Wednesday, November 3, 2010

Happy Diwali and some Replies

Nirav wrote: "As we know that in Trading three things are most important. 1st Method, 2nd Money Management and 3rd Mind. Here I want to ask you about a Money Management techniques or Risk Management methods which can be used in the market to remain in a market for a long term as a trader. Please explain money management for a trader and if possible could you tell us that what method you follow for the same? Kindly also suggest some books on money management for traders if possible. "

My Notes:
How about a different view? Trading requires three elements: A trading method, Discipline and Practice. Discipline includes money management and mind. Money Management comes in two parts: management of trading funds and management of your trades in the form of position sizing, stop losses and profits.

Most books on trading include a chapter on some kind of money mnagament. I will do some research and share some names, or ideas. Please give me some time.

Anuj wrote: 'You said "buy stocks that offer value even in bubble like periods"

Can you elaborate on this point. How do we find "value" in a stock.I can understand that value can be ascertained using fundamental analysis PE,PB etc.Can we use Technical analysis to find value as well?If yes,can you tell how.As I am familiar with Technical analysis and not that much comfortable with Fundamental analysis

My Notes:
I look at a price chart where the share price is emerging from a base or at least a deep correction. I corelate this with the EPS for the latest as well as past quarters. If the Price earnings Ratio (EPS divided by current share price) is low enough, that is a stock which I should consider for buying.

Shazia  wonders "There is no easy way in anything.. an investor shouldn't go with the herd but a trader usually has to be with the trend (herd). no?"


My Notes:
Actually, yes. I think your 'no' also meant 'yes'. Most traders will make money by catching the trend. The trend is herd driven, or, maybe the herd is driven by the trend. Something like the chicken and egg. Investors will lose money by running after the trend, since they may end up buying at the top with no clear exit strategy. So, always invest on dips / corrections.

Ilan asks "explain VIX practically"

My Notes:
VIX stands for Volatility Index. Five near money Nifty calls, and five near money Nifty puts are taken, their implied volatility (IV) is calculated and averaged. Usually, high IV's reflect an exclited market. Markets are mainly excited at panics. Low IV suggests stable markets, which are usually bullish.

Andy "what is algo(software) trading. is this useful for a retail trader?"

My Notes:

Algo software is fully mechanical method for trading. Since it is mechanical with no human intervention, it is ideally suited for automated trading. Just switch it on, and, you can go to movies, play golf, do whatever else you want to while your software trades for you. Please note that this does not assure you profits, it simply automates your trading process.
In fact, most Algo software will fail, some very quickly, while some others soon enough. Ask yourself: if this thing is so good, why is the seller not using it? Ask more: If this is so good, why is Goldman Sachs, Reliance, Warrent Buffet etc... not using it?

3 comments:

Anuj said...

Hi Sudarshan Ji
Hope you have a great Diwali,best wishes.
Thank you for your reply to our questions
Why are you playing with colors(Font colors) this diwali season? :)
Thanks once again.

Shazia said...

hi SIR,
Yes, my no meant a yes ..
Kind of you to answer
thanks
Shazia

POTTER said...
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