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Sri Lanka Equity Forum » Stock Market Talk » Untold SECRETS of the stock market: How to turn losses into profits

Untold SECRETS of the stock market: How to turn losses into profits

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hunter

hunter
Moderator
Moderator
This is supposed to be a sequel to the earlier thread I started,
http://forum.srilankaequity.com/t9305p25-3-secret-steps-for-guaranteed-profits-for-traders#66282

First of all, I am still a learner in the market so pls question whatever put down here. That will help either to clear my point or it will help all of us to learn something new.

I have read quite a few articles/books about how to make profits in the stock market, have observed how some of the successful investors/traders had earned fortunes, have tried many ways myself as well. I have put lot of efforts to find out, if ever existed, a 'common factor' behind all successful strategies: also tried to understand the stock market in different ways; using economics, accounting, human behavior, psychology etc etc.

Finally, a little of my mathematical background gave me a 'perfect' way to model the stock market. One by one, the puzzles I had were solving: finally the ball of thread was untangled.

So this is an effort to show you how I understand what the stock market is all about.


Before, introducing my model, I would like to start with one of my observations.

My observation:
A stock (share, counter) usually moves in a cycle: sometimes goes up, sometimes down and sometimes sideways (no move). And, we can see that it moves up approximately 30% of the time; Moves down 30% of the time and moves sideways 40% of the time.
(Agreed ?)
OK.
Now let's see some investor invests randomly in a share (stock, counter).
What are his/her winning chances?
According to my observation, only 30% of the time he will see his share moves up; 70% of the time it will not move up.
Accordingly, if we try to trade RANDOMLY, we will loose more than 70% of the time.

Then we need to find what are the methods we can deploy to increasing our winning chances. And if possible try to understand how and why these 'methods' work.

That is the objective of this thread.

Kindly tell me if the above makes any sense to you.

To be contd....

kaka


Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics
Yes, 100 % agreed with you. Ur post encouraging small investors to understand the real situation. Pls continue

hsamararathna

hsamararathna
Stock Analytic
Stock Analytic
hope you not talking about "limitless" story....... Smile any way go head this becoming more interest.

thawamadi


Stock Analytic
Stock Analytic
Hunter;
Thank you very much for the previous post.
It contained a lot of things to think about.
Please continue your good work.
Your worthy cause is vary much appreciated.

tanzanite

tanzanite
Senior Equity Analytic
Senior Equity Analytic
oH ! hUNTER THANK YOU VERY MUCH INDEED, PL CONTINUE.... study

pathum


Equity Analytic
Equity Analytic
Nice read indeed. Good work bro! keep it up! cheers

dilshan

dilshan
Senior Equity Analytic
Senior Equity Analytic
~ Awesome!!!! Keep the good work going on!!! Thank you! ~

shanaka

shanaka
Equity Analytic
Equity Analytic
yap its true hunter

hunter

hunter
Moderator
Moderator
Thanks a lot friends for your comments and appreciation. I am happy to learn that some of you find this discussion useful. It encourages me to write more and write faster.

I am trying to summarize what I have learned in many years; so it can take a little time. However, I believe we can complete most of this within about two weeks time. Hope you have enough patience to go that far!
After all, patience and discipline are two outstanding assets all successful investors/traders have. Do you believe that? Need a proof?...

So this is the proof.
Pls visit the following thread;
http://forum.srilankaequity.com/t6586-csd-massively-undervalued#66359
and read the posts written by 'cse.profit'. Observe, as he explains, how he made Millions while some may have made losses on the same share during the same period of time.
Do you believe patience and discipline were parts of his winning strategy? Well I do believe so.
(cse.profit, if you are reading this post, I believe you don't mind quoting you here).

Let's continue our discussion on how to increase our winning chances in the share market.

Short break..........



Last edited by hunter on Sun Sep 11, 2011 1:32 pm; edited 1 time in total

hunter

hunter
Moderator
Moderator
If you have an idea about the 'probability', it will help me to explain about the stock market better and faster. Anyway, I will try to make it as simple and clear as possible.

