Zen and the art of Stock Trading

The last two weeks have been chaotic for global stock markets. China’s benchmark Shangai composite has crashed 42% from its June peak. Hong Kong and Taiwan are similarly down, and the panic is spreading.

Closer to home, Black Monday saw a 1000 point drop in the Sensex, and the Rupee crashing in response to fears about the Chinese and the larger global economy.

What drives markets in this way? What drives the fizzy sense of excitement that creates a bubble, and the subsequent panicky escape that causes the crash? After every crash, we collectively promise ourselves not to be caught up in the frenzy, only to find ourselves in the same pattern of boom and bust five or six years later.

Time and time again, over hundreds of years (dating back to the Tulip market in Holland), humans have interacted with the concept of future gains in irrational ways, buying when they should sell, selling when they should buy, and often losing not just their assets but their peace-of-mind as well.

Why? Ultimately, as humans, we approach the future with two things in hand – a map, which is our past; and a flashlight, which is our emotions. We think these are handy, practical tools to help guide us through the future. However, these are precisely the tools that cause us to remain in an endless cycle of irrational highs and lows – both in life and in trading.

At Tradonomix, our philosophy surrounding trading is different.  In trading, as in life, there are ways to transcend the cycle of pain-and-gain, of joy-and-sorrow. Ours is a Zen-like approach to markets – be it stocks, commodities or currencies.

When you focus on any given stock or a market and consciously focus on cutting out all extraneous noise – your own mental machinations, as well as those of pundits and analysts – you begin to focus on the present state of that stock in and of itself. Without reference to its past, or any emotional tie to its future – you focus on the way the stock is moving – up or down.  You don’t focus on why, just the what. Once you focus on the what, you achieve a state of unemotional calmness from which you can make trading choices that are driven neither by fear of the past or hope for the future, but merely the complete serenity of the Now.

The key to our philosophy at Tradonomix is simple – Being in the Now, Living in the Present, Going with the Flow.

In the coming days, stay tuned to this blog to find out more about how to stay focused on the present market – yes, even this panic-stricken global Bear market – and learn how to use our philosophy to achieve a state of Zen-like mastery on your portfolio.

About  Author
Dr. SREEKUMAR RAVINDRAN

Founder and Chief Managing Director at Tradonomix

Dr. Sreekumar Ravindran, known as Saint in trading forums such as Trader Saint Forum & Traderji, is the visionary and mind behind Tradonomix. He is a passionate trader himself and has spent over 15 years in researching and accumulating knowledge of trading and applying the same in real-time.

Dr. Sreekumar strongly believes that trading is a learnt skill and that awareness needs to be created for trading as a profession for the common man. Tradonomix is one of his first steps towards this belief, from where he intends to take Tradonomix to an advanced technology-driven social platform for learning, and achieving financial independence.

Note: Thoughts by Saint, edited and compiled by Rohini Kumar, Head-Content Management, Tradonomix

Living on a Prayer and Preying for a Living: The difference between the Gambler and the Strategic Trader

What is your trading style - are you a Gambler or a Strategic Trader? Do you live on a prayer, or do you prey for a living? Let’s examine the two.

The Gambler is someone who will take a shot in the dark, and pray that when he turns the lights on, the arrow has hit the target.  Now why was the Gambler willing to take a risk on any particular stock? It could have been various reasons – intuition, a solid analyst report, a tip. But essentially, the choice is not because of any kind of calculation or risk/reward process – just a blind leap of faith. If the gamble pays off, this kind of trader is lauded as a maverick, if it doesn’t – well, you always knew him to be a Gambler, didn’t you?

By having no set process, no fixed aim, and no exit strategy, the Gambler is essentially living on a prayer. If the markets go up, he is happy, and, when the markets go down, he is anxious, perhaps mutters several more prayers under his breath. Far enough down this path, the Gambler is someone who is completely driven by emotion. He buys into Fear and sells into Greed and Euphoria.

Now what about the Strategic Trader? Strategic trading is essentially the opposite of gambling. The key characteristic of Strategic Traders is that they are skilled hunters – they are steadfast not only on their prey, but on developing processes by which to effectively hit their target.  Strategic Traders ruthlessly assesses the risks and rewards of any stock, by studying it closely, and putting probability on his side. Like any good hunter, they are watchful of the patterns and movements of the stock – if the prey moves left or right, the hunter jumps quickly in the same direction.

