journey of a trader

[oilman5]

Money Management
Volatility Stop Loss
One of the common ways to set an initial stop loss is to use a volatility method.
The volatility method I consider uses a concept (also a technical indicator) called Average True Range (ATR). If you are not familiar with it, it would be best to read up on ATR, then come back here.
Using a volatility method, you are prepared after entry, for the price to fall a distance which is based on the volatility of that one stock (or how far it normally moves on a day to day basis).
Taking material from the ATR article - to use ATR for exits, you would normally use a multiple of the ATR to ensure a sufficient gap between your exit and the stock's normal price movement. Therefore, using the ATR without any modification (the ATR value itself, eg. 5 cents) would have your stop loss too close to the price and would not allow the stock you are trading sufficient room to move and behave naturally.
INITIAL STOPLOSS
THIS IS TO BE USED ONLY SO FAR AS YOU MOVE INTO PROFIT ZONE.
Depending on your trading style, you would normally consider using something in the order of 2 - 3.5 multiplied by the ATR as a suitable initial stop loss. If you used what is referred to as a ‘2.5 ATR stop’, then your initial stop loss will be 2.5 multiplied by the ATR below your entry price.

As an example, we purchase XYZ Corporation at $2.20, and we use a 3ATR initial stop loss. The ATR is 5.4 cents.

We work out what the ATR multiplied by 3 is and then subtract that from the entry price.

Using the example detailed above, the exit price is calculated as follows:

Initial stop loss
= $2.20 - 3 x ATR
= $2.20 - 3 x $0.054
= $2.20 - $0.162 (round down to $0.16)
= $2.04

NB: Yes you could have rounded the $0.162 up to $0.17 however it is not worth discussing. Let me assure you that the 1 cent up for grabs won't really matter in the long run.

So in the above example, our initial stop loss for our trade with an entry price of $2.20 would be $2.04.

Remember, the advantage of this method is that it considers the volatility of the stock you are purchasing and tailors the initial stop loss accordingly.
Of course, you can use any range of numbers, eg. 1.5ATR through to 4 - 5ATR. The items to consider are the same as using different percentages.

If you use a 1.5ATR initial stop loss, you are obviously not allowing your stock to fall as far before you consider it a loser and exit the trade at a loss. This can be a disadvantage as you are potentially not allowing your stock the freedom to move above normally and perhaps continue its medium term trend.

On the other side, if you use a 4ATR initial stop loss, you are providing the stock ample opportunity to move in your anticipated direction before you consider it a loser and exit the trade at a loss.

Let's consider the 4ATR initial stop loss for a moment then - you might be reading this and think "but if I give back all that movement before I exit, I am going to lose more money!"

Fair comment - however it depends.

If you commit an equal amount of money to each trade, then yes, you are correct. Having your initial stop loss further away will result in a greater loss.

However, using a better position sizing model, ensures that regardless of how far your initial stop loss is away, you only lose the same amount of money. This is what money management is all about.
This method can be quite effective and you will naturally discover what multiple of the ATR is best for you. This is all there has to be with calculating an initial stop loss, if that is it, then it makes you wonder why more people don't use it and cut their losses.
Let me reiterate - one of the most important things you can do trading is to cut your losses."Learn to take losses. The most important thing in making money is not letting your losses get out of hand."

Courtesy
Marty Schwartz


Where can you get ATR?
Visit www.icharts.in

Remember each stock has its own ATR, that of infosys is not same as that of
Maruti.
There are 3 most factors that effect a Investor or a Trader in the Markets.
Of them are Greed, Fear and Hope. I will list a breif description of each of the below.

Greed: taking the meaning from Webster's (noun)
1. Excessive desire to acquire or possess more (esp material wealth) than one needs or deserves.
2. Reprehensible acquisitiveness; insatiable desire for wealth (personified as one of the deadly sins).
Greed always says, wait a little more so that the holding will rise and can make more Money.

Fear: taking the meaning from Webster's (verb, felt more appropriate)
1. Be afraid or feel anxious or apprehensive about a possible or probable situation or event (example: If I dont enter this stock now, I will loose on it).

Hope: from Webste'rs (verb, best suited for Markets)
1. Be optimistic; be full of hope; have hopes; "I am still hoping that all will turn out well".
2. Intend with some possibility of fulfilment; "I hope to have finished this work by tomorrow evening".

Well holding a loosing position even if it down to 20-30% ? This is Hope, that make you feel that the stock will go up and you can recover your lossess.


No one can shy away or exempted from these 3 factors when involved in the Marktes. Let it be those FII's, Fund Managers or our new breed of Tech Savvy Brokers, Professional Traders or the Retail Investors.

When this thought comes that, which breed of Traders/Investors get killed or maimed in a Steep Correction? The answer was simple, 90% of the time, the retail investors followed by Professional Traders, Mutual Funds (unless, they have a really Bad Manager like me ) and very minismal are the FII's.

Why so the retail investors get killed, when the same GFH Factor governs one and all? Well, the answer is simple, if you understand the markets very well and for the laymen it goes this way.

The simple difference between Life and Death in the Stock Market is controlling the GHF Factor. The less the GFH Factor, the more the Survival here.

That is the reason, why the FII's, Mutual Fund Manager and Professional Traders survive here more than retail investors. Since they know how to control their GFH Factors.

Variably or Invariably why others can control their GFH factor and why not the retail? at the end all are human beings! The thing is there are checks and balances in terms of methodologies to control the GFH for the Big Guys, there is no one to control a retail as he his a Boss for himself. Thats how the self destruction starts.

The 3'Ms: The 3'M ( Mind, Money & Methodologies) will help you control the GFH Factor. I am lifiting this straight way from Alexander Elder's book (Trading for A Living & Welcome Into My Trading Room).

1. Control the Mind and overcoming the emtions ( GFH Factor).
2. Protect your Money( mazimize profits and cut lossess by Proper Entry and Exit Plans)
3. using Methodologies ( Pyramiding, Reverse-Scale Techniques, Stop Losses)

Also, these days Trading Systems are available for dirt cheap. If you want to make money, be ready to spend money to get your proper setup.

Like
1. For a swing or short-term trader, a EOD Charting Software is more than Enough
2. For a Day-Trader, access to Real-Time data is crucial, even a 5 min delay can kill you.


I may have presented this not in a orderly fashion, but most of them I learnt some myself, some reading books and some from the Traderji forum.

Satya
Expected or unexpected eventualities though unpleasant happen at times even with all the forces trying to prevent it. With increasing stress between Left and UPA, a trouble in the government cannot be ruled out entirely at the present time. This probability led me to put this thread here. Market reacts to this kind of stuff sharply and then recover in a short timeframe (according to a study on rediff.com which I could not locate now, average time of recovery to previous levels in US market is around 4 days... hope my memory is not very bad). Now when it happens, this, though unfortunate an event, gives opportunity to capitalize intraday or in short term. That was the good part of a bad thing. Now the bad part of the same bad thing is that just at that right moment, our emotions take control and decision-making capability is smashed. We are confused and in yo-yo situation, shall we sell, shall we buy. If we can develop a rule (intraday as well as delivery) for these eventualities, then that would make up for our decreased insight during such time.

I would request readers to put their valuable opinion and share experiences, especially senior members who have huge collection of such experiences.

Thanks

Ravi S Ghosh
Step One: Unconscious Incompetence.

This is the first step you take when starting to look into trading. you know that its a good way of making money cos you've heard so many things about it and heard of so many millionaires.Unfortunately, just like when you first desire to drive a car you think it will be easy - after all, how hard can it be?? - price either moves up or down - what's the big secret to that then - lets get cracking!

unfortunately, just as when you first take your place in front of a steering wheel you find very quickly that you haven't got the first clue about what you're trying to do. you take lots of trades and lots of risks. when you enter a trade it turns against you so you reverse and it turns again .. and again, and again.

you try to turn around your losses by doubling up every time you trade - sometimes you'll get away with it but more often than not you will come away scathed and bruised

Well this is stage one - you are totally oblivious to your incompetence at trading.Stage one can last for a week or two of trading but the market is usually swift and you move onto stage two.

Stage Two - Conscious Incompetence

Stage two is where you realise that there is more work involved in this and that you might actually have to work a few things out.

you consciously realise that you are an incompetent trader - you don't have the skills or the insight to turn a regular profit.

During this phase you will buy systems and e-books galore, read websites based everywhere from Russia to the Ukraine. and begin your search for the holy grail.

