Teach A Man To Fish And.........

Saint · #**361** 8th August 2006, 04:36 PM

Quote:

Dear Saint.

I am very much pleased to read this thread. fantastic Explanation like a professor teaching his students. Regularly I am awaiting yr post.Thanks.

Sorry for asking simple questions, but I hope u will not mind.
1. Trailing Stop - I like to know, shall I put at X% down of yesterdays close price. In this case though on one day the price will not come down X % & touch the stop point but in a week or so it will fall too much low but still will be above the X point as X is % of yesterday's close.

Hi Ger 06,

Thank you for your kind words,my friend...........another thing,no question is too simple not to be dealt with.Every doubt solved is yet another step on the path to Trading Mastery.So make sure you sort them all out before the mkt does it for you..

As for your two doubts,shall certainly look into them once this whole topic is done,and shall give a few examples using charts...........think your doubts will auto-resolve after that.But if there are still queries,revert back to me and we'll get into them togetner.

Saint

ganeshhity · #**362** 8th August 2006, 05:36 PM

Quote:

Originally Posted by aca_trader

I am on cloud 9!! (Another bad emotion you feel after a winning trade and it makes u forget the basics and brings losses in the subsequent trade.

)

Thanks a ton Saint & Ganesh! But ofcourse these are words of guides like you only. The monkey is only aping them.

Best Regards,
--Ashish

Hey man...saint is ok...but ganesh ????????
Is it me, or someone other you are referring to....sorry, I am out here in mumbai...would join the action soon in a week's time....but if that "tonn thanks" refers to me, I'm not the right man for it...definitely, Saint and amitbe, who bought a lame man like me to some good tech knowlege should only claim it....

all the best friend..

may you succeed in this market..

ganeshhity

Saint · #**363** 8th August 2006, 07:09 PM

Quote:

MONEY MANAGEMENT:

We have therefore gone about the importance of stops,and how vital it is for trading success.We have realised that we are going to be laughing our hearts out to the bank,so long as we take small losses,and let our profits ride.In short we look to make big gains,at the risk of many small losses.

We have also discussed that there are many methods of placing stops....the important thing is to have stops and the discipline to adhere to them.So like we discussed,we place our stops just a bit below the previous pivot low,and trail stop upwards.

We had discussed the other day that the maximum risk per trade is2%preferably lower.And yes Pranay,.......if you are comfortable with a risk of 1% as stated in the other example,yes,that would be 1% per trade.And to go over it again,presuming that my trading capital is 10 lakhs(yes Ger06,by that,we mean the money that you have set aside for your trading.If you do derivatives and equities,calculate them separately.By trading capital,we are not talking net worth....simply the money put aside for trading).................first we calculate how much we are willing to risk.

Therefore,if we are willing to risk no more than 1% per trade,that would mean 1% of 10lakhs,ie Rs10,000/= per trade.And therefore if our stop loss is Rs 20 away from our entry price,we can therefore buy 10,000 divided by
20=500 shares.

However juicy the charts look,if our stop is Rs20 away,and our risk is 1% on 10lakh portfolio,then that's that,500 shares......no more no less.

Now coming to Pranay's valid doubt............for one trade,we plan to risk no more than 1%.Therefore,for 25 trades,we would be risking 25% of our portfolio,right? NO..........Therefore another condition that has to be met.Else,we would be right about placing our stops and right even about share sizing,but a huge market move taking all stocks down would trigger all our stops.

And with it,a sizeable chunk of our portfolio............

Shall continue in the next!

All the best!
Saint

Anupama Singh · #**364** 8th August 2006, 07:27 PM

Hello Saint!

Some great threads on money management.Thank you so much.

Sincerely,
Anu

Saint · #**365** 8th August 2006, 09:32 PM

Quote:

MONEY MANAGEMENT

MAX RISK

Now we come to another major part of money management that must be looked into...........just as how crucial having a predetermined stop is and proper share sizing,this part is vital for the survival of our trading account and therefore our survival as traders.

If we were to risk 2% per trade and we get into 20 stocks,a move down would trigger all the 20 stops,........we have put proper stops,great.................we have taken small losses,great.....and yet,our account is down 40%.If our trading capital was 10lakhs,well 4 lakhs has vanished into thin air!!This is unacceptable........and unpardonable as far as the trader is concerned.

We therefore have another set of percentages in place so that we are protected from market movements..........now what that percentage is basically comes back to the individual trader and his comfort levels.There are many absolute truths in the world of trading,but no absolute methods,all relative to what our psyche allows us.

For example,I believe that a 2% risk is just too much to bear,I am on the other hand comfortable with a risk of 0.5-0.75%......so there are as many methods as there are traders.Basically tweak to your individual comfort levels.

Now what are these percentage rules of max risk that I am speaking of?

1.In an intraday position,take no more total risk than 4% in that day.Which means that I would take no more than 4 trades at the same time.Why?Because I am risking 1% per trade,and if I take more than 4 trades,I would be risking more than 4% in that day.

