Ask any investor, they will tell you the key to profitable positions are “Buy Low and Sell High”. But then, can one create a trading system based on this simple common sense rule?

  • One can be right about valuations on the longer time horizons, but it is difficult to predict the twists & turns of the market in the short to medium terms.
  • Every trader/investor has stop loss while trading, which, is the barometer for the risk appetite. The challenge with the stop losses is that even if your view is correct the stop loss may be triggered due to market volatility.
  • Traders/Investors tend to panic when the market comes down and greedy when markets are at the top, whereas, in reality, it should be the other way round. This psychology prevents many to Buy when Low and Sell when High.
  •  Liquidity and funds flow also make a difference. At the times of deep correction due to high skepticism and Risk-off behavior liquidity virtually dries up including personal liquidity due to cash flow mismatches.
 

Given these challenges what should be the key elements of a trading system?

 

1. Know Your Investment Style – The rhythm meets the purpose

 

2. Know Your Algorithm – The biological clock of buying & selling activity

 

3. Know Your Antidote – The blind faith doesn’t self-correct. It gets worse 

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