Abhinand Basavaraj shows how trading success can be achieved by working in isolation, progressively combining technical analysis with strong risk management and optimum sizing learnt after each trading mistake
At a recently organised investor carnival, co-sponsored by Moneycontrol in Goa, three professional traders were displaying their intraday trading skill in front of the audience. Despite each trader deploying a different trading style, all three were profitable on a day when the Bank Nifty fell by nearly 600 points.
While many in the room were trying hard to imitate the trading style of these traders, unnoticed in the crowd a young trader was silently punching away his trades in a corner. Unlike other expert traders, he was trading Nifty options. At the end of the day, this trader was as good as the expert traders in terms of returns, if not better.
This was the first time that this young trader had come in contact with other traders. He is also among the few traders who consistently profit by buying options.
Abhinand Basavaraj, 29, hails from Mysuru and is almost a hermit in the trading world. A self-taught trader his first trade was at the age of 19. But it was only after seven years of agonising work that he found his mojo.
Persistence, self-confidence and family support all played an important part in his success. Though he still claims to be an evolving trader, few can claim to have achieved the kind of success that Basavaraj has.
In an interview with Moneycontrol’s Shishir Asthana, Basavaraj talks of his baptism by fire in the trading world and his secret trading strategy.
Edited excerpts:Q: You picked up trading at a very young age, can you take us through your journey since then.
A: I was introduced to the stock market at the age of 19 when I was in my first year of degree college. My cousin had opened a broking franchise in my home town Mysuru and I decided to open an account by borrowing money from my father.
Like any new retail trader, I used to trade frontline stocks like Reliance Industries and HDFC Bank. I was not following any particular trading strategy at that time and my trades were dependent on calls given by my cousin. Initially, my returns were mixed. Then, the Satyam Computer Services’ scam unravelled.
A week before the Satyam scam broke out, I was long on the counter. There was a sharp up move before the scam broke out and I had positioned myself to profit from it. But the pace at which the stock fell left me stunned and I was unable to exit. Even today, that trade is etched in my memory.
Lessons learnt, I moved on from trading in stocks to options. I have always been a buyer of options. But after trading for a while, I lost all my capital. I did not inform my parents about the loss, fearing that they would ask me to stop trading.
My brother, who is a banker, funded my comeback. But after trading for another four-to-five months, I once again lost my capital. It was then that I decided to take a break for a few months.
I would like to emphasise the support lent by my family. Without their faith and backing, my journey would have ended a long time back.
During this period, I was introduced to technical analysis by my cousin, who had called a technical analyst from Bengaluru to Mysuru to spread awareness on this subject. I attended the seminar and was immediately intrigued by Fibonacci, MACD and other indicators.
I worked on my strategy and resumed trading, but now there was some method to this madness. Earlier, I use to buy options and hold them till expiry. Even though my directional trades were correct, I would not be profiting from my position as options deteriorate with time.
I struggled to find my mojo. Though I now knew what I was doing and realised that technical analysis gave me the extra edge, I was still not a consistent trader.
To sustain my trading activity, I had borrowed from family and others at high interest rates. I was carrying this debt for a few years and the pressure of paying back was playing on my nerves. I decided to tell my parents about it.
The first thing my father asked me was why did I go through this suffering alone for all these years and that he would have willingly bailed me out had I told him about it.
I explained to my parents what I was doing in the market. Though they did not understand the charts that I was showing them, they patiently heard me out and did not demotivate me.
I always enjoyed my father’s confidence. Even when other family members and friends were imploring him to stop me from trading, my father asked them to be patient. He somehow felt that I knew what I was doing and would achieve my goal.Q: How did you start being profitable?
A: Coming from a business family, I have had a relatively comfortable upbringing. My father, who has been a national level kho-kho player and an inspiration, fell sick for a prolonged period of time, thus forcing me to attend to the family business, which is into wholesale grains. I saw people going through life’s struggles just to earn a meagre sum.
When my father recovered and re-joined the business, I told him I would be unable to continue with the business and would like to approach trading in a more business-like way.
It was during this time that my brother-in-law, who is like a friend and mentor, asked me to manage his real estate management startup based out of Bengaluru.
In Bengaluru too I saw the struggles and hardship faced by people to make ends meet. I realised how lucky I was and decided to work hard to preserve and improve on what has been handed over to me.
While working at the real estate management firm, I continued to trade. I was now a more confident trader and started maintaining detailed notes of my trades. My progress was slow, but were now visible from the mistakes I was making. It is not that I did not realise the mistakes I made earlier, but since they were consigned to memory they did not register as well as they did after I started maintain detailed notes.
I now traded options on the long side, but restricted my trades to intraday and used a smaller time frame to trade. Within the three months that I was in Bengaluru, I multiplied my capital several times. I was elated and confident that I could now make it.
When I showed the results to my brother-in-law, he was happy about it but warned that I may lose it again. But now I was confident of my trading ability and decided to move back to Mysuru. It has been nearly three years now and have done reasonably well.
Though there were periods when I turned overconfident after a big profit and lost all my winnings, I could identify my problem areas and knew how to correct them. I tweaked my position sizing and since then have grown comfortable with the risk involved.