Therefore,I enter into TISCO with my stop loss at the previous pivot low at a risk of 1%.Then,I see a great setup in RIL,same thing as above.Now I see a great trade in ITC ,I grabbed that as well.Then a beauty in ACC.Now I have 4 trades running simultaneously,and I risking 4% as of now.I then see a great play in SBI......But my rules prevent me from taking that 5th trade,however juicy that set up.

Now I get a great move in TISCO and ACC,and that gives me the opportunity to raise my stops in the two to breakeven.Now I can take SBI if it still looks great........if it has already run off,well,nothing can be done about it.Missed money better than lost money!!

Also make sure you have your max percent loss in a week after which you wouldn't trade any more,and your max percent loss in a month after which you are no more than a bystander.If I lose 10%,that 's it....I am out for the month.Many put that figure to 6%,or 8%.........once again,your comfort levels.

2.In a swing position that may last up to 4-5 days,once again similar rules come into play.I basically take a max risk of 6%.......now why these figures,well,basically no real reason except years of toying around and tweaking it to comfort levels.As said before you will have to do the same.

So,here again,a risk of 1% per trade allows me to take 6 swings that week.Every time I am able to raise my stop to break even,I am allowed another trade.Else that's that.......

3.In a position trade,that can take up to weeks to months,I tend to take a max risk of 12%,meaning that if you are taking a 1%risk per trade,max number of stocks that can be got into is 12.And then,once you get to breakeven stop in a trade,you are allowed to get into a new position,or add to the previous position.

If you are the type that can take on a bigger amount of risk,fine........but total portfolio risk no greater than 20%.Greater than that,think you would be fishing for trouble.So careful on that one.

It is very important that these rules are in place...........very,very important!!The percentages you as the trader will have to work out.But you MUST have a stop,you MUST adhere to them,you MUST have a risk per trade and share size accordingly,and you MUST have a max risk that you are willing to take,after which you are going to pull the plugs.And you MUST have a point where a bad day or month is accepted as it is ........and all trading comes to an end.If you are out on the 15th day of the month,that does not mean that you sleep and watch TV for the rest of the month.......You come to work as in every other day,you paper trade,and you do it till the end of the month.Your first trade would be the first day of next month.

Discipline is discipline,and rules are rules............These are like commandments in the Holy Scriptures of the Trader.Not observing them is sacrilege,a blasphemy.They,once drawn up,MUST be followed at all cost.

More in the next!

All the best!
Saint

Dhanya · #**366** 10th August 2006, 10:43 AM

Hello Saint,

You know that I am a position trader,so at any time when the market is strong,I would be in ,like 20 stocks at a time.I feel that was the mistake I made.I had proper stop loss as you mentioned in the other thread,and you had even mentioned to keep it between 0.5-2% per trade.But I never had a max risk put in place..........all went to plan at that time,but if it hadn't,it would have wiped out 40% of the capital.

Thanks for sharing.....

Regds,
Dhanya

aca_trader · #**367** 10th August 2006, 01:40 PM

Quote:

Originally Posted by ganeshhity

Hey man...saint is ok...but ganesh ????????
Is it me, or someone other you are referring to....sorry, I am out here in mumbai...would join the action soon in a week's time....but if that "tonn thanks" refers to me, I'm not the right man for it...definitely, Saint and amitbe, who bought a lame man like me to some good tech knowlege should only claim it....

all the best friend..

may you succeed in this market..

ganeshhity

First of all, thanks for your best wishes.

Of course, I was referring to you as well. Frankly, I have learnt from a lot of persons reading all the posts. It's another matter that obviously we learn more from some and a bit from others but even the pables help in making a building.

Best Regards,
--Ashish

Saint · #**368** 10th August 2006, 03:36 PM

Quote:

Is it a cash available for trading in trade account or total portfoilo amount i.e. Cash + including unrealised value of shares. Because if I bought 10 shares worth 1 lakh this month but not sold then the cash will drop.
So please guide me.

Thanks.

Hi Ger,

Yes,that would be the cash in your trading account and the value of the shares at the end of that month.

Saint

Saint · #**369** 10th August 2006, 03:37 PM

Most welcome,Anupama/Dhanya...

Saint

pranayd · #**370** 10th August 2006, 06:16 PM

Quote:

Originally Posted by Saint

Missed money better than lost money!!Saint

Those are words of immense wisdom, which I guess have come from years of experience.

There were times I found myself trying to catch a speeding bus (read already run up counter) with the hope of it accelerating even further, also to find it U-turning after I hop in.

There is still so much to learn...I hope I will learn it all over a period of time.

Thanks a lot Saint (and other senior members too!) for imparting the wealth of knowledge you have to us and making us wiser and better traders.

Pranay

The Following User Says Thank You to Saint For This Useful Post:
rajatheroyal (2nd August 2008)