These market makers are right at the center of all the action, tracking every move and trigger to stay ahead of the game at all times. Unlike popular belief, however, it’s not a cakewalk! It takes years of learning, mistakes and strokes of luck to make it big on the street.
Vishal Mehta, CMT and founder, marketscanner.in, is also among those hooked to the market pulse. Since his father was a broker at BSE, the trading world was not exactly new for him, but never part of the original plan. For him, it all really started when a mistake during his internship helped him make a quick buck. Since then, he never looked back! From that Rs 20 from his first trade to minting a whopping Rs 7.5 lakh from another trade, Mehta has been through the ups and downs of the market.
Over the years, Mehta has changed his trading strategy as he learnt lessons about greed and not having an exit strategy, looking at the bigger picture that helped him step up his game. However, one thing that hasn’t changed over the years is the adrenaline rush he gets when he’s trading.
After spending around 20 years in the trading biz, Mehta started Marketscanner.in in 2019 to help traders with strategic trading techniques.
As he dabbled in various pockets of the market, he grew confident in trading with a fixed set of rules and is extremely disciplined when it comes to honouring stop loss and keeping emotions aside on the playing field.
In an interaction with ETMarkets, Mehta shares his stock market journey, strategies, his biggest wins and losses and a few anecdotes that may help traders, enthusiasts and investors to learn from his experiences. Edited excerpts:
Tell us about your journey into stock markets? What was the pull factor?
My father was a BSE broker, but I never thought of having a career in markets. After my graduation in Statistics, I was looking to take on a new challenge and bring direction to my career.
In the meantime, my father told me about this seminar in the BSE Training institute on technical analysis. I didn’t know how active trading happened till then but attended the session anyway. My only takeaway from that session was that if the price is above the 200-Day SMA, then it’s a buy and when it is below 200-Day SMA, it’s a sell. I thought I found the holy grail and that hooked me in.
I started searching for companies who provide technical analysis software and landed up a job in Spider software and later joined many companies like Reliable Software, Financial Technologies (now 63 Moon Technologies), Thomson Reuters and Bloomberg, where I played a pivotal role in charting and technical analysis training.
Trading always fascinated me as it was like getting an adrenaline rush when your analysis is right. Slowly, I increased my commitment to the market and somebody once said trading is like a game of chess and your move depends on your opponent’s move and was fascinated by that.
You have spent a good amount of time at Bloomberg training. How was that experience?
Bloomberg was an exceptional experience where I met people from the Buy Side, institutional traders and investors. It also helped me look at the bigger picture. What intrigued me was that the biggest of big fund managers, although they invest using fundamental analysis, but had a charting window opened with 50-Day and 200-Day Simple Moving averages. During my stint there, I learned about the Fund-Techno way of momentum trading. I had access to world-class information and started to use Momentum investing methods like CANSLIM.
Can you recall your biggest win and losing trade and were there any learnings?
In my trading journey, I have made many trades but two stand out of the lot in terms of learning and experience.
Loss Making: After college, my first big trade was
. The stock got listed and I gradually accumulated 10,000 shares of the bank in the price range of Rs 22-25. This was the biggest position in the market I had ever taken as a kid. The stock started moving up and touched around Rs 38-39. Some traders sitting next to me advised me to get out book profits, as greed gets over every amateur trader and I was no different. I held on to the shares thinking they would reach Rs 100. Although I had a target in mind, I had no exit plan as to what to do if it started going down and always thought that stocks always go up. The stock started falling and I remember exiting between Rs 14-15.
My major learning from this trade was never to equate your unrealised profits with materialism, as I had planned out a car and vacation for mom from that paper profit, which did not allow me to book the profits at the right time.
After that, I kept trading all the strategies under the sun from Bollinger Bands, RSI, MACD, Elliott Wave and even Gann but winning and losing continued for me.
Biggest Winning Trade: I remember working for IL&FS Investmart as Technical Analyst and heard about a stock —
. Usually, as a Technical Analyst, my focus was on frontline stocks, but this stock intrigued me as it was hitting the upper circuit every day. I jumped on the bandwagon and got a fill and then the stock started hitting the lower circuit. As it happens with everyone, stocks taken for short-term gain, when turned into loss, turn into a long-term investment.
After a few days, the rally in the stock started picking up and started hitting the upper circuit again.
Eventually, the stock became the biggest gainer in Asia. My small punt of Rs 25,000 gave me a whopping Rs 7.5 lakh, and that’s where my major learning that big money is made is trends and major breakouts. That was the beginning of my short-term trading journey buying all-time high stocks. This strategy has been with me for a while.
How did CMT help you in shaping your career?
I completed my Chartered Market Technician (CMT) in 2009. I was one of the earlier CMTs in India. Back then, technical analysis was called Chartist. Why Chartist? Because they only looked at charts and figured out what are the support, resistance, stop loss and targets, I realised there is a big difference between a chartist and a technical analyst.
A technical analyst looks at charts but also looks for more information to make trading decisions like the market breadth, cycles, seasonality, and money flow through intermarket analysis. CMT gave me a holistic approach to look at the market.
