How to increase Trading Size
The Biggest Problem that the traders face, according to me, is increasing 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?
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 have gone beyond their limits. Believe me there is a vast percent of such Traders. 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 two types of sizing, will try to explain with examples:
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.
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. Net profit of 3000 Rs.
Next trade boosts up ur confidence and u buy a option again at 100 with 90 SL but only because 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 good profits, u can gradually raise the number of lots. But irregular lots will amount to loss and loss only.