Successful traders are like race drivers. They know how to manoeuvre their way at high speeds. What makes them different is that they know what lies under the hood of the vehicle they are driving and how to correct it if there is a breakdown.
The charts and indicators that they use are well-researched to the point where they become second nature and muscle memory. They do not need to think before they react; the reaction comes automatically.
If you are a scalper who holds a position for a few seconds to a maximum of a few minutes, your reaction has to be automatic. There is no time to think, all the thinking has to be before and after market hours.
Sivakumar Jayachandran (@justsiva123) trades on the high-speed race track. A scalper 90 percent of whose trades are held for less than two minutes, Siva as he is called by fellow traders was another trader who proved his mettle at the this year’s Investor Carnival held in Goa. Trading on expiry day along with veteran traders, Siva watched the market patiently since its opening and entered after 2:00 p.m. by buying Puts and making a killing because that’s when all his indicators are lined up.
A Hotel Management graduate from one of the best institutes in the country, Siva thrived in the BPO industry where he was an employee. Later, he started his own BPO firm. After four years of successfully running the company, Siva sold his startup and immersed himself in the market.
After losing money regularly on random trades, Siva decided to learn the mechanics of trading. Today he not only trades on his own, but has also trained many would-be traders. The entrepreneurship fire in Siva continues to burn as he is contemplating starting a trader’s factory.
In an interview with Sivakumar Jayachandran, he talks about his trading strategy, his journey to becoming a successful trader and his goals. Edited excerpts:
Q: From Hotel Management to late shifts in BPO to trading options in the market, how did it all happen?
A: Trading was nowhere in my scheme of things when I picked up Hotel Management as my career path. Post my graduation from one of the top hotel management colleges I was placed with Radisson Taj Coromandel. Though the money was good, life was extremely hectic with no family time. Weekends and public holidays were mostly working. This was not how I wanted to spend the rest of my life. My father had paid for my course, which I managed to earn in a year and also save some amount beyond that. I was having trouble adjusting to the hectic lifestyle and decided to quit the hotel industry without knowing what I would do next.
I decided to move to some other profession and approached a friend who was working for a Healthcare BPO and asked him if I can get a job in his company. He arranged for a meeting, but the manager there said that I was too qualified for the job and that my last salary and perks were too high for the level at which I would be working. They feared I would quit my job after learning from them.
When I walked out from that interview, there was another BPO next door. I asked my friend about it and he told me that it was run by a brother of the promoter of his company. I decided to give it a shot there, but again the same set of doubts were raised. I told the HR person there – Sugandh – to give me an opportunity. For some reason, he believed in me and allowed me to appear for the written test, group discussion and interviews, all of which I cleared.
That evening, I came out of the office with an offer of Rs 2,500 a month, a fraction of Rs 40,000 a month I was earning when I was in the hotel industry.
I worked hard on learning the job and wanted to succeed here in order to avoid going back to the hotel industry. I was confirmed earlier than my probation period and promoted in three months. It was here that I met my wife.
In three years, I got a job offer in Bangalore. It was a relatively small setup, with 15 employees. Both my wife and I got a job offer here as the 16th and 17th employees. After initial teething problem, I managed to prove myself by successfully implementing and scaling up the Bank of America account, which turned out to be the biggest client of our company. I was soon heading a team of 200 people.
Later I moved to a new company in Mumbai at twice the salary. But both of us missed Bangalore and wanted to return to the city.
One evening I called up a friend of mine who was also from the BPO industry and as we were chatting we talked about starting our venture. He said it was an idea worth exploring and spoke to a couple of other friends. Within a few minutes, we were having a conference call discussing threadbare on the business opportunity. We divided roles among ourselves where I was supposed to look after operations while others took up functions such as marketing, client relationship, HP and IT. The IT guy got in an investor.
By the next morning, I had a business plan ready, which was circulated among ourselves and presented to our investor. The only question the investor asked was how much money we needed. We told him ‘between Rs 50 lakh and Rs 2 crore.’ The investor pumped in Rs 2 crore as soon as the formation and bank-related formalities were over.
