Wednesday, February 4, 2009

Trading as a Profession

What is the amount that you need for trading ?
As of date, the value of 100 Nifty is about Rs 2,80,000. Let me round this to Rs 3 lakhs.
You have a method for trading the Nifty that gives about 1500 points of profits in a year and risks about 500 points. (the risk is the maximum loss incurred during the year)
This is the capital requirement I get:
A. 30% Margin 90,000/-
B. Risk provision ( 3 times historical risk) 1,50,000/-
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Total capital required Rs 2,40,000 / -
Expected Gain (1500 points) Rs 1,50,000/-
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You will also earn some interest on the margin and the money you keep aside for funding losses and on the accumulated profits, but I have ignored this. The return is about 62.5% on capital invested. This is possible to achieve.
Why traders go wrong ? They overtrade. While my suggestion is to trade 100 Nifty with an investment of Rs 2.4 lakhs, it is possible to trade 1000 Nifty with the same amount (without any provision for losses and a willing broker). What happens to such traders ? The end of their trading careers is guaranteed.

9 comments:

Sunil Malhotra said...

I am not a trader, but a investor Long Term/Short Term and do only delivery based buys. But till today i have NET loss in stock market. Is it possible that i give money to somebody reliable trader who can do the trading for me as i donot know nothing about trading, the money/shares will remain in my trading account and trader can do the trades for me, if i give access to him.

I.B.SHANKARA RAO said...

Excellent explain sudarshanji,every trader needs to consider this factor.Any business do not survive with out proper risk provision as per nature of the business.
Thank u sir

nagu54 said...

sir,i am struck up in satyam @ 66 qnt 26 k , please sujest me ?

vijay singh said...

hi sir
i am regular reader of your blog. i love technical analysis very much. your blog is very informative and have much for learn.
sir i want to learn about technical analysis. kindly tell me some good books on that.

vijay

Jatin Soni said...

hello sir,
sharing u a link kindly have a look....

http://lh4.ggpht.com/_NIse1CaSNho/SYmhMEr-WUI/AAAAAAAAARA/a745O0qoeEI/s400/INVDRG.png

do u think these sort of new patterns work in all markets???

Sunil Malhotra said...

I am also struck in Satyam 4.5K shares at 170. Everybody is saying that if you dont need money for a while forget this stock and pray for better future of this stock and dont fall prey to any news based stock as Mr. Sudershan has always advised on CNBC.

san.cfp said...

Dear Susharshan G,

An apt point made by you in terms of Money & Risk Management Principals.


I am also eager to learn and Practice Technical Trading like Professional Traders like you. Could you mentor me on that or guide some good Professional Course.

rajv malik said...

namaskar sukhani ji,

you say-"You have a method for trading the Nifty that gives about 1500 points of profits in a year and risks about 500 points"."

now the important thing to understand from you would be what method we are supposed to follow to be able to gain 1500 points ?

warm regards
rajiv malik
rajivhtc@gmail.com

Mind Without Fear said...

Dear Sir,

I was browsing through Larry Willliams website www.ireallytrade.com in which he strongly recommends position trading for futures trading first before day trading.

I am wondering what position trading might mean given the fact that NearNifty can be traded for just a month. Would you educate us on how to develop specifically as a position trader. Do you for example look at weekly and daily chart as opposed to 5 mins and 30 mins chart? I am assuming for position trading the stop loss would be a broader range? How is it then less risky unless the wining percentage and winning spread is higher?

Right now, I am day trading with one or two mini nifty lots ( 20-40 Nifty units) - I have burned my fingers with 500 Nifty six months ago and can fully appreciate your posting.

thanks.

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