Using Counter-Intuition as a Buy-Sell-Tool

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When the world is burning around you…

and there’s “blood on the Street”…

the last thing that one wishes to do…

…is to…

…buy.

Why?

One is afraid.

However, the most lucrative buys are the ones…

…made precisely…

…at this point in time.

Everything in our brain- and bio-chemistry will be screaming not to buy.

We will now use this state of being as a buy tool.

What?

You think I’ve let some kind of a secret out of the bag, or something?

Try doing it.

That’s the thing.

It’s most difficult to push through.

That’s also the reason very few people make big money in the markets.

Now let’s speak about exits.

Nobody really knows what’s a good exit, ever.

Why?

That’s because nobody knows the future in advance.

What we do know, is that euphoria can last long enough…

to wipe shorts out…

…as the recent shorters et al found out the hard way, in the US.

When there’s euphoria, we don’t feel like selling.

We want to make more, and more.

We feel that this can go on and on, ad infinitum.

Every bone in our body says hold on.

A sell made at this time could well nip a multi bagger in the gut.

However, our counter-intuition is speaking.

It’s already done us a service by providing us with great entries.

Let’s at least listen.

Tell you what we can do.

We can listen to it, i.e. we can exit, to some extent only.

That way, we’ll have exited and will still be in the market.

How exactly, then?

When we are feeling like this, and are experiencing prolonged euphoria…

…we can get rid of unwanted stuff.

As euphoria continues to rage, we target to make all wanted holdings cost-free, bit by bit, by exiting to that extent, ultimately and ideally.

Yes, ideally, we only want to be left holding cost-free items in the market.

From that point onwards, we don’t care where the markets are going with regard to our holdings.

It’s a sweet-spot, and we are in it because we have used counter-intuition as an effective and lucrative buying and selling tool.

One-Way Bias

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I know, I know…

…but am not getting cocky, please believe me. 

There is something about a one-way bias,…

…so let’s discuss this one today.

When we’re only focused in one direction,…

…we’re not second-guessing the market. 

We have a set strategy, whatever it might be.

We don’t abandon it, suddenly, to go reverse. 

That saves us a lot of trouble, time and money. 

How?

No looking over the shoulder, as to when the market is reversing, saves trouble and time. 

Reversing during a set trend fails, fails, fails, till it succeeds.

Thus, money is saved, since all these failures are avoided. 

Money is made by not reversing, if reversing is to be a failure many times. 

Brokerage is saved. 

Yeah, bucks are saved, and perhaps made, owing to a one-way bias, let’s face it.

One might argue, though. 

Here it comes.

What about the huge profits to be made when a market reverses fully and finally?

Ya, I knew this one would come.

Pipe-dream.

Firstly, how would one know when a market is fully and finally reversing, before the event has set in fully and finally?

The truth is, it’s not reversing, not reversing, not reversing, till it’s reversing fully and finally. 

Does one really want to keep going contra till one is proven right, breaking an arm and a leg on the path?

NO.

Canning the argument. It’s a fail. 

Let’s say the market has fully and finally reversed. 

Now what?

Does one change one’s bias?

Or what?

I knew this one one would come too!

Changing bias is detrimental to a long-term investor’s strategy.

No-brainer, right?

So what does the long-term investor do when the market reverses fully and finally?

As a market over-heats, the long-term investor has been busy. 

He or she has not been not buying, but selling, unwanted stuff at first, and then freeing up wanted underlyings, such that what remains in the markets is free of cost. Ideally.

Thus, when a market reverses fully and finally, such an investor is not afraid of letting underlyings be in the market, since they are “freed-up”.

Now comes the full and final reversal. 

For the long-term investor it’s a valuable time to pause, giving the nerves and the system much-needed rest.

Liquidity has been created and pickled.

It’s a time for research, reading and reflection. 

Activity will resume upon the next bust. 

For someone with a short bias, like for the “Bears” in the Harshad Mehta TV show, though, now is an active time. 

Positional traders change bias after long-term trend change. 

Personally, I find going both-ways pretty taxing, so mostly, I stick to a long-long bias.

I say mostly, because once a downtrend has set in, the punting-demon does emerge, and I might trade a few puts here or there for the heck of it, if there’s nothing better to do, but not to the extent of contaminating my long-long bias.

Living in a country showing growth, active in its markets, we will do well with an upwards bias.

Short-circuiting poison will emerge from time to time. 

Control it…

…till you can’t.

At that point, trade a few Puts, or a Put Butterfly, or what have you, just to see what the other side feels like.

It’s just recreational, you see, not enough to contaminate one’s main bias.

Breaking Free

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[ “I want to break free
I want to break free
I want to break free from your lies
You’re so self satisfied I don’t need you
I’ve got to break free
God knows, God knows I want to break free… ” – Queen].

