What is Alpha?
The first letter of the Greek alphabet.
This particular definition suits the most.
According to http://www.investopedia.com
A measure of performance on a risk-adjusted basis. Alpha, often considered the active return on an investment, gauges the performance of an investment against a market index used as a benchmark, since they are often considered to represent the market’s movement as a whole. The excess returns of a fund relative to the return of a benchmark index is the fund's alpha.
Nifty being the market index a stock performance of 1.20 indicates that statisticians are expecting the stock to give a return of 20% return on the stock price. An ideal alpha expectation is always positive.
While considering the alpha value the market fluctuations are not accounted for and beta is considered to be Zero. A large alpha means that a stock is going to perform much better than the underlying index of Nifty.
What is Trading?
Again according to Investopedia
Stock or equity traders can either partake in the practice casually or as a full time profession. Those working at the institutional level are often employed by hedge funds, mutual funds, portfolio managers or pension funds. Stock traders are not limited to trade only stocks, but can invest with other financial instruments as well. In order to be a successful stock trader, an investor must properly execute a profitable investment strategy. For example, while some may trade with a short-term perspective using momentum indicators, others find a niche in long-term buy-and-hold strategies.
Stock trading is when a buy or a sell in done based on some premises of study which could be anything right from Fundamental Analysis, Technical Analysis or Demand & Supply analysis as in our case. And a right strategy behind it along with certain reasoning. Speculation is something very different. People at large assume trading as speculation. Which is so not true.
When a person tends to do a very rapid trades in very short time it leads to speculation. Since the uncertainty is very high because of very less duration. Many traders start with Intraday Trading and that’s what leads to speculation.
Speculation is very tough especially with the advent of Algo Trading, Black Box trading etc. So why Alpha Trading and how is it different from others.
Why Alpha Trading?
At Alpha Trading, we follow the principles of Demand and Supply Analysis which is different from Fundamental Analysis which gives the right values of the stock discounted to its current price. It also does not include Technical Analysis except for Candlestick chart. Perhaps we do not use volumes also. Technical analysis usually clutters your study and multiple indicators and each one giving signals at different times.
At Alpha Trading, we take the below-mentioned list very seriously.
Let us do all things for you follow the below mentioned
- Capital Managment
- Risk Management
- No Fundamental Analysis
- No Technical Analysis
- Demand & Supply Analysis
- Discreet Trading
Trading on right opportunity is the key to successful trading. We are not victimized with a daily compulsive stock trading disorder and hence we avoid lots of chaos.
How Much Money one Should Invest in Alpha Trading?
Managing and Allocating money in different opportunities is the key to being successful.
Maximum amount one should invest in Trading should not be more than 10% of entire Investments. The reason why you should purse stock trading is the following reasons.
- Generates Profit during Bearish Market.
- Hedging Strategies
- Income Generating Option trading strategies during flat market or horizontal market.
- Medium Risk can give your much higher Portfolio Returns with reduced risk.
I have met so many people who take debt to invest in stock market. Rarely I have noticed who take advantage of leverage through derivative route.
Even return of 30% per annum in trading could give your overall portfolio overall boost to profitability.
How are we Different from Others?
We believe that Technical Analysis and Fundamental Analysis for Index Trading are distractions. Volumes are also not considered while taking a trading decision. Trading requires you to cut the noise so that you can focus on right entry and exit strategy. Technical analysis has myriad of indicators and different indicator give different signals all the time which makes it complex to perform and focus.
We don’t take stock volumes seriously. This section takes people by surprise. Volumes too are a distraction. It’s simple higher volumes do not tell us if demand is high or supply is high.
Volume is different from Liquidity. Most People confuse volumes with liquidity and end up taking wrong decisions. We are not at all talking about trading with illiquid stocks or derivatives.
We are looking to beat the Index consistently with the right opportunity.
Comment below if you have any different point of view.
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Also published on Medium.