A trader bought a Nifty Futures lot.
Nifty went up.
He was very happy.
He opened the technical charts.
"Can go up more." said the technicals.
"I may lose the profit I am getting now.", the trader thought.
"But what if nifty goes up much higher from here?"
The trader got caught in the dilemma.
Finally he squared-off and consoled himself by saying
"This much profit is better than no profit."
Next week, he found himself again in the same situation.
He was sitting on profit, fear was in the heart, technicals were saying
"Can go up more."
This time the dilemma was accompanied by his sister - 'doubt'.
Finally, he decided NOT to square-off and hang-on.
This time he consoled himself by saying
"If it falls I will assume I never had the chance of profit in this trade."
-----------------------------------------------
This is a classic case of 'Mental Accounting'.
What is Mental Accounting?
It is 'self-sugar-coating' a bitter or controversial or embarrasing situation or fact or decision so that it is easily accepted by the ego without causing heartburn or hurt-feelings.
It is, rather, justification of things difficult to justify.
Mental Accounting is the murder of Accounting principles.
Here, instead of putting a loss in the debit column you write it off or forget about it!
Mental accounting is mental justification of wrong accounting!
Making loss-making situation look like no-profit-no-loss OR making risky situation look acceptable is what Mental Accounting all about!
Everyday, every trader does Mental Accounting. A trader can go insane without that!
-----------------------------------------------
Let me share with you some more interesting mental accounting examples.
A delivery-based positional trader used to consider his loss as mere temporary transfer of money from his one bank account to his another invisible account and the same shall be returned.
Another trader consoled himself when he lost almost everything he had earned in many years by saying "I have lost nothing. I lost back to market what it had given me. My own funds are still intact."
Yet another trader used to account his losses as fees of expensive seminars to learn big lessons!
A trader used to console himself by saying "These things happen in business."
Another trader used to console himself after big losses by saying "When such big experts like @#$% and *&^% lost in this crash, why should I feel bad?"
A trader used to say "once in a while, chalta hai (it is OK)."
----------------------------------------------
Mental Accounting can be good as well as bad.
If it acts as a courage-injector to do what technicals and the methods are saying, it is good.
If it is used as an excuse to be indisciplined, it is bad.
If it is used as an excuse for being docile or lame duck, it is bad.
If it is used as a mode to learn and experience, it is good.
Saturday, July 31, 2010
Thursday, July 29, 2010
8 Laws of Trading Risk
Law 1. No risk, No advancement
No trader ever became really rich without taking risk!
90% of traders don't ever make it to the higher orbit due to fear of risk!
------------------------------------------------------
Law 2. Risk with minimum risk
Risk should be taken at the point of maximum probability of its going in your favour.
The risk war is already won by the true trader before the start of the war!
------------------------------------------------------
Law 3. Risk as per appetite
Know "How much is too much".
Bite what you can chew, otherwise it can choke you!
Never risk all. Keep spare regeneration seeds.
------------------------------------------------------
Law 4. Risk correct
Think about taking risk only when you know how to!
Don't go for the Lion Safari without Knowledge and Experience.
------------------------------------------------------
Law 5. Risk with boundaries
Draw the line beyond which the risk would be accepted as having gone wrong and position closed.
------------------------------------------------------
Law 6. Avoid risky risks!
There are times when risk is risky and should be respected and spared.
When in doubt, stay at home.
------------------------------------------------------
Law 7. Insure the risk
Have a plan B ready.
------------------------------------------------------
Law 8. Identify your favourite risk
Many traders became millionaires by repeatedly taking their "favourite" risk.
Risk which they have mastered.
Risk which has been exposed before them.
Risk whose every contour they know by heart!
No trader ever became really rich without taking risk!
90% of traders don't ever make it to the higher orbit due to fear of risk!
------------------------------------------------------
Law 2. Risk with minimum risk
Risk should be taken at the point of maximum probability of its going in your favour.
The risk war is already won by the true trader before the start of the war!
------------------------------------------------------
Law 3. Risk as per appetite
Know "How much is too much".
Bite what you can chew, otherwise it can choke you!
Never risk all. Keep spare regeneration seeds.
------------------------------------------------------
Law 4. Risk correct
Think about taking risk only when you know how to!
Don't go for the Lion Safari without Knowledge and Experience.
------------------------------------------------------
Law 5. Risk with boundaries
Draw the line beyond which the risk would be accepted as having gone wrong and position closed.
------------------------------------------------------
Law 6. Avoid risky risks!
There are times when risk is risky and should be respected and spared.
When in doubt, stay at home.
------------------------------------------------------
Law 7. Insure the risk
Have a plan B ready.
------------------------------------------------------
Law 8. Identify your favourite risk
Many traders became millionaires by repeatedly taking their "favourite" risk.
Risk which they have mastered.
Risk which has been exposed before them.
Risk whose every contour they know by heart!
Wednesday, July 28, 2010
Legs for the Will
2 things are important for something to happen
- the will to go
- the legs to carry!
Everyone is waiting and anticipating and hoping and craving for the markets to breakout!
The will to go is there.....
overwhelmingly!
But the quarterly results are not inspiring.
Even in some pockets where they have been good, they are not good enough to propel the market in the higher orbit.
The legs to carry are missing!
When traders trade just on the basis of will, the legs give the kick!
Will can be bulldozed by the willing legs
but the legs can't be ordered!
Having said that,
it doesn't mean the markets can't shoot up still!
Money speaks!
- the will to go
- the legs to carry!
Everyone is waiting and anticipating and hoping and craving for the markets to breakout!
The will to go is there.....
overwhelmingly!
But the quarterly results are not inspiring.
Even in some pockets where they have been good, they are not good enough to propel the market in the higher orbit.
The legs to carry are missing!
When traders trade just on the basis of will, the legs give the kick!
Will can be bulldozed by the willing legs
but the legs can't be ordered!
Having said that,
it doesn't mean the markets can't shoot up still!
Money speaks!
Something happens at 61
Something happens at 61!
When you move from toe to head, at 61.8% from toe is your belly button, your "connection" to life!
When you travel from one place to another, you generally tend to take a break after 61.8% of the journey! Most of the resting places are located at 61.8% on either side of the destinations! All aeroplane halts are like that!!
If a human being's age is 100 years, he or she retires at around 58-60 and is hit with the realisation at 61.8 years!!!
If you have 10 sips from a cola canor coffee mug, you typically get the first bout of satisfaction at around 61.8% down the top! Rest is forced!
Space occupied by the white in an egg is 61.8% of the total space.
Length of the pen's cap is around 61.8% of the remaining portion.
Average length of the fingers is around 61.8% of the average length of the palm.
In a 100 marks exam, the dividing line between the the first divisioners and the rest is .....60!!! (they couldn't fix it 61.8, but they nearly did it.)
The width of your laptop's screen is around 61.8% of the length! (Otherwise it is not pleasant for normal people!)
The time between Sunset to Sunrise is around 61.8% of the duration between sunrise and sunset!
Even the Elliot Wave respects the Fibonacci retracement. It retraces 3 steps after moving 5. The 5 waves are 1.6 times 3 waves!!!
That is nature's way of maintaining dynamic balance.
Everywhere in and around you, there is this unique ratio to maintain the dynamic balance!
50% ratio is static balance. Nature needed some other ratio to maintain dynamic balance - 61.8%!
Our psychology is totally influenced by this balancing act,
and hence the recurrence of this ratio in everything associated with us.
And what is 61.8% of 61.8%?
38.2%.
Therefore, something also happens at 38.2% (61.8% of 61.8%).
And what is the 61.8% of 38.2%?
23.6%.
So......???
Something happens at 61.8%.
Surprising that these all are in the Fibonacci sequence!
Nodoubt, 61.8% is known as Golden Ratio!
This is Fibonacci magic!
How to take benefit of this revelation?
Switch on your head at every 61.8% milestone.
If nothing happens, look at the larger picture to recognize the Fibonacci drama unfolding!
When you move from toe to head, at 61.8% from toe is your belly button, your "connection" to life!
When you travel from one place to another, you generally tend to take a break after 61.8% of the journey! Most of the resting places are located at 61.8% on either side of the destinations! All aeroplane halts are like that!!
If a human being's age is 100 years, he or she retires at around 58-60 and is hit with the realisation at 61.8 years!!!
If you have 10 sips from a cola canor coffee mug, you typically get the first bout of satisfaction at around 61.8% down the top! Rest is forced!
Space occupied by the white in an egg is 61.8% of the total space.
Length of the pen's cap is around 61.8% of the remaining portion.
Average length of the fingers is around 61.8% of the average length of the palm.
In a 100 marks exam, the dividing line between the the first divisioners and the rest is .....60!!! (they couldn't fix it 61.8, but they nearly did it.)
The width of your laptop's screen is around 61.8% of the length! (Otherwise it is not pleasant for normal people!)
The time between Sunset to Sunrise is around 61.8% of the duration between sunrise and sunset!
Even the Elliot Wave respects the Fibonacci retracement. It retraces 3 steps after moving 5. The 5 waves are 1.6 times 3 waves!!!
That is nature's way of maintaining dynamic balance.
Everywhere in and around you, there is this unique ratio to maintain the dynamic balance!
50% ratio is static balance. Nature needed some other ratio to maintain dynamic balance - 61.8%!
Our psychology is totally influenced by this balancing act,
and hence the recurrence of this ratio in everything associated with us.
And what is 61.8% of 61.8%?
38.2%.
Therefore, something also happens at 38.2% (61.8% of 61.8%).
And what is the 61.8% of 38.2%?
23.6%.
So......???
Something happens at 61.8%.
Surprising that these all are in the Fibonacci sequence!
Nodoubt, 61.8% is known as Golden Ratio!
This is Fibonacci magic!
How to take benefit of this revelation?
Switch on your head at every 61.8% milestone.
If nothing happens, look at the larger picture to recognize the Fibonacci drama unfolding!
Swing trading with Fibonacci
On 6month chart
first mark every turning point till that date.
Now, assume you go long from point A and don't know whether it will go far or not.
First, stay long till their is a turn
which incidently comes at point B.
Now, had you squared off due to fear of losing the profit midway, you would have chickened out much earlier than B.
But, who knows whether the stock can move up more even beyond point B?
May be, it will take another v-turn immedately after B and continue its dream journey up?
Who knows?
So, it is prudent to stay long, but with a stop loss.
Now, what should be that stop loss?
Here Fibonacci ratio guides us.
If you can put at stake 25% of the profits just earned
stay long with stop loss at 25% of the A-B distance below B.
Here, A-B is the reference leg.
This is based on 23.6% Fibonacci retracement.
In this case, the stop loss will be triggered and the net profit would have been locked
somewhere between B and C.
Another, smart strategy could have been to book profit immediately at the turn B and wait and watch.
Also, whether to go short after 25% fall from B is a gebuine option for professionals.
Also, had it turned up fast again after B
you should adn could have taken the long position again!
Anyhow, come to point C where nifty has taken another V turn towards up.
Now, B-C is your reference leg.
Since the retracement has taken place at around 50%, it is expected that the rally now is
a weak one.
(refer my post 'Interpreting Fibonacci Levels')
Now go long at C with C as stop loss and expecting minimum 25% of B-C length.
In this case, it crosses even the altitude of point B.
All this while, you should have been ready to book profit at 25% fall of the rise after C.
Now, the turn comes at D.
The earlier anticipation that the rally won't go very far after C has been proved right.
Hold longs till 25% of C-D leg.
In this case,
the stop loss is again triggered when you would have booked the profit.
Again, smart strategy could have been to book profit immediately at the turn D and wait and watch.
Now, you have two options after square-off.
Wait till the next turn, or
short till next turn as per Fibonacci retracement.
This way, using Fibonacci levels you can keep trading and anticipating the next move.
(If you have noticed this method is what I shared in one of my earliest posts
"Climbing the mountain with Support Hooks (Chart Practice)")
(Forget about exact percentages and decimals. Remember the concept and approximate figures)
(Also, don't use Fibonacci retracement levels for prediction only. Use it to interpret the last move to anticipate the next move.)
first mark every turning point till that date.
Now, assume you go long from point A and don't know whether it will go far or not.
First, stay long till their is a turn
which incidently comes at point B.
Now, had you squared off due to fear of losing the profit midway, you would have chickened out much earlier than B.
But, who knows whether the stock can move up more even beyond point B?
May be, it will take another v-turn immedately after B and continue its dream journey up?
Who knows?
So, it is prudent to stay long, but with a stop loss.
Now, what should be that stop loss?
Here Fibonacci ratio guides us.
If you can put at stake 25% of the profits just earned
stay long with stop loss at 25% of the A-B distance below B.
Here, A-B is the reference leg.
This is based on 23.6% Fibonacci retracement.
In this case, the stop loss will be triggered and the net profit would have been locked
somewhere between B and C.
Another, smart strategy could have been to book profit immediately at the turn B and wait and watch.
Also, whether to go short after 25% fall from B is a gebuine option for professionals.
Also, had it turned up fast again after B
you should adn could have taken the long position again!
Anyhow, come to point C where nifty has taken another V turn towards up.
