Promoter's shares pledging at the highest since 2009

Pledging of shares by promoters of listed companies has reached its highest level since 2009, when it was made mandatory to disclose the encumbrance of shares by market regulator Sebi, a report has said.

According to an analysis of BSE-500 companies by ICICI Securities for the quarter ended March 2012, aggregate number of shares pledged as a percentage of those held by promoters rose to 10.4% from 9.4% a year ago.

his is the highest since 2009, when it became mandatory for firms to disclose the data. In December quarter, percentage of promoter holding pledged stood at 10.1%.

Experts believes promoters are forced to pledge shares with lenders in return for loans due to liquidity crunch.
“In the last 11 quarters, from the data available on pledged shares, we have been able to decipher that promoters have utilised pledging of shares to get loans on a regular basis. On an average, 8-10% of the promoter’s holding has been pledged during September 2009-March 2012,”

Companies such as Yash Papers, Zee News, Sri Adhikari Brothers and GTL have increased pledged shares between December quarter 2011 and March quarter 2012.

In contrast, firms including Tata Coffee, Adani Power, Mangalore Chemicals & Fertilizers and Shree Renuka Sugar, saw a drop in percentage of stake pledged in the March quarter.
Interestingly, there were four companies, including Gujarat Pipavav Port and Thomas Cook (India), where owners have pledged their entire stake.
Promoters of another 13 companies such as billionaire Vijay Mallya’s United Spirits and real-estate developer Housing Development & Infrastructure Ltd (HDIL) have pledged more than 90% of their shares.
In terms of sector, companies in the oil and gas space have seen more than double the promoter shares being pledged in the March 2012 quarter as compared December quarter.
Real-Estate and power sectors too have seen a rise in the promoter shares being pledged, while banks and textile companies have been able to reduce the percentage of their promoter holdings being pledged.
“However except for the March quarter, the previous four quarters saw the BSE 500 index correcting 25%, resulting in an erosion of market capitalisation of stocks and the value of shares pledged for securing loans,” Pandey said.
“In such a scenario, companies that have taken loans against shares have to provide further margin in cash or pledge more securities to maintain the margin requirement. The companies that default may face the situation of selling of pledged shares by lenders resulting in a decline in stock prices and reduction in promoter holding,” he added.
In 2009, Securities and Exchange Board of India (Sebi) had mandated companies to make disclosures of shares pledged by their promoters after every quarter.

Surprisingly, the list of companies where promoters have been steadily pledging their stake in recent times include some prominent A-category Bombay Stock Exchange (BSE) listed companies like PV Ramprasad Reddy and Nithyanada Reddy promoted Aurobindo Pharma, GM Rao's GMR Infrastructure as well as politician L Rajagopal's Lanco Infratech.
This list also includes several B-category BSE-listed players like logistics company Gati Ltd promoted by Mahendra Agarwal, Gayatri Projects promoted by politician T Subbirami Reddy's family, Mic Electronics promoted by V Rao Maganti and in which Venkateswara Rao Daggubati and D Purandeswari are investors as well as Krebs Biochemicals in which Ranbaxy and Dr Reddy's Laboratories chairman K Anji Reddy and DRL managing director Satish Reddy are also investors, among others.
In some instances, like Gati and politician Y S Chowdhry promoted Sujana group companies, banks and FIs had even started invoking their pledged shares to make good the losses during the October-December 2011 quarter. According to estimates, over 120 Hyderabad-based companies are listed on the bourses.
In fact, a recent Crisil Research report on promoter pledging too had voiced concern over promoters of nearly one third of the 1,214 listed companies in India with market capitalization of over Rs 100 crore pledging a portion of their shareholding. Not surprisingly, this study contained the names of several Hyderabad-based companies like ICSA India, Andhra Cements, Gayatri Projects, GSS Infotech, Gati Ltd, Sanghi Industries, Viceroy Hotels that had over 80% promoter equity pledged.
Putting down the high volatility in the capital markets in 2011 to high domestic inflation, rising interest rates and tepid global economic environment, the Crisil report, based on data up to November 2011, had pointed out that promoters who had pledged a chunk of their stake run the risk of losing control over their companies and expose investors to higher share price volatility if they fail to meet payment schedules or provide additional collaterals to banks and FIs.
In fact, analysts point out that the woes of Hyderabad-based companies stem from a combination of high debt, falling share prices and over-ambitious promoters and with the dark clouds of the economic crisis not looking like clearing up anytime soon, highly pledged promoters and companies may be in for big trouble this year.
"Companies saddled with huge debts at high interest rates are feeling the heat especially as banks and financial institutions are turning cautious on lending money due to the current economic situation," explains independent consultant VS Vasudevan.
However, industry insiders point out how many Hyderabadbased promoters had over-leveraged their balance sheets and showed huge market capitalization so that they could raise more money from private equity investors, banks and even pledge their shares at higher prices. In most cases these promoters had successfully safeguarded their personal wealth.