A friend in the US started pitching and, in 30 days, we had our first client. We rented a 50-seater office space in a prime location in Bengaluru. Within three months, we had maxed out and in two years we were operating with 200 employees and 800 in four years – that was by 2015.
In 2015, we got an offer from a bigger company to buy us out. With Donald Trump as the President of the USA and his practices, we thought that doing business with our US clients may get tough going forward and decided to take the offer. During this period, we managed to quadruple our investor’s money in four years after paying him dividend equivalent to his capital.
Q: Tell us about your trading journey.
A: I was introduced to trading by the same friend with whom I started the BPO. The idea was to start a secondary source of income. I had some saving of around Rs 10 lakh with me, from which I decided to try out trading with Rs 2 lakh. In those days, I made 2-3 percent a month. Those early successes resulted in an increase of capital allocated to Rs 5 lakh and then the entire saving of Rs 10 lakh was put in the market. As is usually the case, the biggest hit comes when you have the highest capital invested in the market.
I had my money in DLF, Suzlon’s and all such stocks that witnessed the maximum erosion. The biggest regret is holding a 1,000 shares position in Bajaj Finance, which was then trading at Rs 220-230. My portfolio of Rs 10 lakh had come down to Rs 1 lakh. I decided to stop putting money in the market.
When I moved to Mumbai, I tried testing the waters again. Earlier, my approach was positional. I now planned to test intra-day trading since my office started at 3.00 p.m. as our clients were in the US. I had enough time in my hand to try this form of trading.
Earlier, trading was based on tips. But after losing money again, I decided to learn to trade. If there was a way by which traders were consistently making money, I wanted to learn it. I decided to focus on a few stocks, a proper trading plan and only one instrument to trade with.
Nifty and Bank Nifty were natural choices as they were the most liquid, though Nifty options were more liquid back then. The instrument chosen was options. But rather than following the convention of being an option seller, I decided to be a buyer of options.
I slowly started picking up the terms and understanding them. Watching them work in the market helped my understanding.
I started with open interest and watched how it worked and how prices reacted based on the open interest levels. I then looked at charts and combined them with open interest to see how the two are linked and behaved with each other.
Candlestick patterns came next. It further helped clear the smog in understanding markets. Earlier, it was all about gut feeling, but now I had tools in my hand to guide me in trading. Further, I tested what I learnt on a very small amount, which helped in ingraining what I was reading.
Results came slowly but surely. My learning phase was in 2013-14. In turned profitable in 2015 and 2016 was my breakout phase.
I understood that there will be phases in trading. Not all trades will be profitable, and that there will be ups and downs just as in life and markets. My confidence started going up with each trade and I started scaling up. By 2017 I had covered my losses and made some money.
By this time, I was focusing only on options and trading in smaller timeframes. I formalized my rules for entry, exits and money management. The money management rules helped me in increasing my trading bets into a winning streak and cutting it down when I was not doing well.
I now use the previous day’s profit as the day’s stop loss. After the first few trades are profitable, I use them as the stop loss for the remaining part of the day. This helps me mentally, as I trade with the belief that I am won’t lose my capital. I reset my risk capital every week. I started with Rs 1 lakh a week, which I increased to Rs 5 lakh a week.
Another thing that helped improve my trading bets is having multiple accounts. I started by trading in one account but realized that it is bad as far as money management is concerned, as I was tempted to average my trades and end up losing a big chunk of my capital. Further, having an account with a different broker helped when some brokers had connectivity issues during the day.
Q: Can you take us through a trading day and how does your strategy work.
A: Let me mention here that I am a scalper – my trades last for between 30 seconds and 10 minutes. Nearly 90 percent of my trades are completed in 2 minutes. I trade on the long side in the Bank Nifty call and put options.
I start the day at around 08:30 by logging into all accounts and opening my charts and the indicators that I use.
I then check where the Dow Futures are presently and not where they closed the previous day. Most traders look at the previous day’s close to take the opening bell trade. I prefer looking at the 24 hours market of Dow Futures.
