Note: This is text of my newsletter sent to my email subscribers on 11-Oct-2018 before the stock markets opened.
By the time this email reaches you, you will see that the damage has been done to all Future/Call long traders yesterday. I hope it is not you.
Today Nifty will gap down open by almost 300 points. Just see what the damage a gap up or down can do to a naked option or future trader.
This is the loss of a naked (UN-hedged) future trader in SINGLE LOT ONLY:
300 (points) * 75 (lot size) = Rs.22,500/-. Loss of a greedy trader trading 10 lots = Rs.2,25,000/- gone in a single day. 🙁
Yesterday (10-Oct-18) Nifty was in huge bull mode – closed up by 160 points from the previous day (09-Oct-18).
If you are a technical trader or even if not – I am sure you can easily guess that all technical indicators must have given a strong buy signal before yesterdays close. Not a single technical software or technical theories in the world must have given a sell signal indicating a sell off. This is the reason I do not believe much in technical analysis.
Stocks are not a living thing that they will respect or obey technical signals. They will move as per people trade. And its a fact that less than 99.9% of people who buy stocks don’t know technical. Then why technical will work??
Here is some proof – this is not just another blog – it is a research paper:
Copied from above URL:
We find that individual investors who use technical analysis and trade options frequently make poor portfolio decisions, resulting in dramatically lower returns than other investors. The data on which this claim is based consists of transaction records and matched survey responses of a sample of Dutch discount brokerage clients for the period 2000-2006. Overall, our results indicate that individual investors who report using technical analysis are disproportionately prone to have speculation on short-term stock-market developments as their primary investment objective, hold more concentrated portfolios which they turn over at a higher rate, are less inclined to bet on reversals, choose risk exposures featuring a higher ratio of nonsystematic risk to total risk, engage in more options trading, and earn lower returns.
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Dilip Shaw, Founder
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