Tuesday, April 17, 2007

Ride the market wave to grow your money

I have been following the EagleEyeTrade blog and even though I don't understand technical analysis, I find this blog very credible. I am delighted that Rajiv found time to answer some of my doubts/questions which have been reproduced below:

Technical analysis is the study of the trading history to attempt to predict future prices. What qualifications make you confident of doing that?

  • The only qualification which works in Stock Markets is real life experience. A college degree, BTech or on MBA all are helpless unless one can think for himself and be able to risk money. The experience does not comes easy and coupled with the fact that normal human "good" qualities and emotions tend to hamper rather than achieve good results in technical trading.

Do you have a detailed training kit for beginners. Tell us more about that.

  • We donot have a detailed kit for beginners. What we sometimes do conduct seminars which are for focused traders.The trader should be familiar with markets for sometime and have some trading experience to benefit from our seminar.Our focus in seminar is to establish new lines of thinking or to give the trader new ways of looking at things. We focus on Elliott Wave, Classical technical analysis, risk management and position sizing. All of which are important pillars of technical trading.We also talk a little about using fundamental scanning for swing trading.

What is Elliott wave analysis? What benefits it brings?

  • Elliott Wave is a method to analyze market movements. It shows how market movements are related to each other and how here is pattern in chaos.Its a unique theory which gives the user insights which no other technical theory does. Its is vast and deep and any trader wishing to use this needs 1-2 years of experience to be able to use it effectively.

Critics of technical analysis include well known fundamental analysts. Warren Buffett has exclaimed, "I realized technical analysis didn't work when I turned the charts upside down and didn't get a different answer" What do you say?

  • I am a fan of Warren.Probably Warren is right about Classical technical analysis, I also find it useless.But Elliott wave is a different class and is very useful.Having said that, i would add that technical analysis of any kind are short term tools, while fundamental analysis is much more long term.

The time and energy required is very high. Dou you agree/disagree? Why

  • Time is required to excel in anything.

You provide the knowledge/information/calls. How much time do you expect your clients to put in?

  • We expect clients to read carefully what we write. This may take 15 mins to 30 mins.Also before they take a trade, they should commit to memory the entry exit stops and other things we say about a trade.

As an asset class, Equity stocks offer the best returns. But so many of us have burnt our fingers in the process?

  • Equity will offer the best returns always in long term. The simple reason being that it is companies which move the world and it is companies which earn the money which flows into everything else. Thus other asset classes which depends upon money generated by companies cannot outperform the companies itself. Like say you want to buy a gold ring, thus you send gold prices up. But how did you get the money to buy the gold ring?Some company you work for, or your own company made the profit from which you paid for the ring. Thus stocks would always lead by a far margin in long term
  • Greed and fear is the axis around which stock market rotates and its a dangerous axis to rotate around unless well prepared.Action motivated by greed and fear will result in losses always and the way the market works though greed and fear it makes sure most people remain on the loosing side.

Unless you're working full-time in the financial world, you don't have the skills, tools, information, time or interest in playing the market. Comment.

  • This is not always true. Long term investment is relatively easy. An index fund and term insurance would help most people.The more short term oriented you become, to try to extract the most profits, the more tools you need to make sense of the madness and more is the time consumed.

What is the average monthly return an investor can expect from your trade calls?

  • I try to generate 10% returns a month for myself. In this 75% of trades are in cash and 25% in futures and options.While this is a high target to achieve every month, we have done that in most months.

I found the answers insightful and reassuring. What do you say? Check out EagleEyeTrade

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