Earlier I said, if we try to trade randomly, our winning chances are less than 30%. Or in other words our winning probability is less than 30%. What does this mean? And what does it mean to us if we can increase this probability?
I like to take an example: I would call it 'bent coin theory'. In its very basic level, this example have may similarities (and many differences as well) to investing in the share market.

EXAMPLE:

If you take any normal coin and toss it, what are the possible outcomes. Sometimes a Head and sometimes a tail.
OK?
What are the chances of getting a Head each time we toss, or in other words, what is the probability of getting a Head in tossing a normal (fair) coin?
It is 50%.
OK?
Imaging we toss a fair coin and bet on getting a head each time. What are our winning chances?, Or in other words, what is our winning probability?
It is 50%.
OK?
If we do it for a long time, how much can we win? Zero!. We will not win anything; neither we will loose anything. So tossing a fair coin and betting on it will not make us winner.
We need to change something somewhere if we are to win in the long run.
Is there any way of doing this?
Is there any way of increasing our winning probability?

[There can be many ways of winning in this type of games. For example, you can try varying your bet (betting amount) based on your position. If you initially bet Rs 1/- and lost, then you can bet Rs 2/- next. If you lost that also you can bet Rs 4/- next: Rs 8/- next so on until you win once. In that way, you can make sure at the end of the cycle you win Rs 1/-.
These type of (one dimensional) methods may work for games like coin-tossing or roulette but when it comes to share market, these type of techniques alone may no work for us.
So for the time being, let's keep 'how to win' aside and instead focus on 'how to increase our winning chances']


Let's think of some way of increasing our 'winning chances' more than 50% in coin-tossing.


To be contd.....

cse.profit

cse.profit
Senior Equity Analytic
Senior Equity Analytic
@hunter - really impressed about your attitude over educating the market and the effort you have taken and the hard work you have done sacrificing your valuable time is some thing which i appreciate a lot. I have seen great enthusiasm from you over the period and in fact one day you will be a sustainable millionaire/billionaire(emphasized the word sustainable- you know why). I have read your previous threads as well and i am learning a lot from you and in fact i have become a student of your teaching. This is exactly what should happen in a quality forum . you have observed and done a proper analysis. your observations and the secondary data created from that and the relvean models you built up might work or not. It doesnt matter. But one thing is for sure. You are trying hard to walk in the path of enlightenment and i am very happy about you. You writing style is pretty interesting and improve exceptionally over the time and we all juniors, seniors,novices,experts and even guru need people like you making this forum rich in quality. keep up the good work. yes hunter. No worries at all. Its all part of the learning curve. You can use all my posts if you feel that it would add some value to any one. But don't blindly imitate any one , not even my self because i am not perfect and do lot of mistakes. Really happy that you have learn t some thing from my life experience. ALL the best. Hunter SIR this student is waiting anxiously for your next lesson. hehehe.

arrowms


Manager - Equity Analytics
Manager - Equity Analytics
Ok, now i know just invest money does not work. Due to inflation my bulk of money going to value less. Master , Show me the path.

hunter

hunter
Moderator
Moderator
Oh Boy!
@cse.profit, I almost got knocked out by your lavish praises. Very Happy
And your blessings will never be forgotten.
Yes, I also have learnt (and am learning) a lot from others including specially you and this is an humble attempt to give out something in return to the society.
The hearty feedback you have given is invaluable to me. Let it be a searchlight in our attempt to 'walk in the path of enlightenment'.

RealViewer


Senior Equity Analytic
Senior Equity Analytic
I dont want to spoil this by just adding a post to praise. but couldn't resist. This type of quality is needed in our forum.
I went through some of the threads from both cse.profit and hunter. excellent logical reasoning. I read carefully, at this point I m not in position to add related technical stuff to this thread. but in future definitely I will.
Both of your posts encouraged me to learn more.
I dont say keep it up, because it sounds like you keep on posting and I m here just to read. I too want to post something at your level(at least closer to your).
all the best.

hunter

hunter
Moderator
Moderator
Let's continue with (my) 'bent coin theory' example...

I guess you agree with me saying, a fair coin will give you only a 50% winning chance. And 50% chance is not enough to gain any net profit. So we need to change the equation in order to win.