How does one stay invested in the markets…

…despite all its deceptions and mind-games?

As indices creep up and up, our minds start playing tricks on us.

We seek excuses to cash out.

And, mostly, we…

…cash out.

Done?

NO.

We don’t want to be done.

Why?

There might come a day, when we wish we hadn’t cashed out.

Markets can stay overbought for ages.

Or not.

We don’t know.

No one knows.

Appreciation that counts sets in upon staying invested for the long-term.

How does one resolve this…

…conflict of mind versus reality?

One…

…breaks free.

Meaning?

Free up whatever has gone in.

Meaning?

Cash out the principal.

Leave the profit in the market.

This profit has cost no money.

Leaving it on the table is not a biggie.

Or is it?

It is…

…for most.

Those, for whom it isn’t, will benefit properly from compounding.

Now, what’s the danger?

No danger.

What’s on the table hasn’t cost you, so no danger.

Still, what would one fear?

No fear. What’s in is free, so no fear.

Let me paraphrase.

What’s the worst-case scenario from here?

Well, U-turn, and a big-time correction.

So what?

Use the correction to buy low, with the idea of freeing up more and more underlying(s) upon the high.

This way, size of one’s freed-up corpus keeps growing, and so does one’s exposure to compounding.

Wishing all very lucrative investing! 🙂

Investors whine, and traders cry, when they try the other’s Art

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In a breakaway bull market,…

…one starts to find faults with Trading in general…

since, to make money, one just needs to sit, rather than actively trade. 

Almost everyone is happy with their investing,…

…in a breakaway bull market. 

What kind of factors does one start pointing fingers at?

Timing.

One almost always gets this wrong, specifically with regard to futures and options, which are time-bound.

Not having enough on the table…,

…yeah, yeah, heard that one before. 

While trading, one doesn’t bet the farm. 

When one’s trades run, one makes a bit,…

…which is not, by far, as much as any odd investment portfolio would be appreciating.

Second-guessing.

While investing, one is focused in one direction. 

While trading, one looks at both directions, to initiate trades, and the market-neutral trade is another trade in a category of its own. 

Hence, one is always second-guessing the market, and when one is off, it results in opportunity loss and brokerage generation. 

Time consumed.

Trading consumes almost all of one’s time. 

When markets are closed, one’s mind is not detached. 

It’s exhausting. 

Has many side-effects too. 

One doesn’t have time for many other things, because of trading. 

Whatever one does try to participate in, consists of half-baked efforts, because essentially, one’s mind is on the market simultaneously. 

Leads to a loss in quality of life.

Now, let’s reverse the situation. 

When markets slide downwards, the trader feels light. 

He or she cuts longs and initiates shorts.

It’s a superior feeling versus the investor, who is stuck with large holdings on the table. 

Feel-good factor is huge, and quality of life gets enhanced.

Good traders don’t have a liquidity problem. 

Also, they can shut operations and switch off from the market any time, if they are able to do so, in practice. 

Tappable markets are many for the trader. 

Trading leads to income generation. 

Investing leads to wealth creation.

What do you want from your life?

Both – is a valid answer, but confuses. 

If one wants to dabble in trading, but is basically an investor, one can think about initiating positional trades, which have a investing-like feel, and one’s time is less bound to the market.

If one wants to dabble in investing as a trader, hmm, this one will be markedly tougher, I think.

Don’t know what to say here, since I’m an investor who dabbles in trading…

…, but intuitively, I feel, that this one would take a lot of effort.

Bookability

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Booking?

Understandable. 

Don’t book your basics though.

What are these basics?

Stuff you’re convinced about.

We’re long beyond due diligence here.

These underlyings are running. These are your right calls. 

They are not to be booked – as long as your conviction persists.

Any price?

Hmmm – this question brings in the concept of “Bookability”.

Save the booking angle here – for now. 

We’ll just try and answer above question about price. 

Sell everything else, as in any low-conviction holdings,…

…bit by bit,…

as markets tread higher and higher. 

Ultimately, it’ll all be gone. 

You’ll have done very well, and will have made good profits. 

You’re also left with your high-conviction holdings. 

As a bull market persists, these will start quoting at…

…ridiculous prices.

Is something a hold at…

…any price?

If you wish to be holding a multi-multi-bagger, well, then, yes, with a caveat.

When you can’t hold your trigger-fingers any longer, take your principal off the table. 

There.

Happy?

Now, what’s on the table for you, are high-conviction holdings, with principal off the table – aha – so these holding are free of cost for you.

When these high-conviction holdings are free of cost for you, the urge to sell can only persist because of two things. 

You could need the money. 

Fine.

