The thumb rule about breakouts is that when the price breaks out of a range, it makes approximately the same size move vertically as it spent in the range horizontally.
ITC spent around 410px rangebound. If the theory is right, should we expect a move to 480 or thereabouts?
Most people treat investing either as something of a hobby, a retirement pass time or a casino machine. Very few even today take it seriously as a secondary source of income.
I am increasingly convinced that stock market investing should be seen more as a necessary life skill – like driving or swimming or cooking.
Unlike our parents’ generation, we don’t live in a world of job security, pensions and medicare for life. One source of income – salary in most cases – may have sufficed the previous generation but limiting the income source to only one is dangerous for our generation.
So it’s extremely important that every one of us gets financially literate and start investing. It’s never too late for that.
And yes, teach your children how to invest, long before you teach them how to drive a car or boil an egg.
Fun fact: Nifty was rangebound between 4500 and 6400 for a total of 7 years – between Sept 2007 and June 2014. And in the next 7 years, by the end of 2021, the index was at 18000 – 3x higher than in 2014. This despite 25% – 40% correction twice in the intervening period.
Morale of the story:
1) Be bullish, ALWAYS
2) Be patient, especially during the correction phases
3) Diversify. Equities won’t always deliver positive annual returns.
4) Be agile. Know when to book profits, when to stay in cash, when to go all in and also when to go short.
Somebody recently reached out to me seeking tips to be a full-time trader. I’ve had a lot of people reaching out to me with this express desire.
Trading does offer one the freedom from a 9-5 job, the chance to be one’s own boss, the owner of one’s own time and become financially independent. It is also one of the toughest jobs in the world.
So sharing a few tips I shared with him. Hope it helps you too.
1) Put a trading strategy in place first. The main components of that strategy are markets/sectors, timeframes, positing sizing, risk appetite, entry and exit rules. For example, I will only trade in Nifty 200 stocks on a weekly timeframe with not more than 10% of total capital allotted to one stock and not more than 1% risk per trade. I will enter when the price crosses above 50 EMA and exit at a drawdown of 5% (either 5% loss or 5% correction from the highest point). This is just an example. You can come up with your own strategy depending on the components you define.
2) Backtest that strategy. See if it really works. What profit % does it make on average. What is the highest drawdown. What is the win/loss ratio.
3) Have at least half a dozen strategies and backtest them and choose the top 1-2 strategies that work best.
4) Try paper-trading these strategies for a month at least to see if they actually work. That’s the risk free way of trying out your strategies in the live market. But if you want to trade with real money, start with only 1/3rd of the capital you’re intending to invest.
5) Once you gain confidence in your strategy and it starts showing results, then put in the rest of your money.
6) Start with cash segment first. Trading F&O without getting a grip on your strategy is like driving a Ferrari, drunk! That will never end well.
7) Finally, always remember that positioning sizing and risk management eat strategy for breakfast. You could have the best of strategies but if you take too large a position or don’t cut your losses quickly, you will end up blowing your account.
8) That’s where trading psychology comes into picture. You need absolute control over your emotions at all times. Stick to your risk management rules even if your gut tells you otherwise. There will be times when you take the loss and close the trade only for the trade to turn around. Part of life and we have to deal with it.
9) Trading is just like any other business. It’s not a casino or a lottery ticket. There’s no get-rich-quick scheme here. Many people I know to have lost a lot of money have done so because they thought they could double their capitals in a couple of months. Almost every one of them lost all their money in a couple of months.
10) Give it time. Be patient. Trading is like building a monument. One brick at a time. One trade at a time. You will earn 100 rupees and lose 40. If you keep doing that over a period of time, compounding will do its magic and you will grow your capital.
I wish you all the best. Shubh labh 🙏
Ashish Deodhar 