Tuesday, June 3, 2008

Profit From SHORT Trades! But How????

There is something I don’t like about Indian markets. They seem to be lop sided. In fact most of us our sub consciously forced to look for longs even if the overall trend is down. We the retailers are not allowed to short in cash and carry our shorts overnight (shorting in cash is allowed only for intra day and has to be covered by 3 p.m.). So even if we our very sure of our short trade we have two choices;

  1. Play those shorts in intraday and risk getting stopped out or whipsawed and close them by the end of day and thank our lucky stars if we have made money. Start over again the next day, short and again cover by 3 p.m. and continue to trade this way, till we see a reversal in our daily chart that shorting is no longer fruitful.
  2. Play those shorts in FNO (provided the scrip you have decided to short is there in the fno segment). Short futures or sell calls or buy puts whatever.

Here lies the catch you see. We always advise the new traders to stay away from day trading and avoiding leveraged trades. So you either need a very sound money management system coupled with through knowledge of TA and iron discipline or very deep pockets to withstand margin calls as and when required. Assuming that we are going to enter into a bear market, then this has a very devastating effect on the new traders or small traders;

    • If they avoid day trading and Futures & Options trading they wont be able to profit from the short side of the market. If at all they decide otherwise, then FNO and leveraged trading will wipe them off because most of them operate with meager accounts (this is what happened in January, the fall was accentuated when suddenly the brokerages started squaring of clients’ positions for want of margin money!).
    • The other is to go long in delivery stocks. This again is not a simple thing because to choose the long trades when overall market is bearish is like finding a needle in haystack.

In the end it all boils down to;

1. Fight against odds and go long in bear markets!

2. Play only intraday shorts and cover by 3 p.m. every day!

3. Cross your heart and hope to die (eventually that’s what will happen to you!) and plunge into the FNO trades.

All of the above three are going to kill you! So what do we do? Where do we run? Just HOW DO WE TRADE??????

If any of my fellow readers have experienced the same dilemma then please do come forth with your suggestions and share your views!


Shiree said...

Dear Manoj well expressed. I think this uniqueness of the stock market ,is the most enticing invitation to daring and disciplined trader to tame and overcome it .Only when there is loss to many can there be substantial gain for a few . Goodluck Shiree

Tryin2Trade said...


Unclee true! the only positive of this scenario is that this is forcing us to swim against the tide!!!

Arvind said...


Very nice article,exactly expresses my own views. Difficult to short stocks and cover by 3 pm and risky to short in F &O without an adequate account size.The only alternative is to play Minifty on the short side.


Tryin2Trade said...

Hi yups thats the dilemma all new and small traders face 2fno or not 2fno!!!

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