Transcription
It is very easy to say that we will keep this share for our entire lives, but when you see its prices falling, you experience different kinds of psychological effects. But I have always believed that technical analysis shows you a trend. That trend can be for any period, any time frame. And if you are investing for a long time by looking at the chart, you will achieve great success.
Kunal, you have been a successful trader or a successful investor. Now, when will Nifty return to 27,000? See, the answers to these questions are not in charting. Charting is a reactive concept. You see, on any day you see a stock go down by 20%, you see that everyone wants to buy that share on the same day. If you go with the correct trend, your chances of success will increase. Trend is friend, trend is friend. That company is getting a new order. Now you are interested because the company seems good. First, open the chart and take a look.
Now, with the advent of AI, you only have to tell a computer, "I want to see the results for this, this, this, this condition." You press a button, and in 5 minutes, the news arrives. And the stock that was in a good trend falls sharply the next day. So how should such situations be handled? If you ask those who trade, "What is your per-trade risk?", they have no answer. Which category of stocks do you like: large-cap, mid-cap, small-caps? In swing trading, the biggest challenge is timing. More than stock selection, more than the overall trend, the biggest thing is timing. If you are too involved and are worried about a slight decline, or if you can't sleep at night thinking, "Nifty is going down, where will it open tomorrow? Will there be a loss?", it means there is some risk factor that you haven't fully factored in yet. [Music]
Welcome back to another episode of Sheron Ki Baat with experts, and today we have a very special guest with us. I am sure that when you meet them, you will recognize them. They appear on TV channels, have their own YouTube channel, and teach us about technicals. We all want to know what the direction of the market might be, what the direction of the stocks might be, and how to read technical charts. We will also try to find out from them how they chose this profession and what courses are available to become technical experts in the coming time. They are a very famous research analyst with more than 22 years of experience in stock markets. So today's special guest has joined us, Mr. Kunal Sargi. He is a research analyst and a SEBI-certified research analyst. This has become very important to say nowadays. Kunal, welcome to the show.
My pleasure entirely, Geetu ji. And I am very happy, and I feel very good even after hearing the introduction you just gave. It feels like I have a lot of experience; it seems like I have grown old.
Kunal, first, tell us about yourself. How did you start? How did you get into technical analysis?
See, before technical analysis, when I came into the market, the stock market is such a place... in my family, my mother has always been an investor. So she always invested. There was a time when there were no television channels, and at that time, I was studying in school. During that time, what was there? You had to see the rates from the newspaper. So my mother used to see the rates in the newspaper for all the shares in her portfolio. From there, a habit developed, and I became interested in seeing it. I thought it was very interesting; money is also made like this. Then, share certificates were sent by post for transfer; many times, they got lost in the post. That was one era; it seems like it's a story of a century, but it happened only a few years ago. From there, my interest came in the stock market. After that, like all students study, I also read a lot and tried my best. But that was the time when data and information were not so easily available. This is when the internet was also new. That was the time. So gradually, I learned different things, did all the experiments. About myself, I proudly say that I made every possible experiment that there can be. Okay, I have tried everything under the sun. I started out as a fundamental analyst. So I tried to read and learn fundamentals, to do Warren Buffett-style investing. Everyone who starts new does this. But then, gradually, you find your path. You realize that there is a huge gap between what is visible and what actually happens, and there is a huge issue of timing, a huge issue of psychology. It is very easy to say that we will keep this share for our entire lives, but when you see its prices falling, you experience different kinds of psychological effects. You go through all these things. I have always believed that if you get a good break at the beginning of your career or if you earn money in the beginning, then that gets you interested, and after that, everything becomes a little easier. Luckily, I got success in the beginning with charting and technical analysis. Until then, as many books as I had read, I remember that I used to read a book by Martin Pring, in which it was said that technical analysis is for the short term and essentially an idea. And even today, this is the belief of people that technical analysis is more suitable for trading or more useful in trading, that it is more useful in options trading. But I have always believed that technical analysis shows you a trend. That trend can be for any period, for any time frame. So I started focusing on it, and that has always been my focus. I got good success in it, and I think it is a very large area that people have paid less attention to, and this belief that technical analysis is short-term and fundamental is long-term. If you think outside of that, even in long-term analysis and long-term investing, charting plays a very big role. And if you are investing for a long time by looking at the chart, you will achieve great success. So a journey started from there, and then after that, I kept investing. After that, I joined different channels, so a little public profile was created. See, investing and trading are otherwise very solitary activities. You are investing for yourself, so no one knows you, and you don't know anyone. And that doesn't give you the feeling of business and profession. But when you become a public profile, people start to know you; you also get validation. That's the reason why all this is happening, but my focus is still on my investing; that's my focus.
