Tuesday, 31 March 2015

Is it possible to make profits , without predicting the direction of Market ?

Most common belief is that if you want to make money in stock markets, you must be able to predict the direction of market. So ,if you predict that markets will go up, you buy and then sell at higher price when it has gone up. Very Simple Logic.

But markets are far far away from something as simple as that. 

Logic is correct but how do you predict where the market is going ?

Up ? Down ? Sideways ? 

There are huge number of softwares/ technical analysts claiming to predict the direction and correctly doing it almost 50 % of times. 

But what about 50 % of times when they go wrong ? 

Then you use STOP LOSS. 

This is a very common way of trading in the markets . 

But let me ask -

Do you require a special software to be wrong 50% of times ?

Anybody can do it anytime. Also , mind it - Stop Loss is a good tool but ultimately it is also a Loss only.

So , what is the way out ?

Most of you will be very sceptical if I say that you can make profits in stock markets without predicting the direction of the market ?  Because we are used to think in a particular way and that way is predict and take position and take stop loss.

Most of you will again have huge doubts in your mind if I say that you do not require stop losses to protect your positions. So you don't loose money through stop losses.

I am talking about strategic hedged positional trading.

This is NON-DIRECTIONAL trading. Non - directional trading means, we are neither bullish , nor bearish about the market. But if we are Non-directional, that doesn't mean , markets are also non-directional. Markets will definitely make their moves . Nifty , Banknifty will keep on moving up and down. But we will not get ourselves stuck in a process of predicting  the direction of the market. We know markets will move and accordingly we will set up the trading strategy and do adjustments as and when required. No software, No market prediction, No stop loss and No intra-day trading. 

For doing this, we must understand basic strategies in futures and options, need to have a proper trading plan, proper adjustment plan and keep our positions hedged through usage of Greeks. Ok, its not as complex as it sounds and yes , making money can never be as simple as buy on dips and sell on highs! Its more of a wishful thinking.

Pradeep Singla

(We conduct options trading workshops in following cities of India -  Bangalore,Hyderabad , Chennai, Mumbai, Delhi and Kolkata.  Online workshop is also available)