During this time you will be a system whore - you will flick from method to method day by day and week by week never sticking with one long enough to actually see if it does work. every time you came upon a new indicator you'll be ecstatic that this is the one that will make all the difference.

you will test out automated systems on Autotraders, you'll play with moving averages, Fibonacci lines, support & resistance, Pivots, Fractals, Divergence, DMI, ADX, and a hundred other things all in the vein hope that your 'magic system' starts today.

you'll be a top and bottom picker, trying to find the exact point of reversal with your indicators and you'll find yourself chasing losing trades and even adding to them cos you are so sure you are right.

You'll go into the live chat room and see other traders making pips and you want to know why it's not you - you'll ask a million questions, some of which are so dumb that looking back you feel a bit silly. You'll then reach the point where you think all the ones who are calling pips after pips are liars - they cant be making that amount cos you've studied and you don't make that, you know as much as they do and they must be lying. but they're in there day after day and their account just grows whilst yours falls.

You will be like a teenager - the traders that make money will freely give you advice but you're stubborn and think that you know best - you take no notice and over leverage your account even though everyone says you are mad to - but you know better.

you'll consider following the calls that others make but even then it wont work so you try paying for signals from someone else - they don't work for you either.

This phase can last ages and ages - in fact in reality it can last well over a year - My own period lasted about 18 months.

Eventually you do begin to come out of this phase. You've probably committed more time and money than you ever thought you would, lost 2 or 3 loaded accounts and all but given up maybe 3 or 4 times.

Then comes stage 3

Stage 3 - The Eureka Moment

Towards the end of stage two you begin to realise that it's not the system that is making the difference.

you realise that its actually possible to make money with a simple moving average and nothing else IF you can get your head and money management right

You start to read books on the psychology of trading and identify with the characters portrayed in those books.

Finally comes the eureka moment.

The eureka moment causes a new connection to be made in your brain.

you suddenly realise that neither you, nor anyone else can accurately predict what the market will do in the next ten seconds
and you define your risk threshold.

You start to take every trade that your 'edge' shows has a good probability of winning with.

when the trade turns bad you don't get angry or even because you know in your head that as you couldn't possibly predict it it isn't your fault - as soon as you realise that the trade is bad you close it . The next trade will have higher odds of success cos you know your simple system works.

You have realised in an instant that the trading game is about one thing - consistency of your 'edge' and your discipline to take all the trades no matter what.

You learn about proper money management and leverage - risk of account etc etc - and this time it actually soaks in and you think back to those who advised the same thing a year ago with a smile

you weren't ready then, but you are now.

The eureka moment came the moment that you truly accepted that you cannot predict the market.

Then comes stage four

Stage 4 - Conscious Competence

Ok, now you are making trades whenever your system tells you to.

you take losses just as easily as you take wins

you now let your winners run to their conclusion fully accepting the risk and knowing that your system makes more money than it loses and when you're on a loser you close it swiftly with little pain to your account

You are now at a point where you break even most of the time - day in day out, you will have weeks where you make 100 pips and weeks where you lose 100 pips - generally you are breaking even and not losing money.

you are now conscious of the fact that you are making calls that are generally good and you are getting respect from other traders as you chat the day away.

You still have to work at it and think about your trades but as this continues you begin to make more money than you lose consistently.

you'll start the day on a 20 pip win, take a 35 pip loss and have no feelings that you've given those pips back because you know that it will come back again.

you will now begin to make consistent pips week in and week out 25 pips one week, 50 the next and so on.

this lasts about 6 months

then comes Stage Five

Stage Five - Unconscious Competence

Now were cooking - just like driving a car, every day you get in your seat and trade - you do everything now on an unconscious level.

you are running on autopilot. You start to pick the really big trades and getting 100 pips in a day is becoming quite normal to you.

This is trading utopia - you have mastered your emotions and you are now a trader with a rapidly growing account.
you're a star in the trading chat room and people listen to what you say. you recognise yourself in their questions from about two years ago.

you pass on your advice but you know most of it is futile cos they're teenagers - some of them will get to where you are - some will do it fast and others will be slower - literally dozens and dozens will never get past stage two but a few will.

Trading is no longer exciting - in fact it's probably boring you to bits - like everything in life when you get good at it or do it for your job - it gets boring - you're doing your job and that's that.

You can now say with your head held high "I'm a trader"

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Last edited by amarnath

 

[oilman5]

BOULDER, Colo. (CBS.MW) -- Most traders experience a rite of passage and baptism by fire during the first few months after opening up a trading account; emotional mismanagement combined with a general sense of complete and utter confusion as a stock appears to trade in a manner opposite of what they would think in light of the fundamental research.

A perfect example: Taser International (TASR: news, chart, profile).

Even if you are completely new to the world of trading or investing, there is a good chance that this developer and manufacturer of less-lethal self-defense devices has entered your trading universe. The real question is, "How can a trader effectively filter out the noise and look at TASR shares objectively?"

Do not buy TASR! Why? Well, for one, prisoner-rights group Amnesty International said stun guns are needlessly deadly and more testing is needed. A red flag. Moreover, many articles and reports have surfaced, especially in the New York Times, raising questions about safety and adding to the specter of debilitating lawsuits in the future.

In addition, it has been said that corporate insiders have sold 1.3 million shares, worth roughly $68.4 million, and this coupled with over 50 deaths associated with these "less-lethal" guns must have bullish traders running to the hills. Additionally, quarter-to-quarter sales growth has fallen from 24 percent to 16 percent in the third quarter. Do not buy!

If these reasons were not enough, consider that as of November 15th there were over 15.9 million shares short; thus making it clear many traders are in fact betting prices will fall. How can they be wrong?
This should be a proverbial slam dunk for bears; however, I feel it only makes prudent sense to explore another angle on TASR before coming to a decision. In fact, most true trading professionals only look at an objective, pragmatic analysis of the market, by studying supply and demand on a chart -- Technical Analysis (TA). Almost all the aforementioned information was simply subjective "news" that elicits emotions that run contrary to profitable thought. Do you remember when the bad news about Enron hit the marketplace? Trust me, it wasn't near the top and only a clear knowledge of charts patterns would have given a trader a "real" read of emotions.

Technical analysis paints the psychological picture from A to Z, and if a stock is in an uptrend in spite of a negatively spun fundamental story, technicians can easily look past the fundamental theme because they are comfortable with certain chart patterns that they have seen over time that allow them to define risk vs. reward and make clear what the path of least resistance is.

In the short-term, which is less influenced by the fundamental company performance, money flow and psychology are the underlying factors that technicians can use to get a sense where the money is going and what current psychology is. They may soon become more favorable to accepting the risk of an upside move vs. a downside slide. With that said, before we submit orders to go short TASR, let's explore the technicals.

As of this writing TASR is currently trading above its 10-, 20-, 50-,100- and 200-day moving averages (DMA). With the 50 DMA rising, a technician can conclude that shares have been traversing higher and that the path of least resistance is higher. Additionally, these moving averages are all pointed higher and they are aligned in such a way that the 10 DMA is above the 20 DMA and the 20 DMA is above the 50 DMA, and the 50 above the 100, and so on. Alignment in this fashion is bullish and reinforces the objectiveness of the trend -- bullish. What is more relevant to a trader, a bad news story or price action? Emotional traders generally follow the former.

Continuing on, there was a failed attempt in early November to take out the yearly highs of $32.08 and during the last month shares have been creating a symmetrical triangle and appear poised to breakout higher. Of course, who will fuel the demand? Well, for one, traders that have been selling TASR short (borrowing shares with an obligation to deliver shares back to the brokerage house, and a trader is forced to cover -- "called away" -- if the lender wants the shares back) may all rush in to cover at once if the primary trend continues.

Simplicity is the market's greatest disguise. Traders turn on the TV, gulp five cups of espresso, and then sometimes trade based upon information that most traders have fully dissected hours, sometimes days, ago. I have found that taking the subjectiveness out of the equation and using technical analysis can turn the opaque into the transparent. As the saying goes, "Trade what you observe, not what you believe." I observe price action in TASR as bullish and giving an antithesis reaction to recent fundamental negativity. And the best part of all is that, as a trader, I can limit my bullish risk via stop loss order and, if triggered, listen to the market. Of course, odds are I am right. Buy TASR.
david nasar

 

[oilman5]

An anatomy of the Stock Market! - Bull & Bear Market Cycles

In financial markets, the “majority is always wrong.” When the investing majority or the crowd is overly bearish, this is the best time to be buying stocks. When the crowd is overly exuberant, this is the time to be selling stocks. The financial markets work in this ironic way because not everyone can win in the market.

The Start of a Bull Market

The bottom of the market starts at a time when the stock market is weak and the general population is pessimistic. At this point most investors sell after having endured a long and torturous bear market. This extreme pessimism found at a bottom is always irrational and undeserved. Now the market is undervalued and is a bargain. Savvy investors, the “smart money”, buy bargain stocks knowing that they will be able to sell them higher in the near future. Smart money buying, called accumulation, causes stocks to rise.

