Reminiscences of a trade-learner , journey to become a PRO

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oilman5

Well-Known Member
Dear sir,
You mentioned intraday retracement..hope it is pullback from down to up...then where to exit?if using 10 min chart is it on retracement 1st bearish bar?or else..please give some focus to this to me tubelight
also please just explain about bpcl?if price go near/below our stoploss with huge volumes then we may exit its retracement...is it correct?asking for doubt in if this retracement pulled back to up no intention to go down then how you trade it...eg.exited allready in 1st retracement...

VJAY Dear,

Here's why this decision was taken in intra day,

1. Along with BPCL, even HPCL was making lower highs and lower lows
2. Lower highs and lower lows was being made on very good volumes
3. Intraday retracement means using basic common sense. When you asked me to check the stock, it was trading at 732 and futures what at 738. I knew it would at least bounce to 740. Hence I kept trade price around that area. When a stock is witnessing such selling pressure, its better to exit it immediately.
4. Our original stop I think was 748. Hence at 732 (spot) was already nearing 2% of stop loss level. Hence the exit was taken..........15.10.10
Stocks which look attractive for next 1-2 weeks

Buy the below stocks if weekly close is above,

Bata India - Closes above 332.8
Finolex Cables - Closes above 59
Ansal Properties - Closes above 92
AhmedNagar Forging - Closes above 123.5
Sesa Goa - Closes above 335
KPIT Infosystem - Closes above 169.2
IGL - Closes above 324.7
Action Construction - Closes above 64.8
National Fertilizers - Closes above 121.4
Idea - Closes above 73.24

Brokerages are assumed at 0.7% each side and stops are to be followed on weekly basis. Use your own position sizing methods. Risk and reward is suitable in these trades. Success rate is around 35-40%. Hence expect 6 of them to give losses. Typical targets range from 10-20% whereas losses range from 2-4%. Use your own common sense for monitoring stop losses. Around 3.15 I will post which stocks I am buying.

.......................Tata Chemicals on the whole is extending its Bullishness to higher time frames. Hence one should be looking to being long unless something untowardly happens. Out of our list another stock which I expect to do well is Tata Communications. TOday close will largely determine its future. This is one stock which could move up significantly. Currently it is trading at 334 or something and needs to close above 330-332 today.
..........15.10.10
Can anyone please give me some tips on how to NOT PANIC! when things go wrong? I cannot control my anxiety and that leads to bigger blunders, wrong decisions and big losses...

Essentially what you are asking is how to become a successful trader.

The moment you stop doing the above, you will move into a different zone which is reserved for the elite traders. Keep remembering your mistakes and more importantly keep practicing what you do. Slowly but surely you will get there. If one cannot manage the emotions, then one does not deserve to be in the game.

Keep practicing.
...................hello Gauhar bhai

my personal opinion, which may or may not be correct, in this regard is that panic occurs mainly due to two reasons
1. Understanding
2. Experience

1. Understanding: When you truly understand what actually is happening, the panic automatically fades away. Therefore, the first and foremost requirement is to understand what is happening in the market right now. And, that will not let you think about what will happen in the future because you will become too much involved in the present, that no other thoughts will come into the mind. In order to build understanding, one need to try and try hard till it comes to your logic, then your mind and in last it comes in your blood.

2. Experience: The more you experience the trading, the more understanding will get refined to the level that you will become capable of dealing wid ur trades. In my personal opinion, this panic feeling is good required you know about it. As you have already said that you are getting panic, this is actually a good sign because until and unless one knows about his weak points, he can not gain the strength to conquer them.

Caution: When you apply these in sequence, i.e. first try to build an understanding and then check it with experience; it works. Though, during initial phase you may not be successful and you may find that the understanding is not working. But when you keep up building understandings and experiencing them; after a period of time, you gain both. Do not try to gain the understanding by experiencing i.e. do not trade without understanding. make some understanding, let it be wrong, doesn't matter. Every stalwart of trading has gone through this very phase and so are you.
Best wishes
I have a custom made software for separating good fundamental stocks from rest. As far as charting is concerned, I use Amibroker along with our own custom made software. Data is taken from exchange and Viratech India.

And yes I do manually scan a list of about 600 stocks to find the right trade.
..............Originally Posted by DanPickUp
Stay away in October and May.

Just in case for not so professional stock traders.

OR If you want to become a Professional Trader, learn to be in the markets in October and May. There is no better way to train yourself emotionally than in live volatile sessions. One can always manage emotions when things move up, but it is sessions like these which make you accept the red.

Learn to embrace the Red. It is only then that the Green will show up more consistently.

don't know on which methodology you have taken these trades and hence I cannot comment on it individually. If you tell me why you have done it, then probably I could look from that angle and comment.

Regarding retracement all I can say is that it is too early to comment. Today's minor move has shaken a lot of people and hence as usual media is portraying it as the end of the Bull run. I won't be bothered about what happened today. I very much believe that we are still into a Bullish phase and will continue to be in it.

Please remember Lungs exhale air 50% of the time. This is how it functions. Similarly, Bull run exhales nearly 15-20% move every now and then and this is the way markets function. 15.10.10
.....................
Originally Posted by gauharjk
I have been holding Century Textiles since 7th October @542. It had been on a steady upmove for the last 5 trading sessions, since 1st October. It moved from 503 to 550 in 5 trading sessions, and there was a lot of momentum. In Futures, it touched a high of 552 before coming down to 540 levels. I bought it then because it had a 52-week high of 601, and I thought this script would touch its 52-week high. But it crashed the same day, and since then has been trading between 525 and 535. Today was a very bad day. After making a high of 533, it closed down during the last 30 minutes at 516. It was not expected because all Textile stocks, like Arvind (+2.61%) and Raymond (+2.53) made gains today.

I bought Cummins India on 13th October @747 to scalp a few bucks. Next day, it made a high of 758 in the Futures market (my target 760), but dropped at the end with the rest of the Index. I thought it would bounce back. Today, it touched a high of 750, before closing at 734. Cummins is a strong company, and has had an almost unstoppable run.

But I guess it didn't work out. I couldn't see this crash coming so soon. I thought there would be sideways movement, because the Americans are printing a lot of money to balance their deficit, and RBI is also printing plenty of Rupees to keep our exports competitive and prevent Rupee from strengthening. How can there be a liquidity crisis when global interest rates are near 0%?

Let me be a little harsh on you.

1. Century Textiles - You have absolutely no plan. So what if momentum is strong? How can you assume it will test some level? Where is the SL when you started seeing the trade going against you? No methodology highlighted. Momentum is fine but were are the rules?

2. Cummins - You entered the stock to scalp a few bucks and then started justifying your move with company fundamentals? What is the relation between scalping and fundamentals? My dear, you have to seriously think about improving before you end up blowing your account. By the way, why are your trading futures?

If you are serious about trading, work on a plan. Else, just donate your money. Atleast you will feel better from latter because the former is going to make you feel resentful towards markets. 15.10.10
..................
Originally Posted by gauharjk
Could you please help me in finding out how to set a stop loss and a target at the same time? I have access to Angel Broking's web terminal. I don't know how to set a stop loss.

I assume you want to know, what price level should be chosen as SL?
(Or Do You want to know how to setup the target and SL in your broker terminal). Keep you SL way below/above where other traders are likely to keep theirs (S/R level).


Quote:
My major losses have been in volatile markets when it is too late to manually square off positions. Futures market is a *****. You can make big bucks, but also lose big time.

Manually ? ... why didnt you have any StopLoss ?



Quote:
The stock did touch 309, and was hovering around 305 when I had a clear opportunity to book profits. But greed killed me. I had asked my broker to set a stop loss at 300 and let it rise. But it dropped to 295, and I kept holding an empty cup. At the end of the day, in panic, I had to square off the position at 279, a loss of Rs 16000.

You asked your broker to set a stop loss way above your buy price ... still you faced a loss?



Quote:
I wish I could set a stop loss to preserve capital. Can you please help me?

What exactly is stopping you from setting a stopLoss .

Ans:
I have written to you regarding your problem. You have to read it carefully. I don't spoon feed any trader as even if I do, the result is going to be a big zero. A trader or in this case you has to put in the efforts to graduate to the next level. You cannot expect to walk - in the markets will loads of cash expecting to make money. Its not so easy. It is easy if you work towards it methodologically. So here's what you have to do.

1. Education - You need to get basic understanding of markets and technical trading. Don't be a book worm, but start with basics where you can learn what to buy and what not to buy.

2. Implementation - After having some basic education/reading on markets, try and put in some plan in place. A plan which will tell you what to trade, when to trade, how much to trade and how to set risk level.

3. Attitude - Markets are not targeting you. It is you who has to get in tune with the markets. Develop respect towards the force of the market and always be humble towards what it gives you. You are losing because you want to lose. That's a fact. Face it!

4. Using Forum - Be specific in what you ask and be prepared to read what all is posted here from scratch. Go to Savant/Anant's thread in Equities section to read about delivery buying, visit Columbus's thread to know about day trading and visit AW10/Dan's for Options and general trading related stuff. Whatever you are asking (about targets, SL etc) has already been posted my the main contributors of the forum. You have to make the effort to read and learn. One cannot again and again post the same things.

If you follow these guidelines, you will be successful gradually. Success is in your hands.
...................Now try to answer the questions below to make your mind.

1. You are paying your broker extra money when traders around the world are always trying to have a broker with lowest brokerage and hight reputation. Do you think it is matching?
2. You are trding with your hard earned money, then why cant you make some effort to learn how to deal with that money?
3. If your broker is that expert why is he a broker instead of becoming the no.1 investor in the country?
4. Even if he is a No.1 investor in the country and an expert broker, then why should he accepct the extra money from you when there is a chance of making lakhs of rupees in the market on daily basis?

Hope you start learning before you make another trade,

page 250........
The Following User Says Thank You to oilman5 For This Useful Post:
linkon7 (29th December 2010)

#99
26th December 2010, 05:48 PM
oilman5
Member Join Date: Jun 2006
Posts: 1,329
Thanks: 262
Thanked 1,212 Times in 433 Posts


Re: my last thread
________________________________________
All trades are taken on two parameters,

1) Trend continuation (For Eg, Action Construction Equipment, Bata)
2) Fresh Breakouts (For Eg Sesa Goa)

Its all their in the price structure...........16.10.10
......................
Code:
Script Trade Price Stop Loss
Action Construction Equipment 66 64.7
Ahmednagar Forgings 126.28 123.43
Ansal Properties 95.84 91.7
Bata India 345.05 332.64
Finolex Cables 59.74 59
National Fertilizers 128.9 120.8
Sesa Goa 374.81 335.77
Patni Computer Systems 452
Parsvanath Developers 140
Mujal Show 62
KPIT Cummins 168
Banco Products 112
Along with the trades posted earlier, the following trades will be executed tomorrow morning. The new stocks are mentioned above without trade price. The stop loss mentioned is to be followed on Weekly basis. In case within the week, prices fall 5% + below our stop loss, we will review the trades accordingly. For most of the stocks, stop loss is very near to the Friday's close. This is mainly because this suites my style of Investing. I don't like stocks moving against my positions and hence I keep getting in and out of stocks unless I catch the right move. My style of Investing as you may all know sounds very familiar to my style of Swing trading. This suites my risk profile and my psychological profile. As mentioned earlier, I don't expect more than 3-4 stocks out of this list to continue doing well. Rest will be exited if stop loss is triggered and new investments will be sought after.

Trades to be taken in Equities segment only.........17.10.10
You have summed it up yourself Gauhar.

Stock has consolidated well and is moving out of a base.

As far as Indicator is concerned, there is no indicator which works more than 30-50% of the time. Hence, don't waste your time looking for that. Just work on the basics.

Advance .. Consolidate ... Decline

This is all you need. Three stages of stock movement. ...........sesa goa..
................Pre Open Session

Q. What is Pre-Open Session?

Pre-Open Session is a new innovation on exchange side to arrive at the ideal opening price of a scrip for the current trading session. The session intends to reduce the volatility that accompanies during the beginning of the day. Under this new arrangement, the exchange will collect the orders for the first few minutes of this session. On the basis of orders received, the exchange arrives at Opening Price and trades matchable orders on that price. Remaining orders are moved to normal trading session.

Q. What are the timings for Pre-Open Session?

The duration of Pre-Opening Session will be of 15 minutes – from 9:00 A.M. to 9:15 A.M. The session will have three phases–

Order Entry Period - 9:00am - 9:07/08am
The client can place new orders, modify / delete the orders. The order entry can stop randomly between 7th and 8th minute.

Order Matching & Confirmation Period - 9:08am - 9.12am
The exchange arrives at the Opening Price, trades the matchable orders @ Opening Price. The client cannot modify or delete the orders during this period.

Buffer Period - 9:12am - 9:15am
Used as transition period between pre open and continuous trading session Bottom of Form

Normal Market - 9:15 A.M – 3:30 P.M.

Normal Trading resumes.

Q. What happens to orders that are not matched / traded during Pre-Open session?

The orders that have not been traded are carried forwarded to the normal trading session.

Limit Orders that are not traded during Pre-Open Session will be moved to normal trading session at the same price.

Market Orders that are not traded during Pre-Open session will be moved to normal trading session @ Opening Price.

If Opening Price is not discovered during Pre-Open session, then the market orders will be shifted to Normal trading session @ Previous Day Closing Price.

Q. Can I place orders in all scrips during Pre-Open Session?

You can only place orders in scrips that form the Nifty & Sensex indices. Though this list is subject to change and will be notified by exchanges accordingly. You can regularly visit "Pre-Open scrips" link given on the Trading Website to view the list of scrips in which Pre-Open Trading session is allowed.

Q. Can I also place orders in F&O contracts of these scrips during Pre-Open Session?

No. Currently, Pre-Open session is not available in F&O segment.

Q. When will I know whether my orders have been executed or not?

Orders are traded in the IInd phase – “Order Matching and Confirmation Phase” of Pre-Open Session. You will receive trade confirmations during that phase only i.e., tentatively between 9:08-9:12 A.M.

Q. Is there any Price Limit on the orders placed by you during Pre-Open Session?

You cannot place order beyond +/- 20% of Previous Day Closing Price. For ex. If the closing price of scrip is Rs. 100, you cannot place an order beyond 80-120 Rs price range during Pre-Open Session.


Q. Can I view the Tentative Opening Price during Pre-Open Session?

You may view the Tentative Opening Price for a scrip in "LTP" field during Pre-Open Session. This will be updated after every few seconds according to the orders placed in that scrip.
Hasn't this happened before. This is absolutely normal given the nature of markets. Pre session is only used to determine opening prices. Nothing more and nothing less. Infact, it is a very stable way to open the markets. In the first 10 minutes of trading, volatility was absolutely crazy, the concerned move will bring this down significantly. Do you think it is possible to manipulate the markets and get away so easily. Times have changed Rahul. Though manipulation still exists in small illiquid counters, gone are the days where everything can be manipulated. I think our regulatory agencies are doing the best job among the exchanges all over the world.
............To rephrase what you have asked, GAP UP/DOWN is usually dependent on what participants expect after market close for next day. Simple demand supply at play.
............
Dan,

Original message was totally understood.

Your series of questions posted earlier does give someone a structured approach to look at options. This would be very useful. Furthermore, no wonder why options trading is different than futures. In futures, if you get the direction right, money is to be taken, whereas in Options, this necessarily is not true.

No wonder why options require in depth understanding and perhaps are more difficult to trade than share or future. I wonder how so many retail participants trade in options. Do they actually know the nuances associated with it? I personally don't think so.

..................Nifty Price Analysis

The word of some serious corrections is again doing the rounds; especially by the coveted guests in some of the prominent channels. Not all are notorious and misleading, some of them are indeed stalwarts of the markets who have seen many cycles in the market and know the structure of the market well enough to draw attention towards what they are saying. Though their views and (our's) cannot be negated, we need to be as objective as the ticker requires us to be. In other words, we need to listen to what the screen is telling us.

There are many arguments about momentum slowing and divergences forming. But, as Haile Gebrselassie will tell you, in order to win a long marathon , one needs to slow down at intervals and needs to breathe slowly before the next acceleration is enforced. This is the essence of winning a Marathon. Similarly, Markets slowing down in momentum and forming divergences is actually a sign of Bullishness (on longer term) and Bearishness (on smaller term). The concerned Bearishness need not have to be larger in magnitude as it is engulfed by the longer term Bullishness.

The question that we need to answer is where do we feel the markets are heading? But even before this fundamental question can be answered, there is another basic question of a more technical character, which must be addressed and—if not answered—at least contemplated. Where is the next underlying base for the market? There really are no generic, ready-made answers to this question, because base for me might be different for you and something completely different for someone else. Whatever your answer is, it is correct for you and not for anyone else to question. Markets tend to reverse at bases and hence we need to keep our 'feeling' out and need to focus on near term bases. An upper base that we have identified is currently at 6250-6300 and the lower base identified (highlighted in chart) is between 5800-6000. As far as we are above this base, things are merrier. This is not something I am telling you. This is something which is very evident on the price structure.

In my last post, I had mentioned that markets are going to be extremely good for intraday trading and I continue to hold that view even now. Last few sessions have been wonderful for day traders and this trend is likely to continue for sometime.

Nifty Price Analysis 8th November 2010

The Current Price structure of the Nifty remains Bullish. At present there are three important zones within which price structure is confined. The one highlighted in Purple is the all time intra day high of the Nifty which would prove to be a stiff level for the index to cross. The ones highlighted in Red and Black are the two support zones where one highlights an important peak formed in December 2007 and the another one highlighted in black as the immediate level where the markets took support recently. Another aspect which represents the underlying Bullishness is the gap up opening (with increased volumes)which has happened on two instances (highlighted in Black arrows).

On the higher time frames, the Index continues to remain extremely positive but certainly appears to be over bought. Going forward, it would be healthy for the markets if it were to consolidate or even correct from these levels. Rise has almost been vertical and this is never a good sign for any entity. The immediate course of movement it seems will be on the upside towards the all time high. Once that level is breached, we will then have to measure the quantity and the quality of the rise to make a better assessment.

On the Macro Economic front, with the QE2 out of the picture, things remain a bit mixed. There was some pertinent weakness across the commodities markets, but given the news of QE2, things will have to be reviewed again. With the Fed's boosting the economy with Quantitative easing, another bout of liquidity inflow should be expected. Personally, I don't think QE2 is all so good for markets. In the short run, it could provide the desired boost, but in the long run it is posing some serious problems for RBI and our Economy.

Capital inflows are good for the country to the extent they help bridge the current account deficit (currently at 13.7 Bn Dollars), but in the long run, it leads to currency appreciation which impacts many sectors within the economy. In nominal terms, Rupee is still trading at 43.9, but in more realistic terms as denoted by Real Exchange effective Index (REER), Rupee has already crossed (Currently 124) the levels made in October 2007 (previously 115). India, unlike Brazil is not a country which imposes the Tobin tax (Tax on capital inflows) and hence RBI has to deal with this problem in different way. Rising inflation is also another problem which the RBI needs to address. RBI has categorically stated that it will not use currency appreciation as a toll against inflation and therefore this leaves the RBI with no other option than to intervene in the Forex market. However, even this option does not seem feasible. Intervening in the markets would mean that RBI would be buying Dollars. This would infuse liquidity into the system and hence will fuel inflation. The main agenda of RBI at present is to curb inflation and by intervening in the markets it would be acting against the desired objective.

What we can draw from this is that in the shorter run, liquidity driven rally might continue. Main inflation (food) in our country is a result of rising prices of pulses which has greater weight in the food inflation index. RBI at present would hope that with good rains and better transportation network, the supply of such food items meets the demand. Historically demand has never been met, but we are entering a cyclical phase where inflation does cool off a bit. At the most we can expect RBI to tighten interest rates further in wake of appreciation of currency and can expect RBI to step into control the volatility of Rupee. It seems unlikely at the moment of the RBI to intervene and determine the direction of the Rupee.

In conclusion, things remain good for the Economy, but the problem of "Pace" of Currency appreciation and Inflation needs to be addressed. Assuming that liquidity flows will not affect the Currencies and Commodities adversely is wrong. Hence, while we should trade in the direction of trend, we should also be aware of the stark realities.
.................................
Dear,

1. We are not in a sideways market. Infact, not going significantly down after such a move is a sign of strength.

2. What can happen on Monday? As far as I am concerned, whatever will happen will happen. Why bother worrying about it? 6080 or 5980 or xyz is just a number. In my experience, no level in the market is of importance. All can be broken or respected by the market irrespective of what we contemplate about them.

3. Yes I do see upside in TCS from these levels. Infact, I have bought it heavily today. If I am right, money is to be made, else I'll move on.........22.10.10

List of Stocks in Portfolio. Next week, stops for some stocks which are in good profit will be moved up . We have altered few things in our buy criteria and the new stocks selected are based on modified criteria. All stocks taken are based on breakout - consolidation - breakout trades.

Previous Two Lists


Code:
A' Category Stocks Buy Current Level Buy Date Exit Profit/Loss
Arvind 42.95 54.35 Sep 6th 2010 26.54%
Asahi Safe 92.55 113.45 Sep 6th 2010 22.58%
Dish Tv 55.15 55.4 Sep 6th 2010 0.45%
EIH 150.8 138 Sep 6th 2010 138 -8.49%
Guj Fluro Chem 211.35 199 Sep 6th 2010 199 -5.84%
IBN 18 Broadcast 124.7 118 Sep 6th 2010 118 -5.37%
IOB 133.95 160.9 Sep 6th 2010 20.12%
Jindal Drilling 606.35 566.9 Sep 6th 2010 566.9 -6.51%
MVL 101.5 Sep 6th 2010 91.4 -9.95%
Religare Enterprises 480.2 481.1 Sep 6th 2010 0.19%
Srei Infra 90.6 125.35 Sep 6th 2010 38.36%
Texmaco 160.75 172.45 Sep 6th 2010 7.28%
United Brewries Holdin 326.25 301.5 Sep 6th 2010 301.5 -7.59%
Venus Remedies 305.3 306.9 Sep 6th 2010 0.52%
Videocon Industries 265.5 265.1 Sep 6th 2010 -0.15%
Wockhardt 237.7 308.35 Sep 6th 2010 29.72%Code:
Category A Buy Level Current Exit Level Profit/Loss
Aarti Industries 58.4 70.4 20.55%
Century Enka 249.1 239.3 -3.93%
Chambal Fert 73.8 86.95 17.82%
Dev Credit Bank 52.4 64.95 23.95%
Godrej Industries 210.75 219.15 3.99%
HEG 324.85 298.4 298.4 -8.14%
Hikal 451 432.1 -4.19%
Hind Oil Explorati 234.1 243.6 4.06%
Hinduja Ventures 468.15 436.9 -6.68%
Hotel Leela 55 52.85 -3.91%
Hotel Rugby 11.85 14.75 24.47%
HOV Services 103.65 135.3 30.54%
HT Media 175.55 162.2 -7.60%
ICICI Bank 999.65 1131.85 13.22%
Indian Hotels 106.8 99.45 -6.88%
Jagaran Prakashan 132.6 135.85 2.45%
Jayshree Tea 158.85 187.75 18.19%
Karnataka Bank 179.6 181.85 1.25%
Kcp 34.1 32.1 -5.87%
Mid - Day 38.65 40.75 5.43%
MSP Steel & Power 55.4 71.7 29.42%
Mukund Limited 78.5 71.25 -9.24%
MVL Industries 31.4 29.22 29.2 -6.94%
Nagreeka Exports 30.2 37.2 23.18%
Nahar Industries 81.65 91.75 12.37%
Nahar Investment & 31.25 49.45 58.24%
Nelco 117.55 116.9 -0.55%
Nitin Spinners 11.2 13.42 19.82%
Ponnie Sugars Erod 109.05 118.2 8.39%
Premier 132.55 153.9 16.11%
Rane Brake 126.8 144 13.56%
Repro India 130.2 131 0.61%
Sakuma Exports 19.95 21.45 7.52%
SHR Cement 1926 2027.1 5.25%
SMS Pharmaceutical 201.7 197 -2.33%
Sobha Developers 352.75 370.5 5.03%
Solar Industries 476.6 513.7 7.78%
Spentex Industries 18.35 21.9 19.35%
Su-Raj Diamond & J 64 63.3 -1.09%
Sundaram Fastene 59 67 13.56%
Tata Sponge Iron 334.75 377 12.62%Current List


Code:
Script Comment Traded Price Current Price Exit Gain/Loss
ACE Buy 66 65.25 -1.15
Ahmednagar Forgings Buy 126.68 141.85 10.69
Ansal Prop Buy 95.84 89 89 -7.69
Bata India Buy 345.05 331.55 -4.07
Finolex Cables Buy 59.74 64.3 7.09
National Fertilizers Buy 128.9 125.75 -2.5
Sesa Goa Buy 374.81 353 353 -6.18
KPIT Buy 169.54 164.25 -3.22
MunjalShow Buy 62.28 64.3 3.14
Parsvanath Buy 70.27 68.55 68.55 -2.51
Patni Buy 467.13 470 470 0.61
Banco India Buy 112.01 111.5 111.5 -0.46
TCS Buy
Lupin Labs Buy
Ing Vyasa Bank Buy
JB Chem and Pharma Buy
Gemini Communication BuyTrade price of today's stock is not mentioned as it will be available tomorrow after calculation of cost of trading.
 

oilman5

Well-Known Member
If I remember correctly, I have explained this EW and ABC correction method somewhere in the beginning of this thread. I think I had explained it to you. Anyway, let me come back to your query now.

In my opinion, all the EW practitioners, with exception to some EW experts, practice EW in the wrong way. EW was never to be used in trading. It is only to be used to "judge" where the markets stands at this point. Hence, let me give you a framework based on EW so that it becomes easier for you to use it in your trading.

Every trader must divide his judgement about markets into two halves. One should reflect the long term market picture and another one should reflect the short term picture. The broader term price structure should be used to trade in the direction of the larger trend whereas the short term price structure should be used to generate alpha. Now, in your case, this is how you should structure your trades.

Broader Price Structure

EW - Where is the market currently? Which Wave? Is it 1,3 or 5? Or is it 2 or 4? Which should be the correct strategy in this case? What about volatility? Is it low or high? If its high, how do I protect myself from risk?

Now, these are the sort of questions you must ask yourself before trying to decide in which direction you have to trade. Now, lets say markets are in Wave 5, this means, broader term structure still remains intact and markets are in uptrend. However, this also means, we are in the last leg of the Bull move and volatility is high, which also means chances of corrections increase. Hence, in this case, I would use my trades for some quick gains and would tighten my stop losses on my investments.

Short Term Price Structure

Dual Time frame Strategy - What do I do here? What message did the market give me in broad price structure? Are we in a bull wave? If yes, which wave? How's the volatility playing? Do I look to take trades based on dual time frame on the buy side or short side?

Now, of you see the market in Wave 5, you should be taking trades in the Buy side, but must also be prepared to use the same strategy to initiate short trades. By time extensions, you will always know probable time when correction (ABC) should begin and hence you must be prepared for it. This is exactly what you should be doing. Your approach is slightly wrong wherein you are trying to trade (time) the markets using EW. Use EW for trend direction and use your swing strategy for trade execution.

I hope this has helped you to channelize your thoughts. Try and always work in a framework.

......................
Swing System for Nifty and Bank Nifty

System Trading

Most of the traders who (un)intentionally develop trading systems have absolutely no idea of what they are doing. In other words, they are unaware of their systems risk, rewards, market suitability and other attributes which are absolutely essential for the systems to work. Unfortunately, most of the system developers intend to develop one universal system for all market types. For those who don't know, markets can be divided into broadly three categories; Bull, Sideways and Bear. Furthermore, markets can be sub divided into Volatile Bull, Volatile Sideways, Volatile Bear, Low volatile Bull, Low Volatile sideways and Low volatile Bear market. So essentially, we are dealing with 6 varied market types. How can there be one system which copes up with all these different market scenarios? The answer is, It cannot . A single Long term trading system can incorporate all these market types within itself, but a Swing Trading system cannot. Every time you start doubting what I have written here, ask yourself this. "If one short term system is suitable for all markets, then why aren't fund managers simply using that system? Why are they sitting behind their desks, trying to find the correct approach in the current market?" If you ask this question with complete honesty and objectivity, you will get the desired answer. If you still wish to stay in self denial, then its completely upto you to deal with what lies ahead. Keeping this in mind, we move to our objective of designing a simple system for Low Volatile Bull markets which will ensure we catch significant swing up moves and also ensure that we keep out of high volatile (Days/Scenarios).

Objectives

1) Building a Swing System for Low Volatile Bull markets which catches significant amount of swing up trends and leads to significantly lower draw downs.

2) Protection of capital due to increase in volatility. During periods of increase volatility, we intend to be out of the market.

3) Prevents us from Over trading. That is, keeps us in the market for fewer number of days.

Approach

Based on the objectives 1,2 & 3 we intend to use a technique which in itself can be used for short term trend following and can be used to incorporate the inherent volatility in the market. For this very reason, we will be using Bollinger Bands for swing trading.

Bollinger Bands are volatility bands placed above and below a moving average. Volatility is based on the standard deviation, which changes a volatility increase and decreases. One of the other great advantages of Bollinger bands is that they adapt dynamically to price expanding and contracting as volatility increases and decreases. Therefore, the bands naturally widen and narrow in sync with price action, creating a very accurate trending envelope. Bollinger Bands consist of a middle band with two outer bands. The middle band is a simple moving average that is usually set at 20 periods. A simple moving average is used because a simple moving average is also used in the standard deviation formula. The look-back period for the standard deviation is the same as for the simple moving average. The outer bands are usually set 2 standard deviations above and below the middle band. Settings can be adjusted to suit the characteristics of particular securities or trading styles.

Since our trading style is to have enough trades, to protect our capital by getting out on slight increased volatility and to keep a check on draw downs, we will use the Standard Upper Bollinger Band with average of 20, but will reduce the standard volatility to as low as 0.5. There are mainly two ways to use Bollinger bands. One is to Buy at lower band and sell at higher band (Side ways market) and other is to buy at upper band and remain in trades till the reversal comes (Trending market). Since we are aiming for Bull markets, we will use the latter approach. So essentially, when we identify a Low Volatility Bull Market, we will simply go long every time the prices close above the 20 period Bollinger Band with St deviation 0.5 and will exit if the price closes below the same.


System Statistics

I don't intend to self appraise this system and hence will not like to write the % profit, gross profit, draw down etc. Moreover, Profit and draw downs are directly proportionate to how aggressively one trades and hence it will differ for each trader. However, I will give some statistics which are more useful.

Total number of trades from 1995 are around 200. Out of which only 38% trades are winners. Average profit/loss % is 1.32. Standard deviation of the same is 4.9%. Average profit % is 6% and Average loss % is 1.33% and Profit factor is 3.38. Time spent in markets is at 53%. That is, 47% of time we remain out of the markets and hence whatever we make in profits is by staying in the market for only 53% of entire time. Rupee value calculated using lot size 100 of Average winner is Rs. 36,000 and Average loss is Rs. 8000. Rupee value of Average trade is Rs. 7950

Word of Caution

Most of you who have interacted with me know that I am not a systems trader. I had got many request for posting some system and hence I am doing the same. In no way is this system holy grail. Also, use, understand and test this system thoroughly before even trying to place bets according to this.

This system is only suitable for Low volatile Bull markets and will fail miserably in other market types. Please do not try to use this system in any other market type. If you do so, kindly modify based on your understanding. Lot of modifications can be undertaken and hence do it if you understand the same.

Contracts to be traded

Nifty and Bank Nifty.

For stock futures, this needs to be modified. I have not researched on the same and hence cannot advise on it.


Modification

I don't like spoon feeding any trader and hence this system is just a basic system which needs to be adapted to one's own needs. On the whole, anyone who trades this system in the concerned market type, should get good gains. But the one who understands this in or out, will know how to modify this system to take it to a completely different level.

Please understand, due to time constraints, I would not be justifying/clarifying any system statistic related doubts. This is mainly due to two reasons,

1) I have mentioned earlier that results are based on my sizing methods, risk profile and hence can vary according to what you chose.

2) System testing is itself a different ball game. Less than 5% of actual traders know how to test systems. It is not as simple as what Metastock/Amibroker dishes out. Hence, any genuine system related query would be answered. Rest I will choose not to comment on as that would require detail system analysis skills to understand.

Doubts related to system methodology are always encouraged.


AFL

I am not an expert in writing AFL's but I have provided the basic afl which is required to see how this strategy works. Anyone who is an expert in designing AFL's can modify this AFL and post it here. Typical modifications would include, telling the trader whether the position is on Buy, Buy hold, when to add the next lot and when to exit the lot etc. Similar to some thing what Anant has done for his positional system.


Code:
_SECTION_BEGIN("Price");
SetChartOptions(0,chartShowArrows|chartShowDates);
_N(Title = StrFormat("{{NAME}} - {{INTERVAL}} {{DATE}} Open %g, Hi %g, Lo %g, Close %g (%.1f%%) Vol " +WriteVal( V, 1.0 ) +" {{VALUES}}", O, H, L, C, SelectedValue( ROC( C, 1 )) ));
Plot( C, "Close", ParamColor("Color", colorBlack ), styleNoTitle | ParamStyle("Style") | GetPriceStyle() );
if( ParamToggle("Tooltip shows", "All Values|Only Prices" ) )
{
ToolTip=StrFormat("Open: %g\nHigh: %g\nLow: %g\nClose: %g (%.1f%%)\nVolume: "+NumToStr( V, 1 ), O, H, L, C, SelectedValue( ROC( C, 1 )));
}
_SECTION_END();

Buy = Close > BBandTop(Close,20,0.5);
Sell =Close < BBandTop(Close,20,0.5);

Buy = ExRem(Buy,Sell);
Sell = ExRem(Sell,Buy);

shape = Buy * shapeUpArrow + Sell * shapeDownArrow;


PlotShapes( shape, IIf( Buy, colorGreen, colorRed ), 0, IIf( Buy, Low, High ) );Tc

*Explanation of Bollinger bands is borrowed from Stockcharts.com
.........................Good question. Let me answer this from two perspectives.

Perspective 1

Assuming I have Rs. 1 Lac to invest, I would not be using What Elder has prescribed. Every trader has a different style of trading and position sizing and hence what Elder has described suites his style. In my opinion, most of the traders misinterpret what Elder has explained.

His way of position sizing deals with accounts which are of much higher rupee value. For portfolios of smaller rupee value, it is always better to position size by fixed equity method. That is, dividing 1 lac into 4 equal parts and investing the concerned amount in 4 different entities. I won't be too concerned about the 6% or 10% or X% rule. If the methodology is robust, then rest of the things automatically fall into place.

See, When I trade, I need to ensure that my wins are meaningful to me. Now If I position size conservatively on 1 Lac and win Rs. 1000 (1%), then that win is not that meaningful to me. This is precisely why making higher returns is much easier if one has portfolio of higher rupee value.

Perspective 2

Here's another way one can approach position sizing in small rupee value portfolio. Lets say I select 4 scripts on 1 lac Portfolio. I will start off by investing only Rs. 5000 on each. Since winning % of most methodologies is 30-40%, I would expect only one to do well in this list. I would keep adding 5000 on every 5% move in the winning stock. This way, in the end my gains in portfolio % terms will be very high and if neither of them work, then I will take a loss of X% on only Rs 20,000 (5000 * 4). Remember, we are only averaging up and not averaging down. I personally follow this position sizing method with some minor altercations when I invest. This way I loose less and gain a lot more.

Tc
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It like they say "Common sense is not so common". But isnt this why we discuss it so we can get alternative viewpoints.
A stock needs to have sustainable fundamentals to qualify as an investment.
Besides. many stocks do go through a phase when they are viewed as the next greatest thing during a bull run. And one can really get stuck if one enters these assuming the party will last forever. Ideally one may enter such stocks but should take the gains off the table. In this bull run education and microfinance were celebrated. Some names like Edserv and SKS rise and ebb quite steeply.
Sometimes a lot can be learnt from a cursory look at how the sector in general is faring. Mining in general in this case. recently a lot of regulatory hurdles are coming its way: sharing 26% profits with the locals, tribal land issues, ban on ore exports in Karnataka etc. Too many issues here.
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I absolutely admire what Ed Seykota has to say on Position Sizing. He says,

1. Bet high enough to make meaningful profits when you win.

2. Bet low enough so you are ok financially and psychologically when you lose.

3. If (1) and (2) don't overlap, don't trade.
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how can you define smart work.( your sign says:trading is a business where smart work is more rewarding than hard work)

Swamy,

This is by far one of the toughest question someone has asked me in this thread. Its difficult because it cannot be put in words. Anyway let me give you an example of smart work.

"I always buy based on both fundamentals and technicals, but when it comes to selling, I always do it based on pure technicals. Earnings and Charts don't lie and together they highlight information that only a fool can deny. "

Tc
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Fundamentals and Technicals of good stocks are always helpful.

Fundamentals and Technicals of junk stocks are never helpful.

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Our style of investment is identifying stocks which are about to break out. Hence if you refer to the investment sheet, you will find many stocks with double digit gain within a month from where they were recommended. Hence, keep watching what i post
................The relation between Tortoise and Hare with stock market lies with the two most important aspects of trading; Position Sizing and Exits.

Its not about who wins. Its about what roles you adopt. In the end, this will determine your profitability.

Tortoise - Keep adding small positions on your way to the top. Move slowly and gradually but still make every % count more by building positions.

Hare - On signs of weakness, be prepared to become the 'Hare'. Take your profits and run before the market begins to beat you down.

If you manage to do this, this will be the first time when you will tell someone that in the race of Tortoise and Hare, in the end both Win.

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Which Sizing Technique; Equal, Reducing or Increasing.

I don't want to get into the theory here, and hence lets work our way directly with Numbers. In each of the cases, we will want to Invest Rs. 500000 in a counter at every 10% positive move. The counter is of Rs 60 currently and we keep adding quantities till it appreciates by 40%, that is it moves from 60 to 84. On ever 10% rise in the price from 60, we will add positions on 60, 66, 72, 78 and 84. In the end, we will sell everything at 120, that is a 100% gain.

Reducing

Under this, the initial Bet size is the biggest and then we keep reducing in some proportion. In our case, in this sizing method, we invest 140000, 120000, 100000, 80000 and 60000 respectively at each level. The starting amount is 500000 and the ending amount is 873639. This gives us gain of 75%.

Equal Size

Under this, equal size is bet on every 10% move. That is, 100000 is invested at every step. The initial capital of 500000 grows to 845188. This gives a gain of 69%.

Increasing Size

Under this, our first bet is the lowest and last the highest. We invest 60000, 80000, 100000, 120000 and 140000 at every 10% move. The starting capital is 500000 and the ending capital grows to 816736. This gives us gain of 63%.

We can see clearly that the best result is in Reducing the bet size and the worst result is by Increasing the bet size. However, this is one side of the story. We are only looking at the Gains. What if, we enter an investment with a SL of 10% and for each of the techniques, the SL gets triggered. How would the picture look now?

Well, for this, we will be using the gross gain of each technique and will divide it by the one time 10% loss on each technique. In the end we will take absolute value of the same to arrive at profit factor. An accurate measure of profit factor would only come on series of trades, but here with one trade on three different techniques, we can get a rough idea.

On 10% stop loss for every technique on initial bet quantity, the losses are Rs 14,000 , 10,000 and Rs 6,000 for Reducing, Equal and Increasing bet sizing technique. This means, Reducing technique would be resulting in Maximum gains, but maximum loss. Whereas, Increasing technique would be resulting in Minimum Gain and Minimum losses. Increasing technique would have the best profit factor based on this example and Reducing technique would have the worst. Hence what do we do now?

Now it comes down to personal choice. I trade with Equal bets and I just like the trade off between what this technique has to offer in Profits and what it has to take in Losses. I prefer not to be on the extremes. On a broader note though, I can suggest one position sizing framework for those who are more adventurous.

High Volatility Environment - Either use Increasing technique or Equal Technique. Do not use Reducing technique here.

Low Volatility Environment - Either use Reducing technique or Equal Technique. Do not use Increasing technique here.

When Volatility is high, draw downs and losses are more, hence use conservative techniques. When volatility is low, draw downs and losses are relatively less and hence use aggressive techniques. I can hope some of you have now guessed why I use the equal sizing technique. If not, then the answer lies in the fact that it features in both the volatile and non volatile environment.



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Here's something Winston Churchill Once said,

“The farther back you can look, the farther forward you are likely to see.”

If all you traders, begin to apply this in market, you will know where we are heading; Up or Down. Once this happens, all the speculation will end.

.....In other words : Trend, volatility and probability...........................
It is what it is .. Markets are the best indicators. Our opinions are mere speculations.
different time frames attract diffferent stoplosses fr short term trades say one month to one week the stoploss should be fixed to the nearest figure of fibnocii number so must be target or in otherwords nearest supportlevel so must be the stoploss if it is medium term say sixmonths to 1 year the next fibnocii level ornearest to the medium term support level the supportlevel for long term say 1 to 3 years will have a different suooprtlevel which will be a differntlevel of fibnocii level i donot know how u fixed10% as ur stoploss&6 months time frame that is the reason u got confused between say6months&supportlevel&stoploss
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Setting Stop Losses Using Historical Volatility

Historical Volatility

Historical Volatility is a measure of price fluctuation over time. It uses historical price data to empirically measure the volatility of a market or instrument in the past. In other words, it is also known as statistical volatility, which is also the standard deviation of day to day price change expressed as annual percentage. In terms of practical implementation in trading, Historical volatility is essentially used to know how a stock has fluctuated in the past and how much likely it is to fluctuate in the future.

Calculation

HV = StandardDeviation(Ln(close/yesterday'sclose), days) *100*Sqrt(number of trading days in year)

where, Days = Length of days (10,20,30,40 .... )
Ln = Natural Logarithm

For e.g A 50 Day HV with 252 trading days in an year would be calculated like this,

HV(50) = Stdev(Ln(Close/Yesterday's close), 50)*100*Sqrt(252)

Use in Setting Stop Losses

Suppose the 50 day HV of stock which trades at 100 is 20%. Now, if we assume that prices are normally distributed, we can with 66% certainty say that prices for this stock will fluctuate between 80 - 120 one year from now. Hence any stop set on this stock should be kept with this fact in mind. If you don't use this concept, then you are going to get stopped out more often than you should.

One more thing that has to be analysed is that every stock of same price range has different volatility and hence stop loss technique cannot be same for both. Hence, depending on the stocks volatility, stop price is set.

For Investment trades, try and use HV calculated across 40 -60 days and use it on the daily frame only.

Caution

Some times you will find that the volatility band is just too wide and hence stop losses will be set 10 -15% away from the current price. In this case, you can do two things.

1) Either use ATR in this case as I had explained earlier.
2) Find stocks which offer better risk to reward in terms of stop losses set on HV parameters.

Don't expect to get hang of this concept immediately. It took me almost 6 months to refine and use this properly and hence be patient with it. One easy way would be for me to share my entire research here. But, that will limit your growth as a trader. Believe me, I have given a lot of lead here. You just have to put in a little more effort.

At first this concept seems very intimidating, but as you research more, you will know how to use this better. Once you can do this, your Investments and Options understanding will reach the next level. Hence, research more and don't expect any easy answers from the market.

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What you are facing is a serious problem.

Before telling you what you should do, one thing I would like to tell you is that on Stocks like Arvind remedies etc, no form of analysis works. Hence, use penny stocks for fun and not for using analysis.

Anyway now coming back to your query. You are facing the problem of choosing between a focussed portfolio and diversified portfolio. Before starting to pick stocks, you need to define what your goals are. How you would shortlist stocks and how much you would invest. If you intend to choose a focussed portfolio approach (only few stocks) then you need to make peace with the fact that you won't be able to catch all the stocks in the market. If you choose diversified approach, then you must divide your net amount into small equals and then invest the same in diversified stocks. There are 1400 stocks in NSE and one cannot chase all the stocks. One way to filter would be to invest in 'A' category stocks. This would narrow your list to 800 stocks. Furthermore you can add some volume filters (300000 quantity over period of 5 weeks) and you could narrow it further to 600 stocks. Hope you get it.

You need to decide the filters according to your trading strategy, account size and positive expectancy to risk ratio.

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Focussed Approach versus Diversified Approach in Investments

Focussed approach is when we track only some number of stocks in the database and invest when the opportunity presents itself. On the other hand, Diversified approach is one where we track all the stocks in our database and keep investing very small quantities in every stock we find with potential profits.

Lately, I have been getting requests for traders willing to narrow down the list of stocks they track. Many write about missing out on mid cap and small cap moves and fear losing out the big triple digit gains which occur in those stocks. This is precisely why I thought about writing a detailed post to how to cope with this problem.

Now, narrowing down a stock watch list for Investment trades is completely different from a watch list created for Swing trades. Hence, fundamentally one has to be logical in doing so. Since this post is about Investment related stocks, I would limit my post within this domain. Later, if someone wants, I will write about how to narrow down stocks for Swing Trades.

To narrow down stocks for Investments, the only criteria I use is of investing my money into high volume counters. I always want a buyer when I want to sell. In investments, you need to prepare for the worst and the worst case scenario here being the fact that many counters run dead when markets get into a frenzy mode. Therefore, whatever the situation may be, I always want to be in high volume stocks. The criteria that I use are,

a) 100 day Average volumes of 400000 above,
b) Closing price being Above 30 Rs and
c) 'A' Category Stock

Once I run these filters over the database, I roughly get a list of 300 stocks which I choose from for investments.

Tackling the Problem of Midcap and Small Cap

For those who wish to invest in Mid Caps and Small Caps, here is what you can do. Apart from the 300 stock list, you can choose top 100 midcap stocks based on Volumes which belong to the A category stocks. Else, your list could comprise of some percentage of large caps, some percentage of mid caps and some percentage of small cap stocks. This way you would have a diversified stock watch list.

There is always news doing the rounds of how some small cap or mid cap stock has quadrupled over 1 year. However, no one gives the stat on the % of mid cap stocks which exhibit such move. No one can track and buy 1400 stocks in NSE. The top volume shares are usually large cap shares and don't think by not tracking the rest of the shares you will miss rally somewhere else. Believe me, if markets move, so will large cap and so will mid cap. If you have a sound investment technique, you will get the desired returns over any counter.

Hence, Invest wisely and invest where the "Inflow" is.

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VSA or Market Profile or any Volume theory is not fool proof. Like other method, these too fail quite often. Hence, don't expect to be correct everytime.Its only in the long run that these things will help you out. Hence, try and read more about analyzing markets and develop a framework through which you look at it.

Regarding Computer Algo - Lot has been said about how Computer Algo's are determining where the markets head. To me this is nothing but another theory. Markets are too widespread with varied participants and hence I feel its very difficult to believe this is possible. Some counters can be operated, but the entire market is out of question.

Anyway, even if we believe algo's dominate, any participant in market needs a trend to profit. So if algo's are creating trends, then all we need to do is jump on and enjoy the ride. The fundamental essence of market will never change. Be it with Algorithms or without em. You need trend to profit and this can never ever change. In conclusion, don't bother about these things. If you invest, you won't need to bother about such issues. If you speculate, then your mind will automatically create these self doubts in varied forms.

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Scale in and Scale out depends on the system. We cannot generalize a 10% add rule and test it on any system. Hope you get my point. The kind of technique I use, the 10% rule fits in properly. But it is certainly not a benchmark way to do it. Hence, the MAE and MFE that you are experiencing is system oriented largely and position size is affecting it to a lesser extent. Such MAE/MFE results are usually achieved on a Moving average type system and hence, if your exits and SL techniques are better, the system statistics automatically fall in place.

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Word on the Markets

Q.E. 2

Quantitative Easing Part 2 seems more like a movie than a broad based measure taken by Government. I am sure, the Promoters of this move are prepared to give the Wachowski Brothers (Promoters of Matrix Trilogy) a run for their money. Look at how much coverage its getting. Nearly everyone seems to have an opinion on what is going to happen and everyone is literally spelling out next week as doom's day for the markets.

Anyway, the market structure is completely healthy and as of now there are absolutely no signs of any crack down coming in the markets. Look at the chart posted below. I have circled the October Months action. There are just 3 Bullish price days in the entire month and nearly 11 bearish days followed by 3-4 days of indecision. Despite of this negative price bias, we are literally at the same level as we were when October started. To me, this does not look like a market which is about to correct heavily. Balance of power still remains with the Bulls as they have taken just 3 session in the entire month to stamp their authority.

Going forward, we could well have consolidation which could take is around 300 points lower but that for me will be the limit of the down move. I expect November to be similar to October with prices moving below October lows and probably heading 3-5 % lower. In December, I expect the markets to bounce back from November lows and retest highs made in September and finally from December end to January 2011, I expect the markets to take out the September highs and move forward. This is just how I am visualizing the movement of the markets. In the end, my aim is always to move with the markets and I sincerely hope, you'll do the same. As traders we need to honor the market's opinion and should not expect otherwise.

Going forward, my views regarding Intraday trading remains the same as posted above. This market is going to be very good for day traders and it will remains so for at least a month .
Keep an eye on Sugar Stocks.

Balrampur, Bajaj hindustan, Dhampur Sugars, Dharni Sugars,Dwarikesh, Ponnie, Sakhti, Renuka, Simbhaoli, Triveni, Upper Ganges are all very very attractive. Fundamentally and Technically. End of the week I'll precisely narrow down to some of the stocks from this sector. We could be in a beginning of a very important sectorial upmove.
03.11.10
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Restarting Swing Trades

Swing trades were kept out due to volatility transition. Now, Swing trades are being started again. But, this time, all the swing trades will be SAR (Stop And Reverse). We are picking out only select stocks (5-8) and will be tracking them for Swing trades. Criteria for selecting stocks have been posted many times before and if someone wants to know, he will have to refer to previous posts.

Currently our list is narrowed down to,

Aban
DLF

Expecting significant moves in either direction for these two stocks.

Currently DLF is in a short mode, triggered at 373.9 (No entry advisable)
ABAN is in a Long mode, triggered yesterday at 812. (Entry can be taken). Keep SL at 790 spot. Risk reward is little bit out of favour.
Markets have been volatile in terms of relative movement. The movement we saw in September, makes us volatile. October was a month of volatility relatively easing whereas in November we could see the volatility picking up again.

When you talk about volatility, do not measure it with a day's movement. Always look to measure it at least over a period of 5 days. Currently we are in volatility up swing and hence everyone needs to cautious.

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You always enter good stocks. This is one of the strongest currently.

Again it has run up quite a bit, so would definitely not match my style. But for your style it should be good. Just hold it till strength emerges.

One good thing about you is that you Buy strength.
...............The most popular indicator is of course parabolic SAR. This is available in all softwares. However, my SAR is something different. It's not a indicator. But its the measure between Bullish demand and Bearish pressure. If I see prices being bidding up, I start buying. I keep on buying till prices rally. Eventually I identify a level where if prices move below that, I close my longs and start to go short. This process continues. Hope it helps.

To measure Bullish demand and Bearish pressure I use tick by tick chart.
.............Here it is. Hope this will clear some doubts. Charts are self explanatory. Whatever Queries you guys have, just ask me. DLF trade is amazingly structured at the moment. SL is set at 346-348, targets could be 370.

Fall is stabilizing at lower time frames and we can trust the lower time frame because the levels at which prices are stabilizing is a good support at higher time frame (Daily chart)

Risk - 8 Rs

Gain - 16 Rs (minimum)

If still trade fails, just smile and move on.

5 Minutes
...........post no2798.......4.11.10
Back then, when I was in the UK, I was once rock climbing in Scotland. As I started moving higher, I started getting more and more confident about my climbing skills. The pace at which I was climbing made me seem like a pro. That is when, our team lead told me something which changed my thought process completely. He said,

"The further you move up, the more cautious you must become. Remember, if you slip, the fall could take you down a lot faster and could dent you physically and psychologically. Enjoy your ride up, but keep looking down so that you don't lose your grip"

Markets are a lot like rock climbing and hence I hope you guys got what I wanted to say. Trade smartly, not blindly.
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The last thing you want to do in such a strong stock is to get bothered about volume spikes and doji.

Keep it simple. If it has to reverse, it will reverse.

I would start monitoring the price movement very closely. Spike usually signals end of rally. But, it fails more often than it succeeds. Hence my core emphasis would be on how many WRB I start getting from now on and in which direction.

