wait, let her do it

sometimes i feel that we guess the market right but don't let it do what it wants and unfold completely. we do what it wants us to do before it does what we guessed it wants to do.

--

trading days are to the week and month what pages are to a chapter and book. they have continuity which we fail to see in trading atleast, wrongly taking every day as a fresh standalone trading day....

the sweetest Coffee!

 one of the investing methods which tickles me a lot is the 

"coffee can investing"

buying 20 promising small cap stocks worth rs.10000 each (total rs.2lacs), "putting" them in an empty coffee can and opening them after 10 years.

strong likelihood that 9 will be zero or more after 10 years while 1, if 100x....is likely to be worth 10 lacs (worth 40 lacs if 400x)

Mohnish Pabrai's career is filled with many such stories

The 3-Hour Rule

one of the most difficult things to do in trading is: patience

patience, when stock or market is not moving but your system is telling you that a move is on the cards...

patience, not to chicken out but add to the position (subject to money management and safety measures) when the market has moved adversely and your system is saying that it is in the most likelihood a bluff...

patience, not to book profit too early just because you have not seen such a good profit for long or just because you desperately need this profit but your trading system is telling you that the move is far from over.

this impatience is one of the key reasons for budding traders never making it to the next level.

i struggled with this for a long time.

over a period of time, i came up with homemade solutions some of which have stayed on and hardened as i found them brilliantly effective.

one of them is what i call "the 3-hour rule"

this rule is not for day traders but for short term traders. also, this rule is not for those who don't trade as per some system and just bet randomly or arbitrarily.

let me explain the rule with an example.

suppose you are holding a long position for a few days. the system is saying that the price/stock/index will go up. needless to say, there is a strong likelihood that there will be turbulence, and the price fluctuates.

while a seasoned and hardened trader with a not-so-scary volume of holding will be less or no fearful at the times of fluctuations, a normal mortal one will be scared a lot. especially if he/she is sitting on a profit.

at this time, our mind starts talking to itself.....sort of self-talk....and mostly the thoughts are of fear.

under such circumstances, traders tend to rivet their eyes to the screen, thereby making it easier for the operators/strong hands to hypnotize and shake them out.

so, here is the 3-hour rule.

check the price, check the system...if it says up for the next many hours or a few days, stand up and get lost or busy for 3 hours. don't check the price for the next 3 hours. mark the time or set an alarm.

so many times it has happened that a particular option was 155 (say) at 10:15am and when i checked back at 1:15pm it was at 237. you can well imagine what would have been my reaction. especially considering that had i kept staring at the screen post 10:15, the pressure to book profit would have been too much for me to bear resulting in my booking at a big compromise.

you may argue that after 3 hours it can also happen that the 155 is reduced to 55. well! possible, very much possible. but that is where the first rule of trading comes into play....trading only with a system. without a system, it would be gambling and not trading....and surely the 3-hour rule can be suicidal.

with a system (and more so with an evolved one) the probability of trade going right is much more.

with the 3-hour rule, you are allowing profits to maximize. with the system, the profits you collect when trades go right are much more eventually than the loss you suffer when the trades go wrong.

even otherwise, the prime reason for even sincere traders losing money despite getting things right 50% or more is that they book too early when right and book too late when wrong. ruthless adherence to the 3-hour rule takes care of that anomaly.

when you are not able to wait, don't wait, get busy.

patience

Js: when one is assured of meeting the(target) God, he or she shouldn't mind the delay......God has a plan.....self talk

Titash: Seems delightful 👍😃

Js: what is patience if not the simple act of saying a polite  "no" to the loaded distractions on the way....self talk

: follow the indicators no-one follows.....others are dangerous.....self talk

: bugged

: resisting the temptation is the last yaksh test for the trader yudhishtir....self talk

JP: dacoits do have lunch in between........😃😃... Veer ji,  Thoda to reham karo... operators per..😂😂.. DON hi bol do...

fast thinking fast acting trader!!!

trading situations change much slowly than the traders can think

.......in other words, traders think much faster, if not much more than the trading developments happen

....majority trading mistakes happen because of this

....maximum 3 trends happen in 1 month whereas a trader thinks upto 10 or even more

