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Ways to Recognise and Defeat Your Evil Trader

  
  Education
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  • Have a plan.  If you don’t have a plan, your Evil Trader has zero boundaries and will take over entirely.  When you have a plan, you’ll start to notice him telling you not to follow it.  You’ll hear him whisper seductive anti-plan ideas that sound and look perfectly reasonable – except they aren’t in the plan.
  • Have an Evil Trader Journal.   The thing with ET is that often his ideas sound great and are really hard to ignore.  So as not to discard potentially good ideas, keep a log and after each trade is closed make a note of whether the idea would have been positive or detrimental to the outcome of your trade.  After a period of listing these ideas you’ll be able to notice that a) ET is wrong and he needs to shut it, or b) his idea deserves some further testing as it’s possible it has merit.
  • Try to make your method as water-tight as possible.  A signal needs to be a signal without a shadow of a doubt.  An exit needs to be a definite exit, no two ways about it.  The more black and white the better, as your Evil Trader loves to second guess your judgement.  Planting seeds of doubt is just the way he rolls.
  • Make a check-list for those times when you’re just not sure.   There will always be times when things just don’t seem so clear-cut.  This is your evil trader’s very favourite moment to strike.  You need to be armed with your weapons of ET destruction – aka, your check-list – to guide you through.  Having a checklist on hand allows you to objectively determine whether what you think you’re seeing is in fact what the market is presenting.

65% of ’10 IPOs trade in losses

  
  Education

Despite the criticism against the public sector, their IPOs fared better than the private sector in a scenario where of the 70 public issues in 2010, two-thirds are trading below their issue price.

The PSU came out with 10 issues in 2010 and mopped up Rs 49,500 crore. The current mark-to-market value of these issues is about Rs 54,000 crore and the mark-to-market profit on these issues was Rs 4,500 crore or 9.19 per cent.

The private sector companies came with 59 issues worth Rs 21,100 crore and the current mark-to-market value of these issues is now Rs 17,600 crore a loss of about Rs 3,500 crore or 16.82 per cent loss. Explaining this poor performance of the private sector, Mr Jagaannadham Thunuguntla of SMC Global Securities Ltd said that people invest in private sector IPOs “only to make a quick buck as they sell it on listing day or later. In the case of the public sector units they look for long term investment because of the strength of their balance sheets and reliable revenue streams.”

However Mr Prithvi Haldea of Prime Database says its wrong to say an IPO is trading above or below its issue price. “The IPO is valid only till the date of issue. After that it trades like any other share. Analysts take any date and according to that it can be above of below the listing price. In the case of REC for instance it was issued at Rs 100 and fell to Rs 50 and is now trading at Rs 200. So what will you say?”

On the IPOs of public sector units, Mr Haldea said, historically PSU issues are deliberately underpriced and they tend to quote above the offer price. Among the private sector issues, in which the investors have burnt their fingers include Aster Silicate down 69.83 per cent to its issue price of Rs 127, Tirupati Ind down 69.95 per cent and Aqua Logistics 81.36 per cent.

10 Pitfalls of Trading & Answers

  
  Education
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What are the 10 major mistakes that these traders make that cost them dearly?

  1. Having no trading plan

When you don’t have a plan, you don’t have a template to follow. It becomes very costly when your emotions are high and you have to make decisions on the fly.

  1. Using strategies that do not match your personality

You hear of a trading strategy that has worked very well and you are anxious to follow it. One important factor to consider is: does it match who you are and your lifestyle?

  1. Having unrealistic expectations

Most traders assume that it is very easy to make money in trading. They have unrealistic expectations with regard to their initial capital, their risk profile and how much money they can expect to make.

  1. Taking too much risk

Usually when traders are down, they want to make their money back very quickly. Therefore, they increase their position size without thinking about the risk/rewards.

  1. Not having rules to follow

Most traders think if they have rules to follow, they are restricting themselves. It is on the contrary. Having rules allows you to be more flexible since you have thought about lots of issues beforehand.

  1. Not being flexible to market conditions (more…)

4 Types of Trade

  
  Education
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Type One:

The first type of trade is when you execute on your edge, your thesis, or your plan and the outcome is positive – you make money. The trade is in synch with the market – or as one of my clients says, “The market cooperated”. Everyone’s favorite type!

Type Two:

The second type of trade is where you execute on your edge, your thesis, stick to your plan and the outcome is negative, you lose money. For whatever reason, the market did not cooperate. We know there will always be a number of these type two trades. Good traders not only know this, they accept it as part of the business.

Type Three:

The third type of trade is when you do the wrong thing – you veer from your edge, forget your thesis, or ignore your plan and the outcome is negative – losing money. This is the trade we look back on after the fact and say, “Why did I do that again”! And often you can see pretty clearly, after the fact, what you ignored or minimized during the trade, when you were caught up in trading your P&L more than the market.

Many traders experience this type of trade, but the better traders have much fewer. The better traders learn from their type three trades. They learn about the market and they learn about themselves. (more…)

Crises and Panics

  
  Education
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Came across an interesting pamphlet on Crises and Panics by James L. Fraser. It’s an interesting if brief history up through the early 60s. I thought I would share his comments on identifying traits and causes of panics/crises. I am paraphrasing a bit and not completely quoting him on each bullet point here. Bear in mind, this was written in 1965.

Traits:
1) Extravagance of living, first by a few, and then by many…
2) General belief in impregnable prosperity…
3) Lavish private expenditures, which appear to be natural offshoots of immense federal projects…
4) An appetite for speculation
5) Easy money and availability of credit

Indications of impending crises:
1) Rising prices
2) Increased activity of established businesses seeking more production, more sales…
3) Active loan demand
4) Strong increase in labor employment
5) Extravagant public and private expenditures
6) Speculative mania, together with dishonest methods, fraud
7) Labor strikes and increased general violence / social instability
8) Excessive pride of opinion, especially an “American First” attitude (more…)

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