Sunday, March 27, 2011

phantom trading!

life of a budding trader is full of troubles:

trouble 1: did not have a method, so kept losing.

trouble 2: had a method but did not follow it, so kept losing

trouble 3: followed the method but interpreted situation wrongly

trouble 4: interpreted situation right, but trade still went the wrong way!


trouble 1 is a training issue.

trouble 2 is a discipline issue

trouble 3 is a practice issue

trouble 4 is not your problem. it is an operator issue which you can do nothing about!

majority traders on the way to immortality think
that if they learn and practice enough
soon there will be a time when they will be expert enough
to be able to interpret any chart absolutely correctly!

this doesn't happen
and will never happen
till the market waters have crocodiles called

(and the day there are no operators, there will be no market!)

this means
that trouble 4 will always be there!

so, how do we safeguard against this one?

stop loss?

not a bad option!

but when the stoploss bell rings
it is not musical at all!

and sometimes
the adverse movement is so fast and big
that by the time loss is stopped
it is already big enough to hurt!

is there a better option?

fortunately there is one!

i recently came across this while surfing net
and it is amusingly (but aptly called)

"phantom rules"

by art simpson

there are two phantom rules

rule 1 :


what this means in simple words is

= if your trade doesn't go your way within a few hours, square-off!
keep a position for three hours unless they have proven to be correct by that time. otherwise, something is happening underground which you don't know or have not taken into account! put in yet another way, assume to be wrong if you are not proven right "soon enough". don't ever let the market tell you you're wrong. because by the time market proves you wrong, it might be quite costly!

this way, you may be missing out on some trades where things went your way albeit late, but you will always bleed negligibly when things did go wrong! besides, who stops u from re-entering once the position is prove right again?

according to art simpson
" is a loser's game. he who loses best will win in the end!"

keep your losses quick and small.

in trading, i have experienced that possibilities are high when probabilities are low. indicators tell us probabilities and hence act as the unintentional agents of the operators.

in art simpson's words

"the correct way to control positions is to only hold them once they prove to be correct. most trader do the opposite of what is correct by removing positions only when proven rule 1 it is important to understand we are saying the one criteria for removing a position is because it has not been proven correct. if the market does not prove the position correct, it is still possible that the market has not proven the position wrong. if you wait until the market proves the position wrong you are wasting time, money and effort in continuing to hope it is correct when it isn't. so, remove the position early if it doesn't prove correct. By waiting until a position is proved wrong you are asking for more don't go buy clothes, take them home and wear them until they prove to be wrong for you. instead you try them on and make sure the have a proper fit and look before you buy them...........we must remove the emotional elements, fear and greed, as quickly as possible in trading. If you can do it before you put a position on, you have a good start.

and here is the rule 2:


in art simpson's words

".......without a correct method to press your correct positions you will never recover much beyond your losses. you need rule two to ensure you have a larger position when you are correct. you always want a larger position when you get a great move or trending market than when your position isn't correct..................rule 2 does not mean just because you have a position in your favor that you must now add to that position. you must have a qualified plan of adding to your position once a trend has established itself."

i have found one such way : whether 5min chart or 30min chart, once a trend (whether small or big) is established, the best time to add to the position is when william%r touches "opposite" extreme while rsi hasn't.

and these positions can be carried till price cuts sma 34 from above or till rsi failure-swing-point, etc.

being in the right trade is important, but equally important is staying in the right trade for sufficient duration.

in simpson's words

"trend traders will get larger when they are correct but day traders will start larger and get smaller when they are wrong. day traders can be large when they are wrong but trend traders will never be large when they are wrong. this is due to the nature of a loser's game for day traders.........rule 2 must be used if you expect to make money in the long run........"

(for further understanding

Tuesday, March 22, 2011

the instant technical indicator

if the ratio of
the turnover of
the top traded 2 put-options for the day
the turnover of
the top traded 2 call-options for the day
is between 0.80 to 0.99
or more than 1.30
the market is likely to remain buoyant!

if this ratio
is below 0.8
or between 1.00 to 1.30
the market is likely to slip!

(where to get live nifty call put values

to get call put values

whereever turnover data is not available
u can use no. of traded contracts)

Monday, March 21, 2011

my open trade diary

*********************self talk: for busy positional/swing traders, end-of-the-day (EoD) and mid-of-the-day (MoD) 10 minute analyses is ok.

*********************self talk: take care of the loss and method, profit will take care of itself. rather, if choking loss and sticking to the method becomes the primary objective of the trading game, it can wonderfully rewarding and satisfying.

*********************self talk : there is no time-table for a revenge of the loss. the humiliation of an incidental or accidental defeat or loss has to be absorbed. rather, a loss can and should never be considered as a lost-territory to be won back by equal or bigger gain. a loss should be framed and kept as a reminder-trophy. gains will come. but they will come on their own merit.

*********************lesson: when things go wrong embrace method even tighter;

*********************self talk: those who are not full time traders (can't sit in front of terminal all the time) must not day trade. rather, they should also not attempt positional or swing trading if their method is not well advanced. even a small delay in squaring-off the wrong position when u r away from the terminal, or, even a small error in judgement, or, even a small loophole in a system, can hit hard. trading is either a full time job or a part-time precision hobby with well developed and practiced method. hone the method with low risk options rather than futures.

