Saturday, March 20, 2010

Bank Nifty Trade - My Notes

Thank you, readers for your response to the Bank Nifty trading problem. The problem and your comments are available here :

Broadly, the responses on Thursday evening and Friday afternoon were :

1. Exit immediately, you are on the wrong side of the trade, or,
2. Assume that the current price is your short selling price. Now, put a stop loss and see what happens.

On Saturday evening, some of the responses have come in which suggest:
Keep your short position and you will make money.

Maybe the 'keep your short position' is hindsight, after the RBI raised the repo rates.

My Approach:

When I find that I am on the wrong side of a trade, the best way is to exit the position immediately. Some of suggestions have explained this, and, this is what I do.

Saket has offered another option, which says:

"well the trader shorted the bank nifty at 8500 on 26 /2 the bank nifty brokeout and had a buy signal that was were the trader should have got out.

The trader has already carried a position wth a huge loss which is not prudent but lookin at the trade i would not suggest the trader now to book the loss as the bank nifty has rallied and reached resistance levels and the markets have also rallied to the highs n 5250-5300 are resistance zones so the trader can probably hve a stoploss of 9350 on closing basis"
This is also another way of approaching the problem. For professional tarders, this may be a better method, but for newcomers, this method offers hope while the requierment is of discplined action.
Finally, trading is not a rigorous methodology. There are many approaches to the same problem, all of them correct. The reader contribution has enriched this blog, and, I hope added value to all readers. Thanks.


Nirav said...

Dear Sir,

Earlier in this blog I asked you about mechanical systems, and you said that mechanical systems work in this markets. But right now i am reading a named The Intelligent Investor- Benjamin Graham. And in that it is written that All mechanical formulas
for earning higher stock performance are “a kind of self-destructive
process—akin to the law of diminishing returns.” So, how will you justify this. Please reply.

Pawan Jain said...

I've always enjoyed reading your blog and this particular post was especially good. Thanks for sharing it!!!!!

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