Tuesday, August 4, 2009

Trading for a living

There is a lot of interesting feedback on my ideas on 'the perfect trader'.
@nubhut! says:
"if i were to set aside three lac and trade four lots of nifty(about 60% capital deployed and rest to cater for drawdowns/M to M adjustment) as per a mechanical trading system(e.g trade vinayak), am i not likely to get about 1200 nifty pts in a year (which ur system is likely to get as per the results so far). after paying subscription of 90 thousand for the year, i still get about 1.5 lac . now that is 50% return "

My Notes: your arithmetic is correct and practical. This will work only if you allocate a part of your funds to this method. Which means Rs 3 lakhs is spare money. Overleverage will cause psychological setbacks during periods of drawdowns. Since the returns come with risk, you must remain conservative in capital allocation. In my post, I was being conservative with returns.

Ankush said: "There is nothing like spare money in this world. You cannot spare the money and feel that did not exist. "

My Notes: Fair enough. I meant money which can be used for risk taking activities. This means you do not need this money for your day to day expenses. If you are running a business, then the working capital is NOT spare money. If you have an Fixed Deposit and the interest is reinvested (you do not need it) that may well be spare money.

student of the market said "while I agree with the note of caution in the initial years, how can one trade with spare money if one is trading for a living? Or do you not recommend trading as a living? "

My Notes: Of course, I recommend trading for a living. When you become a full time trader, you have asset allocation. Part of your funds are in trading. Assuming that the bulk of your funds are in trading, then you have become wise and experienced and undertand the risks of overtrading / leverage. [I am worried when I write this, because all readers will think they are wise and experienced!].


Student Of Market said...

Thanks Sudarshanji, for clarifying. For myself, I can definitely say that the market punishes me too often for my folly to claim that I am wise. Nonetheless, she also recognizes that I am sincere in my attempt to follow her and dishes out occasional rewards.

The only wisdom that has gone a little deeper in myself - thanks to you and others - is that I must protect my capital!!!!

I hope to keep this wisdom alive.

Girish said...

Hi Sudarshan,

I've been following your blog oflate and find your writing useful, easy to read and also invariably spot on.

I've taken to trading myself since the last 2 months, prior to which I was a investor/trader along with my primary job. The last two months have been a big learning for me as a full-time trader - in terms of money management, risk and also trading "right".

Your post has given a different but a very practical perspective for trading and Thanks for the same.