Hi friends. I am watching lots of people wanted to make profit by investing, speculating trading etc. from stocks-(fno/cash), commodity futures,currency etc. But 99% cannot succeed and blame this is gamble, speculation etc. etc. In life where is no speculation or gamble,in every field there is uncertainty or chances of failure.Even life itself is a big gamble else we achieve everything whatever we wants.But this does not mean we will scare to take step ahead.I am a very active trader cum scalper and wants to share my practical experience of trading for ordinary people like us.
Similarity between life and market-
1)Both in life and market there is ups and downs and you have to handle both things very smartly.
2)Both in life and market we don't know future with certainty but we expect and hope for our decision to be right.In both cases if you don't have plan B in case our decision goes wrong then we have to face lots of trouble and may be doomed.
So always think before taking decision and plan properly in every aspect of life.
Now on Trading
Before entering into markets always decide what is your expectation, what kind of player you want to be and make strategy accordingly.I mean to say decide whether you want to be investor, trader, scalper or arbitragers.
I personally have experience of trading and scalping intraday in stocks and commodities (crude specially for scalping).
You need Three things specially to be a successful trader or scalper.
1) Capital without which you cannot start.
2)Knowledge without which you cannot stand a single moment in market how smart you are.In absence of which you can be doomed anytime.
3)Patience in absence of which never let you reap good results.In other words you can tell it as emotion control. In trading language we tell greed & fear, money manage management etc. etc. Not booking profit in greed and squaring of right trade due to fear both results in huge losses.
Take it in a way like what fisherman do for fishing. He needs capital to buy fishing equipments, then he has to acquire knowledge/technique for fishing and have to keep patient for right time to trap the fish. Same thing we have to do in trading.
Problem with people in India specially -many having money but they don have knowledge & patience and also full of greed and fear.
For overcoming this greed and fear problem, money management you need lots of practice and correct knowledge.
Lets come to Knowledge part as starting capital is individual problem but suggestion never take money on loan for trading.
From where to get knowledge, what kind of knowledge etc. etc.
Basically two fields of knowledge we usually talk about in market one is fundamental analysis specially for investment and secondly Technical analysis. I am not discussing process here but their importance, problems etc.Because both are very wide concept.
Fundamental analysis - In case of fundamental analysis we are mostly analyzing B/S, P/L, Cash-flow etc. , taking upcoming projects or current project revenues /expenditure etc. for projecting future EPS , Intrinsic value, etc. But as we all know most of companies are involved in window dressing. Satyam case hope no body forgot. So whatever steps can be taken or comment given we all know the truth. Secondly in fundamental analysis we are predicting for next 1-5 yrs but who knows the future. Companies like Suzlon ,Unitech etc. what was their rate per share few year back and what is their value now. You can talk about Reliance also many people favorite now for few years after that big crash under-performer. So how could you judge with confidence. Thirdly availability of proper data, not available to normal retail investor many times. So personally I am not favor of fully dependent on it. But yes we cant ignore it as we get some guidance about companies business.
Many times we see in commodities also specially in base/precious metals and energies, market move against fundamental data might be due to lack of some more hidden information or due to overbought or oversold reasons as news are mostly discounted before announcement.
Technical Analysis-
It is very useful for short term, intraday trading,scalping etc. It believes all news, information etc. are discounted in price.To a great extent practically it is true.IT helps in analyzing market sentiments, trends etc.
There is lots of thing to learn in it and have to use it in combination of many studies. Giving you name of some studies / patterns- simple/exponential moving average, RSI, Stochastic, MACD, Bollinger Bands, CCI, ADX, PSAR, ascending/descending traingles,symmetrical triangles, trendlines,head & Shoulder, wedges, channels,support resistance, pivot points etc. Advance studies like ichimoku kinko hyo system, Harmonic patterns,Price charts like- candle sticks, renko charts, heiken ashi etc. You have to see and learn lots of things for trading decide what kind of trading system or plan you want to follow.Proper practice and guidance is very imp in it else you be doomed.
Now a days people started learning it but still they don't have good knowledge of it.People are trapped by many training institute and provided only very basic knowledge like Moving Averages, RSI, Trend Lines, Double tops, Dow theory etc. Many don't teach about bollinger band I have seen.Many people after learning it also not confident as to what time frame they have to follow, what strategies they have to follow, so they always complains about the subject as they dont understand it.
Now coming to Money Management /Patience -
This is the thing where many traders fails. Even advance and expert traders too. If not so then we would not have seen big professionals firms also doomed. In market all is money game but you should know how to you play with your money with proper knowledge and skills.
What is money management?
Many people say putting stoploss. I say no its not about only putting stoplosses but also leverage.Many people do such mistakes in panic, greed ,and over confidence. I was also one of them in past. But I have asked myself why I was failing evening having good knowledge of my work. I found myself in the same boat where all are doing mistake. But I have rectified hugely and made good money when strat concentrating on Money management.
Many traders use extra leverages which results in huge losses. Many don't know how to put stoplosses. If u want to sustain in market then never over-leverage your trades else you be doomed in 2-3 days its my bet. Use only 20-30% of your capital.Rest keep aside as your margin. Our problem is that we come with small capitals like rs 30000,50000, 100000. When we started earning small profit then we started feeling ourselves as god of market and would start taking over leverage and then game begins and we started saying no body can earn in market/ its don't suits everybody as you need luck etc. etc. My friends where you dont need luck everywhere it requires.But instead of complaining analyses the truth of your failure.I personally recommend those who are looking for rs 2000-5000 daily earning from market at-least should bring rs 5 lakhs. Because somebody earning rs 1 approx lakhs on rs 5 laksh its not bad I feel. Its my personal opinion so please dont argue on it.This example is for full time active trader with knowledge and experience to trade.
Now come to stoploss. Putting stoploss is an art and science too. Because wise trader is not that who put stoploss but the person whose stoploss not hits most of times. Because I listen many stupid logic like put 1% stoploss, put stoploss as support resistance, put stoploss of standard of rs 5-10 , some says 2:1/3:1, like this many comments.
Before taking trade you have to see about what is possibilities about your trade first. Is that chances of reversal are you feeling, If bounces from your price then what is probable chances it hits,If you enter in trade then what is chances of getting reasonable profit in comparison to your desired stoploss,Is you have ample capital with you so that stoploss decided not affect your next trades from where you recover. These are few things you should check. See the price actions of stock or commodity with their daily price behavior. Many types of question should be kept in mind before setting stoploss. There is not a single ways as per me. You have to decide as per market condition/sentiments, events etc. etc.
So in a nutshell I have tried to share my experience as it huge concept so not possible to explain in single post. But telling you one things Technical analysis is like a sword only and now its only depends on warrior's wisdom in war that let him win or loose i.e. Your wisdom in market how put your knowledge and how you make your plan to be successful in market. Hope it will help you to clear some doubts.
Thanz
CAclubindia
