Tuesday, January 20, 2009

See the present and immediate Future as a Stock Trader.

We should learn to see price action on the right edge of the chat.The present and the immediate future as it appears in the price action and the chart.There is only a small academic value in dwelling on what has already occurred or in the long past.So the majority of effort should go into the direction of the present and in the immediate future what is going to happen.As far as we are
stock traders, we are concerned about the present and the immediate future.We do not live our lives drifting in the past, nor do we avoid the realities of the moment by lingering in some distant future.As active market players our lives are perpetually spent in the next 2 to may be 10 days.We look forward by breaking up the market into a very digestible 2 day to 2 week period.If we tend to get it right, we will tend to make a good deal of money.There is always the next 2 to 10 day period to get right.Don't waste too much energy looking backward.Approach the market with a forward looking view that extends over the next 2 days to 2 weeks.We, as traders, can't trade the past, and we certainty have not been endowed with the capacity to accurately see very far into the future.It is in the immediate future ,spanning for a period of maximum ten days, we traders will find the comfort,success,and higher accuracy that we seek. Muraleedharan. http://currencycentral.blogspot.com

Food for thought Some commonly used words in Indian Stock Trading.

There are some commonly used words,actions,emotions play a role in your stock trading decisions.These points are specifically designed to keep the stock trader psychologically in shape and aware of some of the mental pitfalls that plague all active market players.
Thinking. Too much is not good.This may sound strange to most, but most expert traders have moved beyond the need for thought.It is only if you ask them why they did a certain thing that they have to stop and 'think'.There are some very best traders can't even seem to properly communicate what they do.Perhaps that's because they are' doers' who no longer have to think about 'doing'.
Imagination.If you have one,it could be a problem.Imagination is a quality or element that deals in the world of non facts.But successful traders stay rooted in what is real,actual and factual.They are constantly processing what is, not what may be or could be.They don't imagine,guess, or hope.They just process and react to the facts,second by second, minute by minute,with little to no imagination or opinion.
Fear.Fear is the bane of intelligent action.It not only cripples the mind, which in turn cripples the judgment process, but it erodes the intuitive faculties that become so important to seasoned traders.Fear is a poison, which destroys every virtue required to become great in anything.It is one of,if not the greatest, impediments to achievement.
Greed.This term is best summed up by the saying ,"Bulls and bears make money,but pigs make none".Successful trading is largely a numbers game.Instead of going for the 10,000 Rupee score
all at once, an expert trader will go for 1,000 Rupees score 10 times.The 1,000 Rupees gain will come more quickly,with less risk, and more certainly than will the larger 10,000 Rupees gain.
Information.The less the better.Too much information helps stimulate the imagination, which as you know is not good.Opinions start to form and, before you know it, you have taken on the view of the information's distributor.It must never be forgotten that the importance of information does not lie in its message.Rather,its importance lies in how others will react to its message.
Expectations.Too many expectations or expectations that are too high are sure signs of an unreasoned novice.Overzealous expectations are always owned by those who don't know what they are doing.They are the hallmark signs of those who have not yet experienced the difficulties and hardships that go hand in hand with obtaining success.
Excessive Analysis.Too much tinkering will prevent action and increase uncertainty.Majority of expert traders have a few basic,very simple, ways to determine if they should buy,sell,hold or ignore.They don't over complicate matters.And they are always willing to just 'do it' and see what happens.
Hope.Hope is a dangerous thing,especially for traders.It is the archenemy of those who form the habit of holding losing positions.Hope,in this case,promotes inaction precisely when action is required.Those who hope become blind to the facts, and they will always be at the mercy of those who sell hope for a living.When trading,avoid hope like the plague.
Good trading to all my traders. Muraleedharan. http://currencycentral.blogsp[ot.com

Monday, January 19, 2009

The Two Themes in Indian Stock Market.