The smart money often consists of operators, and corporate insiders (promoters of companies). These traders have access to information that the general public does not.

Rising stocks eventually gain the respect of institutional investors, as billions of dollars of capital is introduced into the market place. Mutual fund investment causes the stock market to advance in a powerful manner. Much of the steady large trends are powered by institutional investors. After the stock market has gained, stocks are now fairly valued and are no longer considered bargains. The smart money is now sitting on a large profit, as well. The average investor is still skeptical, however.

As bull market events unfold, retail investors begin to take interest in stocks. Retail investors, or the unsophisticated little guy, make up the vast majority of investors. This group does not invest for a living. Retail investors often make investment decisions based on what they read in financial magazines, from their brokers and from tips from friends. As the flood of retail capital is invested, the market soars, causing great euphoria. At this point in the cycle, many companies become public, or launch an IPO. Companies go public when investor sentiment is most optimistic so as to gain the highest possible stock price. IPO’s generate even more optimism as unsophisticated investors buy into the fallacious thoughts of instant riches. Now is the time when many small investors become wealthy. In this phase, stocks are doubling and tripling as the media cheers on the advancing bull market.

At this point, the smart money sells, or distributes, the now overvalued stocks to overconfident retail investors. The smart money knows that overvalued stocks are no longer worthy investments, and will soon drop in value. Widespread greed always occurs, in some form, at stock market tops. Sometimes this greed takes form as stock market scams and fraud. These immoral activities can take place because irrational retail investors will buy a stock simply because it is glamorous. To compound the problems, investors will now start to use margin, or leverage, to further accelerate gains. All caution is thrown to the wind as investors think “the old rules don’t apply”

The Start of a Bear Market

After mutual funds and retail investors are fully invested, the market is overbought. This means that there is no more cash to fuel the rally. The market can only go in one direction: down. All it takes is just a hint of negative news and the market collapses under its own weight. Investors quickly realize the market is made of smoke and mirrors, as frauds or other scams come to light.

When panic selling starts, a market will always fall quicker than it had risen. Oftentimes, as everyone heads for the exit at the same time, there isn’t anyone willing to buy the stock. This can be especially disastrous for margin users as they grow deeply indebted to their brokers. Bankruptcy is the usual result for these foolish gamblers. The majority of retail investors don’t sell even as the market is plummeting. This crowd keeps holding on to stocks in hopes that the market will recover. As the market plummets 25%, then 50% the average retail investor foolishly holds on, in complete denial that the bull market is over. Finally retail investors sell every stock they own plummeting the market even further. This mass exodus is called capitulation.

The Cycle Starts Again

It is at this point that stocks are undervalued once again. The smart money is accumulating and stocks rise. The majority of retail investors bought at the top and sold at the very bottom. This is the very essence of the “dumb money”. They are perpetually late into the game. This cycle continues over and over. Only the smart money actually “buys low and sells high”. After trading in this manner, the dumb money will adhere to adages such as, “the stock market is risky”. In reality, however, the stock market is only risky if you trade like the mindless majority
How does one know that the market is topping. Though I am no expert, these are my observations(nifty/sensex):-

1) Monthly charts at all time high
2) Momentum indicators in weekly charts showing overbought levels or prices falling below 30 week average
3) Prices falling below the 200 day moving average or below the two-thirds fibonnacci retracement of the primary market trend
I don’t know how much fibonacci applies to weekly charts in this respect

Following the ripple, wave, tide syndrome, you probably identify the tide change by looking at the monthly/weekly charts and look for intraday turnarounds beginning with looking for bearish reversal patternos on 30 min charts?
I should add that When the market peaks and one wants to sell, one can apply a 20day moving average as a trailing stop loss.?

One can always get further intellectual satisfaction by tracking US interest rates, FII and mutual activity etc.

For identifying market bottoms, it would be reverse of the above. I have always been fascinated by how investors use technical analysis and traderji has come with a really good post. However unless we have specific and correct pinpointed information, such posts cannot stop trailing losses to us small,little,tiny investors. Its David v/s Goliath and you gotta support the underdog.

I am not much of an expert at all this and so any corrections would be as welcome as corrections to primary trends are to detect a new trend. Weekly specifications of stochastics/RSI and others applicable also would be appreciated.

Come to think of it, I have not seen any monthly chart attachment on any of the posts and weekly chart also comes in once in a blue moon. Anybody wants to criticize what I have written or contribute anything on Techincal analysis for investing, please do so. Sometimes, TA seems better at timing investment profits then following the short term hocus pocus. However TA itself is a conglomerate of indicators and so the more precise and clear the info, the better. Lets create a new trend for the small guy. If we create understanding, the small guy will no longer remain a puppy between the bulls and the bears.

Quote:
If the analyst action observes market action to be bullish for a number of months, mkt is bullish and all retracements will find support at lower prices. Otherwise they will not find support"

This explains the two- thirds fibonacci

Elsewhere in the book, the author has explained in little more detail what traderji has explained above. He says there are three categories of stocks-primary, secondary, tertiary. When the mkt bottoms out, savvy investors first pick up the primary stocks or blue chips as a sign of revival. They being blue chips, others cannot afford at the end of bear cycle. Then after a while they dump them to others and switch to secondary stocks and when both peak they sell both and sit pretty waiting for the market to bottom again. There too the primary stocks are the last to fall and when they begin falling it can be a sign of doomsday.The five wave Elliot wave theory probably explains this phenomenan but unfortunately the wave count is too bloody confusing.I know that profits are made mostly in the third and fifth impulse waves. I think at the end of the first impulse wave, primary issues peak, third impulse wave-primary/secondary issues peak and fifth impulse wave- all peak and the market tops. This is my guess but if some enlightened person from among you can illuminate this phenomenan, that would be the height of illumination/elnightenment.Otherwise it would be the mother of all confusions which we can do without since we already have the mkt.

Us little guys unfortunately try to get in at every tom, dick and harry stock(in all the three categories)are at a peak and get rodgered in the process unless we are lucky.
One of the most ROBUST & RELIABLE WAY to identify BULL & BEAR Markets are as follows:

A BULL MARKET can be defined when the major Indices (BSE SENSEX, NSE NIFTY, etc) form a series of rising peaks and rising troughs (higher highs and higher lows) in the WEEKLY CHARTS.

A BEAR MARKET can be identified when the major Indices (BSE SENSEX, NSE NIFTY, etc) form a series of declining peaks and declining troughs (lower highs and lower lows) in the WEEKLY CHARTS.
__________________TRADERJI
Since v are talking about the Bulls and the Bears..im inclined to comment on the current market scenario....
There is a lot of caution within the circles of "know how"....these are the people with lot more knowledge and money invested in the market...
These are the people who are talking about terms such as "evaluations and overstretched"...
These are the BEARS of the market in the current scenario...who are trying to time their exit from the market now rather then their next multibagger...

At the same time v find the BULLS...these are momentum players and huge individual swing traders.....Average investers as me and majority of the members are a part of this club...V are the people who probably boarded the train a bit late and are yet to realise the huge profits that would satisfy us...and v keep throwin in more and more to keep the fire burning..

This market is close to crossroad with the BULLS and BEARS tugging it out...
As of now the BULLS are heavy with the market showing little appetite for corrections....Apart from one week in between the markets have closed in positive on a weekly basis...
But as is mentioned in the previous article...as the market grows in confidence...gravity will finally will take over...there WILL BE a downfall...but for optimist like me that will just be the start and foundation for another BULL RUN....

MONEYLAUNDER

 

[oilman5]

some more rules..its copy paste...check usefulness of them
...................................................................................
Never risk more than 10% of your trading capital in a single trade.

Always use stop loss orders.( Here you should know your loss you can give in a situation where the trade starts going against you.)

Never do overtrading.

Never let a profit run into a loss.

Don't enter a trade if you are unsure of the trend.

When in doubt, get out, and don't get in when in doubt.

Never limit your orders. Trade at the markets.

Extra monies from successful trades should be placed in a separate account.

Never trade to scalp a profit.

Never average
Never get out of the market because you have lost patience, or get in because you are anxiously waiting.

Avoid taking small profits and large losses.

Never cancel a stop loss after you have placed it.

Avoid getting in and out of the market too soon.

Be willing to make money from both sides of the market.

Never buy or sell just because the price is low or high.

Never hedge a losing position.

Never change your position without a good reason.

Avoid trading after long periods of success or failure.

Don't try to guess tops or bottoms.

Don't follow a blind man's advice.

