Category Archives: System

What’s the Frequency, Flipkart?

Posted on by
Reply

Hmmm, a zero-profit company…

In fact, a loss making company…

Do you get the logic?

People are probably seeing an Amazon.com in the making.

Amazon exists in a highly infrastructure-laden country with systems.

Can we say the same about us?

As of now – no.

Are we on the trajectory?

Sometimes yes, sometimes no. It’s been five steps forward and then three back till now.

What’s all the hype about?

Institutions want to make money during the ride.

Whether the ride culminates into an Amazon.com is irrelevant for institutions.

Public opinion acknowledges the ride.

That’s enough for institutions.

They’ll ride to a height and exit, irrespective of any MAT or what have you.

While exiting, they’ll hive off the hot potato to pig-investors in the secondary market, post IPO.

Hopefully, a valuation is calculable by then. Even the PE ratio needs earnings to spit out a valuation. No earnings means no divisor, and anything divided by zero is not defined.

Keep your wits about you. Follow performance. Follow earnings. Follow bearable debt. If you see all three, a sound management will already be in place. Then, look for value. Lastly, seek a technical entry.

Don’t follow hype blindly.

Cheers! 🙂

Loneliness of the Successful Investor

Posted on by
Reply

Walked alone?

No?

Please try.

Success needs original ideas. Original ideas need solitude.

Successful investors walk alone.

Sometimes, they’re lonely.

Investing is more about sitting than action.

Sitting around inactively breeds loneliness.

The antidote is activity – other activity. Not market-related.

Successful investors do other stuff to tackle this loneliness.

Buffett plays poker.

Branson is breaking into some virgin territory or the other.

Gates is busy souping up his home.

Trump trumps.

Jindal plays polo.

Mallya’s sole focus has been other stuff, so much so, that he’s become unsuccessful.

Mahindra loves to tweet.

Tata walks his dog.

Sachin watches Wimbledon live.

Mr. Bean is seen on the F1 circuit.

You get the gist.

These people follow one or more “other” activity / activities so passionately, that they forget about their main activity for a while.

Their system recuperates. Time is bridged to the next instance of main-frame action. While traversing this bridge, body, mind and soul have recuperated. System is fresh, ready and waiting for new action.

When you’re walking alone next time, you’ll be able to deal easily with any loneliness on the path.

One might make moderate returns, investing with the masses.

To outperform, though, one needs to walk alone.

The successful investor realizes that he can’t get out of this one.

Therefore, the successful investor creates a way to still come out winning.

This is human capital at peak performance!

What’s the Intrinsic Value of Inflation – FOR YOU?

Posted on by
Reply

Pundits taught about Inflation.

It ate into you.

Did it discriminate?

Nope?

Did life discriminate?

Or was it your Karma?

So you made it to HNI, without perhaps knowing what HNI stands for.

You’re a high networth investor, bully for you.

Here’s a secret. You’re not really bothered too much about Inflation.

What?

Yeah. Don’t bother too much about it. 

Why?

It’s eating into you, given, right. 

By default, you need to look into something that’s eating into you, right?

Well, right, and then, well, wrong. 

You had a hawk-eye on inflation till you made it to HNI. Well done, correct approach.

Now, you’re gonna just use your energies for other purposes, for example for asset allocation, fund-parking patience, opportunity scouting, due diligence – to name just a few avenues. 

Why aren’t you using even a minuscule portion of your energies to bother about the effects of inflation?

Well, simply because it’s not worth the effort – FOR YOU – now that you’re an HNI. 

Sure, inflation will eat into you. However, the way you handle your surplus funds will defeat its effects and then some, many times over. Use your energies to maximise this particular truth. 

What makes you an HNI? Surplus funds to invest, right?

Surplus sits. 

It waits for opportunities. 

An entry at an opportune moment gives maximum returns.

You’ve sifted through the Ponzis. You’ve isolated multi-bagger investments. You’re waiting for the right entry. 

Meanwhile, old Infleee is eating a few droplets of your wad. Let it. Focus on what we’ve discussed. A multi-bagger investment entered into at the sweet-spot could well make ten times of what old Infleee eats up. 

Go for it. 

Hanging On to a Structure

Posted on by
Reply

How does one build a wall?

Brick upon brick, right?

One doesn’t usually take out the brick two layers below to use elsewhere. Common-sense. 

Why should it be any different while building a rock-solid portfolio?

Well, it’s not. 

Those who feel it is will soon realise… that it’s not.

You set up an investment.

You then see it through to its logical conclusion. 

You don’t let it go in between… …unless we’re talking about a life and death situation.

Apart from this one caveat, you just don’t let the investment go. You see it through… to its logical conclusion. Period. 

