What is the difference between investing and trading? You ask different people and you will get different opinions. And if I ask you if you are a “trader” or an “investor”-you might promptly say that I am “long term” investor without even understanding what it means.I will just give you my opinion on this.
An investor is usually a “buy and hold” types. He lives in the realm of “hope”.He buys a security and hopes that the price will go up.He does his “fundamental analysis” and falls in “love” with his/her investment. Even when the price of security is going down,he doesn’t believe in selling it because he is convinced about his analysis. He doesn’t believe in timing the market but a strong believer in “valuation” and “growth” of companies whose securities he owns.His edge lies in his “analysis”.If his analysis turns out to be true, he makes money in the “long term”.Otherwise,he ends up losing badly.Check Infosys Fundamental view post to see how and where a “fundamental guy” can go wrong.
A trader is usually an “opportunistic ” person who believes in inefficient market theories. He believes that markets are driven by human emotions like “greed” and”fear”,so no stock is fairly priced at any point of time. He tries to take advantage of these mispricing and tries to profit from the excessive “greed” and “fear”.
A trader lives in the realm of “probability”.He never uses words like “should” or “will”.Like the markets “will” do this.Or the markets “should” do this. It is always something “might” happen and it “might not”. He is always optimistic that a trade might work out but turns into a “realist” when it doesn’t.Thats how he always manages his risk and believes in cutting his losses. Traders take ‘directional” bets and also use some “leverage” to enhance their returns.Traders also use “market timing” techniques to get an edge in the market. A trader can choose to trade a “single market” or “multiple markets” like stocks,commodities, currencies,bonds etc. Trading multiple markets helps him reduces his risk.
Usually when we hear the word trader “trader” we start thinking of “short term traders or intra day traders ” who buy and sell 50 times in a day. I would like you to go back to Infosys Trend Analysis post where we have a “long term” trading system that just produced 5-6 trades in 10 years. So difference between a “trader’ and an “investor” is not dependent on time frames.It is rather the difference in their “thinking” and “attitudes”!
Next comes the category of people who calls themselves “investors” or “traders” but are actually gamblers. They say that they are in the markets to “make money” but actually they are in the market “for excitement”. They treat markets like a “casino”.They DO NOT have any EDGE in the markets.They look for new ideas everyday, they buy and sell lots of securities everyday. They DO NOT understand risk! They get on a “high” when they are winning and then they start to overtrade. This results in heavy losses and they get into “depression” when they lose money.In order to “recover” their money, they double their bets and lose even more! In the end,the market throws them out and they lose their money and confidence.They were never in the markets to “make money”,so they get what they come for!
So you fall in which of the above categories? What is your “edge” in the markets? Think over these questions before you commit money.
Maybe God wants us to meet a few wrong people before meeting the right one so that when we finally meet the right person, we will know how to be grateful for that gift।
When the door of happiness closes, another opens, but often times we look so long at the closed door that we don't see the one which has been opened for us।
The best kind of friend is the kind you can sit on a porch and swing with, never say a word, and then walk away feeling like it was the best conversation you've ever had।
It's true that we don't know what we've got until we lose it, but it's also true that we don't know what we've been missing until it arrives।
Giving someone all your love is never an assurance that they'll love you back! Don't expect love in return; just wait for it to grow in their heart but if it doesn't, be content it grew in yours।
It takes only a minute to get a crush on someone, an hour to like someone, and a day to love someone, but it takes a lifetime to forget someone।
Don't go for looks; they can deceive। Don't go for wealth; even that fades away. Go for someone who makes you smile because it takes only a smile to make a dark day seem bright.
Find the one that makes your heart smile। There are moments in life when you miss someone so much that you just want to pick them from your dreams and hug them for real!
Dream what you want to dream; go where you want to go; be what you want to be, because you have only one life and one chance to do all the things you want to do।
May you have enough happiness to make you sweet, enough trials to make you strong, enough sorrow to keep you human, enough hope to make you happy।
Always put yourself in others' shoes। If you feel that it hurts you, it probably hurts the other person, too.
