9/11/2020 GuruSpeak | “My mantra is cutting loss early and riding profit as long as possible” :: Reader View

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GuruSpeak | “My mantra is cutting loss

early and riding profit as long as
possible”
10-13 minutes

One never knows what fate has in store for us. What looks like a
hopeless scenario may be the biggest blessing in disguise. The key is
not to lose faith and keep going.

No one perhaps knows it better than Gaurav Vashisth (@BankniftyA),

a computer engineer, who never worked as an IT professional but
preferred to work in real estate and focused on government contracts.
Vashisth had everything going for him till he was told at the age of 25
that he had a rare disease, which infected his spine, preventing blood
flow to the lower part of his body.

Being bed-ridden for a year and nothing else to do, he took to stock
trading. After losing money listening to experts, he educated himself
on technical analysis and trading psychology to rebuild his portfolio.
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Back on his feet, literally and figuratively, Vashisth is now an

aggressive trader, who likes to spend his free time watching charts
and back-testing new strategies. For relaxation, he plays cricket and
badminton but likes to reward himself after every successful month in
trading by going on a small vacation with family and friends. This in his
case is almost every month.

In an interview to Moneycontrol, Gaurav Vashisth talks about his

struggles and his slow climb to financial independence

Q: How did you get into the markets and what’s your
background?

A: I am a computer engineer from Jaipur, the fourth one in the family.

My three elder sisters are all computer engineers. My father has
retired from service while my mother is a housewife.

While growing up, I have seen my sisters slog at work without holidays
as IT professionals. This was why even after getting a placement on
campus I did not take up an IT job in spite of my family’s wish. Instead,
I heard my calling from the real estate sector and learnt my skills
under a builder.

I did well in the first year, but the sector was hit by a slowdown, forcing
me to look for other avenues. I then started filling government tenders
for outsourcing work and did well for the next two years. However,
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9/11/2020 GuruSpeak | “My mantra is cutting loss early and riding profit as long as possible” :: Reader View

government policies changed and I couldn’t meet the requirement,

ending this income source.

As luck would have it, during this time my spine was infected with a
rare disease which narrowed the veins and prevented blood circulation
to the lower body, making my legs numb. I was advised to complete
bed rest under strict medical supervision and heavy medication for at
least a year.

I was 25 when I was first told about this rare disease and all my
dreams crashed. The very fact that I would be in bed for at least 365
days and the uncertain future I faced broke me. I was a mess and took
a while to accept reality.

Being bed-ridden and nothing much to do, I watched TV the entire

day. While surfing TV channels one day, I chanced upon a business
channel and liked what I saw. This was the first time I heard about
stock markets.

I started watching stock market news regularly and even opened my

broking account during this period, much to the dislike of my parents.

No one in our family had anything to do with stock markets. Moreover,

there is a negative perception about markets among most working-
class families. However, being bed-ridden, the sympathy factor
prevailed andhelped my entry into stock markets.
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Q: Can you describe your struggles during the initial phase?

A: Like most traders, the initial period was tough. My trading was
based on calls by so-called-experts on media channels. This strategy
soon left a gaping hole in my pocket. Thankfully, the impression that
these experts know everything under the sun was shattered.

But then I found the next set of experts — the callers from Indore who
claimed that they will help me make Rs 10,000 every day. Instead, I
lost thousands, leaving me with very little capital to trade. As I was
bedridden I did not have opportunities to add to my capital.

During this time, I joined some forums on the internet and was
introduced to technical analysis. I started by reading everything I could
lay my hands on and watched videos endlessly to gain insights on the
subject.

By the end of the first year, I was down by Rs 1.50 lakh, which for me
was a big amount back then. I had no idea how, if ever, I could recover
this money. I decided to take a break from trading for a year and dig
deep into gathering knowledge on trading.

Since I was good in every field I ventured into since my childhood, I

had the confidence that I could crack the trading puzzle. I took it as a
challenge to work hard and find a way out.

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9/11/2020 GuruSpeak | “My mantra is cutting loss early and riding profit as long as possible” :: Reader View

Q: How did you find your mojo?

A: Different traders have different styles and time horizons of trading.

For me in those formative years, it was a strategy called buy-today-
sell-tomorrow (BTST). I used to get active around 2:30 pm and take
BTST positions depending on the stocks which were closing in
strength. By 9:30 am next day, I was out of my position.

By trading this way, I covered all my losses in three months and was
soon in profits. I practised BTST trading a lot. The best time for BTST
trades are the earning seasons. In one such season in 2017, I doubled
my capital from Rs 10 lakh to Rs 20 lakh.

But the real turning point in my career came in 2018 when a friend
introduced me to option selling. I remember selling 1 lot of HDFC Bank
Put and watched it expire worthless over time. This is when I
understood the meaning of the phrase Time is Money.