Meanwhile, other opportunities arise. 

You are tempted to get into them. That’s what opportunities are for. 

Now you need to be creative. 

You’re not letting one structure go for the sake of creating another. 

You are going to keep the former and create the latter. 

How?

Dig into your reserves.

How were the reserves created?

They were created by former structures that were seen through to their logical conclusion. These contributed along their paths and upon their culmination. 

Reserves not enough?

Borrow agains a former structure. 

Don’t borrow big. Borrowed amount should not be big enough to harm the former structure, but big enough to couple with your reserves and see your new structure through. 

Still not enough? Requirement for new structure not being met?

Let the new structure go. 

Opportunities keep coming and going. No one’s got a copyright on opportunities. 

Save up for the next one. 

Brick by brick, remember. Without sacrificing the bricks below. 

🙂

The Thin Line

Posted on by
Reply

Have you met the thin line…

…  between ambition and greed?

You see it. You want to cross it without wanting to cross it.

What stops you?

A deadly sin is… deadly. If you’re sensitive enough, you do fear the effects of a deadly sin.

Greed can ruin. It has the capacity to upset an apple-cart.

Sometimes you want something that extra much.

Ambition turns into over-ambition.

You get your something.

You’re a go-getter.

You become over-confident.

You forget your basics.

Next few times around, you cross the thin line repeatedly. The high is addictive. Soon, you’re crossing…

… without even knowing.

Yeah, the vicious cycle outlined above has made you insensitive. You’ve stepped over, don’t even know it, and on you’re going. You’re blinded by greed.

It’s not happened overnight. First the thin line beckoned you to come back. Your over-ambition spurred you on a few steps more. A few more steps wouldn’t harm, right?

Wrong.

You’re not sensitive anymore. You’ve lost normal vision. You’re greedy for your goal. You’re not sticking to your basic tenets. You’re not playing safe anymore. You’ve started to even play with your safety moat, in order to achieve an even bigger goal.

You’ve set yourself up to fall… big.

If you do, I hope for two things.

First up, I hope you don’t fall too big, and that you can get up again.

Second, I hope that this fall is your last one, and that it has made you sensitive again.

Sensitive?

Towards what?

Yeah, sensitive towards the thin line.

I Don’t Want the Cancer

Posted on by
Reply

Are you hurt?

A.

Do you want the cancer?

B.

I do get hurt. Yeah, things hurt me. I’m an emotionally penetrable human being.

Fine. That’s me.

What I definitely don’t want is option B.

Who wants option B?

Can’t think of anyone.

Who gets option B?

Many.

But who?

Those who can’t forget the hurt. Yeah, people who’re unable to move on.

To forget the hurt and move on, simultaneously saving ourselves from the cancer, we need to forgive.

Someone’s misbehaved. Hurt you. Are you going to ruin your future days? No.

Forgive. Forget. Move on.

Just remove the mould in which cancer can potentially set in.

What makes you think it’s different in the markets?

A loss is a hurt.

Need I say more?

You can do the math.

A Secret Ingredient for Equity-People

Posted on by
Reply

Racking your brain about how to make Equity work?

Don’t.

Two words work here. 

Be passive. 

Learn to sit. 

Let’s say you’ve gotten all your basics right.

Company is great. Management is sound. Multiple is low. Debt is nil. Model looks promising. Yield is note-worthy. Technicals allow entry, blah blah blah…

Then what?

Yeah, be still. Learn to sit. 

What are the prequisites for sitting?

You need to not need the stash you’ve put in, at least for a long while. 

You also need to get your investment out of your primary focus. 

For that, your day needs to be full…of other main-frame activities. 

Make Equity a bonus for yourself, not a main-course. That’s how it’ll work for you. That’s the secret ingredient. 

How to… … is stated above.

Why to? Aha.

For it to work, fine, but why the sleeping partner approach?

Human capital needs time to show results. 

That’s why you’re in Equity, right, for human capital? The rest is ordinary stuff, but human capital is irreplaceable. Human capital works around inflation. One doesn’t need to say anything more. 

You’ve got your work all cut out.

Get going, what are you waiting for? 

Dealing with “Situation Change”

Posted on by
Reply

When does a situation change?

For example, one could move on to a new field in finance.

Or, a particular goal could have been achieved. Now, one’s approach is supposed to incorporate predefined changes for financial strategy post goal-accomplishment.

Family dynamics could be responsible for situation changes too.

Sure, health. Never underestimate the power of health. It can make you, and it can break you.

Emotion. Fell in love? Going crazy? Outbursts? Hot flashes? Preggers?

Logistics? Moving? New girl-friend in New York?

