TULSIANOMICS - THE ART OF MAKING MONEY IN THE MARKET
By SP Tulsian
(Article reloaded from Dec 2012 so may have references/examples that are no longer valid)
One simple question – why do we all play in the market? Surely, not for entertainment. It is purely to earn more money. So making money should bring happiness, right? On the contrary, it is often see that traders are the ones with more ailments than money – hyper tension, diabetes, anxiety, sleepless nights, blood pressure…. the list is endless. As the market swings, so does the health of the trader.
And this article is for such anxious and hyperventilating traders. In fact, it is a MUST READ for all members of the PREMIUM family. If the pursuit of money is bringing in anxiety, obviously, something, somewhere is not right. And like most miseries in life, this too stems from ignorance or half-baked knowledge. Trading is fun and even lucrative as long as we understand not just the basics but so many other tenets and principles in this market; and that understanding will enable us to make tension free money.
Some insights are given hereunder, for kind attention of all our members.
Portal – Full of money making info
It has been observed that majority of the members just read the tip columns like- FC, OC, MW and do not bother to read other sections of the portal, like Cover Feature, where we carry an analysis on the latest event, IPO Analysis, Buzzing Stocks, Result Analysis and tonnes of information in databank section viz. F&O open interest, F&O lot size, board meeting, book closure dates with ex-dates (which is not available elsewhere),IPO statistics of last 5 years, Gainers & Losers(group wise & price wise) etc. Hence, request all the members to visit all sections of the Portal, for their own benefits.
Stock query section – On an average, over 500 queries are answered by me daily. Despite this, many members do not bother to read them and post similar queries. Obviously those queries will not get answered, but they keep sending reminders for unanswered queries, which is an irritant and waste of time, at both the ends. These queries are answered from 6.30 am to 10 pm, which no expert or analyst will do.
Options – F&O Options(Call & Put) are very expensive tool. It is seen that members have high fancy for buying Put or Call, which we generally discourage, as they are very expensive.
Example- United Spirits is ruling at Rs.1,930 in cash, while its 1,950 CE is ruling at a premium ofRs.88. This effectively amounts to paying 5% premium, for 20 days as Dec. F&O is expiring on 27th Dec. Similarly, 1,900 PE is ruling at Rs.74, which also amounts to 6% cost for 20 days.
Dish TV is ruling below 82 in cash, while its 85 CE is ruling at 2.30 and 80 PE at 2.00. This effectively results in a premium of over 5% for 20 days.
Options(Call or Put) should be bought with a view of over one week and one should take this, as buying insurance, where you could also lose the entire premium which has been paid. But it is seen that members get impulsive on daily/hourly basis, in case of fall in premium, on these Options.
Instead, if you are bullish on a stock, look to sell Put and keep full amount of total quantity sold, to take delivery, in case of fall in share price. Conversely, in case of stocks held, one can sell Call and keep pocketing premium earned. If cash/spot rate of a share, exceeds the strike price, release delivery.
This strategy can be safely followed in the stocks like Dish TV, Zee Entertainment, Tata Global, HDIL, R Capital, R Infra, TCS, Bajaj Auto, Hero Moto etc. These are but just a few examples as list could be exhaustive.
Forward Outlook – Many members are asking levels of buying and selling of a stock in a single query, which is absurd. Have some confidence and conviction in buying a stock, coupled with some time horizon. Agreed, we will in a fast world, but so fast? Also, in some cases, if targets are not achieved, they start criticizing. One must remember that no one can predict this market. Though I refrain from giving my outlook on indices (like Nifty, Bank Nifty etc.) as it is meaningless in this dynamic situation, still, when it is given and does not work, members lose money. Case in point is my negative outlook on Bank Nifty, which has not worked. In such a situation, I will advise and request the members to refrain playing on these calls in Options, as value erodes with passage of time as well. Instead play in Futures and take suitable view for next 2-3 days only. Also, members have seen a typical behavior, where they do not want to hold a share giving a small loss (inspite of high conviction) and do not want to sell, which is giving them good profits, despite being advised to do so.
Stop Loss – It is seen that members have very high fancy for Stop Loss (SL). Though it is a tool to protect from losses, but putting it on real time (immediately with execution of original trade) basis, will see it getting triggered, 8 out of 10 times. So, if you are buying or selling a stock say at 11 am, Put SL after 2.30 PM.
If we are so afraid of losses, why do we trade? Also, extreme volatility in a stock happens maybe in one out of 100 times, while SL gets triggered in 80% cases, if put on real time. It is also better to trade less with lower quantity, as trading is a loss making game, which just gives us little kick but big losses. It is like wine for a boozard – happy now but big hangover later! Not worth it.
Event based stocks – Money in this market can be made only on future expected events. We gave a stake sale call in United Spirits at 500 and now share has moved to 1,900. We gave a stake sale call in West Coast at Rs.80. SKS Micro turn around was spotted by us at 70. Wockhardt turn around call was given at Rs.300.
But it is strange to see that members expect us to give timeline and amount at which deals are likely to be struck. It is very difficult for anybody, even for the promoters, who are involved in this transaction. Thus one need’s to take a little risk, coupled with time horizon of 1-3 months, as such deals cannot get consummated in a week or so.
Also, remain prepared to lose money in some cases, if deal does not go through, as had happened in U Flex, where stake sale call was given by us, about 6 months ago.
Trading V/S. Investing – We have divided query in two sections – Fundamental (for investor) and Technical (for traders). However, it is seen that members don’t adhere to this segregation, resulting in confusion on receiving the reply.
Also, traders are broadly classified as Swing Trader, Intra Day Trader, Positional Trader. In such a case, target and advice will also differ for each class of trader, on the same stock, at the same time.
In case of investor (ST or LT) general advice is to book gain of 5% for ST and 10% for LT investor. If stock turns bullish after booking profits, no need to regret, as some profit has already been pocketed. A bird in hand is better than two in bush. Look for other ideas now.
Focus on Few Stocks – It is a myth that by investing or trading in larger number of stocks, one can make higher money. Instead, focus on few stocks both in trading and investing, but with conviction and patience. Remember, patience always pays.
Our trading calls – We give trading/investing ideas in following sections
Stock Recommendation – One stock given every Friday at 9 am for investment.
Future Calls – 4 stocks for trading, given every morning of trading day, at 8.30 am. It is not necessary to trade in all, but one must pick and choose 1 or 2 stocks.
Options Calls – 3 stocks and 2 indices calls are given every trading day at 8.30 am. I advise members to play in 1 or 2, with view of 2-15 days. Lean less on indices calls.
Trading Stocks – Trading call on buy and sell side are given on 8 stocks and 2 indices at 8.30 am, on all trading days. This carries same 8 stocks with a view to cater to positional traders.
Market Whispers – Trading/investment calls are given on 10 stocks daily, on all trading days, at 8.30 am. I request members to pick 2-5 stocks from this section and trade with a horizon of 2-15 days.
Examples –
Dish TV – We have been giving bullish call on Dish TV. So one can sell Dec series 80 put at 2. If you sell one lot of 4,000 shares, you pay margin of 50,000 and pocket premium of 8,000. If share closes above 80, you pocket entire premium of Rs.8,000. If stock closes below 78, you take delivery on expiry day, of 4,000 shares by paying about 3.20 lakhs. Look to sell 85 CE for Jan series.
Similar calls can be taken on stocks mentioned in head 3, hereinabove.
By trading more, we are earning losses for ourselves and more brokerage for our broker. Why do this? Stick to these basics and see a change in your financials.
Time is your best friend while impulses, your biggest enemy, remember this mantra always while trading!
Happy investing and not trading!