Kunal, have you been a successful trader or a successful investor?
See, I think there is not much difference between the two. Although I don't think like that; I don't believe in that compartmentalization that you call yourself an investor or a trader. Although investors get quite offended when you call them traders if you call them a trader, but I don't think so. I think trading is also a very interesting job, and trading also uses a lot of brain; very few people succeed in it. This is not an easy thing to do and to be good at. Similarly, investing is also something that has its own rules. Yes, in investing, you can say that if a bull market is going on, the success rate is higher, and we are seeing a long-term bull market, both in Indian equities and in global equities. So because of this, you see, investors have made a lot of money. So both ideas are very strong, and many times, what happens is that even if you have taken a stock for investment, if you are getting a short-term exit, you exit, then it also becomes trading. So I don't look at it that way, but I believe that I am not bound by any time frame, but typically, I have a slightly long-term horizon, so I think that way. Short-term trading, buying today and selling tomorrow, or buying today and selling next week, I think, compared to that, my personal thought is that if you invest for a short time, you get more time to contemplate your trades.
A common question in the minds of all investors is that out of 3000-4000 stocks, technically, if someone has to study charts, how to shortlist the stock first? So what is your technique? When you analyze a stock on charts, how do you choose that yes, this stock might be... let me study the technical trend of this stock because I see momentum in this.
See, the way is that, as you said, there are many shares, and if you start looking at all the shares, the focus will never be established. First, you have to eliminate, and the way to eliminate is that you can choose for yourself. For example, you are very conservative as an investor or trader, so you can decide that okay, I will only track the 50 shares of Nifty 50. There are some people who say that they look at Nifty 200, some look at Nifty 500, some create their own particular list. So whatever your universe is, this is called a universe, that you select a broad group that you will actively track. We have nothing to do with what is happening outside this group because if you start looking at all the shares in the market or whatever is in the news, then there is never any focus. So let's decide on a group, and I think it gives a lot of benefit. It keeps your focus. If you have less time, keep a small group; if you are working professionally, like we are, then we have time, so we can track more stocks. If you think that I can only give one hour a day, then even if you are actively tracking 50 shares, you will get good opportunities. It is not necessary that you have to look at the entire market of 3000 shares. You focus on a select group of stocks. And in that, you can decide whether you want to see high volatility, high beta, high momentum stocks or relatively safer or low-risk stocks. So make a list of your own and actively track those stocks. Trading opportunities will be given to you by your technique, your system, but a universe will be defined, and when you look at the charts of that entire universe daily or regularly, you will become familiar with them, and then you will know it by heart. And then, if there is any breach of resistance or any momentum is building, any pattern is forming, then you will have an idea of it first, and when the opportunity comes, you will be able to recognize it immediately. So this focus is very important. I meet many investors and traders who are tracking many stocks randomly. What happens is that you saw a good chart at that time, it was very much liked, you said that the pattern is not complete, let's see it after two or four days, at that time you started looking at something else. Because your focus was not there, opportunities often slip away. Therefore, it is better to make a list and look at those stocks regularly.
Let's say we have identified the stocks. Now tell me what are the indicators that a common man who doesn't know much about technicals can use to at least understand how charts are made and how trends are formed?
