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About Uday Nath

I'm motivated. I like to out-perform. I only strive for the best.

I Don’t Want the Cancer

Are you hurt?

A.

Do you want the cancer?

B.

I do get hurt. Yeah, things hurt me. I’m an emotionally penetrable human being.

Fine. That’s me.

What I definitely don’t want is option B.

Who wants option B?

Can’t think of anyone.

Who gets option B?

Many.

But who?

Those who can’t forget the hurt. Yeah, people who’re unable to move on.

To forget the hurt and move on, simultaneously saving ourselves from the cancer, we need to forgive.

Someone’s misbehaved. Hurt you. Are you going to ruin your future days? No.

Forgive. Forget. Move on.

Just remove the mould in which cancer can potentially set in.

What makes you think it’s different in the markets?

A loss is a hurt.

Need I say more?

You can do the math.

A Secret Ingredient for Equity-People

Racking your brain about how to make Equity work?

Don’t.

Two words work here. 

Be passive. 

Learn to sit. 

Let’s say you’ve gotten all your basics right.

Company is great. Management is sound. Multiple is low. Debt is nil. Model looks promising. Yield is note-worthy. Technicals allow entry, blah blah blah…

Then what?

Yeah, be still. Learn to sit. 

What are the prequisites for sitting?

You need to not need the stash you’ve put in, at least for a long while. 

You also need to get your investment out of your primary focus. 

For that, your day needs to be full…of other main-frame activities. 

Make Equity a bonus for yourself, not a main-course. That’s how it’ll work for you. That’s the secret ingredient. 

How to… … is stated above.

Why to? Aha.

For it to work, fine, but why the sleeping partner approach?

Human capital needs time to show results. 

That’s why you’re in Equity, right, for human capital? The rest is ordinary stuff, but human capital is irreplaceable. Human capital works around inflation. One doesn’t need to say anything more. 

You’ve got your work all cut out.

Get going, what are you waiting for? 

Finding Structure Within

You are you. He is he. She is she. I am I. It is it. 

Even if the above is the only thing that you carry home from this space, you’re done already. 

Move on then, with your life, because you’ve understood something big. 

If not, do please read on. 

You are not I. I am not you. He is not she. She is not he. That’s it. 

Here’s the next biggie.

Those who come into funds need to know how to manage them. Period. 

Do what you want. Run umpteen miles. Put up a million facades. Muster up all the drama you’re capable of. After that you’ll come to this conclusion …

 … that nobody else is more capable of managing your funds than you yourself. 

Why?

Because you are you. You know yourself best. A third party is firstly (realistically) not bothered about knowing you, and secondly is only capable of seeping into a minuscule portion of you, if he or she makes the effort. Forget about third parties. 

So you realize you need to manage your own funds, what then?

Jump into the water.

While your corpus is small, make mistakes. Learn from them. That’s college. Tuition fees.

Recognize your strengths. Play to them. Pulverize your weaknesses after identifying them.

Then come the structures, from within. These are your structures. They’ll come from inside of you. 

There’s you, and there’s the battle-field. The two are face to face. It’s a do or die situation. You go into reflex-action mode. Your systems start to function at full capacity. That’s when structures emerge.

Yeah, structures need an activation barrier to emerge. 

There’s a protective structure. It’s your protective structure. It guides you to build your moat. It protects your family. 

Then there’s your post-protection bulk-game structure. It guides you towards building up your innings without the worries of basic bread and butter. 

Lastly, there’s your multiplication structure. It chalks out high-reward-high-risk strategies, tweaks them towards maximum possible safety, and tells you where to put that minute percentage of your corpus with the intent of achieving extra-ordinary gains. 

Allow such structures to emerge. Embrace them. Innovate. Improvise. Achieve. Educate.

Go for the jugular. 

Who are You?

Who am I?

Do I know?

Am I trying to know?

Is this an important question for me?

What’s my path?

Where am I on this path?

What are my basic goals in life?

What are my weaknesses?

What am I doing to make these my strengths?

What motivates me to perform?

Does my environment enhance my performance?

Or does it hamper me?

If it does, what am I doing about it?

Am I tweaking my environment?

Yeah, am I manipulative enough?

Am I content with the hampering?

Why should I be content with the hampering?

Because it makes me grow, as in evolve?

Maybe.

Who are you?

What are your defining questions?

How do you unravel?

Ultimately, what is your risk profile?

Who are you… sure… very valid question.

Why?

It’s the basic precursor question with regard to another important question.

Who are you as far as finance is concerned?

In the field of finance, you need to know your risk-profile, and you need to have a defined meta-game-plan.

Defined as per who you are.

Uniquely, for yourself.

Bye 🙂

The Line of Least Resistance

We stand on the shoulders of giants.

I’m not guilty about using their work and ideas.

Firstly, obviously, I’m going to quote them. Then, I plan to achieve something new, whilst standing on their shoulders. Those will be my two pennies, and feel free, people, to use my two pennies copiously.

