For Manas, it was a slightly more treacherous path as he was trading partly on borrowed money which was on the verge of being blown out - but he came out a winner
Trading and investing is a very lonely profession. Most successful traders and investors either spend their time researching, reading or being active on the social media. Not so with Manas Arora.
Manas runs a restaurant in Saket, Delhi which he co-owns with his sister, practices boxing, kickboxing, and other martial arts to keep himself busy and travels around the world every three months. He still finds time to be active on the social media, posts each and every trade on his very active Twitter account @iManasArora and answers trader queries.
From being a call-centre employee to a successful trader Manas traveled the same path that every successful trader does, but in his case, it was slightly more treacherous as he was trading partly on borrowed money which was on the verge of being blown out. It was a book that changed all that was going wrong in Manas’ trading.
Also, it was probably the lure of working from anywhere around the world that kept Manas glued to trading. He is now living his dream, traveling, running a business and of course trading.
In an interview with Moneycontrol, Manas speaks about his adventure of becoming a trader, his trading strategy and his new quest to train wannabe traders.
Q: Can you walk us through your journey to the markets
A: Post my graduation in B.Com Honours from Delhi University I took up a job in a BPO where I worked for around a year in the night shift. I did not really like it there and lapped on to an opportunity that a distant cousin of mine presented by introducing to the sub-broking business.
More than the broking business I was really hooked to the price movement and the money-making opportunities it presented. I started digging in on the subject and read up on what makes the market move and how to make money from it. This led me to the subject of technical analysis and I started practicing it.
In those days the main social networking forum was Orkut. I used to post my recommendations on Orkut. Within a few months, there were over a 1,000 followers who were appreciating my calls. I decided to monetise on it and started charging a nominal amount for the calls.
But then I realized it is not easy. You get pulled up for every call that did not do well. Since the renewals were not coming and the unreasonable pressure from clients on every call being a winner, I decided to trade on my own.
I thought that rather than helping others to make money I should trade on my own. I shut down my broking business, pulled out all my savings, borrowed some money and started my trading account with a capital of Rs 50 lakh. By the end of the year, Rs 22 lakh was left of it.
Q: How did you manage it?
A: In those days I traded mainly in futures, I traded every possible signal from every possible strategy that came my way. I did what every rookie trader does, I was hopping strategies the moment one did not work. Naturally, most of the trades ended up in losses. I was addicted to the thrill of trading.
Furthermore, there was no risk management in place. Even though there was a stop loss, most times I did not respect it. The entire focus was on signals generated from technical analysis. There was no position sizing, some days I used to take one lot on other days it used to be two lots. There was no business plan on how to scale up after a series of wins. It was all absolutely random.
Fortunately, even after a year of disastrous trading, I at no point got the feeling of quitting trading and looking for other avenues to make money.
Q: How did you turnaround and how long did it take?
A: After looking at the hole in my capital I thought it was time to go back to the drawing board. I looked back at the hundreds of trade that I had taken during the year. The only good thing was that I did not take intra-day trades.
I went back to reading and scanned the net in search of answers. On the internet, I bumped into a genius trader Mark Minervini’s work. I went through his book ‘Trade like a stock market wizard’ which was the turning point in my trading life.
The key to trading, I realised was risk management. I had to keep my losses small. Since then I moved from trading in the futures market to cash market to keep risk within a manageable limit. Even in the cash market, I avoid trading in frontline stocks as the effort needed to move a frontline stock is very high.
Once I got my act in place, recovery was fast. I managed to post a 120 percent in the next 11 months. I still trade on the same strategy and same risk management and have managed to take my trading book to eight figures.
Q: How do you trade?
A: I continue to have an end-of-the-day strategy but there are more nuances added to it. Most of my work is done on weekends or post-market which requires a 10-15 min of scanning through my selected list of stocks. If there is an entry signal I place my bid in the morning and leave it. During the day I do not watch the markets. I now run a restaurant where I spend most of my time during the day.
