The Big Con: India’s burgeoning stock market ‘training’ scene

Money control churns out 52 stock market trainers a year — someone jokingly said to me the other day commenting on the fame the site is giving some traders by selecting one almost every week. While publishers like them might feature a trader (not even sure if they do a thorough check on their numbers), publish a story and disappear from their lives forever, but what ends up happening is the fame these so-called successful traders get gives them an opportunity to open up their ‘training shops’. I have been actively trading for the last 4 years and I started noticing these training workshops cropping up like mushrooms about a year ago. It was a culmination of different factors coming in together — need gap for education on trading, fame that publishers or twitter gave some traders and democratization of basic trading tools and features for retail janta because of platforms like zerodha, fyers, upstox etc. The way some of these ‘trainers’ used to pitch their workshops, one would feel that it was the best thing that could happen to your trading journey. I myself was guilty of buying into these dreams and have attended a couple of workshops by paying through my nose. Initially I used to blindly trust the systems and triggers that were taught to me in such sessions and for a few months even after following the system to the tee I wasn’t making any money.

I thought maybe I was doing something wrong, the trainer makes money through these systems why haven’t I? I checked with a few more trainees, they weren’t making any money either. There were a few who were blind ‘bhakts’ of these trainers and would say or believe anything that would align with their ‘bhakti’ but others were getting as disillusioned as me. So I decided to do something which would actually test the efficacy of these, something which is so basic and I can believe I didn’t ask for it myself before I decided to pay money for this training workshop — back tests.

Before we proceed further, let me make something very clear. I have no personal vendetta/agenda against any of the trainers, except for the fact that I don’t want anyone to be duped like me. While I don’t particularly respect any such trader who would take these ‘trainings’ but I do recognise that making a living trading is no easy feat. Having said all of this, let me take you through my experience and back tests for one such workshop, conducted by a very well known and respected trader in the community by the name of Subhadip Nandy.

There were two kinds of systems being discussed one positional and second intraday. Out of the two days that went into the seminar, most of the time was spent on positional setups and hardly any on the intraday systems. So for the purpose of my evaluations, I will focus more on positional setups. To backtest these systems, I have selected nifty/banknifty and 5 stock options from different sectors — SBI (Banking), TCS (IT), TataSteel (Metal), Maruti (Auto), Titan (Consumption). Most of these, incidentally, were also recommended by the trainer and some trainees in the hand holding group also claimed to be making money trading these. These stocks also form a good sectoral diversification and are very liquid so I went ahead with the backtests.

Some notes on backtest –

1. All backtests have been performed for a period of 8 years i.e. Jan 2012 till date.
2. For each system, a starting capital is assumed and a fixed 1% risk on capital is taken for each trade.
3. It is assumed that based on risk required quantity of stock/index future will be traded.
4. At the end of each trade, PL is added to the equity and risk of 1% is again calculated at new equity for the next trade.
5. No brokerage/taxes/slippages have been considered.

There were 4 different positional setups on which trades can be taken mechanically with predefined rules for entry and exit. Then there were other things like option chain analysis, COI analysis etc. for which there are no predefined rules for entry and exit. These things require a lot of analysis on a daily basis and even then to be able to take trades, it involves a lot of personal discretion and trading these would be very subjective.

Setup 1 — This is the high probability price action based system. This is not a very high frequency setup. If we considered Nifty as a benchmark, there were 114 trades in this period or about 1.2 trades every month. So to trade this setup, you have to patiently wait for the signal and when it comes, entry is possible on any of the 5 following trading sessions. As per the backtest result shared by the trainer himself, a capital of 10L was converted to 32L at the end of 7.5 years. That translates to about 16% annualized return. During my backtest on nifty alone, the results were similar. But the question is if the trainer knows that his system is generating only about 16% annual returns, why should he be teaching that system in the first place. Am I not better off doing an SIP in MF or Nifty bees? Coming to my backtest on the basket of stocks — Nifty, Maruti, SBI, TCS, Tata Steel and Titan, the starting capital of 30L was converted to 47.5L or a mere 6% annualized return. Fixed deposits any one?

Result — 6% Annualised on the basket of stocks. 16% annualised on nifty alone.

(If anyone wants the excel sheet to validate our backtest, please feel free to ask — we will be more than happy to share. Since the strategy is not ours to share the excel will only have trade details)

Setup 2 — This system is based on fractals and a very low frequency setup. Only 16 trades in nifty and 22 trades in banknifty. For nifty, that’s about 1.2 trades every year — just 1 trade in 2019 and no trades in 2018. Forget about returns, but how on earth is it possible to trade such a system. If you are thinking that such a low frequency setup should be a trend riding system with low drawdowns or exceptionally high returns — you are wrong, this is a contrarian system which has not generated positive returns in 8 years for any of the 2 indices and the 5 stocks on which the system was backtested! Given the negative returns on every single underlying, I didn’t calculate returns on these as a basket. Clearly a system not to be traded.

Result — Negative returns on the two indices as well as stocks selected.

Setup 3 — Again, this system is based on fractals with slight variation in the system discussed above. This system generates far more signals than the previous fractal based system — 120 signals in nifty in 8 years or about 1.25 trades a month. Returns for this system are again not very inspiring. While nifty generated positive returns, bn gave negative returns. Stock results were again mixed.

Result — 30L starting capital to 39L in 8 years. 3.5% annualised returns.

