Learn how to Manage Risk in Options trading
Hello. Hello. Hello namaskar friends, I am Vivek Bajaj. Today we are going to record the best face to face. Because today’s guest is very special. I have been waiting for him to give me sometime and today is the day. It's going to be a very exciting learning for all of us and the kind of experienced learning you will see today will be unlike anything before. So stay tuned. See this video till the end. So I have today with me a guest who is very special.
People know him through his very very sensible tweets, which he does. I've been interacting with him for a few days and I realized that what he writes or Twitter and what he believes in makes so much sense. So I thought this would be a great value addition. So I'm very very glad are very happy to welcome. Mr. Pran. Katariya. Hello, Pran. How are you? Very well. Thank you. So I'm going to call pran irrespective of what age you look like. I hope it's okay. It's a very friendly conversation. Absolutely. Thank you so much, I'm very excited to record this one with you.
I've been following you on Twitter and you make so much sense and glad that this this profile of yours. I mean you have worked in various profiles, you were running a business earlier, and now you are a full-time Trader. It gives me such pleasure and excitement to talk to people like you and learn your wisdom and get your wisdom and learn so much about markets from you. Thank you for such a nice introduction. Thank you. It's my pleasure. So pran the way we record this is a bit about you so that we all know about you more and then we want to discuss a very important topic today with you risk management. I think what distinguishes a good Trader from a not-so-good Trader is the quality of risk management a good Trader goes through and you are really a good trainer. I know for sure so before that, lets talk about yourself! Tell us about your history your your journey Market.
Well, I was born in Bombay moved to Delhi when I was 11. When to IIT Delhi then I did my chartered accountancy joined the family business ran the family business till 2000 to 2006. And in 2006 I was at a stage where I was burnt out. It was a very stressful kind of business and I had a young daughter who had just started going to school and I remembered my old days in Bombay and you know how delhi is is for girls, so I thought it was a better idea to have a grow up in Bombay. So I decided to move to Bombay. Obviously had a little bit of a falling out with my brothers on the business. I wanted to get out of cash out the business because I thought we had reached a stage where it was difficult to scale up any further and they did anyway, it worked out so I came to Bombay in 2006 and I put my admitted my daughter in school and as you know in any business Business people have a lot of income but they don't have any money. All their money is in the business. We have not being that actively involved in the business.
You have a lot more confidence in a business where you are actively participating in and when you are not participating that activitly in the business you think of security and as I said, I had a young daughter and wife And so I said the first priority is to reorganize my assets and collect enough cash. So that no matter what happens. At least my lifestyle is not affected and I was fond of trading. I was doing a little bit of trading on the side not seriously and then I started creating in a small way at the same time. I started realizing my assets. I wasn't very for two years. I will just collecting funds.
Doing a lot of unsuccessful trading on the side and then I decided that I had to if I was going to do it in any meaningful way. I had to be properly trained by went every kind. Of course that you can imagine. I went through all the trailers in India. Then I went to the US and I went through several trainers there as well.
And finally the two trainers who really influenced me and who I did put me on the right track or dr. Van who taught me that your beliefs are your most important constituents of your trading and if your belief system is not aligned to the way that you trade you will never be successful and then we can be with it was a revolution a I started with trading Futures Trading intraday. Not futures. The u.s. You're just trading the stocks and then I was doing okay over there and then I got into options and that's where I found my calling because I'm not very comfortable with a 50-50 kind of situation. And when you are trading stocks in your trading Futures, its a 50/50 call. You might say that you have some way of predicting what future prices are going to do. I don't I don't believe that I like those odds in my favor. With options, I think you can structure trades where you might earn a lot less but you might not earn a lot less but you have a far greater probability of success.
