Looper

I know, that Bruce Willis sci-fi movie… 

… is also called Looper. 

Know any other Loopers? 

There’s one in your body. 

In hardware terms, it’s your brain. 

In software terms, it’s your mind. 

Its ability to loop can become a tendency. 

Any problems with that? 

Sure. 

Big ones. 

Imagine a trade. 

Goes wrong. 

You’re drained. 

You get out. 

Loss.

Done? 

No. 

At this point, don’t let your mind loop. 

It will, if you allow it the leeway. 

If it loops, you’ve lost the energy value of two trades or more (fatigue) while losing one trade. 

Don’t delve on the loss. 

Move on in search of your next winning trade. 

Define conditions that stop your mind from looping. 

For example, when entry value is small enough to not be bothered about, its partial or even full loss might not be enough to cause your mind to loop. 

And that’s the position you want to be in. 

No looping.

No overthinking. 

Just trading. 

🙂

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One up on the Screenshot

It keeps getting better!

There came the selfie.

Then the screenshot asked it to move over.

Now it’s the all-powerful clipping.

Yeah, clippings are taking it away.

They’ve even told the protectionists to go take a walk.

Apps are incorporating clippers.

So are browsers, as plug-ins.

What’s so special about the clipping?

In a nutshell, the clipping leads to tailor-storage of your web-experience.

Wow.

What, someone programmed in a screenshot-prohibitor?

No biggie.

Your clipper will still clip and store the entire protected page, clip by clip if it has to. Then you can just upload all the clippings to one central storage point, like Dropbox, Google Drive, or better still – Evernote. Yeah, for example in Evernote, the clippings will read as one seamless webpage.

Now that is powerful.

Feeling lazy?

There are n different ways to clip web-content. Just button-click your choice, Mr. Couch Potato.

Let’s say you want 60% of the webpage.

Yeah, there’s a lot of useless stuff you want to get rid of. Sure.

Go clip by clip. Got it together? Fine. Upload to central.

What exactly are we achieving here?

With the ability to clip and archive, your web-experience will be properly stored, waiting for your recall button-clicks.

Very soon, we’ll discuss the idea of tailor-storage further. Yeah, tagging. I’m sure you’re already doing it and know all about it. Nevertheless, we’ll discuss it.

🙂

Less is More

Fill your plate.

Work.

Go all out.

Nobody’s asking you to work less.

Research.

Hit it with your best shot.

Do quality work.

Work with the best tools.

Enjoy your work…

…so much so, that time ceases to exist.

Yeah, that means you’ve found your calling.

However, connect less to live Mrs. Market.

Here, less is more.

Keep her away as much as possible when she’s live.

Only connect live when you really, really have to.

What are you achieving?

Minimal bogging down live market forces.

You’re away from the pandemonium, the confusion.

You’ve set your self up brilliantly, to think clearly.

Now, gather your thoughts, gather your research.

You get into the Zone.

You have a purpose.

It can be anything. A market instruction. An instrument alteration. A structural change. A query. A test. A probe. A check. Something small. Something big.

With your purpose right before your eyes, connect live.

Solve your purpose.

Disconnect.

Relax.

Let remnant market forces leave you, yeah, let them dissipate.

Do some other stuff for a while.

Then, when you’re ready, get back to your research.

If you’re not ready after a while, call it a day.

Go for a swim. Or something.

Dealing with “Situation Change”

When does a situation change?

For example, one could move on to a new field in finance.

Or, a particular goal could have been achieved. Now, one’s approach is supposed to incorporate predefined changes for financial strategy post goal-accomplishment.

Family dynamics could be responsible for situation changes too.

Sure, health. Never underestimate the power of health. It can make you, and it can break you.

Emotion. Fell in love? Going crazy? Outbursts? Hot flashes? Preggers?

Logistics? Moving? New girl-friend in New York?

Night duty?

Looking after your parents in their old age?

Wife wants to party all the time? Lack of sleep?

Promotion? Demotion? Fired? Jobless? Suddenly self-employed?

Gone single? Date-circuit? Got married? Had a kid?

Situation changes come to all. Not once, but many times in life.

Why are we talking about them?

They have an effect on our financial strategy. That’s suffices.

I’ll tell you how I deal with situation change. You can then BODMAS your way to your own approach, using my approach as a broad outline.

My first approach is to put on auto-pilot as many of my financial activity as possible. Going paper-less helps. Trusted auto-bill-pay channels are assets. Fixed-income generators with auto annual-alerts give financial security with zero involvement. SIPs and dividend pay-ins are further examples of having gone auto.

Then I look at what is left. What has not yet gone on auto-pilot? Can it? Ever? If there’s a chance, I go for it. For example, I’m currently developing a software robot to automate my forex trading.

