CapitalStars Investment Adviser: SEBI Registration Number: INA000001647

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Saturday, July 15, 2017

Many aspiring traders often spend an enormous amount of time trying to discover the “Holy Grail”, which according to popular belief is expected to create abundant wealth in the stock markets.

The so called ‘Holy Grail’ invariably takes the form of a formula or a strategy, application of which is believed to unlock the money-making machine.

I’ve been an active stock market trader for over 15 years, out of which the last 5 years I’ve spent managing a stock broking firm with over 65,000 clients.

During these years I’ve had the opportunity to interact with many successful traders. With these interactions and my own trading experience I can vouch for one thing – the ‘Holy Grail’ does not exist; it is a mere myth misleading many gullible traders.

However, having said this, what does it really take to be successful in the stock market? Is there a way for one to get profitable in the markets?

Realistic Expectation –

Setting realistic expectations about the stock market returns is the key. Many people enter the stock markets with a hope to achieve a 100 percent return on their capital overnight.

This unrealistic expectation leads them to use excess leverage. Excess leverage burns through their capital leaving their trading accounts dry. So, don’t look at making huge returns overnight, instead plan towards growing your capital slowly but steadily.

Remember even if you end up making 1.25 percent a month we are talking about 15 percent return in a year, which according to me is phenomenal (if done consistently every year).

Back Tested Strategy –

Develop a trading strategy. The trading strategy can be developed based on any logic that you think makes sense. However, once you develop the strategy make sure you back test the same on historical data.

It is very crucial to understand how your strategy behaved under various historical circumstances. Some common parameters to look for back testing are – percentage profitability per trade, holding period per trade, draw downs, max loss per trade, absolute/CAGR returns, the risk to reward per trade etc.

You can use your brokers trading terminal to back test (and develop) strategies.

Execution –

Once you are happy with your back tested strategy, you essentially have a ‘trading system’. The trading system will perform as per your expectations only when you deploy this trading system in live markets.

Once the system is live in the markets, it will constantly scout for opportunities in the market which would satisfy the trading system’s requirement.

So, if you think about it – the system has to receive the market data, process the data, evaluate the trading system’s condition and match it with the processed data, and then give you a buy or sell signal. All of this has to happen in the blink of an eye.

Investment & trading in securities market is always subjected to market risks, past performance is not a guarantee of future performance.
CapitalStars Investment Adviser: SEBI Registration Number: INA000001647


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