Anirudh Sethi Report

1. Trading is simple, but it is not easy.

2.  When you get into a trade watch for the signs that you might be wrong.

3.  Trading should be boring.

4.  Amateur traders turn into professional traders once they stop looking for the “next great indicator.”

5.  You are trading other traders, not stocks or futures contracts.

6.  Be very aware of your own emotions.

7.  Watch yourself for too much excitement.

8.  Don’t overtrade.

9.  If you come into trading with the idea of making big money you are doomed.

10.  Don’t focus on the money.

11.  Do not impose your will on the market.

12.  The best way to minimize risk is to not trade when it is not time to trade. 

13.  There is no need to trade five days a week.  

14.  Refuse to damage your capital.

15.  Stay relaxed.

16.  Never let a day trade turn into an overnight trade.

17.  Keep winners as long as they are moving your way.

18.  Don’t overweight your trades.

19.  There is no logical reason to hesitate in taking a stop.

20.  Professional traders take losses because they trust themselves to do what is right.

21.  Once you take a loss, forget about it and move on.

22.  Find out what loss parameters work best for your setup and adjust them accordingly.

23.  Get a feel for market direction by “drilling down” (looking at multiple time frames).

24.  Develop confidence by knowing and executing your trade setups the same way every time.

25.  Don’t be ridiculous and stupid by adding to losers.

26.  Try to enter a full size position right away.

27.  Ring the register and scale out of your position.

28.  Adrenaline is a sign that your ego and your emotions have reached a point where they are clouding your judgment.

29.  You want to own the stock before it breaks out and sell when amateurs are getting in after the move.

30.  Embracing your opinion leads to financial ruin.

31.  Discipline is not learned until you wipe out a trading account.

32.  Siphon off your trading profits each month and stick them in a money market account.

33.  Professional traders risk a small amount of money on their equity on one trade.

34.  Professional traders focus on limiting risk and protecting capital.

35.  In the financial markets heroes get crushed.

36.  Stick to your trading rules and you will never blow up your trading account.

37.  The market can reinforce bad habits.

38.  Take personal responsibility for each trade.

39.  Amateur traders think about how much money they can make on each trade.  Professional traders think about how much money they can lose.

40.  At some point all traders realize that no one can tell them exactly what is going to happen next in the market.

41.Losing trades don’t diminish you as a person. You’re also not your winning trades. They are just by-products of the business you’re in.

42.Act in your best interest – placing a trade because you’re afraid of missing out on a big move is NOT acting in your best interest.

43.Flawless execution comes from forming a habit. A habit is formed when it is repeated over and over again. Start practicing.

44.Don’t let personal/external factors affect the trading for thou judgment is clouded. Let the market show you what to do. Always.

45.Make sure your trading goals are 1) realistic, 2) attainable, 3) measurable. If they don’t meet these criteria, then the goal is nothing.

46.You want to own the stock before it breaks out, then sell it to the momentum players after it breaks out. If you buy breakouts, realize that professional traders are handing off their positions to you in order to test the strength of the trend. They will typically buy it back below the breakout point—which is typically where you will set your stop when you buy a breakout. (In case you ever wondered why you get stopped out on a lot of “failed” breakouts).

47.Amateur traders always think, “How much money can I make on this trade!” Professional traders always think, “How much money can I lose on this trade?” The trader who controls his or her risk takes money from the trader whose head is in the clouds.

48.. Siphoning out your trading profits each month and sticking them in a money market account is a good practice. This action helps to focus your attitude that this is a business and not a place to seek thrills. If you want an adventure, go live in Minnesota for a winter. If you want excitement, deliberately forget your anniversary. Just don’t trade.Adrenaline is a sign that your ego and your emotions have reached a point where they are clouding your judgment. Realize this and immediately tighten your stop considerably to preserve profits or exit your position.

49.

50.Averaging down on a position is like a sinking ship deliberately taking on more water.

51.You Need MONEY -MIND-METHOD & Target to get success in Trading.If u miss any one of them…its my challenge to anybody in World …U will never ever be succesful !!

Updated at 22:45/07th Sept/Baroda

The current market seems to be manic depressive without even a shred of memory from one day to the next.  How does a trader preserve control and commitment when faced with this challenge?

I think the first place to begin is with the questions we ask ourselves.  Is there an opportunity here? Where is the opportunity now?  How can I take advantage of this opportunity?

Then ask yourself, how do I deal with the volatility?  Do I decrease size and stretch out the risk parameters?  Do I increase size to take advantage of this extraordinary opportunity?  Do I shorten or increase my time frames to increase my safety and profitability?  As traders we are always faced with the dual needs to seize a significant opportunity and to preserve our capital.  This balancing act is at the core of trading.