Avoid getting in wrong and out wrong; or getting in right and out wrong. This is making a double mistake.

When you lose don't blame it on luck.

 

[oilman5]

here i shall compile attempt of some view of investrader our great sh50
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J. Welles Wilder developed the Average Directional Index (ADX) in order to evaluate the strength of the current trend, be it up or down. It's important to detemine whether the market is trending or trading (moving sideways), because certain indicators give more useful results depending on the market doing one or the other.
ADX is an oscillator that fluctuates between 0 and 100. Even though the scale is from 0 to 100, readings above 60 are relatively rare. Low readings, below 20, indicate a weak trend and high readings, above 40, indicate a strong trend. The indicator does not grade the trend as bullish or bearish, but merely assesses the strength of the current trend. A reading above 40 can indicate a strong downtrend as well as a strong uptrend.
ADX can also be used to identify potential changes in a market from trending to non-trending. When ADX begins to strengthen from below 20 and/or moves above 20, it is a sign that the trading range is ending and a trend could be developing

ADX is derived from two other indicators, also developed by Wilder, called the Positive Directional Indicator (sometimes written +DI) and the Negative Directional Indicator (-DI).
When the ADX Indicator is selected, SharpCharts plots the Positive Directional Indicator (+DI), Negative Directional Indicator (-DI) and Average Directional Index (ADX). With the Red, White and Green color scheme on SharpCharts, ADX is the thick black line with less fluctuation, +DI is green and -DI is red. +DI measures the force of the up moves and -DI measures the force of the down moves over a set period. The default setting is 14 periods, but users are encouraged to modify these settings according to their personal preferences.
In its most basic form, buy and sell signals can be generated by +DI/-DI crosses. A buy signal occurs when +DI moves above -DI and a sell signal when -DI moves above the +DI. Be careful, though; when a security is in a trading range, this system may produce many whipsaws. As with most technical indicators, +DI/-DI crosses should be used in conjunction with other aspects of technical analysis.
ADX combines +DI with -DI and then smooths the data with a moving average to provide a measurement of trend strength. Because it uses both +DI and -DI, ADX does not offer any indication of trend direction, just strength. Generally, readings above 40 indicate a strong trend and readings below 20 a weak trend. To catch a trend in its early stages, you might look for stocks with ADX that advances above 20. Conversely, an ADX decline from above 40 might signal that the current trend is weakening and a trading range may develop.

In my view, ADX is well explained in Alexander Elder’s book “Trading for a living”

The latest book by Ashwini Gujral("How to make money trading derivatives) also has a comprehensive table on what all to do when ADX < 20, ADX 15-25,ADX > 30, ADX>=45 and ADX declining below 30. I have not seen Adx explained so specifically anywhere else.
This is also interesting by some other author

The Extreme Point Rule
Identify a trigger point at the extreme price on the bar the lines cross. If it's a bullish crossing (+DI cross above -DI), you would wait for the price to rise above this extreme price (the high price on the day the lines crossed) on a subsequent bar. If it's a bearish crossing (+DI crosses below -DI), the extreme point is defined as the low price on the bar the lines cross. You would then wait for price to break below this extreme price on a subsequent bar before entering into a short position.

Since trending and oscilatting is all what we track, I would request traderji or other senior member to cover indicators like Aroon, CMO, CCI etcetc. Some books give the impression that they are mere substitutes. If they are for specific situations, kindly let us know.


Yes it's too damn lagging.

A better way to use it would be to use a pair - one for the short term & another one for the longer term, like say a 10d & a 30d ADX. So if the short term ADX is below 30 while the longer term is above it (with off course +DI above -DI), what we get is a short term pullback in a longer term uptrend that is still intact and may actually be a buying opportunity. Another way would be to have one on the weekly & another one on the daily and enter on pullbacks on the daily while the weekly trend is still intact.

Alexander Elder has also devised an interesting indicator called the FORCE INDEX. This one factors in both price & vol movements & can be pretty useful particularly for short term trading; but many TA s/w's do not have this indicator.

Regards,
Kalyan

On one of my walks, I got a bolt from the blue- just as seminars tried to infuse too much theory without much practical experience, were not chatrooms(yahoo conference chat) doing the opposite; giving too much practical knowledge without making the right conceptual foundation. I had read in an article on dieting that people run after proteins and carbohydrates but the fact remains that fats are also required in the right proportion. So though practical experience maybe more important, making a conceptual base is also important
There was only one instance about entries when the market was very high once. Boss instructed us to buy but the concerned member said that let the mkt fall by 25 points and then he will enter. Two members told me privately that they were not doing nifty at all which was strange considering that boss had repeatedly stated that nifty was his specialization and in his experience we should focus 80 percent on nifty and 20% on individual stocks. There he was absolutely right because I burnt my fingers badly doing individual stock futures and so did some of the others.

Gradually it dawned on me that if you make a loss because of some beginner’s mistake or something like that, it becomes too tempting to square off the position to neutralize the loss. Boss by and large followed the policy of “Let the profits run” and to goad us to do the same would say things like “Jo dar gaya, samjho mar gaya” . However the fact remains that nothing in the market works or does not work all the time and so at times “Discretion is better part of valor” used to work quite well, at least with me. I was to have interactions with several people who would use their own discretion where exits were concerned. In fact the more I think about how people used their own prerogative to exit, the more I realize that whatever is said in the attached file “Individual” is absolutely true.

Twenty years of management experience has taught me that even going against the immediate boss can be dicey unless you are able to prove your smartness to the top boss. Going against the top boss in public is like going against the primary trend. At the same time, this is not a standard boss-subordinate relationship and the concerned member, being a customer for all practical purposes could have been treated with more dignity. They should have just sorted it out in private in my view.
It is often said that treat trading like a business. Strategic gurus Christopher Barlett and Samantha Ghoshal are famous for making the policy “Think Globally but act locally “ famous and is followed by several multinationalss. Boss had this penchant for giving the example of cricketer Virendra Schewag “ Schewagg never analyses. He hits” . Don’t analyse too much which is true in the relevant context. Current captain Rahul Dravid had said of Virendra Schewag “ His is a unique game. We don’t try and impose any technique on him because it will never work. Every individual has his unique style and his is a unique case.” This would be true to a lesser degree for other players also.

What u think?
one book I read that if you took your wife/girlfriend to watch a match at a jampacked stadium , lost them and tried to find them,(everyone may not try) that is trying to find the relevant information from irrelevant information. To me this applies to the sharemarket more than anything else. Even Lee Iaacocaa and Winston Churchill demanded one page summarized reports.

The most important in fundamental analysis to my mind is ratio analysis. Among all the sites that I know, www.indiainfoline.com gives the most comprehensive ratio analysis. In the inclosed file iinfo.doc, the analysis of Bongaigaon refineries is given. Per share ratios, profitability ratios, liquidity ratios, payout ratios etc one can figure out. However coverage, component and leverage ratios are bound to be different for different industries. It would be interesting if people could throw some line on that.

I think the market capitalization ratios are missing in this analysis apart from price earning ratios. Is anything else missing?It would be interesting to pinpoint both general and specific points for each industry.
As an intelligent person you try to understand the basics of any situation:you ask who, what, when, where and why. The markets because it is composed of infinite variables, raise many more who, what , when, where and why. This can create more confusion than clarification yet it does not deny the need to know about the markets. In order to forecast imminent price moves, we absorb as much information as we can. There is danger however if we go to the extreme and learn more than is needed to trade the mkts successfully

the main thing was to earn money and each individual should be free to choose his own preference.

I see no conflict betwen the two. Buy and hold(not a full time occupation for non professionals) and while doing that avail of trading opportunities. It is like funds flow statement-short term funds for short term objectives and long term for long term objectives.

Over the last 3-4 months, I have been trying to learn TA and have repeatedly come across how subjective it is and how important it was to pinpoint one's trading style. Today I read that well known investor Benjamin Graham laid the said emphasis for investing..

Goerge Soros, regarded by many as the world’s greatest investor did both investing and trading well.

Even on the metastock company Equis website, it was given that it was rare to come across a short term trader who was not an equally good longterm investor and vice-versa.

In light of all this, I strongly feel that we would have been better of with something like traderji-investorji.com at least in the initial stages to encourage more and more people to participate. There a re a plethora of websites in America imparting investor education.

Here too, we could have articles on value investing, growth investing, CAGR, approach of some of the world’s greatest investors which were mentioned in the CNBC camp.

Despite being an MBA(Finance) and a son of a chartered accountant who has been very successful investor, I don’t know things like Discounted dividends model, projected earnings, PEG being done practically. There is no Indian website which displays them in their ratio analysis.