Or,…

…because of an unfounded urge to book, as in “Score!”… .

Not fine. 

Tell your urge to sell that you want to make much, much more, by allowing an underlying to grow to 100x, for example. 

Urge to sell will subside.

What’s causing such urge?

Fear of a correction. 

When you’re holding free stuff, fear of a correction is unfounded. 

This needs to be instilled into our DNA.

With that, we’re done already!

Dynamics of a Right Call

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India is in a long-term bull market.

Sure, there will be corrections.

We can easily have a big-time correction, but still be in the long-term bull market.

Putting things in a twenty year perspective, 2008 hasn’t done away with direction.

Sure, ideally one needed to be equity – light by Jan 14, 2008, which most of us weren’t.

Question is, will be be relatively equity-lighter on Jan 14, 2021?

Yeah, I will be.

Lighter.

That’s about it.

Won’t be selling a single share of my core-portfolio.

However, hopefully, will have sold everything else before an interim market peak.

You see, for every right call, we make umpteen wrong calls.

These are the ones that we discard on interim market highs.

We don’t discard core-portfolio inhabitants.

These we allow to compound into multi-baggers.

It’s OK to make wrong calls.

Without these, we won’t get to make the right ones.

We won’t make the next mistakes though.

We won’t discard wrong calls without it being an interim market high.

Also, we won’t discard a right call as long as we keep feeling it’s a right call.

The best calls remain right…

… like…

… almost forever.

We’re talking Buffet and Coke.

Or, for example, RJ and Titan.

List goes on.

Point is, when we’ve made the right call, we need to follow up with right actions that allow maximum mileage.

Allowance for compounding.

Increase of position upon interim lows.

Patience.

No trigger-fingers.

You get the drift.

Over time, then, we are left with right calls which have developed into multi-baggers. Wrong calls have been discarded over many interim cycles.

The multi-baggers in our folio are, at this time, generating enough dividend to sustain us.

This is where we want to be.

It’s OK to dream.

Without the right dreams, we won’t arrive at the sweet-spot mentioned above.

Happy long-term investing! 🙂

Walking the Walk

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Hey,

… just made a decision…

… and am going to share it with you. 🙂

From this point onwards,…

…, I’ll exclusively be working with underlyings,…

…, with whom I’m walking the walk with.

So, what does that mean?

As per my understanding, there are two ways of getting to know an underlying, for example a stock.

We can see what it’s done,…

…, landmarks that have been established,…

…, track record,…

…, lineage,…

… etc.

Sure, we can take in the fundamentals ad-nauseam, and that’s absolutely fine.

No one’s investing without appropriate fundamentals in place.

That’s not it all, though.

Will be walking with the stock too.

Where does it go?

What does it do there?

How does it behave?

Is the behaviour off?

We want to know.

And we’ll know…

… by getting a feel for the stock’s movement.

Why all this?

What are we doing with such stocks?

Investing in them, yes.

However, stocks aren’t always in an investing zone.

Then we’ll generate income from the same stocks.

Why from this category?

Why not choose specific trading stocks to trade?

That’s because they’ll contaminate investment mindset.

Trading investment grade stocks that make one’s cut, when these stocks are in a trading zone, is a pursuit with multi-faceted advantages.

Income generation.

Pinpointed stock-specific knowledge, which gets deeper and deeper.

Insurance when stuck. You’re a holder, so do the math.

Huge time-saving in the long run, as patterns become clear.

Minimal tension.

If we wish to mimimize tension further, we can take time out of the equation (meaning, we won’t do derivatives in this case).

We won’t be Johny-on-the-spot with this strategy, probably.

We’ll make money, though.

There’ll be peace of mind.

Enjoyment.

Over time, this strategy can go to the max. Meaning, we’ll outdo all Johnies from their spots with regard to income and wealth generation.

Why?

We’re walking the walk, remember ?

Over time, we’ll become masters of our territory.

We don’t want more.

We’re done already.

Working Backwards

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In trying to gauge the markets,…

… we work backwards.

What’s the starting point?

Current state of affairs.

One step back…

…is where the market is coming from. 

One step ahead…

…is the impact being had on the retail investor.

The rest is extrapolation.

Why are we targeting retailers?

This is because we wish to gauge market tops and bottoms. 

These are scripted by retail investors. 

At the top, retailers are left holding the hot pie in their hands, for which there are no further takers at that price. 

At the bottom, retailers rid themselves of stocks as if the world is coming to an end.

If we get a handle on how retailers are reacting to the market at hand, that’s huge.

This is working backwards in action.

We’re not first forming an idea about how the market should behave…

…and then we’re not trying to shove this perception down the market’s throat.

Because we are reacting upon what is happening, and not dreaming up what’s going to happen first, chances of winning are tilted in our favour. 

