Bill Craft discusses a very important aspect of trading in stock markets . It says that trading success comes from taking small profits often . There should be small losses , small profits and big winners . These small profits will take care of small losses and give you over all profits only , and the big winners will give you more than average profits .
Its totally unrealistic to expect big winners each time you buy some stock , Have a reasonable target and take the profits . Once in a while a situation will come when you will get exceptional returns on some trades .
Read this article :
http://marketfn.com/blog/2007/07/i-wish-i-could-always-know-which-stocks.html
{ 7 comments… read them below or add one }
yes…I fully agree with this….in fact I am still working hard as many times my greed overcomes me & I miss booking small profits….and even the worst comes when missing thise "small profits" finally results in booking a "loss" and some times even a big loss….!!
and then I wish…ki kaash I wud have taken that "small profit"..
Manish Ji..you have touched the most senstive aspect of trading..
regards
Yes Krishna
You are very correct when you are giving that example of how not taking small profit turns out to be a loosing trade .
It happens often (almost always) with me
And thats one part which is blocking point in my trading also . The only way it can be overcome is to always put a SL after you take the trade and once it moves a bit higher , shift SL to buy and after that if it goes up in profit more , trail the stop to protect atleast 50% of profits. There has to be highest level of discipline in doing this . even if world comes to end , dont budge !!
I know how easy it is to say than do it myself . I am also trying very hard to stick to this rules , but still not suceeding .
I agree that it is one of the most sensitive and important aspect of successful trading
Manish
Manish:
Looking at “taking small profits” on a standalone basis may seem very promising….
However, have you thought about the real profits in multiple smaller tradings? I am trying the understand the implications after including fees, and capital gains taxes! Any idea how this makes small profits, still smaller….
Best Regards,
@income.portfolio
Yes , I have thought about it , I also believe that It can be very promising , As far as you are ready to take small profits , you can enter and exit many times and take advantage of volatility .
Suppose you put 10k in a trade (options) , and get out from the position once it reaches 10.8k or 11k , after borkerages and all, you can do this a lot of times in a day . Even if you make 5 trades is great return (if you make all trades successfully .
If you trade options , you will realise that many times its better to get out of a position and reenter after sometime when it has come low . The disadvantage of this would be that you have to keep watching the trade from close and there are chances of failure too .
But in volatile and choppy markets its better to take smaller profits many times .
Always keep your SL in place . and dont go against your money management rules . thats vital .
Please leave your name .
Manish
Manish: Thanks for responding with your viewpoint.
Best Wishes,
TIP Guy
Hi Manish!
I am so much impressed with the way you explain various financial jargons in layman language.
I have read most of your blog entries from 08 to till date, in last 2 weekends…
This is my 1st post in ‘jagoInvestor’ space!
I have an idea in mind… have a look.
On an average there are 240 trading days in an year
If a day trader makes just 5 points, every trading day, he makes 1200 points an year
On an average it takes 600 points to double your money, if trading in futures
A trader who begins trading with 1,00,000 and assuming he has no drawdown since he doesn’t carry any positions overnight, doubles his money in first 6 months, assuming he neither redeploys the earned profits nor withdraws them
So after 6 months he has a capital of 2, 00,000!!!!!!
After doubling his capital he starts trading with 2,00,000, instead of initial 1,00,000
At the end of the year he has 4,00,000 (at the end of the 5th year he would have made 10 Crore, ignoring taxes, and the fact that much before 6 months he would have the ability to increase his position size:::so no need to worry for taxes!!!!)
This corresponds to a profit of 300% per year
Can’t you make net 5 points per day or just net 25 points per week, consistently?
What are required to achieve this?
100% Disciplined nature in executing strictly intraday trades + Good TA Skills + Risk prone ‘Risk Management Plan’ + Money Management Of course
PS:
In fact I am looking to implement this idea into ‘Business’ Opportunity… (I am a Positional NF trader so far & been into F&O stuff from 08 Oct fall:))
Wonder how come we don’t have any Fund of this kind?
Ravii
I can understand your point very well and believe me its very tempting to thing like this . I have been there
“Can’t you make net 5 points per day or just net 25 points per week, consistently?” , the answer from my side would be NO ! . its not that easy , it takes much much more than what you can think . If we make 5 points one day and then loose 5 point again another day , then its 0 points in 2 days . so winning and loosing will be part of this whole process and if you see it as a whole making money consistently its a hard thing .
What you should do is try this thing for yourself for 3-6 months first and see the performance . How is your performance for the whole time you have been in this whole stuff ?
Over all I would not say that its impossible , but its a tough thing and it takes a lot of effort , discipline and psychology rather than skills and money
Manish