Fundamental Flaws

I started my Stock Market investing in late eighties. I used to submit multiple applications for good primary issues and made good money. Later CCI was abolished and companies started charging premium on their issues.So there was no way to make profit but to go for secondary market investments.Trading was really not an option as there was no internet and electronic trading.

Like any other investor , I used tools like PE ratio,PB ratio, EPS etc for my analysis.I compared the company PE ratio with the Market, Sector, Industry and the historic PE of the same company. Lost a lot of money , energy and time after buying an undervalued stock and waiting for the market to discover the value.

One  fine morning , it dawned on me that I must focus on Market price and not on this ratios .So I changed the formula. PE Ratio = Market Price /  Earnings per share to MP = EPS * PE Ratio. So the Market price is a multiple of  EPS and a variable. This variable is nothing but the market sentiment. Our companies declare their results quarterly and this EPS remained a constant at least for a quarter. Then everything was clear, the focus should be on the sentiment rather than on earnings for the short term player.

People may argue that projected EPS is more important and we may need to research and pick stocks.So far I could not accurately project not even the profit of the bank branch ,where I work,for any  quarter even though nothing happens there without my knowledge. Leave alone thousands of companies operating in different sectors , industries and geographical regions.

If you do not have a lot of luck or right connections to get inside information, chances of becoming a successful investor is very remote. Buying lottery tickets can be a better option.

" Fundamentalism"can be injurious to your financial health.

31082012

Today I could not watch the Market in the morning. When I came the announcement drama was over. BOF of PDH/HOD gave a short signal and gave a fantastic trade.MSP from where yesterdays vertical move started acted as support. I expected a retest of LOD and a long signal.But it did not happen.Notice the point marked A. We can try a short here with SL above HOD aiming for FTA, BRN.

29082012

On hind sight BPB of PDL was the only reliable signal.TP at BRN 5300.I am disappointed that a strong BOF did not happen at the TR high at point A .It would have been a fantastic 40 point trade.

28082012

Nifty opened just above PDL. and immediately sold. Did not get a proper pull back to short. Initial range formed and the retest of IR low was a long signal, but skipped it as the trade was against the market bias. Went short at the test of PDL.This trade moved well. Went long when the break of the LOD failed.This trade also moved.

Rope Trick

I did my primary schooling in a small coastal village of Kerala.Those days there were no school buses and we used  to walk. There was a small water way on our way  to cross.It was real fun commuting to school with friends.A  fallen coconut tree was lying by the side of this water way and  we always played on it. We used to balance and walk on this tree trunk.

During an "Onam" vacation some elders shifted and placed this tree trunk across the water way so that they can cross it avoiding a little walk downstream.Many of us kids found it difficult to cross the stream walking on this tree trunk.We were afraid . Later we tied a rope to hold on while crossing and then we could do it without much scare.

The task was very simple and remained the same.We had done it a thousand times before. but now the focus shifted to the danger of falling down.Focus on the danger made us anxious and fearful.When there was a rope to hold ,we felt a little relaxed and was not much afraid to do it.

Trading is also very simple. The problem is, our emotions play spoil sport.Fear is the most powerful emotion and while trading we are either afraid to lose money or fear reduction in our profit.We can overcome this problem to some extent by holding the rope which is known as " Stop Loss".

But We have to make sure that  our trading method, the lumber on which we are walking, is strong and robust. If we are not sure about it and do not have total trust on it, even the rope is not going to make us comfortable.

27082012

Nifty opened just above BRN 5400. First bar gave an impression that BRN is going to hold. But next bar broke BRN and gave a BPB short signal.TP at PDL. BPB of PDL was another short. Even though it moved well I scratched the trade with a small loss.