The happiest of people don't necessarily have the best of everything; they just make the most of everything that comes along their way।
Happiness lies for those who cry, those who hurt, those who have searched, and those who have tried, for only they can appreciate the importance of people who have touched their lives।
Love begins with a smile, grows with a kiss and ends with a tear।
The brightest future will always be based on a forgotten past, you can't go on well in life until you let go of your past failures and heartaches।
When you were born, you were crying and everyone around you was smiling। Live your life so that when you die, you're the one who is smiling and everyone around you is crying.
Thank You
Day trading or trading for that matter requires at least 5:30 hrs of constant sitting on the terminal - if you can't then you DON'T day trade.
Forget the ideas of putting limit orders - they are easier said than done.
To trade/day trade the most imp. attribute is decipline - and a desciplined trader puts limits on either side - and without experience you just can't predict which will be hit first. Most often - inexperienced traders/day traders get hit on the wrong side and eventually lose money.
Day trading or trading is not done or talked of in a RAMPAGING BULL MARKET like this one - pl. read "reminiscence of a stock broker by Larrry Livingston" - trading or day trading is done only in A SIDE-WAYS MARKET.
In this bull phase (2003--2007), everyone in the market knows, the only losers in the market are the traders - every INVESTOR worth his salt has earned hugely. Well IFCI holders know it better than me.
A few criteria are -
(a) At least a few years of experience as an investor
(b) A thorough understanding of market dynamics - should be well read abt. markets
(c) A work experience in the stock market - with some broker - this will give one - the insight of all the underhand play and how price movements take place - and also the feel of market
(d) A good health, no heart or blood pressure problems or you may even fall ill, it just drains you out, at the end - you can't withstand the intense pressure.
(e) A very stable mind - no panic no fear.
However, there are a few +ves to day trading too-
2 to 5% of the traders will earn all the money the rest will lose, so you can become very rich very fast - provided you have the experience -- tips don't work.
No major crash can affect you, the way investors can erode their wealth in a falling market - you will be untouched.
After the day ends, you are always free of tension of what will happen tomorrow.
You can earn in a downtrend, which investors can't.
1. Money management becomes your lifeline, and all your trading strategies start to revolve around its core. Risk control becomes a key aspect of every position you take. You accept that controlling losses has a far-greater impact on your bottom line than chasing gains.
2. You develop your own trading plans and strategies rather than relying on books and news. You notice how you're finding more opportunities than you have time to trade while looking through your charts. You look forward to the trading day with a growing sense of confidence and empowerment.
3. You feel more like a student than a master. You learn new things every day and can't wait to apply them to real-life trading scenarios. You listen closely to everything you hear, trying to pick up hints and concepts that will improve your performance. You expand your studies into everything market-related, including economics, fundamentals and balance sheets.
4. You stop visiting stock boards and chatrooms, because they don't add anything to your trading goals. You realize that everyone in those places has ulterior motives. You develop a healthy skepticism about companies, market-makers and even other traders. You realize that no one is really interested in your success as a trader, except for you.
5. You become more private in your discussions about the market with family and friends. You learn to keep your opinions to yourself, because they're just idle discussion. You never talk about open positions or ask others what to do with them. You recognize that opinions count only when they're backed up by cold, hard cash.
6. Trading starts to feel like any other successful profession. Your average profits get bigger while your losses get smaller. You experience fewer drawdowns that drain your capital and undermine your confidence. Your trading day starts to get a little boring, but you prefer the lack of emotional highs and lows.
7. You grade your performance each day and recognize when your actions did not meet your rising standards. You notice how certain times of the day are particularly dangerous or rewarding for your trading style. You keep a written diary that describes your strengths and weaknesses in stark detail.
8. You never cut corners in your market analysis, no matter how tired or exhilarated you feel at the end of the day. You set aside time to review your daily results, download fresh data and uncover themes for the next session. You don't trade at all when nonmarket matters keep you from finishing your nightly preparation.
9. You watch all types of markets, even those you're not trading at the time. You realize the next opportunity could come from anywhere, and you want to be prepared. You also understand that your trading interests will change over time, so you want to be ready for the next big thing.
10. You keep detailed trading records and update them on a nightly basis. You look at both profits and losses with complete detachment and a keen eye for self-improvement. You don't "conveniently" fail to include those trades you'd rather forget about.
Managing open positions is the most difficult task the trader faces.
1. Decide in advance how actively you should manage open positions. The pros watch every tick and act on short-term swings. Part-timers read the morning paper and learn everything they need to know. Your own efforts need to fall somewhere in between.
