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D. Murali

THE next best thing to giving you a money-tree will be to tell you how to plant and nurture one. There's money to make in the markets, and if you're reading these pages, you already know that. "Trading is all about making money," Perry J. Kaufman would tell you in his preface to A Short Course in Technical Trading, published by Wiley (www.wiley.com). His book is about "some simple ideas" and turning them "into profitable returns."

So, you wish to enrol for a three-year degree for this purpose? Wait. "No one studies to be a trader — it just happens," is a dose of Kaufman philosophy that is no different from what your meditation teacher should have told you. "There is a big gap between analysing the market and trading and it is filled with trading losses," he warns. You can cross perhaps half the chasm using good advice, "but making mistakes yourself is an important and unavoidable way to learn."

In chapter 1, para 1, line 1, the author clarifies his aim: "This course is about how to trade, not how to hold a position. It's about being on the right side of the hill. It will teach you when to buy, when to sell, and how to take losses before they affect your net worth." These are thoughts you can put on stone edicts, but your first lesson is that "things change", meaning "you need to ground yourself with trading facts." There's plenty of old-fashioned advice too: "Don't confuse luck for skill." Remember that proverb about a crow and the palm fruit?

Why is it that when the Finance Minister goes to woo the market, the Sensex falls after he speaks? "The market responds to the difference between the actual news and what was expected." Thus, it moves on anticipation, Kaufman would teach you. "Buy the rumour, sell the fact," he adds. "If you bought on every piece of good news published in the Wall Street Journal, you would be broke."

You don't make money reading, unless you earn a living by checking proofs, or evaluating examination scripts. So get down to `the trading game' where you'd know your `style'. Chapter 5 takes readers through "three trading games, each one loosening the rules to allow more natural trading." These are no rolls of dice, but need you to apply technical analysis correctly to achieve the highest returns with the lowest risk.

Trends are of two types, driven by time or events, with different trading signals and performance profits, chapter 7 would explain. Moving average represents the first; and "a breakout is the event-driven approach."

Chapter 8 is about controlling risk, necessary because you don't want to lose your shirt, do you? Learn new lingo such as triangles, "the formations that occur throughout a trend"; flags, not of parties, but "formed by a correction in a bull market or a rally in a bear market", the congestion areas that lean away from the trend's direction; and pennants, the `catch-alls' you can't quite identify.

Don't look for `V' top in boutiques, because it is "a sharp run up with a single day marking the high, and then an equally fast price drop". Following it are the blow-off, `V' bottoms, double tops and bottoms, and the triples too, and as trading gets naughtier you'd see rounded bottoms and even the `head-and-shoulder formation'. Pay heed to Kaufman call because, after all, you still want to make money.

BookValue@TheHindu.co.in

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