August 2, 2015

Trading for a living

Dear Kamalesh sir,
Some queries are here I want to clear from you. Please write
article on this for trader like me. 
You believe in trading for living? (some one wants monthly home expenses generate by market)
If you believe then some questions here
1) if I want 15k (home expenses) then how many fund required for trading. 
2) If I have sufficient fund then which stocks for intra day trading. (any list)
3) Sufficient fund + stock list then next trading strategy. Any day trading strategy?
Please sir write something on this when you free
Thank you 
Vijay


Answer

I believe in trading for a living and I know some people (mostly daytraders) who earn income on a regular basis (average income from 1L to 10L per month). 

These people have made money using day trading as well as investment. What is required here is discipline. 

Discipline is required to cut loss making positions fast and also to hold to winning positions till the trend reverses. If you are the type to book profits fast or carry forward loss making position for next day, then you will be better off in some other occupation.

Positional trades:

I will explain my views for income of 20K per month. This translates to 2.4L pa. 

For a positional long only trader, one can assume average ROI of 30% - this means your investment amount should be atleast 2.4/.3 = 8L.

I am not considering tax implications but you can do the math here.

Note that in reality your returns will not be so straight forward or linear - there will be times you may earn 40-60% in a year, 300% in some stocks and several months of no income.

Your returns depend on the choice of stocks too. Investing in nifty 50 will give low returns as compared to breakout trades in midcap or even small cap stocks.

Intraday trades:

This is easy provided you have the discipline and the emotional stamina to go through wild swings in trades. 

The math here is simple. To earn 20K pm you should look at average of 1K per day. Assuming a net profit of 1%, your investment will be min 1L for a day. Note that there will some days where you may lose 0.5% everyday and some days where you will 3-4% return.

An advantage of day trading is the leverage available from your broker. Most brokers give 3-5 times leverage and some like RKSV allow even more if you place a bracket order (trailing stoploss and target compulsorily entered when placing a buy order).

More info on bracket orders is available here.

I always put a bracket order for intraday trades because it forces me to think more clearly and the system nicely takes me out of a trade when the trailing SL is hit. This is also tension free.

Another advantage is you can trade short which is not possible with a positional trade (except in futures).

Stock selection is a matter of strategy. You can focus on nifty 50 or nifty Jr stocks, look at top gainers or losers for the day and then trade those stocks. Alternatively you can subscribe to a good quality datafeed (globaldatafeed), match a watchlist of 40-50 stocks and write some code to define some entry conditions.

If your trading quantity is high, then you will better off limiting your stocks list to most liquid stocks.

Other factors

- Invest in a good software/ stay away from the free stuff except for trial.
- Have backup for electricity/ internet
- Learn to be emotionless; profit and loss should affect you same
- Learn from your mistake. Keep a journal, write all your trade and see how you could have imnproved onm them. Learning is a continuous exercise.
- Lastly, do not associate making money with intelligence.

Another twist to this. Have you been able to earn 2K pm on  a regular basis? If yes, then just scale up the volumes 10 times and you will get your 20K pm.

Hope this helps.


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