Some key learnings

Over the last few months, learned the following:

1. Long term purchase of stocks on cash segment does not make sense. 
2. Predicting market direction is very difficult and risky. It is possible that we will mistake a minor retracement as a trend change. 
3. To be market neutral & trade medium term, use pair trading in futures.
4. Selection of pairs is tricky but no point researching too much. But, this step is key to success.
5. Apply strict money management practices to save from poor stock pair selections.
6. Simple strategy can be:
1. Look at 1 month and 5 day data.
2. Let's take a 20 day simple moving average as the trend line. Lets take 5 day intraday chart to see if stock is moving in opposite direction. As long as it is above the supports and trend is still intact, we will assume that the stock is just temporarily going in the opposite direction and preparing for another huge move.
3. Diversify. So, select at least 3 and if possible 4 pairs.
4. Enter into all pairs at the same time in one shot. Try to exit in pairs. Else, you wont be market neutral.
5. Exit if profit is 9k or loss is 9k. So max profit or loss is 9 * 8 (assuming 4 pairs) = 72K.
6. Know that sector selection is also important while selecting the pairs. Go long on buzzing sectors and go short on not-so-active ones.
7. Hope to exit all pairs within 2 weeks. 
8. Repeat same on the near month or next month futures.
9. If stock is fluctuating a lot and is not reaching 9k, its ok to exit at the next profit opportunity (of Rs. 500/- after brokerage).
7. Typically, one NSE futuers contract values 3 Lakhs. i.e., 4000 dish tv at 80. Now, to make a 9k loss or profit, it has to move 2.5 points which is reasonable. This is around 3% move. We got the short term direction wrong if it went 3% the other way. This should not happen.
8. Caveats
1. Result days
2. Expiry days
3. Major events like election
9. Be aggressive
1. Don't pick similar pairs - like ICICI / Axis bank, Lupin/DrReddys. This will only eat time and give meaningless small returns. In some cases, we will get losses over long time. No point.
10. One confusing point was: What if we pick 4 pairs and just wait till expiry day and exit all 4 pairs when we get acceptable profit?
1. Some surprise news moves stock violently. You do not exit. You are in trouble.
2. Remember we are going by technicals and not fundamentals. So, trends may change and we may lose our profits that we once made quickly. 

Trade Four - Closed

Some news flow (not sure what) is causing all of pharma and banking sector to go up. There is massive accumulation all of a sudden on these stocks. Being the weakest, canara bank and bank of baroda is seeing a slow gain. Exited my position on BoB at 769.

This week I will sit and analyse all my trades, what went wrong, etc.

Trade Four - Entry

Ok. So, I have money only to buy one futures leg after heavy losses in the last two weeks. Looking from the fundamentals, RBI nod to allow new banks should affect our existing PSU banks. Upbeat results of ICICI and Axis should keep private banks buoyant for some time. So, weekness must be exploited in PSU banks.





Look at Bank of Baroda chart. It stays below the 50d SMA for several days. It bounces slightly for expiry. This tells me that this is a relatively weak stock. With 50d SMA going southwards, the stock should see some negative movement soon. See the heavy volume downfall towards end of april expiry. This should mean a strong resistence level. So, unless this stock takes the april 26 intraday high of 774, we should see the 10d SMA pulling the 50d SMA down southwards for a while. At some place 50d SMA will find heavy volume buying again. That should be the exit point.

If for any reason, we see this crossing 774 on strong volume, we can safely claim that a base is getting made at 774. We should reverse our positions around 782 for a target of 800. We can consider 500,000 as strong volume on any day.

Position opened: Sell May Futures of Bank of Baroda at 759.25. [Resistence at 774, 804]. Target 630.