*********************self talk: stick to options, the hit in options is much lesser than futures in case of a mistake.

*********************self talk: absorb the punch, step back, take a break, fight back with technique and not emotions. recovery with the right technique is as swift as any loss!

*********************lesson: use 5min chart instead of 30min chart for swing trading for better timing.

trade 8:
24 march 9.18am
sold nifty futures march series at 5515
squared at 5645
loss= 130 per lot

trade 7:
23 march 10:11 am
bought 5300 PE march series at 16.95

trade 6:
22 march 2.56pm
bought 5300 PE march series at 36.7

trade 5:
21march 11:31am
bought 5300 PE march series at 54.9

**********lesson: avoid buying anti-trend options.
**********lesson: opportunity is like spirit.more u let it age, the better it becomes. don't be too eager and early to latch on to opportunity.
**********lesson: to avoid booking profit too early and to avoid terminating winners too early, instead of squaring off the position and going reverse at indicator signal, just take the reverse option and let it run concurrently!

trade 4:
18 march 11:13am
bought 5500CE march series at 65.5
squared at 46.90
loss = 18.6 per lot
trade 3:
17 march 12:24pm
bought 5400PE march series at 70.8
squared at 98.55 at 10.28am 18mar
profit = 27.75 per lot
trade 2:
16 march 10:15am
bought 5600CE march series at 68.8
squared at 55.9 at 12:49pm 17march
loss = 12.9 points per lot
trade 1:
14 Mar 11:18am
bought 5400 PE march series at 77.5
sold at 119.3 on 15mar
profit = 41.8 points per lot

Sunday, March 20, 2011

how to go broke despite talent!

"amateurs go broke

by taking large losses,

professionals go broke

by taking small profits....

The problem in a nutshell is that

human nature does not operate to maximize gain

but rather to maximize the chance of gain.

The desire to maximize the number of winning trades

(or minimize the number of losing trades)

works against the trader.

The success rate of trades is the least important performance statistic

and may even be inversely related to performance."

- william eckhardt

labels on the jars!

many years ago
when i first learnt cooking
to help my working wife
one of the initial difficulties was
identifying different ingredients
in the jars!
i often mistook one ingredient
with an identical one
like "besan" (gram flour) with "makki aata" (maize flour)
or sugar powder with baking soda
...and so on!
my wife
determined to teach me the art
helped me
by labeling all the jars!
all went right for some days
till one day
a terrible mistake happened!

that day
my daughter
had replenished
the empty jars
with fresh supplies
but accidentally filled some jars
without looking at the labels!

that evening
in my hurry to quickly complete
my bit of responsibility
i prepared the two dishes
using the "labelled" ingredients!

it is anybody's guess
as to what happened
at the dining table!


that day
i got a lesson
which helped me
in the cooking
as well as
stock trading...

"labels on the jars
are just to indicate.
smell or taste the ingredient
before putting in the dish!"


"indicators below the charts
are just to indicate.
smell or taste the trend
before putting in the money!"

is trading an art or a science?


a new entrant in the market

takes up trading as a magic

and hence

an art.


all is well

till the first

whip on the back!

this is when

the trader drops the art aspect

and takes up the science side

(if ofcourse, he doesn't quit the market).


as he learns the basics of this science

and does the practical

he soon realises

that while the market movements

show reasonable obedience

to measurability, predictability and repeatability

to be called a science

they also show

an unmistakable "creativity"

in "surprising" the experimenters!


the trader

now starts calling trading

an artistic science!



he realises

that the art proportion in trading

is much bigger

than the scientific aspect.

he also experiences that

while the scientific aspect of trading is only the backbone

the real contours and beauty of trading

is because of the talent

of the resourceful picasso's and vinci's.....

in the market!


from artistic science!

trading now becomes

scientific art!


and on this road

there comes a time

when nothing but the art is left

.....pure music.

by now,

the trader becomes

an accomplished artist

a fine musician!

Friday, March 18, 2011

understanding open-interest and put-call ratio

imagine there are 100 traders in a hall

a game is played

the referee asks all of them

"those who believe the market is going to go up tomorrow

pl come to my left.

and those who believe the market is going to go down tomorrow

pl come to my right."


out of 100

12 go to left

they are having bullish view about the market

and prepared to buy call options!


and 8 go to right

they are having bearish view about the market

and prepared to buy put options!


rest 80

are neutral

and want to stay out of trade.


so, we can say

that the open interest is 20

and the put/call ratio is

8/12 = 0.66


next day

the market closes way up.

the meeting of 100 traders

is called again.

the referee says the same thing

"those who believe the market is going to go up tomorrow

pl come to my left.

and those who believe the market is going to go down tomorrow

pl come to my right."

all 12 who were bullish yesterday

are incidentally

still bullish

and come to the referee's left!

rather 6 more join them

after seeing the market sentiments!

so, now

there are 18 traders on the bullish side

who are willing to buy calls.

on the opposite side

instead of 8

only 4 turn up

who are still bearish

and willing to buy puts!

so, today

the open interest is 18+4=22

up 2 from yesterday's 20!

