Sunday, January 24, 2010

Trading is about risk & capital

A Career in Trading

Reader Nirav asks:

My question on this post is that can't we pursue a trading as a profession? because your last line of this post says A career in trading will not give you stability. Is that mean that one must have some source of stable income other than trading?

On the same theme, Manish says:

it was a little bit disheartning to hear from u that career in trading will not give u stability. many people including me who r full time traders are trying to earn a living out of trading by learning technical analysis. r u suggesting that we take up a job with stable income & take up trading as a side activity altogether.


My Notes:
 
Writing a reply is taking a lot of time. Funny. I am staring a the screen, not quite focussing on the subject. I wonder why. Usually, I write non-stop.
 
Ok. Trading is all about risk. No risk, no gain. Now, risk will be controlled, since I assume that most traders are sane and sensible. But it is still there. How do you meet the risks involved in trading? Answer is simple: with your capital. Therefore, trading assumes the availability of capital, the more the better. Technical Analysis is the means to preserve and increase the money, it does not create money out of nothing. Also remember there is a learning curve in trading - years (not months!).

I think you have got the idea. Budding traders with capital - fine, become a trader. Newcomers without sufficient money - please keep trading as a hobby.

A Clarification:


Reader men writes : Mr. Sudarshan, could you please explain how your trade went out today. On CNBC you gave a buy with a sl around 4982 which would have got triggered, you may have gone long at a lower level, would you have exited around 4980 level if you went long?

My Notes: On CNBC, on Friday morning, when asked about the possible trades for the day, I suggested that traders may go long with a stop below 4980 which was then the initial few minutes' low. Such a trade would have been stopped out almost immediately. We did not trade at all on Friday since volatility had risen to unacceptable levels (systems did not give any signals). It is important to understand the difference between what may be done (by any trader) and what should be done by you.

10 comments:

Swingtradingideas said...

Dear Sir,

I have been trading for the past ten years and I am a firm believer that if one wants to take trading for living one must and should have a stable income from other sources. Scared money do not help. If the life is not dependent upon trading then decision making is easy and one can wait for even a month for a low risk trade without getting worried for monthly expenses.John Piper has rightly said " Trading and living are action, not thought'
With best regards

ANAS said...

Respected sir, this is ANAS ELIAS BATLA again. I requested earlier , to know the schedule for Investor camp in Kolkata. Secondly, I was reading 'DOW THEORY' from some websites, In that an article said ''PRICES SOMETIMES TREND(up or down] AND SOME TIMES TRADE(in ranges]'' (wording may vary] . I humbly request you to do me a favour, and spare your precious time in elaborating the above line with some examples. Thanks for your kindness.

Pi said...

I agree with sudarshan ji. I have been trading for over 5 years now. First 3 with my dad's money (lost quite a bit), then with my own(again lost some more, buy not quite much).
The learning curve is in years. At every stage you feel you know a lot & thr isnt much more to learn & ul make money & every few months im surprised at what i didnt know & know now.

Last 2 years have been pretty steep learning curve & have atleast now learned to trade with trend rather than against it. God i cant believe i didnt know a thing as basic as that & thought i knew everything.

Anyways - I have got a question for now? I am short 2units from 5250. Where/how should i book profits?

Last time round (when mkt dropped to 4550 & sprang back) i didnt book
profits of 500 points expecting more & had to ultimately settle for just 200. Again I am reminded that this isnt 2008/09 & to expect huge moves would be futile as mkt has settled into a more stable equilibrium - and that is what again makes me feel that this mayb the big one - the one big move mkt makes once every 12-18 months.

Bears have become exhausted, sellers at 4000/4500 have become buyers at 5200 (including my dad !!).. so this time mkt will give them their elusive big correction of rally off March 09.

I would also like you to talk abt things on a larger timeframe - whether this is a new bull mkt, whther election gap will be filled, & when long term investors who've been waiting should put in their money?

Anuj Joshi said...