.....since a trend, in actual, takes days to develop and show up, and since a trader can't bear the wait and must come to some conclusion, he cooks or extrapolates or imagines one, right or wrong

.....this make belief adhocism is the cause of all mixup....

in the anxiety caused by fear or greed, the trader wants to jump to a conclusion which is yet to emerge!

it is one of the biggest trading myths that trader has to be fast thinking and fast acting!!!

far from the truth!!!

refuse to fiddle

market can either go up or go down.....
this makes it 50-50 chance for winning for anybody.....
yes....anybody...!!!

then why does everybody....yes.....almost everybody loses 80-90% of the times?

doesn't it sound amusing, if not outrightly absurd?

any idea why it happens that way?

despite that much of advancement in the technical indicators, expert fundamental advise, scores of business channels, tonnes of research and countless trainings!!!

well, in my opinion the culprit, in one word is,

"fiddling"

the more you know, the more u r anxious, the more u r greedy, the more u r fearful, the more u r emotional...............the more u r nervous and unsure and full of doubt.

coupled with the noise all around and the fear of financial loss, u r always a perfect pigeon to fly at every clap.

"fiddling......yes fiddling"

when u r right...u fiddle and chicken out...

when u r wrong...u fiddle until it becomes highly stressful and breaks...

the pinnacle of learning in trading is......unlearning!!!

i have seen traders learn learn learn....

though that is not wrong....rather a must, they forget to complete the studies which requires the trader to unlearn what their accumulated wisdom points out as "wrong, fake info"

this leads him/her to a filtered, evolved, distilled simple method which is carved by the chisel of improvement with losses arising because of  "refusal to fiddle"....

self talk: 

market is a tiger (who can surely eat you alive).....but a blind one.....a deaf one.....the one with non functional nose.....he can't even smell you around!!! 

he just can't spot u till u move or come in his way!!!

www

i have a safety measure in cases of reentry or adding to positions (besides the indicators).....

i call it www

....win win wait

meaning.....when my gut feeling says...go....i wait.....for half hour or more.....

if it comes down....assuming i was short already with remaining Lots...i win......if it goes even  higher....i win by having waited and got better price to short more....

in the second case.....i once again apply "www"

stay invested in good stock during mkt corrections

market corrections are rarely more than 33% from the highs

sometimes they are much less, or, the rebounds from the correction lows are so fast that u r not able to get on to the band wagon again.

not only this, u rarely trust the bounceback after correction so easily. u keep on suspecting the recovery and keep hoping that the stock will go down further before u buy back the stock again.

four more logics and the argument in favour of staying put with the good stocks in correcting markets is complete.....

1. any gains in the stock will be totally tax free if u stay invested for more than 1 year! u will save upto 33% tax u were otherwise required to pay! that 33% will take care of any potential 33% decline!

2. u don't miss on any bonus issues or dividends etc.

3. peace of mind.

4. you can always buy more when good stocks decline!

love and trade

you can't become rich
without the power of consistent multiplication

you can't multiply
without taking risk

you can't take and survive risk
without discpline

you can't be disciplined
without confidence in discipline

you can't have confidence
without knowledge

you can't have the real knowledge
without struggle

you can't survive the struggle
without determination

you can't be determined
without passion

you can't be passionate
without loving the occupation!

trading is about love
before it is about money.

tip in the pot to the top

all tips are not bad.


some are good

few are excellent.


but surprisingly

almost all

especially the ones mass circulated

seem to go in opposite direction

for some time

before they show their worth.


reason?


well,

the technical calls are based on

technicals.


good technical tips

are pro-rally

and more importantly

pro-fundamentals.


big-pocket operators

know it and see it all.


while they certainly can't ignore

the fundamentals and the rally for long

they definitely have the reason, intention and power

to rock the boat

in opposite direction

atleast for some time.


good "tipsters"

know all this.


they try to give tips

after some delay.


i.e. they don't pass on the tip

the moment one pops up!


but hold it

keep it in the "pots of ready tips"

till the tips season out

mature

age

get despirited

denatured

and

de-stinged!


once the operators are done with their tricks

the tippers

reach their golden "pots"

recheck

and release the tips!


a good tip

must go in the pot

before going to the top!

point of smooth sailing

i constantly try to figure out
how the market can trick or fool
the majority of investors.

then after the majority have been fooled
i get in
at what i call
the 'pointof smooth sailing.'

a so-called failed signal
can actually be the beginning of
a more complex pattern
that is far more reliable
than the initial signal
based on a conventional pattern.

