Saturday, December 7, 2013

Weaknesses or Strengths?

I have Confession to be made about my two Weaknesses:

1) I have a obsession to be in the market all the time, I can bear loss by whipsaws but can not let nifty go anywhere without my position in it. People often send me suggestions to be out from market for some time until it gets trendy again, But I just can not do it. I often hide this weakness of mine by replying that by the time markets will appear to be trending ,It will be too late to enter, which more often than not turns out to be True. So I do not feel the need to work on this weakness  :)

2) I Just love Nifty and very Loyal to it by not trading anything else :). My wife calls Nifty her "Sautan" :), She often complains that I spent more time with Nifty than with her :)

Even when Nifty is doing nothing and giving me whipsaws, I don't even think to trade any other instrument like Banknifty, Commodity or Forex. You can call it my obsession with nifty or my stubbornness. I do not even have a Demat account , I only have a trading account with Zerodha only for Equity. I often hide this weakness of mine by saying that my focus is only on Nifty, like Arjun had focus on the eye of Fish :) Since things are working fine with Nifty, I do not feel the need to work on this weakness too. :)

  

Saturday, November 16, 2013

Tuesday, October 29, 2013

Futures Vs Options

Rohit asked: 

I have a doubt regarding profitability of derivative market. Is Nifty Futures trading or Nifty Options trading more profitable? What are the advantages and disadvantages of both the segment? 

I know many intraday traders sticking to options and position traders trading futures. Are position traders avoiding options because of the time decay factor in options?

Suppose If we capture a 50 points up move in Nifty in a day, trading futures or options will give us more profit? Also, if we have to hold our position for 2 weeks to get this 50 points up move in Nifty, will futures or options gives us more profit? 

In case of down market, is shorting in futures require more margin money and expensive when compared to buying Put options? 

I have a trading capital of 2 lakhs rupees, would you suggest me to trade options or futures? If I have a strategy to swing trade in Nifty(1 to 5 days), does trading in futures or options is better? I have trading account with zerodha. 

I know you are a busy person. Kindly find time to clear my doubts. You may find these doubts silly. But I am new to derivative market. Expecting your reply.

Thanks and Regards,
Rohit

---------------------------------------------------
My Reply in the sequence of the questions:

1) There is nothing like which one is more profitable, Options are more volatile because % change is big.
 Options tend to be more volatile near expiry. At the beginning of the series , 20 points of nifty movement may give move of 4 point of premium in next out of the money option, but as the expiry comes near 20 points of nifty movement can lead to same amount of movement in same option value. So If you are able to time options well, then % wise it can give 200 to 500 % returns also in a same day. But at the same time its very easy to see the premium going down by 60-80% in a same day. So everything comes with a cost. You just can not get more profitability without increasing the risk.

2) You only answered to your second question. Yes, I also avoid options in positional trading.

3)Capturing 50 points of move in a day, option can give you more money in % terms. And it also depends how far are we from expiry.

4) Future is always expansive to trade because it needs more margin, while buying options is always tempting and cheap as it needs no margin. All you have to pay is the premium. In 2 lakh you can buy 80 lots of options with premium of 50 rs. But you can not buy or sell more than 8 lots of futures with 2 Lakh as we need approximately 25K per lot as margin requirement.

5) I will strongly recommend you to trade only futures and do not try options. Because Greed and Fear is very difficult to handle in options. And secondly Time factor is always against option buyers, So do not try options at your early stage of trading.


Happy Trading
Pawan

Thursday, October 3, 2013

Ride Big Profit And Avoid Big Loss

There can be five kind of Outcome of our Trades:

1) Breaking Even ( -10 to +10 nifty points)
2) Small Profits (like + 10 to +50 nifty points)
3) Small Loss (like  -10 to -50 nifty points)
4) Big Profits ( like +100 to +300 points)
5) Big Loss ( -100 to -300 points)

Now First three types of possibilities -> Breaking even trades , small profit trades and small Loss trades will neutralize each other and keep us at break even to little negative due to transaction costs.(Range Bound Markets)

And now we are left with last two outcomes which are Big Profitable trades and Big Loss trades, And if somehow we can avoid the big loss trades(Trading against the trend in Trending Markets), we are just left with Big Profitable trades(Riding Trending Markets) which will make us a big winner in the long term.

Think about it.

Happy Trading
Pawan

Tuesday, September 17, 2013

Power Of Compounding

Playing nifty one lot per lakh and making 100 points a month, i.e 1200 points an year can make us 50*1200 = 60,000/- per anum with 1 Lac of capital. So basically we can get 60% return per anum with just 100 points per month on average basis.

if we compound the capital year on year, Captial can be grown to 10 times in five years.

