What is Life - EMIN∃M

Life.. by Marshall Mathers

What is life?

Life is like a big obstacle

put in front of your optical to slow you down

And everytime you think you gotten past it

it's gonna come back around and tackle you to the damn ground

Warning: Uncensored full song lyrics ahead..

Life.. by Marshall Mathers

What is life?

Life is like a big obstacle

put in front of your optical to slow you down

And everytime you think you gotten past it

it's gonna come back around and tackle you to the damn ground

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What is money?

Money is what makes a man act funny

Money is the root of all evil

Money'll make them same friends come back around

swearing that they was always down

What is life?

I'm tired of life

I'm tired of backstabbing ass snakes with friendly grins

I'm tired of committing so many sins

Tired of always giving in when this bottle of Henny wins

Tired of never having any ends

Tired of having skinny friends hooked on crack and mini-thins

I'm tired of this DJ playing YOUR shit when he spins

Tired of not having a deal

Tired of having to deal with the bullshit without grabbing the steel

Tired of drowning in my sorrow

Tired of having to borrow a dollar for gas to start my Monte Carlo

I'm tired of motherfuckers spraying shit and dartin off

I'm tired of jobs startin off at five fifty an hour

then this boss wanders why I'm smartin off

I'm tired of being fired everytime I fart and cough

Tired of having to work as a gas station clerk

for this jerk breathing down my neck driving me bezerk

I'm tired of using plastic silverware

Tired of working in Building Square

Tired of not being a millionaire

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I'm tired of being white trash, broke and always poor

Tired of taking pop bottles back to the party store

I'm tired of not having a phone

Tired of not having a home to have one in if I did have it on

Tired of not driving a BM

Tired of not working at GM, tired of wanting to be him

Tired of not sleeping without a Tylenol PM

Tired of not performing in a packed coliseum

Tired of not being on tour

Tired of fucking the same blonde whore after work

in the back of a Contour

I'm tired of faking knots with a stack of ones

Having a lack of funds and resorting back to guns

Tired of being stared at

I'm tired of wearing the same damn Nike Air hat

Tired of stepping in clubs wearing the same pair of Lugz

Tired of people saying they're tired of hearing me rap about drugs

Tired of other rappers who ain't bringin half the skill as me

saying they wasn't feeling me on "Nobody's As Ill As Me"

I'm tired of radio stations telling fibs

Tired of J-L-B saying "Where Hip-Hop Lives"

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You know what I'm saying?

I'm tired of all of this bullshit

Telling me to be positive

How'm I 'sposed to be positive when I don't see shit positive?

Know what I'm sayin?

I rap about shit around me, shit I see

Know what I'm sayin? Right now I'm tired of everything

Tired of all this player hating that's going on in my own city

Can't get no airplay, you know what I'm sayin?

But ey, it's cool though, you know what I'm sayin?

Just fed up

That's my word

for complete lyrics

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Ten Basic Rules of Stock Trading

I believe just this kind of listed rules is not good to follow. There is a heirarchy for rules. For money management, trade management, filtering stock lists and loss management. After these some more rules for emotional management. Separating that way will make a good foundation for every trader/investor.

One simple but very crucial rule is to pay ultra caution to a position for which you have huge exposure. If your exposure is not much to the market or a particular stock, let it swing as much as it can. This is very important and should be integral part of your trading psyche. Once you master this one, the below ones will show their positive effect.

Ten basic rules of stock trading:

