Facts, Topics & Aspects To "Successful Trading" by Tom D'Angelo

1. You must master three disciplines to achieve long-term successful speculation: a. Trading methodology (long or short-term, technical versus fundamental analysis, type of trading system, etc); b. Psychological discipline (controlling emotions of fear, greed and anxiety); c. Money management (risk reword decision analysis for each trading opportunity - when, where, why and how to bet on a particular event)



All three disciplines are necessary, but not sufficient individually - only all three combined are necessary and sufficient to achieve success.


You must develop a trading personality which integrates all three disciplines to achieve long-term success in speculation. If you do not, you will fail.

2. 95% of traders are totally disorganized as to analyzing their trading results . . . and have no concept of how to organize their profitable and unprofitable trades.

Practical organization of trading results is a primary prerequisite in mastering the money management discipline.

3. Long-term success can only be achieved by playing a game with a positive expectation.

4. The best approach is to play a game where you have a positive expectation and make small bets (playing as the casino).

The worst case is to play a negative expectation game and make large bets . . .


5. Losing significant amounts of capital can be avoided if the trader is making a sincere effort to integrate the 3 disciplines into his/her personality.

6. 95% of traders do not know where they have been, where they are or where they are going in their trading. They operate like a plane in a fog trying to fly with no instruments. They are disorganized, uncertain, anxious, fearful and eventually are forced out of the speculation game. If you emulate this 95% group of individuals, you will wind up equally frustrated and you will eventually fail.

7. You should classify any contemplated trade into one of the following five categories before putting on a position:

a. Entrance into congestion


b. A trade within a congestion


c. A breakout from a congestion area


d. A trend run


e. Trend reversal


[This is an abridged version of the original article found at http://kreslik.com/forums/viewtopic.php?t=1526]

Letter from Investment Banker to Finance Minister

Dear Finance Minister,

Since you are presenting the union budget tomorrow, I have taken time from my busy schedule to give you some advice. I am very good at giving advice - buy this, buy that. Prices have fallen? so what, buy more and more.

I have to admit I am quite comfortable living in India. I really have no complaints from you. Or rather, very few complaints, because after all, nobody is perfect, not even you.

My first suggestion is not to follow the West blindly. In the USA, they arrested a person because he was getting inside information and then acting on it. Horrible!  What will they think of next? So, please do not follow the West.

My second suggestion is to follow the Western world, where appropriate. I like the idea of 10 million dollar bonus payments. It is true that I have that kind of money, but it comes from , er... trading in selected stocks (you know what I mean...), and I would much prefer to get the money directly and openly.

My third suggestion is not to listen to people (like Sudarshan ) who talk about 120 crore Indians. You have to create wealth and when the wealthy get the country's money, naturally we will see that some of it trickles down to the masses. You should think about the 1000 people who control the financial economy. What is good for the rich, is good for the country.

So, briefly, this is what you should do.

Remove STT
Remove Short term capital gains tax
Reduce the higher income tax slab to 5% for Investment Bankers
Privatize SEBI
Allow duty free imports of Luxury cars, personal airplanes, private Yachts. (Note: Can you also give a subsidy for such imports? Please examine this idea..)

Well, I have to rush now, Bye.

Nifty Weekly Patterns

ANAS asks:
''is nifty making a making an ASCENDING CONTINUATION TRIANGLE on WEEKLY charts , from may 09 till date.??'' I request your kind comment."

My Notes:

I am giving the weekly chart for the Nifty. With some regret, I have to say that I could not identify such a pattern. Have a look at the chart.

Resistance holds on

On the Nifty charts, we have 4950 as a pivot point. This level is part of the lower highs pattern. In order to break the current downtrend, two events are required. 1. The Nifty should make a pattern of higher lows. This has been done. 2. The Nifty should have a pattern of higher highs. This works out if and when the Nifty moves above 4950. Over time, these numbers will change.

The trader can classify the current trend as sideways (one of the two patterns for an upmove are in place) or down (higher highs not made).

