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Jayesh Patel

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Stock Trading Strategy: Lessons

A few months back I started sending out emails to friends and relatives about the basics of my techniques that I use for short to medium-term trading. The purpose was to share my knowledge and invite greater participation to test these techniques in real-time in US stocks. Though the total number of SIGNALs I use are more than ten, I sent out four lessons explaining four different signals. The result: each of those emails was a great success, very accurate, and great timing... I have put them here. If you are interested, try them.

Trading technique basics
Summary of first 4 lessons: Nov 3, 1999. (Quick view on stock charts)
Lesson 1. FullStop, Aug 11, 1999
Lesson 2. Gangotri. Aug 17, 1999
Lesson 3. Kick. Sept 21, 1999.
Lesson 4. Jump. Sept 22, 1999.

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Trading Strategy basics: Let me explain to you all my 'indicators' which help me 'guesstimate' (guess+ estimate) very basic 'demand and supply' dynamics of the mysterious market and to capture changes as and when they happen. Tell me if you guys are interested because this is highly technical. It is also the most courageous and unique approach to analyze market trends. I understand that each of you may not be interested in it. If so, pls ignore this email.)

Every news, fed action, corporate result, analyst's recommendation or anything you may think of effects a stock' price (list of such influential factors would run into hundreds). As you would appreciate, the combined effect of all such factors is often so complex, 'mysterious', and offsetting that it often makes us believe that the markets are 'crazy'. However, each such development continuously boils down to 'shifts' of demand and supply curves which in turn pushes prices into a different 'range'. The shifting of the demand and supply curve is very dynamic and hard to interpret individually.
I ATTEMPT TO WATCH AND UNDERSTAND THIS VERY LOWER LEVEL OF MARKET BEHAVIOR and for this, all I use is daily prices- Open, High, Low, Close, and sometimes Volume. I understand that ONE can never be cent percent true about markets. So I target that I should be true 70%.(So pls don't bug me if I am wrong. However I would be really happy to discuss failures and learn from them.) Trade only when the potential for profit is three times more than likely losses. Be patient and wait for such an opportunity.

The above three things give me three different prices:
Action price (at which to buy or sell),
stop-loss price (the price at which I would acknowledge that I made mistake and would stop my losses from accumulating further) and the
target price (at which I would book profit if I am true).

Unlike most other analysts, I give a lot of importance to the daily OPEN price. Open price is the price at which a stock/market starts trading. Yesterday's prices, overnight developments, newspaper articles, nightly business reports, etc, and also institutional investors and all sorts of traders with their 'homework' start trading when the market opens. So the Open Price is a very good indicator to understand the aggregate effect of everything taken together that has happened since the close of yesterday's market and the opening of today's. I hope I am able to make my point clear to you.


Don't be a bull or a bear.

Make MARKET TREND your friend instead of fighting with it head-on.

Safety of capital FIRST. Wait for opportunities and do the risk-reward analysis before you take a plunge and then
BELIEVE in yourself instead of believing in others.

Everything that matters in this game is the MONEY WE MAKE and not the impressions we create on others about how smart WE ARE.

Follow your stop-loss limits and book profit at target levels unless you have stronger signals which suggest otherwise.

CONDITIONS: very basic thing I work with is a CONDITION. As an example, a typical condition is: Today's open price is greater than yesterday's high price. I work with many such conditions each of which is some indicator or measurement of changes that take place in demand or supply or both.
SIGNALS: Each signal is a SET of some conditions maybe 5 or sometimes 10 which are TRUE altogether. Each signal is like a typical TEST to measure shifts in demand and/or supply curves. It can also be viewed as a SCENARIO.
ACTIONS: Each SIGNAL that takes place gives me the following things: Type of Signal: BUY or SELL or WAIT. Stoploss Price and sometimes target.

Back to list of lessons | see what happened afterwards

Lesson 2. Gangotri. Aug 17, 1999.
This is the last E-MAIL related to STOCK MARKET that is sent to almost everybody who is on my list. Unless you have responded positively, you would not be sent such stock market related emails in the future. Sorry.
Do you remember the last e-mail? It was sent to everybody during the market hours when the NASDAQ was approx. 2510. Our target was 2610 to 2690. We are there. Today, something significant seems to be happening. NASDAQ is at 2660.

Back to list of lessons | see what happened afterward

(Use your own judgment and strategies in making your investment decisions.)