Fresh Buy List


Code:
Script Buy Above SL
Balrampur Chini 84.42 84.42
Tech Mahindra 734.11 734.11
JP Associate 126.5 126.5
Sterlite Indus 172 172
Welspun Corp 250 250
Deccan Chronicle 135 135
Rolta 171 171
ABB 832 832
Zee Ent 294 294
GTL 420 420
Patni 466 466
Apollo Tyres 72 72
Junior Bees 118 118From previous Week's buy, Jain Irrigation will be exited today if it closes below 228.

*Investment sheet will be updated on Sunday
*Investments chosen on Breakout anticipation. Hence don't expect more than 2-3 of these to do well
*Stop losses have to be maintained on weekly basis ..........5.11.10
Dear Traders,

There is one thing I want to convey to all of you out there. Be focussed and be determined to follow the correct methodology towards trading and investing. One year from now, assuming all the things around us remain positive, you should be able to make your portfolio appreciate by more than 30-40%. In order to do so, keep your focus on relatively few stocks and approach them with proper risk management. For starters, focus only on stocks in the Futures segment and invest in them. Do not attempt to trade them with futures instrument. If markets have to move up, stocks from this segment are going to appreciate a great deal. Hence, if you maintain your focus towards few stocks, there is more likelihood of you catching some stock which appreciates a lot more than index. Furthermore, pay attention to the stocks in this segment which are already in the upmove. Whenever the markets correct, you should be in a position to take advantage of the given situation. In all be positive and keep strict stop losses. Always remember, your equity cannot become zero if you have an appropriate exit level. As long as your approach is correct, your equity will always rise. This is my first Diwali with you and I hope by next Diwali you will do what is needed by an Investor. The success in markets depend on three factors; Discipline, Determination and Dedication. Motivate yourself to incorporate these factors in your investment mindset. I will always be around to guide you and point you towards the right kind of stocks within this segment. Your doubts are always welcome and will be duly answered as always.

I wish you all the best in your endeavors and wish you a very Happy and prosperous Diwali.
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Identifying Next Big Movers - Hindustan Unilever

Over the past 15 days, we have been extensively researching stocks which are beginning to show strength in Price patterns and Fundamentals. We have identified many such stocks and have begun to invest aggressively in them. One such stock which I would like to bring to notice is Hindustan Unilever.

Everyone knows how Unilever has been one stock which has not given investors any return over a period of 10 years. With the Consumption scheme now playing out, I feel the time has come for this stock to move. There are particularly two factors which we have considered while marking this stock as the next big mover; Improving Fundamentals and Robust Price structure. Let us look at these two factors individually.

Fundamentals

For long Unilever has been hampered by margins contraction, rising costs and management's defensive approach. However, these problems as of now seems to be something the management is ready to put behind. This is the third consecutive quarter where the company has reported Volume growth (double digit) of 14%. Furthermore, the management in its investor release has also indicated of this trend to continue and build consistently. There are also a series of product launches in Cream segment, Cheap dishwash brand segment and the Blue segment which are due to add to the margins in due quarters. Currently the company is facing high expenditures which is partly due to the aggressive brand building campaign. Such initiatives cannot be priced in currently and hence we feel the company should start doing exceptionally well. EBITDA and EPS is likely to improve heading ahead and the company is positioned well to trade at least 20% higher from these levels. India as a country is growing exceptionally and if our Economy is truly heading towards the target of 5-6 Trillion dollars over the period of 15 years, then this is one stock and sector which is going to grow leaps and bound.

Technicals

There is nothing much to write in Technicals segment as the chart of Unilever pretty much shows what has happened over the decade. However, the fall in prices has arrested as of now and it seems to form a wonderful base around 200 - 230. The stock is also trading at 9 years high and is looking poised for much higher levels. The volumes in recent times have picked up and it seems this stock is finally ready to move.

SL

There is no stock which can be bought and forgotten. Hence, there are a series of stops we are using for this stock. At the breach of every level, we would be liquidating some part of our positions. The levels are 290, 280 and 270.

Target

The first target for this stock is 360. Lets see how it performs.

........................
Adi,

1) Do you know the kind of cost that one incurs while developing something which works? DO you know the time spent in just thinking about a concept?

2) I don't intend to be rude to you. But, most of the information is already posted here. You need to look through it, assemble it and then use it. You can't expect everything to be served to you. Make some effort!!

3) If you stick to the basics mentioned here, you'll do very well. But that would require effort and dedication from your side. There are many who can read a lot of things, but there are few who can apply it. If you want to be in the latter category, then you will have to work, work and work towards it. Its not about keeping a secret from you guys. But its about pointing you in the right direction. Those who have the hunger, will definitely succeed. Rest will fade away.

If you guys have doubt about something, I will go out of the way to help you. As it is I am planning to arrange a free session for all Traderji users here at my office. Lets see how that spans out.

.................................................
I always prefer to remain the student of the market. I am still very young and still have atleast 40 years left in the market.

Regarding being Genius, I have one quote which I remember.

“When the game is over, the king and the pawn go into the same box”

This is precisely why You and I and everyone will always be Mortal.

In this game, we are the pawns and the markets are the kings.
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I believe one edge that Raunak has over us is that he vets the scripts ,takes the right position (RRR) and has the ability to weather market gyrations (even a gap down) till the target is achieved of course with charts supporting. Had I taken this position when he had and seen it go against my position I would have been tempted to wind it up. Of course behind such tenacity is hours of backtesting and intelligent placement of stop loss.
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Yes you pointed it out correctly. I spent 377 days precisely to develop an eye for what I do now. Those days I worked more than 18 hours a day including weekends. I had gone through 'n' number of charts and seen what works and what does not. Based on that, I have created a visual picture of what will work in future. Hence now, whenever I see charts on my monitor, with "some" accuracy I can say whether the trade is going to work or not. Depending on that I bet more and I bet less. Sounds simple and believe me it is indeed.

........................................
You know whose my "Idol" in real life from whom I draw inspiration for trading? To everybody's surprise its no investor or trader, but it is Charles Darwin. The reason is because he gave mankind one "tool" which is literally never ever followed by anyone and is more often overlooked. The tool which he gave was the "Power of Observation". The reason I am telling you this is because this entire thread and the posts which I write on this forum are reflective of Darwin's underlying belief. This thread is full of my observations of market activity. Sometimes observations come out in the form of Price analysis and sometimes in the form of Risk and Money management. Hence, I would still say that everything I use to pick stocks is already mentioned in the thread. And precisely there is nothing other than this. But, the problem with mankind is his desire to search for something Sacred by ignoring something present in front of him. This my dear is common to all traders. The one who can tame this desire is the one who will walk the extra mile.

In summary,

Timing is done by Observation
Stock selection is done by Observation
Support and Resistance is spotted through Observation
Discipline and Control is attained through Self Observation

This is my secret of success. Its not visible in form of a system or code and hence it feels incomplete.
..........................
At this levels is it right to buy for portfolio building?

With correct risk management, I don't see why anyone should not be buying at these levels.
....................
Your structured process of 'Clarity of Thought' is build up on pure observation. . Congratulation for reaching that level.

Take care and thanks for your open minded post.
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I understand why you say so.

Its true I use filters through a software to sort out Fundamentals. But that's the limit of it. We have developed a detailed Financial Model (not a system) which incorporates both Technicals and Fundamentals. Beyond that, it is observation at different levels at play. As traders we have a lot of time in our hands than what we assume to have. Hence, I just make use of this.

In posts its very difficult to put forward what I see. Hence some users are confused. This is precisely why I have thought of spending some live trade time with those interested.
...............................
assume Clarity of thought is a stage reached after much self reflection. This is precisely why it cannot be taught. Its a stage which comes after immense frustration and failure. Most of the traders quit during this stage and the one's who are resolute reach the next level.

Those intending to reach a level of self satisfaction need to conquer themselves. This I feel is more important than anything in trading.
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Risk/MM/Position Sizing ... Everything is structured. My way may not be as most text book advise it to be .. But it works for me and hence I use it. Its not fancy enough to intimidate most users, but it works just fine.

If you Could be more specific, I could well give you an example.

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VJAY, you spend a lot of time in forum and am sure you are learning a lot. Try and apply that knowledge. Have some confidence in yourself and move forward. Am there to guide you.

But don't invest in such Junk stocks. The probability of hitting a winner in Penny stocks is very small. Hence don't waste your time and money. I think you have entered these stocks before you started learning. Now that you are learning, try and apply your knowledge on these stocks. See if your decision, matches mine. Don't exit because I am saying so. Try and analyze on your own.

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Who told you to short Titan ??

Gauhar, you are trying to run before you learn to walk. 10.11.10
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Im basically a day trader, just trying to get a hang of swing trades.
I have seen couple of traders mitigating risks by hedging (using exotic options strategies). Lets say they have a short position on certain stock futures ... They balance risk by using options strategy - taking opposite stand.
Some balance it by buying futures in a peer company, etc.

So i was curious, how do you insure your trade position.

Stumper,

Now I understand what you mean.

As far as I am concerned, my SL is my risk management as far as Swing trades are concerned. I am not a defensive trader and hence I don't worry about the 'what if' factor. If I am in a trade, I constantly monitor it. The kind of swing trading I do, it requires more of visual approach. Hence, when I spot pressure shifting down wards, I immediately begin scaling out. I keep marking pressure points on my charts and I keep scaling in and out.

As far as options are concerned, I don't feel options hedging is the right strategy for Swing trades. By nature, Swing trading is relatively short term trading and my belief is that the shorter time gets, the more difficult it is to judge options and its movements.

Again its not text bookish, but it works for me. I am no expert in options and hence I keep away from things I don't understand.

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dlf trade on 10.11.10........post no 2986
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By pressure , believe you meant change in demand-supply. Do you incorporate volume(and book) or just price action analysis to ascertain this shift.

In my day trades, i use WRB for checking on this shift (ofcourse its not the only criteria). For me, i rely on certain candle formation in my S/R zone to determine the shift. Hammer is one of my Fav pattern.
Ans.......I don't monitor Volumes and Book on tick by tick basis. But they do form a part of my analysis. I rely more on Price structure and S/R. In price structure I like to see WRB, Bar patterns and Candlestick patterns. Whereas S/R is similar to what I have marked on DLF (Pivot points)
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DLF is witnessing some short build up at the moment. Results are due today, so there is some risk underneath. Since our reversal point is 357, those with current positions can keep a SL of 359.9 to capture 3-4 Rs per lot.

Your selection of futures contracts is bad to start with. Select most liquid ones so you can trade these regularly. Trying is catch the move in some of the lesser liquid contracts is quite hazardous.
This is why it is easier to to go long in futures,because we can identify a trend.
However in other to short successfully,one needs to distinguish between a downtrend and weakness.
In the case of a Titan perhaps you ignored that a strong uptrend was in place and speculated on when the weakness would occur,with no backing evidence on the charts even indicating weakness.
A major battle is finding the contracts which you can read the price action successfully. This needs live simulated trading with an appropriate time frame.
Some stocks are literally monopolies in the sense that they are leaders in the listed space like Asian paints,Titan, Jubilant Foodwords,GSK Consumer.These are valued much higher and they are also defensives ,they do not decrease so easily. So shorting these may be foolhardy .
Raunak you can add or correct if needed.10.11.10
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You have to exit it.

What are you waiting for? Where are your SL rules? What are your entry rules? Exit rules?

You have shorted the strongest stock in the Futures segment. So take a decision and get a framework.
 

oilman5

Well-Known Member
JAY,

If you want to be a Swing trader, you have to deal with this. What if we short today and tomorrow it goes up by 5%. What will you do then? Can you deal with this stress? And more importantly can your account handle these gyrations? Do only those things which make you comfortable. If holding such trades is making you uncomfortable, then this clearly means that Swing trading is not for you. I had mentioned before, I am into DLF for next 2 months. At end of that period, with some certainty I can see that I will be in profit.

So, even if DLF rises 5% tomorrow or falls 10% today, I don't care. But, if you do, then my dear Swing trading is not for you.

I hate to say this, but I love losing money.
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Prst,

If one trades against what media reports, those trades would be highly profitable.
.........................One advise which I would like to give all of you who swing trade is to "Drink lots and lots of water during trading hours". The more you drink, the better it is. In times of stress, take deep breaths and stand straight.

..................................
One thing which I admire abt u is ur calm attitude. u hv very much self control. everyone here knows u are a master at analysis. but I feel u r more a master in mind. I taken dlf with u and honestly with every minute my heart beating faster. just feel like selling it. is anyone else feeling same?

u say u r in this stock for 2 months. how can u handle so much stress? r u 100% sure u will be in profits at end of 2 months? are u not afraid of shorting stock today and it running away tomorrow?

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This is the thing to be learned....
Anyway I do not have position in DLF but if it would have been then my condition would be similar to Vjay.....
Loosing on trade does not hurt me if it goes against me.... But winning trade getting into loosing trade really hurt..... Perhaps my vision is very short…. Can not look beyond this trade…. Eventhough I know this game is for two months.
Thanks for your words Raunak.... Need to set up my mind accordingly...
I think few roller costar rides in DLF will help in setting this mind set
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Mental preparation is very important.

Every morning, for about an hour, I visualize every position I have dropping by more than 10 - 15% on intraday basis and EOD basis. Following this, I practice to remain calm in that state and try to focus on what my action would be seeing this. I keep practicing it. Currently DLF is down 4%, but I have already prepared myself for this. At the moment, I am sipping away on a very cold Vanilla milk shake whilst I watch DLF plummet to new lows.

Let me give you one more example. You go through my portfolio sheet everyday. Currently we have many stocks giving wonderful returns. Now, I am expecting markets to head in rough waters for the next 45 days. During this period, I expect most of my stocks to give away all the gains and many to trigger stop losses. Every morning, I visualize this and keep practicing exiting stocks and keeping my cool. This is what Trading and Investing is all about.

So again, if DLF now drops another 5%, you will see a similar post from me. Honestly, I don't Care.

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I don't know by what quantum Nifty is going to go down.

But, I can say with some certainty that for the next 45 days, we will definitely be witnessing some trading action. Action is more likely to be on the down side. There is too much of money waiting on the side lines and hence too much down side is not expected. But I see no reason why levels of 5700-5800 cannot be attained. In the end, trade with the markets and don't predict..........11.11.10
..............

I am located in Pune Spatch. And please don't mind, I don't do business through this forum and hence would not like to reveal any details.


Swing trading is when you hold shares for a few days right? Now tell me something, is it preferred for a swing trader to watch the market from beginning till the end in the trading hours??

It completely depends on your swing trading style. For any new trader, I would definitely advise watching the markets tick by tick. Just increases one's trading intelligence.

Which trading style do you think is more profitable (when the capital is limited, say, 100 grands) I know it depends a lot on the personality of the trader, but still if it is possible to answer this question...

If you were to take my opinion, then let me tell you that under capitalized accounts blow off too easily. Hence I would not trade with small accounts. Still if you want to know, then stick just to Mini Nifty.

On an average I am able to find out profitable shares, but am very bad at exiting... so far I have exited from about 3 stocks after taking 2% profit and they went on to increase about 11% - 16%.. Any advice on it??

You need to have a clear trading plan. When to exit, when to enter, when to scale in and when to scale out. You are lacking a plan. Start working on it.

How long is your average holding period? And how long have you been trading? (asking this to figure out how long did it take you to become this good :) )

It completely depends on Market conditions. Sometimes it spans to few days, whereas other times it is held for just 2 -3 days. Success in markets does not depend on number of years spent. It depends on your understanding of yourself and the markets. Some do it in one year, whereas some cannot do it for lifetime.

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Actually, am still discovering a style that suits me, so tentatively I try to get about 1% of return daily, if I see that happening I exit the trade. Needless to say it has not worked out perfectly, but I won't say its a failure because I've not yet ironed out the chinks in it.

The biggest disadvantage is, as I've mentioned in my previous post, that I am unable to ride the whole trend. As they say cut your losses and let your profits run. In my case I am cutting both the profits and the losses, which is not good.

Even I try to employ s/r levels, but the thing is there are so many ways one cay figure out the S/R (SMA, EMA, Price levels etc...) that sometimes I get confused...
But other times I've seen that S/R levels work beautifully.


Quote:
The only thing common in my strategy is to ensure i dont keep my Exit and Stops at the MOST OBVIOUS S/R level or where the crowd is most likely to keep their's

That's a nice strategy, I remember watching a video online few days back, in which the expert was saying the same thing.


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Dont come out of anything. I don't move the markets dear. Its just an opinion. 5700 -5800 is not a level I expect the markets to go. I just said I won't be surprised. That's it.

See markets have run up a lot. And given the nature of markets it is bound to correct and come down. When that will happen, that no one can say. Cyclically we are due for a down move, plus most of the funds will be on holidays from December and hence we can expect some profit booking as yearly bonuses for managers are also due. Corrections may not be too steep as there is lot of money waiting on the sidelines. Hence, lets see what happens. I always move with the markets and what I said is just an opinion. 11.11.10
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hope you learned something.

I'm not going to be around forever and hence make sure you learn.

Don't be scared of the market. Its not functioning to put you out of the Business. If you took the first trade in DLF, you should have taken the short trade as well. But yes, you need to see you have enough capital to tolerate some draw downs and whipsaws.
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The way I am visualizing DLF trade at the moment, it seems we may have a 2% down move tomorrow followed by stability in prices for next 1-3 days and then eventually getting a buy signal which would give the desired profits. Lets see how it spans out. We'll try and be as close to price as possible.

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Honestly, If I were you, I would not care about what the market is going to do. Hence, I would not anticipate some action and square my positions off. I always have an opinion about the markets, but I almost never trade against the markets.

If you have invested in these, then just let it be. Both stocks are in my portfolio with very handsome gains. If you are into futures, then you will have to decide what to do. Don't let any trade wipe off more than 1.5-2% of your equity.

Tc
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New Investment Trades to be Executed today

Balrampur Chini if close is above 91
Geometric SW if close is above 78
Himadri Chem if close is above 55.5
Orient Abrasives if close is above 36.5
Sterlite Inds if close is above 183.3
Geojit Pnb if close is above 38
ISMT if close is above 56.8
KCP Sugars if close is above 22

Investment sheet with stop losses will be updated over weekend. From previous trades, Nitin fire will be exited completely.

Entire Sugar sector is on the move. Large caps and Small caps are breaking out simultaneously. Surely a sector to watch out. 12.11.10
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Even I try to employ s/r levels, but the thing is there are so many ways one cay figure out the S/R (SMA, EMA, Price levels etc...) that sometimes I get confused...

Oh, my Favorite topic. First, S/R is what S/R means. Level where the demand-supply ratio had changed previously. Its an absolute value and not a average. So, a S/R level for me is where the price changed the direction. Consider those as area where you feel people are most likely to keep their pending orders. Again, i do utilize S/R for my exits, but i also look for price action to justify my exits. So for example, once price reaches near my S/R zone and if i see price action stalling or showing weakness, i bail out. The reason i wait for price action is that , many a times, the strong hands will cross the S/R zones to induce the naive traders only to come back within the zone. This simply gives me a bit more money in my pocket.



Quote:
One question I'd like to ask people who have succeeded is that what are your strategies to find the stocks to invest in.

Good point. Im a day trader and typically trade in fixed instrument , like some 8 stocks and Nifty. This are liquid stocks. I have decided to concentrate on only some liquid stocks and Nifty as this allows me to understand the behavior of this stocks , which helps me in the price action strategy that i utilize.

As for "Investing", i really dont know how do they filter the candidates. Some do NEWS based , some utilize Volume gainers while some utilize 52 weeks H/L candidates. BUT, im not sure. Maybe some can answer.

.......................
am an eternal Bull based on current data. I only said about 5-10% consolidation. I would certainly not call the shots on a Down trend. As of now there is no way that could happen. These declines were very well expected. About 10 days ago I started swing trades precisely due to this reason. All the gains that are being wiped out of the equity portfolio are being made up by the short swing trades. So net - net because of the nature of futures, the gains are still higher than what they were 10 days back. Call it hedging or anything, but a high volatile environment should be traded this way.

Hence, as of now, there is nothing that has been caned. Its too premature to say that. Also, in my opinion a Risk management framework in this scenario will keep many conservative traders out of the market. This in my opinion, is not the correct way to go about it.

If you find a trader, who misses the up move and then misses the current down move despite of knowing that this was expected, then this clearly reflects lack of clarity of thought. I am sure this has happened to many traders here.
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A Word on Markets

The long awaited correction seems to have crept in the markets. Personally, I won't hold that opinion as of now. Lets think of this objectively. An uptrend is defined as a scenario where price structure forms higher highs and higher lows. Apart from this, higher Pivot highs and higher Pivot lows are formed. Violation of Pivot must always be considered on closing basis. On intraday basis, pivots are breached, but often retrace back from that breach. Hence, for the sake of simplicity and objectivity, we would want a close below critical pivots.

Currently if we see the price structure of the market, we would find that we are in a strong uptrend. The latest pivot low is 5934 and it is only after violation of this level on closing basis (daily frame) should we assume temporary pause of the uptrend. If however, close is below 5934 on weekly basis, we must definitely brace ourselves to see levels of 5500 - 5700 on intra day basis at least. There is a lot of macro economic development taking place all over the globe and hence sectors related to Realty, Metals, and Currency could gyrate viciously.

For traders, unless and until 5934 is violated on closing basis, one must look to go long. Personally, I would be looking to go long on slightest bit of visible strength. Trades won't be aggressive, but certainly I would rely more on price action than on anticipation. Every Bull run has a phase where prices collapse 10-20% every 12 - 15 months and if the current move is a beginning of that, then long term investors should use this weekend to make a list of stocks which they intend to accumulate.
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Now coming to trades. It is one thing to spot a pattern and another thing to trade it profitably. The neckline according to your chart is 344. DLF now has sold off nearly 12% in two days and markets have corrected 800 points. Now given the fact that we are still in Bull market, the chances of markets bouncing back are far more. Hence, DLF could bounce 3-4% in the next 1-2 sessions. This would take the counter to 337 - 338 price levels following which you could have initiated fresh shorts with the neckline level as stop loss. This would have given you a better risk to reward to trade with. 12.11.10
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Some work better with Bars and some work better with Candles. There is no rule.

I second your view about this : Always check higher time frames then the one you trade, to get a better view about market direction.
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Enjoy your weekend and don't think too much about what will happen on Monday. This is what trading is all about. Dying several death, yet emerging a winner in the end.

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Do you know what type of trader/investor you are. You seem to be too bothered with this trade. Look dear, world is not going to end on Monday. Hence, stop worrying about Tata steel. Luckily the global environment is not that supportive, and hence whatever upomove will happen in tata steel will be subdued in comparison to if markets were extremely strong. Stock will still gap up, but the quantum will be comparatively less. If there is more negative news from China on Monday, then gap up would be largely subdued. Hence, lets see what happens.

Adi, I feel either you are under capitalized or you are not suitable for swing trading. Now, I want to tell you & others something. In no way shall this be misinterpreted as a self promotion on my part of being a great trader. But I think this is important.

Do you know how many contracts I am short on Tata steel? I am short 14 contracts on Tata steel. This means, my losses are going to be 14 times more than what you will suffer. And yet, I have enjoyed and not thought about what is going to happen on Monday. Markets are beyond our control and what is within our control is our ability to manage ourselves. Hence, this is what I am doing.

What will happen on Monday has nothing to do with what will happen on the longer run. In trading, every trade is mutually exclusive of what will happen to the next trade (in terms of result). Hence, just relax and wait for what the screen shows you. As I mentioned earlier, whatever losses we make, will be recovered.
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informative. by the way while joining the EOD data for the rectangular patterns or any other patterns whether we should join only the high/low tick of the candlestick or the body of the candlestick. hope i am clear. kindly guide me.

by the way is Tata steel shwoing signs of a cup and handle formation

Thanks for the kind words Umesh.

There is no hard and fast rule for this. Just narrow down a band for identifying rectangular/box trades. Even if you identify a trade which does not fit in the exact highs or lows but looks visually effective, try and trade it.

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When you first want to analyse a stock how you go about it.What are the basic steps
do you follow to come to a conclusion of Buy/Sell/Wait for the stock

For eg.

a.Do you plot a weekly chart first to see the trend
b.Then go for daily chart to see the structure of it.
c.Does any of the indicators like MACd,RSI,STOCTISC, EMA do you use regularly

Please let us the basic steps you follow to make your decision about a stock.
I understand everything comes with practise and experince, but if you guide little
bit then I am sure it will help more for newbie like us to understand the reason behind the trade.

Just for an example I am uploading a chart of XYZ comp without naming it so that we all of us may put our thoughts on the structure of this chart.

.....................Wherever anyone is in the World, one has to always follow the price and nothing else. No one accept the price is right. Follow it and it will reward you.
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So what I understood from the post is you looked for the retracement (daily chart) and decided to go in to the stock or not. But dont we come acrosss more stocks where the retracement show neutral or bullish ?

Deep,

This is basically analyzing price structure for Swing trades, which for me forms the most important aspect. Beyond that I like to look at the stock's sector and how that sector is pretty much behaving compared to Nifty. By the time I do this, I am clear whether I will take the trade or not.

If you like indicators then I'll advise you to read John Carter's book (Mastering the trade) where he gives out a framework of how he looks at the market through MACD, RSI etc. Its a good read. Will open your mind to new ideas.

.......................
Whatever I say, or whatever "opinion" I have, I absolutely never place it in front of what the markets are showing me.

When Tata steel declared good results, I was expecting stock to open much much higher. But, I had mentioned that ultimately whatever I will do on Monday will depend on how stock opens up. The opening has been largely subdued and hence I am adhering to my initial SL of 640 as of now. Tomorrow probably I will bring down this to 630-632 levels and will see from there.

Opinion - Stock will rally. Will cross 640 easily. Hence will reverse.
Market - Stock did not rally. Hence am in trade.

Similarly when DLF was down 12% in two days, I had an opinion that stock might reverse and those who wanted could book profits. But i never reversed it as markets were indicating more bearishness. And look currently it is down 10Rs from 328.

Hope you get it. 15.11.10
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Thanks for recommending the book by John Carter. For a starter like me ,the TA learning curve is pretty steep and changing my attitude to making losses is steeper still. But hats off to you guys, I feel motivated to ride the untamed horse and conquer my fear of falling off . I realise that my aim is not to tame the horse - rather, know the horse, tame myself and profit from the exercise .
Keep up the good work..............page 320
The Following User Says Thank You to oilman5 For This Useful Post:
linkon7 (29th December 2010)

#105
26th December 2010, 09:03 PM
oilman5
Member Join Date: Jun 2006
Posts: 1,329
Thanks: 262
Thanked 1,212 Times in 433 Posts


Re: my last thread
________________________________________
As far as I can understand, you have initiated a Long and a Short position on the same price.

1. How's this going to affect your profitability? You haven't hedged. You have essentially taken a Neutral stance on the market by going short and long on the same level. Whatever gains you make will be lost due to losses in other. Hope you get it.

2. Never ever carry your position from one time frame to another just because you start 'worrying' or 'assuming' about markets. Unless your strategy says so, you must close out your position in the designated time frame. If it was intraday according to your strategy, why have you shifted that to EOD now?

3. Always have an idea of where the markets are heading. Now, somewhere in the forum, someone has quoted the above post of mine and said that I am short on the market and expect it to go down. However, if you read my post above carefully, I am actually looking for an opportunity to go long. Hence, when I have a rough idea of what daily time frame is indicating, I will never carry my trades from lower time frame to higher frame unless it is in the direction of higher time frame. For doing this, one must view the markets on higher time frame objectively (price structure) and not through some sell/buy signal through systems.

When you are using higher time frame,

a) Know the direction of markets on higher time frame
b) trade in the direction of higher time frame on lower time frame
c) a & B only fail when trends starts to change from lower time frame and eventually spread out to higher time frame. ..........15.11.10


I am trying to give you how thought process goes into the mind... perhaps it is not right for good trader.. & you are the best person to advice on psychology of trader.....

Rahul,

Let me answer this from a psychological aspect. Some parts may sound rude to you & others but I hope you guys know by now that I can never mean that. I have to write this way to get my point through.

If you were to allow me to judge what you have done, then I would say that what you did tells me three things.

a) You don't have faith on your Index EOD system - If you had faith, then you would have closed the intra day trade today itself and booked profits on it. You have not done so to get peace of mind today. Markets don't pay anyone for taking easy decisions. Just remember that.

b) You are not disciplined - You are a system trader and the one thing system traders don't do is they never break their rules. You have taken a intraday system and now turned it into a EOD trade. Stick to rules. Either be discretionary or be a system related trader. Don't mix both.

c) Learn to Embrace Pain - You need to learn to embrace pain. Fall in love with red and it will start ignoring you. Which means, you will start to see more of green in your account. This is the most difficult part in trading and is very very hard to practice.

For E.g. - You questioned me on Tata steel today. Despite of what was going on and despite of excellent results, I did not break my rules. Over the weekend, I did not anticipate, I embraced the "probable" pain and I am still in my position. This is because I don't mind losing 'N' % tomorrow.

How you need to approach the two time frames is something I have explained in the previous post and hence you can refer that.

..................
Sir, It is not even 3 months that i have joined Traderji and I did not knew anything about TA before I join here. But even before I join here i use to trade and invest ........ ha yes earned also.
And I have a habit of spending an extra 5% onmy investments to hedge.......and keeping SL on my trades.

Ok, now the benefit to me for being in Traderji is............

1. Now I have an increased confidence level with the abcd...... of TA.
2. the percentage of income from my trades are increased.
3. I can some how select some good scripts now for investment and trade.

Now with my habit of spending 5% of my investments for hedging, recently I bought 100 equities SBI at 3210 imagining that the script can touch a 4000 level in short term which is a clean 25% margin. and hedged with 4 lots 3200 put at 34.

on friday I came out of my puts at 190.. and kept the scripts because I loved it.
Today it started loving me and I am happy.

I explained the entire story because I need to take a firm decision after your advice.

I told you I am hedging my investments and keep SL for only intra-day trades.

My query is to you are..........

1. Do you think my way of hedging only investments.......Do trade with SL. are a completely fool proof way here?
2. Apart from hedging of 5% an additional SL is required for investments?
3. With the SL, Is it required an additional hedging for my trades?
4. Shall I completely avoid SL and go for hedging in trading also?

let me make it clear that what I understand about hedging and Stop lose.


Hedging............
1. By spending an additional 5% on our investments you are insured for minimum loses and have a chance of earning even if our trade go negative.
2. If our trade go positively you will not loose the entire 5% hedging fund. you will get a chance to cut it down to 3% in between.
3 Yes If our script did not move to either side till the expiry you may loose up to 3% or even full and you will have to find another 5% for next month (But here we have solutions...... we can go for scripts with momentum).
From my experience I believe that we will get enough bonus as in the case of SBIN to cover this types of loses

Stop Loss

1. You can only control your lose and it will be a sure shot (minimum)lose in case you script moves against your view.
2. You do not loose an additional percentage if your view go positive.


Now I think you got my query and expect an advice please.

Thanks in advance,

..............................
do not like to second guess price movements. But, if I have to take a shot, then Tata steel should move into a buy zone tomorrow or day after. Once it does that, we can witness some significant action. One day's price movement has nothing to do with future price movements.

Ocean's are always calm before the storm arrives..............15.11.10
--------------------------------------------------------------------------------

Keep an eye on Aegis Logistics and AP Paper Mills.

For Swing trades these look good. 16.11.10
.............
The stock market moves up roughly a third of the time, sideways a third of the time, and downward a third of the time.
If you only played the bull side of the market, you are out of the action, and your chance to make money, two-thirds of the time.

There is only one side to the stock market; and it is not the bull side or the bear side, but the right side.
..................................
Every trader has his own way of trading. Hence, I won't comment on your way. But, again if you were to allow me to judge you, then I think you are not executing your system correctly. In high volatile scenarios, your losses on 2 lots are going to eat up profits of many trades which occurred during periods of low volatility. Almost always let your profits run.

Also, don't take my view or anyone's view on Nifty and couple it with your system. Your system on standalone basis is sufficient if it is a robust one. Hence rely only on what signals it gives. Markets essentially know no one. No matter how experienced that person is. Hence, just trust your system and your instincts.

Regarding Tata steel, yes the larger time frames were not that supportive, hence despite of good results the stock is down. However, if anyone is following this stock, he'd know that there is significant amount of Bullish pressure building up. One can just feel it. I am waiting to reverse trades in Tata Steel and Nifty. Lets see when the opportunity arises.

................................
must thank Raunak Bhai for demonstrating trading discpiline.
Being Short in Tisco - Inspite of the good results he was not at all nervous sipping his Jack Daniels on friday.

TS again gave him ample opportunity to cover his shorts on monday but to my surprise he just stick to his Sytem/Trading rules.

I couldn't resist my anxiety of Raunakbhai not covering his shorts in TISCO for I was long.

But again the markets proved him correct.

Now Today's TISCO low - 594

On the contrary I didn't follow my system's Short signal on TS

Now I understand why TS didn't react to the results as anticipated and the importance following the System with out any deviation and the importance of not mixing system trading with discretion.

Once again a costly lesson.

But no worries my Savior is...........16.11.10
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26th December 2010, 10:23 PM
oilman5
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Re: my last thread
________________________________________
I am probably the worst person in this forum to seek an advice on this issue. The reason is,

a) I have no understanding of practical options trading
b) I don't believe in protecting my losses through hedging. IN some cases, when I am very uncertain, I do take opposite side swing trades. But I almost never get into direct hedging.

I had mentioned somewhere in this thread that for me SL is everything. I am a very aggressive trader and hence I don't care if I lose money. Most of the trades I do are well calculated and hence before hand I am aware of what might come tomorrow. Moreover, the whole idea of spending some to save much more is something that does not go well with my mental setup.

A lot written above has got to do with what my daily routine is. When I trade, almost whole day I am watching the markets/replying in forum or taking training sessions while I view the markets. Hence, with so much already in my hand, the least I want is to see how my hedges etc are doing in comparison to what my original positions are doing. I don't believe in any of my guys in the office to watch my trades and hence I do it for myself.

Gangadharan, markets are what you want it to be. Markets will give you what you want from it. Hence, what methods you practice are suited to what you want from the markets. From the look of it, through your excel sheet, I could see that you are doing well. Hence, I will ask you to continue doing what you are doing. Do not alter what you do based on what I or some other user suggests. Markets don't know me and hence what I suggest may mess with your mental make up.

Now, after writing this, I dare say that I am the best person here to give you advise on this. The reason I say so is because,

a) I am asking you to explore what your mental setup has directed you to ..
and
b) I am asking you to follow only your method as there is no right or wrong method of doing anything. There is only one method, and that is the method which "works". Hence, if your method is working and generating returns, just follow it. One thing I'd say is that since this method deals with options, just ask Dan (Danpickup) to comment on the same for some refinements.

.............................

Every trader has his own way of trading. Hence, I won't comment on your way. But, again if you were to allow me to judge you, then I think you are not executing your system correctly. In high volatile scenarios, your losses on 2 lots are going to eat up profits of many trades which occurred during periods of low volatility. Almost always let your profits run.

Also, don't take my view or anyone's view on Nifty and couple it with your system. Your system on standalone basis is sufficient if it is a robust one. Hence rely only on what signals it gives. Markets essentially know no one. No matter how experienced that person is. Hence, just trust your system and your instincts.

Regarding Tata steel, yes the larger time frames were not that supportive, hence despite of good results the stock is down. However, if anyone is following this stock, he'd know that there is significant amount of Bullish pressure building up. One can just feel it. I am waiting to reverse trades in Tata Steel and Nifty. Lets see when the opportunity arises.

Tc

Quote:
Originally Posted by raunakagarwal
I had removed DLF yesterday at 322 levels as I had written that 319 level would be pivotal. Won't be going long in it today. May be on Thrusday (If things seem right)

Also, I am still short on Tata steel. Will reverse the position on Thursday. .......18.11.10
..............As indicated earlier,

First lot of DLF was exited at 307 and second lot at 311.

Tata steel has been reversed. And now we are long in it.

First lot has been taken at Avg price of 626.5

Second set of lots will be added at 644 + levels (if we reach there)

SAR lies around 603-606.

No further position in DLF has been taken. Positions will be considered tomorrow...18.11.10
Living in the present is to be aware of what is happening to you, what you are doing and what you are feeling and thinking. It is being conscious of your thoughts and focusing them on the present. In this way you look at situations as they are, without coloring them with your past experiences. Living in such a way makes it easier to deal with whatever you are doing at the present moment. You see things as they are, without being influenced by fears, anger, desires or attachments.

Next time you catch yourself thinking idly, watch the thoughts that flow through your mind, what are they? Are you trying to relive the past? Maybe you are reassessing past behavior or events? Maybe you are thinking how it would have been if you acted differently. Are you enacting past events in your mind? Even thoughts and daydreams about the future are colored by past experiences.

If your past experiences of relationships were pleasant and positive, that is how you going to think about your future relationships. If the experiences were negative, that is how you are going to visualize your future. It is always the past recreating your life.

You probably think sometimes about what someone told you, how someone treated you, how you did this or that. It is always about the past. You are letting the past captivate you and influence your behavior. Reliving the past is recreating it constantly. You are not letting change enter your life. It is all right to recreate the past if it was pleasant, but why repeat in your mind if it was unpleasant?

There is a story about two friends traveling by train. One was very nervous, restless and full of complaints the whole trip. He was impatient to reach his destination, and disliked every moment of the trip. He did not pay attention to his surroundings, as his mind was full of impatient, restless and grumpy thoughts.

His friend, on the other hand, enjoyed the scenery, drank a cup of coffee, ate a piece of cake and chatted with the other passengers. He enjoyed every moment the trip. He lived in the present moment and made the most of it. On arrival he was fresh and felt good. His friend, as expected, arrived exhausted, tired and unhappy.

It is a matter of the right attitude. Life becomes a happy and enjoyable trip when the attitude toward it and its events is positive, and the present moment is used in the best possible way.

Living in the present means concentrating on what is happening now, enjoying it and making the most of it.
Do you know how many opportunities are missed due to dwelling on the past, instead of seeing and being conscious of what is happening at the present moment? When our mind is elsewhere we behave like robots, and repeat the same mistakes of the past, do the same things, and then complain that our life is dull and uninteresting.

Wake up to the present moment and live in it. The past happened and passed, so what is the use of reliving it? Do you enjoy reliving it? If it is a pleasant experience that's okay. You may wish to relive it and recreate it in your life. But why repeat the same event again, if it was an unhappy one? Why do you repeat something that has caused you pain?

We are usually unaware of the process of thinking that is going on in our heads. We repeat the same thoughts as a matter of habit. They come and we do not resist them. We welcome them even if they are unpleasant. We get used to our thoughts and habits, even if we do not admit it. In this way they become stronger and more powerful. As our minds recreate our past, we find that the present is always the mirror of the past. Then nothing new happens and we complain that life is always the same, that nothing changes. Weird, foolish, tragic and funny at the same time, isn't it?

By being aware of your thoughts and feelings, it becomes easier to be a little more detached. When you are detached you become able to choose how to react to people, events and circumstances, which can save yourself a lot of inconvenience, trouble and embarrassment.

......................
guess, you will surely start to test your knowledge in the future with that tool and that will improve your knowledge immensely. You also will get more self confidence about trading.

It is not a perfect tool as we not can use options or more order types or a mix of different derivatives, which I love to mix . So, we can not test such kind of strategies or trades.

On the other hand it is a perfect tool to learn or to improve to trade with just the simplest indicators and only concentrate what is going on on the chart and only on the chart ! No TV, no tips, no fundamentals, no influence from any body, no input from outside. Pure trading decisions build on personal technical knowledge, real experience, coolness and knowledge about the different order possibilities on your brokers platform include the margins you need to have for any of this trades.

And that is one of the main points, witch makes the different between the successful individual trader compare to the holy grail searching traders or to the normal public traders.

I am clear, that in this simulation not real money is involved. So what ? We can use our imagination and experience we have with real money trades and trade in such a way, that it comes near to that reality. As the data in the simulation are real data from the past ( in my case from the 28 oct 2010 ), there is a good chance to make this like nearly real trades.

Use the same ideas from the past and find out, what was wrong with that idea in that moment or better, what was top in that situation to become an approval again of that

....................
As of trading intraday is concerned, we have observed some mathematical relationships which seem to work very well on intra day basis and hence at present I am looking for protecting capital in case trades go wrong. I have openly written many times that my knowledge in options is limited. But this is just temporary. My insatiable thirst of knowledge has attracted me to options now. Therefore, it is now only a matter of time when I start getting the hang of the same.

I agree I am well versed with stocks and futures.
..............
Stocks in sugar sector from Investments have been exited.

Rest of investment positions have also been severely cut.

Position in Unilever continues to be maintained.

Tc ..............19.11.10
................................
What is Hard Work?

Hard Work is when one dedicates himself to the field and does whatever is required to succeed.

In art, this is depicted by the artists creation. The hard work behind the art is that of patience and creativity and letting one's mind explore in the infinite space. In sports, this is depicted by Sweat and Discipline. All the achievements in sports are made by those who shed a lot of Sweat working for their desired goal. In trading however, hard work is not depicted in the form of Sweat or Imagination. It is depicted by controlling one's emotions and being immensely disciplined. Any Trader who can exhibit these two aspects, is working hard. Systems, strategies, etc contribute around 5% of what is required. The real 'Hard Work' is identifying your strengths and your weaknesses and controlling the inner desire to free yourself from stress. Hence, remember, we are Futures traders and we need to control our desires.

Even if I have to reverse the position 10 times, I will do it. But I will not break my rules. If I have to go broke, I will go broke with my ideas, my discipline and my decisions
..........Smart money or Dumb money .. How can one classify it?

Quantitative trading has made the distinction between smart money and dumb money almost impossible. Going by the same notion, with the markets selling off currently, and the volumes expanding, is it smart money or dumb money? No one can say for sure. Moreover, Indian markets are so open now, almost every script in Futures has some sort of smart money operating in it.

Such things are just not in our control. Hence, I don't try and look into which script has which kind of money operating in them.

As of now, there is no visible base building happening on any time frame. Longs should be traded cautiously. My view on the Nifty and other stocks remain the same as earlier. That is, on the slightest bit of visible strength, I am going to go long in the Nifty and the stocks. Nifty as shown below is not showing any signs of robustness. Whereas Tata steel is stabilizing around 595 - 600 across all frames. Hence, on Monday, after opening we will review the short position again of Tata Steel.






Tc 20.11.10
.......................
Dear Raunak Bhai,Dan,Columbus ji and experts,

IMO - The objective of the technical analysis is to track the demand/supply and the direction of the smart money.

Taking Friday's market as a case history I request you to all to explain the market internals.

All the technical indicators are showing weakness in the markets.
Nifty heavily sliding in the last 2 hours on heavy volumes.
But to my surprise FII's and DII's are net buyers.

So who are the sellers ?

No fresh addition of shorts in the FII's Index hinting that the near term bottom is nearing.
But most of the people following TA would have created shorts on a closing basis.

I guess there will be a gap up opening on monday.

My questions

The objective of SM is to distort the demand and supply and buy or sell.
So for Intraday trading purpose the technical indicators are perfect in predicting the demand and supply but what about SM activity ?
But how to find that the SMART money is actually buying on that day during a falling day during market hours.
There should be a way to gauge the market internals and SM activity real time in TA.
Please let us know or it requires high cost special softwares with high tech algo's ?

2.Why closing basis is given so much importance ?
Is it advisable to create long or shorts on a closing basis or wait for the next day opening and create long or short based on the breakout of previous day high or low ?
20.11.10
....................
Eventually at some time Nifty will bounce. That however cannot be attributed to divergence. Divergence occurs more due to the construction of indicator rather than any market phenomenon. In other words, you can say that this is typically a fault in indicator construction. Divergence mostly works in hindsight. Difficult to trade it in real time.
....................
Technical Analysis by its own nature is very limiting. It is a very powerful tool when used within a structured approach in the markets, but is by no means the only tool to use. In my own opinion, techniques of detecting smart money or dumb money have been vastly advertised and when one studies them in depth, one can realize that it is no different than any other theories floating around. That is, it fails more often than it succeeds. Hence, in my own experience, the only thing that actually works is if one studies the price action directly off the chart. Within this, I don't feel using closing or opening price would make much of difference. It is the price structure on the whole that one should look at. Mastering price analysis is very difficult and requires much more effort and dedication. It's much beyond higher highs, lower lows, pivots etc.

.....................
Not an inside news……. Inside news never favors the retail investors like us…… it always make us in traps.

If you see the EOD carefully you can find several reasons for my view.
Why you all believe that TA works…… my believe is that TA works only because of most big investments comes in the market with the support of TA…….. Right? Now finding retrace levels are the part of TA.

Reason. No.1
If you carefully see the EOD you can find that previous bounce of NIFTY from 4th august 09 to 9th oct. 09….. 3rd Nov.09 to 5th Jan. 10…… 5th Feb.10 to 5th April 10 retraced breaking down their. 61.8% levels and reached up to 70% levels. If the sequence happen here it can come up to 5555 levels.

Reason No.2
As you know that there are difference in people using retrace levels.. i.e. a short term investor will always use a short retrace time frame like the nearest low to the top and medium term investor use a little bigger time frame and the long term investor can use the longest time frame. Now let us use here with the all three time frames and have a look at the levels.
short term 4806 to 6320…… medium term 3974 to 6320….. 2580 to 6320

We can find that the if 2 retrace levels of two time frames are more dependable than a single retrace level of a single time frame.
Here we can find that a two retrace level of two time frames come near 6750 and there for this will be a little dependable place.There is a chance the NIFTY to go up a little from here.But you can find that 2 retrace lines of two different time frames again meet at 5555 levels with another support of another time frame at 5380. Now I think you get my point.

Now let us live in present and think……. We can find that the FIIs came aggressively in our market in 2010 in the month of May and June with their SMART MONEY… And there is no doubt that they came to make money.
Now we can find a clear vision of their ACCUMULATION till August 10.(EOD) which is the first process of SMART MONEY.

After August 10 you find that nifty gone up very fast…….. This can be counted as the MARKING UP which is normally the second process by SMART MONEY And here is the place where DUMP MONEY enter the market.. And the third process by SMART MONEY is DISTRIBUTION and that they have started when the market was around 6200 plus levels.

The market touched 5880 levels twice and I believe all this was because of DISTRIBUTION. Here is the place where more DUMP MONEY enter the market including retail investors…

The next and the brutal process of the SMART MONEY is MARKING DOWN……. The process of MARKING DOWN is a very fast and forceful action. Because the SMART MONEY dose not want the DUMP MONEY to get a chance to come out from their position.
I DOUBT THAT IS WHAT HAPPENING NOW.

Reason No. 3
Think that suppose we are some one who is entering in the market with the support of thousands of millions of rupees at when NIFTY was at 5380 level…... What will be our target.. I believe that our easy target will be some where 6300 which is a nice place where the sentiments can easily reach
Then off course we will start selling from 6200 levels, Right. Even though we don’t have thousands of millions of rupees why cant we think like biggies…

Reason No. 4
Mr. Dow… said…… (I think Mr. Dow is not son in law of NIFTY Chief………………. Might be mother in law of DOW JONES….)
No…….. If I am correct He was the founder of DOW JONES
Any way… in his words…. When market goes up.. All the Large Caps move 1st and Mid caps 2nd and small caps 3rd
But when the market correct it will work on the opposite way.. Small caps 1st mid caps then and Large caps last.
I think our Large caps are not yet corrected
Do you think the market will move towards 7000 when the Large caps start correcting.

After all………… This is just my view……. And we always trade market.. Not the view……… because the view can also change with the market. But now I am learning to trade with a view.

....................
. I have only read very few trading books and honestly I haven't developed any of my trading techniques through any of them. Hence, I don't know what to recommend you. See what Dan has posted about Robert Miner's book. GO through it. The concept of multiple time frames is something which will help you a lot. Lot of my way of looking at the markets depend on that. In this thread, there are some posts where I have explained about price structure. You will have to find it. Else wait for my post in 1-2 weeks time.

2. I do not give my cell number on forums. Hope you understand that. Moreover, it won't be ethical on my part to give few my number whereas to not give the same to others.

3. By the look of it, you appear to be in haste to learn a lot. My only advise to you would be that your enthusiasm towards learning is well appreciated, but on the whole relax back and learn slowly.
.........................................

This is what I said. TA does not have answers to everything. In fact nothing has. Its a mixture of TA, FA, Macro view, Inner instinct etc.

My answer to your SM query was answered earlier as well. To repeat the same, I would say that I don't indulge into trying to recognize smart money or dumb money. In a very polite way, I would like to say that I am smart and I like to believe that where I put my money is where smart money is putting it. In the end, whether I am right or wrong, is for the Tape to decide. Nothing more and nothing less.

.................
Sometimes I post views on Nifty and Bnifty. But I can't do it on every day basis. The reason for that is that every minute trend does not change. The reason you are experiencing losses is because you don't have clear rules to trade the trend. To do that first you need to define what your horizon is for trend trading. Are you looking to scalp the micro trend or are you looking to ride the big winners. Once you get your horizon right, I can help you further.

....................
Also, if you are handling so many trades in real time, then that depicts good organizing skill. Personally, I can't handle more than 2 swing trades. Some times when I get wild, I like somewhere around 5-6 trades
..........................
If you're gonna play the game, boy
You gotta learn to play it right,

You've got to know when to hold 'em
Know when to fold 'em
Know when to walk away
Know when to run
You never count your money
When you're sittin' at the table
There'll be time enough for countin'
When the dealin's done

Every gambler knows
That the secret to survivin'
Is knowin' what to throw away
And knowin' what to keep
'Cause every hand's a winner
And every hand's a loser
And the best that you can hope for
Is to die in your sleep"

And when he finished speakin'
He turned back toward the window
Crushed out his cigarette
And faded off to sleep
And somewhere in the darkness
The gambler he broke even
And in his final words
I found an ace that I could keep

You've got to know when to hold 'em
Know when to fold 'em
Know when to walk away
And know when to run
You never count your money
When you're sittin' at the table
There'll be time enough for countin'
When the dealin's done
...................................Hence, strategy or no strategy, training or no training, almost anything and everything in terms of strategy makes money in the market. The essence is to know when to exit. In my opinion, very few training courses show the exit door. This song is completely applicable to markets. As they say, beauty is in the eye of the beholder.
Nimbleness develops with time.... only thing one should be very unforgiving to themselves... benchmark should be.... better than the Best in existence anywhere in the world.... and with each error committed ....one should promise themselves that they will not make the same mistake twice.....& ofcourse fire in the belly to be the best not to show the world but to themselves.
................Based on what I have learnt in the markets, it is always better to keep SL in your mind and not in the system. Also, pick out SL's which most people won't follow. Avoid round figures, important supports/resistance. Hope you get the point.

Just a word on Intra day/Swing futures - When you talk about whipsaws, you must realize what they essentially are. See, you will have a lot less whipsaws on weekly charts and a lot more whipsaws on 5 min chart. The underneath character of whipsaw hence is determined by the time frame you trade in. Intraday/Swing trades will have a lot more whipsaws, but will also enable you to capture trend early. Make sure you ride the winners as they will eventually pay out for your whipsaw trades.

Strategies with low winning percentages (more whipsaws) and lumpy and inconsistent returns (skewed distributions) are personally preferable because the risks tend to be obvious but manageable. The inconsistency of such strategies makes them unpalatable to even the most seasoned trader and institutions, a condition which virtually ensures durability.

In the end, I would like to quote Ed Seykota here regarding to his opinion on Whipsaws.

"Ed Seykota: To avoid whipsaw losses, stop trading"

...................
First of all, congratulations for being resolute. Leaving the markets after losses is very common. But good you are graduating to the next level.

Whipsaws cannot be eliminated. Some use filters like volatility, volumes, late entries, confirmation indicators to eliminate the same. But, with elimination, some of the profit also gets eroded. Hence, it is a trade off between frustration and profits. Hope you understand it. The nature of whipsaws is such that it tests the most prudent trader around. This is precisely why less than 3% of traders end up being profitable. Not everyone can control their own nature to fight what usually happens.

Few things that I will tell you which help one through such phases are Positive attitude, Awareness of direction of trend, Adaptability across different time frames and of course managing emotions in real time. Whipsaw is like your lungs exhaling before starting to inhale. Since exhaling and inhaling is essential for survival. So is Winning and Whipsawing essential for Trading sustainability.
Most of the time stocks recover after hitting SL.I do this in trail basis ,cant afford to adopt as few losing trades hits me badly .
Now about mental SL.What is your reflex if a stock touch your mental stop.Do you square off position immediately, or wait for pull back ,(if u see some strength technically )

Another thing how do you manage your mental stop ,if you trade in 4 scripts and unfortunately if mental sl hits all simultaneously.

