|| MarkeTopper ||

1. What is system trading ?

System trading is the concept in which the decision for trading is taken with the help of intelligent software / program in the computer. This software / program is called "system" or "trading system". These systems, with the help of historical data, understand the price movement very well and have algorithms to take buy and sell decisions. A good system also has risk control and money management incorporated into it.

2. Can a discretionary trader outperform a system trader ?

Discretionary and system trading are like chalk and cheese there is no comparison as such.

In system trading strict discipline is required to follow the trading system, accurate and fast execution no personal decisions and no bias about the news in and out of the markets. In the case of the discretionary trader, everything depends on the trader's intelligence, his ability to accurately understand the market and his instantaneous decision capability that must factor in the change of price movement and overall market. There is always the chance of inconsistency in his decisions due to many factors.

It is not always that a discretionary trader is successful or a winner, but there are few good discretionary traders giving consistently good results. Similarly, a system cannot always be profitable. Markets are always subject to change and only robust systems and consistent research may survive the test of time.

So both approaches have there pros and cons. But if the system is designed properly and tested, having all the ingredients like understanding the price movements, money management and risk factor, then there is a very high probability of success..

3. How effective is technical analysis in comparison to fundamental analysis for trading ?

There may be war in the Middle East, higher demand for a particular product in the USA, or a series of other conflicting fundamental picture and noises. But stocks go up or down on supply and demand and not on the basis of balance sheet alone. Otherwise, how can one explain a 100% difference between the highs and lows of stocks virtually every year, even in years where there is no change in the fundamental picture?Technical analysis in our view is more effective as it captures the sentiment of the people who are dominating the market, namely the buyers or the sellers. MarkeTopper has and is developing its own set of indicators and mathematical algorithms, and is also using a different interpretation and implementation of the available concepts and algorithms, which are proprietary in nature, and which aim at effectively capturing the dominance of buyer or sellers. Time tested risk analysis and proprietary money management techniques have been used to get the best results. Fundamental analysis may have its own benefits, but when you have the target of being profitable 10 out of 12 months, at least 65 % of the weeks and 55 % of the days and a target return of 100% per annum based on historical testing, you need more than a balance sheet and public information to achieve the same.

4. What is the difference between investment and trading on stock markets ?

Starting with investment in the stock market, it means that we buy shares for a longer duration that is say for a period of 3 months or longer, possibly ranging to a couple of years. The return on investments is in the form of the capital appreciation in the share price, plus any dividend or share splits, bonus, etc., that is declared during the period for which the shares are held. Trading, on the other hand, relates to buying and selling intra/day or on a daily basis. The trade position carries on for a couple of days or for a week. The return on trading is the favorable price movement or appreciation of the scrip..

5. Do we require large sums of money for system trading ?

There is always a requirement of a basic minimum amount to use the trading system so that its can be exploited to its fullest. Sophisticated trading systems need sufficiently large investments to recover the costs involved in developing the trading systems and to exploit the system to its full potential.

6. How does one decide that the system developed is good and would give profits ?

If testing on historical/ back data, the system should give consistent profits, have good money management to give best returns on the resources invested, and have a robust risk management to protect the system in all situations.

7. Does luck have anything to do with trading on stock markets ?

Yes, success or profits can be the result of discipline, perseverance, hard work and dedication. Luck often happens when opportunity meets preparation.

8. Do you really believe that an Indian equity research company has developed an automated trading system ? What level of expertise do equity research companies in India have on technical analysis ?

India has already made a name for itself in the software Industry worldwide. MarkeTopper Securities is backed by most respected names from various fields and is recognized as a pioneer effort in scientific system trading in India. We combine the best from information technology and equity research. The existing trading system is effectively being used by a broking house and delivering the results.

9. Are the Indian stock markets manipulated ?

India is considered among the most developed markets to operate and has its own set of big players besides foreign institutional investors and the mutual funds. It has one of the most liquid futures market in the world. The fact that people who tried to control the market were driven out shows that markets are supreme and those who target otherwise go bankrupt. The markets are as easy or as difficult as anywhere else in the world. With screen based trading, the technology for execution of orders is at par with the rest of the world.

10. Why do stocks fail to move up even when they are fundamentally strong?

Technical analysis is based on the basic premise that market moves on the basis of demand and supply. The basic principle that has been stated in Law of Supply and Demand in Economics is that prices rise when the demand is more than the supply and prices fall when the supply is more than the demand. Fundamental analysis is based on the premise that stocks are to be bought when they are undervalued on the basis of fundamental factors such as the Price/Earning ratio, profitability factor, etc.
Even if the fundamentals are strong, but the investors are not bullish on the particular stock (leading to lack of demand compared to supply), then the scrip may not rise.

11. I have been investing in stocks using fundamental analysis, how would technical analysis help me in taking better decisions as compared to fundamental analysis ?

If one is investing in stocks, technical analysis can help many ways. It can give not only the intra-day and short-term (2-3 days to four weeks) prospects of the investment, but can also provide the long-term (three month to year) picture of the investment considered. Moreover the technical analysis can give the person an idea about better options available for entry and exit at any point of time.

12. For a novice to stock markets, what would you suggest one should use, technical analysis or fundamental analysis ?

Technical analysis and fundamental analysis are two different methods for studying the market. They can be used individually as well as together to study the stock market. Technical analysis is associated with analyzing the historical price data of the stocks using various indicators and pattern studies and strongly follows the economics rule of supply and demand.

Fundamental analysis is associated with studying the balance sheet and income statement using ratios and other financial tools. Moreover, it is said that a trader should follow those rules which suit his personality and temperament.

13. I am a student of MBA Finance and have a query ? When the EPS of a company remains same, then why do prices still keep changing ?

There can be many factor like the present supply-demand situation of the stock, individual investment plans (people buy and sell after achieving their targets), present analysis of the stock sector-wide, industry-wide, the company's own planning, management decisions, overall economy situation country-wide, world-wide, periodical movement of the stock, etc.

14. Supply and demand is a concept in Economics. Does it play any role in stock market ?

Yes, the view of the stock's valuation varies time to time and the supply and demand, the technical movement and the fundamental aspect of the stock always keep on changing the investors/traders decisions which further alter the supply and demand.

Definition of Demand: The relationship between the price and quantity demanded of a good, when everything else is held constant.

Definition of Supply: The relationship between the price and quantity supplied of a good, when everything else is held constant.

15. I am a pure marketing guy. I am interested in the stocks market and would like to learn about technical analysis. Where do I get the study material on it ?

For starters I would suggest you to read the book by Technical Analysis of Stock Trends by Edwards and Magee. It is the best book available for understanding the chart patterns used in technical analysis. Technical Analysis from A to Z by Steven B. Achelis provides information about the indicators used in technical analysis. Get hold of software like Metastock or study any charting analysis software. Those interested in a purely system driven approach can look at Omega Tradestation 2000i. The more you read, the more you learn. The more you practice, the more you understand.