Most of us invest based on our gut feeling or intuition also called instinctive impulses.Psychological factors such as greed ,fear ,hope and pride or Ego dominate our investing decisions.We sometimes go by tips or advice of some body or jump with news on TV or news papers.Our assumption of certainty of outcome is based on knowledge gained from various sources which we tend to believe or just give a try.This is irrational investing process as certainty of outcome is based on our belief of information where outcome is always binary and not predictable.
Successful investment involves professional approach or systemic approach to save time ,ensure disciplined approach and avoid unnecessary repetition and to prevents us from discretion trading .Following steps are just example of my approach to building a portfolio.Any one can have his choice of contents under sequence of broad framework outlined below.
The core challenge as an investor is setting aside instinctive physiological and emotional responses at the root of our brain’s decision-making processes. Though they are perfectly suited to protect us from physical harm, they have little value in modern investing
Nineteen-year-old Monty spent the afternoon day-trading penny stocks because his prefrontal cortex isn’t yet fully developed and he couldn’t recognize risk-reward trade-offs if they hit him in the face. This introduces to dangers and demands of trading on your finances and personal health ,spirit and wellbeing which most traders are not even aware.
We read and follow countless trading strategies for day trading, position and many more.You find trading strategies for break out, momentum and trend following trading strategies or procedures.We have Bollinger band or Rsi based strategies and MA cross over or candlestick strategies and tutorials available in youtube for future or stock trading.Inspite of all these strategies we fear to trade or if we do trade,we end up in loss.
We all dream to get rich one day and to lead comfortable and happy life. Failures and setback threaten to shatter our inner strength and those dreams ub fortunately.This is like a law of nature and happens to one and all.Ups and downs are said to be life.We dream of good life as we don’t enjoy lack of respect and recognition in society and lack of comfort and happiness.
Random-walk theorists usually start from the premise that the major security exchanges are good examples of “efficient”markets. An “efficient” market is defined as a market where there are large numbers of rational profit-maximizers actively competing, with each trying to predict future market values of individual securities, and where important current information is almost freely available to all participants.
Statistical principles and tools as used in Black -Scholes assumptions which remains corner stone of risk management world wide from petty traders to large hedge funds and wall street banks may not really be so robust bull work against risk of seismic proportions as so often touted. In the era of Algos and high frequency trading ,outliers and black swans are too common ,wide spread and frequent than formerly assumed and threaten to wipe out trading accounts in few seconds
Modi victory is not only historical and outstanding for sheer numbers , but it is interesting as a subject of academic study in terms of marketing strategy, electoral strategy-A recipe of successfully winning hearts & minds of people and which promises big potentials in terms of attracting and organizing overwhelming popular passion and support within limited time scale and it has deep implications for economic ,politics and business growth and success .
Both poker and trading are amazingly similar in that you are either playing in to someone’s edge or vice versa.Indices of market or price action are secondary to alignment of motives and behavior of other traders Vis a Vis your trade .
Following presentation may not be valid for savvy traders and investors who have resources ,time and expertise ,but for aspiring retail investors or part timers from other walks of life having passion for equities . Most have to suffer the pain of their hard earned money vanish in mutual funds and equities and their dream turning into nightmares and their economy ruined.
My good friend Mr Murthy asked me one day to advise him what to do with 3000 Tata power stocks he purchased at Rs 90 and now that it fell to 79/-.Dilema and confusion have paralyzing impact on anyone as there seem to be no clear answer as future price is unpredictable.Multiple choices are Hold ,Sell or Average.