GreenCandle,

If I am in a trade, where I have intraday stop loss, then when my stop loss is hit, and if it is hit by a wave of selling which happened due to no apparent reason, then I wait for retracement to sell. Else, I exit it immediately.

If I am having an EOD stop loss and on intra day, stop loss gets triggered, then I adopt the KBN (Kill by Neglect) principle. Here I kill my desire to square off by neglecting my desires. I stick to EOD rule. This comes with practice, but it can be achieved.

Regarding mental aspect of Stop losses. Even if I am into 4-6 trades, and each of them violates SL on intra day basis, I stick to my rules. Under no circumstances do I violate it. I strongly believe that if I go broke, I want to do so from my opinion and hence this motivates me to challenge my inner desire.
Will be going long in,

BankBaroda (950), Voltas (240), Tata Motors (1150) & Sriram Transport Finance (800).

SL is mentioned in bracket. To be adhered on EOD basis.

Markets are very volatile. Hence all trades are risky now. Take your risk appetite into consideration. For so many trades, one must have reasonably large account size. 24.11.10
I Think some accumulation is going on in Tata steel from 600 to 620 levels. And this may happen for one more week from here or at least till expiry. It is going to be out performer in Long run as you said.. So It will be wise to be entered in three ways. A Long term inverter can enter in equities in this level also.... Short term investor can entered in between 605--610 levels or buy on dips.... Or a Trader can enter in Dec. or January Futures 50% at 610 levels with a SL 599 Closing basis and other 50% levels at 526 closing levels.

Please correct me if I am mistaken any where.

With regards,
Gangadharan.

Gangadharan,

There are many ways to do this. The way which you suggested, is also valid and hopefully profitable. The way I would do this is,

Stage 1: Identifying next probable Out performer
Stage 2: Confirmation of Stage 1 by Price of that stock
Stage 3: Investing in the stock
Stage 4: Swing trading and Scalping on Micro Trends
Stage 5: Be watchful at the top

........................

es I usually use 315 strategy when take a new entry on 315 3 min. chart... But my intraday strategy is different when I am selling my holding and buying it again lower for a profit.. It is purely based on Retrace levels of 5 day charts.. with a confirmation of 3.15 in 1 min. chart And I never do it on strong bullish scripts which I am holding.

To Trade Nifty..... with a 315.. with the support of one more Ema that is 45ema.... why I use 45 is 40 and 50 are the most common EMA and SMA used by most powerful traders... So if you stay somewhere near 45 ema we will be staying in a very safe place.

My Chart with tool are as under.

3 emas........ 3.......15.........45
RSI
Stochiatics
BOlinger Bands.
All with the support of Candlesticks.

Now Rules.

1 Enter with 3 Minute chart.
2 When both 3 and 15 ema are above 45 ema and 3ema cross over 15 ema.
3 When 45 ema and low band of BB are friendly........ nearby in 3 min chart.
4 BB are not narrow in 3 min and 5 min and 15 min chart
5 RSI is towards up in 3 min chart
6 stochastic is not in overbought condition.
7 Candile sticks are showing a bullish signal

I Enter long if any of the 5 rules are matched with.

And off course with a SL of 8 points in Nifty. with a trailing stop lose. I fight for a 40 points that is a Rs. 10000/- profit on 5 lots.

Actually my target of profit per day is just Rs. 10000/- and I know it is a small amount for every one here. But still I am happy with that.

Now the strategy is to exit is like this....
1 let your SL hit.
2 out with 40 points. with out looking any thing.
3 out when any of the 5 entry rules are violated and you are with 12 points plus
4 exit when any of the 4 rules violated when you are with 20 points
5 exit when any of the 3 rules violated when you are with 28 points
6 exit when any of the 2 rules violated when you are with 32 points.


Hope you will be able to understand how I short also.
................................
don't intend to discourage you. But, I would personally never ever Average my prices on the down side. I always prefer to Average on the upside. If you have tested your method, carry on.
............
I started Future trading just before two months 1st month I started with single lot and 2nd month I continued with 2 lots. this month I am trying with 5 lots after having some confidence......
Gangadharan.

Gangadharan,

I hope you know what you are doing.

You are begging for the markets to,

a) Wipe out gains of 1st month
b) Wipe out gains of 2nd month
c) Do some serious damage on your account equity

Learn the rules before you start to run. I would hate to see someone taking considerable losses despite of being in the company of some of the traders of Traderji. Just an advice from someone who has seen a lot. Rest is up to you.
.............
The averaging I learned myself because I did not wanted to sell something below the price I bought it... I belongs to Kerala. and my father was a coconut merchant. I heard him saying that when the price is less you just count the coconuts..... and when the price is high you start counting your money.

And you know coconuts not have a life of more than 1 year after it is picket out from tree........ But here you see shares have a life or more than us with the perpetual existence of the companies that belongs to. then why should you worry about investing.
................... think you did not get me.. I said I was doing Future Trading with NIFTY for last 2 months only. I was worried about the future trading with the lack of knowledge about it. But this is after I join Traderji I dare to trade in futures.

Ok..... now as I was a learner I started trading in Nifty with single lot.... means.. For every entry I used only single lot. I earned 388 points in the first month with single lot...... Ok now after having confidence I started the same with 2 lots. last month I earned about about 421 points in two lots that is 842 points in real.

I experienced my system on NIFTY TRADING performing very well in 80 % times.

The month I am calculating here is the date from which I join here. So from Monday I decided to trade in 5 lots. As lose is very limited with SL and that chance only occurs in 20% time..... I am little more confident.

Monday the result was 58 points with 5 lots and yesterday did not trade because I was not able to sit and today more than 40 points.. in 5 lots and where the question of loosing occurs.............
Word on Markets

Whatever will happen to the markets will mainly be determined by what dominates the markets over the next few weeks to months. If Technicals dominate the markets, we could see the levels of 6300 -7000 pretty soon. However, if Fundamentals dominate this market, then one should be braced for much erratic price movements and turbulent sessions on D-Street. Fundamentally, we are reasonably priced currently and for our economy to become attractive again, markets either need to consolidate for a good 6-8 months in a range or need to correct and gravitate towards levels of 5400.

The point at which markets usually turn are dominated by either one of the factors (Technical or Fundamental), but once the direction is set, both these fields kind of collaborate to set the course of the new move. At present we are poised at a place where either of them can trigger the new move. What I anticipate or what you do is not of much importance currently. However, what is of importance is to anticipate that something is likely to happen. Over the next 2 weeks it should be clear as to which way markets will likely move. This is precisely why one must be ready for either scenarios. 24.11.10
..............................
Anyways now coming to your query. You need to read this thread regularly to know what side I am on. I have told 'N' number of times that I am expecting upside in the markets over next 3-6 months. What I have written above is a factual side of Fundamentals and Technicals. This needs to be understood in the context in which it is written. Its not a recommendation. When a recommendation is given, it is given with a definite direction and stop loss and hence dont confuse this with that. What I have written above is a very realistic way of seeing the markets at this stage and hence if you prefer to read it with a bias of 'mumbo jumbo', you will exactly see that. However, if you prefer to read it with the practical insight of trading, you will see the underlying message in it.

Such things are not written in any trading book and hence read it with the intent of education. Almost every book either ridicules Technicals or Fundamentals. But the truth is that at times markets are dominated by either of them and this is what is highlighted above.

I don't give targets. Neither do I predict.

When Nifty was at 5300-5400 band, I had written (without) giving targets that I am buying. Nifty went to 6200 - 6300. When market eventually reached that stage, I had written that I wont be surprised to see markets at 5700 - 5800. And today markets are there. This is not target specification. I, or for that matter anyone who gives targets is setting an opinion in someone's mind. And opinions when turn into belief can be catastrophic. I specialize in reading the tape and not in targets specification and predictions.

Similarly, last week I had written that I am a buyer in Index and would continue to do so till market proves me wrong. Again, this is not a target, but it is just my trading style of reading the Tape movement. If I am proven wrong, I would reverse immediately. Hence essentially I am always following the market and not predicting it.........24.11.10
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26th December 2010, 11:17 PM
oilman5
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Re: my last thread
________________________________________
Your market is moving up and down and up and down and that is called a sideway market. You as a trader_man need to have three types of strategies in your trading arsenal. One for up markets, one for down market and one for such markets you have now.
.......................
Jack Schwager: My impression is that you often implement positions near market turns. Sometimes your precision has been uncanny. What is it about your decision-making process that allows you to get in so close to the turns?

Paul Tudor Jones: I have very strong view of the long-run direction of all markets. I also have a very short-term horizon for pain. As a result, frequently, I may try repeated trades from the long side over a period of weeks in a market which continues to move lower.

Jack Schwager: Is it a matter of doing a series of probes until you finally hit it?

Paul Tudor Jones: Exactly- I consider myself a premier market opportunist. That means I develop an idea on the market and pursue it from a very-low-risk standpoint until I have repeatedly been proven wrong, or until I change my viewpoint.

Jack Schwager: In other words, it makes a better story to say, “Paul Tudor Jones buys the T-bond market 2 ticks from the low,” rather than “On his fifth try, Paul Jones buys the T-bond market 2 ticks from its low.”

Paul Tudor Jones: I think that is certainly part of it. The other part is that I have always been a swing trader, meaning that I believe the very best money is to be made at the market turns. Everyone says you get killed trying to pick tops and bottoms and you make all the money by catching the trends in the middle. Well, for twelve years, I have often been missing the meat in the middle, but I have caught a lot of bottoms and tops.

If you are a trend follower trying to catch the profits in the middle of a move, you have to use very wide stops. I'm not comfortable doing that. Also, markets trend only about 15 percent of the time; the rest of the time they move sideways.

GO back a few pages. Dan has posted a link of Richard Wycoff's book. That book is a master piece in Tape reading and price analysis. Its not a big book and you should finish it in 30 days. Just go through that. Infact I will strongly recommend that book to everyone here.

It is not Raunak's teaching but how one takes it and use it that up to him..
the following story says it all..hope we all will be with Raunak on Monday..

In ancient times, a blind man visiting a teacher’s home got delayed till nightfall to return home and despite the teacher’s insistence of staying back the night at his place, the blind man insisted on returning home, walking back, as the distance was not too long.

The teacher gave him an oil lamp to carry along as it was pitch dark with no street lights nor moon light. The argumentative blind man questioned the logic and benefit of carrying the oil lamp as he was anyway blind! The teacher explained – “you may be blind to the world, but the world is not blind to you! People seeing you with the lamp will avoid bumping into you”. This satisfied the blind man who set off home with the lamp.

Empowered with the oil lamp the blind man walked briskly, almost dangerously, smiling confidently acknowledging the teachers wisdom of providing him the light for a safe home journey.

Suddenly, the blind man hits into a bulky stranger with big impact, falls down in pain with a broken, bleeding nose! On gaining poise, the blind man abuses and accuses the stranger of acting blind and running into him! “I am born blind, but could you not see the lamp I was carrying, that you crashed into me?” wailed the blind man in pain. The stranger replied “Sir, not I, but it was you who crashed into me, as I was waiting by the wayside, and yes, the flame of the oil lamp you were carrying had extinguished so I could not see you coming at high speed”!!............
Knowledge is the lamp..........unless u have it, dont look at market.
.............The ones who remained in the theater ( like this view ) have been the real trader junkies. They made a ton of money this time like they lost some on the other day.

- The few who went for a coke or two, had some low risk trading strategies going on . So they needed some wake up medicine. They made there normal every day job and had there normal regular income.

- The few who fetched some popcorn, are the watchers and not sure traders with out trades. They had at least some thoughts, that they may will do a trade today. Only watching the screen was exiting for them as watching any action movie. During watching the action, there hand just went from the popcorn bag to the mouth and back.

- The ones, which went for a smoke, do go regularly for a smoke, even during movie times. They are the forum junkies and not the traders. No problem what happen in the market, no problem what is going on in the thread. They first enjoying the smoke and then decide what to do next, as we do not know, what they smoke.

Take care

.................
At present I am buying in this market. I haven't shorted a single stock except for DLF which I shorted at 348 & 316 and rid it till levels of 270 and few trades on Tata steel. Over the period of two days, most of my portfolio holdings have been narrowed down to 1-2 stocks. That is, I have invested almost 75% of my available capital on 2 stocks with extremely tight stop losses.

The thing that is slightly bothering me is the fact that leadership in market (Banking sector) is showing some cracks. We still need to be very careful about getting judgemental here and should wait for more clarity to emerge. On a broader note, I am still very bullish and would review my stance at the end of next week as markets will dish out more information for us to base our assessment on. I still think we are undergoing a routine correction in a Bull market and the phrases of Bear market should be kept at a distance. Markets usually don't turn completely in and out in a week's time. Hence at the most if I have to bet on Bull market being over, I would bet more on a side ways market rather than a Bear market.

All the negative news flowing through the system is in a way good. I look at this process as a self cleansing mechanism of the market. Eventually, it will glow more and give more. Just hang on with strict discipline. Amongst all of you, I have had the worst two weeks. I am currently down 10% of net value (draw down) and have got my 11th consecutive swing trade loss. This is primarily because I am fighting the trend on the smaller frame but sticking with it on the broader frame. Whenever the tide turns, I will make back much more than what is lost. So as of now, till the end of next week, I am still buying.

Eventually, if the market has to turn, it will turn by giving us enough time to capitalize on it. Till then, enjoy your weekend and be positive. 27.11.10
.................
I have combined posts together to give you the framework I use to analyze the market. As I had said earlier, everything was already mentioned in the threads and it was just a matter of how to organize it. Once you go through what is given below, you will be able to trade on your own with practice. Broadly, whenever I look at the market, I look at 6 things.

1) Basic Analysis of Broader Market
2) Basic Analysis of Global Market
3) Psychological Makeup for Current Scenario
4) Selecting Correct stocks to Trade
5) Setting appropriate Stop losses based on underlying volatility
6) Final Price analysis before deciding when to initiate the trade

Following is explained below. Hopefully, this will give you a very good idea of how to analyze the markets.

Tc


1. How I analyze main Index/Stock periodically. Below is a case study when I called the top on the markets in January 2010

I feel markets are headed down in the shorter term. And here's why.

1. Ascending Triangle 1 - Markets had formed an ascending triangle from June to September and eventually broke out from it to rally to new intermediate highs. During this formation, the momentum and strength of the market was extremely strong (refer to Momentum indicator and the RSI). However, when the market broke out of the triangle, the momentum and strength of the market weakened as compared to the July-August levels. Market made a new high and there was evidence of divergence visible.

2. Ascending Triangle 2 - Markets have agained formed an ascending triangle between November and December and have broken out from it yesterday. However, there are quite number of things to be noted here. Firstly, the momentum and strength of the market is now weakest when compared to July - August and ascending triangle 1. The divergence has now extended from Mid August to present. Secondly, historically it is quite known that triangles have a 50-50 chance of succeeding and failing. It is also very rare that two triangles have been formed back to back with no failures in between. The odds of two successive triangles giving valid signals is very rare. Lastly, look at the breakout carefully. Triangle one broke out with NIFTY notching up 2.2% gain on that day. Whereas triangle 2 breakout has been accompanied with double DOJI and a probable EVENING STAR (Major reversal pattern, have marked it with a circle).

3. Price Projections - If you take the bottom B and project the price upwards, then the current level falls exactly between the 50 -61.8% retracement. Today the markets rejected this level and fell down to 5282. The probability of price projections have to be weighed in with the uncertainties ahead (interest rates, budget, global market correction, quarterly results).

4. Cyclic Analysis - If you take the two major top's Z and B, then the current time frame lies exactly in between 50 -61.8% retracement cycle. Which means even time wise we are due for a correction. Again all the uncertainties mentioned above should be factored in.

5. Trendline - If you visualize a trend line from point A to C, then the chances of trendline being broken looks good if the markets start to correct. I have purposely not drawn the trend line as I did not want to clutter the charts with too much information.

It is indeed very rare when Price patterns, Price projections, Cyclic analysis and the surrounding uncertainties fail together. If they indeed do, then that's the beauty of STOCK MARKET guys.

Tc.



2. How I analyze Global Markets in Conjunction with Nifty. Below is a case study when I called the top in market in April - May 2010

Another important day for the market came to a fitting end. As I had mentioned yesterday, the market tried and built a base to signal that it is not going to fall further. Though many would suggest that today was a hammer sort of a formation, I would still not read too much into it. The reason is simple, A hammer is only valid when it occurs near a strong base or a previous support level. There was no such significant level which I could find around today's low. Also, most of the significant action today happened below yesterday's low. So technically, we were still trading weak today especially after witnessing an outside bar engulfing yesterday. This week's action led to Nifty breaking its important trendline which extended right from March 2009 (See the figure below).

When we try and combine the global picture with what is happening in India, we find that there is a lot of uncertainty that is lurking around. Hanseng Index has recently turned around from the complex head and shoulder neckline it had formed (See the figure). China Index has been forming a symmetrical triangle since september 2009. China is going to have an Important meeting regarding it's currency valuation and interest rates scenario. Isn't it ironical that symmetrical triangle being formed is precisely reflecting this (the uncertainty)? I could not find anything bearish in the US index accept from the fact that S&P is hovering around a major trendline support and if it violates that things could look different for the short term. (Update: S&P has formed a classic Evening start pattern on friday. From here on the high of 1214 remains a formidable resistance. World over we are witnessing reversal signals. Such insync signals always lead to deeper corrections)

What we can conclude at this juncture is that globally there are uncertainties present but still we must still see how things will shape up. One thing is for sure, that in which ever direction the breakout occurs (or the price moves), the move could be significant and one should be alert and ruthless enough to switch position. Volatility cycle at least suggests so. Let's have a nice weekend and let the market play its course.

HangSeng



China



India



3. This is my psychological make up when I trade. I keep getting in and keep getting out till I am right

Has it ever happened to you that as a trader you chase a stock and it continues to give you whipsaws. You finally make up your mind to give up on that stock and ironically find it rallying on the very next move. I guess, this has happened to each one of us in our trading career. Therefore, as traders what can we do to counter this? Before we touch upon this topic in detail, I'll assume that everyone reading this has a distinct advantage over the markets in form of systems or methodology. By distinctive advantage, I mean a system which does not depend on specific market conditions to work. So, let's begin !

Well, if you think about this issue in detail, this is more of a psychological issue than a system issue. As soon as we get a couple of loss making trades, we begin to look at our P&L statement. Furthermore, we begin to extrapolate the P&L "if" we were to loose a few more trades. Believe me, if you want to be successful, then don't do this ! We all go through phases where the stocks just don't move and eventually when they do move, we are ultimately out of it. Most of you who follow this thread, must have noted on many occasions that I keep reversing my trades till I find that stock in my favor. Currently, I am doing the same with India Bulls Real estate. I will keep reversing my positions till that stock fits my scaling in and profit booking criteria. It's psychologically tough, but who told that markets rewards one for taking easy decisions? When we are wrong, we want to make sure our losses are small and when we are right, we need to make sure our profits are relatively large.

There are few things in trading which are not documented well enough. Out of those, the topic of getting out and getting in is one. Folks, as far as our system has a positive expectancy, we should not be bothered with the whipsaws and the draw downs. To be successful in this, never ever forget the 2% risk management rule. If you don't let one trade take more than 2% of your portfolio, believe me you'll be soon taking your account in the whole new direction. That is, towards profits.

If you intend to become a good trader, you have to incorporate this in your trading plan. Be relentless, don't think about potential losses, let them show up and then apply the risk management rules. Don't trade what you think, trade what you see.

Tc

4. How I select the right kind of Stock to Swing Trade

Essentially, Swing trading is a way of trading where we try to capture some percentage movement of a stock in either direction in order to profit. However, it is essential we try and pick the right kind of stocks in order to capture some percentage move. If we don't identify the correct stocks, we are essentially increasing the cost of trading by paying commissions for stocks which are not destined to move. As trader's we certainly don't want to be in this scenario. In this post, I'll just highlight some methods to swing trade the right kind of stocks. So, lets begin !

Every stock has a different inherent character. This is precisely we need to research in depth to find out which stocks have the typical characteristics which suit Swing trading. Before moving forward, lets us predetermine what we require in swing trading. For a Swing trade to be successful, we would require such stocks which tend to move more frequently in either direction. Basically those stock which exhibit significant volatility. Taking this concept in mind, we can then build a system around this and swing trade profitably.
There are essentially two ways in which one can determine which stocks to trade profitably. The first way is the Beta methodology and I will discuss this method in this post. In future, I'll write about the second technique.

Beta methodology is essentially filtering out those set of stocks which move more than the underlying index in terms of volatility. For example, a stock with Beta rating 1 indicates that the security's price will move with the market. A beta of less than 1 means that the security will be less volatile than the market. A beta of greater than 1 indicates that the security's price will be more volatile than the market.Hence, if a stock's beta is 1.5, it's 50% more volatile than the market. As swing trader's we want to be in stocks which exhibit Beta ratings of over 1.5. For our market, such stocks would typically be a DLF, Unitech, Rel Capital, Hindalco, JSW, IBrealest etc. However, please bear in mind that trading high beta stocks is a double edged sword. If stock begins to go against you, then the loss could be more than what you would undertake in a low beta stock. Hence make sure to keep tight stop losses.

How to incorporate this in your trading

I hope by now, you understand why it is almost quintessential to select the right kind of stock. Going forward, you would need to adopt this in your trading plan. The best way to do is to weekly review which stocks in the index are exhibiting the highest beta rating. Be sure to calculate the Beta figures on at least 100 days of trading record. I would however encourage you to calculate beta over a period of 6 - 12 months of data. Remember, if the stock does not move, your account will certainly not move.

Tc

5. This is how I set my stop losses



Historical Volatility

Historical Volatility is a measure of price fluctuation over time. It uses historical price data to empirically measure the volatility of a market or instrument in the past. In other words, it is also known as statistical volatility, which is also the standard deviation of day to day price change expressed as annual percentage. In terms of practical implementation in trading, Historical volatility is essentially used to know how a stock has fluctuated in the past and how much likely it is to fluctuate in the future.

Calculation

HV = StandardDeviation(Ln(close/yesterday'sclose), days) *100*Sqrt(number of trading days in year)

where, Days = Length of days (10,20,30,40 .... )
Ln = Natural Logarithm

For e.g A 50 Day HV with 252 trading days in an year would be calculated like this,

HV(50) = Stdev(Ln(Close/Yesterday's close), 50)*100*Sqrt(252)

Use in Setting Stop Losses

Suppose the 50 day HV of stock which trades at 100 is 20%. Now, if we assume that prices are normally distributed, we can with 66% certainty say that prices for this stock will fluctuate between 80 - 120 one year from now. Hence any stop set on this stock should be kept with this fact in mind. If you don't use this concept, then you are going to get stopped out more often than you should.

One more thing that has to be analysed is that every stock of same price range has different volatility and hence stop loss technique cannot be same for both. Hence, depending on the stocks volatility, stop price is set.

For Investment trades, try and use HV calculated across 40 -60 days and use it on the daily frame only.

Caution

Some times you will find that the volatility band is just too wide and hence stop losses will be set 10 -15% away from the current price. In this case, you can do two things.

1) Either use ATR in this case as I had explained earlier.
2) Find stocks which offer better risk to reward in terms of stop losses set on HV parameters.

Don't expect to get hang of this concept immediately. It took me almost 6 months to refine and use this properly and hence be patient with it. One easy way would be for me to share my entire research here. But, that will limit your growth as a trader. Believe me, I have given a lot of lead here. You just have to put in a little more effort.

At first this concept seems very intimidating, but as you research more, you will know how to use this better. Once you can do this, your Investments and Options understanding will reach the next level. Hence, research more and don't expect any easy answers from the market.

6. Final Price Analysis

I have attached two images below. The first one is a chart legend. Understand this before reading the chart. Since I have explained the entire 2010 year for Sterlite, the chart might seem confusing. Hence, its absolutely essential to understand the chart legend first (which is self explanatory).

Now, since the legend is clear, we will come back to Sterlite chart. In my opinion, this stock should never have been bought in the first case. For a stock to remain in an upmove, stock should exhibit significant strength. By strength we mean, a stock should not retrace more than 38.2%. Here are some guidelines.

Extremely Bullish - Retraces less than or equal to 38.2% of previous move.
Weakly Bullish - Retraces more than 38.2% but less than 50%
Neutral - Retraces more than 50% but less than 61.8% but remains sideways
Weakly Bearish - Retraces more than 61.8% but less than 100%
Extremely Bearish - Retraces more than 100% move.

Lets review the sterlite chart now. I have marked points 1-5 depicting the entire upmoves. Not even once has this stock stabilized at some level. The above framework that I have given classifies Sterlite as an Extremely bearish stock since starting of 2010. Hence the line of least resistance has always been on the downside. Any trade taken on the upside is just fighting the trend.

I hope this helps SM bro. I don't emphasize too much on patterns or indicators, hence I have not discussed any indicators here. Price is sufficient if looked at from all angles.
post no 3609
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If you have your entry point for what ever reason, you have to decide how many positions you take. Do you scale in or do you jump in whit a fix amount of money or what is your idea about that.

In option trading, I some times lean the amount of entry positions to the strategy I trade. If I go for delta trades, I start always with the amount of options, which will/could bring me to delta 100. Means, If I buy delta 20, I need at least 5 options to ever come to delta 100. This may sounds complicate now, but you see, I have to think, how many positions I am going to take.

An other way of trading is, that I go in with a certain amount of positions. I then take out some of them, when all my cost are leveled. The other positions I let run and give them fix targets. If target is reached, I cash and reduce the positions. The rest I let run.

Over time, I have become a very careful trader. Trading losses in the past have made me very think full about any trade I do. In any trade I do, I am 100 % clear about how many positions I am going to take.

I am not familiar with adding positions in a trend. I know, in future trading many of you do.

Are you adding positions in a trend or what are your ways of handling that subject .
..................
For Equities/Shares

Adding positions depend on market conditions. For eg, if we are in low volatile environment, one can take the plunge and invest the desired amount at one go. Since the volatility is low, losses won't be out of proportion. However, when volatility is high, one can invest based on volatility based position sizing technique. What I do personally is a bit different. Since we enter a high volatility phase, with rising uncertainty in markets, I take the plunge of investing directly. Volatility is fairly cyclical and hence after high volatile phase, low volatility phase occurs. I anticipate this cycle and take the plunge. Hence rather than taking small position initially, I take big positions and eventually manage my position in real time. Cutting losses aggressively and rebuilding positions immediately in this technique is very important. Also, positions are always build in the direction of the broader term trend.

For Futures

If I have to invest N units in a futures trade, I usually invest N/3 at the first instance and then add the rest based on Average true range movements. Actually scaling in and scaling out is more dependent on systems and techniques. If someone is Swing trading where targets are typically 3-5%, then there is not much scope of scaling in. However, if someone is Trend trading in futures (carrying positions in next month and more) then adding position and scaling in actually is essential.

Hence in Swing trades, I don't scale in more than once. But in Trend trades, I scale in the maximum I can for that allotted trade.

1) Basic Analysis of Broader Market
2) Basic Analysis of Global Market
3) Psychological Makeup for Current Scenario
4) Selecting Correct stocks to Trade
5) Setting appropriate Stop losses based on underlying volatility
6) Final Price analysis before deciding when to initiate the trade

...........................................
Rollover Analysis

Basic Definition:

When a future contract of an Index or stock is near the expiry and one wants to carry over the position (long/short) he/she has to close the position in that(current) expiry and form a fresh position (long/short) in the next months future contract. This covering of the open position in near month and simultaneously forming fresh position in next month is known as rollover.

Formula:

(next month OI + far month OI) %/Total futures OI of all three series


Explanation:

Rollover analysis is not different from basics of open interest analysis. Most of the times when viewed on own, it is extremely misleading. Hence, following are the broad guidelines one must follow while incorporating this in trading.

1) Always be aware of broader market and the stock's price action.
2) OI increase followed by price increase is bullish (Price analysis must support).
3) OI increase followed by price decrease is bearish (Price analysis must support).
4) Rollover is essentially to see if the Bullishness and Bearishness is getting followed to next series. Historical data of Rollover analysis is a must to compute this. Suppose a stock has Bullish price pattern and positive relation with OI and historical rollover around 30%. If currently the stock has good price structure, positive relation with OI and it sees rollover of 70% (which is more than historical rollover) then the stock should be perceived as Bullish.

Hence, when doing rollover analysis, you need to have historical data to base your analysis, positive price structure with OI (Or reverse) and be aware of broader direction of market. Its subjective and hence it needs to be monitored with rest of the factors around.

Initially I had the opinion there is no Holy grail.In the middle again got confused and started believing that there is holy grail and people are not sharing.

When the other day Raunak Bhai said TA has it's own limitation I didn't realize.

As of now all indicators in all time frames are showing a sell.
During every correction there is no way to predict the bottom and a reversal.
A confirmation of reversal can be confirmed only after a 100 or 200 points run up from here.

A person strictly following TA cannot buy at the current levels.

So finally the secret of the secret ingredient TA is nothing

No sw or strategy will help.

Now I understand that TA is more of an art than a science.

It is all about probability.

Thanks to the markets and Raunak Bhai for helping me to get rid of the illusion of holy grail.

Best Regards,
JK

Jagan My dear,

Part of what you have written is right.

But when you get down to relating things with probability, I feel you are missing the trick there. If markets were about probability, all the mathematicians would rule the market. Fortunately that's not the case.

I cant exactly put it in words about what it takes to succeed here and what the markets really are, but the usual answers one seeks are actually not the one's with utmost value.

Sometime in future, if we share a drink together, I will try and explain it to you. Till then, continue doing what you are doing and be afraid of the markets but don't be afraid of losing.

...........................
The concept of trading price action, for our trading method, is the right side trading of prices that have previously been established from chart reading previous price action areas that preceded breakout continuation price moves.

Price Action Area

The rectangle area is what I refer to as a price action area. A price action area is the area preceding where an 'extended' price move occurs - often from some consolidation period like in this case.

In the case of this price action area rectangle, there was a left side sell swing that consolidated between the swing low AND resistance, which was where the sell swing last broke at the yellow circle.

I want to now try to identify the prices specifically [price specifics] related to the price action that occurred - which was a hold of resistance AND an eventual breakout out of consolidation, and resumed the left side sell swing.

Our concept of trading price action 'says' that these same prices will again be relevant when there is a move back to this same area.



Price Action Area Price Lines

Prices action area prices: 839.80-839.10 - 838.40

Rectangle: this area shows the key price action involved with breaking out of the consolidation.

The 839.80 centerline broke AND then shifted to resistance. Then the 839.10 line broke for the 2nd time WITH mex flow [the flow of momentum on a retrace] down on the retest-retrace back to 839.80 - see dark blue dot-dark blue rectangle.

The dark blue dot move continued through the 838.40 consolidation low - resuming the previous sell to 835.90.

Our actual trading done on the faster chart combinations would have been short in the 840.80 area after the hold-reject of resistance - the dark blue dot is a very good addon trade setup to that initial sell.



Price Action Price Trading Setup

This chart shows a move back to the price action area shown on the charts above. Note the 839.80 - 839.10 - 838.40 prices AND how they 'acted'-'provided' the trade setup that occurred - as price moves back to the 839.80 and holds 'to the tick', also becoming the start point to what becomes a reverse into sell.

red dot: The timing is after the initial reverse into sell - then 839.10 shifts-rejects as resistance WITH mex flow down [see dark blue rectangle] = -838.40|.30f into-through the 2 blue squares [we chart read for price failure when the trade is done through 2 points]. This combination of a price reject-price failure WITH mex flow - is one of our key price trade setups.

What is most important to me is that I already 'know' these prices AND how they were involved with previous price action - this very much 'helps' real time decision making.



Price Action Area Price Lines

Prices action area prices: 838.40 - 836.70-835.90

The first price action area chart above showed the consolidation break through 838.40 to 835.90.

Now note how there is a retrace-retest of 838.40 which holds at 838.30 AND the resulting price action to read - will there be a 'center area' hold and move up back through 838.40 OR will there be a 'center area' break then reject WITH continuation back through 835.90 and again resume the sell.

As we can see, the sell did resume. The key price action AND related prices were the 836.70 shift to resistance then reject - then the failure-break of 835.90.





Price Action Area Price Trading

blue line-blue dot: this 'right side' setup synched with the price action price setup discussed above AND the blue line has now shifted to resistance AFTER the 836.70 price hit.

red dot: there is a higher low hit at the the purple line BUT also a lower high retest of the blue line with mex flow down.

Now note how the 836.70 price action price was involved - the red dot was sold as an addon = 837.20|.10f sell - the timing of the entry as a break-failure of 836.70 through the 2 yellow squares.

dark blue line-dark blue dot: 836.70 broke continuing through 835.90 AND then retraces-retests 836.70 which holds. The resulting right side price action is a price momentum divergence 'around' the 835.90 price action price. This resolves as a pmd failure, which is a continuation pattern AND the current sell swing accelerated with the failure-break.


..............................................
trade some times short time frames like most of you do. To have the odds in my favor, it is necessary to understand TA and other indicators. Many times, it is only TA or price action, which gives me an odd. Watching price action and trading on price action is just a higher level of knowing different TA. There is no secret behind price action. It is just the next level of simple TA. If you never have been aware of simple TA, price action could be out of the range.

I am as an option trader have some more possibilities, at least in my markets. ( Have learned a lot over the weekend about your possibilities in option trading in your markets and have decide, never again to make any comments on any option strategies which may are traded in your home market, as your market not gives in any way what I am used to and expect from an option market. My comments than for any strategy are more confusing, as they most of all are not makable in your home market )

Back to the subject : As I mentioned, TA or price action is very important for short time trading. Real long time frame option traders do not use TA or price action. Surprised ? But this is also not what Jangan knows or talks about ( Sorry my friend, but not to confuse people, had to mention that ) Most of this long time frame option traders do not even have a clue, where market is heading to The only thing they are interested in are the moves of the options greeks. Sounds crazy and most may not even understand it, but that is the true and that is one point, I just wanted to point out. I trade some times long time frames strategies with options, as there is no stress with that kind of option trading. The money is less compare to short time trading, but the risk is also very low and that is the reason, why I then some times have to drink a coke

.........................
Just see the NIFTY chart attached.. I have taken retrace levels in two different time frames. Now you can see that at four places the retrace levels are matching. I am sure that if you again take retrace level of an other time frame you may get at least one or two places where you find that retrace level of all three time frames match.

Ok........ Now the question is why it is so?

The answer in simple words is the basic... The price levels of an index or script is decided by the trade which happens on it. And most of the trades are happening on some basic believes... You can call that basic believe as TECHNICAL LOOK TO THAT PARTICULAR CHART BY DIFFERENT TRADERS.
And wise traders always look to the chart with the help of TECHNICAL ANALYSIS

Now let us come to the point.
Finding Fibonacci retrace levels are the part of TECHNICAL ANALYSIS. Now it is not necessary that all the traders who use Fibonacci retrace levels should take it from the same time frame. Their view may differ according to their time frame of investment or trading periods.

But the place where retrace levels of two time frames match are the place where the mind of different traders with different views are getting matched. i.e. there you get a little stronger support or resistance

But you have to believe that all this happens because of some basic thing
and that basic thing is TECHNICAL ANALYSIS

This is the reason I call it as a science. I may be wrong also, but let us discuss it here till we both are proved right.

.......................
Just sharing some Macro Economic Data with you guys. ........29.11.10

You can use this to formulate your long term Investment strategy.

I can easily link all these variables and write a post on it. But how will it help in learning? What I will ask you guys is to have a discussion here and write what you guys know. I will then write what I think and how I am relating it. This way you will develop the necessary analytical skills and would be able to do this in my absence. Dont be afraid of being wrong. Just write.

Traders who do extremely well year on year are the one's who can foresee and relate fundamentals together. Technicals alone will not help that much. Neither will fundamentals for that matter. You need to link them together. So, guys get started. Am waiting for your posts.

.............................

DISCLAIMER: I am not an economist, so whatever I say should not be taken seriously.

In my opinion, 2011 macro-economic estimates are too optimistic.

For 2011
Estimated Real GDP 8.5% vs 8.3%
Inflation 6.1% vs 7.7&
CPI 6.3% vs 10.2%

Indian government is forced to peg the Rupee loosely to the Dollar. As the US Federal Reserve prints trillions of new USDs for Quantitative Easing, Indian RBI will have to continue to weaken the Rupee viz-a-viz the USD to keep Indian exports competitive.

That also means higher commodity prices, higher inflation and higher CPI.

Also, sovereign debt default risk in Europe is very very high, and would make stock markets extremely volatile. This would further fuel the commodities and bond market.

Higher oil prices, resulting from shortages of crude oil due to Peak in Oil production would further dampen the environment for international trade, and automobile sales would be affected.

IMO, the best companies to invest in in 2011 would be those which cater purely to local markets and are not dependent on exports or imports. Low debt to equity ratio levels would be a plus.

In 2011, we would see
1. Higher Interest Rates
2. Higher Commodity Prices
3. Re-localization of Businesses.
..............................................
Still remain largely positive on the markets. Continuing to buy despite of the negativity around. Will be using weekend as a point of reference in order to decide what has to be done ahead. This week and the coming week ahead are going to be extremely pivotal for the markets. Normally a Bull run undergoes a correction of 15-20% and hence once can expect such corrections to come up. Though the Nifty has corrected only 10%, around 20% of stocks traded on the index have corrected 25-50% whereas around 30% have corrected to 15-18%. These stats have to be taken into strides before expecting the markets to dip any further. Trade with strict stop losses and be active whilst I enjoy my stint with Twitter. Tweeting, Tweeting and Tweeting. 30.11.10
...........
Its not about being right or wrong. You are experienced enough to understand that. Personally, I don't feel we are out of the woods yet. But that hasn't deterred me from buying. It is only in matter of 1-2 weeks that we would know where we are heading. Hence, for me trend still remains up and this is why I am buying.

In my opinion, The quality of current retracement of markets will determine the quantity of the next move ahead. So lets wait and watch.
....................
My participation in Forum is not reducing. It is just that traders here are missing out on the larger picture. They are more interested towards knowing what moves and how to benefit from that. I find very few who are actually bothered about what moves things. Eventually one day if 'what moves' stops being posted, where would traders go then? This is precisely why learning is so very important. Everyone must earn, but more importantly, they must learn. Short term vision is always detrimental to a business. And short term vision in trading is very fulfilling in the short run, but very painful in the long run. What I write today won't make sense to many, but as time passes, one will realize this.

I have been in the markets since a very young age and hence I have learnt many things very quickly. One thing that I can assure every trader is that no trader can make any money in the market till 'he' actually knows how to do it. If a trader cannot visualize a trade spanning out based on his views, he will always fail in the long run. Answers I think lie in the statistics below.

Some Trading Statistics:

98.5% of day traders lose money
89% of Swing traders lose money
........................................
As per chart legend, which I had explained earlier, Apollo tyres is now moving more on the downside and less on the upside. From low of 50 in Feb 2010, it formed a high in April 2010. There on it retraced only 50% of its move (indicating weakly bullish) and then went back to levels of 85. Now from low of 60 formed in August it went to high of 88 in September and from there is has retraced entire upmove of August - September (indicating trend shift). A minor rally in October - November was quickly suppressed and the stock fell again. 02.12.10
.............

For Swing trade of One week. This is what I will do.

Main Trend Reference - Weekly chart
Daily Trend - Daily chart with price analysis
Hourly chart - For timing purpose
Golden rule - Swing trade in direction of Weekly chart.

...................................
A computer generated AFL cannot be more intelligent and smart than your brain. Believe me on this. Visual inspection is absolutely the best. Trust your instincts and trust your intelligence. You don't have to be a genius to do well in markets. You just have to practice a bit.

Also, using weekly and monthly charts plus support and resistance is always beneficial.

Read this post in detail again and see how things are fitted with each other. You dont have to follow this religiously. Just make something of your own and show it to me. I'll refine it further
..........................................
But still i m very poor in money management...
also not able to control my emotion ...get implusive during trading hours...and make erratic decisions...
Please can u suggest what shud i do...means how can i overcome these emotions etc..

Dewashish,

There is a video series called Disciplined trader by Ari Keiv.

Just go through that. You should get it on youtube I think. He has recommended some very good techniques to counter this problem. It will benefit you a lot.

.......................................
One of the best resources ever on Trading psychology is "Trading in the Zone" by Mark Douglas. Just get hold of this book and read it. Author makes you practice some mind oriented activity and once you do that successfully, you will be a different trader altogether. Any insight which I give will be a reflection of what is written in this book. Hence, its better if you read this original masterpiece for further improvements.

Sir,Five day Momentum AFL does not show any chart but if explored it shows result.
AFL:
//5 Day Momentum Method. Modify Accordingly
// Stop Loss set at 2%. Please follow the stop loss mentioned in post

Buy = ADX(14)>35 AND PDI(14)>MDI(14) AND Cross(StochK(8,3),StochD(8,3,3)) AND StochK(8,3)<30;
Sell = Ref(Close,4);
Short=ADX(14)>35 AND MDI(14)>PDI(14) AND Cross(StochD(8,3,3),StochK(8,3)) AND StochK(8,3)>70;
Cover=Ref(Close,4);

Filter = Buy OR Short;
AddColumn(IIf(Buy,High,Null),"Buy Only Above",1.3);
AddColumn(IIf(Buy,High*0.98,Null), "Buy Stop Price",1.2);
AddColumn(IIf(Short,Low,Null),"Short Only Below",1.2);
AddColumn(IIf(Short,Low*1.02,Null),"Short Stop Loss",1.2);
AddColumn(ADX(14),"ADX (14)", 1.2);
AddColumn(PDI(14),"PDI",1.2);
AddColumn(MDI(14),"MDI",1.2);
AddColumn(StochK(8,3),"StochK",1.2);
Sell = ExRem(Sell,Buy);
Cover = ExRem(Cover,Short);
PlotShapes(IIf(Buy, shapeSquare, shapeNone),colorGreen, 0, L, Offset=-20);
PlotShapes(IIf(Buy, shapeSquare, shapeNone),colorLime, 0,L, Offset=-30);
PlotShapes(IIf(Buy, shapeUpArrow, shapeNone),colorWhite, 0,L, Offset=-25);
PlotShapes(IIf(Short, shapeSquare, shapeNone),colorRed, 0, H, Offset=20);
PlotShapes(IIf(Short, shapeSquare, shapeNone),colorOrange, 0,H, Offset=30);
PlotShapes(IIf(Short, shapeDownArrow, shapeNone),colorWhite, 0,H, Offset=-25);
.........................................
This is because it is only an exploration/scan as described by Jeff Cooper.

It has just been coded based on what he has described.

Only entry method is valid. For exit one can do so if stock rises 2-3% in next 2-3 trading sessions. The sell criteria here is not valid. Sell has to be done manually. Stop is low of buy day or 1% risk of portfolio.

...........................

Good to know you are making money. But, you still haven't answered what you are learning.

Anyway regarding Intraday trade now.

My psychological make up does not permit me to do intra day trades. What day traders make over period of 20 days, I make much more in swing trades over the same period. I am not being derogatory towards day traders, on the contrary I acknowledge they are more skillful, but somehow I have mastered Swing trading more.

On an average, if I take up 10 Swing trades, 8 of them result in small losses. Whereas 2-3 of them are big winners. This is how I trade and I feel very comfortable with that. Furthermore, I am extremely relaxed kind of person in my real life and hence I am slow to react to things. I take my time to think and I take my time to trade. Hence, I don't have fast fingers which are required by day traders.

Day trading is very luring. It attracts most of the traders. The feeling of not carrying any positions for tomorrow gives a feeling of beating the market everyday. This feeling is what results into maximum of traders losing money in this genre of trading. Once mastered, it can be very profitable. But, it needs to be Mastered.

If you are day trading based on what Savant is trading, then its better if you learn something from him. Read his thread, ask him questions and get your doubts cleared. Don't just sit and follow his trades. That is not going to be fruitful in anyway. Make use of his experience and make it a point to learn one new thing everyday. In the end, don't forget to be thankful. Recently many new traders are taking the wrong tone here. I don't think that is the right way to go about. Traders must know what it takes to share information here. If someone is sharing and teaching something, he has to be respected. Just because its free, its not worthless.

.......................................
The key to finding one's psychological make up is to measure one's pulse rate.

Its as simple as that. If you put a day trade, and your pulse rate increases to a point where you lose your rationality, then day trades are not for you. Similarly, if this happens in Swing trades, then next thing to explore would be Investment horizon trades.

When I day trade, I have found that I cannot be relaxed. This is the first indication that day trading is not for me. The second thing which I would like to highlight is the ability to tolerate pain (in terms of losing money). I can tolerate immense pain in Swing trades, but I cannot do the same for Day trades. Hence, in a nutshell, two things which will tell you your psychological profile are; Pulse rate and Ability to tolerate Pain

..........................
Your analysis is well in place. Good work. Let me analyze the same counter for decision making. Ultimately, our main aim is to take a decision which is profitable. Historic analysis has to be done in such a way which gives us some edge for making decisions. Let's take Hindalco as an Example.

Remember, the price legend analysis is only a way to find what the stock has been doing till now. It is not something which can give much insight in future. Now, see how I am looking at Hindalco. I will consider price (primary analysis) and indicators (secondary analysis) while doing so.

Hindalco

1. Lows - I have marked important Swing lows on the counter (A - E). From points A-D, Hindalco has never broken a major Swing low on EOD basis. This tells us that the stock is in an uptrend. It is only in this recent correction has the Stock broken below its Swing low (D). The new Swing low now is (E). Now you must be thinking, if the counter has broken the Swing low (D), then why am I long on this stock? Here's the Reason.

Whenever a major Swing low is breached on EOD basis, that Swing low becomes a major hurdle for the stock. That is for Hindalco, point D was a major hurdle when it broke it in November. Within 2 days, the stock crossed (D) on the upside with a Wide range candle indicating Bullishness. This is the point where I went long. Now that the stock has formed a high at 220, we are watching for two levels (210-212) and 200. The former is half of the entire swing move (from 195-220) and the latter is the previous Swing low (D) below which the stock would turn bearish again.

2. Price Analysis - According to Price Analysis Legend, all the moves which are marked in Red arrows have retraced somewhere between 0-38% and 38% to 46%, these moves have indicated that the stock is in uptrend. It is only the recent move, highlighted in Blue where the stock has retraced the entire move. If you see the counter retracement of the recent Bearish move, you will find that prices have already retraced nearly 68% of the move towards upside. This shows us that even the most immediate bearish trend is Weakly Bearish. Hence, the immediate price trend is bearish. This is precisely why stops are very tight. But because previous price structure over period of 1 year have been Bullish, we will still look to go long............5.12.10
...................
3. Weekly Trend - On the Weekly chart, the most recent retracement has completed at 38.2%. Recent week's High was greater than previous week's high and recent week's low was greater than previous week's low. Hence on weekly chart the Price structure is extremely Bullish. On daily frame hence, we will always be looking to go Long.

4. MACD and Momentum - Just for supplementary analysis, we can see that Momentum is positive on Weekly frame and MACD is still in Bullish shape. Though it seems as if it will cross, but till that happens, we will assume for the trend to be up.

5. Decision - Buy

Immediate Daily trend - Weakly Bearish
Weekly Trend - Bullish
Weekly Indicator - Bullish
Overall shape of Nifty - Bullish
Stop Loss - Zone of 200-202 & 210-212
Current Swing High - 220
Position Add - Above 220

Hope this helps Rajesh. Good work by you as well. Make it more structured as I have explained here.

..................................
Dear Raunak,
Thanks for detailed explanation, making picture more vivid & definitely this will give my analysis new dimensions.
Let me interpret ate by your explanation, first historical analysis will give us the clear picture , how the particular script had performed so far, & their characteristic in conjunction with broader sector & market. Here now we know that overall Hindalco is in up move , & it’s due to correction stock has fallen with broader market , so now market is showing sign of strength, this stock is again showing sign of bullishness on longer time frame, even stock is weakly bearish on daily chart we can go long………
Also we can use the last swing low & difference between current swing low & high as immediate stop loss….here I have one question, how to use HV here?

One more question regarding stock selection for swing trade, as per you in general you select high beta stock…… so here also we would select sector which has performed better in line with market & in that sector best performing stocks…. & reverse when market is in downturn.
Where can we get Beta data for last whole year or so ?
I will try to analyse few stock on regular basis on more structured basis & post it here for you to make it more better.
Thanks again for all this help.
............Stock Selection - Don't get too caught in top down analysis or bottom up analysis in markets. Analyzing sector and its performance is important for Investments. Not for Swing trades. Let me give you an example.

DLF belongs to Realty sector. It has underperformed markets both as a stock and as an index constituent. Realty sector has been the worst performer in the market. Yet, I have extracted majority of my swing trades through DLF. If you go back a few pages, you would see that I shorted DLF at 348 and covered once at 310. I again went short at 318 and covered at 269. Recently I went long on DLF at 274 and have covered positions at 315. Now, what has sector got to do with my trades here? The answer is absolutely nothing.

Hence, if you want to Swing trade, stick with High Beta stocks. DLF,Hindalco, Tata Steel, Rel Cap are god's gift to Swing traders. Hope you get it.

As far as getting Beta data is concerned, most of the charting softwares give you that. Amibroker and Metastock do that. I don't know about the rest. You can manually calculate Beta too. Just seek more information regarding it on Investopedia.com

which one do you recommend , for swing trades in particular..

Thanks..

Dear Prst,

If you are comfortable trading with indicators, then MACD and RSI would serve your purpose fruitfully. Don't use too many indicators. You can use MACD to identify broad trend and RSI to identify overbought/oversold regions. Try and work your way with these indicators. Try and find out how they react at different situations. In short, whatever tools you use, just master them.
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Now coming back to your query.

At what speed do you drive? If I gift you a car tomorrow on a condition that you will never drive below 100 mph, will you accept that gift? If not, then why not? Let me give you the answer.

You have pre programmed your mind to not indulge into any activity which could be life threatening. Hence once this offer is made to you, your mind will completely refuse to accept this in order to protect you from threat.

Same goes out for Trading. Taking profits early is the worst thing professionals can ever do. Its equivalent to putting your life at risk. It is just that your brain does not think of this in this manner. Hence, you will need to program your brain to respond to early profit booking as a sign of something which should never be done. Once you can do that, you will never book profits early. I know your next question is how to do this. Hence, let me tell you that for each trader this is different. Some can implement this from the very next day, whereas some cannot for years to come. In the end it boils down to self control and determination.

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#110
26th December 2010, 11:57 PM
oilman5
Member Join Date: Jun 2006
Posts: 1,329
Thanks: 262
Thanked 1,212 Times in 433 Posts


Re: my last thread
________________________________________
Apollo Tyre

1. Lows & Price Analysis - Stock was in a strong upmove as depicted by its rising lows from A - D. Once D was broken, the stock has consistently formed lower lows with minor rallies being retraced on the down side to extent of 100% retracements. What does this tell us? It tells us that on daily frame the stock is in extremely bearish mode. It is only now that the stock for the first time has taken a previous pivot high (Blue line). Hence now, we will wait for retracement to occur. Will then review it again.



2. Weekly Trend

On the Weekly trend, over the past one year it has largely remained Extremely Bullish to Weakly Bullish. However for the first time it has now retraced 100% of its move on weekly frame. Hence, I would be careful with it as the price structure is not very positive. As of now it is definitely indicating that the stock is in Extreme Bearish structure.



3. MACD and Momentum - Just for supplementary analysis, we can see that Momentum is negative on Weekly frame and MACD is still in Bearish shape.

4. Decision - Wait and Watch

Immediate Daily trend - Extremely Bearish but recent Pivot high breached
Weekly Trend - Extremely Bearish
Weekly Indicator - Bearish
Overall shape of Nifty - Bullish

We will watch how this retracement on the daily frame spans out. If weakness emerges, it will be time to go short.

......................5.12.10
............................................As you may see here, we don't use indicators that much. Just a broad framework to trade in the direction of long term trend. Mainly price analysis and how the stock is structured on the whole.

What is the exact problem you are facing in TA.
Vmonu,

For Swing trade, this is what I will do.

Main Trend Reference - Weekly chart
Daily Trend - Daily chart with price analysis
Hourly chart - For timing purpose
Golden rule - Swing trade in direction of Weekly chart.