Night duty?

Looking after your parents in their old age?

Wife wants to party all the time? Lack of sleep?

Promotion? Demotion? Fired? Jobless? Suddenly self-employed?

Gone single? Date-circuit? Got married? Had a kid?

Situation changes come to all. Not once, but many times in life.

Why are we talking about them?

They have an effect on our financial strategy. That’s suffices.

I’ll tell you how I deal with situation change. You can then BODMAS your way to your own approach, using my approach as a broad outline.

My first approach is to put on auto-pilot as many of my financial activity as possible. Going paper-less helps. Trusted auto-bill-pay channels are assets. Fixed-income generators with auto annual-alerts give financial security with zero involvement. SIPs and dividend pay-ins are further examples of having gone auto.

Then I look at what is left. What has not yet gone on auto-pilot? Can it? Ever? If there’s a chance, I go for it. For example, I’m currently developing a software robot to automate my forex trading.

Lastly, I size up what is not pushable into auto-mode. Do I want to keep it? Can I do without it? Weigh, weigh, weigh, scrap A, scrap B, C is something I just have to do, manually, period, so keep C. Eventually, C, G, P, X and Z are five manual financial activities I keep, having scrapped the others (that refused to go on auto) out of my life, since I didn’t consider them burningly essential. C, G, P, X and Z are the ones that’ll weigh me down when my situation changes. I’ve kept them on doable levels. Some are on semi-auto but do require manual intervention. The others are fully manual.

My situation changes.

My auto-pilot activities continue their smooth run. They are my assets, my stars.

P, X and Z are on semi-auto. I barely gather the energy to look into their manual aspects, just about managing to keep them going with reasonable results.

C and G are bogging me down. Can’t keep up. No energy. No motivation. Situation change has drained me. Relentlessly, I try. C has turned a loser. Beginning to feel sick. I shut down C. Losses.

G is sucking me out. Emotionally. It’s a winner, though. Can’t keep up. Can I turn it into semi-auto? It required constant monitoring till it started winning big. I’ll still need to feed in my stop daily. That’s the manual part. I stop looking at G. Problem with equity orders is that your stop has little technical value overnight. A new day requires renewed stop-considerations. Ok, five minutes daily for G. Open terminal, set trigger-stop 9.99% below opening price, close terminal, don’t look left or right, done.

Phew.

Save health. Don’t fall sick.

If sick, rest.

Recuperate.

Regain health.

Get used to new situation.

Normalize.

Gear up for next situation change, whatever it is, whenever it comes.

Gear up now.

Dealing with Noise…the Old-Fashioned Way

Posted on by
Reply

There’s a sure-shot way to deal with noise…

…just shut your ears. 

Yeah, the best ideas in the world are – simple. 

Let’s not complicate things, ok?

So, what kinda noise are we talking about here?

We’re not talking about audio, you got that right…!

The concept is related, though. 

If you’re charting, you’ve dealt with noise. 

Yeah, we’re talking about minute to minute, hour to hour or day to day fluctuations in a chart of any underlying.

Markets fluctuate. 

While discussing noise, we are pointing towards relatively small fluctuations which generally don’t affect the long-term trend. 

However, noise has the capability of deceiving our minds into believing that the long-term trend is turning, or is over. 

Don’t let noise fool you.

When has the long-term trend changed?

When the chart proves it to you through pre-defined fashion. That’s it. You don’t let noise to get you to believe that the long-term trend has changed, or is changing. Ever. 

You believe your chart. 

Moving averages crossing over? Support broken? Resistance pierced? Trend-line shattered? ADX below 15? Fine, fine, FINE.

Take your pick. You have many avenues giving decent signals that the long-term trend has changed or is changing. 

How about eyeballing? Works for some. Like I said, let’s keep this simple. 

So let’s get noise out of the way. 

Random numbers generate trends – you knew that, right?

You don’t need more. 

Once you’ve identified a trend, that’s your cue to latch on to it. 

We’re not talking about predicting here. We don’t need to predict. We just need to identify a trend, and latch on. That’s all. No predictions. Not required. 

From this point on, two things can happen.

Further random numbers deepen the trend you’ve latched on to. You make money. Good. 

Or, the next set of random numbers make your trade go against you, and your stop gets hit. 

If your stop is getting hit, please let it get hit. Even that qualifies as a good trade. 

You move on to the next trade setup, without even blinking. 

What you’re not doing is letting noise throw you out of the trade by deceiving your mind. 

So, here’s what you do. 

You’ve id’d your trend. You’ve latched on. Your stop is in place. Now, don’t look at your trade. 

Till when?

That’s your call. 