Is there any way of increasing our winning probability in coin tossing game?.
Yes!
The answer is to....
CHEAT!!!!

Well, it is similar to cheating but I would call it making the coin unfair.

Let's quickly look at two ways of making a coin "unfair" (or to say more technically, "biased").

1. Stick a weight on a side of the coin:

Say, you stick a piece of clay (you can imagine a chewing gum) on one side of the coin. Supose you stick this clay on 'tail' side of the coin. It will significantly increase the chances of you getting a 'head' upside.
Agreed?

2. Bend the coin:

Usually, coins are flat. But if you make it 'bent' like a cup; making one side concave and the other side convex, then the coin will no loner be 'fair'. If the 'tail' side is convex, there is a higher chance it will stay facing down when tossed, giving you a significantly higher probability of getting a 'head' (upside).

So, if you use an 'unfair' (or bent) coin, you can increase your winning chances above 50%. In the long run, you will be a 'consistent' winner.

Any questions on my 'bent-coin theory'?

Now the question is; can we find similar 'bent coins' in the stock market?

The good news is, yes these are plenty of 'bent coins'.
The bad news has been we often overlook them or misunderstand them.

END OF EXAMPLE.

Next I would like to discuss how we can effectively find the so called 'bent coins' in the market.

Before that, I need to explain (the way I see) what the stock market is all about. For that, I would like to introduce a simple mathematical model.

Sounds complicated?

Nope, In fact, it is a very simple model. I thought using it would be very handy in putting forward my point.

I would call it '4 variable model' (of stock market).


To be contd..........

Guys, pls tell me if I am too fast or too slow (or boring)



Last edited by hunter on Mon Sep 12, 2011 9:44 am; edited 1 time in total

Roboticfx

Roboticfx
Senior Vice President - Equity Analytics
Senior Vice President - Equity Analytics
Oh! What a nice article! That's very great and very useful! Keep doing it alone!
Hunter,
God Bless to you! Happy trading! cheers



I would like to ask a question to solve a doubt. Rolling Eyes

If a company which we have invested and have sold those shares with a loss, get huge looses continuously in all periods, is it better to keep away from it even there is a trend to move the share price up? I saw bankrupt company shares moved very down immediately when they published their financial statements. Eg:-Alufab Smile

arrowms


Manager - Equity Analytics
Manager - Equity Analytics
hmmmmm, so far everythings clear,, keep going sir

jonny

jonny
Senior Manager - Equity Analytics
Senior Manager - Equity Analytics
@hunter wrote:This is supposed to be a sequel to the earlier thread I started,
http://forum.srilankaequity.com/t9305p25-3-secret-steps-for-guaranteed-profits-for-traders#66282

First of all, I am still a learner in the market so pls question whatever put down here. That will help either to clear my point or it will help all of us to learn something new.

I have read quite a few articles/books about how to make profits in the stock market, have observed how some of the successful investors/traders had earned fortunes, have tried many ways myself as well. I have put lot of efforts to find out, if ever existed, a 'common factor' behind all successful strategies: also tried to understand the stock market in different ways; using economics, accounting, human behavior, psychology etc etc.

Finally, a little of my mathematical background gave me a 'perfect' way to model the stock market. One by one, the puzzles I had were solving: finally the ball of thread was untangled.

So this is an effort to show you how I understand what the stock market is all about.


Before, introducing my model, I would like to start with one of my observations.

My observation:
A stock (share, counter) usually moves in a cycle: sometimes goes up, sometimes down and sometimes sideways (no move). And, we can see that it moves up approximately 30% of the time; Moves down 30% of the time and moves sideways 40% of the time.
(Agreed ?)
OK.
Now let's see some investor invests randomly in a share (stock, counter).
What are his/her winning chances?
According to my observation, only 30% of the time he will see his share moves up; 70% of the time it will not move up.
Accordingly, if we try to trade RANDOMLY, we will loose more than 70% of the time.

Then we need to find what are the methods we can deploy to increasing our winning chances. And if possible try to understand how and why these 'methods' work.

That is the objective of this thread.

