The trading world has more than its share of rags to riches stories which is why, perhaps, more people are attracted to it. What is not visible behind these stories is the effort and sacrifice needed to come out as a winner.
Behind every successful trader, is a story of not only efforts and sacrifices, but also that of his entire family.
Sovit Manjani is one such trader who is standing tall because his family stood by him. Sovit’s father suffered bankruptcy in his business which left a permanent scar on the family who had to move in search of better opportunities. Yet, when Sovit decided to quit his accountancy job, with barely enough savings to survive for a year, his family stood by him.
He did not turn into an instant success, but struggled to make it. He learnt to programme without having any prior knowledge of it and then applied it to become successful.
In an interview with Moneycontrol, Manjani talks of his struggles, strategy and the four pillars of his success.
Q: Can you walk us through your journey to the market?
A: If I say that I was an average student, it would be an exaggeration. I managed to complete my graduation in commerce. While in college in 1995, I was introduced to the markets.
I had taken a job with an investor group/broker called Suburban Investors Club that used to collect odd-lot shares at a discount from shareholders. Then, after collecting enough to make it a market lot, they would sell it for a profit.
With a salary of Rs 1,200, I had some money to dabble in the markets. One trade that has stuck with me was in HDFC Bank which I bought after the stock was listed. The IPO was at Rs 40, but the stock moved up for a few days and slipped to Rs 25 where I got in. In 2-3 months time, the stock had shot up to Rs 50, giving me a false sense of pride.
However, my first stint in the markets was short lived. After my graduation, I got a job in Dubai as an Accounts Manager. I worked there for five years but had to come back as my father suffered from a paralytic stroke. After coming back, I continued working as an accounts manager at a firm in Mumbai.
In 2007, nearly a decade after I left the market, I decided to start investing. The markets were euphoric and valuations were high. Being an accounts manager, I knew how to read balance sheets but every company I looked at was too expensive. Finally, I fell for what the market was offering -- tips. I picked up stocks which were in favour and held on to them.
By 2008, I had lost 70 percent of my investments. Thankfully, I was not leveraged. For this, I would thank my mother. We had a good business in Kanpur but after my father's brain tumour was detected, we lost everything very fast and had to sell all our assets. We had decided to move to greener pastures. Even though I was only 10-years-old then, those days have impacted me. Since then, my mother has hammered in the idea that I should not borrow.
Even after 2008, I kept on buying and selling stocks and managed to recover 60-70 percent of my losses. However, by then, I had realised that there has to be a method in picking up and selling stocks. I had read that there are two main ways of making money in the markets -- fundamental and technical. Being an accountant, I know that what we see in the numbers declared by the companies are not the true numbers.
I decided to try the technical way. I attended a two-day course on Technical Analysis at the Bombay Stock Exchange (BSE) and was impressed by what I heard. I decided to dig deep and luckily, the BSE building also housed the Association of Technical Market Analysts (ATMA) office where I learnt about Chartered Market Technician (CMT).
CMT is a very intense course. But, I managed to clear it in the first attempt while keeping a full-time accountant’s job.
While I was doing the course, I started trading in futures and options. I did well in the initial trades but then lost most of the money. However, I noticed that whenever I used to trade in cash, I was doing much better. I realised that having an open position in the futures market and attending a full-time job is not doing justice to both.
Q: What are the steps you took towards becoming a consistent trader?
A: By 2015, I decided to quit my job and give myself a chance. My family, naturally was not completely in agreement initially, but decided to put their faith in me. I had waited to collect my gratuity (which is given after five years of service) and had money in my provident fund account to take care of my household requirement for over a year.
Till then, what I had learnt was that having knowledge about the market and technical analysis alone was not enough. A good trader is one who has a strong mental balance. Since I was, in any case quitting, I decided to take a 10-day Vipassana course. This experience changed many things in my life.
After I quit my job, I started trading from a friend Vivek Gadodia’s office. I did not make money for the first 6-7 months. However, I did not lose any either. I used technical analysis to trade but there was no strategy per se.
Not happy with the progress, I had a discussion with Vivek on where I was going wrong. Since Gadodia was into algo trading, he asked me to learn how to design a system for trading. With time and money running out, I worked hard and learnt how to programme even though I had absolutely no background in the subject, by taking a course and reading from wherever I could. By the end of six months, I was ready with my first system.