Don’t look at your trade till you’ve decided not to look at it. For the day-trader, this could be a couple of hours. For the positional trader, it could be days, or weeks. 

By not looking, you won’t let noise deceive you. 

If the trend doesn’t deepen, or goes against you, you lose the risked small amount. 

Just remember one thing. 

A loss has immense informational value. It teaches you about market behaviour patterns. It also highlights your trading errors. Many times, losses occur without any mistakes made by you. 

That’s the nature of trading. 

Ultimately, if the trend deepens, you’ll have made good money, and can then further manage your trade after the stipulated period of not looking.

This is the sweet spot.

This is where you want to be, again, and again and again.

Sitting on a large profit gives you room to play for more profit by lifting your stop and your target simultaneously.

To reach this sweet spot again, and again and again, you have to position yourself out there and appropriately, again, and again and again. 

This is also the nature of trading.

Wishing you happy and lucrative trading!

🙂

Moving away from the Greeks

Posted on by
Reply

I’ve never been to Greece.

I have nothing against people from Greece.

I don’t like Greeks, though.

Yeah, I’m an options player.

The Greeks I don’t like are options Greeks, he he he…!

What, you thought I didn’t like actual Greeks?

Come on, I’m sure I’ll love Greece and actual Greeks!

When you don’t like something, you can try to go around it.

I don’t need options Greeks to play options. I’ve found a way around the Greeks.

I’m sure others have discovered this too, because truth is truth.

Let me tell you about it.

You’re buying in the direction of the long-term trend.

You’re buying (calls / puts) after a significant correction / rally level has been hit.

You’re buying post a small move in the direction of the long-term trend, after the correction / rally level has been hit.

You’re buying out of the money to compound the cheapness.

You’re buying with breathing space on your side, so that the trade has enough time to pan out in your favour.

You’re not booking without a very solid reason, once the trade is running in your favour.

You’re trying to book (deep) in the money.

You must, must, must let your profits run as long as you can. This is the toughest part, but also the most essential one.

That’s all.

No Greeks.

Just common sense.

So…What Does Trade Selection Hang Upon?

Posted on by
Reply

Feeling.

Feeling first, feeling last. 

Math in the middle. 

That’s my recipe for trade selection. 

For me, trading is an art. 

I rely a lot on gut. 

Many people tell me that’s wrong. 

Everyone’s got a right to their opinion. 

What works for Jill might not work for Jack.

People tell me to get emotion out of the way.

Emotion can be an ally too. 

Just try and get the hang of your gut feel. 

Let the trade speak out to you. 

You’re looking at a chart, and the chart should shout out to you – “Trade me!!”

That’s what I call “Feeling First”.

There’s something about first impressions. 

I mean, whoever made that proverb about first impressions sure knew what he or she was talking about. 

So, after your first impression tells you that a chart is tradeable, you then need to see some kind of a mathematical fit going for you. 

You plan your trade.

You try and fit some mathematical model into the underlying’s previous behaviour, and plan the trade into the near future based upon the future-play which your model spits out. 

You calculate a stop according to your money-management rules. Just more math. 

Now comes “Feeling Last”. You look at your chart, which contains the entire map of your trade.

At this stage, your gut must speak to you. 

Yes or no. 

Nothing else. 

Are you pulling the trigger or are you not pulling the trigger.

If not, then no whys. It’s a no. Learn to take a no. Look for another trade setup, elsewhere. 

If yes, then again – no more whys. It’s a go-ahead. Have the guts to follow through. 

Keep it simple. 

The best ideas in the world are – simple. 

And What’s so Special about Forex?

Posted on by
Reply

Imagine in your mind …

… the freedom to trade exactly like you want to.

Is there any market in the world which allows you complete freedom?

Equity? Naehhh. Lots of issues. Liquidity. Closes late-afternoon, leaving you hanging till the next open, unless you’re day-trading. Who wants to watch the terminal all day? Next open is without your stop. Then there’s rigging. Syndicates. Inside info. Tips. Equity comes with lot of baggage. I still like it, and am in it. It doesn’t give me complete freedom, though. I live with what I get, because equity does give me is a kick.

Debt market? A little boring, perhaps. Lock-ins.

Commodities? You wanna take delivery? What if you forget to square-off a contract? Will you be buying the kilo of Gold? Ha, ha, ha…

Arbitrage? Glued to screen all day. No like. Same goes for any other form of day-trading.

Mutual Funds. Issues. Fees. Sometimes, lock-ins. MFs can’t hold on to investments if investors want to cash out. Similarly, MFs can’t exit properly if investors want to hang on. And, you know how the public is. It wants to enter at the peak and cash out at the bottom. 