On this, I will say two things. One is that it is very important to understand first that charting does not peek into the future; it is not a predictive idea, right? We all want, people also expect from us, like when you go somewhere, people's question is, sir, tell us what will happen in Nifty, or has the bottom been formed, or when will Nifty return to 27,000? See, the answers to these questions are not in charting. Ninety percent of people who answer this, they share their instincts or experience, or their gut feeling, which has no charting statistical basis. Mostly, charting is a reactive concept. So you should understand the difference between reactive and predictive, where we are making some prediction of the future, forecasting that we think it will be like this, Nifty will go this far, then it will fall like this, then this share will be like this. I don't think you can make such predictions with much confidence. You can react. Reaction means what? Suppose we know that Nifty is rising, we can track it from a safe distance. We say, okay, we will keep moving with Nifty until this factor of ours is complete; we will keep holding it with it. For example, suppose we put a moving average line with the price, and now we say that until the price does not go below this moving average, we will hold it. Now you don't know when this crossover will happen, when the price will go below the moving average, and it is not possible for you to predict it, but you know that if the price is rising, I have to keep a stop loss with the moving average. So this is a reaction. So I think that instead of prediction, if you focus on reaction, you will get more success. But everyone's focus is initially more towards prediction, that we are able to predict. So avoid prediction, focus on reaction. That's the first thing. The second thing is that I think the basic concept of technicals is that there is inertia in prices. So Newton's principle, that there is inertia of motion, that a body in motion continues to be in motion until a force is applied. The same principle is seen in share prices, that if share prices are rising, they will continue to rise until there is no indication on your chart that they will not rise. Our instinct should be to see a rising share because it is rising, its chances of rising are more, okay? And if that share is falling, our instinct should be that because it is falling, its chances of falling are more, okay? While common sense is exactly the opposite. The common man thinks that it has fallen so much, it should be taken, or it has risen so much, it should be sold now. But what does our experience say? In something that is rising, retail investors, weak hands, they leave first, and it is completely with strong hands, and that is why its prices are running like that. So it is beneficial to hold that share, and where you see, in something that is falling, everyone is interested. So you see, on any day you see a stock go down by 20%, you see that everyone wants to buy that share on the same day. Correct. So what is the purpose of charting? The purpose of charting is that if, as you asked, if you don't know much about charting or want to have a basic philosophy, then a basic philosophy is that we only take care of what the trend is currently running. If we respect that trend, you will be better off. This has been my experience. Now see, there is no proof of this; my experience says that if you go with the trend, your chances of success will increase. Trend is friend, trend is friend. But it is not easy. It is easy to say and understand; intellectually, you will also be able to understand, but when you sit down to do it, many difficulties arise. Because suppose you bought a share, it had risen so much, then we are saying that you should buy it, then it increased further, then there is a strange kind of fear in the mind that how to handle a share that has increased so much. One thing to understand here is that if the share is falling, your risk is as much as your stop loss, and if the share is rising, your risk is as much as your stop loss. The share rising or falling does not make any difference to our risk because we have limited our risk to our stop loss. So if you are carefully following stop losses, then you should not be affected by the share rising or falling. So if these are small mental adjustments, which are difficult to achieve, and it takes a long time for people many times, but if you tune your mental thought process like this, you will be able to understand charting better.
Tell us that in 20+ years of experience in the stock market, have you ever made any mistake that you think should not have been made, or something slipped from you that should have been done, but I did not do it?