In this sense they are completely unemotional, essentially the opposite of the Gambler. Think of the Strategic Trader as the eagle that soars above miles above head, eyes pierced for the slightest movement of its prey.  The Strategic Trader, like that master hunter, knows when to let keep gliding, when to swoop down, and when to swoop up. There is no joy or fear for the soaring eagle – just a complete reliance on its unyielding vision. The eagle isn’t taking a gamble, it is taking a sure shot.

Which would you rather be? A Gambler or a Strategic Trader? Do you want to Live on a Prayer, or Prey for a Living?

About  Author
Dr. SREEKUMAR RAVINDRAN

Founder and Chief Managing Director at Tradonomix

Dr. Sreekumar Ravindran, known as Saint in trading forums such as Trader Saint Forum & Traderji, is the visionary and mind behind Tradonomix. He is a passionate trader himself and has spent over 15 years in researching and accumulating knowledge of trading and applying the same in real-time.

Dr. Sreekumar strongly believes that trading is a learnt skill and that awareness needs to be created for trading as a profession for the common man. Tradonomix is one of his first steps towards this belief, from where he intends to take Tradonomix to an advanced technology-driven social platform for learning, and achieving financial independence.

Trade of the Day (20.8.15) - LIC Housing Finance

Name of the Stock Future: LIC Housing Finance

Type of Trading: Intraday Trading

Trade Details : Short Below 12:15 pm lows and Exit EOD

A Beginners Guide to Cash and Futures Market in India

The term “Cash Market” and “Futures Market” might raise the eyebrows of the people who are completely new to the concept of stock Market. This article is an attempt to help the beginners to understand about these basic terminologies which are commonly used by people in the stock market.

Stock Market/Share Market in India

In India, we have 2 prominent stock exchanges which are as mentioned as follows

1) NSE – National Stock Exchange of India

2) BSE – Bombay Stock Exchange of India

                These stock exchanges are the medium/intermediary which facilitates people to buy/sell shares of their preferred companies. Basically, the stock brokers like the names of Sharekhan, Motilal Oswal, India Infoline etc., get registered with the stock exchange(s). And commonly people like you and me, can open an account with these brokers, so as to participate in the business of buying/selling shares. (Just like how one opens a bank account with a bank, so as to deal with his/her monetary transactions for day-day or business related activities)

In stock market, the commonly known 2 types of markets are

1) Cash Market (Equity Market) – It’s a market in which equity shares of the companies are bought/sold by the market participants like Mutual Funds, FII’s, and Ordinary Retail Investors/Traders.

               

For Ex: Let’s take a company i.e., Infosys. We all know its familiar company in India in the software sector. Now let’s say, one wants to buy the shares of Infosys (as the person is expecting the price of the share might go up in the upcoming years based on his/her own analysis) he can do it by placing a buy order in the terminal through his broker. And to buy these shares, he needs to have the required cash in his brokerage account.

2) Futures Market – It’s a market in which Futures contract of the companies/commodities/currencies are traded by the market participants. A Futures Contract is an agreement between two parties to buy or sell a specified quantity of an asset at a specified price and at a specified time and place.

They are normally traded on an exchange which sets the standardized norms for the futures contracts. In futures contracts, one can go long (buy)/go short (sell) without owning the asset.

All Futures contracts in the NSE segment is settled on a cash basis, whereas Futures contracts traded in the MCX allows a person to take physical delivery of the asset on the contract expiry date, if the buyer wishes for the same.

For e.g., if one had bought a Gold contract, then he/she can take physical delivery of the same on the contract expiry date by paying the total value of the contract, whereas in NSE, if one had bought a INFOSYS futures contract, no delivery of shares will take place to the buyer, rather the contract is settled on a cash basis on the expiry date.

(Note: All Futures Contract comes with an Expiry date, beyond which the contract ceases to exist. For ex. Infosys Futures Contract for the month of August will expire on the last Thursday i.e., 27^th August (this expiry date is determined by the stock exchange)