and the put/call ratio today is

4/18 = 0.22!

so, while the open interest has gone up

the put-call ratio has gone down!

understanding short selling, again

here is another example

to understand short selling!

a rich man

puts his 100 abc shares

in the locker

locks it

gives the keys to his servant

and takes the next flight

to germany

for a vacation of 1 month.

while he is away

his servant

who had fair bit of knowledge

of shares

realised from his chart reading

that the abc share

is going to drop

from current 2,000

to 1,000

in 1month!

he has the key

and has the guts!

he picks the key

opens the locker

picks the 100 abc shares

sells them for 100x2,000=2,00,000

keeps the account

waits for 1 month

sees the share price

drop from 2,000 to 1,000

then buys back


for 100 x 1,000=1,00,000 bucks out of 2,00,000 he is having

puts them back in the locker

hands over the keys

to his master who returns the next morning.

the master is happy to find the 100 shares intact!

and the servant has made cool 1,00,000

by using the

stagnant shares

for encashing an opportunity!

that's short selling or shorting!


now, lets see the other side of the trade!

this time

the rich man

doesn't have abc shares

but cash!

he puts in

1,00,000 bucks

in the locker

locks it

gives the keys to his servant

and takes the next flight

to germany

for a vacation of 1 month.

while he is away

his servant

realises from his chart reading

that the abc share

is going to rise

from current 1,000

to 2,000

in 1month!

he has the key

and has the guts!

he picks the key

opens the locker

picks 1,00,000 bucks

buys 1,00,000/1,000 = 100 shares of abc

waits for 1 month

sees the share price

rise from 1,000 to 2,000

then sells back


for 100 x 2,000=2,00,000 bucks

keeps 1,00,000 for himself

and puts the 1,00,000

back in the locker

hands over the keys

to his master who returns the next morning.

the master is happy to find 1,00,000 bucks intact!

and the servant has made cool 1,00,000

by using the

stagnant money

for encashing an opportunity!


in the above example

it is assumed

that the servant had the master's permission

to use his valuables

with the sole condition

that the servant will return

the money or the shares

when the master asks for it


on the date of his return

whichever is earlier


of whether

the servant is making money or losing money

by that time!

overcoming fear of shorting

my friend


shared with me his

discomfort with shorting!


i had heard this dilemma

numerous times before

besides experiencing it myself!


because of sheer habit

everyone is used to

only buying

and not selling!

you might have bought

100000 things in your lifetime

and sold only a few!

so selling, obviously,

is out of your comfort zone!


when i heard him utter those words

it was natural

that something in me

wanted to help!


given below are two tricks

that i shared with him

which should help

rather anyone

to strike peace

with shorting!


1) trade in options -

that way

you need to only buy

even when

you think the price is going to go down!

when bullish, buy call option

when bearish, buy put option!

(see, no selling)


2) turn the vertical graph by 90 degrees

to horizontal!

this way

there is no up and down


left or right!

so, there is no pschological fear of shorting!


here is a bonus method

which didn't strike me

when i was talking to madhu!

i recalled this

when i was pondering later

as to how i had managed to overcome

my fear of shorting!

i overcame my fear of

going short

by learning the indicators

deep and thorough!

broad movement of the market

is logic

not magic!

when the markets fall

they are not going nuts!

they are just flowing

like the river

trying to find further path of movement!


of technical knowledge

just dispels

the dark shadows

of fear of shorting!

trading with grace!

the fly

sitting on the bolt

of the panel

of the wing

of the aircraft



she is flying the jet!


neither the passengers

nor the turbines

mind her repeated buzzing


she doesn't shriek

about her trading abilities!

Thursday, March 17, 2011

can stockmarket movements be predicted?

when i read statements like

"trading is the one area of life
where there's no guarantee
that hard work will ever pay off"

or when i come across a brilliant observation
from someone as brilliant as jesse livermore
"the family of trading mistakes is infinitely large"

i am forced to ask myself again and agsin

are stock market movements
based on some logic
or are these illogical?

if these are based on some clear cut logic
then these can definitely be tamed with a method.
if these movements are beyond logic
then there is little hope
not only for retail traders
but also for sophisticated expensive trading software!

are stock market movements
or are these unpredictable?

if these are predictable
then these can be anticipated!
all this is only witch-hunting!

so, what is the reality?


it is my experience
and my understanding
the reality is somewhere
in the middle!

not just that
the reality is kept
constantly swinging
like a pendulum
between the two edges
to suit the games being played!


till the operators intervene
the market price movements
are both logical and predictable,

but a little nasty helping "nudge"
of these tactful operators
is enough

to prick all balloons
of logic and expectations!


so, what can and should
a trader do about this?


do the logical
skip the illogical

and learn to know the difference!

snake on the highway!

as i had shared earlier also

one of the most profound discoveries

a trader needs to make is

that the price in stock market

doesn't move in straight line like a missile

it moves like a snake in desert -

it wriggles in zig-zag sideways waves

to go forward!

the zig zag move is either because of

the pull-push between

the uninformed buyers or sellers

or the handiwork of "big-pocket" operators

whose aim is to confuse and scare-off

retail investors

to submission!


just look at the chart below

you will find every price chart

somewhat like this!

the price moves zig zag

but within a highway!

so, whenever price fluctuates

never get scared

just fasten the seatbelt

and enjoy the ride!

