A blow Off Top

Peter Brandt, my favorite Trader gives an example of what could be a blow off top in Apple. You can read the full post here.

Apple has moved up from its year 2000 lows, by almost a 100 times. Yes, about 100 times the price 13 years ago. Now, there is a sense that a parabolic rally may have come to an end, suggesting a blow off top. Such tops, if confirmed, may result in multi year declines / trading ranges.

An interesting aspect for Indian Traders is the fact that we can actually buy Apple if we want to trade on the long side. the RBi allows us to invest in equities abroad. Can we also sell Apple? I do not think that the RBI allows short selling in international stocks or, any investment in margin trading. Therefore, In India, we can just watch the Apple stock and check out if peter Brandt gets it right.

Know Yourself to Trade Better

For trading we analyse various types of data including chart patterns. Most of this data is about the economy, markets, the security etc. These data points are related to external factors of trading. One of the biggest factors in trading is, the trader himself but how much data we collect and analyse about ourselves as traders? How much we know ourselves?

To trade better the trader has to know himself better and to know himself better he should keep record of data points related to him/her also. Following are some of the examples of things we should keep record of.

1. The time of the day when I enter, exit a trade, what percentage of my winning trades were taken at markets open, afternoon and near closing time?
2. For how long I keep a position open and what is the percentage of winning trades that were open for a few minutes, few hours, and few days?
3. On what signal (for example support/resistance, breakout/breakdown, and divergence, classic chart patterns) I enter and exit? What is the percentage of winning trades for each set-up/signal?
4. What is the position sizing of my trades? How much I risked in most of winning trades and how much I risked in most of the losing trades?

The above points are just a few examples and there is much more to know about ourselves. After we start keeping records of the above data points, we can analyse and know things like-

(1)    Which is the best time for me to trade, Morning, noon or evening?

(2)    In which type of trades do I fare better, trades held for a few hours or few days?

(3)   What set-ups are most profitable for me?

(4)   How much risk can I handle comfortably?                                                 Patterns about ourselves will emerge when we analyse a large sample of data. Our strength and weakness will be revealed to us and when we trade keeping in mind our strengths and weaknesses we have a better chance to succeed.

[Contributed by Jitender Yadav. My thanks to Jitender for providing these posts]

Time and Timing

“It is time in the market, and not timing, that is important.”  It is one of the popular axioms in the stock markets but we should not take anything for granted and certainly not in financial markets. As the usual disclosure reads “what worked in the past may or may not work in the future.”

Suppose a person bought at the index highs of January 2008. Now after more than 4 years, he is still waiting to see profits. If he took long positions in even the bluest of the blue chips like BHEL, Bharti etc, he still might be staring at big losses. In global markets too there are examples of significantly long periods of negative returns. From a life time high of 38916 in December of 1989, Japanese index Nikkei is currently trading at around 8,500. Agreed that examples like Nikkei are one-off but what is the guarantee that this scenario can’t play again in some other market.

So time in itself is no guarantee of profits but timing, if right, can certainly guarantee profits. I am not against long term investments but long term investors too should keep in mind timing of their entry and exits. Now timing is easier said than done but still one cannot deny its importance in stock markets. Tools of timing can be different for different kind of market participants. It may be economic cycles, weather patterns, and valuations etc for fundamental investors and chart patterns, indicators, and support/resistance etc for technically oriented ones.

[Contributed by Jitender Yadav. My thanks to Jitender for providing these posts to the blog]