Hello Sudarshan ji and readers,
whether trading can be done for living is an endless debate.
I firmly believe that trading can be done for living provide certain conditions are met
For example
1)a trader should have enough experience (10,000 hrs)before he declares that he wants to trade for living (if you start to trade for living from day one ...you will fail...badly)
2)trader should be sufficiently capitalized (if you are trading one contract of mini nifty you should have complete value of contract in your trading account ie 1 lakh approximately),and enough money to trade multiple contracts
3)trader should not have any other debt(like educational loan in the case mentioned before)
Odds for achieving success become quite favorable if above condition are met however experienced traders can work in very demanding conditions as well
Trading is like business,just as you have million of people running there businesses successfully, so can you...quite a lot of business fail,so can you
Understanding the risk and managing the risk is all you need
Sudarshan ji, I have been reading your blog since i started trading I am really thankful for your continuous support to fellow traders.
I have recently created a blog,apart from providing global and indian markets updates,my main objective is guiding traders to become responsible and consistent traders
this post the most important in my blog which every trader should read
I call it my holy grail

http://financeandtradingmadeeasy.blogspot.com/2010/01/holy-grail-of-trading-roadmap-to.html

Thanks ,god bless

Ravi said...

That's something we agree with

NRG said...

I agree with what Sudarshan said about trading for a living (while not quitting a job you have) I also agree with Pi & Anuj. Thanks for the insights. As for me I've been trading for about 2 years now along with my wife (she's the fundamentalist, I'm the technical guy) that in-turn puts in about more than 4 years of learning in 2 years with the both of watching the markets like hawks 24/7. We have been quite successful over the years particularly in the equity markets (not so-much so in the commodity markets).
Everyday day has been a learning experience, every day you feel, how did you trade before you knew this or that thing. But over time you feel that you've learned enough to turn majority/overall profits week after week, but keep adding to your learning every day.

One tool that's very naive & simple but even the most experienced players resort to is 'paper trading', might sound very silly and boring but that's an illusion. Paper trading can really strengthen and bolster the trader inside. Remember the good old school days where you could say or do anything theoretically but those schooling days are exactly what bolster the spirit of a kid... that is something like what paper trades are for a budding trader. Paper trades do not pay you in Rs/$ but the pay out is the foundation of trading profits tomorrow.

One other major learning to take from the markets is understanding your thought process and the influences on that thought process, this is a major part of the trading learning curve and process. This is where the major developments are made day after day by a trader.
Enough said for now I think.

One thing I learnt recently was something that my wife said for a very very long time. She always said that it's nice to see Sudarshan on TV18 in the morning. Last Friday after the markets had fallen considerably, seeing Sudarshan at 8 in the morning (in freezing Delhi mind you) with a warm smile was so heart warming. This was the day I understood why she felt this.

Regards,
Neha & Ravi.

NRG said...

Dear Sudarshan,
Would you mind sharing your trading setup with us here in your blog. I mean the technical software you use, which brokerage do you prefer to execute your trades and the data feed provider that you prefer etc, it could help us find the best service providers. What I mean is that if they provide for the best then they must be good enough, it is very tough to find the right service providers in our country. If it is not too much to ask, please do share it with us.
Best Regards,
Ravi.

Tushar said...

there is a learning curve in trading - years (not months!).
True say..

Completed 2 years in core trading this Jan. And still on leaning curve.
Had got in in Jan'08, few days before the crash.

Guess how much time did your learning curve took, Sudershanji ?

How to identify the end of this learning curve process?

Yes I agree that this curve may never end, as market keeps on teaching new things.
But still after what ime did you get stability, so I can use it as a benchmark.

B M Kajaria said...

Hello,

Please let me know what is CBOE Volatility Index (VIX)?

And how we can get the live detail chart of the same so as to understand our market.

Awaiting your positive reply eagerly.

Devv said...

Hello Sir,

I am a regular reader of your blog. I heard you recommend India Bulls Real Estate on Friday. I bought one lot at Rs.199 and my stoploss was triggered at 190. Today I again bought at183.5, but it has fallen to 169. Do you think India Bulls Real Estate has reached a support zone. Should I continue my long position or exit on any bounce back.

Regads,
Devv