Basics of Stock Trading #2 - Systematic vs Discretionary Trading
welcome to the second episode of basics for trading with pratik and me in the first episode what did we learn when and with how much capital should you start trading core differences between investing versus trading why stock prices move hurt behavior in stock markets and now in this episode we will learn what a beginner's approach towards trading should be and once done we will go on to learn how to analyze price on charts as well as technical analysis and remember this is a 10 part series to make sure that you understand how to begin on your trading journey in depth and sequentially so make sure you hit the like button immediately and let's begin [Music] [Music] uh [Music] how do we make this system okay fine so before we make a system uh you got to open a broken account right you've got to open an account with the broker correct right and there are two things you need you need a trading account so you can trade and you need a dmat account it's basically dematerialized you probably know what that is yes the materialized account right okay so so basically d materialized is a digital version of the actual shares that you own right physical chairs correct um account is just a digital shareholding you know locker that's right that's right that's where you store uh tanmay's shares got it so you get dmat account tell me about a trading account trading account sounds like it'll bought documents like back in foreign day i remember there were these large stacks of paper i had to like print out and then i would sign them and then courier them and the entire country did this right and we'd put it to another city and then saddam would come and it'd be like a signature missing a ah it just took a while to open an account correct so now everything's like digital right correct so you have a bunch of documents and you're basically what you're doing is just uploading it online internal you have your account opened online simple awesome [Music] okay so account cool yeah correct now what is systematic trading so trading is of two types okay right one is systematic job without humbling so you have a set rule you are following that day in day out just like a business and my evaluation of my company will become xyz got it uh you you follow that system okay that's systematic reading and we'll learn that in deep going forward the other way is discretionary training [Music] [Music] you know just based on your feeling i think this will go up or down correct you then enter an exit to make a profit correct i've seen i've seen an ad on my instagram about this by learn app itself it's about a guy who who within seconds he gets in and out of the of the market and he makes a little bit of profit within seconds just when the stock is going up or down he'll get in and he'll it's called scalp trading is that what it's called correct so scalp trading is basically you enter and exit really quickly okay so like scalping yeah just a little bit a little bit just scraping scraping a little bit but the problem with that right the the the course that you saw like the person teaching he's been trading for like uh many many years right so can many people really replicate that right that's a little difficult to do i know a lot of people who can but generally i think it's like difficult to do but it's interesting to see that s up trading profitably be wholesale right but generally like discretionary trading is kind of difficult to do okay what does so risky right like yeah like your gut might not always be right correct so that's actually you should like the people are watching this right they should pause over here and write this down your gut may not always be right yeah correct and you should write down the key to that is money management that even if you're wrong most of the times you can actually use this technique called risk and money management and still make money okay so now systematic trading is following a system correct discretionary trading is little going by your gut yeah um so one is one is comes with a set of rules the other one doesn't have any rules it's more based on your experience it's a transparency correct so i think someone's new right you should yeah for me it sounds like systematic trading is something that i would want to follow yeah super yeah someone's here [Music] all right so let's get to systematic trading but now to get so to understand this right let's use an example of a casino okay okay in this case i'm the owner of the casino um all right congratulations thank you very much it's a money making machine and it's interesting right because people are going to gamble at casinos but how do casinos survive if so many people are getting payouts and making money at vegas right correct it must be a business right correct how are they making money out of chance right slot machine chill right rule let me tell you um how are they making money out of pure chance what if someone wins a million dollars and they go bankrupt yeah there must be some logic to it right correct uh so i have a relay wheel here uh check this out while i move the laptop away okay now you have black and red over here yes okay you let's say you bet on red or black i'll bet on black okay but what's your probability of winning there are only two possibilities it's it's 50 50 correct okay so let's do the round go ahead i'm waiting on black and it's landed on red oh okay uh the interesting thing is it's not only black or red here you see there's another color there's a green ah now just that one green change the