Saturday, April 28, 2012

My Stock Trading Plan

Without a definite plan it is difficult to make fast progress in any endeavor. I have decided to set out my plans or goals, whatever, so that I can go on autopilot. The more things I do on auto pilot, the lesser I would feel like I am busy. Daily plans can make a huge difference after a prolonged period of time.

There are certain tasks that can’t be done in one sitting and need many days for completion. That doesn’t mean they require lot of time everyday. They just need little of our time everyday. Actually there are many things in our life in that way. Even academic education is like that. It is not easy for kids to learn one subject in one month and complete their six subjects in six months or even 8 months with revision. Instead they would be given one chapter in each subject per day or week and all subjects would be taught by giving an hour for each subject per day. This should make them less stressed. However the current scenario of academic education is totally screwed up (with tuition business, grading and all).

There may be certain activities that we need to do occasionally which don’t fit into a routine, but we can have a master plan for a longer period say weekly plan. Then these also get into autopilot mode. In my career, goals are set every year and one of such goal may include making a patentable invention one per year (I wish I had thought this way long time back). Once all your activities are on autopilot mode, you would begin to feel that you are free every day and every week at least for a small amount of time per day/week.

While stock trading seems like a chaotic endeavor, this too can be modeled like that. For less active stock traders, there won’t be excitement in trading without a scheduled plan. If they have a plan they can look forward to doing that everyday. They can also continue other parallel endeavors such as a job or business.

For a long time I used to think that I must get out of the rat race so that I can fully dedicate my time for trading stocks. I have experienced, though few times, how exciting short term trading is. The risk remains either way and there is no question of getting out of the rat race in the foreseeable future. Once I accepted that I looked at my options and started solving hurdles for cutting losses. I wrote a script that fetches CMP of any stock periodically and sends me an alert and email whenever a price trigger event happens for the particular stock (with tolerable delay). This should distract me from whatever I am doing so that I can place the stop loss orders either to buy or sell. This is easier done than said.

Most of my best trades happened with stop orders atleast for one of entry and exit. That’s the best way to avoid becoming like Ivan Pavlov’s dogs (conditioning). Let me get this straight, if you say you don’t have time to trade stocks, you are simply putting technology to shame. So much for all the technological progress (I too was like that for quite a while). Armed with the alert script, alerts from Moneycontrol and Yahoo Finance (for diversification of alerts to make sure I am alerted in a span of 15 minutes no matter where I am), I can now create a master plan for trading.
  • One intra-day trade every week. Atleast one.
  • One delivery based trade every two weeks. This is because of T+2 settlement delay problems with Sharekhan. I will make it one per week if I go with Indiabulls. But for now one per fortnight.
  • One margin based delivery trade per month with margin up to 50%.
  • One maximum margin intra-day trade per month with minimum margin of 25% and up to 10%.
While setting this kind of action plan would look like useless as this can may create pressure to trade regardless of market conditions. That's why I never got around to making such plans. So I am allowing such flexibility into my plan to skip trades during major market events.

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Tuesday, April 24, 2012

Enterpedia Answers the First Question.. The Why of Entrepreneurship?

Why do you want to become an entrepreneur?

Very soon after graduation and into my first job I began to realize that the next big thing after acamedics is the entrepreneurship. You can't forever go around saying you want to pursure entrepreneurship without answering the why of it. I myself wasn't sure of anyway of answering or if I wanted to be one. But on one Sunday I had visited the best book house and found this book - Enterpedia. I bought it after reading some of the text.

I won't tell if it is a good book or whether buying is worth or if it is better than Rashmi Bansal's series. But I can say that it has relevant and timely information for entrepreneurship in today's very very fast paced world. Unfortunately I had never gotten past the first chapter. Actually it is organized into steps not chapters. I never got past the step 1. Because the answer to "why entrepreneurship" gave me a much needed paradigm shift. Though I had briefly read parts here and there and felt it has valuable information.

Influenced by few older entrepreneurs I used to think the reason for entrepreneurship must be to make lots of money.. or to get rid of annoying boss.. or to work whenever I want - the freedom. But these would never get me anywhere. Enterpedia counters these mythical reasons with amazing explanation that fits well with reality.