- mark minervini

cheetahs and sparrows

(excerpts from interview with mark weinstein)

"........i have a real fear of the markets.

i have found that the greatest traders are the ones

who are most afraid of the markets.

my fear of the markets has forced me

to hone my timing with great precision.

when I am trading properly,

it is like a pool player running racks.

if my gut feel of market conditions is not right,

i don't trade.

my timing is a combination of experience

and my nervous system.

if my nervous system tells me to get out of the position,

it is because the market action triggers something in my knowledge

and experience that I have seen before.

i also don't lose much on my trades,

because I wait for the exact right moment.

most people will not wait for an environment to tip itself off.

they will walk into the forest when it is still dark,

while I wait until it gets light.

although the cheetah is the fastest animal in the world

and can catch any animal on the plains,

it will wait until it is absolutely sure it can catch its prey.

it may hide in the bush for a week,

waiting for just the right moment.

it will wait for a baby antelope,

and not just any baby antelope,

preferably one that is sick or lame.

only then, when there is no chance it can lose it's prey,

does it attack.

that, to me, is the epitome of professional trading.

when I trade at home, I often watch the sparrows in my garden.
when feed them bread, they take just a little piece at a time

and fly away.

they keep on flying back and forth, taking small bits of bread.

they may have to make a hunderd stabs at a piece of bread to get what a
pigeon gets at one time,

but that is why a pigeon is a pigeon.

you will never be able to shoot a sparrow,

it is just too fast.

that is the way I day trade."

(the cheetah is the analogy to position trading
and the sparrow for day trading.
both animals will wait for the can't-lose circumstances.)

when to buy the declining stocks?

"first they sink to the bottom.

then they come up;

but not right away.

they've got to be good and dead a couple of days.

it isn't time for these corpses to rise to the surface.

they are not quite dead yet."


- reminiscences of a stock operator

rat sense

a trader was always losing
despite good knowledge
of technical indicators
and operator tactics.

soon
he got frustrated.

he stopped trading
and went to his ancestral house
in the remote village.

cool breeze
lush green fields
zero pollution....

everything felt so great
except
irritating
rats!

a lot many were there!

one evening
he took out a mousetrap
stuck a piece of bread in the hook
stretched the trap ready
and went to sleep.

he was woken up
abruptly
not by the alarm clock
but by the loud clap
of the mousetrap!

the trader jumped out of his bed
switched on the light
looked down
and saw his prize
- a small lean mouse!

he was feeling so good!
just like he used to feel
when he used to book
the rare profit
in stock market!

--

he switched off the lights
and got down relaxed
to resume his sleep!

hardly had he lied down
when he noticed
chik-chik sounds
of rats!

he turned on the light in a jiffy
and looked at the trap again!

three fat rats
sitting besides the dead body of their poor lean buddy
were merrily enjoying the piece of bread!

as he got closer
they all vanished!

the trader was red in the face
just as he used to feel
when operators used to take his money
in the market!

next evening
he again laid the mousetrap.

as expected
he was again awakened
right in the dead of the night!

this time
he kept lying in the bed for some minutes
and turned on the light
only when he heard the screeching
of the rats again!

as he looked at the crime scene
he was shocked to see what he saw!

though the trap had got its prize
-a lean small rat
with his neck in the trap,

four fat rats
were sitting by the ringside
feasting on the bread!

instead of getting angry
the trader was amused!

he was amazed to see the
cunning strategy of the fat rats!

the fat rats wanted the piece of bread
but they were aware of the trap too!

they didn't know what the trap was
they didn't know when or how the trap will go off!

all they knew was
that there was a trap
and that this trap usually went off
only once per night
and thereafter
it was always safe to eat the bread!

therefore
they had decided
to always wait
till the hidden trap went-off!

their wait had always paid-off.

some lean hungry greedy desperate mouse
would always fail the patience test
and enter the trap first
...sniffing the bread
inviting a certain death!

and once the trap was exposed
the fat rats would arrive
for their share of the bread!