Now, B-C is your reference leg.
Since the retracement has taken place at around 50%, it is expected that the rally now is
a weak one.
(refer my post 'Interpreting Fibonacci Levels')
Now go long at C with C as stop loss and expecting minimum 25% of B-C length.
In this case, it crosses even the altitude of point B.
All this while, you should have been ready to book profit at 25% fall of the rise after C.
Now, the turn comes at D.
The earlier anticipation that the rally won't go very far after C has been proved right.
Hold longs till 25% of C-D leg.
In this case,
the stop loss is again triggered when you would have booked the profit.
Again, smart strategy could have been to book profit immediately at the turn D and wait and watch.
Now, you have two options after square-off.
Wait till the next turn, or
short till next turn as per Fibonacci retracement.
This way, using Fibonacci levels you can keep trading and anticipating the next move.
(If you have noticed this method is what I shared in one of my earliest posts
"Climbing the mountain with Support Hooks (Chart Practice)")
(Forget about exact percentages and decimals. Remember the concept and approximate figures)
(Also, don't use Fibonacci retracement levels for prediction only. Use it to interpret the last move to anticipate the next move.)
Tuesday, July 27, 2010
Interpreting Fibonacci Levels
Retracement from 61.8% level
indicates strong up-rally
=================================
Retracement from 50% level
indicates a weak rally
=================================
Retracement from 38.2% level
indicates an unsustainable rally
=================================
Retracement from 23.6% level
indicates bearish pressure
=================================
Retracement from 0% level
indicates bullish pressure
=================================
indicates strong up-rally
=================================
Retracement from 50% level
indicates a weak rally
=================================
Retracement from 38.2% level
indicates an unsustainable rally
=================================
Retracement from 23.6% level
indicates bearish pressure
=================================
Retracement from 0% level
indicates bullish pressure
=================================
The turning point!
If you were a kid and had a banana (assuming u love bananas)
and your dearest friend asked for it
what would u do?
Option 1: You may give the whole banana to your dearest friend, i.e. 100% of it!
Option 2: You may give half of it to him/her, i.e. 50%
Option 3: You may divide the banana in two parts, one smaller and the other bigger and keep one while "sacrificing" the other. Typically this turns out to be in 60:40 ratio.
Option 4: You may give him only a small portion. Typically this turns out to be a quarter!
Option 5: You may keep the entire banana for yourself and give nothing to your friend! 0% sharing!!
Chances are that you will choose one of these options only in dividing the banana.
Why these options?
Why not more or less?
Because there is psychology behind each one of these options.
The psychology of ease.
The psychology of habit.
When you have to divide something or turn back from midway
all you can broadly remember is big psychological milestones and not every inch.
Everything seems to happen "by and large" and not randomly.
Only big and main points are easy to remember.
These typically turn out to be 100%, 60%,50%,40%,25%, 0%.
These are similar to 100%, 61.8%, 50%, 38.2%, 23.6%, 0%
known as Fibonacci Ratios!
Named after mathematician Leonardo Fibonacci of the thirteenth century.
In technical analysis, Fibonacci retracement is created by taking two extreme points (usually a major peak and trough)
on a stock chart and dividing the vertical distance by the key Fibonacci ratios of 23.6%, 38.2%, 50%, 61.8% and 100%.
Once these levels are identified, horizontal lines are drawn and used to identify possible support and resistance levels.
For reasons still not clearly known, Fibonacci ratios seem to play an important role in almost every aspect of nature, including the stock market, and can be used to determine critical points that cause the price to reverse.
and your dearest friend asked for it
what would u do?
Option 1: You may give the whole banana to your dearest friend, i.e. 100% of it!
Option 2: You may give half of it to him/her, i.e. 50%
Option 3: You may divide the banana in two parts, one smaller and the other bigger and keep one while "sacrificing" the other. Typically this turns out to be in 60:40 ratio.
Option 4: You may give him only a small portion. Typically this turns out to be a quarter!
Option 5: You may keep the entire banana for yourself and give nothing to your friend! 0% sharing!!
Chances are that you will choose one of these options only in dividing the banana.
Why these options?
Why not more or less?
Because there is psychology behind each one of these options.
The psychology of ease.
The psychology of habit.
When you have to divide something or turn back from midway
all you can broadly remember is big psychological milestones and not every inch.
Everything seems to happen "by and large" and not randomly.
Only big and main points are easy to remember.
These typically turn out to be 100%, 60%,50%,40%,25%, 0%.
These are similar to 100%, 61.8%, 50%, 38.2%, 23.6%, 0%
known as Fibonacci Ratios!
Named after mathematician Leonardo Fibonacci of the thirteenth century.
In technical analysis, Fibonacci retracement is created by taking two extreme points (usually a major peak and trough)
on a stock chart and dividing the vertical distance by the key Fibonacci ratios of 23.6%, 38.2%, 50%, 61.8% and 100%.
Once these levels are identified, horizontal lines are drawn and used to identify possible support and resistance levels.
For reasons still not clearly known, Fibonacci ratios seem to play an important role in almost every aspect of nature, including the stock market, and can be used to determine critical points that cause the price to reverse.
Monday, July 26, 2010
Understanding Fundamentals
Price of a stock is a combination of
I. Current Fair Value
II. Future Value based on expectations - Genuine or Exaggerated
III. Premium the buyer is willing to pay or discount the buyer is demanding
* Current Fair value is primarily based on current profitability / EPS
* Future Value depends on the
a) future expectations or fears related to the company,sector and economy
b) the sustainability & growth/de-growth in business and margins.
* Premium or discount depends on the desperation of the buyer/seller based on sentiments and need.
Once a company has crossed its adolescence and youth
it more or less settles in 0-20% band of growth on a sustainable basis.
Too much of movement of the stock price from the fair value is a sure sign of pending reversal.
Being an investor is like buying a business.
If you just keep that in mind there are good chances that you will not make the wrong buy.
Hunting for a company, small or big, is a thrilling game!
All you need to do is get involved as much as you would when you choose your life partner!
If only you can find a company that is all set to become a frog from a tadpole and keep leaping....
If only you can accumulate shares of that company when the sentiments are down!!!
I. Current Fair Value
II. Future Value based on expectations - Genuine or Exaggerated
III. Premium the buyer is willing to pay or discount the buyer is demanding
* Current Fair value is primarily based on current profitability / EPS
* Future Value depends on the
a) future expectations or fears related to the company,sector and economy
b) the sustainability & growth/de-growth in business and margins.
* Premium or discount depends on the desperation of the buyer/seller based on sentiments and need.
Once a company has crossed its adolescence and youth
it more or less settles in 0-20% band of growth on a sustainable basis.
Too much of movement of the stock price from the fair value is a sure sign of pending reversal.
Being an investor is like buying a business.
If you just keep that in mind there are good chances that you will not make the wrong buy.
Hunting for a company, small or big, is a thrilling game!
All you need to do is get involved as much as you would when you choose your life partner!
If only you can find a company that is all set to become a frog from a tadpole and keep leaping....
If only you can accumulate shares of that company when the sentiments are down!!!
R-Criteria, P-Criteria
Many years ago I read a brilliant book
"Kaizen" by Masaaki Imai.
In that book, I read a superb and simple concept of
R-Criteria and P-criteria.
Therein it was mentioned that the western world is basically R-criteria based.
R-Criteria stood for Result-Oriented criteria.
This criteria was based on the philosophy that result was all that matters.
If result is not as per the desire, nothing else matters.
On the contrary,
the Eastern world was said to be basically P-criteria based.
P-Criteria stood for Process-Oriented criteria.
The basic philosophy behind P-Criteria was that the process is critical to achieve the desired results.
Though results are what we seek, process is where the focus should be.
If the process is right, the result has to be right.
Conversely, the result just can't be right if the process is faulty!
Successful result is not an accident.
It is the result of a successful process.
Everything is logic, nothing is magic!
Zig Ziglar, in his best seller "See you at the Top" said
"....when you choose a habit you choose the end-result of that habit...."
This can also be interpreted as
'.....when you choose a process, you choose the result of that process...!!!'
So, if you didn't like the result, don't bicker or quit,
just change or improve the process!
This applies in every field of life including Stock Trading!
All traders seek profits.
Big, Recurrent, Consistent profits.
When they don't get the desired result
they react in all kind of ways
except the P-criteria way!
They are so much result-oritented
and so much hurt with the result
that they fail to look at what made the result go wrong or fall short of their expectation!
Professional traders never bother about the result!
Don't get me wrong.
They are concerned. But they are not worried.
They focus their energies on the process.
They know that if their
what-whether-why-when-how-how much
about a trade is Ok
then outcome has to be OK!
"Kaizen" by Masaaki Imai.
In that book, I read a superb and simple concept of
R-Criteria and P-criteria.
Therein it was mentioned that the western world is basically R-criteria based.
R-Criteria stood for Result-Oriented criteria.
This criteria was based on the philosophy that result was all that matters.
If result is not as per the desire, nothing else matters.
On the contrary,
the Eastern world was said to be basically P-criteria based.
P-Criteria stood for Process-Oriented criteria.
The basic philosophy behind P-Criteria was that the process is critical to achieve the desired results.
Though results are what we seek, process is where the focus should be.
If the process is right, the result has to be right.
Conversely, the result just can't be right if the process is faulty!
Successful result is not an accident.
It is the result of a successful process.
Everything is logic, nothing is magic!
Zig Ziglar, in his best seller "See you at the Top" said
"....when you choose a habit you choose the end-result of that habit...."
This can also be interpreted as
'.....when you choose a process, you choose the result of that process...!!!'
So, if you didn't like the result, don't bicker or quit,
just change or improve the process!
This applies in every field of life including Stock Trading!
All traders seek profits.
Big, Recurrent, Consistent profits.
When they don't get the desired result
they react in all kind of ways
except the P-criteria way!
They are so much result-oritented
and so much hurt with the result
that they fail to look at what made the result go wrong or fall short of their expectation!
Professional traders never bother about the result!
Don't get me wrong.
They are concerned. But they are not worried.
They focus their energies on the process.
They know that if their
what-whether-why-when-how-how much
about a trade is Ok
then outcome has to be OK!
Saturday, July 24, 2010
William-RSI Combo Hypothesis
Here, I am sharing the usable inferences from my three posts
Try this out -I, II, III
in the form of a hypothesis
A) If both William % R as well as RSI turn from half-way or even before that
= it indicates a STRONG RALLY
B) If only William % R reaches the extreme and RSI doesn't
= it indicates a WEAKNESS BUT CONTINUATION IN THE RALLY
C) If and when both William % R as well as RSI reach their extremes
= i) either it indicates the start of rally
= ii) or it indicates the end of rally
= iii) or it indicates ranging phase
D) Never take anti-rally position.
Corollary:
I) If it is a strong rally, expect both Williams % R as well as RSI to turn half-way or even before that. Don't wait for extreme bells to enter, there might not be any!
II) If the rally is expected to have run out of steam and gone weak, expect William % R to reach extreme much before RSI does. Don't wait for RSI to reach the station. By that time the train would have left!(But RSI's not reaching the extreme is surely a sign of the rally not having ended.)
III) Don't expect the rally to start or end without the simultaneous extreme salute of William%R and RSI.
Try this out -I, II, III
in the form of a hypothesis
A) If both William % R as well as RSI turn from half-way or even before that
= it indicates a STRONG RALLY
B) If only William % R reaches the extreme and RSI doesn't
= it indicates a WEAKNESS BUT CONTINUATION IN THE RALLY
C) If and when both William % R as well as RSI reach their extremes
= i) either it indicates the start of rally
= ii) or it indicates the end of rally
= iii) or it indicates ranging phase
D) Never take anti-rally position.
Corollary:
I) If it is a strong rally, expect both Williams % R as well as RSI to turn half-way or even before that. Don't wait for extreme bells to enter, there might not be any!
II) If the rally is expected to have run out of steam and gone weak, expect William % R to reach extreme much before RSI does. Don't wait for RSI to reach the station. By that time the train would have left!(But RSI's not reaching the extreme is surely a sign of the rally not having ended.)
III) Don't expect the rally to start or end without the simultaneous extreme salute of William%R and RSI.
Try this out - III
During up rally
if William % R invites you for buy
while RSI is not at the extreme
accept the offer.
Similarly, during down rally
if William % R invites you to short
while RSI is not at the extreme
accept the offer.
This will ensure that u don't miss the rally's next phase.
This is strictly for pro-rally position during a rally.
This is not valid for ranging times or anti-rally positions
This typically happens when rally is there but not so strong.
During strong rally phases, both rsi and william%r will retreat from midway or even before.
Stronger the rally, the earlier the retreat of both!
Pl have a look at the Rolta India graph below
(here William % R invited for pro-rally buy while the RSI was not ready yet)
Note:
Use only google finance charts
both rsi and william%R should be set to 14 value with 30min interval
use 1 month chart for swing / positional trading (generally 2-5 days)
if William % R invites you for buy
while RSI is not at the extreme
accept the offer.
Similarly, during down rally
if William % R invites you to short
while RSI is not at the extreme
accept the offer.