There are only two themes in Indian Stock Market.The market is in a trending mode or in a ranging mode.When the market is trending it can be either in an uptrend or downtrend.In an uptrend you can buy pull backs and in a down trend you can sell bounces.In the range bound market you can sell moves towards the top of the range when buying dies out OR buy moves towards lower end of the range once selling dries up.These are the two themes existing in every time frame.A trend in a shorter time frame may be part of a range in a longer time frame.A range in a shorter time frame may be a consolidation with in a larger trend.This is one of the very basic understanding a stock trader needs to have.Once you conceive these two theme you can formulate your stock trading methodology using these themes.Warren Buffet said " Be fearful when others are greedy and greedy when others are fearful " .The emotions of greed and fear makes the price extremes in any time frame, even in trending or in ranging markets.The downside extreme of the market is reached when the stock traders are ruled by the emotion of ' fear' and the upside extreme is reached when the stock traders are ruled by the emotion of 'greed'.Once price reaches any one point in these extremes price retraces in trending or ranging conditions.When you have decided your style of trading, scalping,day trading, swing trading or position trading , you can choose your time frames and design your system parameters to suit your style using these themes.Good trading to my readers. Muraleedharan. http://currencycentral.blogspot.com

Saturday, January 17, 2009

Some important tips to be a good Stock Trader.

Jack Schwager in his book ''Market Wizards" emphasizes 0n nine traits to be a successful trader.
1) Desire to be successful (Character Trait)
2) The confidence that they could win over the long run (System Trait)
3) Discipline to follow a given methodology (Character Trait )
4) Taking Trading seriously ( Character Trait )
5) Rigid Risk Control (System Trait)
6) Patience to wait for opportunities (Character Trait)
7) Acting independent of the crowd (Does right thing)(System trait)
8) Accepting loosing is a part of the game (Character Trait)
9) Loving what you are doing (Character Trait).

Seven major obstacles that a trader faces.

1) Poor skill
2) Lack of adequate capital
3) Lack of patience
4) Lack of Discipline
5) High risk aversion
6) Setting unrealistic targets and goals
7) Trading without having in place a proper trading system or a trading plan

All traders should have a Mantra.
1) I will educate myself on how the market works.
2) I will learn how to find and place trades.
3) I will trade with equity management.
4) I will never trade without a protective stop loss.
5) I will not chase the market.
6) I will be patient.
The market will meet the criteria of my trade or I will not trade.

Nine Profit killers in trading.
1) Ego 2) Greed 3) Fear 4) indecision 5)Confidence versus arrogance 6) Trading stress 7) Risk of loss 8) Unsupported trading expectations 9) Discipline.
Master your self destructing habits.Plan to change some really bad habits.

Socrates " We are what we repeatedly do. Excellence then is a habit ".

Friday, January 16, 2009

FMCG Sector Indian Stocks.

What are Fast Moving Consumer Goods (FM CG)?Products which have a quick turnover and relatively low cost are known as FM CG.FM CG Products are those that get replaced with in a year.Examples of FM CG generally include a wide range of frequently purchased consumer products such as toiletries,soap,cosmetics,tooth cleaning products, shaving products and detergents as well as other non durables such as glass ware,bulbs,batteries,paper products and plastic goods.FM CG may also include pharmaceuticals, consumer electronics,packaged food products,soft drinks,tissue paper and chocolate bars.A sub-set of FM CG's are Fast Moving Consumer Electronics which include innovative electonic products such as mobile phones,MP3 players,digital cameras,GPS Systems and Lap tops.These are replaced more frequently than other electonic products.White goods in FMCG refer to household electronic items such as Refrigerators,T.V's and Music System etc.Most of the product categories like like jams,tooth paste,skincare,shampoos etc in India have low per capita consumption as well as low penetration level, but the potential for growth is huge.The top ten FMCG compnies in India are as follows 1) Hindustan Unilever Ltd 2)ITC (Indian Tobacco Company), 3)Nestele India 4)GGMMF (Amul) 5)Dabur India 6)Asian Paints India 7) Cadbury India 8)Britania Industries 9)Proctor & Gamble Hygene and Health Care 10)Marico Industries.These are leaders in thier respective produt sectors.Nestle and Amul are leaders in Milk Powder segment, HLL,ITC,Goderej,Britania are leaders in food segment Godrej and Reckit (Reckitt's Mortein) are leaders in household care category,HLL and P&G in shampoo category, Dabur in herbal category and Cadbury India in chocalate confectionary category.There are two sector indices for this categories 1)BSE FMCG
Index and 2)BSE HC Index (Health Care & Pharma).This is good segment of Indian Stocks to watch and own.

