong mindset.

3. Trust yourself – trust your gut and ignore ‘tips’
Once you learn a solid trading strategy, it’s time to block out the rest of the world. Ignore the pundits on CNBC and other financial media; these people get paid to provide an opinion…an OPINION, not a fact!
I don’t know about you, but I trust my own opinion about whether to risk my money or not, more than anyone else’s. If you don’t yet trust yourself, you will eventually. You just need to get some training and screen time in the market, and over time you will gradually build your own trading skill and gut feel about the market. This is really the only way to ‘beat’ the market in the long-run. This is also why anyone trying to sell you some mechanical trading system is simply full of B.S. and doesn’t know what they’re talking about, or simply doesn’t mind stealing your money. Professional traders trust themselves first and foremost and they don’t give a S%@! What the rest of the world is saying; they only care about what the price action on the charts is telling them.

4. Don’t let the results of your last trade influence your next trade
This one is big. Traders often become overly-influenced by their most recent trade. For example; you had a trade that hit your stop loss by one pip, then went roaring back in your favour. What do you do? How do you react? It’s these situations that make or break you, that separate the winners from the losers, the pros from the amateurs.
A pro trader in this example, will not be affected by such a situation, whereas an amateur will be mad, angry and want revenge on the market. It is true that you’ve got to have ice in your veins to trade successfully, because if you give in to every little feeling and emotion that the market stirs up in you, you will be an emotional wreck of a trader and quickly lose all your money
The main piece of logic or fact that will allow you to trade with ice in your veins, is that any one trade has a random distribution of being a winner or loser. What that means, is that your winners and losers are going to be randomly distributed across a series of trades, to learn more about this, check out the article I wrote on it here.
For example; if you expect to win 60% of your trades, over a period of 50 trades that means you’re going to lose 20 of them…but you don’t know WHICH 20 will be losers. Therefore, if you have 5 losers in a row, but you haven’t yet lost 20, it’s still within the natural statistical variance of your trading edge and so there’s absolutely no reason to become emotional or do anything stupid as a result of those 5 losing trades. It can be tough to remember this in the ‘heat of the moment’, but if you don’t, you will probably give in to those emotional impulses that drive you to make stupid trades, and lose money as a result.

5. Control losses, do not avoid them
I get emails from traders every week who are clearly trying their hardest to avoid losses. They tell me they aren’t trading with stop losses or ask me “why a perfectly good trade setup failed?”
The truth is; you cannot avoid losses in trading. So, learn to control them through risk reward and money management. The sooner you do this, the easier your life as a trader will become. If you try to avoid losses, you may do it for a while, but when you do inevitably have one, it will be big and bad, and cost you a whole lot of money.
Trading is about controlling losses and containing them under a certain 1R dollar amount per trade; not avoiding them altogether, because that is an impossibility.

6. Preserve your trading capital for the ‘easy prey’ trades
Too often, traders waste their trading capital on trades that either don’t meet their trading strategy criteria, or are very poor setups. One of the most important ‘rules’ of trading is to preserve your capital so when the obvious setups come along, you can ‘jump’ on them like a trading predator and get the most from them.
This means, you shouldn’t be in the market all the time. In fact, most of the time you should not be in the market, but you should be observing as a ‘bystander’, waiting for those ‘easy prey’ trades to form. Then, when they do, you have plenty of money in your account to take advantage of them since you didn’t waste it all on poor trade setups.
7. Be excited about trading, not about money
To excel at anything in life, you have to be passionate about IT, not about what it can do for you. Trading is no different; you must love trading and love looking at charts and price action to become a good trader and eventually make money. Professional traders make money AS A RESULT of their love and passion for trading, not because they ‘want to make a lot of money’. Therefore, you need to put your focus on learning to trade properly and becoming the best trader you can be, not on ‘making money’.

