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Rajiv Malik writes:
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btw i bought 3600 call based on your closing strategy given on wednesday but unfortunately had to book heavy losses on thursday as the call bought at 104 came down to 61.
how do you think i should have avoided making such a big loss. in the early morning/afternoon i did get a chance to square off the position on an almost cost to cost basis but did not square off thinking eventually it may end up giving me profits.
don’t you think it would have been better had you given a stop loss. moreover if cnbc gives a closing strategy, one they must sometime during the next day announce the exit strategy. moreover whatever closing strategies are given must be as a rule discussed and their success or failure reviewed by cnbc on the next day.
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I cannot answer on behalf of CNBC on what they should do. But here are some thoughts on ‘How to use analyst suggestions’.
First, understand the concept of probability. I have written about this on my blog many times. An analyst may have a trading method that gives 50% winners. Each winner gives Rs 2/- in profits and each loser has a Rs 1/- loss. This is an extrememly profitable method even though half the trades lose.
Remember, he is getting signals on all five days a week. Now, twice a week the analyst provides his trading signal on TV. Since half the signals are profitable, the eventual outcome from the TV signal is essentially a toss of the coin. Worse, there are runs in trading. ‘Runs’ mean streaks of winners and losers. It is possible to have 5 winners one after the other and then five losers. The net percentage of winners will still be 50% after 10 trades, but the novice taking the first five trades (winners) will think that the analyst is superb while the person taking the last five trades(loser) will blame the analyst for his misfortunes.
Consistency is the basis of profitable trading. I am not sure how a trader using TV as his basis for trading decisions can be consistent. Why not keep it easy and use technical analysis?