This will ensure that u don't miss the rally's next phase.
This is strictly for pro-rally position during a rally.
This is not valid for ranging times or anti-rally positions
This typically happens when rally is there but not so strong.
During strong rally phases, both rsi and william%r will retreat from midway or even before.
Stronger the rally, the earlier the retreat of both!
Pl have a look at the Rolta India graph below
(here William % R invited for pro-rally buy while the RSI was not ready yet)
Note:
Use only google finance charts
both rsi and william%R should be set to 14 value with 30min interval
use 1 month chart for swing / positional trading (generally 2-5 days)
Friday, July 23, 2010
Try this out - II
During rally
RSI as well as William % R on 1 month chart
generally, retreat / turn from half way.
This fact has the following practical implications
1) if you missed the rally so far, you can enter at these points
2) in case you want to accept anti-trend, anti-rally invitation, this half-way point can be taken as target.
3) in case you booked profit when rsi as well as william % r touched "the other end", you can re-enter at this level.
4) in case you dared to stay in the trade even when rsi and william % r touched "the other end", you can take this half-way mark as the point to rest assured that you were right to have stayed in the trade!
5) if the price again turns at the half mark, it is confirmed as a rally! Otherwise, the rally is weak or paused or over!
A classic example of ftse is given in the chart below. Pick up any rally and such symptoms will be there.
Note:
Use only google finance charts
both rsi and william%R should be set to 14 value with 30min interval
use 1 month chart for swing / positional trading (generally 2-5 days)
RSI as well as William % R on 1 month chart
generally, retreat / turn from half way.
This fact has the following practical implications
1) if you missed the rally so far, you can enter at these points
2) in case you want to accept anti-trend, anti-rally invitation, this half-way point can be taken as target.
3) in case you booked profit when rsi as well as william % r touched "the other end", you can re-enter at this level.
4) in case you dared to stay in the trade even when rsi and william % r touched "the other end", you can take this half-way mark as the point to rest assured that you were right to have stayed in the trade!
5) if the price again turns at the half mark, it is confirmed as a rally! Otherwise, the rally is weak or paused or over!
A classic example of ftse is given in the chart below. Pick up any rally and such symptoms will be there.
Note:
Use only google finance charts
both rsi and william%R should be set to 14 value with 30min interval
use 1 month chart for swing / positional trading (generally 2-5 days)
Why u must not miss BTST?
In last 1 month (June 29 - July 21, 2010)
if one was to measure every inch/point moved by nifty
it would come to around 1800 points!!!
This would be the odometer reading if nifty had one.
Any professional will agree with me that it is near impossible to play and catch all of this.
Approx.50% is likely to be lost due to complex zig-zag motion of nifty,
you can't do much about it.
(An investor can even lose almost all of it!)
Now, this leaves 900 out of 1800 "kms" logged by Nifty!
How much can you mop out of these balance 900 "kms"?
Well, if you don't do BTST or if you do just day trading
you are sure to miss half of this 900!
Why?
Because 479 "kms" out of these 900 was covered by nifty in
BTST jumps - whether up or down!!!
-28+30-34-5-60+23+0+16-23+60+44+25-5+35-3+6-14+17+21-13+17
Average = 24 points per trading day!
Now, this leaves you with just 421 "kms"!
How much can you win out of these?
Any surprise why majority day traders make little money despite great talent and astonishing application!
If you do just day trading
and if you don't BTST (ot STBT, as the case may be)
you are just fighting for the bread crumbs!
if one was to measure every inch/point moved by nifty
it would come to around 1800 points!!!
This would be the odometer reading if nifty had one.
Any professional will agree with me that it is near impossible to play and catch all of this.
Approx.50% is likely to be lost due to complex zig-zag motion of nifty,
you can't do much about it.
(An investor can even lose almost all of it!)
Now, this leaves 900 out of 1800 "kms" logged by Nifty!
How much can you mop out of these balance 900 "kms"?
Well, if you don't do BTST or if you do just day trading
you are sure to miss half of this 900!
Why?
Because 479 "kms" out of these 900 was covered by nifty in
BTST jumps - whether up or down!!!
-28+30-34-5-60+23+0+16-23+60+44+25-5+35-3+6-14+17+21-13+17
Average = 24 points per trading day!
Now, this leaves you with just 421 "kms"!
How much can you win out of these?
Any surprise why majority day traders make little money despite great talent and astonishing application!
If you do just day trading
and if you don't BTST (ot STBT, as the case may be)
you are just fighting for the bread crumbs!
Thursday, July 22, 2010
From the sea to the swimming pools
Imagine a trader with a software which
is connected to live feed from NSE!
is designed to filter thousands of stocks on real time basis thru dozens of technical indicators!
throws up on the screen stock after stock which is either a buy or sell on the basis of multiple pre-set criterea!!
tells you when to square-off!!!
Thousands of traders are already using such software.....
Further, imagine a software hundreds of times more powerful!
Now, imagine a trader trading without any software!
There are lacs of them!
Further, imagine a trader trading without even graphs!
There are millions of them!
Finally, imagine a trader without even the basic knowledge of trading!
There are crores of them!!!
Any surprise money is constantly flowing from the sea to the swimming pools!
is connected to live feed from NSE!
is designed to filter thousands of stocks on real time basis thru dozens of technical indicators!
throws up on the screen stock after stock which is either a buy or sell on the basis of multiple pre-set criterea!!
tells you when to square-off!!!
Thousands of traders are already using such software.....
Further, imagine a software hundreds of times more powerful!
Now, imagine a trader trading without any software!
There are lacs of them!
Further, imagine a trader trading without even graphs!
There are millions of them!
Finally, imagine a trader without even the basic knowledge of trading!
There are crores of them!!!
Any surprise money is constantly flowing from the sea to the swimming pools!
Try this out
Using only Google finance charts
of 1 month duration
using 2 indicators simultaneously
rsi, and
william % r
both set to 14 with 30min interval
buy everytime when rsi is at the bottom and w%r is at the top, both simultaneously, except when the trend is down!
sell everytime when rsi is at the top and w%r is at the bottom, both simlutaneously, except when the trend is up!
use adequate stop loss.
of 1 month duration
using 2 indicators simultaneously
rsi, and
william % r
both set to 14 with 30min interval
buy everytime when rsi is at the bottom and w%r is at the top, both simultaneously, except when the trend is down!
sell everytime when rsi is at the top and w%r is at the bottom, both simlutaneously, except when the trend is up!
use adequate stop loss.
Wednesday, July 21, 2010
Midnight sleep-blabber of a stressed trader
==============
12.40 midnight
==============
"It's gonna take time.
If I am in a tearing hurry to become rich,
If I am in a tearing hurry to make quick and lot of money,
it is entirely my problem!
I have to be realistic in my expectations from the market.
Need to accept that market can take care of my cashflow dreams but wealth is gonna take time.
It will surely come. But it will come like wisdom, like age, like seasons, like dreams, like surprises, like luck!
If I take care of today, the week will take care of itself. And that will take care of the months and years and decades and destiny and worries!!!
===============
01.10am
===============
I have to slow down.
I should not run like a scared dog
fearing that the markets may not be around the next morning!
I have to realise that market and trading should become a part of my routine.
I have to realise that my consciousness and self-flogging levels have to come down to comfort levels
Otherwise, i am likely to burn my "clutch plates"!
It is OK if profits are not raining!
It is OK if I am not profiting daily!
It is OK if I not in the list of top 1,00,000 weathy people in the world as yet!
It is OK if I am never able to make into that list ever!
It is OK.
It is OK.
It is OK.
================
02.33am
================
I should take the profits as bonus
as reward
as pension
as stipend
as pocket money
as surprise gifts
as a kiss of good fortune for the day
as a promise of life long friendship
as god's blessing
which will never cease to come
which will ensure that I will never be short of money I want for my toys and my belly!
I must not expect these profits as my salary
which must come in
on time, everytime, time after time!
I must treat the profit as a reminder to be happy
and not as a source of worry
I must not wait for these profits to pay my bills of life
nor should I treat these profits as bricks on the staircase to being wealthy!
I should consider myself wealthy right now with whatever I have!
I must treat the market as a life-long guardian who will keep giving me handsome "pocket money" to make me feel confident and secure and happy!
I must not treat the market as if it owes me money!
Market owes me nothing!
==================
03.28am
==================
If I am in a tearing hurry to become rich,
If I am in a tearing hurry to make quick and lot of money,
it is entirely my problem!
If I am fit to be wealthy
I will be wealthy one day!
And that destination will be less important than the journey till then!
Can't force make the opportunities!
Can't keep punishing me for missing the opportunities!
I have realised that it's gonna take time.
I have realised that I've to keep parallel life agenda alive!
Market can't be allowed to overwhelm me!
It is important but isn't and can't be everything.
I've got to have a life outside the market.
Decent opportunities come everyday or every other day but not all the time.
Lot of spare time is being thrown and it shouldn't be wasted!
Need to make a routine where I pick the trade like I pluck the ripe vegetables from my backyard garden. I need not eat,sleep and keep guard of my mini-farm all day!
==================
04.05am
==================
It's gonna take time!
It is not going to be over in one day or one week or one month!
It is now going to be with me for a lifetime!
Maintaining high levels of alertness and application can destroy my mental and physical heath.
Market is important but isn't and can't be everything.
Market is not my slave and neither should I be of hers!
She does what she wants to do & not what I expect of her!
My obsession has to end!
Fair two-way relation has to take over!
Market has started behaving like a spoilt child, like a spoilt beloved!
Sense needs to come back in the affair. Pampering has to stop. Life must go on!!!
It's gonna take time!
It all is a brilliant mirage.
It promises to quench my thirst around the next corner,
but it never does that fully!
It keeps teasing me and I keep letting it tease me!
I must put her to its rightful place.
I must pull her down from my head and on to the desk!
Need to look outside the window,
need to look at the sunshine,
need to look at the trees,
need to smell the grass outside...
===================
04.55am
===================
Market is just that...a market!
It is a hen which lays golden eggs every other day.
It won't and can't give me all the eggs at one go!
Got to keep her happy,
but can't marry her
for she is still a hen!
==================
06.00am
==================
alarm ringtone!!!!!!!!!!!!!!
the trader picks up the remote in half-sleep
switches on Bloomberg UTV
to know the overnight "result" of US markets!
12.40 midnight
==============
"It's gonna take time.
If I am in a tearing hurry to become rich,
If I am in a tearing hurry to make quick and lot of money,
it is entirely my problem!
I have to be realistic in my expectations from the market.
Need to accept that market can take care of my cashflow dreams but wealth is gonna take time.
It will surely come. But it will come like wisdom, like age, like seasons, like dreams, like surprises, like luck!
If I take care of today, the week will take care of itself. And that will take care of the months and years and decades and destiny and worries!!!
===============
01.10am
===============
I have to slow down.
I should not run like a scared dog
fearing that the markets may not be around the next morning!
I have to realise that market and trading should become a part of my routine.
I have to realise that my consciousness and self-flogging levels have to come down to comfort levels
Otherwise, i am likely to burn my "clutch plates"!
It is OK if profits are not raining!
It is OK if I am not profiting daily!
It is OK if I not in the list of top 1,00,000 weathy people in the world as yet!
It is OK if I am never able to make into that list ever!
It is OK.
It is OK.
It is OK.
================
02.33am
================
I should take the profits as bonus
as reward
as pension
as stipend
as pocket money
as surprise gifts
as a kiss of good fortune for the day
as a promise of life long friendship
as god's blessing
which will never cease to come
which will ensure that I will never be short of money I want for my toys and my belly!
I must not expect these profits as my salary
which must come in
on time, everytime, time after time!
I must treat the profit as a reminder to be happy
and not as a source of worry
I must not wait for these profits to pay my bills of life
nor should I treat these profits as bricks on the staircase to being wealthy!
I should consider myself wealthy right now with whatever I have!
I must treat the market as a life-long guardian who will keep giving me handsome "pocket money" to make me feel confident and secure and happy!
I must not treat the market as if it owes me money!
Market owes me nothing!
==================
03.28am
==================
If I am in a tearing hurry to become rich,
If I am in a tearing hurry to make quick and lot of money,
it is entirely my problem!
If I am fit to be wealthy
I will be wealthy one day!
And that destination will be less important than the journey till then!
Can't force make the opportunities!
Can't keep punishing me for missing the opportunities!
I have realised that it's gonna take time.
I have realised that I've to keep parallel life agenda alive!
Market can't be allowed to overwhelm me!
It is important but isn't and can't be everything.
I've got to have a life outside the market.
Decent opportunities come everyday or every other day but not all the time.
Lot of spare time is being thrown and it shouldn't be wasted!
Need to make a routine where I pick the trade like I pluck the ripe vegetables from my backyard garden. I need not eat,sleep and keep guard of my mini-farm all day!
==================
04.05am
==================
It's gonna take time!
It is not going to be over in one day or one week or one month!
It is now going to be with me for a lifetime!
Maintaining high levels of alertness and application can destroy my mental and physical heath.
Market is important but isn't and can't be everything.
Market is not my slave and neither should I be of hers!
