Betting on market unpredictability

Lessons from some retail investors-cum-traders who are trying to take advantage of the high volatility in the stock market.

Financial experts will always advise that retail investors should never take the trading route in stock markets. But, there are many who like that little thrill, even though it comes at a cost sometimes.

Take, for instance, 39-year-old Bindi Mehta. After losing Rs 5 lakh in one go earlier, she has learnt to hedge her risks better. “With patience, I have been able to understand market signals better and have more than recovered my initial investment,” she says.
 

LESSONS FROM THE TRADING ROOM
Bindi Mehta	Mayur Sanghavi	Jayashree Jayant
Trial and error method inevitable only	Maintain stop loss	Go for value stocks
Patience is an asset	Do not carry over trades	Avoid greed. Invest a limited amount
Don't panic on making a loss	Trade in small quantities	Exit loss-making stocks

Last week, she had invested Rs 35,000 and ended up with a Rs 1,500 profit in a single day of trading. She says on days when there is a lot of momentum the market moves both ways and gives a good opportunity to make money. Her tips: be ready to learn through trial and error, keep patience and be ready to lose money. The latter tip is something not many will be comfortable with.

No wonder, sub-broker Mayur Sanghavi, a franchisee of Techno Shares & Stocks for the last 14 years, advises caution. “For the retail investors interested in intra-day trades, the limit should be small,” he says.

A safe trading strategy in a high-momentum market is to take a short position (sell position) in a bearish market and a long position (buy position) in a bullish market.

In both the cases, mark a stop loss and adhere to it strictly no matter how tempting the quick money seems. “In any market this should minimise losses, if any,” says Sanghavi.

Another way to reduce losses is to avoid carrying over trades to the next day. “It’s best to square off trades the same day since the next day’s market movements could be uncertain,” says Sanghavi. His maxims for retails traders: have a strict stop loss and adhere to it, avoid carrying over trades to the next day and trade in small quantities

In the last few months, the stock market has been quite volatile. The National Stock Exchange’s volatility index has been moving between 16 and 25 per cent from January. Such volatility gets Mehta quite excited. She rushes to her neighbourhood stock broker’s terminal and starts punching orders.

But others like the 54-year-old Jayashree Jayant, who has been trading for the last eight years, says value investments that she made during market lows helped her pay her bed-ridden husband’s medical bills.

With her daughters already married and her husband still unwell, Jayashree is the sole earning member. And the stock market is where she makes that money, but through safe strategies. So, despite tracking the markets through television, she pays no heed to the daily tips dispensed by market experts.

“The only time I have ever lost money was when I invested on a tip . So, I would rather pick good stocks in both frontline and B group stocks and stay invested till they give me the returns I expect from them,” she says.

Her advice to those getting into a volatile market: stay away from greed, stick to a cut-off level of money you would put into the market, even on days the rates look tempting and follow a delivery-based investing strategy because it is insulated from the need to generate cash at the last moment.

Trading in the stock markets for retail investors, however, is not advisable. Create a corpus first and if you really want the thrill, use 5-10 per cent of the portfolio or any surplus to trade in the market. Also, remember that trading gains attract a short-term capital gains tax of 15 per cent.