Total capital after 5 years = Starting capital * (1.6)^5 =  Starting capital * 10.48

On paper it looks very easy to achieve 100 points per month and get this kind of returns. But in real trading we face the below challenges:

1) Pulling the Trigger - When Capital starts increasing , in order to compound we have to increase the quantity too but the larger is the quantity, more difficult is to pull the trigger for taking all the trades generated by the system. The situation gets worse when there is a streak of loss.

2) Slippage Issue- If today we buy one lot of nifty at market order , we may not get any slippage problem, But if we buy 100 lots at market order, it can cost us 3-4 points of slippage. So if one has an intraday strategy of making 5 avg points every day(5*20 =100 points per month), the strategy will stop working if he has to scale-up his size to 100 lots. So bigger the size we have, the larger should be the time frame for trading if we really want to compound the capital. Larger time frame trading will reduce the frequency of the trades which will result in lesser slippage.

But it takes a lot of time to change mindset of intraday to Swing or positional . So If we are serious about this profession for a long term, we should start conditioning our mind at an early stage for larger time frames rather than day trading with smaller time frames.

Since we are talking of compounding capital, all of our hard earned money is always exposed to market and one big blow to our account can also damage our account badly. So Leverage has to be controlled from the first day. I prefer to play one lot per lakh, but once the captial reaches to a respectable amount, we can reduce the leverage even further and can start playing one lot per 1.5 lac or 2 lac.

Please share your insights in comments.

Tuesday, September 3, 2013

Testimonials

I hope that all of you are enjoying Nifty Swing Trading. I request my subscribers to provide the feedback in the form of comments of this post.

Saturday, August 24, 2013

Bumpy Moves Vs Smooth Moves

Nifty has moved 200 points from 5250 to 5465, but the kind of move it made was not easy to ride. For every 70-100 point upmove there was a 50-70 point of a pullback.

1) Moved from 5250 to 5341(91 points) then pulled back to 5269 from 5341, a correction of 72 points.

2) Moved from 5269 to 5412 ( 143 points) , then pulled back to 5354 from 5412, a correction of 58 points.

3) Then upmove from 5354 to 5425 (71 points), then pulled back to 5370 from 5425, a correction of 55 points.

4) Upmove from 5370 to 5442 ( 72 points), then pulled back to 5392 from 5442, a correction of 50 points.

5) Upmove from 5392 to 5465 ( 73 points), then pulled back to 5412 from 5465, a correction of  53 points.

Can you find some similarity of last three moves, it moved up approx 70 points and then pulled back around 50 points. Nifty was moving in a channel.

For Intraday traders - In a hindsight, It looks very easy that we should have gone long at every correction of 50 points and then book long and initiate short after every 70 point of upmove, But how many of intraday traders could have done it??

Now question arises - When do we get smooth rides and when do we get bumpy rides?
The answer is - When there are different trends in different time frames we get bumpy rides. And when all time frames synchronized to same trend we get smooth rides till next major support/Resistance.

In this whole bumpy up-move of 200 points, 5 min, 10 min were in uptrend but 30 and 60 min were in downtrend, so the bigger time frame players were shorting on rallies leads to the bigger corrections at every up-move, and the smaller time frame players were buying dips on any such correction of 50 odd points.

Another example is for 21st Aug, before it broke 5425, it was going up and down, because smaller time frames were in uptrend and bigger time frames were in downtrend.but once it broke 5425 it was a smooth ride till 5260. Because now smaller and bigger time-frames were all synced to the downtrend.

The bumpy ride of last 200 points up-move will be converted to a smooth ride once 5490 is taken out in nifty, when bigger time frames will also turn to uptrend.

Happy Trading
Pawan


Friday, August 16, 2013

Did I make Loss Today?

Today I am getting phone calls from many of my relatives and friends who knew that I have left my job and started doing Full time trading. They are concerned about today's Big Fall which has made a big news in all the news channels. They start with a conversation that how much loss did i make today?

And I can not stop myself laughing :), And when I tell them today was my best trading day ever , they can not believe that. It is difficult to make them understand that money can also be made when market goes down, Me and all of my subscribers went short as soon as 5703 was broken, Everyone of us is sitting on 200 points of profit.

On the Flip Side, I am still getting many emails from my critics saying that my party will be over soon, the kind of returns i am showing in Aug performance is just not possible :), To them its a plain lie. Tell me guys what should i do, If market is giving me money , Should i not take it? This is what a trend follower is supposed to do, to make maximum out of any position.