(assuming, ofcourse, you have double checked

from your "gps" trading method

where the highway is headed!)

Uploaded with

Wednesday, March 16, 2011

the shifts

day before yesterday
i was long
in the market.

so, at night
while watching news on TV
i wished
gaddafi announced his resignation,
the saudis gave up
anti-government protests
and the japanese authorities
successfully brought the radiation
from the threatened nuclear reactors
under control!

i went short
and suddenly
by the evening
i mysteriously lost
my sympathies for
the protestors in the arab world
besides turning pessimist
for the battling island of the rising sun!

i am again long today
and feel shameful
of a techtonic shifts of
loyalty plates
deep beneath me
threatening to trigger
a tsunami
of unprecedented moral waves!


when the petrol

crossed 50 bucks per litre

superman decided to

stop using his car

and bought a motorcycle!


but when petrol soared

beyond 60

he sold off his motorcycle

went to tohana

and bought

a fine horse!


next morning

he went to office

riding horse!


he got much more attention

than he had attracted

when he had moved across the city

on his brand new hero honda karizma!


he was happy with the ride

as well as the "horse-power"!

there were no pollution worries

no registration costs

no insurance expenses

no service overheads

.....easy to park

.....easy to "drive"!

and above all

no fuel cost!


every evening

he started leaving the fine horse

in the open ground in front of the house

to graze on the unlimited free supply of grass!

he even didn't have to worry about water

as there was a pool in the middle of the ground!


all went ok for a week

when one day

the horse refused to move!

the trader tried hard to push him

but failed!

he took it to a vet.

the vet checked thoroughly

and asked about the horse's diet!

and when the shrewd comic hero

proudly revealed it all

the vet gave him a sound snubbing

"if you don't provide him what he loves

he won't move!" the vet ordered!


the hero left the horse home

went to the market

to buy the right food for "horse-power"

hey, oats, carrots, apples....

he got it all packed

but when he was handed over the bill

his own "horse-power" tanked!


he dropped it all

rushed home

took the horse back to the studd farm

returned it at half the price

went to the mall

and bought himself

a brand new

iron horse

with two wheels

and a paddle

powered by his


stock market

"what is a stock market, papa!"

"it is a market for trading, son."

"trading what, papa!"

"trading of retail traders!"

gambling and trading are so different!




are so different!

in gambling

the winner

is not allowed

by the losing gang

to leave for the day

till he loses back everything!

and in trading

the lucky winner

refuses to go away for the day

till he loses back everything

to the unaware gang!


after years




and blood

just when

i had become

somewhat proficient

in trading

they are now saying

that the world is about to end

in dec 2012......

that is unfair

very unfair

a "universal" conspiracy!

Tuesday, March 15, 2011

every invitation is not an opportunity!

have you ever played
minesweeper game
in windows?

the moment you open the game interface
81 tiny windows will pop up in a frame!

just like stock trading
the moment you open the trading screen
an array of opportunities will pop up in front of you!
inviting you
enticing you
luring you
to click
the "trade" button!

but just like in the minesweeper game
you shouldn't click the "trade" button
without applying your mind!

because many "windows" of opportunity
are actually
"window dressed" mines
waiting to be
"clicked" and "stepped on to"!

whether trading opportunities
or mine sweeper clicks
there are sufficient hints around
to sniff the danger
and pick and choose
profitable ones!

every invitation on the screen to trade
is not an opportunity!!!

mini winters and mini summers

winters are winters

they are cold.

summers are summers

they are hot.


simple fact.

nothing important in it, right!

well, not really

till you look at it

a bit closely

and differently.


every winter day

also has a hot afternoon

which is as good as experiencing summer warmth

and can make you forget about the winter chill

for some time!



every blistering summer day

has cool breezy morning,evening and night

which can make anyone

forget about the harsh summer reality!


this is what exactly happens in stock markets too!

within a span of one month

you can see

price going from

succession of

winter bear phases

and summer bull phases

each ranging from 1-5 days

within the larger

bull or bear runs

of a few weeks!


and in-between these


mini seasons

lie small periods

(1 or 2 days)

of rangebound movements.


and mercifully

these small periods

are like much needed

sundays in-between hectic working days


like breaks or time-outs

during successive fast paced tennis games.


the trend either pauses

or changes!


also these are the times


indicators indicate accurately!


if you missed the trend

you can catch it now!

or if you missed the last trend

you can ride the next one from beginning

from here!


this "cusp" mini season

is so crucial!


how to identify these "islands"?


just open one month chart

plot sma 34

and sma 100 lines


the "eye"

in-between the crossovers of both sma's

is "it"!


read the movement of price w.r.t.

this "eye"

alongwith rsi and william%r

and you will see magic!