Of course, you need to address the underlying fundamentals.   What are they? Are they becoming more so or less so?  Are they changing or remaining the same?

Define the problems you are facing and redefine them.  Einstein was asked how he would go about solving a problem if he only had 60 minutes in which to solve it.  He answered that he would spend the first 59 minutes defining the problem.  Once you’ve identified and defined the issues you’re facing, look for workable solutions.  See problems as challenges not as threats.  I always assume if there is a problem, there is a solution.  Once you’ve found a solution, test it.

You need to sustain an optimistic outlook.  This means not taking market conditions personally.  Know that the difficulties will pass as well as the opportunities.  You can learn from difficulties and let them go even as you learn from and utilize opportunities.  Keep honing your skills and see the glass as more than half full.  You can heal your trading by finding a way to understand evil even as you find a way to make the best of a situation.  Any crisis can make you stronger if you don’t let it make you weaker.

So let’s go back to the original question.  Where is the opportunity here and now, and how do you go about taking full advantage of it?  When you find it, go for it.  If you don’t find it, wait for it to develop, and carpe diem (seize the day).

-From working with developing traders, I’d say that 90% don’t/can’t sustain the process of keeping a substantive journal. Among the group that does journal, well over 90% of the entries are about themselves and their P/L. I almost never see journal entries devoted to figuring out markets.

-A sizable proportion of traders who have been having problems are trading methods and patterns that used to work, but are no longer operative. The inability to change with changing markets affects traders intraday (when volume/volatility/trend patterns shift) and over longer time frames (when intermarket patterns shift).

-Some traders habitually look for tops in a rising market and bottoms in a falling one. There’s much to be said for countertrend methods, but not when the need to be right exceeds the need to make money.

-An underrated element in trading success is mental flexibility: the ability to shift views and perceptions as new data enter the marketplace. It takes a certain lack of ego to form a strong view and then modify it in the face of new evidence.

-Many traders fail because they’re focused on what the market *should* be doing, rather than on what it *is* doing. The stock market leads, not follows, economic fundamentals. Some of the best investment opportunities occur when markets are looking past news, positive or negative.

One of the stealthier developments over the past months has been the ever wider creep in Greek CDS, especially in the longer-dated part of the curve. In fact, everything to the right of the 3 Year point is now wider than it was both on the eve of the Greek semi-default, and just after the announcement of the European Stabilization Mechanism (ESM). How is it that with so much firepower, better known as free money, thrown at the problem, have spreads not declined? The CFR provides one interpretation, which speculates that once European banks find a firmer footing, that Greece, with the blessing of Europe proper, will be allowed to finally sever its mutated umbilical cord, and default. The catalyst would be Greece getting its primary deficit under control, at which point ongoing bad debt funding would no longer be necessary. Of course, this hypothesis is based on two very critical assumptions: European banks, especially in the periphery, as the second attached study from Goldman indicates, are still locked out. To think that Europe will be able to get to an equal footing for all countries seems like some wishful thinking at this point, especially if the market does consider the implications of what a Greek default will do to peripheral banking. Additionally, the ramifications to the euro in the case of a default will be dire, although that may be precisely what Europe is after all alone. Regardless, that is how the CFR sees things, rightly or wrongly. Keep an eye on Greek spreads in the coming weeks to see if the theory is validated.

From the CFR:

The difference between Greek and German government bond yields can be used to estimate the market’s view of the likelihood of a Greek default. The chart above shows these probabilities over different time frames on three different dates. On April 30th, no European plan was yet in place to address the ballooning Greek debt, and default was considered a real possibility in the short term. On May 11th, just after the European Stabilization Mechanism (ESM) was announced, markets sharply cut their view on the odds of default across all time horizons. However, the market’s analysis of the ESM has become much more nuanced since then. On September 1st, the market’s view of the probability of default within two years was lower than before the ESM was announced, but higher over longer time frames.
Read more…

Each one of us is born with special unique abilities and we are naturally drawn to them and develop them along the way.  They manifest themselves in all areas of our lives.  There are also things we don’t like to do or that are difficult for us to do.  It simply makes sense to focus on what we like and what comes easily to us and avoid or delegate what we don’t like or find hard and stressful to do.

The same is true with trading. There are parts of your trading that you’re naturally good at.  There are aspects of trading that you love, that excite you, and give you passion.  The more you trade the better you seem to get in these areas. 

What is your special trading or investing capability?  Pause and think about it.  WRITE IT DOWN.  I can’t guide you or even suggest what is uniquely easy and effective in your trading.

The best part of my trading is ______________________________________.

