Speculation is a 11 letter word that often gets four-letter treatment. But it need not be so. "Speculation is not a dirty word and neither is it gambling," says Ashwani Gujral in How to Make Money Trading Derivatives: An Insider's Guide from Vision Books (www.visionbooksindia.com). "Speculation is the art of making short term trading and investment decisions based on knowledge, research and trading philosophies."Markets obey no law, it's lamented, but Gujral devotes a whole chapter to `Trading Discipline' because the cost of not being disciplined is so high in trading. He debunks a common myth — that once you understand the nuances of technical analysis, you will automatically be successful. "This is far from truth," he writes. "Discipline forms 80 per cent of a good trader's make-up, and only 20 per cent of a trader's success is as a result of his trading knowledge." Which explains why there are many successful analysts but very few successful traders, he adds.
If you wondered why analysts have trouble implementing their analysis, Gujral has the answer: "Because the market is not there to favour anyone. It is there to punish the undisciplined... A trader can have cutting-edge software, the best trading system, he may be a master at reading charts and still be unsuccessful if he lacks the discipline to execute his analysis." According to the author learning to read charts is easy. What's tough is "to overcome fear and greed and winning over one's emotions."
But what's discipline? According to Gujralto says "The battle is not won or lost during trading hours but before the markets open." First, as your mom used to say, do your homework. "Winning traders diligently maintain charts and keep aside some hours for market analysis," informs the author, who has been trading stock and derivative markets for a living, for more than a decade.
"Every evening a winning trader updates his notebook and writes his strategy for the next day." Thus, before the market opens, they know "the level they are going to enter at and approximate targets for the anticipated move". Gujral lets you into some of his secrets too: "In a choppy market, not only do I trade the lightest, I book profits while the market is still moving in my direction." Good technical traders do not worry or debate about the news flow, they go by charting signals. Now that's an insight that can wean you away from what's unfolding as tickers on TV screens.
Next, avoid overtrading. Remember that the market "tries its best to mislead traders by swinging in both directions" and it can strip you of your trading capital! "Overtrading is the single biggest malaise of most traders," declares Gujral. "A disciplined trader is always ready to trade light when the market turns choppy and even not trade if there are no trades on the horizon."
Third lesson, don't get unnerved by losses. Each trade is just another trade, counsels Gujral. Loss is an important indicator to take a position in the reverse direction, he advises, and illustrates with a real-life example. The moral he draws is, "Never get into an ego tussle with the market, because the market is always right."
What when the market gives confusing signals? Avoid over-trading, wait on the sidelines till you get a clear indication. "Treat the market as a lady and you will be happy. When a lady says no, gentlemen take it as no. It works well with the ladies, as it does with the market."
The next clue that the disciplined trader offers is that of capturing the large market moves. "Those who trade for a living cannot sustain an equity account that is not growing," points out Gujral. "Thus when you believe you have entered into a large move, you need to ride it out till the market stops acting right." Else, you'd be booking profits too quickly, "to enjoy the winning feeling." That's being "too smart", cautions the author.Novices even take short positions believing that a correction is due. A folly, Gujral explains, because markets do not generally correct when corrections are due.
"The best policy is to use a trailing stop loss and let the market run when it wants to run. The disciplined trader understands this and keeps stop losses wide enough so that he is balanced between staying in the move as well as protecting his equity." That way, a few large moves every year makes worthwhile trading profits.
Learn also that "a disciplined trader always keeps learning new trading techniques". Read the latest research on technical analysis and get your hands on what's new. "Also read a number of books every month about technique, about trading psychology and about other successful traders and how they manage their accounts."
Seminars are useful, "as even one great trading idea gained can be worth the seminar's fee." One can say that of books such as this.
Yet, at Rs 395, Gujral's book is heavily under-priced for the content it offers so liberally.
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