This happens every day, that there is hardly a day or week when we miss opportunities or we don't see the chart properly or we ignore it even after seeing it. Many times, our own biases become so dominant. You see on the chart that there has been a breakdown, but now you have heard someone's words, they were saying with great confidence that it is a very good company, it is going to get orders, its future is bright. So after listening, what happens is that those things affect you somewhere. So if many times it happens that you are seeing an exit, the weakness is known, but you get into someone's words, although there is no excuse for it. In the stock market, if you say that I was understanding correctly, but the mistake was someone else's, then usually, see, all analysts and traders, what do we do? We always want to put the blame on someone else for our loss; we get satisfaction from that, happiness that okay, it was not our mistake, so the loss was due to the market, due to the analyst appearing on TV, or due to the weather, but the loss is yours. So in the end, you have to pay the money. Therefore, the biggest thing in this is you should take ownership. If there is a loss, it is because of you; if there is profit, it is because of your judgment, your thinking, your abilities; there is no need to give credit to anyone else. So this is your risk; you are responsible for it. Therefore, see, while accepting anyone's words, if you know charting, and suppose you got some opinion from somewhere, you want to verify it, then you can see through charts in a minute. Every day, many people keep suggesting shares to me that this is looking good, this is happening in it, but whenever you get any information about any interesting stock from anywhere, suppose you read an article in the newspaper, that company is getting a new order. Now you are interested because the company seems good. First, open the chart and see. If you have that information, then everyone has that information because it is common public knowledge, so it is completely reflected in the price. This is called the efficient market thesis, that whatever is there, whatever new information is there, you immediately see it reflected in the market prices. Then you can check whether the chart is also pointing towards it. If the chart is weak, the news is very good, then wait a little, let the chart improve a little, let the momentum return. Momentum is a great power. Many times, you see, there are very good shares, very good companies, which have become 10, 15, 20 times bigger later, they remained underperforming for many months and years without momentum. The companies were the same, good companies, and we can take the names of dozens of such companies that did not run for years. One is Reliance; I remember it did not run for 10 years. Reliance did not run. ITC, you see, how many years it did not run. State Bank, I remember before 2010, State Bank did not move at all, it traded in a limited range. HUL, HUL did not run for years; then in 2010, there was a breakout. So there are many such stocks that do not run for years. So for this, momentum is very important. So if you are following the momentum, you know where the breakout is coming, when there is price action in it, when people are buying it, those things are important, and you should move by looking at it.
Kunal, you said that sometimes when you analyze charts and hear news from here and there, whispers on the street were very famous, should a technical analyst listen to all this, or should they just focus on their charts? In an ideal environment, you should not listen. There is a story that there is a great famous Nicholas Darvas who gave the Darvas Box Theory, which is very famous, and he was a dancer by profession, and this is a very old story, meaning it is six or seven decades old. So he was a dancer in the US, and he was interested in the stock market, he used to invest. Wires, in that era, in the 1960s and 50s, he used to get rates. He used to go to different cities for performances, and when he went there, he used to be completely cut off from the rest of the world. Then he used to sit in his room and think about the share and imagine its chart. He did not have a laptop or internet, but he used to make a box in his mind that the price is moving in this box; if it goes outside it, he will buy it, which today we can consider a resistance breakout, and after that, he invested and made a lot of money in a time. This means that when you are cut off and this information overload does not happen, then there are its benefits. But what happens is that it is not possible for all of us to avoid this in this era. Social media is everywhere, and your friends, everyone keeps giving you some advice, but it does not make any difference. Once you realize that I will invest only from my system, then it's fine. You get opinions, you get new inputs, you get information, like suppose you read an article, as I was saying, or you saw some news piece, you found out about a share, there is no harm in that, you found out about a new share that you are not tracking yet, for example, or you found out about some new development in it. Now look at its chart, and if you think that the development is also good, the company is also good, and my chart is also supportive, then definitely take it. But whatever you...
Verify it once with the chart, because if you invest in a share, news outlets or anyone will not tell you when to exit. You must make that decision yourself. Until you have seen the chart, you will not know the exit point.
We are absolutely correct, Kunal. What is a stock that you have held for a long time, and what is the maximum time you have held any stock?
