How to money management in Stock market
When you enter into the fitness world or join the gym naturally, everyone talks about exercise, Equipment in the gym, and whatnot. But most people forget one crucial part, which is diet, and that matters most. Fitness or bodybuilding is not my expertise, but this is the truth. Similarly, in the stock market, everyone talks about Technical or fundamental analysis, lots of indicators, Algo trading, price action, charts, etc. The essential part, in my opinion, is money management and risk management ( by patience and discipline)because if you lose your capital, then any analysis won’t be of use. Today we will talk about money management in this article. I am immediately posting the second article, which will explain the importance of patience and discipline for Traders in the stock market.
How much capital is required strictly for Traders?
Those who trade in Index calls ( Nifty / Bank nifty ) using 20000 or below believe me that capital is not enough for you when I say it. Your risk in each trade will be 70-80-90%, so much money will be at risk if one trade goes wrong.
The Minimum ideal capital for index ( Nifty / Banknifty) is 30000, and for stock options, it has to be 50000.
You can then trade with 50-60% capital in a trade and keep the rest amount as a backup. If there is a big rally in a market where it broke significant support or resistance and used big amount in one trade, you can book maximum capital at first small target and then keep Trailing rest for JACKPOT.
I don’t like losses in Trading..how to be in profit all the time ??
You are not God; accept it 🤷♂🤷♂. When you try to be GOD, the market will show you your place. What you can do is, you can keep the figure in your mind about how much loss you can afford to hold.
There are five possible outcomes for your trade:
2. Small win
3. Small loss
4. Big win
5. Big loss
Eliminate no five and then trust you will create wonders in the stock market.
If you had a loss of 40-50k on capital of 1 lakh, then it’s a hell of tough to recover that amount as you have to double your capital or get even more returns than that.
If you had a 75k loss on 1 lakh capital, then you are left with 25k. Now you have to multiply your capital 4 times to recover all the loss. Nothing is impossible, but this task will be next to impossible, plus you will lose focus as your mind will be exhausted too after taking such a big loss. So keep your loss minimum and follow, I repeat strict SL…Follow it religiously and have a habit of booking wrong trade to take another good trades in life.
Is there any Strategy for More profit with less money ??? Or any Fail-safe method to recover loss ??
Less money and big profit is the only possibility when you do gamble. When are prepared to either lose that money or you will get multifold returns. To understand one thing, more profit in lesser time means more risk.
There are two strategies that I feel have less risk and reasonable reward.
- If you have enough money, don’t buy the option, try to sell it near expiry 🙏. Remember you have to do option selling near or on expiry day. And secondly, make sure you get the OTM option which is not near to index or stock price.
- The second strategy is FAIL-SAFE, but it is for investors who have patience.
When you buy quality stock in a bearish market, buy using Pivot point, Moving average, or even PCR strategy, which we already explained in the previous article.
For example, if you buy TITAN or TCS stock and the next day it went down 5-7% for some reason, you will still have good stock in your portfolio ( one of the sector leaders), which will keep your money locked for now safely in Long term view.
Now the big question, What to do when I face Big loss ??
It depends on how big your loss is, as I said before, your loss minimum is critical.
If that loss is more than 40% of your capital, take an immediate break from the stock market. You are not DOG 🐕 to bark on everything, be a wounded TIGER🐅 who can come back strong and attack again with a Fresh mind, confidence but only when it’s needed…
The only sure-shot way to recover your loss is through buying good stocks at a low price in cash. I have done it for clients, and my personal loss has been recovered from good fundamental stocks. It may take 1 month, 3 months, but Trading creates income, and investment creates wealth. 💰
After that painful patience, you will have profit on your investment. Quality stock (leaders in the sector like Asian paints, Maruti , TCs ) will give you will get your hard-earned money back guaranteed✅ Is it lesser than your impatience or ego ????
Difference between Mature and Immature trader or Investor …
If I would have hold trade instead of booking a small profit, then my capital would have doubled or Triple 🤔🙄🥺😳
People in the stock market keep saying me. Especially those who have below one lakh capital. You must have heard it too.
When you get 3k profit on the 30k amount you traded people think it’s too small ..but they tend to forget FD, mutual fund or any other govt schemes give 10 or 20% annually.. you got it intraday itself.
Such greedy statement actually shows your immaturity👆. Unless you have capital above one lakh, you book max capital at first small target and then keep rest trailing for JACKPOT which u expect.
Remember. The risk u take in Trading has to be according your capital not according to entity (stock or Index ) only what your capital allow you. Don’t try to be James Bond here.
Market give opportunity every single Trading day 🤷🤷🤷
Is it possible to make money and luxurious life from Trading in the stock market?
Yes, it is. 👍 .. People have done it in the past. The world knows them but it won’t happen overnight no matter what you do, especially when you are not HNI but a retail investor / Trader.
Somewhere someone is living that life which you desire.
check my risk management article and then you will understand how much discipline and patience is needed for that.
If you can’t do it , try paper trading or have a screenshot of a big loss in front of your eyes but most importantly, Don’t try to repeat the same mistake again, Do it with your best efforts. Remember keeping loss minimum is a priority and necessary task rather making keeping mindset for huge gains everyday.