The part of trading I most enjoy is___________________________________.

You can build on these and exponentially improve your trading results and your trading ease and enjoyment.  It also makes sense that your methods and time frames are compatible with these strengths and tendencies.

Now we need to acknowledge the opposite.  Each of us has innate limitations and vulnerabilities that also affect our trading and investing.  There are parts of the trading game that are hard for us, that we don’t like, may even hate.  As much as we try to overcome these areas we frequently relapse into these frail deficiencies.  We say we’ll never do that again, and then, of course we do.

Greed and Fear are two of the strongest emotions that can have major influences on our trading behaviours and hence profitability.

We have all experienced these, from the inability to put a trade on to the gut ache seeing money on the table evaporate.

Recently I have been thinking of these two emotions in a different light. What I want to propose is that these two emotions have very different “time-frames” of operation, with respect to trading. Now I have
no detailed research or data to back this up, but I felt I’d put this out there and see what other traders thought…

Fear = Short Term = Most likely to be experienced before or soon after a trade is placed.

Greed = Longer Term = Emotion that plays a major role further into the trade timeline.

My rationale here is that it is FEAR that (some) people feel before putting on a trade, worrying if they should place the trade or not, once in a trade it is FEAR that makes them start hoping that it wont go
against them.

With GREED, I think this starts to come in later. For instance, if the position has become profitable, then starts to loose and become negative, it is GREED for the money that was on the table that keeps you
in the trade, not fear of loss. As it usually takes time for the trade to become profitable, the emotion of GREED by association is the emotion that takes longer to materialise. Indeed, I would argue that when
you think back to the trades ‘that could have been’, you are more likely to remember the trades that ‘could have’ made you a good return, rather than the quick losses you took?

After calling the market top in late March, Elliott Wave’s Robert Prechter told BloombergTV yesterday that the Dow chart looks similar to the 1987 top  We already experienced a stock market crash on May 6 at the head, is a right shoulder crash next? The chart does look vulnerable here with the potential head and shoulders setup. I’ll post Dow charts tomorrow on multiple time frames. Prechter is still bearish on the stock market and bullish on the US Dollar (in 100% cash) and thinks deflationary forces will drag down commodity prices, including gold.

He’s not a permabear folks, he uses wave patterns on charts and sentiment indicators for directional cues. When the ultimate bear market wave structure is complete (wave c?), he’ll report the first wave of the next bull market.

Thinking in Themes – Traders look at different themes across different time frames, but the good ones synthesize market information and arrive at a view of how their markets are likely to trade. Instead of impulsively buying or selling when a market makes a new high or low or when a chart assumes a particular configuration, they see a broader chessboard: how other markets are trading, how the smaller timeframe fits into larger ones, etc. This ability to synthesize data and arrive at themes is a large part of what helps traders make sense of markets and develop the confidence to take meaningful risk in search of superior rewards.

Major Hurdle at 5566

Three Consecutive close above this level+Weekly close (Must ) then expect allround unexpected buying and next target with No if and but :Kissing all time high !!

Yesterday ,I had written below 5451 level it will crash to kiss 5427-5422 & there after expect slide upto 5398-5392 level……In Panic it crashed upto 5404 level.

-From Last 3-4 sessions writing…Dont jump and buy Sensex -Nifty Stocks…Dont hold long in Heavy weight stocks.

What to expect now ?

Today ,Just watch 5392 level.

Decisive break below this level with volumes will take to 5369-5362 level.

-Crucial support :-5341.

Once breaks 5341 and closes below this level then NF will plunge nonstop upto 5291-5275 level in PANIC !!

Now 3& 7DEMA will act as Hurdle !

-5437—–5441 levels.

I Will Update more about NF ,Bank NF ,CNX IT and Stocks during trading hrs to our Subscribers

-Complete Correction from 4786 to 5489 started ????

-Then Watch Panic selling upto 5313-5269 in this fall !!

Iam writing  from last 2 months ,5566 is LAXMAN Rekha for NF.Before crossing this level………will see Big slide -Big panic.

