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  • How Cracking the Position Sizing Code Turned Preeti Chabra into a Profitable Trader

    How Cracking the Position Sizing Code Turned Preeti Chabra into a Profitable Trader

    In the world of trading, finding the key to consistent profitability can be elusive. For Preeti Chabra, cracking the position sizing riddle was the breakthrough she needed to transform from a struggling trader into a profitable one. This article delves into her journey, the importance of position sizing, and how mastering this concept changed her trading career.

    Preeti Chabra’s Trading Journey

    Background and Early Challenges

    Preeti Chabra, like many traders, faced numerous challenges at the start of her trading journey. Despite having a solid understanding of market fundamentals, she struggled to achieve consistent profits.

    Initial Struggles in Trading

    Her early days in trading were marked by significant losses and frustration. Preeti quickly realized that understanding the market alone was not enough; she needed a robust strategy to manage her trades effectively.

    Understanding Position Sizing

    What is Position Sizing?

    Position sizing refers to determining the number of units to buy or sell in a trade based on the trader’s account size, risk tolerance, and market conditions. It is a critical component of risk management in trading.

    Importance of Position Sizing in Trading

    Proper position sizing helps traders manage risk by ensuring that no single trade can have a catastrophic impact on their overall portfolio. It balances the potential reward of a trade with the risk of loss.

    Cracking the Position Sizing Riddle

    Preeti Chabra’s Approach

    Preeti Chabra’s breakthrough came when she began to focus on position sizing. She developed a systematic approach to determine the optimal position size for each trade based on her risk tolerance and market volatility.

    Strategies Used

    Preeti employed several strategies to refine her position sizing:

    • Risk Percentage Per Trade: She allocated a fixed percentage of her trading capital to each trade, ensuring that no single trade could significantly impact her portfolio.
    • Volatility Adjustments: She adjusted her position sizes based on market volatility, taking smaller positions in highly volatile markets and larger positions in stable markets.

    Impact on Trading Performance

    Transition to Profitability

    By mastering position sizing, Preeti was able to manage her risk more effectively, which led to a significant improvement in her trading performance. Her losses became more controlled, and her winning trades started to contribute more consistently to her overall profitability.

    Key Success Metrics

    Preeti’s key success metrics included a higher win rate, improved risk-reward ratios, and a more stable equity curve. These metrics were a direct result of her disciplined approach to position sizing.

    Lessons Learned

    Importance of Discipline

    Preeti’s journey highlights the importance of discipline in trading. Sticking to her position sizing rules helped her avoid impulsive decisions and manage her emotions during trading.

    Balancing Risk and Reward

    Balancing risk and reward is crucial for long-term success in trading. Preeti’s focus on position sizing allowed her to take calculated risks without jeopardizing her overall portfolio.

    Expert Opinions on Position Sizing

    Views from Other Successful Traders

    Other successful traders echo Preeti’s sentiment about the importance of position sizing. They emphasize that managing risk through proper position sizing is essential for consistent profitability.

    Analysts’ Perspectives

    Market analysts agree that position sizing is a fundamental aspect of trading that often separates successful traders from those who struggle. They recommend that all traders develop a robust position sizing strategy.

    Quick Review:

    Q: Who is Preeti Chabra and what is her significance in the trading world?
    A: Preeti Chabra is a trader who transformed her trading career by mastering the concept of position sizing. Her story is significant because it highlights the importance of risk management in achieving consistent profitability in trading.

    Q: What challenges did Preeti Chabra face in her early trading career?
    A: In the early stages of her trading career, Preeti faced significant losses and frustration. Despite understanding market fundamentals, she struggled to make consistent profits and realized she needed a more effective strategy to manage her trades.

    Q: What is position sizing and why is it important?
    A: Position sizing is the process of determining the number of units to buy or sell in a trade based on factors like account size, risk tolerance, and market conditions. It is crucial because it helps manage risk, ensuring no single trade can severely impact the overall portfolio.