"While some promoters pledged their stake to grow the business which is alright, there were others who raised money during the boom to play the markets or invest in realty or use the funds for other investments, but their strategy to either raise huge debt or pledge shares at higher prices has backfired due to the downturn and volatile markets," points out an analyst who tracks Hyderabad-based companies.
The falling share prices during the current fiscal forced promoters, who had pledged their stake, to top up their margins and when they failed to do so banks and financial institutions started selling off their shares to make good their losses, resulting in a major variation in promoter holding in last 2-3 quarters in some companies, analysts explain.
Adds investment consultant Hem Kumar: "Companies where substantial promoter equity is pledged and financial performance has decreased dramatically in the last couple of quarters will be the first ones to get hit and may find it extremely difficult to survive the downturn unless they are able to make a substantial improvement in performance."
"Though pledging of promoter stake is a routine activity in sectors that require a constant flow of funds such as infrastructure or in events like acquisitions where pledging of shares acts as a form of bridge financing, investors have to be cautious where the promoter pledging is done in stocks and sectors where there is no ostensible end use of such funds," cautions P Phani Sekhar, fund manager-portfolio management services, Angel Broking.
And while the Satyam scam may have forced market regulator Sebi to make it mandatory for promoter to disclose their pledged stakeholding, Hem Kumar feels it's time Sebi made these disclosure norms more stringent and also made it mandatory for companies to declare the status of debt so that investors and shareholders can better protect themselves.

MONEY MANAGEMENT

Do you know, what is the most important aspect of successful futures trading?
 Is it identifying the trading opportunity?
 Is it proper entry into the market?
 Is it the trading “tools” you are using?
 Is it an exit strategy that is the most important aspect of trading?
The answer is: None of the above (although an exit strategy is close).
The most important factor in successful futures trading is money management. One still has to be savvy at chart forecasting and-or fundamental analysis, but it’s the money-management factor that will make or break a futures trader. The huge leverage involved with trading futures absolutely requires pinpoint money managing.
Surviving in the futures market absolutely requires practicing sound money management. Even a rookie trader who starts out with a hot hand will eventually find that at least some trades are not going to go his way. And if he has not employed good money- management principles on those losing trades, he will likely have squandered his trading profits and his entire trading account.
Conversely, the novice trader who uses good, conservative money management techniques will be able to withstand some losses and be able to trade another day. The ability to take a loss and trade another day is the key to survival–and ultimate success– in the futures trading arena.
Here’s an important point to consider, regarding money management and successful futures trading: Most successful futures traders will tell you that during the span of a year they have more losing trades than winning trades. Then why are they successful? It is because of good money management. Successful traders set tight stops to get out of losing positions quickly; and they let the winners ride out the trend. On the balance sheet, a few bigger winning trades will more than offset the more numerous smaller losers. Good money management allows for that to happen.
Here are just a few very general money-management guidelines:
 For smaller-capitalized traders, don’t commit more than one-third of your trading capital to one trade.
 For medium- and larger-capitalized traders, you should not commit more than 10% of your capital to one trade.
 The larger your trading account, the smaller your commitment should be to one trade. Smaller-capitalized traders, by necessity, have to commit a larger percentage of their capital to one trade.
 Use tight protective stops in all your trades. Cut your losses short and let the winners ride the trend.
 Never, never, never add to a losing position.
 Your risk-reward ratio in a futures trade should be at least three to one. In other words, if your risk of loss is Rs. 1,000, your profit potential should be at least Rs. 3,000.

5 Qualities of Top Traders

Summarized from a Post by Van K Tharp

1. A belief that you create your results in life.

Most people don't understand this concept. They repeat the same mistakes over and over again because they blame their mistakes on external factors.

2. The interest and desire to really understand yourself.

You cannot understand how you create your own results if you don't know yourself intimately.

3. Discipline to continually work to improve yourself.

Top traders often have a passion to work on themselves.

4. The ability to strategize well.

Good traders tend to excel at high skill games (e.g., poker, backgammon, chess, blackjack) because they can create good strategies and stick with them.