To make lots of money

The money part of it doesn't work because money should not be the reason it should be the result. If you want to make lots of money (and likely fast), you are likely to cut corners and compromise on the quality of your produce and service. For years, you could wonder why you are not heading anywhere. It just doesn't work that way. Only when you come outside of time then you will notice that money will flow with time and it shouldn't be the motive for entrepreneurship. The best thing I liked from Enterpedia on this was - just like there are people who want to become entrepreneurs to make lots of money than jobbing away as slaves, there are others who stay from becoming entrepreneurs because the opportunity cost is very high to leave lucrative jobs that are offered these days. Talk about offers and 25 lakh per annum, 45 lakh per annum are norm for the few top paid employees from IIMs or top ranking institutes. I don't know about you, but if I am offered such pay I would be in a very difficult situation to decide and most likely go with it. With increasing uncertainties in the world economy, fast pace of change it has become increasingly difficult to start out on your own. The opportunity cost is just high even if you are an average fresher from a commonly reputed university.

To be my own boss

Some IIM students opt out of placement season and get ready to board their own ship right out of college. I don't know how they think, but if you are not one of them, everyday you would go to a job and think "Why the hell am I still here? Life is getting boring with same routine everyday.. I don't like to be supervised.. I don't want to stick to 9-5 everyday.. I don't like deadlines (that would anyway change at the end :)..) I don't like to be rated.. I don't want to worry too much about finishing and delivering."

Enterpedia says these are all myths. As an employee you had only one boss to manage, but as entrepreneur you have many. Unlike in a job there is no one to shield you. You cannot really do whatever you please. The world outside is much harsher than you would ever dream. In Enterpedia's words ".. the way your customer holds the gun to your temple, he will make your nastiest boss look like Santa Claus." This is the best line I liked in this entire book! I tend to very much agree with that line though I didn't have a nastiest boss, I did experience nastiest customers second-hand.


You won't really have freedom as an entrepreneur, as you would expect while being a slave. In a job, you worked 9-5 or its flexible variation with fulltime weekend breaks. But as an entrepreneur you are at it 24/7. You will be directly interfacing with nastiest customers that don't wash their mouth with Dettol before they yell at you. Rather your boss does (if you were employee). You can't take holidays whenever you want. Assuming you want to get results and avoid going bankrupt.


On the sacking part when you couldn't deliver, Enterpedia introduces a British phrase "vote with your feet". Again your customer can be very nasty walking away from you into the loving arms of your competitor. Atleast when you get sacked as an employee, your boss tries to sugarcoat it and wouldn't tell you what a jerk you were. When a customer sacks you off, he not only empties your job but also of your self-esteem and your future.

The three best reasons, based on Enterpeida, in order are:
  1. I want to define my identity
  2. I want to create meaning in society
  3. I want to see respect for me in the eyes of my people

Now that was just enough for me.

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Sunday, April 22, 2012

Outsourcing to Another Dimension TIME from The Man from Earth (2007)

I had just watched this movie and I don’t want to say anything about it as it would spoil the experience for those who are yet to watch it. The movie, I agree with one reviewer on IMDB, a film that reaches to the stars and does not depend on CGI. Well, that’s the great thing about the movie. A lot of it is about the way the movie is made in the simplest manner at lowest cost, with all story happening as a conversation between a group of people sitting on sofas in a house. But I will share about some things that I have learned from this movie and its making.

This movie doesn’t use CGI like Avatar but entertains the (knowledgeable) audience to as much level though not in the same way as Avatar did. It is like a more exciting one than any good bed time story that I listened to as a child. The story like this which is set in talking is basically like ourselves having a curious conversation about curious subjects on a Saturday afternoon or listening to a bedtime story narrated by your uncle who puts such elements in the story that you as a child would have had no limit to imagine.

I learn something new from this movie about outsourcing. The common understanding of outsourcing is in one dimension. That is you outsource some of your work to other PEOPLE who are mostly professionals at it or for cost advantage like the BPO Industry is involved in. But the makers of The Man from Earth show that you can outsource your stories to TIME dimension. This is altogether a new way of looking at things that are anyway done for ages in local settings. Really the current times offer very exciting possibilities.

Nevertheless outsourcing to time requires that you have to narrow down your subject or in other words the area of your work. In this particular case, you have to string your story with elements that are popularly known and well known. Otherwise you would target lesser number of audiences. But for an experimental artist it doesn’t matter.