The phrase “line of least resistance” was first coined by none other than Mr. Jesse Livermore. He lost a fortune finding it, then won a fortune following it, and again lost a lot of money at times when he ignored his own discovery.

Pioneers have it tough.

Carving out a new path is perilous, to say the least.

So, what is the line of least resistance?

Imagine yourself to be poking and shoving around, looking for a clear path in the dark. Something gives. You push further, and discover that you can easily traverse the path that emerges, without stumbling. For a while.

Let’s just remain there.

You are travelling along seamlessly on this path you’ve discovered after poking and shoving around.

Freeze.

Now imagine the price of an underlying. Any underlying, that tends to trend. GBP vs USD would be a great example.

Price pokes and shoves (at resistance), as it tries to break out.

Once it has broken out, you need to understand why it has broken out.

It is not encountering enough resistance to make it stop.

It’ll keep moving along this line of least resistance, till there develops sufficient new resistance that is enough to make price stop, or even reverse.

That’s a price move. You want to be part of it. Thus, you look for it. The pokes and the shoves are your entry tries. One of your entries will chance upon the line of least resistance. You’ll experience a clear move, which you’re a part of. The move will continue till resistance builds up again.

The idea, obviously, is to stay with the move to make up for failed entries and then some.

You stay in the trade till there is enough resistance to make the underlying reverse more than your threshold.

That would be your trigger stop.

When a concept is broken down to its absolute basics, it becomes easy to understand.

Dealing with “Situation Change”

When does a situation change?

For example, one could move on to a new field in finance.

Or, a particular goal could have been achieved. Now, one’s approach is supposed to incorporate predefined changes for financial strategy post goal-accomplishment.

Family dynamics could be responsible for situation changes too.

Sure, health. Never underestimate the power of health. It can make you, and it can break you.

Emotion. Fell in love? Going crazy? Outbursts? Hot flashes? Preggers?

Logistics? Moving? New girl-friend in New York?

Night duty?

Looking after your parents in their old age?

Wife wants to party all the time? Lack of sleep?

Promotion? Demotion? Fired? Jobless? Suddenly self-employed?

Gone single? Date-circuit? Got married? Had a kid?

Situation changes come to all. Not once, but many times in life.

Why are we talking about them?

They have an effect on our financial strategy. That’s suffices.

I’ll tell you how I deal with situation change. You can then BODMAS your way to your own approach, using my approach as a broad outline.

My first approach is to put on auto-pilot as many of my financial activity as possible. Going paper-less helps. Trusted auto-bill-pay channels are assets. Fixed-income generators with auto annual-alerts give financial security with zero involvement. SIPs and dividend pay-ins are further examples of having gone auto.

Then I look at what is left. What has not yet gone on auto-pilot? Can it? Ever? If there’s a chance, I go for it. For example, I’m currently developing a software robot to automate my forex trading.

Lastly, I size up what is not pushable into auto-mode. Do I want to keep it? Can I do without it? Weigh, weigh, weigh, scrap A, scrap B, C is something I just have to do, manually, period, so keep C. Eventually, C, G, P, X and Z are five manual financial activities I keep, having scrapped the others (that refused to go on auto) out of my life, since I didn’t consider them burningly essential. C, G, P, X and Z are the ones that’ll weigh me down when my situation changes. I’ve kept them on doable levels. Some are on semi-auto but do require manual intervention. The others are fully manual.

My situation changes.

My auto-pilot activities continue their smooth run. They are my assets, my stars.

P, X and Z are on semi-auto. I barely gather the energy to look into their manual aspects, just about managing to keep them going with reasonable results.

C and G are bogging me down. Can’t keep up. No energy. No motivation. Situation change has drained me. Relentlessly, I try. C has turned a loser. Beginning to feel sick. I shut down C. Losses.

G is sucking me out. Emotionally. It’s a winner, though. Can’t keep up. Can I turn it into semi-auto? It required constant monitoring till it started winning big. I’ll still need to feed in my stop daily. That’s the manual part. I stop looking at G. Problem with equity orders is that your stop has little technical value overnight. A new day requires renewed stop-considerations. Ok, five minutes daily for G. Open terminal, set trigger-stop 9.99% below opening price, close terminal, don’t look left or right, done.

Phew.

Save health. Don’t fall sick.

If sick, rest.

Recuperate.

Regain health.

Get used to new situation.

Normalize.

Gear up for next situation change, whatever it is, whenever it comes.

Gear up now.

The Cycle of Flow

Life is riddled with cycles.

Words flow. Then they stop. Lulls can be long.

Doesn’t bother me anymore.

I know that when the flow starts, I’ll be there, milking it completely. You’ve seen me do it. I’ve been amazed myself by the sheer force of flow.

I’m happiest in full flow. At this time, I don’t believe in containment.

