The Hindu Business Line : A peek into a trader's diary

HAVING seen the ups and downs as an active day trader, that gave him not only hypertension but probably contributed to his coronary bypass — he was a chain smoker too — today Chennai-based C. K. K. Viswanathan is a vocal critic of day trading. The franchisee of a Chennai-based brokerage, he advises his clients "never to do day trading. I tell them, `I'll help you to make money through one or two positions in the F&O market.' But people don't listen. And they never book losses; many times I can see the price coming down and tell them: `Please sell', but they don't sell!"

He feels that the "single curse of day trading is that people don't want to book losses; they definitely make one or two rupees profit, but when the market falls, they don't cut losses."

He should know because as an avid day trader, he has seen it all, and decided that "its not worth it." As a student of Commerce in Mumbai, Viswanathan was interested in the market. Later he qualified as a chartered accountant and moved to Chennai in 1985 and worked as a financial controller in a private company where he watched it come out with an IPO.

"I got interested in equity and in 1991 bought 50 Reliance shares and it went up by Rs 30 in three days. So I thought making money in the market was very easy. It was the beginning of the Harshad Mehta boom and I started making money buying at the highs."

He bought 100 Jaiprakash Industries at Rs 183, it touched Rs 283 the next day — there were no price filters then - "and I thought I was a genius! My salary then was Rs 10,000 and I thought I could earn my salary in one day in the market, so this is for me."

So he kept buying and selling and then the market crashed; he lost Rs 30,000 and stayed away from the markets for three years. But, subsequently, disenchanted with his job, he joined a friend on the trading floor of the MSE. "Because I was honest I got a few clients; I'd confirm the trade immediately and would not jack up prices as was the practice then." Soon his broking business picked up with another bull market commencing in 1994 and he had little time for his own trades. He just bought 4,000 shares of Apple Credit at Rs 70, it went up to Rs 180 and he made good money.

But suddenly he had to rush to Mumbai for personal reasons and while he was away for a few weeks, there was no one to handle his clients. "When I came back, prices had come down and clients refused to take delivery and I lost all the brokerage I had make. Some documents sent to Mumbai were stolen in the post, cheques bounced and I lost about Rs 2.5 lakh." As the MSE too was on a downhill, he said goodbye to broking and started his own trading.

"Between November 1995 to April 1997 I didn't make any money; I dreamt of it all the time but it didn't happen. My total worth came down to less than Rs 2 lakh but I was eating, sleeping and drinking equity. I'd go to Landmark at 3-30 p.m. and spent a few hours reading books on investment. They were too costly and I couldn't afford to buy them. All of them said discipline was the key to success and to control loss."

All the time he felt success was around the corner. When he had come down to his last Rs 50,000 kept with the broker, things changed and in June 1997 he made Rs 1 lakh."

Viswanathan admits to changing his style "a little bit." He used to trade in SBI, buying 2,000 in the morning and selling it in evening. "But I was also watching ITC. Whenever it fell by Rs 6 or 7, it bounced back by Rs 4." With his broker reducing the brokerage from 55 to 25 paise, he started trading in ITC.

He also learnt to take advantage of the volatility on the different closing days for the different exchanges. "I didn't know the reasons but knew the volatility will come on those days after 2 p.m. and would be ready for it; I would go short or long according to the move and I made big money."

When Ketan Parekh moved his patronage to selected IT stocks, this investor saw the pattern and shifted his trading to shares such as Pentafour Software, Satyam and Himachal Futuristic. "The going was so good that even on mistakes I made money. In the whole year I made Rs 13 lakh."

Then he started interacting with technical analysts to find out if there was a method in the madness of the bourses. He got initiated into technical analysis and over three years made Rs 45 lakh and "had Rs 20 lakh in hard cash after my expenses. But I had a premonition: What if something happens to me; I was only trading and didn't have an investment."

After the 1992 crash he was left with so much junk paper that he was "scared to invest" But wisely enough he moved his surplus cash into FDs. Suddenly on one trading day he lost Rs 3.5 lakh; "I've lost similar amounts on three days, while the maximum I've made in a day is Rs 85,000."

Then, in 2001, at 43 Viswanathan got a heart attack. But so engrossed was he in his trading activity that even though the pain started on a Monday "I dismissed it as gastric pain throughout the week. On Saturday when I could bear it no longer I went to a hospital, and had to undergo a by-pass surgery immediately." After that for a year, he refrained from trading.

In 2003 Viswanathan graduated from day trading to position trading. For the uninitiated, he explains the difference thus: "Ninety per cent of day traders are tape readers (from the days when the stock prices came over the telex tape). They just look at the screen and don't use charts, and the price movement gives them a feel of the market. Very few day trade with charts because charting is very costly."

He says that in day trading one has to be right at least 80 per cent of the time "because all you make is Rs 1 or 2. But when the price goes down even by Rs 3, the day traders don't cut their losses and tend to wait till it is down to Rs 8 or 9. So one bad trade wipes out the gain of eight good trades. I've seen day traders being right 70 per cent of the time and yet lose."

Position trading, he explains, is the opposite, as in one trade you make Rs 20 to 30. "This is a game of probability and in position trading you have to wait for a few days, and take delivery."

He adds that within a year, with a capital of Rs 10 lakh he could make 60 per cent by trading thus and on most of the days "I was idle playing games on the computer."

But meanwhile his BP kept fluctuating. "If I'd go for my BP reading after trading, it would be 160/100; otherwise it would be 110/70."

After his doctor's warnings, he gave up trading altogether and started as a franchisee three months ago. His clients include day traders who refuse to take his advise against day trading. For those who leave their investment decisions to him, he promises them about 4 per cent return a month.

"I tell them don't look for big gains; I'll give you more than double of what the banks give you. Be happy with 18 per cent. If you get 30 to 35 per cent, as they've got in the last one year, salute me."

On the future direction of the market, he says: "To be honest, nobody knows. Your guess is as good as mine. But I have my indicators, and when the market goes down, I'm ready. I'm confident that the market will not go down without telling me!"

Response may be sent to rasheeda@thehindu.co.in

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