Private Equity? Do you like black boxes? You drive your car? Do you know how it functions? You still drive it, right? So why can’t you play PE? Some can. Those who are uncomfortable with black boxes can’t. 

CDOs? @#$!*()_&&%##@.

Real Estate? Hassles. Slimy market. Sleaze. Black money. Government officials. Bribery. No like.

Venture Cap? Extreme due diligence required. Visits. Traveling. The need to dig very deep. Deep pockets. Extreme risk. No. 

Forex? 24 hr market. Order feed is good till cancelled. Stops don’t vanish over weekends. Stops can be pin-pointedly defined, and you can even get them to move up or down with the underlying, in tandem or in spurts. You can feed in profit-booking mechanisms too, and that too pin-pointedly. You watch about 10-11 currency pairs; you can watch more if you want to. 10-11 is good, though. You can watch 4, or even 2 or 1, up to you. Platforms are stupendous, versatile, malleable, and absolutely free of charge. You can trade off the chart. Liquidity? So much liquidity, that you’ll redefine the word. No rigging – market’s just too large. The large numbers make natural algorithms like Fibonacci work. Technicals? Man, paradise for technicals. Spreads? So wafer thin, that you barely lose anything on commissions. Oh, btw, spreads are treated as commissions in forex; there’s no other commission. Money management? As defined as you want it to be. Magnitude? As small or as large as you want to play? Comfort? You make your morning tea, sip it, open your platform, feed in orders with trigger-entry, stop and limit, and then forget about the forex market for the rest of the day, or till you want to see what’s happening. Yeah, comfort. Challenge? You’re playing with the biggest institutions in the world. What could be more challenging? I could go on. You’re getting the gist. 

Yeah.

Forex is a very special market. 

Also, the forex market is absolutely accessible to you, online. 

If you decide to enter it one day, play on a practice account till you feel you’re ready for a real account. 

If and when you do start with a real account, for heaven’s sake start with a micro account, where 1 pip is equal to 0.1 USD. 

🙂

 

 

 

That Thing about High Growth

Posted on by
Reply

Panipat, India, 2004…

The Asia-Pacific Head’s speech was intriguing. I still remember it, even though it was delivered a decade ago. 

He’d come to inaugurate his bank’s branch in our town. He said that he loved opening new branches in the middle of chaos, where he can barely manage to park his car, and where there is just about an iota of order amidst disorder. 

We were puzzled, and I believe one of the invitee’s even ventured asking why. “That’s where 8%+ growth exists” replied he, or something to that effect, and his words stamped themselves in my memory. 

Cut to 2014.

Look around you.

Can you find any corner in the world, where high growth is linear?

Very low single digit growth can be linear, yes. In such countries, there are systems, that check short-cuts and mal-practices. Governments are overall honest. Social security systems are up and running. 

There is some element or the other of a banana republic to any really high-growth economy you find today. You don’t really know what’s cooking in China’s soup, do you, behind the media-ban? Brazil’s let so many starve to host a successfully organised world cup. How much of Russia is about mafia, and crime? And, India might be a democracy, but you just need to look at the inflation and deficit numbers to figure out that something’s off. We’ve just gone through the BRIC nations, prime examples of high non-linear growth. 

Let’s not grieve about what all is wrong with high-growth nations. Let’s look at what we do have going in our favour. What’s common to such nations?

 

– The fact that growth comes in spurts, when some conducive event occurs, like a sound governance stretch.

– The fact that these economies are all highly volatile. 

– The fact that we don’t need anything else – to trade them. 


Yes, we are going to trade such economies. Regular volatility, both ways, is what a trader wants. 

You can invest in such economies if you want to, sure. In that case, you’ll need to use your common-sense and not believe every balance-sheet that is being presented to you. You’ll need to read between the lines at every step. Some people are good at that. 

I’m more comfortable trading a volatile market. 

Thus, I really don’t care why a Ranbaxy might be poised to go down. I’ll just be looking to purchase a cheap Put upon noticing that a key support level has broken down. 

At the same time, I couldn’t care less if an Infosys is just about to disclose stupendous numbers. I’ll just be looking to purchase a cheap call based on a technical level being pierced towards the up-side. 

That’s the thing I love about trading. You don’t need to ask more than a few basic questions before taking the plunge. Also, with avenues like options now being liquid both ways, risk is exactly defined and relatively low. 

The thing about high-growth economies is that you can play them well enough with options. 

Wishing for you happy and safe trading.

🙂

We Like to Move it Move it

Posted on by
Reply

We do our home-work.

We know our risk-profile.

Our systems are in place. 

We know the exact market-segments we are tapping into, and those we are leaving alone. 

