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Gaurav Sharma, smallcase manager and Founder, Gaurav Sir

The greatest enemy of trading is fear and this comes from taking risks and dragging unrecoverable losses. So, if we search for some methods which can reduce our risk, our losses are cut short and fear starts disappearing. From this comes hope and a ray of light from the dark. There are strategies that help you sleep soundly at night. A trader should learn, understand and follow the “Buy and Hold strategy”, with when to buy and up to what level to hold.

A good example of this strategy is Index Funds. They are made in a way that stocks meeting some criteria like market cap, liquidity, etc. become part of index funds, and a ratio generally called weightage, is given to each stock. So, before you make up your mind, I want you to understand index funds have planned. (We are not recommending investing in index funds) But the moral of the story is “have a plan”. The stock market is a business in which oxygen is capital and seasons are emotions.

Whatever price the market offers is a reaction of emotions.

A very old adage guiding traders from ages, “Plan your trade! Trade your Plan!!”.

As the market is a mix of emotions, we cannot let our emotions be clouded with emotions from family, friends, children, and neighbours. So, the first thing is, we need to make a plan with some rules that should be strictly followed and which should not be changed during market hours. So, the major challenge is how to discipline yourself as a trader, and those rules cannot be modified during trading. 

Three steps to choosing a strategy-

* As the market is more emotional and less rational, try to choose a strategy that you can relate to yourself and with which you feel familiar.

* Always make notes of the debit you made while purchasing and the credit you received on selling and never rely on your broker to make this for you because this is finance and you have to keep track of your finances yourself.

* Always try to think the opposite of the market. Not to say that when the market is falling you buy and when the market is rising you sell. Instead, think what are the levels? where are market participants seeking buy opportunities? when is the market providing stocks at discount? And what levels are like opportunities when participants are ready to offer a premium?

How can we connect to the market and read their sentiments? 

The market is like an ocean and the more you explore, you will find new gems.  First, we have to choose an initial point for your onward journey then we have to connect the dots with a view that market participants who are here for a long time, are making profits for their survival and this connects us to identify the possible entry.

Now, as market participants take entry into the markets, they risk their capital, which obviously triggers their sentiments. Now, the story starts if the market is favorable to these entries, soon the new buyers will join in, and execute their orders, which takes the stock price to a new space. Later, there is a fear, of losing the profit gained which creates resistance for the stock to rally. Lastly, if we check the volumes, and the volumes are not supporting the price this means that this rally is led by weak players and they are booking profits on every rise in the markets. The positions need to adjust accordingly.

If the volumes are supporting the stock price, it is the right time for traders, to book partial profits on every rise and then add it again, following the “Buy on Dips Strategy” depending on the market volatility.

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