I read an interesting article on Warren Buffet which stated that till today nobody knows how he calculated the intrinsic value. I think investing too should be made a little more comprehensible and transparent for the common man. In Investments books also it is written that in the stock market there is no such thing as an expert in the true sense.
Market price movement is highly random with a trend component.

Unsuccessful and frustrated traders want to believe there is an order to the markets. They think prices move in systematic ways (Elliott Waves) that are highly disguised. They want to believe they can somehow acquire the "secret" to the price system that will give them an advantage. They think successful trading will result from highly effective methods of predicting future price direction. They have been falling for sureshot methods and systems since the beginning of civilization (or when markets started trading).

The truth is that the markets are not predictable except in the most general way. Luckily, successful trading does not require effective prediction mechanisms. Successful trading involves following trends in whatever time frame you choose. The trend is your edge. If you follow trends with proper money management methods and good market selection, you will make money in the long run. Good market selection refers to selecting good trending markets generally rather than selecting a particular situation likely to result in an immediate trend.

There are two related problems for traders. The first is following a good method with enough consistency to have a statistical edge. The second is following the method long enough for the edge to manifest itself.
__________________
TRADERJI
I had read 3-4 books on Technical analysis before the Seminar. I think the most important thing about the seminar from the perspective of a beginner is the emphasis and the sequence of usage of TA tools. They began by emphaisisng on one's own observation. It began with bar-reversals which I did not know was so important as it was only in one book. Traderji can probably explain the basics better through diagrams but the finer point was that an upward bar reversal has relevance only if preceded by a downward trend and vice-versa.


Then the importance of Gaps which again for some strange reason I did not read. The finer point I remember is that even the experts find it difficult to distiguish between exhaustion and runaway gaps.


A basic general principle was that once you master the principles of technical analysis- they remain the same for everything be is intraday or other type of trading only the time frame is different.


They obviously covered moving averages, supports and resistance, trend reversals and indicators very well(for 2days). I was not so satisfied with the coverage of continuation patterns. Eliot waves and Derivatives were convered in the end. Again, I have read 3-4 books on derivatives also and I am not satisfied.

Day one- Trends and Channels, supports and Reistnace, Moving Averages and Bar Reversals- Followed by practicals by the students on computers(SOC) and live trading experiences(LTE).
Day Two- Trend Reversals and Contiunation patterns followed by soc and LTE
DaY Three- Major oscillators/ indicators followed by SOC and LTE- Some insight into how to build one's own oscillator.
Day Four- Applications like Derivatives and commodity futures or others follwed by SOC,LTE
Day five- Final combination with proper theory and practical exams to ensure what is learnt is digested.

Traderji's comments on the above? Since SOC and LTE in an expert's presence were totally absent, one could not get a proper insight into metastock. I can also conduct a two day seminar on fundamental analysis but I cannot imagine doing so without giving hands on experience on the computer on the best software. I have even written to equis why they don't try to create metastock professionals just the way we have Tally graduates and there microsoft certified professionals.

Some of these observations proved true when the next day I came across www.tradingacademy.com where they have a seven day instead of a five day course but by Indian Standards is extremely expensive. I would suggest beginners to listen to their free online courses like the "Seven pillars of Trading".
concluding, let me share the best thing I learnt. In India, Sitar is an instrument

S-Support
I-Indicator
t-Trends
a-Averages
r-Resistance

This is what one is supposed to study but before that:-

Inside Bar
Rversal Bar
Gaps
Volumes
Primary

Traderji's comments on the above. I know there is no definite sequence but this is a good sort of direction.
request traderji's comments on one partiular issue. Is trading so simple that after giving an orientation, one can afford not to monitor. For instance can I start drawing continuation patterns, supports and Resistances etc and others correctly. Should not an expert monitor that it is being done correctly. Is metastock also so simple that it does not require any practical training.

I think beginners should either go the whole hog since money is involved or avoid such seminars. Very few people know about professional trading in India. It could be a good dormant market provided the right kind of training is provided. Even with metastock, I feel like an untrained soldier with a very good weapon which can prove counterproductive.

--------------------------------------------------------------------------------

Being successful at trading involves tremendous amount of dedication, motivation, patience and discipline apart from a voracious appetite for reading and and of course a certain amount of trading capital to pay for losses (akin to tution fees) in the markets.

Most beginners end up losing their entire trading capital within their first year of trading.

When they start out, most beginners are extremely excited. They dream of success and the recognition that huge profits will bring. Some achieve early success, but many soon discover that achieving consistent profitability is elusive. Many are drawn to trading, but few can trade profitability. The winning trader is a special breed, a person who is highly motivated, but at the same time, he or she is realistic and able to persist in the face of adversity.

It's easy to get yourself "psyched up" when you first start out trading: One can merely convince himself or herself, "All I have to do is apply myself and I'll achieve profitability." This can often be a useful positive attitude, but the "power of positive thinking" doesn't usually go very far in terms of achieving trading success. It makes you feel good in the short term, but then you find that mere hard work and persistence doesn't pay off.
To be successful it is necessary to use sound trading strategies, expose yourself to a variety of market conditions, and hone your trading skills. Successful trading requires talent, and there's no way to develop one's talents without extensive practice (which involves losing money in the process).

Although a positive attitude is useful, a healthy skepticism is paramount. When it comes to trading, you can't believe anything your read or hear. Even when a so called professional at a seminar teaches you the "conventional wisdom," it is essential to remember that so-called conventional wisdom is true only when it is true; it is false the rest of the time.

History in the markets only repeats itself when it does. And the only time you actually know that you've stumbled upon a profitable trading strategy is when it, indeed, produces a profit. Convincing yourself you can master the markets with sheer determination and willpower isn't going to get you very far. You must accept the fact that, in the end, trading is like a game.

You've got to take it seriously on the one hand, but learn to enjoy the process on the other. Traders take the game seriously in that they acknowledge that real money is on the line and it is likely that real losses can wipe out one's trading account. They address this issue through risk management. On the other hand, they know that no trading strategy is foolproof. They realize that despite all their efforts, it is quite possible that some unforeseen adverse event can go against their trade, or that market conditions may just not be conducive to one's trading plan.

That's where a happy-go-lucky attitude is useful. It is vital to view trading like a sport. If you score the winning point, fine. But if you miss it, don't get too bogged down. Just pick yourself up and try again. Eventually, with enough practice and experience, many novices will move into the realm of the seasoned professional. It is not going to happen over night, however. It will take time and practice. That's where the motivation comes in.

It is easy to stay motivated for a short time, if you think the payoff will be large and relatively immediate. But trading is a profession where years can go by with little progress.

It takes several years to achieve consistent profitability. Over the years, a great deal of money will be spent on commissions, losses, books, software and other instructional materials.

The would-be professional trader isn't fazed by it all, though. He or she views the money spent on trading as similar to what any professional spends on college tuition. He or she believes that eventually, his or her time and effort will pay off.

The winning trader is highly motivated. He or she admits that trading is a challenge and that success is far from assured. Despite this harsh reality, the winning trader persists until he or she achieves consistent profitability

TRADERJI..
One way to learn how to trade correctly is to find a successful trader (mentor) and have him or her teach you exactly how they do it. So a course followed by a live trading experience would be great!

However, this is not guaranteed to make you a successful trader. You might not have the capital necessary to trade the way they do. You would definitely not have the years of experience they had developing their successful approach. You might not have the personality profile necessary to execute their style of trading.

Another way to learn is by trial and error. This can be done by applying what you have read and learnt in the markets using REAL MONEY! This is the method of choice for most people although they probably don't realize it.

The most obvious and practical way to learn how to trade correctly is to read books. Find the best books by the most respected authors and the best traders and learn from them. This will expose you to ideas of other professional traders and the way they think and react under different market conditions.


Finally learning to trade is a combination of being exposed to ideas plus practical experience watching the markets on a day-to-day basis. This is not something that can happen in only a few weeks. Professional trader and money manager Russell Sands describes the makeup of a successful trader: "Intelligence alone does not make a great trader. Success is equal parts of intellect, applied psychology, practice, discipline, bankroll, self-understanding and emotional control."

To be successful you don't have to invent some complex approach that only a nuclear physicist could understand. In fact, successful trading plans tend to be simple. They follow the general principles of correct trading in a more or less unique way.
__________________

don't like to risk more than 2% of the account equity on any single trade

Look for a 3-1 profit objective.

Obviously the bigger risk you take when you trade, the bigger the reward if you're right. But equally, the smaller you trade, the less chance you will go bust," says Sands. The Turtle philosophy is to trade many times as small as possible in order to stay trading forever. This is important, says Sands, because 60 to 70 per cent of the time the identified trends fizzle out and traders wind up losing a small amount of money. The compensation comes when a solid trend is identified which rewards the trader handsomely. "Maybe 30 per cent of the time you are right and when I win with Turtle I can make between five to 10 times what I've previously lost," claims Sands.

