How to Bomb Proof Your Trades

Hello, friends. This is Vijay Bhambwani and in this video, I am going to basically tackle a query on something that I feel is on top of the mind issue of almost every trader and investor in the market.

Should there be a specific strategy, very different from a usual peace time strategy now that we are witnessing war in Eastern Europe? Is there something different that you need to do in this market as compared to usual times that you have seen in the three quarters of 2020 and maybe almost all four quarters of 2021?

Well, the answer is yes. You see, markets are like a military strategy. Almost always there are some nasty surprises all along the way, and it is the job of a trader that he has to be alert. Remember the two things that I keep talking about in my videos.

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Number one, nothing happens in financial markets without a reason and since these are financial markets, the reason itself is financial.

And number two, we traders are brain warriors. We win or lose with our brains, with our ideas and the money that we deploy in the market are chess pieces, the market itself is like a chess board.

So you need to keep shuffling your money from one square to the other so as to get the best possible returns and there will be times when you need to just pull back a little, go on the defensive, and think of capital preservation rather than capital appreciation. Look at it this way. Sometimes you might just need to take a step back so that you can take three steps forward.

So is there something different? Yes, and I'm going to go through it right now in this video. Bear with me in the next five minutes. I am going to share my strategy of what I have learned in the market over the last 36 years that I have been trading these markets.

First and foremost, do not discontinue your sips or systematic investment plan because, as you keep allocating, say, hypothetical figure of Rs 5,000 a month, you will basically acquire more and more securities, whether it is a debt fund or equity fund or a balanced find of whatever it is, you will keep acquiring your units at a price which will be a better average as compared to what you were holding a couple of months ago because then you are able to buy at discounted prices as compared to the past. So do not discontinue your SIP's.

The second part is in these times, nerves are extremely stretched. Traders are nervous. They are running helter-skelter. Leveraged traders are busy arranging mark to market pay-ins for their brokers because unless they make this mark to market payment, what is known as margin call, the brokers are going back their trades off and make them book losses.

So, typically speaking, the biggest falls are recorded by those stocks which have very high beta. Beta is statistical volatility. You must avoid those counters at all costs, at least during turbulent times. By the way, these counters can actually be very good trades during normal market times, but during turbulent times you need to drop them like hot potatoes.

The other aspect is chose those stocks that have a very high relative strength comparative reading. Now what is relative strength comparative? I'll explain to you. This is a study, a metric which is available for free on almost all free charting websites. You can get it on tradingview.com. You can get it on investing.com. You can get in on chartview.com. Like I said, almost all free charting websites will have the relative strength comparative. Now I'll just run you through what it actually means.

So here is the Nifty. Here is the stock ABC. Now a high relative strength comparative would mean that when the Nifty rises 1%, the stock rises more than 1%. When the Nifty falls 1%, the stock falls less than 1%.

Is it possible to have a statistical reading on this? Yes, it is. That is what these websites and charting softwares provide you. So let statistics come to your rescue and weed out all the stocks which are low relative strength comparative and rope in those stocks which are high relative strength comparative. And the best part is that you've been against those high RSC stocks at lower prices during market nervous phases.

So when you add two securities in technical analysis software that tell the software to deploy the RSC or relative strength comparative, it will tell you what the strength of one security is versus the other.

If you're taking stocks, the best comparative benchmark would be the Nifty. If you're taking commodities, the best benchmark would be gold. If you're taking bonds, the best benchmark would be the Indian 10 year sovereign benchmark yield. If you are basically taking currencies, then I think that Dixie would be a fairly good benchmark of relative strength comparative. So now you have the metrics for all four assets classes, equity, currency, commodities, and bonds.

Allocation of your money is a very key aspect. If you scroll down in this playlist, you will see that I have recorded a video as to how much money trader should deploy in the market. I have given you a metric. It depends on your age, and you can if you are a very conservative person, you take a figure of 75 which is the end of the cycle, a commercial viability cycle of an average working person and deduct your present age.

So, for example, I'm 56. So if I am a conservative investor, I would say 75 minus 56. I get 19. So 19% of my capital is what I should put in high risk investments, which is equity, and the others should be in low risk investments, which is fixed income, bullion, real estate, etc.

