iCharts Discussions

[rk_a2003]

Hi All!

I have been reading a good number of books on Stock market .I would like to Share the Extracts from the books which I might think usefull to every one. I also would like to post my thoughts on stock Market. Hope it will be usefull to all.Dicussions and further contributions from the members are Welcome.

To Start with------- some extracts with slight adaptation to Indian context Which I read some where.


Trading stocks for a living is not for everyone. One should have certain type of mentality and personality to succeed. Before you enter into this profession, you must assess yourself and take honest look at yourself to see if you have what it takes. The rewards can be phenomenal and the freedom is like nothing else, but if you do not have the tools internal to yourself, you will fail. Books have been written on this one subject about trading psychology.

Trading is a large part of how you think about the markets and unless you deal with who you are and can be honest, you will not make it no matter how hard you try. You must have the ability to admit when you went wrong and not let ego interfere with your decisions. Trading is a very mechanical process, weighing the rewards and calculating the risks. If you do not have the ability to admit when you’re wrong, you let emotion enter into your trading decisions and you are destined to lose in the long run. You must be disciplined. Traders who cannot stick to a disciplined approach tend to take more chances, chase after bad trades, and are more apt to shift from what works to what they hope will work.

Hindsight (Perception after the fact) is the number one enemy of a trader. We often hear the following phrases constantly “I should have held that stock. It is up 10 points from where I sold it.” “I could have bought that stock when I saw the news.”Hindsight is a killer to many traders early in their learning process. It is a killer because it shows what you should have done and leads you to stay away from the discipline that you need to survive in the long term. It is very easy to see what one should have done after the fact. It is not that easy to participate in the present. When we see traders continually beat themselves up over a missed opportunity, We should fear that they are headed for big losses.

So many traders in the beginning rationalize their trading so that each loss was not their fault and each gain was due to their intelligence. It give them solace from losses and self pride from winners.not related from one to the next. Hindsight is killer. Don’t let it allow you to stray from your discipline.

Some hindsight comment serves to feed the egos of those who were proven right by their speculation. Many analysts, room leaders, market timers, and financial powerhouses are guilty of these comments. You hardly ever see the following comments:
“Hey, sorry about that trade at 50 a share. It is at 10 a share. I hope no one rode this down with me.” “I was wrong about this stock at 50; it has never gained momentum, so I am dumping it right now at 45.” We should have more respect for those who post their losses or admit their shortcoming in public forums.

[vinay28]

Thanks RK. As regards the last para, how many "experts" who give trading or investing calls on TV channels remember to come back to remind people that their "earlier so and so call" has gone wrong and to ignore it or square it off if it was taken? I haven't seen any.

Also, see my private message to you!

[rk_a2003]

True Vinay!

You are absolutely right. It's really hard to find such confessions.

By the way ,You might have followed the news that Indian Govt.has decided to borrow 53K crores to fill up fiscal deficit. It's a bad news for economy.

What could be the Institutional reaction on it.

[vinay28]

Yes RK and borrowings are supposedly from savings account but that hardly makes any dent. Hence it will be from FDs and that will hurt liquidity. Not a good news but this will not have immediate implications. Market is in an uptrend and will probably last for some days at least.

[rk_a2003]

How To Deal With Stop Loss


“fools will be without sl .... and without tsl ....[when they r in plus]... fools will trade without sl..... fools doesnt know... when they r on loosing side... how much they r going to loose .... they dont know.... we r not fools..... my words let it hurt ... i dont mind...but finally u shd get disciplined trader and investor.... ulimate aim .. “


The above Missiles were launched by our Original Expert 'Veeru' ....of course Chennai boy . They have very deep rooted meaning. Let me take some pains to explain them further so as to unfold the meanings. Somewhere in some book I read this. You also go through it.


Many traders’ favorite question when they start is how much can they make? This question is very hard to answer because trading the market is very difficult and everybody’s abilities are not the same. Many have very steep learning curves and lack the knowledge or willingness to put the time in to educate themselves properly. They are looking for the cure for cancer, the easy way out. When this lack of education is coupled with the fact that they are trading against the best traders in the game, with deeper pockets, the odds are stacked against them right from the beginning. Although I have seen gains of over 700-percent by one trader, I have seen losses that have forced bankruptcy proceedings. The question is not easy to answer as it depends on many factors and the following aspects of choosing trading as a career should be taken into account.


I have seen figures reporting that 70- to 80-percent of all traders who enter the game consistently lose money and are forced out. The difference between the winners and losers is education and a disciplined approach to trading. Those who educate themselves properly and stick to a disciplined approach emerge over time as the winners; those who don’t, lose and leave.


I have seen traders with Rs50 Lakhs decrease that by half simply by trading a huge amount of shares and taking big losses on each trade without adhering to strict stop loss principles. The idea that the more money a trader has, the easier trading gets is dead wrong. Having more money can distract traders from discipline because they feel that they can afford a few big losses and feel they can easily make it back later on. This gives them the feeling of being invincible to big losses due to the large amount of initial capital. The learning curve of trading is large for several reasons. The primary reason is preconceived ideas of the market’s functionality.


