Super Gann Trader Academy which conducts stock market courses in Delhi, offers free trader awareness lessons.
Charles Darwin (the scientist who made theory of evolution) Quote “It is not the strongest of the species that survive, or the most intelligent, but the ones most responsive to change.”
This above statement is applicable in stock market if you read it as given below.
It is not the strongest of the traders that survive, or the most intelligent, but the ones most responsive to change.
Flaws with trading or investing on basis of fundamentals:
The stock market is driven by fundamental variables of economy like GDP (Gross Domestic Product), inflation, supply and demand, consumer confidence, geo-political factors. But it is not possible to estimate these on a day-to-day basis. Even economists differ in their estimates. Companies’ balance sheets don’t always provide the true picture. Estimating the future performance of a company based on the above economic variable is not possible.
Mr. Shrivastav is an accountant by profession and he manages to estimate that a company XYZ is undervalued based on fundamentals. As per his calculation, the company share should have a value of Rs 200. He buys 1000 shares at Rs 100. However, market price of XYZ shares drops to Rs 75. Now his fundamental analysis makes this company an even better value buy. Hence, he decides to add to his holdings. As the stock price drops further and further, it makes a better case for buying and he may keep adding till he loses his entire capital.
The example is to show that we may estimate that the price needs to be so much but if the market does not agree then it is of no use.
Flaws with trading on basis of Technical Analysis:
Technical analysis is the study of patterns in price movements. These patterns are observed on a regular basis. It is mainly a study of supply and demand. Technical analysts study the price chart of companies and predict its future course.
The price patterns do exist, but they are not god’s word and they work randomly. Technical analysis is highly subjective. Traders can easily get fooled by the support and resistance indicated on charts into thinking that these will help him to predict price movements accurately. This is harmful to their trading accounts as prices/life events are inherently not predictable.
Trading on basis of a trading system:
Traders using trading systems use some form of technical analysis that they convert into mathematical model. This gives them a set of black and white rules, allowing the testing of a system for profitability before use. The use of trading systems removes all confusion from decision making processes.
In cricket, there is a lot of analysis done by experts before every match. They discuss pitch, weather, player’s current form and team’s past record. However, no analysis even by experts is able to predict the result or the individual performances of players. Such discussions have only entertainment value and are used to sell advertisement slots for the channels.
Just as a batsman needs to watch every ball and play it on its merit, a trader needs to trade as per prevailing market condition. This is possible only by using a trading system to trade.
Every day, your trading system takes in to account what the market has done previous day and creates a new trading plan. This way, we play in the market as per merit of the situation.
Trading systems do not predict the future. A trading system is a reactive system
It reacts to what the market does on everyday basis. It requires the trader to change their decisions (buy, sell or wait) as market conditions change, based on current price movement. This makes system traders very adaptive and responsive to market changes. It helps them to survive and thrive in all market conditions.
We train investors and traders on use of these trading systems and help them set up a profitable trading business.