Dear NT
The open position ranges from 2 to at times, even 7-8.
kindly explain how you deploy cash from the available corpus so that it doesnt sit idle when open positions are less?
Thanks and Regards
Hi Jatinder. There are 2 parts to this. Lemme start with the first one. First of all, I decide (like any trader) what is my capital. From that I decide how many positions / stocks that capital allows me to trade simultaneously. For some traders that figure could be 10 and for some it could be higher. However, I believe in concentration and hence, limit my positions to a max. of 4-5 depending on the market condition. For a good part of 2012 and last quarter of 2011 I was generally trading only 4 at a time as it was difficult to find good, convincing tradeable opportunities (I am very choosy in my selection).
Now since the last few months there have been many more opportunities (all of them equally good looking) and hence, what I have done is added to my capital an extra portion temporarily which allows me to take these additional positions. Keep in mind that this extra portion is not part of my trading capital. It is capital that I have diverted from other avenues for the very short term. I have done this to increase portfolio returns and also because I know and understand the risks involved very well. It is not recommended though and most traders are better off, just dividing their capital into 7-8 parts now opposed to 4-5 earlier. I might also do that but for now I am happy with the arrangement.
To answer the question you raised about what happens when the no. of positions are less and cash is lying unutilized - I am ok with that. I cant use the idle cash somewhere else as I dont know when I might need it for trading. Also, just because I normally trade 4-5 positions does not mean
I have to have that many open positions at all times. That is compulsive trading.
The main objectives of trading are to first, protect your capital, and second, to aim for high returns. Both objectives are equally important. Positions are taken only when opportunities present themselves. I dont go looking for trades now (a mistake I have made on innumerable ocassions earlier
). I wait for them. If that means utilizing less capital for some time, so be it.
Remember, not trading is also a position. We have to remember that the market goes up and comes down. If the market is coming down there is no point in taking a long trade and getting stopped out. Better to wait for the market to resume its upward journey before jumping in.
Think of it as waiting for a bus at a bus stop. There will be buses coming every minute but we wait for the right one before entering it. No point in just taking any bus. We want the one which will take us to our destination. Boarding the wrong bus means wastage of time, effort and money, apart from loss of emotional control (a very easy thing for a trader to do)