We’ve not invented this course of action.

Others have done it before, with huge success. 

We stand upon the shoulders of giants.

Here’s Steve Jobs on working backwards : https://youtu.be/oeqPrUmVz-o .

See?

It’s taken a while to get here, and also many knocks. 

However, we’re here now, and we’re here to stay!

Playing Over-hot Underlyings with the Call Butterfly

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A call butterfly is a fully hedged options trade …

… with an upwards bias.

It consists of four call options.

2 buys…

…and 2 sells.

One can play any overtly rising underlying with the call butterfly, without batting an eyelid.

Why?

Firstly, and most importantly, one is fully hedged.

Meaning?

At first look, the call butterfly seems market neutral as far as basic mathematics is concerned, that is +1, -2, +1, net net 0.

So, net net, one isn’t looking at a large loss if one is wrong.

When is one wrong here?

If the underlying doesn’t move, or if it falls, in the stipulated period, then one is wrong,…

…and one will incur a loss.

However, the loss will be relatively small, because of the call butterfly’s structural market neutrality.

And that’s magic, at least to my ears.

Method to enter anything flying off the handle with the chance of a small loss?

Will take it.

Then, also very importantly, the margin requirement is relatively less, when one uses the following chronology.

One executes the buys first.

Then come the sells.

Upon the upholding of this chronology, the market regulator is lenient with one on margin requirement, as long as the trade-construct is market neutral.

Typically, for one butterfly, total margin requirement is in the range of 50 to a 100k.

Now let’s talk about what one is looking to make.

5k per single-lot trade-construct, if it’s fast, as in execute today, square-off tomorrow, or even intraday, if expiry is close.

10k if slow, as in 7 to 10 days.

If the butterfly is not yielding because the underlying is not moving, then one is looking to exit, typically with a minus of under 3k.

Just do the math. Numbers are great.

What kind of a maximum loss are we looking at, if things go badly wrong, as in if the underlying sinks?

5k to 10k.

Can the loss be more?

If the trade construct is such that the butterfly can even give 40 odd k till expiry, one could even be looking at a max loss of about 15k too.

Here’s an example of a call butterfly trade that can lose around 15-16k, but has the potential to make upto around 45k till expiry. The graphical representation is courtesy Sensibull.

GAIL Call Butterfly Dec 31 2020 Expiry

I mean, it’s all still acceptable.

Tweaks?

Let’s say one is losing.

Sells will be in biggish plus.

Square-off the sells. Yeah, break the hedge.

Margin gets returned. Premium pocketed.

Buys are exposed, though.

They are losing big.

With some time to go till expiry, if the underlying goes back up, the buys gain.

What one makes off the trade is proportional to how much the underlying goes up.

It’s riskier. Correspondingly, profit potential is higher.

Money risked here will be up to double of the fully hedged version of the trade, and one could lose this amount if the underlying does not come back up appropriately and in time. Pocketed premium of the squared-off sells softens the hit.

Therefore, it makes more sense to pull this tweak with at least ten days to go before expiry, giving the underlying time to recoup.

Got another tweak.

This one’s intraday, though.

Underlying’s on a roll, and you want to make the most possible off the opportunity.

Square-off the sells at a huge loss.

Let the buys, which are winning big, run for some part of the day.

Chances of them yielding more are very high.

Square-off the buys before close of trade.

If the underlying promises to close on a high, square-off the out-of-the-money buy before close of trade, and take the in-the-money buy overnight.

Risky, though.

You could lessen your risk, and increase your chances of taking most profits off the table by squaring off the in-the-money buy and taking the out-of-the-money buy overnight.

Square-off the overnight buy next morning on a high, or wherever feasible.

With this particular tweak, the trade becomes somewhat more like a lesser exposed futures transaction, at least for some time, after the hedge is broken.

There’s another thing one can do with the call butterfly.

One can adjust it as per the level of perceived bullishness.

If -1 and -1 are set at the same level, one trades for averagely perceived bullishness.

If one -1 is closer to the lower +1, and the other -1 is above this first -1, then one trades for below average perceived bullishness.

If one -1 is closer to the upper +1, and the other -1 is below this first -1, then one trades for above average perceived bullishness.

Anything else worth mentioning?

Volume. Need it.

Bid-ask spread needs to be narrow.

Scaling up needs to correspond to one’s risk-profile, requirement, temperament and acumen.

One can make it an income thing by scaling up, during bull runs, or generally, just in case an up move is tending to pan out.

One can make the call butterfly do a lot of things.

It’s a very versatile trade to play a rising market, with low risk and low capital requirement.

Happy trading!

🙂

Giving In

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I’ve been guilty of giving in…

…to the urge to sell.

