Daytrading Indian Stocks

TATrader · #1 12th November 2005, 10:10 AM

Daytrading Indian Stocks

Your Risk and Money Management Strategy

Studies have shown that you should never risk more than 2% of your float on any trade. Why 2%? Well, in fact, many day trading professionals will tell you that 2% is too much. They`ll risk 1% or even as little as a quarter of a percent on any trade. Whatever percentage you pick, the idea is to ensure that no one trade is really going to affect your day trading float, positively or negatively.

Many traders don`t appreciate how powerful this rule is. By simply changing the amount of capital you risk in your day trading, you can turn a system from returning 10% to returning a 100% per annum. Now, by increasing risk, and investing more in a trade, you do increase your chance for reward. However, you also end up increasing your draw down as well. You may want to do a bit of testing to understand the importance and the power of changing this one variable. I always recommend that you never exceed a 2% risk. Sometimes it is difficult to understand this simple fact; keeping your losses small will help you be successful in day trading.

Let`s look at an example of the 2% rule in action. If we had a day trading float that was Rs20,000, using the 2% rule we set our maximum loss to be Rs.400 on any one trade. With this maximum loss, we could have a string of 50 losses in a row before we had no more capital left to trade with. In most day trading systems the chances of getting 50 losses in a row is very, very slim. However, the chances of going broke are even smaller, because when you implement the 2% rule correctly, the calculation is based on the current float size.

So, initially 2% of Rs.20,000 is Rs.400. However, if we experienced a loss first off, our day trading float would now be worth 19,600 Rupees. We then calculate 2% of this new value, and set our maximum loss for our next position. 2% of Rs.19,600 Rupees would be Rs.392. You can see that each time we experience a loss, our next maximum loss would shrink. As our portfolio increases in size, we`re happy to take on more risk as well.

I thought I`d play around with a few of the figures just to see what would happen if we had a string of six losses in a row. After receiving six losses in a row, our day trading float would have decreased to only Rs.17,717. After six successive losses, we`ve only lost Rs.2,283. Now, that`s managing your risk.

The fact that the loss is such a small component of our day trading float makes it much easier to gain back those losses. In this example, we`ve lost a little bit more than 10%. To gain back that loss and break even, we`ll need to make 11.1%. Now, imagine if we didn`t have good money management in place and we had a draw down of over 50%. If we have a draw down of 50% and we loose it, we need to make 100% return on our remaining capital to break even. You can begin to see the how a larger draw down makes it more difficult to recover from losses.

Novices often risk more than 2%. Even if you`re starting out with a small day trading float, you should practice good money management. You need to position yourself so that you can endure long strings of losses, and maintain your day trading system. When the market does turn around, you`ll be in the market positioned to capitalize on it`s moves. That`s what setting the maximum loss is all about, it keeps you in the market, allowing to you to keep your day trading system going. If you can survive some losses in your day trading, the profits will come.

hmp · #2 12th November 2005, 03:46 PM

Excelant Article Dear Tatrader! Every New Trader Must Cut And Paste And Read This Every Day Before Start Of A Day.eagerly Waiting For More Articles Like This. Pl Keep It Up.
Thanks And Regards
Hmp.

Saint · #3 12th November 2005, 07:52 PM

Quote:

Originally Posted by TATrader

Daytrading Indian Stocks

Your Risk and Money Management Strategy

Studies have shown that you should never risk more than 2% of your float on any trade. Why 2%? Well, in fact, many day trading professionals will tell you that 2% is too much. They`ll risk 1% or even as little as a quarter of a percent on any trade. Whatever percentage you pick, the idea is to ensure that no one trade is really going to affect your day trading float, positively or negatively.

Many traders don`t appreciate how powerful this rule is. By simply changing the amount of capital you risk in your day trading, you can turn a system from returning 10% to returning a 100% per annum. Now, by increasing risk, and investing more in a trade, you do increase your chance for reward. However, you also end up increasing your draw down as well. You may want to do a bit of testing to understand the importance and the power of changing this one variable. I always recommend that you never exceed a 2% risk. Sometimes it is difficult to understand this simple fact; keeping your losses small will help you be successful in day trading.

