Trading is Probability.

An interesting comment comes from GUNTAS:

“A COUPLE OF DAYS AGO YOUR ANALYSIS WAS OF THE VIEW THAT A DIP IS VERY MUCH IMMINENT BEFORE THE NIFTY CROSSES 4900 BUT THAT NEVER HAPPENED IN MARCH WHEN THE NIFTY WAS HOVERING AROUND 2800 LEVELS YOU SAID THAT ITS JUST A MATTER OF TIME WHEN NIFTY SINKS BELOW 2250.THAT TOO NEVER HAPPENED.THEIR ARE MANY MORE INSTANCES LIKE THIS.DOES THIS MEAN THAT YOUR ANALYSIS IS MORE A FLUKE RATHER THAN TECHNICAL IN APPROACH?”

My Notes: The question is: “(Your) Analysis is More a Fluke”. GUNTAS will be surprised to know that the answer is almost “YES”. But, the term used is not ‘fluke’, but probabiity. All trading is based on probability. The trader who understands this concept has crossed the river of ignorance.
The Technical Approach, regretfully, does not have the Holy Grail. Neither does the fundamental approach, or anything else in life. The concept of probability runs like this: We base our analysis on sensible rules. Then we follow our rules. We are more right then wrong. What saves us is our acceptance that we will be wrong. When the trader realizes he is on the wrong side of the market, he exits quickly with small losses.

Ravi Chandra asked this question a few days ago:

“As for my question… do you think hedging is a good idea, specially in a market like this. We’ve been holding hedged positions on the nifty to be able to minimize a loss and ride the unsureness present.”

My Notes: hedging is a good idea when the investor has large open profits or large investments which he is reluctant to liquidate. You hedge your positions to protect part of your profits and most of your investments. Traders should not be thinking about hedging, since they go with the trend. If they do not know the trend, then why should they be holding a position?

Anirvan says: “I was looking at the nifty charts today and a question popped up – – When its a bullish head and shoulder every one is so optimistic that it has broken out – but in the same vein THE same head and shoulders pattern failed a couple of months back for this rally to start across all indices globally”

My Notes: Anirvan, nothing succeeds like success. This one is working so we are all proudly talking about this pattern as if it were my discovery. Your question is: this one can also fail, just like the last one. Yes, of course. But we have to trade it anyway. Otherwise later on, we will find out that this one worked out while we were waiting. Also, the current H&S is a big picture pattern, spanning many months, multiple years. So, it will take its time to work out or not work out. Traders should therefore focus on patterns in smaller time frames. This large pattern is mainly academic, meant for the text books.