For Positional and Investment Trades.

Main Trend Reference - Monthly chart
Shorter Trend - Weekly chart with price analysis
Daily chart - For timing purpose
Golden rule - Invest in direction of Monthly chart.

Choosing time frame and nature of trades depend on the underlying goal. If the goal is clear, tools will show up. Else, one will just keep fluctuating between different time frames. Hence, set your goals and the time frame will show up. Good luck.

......................

So, in case of swing trade we look at Weekly chart for direction.
Now, suppose a stock is in uptrend, if we analyse weekly charts and use 1 year's data. The same stock is in downtrend if we just use last 3 months data.
So, my question is how much time period do you look back to infer the trend or the direction?

Please see the attached chart. If we analyse it, starting 2010 till now, it has been making higher highs and higher lows, so it is in uptrend.

1. Everyone in trading circles know that high beta stocks are best to Swing trade. But how many can actually trade them? They are extremely dangerous to trade with yet most profitable. These stocks have highest volatility when compared to other stocks and hence can wipe out small accounts in one trade. Untill and unless you have deep pockets (large account size), do not trade in High Beta stocks and do not venture into Futures. Learn trading the Nifty first. Then venture into stock specific trading.

2. To calculate Beta and plot it just go to the Amirboker help section. They have explained it in the most simplest way. As easy as adding any other indicator.

3. Risk reward in trading is dependent again on account size. Usually 1-2% risk on each trade is kind of fine. But again it depends on one's risk profile, account size, ability to tolerate pain and psychological makeup. I cant decide these factors for you and hence you will have to do some trades related soul searching.
.......................
When you are swing trading, you need not be bothered about the Monthly trend. This is precisely why I gave you two separate frameworks and this is why I stressed about more objectivity and goal specification. When you are looking to Swing trade, just look at dominant weekly trend and dominant daily trend. Last 6 months of data should be fine to work with.
 

oilman5

Well-Known Member
Raunak bro Want to share a problem that dont know why I feel sometime mkt is going to correct and then I take no time in exiting all my portfolio either in profit or Loss want to get rid of this habit ?? all saying High coming and me thinking 5555 what to do IF it start falling mind again say buy or it can bounce from here and I buy around 5900 Really in aterrible mind frame

PT Bro,

Everyone feels the same. In the end, I will only tell you to trust your own instincts and your view. You'll always be more comfortable with that. For example, I think markets are robust and hence I am buying. No matter who says what, I will do what my analysis asks me to do. In the end, if I am wrong, I am wrong and I am ready to bear the consequences.

Markets know no one, no matter who that person is. And if someone thinks that markets know this and that particular analyst, they are so wrong. If ever I go broke, I want to do it with my analysis and not from anyone else's opinion. You are an experienced investor and hence trust yourself. There is no one out there who is more brighter than you and hence you are right in your opinion. Stick to it, execute it and live with it. This is the attitude that I adopt while Trading.

Remember, life is a lot like chess, accept that after check mate, it still continues to move forward.
.............................
Okay, suppose that a swing trader may take 1% risk on each trade. What should be the initial target to book profit? 1%, 2-5%, 6-10% or 10-15% or more??
I understand that exit points can be trailed as per the price movement on the chart. However, what should be the mental objective for a swing trader?

Itsmemad,

Profits in between 4-6% with a risk of 1% should be extremely good. Basically your target should be a 5% move. .
Everything is paper profit now. Hence why to worry. If profits have to go, they'll go. I have taken these stocks from trend kind of perspective. Lets say a 10-15% kind of move. As of now, let it run. This is what I am doing. You need to see your risk profile and decide accordingly. I cant make these decisions for you dear.
................

Unfortunately I don't pay too much attention to patterns and waves. My strength is in identifying price structure. Hence I trade based on that. But thanks for informing about a probable H&S. Its always good to weigh all the probabilities.

don't know what others were saying. I had mentioned at 6300 that I expect markets to go to 5700 at the max. From there on, we would move ahead. Till now this opinion holds good. Who knows what levels lurk within the system. 5900,5800,5700 or Xxxx is anybody's guess. We can trade on our analysis and that's what I do. I was bullish and have been repeatedly saying so. Hence I was buying. If markets indeed have to go to 5400, we'll be out of our long positions much before it causes some serious damage to the portfolio.

In a nutshell, have a opinion and stick to it. Don't be bothered about who says what.
................You are very much correct........ that was not the right way to do it.

I was very much sure when you said it....... because it is Raunak Sir who is saying something. So what I did is.... I started checking with my last two years trades to find out any mistakes (It took more than 10 days for me to do that). Interestingly I found, even though I have made profit in my trades.... most of the time it was with hedging. And I also found that more than 75 percent of time I entered in trades or averaged was on a wrong time and price. I could have done it in a better way with the help of simple trend lines and retrace levels.

Yes ........ average is possible even on down trend but only if the script shows some strength on some support levels. simply working on percentage levels is foolishness.

I was holding SBIN and my average price was some where around 3108 levels. According to my old strategy I would have been holding it even now. But Now I have exited from it at at 3160 levels and will be entering it at 2875-80 levels.......(See chart). In the same way I have exited from Balramchini also.
,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,
Resistance,support, retracements are just one of the factors one needs to watch. There is much more to how one should bottom fish. I'll write one of the ways to do it on the weekend.As of now I am staying away from Midcaps and Smallcaps.

Stick to large caps till markets move away from consolidation.

High beta positive sectors related to commodities will do well. 07.12.10
...........................
There is no secret to what I do. I rely on price structure and visualization to narrow my stocks down. If in a sector I see bunch of stocks with a positive structure, I place them on my large LCD screen and view them from a distance of atleast 10 feet. The one which looks the best is the one I select to trade.

Look at Hindalco, Tata Steel, Sail, Sterlite etc. All have descent short term price structure. But when I saw Hindalco from a distance, I just knew that was the stock to bet on. Similarly, probably all auto stocks have good price structure, but the best one's from a 10 feet distance are Bajaj Auto and Tata Motors.

About 10-12 days back, when I had written to avoid Banks, I did the same. I am not completely bearish on banks. It is just that now I see gains coming from other sectors. Even if you look at Sugar stocks, the best price structure and visualization is in Renuka sugars. Hence, I am vested in the same.

One more important factor in determining where to invest is the awareness of market fundamentals and sector valuations. If you see, the simple reason why banks did not appeal much to me were because the valuations (short term) were simply exorbitant. It had to correct and I am glad it is correcting. Eventually when banks are ready for upmove again, they will contribute immensely to the broader market. I have positions now in commodity related sectors as I feel that markets will largely rally due to this sector doing well.


In conclusion, if I have to sum it up, I combine Price structure and Visualization with Fundamentals and Economic analysis to determine what will probably happen next. Once the initial view is structured, positions are taken. In this thread I can teach price structure but I cannot teach how to build Economic insight. This is something which will come naturally after observing markets and understanding structure of our economy.

Hope you understand that there is no holy grail.
.............................................................................
Markets have so many factors playing underneath that it is almost impossible to gauge what will happen next. What appeals bearish today may change and appear Bullish tomorrow. Hence, whatever view you have on markets should be based on broader term observations. A session, a day and a week contribute towards the price movement. Each on their own cannot be used to base a judgement.

The way I look at it, Nifty still remains positive. We are just witnessing some volatility which is natural. Market dynamics keep changing by the second and hence we'll review Nifty time and again to check our opinion.

...............
None of the indicators are leading. Everything lags. This is precisely why I use indicators very rarely. The only "In - Present" indicator is Price. Even Price is not Leading if you look at it purely based on what it does in the present.

Anyway now coming back to your query. MACD and RSI need to be used carefully. MACD is a combination of (26 day EMA - 12 day EMA) and 9 day EMA of the (26 day EMA - 12 day EMA). Hence when you use RSI with it, a default 14 day RSI may not give you a clearer picture. See, MACD is a trending indicator. It indicates long term trend and RSI is relatively short term when you use the default settings. Hence, either shorten the settings of MACD or increase the setting of RSI for it to give you the real picture.

Also remember, indicators like RSI and Stoch can stay in Overbought and Oversold range for a long time. It does not indicate change of trend necessarily. Infact if RSI is above overbought levels for more than 3-4 days, then that's Bullish for the stock. Just read more on such indicators in Tom Demark's book. It will broaden your insight into how to use short term indicators.

..............................
Whatever your trades are, adhere to your stop losses in this market. Whether this is a shake out or otherwise will only be clear with time. Protection of capital is utmost important. Series of small losses can be made back by one trade. Hence, adhere to your stop losses.

...............................
Apart from Fundamental and Technical Factors, something I rely a lot on is Intuition. I think in this thread I have written a post regarding this, just try and find it.

.................
I am not an expert in understanding a distribution or accumulation pattern. And one more thing is to be noted is that.......... any type of charts have its limitation in understanding the conditions of accumulation and distribution because both conditions looks as good as same in the charts.. Hence the parameter I use to observe it is the play of volume and mainly the understanding of the market conditions and in which part of that are we at present..(i.e. after a fast bull run NIFTY corrected around 500 points last month... Ok.. So the next chance is of a side way market where shorts are covered and further positions are built up according to the sentiments. We have already seen short covering till 6050 levels and then the chance is to test it 5750 or even 5550. levels... In conclusion.. I believe Niftry will trade inbetween 5550 and 6100 this month.)

Volume spread analysis is a new way of looking at the market. It more like the candlestick analysis taking into consideration the volume. However not all the candle stick rules apply here.

The basic premise behind the volume spread analysis is that the market is basically moved by the “Smart Money”. The smart money accumulates the stocks at low prices. Then begins process of marking up the price. Then the “Dumb Money” starts entering the smart slowly. The smart money starts passing the ownership of the stocks to the dumb money. This process is called Distribution. Soon more and more dumb money starts rushing into the market not wanting to be left out of the big rally. Unfortunately the retail traders are the last to get in. Once the process of distribution is complete the smart money starts rapidly marking down the prices and the dumb money are left holding the stock which was bought at high prices. At the end the smart money is much richer and they can again start accumulating the stock at lower prices. The cycle continues.

This one way explains why the move moves are slow and the down moves are very rapid. The process of marking up the prices and distribution is a slow process. It takes some effort to get the dumb money interested in buying into the rally. The mark down process is very rapid as the smart money’s intention is to trap the dumb money. They have to give very little chances to dumb money which is generally slow in reacting to exit.

VSA attempts to read the moves of the smart money by looking at the price, volume and the spread of prices.
..................Traditional approach if Price increases along with higher volume then (+)ve or Price decreases along with higher volume then (-)ve.

It was the era of OBV,in the sixties.(On Balance Volume)
Joseph Granville, creator of the On Balance Volume indicator, insisted on the importance of volume analysis. He exclaims that volume precedes price, and he even goes so far as to argue that volume is cause and price is effect.

Then traders made few more observations on Volume :=
a)Traders must always look at price patterns in conjunction with their associated volume pattern, never alone. A stock may appear to be in a head and shoulders pattern, but the volume pattern must confirm that analysis.

b)Careful analysis of the volume of selling that occurred above current resistance will help you estimate how long a stock will stall at that level.

c)Well-above-normal volume is essential when separating a true from a false breakout above resistance.

d)Well-above-normal volume on the break of a key support level is likely to keep the swing trader from making the mistake of shorting into a deceptive "spring" formation.

e)Climactic volume can occur after a sustained downtrend. The retest of the support level of the selling climax can provide a good trading opportunity if it is accompanied by low volume (as compared to the selling climax).

Like these enters VSA = Volume Spread Analysis (Though the person behind this Tom Williams has taken the concept from a Richard Wykoff of 18th century & built upon it.)
Which Karthik has taken a Gr8 effort to explain to us.(I am personally keen to know)

There is also another New Approach "Profile".
Just a slight clarification for newbies. Market Profile plots Time per Price, while the commonly available Volume Profile plots Volume per Price. Distinction is for conceptual clarity only. after that you can use VP properly to get readings "similar" to MP and use VPOC too.--------------------------------------------------------------------------------

The foundations for volume spread analysis were laid by R.Wyckoff way back in the early 1930s. Wyckoff was supposed to have made fortunes with his principles. Wyckoff stared with a premise that price / volume / Time could provide a picture of the demand and supply from smart money (he called the smart money ‘composite man’). We will come back Wyckoff later in the thread. It would be nice to look at Wyckoff methods time to time as his work is the basic one and others have built on it.

Wyckoff had three basic principles or..say.. laws

Supply and Demand
Cause and Effect
Effort and Result

The current day VSA available in the market still relate to these tenets.

Much later in the 70s Tom Williams who worked with a syndicate (read… Smart money) for 15 years, developed on the Wyckoff’s work and came up with Volume Spread Analysis and later commercialized it. (The critic would say ..why commercialize it, he could have made money himself.. ). Now many more companies offer their own concoction of VSA, hawkeye traders and genie software to name a few.

Tom William’s VSA basically ignores the open of a bar and uses high, Low and Close. This is where it basically differs from classical candlestick analysis. Most commercial vendors claim to use more than 300 indicators to analyze each bar. I have seen that some of the VSA vendors use other indicators though not explicitly.

One thing is certain that the availability of basic information on VSA is scarce. I have come across much discussion on other forums on VSA. However most revolve around commercially available packages. Our intention in this thread will be to explore the basics so that each one of us can arrive at our own convenient VSA analysis.

I know most of you are eager to get straight into the core of VSA. But let us lay some foundations before building the blocks of VSA. First thing is of course to understand a little more about working of Smart Money (hereafter we will just use the term SM to indicate Smart money).

The SM basically moves the market in four phases as follows

1. Accumulation
2. Markup
3. Distribution
4. Mark Down

Most of you may be fully aware of these. Still we will look at these phases more in details as this would help us to understand the SM operation better which in turn would give a better perspective to VSA.

There will not be any demand for something when there is plenty of it available and nobody wants it. As the availability decreases and more people want it then the demand increases. So the first thing the SM does is find something that is available a plenty and cheap. The next step is to create a scarcity of the same and get people interested in it which in turn generates the demand. This is first phase which is Accumulation.

Accumulation is a process through which the SM acquires a large quantity of the stock at the lowest possible price. Accumulation is a subtle, sophisticated and sly process of cornering a huge quantity of the stock that makes the following phases possible and worthwhile. Once a large quantity has been absorbed the number of floating stock reduces and the demand increases. This makes possible the next phase Markup.

Accumulation normally takes place in congestion areas. Congestion area are mostly sideways range bound movements where the stock appears to have no interest to either move up or move down. The SM ensures that the stock is contained below a certain upper level which is the supply area. At the same time the SM also supports the prices above a certain lower line which is the support area. The stock moves within an upper resistance or supply area and a lower support area.

The congestion areas are characterized by Indecision. One of the most important characters of congestion areas is the Low Volume. When most traders are bullish or bearish the volume is high. Low volumes indicate indecision among the traders on bullishness and bearishness.

Ah.. Sounds easy…….. Well the problem is that congestion areas are seen in both accumulation areas as well as Distribution areas ……… oh , Well that is not the only problem………. There will be periods where no one seems to be interested in the stock… the pattern of price movement most of time very similar to the congestion pattern…..

So the naturally the question is how one would ascertain if the pattern is really accumulation in progress……. A little later on this and other congestion patterns…..
So the question was …How one checks if the congestion area is really an accumulation area.


There are a few things to lookout for..

First, the indecision should be quite visible. In other words the volume should be low and quite. No huge volume upsurges. Even if the volume is relatively higher the range between up day volumes and down day volume should be narrow.

Second, the spread of the bars (High – Low) should be narrow.

Third, the volume should shrink near the support line and expand near the resistance line.

Fourth, the stock should be trading in a range for some weeks if not months.

Also you may see some shakeouts in the trading range. The SM would temporarily drive down the prices below the support line in order to takeout the stop losses and panic the weak hands into selling. You will see the stock bounces back above the support line immediately. By this process the SM is shaking out the weak money from the stock. For most of us it is just a failed breakout. Sometime the stock instead of bouncing back would continue to drop if there was too much supply. So trading these breakouts could be tricky.

Also it would a good sign if the stocks trading range is much above the support line.

Normally we would see some of the above signs if not all in the acuumulation area.

There are many other patterns which signify accumulation. Some of them are rounding bottoms, reverse head and shoulder and double bottoms (or “W”) patterns. Each could be explained in terms of SM activity. However we would go into the details now. One thing to keep in mind when evaluating patterns is that it is very important to check the volume pattern as well.

For an example we will look at the chart of HCC where a clear accumulation indication was seen June 2007...
 

oilman5

Well-Known Member
Markets have so many factors playing underneath that it is almost impossible to gauge what will happen next. What appeals bearish today may change and appear Bullish tomorrow. Hence, whatever view you have on markets should be based on broader term observations. A session, a day and a week contribute towards the price movement. Each on their own cannot be used to base a judgement.

The way I look at it, Nifty still remains positive. We are just witnessing some volatility which is natural. Market dynamics keep changing by the second and hence we'll review Nifty time and again to check our opinion.

...............
None of the indicators are leading. Everything lags. This is precisely why I use indicators very rarely. The only "In - Present" indicator is Price. Even Price is not Leading if you look at it purely based on what it does in the present.

Anyway now coming back to your query. MACD and RSI need to be used carefully. MACD is a combination of (26 day EMA - 12 day EMA) and 9 day EMA of the (26 day EMA - 12 day EMA). Hence when you use RSI with it, a default 14 day RSI may not give you a clearer picture. See, MACD is a trending indicator. It indicates long term trend and RSI is relatively short term when you use the default settings. Hence, either shorten the settings of MACD or increase the setting of RSI for it to give you the real picture.

Also remember, indicators like RSI and Stoch can stay in Overbought and Oversold range for a long time. It does not indicate change of trend necessarily. Infact if RSI is above overbought levels for more than 3-4 days, then that's Bullish for the stock. Just read more on such indicators in Tom Demark's book. It will broaden your insight into how to use short term indicators.

..............................
Whatever your trades are, adhere to your stop losses in this market. Whether this is a shake out or otherwise will only be clear with time. Protection of capital is utmost important. Series of small losses can be made back by one trade. Hence, adhere to your stop losses.

...............................
Apart from Fundamental and Technical Factors, something I rely a lot on is Intuition. I think in this thread I have written a post regarding this, just try and find it.

.................
I am not an expert in understanding a distribution or accumulation pattern. And one more thing is to be noted is that.......... any type of charts have its limitation in understanding the conditions of accumulation and distribution because both conditions looks as good as same in the charts.. Hence the parameter I use to observe it is the play of volume and mainly the understanding of the market conditions and in which part of that are we at present..(i.e. after a fast bull run NIFTY corrected around 500 points last month... Ok.. So the next chance is of a side way market where shorts are covered and further positions are built up according to the sentiments. We have already seen short covering till 6050 levels and then the chance is to test it 5750 or even 5550. levels... In conclusion.. I believe Niftry will trade inbetween 5550 and 6100 this month.)

Volume spread analysis is a new way of looking at the market. It more like the candlestick analysis taking into consideration the volume. However not all the candle stick rules apply here.

The basic premise behind the volume spread analysis is that the market is basically moved by the “Smart Money”. The smart money accumulates the stocks at low prices. Then begins process of marking up the price. Then the “Dumb Money” starts entering the smart slowly. The smart money starts passing the ownership of the stocks to the dumb money. This process is called Distribution. Soon more and more dumb money starts rushing into the market not wanting to be left out of the big rally. Unfortunately the retail traders are the last to get in. Once the process of distribution is complete the smart money starts rapidly marking down the prices and the dumb money are left holding the stock which was bought at high prices. At the end the smart money is much richer and they can again start accumulating the stock at lower prices. The cycle continues.

This one way explains why the move moves are slow and the down moves are very rapid. The process of marking up the prices and distribution is a slow process. It takes some effort to get the dumb money interested in buying into the rally. The mark down process is very rapid as the smart money’s intention is to trap the dumb money. They have to give very little chances to dumb money which is generally slow in reacting to exit.

VSA attempts to read the moves of the smart money by looking at the price, volume and the spread of prices.
..................Traditional approach if Price increases along with higher volume then (+)ve or Price decreases along with higher volume then (-)ve.

It was the era of OBV,in the sixties.(On Balance Volume)
Joseph Granville, creator of the On Balance Volume indicator, insisted on the importance of volume analysis. He exclaims that volume precedes price, and he even goes so far as to argue that volume is cause and price is effect.

Then traders made few more observations on Volume :=
a)Traders must always look at price patterns in conjunction with their associated volume pattern, never alone. A stock may appear to be in a head and shoulders pattern, but the volume pattern must confirm that analysis.

b)Careful analysis of the volume of selling that occurred above current resistance will help you estimate how long a stock will stall at that level.

c)Well-above-normal volume is essential when separating a true from a false breakout above resistance.

d)Well-above-normal volume on the break of a key support level is likely to keep the swing trader from making the mistake of shorting into a deceptive "spring" formation.

e)Climactic volume can occur after a sustained downtrend. The retest of the support level of the selling climax can provide a good trading opportunity if it is accompanied by low volume (as compared to the selling climax).

Like these enters VSA = Volume Spread Analysis (Though the person behind this Tom Williams has taken the concept from a Richard Wykoff of 18th century & built upon it.)
Which Karthik has taken a Gr8 effort to explain to us.(I am personally keen to know)

There is also another New Approach "Profile".
Just a slight clarification for newbies. Market Profile plots Time per Price, while the commonly available Volume Profile plots Volume per Price. Distinction is for conceptual clarity only. after that you can use VP properly to get readings "similar" to MP and use VPOC too.--------------------------------------------------------------------------------

The foundations for volume spread analysis were laid by R.Wyckoff way back in the early 1930s. Wyckoff was supposed to have made fortunes with his principles. Wyckoff stared with a premise that price / volume / Time could provide a picture of the demand and supply from smart money (he called the smart money ‘composite man’). We will come back Wyckoff later in the thread. It would be nice to look at Wyckoff methods time to time as his work is the basic one and others have built on it.

Wyckoff had three basic principles or..say.. laws

Supply and Demand
Cause and Effect
Effort and Result

The current day VSA available in the market still relate to these tenets.

Much later in the 70s Tom Williams who worked with a syndicate (read… Smart money) for 15 years, developed on the Wyckoff’s work and came up with Volume Spread Analysis and later commercialized it. (The critic would say ..why commercialize it, he could have made money himself.. ). Now many more companies offer their own concoction of VSA, hawkeye traders and genie software to name a few.

Tom William’s VSA basically ignores the open of a bar and uses high, Low and Close. This is where it basically differs from classical candlestick analysis. Most commercial vendors claim to use more than 300 indicators to analyze each bar. I have seen that some of the VSA vendors use other indicators though not explicitly.

One thing is certain that the availability of basic information on VSA is scarce. I have come across much discussion on other forums on VSA. However most revolve around commercially available packages. Our intention in this thread will be to explore the basics so that each one of us can arrive at our own convenient VSA analysis.

I know most of you are eager to get straight into the core of VSA. But let us lay some foundations before building the blocks of VSA. First thing is of course to understand a little more about working of Smart Money (hereafter we will just use the term SM to indicate Smart money).

The SM basically moves the market in four phases as follows

1. Accumulation
2. Markup
3. Distribution
4. Mark Down

Most of you may be fully aware of these. Still we will look at these phases more in details as this would help us to understand the SM operation better which in turn would give a better perspective to VSA.

There will not be any demand for something when there is plenty of it available and nobody wants it. As the availability decreases and more people want it then the demand increases. So the first thing the SM does is find something that is available a plenty and cheap. The next step is to create a scarcity of the same and get people interested in it which in turn generates the demand. This is first phase which is Accumulation.

Accumulation is a process through which the SM acquires a large quantity of the stock at the lowest possible price. Accumulation is a subtle, sophisticated and sly process of cornering a huge quantity of the stock that makes the following phases possible and worthwhile. Once a large quantity has been absorbed the number of floating stock reduces and the demand increases. This makes possible the next phase Markup.

Accumulation normally takes place in congestion areas. Congestion area are mostly sideways range bound movements where the stock appears to have no interest to either move up or move down. The SM ensures that the stock is contained below a certain upper level which is the supply area. At the same time the SM also supports the prices above a certain lower line which is the support area. The stock moves within an upper resistance or supply area and a lower support area.

The congestion areas are characterized by Indecision. One of the most important characters of congestion areas is the Low Volume. When most traders are bullish or bearish the volume is high. Low volumes indicate indecision among the traders on bullishness and bearishness.

Ah.. Sounds easy…….. Well the problem is that congestion areas are seen in both accumulation areas as well as Distribution areas ……… oh , Well that is not the only problem………. There will be periods where no one seems to be interested in the stock… the pattern of price movement most of time very similar to the congestion pattern…..

So the naturally the question is how one would ascertain if the pattern is really accumulation in progress……. A little later on this and other congestion patterns…..
So the question was …How one checks if the congestion area is really an accumulation area.


There are a few things to lookout for..

First, the indecision should be quite visible. In other words the volume should be low and quite. No huge volume upsurges. Even if the volume is relatively higher the range between up day volumes and down day volume should be narrow.

Second, the spread of the bars (High – Low) should be narrow.

Third, the volume should shrink near the support line and expand near the resistance line.

Fourth, the stock should be trading in a range for some weeks if not months.

Also you may see some shakeouts in the trading range. The SM would temporarily drive down the prices below the support line in order to takeout the stop losses and panic the weak hands into selling. You will see the stock bounces back above the support line immediately. By this process the SM is shaking out the weak money from the stock. For most of us it is just a failed breakout. Sometime the stock instead of bouncing back would continue to drop if there was too much supply. So trading these breakouts could be tricky.

Also it would a good sign if the stocks trading range is much above the support line.

Normally we would see some of the above signs if not all in the acuumulation area.

There are many other patterns which signify accumulation. Some of them are rounding bottoms, reverse head and shoulder and double bottoms (or “W”) patterns. Each could be explained in terms of SM activity. However we would go into the details now. One thing to keep in mind when evaluating patterns is that it is very important to check the volume pattern as well.

For an example we will look at the chart of HCC where a clear accumulation indication was seen June 2007...

A few points about the congestion zone we are looking at for signs of accumulation. It is important to look at the history of the stock prior to the congestion area.

A few things to look out for….

Has the stock gone through a cycle of accumulation, markup, distribution and markdown previously? Were there signs of a selling climax just prior to the congestion? If so, the SM are really looking out for making another round.

Or the stock has been languishing aimlessly prior to the congestion zone you are looking at. If so, this area you are looking at is not accumulation at all.

Was the stock enjoying an uptrend prior to the congestion? If so, this could be a re-accumulation going on here.

Was the stock undergoing a minor down trend (after an up move) prior to the congestion? Was there a downtrend without selling climax? Then this could mean there is re-distribution in progress and it may be advisable to look out for sign of distribution.

(If you are wondering what is selling climax.. don’t worry.. we will take it up in detail later.)

...................
Now we come to the next phase in the game plan of SM, namely “Mark Up”.

Once the smart money has a cornered a huge chunk of the stocks they are ready for the next move. The idea is to jack up the prices so the SM can fill their pockets. Typically you will see the low are getting higher. The closes are slowly getting nearer to the high. The prices are getting higher on lower volumes as there is very less supply. The reactions happen much higher than the support line.

Then ..the stock shoots through the resistance or supply line with higher volume. For that matter the stock need not exhibit the characteristics mentioned above. Suddenly it can just pop out of the congestion zone.

It is better to take note on the volume at this juncture. The volume need not be very high at all. Since there is no supply (SM have the majority of the floating stock). If the volume is moderate we should see it coming in strongly soon. Otherwise the move will collapse and stock would return to the base. We should see a large swift increase in the volume in case of a genuine breakout. The stock should be closing near the top. Also too much volume is not good. It would mean too much supply is coming in. Heavy volume with the stock closing in lower half would definitely mean supply coming in. Typically an 150% increase in volume with the close near the top would indicate a successful breakout.

The breakout is just the beginning. Then the stock moves up in stages. Each stage would be an advance at higher volumes and a retracement at lower volumes. The retracement is mainly due to short term traders booking their profits. The SM also starts the distribution during the retracement. The point at which the retracement stops become important. These should be above the previous retracement stops. In simple terms as Saint would put it the stock is making higher high pivots and higher low points.

We will also see sideways movement during the up move which would be congestion areas. We need to pay lot of attention to these congestion areas for this could be final distribution areas before the mark down begins. Also it pays to give attention to volume during retracement and congestion areas. Increasing volumes near support line and low pivots indicate problem. If the increase is dramatic then it is time to re-evaluate your position.

Finally the stock could make a climax run where the price and volume explode. The shorts run for cover and the green horns rush in not to be left out... like cattle rushing into a abattoir. Soon rapid markdown starts leaving the weak money holding the bag and he SM their cash.

Please do note that here we are talking about more of an idealistic picture. In reality it could be more complex and many a time difficult to decipher. But then practice makes one perfect.

Just enclosing a chart with similar conditions mentioned above.

Now let us come to the third phase in the SM game plan which is “Distribution”. Distribution is the process where the SM is offloading their accumulated stock at a much higher price.

It is not very easy to spot distribution. Many a times you will not see any congestion areas. The UP move may slowly deteriorate and start rapidly deciding after a furl of heightened activity. The Wyckoff puritans may disagree here.

In mark up phase after the stock has run up for some time you will the volume diminishing and the spreads narrowing. The angle of ascent becomes lesser and lesser. The stock trend may even flatten. This would mean that the demand is drying up. The buyers are not willing to pay a higher price for the stock. Also sellers are reluctant to offload their positions hoping and waiting for a better price. It is here the SM slowly start offloading their stock. Much care is taken not to make it visible. Volume is never too high. Prices are support at certain levels so that there is no panic. Here it is important to take note of the volume price pattern and angle of ascent. Too steep an ascent is also a problem. Suddenly you will see the stock dropping down like stone from its high perch.

It is at the top you will see patterns like H&S and double Tops which are distribution patterns.

Many times it is hard to maintain any semblance of the uptrend continuing and so a sideways congestion move ensues. The congestion zone will be quite similar to the zone we discussed earlier for accumulation. You will see the price being supported at some support level and being contained within a resistance level. The points to take note are the same ones we talked about in the accumulation zone. Just like in the shake outs in the accumulation zone you will see a shakeout in terms of up thrust bars. One has to be very careful trading the breakout from the distribution zone. If it turns out to be the final climax move you will be left holding the bag. But then the stock may goes for another up move. Here looking for uptrusts and other weak indication becomes necessary. We will be talking about these indications later.

In the final climax run the stock explodes in terms of volume and price. Like I said before the breakout traders , greenhorns rush in and the shorts will run for cover. Then you will see many Uptrust Bars where distribution takes place with maximum prices. There could be a series of Uptrusts and then…….BANG….. the stock drops down like a stone.

The chart posted earlier shows an example distribution zone and the climax run. The upthrust bars are identified with square on Top of the bar.
We now come to final step in the SM game plan, the “Mark Down”. When the SM has disposed off most of the accumulated stock they start the most dramatic move of crashing down the prices. Suddenly supply comes in plenty overwhelming the demand. The price starts tumbling. The spreads dramatically widen. There is panic selling from investors. But the prices drop so rapidly and most of the investors and green horns that entered late never get a chance to off load there holdings.

Like the markup phase we will see some rallies in the downtrend. These are more off reactions. Either the SM themselves try to shore up the price for their last bit of holding. Day traders, “Value Investors” trying to bottom pick and the green horns trying to “Average” contribute to these rallies. Our friend Saints calls averaging “Catching a dropping knife”. I cannot find a better description for “Averaging”. It is better to note the volume during the rallies. You will find the volume is more on down days and less on up days. When the rally fails the average investor panic and start selling and that accelerates the fall.

It may take weeks for the down trend to reach the bottom. The end is generally indicated by a stopping volume or an absorption volume. The SM may be absorbing the stocks to start the game again. You would find a High volume bar with long spread and closing near the top.

It is during the mark down phase you will see rallies like the “Dead Cat Bounce”. Pay attention to the volume pattern during these rallies.

The mark down phase is the most depressing and cruel part of the SM game plan. By the end of it the SM would be taking delivery of his brand new E class Benz while the average investor is scouting for a buyer for his run down maruti.
Of course the Markdown phase does offer good opportunities to smart investors who are adept in short side trades.

But the mark down phase has a silver lining… towards the end it offers the smart investors many opportunity to enter into some really profitable trades. We will discuss all these later
High Volume happens during the early stage of the Mark Up as well. Also SM use High volume to cross high supply zones. So it is important to see if the high volume move is supported by SM and the market in general. How we can infer this? We can do this by looking at the spread and the close. This is just what VSA is about.
Now that we have a general idea about the SM operation we can step into the world of VSA.

VSA involves analyzing each bar with respect volume, spread and close. We will ignore the open. Also while analyzing the bar action we will also keep in mind the general background of the market.

As a first step let us make some definitions. These are elementary and most of you understand this. But for the sake of synchronizing our thought I will repeat these here.

Some Basic Bar definitions.

Upbar - A bar would be called a up bar if the close of the bar is above the close of the previous bar.

Downbar – A bar would be called a Downbar if the close of the bar is below the close of previous bar.

Spread – Spread is the difference between High and Low.

A wide spread Bar – If the spread of the bar is above 1.8 times the average spread then we will term it as a wide spread bar. The factor of 1.8 is a tentative one.

A narrow spread bar – if the spread of the bar is 0.8 times the average spread then we will term in a narrow bar. The factor 0.8 is again tentative.

Note:

The problem of calculating the average spread is that during volatile period the average spread is high and in non volatile period the average spread is lower. So a bar which could be termed as a wide spread bar (WRB) in non volatile times could become a average or even a Narrow spread bar (NRB) in volatile times. For simplicity sake and to take the discussion forward we will keep the above factors common. At a later stage we can discuss about methods to arrive at better methods of defining the average which works at all times.

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

Next we come to topic of volume. CV had raised a valid question on this. How high is high and how low is low? For this we should have a reference volume which can used to compare with the daily/bar volume. The simplest way is to have 30 day/bar moving average of the volume. From the very little experience I have in VSA I feel that the 30 day/Bar simple moving average of volume serves the purpose quite well. We will take it as the stating point. Mike had pointed out another method. We can discuss these further in the thread later as points of refinement after we establish the basic indicators of VSA. Again as a starting point we will define any volume above 1.8 times the average as “High volume”. Volume above 3 times the average would be termed “Ultra High” volumes. Volume below 0.7 times the average volume will be “low volume”.

With these basic definitions we are ready to look at some of frequent Indicators (do not confuse with the normal TA indicators, here we are talking about the various type of Bars related to VSA analysis)

Some members felt that the thread looked too elementary in a Advanced Strategy section. Maybe it is true. I wanted the thread in this way since it should be easily understandable even for the newbee. Also, even more experienced people are not reluctant to look at the market in this way. The indicator trader would definitely find a Bar by Bar analysis a hard pill to swallow.

A note of caution, before we proceed into the real VSA study. Please note that it will be difficult to build a mechanical trading system from VSA though not impossible. However knowledge of VSA will greatly help one to understand the market better and will be a great support tool complimenting their trading systems. Also VSA on its own provides some excellent entry and early exit points resulting is good profitable trades
Finally…. we will step in the actual VSA. VSA measures the weakness and strength of individual bars. In addition it looks at the background strength/Weakness. So we have to always look out for Weakness in a uptrend and for strength in a down Trend.

Each bar could be characterized to indicate Strength or Weakness based on the Spread and volume.

We will start with looking out for weakness. First we will look into one of the most easily identifiable and strong indication of weakness which is commonly called the UPTHRUST Bar. And what a day to talk about Upthrust… The charts are full of them today…Even the nifty is showing a Upthrust…of course not a one of the ideal one. But distinct weakness shown on the nifty.

What is an UPTHRUST BAR ?

An Upthrust Bar is a wide range bar, with a high volume and closing down. It indicates that the prices were marked up during the day (for simplicity we use day, it is equally applicable on all time frames), the Trading activity was High as indicated by the High volume and the prices dropped to near the low (or to the low) towards the closing hours.

Looking the SM perspective what happened was that the SM marked up the prices in early trading hours indicating strong bullishness. Enticed by this bullish move the weak money also rushed to acquire the stock. Shorts if any would also have rushed for cover. Meanwhile the SM is quietly distributing their holding to the weak money. In the later part of the day the SM drastically marks the price down trapping the weak money holding stocks at much higher prices.

In order to make this ideal, the Upthrust normally appears after a wide range upbar with high volume. This makes it easy for the SM to markup the price and entice the weak money. Most of the time the Upthrust will be moving into new higher territory. The High of this bar will be much higher than the previous high.. High volume should be an important consideration.

What are the Things to Look for in a Uptrust?

1. High Volume and How high?
2. Wide Spread?
3. Close, near or on the Low?
4. What was the previous bar action?
5. Did the bar into new territory?
6. Is the stock in an up trend?
...........................................What are the Things to Looks for in a Uptrust?

1. High Volume and How high?
2. Wide Spread?
3. Close, near or on the Low?
4. What was the previous bar action?
5. Did the bar into new territory?
6. Is the stock in an up trend?

The Answers for the above would decide how potent the Upthrust is.

High volume Upthrust are a sure indication of weakness, higher the Volume the stronger the indication. It may be even wise to get out of the stock if the Upthrust has ultra high volume.

Wider the spread more potent the Upthrust

Lower the closer the stronger the indication of weakness. Ideally it should close should be the Low. If the close is towards the middle it would mean than the SM was not successful in marking the price down. There was too much demand.

An ideal Upthrust will move into new territory. The High will be very much higher than the high of the previous bar. This means the SM was really successful in marking the price up and many traders get trapped into bad positions in the end of the day.

Upthrusts are effective when the trend has been in force for some time. Sometime you would find weak up thrusts in early trends.

Many times you will Upthrusts with low volume. I call them Pseudo Upthrusts. These are not effective as the Upthrust. But are still signs of weakness..


............this view r from Kartik...............
There is no secret to what I do. I rely on price structure and visualization to narrow my stocks down. If in a sector I see bunch of stocks with a positive structure, I place them on my large LCD screen and view them from a distance of atleast 10 feet. The one which looks the best is the one I select to trade.

Look at Hindalco, Tata Steel, Sail, Sterlite etc. All have descent short term price structure. But when I saw Hindalco from a distance, I just knew that was the stock to bet on. Similarly, probably all auto stocks have good price structure, but the best one's from a 10 feet distance are Bajaj Auto and Tata Motors.

About 10-12 days back, when I had written to avoid Banks, I did the same. I am not completely bearish on banks. It is just that now I see gains coming from other sectors. Even if you look at Sugar stocks, the best price structure and visualization is in Renuka sugars. Hence, I am vested in the same.

One more important factor in determining where to invest is the awareness of market fundamentals and sector valuations. If you see, the simple reason why banks did not appeal much to me were because the valuations (short term) were simply exorbitant. It had to correct and I am glad it is correcting. Eventually when banks are ready for upmove again, they will contribute immensely to the broader market. I have positions now in commodity related sectors as I feel that markets will largely rally due to this sector doing well.


In conclusion, if I have to sum it up, I combine Price structure and Visualization with Fundamentals and Economic analysis to determine what will probably happen next. Once the initial view is structured, positions are taken. In this thread I can teach price structure but I cannot teach how to build Economic insight. This is something which will come naturally after observing markets and understanding structure of our economy.

Hope you understand that there is no holy grail.
#116
27th December 2010, 01:10 AM
oilman5
Member Join Date: Jun 2006
Posts: 1,329
Thanks: 262
Thanked 1,212 Times in 433 Posts


Re: my last thread
________________________________________
Thank you for the comment.

System Never makes any mistakes.. It is our mind and attitude makes mistakes and that depends on our greed fullness and worries. I have noticed and practiced it very well... And I have created my attitude like...... (LET THE MARKET GO ANY WHERE ...... I DON'T CARE....... I AM AN INVESTOR AND I TRADE TO FEED MY INVESTMENTS).....In my first year of trading I use to be revengeful to the market because of my loosing money. I use to think in a wishful way and I was also encouraged by the brokers. But the entire result was against me. There I decided not to sell any thing below my purchase rate..... The result for some time was I use to buy scripts and it goes down and I use to wait till it come up to my purchase rate and exited but I never earned but the broker earned.

Then I made a decision that I will not sell any thing with out earning 10% on that.... and here is the place I started earning bit by bit...... TA.... SL... every thing came to me recently only. So....... sir..... It is well said by Raunak Sir, "It is all that you need a winning attitude"

You see, In this month I started to practice writing options I sold 5400 put option around Rs. 35 and 6000 call option around 77. call option went up to 119.... I received calls from my brokers saying that market is going up and better you square off positions because there are unlimited risk in selling options. But I decided to keep the positions till the expiry no matter what ever may happen. It is just because I want to learn things.

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Shorting an Index is never easy. If you look carefully, you will find atleast 100 trades based on what you are suggesting which fail more often than they succeed. We tend to focus on trades which work and hence see only that aspect. We often fail to see where the trades actually failed. This is very common.

Also, If you see, I rarely short stocks/index. In this entire correction, I have shorted only three stocks; Tata Steel, DLF and Praj. Tata steel gave me small profit, in DLF I captured more than 80-90 Rs and today in Praj I captured 2 rs per lot. Most of my trades in this correction have been on the long side and have resulted in small losses. The reason behind this is very simple. In bull markets, I never go short. In Bear market, I never go long. In other words, buying in Bull markets is very easy and shorting in Bear markets is very easy. Hope you get my point.

Currently, as of 15.30 P.m., we are still in a Bull market. Hence, my aim is to search for trades on the long side till we enter a Bear market. If you intend to be a good buyer and a good short seller, then never Short in a bull market and never Buy in a Bear market. Once you think this way, the techniques will automatically show up.
.................There is no harm in Bottom Fishing based on Technical Patterns.

But, do that for the strong stocks. In the current market that would be stocks like Titan, Bajaj, Cummins, Tata Motors etc. .There's more chance that such stocks will bounce more faster.

Technically your chart looks good. But had this chart been of the above stocks, I would have been more convinced about the trades. Just keep this in mind.

Thanks bro always learning from you. One more thing wanted to ask you was which sector to you is looking most bullish in this correction that is it has not fallen or runs up earlier than anything else. For me it seems Auto sector is holding pretty well. I am asking this because usually when a sector shows strength or refuses to go down that sector runs up faster than any other. Your view on this would help me. Will give you an example in May when we were correcting the banks refused to sell off in the correction and when the markets resumed the rally they went up and gave the best gain in the rally so far.

So identifying the sector is my mission in this correction.
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I personally still believe that we are in a Bull market. I review my position every evening and hence I can still say that we remain firmly intact in a Bull market. The way I am seeing, our markets will remain volatile between 5800-6000. That would be the broad based channel. Even if the channel is violated on the downside, I would review again before declaring the Bull dead.

As far as extremely short term trade goes, one can go long in Nifty tomorrow if it makes a high above 5940 with SL of 5880. Target would be around 6000-6010. RR of 1:1.

Traders and Investors always have a lot of time to position themselves for the next upcoming move. It is just that majority of them fail to realize this. Hence be patient. Even if bear markets are coming, we will trade it just as well as we have traded the Bull market.

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Identifying Sectors/Stocks is secondary in nature. Try and understand what I am writing.

Hence, let me again reiterate to you.

Before getting in the Buy or Short mode on respective sectors and stocks, you need to get into broad based market definition mode. For example,

If (Markets are in a Bull phase)

a) How do I define Bull phase
b) What is the current Economic cycle
C) What about market data (inflation, valuations etc)
d) What about the strategy I will use (Long or short or Long/Short)
e) Will that strategy be for low/high volatile market
f) Which instrument will I use
g) If its highly volatile, will I hedge
h) Which stocks have done well in these phases
i) What is my backup plan
j) How do I give this plan a feedback

This is just one of the scenarios I have explained to you for varied market conditions. You need to have scenarios like these prepared for different market conditions. Hope you get my point
.............................
it is only a winning attitude you need"

And what is a winning attitude?.... It is well described by Krishna to Arjuna

"YOGASTHA KURU KARMANI
SANGHAM THYAKTHUA DHANANJAYA
SIDHYA SIDHYOHO SAMO BHUTHUA
SAMATHUAM YOGA UCHIYATHE".

"Hey Arjuna.... don't be attached to your personal feelings when you are performing your duties....and be even minded about the results...evenness of mind will always lead you to success."

Now my dear friend, Investing and trading is a business for me and no business is a success with out proper planing. So I will do it in every possible way.

As you said... shorter time frame... I trade intraday in a shorter time frame with the support of longer time frames and till date I am winning on 80 percent trades.
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hope you guys had your stop losses in place. I have always told that there is no stock which can be bought and forgotten and hence everything must have a SL. I had warned that in this market stop losses need to be adhered to. Anyway, if some of you have not done so, take out your trading diaries and note what market has taught you today. If some of you have also lost money, then take it as a small battle lost in the War of survival.

As of Exit plans and market direction all I can say is that we are still positive. I might look like a fool to say this, but in my opinion, we remain as Bullish as ever. I have shared my positions with you guys and I can tell you that I am taking small losses as stop losses are being triggered. At this stage, I can say that in December - January - February, hopefully we should be able to capture 400-600 points on the Nifty in Swing trade. Just be patient and keep stop losses tight. Be prepared for more volatility and be level headed. 09.12.10
...............Markets needs a reason to correct.

Correction - most of the time it happens un expected.
That day could be any day even tomorrow no body knows so please be prepared.So we have to be cautious on every day.

This is not induce fear but caution.

With my limited knowledge of TA.My few points strictly technical.

As on date on the weekly candles we have a bearish engulfing pattern
though we have one more day for completion.
Nifty has entered again the bearish channel.

Hope and assumptions have killed several traders and investors.
Strict SL only way to safe guard.

5700 is a crucial support.
If taken out then panic selling can take the markets easily to 5636 and 5500 levels.

On the other side market's could take 5700 support as a double bottom and reverse again taking Christmas,New Year sentiments,Budget as a reason.

In either case I will be long only if Nifty on a closing basis closes above 5880.

...........................
Firstly, I like the way you have researched Nifty. What you have mentioned is Mean reversion of prices. This is one technique which works well but is very difficult to time. Anyway good going on that front. Now coming to your query.

The kind of screen we are seeing is bound to shake the confidence of many traders and personally I won't blame any of you if you call me crazy behind being so Bullish. Out of my experience in the market, there is one thing I know and that is that the inherent nature of markets never change. By this, I mean that a long term trend needs to counter itself with "Greater" amount of negative factors for it to reverse and change its course. Let me explain this to you guys.

As human beings, we are always destined to grow into someone who makes significant impact on our lives or on the society in general. The trend is always up as far as our growth is concerned. However, some still fail to reach the heights they are destined to. This is because, they fill themselves up with Negativity and remorse and this counters the god gifted positivity and enthusiasm to do things. Its a fact of life that negativity is far more dominating than positivity and hence this limits the growth of the individual. This is precisely why I say that if one has genuine winning attitude, rest of things automatically fall in place.

Now coming to markets. All the markets in the world exist to grow and rise. History is witness to this and no matter what market you look at, it always has an inclination to grow and rise. Have you ever thought that why do Bull markets last for several years and Bear markets last for relatively fewer years? Again, this is only because markets are always looking for reasons to rise. When they cant find any, they fall. But eventually it will again find reasons to rise.

Having said this, there are certain times when markets go out of favor and some other market begins to rise. This is a cycle which has always existed and will never cease to exist. When a market is in favor, it takes a whole lot of negativity to turn it around. Usually such turns are accompanied by some asset bubble or some serious fundamental issue. As of now, there is nothing of the sort which suggests that we are into some kind of bubble. The next decade or more belongs to Emerging markets and for this to go out of favor, there is something catastrophic which needs to happen. Hence, rather than getting into any technical or fundamental factor, the only thing at this juncture which would sum up my bullishness is the fact that I see Indian markets in favor at the moment. Now whether the rise begins from 5500, 5200 or 4800, I don't care. Even if markets have to enter bearish phase, the transition has to take time. If bear markets are the name of the game in future, there is just one thing I am going to say and that is "Bring it On"!!

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Trading Psychology - IF Lose Discussion

* consecutive losers in short time - becomes thinking that you don't know how to trade

* method trades BUT losing - the method doesn't work

Trading Method - IF Lose Discussion

* were the trades really method trades? IF yes - retain confidence and stay with the method based on your experience and consistency of repetition over the larger number of trades.
IF no - be sure that you are only 'base' method trading - it is fine if these trades lose AND there is no way to limit those times that they may be consecutive.

Self Awareness AND Realization

* transition - normal trading emotion to anxious/start spiral to out of control

* be aware - what do you most want to remember/think about to 'stop' the spiraling

Some comments from me and Raunak will give his comments. Being able to laugh at what you 'feel' was a 'dumb' trade and go on to the next setup - instead of going ballistic on yourself for being the most stupid moronic brain-dead trader alive, which is just about going to guarantee you are going to spiral if that next trade is also a loser - may be more beneficial than your 'favorite' trade setup.



.................................................. ............


IF there is a transition where the trader goes from acceptable emotion to tradingpsych spiraling THEN there is a crossover point where IF you are aware of the situation, you have an opportunity to 'stop' this transition from completing, what makes this difficult to do, BUT also makes it all the more necessary to be able to do, is that this is happening internally and chances are you typically would not be aware of it until it was too late AND may not even consciously realize it until the spiraling has taken over and you give into it.

In light of this, traders can for example take there key issues and write them on an index card AND stick them on there personal monitors. The objective is realization and making this available to your conscious as a reminder, instead of only available to your subconscious as a problem.

Thus, when you do this, BE SURE that you are writing short non-judgmental notes - DON'T let the 'solution' make the 'problem' worse.

For instance, consider the combination of a build of emotions coming from consecutive losses which are also occurring during congestion - write notes similar to these on your card:

* a build in emotions may come from a series of quick consecutive losses

* quick consecutive losses often come from trading inside of congestion

* are your losses 'base' congestion method trades OR are you overtrading

* there is nothing wrong with 'base' method trade loses

* your trading results are fine when you 'base' method trade

Now consider the same situation BUT different notes:

* don't be a stupid idiot and overtrade congestion like you always do

* you are going to lose your ass and end up with another losing day like usual

* you do this same crap every day and the same thing happens

* you have no reason to even trade if this is all that you are going to do

Does this seem far fetched, does common sense indicate that no one would ever write notes like these? Absolutely some people would write these note AND worse [been there - done that], as they take the attitude that this kind of emphasis on what the problem leads to is an emphatic warning that will keep it from occurring. But instead this backfires, as most derisive self-talk of any kind tends to do. Now not only are the emotions stemming from this kind of self-talk in your subconscious where we know their potential to become debilitating, you have also put them into your conscious. AND since you have them in writing - right in front of you on your monitor next to your trading charts AND SINCE what you have written is a very prevalent tpsych problem - WHERE do you think your focus in going to be? Do you think you will continue to focus on those charts and trading method OR do you think you will keep 'seeing' your notes and intensify the problem and thus the speed of your tpsych spiral? The solution makes the problem worse.

Remain Neutral
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The Answer helped me not only to understand the movement of markets but also to understand your view in a whole.

I have checked with the whole nifty chart from 2000 s where it started fro 890 levels and found that only once it corrected more than 50% and all other corrections were some where 15% to 30 %..... so this could not be counted as bear market...... and this should be used as opportunities to grab positions.

My passion is accumulation of fundamentally strong scripts. I use trading and hedging to prevent my investments from lose. A very good lesson learned from your answer.

Your answer made me remembering a story told to me by my dad when I was very young.

Once Hrishi Baradwaja (in his you age) was learning vedas from Brihispathi's(Father of Bharadwaja) class.

Brihispathi was describing that all creation is made by god and Bharadwaja asked........ How did God made all this. The answer was........ God made all these from himself.

Bharadwaja was a very smart student and was very good in mathematics.

He asked......If god made everything from himself....... the god might either become very small or finished now.

Brishispathi answered.

OM PURNA MATHA...... POORNA MITHAM
POORNAAD..... POORNAM... UDHACHIYATHE
POORNASYA POORNAM ADHAYAA.
POORNAM... EVA... AVSHISHYATHE.

Meaning......... 0 + 0 = 0...&...0 - 0 = 0........ (here starts the vedic Mathematics)
Infinity + infinity = infinity
infinity - infinity = infinity.
infinity always remain........ so.. god is = infinity.

