A. Decide yourself whether you are a trader or investor or both. I am an investor. I will never do trading but invest for short term. See the difference.
Ex. I first bought Gujarat NRE Coke at 82 in small quantities and bought in moderate quantities at 72. I used my money for these investments as I thought that this stock is a good buy for long term at these prices but it is a risky one for short term. At that time, I am sitting on huge cash from investment offers (I received good investments from 1 NRI and 2 north Indian investors just 4 days back). Suddenly, stock fell to 53 which is a steal. Here is a stock with bonus news, rights offer, good promoters and good quarterly results. Stock was trading at unreasonable valuations. Then I deployed my investment offers money. Why? I need to give just 40% returns in 6 months. Stock needs to reach just 75 to get that money in 6 months. As per fundamentals, I thought that it will easily reach that level by the time of bonus date (1 month). I don’t believe in the technical details like moving averages, resistances and supports etc. I believe in fundamentals and psychology of investors only.
If my company has good fundamentals and my entry price is reasonable, I don’t care about its short term movements.
B. Plan your investments for short, medium and long term. Allocate money accordingly.
C. “Derivatives are weapons of financial mass destruction” – Warren Buffett. Never look at them as investment vehicles. Derivatives are responsible for most of the stock market suicides.
Derivatives are invented by the brokers for the benefit of brokers.
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