The Mechanical Trader

Buying the Corona Dip-3

The Unprecedented Times

As stated in the earlier post where I had shared my portfolio, this post goes on to report the performance of the portfolio since then and I will also dive into the typical bear market behavioral analysis and what can we expect as 2020 unfolds.

I have added some new scripts and booked partial profits in some, from the portfolio (which can also change avg. buy prices but not that drastically) which you can see in the snapshots below, apart from that I will also provide sector wise breakdown and individual sectoral performance for drill down analysis.

The above snapshots show the consolidated portfolio which is about 26% up as of 10/6/2020.

With Glenmark taking charge of the bull run, giving whooping returns of 108%+ in a matter of few week’s time.

As per the sector wise performance Pharma sector (Healthcare) have clearly beaten all sectors hands down with 59% returns followed by Consumer Discretionary / Communication with 32% return and IT with 30%

Financials have been the laggards amongst them all and especially HDFC twins with hardly any notable performance.

Overall Beta for the portfolio is 0.88 (LOW RISK)

PE RATIO : 18.11

ROAD AHEAD

Always remember that the BEAR markets have the craziest rallies in all of market cycles.

Historically there has never been a V shaped rally when the markets have fallen more than 30% in short span of time, it usually takes almost an year to return to the original bull run.

Although, no two market cycles are similar in nature we still have to see how we go about this road ahead.

In 2008, it took 425 days to make a bottom and the rally in the markets was so fierce that it had given a return of around 24% in just mere 2 weeks after which it fell again.

These are known as BULL TRAPS.

Bull Traps are nothing but when people believe that the worst is behind us, and they continue to buy the markets only to see it fall again harder.

This happens 2-3 times in a cycle till all the weak holders are gone and the institutions ride the biggest run.

The table below shows the comparison of 2008 and present.

As, the market is all about probability and uncertainty and given to the fact that market cycles lack the same structure, there is a high chance we might see a correction once again soon.

So, whoever have missed the rally do not be disheartened there might be an opportunity soon to buy at historical levels once again. Do not go in for the small and penny stocks do your own research well before investing and always focus on large caps.

How to enter the market to build porfolio?

Divide your capital into 3 to 5 parts (set), make sure you allocate money for each script. Then with every 5-10% drop in that particular script or 300-500 drop in main index buy 1 part (set) according to the allocation given. If market falls 10-12% suddenly then go in with 2 to 2.5 parts (set) at once. And repeat.

I will be updating soon about option trades in this section soon.

If you have any query regarding how to buy when the market falls, drop your queries at (mackanshunegi@gmail.com)

Till then, Please stay safe.

For the next part (4) click here.

Buying the Corona Dip -2

This is the 2nd part after I had started investing which was mentioned in my earlier post.

As I earlier said that the chances of re visiting the 8555 low made at that time was high and it so happened that we did hit 7500 and I made sure I had more capital to invest at that level.

The chart below shows my doing or changes in my portfolio in the chronological order.

Now, this is the flexibility I believe one needs to have to be either an investor or a trader. I was wrong I admitted it and corrected my mistake quickly.

I was waiting for the mid test of the Bullish engulfing pattern, As soon as it closed below the middle for the day I cashed out booking some minor losses.

The strength and volume of retest also has to be judged.

Further Scenario – I think its now very difficult to breach 7500 again but we might have one sharp correction. We are 20% high from the bottom and currently at Wave-B. Wave B should be over by the end of this month according to wave lengths and then we might see another drop (not necessarily, markets are all about probability), a final perhaps.

Below are the name of the stocks that I am currently holding in 2 portfolios.

One portfolio just consists of 1 stock.

There are few names from my portfolio that I have hidden because of very high risk and circuits limit where one if entered would not be able to get out (if things turn bad) because of liquidity issues.

I am trading in options these days heavily, with back tested data. I will post about it soon.

Please stay at home and be safe!

Buying the Corona-Dip

It’s been a while since I last posted here at my blog. I had been pre-occupied with some work earlier and since last one week I had been observing the markets and was away from trading heavily intraday and had totally stopped swing trades because I wasnt comfortable trading my own style of dual positions of long and shorts because there were no buying sign.

Today, I did get the opportunity to buy some quality stocks and I had been very lucky with it and the markets have been kind.