In either case, a sign of weakness is a selling opportunity. Keep proper stops.

WIll the markets trend, or will the remain choppy? The trader has to answer this question every day. If there is a trend, apply trend indicators / simple price analysis. If you sense a choppy market, use oversold-overbought indicators to enter and exit.

Trading requires practice, lots of it. It becomes easy when you have done the same thing a thousand times.

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If you are a member of the ATA, you will have access to a recording of the presentation made by Robert Grigg, presidnet of the Australian Association of Technical Analysts, which is scheduled for Saturday Feb 20, Please visit http://www.taindia.org/ for more details.


Have Fun!

Spring in the Air

Gains in the American Markets has led to similar gains in India, on Tuesday. It appears that Indian Markets should open higher and are likely to find support on dips.

In our intraday charts, there is a significant pivot at 4950. A close above this point will change the intermediate trend from down to sideways. Since the primary trend remains up, the bias will be on the long side.

Technical Analysis does not say: This will happen. It says, This is the most likely road, given the information available now. Classical TA puts importance to patterns of lower highs / lower lows and the reverse. I  pay lot of attention to these patterns. These are the easiest way to determine a trend, the direction of the trend, and by getting whipsawed - the absence of a trend.

The Australian Experience comes to Delhi

GUEST LECTURE BY PRESIDENT OF THE AUSTRALIAN TECHNICAL ANALYSTS ASSOCIATION


The Association of Technical Analysts, India is proud to announce this guest lecture on Feb 20, in Delhi, at PHD House. (2 PM to 5 PM). Full details can be had at www.taindia.org . The topic is related to automated trading systems - a subject which is rarely dsicussed. This is a wonderful chance, do not miss it.

Members will be given preference at the meeting. Attendance for members is FREE while it is Rs 500/- for non-members.  Please contact Vivek Rattan at 09350618090 for registration. We hope to conduct such lectures every month.

The presentation will be recorded so members away from Delhi will get an opportunity to view it over the internet. But, there is no substitiute for personal attendance. If you are anywhere in North India, then access to Delhi is easy, and, you should attend.

Leading to the Budget

Is there a pattern in the last two weks of Feb, leading to the annual budget?

Here is th performance of the Nifty, from 1995 to 2009. The fields are:
Last trading day of Feb, Nifty value onafter Feb15, Nifty on last trading day of Feb, Change

19950228.00 1032.64 1014.72 -17.92


19960229.00 1051.99 992.51 -59.48

19970228.00 1009.45 1053.55 44.10

19980227.00 974.55 1060.75 86.20

19990226.00 970.25 941.20 -29.05

20000229.00 1744.50 1654.80 -89.70

20010228.00 1393.35 1351.40 -41.95

20020228.00 1150.00 1142.05 -7.95

20030228.00 1036.00 1063.40 27.40

1040227.00 1913.60 1800.30 -113.30

20050228.00 2098.25 2103.25 5.00

20060228.00 3017.55 3074.70 57.15

20070228.00 4047.10 3745.30 -301.80

20080229.00 5202.00 5223.50 21.50

20090227.00 2948.35 2763.65 -184.70

In the past 15 years, the Nifty saw 9 declines, 6 advances between 15th Feb and the last trading day in Feb. In many years, due to elections, the budgets were not presented in Feb therefore the data is not truly reprsentative. Yet, this is what we have for the second half of Feb. The data suggests that the bias is slightly to the downside.
 
More inputs are welcome.

What traders do?

Three cheers for Nirav. He has asked a thoughtful, philosophical question.

Quote

if we say that trading is a business then like other business in which main objective of the business man is earn profit but at the same time he produce something which is needed by the people, but in trading only trader get the profit and no one else is benefited. So can we call it as a business?

UnQuote

My Notes: Nirav asked this question since he wants to become a trader but cannot understand if his profession will serve a social purpose.