Lulls are good too. They happen for a reason. Especially if your situation changes. Your system is busy getting accustomed to the new situation. It is accumulating and assimilating. Respect its silence. Conserve your energy. Let it do its work. Don’t try to get busy just for the sake of feeling busy. You don’t have to prove anything to anyone. This is your unique game. No one else is playing your particular game. Wait for your system to finish assimilating. Let it use whatever energy is available. You don’t waste this energy.

At some stage, your system will be ready to disseminate.

It’ll give signs.

Flow will ignite.

Words will emerge.

Many of us block at this stage.

We’re afraid of embarrassment. We don’t want to look silly. We hate awkward situations.

Fine. Block. Fall sick. Your wish. Blocked flow turns toxic inside.

Why do you behave like an unevolved j#ck@#s?

The human being has come to evolve. Devolution is not your purpose. Evolution is.

If you wish to evolve, don’t block.

Just like you respected the silence…

… now, respect the flow.

Can I Really Really Really Do Without Fundamentals?

I like to trade without a bias. 

Lack of bias means freedom… 

… freedom to think independently…

… not falling prey to another person’s opinion…

… which then allows you to listen to your system…

… trade identification…

…setup demarcation…

…trigger-entry…

…trade triggered…

…trade management…

… trigger-exit…

… exited.

That’s it, move on to the next trade. 

News gives me a bias. 

No news. 

You know what else gives me a bias?

Fundamentals. 

I don’t wish to look at fundamentals. 

If my eyes are seeing a setup in the EuroDollar, I would like to take it without the nagging thought of “what will happen if Scotland says NO or YES”.

I don’t want to care about inflation numbers, or job figures, or industrial output or what have you. 

I mean…can I just …do it?

Meaning, can I just do away with fundamentals, and focus on technicals only, which is my area of specialization?

Sometimes, I get a little unsure. 

I start looking around. 

How are others doing it? The experts, that is. 

My uncertainty gets fanned a little more, when I see experts not really ignoring fundamentals, even though they might be specialized in technicals. Hmmmm. I’m still not happy looking into fundamentals. I mean, why should I take time-out from my strong suit, and devote it to my very weak suit?

No, I decide. I’m really not going to look at fundamentals. 

What’s the worst that could happen?

Let me just see if the worst that could happen is bearable.

Ok…I ID a trade…demarcate a setup…and the trade goes against me because of the announcement of some number in the afternoon. People looking at fundamentals would have waited for the announcement of the number and then traded. Fine. 

In the world of trading, it is always good to have the worst-case scenario unwrapped and right before your eyes to see what it really means. 

You know, I can take this. 

Would you like to know why?

Firstly, I would like you to understand that we are looking at large sample-sizes here. Any sensible reasoning would only apply to large sample-sizes. 

Over the long run, and over many, many trades, Mrs.Market will go either way after an announcement of a fundamental number with a chance of roughly 50:50. 

If this is true, it is very good news for me, good enough to just kick fundamentals out of the equation. 

At times, the market reacts as per the crowd’s anticipation. 

At other times, it reacts in the opposite fashion. 

I assume that the ratio of the above two directions taken by Mrs. Market over a very large sample-size would be 50:50.

I think my assumption is correct. I don’t want to go through the labour of proving it mathematically. 

Ok, let’s assume that my assumption is correct. I then kick fundamentals, and go about my work while relying on my strong-suit, i.e. technicals. This trajectory will very probably have a happy ending. 

Now let’s assume that my assumption is wrong. 

What saves my day?

Technicals. 

Technicals very often give setups that factor in crowd behaviour and crowd anticipation of market direction. 

Technical setups get one into the build-up to an announcement. 

More often than not, one is already in the trade, in the correct direction, enjoying the build-up to an announcement without even knowing that the announcement is coming, if one is not following fundamentals. 

Technicals can actually do this for you. I’ve seen them do it. I mean, the GBPUSD has been giving short setups during the entire 1000 pip run-down recently. To have availed such a setup, people haven’t needed to know that a referendum is coming. All they’ve needed to do is to take the trade once they see the setup. 

Actually, that’s it. I don’t need more.  

I don’t need to reason anymore with myself. Everything is here. 

I think I can let go of fundamentals safely.

Even this trajectory should have a happy ending.

Happy Fourth Birthday, Magic Bull !!

I believe in birthdays…

…and Magic Bull turns four today… 🙂 🙂 … .

When I die…

… this writing will live on. 

I won’t be taking my forex with me. Nor will I be carrying any equities. My soul will carry the satisfaction, though, of having created Magic Bull.

I love to write. 

It gives me a high. A huge kick. 

I feel totally free. Complete freedom. Have you experienced such freedom?

No shackles. 

I like to break barriers with my writing. 

I’ve reached people. Inside. People start to think whey they read this stuff. 

This is earning. For me. 