5. The ability to get in the zone.

Top traders can become one with the market and accurately sense what it is doing. They have the ability to live in the present moment without being influenced by the past or the future. It's a very intuitive state and often gives them a total sense of how successful their moves will be in the market even before they make them.

Now, take a look at yourself and consider honestly if you have what it takes to be a top trader.

SOME REAL FACTS ABOUT SGRG - SIP

SOME REAL FACTS ABOUT SGRG–SIP.

PRICE S&P JUNIOR BANK GOLD SILVER NIFTY NIFTY NIFTY SPOT SPOT 01.01.05 4484 2080 3531 6301 10415 01.12.10 9095 5871 11988 29035 55900 % P.A. 15% 26% 34% 52% 62% SGRG %P.A. 58% 399% 679% 1201% 10000%

Here are some real facts about our SGRG – SIP. We have compared the prices of some of the Indexes and Top Commodities in the World market since 1^st Januray, 2005. Here also you will appreciate that SGRG –SIP outforms all the asset class mentioned below by 100%p.a. at least. In fact. in Silver Spot SGRG Return is over 10000%p.a.

Be the master of your own fortunes.Write your own success story. Choose your own Index Benchmark, which you will be investing over a period of time. Since your returns will be function of what asset class you choose, ensure that you put in serious efforts in terms of understanding what you are investing in. Ensure that the Index Benchmark you choose match your risk stance and return expectations.

TEN RULES OF LONG TERM TERM INVESTING

Rule No. 1: Margin Of Safety – Buy Shares “Cheap” – Keep Capital Intact:

Q. How To Determine That The Price You Are Paying Is “Cheap”?

There are two practical ways to determine whether you are paying a reasonable price or an exorbitant one for a stock.

The first is to try and visualize the next five years earnings of the stock. If the total earnings of the stock in the next five years is lesser than the total purchase price of the stock, it is “cheap” and you can go ahead and buy it confidently.

The second is to compare the purchase price of the stock with the market capitalization of the company.  &  give a practical example of what they mean. In 2003,  bought shares of Bharti Tele at Rs 25 per share. At that time, Bharti Telecom’s shares were quoting at a price equal to its book value. Its profits were about Rs. 1,000 crore and its market capitalization was Rs. 5,000 crores.  says that he conjectured how the profits were going to move and thought Bharti Telecom would make about Rs 26,000-27,000 crores profit in next five years. At this rate, the price that  was paying for Bharti Telecom was obviously “cheap”.‘s hypothesis was vindicated and Bharti Telecom actually made about Rs 30,000 crores giving  his multibagger.

Rule No. 2: Keep the “Long Term” In Mind:

It is implicit in  & ‘s technique that they are only looking at the long-term prospects of the stock. Both  &  make it clear that the question whether you have bought the share “cheap” or not has to be decided today with regard to the future 5 year earnings or market cap of the stock.  made this quite clear when he announced his purchase of Central Bank of India that while the stock may under-perform its peers in the short-term, he was confident that it would become a multibagger in 10 years time.

In this, one is reminded of the priceless advice given by Warren Buffett that “Your goal as an investor should simply be to purchase, at a rational price, a part interest in an easily-understandable business whose earnings are virtually certain to be materially higher five, ten and twenty years from now. If you aren’t willing to own a stock for 10 years, don’t even think about owning it for ten minutes.”

Rule No. 3: Reappraise periodically the validity of the investment hypothesis:

That investors should not get unduly perturbed by short-term downward price movements in the stock. Quotational losses are notional losses and the investor should not lose any sleep over it, emphasize the investment gurus, so long as the underlying business prospects of the stock remains unimpaired.

But, that doesn’t mean that the investor should not reappraise matters and see whether the quotation loss is going to be a permanent feature say  &  gives the example of the investment he made in Float Glass. bought the shares at Rs. 40 and then it plummeted to Rs. 4.  was forced to book his loss because certain events had happened in the company which changed the investment prospects of the company.  calls booking the loss “such a gruesome business” but emphasizes that it has to be done periodically to spring-clean ones’ portfolio.

Rule No. 4: Focus On The Business – Buy A “Predictable” Business:

That the investor must be very careful of the business that he buys. If the investor is right about the business, then the other things don’t matter so much. Even if the price paid for the stock is high, a good business will ultimately bail out the investor emphasize & 

Q: What is a “Good” & “Predictable” Business?

That a “good business” is one which is able to consistently generate more cash than it’s ever likely to need, but more importantly, it’s so scalable and the external opportunity is so large that it can actually consume that cash and continue to grow the volume of cash that it is generating.