Many stocks, I have held stocks for many years. And see, what is important in charting is, as long as the stock is performing, there is no reason to exit. If you buy any share and it is performing, hold it. If it is not performing, do not do it only for sentimental reasons—because it has always been in our portfolio, or many times I say it is out of laziness. You think, "Let's see, maybe I'll get some time later." That is not the right approach. Whatever you invest in, review it periodically. It depends on you; if you are a very long-term investor, review it once every three months. If you feel that you can review it every month, do it every month. If you want to do it every week, do it every week, but do a periodic review. Do not look at it all the time. The flip side is that people keep watching all the time. You invested for a long time, but you look at the price of Reliance every day. Everything is on our phones, so looking at it… See, it’s like this: you have bought a plot; now you are calling the property dealer every day and asking what the rate is. A new rate is found every day, and every day you have anxiety about it. That anxiety is of no use. When you have to make a decision, evaluate the chart on a periodic basis. Then I think your decision's timeframe will be appropriate.
Kunal, technology is changing very fast. I remember when I first analyzed a chart; it was in early 2000. I would take a printout and draw lines on it with a scale. After that, you know, new tools started coming. You can draw any line and Fibonacci levels; whatever you want to do, you can do it. Now it's the time of AI, artificial intelligence. You give it any command, and it will tell you. So how is this changing? Technical analysis with artificial intelligence coming in… I don't think… See, because of technology… Technology is not something that only I have. The greatest thing about technology is that it is a very democratic thing that reaches everyone. As soon as it reaches everyone, its relative advantage is lost. As long as technology is only with you and not with others, you can take great advantage of it. But as soon as that technology comes to everyone, a level playing field is achieved. Like charting, as long as charts were known to very few people or access to it was less, a different kind of charting was successful. Even small, simple models were very successful. But what is the situation today? Because it is very commonly available, many people are doing the same thing. So I think with the advent of artificial intelligence, the breadth of your analysis will increase; you will be able to track many more stocks. Correct. For example, today I actively track 650–700 stocks. If there were no computers, if there were no software, it would not be possible to track so many stocks together. But through artificial intelligence, we can create different kinds of screeners. We can put in very complex conditions so that after filtering, some stocks will come to us. So we can track a broad universe. So today, we track 600–700 stocks; you can increase that to 1500–2000 stocks. You can do global equity, you can see different correlations, which is a very difficult task to do manually. That is, if you want to see a small signal, you want to see how much seasonality there is in a particular share, how the stock performs near expiry in which month, what impact comes when the open interest is higher, or if the ATR is increased on stock prices… It is very difficult for a common man to track these kinds of correlations because coding was needed for all these things. Now, with the advent of AI, you just have to tell a computer, "I want to see the results for this, this, this, this condition." You press the button, and in 5 minutes, the list is ready in front of you. So your analysis will definitely be sharper. I believe this is a good thing, but at the same time, this will not necessarily result in profits, correct? There is a big difference between making profit and this, because again the role of psychology comes in, and psychology is eternal. It is not affected by technology. Like, let's say you are making a profit, and you know you bought a share for whatever reason; you are making a profit. At that time, you will have the desire to book the profit. Right? Those psychological biases remain as they are. So, with the advent of technology, profits will not necessarily be very large, but your analysis will become more comprehensive and more focused. I think…
And what about algos? Algorithmic rhythms that set levels… No, algos are a very large mechanism and a very big thing, especially for those who are working professionally, because in this, human biases can be removed to a large extent from the system. We were just discussing that if you are trading manually, no matter how focused you are and how much self-control you have, you will still suffer from biases, and you avoid that. Plus, you don't have to sit in front of the system. For example, let's say we create a simple strategy: if Nifty goes above a particular level, then buy, and if it goes below this level, then exit. Then it went above this level again, buy, and exit when it goes below this level. Let's say this is a simple system. Now, to execute this system, you will have to sit in front of the system all day because when the exit/buy signal comes, someone will be watching it. That person will press the buy button, but through algos, you can do your job and simply put that as a program, and the computer automatically trades behind you. Then you see that after 3 months of data, there is a flaw in this system; I need to plug this. You have improved it, made it more complicated. Gradually, an algo is created that works on an automatic system, which, in my opinion, has more chances of success because there are no biases, and it is more logical. But there is no holy grail formula. See, what is the problem with all of us? The market, which is a very complex thing, we keep trying to simplify it too much. We want to write a 510-line code, and we will plug that code into the algo, and then money keeps printing from it. Unfortunately, this does not happen. Markets are very complex. You see, for two months, four months, a lot of money is made on one system, then suddenly some event happens, some earthquake comes, and suddenly that algo gives back all the money you earned in so many months. This keeps happening, so it's not that simple, but it is very important for a professional.
