Balaji As a trader,speculator and Investor- Balaji have more than a decade of experience trading commodities, stocks and Fixed income securities including as a senior trader with Vexes capital.He also mentors or teaches investors, traders about Financial markets and provide professional training for individuals combining Institutional experience with a technical grasp of seizing market opportunity. Since leaving the Vexes capital and Newyork city,Balaji has been working as Trading coach along with presenting seminars and writing for a number of publications.

3 Old School Methods That Still Beats the Market

3 min read

When it comes to 21st century financial markets,The complexity takes a heavy toll when you scroll down the list of market participants all you notice is the emerging linear changes that keeps the market evolving from phase to phase. After dot.com bubble,technology played a big role in transforming marketplaces,auction facilities and order flow transmittation from open out cry towards computer screening.By looking at the changes it becomes clear that traders who failed to adapt the new technology will be running out of business when we look at the list it is quite predictable that future will be ruled by technology-  Algo trading will be more common in exchanges,HFT’s will be regulated, what’s more for good or bad it is clear that future technology and costs will make even retail traders to operate HFT’s from their home computers which will totally outstrip the order flow advantage they prey on.If you are like me a digital savvy- open minded- information absorber  or in simple terms a Informative geek ,would have noticed that we already moving from algorithms to Neural networks,Micros-Nanos.  Future exchanges will be operating at a speed that only a computer can play the intraday game which will dictate the so called day traders to retire from the business or adapt the new technology. As Hebert spencer quoted” survival of the fittest”

benjamin-ben-graham-1

 
But there is other side of the coin many fail to understand-The classical “old is gold” methods that still beat the best of wallstreet and these techniques some as old as 19th century always puzzled,terrified the Efficient market advocates become an example of  survival of the fittest,in other words they are  producing results against hi-tech Algo traders, super giant hedge funds, and predative black swan hunters etc. Let’s take a look at them

3 Old school methods 

1. Trend trading  (Orgin: 1856)

Created by the first pit traders of NYSE, Later modified by Charles Dow- creator of Dow theory

What is it?

A trading strategy that attempts to capture gains through the analysis of an asset’s momentum in a particular direction. The trend trader enters into a long position when a stock is trending upward (successively higher highs). Conversely, a short position is taken when the stock is in a down trend (successively lower highs).This strategy assumes that the present direction of the stock will continue into the future. It can be used by short-, intermediate- or long-term traders. Regardless of their chosen time frame, traders will remain in their position until they believe the trend has reversed – but reversal may occur at different times for each time frame

 

When it didn’t work?

As long as their is markets their will be trends to profit from,Market cannot exist without trends- Of course some may argue the market will be in range bound 80% of the time etc. Flip it on other side, what’s range in one time frame is a trend on other time frame For eg: 1 Day chart might be in range bound structure but 4 hrs chart of the same asset will be trending

 Rating: 5 star  

2.Value Investing (Origin: 1932)

Derived on the ideas of  Benjamin graham and David Dodd

What is it?

The strategy of selecting stocks that trade for less than their intrinsic values. Value investors actively seek stocks of companies that they believe the market has undervalued. They believe the market overreacts to good and bad news, resulting in stock price movements that do not correspond with the company’s long-term fundamentals. The result is an opportunity for value investors to profit by buying when the price is deflated.
Typically, value investors select stocks with lower-than-average price-to-book or price-to-earnings ratios and/or high dividend yields.

When it didn’t work?

The big problem for value investing is estimating intrinsic value. Remember, there is no “correct” intrinsic value. Two investors can be given the exact same information and place a different value on a company. Also this  style tends to break down during financial crisis or economic downturns. Sometimes stock’s value doesn’t rebound as expected by a value investor, But overall it is still a worthy strategy due to it’s track record and performance

Rating : 4 star

3. Contrarian or Counter crowd Investing (Origin: 1929)

Derived from Great wall street crash on 1929 with the principle that crowd is always wrong

What is it?

An investment style that goes against prevailing market trends by buying assets that are performing poorly and then selling when they perform well. A contrarian investor believes that the people who say the market is going up do so only when they are fully invested and have no further purchasing power. At this point, the market is at a peak. On the other hand, when people predict a downturn, they have already sold out, at which point the market can only go up.For example, widespread pessimism about a stock can drive a price so low that it overstates the company’s risks, and understates its prospects for returning to profitability Identifying and purchasing such distressed stocks, and selling them after the company recovers, can lead to above-average gains. Contrarian investing also emphasizes out-of-favor securities with low P/E ratios.

When it didn’t work?

Contrarian as the name suggest is exactly opposite to trend trading, but one catch though- You need to get the timing right or the losses will be enormous. Contrarian Investors are not the ones who simply go against the trend but they bet against it at the right time and take away a huge chunk of profits within short period .A contrarian believes that certain crowd behavior among investors can lead to exploitable mispricings in securities markets.  But as usual everyone cannot be a contrarian-it takes right skill and experience to beat the market in this way and last but not least” Patience is the name of the game”

Balaji As a trader,speculator and Investor- Balaji have more than a decade of experience trading commodities, stocks and Fixed income securities including as a senior trader with Vexes capital.He also mentors or teaches investors, traders about Financial markets and provide professional training for individuals combining Institutional experience with a technical grasp of seizing market opportunity. Since leaving the Vexes capital and Newyork city,Balaji has been working as Trading coach along with presenting seminars and writing for a number of publications.

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