At a time when most people are going through a mid-life crisis, Baroda based Uday Dave decided to quit his 17-year-old medical transcription job at the age of 44 and try his hand at trading.
With nearly 14 years of presence in the market at the time of deciding to go full-time, Uday Dave had only spent 3 years trading with a strategy. Most of these trades during this period were paper trades. With age not on his side, he took a leap of faith to trade the markets based on price actions.
Very few traders are comfortable with this form of discretionary trading, but Uday had back-tested 8 years of price data on a one-minute time frame, manually. It was the now-or-never decision, (which he doesn't regret) that makes Uday Dave (@charttechnical) a successful trader.
When he is not trading, Uday likes to spend time with his family. Every three to six months, he takes the family out on a small vacation, trying to make up for the time he could not give them when he had buried his head trying to unravel the mysteries of the market.
In an interview with Moneycontrol, Uday Dave talks about his journey and the simple looking price action trading strategy.
Edited excerpts
Q: How did you get involved with the markets?
A: I come from a middle-class family in Baroda that had nothing to do with markets. Though my father was a bank manager he never invested his money in equity markets.
As for my education, I am a physics graduate and have worked in a medical transcription BPO all my life. After 17 years of working with the company, I decided to quit and devote my time to trading. But it took me more than a decade to find my footing in the market.
My entry into the markets was because of a sub-broker who had his shop in my neighbourhood. I used to see 4-5 people sitting behind him, all staring at the computer screen. One fine day I decided to meet him and see what’s going on. He then gave me a virtual tour of the market and explained its working.
This was in 2003-04 and I got interested in what he was saying. I opened an account and started my investments in IPO’s based on his advice. Those were the day’s when IBP and ONGC came out with their follow-on offers. After the few initial successes, he started advising me on secondary market stocks.
This was the start of the big bull-run which lasted till January 2008. However, I did not capture the entire bull-run since I wanted to purchase a house resulting in me selling all my investments in 2006. Thankfully, this decision prevented me from the 2008 crash.
Q: How did you get back in the market?
A: Post-2008, the market was not right for investments, that is when I thought of trying my hand at trading. I started my trading in the futures market but lost money doing it. I knew there was a way to exploit the madness in the market and was looking for ways to do it.
In those days there were some technical analysts who used to give their opinion on CNBC. I immediately got attracted to charts and wanted to explore it further. I started reading up on it with whatever books and blogs I could get my hand on.
I was searching for a formal trainer who could guide me through the process of trading. Unfortunately, there were none in those days. But there were some very good traders on Moneycontrol’s message board.
One of them used to post under the name Kadiyali. He used to post his analysis of the market every hour. I started interacting with him and learnt a lot from him. There were other traders in the message board who also helped me with my trading. I used to try different strategies in those days like swing trading and even the simple moving average crossovers.
However, I was never comfortable with this form of trading. If I had a position in the market I used to stay awake late in the night watching the US markets. I was clearly not comfortable in taking an overnight risk.
In the first 10 years of my trading, I never took trading or investing as gambling. I understood the risk involved in the game and always worked with a stop loss. I traded small, never borrowed and never blew up my account.
If I incurred a series of losses I used to take time-outs. I stood away from the markets for a couple of months, gathered myself and then come back again. Even after I went full-time, there were occasions when I ended up overtrading.
These were on account of revenge trading, to make up for the losses or missed opportunities in the earlier trades. These used to happen after every 3-4 months of trading. I reassessed my trading and spotted my weak point.
Nowadays, I restrict my number of trades to 2-3 trades a day and take only those setups where I am most comfortable. I have a strict stop loss rule for the trade as well as for the day. If I am stopped out a certain number of times I do not trade anymore for the day.
During my period of uncertainty where I was trying to find my mojo, what I noticed was that my intra-day trades, though few, were more comforting. That is when I decided to try intra-day trading.
Again the search for a guru started. I needed to learn the skills needed to be an intra-day trader. I knew early on that intra-day trading is probably the most difficult form of trading, but I felt that I was wired to be an intra-day trader, mainly on account of the lower risk potential.
I searched the internet for a trader who mainly trades intraday and was sharing his knowledge. In 2013 I stumbled upon such a trader who maintained a blog called Niftynirvana. I read a few of his post and knew immediately that I have found what I was looking for.
The blog was maintained by a trader called Rajesh whose social media presence was under the name Smart Trader and who pioneered Decision Point Trading in India.
This is a simple looking trading strategy where you identify points on the chart where you will have to make a decision. These are generally points of lowest risk and high returns – like supports and resistances. But these supports and resistances are pre-defined, like previous day’s high, low and close or the same day’s open and round numbers where the market generally pauses. Our job as a trader is to allow price to show its hand at these decision points and then follow the price.
It took me a while to understand and trade on this concept.
After reading the book on Decision Point Trading which is freely available of Niftyniravana’s blog, I read his blogs. Rajesh was posting his trades every day, clearly marking his entry points and the reasons behind his trade. I read and re-read his blogs to understand his thinking behind the trades he took.