8. Plan your trades9. Be realistic.
You aren’t going to become a full-time trader in six months, probably not a year, maybe not even five years. I hate to be the one to break this to you, but someone has to. You need to be realistic if you want to succeed at trading. I consider ‘succeeding at trading’ to mean making money over the course of a year, but if you have a small account, you aren’t going to get rich quick, nor should you be concerned with doing so. Your goal at year’s end should be to have made a profit, if you did that, then you can consider that a successful trading year. Obviously, some years will be better than others.
Furthermore, the trading mindset required to make money, is one of being focused on learning how to trade properly, not on ‘getting rich’, profits or rewards. Making money at trading is the end result of being realistic and doing a lot of things right, consistently over time. It doesn’t happen just because you want it to. People often assume trading is an ‘easy’ way to make money, but like anything else, it takes time, effort, dedication and passion to the craft. A professional sports player makes a lot of money, but only because they are sickeningly passionate about their chosen field. Thus, the passion and mastery is something you must possess before the money will come, in trading as with anything else in life.

10. Get proper training
Whether you’re a total beginner or you’ve been trading for a while but never really had any real training, you need to learn the technicals Take the time to learn .

By Nial fuller

 

[Catch22]

By Nial Fuller on July 31st, 2015 in Forex Trading Articles

How to Finally Start Making Money Forex Trading money

In this lesson, I am going to give you my insight into some of the key things that helped me start making money in the forex market. It may not be exactly what you want to hear, because it’s not necessarily going to be ‘fun’ or ‘entertaining’, but if you actually put in the effort and start implementing some of these ideas, I am certain you will notice major changes in both your trading mindset and your trading decisions.

You have to do what you need to do to make money trading, not what you want to do, and these are often two very different things. Keep your mind on the end-goal and make sure you continue seeing the ‘forest for the trees’ so that you don’t get off-track and fall back into the same trading traps that have caused you to lose money.

What follows are the key things that I did or changed which allowed me to move from losing to winning in the market…

Use wider stop losses

You might be ‘choking’ your trades to death by using a stop loss that is too tight and sits inside the daily range of the market. You have to give your trades room to breathe; don’t suffocate them. Most novice traders place stops inside the markets daily range and that is the equivalent of giving your money away. Check out my article on how to use the average true range as well as this article on how to place stop losses; they will give you some ideas on how to place your stop losses strategically whilst still giving your trades room to breathe.

Of course, there is a ‘catch’ here, if you want to call it that. It’s that with wider stop losses, comes the fact that you need to reduce your position sizes. But, this shouldn’t be thought of as a ‘bad’ thing. On the contrary, placing your stop loss properly, means that you are trading properly and respecting the market; it means you are behaving logically, not emotionally. If you trade this way for long enough, you will make money and you will build a track record that reflects that. Traders with respectable live account track records over a one-year period, don’t have trouble finding funding or getting more funds to trade.

Don’t fall into the trap of thinking that you can trade lower time frames and get a tighter stop. Sure, as you get better you can catch trades on the 4 hour or 1 hour charts that don’t require as wide of a stop, but you won’t be able to do this successfully over a long period of time if you don’t already know how to trade the daily chart profitably and understand proper stop loss placement on that time frame.

Don’t view wider stops as a handicap, instead, view a properly placed (probably wider than what you might like) stop loss as part of proper trading and proper trading habits that will ultimately lead to you becoming a consistently profitable trader much faster than if you place your stops emotionally, based on greed.

Take fewer trades and hold them longer

Holding fewer trades for longer can result in much more profit, much faster than ducking in out of the market all the time and entering many trades. Big money is made in the market by catching big moves and holding them, trading this way is also a lot easier than high frequency trading and it also means you don’t need a high winning percentage to be profitable, because one big winner can pay for many losers.

The more often you trade, the more spreads or commissions you pay to your broker. Over the course of a year, these fees add up, eating into any profit you may have had. When you take fewer trades but hold them longer; you are not paying nearly as many of these broker fees and you’re still giving yourself the chance to take advantage of strong market moves.

Trading less means less emotional trading mistakes like over-trading / over-leveraging your account. One big reason why so many traders end the year unprofitable, is because they gave back all their profits after a nice winning streak. You have to protect your trading capital and be very picky about which trades you take if you want to make big money; thus take fewer trades and hold them longer.

