Sunday, August 10, 2008

What the well informed blogs are discussing

Here are snippets from some of the blogs that I read over the weekend:
Crude Prices. The Big Picture says: Crude is falling because of demand destruction - this implies a recession in the world economy. A decline to 110 is possible.
My Notes: I had suggested earlier that a breakdown from 120 should see crude come down to 108 - it is nice to note that better analysts share the same view. This decline will still be a correction in an ongoing bull market for crude. Remember, crude is a commodity where the supply is dwindling, day after day.

Pension Funds managed by Wall Street. The Aleph Blog is concerned about a proposal that will allow pension funds for employees to be managed by Wall Street. Sounds familiar ? This is similar to a proposal in India to allow a few large fund managers to manage the provident funds money of millions of Indians. Aleph Blog says that the only way Wall Street can assure higher return is by taking higher risk. The Blog writes: "Ask this: how would you feel today if the plan sponsors ...... adopted highly risky investment strategies? You would worry."
My notes: I worry for India, since the Govt seems to think that Dalal Street has all the answers to the problems facing this country.
Momentum Trading: This research paper analyzes different aspects of trading with momentum, then comes to an interesting conclusion: In summary, momentum trading seems to work, offering several paths to excess returns.
My Notes: Thank You! Technical Analysis for short term traders is about going with the momentum. When research confirms this method, I am gratified to get confirmation that what I do for a living really does work.
Psychology in Trading. Brett Steenbarger , an excellent trading coach, agrees to the importance of psychology in trading, but the actual rules for trading are equally important.
He says: "In general, I would say that traders tend to overweight the importance of psychology in their results and underweight trading mechanics: how they execute trade ideas (getting good entry prices, not chasing moves; ensuring that each trade has a favorable reward-to-risk profile) and how they set and follow criteria for exiting trades (price targets as well as stop losses). To be sure, psychological factors can interfere with the implementation of those mechanics, but many traders simply lack sound rules for entering and exiting positions and instead make decisions impulsively, on the fly."
My Notes: Read these lines again and again. You must have a trading plan, to get started in this business.

3 comments:

anshul said...

thanks a lot..lots of good information about crude and importance of psychology in trading

krunal said...

i dont know wot demand destruction ppl. are talking bout??
it has jus decelerated, all the commdities has severe supply constraints as there have been absoltuley no increase in mining capacities of minerals in the past 2 to 3 decades.

if it takes 6 yrs of bull run to find a top in the market it might take equal amt. of time to find a bottom

& oh yea all this goldilocks crowd which speak of bottom on t.v. channels were saying the same thing wen we hit 4500 & then rallied upto 5300 or therebouts.

jus let the next leg of dollar decline start (which sud take a while) & then u'll see how fast capital gets eroded

piyush modi said...

Can you write a post on how to actually create a trading plan. I am new to trading with a system, & now really believe in it. Earlier i used to do short term trading, but there was no system to it. I didnt even follow technicals. It was simply an ad hoc system, on the basis that such stock has moved so much in so many days, now it should correct or rise up etc. Now i laugh at that thought process & ask myself what stops it from moving another 20% up or down. I used to trade counter trend, again using that same logic of how much higher/lower can it go.

But atleast now i think ive got the basics correct - going with the trend, playing with smaller positions if against the trend, having stop losses, managing losses to certain size, following technicals combined with intuition & fundamental triggers etc & finally i can say that ive started making money, in a bear mkt. Never did so in a bull mkt :)

But what i was concerned about after reading this post is that i still dont have a concrete trading plan per se. At times i trade in Nifty futures, deciding to stick to that only - low risk, low returns. But then at times i take up individual stock futures, at times on intra-day basis, at times even on a carrying basis. Times also trade in options.

So how exactly does one create a trading plan ?? Do stops have to be defined like 15-30 nifty points, or can stops have flexibility, in which circumstances? Lastly, how not to overtrade ?

Thanks in advance !!