1. Always follow stop losses. 3%, 5% or 20% or 40% based on your strategy. Never let a fast moving stock get past the loss limit. If you keep thinking, you will be made to wait longer before a recovery if there were any and the longer you wait for recover, the longer you will be expected to wait. So be early, the loss is just a number. But the loss of time is real –ve number. Just like unexpected loss, believe that unexpected profits too come.
2. Don’t buy on dips
3. Never do averaging down
4. Average up as the stock trends upwards
5. Always avoid stocks at all time lows (or those that have fallen a lot)
6. Avoid stocks that have fallen below moving average and off by 30% or more from recent highs (unless the stock starts moving up fast)
7. Follow the pace of the trend. Uptrending stocks should move fast up. It doesn’t matter if it happens rare but we should wait as long as the stock doesn’t move down by a big % in a single day. We wait tolerating daily little % moves up/down/concurrent till it makes a single day big % gain. The idea is to never miss these big +ve days and always avoid big –ve days even if it means to exit a good stock. It doesn’t matter if it goes up or down afterwards. This is the logic of the stock market. You can certainly avoid big drawdowns, if you always quit stocks that go down badly (big –ve %) in a single day.
8. Always stick to stocks that are at all time high. This is another logic of stock market. How would you see a stock in its early days of uptrend before you know that has gone up to greatest heights? Every time it goes up it keeps making new highs and it looks like it is at all time highs. History is made after the fact. But a stock trader doesn’t gain anything after the events, but only journalists, news websites and Moneycontrol/TV18 does. A stock trader takes chances while the situation is developing. A journalist’s goal is to capture an event without becoming a part of it. But a stock trader’s goal is to capture an event by becoming a part of it. You participate in one big event and you get to talk about it for the rest of your life.
9. Don’t do second-guessing after the events happened. Losses and missed opportunities cause lot more pain that goes over and above the compensating experience of +ve trades. This happens because of second guessing. We keep thinking if I didn’t do that, if I sold it there, if only I avoided buying there etc. The only way to get over this is to convince yourself what you did could not be avoided as per your strategy. There is no way one can do well in all situations, unless you are a superman or are on NZT. So get over second-guessing and move on to next good bets.
10. No matter what kind of market you face any time, always keep your commitment to trading with all above rules in mind. You do not need to give much of dedication but the commitment to act when the time comes, the time windows can even be very short for you to take decisions, so be committed to be on alert. It won’t cost your time. If you avoid second-guessing you will also not get mental fatigue. Always keep in mind that once you get into a lucky streak, there will be no looking back.

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My Second Quarter Trading (Q2FY12-13) and Some Lessons from It

I had a dramatic stock trading cum investing experience in the last quarter (Q2Fy12-13). I haven’t traded in more stocks than in Q1 but ended up with more sale transactions and the buy-above-high-and-sell-for-stop-loss trades, that pushed me down in the first month itself. Those trades costed 1300 in losses and more than 300 in nsdl charges (each sale transaction has a fixed nsdl charge, so it is better to sell all in one go when trading low quantities). In between there was annual maintenance charge for Sharekhan. Not sure how that is deducted. Lets assume it is approximately 400. Nevermind, all these fixed charges don't scale if the capital is scaled.

Looking at the transaction report till date (its hard to separate q2 alone now, I haven’t hired an accountant :) ), my gains before fixed costs stand at 3093.48. Apart from the above mentioned fixed charges, some money went somewhere. Those could be more fixed charges which would be insignificant as capital grows to higher levels in the coming quarters. So I didn’t yet check them out. May be these all eventually make the case for hiring an accountant. Let us see.

Note: Recently a friend pointed out the low value of capital in my trading. Well, once upon a time, I traded what could be considered a lot of capital by my friends at work. I thought about starting where I stopped, but the more I thought, the more I realized that once you take a break from trading, you should not start with the same capital that you paused at. You need to get back on track by following systematic investment plan and scale capital as profits grow. Note that in all Ponzi schemes it is the early birds that gain the most. But that doesn't mean if you start now you are going to be the bottom of the pyramid. When you can't tell if it is the end or the middle, you should take on a systematic scaling plan. Scale your exposure based on your recurring tolerance of loss as well as increasing profits. The recurring tolerance of loss is suited for jobbers who get steady income which is not a privilege of full time traders. However for any trader, the systematic scaling strategy (getting back to business) is to increase exposure only when profit increases, step by step. This ensures in case you were starting at the top of the bull market, you don't get caught by a bloody surprise. Blood baths don't happen all the time in the market but when they do - there's no need to talk about it (2008 showed what it was).

Meanwhile, the real profit based on incoming and outgoing flow of cash, is lesser than the larger figure above. It stood at 1239 for the combined quarters or till date. Discounting net gain of last quarter 989, it is about 250. I wish I could show better. But there are no ways to cook books here. Atleast I showed bigger figure in the previous paragraph. Of course that’s one way to cook. I don’t have stakeholders or shareholders here, that’s why I comfortably share this third paragraph. However one should note that this is small profit because of fixed costs. As the capital scales, the larger profit (3093) is scalable and at one point is the real profit (as the fixed costs become insignificant).