Updated at 6:48/12th August/Baroda/India

• Momentum : If you understand this you will understand trends and mean reversion. You will understand why and how momentum works in the market. Most indicators are momentum based. Trend following and buying strength also works, so does mean reversion. They are all part of the momentum phenomenon. 
• Market Breadth: Stock markets are composite markets. The overall move in market is an aggregate of moves of several hundred or several thousand stocks. So the level of participation in a move is important. 
• Equity Selection: Because the overall market is a composite of many individual moves, it becomes critical to select right kind of stocks from the universe of stocks. Hence equity selection is extremely critical. You should know various ways in which one can select equities.
• Market Anomalies: Market anomalies are the distortions in the market. If you base your trading on a proven and statistically significant anomaly, you will be profitable. Absent that no amount of indicators will help you. A through understanding of anomalies will give you an edge.
• Market Microstructure: Market Microstructure is a branch of finance concerned with the details of how exchange occurs in markets.  Understanding this will tell you how the market operates. The concept of market microstructre is very critical if you are trading very small time frames or are a day trader. Because to be successful on those time frame you need to find exploitable anomalies in market microstructure. You need to understand role played by market makers, automated programs, arbitragers, large fund buyers and so on. Their tactics and behaviour creates certain patterns 
• Growth investing : Growth investors buy stocks of companies growing faster than the average company in the market. 
• Value investing : Value investors buy stocks of companies which are cheap or out of favor.

When trading goes right, it can be a great feeling. When trading goes wrong it can be a nightmare. Fortunes are made in a matter of weeks and lost in a matter of minutes. This pattern repeats itself as each new generation of traders hit the market. They hurl themselves out of the night like insane insects against some sort of karmic bug-light; all thought and all existence extinguished in one final cosmic “zzzzzzt”. Obviously, for a trader to be successful he must acknowledge this pattern and then break it. This can be accomplished by asking the right questions and finding the correct answers by rational observation and logical conclusion.

This article will attempt to address one question:

“What is the difference between a winning trader and a losing trader?”

What follows are eleven observations and conclusions that I use in my own trading to help keep me on the right track. You can put these ideas into table form, and use them as a template to determine the probability of a trader being successful.

OBSERVATION #1

The greatest number of losing traders is found in the short-term and intraday ranks. This has less to do with the time frame and more to do with the fact that many of these traders lack proper preparation and a well thought-out game plan. By trading in the time frame most unforgiving of even minute error and most vulnerable to floor manipulation and general costs of trading, losses due to lack of knowledge and lack of preparedness are exponential. These traders are often undercapitalized as well. Winning traders often trade in mid-term to long-term time frames. Often they carry greater initial levels of equity as well.

CONCLUSION:

Trading in mid-term and long-term time frames offers greater probability of success from a statistical point of view. The same can be said for level of capitalization. The greater the initial equity, the greater the probability of survival.

OBSERVATION #2

Losing traders often use complex systems or methodologies or rely entirely on outside recommendations from gurus or black boxes. Winning traders often use very simple techniques. Invariably they use either a highly modified version of an existing technique or else they have invented their own.

CONCLUSION

This seems to fit in with the mistaken belief that “complex” is synonymous with “better”. Such is not necessarily the case. Logically one could argue that simplistic market approaches tend to be more practical and less prone to false interpretation. In truth, even the terms “simple” or “complex” have no relevance. All that really matters is what makes money and what doesn’t. From the observations, we might also conclude that maintaining a major stake in the trading process via our own thoughts and analyses is important to being successful as a trader. This may also explain why a trader who possesses no other qualities than patience and persistence often outperforms those with advanced education, superior intellect or even true genius.

OBSERVATION #3

Losing traders often rely heavily on computer-generated systems and indicators. They do not take the time to study the mathematical construction of such tools nor do they consider variable usage other than the most popular interpretation. Winning traders often take advantage of the use of computers because of their speed in analyzing large amounts of data and many markets. However, they also tend to be accomplished chartists who are quite happy to sit down with a paper chart, a pencil, protractor and calculator. Very often you will find that they have taken the time to learn the actual mathematical construction of averages and oscillators and can construct them manually if need be. They have taken the time to understand the mechanics of market machinery right down to the last nut and bolt.

CONCLUSION:

If you want to be successful at anything, you need to have a strong understanding of the tools involved. Using a hammer to drive a nut in to a threaded hole might work, but it isn’t pretty or practical.

OBSERVATION #4

Losing traders spend a great deal of time forecasting where the market will be tomorrow. Winning traders spend most of their time thinking about how traders will react to what the market is doing now, and they plan their strategy accordingly.

CONCLUSION:

Success of a trade is much more likely to occur if a trader can predict what type of crowd reaction a particular market event will incur. Being able to respond to irrational buying or selling with a rational and well thought out plan of attack will always increase your probability of success. It can also be concluded that being a successful trader is easier than being a successful analyst since analysts must in effect forecast ultimate outcome and project ultimate profit. If one were to ask a successful trader where he thought a particular market was going to be tomorrow, the most likely response would be a shrug of the shoulders and a simple comment that he would follow the market wherever it wanted to go. By the time we have reached the end of our observations and conclusions, what may have seemed like a rather inane response may be reconsidered as a very prescient view of the market. Read more…