Wednesday, February 18, 2009

The Analyst as a Trading System

In comments, shabsaif said

Quote:

Make your own trading system, when every analyst saying now up now up than go SHORT and if they saying down down than go LONG in the market

When Sudarshan jee was saying many times that nifty will touch 2450 from that time NIfty was up and up.

After up move once again target 3050 fails and Now down down down

UnQuote

My Notes:
Quite possible. But, sometimes we get it right. When the bull market started, I had felt that we are in unchartered areas and the market can go much further than we imagine. It did. When the bear market started, I suggested that if the Nifty breaks below 5500, then we have a straight decline to 4500. At 4000, my suggestion was that 2000 was possible.

It is about momentum. Traders should follow the momentum. The tracking of momentum can be done in a hundred different ways. Just as the worship of God can be done through many religions but the road will eventually lead to Him. So also, traders will follow momentum in their own styles, but the end result is to be close to the Market.

If momentum is on the downside, I say sell. If the Market goes up, my trades will suffer losses. BUT, sometimes the market continues to go down and the trades will make money. The net result should be: gains should be more than losses.

Have Fun!

5 comments:

anshul said...

end of the day trader is there to make money...like sudarshanji said many times that 40% of accuracy is enough for trader to make money if he follows money management rule properly according to account size...

chandu said...

If u can tell some money management rules it will be helpful sudarshan ji

now dow is trading flat.whats ur outlook..

Aurobindo said...

Hi Sudharshan,

I have made a simple trend following trading system. On an average for every 3 consecutive small losses I hit a big profit. Right now my system is stable. I have questions on 2 topics.
1) Exit strategy.
2) Money Management.

Exit Strategy :-
a) Moving average exit : I use a longer moving averages to identify trends.Since moving average is a lagging indicator I fail to take much of the profit. Sometimes I miss 40% of the profit.

b) Trailing stop loss :- I tried using a trailing stop loss. In a volatile market it quickly takes the profit. I get profit but I lose a big profit.

c) Predefined profit/ setting a takeprofit limit :- This works fine but not very effective.

Money Management :- I believe one has to alter the lost size based on previous number of consecutive losses to effectively manage the drawdown. I have forward and back ward tested my system on historical data. I increase or decrease the lot size based on the account balance and consecutive losses . I keep increasing the lot size for every for every 2 consecutive losses and once it hits profit,I change it back to a minimum lot size. I feel there could be a better strategy. Could you please suggest how to manage the lot size given the user knows the risk and reward ratio of his system.

Aurobindo said...

1)If one tries to predict the price he is bound to lose. Because, you are relying on hope and guessing and that’s not a good way to make money in any venture.

The only way to trade is to wait for the market to CONFIRM a trend is under way, and then execute your trading signal.

You will not buy the bottom or sell the high, but you can’t do that anyway, so there is no point in trying.

By trading with price momentum on your side, you have the odds in your favor.


2)You cannot buy success from someone else.

Some vendors can help you but success comes from within.

Even if you follow someone’s advice, always make sure you know the logic it’s based upon.

You need to do this to have the confidence and discipline to stick with your trading plan when you hit a losing period

In conclusion, someone can help you achieve trading success but you need to know how and why their methods and not follow them blindly.

The above myths are commonly accepted - avoid them or you will join the majority of traders that lose in trading.

Neha said...

trading is more of a psychological aspect then then the tickers running on our screen .first of all trader should have his own rules and set up .he should mute his tv or his screen which updates prices every second .and he should try to be as much as possible to be mechanical in approach .he should just listen to his rules and should cut out all the noises he hears from no of analysts speking on the tv .trading is more about being independent then being dependent .

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