Average capital for the quarter was 50k, 150% up from last quarter :). The capital infusion rate per quarter remains the same as per my systematic investment plan. It is going to experience some dramatic jumps in the future as per my unsystematic investment plans but it won't immediately go into stocks. Or may be not as I rethinking about unsystematic plans to convert into systematic. Also percentage-wise Q2 net gain doesn’t make much of a story. Also I haven’t bothered to separate the stocks traded in this quarter, so no relative comparison table. Those are the not the important things anyway, so lets move on to important stuff.



The Distribution of Gains

There is no better way to evaluate a stock trader than plotting the distribution of his/her gains vs. their frequency. I have plotted below my distribution graph for the two quarters combined.

There were lots of losses around 250. That’s the black body of the last quarter experience. As July progressed, the bull market that started with the second bottom of June continued into the second quarter. From my earlier experiences, I felt the urge to increase the exposure as the market continued the uptrend. Only the scaling strategy was wrong. There was still more to learn about trading and the markets (broader and inner). It wasn’t too many trades, just few. But I wasn’t clear about my strategy yet.

My gains in the first quarter were dominated and predominantly determined by one stock - Varun Industries. The strategy there was bottom fishing. You can only bottom fish before the bottom happens. Once market went into uptrend, the opportunities are gone. Then I went onto new high stocks. You just can’t shift so fast between strategies. It needs skill. Skill to identify the really strong ones from those that are just moving up because of the broader market winds. The rest of the quarter revolved around changing my strategy dramatically from bottom fishing to the best strategy I followed till date (I did that in 2007 too) and finding the best ways to filter the stocks to trade for the chosen strategy.

In between I got introduced to reading books by Nassim Nicholas Taleb, the hero of randomness. His books Fooled by Randomness and The Black Swan, are very intellectually entertaining. When I say they are amazing, you can bet on their face value. There are no coincidences in life. Its all random. Random doesn’t mean chaos. Random because it is beyond our capacity to predetermine the entire sequence of outcomes. Well, the world is the way it is. We try to think we understand it, but we don’t. It is what it is. It may be multidimensional and non-orderly world. But we try to map it onto one dimension and make it simple and try to find order. These books have given me the perspective I needed for a long time.

I had eventually switched from bottom fishing strategy to pyramiding strategy. Stopped watching stocks that are going down to hell and started watching stocks that are going up to heaven. I found the statistical justification for the latter and practical justification for the former. Now my strategy has become more robust. I also understood the reality of non-linear gains. Earlier I perceived the market to have randomness of Gaussian distribution, but my perception now switched to randomness of Mandelbrotian distribution which is more realistic for the today’s world. However I could see that on a lower scale, like intra-day trading, one could still distribute one’s gains to Gaussian distribution with positive mean. However if you remember what I have written in last quarter report, I wasn’t trying just to get a shifted Gaussian distribution but rather a Mandelbrotian distribution which has most significant gains on the extreme right and all insignificant ones scattered anywhere around the center. Well, actually its not exactly that distribution but a one sided version of it (+ve sided). Of course, I am open for further evolution of my strategies and distributions as time passes. But only for evolution, not for change. Change is like a circle - merry-go-round, evolution is like a spiral, each time you make a round you arrive at a new level.

The distribution, however doesn’t look as good, having booked single largest loss from a stock so far. It was 675 in Varun. I had to end it up with a loss because I just couldn’t know its upper limit on profit. Its more likely to continue downtrend. But things got better by the end of the quarter by following the new strategy and buying into Shasunphar and Bergepaints and few insignificant others. The gains have merely shifted from one stock to another. As we are already in the middle of the 3rd quarter (sorry for the delay in getting Q2 report out), I could tell that those gains too are merely shifting from Shasunphar to other stocks. I am out of Bergepaint though with a little gain. This way, I would be booking losses most of the time, so hopefully I might not have to file these in my ITR again, unless losses are too large and I want to take the benefit of offsetting them against future gains.



On MC Tracker

This is how my portfolio looks on moneycontrol tracker as on the first trading day of this quarter. My greatest profit was in one stock that had also gained most in %. In between you would notice Atul with 15% which is a side effect of trying a short term trading strategy on 52 week high stocks. I will write about the details of strategies later. I got a bit of surge to scale up the position in Bergepaints too early before it proved its hold-worthyness. That was a classic mistake, though it wasn't costly. However I am now seriously continuing with my strategy. I still see the effects of broader market winds on the elasticity of trends in individual stocks and sector rotations and all kinds of strange things that keep happening randomly in the stock market. Random because I don’t have the capacity (nor tried) to determine its order. The overall gain looks too positive because unlike the first picture from Sharekhan, it doesn’t show the closed trades.