What if you are really high risk? What if you want to play a little more adventurous type of game? By all means, take it a to 90 or even 100. Some very aggressive traders I know use 100 instead of 75. So, at 56 if I am a very aggressive trader, I would say 100 minus 56. So 44% of my wealth would be in high beta investments like equities, and the remaining, of course, would be in sovereign investments, bullion, and real estate, etc. But asset allocation is the key.

For example, the Reserve Banks of India's, the RBI's Retail Direct at G-sec Access is a superb and fantastic platform where you can deploy your money in 100% government guaranteed bonds without paying any brokerage or any middle men's charges at all. The trading is free, and you basically are buying something that is a backed by the government of India. So asset allocation.

Then, on Equitymaster, I wrote article for their website, which was dated 12 November 2021, the hyperlink to which is in the description below this video and the title of that article was a veteran trader digs into the market and the article was all about what is driving the market currently. Remember, it was written on 12th of November 2021. What the trader expects that was me expects in 2022.

I have very clearly written in November 2021 that I expect 2022 to be a relatively poor year for equity investors and traders, and there will be many myths, many misconceptions, and many dreams that will had shattered in 2022.

I frankly did not have any inkling of a war, but there was very clearly some signs emerging that market was being subject to some excesses. Do make it a point to read that article.

The one thing that I have told you very, very clearly is that the average age of a trader has fallen very, very sharply. As a matter of fact, a leading financial television channel had done a study when it was found, thanks to Aadhaar and pan card being listed, kind of connected to all brokerage and demat accounts, that 4 out of 10 active traders in India today, are under the age of 30.

In that article, I wrote how the young people are extremely gung-go. They want money to be made quick. They want quick returns and therefore they latch on to thematic stories. Thematic stories are basically short term stories, something that's like a fad.

You know, those long Elvis Presley kind of sight burns or bell bottoms? You can't treat that as a fashion trend. You have a theme party. You know people want to dress as Dracula or the best Zorro or the best Phantom costume. It's not something that you're going to go out there and wear it every day out on the street. So it's just a theme.

Now, the point is that younger traders love thematic stocks because they give superlative, supercharged returns. But the problem is that those returns remain for very short periods of time. Thematic stories get extremely, extremely, severely punished during war times. During war times, people basically go risk averse. They pull their money out of aggressive thematic stories and go into tried and tested long term solid companies. And not just companies, we are not talking, restricting ourselves only to equities. But they again go back to flight of safety of gold.

Gold is something you are seeing on my videos fairly often all through 2019 and 2020. Nobody was complaining but when I gave out targets of 85,000 levels on silver and 60-65,000 levels on gold, for my friends who are watching from overseas in gold, I'm talking about Indian rupees 10 gm and for silver I'm talking about Indian rupees for 1 kg on the MCX, there was obviously a little bit of peeve on some on behalf of some of my viewers that, hey, Vijay gold is not really doing too well, and we are tired of holding it.

Obviously, there were there were some displeased investors. But look at yourself now. You're sitting on top of profits, even as equity traders are basically a chewing their nails off in tension.

So, like I said, investments and trades, I like a military plan of action. Nothing really goes as per plan, as per blueprint. You will keep facing some kind of unexpected surprises, and more often than not, they will be nasty in nature.

Stick to your course, stick to your core beliefs, and keep adjusting your portfolio. Remember, you're a chess player. The money that you're deploying in the market, are your chess pieces, and the market itself is a chess board. Keep shuffling your chess pieces across the squares on the chessboard and you will be just fine.

We have seen wars before. We have seen calamities before. We have seen a whole lot of adversity to the stock markets before. It takes a while. It takes some time but markets invariably bounce back.

On this cheerful note my friends, I bid goodbye to you, not before reminding you to click like on this video if you liked what you saw. In the comments section, good, bad or ugly, do let me know your thoughts on this video and what you would want me to record in my next.

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Do take very good care of yourself, your health, and your portfolios. This is Vijay Bhambwani signing off for now. Thank you for your patience. Till we meet again in my next video, bye, bye for now.