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RBI Cuts Repo Rate By 50 bps

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Note: Newsletter sent on 29-September-2015 to my subscribers.

Refer my yesterday’s email: What to Trade Tomorrow RBI Policy.

RBI surprised everyone by cutting repo rate by 50 bps. There was a knee jerk reaction to this and within a matter of seconds Nifty jumped from 7700 to 7800 exactly at 11. However after that there was a slight drop – obviously a 100 points run will trigger stop losses of a lot of trades.

Interestingly VIX did not fall till around 12 noon – but after that VIX stated falling and Nifty rallied from 7762 to 7917 – almost 155 points – that’s 2% Intraday.

INDIA VIX closed at 21.57 which is 0.46% lower than yesterdays close. Frankly I was expecting more fall, but I can assure you this will fall further in days to come.

Those who took this trade – “If Nifty going north (up) – Sell ATM Put and buy OTM Put”, would have made good profits. Unfortunately from 11 to almost 12 Nifty kept falling, so I am sure some trader may have taken the opposite trade. But I am sure they experienced how the hedge saved them from a huge loss (if they hedged) – on top of that VIX falling ensured the loss was minimized.

I hope you learned two lessons out of today’s trade:

1. Sell when VIX is falling and Buy when its going up, and,
2. Hedge your trades so that the risk is managed.

Remember I also told two methods for taking profits. The first one would have given the maximum profit to the trader – After some time if the trade is in 5-7 points profit, increase your stop loss by 3-5 points until Nifty breaches it. Close the other (buy trade) as well. This will give you the maximum profit for the day. (Best method)

This would have hit SL when Nifty was around 7900. See how after 7917 Nifty came down and closed at 7843.

Frankly if you ask me Intraday trading is best avoided. It is a full time job and it still ain’t easy to make money Intraday. Intraday is more about practice than technical or anything else. Scalpers are the ones who can make money trading Intraday. But its more of an art than science. And its a full time job.

I am sure there are many traders (you could be one) who have a job or a business and also trade Intraday. This is dangerous.

Think seriously. How is it possible that you are present at two jobs at the same time and doing great at both? One or the other will suffer – usually its trading.

If you are one of those who are on a full time job or business and trade Intraday then my request it to think again. If you are doing good, then congrats, continue. But if you are doing this since the last 3-4 months or more and losing money than stop trading Intraday right now. Hope does not make money.

And if you decide that you will leave your job to try Intraday than I would suggest get another Job that you love. But do not try Intraday trading by leaving your job. This will prove to be a financially destructive decision. You may repent your whole life.

Getting a job paying 30,000 a month a very easy now days. But making almost 1500 everyday trading is very difficult. (There are 22 trading days in a month so you will have to make more then 1000 a day.) And within 6 months you can jump to another Job paying better or ask for a salary hike. Here you have just one Job and if it sucks you are gone.

Yesterday I got a call from a young buy just out of college who wanted Intraday tips. I asked him why he is not looking for a job. His answer was he wants to trade Intraday with Rs. 20,000/- in his trading account and want to make a lot of money in a few months. I told him to buy some books on Stock Markets and discouraged him from taking my course.

With 20,000 you cannot start a business – so how can you make a significant income with that money? Even if your return is 30% in a month you only earn 6000 a month and if you lose 50% next month your trading capital is now worth 13,000. You will not have the courage to trade again.

Then I get messages like “save me Sir lost 2.5 Lakhs last week by buying Infy options that expired worthless”. My eyes got pooped out – 2.5 lakhs gone in a week. Even if this guy earns 5 lakhs a year, he lost 50% of his salary in just a week.

I mean you must have that real guts to even buy options worth 2.5 lakhs. If this guy hedged his loss would have reduced by 80%. He felt bad that he did not hedge and is still thinking about taking my course. πŸ™‚ Because I am sure he is now in a revenge mood – he will surly bring more money in his trading account to try to make 5 lakhs in a week. And you know the results.

After losing 10-15 lakhs he will probably take my course. πŸ™‚

Still traders do not want to hedge. Strange!


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What to Trade Tomorrow RBI Policy 29-Sep-15

About the author: I started trading stock markets since 2007. However my first 3 years were losses. Then I dedicated almost 1 year on studying, researching, paper trading options and learned a lot in that time. Since 2011 I am trading Nifty options profitably. Call me if you need any help trading options on 9051143004.

{ 4 comments… add one }
  • Praveen

    Hedging is important,,, but kindly explain first point, that is SELL WHEN VIX IS FALLING AND BUY WHEN VIX IS RISING

    • Praveen, when VIX is high the options premium are more so when you sell you get more money for taking the risk. And if the VIX falls, you can make a quick profit.

      However in extremely low VIX conditions (which is very rare now days) – you can take your chances of buying options and profit.

      Remember, selling or buying risk management is very important.

  • marina s rao

    Dilip ji,

    Namasthe.

    Learning points from this post :

    Hope does not make money.

    Intraday trading is best avoided. Intraday is more about practice than technicals or anything else.

    Plz correct the following line :

    In the para starting with ‘ Frankly if you ask me …’ :

    Scrappers are the ones who can make money trading Intraday.

    as

    Scalpers are the ones who can make money trading Intraday.

    ThanQ.

    M S Rao

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