Nirav, I have thought on this subject many times. My conclusion is:

The world is changing. Manufacturing and Agriculture is no longer the primary business in most countries. It is services. Some services provide a direct benefit to consumers. For example: The car mechanic repairs cars and therefore immediately serves the customer. Some services provide indirect benefits. Trading is such a service.

Tradng provides liquidity to financial markets. Without liquidity financial markets will not work. Without financial markets, most business activities will come to a stand still. If there were no traders, there will be no trading. Then, where will the capital and liquidty come from?  Now, most business activities have a good side and a bad side. Import-export is essential for the economy, but in another form it becomes smuggling. In the same way, trading can be distorted to actually harm the economy (we see this in the USA, and, in proprietory trading by some brokerages in Delhi) , but that means some traders are out of line. Trading serves a social purpose, like most other services.

Trading Tips and Tricks

There are a few things all traders need to learn - and they generally aren't what most of the trading education out there teaches.


#1 Trading is not solving an algebra problem.

No matter how how you try, you will not find the magic indicator that will solve for X and make you money.


Unfortunately for the vast majority of traders however there is the human desire for certainty so many keep searching. A better strategy is to figure out whichever sport or hobby you relate to and think of your decision making as if you were either playing that sport, writing that novel, painting that painting or building that boat.

#2 Emotions do not need to be controlled, actions do.


Everyone puts all of the emphasis on the emotion when in reality the thing you can control is how you act out the emotion - not the feeling itself. In fact, if you have no confidence, will you take the trade? Is confidence an emotion?

Feeling frustrated or angry, afraid or disgusted isn't fun (I know that!) ... but it is still only a feeling. Trying hard to rid yourself of the feeling only loses you the opportunity to learn what it is telling you and sends you down a path where you will act out the feeling anyway - usually in what will later look like a very stupid trade!
 
My Notes: Source: Trader Psyche, New York.

Markets in Correction

[I have returned from a week long holiday. I thought I will be able to keep my blog updated during the holiday, but it was not possible.]

The Nifty joined world markets in a correction of the up move. While the media makes it sound like a catastrophe, the decline is not unusual. All markets correct, we just do not know 'when'.

Whenever a correction begins, two questions come up: (a) How can we say this is a correction and not a reversal of the trend, and, (b) If this is a correction, then how do we determine its end? The end of a correction is the start of the original trend, therefore a perfect entry setup.

I will attempt to answer these questions in subsequent posts.

Returns and Wave Counts

What is a fair return on your investment in the stock market?

One measure of returns is CAGR - Compound Annual Growth Rate (Annualized Return). These returns can also be adjusted for inflation, but that causes more calculations. I would expect the Indian stock market to give about 20% CAGR (not adjusted for inflation).



Arvind Sahu provided two charts on the Nifty. here they are:

Today, he added the comment: "today's daily close on nifty, looking like bearish engulfing pattern which suggest this railly may not support till 5050 as i send chart on e.wave pattern yesterday.


as i am in learning phase and my moto is not to predict the target but the basic pattern which is running now, so kindly update my charts wherever u feel neccesary, before putting on blog."

Before the Budget

TA members living outside Delhi should be assured that we will record the event and provide a webinar. If you live near Delhi, you should attend. (www.taindia.org for details).
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A new calendar month starts today, with the presentation of the Union Budget to be the main event. There is a general feeling that the run up to the budget provides a rally of some kind. But do the numbers support this claim? I coded a quick scan to find out what happens between the last day of January and the date before the15th of Feb. Here are the results:

Year   Change in Nifty points

95          -38.59

96           203.57
97          36.80
98          11.10
99            4.05
2000     198.30
2001     21.65
2002     74.60
2003     -5.85
2004      103.85
2005      40.65
2006      16.45
2007      -35.60
2008      64.55
2009      73.55


The study covers 15 years. Out of 15, we had 3 negative changes and 12 positive changes. This is raw data, since there were a few years in which the Union Budget was not presented in Feb.
 
Readers are invited to provide additional insights into these numbers.