Today at 5540, I took an exception because of the enough money on table and the weekend , So asked everyone to be out from short but then one of my dear subscriber asked me ,"why are you booking emotionally, didn't you teach us to ride the trend to the fullest". I was touched and came out of that emotional booking and we all shorted again at around the same level. And not to mention Nifty came down 45 points down again from that shorting level.

I will leave it to my subscribers to reply this post and tell the actual truth if they were Short from 5703 or not?

Friday, August 9, 2013

Why do we traders tend to Over trade?

One of biggest mistake which every trader does in his initial days is Over Trading. We have heard it many times that avoid over trading. But Question Arises why do traders over trade? What force us do that? Answer is simple - Because Markets don't move in linear fashion and traders mistake small retracement for the trend change. And with every such small illusive move, traders tend to change their stand and converting short to Long so frequently,ending up with over trading. 

Lets take one hypothetical Example : 
Nifty is coming down from 5350 and now its trading at 5310 and looks stable. My thinking cap says that 5300 should give it a support.So I bought Nifty Futures at 5310 keeping 5300 Stop loss, As soon as I bought, Nifty went till 5320 making me happy, But I wanted it to go even further wishing to make few more points. But slowly It came down back to 5310 and then to 5302, I was disappointed and thinking why the hell i didn't sell at 5320, I could have made at least 10 points and now its going to eat my stop. And Yes it takes my stop at 5300 and then went down further 5 points to 5295. 
And Now something happens which no trader will like, It came back to 5300 and slowly started going up to 5310, now my mind will say market noise just ate my stop my entry was right, I just kept stop loss too tight!! Why not take one more entry again at 5310 keeping 15 points of stop loss this time. But Nifty has something else in her mind. She turned down immediately and took my stop again at 5295. 

Now I am just furious over non sense nifty moves and just want to take a revenge and wants to take back my 25 points which i just lost in two trades. My Mind went numb and this time I turned bearish and shorted double the quantity at 5295-96 levels to make up my loss . But Nifty Just made a double bottom reversal pattern with first bottom at around 5295 and second bottom at 5294 and now rallied back to 5310 and then it rallied another 50 points from there and I just closed my third trade at 5310 with another 15 points loss with double the quantity. And after loosing enough money and points in the market I am just feeling so helpless with the crazy moves of Nifty. But Nifty just made a double bottom and it does all the time.Why would she bother how much I lost and why I lost!!So even though my initial analysis of support at 5300 was right, I still lost money because of over trading. 


How can we avoid Over Trading : 
1.Start working on larger time frames and avoid whipsaws, You will get less entries and your trade will have wider stop which will be saved many times by small noises. Less Entries means less brokerage and taxes but more peace of mind. 

2. Trading is one of the most difficult profession in this world, and with in this profession Intra day trading is the most difficult to master. Not to offend successful Intra day Traders, But for new comers - Stop Intra day trading until you really understand all the moves and shift to swing or Positional Trading Systems so that your trades will not only get enough breathing space of wider stop points but also will get enough time to work in your favor because there is no compulsion to close the trade at the end of the day.

Wednesday, July 31, 2013

Can We follow System Religiously?

Though our Short Trade is going from 6025 level of Aug Future, Many of my new trader friends joined the party from 5915 level, And on 30th Jul near the closing bell of market, They were getting 110+ points in paper profit though Trailing Stop Loss was at 5860.

When Today on 31st July, Nifty opened with gap down and fell further and made a low of 5715, I asked my subscribers one question, How many of you still have the shorts open? And I was NOT surprised when only 40% of them said "Yes". Most of them booked the shorts on 30th July itself a day before when they were getting 110 plus points.

My reply to them, "See, There will be times when we will get whipsaws and will loose points. To make up for those days, we have to take full advantage of this trend and should not book prematurely against our trend following system. I want some more "Yes" next time, if I ask the same question."

Now I can be wrong by not booking profit until my TSL/SAR hits, because of gap-up.
But I know one thing - Following system and making loss is better than violating system and book profit.

My IT Friend gave me analogy for my above statement - Its better not to be able to fix the bug in code but knowing the root cause , than to fix it by hit and trial without actually knowing the root cause, He made a very solid point here.

Kudos to those 40% subscribers who are still holding shorts without worrying about gap up. Here is not the question of who made more points, the question is - who followed the system?

I can also avoid interaction with my subscribers the way other service provider avoid, But to me, the one of the motive of my service is to make them emotional ready to trade markets so that one day they can make their own system and follow it without any psychological issues. Because its the emotions only, which stop many of them to not able to follow calls, even if they have confidence in my calls.

