Every trader or investor must know these three things:
Success Rate
Average Gains
Average Losses
To begin with, every person involved in the stock market must know his success rate. What do you mean by this?
Success rate refers to the percentage of profitable trades a trader has out of the total number of trades taken over a specific period of time. For instance, in cricket, the batsman’s aim is to score runs on each and every ball he faces. If he scores 75 runs in 100 balls, we say he has a strike rate of 75%. Similarly, in the stock market, the trader’s aim is to make as many profitable trades as possible.
For instance, if a trader has executed 100 trades and achieved profitable outcomes in 60 of those trades, the success rate would be computed as:
In this scenario, the trader demonstrates a 60% success rate, implying that 60% of their trades were successful in generating profits.
One of the great investors of all time, the late Mr. Rakesh Jhunjhunwala had a success rate of merely 35%-40% yet he was the greatest investor of our times.
So is having a high success rate important to make money? Will improving your success rate only help you to make money?
The success lies in the formula encompassed below:
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The key here lies in improving the average gains when you are right and reducing the average losses when you are wrong. How can you achieve this?
The answer is simple – Holding onto your winners and cutting down your losers early. Let us understand with the help of the following example:
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The difference between a great investor and a poor investor is his Trade Score. Even though Investor B has a better success rate than Investor A, the average gains in the winners of Investor A are much higher when compared to Investor B. Similarly, Investor A also takes exits earlier than Investor B. This has led to a better Trade Score for Investor A.
A Trade Score of more than 3 is excellent. A trade score between 1 and 2 is considered average while less than 1 is considered poor.
Market participants must try to improve their Trade Score to succeed in the stock market. By implementing effective risk management, developing a robust trading plan, employing comprehensive analysis, continuous learning, and maintaining discipline, market participants can enhance their trading performance and increase their chances of consistent profitability in the dynamic and ever-changing stock market environment.
Technical Analysis:
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Nifty continued its stellar run this week moving in a higher high higher low formation, making a fresh all-time high of 19,992 before selling pressure gripped the markets on Friday. Nifty closed the week at 19,745, up 0.92%.
The mood, however, is upbeat in the market as the Future Open Interest (OI) data indicated buildup of fresh long positions in Index futures in five out of the previous seven trading sessions. Nifty has formed a shooting star candle on the weekly chart, which is considered to be a bearish reversal signal. The Put-Call Ratio (PCR) fell from 1.44 on 17th July to 0.79 on 21st July, indicating that the put writers are not very comfortable adding positions at fresh highs. The India VIX, known as the fear indicator, rose 7.51% this week and closed at 11.49.
As we head into the final week of the July expiry series, 20,000 will act as a key resistance for Nifty. Long Unwinding was observed at 20,000 Strike on Friday. Heavy call writer additions were seen at 19,800 Strike which dragged the Index down. The support for Nifty is placed at 19,700, while a break below the same can the Index to 19,500 where its next visible support is placed.
(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)
We need to add them up as: H + L + C = X Now, the derived value must be divided by 3: X/3 = P (which is called the pivot point) Then, multiply P with 2: X/3 X 2 = Y It is assumed that a stock moving above the pivot point is likely to continue its journey till the first resistance level.
The 3–5–7 rule in trading is a risk management principle that suggests allocating a certain percentage of your trading capital to different trades based on their risk levels. Here's how it typically works: 3% Rule: This suggests risking no more than 3% of your trading capital on any single trade.
Traders can be successful by only profiting from 50% to 60% of their trades. However, they need to profit more on their winners than they lose on their losers. Ensure the financial risk on each trade is limited to a specific percentage of your account and that entry and exit methods are clearly defined.
This rule suggests that a stock's price tends to move in cycles, with the first 3 days after a major event often showing the most significant price change. Then, there's usually a period of around 30 days where the stock's price stabilizes or corrects before potentially starting a new cycle [1].
It represents the average amount of profit gained or lost per trade executed within a specific timeframe. Calculating this metric involves dividing the total profits (or losses) generated from trades by the total number of trades executed.
To calculate your profit or loss, subtract the current price from the original price, also called the "cost basis." The percentage change takes the result from above, divides it by the original purchase price, and multiplies that by 100.
You need a trading plan because it can assist you with making coherent trading decisions and define the boundaries of your optimal trade. A decent trading plan will assist you with avoiding making passionate decisions without giving it much thought.
The 90 rule in Forex is a commonly cited statistic that states that 90% of Forex traders lose 90% of their money in the first 90 days. This is a sobering statistic, but it is important to understand why it is true and how to avoid falling into the same trap.
The Rule. If, after trading outside the Value Area, we then trade back into the Value Area (VA) and the market closes inside the VA in one of the 30 minute brackets then there is an 80% chance that the market will trade back to the other side of the VA.
Moving averages are one of the most basic yet effective trading strategies. They calculate the average price of a security over a specified period of time and smooth out price fluctuations, making it easier to spot trends.
In conclusion, while it is possible to become a millionaire through scalping trading, it requires a significant amount of skill, experience, and risk management. As with any form of trading or investment, it is important to thoroughly research and understand the risks involved before investing your time and money.
The easiest to learn patterns are the falling wedge, rising wedge, bull flag breakout, and cup and handles. The cool thing about trading patterns is that they happen repeatedly, and you can fall in love with or even marry them.
The 123-chart pattern is a three-wave formation, where every move reaches a pivot point. This is where the name of the pattern comes from, the 1-2-3 pivot points. 123 pattern works in both directions. In the first case, a bullish trend turns into a bearish one.
To increase your chances of profitability, you want to trade when you have the potential to make 3 times more than you are risking. If you give yourself a 3:1 reward-to-risk ratio, you have a significantly greater chance of ending up profitable in the long run.
At the core of trading, you'll frequently encounter basic arithmetic. This includes addition, subtraction, multiplication, and division. You'll use these operations to calculate everything from profit and loss to position sizing.
Compounding. While learning math for stock market, another important concept that needs to be understood is compounding. In the world of investing, compounding refers to the process in which the returns that are generated by the investment are reinvested. These returns stay invested and start earning returns as well.
Pivot points are essential for traders as they offer valuable insights into potential price movements. Here's what pivot points can tell you: Support and resistance levels: Pivot points identify key levels where the price is likely to encounter support (S1, S2, S3) or resistance (R1, R2, R3).
Millions of traders across the world plot support lines and resistance lines, as well as use uptrends and downtrends to predict the success of stock and determine where they should enter a stock. They analyze moments where the graph inflects, and the rate at which a stock price changes.
Introduction: My name is Mrs. Angelic Larkin, I am a cute, charming, funny, determined, inexpensive, joyous, cheerful person who loves writing and wants to share my knowledge and understanding with you.
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