Most of the new beginners get excited to make money without knowing basics & operational knowledge of stocks.
I have been working on Indian and US stocks since last 5 years. Here are some of the stark truths I have encountered.
- you can become millionaire if you follow proper method and stick to your rules.
- People starting with small capital often blow up their accounts in 1-2 months.
- Its not an ever flowing money stream where you make regular income.
There are 3 rules to making money in stocks.
- Make a system of rules to filter and trade and abide by the rules even if you make loss.
- You should be an excellent reader and interpreter of financial information.
- Follow people who are 15 years old in markets and make sustainable amount of money in the market
There are trading tools and techniques such as RSI, bollinger bands, ichimoku cloud, ADX indicators. One can use a combination of these to make trades in market.
Drawback: it requires skills in inside each pattern. not every pattern is strong which makes money.
Cup and Handle pattern:
Big players when they buy stocks . the volumes are very high. so they buy little everyday and finally a shape forms like these..
How to find best cup and handle pattern? a cup takes 5 weeks to form and then handle takes 15 to 20% down from cup top. we can trade form top of the cup for a 10-15% move upwards.
Most of the stocks move because the underlying companies publish good sales, EBITDA and EPS margins. These are technical terms. To learn more about it, either take financial advisor help or grab books on financial management books.
- Reading skill is very important to a trader. Read as many Annual reports as you can and understand the nuances of market.
- Annual reports give growth projections and future projects in pipeline. all we need to estimate is how much earnings the new projects will add to and whats the increase in EPS.
- In fundamental analysis, only 2 things matter, sales ( Top line) and final EPS figure after dilution ( Bottom line profit)
- Follow each sector , most of the top stocks in each sector will report good earnings, then filter them for technical analysis.
Based on setup of rules defined either technically or fundamentally, we can setup a rule based trading/ algo trading. most of them use python/ proprietary software to make codes.
Example: RSI trading algorithm
rsi_period = 14 chg = data[‘Close’].diff(1) gain = chg.mask(chg<0,0) data['gain'] = gain loss = chg.mask(chg>0,0) data['loss'] = lossavg_gain = gain.ewm(com = rsi_period - 1, min_periods = rsi_period).mean() avg_loss = loss.ewm(com = rsi_period - 1, min_periods = rsi_period).mean()data['avg_gain'] = avg_gain data['avg_loss'] = avg_lossrs = abs(avg_gain/avg_loss) rsi = 100-(100/(1+rs))
My strategy :
Find killer trading patterns inside the stocks. Looks for big buyers and block deals. once the sanity check is done. we can move ahead with technical patterns. waiting for the right time is very important in trading. define risk of 3% and return of 6% in a stock and wait for the results. more often than not, its a probability game . you can start with little money and make your way upwards.
100% trades are not profitable . Even the smartest trader looks for 8 correct out of 10 trades. Hence you should accept this possibility.
Some of the famous books and sites you can refer are.
How to start?
- Create a demat account at zerodha . Here is the link
- add funds to your account.
- Buy the stock and hold it for sometime. ( positional trading)
Tips for beginners:
- Take seniors guidance or experienced person.
- Don’t over trade
- keep control of your emotions. They don’t work in stock markets.
- Never love a stock. Think of it as an opportunity.
- Buy polycab at 930 for 1 month. Target 1100.
- Buy Gujarat gas at 325 , target 400 in 15 days.
- Buy NCL industries and deccan cements for 6 months, target 50% to 100%
- you can also contact me on whatsapp if you need more guidance regarding these calls.
There are some famous excerpts from books which can help beginners.
How to make portfolio in stocks and balance them? what are the rules?
There are four common types of rule‐based portfolio construction models:
equal position weighting, equal risk weighting, alpha‐driven weighting, and
decision‐tree weighting. The first two are the simplest and have at their core a philosophy of equal weighting; they differ only in what specifically is being equally weighted. Alpha‐driven portfolio construction models mainly
rely on the alpha model for guidance on the correct position sizing and
portfolio construction. Decision‐tree approaches, which look at a defined
set of rules in a particular order to determine position sizing, can be rather
simple or amazingly complex. I describe these approaches from simplest to
Equal Position Weighting
Equal position‐weighted models are surprisingly common. These models are used by those who implicitly (or explicitly) believe that if a position looks good enough to own, no other information is needed (or even helpful) in determining its size. There is a further implicit assumption that the instruments are homogeneous enough that they do not need to be distinguished on the basis of their riskiness or otherwise. The notion of the strength of a signal, which, as already discussed, is related to the size of a forecast for a given instrument, is ignored except insofar as the signal is strong enough to be worthy of a position at all.
Equal Risk Weighting
Equal risk weighting adjusts position sizes inversely to their volatilities (or
whatever other measure of risk, such as drawdown, is preferred). More volatile positions are given smaller allocations, and less volatile positions are given larger allocations. In this way, each position is equalized in the portfolio,not by the size of the allocation but rather by the amount of risk that theallocation contributes to the portfolio. we should know beta of the stocks and then allocated less size to higher beta since they give more movement to the portfolio.
A third approach to rule‐based portfolio construction determines position
sizes based primarily on the alpha model. The idea here is that the alpha
model dictates how attractive a position is likely to be, and this signal is
the best way to size the position correctly. Still, most quants who utilize this
approach would not allow the size of the largest position to be unlimited.
As such, they would use the risk model to provide a maximum size limit for
a single position. Given the limit, the strength of the signal determines how
close to the maximum the position can actually be. This is much like grading on a curve, where the best score receives the largest position size, and the scores below the best receive smaller sizes. The types of constraints used with this approach to portfolio construction can also include limits on the size of the total bet on a group (e.g., sector or asset class).
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