She does what she wants to do & not what I expect of her!
My obsession has to end!
Fair two-way relation has to take over!
Market has started behaving like a spoilt child, like a spoilt beloved!
Sense needs to come back in the affair. Pampering has to stop. Life must go on!!!
It's gonna take time!
It all is a brilliant mirage.
It promises to quench my thirst around the next corner,
but it never does that fully!
It keeps teasing me and I keep letting it tease me!
I must put her to its rightful place.
I must pull her down from my head and on to the desk!
Need to look outside the window,
need to look at the sunshine,
need to look at the trees,
need to smell the grass outside...
===================
04.55am
===================
Market is just that...a market!
It is a hen which lays golden eggs every other day.
It won't and can't give me all the eggs at one go!
Got to keep her happy,
but can't marry her
for she is still a hen!
==================
06.00am
==================
alarm ringtone!!!!!!!!!!!!!!
the trader picks up the remote in half-sleep
switches on Bloomberg UTV
to know the overnight "result" of US markets!
Tuesday, July 20, 2010
How market beats us!
To understand how we lose in the market or how the market beats us
Let us have a look at how Garry Kasparov, the then world chess champion and arguably the best chess player of all times, beat Deep Thought and Deep Blue, two super chess programs in 1989, 1996 and 1997.
In 1989, Kasparov beat Deep Thought 2-0.
In 1996, Kasparov beat Deep Blue 3-1.
In 1997, in a re-match between Kasparov and improved Deep Blue, the computer won 3.5-2.5
In all three matches, Kasparov had beaten extremely developed super capability computer chess-programs which had database of 4000 openings, 7,00,000 grandmaster games and a library of six piece endgames and five or fewer piece positions.
The computer derived its playing strength mainly out of brute force computing power.
Mind you, the computer was actually a combination of 30 parallel computer nodes capable of evaluating 200 million positions per second.
It was 259th most powerful super computer on Earth.
To search and analyse moves to a depth of 6-7 moves burns as much energy in a chess player's mind in a 3-hour game as is burnt by a football player in a 90-minute match physically!!!
And Deep Blue could typically search to a depth of between 6-8 moves to a maximum of 20 or more moves in some situations.
That was simply impossible for a human mind to match.
Still, Kasparov beat it!!!
How?
Anti-computer tactics.
It is based on exploiting the weakness in the very strength of the computer.
- it's logical framework.
A computer is a monster of logic.
It is intelligent but not tactical.
It has I.Q. but not E.Q. (Emotional Quotient)
It can be fooled outside its program!!!
1) A seemingly "sub-optimal" move or set of moves can catch computer on the wrong foot!
2) In 1997, Kasparov fooled the computer by making an unusual opening move. By doing this, Kasparov "dragged" Deep blue out of its "database" experience!
3) Kasparov used double-fianchetto (hidden/covered bishops on the longest diagonals) to unleash a surprise hidden attack to blast computer's position. Here, Kasparov used the ability of the human mind to undertake surprise, rather shock, the opponent. This "scheming" ability is not there in the computers. Human mind is creative whereas computer program is responsive and repetitive.
4) On a number of occasions, Kasparov dodged the computer by misleading and misdirecting it! Kasparov's hidden agenda couldn't be smelled by the super computer! Computers are weak in handling and responding to unpredicted developments!
5) Kasparov never challenged Deep Thought as well as Deep Blue on the ability to calculate moves. He would have been a fool if he had done that! Instead, he attacked the weakness of his opponent - inability to be unorthodox, inability to adapt!
6) Kasparov befooled the computer by planning for something which was beyond the known depth of move calculation by the computer. This is known as the problem of "Horizon Effect" in the world of artificial intelligence.
....and so on
Since those days in 1997, computers have become more mosterous, and much more intelligent.
But since they are still the creation of man, they continue to lag human mind's abilities.
Till a computer gives birth to a computer, it can't beat a man!
Why did I share all this with you friends!
What message does it have for we stock traders?
= We traders are like Deep Thought and Deep Blue!!!!!!!
and the market is like Kasparov!!!!!!!!!!!!!
The market (Kasparov) keeps befooling us and keeps exploiting our mechanical behaviour!
Let us have a look at how Garry Kasparov, the then world chess champion and arguably the best chess player of all times, beat Deep Thought and Deep Blue, two super chess programs in 1989, 1996 and 1997.
In 1989, Kasparov beat Deep Thought 2-0.
In 1996, Kasparov beat Deep Blue 3-1.
In 1997, in a re-match between Kasparov and improved Deep Blue, the computer won 3.5-2.5
In all three matches, Kasparov had beaten extremely developed super capability computer chess-programs which had database of 4000 openings, 7,00,000 grandmaster games and a library of six piece endgames and five or fewer piece positions.
The computer derived its playing strength mainly out of brute force computing power.
Mind you, the computer was actually a combination of 30 parallel computer nodes capable of evaluating 200 million positions per second.
It was 259th most powerful super computer on Earth.
To search and analyse moves to a depth of 6-7 moves burns as much energy in a chess player's mind in a 3-hour game as is burnt by a football player in a 90-minute match physically!!!
And Deep Blue could typically search to a depth of between 6-8 moves to a maximum of 20 or more moves in some situations.
That was simply impossible for a human mind to match.
Still, Kasparov beat it!!!
How?
Anti-computer tactics.
It is based on exploiting the weakness in the very strength of the computer.
- it's logical framework.
A computer is a monster of logic.
It is intelligent but not tactical.
It has I.Q. but not E.Q. (Emotional Quotient)
It can be fooled outside its program!!!
1) A seemingly "sub-optimal" move or set of moves can catch computer on the wrong foot!
2) In 1997, Kasparov fooled the computer by making an unusual opening move. By doing this, Kasparov "dragged" Deep blue out of its "database" experience!
3) Kasparov used double-fianchetto (hidden/covered bishops on the longest diagonals) to unleash a surprise hidden attack to blast computer's position. Here, Kasparov used the ability of the human mind to undertake surprise, rather shock, the opponent. This "scheming" ability is not there in the computers. Human mind is creative whereas computer program is responsive and repetitive.
4) On a number of occasions, Kasparov dodged the computer by misleading and misdirecting it! Kasparov's hidden agenda couldn't be smelled by the super computer! Computers are weak in handling and responding to unpredicted developments!
5) Kasparov never challenged Deep Thought as well as Deep Blue on the ability to calculate moves. He would have been a fool if he had done that! Instead, he attacked the weakness of his opponent - inability to be unorthodox, inability to adapt!
6) Kasparov befooled the computer by planning for something which was beyond the known depth of move calculation by the computer. This is known as the problem of "Horizon Effect" in the world of artificial intelligence.
....and so on
Since those days in 1997, computers have become more mosterous, and much more intelligent.
But since they are still the creation of man, they continue to lag human mind's abilities.
Till a computer gives birth to a computer, it can't beat a man!
Why did I share all this with you friends!
What message does it have for we stock traders?
= We traders are like Deep Thought and Deep Blue!!!!!!!
and the market is like Kasparov!!!!!!!!!!!!!
The market (Kasparov) keeps befooling us and keeps exploiting our mechanical behaviour!
Lines of defence in trading!
Two and a half thousand years ago
Sun Tzu said
"Good fighters first put themselves beyond the possibility of defeat, and then wait for opportunity of defeating the enemy."
Anatoly Karpov, the legendary chess icon, was damn solid in defence. All he needed to do was wait for opportunity to invade and defeat the opponent's weak setup. Till then, he was sure that his defences couldn't be breached.
Great cricket batsmen like Clive Lloyd, Greenidge, Haynes, Gavaskar, Gooch, Border, Tendulkar and alike had solid defence. All they had to do was wait for a lose delivery to punish.
Every boxing coach first builds his trainee's defenses. He knows it very well that it is sheer stupidity in going for the offensive without first ensuring good defence. Going for attack always opens a window for counter attack.
Every football coach makes sure that first the defence is strong.
'Attack is the best form of defence' is true only when you are severely cornered and losing very badly.....when you are in a near hopeless situation.
Otherwise, you are only inviting the professional opponent to come and help you in committing suicide.
This is so true in stock trading as well.
Their are three fierce opponents against you in the market:
1) other trader
2) the very nature of the market itself, and
3) you yourself
What a pity that new innocent overconfident entrants walk straight into the trap with little or no defence.
All they think about is attack (trade).
Little or no focus on defence (when-what-how-why not to trade)!!!
Since there is no tradition of "coaching" in trading unlike in boxing, cricket, football etc. the new traders understand it too late
that adequate back-up funds is the first line of defence
that a 'method' (and not 'wishful trading') is the second line of defence
that patience to wait till the opportunity is the third line of defence
that not taking anti-rally anti-trend position is the fourth line of defence
that trading with one's own understanding is the fifth line of defence
that mental toughness and emotional stability in volatility is the sixth line of defence
that experience whether bitter or sweet is the cushion layer of defence
that 'stop loss' is the last and most reliable line of defence
As they say,
in stock market,
all you have to do is ensure that you don't lose
profits come by default if you are doing the right things.
"To secure ourselves against defeat lies in our own hands, but the opportunity of defeating the enemy is provided by the enemy himself." - Sun Tzu
Sun Tzu said
"Good fighters first put themselves beyond the possibility of defeat, and then wait for opportunity of defeating the enemy."
Anatoly Karpov, the legendary chess icon, was damn solid in defence. All he needed to do was wait for opportunity to invade and defeat the opponent's weak setup. Till then, he was sure that his defences couldn't be breached.
Great cricket batsmen like Clive Lloyd, Greenidge, Haynes, Gavaskar, Gooch, Border, Tendulkar and alike had solid defence. All they had to do was wait for a lose delivery to punish.
Every boxing coach first builds his trainee's defenses. He knows it very well that it is sheer stupidity in going for the offensive without first ensuring good defence. Going for attack always opens a window for counter attack.
Every football coach makes sure that first the defence is strong.
'Attack is the best form of defence' is true only when you are severely cornered and losing very badly.....when you are in a near hopeless situation.
Otherwise, you are only inviting the professional opponent to come and help you in committing suicide.
This is so true in stock trading as well.
Their are three fierce opponents against you in the market:
1) other trader
2) the very nature of the market itself, and
3) you yourself
What a pity that new innocent overconfident entrants walk straight into the trap with little or no defence.
All they think about is attack (trade).
Little or no focus on defence (when-what-how-why not to trade)!!!
Since there is no tradition of "coaching" in trading unlike in boxing, cricket, football etc. the new traders understand it too late
that adequate back-up funds is the first line of defence
that a 'method' (and not 'wishful trading') is the second line of defence
that patience to wait till the opportunity is the third line of defence
that not taking anti-rally anti-trend position is the fourth line of defence
that trading with one's own understanding is the fifth line of defence
that mental toughness and emotional stability in volatility is the sixth line of defence
that experience whether bitter or sweet is the cushion layer of defence
that 'stop loss' is the last and most reliable line of defence
As they say,
in stock market,
all you have to do is ensure that you don't lose
profits come by default if you are doing the right things.
"To secure ourselves against defeat lies in our own hands, but the opportunity of defeating the enemy is provided by the enemy himself." - Sun Tzu
Sunday, July 18, 2010
What's your Achilles' Heel?
Achilles was a great Greek hero warrior.
When he was born his mother made him invulnerable (like our own Duryodhana of Mahabharta) by dipping him upside down in the magical river Styx.
But he remained vulnerable at the heel where his mother held him by, as the water of the magical river couldn't touch him there!
Achilles was killed in the famous Trojan War when an enemy shot a poisoned arrow into his heel.
Thus, Achilles' heel became an idiom which means a person's particular weakness, where he is vulnerable.
Everyone, especially the stock trader, and particularly the one who hasn't gone thru the toughness process as yet, has an Achilles' heel.
And it shows up at the most unwanted time.
Stock market is a pressure cooker and the trader's Achilles' heel blows the whistle.
My Achilles' heel is 'my extreme discomfort in shorting'.
Initially, I tried hard to overcome this.
I fought hard, tried hard.
But it remained, like that of the Greek hero warrior!
Then one day I read somewhere that instead of worrying about and fighting with one's irrepressible weaknesses and limitations, one should always try to build on his/her strengths.
I decided to realize and acknowledge my Achilles' heel before a "poisonous arrow" came and hit there!
Then and there, I acknowledged my Achilles' heel and stopped fighting it.
Now, I always keep it away from the eyes of the "enemy" shark traders.
Identify your Achilles' heel, acknowledge it and focus on your strengths.
When he was born his mother made him invulnerable (like our own Duryodhana of Mahabharta) by dipping him upside down in the magical river Styx.
But he remained vulnerable at the heel where his mother held him by, as the water of the magical river couldn't touch him there!
Achilles was killed in the famous Trojan War when an enemy shot a poisoned arrow into his heel.
Thus, Achilles' heel became an idiom which means a person's particular weakness, where he is vulnerable.
Everyone, especially the stock trader, and particularly the one who hasn't gone thru the toughness process as yet, has an Achilles' heel.
And it shows up at the most unwanted time.
