Super Gann Trader Academy, which conducts share market classes in Chennai, offers free trader awareness lessons.

Raj is a regular stock trader. One day, he receives a marketing call with an offer of getting stock tips on his mobile free for a month. The vendor claims to have 90% success rate in stocks, commodities and forex trading. He agrees to try the service, since he wants to recover from his losses in the stock market. He begins to get ten to twelve recommendations on his mobile every day. He decides to observe the tips’ profitability first.

He gets a buy recommendation on his cell at 10 AM. He immediately checks to price of stock and finds that it is already up 3% from the recommended price.

He then gets another recommendation to buy gold. He observes that gold is also up Rs 200/- from the recommended price. He is very happy that this service is working and he will be able to recover from his past losses soon.

Next time when he receives SMS on mobile for Silver, he immediately calls his broker to place a market buy order for a large quantity. He realizes later that although he acted as fast as he could, he still has got his silver position Rs 300 above recommended price. Next day on market opening, he gets an SMS to book profit in silver. Although he acts immediately, he ends up selling at Rs 500 below recommended selling. Even though he has lost money, the vendor claims profit on this Silver market call. This pattern begins to repeat on other recommendations too.

Now after losing all his capital he understood that the 90 % success rate in this service is only a claim for luring customers. When the vendor makes a recommendation to buy at X price, market is already way above that price. Similarly, when the vendor makes profit book recommendation, market is much below the recommended price. This is done to make their recommendations seem profitable. Hence, it is not possible to make money from these recommendations.

sureshotRefer the advertisement above, anyone following above calls with weekly 10 to 15% profits can become world’s richest man with compounding in less than five years even if he begins with modest capital. Is it practical?

Stock tips are available everywhere, sometimes even for free. They are being offered on TV, Newspapers, broker recommendations, websites and blogs. Traders receive regular calls from these stock tips vendors to try their services. In today’s information age, when stock tips are available so easily, why do people lose money?

Stock tips are like drugs. People can’t resist the promise of easy money. However, they pay a very high price for these tips over their lifetime.

Stock tips vendors are like sellers of cosmetic fairness creams in India. They claim high success rates (sometimes over 90%) but there is no guarantee of any success. The vendors are relying on hope and the lure of easy money to get their customers.

Trading based stock tips fail because of the following reasons:

  • Stock tips do not come with terms and conditions of applicability and expiry details.
  • People using stock tips get more confident due to specialist recommendations and takes bigger financial risks.
  • Stock tips giver is making a prediction. Making predictions about anything is very risky, especially in the stock market.
  • When one buys a stock based on tips, he is dependent on the tip giver to time his selling.
  • Stock tip giver may be making a stock tip call based on small time frame like hourly chart, while person acting on tip may buy stock for his long term portfolio.
  • Market is changing all the time. It is highly dynamic. Stock tips that may be valid in one scenario may not be valid even the next day/hour.

As we can see from the above, stock tips are ineffective. If one could make easy money in stock market, why should the vendor sell tips or services? They could rather be using these tips to make money themselves.

b8.2If stock tips do not work then what is the possible solution for traders and investors?

There is no short cut that I can offer. Trading is a skill based profession. Traders need to learn trading skills and system-based trading. It takes time and patience to develop these skills, like any other skill based profession.

Systems based trading does not try to predict the market. It is a form of reactive trading using mathematical algorithms that follow market trends. Trading system is a set of black and white rules that are used to make decisions in trading. Trading systems are tested to confirm profitability before use.

We train the traders in use of trading systems and make them independent in the stock market.

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