Here market is our god ........ and infinity.

(interestingly Hrishi Bharadwaja was the founder of vaimanika shastra..he made pushpaka viman.

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Swing Trade Focus

DLF, Tata Steel & Nifty

Signals will be updated in Real time........10.12.10
Extreme short term trend is still towards the short side.

Hence don't get complacent. Every trade should have a SL. 10.12.10
..............
Fibonnacci Numbers and sequence has been explored and proved in various facets of life. I am a huge believer of such sequences and symmetries. Having said that, I also believe that Fib sequence and its association with Financial markets is similar to the association of various other concepts to the financial domain. In other words, if looked at with bias, it seems to work almost every time. However, practically speaking, any round figure retracement would work just as fine as the Fib levels. Market seems non random so as to make one feel that tools & techniques seem to work. By saying this I do not mean that markets are deceptive, but I mean that it is in us to know when and how to use those tools.

Try and explore this more and see how you can incorporate the usage of Fib levels in the larger market framework. Tools which are not correlated always add value. Keep them limited and use them to gather more and more insight.
...............
Now is the time to Act !!

Dear All,

Do not get perturbed with the market action.

We remain strongly footed in Bull market. There is a saying in the market that the one who takes maximum risk, is the one who gets maximum returns. I think, we should add the word "Maximum calculated Risk" to the above statement. Going by the underlying, now is the correct time to deploy some cash in the market. The amount of inherent risk remains as the volatility is high, but the proportionate returns also stand to be made in this time.

As far as I am reading the market, I remain very comfortable as far as Nifty remains above 5600. Even if Nifty closes below this level, I would be looking for a sustainable close below this level for a period of 15-20 days before even beginning to doubt the underlying trend. There are some excellent stocks available at attractive valuations currently. Many of them stand at a juncture from where they could see significant amount of appreciation. Hence, take some risk and invest in good companies.

As Bullish as always...............The long term trend of Tata steel is just in its infancy. It will take some time to develop. Till then it will keep rising and falling and hence will be an excellent candidate for Swing trades. Hindalco on the other hand is in a mature uptrend. Hence, anyone looking to grab this stock should do it below 200. If it does not go there, then at some point in future there will come a stage when the stock will offer good risk to reward. At that time we will try and grab it.

The way I am reading Tata steel at the moment, I feel the stock is forming an excellent base around 530-600 for a long term move ahead. Hence, stick with it for Swing trades and wait for the price to indicate the shift in trend. 11.12.10
.............
List of Stocks to Pick along with Sector

Voltas - Consumption Theme
Vijaya Bank - Public Sector Bank
Uco Bank - Public Sector Bank
TVS Motor - Automobile (2&3 Wheeler)
Syndicate Bank - Public Sector Bank
State Bank of India - Public Sector Bank
Srei Infrastructure - Finance Leasing
Skumars - Textiles - Synthetic Silk
Sintex - Industrial
Siemens - Telecom
Sriram Transp - Finance Leasing
Punjab National Bank - Public Sector Bank
Oriental Bank - Public Sector Bank
Opto Cirui - Hospital & Medical
L&T - Engineering Heavy
Kotak Mahindra - Private Sector Bank
Kingfisher Airline - Aviation
Indraprastha Gas - Oil drilling & Exploration
IOB - Public Sector Bank
IDBI - Public Sector Bank
HDFC Ltd - Finance Housing
HDFC Bank - Private Sector Bank
Havells India - Electric Equipment
Glaxosmithkline Pharma - Pharmaceuticals
Dish Tv - Media & Entertainment
Development Credit Bank - Private sector Bank
Dena Bank - Public Sector Bank
Chambal Fertilizers - Fertilizers
Biocon - Pharmaceuticals
Bhushan Steel - Steel
Bharat Forge - Casting & Forging
Bank of Baroda - Public Sector Bank
Bajaj Holding & Investments - Finance Investments
Asian Paints - Paint & Varnishes
Ashok Leyland - Auto LCV/HCV
Ambuja Cements - Cement
Adani Enterprises - Trading
ABG Shipyard - Shipping

Based on Fundamentals that I look for and the Price structure of the stocks, I have short listed stocks from F&O segment which are worth looking at. You will need to analyze the stocks according to your own portfolio and will also have to look for suitable entry/exit and the SL.

One more thing which I'd like to say is that stock market is 'Dynamic' in nature. Hence, any stock can change its structure. Follow strict SL's and keep tracking your investments on a regular basis........11.12.10
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MFI

Basics - This is basically a Momentum Indicator which indicates the Money flowing in and money flowing out. Typical way to use this is to look for divergence between Money flowing in and price and by seeing when markets are reaching top and bottom (80 & 30 levels). Very similar to how you would use the RSI.

Calculation - There are basically three stages of calculation done to determine the MFI

a) First we calculate the Typical price which is equivalent to (High + Close + low)/3
b) Second we calculate the Money flow, which is equivalent to Typical Price*Volume. In this case if today's Typical price is greater than yesterdays typical price, then it is considered as Positive Money flow. Else vice versa.
c) We typically get two Variables in this. The positive money flow and the negative money flow. If we take the ratio of both, we then get the Money Ratio.
d) Finally we calculate the MFI which is equivalent to 100/(1+Money Ratio).


PVT

Basics - PVT essentially is a cumulative total of volume which mainly depends on the "%change" of the closing price. This is not a momentum indicator, but it is more like "price" which essentially has no limitations on the upside and downside. Though many consider it to be similar to OBV, mathematically they differ a lot. While OBV adds all volume of the day if price close up and subtracts all volume of day when prices close down, PVT only adds and subtracts portion of volume depending on the extend of movement.

Lets say volume yesterday was 100. Today prices closed up by 10% with volume of 20. Obv would add the volume of 20 to yesterday's volume of 100. SO total volume would be 120. Whereas PVT would add (0.01*20) 2 to yesterday's volume of 100. Basically it is weighing the magnitude of price move. This is precisely why PVT is more accurate and important.

Calculation - PVT is essentially calculated by multiplying day's volume with the price change and finally adding this to cumulative.

(%Change in Price*Volume) + Yesterday's PVT

PVT & MFI

a) MFI is more a momentum indicator and hence has its inherent draw backs like any other momentum indicator. That is, can remain in oversold and overbought regions for many days and hence cannot aid in proper analysis. PVT is more like a price indicator. Visual inspection and inference is more easier and accurate.

b) MFI also does not take into account the price weightage. This is a serious draw back. A day with 5% move with volumes is more significant than a day with 1% movement with volumes. PVT corrects this.

c) In terms of value addition, PVT adds far more value as it is easy to analyze and more meaningful when it comes to market analysis. It does not contain the calculation bias which usual momentum indicator do. That is, on slight change of volume, the reading on MFI can jump from 40-60 without any meaningful interpretation. Similar to the problem faced by RSI.

Hence overall, amongst all PVT stands out the most.
Hi Ruanak Bhai your list of stocks is very very good but I also believe its a contrarian bet on sugar and realty. I think we will see massive gains in real estate stock prices in next year. The profit margins of these companies have started to move up again and companies such as HDIL, Orbit Corp, DLF I believe are very sound. DLF especially has launched 7 New Projects in last 2 months and the rates are very very good the cash flow is generated today although the projects would be finished 2-3 years from now hence the cash flow will be realised in the balance sheet today. I agree with you technically and looking at the price structure it is in pathetic shape. But if we hear the financial news channel and every tom dick harry who buys stock is asking to stay away from this sector.
I would also go as far as to say if Indian economy does well in the long run these would be the stock where you will see maximum appreciation in 2-3 years time as almost every other sector is valued almost perfectly. I believe this sector is undervalued and to get Real estate stocks at P/E of around 12-15 is insanely cheap. This sector in my view has the potential to show outrageous gain if we are in a long term bull market which we will be if we breach 6380. These stocks can zoom 10-15 times from current valuation. I might look like a fool who is advising on buying realty sector when everyone else is ubber bearish on it but I believe the prices are undervalued a book value of 170 for HDIL which means if the company becomes insolvent even today the stock is worth Rs170. A Reliance industry with a limited future growth due to huge amount of cash sitting on balance sheet and not being put to use is valued at 6 times more than the book value.

Now coming back to sugar sector the price of stocks last time sugar was at 29 Cent per pound was around 40-50% higher from current level. In the last quarter the margins of sugar company would have significantly improved because in May when these stocks fell like there is no tomorrow the sugar dropped a whopping 60-65% in the international market thanks mainly to the excessive estimated sugar cane production in India and Brasil. No one counted Pakistan, Pakistan has the best quality of sugar in the world although the production is not very high but still it is a significant sugar producer and in my state in Rajasthan there are huge quantity of sugar being imported from there. However, with floods in Pakistan the sugar production fell and it natually came under control hence the sugar price in the international market rallied back 120% and is back to 28 cent/ lb from 12-14 cent in May-June. .........13.12.10
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Contrarian bets involve less of fundamentals and more of intuition. Hence if you see the fundamentals improving and the sectors doing well, you must invest in them. Intuition is very important in Investing and Trading and hence bet with it. Keep SL's though.

I am Bullish about Sugar sector especially on few stocks like Renuka. But realty as of now is something I will avoid.

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#118
27th December 2010, 01:43 AM
oilman5
Member Join Date: Jun 2006
Posts: 1,329
Thanks: 262
Thanked 1,212 Times in 433 Posts


Re: my last thread
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May be on extreme short term, trades would be range bound. But if you take a weekly perspective, we are heading higher. Have been screaming ever since markets were at 5700 that we are not going down. Hence take little longer term call and trade. Since commodities are inching up, expect the rally to be volatile...........14.12.10
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First of all good to see someone analyzing companies on these grounds. Keep up with it. Now, the reason I am Bullish on Dish is due to the price structure of stock, increase in FII holding and Business model of the company.

Dish Tv has a business model similar to that of Virgin (UK). The kind of Business that Dish is into, usually has Balance sheets like what you have described. Hence, I am not too much worried about that. So, in case the stock has to collapse to 40 or much lower, it has to go through our stop loss price and hence it will be exited. We were long in Dish since levels of 41 and at our SL of 55, we would still pocket a decent return. Untill then, this stock will continue to head higher.

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Here some answers to your questions from outside. Raunak surely will do his part.

If the stock is very volatile, you must give more room to your stop loss.

ATR indicator can be changed.

An inside look how hedge fund manager work. I say it like this : They can see the stop loss levels of the retail traders. So what to do, to bring them out of the market ? This levels are tested as long until the retail traders become afraid and move out of the market. So what next ? As soon as the retail traders are cached, means the funds have hedged all there positions on this levels, they can go long or on the upside, they can go short. Just to give a simple idea, how such levels are traded from the bigger money.

You may ask the big hedge system creator in this forum. He surely can you explain in exactly details, how this fund manager do that in real .

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Word on Markets

Everyone at this stage needs to be cautious. Personally, this is the first time in many months that I am looking at the markets with extreme caution. There are certain broad based indicators which are pointing towards this. The way I am trading the market now, I am eagerly watching for the band of 5840-5860. The breach of this band will definitely invite shorts from my end. As of now, I am holding on to my longs. From a traders perspective we also have to be prepared for some whipsaws and false trades. Hence, psychologically close above this band would make me cover my shorts and go long.

Be watchful and trade your plan.
16.12.10
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Markets are dynamic. Hence views are always dynamic. I am still Bullish and retaining my longs, but certain indicators like (Leading sector like Bank,Auto doing poorly, defensive sectors like consumption and IT doing better) do make me jittery. This in itself indicates that markets are defensive currently. Hence, I have turned a bit cautious. Not Bearish.

One cannot have a single opinion and stick with it. Adaptability is absolutely critical.
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1) For Swing trading, you are selecting the right kind of stocks. You need stocks which are volatile and you certainly don't need stocks like NTPC,HUL etc.

2) From the look of it, you are struggling to keep up with Volatility. If that's the case, then you need to get your psychological make up correct for Swing trading. There is no getting away with Volatility when you need to Swing Trade. Hence ask yourself if you are a Swing trader. Don't just do it because I am successful with it. Swing trading is difficult.

3) ATR is not for short term trades. Atleast not for me. Hence, your stop's need to be according to what you see on charts. Look at Pivot points, other uncommon support and resistances. ATR in swing trades can be looked for Targets. But certainly not for stops. For short term targets you can look at a stock moving 2 or 3 times the ATR.

................................

I won't be on TJ for sometime now. Our yearly target was achieved today and hence will be closing the accounts on Monday - Tuesday for this year. I am going for a vacation and will be back sometime in January. I'll try and devote time here, but the fact is that during the last one month, I have hardly been able to devote any time to TJ. Anyway, for all those who have done well this year, congratulations to you guys. For all those willing to do well next year, be resolute and make it a point to learn.

Self inspection in life is very important. Hence, before you go to sleep, close your eyes and ask yourself whether you know how to make money. In my opinion, there are two kind of market players; one who earn on 'Will' of themselves and others who earn on the 'Will' of others. If you fall in the latter category, you will never succeed in the long run. Trust me on that. The problem is, many of you don't want to read this. You'll be happy as far as your account is getting filled. This is precisely why self inspection is so important. The answer lies within you, if you search for it.

The reality of trading industry is that very few people actually reveal how to make money. Most of the experts either evade the questions or reveal only limited information in seminars/training etc. This in my opinion is not wrong. What is wrong is that unsuccessful traders expect the successful one's to reveal their method. Successful traders do reveal limited information which is enough for smart traders to latch upon and build something substantial. And I feel this is how it should be. And this is something which I have always done.

The correct way to approach the market is not to ask someone to show you the way. But it is for you to find what your mind leads you to. If I were to be believed, then making money in markets is only a state of mind. Nothing more and nothing less.

Many of you (Apurv, Rahul,VJAY, Gangadharan, Alroyraj, Amin, Jagan, Crown, Gauhar, Nimish and others) are already nearing success. I hope some of you are realizing that. You need to push forward and trust your instincts. Take the leap forward and see what happens next.

@Alroyraj - You have very good grasping power. And you have the ability to read in between the lines to get the actual crux. I don't know whether you have become a self sustaining trader by now. If yes, then please pardon me for posting this. Else, let me tell you that you are not far away.

@VJAY & Rahul - You guys have been learning for sometime now. I don't see why you should not be able to make it on your own. Try and give it a shot. Trading on your OWN.

@Gauhar - You have the eagerness to learn. But more than that you have the eagerness to make lot of quick money. I have told you before, and I will repeat it, you need a plan and you need to stick to it. Be patient my dear.

@Nimish - You are one trader here who knows how to integrate macro economic stuff into trading action. Problem with you is that you don't fully believe in yourself. You have the basics in place and you need to trust your instincts now.

@Jagan & Gangadharan - Jagan, you are patient and are working towards a plan. This is the right approach. The good thing about you is that you think logically. Keep working towards your plan and soon you should be where you want to be. Gangadharan, I have no doubt that you will succeed. Your attitude towards trading is the one every trader should have. Keep up with it.

@Amin and Apurv - I have interacted with you guys the most. Both on & off the forum. Hence, I have already told you what you guys need to do. Amin, you in particular have been very patient and have chosen the right track to get educated first. You will succeed. Just keep up with the good work. Apurv dear, what should I tell you. You and your MDP will simply rock going forward.

@Crown - I like that you have an approach of following your own trades. I simply adore that. The power of one's mind is simply unbelievable and I think you are trying to explore that. Good luck with it.


Just my observation on some of you guys here. Hope I have not hurt any sentiments. Its all in good spirit.
.................................................. .......Your way of analyzing is different than most of the members on TJ. Hence always seek to you for advice or understand answer to the question in my mind. Most important thing learned with you to creat mindset for trader which need to be strenghten further.

Plan for next year is....
1. Take out good points from various system which I have tried.
2. Develop OWN system which will suit my personality.
3. Start documentation of every trade. (This was missing... but started from Dec) & Review it weekly/monthly basis. Clearly mention lesson learnt during week/month to fine tune system.

............................

SOME SUMMARY
Have a master plan! What are the big points you want to achieve over the next year. All activities should support the achievement of your big points. By big points I mean for example: “By 2011 I want to have two trading systems with a distinct investment style. I expect each of them to return XY% per year.”. I know this isn’t rocket science, though it’s so easy getting lost in narrow focused system optimization.
Make it a process! Focus on getting better day in day out, eventually results will show up. Build a methodology how you want to develop a system. In the past I often heard, we don’t have time for processes; we have to create products now. Know what you do before you start and don’t describe what you did after you have finished. I often fall into the trap (especially in the first year) to JUST test an idea and hours passed away without noticing. Follow your master plan!
Stay focused! There are only a very few different trading systems (styles) out there. In the beginning I made the mistake having up to 10 “different” systems (all focused on equities). In reality it’s been one system with different setups. I thought having a swing trading system on the German DAX is a different thing than having a swing trading system on the SPY. Of course it isn’t! But I had to learn this the hard way. Furthermore I spent way too much time on trying to develop an intraday system. I believe creating good intraday systems is more difficult than creating solid EOD systems. Hindsight I should have focused on EOD systems right from the beginning.
Don’t read too many books! (before you start). I should have started earlier by getting my hands dirty in system development. In my opinion there is too much money made in selling redundant trading books. System developers can learn as they test (to some extend). Of course education is important, but don’t underestimate the power of hands-on experience.
There is no way of getting rich quickly! … Only one of getting poor. Things are going to take time, at least for me. I’ve invested about 4000 hours of system development (not counting the endless hours of reading books). I’m still not there, I feel like I’m an intermediate. I expect to need 10.000h in order to reach expert level ground. There is a great book about this topic (non trading related), it’s called “Outliers: The story of success”. The essence of the book: talent isn’t born, it’s a process and takes time. At least 10.000 hours.
A system is more than an entry! Do not underestimate the power of money management. Invest time in researching about when is the right time to increase or decrease your position size. Eventually this is going to set you apart from the crowd.
Trading has to be painful (sometimes)! Trust your system. Often times I questioned the entries of my system, because it’s been to painful to execute the trade (into deeply oversold setups) as everybody was talking about the world coming to an end (finally). Of course that would have been the perfect time to make BIG money.
Don’t wait until it’s perfect! Once you have a solid first version of your system begin trading. Start with small position size. This way you learn how to execute the system. This is something that’s totally overlooked in my opinion. You will figure out if you can emotionally execute the trade, have the time or if it’s at all possible to execute the trade as your back tested result suggested. Furthermore you will run into some issues and make mistakes. That’s good. It’s better to make them early (while you maintain a small position size). Believe me; I made every possible mistake one can make during the course of such a journey. I’m not proud of these mistakes, but at least I’m trying to not make them a second time.
Be honest with yourself! There is only one person in the world you can’t lie to. Don’t look for the shortcut, there isn’t one. Focus on the concept and don’t spend endless hours on over optimizing results. I know it’s tempting.
Find a mentor! Get support early in the process. Have somebody that has experience in the field of system design and trading. He or she can guide you without giving you the shortcuts. I believe this has been the single most important factor in improving my system design and trading. Working with this expert required me to be more explicit in my thinking and system design.
The list isn’t complete yet. I’m expecting to make more mistakes and hopefully learn from those.

As you can see: I did it my way. Certainly not the perfect way, but I’m still healthy and alive. I know I’ve to continue learn and excel in order to succeed AND pass the 10.000 hours.
ouple of observations:

1. A beginner has to gather knowledge on what markets are about and in this respect certain amount of study is required before embarking on any system development.
You are right, over reading can be counterproductive.

2. At the outset it is crucial to remember that markets are made up of people, human beings and no indicators or systems can address all the nuances of human behaviour.

3. The fundamental law governing all markets, in any time frame, (intraday(1min-240min) or EOD(weekly, monthly, yearly) is Supply and Demand. Many think it is perceived value via fundamental analysis and news reports, world events etc but all these perceptions have to eventually materialise on a chart as price and investors/traders have to enter the market with either buy or sell orders which in turn creates the Buying and Selling pressure ie. Supply and Demand.

4. Hence I would suggest that a beginner would do well to study Wyckoff, It is 100yrs old but the principles outlined therein will remain valid in any decade. The teachings have remained out of public domain for a very long time. Only in the past 10 or so years the work has come to light and gained prominence.

5. Wyckoff's work provides insight into the workings of the market, the market manipulation etc and how price action can be read through range ie. price movement and activity ie. Volume. Volume is the Effort and Price is the Result.
Alongside it would also be prudent to undertake a systematic study of Taylor
It is a gem, however it is a very hard read, Taylor was foremost a trader and writer second. Most find it so difficult to grasp that they walk away casting his work as antiquated but have patience and persistence and the light will come on.

6. Once this background is in place, one can set about constructing strategies and tactics to create an edge to take advantage of the opportunities that the market provides. Then all the steps you outline come into play.

.............................When you are in stock markets, you need to think rationally and not like a non investor. You are in a profession, where no gains on capital is also a gain. Non erosion of capital in itself is an achievement. Do you know how many fund managers lose money and how many seriously under perform? If you begin to dig deep in this, you will be shocked to know the stats.

Don't calculate returns the way you are calculating. Keeping money in your account is actually saving money since you don't find the market environment appropriate to invest. Hence, be realistic and realize that you are in a profession where bulk of the gains sometimes comes in one year. This is why stock market returns follow Log Normal distributions and not perfect Normal distributions. A solution to your problem would be to invest the 50% funds in 1 month fixed deposits. This is not hard to do as these days flexibility in FD investments is available. Returns wont be much, but at least psychologically you will be fine.

P.S. - If you don't mind, I would like to tell you one more thing. Don't take it the other way.

If you have 50% money in your account at the moment, then this means you are lacking some planning in your investments. A complete trader is one who is ready with every situation the market bestows upon him. His plan covers all aspects and certainly one aspect is to see that money is never idle. ...........RAUNAK
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Holding on to capital and not trading/investing is probably the biggest psychological barrier one has to overcome. This is the only thing which distinguishes a trader/investor to a risk averse person who wants safety. Get used to handling risk and just go for it without hesitation.

Most people sit on the sidelines not because of lack of opportunity but rather due to lack of conviction. There is always an opportunity to mint money , one has to just take a closer look at things.

And why care so much about some fund manager somewhere and his/her goals or performance. Most of the stats that are freely available are usually no good.

.................This kind of Mental make up is what separates the best from the rest. But I agree to what you have said as it applies to the majority. And read the Fund managers report, I was referring to research reports which by the way are a lot costlier and full of accurate information.

In the end it depends on how an Individual thinks. Everyone can think differently and still be profitable. ...........Raunak
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Trading in the financial markets can be fun and profitable. Trading is a skill that can be learned over time. It takes a period of trying different methodologies and acquiring market knowledge. Usually, the beginning trader is confronted with a myriad of strategies and information. The number of various instructive materials to choose from is mind-boggling to say the least. It is no wonder that the beginner and even more experienced traders become confused and frustrated.

The would-be-trader or investor has to keep in mind that much of this confusion is created for a reason. The purpose of this disorder is to urge you to seek professional help. Books, trading courses, stock gurus, TV, brokers and advisors all stand ready to pluck your wallet in exchange for giving you the secrets of making money. As with most everything else, some of this advice is useful and much of it is not. Perhaps there is something a little bit different and simpler. One key to successful trading is to keep things simple.

How can a trader make his trading life easier? By having to make fewer decisions in regards to every trade. Contrary to what most experts say, it is very possible to trade with fewer inputs. Inputs would be areas like financial news, world news, and economy related news. It might also include the number of indicators and charting tools that are used for discovering and managing trades. Another input that could be avoided is listening to other's opinions about what or when to make a trade.

Whenever you listen to the news and the opinions of others, you then have to filter that data through your thinking process. You actually have to make some kind of decision concerning all those tidbits of information you come across. And attempting to understand how all those various inputs will affect the markets is usually difficult to manage. Predicting how other traders and investors will react to the multitude of news items is often futile. It is really a guessing game that most so-called experts are unable to consistently figure out.

If a trader is aware of his thinking, often he will find himself second-guessing a possible trade set-up. That piece of information he came across yesterday is affecting his thinking. Or, he heard some news today that has his contemplating future events. It is extremely rare that all the inputs will point in one direction at the same time. In effect, the more data points that you try to use in your methodology, the more chance for conflicting and confusing findings. This opens the door for more mistakes and losses from trading.
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Please do not believe everything you read on an online forum over the internet. Test it thoroughly to find out the flaws in it. Knowing the limitations will do you more good than a hundred lads bragging about how good it is or how much money it had made them.

Whenever i get into a discussion there is one thing i always emphasize. Markets are dynamic by nature and hence they inevitably change their nature at some point of time or the other. So check the overall economic/general conditions in which things have looked pretty and where they look dull.
 
Last edited:

oilman5

Well-Known Member
Now i am planning some copy paste of a tough but very high callibre parttime trader in traderji.He has solved clarity & psychological issues in trading.
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COMMENTS ON A TRADE-LEARNER’S LOSS-VALUES OF EXPERIENCE

No sympathies to you. Absoulutely no sympathies.

On the contrary I congratulate you on making a GREAT start to your trading / jobbing career. You are down JUST 26% and you are feeling sh*t.

THIS IS THE EXPERIENCE or even worse if you lose more here after, which I really wish, if you sincerely want to make this to be your livelyhood activity.

THIS FEELING can never be felt anywhere else, not by listening, reading books, hearing. Belive me this EXPERIENCE is a MUST and is the foundation stone for trading career.

A few suggestion I would like to make to you:

1) Don't be vocal / expressive of all your feelings in public - you will dilute the learning experience and would commit same or graver mistakes in future. It is your experience and you need to go through it. Enjoy it, feel it, nurture it - get your body, mind and soul adjust to this experience. By sharing it publicly you are losing a big opportunity of learning. You may share it subsequently once you are out of the experience. This applies to Good experience as well as "Learning" experience.
2) Don't be overconfident - going back with a bang in the market seldom wins. Vengeance trading is a sure receipe of failure.
3) Never target an amount or % gain - i.e. if you are down 26%, don't target to recover it first and so on. Returns - gains (or losses) are market dependedent. Hence adjust yourself to the market on a particular trading day/period instead of adjusting your expected returns to the market.
4) Never ever quit - other than going on vacation or personal engagements. Even if you are feeling down (like now) don't quit. But REDUCE your volume, if need be trade 1/10th, 1/20th, 1/50th or even 1/100th of our normal volume. But don't quit. You may take a break to address the strain / boredom of trading but not due to booked large losses (or even profits otherwise too)

Finally, we all have read /heard it thousands of time. Successful people don't do different things, they do (same) things differently.

p.s. : Tip on Trading: Even for the most successful traders in the world 2 /3trades out of 10 are wrong. Brace with a fact that not all your trades will produce profits. Means SOME (anything above 2 trades out of 10 trades) will CERTAINTLY be wrong. SO exit the wrong trade IMMEDIATELY.
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Hard lessons are learnt only when they are forced onto yourself. To learn from an experience, you need a stable mind not a cool mind.

By being expressive you may gain nothing but sympathy (is this your objective or definition of being a trader ?) or advices/suggestion from people whom you don't know. …. is nothing but noise, which you need to eliminate and not create. You may want a shoulder at this point of time, but if you get one, you will always need one. Being independent means totally, independent. Supertraders are completely detached to what is happening to their positions, similarly you will need this independence.

Instead, I would suggest you IMMEDIATELY (before you forget in this noise) LIST down things that went wrong, how did you act and how should you have reacted. READ, RE-READ, RE-READ endlessly and basis this write down your own rules, dos and don'ts. Memorise them, paste in front of your computer screen. Read it in the loo. Take a morning jog or a evening walk and rememorise it. BUT DO IT ALL ALONE.

Remember this will be your FIRST list, similarly you will have many such more lists, till you consolidate your learnings into a SMALL set of trading rules which will finally suit YOUR OWN personality. And only after this, you will be ADMITTED to traders category. This could take several months or even years.


p.s.: Tip on Trading : By nature and default everyone has bad trading habit, over a period and through OWN learning experiences one can control bad trading habits away. But still, NO ONE is immune to them, the moment one is lazy or callous they will return.
Two more points that could assist you:

1) RESET YOUR MIND: Like any disciplined child, when we START our trading day we are well behaved i.e. the initial trades of the day will be governed by our set rules or entry / exit / stop loss etc. because our overnight revision and commitment to adhere to our rules is afresh. As we get into more trades we tend to ignore rules, break them and by the end we realise that it was a messed up day.
Hence after each few trades take a pause, reset your mind to the same level as it was at the beginning of the day. You may want to take this pause at a preset time then set alarm on your machine / mobile which will alert you to reset your mind. At this moment it could also help you exit immediately if you are holding a losing position due to non adherence of your rules.

2) RESET YOUR MONEY TO 100: Either winning or losing reset your trading amount to 100. You being down by 32% has immediately prompted your mind to analyse and send you a message that you are 1/3 down from your capital . This figure would play a pivotal role in your trading decisions all the times. Also the mind would always be tempted to recover all the lost amount in one trade (which does not happen). Hence reset your trading account balance to 100 (even if were in profits). Base your trading calls, quantity, risk-reward w.r.t. to 100. In other words, make all your daily calculations in % terms of your trading account balance rather than the starting capital. This will make life much easier and would help you to focus on your actions rather than on results. This may take some time and little practise but it is certainly not as hard as sticking to ones trading rules.

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In trading there are two important things:

1. Plan - Instrument, Quantity (basis Risk:Reward), Entry, Exit (in profit), Exit (in loss), holding period/time
2. Rules - defining all of the above

To be a successful trader you will need to be ALWAYS RIGHT on BOTH the above things. Definition of ALWAYS RIGHT means 10/10. Anything other than 10/10 is equivalent to ALWAYS WRONG. Hence 0/10 = 5/10 = 8/10 = 9/10 = ALWAYS WRONG.

If you can UNDERSTAND the simple definition of ALWAYS WRONG then you have won the battle before it begins.

I will give you a simple but very effective tool to assess what is going wrong with your trading. i.e. the first point - PLAN or the second one - RULES

1. Decide ONE (only one) instrument you have been trading since last few days. There is no logic here, any random pick is fine, but you need to select only ONE instrument.
2. Decide minimum permissible quantity/lot you can trade in that instrument.
3. Decide holding period/time as per your existing rules. For a jobber it could be 1 minute. You may decide 5 / 10 mins etc but you need to select ONE holding period.
3. Take a 1 rupee coin having clearly defined Heads and Tails
4. Now don't look at the market, your charts, your indicators or any tool that you use. Absolutely NOTHING. Now toss the coin.
5. If it is Heads you BUY the decided quantity of decided instrument and if it is Tails you SELL (or do nothing incase you do not short otherwise) the decided quantity of decided instrument.
6. Once this is done: Refer all your indicators, charts, etc to arrive at the BEST EXIT price. The BEST EXIT price could be in PROFIT or even LOSS, as you have entered the trade randomly.
7. If your BEST EXIT price is achieved during the decided holding period, then EXIT at that price
8. If your BEST EXIT price is not achieved during the decided holding period, then EXIT at the end of the decided holding period. For this purpose of EXIT at the end of the decided holding period, you may use an alarm clock on you machine/mobile, which will prompt your to exit.
9. Repeat this activity by tossing the coin again number of times, you may do it constantly i.e. back to back or after pausing for sometime between trades.

Illustration:

1. Decided instrument : Nifty Futures
2. Decided quanity : 50
3. Decided holding period : 5 mins



(Entry Time) (Max. Exit Time) (Toss) (Action) (Entry Price) (BEST EXIT Price) (BEST EXIT Price Achieved) (Actual EXIT time) (Actual Exit Price) (P/L)

10:00 10:05 Heads Buy 5145 5152 No 10:05 5140 -5
10:15 10:20 Heads Buy 5150 5159 Yes 10:18 5159 9
10:30 10:35 Tails Sell 5162 5154 Yes 10:34 5154 8
10:45 10:50 Heads Buy 5144 5144 Yes 10:45 5144 0
11:00 11:05 Tails Sell 5152 5143 No 11:05 5150 2
11:15 11:20 Tails Sell 5136 5130 No 11:20 5142 -6
11:30 11:35 Heads Buy 5125 5129 No 11:35 5122 -3

Total Profit / Loss 5
Total Investment 40000
ROI 0.01%

Now let us analyse the results:

1. If summation of all trades done in the above fashion is lesser loss or in profit (calculation to be done strictly on % terms to investment made) than your historic daily loss (again in % terms to your trading account balance) then - YOUR "RULES" ARE RIGHT BUT YOU NEED TO IMPROVE/CHANGE YOUR "PLAN"
2. If summation of the above is similar or nearer to your historic daily loss then - YOU "PLAN" IS RIGHT BUT YOU NEED TO IMPROVE/ CHANGE YOUR "RULES"


p.s. I know that the above tool will not be exciting to use as any other trading day, but if you look behind you will notice that exciting trading days have mostly produced losses. The only way to make profit and consistent profits is to make trading activity as boring as possible.
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A classic example why trade when you know systems are not up and running? Successful traders blame no one for their losses but themselves. I hope you understand the point

This month I broke my own record i.e. worst loss ever in my trading history. Around 27% loss on one trading day. While my best is just 5% profit. No. of trading days which end up in profit is high but the losing days eat up all my profit.


What I feel sad to know that your casual announcement that "one has to refill the trading account number of times before making profit consistently". Please understand that this is no prerequiste to success in trading. Ofcourse most of the traders undergo this, but you taking 'pride' in wiping out your capital just to make refilling and start again is unwelcome...............A cue you may take here which may help you in your trading - be more observant, wait for 'opportunities' to come to you instead of you searching them in the dark.

In trading, 'opportunities' have NO OPTION but to come to people WHO WAIT for them. Strike at the right time and strike hard.

…many seasoned and successful traders might see their past performance, attitude as their own history .now he has the ability to bid and win big too (which most of small-loss-profit traders may not develop over years) only if he can learn asset allocation and risk management in times to come. He can still evolve and do better.
If sun rises in east (it is a given fact) you can't question or change that. Similarly, Money management (asset allocation) and Risk Management cannot change either whether you are full time or part time trader.If you are good at the above two, I guess no one can stop you from becoming a net profitable trader. The quantum of profit and RoI will depend on your method and instruments you trade
........................this statement of yours shows arrogance. Get rid of this thinking/attitude as soon as you can. This will destroy you. Market rewards you for your discipline on trade after trade, on your prudence decision making and on your ability to keep cool. Personally I never got too far with this thinking "I take it from Market"……….it seems u want 2 get back at 'them'who has taken your money, but believe me there is no 'them ' in this market, there is only 'me'.the market is very impassionate towards my profits or losses.
I am powerless in this market. when I put in a trade to buy a stock, it is obvious that I want the stock to move up,but the market does not have any respect for my desires. it is not in my power to move the stock even one tick above the price that I have bought it for.now if I am so powerless,where do I get the edge to make money in this market.
I have one tool with me which all the power and might of this market cannot take away from me and that is my stoploss. so start taking care of ur losses and ur profits will automatically start to take care of themselves…………… if you want to last long, there is no way you can loathe reading, it must be your hobby, passion, desire and indispensable thing. And anytime you are short of reading materials, do let me know. I have tons of them.
These days i am reading Patel's "Mind of a Trader", Norman's "Stock market logic" and Taylor's "Mastering Derivatives Market". and I highly suggest these books.

Always say-I'll show everyone that I can change.
Keep the attitude but never be arrogant. Market knows zillion ways to humble traders.

Sorry, I guess, my posts are like casual approach to you. …., actually its too painful. It's the pain of such days which makes a lasting impression and stops us from breaking our rules.

( Remember, Market is for reverance and not revenge)....................I have gut that you may develop into a successful trader. I don't know why but just sensing it somehow. The most important thing I think is you are very open to ideas and always ready to adapt to change. This is a great trait indeed for a trader atleast.
To come to your point directly, if you do not leverage, making substantial gains from day trading for living is less likely. Even if you have large sum as your trading capital. I would focus on monthly returns or RoI as a measure of how much money one can make in the market. Hence leveraging is necessary for day trading. How much to leverage will depend on your MM and Risk Management. More so, if you have different time frames of trading other then day trading (like in my case) your RoI will be different, as you are more focusing on MM. Hence your day trading may help you make double than your longer time frames method.

Adding to……….."sky is the limit", YOU can decide how much to make from the market. If your method produces say even 15% RoI p.m. and is scalable then who is stopping you to borrow @ 2% pm and pocket the difference. You can make money without having money. BTW this is only an example I am providing and am against trading on borrowed money. So your method's RoI and scalability is what you need to define to arrive at how much on an average you could make every month.
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Very rightly said 'Time cures everthing'. So take your time, and do some homework till then. This is your best time to prepare for future.If you are just starting and havent' mastered any form (infact mastering is a life long process, i mean consistent in profits) then it is not good idea to jumble different styles of trading.

There is no problem in trading more than one style but you should know the difference and never jumble them. Don't enter thinking you will scalp it but then you stayed longer seeing the profit rise. And vice-versa, don't scalp if you entered for trend.
Infact i see the market condition, which decides my form (very rarely both style of trading comes into picture in the same day).

In trading one does not blow out due to losses but due to unability to manage losses makes him think in the wrong direction, taking wrong decisions which leads to deeper mess.LOSSES ARE PART OF TRADING

(or for that matter any business) for one and all, you, me and everybody. But only those come out successfully who manage themselves during this phase.

If one can learn how to LIVE with losses, one will start booking loss IMMEDIATELY after identifying a wrong trade. ……..a key to be successful in trading. Profits will always come how so ever dumb one is.

Ironically, some know this, few understand it and even fewer remember it. And those traders consistently trade 'net' profitably
. I've never modified stop loss on losing side. I just simply take the hit as it is. Acoording to me it is important reason for my survival .If a system has winning ratio of only 35%, so only way to make money in such a system will be "CUT THE LOSERS & LET WINNERS RIDE" (It's not easy as it sounds, but after some behavioral change its possible).

Also the reason, i didn't get into Jobbing was, it requires HIGH PROBABILITY setup which i find tough to find (or implement in REALTIME). High Probability is necessitated because of LOW PROFIT (R:R = 1:1 or max 1:1.5).
I bet on HIGH PROFIT setup. I have done hours of backtesting of several systems and realised it is possible to find or make a decent system and with discipline it can made high profit.

Stop Loss is grossly misused term to exit your WRONG TRADES.

I beg to differ almost all authors, traders, 'experts' who proclaim that SL (Stop Loss) is the most important part of their Risk Management strategy. And can, have and would vociferously engage into a debate with them. Also I doubt if SL management would ever create successful trader.
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A QUESTION FOR A TRADER

over the years I have found 'stop loss' to be the most potent tool in my arsenal. the first advantage that I can think of is that in ur initail formative years, it keeps u in the game always.I feel that my loss is the only thing that I can control in the mkt……….as regards jobbing, I am very clear that jobbing without stoploss is like driving a car at high speed without brakes. crash is imminent….now since I am not jobbing actively anymore,all the systems that I trade these days are based purely on stop loss ie. I do not have a price target but always a stop loss.
ANSWER:
partially do agree that Stop Loss is slighly misused and grossly misunderstood.
Keeping the stop-loss for the trade and waiting till the stop-loss hits is like looking forward to Stop being hit.

In almost all the cases my position is greatly reduced before it reaches to the point of STOP.

Exiting the Trade with stop loss means you don't have strategy for exit (for trades which are in not in your favour ofcourse). It is better to devise some rules based on weakness of trend (if you are a trend player), piercing of Bollinger Band (if you are a ranger) and based on tape (if you are a jobber). This will give you more control over the trade.
BUT this doesn't mean that there will be NO STOP LOSS. STOP LOSS must there to save you from catastrophe. Let's say your internet connection is gone or no electricity, system crashes, thunder, and worst ….Heart Attack .
Stoploss is the most important tool to prevent runaway losses. Also when i said i do not modify stoploss, i meant i do not expect the losing trade to suddenly turn into winning one. If trade moves in opposite direction of what you expected there is always option of exiting the trade before the stoploss is hit.
I always have one.It's this that I prefer to exit a trade with a reason where reason is something other than "stop loss being hit".

Disclaimer to everyone (specially newbees into the field of trading), Please do not read my words as favour against not keeping STOP LOSS. Always have stop loss, but then there are other facets to exiting a trade. Moreover don't take a position where a smaller runaway scares you (or your Trading equity)
suppose you meant "should you take profits or wait for maximum profit (by allowing your winners to ride).

This is where Trading becomes ART, and is mastered with Experience. It's the greatest Dilemma especially for Trend Players (Positional/Swing/Intra-Day).

I prefer to take 50% of profit at first sign of weakness (opposite candle to my trade direction). Deciding on this weakness also happens after multiple TFA (sometime decision is settled by 1 min candle). Then i take 25% of profit where i see smaller pullback or rally (depending on side of trade) forming. Last 25% happens either at b/e (if trade was already in profit) or at EOD (since i am intraday trader, i square off all trades by EOD, and no exception even if trade is in huge profit or huge loss)

But then the scope of improvement is always around, everday after the market in hindsight looking at chart it seems i could have done better, or sometimes waited little longer or sometimes booked little earlier, but these are knowledge of hindsight which doesn't come into picture during REAL TIME trading.

Every profession after some degree (i.e initial learning of rules) becomes Subjective i.e a matter of skill (or ART if you will)
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Following are the assumptions before I get into this topic:

1. Traders trade basis TA (charts, indicators, volume etc) and not FA. Hence Jobbers will be exclued here as they generally do not use either TA or FA
2. A Trading Plan is in place before entering into a trade. A typical Trading Plan will include:
- Awareness of market condition
- Entry reason, instrument, time, price
- EXIT TIME (holding period of the position, if the position is in favour)
- Review period interval of the position (viz charts, indicators whatever your method uses)
- Adjustment plan (adds, reduction, status quo)
- Estimation of Maximum drawdown at the end of first review period (this can be done basis the volatility). Your quantity, exposure etc will depend on this
- Stop Loss : For 'traders' who religiously follow this practice and arrive at the SL amount on whatever calculation they do

3. Trader here is not a novice and has had fair experience of trading including undergoing trauma of living through losses for extended period of time
4. Trader here has a reasonable strike rates derived from his method(s) i.e. range between 40% to 70%

The Precursor:

Most of us have learnt to ride a bicycle in our childhood. We have fallen, got hurt, scared, demotivated to quit, but the fun of riding the bicycle always made us to take a jig at it again and again, till we perfected it.
In the process we have had bruises, scars and even fractures. This is almost similar to trading without Stop Loss as there is not protection for you when you lose balance and you crash getting hurt. (Ever wondered that you could prefect riding a bicycle despite without a SL, but have taken so many years to perfect Trading even putting SL???)

Suddenly, some smart man suggested that we should have ‘Stop Loss’ on bicycles so kids don’t injure themselves while learning. So he put a pair of small wheels along the rear wheel, so the bicycle was actually a four wheeler than two. These two super supporting small wheels kept the ‘kids’ (I guess most of us have not learnt riding on such ‘four’ wheelers, anyways) from falling on either side, hence protecting them from injuries. A good idea indeed !!

But as the kids grow up and they learn ‘balancing’ on their own they would get rid of the first small wheel and a few days later the second small wheel. Now they are riding a bicycle (two wheeler !!) in the real sense. We have all seen this right, so there is no excitement till now. But I would like to ask here, why do you remove the small side wheels after you have learnt balancing???? You can very well keep them as it is, why remove it???

Yes, why we remove it? Why we remove this ‘Stop Loss’ forever and never use it…..

Fair assumption would that the wheels are removed because the kids have learnt riding the bicycle. This does not mean that the kid will not fall now, he can still fall but now the fall would be mostly triggered not due to his own misadventure but by some external factors viz, some one banging him from rear, tyre burst while riding, a stray dog suddenly running across the road, unnoticed potholes etc etc…

But still we have decided to remove the wheels not because the kid will now NEVER FALL but he when is likely to ‘fall’ he will use his own FOOT to prevent the fall. He will not rely on EXTERNAL small wheels (‘Stop Loss’) which used to protect him till now while he was still learning.

The ‘small wheels’ are physical Stop Loss, while the feet is the mental Stop Loss. Using his feet to halt the bicycle at his ‘destination’ or in between to prevent himself from falling comes NATURALLY to the kid. There is NO THINKING involved when to put the FOOT DOWN. It comes naturally!!!. On the contrary if there were the small wheels on the bicycle forever, they would always act as artificial external way to hinder the driving process and would always prevent him from taking those sharp turns, do the ‘wheelie’, race the empty road, race through the slopes freely or struggle hard upway. The ‘small wheels’ just cause obstruction than help him now since he has now perfected doing the balancing act !!!

Market conditions are not same all the time (I am not covering this here), so you will sometimes have to face sharp turns, do the ‘wheelie’, travel downhill or struggle uphill. Again you will never know what could happen next as the conditions may or may not change suddenly.

It is trader’s mentality to keep trading in various kinds of market conditions and all the time. Of these traders there are some smart traders who have different methods to trade different market conditions. And unfortunately for most of these ‘smart’ traders the methods get overlapped or interchanged. And then so does their SL. But while I am saying this, the SL they put is most likely arrived in a RANDOM fashion or on the basis of % risk per trade (..ha…ha..). How on the earth would the Markets know YOUR risk per trade % and move in your favour keeping it in mind that YOUR SL should not be hit (I wonder..) As it is random pricing of SL and further even illogical (read sentimental) concept of trailing SL, it is often called that ‘SL management is art than science’ (you may read ‘abstract art’. Abstract art : No one understands it, but do not want others to know about it hence you start appreciating it. The next guy also does the same. So no one argues.)

The very fact that you have put the SL in the first place makes you feel that you are IMMUNE to everything happening in the market. You start feeling that nothing can happen to you now as worst is that you will exit at the SL. You act God. This feeling deprives you of the ‘opportunity’ to exit your WRONG trades much earlier as you always have the feeling that you have the SL in place and this SL will HELP you make profit and the SL will never be hit. Invariably the SL is hit. And hit. And hit. Then you increase the SL gap as you feel that the earlier SLs were too close (having seen market reverse after hitting your SLs).

Using SL for trading, you take 1 step down, x steps up, 2 down, x up, 2 down, 1 down, x up, 2 down, x up……and so on. At the end of the month either you are down or at par or at best marginally up. But is it worth all the effort, time and opportunity one had all during the month.

On similar lines, what is the use of a helmet when you ride a motorcycle? Why is the safety net in the circus? …..and their analogy in trading……………..
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The very fact that you have put the SL in the first place makes you feel that you are IMMUNE to everything happening in the market. You start feeling that nothing can happen to you now as worst is that you will exit at the SL. You act like God. This feeling deprives you of the ‘opportunity’ to exit your WRONG trades much earlier as you always have the feeling that you have the SL in place and this SL will HELP you make profit and the SL will never be hit. Invariably the SL is hit. And hit. And hit. Then you increase the SL gap as you feel that the earlier SLs were too close (having seen market reverse after hitting your SLs

….. but the way I think is that if I put on a trade with a predetermined SL and later on find that the market does not behave in the manner that I expected it to and square off my position before my SL is hit. what am I doing..... I am still booking my loss . hence I am still executing my SL albeit I have raised my SL closer to my entry price. hence the debate now is not whether having a SL is good or bad, the debate here is whether the SL should be fixed at a preconceived point or should it be raised or lowered according to the way the market reacts (or the way I perceive the market) after putting on my trade.


It is trader’s mentality to keep trading in various kinds of market conditions and all the time. Of these traders there are some smart traders who have different methods to trade different market conditions. And unfortunately for most of these ‘smart’ traders the methods get overlapped or interchanged. And then so does their SL. But while I am saying this, the SL they put is most likely arrived in a RANDOM fashion or on the basis of % risk per trade . How on the earth would the Markets know YOUR risk per trade % and move in your favour keeping it in mind that YOUR SL should not be hit (I wonder..) As it is random pricing of SL and further even illogical (read sentimental) concept of trailing SL, it is often called that ‘SL management is art than science’ ………..: No one understands it, but do not want others to know about it hence you start appreciating it. The next guy also does the same. So no one argues.

there are a lot of guys around who feel that all price movement is random.I also subscribe to the same school of thought.I beleive that all price movement is random with a few trends thrown in, as would be the case if we try to chart the outcome of a simple coin toss. the general outcome would be random with a series of successive heads or tails thrown in between.this series of successive heads or tails is what I consider as 'trends'. I totally agree here that the market would not respect any random SL, but believe me it would not even respect any 'pivot low or high' or any 'fibonacci levels' if it doesnt want to. hence I do not believe that there is any harm in putting a random SL initially and then moving it later on according to the way the market moves .

Also stoploss is used to prevent runaway losses especially during sharp move in opposite direction of trade.
Now coming to your analogy of bicycle. Everyone has his own prespective and sees the world accordingly. In my view the smaller wheels are like extra caution, e.g. like someone uses 1 indicator to trade with 40% chance also when he has 2 indicators giving same signal his chances get to say 55%. So he trades only when both indicators give same signal. So he obviously misses some oppurtunity as well. So in my view inherent precautions in ones system are the two smaller wheels.
Now what is stoploss then?
Stoploss is the brakes. It is used to prevent falling in pothole. Now whether you drive 2 or 4 wheeler brakes are paramount. Also its importance increases with increase in stakes. Like one can drive bicycle withot brakes but what about driving a car without brakes!

I always (of course not always, after initial hiccups in trading) had a view that One should have Discipline enough to Cut the losers on own Will and not depend on Stop-Loss (which in a way kind of forces you, though some novice traders horribly move their stop down which is another crime completely).
but all said, no one can expect a novice Trader to mature soon enough (without hitting some stones) to a disciplined trader where he can put the legs down automatically without any hesitation, so everyone has to go with the phase where you use "Extra wheels". The small wheels are post facto hence they will not come into play till the rider decides to ride the the bicycle and sits on it and starts paddling. The brakes are reduction in you position as there is uncertainty whether you will reach the destination by the stipulated time. Paddling is adds to the position. Putting foot down due to sudden hinderence is actual exit from your position at that point of time (either in loss or profit whatever it is), slowing down as you reach the destination, stepping down your positions (likely in profit) culminating into final touch down at destination, exiting fully.


Also we should never discount the possibility of "Black Swan" occurring (for the completely uninitiated, its events with very low probability but very high impact say October 19, 1987 when Dow crashed 22%) and for such scenario's there must be a stop loss , which according to me should be at level where it doesn't come into play on normal days.Extending the analogy, i would like to call these kind of black swan stops as "helmets" and not "extra wheels" (this is first time when i am deliberately trying to fore-run your thoughts, i hope i am getting it right ?), though a bike rider doesn't expect to hit an accident everyday and by probability chances of it occurring (even in is complete lifetime) is very low so he would rather not use one and rather enjoy free ride but then one accident without helmet could kill him ending any further progress (analogical to getting bankrupt). So the question is, Is it worth to wear helmet everyday where expectancy of life killing accident is very small, i firmly say yes.


While Aaditya you are putting SL to address a catastrophe, Anurag is defining by expected loss (defined by his initial random SL) closer to lesser loss in the event of identifying a wrong trade. Sanjay is a fence sitter .

While Aaditya definition is similar to wearing helmet riding a motorcycle (or the safety net in a circus) where the idea is not to get down from the bike head-down first. The helmet is just to protect us from any UNFORSEEN circumstances which are out of our control (aptly defined by Aaditya in his post w.r.t. trading). It is still the feet which we use to get down from the bike when we reach our destination or are interrupted before reaching it. This definition can be termed as CSL - catastrophe stop loss and not SL which is widely used in trading.

Anurag, with your definition, which most of the traders would do there is an element (howsoever small) of unconviction when you enter a trade. No one likes to see his position going down immediately one enters the trade. But is happens many (or most) of the time, especially to traders who put the SL (as per your definition) as the decision to trade is taken on the basis of R:R rather than probabilitiy of the trade. I would always take a large position even if the reward were very small than the risk (maximum draw down till the end of first review period) if the probability is very very high.

The moment you have the SL idea in the mind, the trades with not very high probability, equal probability or even low probability are undertaken as you evaluate the decision to enter on the basis of R:R and not the probability of outcome.

Not using SL (certainly one should use the CSL though) will direct all your engery and focus on taking the HIGH probability trades. You wait till you have a pattern/trend in the random movement of the market and grab the opportunity with both the hands.

Another analogy here is the Law of the land, which states that the law may not punish a criminal (by giving benefit of doubt) just to ensure that no innocent is punished. Similarly, there one would let go and lose many high probability trades (as one may not be fully convinced at that point of time) but this would ensure that wrong trades are not undertaken.