However, having kept basic tenets alive, vital underlyings are still a hold…

…for me…

…for as long as they remain vital.

Have been getting rid of stuff I don’t want.

Restructuring / reorganizing.

Consolidating.

These are the activities of choice, when markets are on a roll.

Sure, one’s been buying too, but not in the investing account.

Trading accounts are very active.

These are trading prices.

What’s the definition of a (successful) trade?

Buy high, and sell higher. Or, sell low, and buy back lower.

As opposed to an investment, where one buys low, to sell higher, later.

Are these low prices?

No.

How long has the index remained, percentage-wise, in its History, at 30+ PEs?

Very low single (%age) digits, of the time under consideration.

Thus, times will change.

Nobody knows when.

However, who cares?

Let it roll.

We’ll just go on consolidating, till we can’t consolidate anymore.

That’s the sweet spot we want to be in, before conditions change, where one can’t consolidate anymore.

And, we’ll just sheer go on trading.

That’s what we do with trading prices.

The At-Par Point

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One grapples with this one, …

…always.

There’s something about the at-par point.

No matter how much logic we try, when the at-par point arrives, logic fails.

Carrying a loser?

Determined to carry it through till 3x?

Wait till the at-par point arrives.

See how psychology changes.

Watch yourself liquidating the stock, despite all previous planning.

Happens all the time.

Carrying a winner?

Letting your profit run?

Underlying then falls to at-par?

Watch yourself liquidating at the speed of light.

It’s ok.

We’re humans, and aversion to loss is a human trait.

This aversion to loss makes us follow the dictates of the at-par point.

How do we go around this, as traders or investors?

Meaning, as we advance in our professions, we don’t wish to be dictated terms to by a particular “non-technical” and “artificially” psychological price point.

So, let’s try and find a workaround.

Underlying is winning. Raise your stop in a defined fashion.

When underlying starts falling, it will hit your stop.

At-par won’t be touched, so it doesn’t even come into the equation.

Underlying is down. Hmmm. What do we do here?

We really want to meet the at-par point here.

We’re desperate.

Convinced about the stock?

Average down.

The at-par point lowers.

When market conditions change, it arrives early.

Don’t wish to average down?

Not convinced about the stock anymore?

Wait.

At-par might or might not arrive.

Arrives?

Well and good.

Doesn’t arrive?

Look to exit as best as possible, if you’re tired of holding.

As investors, one can think about only getting into stocks where one is confident of averaging down if the stock falls. (Traders are suppose to cut trades at or around their stop).

Tweaking (lowering) the level of at-par helps faster recovery in the markets greatly.

Urges

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Market forces need to be understood…

…to win in the markets.

When do market forces start affecting us fully?

When we put our own money on the line.

That’s why…

…don’t…

…ever…

learn finance from someone who…

…doesn’t put his or her money regularly on the line.

When we put our money on the line, market forces start changing our psyche.

If we’re holding funds, we develop the urge to buy.

If we’re holding underlyings, we develop the urge to sell.

Early in our career, we give in to these urges at precisely the wrong time, resulting in loss-creation.

As we become more seasoned, we are able to resist such urges, till conditions provide profit.

As our market career continues, this is where fine-tuning matters the most.

How long are we able to resist the urge to sell as the market climbs?

How long are we able to resist the urge to buy as the market crashes?

These are pivotal questions.

One of them is playing out now.

As new highs are made, many have already sold out.

Some have sold partly.

Very few retailers are still holding on to whatever they might have left.

It’s institutions buying and selling.

New entry at these levels are a dizzy proposition.

I won’t hide that as markets climb higher, I experience a very strong urge to sell.

It’s…

…over-compelling.

How do I deal with it?

When such urge is too compelling, one does oblige.

One sells…

…little…

…and that’s the tough one.

One needs to oblige the urge lest some piston bursts, but simultaneously, one needs to hold on to as much as one can…

…since markets are on a roll.

One can’t learn this from a book, or in college.

After selling early many, many times, for more than a decade and a half, one finally learns to hold on to a chunk of one’s underlyings as markets go ballistic.

As heights get higher, this mechanism will make one sell, though, little by little…

…and that’s ok.

Let’s make sure that we do keep holding a chunk of the stuff we really like, though, after having taken the principal out.

Otherwise, how will we allow multibaggers to blossom?

Easier said than done, I know!

Liqui-Deity

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Ammunition. 

Ask the soldier about it.

Running out of it on the battlefield is the soldier’s worst nightmare. 

We’re soldiers too, in our respective fields of work. 

Our liquidity is our ammunition. 

What counts when an opportunity comes is how liquid we are.

When there is a market bottom, most of us are fully invested.

Is that sound strategy?

Putting together ammunition in one place is where it starts.

