They are new but don’t mistake them for novices.
The investors who have entered Dalal Street in 2020 come armed with strategy, having used the volatility to learn from their mistakes, and are determined to make money.
For most of us, 2020 can’t be over soon enough. The slowdown, a ‘disappointing’ budget and the biggest of all the-- coronavirus outbreak, the year seems to be piling misery every step of the way. The economic devastation brought by the virus is unmatched and has created an environment of uncertainty, where caution is the watchword. But, not for these new-age investors.
A budding chartered account, 24-year-old Mohit Goyal told Moneycontrol he started trading seriously from April 2020. “I made a few investments before 2020 using technical, but my real career started in April 2020. I backtest my strategies and finally got three intraday strategies which lived up to my expectation. And then in April, I decided to go and try them,” the Delhi resident said over the phone.
If you hit a stop loss or suffer a big drawdown, don’t stop trading, use the opportunity to fine-tune the strategy, is what their message is.
ALSO READ: Money flows into equities from tier-2,3 cities during lockdown, women not far behind
This year, a large number of people across the world have been forced to stay home and also find alternate careers as COVID plays havoc with the job market, Kunal Saraogi – CEO, Equityrush, said.
Equityrush.com offers India's only structured short-term courses in technical analysis, derivatives and trading.
“In the US, a huge number have set up accounts with brokerages like RobinHood and in India, we have seen an unprecedented interest in trading as a career or as a means to generate supplementary income,” Saraogi said.
“At Equityrush, we have seen a definite spurt in registrations and inquiries for our #NaurkriSeAzaadi webinar series. Another positive is that a disproportionately larger number of women are signing up for our courses and quite a few of them are doing very good as traders.”
In the past few weeks, industry veterans like Saraogi have seen a surge in interest among students from smaller towns and from people who always wanted to learn about markets but didn't have the time.
The trend is visible not just in India but in the US as well. From the beginning of April, when markets began to improve, dozens of companies with negative equity value, aka Penny stocks, have moved higher, hitting daily circuit filters.
“It is surprising that this trend of Penny-stock buying is also visible in the US and other countries. Therefore, it is the retail investors (Indian version of Robinhood traders) who are at home during this lockdown tapping prices higher,” Jimeet Modi, Founder & CEO, SAMCO Securities & StockNote. told Moneycontrol.
Khushboo Sinha was a senior manager with a bank but quit in 2019 and started trading in August. She made some losses when the volatility was high in March. The 34-year-old lost money but gained in terms of experience and strategy.
“In March due to high volatility, I made losses and sat on the sidelines, and then I started analysing my mistakes,” she said.
Sinha used the time to arrive at her own weightages. Technical analysis, position sizing and risk management get 20 percent each but she rates human psychology and controlling emotions the highest – 40 percent.
Trading strategy
Another thing that works in their favour is they are firm in their resolve to churn profits even if the market is unfavourable. A lot of them have equipped themselves with strategies based on technical charts or options or a combination of the two.
Soumya Jena completed his MBA in finance in 2011. The 32-year-old resident of Odisha’s Cuttack quit a comfortable job as a fundamental research analyst to turn to full-time trading in January of this year.
“I use different strategies in different market texture. As I mentioned, I used hedged positions mostly through option selling as Vols shot through the roof in March and April,” he said, referring to the volatility in the market.
Jena combines chart patterns and option Greeks to trade with hedged positions and reduce risk. “I usually try to avoid trading in stocks where there is news,” he added.
Option Greeks are parameters that influence the value of an option. The risk measures are named after Greek letters, hence option Greeks.
Sinha told Moneycontrol that she identifies the stock with breakouts on the daily chart with good volume, calculate the risk, identify the stop loss and then take the position with proper hedging.
“I have learned that in the market, even if the trade is for intraday, one should take the position with proper hedging because volatility kills small traders,” she said.
Developing new strategies is always good but the real test lies in the market and for that, traders should always backtest their plans.
“I do my trading based on systems and strategies only. I never deploy a strategy unless I backtest it for a very good period of time. Two things which I look for in a strategy is strike rate and risk to reward ratio,” Goyal said.
Buy a stock which is near a very good weekly support and gives a breakout of Inverted Head & Shoulder or double bottom on daily charts, he said, adding the strategy has worked well for him. “Even a range breakout will work. I don’t keep targets but believe in trailing my stop loss,” he said.
Another strategy that Goyal prefers is the flag breakout. “For intraday, I use a strategy on a 5 min time-frame which involves breakout of Ichimoku Cloud along with RSI divergence with fixed target and stop loss,” he said, referring to a method of analysis that involves multiple technical indicators.
Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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