Holding trades longer gives you the opportunity to catch big moves in the market and that means you’re riding the market and taking advantage of its power. Granted, big directional moves and strong trends don’t happen all the time, but they happen enough and if you know how to trade them they can make you a lot of money with very little involvement on your part.

One way to take advantage of these big moves and to really pull a lot of money out of them, is by pyramiding your positions. This is essentially where you scale into a trend as it moves in your favour, building a bigger position size whilst trailing your stop loss as the trade becomes more and more profitable. To learn more, check out my article on pyramiding for profits here.

At the end of the day, just remember that one good trade per month or even every two months, that you hold for weeks or months, can make you more money and result in a much higher % return, with far less work and stress than ducking in and out of the market all month.


Your ‘thrill’ or excitement from trading should not be from doing it wrong, it should be from doing it right. Meaning, you should be excited about the longer-term payoff of trading properly, which means using proper stop losses (wider if necessary), being more selective in your trades (trading like a sniper) and holding them for longer.

 

[Catch22]

I have at times gotten into the habit of over trading ..Came accross this article ,which dissects and analyses the reasons behind this habit ..Wish to share the same
Learning to Stick to Your Plan
By Rande Howell
"Every day I start with the resolve to have the discipline to trade my plan. I really believe I am going to do it this time. I am prepared. And everything goes fine for a while. Then something happens. Before I know it, I’m over-trading. And making trades, that in retrospect, I have no business in. The problem is that I don’t see it coming. But, there I am again, trading outside of my plan. I don’t understand why I keep on falling into the same bad habits again and again."

What Causes Over-trading?

Over-trading, as opposed to revenge trading, is grounded in a bias to take action so the trader can make things happen. And, outside of trading, this ingrained behavioral tendency to take action often proves a successful adaptation. It seems so “right” that the urgency is rarely noticed until the damage has been done. Rarely does the trader see that this trait is a flawed strategy in trading.

It is so familiar, so ubiquitous, that it is not noticed and is literally off the trader’s radar screen. In the vignette above, the impulse to act outside of plan seems to come out of nowhere. But that’s not the way it happens. The bias to act, to chase the trade, is not viewed as a dangerous development in the way the trader is “seeing” his environment. After all, he thinks, I am there to trade and get the ball rolling. Wrong.

Over-trading is rooted in a fear of missing out on potential profits. It is that unaddressed fear that torpedoes the trader’s mind. Damage is done because the trader, as a hunter, moves from a mindset that patiently waits for the prey (the set up) to come to him to a hunter who begins to stalk his prey (looking for opportunity outside of his rules). It is this subtle shift that the trader in the vignette above doesn’t see influencing his perception.
Acting Out of Boredom Rather than Patience

Setting still and waiting invites boredom into a mind accustomed to taking action and doing something to make things happen. Boredom, in the alpha’s mind, is the enemy of getting things done. Actively doing something, in the short term, gets the trader out of the discomfort of watching trades (and money) passing him/her by as he just sits there like a bump on a log. It is this unexamined urgency, in the context of trading, which makes the trader susceptible to act on impulse rather than reason.

It feels good to be doing something, rather than just sitting there getting more bored as time goes on. Worst, as you just “sit there” doing nothing, negative thoughts have a ways of creeping into your mind creating un-ease. Then, coupled to the desire to take action is also the need to escape the uneasiness of “just sitting there”. This is a perfect storm for over-trading – the urgency to seize opportunity meets the need to escape boredom.

Busyness vs. Effective Action

Besides the urgency to be trading (doing something) to make money, jumping into a trade helps the trader escape the boredom of sitting on his hands waiting for something to come to you. Why not go after it? You can make it happen – for you always have in other endeavors. And as the logic goes – if you don’t do anything, nothing is going to happen.

So, to the action-oriented brain of an alpha-leaning trader, there is a choice here: While you are supposed to be trading, you can either take action and feel empowered (because you’re doing something) or you can sit alone with your thoughts and start feeling uneasy as you just sit there waiting – wasting your time when you could have been doing something to seize opportunity.

