Business Journalist Meena Kansal talks to Gurpal Khurana, Head Trader, India Operations, Tropical Oil Products, Singapore. Gurpal is a certified trader on the Chicago Board of Trade (CBOT) and now works on the many of the world’s top commodities and stock exchanges, such as Bursa Malaysia Derivatives Exchange (MDEX), New York Mercantile Exchange (NYMEX), etc. Gurpal received an MBA degree from the top US business school University of Illinois at Chicago in 2002.
MK: What do you do for living?
GK: Working with a trading company based out of Singapore, it’s a brokerage-cum-trading environment. Brokerage, mainly in edible oil and trading in whatever we see opportunities.
MK: How did you get started in the trading business?
GK: It is the family business and that’s where I got my exposure from. My father has been a trader for over 40 years so I used to see him trading since I was little and that’s how I developed a personal interest in trading. I did an MBA from Chicago and then, being in a city that is such a large trading hub, I became interested in working at the Chicago Board of Trade (CBOT), which is where I started.
MK: What did you buy or sell on your first trade?
GK: I bought soybean oil on my first trade and I made money on it. This was in 2003.
MK: Looking back on it right now, do you consider it a good trade?
GK: It was a brilliant trade, seriously, that was the time when the markets hit the bottom and we haven’t seen those levels in a long time. Looking back I think that was one of the lowest prices I’ve traded in the market. My first trade. (smiles nostalgically)
MK: Do you consider yourself a fundamentalist or technician?
GK: More of a fundamentalist and a little bit of a technician as well. I am a fundamentalist in my basic view point on the market, whether I should be bullish or bearish, and I look at technicals only to define entry and exit points for my trade. If I’m bullish, what price should I be long at, if I’m bearish what price should I be short at.
MK: What are the differences between those 2 approaches?
GK: I think fundamental analysts are more foresighted in the sense that they don’t look at only historical prices, they base their view on what’s going to unfold and doing the supply and demand study. They basically depend more on supply and demand fundamentals and then take a call. Versus technical analysts look at the behaviour of the markets and then make a call based on historical prices. So it’s more like a price-driven approach while a fundamentalist approach is more demand and supply-driven.
MK: What are the hardest markets you have ever traded in?
GK: I would say Gold. Gold is a very very dynamic market and it changes its mood. Sometimes it trades like a commodity, sometimes it trades like a currency, sometimes it looks like an asset to hold. It is the most dynamic market to trade in.
MK: What is your longest ever losing streak?
GK: Time period wise? This time, right now. The last six months.
MK: What do you think contributed to that?
GK: One main factor was extreme volatility and when you got into a trade, whether you’ve been right or wrong, the volatility had a very important impact on your psyche. The other aspect was fear. Volatility added to fear and that lead to wrong decision making.
It’s been a tough market to trade in for anybody because the dynamics that are in play in the market now are such as we have not seen in the past 30-40 years. This kind of recession and turmoil, we haven’t seen in a really long time. I think a lot of people were not prepared for this time. They didn’t see it coming. They didn’t know how it was going to unfold, how markets are going to react.
MK: How did you manage to bounce back?
GK: I still haven’t bounced back. The better approach at this particular period of time is to be very conservative. If you’ve had a long losing streak, you just have to pull yourself out of the market and just don’t try to fight the market and wait for things to settle down. Do not trade if you’re not sure because of the volatility. Again prices are moving in such extreme directions, that there is no clear direction. I’m just waiting for the markets to settle down and volatility to decrease. Looking for a good trade. In today’s market it’s difficult to see a good trade either on the long side or the short side.
MK: What other financial instruments do you trade?
GK: Other than commodities I sometimes do equity more on personal accounts rather on the company account. I do trade the major stock indices.
MK: Do you have a system of trading? Can you share with us what it is?
GK: I’ve been more active on the edible oil trade. My system is more my gut feel about the market. I rely on that and then do my homework. I find out what the market is anticipating that the demand and supply will be and then take a call on my personal deviation from the market opinion. For instance, if you think the market is anticipating a larger supply base but you personally feel it’s going to be much lower than what the market is anticipating, you would buy before it really happens so it’s basically taking a call on what the expectation of the market is, and your personal deviation from that expectation.
MK: What are the technical indicators that you look at?
GK: Basically look at support and resistance levels, certain trend lines, RSI which is relative strength index, my technical study is very basic: it’s basically my entry and exit points. Only on very few occasions I look at chart patterns like head and shoulder tops, head and shoulder bottoms, etc. If I’m trading on a chart pattern, my risk in that trade would be minimal. I would take a bigger risk while trading more on fundamentals. I’m more comfortable trading on a fundamental than on a chart pattern.
MK: What is the funniest moment you have ever experienced while trading?
GK: It’s not really a funny business but I can tell you the strangest, maybe scariest experience. Everybody was expecting crude oil to fall significantly after the Lehman bankruptcy because they had a lot of open positions in the market and people were expecting that due to the bankruptcy, Lehman would come out in the open market and sell all their contracts which would result in a steep decline. But what happened was an out of market settlement of Lehman positions which prompted very heavy short covering rallys, so the market in one day went from $95-97 a barrel to around $125-130 a barrel. A 25-30% rally in a day so people who were trading on the belief that the Lehman bankruptcy would prompt heavy long liquidations were totally short squeezed. Definitely not funny but a weird moment.
MK: Trading is a stressful business. How do you cope with the stress?
GK: I work out. I take my wife out for dinner (laughs).
MK: It seems like there is a stereotype out there that traders are party animals. Do you agree with that general conception of traders?
GK: I don’t think that I am a party animal. I used to be but not anymore. I don’t think that is necessarily true. Contrary to that, I’ve never seen too many traders be party animals.
MK: What is the difference between professional trading and retail trading from home?
GK: One is the level of stakes involved. The availability of information will be much more limited and so will the tools available to trade. If you are a retail investor with small stakes, it wouldn’t make sense for you to get very high end, sophisticated software to support your trading. Versus for a corporate entity, the stakes are so high that they would invest a lot of money in things like proper software, proper tools, proper information flow. They would not think twice about investment in these kinds of products while a retail trader would.
MK: What is your advice to a person who is starting out in trading?
GK: Most important is discipline. You don’t need to be an expert in a particular market except that you need to have an extremely strict discipline on where to cut your losses. It’s very important to know when to cut your losses. A lot of people book profits very quickly but they don’t cut losses, they sit on their losses: this is the most common mistake that amateurs make. I think contrary to that, you should cut your losses quickly and try to maximize your profit. Minimize your losses and maximize your profit.