Hmm. And that is the way I how I gravitated towards I I came back to India. I trained over there. I was of in and out of India and the US And I started seriously trading in 2000. I think 2009. Okay writing 2011 when I started when I could say that I had become a consistently profitable Trader 2011-2012. Okay, since then I've had several iterations as a Trader. And also I have been through several Market types
and every time I go through a different Market type my style changes, so I don't say that I need will trade this way. So regardless of what the market is doing all my trading is dependent on how I perceive the market behavior of the markets. Okay, so that's a little bit about myself. Okay. That's a very interesting very encouraging essential process. One thing. I have lot of my viewers who are also Hindi speaking. So maybe at times I will ask you a question in Hindi and if you can oblige Us by answering in hindi. Sorry, if I have some cuff problem today, so you have to bear with this as so, you know, you represent type of a life or a career where you have done business you have made money in that business and you had an exit and now you're using that money to build on further on this, you know, I get so many people especially last six months what has happened.
A lot of people who are into business have found businesses not to be exciting enough lucrative enough and they already have some capital and they are looking to get into stock market as a full-time occupation leaving their existing business and the average age of these people would be say around 35 or so. So before I start the technical discussion based on your background, what would you suggest to them? Well trading is very attractive. It's a business. Let's first let's be very clear about it. It's a business. It's not a part of something that you can take on part-time if you're going to if you want to make money out .
if you treat it as a Hobby Lobby's require money and you will end up paying for them. Yeah, so it's a full time thing and any business whether it's whether you're running an ice cream stand or whether you're running a trading business. So success is very low and only a only three or four percent of the people are going to make it and 97% are going to crash and burn.
That is 1 and the second thing is you need to have realistic expectations out of the trading business. You know, I find people on Twitter and see it everyday. In fact, I sometimes want to you know, Stop people from thinking the way that they think you look a person like you go through the best businesses. You take Reliance Industries or you take Hindustan lever or you take all these top businesses. They to they hire the finest Talent have brand value. They have done everything they can to establish the business
and at the end of it in India. There are barely 40 or 50 companies which earn more than 15 or 20 percent return on equity. Great. I I see people over here were claiming to earn 60% hundred percent hundred and fifty percent and I tell you the first thing you should ask yourself. Is that why should Mukesh Ambani who has access to the finest talent in the country. Hmm. It really was that easy and if mr. Nuttall has retained earning a one sitting in a 1 lakh a month job working out of a 1 bhk in kandivali working on a simple software earn so much and say i have a working model. Why would mr. Ambani hire hundreds of such people give them five five crores.
So i have worked at smb in the US and they hire the finest. Yeah and they hire the best talent they get thousands of applications and they have a very rigid criteria. You're the higher the finest, you know, the got it down to a tee. They hire people from they test for your aptitude. They test for your ambition. They test for your suitability cycle psychology
everything. They hire these people they put rip put them through a very rigorous training program of which 70 or 80 percent fail and it takes 2 years after that to start making the kind of money which pays back the firm for the kind of investment It is made . And even then I have I've sat with those Traders and 30% if you're generating 30-35 percent you're doing exceptionally well. There are very few people leaders who generate that kind of money. So when I look at people here who say that you everyone here is making 60 70 percent Hmm. I think I don't know they might be making it also but not on any decent size of capital,which will give you a good living.
So the first thing you need to do when you come into the businesses that you need to have reasonable expectations and you will not make any more money out of trading then you will make out of running any other sensible business. If you unless you want to take a level of risk, you might make it for five months six months eventually, you'll Crash and Burn and you'll be back where you started from. So if you are you sure long-term have realistic expectations expect that you would have to work very hard expect that they will be a long and steep learning curve and that it will take you two or three years. Actually, they say 10,000 hours. I think that's a very good representation of you can do any come the computer back testing or modeling is not going to cut down that time you need to have a lot of trading experience before you can really start earning a living. Okay?
So I was talking to someone just before our conversation and this person has an HR Consulting business. And here is the capital of three lac right now and he's expecting a decent return per month so that they can move out of that business and get inside this business full time. So I found it to be slightly ambitious with three lac. Can you think of leaving your existing business and get into this business?
