Are you transferring wealth to Big Traders.?

cxoadvisory.com has done a study of Chinese individual investors which says that:

In summary, evidence from detailed Chinese stock account data indicates that the trading of unsophisticated individuals tends to transfer their wealth to institutions and more sophisticated individuals (and to brokers and the government).

My Notes: This should almost certainly apply to Indian retail traders dabbling in Futures & Options.

The same web site talks about Refined Short-term Reversal Strategies.

The conclusion is: Short-term stock return reversal is pervasive and larger than previously found, with overreaction to industry-specific discount rate news a principal driver .

A simple way of inferring discount rate shocks is to look for stocks with prices and earnings forecasts moving in opposite directions

My Notes: Difficult to read, isn’t it? To buy, search for stocks registering a one month decline, which have robust earnings. The opposite is true for selling, where the trader should look for one month rallies in stocks with earnings disappointments. Please visit the site and read the full article if you wish to practice such a strategy.

Questions & Answers:
Reader pranav.kulkarni asks:
Dear Sir, One personal question please. How much percent of return you earned last year from trading only??

Answer: For year 2009, the returns were approx 80% on the capital invested in trading. One big gain was the May election gap when I was long in Nifty calls. (The suggestion to buy was given over TV, in this blog , before the results came out.) Now, this was luck, but you must understand that traders get lucky because they remain in business, with managed risks.

Saurabh Asks:

a. Entrance into congestion
b. A trade within a congestion
c. A breakout from a congestion area
d. A trend run
e. Trend reversal

Based on your personal experience which one of these 5 mentioned above would be most profitable, based on historical data ?

My Notes:
The trades that I have never found to be profitable for me are:
a. Entrance into congestion
b. A trade within a congestion
e. Trend reversal

For me, setups that are proftable are:
c. A breakout from a congestion area
d. A trend run

Both of these are actually trend following.
Reversal Trades are profitable when used for Investments. I have explained earlier that I go for themes when investing. Usually, there are no stops. The trades are closed when the theme is no longer valid.