Thursday, March 10, 2011

a suitable boy!

the girl

picked up the newspaper

opened the matrimony page

and started searching

for "a suitable boy"


she stopped at one

and read

"wanted bride

for a handsome boy

age 27






early simple marriage....."


she was not impressed.

she abandoned the ad midway

and was about to skip to the next one

when her eyes stumbled at the last line of that ad

"preparing for IAS"

this line changed the entire scenario

she talked to her parents

they fixed the marriage


the two tied the knot!


after 6 months

the boy failed at the IAS exam.

the girl divorced him!


after another 6 months

the girl decided to marry again.

she picked up the newspaper again

went to the matrimony page

and started searching

for mr.right!


her eyes stopped at the following ad


divorcee bride

for a handsome boy

age 32


wheatish complexion



early marriage....."

the girl was again not impressed

dropped the ad midway

and was about to move to the next ad

when her eyes

noticed the last line

"opened a demat account

started stock trading"

she again talked to her parents

they arranged the marriage



"entered the holy trade"


within 3 months

the young "trader"

went bankrupt....

the girl divorced him!


(moral of the story =

you don't become a trader

just because you have started trading)

zen and the art of trading!






it submits itself



prepaid trading - V

if you don't know driving
what would you learn first?

a small car?
a truck?
a bull-dozer?

where would you test drive it?

open ground?
in the himalayas?
crowded chandni chowk?



now if you don't know trading
what amount would you test trade with?



i know u said 1,000.

but i also know u traded
or 30,00,000

no wonder, the result was obvious!


i share with all new traders
a method
that one of my fellow trader friend uses!

every month
he sets aside 3000 bucks to trade!

"even if i lose all of this
i don't mind!
but i will neither add a penny
nor take out a penny
from this amount
for this month!"

what he does is simple.

using his method
he studies the graph
waits for the opportunity
and once he spots one
he buys a call or put option
(as the case may be)
worth 3000!

e.g. taking today's value
if he were to take a short position
he would have bought
5300 put (march series)
(52.5 x 50 = 2625 + 113 brokerage = 2738)

now suppose
the market were to go up
and he loses 1100 bucks
he would
be left with approx 1800.

he will learn his lesson
look for the net opportunity
and enter the next trade.

but with what amount?


taking today's rates

he would have bought one lot of
put 5200 (march series)
(34.9 x 50)

for the sake of example
suppose he again loses 700
he would be left with around 900
(after brokerage etc.)

now he would again search for an opportunity
to learn and hone his skills
and enter a trade!

but with how much money?


taking today's rates
he would buy
a 5000 put
(13.75 x 50)

i took just the losing scenario.

if he were to profit,

he would buy the higher priced option.

this process would continue

till expiry!

next month

he would trade

with the opening account for that month

which would be the closing amount of last month

plus fresh fund infusion of 3000!!!


this way

he is learning

plus he is not afraid of losing too much

plus he is assured of a long stay in the market

plus he has a chance of making it big as well!

he knows what are his expense boundaries

he is trading prepaid!


a trader goes thru the following 9 emotional stages
on the road to becoming successful
provided he doesn't stop on the way!


stage 1 : shringar

trader is so happy when he enters the magical world of trading!
his body language is loaded with loud expressions of hollow and premature ecstacy!
becoming a trader is considered an achievement in itself!


stage 2 : hasya

trader takes things lightly.

laughs at his stupid moves.

laughs-off the bad trades.


stage 3 : veer

trader can no longer laugh at the repeated losses

he puts up a brave front

tries to be a hero

often like don quixote


stage 4 : raudra

when his




results in mounting losses

his ego gets triggered

he gets furious

and angrily clasps the ill-fated ride even tighter


stage 5 : vibhatsa

by now

the things get ugly.

the trader has come too far to turn back

without some permanent damage.

by now

'shingar' has melted

'hasya' has vanished

'veerta' has evaporated

'raudra' has turned ugly.


stage 6: bhayanak

the reality and the trader are standing face to face

reality smiles like a devil

trader stares like an injured,humiliated and helpless lion!

repents why he became a trader, why he took the trader and why he didn't see this all the way!


stage 7 : karuna

trader has booked huge losses

his bank balance is gone

sense of sorry, helplessness, pity and self-consolation dawns

trader licks his wounds and cries!


stage 8 : adbhut

trader either quits the line

or undergoes unbelievable transformation!

he can't believe that

he had been so stupid in his trades.

finally, he decides to learn


stage 9 : shaant

all emotions are gone by now

peace, tranquility and silence prevails

trading is no more a show-off (even to self)

method and discipline take over

the epic journey starts!

Wednesday, March 9, 2011

engineers, doctors, traders!!!

6 years ago
i went to capital book shop
in sector 17 in chandigarh
looking for some good books
on trading.

i was directed to a section
which contained
the books related to stock trading.

i was a newbee in the market
and was looking for a lean crisp book
to help me learn trading.

and when i reached the section
i was shocked to see
the range of trading books on offering.

they had hundreds of
big, fat and intimidating books
on trading.

on one side of the trading section
was the engineering section for the upcoming engineers

and on the other side
was the medicine section for budding doctors.

the shocking thing was
the trading section
was as big
and it had as many monsterous books
than both other sections!

for once
i even decided to forget about learning trading.
after having completed engineering
i was left with little capacity
to sink more into books!


last week
i again went to the same book store
arguably one of the best in chandigarh
and found
that the section on trading
had swelled
and eaten
and claimed
the "real estate"
allocated to the engineering and medicine section!

almost half of the floor
was full of books and videos etc.
on trading!