Recently, CMT courses have gone over several new aspects like systematic and algo trading besides the conventional use of charts like patterns and indicators. Besides this, CMT helped me travel the world, where I trained major central banks in South Asia — Nepal, Sri Lanka, Bangladesh, and the Maldives and met legendary analysts like John Bollinger, Martin Pring, and Gerald Appel.
What kind of strategies did you start trading with and what is the system you are using now?
I started as a discretionary trader. I had a view of the market and traded it. Till it was profitable, it felt good, but when the losing streak started, I used to feel bad and started making all the wrong decisions.
Discretionary trading gave me a chance to understand the structure of the markets, but when it came to the execution of the ideas, it was difficult for me as I didn’t honour my stop loss and gave all the reasons why I should be there in the stock even when my exit was triggered. And then I came across a book called Stock Market Edges by Philip
Reschke, and it talked about a term called ‘edge’, which grabbed my attention.
The book talked about the edge of 0.20-0.50 per cent in the long run. It amazed me that in the world of trading, where everyone is talking about astronomical returns, this book is talking about the marginal edge.
It talked about various edges in the mean reversion way of trading and also explained how, in the short term, mean reversion had an edge over trend, which is more long-term. I was hooked. I downloaded all the books on systematic trading by Larry Connors, and after a week of reading them, I got my aha moment. I realised I am more comfortable using a systematic way of trading than a discretionary, as everything is rule-based and there are less emotions involved, which was my drawback during my discretionary way of trading.
When I started my journey, I traded virtually all the methods, starting from indicators like Moving averages, RSI, and Bollinger bands, then more advanced stuff like Elliott Wave, Harmonic patterns and even tried Gann Analysis. But nothing worked for me as I kept on breaking the discipline.
Once I got comfortable with systematic trading, my first systematic trading strategy was the Mean Reversion Short only trading system in stocks and the Volatility Breakout system in Bank Nifty.
As my experience with the systematic journey continued, I added Options Selling strategy to my trading bouquet.
We had a major setback in March 2020 due to the pandemic crash where I had to stop my Options Selling Strategy as it hit my Max Drawdown limit. Whereas, Mean Reversion and Bank Nifty Volatility system suffered drawdown in November and December 2020 due to a massive bull market. This experience led me to work on mostly intraday strategies and mainly option selling and fully automated. Currently we are running close to nine intraday strategies and two overnight strategies. The key benefit of these strategies is that they are rules-based, automated and completely hedged.
You happen to be a big believer in systematic trading. What are its advantages and disadvantages?
I am not a great discretionary trader and respect the process. I have realised I am comfortable in my skin of being systematic. There are many advantages to being systematic traders.
1) Less Emotional: It will be unwise to say that we as systematic traders don’t go through an emotional roller coaster but being systematic, you have back-tested the system in different environments and are aware of how your system would react in certain market conditions and you are prepared for every situation. For example, if we had a massive bull run like 2017, then we know that our option selling system will underperform as the market is trending up and volatility will be less. Similarly, higher volatility will push our performance.
2) Treat trading like a business: As most systems are rule-based and systematic, you can code and automate them. This gives you the flexibility of running various strategies with low correlation with the market and you can easily scale up.
3) Sticking to Discipline and Risk Management: No system or trader will always make money. There will be losing periods in both discretionary or systematic trading. From my experience, many discretionary traders abandon the trading strategy when they go in a losing period, even if their strategy had a positive edge.
The main reason is that they aren’t confident in the system or they have not traded the system for a long time, whereas a trader who has back tested the system will have higher chances of sticking to it and discipline in losing period, which will help them to recover the losses at a much faster rate. We can not only have advantages, but system trading also comes with its own set of disadvantages.
1) Adjust to current market conditions: The market evolves with new participants, and market behaviour and conditions change. Systematic trading comes with a fixed set of rules which do not adapt to new market conditions.
Although, this drawback can be taken care of by adding new strategies that work in tandem with a different environment.
2) Cost of doing business: Unlike discretionary trading, where you need only your analysis software, systematic trading involves investment. You can get the best of systematic trading once it’s automated. Automation comes at a cost. Some of these costs involved are getting your strategies back tested and fine-tuning them, brokers api, data charges, building or using execution platform,
What is the role of psychology and risk management in trading?
Like many others, I also thought that to be successful in the stock market, one needs a holy grail system with perfect entry and exit. It took me a while to understand that there is no holy grail system, but the real secret is in two pillars of trading — psychology and risk management and not many talks about it. There is no doubt that you need profitable strategies but to keep on trading those strategies when you are in drawdown, that needs conviction and psychology. Once you start trading, a system will scale you up, but if done with incorrect position sizing, there is a very high chance that you will give it back to the market and hence, money management plays a vital role at that point.
You had an amazing journey as a trader. What would you suggest to professional retail traders who are starting out their journey?
Reading good books like Market Wizards (series), Discipline Traders and books on position sizing will put you on strong starting ground.
I missed out on finding a mentor in my early days and finding the right mentor is key.
Tell us about your recent venture?
I started www.marketscanner.in to address the need for new professional retail traders for their systematic trading journey. I have been guiding them on backtests and the automation of ideas.
How can traders reach out to you?
Twitter: @vishalmehta29 and LinkedIn: Vishal Mehta, CMT