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Developing a strong technical analysis based thinking framework is very important to make money in stock markets in the short term. Intraday and positional trading requires quick decision making skills, tight risk management in place, consistent 100% discipline and the right mind-set to take trades. More than just taking trades, it is important to introspect how we think before positioning our trades. These qualities set the professional traders apart from the gamblers in the market.
Admiring broker tips, overtrading, average down prices, eliminating risk reward calculation, is a sure shot recipe of failure in trading and we end up losing a significant chunk of capital this way. Perhaps, we don’t just lose the capital invested, we also lose the confidence that we have built along the profitable trades throughout our trading journey. Losing confidence disturbs our psychology for trading and we often initiate revenge trading, which is worse.
Being a trader myself, I emphasize that we must build our own technical set up to conduct our own research and analysis to independently arrive at the outcomes with respect to the markets, whether it’s out rightly bullish, out rightly bearish or if it’s mixed signals. Nobody can teach us the exact way of trading and there is none actually!
There are various technical strategies, charts and indicators available that support our analysis of markets. They help us figuring out the positional view of the market by determining the price action so that we position ourselves in tandem with the market direction and build a strong conviction to trade better and learn to wait for better opportunities in the market.
Apart from this, we need to develop a macro view of the market by paying attention to the corporate actions, quarterly results announcements, RBI meetings, Budget day news, US Federal Reserve Meet w.r.t inflation, interest rates, bond yield scenario, and the geopolitical tensions in the world which has a cascading impact on the world wide stock markets. This indeed determines the fund flow of foreign institutional investors (smart money) across the world.
Markets are not only about the charts and patterns! There is a lot of smart money all around that plays out significantly in infusing momentum to the markets. On that account, we observe the unpredictable rallies and drops in the short term as an outcome of the underlying sentiments amongst the institutional investors. There are also exceedingly rare black swan events (pandemics, wars, etc.) that occur with widespread impact. Consequently, the markets arise against the technical charts and sometimes prove the most experienced traders wrong.
Basically, markets throw surprises upon us almost every day! Patterns do repeat itself but the scenarios and situations change every time and this makes it challenging for all!
So, we call trading a risky affair. There are so many aspects to it. Some of those can be leading to a great amount of misleading information, our own biases can interfere in our own trading style, we have no idea how to strike a balance between risk and return, and we do not back test the strategies that we employ to our trading style. Hence, all the traders don’t have the edge and only a small percentage of traders survive.
Small traders wouldn’t even know what is going on in the minds of a few big bulls or the institutional investors who sit in US or London or any random corner of the world, and cannot gauge their next move in the market. We don’t know what developments occur overnight throwing extreme volatility upon us that may shift the scenario of the market the next day. Technical charts underrepresent the total return and don’t tell the whole story. Charts don’t show the full history of a business and its performance. Charts don’t show inflation and taxes. Hence, trading is not the preferred choice of people who want to create wealth in the long term.
People who don’t prefer trading in stock markets, prefer investing in companies and exhibit their confidence in the strong fundamentals of companies, and want to become a part of growth story of those companies. Such businesses are entrusted with the task of bringing good returns for their shareholders over a period of time. Long term investors want to make wealth with stability in their earnings that comes from capital appreciation, consistent dividends yields on less risky grounds unlike the less cost efficient approach of short term investing or even trading.
Nevertheless, it becomes essential that we pay attention to fundamental data to price based data as a thumb rule in stock markets irrespective of being an investor or a trader.
PS: Opinions in this article are personal.
These pieces are being published as they have been received – they have not been edited/fact-checked by ThePrint.
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