And it is much easier to exit such fully convinced trades too, because it is very very easy to identify the indications that your predicted direction may not happen. Hence, easier to exit immediately and abort the mission praising the Law of the land.

My conclusions:

- Putting SL on trades directs you to undertake any probability trade as primarily there is a soothing feeling that you will be stopped soon and not bear large loss. (Forgetting that the whole idea here is to make money and not exit at 'small' loss)

- Lot of such 'small' loss (due to poor selection of trades) result into a sizeable loss, which may get covered in some good trades, but we have lost time and other great opportunities in between. End of the month where are we? At the same place, or just somewhere near.

- And this make a lot of difference between a super trader (who wins many, loses some), a regular net profitable trader (who wins some, loses some) or a net loser trader (who wins some, loses many)

The definition of SL is clearly your unrealised expected loss in case the trade is wrong. This forms the basis of quantity or exposure you may want to take on a trade. The definition of wrong trade is not necessarily move in the wrong direction but the outcome is not as per EXPECTION.

The second point of large runaway losses in the opposite direction can be termed as something happening exactly opposite to your thinking and the outcome is UNEXPECTED.

If one is using a same SL for both of the above objectives than he may end up taking many low or equal probable trades than higher probable trades. Effectively the success rate of trades may be compromised. See only MM and discipline alone cannot create substantial wealth for a trader. Higher success rate of trades is also a prerequiste to become a successful trader.

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What tnsn is emphasizing is that once we start to identify high probable trades ,we would not need to depend heavily on the stop loss. Also he means that by using Risk Return ,we may choose trades that are of low probability. But more importantly we have to choose higher probability trades of even low RR . This way we end the month positive rather than have small losses every day only to take stock at the end of the month and start worrying.
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Open book - Kinda market depth, which shows the depth of the market.
Print - Kinda tick list, shows price and quantity traded.
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What about profit booking ?
I believe this is where experience makes it different, as its more ART than LOGIC (or SYSTEM). Infact Even Saint uses more discretionary while booking profit. May be after day's of Retrospection on Trades, we finally get the "Sweet Spot".

Mine's strategy is to book some on first sign of weakness (as i find many a times this is a critical pivot), then some on failure of pullback/rally and then I delibrately leave some part till the END or Breakeven just to ride the trend to maximum.

yes I do carry the element of unconviction every time I enter a trade because,as I said earlier, I believe that price movement is random." i believe that my position is wrong untill proven right". there are a lot of examples in the real trading world which show that u can have a very small percentage of winning trades and still be very profitable. a case in point would be Richard Dennis…….. his winning trades are not more than 35% of his total trades but still on balance he is profitable.
To me having a large percentage of my trades to be winners is not important.(when I am not jobbing), but what is important is how do I extract the maximum juice out of my profitable trades, even though they may be few as compared to my loosing trades. hence I am always comfortable working with a SL, whether it be in the mkt. or it be mental.
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I think this is the main point to master, how to book profits...and another complicated thing is where ( at which point) to add in the winners...you dont want to add in the winning trade , just to see the trade reverse....
everybody has two types of trade only..
one type is wrong trade..here you can exit 1) through SL, 2) before SL hit, or 3) not exit by hoping that trade will move in your favour and in the process averaging at lower levels..the first two exit methods will keep your losses small, but the third method of averaging will kill you in the long run..because the loosing trade may move once in a while in your favour but most of the times it will force you to accept large losses, which quickly eat your trading capital. and most of times traders try to average...because no one wants to accept defeat or take losses, its human tendency..

second type of trade is winning trade..now trade moves in your direction..what most of the traders do now..at the first sign of reversing traders exit by pocketing their profit by moving trailing SL...only to see trade again reversed and goes higher and higher and higher or as may be the case...oh my GOD..itna mil jaata..haath se nikal gaya...mood kharab ho gaya....now next time you again in this situation...now you book profit only @ 50 % at the first sign of reversing, and what happens, the trade is going down the drain..and your next 50 % position will be either in very small profit or breakeven or in the red ...dragging overall trade in red... oh my GOD...isse accha toh pehle hi 100 % profit le lete..jitna mil raha tha theek toh tha..jyada ke chakkar mein aadha bhi gaya...

therefore those traders who master the art of booking maximum profit ie not run with small profit, they survive the longest run. My hats off to those traders. Everbody has some lossing trades, some winning trades. but those traders will survive only who take losses small and ride their winners till the end. but generally traders mentality is just opposite, they quickly take profits early (baad mein yeh bhi nahin milega mentality)..and take losses big (dont want to accept they just entered in a wrong trade , kabhi toh upper jayege mentality).

so only two rules to remember in trading ( but how many master these ?)
1) take your losses small - exit from your wrong trades quikly.
2) ride your winners - take maximum juice out of your winners.
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To me there is no iota of doubt that will allow me to ride my winners / to take maximum profit possible. I will not earn any thing free in the market.

And this is not the egoistic me which is saying this but the years of experience in this area. But for the simple reason as we hold on the habit of letting our winners ride (due to reasons other than our method/thought) we may also do the same with our losers. When you leave riding your winners to the market you are 'subconsiously learning' speculating. Today you have allowed your winner to ride, the same 'habit' will one day (just one day or just one trade) ride your loser to the place where you started or beyond that. So it's again 2-1-1+3-2+1-1+3-2+6-2+1-5....and it gets you nowhere.

SPECULATING IN TRADING IS DANGEROUS !!!! (Either with losses or with PROFITS)

In the randomness of the market there are times when you will have trends when you "KNOW" what will happen next. This is the only time to trade. There is no speculation here. When this trend/pattern gives away to randomness, it's TIME TO EXIT. Effectively you are in the market only at the start (or just after start) and are out (just before end) or at the end of the logical move that the trend / pattern is 'most certainly' likely to exhibit.

I can vouch that you can make lots and lots of money by being observant of the market most of the times, staying out of the market most of the times and in it only for a small period - when there is 'CERTAINITY' of the outcome.

Staying Out = Money 'Earned' (the simple old definition : 'money saved is money earned')

Coming to my style, I have had written broadly in another thread "Thoughts on Risk Management" which I am pasting here for your reference.

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I would like to explain in very simple terms and easy to understand by pro and novice et al.

Step I:

1) Decide on Portfolio Allocation: Portfolio allocation starts with defining Financial Objectives : How much money you would need and when? Your assets, liabilities, income and expenditure. This is a different subject altogether but still ultimately one (even a trader) has to start here.

(a) Variable (positive / negative): Equity, Real estate, Gold, F&O (Directional positions)
(b) Variable (positive but unsteady returns) : F&O (multilegged strategies primarily using Options)
(c) Fixed (positive) : FDs, NSCs, PPF etc

2) Decide on time frame to adjust Protfolio Allocation : Could be quarterly, half yearly or yearly. Depending on your portfolio performance, income from other sources/job/inheritance etc

Step II: Here I am zeroing on the aggressive part of portfolio allocation - Trading in Options:


1) Risk = Uncertainty of DESIRED outcome
2) Desired Outcome = (a) + (b)
(a) Primary Desired Outcome = For position taken at Time T0, price CHANGES in favour of position taken at Time T1
(b) Secondary Desired Outcome = MAGNITUDE of price change from P0 (at Time T0) to P1 (at Time T1)

Hence at Time T0 and Price P0, we need to define both, T1 and P1.

For a one market, one instrument, one trading plan trader (like me) T1 is sacrosant (FIXED), P1 is the only variable.

P1 is defined before trade initiation. P1 is defined both for positive outcome and for negative outcome.

Eg If I am buying Nifty Options @ time Time T0 at price P0 (Rs. 100), and defined is P1 is Rs. 95 (worst drawdown) or Rs. 107 (best outcome), my Risk is Rs. 5. (Rs. 250 for one lot).

If my trading capital (which is PART of my Portfolio) is say 10 L and I decide to RISK 2% per trade (this % is decided at the end of each week for the next week depending on the performance in the week gone by. The range of Risk / trade is between 1% to 4%), then I would buy 80 lots of Nifty Options.

At time T1, the probable outcome of Option prices could be:

93 : Exit fully (2.8% loss of trading capital : 80 x 50 x (-7) = -28000)
95 : Exit fully (2% loss of trading capital : 80 x 50 x (-5) = -20000)
97 : Exit fully (1.2% loss of trading capital : 80 x 50 x (-3) = -12000)
100: Exit fully (0% loss of trading capital : 80 x 50 x 0 = 0)
103: Exit 75% (0.9% profit to trading capital : 60 x 50 x (+3) = +9000)
106: Exit 50% (1.2% profit to trading capital : 40 x 50 x (+6) = + 12000)
109: Exit 25% (0.9% profit to trading capital : 20 x 50 X (+9) = +9000)

You would notice that if the price at Time T1 is less than 100 I exit fully and on some occasions the loss could be higher then anticipated 2% in this case if I exit at 93. But this margin of error in my risk management is acceptable since I exit at Time T1.

Secondly you would notice that at price levels > 100 (i.e. 103, 106, 109) I have partially exited. But these exit % are NOT RANDOM.

If the price is > 100 at Time T1, then this T1 becomes new T0 and the current price say 103 become new P0. From here I would again calculate new P1 (both worst drawdown and best outcome scenario) and accordingly adjust the quantity.

Step III: Later today/tomorrow...:

Regards,

------>

Step III:

Treat your profitable trade and non-profitable trades seperately. The MOMENT I close my profitable trade, the profit made on the trade flies off out of my trading capital account and rests in a different account which is my Variable - steady profit funding account, where I use multilegged Options strategy with low risk and average returns as the time frame used in these strategies is quite larger (almost 2 to 3 weeks or sometimes till near month expiry). Most common strategy is Covered Call, which may be covered in detail in some thread on this forum. Also sometimes, strangle or straddle or simply deep OTM call/put writing, depending on the market condition. HOWEVER here too, my RISK management techinique is quite similiar to the one mentioned in step II of trading naked options. i.e. P0 at T0 and defining P1 at T1. i.e. fundamentally though the strategy has changed as the funds are from different account, but RISK management is still the same.

Now as I keep withdrawing the profits from my trading capital account, and continue trading eventually my trading capital would tend to cease some point of time as there are some loss making trades which eats the trading capital. Yes this is what could happen eventually, hence with each passing period, my trade size reduces as my trading capital reduces. Though my Trading capital could tend to be zero it doesn't happen, WHY?

Because, remember adjustment in Portfolio Allocation (Step I), which I do every calendar quarter end. Hence basically I have to live with my trading capital for a period of 3 months, the better I trade I get more quantity to trade and then quantity decreases gradually. Profits keep going out.

When Portfolio Allocation adjustment happens at the quarter end, Trading Capital is top-uped up STRICLY on the basis of trading performance in the last quarter, hence if I started with 10 L trading capital which was reduced to 5L in three months and has generated profit of 8 L then I may be entitled to top up to 10 L or even higher depending on my overall Portfolio performance in the quarter gone by. Alternatively instead of 8 Lacs if the profit generated was 4 Lacs, then my trading capital can be top-uped to a max of 9 L it could be generally be lower viz, 8 L or 7 L as performance was NOT ACCEPTABLE.

STEP IV:
At the quarter end review and portfolio allocation adjustment, majority of the incremental profits generated by Trading, Variable (steady profit) strategy are allocated another account which funds conservative investment account. The investment made through this account essentially follow simple 100 days / 200 days moving averages which are held for longer period of time.

STEP V: The most important….will follow later today.

Regards,

------->

STEP V: THE PURPOSE!!!!!

Why do we do all this? i.e. trading, portfolio allocation, risk management etc. Do we want to grow our wealth to Eternity and leave it for someone after we are gone. NO.

I am working as a portfolio manager (or better still - a hedge fund manger) then I should be paid for my services. This is what precisely I do when I levy PMS charges every quarter end and take out that amount from the Portfolio to my 'personal account' for my personal consumption. The charges I levy are similar to any PMS charges which includes, fixed and performance linked payouts over a hurdle rate of return every quarter.

p.s. :

1) To maintain simplicity here I have not covered Portfolio performance parameters, weekly volatility (standard deviation) of portfolio etc. These are the parameters against which I evaluate my performance every month and do course correction. My remuneration is linked to some of these parameters.
2) All the above mentioned steps of Portfolio and trade management are documented in black and white for reference and remove conflict of interest.
3) For all different strategies and aspect of my wealth management, I have given them names and there are really funny names which makes it very easy to implement them.
4) As all actions (tradewise) are documented. I conduct a monthly audit of these documents and for actions inappropriate or outside the defined parameters of my scheme of managment, penalties are imposed, which include ban from trading for a period, cut in remuneration etc.

...because no one wants to accept defeat or take losses, its human tendency...
Simply be inhumane (and I am not joking) because the market is. This is what detached trading is all about. Be ruthless with the outcome of your trades be it profit or loss, you decide fast before market decides for you.

therefore those traders who master the art of booking maximum profit ie not run with small profit, they survive the longest run.
In my opinion they are speculators. I don't speculate. You said it right they may 'survive' (just survive) the longest. But this is the intermidiary state of a traders' life, what next? How does he evolve and grow?

2) ride your winners - take maximum juice out of your winners
Doesn't fit my scheme of thoughts 'now', so no intention of 'mastering' it. Because earlier when I wanted to do it, I mastered it but alongwith, I also mastered how to ride my losers, so effectively as you mentioned, I survived and survived, but just survived.


Regards,

p.s. Kindly excuse me if my statements are bit blunt. But that's how trading life is.
Everyone please give me definition of successful trade according to you.

Too difficult to answer the same.

May be what kind of trade you desire would be easier to answer, something on likes of what Ranger123 has answered.

In my early days i believed Trading like battlefield where i would enter hit my traget and runway with the winning money (read gorilla warfare), there i considered being able to ambush and not getting trapped as Successful Trade, then realised that was fun but not business.
These days, i feel equally happy to exit the trade if not working on my side.

So, if i have to define successful trade, I would say where i can enter and exit at the positions i want (predetermined) (and exit could be with profit/loss). I hate sometimes (even on Intraday) , the price jumps (gaps) too far away from my position and I feel pain in exit (as this wasn't the level in my mind, and also it screws with my R:R).
Some of you may be wondering what about Stop loss (it gets hit, but since it is market order stop loss, i get the worst fill).

Also successful trade would be where I have time and judgement to add of pullbacks and rallies (what greater success than that) [but sadly sometimes (read often) the rally/pullback turns out to be Trend Reversal and sometimes no pullback/rally at all.
there can be 2 types of trades
1. winning trade
2. loosing trade

to me a winning trade does not necessarily mean a successful trade and a loosing trade does not necessarily mean an unsucessful trade.
a trade where I have followed my rules (whether it be winning or loosing) is to me a 'sucessful trade'.

....................
Remember keeping stop loss you may lose litle of money more often but you will never lose a lot of money (which if happened will make a dent in your Equity from which it will be an herculean task to recover)


Quote:
Originally Posted by ranger123
I take more trade with out looking at postive probabilty and was doing on R:R but still I ended in looses.


This is the hard fact of Trading (read: All kind of probability game).
Only because probability of success in that particular trade (or anything for that matter) was greater does not mean it will give you success. That is why pros never worry about every individual trader. To let the probability work you will have to take them in lots (I always see weekly numbers, and then decide the probability of the system).

I hope some of the following words from Saint will be helpful. I have copied this from his blog (visit http://tradersaint.com for more)


Quote:
Not only cut the Losses,but Ride the Profits.

Adherence to stop losses is important and vital,but allowing a trend trade to run its course before tampering with it is as important,if not more………Let us take another Trader.Unlike our Trader friend above,this Trader is more disciplined,more ruthless.He knows the importance of stops,he realises the importance of his capital and its preservation,…….he therefore adheres to his stops.Not only does he adhere but he realises that stops are to be placed at vital points(talking Tech Trading).He takes on the Market and after 10 trades,he makes 5 losses,and 5 wins ie 5x-5x=0.He has lost commissions,and misc charges and made nothing.His next 10 trades have 6 losses and 4 gains…all gains are about x,and losses at x each.He ends this on a losing note as well.

This Trader has gotten it better than the previous guy……..he is following half the Wisdom and finds himself perenially at Breakeven to Mild losses.After 20 such trades,he realises that his fallacy was in placing stops in the first place.The next 10 sees him hurtling down and joining the previous Trader in his ranks……..what has happened is a slow breakdown of the discipline by the Market,which is nothing but a Totality of Minds in action.Frustrated and disappointed,he thinks that his fault lies in the method,his system,and runs around in circles collecting this afl and that.

So too,at the end of the month,when we look at our Trade Analysis,we kick ourselves for not adhering to our stops……We notice instantly that our stops of x was not adhered to a few times and that led to the downfall in that month…….Nothing could be further than the truth.What the Month end analysis does not show is that the profits earned of say x or 2x was in a move of 10x or 12x…..to put it crisply,we did not capitalise on the move.Not capitalising sends the mind into Regret.Regret sends the Mind into Wrong Decision.Trades are taken when they should not have been.Stops are placed at incorrect points.Multiple useless,unnecessary trades are put,and the broker instead laughs all the way to the bank.Even if stops are taken,the trader does not make enough to cover the losses sustained.Sustained lack of victories sends the Mind into Defeat Mode and he then finds every possible way to shoot himself in the foot…..

The Wisdom of the Ancients has always been to cut the losses,and to ride the Profits…..Somehow,the 2nd half of that great wisdom stands neglected……Obey that Wisdom,and great profits follow.Neglect it,and Peril will follow in a matter of time.


........................
The best part I like about this man is his simplicity, flexibility and adaptibility. In my opinion these are the only things (in order) to be successful in any sphere of life (including trading). Some possess it naturally, some eventually get there but at the fag end of their lives, while most are 'determined' not to possess it.

...................
Well, I am always here. But more of an observer than a player. I guess this is similar to my trading trait. I agree that most of the active members on this thread have gone into hibernation as it often happens when there is nothing 'interesting' happening. But I am sure they will return soon.

Good to learn that you are profiting consistently. Keep doing the same thing again and again, get bored doing it, don't try anything new. You will soon realise that you are getting 'paid' to get bored. I also liked your approach and subscribe to the theory of trading one instrument. You see, there is no excitement here too, as you are tracking and trading only one scrip, come what may. This is a THE approach to make money in trading.

A friend known to me for over 12 years has been trading/investing/speculating/hedging etc etc only on one stock (part of Nifty and Sensex) and this he has been doing even before I knew him. He doesn't know (or rather want to know) what DJI, FTSE, HSI etc is, neither the US job market/housing data or closer at home, what is GDP growth projection, monsoon failure/success, composition of Nifty, OI, rollover, A/D, PCR etc or what is the Sensex level or even when are the General elections? For him the day starts with this stock and ends with it. And yes, he has only but grown wealthy all these years.

At worst in life one can still not be one woman man, but for successful trading one need to be one scrip (per market/method) man.
.........................
I consumed almost first three years of my trading career to get my objective close to your objective. And after going down the hill all during this time, I realised that my objective of getting super rich or quick rich was wrong. Only once I set my objective as similar as yours there was no looking back.

Your post just reminded me about about THE WORST trading mistake that I have ever committed. Being modest is one thing that can only help make money in trading.
..................
As suggested by Ranger, I am replying to some of his queries here:

1) Currently I have 5 allocations of my funds, spread over different time horizons, least being for intraday and highest being 9 months - 1 year horizon.

2) Over 70% of my investments are in F&O. The shorter term allocations including intraday are 100% in F&O.

3) 2 of my allocations are fully built with Options strategies

4) I do not use stop loss for any of my positions (Yes Catastrophe Stop Loss is always on).

5) I do not use any FA for trading decisions. Infact the only TA tool which I use is candlestick chart. I DO NOT use any indicators / statistics, just a plain candlestick chart. Even for Options greeks - vega, theta and delta I use candlestick chart. When I started trading I used almost every tool and indicator availabe on earth and after years I found solace with a plain candlestick chart. (So I am not a MD, MBBS, BAMS or even BHMS, I am just a Hakim )

6) For me there is a predefined limited time to see the chart and make a decision to enter, hold or exit i.e. I get a LIMITED time to observe the chart. e.g. for intraday, I can see the 5 min candlestick chart only for 4 seconds to make a decision, then the chart vanishes (I have software programmes for this), similarly for daily candlestick chart I get 1 min to decide before the chart vanishes. You see, I am not involved in the market in between the review periods. As the time to observe and decide is limited, there is rarely any conflict in the decision making process. The decision - right or wrong is FIRM.

7) I do NOT know what price I have bought or sold (again programmes to give limit orders without punching the price and quantity), so I do not trade prices but just the charts. The contract notes and bills are checked every Saturday that is when I would know the buying-selling price and also the account balance.

8) I trade on high to very high probable trades and with no/zero focus on Risk : Reward ratio etc. My average success rate for all 5 allocations for the quarter ended June'10 was 73%, for quarter ending Mar'10 it was 77% and for quarter ending Dec'09 it was 71%.

9) Since I do not focus on R:R, I do not target returns. Returns on my allocations are not co-linear. So on QoQ the returns could vary.

10) I am not a full-time trader, but make more than what I am paid at work.

...............................
Much delighted to see your reply on something which had put me at crossroads in my life earlier and I think would also have impacted all us traders.

While I can go a couple of steps back and start discussion on : Why do we trade? What is a personality of a trader? Did we undertake trading profession just because we are not asked questions, no one supervises us, no one gives us instructions, deadlines, targets and there is no appraisal etc. or more realistically are we incompetent at other professions?

But I will leave it for everybody to ponder over the above.

Coming to the point of making trading as a full time profession, I pose a simple question:

What do we need for a living, I mean, a good living?... MONEY !!! But is money everything which can get us all what we need in life?

While initially a decade ago I thought so, but then I realized that it isn’t the only thing. All traders want to make money, more money and even more money but what about the life you are leading. I have met many traders in my life a few of them very successful. They have tons of money but I fear what kind of social life they lead for themselves their society and do they have a sense of satisfaction of having done or helped someone or their community. If they indulge in parties or donations to show off their wealth, it is all short lived. People around them do not understand their profession and are not interested in knowing it either and most disturbing is that these successful full time traders do not find any thing in common to discuss at social gatherings, marriages or even during morning jogs. They are all aloof for the rest of the world and their world is either 10x10 office or a tiny room of their big houses.

Some of you may not agree with what I have written because the immediate thought that would come is all the above is absurd and we all can lead a good social life as we will have lots of money and more and more free time to devote to our families and society. But just imagine what happens after 6 months, 1 year, 5 years, 10 years would you still feel the same.

Man is a SOCIAL ANIMAL, and we all need people to talk, listen, love and confide. Trading is one profession which does not involve anybody else than you. You live with yourself. You are your best friend, the worst enemy, it is you and only you. The people around you give you a skip and you don’t understand them as you have mentality of a trader which they don’t have so there is no compatibility. You can’t teach them trading too as your strategies and methods will not work for them, even if someone does trades as per your advise, he will still lose in the long run as your personality and risk taking ability is different to theirs. So you are all alone again.

Thanks to technological advancement, most of the full time traders will find ‘virtual’ friends, enemies on such forums, some will become ‘virtual’ mentors. Their lives will be confined to a monitor for trading during the day and seeking peace by surfing the net during the night. A few may write books, newsletters which will contain nothing different than thousands of trading books available today. - A point to ponder again!!!

The problem with most of the part time traders (who are also doing jobs) is that they WANT TO LEAVE their jobs and do full time trading but are still hooked on the job (for whatever reasons) due to this conflict in their minds they fail in trading and at job too. I being one of them a few years ago, when redefined my objective (by incorporating the initials discussion above) of NOT wanting to leave my job and doing only part time trading, I could see U turn, both at trading and at work.

I find it worthwhile to lead a neutral life, make money by trading part time and still feel complete by being just another man going out to work every day morning.
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A life is nothing but change and change for betterment (remember Kaizen - continuos improvement) - could you list 2 or 3 things that you have decided to change from your ealier experience and how you plan to implement/adhere to those changes? This will enlighten readers about the process of life cycle of a trader and will also help you endorse it in your mind to stick to it all the times.
Perhaps the most important thing to remember is not to short a strongly bullish instrument or in other words to trade against the trend.
At the back of our minds,we are expecting a correction or we are hoping there would be a fall so we can pocket the break downwards. It is an assumption,it is better to trade waht we see. Today for example, nifty peaked by 10 and fell by 10:40, so based on technical parameter based on volumes it could have been traded well. These days the main action is at open till 10:30 .In fact if you cannot enter by 10:30 or latest 12 there seems very little to do in terms of catching a reasonable move.
I hope you have some technical platform with indicators as far as i know you would be trading blindfold without it. I think IIFL TTAdvance does not have TA so I am concerned -any of these Angel,Indiabulls or Sharekhan is necessary.

Starting off you can confirm a move then trade for a couple of points. A thorough understanding of BB and candlesticks is good. ADX is quite solid too.
One takes higher and bolder steps when the foundation is strong and tested. We know your trading hasn't been successful , rather an utter failure (writing this word purposefully) hence apart from changing certain habits (which only you would have known by now) you need to cut back and reduce risk on your trades.

One way is to reduce quantity of stock/value you used to trade earlier. Hence you should restart with your fresh funds without leveraging. Try it with your favourite stock or one/two large cap Index based stocks. By not levarging you will know if you have adapted the changes you planned and can evaluate the results. Only after a sustained period of time and consistently favourable results (by 'result' I do not mean profit, but successful adherence to your trading plan and method) you can get back to your initial quantity/value per trade.

Derivatives is much complex subject (especially Options) and there are various F&O statistics which can misguide you if you are new to it. Even experienced derivative traders too are not sure of interpretation of these numbers. Also theory is different than practice. Trading derivatives without much experience can simply evaporate your capital before you know it happen.

Somewhere I am getting a feeling that you want to catch up your lost capital and hence are getting from jobbing/scalping to stocks to derivatives in a span of less than 5 months. You are into full time trading so you need to be more careful of failure and set back as there aren't any/much option for you in case of wipeout.

So stick to stocks and reduce the quanity of your trade.


Quote:
Originally Posted by alroyraj
Welcome back,nac. It is a rather challenging time,now. Selection of the security to be traded is paramount in trading equity derivatives. And second,there are some derivatives that you can understand the movement and other that you dont. Start with the nifty and the most liquid counters-it seems the action has shifted to the largecap names. And thirdly,your time in the trade can be made dependent on your allocated capital (especially for the margin heavy contracts).

Sorry Alroyraj, but my post could interrupt your discussion, but that was not my intention.
ON QUESTION OF ASKING SUGGESTION
Do what you think is right ….as per your trading method, seeking advise/cofirmation on trading calls is no good for either the seeker or giver. If you mix two of the best traders, you will get the worst of them (quote from some book I seem to have forgotten the title
If I wasn't good at reducing/cut back mistakes with the lesser risky instrument, how would I survive with the higher one without rectifying those mistakes. Definitely this will evaporate my trading capital.

I dont think Angel has any technical indicators. Basically if one follows Bolinger Bands default 20,2 or Savant settings 9,2 along with 5,6 SMA,it is the best place to start.
For say atleast 3 days, simulate your trades with the nifty. This is vital. You need to see whether your system and your intuition is correct .
The key thing with derivatives as with other securities is to know the state of the market: trending ,or rangebound and/or with a possible negative/positive bias. The nifty has made a major move as of now so it is waiting for breathe. Also the time frame is a key consideration start with 5 min TF and then SWITCH UP TF, then switch back.
Most of you spent years to learn your jobs and now they think, they can trade in a few days by reading in a forum and even will make the same money as they do in there jobs or even more, just by doing that. Nobody can help such minds !!

Only tipping on there own heads with there own fingers can heal that. ( By the way, I do not speak about you, I speak to the readers which have this mind )

I do not know what you trade : Futures or options. Any way, check the trends of longer time frames like months, go down to two weeks and plan your trade at the begin on a weekly time frame or maybe two or three day time frame.

Give your self time to feel comfortable to the time frame you trade and if you feel, you are comfortable with this time frame, you slowly, and I mean slowly test a shorter time frame.

Ask your self then, if you feel comfortable with that and so on. Test your time frame.

But be serious : Giving up after one week is really not some thing, which shows of your personality. Weak, weak

exclusively use CandleStick for different TF trades including intraday. While I DO NOT follow any of the book patterns, I have developed my own set of patterns (over a period of time) which works well for me (even of multiple underlyings).
……………….. just see the logic and strong near perfect psychology of this trader

So the question of risk management is not avoid the risk, but it is about managing the risk.

Managing the risk is based on the measures of severity and frequency.

1. low frequency and low severity. (For eg. opportunity losses in trading due to non-availabilty of connectivity, executing personnel - which can be managed by placing adequate stand by (backup) arrangements.)

2. high frequency low severity (For eg. trading losses due to short term fluctuations in market prices, which traders manage generally with the help of stop losses, appropriate trading strategies)

3. low frequency high severity (For example system crashes, software system failures , absence of key personnel etc which needs to be managed with insurance, which we were trying to discuss in detail

4. High frequency high severity which is practically nil for any business, (may be except in agriculture)


managing it when the so called calculated risk goes wild.

A stoloss is not an insurance, it mere a pallatative way of quitting before it gets wilder. The market may not give a chance to exit at your stoploss, like opening gap.

Hedging with options is a viable way to get insured without nullifying your profits, provided you are not hedged throughout. Though risks are an intricate part of trading, it is usually well defined with peaks and troughs at certain points, where hedging is indicated.
__________________
first understand enterpreneurship in trading.
In trading .......knowledge /discipline/adaptability/understanding market/objectivity r supreme.......u have to acquire or learn it.
It takes time.......according to me 10yr atleast.
then understand risk involve in trade........basic difference is here risk is not potential but ACTUAL, where as profit is potential .Newcomer never understand it.
Next prepare an Edge.......anybody against u should be loser.
Use that EDGE , which timeframe suits u.......that modality of fitment by real time trade & analysis.
Where & when u r right ........just keep that one...........all others r to be unlearned.THEN can u learn Pyramiding/leverage that edge.......
again practice Discipline........only to stick to it,......may codify/or just follow it.Dont allow other variable to distract.
actually in trading is thorough put,u continuously buy/sell in a discrete manner.......based on ur understanding/experiment/luck factor. Key is hold winner and throw loser early..........when u take a position ,i dont know what shall happen, so based on market observation , i shall book loss as per my criteria,.......best is can i add to winner.keep the ball/money so far u understand and getting return.....if its not, just stay out,.......sharpen ur skill and again comeback
--------------------------------------------------------------------------------

In trade its very imp to to create a risk-shield.............u r ready to protect ur money like knight.
after that learn.....what way u r comfortable............since u plan to continue as a marathan runner in market to earn atleast next 10yr........after successful trade learning.
indicators basic purpose is to give u confidence,........definitely momentum, understand exhausion of trend is imp,.........toughest learning is switch from one timeframe analysis to another time frame...........as accuracy may vary drastically ..........both +/-.
Mind it sensex is indicator of growth.
order book is indicator of profit potential and research is indicator of longterm sustainability.
toughest learning is switch from one timeframe analysis to another time frame...."
can you explain this a little more?
ya explaining it.
Ans : In normal 3 yr of learning ,all novices start to learn some method of entry, may be long term......bull entry, may be intraday.......% move and then profit book, similarly some swing buy.....like buy in pullback ie.bottom of a cup pattern.
Soon ie. after 3yr , its not suffient to earn from market is now known to him.......unless by God gifted luck he had made enough and left out Market.
So other method . other timeframe play, other forecasting idea like.......fundamental.ta or psychological + bookish random variable entry/exit system.....quantum method/fractal theory.........r read and variable strategy for different market condition which one to be applied.............r practiced for mastering.
Another problem is to fit ,where he fits naturally.........thats timeframe and style gives higher return with better strike rate.
In this search and learning ,he found out........its difficult to erase ......first pick up learning , it may be say break out play. So he has learnt it early......its with him now,........so even after 7 yr , .....if he finds a break out play in present market condition with poor probability , he may actually trade it only to lose money ,.......as he enjoys the thrill of early learning days.SIMILARLY its the time frame,.........many trader starts early as investor,........that backgroud stops not to trade at certain condition, because of complex RISK..NONO. THose who starts strong as dealer,......can not hold a 3day profit run..........knowing fully well it will move another 15% ,but block with condition of max 5%profit book, more than that u r greedy,,,,,,,,scalpers curse.
Similarly a trained swing trader of booking around 10-12 % profit ,.......can not move down to 3-5 %profit in random time frame mode so easily.
YES IT IS THE HARDEST THING TO DO
Trading starts with excesses.........excess knowledge/excess time/excess money.
3places u have to fight..............self/other traders/market.
Your other life.......should not fight with your trade learning life,this environment is imp.
then comes choise of system /strategy/timeframe.
variable market condition.......up/down/volatile/nontrend small move .
Which one to be done by you.......as per ur expectation......buy/hold/sell.
What price is telling u to do? .....buy/hold/sell
Now understand to prepare trade journal.........its tool of tuning,understand what u r supposed to do vs what u have done actually.
What is ur info source......can u nullify any hearsay from market..........your decision making skill should not be variable.....it must be sharpen constantly.
how u handle stress generated out of trading.
ALL this must be writen and followed just like breathing, then u r a trader
Journey of a trader starts from novice to beginner to advance level to expert. then comes Master.Now between advance level and expert.............its really very slippery,.......i forgot to count how many times i flawed........mostly when i think i know market..........i am humbled to basic.........fortunately like cat has 9 lives........again i move. Humilation ,to face it........discipline ,recoup energy and walk again.
this view is because.............we r by birth not at all trader,......say first doing ur swot.........u know what u r,......so from somewhere u r transforming u a trader.
First i am giving a hypothetical case,.......a math postgraduation topper, shifting to a trader. As to learn trading,......it takes time,........so u r doing some formula - model to know ,what may work as a trader for u.
U may choose.......arbitrage model, or simple random mean reversion, even excel based fundamental equity based.......forecasting proforma model. Now u find , based on actual what is gap,........ie. error,.......but being trained mathematician,......u cant take.......possibility for absolute number to change, objectivity works for u,........but since system itself is variable,.........u have to understand.........block with number itself is harmful for ur development as trader,......conceptually to take 300pt up, followed by 450pt down within 3 days......tells either ur programming is wrong OR ur mathematical idea-notion is wrong.............this is a type of internal fight.
similarly u understand........u have u learn certain thing,.......but time constraint or other priority ..........makes u choose...........so again come fight against U.
Next i am telling my chess case,.......in chess as i have learnt in childhood.....understand pattern , but for competition...........u must fight till death,........use ur best defence skill ......when playing against GM.
.............now understand the problem with me,.......i was known as av chess player........my rank was within single digit,in my state in 1975.......and after that with chess study of 10 yr.........later i am shifting to tradelearning,........
YES u r not supposed to fight,.........but i can not take loss,.........simple a trade loss is nothing.........just wont hold it,.........or else face mother of all loses...........a la 5lakh..............i know how much bleed by it.
In trade ,pure small losing trade should be thrown out first...........but due to my different conditioning i showing fight back attitude,......create trouble for my trading a/c..........this i call fight within self.
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Yes against other trader means opposite direction u have to commit with money.
But against Market...........particularly flow of FII?MF.......i should be with nor against them.
FOR stopping newspaper/tv .......only to follow by price..........it takes me lot restriction .......more than 3 yr........here also i faced internal fight in mind.
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can you share your thoughts on portfolio management?


Step I:

1) Decide on Portfolio Allocation: Portfolio allocation starts with defining Financial Objectives : How much money you would need and when? Your assets, liabilities, income and expenditure. This is a different subject altogether but still ultimately one (even a trader) has to start here.

(a) Variable (positive / negative): Equity, Real estate, Gold, F&O (Directional positions)
(b) Variable (positive but unsteady returns) : F&O (multilegged strategies primarily using Options)
(c) Fixed (positive) : FDs, NSCs, PPF etc

2) Decide on time frame to adjust Protfolio Allocation : Could be quarterly, half yearly or yearly. Depending on your portfolio performance, income from other sources/job/inheritance etc

Step II: Here I am zeroing on the aggressive part of portfolio allocation - Trading in Options:


1) Risk = Uncertainty of DESIRED outcome
2) Desired Outcome = (a) + (b)
(a) Primary Desired Outcome = For position taken at Time T0, price CHANGES in favour of position taken at Time T1
(b) Secondary Desired Outcome = MAGNITUDE of price change from P0 (at Time T0) to P1 (at Time T1)

Hence at Time T0 and Price P0, we need to define both, T1 and P1.

For a one market, one instrument, one trading plan trader (like me) T1 is sacrosant (FIXED), P1 is the only variable.

P1 is defined before trade initiation. P1 is defined both for positive outcome and for negative outcome.

Eg If I am buying Nifty Options @ time Time T0 at price P0 (Rs. 100), and defined is P1 is Rs. 95 (worst drawdown) or Rs. 107 (best outcome), my Risk is Rs. 5. (Rs. 250 for one lot).

If my trading capital (which is PART of my Portfolio) is say 10 L and I decide to RISK 2% per trade (this % is decided at the end of each week for the next week depending on the performance in the week gone by. The range of Risk / trade is between 1% to 4%), then I would buy 80 lots of Nifty Options.

At time T1, the probable outcome of Option prices could be:

93 : Exit fully (2.8% loss of trading capital : 80 x 50 x (-7) = -28000)
95 : Exit fully (2% loss of trading capital : 80 x 50 x (-5) = -20000)
97 : Exit fully (1.2% loss of trading capital : 80 x 50 x (-3) = -12000)
100: Exit fully (0% loss of trading capital : 80 x 50 x 0 = 0)
103: Exit 75% (0.9% profit to trading capital : 60 x 50 x (+3) = +9000)
106: Exit 50% (1.2% profit to trading capital : 40 x 50 x (+6) = + 12000)
109: Exit 25% (0.9% profit to trading capital : 20 x 50 X (+9) = +9000)

You would notice that if the price at Time T1 is less than 100 I exit fully and on some occasions the loss could be higher then anticipated 2% in this case if I exit at 93. But this margin of error in my risk management is acceptable since I exit at Time T1.

Secondly you would notice that at price levels > 100 (i.e. 103, 106, 109) I have partially exited. But these exit % are NOT RANDOM.

If the price is > 100 at Time T1, then this T1 becomes new T0 and the current price say 103 become new P0. From here I would again calculate new P1 (both worst drawdown and best outcome scenario) and accordingly adjust the quantity.

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Step III:

Treat your profitable trade and non-profitable trades seperately. The MOMENT I close my profitable trade, the profit made on the trade flies off out of my trading capital account and rests in a different account which is my Variable - steady profit funding account, where I use multilegged Options strategy with low risk and average returns as the time frame used in these strategies is quite larger (almost 2 to 3 weeks or sometimes till near month expiry). Most common strategy is Covered Call, which may be covered in detail in some thread on this forum. Also sometimes, strangle or straddle or simply deep OTM call/put writing, depending on the market condition. HOWEVER here too, my RISK management techinique is quite similiar to the one mentioned in step II of trading naked options. i.e. P0 at T0 and defining P1 at T1. i.e. fundamentally though the strategy has changed as the funds are from different account, but RISK management is still the same.

Now as I keep withdrawing the profits from my trading capital account, and continue trading eventually my trading capital would tend to cease some point of time as there are some loss making trades which eats the trading capital. Yes this is what could happen eventually, hence with each passing period, my trade size reduces as my trading capital reduces. Though my Trading capital could tend to be zero it doesn't happen, WHY?

Because, remember adjustment in Portfolio Allocation (Step I), which I do every calendar quarter end. Hence basically I have to live with my trading capital for a period of 3 months, the better I trade I get more quantity to trade and then quantity decreases gradually. Profits keep going out.

When Portfolio Allocation adjustment happens at the quarter end, Trading Capital is top-uped up STRICLY on the basis of trading performance in the last quarter, hence if I started with 10 L trading capital which was reduced to 5L in three months and has generated profit of 8 L then I may be entitled to top up to 10 L or even higher depending on my overall Portfolio performance in the quarter gone by. Alternatively instead of 8 Lacs if the profit generated was 4 Lacs, then my trading capital can be top-uped to a max of 9 L it could be generally be lower viz, 8 L or 7 L as performance was NOT ACCEPTABLE.

STEP IV:
At the quarter end review and portfolio allocation adjustment, majority of the incremental profits generated by Trading, Variable (steady profit) strategy are allocated another account which funds conservative investment account. The investment made through this account essentially follow simple 100 days / 200 days moving averages which are held for longer period of time.

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This marginal trade and oppurtunity trade r excellent money management concept........an advance level learner on market practices.......first one is how much more he can squeeze out of same trade.opportunity trade in mm is spill bean concept.........both r subjective.
By the way, similar name trade exists ........both r used by momentum traders.......a volume set up , then a trigger on price......a quick small profit execution.u can do it mathematically.



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'Execution' (or say implementation) is one area which has taken many years and money for me to tame. Over a period I have managed to create a system which is devoid of interference of various functions of Trading and portfolio management.

Having read various books on related subjects, the basis of this system is dervied from a very simple and a small book titled - Six Thinking Hats : Edward de Bono. You can find jist of this small and wonderful book on the net.
STEP V: THE PURPOSE!!!!!

Why do we do all this? i.e. trading, portfolio allocation, risk management etc. Do we want to grow our wealth to Eternity and leave it for someone after we are gone. NO.

I am working as a portfolio manager (or better still - a hedge fund manger) then I should be paid for my services. This is what precisely I do when I levy PMS charges every quarter end and take out that amount from the Portfolio to my 'personal account' for my personal consumption. The charges I levy are similar to any PMS charges which includes, fixed and performance linked payouts over a hurdle rate of return every quarter.

1) To maintain simplicity here I have not covered Portfolio performance parameters, weekly volatility (standard deviation) of portfolio etc. These are the parameters against which I evaluate my performance every month and do course correction. My remuneration is linked to some of these parameters.
2) All the above mentioned steps of Portfolio and trade management are documented in black and white for reference and remove conflict of interest.
3) For all different strategies and aspect of my wealth management, I have given them names and there are really funny names which makes it very easy to implement them.
4) As all actions (tradewise) are documented. I conduct a monthly audit of these documents and for actions inappropriate or outside the defined parameters of my scheme of managment, penalties are imposed, which include ban from trading for a period, cut in remuneration etc.


The concept is wearing one 'hat' a time and thinking only on those lines what is indicated by the colour of the 'hat'.

Trading, like any other corporate business comprises of various 'people' who are instrumental in running the business (read trading here) smoothly.

In any corporate, you have the core decision making team comprising of the MD, the senior management team - the think tank. Within The think tank you will have Product Development, Risk, Compliance, Legal guys etc.

Then you have a set of field managers, who are implementors/executors whose job is to just sell the product.

In the intermediary you also have Process team, who defines the company's process policies etc and finally the HR team too.

If you define Trading as a "BUSINESS", you will have to relate and allocate all the above roles to different 'people' of this business. But the irony is there is only one indiviudal - "I" who has to do all these roles constanly, day in day out and this is where we fail in initial years in this business as there is a constant overlap, haphazard, random thinking and interchaning of roles which we are not able to define and regulate and ultimately blaming our 'emotions' to the losses we accumulate in the initial years.

Coming to specifics, I run a virtual Corporate entity in myself.

The decision making, implenting, process, operations, risk, compliance, legal and HR is all rolled in ONE person. The only difference is the way all these 'different' people function. And this is where the concept of 'Six Thinking Hats' comes. Each individual function is taken 'INDEPENDENTLY' by physical objects (small toys) which are placed in front of me at a time, which directs to think only on and through that respective roles. Once the outcome is reached it is written on the scrible note and passed on the next role and so on.

I know it may be sounding weird but it works, one can get into a specific role mindset by making the environment look like that and physical objects makes it more easier. Also documenting the outcome helps the cause. For e.g. if the 'decision making team' makes a buy call, defining time frame, drawdown, payoffs etc. it is written on the note and then passed on to the 'execution team'. The role of this team is to just execute as per the instructions written in the note. Post this, they would write a note stating 'job done'. This is just one example which I have stated. This is how the entire machiney works, which includes, operations team, whose job is to ensure that systems, net, broking house matters are taken care without hassles. The accounting team takes care of contract notes, bills, bank statements, charges etc on weekly basis for storage. Any special observations by these 'teams' during their course of action are noted and taken up at the review meeting which is generally on a weekend.

Sounds funny... but it works as the thinking, execution, etc is compartmentalised with no overlap. It is nothing but Keeping it Simple (here it is not necessarily Short, but who cares if this is what works for me well)
Red hat is also important, once you put it on, you ask yourself how you are 'feeling' / 'intuition' at the point of taking the trade...this could be relating to the trade in question, trade closed earlier or even not related to trading viz, the ac is not working, there is some external unexpected disturbance .
Be focused
Keep things simple
Follow Kaizen - continuous improvement
Adapt to change (Again a very small book - "Who moved my Cheese?", would help)
And most importantly, keep smile.
......wearing the red hat...', kudos. If you can adapt this concept in your trading profession, you can effectively address many areas viz risk, money management through this.
Thoughts on Money and Risk Management. Money Management is simple if we create a rule and strictly follow it with extreme discipline. Everything will become confusing if we do not maintain extreme Discipline. I follow a simple Money Management technique, and stick to it, at any cost. I made a Risk to Reward Ratio at 1:2. I maintain 5 p.c. Stop Loss and 10 p.c. gain. I never put in more than 10 p.c. of my equity in one counter. When there is a loss in one counter, I take a gap of 10 days to re-enter provided signals are good. I only invest those money which if lost doesn't change my lifestyle. I lost money on various occasions, but only to my Risk to Reward Ratio principle, but I am still comfortable trading due to the fact that I do make lot of winning trades also. Its my R-R ratio that helps me stay in trade
...... There are only sums of data and information's which give us for a certain trade enough cross over information to be more sure, that the odds are in our favor to take the trade."

-Secrets of Top Trading Performance-

Much of a trader's early education is concentrated on strategies and market analysis. But what are the necessary ingredients for peak performance? What are the tools for both mastering the mental side of the game and busting out of the inevitable slumps that can occur along the way?

There are several key common ingredients when you are performing your best, no matter what the field.

EXPECT success.

It begins initially with your self-talk. Do you get down on yourself when you make a mistake? - or do you say to yourself - next time I will do better because I have great trade management and am a superior trader! Be your own best motivator and believer in yourself. Positive Self Talk leads to positive BELIEFS. If you believe you can do something, you WILL eventually find a way. When you have a positive belief system that the eventual outcome will be OK, then you are more mentally and physically relaxed. You then have better concentration, which leads to smoother execution, which of course leads to peak performance.

Be Prepared

All of the above factors deal with external factors and internal belief systems. Now let's get down to the DOING part! Every trader should be prepared before the markets open because they already did their homework - right?! One of the most impressive points in the Rogue Warrior book was this veteran navy seal's obsession for being totally prepared for Mr. Murphy! There was always a backup plan for everything and this is what kept him alive. Prepare your daily game plan by looking for both new setups and preparing strategies for managing existing positions.

So, assuming that you have done your daily homework as a trader, the next step is to learn how to get into the groove. There is no better tool for this than having routines and rituals. Pre-market rituals help calm the nerves, get you into a rhythm, and also help to turn off the logical part of your brain - the part that wants to over analyze everything.

Here is another helpful factor: A healthy body keeps a healthy mind. EXERCISE! This gets oxygen to the brain and keeps the blood flowing. How can you expect to be a peak performer when you are eating junk food and going through insulin swings? Or perhaps you drank too much wine the night before or are jittery from drinking too much coffee. How can you concentrate well if you are not getting a full decent night's sleep? Sure, most of these are minor factors but they can all add up to major bumps in your performance. One moment of sloppiness can lead to forgetting to place stops or letting a bad trade go too long. Then when damage is done, your confidence gets chipped away. You must treat your confidence level as something to be protected. Good habits will keep your confidence level high. Once you have good habits, it will allow you to increase your trading size.

Goal Setting

* Flexibility. Be flexible - if what you are doing isn't working, change what you are doing!
* Confidence. When down, get a little rhythm and confidence going. Don't worry about being too ambitious.
* Concentration. Stay with your game. Don't let outside distractions bother you. They take energy and break your concentration.
* Know Yourself. Match your particular strengths to the type of market conditions.

The battleground isn't the markets but what's within you!!!

And on that last note, remember that ATTITUDE is everything. How you frame out an individual experience or event will affect your success in the long run. Do you see a trading loss or bad draw down period as a major setback, or do you see it as a learning experience from which you can figure out how to be on the RIGHT side of a trade instead of the wrong side the next time around. Many great traders use periods after draw downs to go back to the drawing board. Some of the best systems and trading ideas have come after periods of adversity. What incentive is there to learn and improve ourselves when everything is smooth sailing and we are fat and happy? But when times are tough, that is when we can rise to the occasion and prove that we can overcome any OBSTACLE set down in our path.

So many great athletes have been able to come from behind when they are down because they have learned how to seize that one opening or opportunity and CONVERT. They latch on to the tiniest shift in momentum and milk it for all it is worth. Latch on to that next winning trade and convert. The first small moral victory is the first step towards reaching the top of Mt. Everest. And if you keep making small steady steps, you will eventually reach the top. Sometimes for a trader, the greatest feeling in the world can be making back those losses, no matter how long it takes, because once you have done that, you realize you can do anything.


- Risk per trade 1%,
- Risk per day - 4%,
- Risk per Week - 8%,
- Risk per month - 10%.

At the start of month I calculate these number and then they are reset only on next month begining.

You can have different % here. But higher the number, difficult it gets to recover the loss. In my approach even if I am down 10% in a month, I can easily recover in next month.. but if I am down 30% in a month (i.e from 100, i have come down to 70), then I will need a RoR of 45 to 50% to recover.. which is not practical in a month. So, I keep fighting for 2/3 months just to get back my loss.. Not a good trading loop where I want to be in.

The Must rule for me is to stop trading for as soon as any of the loss limit is hit.
If I have 4 loosing trades in a day, my trading day is over. If I have 1 4% lossing day, and next day again I loose 4 trades, I am on holiday for a week. No more trading, no fighting with mkt to recover my loss.. Psychological impact of losses on our decision making is very different topic.

follow following MM rules in my trading :

1) The initial risk in any trade should not exceed 1% of the trading capital...with adds it should not exceed 1.5 %

2) Max risk at any point on all open daytrading positions should not exceed 3%

I will also suggest the following to follow in the loosing streak :

1) Trade small till you get on the winning streak and get back your confidence because loosing streak not only dents your trading account but it dents your confidence,clarity of thoughts,judgement etc

2) You must learn to hold on to your positions when they are going in your favour...also add to your profitable positions...this is the key to trading profits....no amount of brilliant thinking will do that for you ....it is your adding and sitting with profitable positions which will make enough money in your succesful trades much more than your losses in loosing trades....and this applies to daytrading as well you can have 2-3 profitable adds during the day.

3) Wait for proper set ups to develop before you take a trade...this is particularly necessary in loosing streaks..

I am sure you will get out of this loosing streak and get on to rocking streak soon. Look at it from positive perspective that after this loosing streak,the winning period is round the corner....so cheer up .It is obvious that if you ask questions about money management instead of techniques, then you need just some fine tuning, attitude building to make things up.

Calculate Risk and Reward before entering every trade and write it down on paper. This would help you to define clear, technical stops/targets and most of the time, I have changed my mind when I wrote Risk/Reward ratio on paper.

Try to preserve what you have earned, does not matter how little they are, on day to day basis

Keep survival alone as your trading goal, you will be doing great money management. Once you have seasoned, you will automatically trade for big profits. Till that time comes, don't push yourself. Be slow and just learn to survive.

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I feel at times we tend to make simple things complicated. when we speak of day trading, why think in terms of a/c size. when u r trading, u r either trading some system or ur intution. either way, trade so small initially that even a string of losses does not upset u financially or emotionally. once u r confidant that on balance u r taking money from the market, keep on increasing ur positions steadly. we all know what the power of compounding can do. after a winning streak if u again encounter a string of losses, start cutting back on ur position size. this way u would be able to keep a part of the money that u have made and would also be able to rationally analyze ur mistakes. I have personally gone down from doing an average turnover of 20 cr a day to 2cr a day in a weeks' time and going totally flat the next week.

