Standing on the shoulder of giants

Long weekend and I was reflecting on all the people who have helped me on my journey to become a better trader, these are the people who've in many ways influenced my thoughts, some of them have taken time out to help me understand certain nuances. You know who you are. My heartfelt gratitude to all. 

Listing in no particular order, but categorized based on medium

Youtube Channels

1. Chat with traders  - Aaron does a fantastic job of interviewing people. There are some podcasts that I have gone back to several time. I will create a separate list of must listens later.

2. SBM Capital - Mike Bellafiore and his team at SBM do an awesome job of sharing knowledge again a someone I look up to and a channel that I follow. Really no nonsense stuff.

3. Futures.io - This is another channel with very relevant webinars.

4. Wikimaniacs - Fairly good assortment of content, they have all the popular and big names covered.

 Forums

1. Trader Laboratory - This one is absolute gold. Esp. follow content by jperl and soultrader. I owe these guys a lot. 

2. Forex Factory - Follow posts by dee50

3. Capital Mind - This is a paid one, but have learnt a lot from various people and the discussions, esp. vyr

4. Twitter - I will put this in the category of forums - the below list of people are worth following

1. @Thakker_Inv

   Network Engineer by profession. Market Profile learner and trader.

2. jay

   @niftywizard

   Entrepreneur & Independent Nifty Future trader. Market profile,Volume,ADX. Tweets are commentary only, you must analyze & trade at your own risk!

3. Lance Beggs

   @LanceBeggs

   Futures Trader & Trading Educator

4. Varun

   @sweetspottrader

   l Am The Smart Money U Guys Talk About . Travel ,Food ,Fitness ,Yoga,Stock markets and Harvey Specter

5. 30m & OF

   @VerdiTrader

   Tweets are only for learning purposes, I don't recommend anyone to follow me or my tweets and act based on them since I make mistakes all the time.

6. Last Hour Trader

   @IMRiskManager

   Avid Reader, Keen Observer, Curious Learner, Skeptically Optimistic. On Twitter for learning and sharing knowledge. 

7. RK

   @assortZ

   Life revolves around Nifty,BNF,Basket of 15 stocks,Market Profile and Ilaiyaraja

8. QuanTrader

   @StoicTrader

   "Pure mathematics is, in its way, the poetry of logical ideas." - Albert Einstein

9. Shai

   @Am_Shai

   Index Trader on NSE trading with MarketProfile + OrderFlow. Reach me - vtrender@gmail.com

10. AP

    @ap_pune

    Chem engineer in international oil & gas industry; Technical analysis of stock mkts / Sports; Tweets on mkt purely meant for educational purpose

11. Rishi Umrania

    @ProAMTraider

    #AMT #MP #VSA #OFA Hybrid Trader = Discretionary system - Systematic discretion. Founder @justfintech & Gaffer in Film Industry. 

12. Sunchartist

    @Sunchartist

    Macro / Technical analysis a labour of love , travel, foodie, current affairs

13. Brett Steenbarger

    @steenbab

    Trading coach, psychologist, author, blogger, and stock index trader

14. Raghunath

    @RaghunathHyd

    Markets, NSE, Futures and Options. Ideas & Strategies in FnO. Anything posted on the timeline should not be taken as an advice but for only…

15. Prashanth

    @Prashanth_Krish

    Chartered Market Technician, Stock Market Trader, Systematic Trend Following, History & Movie Buff.

Websites & Blogs

1. TastyTrade - I think I have spoken enough about this in the past. 

2. Trading Naked - Nice site for basics of Market Profile

3. http://www.smbtraining.com/ - Again search within the blog and the site, this is another treasure trove.

4. http://traderfeed.blogspot.in/ - How can we not include Brett's blog. This is my go to place for anything to do with trading psychology, also sometimes find interesting information about market probabilities and statistics.

That's pretty much for now, I will keep updating this list as I go along. Hope this helps you get started.

Mastery Series - Neurobiology of Practice & More

This is first one in the series on Mastery 

Pick up any text about Mastery and you are sure to stumble on ideas of Deliberate Practice, Reflective Practice and the famous 10000 hour rule by Anders Ericsson.