Stock market is a pressure cooker and the trader's Achilles' heel blows the whistle.
My Achilles' heel is 'my extreme discomfort in shorting'.
Initially, I tried hard to overcome this.
I fought hard, tried hard.
But it remained, like that of the Greek hero warrior!
Then one day I read somewhere that instead of worrying about and fighting with one's irrepressible weaknesses and limitations, one should always try to build on his/her strengths.
I decided to realize and acknowledge my Achilles' heel before a "poisonous arrow" came and hit there!
Then and there, I acknowledged my Achilles' heel and stopped fighting it.
Now, I always keep it away from the eyes of the "enemy" shark traders.
Identify your Achilles' heel, acknowledge it and focus on your strengths.
Saturday, July 17, 2010
Fundamentally Technical !!!
Recently I came across an elderly trader in the terminal room of Consortium Securities at Shimla.
The gentleman with grey hair is widely respected in the city for his consistency in making money in stock trading.
I said hello to him, introduced my self and asked whether he traded on the basis of fundamentals or technicals.
I wish to share with you the interesting answer I got from him.
"I am Fundamentally Technical !", he said, and smiled!
I was surely amused.
But, like the sayings of sufi saints and fakirs, I knew that he had a strong hidden meaning in what he uttered.
"How, Sir?" I asked, leaning forward in my chair.
"Singh Saab! I don't do anything new.
All I do is keep on listening to what every expert on TV channels has to say.
Whether at home or here, I keep glued to the Business TV channels during market hours.
I listen to what everybody is saying!
After a while, I always figure out the sectors and stocks which are showing fundamental strength.
Out of these, I shortlist a few whose strength is not temporary and is likely to continue!
Similarly, I shortlist the sectors and stocks which are weak and their weakness is likely to continue!
Thereafter, all I do is this.
I keep shorting the fundamentally weak stocks on every overbought position on 1-month chart.
and keep taking long position in the fundamentally strong stocks on every oversold position on 1-month chart.
I use RSI, Willaim%R and MACD to pin point oversold and overbought conditions.
The opportunity to short weak stocks also arises typically when the market "gaps-up",
and so does the opportunity to long strong stocks when the market "gaps-down."
I always keep my list of stocks and sectors showing strength or weakness updated.
This way, I shortlist my target stocks on the basis of fundamentals discussed by experts on TV
and enter the trade on the basis of technical signals.
Since I am on the right side of both fundamentals as well as technicals, my trades rarely go bad."
The gentleman with grey hair is widely respected in the city for his consistency in making money in stock trading.
I said hello to him, introduced my self and asked whether he traded on the basis of fundamentals or technicals.
I wish to share with you the interesting answer I got from him.
"I am Fundamentally Technical !", he said, and smiled!
I was surely amused.
But, like the sayings of sufi saints and fakirs, I knew that he had a strong hidden meaning in what he uttered.
"How, Sir?" I asked, leaning forward in my chair.
"Singh Saab! I don't do anything new.
All I do is keep on listening to what every expert on TV channels has to say.
Whether at home or here, I keep glued to the Business TV channels during market hours.
I listen to what everybody is saying!
After a while, I always figure out the sectors and stocks which are showing fundamental strength.
Out of these, I shortlist a few whose strength is not temporary and is likely to continue!
Similarly, I shortlist the sectors and stocks which are weak and their weakness is likely to continue!
Thereafter, all I do is this.
I keep shorting the fundamentally weak stocks on every overbought position on 1-month chart.
and keep taking long position in the fundamentally strong stocks on every oversold position on 1-month chart.
I use RSI, Willaim%R and MACD to pin point oversold and overbought conditions.
The opportunity to short weak stocks also arises typically when the market "gaps-up",
and so does the opportunity to long strong stocks when the market "gaps-down."
I always keep my list of stocks and sectors showing strength or weakness updated.
This way, I shortlist my target stocks on the basis of fundamentals discussed by experts on TV
and enter the trade on the basis of technical signals.
Since I am on the right side of both fundamentals as well as technicals, my trades rarely go bad."
Thursday, July 15, 2010
How to buy anything for peanuts!
This "self-offer" is valid only for traders who have graduated in the art and science of stock trading.
Those who have been consistently and easily getting atleast 5% per month return from trading.
And those who have sufficient back-up emergency funds, in case....
This has already been implemented by one of my colleague (who is a mature stock trader).
He has been trading with a dedicated capital of Rs. 10 lacs.
He has just "bought" a brand new Scorpio worth Rs.9,89,000/- in just "3 lacs"!
Let me explain how he has "done it"!
He had Rs.7 lacs available with him to buy Scorpio.
He gave 3 lacs margin money to the finance company and gave 60 Monthly Post Dated Cheques of Rs.17,225/- each.
He added the balance 4 lacs to his trading capital of 10 lacs (total capital becomes 14 lac now!).
Since he has been regularly getting 5-10% returns on the capital employed every month
he would be now getting 20-40000 per month more from trading due to the increase in the fund.
This would be more than enough to pay every EMI.
After 5 years (60 months), he would have paid his entire loan with interest out of trading returns from the "extra trading fund".
Also, the surplus returns (which is likely to get as he has been earning more than 5%pm many a times)
will more than take care of the inflation effect on the extra fund of Rs.4 lacs.
After 5 years the "extra trading fund" will become part of the normal trading fund.
Had he not gone this route, he would have been left with nothing out of Rs.4 lac "extra" fund except some interest.
The same way, a mature trader can buy a house or any other asset at a portion of the real cost!
This is just one of the preactical benefits of learning and mastering stock trading.
Those who have been consistently and easily getting atleast 5% per month return from trading.
And those who have sufficient back-up emergency funds, in case....
This has already been implemented by one of my colleague (who is a mature stock trader).
He has been trading with a dedicated capital of Rs. 10 lacs.
He has just "bought" a brand new Scorpio worth Rs.9,89,000/- in just "3 lacs"!
Let me explain how he has "done it"!
He had Rs.7 lacs available with him to buy Scorpio.
He gave 3 lacs margin money to the finance company and gave 60 Monthly Post Dated Cheques of Rs.17,225/- each.
He added the balance 4 lacs to his trading capital of 10 lacs (total capital becomes 14 lac now!).
Since he has been regularly getting 5-10% returns on the capital employed every month
he would be now getting 20-40000 per month more from trading due to the increase in the fund.
This would be more than enough to pay every EMI.
After 5 years (60 months), he would have paid his entire loan with interest out of trading returns from the "extra trading fund".
Also, the surplus returns (which is likely to get as he has been earning more than 5%pm many a times)
will more than take care of the inflation effect on the extra fund of Rs.4 lacs.
After 5 years the "extra trading fund" will become part of the normal trading fund.
Had he not gone this route, he would have been left with nothing out of Rs.4 lac "extra" fund except some interest.
The same way, a mature trader can buy a house or any other asset at a portion of the real cost!
This is just one of the preactical benefits of learning and mastering stock trading.
Wednesday, July 14, 2010
Have a break!
One of my friends in Delhi goes every year for annual family holidays of around 1-2 weeks.
He has never broken this routine "since 2002".
Each year this grand recreation and rejouvenation costs him around 50000 bucks.
This year he went to Chamba and Dalhousie in Himachal.
The family had a great time!
The photos he has sent me tell the whole story.
I called him yesterday after receiving the photos.
One of the thing that I couldn't resist asking him was
"How do fund your amazing vacations every year despite so many responsibilities at home?"
"It is a secret, Jagmohan!" is all he said and tried to change the topic.
I asked him again after a while and then he shared his "method".
"Every year I invest 1 to 1.5 lac bucks, in parts, in fundamentally good companies which are going thru cyclic downs or those having temporary bad times or those going thru off-season."
"And then I leave them alone. Literally."
"I have a look at their value only at the change of the season. For example, if I have invested in winters, I don't bother to look at them till Autumn. If I have invested in Spring, I rarely feel like looking at it till Winter!"
"When we feel like having a vacation I just have a look at the value of my special portfolio."
"6 times in past 7 years, the returns have ranged from 30% to 70%. Only in 2008, it was negative. I just shuffled the portfolio and waited and decided to opt for surplus funds from precious years to go to Rajasthan in winter."
"Last year I got a booty which we blew-off at Chamba last month and are still left with good amount"
"I have reinvested in Reliance Industries, Bharti Airtel and DLF last month."
"Next year we wish to go to Leh"
He has never broken this routine "since 2002".
Each year this grand recreation and rejouvenation costs him around 50000 bucks.
This year he went to Chamba and Dalhousie in Himachal.
The family had a great time!
The photos he has sent me tell the whole story.
I called him yesterday after receiving the photos.
One of the thing that I couldn't resist asking him was
"How do fund your amazing vacations every year despite so many responsibilities at home?"
"It is a secret, Jagmohan!" is all he said and tried to change the topic.
I asked him again after a while and then he shared his "method".
"Every year I invest 1 to 1.5 lac bucks, in parts, in fundamentally good companies which are going thru cyclic downs or those having temporary bad times or those going thru off-season."
"And then I leave them alone. Literally."
"I have a look at their value only at the change of the season. For example, if I have invested in winters, I don't bother to look at them till Autumn. If I have invested in Spring, I rarely feel like looking at it till Winter!"
"When we feel like having a vacation I just have a look at the value of my special portfolio."
"6 times in past 7 years, the returns have ranged from 30% to 70%. Only in 2008, it was negative. I just shuffled the portfolio and waited and decided to opt for surplus funds from precious years to go to Rajasthan in winter."
"Last year I got a booty which we blew-off at Chamba last month and are still left with good amount"
"I have reinvested in Reliance Industries, Bharti Airtel and DLF last month."
"Next year we wish to go to Leh"
Tuesday, July 13, 2010
Disclaimer=!@#$%^&*()....
A trader was new to market.
He didn't know much about trading but wanted to make "a lot of money".
Since learning would have taken "a lot of time"
he decided to "buy professional help".
The next day I saw him in the trading jungle.
He was riding a tiger (highly leveraged risky position).
Margin deposited by him to ride the tiger = his life (his lifetime of savings).
He was still happy.
I silently waved at him to ask what the hell he was doing!!!
"You don't know how to handle a dog and you are riding the tiger!", I whispered with shocked eyes!
He just showed me his mobile phone.
I saw a series of sms tips from a brokerage house.
"Jump on the Tiger. Disclaimer=!@#$%^&*()"
"Now sit tight on the Tiger! Disclaimer=!@#$%^&*()"
"Now turn left by pulling his left ear. Disclaimer=!@#$%^&*()"
"Now turn right by pulling his right ear. Disclaimer=!@#$%^&*()"
"Don't worry if the Tiger is roaring. He is bluffing. Disclaimer=!@#$%^&*()"
"Don't worry if he knocks you down. He won't do anything as per our research. Disclaimer=!@#$%^&*()"
"If he is looking directly in your eyes, wait for the trend. Disclaimer=!@#$%^&*()"
"If he runs after you, maintain strict stop loss. Disclaimer=!@#$%^&*()"
Next day I found him dead.
I picked up his phone, went to his message box and saw
"Disclaimer=!@#$%^&*()"
---------------------------------------------------------
Morals of the story :
1. "In the past, those who foolishly sought power by riding on the back of the tiger ended up inside." - John F. Kennedy"
2. If you must ride a tiger on somebody's tip, know the crucial things yourself too.
He didn't know much about trading but wanted to make "a lot of money".
Since learning would have taken "a lot of time"
he decided to "buy professional help".
The next day I saw him in the trading jungle.
He was riding a tiger (highly leveraged risky position).
Margin deposited by him to ride the tiger = his life (his lifetime of savings).
He was still happy.
I silently waved at him to ask what the hell he was doing!!!
"You don't know how to handle a dog and you are riding the tiger!", I whispered with shocked eyes!
He just showed me his mobile phone.
I saw a series of sms tips from a brokerage house.
"Jump on the Tiger. Disclaimer=!@#$%^&*()"
"Now sit tight on the Tiger! Disclaimer=!@#$%^&*()"
"Now turn left by pulling his left ear. Disclaimer=!@#$%^&*()"
"Now turn right by pulling his right ear. Disclaimer=!@#$%^&*()"
"Don't worry if the Tiger is roaring. He is bluffing. Disclaimer=!@#$%^&*()"
"Don't worry if he knocks you down. He won't do anything as per our research. Disclaimer=!@#$%^&*()"
"If he is looking directly in your eyes, wait for the trend. Disclaimer=!@#$%^&*()"
"If he runs after you, maintain strict stop loss. Disclaimer=!@#$%^&*()"
Next day I found him dead.
I picked up his phone, went to his message box and saw
"Disclaimer=!@#$%^&*()"
---------------------------------------------------------
Morals of the story :
1. "In the past, those who foolishly sought power by riding on the back of the tiger ended up inside." - John F. Kennedy"
2. If you must ride a tiger on somebody's tip, know the crucial things yourself too.
Sunday, July 11, 2010
Turning points in my stock trading career
I remember a beautiful quotation I had heard long long ago
"There is no real advancement without a crisis."
How true!
We hate crisis.
