Please do not go by the title! This ain’t a scam to make big money and I am not an employee of this Bank. This is just to tell you how discipline and system trading can enable you to create wealth.
Reasons for choosing SBI!
1) Largest Bank of India in almost all parameters!
2) Strong Balance Sheet and huge pile of cash
3) Heavy volumes of trading
Now period considered here is 1 year. April 2012 to April 2013
Here is the graph for that period.
Image Source: www.moneycontrol.com
Now the Indicator that we are using is MACD.
(As this is just an introduction explanation of MACD can be omitted. It is an indicator to give you signals when to buy and when to sell, as simple as that)
Now we can have a combined photograph of the Graph of SBI and the MACD signals that followed.
Now the catch here is:
1) Whenever the Blue line crosses the red line(crossover) you have to buy
2) Whenever the red line crosses the Blue line you have to sell.
To put things in a nutshell, Buy when Blue goes over red and sell when red goes over blue.
Now Lets put some figures corresponding to the cross over and lets see how much we gain or lose!
Now you can see,
We have 2267 for 1 share for 1 year.
Now provided you have a margin account and 5 lakhs of rupees(I am taking leverage to be “one”)
Average price of this can be taken to be 2000.
So 5,00,000/2000 = 250.
So here we are dealing with 250 shares. 2267*250= 5,66,750!
A whopping 5.6 lakhs with no leverage.
If I assume leverage to be decent 2 you still get 11.2 lakhs per year! How about that…
This does not guarantee Profits every time. 2 loss trades. But you can see it follows a market philosophy
Losses are cut short, you then ride your profits!
Doubts that you might have-
1) Short is selling and long is buying.
2) Futures allow people to short sell. That means even if you have no contracts, you can sell at higher price and buy at lower. Earn profit when the price is going down! Amazing concept.
3)Leverage is when you can Trade for more number of shares even though you might not have the required amount of money in your account(a double edged sword believe me)
P.S- 1) This is just an illustration to show that Trading is all about discipline and systematic approach.
2) I am sorry if it sounds vague and difficult! If you have any doubts, please feel free to ask!
Regards,
Tejas
08297057571
MOHAN BVS
Its quite difficult to spot the trend at the right side of the chart. With greed / fear emotions most people tend to forget about all the indicators / theory when they are in front of trading terminal.
Tejas Vishnu Nimbargi
Hi Mohan,
Yes. That is what system trading does to you. It eliminates the emotions from the market. That is when you dont use discretion and rely totally on the mathematics and the probability.
“Its quite difficult to spot the trend at the right side of the chart” Well said.
Neerja Singh
I know absolutely nothing about money markets or trading on the stock exchange – but that is why I am on this forum, there is learning to be gathered from every post! What you say makes sense, logically. In practice, then, why is it that we hear of so many people losing on stocks? Also, if you could explain a little bit for people like me how predictable / sure is the outcome it would be great.
Tejas Vishnu Nimbargi
Hi M’am,
That is a nice question. I wanted someone it to ask.
Thanks for reading the post..
1) Many people are losing on stocks because they succumb to euphoria.
An interesting analogy- In casino, people lose. they make money once, twice or more than that. But over a period of time they lose. Why do they lose? Because casinos have a system. It is rigged in their favor. So over some number of samples they have a positive expectancy. And people who are enjoying don’t! As simple as it sounds…
In India people want to make quick money, they don’t want to learn. Trading in stocks requires LOT and LOT of learning with heavy pinch of experience.( I have been trading with dummy money since past 2 years)
That explains why people in India lose money and why Trading is a cursed job here.
2) See. There is no guarantee. I dnt say that if it is a buy signal, you will see a trend. No.
But when you back test a method.(like I have backtested SBI stock for the past one year) it gave me positive expectancy. I have even back tested 10 other stocks and commodities. All of them gave great results.
So even in the coming year, I wont promise you returns.(if anybody does, stay away from him!). I would promise you positive expectancy. That means sure profit!
I hope your Questions are answerd M’am. 🙂
Neerja Singh
Thanks so much Tejas. That was explained very well, thanks a lot for taking the time. And although I am 15-20 years older to you, but my name is Neerja, not ma’am. 🙂 As my kids like to tell their friends “we have a cool mom!”
Tejas Vishnu Nimbargi
Okay Neerja!
You can ask me for any further help you need on these systems.
Or you can go through this site..
This is one rocking site,
https://systemtradersuccess.com/
And please don’t say thanks. Knowledge increases when we share it. I am just helping myself.. 🙂
Cheers!