Speculation to Technical Analysis- Mundane to Exciting

Anatomy of a Stock Wizard- Know Yourself First

We touched this subject in one of previous post . Story remains same for a Trader but we have to blend certain philosophies specific to understand crowd behaviour. Being a traditional accountant who attempted investing methods based on pure fundamentals, it was not easy or simple for me to adopt the nuggets of wisdom offered by wizards.

Like me there are hundreds of folks here who adore the path of value investing or growth investing but every synopsis must go through fundamental aspects of company. I will never abandon the study of book keeping or business but will not be an ostrich buried in sands to acclimatize with crowd behaviour.

Aspiring to be contend within

First few months of understanding speculation was mostly around technical analysis. Bullish pattern, candlesticks, Fibonacci, Head and Shoulders and a long list of names which I never understood by heart and soul. Somehow, I couldn’t convince myself that these are best when it comes to understand crowd behaviour, perhaps these successful indicators were built with a rationale. Knowing those rationales should be important, are there not any other way. Now the good point I can share with you is 1. I have not abandoned the analysis of balance sheet nor will in future. In fact, creative accounting practices will be significant challenge going forward. 2. I rarely used any of popular technical indicators available with charting tools. 3. Large part of success comes from managing risk and position size, I will write in due course.

Then obviously how does an ingrained fundamental investor learn the nuts and bolts of crowd behaviour or speculation? I never refrained from approaching those who are approachable. I chased a stock market wizard and US investing champion, some useful guidance shared by him. My request to 20 plus guys would be, do not hesitate; chase your man BUT give him/her a hope that he can see some of you within him. This means in simple language is demonstrate some hard work and objectivity before expecting nuggets from wizards.

Finally, I have my mentor, if you don’t have one go for it. They are fun and interesting, knowledgeable and helpful, guide and examiner and more importantly you chase them initially; after some time, they chase you to finishing line.

Now credits:

  1. Market Wizard series
  2. Michael Covel interviews and books
  3. Mark Minervini books ( to me these books are too good)
  4. Another bunch of books and articles
  5. Lessons learnt at few seminars on behavioural finance, crowd behaviour.

First thing I was told and learnt is ‘ you may follow different investing method but you can not avoid certain common traits (like capital protection, you call stop loss or something else is not relevant).’ Second you can build any emotional discipline (rather we call philosophy) and customise. For example these days I pick up stocks from momentum screener, come back to check acceleration growth, again goes back to see crowd behaviour before checking competitive advantage of company and so on. Third as my mentor says ‘ a desire to succeed’.

My mentor says every successful results as a precedence requires opportunities and greed in first place. And stock market provides plenty of them for you to find out and execute. Do not let anyone who influence you that you can’t do it. It’s mostly told by people either they haven’t done it or I can not be Warren Buffett or George Soros. We don’t want to belong a category WHO CAN’T DO IT, rather we try and fail. On second aspect we have spoken before, are there only two people (namely Buffett and Soros) in stock market who buy and sell? Who wants to be them? Irony is they want to see different styles of Buffett and Soros within us. My experience says there are thousands neither do not grab attention on television or newspaper, even not billionaires but richer in many aspects than they could have. Mumbai guys, search your neighbourhood Spiderman :blush:, you guys are lucky. But we are promising we will catch up with you soon, of course nothing takes away gigantic spirit of Mumbai.

Unlearning: upside down

How much I can lose not gain is key question behind every speculation. Risk first approach is cornerstone behind success and trust me this is the most difficult to practice as we set foot in stock market either to make a lot of money or become famous having lot of bhakts.

  1. Never give up- starting from March 16 I couldn’t make headway much in world of trading. A number of times I was about to quit the game. This time my excuses were different obviously. A. why do I have to disturb well-oiled machine which so far delivered my living expenses in first place and allowed me to practise a profession of choice B. Am I not digressing from objective and becoming a speculator. By end of Sep 16 things were bit clear but not to my satisfaction. By March 17 I could have changed my approach several times which of course is a symbol of confusion. But as on day it’s stabilised, multiple failures and frustration just eats up your head. There are times when you sit up on bed midnight to think should you go back to nine to six jobs. Hundreds of occasions wife and child will ask you should we spend this and that? You know why because they can see the uncomfort in your eyes and words. Hanging on to your nerves pays of well and that is the difference between interest and commitment. Even if I do not become wealthy and rich still I am happy what I am doing is passionate about and enjoy.

  2. Every time speculation comes up as subject name of Jesse Livermore pops up first. People are obsessed with him, either good or bad. Some think champion speculator is a big failure in life, for others he is still the original inventor of speculation tools. To me these types of personalities told WHAT NOT TO DO. The biggest of learnings from the greatest trader of world:

Do not increase yours spend because income is going up.
One doesn’t need to be fully invested to make money or survive.
Even a wizard is bound to fail with unethical practices and manipulation.
Relative comparison is recipe for disaster, be happy with what you are.
Finally the greatest challenge is not market or investment but US i.e. you and me.

  1. Full time or part time, you have to do it yourself- I realised if I am not prepared before a trade I am just throwing stones at a target. As I am expected to throw few millions times in my life I can’t be lucky all the time. No one will ever care about me , after all it’s my money and career. I have to own up the failures, no one can make me rich. Simple and easy to remember.

  2. Money or ego- one of the most beautiful wisdom speculators tells us. Remember riding on your immaculate skills of creative accounting practices? Or even a business model drawn up in one page? State of the art valuation technique? Time to re-think, differentiate between academics and practice. Ego is dangerous for stock market, at some point of time we have seen the problems. All of us. Now when one says how can you be money minded in stock market? Love your job not money, isn’t it? Well no one is asking to be greedy and criminal. Money is unit of account for your portfolio, the indicators of your performance. That’s it, measure it to know where you are. Nothing plus or minus.

  3. Practice won’t make you genius- if we think lot of practice makes us a master investor again re-think. Practice is art of habit; wrong practice can take you to disaster. It’s only by honing good habits you can develop superior practice.

  4. The thin line- does your investment philosophy address confusion and regret. Both relates to buy, sell and hold. If you have a method which define to take decision for execution and at the same time do not create regret you are done.

Few more articles I am preparing, will come back at earliest. Somewhere I need to finish the Guru Mantra series to a logical conclusion.

Apologies for not being regular.

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