Our fund-allocation profile is at the back of our palms. We know where what is, and when. We know how to move it. 

In our identified segment of activity, we have a feel for the underlying. We can sense it. We don’t need to preempt the underlying, but we can if we want to. 

We are not afraid of small loss. It can happen again, and again, and again, as far as we are concerned. 

We use stops. Definition of risk is our abc. 

We try not to follow news. It gives us a bias. We trade the setup we are observing on the chart of the underlying. Everything else is “egal”, as they say in German, as far as the trade is concerned. We are not going to be biased while trading. We are going to take the setup, in whichever direction it presents itself. 

We are nice to our families. We gel with them, and have enough time for them. We are happy in their company. They are not a distraction to our work, but a welcome change. We’ve got a substantial-sized emergency fund going for them, which more than takes care of their needs. This fund generates regular incomes for our families, and we don’t touch the emergency fund, come what may. We might keep adding to it, though. 

We take high risks with a very small size of our networths, everyday. Our risks are calculated, and can generate high returns. They can also result in total losses. We practise sound money-management, and put ourselves in line for big profits, again, and again and again. 

Yeah, we like to move it move it …

… from one trade setup to another, to another, to yet another, an so on and so forth. 

Speed of Rise vs Speed of Fall

Posted on by
Reply

Specifically, equity markets have this one repetitive characteristic.

Their average speed of rising is lesser than their average speed of falling. Much lesser, I would say. 

Why?

Falling has to do with selling pressure being more than buying pressure. Selling pressure is connected to fear. Add caution to fear, and one has already sold out. 

Rise has to do with buying pressure being more than selling pressure. Buying pressure is connected to optimism. As markets keep nudging higher, slowly, optimism turns into euphoria, with a hint of caution. This caution slows the speed of rising, till greed takes over in the last stage of the rise, and one fails to see any caution anymore. At this time, the speed of rising is the highest, but is still lesser than the speed of falling at the nadir. Why?

What is the prevalent situation at a nadir? There’s blood. People are running for their lives. They take action before asking questions, and before looking here or there. 

Many times, you come across someone holding a stock which he or she has inherited from a parent. This someone comes to you with the ubiquitous query – what to do, sell it now? You look at the chart. Whoahhhh! You see the buy price, one and a half decades ago. You look at the current level. You calculate the profit. Along the time axis of the chart, you also see that the stock fell back to its buy price or below in a market crash, all within a month and a half. After this, the stock has recouped its losses of the crash, and is showing a healthy profit again, six years after the crash. During the crash, how long did it take the stock to fall below the buy price of one and a half decades ago? A month and a half. Holy moly!

That’s the equity playground for you. 

It’s directly connected to human emotions. 

Anything can happen on this playground, so keep your eyes and ears open, and…

… be prepared. 

When a Model collapses…

Posted on by
Reply

… that’s when you shouldn’t collapse.

A model is something temporary. You use it. Successfully. For a while.

Then it starts to play up. You tweak it into yielding successful results.

You keep doing this, till the model is representable. Ultimately, it collapses.

You don’t grieve or look back. Construct a new model.

Tweak it into success.

Move on.

Construction of a market model requires you to use common-sense and your observatory powers.

How do you mould a market into your daily usage without tipping any other balance in your life?

Right, we are only going to be discussing holistic models. Such models should not make you a worse human being. Otherwise, find a better model.

You’ll also need to create some vacuum in your system to attract the required energies for the construction of a new model from scratch.

Use your imagination. Move stuff around. Donate. Write. Help. Be kind. Do good. Pro bono. Create a vacuum in your system.

Soon, your vacuum will attract what you deserve and require. A missing link might flash as a brain-wave. An obstacle might get removed. A vital family member might become kinder. Nature’ll give it back to you.

Before you know it, you’ll be working with your new model…

Remember The Frog Who Lived in a Well?

Posted on by
Reply

Paramhans Yogananda once spoke of a frog who lived in a well. 

You see, this frog was visited by his cousin from the ocean, who invited him back to the ocean. Till that point in time, the well-froggy thought his well-world was the ultimate. When the well-froggy entered the ocean, his head exploded. 

Today, I feel like the well-froggy. 

Yeah, I’ve become serious about forex. I’m going to specialize in it. 

I’m already specialised in Indian equities, and am going to seal it off with this second area of specialization.

That’s after a controlled head-explosion, of course. 

Coming from the world of equity, forex feels like a borderless and unlimited party. It also feels very, very special.

Everything’s so enormous. So streamlined. So quality. 24×5. Volume. Paperless. Non-slippage. Pinnacle of technicals and fundamentals. Unparalleled and breaking newsfeed, if you want it … … …

I’m feeling blessed. This line is for me. I can feel it’s challenge. I think I’m cut out for it. I think I’m going to love it.

