Dada boddo bhul hocche je.
I don’t go overboard beyond my size limit, I know where I will crack. Why to even trade a size which beyond our handling (emotion) capability.
May be I got you wrong at the first place and missed the essence of the query on compounding. May be you are asking is there a way of unlimited (Hypo) compounding of position without buckling on emotional front. Then none of my post was a direct answer. Let me answer that now:
(Pardon my big post)
What is Money - Lots of definition around - here is my favorite:
Money = Effort (Energy) X Time
Transaction = Money Transfer = Transfer of Energy
Explanation:
A farmer spend his time on the farmland and with all his hard work he grows the crops. He sells it to the hoarder or stocker -> Gets Money.
A doctor treats his patient (with his skill, which he earner by investing his time X energy) – and charge money.
Doctor buys food from hoarder or stocker --> Pays money --> transaction complete --> transfer of energy
Farmer falls sick --> Goes to Doc--> pays fees --> transaction complete --> transfer of energy
The whole life is like this (exception exists).
Now on trading , what we deal with – is live getway of energy – incoming or outgoing. We can handle that flow only as per our capacity, unless grid failure (emotional setback will happen).
Now the issue is different person have different personal bandwidth of handling the load --> 2 persons will 50 lacs may not be able to handle 3000 qty similarly, but they will definitely handle 300 qty, better than a guy having only 2 lakhs.
So, I guess it is simple, we don’t have really fine tune this unless we are looking for Nobel here. Trade size needs to be proportional to Fund allocated. My theory is simple, 1 Laks 1 Lot (75 qty), it was more when Nifty Lot size was lower, I guess few years ago.
So if my capital is 5 lakh, my lot size is 5. How I found it? By trial and error.
Will I be able to handle 40 lots overnight if my fund somedays grows to 40 Lakhs? Not sure. But will surely find out where I am panicking and will be stopping with that lot size – 1.
This has been my way – need to not be right on paper. Following this as long as it holds good. The day it won’t, I guess I will search again.