I made my first stocks purchase in 2008,I had studied all I could about picking the right stocks.I knew all the important financial ratios about a stock fundamentals.

  My goal was to be a value investor like Buffet.I had studied all the material I could find about him.To give him credit I could not find any stock that met his criteria.

  Then the sub-prime crisis hit,I did not know how correlated the markets were.In the ensuing sell off panic I lost close to 60% of my investments.I was in shock.

 I had to find out why,I went into a frenzy of research and I landed on the works of Ben Graham and Jesse Livermore.Both authors were monumental in helping me to form ideas.

 I vacillated between the two principles,one of buying stocks at half book value and the other of buying highs and selling on lows.During that time I came across the name Richard Dennis,one of the most successful traders of our generation.I came to learn about mechanical trading and I was sold on the premise of trend-following.

 I am by no means an expert and I still struggle with some aspects of trading.They say it takes at least 1000hrs or 10 yrs to become an expert and I believe them.But I thought it beneficial to share some of my insights.

 That's all for now,I will be sharing more later.  

To be brief,let me give you the the basic principles.

A) COST AVERAGING.

   By this I mean the practice of consistently buying stocks on a preset basis;monthly,quarterly,yearly etc.No timing is involved.It is based on the premise that you cannot beat the market in the longrun (less than 2% do).Basically you make sure you are diversified enough to represent the broader index.

 This method has been supercharged for long term practitioners(20yrs,any thing less is short /mid term).Basically you buy stocks on the basis of the historical P/E.If the broader market is above 50% of its historical P/E you buy half of your intended position size.consequently if the market is 50% below its historical levels you double up.This means you will be buying more than 3-4 times the amount of shares in bear markets.

 ADVANTAGES.



*You get to buy more when there is blood on the streets.

*No market prediction needed.

*Better results than traditional buy and hold.

DISADVANTAGES.

*Very tough to stick with the rules especially in bear markets.like in 1994 when the index       was at 5000pts and gradually sold off  to 1000pts by 2002;8 yrs of bleeding!!!!(but you have to consider you would have started doubling up at about 1500pts-not bad at all)

*Drawdowns can be crazy,in excess of 50%.Basically buy only blue chips,avoid companies that can be affected by multiple variables,stick to companies with large moats and significant foreign ownership. 

This was the first system I found almost foolproof from all the vagaries of the stock market.This system is brilliant because the stock market is always biased to the upside.

Feel free to add your personal flair to the rules.

Finally you can retire a millionaire!!! 

Next method later.

I've copy pasted from my mobile app but the ideas are mine.will try to post directly here as it seems the platform is not compatible with this site.

will be updating later......but will it benefit anyone or is it a waste of my time?

I had decided to start a long thread on trading methods but I've decided keep it short.

B) CLASSICAL TRENDFOLLOWING.


This involves any method that involves catching the trend.

Most common include :

1.moving averages
2.donchian channels/ hi lo breakout.
3.bollinger bands.

incidentally all these methods are based on an average of price and are similar.

Donchian channel system is basically a n-day breakout. most suitable for a market like ours is at least 6 month breakouts and beyond with longer term breakouts being more profitable.

moving average crosses can be simple, exponential or linear weighted but all offer comparable performance.

The shorter term systems suffer from a lot of chop and transaction costs make them underperform.

that's all for now.Ill touch on more specifics later.

For technical traders, they believe fundamentals are reflected in the price and follow the momentum.

Those trading on fundamentals try to
benefit from mispricing.

both methods are valid.

what are the qualities of a good trading system?

1. robustness : this means its not sensitive to small adjustments in parameters ie not curve fitted eg.10/50 MA cross should not differ much from 15/75MA cross in overall profitability.
robust systems are profitable in most markets and able to survive changing market conditions.

2.Average win greater than average loss ie let winners run and cut losers short.

3.Have a quantifiable edge/positive expectancy ...something you can't find out on the NSE!!!

lets talk about STOPS.

The best stop loss is about 20-25% of the initial buying price.This takes care of more than 98% of normal market volatility. A stock that falls 20% from its highs rarely rallies.

trailing stops are best effected at 20-25% of the days higher high price.

goodnight all.

I want to change my strategy in the NSE.Allocate some money for trading/speculation purposes and invest the rest.

Thinking of starting a business this year.Fingers crossed. My focus is on tech.Understanding cultural influences on adoption of technology is what I'm working now. Since I'm a finance guy I'm also following the investment game to see where I can leverage my IT skills.

Maybe its just me,but I see finance,tourism,distribution,agriculture,real estate,retail and entertainment industries changing drastically in the coming years due to technology and I'm setting up shop early on.