This short Ted-Ed video is a good watch as a segue in to the topic.

Here is what it talks about

1. What does practice do to our brains - The neurobiology of Practice 
2. How many hours of practice do we need for Mastery?
3. What kind of practice matters?
4. What constitutes quality practice?
5. Beyond practicing is there anything else that one can do?

Watch this video to get the answers to these questions. At the end, Trading or Scalping after all is a skill and like any other skill needs sustained efforts and intense practice over long periods of time.

So off I go. Time for some reflective practice.

Why and What of NiftyScalper?

Genesis of NiftyScalper

It all started a few years back, when I began searching the web for information on Scalping. I did find some information in bits and pieces. One of the most relevant ones was by TastyTrade, yes, the one that I am currently reviewing on the blog.

There were a few others in bits and pieces but none spoke from an Indian context. None talked about the best products to scalp in India. I had to do a lot of "recontextualization" to make that knowledge/information relevant for me. A little more than a year went into it.

Given that we have thousands if not millions of aspiring traders and scalpers, I felt quite strange that there is such a dearth of information, I mean quality information in the context of scalping.

That's when I decided, let me be the person who puts the content together, the idea was to use my experience to reduce the learning curve for others. By this time I also had made copious amount of notes from various sources, which I wanted to share with those interested.

That's how niftysalper.com was born.

What can you expect from NiftyScalper?

Content - We would bring scalping related content with an Indian context. It's important because Indian markets are very different from other geographies in terms of data availability, tools/technologies and break-even costs of various products and hence we cannot blindly follow what works in those markets.

As shared earlier, there is a huge gap in terms of availability of quality content, we would try to bridge that gap as well.

Lastly, there are several facets to trading. Its the combination of these facets that makes or breaks a trader. Everything from Product Selection, Execution Mechanics, Market Awareness to Trading Psychology plays a role in refining our trading skills. 

The aim is to structure the content on the blog in a framework that connects all these aspects.

Coaching - The second piece which we would focus on at NiftyScalper is Coaching. When I started my journey a couple of years back, I literally didn't have anyone I could go to. And those who were accessible discouraged me from scalping., calling it a wild goose chase. In retrospect I think it would have helped if they had shared with me the possibilities and risks associated with this trading technique and let me choose if it was suitable for me.

One of the thing a lot of developing and aspiring traders/scalpers look for is some sort of framework i.e connecting the dots across the various facets of scalping. Secondly, there could be people who are inherently (for various reasons) find it difficult to read and understand, they would someone to handhold them. Lastly, as a trader moves on his or her learning curve we at times need someone to bounce our ideas off to. The purpose of coaching would be to bring all this and more for aspiring scalpers.

Community - As James Surowiecki says, "Many are smarter than a few", and that holds good for us too. At the end of the day there is only so much that I can do and there is only so much that I know. But to broaden the horizon of our learning, we would also need to reach out to others who are on the same pursuit, perhaps at various levels on the learning curve. At NiftyScalper the attempt would be to bring this community of scalpers/traders and learn from each other.

Guess that's pretty much for this BLOGCAST. Do write in.  

Getting Started - Scalping Basics - 02

So here is the review of Part 2 of the Six part series. This one is titled "Searching for Opportunities" - It's a rather short one.

Part 2 of 6 - Searching for Opportunities 

"Liquidity is the most important prerequisite" - This is something that we discussed in the previous post as well, and to tell you something interesting, NIFTY Options is the most liquid product in the world. Take a look at this NSE press release. Yes there are some nuances to it. Like, when it comes to scalping NIFTY, you would find that ATM and slightly OTM strikes have better volumes compared to ITM strikes. Also strikes ending in 100's have higher liquidity than those in 50's. But at the end, when it comes to liquidity nothing comes close to NIFTY options.

