Stock Market Trading Strategies-2

This is part II of the article: Stock Market Trading Strategies-I, please read the first part before proceeding with this part:

Ultimately, it depends upon your psychological biases and targets that you set with the level of certainty. As I’ve explained in my previous post Forex currency trading and Hedging strategies, that hedging is used for eliminating the risk and to achieve a certainty in the future prices. So if you loose on a significant bull run while you are in a hedged position, you should not repent because your purpose for hedging was to eliminate the risk and achieve the desired level of certainity in your profits.

Same thing goes here as well. If you are happy by beating the bank rate, don’t repent on loosing on a 50% bull run in the market.
One more thing to notice is that you should know how to calculate the profits. That includes deducting the brokerage charges, demat charges, internet charges (if you pay for it), phone calls (if trading by call-n-trade) and basically anything that accrues a cost for your trading activities.

Another aspect of looking at this strategy is effort v/s reward. Is beating the bank rate justified for the amount of time, effort and energy you put in?

We should not forget that the bank rate that we get is effortless and with 100% certainity. You just walk into a bank branch, put in your money with a particular saving scheme in a bank account and walk away without any worries. You come back on the maturity date and happily take away your money plus the interest or return that you’ve earned. Simple and Straightforward.

But is it same for trading stocks with having an aim of beating the bank rate? One cannot quantify the effort you put in stock picking skills, the time you invest in researching the stocks, or refreshing the stock prices webpage for trading on a daily basis. It is difficult to keep track of internet usage or telephone bills. We tend to forget the demat charges and brokerage fee – even if we do so, we do not usually take the time value of discounted cash flows.

Ultimately, this is the randomness that one trader has to fight against. No one can have any control on which way the market goes, which way the stock prices move and how much you can make from your stock picks. Remember that it is not possible to quantify the efforts that you put in while trading, leave apart the brokerage and other charges. No point in beating the bank rate by a mere 1% or 2%; one just has to be lucky to make a significantly high profit than that offered by the bank.