Kindly tell me if the above makes any sense to you.

To be contd....

....Getting intrested and nervous to know the full detail.Thanks hunter you are making the hunting ground more favourble to us.thanks again..

hunter

hunter
Moderator
Moderator
Friends, thanks again for your encouraging comments on this thread.
Roboticfx, I find it difficult to express my view regarding your doubt at this stage, but at the end of this thread, my approach will be crystal clear to you I am sure.

Let's look at the model I mentioned earlier to help understanding the stock market. (This is my own idea, there could still be room for improvements; your views are more than welcome)

OK, here is the model;

In its very concise form:

'Stock Market is nothing but a function of four variables: shares, prices, volumes and time'

If I am to say the same as a mathematical expression, it will be something like:

M=f(s,p,v,t) ; where

M - Market (stock market)
s - shares (stocks, counters)
v - share volumes
t - time

(You might say that I am just bragging here or showing off my mathematical know-how: well I do not mind because it could be partially true, ha ha haa)

Not all of us here are mathematicians or scientists, so let's try to grasp my idea slowly.

What I mean by a variable is something changes, something capable of taking different values. For example, if we watch the price of a share, it changes, it takes different values. So it is a variable.

Got it?

What I mean by a function is, those variables are related to each other, one variable will vary when another variable changes. In other words, these variables are not independent, instead they are inter-dependent.

Do I make sense here?

OK

So the stock market means a combination of four variables (or parameters).

Accordingly, when you deal with the stock market, (or more precisely, dealing with stock market means) you have to manage the above four variables (or parameters).
Say, you want to buy (or sell) some shares. Then you have decide (or manage) which share (counter) to buy, when to buy, at which price and what is the volume (or quantity).

Do you have any other (primary) questions when dealing with the Market?
(Well, you might be thinking if you could make profits or if your investment would get washed off etc. Buy I would say those type of questions are more related to you emotions rather than the Market itself).

All right;

If u are with me so far, let's see how we can mange those four variables to our advantage.

Please note that (let alone four variables) handling even a single variable effectively is quite a task. To make matters a little more complicated, those variables are linked to each other as well (entangled with each other).

Therefore, let's take one parameter (variable) at one time; and see how we can manage (bend) it to increase our chances of winning this game.

I will take the easier one first: the time.


To be contd..........

Roboticfx

Roboticfx
Senior Vice President - Equity Analytics
Senior Vice President - Equity Analytics
I got it completely SIR! Very Happy Hope more things! Very Happy

(Really, you are good teacher. MAGE NAMASKARAYA! Smile )

kavi84


Senior Equity Analytic
Senior Equity Analytic
Sir, Great work. cheers
Thank you

tanzanite

tanzanite
Senior Equity Analytic
Senior Equity Analytic
thanks again hunter dear.

hunter

hunter
Moderator
Moderator
Thanks for nice feedback comments friends. Please keep on doing so. It help s deliver my message better.

I thought of starting a new thread to continue our discussion. Please visit the new thread.

http://forum.srilankaequity.com/t9979-one-secret-revealed-bending-time-to-earn-money#67075

Kumar

Kumar
Senior Vice President - Equity Analytics
Senior Vice President - Equity Analytics
Thanks hunter.
Sharing very good points.

rmark

rmark
Manager - Equity Analytics
Manager - Equity Analytics
Dear Hunter, thanks for the very good article, keep it up!!!

Quibit

Quibit
Senior Vice President - Equity Analytics
Senior Vice President - Equity Analytics
How to turn losses into profits!

Senior Citizen

Senior Citizen
Senior Manager - Equity Analytics
Senior Manager - Equity Analytics
@Quibit wrote:How to turn losses into profits!

50% - Buy JKH, Go Fishing and come one year later for the capital gains.(Sure bet) 
Day Trading with balance portfolio.
This keeps you updated on the CSE and keeps your mental faculties in working order.

Gamunu


Senior Equity Analytic
Senior Equity Analytic
where are these kinds of forum contributors now ? Damn i learnt a lot , but one thing i know is realizations one comes to by self thought and understanding are the only Form of learning that is palpable.

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