By the same token, traders find it hard to resist taking profits too fast. One of the most successful big traders in the currency and interest-rate markets says that he expects that 70 percent of his trades will be losers. But when he loses he loses small, and when he wins he wins big. Others who work in his trading room will say that they are profitable on 70 percent of their trades-but most of them lose money, because they grab for small winnings.
He thought the best discipline for young traders was "spreading"-taking long positions in one contract against short positions in another, to exploit changes in relative prices that would disappear as normal patterns reasserted themselves.

You should never be willing to let a position go against you by more than 8%. Remember, all stock are bad, unless they go up. Cut your losses at 8% and move on.
If your are disciplined enough to cut losses at 8% while taking profits at 20% - 25%, you can't possibly lose money over time as this law of mathematics cannot be broken. with these two simple rules, you can lose three times and win only once and still not get into financial trouble. Now, if you can't produce 1 winning trade out of every 3, you don't belong in the market

Once you're up 6% or more, decide never to be down in that position again.
Once you have a 15% gain and you have moved your stop to protect 10% of your profits, determine the exact price at which you will sell at least 1/2 of your position. . The remaining half can stay in as long as the stock stays above it's 50 period simple moving average (sum of last 50 closing prices divided by 50).
Winners cut their losses short and move on to the next winning trade. Losers hold on to falling stocks 1/4 point by 1/4 point until the very ability to make a rational decision has been zapped from their bodies


Needless to mention, you can add what you want to.

 

[oilman5]

The Stop Loss Order
What is a Stop Loss Order?

It is an order placed with a broker to buy or sell once the stock reaches a certain price. A stop loss is designed to limit an investor's loss on a security position. Setting a stop loss order for 10% below the price at which you bought the stock will limit your loss to 10%. For example, let's say you just purchased RELIANCE at Rs.500.00 per share. Right after buying the stock you enter a stop loss market order for Rs. 450.00. This means that if the stock falls below Rs. 450.00 per share your shares will then be sold at the prevailing market price.

Positives and Negatives

The advantage of a stop order is you don't have to monitor on a daily basis how a security is performing. This is especially handy when you are on vacation or having a full time job that prevents you from watching your security for an extended period of time.

The disadvantage is that the stop price could be activated by a short-term fluctuation in a securities price. The key is picking a stop-loss percentage that allows a security to fluctuate day-to-day while preventing as much downside risk as possible. Setting a 5% stop-loss on a security that has a history of fluctuating 10% or more is not the best strategy: you will most likely just lose money on the commissions generated from the execution of your stop-loss orders. There are no hard and fast rules for the level at which stops should be placed. This totally depends on your individual investing style: an active trader might use 5% while a long term investor might choose 15% or more.

Another thing to keep in mind is that once your stop price is reached, your stop order is a market order, the price at which you sell may be much different from the stop price. This is especially true in a fast-moving market where stock prices can change rapidly
Not just for Preventing Losses

Stop loss orders are traditionally thought of as a way to prevent losses. (After all, it's called a "stop loss" for a reason.) Another use of this tool, though, is to lock-in profits, in which case it is sometimes referred to as a trailing stop.

In all forms of long-term investing and short-term trading, deciding the appropriate time to exit a position is just as important as, if not more important than, determining the best time to enter into your position. Buying (or selling, in the case of a short position) is a relatively less emotional action than selling (or buying, in the case of a short position). When you enter a position, the potential for realized profits is but a dream and the possibility of losses is only a vaguely considered nightmare.

By contrast, when it comes time to exit the position your profits are staring you directly in the face, but perhaps they are telling you that there is potential for even greater profitability if you were just to ride the tide and exercise a little bit more patience. In the unthinkable case of paper losses, your heart tells you to hold tight, to wait until your losses reverse and the passage of time brings you into a profitable position once again.

But such emotional responses are hardly the best means by which to make your selling (or buying) decisions. They are purely unscientific, and the presence of emotion brings you as far from a disciplined trading system as can be imagined.

Trailing Stop Loss

The most basic technique for establishing an appropriate exit point is the trailing stop technique. Very simply, the trailing stop maintains a stop-loss order at a precise percentage below the market price (or above, in the case of a short position). The stop-loss order is adjusted continually based on fluctuations in the market price, always maintaining the same percentage below (or above) the market price. The trader is then "guaranteed" to know the exact minimum profit that his position will garner.

Here, the stop-loss order is set at a percentage level below not the price at which you bought it but the current market price. The price of the stop loss adjusted as the stock price fluctuates. Remember, if a stock goes up, what you have is an unrealized gain, which means you don't have the cash in hand until you sell. Using a trailing stop allows you to let profits run while at the same time guaranteeing at least some realized capital gain.

To use our Reliance example from above, say you set a trailing stop order for 10% below the current price, and the stock skyrockets to Rs. 800.00 within a month. Your trailing stop order would then lock-in at Rs.720.00 per share (Rs.800 - (10% x Rs.800) = Rs.720). This is the worst price you would receive, so even if the stock takes an unexpected dip, you won't be in the red.

Limiting Losses

It is simply not possible for any trader--whether amateur, professional or anywhere in between--to avoid every single loss. The disciplined trader is fully cognizant of the inevitability of losing hard-earned profits and, as such, is able to accept losses without emotional upheaval. At the same time, however, there are systematic methods by which you can ensure that losses are kept to a minimum.

A 2% Limit of Loss

A common level of acceptable loss for one's trading account is 2% of equity in the trading account. The capital in your trading account is your risk capital, the capital that you employ (that you risk) on a day-to-day basis to try to garner profits for your enterprise.

The loss-limit system can even be implemented before entering a trade. When you are deciding how much of a particular trading instrument to purchase, you would simultaneously calculate how much in losses you could sustain on that trade without breaching your 2% rule. When establishing your position, you would also place a stop order within a maximum of 2% loss of the total equity in your account. Of course, your stop can be anywhere from a 0% to 2% total loss. A lower level of risk is perfectly acceptable if the individual trade or philosophy demands it.

Every trader has a different reaction to the 2% rule of thumb. Many traders think that a 2% risk limit is too small and that it stifles their ability to engage in riskier trading decisions with a larger portion of their trading accounts. On the other hand, most professionals think that 2% is a ridiculously high level of risk and prefer losses to be limited to around half or one-quarter of a percent of their portfolios. Granted, the pros would naturally be more risk averse than those with smaller accounts--a 2% loss on a large portfolio is a devastating blow. Regardless of the size of your capital, it is wise to be conservative rather than aggressive when first devising your trading strategy.
Monthly Loss Limit of 6%

So, you have now established a system whereby your loss from each individual trade is limited to 2% of your risk capital. But it doesn't take a rocket scientist to realize that even losing a moderate 1% of your account's value in ten days within a month results in a rather devastating 10% of your account's value within that month (notwithstanding any profits that you might have made in the other twelve-odd trading days within the month). In addition to limiting losses from individual trades, we must establish a circuit breaker that prevents extensive overall losses during a period of time.

A useful rule of thumb for overall monthly losses is a maximum of 6% of your portfolio. As soon as your account equity dips to 6% below that which it registered on the last day of the previous month, stop trading! Yes, you heard me correctly. When you have hit your 6% loss limit, cease trading entirely for the rest of the month. In fact, when your 6% circuit breaker is tripped, go even further and close all of your outstanding positions, and spend the rest of the month on the sidelines. Take the last days of the month to regroup, analyze the problems, observe the markets, and prepare for re-entry when you are confident that you can prevent a similar occurrence in the following month
How do you go about instituting the 6% loss-limiting system? You have to calculate your equity each and every day. This includes all of the cash in your trading account, cash equivalents, and the current market value of all open positions in your account. Compare this daily total with your equity total on the last trading day of the previous month and, if you are approaching the 6% threshold, prepare to cease trading.

Employing a 6% monthly loss limit allows the trader to hold three open positions with potential for 2% losses each, or six open positions with a potential for 1% losses each, and so forth.

Making Necessary Adjustments

Of course, the fluid nature of both the 2% single trade limit and the 6% monthly loss limit means that you must re-calibrate your trading positions every month. If, for example, you enter a new month having realized significant profits the previous month, you will adjust your stops and the sizes of your orders so that no more than 2% of the newly calculated total equity is exposed to a risk of losses. At the same time, when your account rises in value by the end of the month, the 6% rule of thumb will allow you to trade with larger positions the following month. Unfortunately, the reverse is also true: if you lose money in a month, the smaller capital base the following month will ensure that your trading positions are smaller.