I was at 100% cash on Wednesday, and had deployed 30% of the capital on Thursday (12/03/2020) and put in 50% more today (13/3/2020). Now, I am left with 20% cash for mostly hedging or buying the further dip.

There is less chance of us visiting the low of today of 8555 at nifty the recovery volume was very very healthy. But again there is indeed a chance.

Probability of hitting the low of today should exponentially decrease after this month. If we are to re-test those levels it should be within this month.

As I earlier said Technical Analysis had stopped working a few weeks ago and now that the markets have cleansed out most of the traders TA should be back again working soon.

Below is the screen shot of the stocks I bought and at what price.

Well we all know the Buffet quote, “Be Fearful When Others Are Greedy and Greedy When Others Are Fearful”. Everybody quotes Mr. Buffet all the time but what I learned today is that hardly anybody have the guts to actually be greedy at times such as now.

In the book, Reminiscence of a stock operator, Livermore had clearly said when everybody is fearful or just waiting to buy, know its time for a bottom. And for this very reason I did ask more than a dozens of pro traders about their market view and all of them were saying it is going to go further down and nobody was buying, so I just went according to Livermore 😛

Well, this was a mix of luck and quick thinking.

SO, What to do if you’ve missed the Train?

Most of the people who bought have bought it at 9500-9700 Nifty range and their pain will begin once those levels are tested again. And because of this I feel we might see some panic sells.

So, nothing to worry you will again get the opportunity to buy the safe investments.

The left chart shows the 1 Min recovery which was very strong and the chart at the right shows BULLISH Engulfing.

The half of this candle could be retested.

I will resume writing about Systems and new trading techniques soon.

Stay safe, and have patience.

Swing Trading Log as on 3/01/2020

Updating about my current running positions, I had already booked some of it and on 3/01/2020 I booked 70% of the remaining positions as my target for the month (15/12/19-15/01/2020) had crossed.

Initially I had booked 1.2% on AshokLeyland and few from BEL positions

The above screenshot is of Friday when I booked 70% of everything.

Total ROI generated around 4.7%

Holding period – 16 Days

Now, I will be running the overall positions and SL have been shifted to Break-even my 3.5% target will still be intact with 30% positions left.

I will be looking forward for new positions to be taken.

MARKET OVERVIEW

The market looks a bit shady. I will be looking for Fibonacci levels retracement till 12,085/12,016 Nifty levels. If that breaks we might be poised to head more downwards.

Shorting looks favorable at this point in time.

Meanwhile, contrary Nifty Midcap have given breakout from higher frame bear trend line.

I will be looking for an opportunity to go long on quality stocks with proper setups at the retest of the falling bear trendline.

Swing Trading Log as on 27/12/2019

As earlier, mentioned in the last post about the positions taken on 15/12/2019, I will be updating my positions till date.

Position as on 19/12/2019
I had taken 6 positions in total with my setups.

Glenmark
Marico
Ashokley
Grasim
Federal Bank
BEL

On 19/12/2019 I had booked half of everything.

The screenshot mentioned below is of 19/12 when I booked half qty of all and Grasim had hit SL.

Current positions as on 27/12/2019

Ashokley, had hit trailing SL so I got out at 1R profit in that position while other 4 are still running.

BEL
Glenmark
Marico
Federal Bank

The above screenshot gives the overall positions.

Further, looking out at the current scenario I still haven’t got the opportunity to short any stock because none in my watch list have made a setup.

New entries that I am looking forward to are

HUL
Hindpetro
L&T

Total holding period – 10 DAYS

ROI – 2.1%

For last swing details click here.

SWING TRADING LOG

In this section I will be sharing few of my trades which are either to be taken or trades I am currently into the position and holding it.

NOTE: THE BUY and SELL POSITIONS ARE NOT RECOMMENDATIONS.
Please do your own due-diligence before taking any positions. I will not be responsible for your profits or losses.

My method of Swing Trading:

My style of Swing Trading is a bit different, I usually go for a target of 3 – 4% per month (conservative side). If my target is done in less than a month’s time then any trades during that month I take are often conservative which means I trade with 50% of my original capital.
My system for swing trading is meant for mostly “Buy” Only side.
In futures I at max, stick to 2 lots only or according to the position sizing. With 1 lot futures your 1% risk should come to around Rs. 12,000 atleast per trade.
If your capital is below 15Lakhs (Rs. 15,00,000) then go for delivery only because you might not be able to hedge the position and maintain and manage more positions.

