Importance of small profits in your Trading

POSTED BY Jagoinvestor ON March 22, 2009 COMMENTS (7)

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

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7 replies on this article “Importance of small profits in your Trading”

  1. ravii says:

    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?

    1. 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

  2. income.portfolio says:

    Manish: Thanks for responding with your viewpoint.

    Best Wishes,
    TIP Guy

  3. Manish Chauhan says:

    @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

  4. income.portfolio says:

    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,

  5. Manish Chauhan says:

    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

  6. Krishna says:

    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

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