Thursday, May 27, 2010

Nifty Futures Trade Management

Gourv asks:
"could u please explain money management to trade 1 mini nifty..like how much money 1 need to have in his/her account to trade 1 lot mini nifty..how much maximum in %wise of the total capital can be given as Stop loss."

Sensible question. The mini nifty details are:

Lot size of 20.
Current Nifty value: 5000
Mini Nifty contract Value = 20 * 5000 = Rs 1,00,000
Approx margin required = Rs 20,000
Cover for drawdowns = 2 times margin = Rs 40,000
Total capital required = Rs 60,000
Desired annual gains = 60% on capital = Rs 36,000
Annual gain in points = 1800. Per month = 150

Stop Loss
This will depend on your trading style as well as your time frame. If you are a day trader, your setups will be on five minute charts. I assume that the maximum loss on a five minute chart pattern will not be more than 20 or 25 points. This is the maximum, the average should be less. But, there will be a run of losses, which means there can be many consecutive losses. To protect against such runs, the trader must make some rules to avoid trading when conditions / setups are not in favor. For example: stop trading for the month if losses exceed 10% of capital. The exact number is not as important as the discipline.

However, random trading will not give any benefits. Traders should work on disciplined methods.

8 comments:

Anuj said...

Hello Sudarshan ji
Although I have relied on technicals for a majority my trades, these-days I have been quite frustrated by unexpected news and inability of technical analysis to give advance warning about price direction.This is in reference to recent price action in ABB and RNRL.Now with a heavy heart I have decided to reduce my dependence on technicals and concentrate on money management or what you have mentioned here as trade management
A while ago, I made up a plan with respect to money management,I would request you to review it when ever you find time.Below is the link

http://financeandtradingmadeeasy.blogspot.com/2010/03/neglected-essential-simple-money.html

I feel the plan is quite okay.But I need your opinion about how it can be made better or more simple.From your post above,I feel what you mentioned about setups and to decide when not to trade is the most critical aspect of trade management plan.I am working on that these days.
I am work on the strategy that you mentioned (NR7) here as well as on traderfeed blog a while ago(may be years...I am a lazy fellow!!)
I hope you continue with these ideas about trade management.Looking forward for related posts in future.
All the best.

Mind Without Fear said...

Dear Sir,

I am finding that it is very difficult to trade with one lot only. The specific difficulty is not knowing whether to book profits at 15-20 points gain or whether to let the profit run. Two lots solve this problem -- one can book one lot at 15 points or so and then let the second one run longer .... please comment ....

sahil said...

Stocks ( other than large caps i.e components of nifty) move on technicals better than nifty, so I prefer to trade them than nifty. If there is sell signal on nifty but dow futures suddenly jump, nifty takes U turn quickly , and the after hours movement of dow futures we get on cnbc tv or site is much delayed. FIIs have the data live so they trade nifty according to it. If this all seems funny to u, u can track dow futs n nifty movement and will see how it screw those who trade on technicals. On the other hand invidiual stcoks, for ex say educomp, it will run on its own charts whether nifty, dow futs r up or down. So its more safe n sure

pranav said...

Dear Sir,
Many experts feel that you should keep a journal of your trading history, you should update it daily. Sir, do you have one such journal, and if yes, could I request you to share what are the points you included in your journal.

Thanks n regards,
Pranav Kulkarni

gourv said...

Hello Sir,
Thanks a lot for answering my query regarding money management for mini nifty.however the SL you advised is on your assumption of day trader.Could you please take few minutes of yours to say how much the SL could be for EOD trade.

Regards
Gourav

Ricky Albert said...

As per Federal bank technical research report one should go short in this counter. Federal bank is looking quite weak at current level and is expected to fall further. Positional traders can go short in Federal bank from current level for good gains.

varsha banik said...

you are required to help the investor to protect his portfolio using nifty future which is 5500 and the lot size is 50 . please advise him how many futures contract should he sell or buy to bring down the beta to 0.2

riddham chouhan said...

A future contract is an agreement between two parties to buy or sell an asset at a certain time in future at a certain pre decided price. These future contracts are standardized and exchange traded. A future contract may be exercised or offset prior to maturing date. It’s a kind of forward contract which is a derivative type of instrument in which buyer and the seller are agreed to transact financial instrument/Physical commodities for future at a particular price. Nifty Futures is a financial instrument in which futures contracts are done on the basis of S & P Nifty index which is the benchmark of NSE. Nifty stock is a type of market in which trading is done on the basis of the underlying index S&P CNX NIFTY.

Nifty is an index of 50 blue chips companies of NSE (national stock exchange) and represent the performance of these companies. Nifty covers around 60% of the total market capitalization. The lot size of nifty futures is 50 and its multiple thereof. The nifty future has a maximum three month trading cycle-the first one being near month, the second is next month and the far month is third. The settlement day for Nifty future is last Thursday of expiry month or the last trading day if last Thursday happens to be a holiday. The settlement price will be the closing price for the underlying stock for the day and its final settlement price shall be the closing price of the underlying stock on last trading day.

The nifty contracts have two types of settlements, the MTM (Mark to Market) which happens on a continuous basis at the end of each day, and the final settlement which happens on last trading day of the future contract. Mark to market is when asset values are determined according to market prices at the end of each day. All nifty future contracts are mark to market to daily settlement price of the relevant future contract at the end of the each day. The profit and loss for the same are calculated from the difference between the trade price and the day’s settlement price for contracts executed during the day, the buy price and the sale price for the contracts executed during the day and square up.

Nifty is an index and its value is calculated based on the price of shares of 50 companies it represents, and this value is known as the value of nifty. on the basis of this value nifty is traded on exchanges as nifty future contracts, the price here represents the true value of nifty at any given point but there is some premium attached to this price and this premium is known as the nifty future premium, and it’s because of this premium that nifty future is traded at some high price then the spot market, if nifty future is traded at some less price then the spot market then nifty futures is considered to be traded at discount.