Bull or Bear

Monday, January 16, 2006

Wisdom From 'N' (or some ^C - ^V)

Rule 2: DON'T LOSE MONEY: This may sound naive, but believe me it isn't. If you want to be wealthy, you must not lose money, or I should say must not lose BIG money. Absurd rule, silly rule? Maybe, but MOST PEOPLE LOSE MONEY in disastrous investments, gambling, rotten business deals, greed, poor timing. Yes, after almost five decades of investing and talking to investors I can tell you that most people definitely DO lose money, lose big time -- in the stock market, in options and futures, in real estate, in bad loans, in mindless gambling, and in their own business.

RULE 3: RICH MAN, POOR MAN: In the investment world the wealthy investor has one major advantage over the little guy, the stock market amateur and the neophyte trader. The advantage that the wealthy investor enjoys is that HE DOESN'T NEED THE MARKETS. I can't begin to tell you what a difference that makes, both in one's mental attitude and in the way one actually handles one s money. The wealthy investor doesn't need the markets, because he already has all the income he needs. He has money coming in via bonds, T-bills, money market funds, stocks and real estate. In other words, the wealthy investor never feels pressured to "make money" in the market.

The wealthy investor tends to be an expert on values. When bonds are cheap and bond yields are irresistibly high, he buys bonds. When stocks are on the bargain table and stock yields are attractive, he buys stocks. When real estate is a great value, he buys real estate. When great art or fine jewelry or gold is on the "give away" table, he buys art or diamonds or gold. In other words, the wealthy investor puts his money where the great values are

And if no outstanding values are available, the wealthy investors waits. He can afford to wait. He has money coming in daily, weekly, monthly. The wealthy investor knows what he is looking for, and he doesn't mind waiting months or even years for his next investment (they call that patience).

But what about the little guy? This fellow always feels pressured to "make money." And in return he's always pressuring the market to "do something" for him. But sadly, the market isn't interested. When the little guy isn't buying stocks offering 1% or 2% yields, he's off to Las Vegas or Atlantic City trying to beat the house at roulette. Or he's spending 20 bucks a week on lottery tickets, or he's "investing" in some crackpot scheme that his neighbor told him about (in strictest confidence, of course).

And because the little guy is trying to force the market to do something for him, he's a guaranteed loser. The little guy doesn't understand values so he constantly overpays. He doesn't comprehend the power of compounding, and he doesn't understand money. He's never heard the adage, "He who understands interest -- earns it. He who doesn't understand interest -- pays it." The little guy is the typical American, and he's deeply in debt.

The little guy is in hock up to his ears. As a result, he's always sweating -- sweating to make payments on his house, his refrigerator, his car or his lawn mower. He's impatient, and he feels perpetually put upon. He tells himself that he has to make money -- fast. And he dreams of those "big, juicy mega-bucks." In the end, the little guy wastes his money in the market or he loses his money gambling, or he dribbles it away on senseless schemes In short, this "money-nerd" spends his life dashing up the financial down-escalator. But here's the ironic part of it. If, from the beginning, the little guy had adopted a strict policy of never spending more than he made, if he had taken his extra savings and compounded it in intelligent, income-producing securities, then in due time he'd have money coming in daily, weekly, monthly, just like the rich man. The little guy would have become a financial winner, instead of a pathetic loser.

Thursday, January 05, 2006

Stops

Long time since I posted something here...maybe it is the travel, maybe it is the string of losses, I dont know. Now I am trying to come back. This time, it is some material on stops.

The position size on a trade is determined by the stop, and the stop is determined on a technical basis. I never think about other people who may be using the same stop, because the market shouldn't go there if I am right.

Place your stops at a point that, if reached, will reasonably indicate that the trade is wrong, not at a point determined primarily by the maximum dollar amount you are willing to lose.

If you personalize losses, you can't trade.

Friday, October 07, 2005

Falling is Not Failing

No one wants to fall. When we feel off balance in reality or in life
metaphorically we reach out to grab onto things. We make instantaneous
decisions to avoid landing on our rears and risking pain.
Imagine yourself in your office or den, climbing a small step-ladder
to reach a book on the top shelf. Even on the top step, the book is just out
of reach. You lean a little too far and start to fall. Frantically,
as you lose your footing, you grab onto the bookshelf to
stop yourself. In this split second, reactionary decision, you do not have
time to make sure the shelf is stable itself. You just reach for it. Then as
you fall to the floor, the shelf comes toppling down on top of you. Now, in
addition to added bruises and scrapes, you have an entire bookshelf to
reorganize. Well, which was worse: the original fall, or the subsequent
complication of the bookshelf crashing onto you?

We all fall sometimes, and it often hurts when we do, but instead of
starting a chain of reactionary events, we can shape our future in a
positive way by allowing ourselves to land. Yes, land. From the
ground we can step back and take a look at the situation. We can give it
some thought and planning, and learn from the experience. When we go after
that book again, or whatever we reach for, perhaps we can create a more
stable foundation before we reach out so far next time.

