Nifty Trend

Short Nifty Futures @ 6810 with Stoploss 6823 ( 2 lots)
Buy NF 6800 PE @ 238 with Stoploss 225 (2lots)

SIZING UP UR TRADES:

The Biggest Problem that the traders face, according to me, is SIZING UP the TRADING Capital & Quantity. There is a general feeling amongst the Traders that More the Quantity, more the profits. That’s true in a sense but have u ever wondered if u are really ready for those kinds of Trades?? Isn’t it equally true that more the quantity more can be the loss?? Have u ever tried earning with a Small Capital?

Well, in my career, I came across Traders of All Sizes.

The Rich Class Traders:
There were some percent that were resourceful and traded big, their resources never allow them to think beyond their resources, losses didn’t hurt them until one day they realized they lost 30-50Lakhs in the process. Believe me there is a vast percent of such Traders. God help them, Markets exists because of such resourceful traders.
Their main problem I found with these RICH Traders was their resources which didn’t allow them to think and properly SIZE their trades till they reached a level where they felt they lost a big chunk of their Resources.

The Middle Class Traders:
This percentage are those who utilized their 100% savings or spare money whatever u call it into trading. They too missed on sizing a trade until they realized that they lost their savings of a lifetime. But these percent is large, those who loose leave the markets and new ones keep coming in. They story remains the same.

The Poor Class Traders:
The most tortured class in every segment, these are the people with little money, 10-50K, they manage that somehow, maybe they pull out a part of their monthly earnings from their main source of income and come to markets dreaming Big. As it’s a part of their regular income even they miss on sizing, they just dream on making big either through options or through margin trading. This class sustains a little longer than the rest as they pull out small amount according to their convenience from their main source of income. Most of that small capital keep going down the drain, but they really don’t care about it as they get another capital with new hopes and new dreams.

So, What actually Sizing is ?
Well there are three types of sizing, will try to explain with examples:

Capital Sizing:
Your capital should never be more than 10% of your total spare capital. There is no place for dreams in this markets. The more the dreams, more will be the losses.
For those who use from their main source of income it should be not more than 10% of your yearly income, for eg if ur annual salary is 2 Lakhs, it should not be more than 20000 Rs. I would give a detailed reasoning on why this much capital later in another topic.

Quantity Sizing:
The most important for a trader is quantity sizing. I will directly try to explain with a simple example.
Lets say u buy NF options @ 100 Rs premium, with SL 90, 2 lots. Its gives u a 30% profit and u book the trade at 130.. a Net profit of 3000 Rs.
Next trade boosts up ur confidence and u buy a option again at 100 with 90 SL but only bcos of the previous profit this time u buy 10 lots. Unfortunately this time it hits SL and u loose 10*500= 5000 Rs. ????
Here comes the mismatch for all traders. Its always very important to fix up the number of lots, no matter what. They should remain the same for a period.. a period ranging from months to years.. Once u feel u have made enuf profits, u can gradually raise the number of lots. But irregular lots will amount to loss and loss only.

Stop Loss Sizing

Let’s say u buy Nifty futures @ 6000 with SL 5975 and the price goes to 6080, u book and make profit of 80 points.
Next trade offers a short @ 6000 with 6080 SL. Would you prefer to go for this trade ??
I agree Stop loss is not something based on emotions but its purely based on technicals. But the thing is can we use such variance in stop loss just to find out at the end of 5 or 10 trades that we made nothing ? and that’s just bcos of the variance in SL even though the technicals flared well.
I would suggest traders to used a fixed SL.. can be a percentage of the CMP value, or some fixed number of points. For eg:
Lets say u get a buy @ 6000 with 5950 SL, but ur fixed amount to loose in the game is only 25 points, then just put a buy order @ 5975.. if it comes, be happy, if it doesn’t there is no reason to be sad..
Try this above suggestion and see your profits zoom in a short time…

>>>>Don’t run after new technicals everyday…