Sunday, October 17, 2010

Guidelines For Trading Stock Futures and Options

    At http://www.stockezy.com/ I and my subscribers have now travelled nearly three months together, with Nishant Singh being the senior most subscriber of the present members in this exclusive F&O club. He was the first to realize the potential of my money making stock futures strategy designed specially for retail investors with disposable capital of as low as Rs 1 lakh. He has stood steadfast in this club through the thick and thin, because he was convinced that he was in the right place for making money in a high beta stock market, compared to the stock markets of the West. But when he started off he didn't have my mandatory requirement of even Rs 1 lakh to trade one lot of stock futures. So he had to miss trades which required an upfront margin of Rs 70000/- plus. One trade that comes to my mind was that of HCL Tech Aug Futures, which he had to skip and in which other subscribers made Rs 15000/- to Rs 20000/- overnight (BTST if you may like to call it). But today it is a different story with him and he continues to be a strong moral support to my efforts.
    There are many others who provide me with  emotional sustenance through their undying and unconditional support to my crusade to enrich and empower the retail investors. Vikram, Shantanu, Balaji, Ritu, Hiren, Kiran, Sujoy and Venkat are some of the members who act as my backbone with their belief and faith in my system. Some of them are unable to access the  Internet because of their primary professional commitments, but they keep informing me through SMS that they are in this pilgrimage with me. Then there are others who started off as my critics and have turned into solid pillars of support. Names like Manoj, Vivek and Neelima
    jump to my mind. To all these members I shall forever remain indebted for believing in a system that is so unique and queer that it is neither practised nor taught in any part of the trading world.
    At this point I find it pertinent to mention that to my knowledge one of our members has made the most out of this system in a month. Sadhana Singh had quietly ratcheted up her investment from trading one lot to two lots and reposed complete unquestionable faith in my recommendations. In the bargain she has made profit  of around Rs 50000/- since joining a month back. Hats off to her for being able to spot a winning horse/system so quickly. If any other member has been able to surpass her feat then do let us know. Till then she remains the unchallenged "Trader of the Month".
    But we cannot rest on our laurels. We have to refine our system to get more out of it. It is for that purpose I am going to lay down few guidelines which I expect members to adhere to, so as to propel this system to the next level of efficiency. But before I lay down those guidelines, I would like to reach out to those members who have been clamouring for change in the system, and tell them that we are not going to change a system which is a money spinner, just because they cannot either understand its potential or are just in a habit of criticizing for the sake of criticizing. If they cannot understand the system fully, then here I am going to again go into details of how the system functions. But if they are simply in the habit of criticizing, then I have a sincere advice to offer to them. You do not need to pay me to be able to criticize the existing system, you can do the same free of cost by posting your thoughts in the comments section of closed trades.
    For the sake of non-believers and newcomers, let me go over the mechanics of the system/strategy we are working with:-
    1. In this system you need to keep aside Rs 1 lakh for trading one lot futures of a scrip at a time. Within this one lakh rupees I'll make sure that we come out from each trade with profit every time. For that I might recommend buying a few lots of options of that scrip to enhance our chances of exit with profit at a faster time frame. All this will be within that one lakh rupees that u have catered for that scrip. Now if you have two lakh rupees, then you go for two lots and so on and so forth. But under no circumstances should you violate this rule of capital requirement. Then I shall not be able to guarantee profit from that trade. Why I am stressing on this aspect is because if you are playing football and you want to play it with the rules of hockey, you can only fail and then curse the game of football. If you want to succeed through my system then you will have to follow this rule of capital requirement religiously. You cannot have Rs 1.5 lakhs and enter trade with two lots of futures out of sheer greed and then grumble about the inadequacy of the system. Nor can you take half my recommendations at your sweet will and expect to profit from my trades. If you consider that I am  the right doctor then you need to take full dose of medicines as is being prescribed by me for trade to become a winner. I am assuring you that the full medicine will be within the one lakh rupees limit.
    2. If you also want to enter into my recommended options in some other scrip, then you need to keep aside Rs 25000/- extra for the same. Do not compromise on this issue of capital requirement and later try to fix blame on the system. Remember that there is only one motive to violate this  requirement, and that is greed on your part. And greed  is never good for traders in the long run, especially F&O traders.
    3. Now the issue of recommended buy/sell range. Do not buy or sell outside the range given, unless it is making a difference of up to Rs 500/- only. Supposing my recommendation is to buy an option at recommended range of 20/22 and the lot size is 500, then you can go ahead and buy up to 23, but no more. Of course it will be best if you adhere to the buy/sell range given. However when I don't give you a range and instead ask you to pick up a position at CMP you should immediately pick up that position. A few points here and there in such positions will not make a major difference in profit making, but will ensure that you do not miss the trade. But when you have to square off your position in profit then you can do so at your will without waiting for my recommended price or my instructions. While in profit if you are feeling uncomfortable with the movements of the scrip, either put a trailing stop loss to protect your profit or exit in profit For that you don't need to obtain my explicit permission. But under no circumstances should you exit in loss from my recommended trade, unless I explicitly tell you to do so. I'll explain you why in the next point.
    4. When you find yourself in loss in a particular trade, rest assured I have already calculated the next move for averaging through requisite options. We can go for averaging a futures position with another lot in futures itself. But options is being recommended so that our capital requirement never crosses Rs 1 lakh in that trade. But those who have sufficient capital at their disposal can always take futures position when I give a buy recommendation for options. It will give them a better return in absolute terms. But capital adequacy that I have earlier mentioned has to be strictly kept in mind. You should know your pocket more than anyone else, so go ahead and take decisions accordingly.