My system generally generates 10+ trades a month and holding time is less than 3-4 weeks. I use 3 different systems for swing trading.

CURRENT POSITIONS

I have taken 4 long positions currently.

Trades initiated on DATE – 12/12/2019

ASHOKLEY
FEDERAL BANK
GLENMARK
GRASIM

Few stocks that I am looking to enter are:

BEL
Marico

DISCLOSURE:
To be honest I am not comfortable with present markets because of the fact that we are at all time HIGHs with strings of bad news coming in. Therefore, I am trading with 60% of my positions only and will be looking for few stocks to short to hedge my current positions.

SWING TRADING V/S INTRADAY TRADING

Getting started, Swing Trading is a methodology where in you hold the stock for more than a day to few weeks depending upon the price action that unfolds in real time.

Swing trading is different from Intraday and there are various pros and cons associated to both style of trading.

Although, I trade intraday as well but I am more inclined towards swing trading because of various reasons. I am gradually shifting towards to full swing trading because this is where the real money is made. I have come to a point where scaling up in intraday is very difficult and it comes with a cost.

Few of the advantages and disadvantages of Swing and Intraday Trading are mentioned below:

Advantages

Swing Trading

The Risk : Reward ratio in swing trading is very good compared to intraday. In intraday you get seldom trades which have 1:4 or higher reward compared to the risk involved. While in Swing you can achieve that and sometimes even much higher.
Swing trading is less time consuming, you do not have to stay in front of the screen for the whole day.
Time is in your favor here. What I mean with this statement is that, Swing trading gives you ample of time to be correct where as if for instance, a position is triggered in intraday at 1 PM you just have 2 hrs for the trade to go in your favor where as swing trading have that flexibility of time.
This method cuts off the noises from the market and gives you clear and broader understanding of the markets.
You can control risk with numerous options available at your disposal.
You can scale up your trading which is difficult in intraday. That means, in intraday the amount of slippages that occur in trading with more than 20Lakhs account are immense and you always need liquidity to get in or out of the position. Where as in swing trading you can trade with much bigger account sizes.
Swing trading is something which gives you at times huge winners. It might happen often that one right trade can make up your several losses and give more than that. This is the game of patience and psychology.
Trading with futures, brings down the cost of trade significantly and requires very little movement to get to breakeven after all the costs and taxes are included. For eg. here is the cost comparison of Delivery, Intraday and futures trade for same cost of BUY and SELL and same quantity.
Can take advantage of dividends as well.

INTRADAY TRADING

The biggest advantage of intraday trading is the leverage that is given which can go upto 20 X times your total capital.
It gives quick results
No overnight risk is associated with this type of stock trading
Easy to short in intraday
Quick Money if right

Disadvantages

Swing Trading

Capital Intensive – requires good amount to start trading only if you are trading for a living.
Over night risk – this is always there with it but it seldom happens but one must be aware that you can lose upto 50% of your position due to some overnight news related to that stock. So, position sizing should be done accordingly and with no mistake.

Intraday

It is stressful where you have to constantly check for new opportunities and a lot depends on your mental state as well.
Leverage at times or should I say most of the times leave you broke.
The structure and systems performances changes quickly as the market dynamics changes. So you have to frequently fine tune them which results in curve fitting.
Draw-downs are pain in the ass.
Very less time for the trade to go in our direction and the probability decreases with passing time.
Slippages are very costly at times.
Very difficult to scale up unless you trade in index futures.

There is no holy grail in trading and more often than not traders tend to hop system to system searching for one good system which will constantly make money but it never happens. One must know which type of trading suits you best and then trade in it.

Current Scenario

Getting on to the point of the present scenario in the markets, to be honest Technical Analysis (TA) is not working perfectly as it used to. This is probably because of many factors but the main factors being people catching up on the study of TA. And when all of them start trading on the same pattern formation or rules the TA will bog down due to its own weight. Things that everyone knows wouldn’t work after some point in time.

This scenario all the more calls for having deep knowledge about Price Action and understand what an underlying candle or price bar depicts.

If you have been waiting for breakouts on the well known stocks and many more have been waiting for the same thing due to some past events, more the probability of it to give a breakout which fails in the mid course and shakes out most of the weak holders out of the position only to resume the momentum in that direction or gets into the range bound zone.