From here on my performance wouldn’t be based on net gains as they are very much influenced by the continuation of the trending stocks which in turn are influenced by the sector or broader market winds. Hence my goal is to focus on getting the distribution right without getting let down by the rare and significant negative events. After a pair of rare and significant positive & negative (in any order) events happen, then you can see the true score.

This quarter I have taken some very good lessons. I have to correct some of the last quarter ones as well. But I feel too lazy for that now. I will continue that in the next post that will come soon.

Update from Q3 (time travel): Things are looking better in Q3. Also I discovered some new effects of my systematic pyramiding strategy that I myself hadn't expected.

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My First Quarter Trading (Q1FY12-13) and 12 Lessons from It

I had a modest stock trading experience in the last quarter (Q1Fy12-13). It had been a long time since I had such number of trades in a quarter. Overall from 1^st April till 30-June I have traded in 16 stocks (including few stocks for intra-day trading experience in the previous post) and an option trade which is solely meant as a test to determine the brokerage rate and see how options expire worthless. That was painful though, especially because I was trading on a small capital and few hundreds of loss for option testing is equivalent to few percentage points loss on the total capital. But nothing beats the practical experience as it would give you the perspective you need for your own method of trading.

I have ended the quarter with a realized loss of 142 rupees and unrealized gain of 1879 rupees. I have discounted option trading loss and few brokerage and nsdl charges which probably would take it to another 700 or 800 rupees of loss. I have discounted these as they would be negligible for a larger trading capital of 5 or more times the current capital used. Nevertheless net gain is definitely affected. Based on difference of balances (in and out flow of money), the net gain stands at 989 only :)

Anyway that’s not bad considering the quarter itself. Below picture shows the detail of performance in 16 individual stocks traded and the one after that shows the values of NIFTY (stock index) and the 16 stocks as on 1-April and 30-June to get an idea of the change in them during the quarter.

Relative to the Stock Index which is a good indicator of most of the market wealth, my performance is much better. I have started with 10k in April and kept adding 10k in subsequent months. On average it is 20k. So the average gain in my portfolio is like 4.9% compared to NIFTY’s -0.3%.

The average of the changes in individuals stocks together during the same period is -12.4%. This value is highly dependent on the stocks being picked. As you see there are 3 stocks that did extremely well during the quarter while there were 5 stocks that did extremely bad. I made losses in 2 of those good 3 stocks and major gain was from one of those bad 5.

An interesting picture emerges when we look at distribution of profits and losses through the whole quarter of trading. As can be seen from below, profits are skewed to the right with one of them being the odd one at the far right. While the most of them are like noise around zero canceling each other, the odd ones at the right are the ones that determine our net gains. By hindsight, it can sound like so many stocks being traded when just one could’ve been enough to make the same amount of gain as the net gain. But it is not so straight-forward like in engineering. What looks like a good stock (Bergepaint, BataIndia etc.) gave me losses, while the bad one (Varun, SUZLON) gave me profits.

Although I have deterred from my arbitrarily set plan for trading, I feel that I am getting to the mindset required for trading as well as investing into stocks for varying time periods. Sitting through painful periods in some stocks like VARUN and ARSSINFRA and then sitting tight through their momentous rises reminded the good old days of 2007/8. The difference is the experience of cyclical market trends.

For the upcoming quarters, I am taking below lessons for trading:

1. Trade only through discount brokerage firm so that stop loss can practically be applied to minimize losses early on.
2. Don’t hold stocks for too many days when daily lows are falling consecutively. Bergepaint was a silly loss.
3. Don’t swing between expectations of the trade. While experiencing more than 5% loss in Bergepaint, I was fluctuating between taking stop loss vs. surviving the pain as the capital is anyway small.
4. Take profits for atleast a fraction of the holdings when expected target is met. I should’ve done this on Varun to sell 100 when it crossed 40. At 42, I almost went up to place the sell order but then I changed mind as if I was trading a fundamentally strong stock which will bounce back quickly if it falls off its highest price.
5. Study charts of atleast those stocks which are recently traded or held in portfolio and those in watchlist. I missed the momentous move in Ajantpharm because I wasn’t looking at charts.
6. Position management is the most important part of the trading process. Once we enter a trade, all that matters to us is the result of the trade when we exit it. We close our mind for everything else. This is a hard to overcome survival instinct and requires discipline and can be learned through practice. I can say that most of my trading performance is attributable to position management than stock selection or timing.
7. DOT – Do not OverTrade. Overtrading is trading on margin (excessive margin) or trading leveraged through debt or derivatives. Most of the trading careers end because of overtrading. While it always feels good to recalculate what would be the potential gains if I had used 20x times the capital, the expiry dates, margin calls and other factors would not allow us to do effective position management under monetary pressures.
8. I wouldn’t like to diversify. But the reason I have not used my full capital on any single trade is because it is akin to overtrading especially when I have just started first time after a long time. Though it appears to be diversification, all I have done is capital allocation per trade based on risk I am willing to take. I sure can take huge risk if the reward is good (like in Varun) but still I didn’t. Because I may not be comfortable handling the same kind of percentages if my capital were 100x of the present.
9. Be more active in trading. I am coming to the conclusion that though there are plenty of opportunities in the stock market (stock market is the amalgamation of all kinds of businesses), there are practical limitations to realizing or squeezing most of the potential returns. One of those is the activity rate of the individual trader. Alternatively one would think of overtrading on few stocks infrequently. But the risk involved and the lost time in waiting before entering the trades is not worth the alternative. With 7 & 8 applied, the potential returns from the market are greatly reduced. Though it still looks better than saving in surefire markets like debt/FDs/Bonds (depending on trading distribution), it is still not the best of what the market can give. Hence one should get active in trading, which of course leads to next lesson.
10. Find next good bets. Of late, I do not like the term bet. However, one should always be on the lookout for next good entries into stocks already being traded, held or prospected or yet to be discovered. This also means one should track market statistics, explore economy and industry news (I am not there yet), use proprietary scanning programs, etc.
11. Avoid stocks with large spreads and low floats. I used to like stocks like Varun that give 100% kind of returns just from a dead cat bounce trade. But I was able to learn about how volume plays in these stocks because of the large spreads and low floats. Low float implies less number of market participants. A single institutional investor would move the stock all the time. So whatever he/she decides to trade the stock at, will be the best price we can enter or exit. Rest of the time these stocks will be difficult to enter or exit as they get to the circuit limits without matching orders. Also large spread stocks are difficult to exit on stop loss if the trade fails. That results in more loss than anticipate. On a rapid fall, the stop loss may be triggered but may get skipped past. This requires little more effort than looking at market statistics and stock charts. That which is finding out their float percentage (can be done after-hours) and finding spread gaps between orders in Level 2 quotes which can be done only during market hours. Make a list of your chosen stocks in all MidCap and good part of SmallCap segment and keep checking their spreads during market hours and sort them. Also note that spreads can vary with time just as volume does.
12. Trade on momentum. A trader with good position management skills will most often ensure that he/she trades a stock through atleast one momentum period, it is not enough to patiently sit through tough times if one wants to make the most out of the stock market opportunities. Hence one should constantly look for momentum trading opportunities. Those high percentage trading opportunities that last from few days to few weeks. Don’t be patient when trading on momentum. Exit on the signs of fading momentum or lack of momentum.

That’s all for this quarter. I don’t think I will be able to share so much of data in the coming quarters as I won’t find time nor comfort as the capital increases and trading activity reduces free time to make this much detailed posts.

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My Day Trading Experience Today And 15 Lessons From It

 I had a modest day trading experience today. It has been a really long time since I ever did day trading. Last time I remember was in the first half of 2008. Out of less than 10 such days, I used to trade only in one or two stocks all through the day. In that aspect today was a good development as I traded in four stocks and at varying times. Earlier I used to make entry at the start of the day and close later for profit or loss.

Yesterday I got notification in office that office will be closed for today in observance of nationwide strike for petrol price hike. To make sure there is also no national holiday, I checked for trading holiday list on NSE. Then I decided I must use this rare opportunity for day trading. My preparation entailed only finding high volume stocks that have potential for big swings and for which my broker allows upto 10X leverage for intra-day. It was quite tedious task to go through 200 such scrips. I got bored and stopped after checking few stock charts. I noted about 17 of those stocks (arvind, ifci, mtnl, relcapital, sail, essaroil, godrejind, hcc, apollotyre, itc, jublfood, mrf, ofss, pantaloonr, gmdcltd, rpower, divislab). It was clear I wasn’t up for day trading. I decided to watch a movie or two for the night before and slept late. After watching Limitless (2011) for yet another time, I had decided to do some trading whenever I wake up.

