Surgical Strikes in Trading

Apurva Sheth

A few days back, the Indian army conducted 'surgical strikes' in Kashmir. This was India's first military response after militants attacked an army camp in Uri near Srinagar, killing 19 Indian soldiers in their sleep.

These surgical strikes on terror launch pads in the PoK region are said to have had 'significant casualties' on terrorists and 'those providing support to them'.

If you're wondering why I'm writing about surgical military strikes instead of trading strategies, let me tell you: The two are very much related...

Now, the militants attacked Uri on 18 September. But the Indian army did not respond immediately. The army retaliated on 29 September, ten days later. Here's an excerpt from a statement issued by the Director General of Military Operations, Lieutenant General Ranbir Singh after the Uri attacks: 'We have the desired capability to respond to such acts of aggression and violence. We reserve the right to respond to any act of the adversary at a time and place of our own choosing.'

The Indian army was fully capable and equipped to respond immediately. But it didn't. It decided to plan and wait for the right moment. During those ten days, the army conducted surveillance on active launch pads. The special forces practiced entry, strike, and exit maneuvers. And when the opportunity was right and the risk-reward ratio was favourable, they conducted the strikes with remarkable success.

Trading is a battle. A successful trader does not jump in at every swing in the market. He plans well in advance and knows which trades to take and which ones to miss. He decides when to strike and has an exit strategy ready even before entering the trade.

A successful trader trades with martial discipline. Like the special forces, he prepares, chooses his fight, strikes when ready, and leaves when he's done what he'd planned to do - that is, to execute the perfect surgical trade.

Unfortunately, most traders lack martial discipline. They get tremendous thrills tossing money at half-baked ideas. And never stopping to question what's wrong with their trades, they keep at it despite repeated losses.

At Swing Trader, we avoid trading on half-baked ideas by sticking to our time-tested process. Our process tells us not only if we should enter a trade, but also how long to stay and when to exit.

We follow a three-pronged approach and take a holistic view of the trading environment. We participate only when the probability of profit is high. Our process studies the environment on three levels - markets, sectors, and stocks. Following this approach ensures we flow with the trend and pick stocks moving even faster than the trend. This helps us maximise returns for our subscribers.

Markets opened with a gap down on 13 October and traded with a subdued bias on the following day. Two of our three live trades hit their stoplosses on these days. In our 15 October weekly commentary and weekly update (subscription required), we mentioned that 8,500 would act as support, and if markets stabilised, we could expect a rally to 8,680.

Markets dipped to a low of 8,506 on 17 October and jumped back up to 8,685 on 18 October. This played out exactly as anticipated, but we couldn't take advantage as the pullback happened quickly. The average trader would have chased the markets, but we restrained ourselves from fresh buying as markets were nearing the resistance zone of 8,700 to 8,750 and the data from the futures market wasn't very encouraging.

It's true that many stocks have done well in the last five or six trading sessions. But many, many more have given false breakouts. The advance-decline ratio has trended consistently lower since 19 October. The odds were clearly not in our favour during this period. So, like the Indian army, we decided to sit out and wait for the right moment to launch our own surgical strike.

What military strategies would you apply to the field of trading? Share your views in the Club or share your comments here.

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3 Responses to "Surgical Strikes in Trading"
Ashootosh Dubey
28 Oct, 2016
Great way to correlate real life example to way of investment. Good n interesting read. Remember the Ship of Theseus story to explain Index changes. Good going. Look forward to many more such blogs. Like (2)
Priotosh Deb
28 Oct, 2016
Good morning. I am Col Priotosh Deb a veteran of Indian Army. Request do not equate the surgical strike carried out by Indian Army with your stock picking. From the write up it appears that you are fully aware how a surgical strike is carried out, but it is not so. I would not like to dwell on it any more. Suffice to request that please do not drag the Indian Army fighting efficiency into stock picking.Like (1)
27 Oct, 2016
I like the way you pick examples from the real environment to explain things, in the present case the example of Surgical Strike. Hats off to you and your team.Like (1)
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