It is painful.
It almost knocks you out of the game.
But crisis is also symbolic of an approaching next level.
We buckle and we are left on this side of the crisis.
We survive the crisis and we enter the next level!
It isn't easy.
Its like new life.
Its like passing thru labour pains.
My journey in stock trading too has been from crisis to crisis.
Every crisis was like a slap, like a hit, like a scolding!
Being human, every crisis was hard on me.
But, as they say, there is always a day-after-tomorrow.
After one or two days, and sometimes just after a few hours, I always used to realise my mistake, my ignorance!
Thank God! I never stopped thinking.
As Marie Curie had said
"Nothing in this world is to be feared, but to be understood"
I tried to understand the things - right as well as wrong.
I always tried to challenge almost every idea and thought and method.
Gradually, the crises became fewer and smaller and higher!
Every now or then i stumbled across something which would change the way I traded.
From pure random trading, I started trading according to some rules....
I realised that I was not good at certain styles of trading,
I also realised that I couldn't be a master of everything,
I realised that many things didn't fit my emotional and financial setup,
I realised that sticking to certain rules made trading less painful and more profitable,
I realised that to trade effectively I needed to focus on select trading areas.
Stock trading is a sea.
Thousands of stocks.
Dozens of segments.
Delivery, Futures, Options.
Investing, Swinging, Day trading.
Shorting, Longing, Hedging.
Forex, Commodities, Stocks.
Hundreds of indicators.
Dozens of theories.
Hundreds of trading techniques and tactics.
Innumerable situations.
I realised that the more I wandered, the more I will be lost in the jungle.
I had to limit myself.
I had to focus on select things.
Things I was good at.
Things that were working for me.
This resulted in some crucial decisions, some crucial turning points
that made my progress in stock market irreversible,
that made my losses reduce dramatically,
that helped me finally get profits,
that helped me be 'in control' rather than 'being controlled'
Given below are those turning points, mile stones, crucial decisions.
Some were by choice, others were accidental and incidental.
1) Decision to trade only in nifty
Money doesn't know where it has been invested. Nifty and all indices are easier to predict. I have discussed this in detail in my post "Why I prefer to trade only in Nifty"
2) Decision to trade only with sufficient buffer to hold my positions in case of a disaster.
I started sleeping sound after this decision. Before this I used to get nightmares of "circuits".
I remember, a top stunt performer in Hollywood had once said in his interview "Performing stunts without foolproof safety is stupidity".
3) Decision not to short.
I was initially never comfortable with shorting. I still am not. Though I don't mind shorting in down-trends. Nevertheless, this decision helped me plug the major cause of my confidence leakage.
My losses reduced dramatically with this decision.
4) Decision to focus on my favourite indicators only
Trading without indicators is like walking on the mountains with eyes closed.
The day I stopped trading without indicators ensured that I will not go bankrupt.
After that surety was there came another dilemma - which indicators to focus on?
There were too many.
Initially I learnt a lot of them. Moving Averages, Trix, Mass Index, Bollinger Bands, RSI, Stocastics, Willaim%R, SAR, MACD and many many more...
But then I realised that like 'any road to God is ok', i should focus on one or a few indicators only.
RSI, Willaim%R and SAR are my top favourites. Though there are some other select super tools as well.
5) Discovery of Google Finance charts
Earlier I used to work with bseindia and y a h o o charts.
Then one day I came across google finance charts. (Earlier I had thought google was just into search engine. Today everyone knows that google is almost everywhere and still going).
And what a discovery it has been for me!
Google charts are almost live for nse, they are flexible and the least count of display is amazing.
What is not visible in other charts is magnified in google charts.
RSI and William%R look xerox of each other in other charts. But in google finance charts, both are dramatically different.
Every contour comes out so sharply and differently!
Though I feel that number of indicators in the options there should be more, yet Google finance discovery made one of the biggets changes in my trading career.
6) Decision not to invest or day trade, but swing trade.
I didn't have patience for investing.
Many traders like me are in too hurry to be investor.
I once read somewhere that till you are a millionaire, you should be a trader. Thereafter, you should be an investor.
Day trading, to me, is the game of the scared goats being chased by blood-hound operators.
Swing was my game - I realised. 2-5 days game gave me more control....and money.
7) Realisation of potential of BTST
People fear BTST, but I consider it the best, fastest and safest opportunity if we have done our homework.
Rishant Verma proved this with a hammer! He is the best!
8) Realising the importance of emotional stability and practice
Emotionally scared as well as excited emotional sheep walk right into the mouth of thankless emotionless lions!
9) Decision to trade only opportunities and not trade all the time
=80% of the profits come from 20% of the opportunities, and
Rest 80% of rest trading opportunities result in majority of the losses
10) Decision to never be worried about having missed the train.
A mentioned in my post "Cool advice of Uncle chips", I realised that whether nifty is at 500 or 50000, trading opportunities will always be there. Forget about the missed train. Next (metro train) is always coming around the bend. Never run after the missed one.
11) Resolve to take loss as the fees to "buy" a lesson!
and resolving to never repeat the same mistake.
12) Maintaing my notes
What is not recorded is lost after a few days.
My posts in mudraa as well as in my blog are my fossilized notes that will never be lost.
13) Trade only long in up-trends, only short in down-trends and long as well as short in ranging markets.
This has given jet thrust to my trading. And I am loving it!
14) A big turning point was my decision to use combination of rsi and william%r charts, decision to buy when both are at extremes simultaneously, decision to read both on 1 month chart and both with 14/30min reading did wonders for me.
All of a sudden, it propelled me into the next league of results!
15) I decided to reverse my 3rd and 9th decision mentioned above.
Perhaps this was an indicator of my growing confidence and technique.
16) When I came to know that CNX-IT and Bank nifty lot size have been halved, I was thrilled.
All this while I had to wait whenever the signal to buy or sell nifty was not there. I had always noted that timing of IT and Bank index funds was different from that of Nifty.
Thus these could have been traded had the lot size been lesser. (I was less comfortable in taking 5-6 lac position as compared to 2.5 lacs in Nifty).
The reduction of lot size of CNX-IT and Bank Nifty resulted in my having 3 options to choose.
This way I could trade more with obvious benefits.
17) I crossed a major hurdle in climbing the market everest when I decided to take bigger and longer positional calls. Earlier I used to book profit when it was too big to lose! Now, I changed the criteria to staying in the trade till there was an upside left.
18) The next turning point came when I decided that I will do a SAR (i.e. always staying in the market, be it long or short) using rsi (supported by William%R).
This became possible when I cracked the code of successfully anticipating the turning points.
I realised that turning points were different in rally and sell-offs/buy-ins! Whenever the rise or fall happened in steps, it was a rally. And whenever it rose or fell sharply (almost straight, with hardly any considerable hump) it was a sell-off or buy-in and NOT a rally.
I noticed that a rally always ended after after divergence between priceline and rsi. so found it safe to reverse position at the lower high (in case of the end of a bull run) or higher low (in case of the end of a bear run).
And in case of a sell-off/buy-in, I found that reversal happened at the time of rsi reaching the extreme. In such cases, no divergence takes place.
With this "always in the market" step, I was able to milk the market fluctuation to the max.
"There is no real advancement without a crisis."
How true!
We hate crisis.
It is painful.
It almost knocks you out of the game.
But crisis is also symbolic of an approaching next level.
We buckle and we are left on this side of the crisis.
We survive the crisis and we enter the next level!
It isn't easy.
Its like new life.
Its like passing thru labour pains.
My journey in stock trading too has been from crisis to crisis.
Every crisis was like a slap, like a hit, like a scolding!
Being human, every crisis was hard on me.
But, as they say, there is always a day-after-tomorrow.
After one or two days, and sometimes just after a few hours, I always used to realise my mistake, my ignorance!
Thank God! I never stopped thinking.
As Marie Curie had said
"Nothing in this world is to be feared, but to be understood"
I tried to understand the things - right as well as wrong.
I always tried to challenge almost every idea and thought and method.
Gradually, the crises became fewer and smaller and higher!
Every now or then i stumbled across something which would change the way I traded.
From pure random trading, I started trading according to some rules....
I realised that I was not good at certain styles of trading,
I also realised that I couldn't be a master of everything,
I realised that many things didn't fit my emotional and financial setup,
I realised that sticking to certain rules made trading less painful and more profitable,
I realised that to trade effectively I needed to focus on select trading areas.
Stock trading is a sea.
Thousands of stocks.
Dozens of segments.
Delivery, Futures, Options.
Investing, Swinging, Day trading.
Shorting, Longing, Hedging.
Forex, Commodities, Stocks.
Hundreds of indicators.
Dozens of theories.
Hundreds of trading techniques and tactics.
Innumerable situations.
I realised that the more I wandered, the more I will be lost in the jungle.
I had to limit myself.
I had to focus on select things.
Things I was good at.
Things that were working for me.
This resulted in some crucial decisions, some crucial turning points
that made my progress in stock market irreversible,
that made my losses reduce dramatically,
that helped me finally get profits,
that helped me be 'in control' rather than 'being controlled'
Given below are those turning points, mile stones, crucial decisions.
Some were by choice, others were accidental and incidental.
1) Decision to trade only in nifty
Money doesn't know where it has been invested. Nifty and all indices are easier to predict. I have discussed this in detail in my post "Why I prefer to trade only in Nifty"
2) Decision to trade only with sufficient buffer to hold my positions in case of a disaster.
I started sleeping sound after this decision. Before this I used to get nightmares of "circuits".
I remember, a top stunt performer in Hollywood had once said in his interview "Performing stunts without foolproof safety is stupidity".
3) Decision not to short.
I was initially never comfortable with shorting. I still am not. Though I don't mind shorting in down-trends. Nevertheless, this decision helped me plug the major cause of my confidence leakage.
My losses reduced dramatically with this decision.
4) Decision to focus on my favourite indicators only
Trading without indicators is like walking on the mountains with eyes closed.
The day I stopped trading without indicators ensured that I will not go bankrupt.
After that surety was there came another dilemma - which indicators to focus on?
There were too many.
Initially I learnt a lot of them. Moving Averages, Trix, Mass Index, Bollinger Bands, RSI, Stocastics, Willaim%R, SAR, MACD and many many more...
But then I realised that like 'any road to God is ok', i should focus on one or a few indicators only.
RSI, Willaim%R and SAR are my top favourites. Though there are some other select super tools as well.
5) Discovery of Google Finance charts
Earlier I used to work with bseindia and y a h o o charts.
Then one day I came across google finance charts. (Earlier I had thought google was just into search engine. Today everyone knows that google is almost everywhere and still going).
And what a discovery it has been for me!
Google charts are almost live for nse, they are flexible and the least count of display is amazing.
What is not visible in other charts is magnified in google charts.
RSI and William%R look xerox of each other in other charts. But in google finance charts, both are dramatically different.
Every contour comes out so sharply and differently!
Though I feel that number of indicators in the options there should be more, yet Google finance discovery made one of the biggets changes in my trading career.
6) Decision not to invest or day trade, but swing trade.
I didn't have patience for investing.
Many traders like me are in too hurry to be investor.
I once read somewhere that till you are a millionaire, you should be a trader. Thereafter, you should be an investor.
Day trading, to me, is the game of the scared goats being chased by blood-hound operators.
Swing was my game - I realised. 2-5 days game gave me more control....and money.
7) Realisation of potential of BTST
People fear BTST, but I consider it the best, fastest and safest opportunity if we have done our homework.
Rishant Verma proved this with a hammer! He is the best!
8) Realising the importance of emotional stability and practice
Emotionally scared as well as excited emotional sheep walk right into the mouth of thankless emotionless lions!
9) Decision to trade only opportunities and not trade all the time
=80% of the profits come from 20% of the opportunities, and
Rest 80% of rest trading opportunities result in majority of the losses
10) Decision to never be worried about having missed the train.
A mentioned in my post "Cool advice of Uncle chips", I realised that whether nifty is at 500 or 50000, trading opportunities will always be there. Forget about the missed train. Next (metro train) is always coming around the bend. Never run after the missed one.
11) Resolve to take loss as the fees to "buy" a lesson!
and resolving to never repeat the same mistake.
12) Maintaing my notes
What is not recorded is lost after a few days.
My posts in mudraa as well as in my blog are my fossilized notes that will never be lost.
13) Trade only long in up-trends, only short in down-trends and long as well as short in ranging markets.
This has given jet thrust to my trading. And I am loving it!
14) A big turning point was my decision to use combination of rsi and william%r charts, decision to buy when both are at extremes simultaneously, decision to read both on 1 month chart and both with 14/30min reading did wonders for me.
All of a sudden, it propelled me into the next league of results!
15) I decided to reverse my 3rd and 9th decision mentioned above.
Perhaps this was an indicator of my growing confidence and technique.
16) When I came to know that CNX-IT and Bank nifty lot size have been halved, I was thrilled.
All this while I had to wait whenever the signal to buy or sell nifty was not there. I had always noted that timing of IT and Bank index funds was different from that of Nifty.
Thus these could have been traded had the lot size been lesser. (I was less comfortable in taking 5-6 lac position as compared to 2.5 lacs in Nifty).
