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Saturday, November 21, 2009

Re: [Technical-Investor] Perfectionism-Please take 5 minutes and read carefully

 

Rohan Shenoy,

<quote> Though I cannot do it, I believe that almost all charts can be read with
great accuracy....<unquote>

Don't worry that you can not do it. I believe - contrary to yours - that nobody can do it - read it with great accuracy unless.....
Reasons being;

Technical Analysis is a matter of art rather than science. There is nothing in TA that is 'derived' to its present form based on "FACTS & PURE IRREFUTABLE LOGICS / THEORIES". Simply put it is not a science. Pattern reading or EW are based on patterns of past human behaviour which necessarily may not be continuing - after all we are in a dynamic - in terms of culture / behaviour - society. A man's reaction to a 'change' - for example the couple that we saw kissing in a Mumbai beach or the nude woman we saw in Goa while being on an All India Tour in the last year of my Engineering College days in 76-77 - will not shock an youngster of same age to day as much it did to us then. It is quite a probability that it will not shock even us today - thanks to change in culture / behavioural pattern.

The early 2004 top was projected by me with 3-4 days in advance and then reiterated on the next day of the top formation based on my Market breadth indicator which was negatively diverging and the FII flows in F&O when I saw considerable hedging which in today's standard was only a minuscule amount then. In 2007, I developed an indicator based on FII flow which gave me reversals in market / index and it did work well for some time till 2009. Reason being FII behaviour has been constantly changing as it makes no sense for them from the point of view of trading to leave their foot marks for easy tracking by other market participants. These days their heding has been sizable but only in stock futures and so nifty kept rising even when we saw considerable hedging in overall (meaning index + stock futures) FII activity in the derivatives. Most indicators have limitations - often severe in terms of their accuracy and longevity requiring modifications and newer things.

Simply put, as oft repeated by so many, TA is not a science. If indicators - momentum or trend based do work well all the time then why have stop losses in the first place. Every indicator and even EW throws up contrarian views as once Doc Amar stated in this forum with respect to EW. For example, an over bought situation in RSI or even a weakening RSI from over bought levels may not essentially result in weakness in prices. The explanation given then is we are seeing a divergence in price - how long this would last nobody knows. Infact there is an analyst who says RSI can be used as a trending indicator based on this divergences itself - Buy the stock on correction in RSI when you have been seeing divergence or after a steeply high RSI like 80+ even when prices do not correct (or by much) - that is what he says. Assuming it works (AND it does work - as most things in technical analysis ONLY MOST OF THE TIMES) but then even it has a problem. There comes a situation when finally price changes direction for good - atleast in a medium term perspective and if one buys it at that point hoping the divergence will continue then he is in for difficult times. Prechter's website and their articles suggest in many a places that reading a corrective phase is difficult (meaning not so very indirectly that the projections are bound to have greater number of failures) as it throws up many a possibilities in terms of previously seen & identified behavioural patterns. Martin Pring in his book on Market Momentum talks of weigtage of evidences (believe that is the word) before taking a dive. Thus TA is merely a study of probability - which in turn necessarily mean there is bound to be failures - reason why we have stop losses - a place below / above which the basis of interpretation no longer holds good. (Reasons for failure of stop losses is because often we place it to suit our wallet and often we try to track the price tightly hoping to capture the least loss and the maximum profit which ofcourse as most 'hopes' only end up in failures).

If it is agreed as a study of probability as stated by MMM to whose mail you had responded then the way to increase ones strike rate as an analyst or as a trader is to take trades which have a high degree of probability by reading the chart in question along with a sectoral index, broader market index, taking cues from other indicators like money flows, derived / expected situation for the future in the economy / for the said sector and so on.

IT IS JUST NOT POSSIBLE TO PROJECT ACCURATELY ALL THE CHARTS AT ALL TIMES unless one is willing to offer the opinion that the chart does not say much now - one reason why you hear analysts say that if this stock breaks out strongly above 104 and sustains above this price level then the target is 110. Afterall anything that stays above 104 is not going to trade at 104.25 for the rest of its life. And if fails to achieve the target but comes down then he can always blame the stock for failing to sustain above this critical price - A view offered BUT without conveying anything and still selling air time of the channels purely necessitated by the fact that the chart was not saying much - in that situation it is quite possible I also might be uttering a similar thing.

gv



On Sat, Nov 21, 2009 at 1:07 PM, Rohan Shenoy <contact@rohanshenoy.com> wrote:
Though I cannot do it, I believe that almost all charts can be read with
great accuracy and there is surefire evidence to this. When a person say
perfection cannot be achieved, it should be heard and understood as
"Atleast I could not achieve it".

At times, I have seen famous hardcore technical analysts(one of them is a
regular guest at CNBC TV18) basing their opinions on fundamentals like PE
ration, EPS, etc. Opposite has also been observed. What meaning should we
make of this? The most appropriate meaning if this is  - neither the
technical nor the fundamental analyst knows anything for sure about what
they are doing. They are just playing the guess game.

Pull up charts of Indian markets and major foreign markets(read Dow Jones).
You will see similar volume and price patterns. This means that there are
surely some people who can read the market with great accuracy. These
people can recognize accumulation and distribution with very great success.
However, it is unlikely that you are one of them.