So what I essentially do is shortlist stocks which are within 20 percent of their 52 week high. This then goes into a list which I monitor every day for to see how they are behaving. What I am looking for in these stocks is a contraction in volatility. A type of coiling of a spring.
Say if a stock has gone to 100 and then corrected to 80, the next level it touches is 90 and then 85 after which it has to touch 87. This is a stock which goes into my next basket which I call the 'ready to take action' stocks. After three contractions in price, I am ready to strike at the breakout.
I have a standard stop loss of 7 percent from my entry price. This level has been arrived based on my experience. I have noticed that a strong stock does not go below the 7 percent mark.
I look for companies which have a low float as they give a good trending move. A turnaround company which has moved from losses to profit or those which have a strong sales and profit growth generally show up in this list. I normally do not look at fundamentals but if these criteria are fulfilled I increase my position.
I normally risk 1 percent of my capital on each trade but in these cases where there is a strong fundamental I increase it to 1.5 percent. At any point, I do not take a position in more than five stocks. If there is capital to spare I would look to enter in an existing position rather than in a new one.
A feature that has added to my higher than average return is reinvesting in winners.
Q: What is the strategy for re-investing, what are the entry signals here?
A: My re-entry signal comes at the moment the stocks is above 10 percent from my entry price. Here two things happen. The first is my stop loss is moved to my entry price. I take the risk off my capital.
Second is I observe the stock closely. If it is consolidating after rising by 10 percent from my entry price and doing so for 5-7 days I look to re-enter at the breakout. The important thing is the consolidation should last for not more than 7 days. This essentially signals the urgency of smart money to pick up the stock. If the consolidation lasts for a month then I am not interested in adding to the stock.
If a stock has moved up really fast, say 50 percent in 3-4 days I will exit it. But if it is moving slowly I will look for re-entry. Normally I get a chance to add 3-4 times in a good trending stock. In the case of a very good trending stock, I get a chance to add up to 6 times.
I take concentrated positions, I do not have any issues with most of my portfolio being from the same sector.
Q: How do you exit from these trending trades, and do you take re-entries in these stocks if it again shows up on your scanner?
A: Technically speaking my stop loss will be below two times of a 20-period ATR (average true range), which generally corresponds to the lowest point of the previous 7-8 days.
After the initial setback in my trading career, I take my stop losses very seriously. In fact, in my office, I have stuck up a sign which says ‘Don’t believe your stocks; believe your stops.’
The critical element is risk management. A stock breaking out is watched and chased by every trader in the world, but it is the risk management which decides the winning traders.
As for re-entries, I have found that they offer some of the best trades. I never miss out on a re-entry signal. Last year I was stopped out in a stock thrice but it kept showing in my scanner. I took all the entries and the stock was one of the top performers for me last year.
Q: What are your win-loss and risk reward?
A: Only 3-4 trades out of 10 are winners for me. But my average win is three times my loss. So basically I only need a few stocks to come out as winners. In fact, one good trade takes care of all the losses and the remaining add to my capital.
Q: With 3-4 winners out of 10, how do you a handle losing streaks?
A: By keeping my position small. If I am risking only 1 percent on a trade I can handle the losses, it does not disturb my emotional balance. Having said that I generally stop trading if in a month I lose 5 percent of my trading account. Even if these losses have come in say, the first 10 days of the month, I will take a break for the rest of the month. The losses show either I am not in synch with the markets or the markets are too choppy to trade.
By the start of next month I have already cooled down and since I have lost only five percent I know that it needs only one profitable trade to take care of this loss.
Since I became a fulltime trader I have managed to recover on around four occasions a drawdown of 12-15 percent within 2-3 months.
Q: You have been giving training to some traders, can you tell us something about it.
A: I have given one-to-one training to eight traders, who are all fulltime profitable traders, even in this market.
Very recently I did a webinar, since it was a paid webinar I was expecting around 10-15 traders to participate, but I managed to get an audience of 264, many of whom have now signed up for a one-on-one session for which I have assigned one hour every weekend for 10 weeks.I strongly believe anyone can become a successful trader if they take emotions out of the equation. That can only be possible is you are keeping your position and expectations small.