Wednesday, November 9, 2011

Trading as a Business

Most professional traders understand the need to treat trading as a regular business. For a Business venture, the needs are:

1. Capital

2. Understanding of the business

3. Management of risk

4. reasonable expectations of return

These are the principles that should be applied to the setting up of trading as a business.

More on this topic, soon.

CNBC: I appear on CNBC at frequently during the day, starting from 8.15. Since I discuss my Nifty and broad market views extensively on the channel, I plan to discuss other relevant ideas in this blog. Readers are welcome to ask questions on the Market.

15 comments:

Pratik Mukasdar said...

Sir a very important part of trading is putting stop losses.
How should one keep a stop loss?
Should it be a rupee a stop,near a resistance/support level
or keeping in mind the risk reward ratio ..Sir pls explain

ramprasad said...

dear sir,
COULD U PLEASE EXPLAIN ME FIRST 15 MIN RULE WITH AN EXAMPLE PLEASE.

rocky said...

How to develop a view on markets each day before we actually start trading

Kuldeep.rk said...

Dear Sir,

People like me, who are big fans of yours & follow your guidelines but working people, do not get a chance to see CNBC during market hours. Most of the times, we do some swing treads in NF, based on own analysis backed by your kind words.
Request you not to stop updating NF & other trades on this forum, which really put value in our trades.


rgds,
kuldeep

Sushen said...

Hello Sir,

Correct me if i am wrong...

I have 30K savings every month

On yearly basis and for my sons future, every year i buy 1.5 lakh worth gold...1 Lakh NSC...50K Insurance....and EPF of 50K...Recently (6 Months back) i started investing in shares...My initial investment is 100K...I trade only with 50K...other 50K i use only when markets goes done more than my expectation...
Currently I hold the following stocks...

1.skumars @ 41/-
2.Polyplex @ 180/-
3.Tata Motors @ 188/-
4.Vguard @ 206/-
5.Indian Hotels @ 72/-
6.Auro Pharma @ 125/-

Sir, please correct me if i am going wrong...can I quit equity trading? or can I invest same money in gold and keep quite ?

savant said...

hi sir

I have a doubt regarding 4th point

reasonable expectations of return

In a business sense it is rational to think a 15 -20 % annualised return is good ? but when i check the day today market many shares are giving return of 3%, 4%, 5% returns i.e if we consider 100 days of trading 300% return !!!!

In sunch situation how could we determine correct expectations of return

shabsaif said...

Congrates for new job , why you are so bullish for NIFTY , Please explain. Thanks

Sushen said...

Correct

Nirav said...

Sir,

Very well said....Trading should be treated as business. I have read one article in which Trading was mentioned as businees with product, money management, etc.

SWEETY said...

@SAVANT -- Hi, greetings - you said ****In a business sense it is rational to think a 15 -20 % annualised return is good ? but when i check the day today market many shares are giving return of 3%, 4%, 5% returns i.e if we consider 100 days of trading 300% return !!!!****

Trading and investing is also one of the full time business for many in the globe. Getting 20% PAT - after all expenses & cash outflows which includes our salary -- is indeed a good return.

Secondly, why did you stopped at 3%, 4%, 5% returns given by some scrips to-day... i will say to-day NIFTY PUT options gave 40%, 50%, 60% returns. Its also like buying and selling like any other scrip.

Only thing what people are lacking is knowledge of when to enter & exit and which one and risk - reward management. Mere knowledge alone will not suffice - we should have determination & willingness to put the knowledge into use. Rakesh JJ, the big bull made money only by this. If i am not wrong, he had only one lakh rupee as his capital and with that he put his knowledge into practice, took leveraged positions and minted money. You know what he said: **borrowed knowledge will not last long**...

People like Sudarshan ji will guide and at times share their experience. We need to jump into the water to learn swimming and then master it.

regards

Rajesh said...

Sir, I have taken trading as a business after leaving a 30K job. I have sufficient capital and follow all the money management and risk management rules by the book. Done extensive paper trades before. Still not been successfull due to wrong entries and late exits. Your good words will be helpful.

Balu said...

@Kuldeep.rk

You can find all views by sudarshan on cnbc here

www.moneycontrol.com/technicals

(technical outlook)

Regards
Balu

Pranali Khanolkar said...

Sir, can u explain something about position sizing for futures and options?

Sasi Uppuluri said...

Sir, I have a doubt regarding your 4th point. What is the reasonable expectation of returns per month for a person who invested 1 lac. While I understand the answer depends on Risk:Reward that I see on my trades, frequency of trading, Winning%, Risk taken on the capital..etc..etc. Just tell us out of your experience what is the reasonal amount of expectation per month?

Krishna said...

One important point which is missing is that profits & losses in any business including stk mkt are notional.

Arranging capital for business is a process & not an event.

Regards