I have 2 brothers and both dabble in the stock markets and was lucky that one of my brothers mainly invests and the other trades options actively. I started my stock market career day trading in stocks with margin and also small bits of short-term trades. So I would have to thank my brothers for introducing me to the markets. Had a few lucky trades to begin with, but was never successful trading equity, blowing up my account a few times in the process.
Most of the trades were based on guts and some on tips given on TV. How did you manage to continue trading when you made these losses and for how long? I was having a good job and that allowed me to stay active in the markets, adding trading capital from my salary at the end of every month, it was a blessing in disguise.
I started trading in early and this method of trading continued till May when there was a sudden fall in the market which was a big setback not only for my day trades but also on my delivery trades, which I exited in panic. This incident was an eye opener on how trading based on news, watching TV or on a hunch can never really be profitable unless I had the news before everyone else did. This is when I got introduced to Technical Analysis and it started off with learning candlesticks.
As and when I learnt more about technical analysis, I suddenly felt that it is possible to have systems based on strategies which can run like a money making machine removing all human emotions. It also helped that I was good at shell scripting and the automation background helped me put up a few systems.
You could say that I have tested over strategies from then to now. Most of the results were based on open price, but the open price that you see to what you can actually get while trading the markets has a huge variance.
What also adds to this are the slippages, brokerage costs and other taxes. Around the same time I also got introduced to Futures and Options and found out that I was better at intraday trading and hence most of my positions were never carried overnight. This is what I have been following for the last couple of years and it has been doing well for me.
Most of my trades are option trades and hence along with looking at technical charts, I also started mixing it with a strategy based on open interest, implied volatility and option prices. Basically the strategy using the data predicts which side of the option is skewed to move up, either calls or puts and also the strike price best positioned for this.
Since the strategy revolves around spotting traps or option skews as mentioned above, typically most of the trades would be counter trend trades. I personally find that being long options really works well for such a counter trend system. There are some gut based trades, but I mostly stick with trades given by the system that I follow. But the critical thing is to accept that we as humans can make mistakes and can get carried away, so it is best to keep only that much money in your trading account that you can afford to lose, especially when trading in options.
When you hold options overnight, the time decay happens faster and if you trade in-the-money options, the absolute return when you are right on your trades is not much. Also one of the things that I avoid as an option buyer is to pyramid, that is add to existing open option positions as and when it goes in my favor.
When you buy options you are fighting time, volatility and price moves, so I personally never liked pyramiding and always lost when I did. There are times when I do carryover options, but I reduce the size significantly. Also the option position carry forwarded is not because it has made a loss, so let us hold it to the next day hoping that it recovers. It is mainly because the gut sometime says that there is more in the trade left to play out. Out of the money options only?
That is very high leverage, are there any money management rules? Leverage is a double edged sword, but a very important part of the business.
One book which was an eye opener for me was on Position Sizing by Van Tharp. In terms of how much trading capital, I follow a unique strategy. I come up with an assumptive trading size for my account based on my risk appetite, assume this is 10 lakhs.
But as and when there is profit added to this Rs 1. Usually I will withdraw profits from the trading account if the account size reaches between 2 to 3lks to bring it back to 1. Today I can afford to take this risk having a cushion of a full time job; I might change this strategy by a small bit if I were trading full time. My trading activity picks up quite a bit as and when the market approaches expiry and is mostly in Nifty options because of the higher liquidity.
It is very important to not treat this as lottery money and spend it. I look at it as a normal income and use it to supplement my financial goals. There is no system that can guarantee you return, in the last 1. It is important to understand this and hence manage your risk accordingly.
Trading is like a profession, people take it lightly especially because of the low entry barrier. To be able to reach that assumptive trading size where I can quit my job and become a full time trader.
Thanks, Rajesh, for the insights and hopefully your good run in the current day challenge continues and be able to trade full time soon.
Love playing poker, basketball, and guitar. Thanks Zerodha for sharing this …. It contains Lots of Value and very helpful for the people who are there in this market…. Congrats and Thanks for sharing your thoughts Rajesh!!! Wish you all the best for your future plans. Because of his natural talent he is gonna achieve greatness. I see him as a teacher. You say correctly that Full Time job is a blessing in a disguise.
But how you are able to do Day Trading with FT job? How you are able to manage daily screen time required for day trader along with FT job? How about charts-on mobile? Most of the time, the major moves happen within the first one hour of market open and again in the last one hour. Being in software industry where you have flexible timing helps a lot here and the day is still long after market hours! For tracking other parameters on the OI and IV skew, I use the system built inside my website tripleint.
An iitan is paid atleast 30 lakhs per annum sal.. Wish you all the best for your future trading plans. I hope this article is very inspiring for all of us! My problem is getting uninterrupted internet connectivity and reliable tick by tick charts for intraday trading.
I am based in Mumbai western suburbs. I use the live proprietary system developed to track OI and IV skew defined in my website tripleint. Most of the analysis is based on EOD charts, levels, traps and research is to select the right day for placing the trades. During the day the live Option system and price levels are used for timing the entries. Thanks to Zerodha for publishing my interview!!! For people who have been asking details on the option trading system and methodology, please visit my website at tripleint.
Thanks again for all the likes, shares and encouraging words!!! I almost have similar background as yours IIT, M. I am interested in building a trading system.
Can you throw some light on how to proceed. Did you build your own trading system? Is there a mechanical way using which you search for traps?
Will be very grateful of you can share your technique. Rahul — For traps, not using a mechanical way of finding it out and I have explained the details in my blog http: Under Categories you can find articles for bull and bear traps. Please find some scholarly articles at http: Each have their own advantage and disadvantage as has been explained.
The articles might help you to understand how each of the parameters of OI, IV and direction decides the option price and you can then decide on which strike suits best for what you are looking for. Best wishes to you! Mr Shirish — Thanks for your message! Expecting a return of risk free rate is far too less to consider for any business and to maximize that we use the power of leverage.
Trading is to be considered more of a business and to begin with, one needs to start off only with the capital one can afford to lose. In all probability there will be multiple times when one goes bankrupt in the trading account and it is continuous learning and perseverance and might take a few years before one could zero-in on the strategy and markets that one would be trading profitably.
Derivatives as a product itself is designed to factor in leverage and so handling risk: Being a personal trading account, one would not want to reveal the absolute value and that is the reason why returns are talked in terms of percentages. I have been trading from past 1. I always end up losing money just because of these traps. The most common mistake i always do is i carry my position overnight, that has killed my account literally.
I found a trading system back in May where i was making consistence profits with it, infact i doubled my trading capital in a week, but i lost the momentum because of a bad trade carrying overnight position.
I lost my confidence with that single trade. Since, I have been researching a lot over internet and reading books to have a trading system which works for intraday option trading but I have not found one. I would be grateful if you can help me with Where i should be starting with and how to make your own trading system. Are you doing option trading only?
Great article or interview. Everyone has their own strategy.More...