Trading Stocks is All About Taking Chances

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There is a myth about stock trading in those who do not trade and also that bewilders even those who trade stocks. People just think about to make money from stocks we should predict the future price of the stock. Let me say that is a foolish belief. A novice thinks like that because that is what is apparently revealed by the stock market. To learn the fundamental truth about stock trading one should go deep into it.

Predicting the Future to Win is Worse than Gambling

Stock trading is often thought to be about predicting the future price of the stocks and then making bets on them. That is not true. Even professional gamblers do not do that though on the outset gambling looks like it is about betting by predicting.

Whether gambling or trading stocks you do not win by predicting what will be the scene in the future but by taking chances. You study the chances of a certain outcome and bet on that outcome that is most likely to happen. It can happen that your first bet goes wrong. But that is not the end of the world. Atleast that should not be the end of the stock trading. Depending on the chances of an outcome, your second or even third bet might win.

If you are betting on stocks by predicting then you are doing worse than gamblers. Gambling does not share some features that only stocks have. That is the reason why it is foolish to bet on stocks by predicting. It is more like blinding yourself after you make entry in a stock through prediction even when the stock is on the move whether in your anticipated direction or against it.

The Simple Difference Between Gambling and Trading Stocks

The simplest difference between gambling and trading stocks is the time dimension attached to the stock price movements unlike the outcome of a bet in gambling where there is no continuous path from present scene to the outcome in the future. The stock prices generally move continuously from one price to the next and this is what makes trading stocks more exciting than gambling.

To see the present, to know there is a path but not a sudden shift and still make the bet on a certain outcome while on the move is something more exciting than any activity I think of, and more riskier than any risky sport in the world. Hercules should have known it!

You should note that there is also another difference I had explained earlier. That’s not the point we should worry about when talking about this fundamentally incorrect belief about stock trading.

Astrology, Forecasting, Extra-Sensory Perceptions… are all Not Needed

I too though of a stock trading as predicting game back when I started. There were so many things that I thought of to help make an accurate prediction. I studied about astrology, financial forecasting, even extra-sensory perception. Sometimes I used to wonder about time-travel or to attain some mystic yoga Siddhi. All the time I used to come back to one conclusion: If I can have any one of the extra sensory or even physical abilities than an ordinary person, I need not really trade stocks. I need not even earn money for I can find a way to get what I want and do what I want to do.

So I gave up on all these things and concluded that the real thrill is in winning the game with only the abilities of an ordinary man. My confidence to success in stock trading did not come until I succeeded in doubling my capital in RNRL shares.

Even before that I realized that stock trading is not about predicting but it is about taking advantage of whatever the stock market has to offer. During bull markets, stocks just move up at a rate of 4-10% consistently every month. It was simple to think of participating in that ride and gain along with the crowds. But the reality is that we can end up participating in a downside ride as well. To succeed or fail like this was more of a gambling than professional stock trading.

Betting on Stocks with Highest Odds

To trade stocks successfully one should change the fundamental paradigm of prediction to win, to taking chances to win. We should start finding the chances of a certain outcome or a certain price move action on a stock and bet on it. This is possible by studying the stock price movements’ history.

You shouldn’t be worried about history repeating itself but about the hidden patterns that consistently repeat most of the time. In stock trading, unlike some other disciplines, there are no hard and fast rules.

Whether the outcome is going to be profit or loss, a stock trader only takes his/her chances at the trade. If you are not willing to take a chance then it good to avoid wasting time. If you do not yet know, it costs a fortune to waste time on the stock market.

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Why You Should Consider Share Trading As A Profession?

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Much like the many professions in our society, the stock trading is in itself a profession of modern civilization. Unless you are a day trader, the money you earn from trading or investing in stocks is a passive income stream. Whether you trade daily or over a time period, it can still be a profession if done in a professional manner. Many traders just don’t put the time required because they do not consider it as a profession.

Why is Stock Trading a Profession?

Stock trading involves the same kind of effort like any other activity. But why do people ignore this aspect of stock trading? This is because the potential for returns from the stock market is very high. Even by chance you may end up making great gains from stocks without spending any time for it. All you would have to do is to buy and sell the stocks.

With the potential for high return stock trading also involves high risk factor. Risk does not mean certainty of loss. It means that if ended up in loss it will be a big loss than any other loss in your life. Similarly potential for returns means not certainty of gain but big gains for less activity when things go in your favor.

When a trader spends some time to study, analyze and plan for future trades, learn from past trades, he/she can be considered a professional stock trader. The time and effort you spend may not be much depending on your strategies and trading principles. But what is important is that you give it its due consideration. Then it becomes a profession though not full time. Otherwise it will be like gambling in a casino.

Stock Trading is a Sophisticated Profession!

Unlike any other profession you must have known, the stock trading is the most sophisticated profession I have ever known. It involves the same kind of effort and analysis. It requires intelligence and alertness. But it has special characteristics that make it far better than any other profession. There are risks too for this profession.

You get to trade only on days when markets are open for trading. Your time for studying and preparing for next day will also be limited to the time market is open. The stock markets actually trade for much less time than any other office works. As I explained earlier about the time to trade in your life, it is just half the time that you get to trade stocks compared to any other job.

That gives a great deal of time for studying the markets, learning lessons, strategies, principles and also working on any other part time profession as well. Even if you do not trade stocks for full time, you may still trade stocks for a little time in your day and have a full time job. Stock trading allows that. And the returns too are not greatly different in either way. The difference comes from the trading style and strategies.