Both the 2% and the 6% rule allow you to pyramid, or add to your winning positions when you are on a roll. If your position runs into positive territory, you can move your stop above break-even and then buy more of the same stock--as long as the risk on the new aggregate position is no more than 2% of your account equity, and your total account risk is less than 6%. Adding a system of pyramiding into the equation allows you to extend profitable positions with absolutely no commensurate increase in your risk thresholds.

Why Do We Recommend the Stop Loss Order?

First of all, the beauty of the stop-loss order is that it costs nothing to implement. Your regular commission is charged only once the stop-loss price has been reached and the stock must be sold. It's like a free insurance policy!

Secondly, but most importantly, a stop-loss allows decision making to be free from any emotional influences. People tend to fall in love with stocks; we believe that if we give a stock another chance, it will come around. This causes us to procrastinate and delay, giving the stock yet another chance and then yet another. In the meantime, the losses mount....

No matter what type of investor you are, you should know why you own a stock. A value investor's criteria will be different from that of a growth investor, which will be different still from an active trader. Any one strategy may work, but only if you stick to the strategy. This also means that if you are a hardcore buy and hold investor, your stop-loss orders are next to useless. If you plan on holding a stock for the next decade there is no reason to place a stop. The point here is to be confident in your strategy and carry through with your plan. Stop-loss orders help us stay on track without clouding our judgment with emotion.

Finally, it's important to realize that stop-loss orders do not guarantee you'll make money in the stock market; you still have to make intelligent investment or trading decisions. If you don't, you'll lose just as much money as you would without a stop-loss, only at a much slower rate.

Conclusion

The 2% and the 6% rules of thumb are highly recommended for all traders, especially those who are prone to the emotional pain of experienced losses. If you are more risk averse, by all means, adjust the percentage loss limiters to lower numbers than 2% and 6%. It is not recommended, however, that you increase your thresholds--the pros rarely stray above such potential for losses, so do think twice before you increase your risk thresholds.

A stop loss order is such a simple little tool, yet so many traders fail to use it. Whether to prevent excessive losses or to lock-in profits, nearly all investing styles can benefit from this trade. Think of a stop loss as an insurance policy: you hope you never have to use it, but it's good to know you have the protection if you need it.
COURSEY..TRADINGPICK

 

[oilman5]

Trailing Stop Loss

A trailing stop-loss order is a stoploss order in which the stop loss price is set at some fixed percentage below the current market price.

If the market price rises, the stop loss price rises proportionately, but if the stock price falls, the stop loss price doesn't change.

This robust stoploss technique allows an investor to set a limit on the maximum possible loss without setting a limit on the maximum possible gain, and without requiring paying attention to the investment on an ongoing basis.

The trailing stop-loss order is continually adjusted based on market volatility and trend always keeps at a certain distance to the market price.

I personally use the TradersEdgeIndia.com trend trading indicator as a trailing stoploss indicator for all my trades.

Please see attached chart of how I was able to hold on to my long position in an uncertain market condition.

As can seen on the chart the magenta coloured dotted line is a trailing stoploss and it trails the stock at a distance moving only in the direction of the profitable trend.

This stoploss either only moves up or sideways to help you lock in as much profits as possible.

COURSEY TRADEJI AND MR PARIKH

 

[oilman5]

are primarily random with a small trend component.

This fact is extremely important to those desiring to pursue day trading in a rational, scientific manner. It means that any attempt to trade short-term patterns and methods not based on trend are doomed to failure. It also explains why day trading is so difficult.

The shorter the time frame (day trading), the smaller the trend component.

Novice traders get lured to day trading because the price patterns on intra-day charts are similiar to the price patterns on long term charts. This similarity in chart appearance convinces novice traders that they can day trade successfully with the same tools they use on longer-term charts.

However, the trend-following tools and indicators that work in intermediate to long-term time frames won't work in day trading. This is because the trend component is so very small during the day that it is very unlikely for a novice day trader to make enough profits to overcome the costs of day trading.

In longer-term trading, you can let your profits run. In day trading you can only let your profits run to the end of the day. Thus your average profit per trade is much smaller.

Also, your costs of trading--slippage, the bid/asked spread and mistakes--stay roughly the same on a per trade basis. Thus, your day trading system must be much more consistent and robust to stay ahead of the costs of trading than would an intermediate to long-term system.

Remember that market price action is mostly random and the tendency of most markets to trend is the only possible edge in trading!

To be successful
To be successful in trading one must use methods that exploit the non-random feature of market price action.

The trend component is certainly are not present every day. That is why the person who tries to day trade at least once every day, and perhaps even more often, is doomed to failure. The more often you day trade, the more likely it is that you will be a long-term loser.
__________________
Best Wishes!

Traderji
There is nothing better than the experience and knowledge one can gain from real trading with one's own money
Well, I am a daytrader and daytrader by choice as well as compulsion.Though I have yet to achieve significant profits in this arena, I could not resist myself from writing overe here.

Well, day-trading is certainly not a lottery, it involves an armour of skills, tools and most importantly their application. Indicators--Yes, they do work but you need to keep your stop-loss pretty tight. One always need to trade in multiple time frames. Following a stock--Good till it's giving you profits, but till the time daytrading comes handy to you--it's better to avoid changing directions, may hit you hard. One should only change direction when the trend has reversed completely.

Again, in day-trading, if the trader has failed to catch a break-out in the very early stage, he should stay away otherwise he may end up buying/selling in overbought/oversold territory.

News is one area, a day-trader has to be very alert about. But one caveat is--Don't take action on TV/website news--They flash only when the action has taken place, One must watch the technical indicators after hearing the news and act. Rather one classical wisdom is--" Buy on Rumor and sell on News".

Yes, the traditional methods do fail in day-trading or sometimes one is never able to catch the moving fishes. The charting softwares need to be replaced by or assisted by some new breed of softwares which alert the users on parameters like volume break-outs, market makers' moves, Range-bound moves,etc. I am compling a list of items I would like in my software and perhaps 5 yrs down the line, my friends on the forum can use it.

And finally, yes there are traders who are well-off after being fully engaged in day-trading.
Reagrding, the brokers making money from jobbing and day-trading ---- They have a methodology which works for them only is doing what they have been doing for ages--- Playing the spreads. The are still applying the art learned during the historical period of Pit-trading to their benefit. However, it can't work for a trader 'coz of brokerage cost involved. Even the brokers are finding it difficult to sustain the spread play due to increasing transaction costs like stamp duty and STT. And yes, they do overtrade-- A broker will do 400 transactions per day playing the spread but he will never wait for technicals to tell him that the trend is still intact, resistance is at so-n-so level, till the time, market is above so and so level, it's just a correction. He will book loss (a small one), will ride the pullback (make some money over there) and will jump the wagon once again, the trend resumes. And when it comes to returns, if transaction costs are met while playing the spread game, Return on Investment(ROI) is more than what all the other kind of traders/investors can dream about only.

Hope, this is not a bad post.

Best Regards,
--Ashish
“There is a stark parallel between an alcoholic and a trader whose account is being demolished by losses. He or she keeps changing trading tactics, acting like an alcoholic who tries to solve the problem by switching from hard liquor to beer. A loser denies that he has lost his or her course in the markets just as alcoholic denies that alcohol rules his life. "

Loss to a loser is what alcohol is to an alcoholic. A small loss is like a single drink. A big loss is like a bender. A series of losses is like an alcoholic binge. A loser keeps switching from different markets, gurus and trading systems. The loser’s equity shrinks while he or she is trying to recreate the pleasurable sensation of winning. Alcoholism is a curable disease- so is losing. Losers can change if they start using the principles of Alcoholics Anonymous. "

"Just like an alcoholic proceeds from social drinking to drunkenness, losers take bigger and bigger risks-they cross the line between business risk and gambling."

"A drunk wins once in a while thanks to luck but a sober person is the one to bet on. "
This was quite an interesting analogy. The remedy suggested was that one should define one’s business losses clearly and keep proper records of trades. Just as past alcoholics still referred to themselves as alcoholics to not resume drinking there could be something called a losers anonymous instead of a traders anonymous. The negative connotation would be a constant reminder to what could happen if one’s impulses and instincts got out of control.
SH50

 

[oilman5]

its a nice discussion shaping up here. let me too jump into this and share some of the after thoughts which i realised after a stint of 1 year into the Trading.

Generally most of the people jump the gun, before they can dump the gun. I mean, we just rush ourselves into trading, hardly few people resolve why they are entering into this market and for what purpose.

