Saturday, May 23, 2009

How to use analyst suggestions on day trading

Rajiv Malik writes:
Quote
btw i bought 3600 call based on your closing strategy given on wednesday but unfortunately had to book heavy losses on thursday as the call bought at 104 came down to 61.
how do you think i should have avoided making such a big loss. in the early morning/afternoon i did get a chance to square off the position on an almost cost to cost basis but did not square off thinking eventually it may end up giving me profits.
don't you think it would have been better had you given a stop loss. moreover if cnbc gives a closing strategy, one they must sometime during the next day announce the exit strategy. moreover whatever closing strategies are given must be as a rule discussed and their success or failure reviewed by cnbc on the next day.
UnQuote

I cannot answer on behalf of CNBC on what they should do. But here are some thoughts on 'How to use analyst suggestions'.

First, understand the concept of probability. I have written about this on my blog many times. An analyst may have a trading method that gives 50% winners. Each winner gives Rs 2/- in profits and each loser has a Rs 1/- loss. This is an extrememly profitable method even though half the trades lose.

Remember, he is getting signals on all five days a week. Now, twice a week the analyst provides his trading signal on TV. Since half the signals are profitable, the eventual outcome from the TV signal is essentially a toss of the coin. Worse, there are runs in trading. 'Runs' mean streaks of winners and losers. It is possible to have 5 winners one after the other and then five losers. The net percentage of winners will still be 50% after 10 trades, but the novice taking the first five trades (winners) will think that the analyst is superb while the person taking the last five trades(loser) will blame the analyst for his misfortunes.

Consistency is the basis of profitable trading. I am not sure how a trader using TV as his basis for trading decisions can be consistent. Why not keep it easy and use technical analysis?

6 comments:

anshul said...

i agree with mr sudarshan sukhani......

Viral Rajnikant Dholakia said...

Dear Mr Sukhani,

Can you share your views as to what you suggest for my Trading Strategy as i have posted on my blog post pasted below:

http://www.stock-mkts.blogspot.com
(Refer Post Dated: May 21, 2009)

Markets will find a definite support in the Sensex 13500-13000 zone in worst case scenario, until the time frame of next couple of months with as important even as Budget to be come.

Later on, Markets will re-adjust itself in next 3 month's time frame with a clear standing of Indian economy post-budget & results announcement.

Until than, markets may well remain in Sensex 13500-15500 range.

Thanks.

Viral Rajnikant Dholakia said...

Dear Mr Sukhani,

What have yo to say on my views on markets in my blog as mentioned below:

http://www.stock-mkts.blogspot.com
(Refer Posting Dt.May 21,2009)


In short, it says, markets may find some significant support around Sensex 13500-13000 levels as worst case scenario. This, more so, with an important even as Budget scheduled as soon as in next 2 months time frame.

Later, markets will take minute details from Budget & Results announcements from Corporate India to RE-ADJUST the valuations of indices over medium-term horizon.

Untill then (next 2 months), markets may remain range bound in Sensex 13500-15500 levels only to grab clear cut signals after Budget & Corporate Results.

The posting seems to be not as much on Technical aspects of trading.

Thanks.

Karthik Krishnaswami said...

Dear Sudarshan,
I was looking at the TCS charts,which looks weak.
1.The stock has already filled the gap due to the recent gapups we have seen.
2.I also plotted the 34 WMA for close,high,low for the stock (From your earlier posts of swing trading and your video)
and realized that it is now within the band,and looking to go below the WMA line of lows.
3.The MACD signal line has also crossed over,giving a bearish indication.
4.The RSI is now tending towards the bearish zone.

Is the stock a candidate for shorting?The stock is near its support level close to 600 levels.A fall below this can see a level of 500.
Is my analysis correct?
Please answer my question,as it will benefit me a lot and keep my interest in TA alive.

i have uploaded the image to
http://niftytechs.blogspot.com/

Thanking you in advance.

niftylimits said...

Dear Karthik Krishnaswami, please do not short TCS. It is beginning an uptrend and might surprise everybody.

Krishna said...

Sukhani Ji says
Quote-
"Remember, he is getting signals on all five days a week. Now, twice a week the analyst provides his trading signal on TV. Since half the signals are profitable, the eventual outcome from the TV signal is essentially a toss of the coin. Worse, there are runs in trading. 'Runs' mean streaks of winners and losers. It is possible to have 5 winners one after the other and then five losers. The net percentage of winners will still be 50% after 10 trades, but the novice taking the first five trades (winners) will think that the analyst is superb while the person taking the last five trades(loser) will blame the analyst for his misfortunes."
Unquote-You have exactly pin pointed the real scene sir. You are 100 % correct & I personally do not find even a single point to disagree with you on above matter.
I wud further add that Stop Losses are again just a reference and not any "LAW". All those who are in stk mkt know very well that how stks or nifty hits stop losses falsely and retraces back. So I mean to say that SL is not a rule which will be follwed only if specified....it should infact be a habit of a good trader as per his/her own preferences.
regards