Naresh Nambisan: Catching falling knives to trade for a living

Nambisan is from the old school of trading where he prefers putting in manual effort rather than automating it. Obsessed with charts, he can look at charts for hours without getting bored. And, when he is not looking at them, he likes to read and travel.

In an interview with Moneycontrol, Naresh Nambisan talks about his journey as a trader and how one can be a successful trader with the bare necessities.

Edited excerpts

Q: How did you end up trading equities after having a sales job in the middle-east?

A: I worked in the Gulf for six years, five of which was in Bahrain. It was in Bahrain where I was first introduced to the markets.

I am a Kendriya Vidyalaya-schooled product and did my graduation in Chemistry, followed by a management degree from Symbiosis. I worked as a medical representative with Alembic for five years where I was their top performer for Southern India.

Like every true Malayali, I too made my journey to the middle-east. I worked as a product manager there, but my heart was always in India and was looking for opportunities to come back.

ICICI Bank operated in Bahrain and one of their representatives showed me how the calls given by their team was working in the market. But, after I opened the account and followed the trade, the stock behaviour was not the same.

By this time, my wife - a software engineer  got an IT job in Bangalore. Since I had experience of working both in India and the Gulf, I felt that I could easily get a job in India. But, when I went searching for a job, I was told that my gulf experience was of little use and I would have to start afresh.

During this period, I was trying to connect with my friends, and one of them I called said that he was a TA. I had no idea what a TA was. On further probing, he told me he was a technical analyst who looked at the chart to predict future direction. I was intrigued by what he said and decided to probe it further.

I googled on technical analysis and liked what I read. Back then, there was no Twitter or Facebook, but there were Yahoo groups. I joined one such group where the exchanges were always about markets.

One day, I saw a guy giving a long and short call on a single day, and both worked extremely well. When I asked him how he managed it, he said it was with the help of technical analysis. My conviction on the subject increased further, and I decided to deep-dive.

However, I used to trade on almost every call that was put up in the group. I made money in some and lost in some. But, there was no learning in the process, and I had to depend on the group members to generate calls.

On one such call in 2008, I was long on a stock given by a member in the group. The same evening, there was news of the financial crisis in the US. I spoke to the member who reassured me that there was nothing wrong with the chart, and the stock was strong. The next day, I was down Rs 40,000.

To me, that was a big amount back then, especially since my trading was funded by my wife’s salary. I did not have the heart to tell my wife I lost the money, but I had to and I did. I promised myself not to listen to anyone’s advice, and, till this day, I have not. I submerged myself in technical analysis. I slept for four hours a day for nearly two years only to wake up and study charts.

That was just the beginning of a long journey which my wife and I took together. It was only possible because she stood by me and funded me to trade in the market. We made a lot of sacrifices in the next few years. We did not have a TV then, which we still do not, so there was no source of entertainment. We did not go out socialising, no sports, no outing, nothing.

Trading without a job or an income source is very difficult emotionally. As if the market pressure is not enough, society pressure plays on you. That probably is a bigger problem. It is because of those efforts and sacrifices we made that I can reap now.

But, having said that, I would like to add that it is important in every trader's career that he makes all kind of mistakes at the beginning of his journey. However, it is important to learn from these mistakes to proceed in the journey.

Q: Can you walk us through your learning during this period.

A: In those days, there used to be a Youtube channel called Informedtrades. They were posting one technical indicator every week on their channel. After watching the video, I put my heart and soul in learning everything I could about the indicator and tested them in the Indian environment. But, I found them all to be late in giving signals.

I then came across price action charting and was awed by its simplicity. Since then, I have been using only price charts and no other data points, volume, indicators, news flows, market talks or anything of the sort. Everything that I need to trade is in the price of the stock. Price Action, I found out, was what worked the best. Every other indicator is a derivative of the price.

Also, I found out that volume follows price and not the other way round, which passes as conventional wisdom in the market.

As a trader, it is important for you to eliminate things that do not work for you. In my case, I had to eliminate every indicator, every type of charts like Renko, Point and Figure charts among others to arrive at what suited me.

Another thing that helped me was I never used automation to backtest. I manually tested every indicator or strategy before abandoning it. Looking through thousands of chart helped me get a "feel" of the price, which prepared me for how I trade today.

