Wednesday, July 7, 2010

Student's Dilemma

I received this email from one of our subscribers. This is of interest to most readers. Here is the email and my reply which is being given through this blog.



Iam ur subscriber, also keen reader of your blog. Thank you for the valuable information you provide on technical analysis. its fascinating and wonderful.

i have aquestion does a technical trader who trades with technical analysis should also take in in to account the fundamental picture. personally i want to trade focussing only on the charts, but sometimes the noise abt fundamentals thru media creates confusion while taking acall on charts. also sir while reading charts alwys at the back of my mind theres always a thought whether you personally are bullish or bearish, for example when you post articles about analyst or experts bearish like in june, it creates confusion while analyzing a chart as i tend to look at achart based on preconceived notions as what ever i know or assume i know about technical analysis is thru your news letter and by using trend analyzer .As technical trader is it not better to try and only focus on the charts.if yes how can it be done. Please advice.

your student


My Notes:
I see three issues:
1. "sometimes the noise abt fundamentals thru media creates confusion"
2. "alwys at the back of my mind theres always a thought whether you personally are bullish or bearish"
3. "tend to look at achart based on preconceived notions"
Well, here is the good news. Most traders have gone through these steps at the initial stages of their careers. There is nothing to worry about.
Information on fundamentals are important because they enable traders to make shortlist of stocks to focus on. But we do not have to listen to the buy and sell calls. Ignore their trading advice altogether, but listen to the names being discussed.
Am I bullish or bearish? I discuss a lot of information moving around in blogs all over the world, so readers can obtain in one place a collection of learning. I have a long term view of the market - likely to outperform fixed income investments, intermediate view: deep correction possible, short term view: changes from day to day.Traders should develop their own view on the market. We are never going to be perfect. We just want to be correct more often or rather for a longer duration than going wrong. This means, suppose I was correct on the bull run from 2800 to 5400. Since April I am looking for a deep correction. Now, I may be wrong, not once but two three times for the next one year. Yet, I emerge a winner since my corrrect analysis compensates for many wrong calls. My point is: do not worry about being right or wrong. No one knows the future. Spend your time on developing a trend identification method that makes you comfortable. Then use it / follow it.
When you look at a chart searching for a fixed number of patterns, you will find that the preconceived problem will largely go away. I will give you an example. In the beginning of June, I classified a rally in the Nifty as a rising wedge. This is a bearish pattern. Now, the Nifty did not go down, instead it broke out above 5150. At that point I suggested buying because of a breakout. Am I depressed because of the wrong identification? No! That's what I saw then. It did not work out, so what?
In summary: go easy on yourself. Trading is not a stress buster, you know that it can become a major stress creator. That's why, you need to keep the process as simple and easy as possible. And always understand, it is not your fault. We get whipsaws because it is the nature of the markets.
Have fun!


kaps said...

Good Advice in clear and simple words.I think the line tells
"Am I depressed because of the wrong identification? No! That's what I saw then. It did not work out, so what? "
what is so simple and yet is the most difficult thing for a trader to master.Our personal characteristics come into play inorder to overcome these biases.

Pankaj Shukla said...

Dear Mr. Sukhani,

Which chart do you suggest??

Please do advice. I would like to subscribe to the most ideal one, but am confused as there are several of them available, some free of cost and some on payment. I believe there are no free lunches under the sun, but am confuse which one to go for.

Kindly advise.

Thanks and regards,

Pankaj Shukla

kk said...


Sanjeev said...

Excellent advice. To follow it religiously, we must be humble to accept the mistake.

Ankurbbhatt said...

What a masterpiece advice....But, as you may be knowing perceiving the same advice in all it's glory is by nature difficult for bad traders !!


Sukhani sir, Nice discussion and apt reply.

My understanding says: Technicals reflect the fundamentals and also many at times it gives early clear signals as to the undercurrent change in the fundamentals. In technicals the entry / exit / SL levels are clearly defined. It is for us as a trader to stick to it like a "Stita pragnya" as said in GITA, without wavering mind.

I would like to give a real time my personal trade as an example:

ONGC gave me sell signal yesterday (7th July)when it goes below 1287(future) and I shorted. I saw ongc cash also gave sell signal. Both were trading below that till 3.28.50pm. So, as per my rule i hold it as STBT. My stop loss at the time of entry was 1291. I refined my TSL to 1280.

Now to-day morning (8 july)- ONGC opened just above my trailing stop loss level - Though i am not convinced about this jump, i did not care about my feeling and covered my short around 1286.

I would be lying if i say, i did not feel a little bit of sadness; but this is part and parcel of trading. My trade rule is my god. I have to obey to it, whether i like it or not. Because the same set of rules have been giving me plenty of handsome gains so many times.

I am just sharing my point of view as trading in capital markets are not as easy as many of us thinking.