It’s taken ten years in finance to find this calling. 

I’ve tried everything that finance has to offer. Equity, bonds, derivatives, bullion / metals, commodities, currencies versus the INR, ULIPs, Arbitrage, mutual funds, real-estate, debt, private equity …….., you name it. 

Only pure equity has given me that kick till now. Of course I’m not going to throw it away. I’ll be in pure equity for life. 

And now, yeah, it’s forex on the world stage. 

And look how nature is responding.

It’s already directed me to a mentor. A lot of my thinking is changing. Till today, I’ve done good with just my common-sense in the world of finance. I suppose forex is a bit trickier than that, and that one needs a good mentor in the beginning. 

Wow! A world-class mentor in forex, when one is starting out with the nitty-gritty! That’s a big one!

I’m going to give it back. This blog’s a give-back too. I’m not going to be stopping any word-flow, I can promise you that. 

Cheers!

🙂

 

How to Swallow Small Losses…

Posted on by
Reply

… as if nothing has happened … is one of my biggest trading goals.

You see, our society teaches us not to lose. 

It doesn’t teach us that we can lose a bit 5 times, and after that we can win big, recovering all our losses and making money overall.

No. 

It teaches us to try and win all the time. 

That’s the exact reason 90%+ of all society members actually lose in the markets. They’ve not learnt how to lose small, move on, and take the next trade.

Mrs. Market won’t budge an inch for you. You’ll have to make the adjustment. 

So how does one take a loss in one’s stride?

Only one type of loss is immediately digestible – a small one. Therefore, define your risk in the market. Cut and scoot when required. Don’t get married to your trade.

Then, once the small loss has happened, and has been taken, it will nag you. 

It’ll be there, trying to bite your brain in the background. 

Focus on your next trade. 

Identification – Implementation – Entry – Management – Exit – Next Trade Identification – Implementation – Entry – Management – Exit – Next Trade Identification – Implementation – Entry – Management – Exit – … … [what’s the difference between implementation and entry? Well, you could be implementing the trade through a trigger, which is not equivalent to entry yet].

Don’t let the nagging bother you by keeping yourself busy with Identification – Implementation – Entry – Management – Exit – Next Trade Identification – Implementation – Entry – Management – Exit – Next Trade Identification – Implementation – Entry – Management – Exit – … … 

Ultimately the nagging will die out, as your mind starts to revolve around your current trades. 

If you give in to the nagging, it will grow, and will slow you down. You might snap at a family member. You might go into depression. You might freeze. DON’T. Don’t give in to the nagging. Don’t let it grow. Don’t let it slow you down. Maintain your family equilibrium at all costs. Move on. 

The nagging is worst if there’s been a close below your stop, and the market is to open the next day, or after the weekend. You have to deal with this one. If you’re not able to deal with this particular situation, you’ll either need to expose your mental stop prematurely and feed it in intraday (before there’s been a close under it), or you’ll need to follow the progress of your trade from half an hour before next market open onwards.

Yes, this last one’s tough, and you need to absolutely work your way around it. 

You can do it with a bit of practise. 

🙂

Dynamics of a Long-Long System

Posted on by
Reply

What if your system doesn’t allow you to second-guess yourself?

Wouldn’t that be a wonderful situation?

And you’d be right there, in the middle of it all.

What would such a system look like?

Right, it would only go one way.

Long-long. “A-la-la-la-la-long”, to quote Inner Circle!

Why aren’t we talking about a short-short system?

Theoretically, we could. Theoretically, everything is possible.

Well, a short-short system would have no limits on your potential loss, if the trade went against you. That’s the fundametal problem I have against a short-short system, without even having gone into the whole leverage discussion.

You could bring the stop argument.

Fine.

Just take a deep breath.

Think clearly.

Take a look at the average price-speeds of both directions, long and short.

The average price-speed in the short direction is far higher. Price-jumps are greater. The probability of your stop getting high-jumped over is much higher in the short direction. Frankly, that doesn’t work for me.

Also, which market allows you to set an overnight stop, barring the international forex market?. None that I know of, at least in India. No stops overnight means potential exposure to a large drawdown upon next market-opening, and here I’d like to be in a long-situation, because loss is capped.

Therefore, when we’re discussing a system that doesn’t allow us to second-guess ourselves, I will only discuss a long-long system.

What does long-long mean?

Yeah, we’re talking about a system, where you’re looking for long trades all the time. You don’t look for trades to go short in-between. There’s no shorting in the equation whatsoever. The moment you start thinking about shorting, you start second-guessing your long-approach.