Q: How do you trade?

A: There are two main types of trades I take – short term trades and investments. I am a futures trader in my short term and intraday trades and buy blue-chip stocks based on technical analysis for the long term.

In price action style of trading, I look at the larger time frame and, then, at the smaller time frame. I look for areas where the maximum numbers of candles are taking support at 2-3 time frames. I identify these as the support level around which I, then, take a position with a very small stop loss.

I do not leverage much. I normally have only three positions open in the market which helps me hold my trade for a longer period.

I trade multiple lots and exit half the position with a small profit to ensure capital protection and, then, trail for a longer time.

For intra-day and swing trades, I look at charts on the 15-minute and 1-hour time frame. I check where the support is in both the time frames to initiate a trade. My trading style is very simple. I trade around a horizontal line (see images). But, where to draw that line comes from experience. I construct my levels and wait for the market to come to it.

I have a watch-list of 20 stocks which include Nifty and Bank Nifty in which I trade. For the intraday and swing trades, I get two-three trading opportunities in a day. I take every trading opportunity that comes at my levels.

Like, in the recent case in Maruti, Rs 6,500 was an important support level. The stock bounced back every time it tested this level only to break it a few weeks back. One had the opportunity to make money several times and lose it at one time. If your risk-reward is favourable while entering a trade, there is nothing to worry about.

I remember taking the Tata Steel trade in 2015 when steel prices were falling and steel plants were closing down. Every analyst was bearish on steel. On the chart, support was visible at Rs 200 levels. I called the level on my Twitter handle. The trade was available with a stop loss of Rs 10. The stock moved up to Rs 800 from there, and I rode the entire move.

Since I like charts, I keep on looking at as many price charts as possible, especially where there are some developments. Two weeks back, Morgan Stanley came out with a report saying Tesla could fall to $10. I tweeted that one could buy Tesla around $170-180 range as it was strong support. The price tested that range and shot up to $260 within a span of a few days. I, however, do not trade in the US markets but just mentioned it on twitter for whoever might be interested.

That is the power of price action trading. I do not know the fundamentals of Tesla though I am a huge fan of Elon Musk. Nor do I know the reason why Morgan Stanley had a price target of $10. But, the charts were showing strong support zone, which I decided to call. No technical indicator tells you to buy at these levels.

You can hear people warning against catching a falling knife. But, what if you have the skill to catch a falling knife? When you buy at key levels, the price always bounces back.

The advantage of price action trading is that, by the time an indicator gives a signal, the stock has already moved up by 6-7 percent from my entry point. That is why my exits are at an average of 20 percent from my entry point, and my stop loss is of around 4 percent.

I normally trade with a risk-reward of 4-5 times. My strike rate is 70 percent in both intraday and swing trades. The holding period for the shorter term trades varies between two to five days.

My exits are also in two ways. I follow the standard higher highs and higher low to trail my trade. But, at the same time, I also use a lower time frame moving average to mark my exit.

Like in the intraday trades, the hourly charts signal the entry but a moving average on the 15-minute chart is used for exit.

As for the investment part, I am building up a portfolio blue-chip companies which I buy regularly every time they come to an important support level.

Q: You stay in a village near Calicut after leaving Bengaluru. Do you miss being closer to the market?

A: In fact, the distance helps in keeping the noise away. To me, if I am a better trader today than what I was yesterday, it is good enough. My confidence increases with every trade I take. I do not take too many positions or am bothered with some stock shooting up sharply and I missing out on it. I do not seek information nor do I compare myself with other traders.

I do not manage other people’s money, nor do I intend to. I am also not in the business of training.  So, there is nothing to miss. I trust my charts completely, and it has worked for me.

Q: Any words for a new trader?

A: Keep your trading as simple as possible. Do not complicate the charts with too many indicators. Try to eliminate what is not needed. Looking at every data point like open interest, FII and DII buying and selling data do not work.

Test the indicators yourself. Improve yourself one step at a time. Take up your system and sharpen it by looking inside the system and correcting it rather than jumping to a new one if the earlier one did not work on a few occasions.  Trust your chart. Baaki sab is bakwaas (rest all is rubbish).