--

a big smile
beamed on the face of
the dejected, rejected and ejected trader....

he had realised that this precisely was his problem as well!

he was one of the lean hungry desperate traders
who
despite having good technical knowledge
despite having the ability to predict a movement
couldn't see the trap
couldn't wait for the operator trap to be exposed
and went in
always first!

their sacrifice
always exposed the trap before the fat rats
who would then jump in
for the party!

---

next morning
trader woke up
to a new lease of life!

he was ready to go back to mumbai
to trade with the newly acquired
rat sense!

right time to shoot

the 107 year old

96km long

serpentile

narrow gauge toy-train railway line

from kalka

to shimla

passes thru 103 tunnels

(only 102 are in actual use now).

the longest being 1.14km long.

--

the journey in this toy-train

is like travelling to heavens

while still alive!

--

over the clouds

under the clouds

over the bridges

under the bridges

into the tunnels

and out of them!

--

it is as much pleasure travelling in this train

as is there

in shooting it

with a powerful

camera

like a nikon d7000!

--

but obviously

you can't normally shoot it

inside the tunnel!

you've got to shoot it

only when it out of the tunnel!

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

inside the "overnight" tunnel!

you have to wait till it "comes out"

in the morning at the opening bell!)

--

to shoot the heavenly train

(with a camera)

you have to wait till it comes out of

one of the 103 tunnels!

even then

it is not easy to shoot it!

some times

it is behind mountains

while at other times

it gets hidden behind

cluster of deodars and pines.

at times

it vanishes in the folds of the valley!

--

you have to wait for

the suitable opportunity

to shoot

that great photo!

just like

you have to wait

for that correct opportunity

to shoot

that trade!

otherwise

while wasted photo in a digital slr

costs nothing more than a sigh,

a wasted trade in the market

costs something

even to professional

shooters!

say no!

how many times

has it happened with traders

that they entered a trade expecting a move

the move doesn't come

the trade goes the wrong way

the trader books the loss

only to see the market reverse

the way predicted by him

without him!?

this is a typical example of

a right trade at wrong time!

--

why does it happen?

because

"the obvious is obviously wrong"

in the market!

big pockets win only

when they catch u on the wrong foot!

so, what is the golden rule

to avoid entering a right trade at the wrong time?

= always say "no" to the opportunity

which looks like an opportunity!

it is a trap!!

always wait!!!

--

in the words of

Edward Chancellor

"the promise of outsize profits are followed by

the reality of painful losses.

you will make more money in the long run

by restraining your greed!"

and as Mark Twain had said

"I never spotted an opportunity

until it ceased to be one!"

trading decisions!

5 frogs were sitting on a log of wood

3 out of them decided to jump

how many are left behind?

"2" replied the student.

"wrong! all 5 are still sitting there" the teacher shot back!

"there is a difference between making a decision and acting on the decision!" he explained!

---

the story got etched in the student's mind.

days passed

and then years....

the student became teacher

in 'School of Stock Trading'!

---

"let me tell you a story" he announced in the class

"5 frogs were sitting on a log of wood

all 5 jumped off it!

how many had decided to jump?"

students got really confused.

they had heard about the famous story where the teacher asks how many are left behind!

but this story was strange!

when nobody answered

the teacher declared

"none"

"all 5 jumped in panic without thinking"

"they were all amateur stock traders!"

where to invest?

investing is the most profitable form of trading!

it is a myth that you invest in a company.

the reality is that you invest in a management

and

you invest in a business!!!

if the business is bad

even best management can't do anything for long!

for a moment,

let's assume that the business makes business sense.

then, there are 4 types of "managements" available for investing:

1. good management going thru bad times
= this is the best investing bet, a multibagger!
give then time and they will give you a wonderful gift!
e.g. tata motors' journey from 110/stock to 1376/stock
present example = mahindra satyam

2. good manangement going thru good times
= hold on, this is the best momentum play
stay with them till they are around
e.g. hero honda (since inception)

3. bad management going thru good times
= stand near the exit door if you can't avoid the bait!
e.g. suzlon

4. bad management going thru bad time
= stay away!

Prepaid Trading - III

Here is a clever trading tactic used by one of my friends who is an Army Major just retired from short-service commission.

He calls this Reconnaissance Ambush Trading!

This he does with a team of Options and Futures.