I woke up at 10:45 and didn’t feel like trading at all. I thought “Anyway, how much can I do with low capital?” But I had bought a NIFTY option yesterday as a test to find out brokerage rate. I got the idea of checking whether limit orders are possible for options. This had excited me to stop sleeping and get a start with trading. I was able to place a sell order for option at 11 rupees while it was quoting at 0.15 rupees. That was amazing as it is beyond 100%. Earlier I had mistakenly assumed that there is a 20% range around cmp within which we should place limit orders. Wildly swinging option prices shouldn’t have such limits. Otherwise it would require me to monitor the option price all through the day. Thankfully, there are no limits so it opens up lot of possibilities.

After placing an option order, I had logged into Power Indiabulls software and Sharekhan browser based terminal. The market gapped down already as expected as US markets fell by more than 1% across the board. That was also one reason to lose hopes on day trading and selling my about to expire option. Nevertheless I had decided to try atleast to explore day trading. I had created a new watchlist in Power Indiabulls with those above 17 stocks and began checking intraday charts of stocks one by one ordered by alphabetics and percentage changes for the day.

I ended up looking up ARVIND (first on the list), SAIL (last on the list), HINDALCO (opened by mistake from NIFTY list as it also rose by 4%), DELTACORP (as it was already in my delivery portfolio). Now I don’t remember exactly why I bought ARVIND but I bought 100 shares at market price. While it was quoting at 77.8 the broker did its worst to buy above 78. I noted down my first lesson for the day!

ARVIND had already bounced twice from its lowest price for the day so I thought it is worth trying its upside. I had placed alerts at 77.5 and 78.9 and a limit sell order at 78.9. Now I had time for other stocks. I looked at order book of DELTACORP and noticed it steadily rising 0.10 every minute and stopped at 59.2. I had decided to short-sell at 59.2 and buy back at 58.25. I placed orders for these in Sharekhan which gives lower brokerage rates. I had placed alerts in PIB and stop loss buy order for covering the margin trade. I was watching SAIL and HINDALCO. HINDALCO was already up 4% and was not sure if there is further upside to it.

I had repeatedly watched all the four stocks LTP, % change, order book, intra-day charts along with checking out MTNL and OFSS as well once in a while. Intermittently I had completed my morning ablutions (but in the afternoon  :)) and decided to go for lunch. It was already 13:00.

Then HINDALCO was at 1.5% which meant it retraced by 2.5% from its high price for the day. So it looked like a good intra-day opportunity and what is better than following the trend? Like the saying “trend is your friend”. I had placed a buy order for only 10 shares (as I didn’t want to take time to calculate how much margin is left in Indiabulls) at 115.9. My Sharekhan margin was already over as I had portfolio holdings and crossed 10X margin already for the day with the DELTACORP orders. I felt I was screwing up but didn’t care as the primary concern was to eat some food. I checked ARVIND, DELTACORP again and again for 15 minutes, as they didn’t move an inch I went out for lunch. Before going I had placed a stop loss sell order at 115.4, just in case. I had ARVIND without protection because it was clear it won’t move much for the day and is off its lows for now.

After half an hour I was back and had a pleasant surprise from HINDALCO. It was up to 117.6. As I was deciding to sell it crossed 118. I sold the shares at 118.15 but regretted for not buying for as much worth as I did for ARVIND. That is when I dug into margin reports and experimented with changing open positions from cash to intra-day and vice versa to see their impact on margin utilized. That was a good learning opportunity. My margins for delivery for 40% while for intra-day were 10%. By default orders are for delivery (or cash segment). While placing buy or sell orders, if I choose the order type to be Intra-day instead of cash (default), my leverage would be upto 10X. On fast moving days, there won’t be much time to change open positions or learn these stuff anew.

The rest of the time till 14:30 no movement happened in ARVIND or SAIL. But DELTACORP reversed trend, crossed upper limit and stop loss order got triggered. As its position got closed and the stock was well off its lows, I had placed a buy order in cash segment for 32 shares mainly to check how long margin is allowed for delivery trades in Sharekhan. I had 1000 rupee margin, so I bought for more than that. I will know whatever happens in 6 days. If margin is allowed for 5 days, I can forever stop trading with Indiabulls as they are adamant at not reducing brokerage rates.