Cheers
Pawan

Tuesday, July 30, 2013

Do Not Predict , Just React.

Me and my many Trader Friends are Short in Nifty Aug Futures on the expiry day from 6025 level and currently we have locked more than 100 points with one Whipsaw of 20 points on the way down.
update - Market tanked further and we have locked around 175 points of profit.

Yesterday when few new friends joined me - I asked them to go short and lets sync with my system at around 5915 level, I know it was not a very good entry, but to me if system is short then we have to be short, no matter what the level is. If i can not buy it, it means that i have to sell it. (SAR System with few Exceptions when SAR level is too far from the current market price, we keep TSLs)

One of my trader friend replied when i sent the short call- "With Due respect my view - NF premium of 50 points. Govt determined to bring down Rs. and hence restriction on new position and increase in margin for currency trading suggests market will move up, Pl note nifty is at this level in spite of banks are weak. "

My reply to him - "I don't predict, I only react and my reaction point is at 59** and I will take long only when Nifty moves above 59**, And I do not mix fundamentals into my system and will suggest the same to you. Govt was still doing the same thing when Nifty was at 6100 days a few days back, But market do what they want to do"

I hope I made my point clear.

Cheers
Pawan/Shahii

Monday, July 29, 2013

Let The Game Begin - Resigned From My Job Today

Finally, The day has come for which i was waiting for many years and I am very happy to write that i resigned today from my well paid IT job. Many of my friends are not happy with my decision. They advice me to do it parallel with my job. But to me, it will be injustice to both my trading and my job. Now the volume of my trade is not the same as I used to trade it a year or two before. 10 mins of delay to change my order due to some meeting or interruption can affect my ledger in a significant way.
This is the high time for me, If  I could not quit now, I could never quit. Now Working Full time in this Trading Field will open many doors of opportunities.

Today I am feeling like a free bird with no boundaries. This calls for a celebration :)

Sunday, July 28, 2013

Self Confidence Is The Biggest Asset

Worth Reading..Too Good..        
A Businessman was deep in debt and could not see any way out.
Creditors and Suppliers were demanding payments. He sat in the park, deep in thought, wondering if anything could save his company from bankruptcy.
Suddenly an old man appeared before him and asked,
"I can see that something is troubling you seriously".
After listening patiently the old man said,
"I believe I can help you".
He asked the man his name, wrote out a cheque and put it into his hands saying,
"Take this money, meet me here exactly one year from today... and you can pay me back at that time".
Then he turned and disappeared as quickly as he had come.
The businessman saw in his hands a cheque for $ 500,000... signed by Warren Buffet, one of the richest men in the world.
"I can erase my worries instantly" he realized.
But instead, the man decided to put the uncashed cheque in his safe, knowing that it might give him the strength to work out to save his business and to use this only in case of dire emergency.
With changed thinking he negotiated better deals,restructured his business and worked rigorously with full zeal and enthusiasm and got several big deals.
Within few months, he was out of debt and started making money once again.
Exactly one year later he returned to the park with the uncashed cheque.
As agreed, the old man appeared.
But just as the businessman was about to hand him back the cheque and share his success story, a nurse came running up and grabbed the old man.
"I’m so glad I caught him" she cried.
"I hope he hasn’t been bothering you much.
He always escapes from the mental hospital and tells people that he is Warren Buffet",
saying this she took the old man away.
The surprised man just stood there, stunned!
All year long he had been dealing thinking that
he had half a million dollars behind him...
Its not the money, real or imagined that turns our life around.
It is our Self-confidence that gives us the power to achieve anything & everything that we want.

Friday, July 26, 2013

SAR Vs TSL

SAR Vs TSL
Most of the traders know about it, But let me re-iterate again for my new trader Friends:

SAR - Stop and Reverse - It means that if a particular level of nifty is violated, Not only we have to stop(exit) our current trade, but also need to open a reverse trade. e.g - We have a long position, and SAR is 5097, and nifty is currently trading at 5120. So as soon as Nifty breaks 5097, not only we will exit from our long position but also we will initiate Short trade from 5097.

TSL - Trailing Stop Loss - It means that we want to lock profits in a particular trade, if a particular level is violated. Lets take 11 June real example, I posted to move TSL to 5097, and when the level was broken my long was just booked without opening a new short trade.

TSL is just to protect profits, there is no Trend change sign. But SAR also signifies the Trend reversal.

Wednesday, July 24, 2013

Winning over the emotions of greed and fear

Hello Guys, 

People want to know my system, But to me, making Profit from markets is not about the system, Its about winning over your own emotions,its about the commitment, the determination and some motive behind it. Find some motive, give your sweat and blood to it, Success will come for sure. 

