Thursday, August 18, 2011

diversified portfolio during shorting Vs day trading problems

1. this is the great blunder I commit when I short. I try to short just one stock with all my money.

Now is a complete bear market conditions. If I can pick 3-4 stocks and short them and wait for a month, I am sure I can make money.

2. This is the same as buying stocks upwards and diversifying within a 3-4 stocks.

3. Without diversifying one panics even for small changes in price of a single stock and takes losses. when the market rises and feels normal during a bear market that is the time to short the market and diversity within 3-4 stocks.

4. do not mix this strategy of diversifying and waiting with day trading. Do not confuse day trading with this strategy. This a the best strategy because it depends on macro economic conditions which
realize themselves with in a time span of 2 weeks to one month depending on fundamental conditions of the economy. But Day trading depends on many day to day factors of world economy, news,etc.

5. But over a period of 2-4 weeks, the market moves in the direction of the fundamental strength.

6. Find the weak segment and short the market on the good days during a bear market. Then just leave it to realize the fundamental weakness of the market conditions.

How is possible to get any kind of losses with this strategy???? Day trading needs a lot of attention and following the rules and control on emotions on a day to day basis. It also consumes a lot of time.
And after all that if one makes one or two bad trades one loses all the money one has made with all the skill, time and energy.
It also increases broker charges significantly.

This the reason also why Options is a good way to make money because one has to wait for a couple of  weeks to a months time for the stock to realize the fundamental direction and when one makes a good assessment of the fundamental economic factors and waits for some time for the market to realize it within a certain time span, then definitely the market moves in the desired direction. The important lesson is to wait.

But that is not possible in day trading. One has to keep making changes every day and one misses the big moves either upwards or downwards.

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