ANYWAYS, just as a breakout underlying breaks away into new highs, shattering all resistance in the process, in the same manner, words have just been overflowing over the past few months, after more than half a year of absolute dryness…

… such are words. 

However, by now, I’ve learnt enough to give them the respect that is due when they come. 

When words start flowing, there’s just one rule that applies. LET THEM FLOW. 

I don’t care how embarrassing that might be. 

What is embarrassment when the same words can bring about vital change? I really don’t care about the embarrassment. 

I decided long ago to make my tenure count. 

Contact with me is going to make an impact on you. Words are my medium. Without giving you an energy boost, I remain unfulfilled.

Why? 

Everybody has a purpose in life. 

Mine’s to make changes with the sheer force of my words. 

You have your purpose. 

I have mine. 

With Magic Bull, I fulfil my purpose of existing.  

With due respect, have you fulfilled yours? 

And, with due respect, have you even recognized yours?

Food for thought. 

🙂

Harnessing FD-Power within your Meta-Game

Everyone’s heard of fixed deposits (FDs). 

Are they so non-lucrative?

I believe that in some countries, you need to pay the bank to hold a fixed deposit for you. 

Why does our system shun savings? 

What are savings, actually?

On-call cash. Ready for you when an opportunity arises. 

That’s exactly it. The system doesn’t want you to have ready cash when an opportunity is there. 

Why?

Because finance people have already dibsed on your cash. They want it when opportunity is there. The cash should be available to their institution, not to you.

That’s why, your bankers generally try and get you to commit whatever spare cash floats in your account. They try for commitment towards non-access for a specific period of time.

I don’t know how things are in other parts of the world, but in India, a fixed deposit is still considered ready cash, because one can nullify one’s FD online, in a few seconds. Some banks charge a penalty for such nullification, but this penalty is charged on the interest generated, not on the principal. Therefore, in India, you have access to at least your FD principal (plus a part of the interest generated) when you really need it, all within a few seconds. 

What’s the meta-game here?

You “lock” your money in an FD for one year, for example. Let’s suppose that within that one year, no opportunity arises for you. You cash out with full interest. In India, as of now, if you’re in the top taxation bracket, and are a senior citizen, you’re still left with a return of between 6.6%-6.8% after tax, whereby we are not looking at the effects of inflation here, to keep the example simple, though I know, that we must look at inflation too. We’ll go into inflation some other day. 

Meanwhile, your FD has been on call, for you. Let’s assume that a lucrative investment opportunity does arise within the year, and your break your FD after 6 months, reducing earned interest to 4% annualised from 9.5-9.75% p.a. However, your investment yields you 20% after tax, because it was made at the most opportune moment.

You do the math.

Do you see the inherent power of ready money?

Your FD has thus worked for you in multiple ways. 

It has worked as an interest-generator, yielding a small return. Simultaneously, it has worked as ready cash, on-call in case of opportunity. Should the opportunity arise, and if the investment that follows works out well, a handsome return could be made. It’s all should/could/would in a meta-game. 

There is yet another way FDs are used. I use them this way. 

FDs are a safety-net. They allow you to take high risks elsewhere. You lose the fear of high risk once you know that your family is secured through your safety-net. In a safety-net, sums are large enough and deposits are regular enough to discount (actually effectively / realistically nullify) the power of inflation. With the haven of a safety-net going for your family, you can enter high-risk arenas fearlessly. Fearlessness is a perquisite to do well in high-risk arenas. If you’re afraid of loss, don’t enter such areas. Safety-nets make you lose your fear of loss elsewhere. 

People – SAVE! 

Create FDs. Don’t listen to your bankers. Commit your money to an uncompromisable lock-in only if you’re convinced that the investment is safe and really worth the lock-in for you. Harness the power of the FD for yourself. A safety-net of FDs is the first step towards the formulation of a profitable meta-game.

Did you also know that when you create an FD, the money used to create the FD doesn’t show up as ready cash in your account. Bank accounts with large amounts of ready cash over long periods of time are like red flags which online fraudsters look for. Creation of FDs gives extra online safety to your money. 

ONLY you are responsible for your money.

Start looking after it. 

Start making it grow.

Start saving. 

NOW.

Dealing with Noise…the Old-Fashioned Way

There’s a sure-shot way to deal with noise…

…just shut your ears. 

Yeah, the best ideas in the world are – simple. 

Let’s not complicate things, ok?

So, what kinda noise are we talking about here?

We’re not talking about audio, you got that right…!

The concept is related, though. 

If you’re charting, you’ve dealt with noise. 

Yeah, we’re talking about minute to minute, hour to hour or day to day fluctuations in a chart of any underlying.

Markets fluctuate. 

While discussing noise, we are pointing towards relatively small fluctuations which generally don’t affect the long-term trend. 

However, noise has the capability of deceiving our minds into believing that the long-term trend is turning, or is over. 

Don’t let noise fool you.

When has the long-term trend changed?

