Just a thought, not a recommendation, Buy "RPOWER" now which is trading around 150 and hold it for about 2 years, the total power production might start around 2013. By that time, common sense tells me that it's going to appreciate in value. The reason is simple: As of now this company is not doing active business to the fullest extent, once that happens the stock will be worth more. once it increases in value, it will certainly increase by more than 20% over these 2 years. By taking no risk (Fixed Deposit) you'll earn around 16% in 2 years but by taking risk (buying stocks) you ought to earn more than that and maybe you'll recover a part of the loss. Just think it over, If I were you I'd have done the trading myself by subscribing to the Newsletter of some Analyst so that I could have stopped much earlier to realize that the Analyst is incapable of finding good stocks to buy and thus restricted my losses. Also, a suggestion from my side would be do not trade on Margin, it's a double edge sword. I am guessing that your Investment was traded on Margin that's perhaps why losses got accumulated very fast. Do not believe in what seems "Too Good To Be True" because it often is the case.
I invested 1 crore , now down 30 lacs, how to recover?
- Thread starter dkardale
- Start date
Also, one more thing to keep in mind is: Option trading is not for the retail investor. I have a Masters degree in Statistics and even though I considered myself to be very good with Probability, I understand the theory of Option Pricing very well, I used to trade with my meager resources to make some money before I got a Job but was never successful: When ever I made money using some spread strategy it was very low and what I learned through experience is "once you start trading Naked Options, the day is not far when you'll have to roam Naked on the road because you're bound to loose everything". Options are there in the Market for the Big guys to manage Risk and not for the small guys to make tons of money. There are some fools out there in the market who believe and make you believe that you'll make money without taking risk by taking some position which includes Stocks and Options, but remember the oldest rule in Capitalism is "Without risk there is no return". Well, it is usually called Delta Hedging but it'd require an immense amount of time and a lot of computer Muscle power to do Algo-trading. The reason why Institutions make money out of these arbitrage strategies is they can afford to get leverage which the common man on the street can not. My recommendation to you would be: KEEP YOURSELF AWAY FROM OPTION TRADING.
It is good to be cautious but I think your dismissal of the entire idea of option trading is extreme. Just by doing a Masters in Statistics does not qualify you to be more skillful in this trade. I too have degrees in Finance but I think trading needs a different mindset and skill set. The mindset is difficult to cultivate must be there in you; the skill set part is what you can gain through study and practice (not the usual academic theories taught in our Finance/Statistics/Economics classes).
For trading basically you need to understand technical analysis really well to use it to your advantage. If you cannot predict a trend with reasonable accuracy you have no business to continue trading stocks leave alone derivatives. For example you should be able to read candle stick charts very well. You must have an eye for price volume movements and have your own set of favourite 'leading indicators' (indicators which will warn you in advance of a breakout or breakdown in share prices) for example I have MACD, William's R and RSI. Individually they dont give me clues but together they give me a reasonable idea of the trend. Of course they are not always right but at least together they give me around 75% accuracy.
Also money management is crucial. Most of the time the 'naked' condition you describe is not because people make wrong trades but because people did not know how to restrict their losses. And even by learning technical analysis you may continue making mistakes because of the mind set issue. All these are connected. If an institution can make money so can you. Only thing is that institutions are highly disciplined in Money Management and have strict policies guiding their traders.
In money management issues the first one is Position sizing. How large is your position (no. of lots of option contracts) dictates your profit (after brokerage and taxes). But large positions also carry large risks. So you balance your risk appetite with the opportunity. The aim is that even after some losses you are alive with your capital to trade another day
The second important money management issue is "Stop Loss" at which you exit the trade with a small loss accepting that your prediction of the trend was wrong. This way you save yourself from a huge loss which usually wipes out all past profits. How much should be your stop loss is based on your risk appetite, the implied volatility of the option and hence the risk: reward ratio you are aiming at. Once you are clear about your risk reward ratio and SL then stick to the plan. THAT IS MORE IMPORTANT THAN KNOWING WHAT YOUR SL IS. Exit at SL ruthlessly with no hesitation. While on a upswing as soon as you reach target increase your SL value and lock at that level and then let the profit run, frequently increasing your SL as the stock advances. This way even in the worst case scenario you will at least finish your targeted profit level.
The last important factor in option trading business is the broker. It is often overlooked but can cause severe erosion of profits. Most option traders are day traders and hence what is called 'scalpers'; that is they make small, quick profits of 5-10 points. Unless your brokerage is low you will not be able to make any profit in such small movements. I am telling this from my experience. With one broker I know I HAVE to make at least 10 points gain to make a modest profit of 1000 rupee in half a day since he charges 500 rupee in each trade. And in a lazy market with no significant movement I may end the day with only 3-4 net point gain, thus posting a net loss after brokerage.
With a cheaper broker I know that even 5 point gain can give me 1500 rupee profit as his brokerage is miniscule (say 25 rupee per lot) Thus even in choppy sideways markets you can make money in such small movements. With costly brokers you either lose money (and turn 'naked') or wait till market has entered a trend which happens only 30% of the time.