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Draw very clear rules .. Lets accept the fact, as human being, none of us are wired to be successful trading. To succeed in Trading, we got to do things very differently. And clear cut rules does help a lot.Once u have a set of rules (don't worry, even if they are not perfect, or they are wrong.. just start somewhere),, then plz backtest them on last the chart of 1 stock first and then on few more stocks.. If you find that it these sets of rules make money on paper, then only u can expect them to work with real moeny in future.. Else u are kidding yourself.
Paper trading /backtesting is similar to what doctors / we as driver/ pilot/ fighter plan pilot all go thru in their simulated training.. Once they reach a level of success then only they are given the real stuff.. Unfortunately, trading is so easy that we all feel no need of all this.

For me too (I guess with most of the novice traders too) the initial failures could be attributed to the clash of thought process within self. There is no firmness to the thought that goes in the mind once you intiate a position, hence a short TF position would become a long term investment if the immediate move was against the position, similarly a long term call would be closed immediately looking at profits. And here it all starts - the chaos in the mind, which continues for long long time, until there is a concentrated and focused effort to address it (which again I have rarely seen people try). The more the chaos, more deeper we go in and harder to come out.

Nevertheless, coming to the point of matching trading style / method to our personalitiy / traits is what we should aim first. But in my opinion things should not end here, infact start from here. It is not impossible to be a multi facet trader. Yes it is not easier either, we need to find different models / plans which may not be improvisation of our existing methods but altogether different. And this is what I call Research. Looking out constantly to new things, finding them, testing, improvising, customising and then making it suitable for ourselves or else then rejecting if it does not match our belief……… on my trading style, I do it all, from being long on stocks (primarily contrarian stocks- holding over 9 m - 1 year or beyond), do the momemtum plays, go directional with Index Futures, and also sometimes a raw specualtor by buying deep OTM stock options (aka jackpot options).

It has been a long journey friends, but I am happy that I could manage and still able to handle it quite effectively

Discipline comes from knowing what to do and then having the courage to do it when the time comes...

Most traders plan only for the probability side and that, to them, is always what they consider the winning side. This is the biggest mistake you can make in trading. Instead, you must plan for the losing side - Phantom Of The Pits
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Ok, I will start again. I now have four sheets ( Time / Direction / Length / Time entry )

Ok let me explain this, when we decide on a pattern, entry point basis our method, charts etc there is one thing we are SURE of (at least in mind) about the outcome likely to happen for the NEXT FEW MORE observation periods, e.g. if you are trading 5 min chart and a pattern suggests you something, you are sure of that outcome say for a period of 10 min or at max 15 mins time horizon, it is not easy or the probability of predicting what could happen after 20 - 30 mins or beyond is difficult to guess on the basis of 5 mins chart, in our given example.

So once we decide on an entry point (ideally it should be the point at which the movement will happen in your favour either continual or reversal) we decide on the likely outcome of the movement within the DEFINED period of time. And this is the ONLY THING we can likely define. I do not know the length, but I LIKELY know the direction and SURELY know the time by which it HAS TO HAPPEN. Now what happens during this time period could be either what I HAD predicted, NOT what I predicted or OPPOSITE to what I predicted. In any of the three outcomes, I am exiting at the end of the holding period. I am happy to earn, lose or exit at par the end of the holding period on the basis of my judgement rather than hold and ride the profits if there is a sudden move in my favour and is likely to continue even after the holding period is over. This orientation is the BASIS for not holding and riding into major losses if there is a sudden move not in my favour.

My decision and thinking till the end of holding period is only on the basis of pattern TILL THE TIME OF ENTRY. The new additions to the pattern, charts etc are IGNORED as they bring in the noise and emotions and they invariably to give you a call to hold you positions.

I trade on simple and minimal trading plans and spend most of the time just observing (sometimes even feeling sleepy while observing) if I can't define the time and the likely direction I stay put. Only when almost sure, would I enter, observe the movement during the holding period, adjust the positions and exit at the end of the holding period.

But all this was learnt the hard way when a simple definition helped me in define my trading objective :

The most important objective for me is:

1. Do not lose money : So the movement I am in trade i.e. I have TAKEN the risk, from the first review period of the position after a predefined time interval , I start REDUCING the risk, reduce risk, reduce risk....
2. Do what you know: I trade only on FAMILIAR market conditions and not all the times. Infact most of the times I am not holding a position but always have eye, mind and soul in the underlying instrument. And wait for THAT opportunity to strike big and strike hard.
3. Know what you do: Trade on simple and manageable plan/method including my Options holdings.

Hope the above helps to remove some confusion.
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If you are a multi specaility trader (trading different conditions) here too, if you define 'Time' for your event to occur - viz, a breakout to happen, range bound movement to continue or stop, volatility to continue/ increase/ decrease, a possible news event to occur etc, then your decision making will be in a controlled environment with specific thing likely to happen by SPECIFIC TIME.

Initially I also traded various conditions as stated by you and then carried positions from one condition to another and ended losing or carrying loss making trade longer. Till I refined myself to trade only 'FAMILIAR' conditions and wait for them. The opportunities are lesser, the profits are smaller, but the losses are even smaller, and the kitty grows. For me it is better than being in the market all the times, profiting some, losing some, and eventually heading nowhere at the end of the month.

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if you define 'Time' for your event to occur - viz, a breakout to happen, range bound movement to continue or stop, volatility to continue/ increase/ decrease, a possible news event to occur etc, then your decision making will be in a controlled environment with specific thing likely to happen by SPECIFIC TIME.

This whole concept of setting max time and min time is very intriguing actually. How exactly do you determine how much time to give every trade to work out or not work out ? Was it through back testing data over a period of time or by tracking the ability to get impatient after a particular point of time or any other method ?

Soln....For Intraday Traders....Be A Reluctant Buyer & Eager Seller

For Positional Traders....Be A Reluctant Buyer & Patient Seller
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I think over a period of time every trader develops a method which will give him a reasonable indication of what I discussed above. Now to what extent the definition of time is accurate would depend some thought and analysis of circumstances prevailing at that point of time. It will all depend on the method one uses for trading, I had mentioned somewhere on this forum that I use just plain candlesticks (after using and dumping most of the indicators, charts available), for me it is now a 'glimpse' of a candlestick chart which helps me tap the pulse of the underlying. For you it could be something else.

The initial predictions of Time may not be accurate or may be partially right or partially wrong but over a period of time consistency will increase. There will be a lot of heartburn when your desired direction and movement happens after you have exited at the end of your holding period i.e. your defined Time. But with patience and practice one can overcome this.

Again, I have quoted somewhere on this forum : Treat trading decisions as per Indian legal system which states that - the law can afford to acquit a guilty due to benefit of doubt /lack of evidence just to ensure that an innocent is not convicted. Similarly, in trading, we can afford to let go a very high 'probable' opportunity due to some 'element of doubt/lack of compelling evidence' just to 'ensure' that we don't pick the wrong trades and lose.

guess, now I have to bring my part as I started the whole journey. I hope, it was not to provocative. Thanks for the post from you and thanks to SG for his final word. ( I was hopping, that he once gives a comment on a topic which is discussed here in the trader Dan and I was hopping it is this time )

For my part, I have learned with all this post's you made and so I have to say thank you to you and thanks to take the time to write thoughts down. If you learned only by watching us discussing that subject, so it has done its work also for you.

I do not value any strategy for what ever. For me, it doe's not make any sense a toll. For what should I value any strategy to be nearest at any thought's, which points in a direction which is not really valuable for me ( As I only can talk for me and not for others ).

In my opinion it is discretionary.

There are trading plans for different market situations and I or you implement them when you think, that the odds are in the favor.

Timing the entries and placing the entries on probability is what I do and is what I was taught. Some times like this and some times like that.

on a trade thought process developer by tnsn2345
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Discussion topics:

1. What is trading?
2. Who is a trader?
3. How much to put at stake?
4. Where to put the stake?
5. What is the process?
6. What are the skills?
7. What are the tools?
8. Show me the Data
9. Do not learn !
10. Practice defeat !
11. Special occasions, windfall opportunities – is it trading?
12. The Report card
13. Reward yourself
14. Trading portfolio models
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In the financial world, Trading is defined as distribution or accumulation of wealth, in the end it is a zero sum game. Einstein said the energy cannot be created or destroyed it can be transferred from one form to the other, in financial trading money is not created nor destroyed. It is just transferred from one to the another.

Simply to define it, Trading is Cheating !!! If you get this one definition right in your head, you will go a long way in this profession. Once we have defined this definition, now comes the next question, who do you think you can cheat?

Get into a real life scenario, think of people around you whom you would find difficult to cheat and those whom you can cheat easily. You will get the answer. Yes will agree that it is difficult to cheat someone who is a bully, informed, smart, aggressive, but quite likely that you can cheat someone who is fearful, a simpleton, a fool. Yes, there you are, you can cheat fools, and they are there in plenty. What is easier to do to pick a pocket or bend down and take out some coins from blind man’s bowl. I know I am sounding grose. The latter is easy, and we need to do it, because as defined trading is cheating. You will make little from him but you will make it daily. Unlike pick pocketing – where you can probably make more, but if you are caught, you will be thrashed and some day your hand will be cut, then you can’t even pick up the coins from the blind man’s bowl.

So my friends, though I may call you one, in the market we actually aren’t, every day I am looking how to get your money and similarly you need to do the same with me too

Cheat the fools, look out for them, keep searching, there are many every where and they always will be.


Who is a fool, does a fool remain sacrosant, i.e. does a fool always remain a fool or does he evolve and become smart. Like wise, does a smart and intelligent guy remain so throught his life. The answer is a big NO.

There is nothing constant and everything changes with time, experience and the environment. Yes, the environment, this is the key word. The circumstances around can make swap the fool and the intelligent.

As we go ahead we will try and explore and find ways / tools to handle different circumstances so that we remain smart, intelligent, unbaised and are not swap with fools.

What is trading? contd....

How is stock or financial product trading (commodities, currencies, bonds, interest futures, derivatives, etc) different than conventional trading (like a small time grocery store or a wholesale grain trader).

The conventional traders are
- Long only
- Non levered
- Flow with the trend (will buy umbrellas before monsoon and firecrackers before diwali to trade, and not viceaverca)

The financial product traders are
- Long, Short (simply to put - not sure what to do)
- Levered (Margin trading, derivatives, worse - trading Options, which is like trading a perishable commodity)
- Flow with or against the trend

You will find very rarely a conventional trader failing and very rarely a financial product trader succeeding.

....So the first step in trading is first be a convetional trader... a successful conventional trader and then try to reach out for mastery in financial product trading.

It is difficult, but believe you me, even if you start tomorrow, with Non-levered, Long Only, Trend flowing method, you will make a good trader in far less time than what one is doning, (Long / Short, Levered, With / against the trend)

When we come to asset allocation part (portfolio management) you will realise that the major allocation of the Wealth portfolio has to be built on the above premise of a convetional trader and it cannot be simpler than that.
Who is a trader?

We all are in real life trading almost everything we can see and also what we cannot !

But who is a successful trader? He is like a Don (pls avoid laughing, though I am at this moment), who has a network of informers (khabari), henchmen (executors) and advisors (right hand / left hand of the Don himself).

The Don himself does not do anything, he just directs. Similarly for a successful trader, he does not do anything, he directs. He builds his network (either through people or through system – in our case), this network tells him what, where and how much is the opportunity. The Don – Trader decides when to strike, he directs his henchmen to do it, so is far away from the action point (and hence can do course correction) including elimination of his own henchmen if required.

The trader himself, like the Don is always underground and works discreetly, not attracting any attention from the common man. But his is at work always.
A successful trader may portray a cool and serene image (that is a smart coverup) but IMO he is quite a restless person, all the times, he has a wagering mind. A mind which keeps on fluctuating, randomly and non - randomly. But the best part is he has a clear focus on what and how to act, his wagering mind keeps on processing new information which keeps on coming all the times.

Multi TF trading portfolio helps to keep mind wagering, which is what is required. Because when you have some TF earning, there are some TF which are losing, (ofcourse overall you want to the whold portfolio to be positive and that is achived by proper allocation of funds - which I will write later)
A waggering mind creates, non emotion to the holdings, exit in profit or at loss does not create anxiety in the mind.

Hence such a trader will find opportunities in Bullish, Bearish and non moving markets.

Next we will come to more specific topic of Portfolio management - How much to put at stake and where to put the stake.
I think I will write first on the process, skills, tools and then about the portfolio management. Will also quote how I started and so on..
What is the process? Process of trading, portfolio management.

Technically speaking, managing money is a full time activity. And there are professional who do it for wealthy individuals (HNIs), but for a lot of non - HNIs, this job is done by themselves.

It is not uncommon to see that common man does not manage is money the way it should be optimally been done, almost most of them will not do it.

Before coming to the risk profiles of individuals (which differs from one person to another) every individual has different goals in life. Goals are defined as a given thing achived at a particular time. Goals would include, marraige, buying a house, a car, a vacation, a jewelry, childeren's education etc. And all beyond these goals there could be some aspirational goals, like buying a yatch, a resort, a casino is Las Vegas, a private jet etc. Nothing wrong I would say to aspire luxuries in life, infact only if you dream can you make it come true.

All goals, basic or aspirational have to be defined in monetary terms, that is what is it worth today. (We will discuss about NPV (Net Present Value) and FV (Future Value) of money in the tools section, and how Excel can help us in simplifying this task)

Now comes the income and earnings and risk profile, these two define how much of the basic goals and aspirational goals can be achieved. If earnings are not much but risk taking ability is high, some more goals can be met. Conversely, if income is high and risk taking ability is less / moderate, still a lot of goals can be met. So it is a permutation and combination of ones earnings and risk taking ability which can conclude how many of the persons goals can be acheived.

It is quite likely that many of the to goals will have to curtailed or sacrifised because both earnings and risk do not support acheiving those goals.

Ok now coming to Traders specific profiles, where we all fail (including me...when I started trading) was inability to define why I am trading.

We enter trading, without any financial objective, it is initially like a game, where you make money and lose money, (like a video parlour), then you start beliveing that you have found a Money making machine and then suddendly one aspires for all unrealistic goals, without even bothering about the basic goals.

I also presume we all have blown our accounts, not once but many times (atleast I have). And if this hypothesis is true, then where is the question of setting goals, basic or otherwise. The only goal in such a case is to recover the lost money first and then recover the interest earned on that money. Infact, as a day trader, who would have lost a large chunk of money in a year or two or three, still every day a day trader thinks of getting it all in that one day itself. Isn't is like banging your head against a wall....

Why day trade, because, you want to be in the action, you think that you are losing opportunity if you do not day trade. And this feeling of losing opportunity is where one gets hooked and allocat almost everything or all capital to this activity.

Is day trading dangerous? Yes and No.

The biggest drawback of day trading is (espcially for all of us who have resorted to it to recover losses and feel that we are losing opportunity every minute) is it prohibits learning. It kills the student in you. You are a drop fromt the school. And dear friends, this simple fact, I learnt after many years, though I paid a good amount of 'fees' to the market, I was not a student, Day Trading - Prohibits Learning....keep it in mind and memorise...

Yes day trading can be profitable, when...once you have learnt it by not doing day trading and learning how things work, when you build a system, know your instruments, your personality.

The point what I wanted to make was on allocation of money for trading. Trading starts with how much to allocate, even before you start trading, then how much you allocate when you make money after trading or and how much you allocate when you lose money by trading.

If this is done right, half the battle is won. Trading skills, method, systems all other thing will likely fall in place to then win the war.

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I have a feeling that money management/risk management and position sizing is a very important aspect of trading successfully which most newbees miss out on. My trading experience is miniscule as compared to many out here neverthless as a person who has started out in the field with an aim to make it a full time profession, i thought i share my views to.

During initial days of my very short trading career, I found that I did make good calls and end up making profits most f the days, but one or two wrong calls were enough to erode all my profits. Soon enough thanks to numerous threads on mm here I realised that controling the risk on your portfolio is an equally important task in the whole process of trading and I made adjusments necessary. In the following days I did have bad days but even then collectively they fell short of what I managed to lose on one or two days during the initial period. I was lucky to realise the importance of risk management, many newbees dont focus on it. Rather they put their energies to find methods that ll give them 100 percent positive results failing to understand there is no 100 pc fool proof method.
By the time they realise the importance of MM its all about unlearning what they learnt till now. So I guess the sooner the better. One should atleast have an idea of what mm and position sizing is so that he can have a realistic chance of making it to the top league. Else he may not even survive.

Agree fully...I am glad to learn that you have a clear understanding so early, now you are prepared for the second half of the battle - finding methods, systems, sharpening skills, which will give you edge of others in the market.

I will brush upon the skills part and the methods later as we go further.
Day Trading - Prohibits Learning....keep it in mind and memorise...

Yes day trading can be profitable, when...once you have learnt it by not doing day trading and learning how things work, when you build a system, know your instruments, your personality.

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What do you need to learn, a good teacher / mentor and importantly environment.

Just think of standing in a crowded place in your city reading a book, and then reading a book in a public garden and then in a library and then reading a book in a reading room boarding school at a school in Shimla, Dehradun, Mahableshwar.

In tranquility you not only learn by grasp the subject and you are always right.

Starting a trading career (full time / part time) with day trading, is like reading a book in a crowded place. There is lot of noise, the anxiety of losses, esctasy of profits, the emotions, happiness, everything that you should not have for a good learning, it is all there.

When you do not day-trade, and start with larger TFs, you get more time to think, react, learn, note things, register in mind and in a book too. Also you develop a good observational skills if you just observe intra-day charts (though you should not day trade), develop - patience - the most important characteristic of a trader. You can control the urge to jump in a trade immediately. You gain control of holding on to a profitable position and not exit in a jerk.

Hope this helps...I know probably there could be somethings I may not be able to explain in words, what I can do by talking, gestures and body language, but that is a constraint we will have to live with. I am constantly being bothered now how I may be effectively be able to glide through the more concerned topics to follow. But I appreciate and welcome questionig and clarification seeking, as I said these are my belief and practise, I may also learn from a healthly discussion by participation of readers.
I believe there are only two ways of making money in the mkts..
one is where u have a very high percentage of ur trades as winners..while datytrading , since u are trading a very small TF, u have to keep that win percentage very high since trading smaller Tfs, u do multiple trades and subsequently pay a high cost..
the other way to make money is to 'let ur profits run', add to ur winning trades... "daytrading" by its very nature is not suitable fr this kind of trading..as generally a daytrader would be out of his position before the close even though the trade may be in good profit.. u have to give some room to ur winners to be consistently profitable.. and if u are 'daytrading', u cannot afford that luxary very often..

Ok, now as we go further in this thread, just a small recap of the above two trades, one taken yesterday and one today. For the benefit of non-options traders, may I ask some options trader reader to state the payoff (risk, reward and the reason why the above trades where taken, which of the two trades were correct 1) From the beginning, 2) In the interim and 3) in the end. There is some strong, stong message I want to give (and this is for all traders - non-option traders too). This is one trade secret or something which will give a new dimention to your thinking for any TF trading, especially for the starters and non-consistently successful or experienced but struggling traders.

So, please some one dissect the above trade and then I will give you something that will change the way you trade.

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Risk - around 30 pts till UL is below 5690 or so. Beyond 5690, risk would exponentially shoot up. That is in theory - you should be able to close out the position much before that. So in essence for me, Risk is 30 points.

Reward - around 70 points when the UL is below 5500.

Reason for taking the trade - Hitting a strong resistance of around 5540 on daily charts after a sustained up move (?)

Given the neutral to bearish view, this trade looked correct from the beginning. In the interim during the spike up today, this trade was still under control - we would have been loosing less than 25 points or so. Ideally today EOD, this position would have been closed out, since there is nothing remaining to milk out.

.................................

How does the below sound:

- How to convert your losers into winners
- Capital guaranteed trading
- Remember someone is watching your trades - how to fool them
- Whatever your expectation - I have a model
- Whatever your risk - I have a mitigation tool

...................trade condition..............Risk - Would start to loose money either side of 5450 and 5650. I would quantify the maximum risk as maximum 50 points realistically.

Reward - (53 points of time-decay divided by 5 trading days) + (some dampening in IVs) = maybe a maximum of 15 points

Reason - Gap up and then back to 5550 - Creating a broad range of 5500 (decent Support on intraday charts) to 5600 for the day

With NF at 5550 around that time, the 5600CE-5500PE short strangle would have given lesser rewards given that they would have had lesser premiums. But the BE points may just have been a bit further away.

This trade looked fine as long as we are above that support of 5500, below which this trade would have been in trouble. In the interim - at around 1 pm, we would have been around 5500 and trending down.
By EOD we would have lost around 15 points on this one.

This is just the price action, since I have no clue on how the IVs moved intra-day.
Yes, the first trade was profitable (but not from the beginning), infact at the day open till 1 hour it was negative to almost 26 points, but since the holding time for this trade was till Tuesday EOD and review time was EOD today this much volalitliy has to be figured in. But in the end the trade was much positive with 46 points. But is this the point....NO....

Ok, the second trade, was quite simple and though you have tried analysing it for holding peirod till expiry, if you relook I had mentioned that it was an intraday trade with closing by EOD today are review period of 1300, 1400 hrs and EOD. This trade focused only on time decay which would have been of max. around 9-10 points at the EOD, had the IV remained constant.

This trade as correctly mentioned was almost in the positive territory since beginning and maginally negative occasionally, ranging from -2 points to + 7 points. Then we had a downside post 1330 hrs and if the trade was held till EOD would have resulted in loss. But is this the point... NO ...

So what is it that I want to demonstrate here. Even for non-options traders this applies. Once I explain the motive to demonstrate these two trades, need be I will demonstarte live equity/stock trade next week, so it may be clear for non-options traders.
He just mentioned about neutral strategies, didn't he. Well it may look like that initially but they are not, infact both are not. Why because when I initiated a setup I had some 'idea' about to movement of the UL (let us say bearish in the first case) as per my decision making system, but I could be wrong, could I be. Yes, we all do make wrong entry decisions, but then how do I ensure that my decision (say bearish) in this case is correct and I am not caught in a wrong move upside. What is an upside move happens, 1) Immediately 2) In the interim period of my holding period??????????

How do than I cut my loss making trade? How? How? How much loss should I take? etc etc (We will talk about portfolio mangement and RM later), so I thought why not take only the correct trades (you think I am insane to make such statement) Well I also thought so initially, but then I thought that I need to develop something which will help me always to get into a right trade..what is it I am talking about? No I am not talking about my decision making system, that is my system, yours could be different. I may, if I think appropriate, may write on it maybe later, or maybe not.

How to then convert your loss making trade at initiation into profit???
What do you think, do I have any such method to take just the right trades or convert a loss making trade into a winning trade, what is your opinion....
if it is difficult for you to guess, then kindly refer to my earlier two example trades, which appeared to be market Neutral at initiation with my view also mentioning something like that, but I had very specific view on the direction of the market, which was not disclosed...now you would say both the position were good the first resulted in a good profit at the end of the day and the second was good till half time of the day...

In both the cases, what do you think would I have done with the entire setup, would I have kept my longs/ short (of respecitve trades) open through out....????

I have already given some hints, and now if someone could either point out what I want to disclose further would really earn brownie points. I repeat I had a specific view (but maybe since I could be wrong in my view) I had.....and then mid way I .... so ended in substaintail gains at the end of the day more than the respective setups could have given because.........


Options trading (covered, open, writing, options strategies) is itself a vast subject and I guess it may not practically be possible to teach A to Z on this subject on such forums or atleast I am not capable of expressing myself in this forum as there are a lot of things you keep checking different numbers, graphs and not just the graph / price of the UL. It is like flying an jet watching all those funny meters, which can't be done on paper.

Also not many may be interested in Options trading at this point of time as the basic prerequiste for trading them IMO is to have a consistently successful or large stock trading background.

Like any trader, you have a view on the UL, bearish, bullish, sideways and in stock you can make money either in bullish or bearish movements (sideways is for Options...so we will not talk about it here).

So there are only two views to profit, bullish or bearish (we are not talking about the speed of change). It is just a plain view of the UL reaching a particular price up in case of bullish view and a particular price down in case of bearish view and by a 'specific time'. For every system of ours, this is important that the view has to be till a specific time, either 10 mins, 30 mins, till EOD, for 3 days, a week, a month etc.

But since we are no God, can we exactly define the end of the 'specific time' or can we define that our entry is just the right time and move will happen exactly after we have taken a position. Am I talking about catching the bottom or tops to take the best entry position - which by inate human desire we all want, yes...to a large extent, but then we need a confirmation too that we have indeed caught the best entry position and that too WITHOUT incurring loss..so the question is how do we do it, eating the cake and keeping it too...:)

When we arrive at a decision point (and say our view is bullish) we generally enter long, we generally enter at a point where the bears have just climaxed but are the bulls ready to charge....generally no. Though ideally we should have entered after a pause to let the climaxed bears, breathe easy and cool down and just as the bulls show signs of charging. But most of the traders are not so paitent to do so, and since we always want to be in the market, we take long position just when the bears have climaxed and then hold on our position till the bulls start charging....this waiting period of waiting and hoping that our position will flourish is the culprit and lot of things keep running in our minds during this time. We consider the time invested is too long and hence even when there is small up move, we tend to exit as we are restless, since we were kept waiting for so long for the bulls to charge. Alternatively if the bears decide to march further down south, there are high chances that the position is held on, since you are married to the position as you have been holding it for so long long time and the long holding period does not allow you to exit even when you know that the movement is not in your desired direction.

So though the best thing is to enter just when the bulls are ready to charge (in case of bullish view) or just when bears are ready to attack (in case of bearish view), we can succumb to our urge to enter the market and 'Get into the Action' and 'Get the first hand feel' by ENTERING NEUTRAL POSITIONS. Yes ENTER NEUTRAL.

So in the above example in both the position I have initiated the trades in Neutral Gear that means that the ignition of my car is ON and I am standby in a Netural Gear.

I had a view, in both the trades I mentioned - and that was bearish, but since I did not for sure knew when that would likely be triggered, I entered Neutral - so I am in the market and already in the action..till the time the market were moving in a limited range, my setups were not in much loss nor in much profit. As the time passed, and your conviction as per your system, charts and price action suggest that the desired movement has started, which can be anytime from the initiation time to the intermidiate time, I CLOSE THE LOSS MAKING POSITION from the NEUTRAL POSTION that I had at initiation. And than now I have a directional position, as per the trend in the market.

So out of the two sides, say for example, I do not spend my time and energy to keep analysing, which side is right and then move to side, BUT I AM IN THERE sitting on the fence all the times with one leg on each side, and swings my legs merrying in the air. The moment one side shows action, I pull out my leg from the other side, it is very fast and very easy.

How does this help...

- It meets the basic trader's instict of being in the market all the times (and the Netural position help you to be in the market, but without bearing any loss as you are market Neutral)
- As you exit your loss making position because of a movement in your anticipation, you develop habit of exiting trades in early loss - another requirement to be a successful trader.
- It helps to hold your positions for long time, since after an move in your direction, if there is a pause, you can reinitiate the opposite position and then then again get back to the market neutral position, keeping the original position in profit.
- And most importantly when you are having a market Netural position, and the movement subsequently happens in the OPPOSITE direction of your anticipation, you can either exit the entire NEUTRAL position or exit your loss making position (the position which you originally wanted to hold and profit) and continue with you NOW profit making position (originally which you did not anticipate to be in profit). So now you got it how to make your loss making position run into profits. This is despite the movement happening in the opposited direction to your anticipation.

There are a few more ways do this, but won't be stating them here...so other time.....

Hope you have understood what I wanted to convey, the Options trade was just an example, hence in those two trades, I have earned, but the original set up was exited midway and loss making trades where shun out, holding just the directional profit making position and profiting from the momemtum of the fall (in this case) or in some other cases would be a bull run.

To make things simpler for stock traders, it is like, If I am bullish on stock 'A', I go long stock 'A' and at the same time I go short say, stock 'B' (assuming they have be same Beta and are strongly correlated). And then I wait, from my initiation to the intermidate time (almost till half time of my original holding period) and just when the bull run starts during this period and I can see it on charts and price, I cover stock B and let stock A run in the money. And, if the bulls fail to take off till my holding period, i get out of both the stock. And conversley, if bears decide to take control in the interim, I either exit both the positions or cover the long stock A and continue holding short stock B.

Hope this help to convey my motive. Practise it, practise it, you can use it with your existing decision making system. And convert you loss making trades in to winners.

Whenever anyone enters into a trade, be it plain options or spreads, strategies or plain stock and/or futures, 3 things are can happen,

1. The move is in their direction
2. The move is opposite to ones logic for entering the trade
3. There is no move at all (as in it constantly keeps hovering near your levels and keeps fooling)

Now in all the three cases, if before entering any trade one has his mind set as to what he is going to do on all the three occasions(i started by writing it), trades and trading will become more easier.
Only in the case of the no.2 and no.3 is where the max learning takes place.
Cos its really sets one thinking as to what will i do if the trade goes against me. And there come all the trade managing fundas.
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Entering neutral inspite of having a inherent bias is an eye-opener for predominantly futures traders like me with primarily trend or price action following systems.

One immediate question that comes to my mind is another of trader's itches - to do something more about the position before the review time. Your EOD trade for e.g - correctly had review periods at EOD Friday till Tuesday. Would you have tweaked something in the trade had there been a gap down in your favor on Friday morning itself and by noon, the trade was clearly deep in money? Or would the tweaking either because of loss or gain happen only at the review time, given your belief in what your system is telling for that given TF. Or are "level" based reviews better? Like a review at 5600 or at 5450 etc .
................yes if you are targeting Absoulte Alpha Returns, then you need to be constantly in the markets going long, going short quite regularly, if the amount is large then the TF becomes larger, but the position in the market is mostly likely always there, through the above Neutral Entry example you may choose to be in the market all the times, from Netural to Long, to Netural to Short, to Netural to Short and so on. I also term is as a Spiderman trades you are out of one and then into another, just like that swinging spiderman from one building to the another. Would probably write more on spiderman trades later in subsequent topics. Also related to this subject is a 'spy trade' (kindly remind me, incase I miss out to explain you this as we go further)

...............there are other better ideas to make more money and 'with equal amount or lesser risk or without losing money'.

On the first part of this being an eye - opener, I would say that I developed this techinque as I found that once I had developed an opnion (essentially at the resistance or support, I would be keen to take a reversal trade, in many such occasion the trend would continue after some time and then though it seem a sure continuation of trend, since my orginal decision was reversal I would not take a position in continuation of the trend as it was not what I had anticipitated, through this techinque, since I am already in a Netural Trade, I could exit my loss making reversal trade (which was my main position) and continue holding the trend continuing position as it ran into profits.

The above techinques given large room to accomodate, right decision making errors and hence would advise it to starters, till they have developed a good strike rate sytem which gives high probablity of right signals on entry. Even today, I am stuck on lot of occasion when my system though it me some indications and I do not have conviction on that indication, I enter a Netural Trade first only to then release the loss making trade out and continue holding the profit making trade till the end of holding period.

On the second part, of reviewing the position at the end of review period, I can only tell that once you have done your trading portfolio allocation properly, (which is nothing but portfolio managment - we will discuss later) I do not see any reason for me to jump into any intermiate review. If you are thingking that the losses could be large due to gap up / gap down, that such volatility is factors in that time period portfolio and the overall effect on the total portfolio is small, even if that particular trading portfolio postion goes into a deep loss (which generally does not happen - once you have rigid and dynamic decision making trading system / method.

I recollect mentioning somewhere on this forum that I am like a baker, baking breads to cakes, to cookies in different ovens, and for different baking products, you need different temprature and time settings, I just need to open and check those ovens at those set time and not in between. As such when the timer of different oven stops as per what is being baked inside, i.e. end of my holding period, I exit automatically.
One more method of Netural trade entry is place two SL type entry orders (one short and other long) of the same stock just above the the current price of the stock and keep on changing them in the range - band fashion (something like BB bands) where you have a line above and a line below the price line. At some big price action (either up or down) your one order is triggered and that trend is likely to continue, so hold on. Additionally, once your position is initiated in this fashion of entry, you can then put a SL to this position with twice the quantity, that means that if your SL is hit, than you are out from the original position quantity and now have a reverse position with the original quantity.

e.g. For Stock A, if the stock has fallen from Rs. 110 to current price is Rs. 100 and you have a bullish view now 'as per your system' (especially a trend reversal thinking), you can put a buy SL order of Rs. 102 (1000 qty) and a sell SL order of Rs. 98. (1000 qty)

Now if the stock rises to 102, you will automatically enter a long position at 102 for 1000 qty, then in such a case, since you have created a directional position, you can set a SL at 99 with 2000 quantity.. so incase if the the SL is hit you are now short @ 99 with 1000 quantity. And with this directional position you can then again set a new SL....and so on till the time the chart, your system or price action suggest a strong and most certain direction of the stock till the end of your holding period.

Hope this helps, there are a few more ways to do such things till you have developed a good successful system. And even after you have a robust trading method / system many times, you feel that such entry is beneficial, I still do it many times, even after so many years in trading. This way the profits may be less, but almost certainly there won't be losses. You will need to practice this, which isn't that difficult. But you will need patience with this method. If can control your losses you are still in the game and milking.

Still if there is some disconnect, would like to throw more light / give more live examples, pls PM me if required, and we will take it off line.

Regards,

..ok...now I would close this ice breaker discussion on trade entry here and continue with the subject from next post...on second thoughts I feel that such bit - off track topics may make the flow vibrant and not monotonous or monologue. Also please excuse for wrong spellings, wrong grammer (though I am good at the language) but many times thoughts run faster than the fingers on the keypad.
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Am I worried after I initiate a trade, am I happy or nevous when I exit the trade, you would guess rightly that I would say NO...is it because I am making this statement and not some other budding trader???

What makes me detached from the positions, is it because of good high success trading system? How can I do more research on my existing system and how am I able to refine it, do I refine it regularly. Or use the same system?

The answer to all this lies in how much I put at stake, how much I allocate to my that trading portfolio. So you may ask what is 'that' trading portfolio. Do I have different trading portfolios, if yes, why and what are those, how are they build, what is the basis of funds allocation to them.

When I started I had one trading allocation yes 100% to one TF trading. No prizes for guessing the results, when you have such most skewed allocation and that too without much proven or with just semi successful trading method. So post the results, (as I had mentioned this somewhere on this forum, restating)..."In the dark, the eye begins to see".
....
Trading is a job...a daily business and wealth cannot be created by doing a job or daily business...this is the first and foremost thing to remember.

Yes you cannot create wealth by trading !!!

Wealthh is relative, wealth for you may be different than for me.

How do you define Wealth, for someone earning a 10k a month, wealth could be 50 L, someone earning 1 L a month, wealth could be 5 Crs and for 10 L a months the wealth could be 50 Crs, so wealth is relative term and hence I said that you cannot create wealth from trading.

So if I make 5 L a month from trading, and my aspiration of wealth is to have a worth of 25 Crs, can I make it from trading itself in my workable life time. Infact mathematically, it would take me another 41 years to do it (at 5 L a month). Yes workable life time, if you are surprised by this term than rethink, what you are doing today, you will not be able to do after 5 years, those of your successful methods / models will not be fool proof then, it would require constant upgradation and pass survival and expiry tests. The health and agility will not keep upto the levels today. If you are afraid than so be it...

So effecitively saying I cannot accumulate 25 Crs just by doing the same thing for the next 40 years. Even if I redifine my wealth definition to half the amount, it will take me 20 more years.

So how is wealth created, it is created by investing or trading your savings for longer TF (earnings minus expenses or trading income minus trading losses). One more rule (I have mentioned this again on this forum). BIG MONEY IS MADE IN BIG TIME FRAME.

Now once you are clear of this definition, the next question is does the stock market provide me will all TF and different risks instruments are there different assets I will have to study and deploy my savings for longer TF trading / investing portfolio. I am not sure about you all, but I found them all in the stock market, where you have MF (diversified, index, thematic, contra, momemtum, small cap, mid cap etc etc etc funds), direct equity - Index stocks, non index, small, mid, large, penny etc stock, Derivatives, Futures and Options. And everything mentioned above are standalone ingridients. If you can develop into a master chef (I am not talking about trading method / system here, this is discussion is above that) then you can create any receipe mixing these ingridients. Yes, I hence do not have to trade in bonds, or interest rate futures, or currecieis or commodities to diversify my trading portfolio. I can do it all on the stock market itself with various instruments and all within 9.15 am till 3.30 pm. Not tracking other assets which are traded 24 hrs or world wide. So for me it is a focused activity to understand, learn and master everything at one place and then create whatever I want, absoultely whatever I want can be created. Hence for different risk, different returns, different volatility, different TF, it all can be created on the stock market using different products and mixing them to suit my requirement.

And then wealth creation does not end in the financial markets alone, for some of your wealth you can invest in a start up PE, be an investor in a restaurant run by your friend or a relative, create and run business that can be run by managers and without owners involvement and take stock of the situation every weekend. Take up a retail franchise of brands - fastfoods and and get managers to manage it. Buy properties and lent it, hire managers for it's maintenance and rent collection etc, buy fleet of tourist cars and rent it, set up a company to run it and...the list is endless....And keep trading still your core business, your daily job...your daily involving business...

BIG MONEY IS MADE IN BIG TIME FRAME....with less volatile returns...trading income (less trading losses) is feeder to the longer TF assets.

if allocation is done right, then you conquer the fear of trades going wrong (ofcourse you need to have a good trading method though first).

If the thought ever comes to the mind that for all this large money is required, then may just beg to differ, all can say it is never too late to make a right start. You can start this with any amount of money you may have, the success is exponential, and any target can be met.

No enough of the gyan, let us come to practise (unfortunately today everyone wants results) so let us come to real life scenario.

Say I have 1 L with me now and I want to buy a car after 3 years worth 3 L. This could be one goal, defined in financial terms (3 L) and a defined time ( 3 years), so now lets get cracking....

You have 5 assets to invest and the following are the risk return

Asset Expected Return (p.a.) Risk (defined as Standard Deviation)

A1.............10%.........................?
A2.............30%.........................?
A3.............50%..........................?
A4.............80%..........................?
A5............120%.........................?

If you invest only in A1, you will end up with Rs. 1.30 L at the end of 3 years (30 K returns and 1 L capital) for simplicity we are ignoring compounding effect.

Similarly if you invest fully only in A5, then you may end up 4.6 L at the end of 3 years (3.6 L returns and 1 L capital)

So how much you invest in the above assets, what should be the allocation, should it be constant through out, what is the risk (Standard Deviation) and Probability (0 to 1) of returns as mentioned above for each assets??

To simplify and make things easier for no math and stat readers. The asset allocation should be simply higher in high risk asset and lower in the low risk asset, since you have time of 3 years, so even there is high SD in the portfolio you need not worry as you do not want the money now, you need it at the end of 3 years only.

Hence you could have started as

Asset ...Allocatioin
A1 ..........0 (0 k)
A2..........10% (10 k)
A3..........20% (20 k)
A4..........25% (25 k)
A5..........45% (45 k)

Total investment 1 L

At the end of the first quarter when you review the performance of the portfolio and depending on the returns of different asset you would make readjustments, say now your total portfolio has increased from 1 L to 1.10 L after the first quarter, your readjusment would be as below:

Asset ...Allocatioin
A1 ..........0 (0 k)
A2..........10% (11 k)
A3..........20% (22 k)
A4..........30% (33 k)
A5..........40% (44 k)

Total investment 1.10 L

What have we done in the first review is reduced the allocation of A5 from 45% to 40%, reduction of SD from the total portfolio.

And so on...every quarter

After 2 and half years it would look like:

Asset ...Allocatioin
A1 .........45% (1.12 L)
A2..........35% (0.88 L)
A3..........20% (0.50 L )
A4..........0% (0 L)
A5..........0% (0 L)

Total investment 2.5 L (assuming this the worth of the portfolio then)

At the beginning of the last quarter it would be :

Asset ...Allocatioin
A1 .........70% (1.9 L)
A2..........30% (0.81 L)
A3.......... 0% (0 L)
A4..........0% (0 L)
A5..........0% (0 L)

Total investment 2.70 L (assuming this the worth of the portfolio then)


So effectively what is being done here is as the financial goal come near the high risk asset, with high SD are reduced as we cannot offered that much volalility as we touch down. Hence what we started during a take off, it is opposite for a smooth landing....
 

oilman5

Well-Known Member
Answer is............Trading is in no way similar to tossing a coin and hoping for a 50:50 chance of winning and losing. Neither it is exclusively about the method/system you are using or exclusively how your are mentally build.

It requires a perfect combination of your personality and a self tested highly probable method/system.

If you don't have both with and in you, you won't ever make it.

Rest all is a slow poison.
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The above allocation for different assets is the way to reach your goals and for this purpose the first step starts with defining the goals, very clearly in time terms and financial terms.

In the above illustration we have just considered a static investment of 1 L with out considering addition of funds in the entire 3 years period, which may not be a real life case, we keep earning regularly from our short TF trading portfolio or through existing jobs (for part time traders), such income also may be added at regular intervals to the goal oriented portfolio.

EXCEL helps us in many ways for allocation of such money. Also when I mentioned 3 L needed at the end of 3 years that mean, 3 L at today's worth. So what will be it worth after 3 years (add inflation cost). Here you may use EXCEL functions of NPV and FV to arrive at actual money needed at the end of the time period.

Coming to tools, EXCEL has all the utility tools one can want for Financial analysis and can be used in daily life. Teaching how to use Excel will be a subject in itself, but just visit the Functions section of Excel and go through the Finacial section and statistical section (for stat oriented readers) and explore the use of these functions, it will be an eye opener for many. Spend some time there and try to learn the uses. Thoda difficult aur boring lagega, but believe me it can be a game changer for you.

Another tools in Excel is the 'Solver' Function, which gives you a best combination of given alternative as per the parameters defined by you. Hence if you feed in the SD, expected returns of multiple asset and denife your parameters of the portfolio, 'Solver' function will do the rest and give you the best combination of allocation to be made to that particular portfolio. This is a great function. This is a must visit and use feature in Excel. (If you cannot see 'Solver', go to Tools, click Add-Ins, and in the Add In Available window, check 'Solver Add In)

As far as use of Excel is concerned I can just conclude is only if I could demonstrate it live, the uses and benefits, there is no other better way to do it. Since I can't do it all on this forum, I leave it to you to explore.
..............
...

So likewise there will be many goals for different time maturities and all these running concurrently, so the allocation for each of these goals will be made in different risk assets expecting different returns.

When I talk about multiple trading portfolio especially the long term TF then it comprises of many such goals fulfillment object spread over 3 years to 5 years and beyond. The short term and mid term TF trading portfolio are like core and satellite activity which act as rudder and turbo booster to reach the goal.

By Core and Satellite activity means that your primary concern is a steady return with limited risk but time and again you find opportunities in the market to make a quick buck (with more risk) then you deploy some funds to capitalise on that opportunity, if you succeed, it help the entire portfolio, if you dont (which may happen occationally) then it does not create a dent in the entire portfolio.

It is very important to spend time on creating models as per your risk, skills, instruments you can invest and returns you expect from those investments.

I am a speculator and want to be the greatest of all, but not a gambler. I would not put my money on the table and hope that people will put theirs and then see who wins the game.

I want to make money but only if I see there is money on the table put by people who 'necessarily' want to make money. Against them, even if I have lower order of cards, I will still win, when their impatience eventually 'packs' even though they may have higher order of cards in their hands.

In other words, I would play 'who blinks first loses' game with a night watchman in the morning. And yes every morning and with a night watchman only, no other time of the day and with no one else.....And I know, infact you all also know (isn't that surprising) that there will always be a morning everyday, so just wait....to play your game then.

Trading = Speculating = Best opportunity - Lowest Risk.
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Everyday the basic objective is to make your battle arena a familiar one, (something like the Indian cricket team is favourite at home grounds, due to familiar conditions / favourable playing conditions). Hence even if we keep on milking the market almost regularly, we should not (or rather cannot) reinvest the profits in those same smaller TF trading again. This is to keep the volume constant. Hence in such a screnario, expecting exponential returns only by short TF trading is incorrect.
Mechanical vrs discretionary methods is a big debate. Both methods needs well defined entry / exit / SL / direction. The same method gives different results when the number of lots traded increases. The human emotion factor goes up with increase in volumes and this forces many eye ballers to shift to mechanical.

Developing a good mechanical system is far more tougher than eyeballing. Simply because following the rules become tougher with mechanical. like today, my system gave a exit for my shorts carried from yesterday at 5414... it gave a short at 5459 and an add-on short at 5478... sl came at 5522... I could have easily avoided the add but the moment i try to second guess the system, i would defeat the very purpose of shifting to mechanical. I enjoy trading stress free and if that means bearing a loser... i will gladly do it... simply because i know end of the month i will remain positive.

lack of thinking during trading hrs is what differentiates mechanical from discretionary. Some times its the smart thing to do and ley the law of average take care of the profit.... .................
This is absolutely right approach for mid and long TF tradings / investments. Incidently, the decision making for my mid / long TF trades comes from some very simple techinques based on EMA and couple of propritary mathematical models based on relative strength and rate of change of prices. These are purely mechanical approach but the TF are very long ranging from 3 months till 6 to 9 months.

For intraday and shorter TF less than a week holding periods, the best thing I have is the fund allocation is always constant so there is no pressure on the volume change. The profits are withdrawn and pooled for longer TF investments based on mechanical approach. These mid and long TF trades are non leveraged or extremely moderately leveraged, hence there is no pressure in any terms.
...........quite an effort, time and money has been "invested" (read 'lost') that the there is a strong resistance to quit.

Also to some extent there is a hope that a trader feels that now he has a good experience of the market, has got hold of a system which suits his personality and things are working for him. And this hope creates an illusion that what is lost can be recovered and money can be made from the market.
But this illusion is sooner or later shattered by one act or the other. And then it starts all over again.

Given the above fact, I feel there should be a smooth transitionary phase when a trader moves out to look for alternatives outside (What the gentlemen in your case mentioned above is extremely rare act and the logic of 1 and 0 or On and Off will not work for most misfit traders).

One thing that comes to my mind is confiding with someone who is very close to you, maybe a close friend or spouse and start discussing how you have messed up and in what state you are. Yes I know the obvious response for people who are not related to trading will immediately and strongly react and give hundreds of reasons to explain that trading is gambling, but if a proper precusor is given to then, maybe they could help smoothen things a little bit.

Also, in trading profession there is hardly or no interaction with any physical being hence most of the traders spent their recent trading years in isolation, this creates a rift between them and their society / friends / colleagues. Hence if a trader iniatiates a concrete effort to redevelop relationships with people associated with his daily life, he could get some ideas on way forward for him.
I have also tried to figure out at times as to why dont people call it a day. the only reason I could think of is...
most of the individuals enter the market in an uptrend, when everyone around them is making money and the only discussion going around in social circles is stocks and how much money was made by x or y.
he then enters the mkt and fr a while whatever he touches becomes gold.then comes the crash and he looses everything n some more.
after a thorough analysis, he finds that most of his trades were good, it was just the last one or two trades which brought the loss.
now he sets off again trying to rectify the previous mistakes and learns to put in a stop loss.
after maybe an year he realizes that due to the use of sl his win loss ratio is not as good as it was before and on balance he is not making any money, maybe loosing some.
then he goes on the never ending journey of buying books, learning technicals, visting forums etc. but more often than not his results do not change.
after a few years he finds that he is not much better off frm the time he had started.
but by this time , he has invested so much in the form of money, effort and most importantly 'time' that quitting becomes difficult.

I am reminded of a small episode. many yrs back Ikm was a broker who had the biggest client base in Delhi. he had a trading room where there were atleast 50 traders/subbrokers sitting together. one gentleman who was sitting in that room frm the past 3 yrs., suddenly got up one day, shook hands with everybody and said that he was calling it a day. everyone was surprised as to what happened suddenly. his response was, " the bse sensex went up frm 3000 to 5000, I did not make any money, so I thought maybe I am a bear and would make money when the mkt. falls, now it has come down frm 5000 to 3000 and I am still breakeven. so I feel this business is not for me"
he just quit and never came back........ there are not many who can admit that they were wrong and move on in life.

In life we dont know about future.

In stock trading we know but does not accept.

We know Markets all activity is running by loser's money.
Market have to pay NSE-BSE to maintain their building and staff.
Market have to pay thousands of brokers and sub-brokers to maitain
their family
Market have to pay taxes aslo. And market to pay some winners.
Yes, bigbull, chhote bandhu, bade bandhu, chhota haathi,bada haathi.
Winner may be you also.
These all Gets money from market. Market have only one source to get
money to pay all of them and that is losers. So loser is must for stock
market. Without loser market can not run.

.................................................. ..
I am in this stock market for more than a decade and has seen most of the ups & downs like everyone else.
Now let me ask you all people few simple questions.
WHY ARE YOU IN THIS MARKET?
WHAT ARE YOU IN THIS MARKET?
WHAT ARE YOUR PLANS/BLUEPRINTS?
HOW ARE YOUR MONEY MANAGEMENT ABILITY?
If you can answer these to yourself... you will never be a quitter. These questions are to be answered whatever business you venture into.
In all trading activities ... emotions always play a big role. (Even today I am influenced by emotions.) But by controlling these emotions, understanding+ eliminating the causes of them you can always make a come back.
Accepting the defeats do not make you a tiny. But losing the fighting spirit will sure doom you... not only here... anywhere you go and do any business.

I request all my (demoralised) TRADER friends to analyse themselves first and then start trading in stock market.


I wish, like lot of other professions with passage of time, one may eventually develop skills to perform the task, even if not at a pro level but still could manage to do it reasonably well to sustain himself and his family. But not trading. Here more experience not necessarily is any parameter to ensure success. Infact a trader lives by a day. No one is sure that a pro trader will always remain so. One bad day or a big wrong trade...and then the dominos' effect can just ruin everything. So trading is not simple or easy as it sounds in terms of sustenance. A trader is a daily wager.

Most of us may not be succussful traders and this is a fact, whether it is you or me or both only time will tell, but it is for sure. So how and where you think should you put your foot down and hang your boots.
...........................I call upon viewers to just state what are their strength areas (in terms of personality, skills, knowledge) and what profession they would have been (basis the strength areas) if they were not in trading profession. This could touch upon that side of a trader which may not be explored and might give us ideas to help nuture it.
over the years I have met maybe 2 or 3 naturally talented traders. broadly people who trade suffer from one of the following defects ( pardon me frm digressing frm the main topic):
a. compulsive trader.. he just looks at the screen and itches to do something..the thought of loosing never even once comes to his mind. he is constantly thinking of the millions that are there to be made frm the mkt.. I think he needs professional help.

b. too scared.. after a few beatings, he becomes too cautious and is afraid of putting a trade.he looses good oppertunities and never realises that trading is all about taking risks, not avoiding them.

c. plain ignorant... he dabbles with amounts that are not significant and his account keeps on alternating bet. green n red.

coming to the topic... I feel a trader who falls in any of the abovementioned categories is bound to fail and would be better off if he leaves trading and takes up a job which is more suited to his personality. but the most important factor is 'self realization till the time he does not realize that this particular vocation does not suit his personality, he cannot move on in life. sadly, I have seen many traders, who even after wasting many precious years of their life,do not realize this. for them the 'holy grail' is always just around the corner. the simple fact that someone can maybe be a good accountant and not a good photographer eludes them.

Trading is addictive and like any addiction to be removed there has to be a proper method which if followed could reduce or eliminate this addiction (E.g. we have NGOs which help people quit drinking etc) Infact I feel there is a big scope to start an institute / agency which could help rehabilitate failed traders. I am not doubting the ability and perseverance of traders but the fact is some of the 'traders' do not have that edge and howsoever you try they cannot succeed in trading (This is my opinion, others opinion could differ).

As you correctly said that most of the struggling traders always feel that the holy grail is round the corner and there is no self realisation that this is not their game.
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Until and unless if you do not learn to Read the markets, you are not going to make consistent money. So we all start with learning the wrong skills but eventually you need to correct your learning.

The post below is written by a very successful S&P 500 futures trader Ziad. It may change your trading life for ever.


Hi XXXXXX,

I've been reading your blog for quite a while now but haven't commented yet. However, I feel I need to comment now.

If you don't mind I'm going to be very straight forward, and blunt even, but I hope you'll take it from a spirit of sincerity and genuine desire to help. It's going to be a long comment, so I'm going to break it up into 2 or 3 comments.