With regard to “predictability”, the four investment gurus point A practical example is provided by Central Bank and Bharti Telecom where it is possible to have a sense of where the company will be in the foreseeable future.

On the point of “predictibility”, the three investment gurus ,  and give the example of Sun Pharma. Sun Pharma is a profitable generic company and it is run by Dilip Shanghvi, a competent manager. Given the nature of business that Sun Pharma is engaged in and the the level of competence in its management, there is the element of “predictability” that whatever the economic problems that the World may face, there will continue to be demand for the products such as chronic therapies, cardio vascular, anti epileptic drugs that Sun Pharma is engaged in.Sun Pharma is in a stage today where the products that it launched more than five years ago are generating two-thirds of its sales and these products are actually growing faster than the industry and faster than the Company’s entire core business.

For some businesses, don’t set your expectations too high:

A very important point about how investors must be wary of certain businesses and not set their sights too high. The textile business is one that the investment gurus warn about as being one where money is structurally sucked in from the investor for the reason that the cotton inventory that an average company has to maintain is over six months and the asset turns are probably struggling to beat one-month. The result is that the fixed capital deployment is equivalent of sales; margins are always highly competitive and yet you have to consistently put in money into capex to remain at the same level of production.

The Airline business is also another sector with high capital investment, intense competition and cyclical trend that one must be wary about.

Competition

On the question as to how to factor in competition when selecting a stock for investment,  &  point out that what the investor has to be careful about is that the business has a “moat” around it (such as a powerful brand e.g. Apple), and operating economics which are in its favor (such as a demand for its products). The company must have the technology to power its business. The trioka gives the example of Nokia which despite a great brand name and business prospects, lost out to Apple only because the latter had better technology at its disposal.

On the concept of “Good Businesses” one cannot do better than to echo what Warren Buffett said:

“We look for companies that have a) a business we understand; b) favorable long-term economics; c) able and trustworthy management; and d) a sensible price tag.

A truly great business must have an enduring “moat” that protects excellent returns on invested capital. The dynamics of capitalism guarantee that competitors will repeatedly assault any business “castle” that is earning high returns. Therefore a formidable barrier such as a company’s being the low cost producer (GEICO, Costco) or possessing a powerful world-wide brand (Coca-Cola, Gillette, American Express) is essential for sustained success. Business history is filled with “Roman Candles,” companies whose moats proved illusory and were soon crossed.

Our criterion of “enduring” causes us to rule out companies in industries prone to rapid and continuous change. Though capitalism’s “creative destruction” is highly beneficial for society, it precludes investment certainty. A moat that must be continuously rebuilt will eventually be no moat at all.

Additionally, this criterion eliminates the business whose success depends on having a great manager. Of course, a terrific CEO is a huge asset for any enterprise, and at Berkshire we have an abundance of these managers. Their abilities have created billions of dollars of value that would never have materialized if typical CEOs had been running their businesses.

But if a business requires a superstar to produce great results, the business itself cannot be deemed great. A medical partnership led by your area’s premier brain surgeon may enjoy outsized and growing earnings, but that tells little about its future. The partnership’s moat will go when the surgeon goes. You can count, though, on the moat of the Mayo Clinic to endure, even though you can’t name its CEO.

Long-term competitive advantage in a stable industry is what we seek in a business. If that comes with rapid organic growth, great. But even without organic growth, such a business is rewarding. We will simply take the lush earnings of the business and use them to buy similar businesses elsewhere. There’s no rule that you have to invest money where you’ve earned it. Indeed, it’s often a mistake to do so: Truly great businesses, earning huge returns on tangible assets, can’t for any extended period reinvest a large portion of their earnings internally at high rates of return.”

Rule No. 5: Invest According To Your Temperament and Act Within Your Circle Of Competence:

That investing is a test of psychology and character and of intellect and that an investor has to invest depending on his particular temperament and should not forcefully copy a style of investment only because someone he admires adopts that style.

The investment legends give the example of Warren Buffett for whom the investment mantra was a “concentrated portfolio” and “Buy and Hold Forever”. Warren Buffett was immensely successful in that strategy. However, Peter Lynch, also a successful investor openly declared that “he never saw a stock he didn’t like” and had as many as 1,400 stocks in the Magellan Fund which he managed. Similarly, as against Warren Buffett‘s “Our Holding Period Is Forever”, George Soros philosophy was “Everything is a buy or a sell depending on the price.”

