Trading is a probability game. Right. I do not want to
dispute that. I know very well that there are no certainties in Markets, only
probabilities.

But I can’t agree with the way many traders approach these probabilities.
For example, take the case of “Gap closure”. People research and conclude that during
the past 70% of the time, morning gaps closed. They bet on this probability and act on it. They believe the probability will work in their favor and in the long run
and they will emerge as winners.

Usually Traders focus on one important technical set up and
start tracking it. They do back testing and forward analysis on this technical
set up for a while and compute the basic probability ratios for this. When they
find this ratio favorable, they conclude that the pattern has a lasting and
significant edge in the Market.

I approach this problem differently. Rather than finding the
basic probability of the set up and betting on it, I try to find out the
factors that made the set up work. I have drawn my inspiration from the Pharmaceutical
Industry.

For centuries people relied on traditional medicines like
plant extracts. Many of them were found to be very effective. The problem is these
botanicals and herbal preparations contain various bio active components and
identifying the exact effective component is a challenge.

First step is the extraction, isolation and characterization
of active components in these herbal preparations and finding the exact
effective molecule. Toxic studies and clinical evaluation follows before the
drug is released. Easier said than done

I feel this is the right way to go. Instead of betting on
the basic probability, we must go deep and find out the patterns inside these
patterns. Identifying and isolating these favorable conditions will give us the
real trading edge, I believe.

Dear ST

ReplyDeleteHow are you doing?

I have bugged you earlier also regarding BO entries, it seems you take only PB, BO can results into BOF is that a reason I am a bit confused whats the correct approach BO,or PB

Shubh

ReplyDeleteYou have to take both BPB and BO as per the situation. Some times some explosive moves will not pull back.

Take a direct break trade if you think other factors like. Order flow, critical mass , Market Bias, Space etc are favorable.If you are not sure about it , it is better to wait for a pullback

ST

Is this article written by you?

ReplyDeleteAnon

ReplyDeleteWhy ? Have you seen it somewhere else ? Let me know

ST

check this article:

ReplyDeletehttp://www.marketcalls.in/trading-lessons/drug-trading.html

-anon #2

note: am not the first person who asked you about the authorship of this article.. just googled ur text and found that link

http://www.marketcalls.in/trading-lessons/drug-trading.html

ReplyDeleteperhaps your article made a full circle... you should ve posted somewhere in facebook...

Anon 1& 2

ReplyDeleteThanks for the information.

Let the article reach much more people.

I am happy that a well known personality like R Rajandran found my article worth reproducing. I consider it as an approval and value it

ST

Hi ST,

ReplyDeleteThis is what Rajandran has mentioned as the credit for the article-

"Article taken from the facebook group Marketpulse S&P"

Congrats,looks like your article is going places :)

-Anon1 aka Trader_B :)

@Trader_B

ReplyDeleteCheck Rajandran Sirs post again

ST

Great Sir,

ReplyDeleteNice to see that you are getting the credits

Trader_B