Kunal, how should we do crisis management? Many people buy stocks but lose patience. How is its management done? And secondly, let's say we took stock today, and some bad news, like Trump or tariffs, is unknown. They announce it anytime, and the news comes, and the stock that was in a good trend comes down sharply the next day. How should such situations be handled?
See, the risk is the whole analysis. There are two aspects to this: one is analysis, and the other is investing or trading. Basically, trading is applied risk management, correct? If you are trading, everything else is aside; the most important thing is risk. Similarly, in investing, I think risk is paramount, most important. Warren Buffett also says that the first rule is not to lose money, and then the second and third rules are not to forget rule number one. The most important thing is that you should not lose money; you have to save your money. If we lose capital, then how will we invest further? Risk management rules should be strictly followed. When you start looking at it professionally, you do everything very objectively. As long as you consider it a game or an intellectual pursuit, you keep trying it in different ways, trying to solve it like a puzzle. In that, I think proper risk management does not happen. Assess how much risk you can bear. Decide on a bet size: how many shares can you trade? If your trade is going against you, what is the maximum loss per trade you can bear? Mostly traders…I don't have any data, but I feel that most people trade without any bet size. If you ask them what their risk per trade is, they have no answer. In one risk trade, they take such big risks, and there is another trade in which they have a very small position, and the risk is small. They get disturbed if it falls slightly. Even if the share is halved, they hold on to it. Because of this imbalance, you see the result. So, my belief has always been that our risk management has to be objective. Risk per trade has to be defined: if one of our trades is going against us, how much loss are we willing to take in one trade? If that level is hit, either exit yourself. If you are working very short-term, you can take the help of an algo. If you have a lot of trouble selling, if you have trouble taking losses, you have to train yourself gradually that this is part of the game. I took 10 trades; in four, the stop loss was hit; in six, I made a profit. So, net, I am in a good position. But if I hadn't taken those stop losses, this whole equation of mine would have gone bad. It takes some time to understand this. Everyone understands it, but there is a psychological barrier to implementing it, and that is the biggest challenge.
Trading University. So, Kunal, which books should a new person who wants to come into technical analysis read?
I think that even more important than technical analysis is to read a little about psychology. There is a very interesting series called Market Wizards, written by Jack Schwager. If you read it, you will find profiles of different traders, their interviews. You get to know what different traders and investors were thinking when they took a very large trade or what their thinking was before a very successful trade. What technique was used, or what was thought before the trades that proved completely wrong, or what was thought afterward. The psychological real-life feelings are understood. I think everyone should read it, and there are many new editions of it. Secondly, if you want to learn charting, there are many books, including the NISM course material. You get many interesting books, from basic charting to advanced charting. Talking about old books, as I was saying, there are Martin Pring's books, which are very interesting, basic old books. There is a book by Edwards Maggi, which was called the bible of technical analysis. They are good starting points. If you start from there, charting will seem simple. Start with simple charting, although nowadays people prefer to learn through social media. There is no harm in that, but the knowledge there is a little disjointed. Here, knowledge is sequential. You start from the beginning and gradually learn by going through each chapter one by one. Whereas, on social media, knowledge is scattered everywhere. You read something somewhere, learned something somewhere; then it becomes difficult to connect it and use it properly.
Tell me, what has been your best trade so far?