Much of our active culture is based on taking action, making things happen, or consumed by maintaining busyness with activity. This aspect is at the core of much of the success thinking and principles that are taught in personal or professional development outside of trading. So it is natural for a person who has experienced past success in business or a corporate career (by making things happen) to attempt to generalize what created success then to the environment of trading. On the surface it makes sense. It makes a person feel empowered to make things happen. This is the mind that the trader brings to trading – and it is not going to produce success in trading. The worlds of business and corporate life have very different rules for success than trading. For most, the act of pushing an agenda forward proves to be a powerful strategy for success in business. But this same mentality, when applied to trading, does not produce success. That is because the work of trading is not busyness – it is patience. It’s not that the old paradigm of pushing the agenda and making things happen is wrong. It’s just that what worked in one environment does not work in the world of trading. It is the difference between a stalking hunter and an ambush hunter. The success of either depends on its effectiveness in a given environment.

Creating a Train Wreck in the World of Trading

First, let’s find out what’s behind the biological patterning of impulsive over-trading before moving on to the mind. Dopamine and testosterone produce the euphoria (the feeling good or the feeling of power) that leads the brain and mind to over-confidence and mindless trading. Every time there is success from taking action in the face of uncertainty, the reward center of the brain gives the system a little squirt of dopamine. This shot of dopamine makes us feel really, really good.

A close relative of the neuro-transmitter dopamine is the drug called cocaine. So it’s pretty easy to see how the reward system works. If fact, each time you make things happen, your brain gets another dose of dopamine. Before you know it, the brain learns that taking action and making things happen makes the whole system feel good. The behavioral tendency is then wired, based on the reward of dopamine, into a habitual response, particularly when confronted by uncertainty.

So on a biological level, two things are converging to create over-trading. First, for many traders the taking action in the short term (making things happen) is already a habituated circuit that produces a dopamine fix – a high reward for acting rather than sitting on your hands. It feels good to be doing something rather than “doing” nothing. Boredom, associated with patience, is averted because it was not trained into default programming to deal with the uneasiness created by uncertainty and not knowing what the outcome will be. What is left is an “itch” to act. Second, an untrained brain/mind gets agitated when it is asked to sit still while simultaneously being exposed to the ambiguity of uncertainty. Suddenly, a new “itch” arises. With a brewing need for excitement (dopamine dependence) and a growing sense of uncertainty and capacity to control outcome, stress begins to build up (cortisol). And the brain/mind, unless well trained, will want to jump out of the growing uneasiness of just watching things go by without doing anything.

The Double Whammy of the Excitement of the Chase Meets Escaping Boredom

The perfect storm of overtrading only needs one more thing – testosterone. Testosterone is associated with risk-taking. So the untrained brain/mind is faced with a conundrum. It can stay in the growing stress of doing nothing, or it can risk taking action. In its drive to feel the excitement of the hunt (making things happen) and the strong motivation to escape the uneasiness of boredom, the brain/mind lowers its capacity to appraise risk by supplying testosterone.

Then, risk is not as important a consideration and the excitement of the chase (making things happen) creates a thirst to act. The discomfort of patiently engaging the ambiguity is averted. And confidence in patiently trading your plan has been replaced by the over-confidence of needing to make things happen. This is the perfect storm of over-trading.

Biology and Beliefs Meet

The chemistry of over-trading happens as a result of the beliefs you bring to the management of uncertainty as it excites the flight/flight syndrome. Traders often profess to have certain beliefs that drive their trading. The distance between the veracity of your professed beliefs and the hidden beliefs that drive your performance are revealed by examining your trading account (or by seeing where you stack up to the benchmark by which you are measured as a proprietary trader).

Traders often deceive themselves by professing beliefs that fly out the window when real capital is put at risk. But your trading account is the beacon of self-honesty. Your trading account will reflect the effectiveness of your real beliefs that drive your performance. If you are seeking to retrain the brain/mind for patient, disciplined trading, this is where to look. n over-trading, there is a need to control outcome by force of will (making things happen). It is the need to control outcome that is at odds with a successful trading mind. Control over outcome is an illusion (albeit a persistent one) that has to be embraced in the world of trading where outcome is always uncertain. Becoming comfortable with and accepting uncertainty of outcome at the level of your trading account is the key element missing in a trader’s habit of over-trading.