Lastly, I size up what is not pushable into auto-mode. Do I want to keep it? Can I do without it? Weigh, weigh, weigh, scrap A, scrap B, C is something I just have to do, manually, period, so keep C. Eventually, C, G, P, X and Z are five manual financial activities I keep, having scrapped the others (that refused to go on auto) out of my life, since I didn’t consider them burningly essential. C, G, P, X and Z are the ones that’ll weigh me down when my situation changes. I’ve kept them on doable levels. Some are on semi-auto but do require manual intervention. The others are fully manual.

My situation changes.

My auto-pilot activities continue their smooth run. They are my assets, my stars.

P, X and Z are on semi-auto. I barely gather the energy to look into their manual aspects, just about managing to keep them going with reasonable results.

C and G are bogging me down. Can’t keep up. No energy. No motivation. Situation change has drained me. Relentlessly, I try. C has turned a loser. Beginning to feel sick. I shut down C. Losses.

G is sucking me out. Emotionally. It’s a winner, though. Can’t keep up. Can I turn it into semi-auto? It required constant monitoring till it started winning big. I’ll still need to feed in my stop daily. That’s the manual part. I stop looking at G. Problem with equity orders is that your stop has little technical value overnight. A new day requires renewed stop-considerations. Ok, five minutes daily for G. Open terminal, set trigger-stop 9.99% below opening price, close terminal, don’t look left or right, done.

Phew.

Save health. Don’t fall sick.

If sick, rest.

Recuperate.

Regain health.

Get used to new situation.

Normalize.

Gear up for next situation change, whatever it is, whenever it comes.

Gear up now.

Playing the Stock or Playing a Scenario?

Many roads lead to Rome.

Everyone’s approach to the markets is different.

Today I speak about two approaches.

One can choose to play the stock. 

Here, one decides to follow the same stocks everyday. One decides to learn their nuances. The number of stocks that one follows is manageable. As a thumb-rule, one should be able to count them on one’s fingers. No more. One should be able to recall the stocks one follows in a jiff, with no sweat at all. 

The chart of a stock begins to make sense. Trading plays emerge. One needs to then follow the progress of the same stocks everyday, and take trades as and when entry setups make themselves available. This methodology requires following the action everyday, live, during market hours.

What if we don’t want to be glued to our screens everyday?

Can we still get one action?

Yes. 

How?

Simple.

We then don’t follow any stock in particular.

We define a scenario which contains all that we want to see in the chart of a stock at that point of time, when we decide to follow the markets and perhaps take a trade. 

We then convert this scenario into an algorithm.

Again, don’t let the word algorithm scare you.

You don’t need to know how to programme. Your market software should allow you to put your algorithm together by combining chunks of simpler algorithms which define singular pieces of your scenario. These simpler algorithms are visible in your market software. You then need to copy, paste and combine your copy-pastes together with mathematical symbols. This is a vital statement. This is technology-power at its peak. This practically puts a very powerful weapon in your hands. 

From this point onwards, trade identification is a piece of cake. Your let your algorithm run through the gamut of stocks quoted on the markets. Your software does this for you in under a few minutes. Your algorithm picks those stocks that are currently exhibiting your scenario, and opens their charts for you. You need to define your algorithm in such a way, that not more than 50 charts open up. You then sift through the 50 in about 5 minutes. Just pure eyeballing. You narrow the 50 down to 5, which are showing good entry setups. You pick the stock with the best setup. Then you feed in a trigger entry order in your trading account. The whole exercise take less than 15 minutes.

Isn’t that wonderful?

Can We Please Get This One Basic Thing Right?

Pop-quiz, people – how many of us know the basic difference between investing and trading?

The logical follow-up question would be – why is it so important that one is aware of this difference?

When you buy into deep value cheaply, you are investing. Your idea is to sell high, after everyone else discovers the value which you saw, and acted upon, before everyone.

When you’re not getting deep value, and you still buy – high – you are trading. Your idea is to sell even higher, to the next idiot standing, and to get out before becoming the last pig holding the red-hot scrip, which would by now have become so hot, that no one else would want to take it off you.

The above two paras need to be understood thoroughly.

Why?

So that you don’t get confused while managing a long-term portfolio. Many of us actually start trading with it. Mistake.

Also, so that you don’t start treating your trades as investments. Even bigger mistake.

You see, investing and trading both involve diametrically opposite strategies. What’s good for the goose is poison for the gander. And vice-versa.

For example, while trading, you do not average down. Period. Averaging down in a trade is like committing hara-kiri. What if the scrip goes down further? How big a notional loss will you sit upon, as a trader? Don’t ignore the mental tension being caused. The thumb rule is, that a scrip can refuse to turn in your direction longer than you can remain solvent, so if you’re leveraged, get the hell out even faster. If you’re not leveraged, still get the hell out and put the money pulled out into a new trade. Have some stamina left for the new trade. Don’t subject yourself to anguish by sitting on a huge notional loss. Just move to the next trade. Something or the other will move in your direction.