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  • Most Important Questions To Ask Before Taking a Trade

    Most Important Questions To Ask Before Taking a Trade

    Before taking any positions in markets, it is a must to find your “why?” Once we find the answer to why and sort it, losing or winning does not matter much. Moreover, if we find the answers to 6 significant questions before having taken a position, irrespective of long or short and investing or trading, the clear picture of “why” is found and addressed.
    Thus, the trade can be considered as completely planned and structured. This is an inspiration from the book named Trend Following by Michael Covel.

    1. What to Buy or Sell?

    This is the most significant question to be asked in a trading system – what one is going to trade or invest in, among the equities, options, commodities, currency and agri Commodities. Generally, one should trade in the following:

    1. Highly Liquid – Index, Commodities, ATM (At The Money) Options.
    Index – NIFTY, Bank Nifty Options – At the Money Options.
    For Instance, generally I am more focussed on trading in index and commodities, so I prefer trading in NIFTY, BANK NIFTY, SILVER, LEAD and CRUDE, as they are back tested and their volatility matches my personality.

    2. Highly Cyclical – Sectors like Real estate, Banks, Oil, Metals, etc.
    One should invest in stocks which are defensive and more on consumption themes. It all depends on what market one trades in and what his risk appetite is. My trades are in:
    Commodities – Crude Oil, Lead and Silver Equities – 7 Different cyclical sectors such as capital goods, banks, infrastructure, real estate, diversified, finance and pharma.

    2. When to Buy or Sell?

    Once it has been decided what to buy, the second question is – when to buy? ‘What’ would be set as the technical or fundamental indicators, based on which the buying and selling decisions will be generated.

    For example:

    1. All-time fresh high, that is done after at least 10 years – the longer the years, the better is the breakout, while keeping the Happy Loss as the previous month’s low
    2. Closing above or below 50 days Exponential Moving Average
    3. Closing above or below 200 Days Simple Moving Average

    Please note: Do the proper back testing before executing the system, considering your risk appetite. These are very simple type of trading strategies, to begin with, and I assure you, these systems hold the potential of delivering returns beyond one’s expectations; they have the power to give much more consistent returns than one usually expects to attain.

    3. When to Exit?

    There are no Guarantees in this business, but “The only thing that is guaranteed is that there will be losing trades.” As one holds an entry plan, planning the exit point is equally important; we trade with a desire that we will not go wrong anywhere, but this is the major myth; we have all the right to go wrong, and we surely will.

    The exit is a decision that is undertaken when the trade of either long or short did not go as per the expectations, and thus, one desires to take the opposite position. Let me explain it in a simple manner: All of us buy Insurance policies –Health Insurance, Life Insurance, Office Insurance and Home Insurances. Why? Do we want to Die or get sick? NO, but we take the probability of any misfortune happening in future and thus, insurance can prove to be a savior.

    The Complete Trader always considers stop loss as an insurance for the trading so as to save the destruction of the capital in case of any unexpected market volatility. Thus, the incurred loss, even after exiting at the stop loss, can be considered as the “Premium,” i.e., paid to attain an insurance policy. Through such a mind-set, trust me, one will not face issues associated with losses.

    4. When to Book Profits?

    This is a question which totally depends on system to system or trader to trader. The Complete Trader doesn’t book profits till the time the trend changes, irrespective of a short term, positional or a long-term trend. Profit booking is for Amateurs; riding Profits is for Professionals. As Mr. Jesse Livermore quotes, “Profit Takes care of itself; Losses never do.”

    ”There are 2 Animals in the Jungle – a Sheep and a Lion. Sheep eats every day and is able to gather food easily, whereas, a Lion waits for the prey and takes 5–10 sheep together and feasts only once or twice a week. Now, it’s the same in the markets; Sheep is the trader who books profits here and there, whereas Lions are the traders who earn the profit equivalent to 5–10 Sheep- like traders and once in many months.”

    5. How much to Buy/Sell?

    This is a very crucial question as the sustainability of the traders lies in this question. Different type of risk takers and their leverage systems are:

    Defensive Traders: Those who don’t like more ups and downs in markets and are happy with decent returns should not take leverage at all. For instance, if someone is trading 1000 NIFTY with a price of 8000 INR, he or she should have 80,00,000 INR as an investment and trade, i.e., total Contract size or 0 leverage, as per the rules of SEBI with PMS, no leverage.

