Sometime in the third quarter of 1997, someone told me that I  should  play  the  stock market. Knowing nothing about the stock market,I turned to some colleagues to seem to know a lot about it. Following their advice, I opened an account with a stock brokerage company.  Well,  up  to  that point it was simple enough. But what should  do  I  do next?  So  I  go to my knowledgeable colleague of mine again. But now he says nothing. Hmm... The  very person who was   nterested   in   opening  an  account  for  me,  is  completely indifferent now.  So  I  stop pestering them. I understand why they would  guard  their trade  secret.  Oh  well,  that’s  life.  So I start watching  the  market  myself.  I  go to Yahoo finance to learn the market.  But  I  see  at  the  top,  Dow  Jones, NASDAQ, Amex etc followed by volume. Now what are these Dow Jones, NASDAQ etc? Are  they  stock  or  bond?  And  what is volume? All I knew about volume was something related to space. So I start to do research. I learn that Dow Jones, NASDAQ are just indices. You can not buy or sell them, at least in the beginning.

So I learn how to get quotes, how to put an order to buy or sell stocks: market order, limit order, stops order etc. I  learn  that a market order is an order to buy  a  stock  such that ,  when  one buys a stock at some price, then it immediately goes  down.  Then what is a limit order? It is an order to buy or sell stocks where  one can specify a price. This sounds well and good, but  actually  what happens is the following: one either puts an order to buy at a price so low that the order never gets filled, or if one puts a  reasonable price, it gets filled but when one check one’s account, the stock is trading at least five points below. And what about  stop  orders? It  is an  order  one  is  supposed  to  use  to  lock  in  profit.  Sounds wonderful!  Here  is  how it works. Let’s say you bought a stock at $40  a  share,  and  now  it is trading at $50 a share. So you put a stop order to sell at $45. And you are happy that you will at  least make $5 a share profit for this one. Well, one day the stock  opens at $35, reacting to  some bad news.  Your  order  gets immediately filled. Later  in  the day,  however,  one  institutional  buyer, some hotshot fund manager of Janus super growth fund family, comes in, and the stock closes at $47, down only $3 for the day. So in stead of making  $10/share  profit,  you  are left with a humiliating loss of $5/share.  So  one can see putting a market order is uncertain, limit   orders    difficult   to   execute ,   and   stop   orders   are completely beyond your control.  There  is  yet another type of order called stop-limit order. Description of these kinds of orders is simple: just  combine  the  characteristics  of limit order as well as stop order.

         At  this  point  I start  learning about the market in depth. I learn that there are  growth  stocks, and there are value stocks. I could  understand  the  growth  stocks  easily,  the  stock  of  the companies,  which  are  growing at some good rate and have good prospect in future.  And  value  stocks?  What about value stocks? These stocks are valuable because they are not growing any more and have no prospect in future? Hmm…

         Anyway, I keep on learning. P/E ratio, PEG and YPEG,market cap, book value, uptick,downtick, short interest, put/call ratio and what not. At this point, someone suggested I start watching CNBC also . So I turned on CNBC one day, and I saw Maria Bartiromo (Or Maria Bartaromo?),speaking from the NYSE at the top of her voice. So I  thought  stock market might not be so boring after all. I also started listening to the guests. One day one analyst came,and he said instead  of  studying  the  individual  stocks, one should study the  economy  and  try  to  gauge  the  overall  market. So I start studying  the  economic  numbers,  PPI,  CPI,  ECI, unemployment, wages, etc. So one day the unemployment numbers comes out, it was lowest in fifty years! I thought, wow!  This  got to be a good thing for the market. Wrong! Stocks tumbled big time!.Later in the day,  I learn  from some  analyst  that  this  kind  of  stock market action was  expected because  what is good for the main street is not good for Wall Street. OK…I guess that makes sense. So I learn few  more  things.  I  learn  that  stocks  go  up  because of good earnings.According to Peter Lynch, earning drives the market; it is not that  complicated. Well, one morning one company announced super  good  earnings  for the year, and the stock went down! But the  same  analyst  came on to CNBC and said the good news was already  priced  in to  the stock, so when the news actually came, the  stock  went  down due to profit taking. According to him, this was  classic case  of buy the rumor, sell the news. And so it goes.