Trade and investing: My best trade is yet to come. I believe it will come in time. But I feel that one good thing is that I have been very bullish on Indian markets, and I am still bullish on Indian markets. There is no sense of patriotism behind this; there is cold analysis. If you look at the chart and look at the long-term monthly chart of Nifty or the quarterly chart, look at the long-term chart, you will see that our trend has consistently been positive at a very clean angle, around 45°. Don't look at short-term charts; I mean this is not about daily and weekly; this is about quarterly charts or yearly charts where one candle shows one year's data. On that kind of timeframe, if you look at India on a long-term timescale, the Indian markets, it's a continuous bull market. See, what you have to do in any bull market is invest and stay invested. Intra-period volatility remains, and because of that, we keep exiting it again and again, or we become uncomfortable again and again, or we are in a dilemma whether we should keep it or not. But if you respect the broad trend, I think that is something that one should be very… It is a clear trend. Even then, if we are not able to make money, where our market is in such a clear uptrend, and still, no money is made, then there is a big problem. It means the mistake is in us; there is no mistake in the market. You see, how many developed markets in the world are there where you won't find this kind of trend? We saw a big fall in the Indonesian market; either an uptrend has happened, but for how many years did we see a continuous downtrend earlier, and a lot of wealth destruction happened. In our market, during that period, you are continuously seeing an uptrend. The biggest advantage of charting is that you get to know the broad trend. Many times, these long-term things are less understood; we take less interest in them because we all want to see things in the short term. But these broad trends give direction. I think if you are sitting on this broad trend, and if you take it on corrections, on a decline, then in the long term, I think money will still be made, because once a trend starts, I think it will continue.
Nowadays, a new thing everyone wants to know is swing trading. It was also in our time, you know, swing trades, but now everyone… Now tell me one such swing trade where money is made quickly. Is there something like that?
Swing trade… See, if you are investing for a short period, basically… See, I give the definition of swing as I understand it: there is a trend, and the trend is like a continuous higher bottom or lower peak formation on the chart. Within this trend, you often see a one-sided move, which is called a unilateral unidirectional move. That is called a swing. Swing is a short-term burst in prices, which can be in any one direction, up or down. If you want to trade those swings, you say I don't care about the trend; I want to capture only this part of the trend, where the price is running one-sided. This is called swing trading. The biggest challenge in swing trading is timing. More than stock selection, more than the overall trend, the biggest thing is timing. How good your timing is will determine how you will do in swing trading. Timing, I think, is a little overrated. More important than timing is stock selection in swing trading. Priority should be given to timing. If you have a good timing technique, you can use very leading indicators, use candlesticks correctly, then you will be able to perform better in swing trading. But swing trading does not mean that you bought a share now, you are exiting the next moment. The chances of success are increasing. The more trades you make, the more brokerage and STT fractional costs you will have to pay. So consider that the flip side of swing trading is that the more you swing trade, the more brokerage, etc., you have to pay. Keep this in mind. Bigger than brokerage is what we call slippage. Slippage is that you saw the price at ₹100 on the chart; you thought you would buy at ₹100. By the time you could buy, the price increased to ₹101. The additional ₹1 you had to pay is called slippage. Similarly, when you went to sell, the ₹100 item sold for ₹99, so ₹1 less was received. When you add this, 1% goes out like this. This is called slippage. When you take all these things, you see that the goal is to make money. Whether you make money from investing by keeping it for a long time or making money from swing trading… In swing trading, constant validation is received. See, basically, if you are looking at a short, you get a dopamine jump that you saw a short, and in 1 minute, you got interest. Exactly the same way, swing trade… You took a swing trade; now you think there was a loss in this swing trade. Let's profit in the next one, then the next one… You keep doing it continuously. But what you need to remember is that we are not trading for dopamine; we are trading to make money. Continuously see that you did swing trading for three months; what was the result? If you are not getting profit, it means you are on the wrong idea, and you are not doing it correctly. Stop doing what is not working correctly; there are many other ways to get returns.
Bull market or bear market, where do technicals work well?
