Thursday, February 14, 2008

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Making money thru trading is not at all difficult, what you need to do is just be descipline and follow the rules of the game rather than making rules every day. Most of the time what happens, a trader brings their emotion into play and lose out the game. In life or in trading it is always better to deal with your emotions wisely.

  • The general direction of the market can be determined using other technical indicators like moving averages and breakouts.
  • Once a general trend is identified, a trade is executed with a small position and pre-determined stop loss. This trading method requires very strong self-discipline.
  • Having pre-calculated entry and stop loss price levels eliminates human emotions when a trade goes for or against you.
  • The losing trades are automatically stopped out and we let the winning trades run until the trend reverses.
  • The goal is not to predict but to take advantage of riding the wave until it ends. Trend followers adopt this strategy because no one can truly predict the future and no one can really know when a trend will end.

Taking the human emotions out of the decision-making process limits risk exposure and makes the decision process faster and more efficient.

  • One of the main advantages of this trading technique is the possibility of implementing it across the board for any underlying market, from soyabeans to crude oil, from bonds to currencies , as long as it has a price and the market offers sufficient liquidity to trade it.
  • Instead of keeping cash in fixed deposit or fixed maturity plan offering interest rates of 10-15% p.a., look for an asset class that is liquid, regulated, and uncorrelated to stocks and performs in both bull and bear market.
  • For example, investors should reduce their stock portfolio, allocate part of your portfolio to asset classes that are not correlated to stocks and bonds (such as property, gold and managed futures), you are able to lower your overall risk exposure and protect your investments in a market downturn.

Managed futures is an asset class that is largely undiscovered.

  • It has a low correlation to stocks and bonds, and has the ability to perform in both bull and bear markets.
  • By allocating a percentage of your investments into managed futures, you are building portfolio diversification which is the key to successfully making your money work for you.

-Rajan Dalal, Mumbai.


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