When the chart proves it to you through pre-defined fashion. That’s it. You don’t let noise to get you to believe that the long-term trend has changed, or is changing. Ever. 

You believe your chart. 

Moving averages crossing over? Support broken? Resistance pierced? Trend-line shattered? ADX below 15? Fine, fine, FINE.

Take your pick. You have many avenues giving decent signals that the long-term trend has changed or is changing. 

How about eyeballing? Works for some. Like I said, let’s keep this simple. 

So let’s get noise out of the way. 

Random numbers generate trends – you knew that, right?

You don’t need more. 

Once you’ve identified a trend, that’s your cue to latch on to it. 

We’re not talking about predicting here. We don’t need to predict. We just need to identify a trend, and latch on. That’s all. No predictions. Not required. 

From this point on, two things can happen.

Further random numbers deepen the trend you’ve latched on to. You make money. Good. 

Or, the next set of random numbers make your trade go against you, and your stop gets hit. 

If your stop is getting hit, please let it get hit. Even that qualifies as a good trade. 

You move on to the next trade setup, without even blinking. 

What you’re not doing is letting noise throw you out of the trade by deceiving your mind. 

So, here’s what you do. 

You’ve id’d your trend. You’ve latched on. Your stop is in place. Now, don’t look at your trade. 

Till when?

That’s your call. 

Don’t look at your trade till you’ve decided not to look at it. For the day-trader, this could be a couple of hours. For the positional trader, it could be days, or weeks. 

By not looking, you won’t let noise deceive you. 

If the trend doesn’t deepen, or goes against you, you lose the risked small amount. 

Just remember one thing. 

A loss has immense informational value. It teaches you about market behaviour patterns. It also highlights your trading errors. Many times, losses occur without any mistakes made by you. 

That’s the nature of trading. 

Ultimately, if the trend deepens, you’ll have made good money, and can then further manage your trade after the stipulated period of not looking.

This is the sweet spot.

This is where you want to be, again, and again and again.

Sitting on a large profit gives you room to play for more profit by lifting your stop and your target simultaneously.

To reach this sweet spot again, and again and again, you have to position yourself out there and appropriately, again, and again and again. 

This is also the nature of trading.

Wishing you happy and lucrative trading!

🙂

Charting Charting Charting

Why don’t you just…

… trade what you see?

Trade the chart, dammit.

Not the level.

Not the expectancy of a turnaround.

And, although I still do this because it gives me a kick, why do we even trade corrections?

Why can’t we just trade the sheer chart?

Every chart is either going up, down or nowhere.

So it’s pretty obvio, that the first step would be to…

… to what?

… to decide where the chart is going.

Again, it should be pretty obvio, that if a chart is going nowhere, then you are doing… what?

Are you trading such a chart?

NO!

Wait for such a chart to break out in one particular direction.

Wait for the LTT to turn in this direction.

Then trade this chart. Not before.

Yeah, LTT stands for long-term trend.

Yeah, we’ve befriended the LTT so much, that we have an abbreviation going for it…

Once you’ve sorted out the direction, look for an entry setup.

Be patient.

If the entry setup hasn’t formed yet, wait for it. If you can’t stop your twiddling fingers from doing something, feed in a trigger entry in case of a hypothetical setup formation within the next few hours / days, if your trading station allows this.

There’s no up or down anymore, to be honest. You are going where the chart is going, period.

You are also not asking the stooopidest question of them all…

… you guessed it… “Did the sensory index go up, or down?”

Just forget about the sensory index, ok?

I mean, we’re so done with sensory indices in this space.

Why?

DLF could tank 20 bucks on a day the Sensex goes up. Dow Jones could be down 50 points, but Pfizer could just spring into a stellar upwards move. Why should we have lost the short-side opportunity that DLF hypothetically gave, or the long-side opportunity that Pfizer could present, for example? We will do exactly that, i.e. lose the opportunity, if our focus is on the sensory index.

Focus on the underlying.

To be more precise, focus on the chart of the underlying.

Happy trading.

🙂

If it Fits You…

… then nothing else matters.

Who told you that finance is a one-size-fits-all game?

Actually, the truth is very far away.

Truth is truth.

It doesn’t matter how much you twist it, or bury it or whatever.

It eventually emerges, unchanged, unscathed, true.

And the winds here are talking about unique sizing for each market player.

Yeah, only a unique fit is going to fulfill your own market play.

It will look silly to others.

People will laugh.

Doesn’t matter.

It fits you.

You’ve found your fit. That alone is invaluable. People undergo decades of struggle looking for theirs. Many don’t find it.

What is that state of being, when you know that you’ve found your fit?

Satisfaction.

You’re not jumping.

Not edgy.

Not looking further.

Looking for extra time, to develop and enhance what you’ve found.

You’re at peace.

You’re happy sitting.

Small things count big in the markets.

Moving away from the Greeks

I’ve never been to Greece.