So what should be the realistic expectation according to you in terms?It depends on how much what your expectation is and what your requirement is. What I would say if you're getting into full-time trading II would not do it with less than about a crore okay. Okay. I know I know it's going to disappoint a lot of people but see how you're going to lose some money in the beginning
Today If you want to earn less than 2 lakhs a month, you know, you got a lot of your business or when you're running. Employed or when you're running a business a lot of your expenses are taken care of in your trading everything is on you. So I think today if you're living in a city like Bombay or Delhi, you need to like someone if you are living in a smaller town, maybe one and a half lakhs a month or the family and I don't think that you should have less than 1 crore of rupees to realistically expect.
realistically expect to make returns consistently in a way that would support your lifestyle. Only a few people have one crore rupees , they start off with very small investment but their expectations are too high. But if you talk a little about what to do in case i have very little capital, because that's all i have. What do I do? You learn from a brokerage or financial firm where trading is done, you collect capital and then you try to invest full time with small capital but you can't leave your existing job as you will not earn enough to support yourself and your family.
So you will have to collect money, it's not that difficult also. 50-60 lacs you can collect in 7-8 years but this much time you give to start a business also. No one can start a business with 3 lacs so why do people think that they can not do business but they can start trading with 3 lacs, this is not fair! Correct! So i can do part time trading with 3 lac rupees and slowly slowly I can increase this, such that i can make a size and i can leave my job and start trading full time. Yes you can do it. With 3 lacs you won't be able to make much, it will be less only, so you collect and in the meantime you gain experience so that you will also learn. Many people are addicted to this. But reality is something else. No one says that they have lost their family’s
money in trading and they show that they are very successful 90% of traders fail and they fail in all businesses. BUt it just does show here in trading. If your business doesn't work then people can see but in trading no one can see and no one wants to show also. Lets now come to some technical discussions. Philosophically my users have understood what sir wants to communicate. Options trading in which you have kept your core trading, so are you more on the buying side or the selling side Sir? Buying i do very little because for the buying side, a lot of things should be aligned. See in India, there is not much liquidity for long buying options. You see that 30 days, option liquidity when new expiry stats then they become liquid.
There is a lot of time decay in 30 days. So you are fighting against a time decay. So, if you get a setup where volatility is very low and price is trading in a narrow band and if its breaking out from there then buying will work. On the Selling side i get a lot of opportunities but i get very little opportunities on the buying side. There's a lot of risk on the buying side. If you buy, you have a 50-50 chance of success. And if you sell you have a 80-90 chance, so why will you go for 50-50 when you can get a 80-90 chance.
But sir selling is normally riskier, chances are high but it's risky. How will a normal retail investor do selling? See where does risk come from? Risk comes from 2 things. Firstly if you are facing losses and you don't cut losses quickly, then it's risky. Secondly, if your position size is big, then it's risky. Suppose for example, titan is quoting around 1380 today. So i find it's a range bound stock so i have sold 4 lots per 1cr. When I talk about figures, I talk of 1cr. I sold 1600 calls and 1300 put which is about 100-120rs and I have generated 72000 premium. How Much can I lose in 4 lots? I am seeing and it also happened that in Titan i had invested and news had come which made 3 Standard Deviation move, and next day it opened very low by 160rs and i had lost a lot of money also.
But this happened rarely. 95% times you will be in profit. But the most painful is when your lot size is big. If you keep your position size normal, then you can tolerate the losses. I want to talk about this example as to why did you choose titan stock ?Is it because you are working on it for a long time? My trading style is that the optionable stocks which have liquidity and are regularly traded, there are about 25-30 stocks, not much, i keep seeing those 25-30 stocks everyday in the evening. Suppose TItan, it's on 1380rs and the support is on 1340rs. So I see that 30 delta put that is 1300 ka put, I am getting 20rs on this.
So directionally if i have to trade in this, i will not buy this but i will sell 1300 put on this and 1340 i will keep stop loss where the support is. I have my view on these 25-30 stocks since I look at them everyday. So the view is from before. When i look at the charts I identify the inflexion points. Like how it said, its going on 1380 and support is very good at 1340, then looking at 1340 support, how much safety can I get and how much return can I get? At 1300 if I see that at 1300 I get Rs.20 return , say 15000rs on investment of 1.5lac premium on Titan. So 10% potential return. Return happens when expiry happens. So like this i identify inflexion points and like this i find a lot of inflexion points. So I will not invst 4-5 lots in Titan that too over a period of time. So if I want to invest 8 lots in Titan, I will not do all in one day. 1 today, 2 lots after 3 days.