the thought flashed my mind
"how much have these guys
complicated trading?
they made it more difficult
than engineering and medicine degree!

there are more
technical indicators
and patterns
and theories
and methods
and laws
and do's and don'ts
and lessons
and facts
and figures
and graphs
in trading
than are there in engineering
and medicine!

there are more courses
and seminars
and workshops
and refresher trainings
in trading
than are there
for existing doctors
and engineers!

great to be trader!
building trade bridges that collapse every other day!
treating mental trauma patients - we ourselves!

eyepiece, trigger,shoulder and head - II

every morning, late afternoon, evening

and every half an hour in-between

i keep checking

the high-probability turning points

on the 1-month and 6-day chart,

get ready

and wait for

the "trigger" indication

on the 1-day chart.

if the final "execution" signal comes

i pull the trigger


i let my photo memory

of what i saw in the "eyepiece"

of medium-term charts

fade away!

Tuesday, March 8, 2011

thank god!

a trader

always felt like



for the profitable trades

till he was scolded


the man in the mirror

"look who is doing what?

and to whom?"

"i didn't get you" the trader asked his image.

"i am amused to see


thanking god


his own

godly act!"

stars in the eyes!!!

the trader was so happy!

after a long time

he had profited 20000

in a single trade

in a single day

and that too in a matter of minutes!

as he stepped out of the

broker's chamber

into the busy bazaar

his head was held high


his feet had the speed

of a springing antelope!


he tried hard

to look normal

and hide every sign of his excitement

but he still couldn't cover

his 20000 watt smile

of well-being!


he looked around

but no one around

seemed even a fraction happy

than him!


at the turn of the street

he stumbled on to a sitting

elderly beggar

with an extended arm for alms.


the tinge of fear

of losing the run of good luck

and the greed of having more of it

prompted the trader to let spill

20 rupee note

from his brimming ocean of 20000

into the open mouth

of the expecting bowl

of the man on the road!


the loss of 20

out of 20000

didn't dim the brilliance

of the trader's smile

till he accidently

looked into the

eyes of the beggar

looking at the




of 20 rupees

and that too

in a single day

and that too in a matter of seconds!


the blinding glare of the twinkle

in the oldman's thankful eyes

extinguished the 20000 l.e.d.'s

of the trader's smile!

Monday, March 7, 2011

eyepiece, trigger, shoulder and head

"use eyepiece on the gun to aim

use the trigger to shoot

stabilize the gun with your shoulder

keep your head cool and calm"

the shooting trainer told the cadets!


the above message

after translation

is equally valid

for a trading cadet

"use 1-month chart to aim

use 1-day chart to shoot

stabilize the trade with the shoulder of method

keep your head cool and calm"

trade without goggles

i was damn busy

working on my laptop


i asked my son

to hand me the apple

lying on the table in front of him.


he picked it up

and handed it to me.

i was about to bite the apple

when my lips felt

that something was wrong with the apple!

i took my eyes

off the laptop

and looked at the adam's fruit

only to find

that it was an orange!


i looked at my son

and immediately came

to know

the reason behind

the mixup!


my son was reading

his 3D book of dinosaurs


the 3D goggles on his eyes

with one red

and one green see thru paper!

he looked at the orange orange

and his left red 'eyepiece'

took it as a red apple!

he was too busy immersed in his book

to realise the mistake!

i smiled

while he was still confused as to

why i turned towards him and why i was smiling!


this is exactly what happens

in stock markets


we see

what we want to see.

our preconceived notions

and opinions

and expectations


what is in front of us!


if we want an apple

we look at every orange, banana, grapes on the chart

as a bullish red apple

just because

our eyes of the mind

are covered with

coloured goggles!

what we see

when we look at somthing

is heavily

influenced by

what we see thru!


trading with your goggles

is dangerous!

Saturday, March 5, 2011

they never rock the boat near the bank!

i checked the nifty graph of last one year

from feb 2010 to jan 2011

and confirmed the following.

the operators

(option writers)

never rocked the boat

in the last week

before expiry!

not even once in last 12 months!

this fact has massive repercussions!

use this to play options!

(to be continued....)

Friday, March 4, 2011

how to use the operators!


and fundamentals

are good


only in the waters

where there are no operator crocodiles to rock the boat!


since there are no such waters

abandon your plans

to trade blindly with indicators


trading all the time!


stop trading proactively

and learn to trade




to trade

on the basis of

the moves of the operators!


will you get any chances this way?

you bet!!!

operators can't stay out of the market!

nor can they desist from bluffing!

because that is the only way they can dodge the small traders

and take their money!