The need to be in control over outcome, deeply embedded in our evolutionary history, is simply dangerous to hold onto in trading. This need, no matter how successful in the past, simply does not generalize to trading. In trading, the need for control of the alpha personality is rooted in a hidden sense of inadequacy, of not really matteri ng unless you’re a winner, a sense of having to prove your worth, and always a sense of powerlessness over outcome.
The Paradigm Shift as Difference Maker

It is when the alpha trader is faced with his powerlessness over uncertainty of outcome that the distress happens and the ramping up of chemistry leading to overtrading begins. The markets will always call his/her bluff. The opportunity to separate performance as a measure of your value and a deeper sense of worth as a human being opens up. Life, the markets, and any given trade were always uncertain. And you could never control the outcome.

However, what the evolving trader does discover is that, once he gives up on trying to control outcome, he can learn to control the one thing that he can truly control. The trader can control the mind that he brings to the performance of trading. By doing that, probability is on his side. This is the elusive edge that the vast majority of traders never understand. The paradox is that the trader does not “work” to make things happen. Instead, he patiently waits for opportunity to come to him.

The urge to chase opportunity and the need to escape boredom are simply artifacts of an old world view that is no longer relevant in the trader’s world.

 

[DSM]

Thanks Catch for steering the thread back on track. :clap: :clap::clap:

I guess in a country as vast as ours, there are going to be issues that bring up deep emotions from us all. Even if we have different opinions, we have to state them without getting personal. So will open another thread where ideas can be discussed and debated so that we can understand the opposite view and arguments as well - Hopefully in a respectful way.

So all's well that ends well. :thumb::thumb::thumb:

 

[bunti_k23]

“Don’t be a hero. Don’t have an ego. Always question yourself and your ability. Don’t ever feel that you are very good. The second you do, you are dead.”
-Paul tudor jones.

 

[Catch22]

Examples of how long good trades can take to play out…

1. EURUSD counter-trend fakey trade

This first example is of a nice EURUSD counter-trend fakey / false break strategy. Note that the down move eventually worked its way all the way down into the next key support down around 1.3500 before terminating. Thus, we can see that big moves in the market can take longer than we think to play out. In this example, this move took about 1 month to unfold. This is how patience will reward you in the market. Imagine if you just set this trade up, put a target just above 1.3500 and didn’t look at it for a month? You would not only have experienced less stress, but would have made a lot of money as well. I know that’s a ‘hindsight’ viewpoint, but the point remains that patience will reward you and that good trades do take longer than you think to play out…

2. NZDUSD pin bar with trend trade

In the next example, we see a clear example of a pin bar sell signal in-line with an overall downtrend in the NZDUSD. There was an obvious recent support level down near 0.7710 that would have made a good target area for this trade…if you had the patience to let price work its way down to it. Note, the market took about 9 to 10 days after this pin bar formed to re-test that support. If you lacked patience and wanted an “instant profit”, you would have had a very long 10 days whilst price ground its way lower. Another clear example of how good trades can take longer than we think or want to play out (as well as how patience pays!)…

3. EURJPY fakey / pin bar buy signal from key support

Next, we are looking at a EURJPY fakey pin bar combo signal that took about 10 days before it really got surging higher. This was a very good signal that formed at a key level. Would you have had the patience to just do nothing for the 10 days of slow grinding price action before the big upside breakout happened? Most people didn’t have the patience to hold and so they missed out on the most profitable part of the trade…

4. AUDUSD pin bar buy signal from support

The chart below shows us another good example of a pin bar buy signal that formed at a support level and was then followed by slow / grinding price action before the big move higher took place. Note, there was about 6 or 7 days of price movement that slowly ground higher before the real breakout started. Many traders probably ‘freaked out’ and exited during the first 6 days of slow upward / sideways price movement and took a very small profit right before the market surged higher without them on board. This goes to show how dangerous over-thinking and over-analysis of your trades can be. Just take a simple set and forget approach to your trade management