I have nothing against people from Greece.

I don’t like Greeks, though.

Yeah, I’m an options player.

The Greeks I don’t like are options Greeks, he he he…!

What, you thought I didn’t like actual Greeks?

Come on, I’m sure I’ll love Greece and actual Greeks!

When you don’t like something, you can try to go around it.

I don’t need options Greeks to play options. I’ve found a way around the Greeks.

I’m sure others have discovered this too, because truth is truth.

Let me tell you about it.

You’re buying in the direction of the long-term trend.

You’re buying (calls / puts) after a significant correction / rally level has been hit.

You’re buying post a small move in the direction of the long-term trend, after the correction / rally level has been hit.

You’re buying out of the money to compound the cheapness.

You’re buying with breathing space on your side, so that the trade has enough time to pan out in your favour.

You’re not booking without a very solid reason, once the trade is running in your favour.

You’re trying to book (deep) in the money.

You must, must, must let your profits run as long as you can. This is the toughest part, but also the most essential one.

That’s all.

No Greeks.

Just common sense.

So… Where do Options Fit in?

I’m on the move.

I play the markets.

How do I combine these two facts?

Life didn’t give me a desk job.

It did give me an appetite for risk, though.

Another two facts to be combined…

I like doing new stuff.

I don’t like following old norms.

You got it, another two facts…

I like breathing easy.

I want to participate, though.

I don’t mind losing… small…

… as long as I can win big too…

… without risking too much…

… facts, facts, facts.

What’s the one common denominator?

Options.

What do options mean to me?

– an auto-stop that doesn’t need to be fed in daily.

– low risk market participation.

– freedom to be on the move.

– freedom to not look at the markets for many days in a row.

– implementation of new poker-like strategies with huge reward : risk ratios…

– … for which the price is time-component corrosion of the option premium.

– peace of mind.

– the satisfaction that markets don’t rule my day.

– a very challenging arena that pushes my faculties to the maximum.

– an avenue that teaches me about singular stocks, their nuances, how they move, basically their nervous system… this is invaluable knowledge, which no university is capable of teaching.

I could go on.

Explore your options.

Discover Options.

And…How Much Connection Time Exactly?

Well, somebody’s got to ask these questions…

Don’t see very many around me doing so, so I just thought what the heck, let it be me…

This one’s not for all you test-tube jocks in the lab, you know…

Answer’s not about the math really; it’s more about feeling, again…

Nevertheless, this is a very important question.

Answer it wrongly for yourself, and market-play will wreck your life – all avenues of your life, that is. 

And, answer it correctly for yourself – lo and behold, you’ll actually start enjoying your market activity.

The human being ultimately excels in anything he or she enjoys doing. 

This means that if you answer this question correctly, your market activity will yield you profits. 

Told you. This question is important. Answer it.

Let me tell you how I’ve answered it for myself. 

Before that, please understand, that my answer doesn’t have to apply to you.

However, for those who don’t know where to begin while trying to answer the question, it’s a start.

I detest giving Mrs. Market too much power. This was my clue initially, and I built up on this fact. 

Initially, Mrs. M used to take over my life. She used to govern my emotions. It started to rub off on my family. I knew I had to draw a line. 

I started to trade lightly – amounts which my mind could ignore. Then, I did one more thing. 

I started to connect minimally. The was the key step, and it swung the emotional tussle in my favour. Mrs. M’s days of emotional control were over. 

What does minimal connection mean?

You only connect when you have to. Period. 

When you don’t have to connect, you just don’t.

I’ll tell you when all I connect to Mrs. M.

Order-feed – 0 to once a day. Very rarely twice for this in one day. 

Connection for me is having my trading terminal on, and seeing live price-feeds face to face. 

My market research is all offline, so that’s not a connection for me. 

Squaring-off a position – again 0 to once a day. Very rarely twice a day.

Watching the live price-feed – 0 to once a day, and only if if I’m unclear about the buying-pressure versus selling pressure ratio.

That’s it. 

When I don’t identify a potential trade in my offline research, I don’t connect at all. 

When do I connect next?

Whenever I’ve identified the next trade, or a squaring-off situation, all offline. 

There can be two or even three day stretches when I just don’t connect. 

I use options, because they allow me this kind of play for Indian equities. 

Why am I stressing upon the value of minimal connection? 

Connection means exposure to the “Line”. You’ve met the Line before. If not, look up the link on the left (“The Line”). 

Connection to the Line taxes your system, because market forces interfere with your bio-chem. 

Keeping the connection minimal keeps you healthy, and you can go out and do other stuff in life, which rounds you off and refreshes you for your next market-play. 

Keeping the connection minimal detaches you from Mrs. M. You are able to detach at will. This lets you focus on your family when your family members require your attention. 

Keeping the connection minimal makes the task of swallowing your small losses smoother. 

Lastly, keeping the connection minimal helps you let your profits run. 