Holding on to ammunition and using it when most required – that’s sound strategy. 

Saving habits lead to accumulation.

Barriers hold the accumulated liquidity in one place. 

What are barriers?

Welcome to the world of self-created restrictions in an effort to have liquidity ready when one most needs it.

A dedicated bank account is what one requires first. 

Trading?

Link a bank account to your trading account, and use this one for nothing else.

Next, whatever accumulates in this account – take it away from your direct vision.

Meaning?

Block it as a fixed deposit. 

This is a barrier. One don’t see the funds as available. Thus one don’t feel the urge to use them.

When a trade motivates one enough to be taken, one then most need the funds. 

Break the FD.

Transfer the funds. 

Trade.

Has a trade just culminated?

Nothing else coming up?

Again, take the funds away from your direct vision.

Block them, either directly in your trading account, by putting them in overnight funds, or transfer them back to your bank account, if you know that you are not going to be trading for another week plus. 

Both options are valid. Do either. Bottomline is, the funds should not show up as available until you need them.

Investing?

Link a different bank account to your investing-only trading account.

Make multiple fixed deposits in this bank account, each one being one exact entry quantum in value.

Upon identifying an entry opportunity, whenever that happens, break one quantum’s FD, move the funds, and enter into the investment. 

Liquidity needs to be revered.

Unless we don’t give it proper respect, we will not have it at our beck and call when the next opportunity arises, whether we are trading or investing. 

Let’s go, let’s get our ammunition together, and let’s put it to great use.

Fitting 2.0.2

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What’s the most basic definition of an investment?

Buy low.

Sell high.

And how does one define a (successful) trade?

Buy high.

Sell higher.

Or…

…sell low…

…and buy back lower. 

As one might see, the ideologies of investing and trading are diametrically opposite to each other.

So, how do we fit one with the other.

Though this might not seem so, it’s a tough one.

One’s success at this hangs on finer points.

Is it even necessary to fit one with the other?

Why should a long-term investor also trade?

Then, why should a trader invest for the long term?

Long-term investing is a very hands-off affair.

There are prolonged bouts of doing nothing. 

Hardly anyone can handle that, and just to satisfy one’s urge to do something, one ends up fiddling unnecessarily with one’s long-term portfolio.

Trading fits in precisely to do away with the urge to unnecessarily fiddle. 

Finer points?

Low quantum.

Tension level becomes low.

Trading then becomes fun. 

Clear the platform of any long-term underlyings. 

When we see our long-term portfolio on the same platform on which we trade, we get mightily confused.

It’s like a short-circuit. 

Avoid.

Trade on a separate platform. Invest on another. 

Now let’s address the second question.

Who should invest?

Everyone.

Even the trader.

Why?

Power of compounding, for starters. 

Actively chancing upon margin of safety, since one is in the game all the time – another big one…

…as a trader, sometimes one comes upon great entry rates, where one can hold the underlying for a long time.

That’s a huge opportunity, so one can go for it. 

Furthermore, trading involves recirculating liquidity. After the trade is closed, one lands up back with liquidity. One doesn’t maintain an asset in hand for a longish period. It might be a good idea to do so, just sheer for the sake of diversification.

Some do only like to trade. They enjoy the lightness.

Others like to only invest for the long-term. They are able to handle long bouts of no activity well.

Suit yourself.

Judge if you need a B-game.

Then fit it to your A-game. 

Gauging the Crowd

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What was it about winning?

Someone did observe, that 12% of market players win in Equity markets.

In Forex, the number is much lower, something like 5%, I believe. 

If these numbers are to be believed, what’s the obvious takeaway for us?

Behaving like the crowd will not make us…

…win.

Or, in other words, to win, we need to behave in a manner which is not exhibited by the crowd. 

This makes us gauge crowd behaviour…

…almost all the time. 

For example, what does everyone want to do just now?

What did everyone want to do in March?

Did we do the opposite?

If so, we are winning now.

It’s not that one can switch one’s buttons just like that.

It takes experience, solid research, conviction and will-power to go against normal market behaviour.

It doesn’t just come. 

One works towards it, and the only learning comes from mistakes made with one’s money on the line.

That’s the price of tuition in the markets. Unfortunately, books probably won’t teach you this one.

Those who don’t pay this tution-price early, when their ticket-size is still small, well, they can eventually end up doing so later, at a much larger ticket-size.

Just make your mistakes, as many as you can, as early as possible. 

Don’t repeat a mistake.

Great. You’re done already!

How does one gauge the crowd?

Let’s listen in. What are people saying? How many tips are circulating? What’s the quality of these tips? What’s the level of enthusiasm? Is the doorman talking stocks? Folks going all-in at the top?