..........this is the exact oppotunity you should wait for!


always remember,

any bluff move of the operator is unsustainable!

it has to reverse

in the direction of the fundamentals

sooner or later

depending upon the fuel in the tank of the operator's bulldozer!


while the bluff move of the operators

is difficult to be answered

within the tight boundary

of day trading

it is definitely possible to do that

in a space of a few days or more

when bluffs are easily visible

and there is sufficient time for you to take position!



instead of predicting the market

on the basis of fundamentals or technicals

wait for the unnatural aberration moves

the bluff moves of the operators.



you can't catch their bluff

before the bluff!

you can definitely catch the bluff

after the bluff!


how to identify a bluff?

how to spot the operator's hand?


any anti-logic unexplained move

any overdone move

any unexpected move

any anti-indicator anti-fundamental move

any unobvious move

any news driven sharp move

has a clear hint

of the hand in the glove!


but when you spot it

don't make a noise!

just keep your mouth shut

and eyes wide open


wait for the excess limit to be touched!


this way

while you will never be able to hunt the operators

you will definitely not become their prey

and instead profit

from their efforts!

the best place to call a bluff !

if you hide a small bluff in a small place

others will obviously catch it.

so, there is little incentive in that.

if you hide a small bluff in big place

it is likely to go unnoticed!

besides, why tell a small bluff when you can bluff big?


you surely can't hide a big bluff in small place

but you can definitely hide a big bluff in big place!


though it is likely to get noticed

it still makes a big trading sense

especially when you are an operator

and the scared

and un-resourceful small traders

are failing to notice

even the big bluff

in the big place!


let's come to the point.

operators love day-trading setup

because their bluff is big

while the place

(the time limit for the small traders to catch and respond to it)

is too small

thereby allowing the operators to make a killing.

this is the reason

why day trading is not a safe ground for small traders.


but operators are also very fond of bluffing big on big places

they defy fundamentals to dodge the swing players

on the time scale of a week to months!



this larger playground

also gives sufficient maneuvering space

to the experienced and trained trader

and hence

is strategically the best bet for him!


semifinal words on day trading

here are the

semifinal words on day trading!


why not the final words?

because there can't be any final words

in trading.

then why the semi-final?

because these words are very important

and deserve to be treated atleast next best to the final words!


so what are the words :

"day trading is all about

who takes whose money.......and how!"



if you believe this

i bet, you are making money in the market or can make!

and if you don't believe this,

you are the one bleeding most of the time!


over the period of time

rules have been made to

help ordinary trader

to be able to day trade!

pity, that these very rules

are being used to trap

these very traders!


those who have big money

or big stockpile

can fail any rule of this game at their will!


i once again repeat the words :

"day trading is all about

who takes whose money.......and how!"

the "how" in the above statement

is the heart of this

gand con-game!


everyone new trader in the town

is madly running after rules

little does he know

that the rules he sees

are dummies!

these are the baits to trap!!

for small traders

day trading as per rules

is the surest way of losing!


the unsuspecting traders

don't know

that day trading is the only

"free-floating" game in the world

which has no fixed rules!


if at all, the only rule is

to find a way

to take the other man's money


for this one rule

you are supposed to break any and every rule to confuse and dodge others!


having said that,

let me make it clear

that small time retail traders

neither have the money

nor the stock pile

to confuse or trap anyone!

mouse can't trap the cat

in this tom and jerry series!

only big players

can confuse, dodge and trap!

so what can small traders do?

small traders can only

hope to devise a method

or trick

or trading style

to avoid getting trapped!

the fact is that operators can't trap all of the traders simultaneously in every trade!

just like a broom can't move all of the dirt simultaneously in every sweep!

the operators trap the majority

while the minorty, by default

lands on the side of the operator

and thus sharing the kill with them!

another hope for the retail traders

is to


wait for

and call the bluff

of the big players!

(will share about this in my next articles!)

Wednesday, March 2, 2011

a must read research paper for all day traders

detailed excerpts from research paper submitted by

Brad M. Barber (University of California) &

Yi-Tsung Lee & Yu-Jane Liu (National Chengchi University Taipei)


Most day traders, especially heavy day traders, lose money trading.

Why do investors engage in such a wealth reducing activity?

One possibility is that investors simply find day trading entertaining.

Undoubtedly some investors do find day trading entertaining, but can entertainment account for the extent of day trading that we observe?

Do day traders knowingly and willingly accept such large expected losses for fun?

For all but the wealthiest investors, this would be a very expensive form of entertainment indeed.


Another reason why day trading might entice investors would be if it provided an appealing distribution of returns.

People often display an attraction to highly skewed investments, such as lotteries, that have negative expected returns but a small probability of a large payoff.

However, the day trading profits that we document are similar in magnitude to, and far less prevalent than, losses.

Unlike lottery winners, day traders must succeed on repeated gambles in order to achieve overall success.

Such repeated gambles do not tend to generate highly skewed distributions.


A final potential explanation for the prevalence of day trading is that most day traders are overconfident about their own chances of success.

Several papers argue that overconfidence causes investors to trade more than is in their own best interest.

Overconfident day traders may simply be bearing losses that they did not anticipate.


While day traders undoubtedly realize that other day traders lose money, stories of successful day traders may circulate in non-representative proportions, thus giving the impression that success is more frequent that it is.

Heavy day traders, who earn gross profits but net losses, may not fully consider trading costs when assessing their own ability.

And, individual day traders may believe themselves more likely to succeed than the average day trader.

We are unable to explicitly test whether day traders are motivated by overconfidence rather than the desire for entertainment.

Our opinion is that the average losses incurred by day traders are more than most would willingly accept as the cost of entertainment and that, by and large, day traders must hold unrealistic beliefs about their chances of success.

