Small Mistakes

Its long time. More than six months. Yes I made lot of mistakes but those are small to write and it wouldn't be entertaining to read those mistakes. Yes, there are couple of mistakes that are entertaining to read and I'd be posting it in a day or two. Mistakes are not infact losers rather lost opportunity or booked pre-maturely for various reasons. I don't have the habit of justification but I do sometimes justify but I take complete responsibility for those mistakes. 

10% draw down in single day

I made hell lot of money before couple of weeks. At that point of time I thought some special power has come to me on trading. I thought I could easily figure out the way to make money in the markets.

Unfortunately it didn't took 10 days to realize that markets are bigger, smarter than me and I gave back most of my profits in just a day. Yesterday was Fed Event day and I bought both call and put options which is otherwise called as Strangles. I thought I could make hell lot of money on both the sides and wait for the fed to help me for my profits. 

Fed tapered, but its not as hawkish as everyone expected and eventually Indian markets did nothing severe to make profits for me. I lost my money. I went for a kill and got killed.

What is the lesson?

1. Not all the events would pan out what we expect for.
2. When a particular event has been focused for so long, one must make sure that it could possibly be priced in the shares.
3. Don't commit big money, no matter what the out come would be. Always have a shield and approach the markets and markets wont ran away.

Bless in disguise

1. Thank god, this trade didn't clicked. If it had clicked I'd thought myself as hero and would probably try to do the same maneuver during the time of elections. I'm planned to commit big money, but thankfully lesson has been learnt before the elections. Despite this outcome, I'd commit my money, but with best risk management and make sure I make only profits from the trade no matter where markets goes during the day after announcement of results.

2. I'd be doing my election trade very very carefully because I'd be putting my own money in line which is really big compared to what I was trading. 

I'm back to biz of doing my research in depth manner and I'd be doing for next 10 days and would probably stop from trading. 

I've no regrets on this loss because its bound to happen and I didn't hesitate to book it when I realized that it didn't go according to my plan. I've to understand few issues on option pricing and would probably come out much prepared for the next big trade. Till then, without any hesitation I'd be licking my wounds. 

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.

Fed Said Nothing

Yesterday Fed announced its policy and there has been no change in its stance and its committed to contribute $85B to mortgage markets. Markets sold off. Financial pundits appeared in TV and they gave new theory which is complete non sense and its bullshit.

Everyone on TV said that Fed is going to taper immediately and they are simply going to wind up the support. Bernanke has clearly said that he would wind up the support gradually on the basis of data. He added that if data doesn’t support fed is not going to withdraw its support.

He also added that he would start tapering on slow pace based on data and only after tapering he would look on to withdraw QE and only after that he would think about raising interest rates. Whereas pundits have conveniently forgotten everything and they simply shouted that he has signaled tapering which is complete ignorance or purposely shouting for some unknown interests.

INR has depreciated almost 2% against USD and I believe this is complete panic. This is not 2008 and if something goes wrong Fed would simply pump more money and could continue to support system. Secondly there has been no disorderly default like Lehman Brothers that happened in 2008.

If a trader has been in panic situation he would never see money making opportunities. There has been lot of money making opportunities but that has to be done in intelligent manner by taking small trades and go aggressive on confirmation.

GBP, Euro has been trading at higher levels and if you  watch these counters you would simply identify that the raise of both these currencies happened on not so higher volumes and are completely speculative in nature. This is bound for small correction and one could try in these couple of currencies.

Its always advisable to trade small position in order to keep our emotion intact despite panics that are bound to happen in the markets.

Disclaimer: Do it at your own risk and don't blame me for your losses.

Rally on cards!

I've been reading negative articles on daily basis. From Oz to US there has been fear mongering and doom happening in MSM and on blogs. Everyone in this world are talking about tapering of fed and they have started speaking the eventual crash that is bound to happen in matter of months and could witness the situation or scenario that would be much worse than 2008. I'm not well versed in Economics ( Not in anything, but that is different) and I don't know much about economies of world. With this kind of negative sentiment there is a possibility of huge rally and its right in the corner. If you have intention to short the market it would be better to wait for couple of days before going to short the market. 

Trends and charts simply looks negative. I don't have any debate on that. But I always think like " There are always trends in the markets and there is Federal Reserve". 

I'd like to present couple of scenarios on the market. If fed tapers we could witness a crash that could make 2008 as a laughable one because there would be huge long unwinding which is much more dangerous than shorts in the markets. After long winding we could witness shorts that could tear the markets. Dow could very much go to the place where it has started at 2009. Few of the pundits ( whom I have great respect and they are highly educated, highly experienced and have lot of sense in their opinion) believe that Dow could correct not more than 20% and I simply differ with them purely on the basis of sentiment. Sentiment is important for the markets and if fed tapers it would simply break the sentiment across the world and there would be nothing but a " Global Sell off". I don't expect anything less than that. We could witness huge problem in mortgages and bond markets that could add further pain and could possibly face liquidity crisis which would contribute to insolvency of the system. I don't have second thought in this issue and this is going to happen only because of sentiment and sentiment is much powerful than common sense. All these things are known to everyone in the world and I'm not writing anything intelligent or unique that is not known to world. Unprecedented crisis is bound to happen if fed tapers their commitments from the markets. 

