Thursday, May 23, 2013

Are we gambling?

A couple of days back, I was talking to my friend’s sister who lives in Mumbai and actively trades in Stock Markets since last many years, and also does trading on behalf of her clients. She is way senior to me as far as the experience in the financial world goes. I was talking to her on the theme of my last blog post, and how we as traders/investors need to cultivate and nurture the quality of looking at the markets without any personal biases, which according to me, is the basic ingredient to any recipe we may develop for ourselves for success in the markets.

As I talked along, she seemed to be bothered. I asked her, ‘Is everything alright?’
She said, “My clients are long in Silver, and now we are stuck. What you think? What should I do?”
Having known about her experience, I was unpleasantly surprised.
The questions and answers that followed took me by shock. But then I realized and this tendency happens to overpower us sometime or the other. So, I felt like sharing the gist of our conversation here.

Why did you go long in Silver?
Everyone at my office is, and I felt as if I would miss the opportunity
Do you have any basis for your trade?
Yes, our HO gave us the call
What is the SL you have thought of?
42250. But it has already opened gap down and jumped over my SL
Now, what will you do?
I will wait for my price to come, to exit. Can’t take so much of loss.
Do you read charts?
No, I don’t understand them.
Do you do your fundamental analysis?
No, it is too complex for me.
Do you read what good experts of the market say?
No, I feel all of their views are scripted.
Do you read market related books?
No, they don’t interest me.
So, what will be your strategy now?
I don’t know. May be I ll see what others in my office are doing, and I ll wait for at least my cost price to come. Please let me know if you get any tip or news.

Our conversation ended, but it set me thinking.
Why do we rely on tips and rumors but don’t do our homework?
What stops us from doing our own study?
What makes it so difficult for us to take small losses?
Do we take trading as gambling, where we play blind?

Jack D. Schwager, author of the book ‘Market Wizards’ says, “the synthesis of technical & fundamental analysis combined with risk control allowed me to build my stake of $2,000 into well over $1,00,000”.
He could do this because he did his part of homework.
Do we do ours?


Alpesh Trivedi said...

Sir,since last 4month net 1k +/- one side trend seen in sensex expiry to expiry....nw june series for will? Pls advice sir

Rakesh Shethia said...

Small losses turn into big one out of uncertainty. People often get switched to "hope" mode that the prices will reverse for them to get out at breakeven. This hope mode is activated out of past experiences of price actually reversing to their breakeven point. However, this is kind of shooting in dark. It works till your luck is on your side. One large blow takes it all away. Of course uncertainty is part of the trading profession. One can avoid uncertainty to certain extent by having a plan for trading - the edge. Your edge can be your mastery of a particular pattern, or in particular market conditions (rangebound/trending) or any other. Having an edge gives you clear levels for entry and exit (exit for both stops and targets). When you have a clear picture of how the price should behave, you stay calm and under control. Most of the traders lack edge and trade perennially on hope. And probably thats why they cling on to their loss making trades.