    Moderate Traders: One is open for “Calculated Risk” that can go for 1, 2 or 3 times leverage, if someone is trading NIFTY 1000 with price of INR 8000, he is required to have INR 40,00,000 or 30,00,000, i.e., 30% to 50% of total Contract size; this means that taking calculated risk surely depends on the calculation of your system’s drawdowns as well.

    Risky Trader: One should not trade in this category.

    The Complete Trader, but here are some areas such as commodities or currency, where the overall age of the asset is not that wide, so considerably, one can take leverage accordingly. However, doing this with equities is not recommended, and in the remaining cases, 1:5 is the maximum leverage that is recommended to any trader.

    I believe there are 2 things which can kill a trader:

    1. Leverage  2. Lack of Patience

    6. When to Scale up?

    Generally, this question depends on the designed trading/ Investing system; the first 5 questions can be known through books or other sources, but this question is unfamiliar to masses and should be given huge emphasis in order to excel in trading, i.e., When to add up? When does a system hit a drawdown of 15%? There are chances of systems giving the best reversal, or maybe, when the stocks clear a specific level, that is the point when one should add up in a stock or Commodity.
    Similar to how we generally add up when Draw Down (DD) is at its nervous level, whenever one starts feeling that there is no ray of hope, that is the time when a new trend is coming.

    7. When to STOP?

    Since we have decided that we will give any system 999 days to perform, if it fails to perform the way it had been back tested, we will review whether the system is the problem or the market has reacted in an adverse manner. Only through reviewing, we will be able to make out whether to continue or terminate the trade. Like how we were Trading in Nickel. For the previous 3 years, it was dragging the portfolio down. In the third year, we decided to exit from it, and on today’s date, we realize it to be a wise decision. This is the Card I follow before taking any positions. If all the questions in this card below are not answered, it’s very risky to take a Trade/Invest.

    It is a rule to answer these questions and then only take the trade.

  • 10 things you should know about stock Market

    10 things you should know about stock Market

    1. Do Not Borrow Money to Invest in Stocks.

    One other mistake new investors make is utilizing borrowed funds to pay for shares. That is nearly at all times a horrible concept that may result in disaster. Once you borrow cash to spend money on shares, you might be inviting one other particular person or establishment which can not have your greatest curiosity at coronary heart into the decision-making course of. Cease the entire nonsense about “good debt” and “dangerous debt” and notice that threat discount is usually extra vital than your compound annual progress fee.

    2. Know What You Need, And What You’re Paying For.

    The evolving brokerage business is a beehive of competitors to supply the most recent and biggest buying and selling choices, however for many buyers the essential necessities could be discovered wherever.

    Ensure you know the kind of purchase or promote order you are coming into. A market order, as an illustration, will likely be executed as quickly as doable, regardless of the prevailing market value; a restrict order against this will solely full the transaction inside value parameters you have established.

    3. Different brokerages have different strengths and weaknesses.

    Naturally, totally different brokerages have very totally different strengths and weaknesses. Some have very excessive charges on transactions however will provide a ton of assist to particular person buyers. Others may provide decrease charges however be very hands-off. Some may cost nothing for sure sorts of transactions (often if you’re shopping for the corporate’s personal investments, which I’ll clarify beneath).

    What brokerage do I take advantage of? I take advantage of Motilal Oswal. That is largely as a result of I make investments my very own cash in it for which they don’t cost any excessive transaction charges. You’ll be able to examine Motilal Oswal brokerage companies in my subsequent weblog.

    4. The Chart

    Studying to learn a chart is a talent that takes time, however primary chart studying takes little or no talent. As famed investor Dennis Gartman says on a regular basis on CNBC, if an funding’s chart begins on the decrease left and ends on the higher proper, that is a very good factor. If the chart is heading down, keep away and do not attempt to determine why. There are literally thousands of shares to select from with out choosing one that’s shedding cash. If you happen to actually imagine on this inventory, put it in your watch checklist and are available again to it at a later time.

    There are lots of individuals who imagine in investing in shares which have scary wanting charts, however they’ve analysis time and sources that you simply most likely do not.