So, how does one define minimal?

Do the math, and come out with rules for your minimal connectivity, like the ones I’ve come out with above, for myself. 

After that, while sticking to your rules for minimal connectivity, only connect to Mrs. M when you feel the burning desire to do so, like for example upon the identification of a sizzling hot trade, or for the order-feed of a trigger exit after a profit-run or something like that. 

Yeah, you minimise even after your rules.

That’s your minimal connection.  

So…What Does Trade Selection Hang Upon?

Feeling.

Feeling first, feeling last. 

Math in the middle. 

That’s my recipe for trade selection. 

For me, trading is an art. 

I rely a lot on gut. 

Many people tell me that’s wrong. 

Everyone’s got a right to their opinion. 

What works for Jill might not work for Jack.

People tell me to get emotion out of the way.

Emotion can be an ally too. 

Just try and get the hang of your gut feel. 

Let the trade speak out to you. 

You’re looking at a chart, and the chart should shout out to you – “Trade me!!”

That’s what I call “Feeling First”.

There’s something about first impressions. 

I mean, whoever made that proverb about first impressions sure knew what he or she was talking about. 

So, after your first impression tells you that a chart is tradeable, you then need to see some kind of a mathematical fit going for you. 

You plan your trade.

You try and fit some mathematical model into the underlying’s previous behaviour, and plan the trade into the near future based upon the future-play which your model spits out. 

You calculate a stop according to your money-management rules. Just more math. 

Now comes “Feeling Last”. You look at your chart, which contains the entire map of your trade.

At this stage, your gut must speak to you. 

Yes or no. 

Nothing else. 

Are you pulling the trigger or are you not pulling the trigger.

If not, then no whys. It’s a no. Learn to take a no. Look for another trade setup, elsewhere. 

If yes, then again – no more whys. It’s a go-ahead. Have the guts to follow through. 

Keep it simple. 

The best ideas in the world are – simple. 

Options Setup El Cheapo

What are the basic ingredients of a cheap options setup?

We’re not bothered about what the underlying is.

We’re outlining in general. 

A correction / rally needs to have taken place. 

The correction / rally level needs to be significant.

That’ll account for the cheapness of the option.

I suppose it’s obvio, but I’m still saying it nevertheless, that you’re going to be trading in the counter-correction or counter-rally direction, but in tandem with the overall long-term trend.

Then, a slight move needs to have started in your trade direction after this significant correction / rally. 

That could account for correct choice of trade direction. 

We need just one more ingredient.

Can you guess what that is?

Yeah, breathing space. 

Allow the trade time to pan out in your direction. 

Buy an option which has at least 3-4 weeks left till expiry, if not more. 

That’s it. 

It’s as simple as that. 

Lucrative ideas are simple. There is nothing complicated about them. 

Lose your sophistication and / or complicatedness. You’re not going to make it big by being sophisticated or complicated. These two characteristics will negatively affect your trading. Flush them down the drain. 

Be simple. 

Happy trading. 

🙂

Options Strategy – Entry, Stop and Exit

What are we doing with options anyways?

We are trying to play a market without needing to be with the market the whole time. Also, we are defining our risk quite exactly. The option premium is the money that’s at risk. You don’t have to lose all of it if the trade goes against you. You can bail out anytime and save whatever option premium is left. The option premium is the total you can lose in the trade. With that, you’ve done one great thing. You’ve installed a stop which will stay with you during the entire trade. Is that possible in any other segment in India? Nope. If my info is correct, stops have to be installed everywhere on a day to day basis. Not so the case with options. You have your stop with you, always. 

That allows you to do other stuff. You can have an alternate profession, and still play options. 

You don’t need to be afraid of the time element in options. You can trade them in a manner where the time element is rendered useless. I’ll tell you how.

Though you try and go with the overall long-term trend, you try and pick up an option during a retracement. That’s when you’ll get it cheap. 

The idea is to buy cheap and sell expensive, right?

Secondly, give yourself breathing space. If the current month is well under way, pick up the corresponding option for the next series month. Give the trade 4-5 weeks to pan out in your favour.

A lot can happen over 4-5 weeks. 

Thirdly, you’re trying to pick up out-of-the-money options, which seem to have gotten out-of-the-money as an aberration. These will be even cheaper. Like what happened to Tata Motors the other day. For no apparent reason, the stock drifted towards what was formerly seeming to be an unlikely support to be hit, around the Rs. 430 level. On the previous day, it was nowhere near this level, and didn’t look like reaching it in a hurry at all. An event in the US occurred, and Asia opened down, with the scrip in question falling to the support and bouncing off. At the market price of Rs. 430 – Rs. 435, if you’d have picked up the out-of-the-money option of Tata Motors for the strike price of Rs. 450, which was going very cheap, that would have resulted in a good trade. 

Basically you are looking for such predefined setups – buying off a support / selling off a resistance, buying / selling at a defined retracement level, buying / selling upon piercing of a bar etc. etc. etc. 

