Top traders on what not to do and where to look for profitable trades

Moneycontrol spoke to several successful traders. They mainly stressed on risk management, using proper support and resistance, analysing macro factors and using this as a buying opportunity for long-term investor

Indian markets witnessed a huge crash on October 26 with benchmark index Nifty trading down by 1.39 percent and the market closing lower for the sixth straight session. In this turbulent market, what should traders be watchful of? Moneycontrol spoke to several successful traders. They mainly stressed risk management, using proper support and resistance, analysing macro factors and using this as a buying opportunity for long-term investors.

1) Stop-loss, steer clear of revenge trade

The most important thing to be a successful trader is risk management. Kapilan Thirumavalavan of Kave Capital said that in the uncertain market, it is doubly important for traders to manage their risk properly.

“In derivatives, I would say not to put all the money into one trade. If you have Rs 10 lakh, trade with Rs 2 lakh, see the risk-reward and see how it goes. Today, I didn’t trade much because I was scared. It was a gap-down opening today, it could have recovered, or it could have gone worse. I didn’t know and I didn’t want to touch today. I was ok with it. It is one day. There is no profit, there is no loss also,” Kapilan said.

Kapilan said traders need to stick with their stop losses as they could get carried away with revenge trade and that would increase their losses.

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2) When the short term is uncertain, think long-term

A good trade is about recognising where there is a good opportunity. Even though most traders are uncertain about the short term, they said the current crash could be used as an opportunity to add long-term positions. Another options trader Santosh Pasi said that the current market conditions are apt for adding holding for the long term which could be ETF or mutual funds.

Kapilan also said that this is the time for long-term players to get into the market. He reasoned that market has not gone anywhere in the last two years and India’s growing economy and strong businesses, so it is good for long term. “Usually we see a rally before Diwali. This time, the opposite is happening. So this is like a sale! People should use this opportunity to invest,” Kapilan added.

3) Keep eyes and ears open to news, macros

As a trader, you can’t take your eye off the news that is triggering volatility. Shijumon Antony, another trader, said he would be monitoring the developments of the War in Middle East, price of gold, US bond yields closely. “Gold shot up before the market crash. It was a signal that markets were sensing something”, Antony added.

Rahul Kumar Ghose said the crude oil prices and high interest rates are the risks that the market currently faces. “Some of the risks in the market currently are the possibility of oil prices touching the $100 mark and the tightening of US bond yields. Bond yields are a real cause for concern as it means companies will have to pay higher debt costs and remember they have an inverse correlation with equity markets. The weakening rupee is something one needs to worry about” Ghose said.

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4) Where to look for opportunities

Antony said he is looking at banking as the PE ratio of Nifty Bank is below 15. “The cheaper valuation is only in banks right now, especially PSU banks. For going long, at any hint of reversal, I’ll be keen to go long on Bank Nifty than any other sector.” Antony said. Santosh Pasi said he is looking to invest in the IT sector. “There is a good correction in CNXIT, and it is near support level 29,650-29,950. So it will be a good time to enter into it.” Pasi added.

Disclaimer: The views and investment tips expressed by investment 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.