probability completely yeah a 50 50 right it's now 48.6 so that difference i think is 1.4 right that 1.4 margin that's how the casino is making money yeah their edge that's their edge right so normally when you have like a trading system generally uh wind loss ratio just could get there probability of profit just could get in is generally 50 52 53 55 got it right so generally most trading systems most investing systems have like a 50 to 55 percent win rate which is fine that extra five percent is what's actually making you the making the money got it and there's a second dimension to this okay one is like your win loss ratio slightly higher the second dimension is when you're making money now forget about this example right u.s than when you're making money on a profit that profit should be 100 rupees when you're losing it should not be more than 50 rupees got it right so now i'm always in the green you're always in the green even even if i have a bad spell yes i'm more likely to be in the green correct so you've taken say let's say 10 traits okay you have a 55 percent win-loss ratio you know okay 55 percent of the time you get a correct profit but is but what do you think it means statistically statistically it means it's my time to win the next time because you know my losses you know 55 times so you're not measuring trading on a per trade level you're measuring it on a system level correct obviously not on a daily basis probably not on a quarterly basis probably yes right because you're trading a system now and not an individual trade doesn't really matter in this larger scale a system is a way java trade your system is yeah i mean think about it right like guys who are managing a billion two billion dollars uh they can't i mean they have to have something backing them to nokia tkps okay right so they all follow a quantitative system quantitative system what does that mean so quantitative you define everything based on numbers and you decide everything based on numbers it's not like a logo it's just based on numbers and we will define a system going forward okay so uh actually all businesses are actually systems think about it you know how it has to be served how you pay the bill etcetera etcetera everything is standardized correct uh end to end and then at the end some guy will kind of be like okay so so this is similar to a training system which is you find something that works and then you see can this work in the long term at scale correct you know at a macro level correct absolutely right right so now you tell me would you advise someone to sell everything again and a coffee store called a and he has only 10 days of survival left to run that coffee store of course not it's risky right yeah so he should start with the stall figure things out and move forward so he only grows when so same thing with trading god start with a small capital prove it works with the system then scale very slowly just like a business correct exactly proof of concept then you start scaling it yeah simple the systems can also be applied to making content okay right like in my case on my channel i first tried making vlogs yeah okay and i was like oh if i make vlogs like this like this like this then it gets these mini views only then i was like okay then let me now try reaction videos and then slowly i started scaling these the more i realized etcetera etcetera this is exactly like creating a business like how you just described it is that how you start a series like that's that's what you do right yeah yeah so what you did thank me right uh you created these vlogs found out what elements worked and then scaled that correct correct and you were testing this live correct and you had data you looked at analytics source up a drop of fire and based on this okay yes right you do the same thing in stocks oh yeah so we'll take a bunch of rules let's say when this happens then i'll buy based on maths right so you can use quantitative we learn technical analysis okay so we can define scenarios based on price and we can say when this happens then i will buy when this happens i will sell got it and then you apply this rule to say 10 years in the past and you can test this over a long period of time and you can see what was your edge oh that's amazing like it's like it's like correct right so this is called back testing yes it's called back testing and it's a repeatable process because you can do it in the future so these are your experiments we keep running back tests and once you have a back test you will get back so you have an expectation what can i expect when i trade this system got it back test is like a test for your gut actually you're right yeah it's it's like yeah system over a long period of time correct cool awesome back testing seems like it's a it's it is the backbone of creating your system correct if you know how to back test you're more likely to arrive at a system that might it's cool right so teach me how to do back testing okay [Laughter] okay yeah why don't you show me uh what a backtest looks like so i mean just a bunch of numbers but i'll show you one over here okay and this is a actual system that we will see okay um going forward so here uh look on your right you have the stacks and here what stat i'm looking at so i'll just look at the main ones okay initial capital and then ending capital wow it's a lot right it's normal it's also a net profit percentage as you can see it's really high yeah in percent this is a six thousand percent profit uh that's right um this is over 20 years by the way oh got it oh god so you back tested for 20 years