Difference between Cash Market and Futures Market

	Cash Market	Futures Market
Dividend	By Buying & Holding shares in the Cash Market/Equity Market, one can receive dividend as and when a company declares it. Like if one is holding shares of Tata Steel in Cash Market, and if the company declares a dividend, then one is entitled to receive the dividend amount into his bank account	By holding shares in the Futures Market, one won’t be able to receive dividend declared by the company
Margin	To take delivery of shares, 100% cash is required. For ex; if one decides to buy 5000 shares of XYZ Ltd., in Cash Market which is trading at Rs.100, then Rs.5,00,000 has to be there in the brokerage account	One can take position, by having 20% of the total amount in his account. For ex; if one decides to buy 5000 shares of XYZ Ltd., in Futures Market which is trading at Rs.100, then approximately 20% of Rs.5,00,000 = Rs.1,00,000 has to be there in the brokerage account
Expiry	There is no expiry period in cash market. If one buys the shares, he/she can continue to keep holding as long as he/she wants to	All contracts come with an Expiry Period, beyond which the contract ceases to exist. For ex., If one buys Tata Steel August Futures Contract, it will get expired on the last Thursday of August. So, if one wants to continue holding the long position after expiry, then one has to buy the next month contract on the expiry day
Lot Size	In cash market, one can buy as many shares as he wants to buy like 5 shares or 50 shares or 400 shares or 610 shares etc.,	In Futures Market, one can buy only in lot sizes which are prescribed by the exchange from time to time. For ex: 1 Lot of Tata Steel in Futures Market comprises of 1000 shares
Overnight Shorts	If one expects price to go down in the next couple of days, he won’t be able to go short (selling now and buying later) now and buying it back in the next couple of days	If one expects price to go down in the next couple of days, one can able to go short (selling now and buying later) now and buying it back in the next couple of days

Advantage of Cash Market

·         It’s ideal for people who are entering stock market with small capital (Like one can begins investing/trading by having Rs.10,000 in his/her account)

·         One can buy shares starting from very small quantity like 5 shares, 10 shares etc., as per his/her capital availability

·         If one holds shares in the Cash Market, he gets an ownership in the company, and therefore he is entitled to receive the benefits like dividend, bonus issues etc., as declared by the company from time to time

Advantage of Futures Market

·           Futures Market gives the flexibility to go long (buying) as well as to go short (selling) on an overnight basis. (One can go short in a futures contract on Monday and can buy it back on next Monday)

·           Rather than having 100% cash, it’s enough, if one has 20% cash in his account to take position in the futures market, while the rest of 80% cash can remain in his/her bank account, which yields small interest as well. (If one has a total capital of Rs.5,00,000, and to buy 5000 shares of XYZ Ltd., which is trading at Rs.100, one is required to have around Rs.1 Lakh (assuming 20% Margin) only. The  rest of the capital Rs.4,00,000 can be placed in a bank account and can be transferred to the brokerage account, as and when its required)

Trade of the Day (19.8.15) - Ambuja Cements

Name of the Stock Future: Ambuja Cements

Type of Trading: Intraday Trading

Trade Details: Long above 18th August 1:45 pm highs and Exit below the open of 3pm bar

Trade of the Day (18.8.15) - ASHOK LEYLAND

Name of the Stock Future: Ashok Leyland

Type of Trading: Intraday Trading

BANK NIFTY ANALYSIS

By Saint

Updated on 17/08/2015

Last week, we were holding shorts taken below the lows of August 6th, and we look for booking partial profit on the close of August 12th. The rest of the position is trailed by stops above the highs of August 11th, and by the end of the last week, we are still holding shorts.

Updated on 10/08/2015

Last week, we were holdings longs and latest trail stop loss was below August 6th Lows, and we are looking to short below August 6th Lows as well.

Updated on 3/08/2015

We were holding shorts at the beginning of the week, and we brought our stops to the highs of 28th July, which got triggered on 30th July. Above the highs of 30th July, we are taking our longs as well which got triggered on 31st July, with stop loss below the lows of 30th July. We are carry forwarding the longs, for the next week.

Updated on 27/07/2015

We exited our longs below the lows of 15th July and taken shorts as well, with the stop loss above the highs of 17th July. At the end of the week, the stop loss is brought down to the highs of 23rd July.

Updated on 21/07/2015

We were holdings long with stop loss below the lows of 8th July. Last week, price moved up nicely as well, and our latest stop loss now comes below the lows of 13th July.

Updated on 13/07/2015

We take longs above the highs of 30th June, with Initial stop loss below the lows of 29th June. After a nice up move, we move our stop loss to the lows of 1st July and holding it. Last week, price moved nicely, and still we are holding our longs with the stop loss below 8th July Lows.

Updated on 06/07/2015

We exited our longs in previous to previous week when our trail stop loss got triggered, and we closed the trade with a profit. When last week began, we were looking for possible trade opportunities. We take longs above the highs of 30th June, with Initial stop loss below the lows of 29th June. After a nice up move, we move our stop loss to the lows of 1st July and holding it. This week, once price starts unfolding, we look for taking relevant decision as per the situation.

