I met Rahul at the same conference where I met Greg Morris.
He spoke extensively about technical analysis and I liked the way he explained things in a very simple way.
Rahul regularly appears as a panellist on CNBC India, CNN IBN, and CNBC Awaaz, and his findings and research on the markets have been carried in India’s leading business daily’s including the Economic Times and the Hindu.
Q. We could spend days comparing technical and fundamental analysis, and many traders tend to favour one and dismiss the other – do you prefer one over the other? Do you use a combination of both?
I think both subject have their immeasurable benefits and before my thoughts on any I would say analysis largely depends on a trader’s time horizon and goals. Fundamentals analysis will not help you day trade or read the markets in the short term, just like it cannot help you trade near months options. Whilst the core strength of fundamentals is identifying the right stocks for the long term, it cannot substitute technical analysis which is really a market timing tool and a tributary to money management as it helps highlight an entry point, stop, target and timeframe which are all directly connected to your trade.
Yes, technical analysis is my clear preference and the equation is straight and simple for me if we trade on price, study price! Besides if you’re an active trader or even an investor, using technical analysis will help identify when and at what price to action your trade. This is critical to our success. Often people ask me what about all the other “important” factors…global triggers, local factors, commodity prices, results, announcements, interest rates, gdp, inflation etc etc.
The list is endless, the market and a stock’s price is made by a universe of factors and I don’t think it necessary or possible to be in touch and an on top of every little thing. It’s the age of postmortem and information overload; you never know which factor overweighs the other. I am a sincere believer in Charles Dows master principle, “Price is Supreme, and discounts everything”
Q. On a scale of 1 (simple) – 10 (complex), how would you rate your trading approach(es)?
About 4, I have always believed in very visual process, I need to be comfortable with what I see and essentially work with ruled based approaches. When it comes to very short term trading there’s the need to be responsive and flexible, it’s the time to be a trader and not only an analyst. Clearly, when it comes to indicators I have automated and customized my software with indicators that do most of the harder work and essentially leave to me to approve and initiate with my money management rules.
When it comes to long term analysis, I do use a few Elliott Wave and Gann tools which give me the better right hand side vision. I think these are two very powerful schools of technical analysis if used objectively and easily, unfortunately there are a lot of who’ve complicated it to a degree that it only remains theory.
Q. Many traders acknowledge that having a trading plan is a key to success – it is essential. Yet, most people don’t know where to start to begin writing one, even though they understand the basics of trading. What would be your advice to someone stuck in this situation? How does someone begin to develop a trading strategy and setting up trading rules?
Absolutely, having a complete and concrete plan that factor in all the key components such as capital, method, goals, and timeframes is not only important but essential to stay in the business of trading. One mistake if often too costly, and the very idea of a trading plan is to organize and easy out your analysis process and finally make it all fit it in with your money management rules.
As a foundation, one should master several techniques and indicators in a truly practical sense by executing several trades based on them. Secondly, I would strongly advise to refrain from using any subjective tools as this allows the trader to twist and fit in his study to best agree with his trade and feel (a good example would be trendlines, which are often misused and “fitted” around my many a trader). Thirdly one should focus on money management without twisting the technical’s, for example so if you identify a buy setup where the stop is large don’t change the stop level but instead set your entry points lower at an agreeable level.
To conclude, I would say the most important aspect in trading is executing the trading plan with discipline, this is imperative. In my experience and interactions with traders globally, I notice there are more traders at loss due to indiscipline than any other factor.
Q. Ideally, we would like to be almost emotionless when we trade – we would certainly make more sound trading decisions more often. How do you control your emotions when assessing potential trading opportunities or open positions?
Experience has been the best teacher for me. I’ve learnt it the hard way and have had the good fortune of experiencing the aftershocks of emotional trading; it not only leads to financial loss but more importantly damages the spirit and self confidence of a trader.
On the brighter side, a rule base approach is not only easier and effective to execute but also doesn’t require your nervous energy to be deployed 24×7. I’ve met traders who’ve ruined their family life due to a few bad trades all because their temperament and spirit got so badgered.
Today it’s my system and approaches that control my emotions from going loose, besides am not a believer in any subjective or overtly manual technique. To top it all, at times even the slightest deviation or leniency is often enough to teach me to be back on track.
Trading in a Nutshell
It is easy to understand and everything you need to know about trading is logically set out. It is a book for everyone, from the newbie through to the more experienced trader who wants a revision and an annual ‘tune up’. Read full review
The book is an excellent resource, especially if you are a newbie trader. What I like most about this book is the easy to understand manner in which it is written. It covers all the essential material for a newbie to understand what he needs to succeed at trading.
No matter which stage of the learning curve a trader’s at, Trading in a Nutshell resonated some very meaningful principles that any trader should adhere to.
A concise, well-written read with smart tips. This is an essential book for every trader’s bookshelf. I recommend Trading in a Nutshell to all of my trader clients — from Wall Street and beyond