If one were to take smaller profits and larger losses over a period of time, then his or her ability to sustain the bigger losses would be greatly jeopardized over time. Even if one trades at a 90-percent success rate, it will only take one large loss to offset those gains. Losses are a problem for many traders as they can’t seem to find the strength to turn a small loss into reality. This often leads to making a small loss a large one. You must have the strength to adhere to stop loss principles or your account will look like a roller coaster. Every trader has losses; it is a part of the business, but large losses will end your career before it even starts. Keep them small.


Undisciplined traders tend to allow emotions to be a big part of their trading. They tend to view each trade as a life and death situation in their trading career. This approach to each trade clouds decisions of when to enter and exit. Many feel that trading is a reflection of their personal self. They tend to think that all losses reflect a loser and that all profits reflect a winner. This is far from the truth; trading is inherently difficult. We have said previously that active traders go up against the best in the business and they have deeper pockets. Everybody takes losses in trading; our job is to limit the losses and maximize the gains. Losses are part of trading. When a disciplined trader exits a trade with a loss, he or she does not get upset and refer to the loss in a negative way; the trader should think about that trade in a positive light. Traders do this because they prevented a small loss from becoming a larger loss. This protects trading capital and allows them to continue to learn how to trade over a longer period of time.


Small losses certainly do not guarantee success over time, but they give the trader a longer time period in which to study the market and learn from their mistakes. One large loss can easily take a trader out of the game. I’d much rather see a trader take 10 small losses so that he or she has experience with more trades to learn from. One huge loss simply does not give active traders experience.


If one can approach the trade with an indifference to the trade, removed from emotion, then he or she can focus more on the price action and understand when it is time to exit the trade. If traders exit the trade with a small loss, then they do not get frustrated or upset. If they exit the trade with a profit, they do not get jubilant or excited. They are neither losers nor winners. One trade does not make a successful trader. Profits over time in a consistent and disciplined manner are the key to long-term success. One large loss will not allow this possibility to occur.

[singh.ravee]

1. Traders have to think and identify what is propelling them - Gerald Apple

2. Actually, you need to be more selective – find a way to back off, until the conditions you look for are there. - Gerald Apple

3. Every system works in certain market conditions and sucks in a different market conditions. All systems work equally well, if you accept the fact that there will be whipsaws. - Speculator

enjoy reading and sharing

rgds

ravee

[vinay28]

Allow me to give a simple explanation of how market makers function.

Most traders (millions) follow different strategies for their trading. The market makers (a few) know all strategies but they also have dynamic data on volumes and OI positions and that is how they are able to do jobbing when quoting rates. Clearly they operate surgically around SL levels of different strategies because that is where they know they will get large volumes for their buys and sells.

An example. On 29th Sept (expiry), they forced 5000 call to go down to as low as 2.75 by about 2 pm. Most had got out over the previous days and on 29th Sept at SLs of (for example) 15, 12, 9, 6 and 3. The market makers bought the call (and of course NF) later and took it to 30.

[rk_a2003]

What you said is right Vinay !

Even I posted my observation on August Expiry. On that particular day our markets decoupled from all the world markets. ( All of them tanked ,our market is the only one which went up ). I see this kind of phenomena as manipulations of market makers ( who are they - Big Institution ,Big Brokers.).

From the next day onwards as usual our market again coupled with the world markets.

Still with all these manipulations a common Trader / Investor can not afford to operate with out a stop loss ( It could be mental sl also ). That's my strong belief.Though You may choose your sl beyond manipulation range.

[sherbaaz]

[veerappan]

shall i enter........ veeru chennai boy... too much of analysing ..too much of knowledge... it wont give any results..... i have seen more than 3500 4000 peoples... [ related to stock market traders investors ]

where u r lacking ? this is the first question.... there shd not be a bit diff between the thought and the action always.....[in stock market]..... whenever u indicator says just do it....first decide the loss... at any point of time u shd know the loss... that means the system shd have always stop loss....[this one i got a lesson from one of my trader he lost big money in himachal silver line global tele ..those days..he thought he can put the sl .. bcoz he was infront the system ..over confidence?] whether u r in shot or long...it doesnt matter....bcoz u r not playing mind games... u r cing the charts... bars... candles lights.. gulfwaves... gann .. fun and bun ...spoon ... whatever it may be.... but u shd be with ....it cant be wrong always....

and one more... how people are getting trapped.... if they watch 15 min chart...given buy they bought ... it said sell u shd sell... but that time people will watch higher time frames like 30 60... that chart will take time to give sell....suppose if u bought on the basis of 15min ... for profit booking u can use lower time frames....for partial bookings... but u cant c at higher time frames to hold that nf bnf or stocks or options... u cant...just remember this...each one is right... but in their time frames....one who is selling a stock to u ... he is a fool ..do u think? he will get the same stock at .. according to his time frames on lower ranges...but very rare ... only upside ... like ttk prestige form 7 to 3500...

bye
veeru
chennai boy

[vinay28]

Sherbazz, this is a casual discussion only and not an attempt to give any excuses. I have shared what I have heard for knowledge of everyone so that one can be careful while trading. If you don't like it, ignore it.

