Stock Markets are full of experts.
There is fundamental analysis and there is technical analysis. And then there are a plethora of technical indicators and charts.
Armed with so much firepower of data and analysis a trader sets out to trade.
His indicators tell him to enter a trade at Rs. 1130.
It is a day trade.
Same indicators tell him to exit at Rs. 1137.
The exit is done.
The lot size was 750. A profit of 5250 taken.
A good trade.
Only minutes later, there is another surge in price and stock keeps moving up and ends 4% higher at the end of day at Rs. 1175.
The trade which could have given you Rs. 45 was exited after taking Rs. 7 only.
This is what happens with most traders.
Sorry, this is not true.
What actually happens is that if the stock fell by Rs. 40, the trader will book a loss of Rs. 40 but while booking profit, it will be booked at 3–7 Rupees.
Sounds familiar.
It happens to everyone.
Still we do not learn.
After wiping out the initial capital, traders return to market again. This time they come with better technical analysis and better indicators.
The results remain the same.
Profits still remain a distant dream.
Why does this happen? :
We have made trading very complicated.
It is quite unnecessary.
Most of the traders are small traders. They do not need bucket loads of data to enter one trade to get Rs. 1000–2000 profit.
Even big traders do not need it, but I am nobody to talk about them.
I like to tell stories.
This is another about stock markets:
Conversation between two guys A and B:
A: Can you tell me how many sheep are there in this herd?
B: Sure, there are 168 sheep.
A: Real smart. How did you count them so fast?
B: It was easy. I counted the legs and divided by 4. I do it quite often. I am a stock market analyst.
Most of the technical analysis is like the above example.
Doing the simple things in a complicated way.
It is like using a sledge hammer to drive a nail.
The trader gets awestruck by the number of strategies and data points and misses the most important point— Trade.
Many people will disagree with me. It is fine.
Read this book:
In this book Nicolas Darvas narrates the story of his trades in 1950–1960 decades when there was no access to computers and the data as we know today. He conducted his trades from places as far away as India, Nepal, Burma, Japan while trading on NYSE. The trades were done on the basis of quotes of previous day for the few stocks owned by him or asked by him. These telegrams were sent to him by his broker. Other than that his only source of information was one weekly financial paper.
This success story is quite engaging and proves it beyond doubt that profitable trading can be done without so much data and details.
Trading is like life.
Even with the best of books and money spent on tuition, people fail in examination.
There are experts on TV channels suggesting trades based on technical analysis everyday and we see them going wrong quite regularly.
Nobody does better than 50% on a sustained basis and that is what a toss of coin will also do with no effort involved.
Let us now come to the main issue.
How to succeed in day trades or What are the secrets in day trading ?:
There are two secrets.
They are so obvious still I call them secrets.
Because people are missing the wood for the trees.
They ignore the obvious and go in search of secrets.
I have stated them earlier and I repeat these two facts without following which, no profits can ever be made:
(a) Buy Low Sell Higher.
(b) Keep the loss in losing trade lower than the profits in winning trades.
Without (a) , there can not be any profits.
And (b) is about loss management.
Some trades will go wrong and some will go right. Maintain the risk reward ratio.
Let me keep it simple.
Exit the losing trade at a fixed loss.
Keep waiting in a right trade. Protect the profit by trailing stop loss. Do not exit till the move ends or the day ends.
Easy to say but difficult to practice.
But who said making money was easy?
Profits will take care of themselves.
Thanks for reading.
Images: Google Images