Therefore, it is very important to know exactly when to get in the position and hold on to it till either your target or your SL is HIT.

Secondly, these days options are gaining lot of traction among the traders. There is definitely an edge with respect to theta decay (time decay) which is a sure shot strategy and works most of the times but the risk associated with it doesnt appeal my appetite.

For instance, as Taleb puts forward the fact that you can be right 99 times out of 100 trades (99% win rate) but that 1% that 1% Black Swan event can cost you everything.

That is the issue with now a days “Options Guru Experts” they dont know how much they dont know about a particular thing. Fooled by randomness at its peak.

So, avoid being lured in the crowd and trade safe.

Lessons from Mr. Market

Having extensively studied the market for couple of years and consistently trading since last 2 and half years, Mr. Market has taught me plethora of lessons.

Know this, Trading is Gambling, don’t believe anyone who say otherwise. It’s a game of chance, where you bet for uncertain outcome. BUT, to survive and thrive, all you need to do is rig the trading system in your favor with a decent and sustainable edge. Just like in the casino, how the house always wins. Similarly, try and apply the rules here.
You will lose on some days. You cannot be profitable daily.
Having a win rate of 54–60% is very very good. There are only few people or systems with win rate more than this.
You cannot hope to be rich in a year or two from trading. It takes time.
Most indicators are just distraction.
If you trade in futures and options without knowledge. You will have No Future and you will be left with NO Options. There’s no way you can de-risk your position while trading in this segment.
Developing a strategy for a system takes lot more than just time. Reading few blogs or books wouldn’t be much of a help. Instead, observe charts on a daily basis for hours and hours, then maybe someday, something, might click.
Results of back-testing and live-testing will be different unless you completely automate it. If not, the discipline needed is immense.
Meditation is a must thing before you sit to trade.
Nothing lasts for ever, this applies to your system as well someday it’ll become obsolete. In short, you can’t sit and trade with just 1 system forever, be creative and keep working on something new. There’s always a faster gun. There’s no system which operates at zenith level of perfection forever (excluding arbitraging systems).
Don’t be prone to taking short positions just because you loved, “The Big Short”
Trend is your friend, don’t try and time the market or go against it.
SMA (Simple moving avg) > EMA (Exponential moving avg) (Read, SMA is better than EMA)
There will be certain days where you will make 2–3 month’s salary combined in a single day and then there will be few days or weeks of a draw down period as well. Accept it, Embrace it.
Don’t join courses or workshops in a hope that you’ll get a new strategy for the money, nobody will give it to you.
On the investing side, never exit your holding completely, always keep 5% holding for ever. You’ll be amazed of what that 5% could turn into in years.
Never catch a falling knife, it takes time to stop the momentum, a car running at 100 MPH doesn’t stop in an instant and reverse.
You can be in handsome profits for the day and then the odds can change against you within fraction of a second so always be humble and never rejoice before you close all your positions for the day.
Range bound or bear markets are a nightmare.
In my view, any system with equal risk:reward is very difficult to practice for a long time. Except if the win rate is 80% or more.

And the most important lesson of all, Learn to manage Risk, without it you cannot devise a system. Trading is purest form of risk management. I cannot stress this enough.

Trading Framework

Before getting to the development of a system we need to understand what is the main structure of trading. This structure is basic framework of how trading should work ideally.

One has to keep in mind that most important part of trading is exiting or closing a trade.

WHY?

Because EXITS are what makes money, nothing else.

While most budding traders focuses on entries and setups but they hardly pay attention to when to exit or their profit targets.

You would often see your winning position turn to negative because you did not close the trade before and this is also the worst feeling while trading when all your profits are gone and you close in red by the end of the day. It has happened with me quite often and that is when I decided to put a framework for EXITS.

SO, when to exit a trade?

It depends on the strategy that you have deployed but for reference I can guide you through it.

At 1R (that is your profits = the risk you have taken) book 50% of the profits and trail the rest
At 1R book 15% of the profits, so that your cost of trading is recovered and shift stop-loss to entry.
I personally book 10% at 1.5R and my Stop loss is then at Entry.
After that, I keep the trade open till end of the day or till my new Stop-Loss is hit because patience is what makes big money. One or two good trades a month can make up for everything and that is often how you would get the big winners.

Make sure you focus on your exits, because there is no worse feeling than seeing a good profit turn into a loss.