"The very act of scalping is initiated by the market itself" - "Price extremes are a good place for market forces to push price in the opposite direction." This is what Tom Sosnoff says. In other words I guess he is trying to say that markets are mean reverting, and that is where the opportunity lies. It's very true for NIFTY as well. At NIftyScalper we use probabilities of mean reversion to trade, and you would be surprised to know that there are specific time slots with certain mean reversion probabilities. I practically make a living of it. 

"Ranges are the key to scalping" - You need some range, some movement to scalp. If you look at NIFTY Index data you would get a sense of the average range of NIFTY. It comes to around 80 points i.e the High-Low range, which is what we are interested in, not the Open-Close range.

If you are scalping options, the delta of the strikes would play a role here. I usually scalp ATM strikes, so you would have a a delta of (0.5) which means a range that is half that of the Index. There are a few days in a year where the index itself is in a narrow range of sub 50 at times, that is when it becomes difficult to scalp, but then ranges are also mean reverting, there are periods of expansions and contractions.

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Role of VIX or the Volatility Index - This is something they allude to indirectly by referring to expected move in the index. More on what it is here.

It's important to understand the implications of VIX and its correlation with NIFTY. It helps us build on our market awareness and also aids in having a directional bias while scalping.

That's pretty much for this episode. The next one is about "Trade Execution", I would say its a key building block of scalping. Eager to write about it as there are a lot of contextual differences which need explaining.

The myth of overnight success is just that, a "myth" - Maria Popova

I can’t agree more with Maria Popova. I am an ardent follower of Brainpickings where she blogs on life, philosophy and everything in between. The lesson in one of her blogs that struck a chord with me is the one which she titles “7 Things I Learned in 7 Years of Reading, Writing, and Living” where her last lesson is about “The myth of overnight success is just that, a "myth"” in which she talks about why anything that is worthwhile is bound to take a long time.

I bring this up because, this is quite the opposite to how an up-coming trader views his or her success in the field of trading. More often than not many newbie/wannabe traders (have been speaking with quite a few off late, hence this blog post) that I have interacted with seem to get in because of its glittery-fast-lane image and the purported freedom from outside control.

Believe me that was my preface as well - independence and fast money, only to be put in place by having my skin in the game… and boy did I get burnt!!

So fellow (new) traders, at the risk of repeating myself, it will take time, effort and ‘deliberate practice’ before we truly can see some success. There ain’t no silver bullet.

Learning to see data - NYT Article Summary & More

Article Link - https://www.nytimes.com/2015/03/29/sunday-review/learning-to-see-data.html?_r=1

I came across this article sometime back when I was researching on "Perceptual Learning". Perceptual learning basically is about how we learn and create patterns in our brain using all of our senses.

Here's an excerpt from the article which explains it further 

In the context of markets, it is closely linked to the idea of "Fractals" and concept of "Thin Slicing" from psychology.

When we are looking at charts and trading, esp. seasoned traders get an intuitive feeling of what may happen next. I have seen this with several traders. They see a pattern emerging and they know how its going to develop further. Obviously its not fool proof, but even if it's better than a coin toss probability, its good enough, in reality I have seen people who have a probability of getting it right more often. But then, it may not just be their refined visual perceptual abilities, there could be other variables that they may be tacitly processing, perhaps some moving averages or some other data. Its only when their brains kind of processes all these elements together that they get their predictions right.   

Also, since price movements are fractal in nature, traders are further able to apply the same sense to different time frames, and perhaps benefit from larger swings as well.  

But then how do we develop this intuition, unfortunately there are no shortcuts. Sufficient "Screen Time", "Focus" and "Reflection" seem to be the only ways get there.

BTW, if you are more interested in the subject of forecasting there is this awesome book by Philip E. Tetlock and Dan Gardner called "Superforecasting: The Art and Science of Prediction", here is a nice summary. 

Getting Started - Scalping Basics - 01

This is the first in the "Getting Started" series which I would be doing on the blog. The purpose of this series is to curate learning resources which give a general sense of what "Scalping" is, and it also helps in creating a mental framework based on which one can further pursue specific sub-areas of interest.

Since most of the content which would be introduced in this post is more US focused,  I would attempt to contextualize it based on its applicability and relevance to Indian markets, while adding my prespective as well.

