GuruSpeak| Virendra Pandey: how to trade with an investment mindset

Armed with a Ph.D. in finance, one would have at least expected such a person to trade the market on an intraday basis. But that’s the beauty of the market, where your educational background has little to do with how you make money.

Virendra Pandey, a Lucknow-based trader, was an investor for the first 16 years of his 22 years in the market. With a doctorate in finance, he found his calling in the market by selling options in Bank Nifty.

Pandey trades multiple timeframes, from intraday to holding his position for months. Irrespective of the timeframe he is trading, the logic for entry and exit remains the same.

The robustness of his strategy comes from the fact that he is profitable in all timeframes.

Pandey had responsibility thrust on him early in life after his father passed away when he just entered college. Working his way to a college degree, Pandey had to take breaks in his education to support his family. Working under a CA, he saw the magic of the market unfold before his eyes and saw the power of holding on to his investment.

Even when he shifted lanes to become a trader, his time frame for holding was longer than most traders, bringing the investor with him into the trading community, though he was now catching the meat of the move rather than sitting on his investments.

Virendra Pandey talks about his trading journey and style in this interview with Moneycontrol:

Q: A brief educational and family background and your initial experience with markets

I have a Ph.D. in Financial Management, but my educational journey was not smooth. I had to take gaps in my studies as my father passed away in 1996. I had to take responsibility for the entire household early in life. I worked my way through graduation in 1999 but could complete my post-graduation only in 2013 and later did my Ph.D.

During my studies, I worked with a Chartered Accounting firm from where I first heard about the markets. The CA was constantly discussing fundamentals and investment ideas that intrigued me.

I started developing an interest in the subject and whatever money I could save, I invested in the markets. I have been an investor in the market for nearly 16 years.

I dabbled with Bitcoin for a long time till 2015 when they were banned by finance minister Arun Jaitley. But by this time I was addicted to markets and decided to start trading.

Q: You have a strong educational background in finance, why did you choose technical analysis-based trading?

Though I have a background in finance, I did not do in-depth research. I was a buy and hold investor, picking up companies with good pedigree.

I knew that short-term trading was based on technical analysis while long-term was based on fundamental analysis. If I want to be a trader I would need to sharpen my technical analysis skills, which I did meticulously.

Though I picked up technical analysis, the investor in me always remained. My trading strategies were always for a longer period as I had seen that big money is made by holding stocks.

I did take intra-day trades since 2017, but by 2019 I realized that for an intraday trader the behavior of the market is best suited for a non-directional trader.

Q: How has your strategy evolved over the years?

My core strategy has remained the same. I am a price action trader who does not trust indicators, but I keep on fixing the bugs that arise in the strategy, depending on its behavior toward market actions.

I have been trading price action using multiple time frames. On the higher time frame, I create the market structure and on the lower, I look for my trading opportunities.

Between 2015 to 2022, I made some important changes in my trading strategy by using tools like Fibonacci, Harmonics Pattern and Central Pivot Range. These were additional confirmations to the price action style of trading that I had used all along.

An important aspect of my trading is to understand the risk and reward of each trade, this plays a very important part in my reversal trading strategies.

I am a price action and Fibonacci-based trader, and my real strength lies in calculating the swings in a higher time frame.

Q: How do you pick up such reversal trades?

Reversal trading is akin to coming down stairs and then climbing them back. The stairs that you have used to come down will be the same ones you will use to climb back up.

I look at the charts on a higher timeframe like a weekly or a monthly. Now if swing highs are not broken on these time frames, the stock will continue to fall. If the swing low is broken then you can expect a fresh run upwards.

In such trades the risk is low and the rewards are high. One should use this logic on fundamentally strong stocks rather than any arbitrary stock.

My style is demonstrated in this TCS example, where the stock has made a double bottom (September 2022) on the weekly chart. After making a double bottom it made an impulsive high followed by a correction. I drew a Fibonacci retracement which saw the stock-taking support at the 50 percent retracement.

The stock made a hammer candle at this level, where I entered the stock on the high of the candle with the low as the stop loss. I am still holding the stock. I short-listed TCS after looking at the behaviour of Nifty IT.

I normally trade in stocks that are fundamentally sound and I always take concentrated bets in them, that too on the long side only.

Dalmia Bharat was another stock that I traded with a similar logic.

Q: How do you take intraday trades

I use the same concept in trading intraday. These will naturally be on a lower timeframe, but the principle of trading them remains the same.

For intraday, I mainly trade indices, but if I see an opportunity in a bullish stock that is trading in correction and can have a trend reversal, I may jump in. These are low-risk trades that can give very high returns.

Why some intraday traders, especially option buyers, find it difficul tis because they believe that because there is a reversal taking place they should buy options, a call option for an upward reversal, or a put option when the underlying is expected to trend downwards.

The reversal does not mean that the price will take a U-turn, instead, it means that if the price is in a downtrend a reversal would indicate that the recent low will not be broken. This is a ripe condition for someone who can sell a Put option by keeping the recent low as the stop loss.

This is exactly what I do and that’s the reason I am a directional option seller. When I plan a swing trade I do it on a very high time frame and then come down to my trading timeframe to seek low-risk entry points. I wait for the pull-back of a breakout trade to seek an entry.

Q: Any special expiry day strategy

I square off my positions by 1 pm as option prices have only intrinsic value left. If I can see any reversals or breakdowns after this time I will create a long strangle by buying Rs 30-40 premium call and put options.