The current times are not good for our option buying trades.
The losing streak is just not coming to an end. We know that trading could be a roller coaster but the ride can not be fun if it keeps hurtling down all the time.
Going down is not fun. Trading with continuous losses is not fun. Writing about failures every day is not fun.
We need the small and big success for our peace of mind, for sustaining the belief, for continuing in trading.
Today I am sharing two articles I had written about three years ago on Quora. Some of the readers might have read these earlier but the new readers may like it. Those who read it earlier too can go for the ride once again.
Down In The Dumps:
The day was January 30, 2015.
It was an extremely cold day at Chandigarh. There was a big wedding in the family. There was cheerfulness all around. Punjabi weddings spread that feeling through their extravagance, at times going too overboard.
But I was not feeling cheerful.
I was down in the dumps.
I was still without a job having quit my well paying assignment in the middle of November 2014.
My bank account statement was in front of me.
This was the balance amount in my trading account.
I believed I could trade for a living.
It was just a question of utilizing my skills and money would naturally flow in.
I had started cautiously committing only Rs. 200000 to the trading account. With some earlier funds, my trading account had a little over Rs. 225000 at the beginning of New Year 2015.
And now 30 days later, I had blown it.
What would I do with Rs. 88194.40?
January trades had been a madness.
A madness on which I could not or did not exercise any control.
I watched profits slip away into small losses.
I watched small losses becoming bigger losses.
I knew all the theories and practices to stem the rot.
But like a punch drunk boxer deriving some kind of perverse pleasure from the beatings, I found myself helpless to act.
The loss kept on increasing and mercifully the trades closed on the expiry day, January 29, 2015 and with account settled, the amount in the bank statement was the reality.
A Method In Madness:
After a last look at the funds now available, I decided that:
I will trade in February only by buying Options.
Making profits through Option Buying was my key strength. Rather than trusting that, I went by the popular belief that money is easily made through Option Writing. ( Selling)
Nothing is easy about making money.
It is an outcome of a method.
After the madness in January, it was time to find that method.
A method in madness.
The fluctuation in prices, daily movements of the indices and stocks, twenty hour commentary on the markets and events impacting the markets, profits made and the losses incurred, all this is a sea of madness.
To sail out of this you have to work out a method.
I pledged to myself that I will do it.
For the day, let me enjoy the festivities and there would be no trading.
Let the trades commence from Monday, February 02, 2015.
Let this month remain as a reminder of the mistakes and a lesson not to repeat them.
Thus ended the month of January 2015 ( A very bad beginning to the new year).
What happened next? :
This was the balance in the morning of February 27, 2015 after the proceeds of the expiry day transactions ( 26–02–2015) were credited to the account.
The amount may not be great shakes but looks far better than the balance on January 30, 2015.
The money lost in trading came back through trading.
Money recovered was more than what was lost and was earned on a small capital.
Was the method found?
Did the madness return?
Did the method work in subsequent months?
Please keep reading.
Climbing Out Of The Pit — Step By Step:
I was down in dumps at the end of January 2015.
I had dug a pit for myself and now was the time to find a way to climb out.
The pain caused by the loss was hurting and hurting like hell.
It is not only the loss of money which causes the pain. We have a natural tendency to take pride in our accomplishments. We like to be winners. We talk about our profitable trades. There is sense of pride associated with success.
That pride lay shattered.
The bank statement did not do much to bolster the confidence.
It was time for a serious review.
Why did I lose ? :
I was doing something which I had not done earlier.
I was showing patience where I should have shown urgency.
I was trading with poor risk to reward ratios.
Buying Options was my strong point.
Waiting in the right trades was my strength.
I had done everything contrary to what I should have done and the markets had given the verdict.
Changed the Strategy :
One has to fight it out from troubled situations in life. Markets are no different.
I decided to go for buying Options.
Identified some stocks which were not doing well even when the market was going up. Such stocks have a tendency to go down very sharply if any correction happens.
At times I exited with small profits because I was worried due to previous loss.
Fear is an emotion which affects your trades. It needs to be overcome but it is never easy.
In some stocks, i booked part profits and stayed in the trade with another lot.
Sometimes moved to next strike price after exiting profitably from a trade.
In some trades, booked real good profit.
It was a roller coaster.
But it felt good to make money after the chastening experience of the previous month.
Here is how the month panned out:
There was a net profit of Rs. 145681.57 in February 2015 trades.
Let us have a look at Canara Bank trades:
PUT 440 was profitable.
After booking profit in this trade, I moved to PUT 410 and then to PUT 400.
Though the profit potential was reduced by moving to a lower strike, but risk was also reduced.
Similarly in ONGC:
I started with PUT 350 and continued going lower in Strike Price till 320 and all the trades were profitable.
Probably just staying with the PUT 350 would have given equal or better profit.
That is what I try to teach nowadays after having learnt it the hard way myself.
RELCOM was a similar experience. PUT 75 and PUT 70 were both profitable.
It would not be out of place to mention that RELCOM is presently traded at Rs. 31 ( as on 03 January, 2018 ) after almost 3 years.
In the above screenshot NIFTY 8500 PUT was traded.
Current NIFTY is at 10490 ( as I write ).
This shows how much of a wealth destroyer this stock has been.
A Happy Feeling :
It was good to be profitable.
I was able to come out of the hole I had dug for myself.
My faith was restored in my trading methods.
And when the belief is with you, a lot can be achieved.
Next month was far better than February 2015.
The profit in March 2015 was Rs. 270000.
I had come a long way from the deep pits at the end of January 2015.
Why this story today ? :
We need such stories for sustaining our beliefs.
We need the beliefs for being successful.
I mentioned the roller coaster at the beginning of this post. These three months were like that. I came back successfully.
Without the ups and downs , roller coaster would be like a small train. No thrills in the toy train travel.
On this blog too, we have seen continued failures turning into success after some time. What happened in the past will happen in future too if we keep trading with the same method and conviction.
Thanks for reading.
Enjoy the Sunday.