         As I was learning various things, watching CNBC,surfing the web,  surfing  yahoo finance,  reading  motley  fool  etc, I started placing some trades also. But to my  horror, all stocks immediately goes down after I buy! I would watch a stock for a while and  see it going up down,  between  say  30  and  40. So I tell myself why don’t I buy when it touches 30, and then sell at 40? It  had  never betrayed this trading range, I have been watching for two  weeks! Little did I know. As soon as I buy the stock, it starts falling   prey to gravity. That day it closes at 28. What do I do now? Do  I  sell   it and incur a $2 loss? NO! In stead, I put a limit order to  sell   at 30. I want to just break  even this time. But guess,what happens? Next day it opens at 27, and  drift lowers the whole day,   finishes  at 26 1/8. Now it looks like the stock has never seen 40  in its life. So I say to myself, I want to hold this one a little longer.  One day it must  come back  to  40.  Seven  days  later (which felt  like an eternity to me), the stock close  at  20  5/8. It  seems  like   it  is ready to fall into teens. At this point, my patience  breaks,   and I  sell it for almost 10 point loss. I console myself, well it  will  go 10, then I will but it, and sell it at 20. So I will  break  even    after all. The very next day, the stock gets upgraded by an  analyst, and it rallies  like  there  is  no  tomorrow.  It goes up for  three  straight sessions and close at 29 ½ for the week. At  this   point  someone like you may be thinking, I must have  bought  this  stock  at  that price. No I didn’t. I can not say I  was  not tempted. But I got fed  up with the  stock  and  had moved on to some other stock equally defiant.

         My  losing  streaks  continued!  It  was interrupted by a few winning trades,  but  they  were few  and far between. So I will be losing… losing …losing… gaining… .losing…  losing…. losing….losing…. losing…..losing….gaining….losing.

         At  this  point  I  start  getting worried. As a small  investor, what do I do? How will I get insight about a company,or about the market in general? Or  are  stocks  not  for me at all? Should I just invest in  mutual  funds  and forget about stocks? Oh well where is the  fun  in  that!  No,  I  was  not  ready  to bite the bullet yet. I thought funds  are for old  people and  retirement  accounts. I still thought stock  market  has  a big reward in store for me. If George Soros, William  O Neil  can  do it, why should not I be able to do it. Moreover, if  I play  the market, I can watch CNBC, and Maria will always be there! I hope she knows how much I am suffering.

          Someone  told  me  to apply  technical analysis. At first,  I thought that will be a complicated thing.  But  I got to know  that their main tenet is stocks which are in uptrend, tend to go up,and stocks which are in downtrend, tend to go down. May be it is just me; I cannot see what is so  technical about it. I could have  said that. I thought it would tell me something I don’t know.

         There  are some  methods  by which, they claimed one can make sure fire profitable trade.  But  some  of  the methods  seem very complicated to me. One such method will say: watch a stock to want to buy for a while until it gives a buy signal or sell? But to identify these signals one has to go through hoops.As an example, one needs to  watch a  stock  with  rising  momentum.  What is a rising momentum?  It is  a  combination  of  rising  price as well as rising  volume. But  that  is  not  the end  of  it.  Once  you  have spotted rising momentum on a stock, you watch for a setup which happens  in  the  following  manner.  The  stock  should  have four consecutive  days   of   up   followed   by  two  down  days,  with diminishing  volume. It  is  important  that  the down days don’t go below  10-day  average.  At  this  point,  one  should watch if any divergence  is  occurring  between  the 10-day standard deviation and the 20 exponential stochastic indicator. If all these conditions satisfy along with some others, one should place a buy order after four days of watching. At this point if one is not sick, one can buy the stock on the fifth  day  if the volume is above average. Now it comes  to  selling,  and  you  guessed  it, the rules get even more complicated  for  selling. I would rather leave it for the purpose of this article.
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