Let`s look at an example of the 2% rule in action. If we had a day trading float that was Rs20,000, using the 2% rule we set our maximum loss to be Rs.400 on any one trade. With this maximum loss, we could have a string of 50 losses in a row before we had no more capital left to trade with. In most day trading systems the chances of getting 50 losses in a row is very, very slim. However, the chances of going broke are even smaller, because when you implement the 2% rule correctly, the calculation is based on the current float size.

So, initially 2% of Rs.20,000 is Rs.400. However, if we experienced a loss first off, our day trading float would now be worth 19,600 Rupees. We then calculate 2% of this new value, and set our maximum loss for our next position. 2% of Rs.19,600 Rupees would be Rs.392. You can see that each time we experience a loss, our next maximum loss would shrink. As our portfolio increases in size, we`re happy to take on more risk as well.

I thought I`d play around with a few of the figures just to see what would happen if we had a string of six losses in a row. After receiving six losses in a row, our day trading float would have decreased to only Rs.17,717. After six successive losses, we`ve only lost Rs.2,283. Now, that`s managing your risk.

The fact that the loss is such a small component of our day trading float makes it much easier to gain back those losses. In this example, we`ve lost a little bit more than 10%. To gain back that loss and break even, we`ll need to make 11.1%. Now, imagine if we didn`t have good money management in place and we had a draw down of over 50%. If we have a draw down of 50% and we loose it, we need to make 100% return on our remaining capital to break even. You can begin to see the how a larger draw down makes it more difficult to recover from losses.

Novices often risk more than 2%. Even if you`re starting out with a small day trading float, you should practice good money management. You need to position yourself so that you can endure long strings of losses, and maintain your day trading system. When the market does turn around, you`ll be in the market positioned to capitalize on it`s moves. That`s what setting the maximum loss is all about, it keeps you in the market, allowing to you to keep your day trading system going. If you can survive some losses in your day trading, the profits will come.

This is the greatest secret of trading...........But sadly,however many times this is propounded,very few take notice of it,let alone practise it.What TATrader has said above is the one single reason why some people go on making money out of the markets,and others go on contributing their money to the people who win.

Please read the above article,digest it absorb it,assimilate it,and put it into practice...................not knowing or practising the above,my advise is to stay out of all markets.Whether you got the right tip,whether you got the right entry,even if that trade was a great success,over time.......YOU WILL FAIL!!

Conversely,putting the above to practice,and over time,you find yourself raking in the moolah and laughing your way to the bank.GREAT PROFITS WILL BE YOURS!

First,one has to make up one's mind............if it's profits you choose,read TATrader's article above and put it into practice.

All the best!
Happy Trading!!
Saint

nautilus · #4 13th November 2005, 09:18 PM

Quote:

Originally Posted by Saint

This is the greatest secret of trading...........But sadly,however many times this is propounded,very few take notice of it,let alone practise it.What TATrader has said above is the one single reason why some people go on making money out of the markets,and others go on contributing their money to the people who win.

Please read the above article,digest it absorb it,assimilate it,and put it into practice...................not knowing or practising the above,my advise is to stay out of all markets.Whether you got the right tip,whether you got the right entry,even if that trade was a great success,over time.......YOU WILL FAIL!!

Conversely,putting the above to practice,and over time,you find yourself raking in the moolah and laughing your way to the bank.GREAT PROFITS WILL BE YOURS!

First,one has to make up one's mind............if it's profits you choose,read TATrader's article above and put it into practice.

All the best!
Happy Trading!!
Saint

Fully agree Saint:

Such a simple principle to put into practise yet how few practise it!

Simply put its like trying to cross the road when you see the speeding truck coming your way and you know you will not make it to the other side without getting hit - what do you do - you wait - that is risk assesment and risk management!! Its simple as that.

Nautilus

Saint · #5 14th November 2005, 12:38 PM

Quote:

Originally Posted by nautilus

Fully agree Saint:

Such a simple principle to put into practise yet how few practise it!

Simply put its like trying to cross the road when you see the speeding truck coming your way and you know you will not make it to the other side without getting hit - what do you do - you wait - that is risk assesment and risk management!! Its simple as that.

Nautilus

Hi Nautilus,

Nice example.......

