Thursday, October 10, 2013

How I become Paratha ( Barotta in vernacular Tamil Slang) master in Bank of Baroda?

I made a loss of almost 75000 before 3 months in a position that made me to laugh till to date while I use to ask my friends to cut losses in their account. It’s fucking easy to give advice whereas it’s no way to follow it in our trading. Till date I don’t know why the hell I did that mistake to the tune of 75000 in that single trade despite remaining at a healthy profit in my trading account ( I've accounts with multiple brokers and this is one of that account and most of the mistakes are from the same account).

Why I become paratha master? I simply bought, sold and again bought and sold and again did like the way how people prepare paratha by squeezing the flour that could be made for paratha. Paratha trade would simply kill you by giving you huge losses since you trade over your position without understanding the trend in the hope that you could simply beat the trend and eventually end up losing lots of money in the process.

Bank of Baroda is one of the wonderful banks in the country. It has been in the index and attracted me to trade in that stock. Chart looked great. I didn’t remember the day, but I do remember what I did on the day.
I bought 2 Futures and sold 3 options of Bank of Baroda. It went down next day and I simply sold the future and when it went up again I simply bought that and again it went down and again I sold and I repeated this for couple of times ( I don’t expect that you shouldn't laugh, because I’m laughing myself). When I looked into the net result I was in loss of 15000. I should have booked the losses and have gone to other trade (I do now, because of this experience. Thanks to Bank Baroda) whereas Paratha master in me didn't allowed me to book losses in my account.
I was in that position from the price of 735 and I booked the losses at 580. 21% downturn in the stock literally mean down trend whereas I was long in futures and shorted call options and was doing this bullshit till I gave up to a particular place of around 580. The stock went up to 450 bucks. I call myself as a trend trader without shifting my gears from long to short when the stock turned down 5% from its high that it made recently (during that time) in the markets.
I still don’t understand how I dare to do this stupid kind of trading in my account. This is simply amazing for a person who calls himself as a trend follower or in plain English, a guy who simply follows the price action of a stock despite noises that is happening in the street.
I still remember doing some stupid stuff like selling call options on every down tick and covered the options that are out of the money. I couldn't match the fall of Bank Baroda on options because futures position has been in a pain that at some point it almost went nearly to discount. I bought future at a premium of one percent and end up losing the position in almost a discount of quarter percentage. In that itself I've lost more than 7000 bucks which is almost 10% of my entire loss in that account.
I didn't even understand a simple trading rule that, I should put a stop loss order in a position which is suppose to turn against my trading action. This is complete non sense and selling options to compensate loss is a biggest sucker game in this business. Options that have been sold would take time to erode in the market and you are bound to miss the 100% premium that has been sold by the way of options. If you are a trader who ever think to sell options to cover your losses make sure that you have the cushion to wait till expiry with multiple options that could match biggest percentage of losses that could probably happen if a powerful trend goes against your way. I’d rather book my losses and reverse my position than simply fighting the trend which is one of the sucker games in this business.
So when I looked back into the position, I’ve learned that I’ve lost almost 75k in this position. The beauty is I had back to back loss of 1 lakh (This is 75k and there was another one coming and it had 1 Lakh of loss) in just couple of positions.
What the heck is happening? I’ve been reading books and on daily basis I’ve been reading that cut your losses and cut your losses and despite this I incurred huge loss of this year. This is simply unbelievable and if you think it stops with this, then you don’t understand that in stock markets trader does crazy stuff all the time irrespective of his experience and mistakes that he has committed in his life as a trader. Another one is coming and this time with the loss of more than 1, 00,000. This is simply unbelievable.
I planned to put as a separate post, but since it was back to back loss and cut my account size by more than 40% , I thought of writing it as a single post.
Second one was Ashok Leyland. While I entered into the futures, Ashok Leyland was trading at Rs.24 and I bought that at 24. Total lot size was 9000. If it go to 25, I make 9k, but it didn’t happened and it was simply trading at 23.50 – 24 for couple of days. If it happens now, I might have sold a call options and wait for couple of days and if it goes down I’d simply book my losses in futures and keep my options open to cover at lower levels.
Since it happened before quarter, I was not having that much of intelligence and did nothing and simply kept the position in a hope that it would come back and suddenly after couple of weeks, Ashok Leyland was trading around 17. Next day was result day and I did a fantastic stuff by buying another (Losers average losers) contract around 17.50 and next day results came and it went to 16.50 and there I booked my loss for both the contracts and it costs me more than 100000.
What fucking kind of person (trader) I’m? This is the question I asked myself after booking back to back losses that eroded almost 2, 00,000. That moment become one of the darkest hours in my trading career. Mistakes after mistakes, but I’m not learning anything and went to keep my loss that cost so dearly in my account. This is simply unacceptable and I hope that I would never do this ever in my trading account. I took a vow that I’d rather sacrifice my profit than simply sitting in losses and from there I came back sharply and made back to back profits that simply put my trading account in profits. I did splendid trade in GBP/INR that simply gave me a profit that would simply wipe out all the losses that has been incurred in these two trades. I’m happy man but I would never forget my sleepless nights that I overcame during the time of those losses.

What I learned from this trade?
1.     Never sell option to cover your losses. It’s a losing game. If you would like to hedge your position make sure that you have a purpose and make calculations and make sure that options would last long till expiry.
2.     If trend goes against you don’t fight it by selling out of money options by thinking that a losing position would come down and you could make money in options as well as in futures. Trading is not that easy.
3.     Covered call, Selling protection and other stuff are most of the time a losing game. Never do that. Its only for losers like me and now I understood that I don’t want to be a loser.
4.     Cut your losses short, Cut your losses short and cut your losses short. This is the most important rule in trading. If you don’t do this you would probably have sleepless nights like me and suffer in trading.
5.     Don’t be afraid to be wrong. Losses are part of the business and don’t think that you are fucking smart by selling options. Markets would simply screw you right, left and center and give you sleepless night that exactly happened for me.

6.     Accept your mistake, book your loss and move on. This is as simple as that. Never and ever try to be smart.