    5. Coming now to the sticky point of stop loss. Please understand, as I have already mentioned in my initial welcome message to you, that this stop loss is not a stop loss in conventional sense. This is a stop loss which when met helps me determine a fresh target from the target initially given. So do not exit your positions when my given stop loss is met. My recommended buy/sell prices are so chosen that they will be revisited within a month, come what may. So why should you take loss. And to expedite the recovery process I recommend options at opportune point within the capital allotment of one lakh rupees. Please understand that as a retail investor once you fall into this vicious cycle of taking loss then it will be very difficult to come out of it. Because once you take loss, your mind has been punctured with the thoughts of this loss. You will then try and recoup that loss by getting into riskier trade in the hope of recouping this loss fast. And then you fall into the trap of a bigger loss. From here on it will be two steps forward and three steps back for you. All that is still controllable in cash segment, but in futures trading you will be crushed with the burden of loss, until one day you are jettisoned out of the market. Then you will curse the market and the system and will swear never to enter futures trade again. I have designed my strategy and system to save you from such a vicious cycle and mental cum monetary setback. Those who have stayed with the system would have realized the veracity of my claims. In this system you may at times be tested for patience, buy you will never be tested for mental agony of having incurred loss, provided you follow my instructions fully. And if one month you do not make too much profit, the next month will more than compensate you for the missed opportunities. No one would know this better than Nishant, Shantanu, Vikram, Ritu and Balaji. All along they have exhibited exemplary patience and today they are richer for that.
    If the system we are working with is understood, then I have few guidelines which I expect my subscribers to follow. These guidelines are for your own good because by following these guidelines you will be enhancing your chances to make more profit :-
    1. During trading hours do keep informing your trading activities through comments, but do not expect a reply from me. I am seeing all your comments but replying them would mean taking my eyes off the trading screen for a  time long enough to maybe miss some signals. I do not rely on anything other than my own studies and hence I am constantly watching movements, not just in the scrip we are holding position, but also in scrips which are potential candidates for buying/selling. This is being done through the help of various Indicators, Chart patterns and Wave calculations in real time interactive intra-day charts. At a time there are about fifty scrips which I am tracking to judge their behaviour. This gives me clue to what is happening to smart money flow and the manipulations which are taking place. So if I am able to remain focused on this aspect, I can assure you to get better trades with even more money making potential, with more intra-day bonanza. You can help me in achieving better concentration by following the rules given in succeeding points.
    2. Write your down your entry point in a position in comments section of the relevant opinion page. After exiting from that position do take the initiative to write down your exit price with profit from that trade. If you are busy at that time, do choose your time to come back and fill the comments section with your profit from that trade. It works as tonic for me to see more and more members benefiting from my recommendations.
    3. Do not ask superfluous questions and divert my attention from my primary task of getting you a better profit deal. If you have missed a trade, just don't bother too much. You will get the next trade. By asking whether you can enter at higher price point does not help much. Its your risk, whether you want to take or not. I will always tell you to enter at my recommended price range only, so do not ask such questions. In similar vein, do not ask questions on trades I have not recommended. If you have entered such a trade, then ask the person who recommended it to you. He may have inputs which I do not have. So my impromptu answer can get you into trouble, while also getting my attention diverted. Also do not ask questions on things which are already available in writing in the opinion page - things like target, stop loss, buy price, etc. In case there is requirement to exit earlier than given target price, I will definitely inform you as I have been doing so far. For that I am not required to be reminded. And if you decide to exit with profit early, again you need not seek my permission. Take your decision, but do not influence others with your decision, because futures trading requires lot of mental strength, resolve and conviction. Your comment can dilute all that, thereby diluting the profit potential. I will be the first one to get all out in profit if the situation so warrants, so do not worry about other members.
    4. If you are feeling uncomfortable about a particular scrip because of various reasons, like your personal dislike for that company or emotional baggage of previous losses from that scrip or some fundamental news you have accessed which is contrary to my recommendation, then please do not enter into that position. But at the same time do not influence others by your comments on the scrip, because I know you will be depriving the other members of a profit making opportunity, if they get influenced by your comments. My system of making profit is not conventional and hence will not be understood through the prism of current news flows.
    I go through each comment that you post, even though I do not reply to all comments. The comments which are negative in nature have been making a dent in my decision making, even though every time I tell myself not to get perturbed. After all I am just a human, and such comments will certainly leave some impact on a mind which is human. Recent remarks and complaints about my strategy of stop loss and going against the perceived trend, are a case in point. While there have been numerous instances when continuous barrage of negative remarks from a section of members have finally made me take hasty decision of booking small profit where there was room for much more, I am quoting the recent ones because they are fresh in my mind. I have already explained the purpose of stop loss in my strategy. Regarding a comment while holding our short in Tatasteel Oct Futures, I was lectured about not following trend. Then I was thrown a one liner saying "Trend is friend". What I want to bring to the notice of our friends who want to lecture me about trends is only one thing, and that is : where have they been for the last four months when Domestic Institutional Investors(DII) have been net sellers on a consistent basis?  I have been continuously trading long all these months and have only recently shifted into reverse gear about 3 weeks ago with Nifty around 6000. Army of best minds with the best pay packets that DIIs have, could not catch the trend and here I was going long and making money for retail investors and yet I get lectured about trends. Makes me wince in pain! Experts on TV, again highly paid, were asking you to short tatasteel at 600 level and when I ask you to short at 667 you feel I have committed a crime. End result is I lose my resolve, forget about my studies, forget about calculated target and make everyone exit with small profit. If you recall I had asked you initially to exit at 642 tatasteel spot price, but finally exited in a hurry taking at least Rs 15000/- less from this position. Just because  those one liners were working through my mind, day in day out.