Sometime around 14:45 or so, SAIL was showing strength. I bought 40 shares (this time with intra-day margin) at 94.65 and watched it jump up and down. After few minutes ARVIND started moving up from its average price of 77.8. I had watched both of them compete for sometime. I had a sell order for SAIL at 95.9 and alerts at 94.9, 95.25. ARVIND crossed its intra-day high and was struggling to go up further. From 14:55 to 15:00 it was full of suspense like those last few Overs in Cricket. After 15:00 intra-day square-off can begin at any time so I wanted these stocks to reach my targets before that.

I thought there may be few minutes before square-off begins. But my intra-day sell order got cancelled already. Luckily just a minute before 15:00, I had converted ARVIND and SAIL from intra-day to cash segment. They were within 40% margin limit. I had removed all sell or stop loss orders to be within 40% margin limit.

Now all the open positions were risky and they will go for delivery and lurk in my portfolio for many days. I had checked their EOD charts to see if there is hope for holding them overnight. As I wanted this to be a pure intra-day experience and the stocks not being too strong on EOD charts, I decided to sell them before 15:30. First off SAIL was doing good, so sold it at 95.55. ARVIND went up to 78.75 and quickly started falling down, on huge volumes. I was looking for a break but it wasn’t taking any. I thought it was enough when it reached 77.5 and sold at market order. Once again the broker did its worst to sell it at 77.4 while the quote was at 77.5. This one stock ruined my feeling for the whole day.

Anyway, when I looked at the consolidated details of the four day trades, I had noticed some improvements to my day trading. Instead of just looking at one or two stocks, I had explored more stocks and traded four this time. Of them, two were closed with stop losses and two were profitable.

My profitable trades had more percentage profits than losses. However the capital allocated was less. This had turned the net gain to the negative side. I am taking below lessons from this day-trading experience:

1. Don't place market orders unless the stock is moving fast and the strategy is pyramiding. The broker do their best to get worst prices for our fills. Hence study order book and place limit orders.
2. Overnight preparation alone is not sufficient for day trading. Some stocks must be followed a week or two before the day.
3. Indiabulls was charging exorbitant brokerage rates. I would reduce these charges significantly by using Sharekhan alone.
4. Net gain was -70 rupees. If brokerage was reduced and all trades are allocated as much capital as for ARVIND, it would’ve been +90 rupees. I could spot opportunities, but I need to do better money management as well.
5. Capital allocation: till I can feel the weight or strength of different stocks, it is wiser to allocate same amount of capital for each stock. Following Tony Oz’s advice, one should not allocate more than 1/3 in one stock. Which means I can go upto 2.5/3 (cash segment), or 10/3 (max trade) times the available cash.
6. Orders should be placed with type Intra-day to avail of maximum margin. However this reduces the time available by half an hour. Close the max trades before 15:00 to avoid being squared-off.
7. Find stocks that have gone up or down by large percentage. Such stocks are likely to reverse or continue the trend, with large percentage swings. These are the best candidates for intra-day trading. It is random to find a stock which will break out from narrow range but it is more certain to expect wild swings in stocks that have just done a wild swing. Top gainers and losers of the day before provide a good list for this.
8. Be patient; don’t just keep watching the same stock all the time. Place alerts for each stock being watched and move on to explore other opportunities.
9. In day trading not all days are profitable. Especially the one like today where the broader market swing was narrow the possibilities are limited. Don’t take a bad lesson from this.
10. Place stop loss orders with intuition. The idea is only to reduce losses as much as possible. It is okay to get stopped-out with profits as well.
11. Don't just jump into any stock for the sake of day trading. Wait till a compelling opportunity presents itself.
12. Sometimes do scalping if stock is bouncing in a range. Do with the broker giving lowest brokerage rate.
13. Study the direction of a stock for which there is huge volume. For ex, if a stock suddenly rose occasionally during the day and the volume supporting that short time was higher than other times, then trade for uptrend and vice versa.
14. Buy the strength, sell the weakness. All of my trading now revolves around this. Rulistic strategies won't work under many circumstances. Hence I study a stock's price movement to determine its weakness or strength. If it is strong, it will fall lesser than broader market while rise faster.
15. Trade divergences. Divergences are the best opportunities. I look any stock that is diverging away from general market trend.

This wasn’t too bad. After many years, it was still possible to apply day trading rules. Good to know that it was still possible despite lack of enthusiasm or motivation or enough preparation. It just needs more practice to get to the professional level. I will keep that for the upcoming post-meltdown days.

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