I feel not keeping a monthly trading target, setting my own rules and not being coached by anyone on how to trade were an added advantage as I am now confident of protecting my capital and increasing it.Q: How did you emerge a consistent trader?
A: Since I trade aggressively during the day, the number of trades are high and so is the cost of trading. That’s why I moved my broking account from one of the biggest full-service brokers to the largest low-cost broker: Zerodha. This move alone brought down the cost of my trading substantially and positively impacted my profitability.
Since I only trade on an intra-day basis and do not carry forward my trades till expiry, time decay does not affect my trades. I have put in place a trend following system, whose signals are right eight times out of 10 times. The number of indicators I use now has reduced substantially, which clears up the chart and my decision making.
Even after deploying my trading system, I do get carried away and make an occasional mistake.
My money management rules too have changed after a big loss on account not following the strategy. Earlier, I used to deploy 50 percent of my capital and accumulated profits on a trade. This earned me huge profits when the trades worked in my favour, but would incur higher losses when the trade went against me.
I now start every week with a capital of Rs 1 lakh and then build upon it. In case of a loss, I do not mind adding another Rs 1 lakh, but only after the account has been depleted. This has helped improve my equity curve. At no point in time do I use leverage or trade on borrowed money.Q: Take us through your trading process?
A: I trade only in Nifty options and that too on the buy side be it a call or put option.
I generally trade in line with the trend. If I am not trading in line with the trend, then I would be scouting for reversal trades.
To determine the trend, I use daily and weekly charts, but post that I use the 15 minute timeframe to trade.
For initiating the trade, I look at the MACD (Moving Average Convergence Divergence) histogram.
Let's assume the trend on the daily and weekly timeframes is positive. On the 15-minute timeframe, I will initiate trades on the long side or look at opportunities to buy call options.
Here I will be looking at the MACD histogram for a buy signal. The moment the MACD histogram bar closes higher than the previous bar, I will go long and buy a call option.
There are days when I get an opportunity to trade only in the last hour or 30 minutes. It’s this patience that has helped me becoming a better trader.
Earlier I used to trade every signal on the MACD histogram, that too on the five-minute timeframe. Moving to a slightly higher timeframe and trading in line with the trend has saved me from several whipsaws.
After I initiate a trade based on the MACD histogram, I may move to a lower timeframe (five minutes) depending on the market and price movement. If the price action does not give me the confidence, I may use the change in MACD histogram (five-minute timeframe) to exit. If I am comfortable with the trend, I will ride the entire rally based on the 15-minute MACD histogram.
Whether I am trading or not, I keep drawing lines connecting the highs and lows of the swing. This helps in preparing the Fibonacci levels, which act as support and resistance for the market. I observe the price action at these levels to watch for entry or exit opportunities.
The strike price of the options that I chose to trade is not based on Greeks but premium. I trade in strike prices where the option premium is between Rs 70 and Rs 120. There is no science behind picking these numbers, except that this is my comfort range.
My focus during the day is on the chart. I do not have a trading friend with whom I discuss market directions, chart patterns or setups. I do not watch business channels or read expert views during market hours. I am glued to my screen and wait to pounce on any opportunity that comes my way.
What I have discovered is that technical analysis gives you an edge, but it accounts for only 10-20 percent of a traders’ success. The remaining 80 percent is psychological and self-discovery. Keeping the noise away from my trading and keeping the rules of the game as simple as possible is important.
It has taken me seven years to become a profitable trader. I have learnt that while picking a good trade is important, not undertaking a trade is equally important. I avoid trading on event days like credit policy or on the day of the budget.
In terms of money management, I may multiply my weekly Rs 1 lakh many times in a good week, benefiting from the effect of compounding. But in a bad week, I may have to add another Rs 1 lakh if my initial capital is lost.
There are many areas in my trading, especially risk and money management, which I need to develop. I am still evolving as a trader, but I am now comfortable with the market uncertainty. Loss or profit does not affect me anymore.Q: You have been trading for the last nine years, any key takeaways that you would like to pass on to aspiring traders.
A: Preserving capital and having a proper risk management system is paramount. Discovering yourself and trading according to your psychology is equally important.
These days we see several aspiring traders attending training workshops by various established traders with the hope that they will start earning like them from the very next day. To those, I would say there is nothing like a holy grail of trading. It takes expert traders years of training and living through the pain of losing their capital before they reached their present level of success.
I am a better trader today because of my family's support. Being a successful trader is a long and lonely journey that cannot be completed without family support.
Technical analysis or strategies account for only 20 percent and just gives you the edge. Capitalising on this edge comes from your psychology, risk and money management.For me to deliver consistent profits have taken seven years, for others it may take lesser. The important point is self-discovery. Knowing the risk and pain you can absorb and your strengths is what will make you a better trader.Get access to India's fastest growing financial subscriptions service Moneycontrol Pro for as little as Rs 599 for first year. Use the code "GETPRO". Moneycontrol Pro offers you all the information you need for wealth creation including actionable investment ideas, independent research and insights & analysis For more information, check out the Moneycontrol website or mobile app.