So diversify. The more you diversify in time, in underlying and if you can do this in call and put of the stocks you sell. But unfortunately, on the call side there's not much of fun because the markets are naturally uptrending and the premiums are low . So there are very low opportunities on the call side. So 90% of trades are mostly sideways trade or directional long. By this I mean shorting a put and not longing a put. 5-10% you might find that a flat pattern is being identified for going long. But such opportunities are rare. 3-4 times in a month is also too much. So that means that these 25-30 stocks that you regularly seeing, you will always have a position in their options or only when you see opportunities in them that you take positions in them. I find Opportunities because somewhere support is being formed and some pattern is being formed and where the pattern is being formed and i will sell 2 lots there.
It's not like that I will form 4-6 views. If I am looking at the stocks, I know that they are in an upward trend so i should find short opportunities and if I find patterns or inflexion points below this, then i do it. There are so many opportunities which i can't even exploit so i come out of a position also very quickly because if the position is not working fine or according to me, so why put your head in this position when there are a lot of other opportunities. So leave quickly and get into something else. I understood. Talking to you, I remembered someone called PR Sunder. He is your friend also.
He had said in one of his interviews that people say that there is unlimited risk in options selling But how can it be unlimited? The screen is in front of you, when there are losses then cut tardes then how can the risk be unlimited. Unlimited doesn't mean that you will lose 10cr but it means what's your capacity to tolerate. If you give up at 50lacs then this is your unlimited risk. So I have traded with Sunder and he has a huge capacity. No ordinary people have such big capacities.
We had traded together in Bombay and used to see his terminal on expiry, so every minute his MTN would be 5lac up and down. His situational awareness is very nice and he doesn't panic and he has an understanding. Now sometimes things might happen in the market, For example, when demonetization had happened, bank nifty had opened 2000-3000 points down, down position was all cleared and then to defend they sold up and then to recover the market had gone up to the upper level.
So the market does these things, but he tolerates this. Many people can't take this and they give up after that. Have you done some filtering criteria that if it goes above a certain level, then i will not do or do? Don't call this a filter because in options, many people have no understanding of options. You will have to understand the basics of options. If you buy or sell options, you will have to have the understanding of the price movements as to what will be the case in options.
This is not a thing like buying a stock or future or something. In options you have to see the volatility, delta and gamma effect. So trade options with full understanding. If volatility is less and you are selling options then it's painful. Either you are very sure, but normally you should not do this. It's not like i will not do this ever,and 90% if the volatility is unnaturally low then i will not sell options, why sell when you can find other stocks with high volatility? Do you trade options Nifty and bank Nifty? Bank Nifty i never do. Sometimes i do Nifty but very rare as i don't like it. It's like a Residual trade, if i don't have anything else to do then maybe i trade but i am not comfortable with trading Nifty, i prefer stock options. Any specific reason as to why you don't trade bank Nifty? Bank Nifty is very volatile. You never know, anything can happen there, there's no sense.
1000-1500 points up down. Feels more like a gamble than trade. So you are not a fan of weekly options? No, I do long term options. I am 64 and I don't want to take tension, I want comfort. Short term trades in Options is like a gamble. If you have time then you will get time to adjust and exit also.even if a position goes against you, then your losses will be less.
If you are doing weekly then you are stuck with whatever loss you have And I have so many positions that I can't just manage one position. My first reaction is to see whether it's worth investing or do I exit. 70% of the time if it's against me, I exit and enter something else. I don't have time to adjust. So Thursday on expiry you do nothing? Anything specific? I don't do expiry specifically. I do, as you get good opportunities in expiry, there are unnatural movements in stocks, there are high premiums, opportunities are more but i don't do expiry related tradings. the first time I met Sundarajan he was a trader and I didn’t even think that people do expiry trading also.