The kind of returns that stock trading can give and the time it needs from our day make it a really sophisticated profession. It is harder than any other profession. But it also entails great risk if taken full time. That is why one needs enough courage and a brave heart to make an entry into this profession.

Stock Trading can Also be a Hobby

Depending on what suits you, you can consider trading as a full time profession or only as a hobby. I too considered stock trading as a hobby much like other the hobbies. Many people have different hobbies in their life. The time spent for each of them is different. And different people spend different amounts of time for their hobbies.

Some people spend time for browsing orkut and other social networking sites. Some people spend time on browing blogs and internet. Some people spend time watching cricket and browsing internet for cricket score and other related information. Some people play computer games. And some spend time chatting in gmail or gtalk (may be all the day!). Some just spend time on research or study related to their current profession. Some people spend time for improving personal and professional life.

Similarly some people spend time studying stock markets and trading stocks. Because they spend only part of their daily life it is much like a hobby. Many traders trade stocks for the pleasure it gives and not considering it as another profession or income generator.

Why Consider Stock Trading as a Profession?

It does not matter whether stock trading is a hobby for you as long as you have a full time job. But if you want to make great strides in stock trading even by spending a little time from your day, you should certainly consider it as a profession. That is when you can commit to learn and apply powerful trading principles consistently. It is only consistent trading that gives a long term success in stock trading. Otherwise you will also join the group of losers who quit after three consecutive losses!

Related Articles

• Apply Speed Breakers (Stop Losses) for Your Losing Stocks
• Is Long Term Trading Better than Short Term Trading?
• Is Investing in Stocks Better than Trading Stocks?
• Why You Should Consider Share Trading As A Profession?
• Trade with the Money You can Afford to Lose: Another Myth in Stock Trading
• How You Should Use Diversification in Trading Stocks?
• The Myth of Diversification in Trading Stocks
• Can You Have The Time of Your Life for Trading Stocks?
• What is the Time to Trade in a Typical Trading Day?
• Do Stock Trading Workshops or Seminars Help?

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Resuming Posting After a Long Time

I had lost touch with this blog for a long time since August. The breakdown of SELMCL coincided with lot of other things. The worst of recession has happened after that time.

September and October were the two bloody months that the world markets all together have ever witnessed. Lot of unwanted but inevitable things happened during that time. And that has set the tone or upper limit for the markets which haven’t crossed till now. I don’t think they will ever cross that limit.

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I had become very busy with my daily work and couldn’t concentrate on continuing this blog. Well, there was no special incentive in maintaining this blog. It was a matter of expressing my thoughts about stock trading on a day-to-day basis. But because of overpressure in other works, I had to put a pause to it. I didn’t know how long at that time.

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Things were only getting worse and I had stopped my trading. I realized that I couldn’t trade the way I used to before. A loss was always unbearable for me and I always cut it when it is small even though painful. I never take diversification. That is a myth. It is like taking alcohol and driving a car. Feels good and safe till the accident happens.

I have learned the importance of organizing information that I had been learning with my trading. I will plan to post them over time. I have written down rules that must be strictly followed while trading. There are lots of ways to find stocks or filter them, for day trading, for trading in the morning or evening and also for short term trading. Long term trading is a phenomenon that doesn’t exist now. I don’t have any hopes for it in the future.

Coming to the present day, I noticed that my broker, Indiabulls, regularly sends an article to give a “morning brief”. This is cool to get some fresh information early in the morning. Indiabulls seems to be doing some best job for their clients.

Today’s news are not breaking news. But there is an interesting news. DLF has cut back its residential project prices by Rs. 13 Lakh in Chennai. This shows that there is a good fall in property prices in popular cities. We need to wait for more action that can spread this to all the parts of a city like the area where I live. Just be patient. That is surely going to happen.

Let us look at the chart for Nifty.

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There is a suggestion that there could be an unexpected uptrend after all the dancing that happened since November. The white candlestick after a “dragonfly doji” day. This is a classic followup. But still the moving average above it shows the resistance. We can safely assume that it will breakdown surely but gradually once it crosses below the magical 2500 mark. It will because the hell is going to break lose like anything we have never seen before. Don’t say not again.

Putting it aside because it is the long term trend, we can see that this time is a pause from the long term trend. These are the best days to start any venture, shift jobs, look for a new office or anything. I think this is the optimal chance. It may not come again anytime soon.

From the general statistics that I track, I checked only the stocks making 52 week high. I found one stock – “Cambridge Solutions”. It is in information technology sector. This is one of those rare, unpopular stocks like the SELMCL. But its volume is lot lesser. Putting the chart below. I think this can be the next good bet.

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This looks like a nice trend. It is bouncing above its moving average. But my broker may not allow me to buy the stock. There is some restriction in Indiabulls. We can only trade heavily traded or high volume stocks. That sucks, Indiabulls being the best in class brokerage service for trading on National Stock Exchange.

There may be more next good bets lurking in the shadows. It needs some effort to check the older statistics and filter them with various criteria. I will post them as I find them.

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The Nifty Caught at Moving Average

The Nifty is at high values and in overbought region. It tried to stay above 4600 but couldn’t stay for overheard pressure is very high. Now it is just above its 20 day moving average. It is now in a situation where its next move will clearly tell whether it has changed the trend from up to down or it deferred that to a future date.

Looking at the below chart it is clear it is behaving normally by falling every day after reaching the highest point in two months. It did like that many times in this year from January. Both the moving averages 20 day and 50day are at the same value. If you look at the right side of the chart it becomes clear that it changes trend downwards after dipping below them and making fake recovery for few days.

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I cannot say anything about this routine behavior except suggesting to getting out of the markets as soon as possible.

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