For trading basically you need to understand technical analysis really well to use it to your advantage. If you cannot predict a trend with reasonable accuracy you have no business to continue trading stocks leave alone derivatives. For example you should be able to read candle stick charts very well. You must have an eye for price volume movements and have your own set of favourite 'leading indicators' (indicators which will warn you in advance of a breakout or breakdown in share prices) for example I have MACD, William's R and RSI. Individually they dont give me clues but together they give me a reasonable idea of the trend. Of course they are not always right but at least together they give me around 75% accuracy.
Also money management is crucial. Most of the time the 'naked' condition you describe is not because people make wrong trades but because people did not know how to restrict their losses. And even by learning technical analysis you may continue making mistakes because of the mind set issue. All these are connected. If an institution can make money so can you. Only thing is that institutions are highly disciplined in Money Management and have strict policies guiding their traders.
In money management issues the first one is Position sizing. How large is your position (no. of lots of option contracts) dictates your profit (after brokerage and taxes). But large positions also carry large risks. So you balance your risk appetite with the opportunity. The aim is that even after some losses you are alive with your capital to trade another day
The second important money management issue is "Stop Loss" at which you exit the trade with a small loss accepting that your prediction of the trend was wrong. This way you save yourself from a huge loss which usually wipes out all past profits. How much should be your stop loss is based on your risk appetite, the implied volatility of the option and hence the risk: reward ratio you are aiming at. Once you are clear about your risk reward ratio and SL then stick to the plan. THAT IS MORE IMPORTANT THAN KNOWING WHAT YOUR SL IS. Exit at SL ruthlessly with no hesitation. While on a upswing as soon as you reach target increase your SL value and lock at that level and then let the profit run, frequently increasing your SL as the stock advances. This way even in the worst case scenario you will at least finish your targeted profit level.
The last important factor in option trading business is the broker. It is often overlooked but can cause severe erosion of profits. Most option traders are day traders and hence what is called 'scalpers'; that is they make small, quick profits of 5-10 points. Unless your brokerage is low you will not be able to make any profit in such small movements. I am telling this from my experience. With one broker I know I HAVE to make at least 10 points gain to make a modest profit of 1000 rupee in half a day since he charges 500 rupee in each trade. And in a lazy market with no significant movement I may end the day with only 3-4 net point gain, thus posting a net loss after brokerage.
With a cheaper broker I know that even 5 point gain can give me 1500 rupee profit as his brokerage is miniscule (say 25 rupee per lot) Thus even in choppy sideways markets you can make money in such small movements. With costly brokers you either lose money (and turn 'naked') or wait till market has entered a trend which happens only 30% of the time.
No offense intended but I did NOT mean I am master trader by Having a Masters degree. I want to tell you a good story, I read this in a book called "Fooled By randomness". Consider we're given a Gun with a Million Chambers in it and it has only 1 bullet. The game we intend to play is: Put the gun on your head and pull the trigger and if the bullet doesn't come out you'll win $x. It's very likely that when you pull the trigger you'll not the bullet in your head and thus you're successful on the first attempt. After a few such successes people forget that the bullet is even there and continue to play the game one fine day the bullet comes out of the barrel and that's the end of the game. The Point I'm trying to make is, Randomness is certainly there in the Market, few successes tend to give you a false sense of security. A handful of people being successful out of a few hundreds of millions of people can happen purely by chance and we often tend to look at the Brighter side only. A good example is George Soros. Most of us know about the Trade that got him a Billion $$ but most of us do not know about the $600 Million Loss he made by betting on the Yen some time after he made that Billion dollar profit. Also, you're trying to say "For trading basically you need to understand technical analysis really well to use it to your advantage". Isn't Technical Analysis trying to Model the Random Behavior of Markets using Statistical methods Like Moving Averages, Standard Deviations, Oscillators, De-trending a Signal etc., ? Also, you're speaking about Implied Volatility, I do not recall reading about Implied Volatility/ Stochastic Calculus in History or Civics or perhaps Geography. Isn't dismissing Academic theories another extreme ? Also, there are theories that tell you how much of your capital you should bet on a particular Trade (example: Kelly criterion) based on the payoffs/Odds, this particular thing may be used in Option trading because once you have the returns plotted you can know the odds in your favor based on the strike Price and one good thing to do is Bet a little lower than what the Kelly criterion suggests because it is better to err on the side of caution than to over bet and get wiped out. Isn't this a a good way to manage Money, Using a stop Loss is and if possible a Trailing Stop Loss is also a good idea. Even if we assume what I told is an extreme, Dismissing academic theories is a bigger extreme, just like the Set of Real Numbers is a bigger Infinity as compared to the Set of Natural Numbers. Also one more thought, The reason why Institutions are highly disciplined in Money Management is because most of them do Algo-trading so once a stop loss in triggered they're ruthlessly thrown out of the Market. Humans can't be as disciplined as computers when it comes to "Exiting a trade". The point you make regarding Brokerage is perfect but Institutions get a better deal than any average Investor. In general, the odds "In Favor of" the Institutional investor are astronomical. How many average investors who claim to be making in excess of 40% over their capital have you seen becoming Super Rich? and how many such people have you seen become Hedge-Fund or Mutual-Fund Managers?