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Sometime in 2015, TastyTrade did an awesome six part series on Scalping. I would say it was a first of its kind. Though I would recommend that you watch each of the episodes in series, however due to paucity of time if you would not want to do that here is a re-contextualized summary of it. 

Part 1 of 6 - Define, Expect & Explain

"This is the story of Tom and Tony's life, 35 years of scalping for Tom..., we think there is a skill set to it.." - TS (Tom Sosnoff)

Tom and Tony were Market Makers at CBOE, and as market makers all that they did was Buy at Bid and Sell at Ask. Though today they are more like any other retail traders, they still scalp futures and they think there is a skill to it.

"Direction is luck, however there is a method .." "80 % of the time Tom is right.. how can it be pure luck" - TS and TB (Tony Battista) 

This is very important to understand. Direction is luck, but there is a method. Which means we at any given point of time, cannot predict the direction, however the skill lies in managing the trade.

"Mechanics.. understanding the probabilities - understanding what is supposed to happen"; 

"Intraday Range...Opportunity can be found by examining the intraday range and the risk could also be assessed using the same" - TS

Here Tom is trying to say that once you know the probable range in which a specific market operates, you would know the boundaries withing which the price would move, for instance  if you are at the mean at a given point of time,  you know the probable move in either side that can happen. Which also means you know when the move exceeds the norm.

"Bet the same side.. Short side" - TS

Though Tom says he always has a short bias, personally I have benefited by being direction agnostic, I personally do not see an edge in trading only one side, the reason he may be suggesting that is, because he trades futures and mentally its easy to stay on one side, however when it comes to options all that you have to do is to look at which side is going up (It has to be either the CE or PE), so mentally you are always chasing the price/premium moving upwards, and hence being direction agnostic works well in Options.  

"Its not about where it ends up.. its about what it does in between." - TS

Full time traders look at what happens between the open and close of the markets, and that is where opportunities lie. At NiftyScalper we have analyzed data to understand the probable opportunities a market like NIFTY can offer, and there are several such sweet spots that are there for the taking.

"Directional call is not what makes money for most people" - TS

Read this sentence again! There is nothing more that I would like to add here.

"More than an engagement tool" - TS

Meaning, they used this approach for more than just being busy with markets, they make money through this. And yes anyone can, so long as they develop the skills.

"Scalping Products - Tiers, Liquidity separates the tiers".  -TS

In India, if we go by liquidity the only products which stand out are NIFTY Options and Futures. Stocks options just don't fit the bill. Especially if you are looking at scalability.

"Some point where you have a very high statistical chance to take your 4 or 5 point profit" - "That's all scalping is - recognizing those odds" - TS

All that you need to do is to analyze NIFTY intraday data on a shorter time frame and see where such statistically high probability trade locations exist. And they do!

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Finally rounding it off Tom and Tony share the key aspects to successful scalping 

1. Markets are cyclical

Meaning markets are mean reverting most of the days. More on this later, this deserves a blog post of it own.

2. Probabilistic outcomes... if you wait long enough

You need to play the game long enough for the probabilities to come true, meaning if the probabilities are based on a years' data, then you would need at least a year long participation to gain by those probabilities.

3. Managing winners vs. Managing price - you cannot expect the market to go the level that you think its gonna go to... you can expect though the levels its supposed to be, based on where its currently trading

Trade management is what they are alluding to over here. You cannot predict where the price will go in the next few minutes or hours, but you can have a plan in place as to what you would do if the price moves in either direction.

4. Multitasking

Yes, you may have to work with multiple systems, charting tools and order execution tools. But there is a catch here, multitasking does not mean trading multiple instruments. I have seldom seen a successful scalper who focuses on more than 2 products. I personally cannot do even 2, I trade only 1 instrument i.e NIFTY

5. You have to stay small

Yes at least till the time you master the game, you need to stay small. And to make money scalping while staying small is possible but you need the right brokerage plan for that. Something like a fixed brokerage plan is ideal.

