Traits of a successful trader
Whenever I meet friends, investors, traders, clients, students the discussion revolves around trading. the questions invariably asked is what makes one a successful trader what are the characters of a successful trader !. I tried to pen down some of my thoughts.
- Trading is a probability game. Not a certainty game. Keep this in mind always.
- Don't trade on fundamental views and opinions.
- Understand every individual has a different risk appetite, capital, and character.
- So not every trade suits everyone.
- Please do remember opinions and views are not trades.
- It is not possible to convert all opinions and views into trades.
- The challenge is how you convert your views into trades.
- It is easy to arrive at an entry plan. Tough to have an exit plan. So always be clear on your exit plans. And respect your exit plans.
- Exit plans may be your targets or stop losses ie where you accept that your bet is not working as you expect.
- Stop-losses are traders curse and traders bless. Traders curse because it may trigger your stops and your target may get achieved. Bless because it may just help you to lose just a hair than burning your body.
- Try to understand Technical Analysis simply. It helps to understand the price action
- Don't look for answers for any moves. Such stories are good for coffee table discussion but not for trading.
- It is not possible to trade on all stocks. Limit your choices. Rank your choices based on conviction and choose
- Find a strategy that suits you, your character, your emotions.
1) Bottom fishing
2) Momentum3
) Mean Reversion
4) Break out trades
5) Patterns
6) Trend following
Don't mix up fundamentals and technicals. Rarely they go hand in hand.
Nothing wrong in missing a trade.
Do remember that always there is an opportunity.
Don't mix up timeframes. Begin practicing with 60 min charts, daily and weekly charts.
Categorize your trades, as day trading, positional, etc.
Do keep reviewing whether you adhere to your guidelines.
Don't overtrade.
Trading small and within comfort is not a sin.
Trade in the instruments you are comfortable with. Not everyone has to trade-in options.
Mutual Funds Vs Direct Equity Investing
Whenever I come across a first-time investor, the discussion mostly revolves around how to begin the investment journey i.e. via Mutual fund or direct equity. The attributes required for a mutual fund investor and an equity investor is different. Just presenting a small primer on MF vs Direct Equity investments, which may help the first time investors to evaluate and choose an option for themselves.
Mutual fund :
Small capital is not a constraint
Well diversified portfolios at marginal investments
A lot of choices based on investment objectives, based on investment styles, investment options like systematic Investment Plans, etc.
Fund manager creates, monitors and maintains the portfolio of stocks and does necessary monitoring, allocation
Be prepared for long term investments
Returns are not linear like a fixed deposit.
The returns may be lumpy and despite a lot of nil return years, the returns may get compensated in one year of great performances
Well regulated and transparent in disclosures like portfolio, charges, and expenses MF investments creates a disciplined investing habit
Well suited for passive investors
The points to remember are to choose the right type of scheme, the right type of investment objective, the right type of investment style, and the right time horizon.
Need to monitor the NAV movement and usually the fluctuation in NAV does not bother an investor as much as individual stock price moves.
Direct Equity Investing:-
Lump-sum is preferred.
As an investor himself is the fund manager, needs to be active in monitoring
Need to track indexes like Nifty, Sensex, corporate events
Understand that buying a share is indirectly you are buying the business of a company. So try to understand that business, its promoters, its profitability, factors affecting the business .
Your stock selection process, approach is highly critical as the performance of the portfolio purely depends on your choice.
Be prepared for the volatility of prices.
Try to understand basic concepts in the balance sheet, economic concepts.
Most importantly understand the difference between trading, short term investments and long term investments
Understand risk and reward.
Remember equity investment is not a gamble but more a calculated risk.
Not a quick rich tool. but with the right investment, it has the potential to generate huge wealth.
Ideally, both equities and mutual funds should form part of everyone's financial portfolio.
I will add up more thoughts later !!
Happy Investing !!
Fundamental Analysis Vs Technical Analysis - 360 degree view
This is another discussion that happens more often. Both studies are of different extreme and rarely go hand in hand.
Let us see a 360-degree view of both the approaches
Technical Analysis (TA) is seen as a tool for prediction. Prediction based on the price action of the company and the expected future price movement.
On the other hand, Fundamental Analysis (FA) is a tool of extrapolation of existing financials with some assumptions. So forecasting is in both analyses in some form.
Data sets required for TA are easily available to an individual at some affordable cost. Of course, free data too available which has its pitfalls. Most of the data needed is provided by Company via Balance Sheet, quarterly results, announcements, Research arm of Brokerages, Govt (economic data )
Any positive or negative news about Company mostly gets factored in the price, much before it officially known in the public domain. Most of the reasons for the moves can be attributed to Technically. But fundamentally tough to justify as the positive or negative news flow hits the public domain much later.
The classic case is the recent Nifty rally from 7800 to 9700 wherein more business disruptions, profitability degrowth, defaults in loans, curtailment in consumer spending, due to COVID was expected but the price movements did something opposite.
The parameters affecting various sectors are different. It needs a lot of detailed understanding and deep research to understand the function of each sector. In charting, your analytical tool remains the same for all the sectors, as you track only the price.
FA helps for buy and hold strategy of long term investor where you are convinced of the future earning potentials of the company. TA involves more timings. Hence may miss a big move while we try to catch smaller moves.
FA investor acts only when he sees a visible change in financials despite price action. TA “trades’ every reversals or every trend.
Be it FA or TA, invest in yourself. Learn the basics, keep updating, and master it. Build a foundation. Keep growing.
Follow what suits you.
Happy investing! Happy Trading!