The reduction of lot size of CNX-IT and Bank Nifty resulted in my having 3 options to choose.
This way I could trade more with obvious benefits.
17) I crossed a major hurdle in climbing the market everest when I decided to take bigger and longer positional calls. Earlier I used to book profit when it was too big to lose! Now, I changed the criteria to staying in the trade till there was an upside left.
18) The next turning point came when I decided that I will do a SAR (i.e. always staying in the market, be it long or short) using rsi (supported by William%R).
This became possible when I cracked the code of successfully anticipating the turning points.
I realised that turning points were different in rally and sell-offs/buy-ins! Whenever the rise or fall happened in steps, it was a rally. And whenever it rose or fell sharply (almost straight, with hardly any considerable hump) it was a sell-off or buy-in and NOT a rally.
I noticed that a rally always ended after after divergence between priceline and rsi. so found it safe to reverse position at the lower high (in case of the end of a bull run) or higher low (in case of the end of a bear run).
And in case of a sell-off/buy-in, I found that reversal happened at the time of rsi reaching the extreme. In such cases, no divergence takes place.
With this "always in the market" step, I was able to milk the market fluctuation to the max.
Saturday, July 10, 2010
101 ways to know the current trend
There are 101 ways to know the current trend.
1st one is common-sense gut-feeling observation.
6 more are given below.
Rest 94 can be shared by fellow traders.
2. RSI
= When RSI 14/1d on 3 month or 6 month chart is moving from lower boundary towards upper boundary the trend is up. When reverse is the case, the trend is down.
3. SAR
= When on 1 month or 3 month chart, SAR (Stop And Reverse) dots are below the priceline, the trend is up. Otherwise, the trend is down.
4. EMA 34/8
= When EMA 34 line is below the priceline, the trend is up. Otherwise, the trend is down.
5. Higher high, higher low
= When the priceline is making higher highs and higher lows the trend is up. When it is making lower highs and lower lows, the trend is down.
6. Premium / Discount
= Till the Nifty futures premium is substantially higher than the spot, the trend is up.
When it is substantially lower than the spot, the trend is down.
7. Experts on TV
= This is the easiest of all. Even easier than the common-sense observation. Just switch on any business tv channel in the morning before the market opens. The experts on air may not be predicting the stock or market movement for the day right but they certainly have a good idea about the trend.
Combination of more than one ways can estimate the trend more accurately.
1st one is common-sense gut-feeling observation.
6 more are given below.
Rest 94 can be shared by fellow traders.
2. RSI
= When RSI 14/1d on 3 month or 6 month chart is moving from lower boundary towards upper boundary the trend is up. When reverse is the case, the trend is down.
3. SAR
= When on 1 month or 3 month chart, SAR (Stop And Reverse) dots are below the priceline, the trend is up. Otherwise, the trend is down.
4. EMA 34/8
= When EMA 34 line is below the priceline, the trend is up. Otherwise, the trend is down.
5. Higher high, higher low
= When the priceline is making higher highs and higher lows the trend is up. When it is making lower highs and lower lows, the trend is down.
6. Premium / Discount
= Till the Nifty futures premium is substantially higher than the spot, the trend is up.
When it is substantially lower than the spot, the trend is down.
7. Experts on TV
= This is the easiest of all. Even easier than the common-sense observation. Just switch on any business tv channel in the morning before the market opens. The experts on air may not be predicting the stock or market movement for the day right but they certainly have a good idea about the trend.
Combination of more than one ways can estimate the trend more accurately.
Trade with Mr.William
A) In an up-trend
Buy when William % R on 1 month chart (default value 10) crosses above 80
and
just starts to decline after making a "^" peak or plateu!
Book profit as per your comfort level or when trend ends.
(avoid shorting in up-trend)
-------------------------------------------------
B) In a down-trend
Short when the said William % R crosses below 20
and
just starts to rise after making a "V" or "U" turn!
Book profit as per your comfort level or when trend ends.
(avoid going long in down-trend)
-------------------------------------------------
C) In a range-bound market
Buy when William % R crosses above 80
and
just starts to decline after making a "^" peak or plateu!
Short when William % R crosses below 20
and
just starts to rise after making a "V" or "U" turn!
Book profit as per your comfort level or when trend ends.
(don't hesitate to short or long in rangebound or weak-trend markets)
-------------------------------------------------
This method is particularly effective and accurate with Nifty or any index.
-------------------------------------------------
How to get graph with William % R?
A) go to website (http://www.google.com/finance?q=NSE:.NSEI)
for stock pl search stock in the column before "Get Quotes". These google finance charts give almost live quotes for NSE (BSE is delayed).
B) click on '1m' inside graph window
C) click on "technicals" below graph window.
D) Click on "add technical"
E) Select William % R (10/30min default value will appear automatically)
F) You are ready!
--------------------------------------------------
Critical factor = You have to be sure about the trend!
Buy when William % R on 1 month chart (default value 10) crosses above 80
and
just starts to decline after making a "^" peak or plateu!
Book profit as per your comfort level or when trend ends.
(avoid shorting in up-trend)
-------------------------------------------------
B) In a down-trend
Short when the said William % R crosses below 20
and
just starts to rise after making a "V" or "U" turn!
Book profit as per your comfort level or when trend ends.
(avoid going long in down-trend)
-------------------------------------------------
C) In a range-bound market
Buy when William % R crosses above 80
and
just starts to decline after making a "^" peak or plateu!
Short when William % R crosses below 20
and
just starts to rise after making a "V" or "U" turn!
Book profit as per your comfort level or when trend ends.
(don't hesitate to short or long in rangebound or weak-trend markets)
-------------------------------------------------
This method is particularly effective and accurate with Nifty or any index.
-------------------------------------------------
How to get graph with William % R?
A) go to website (http://www.google.com/finance?q=NSE:.NSEI)
for stock pl search stock in the column before "Get Quotes". These google finance charts give almost live quotes for NSE (BSE is delayed).
B) click on '1m' inside graph window
C) click on "technicals" below graph window.
D) Click on "add technical"
E) Select William % R (10/30min default value will appear automatically)
F) You are ready!
--------------------------------------------------
Critical factor = You have to be sure about the trend!
My journey in stock market till now
I got interested in stock market in October 2003.
I opened my initial demat accounts in January 2004 with Consortium Securities and ICICI
Securities.
For almost 2-3 months I kept on studying about the stock trading thru notes downloaded from internet.
Then I started trading with very small capital.
I used my ICICI account for online trading and Consortium account for trading thru phone.
For around 3 years I kept on trading alternatively like a scared goat and a street dog.
Sometimes I made some profit, many times I ran into loss.
My learning graph was not rising all this while despite reading a lot of literature and theories.
Perhaps I lacked a forum like Mudraa or a guide or mentor. I had no companion wiith whom I could share my trades.
I was reading a lot but not experimenting.
I was not growing.
I am shocked to recall now that I had no system.
I shiver to recall that i used to trade on pure gut feeling, on tips, on market herd sentiment, on emotions or on the basis of frivolous ideas.
I had started to fly fighter jets when all I knew was how to switch it on and off!
I was not aware of things like trendlines, rsi, fibonacci, MACD etc.
Perhaps I lacked exposure and good company.
I was lucky enough not to lose my shirt in those lackluster 3 years.
Perhaps that was because I never knew much about Futures and Options.
I didn't have the margin required for the same.
All this while I wondered how some people made a lot of money in trading?
I quit many times only to return back after a few days.
I used to quit the market but the market didn't quit out of me!
All this while I kept on looking for alternative methods of "making money".
I wanted some avenue where I could make extra bucks legally alongwith my job.
But fortunately / unfortunately, I couldn't find any to my taste and constraints.
One thing I knew from the beginning that traditional business was not for me.
I shivered even at the thought of going thru the ordeal of applying for Sales Tax number, what to talk of surviving the inspector raj still prevalent!
By 2007, my ICICI account got terminated since I had almost stopped trading.
In January 2008, I met Rishant Verma, a young man around a decade younger than me, with whom I once happened to casually share that I "used to trade in stock".
This youngman had a fantasy of trading in shares.
He got after me to tell him about stock trading.
For initial few months I couldn't guide him much.
But when I saw that he simply wouldn't let me off the hook I started sharing my understanding and concepts with him.
I must confess what i knew at that time was only better than what he knew.
But everyday he used to come up with some question and i had to dig for the answer to it.
This way I started learning seriously.
A teacher grows faster when a student is there.
As I started to mentor Rishant, I settled into a routine.
A habit about anything can be the best thing to happen to you.
Suddenly, the trading ambitions in me started to sprout!
I started reading more and more.
This time, I had a laptop of my own with internet connection which was decisive in my growth in stock market understanding.
I opened a new demat account, this time with HDFC Securities.
Rishant and me started growing very fast in stock market understanding.
I must confess, Rishant turned out to be a student who had the talent to surprise any teacher.
I asked him not to venture Futures as none of us knew anything about Futures.
Despite my saying no to him, he read about it from net and took the plunge.
I kept watching him from the sidelines.
When nothing happened to him, I too started trading in Futures!
Rishant was particularly brilliant in BTST.
He used to buy a stock future at 3.29 pm and sell at 10.00am (in those days the market used
to open at 10am IST).
He had almost perfected the art to BTST.
I have shared his method in one of earliest posts.
Both I and Rishant opened Moneybhai account on moneycontrol.com
We used to dummy trade there and had a lot of fun underlined with learning.
Our favourite sites were economictimes.com, moneycontrol.com and bseindia.com.
We used to see charts at bseindia and y a h o o.
We used to study a lot of indicators.
we even used to "invent" our own indicators.
Everytime we came out with a "brilliant" idea or method, we used to feel like Immortals.
We thought we were going to be millionaires the next day!
Only to find ourselves floored the day-after!
All our "brilliant" ideas fizzled out overnight!!
a time came when we were so frustrated to see all our ideas turn out to be flops, that we started fearing and doubting new ideas. Fotunately, we didn't stop ourselves from day-dreaming.
Everytime we fell down, the love of stock market got us back on our feet.
By the end of 2009, Rishant got so much confidence in his BTST based trading method that he decided to quit his job and go full time into trading.
He quit and I was left alone.
That was the time when I started searching for an online forum and I came across mudraa.com.
On my very first day, I posted 10 buy calls on mudraa.
All got auto-deleted within 2 minutes!
I didn't know who deleted it!!
I was angry.
But then someone wrote to me that I was supposed to give reason behind my "technical" calls
otherwise site administrator will delete them.
I didn't have any logical reason.
For I knew no reason except my gut feeling on seeing the graph of a stock!
That was the time when I seriously started studying technical indicators.
I kept on studying and kept posting my notes on mudraa.
Fellow mudraaites kept appreciating and I kept reading and posting more and more.
Fearing that my articles on mudraa might someday get accidently deleted, I created my first blog www.thebestbusinessintheworld.blogspot.com and started posting all my articles there simultaneously.
Rest they say is history, atleast for me!
I smile with tears in my eyes when I look back at my journey in stock market.
From a scared goat and street dog to a hunting wolf and african elephant!
Miles to go but I am on THE road!!!
I opened my initial demat accounts in January 2004 with Consortium Securities and ICICI
Securities.
For almost 2-3 months I kept on studying about the stock trading thru notes downloaded from internet.
Then I started trading with very small capital.
I used my ICICI account for online trading and Consortium account for trading thru phone.
For around 3 years I kept on trading alternatively like a scared goat and a street dog.
Sometimes I made some profit, many times I ran into loss.
My learning graph was not rising all this while despite reading a lot of literature and theories.
Perhaps I lacked a forum like Mudraa or a guide or mentor. I had no companion wiith whom I could share my trades.
I was reading a lot but not experimenting.
I was not growing.
I am shocked to recall now that I had no system.
I shiver to recall that i used to trade on pure gut feeling, on tips, on market herd sentiment, on emotions or on the basis of frivolous ideas.
I had started to fly fighter jets when all I knew was how to switch it on and off!
I was not aware of things like trendlines, rsi, fibonacci, MACD etc.
Perhaps I lacked exposure and good company.
I was lucky enough not to lose my shirt in those lackluster 3 years.
Perhaps that was because I never knew much about Futures and Options.
I didn't have the margin required for the same.
All this while I wondered how some people made a lot of money in trading?
I quit many times only to return back after a few days.
I used to quit the market but the market didn't quit out of me!
All this while I kept on looking for alternative methods of "making money".
I wanted some avenue where I could make extra bucks legally alongwith my job.
But fortunately / unfortunately, I couldn't find any to my taste and constraints.
One thing I knew from the beginning that traditional business was not for me.
I shivered even at the thought of going thru the ordeal of applying for Sales Tax number, what to talk of surviving the inspector raj still prevalent!
By 2007, my ICICI account got terminated since I had almost stopped trading.
In January 2008, I met Rishant Verma, a young man around a decade younger than me, with whom I once happened to casually share that I "used to trade in stock".
This youngman had a fantasy of trading in shares.
He got after me to tell him about stock trading.
For initial few months I couldn't guide him much.
