Wednesday, January 6, 2010

The Professional Trader

Prabhakar asks: " I heard you saying that shorting has to be done by professional traders only. Could you please elaborate why shorting may not be suitable for everybody."

My Notes: (a) Shorting involves the use of Futures, which is a derivative. Derivatives require the use of margin & leverage. Leverage can lure the innocent into over-trading. (b) The use of derivatives MUST be accompanied by strict money management (stop losses). Novices will not use stops, thus causing a lot of grief to themselves. (c) The stock market has a secular uptrend (generally). The short seller tries to take advantage of quick bursts of movement against the broad secular up trend. This requires great skill, which only professionals with lot of experience can have.

My regards to Prabhakar for asking this sensible question.

In response to my reference to probability, Reader Jagdish makes a valid point  "As brilliantly put by Larry Hite - IT IS INCREDIBLE HOW RICH YOU CAN BECOME BY NOT BEING PERFECT."

Ashok wants to know if I am going to attend the Lucknow Investor Camp. The answer is: I hope so. The camp is scheduled on January 16, Saturday.

HOT Lists

Traders MUST have a short list of stocks in which they intend to trade (day or swing). These lists are reviewd from time to time (weekly or monthly) but such lists should exist. If you do not have a list, then go ahead and create one for yourself. discusses Day Structure here
Dr Brett Steenbarger defines each trading day into a possible seven types:

1) Range Day - The market will oscillate around an average price value with relatively low volatility through the day

2) Upside Trend Day - The market will open near its low price for the day session and build its way higher through the day, closing near its high price.

3) Downside Trend Day

4) Upside Breakout Day - The market will open within a range, but will build volume and attract participation at the upper end of that range, leading to a price break above the range.

5) Downside Breakout Day

6) False Upside Breakout Day

7) False Downside Breakout Day

The Americans continue to lead the world in research and new methods of trading. Dr Steenbarger is a pioneer.



piyush said...

sir, i have been recently reading a lot of books on trading but each one of them have one or the other system to trade. i am a bit confused and stuck. can you please help?


1.I am new to technicals and thus wish to know out of your exposure as to which is the next best free live Nifty chart showing SAR, other than by Yahoo finance, as here the delay is 30 secs. and need constant refreshing.
Which site or which on-line trading a/c provides live Nifty chart ?
2. Also, for a beginner, SAR is the best indicator or he should simultaneously learn to watch multiple indicators ? Or, in other words, for a beginner, which minimum indicators DO YOU suggest, which maybe JUST ENOUGH to do the job and yet not be too engrossing.
[As it is, by the time I interpret a 'dot' and ACTUALLY put-in the TRADE on my trading platform, very vital, (minimum) 30 sec. to a minute pass by. I know this delay may not be subverted, but at least I can monitor a live chat, if you help me and thus bridge the first 30 sec. delay at least!].

Thanks a lot of taking the pain to answer to most of the questions. That's a hallmark Sir and God bless for that.

Krishna said...

Dear Sir
I seriously feel that underlying theme of any business including stk mkt is "management of trades"..and the principle is the old and same.."buy low sell high" ..and this much of understanding will be required to run even a small grocery let americans do thje research work and let us do some serious money making businees...regards sir..krishna lucknow

arun said...

i work in state owned hydro power generation company.i m great fan of you.Trading at 9:00 am gives people like me more time to trade.i can only trade 9:00 to 9:30 and 2:30 to 3:30.Every morning i search for you in CNBC.Most of your recommendations turn out to be right but unfortunately for me
i shorted one lot each patel engineering @ Rs-455/-and educom @ Rs-737/- and suffered huge losses.Would you plz tell how to decide correct stoploss? Can pivot point calculator support and resistance be helpful?
arun kr. singh

QualityResearchEssays said...

Hi Mr Sudarshan,

I've been following many of your views on CNBC. I'd like to know if you'd be able to tutor me with a course in technical chart reading and training. I am interested in the stock market and do have some experience with trading stocks. However, more often than not, I am caught on the wrong foot. So i decided to take a course in technical analysis and would absolutely love it if you could be my mentor for the same.

Thanks and Regards.