Or, does no one want to have to do anything with the market? Are you getting calls asking whether one should stop one’s SIP? Is your close relative aghast that you have your money in stocks? Is he or she alerting you to the possibility of an absurd-looking bottom?

The human being is an emotional entity. Blessed be us Indians, we take the cake in being emotional. Not for nothing are our markets correspondingly volatile. And that’s great news for Equity players.

Why?

You’ll see wild swings in the playing fields.

Our indices roller-coast hugely, perhaps the most in the investable world.

We get fantastic bottoms to enter…

…and amazing tops to exit.

Question is, do we leave ourselves in a position to take advantage of this?

Are we continuously gauging the crowd?

Are we continuously behaving like the crowd?

Or, have we made it a habit…

…to win?

Triggers Ahead

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Market moves require trigerrs.

In the absence of these, lack-lustre activity results…

…giving rise to illogical short-term trading ranges, for example.

Come a trigger, a move starts, or continues, or even ends, if the trigger is adverse.

What kind of triggers lie up ahead?

US election.

Yeah, Mr. President is going go keep US markets on a high till then, and that will translate over to world markets.

Corona cases receding?

Yes.

Trigger on the upside.

Corona recoveries increasing?

Yes. Reiterates the above.

Vaccine announcement for release expected till December ’20?

Upside trigger.

Vaccine starts showing good results?

Reiterates the above.

Small- and mid-cap buying by institutions to the tune of 28k Cr till the government deadline of January 31, ’20?

That’s a solid one.

This one is going to hold the back-end of the market (small- and mid-caps) perked up and reaching for January ’18 highs.

That’s five triggers back to back.

Any down-triggers in this time-frame?

Hmmm…

…let’s see…

…the picture till January 31, ’20 seems to be quite clear, actually.

Of course one might be wrong, and the model might break down.

That’s when we’ll just change the model.

However, till the model breaks down, one follows a charted roadmap which is already panning out.

Where does that leave you?

Assuming this model hits, there would be frenzied buying in small- and mid-caps just before the January 31, ’20 deadline.

Many MF Houses have announced their cautious and unpanicking approach towards picking up small- and mid-caps.

Come January, some players will not have picked up enough.

If the authorities don’t extend the deadline, these very institutions will make a beeline for such underlyings.

Government fellows will have a bit of a guilty conscience because of the mayhem they caused in this segment in January ’18, ordering the ad-hoc reshuffle of MFs.

To make things good again for affected parties, they might even allow such a frenzy to happen by not extending the deadline…

…and that’s exactly what we want.

Why?

We are waiting patiently for complete euphoria to set in, to sell those inhabitants of our folios, which we don’t wish to hold anymore.

As per this model, this could happen in January.

If It doesn’t, and if the model breaks down, that’s fine too, we’ll just wait for another time and high.

Winning in the markets is mainly about patience and discipline.

Money follows.

Bridging the Gap

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How does one bridge the middle overs?

Sure, a blogger who is simultaneously a cricket fan…

…will dish out analogies from cricket… 🙂 … !

We’re in the business of identifying extremes…

…and acting upon such identification.

Whatever is in the middle of these extremes…

…is, for us, an area of…

…inaction.

Do we know how to not act?

There is an impulse for action in all humans.

In these loaded times, this impulse is extreme.

Why do we not want to act when an extreme is not there yet?

During times of complete pessimism, one is able to purchase underlyings for a song.

Similarly, during times of total optimism, one is able to secure good exits for stuff that one wishes to get rid of.

How one behaves in between adds or subtracts significantly to or from one’s market success.

Selling early means lesser profits, and the same goes for buying late.

This is the kind of behavior that lessens our multiple, sometimes greatly.

This kind of behavior would be absolutely ok if one were trading.

We, @ Magic Bull, are in the business of effecting multiples.

Anything coming in the way of that is behavior we wish to avoid.

With markets normally trading between extremes about 95% of the time, this leaves us with a lot of time in which we do not act.

Also, it brings us back to the pivotal question – how do we manage not to act when everything and everyone around us is screaming for action?

We do – everything – else.

Apart form market action, there’s business activity, charity ventures, extra curricular activities, family time, sport, leisure, entertainment … … one’s day is packed.

There are two portions of the day when one is driven to the edge of action, though.

The first is after studying market opening.

This is when one does a half-hour call with one’s broker and just sheer discusses everything one is observing.

Strike 1.

Then, as one studies the close, this situation can arise again.

One writes, for example.

Or, annotates charts.

Observes prices.

Collects impressions…

…and demarcates patterns.

That’s sufficient.

Strike 2.

There’s no room for strike 3 – one just doesn’t let strike 3 happen.

Happy 10th Birthday, Magic Bull !

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Wow!

10 years…

…have flown by.

We’re smiling. 

