in how many directions can stock market go?

theoretically there are 10

- north

- south

- east

- west

- northeast

- southeast

- northwest

- southwest

- into the screen

- out of the screen (to hit you!)

but in practice, it has only two directions to its disposal

either north or south...rest all are trader's fears induced by market fluctuations and bluffs.

every trader has 50% straight chance of making profit (1/2)

versus 2.7% in roulette (1/35)

it is understandable why roulette casino players are losing 97.3%, but what is the reason behind 80-90% loss of a stock market traders?

it is... fiddling

...due to fear of loss, pressure of bet size... 

if any trader was to trade without applying mind, with all parameters fixed, then he/she is likely to win 50% in the long run... things start slipping below 50% when that dumb trader tries to be smart on emotions instead of logic or system. market induced emotions as well as self-inflicted emotions.

market forces have no power to beat the trader except emotions... be it through sharp move or bluff or both...

most traders can't stand the loss (because of bet size, and lack of logic of trade, defined entry exits) and hence lose frequently. 

decide, on the basis of your trading system where the market or stock is going to go, as per what timeline, take bet size which you can afford to lose if all goes wrong (which wont go wrong that often as system improves), decide a stoploss (which should be the point where the logic behind your trade would seem to no longer hold), and take the trade.... after that, expect market to do all kind of bluffs and hold your trade tight (ofcourse till your stoploss definition above)... 

only logic-based system with some edge can take you above 50% chance of profit... all the way upto 60-70-80%...or more... (the higher you go, the more challenging it is)

most of the times, if not always, markets and stocks go in the direction they are pre-decided to go (on various timelines).

once you take a trade, exit only if your target comes or stop loss is hit, don't touch it in any other condition. 

example = suppose you decide to take a long trade when price cuts sma 34 from below (say)(after closing candle), then one possible logical SL will be when price cuts it from above (after closing candle). 

similarly, if you take a long trade if rsi has given a bullish divergence, then u hold the trade till bullish divergence doesn't melt away, whatever the price... till bullish divergence is there, long trade is valid. 

price SL is risky because it is visible to everyone and is very basic logic. also, because some vibration in price is bound to happen.

--

we should not add to positions ever once trade is initiated. when we add position, it should be considered a totally new trade depending upon setup at that time

in most cases, trade goes your way within "short time" of your taking the trade. you can "feel" it. you can also feel and tell if it isn't going your way,....of course, you still need to stick to SL, but your gut feeling tells you that you perhaps have entered a bit too soon, even before proper signal.

if your SL is hit once or twice despite system, it is ok. but more than that it is a signal that you tweak your system. 

SL needs calibration

"hone ko to bahut kuchh ho sakta hai?"

"hone ko to bahut kuchh ho sakta hai?"
(as it is, anything can happen)

market can rise unexpectedly, market can collapse.....

that u can come to know only once it has happened! u can ofcourse wait to see what happens and then come in the trade. but then what's use? what was to happen has happened? u were not in the contention for the possible rewards.

trading and fishing are rarely meant for those who intend to keep sitting at the shore waiting for the absolutely calm sea......which anyhow, as they say, never makes a skillful sailor!

"hone ko to kuchh bhi ho sakta hai!"

but u can't make a living out of trading like that! u can't realise ur dreams like that!

here, probability comes into play.

trading, as i always say, is probabilistic and not deterministic.

there are times when the market's move in a particular direction high probability and then there are times when the said probability is low.

a good trading method + trading judgement is the one which can segregate the low prob opportunities from high prob ones.

a trade can never be assured. otherwise, all trader universe will jump in that direction and there will be no buyers for sellers or sellers for buyers! market will vanish!

probability is the sister of opportunity.
sensing the probability is like spotting the opportunity.

with time, practice, experience and learning, probability picking skills can be astonishingly honed!

and the beauty of the probability going wrong (mostly initially, rarely later) is that a trader anyhow always has the brakes and steering in his/her hands.....isn't it?

u can always stop and turn!!!

indecision is dangerous in trading. doubt freezes ur ability to act.

it is the indecision which causes loss in trading.

technical patterns are probability edges not certainties

"at the most fundamental level
the market is simply a series of
up and down tics that form patterns.

using technical analysis
you can begin to define these patterns as edges.

any pattern defined as an edge
is simply an indication that there is a high probability
that the market will move in one direction or another.

the repeating patterns imply consistency
but the reality is that each pattern is unique.

the underlying force behind each pattern is traders,
and traders that contribute to the current pattern
are different from the traders that formed any previous pattern."