John J Murphy on trend and his rules for Stock Trading.

Murphy stated "The importance of trading in the direction of the major trend cannot be overstated.The danger in placing too much importance in oscillators, by themselves, is the temptation to use divergence as an excuse to initiate trades contrary to the general trend.This action generally proves a costly and painful exercise.The oscillator, as useful as it is, is just one tool among many others and must always be used as an aid not a substitute for basic trend analysis".
Murphy's Rules.
1 ) Map the trends .Daily to intraday charts.
2 ) Spot the trend and go with it.
3 ) Find the high and low price, Support and Resistance.
4 ) Know the retracements, 38,50 and 62 percentages.
5 ) Draw the trend line.
6 ) Follow the averages, 4 and 9, 9 and 18, 5 and 20.
7 ) Learn the turns RSI 9 OR RSI 14.Daily signals can be used to filter the intraday charts.
8 ) MACD
9 ) Trend or not trend . ADX or Trend Line.
10) Know the confirming signs.
11) Technical skill is improved with experience.Practice the skills as much as possible in real
time and demo.

Three Principles in Stock Trading.

1) A market move has only two possible directions. A market move has only two possible directions means- whenever there is an existing market position with a certain profit target and protected by a stop loss level, the market will eventually reach one of those trading points.It also implies the price action on the way between the two points is 'market noise' and should be disregarded.
2)The market is in perpetual motion.The market is in perpetual motion means that over any period of time the market is progressing either towards the target or the stop loss level and that one of these will be reached with in a reasonable period of time.
3)The market completes certain trading ranges over certain periods of time(A day,A week,A month) . The market completes certain trading ranges over certain period of time, allows traders to evaluate the specific probabilities, a market will reach certain price levels,with in a certain time frame. Muraleedharan http://currencycentral.blogspot.com

Thursday, January 15, 2009

Five questions you must ask every time you buy a stock?

1) What the company does and how well is it doing?You should know the company's business and track its performance.Who are its competitors and how are they faring?
2)How the stock price behave in the past? You should track the stock price history.Find out when the investors found it the best or worst time to buy and sell the stocks in the past.
3)How will it behave in the future?The future is not ours to see but then it pays to make an estimation of what price the people will pay for the stock.
4)How good is the stock compared to others?The comparing helps to make the best purchase. Weigh the stock against any other be it from another sector.
5)Are you missing out on any other vital information?You should catch on the recent information about the company.Do the broker's find the stock attractive?

Banjamin Graham's Value investing .

Graham propounded the Net Current Asset Value (NCAV) Rule for deciding if the company is worth buying.If the NCAV is above the market price, the investor buys a bargain, because he pays nothing for the fixed assets.Though such companies are really hard to find, Graham's deciples
have helped evolve his basic principles-to look for companies with hidden value that is not reflected in the market price.Graham believed in diversification.Investors, he felt should hold a quarter of their portfolio in bonds, another quarter in stocks and the balance 50 % in stocks or bonds depending on stock and bond prices.Among stocks investors should try to have at least 30 different holdings.He, himself normally held about 75 stocks.When in doubt, he proposed investors should stick to good quality companies with solid dividend history,low debt and reasonable P/E ratio, while serious mistakes can be made in buying poor stocks, one cannot go wrong with quality stock at fair prices.Graham stressed the importance of a long record of paying dividends.It meant that the company had substance and limited risk.Graham also preached patience, since the market was " not a precise weighing machine,but a voting machine", the outcome was a result of partly reason and partly emotion.Despite all care, there was a possibility of poor returns in the short term.Finally and very importantly,Graham dissuaded investors from following the crowds.It is important to think correctly and also independently.And to keep thinking of ways to ensure safety and maximum growth." To achieve satisfactory investment results is easier than most people realise, to achieve superior results is harder than it looks" wrote Graham.