6. You have to recognize when the move has exceeded your expectation

This is something which I highlighted previously, once you know the probable ranges you know what to expect. 

7. You have to have the capital

Yes you need to have sufficient capital to start with, what constitutes sufficient capital needs a post of it own. 

8. You have to recognize when you are in the wrong product...

Here again, its more to do with liquidity, especially with Options, some ITM and OTM strikes may have insufficient liquidity, from a scalping standpoint. Also knowledge of Option greeks is desirable to understand how those variables can affect us.

9. Usually a Intraday play - why "usually"

Tom says sometimes they tend to hold positions for longer duration. I want to clarify a few things in the context of scalping. One, the risks associated with scalping are very different from the risks associated with Positional trades. Hence if you plan to hold positions overnight you need to manage your size accordingly, else you could be risking all the advantages of scalping intraday and perhaps risking your capital much more than what you would want to. 

10. Before entering the trade we need to have an exit strategy - Profit target.

Yes, essentially you need to have both a SL and a Target in mind. Yes I said it right "in mind". The reason I am underlining that aspect is, scalping is more like surfing, you need to go with the flow, which can mean both "Scaling-in" and "Scaling-out" of trades. But this scaling in and out needs to be done in the context of the probabilities. Which is where understanding probabilities becomes so important. 

11. Scalping is luck.. but success is understanding the simple math...  

Lastly, we need to appreciate that "Picking the direction" or "Directional movement" is luck. But what we do with that movement and how we manage that is math.

Why do I Scalp?

This is the my first blog post on the site and let me be overwhelmingly honest. I have no clue as to how its going to shape up. But one has to start somewhere and here it is.

I thought of writing the first post about something that the whole site is dedicated to i.e "Scalping", and more importantly as to - Why do I do what I do? in other words - Why do I Scalp?

To understand that, we will look at Scalping through three lenses.

Personality - I think this is one of the key aspects of trading success, in the sense one has to find a strategy or method that suits their personality. One element of my personality is Risk Aversion, yes before you make that obvious expression, let me explain. Here I am referring to "Overnight Risks". I just cannot sleep in peace with open positions. That's me. Even if its just  two piddly lots, it weighs on me.  

A related aspect is, scalping or day trading gives you the freedom to close your day, when you want to trade and also to choose how many days you would like to trade. And as I said earlier, when you are not in trade you not in trade - its as simple.

Opportunity Cost - Since I am a full time trader, if I do not make the best use of my time, its not fair. And Scalping is the only strategy for which there are opportunities practically every minute the market is open. So to make the best use of my presence in front of the screen, I scalp and scalping gives me the best relative yield for the time invested.

Developing Expertise - This one needs a bit of an explanation. When I reflect on all the other careers/jobs I've had in my life, one thing that made me leave those jobs was the fact that most of them had changing expectations from me. One year it was some work and the other year something else, at the end you become sort of, a jack of all trades. Perhaps all corporate jobs are like that. At end you do not feel a sense of satisfaction which you get from refining and improving on a specific skill. This is where I use to envy trades/professions where there is a constant use of the hand and head, where variables in the context of practice are well within your control. In the context of trading, the markets are not in your control but everything else that you do is indeed in your control. That I think is very critical for expertise development.

So what's all this got to do with Scalping? - Well the line of reasoning goes like this - I intuitively felt that I need to be working at something where I can constantly practice a skill, and refine it over a period of time + In an environment where a fair number of variables are in my control + and (Borrowing from Malcolm Gladwell's 10,000 hour rule) - I wanted to get past the 10,000 hour threshold as early as possible. - So as to develop expertise.

Since scalping gives you innumerable opportunities to practice your craft, and if you do practice and make use of the opportunities, I guess there are fair chances that you would be able to develop some sort of expertise in it. You are not dependent on the opportunity to show up. This for me is one of the biggest advantages.

Think about it. How many professions give you such a structured and predictable opportunity set to practice? 

So that's pretty much for this post. More later.

Please Note - Each of the blog posts which are categorized as "BLOGCAST" would have an accompanying audio both on SoundCloud and YouTube