2. Choose your playing field wisely. Track the weekly price bars if you invest; the daily bars if you're a swing trader; and the 60-minute bars if you play hard in the intraday markets.
3. Outline a specific strategy to deal with overnight positions. Learn when to stay put and when to jump ship ahead of key reports and news.
4. Set aside time and capital for unexpected opportunities. Fresh ideas show up all the time and demand your attention. Build a routine that filters these prospects quickly and efficiently.
5. Align your positions to current market conditions. Overall sentiment, external shocks and volatility affect the success or failure of your trades.
6. Trade with the buy- or sell-swing within the market. Most of the time this tracks a three-day cycle for swing traders and a 21-day cycle for position traders. Find your place in the swing and take advantage of those who execute against nature.
7. Have a proactive plan for the first and last hours of the trading day. Newer traders should sit on their hands during this time, but the pros can use it for most of their decisions.
8. Become a student of time-of-day tendencies. Markets tend to trend within narrow time windows, while fake-outs take control for the rest of the day.
9. Choose a set of averages and indicators you're comfortable with, and then leave them alone. Learn to interpret conflicting information rather than searching for the perfect indicator.
10. Track the Tick indicator closely and watch its short-term cycles. The Tick has a life of its own, and it will save your neck if you let it.
11. Keep one eye on your positions and the other on the indices. When a stock moves more sharply than an underlying index, it should continue to do so. This becomes very important when the index starts to move.
12. Follow round numbers on everything in the market. Watch how your positions react to 10, 20 and 30. Round-number support and resistance can be greater than old highs or lows.
13. Look for breakouts and breakdowns of the two-day range. This will tell you if your stock is trending, or running in place.
14. Become a student of price gaps and categorize each one. Then tell yourself what you'll do the next time your trade hits one.
15. Recognize when you're wrong and need to get out. Find the price that ruins the trade, and don't outthink the market when it gets hit. The move could be a fake-out or the start of something big.
16. Don't overanalyze your positions. Let each one speak for itself. If it has little to say, get out and move on to the next trade.
17. Become a tape reader. Look for early warning signs of a move against your position or confirmation you did the right thing.
18. Trade small if you're new at the game. This will teach you important lessons at a very low price when you make a mistake. Neophytes should concentrate on learning how to trade and not worry about making money.
19. Increase position size during winning streaks because your performance suggests reduced risk. Reduce position size during drawdowns and wait for the clouds to pass.
20. Build a contrary relationship with the crowd. Your profit rarely follows the direction of the herd, so stand against it whenever possible.
It's easier to find good stocks than to trade them for a profit.
1. Seek favorable conditions for trade entry, or stay out of the market until they appear. Bad execution ruins a perfect setup.
2. Watch the tape before you trade. Look for evidence to confirm your opinion. Time, crowd and trend must support the reversal, breakout or fade you're expecting to happen.
3. Choose to execute or to stand aside. Staying out of the market is an aggressive way to trade. All opportunities carry risk, and even perfect setups lead to very bad positions.
4. Filter the trade through your personal plan. Ditch it if it doesn't meet your risk tolerance.
5. Stay on the sidelines and wait for the opportunity to develop. There's a perfect moment you're trying to trade.
6. Decide how long you want to be in the market before you execute. Don't daytrade an investment or invest in a swing trade.
7. Take positions with the market flow, not against it. It's more fun to surf the waves than to get eaten by the sharks.
8. Avoid the open. They see you coming, sucker.
9. Stand apart from the crowd. Its emotions often signal opportunity in the opposite direction. Profit rarely follows the herd.
10. Maintain an open mind and let the market show its hand before you trade it.
11. Keep your hands off the keyboard until you're ready to act. Don't trust your fingers until they move faster than your brain, but still hit the right notes.
12. Stand aside when confusion reigns and the crowd lacks direction.
13. Take overnight positions before trading the intraday markets. Longer holding periods reduce the risk of a bad execution.
14. Lower your position size until you show a track record. Work methodically through each analysis, and never be in a hurry.
15. Trade a swing strategy in range-bound markets and a momentum strategy in trending markets.
16. An excellent entry on a mediocre position makes more money than a bad entry on a good position.
17. Step in front of the crowd on pullbacks and stand behind them on breakouts. Be ready to move against them when conditions favor a reversal.
