My friend is a long term investor but wants to become a trader

[anon99108009]

Mine! 6 years trading. still losses. My downside is 25 lakhs. This year 6 lakhs downside.

[anon99108009]

Take advises for business or real estate that works. Not here. In this area. Specially trading.

[MKDan]

How could that be? The last 2 years were so good. I’m an investor as well, just made 1 lakh profit every year for last 3 years. An average trader might have earned more.

[anon99108009]

That’s how trading is. Looks beautiful at the beginning step by step things change.

But to answer your question very sincerely.

Your primary query, It is possible in trading. But you need shooter level precision in making decision. Target must die irrespective of any consequences. Time to time we will learn. Stick to market. We will learn everything.

Just like P+rn we can see everything can’t really do anything.

[anon99108009]

Silly you talk Always about DP’S. So entire market assumptions should be taken by DP’s?

[GB26]

I was trying to create an analogy.

Also, to some extent, a DP does depict a person. Say someone having Buffett as DP, this person could be inspired, has aspirations, something like that.

[anon99108009]

@MKDan

You can review my idea.

First, let your friend cut his capital for trading.

Let him allocate 10k and try to make 30k or 40k in this case. If he lose, Probably he will get an idea what to do and what not to do. Repeat this couple of times with always 10k opening capital.

If he is going up side, we’ll and good for him.
If it’s down side. He will get an experience of downsides.Until and unless he gets an exceptional clarity dont even think about quick bucks. And that 30 lakhs at stake? He will cry for sure. No matter what.I recommend 2 years of Minimum time to understand the trading dynamics.

Are you clear with the idea now ? Punch me what you got in your head.

[GB26]

Good advice.

Start small and as you gain knowledge and experience you can increase capital.

[anon99108009]

@neha1101

Namaste Madam Ji

Entire human Saga are slaves of this.

What are we learning from this history? Ancestors left a sign for us to be better. We are failing so. @MKDan

[nashtrik]

First of all, replace the term ‘My Friend’ with ‘I’ and don’t be shy to ask questions,lest you sound stupid. Most of the newbies have such questions in their minds…

[Shivam_Gupta]

Ask him to give me the same amount as an unconditional loan. I’ll return him 1 cr after 1 year.

PS:- probability and possibility of getting return of 1cr in 1 year from me or from trading are equal.

[SpacemanSpiff]

@anon99108009

My downside is 25 lakhs. This year 6 lakhs downside.

Why continue losing money without a clear edge ? Perhaps its insignificant to you?
Your advice to him on allocating say 10k capital to trade is pretty good. Trade small until you have proof.
I did that too, at one point i was trading with 1 SBIN stock long time ago.

Why not apply your own advice for yourself too ?

[MKDan]

Let’s see your track history.

[Jason_Castelino]

@raoawesome

For two quarters 15 *2 = 45%

How did u get this?

[SpacemanSpiff]

@raoawesome

well lets do the math here. I am assuming you can make 15% in first 6 months. Remember you also need to go both long and short , so stocks are out of question because you cant go short much. Its futures only. lets assume your return are like below for first 6 months

1. Nifty:- 4%
2. Crude oil:- 5%
3. gold:- 3%
4. silver:- 3%

total:- 4+5+3+3 = 15

For two quarters 15 *2 = 45%

So you have 30 lakh assuming you have maxed out and are completely willing to lose all 30 lakh. So based on this lets put 2% risk and 10% is your max drawdown. Means its game over if there is 5 continuous losses.

30 lakh /5 = 6 lakh risk per trade. (which is 2% risk)

if 30 lakh is 10% then the total volume of trade is 3 cr. Essentially you are under leverage of 1:10. You are basically trading value of 3cr margin

Now return for 1 quarter 3cr * 15% = 45 lakh and for 2 quarter it would be 45*2 = 90 lakh. Well somewhat close to 1cr.

wow man, this is some higher level math … Most of the time i never understand what is it you want to say…

1. Perhaps i missed what you mean - but returns need to have weighted average. Else i can keep on investing in 1 million things and make magic returns.

2. More importantly, Max DD does not mean if you hit max DD its game over. That is lottery mentality. Historical max dd, we can get from backtest and that will give you an indication of how much Drawdown you might have faced from peak. So if 10L became 20L which became 15L your DD is 5L over 20L = 25%. So then we can adjust risk so that this max DD gets reduced to say 10-15% - also assume that Future DD will be much worse - say 2x.
   So we try to define risk such that we stay in the game - and not based on when we get out of the game permanently. If we survive we can try to adapt.

3. 6L risk per trade is not 2% risk on 30 L capital. That is crazy. Levearge does not matter here. Capital is 30L and not 3Cr.

[Shivam_Gupta]

Same as trading. No fundamentals no basics

[SpacemanSpiff]

@raoawesome

Risk is 2% of capital
Max Drawdown is 10% [5 bad trade * 2% risk per trade ]
Means he can take 5 consecutive bad trades at max

This is not how trading works, we don’t put a max bad trade limit as we have no control over what market gives, but yes best to define risk so that we can manage if and when it overshoots, which it will. But system can still work even after that. Per day max limits can make sense though.

@raoawesome

No 30lakh is not his capital, his capital is 3 cr. His trade volume would amount to 3 cr.

2% of 3 cr = 6 lakh.

He would have to use leverage 1:10 so with 30lakh account he trade a capital of 3cr. This is what I meant.

30L is his capital. Available leverage does not define risk. You are completely wrong here …
With 30L capital and 6L risk per trade ( means 6L loss on stop out ), 5 stops in a row will wipe all out.
That is lottery trading.

And 2% / 1% are not magic numbers. It depends on how many trades you take and what kind of DD you see. I take a lot of trades for ex, and 1% risk per trade is way too high for me.

@raoawesome

its based on the assumption that you can make 15% for first 6 months. If you are able to replicate same for next 6 months then its 15% * 2 = 45% a year.

@raoawesome

I didn’t specifically understand this. You are basically risking 2% whatever you are trading. I mean taking position and trading not investing. Risk remains same, only position size changes based on Average movement of past 14 candles(ATR). Irrespective of where your hit stoploss only risk 2% should go away no more than that!! That’s why position size has to be put in accordingly

hey man, read your answer again and do the math again. Even compounded this does not add up. 1.15 * 1.15 = 1.3225. Anyway as you said, excel calculations don’t work in market - whether right or wrong calculations.
If you mean 15 X at 2% risk per trade, then that becomes 30% over 6 months.

---

Anyway, these are all fantasy numbers and have no use in real life. Best to create a trade log and take real numbers and then use those in your calculations …

[Jason_Castelino]

@SpacemanSpiff

Most of the time i never understand what is it you want to say…

Lol. Exactly my feeling. Also this is the only post where he didn’t mention printing of currency.

@raoawesome

If you are able to replicate same for next 6 months

How is 6 months one quarter?

@raoawesome

15% * 2 = 45%

Still can’t understand this.

[raoawesome]

@Jason_Castelino

How is 6 months one quarter?

again my bad. its not quarter

[Stonecold]

@SpacemanSpiff

Anyway, these are all fantasy numbers and have no use in real life. Best to create a trade log and take real numbers and then use those in your calculations …

Rightly said, all these excel calculations are useless, what matters is real trades.
And one thing I have noticed is that @raoawesome has a tendency to complicate even simpler things.