Updated on 29/06/2015

We were holding our longs with Stop Loss below the lows of 12th June, when last week began, and we trailed our stops and got exited below the lows of 25th June. After that we were SOH (Sit on Hands) and now waiting for possible new trade.

Updated on 22/06/2015

We were holding our shorts with Stop Loss above the highs of 11th June and we exited above the highs of 15th June and re-enter longs (above the highs of 15th June) with a stop loss below the lows of 12th June.

Updated on 15/06/2015

We were holding our shorts with Stop Loss above Thursday (4th June) high, when the week began. And this week, as price unfolded, we look for partial profit booking on 7th May Lows (support area). Rest of the position, we are holding with the stop loss above the highs of 11th June. Daily chart still pointing towards downtrend with lower pivot highs and pivot lows. 

Updated on 08/06/2015

We were holding BNF long last week, and, when price hit Supply zone formed around mid-April, we take partial profit there on Monday (1st June) and move SAR below Monday low. On Tuesday (2nd June) we are out of Long and we are in Short with initial stop loss above Monday high. Currently we are holding shorts with Stop Loss above Thursday (4th June) high.

Updated on 01/06/2015

When last week began, we were holding shorts with a stop loss above highs of 22nd May. And we look to exit the shorts above the highs made on Monday (25th May) because of Virtual Low. Then we can take longs above the highs of Wednesday (27th May) with stop loss at the lows of 26nd May. Once price starts unfolding this week, we will be looking to trail stops accordingly.

Updated on 25/05/2015

Last week we were looking to trade both ways (long or short), depending upon the price action unfoldment, and we had a rally followed by a Virtual high on 20th May, suggesting that the rally might end here. So, we look to short below 21st May lows, with a stop loss above the high of 22nd May. If price hits our stop loss, then we are out of the trade and look for next opportunity, and if price moves in our favour, then we will manage the trade accordingly.   

Updated on 18/05/2015

We were holding shorts (after taking a partial profit last to last week) with stop loss above 6th May highs, when last week began. As the price unfolded, we bring our stop loss to the highs of 12th May candle, which got triggered on Friday. Bank Nifty Chart was in a minor sideways based on the last week price action, and in this week, if there is either a breakout or break down, we would like to take fresh positions, accordingly.

Updated on 11/05/2015

We have exited our short last week and were looking for both long and short opportunities. As the trend is down, we re-enter short in Bank Nifty below 4th May Low on 6th May and on 7th may we book partial profit in demand zone, rest we are holding with SL above 6th may. If price continue to move down further this week, we may look to add to our short and if we see some sign of bullish strength or if our SL is triggered we may look to exit from short.

Updated on 04/05/2015

We were holding our shorts, when last week began, and on 27th April closing, we see Virtual Low on the daily charts. So, on 28th April Open, we can book our profits and exit the position. Once this is done, we are waiting for the next trade, and it could be in the short side, if price continues to move down, or it could be in the long side as well, if there is any sign of trend reversal. So, we wait for this week price to unfold, and then take the trading decision accordingly.

Updated on 27/04/2015

Bank Nifty, as per last week we are short in Bank Nifty on Daily and it is still not showing any strength, so we are still holding Bank Nifty short with Trailing Stop Loss at 18675. We may see pause in Bank Nifty near 17600 - 17700 demand zone before continuing further down.

Updated on 20/04/2015

Last week, Bank Nifty not able to hold above the definitive area, which suggest that trend might continue to remain bearish, and we look for shorting opportunity below Wednesday low, and now we can hold it by trailing the position using stop loss.

Updated on 13/04/2015

The Intermediate trend in the Bank Nifty daily chart is in probable trend change mode. Bulls show strength by able to push price back in definitive area. At this stage we are looking for both way play (we look to take either long or short), depending upon the future price action which tells us an indication of strength between Bulls and Bears and we go with whoever is winner.

Updated on 06/04/2015

The Intermediate Trend on daily time frame chart is still down in Bank Nifty, so we are looking for short opportunity this week as well. As of now, Bank Nifty is in a Rally within an Intermediate Downtrend, and we wait for price to confirm decline within this downtrend or any pullback or any pivot break, to resume our trading by taking shorts.

Updated on 30/03/2015

The Intermediate trend in the daily chart of Bank Nifty enters into a downtrend on March 4th.Our focus now is only on the shorts direction. The previous week breaks Intermediate Pivot lows and establishes a clear downtrend on the daily charts. D-VRL and Demand Area break confirm our analysis. We now wait for further shorts opportunities this week as trend either makes a pause or makes a further move to the down.