Trading Rule – “Always put your trading activity in perspective”

WHEN YOU ARE TRADING IN THE MARKET IT IS VERY ESSENTIAL TO KEEP YOUR TRADING ACTIVITY IN PERSPECTIVE. TRADING IS ESSENTIALLY A WAY OF PLAYING THE VAGARIES OF THE MARKET MORE AGGRESSIVELY AND USING THE VOLATILITY OF THE MARKET TO YOUR ADVANTAGE. ESSENTIALLY, TRADING ENABLES YOU TO CAPITALIZE ON THE SHORT TERM TRENDS AND MOMENTUM IN THE MARKET WHICH IS NORMALLY OUTSIDE THE PURVIEW OF INVESTING. AFTER ALL, INVESTMENT IS ABOUT THE LONG TERM AND IT IS BASED ON PEREIVED VALUE AND UNDERPRICING. LET US UNDERSTAND TRADING PERSPECTIVE Continue reading

Trading Rule – “Always keep an eye on your pay-back period”

WHAT DO WE UNDERSTAND BY A PAYBACK PERIOD? OBVIOUSLY, IT IS THE TIME IN WHICH YOU RECOVER YOUR PRINCIPAL. YOU MUST HAVE HEARD OF THIS CONCEPT IN LARGE PROJECTS BUT HOW IS THIS IDEA RELEVANT WHEN IT COMES TO EQUITIES. FIRST LET US UNDERSTAND THE CONCEPT OF PAYBACK PERIOD. LET US ASSUME THAT YOU HAVE INVESTED RS.10 LAKH IN AN EQUITY SHARE AND THE YIELD ON THE STOCK HAS BEEN AROUND 10% ANNUALIZED. THAT MEANS YOUR PAYBACK PERIOD JUST TO RECOVER THE PRINCIPAL IS 10 YEARS. THAT IS OBVIOUSLY NOT TOO EXCITING

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Trading Rule – “Listen to the experts but be your own trader”

IT IS HARD FOR MOST INVESTORS IN THE MARKET TO SURVIVE WITHOUT EXPERT ADVISE. THEREIN LIES A MAJOR DILEMMA. TO WHAT EXTENT MUST YOU RELY ON THE ADVICE OF THE EXPERTS AND WHEN MUST YOU RELY ON YOUR OWN JUDGEMENT. THIS PROBLEM BECOMES ALL THE MORE PRONOUNCED WHEN YOU ARE NEW TO THE MARKETS AND ARE NOT AS WELL CONNECTED AND RESOURCEFUL AS THE ADVISOR. THAT IS WHEN YOU NEED TO EXERCISE YOUR JUDGEMENT. MORE OFTEN THAN NOT, IT IS BEST TO LISTEN TO THE EXPERT INPUTS AS AN OUTSIDER BUT YOU ARE BETTER OFF DECIDING YOURSELF

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Trading Rule – “Don’t let success change your trading strategy”

WHAT EXACTLY IS A TRADING STRATEGY? YOUR TRADING STRATEGY CONSISTS OF A SET OF TRADING APPROACHES AND YOUR TRADING DISCIPLINE THAT IS IN-BUILT INTO YOUR TRADING ACTIVITY. YOUR TRADING APPROACH DOES CHANGE FROM TIME TO TIME AND ADAPTS TO THE CHANGING MARKET CONDITIONS. THE TRADING DISCIPLINE, ON THE OTHER HAND, FORMS THE CORE OF YOUR TRADING ACTIVITY AND RELATES MORE TO YOUR PREMISES FOR TRADING. DISCIPLINE PERTAINING TO CAPITAL PROTECTION, STOP LOSS DISCIPLINE, DIVERSIFICATION ARE ALL THE CORE OF YOUR TRADING DISCIPLINE

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Trading Rule – “When in doubt protect your portfolio…”

WHAT DO WE UNDERSTAND BY PROTECTING THE PORTFOLIO? IT ESSENTIALLY REFERS TO THE HEDGING OF YOUR RISK IN THE PORTFOLIO. THE DECISION TO PROTECT THE PORTFOLIO HAS TO BE TAKEN CAREFULLY BECAUSE IT HAS TWO IMPORTANT IMPLICATIONS. FIRSTLY, HEDGING HAS A COST AND THAT IS A KIND OF SUNK COST THAT REDUCES YOUR PORTFOLIO ROI. SECONDLY, HEDGING ALSO PUTS A CAP ON THE RETURNS ON YOUR PORTFOLIO BEING THE PRICE FOR REDUCING RISK ON THE DOWNSIDE. WHAT IS MORE IMPORTANT IS WHEN SHOULD YOU HEDGE YOUR PORTFOLIO AND HOW! Continue reading

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