We find that the trades of heavy day traders are profitable before deducting transactions costs and that the trades of previously successful traders are profitable even after accounting for costs.



About one percent of individual investors account for half of day trading and one fourth of total individual investor trading volume. Our analysis of performance indicates day trading is treacherous, but not entirely a fool’s game.
Over the typical six month horizon, using lower range assumptions regarding transaction costs, less than 20 percent of day traders earn profits net of transaction costs.

These results paint a rather dim portrait of day traders. However, we do document a select few are able to consistently earn profits sufficient to cover transaction costs.

We identify day traders who earn substantial profits over a six-month period and analyze the performance of their subsequent trades. These profitable day traders continue to earn stellar returns.

There is strong evidence of persistence in the ability of day traders. Our analysis makes clear the need for comprehensive risk disclosure. Prospective day traders should be apprised of their likelihood of success: only two out of ten make money; fewer do so consistently.

right time to shoot

the 107 year old

96km long


narrow gauge toy-train railway line

from kalka

to shimla

passes thru 103 tunnels

(only 102 are in actual use now).

the longest being 1.14km long.


the journey in this toy-train

is like travelling to heavens

while still alive!


over the clouds

under the clouds

over the bridges

under the bridges

into the tunnels

and out of them!


it is as much pleasure travelling in this train

as is there

in shooting it

with a powerful


like a nikon d7000!


but obviously

you can't normally shoot it

inside the tunnel!

you've got to shoot it

only when it out of the tunnel!

(just like you can't take an aim at the market

inside the "overnight" tunnel!

you have to wait till it "comes out"

in the morning at the opening bell!)


to shoot the heavenly train

(with a camera)

you have to wait till it comes out of

one of the 103 tunnels!

even then

it is not easy to shoot it!

some times

it is behind mountains

while at other times

it gets hidden behind

cluster of deodars and pines.

at times

it vanishes in the folds of the valley!


you have to wait for

the suitable opportunity

to shoot

that great photo!

just like

you have to wait

for that correct opportunity

to shoot

that trade!


while wasted photo in a digital slr

costs nothing more than a sigh,

a wasted trade in the market

costs something

even to professional


software vs operators!

10 top software programmers of the world

joined hands

to develop

a super

trading software

which could magically


the next move of the price!


they hired

the best testing agency in the world

to test the software!

it passed every test!!


they deployed it in the market

and started minting money.


one day

their servant leaked

the next bullish move

of a stock

to a big operator

for $500!


the operator

dumped 1 lac shares of the company

in less than 10 minutes!


the software

rendered its 20000 clients



the software company collapsed


the operator

bought it!!!

jogging is good for trading but....

ever since the markets started opening
at 9 instead of 9.45
the trader habits changed a lot
almost overnight.
one such trader
who had a die hard habit of
started waking up at 5
instead of 6.
one such day
he woke up
freshened up
got into his track suite and joggers
and went out for a 5 km routine jog!
the city was still sleeping
except an occasional enthusiast!
he kept circling the empty lanes
in his locality
and enjoying the light music
on his mp3 player.

after a few rounds
he stopped,
took out the cake he had brought with him
and took a bite!
cake was his weakness
besides the market.
too much of both were
not good for health
but were damn tasty!
the short feast was going on nicely
till suddenly
was whizzed past
by a street dog
with bread in his mouth!
hardly had the trader recovered from the disturbance
he heard the loud barking
from behind!

he turned around
and saw coming
a furious hound!
the hound was obviously after the street dog
running with the loafs of bread.
the trader panicked.
he stopped eating
held his cake tightly
and started running
behind the street dog
away from the hound!
the hound got perplexed to see
the trader running!
he was very annoyed to see the trader
cross his path.

just then
he noticed
the cake in the intruder's hand!
enough incentive for the hound
to leave the street dog

and get after the trader!
now the hound was after the trader
instead of the street dog!
he followed the trader street after street
and soon trapped him in a corner!
the poor trader now had 3 choices
run with the cake
run without the cake
eat the cake!
the third possibility was only theoretical
considering the tension in the air.

the first possibility was not possible

so, the trader opted for the middle choice
handed over the cake
and said
"here, have it! i have more in the kitchen!"
the hound leaped at the cake
and turned without thanking
the "generous" trader!
far from the street corner
the stray street dog
thanked the trader
for taking it all on himself
and giving him enough time
to eat his bread loafs!
the trader walked home
and got ready for the trading day
took out his currency cake

but swore
never to cross the path
of the operator hounds
running after the stray street traders

and mind his own

Tuesday, March 1, 2011

no.2 myth of a trader!







operators reply : yes, you are right, buddy! absolutely right!!!

no.1 myth of a trader!






thus always booking profit prematurely (before signal)

quitting at slight volatility (while there is no square-off signal)

fear entering midway the missed rally

the reality : your fear gets you in THEIR way!!!

not a joke any more!

"why do traders miss the train every time???"

"because they can't afford to lose stop loss amount!"

just a joke?

"why do traders lose so much?"

"because they can't afford to lose stop loss amount!"

dear day traders, pl meet your opponent!

there are sufficient evidences

on every chart

to confirm


retail traders

(atleast in india)

are trading against

computer programs (of big players)


intermittent "mischievous" human intervention!