Reliance Industries

Click to enlarge the image.

In the above picture it shows Reliance Industries is following a parallel channel from last one year .Currently its at lower end of the channel. If it breaks the lower end of the channel and stay there for some time then the minimum target for Reliance is 700 and if it breaks upper end of the channel at 1130 then target is 1430.

The pattern shown above is a classical symmetrical triangle pattern as the shape of reliance looks like symmetrical triangle and the target is also derived from triangle formula .

Why most of the people lose money in Stock Market?

Common Questions and Answers that might have come to your mind?

1. Market is at 8000 after falling from 21000.Should I invest now ?

Market has risen to 18000 So is it the right time to buy ?

1.What most people will say and do - If it has fallen to 8000 it can fall to 6000 too and I can lose a lot of money .So why should I invest now.

Oh it has risen to 18000 ,I should have bought at 10000. Now if it falls to 12-13000 I will buy.

Now suppose if Market rises to 23000-what they will say " I think this is the last opportunity otherwise I would be considered fool, so buy now".

Probabilistic - I am not saying that anyone who will buy at 23000 will be fool. The Point I am making is its better to buy an economy when we are getting at cheap levels as risk reward is also in your favor at that time if you believe in the growth of that economy .

2. I invested in stock "A" at Rs 100 now its Rs 120 and also I invested in Stock "B" at Rs 100 now its Rs 80. Which stock should I sell and which one should I hold.

2. What most people will do -Sell the stock A at 120 to book profit (It is Psychological satisfying) and keep holding stock B expecting that it will rise.

Probabilistic - You should cut your losses and let your winners run.

Conclusion: The point I wanna make is that people don't make mistakes by chance or by bad luck but our Psychology is programmed to behave in that manner in those situations. So stock Markets behave against human Psychology as it always leaves us on the other side of the fence.

One more point I want to make is Stock Market is the only place where 1+1 is not always 2 so you need to follow the probability to succeed.

Predictions 2010

Firstly I would like to review my 2009 predictions

Predictions 2009

1. Prediction: Rupee to make high of around 52 in next six months when it was at 46 .

Actual: Dollar made high of 52.13 .

2.Prediction: Gold to double in 3 years predicted at 900 $

Actual: Gold currently at 1193$ .

3. US markets to Fall in a big way very soon predicted at 9400.

Actual: They never fall but they remain range bound for sometime and then moved up to touch 11200.

4. Prediction : There is very high probability that Dollar has made a top at 52.13 when rupee was at 50.

Actual: Dollar reverted back after that and touched 44 and is currently trading at 47.

Predictions 2010:

1. Indian Stock Markets are currently at around 18100 and if it moves up and sustain above 18500 for atleast 15 days then I believe it can touch 27000 in next 1.5 years. So this target holds true only if we move above 18500 and stay there for some time.

I believe one can make a living out of this upmove if one is smart enough to play this correctly.

2. Dollar to hit 35 within 2 years.

Note: I have the every right to go wrong as these predictions are only based on technical patterns which have a good probability of success but not always.

(Many people might have heard about Fibonacci numbers ,I believe the big secrets of stock markets lies in that . I will post some of the amazing facts that these magic numbers have done in my later posts)

A 5 minute Simple Rule to make Long Term Gains In Stock Market

Sensex 2003-Till Date(Click to enlarge)

This theory is called Higher Highs and Higher Lows method of Investment.

The theory says that when we make an investment we only keep track of recent low to sell our investment.

I explain with the above figure.We invested at point 2 and the market moves up and moved to point 3 before resuming its up trend.

So the recent Low is point 3 and we will sell our investment if Point 3 is broken.

Again the market moves up and made a low at point 4 and we update recent Low point to point 4.

Like this we continue and we update recent low Point to 8 .Then the market starts collapsing and our recent Low point is broken by Point 11 and we sell our Investment.

So this process is repeated again and we buy at Point 15 and currently the recent Low value is point 18 which is 16187 on Sensex .

(The point of making an investment ie Point 2 and 15 is decided when we break recent high in a downtrend)

QUOTE : "There is a risk involved in doing something only if you don't know what you are doing" Warren Buffet.

Basics of how to make money in Stock Market.

There are 3 requirements for making money in Stock Market.

1. Technical Analysis –It is the study of patterns and identifying the same in stocks to predict the future. The weightage for Technical Analysis in making money is 20%.

2. Money Management- Money management is basically how you manage your trade. The weightage for Money Management is 40%. I explain it with an example.

Before taking a trade analyze the risk reward ratio in the trade and one should normally look for 1:3 risk reward ratio opportunity in the trade .Now Suppose I take 10 trades and there are 3 winners and 7 losers. So I will be making 3 units each in the winning trade as risk reward is 1:3 and losing 1 unit in a losing trade. The money I lost in 7 trades is 7 units and I made 3*3=9 units in 3 trades. So in all I will be making (9-7)=2 units .So if you see we can still make money even if we are correct 30% of the time if we have good risk reward ratio.

3. Psychology - I try to explain that with an example. Suppose we have found a pattern to trade and we are executing the trades and we get 4 losing trades in a row. Its Psychologically very difficult to take the next trade after losing money in 4 trades consecutively because there might be a case that 3 winners are the 8th,9th and 10th trade if we are expecting only 3 winning trades as explained above.

Other Psychology hurdles are taking profits too early or keep holding the losing positions.

I believe that ability to execute this comes with experience. The weightage for Psychology is 40%.

It might be surprising to see that most of the Traders talk about Technical Analysis which accounts for only 20% in making money whereas Money Management and Psychology accounts for 80%.

(You are welcome to post any suggestions)

(References: "How to make money Trading Derivatives" by Ashwani Gujral.

Sensex

Sensex July'2010(Click to enlarge)