5. GBPJPY counter-trend bearish pin bar sell signal

This next example is a very clear example of how good trades can take longer to play out than we think (or want). Note the long-tailed bearish pin bar that formed in this market back on September 19th of 2014. Based on the size and the nice bearish close exactly at the low of this pin, you would have thought at the time that price would immediately start falling after this pin bar formed. However, as we can see that was certainly not the case because if you shorted the market after this pin bar formed you would have had to endure 7 days of sideways very choppy price movement before price finally started rolling over. But, when it did start falling finally, it fell like a rock and eventually tested the key support down near 169.35…a move of about 800 pips from the low of the pin bar! This is how patience is rewarded by the market!

6. Gold long-tailed pin bar at support

The spot Gold market provides us with some very good signals sometimes. But, they don’t always fire off immediately as we would like, just like the other examples here. In the chart below, note the long-tailed bullish pin bar. If you entered on a ‘trade entry trick’ near the pin bar’s 50% level, you would have had to endure price initially moving in your favour, only to come all the way back to your entry over a 3 week period before then bursting higher and really making you some solid profits IF you had held on…

7. GBPUSD 4 hour fakey / pin bar at support

Finally, the last example we are looking at is a 4 hour chart GBPUSD fakey pin bar combo buy signal. Note, you also need to adopt a longer time horizon on 4 hour charts too. This market chopped sideways for 20 hours after this 4 hour signal formed before finally bursting higher. Again, patience pays.

Conclusion
The main point of today’s lesson was to show you that good price action signals don’t always immediately move in our favour (sometimes they do, and that’s great! But often times they don’t, which is the point I’m trying to get across to you here!). Sometimes they take weeks to play out, or even a month or more as we saw in some examples above

http://www.learntotradethemarket.co...gies/how-long-do-good-trades-take-to-play-out

 

[DSM]

An insightful tweet chart that explains the global economic scenario :

 

[DSM]

Why bother about small interest-rate changes in India? - Swaminathan S Anklesaria Aiyar

http://blogs.economictimes.indiatim...about-small-interest-rate-changes-in-india-3/

(Excerpts from the article by Swaminathan Anklesaria - An insightful read - Especially for those wanting to know why hike in US Interest rate matters)

The US Fed’s interest rate has been almost zero for years. A rise from 0.1 per cent to 0.25 per cent implies more than doubling. Another rise of 0.25 per cent after three months will be another doubling. Bond prices are inversely related to interest rates. So, bond prices can crash up to 50 per cent every time the interest rate doubles. So, a 0.25 per cent change matters hugely in the US.

Besides, near-zero rates in the US — and Switzerland, Germany and Japan — mean that millions of savers there seeking a decent return have been forced to leave their home markets, and invest in relatively risky countries, including India and China. If the Fed raises rates this week, and keeps raising them till they get to around 2 per cent, then trillions of dollars could flow back to the US from all emerging markets, causing Indian stock and property markets to crash. In the last month, the mere possibility of a US rate hike has roiled emerging markets. So, an increase of 0.25 per cent in the US rate is not a one-off event: it warns of much more to come.

Does it follow that a 0.25 per cent change in Indian rates also matters a lot? Actually, no. Many US companies borrow at 2 per cent today. So, a rise of 0.25 per cent implies a substantial increase of oneeighth. But top Indian companies borrow at 8-9 per cent, and most borrow at 12-14 per cent. A rise of 0.25 per cent makes very little difference to such borrowers. Most small companies get little or no formal bank finance, and couldn’t care less what the RBI decides. Interest costs are just 3 per cent of total costs on average for companies. The domestic business climate, fiscal conditions and global conditions matter far more than interest rates.

Though I have posted excerpt of the full article, the full article is well worth a read to understand economics as well as markets. Link here : http://blogs.economictimes.indiatim...about-small-interest-rate-changes-in-india-3/