iCharts Discussions

[sandy975]

You go LONG with Nifty futures when the index drops majorly, like about 500 points. Add positions if it falls by another 400 points or so. This is irrespective of whether nifty is in uptrend or not. We need to make sure that we have sufficient buffer with us for mark to mark margin requirement adequate enough to take care of further falls. This way you do not have to TIME the market and go by a broad understanding that if the market has gone down by 500- 1000 points it would recover some day. Your cost of carry would be 10 points per month plus the brokerage incurred for rolling over your positions. Since futures are leveraged transactions, you profit at an investment size of 8 times you available cash/ investment.

If nifty is at a 5000 level a buffer of 1500- 2000 points downside is more than safe for going long at that level. This is assuming that you land yourself in between 2008 like recession which is rare. NOW again you do not have to carry the entire amount with you. If you can pull together that amount in short notice for about 6 months it would suffice. Even a cash balance available in credit card could be considered for this purpose.

So this is the story.
You have Rs 30000 lying with you. The nifty falls by 600 points on Obama’s speech of rising interest rates etc. You buy a lot at Rs 25000. This is a panic dive and the market is likely to recover. Now let’s say the market falls by another 700 points before finally recovering. You would have needed Rs 35000 (700* 50 units in one lot) as buffer to hold on to the lot. So you were short by Rs 30000. This amount you should be able to withdraw from your credit cards for 3- 4 months. You will pay interest of around Rs 3000 for cash withdrawal from credit card (3% every month for 3 months approx plus charges). Finally when the market recovers you make a cool 25,000(30000 – 3000 int on cards – 2000 other exp). Use this profit amount to create a buffer for the next fall in the index.

[sandy975]

Note
I am not shorting nifty in down trend and buying in uptrend per the technical charts. I am not willing to lose any money on stop loss hits when the trend changes. So this is more of an investment style rather than trading.
The buffer requirement of 2000 points for the downtrend would not be required in most cases, unless there is a confirmed recession which is the case once in 4- 5 years and is over in 8- 12 months.
That is only for your peace of mind.

[nlokwani]

Sandy - Just to add:

One can also buy Nifty Bees on a decline (one share at 10% of nifty) if you want to avoid draw downs in margin calls.

This is akin to buying a piece of Nifty 50 shares

[sandy975]

Thanks Nlokwani, but I am not sure if Nifty bees is a leveraged product. I want to use the power of leverage available in derivative futures. Other wise I think a simple SIP method of investment would give better returns in long run.
Also I do not intend to hold on to the futures after recovering 500 - 1000 points whatever might be the market sentiment. So form this aspect it is like trading as well with a positional bias. I am expecting two such dips in a year on an average and I am happy recovering 1000 points in a year.

[saikat]

Hello,

I am not going to argue with ur strategy here - as principly I would ACTUALLY short in downtrend and long in uptrend - opposite to wht u mentioned. If you are ready to pay MTM for 1000 points and may be after 4-5 months u wud earn 100 points when it recovers 1100 points - then why not be with the trend and earn 500 points (50 % ) of that 1000 point fall. I don't understand.

Yes.... u can afford to have this strategy if have huge cash reserve.
And even then u r in wrong place as this place is for TA and not a forum for FII.

The sole reason for replying this post is - I ABSOLUTELY disagree the idea of using credit card for MTM. In stock market u play with the money u can afford to lose or a part of ur earlier profits may be but NEVER EVER such things as loans against credit cards etc... IT IS A NO.... A BIG NO

Regards,

Saikat

[rajanx12]

Hi

If you draw money from credit card and use for leaverage NF you are jumping in to well with eyes blind fold. for gods sake dont try this

regards
dev

[sandy975]

You get in when there has already been a substantial fall in nifty. Like 500 – 1000 points. A further downside is which is deep enough for you to having to resort to borrowings from Credit Card, is likely only in case of confirmed recession once in 4- 5 years. So there would be plenty of instances which would give you an opportunity to recover those 1000 points with a nominal buffer with you. In worst case you know you can still resort to Credit cards is just for your peace of mind.

Also if the index recovers by 1000 points then your gain is 1000 points in a year and not 100 as you mentioned. If the index is at its peak say 7000 level then you probable wait for a bigger drop before jumping in otherwise there is a chance that you would take much longer to recover.

Trading in the direction of trend is an age old way of trading. Here you only lose money at trend reversals and whipsaws. Per this strategy you do not have to worry about hitting the stops. Also I would like to know form Saikat and others trading for at least 2 years as to what has been your average rate of return trading nifty futures on the basis of trend (on the entire investment on lots plus the buffer you needed to maintain)

[saikat]

[sandy975]

Saikat, Its not your thread and nobody is forcing you. If you do not want to discuss then stay out of the discussion.