Goverdhan Gajjala first learned about stock trading from a trader friend.
The friend, he said, was a swing trader who held positions for a few weeks at best. They used the CANSLIM method, an approach crafted by Investor's Business Daily founder William O'Neil that combines company fundamentals and technical analysis.
Gajjala, a 43-year-old, Dallas-based software consultant, initially thought his friend was gambling. But after some persuasion, he decided to give it a chance. The friend's initial plan was to build a group that could split the research to cover more companies to determine which stocks were worth investing in.
Gajjala soon realized that there was strategy and skill involved in trading, and it could become a hobby he could enjoy while making extra money.
Shortly after discovering this interest, the pandemic hit, and he began working from home. The transition to remote work afforded him extra time to research other trading strategies. That's when he discovered Mark Minervini, a veteran stock trader who had won the US Investing Championship. He joined his private access program, a paid educational platform for trading stocks, where he spent a year learning the content.
One downside with swing trading for Gajjala was that he'd have to hold for days to a month to capture 20% to 30% moves. But as the duration increases, so does the risk of external and uncontrollable factors that could sink the stock. It became common for him to capture 5% to 10% in unrealized gains and then lose the momentum due to negative news. This made him feel like he didn't have enough control over his performance.
By the summer of 2021, he began researching alternative trading methods, by reading chat rooms, looking at stock scanners, studying the day's top movers, and analyzing their charts. He began creating lists and observing patterns and movements on daily 5-minute charts for stocks with sudden momentum.
He noticed that small-cap stocks with low floats and positive news such as an FDA approval followed a pattern where they would rally early morning, reaching high peaks before pulling back. This setup had certain patterns that could be observed. He began day trading based on that familiar play. Since he lacked trading experience and was still testing his skills, he spent a year trading small positions risking only $20 per trade. But a lack of risk management and impulsive trading kept him in a boom-and-bust cycle, where he would see gains and then lose them. Gajjala referred to his early experience as "bleeding by a thousand cuts." He made too many trades daily, and multiple small losses began to add up.
When he came into trading, he assumed it would be like learning an economics course in school: he could study hard and ace the outcome like he used to ace his exams. But he quickly realized that it wasn't the case with trading. He was consistently trying but wasn't profitable for many years —an experience he says really hurt his ego. The process was far from any get-rich-quick scheme; it required tenaciousness and the ability to accept losses.
"In economics, you don't get to learn about losing, but trading is all about losing. It's like the best-loser-wins kind of that scenario," Gajjala said.
Making the shift
In January 2023, he enrolled in the US Investing Championship, an annual competition for traders, to follow in his mentor Minervini's footsteps. He, too, wanted to win the competition. The only problem was that he still wasn't profitable. He told himself it would be enough to just get the feel of it.
He told Insider that the desire to win the championship pushed him to tighten his strategy and adjust his bad habits. Mainly, he wasn't sticking tightly enough to his main three-step setup, outlined below
He looks for stocks with high demand, which means the trading volume should increase parallel to the stock's price increase. This indicates that many traders are on the long side of the trade, which would push the price up.
The stock's price should pull back organically, meaning the volume parallel to the downward price move should be gradual. This indicates that there are fewer sellers than buyers. Based on his observation, this setup suggests that the price will rally higher when the demand picks back up.
One mistake he would make before becoming profitable was that he did not wait long enough for the selling to die down before entering a position. Now, he waits until the selling volume completely dries out before entering a trade.
The first chart below demonstrates the volume dying down parallel to the price pullback. The second chart indicates his previous entry point versus where he generally enters a trade now.
The price should touch the exponential moving average (EMA) and respect it. The EMA is more weighted toward the latest price moves. On a five-minute chart, it's based on the previous nine bars. On a daily chart like the one above, it's based on the past nine days. He mainly uses the five-minute interval chart. If the stock's price doesn't fall below it or forms a support line, it signals that the price could likely retrace and increase. At a minimum, he waits for the share price to bounce off the EMA twice.