I found it good also that this also happens that people earn 5-6 lakhs so from the day when I started it was the day when there was the announcement of HDFC Institution. Till 3 pm I had 5 lakhs up and the announcement came and normally the risk is on the downside. You won’t be able to think that it will go up by 1000 points so it happened like that and after 3 pm the loss of 5 lakhs and started going up. I haven’t done it before and NSE also has its limits if you put any order also there is a fixed quantity. I have 8-9 accounts from which I trade so by the time I got out of it I had lost 20-25 lakhs and from that day I swear that I will not do this again So sir the stocks in which you work in which you focus 20-25 stocks. Do you think that whether a normal individual trader should adopt this also as there is more focus on this?
Every trader is different there are many different strategies I sometimes trade around the portfolio also. I have bought a stock and sold straddle against it so my upside is protected or if I have to buy a stock then against it I sold ATM put so around the stocks also I do a lot of trading. So it depends on many people are not comfortable with it, nowadays the concept of unlimited risk is going on so people are scared and they are not able to sleep at night. In the Nifty also it can happen like on Friday there was 500 points fall in Nifty so in that also big move comes, But somehow people feel scared while trading in stocks, in twitter also these kinds of questions come, if black swan event happens then what will you do. Either you reduce your position size or if loss is happening then exit it as soon as possible, dont wait if it comes back again So in your career time of trading how many months have you been in net loss or every month you are in plus only See when I had started I didnt incur loss until 4 years and it was a great time as there was medium volatility, in 2017 one-two months I had loss, in the last year I had loss in 3 months, although it was profitable but that time it was good loss.
That also shocks you in one month my positision size got very big in Titan like I have told you and in the event of Nirmala Sitharaman I suffered loss in that and in March I had suffered loss because of Covid. So it is okay like these years come also so normally people talk about draw down, but with me like if I can say in one year I had this much draw down. Last year in two continuous months I had losses except that I didnt have continuos losses, like in last 7-8 years, you can take one month as average.
So psychologically how do you deal with those days when you suffer losses so when next month starts that time what mindset to you keep It is very difficult to incur loss see I tell you I will tell you an example in the last month I had sold UBL put actually I should have gout out of it, it was at 1280 when I sold, I should have exited but I didn’t I thought I would buy UBL , it is a good stock so it fell down till 1100 at the time of expiry, when I had bought my quantity was big so in the next month I had rollover. So the 1100 loss which I had incurred that month, I roll over it in the next month so I got back almost same amount of money, it was Rs. 100 loss I got Rs. 80, I had sold 1280 call against it so my loss got equal. This month it came backt to 1220-1230 it is very difficult to happen, but it happens when the market continuously if your stocks are good then it won’t continuously fall, it will recover someday. So if your position size is fine and you do rollover or buy the stock and make a strategy against it then it make- ups. You said you were mentally prepared that you will take the delivery how much comforst is this for any trader The comfort is there when you are comfortable with holding that stock such as Bajaj Financial I dont have any problem with it to hold or the stock like UBL,it came low from its current level. Stocks like HDFC Life, so I keep trading in these stocks like in March I was very comfortable in Muthooot, I earned a lot in Muthoot Now in March I had sold 1100 put, the stocks was going 1300 and after falling down it came down to 8500.
I has loss od Rs. 150 per lot and had 15-20 lots or more than that in different accounts and also at that time Covid. So market show you different colours, now you must be thinking that you have learnt everything, people say to good hold stocks. When the market is down, have conviction to buy good stocks because its an opportunity also but everytime some situations come which makes it difficult to hold. Just like when Covid came I had very good stocks HDFC Bank, Kotak Bank, few of Muthoot at that time Covid came, my daughter was studying in America and my wife did not have understanding about the market.