I found my motive from somewhere - will tell you my story - When I was In 12th standard, I came to know about IIT, I dropped one year after 12th, joined one coaching institute, tried my best but couldn't go past preliminary round. Second Attempt means waiting for one more year.. So I joined a PVT Engg College in a city near my hometown. My dream was shattered. I knew that I was just near the success, but due to societal pressure, I didn't drop one more year and failed to get into IIT. Then came 3rd year of Engineering, I thought, Lets try IIM now :), wrote CAT.. couldn't crack it. I used to get good score in Quants in Mock Tests but my verbal was not up to the mark due to my schooling from small town. In the mean while I joined an IT company after finishing my college. After few years, I wrote CAT again that too when I was married, had daughter and had a home loan. But again couldn't crack :(

That unfulfilled desire to get into IIT/IIM was always there in some corner of my mind. Then One fine day I thought  -"I am bad in verbal, so what.. but I am good in Quants, Let me work on my strength than to crib about my weakness. Moreover, Many of the Guys from IIT/IIM get into number crunching game and work as Investment banker only. Let me try something of this sort. So what - If I don't have formal degree" I knew that there is unlimited potential in financial markets which can be tapped.Why shouldn't I excel in this field to satisfy my burning desire to do something for which even IITian and IIM guy will look me with respect. I found my motive that day, and started working on my goal. I had trading account opened few years ago, which I had blown up a couple of times. I started trading again with my new motive to excel in this field. 

One key point which I kept on reminding myself - "CAT/JEE aspirants have to wait for one year to improvise to write CAT or JEE exam again. You have this market open everyday. you can learn from your mistakes everyday.  I was fully determined this time . No matter what - I wont give up." I had met one full time trader named Speculator("ichart handle") with help of Rainbow("Ichart handle"). There were many other examples ( to name a few, "Twist", "Jimmie" from icharts) who were working full time in trading. So I had the evidence that yes its possible to be profitable even if the odds are against the trader. I kept on working and working trying to learn something new everyday. In the process I started treating money as number, Yes its purely a number.  Even its a money making game, Detachment from the money is necessary to win this game. 

Many times I am up M2M with 50k-60k, while my TSL locks only 20k, I am ready to give back my 30-40k to the markets and wait for my stop loss to be hit. And many times, this 50-60k M2m reaches to 80k-100k M2M and my TSL moves up and locks up 50k, and then further M2M reaches 140k , My TSL locks up 100k. How many of us can do it comfortably. If we can do this and ready to give some paper profit back to market -> We can win this market over long run. That's why I said its not the system, its the winning over the emotions of greed and fear.

One Last piece of advice - Don't give up, There will be times when you will feel like giving up, but Just don't give up.The only problem with the Financial market is that "not giving up" means burning some more money.. But remember we can not just come and straight away making money from very first month. It took me 5-6 years to start making me money. So You have to understand that you will have to pay tuition fee. The cycle has to be completed.The steps are - Blow up your account for few times ->  Break even for a couple of years - >Start making Profit. You can not directly jump to third step, no matter how many seminars you join, how many books you read.

In my personal opinion - if one is ready to invest 5-6 years in this field and ready to blow up his account a number of times then only he should invest time and money in this. otherwise there are many other fields, where you can excel.

I believe - One will be successful or not ? It just depends upon how strong one's desire is. 

Having said all this - I am still a learner. There are many better traders than me who trade in Zerodha itself, but by God's grace I was given a chance to be profiled first. I have a very long way to go to become a better trader.

Happy Trading And All The Best
Pawan

Sunday, July 21, 2013

Right Time to Reveal my Name - Won Zerodha Challenge with Flying Colors

Please go through Zerodha Blog, A leading Discount broking Firm who has made Traders life Easy by providing 20 rs per trade option. I was the first one to be profiled among the winners of 60 Day Challenge.

http://www.zerodha.com/z-connect/blog/view/software-engineer-up-400

Thursday, November 1, 2012

Monday, October 22, 2012

Friday, October 19, 2012

TSL hit at 5700.. Booked 17 points profit

Last 5 Trades:

Bought Long at 5683, Sold Nifty at 5700,   Net Profit = 17 points 
Sold Short at 5690, Bought back at 5683, Net Profit = 7 Points
Bought Long at 5685, Sold Nifty at 5690,   Net Profit = 5 points       
Sold Short at 5708, Bought back at 5685, Net Profit = 23 Points
Sold Short at 5750, Bought Back at 5715, Net Profit = 35 Points

Move TSL up to 5700 for Long Taken from 5683


Wednesday, October 17, 2012