On other side. Fed have been watching the action in the global markets. All EM currencies have depreciated almost 10% against USD and bond markets have been sold off. Central banks of EMS are simply waiting to see how things pan out and they simply don't know how to respond in the markets. Fed understands that this is not just going to be a carnage in stock markets but its going to carnage in all asset classes across the world. If EM currencies witness huge sell off it would eventually affect the profits of Fortune 500 companies that are having operations across the world and particularly in Emerging Countries. Secondly just put yourself in the shoes of Ben Bernanke. He simply supported the markets and has made things calm in mortgage, debt and capital markets for the past 5 years. Without witnessing comfortable unemployment rate, Inflation and GDP its simply unnecessary to withdraw support from the system and Fed would never do that. They simply don't want to see everything in dust in matter of months. They can't accept things going to dust because they have worked hard for the past 5 years and they simply can't afford to allow to go burst in matter of months or even minutes. Fed simply understand that sentiment itself would simply create a catastrophe and they know that their hard work would be put in vain in minutes. 

It could atleast take a decade for fed to taper the markets. As of now I don't see any evidence or need for the fed to taper the markets.

Important Note: Withdrawing QE and tapering are completely different. Please don't compare tapering with Withdrawal of QE.

Meaning - We could probably witness huge rally of 5%  before getting sold off!

Disclosure: I've taken position and I could probably make profits on rally as well as on sell off. I can't simply afford to sit in my opinion of continuing the support,because I won't get bail out from Fed. I've already taken the position.

Biggest trading mistake - USD/INR

USD/INR has been money making bet for most of the times. Last time I lost Rs.45000 was before 3 months. Rs.45K is definitely a big loss and recouped that with the help of trades that was made in equities. I use to lose money in trading stocks. So I simply stopped trading stocks and instead trade futures and hedge options when the trade goes against me. I had that Rs.45K loss and vow not to make it in my trading. For the last 3 months I didn't had too much losses (had minor one of Rs.5k-10K) and was making consistent money in my trading. And there is not much difference between an amateur trader and a drinker since both of them don't keep their promises. I made ( I still consider me as an amateur after having experience of 7 yrs) my mistake in USD/INR in a big manner. Initially during the month of April I've been short USD/INR around 54.60 and when it touched 54, I was sitting in huge profits which I didn't booked and was planned to doubling it on the expectation that USD could go down further despite noticing its strength against all the currencies in the world. I thought INR is different and trend made me to believe that it could notch down further. I was writing call options and also have been writing out of money put options. After a particular point USD simply stopped going lower and it was trading above 54 levels. This was the crucial sign which I completely missed and this sign has been warned by my partner and I was simply over confident of my trades since we booked lots of profits in USD trade. I was simply sitting in the profits and I didn't booked my profits. We made couple of right things and due to over confidence and arrogance ( definitely in my part) I stayed short in USD. My only problem was not the short trade I had, but the magnitude of the trade that has made me to face such a precarious manner which I faced today and closed all my positions. I was having too many lots of USD which was completely huge and was trying to console myself that I would get it eventually right (what a fucking asshole I'm). Well last time when we had loss of 45k, I was completely patient because mistake was done by my partner and he become completely bull on USD whereas I was level headed and reiterate him that USD was a range bound trade. Finally we succumbed to his pressure and covered the position and we had a loss of 45k. This time he was simply remembering about the loss and was constantly asking me to book partial profits and I become too greedy to post huge profits. Short squeeze happened, we did too many things and we infact did right things, but eventually got confused and simply lost our way and end up making huge losses. This loss happened simply because of me and he warned me lot of times and despite that I simply discredited his warning due to my over confidence. 

Only reason why we didn't end up in huge loss is because luckily I caught the trend in futures and made huge profits. When I made calculations, I end up giving almost 60%-65% of my profits in this USD/INR trade. 

Lessons:

1. You're good only up to your next trade, which means you are an ordinary joe and you have to prove you are worth in every trade.
2. Position sizing is important for any trade. Don't have too many positions which is beyond your manageable capacity.
3.  Never and ever be arrogant or over confident. These two qualities would make you bankrupt. Luckily my losses got compensated due to the fact that I've made decent profits in index futures.
4. If some one warns you make sure to listen to it ( not gyans that have been given in TV like European problem or US problem rather genuine trading positions and booking profits) and verify the credibility and truth in that warning. My partner insists me to book the profits and have been continuously asking me to prune my positions. I never listened to him and eventually lost lot of money in a trade.
5. Due to huge size of my position I reacted for 15-25 pip move on daily basis(both the sides).
6. Over all this is really a biggest sucker trade in my life. My previous one was Unitech, but this USD/INR has beaten it since Unitech was made in my first year of my trading whereas this USD/INR has been made on my 7th year of my trading after managing more than $25Million in assets and supporting more than $600Million. This is ridiculous. 

Big miss of big trends

I use multi strategy to trade for me and my clients. I predominantly use trend following for my trades and I'm ashamed to say that I'm a trader who trade on trends. I missed one of the biggest trend which is Reliance Communication. I traded in and out and made decent money in that counter. However I missed huge trend and the stock rallied more than 60% in just a matter of 45 days and I've clearly missed the trend. 

I also missed Reliance infra and Reliance capital that are from the staples of ADAG group and none of the trend traders would forgive me for my sin. I've missed biggest trending stocks and I'm calling myself as Trend trader. WTF! I need to grow up and grow up massively in terms of intelligence in following big trends. Hope I should and I would and anyhow should and would shouldn't have any place in trading. That is for another day.