Go with Market Flow.

Rakesh Sethia writes:

“I follow your views ardently. over a period of time, I have come to terms with your trading style. However, I am unable to understand when should the positions be carried forward and when should those be squared off intraday. Can you please suggest some good book that covers this topic in detail?”

My Notes:

Rakesh, your words give the greatest compliment  that a trader can receive. As I perceive, you understand the reasons for my analysis, use the reasoning as one of the inputs to your own methods, then take trading decisions independently.

This is a wonderful compliment because this is exactly what I want to do – share my thoughts on TV and otherwise.

In fact, I feel dismayed when people want to ‘follow’ me. Truthfully, I find it difficult to follow myself ! How can others do it? And, why should they?

The entire purpose of sharing my analysis is to tell you what I am working at. It may be right, it may be wrong, but this is what I currently believe in.  Just as a car driver may be good at driving – safe, careful. So also a trader may be good at analysis. But, we cannot ‘follow’ the car driver by copying all his actions. We have to develop our own driving style. So also, we cannot ‘follow’ a trader or analyst. We can listen to what he says, then develop our own ways of trading.

Carry Forward of Positions

Rakesh asks “I am unable to understand when should the positions be carried forward and when should those be squared off intraday.”

My Notes:

There is no mathematical formula or mechanical method to decide the issue of squaring off positions intra day. Here are some basic guidelines:

1. If the original purpose of the trade was intra day, then close it on the same day. Never allow an intra day trade to be carried overnight, no matter what the loss or profit may be.

2. If prices have seen a big range expansion in our favor, close at least a part of the trade. Short term traders should take profits when windfalls come their way.

   3. If a new trend has just started, then it makes sense to carry some positions because of the expectations of gap open on the next day, plus further intraday gains also.

   Then, the idea is: Is the trend likely to persist? Carry some positions.
   Is the short term trend mature? If yes, then exit.
   But, be careful of carrying losing positions. This is not usually a good idea.