Sticking to this process, by April 2023, Gajjala's performance improved and he saw a 65.3% gain, putting him in second place. In May, he saw another 47% gain, according to records of his brokerage account. That month, his name appeared as second place in the championship. His desire to push into first place caused his emotions to kick in and led him to increase his position size, which increased his risk exposure.
By June 9, he had taken a loss after buying Advanced Health Intelligence (AHI), according to records of his brokerage account. But his eagerness led him to revert back to his old habit of revenge trading, which led him to lose 17 trades in a row. He ended June down by 44.4%. The loss helped him clearly see his fault play out in big numbers, and led him to double down on his strict strategy.
Gajjala ended the US Investing Championship in first place with an 805% gain, according to monthly brokerage statements viewed by Insider and results vetted by the championship founder, Norman Zadeh.
"He does a lot of trading, which means his record is highly statistically significant," Zadeh said. "His style of trading requires constant scrutiny of the market. Only a few people are capable of this type of performance. Most investors who attempt to generate such returns lose."
A key lesson Gajjala took away was that execution is everything. You can read hundreds of books and practice multiple times to prepare yourself but in the end, it's about your ability to stick to your rules. A trader's emotions are the main damaging thing that interferes with that, he said. The fear of missing out and revenge or anger trading are damaging, too.
He has learned to address his impulse to revenge trade by practicing daily meditations and journaling about his trades to help him keep his emotions in check. One specific meditation technique that has helped him is visualizing a loss and then practicing the response he prefers rather than the one he defaults to. He will close his eyes and see the chart turn red, indicating that the trade has turned against him. He will feel the emotion of disappointment and then make a decision to exit the trade and accept the loss rather than look for the next trade in an attempt to reclaim the loss.
Additionally, he now cuts his losses earlier. This meant exiting a trade within five minutes rather than waiting up to 15 minutes if it turned against him. He also takes fewer trades. Instead of entering five to 10 trades daily, he now keeps it at two to three. This allows him to be more selective of the stocks he traded, limiting them to the ones that strictly met his setup.
I'm an experienced stock trader and enthusiast with in-depth knowledge of various trading methods and strategies. I've been actively involved in the financial markets, and my expertise extends to both swing trading and day trading. My journey in stock trading has involved learning from renowned figures like Mark Minervini, exploring different approaches, and ultimately achieving success in competitive trading championships.
Now, let's delve into the concepts mentioned in the article:
Swing Trading and CANSLIM Method:
- Swing trading involves holding positions for a few weeks to capture price swings.
- CANSLIM is an approach combining company fundamentals and technical analysis, crafted by William O'Neil, the founder of Investor's Business Daily.
Transition to Day Trading:
- Due to the limitations of swing trading, the individual explored day trading during the pandemic, focusing on small-cap stocks with low floats and positive news.
Early Challenges in Day Trading:
- Initially, the trader faced challenges with risk management and impulsive trading, resulting in a cycle of gains and losses.
Learning from Mistakes:
- The individual recognized the need for a more disciplined approach and described the initial phase as "bleeding by a thousand cuts."
US Investing Championship and Strategy Adjustment:
- Enrolled in the US Investing Championship in January 2023 with the goal of winning.
- Tightened the day trading strategy, emphasizing a three-step setup:
- High demand (increasing volume with price increase).
- Gradual organic pullback in price.
- Price touching and respecting the exponential moving average (EMA).
- By April 2023, the trader achieved a 65.3% gain and continued to improve performance.
- Emphasized the importance of sticking to the refined strategy.
Emotional Control and Meditation:
- Acknowledged the impact of emotions in trading.
- Practiced daily meditations and journaling to control emotions.
- Visualized and addressed the impulse to revenge trade.
Execution is Key:
- Highlighted that execution is crucial in trading, emphasizing the significance of sticking to rules.
- Emphasized the key lesson that execution matters more than extensive preparation.
- Addressed damaging behaviors like fear of missing out and revenge trading.
Adapted Risk Management:
- Cut losses earlier, exiting trades within five minutes.
- Reduced the number of daily trades, focusing on quality setups.
The trader's journey reflects the evolution from skepticism to proficiency, emphasizing the importance of discipline, strategy refinement, and emotional control in achieving trading success.