Thanks Anurag.
Any insight you bring would be beneficial to all. So, please do write about what you were going to write earlier. Always willing to learn more.
Tc
hi Raunak
money can be made in the markets just by understanding the behaviour of the masses who trade the markets. to show this I am narrating a true story which I have seen with my own eyes over the years.
the system used for trading is what we today know as BTST. this system was discoverd by a friend of mine
some 15-16 yrs. back (accidently) . this guy became a multi millioniare.
there was no technical or fundamental analysis used, just behavarioul analysis of the crowds.
coming to the 'accident', this was the time when nse had weekly settlement (not daily as it is today) the first day of the settlement used to be wednesday and the last day was tuesday.
on a particular tuesday this friend of mine was long (bought) reliance and ITC, he was in a loss and was waiting till the last minute for the prices to improve so that he could sell his shares. at around 3.15 pm the broker's terminal suddenly crashed and he could not square off his position. there was no other option but to pick up the delivery. in those days brokers normally did not give finance, hence he had to arrange for funds with great difficulty. the next day the shares opened around 3-4% above the previous day's close and he was saved frm the loss that he would have suffered on the previous day.
as the saying goes" winners dont do different things, they just do things differently". he could not comprehend as to why most of the stocks opened 3-4% above the previous close. this set him thinking and he reached the conclusion that since wednesday was the first day of the settlement, anybody buying anytime between wednesday and tuesday does not have to give the payment (as is the case with intraday trades these days, u do not have to give the payment if u square off before the close), but anybody not squaring off on tuesday would have to give the full payment for delivery.
he realized the following points of crowd behaviour:
1. most of the people speculate frm the long side, ie. they buy first and sell later.
2. most of the people dont want to pick up delivery, they want to speculate with little or no money.
3. most of the people do not cut their losses, they wait till the last moment to square off. hence there is a big sellig pressure on the close on tuesday.
now he did just the opposite. he arranged some funds and every week he would buy (normally the most liquid and investor fancied stocks) between 3.20- 3.30 pm on tuesday
and sell them off between 10- 10.15 on wednesday morning, irrespective of whether they opened above or lower frm his price. due to the crowd tendency of not wanting to put in the money, normally tuesday closings were depressed and wednesday mornings were euphoric because the same people who had sold off on tuesday would be ready to buy back on wednesday mornings as they would now get a full week without having to pay fr delivery.
he started getting a 10-15% return on a monthly basis and he steadily raised his amounts. this kind of return if compounded properly can do wonders and it did fr him.
then came the daily settlement and for sometime it seemed that this system would not work, but big brokers like india bulls and india infoline came to the rescue . they started giving their clients 7-8 times limits in intraday. all these trades were squred off forcefully by the brokers between 3- 3.15 pm, so this friend of mine made a portofoilo of liquid investor fancied shres of diff. sectors and the modus operendi remained the same. people come & buy stocks 7-8 times of the amount of money that they have and are forced to sell off @ whatever rate prevailing @ 3.15, hence he started buying between 3.15 and 3.30 and selling of next morning bet. 10 & 10.15. the same idiots would come and buy 8 times of their capital inthe morning. this way one delivery that he picked up would remain with him for many days, till the time the stock is showing upwards movement. the stt etc. for delivery was paid only twice. rest of the days it became just an intraday transaction , sold in the morning & squared off in the evening.
admittedly there are a few days in bet. when the market opens lower, the key is to book the loss on these particular days but more often than not, becos of the greed of the people to take up positions 8-10 times of their capital, the mornings open generally better than the previous close, becos the the overnight risk is eliminated and people get 8-10 times exposure again for the whole day.
there have been 2 major makt. falls in this period, yes he lost 10-20% in a single day a few times but made a return of over 100% in the preceding few months of the fall.and after the fall, the key is to lye low till the mkt. stabalizes and then reennter.
there are many other facets to this which are beyond the scope of this post. I have just tried to give an insight of the methodology of a very successful trader. there is no TA, no FA, just the behavior study of the masses and benefitting frm it.
although the market dynamics have changed a lot since which are again beyond the scope of this post, just to try it out,anybody can make a portfolio of any 8-10 liquid fast moving cash shares of his choice (shares that are not in f&o) and backtest it on the past six month or one yr data. what would have happened if he would have bought blindly half of his position @ 3.15 and the rest @ 3.25 everyday, and sold off the same between 9.00 and 9.15 the next morning. this can be checked on shres of ur choice. remember u keep the same stocks till the the time they are moving , so u pay the delivery commission & stt only while buying and selling once and everyday trade is treated as an itraday squareoff, sold in the morning and bought back in the afternnoon.
regards
Anurag