    With post graduate financial management degree under my belt, I can throw many such one-liners. but one- liners do not earn you profit from stock market. The best traders of the world have success rate in the range of 65% to 70%, but they have such deep pockets that they are able to influence trades for short term. And here I have designed a system for retail investors to give you 100% success trade after trade and yet you need to question trends. Well good luck to people who seek better returns or maybe would like to do research with trends. But my only humble request to them is not to pollute my mind while the trade is active. After the trade is closed you are most welcome to throw all the one-liners at your disposal, for all I care. But while the trade is active, these statements are affecting my decision making abilities, which in turn is resulting in lower profits to members who are faithfully following me. And I cannot tolerate that any more. What is their fault in the personal mental war you are waging with me? They certainly deserve more than what they have got so far.

    For members who have been carrying short positions of their own decision, I can only say that you hold them as of now. The profit that you make from my trades should be adjusted in the prices of the these shorts. And soon a day will come that you are able to break even. After that you will be absolutely free to make only profits month after month. This strategy is being followed by Manoj and I am quite confident that he will have a turn around before the dawn of the New Year.

    If you have any constructive suggestion to better the trading system, do post your thoughts to me. Your feedback will be most valuable to me, so I shall be looking forward to the same. My sole aim is to enrich you and towards that end I am willing to make any adjustment in strategy or trading style, provided it betters the existing system.

    The comments on this post are an interesting read, which u may follow through this link http://www.stockezy.com/opinions/7695/guidelines-for-trading-stock-futures-and-options/

    Happy Trading and Happy Dashehra!!!