I later started trading in Bank Nifty by selling out-of-the-money (OTM)

weekly expiry option contracts. This was a game-changer for me and it
suited my directional trading style. Even my twitter handle
@BankniftyA showcases my passion for the instrument.

In 2019, I found my mentor Mitesh Patel under whom I learned all the
necessary tricks to sell options and become a consistent trader. Since
2019 till date, almost all the months have closed in positive.
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But to me, more than the profits, how I used the money is what makes
me proud. I have fulfilled my father’s 30-year-old dream to own a hotel
in Jaipur, the construction for which will be completed soon.

Q: What was the most difficult aspect of trading to crack?

A: The trickiest part and I am sure most traders would agree with me,
is exiting a losing position. It very often happens that the market
comes to your stop loss level, takes you out and bounces back. But if
you do not keep a stop loss, hoping that it will bounce back and it does
not, you may end up losing a substantial portion of your capital.

As an option seller, it is even more pertinent to have strict stop losses

as profits are limited in option selling but losses can be unlimited. My
focus, therefore, as an intra-day trader and an option seller is to know
my support and resistances, which can give me an edge.

Studying these, I now know when to hold and when to exit my

positions. I have built a thoroughly back-tested system, where there is
no space for emotion. Anytime my system tells me to exit, I do so
without thinking twice about holding on to my loss-making position. I
have discovered the mantra of cutting my loss early and riding my
profit as long as possible.

Q: How do you trade now?

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9/11/2020 GuruSpeak | “My mantra is cutting loss early and riding profit as long as possible” :: Reader View

A: The preparation for my trading starts a night before. Since I mainly

trade in indices, I look at the Nifty and the Bank Nifty charts on various
timeframes — hourly, 5 minutes and 15 minutes to give me an idea of
the short term trend.

I then go through scenario planning, keeping ready my action plans

based on various scenarios. If for instance, I get a trend wrong and the
market moves in the other direction, I will have a Plan B ready to
tackle the situation.

If by looking at the charts I expect the market to rally the next day, I
will be ready with the Put strikes which I will be shorting, keeping in
mind the support levels. I will enter the trade when the charts agree,
with a stop loss below the support line, depending on the timeframe I
am trading on.

Now, if the stop loss at the support level is hit, I will trade according to
the back-up plan or Plan B. This way I am ready with a plan to act
upon the situation, rather than react to it, which helps to avert a panic
decision.

Now that the market has taken me out of the long position and if it is
falling on good volumes, I will be selling call options keeping my stop
loss at the same support level, which now acts as a resistance level.

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9/11/2020 GuruSpeak | “My mantra is cutting loss early and riding profit as long as possible” :: Reader View

While trading intra-day, I trade based on price action. Various setups

are there depending on the market condition. I also use some overlays
on my chart like VWAP (volume weighted average based price),
volume, 20-period exponential moving average (EMA) for trailing my
trades and the 200-period EMA for support and resistance. At times, I
also use open interest.

The important levels to watch out for are the previous day’s VWAP
close and the previous day’s high and low levels. I trade based on how
price behaves around these levels.

The chart below of August 31, 2020, explains how I trade based on
price actions and the levels just mentioned.

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9/11/2020 GuruSpeak | “My mantra is cutting loss early and riding profit as long as possible” :: Reader View

For overnight trades when the market has moved up sharply, I am

ready for it to consolidate. This is the time when I trade by selling
Straddles (call and put options of the same strike) and Strangles (OTM
call and put options).

But if the market stays range-bound for 3-4 days, I get cautious and
prepare myself for a breakout from the range on either side. I will be
ready to cut my loss-making trade and add more in the direction of the
trend.
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9/11/2020 GuruSpeak | “My mantra is cutting loss early and riding profit as long as possible” :: Reader View

As an option seller, it is important to know when to use which strategy.

One cannot trade with a one-strategy-fits-all scenario.

Q: Can you tell us about your trading statistics and drawdowns?

A: An option seller always has a good win-loss ratio as time plays in

favour of the option seller. The problem area is the average win to
average loss, which is where the discipline of keeping a hard stop
comes into play.

Since 2019, almost all months were positive and the maximum loss I
faced was not more than 3-4 percent.

As I am a trend follower, if the price goes against my trend, I will never

hesitate to cut my position (even in loss) at pre-defined levels and
reverse my position to stay with the new trend. This helps me in
keeping my drawdown low.

Q: What are your plans for the future?

A: I am trying to achieve one goal at a time. Since I am now an intra-

day player, my near-term plan is to build a solid investment portfolio,
which will be built through intra-day gains.

I have read about the success stories of international traders.

Unfortunately, very few, if any, Indian traders are featured in that
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category. My longer-term dream, and I am speaking my mind here, is

to be among the star Indian traders.

I intend to give back to society by sharing my knowledge so that more

people could become financially independent.

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