It was a ‘long only’ (taking only buy trades) trading system which on back-testing was giving a 30 percent compounded returns with a 20 percent drawdown. But as luck would have it, by the time the system was ready the market had already moved up between 2015 and the first quarter of 2016. As my system was long only, I was worried that I might have missed the rally. So I took another month and redesigned my system to add short trades.
By now, it was 1 year and 3 months since I had quit my job and I was getting desperate. I did not want to take up a position in accounts so I tried for jobs for a technical analyst. But there were only a few openings for a 38-year-old CMT with no experience.
While still looking for a job, I deployed my systems trading with my money and that of a few friends. Returns were trickling in but it was not enough. Somehow I managed to get a job as a technical analyst in a Family Office.
As 2017 was a good year, my system gave a 100 percent return in the first year. The good part was that even though it was a bullish year and I took both sides of the trade and ended up profitable on both legs. However, 2018 was not a good year and returns fell to 5-8 percent. The current year is much better with decent double digit returns.
Q: How do you trade?
A: When looking for a trade, we start by looking at the long term trend for the direction and then move into the shorter time frame for picking up the entry and exit points.
The way we look at long term trend is that we move to the monthly charts and plot an RSI (relative strength index) on the chart. A value of RSI above 60 means the stock is in an uptrend, any value below 45 means we can take a short trade and any value between 45 and 60 would mean that we avoid the chart.
After deciding on the long term trend, we then look at the hourly chart for our entries. On the hourly chart, we plot the ADX (Average Directional Index). A value of ADX above 25 suggests a strong trend. We would like to enter in stocks where the trend is strong and more importantly it is in line with the monthly trend. Next, we look for volume and activity in the stock. Volume has to be above the average volume.
Having set these filters, we then look to enter the stock which is not too far away from the mean. Here we use a 20-day moving average and then plot a percentage band or envelopes around the moving average. We would like to take trades only within this envelope.
Finally, we look at the Heiken Ashi candles to enter the trade. On the short side, we would like to enter only on candles where the high and open are the same and in long trades we seek candles where the open and low are the same.
After we are in the trade, we look to keep our stop loss and exit points. Our criteria for exit is that it should take us out fast if the trade is going against us but at the same time it should not be too close.
We keep our exit levels based on volatility. We follow what is called the Chandelier Exit. Out exits here are based on ATR (average true range). For a short trade, we take a 2 ATR on an hourly chart from the low point of the chart. In case of a long trade, we keep our stop loss at a 3 ATR level from the high point. The average holding period for my long trade is 7 days and for the short trade is 3 days.
We also follow a money management rule in our trading system. We only take 8 trades at any point in time. And out of these 8 trades, only 6 can be in the same direction, two trades have to be in the opposite direction. If there are no trades in the opposite direction we will not take the seventh trade.
Over the past nine years, since I have tested the system, it has given 784 trading opportunities with 51 percent trades in the long direction and 49 percent in the short side. The win rate of the system is 49 percent and loss is 51 percent. Profit per trade stands at 6.3 percent and loss is at 2.75 percent. The system has given a 65 percent annualised return.
Q: Looking back, what are the factors that have resulted in your success?
A: I would give credit to four factors: First is knowledge. I became a better trader only after I became a CMT. Without a CMT I would have been lost.
Second is the strong mental makeup which in my case was possible on account of taking the Vipassana course. In my long only system, which I still run, I faced 30 consecutive losses last year. I have seen many good traders and good system makers shift from their trading system or tweak it after a series of losses. They are still struggling to become consistent traders. The only way I could come out of it was because of what I learnt from Vipassana on controlling your mind.
The third factor is having a strong system and methodology that you can trust. My turnaround happened when I moved from conventional trading to systems trading.
And the fourth one, which not many people talk about, is having a trading buddy. A good trading buddy can not only act as a good sounding board but would also stop you from doing the wrong things. For me, Vivek has been a strong support factor.
Q: What are your plans going forward?
A: I am already into training and looking after the training segment in Dravyaniti. I train to programme in Amibroker and I also train students for all three levels of CMT. I would like to continue with that.
In terms of my trading, I would like to focus more on position sizing. I think that is an area where I need to work on. I will also be working on making more trading systems. Currently, I have made four systems but I would like to add more especially a high beta trading system, or one where I can catch a bigger trend.I would like to make a trading system for commodities, currencies and other markets. But above all what I really want to do is become a Vipassana teacher. I have completed three courses and will be soon attending the fourth. This is one path I would like to see myself take.