What does that mean for someone applying such a system?

It means that the whole world might be crumbling apart, and one is still looking for long-trades. Yes, one could take some hits here. One just needs to make sure, that one’s consecutive drawdown doesn’t exceed a bearable level. Also, as losses might pile up, one position-sizes one’s way through. The concept ot position-sizing has been pioneered and elucidated by Dr. Van K. Tharp @ www.iitm.com.

It also means that when your underlyings start to run, you’ll be piling up winning trade upon winning trade.

The thing is, nobody knows when what is going to run. If you’ve taken all second-guessing out of your equation, you’re aligning yourself with the correct direction once things start to run. Going the other way now would mean further losses.

Then, it further means that if you lock in a big winner in a running market, your paper profits can now be used to harness even greater profits in the same trade. Such big winners provide a big boost to your trading corpus, and, in my opinion, are the difference between winning and losing in the markets. One needs to keep oneself aligned correctly when such opportunities come along. A long-long system will keep you aligned, no matter what.

You could argue about dry spells.

In any dry spell, or when markets are tanking, there are still underlyings that are going up. You just have to identify them. Today, such identification is not difficult at all.

For such identification, you need market software, a data feed, and an algorithm which defines what you are looking for. Your software then scans the entire breadth of the market you’re in to try and find what you’re looking for, and opens corresponding charts for you for underlyings that are still going up, or where there is buying interest, buying pressure, unusual increment in volume or what have you.

Don’t let the word algorithm scare you. You don’t have to learn a new programming language to put an algorithm together. Common-sense is enough. You know what you’re looking for. Let’s say what you’re looking for involves volume and price. You look inside your market software. Then you couple two algorithms together into a new algorithm which defines what you are looking for. You see, a typical market software like Metastock already uses algorithms for volume moving average, price etc., and these are visible to you. Just copy-paste and make a new algorithm that suits your purpose.

Lastly for today, decouple yourself from the market during trading hours, except when you’re feeding in the trade. Analyze your current trades when the market is closed. Intuitively, you will probably feel that your decisions during off-market hours will be better than when you’re coupled to a live market. Find out for yourself. More on this some other day.

Emotion in the Marketplace – Enemy or Ally?

Posted on by
Reply

Either or…

… choice is yours baby.

I’m not going to pretend we don’t have emotions.

We do.

We need to make these work for us.

Everyone feels exhilaration upon winning.

We’re down after a loss. 

Before you enter the marketplace again, dump all this somewhere …

… which, btw, is the most difficult thing in the world.

Didn’t anyone tell you that? What about your professor in financial college? Oh, I forgot, he or she never had his or her own money on the line, so he or she didn’t know this one. 

Arghhhhhhhhhhh@#$%^!

Don’t learn anything about finance from anyone who doesn’t have his or her own money on the line, and that too regularly on the line (((financial theory is worth mud unless it is realistic, applicable, and ultimately…profitable). 

So, what is this “line”? [More about “The Line” here – https://magicalbull.wordpress.com/2012/01/13/the-line/ ].

The line is an invisible connection between the vicissitudes of the marketplace and our emotional centres in the brain. 

The line gets activated once one is in a trade, or once one has initiated an investment. 

Once the line has been activated, we need to deal with its effects upon our systems. For optimal efficiency, we need to nullify the effects of the line on our systems. After that, we enter the marketplace again. 

So, acknowledge whatever emotion you are experiencing. Then deal with it. 

Dump the emotion of a loss in a safe place, to be nullified by a big future win. 

Dump the emotion of a big win in another safe place, lest it causes you to exit improperly and prematurely. 

How does one nullify this particular emotion? 

You see, your next activity in the marketplace can make you blow up, if there is any remnant hubris from a previous big win. 

You close your eyes, tell yourself that under no circumstances are you going to suffer the humiliation of blowing up, you centre, focus, you identify the next trade, and then you just take the next trade, as if nothing has happened. 

You have to work yourself around your own emotions. In the marketplace, emotions are your allies only if and when they are properly dealt with before the next market activity. 

Otherwise, they become your enemy. 

Loss can lead to depression and ultimate exit from the marketplace. One needs to understand and accept the concept of taking small losses. Why small? Why not small? You can define your loss. You can cut it when it’s small. Once one has understood and accepted the idea of taking small losses, these won’t bother you any more. That’s how you set yourself up to win big. Big wins, unless dealt with properly, lead to hubris, which can cause one to blow up permanently. We work ourselves around the negative potential of big wins through visualisation. 

Once you’ve sorted out the emotional angle…well, just take the next trade. Don’t wait. Just take it.