So, what  &  point out is that the investor must invest in the way that he understands best depending on his temperament. The investment gurus also point out that there are certain businesses or industries where one may either instinctively have a better understanding or where one may have absolutely no idea. An example is that of Warren Buffett who did not invest in Google because he did not understand the nature of the business and where Google would be in ten or twenty years. Warren Buffett lost out on a fabulous multi-bagger but that is no reason to regret. As a principle, one should not venture into businesses that one has no understanding about emphasize & .

Rule No. 6: Don’t Get Carried Away By Public Euphoria – Never Buy A Stock Only Because It Is Popular & Everybody Is Buying It:

This is probably the single most important piece of advise given by  & .  &  caution that markets sometimes take a fancy for a certain type of stock or a certain sector and investors get carried away.  gives the example of dotcom stocks in the 1990s when the public euphoria was so great that there were many companies trading at Rs 70,000-90,000 crore kind of market cap.  points out that even Infosys, whose profit then was Rs. 500 crores was trading at a market capitalization of Rs 130,000 crores. It is only after the bubble burst that investors realized that they were paying for Infosys about 5-6 times more than what was its correct valuation.

That while Infosys continued to be a great company even after 10 years of the euphoria, a number of other stocks like Global Tele and Himachal Futuristicwent to absurd valuations and today they are literally penny stocks.

A more contemporary example of how getting carried away with public euphoria can ruin an investor. They point out that in the recent real estate boom a number of real estate companies such as DLF and Unitech spun plans on how they would be selling 15-25-30 million square feet and making a lot of profits. Their story was very plausible and easy to believe selling. They claimed that they were like FMCG companies and that the Country had the ability to absord such high priced real estate.

Unfortunately, when the bubble burst, the investors were left holding the shares of real estate companies at completely extravagant valuations.  &  forcefully bring home the point that when the crowd gets charged, it becomes completely irrational.

Rule No. 7: Never Hesitate To Buy A Stock Only Because It Is Unpopular & No one Is Buying It:

This Rule is the converse of the earlier Rule. In the earlier Rule,  & cautioned investors against buying a share only because it was popular and everyone was buying it. In this Rule,  &  caution investors against hesitating to buy a stock which meets all the criteria only on the ground that nobody else is buying it.

The priceless advice given by , India’s greatest investor, who candidly says “Never in my life have I not made an investment because the stock is not popular. In fact I like to make the investment when the stock is not popular.”

There are several examples that ,  and  give in support of their proposition. The first is public sector banking stocks that at one time were totally ignored by the public at large. These stocks, though of fundamentally strong companies, were ignored by the investor community in the misconception that these PSU companies were inefficient and no match for their private sector counterparts.

He took advantage of this misconception in the public’s mind and bought huge quantities of PSU stocks like Shipping Corporation of India, Bharat Electronics, CMC, BEML etc. Likewise,  bought huge quantities of PSU Bank State Bank of India. Both  and  bought the PSU stocks at a fraction of their fundamental value. When the inesting public realized that the PSU companies were quite efficient as well and started paying a premium for the shares,  and  got their multibaggers.

Other examples of stocks that are undervalued by the market because nobody likes these shares even though there is nothing fundamentally wrong with them. VIP Industries is one example that  is never tired of giving. The stock of VIP Industries was quoting at Rs. 65 15 months ago when  bought it (see  & VIP Industries: Best Stock Pick!). Today, VIP Industries is quoting at Rs. 650 and that means  has got himself a ten-bagger!

Another example that  &  like to give is that of United Brewerieswhich was languishing at a market cap of USD 40 million or Rs. 160 crores even though it had 50% share in the Indian liquor market and a great brand name. Similarly, McDowell was available at a market cap of Rs 200 crore. United Breweries held 40% of McDowell at that time. So it was clear as rain that United Breweries was grossly undervalued but somehow the company was not fancied by the investor public.

The example of Bharti Telecom which was langusihing at Rs. 25.  recalls that all his well-wishers were so convinced that he had made a mistake in buying Bharti Telecom that they virtually forced him to sell a large part of his shares. However, such was ‘s conviction in Bharti Airtel that even after he succumbed to the advice of his well-wishers and sold out, he bought back a large quantity. The rest is history because  made a huge fortune from the multi-bagger that Bharti Airtel became shortly thereafter.

Rule No. 8: Never Accept Anything At Face Value – Do Your Homework:

In formulating this Rule,  &  have been inspired by Warren Buffett‘s timeless maxim “Only when the tide goes out, you discover who is been swimming naked.”