But when I saw that he simply wouldn't let me off the hook I started sharing my understanding and concepts with him.
I must confess what i knew at that time was only better than what he knew.
But everyday he used to come up with some question and i had to dig for the answer to it.
This way I started learning seriously.
A teacher grows faster when a student is there.
As I started to mentor Rishant, I settled into a routine.
A habit about anything can be the best thing to happen to you.
Suddenly, the trading ambitions in me started to sprout!
I started reading more and more.
This time, I had a laptop of my own with internet connection which was decisive in my growth in stock market understanding.
I opened a new demat account, this time with HDFC Securities.
Rishant and me started growing very fast in stock market understanding.
I must confess, Rishant turned out to be a student who had the talent to surprise any teacher.
I asked him not to venture Futures as none of us knew anything about Futures.
Despite my saying no to him, he read about it from net and took the plunge.
I kept watching him from the sidelines.
When nothing happened to him, I too started trading in Futures!
Rishant was particularly brilliant in BTST.
He used to buy a stock future at 3.29 pm and sell at 10.00am (in those days the market used
to open at 10am IST).
He had almost perfected the art to BTST.
I have shared his method in one of earliest posts.
Both I and Rishant opened Moneybhai account on moneycontrol.com
We used to dummy trade there and had a lot of fun underlined with learning.
Our favourite sites were economictimes.com, moneycontrol.com and bseindia.com.
We used to see charts at bseindia and y a h o o.
We used to study a lot of indicators.
we even used to "invent" our own indicators.
Everytime we came out with a "brilliant" idea or method, we used to feel like Immortals.
We thought we were going to be millionaires the next day!
Only to find ourselves floored the day-after!
All our "brilliant" ideas fizzled out overnight!!
a time came when we were so frustrated to see all our ideas turn out to be flops, that we started fearing and doubting new ideas. Fotunately, we didn't stop ourselves from day-dreaming.
Everytime we fell down, the love of stock market got us back on our feet.
By the end of 2009, Rishant got so much confidence in his BTST based trading method that he decided to quit his job and go full time into trading.
He quit and I was left alone.
That was the time when I started searching for an online forum and I came across mudraa.com.
On my very first day, I posted 10 buy calls on mudraa.
All got auto-deleted within 2 minutes!
I didn't know who deleted it!!
I was angry.
But then someone wrote to me that I was supposed to give reason behind my "technical" calls
otherwise site administrator will delete them.
I didn't have any logical reason.
For I knew no reason except my gut feeling on seeing the graph of a stock!
That was the time when I seriously started studying technical indicators.
I kept on studying and kept posting my notes on mudraa.
Fellow mudraaites kept appreciating and I kept reading and posting more and more.
Fearing that my articles on mudraa might someday get accidently deleted, I created my first blog www.thebestbusinessintheworld.blogspot.com and started posting all my articles there simultaneously.
Rest they say is history, atleast for me!
I smile with tears in my eyes when I look back at my journey in stock market.
From a scared goat and street dog to a hunting wolf and african elephant!
Miles to go but I am on THE road!!!
Friday, July 9, 2010
Do this to boost profits & choke losses!
In case of an up rally,
say "No" to shorting indications such as RSI crossing 85 or even more!
say "Yes" to any indication to go long without a hitch such as RSI falling to 40-30-20!
Going short at every high bend inside an up rally can be dangerous and very less profitable.
Going long at every low bend inside an up rally can be least dangerous and highly profitable.
In case of a down rally,
say "No" to all indications to go long such as RSI falling below 15 or even more!
say "Yes" to any indication to go short without a hitch such as RSI rising to 50-60-70!
Going long at every low bend inside a down rally can be dangerous and very less profitable.
Going short at every high bend inside an up rally can be least dangerous and highly profitable.
In case of a range-bound movement,
say "Yes" to all indications to go long or short without a hitch!
Follow this simple but magical advice and your profits will double and losses will become quarter of whatever they are as of now!
Happy Trading!
say "No" to shorting indications such as RSI crossing 85 or even more!
say "Yes" to any indication to go long without a hitch such as RSI falling to 40-30-20!
Going short at every high bend inside an up rally can be dangerous and very less profitable.
Going long at every low bend inside an up rally can be least dangerous and highly profitable.
In case of a down rally,
say "No" to all indications to go long such as RSI falling below 15 or even more!
say "Yes" to any indication to go short without a hitch such as RSI rising to 50-60-70!
Going long at every low bend inside a down rally can be dangerous and very less profitable.
Going short at every high bend inside an up rally can be least dangerous and highly profitable.
In case of a range-bound movement,
say "Yes" to all indications to go long or short without a hitch!
Follow this simple but magical advice and your profits will double and losses will become quarter of whatever they are as of now!
Happy Trading!
Tuesday, July 6, 2010
The 15 minute rule
Whenever someone says
"I am not going anywhere, dear! I am here only"
What he really means is
"I will be back in 2 minutes!"
Whenever someone says
"will be there in 2 minutes, honey!"
What he really means is
"It will take atleast 10 minutes more!"
Whenever someone says
"It will take just 10 minutes more, Sir!"
What he really means is
"It is likely to take upto half an hour. I am trying best but it is hard!"
Whenever someone says
"I need half an hour for that!"
What he really means is
"I fear it may take 1-2 hours! I haven't yet got the full grasp of the issue!"
Whenever someone says
"It may take one or two days!"
What he really means is
"Not before next week!"
Whenever someone says
"It will take miminum one week"
What he really means is
"It will start not before one week. It may take even one month!"
Whenever someone says
"Don't know how much time it will take?"
What he really means is
"Don't know whether this can be done at all?"
So, when should you believe a breakout or breakdown?
Simple,
whenever the price says
"Look I have crossed the breakout/breakdown line"
what it really means is
"I am not sure whether I will be able to sustain it or not"
but whenever the price movement says
"It is just 15 minutes since I crossed the line"
what it really means to say is
"I have liked the grass on this side and I intend to graze here some more"
Generally, a bluff move evaporates in 15-20 minutes.
Any more time is a sign of change in the trend.
This is known as "the 15 minute rule"`
"I am not going anywhere, dear! I am here only"
What he really means is
"I will be back in 2 minutes!"
Whenever someone says
"will be there in 2 minutes, honey!"
What he really means is
"It will take atleast 10 minutes more!"
Whenever someone says
"It will take just 10 minutes more, Sir!"
What he really means is
"It is likely to take upto half an hour. I am trying best but it is hard!"
Whenever someone says
"I need half an hour for that!"
What he really means is
"I fear it may take 1-2 hours! I haven't yet got the full grasp of the issue!"
Whenever someone says
"It may take one or two days!"
What he really means is
"Not before next week!"
Whenever someone says
"It will take miminum one week"
What he really means is
"It will start not before one week. It may take even one month!"
Whenever someone says
"Don't know how much time it will take?"
What he really means is
"Don't know whether this can be done at all?"
So, when should you believe a breakout or breakdown?
Simple,
whenever the price says
"Look I have crossed the breakout/breakdown line"
what it really means is
"I am not sure whether I will be able to sustain it or not"
but whenever the price movement says
"It is just 15 minutes since I crossed the line"
what it really means to say is
"I have liked the grass on this side and I intend to graze here some more"
Generally, a bluff move evaporates in 15-20 minutes.
Any more time is a sign of change in the trend.
This is known as "the 15 minute rule"`
Monday, July 5, 2010
How much can be made from 1 lac per month?
1 lac capital can get you 3 nifty lots but that will leave almost no buffer.
So lets talk practical.
U can buy 2 nifty futures lots in around 60000.
U are then left with 400 points buffer.
If u can catch 100 points per week that makes 10000 or 10% of capital per week from 2 nifty lots.
That is hell of a lot.
Possible... but very difficult.
2.5% per week is definitely achievable.
How much u gain per month per lac capital depends on
1)technique,
2)opportunities,
3)emotional stability,
4)consistency.
Anything more than 1% per week consistently is commendable.
10% is professional stuff but will test u and conditions to the limit.
More is gambling.
However, you can buy 10 nifty options lots with less than 1 lac.
100 point per week catch can leave you with around 35000/- approx in 1 week.
That makes it 35% per week or 140% per month!
You are an angel if you can do that!
And a God if you can do that again and again!!!
So lets talk practical.
U can buy 2 nifty futures lots in around 60000.
U are then left with 400 points buffer.
If u can catch 100 points per week that makes 10000 or 10% of capital per week from 2 nifty lots.
That is hell of a lot.
Possible... but very difficult.
2.5% per week is definitely achievable.
How much u gain per month per lac capital depends on
1)technique,
2)opportunities,
3)emotional stability,
4)consistency.
Anything more than 1% per week consistently is commendable.
10% is professional stuff but will test u and conditions to the limit.
More is gambling.
However, you can buy 10 nifty options lots with less than 1 lac.
100 point per week catch can leave you with around 35000/- approx in 1 week.
That makes it 35% per week or 140% per month!
You are an angel if you can do that!
And a God if you can do that again and again!!!
Sunday, July 4, 2010
Understanding Islamic Investment
What is generally known as "Islamic Investing" is actually investing in stock market the Shariah way.
Shariah is the code of law derived from the Koran and from the teachings and example of Prophet Mohammed.
Shariah (literally meaning "way" or "path") refers to the "way" or "path" Muslims should follow.
I found that Islamic investing is actually a very sound investing philosophy.
It brings discipline,sense and ethics in trading by questioning some of the core criterea we all have been blindly following.
Any new trader must study Islamic investing before getting knee deep in the gushing river of trading.
Islamic Investment Criteria:-
* Investing is prohibited in an industry or company indulging in business that is prohibited or abhorred in Islam?
Besides banking and finance, investing is prohibited in a business involving alcoholic beverages, pork and pork products, tobacco products, gambling, lottery, pornography and adult oriented material, prostitution and drugs etc.
* Cannot borrow on interest to Invest.
* As per Islamic investing, one cannot enter the market as speculator but only as investor.
* As per Shariah scholars, ideally there should be no interest-based debt on the company you invest in, but if debt financing is more than 33% of the company's capital, investing in that company is certainly prohibited.
* Under Islamic investing guidelines, ideally no income should come from interest-related sources. However, companies whose income from interest forms less than 5-10% of its total income, it can be considered for investing.
* In Islamic trading, one has to be very careful about company's monetary assets. As per Shariah scholars, accounts receivables and liquid assets have to be below 45% for the investment to be permissible.
* Day trading is prohibited in Islamic trading as it has little to do with actual investing and is considered closer to gambling.
* Margin Trading is buying stocks using money loaned from the broker. Interest is paid for this loan, and therefore it is prohibited in Islamic trading.
* Derivatives - Options and Futures is purchasing the right to buy or sell at a future date for a fixed price. Not exercising the option results in the investor paying the option fee. Therefore, majority of scholars are of the opinion that Futures trading is not permitted in Islam.
* Short Selling - Short selling is borrowing a stock from the brokerage firm and selling it. From shariah point of view you cannot sell what you do not possess.
If one can learn investing under Islamic wisdom, it will be one of the toughest, ethical and effective training.
Shariah is the code of law derived from the Koran and from the teachings and example of Prophet Mohammed.
Shariah (literally meaning "way" or "path") refers to the "way" or "path" Muslims should follow.
I found that Islamic investing is actually a very sound investing philosophy.
It brings discipline,sense and ethics in trading by questioning some of the core criterea we all have been blindly following.
Any new trader must study Islamic investing before getting knee deep in the gushing river of trading.
Islamic Investment Criteria:-
* Investing is prohibited in an industry or company indulging in business that is prohibited or abhorred in Islam?
Besides banking and finance, investing is prohibited in a business involving alcoholic beverages, pork and pork products, tobacco products, gambling, lottery, pornography and adult oriented material, prostitution and drugs etc.
* Cannot borrow on interest to Invest.
* As per Islamic investing, one cannot enter the market as speculator but only as investor.
* As per Shariah scholars, ideally there should be no interest-based debt on the company you invest in, but if debt financing is more than 33% of the company's capital, investing in that company is certainly prohibited.
* Under Islamic investing guidelines, ideally no income should come from interest-related sources. However, companies whose income from interest forms less than 5-10% of its total income, it can be considered for investing.
* In Islamic trading, one has to be very careful about company's monetary assets. As per Shariah scholars, accounts receivables and liquid assets have to be below 45% for the investment to be permissible.
* Day trading is prohibited in Islamic trading as it has little to do with actual investing and is considered closer to gambling.
* Margin Trading is buying stocks using money loaned from the broker. Interest is paid for this loan, and therefore it is prohibited in Islamic trading.
* Derivatives - Options and Futures is purchasing the right to buy or sell at a future date for a fixed price. Not exercising the option results in the investor paying the option fee. Therefore, majority of scholars are of the opinion that Futures trading is not permitted in Islam.
* Short Selling - Short selling is borrowing a stock from the brokerage firm and selling it. From shariah point of view you cannot sell what you do not possess.
If one can learn investing under Islamic wisdom, it will be one of the toughest, ethical and effective training.
Subscribe to:
Posts (Atom)