Trading is an art, it combines both science and commerce aspects. The money-driven method of trading is related to commerce but trading involves quite a lot of experiments. From trend lines to indicators trading has a diversified dimension to it. To be a trader, one needs to be a risk-taker and have a Demat account. What is a Demat account? A Demat account is an account that permits the holding of financial securities in electronic form. In India, two depositary bodies maintain Demat accounts.
During the pandemic, trading has gained popularity in India. The youth are the most active traders. Question of what is a Demat account and online trading is no longer limited to a certain elite. Online trading in India has given an opportunity to people all around the country to participate in trading. The benefits of the virtuality of the markets have witnessed an enormous increase in online trading in India. Active investors with trading accounts were up 10.4 million in 2020, based on data from the country’s two largest custodians.
Trading is, basically, placing your money on certain assumptions with a motive of profit in the future or on the same day (intraday trading), the returns could be profitable or one could incur losses depending on the ups and downs of the market. As the number of people in online trading in India increased, not everyone is equipped with the knowledge of technical analysis and trading strategies. In this case, randomness plays an important role. Random trading strategies are gaining momentum as not everyone wishes to hire a professional trader to manage his or her portfolio.
How does Randomness Work in Trading?
Open a trading account, put in some money, and start placing trades according to your knowledge and the news gathered from the market about the companies. Many people put in money following the news, as the country witnessed a big blow in the Adani shares, purely based on a piece of information broadcasted, which was fake. Random strategies are based on little knowledge and predictions but the volatility and unpredictability of the market pose a challenge to random strategy.
Accuracy of Traditional trading strategies?
A traditional trading strategy includes various strategies such as Relative Strength Indicator, Up and Down persistence strategy, Moving Average Convergence Divergence (MACD) Strategy, and many more. These strategies are not 100% exact either, but they are closer to precision than random strategies. The trading strategies are built with exponential and precise tools which act as a watchdog of the market. Take the example of the candlestick. Candlesticks are a pattern that follows the price of the movements of the securities, every candlestick is created for a particular after three minutes while the market is functioning. Traditional strategies follow every move of the security in the market and present the result.
What is Better?
While randomness is present in our day-to-day life, randomness in trading could also be a winner. An experiment was conducted by Alessio Emanuele Biondo, Alessandro Pluchino, Andrea Rapisarda, and Andrea Rapisarda economists from around the world. The experiment followed the movements of 4 indexes over a while in accordance with four traditional and one random strategies. An observing result was that the fluctuations following the random strategies were relatively less than the traditional strategies, which means randomness is a less riskier aspect. Having a trading account with little knowledge could result in losses but that is also the beauty of learning. Random strategies push you over the edge and lead to the path of learning whereas traditional trading strategies are more precise and scientific, they still face the challenge of losses.
Also read:- The Impact of Margin Trading on Volatility of Stock Market