The example of Satyam to highlight this Rule. At the peak of the scam, Satyam was seen to have several big marquee clients like GE and State Farm. Satyam‘s founder Ramalinga Raju was even awarded the “Businessman of the Year” prize by Ernst & Young. However, it soon turned out that everything was a fraud. The clients disappeared, the employees were non-existent and the business was just a bubble.

There are several other examples like Enron and World Com that should caution the investor that what he sees and what he gets may be two different things say  & .

Rule No. 9: Buy What Is. Not What Will Be:

Be cautious against getting carried away with forecasts and projections of future profitability. This happened at the time of the Dot-com boom and again at the time of the Realty Boom when euphoric investors started making irrational and unrealistic assumptions about where profits were headed and where share prices would go.

Investors must have their feet firmly planted on the ground and err on the side of caution emphasize & . This makes sense, when read with the other Rule regarding preservation of capital.

Rule No. 10: Better To Have A Small Holding In An Excellent Company Than A Large Holding In A Mediocre Company:

For those investors who are constantly scouring for penny stocks in the hope that they will turn into multi-baggers overnight by some mysterious process.  &  advice that the investor is better off in investing in quality companies rather than in mediocre companies. This way, not only is the capital safe but the investor is assured of a reasonable return.

If one thinks about it, there is a lot of merit in the advice that  & are handing out. If a company’s earnings are growing at say 25% p.a. (not an unreasonable assumption) and the share price grows at the same pace, in five year’s time, the investors investment would have tripled. In 10 years time, the investment would have grown 9.31 times. At the end of 20 years, the investment has grown 86.73 times. In other words, if Rs. 10,000 is invested in year one and allowed to compound at 25%, at the end of 10 years, the investor has Rs. 93,100 and at the end of 20 years, the investor has Rs. 867,300. You have your own “multi-bagger”! Of course, the income by way of dividends is extra!

STORY OF A TRADER

Working Very Hard
A martial arts student went to his teacher and said earnestly, "I am devoted to studying your martial system. How long will it take me to master it." The teacher's reply was casual, "Ten years." Impatiently, the student answered, "But I want to master it faster than that. I will work very hard. I will practice everyday, ten or more hours a day if I have to. How long will it take then?" The teacher thought for a moment, "20 years."

5 TIPS FOR A PROFITABLE TRADE

5 TIPS FOR A PROFITABLE TRADE: 

1. Plan the entire trade before you enter the trade. Have an entry strategy, and an exit point (both a winning exit point and a non-winning exit point). This will inherently force you to look at your risk/reward ratio. Write these entries and exits down in a journal.

2. Eliminate distractions. It's difficult enough to find trading time at all if it's not your regular job. If you're a part-time trader who trades at work between meetings and phone calls, think about this: there are full-time professional traders who are concentrating on nothing other than taking your money. It's not that they're better or smarter than you – they just have the time to focus. If you must trade, set aside blocks of time to study or trade without distraction. Or it may be more feasible to do your trading on an end-of day basis, meaning you place your orders and do your 'homework' the night before when you can 

focus on it.

3. Choose a method or a small group of methods, and stick to them. Far too often we see a trader adopt a new indicator or signal only to see it backfire. Become a master of your favorite signals, rather than a slave to any and every signal. Understand that an indicator will fail sometimes. That's ok. The sizable winning trades should more than offset the small losing trades initiated by an errant signal. This trading method is designed to eliminate the emotional bias of trading.

4. Choosing not to trade can also be a prudent choice. You'll frequently hear 'don't fight the tape'. The same idea also applies to a flat market – you can't make stocks do something they're just not going to do. Wait for good entries into a developing trend rather than force a bad entry into an unclear trend.

5. Take responsibility for your trades – all of them. Examine why the losing trades failed, and why the winners were successful. The reality is that you chose to enter each and every trade. This can be painful, at least initially, since the ego is built to deflect blame yet accept praise. That's a trap. If you find yourself saying "that was a good trade entry but….." then stop yourself immediately. Either everything before 'but' or after 'but' is inaccurate. If you rationalize or justify poor trades, then you'll never learn from them. This may be the most important idea of the five – the ego can prevent real learning. If you can learn to accept some failure without being emotionally devastated, then you'll be a good trader.

The only advice I would add to this list is simply to keep a daily trading journal. This can be a journal of trades, signals, ideas, and emotions about your trading. The more you put in the journal, the more you'll get out of it. It will also help you in applying and tracking these five concepts above.