Monday, January 12, 2009

How I trade for a Living

How I trade for a living.

1. Develop systematic trading rules for short term trading (Day Trades & Swing Trades)

2. Implement these rules blindly during market hours. (No questions asked. If there is a signal, take it)

3. Review the performance of the rules every month.

4. Every day, work on new ideas, plans, meaning : the main task is research.

Performance:
All trades have stop losses
Percentage winners are 40. Means 60% of trades are losers.
Profits must be run to the maximum possible.

What is the Arithmetic ?
What follows is a theoritical example. Say, there are 100 trades in a month.
40 winners make average 15 points each (after costs). Total 600 points
60 losers lose average 8 points each (after costs) Total 480 points
Net gain: 120 points

Why trading is difficult for most people ?
Not willing to take losses. Most will not be able to take 60% losers.
Not willing to understand that Market movements are unpredictable. Here is an example. There are 60 losers. But the losers are likely to be distributed un-evenly. Maybe 10 losers came in a succession (one after the other), then six winners came, then one loser, then one winner.....Most traders will not be able to handle 10 losers one after the other.
Not willing to take profits. Most traders will jump to cash in a few points. They miss out on the really big moves that can make a year of trading.

Why I can do this ?
First, I have given my dues to the market. This means I have made many mistakes that traders make. (luckily, I always kept my positions small, so I was saved from any 'wipe out' ).
Next, I have confidence in my trading methods. Why ? I spend a lot of time doing tests over past data. If the method has made money over the last two years, it should make money in the future. If the method has given 12 losses in a succession in the past, it is likely to do so in the future. And so on....

What are the basic principles of trading ?

Have rules.
Cut your losses short.
Let your profits run
Follow your rules

16 comments:

rajv malik said...

namaskar sukhani ji,

salute to your teaching skills.
would it be too much if i ask you to spell out your own trading rules ?

warm regards
rajiv malik
rajivhtc@gmail.com

geeta said...

i really agree on your valuable comments, and one more thing that i would like to add is the analysis of all those trades which went wrong.so that we can minimise them,

rajesh said...

Excellent article and well written. I did the same mistakes once... I did not follow my trading system after two losses and did not take the third trade which was a multibagger. Afraid of losing profits I have taken small profits many times which went up afterwards. Your blog is an excellent study material for newcomers.

Jayesh Bhope said...

Dear Sukhaniji,

Thanks for throwing light on complex topics, in a easy way, that even a common man / a layman can understand....

"Simplicity is the natural consequence of Wisdom"...You are an apt example to this statement.

Your simplistic attire and appearance (tie-less!!) in TV channels, naturally appeals to the listeners and closely connects you with them.

May God Bless you!!

-Jayesh

Venkat said...

Wow ..what a beauty..I always believed the people who have self knowledge wins in the market.The people who are ground to earth wins in the market..People who are emotionally centered wins the market..The people who have patience wins in the market.So before winning .. markets make you perfect human being.Once you become perfect human..winning or loosing does not matter.Sudarshanji is one of those gems..a beautiful human being.

Junaid said...

....Great ideas Sir.... Absolutely, mind blowng..."" your ideas abt markets help a lot.... Hop dt u vl continue to teach us markets more n more...

Junaid said...

Sir, plz write somethg about how to put a stop.. Actually, i m confused.. I m not abl to understand... Is it some technical level in the stock price whch needs to be watched for...?? Or it is just a stop which is needed to minimize the loses,...??
Just few dayz be4, i put a stop on one stock.. Bt that stop got broken desicvely... Even i was not given a chance to sell on dt apprt stop.... Wht shd one do during these times.. Plz share ur ideas..

Nifty Addict said...

Great stuff,
Please continue your good work.
Now our market is very choppy,how should one trade or should one keep away from the market.

ANSHULTPT said...

Im just a 21 year old student and not a master like Sudarshan Bhai but I would like to share a strategy which has made me decent gains in this viscious bear market.
Go short on NIFTY if
1)NIFTY is below 200 DAY MOVING AVERAGE AND
2)NIFTY GOES ABOVE 20 DAY MOVING AVERAGE AND THEN FALLS BELOW IT.
To get the closing price I place the order in the last 5 minutes.

veer said...

Dear Sir,

Very nice article. Could pls highlight your trading system.
It will be helpful pls.

Regards,

Muthu

MVP said...

dear Mr.Sukhani,
this is one post i subscribe 100%. there is not a single thing anybody could add or modify in them. trading for a living is really done like this and there cannot be a better way to explain how it is done.
best regards//
mvp

Manish Chauhan said...

Hi My Sudarshan

Please answer my query ?

Q. Nifty depends on 50 stocks , So whats the logic of support or resistance in Nifty charts , its derived from price of 50 underlying stocks , When we say nifty has a support at 2810 , then does it mean when it appoaches 2810 , then there will be buyers coming in to support the most of the underlying stocks and markets have chances to reverse . ?

I tried to think about it myself .. but looks like it needs more experienced explaintation .

Please talk on this sometime in your blog .

Manish

technicaladviser said...

great article .discipline and the will to succeed is the key to ones fortune .sir i had requested you for telling some tech analysis software

stockchart said...

hello sir,your name will be recorded in the history of indian technical analysis as one of the best DOWN-TO-EARTH ,technical analyst,,no other words can decsribe your understanding of human psychology,,,you are just superb !!!!!!!,now a few words on your system....40 % winners doesnt look tobe too good,,honestly,i have my own rules of my own system ,if i follow them i get a very very high % winners,,and my loosers will be the same like yours 8-10 points..my winners will be betn. 85-90..may be a bit more !!!!!!! ,please rest essure i am not trying to market it,just sharing my 12 years exp.. in TA..bjnaik@hotmail.com.

anshul said...

iam really immpressed the system u r following iam too following sum trading system but my problem is my brokerage eats some profit and wide the losses in trade... ..so my question is when u say average 8point loss and 16 point gain on average point of view do u include ur brokerage in this net gain or loss of 100 trades in month????

rakesh said...

sir,
as i read ur blog u clear & simple win gave idea abt next nifty direction.on rsi strategi is so most succesed as u seen ur blog ex:ur blog said when downtrend, rsi up above 50 go for sell & cover below 5. is any follow, took handsome return for this week.
pl sir say abt more on rsi & aboutyesterday high, low,close.tx