The best part was that Rajesh was easily accessible. He would reply to every mail and comment on his blog. I have benefitted the most from these interactions. Unfortunately, he has been on a sabbatical since 2015, but the ebook that he has authored is still available on his site and so are his trade blogs.
During my interaction with him, Rajesh asked me to simulate a live market environment by using the re-play function in most of the trading software. This way we can look and practice on historical data by looking at the market on a bar-by-bar basis and mark decision points and see how the market reacts at these decision points.
For the next three years, I utilised almost every weekend to do the simulation, since my hectic job did not give me time to analyse it daily. I might have tested around 8 years of data on a one-minute price chart during this period. It was back-breaking work but this simulation gave me a lot of screen time and helped me in becoming a better trader, but has extracted a cost. I missed out on family time especially when my children were growing up.
The simulation gave me a feel of the market and showed me how price behaves around decision points, how it reacts around news breaks. I paper traded a lot during these three years and took the occasional trade.
During this time I was also allowed to work from home which gave me an opportunity to get a better feel of the market and trade more frequently. In 2017, at the age of 44, I decided to quit my job and give myself a chance. I was at a ‘now or never’ age, any delay would make it difficult to quit as the family expenses would increase with children getting into higher classes.
Since I was working with the same company for the last 17 years I had a good rapport with the owners, who allowed me to work for a few hours for the first two months. I convinced my wife saying that in a worst-case scenario I can re-join the company, though at a lower salary.
I was confident of my trading ability to make 75-100 points in a month trading Nifty futures. I utilised part of my savings and used it for margins to get better exposure.
Q: How and what did you trade?
A: I trade mainly Nifty futures and options by looking at the 3-minute Nifty Futures chart. Depending on my market expectation I trade either the futures or the options. If my expectation is that Nifty will be trading in a narrow range I will be trading the futures and if it is likely to be a trending day then I would prefer buying at-the-money (ATM) options. I am mostly a buyer of options.
My day starts 15-30 minutes before the market opens. I analyse the chart on various timeframes to get an idea of the overall trend and to get a clearer picture of the market. I then mark the levels based on previous day’s high, low and close. I also mark the round figure where the market generally stalls to decide which side to move.
After the market opens I mark the day’s open level and wait for the market to come to one of my levels to act based on what the chart is saying. I look out for the speed of the price on arrival to the level, the behaviour at these decision points and break above or below it which allows me to make my decision on which side I should be trading.
The reason these levels work is that a lot of traders are looking at these points and are waiting to make decisions here. It’s their order flow is what causes a tradable move.
Around the decision points, there are various setups that I will lookout to trade like a breakout, or a breakout failure, a breakout pullback among others.
The chart below shows how I mark the levels and trade around them.
I take not more than 2-3 trades in a day, only the ones which offer me the best setup.
Aftermarket I analyse my trade and post it on my blog www.charttechnicals.blogspot.com.
My systems are more or less the same as those mentioned in Niftyniravana blog, but I have made certain tweaks to adjust to my style of trading.
Though the system looks simple it is not because it is discretionary in nature and requires decision making by looking at the price and not taking the help of an indicator. The strategy requires concentration, discipline, the skill of taking a fast decision. Since I trade on a 3-minute time-frame I do not have much time to take the decision. The ability to change your view and trade on both sides of the market is what many traders find difficult in this form of trading.
The tweaks that I have done is made slight changes in the discretionary system and converted it to rule-based. After introducing the rules my trading has improved a lot.
Q: How is your performance?
A: If you take a group of 10 trades then I would be scratching out in around 3-4 trades, around 3 trades will hit the stop loss levels while the remaining trade will end up giving good profits.
When I started on a full-time basis I was right on 50 percent of the trades but that has improved now and the above-mentioned numbers are how I currently perform.
I normally trade with a stop loss of 20-25 points in Nifty futures and book half my profits around the same level, the remaining I trail. In options, I generally keep a stop loss of 10 points. Out of every 10 trades, I take 7-8 trades in options – buying options only.
If the stop loss is wider I might take a smaller quantity trade to keep the net loss per trade constant. At no point in time will I take a loss of more than 2 percent of my capital.
These days Nifty gives moves of 40-50 points two or three times in a day, even if I catch one of these moves it is good enough.
On the run-up to the expiry day, I generally trade Bank Nifty. On the day before the expiry, I sell options where my strategy says the level will not be breached. If on Wednesday evening the market is trading above the high of Tuesday, I will sell a put option of a strike price below the low of Tuesday. More often than not, I have found this level is not breached. I will wait and let this option lose value and expire.
My expiry day trading in Nifty is the same as any other day. If the expiry is on a month-end, the movement is more erratic but on other expiries, I do not feel to make any changes to the way I trade. I trade the expiry day by buying options.
Q: Any words for fresh traders?
A: There is a misconception that intraday trading is easy. A lot of traders lose their shirts trading intraday. It is one of the most difficult forms of trading. Unless you are disciplined, swift-footed and a quick decision marker, intraday trading should be avoided.
One should start by trading on higher timeframes get the concepts clear before jumping into smaller timeframes.
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