On the other hand, a seasoned investor has no problems averaging down. He or she has researched his or her scrip well, is seeing  deep-value as clearly as anything, is acting with long-term conviction, and is following a staggered buying strategy. If on the second, third or fourth buy the stock is available cheaper, the seasoned investor will feel that he or she is getting the stock at an even bigger discount, and will go for it.

Then, you invest with money you don’t need for the next two to three years. If you don’t have funds to spare for so long, you don’t invest …

… but nobody’s going to stop you from trading with funds you don’t need for the next two to three months. Of course you’re trading with a strict stop-loss with a clear-cut numerical value. Furthermore, you’ve also set your bail-out level. If your total loss exceeds a certain percentage, you’re absolutely gonna stop trading for the next two to three months, and are probably gonna get an extra part-time job to earn back the lost funds, so that your financial planning for the coming months doesn’t go awry. Yeah, while trading, you’ve got your worst-case strategies sorted out.

The investor doesn’t look at a stop-loss number. He or she is happy if he or she continues to see deep-value, or even value. When the investor fails to see value, it’s like a bail-out signal, and the investor exits. For example, Mr. Rakesh Jhunjhunwala continues to see growth-based value in Titan Industries at 42 times earnings, and Titan constitutes about 30% of his billion dollar portfolio. On the other hand, Mr. Warren Buffett could well decide to dump Goldman Sachs at 11 – 12 times earnings if he were to consider it over-valued.

Then there’s taxes.

In India, short-term capital gains tax amounts to 15%  of the profits. Losses can be carried forward for eight years, and within that time, they must be written off against profits. As a trader, if you buy stock and then sell it within one year, you must pay short term capital gains tax. Investors have it good here. Long-term capital gains tax is nil (!!). Also, all the dividends you receive are tax-free for you.

Of course we are not going to forget brokerage.

Traders are brokerage-generating dynamos. Investors hardly take a hit here.

What about the paper-work?

An active trader generates lots of paper-work, which means head-aches for the accountant. Of course the accountant must be hired and paid for, and is not going to suffer the headaches for free.

Investing involves much lesser action, and its paper-work can easily be managed on your own, without any head-aches.

Lastly, we come to frame of mind.

Sheer activity knocks the wind out of the average trader. He or she has problems enjoying other portions of life, because stamina is invariably low. Tomorrow is another trading day, and one needs to prepare for it. Mind is full of tension. Sleep is bad. These are some of the pitfalls that the trader has to iron out of his or her life. It is very possible to do so. One can trade and lead a happy family life. This status is not easy to achieve, though, and involves mental training and discipline.

The average investor who is heavily invested can barely sleep too, during a market down-turn. The mind constantly wanders towards the mayhem being inflicted upon the portfolio. An investor needs to learn to buy with margin of safety, which makes sitting possible. An investor needs to learn to sit. The investor should not be more heavily invested than his or her sleep-threshold. The investor’s portfolio should not be on the investor’s mind all day. It is ideal if the investor does not follow the market in real-time. One can be heavily invested and still lead a happy family life, even during a market down-turn, if one has bought with safety and has even saved buying power for such cheaper times. This status is not easy to achieve either. To have cash when cash is king – that’s the name of the game.

I’m not saying that investing is better than trading, or that trading is better than investing.

Discover what’s good for you.

Many do both. I certainly do both.

If you want to do both, make sure you have segregated portfolios.

Your software should be in a position to make you look at only your trading stocks, or only your investing stocks at one time, in one snapshot. You don’t even need separate holding accounts; your desktop software can sort out the segregation for you.

That’s all it takes to do both – proper segregation – on your computer and in your mind.

R&D Experimental Action – BHEL – Nov 30 2012

Scrip – BHEL.

Currently Market Price – Rs. 232.10.

Experimental Action – Buy 240 Call Option (expiry Dec 27 2012) now.

Rationale – is explained in the chart given in this link : BHEL – PATTERN BUY – NOV 30 2012.

Disclaimer and Disclosure – Technicals are gauged and shown using Advanced GET 9.1 EoD Dashboard Edition. I entered this trade around 11:30 am today. Opinions given here are mine only. You are free to build your own view on the stock. I bear no responsibility for any resulting loss, should you choose to enter this trade.

Downside – Entire option premium, about Rs. 5400 per call just now. Your option premium could be considered your stop, if you don’t want to manage your trade actively. If you do, you can set your stop to fractions of the option premium. In fact, you can go about your trade management however which way you wish to do so. Point is, trades need to be managed, either actively or passively.

Upside – roughly > 2 times the option premium (estimated). Estimation of the upside here could be considered an art, roughly based on the chart patterns at hand, coupled with my interpretation of suggestions by the software OptionScope Version 9.1 by Equis international.

Thus, reward : risk for the strategy discussed is rougly > 2 : 1 (estimated).

Cheers. 🙂