Just a few weeks back, Dow closed the previous day at a loss of 500 points, SGX Nifty was also trading lower. But by around 9 a.m. Indian time, the Dow futures market had recovered most of the loss. Indian markets opened 20-30 points lower, but moved up over 100 points soon after. I made a good profit that day just by watching the Dow Futures.
When the market opens at 09:15, I wait for the first 15-30 seconds to prepare myself to see where it is heading and whether it is in line with my premise. My opening trade is dependent on the previous day’s and pre-opening data.
I look for hints of the direction that the market is expected to take by observing at the open interest data. Based on my confidence and the clarity of data points, I place my order. If it is high, I take a 500 quantity trade, but if the confidence is low and signals are hazy, I take only a 100 quantity position.
After the opening trade is done, I trade my basic strategy.
There are a few indicators on my chart. On the price chart, I have overlays of PSAR (Parabolic – Stop and Reverse), Supertrend and VWAP (Volume Weighted Average Price). I also add an indicator RSI (Relative Strength and Index). I use RSI for my exits. Since I trade on the three-minute chart, I use an RSI value of over 70 for cutting down my position and if it touches 80 or more, I am out.
On a separate excel sheet, I monitor implied volatility and open interest. I will also be adding Put Call Ratio to this sheet. Presently, I am manually adding the data on the excel sheet, but soon I will be automating them.
To me, the open interest is god. If the open interest of an option is rising with a significant rise in price, then the option is giving a bullish signal; but, if the open interest is rising and prices are coming down, then it is a bearish signal.
The first thing I look at is the build-up in the open interest position and then the chart indicators such as PSAR, Supertrend and VWAP. Only when the price breaks out of all VWAP and Supertrend, PSAR and IVs are supportive of a bullish trade will I go long on the option. I will need a high volume on the breakout bar to support my trade.
When the market gives this opportunity, more often than not volatility shoots up, offering me a good entry and exit. The strikes that I select to trade in are generally slightly in-the-money (ITM) or at-the-money (ATM). When the price breaks out of the VWAP, there is generally a 30-40 point move on the option strikes that I trade in. In futures, it normally corresponds to an 80-100 point move.
Since I trade in large volumes, there is a buying and selling range for my entries and exits. If the data and charts are supportive, I would buy the option in a 20-point range. Say, if it is trading at 200, I will be buying it till 180, with 150 as my hard stop. But if the data or chart changes anytime during my buying period, I would exit my trade. If the price goes higher after my first purchase, I will keep on buying it till 220.
I do downward as well as upward pyramiding of my trade, but only till all the conditions indicate a buy. When the price is coming down after my entry of say one lot at 200, my second buying at 190 will be two lots and 180 will be four lots. Similarly, when it goes higher, I would buy two lots at 210 and four at 220.
When the price moves above my buying price, I will trail my profits. I generally get an exit in a matter of minutes with a 10-20 point profit.
I generally do not chase a trade if it has run too fast because I believe that if you have missed the bus, there is another one coming; no point in repenting and increasing the risk by chasing the trade.
In my opinion, the best time for scalping is between 09:15 to 10.00 a.m. and 1:30 to 3:00 p.m. I, however, keep watching the market like an eagle for an opportunity. If I spot my prey, I will move in and pounce on it.
As a scalper, I aim to maximize my profit in the shortest period. Even on expiry day, I trade the market by being on the buy-side of the options market.
Q: What are your future plans?
A: Since my background has been mainly in the BPO world, my aim for the future is also slightly on those lines. I am planning to set up a trading factory in Bengaluru, where like-minded traders can come and trade. It will be like a Google office with a large screen running and everyone trading around it. Over the years I have known trading to be a very lonely profession. The enthusiasm we saw among the participants in the Investors Carnival in Goa on all the four days can be a year-long event.
Simultaneously, since I also train would-be traders, I am organizing a Trader challenge platform where, every month, one trader with the maximum return will be selected. At the end of 12 months, all the winners will live-trade at one location where other traders can observe them.
Trading is a very lonely profession; I intend to make it fun. Coming from the innovation capital, Bengaluru, I need to do something disruptive.