My Trading Strategy

Being a software professional, I can only spend a max of two hours per day (just 45 mins on most days) on trading, researching and blogging activities. This rules out intraday plays. Moreover I have had a bad time judging intraday movement of stocks.

Objective: To earn 10% returns per month. With a capital of Rs. 1,00,000 I hope to earn roughly 10k per month. I will remove my 10k profit out if I am profitable. If I am in loss, I will not add another 10k. However, in the subsequent month, I may not remove my profits until I get my capital back to 1 Lac.

Strategy: Stocks are highly unpredictable. Hence, its only human to expect mistakes and losses. There has to be several calls to adjust for the wrong ones and still earn a profit of 10%. So, I have decided to use Futures and Options as the route to achieve my objectives.

There are several F & O strategies. The one that I am most impressed with is as follows:
1. Research to find one stock with strong upward momentum and find one stock with strong downward momentum.
2. Wait till the 3 pm to ensure the following:
a. The stock with upward momentum is in green and is up at least 0.5% in the day. Remember that volume matters. So, there should be high volume at least in the last one hour.
b. Similarly the stock with downward momentum must have lost at least 0.5% in the day with good volume at least in the last one hour.
c. Buy one lot of futures in the up going stock and sell one lot in the other. Nobody can time the market or predict macro events. Hence, we are both buying and selling at the same time. If tomorrow is going to be a massive gap down opening, the weak stock will fall more than the stronger one. Hence, when I square off both positions, I will be in profit. Same applies to a gap up opening. In short, if there is any big NIFTY movement, I should be in profit. The stocks may be moving on some news or speculation. In such a case, we have picked up the correct direction and we should be hitting a bumper jackpot with both stocks making strong moves the next day and earning us good profit. Selecting these two stocks is the most important part of our strategy. I will talk about this in more detail as I do some trades.
d. See 1day, 5day, 1month and 3month charts of both of these stocks and ensure that our direction matches with the long chart direction. Sometimes, we may compromise on this point, but it is good to check this (at least to know how much stop loss to put).
3. So, now, we have one short position and one long position. Now, we need to calculate stop losses (or exit points). Stock's support and resistences help a lot here. However, as a rule, we want to cut our losses short. Hence, we will not risk more than Rs. 7000 in any one trade.
4. Whenever I close one trade, I will either close the other trade also or at least lock my profits. For example, if my stop loss is hit on the opening of next day itself. Even if my second trade is just hanging around the same purchase price, I will place a stop loss for it immediately for Rs. 7000 and hope that it does not hit it. If it hits, we are done for the day. I will start looking for the next two stocks and accept that my choice was bad.

The trick is that as I do more and more trades, I must become good at selecting stocks and locking profits. So let's start today.