For rental income tenants had giving notice, now you also thought that in Mumbai riots might happen, you told that you want liquidity. So I has 5-6 crores of stocks I took loss of 1 crore, and if I had hold those stocks then that loss of 1 crores would have profit. So market show you some new colour, If you think that it is proven or teste method then it does not happen like this every time So tell me one thing if someone is trading in option then how much percentage of capital should he keep in cash as you dont know when the requirement comes? It is rare that even my 50% capital gets utilised because if you keep your position size fine and if you calculate the risk in every position so my calculation can also be wrong as you have said theoretically I have unlimited risk, Like in practice also I havent happened but I calculate that my loss can be this much to 12-14% even 14% rarely not more than that if I have take that much risk also then also my 50% capital is not utilised. So the believe that I have to utilize till my last penny, I havent done that so I didnt faceany problem Sir how did you calculate 12-13% Like for every strategy there is different risk I generally take 1.5-2 times premium that I have collected , like I had told you I sold strangle of Rs. 24 so how much did I get, Rs. 1800 I got so I took risk of Rs. 36000
So if I take Rs.36000 then you will square off?I would square off much earlier so I calculate that in the case of unexpected event loss of Rs. 36000 can incur. Actually I wouldnt loss happen, 99% time at the time of breakeven, I will take profit and exit, so if you sold options then time is getting decay So if today I sold at 1380 and after 6 days if it comes 1360, chances are there that I do not have losses that time decay had cover up. If my stop-loss is 1380 then whatever the stop loss be which will be unknowingly 1.5 times that much loss doesnt happens So if any point of the time I have to take a number from you in how many stocks do you have positions At any point I have 70-80 positions In 70-80 strikes? 70-80 yes Oh My God how you are to mange this so much 70-80*8 accounts, I have about 600 positions its tough to manage but you will get used to, in weightlifting you get slowly there so in this case also You have to be aware that I have these many positions, you are seeing those stocks so you must get an idea that you have so and so positions and I have to exit from them, first I had to write it down, now mentally I know Do you use futures? Very rarely, for adjusting if I want to use then or else I do not do. And under options, delta hedging, vega hedging anything I do only in the stocks in which I have substantial stake like I have told you HDFC Life, I have very good investment in it in my portofolio Actually I am not a pure trader, my idea is to make money in the market not for trading so in March HDFC Life reached 550 so I took it at that price and against it I sell straddle So I get 60 from straddle and that I leave, if I manage that, if I get 60 from straddle then my portfolio will 26 per lot in HDFC I will get So I have 5-6 stocks like these, I have HDFC Life, Tata Consumer, Muthoot Finance, Bajaja Finance. In Bajaj Finance I had started from 3500 I couldnt defend it also, 3 times I had to get delivery, I bought the stock I sold the straddle, it went up so fast but okay I got Rs. 600 from it.
From the next month I had started again this month again it reached 5500 to give delivery, but I had made lot of money from Bajaj Finance after giving delivery See that is the comfort if you are holding the stock and see a straddle, in Bajaj Finance there straddle of Rs. 500 So every month it is going above 500, upside is protected, you will defend Rs. 250 so if it goes to Rs. 700 and you are not able to defend , at Rs, 700 you will take delivery that what is bad in it. Let us discuss this concept again generally when one takes delivery then people say to sell the call option of the above so it gets hedged By straddle its not meant hedge its income generating strategy as you dont get anything from it If you bought Bajaj Finance at 5500 and you sell call of 5300 then you will get around Rs. 250- 200 and if it reaches at 5500 then you will make a profit of 5500 and leave. Correct
So if i like a stock and I am holding it in my portfolio then i will buy a 5300 and sell a 5300 straddle at 500. So in the straddle i make 500. Then i will defend that. Those are the trades which i monitor actively. The smaller trades like Titan whose stangle i sold, i will get out as its not worth defending. If it goes up to 750 rupees goes up then I save 30 and in the next month i will again sell a 750 rupee put atm. If it comes below 690 then I will sell a 720 put and not a 690 put. Someday it will go back to 720 again. If you have this much confidence then you can apply this strategy. There are only a few stocks like this but there are there.
This is a very market specific strategy and wont work in all conditions. So if you have confidence in such stocks so you sell a put because if they go down then you take delivery. But this is for a bull market, but if the stocks falls 20% from here. And our mtm loss will be very loud and visible.
So I am ready to roll over too. If it falls 10% then you can equal it in roll over. But if it falls continuously for 3 months then its problematic. But if it falls for 1 month then you can cover. This happened to me in the last month. Like I spoke about UBL. Another example is of Lal Path Labs. I sold a 2500 put when it was 2600. It fell to 2300. So i rolled over 2500 at 2400. And on top I sold a 2700 call. So i have 2 positions for next month to manage and a few I have taken in delivery. So you will have to plan this based on your capital. It cant be if you have 8000 then you will take 8000. If it comes down then how much will you get? True True.