1. We need to make sure whether we are an investor, trader or a mix of both
2. Based on what we decide, we need to make a strategy.
3. I say, banks give you 10% interest, even at the end of the year you make 20-30% profit in the market it is much more than that. for ex: last year august i bought Infosys @ 1450 and now the C.M.P is around 2600. A cool appreciation of close to 45%. No Technicals here, just invest in sound companies(Blue Chips) and forget, they will reap you profits in lots over a period of time. Unfortunately, to cover my lossess in day trading, I have to close my positions @ 2000 itself.
4. Day trading is very risky and so too F&O. Its not a child's play and often if caught on a wrong side, you are out of business.
5. For a peaceful trading, i feel positioning trading is the best, but be alert all the time.
6. I have sufferred sleepless nights because of the lossess i incurred in day trading and F&O. I have the confidence to recover, as any bad things just take a minute but for a good thing whole life is not sufficient.
7.Its upto a person to decide, whether to sit and watch or commit a suicide.

At present developing the right attitude for Trading and evolving my strategy of how to remain in the business.

Hope newcomers are listening.....

Satya
Hi friends,
When we discuss position trading versus day trading let us not forget they are 2 sides of the same coin. The only difference is the risk/reward. The basics of the game remain the same. What do we need to have a trade?
1) Entry point
2) Stop loss
3) Exit
In other words a trading system. If we have the above we have a trade.

Further markets cannot be predicted in any time frame and we should not even attempt to do so.
Markets can only do 3 things namely:go up, go down, and remain where they are, and since what the markets do is beyond our control we can only control our reaction to what the markets do?
If you are ready with your reaction to the above you are ready to trade.

I would sum it all up to say "A good trader is a good trader in any time frame" and the vice versa also holds true.

Regards and trade well..VINCE
One of the biggest mistakes most traders make is that they are too concerned with what the market might do.

To be successful in trading you need only be concerned with what the market is doing!
__________________“Knowing how to approach and play the game of trading well will only take you part way to ultimate success.

Knowing “how” to trade only makes you potentially competitive
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“One of the primary reasons individual traders fail is an inability to act freely and decisively.

Freedom in action comes about when fear has been minimized. Trading small and diversifying neutralizes fear … . Decisiveness in action comes from clarity.

Clarity is achieved through an understanding of natural laws and the resulting probabilities.
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In the first CNBC investor camp at New Delhi, well known investor Ramesh Dhamani said," One should stick to businesses one knows" which was more or lesss echoing some of Warren buffet's views. He futher elaborated that housewives could concentrate on FMCG and doctors could concentrate on pharmaceuticals because they are bound to know something about the business.

Equitymaster has a very good information on what to look for in different major sectors

http://www.equitymaster.com/outlook/identify.html

Since we are 1500 strong now, there are bound to be people from different backgrounds who can add to what equitymaster has to offer. I am sure it would add a lot of useful knowledge and enable people to know about businesses not affiliated to their own background.

Under fundamental analysis, different sections for different sectors would not be a bad idea. One can also focus on the sectors currently in vogue and discuss companies within a sector. Respected Traderji, kindly look into the possibility.(On the lines of subforums metals and energy under genreral commodity trends;there can be general sectoral trends)

Alternatively, if anybody knows about some other website which provides similar information, I would appreciate very much if they share the info. Quantitative analysis can be easily done by looking at the financials but qualitative analysis was something I thought only a pro could do but such information can prove otherwise. At least one can try.
Women are as wavering as the wind.( Unpredictablility about markets)
A woman either loves or hates in extremes. ( overbought/oversold)
Never trust a woman even though she may have borne you seven children.
(The mkt can turn against you anytime)
A ship and a woman are ever repairing.(mkt is constantly changing)

This is an interesting analysis where fundamentals like P/E and EPS among other ratios are plotted against one another on a graph:-

http://content.icicidirect.com/research/newchart.asp

I have always wondered why there are no graphs for FIIS/mutualfunds investments since they are reputed to drive the markets. If volume precedes price, they precede volume,do't they? There has to be a graph plot on them to enable us to know what they are plotting in the market:-
Swami Vivekanand, “ He who is overcautious falls into dangers at every step; he who is afraid of losing honor and respect gets only disgrace; he who is always afraid of loss always loses”

This is an extract from the speaking tree of the spiritual columns of the times of India(4/4/2004). It further elaborates on how India lost the Bangalore test because of an overcautious approach.

Applied to the stockmarket, this is the paralysis due to analysis syndrome. Whether it is technical or fundamental analysis, the stockmarket presents a mass of information to deal with and unless one learns to be lean and mean and takes quick decisive action, success is not possible. Over information is bound to be a liability. Swami Vivekanand’s last line in the para above also literally applies to the stock market. Why be afraid of loss when we have strict stop losses

 

[oilman5]

some comments from OXUSMOROUZ
...................................................
[i really. ignore..him..because of age....but his maturity..and technical depth
proves to be sachin tendular]
For selecting any stock, there must have been a premise as to why the stock was purchased. This premise varies from person to person and from time to time.
My premise for holding this stock may differ from your premise and hence, a conclusion cannot be reached.
Since you are a newbie to trading, allow me to make 1 fact clear. You will hear a lot of noise on buy this and buy that...sell this and sell that but very few of these call givers actually disclose why they are giving the call to buy or sell. People who make money do it silently.
It's your money which is at stake and do you not think you should have a clear picture of your objectives and constraints than allowing others to do the same? It is only homework which matters a lot. Make the purpose of your trading clear and also put down in writing the maximum loss you can bear in worse case situations for each security...stick to it in case of adversities... use a stop loss.
hope you understand that some traders in this forum are system followers.
I'm no expert but I do wish to disclose my viewpoint.

There is a difference between the following:
1) Losing, and losing on a consistent basis
2) Building your own trading system and choosing other's systems
3) Using a trend follower and a zig zag indicator.

-->The trades disappeared because the trading system you used had a zig zag indicator.
--> Why don't you stick onto a few selected securities? The chances of losing in a consistent basis is relatively low...if not, impossible. You can diversify this list as you become more experienced.
--> No one likes to disclose their trading system/trades. It isn't nice to ask them that.
Your feelings have an immediate impact on your account equity. You may have a brilliant trading system, but if you feel frightened, arrogant, or upset, your account is sure to suffer. When you recognize that a gambler’s high or fears is clouding your mind, stop trading. Your success or failure as a trader depends on controlling your emotions.

When you trade, you compete against the sharpest minds in the world. The field on which you compete has been slanted to ensure your failure. If you allow your emotions to interfere with your trading, the battle is over.

You are responsible for every trade that you make. A trade begins when you decide to enter the market and ends only when you decide to take your self out. Having a good trading system is not enough. Most traders with good systems wash out of the markets because psychologically they are not prepared to win.
Trading Tips-

-Remember that there is always another trader on the other side of the trade doing the exact opposite that you are doing. Only one of you can be right.

- Waiting around for the perfect trade or the perfect opportunity will guarantee that you never trade stocks.

- Trading stocks is about probabilities, NEVER certainties. You are not smart enough to predict, with consistency, what will come next.

- Conventional wisdom is usually wrong. Trade against the crowd, not with them.

- Money, trade, and self management has always been and will always be the holy grail to trading stocks.
hmmmm.........the question you need to find the answer to is:Can it be done?If Everest has been scaled before,even once,one cannot say that it cannot be done......one can surely say that he/she cannot do it,but not the other way around.If even one person can make money from the markets using TA,if even one person could consistently pull money out of the markets,then it can be done.

So,my friend,if you really wish to succeed at this(that's step no 1 actually,do you really have that burning desire to succeed and make the necessary sacrifices)........if you therefore wish to succeed,you have to take all the blame for it.Every time you lose because you didn't adhere to your rules,the blame is not the market's,not this forum's,not your wife's,not TA's or FA's.......yours and yours alone.Go back to your methods,your money management disciplines,your entry and exit criteria,your mind,your health......somewhere,there's a problem that you need to look into and rectify.

Been there,done that,my friend........ I can understand the frustration and agony.But don't allow your mind to settle for petty excuses.......take all the blame and look into what needs to be rectified.

And,as for people successfully making money out of TA.......There are many in this forum itself who are doing it.And as said before,if one person can do it,it can be done.

Whether you want to make the necessary sacrifices and undergo all the pain required is another question.

I hope you do........and wishing you all the best on this journey!

SAINT
Your fantastic success reinforces my belief that an analytical background is most suitable for a Technical trader - helps in the assembly of otherwise isolated components and also troubleshooting, refinement of the assembly and one or more of its individual componentsThere are external indicators that are as powerful (& on a given day more powerful) than the indicators on the charts.
KK