Managing DAILY Loss - Key to Nifty day trading

I have always believed that you must track your trades. Please see my earlier post on this topic here . At any point of time, you should know the percentage of profitable and losing trades as well as the average profit and average loss per trade.

Now in addition to the above, you should also have a limit - self imposed - on what the maximum amount you will allow yourself to lose on any given day. In the literature on trading, this is usually suggested as a certain percentage - say 2% - of your trading capital per trade. In other words, if you are trading 2 mini nifty in each trade , you will probably need a capital of around 1 lakh. So according to classical analysis, you must limit your LOSS PER TRADE to no more than 2000/-. Assuming that you make at least two trades per day, your maximum loss can easily go up to 3000-4000/- on a bad day.

ON THE OTHER HAND, the day you are profitable what is the average amount you are making? Using my experience of the last 14 months, and also browsing the sites of trading call providers, I believe the average daily profit is in the range of 40 nifty points - which if true is actually very good since it is 0.8% of the current Nifty value. In other words, trading mininifty, your average profit over the days you are profitable is likely to be around 800/-.

Do you see the picture emerging? You are making about 800/- on the good days. BUT ONE BAD DAY can push you back by 3000-4000/-. and then you will need one GREAT WEEK to come out even.

You may disagree with the details of the analysis in which case my suggestion is that please do your own analysis and see what you get.

But the central point is that you must set a limit to the maximum loss that you can afford in a day, and this maximum loss must be related to the average profit you make, For example, if your average profit is 800/-, then it is prudent to set the maximum daily loss limit at 1000/- to 1200/-. On any given day, if you have already lost 1200/- QUIT FOR THE DAY, and come back to fight for another day.

I will come back to this theme again and again in my posts, hope that it helps you in your trading practice and discipline.

If you have any comments please write to me at stockmarket.methods.in.madness@gmail.com

Like this post? You can receive it free by subscribing. Just click on this link

Disclaimer: The above analysis is just that - my analysis. If you choose to trade on the basis of this analysis, you will be solely responsible for the outcome of the trade - profit or loss. Please keep in mind that trading and in particular day trading is not for the novice and there is significant risk of loss of capital in trading

Trading Discipline - Self Review - Walking the Talk ...

Ok, in my last posting I talked about the importance of record keeping and the importance of looking yourself in the mirror.

How am I doing it myself?

I must say, that even though I have been trading for about a year now, it is only in the last three months that I am keeping these records.

So without further fuss, here is a sample of the records of ACTUAL TRADES in the last four trading days in July. Please click on the image at the left to get a better view. Please keep in mind that I predominantly trade in mininifty. Each trade represents buying or selling 0ne lot of mininifty.

The data is kept in a excel workbook. I think most of the fields are straightforward and self explanatory.

As you can see, in the last four days of trading, I had a positive expectancy.

For the whole month of July 2009, my numbers are as follows:

1. Percentage of winning trades: 41%.
2. Average Profit per winning trade: 24.04
3. Average Loss per losing trade: 13.73
4. Expectancy value for July: +1.78

which makes July a positive month.

I hope you are using a similar or better method to track. Please do share if you have a better and simpler method, I will appreciate it.


If you have any comments please write to me at stockmarket.methods.in.madness@gmail.com

Like this post? You can receive it free by subscribing. Just click on this link

Disclaimer: The above analysis is just that - my analysis. If you choose to trade on the basis of this analysis, you will be solely responsible for the outcome of the trade - profit or loss. Please keep in mind that trading and in particular day trading is not for the novice and there is significant risk of loss of capital in trading

Trading Discipline - Self Review - Are you upto it? ...

We hear so often that discipline is one of the most important success factors in trading. Now there are two types of disciplines involved here - one is discipline in execution and the other one is discipline in planning and tracking trading performance.

It is obvious that the second type of discipline is far easier than the first one. Lets face it, if you do not have the discipline to track your performance it is hardly likely that you will have to discipline to trade without emotion. In fact the reverse it also somewhat true: If you track yourself with discipline you are more likely to trade with discipline.

What will demonstrate that your are disciplined in tracking and reviewing your own performance? Try to answer the following questions:

• How many trades did you execute in July 2009?
• What is the percentage of winning trade?
• What is the average profit for winning trades?
• What is the average loss for the losers?
• What is your expectancy value?

It is critical for your success that you are able to answer these in less than a minute. Which means you need to collect the data and maintain it without fuss. By the way, if you do not know what the expectancy value is, it is defined as follows:

expectancy = (average profit per winning trade) x (winning trade percentage) - (average loss per losing trade) x (losing trade percentage)

For example, if your winning percentage is 60% with average profit 10 and average loss 16, your expectancy = 10 x 0.6 - 16 x 0.4 = -.4. This means that on the average you are losing money per trade, and unless something is done to turn the above number +ve, you will go out of business.

On the other hand, suppose you winning percentage is 40% with average profit 30 and average loss 10, your expectancy = 30 x 0.4 - 10 x 0.6 = +6. Which means that on the average you are making money per trade.

Why do we shy away from keeping these records? It is always hard to look yourself in the mirror especially if the mirror says you are losing money. But it is even more important to keep these record in case you are losing money; how else will you change a loss making strategy
into a profit making strategy?

In my next posting, I shall walk the talk and share with you a template I keep and my July numbers.

Good luck and please keep a record of your trades.


If you have any comments please write to me at stockmarket.methods.in.madness@gmail.com

Like this post? You can receive it free by subscribing. Just click on this link

Disclaimer: The above analysis is just that - my analysis. If you choose to trade on the basis of this analysis, you will be solely responsible for the outcome of the trade - profit or loss. Please keep in mind that trading and in particular day trading is not for the novice and there is significant risk of loss of capital in trading