Saint

caprice · #6 14th November 2005, 01:47 PM

Quote:

Originally Posted by Saint

Hi Nautilus,

Nice example.......

Saint

Hi

AN article that good and example that funny.. learning is fun here..

Sound advice to all the novices by TAtrader and fun learning by nautilus..

Hats off guys..

Nishant

success · #7 14th November 2005, 05:08 PM

Quote:

Originally Posted by TATrader

Daytrading Indian Stocks

Your Risk and Money Management Strategy

Studies have shown that you should never risk more than 2% of your float on any trade. Why 2%? Well, in fact, many day trading professionals will tell you that 2% is too much. They`ll risk 1% or even as little as a quarter of a percent on any trade. Whatever percentage you pick, the idea is to ensure that no one trade is really going to affect your day trading float, positively or negatively.

Many traders don`t appreciate how powerful this rule is. By simply changing the amount of capital you risk in your day trading, you can turn a system from returning 10% to returning a 100% per annum. Now, by increasing risk, and investing more in a trade, you do increase your chance for reward. However, you also end up increasing your draw down as well. You may want to do a bit of testing to understand the importance and the power of changing this one variable. I always recommend that you never exceed a 2% risk. Sometimes it is difficult to understand this simple fact; keeping your losses small will help you be successful in day trading.

Let`s look at an example of the 2% rule in action. If we had a day trading float that was Rs20,000, using the 2% rule we set our maximum loss to be Rs.400 on any one trade. With this maximum loss, we could have a string of 50 losses in a row before we had no more capital left to trade with. In most day trading systems the chances of getting 50 losses in a row is very, very slim. However, the chances of going broke are even smaller, because when you implement the 2% rule correctly, the calculation is based on the current float size.

So, initially 2% of Rs.20,000 is Rs.400. However, if we experienced a loss first off, our day trading float would now be worth 19,600 Rupees. We then calculate 2% of this new value, and set our maximum loss for our next position. 2% of Rs.19,600 Rupees would be Rs.392. You can see that each time we experience a loss, our next maximum loss would shrink. As our portfolio increases in size, we`re happy to take on more risk as well.

I thought I`d play around with a few of the figures just to see what would happen if we had a string of six losses in a row. After receiving six losses in a row, our day trading float would have decreased to only Rs.17,717. After six successive losses, we`ve only lost Rs.2,283. Now, that`s managing your risk.

The fact that the loss is such a small component of our day trading float makes it much easier to gain back those losses. In this example, we`ve lost a little bit more than 10%. To gain back that loss and break even, we`ll need to make 11.1%. Now, imagine if we didn`t have good money management in place and we had a draw down of over 50%. If we have a draw down of 50% and we loose it, we need to make 100% return on our remaining capital to break even. You can begin to see the how a larger draw down makes it more difficult to recover from losses.

Novices often risk more than 2%. Even if you`re starting out with a small day trading float, you should practice good money management. You need to position yourself so that you can endure long strings of losses, and maintain your day trading system. When the market does turn around, you`ll be in the market positioned to capitalize on it`s moves. That`s what setting the maximum loss is all about, it keeps you in the market, allowing to you to keep your day trading system going. If you can survive some losses in your day trading, the profits will come.

Nice article.

Thanks .

kgsirasangi · #8 15th November 2005, 04:26 PM

TATrader,
thanks for above very good article.

joy_mitali · #9 15th November 2005, 05:16 PM

Hello TATrader,
Thanks ,for the very educative article-----
To those new learners of day trding(this is not for those who want to make profit drom the very first day---but to seriousy learn it)-----After studying the market movements---from few weeks to few months---and after practicing mock trades,---do jump in the water-----with a very little capital--and practice all kinds of innnovations u feel---with out caring much for money management(Plz dont misread this statement----It is after all more imp than trading)-----and see if ur temperament really suits daytrading---or if u r really ready to take losses in the same spirit as that of making profits--
Then only---u can approach to become a MAster of this Game--where after---as stated by TATrader-Money management becomes the most crucial event than trading---
Regards,
joy_mitali

jamit_05 · #10 17th November 2005, 12:08 AM

Joy Mitali... really appreciate ur enthusiasm in guiding us new traders in proper direction.

Am I free to ask you little queries as an when in trouble?

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