Our strategy stands. 

Its construction has culminated.

It can weather the market.

Over time, we’ve fine-tuned our small entry quantum strategy extensively,…

…and it’s bearing fruit. 

We’ve made it generic. 

Anyone can use it. 

There’s nothing to hide.

The two main ingredients required are patience and discipline.

Since these are anyways in short supply, even though our material is in public domain, very few people will actually avail benefit from it.

Why?

It’s work.

In general, one shies away from work. 

Who’s going to dig out the nitty-gritty from 600 odd pieces on the site?

People are ok with a free ride, but putting in effort is a wholly different matter.

So the question arises – Why?

Why is the matter open to all? Why upload? Why write?

When we share, we achieve happiness.

Our body secretes hormones of happiness when we help others.

When our existence becomes invaluable to the Universe, the Universe goes out of its way to protect us. 

Karma – the boomerang – comes back. 

Don’t think – ever – even for one instant – that this effort is not being rewarded. 

The Universe is repaying – in full – with heavy interest. 

However,…

…one doesn’t do it for such repayment. 

It’s FUN. 

One does it for the enjoyment. 

It’s a giveback.

One does it for the happiness it causes, in oneself and in others.

Evolution,…

…and protection…

…are just side-effects.

This effort…

…will go on.

Long after me…

…my words will live on.

On that note,…

…happy 10th birthday, Magic Bull.

Winning on Psychology

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Hey!

🙂

It’s been a while…

Didn’t feel the need to write since beginning May…

There’s a thing about words.

When they want to come out…

…they do…

…and one should let them.

Right, and there’s a need for words, since…

…(wouldn’t you say),…

it’s time for a status check.

Where do we stand?

Positions are running.

How long?

When to cut?

What’s the plan?

Hmmmm.

Frankly, I don’t believe in cutting something I like and am convinced about.

Well, there’ll be no cutting of anything I’m convinced about.

If and when we reach euphoria levels, we’ll take another call about what kind of profit one is booking from one’s high-conviction holdings.

It’s very possible, though, that there will be no profit booked here.

Why?

High conviction holdings translate into multibaggers.

If I’m booking even part of such a holding, I’m lessening my quantum of multibagger-holding in the future.

So that’s sorted – high-conviction holdings – not booking.

Maybe, at extreme euphoria, we might take the cream off the top of an overflowing glass.

Now let’s come to other holdings.

Along the way, one’s conviction in certain holdings tends to waiver.

We’re booking all of these.

How much?

Completely.

When?

At extreme euphoria.

How to know when that’s happening?

Look for signs.

Least likely people will start behaving like market-experts.

You’ll start getting calls from lay-people, asking whether they should double their SIP.

Other-field mavericks have now become F&O maniacs, voluming seven figures per day as if it’s a normal activity, like eating food.

You’re suddenly being asked about all kinds of stocks running at absolute peaks, whether they are good investments.

Don’t get irritated.

Listen.

You’re privy to the best possible indicator – human psychology.

This one will never change.

Earlier, you fell here.

Now, this avenue has become your guiding stone to gauge market bottoms, and tops.

It’s a win-win for you.

High-Conviction Diaries

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Sometimes, we’re convinced. 

Every nerve in our body is rooting for a particular thing.

It’s a go. 

Do one thing – 

– don’t hold back. 

Listen to yourself. 

High conviction doesn’t just dawn just like that. 

We’ve worked our whole lives to arrive at this high-conviction moment. 

On the way, we’ve made many, many bad calls. 

Actually, they weren’t bad calls, because…

…if it weren’t for them,…

…how would we learn?

Is some college professor going to teach us the markets?

Is there a recognised university teaching successful market play?

It pays more to depend on one’s own self, and on one’s common-sense – this being my opinion, of course. 

We learn the ropes – OURSELVES – by making mistakes and learning from these.

Here we are. 

We’ve survived so far. 

Now, our sensors are on full. We’re on high alert. We’ve arrived at a high-conviction moment. 

We know this is the right call. 

It’s going to make money. 

All entry parameters are showing a tick-mark. 

What’s stopping us?

We’re human.

There’s always doubt. 

Negative experiences in the past enhance such feelings. 

What if we’re wrong?

Well, if we never get going, how are we ever going to find out?

Enter. 

With a small quantum. 

Keep entering with small quanta as the opportunity exists, along with high-conviction. 

Assuming that high-conviction continues, but opportunity stops existing – 

– Stop.

Wait for next opportunity. 

Assuming that opportunity continues to exist, but high-conviction wavers –

– Stop.

Wait for high conviction to develop again. 

If it does so, see if opportunity still exists. 

If high conviction doesn’t develop again, discontinue going in any further. 

Revaluate the investment upon a market high.