    5. Buy Low, Sell High.

    Sounds so easy proper? And but investing is a uncommon a part of our monetary lives the place issues getting cheaper seems like a nasty factor. Few shoppers are lamenting cheaper costs on the pump amid the collapse in oil costs over the past yr and a half, but a reasonable market fall is handled because the dying knell for the bull market.

    These are information that aren’t mutually unique: the present bull market will finish, and over nearly any long-term horizon shares have confirmed to be useful investments that usually grind increased.

    6. Trade what you see, not what you Think.

    As a dealer, you could have most likely learn that you should management your feelings and give attention to logic and objectivity as an alternative of giving into the impulses of greed, hope, and concern. Nevertheless, it’s one factor to know you shouldn’t commerce emotionally and one other to truly know HOW to NOT commerce emotionally and how you can implement this information.

    Whereas “buying and selling what you see” describes the optimum state of affairs during which merchants make goal choices primarily based on sound value evaluation, “commerce what you assume” is the precise reverse and it’s how nearly all of merchants make their buying and selling choices – pushed by feelings, impulses and wishful considering.

    As a way to turn out to be a persistently worthwhile dealer it’s needed to plot a plan utilizing our extra logical and goal frontal lobe part of the mind, which is the latest space of the human mind and permits us to plan, motive, and comprehend sophisticated concepts.

    By studying to commerce what we see, and never what we expect, we will ensure that we’re working on logic and objectivity as an alternative of emotion.

    7. Watch out for red flags.

    There are a number of pink flags to look at for when selecting shares. Simply to call a number of, rookies ought to keep away from the next sorts of shares

    Corporations that do not earn any earnings

    Shares whose share costs appear to at all times drop (have a look at the three- or five-year chart)

    Corporations which are beneath investigation

    Corporations with a lot of debt

    Shares with current dividend cuts, or an unstable dividend historical past

    8.  Don’t put all Eggs in one basket.

    It is a piece of recommendation which signifies that one shouldn’t focus all efforts and sources in a single space as one may lose every part.

    Don’t pull all of your eggs in a single basket; means don’t threat every part . If you happen to maintain all of your egg in a single basket, if the basket will get stolen or somebody drop the basket then you find yourself shedding all of your eggs. However however in case you had stored your eggs on a number of baskets and if one had been dropped by somebody or received stolen. Then you definately would have free solely a few of your eggs not all.

    This proverb can be relevant in stock Market.

    If you happen to make investments your total cash on one shares, and if the share goes down, it can take you down. That’s the reason it’s suggested by no means totally depending on one share. As a substitute make investments on a number of shares. Thus if one goes down you lose few cash not all.

    9.  If you cannot control your emotions, you cannot be in share market.

    Unless you can watch your stock, holding decline by 50% without becoming panic, you should not be in stock market.

    Don’t let feelings cloud your judgement. Many buyers have been shedding cash in stock markets because of their lack of ability to manage feelings, significantly concern and greed.In a bear market, however, buyers panic and promote their shares at rock-bottom costs.

    Greed augments when buyers hear tales of fabulous returns being made within the stock market in a brief time frame. “This leads them to take a position, purchase shares of unknown corporations or create heavy positions within the futures phase with out actually understanding the dangers concerned.”

    As a substitute of making wealth, these buyers thus burn their fingers very badly the second the sentiment available in the market reverses. In a bear market, however, buyers panic and promote their shares at rock-bottom costs. Thus, concern and greed are the worst feelings to really feel when investing, and it’s higher to not be guided by them.

    10.  Buy right and hold tight.

    In share market before buying anything one should have a total knowledge about it, because right buying is one of the most important factor in share market. Before buying any share there are certain parameters one should look. Buying right in shares means you have to see the Fundamental Analysis should be strong.

    It should be technically strong and its should up trending. One should also see that the company must be listed at least from last 5-7 years. Also should check the dividend ratio of last few years.

    And once this all parameters are in favor, the shares are purchased the the role come of hold tight. Try to hold the shares for longer time to take the benefits of it. Just because the rates are falling or rising that dosen’t means it’s a right time to sell it. We should have a control on it and try to hold the shares. Selling of shares should be depend on it’s graphs, charts & company condition and not the price. Yes, price may also be one of the reason for selling the shares, but should not be the only factor.

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