Here's the situation as I see it: For the last few months, and possibly much longer, you've just been spinning your wheels while thinking that you are getting somewhere. The reason for this is that you are going about learning how to trade in the wrong way, in my opinion. I say this because I've been trading much less than you, a little over 2 years now, and yet because of the way I went about learning and what I focused on, last year I netted $150k while nearly quintupling my account, without a single losing month, and while only risking a very small portion of my account on any single trade. Now there could be many reasons for the difference in performance, but I think one of the main reasons has to do with what you are focusing on and how you are going about the learning process.

To try to put it as succinctly as possible, in my view traders that are focusing all their attention on "set-ups" and finding out which combinations of indicators work are never going to become profitable. They are trying to follow the advice of trading books that say trading is simple and psychology is everything. So they search for set-ups that 'work', and that can take the guess work out of trading. They want to be "disciplined" and have simple rules that guide all their actions. But there's a few problems with this. Namely, while psychology is HUGE, it's not everything. And while trading is all about simple principles, actually having an edge is NOT simple. It's a myth that you can have a couple simple price or indicator set-ups and make money consistently if only you are disciplined. That's a load of crap. It keeps the dream alive for wannabe traders who never realize what it's truly about. Well let me tell you what it's truly about...

Trading is about being okay with ambiguity. It's about tolerating confusion. It's about sitting with discomfort and being at peace with it. It's about not having an exact script of when to trade or not to trade, or what's really a high odds trade, and being okay with that. It's about exceptions to the rules. It's about contradiction. It's about uncertainty.

And yet traders left and right want to make it simple. They want to reduce it to a few simple set-ups to trade with discipline. And yet the market is not simple. The market is all about uncertainty, and complexity, and ambiguity. Simple set-ups could never capture that, and they can never give you a true lasting edge.

So what's the solution? Is the problem in the simple set-ups themselves? No, it's in how they're being used. The bottom line is, every trader needs to learn to READ the markets. This means that simple rules will not do. There has to be a synthesis of different elements (whether they be price action, indicators, inter-market themes or whatever), and real-time interpretation must take place. It has to be all about CONTEXT. Once you can read the markets, and don't fool yourself it is a very complex process, then you can choose to employ "simple" set-ups to enter and exit. But the real work will be in interpreting the market to see when you should use which kind of set-up. Seeing a hammer or whatever near a support means nothing unless you've identified the broader picture and gotten a sense of the kind of tactics you should be using, and what the odds are for different scenarios unfolding.

Now I know you, and most traders do this to a certain extent, but your main focus is on the set-ups. It's not on reading the market from minute to minute, hour to hour, figuring out the odds of it doing this or doing that, adapting dynamically, and thinking of trade ideas from all your observation as the day unfolds. Rather, it's waiting for some simple set-up to pop up and then taking it.

Now is it easier emotionally to have clear set-ups to wait for and trade in this simple manner? Absolutely. But who said 'easy' would make you money. If I've learned anything, it's that the market rewards what is hard to do. It's hard to have ambiguity surrounding your market reads. It's hard being uncertain. It's hard dealing with competing and sometimes conflicting signs. And yet, this is what it's all about. You have to stop trying to avoid this by needing things to be And yet, this is what it's all about. You have to stop trying to avoid this by needing things to be clear cut. And is it hard to be disciplined when there's so much uncertainty about what is the right trade to make? Of course. But instead of trying to avoid the uncertainty by looking for simple set-ups, or some straight-forward method, train your mind to be able to deal with the uncertainty.

As for the learning process of how you go about doing this, it's all about being constantly engaged with the markets, trying to figure things out and learn from experience. For me, for instance, what I did was each and every day take notes in a journal all about market action and what I think it means, and how I should trade, and what is working and what's not. I didn't write a journal describing the trades I took, or what my emotions were during the day. It was all about market action. And it was all my perception and interpretation. Day after day, week after week, making mistakes, wrong calls, being clueless as to what was going on, not knowing how I should trade, not knowing if my views made sense or not, and yet I continued taking notes and learning. Then I would view charts and combinations of historical intraday charts, and I'd note certain behavior. For example, I'd study trend day after trend day and try to notice what they had in common and how I could have picked up on it in real time. Then I'd study range days. Then I'd study a price chart of the ES versus the Advance decline line and see what the relationship was across many different days. Then I'd do the same with the ES and TICK chart. And on and on. Over time, this gave me a feel for the markets, and a certain understanding of how certain days differ and many subtle signs and tells for each type of environment and context.

As for set-ups, I didn't use any predefined ones. I just formed trading ideas and then tried to get in at good trade locations. Even this, which is the art of execution, is quite complicated and not straight forward. I started realizing that in some environments it's best to wait for pullbacks, in others I need to get in at market or I'll be left in the dust. In some markets I can buy low and sell high, in other markets the opposite is in order. And so on.

I became consistently profitable in a timeframe of a few months by doing this. But of course before that I had read 30 or 40 books and so I had all the technical background. I had also worked a lot on my psychology and personal issues. But all of this was in conjunction with a method of learning and trading the markets that was mostly in opposition to what the general wisdom says about simple set-ups and exact rules.

Now of course you might say that everyone has their own style, some discretionary and some not. Absolutely. But even the purely mechanical traders are very adept at reading markets, and are aware of all of the complexity and ambiguity inherent in it. Their system might end up being simple, but it will come about through a very deep and complex understanding of markets. And usually this system will take the market environment (i.e. context) into account. It wont just be simple mindless set-ups.

In the end, all of what I am saying is meaningless unless you come to a personal realization. Take a look at your trading career thus far. Do you truly believe that if you just learn to focus and take all of your set-ups then your equity curve will reverse and you'll be a consistently profitable trader? Why would the world's top institutions spend millions and billions on R&D when a few simple set-ups could make them all of the money. This doesn't mean that to make money you need extremely complex mathematical models. Far from it. What it does mean is that you need extremely complex mental maps that take time and experience to develop, and that will never develop if you spend the whole trading day simply waiting for set-ups to materialize. That just won't cut it.

Right now your learning curve is stagnant because you're not truly studying the markets. Your day is wasted in waiting mode. It's not in observing and absorbing mode. Also, because you fear loss, you aren't willing to experiment. This means that you aren't making mistakes and failing regularly, which is what you need to do to learn quickly.

So to conclude, based on all of the above, my advice to you would be to stop trading and make a mental shift. Realize what you need to do to become successful, and it's definitely not staying on this endlessly unfruitful path being supported by the hope of future profits. You're just running in your place unless you change your focus and your learning method. And if you thought the journey was tough so far, you haven't seen anything yet. Get ready for uncertainty and ambiguity like you've never seen it before. But this shouldn't be scary. It should be exciting, because this is what trading is all about. This is why it's called an ART. And it truly becomes one when you change your focus and your learning process. Then everything, including success, becomes possible. And until then, it'll be a distant dream that keeps appearing to be so close and yet stays so far away.

So you need to re-align with a new thought system and then get on the simulator and trade. Take losses. Make mistakes. Be clueless. Don't be afraid of it. It's okay, that's the only way you'll progress. And trust me, progress you will.
................................
 

oilman5

Well-Known Member
See in trading an individual is not working it is his money whom he wants to work for him and he puts money to work and loses in many cases. In trading apart from discipline; emotions, risk and money management also play vital role.

Four things differentiate trading from other professions (I mean business and not jobs). One, the gestation period of a trade (buy and sell) is very small, two; you can execute a trade in a fraction of a second (you always have a buyer and a seller at any point of time) three; you can go long and short and four; you are given leverage which make the returns (+ / -) very volatile.

All of the above could affect 'discpline', while in other professions, you may not have all or most the above elements, hence the 'discpline' part will be more or less get addressed. That is why we have so many people doing small businesses, running shops etc with whatever discipline they have and make a living. If you introduce them to trading they may mostly fail.


To my mind there is no doubt that one should give up without trying, changing, unlearing, learning and adapting to become a consistently successful trader.

I am coming from that school of thought wherein I feel that in other professions (be in a job or a business) apparent feedback is given (incase we are not suitable for doing it) that you need to go. This is despite a lot of training, conselling and mentoring we may still not be suited for the job. Infact if we are seeking a job, we have to face interviews, tests and experience is taken into account before an employer hires us. This is not so in trading, here anyone and everyone is 'welcome'.

When I started to work, I was doing something else, and today I am doing something entirely different (and just not related to what interests I had when I started working). It is like, I developed interests, enhanced skills to the new profession and was guided to the place where I am today. Today, I mentor people to their interest areas, something like I was mentored into.

Even in case of businesses other than trading, we get feedback from people close to us, our friends, family our customers and accordingly take decisions, sometimes to close it down.

But in trading, such interface without outside world is not there. It is limited to self (sometimes not even to close friends or family members) so there is no feedback. So despite trying everything and imporving here or there, there is no one who could say 'I have seen enough of you since long and despite all your efforts, I think someone could do this job better than you' or 'you are fired'.

Hence the need to "fire yourself".
.............................

Can we make it simple ? Are you happy what you are doing ?

If so, stay with it. and finish.

You like to read about trading or you do it part time as a hobby ? If so, continue.

Do you like your job and you plan once to live from trading ?

Clear your mind about what you want ! Take your time and do not hurry about it.

Trading can be a lonely job, but is has not to be ! Even if you trade by your self, you can hire an office in a public place and stay there during working hours.

Your success in trading can be honored by being happy with your self, buying maybe a new plant for the office, spending a nice evening with your family in a beautiful restaurant or what ever. That are the things and much more you can do, when trading for your own.

If you trade for a company like me at the moment, there are other ways. I do not say, that trading for a company is best, as I did it before more private. Each one has his good and bad sides.

Finally it is just a question, how you organize your mind and your live. Believe me about that.


How long one can run a business that is unprofitable?

Second question is easy to answer, once your capital is exhausted, your all known means of raising capital is exhausted, you are automatically thrown out by the system or market from further conducting the business.

The topic of this thread is not this completely 0 state


It is about the businessess tending to 0 state

Any business in this state has only two options

1. study in depth to see chances of any survival exists

2. or to shut the shop to stop further erosion of capital

The topic of this thread is 2

In my opinion,

1. One must understand and agree that this business has been in continuous losses (despite sales volumes, good creditors, good debtors, good manpower etc --- suitably interpret terms for trading)

2. Realisation should be firm enough that skills and resources are sufficient enough to turnaround the business, and trying for the salvage value is a better option than continuing efforts.

Having realised this, we must deliberate on new options to him/her/business how to maximise the salvage value,

Let us say we realised this X amount , One examining the options available to him/her/business there are only limited continuity to his/her/business to continue (I assume that the poor chap/s were burning the midnight oil for 5 years) will be to merge/join with another business running successfully


What differentiates trading than other conventional businesses is like what you mentioned about creditors, debtors, customers, human resources etc which is applicable in other business and can create ample pressure to close (incase the business is not doing good), in trading all of the above are zeroed in you one person i.e. the trader himself.

For a trader to define what is the reasonable limit beyond which he cannot continue trading is difficult to define. Because there is no formal process when this business is begun.

I think one way to start evaluating your performance (here poor performance) is firstly acknowledging that the performance is poor and unacceptable. Second, list down things which you plan to introduce (on the basis of your experience) to enhance the performance and give a time frame for reviewing if things have improved.

Once you steadly monitor such reviews and your performance during this period a pattern will emerge. Say if you are constantly losing after each period despite introducing things that you have learnt, then the message should be clear.
#146
22nd February 2011, 09:46 AM
oilman5
Member Join Date: Jun 2006
Posts: 1,339
Thanks: 266
Thanked 1,249 Times in 442 Posts


Re: my last thread
________________________________________
let us go down further to understand this great tnsn2345
.................................................. ...........................
See in trading an individual is not working it is his money whom he wants to work for him and he puts money to work and loses in many cases. In trading apart from discipline; emotions, risk and money management also play vital role.
The difference between investor and other categories (trader, jobber, scalper etc) is how they treat the receivables. Investors do not make a living from appreciation of the asset, they have other source of earnings which is their primary source. Investing is not a business.

While for the other category (traders, jobbers, etc) treats it as their primary source of 'income' and it is their business, their livlihood.

Stockmarket is refletion of the economy in a broader sense and longer TF. And people should be encouraged to participate in it because as the economy grows, the compaines grows, the stock prices rise and so does the wealth of promoters and individuals (who participate in it).

The second category is not interested in the economy, growth etc, their primary aim is the movement (up or down) of the underlying. As long as there is a movement they are in it. And who creates this movement, it's them only. Fundamentals of a company, industry, economy does not changes every second, minitue or day or a week. But still the stock prices change every moment. Why?

So why are speculators and traders not banned in the market. Because they provide liquidity. And also the revenue to the goverment in terms of taxes, so they will always remain. As years pass, new specualtors and traders will come, most of the old will perish, someone who traded a decade ago is not in the market today, similarly only a handful of traders todays will trade after a decade.

So traders will come and go and provide lubrication to the system always. Nobody cares if they profit, lose, live or die. In most cases they lose and die and you have the next set ready to replace them.

What ever somebody is going to do after she/he leaves trading, will be build on thoughts, which may are not far away from thoughts she/he made at the time, when she/he decided to start trading.

The person, which leaves trading now, also needs clarity of thoughts. The term " Clarity of thoughts " was mentioned once from SG here in the forum and I think, it is a very good term. The term was used in conjunction with trading decisions. Using the term : "Clarity of thoughts", she/he also needs them about the following :

- In our lives, we have to accept responsibility for all our action, even it is a hard thing to do so.

- We have to conquer frustration and best do not make any decisions, when we are frustrated. It destroys objectivity.

- If possible, we should not look back too much, as it is a poisonous emotion we experience all too often.

- Exude confidence in our self in an unshakable way, is may best we can do against many draw downs in live.

- Maintain prosperity consciousness is an other thing to do. All relationship is a reflection of our relationship with ourself.

- Security is an illusion. Hardly spoken : “Life is either a daring adventure or nothing at all.” If we are attached to the concept of security, it will have the effect of making us feel insecure. An attachment to something outside of ourself is unfulfilling, because we feel empty without it.

- If we have to go new ways in live, why not write down what we want in our new live. We have to be specific, as the universe will deliver what we want. The universe will give us what we dwell upon. If we Dwell upon ambiguity it will give us just that.

Having clear thoughts about this, may points some people in some direction and leaving them trading with out any doubt. This are just some very little thoughts and she/he can add what ever is needed. On the other hand, exactly the same thoughts can be used when deciding to stay in trading.

To extract the crux related to the subject, a trader deciding to quit should seek to look out for things (or similar things) what he was doing earlier before he began to trade. I think this again is very relevant as it would be easier for him to get accustomed to a known terrain and would pick up things fast as compared to wander here and there (refered as 'non clarity of thoughts').
..................Despite all efforts to train if a misfit trader doesn't come up the curve (simply put it that he doesn't have essential ingredients) and DECIDES to quit what would your advise be on quitting, given that you are doing well in trading.

Dear Friends,

The question I have posed above is the one which any trader (established, struggling, amatuer trader) would not come terms to address because the mind has never given a thought to it. It is just one way thinking of trading, trading and trading (Results being immaterial)

Determination plays a great role here. What I believe that nothing is impossible if a person determines to achieve something. But if really wants to quit then why he posting message for his gains or losses and why he wants to fix a deal for suggestions. Anyway I am happy if he achieves what he wants from his life.determination plays a great role here..everybody can't be a good player in life..only winner knows how to turn the losing trade into profits..there is nothing luck in markets only the techniques help..everything is transparent...i have already said that it all depends on person to person and how he thinks..most of us think but do not act or vague thoughts come what will happen? The whole question is about uncertainity...I bet if you are certain nobody can beat you..and if you are walking in dark you will hit the walls here and there...
.......................as we grow up in life lot of our beliefs change, sometimes they take a 180 degree turn, only to realise that still we may not be right in our thoughts.

So when I was young, I started with 'Nothing is impossible', a few years later, it changed to 'Something is impossible', then, 'Many things are impossible' and then 'Just few things are possible'. So let us be realistic with ourselves, else the last belief 'Everything is impossible' may not be far.

Not that I am a pessimist, but this is how the life is .

1) Hockey, Football, Cricket, Relay race ("Many" i.e. the team competing with many)
2) Table tennis, badminton ("One" competing with One)
3) Golf, Long jump, running race ("One" competing with Self)

In the first group, if I as a part of the team is good (say a Sachin Tendulkar) but my team fails to deliver, either ways I loose. If I am a bowler / (defender in football) and my batting / (forwards in football) collapse, I am too gone with them.

In the second group, I am good, full of determination, but my opponent could be better or the best, so I have a limit to my excellence. I know the opponent, I can plan my play according to his weakness and also win pysologically over him by using tactics.

In the third group, I am self competiting, and there is no competition, I fight against myself so I can put full effort, take credit or blame for success of failure on my own and no one else.

So in all the above groups, though you are determined, the success not only depends on "YOU" but also on the environment. How and what others - be it your own team members or your opponents or your own self behave during the contest. So the thought on firm determination necessarily leading to success may be more bookish and motivatinal than in practice.

Coming to the Trading arena, this is one sport where all the above three group of sports are played together, jumbled, in random order, overlapping at times. So at one point when there are 'equal' numbers or traders placed against each others, so it is a team game. But unfortunately, before you realise some of your team members join the opposite team (aka match fixing) and you then are on the wrong side. Sometimes you think you know your opponents when you study the FII, DII data, volume data and while most of the times you don't. Sometimes when you are injured and wounded from the above battles, you take trades which are against the trend (despite you KNOWING it) so you have waged a war against none but only one i.e. you. So you are playing an independent sport.

In fact it is the 'determination' itself which makes it uneasy for us to quit a losing trade, a losing battle or trading per se.

.............................
The difference is we call other activities (you mentioned above other than trading) as 'hobby'. Hobby gives serenity to the mind, a sense of satisfaction, soothens mind and body. Similarly for most traders Trading is a compulsion and not a hobby, hence its results are all the opposite of what I mentioined just above. It tires, creates anxiety and a sense of incompleteness.

For other activities you may or may not spend money, even if you do, it is not in anticipation of making more money out of it, while in Trading you spend money in anticipation of making more of it.

.................................................
There goes a saying "In dark the eye begins to 'see'". Implying that only when there is sudden bad situation, contrary to our belief, and we are severely affected by it, we start thinking to survival, act our best and get 'realistic' ideas in our mind which otherwise do not come.

Given this fact, and what we have seen sicne the start of the year 2011, the markets have suddenly taken a hair pin bend and many are still wondering why and how this has happened. Since last one week, it seems suddenly there has been a knee jerk and I guess many traders would have been caught on the wrong side, the swings were also large for inflicting large losses, including classic swing in the last half an hour on the trade today, down and than up 100 points on the Nifty each side.


It is only that my mentality and sometime money managment inability does not support me. And the moment I start losing grip on my money manamgnet, i start disobeying my method. When I for 100% sure know as per my system I should exit and take reverser position, I still continue hold my original position. I think my system is perfect but not my mental capacity, hence it is a frustrative feeling I get when I think that I will not trade anymore.
.................................
People looking for an adrenaline rush should not be in trading. I had the adrenaline rush after every winning trade when I first started. But then, when I first started winning trades were something new to me. so along cam the euphoric feeling that a winning trade would bring.
That is part of the mental part of trading. I've now been trading for 6 1/2 years. Winning trades are something I am now used to. It is just a natural part of my job. I look for the high probability setups, and enter accordingly. The trade goes my way, and then I exit for a nice profit.
I don't have too many losing trades, but when I do, I also understand that is the small price of doing business. The reason I don't have many losing trades is that over these 6 1/2 years I have put in the time and effort to develop a sound methodology and approach to the markets.
I respectfully tell anyone that likens trading as just chance that they do not know what they are talking about. They are part of the 90% losing group of traders who uses "chance" as a cop out for their failures. If someone really believes trading is luck or chance, then save your money. Do not trade!
This is probably my ego speaking, but the rush for me in trading, is not making excellent trades, large amount of pips (I trade forex only.) on a given trade, or the money. The rush for me is in simply reading a set of charts, knowing when a market will reverse direction, and then watching it actually do that. It's human nature to like to be right. This is why I joined this forum. In my thread, I post my forecasts. It gets about 100 hits per day, on the average. People are watching. This helps me in staying on top of it. I'll be the goat of the this entire forum if I am wrong even close to half the time. I have to be right almost all the time.
That's the rush! In knowing I am right, and in knowing this forum abets my interests in being the best trader I can be.
.................... at one time or another, they have experienced large gains. That does not make a trader, nor make someone successful in this field. It is consistency, and by reading your posts, you are aware of that.
If you continue to trade, then the issues need to be addressed in sequential order:
1. Does your methodology win consistently for you? The answer will come by trading it on a demo account. If you see consistent gains over a large period of time, then you have a winning methodology. The flip side is if you could not win consistently on a demo, then up to this point, you could have saved yourself a lot of money.
2. Margin management is the next thing. Many traders fail, because they have an excellent methodology, but put too much of the equity in their account on a trade, and as a result, the slightest move against them blew it up. If anything, under-margin, and then you can set your trade, walk away, and even sleep easy at night.
3. Let's say you have the top 2 items working perfectly. You are now, here....at step 3. This is the intangible part of trading. It is the part that even the most seasoned traders have to deal with. It is the mental part of trading.It has 2 basic parts of it and that is in controlling fear and greed. There is something that changes when real money is on the line. Let me say without sounding like I am gloating. I knew I became an excellent trader, not when I developed a super methodology, or developed the knack to forecast the markets. I became an excellent trader when I knew that the emotional part of me was absolutely no different regardless if I had a winning trade or a losing trade. It got to the point that my wife can't even tell by my overall demeanor if I am having a good day / week or a bad one. In 2004, when I started up to the latter part of 2007, she knew how I was doing because it showed. There was no hiding it.

I'm saying all that to show one basic thing. That is to become a good trader, there is a due process involved. It is like any other job. If you hold a high position in your current job, it is because you earned it by paying the price, doing your due diligence, and by constantly learning and refining and going through all the necessary procedures to get there. Trading is no different, except it pays much more than a job working for someone.

If you find this inspiring, may it inspire you to proper action, and by taking the bull by the horns and steering the course towards being a great trader. I hope you don't just read it, get a great tingly feeling, and then go about business as usual. No one becomes an excellent trader without; 1. developing a sound methodology; 2. Develop proper margin management skills; 3. Controlling the mental part of trading. If you. personally, are not convinced the 1st 2 are in place, then please, so yourself a favor and stay out of the markets. The 3rd part will be developed over time, which is why I so strongly suggest to under-margin your trades.

Let me also add that I have read in this thread about the similarities different ones have drawn between gambling and trading, and that it is a 50-50 risk or chance. Respectfully, I would disregard that. Trading takes more effort than a gamblers' mentality or a game of chance. Due diligence, lots of work, and constant refinement of those skills is what it takes, and I assure you, it has nothing to do with chance or gambling.


Trading is an addiction with me. But, trading is a business, first. In forecasting, I look at it as winning a video game. I let my charges tell me the direction of the markets, then post according to what I see. The joy comes when I am right almost all the time.
The business part comes with the seriousness of how I have to approach it and treat just like a job that I have to punch a clock. This pays much better than any job I could have had punching a clock. I also realize that anytime I report to "work", I have to be mentally motivated, and stay within the psychological parameters.
Watching the charts and making determinations which way price will go is the game. Making trading decisions is the business. ...it is the principle of it. If anyone is going to do well in trading, they have to take it serious. This has to be a serious profession. OTOH, if it stops at being a game, and the trader does not care if he breaks even or takes losses, then it can be an expensive game. I'd rather treat it as a profession and enjoy the lifestyle it avails me.
#149
22nd February 2011, 11:13 AM
oilman5
Member Join Date: Jun 2006
Posts: 1,339
Thanks: 266
Thanked 1,249 Times in 442 Posts


Re: my last thread
________________________________________
I am glad that you have got clarity of thought and have benifited by this thread. Though this idea (of this thread) would not teach anyone to be a good trader but will help in someway to teach all of us that there is life beyond trading. We all are being benefited by the contributions and suggestions made by members here, if not today, we will look back on these someday to lead a balanced life (even if we may still be doing trading then).
A man takes a small hammer and keeps on hitting a big rock. After 100 strikes, the rock finally breaks. The 100th strike was not the most powerful. The damage was done by the 99 consecutive blows and the last strike was just another blow that got the desired result. Now imagine the man's mindset after 99 blows...

What if he just gave up after 99. He thinks he is not strong enough to get the job done. The task he set out to achieve is simply not feasible. He tried his best and maybe he just needs a bigger hammer...

It happens to most of us in trading. We all know that probability of a trade going bad is 50-50 no matter how strong the signal is. If we follow a system that gives a 80% strike rate, it just means that over a series of 100 trades we can expect 80 of them to go our way. But what if 10 trades fail back to back. Will we be able to take the 11th trade with the same system with the same conviction??

Saurav and Sachin, both legendry batsman, with proven track record and years of successful cricketing years behind them, but this is where the similarity ends.

If you ask me today, Saurav will exit by hitting stoploss (and not only a stop loss, it is a catastrophe stop loss), while Sachin may exit at the top (setting trailing stop losses and exiting at the best price).

Quiting trading after nothing is left is not a decision, it is complusion, many traders are asked to quit (forced) since they do not have money to trade. The best actors, players retire in their best form and not when their times are bad after a successful career (eg. Saurav). Very rarely we come across someone who quits at top, and when they do they become legend. Mostly people want to hang around for long time, till the times moves ahead and they have to take a retreat.

When I write here on quiting trading it doesn't simply apply exclusively to misfit traders but all of us in general, who sometime over trade without knowing the consequences, the world is changing fast and so do trading. I am sure the way I trade today may not work after 5 years, I will have to enhance my skills, learn new techinques and unlearn redundant ones. And this will have to continue. I may not be able sustain physical stress (even I may have control over mental aspects) after a few years. Hence a need for all of us to chalk out an exit from active trading to passive trading then then (probably) relinquish trading, become an investor, let someone else manage major part of your wealth and live a good life.

But the most important thiing is to exit not like Saurav but something like Sachin (hope he hangs his boots in the best times - I know he will do it only then, he is a real hero).
 

oilman5

Well-Known Member
What is the basic and important skill of a trader?

a) Decision making
b) Discipline
c) Asset allocation
d) All of the above
e) None of the above

Ok, I would say e) None of the above (see I am asking the 'basic' skill).

So what is the basic skill, it is something that we have learnt primary school -Math - yes elementray and basic math. Not even the highschool stuff or algerbra, geometry, a simple arithmatic.

But this arithmatic has to be on the finger tips and so good that you should be able to calculate (addition, division, multiplication and percentile functions) without a calculator (yes rough estimation will do).

We all focus on trading activity and the decision making process, trading method, system, discipline, the art and the science of trading, but most of the traders miss out on simple calculations of numbers i.e. how much is being allocated, what is the risk in a trade (for some, how much is the reward again quantifiable), how the loss would affect that particular trading portfolio and the overall portfolio etc etc..

The best way to get out of this complication and to have a common standard (as mentioned in the earlier post that every day our effort should be create a stable and familiar trading arena (even though there will be different movements every day) so that we can stick to our plan. (will write on this later) Ok coming back to the subject, what is the standard of computation.

IT IS 100. A HUNDRED. This is the measure of everything, absoultely everything. Once everything is related to 100, managing large volumes of trades also becomes difficult. What is 100. It is nothing but defining EVERYTHING in PERCENTAGE TERMS. EVERYTHING !!!!

So if my wealth is 50 L and I decide on 5 TF trading portfolios and the allocations are as say, (Allocations are basis the risk, volatility, expected retruns, leverage - non leverage and are derived with objective of meeting different financial goals)

P1 : 20 L
P2 : 15 L
P3 : 10 L
P4 : 3 L
P5 : 2 L

Total : 50 L

Now if I take portfolio P5 of 2 L, I calculate everything taking 2 L as 100. So if this is my intraday portfolio, and say, I am ok with a risking 10 k on a trade and 30k per day on his portfolio (the risk amount depends on the 'expected' volatility on the given trade or given day). Then the calculation is done as 5% risk per trade and 15% risk per day. All the calculation are done on % basis abosuletley. And this is done for all TF allocations (different risk) but the measure is in terms of %.

All this culminates in the total portfolio, which can be then diffience on weighted terms as per risk taken (again in % terms) on the total portfolio and the returns also need to be measured in % terms for invidivual as well as total portfolio.

Advantages...it takes makes calcuation faster and easier to grasp the activity on the ground instanty, helping to take faster decisions. It takes away the emotinality when you trade big trades.
.............................obvious in terms of risk taken per trade in intraday trading, but there are a few reasoning for this:

1) Look at the total allocation to the intraday trade to the total portfolio (2 L out of 50 L i.e. 4%)
2) Why is this allocation made for short TF trades ? - With 'expectation' of extra ordinary returns,
3) Why 'extra ordinay returns? - So it can have meaningful effect on the entire portfolio.
4) What is the cost of 'extra ordinary returns'? - More 'Risk'.
5) Hence selection of more risker instruments, primarily (as Jagan mentioned) Options.
6) How many trades are optimum for intraday trades? - I may sometimes takes as low as 2 trades in a day. Hence, I mean that it is not necessary that for intraday traders to keep on trading with 10 - 15 - 20 trades daily, it can be done with a good 5 - 6 trades also (which could be a combination of 5 m, 15 m, or 30 m TFs)


Coming to point 2) of trading different quantities of trading capital, one thing what you have suggest can be done, also, alternatively the other way to do by changing the trading TFs along with volatility. The risk per trade (in the above example of 5% etc) again is not static, it depends on the expected volatility on that given day and this number can easily vary anywhere from 2% to even double digits. I define this number at the EOD of the previous day for next day's trades. In most cases this number does not change in the day. But on some unexpected occasions, during 'the Interval Session' (will write on this later if appropriate then) this number can be revised either upwards or downward for the remaining period of the day.

The idea here is to be rigid with your maths, your definition of numbers (risk) amount allocations, volume per trade, etc, this has to be static, not tweaking around during the trading time (and for all time frames). And yes during the mid review (aka Interval Session) these can be revisited, if necessary.
.................Yes, there won't be difference in the risk taken if I am trading intrady either Options, Futures or stocks (margin trading - leveraged). As long as the instruments are highly leveraged the risk will be more and hence the Risk per trade / day will be similar. Just for Options, since there is element of IV, and faster decaying (higher Theta / Price) as we go in the month, the risk increases.

I can still trade (intraday) in Futures or leveraged stocks but Options give me more options to setup trades on the basis of IV and milkling Theta (by writing) and also gaining from directional movement of the UL.
.................................................
my illustration Neutral trades was primarily dealing with impatient behaviour, which we as traders exhibit (pro - occasionally and novice - regularly) and are impatient to get into a trade, hence during such impatient movement or indecisive occasions (when your system tells yes, but conviction is low) then you start Neutral and then wait to things to unfold, either in your favour or otherwise.
How do we differentiate sideways market from trending market. Eyeballing the chart is the best way. But to have a system in place... we need a criteria which, if filled, is officially sideways. That is when we shift our mindset from trend-is-our-friend to fade-the-extreme.

This is a grey area that i have been working on for a long time, without much success. How to define sideways market ?

.....

To an untrained eye, keeping it simple is the best. To a trained eye, there is always a missing piece of info that could help in avoiding a failed trade. The search goes on...

answer is.............After a lot many years, I came to a conclusion that there is no indicator which will foretell you the timing of the desired movement. Until I started 'feeling' the pulse of the market. No not through news and impact of global developments etc, but purely on the basis of simple charts for different TFs. IMO there is no other way but this 'unprofessional way' to time the movement.

With all the indicators, formulas, and programming, codes we are just beating around the bush, just feeling that we are near the destination, which is not to be.

Eyeballing is necessary and only an experienced eye can detect the move early and quite often precisely. And IMO this is the hard fact. You would be surprised to know that I do not use any charts except of a simple CS charts (ofcourse of multiple TFs, simulatenously) and decide on the entry and exit. To be precise, for me it is just the THREE preceeding candles do it all, all other candles are only for purpose of knowing the primary direction of the trend...
#152
25th February 2011, 01:36 AM
oilman5
Member Join Date: Jun 2006
Posts: 1,339
Thanks: 266
Thanked 1,249 Times in 442 Posts


Re: my last thread
________________________________________
I would say that I developed this techinque as I found that once I had developed an option(essentially at the resistance or support, I would be keen to take a reversal trade, in many such occasion the trend would continue after some time and then though it seem a sure continuation of trend, since my orginal decision was reversal I would not take a position in continuation of the trend as it was not what I had anticipitated, through this techinque, since I am already in a Netural Trade, I could exit my loss making reversal trade (which was my main position) and continue holding the trend continuing position as it ran into profits.

The above techinques given large room to accomodate, right decision making errors and hence would advise it to starters, till they have developed a good strike rate sytem which gives high probablity of right signals on entry. Even today, I am stuck on lot of occasion when my system though it me some indications and I do not have conviction on that indication, I enter a Netural Trade first only to then release the loss making trade out and continue holding the profit making trade till the end of holding period.

On the second part, of reviewing the position at the end of review period, I can only tell that once you have done your trading portfolio allocation properly, (which is nothing but portfolio managment - we will discuss later) I do not see any reason for me to jump into any intermiate review. If you are thingking that the losses could be large due to gap up / gap down, that such volatility is factors in that time period portfolio and the overall effect on the total portfolio is small, even if that particular trading portfolio postion goes into a deep loss (which generally does not happen - once you have rigid and dynamic decision making trading system / method.

I recollect mentioning somewhere on this forum that I am like a baker, baking breads to cakes, to cookies in different ovens, and for different baking products, you need different temprature and time settings, I just need to open and check those ovens at those set time and not in between. As such when the timer of different oven stops as per what is being baked inside, i.e. end of my holding period, I exit automatically.
.................pl reread statement of tnsn2345...........how a real trader thinks!!!!!!!!!!!!
 

oilman5

Well-Known Member
skills of a trader..contd...

...adding more to this topic of Risk per trade...(and I have mentioned also earlier, some to the highly speculative opportunities are the '2 mins trade' (I call it 'Maggi Trades', :) ), enter at 3:29 pm previous day EOD and exit at 9:16 am next day BOD. Such setups basically a subset of well know 'Jackpot Options' trades are focusing primarily only on gap up or gap down opening on the next day.

Here the opporunitiy is it to double or triple or multiply with any higher number (depending on the UL and how deep OTM Options you buy) and how much is the gap up / down in your favour. But at the same time there is very very high risk of the UL not gap opening (so even flat opening will make your position down by 5% to 10% instantly (again depending on the deepness of OTMs). And if the gap opening is 'opposite' to your judgement than you are instantly down anywhere between 25 - 30 - 40 - 50%....

So in such 'Maggi Trades' the risk per trade will be extra ordinarily high. I have two options here, one, not take such trades (and let go an opportunity, even though I am 'almost certain' that gap opening will happen) or two, risk only smaller amount of shorter TF trading portfolio. So, if I have 2L as my shorter TF allocation, I may only put 50k for such 'Maggi Trades'. The risk per trade would be 50% (ie a loss of 25k) so the over all short TF portfoilo it would be 25k / 2 L i.e. 12.5%, which I may be ok with

IMO, after the first skill of basic math, good ability to read and interpret the numbers, the second skill is of Problem Identification.

Pls do not raise eyebrows, I am not going to write on the discipline, risk management etc, what all trading books have. I had mentioned that the things mentioned on this thread may not be written in most of the trading books, since they are the outcome of personal experience.

Why is Problem Identification necessary....

There is no activity in the world do in past, present and would be done in future which will be done right the first time. If you look around everywhere, and when you see successful people, brands, companies, relations, products, cultures or anything, they have constantly refined to this level. No one start it right, though the intentions may always be right. For us to be right, depends on, Internal - our ability to define rightness, capability to stick what we think it right and External - environments willingness to support that it is right.


Ok...cutting this short...

Without the ability (and willingness) to Identify the problem, there is all the likelihood that for a trader, even if he has a good strike rate and a good trading system, he may at best be running on tread mill - running on the same place, thinking that he is going distances. If the problems are not identified, then it is difficult to find a remedy or solutions to address them. I may not write more here, but what I can suggest is instead of reading books on trading it would be worthwhile reading some books on basic engineering / manufacturing books on problem idenfication. No need to buy such books but glancing a few chapters or the foreword would kick start thinking activity in you mind. So visit Crossword and pick up any book relating to this subject and refer it for free :).

Willingness to identify problem, is the first step. I can only but assure you that you may not really need any external help (if have just a basic IQ and reasonable intelligence) that you 'YOURSELF' will be able come out with solutions to your problems, once you identify them.

In the intial post of this thread in the 'Topic list' I had mentioned a top called, 'Show me the data', this plainy refers that YOUR histroric data of the trades taken will show what it the problem (also it will show the strengths...we will talk about it later).

Your own data (which is your history) is the most important source of information, it is your DNA. Starting from this point can help change the DNA for betterment in future. If someone asked me how can I help him trade better. I will first look at his data, his histroy. The doctors, lawyers, ask about past information before giving their opinion. The consultants, corporates hire, spend most of their time in data collection.

...I would have loved showing, problem identification and data collection techniques so you all could relate to it much better. I will see how I can do it here on this faceless forum, with my limited ability on tech skills, with variety of trader readers. ...The next step logical step post this is 'data analysing', well Excel, pivot and other functions can do it for, but you need to be handons on these, certanily not possible for me to demostrate those things here...

Some generic flaws are:

1) Trading without a TP
2) Changing TF of trades
3) Taking a trade in vengeance
4) Not putting SL
5) Changing SL adversely
6) Adding to losing positions
7) Exiting from profits early
.... etc ...etc...the list is endless....
So, is there a way out to profit from such flaws....I always thought...Why change...why change...Can I make use of my core incompetency to trade profitably. Yes....is the answer...just by changing a little....very very very little and this is possible...
Why is Problem Identification necessary....

There is no activity in the world do in past, present and would be done in future which will be done right the first time. If you look around everywhere, and when you see successful people, brands, companies, relations, products, cultures or anything, they have constantly refined to this level. No one start it right, though the intentions may always be right. For us to be right, depends on, Internal - our ability to define rightness, capability to stick what we think it right and External - environments willingness to support that it is right.


Ok...cutting this short...

Without the ability (and willingness) to Identify the problem, there is all the likelihood that for a trader, even if he has a good strike rate and a good trading system, he may at best be running on tread mill - running on the same place, thinking that he is going distances. If the problems are not identified, then it is difficult to find a remedy or solutions to address them. I may not write more here, but what I can suggest is instead of reading books on trading it would be worthwhile reading some books on basic engineering / manufacturing books on problem idenfication. No need to buy such books but glancing a few chapters or the foreword would kick start thinking activity in you mind. So visit Crossword and pick up any book relating to this subject and refer it for free :).

Willingness to identify problem, is the first step. I can only but assure you that you may not really need any external help (if have just a basic IQ and reasonable intelligence) that you 'YOURSELF' will be able come out with solutions to your problems, once you identify them.

In the intial post of this thread in the 'Topic list' I had mentioned a top called, 'Show me the data', this plainy refers that YOUR histroric data of the trades taken will show what it the problem (also it will show the strengths...we will talk about it later).

Your own data (which is your history) is the most important source of information, it is your DNA. Starting from this point can help change the DNA for betterment in future. If someone asked me how can I help him trade better. I will first look at his data, his histroy. The doctors, lawyers, ask about past information before giving their opinion. The consultants, corporates hire, spend most of their time in data collection.

...I would have loved showing, problem identification and data collection techniques so you all could relate to it much better. I will see how I can do it here on this faceless forum, with my limited ability on tech skills, with variety of trader readers. ...The next step logical step post this is 'data analysing', well Excel, pivot and other functions can do it for, but you need to be handons on these, certanily not possible for me to demostrate those things here...

2) Professional traders - Traders, who have derived some techniques, methods have a TP, MM, RM plans. They mostly stick to the set rules, but since they are 'Professional traders', they again have to be in the market most of the times. Hence for different types of market conditions they will have different trading methods, instruments, which they will keep on changing or altering to be in sync with the market dynamics. They primarily focus on their 'CORE COMPETENCY' and occasionally try out different TP depending on the market conditions. They are mostly full time traders. And for such full time traders, since it is their livelihood, they cut down on volumes during downturns (may also lose opprotunities then) and increase the volume during a good performence (may also take higher risk and trade where there actually may not have been good opportunity)
3) Profitable traders - They are not in the market most of the times. They mostly sit out. They laze around like a crocodile sunbathing on the banks, oblivious of any activity happening around them. They wait for things to come to them and pounce upon them and they are out again. They can endlessly wait for a desired opportunity. They will not go deep water or into the sea to catch fish, but wait patiently by hanging a fishing line from the banks for the entire day and wait for fish to come and get hooked. They neither are careful of their core incompetencies or use their core competencies. They thrive on 'CHOR COMPETENCY'. Just like a 'Chor' (thief) they do not go every night to steal, but are constantly tracking and noticing the movement of their 'target' make up the entire plan, Plan A (pros)and Plan B (cons) and wait for the right time to strike.

It is not that who is right among the above, or who is the best, but the skills of an individual trader can be eithir of the above three competencies or blend of those. It is necessary to define what we are focusing.
.............................................Above are some of the very common flaws of failed trader. Sometimes there is an effort to correct these, and sometimes not. Given the human nature it is difficult to change as you grow up and the older you get, more difficult for one to change. The upbringing, culture and our thinking from our childhood makes things difficult for us to change. And even if there is a change, it will be marginal w.r.t to the effort put in. So, is there a way out to profit from such flaws....I always thought...Why change...why change...Can I make use of my core incompetency to trade profitably. Yes....is the answer...just by changing a little....very very very little and this is possible...(will give examples in the next post)

Coming to the Core Competency part, each of us traders here (failed or consistently successful) have some or other core competency, viz...

1) A good trading system (discretinary or mechanical)
2) A good intutive / gut feel
3) Ability to be paitent (to enter late and to exit later when in profits)
4) A good ability to allocate money, RM, MM and TP
5) Ability to stand out from the market when we do not understand what is happening.
6) Having control over self only to enter trades where there could be a handsome profit and not just a small proft.
etc...etc...

There could be a few more core competency areas. And all can lead profitable trades.

The point here is not how many are our core incompetency or core competent areas. But the idea is to IDENTIFY them. The first step begins with identifying...once you identify them, then can you find a solution...as I said the solution is within you...Even if there in just one Core competency, you can sharpen it so much that you can milk the market with that one thing itself for eternity. And similarly if you identify and focus on core incompetencies, howsoever many they are you can still use it in your favour by just a small tweaking....


TNSN2345
Silence is Golden…but not always
In trading, eliminate noise…but not always

These two rules can help us to trade profitably with our ‘core incompetencies’

I have consolidated the incompetencies from the above post as below:

1) Target achieved in a day but still trading i.e. over trading
2) Seeing profit into loss, and still holding the position and not exiting
3) Vengeance / revenge / trading to recover losses
4) Past experience is used to exit the next trade in less profit / not able to hold profitable trades longer / early exit from profitable trades
5) Past experience of loss or fear of losing results in not taking further trades
6) Not following charts / methods and losing focus in between on the methods
7) Silly mistakes in placing orders and then praying if they go in loss
8) Switching methods / hopping from one to another trade

Disclaimer : Since I am addressing how to best use our flaws to profit, I am not mentioning how to correct them. The above are trader specific and hence should not be construed as a trader personality trait which is ‘necessary’ to trade profitably. If you do not have any or all of these flaws, please do try to ‘acquire’ them. You may be better off not having these.

1) Target achieved in a day but still trading i.e. over trading.
- Create noise, virtually. If you can play some music even better. See if you can enter your profit in an excel trade by trade (net profit) and once it crosses your days target, the sound file should run automatically (simple macros can help – google sound playing macros in excel, you will get many). You can play your favourite song too once you reach your target and play it loud, let to whole wide world know about it.

- Just pull the plug of your CPU or press down the Off button of your laptop at that moment itself in a fraction of a second once the day’s target is achieved. Rush for a shower (if at home) or for a leak in the loo (if in office)

- Dial a random number from your phone book of your mobile and start talking all good things and how you remember him or her. (other purpose of PR with friends/ relatives is also addressed by this)

2) Seeing profit into loss, and still holding the position and not exiting
- Silence is Golden…but not always…
Keep a small innocent looking toy on your desk ( a Noody or a Doreamon will do) once you get into this position, do not look at your screen, look at the toy and start speaking to him loudly (do NOT be silent – when you are mum, you will not act). Ask him why is he sad, make him answer and you speak on his behalf loudly to yourself. Ask him what will make him happy and let him ‘shout at you – ‘Get Out’ or rather ‘WTF you are doing here, Get Out’. Turn back to your screen (no looking at chart or the price), just get out at the market price.

3) Vengeance / revenge / trading to recover losses
- At the juncture of taking a vengeance / revenge trade or trading to recover loss the atmosphere in the mind is quite intense. And you need to release the pressure only at the right moment. Remember there a secret alarm bell button at a cashier counter in a bank and incase of any robbery attempt it has to be pressed immediately which sounds off the nearest police station. In the same way, create a one key (hot key) function which when pressed will sound an irritating alarm. You can use a physical bell too.

- The power of zero. If you still want to take a vengeance trade and you had decided to buy 1000 quantity of x instrument. The moment you are going to enter this trade, keep the ‘0’ key pressed for 2 seconds more and then press enter for order placement. What will happen here is your order will be rejected since the order quantity you placed will not be 1000, but will be 10000000 or 10000000000.

- Play Double Cross - (This can be done easily with little practice). When you are at the verge of taking a vengeance trade, just at the last moment – say it aloud, Allah o Akbar, Jo bole sonihal, Har har Mahadev or whatever similar you have faith in and just enter an opposite trade to what you have been thinking of i.e. if you planning to buy then place a sell order and vice versa. In the most of the most cases it will be a profitable trade.
5) Past experience of loss or fear of losing results in not taking further trades

When I was young and in school, we all had some crush on some or the other girl and during those days, talking to girls in the school was not very common (atleast in my school). It used to to take days, weeks or months to talk to some girl, though every day, the feeling was I will do it today, and some of us could never ever talk to the girl. The situation is quite similar here too, there is a fear of unknown, we are carried away by all that could go wrong with us (either in the girls case or the next trade)...ok since I am not going to offer remedy to this and we are discussing how we can reduce the effect of this flaw or benefit from it, let me guide you to the Netural trade post I wrote early in this thread.

The only way out of this situation is to enter a trade (which we are otherwise prohibited - fear of the unknow, by our mind). So enter a Neutral trade. So if you are an Options (directional) trader, by both Call and Put together and if you are a stock trader enter two stocks (if they are negatively correlated, better still - incidently this is the most common hedge funds strategies to enter Netural with two stock negatively correlated). As soon as your direction is decided, you can let go your non profitable position and hold the profitable position.

See what we are trying to do here is 'Entering a trade' and this is all what we want when we are facing this short coming, since we do not enter, we lose opportunity to profit and more the heartburn. Hence even if we are entering Neutral, the fact is we have atleast 'entered' the market and that is what we wanted......Tnsn2345

You question is quite valid, for most of the traders, they try to put system or a logic to every action they take in the market. Systems are built, programming is done, codes are written for almost every action. But IMO one cannot programme everything. And these are softer elements of human psyche.

In the above examples I gave, there is no system, but as Enygma put is most appropriately that we need to take away the blame from self. And that much is good enough to rest our mind. A stable mind will most likely take correct decisions in the future. So what if the results maybe inconsistent, the mental frame is intact and ready to take on the next trade logically.

Just to give you more prespective, in cricket (we all love this game, don't we) when I was young and had a dream to play for India :), I used to practise batting and the first thing which was taught was the foot work..foot work..and foot work..come to the front foot, in the line of the ball...etc, there were storkes which were all patented, and there was no shot out of the book. But look today, how the batting maestros play, Sehwag, VVS, Ganguly, all great batsman, and rarely they move their foot (sic), are they wrong or was I?? Today there are reverse sweep, paddle shot, late cut, (and yes the helicopter, uppar cut, pallu scoop, etc), all these are not the 'cricketing strokes'. But does it matter now, no, as long as it helps you and you benefit from it, it is ok.

In trading there is no one way of profiting and there is now way you can programme, code or create system for different type of market conditions and eliminate human thinking. The has been, is and always be human behaviour - rational and irrational which will run the markets and no automated systems (whosoever has built it in past and will build in future) can net profit in all cycles of markets - and that's my word.
............tnsn2345
......... 4) Past experience is used to exit the next trade in less profit / not able to hold profitable trades longer / early exit from profitable trades

- Change a bit from discretionary method to mechanical, just a little bit. Why? In such situations of past experience and current experience our mind keeps on processing multiple and opposite thoughts simultaneously and what ever decision we take there after, if it results in a loss or profit we add it to the hard disk of our head. And this information will again be used for multiple and opposite thoughts in future situations. Hence to avoid blaming or praising our mind during such instances, it is better that the decision to hold or exit the position in less profit or to hold it longer should be done bit mechanically.
So, it can be done in a toggle manner i.e. if the earlier experience says exit (should have been written somewhere earlier before taking the current trade) then you will hold the position, and likewise, what ever is written on the basis of earlier experience you will do the opposite. (You may also choose to do the same as what was done earlier).
You can also use a random decision, by tossing a coin at this juncture and deciding on the basis of Heads (hold), Tails (exit). More simply, you can look at your wrist watch and if the seconds hand is between 12 to 6 (hold) and if between 6 to 12 (exit).

What we are actually doing here is freeing our mind from the additional stress (already it is processing so much for us, why bother it more with such issues, especially when we are in PROFIT). I believe that there are so many questions and mysteries in the world and we need not try and solve each, infact life will be better if some mysteries remain mysteries forever. So even if the coin or a wrist watch helps me keep a cool and stable mind, which can help me take a next trade right, I am willing to stick to it........tnsn2345
we were discussing..how to trade profitably by not changing (or our unability to change) our short comings...The process begins first by identifying your shortcomings, and this is not very difficult. List them down on a piece of paper and divide them in categories. Did I say a piece of paper?

I remember almost close to two decades ago, I went to SSB interview (to join the IAF) after clearing the CDS (Combined Defense Services) written examination. During the week long interview, apart from the physical tests there were aptitude tests. In one such aptitude test, there was a practical situation, some models of a village, some objects, the enemy, the army, ammunition, civilians, cattle, etc etc...and there was some task which was to be done using limited resources in a given time. It is a different thing that I couldn't join the IAF (obviously since I flunked the interview - the only one I flunked in my life), but again Eureka.... I could now use it to trade. I learnt one thing that all wars are fought on the paper and won on the field A worthless paper and a small pencil to scribble is good enough to make a plan - a strategy - a tactic.

By planning on paper, I do not mean paper trade (incidently I do not subsricbe to the idea of paper trading - my opinion - others may disagree).

Coming to our point of flaws in trading, listing them down on a paper is the first step. Because only if you write, you will know and remember and if you remember, you will try to address it. In the earlier posts, I mentioned not seek remedy to correct the flaws, it is a waste, you can reduce their impact with some restraint, practice but mostly most of us (me included) cannot eliminate them. They are our core beliefs, values, which we cannot change, a little twisting is possible, but a U turn is not.
Discretion is a must. Simply because we are competing against humans.

But discretionay methods can create a lot of stress and demands a quite mature mind (non trading skills) to handle the situation. To practise trading for long time using discretionary style requires a lot of patience, tolerance and self control capabilities. If not handled well, it could lead to anxiety, affect health adversely and also lead to poor trading performance.

Using non-discretionary methods (formulas, mathematical equations, etc) may lead to a good strike rate (high number of wins) but not necessaryly high profit, it also could also lead to net loss, as a few wrong trades can nullify all the gains.

There are some hybrid styles, which use both the methods, exclusive use of non-discretionary method to identify opportunities and then using discretion to take the final call.....................my personal experience and the most effective non-discretionary method (my belief and applicable to me), I use for longer TF trades is based on SMA/EMA crossovers. Additionally a few mathematical equations based on relative strength of the stocks vis-a-vis the index. This gives the macro guidance to understand the direction of the trade and stocks to trade.

Then use of discritionary skills (through VIX and CS chart of the UL) to decide on the entry timing. But these are used for mid and longer TF and not for shorter TFs trades.
...........................pl understand the comments of the great trader..........he really has solved trading puzzle..........way ahead in modern trading
 
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