By learning from our mistakes and making proactive choices in our future, we
can greatly affect the success rate we create in our lives. Falling isn't
failing. It is our chance to build a better
ladder to our goals

Monday, October 03, 2005

I believe the trade I'm in right now will be a loser

This is my most powerful belief and asset as a trader. Most would be wannabes are certain they will make a killing on their next trade. These folks have been to some 'Pump 'em up, plastic coat their lives' motivational meeting where they were told to think positive thoughts. They took lessons in affirming their future would be great. They believe their next trade will be a winner.

Not me! I believe at the bottom of my core it will be a loser. I ask you this question - who will have their stops in and take right action, me or the fellow pumped up on an irrational belief he's figured out the market? Who will plunge, the positive affirmer or me?

If you have not figured that one out - I'll tell you; I will succeed simply because I am under no delusion that I will win. Accordingly, my action will be that of an impeccable warrior. I will protect myself in all fashion, at all times - I will not become run away with hope and unreality.

Sunday, September 25, 2005

I thought...

...I could never go wrong with my 10pt stop particularly after that 42k rupees loss in Satyam contract. But now I realize how big a role emotions play!!

Well, I was short from 2505, and going by the looks, I shorted it again at 2456. Immediately after I shorted, the markets started to recover. (Needless to say, I was nervous about playing using two contracts...) Well, initially, I looked at 2472 as my stop. And now at 2494, I am still holding those two shorts, looking for an exit.

It's very clearly mentioned in my rules that if you find yourselves at the wrong side of the market, don't wait for the market to give you an opportunity to scratch the trade - Get out ASAP

Right now the situation is like this - I covered my two contracts at 2491, bought one at 2489, and am still holding that at 2475 - But this time, I feel I can be a little soft on myself - The drop from 2485 to 2470 was very fast, I couldn't even make up my mind whether to square off or not...But still I have violated the 10pts stop - I should have got out at 2479 and would have got a good weekend's sleep ;-)

Hence, from a profit of more than 5000rs, I ended up the day in a booked loss of 3500rs and a notional loss of 1.5k - Boy, I need to find a way out of this!!!

Saturday, September 17, 2005

Wisdom from Prashanth

Trading / Investment is a full time business though most people seem to take it as a part time one. That's one of the reasons for the huge number of failures in the market. I have clients who work very hard to earn some small salary in their fields of choice, but neither work nor are careful when playing in the market and most of them loose. FNO segment is just about either being lambs waiting to be butchered or being the butcher. Unfortunately, most people are mere lambs and nothing more. Also, do note that lambs always outnumber butchers in the real world and its the same here too with 95% of people loosing

Am I a member of 'General Public'?

Suppose an investor wants to buy options on the Japanese yen. Pro­fessor Statman says the investor should ask: "What do I know about the yen, the trade deficit, and so on, that dozens of professional economists and currency traders don't know?" The answer would persuade most people not to make the investment. But people ask the wrong questions and go on investing because of an expectation that they might beat the market. As Professor Statman jokes, this phenomenon is probably the salvation of the market. Or, as Mark Twain once wrote: "Let us be thankful for the fools. But for them the rest of us could not succeed."

What is that I have done? Well, I did make money with options while I was chasing TCS after it's listing. In fact, I dont remember making money with any other option at all!! (Maybe because by that time, I was deep in red to notice the 6k or 8k that I made in a contract). But the question is - why did I succeed initially? Was it beginner's luck? Or was it something else?

Maybe the answer could be trend following - I knew nothing about TCS - But since TCS was going up, buying calls made sense. So does buying Nifty futures now. After some time, Nifty may top out, it may consolidate. What would be my strategy then??? Of course, the ideal strategy would be to sit out. But I am not sure whether I have that kinda patience. Maybe the next best thing to do would be punt in NF with a strict (Whom am I kidding??) stop loss of 10pts, just as Amar said.

Wednesday, September 14, 2005

Trading is not your inner worth

Trading doesn't have to be about your self-worth or
abilities. Remember, no matter what happens, you have inner worth.
Stay emotionally detached. The more you can remove your ego from
trading, the more you can enjoy the process of trading. When you ease
up, you'll feel as if a weight has been lifted. Suddenly, you'll see
trading opportunities that were illusive before. When you take some of
the pressure off of yourself, you allow your mind to expand. Your
vision becomes clearer and you think creatively and intuitively.

Lessons From Markets

Never ever try to catch the bottom of the market - Remember vividly what happened with that Infosys call in January - all your profits from the previous 6 months were washed out!!!

Following the trend is probably the best way to make money in the markets - Just following Nifty Futures might help you stay in this game in the long run

If you feel that you do are not in the correct side of the market, get out IMMEDIATELY - dont wait to scratch the trade - Remember what happened with Andhrabank Futures and later with Satyam Futures (A WHOPPING 42k WAS LOST IN THREE DAYS!!!)

If you are in a substantial profit (lets say, more than 2k), KEY IN the stop orders, particularly when you go for meetings, lunch etc.

Conservative betting produces conservative performance, while bold betting leads to spectacular ruin

Close off all your open positions in FNO if you are sure that you will not be near a termnal tomorrow - You may not be lucky as you were last time!! Also, for God's sake, please stay with your stops - Cut out that cancer at 10pts!!!