Whenever his TA (Technical Analyses) suggests that the market is going to make a big move

he gets ready but doesn't deploy his "futures" straightaway!

Instead, he "sends in a reconnaisance team of commandos" to "test the waters"!

He buys an "out-of-money" call or put option (as the case may be)

and waits....

This option is like a reconnaissance mission which is used to determine the enemy forces disposition, intention, composition and capabilities without exposing the troops to danger.

He uses option as "cover" for his main "cash" troops!

If the option goes in his favour, that's what his TA predicted and that's what he wanted!

He is in a profitable position and all he needs to decide now is whether he should reinforce his winning position to make it big or just let the option run alone as far as possible.

If the option goes against his TA

he doesn't mind it!

This is precisely the reason he sent in his "options" before his massive "cash" troops!

There is a strong chance that market is bluffing and will give him more juicy position to deploy his big backup cash reserve!

Since he has an "out-of-money" option position, the loss is much lesser and limited as compared to the adverse movement in the market.

e.g. a 100 point fall results in a 25 point option bleeding. But a full recovery with futures or bigger option will result in net 75 point profit!

So, he patiently waits till the tide turns

and then he goes all out on the offensive either with bigger "in-the-money" option or with futures!

In his words

"When I get the signal, I send in the option squad. On the basis of information I get from this core team, I decide whether and when to send my entire company in the battlefield! Many a times, these Option commandos are enough for the assignment!"

and the winner is.....

3 years ago I started a monthly SIP (Sytematic Investment Plan) with SBI Mutual Fund's Magnum Tax Gain'93.

I started it not because of my prudence

but because of

a) repeated edging by one Mr.Vijay (a real gentleman financial advisor whom I now trust utmost) and

b) the reason that I wanted to save some tax under section 80C but in a way which gives more return than traditional life insurance

(I believe that one should buy term insurance for life insurance and mutual fund with or without SIP for savings!) (the above mentioned fund gives 80C benefit besides market investment returns)

Frankly speaking, when i started the SIP with a small monthly contribution I was least excited!

Reason?

"It will take ages before the monthly systematic investment will becaome a fortune!" I thought.

Still, I did start with the SIP and gave 12 cheques to Vijay.

Every month it was an irritant to part with the instalment.

Many times I decided to stop the SIP after the committed 12 instalments.

But after around 8 months, one day I was pleasantly surprised to receive a dividend cheque from the MF.

It was a decent amount but it appeared many times bigger due to the surprise element!

Besides, my corpus had grown!

So, I continued with the MF after the first year as well.

Here, I wish to share that I started the SIP when the Sensex was above 20000 just before the crash!

But because of it being monthly SIP, my instalments kept entering the market at every stair in the staircase.

My SIP instalment went into the market at 20000 as well as 7500, 15000 as well as 9000, 12000 as well as 10000......

....and it is still continuing........

The annual dividends I get fund my kids annual fees automatically! Alternately, it leaves me with a handsome amount to do anything I wish to! Last year we had a grand annual family vacation in Kullu & Manali!

And the beauty is that the corpus is growing.....

.....in compounded fashion just like the prize money in Kaun Banega Karorpati (Who wants to be Millionaire).......

What was an irritant every month is today a monthly reminder of the assured and growing prosperity!

Every month I thank Vijay hearts of hearts for somehow forcing me into this equity-linked savings.

Jokingly, I have been playing a race between my savings in this MF and the growth in my self-trading earnings.

I have no hesitation in admitting that I have been left gasping behind the MF especially after this recent bull spurt!

Why I shared this story with you?

Two reasons.

First, to recommend SIP based Mutual Fund investing to everyone!

Second, to share a strange phenomenon mentioned below.

I have

never ever

never ever

never ever

thought of selling my SIP savings!

I just think of investing more and more......

I just think of topping it up whenever market is in oversold state!

whereas I rarely survive the itch to book profit in my trades!!!

What fantastic paradoxical opposite faces of my same self!!!

One is willing to not only hold all investments forever but keep adding to it! (The fund manager keeps rotating the investment into sectors and stocks as per the situation)

The other is dying to run away with the pennies after every round!

One full of stress!

One full of pleasure!!

I have least doubt who will win this race.

It will surely be the tortoise this time as well!