We can't run from who we are!!

For a change, let me talk about a fascinating movie!

Movie is “Rounders” which revolves around poker game. Matt Damon plays the lead role and Edward Norton plays as his friend. I was randomly picking the movies and got this movie without even reading the plot. But, I started loving this movie the moment it started as it starts with below narration.

 “ If you can't spot the sucker in your first half hour at the table,

   then you are the sucker.

   Guys around here'll tell ya... you play for a living.

    It's like any other job. You don't gamble. You grind it out.

   Your goal is to win one big bet an hour, that's it.

   Get your money in when you have the best of it, and protect it when you don't.

   Don't give anything away “

Any trader would be delighted when a movie starts with such a voice over narration :)

Movie is about a law student - Matt Damon, die-hard poker passionate young kid. Gambling is in his blood to the extent that he can risk his term fee of law school in a poker game. One day he bets huge and lose everything at one shot. He quits the game and does part time driving for his survival and studies. But, things start to take a toll when his childhood mate Edward Norton joins him after released from his sentence. Circumstances push friends to a situation that they have to earn 15 grand in just five days time. Halfway in the process, they draw a wrong card and get hit badly. Friends split and finally Matt Damon is the lonely man who decides to finish the job to earn his reputation in the livelihood but his life is already in stake with just one day dead line.

Plot is simple but I liked the movie due to the poker game back ground, detailing in the movie and the catchy dialogues.

I believe every trader would like this movie. Matt Damon narrates the game, talks about psychological and emotional condition when you are in game, explains the importance of “sitting tight” to wait for your chance to beat your opponent and tells you when to “quit”, he talks about success and failure mindsets and a lot more throughout the movie.

As a trader, I could correlate with almost every dialogue in the movie. Some of them are here :)

Matt loses all his money in one go. His well-wisher consoles him.

“Man, I lost my case money. I lost my tuition.

 It happens to everyone. Time to time, everyone goes bust.

 You'll be back in the game before you know it.

 I'm done. I'm out of it.

 They all say that at first.”

Law school professor talks about his past and tells his student about following a passion. This gives Matt Damon some strength and he later decides to take the help of the game on a do or die situation when he is pushed to the corner. He gets inspiration from what professor told him.

"We can't run from who we are. Our destiny chooses us"

Matt is asking help from his senior poker player who is a well-wisher of him. He plays game for his survival and he has no other job. He is a full timer and a known pro in the clubs for his temperament and consistency. When he refuses to lend money to Matt, he gets angry and yells at his senior.

 “You see all the angles. You never have the stones to play one.

  "Stones"? You little punk.

  I'm not playing for the thrill of f*cking victory here.

  I owe rent, alimony, child support. I play for money.My Kids eat.

  I got stones enough not to chase cards, action...

  or f*cking pipe dreams of winning the World Series on ESPN”

Just wanted to share few dialogues but there are many more :).

If you are a trader, who trades with a passion rather than making money, then watch this interesting movie. Trading is a zero sum game. Money switches between the pockets of right and wrong traders on the given period. We always try hard to deny the sucker title. right ??!! :)

Draw down, Whipsaws and my 3 months trading!

I have something to share from the recent trading experience in this volatile market enviroment.

Let me first put down few questions related to mechanical trading.

What kind of drawdown you should be prepared to absorb to avoid getting out of your trade?

How many whipsaws you can survive to remain holding the position in a particular counter?

Is it worth to remain entering all the trades in the counter despite it sucks all your capital slowly but steadily?

I faced all these questions since Jan till early may and didn't have perfect answers though i knew them partly. Now, I beleive i have those answers and let me share here.

After turning out to be a pure mechanical trader, this is the first longer whipsaw phase I have witnessed in my trading career. After doing patch of trials and patch of real trading in 2011 based on a mechanical system, decided to load the guns fully in 2012. Started with more capital from Jan'12 and increased the trade basket size. I have settled with Crude oil and Silver and partly with Nifty. What happened then? When you expect something, it won't happen!

Let us find answers for the three questions at top, from my own experience.

Q # 1: What kind of drawdown you should be prepared to absorb to avoid getting out of your trade?