So you have worked in US market and Indian markets. Is trading here easier? Much easier! US markets are really difficult to trade in. Its a stable market and a lot of fun but it is more for longer term trades which is not possible here. For S and P they have a desk where they give you part time trading. It is not possible in Indian markets to trade part time as you dont have time. You cannot make money in 30 days...you will have to be actively involved. If you put strategies for 45-50 days like what you wrote, they have dentists, doctors, engineers who have strategies that you can see once in a day and make adjustments. So you can do that in longer term options but not in india. So here in Index there are leap counters right? You look at the spread on them. So its not fun!
So in cash markets, the investments you make are those too under a trading strategy or do you invest in the cash market beyond that as well? I am generating a lot of capital every month so i need to invest. I invest in mid cap stocks. I have done investments with PMS managers. So wherever I see investments opportunities i invest. So Pran I think my users must watch this video for options trading and risk management. Since you have explained in a simple way in your own language, but a normal investor might have to watch it twice to comprehend. But it was a lot of fun. One more area I will like to touch on is training. People think by attending seminars or watch other methods, i saw one seminar after which i stopped. Because you can teach basic strategies like strangle, straddle. There are 1000s of videos on youtube which you can learn from.
Personalised strategies are also there, each trader has their own strat, for instance volatility,adx, combining 5 indicators etc. But i just see horizontal support and resistance and nothing else. You cannot think to make money on someone else’s strategy. You have to develop your own strategies by developing your own strategies.
The worse thing is those who not only strategy but they want daily tips, since they buy even i want to buy. So i feel very bad to see this. So you should make your own methodology which you like. Don’t complicate it as simple things also work. But you have to understand yourself first. Combine that with risk management. Dr. Gann said that you can trade even on a coin toss provided your money management and risk management is ok. So this method of following complicated strats or other people’s strategies, they should take it out of their hearts.
A buzzword is positive expectancy. This is also a statistical figure, positive expectancy over how many trades? If I have a strategy that i have 60/100 positive trades, it doesnt mean it can give me 80/100 losses the next time. You can be right in the long term but you can be bankrupt much before that. So you need to have your own system which you have developed yourself. No need for complex systems and dont look at twitter traders. If you go to Sandp, the top traders only have a morning meeting and identify 10-15 stocks and its levels. Then they trade around those levels. 100 different people will trade around the same levels, someone trading 1 million dollars another trading 200000 dollars. So that is a skill to develop. People call it knowledge of technical analysis but it is not a knowledge.
True. So in iNdia we are at a influx point where there are wannabe traders who are desperate to find some magic formula. Some people are overboard. ANother thing is that till the time we dont find a complicated system they cant trade. But Hasmukh Wadia once said that capital gains are made without effort. He was right in a way but people feel guilty about making money easily. So people want a complicated system. But in reality having complicated systems is not necessary. This is a wrong belief and you feel guilty to make money easily. The fact is money is made easily if your belief system is good. So Pran before ending some final wisdom from you. I think you should see others and do your own. Its okay to learn from others but apply it first offline
and see if it works for you or not. And then again if it appeals you need to add more layers to that. Give patience as it takes time and may take 2-3 years. There is a book called Bounce from Mathew Side who was a table tennis player who said it takes 10 years to do something well. Malcolm Gladwell has said 12000 hours which means a 1000 hours a year.
So if you look at tendulkar and others, it took them time to reach their peak even though they had talent. In training there is nothing much but in mentoring there is. What I learned from them in training I can learn from others too. I needed someone to point out to me my mistakes when i started trading. First you need to get in the other person’s shoes and then see what he did wrong and correct it.
I think in india there isnt much time for mentors. SO if you can find a good mentor or a group. Instead of finding strategies find other peopl’s styles. Its better than looking at other people’s strategies or mtm. It was a lot of fun to interact with you. Thank you so much. I would love to meet up with you in Bombay next time.