Who is Nitish Kumar?

Last updated on May 10th, 2023 at 03:18 pm

Nitish Kumar

The King of Hedging

nitish kumar trader

 

His Background

Nitish Kumar is an active and one of the best Hedger in Indian Stock Market. He is from a village in Patna, Bihar. And he started his journey in stock market in 1999.

His initial days in stock market

And like a regular novice trader who enters into stock market tends to make profit initially. But then he started losing and after losing he wasn’t able to accept his losses and he started doing Revenge Trading. Then, after losing more he started his journey to just recover the lost money. But throughout this process, he lost big and his losses were in some crores. He also took many stock market trainers courses but nothing worked for him. And he says that to tell everything on a closed chart is very easy but to tell anything in live market is really difficult and these closed charts knowledge doesn’t work in live market.

How he got to know about Hedging?

One day, he read somewhere that these big institutions like FIIs and DIIs take huge orders in thousands of crores or sometimes more than that and every trade they take is hedged. So, he started doing his research on What is hedging? Then, he came to know that with hedging we can do the risk management of our trades and we can control the losses of our trades by doing hedging.

After many years of research and losing money in the market. He learned about hedging practically and then, started applying that learning in his trades and the results were surprising. He was able to control the losses and was not just gambling based on indicators. He says that “Market jab lene pe aata hai to sab le leta hai or jab dene pe aata hai to chappar phaad ke deta hai”.

And during all this process of doing research and development, losing and then starting again, he lost many years of his life in all this learning. And now he is educating and helping people with a mission of only to save their precious time and he doesn’t wanted anyone to lose that much years of their life. He says that not only money is lost in stock market, trader also loses the confidence and conviction after the loss. Also family members, relatives and friends everyone troll and pass negative comment after making loss, which is really hurting.

His views on Futures Trading

Many traders say that people who trade in future have no future and people who trade in options have a lot of options. So, his answer to those traders or people who are saying that future is a money destructing weapon is that they have no knowledge of hedging and if we do proper hedging in futures trades then, no trader can make a loss in futures trading.

His future trading strategy

In order to do futures trading with hedging, firstly we have to buy futures of a stock or index and then, we have to buy a put option which has 75-80% of intrinsic value and remaining 20% of extrinsic value or time value of that particular stock or future.

Then, after buying the future and put option. There would be two conditions :-

  1. If market goes up. Then, we will be in unlimited profit and we have to do nothing.
  2. But if the market started falling. Then, we can sell any higher call option for intraday to just recover the loss. This is how we will manage our risk in futures trading.

The payoff chart of this future hedge is given below:-

future hedge payoff chart

 

We can clearly see in this payoff chart that the maximum loss is only Rs.6085 but the maximum profit is undefined. So, future hedging only reduces the maximum loss not the maximum profit. And the margin also reduces a lot. For example, if you want to buy one lot Nifty Future, then the margin would be Rs.108000 but if you buy with one lot of put option then, the margin would be only Rs.17797 as shown in the above payoff chart. This is also one of the reason Nitish Kumar recommends everyone to do hedging as it also reduces the margin and more trades and lots can be taken with the same capital.

How to properly do hedging?

Nitish Kumar says that “Hedging is a dynamic subject and it is a thought process”. To do proper hedging, one must focus on developing their mind and thought process to think broader. And if FIIs and DIIs all take hedging trades then, why we retailers are taking trades without hedging.

His investment strategy for retired people

He has a great investment strategy which he also shared in his face2face interview. According to that strategy, if a retired person who has a PF money or anyone who needed a certain 1-1.5% return on their investment capital every month can invest in Nifty as it is the safest option for investment. So, in order to invest in Nifty, they have to buy Nifty Bees same as the lot size of Nifty. And then, they can sell any Nifty call option which is 4-5% above the price of Nifty every month. And generate a certain income of 1-1.5% every month on their investment.

For example, suppose if Nifty is trading at 18000 then, they can sell 18700 CE or 18800 CE one lot every month and can earn extra monthly income on their holding.

Hilega – Milega Indicator

Nitish Kumar believes that only four things exists in market. They are:-

  1. Price,
  2. Volume,
  3. Strength, and
  4. Momentum.

He says that other than these four things nothing exists in stock market. And he actually made an indicator using these four things altogether known as Hilega – Milega Indicator. He made this indicator absolutely free to traders, many traders are using this indicator to understand the market trend and are also making money.

Chips and Hawa Analogy

He also developed the concept of Chips and Hawa to explain and to make people understand easily about Intrinsic and Extrinsic value in layman terms.

For example, he says that a chips packet has only two things, i.e., Chips and Hawa. So, he uses that analogy to make people understand that options also have only two things, i.e., Intrinsic Value and Extrinsic Value(Time Value).

Types of Risks in stock market

According to Nitish Kumar, there are only three types of risks in stock market. They are:-

  • Known risk,
  • Unknown Risk, and
  • Plan Risk.
  1. Known Risk is that when a trader takes a trade with a proper Stoploss and risk reward ratio in mind.
  2. Unknown Risk is that when a trader just trades based on tips services or TV channels recommendations.
  3. Plan Risk is that when a trader plan the trade before taking it, i.e., take hedged positions or do hedging in trades.

He says that “Focus on learning and do trading as a business not as Gambling.”

His investment recommendation

He recommends everyone to invest in N100 ETF rather than investing in stocks without any knowledge or investing by taking tips.

His predictions

He was the only one trader out there who predicted that Nifty will reverse from 7500 and cautioned everyone to not short Nifty around 7500 while every other TV Panelist and every other trader were giving a target of 5000 and 3000 for Nifty.

To know more about Nitish Kumar, you can watch his face 2 face interview with Mr. Vivek Bajaj here:-

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