Ans: If you have a faith in your system and if you have earned money for some time, then be prepared to take any deep cut i.e. the very deep drawdown in your account. Since Jan till end April, I had 120% drawdown from my margin money. I beleive this is not the worst and i may have more draw down also in future when the volatility is going to be at its best.

Q # 2: How many whipsaws you can survive to remain holding the position of the counter?

Ans: If you are experiencing whipsaws means, markets are seeking direction. It has no signal from the market participants after a bigger move or pretends that it has no signal prior to bigger move. In a mechanical trading, it’s very hard to skip the whipsaws till you gain some knowledge and experience. Let the whipsaws run and do not count them as it’ll frustrate you. I had 21 consecutive whipsaw trades in crude oil which resulted in the drawdown I explained above. This phase was going on for three full months. The 22nd trade wiped all the loss from 21 trades and yielded extra profit of 40%. And the best part is, that profit was poured in just 3 days! 3 months of frustration was cured in just 3 days in a lightening speed. So, make it clear that whipsaws are part of the game and you don’t need to break down for the same.

Q # 3: Is it worth to remain keeping position in a particular counter despite it sucks all your capital slowly but steadily?

Ans: When crude oil was boiling my account with 21 whipsaw trades, Silver was also in competition with crude oil to beat it’s record. Silver was making its 20th whipsaw trade but I had to quit the position as I was in a position to remain in either one of the crude oil or Silver due to shortage of funds. Considering various factors, I have decided to say bye to silver and stuck with oil. When I left silver, my silver account was down by 70%. After couple of days, It had its bigger move and within a week and needless to say it has produced 120% of returns.Managed to pocket part of the profits here by entering in a mid-way.

This has become a routine with mechanical trader that he takes all losses in the whipsaw mode with the hope that “bigger move is here”! But, when he is in the kissing distance of such move, he exits the position. This was a repeating story for me in 2011 but I have made all arrangements and mentally set to avoid this situation this year.Still, I was able to sat tight only with crude oil but had to dump silver. So, it doesn’t matter how bad the whipsaws, you shouldn’t exit the position if you are following a mechanical system. Prepare youtrself in such a way!

Now, what am going to do to avoid all the above three situation as it would happen quite often month after month and year after year! That’s for sure!

Simple – I am going to trade only with 33% of my trading capital.

If you want to make money from the markets, do not fund your account with just little above the margin money. I was having the theory of keeping 100% of the margin money in reserve i.e, you trade only with 50% of your capital available. Now, I’ll make sure that I keep 2 times more than the margin money in my trading account i.e., I would utilise only 33% of my trading capital and the rest would act as the shock absorber to manage drawdown.

Note # 1: One must understand the difference between hope and trust. Hope sometimes is dangerous (thanks to shashank redemption). Do not blindly hope that after certain draw down or whipsaws, you will get windfall returns. You should have done your home work i.e, back test, paper trade or the real trading for some time which should reinforce your trust in the mechanical system you are trading. So, if you can trust your system, stay calm at such testing times but never blindly remain in hope!

Note # 2: Someone can have the doubt as “Is it worth to trade with only 33% capital?” My answer would be – It’s damn worth coz you are going to execute all the entries and not going to leave a single entry. This would make you richer than what if you would have traded with your 100% capital by missing few trades!

Note # 3: All the above are applicable only to the fellows who really can’t spend their full time in the markets but wants to make money using a mechanical system. If you are a full timer and can make more money by spotting trends and whipsaws, then skip this post :)

Gandhi or Hitler?

Nifty is in consolidation. Crude oil barrel is rolling both sides to hit stop loss regularly. Silver is not at all making a move. Let’s have this pause time to make one interesting self analysis. 

Where are you standing? On the sides of Dalai Lama, Mahatma Gandhi or Stalin and Hitler, when you have to take sides based on your political and social views?

 If you wish to know the answer on your political and social stand, take this test here - Political compass test . 

Questionnaire is quite interesting. It do not confuse you but so simple to get your honest opinion. 

It may take some time but I found it useful. Hope you too!

And, my stand is shown in the below chart. Am standing closer to whom? You will notice it when you finish the test :)