Forecasting and Trading

By | September 29, 2016 5:10 pm

Salute the Indian Army, for protecting our national security with a strong reply to the terrorists.

Market do not like uncertainty and same has been caused by this event, As Humans we are always interested in knowing the market turning points, but when its come to trading. Remember the golden rule

“trading is not about predicting”

Like most people when I first started to trade in the markets I was under the impression that to make money from trading I had to know what the market was going to do.  I watched a lot of Blue Channels, reading lot of business news where the vast majority of the time what you see is a guest/regular making predictions about what was going to happen next for a stock or index.  As a result of this most traders, are not able to sustain in market for less than a year as they bust there trading account with no risk and money management involved.   It is fairly uncommon to do very well early on in trading so usually what happens is that instead of focusing more on your execution: exit strategy, position sizing, risk management, etc. you focus more on getting better at predicting the markets.

Most of great traders are not PREDICTOR but REACTIVE when it comes to trading,they made a fortune as traders because they developed an edge in reacting to the environment around them rather than predicting what that environment was going to be like.

Basically what I’m getting at is that making grand predictions about the future will not take your trading anywhere. Trading can only be improved when you are comfortable with your trading strategy with disciplined risk and money management.

So What Is Trading?

Every single time we put a trade on the outcome of that particular trade is random.Always remember the Outcome of  last trade should not affect the outcome of future trade, You lost money today does not mean next time also you will lose money.   How do we remain disciplined, focused, and confident in the face of constant uncertainty?.

Let’s consider a scenario Trader A Buy 8700 PE of Nifty as he predicts market is going to correct Big time. He bought at Rs50 a substantial quantity, thinking this could be trade of life time.   Market continue to go up and on last day of expiry 8700 PE was trading at Rs 1 losing almost half of its trading account value.On Expiry day  suddenly India Doing a Surgical strike hits market and there we go zoom in Put price, As soon as trader sees his price he press the exit button thanking his luck says to himself “ that was a close one”.

I wonder if this sounds familiar for some readers?  Is that a sustainable way to stay in this business long term?

What matters most for the trader’s success and staying power in markets is not their ability to predict the future but in their ability to manage their trading through tops and turns of market.Its all game of probabilities.

3 thoughts on “Forecasting and Trading

  1. Teja

    This is one of the most matured article, hats off to you Bramesh sir for your crystal clear explanation.

Leave a Reply