Again no offense intended but just a friendly discussion. You do seem to be a person with a few years of trading experience so I'm just exchanging ideas with you.
Again no offense intended but just a friendly discussion. You do seem to be a person with a few years of trading experience so I'm just exchanging ideas with you.
Hi Pontingg... you cannot offend me .... the market is more offensive :lol:... nay it is ruthless. It doesnt have time discussing Kelly criterion or Randomness. It only plays by its own rules. We underlings struggle to dance to its tunes and hypothesize our unique theories in the vain effort to understand and outwit it. Some times we think we have nailed it but soon it fails grandly. For example CAPM is the biggest myth finance professionals accept - it is proven statistically that CAPM rarely reflects the true cost of equity.
The market does however have some rules. We strugglers have been able to decipher some empirical relations (unlike grand hypotheses dished out by university professors) like candle stick patterns, behaviour of some leading indicators like Bollinger bands and so on. And we are humble enough to suggest that they are successful only 70-75% times and fail during the remaining period. But when things dont work out for profs they formulate Randomness and monkeys playing dart kind of arguments. I find that most disgusting.
The players therein also know that they ARE playing Russian roulette with a million gun barrel. They know the 'bullet' is going to hit them one day but they do everything possible to soften the impact...so that they 'live' to play the game another day. So you make money on 999,999 days and get hit on the millionth day but not so hard that it wipes out your accumulated profit of 999,999 days. Stop loss, position sizing and all such stuff is to help to do this only. This my friend, in the truly metaphorical example you brought in the discussion, is the strategy followed by successful traders.
In the end I would only say that you have to make your objective clear. We are here to find ways to understand how the market would turn out in the next 24 hours or next 3 months or whatever time frame we are comfortable to trade in. This is because we are here to make money, not make theories.
If you want to make money in the market you need to give up this 'brahminical' approach about financial theories. Knowledge may come from anywhere and everywhere and not just university professors. All it must satisfy is that it should give me a sufficient predictive ability. But then if your objective is to search for deeper truths, why you are most welcome. Perhaps 100 years from now we will build a grand statue on Dalal Street in your memory.
The market does however have some rules. We strugglers have been able to decipher some empirical relations (unlike grand hypotheses dished out by university professors) like candle stick patterns, behaviour of some leading indicators like Bollinger bands and so on. And we are humble enough to suggest that they are successful only 70-75% times and fail during the remaining period. But when things dont work out for profs they formulate Randomness and monkeys playing dart kind of arguments. I find that most disgusting.
The players therein also know that they ARE playing Russian roulette with a million gun barrel. They know the 'bullet' is going to hit them one day but they do everything possible to soften the impact...so that they 'live' to play the game another day. So you make money on 999,999 days and get hit on the millionth day but not so hard that it wipes out your accumulated profit of 999,999 days. Stop loss, position sizing and all such stuff is to help to do this only. This my friend, in the truly metaphorical example you brought in the discussion, is the strategy followed by successful traders.
In the end I would only say that you have to make your objective clear. We are here to find ways to understand how the market would turn out in the next 24 hours or next 3 months or whatever time frame we are comfortable to trade in. This is because we are here to make money, not make theories.
If you want to make money in the market you need to give up this 'brahminical' approach about financial theories. Knowledge may come from anywhere and everywhere and not just university professors. All it must satisfy is that it should give me a sufficient predictive ability. But then if your objective is to search for deeper truths, why you are most welcome. Perhaps 100 years from now we will build a grand statue on Dalal Street in your memory.
Do u mean to say Institutions do not loose money in market meltdowns, On fact if we consider that a majority of investors prefer to invest thru institutions then that majority is the greater percentage of loosing investors than individual traders. Why would a super trader want to be a fund manager or is it a corollary that fund managers are good at trading. I think not. Managing a fund and proprietary trading are 2 entirely different ballgames.
I 've seen many street smart traders who have little or no theoretical knowledge but a sharp sense of business anticipation and money rotation techniques. Lets not make a monster out of derivative instruments which are there for the benefit of the informed investor. There will be winners and there will be loosers in every business, its really up to u to find out what your calling is.
Look at any field of your choice you will only find a handful that excel and the rest trying to emulate them. Thats the order of nature.
Cheers.
I 've seen many street smart traders who have little or no theoretical knowledge but a sharp sense of business anticipation and money rotation techniques. Lets not make a monster out of derivative instruments which are there for the benefit of the informed investor. There will be winners and there will be loosers in every business, its really up to u to find out what your calling is.
Look at any field of your choice you will only find a handful that excel and the rest trying to emulate them. Thats the order of nature.
Cheers.
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