September 21, 2002
|
|
||
|
|
|
|
|
|
||
|
Home >
Money > Special September 21, 2002 |
Feedback
|
|
|
A day trader's diaryDay Trader I discovered god sitting in front of the trading screen. As the red and green indicators kept blinking and the losses kept mounting, I suddenly found myself uttering those unfamiliar words, 'Oh, my God'. It was my first session as a day trader. As my losses climbed, I found myself calling on the Almighty to staunch them. I've been an atheist all my life but suddenly I began to understand why businessmen are so pious. Let's go back to the beginning. I became a day trader only after researching the market for months. There are great arguments in favour of being a day trader. On an average, the price difference of Infosys between its day high and low is Rs 146. Similarly, the difference between the high and the low for Satyam is Rs 11 and for Telco it is Rs 4. Now imagine that you've bought 100 Infosys shares at the day low. In a perfect world you would sell at the day high and make Rs 14,600. Even if you halve that it is a worthwhile game. You would still be raking in about Rs 7,300. Consider the arithmetic of the game: in a month there are 20 trading days, so you multiply Rs 7,300 by 20 and that gives you a monthly income of Rs 140,000. Do you still need a job? Wait; don't run to the market before reading the story. What turned me into a day trader? A few weeks earlier a friend had given me a small amount of money to invest in the derivatives market. As luck would have it, the market plunged that week. We finally recovered most of the money but the experience taught me the limitations of the derivatives market. Trading in futures needs high margins. Moreover, trades are settled every day and if there are losses the investor must deposit the amount immediately. Since we were making a small investment, we couldn't afford both margin and loss. So I decided to do day trading in the future segment. You don't have to deposit the huge margin if you square up your position every day. I ventured into this new career armed with the theoretical knowledge I had picked up from my B-school and hundreds of books on the market. On the first day, I didn't trade at all. I sat behind the operator at my broker's office and tried to understand the system. I tried to acquaint myself with the colour-coded screen. Every now and then I interrupted proceedings and asked the most basic questions. All around the veterans stared every time I asked a question. Day trading doesn't end when the markets close. As soon as I got home I was back in front of the screen. I did a rigorous technical analysis on around 12 actively traded stock-futures and selected the one with the highest possibility of moving in my favour. The next day I was late getting to my broker. The price of my target share had already moved upwards. Without stopping for a moment's thought I placed my order. Immediately, I was overwhelmed by a mixture of fear and greed that I had never experienced in my life. As soon as you place an order you book a loss on account of brokerage. You have to pay brokerage twice - first, when you take your position and second, when you square off your position. Alas! A correction took place almost at once. Very soon the slot on the computer screen, where the price of my stock was displayed, started blinking - red. That was the moment I discovered god. I murmured a prayer and promised that if He brought the price back to what I had bought the share at, I would pull out. Perhaps my prayers had an effect. The share turned around and began to climb. But greed overpowered fear and I forgot to pull out. No, I didn't make any money. The stock turned about again and this time I lost my nerve and pulled out. I felt like a huge weight had been lifted from my head even though I had lost the brokerage money. Next day too, I reached my broker late. And I learnt a few lessons. I lost my brokerage once again - even though I had made all the right projections after rigorous technical analysis. Back home, I noted down a few rules: (1) reach the market at least 15 minutes before it opens, (2) don't get alarmed if a stock falls soon after you've bought. But put a bottom limit beyond which you pull out, (3) don't chase the stock once you exit from it, (4) decide - conservatively - how much you want to make daily and don't be greedy, (5) stick to your target and exit immediately once you reach the target. After that I started making a small but respectable amount of money continuously out of a small investment. Then I came to the sixth and the most important rule - don't be greedy. I became overconfident about my analysis and I traded contracts worth more than Rs 12 lakh (Rs 1.2 million) in the hope of earning around a lakh a day. Usually, I only trade contracts worth Rs 4 lakh (Rs 400,000). And my investment was only a few thousands. The stock price crossed my stop loss and I lost more than Rs 25,000 in 15 minutes, leaving less than Rs 10,000 in my account. The day after noting down the sixth rule I went to the temple with my family. But there have been times when I haven't controlled my greed and each time it has been a costly lapse. The other rules that I formulated during the course of time were: (7) trade only on the few stocks that you are confident about, even if the projected profit is less than in other riskier cases, (8) never trade on a stock that you haven't researched. Also if a share goes above or below what you've decided that it is worth, offload it. Do I earn at the rate that I mentioned at the beginning? No way, because it is extremely difficult to project the day's high and day's low accurately. Of course, a technical analysis can help to a great extent. Nobody should become a day trader unless he or she has a sound knowledge about market and technical analysis. Moreover, a serious day trader should use online analysis tools offered by companies like Reuters, though it is a bit costly. And, don't forget to offer a prayer or two.
ALSO READ:
|
ADVERTISEMENT |
||||||||||||