The movie also solidifies the reason as to why personally narrated bedtime stories are better for children than showing them movies or tv serials on your or their favorite tv channel. Watching movies or tv shows end to end for hours on end is a big bad mind numbing activity. When we outsource bedtime story telling to the tv shows we are limiting their imagination. It may still be okay to outsource this to those tv shows where there is only talking without visual 2-d or 3-d show. Basically similar to stories told on radios.

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Friday, April 13, 2012

FY 2012-13 Happy New Trading Year!

Wish you many exciting trades for the new trading year 2012-13!

I am so happy to start the new trading year. I waited out the last two months counting each day to close the old financial year without having to record any balance in ITR-X/Y/Z forms. I used to postpone about learning how to fill and/or fill that form every year and avoided trading (basically exchanging stocks). But I will bother about that next year now that a year is over.

Even the new years are not starting well one of these days. Indiabulls Securities introduced AMC (Annual Maintenance Charges) from new year. The only reason I didn’t close that account since Nov. 2010 was because it didn’t charge AMC. I sent a mail asking them to close again but they only asked why and never got back to start the process. I have the closure forms. But anyway, I decided not to login to the site forever (atleast if I don’t get a good service from other brokers). I am excited to start the new year with Sharekhan who offered half the brokerage rates as Indiabulls did. New things are always exciting.

It is certainly exciting with Sharekhan. At first I was not comfortable with trying new brokers as Indiabulls service too comfortable. But Sharekhan is not at all bad. It is different. But it allows placement of orders after-hours which is a high priority for jobber-cum-traders and it also has longer session time. So no need to relogin to its browser based session every few minutes. The best part is the brokerage rate (although atleast one friend gets even lesser brokerage rate but I am almost there).

I just started off today with an entry price evaluation trade in LOVABLE making a loss of 25 rupees. In this the brokerage was only 2.76. It turned out to be less than 0.1% brokerage rate. I never had such an experience with Indiabulls. It would have been minimum 0.3%. Even with a 0.7% loss, the brokerage is still insignificant compared to the loss. This is what I wanted for a long time. I am not sure if tax rates have changed for intra-day trades or I have to wait for T+2 settlement period to see the final brokerage rate. Anyway, 0.1% hair-cut opens doors for highly leveraged margin trading experiences for once in a quarter opportunities.

After I noticed the exit trade from LOVABLE, my head was almost spinning wondering about spirals of share price pullbacks with increasing time periods and how many such trades will be required before I can end up with the perfect entry price. It may be easy for a fulltime trader. Or may not be. But after 5.5 years I realized I can’t make those excuses anymore. I should get realistic and focus on only maximizing trading strategies that involve less number of transactions with each one counted and less time monitoring them.

That means I will stick to my favorite trading style – pyramiding. Multiple entries and single exit trading strategy. It doesn’t matter which way you trade. Loss always happens. Earlier I used to do single entry, single exit with buy on stop orders. It almost always failed with losses in upwards of 10k per trade in those bad days of 2008. The problem then was with not understanding the conclusive meaning of stop loss and making a single entry without diversifying across time.

With low brokerage rate and multiple entries, the loss per trade is significantly reduced. Only problem is to place the stop loss order immediately after each entry into positions. I would need a blackberry or a real-time alerting mobile device that also helps quickly place stop loss orders without needing me to go through a maze of pages from login to order confirmation. Do we have any such device (other than a laptop or iPad)?

I certainly can’t expect to monitor order executions frequently through the day. Atleast not with multiple stocks. Moneycontrol sends free email alerts for price triggers. But sometimes the mail gets delayed. Gmail gets delayed for long time into hours. Ymail gets delayed by 15 minutes or more or sometimes less. Sometimes it is also lost (I have tested & it is lost all the time if office mail is used). If this delay has to be modeled as a margin of error, then I may be back to old brokerage rates or even worse. Atleast I wouldn’t have to monitor all day.

May be Sharekhan gives longer enough session durations to take care of this problem with a page reload as often as possible. 5 years of work experience tells me that everything is possible once you decide to consciously develop a habit. No question of lack of time, conflict with work, divided attention or heads spinning!

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