Wednesday, January 14, 2009

The Mind Set of a stock trader.

The method and money management will have little to no value if the mind behind those techniques has not been properly prepared.One of the most undiscovered truths of the day is embedded in the fact that the greatest riches of a successful stock trader lie with in his or her thinking, not with the methods used.To state this another way 'Proper stock trading is proper thinking'.How much time does it take to be a successful stock trader? Not only does it takes many months to years of relentless effort to obtain market proficiency, but also excellence seems to emerge only after one has learned and experienced every conceivable way to lose.The truth of the matter is that the pains, agony, the scars of an experienced stock trader run especially long and deep.If aspiring market mavens do not possess a great deal of fortitude, or if they lack resolve, are devoid of passion, and are unwilling to forsaken all, they simply won't last.Individuals who truly desire market success will have to pay with their blood, their money, and a very big part of their lives.The tuition is high.But the ultimate reward that goes to those willing to pay the price is immeasurable .Successful stock traders enjoy an independence that can't even be imagined by most.They can earn more money in 2 hours than most people earn in a month.But in order to get there you must last.To reach that lofty level, you must survive, however difficult things get.Are you truly willing to pay the price to become a successful stock trader? If the answer is 'yes', develop a plan, get education,practice and never surrender.This burning desire for stock trading mastery is the wind bvehind the sails of every profitable trader in existence.This is the mind set you have to develop as a stock trader.Good Luck in your journey.Muraleedharan.

CANSLIM system for scanning Indian Stocks.

CANSLIM system is based on Fundamental Analysis of the Indian Stocks.Once you have selected your Indian stocks for trading you can use Technical Analysis to trade the selected stocks.
C= Current Quarterly Earnings .The current quarterly EPS is the higher the better.You should look for minimum increase in quarterly earnings of 18 to 20 % over the same quarterly period one year ago.
A=Annual Earnings Increase.Annual earnings increases look for significant growth.The companies showing a strong annual growth rate of 25% over the last three years.You should look for strict consistent year by year growth for screening the Indian Stocks.ROE The return on equity should be good.The net Income divided by shareholders equity is ROE.The ROE should be at least 17%.
N=New Products,New Management,New Highs.The stock needs a catalyst to start a strong price advance.This catalyst can be a new product or service, a new management team employed after a period of lackluster performance, or even a structural change in a company's industry- such as a new technology.
S=Supply and Demand.Stocks with a small or reasonable number of shares outstanding will,other things being equal, usually out perform older,large capitalization stocks.Stocks with a large percentage of ownership by top management are generally good prospects. Look for companies buying their own stocks in the open market.Look for companies with a lower debt-to-equity ratio and companies reducing their debt-to-equity ratios over the last few years.
L=Leader or Laggard.You should identify and buy rapidly growing companies that are market leaders in rapidly expanding industries.Buying among the best two or three stocks in the group.You will be compensated for any premium you pay for these leaders with significantly higher rates of return.
I= Institutional Sponsorship. The stock needs a few institutional sponsors.Ten institutional owners is suggested as a reasonable minimum number.
M= Market direction. The overall market direction.The trend of the overall market will have a tremendous impact on the performance of your portfolio.It is difficult to fight the trend, so it is important to determine if you are in a bull or bear market.
You select the best stocks from sectors you intend to trade using this screening method.Once you have selected the stock, we will look into the technical analysis for entering and exiting stocks at right times.