A question to ask ourself- Just because we heard someone saying 'Idealism
does not exist' or 'Perfection is impossible', are we stopping ourselves
from improving by consoling ourself saying 'Why to work hard for something
that does not exist'?

Perfectionism is not the result, it is a by-product of our methods. And if
our methods are flawed, expecting perfectionism is only going to
disappoint. For ex: We all know that 'past performance is not a guarantee
of future performance'. Inspite this, you find a vast majority of traders
using moving averages. My purpose is not to criticize anybody's moving
average trading system. Buy using moving averages, we are forming a
subconscious assumption that price will behave as it has behaved in the
past. Since our assumption is wrong or rather not always correct, a trading
system which is based on that assumption will automatically inherit the
flaws.


On Sat, 21 Nov 2009 10:48:24 +0530 (IST), Meerut Money Managers
<meerutmoneymanagers@yahoo.in> wrote:
> Perfectionism
> Trading is not about perfection. It is about probability and progress.
All
> charts, analyses (fundamental and technical) and trading plans are built
on
> probabilities.
> Why then, do so many traders strive for perfection? Why do so many
traders
> miss trades, waiting for exactly the right entry and then beat up on
> themselves when it doesn't come and the position runs away while they
sit
> there scratching their heads and condemning themselves?
> Why are so many traders trying to turn a game of probability into one of
> 100% certainty?
> The answer lies in one of the cardinal sins of trading which is
> PERFECTIONISM.
> Perfectionism can be a great help to people in many professions, but can
be
> fatal to a trader. Perfectionists, always trying to find the Holy Grail
of
> trading go from one service to another, from one system to another,
looking
> for a way that they can be right all the time. YES! Now, I found it.
It's
> this trading room, or this service, or this indicator! Wait… something
is
> wrong here. Not all of these trades are working and I have draw downs!
How
> can it be that this particular method failed and I actually had to take a
> loss? Must be something wrong. I will try harder and look for an even
> better system, a more expensive service, a new and improved guru, some
> absolutely no-fail software so that I can have ONLY WINNING TRADES.
> This is perfectionism in action. Not only does this type of irrational
> behavior and belief undermine and demoralize a trader, but it takes away
> all the enjoyment and fun of being in the markets. It leads to depression
> with depletion of psychic and physical energy, and leaves the
perfectionist
> to confront his basic and overriding fear— fear of failure. In the
> extreme, it leads to physical and mental illness, including addiction to
> prescription drugs, alcohol, or illegal substances as well as other
> addictions. The pain of failure or the haunting fear of failure is simply
> overwhelming, and one turns to whatever works to medicate the pain.
> If you have a perfectionist mentality when trading, you are setting
> yourself up for failure, because it is a "given" that you will
> experience losses along the way. You must begin to think of trading as a
> game of probability. Your losses ( that you hope will return to
breakeven)
> will kill you. If you cannot take a loss when it is small ( because of
the
> need to be perfect), then you will watch that small loss grow into a
larger
> loss and so on into a vicious cycle of more and more pain for the
> perfectionist. Trading on hope does not work. The markets can remain
> irrational for a lot longer than you can remain solvent.
> The object should be excellence in trading, not perfection. Moreover, it
is
> essential to strive for excellence over a sustained period, as opposed to
> judging that each trade must be excellent. This is a marathon…not a
> sprint.
> The greatest traders know how to take cut losses and let winning
positions
> run. Perfectionists often do exactly the opposite. They get in at the
wrong
> time, stay in too long and then get out the wrong time. Perfectionists
are
> always striving and never arriving. The market will find the flaw in a
> perfectionist trader and exploit it day after day. The market is your
> greatest teacher and your most demanding critic, so take this wonderful
> opportunity every day to learn about yourself and make yourself strong.
> If you see in yourself this trait of perfectionism rearing its ugly head,
> it's OK to get angry at it and even yell or curse at it. Do whatever it
> takes to acknowledge it and then find a way to fix it.
> Here are a few suggestions:
>       * Try to appreciate and enjoy the process as well as the outcome.
>       * Set more achievable and realistic goals for your trading.
>       * Remember that your self-worth and your worth as a human being to those
>       who love you does not fluctuate from day to day depending on if you win
or
>       lose that day.
>       * Focus less on achievement and more on enjoyment. Trading is serious,
but
>       it should be fun and not something which one approaches with fear and
>       dread.
>       * Lighten up. Laugh more (especially at yourself).
>       * Learn from your mistakes, and forgive yourself and make peace with
your
>       past. Strive to be better…not perfect…just a amazing human work in
>       progress.
> "If we were always to wait for the most favorable combination of
> circumstances, no enterprise would ever be undertaken. There can be no
end
> without a beginning–there was never an enterprise in which everything
> fitted in perfectly, for chance plays a leading part in the affairs of
all
> men. Obedience to rule does not ensure success, but success, on the other
> hand, furnishes a canon – a rule of conduct" ~ Napoleon Bonaparte
>  THANKS & REGARDS
>
>
> MEERUT MONEY MANAGERS (MMM)
> www.meerutmoneymanagers.com
>
>
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--
Thank you,
-Rohan Shenoy.
+91 98191 48661 , rohanshenoy.com


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--
gv

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