18. Find the breaking point where the crowd will lose control, give up or show exuberance. Then execute the trade just before they do.
19. Use market orders to get in fast when you can watch the market. Place limit orders when you have a life outside of the markets.
20. Focus on execution, not technology. Fast terminals make a good trader better, but they won't help a loser.
To Day Trading rules" that consists of a set of rules and a clearly-defined step-by-step procedure that tells you
a) how and when to enter a trade,
b) how to exit at each target level,
c) what to do if a target level is not reached till closing time and
d) how to exit at stop loss level and
e) how to offset losses with overall profits. Please DO NOT commence trading before you have thoroughly read and understood the rules.Please follow the rules strictly. We do not want you to undergo losses on unprofitable trades which could often be avoided by following the rules.
1. Intra rule : These recommendations are for intra-day trading only - do not carry the positions overnight.
2. 5-minute rule : When the trigger condition is fulfilled, wait for 5 minutes, confirm that the trigger condition continues to be fulfilled and then take the advised action. Do not fear that you will lose the best entry price - more often than not, you will get the price again at the advised entry price.
However, you should not enter the trade if a) in the 5 minutes, the price has already gone near the 1st target or b) the scrip price is too wide apart from the advised entry price.
For "SELL AT HIGHER LEVEL", "BUY AT LOWER LEVEL" type of recommendations, when the trigger condition is fulfilled, take the advised action without waiting for 5 minutes.
3. 1st target rule : When the scrip price is around the 1st target , square off 50% of your position.
4. 2nd target rule : When the scrip price is around the 2nd target , square off the remaining 50% quantity; however, if the scrip price does not get near the 2nd target throughout the day, square off at 3.15 pm .
5. Stoploss rule : When the scrip price breaks the stoploss level, exit whatever quantity you have, without waiting further. Adhere to the stop loss tenaciously. STOP LOSS IS PARAMOUNT .
6. Trade-all rule : [This rule is applicable only to subscribers who have access to all the recommendations]. Since the number of recommendations is small and manageable, trade all the recommendations instead of just one or two. This way, even if one or two scrips hit the stop loss, it is most likely that the profits from the other successful trades will more than offset the losses from the stopped-out trades.
1. Forget the news, remember the chart. You're not smart enough to know how news will affect price. The chart already knows the news is coming.
2. Buy the first pullback from a new high. Sell the first pullback from a new low. There's always a crowd that missed the first boat.
3. Buy at support, sell at resistance. Everyone sees the same thing and they're all just waiting to jump in the pool.
4. Short rallies not selloffs. When markets drop, shorts finally turn a profit and get ready to cover.
5. Don't buy up into a major moving average or sell down into one. See #3.
6. Don't chase momentum if you can't find the exit. Assume the market will reverse the minute you get in. If it's a long way to the door, you're in big trouble.
7. Exhaustion gaps get filled. Breakaway and continuation gaps don't. The old traders' wisdom is a lie. Trade in the direction of gap support whenever you can.
8. Trends test the point of last support/resistance. Enter here even if it hurts.
9. Trade with the TICK not against it. Don't be a hero. Go with the money flow.
10. If you have to look, it isn't there. Forget your college degree and trust your instincts.
11. Sell the second high, buy the second low. After sharp pullbacks, the first test of any high or low always runs into resistance. Look for the break on the third or fourth try.
12. The trend is your friend in the last hour. As volume cranks up at 3:00pm don't expect anyone to change the channel.
13. Avoid the open. They see YOU coming sucker
14. 1-2-3-Drop-Up. Look for downtrends to reverse after a top, two lower highs and a double bottom.
15. Bulls live above the 200 day, bears live below. Sellers eat up rallies below this key moving average line and buyers to come to the rescue above it.
16. Price has memory. What did price do the last time it hit a certain level? Chances are it will do it again.
17. Big volume kills moves. Climax blow-offs take both buyers and sellers out of the market and lead to sideways action.
18. Trends never turn on a dime. Reversals build slowly. The first sharp dip always finds buyers and the first sharp rise always finds sellers.
19. Bottoms take longer to form than tops. Fear acts more quickly than greed and causes stocks to drop from their own weight.
20. Beat the crowd in and out the door. You have to take their money before they take yours, period.