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Four Basic Contingency Plans

  
Analysis, Education
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  • Initialstop loss
    • Establish in advance a maximum stop loss.
    • The moment the price hits the stop loss, I sell the position without hesitation.
  • Re-entry
    • When the market experiences general weakness or high volatility, your stock can undergo a correction or sharp pullback that stops you out. However, a stock with strong fundamentals can reset after such a correction or pullback, forming a new base or a proper setup… Often, the second setup is stronger than the first. The stock has fought its way back and along the way shaken out another batch of weak holders. If it breaks out of the second base on high volume, it can really take off.
    • If the stock still has all the characteristics of a potential winner, look for a reentry point. Your timing may have been off. It could take 2 or even 3 tries to catch a big winner.
  • Selling at a profit
    • Once a stock amasses a percentage gain that is a multiple of your stop loss, you should rarely allow that position to turn into a loss (e.g. stop loss of 7%, if you have 20% gain, move stop to breakeven or trail stop to lock in majority of the gain).
    • When you have to close out a trade, selling into strength is a learned practice of professional traders. It’s important to recognize when a stock is running up rapidly and may be exhausting itself.  Or you can sell into the first signs of weakness immediately after such a price run has broken down.
  • Disaster plan
    • Plan what to do if your Internet goes down, or power fails, or your stock gaps down, company investigated by SEC, CEO embezzled funds.

RBI hikes CRR by 75 bps; repo rates untouched

  
Analysis, Education
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RBI GOVERNER

The Reserve Bank of India, in its Monetary Policy review today has hiked the Cash Reserve Ratio (CRR) by 75 basis points (bps) to 5.75 per cent, while holding the repo and reverse repo rates steady in line with market expectations.

The CRR hike will be done in two tranches. The first one will be for 50 bps with effect from February 13, 2010, and the balance 25 bps will be effective from February 27, 2010. Eventually, this will drain out Rs 36,000 crore from the system.

Repo rate is the rate at which the banks can borrow money from RBI in order to avoid scarcity of funds.

The move comes on the back of spiraling inflation. Food inflation touched 17.4 per cent for the week ended 16 January 2010, slightly higher than previous week’s 16.81 per cent. Fuel price index rose to 5.7 per cent while primary articles price index touched 14.66 per cent for the week ended 16 January 2010.

A median forecast released by the Reserve Bank of India (RBI) in the pre-policy ‘Macroeconomic and Monetary Developments: Third Quarter Review 2009-10’ yesterday raised the economic growth projection to 6.9 per cent from the 6 per cent projected three months ago.

NIFTY Future :In panic low of 4757 was made and now trading at 4801.My Support and expected target was of 4724-4676 in panic.

-Don’t panic @ lower levels.

-If not breaks 4757 & trades above 4812 with volumes will take to 4845-4856 & there after watch unexpected buying upto 4889-4900 level.

Updated at 11:25/29th Dec/Baroda

Risk and Reward

  
  Education
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Before placing any trade, a strategic trader must always know and identify the maximum risk exposure for the trade. Once the risk is identified, it should be compared to the possible profit target. If the profit target does not justify the risk exposure, the trade should not be taken. It does not make any sense to risk a dollar to earn a penny. One of the common mistakes that cause traders to consistently lose money is that they fail to let their winners run. They quickly close out their trades as soon as they become profitable. While no one can argue against taking a profit, consistently taking profits that are not consistent with the desired risk/reward ratio ultimately leads to a net loss. Once a stop is hit, it immediately eradicates the small profits of three or four trades that were prematurely closed. It is hard to leave your money on the table, but there are ways to move up your stops and use a trailing stop to allow you to stay in your trades to realize your designated target.

Once a trade is placed, prices will always fluctuate; that’s the nature of the auction process. Rarely will a trade directly navigate to the profit target without a retrace. This is where paper trading comes into play. It allows a trader to watch, learn, and record how long it takes to reach a profit target and whether the risk/reward strategy that they are using is in fact feasible and workable.

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