- trading in the zone
mark douglas

predicting trading success amidst unpredictablility

"how does one produce
consistent results from an uncertain probabilistic outcome?  

this is another paradox of trading,
random outcome consistent results.  

first you have to believe
in the uncertainty and unpredictability
of the outcome of each individual trade.

second you have to believe
that the outcome over a series of trades
is relatively certain and predictable.  

this degree of certainty is a
function of how good the edge is.  

you must learn and completely accept the fact
that you don’t know what will happen next,
and in fact don’t need to know,
in order to be consistently profitable.

since you don’t have to know the outcome of each trade
you do not place any significance, emotional or otherwise,
on each individual trade."

- trading in the zone
mark douglas

Stunt Trading

Disclaimer & Warning : This article is just to share a concept and experience and not a recommendation to do stunt trading or gambling. Gambling is illegal in many countries. It can be highly dangerous and potentially financially disasterous to gamble or trade big without professional guidance and without developing highest level of trading competence. This article is purely meant for education and discussion purpose for adult and professional traders only! Readers descrition is solicited. Author doesn't accept any responsibility for any loss or profit arising out of the discussion below!)

=================

Professional gambling is not gambling in true sense.

It is placing extraordinarily high stakes

on the extraordinarily favourable odds!

(Only those who understand the literal meaning of the above two lines can truely grasp what I mean, otherwise there is a real danger of getting me wrong and should not read more of this!)

The result is extraoridnarily high returns!!

I remember, in an interview telecasted in a program in Discovery Channel, a highly successful stuntman from Hollywood said "All our unbelievable stunts are totally secure! All these are scientifically pre-tested and calculated acts of seemingly extreme bravery! Anyone doing an unsafe stunt is a fool!"

Professional Gambling in stock market is nothing less than Professional Stuntmanship.

Anyone doing an unsafe stunt trading is a fool!

I do get a chance to do stunt trading atleast once every fortnight!

But I have certain immutable rules for it.

I never do stunt trading on the short side.

I always do these on the long side.

I always do these with index and not stocks.

And I always do these with options.

I typically buy upto 10 or even more index option lots when I am 99.9% sure of being successful.

I never hold these for more than a few hours.

And when do I do this?

Well, out of 10 times my indicator tells me to buy, I find the best 1 trading opportunity out of those 10 buy-calls which I consider safest for stunt trading!

It gives me decent money in a flash, a super kick and professional satisfaction.

As a double-safety measure

I call off the trade the moment I feel I am excited and not cool, or when there is a slighest of doubt!!!

Last, but not the least, I experience high adrenalin levels even when I have zero doubts!

(Having goose bumps even while I write this!)

Profit by chance!

What is the probability of heads in a coin toss?

50% (because there is just 2 options - head and tell)

If you were to bet repeatedly on 'head' you will be winning approx. 50% of the time!

If it rains for 70 days in 100 days of monsoon what is the chance of it raining on any day in those 100 days?

70%.

If you were to bet in favour of rain day after day in those days, you will be winning 70% of the time!

If Sachin makes a half-century 8 times in every 10 innings he plays, what is the chance of his hitting a half-century in the next inning?

80%

If you were to bet on his half-century, you will be winning 80% of the time!

If the stock turns down 8 out of 10 times when the rsi on 1 month chart hits 85, what is the chance of the stock turning down next time the rsi hits 85?

80%

If you were to bet on the shorting position every time rsi on 1 month hits 85, you will be winning 80% of the time.

If for the balance 20% trades you have strict stop loss, you don't even lose!!

Trading is a probability game.

Trading is taking high-probability chances!

Nothing is sure!

But chances of certain things at certain times (expecially extremes) are very high.

For good traders, trading is nothing but taking those chances

coolly and boldly

with a smile!

And when they lose, they are happier!

Because they know that the odds of profiting just improved!

87½% chance of profit!

How risky is stock trading?

Lets do some back-of-the-envelop quick calculation.

Suppose you buy a stock or index futures.

a) The price will either go up or down.

So, there is always 50% chance of it going your way.

That makes it 50% success chance assured.

b) If you bought when rsi had exhausted (i.e. severely over-sold condition),

that adds another 25% chance of profit.

This takes the total chance to 50+25=75%.

c) If u still land up with remaining 25%,

i.e. if the price still goes down

there is half probability of it coming back pretty soon.

This further adds 12½% of the remaining 25% chance of success.

Total now becomes 75%+12½%=87½% chance.

So, the assured success rate for a sensible trade (based on a method/system) = 87½%.

Chances of loss = 12½%

If u r using a stop loss, this 12½% will always be peanuts.

So, if you trade 100 times as per your method / system,

you will profit 87½ times (big +small)

you will lose 12½ times (small)

That is not a bad deal!!!

The key factor, however, is

the method or a trading system

which decides the entry as well as the exit point

and not the gut feel or emotions or tips!

Happy trading!