Profit From Prices

A book on stock market trading
By Jayesh Patel, CFA

Introduction to Stock Market Trading

by Jayesh Patel, MBA, CFA

The simple premise of this book is that everybody knows something about something, but the market is the only one who knows everything about everything. The market is the sum total of all the players. For any stock, it knows at any point in time every piece of news- public or private, every expectation held by every individual as well as every trade executed in that stock. However, this enormous amount of information held by market is available in one simple number- the current stock price. Prices reflect every bit of information - public or private --, and the impact of every trading action of every market participant. So it is foolish to think that the price of a stock is some useless number; actually it is the most comprehensive indicator of the aggregate/consensus view held by all the market participants at a given point in time. Prices is the only thing that reflects complete picture of what all participants-- day traders, specialists, market makers, hedge funds, insiders, foreigners, individuals or institutions— are collectively thinking and how they are acting as of the moment!

   

As such, any market is a battleground where a war is constantly being fought between current, as well as prospective, buyers and sellers; and to decide who is winning, we just need to look at how the prices are moving as of that moment. By paying attention to price fluctuations, we can determine who, buyers or sellers, is gaining control and what is the magnitude of the control. Based on this insight, there are moments when we can predict with pretty much confidence in which direction the stock prices are likely to go. Once we know in which direction prices are heading, we can make profitable trades! Most of you might doubt: Is it really possible to trade stocks just by looking at prices? Yes. It is and this is what this book is about. By learning some simple techniques, you also can profit from prices.

In this book, I will teach you how to unlock tremendously valuable information for trading stocks just by looking at the four daily prices and how to use it in trading stocks. The secrets I am going to reveal in this book are simple and logical. Not only that, they are very powerful and time-efficient for trading stocks. My exhaustive study of prices, and charts to some extent, reveal consistent patterns that can be profitably used for trading stocks or Futures contracts. Besides prices, I have used various other trading methods, tools and indicators. However what I have found is that the four daily prices, OPEN, HIGH, LOW and CLOSE, give us much more than what we need to identify which stock to buy and when. They tell us of a change on the very same day it takes place. Profit From Prices (PFP) signals can be used as a stand-alone trading system; or if you have some strategy/system that works for you, these PFP signals will prove to be a great supplement.

   

What does a trader need for success in trading? I personally believe that there are three things which affect trading success:

1.      Analytical skills, and a trading strategy, to find -- what to buy and when to buy. (This is the primary focus of this book. See Chapters 6 to 10.)

2.      Trading Discipline and Money Management: Every trader in the marketplace has just one objective- to make money. However very few people are able to consistently make money in the market. When markets are rising, it seems easy to make money. However when they are trending down, they take away most of the profit or capital of many, if not most, individuals. Trading is a tough game with many traps. If a trader is not watching himself, his actions, his behavior or his emotions, he is likely to fall into some of these traps. To avoid such falls, it is imperative to be rational in trading decisions and to control emotions. This seems easy but as a matter of fact, emotions like greed, fear, hope, overconfidence, regret, etc., are very difficult to manage. If there is a trading position with profit, should it be held a little longer or should it be closed to book profit? If a trade is going into loss, should one wait for the prices to recover or cut the losses? Such decisions are tough to make without getting emotional. To be rational, and free our mind from emotions, is a tough job.

So how should a trader trade stocks then? He should constantly strive for trading discipline; and, trading discipline can be achieved with strict money management rules. Every prospective trader should lay down a framework of policies and rules by creating a formal, well-defined trading plan. The plan should contain trading objectives and trading rules/guidelines based on one’s financial situation, trading objectives and risk preferences. There should be rules or guidelines about how much fund to commit to trading, how to identify stocks for trading, how much fund to commit to each trade, when to close a position, how to control risk in trading and how to monitor trading progress. Such rules should be strictly adhered to. This can save a trader from taking large positions at high prices which seem to ruin most of the investors when market stages sudden reversals. 

In Chapter 1, we will briefly discuss some trading pitfalls and then in Chapter 2: Trading With A Business-Like Approach, we will discuss trading plans in some detail.

3.      Luck: Despite of having excellent analytical skills and trading plans, there are millions of factors outside an individual’s influence or control. As an example, there is no way to know for sure what Alan Greenspan will do about interest rates in the next Fed meeting. One has no idea what the next Unemployment, GDP or Inflation report will be, or how good eBay or Amazon’s earnings will be! I label such uncontrollable, unpredictable events as LUCK.  Certain events can cause a sudden change in the mood of the market and the direction of the stock prices. Though one might have entered into a correct trade at the correct time, it may go sour in the next moment for any reason. So what should one do when something unexpected happens that causes the stock price to move contrary to one’s expectations/position? One can, and should, use a Stop-loss. (See Chapter 4: Stop-loss: How to Use It In Stock Trading.)

A word of caution: It is quite possible for any one to lose money in trading. There is no trading system out there in the world that is 100% accurate. Every trader or trading system fails somewhere. Likewise, the Profit From Prices method of trading is no guarantee for success in trading. Having said that, in this book, I am going to offer you the best of my knowledge about how to identify profitable trading opportunities - what to buy and when to buy. I am going to teach you a simple but very powerful approach to trade stocks just by looking at four daily stock prices. There are times when certain price patterns take place and by exploiting them with a suitable Stop-loss, you can expect to earn good profit.

I can assure you that you will not be disappointed by Profit From Prices signals. I am also not going to waste half of my book like most authors do in arguments over why my method is superior to other methods or why other methods do not work well. You be the judge. Read this to-the-point book and see for yourself how easy it is to trade stocks just by paying attention to prices.

Welcome to the wonderful world of Stock Prices!

 

 

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