They work on both sides, but yes, less money is made in a bear market. There are no two opinions about this because most of us are long-only investors. Except for some instruments, you cannot create large short positions. Therefore, if the market is falling, obviously you do not make money. There is negativity, and in a bull market, everyone is making money. There is a general feeling of prosperity and happiness, a euphoria that is not seen in a bear market. But charts do their work equally. See, what is the work of a chart? A chart does not predict anything; a chart only represents what is happening; it tells what is happening. A chart is in the present, but the analyst tries to peek into the future. I think if the analyst also stays in the present, he can do better work. We understand the present based on history. Charts are made for this.
How do you start your trading day, Kunal?
My day starts with looking at charts. Typically, I don't look at charts in the morning, but in the morning, news, information, what happened today, where SGX closed… Now, instead of SGX, there is GIFT Nifty. So where GIFT Nifty closed, these things cannot be missed. You see it in the morning. Then you get ready. Then, from 8:15 to 8:30, you start actively tracking the market, and then throughout the day, something or the other keeps happening in the market. But there is detachment; it's not like if the market fell sharply today or 500 points down, it's having a big impact on me or if it went up a lot, then I am very happy that day. It's not like that, and the reason is that all those things keep happening daily. Over a period of time, it does not have that much psychological impact. I think this is also a way to know how much you are growing as a trader, how much effect it has on you. If you are very involved, and a slight decline is bothering you, or if you are not able to sleep thinking that GIFT Nifty is falling, where will it open tomorrow, there will be a loss… It means there is some risk factor that you have not fully factored in yet. If you have to do this work daily, and you want to do it for life, whether you are a trader or investor, you have to understand that this volatility will remain. The market does not always run according to us. When it is going against us, what kind of psychological pressure will this bring on me? Because if you keep bearing its psychological impact, then your decisions will be wrong.
What category of stocks do you like: large-cap, mid-cap, small-caps?
Everyone has their own roles. Large-caps are important, of course, but from a charting perspective or for an investor, I think the opportunities are in small-cap, micro-cap, mid-caps because they are companies that are growing very fast. Correct. It is true that if you look from the point of view of corporate governance, you will see more safety in large-cap stocks, and that is absolutely correct. But the growth is seen in small shares. The risk is also higher, but you see growth there.
If you can manage a little risk, understand risk properly, and you think, “No, I understand this,” see, there’s a very good, interesting book on this. The book’s name is “Stocks for the Long Run.” Okay, it’s Jeremy Siegel’s book. A research was conducted many years ago in the US, and it stated that the Dow 30 components—if you are invested in the Dow, invested in Dow Jones, in large-cap stocks—compared to that, if you create a very diversified small-cap, micro-cap portfolio, then its risk profile is better because there is so much diversification. If you’re taking 100 small-cap stocks and 30 large shares, it’s possible that your risk profile is much better on all parameters. It’s only a game of risk management, how you manage it.
In India, I see that a lot of work is happening in small and medium-sized companies, and those companies are growing very fast. The growth of very large companies is very slow, and small companies often double their sales and profits very quickly. So we see more opportunities there. If you are not a technical analyst, what do you do? A lot can happen. I think that this life expectancy is increasing. Many people live until 90 or 100. If you are going to live that long, you will need more than one profession. I feel that I have a great interest in law. Maybe I would be a lawyer, maybe a writer, who knows what? But whatever it is, I would definitely be an investor.
One thing about this profession is that it can continue well into your old age. Even if you are 80 or 85 years old, the job you’re in might be eliminated, or your need might end. I know many people whose job profiles have disappeared; the job they used to do no longer exists in those offices. But the investment portfolio you create today will keep you busy, support you, and you will be proud to see it. You’ll think, “Man, look at the rate at which I bought this share; it’s still in my portfolio today.” Investing is something that you can keep doing lifelong.
I will definitely remain an investor. Kunal, thank you very much for joining us in this program. It’s always a pleasure. Thank you so much. Thank you. [Music]