Setup 4 — This is a volatility based system which tries to capture a breakout or a breakdown of stocks. As per the backtest results, this system appeared to be the best of the lot. Starting capital was doubled in the span of 8 years. However, when I analysed closely, there were too many outliers. The biggest outlier: on one of the trades in Maruti, the SL was just 2 points so backtest result assumed 85 lots to be traded (based on SL level and fixed 1% risk on each trade). This trade turned out to be a profitable one and changed the equity from 20L to 48L in just one trade. So, I decided to keep a maximum of 5 lots for each trade. With that restriction, results were not even a 1% annualised return!

Result — 1% annualised returns

Hand Holding Month — There was one month of hand holding period where all trades with clear entry and exit were given by Subhadip himself. All trades were taken with a fixed risk of 1% on a starting capital of 10L. There were a total of 10 trades taken during this period and the end result was a net profit of about 1k on 10 L (without considering brokerages and taxes). While I get that 1 month might not be enough time to judge a system but surely a backtest of 8 years that I just described above is.

Intraday Setup — Let’s talk a bit about intraday setup too. I found this to be the hardest system to trade — from an execution perspective. This is an intraday setup based on OI and VWAP. For trading this system, you have to continuously monitor the option charts (price/VWAP/OI) and if the trigger comes, you have to be very quick in executing and exiting the trade based on risk reward. You have to be real fast in executing these trades and taking profits off the table. You will continue to lose money if you are not fast enough. While this might work for the trainer himself where he is comfortable being glued to the screen and to his credit is super-fast on execution, but for most of us that might not be a practical approach.

Net net: Positional systems are untradable, one is better off doing an FD or buying MFs. Intraday trading with these systems is impractical — you are better off letting your capital sit quietly in a corner.

This is a specific example of a training conducted by a well respected trader, you can imagine how your experience will be with other lesser known ones. And this is what I mean when I call it the big con — not only does a retail trader lose in the market, now there are people who sell them dreams of good returns and take money ‘training’ them.

You might say — “Vo sab to theek hai, but what now? Should I not educate myself’’. Well it’s simple — be more aware and vigilant. To tame this beast called stock market it is natural you would want to educate yourself more and more and strive to be better everyday. How you educate yourself is completely up to you — which includes taking help. But if you do choose to go attend some training, you need to ask a lot of questions before you enroll to probe into the trainers and the courses and keep hammering till you get a satisfactory answer. I was in a twitter spat with a trader/trainer very recently on exactly the same points . This gentleman was a trainee a few months ago and because money control featured him in an article he got overnight fame — now he is conducting his own training sessions. Well, good for him. But when asked publicly to answer some basic questions, there was no answer. When asked privately (through an unbiased third party), here is what we found (proofs of the conversation can be provided on request):

• No clear answer on expectations on return. Conversation started with him saying 12.5% monthly return and by the end of it, it was 6% monthly. Which in itself is also quite good but the trainer didn’t seem very convinced/confident and was giving a lot of riders — “everything depends on you, your skillset and your discipline — systems do not have any inherent value. *Wtf?!
• A lot of generic gyaan was given on how you should be disciplined and take profits off the table to how returns depend on market conditions, volatility etc.to how you need to bend the probability in your favour. *No shit sherlock!
• No back tests have been done on the systems being traded. The gentleman went so far as to say that he doesn’t believe in back tests.
• Basic course structure. Most of it being taken through education on fundamentals (greeks, triggers etc.).
• Looked like he was teaching more a style of trading and less on systems etc.

I would have bought into such workshops and such people a couple of years ago. But this training culture which is a big circle-jerk (everyone praising each other and fooling retail janta) has made me a big cynic. So these are the questions I am going to ask and things I am going to observe before I make a decision to pay for a workshop. You can use it too:

• Deep research on the trainer. Go through his/her twitter feed/ other publicly available information. And don’t believe everything you see online — Find someone who has attended his/her workshop before (and is not a ‘bhakt’) and take feedback from them. You do more research when buying a new TV, since you are spending more on this, it definitely deserves it.
• Get clear answers on course and course structure. Figure out how much of it is education on fundamentals (for which you can find a lot of good freely available resources online) and how much of it is their proprietary system. If you find things to be lopsided — say they are only going to teach one or two systems in a 2 day workshop and the rest of it is education on fundamentals — avoid it like the plague
• Ask a lot of questions about their systems — whether they have back tested or not to what kind of returns are they inherently giving etc. If you get vague answers or generic gyaan — run like the wind.
• Ask if they can provide some sort of proof that they are able to generate the returns they claim — it could be in the form of an audited IT return from trading or verified trade logs/journal. You need to be sure that the trainer is surely making money himself and might be genuine.

Always remember, if the trainer was a very successful trader he/she would not need to supplement their income by doing training sessions like this. The power dynamics in this relationship is skewed towards you. You are the one paying money to them — you have the right to ask as many questions as you want. They might want the power dynamics in their favor by saying/implying something like “I am a big shot, successful trader. My systems are the best and only I know it. I can teach you as a favor but give me some money to cover costs for the workshop.’’ No.No and fucking no. If they were a big shot trader they wouldn’t need to do such workshops to supplement their income. Most trainers are not teaching anything truly proprietary. And they need your money as income so see it as it is not as they want.

Subhadip Nandy responded to me in a series of tweets again with vague/inadequate explanations, so I have published my response here — Big Con Part 2.