Meet Your Trading Expert : Your Common Sense

Before you charge me with the oversimplification crime, let me present my case. My logic here goes something like this: if there is no proven way to predict the market, then how come some people almost always make money? Does this mean that those are some trading geniuses or they are just being lucky?

The matter of share market successes, like all matters of success focuses only on the success part. The stories will never tell you how many pennies the Oracle of Omaha or our very own Bull had to kiss goodbye before they started to trade profitably. I’m not saying that we all have the same acumen as those two legendary figures in trading shares have. All I am saying is: with a little common sense, we all can make some good profit from the markets.

• Time’s against us

Whenever we are trading, we must see Time as our opponent, and not other traders or trends. The logic is very simple: buying air conditioners during the winter is a good deal because, during the winter, no one needs an air conditioner. However, want to sell a used or a brand new machine at the highest price, then summer is the best time. In case of shares, when the price is low, make a move because if the scent is really hot, soon enough everybody will jump for it, automatically the prices will go up.

And if you need to get rid of some stocks (the reason may be anything), please keep a tab on when the demand is going up.

• An eye on the future

Try to find an error in my logic: if the government subsidises some agri-product (that has a cheaper alternative) and thus making the share of the product pretty hot, you should not give in to the temptation.

Well, the catch here is the ‘cheap-ness’ of the alternative, no business doing it for profit will ever go for a costlier product when you already have a cheaper one ready. Therefore, the subsidy will never be able to hold on to the ‘profit-worthy’ tag. Again, it’s a matter of common sense, if the product goes obsolete, no point having a share however cheaper or lucrative it may be.

• An eye on the future, Pt. 2

The population of our country is a big issue when we are thinking about trading. Depending on the market penetration level, your common sense will tell you that investing in them is a very good idea. More Indians in tier two and three cities will buy cars, there’s no doubt about this analysis. That India will need a renewable energy source is known to all. Therefore, you need to see products with their future vis-à-vis our buying behaviour, after all a share is a representative of the underlying product.

There is, till date, no proven formula of making a profit in the markets. When our ancestors didn’t have the knowledge of modern science, they relied on their common sense and gut feelings. Trading shares is one activity where those qualities are priced, when exercised right.

Author’s bio: Following international and national market trends has become a hobby for the author, since her days in the B School. She shares her ideas and findings on the subject on Tradewalla.com.