correct and sock if i ran my system yeah over 20 years this is how much money i would make correct now the problem with such a test is right what if i picked a good stock i just knew and be like profit so how many trades were there over 20 years is the question so you can see um all the total trades is 1589. almost 1600 so if you did solas for trades over 20 years yeah that's about 80 trades a year yeah uh then you would get six thousand percent return because it's a decent uh sample size it's not over a bunch of stocks it's over like like almost what 1600 yeah yeah uh now here's what i was talking about okay winners fifty point eight five percent huh okay which is almost as percent here it's like henna is like 51 losers is like 49 oh that's like so you've made all your money in those additional bunch of wins correct correct very little right also it means when you win so see this okay exactly what you said um average profit can you say that's a one to average profit you can see what the average profit is like it's 13 000 rupees that's the average profit you're making the average loss is only 6 000 rupees correct so you're losing half the amount of money you're making on on on a profit right that's cool that's that's a good system right so now uh do you want to be right 99 percent of times it doesn't matter man it doesn't matter who cares yeah right as long as if i'm right 51 of the times it's enough as long as i'm as long as when i'm right i'm making good money correct got it so this is what most of trading comes down to that actually most of money management comes down to when you're losing you lose little when you're making you make a lot correct right now look at any of these portfolios online sector look at any guy who's really rich okay where did he make most of his money it'll be one two three companies max correct but how many like uh pies is his finger in he'll be like involved in 100 companies what about the rest right so his win loss ratios is like three percent correct so this so this is the back testing report of the system that you were back testing right like this there are many many systems i was seeing on the learning map yesterday yeah there are different different systems that when you backtest you see different different results so there are different different ways of finding the system correct so some strategies will have like two trades a day some will have like one or two a week some will have one or two a month so then you have different strategies and then you just pick the one that suits you best but they should be back test also over the course of the next few videos we will figure out slowly get to how to make your own strategies but if you guys want to learn in depth a little quicker you can also go and check out uh more detailed videos on learn so predict now coming to uh how do we start building a strategy that we can then backtest correct so like you said right initial period about creative you should be able to come up with a hypothesis right so let's learn something called technical analysis okay correct it's the first step that every trader makes the study of price the study of price uh study of price movements and there are a bunch of tools in it right there patterns their candlesticks can say so i'm enabling to die indicators so we'll touch on all of this through line machine traffic uh and we learned this so at least we have context technical analysis yeah yeah right now um we will get our hands dirty now getting it okay perfect uh and once we do this then we will create our hypothesis our idea and then we'll [Music] exam time okay let's understand our discretionary trade karaoke systematic so i would do systematic trading because there are set rules there you know you you can back test your system i got to see if this works in the long term yeah etcetera etcetera so what is this is [Laughter] [Music] in the next there are a lot probably hundreds we'll just focus on a few so that we have some context got it cool all right if you guys are intrigued by everything we've discussed so far and you want to learn more in depth you can take the course on the basics of trading taught by guruji pratik singh himself check out the learn app link in the pinned comment and get two months extra access for absolutely free you can also analyze your stock fundamentals and history in depth thanks to ticker tape and before you begin trading one must have a dmat account so open your own dmat account with the link in the pinned comments check out the next episode guys we're gonna get in and i'm gonna have some amazing ideas uh that pratik will reject but we'll find some nice ones eventually and turn it into a system yep cool coming up next these are three kind of trends let's just break this down a little bit i'm assuming it climbed from here yeah so we'll exit this yeah go ahead from this point it'll climb oh it did the next day close tana i'll just turn this into a bar and this a high this is now a candlestick got it so uh and this just shows uh that pura was engulfed uh by this uh there are also multiple candlesticks where it's a combination of one two three candlesticks okay and let's suppose i'm giving you 37x or some x multiplier if your number comes over here you can bet on that number okay okay so you drop that and we spin it let's do that let's do it let's pick a number uh number 12. all right great um
so that's 21. right you basically lost everything interesting but but this will happen again and again and again and can i grieve go ahead okay i'm over it now fantastic uploading oh no
2021-06-09 19:04