Let’s say you’ve identified a setup. 

You’ve seen buying pressure, or selling pressure. Chances of repetition are high, you feel. You try and enter into the option at a time when the buying or selling pressure is off, and everyone thinks that this buying or selling pressure is not coming back. 

In this manner you’ll get some cheap entries. 

Now you have to wait, to see if your analysis is correct. If not, you’ll probably lose most or all of your option premium. Don’t be afraid of loss. It’s a chance you have to take. Without taking the risk, there is no chance of reward. You have to put yourself in line for the reward by going out there and entering into the option.

It’s possible that the scenario you imagined actually plays out. Let it play out even more.

You can exit in two ways. You could trail the market with a manual stop. This way you’ll be in the trade to perhaps see another day of even more profits. The downside is, that during lulls in the day, your stop could well be hit. The second exit possibility is to calculate an unusually high price, which is slightly unlikely to be reached. You feed in the limit order at this price. If this price is reached, you’re out after having made good money. Now, the scrip can go down for all you care. The downside is that the scrip can go deeper in your trade direction after you’ve exited, and that’s a little painful. The reason this latter scenario is often used is that the time-element keeps getting scraped off the selling price for the option as the series month approaches its end, and your exit on that very day at an unusually high price is more lucrative than you might think. You see, buying or selling pressure in your direction might or might not make itself felt again in the current month. If not, you’ve lost a prime opportunity to cash out at a high. Is it the high? You’ll never know. Therefore, you’ll need to try both exit scenarios and see which suits you more. Sooner or later, you’ll get a feel for both exit scenarios, and will be able to implement either, depending upon the situation. 

That’s it for today. 

Heavy?

It’s not. 

Options are easy. 

Playing options is like playing poker. it’s fun!

🙂

And What’s so Special about Forex?

Imagine in your mind …

… the freedom to trade exactly like you want to.

Is there any market in the world which allows you complete freedom?

Equity? Naehhh. Lots of issues. Liquidity. Closes late-afternoon, leaving you hanging till the next open, unless you’re day-trading. Who wants to watch the terminal all day? Next open is without your stop. Then there’s rigging. Syndicates. Inside info. Tips. Equity comes with lot of baggage. I still like it, and am in it. It doesn’t give me complete freedom, though. I live with what I get, because equity does give me is a kick.

Debt market? A little boring, perhaps. Lock-ins.

Commodities? You wanna take delivery? What if you forget to square-off a contract? Will you be buying the kilo of Gold? Ha, ha, ha…

Arbitrage? Glued to screen all day. No like. Same goes for any other form of day-trading.

Mutual Funds. Issues. Fees. Sometimes, lock-ins. MFs can’t hold on to investments if investors want to cash out. Similarly, MFs can’t exit properly if investors want to hang on. And, you know how the public is. It wants to enter at the peak and cash out at the bottom. 

Private Equity? Do you like black boxes? You drive your car? Do you know how it functions? You still drive it, right? So why can’t you play PE? Some can. Those who are uncomfortable with black boxes can’t. 

CDOs? @#$!*()_&&%##@.

Real Estate? Hassles. Slimy market. Sleaze. Black money. Government officials. Bribery. No like.

Venture Cap? Extreme due diligence required. Visits. Traveling. The need to dig very deep. Deep pockets. Extreme risk. No. 

Forex? 24 hr market. Order feed is good till cancelled. Stops don’t vanish over weekends. Stops can be pin-pointedly defined, and you can even get them to move up or down with the underlying, in tandem or in spurts. You can feed in profit-booking mechanisms too, and that too pin-pointedly. You watch about 10-11 currency pairs; you can watch more if you want to. 10-11 is good, though. You can watch 4, or even 2 or 1, up to you. Platforms are stupendous, versatile, malleable, and absolutely free of charge. You can trade off the chart. Liquidity? So much liquidity, that you’ll redefine the word. No rigging – market’s just too large. The large numbers make natural algorithms like Fibonacci work. Technicals? Man, paradise for technicals. Spreads? So wafer thin, that you barely lose anything on commissions. Oh, btw, spreads are treated as commissions in forex; there’s no other commission. Money management? As defined as you want it to be. Magnitude? As small or as large as you want to play? Comfort? You make your morning tea, sip it, open your platform, feed in orders with trigger-entry, stop and limit, and then forget about the forex market for the rest of the day, or till you want to see what’s happening. Yeah, comfort. Challenge? You’re playing with the biggest institutions in the world. What could be more challenging? I could go on. You’re getting the gist. 

Yeah.

Forex is a very special market. 

Also, the forex market is absolutely accessible to you, online. 

If you decide to enter it one day, play on a practice account till you feel you’re ready for a real account. 

If and when you do start with a real account, for heaven’s sake start with a micro account, where 1 pip is equal to 0.1 USD. 

🙂