[rk_a2003]

What Should Be The Approach for Trading

We need not be averse to knowledge. The only point is it should not be the knowledge for the knowledge sake. Knowledge which can guide the practical actions in a scientific way, which can make your practice more efficient, which can be used to remove irrationality in your actions, is more desirable.
With this prologue read the following extract. This might be useful for your trading career.


Knowing how to read a stock, find the opportunity price levels, and then capitalize on that opportunity with the right execution method is the ideal process by which to trade. Each component of the process takes a fair amount of time to learn. The learning curve is steep for this very reason. Learning the reasoning and theory of the method takes time. Applying this theory to a simulation of trading takes time to ensure that the method is working for them.


Finally, trading with real money and increasing share size as they feel more comfortable with executions take the most time. The trader who has the ability and time to move through each phase has a greater advantage over those who simply jump into the market with both feet and no reasoning or methodology to their trading. When you decide to become an active trader, give yourself enough time to fully learn the theory of the method. Then allow yourself enough time to apply that theory to simulation trades.


Finally, when moving to small trades with real money, enter trades with indifference. A profit does not make you successful, nor does a loss make you a failure. It is simply a learning process. Continue to progress through each trade in a separate way so as not to let the previous trade dwell on your thinking and cloud judgment in the current trade. They are mutually exclusive. One trade has nothing to do with the next.. Approach them in this manner. After one has enough confidence in trading with small trades to gain a sense of execution and price action functionality, they can begin to increase their share size per trade to offer themselves a chance at better profits over time.

[pkholla]

Re: Stop Loss etc

At the moment, particularly in F&O, ordinary traders are very less and most active ones are professionals from Bombay. Even SL should be placed with care. I watch daily as pros take market down to sweep up SLs and then they make the price shoot up. Place SL certainly, but with care. After losses, I have started placing small lots and as price goes up, buy more and then when mkt has gone up nicely place SL around purchase price + brokerage. If price goes down say Rs2 below PP, immediately I place square up order and take the loss on the original small qty.
I nowadays only do F&O by sitting in trader room and NOT on phone as seconds are precious in F&O when u are clashing with Pros!
Also avoid internet account. Many crooks are there to break your password and what happens if some crazy places orders in your trading account?
Prakash Holla

[sherbaaz]

[rk_a2003]

Understanding The Dynamics Of The Smart Money


Often we wonder How Institution Money works?! why they are selling like mad for few days and why do they buy immediately for few days ? We will not be able to get a convincing answer and the mist remains. The following Extract may clear the mist ......Go through it.


Institutional participation in the marketplace will always be the primary source of market momentum. Institutions inherently possess large amounts of capital and are able to drive sector rotation at key points of market action. They are able to hold large positions in certain areas of the market as well as dump their shares at any given time. They are able to participate in large buy and sell programs as well as initiate them when the market action triggers such a necessity.


They have been and always will be the smart money of the marketplace. Many newer traders feel they can figure out what institutions are up to in any given stock either by the size of blocks that cross the tape or by a certain research report offered at a given time. We will never know as active traders what institutions are doing while they are doing it. We never know until the momentum is close to reversing its direction.


Furthermore, trying to determine what institutions is about to do in individual stocks is primarily a waste of your time as you will never be able to fully ascertain any answers to this question. Market dynamics does, however, enable us to derive possible expectations on which sector institutions are participating within. Remember that traders and media sources often discuss sector rotation publicly.


The institutions will be primarily referred to as the smart money. This phrase is derived from the notion and assumption that the public is usually the last to know or is just plain wrong. Smart money is seen as doing the reverse of what the public is usually doing.


A failed rally is simply an event by which institutional money has already been put to work at lower levels of accumulation or consolidation. Public money then comes rushing in after sensing a market shift in sentiment from bearish to bullish, and the institutions begin to sell their shares to the late public buyers. The selling pressure by institutional exiting of their positions tends to halt any meaningful upside momentum and the market begins to falter. Institutional selling continues and then public buyers get nervous and end up selling their shares when the pain gets too great. As the pain is increasing and the public is selling their shares at a loss, you guessed it, the institutions are once again snapping up shares at value prices again. This is the basic case of bear market rallies and dead cat bounces.


I would love to close this post with the following Quotation of Buddha

Do not believe in traditions because they have been handed down for many generations.
Do not believe in anything because it is spoken and rumored by many.
Do not believe in anything simply because it is found written in your books.
Do not believe in anything merely on the authority of your teachers and elders.
But after observation and analysis, when you find that anything agrees with
Reason…then accept it and live up to it.
-The Buddha