Trading for Living.........is it possible?????

I never buy a thing before doing research about the product, So when it comes to trading, believe me, I did lot of  research about the same.

First of all, one thing is sure that in this business people are earning. without earning trading can not survive.
 If you loose money someone is gaining that because this is zero-sum game.

The people who are earning, they are earning a lot of money day-in and day-out.

So I asked myself, what the hack trading is?.....................google it and find it.

 I found this. Just buy and sell anything is trading!!!!!

So.... I started buying and selling securities and future and what not..., online.

Initially in bull market of 2007 whatever I buy, it gave good return.

So I focus entirely on future market to get leverage and higher return.

Then 2008 start and market took U-turn. You buy anything and you loose it next day or day after.

I thought something is wrong....stop trading and started reading or I should say researching.

Now the new definition of trading arrived. In order to get profitable trade you have to buy lower and sell higher or say buy higher and sell even higher.

Now the question arrives, What is the lower price and what is the higher price?......Still could not find it, if anyone find it, please let me know.

So then how other people are trading and getting the highest payout of all time by trading and investing?????


I dig out deep, read almost all legend's book or quote and  find out the following things

Trading is all about  

1.  Managing risk.........in other word..never loose money or cut your losses

2. Discipline........Plan your trade  and trade your plan.

3. Trading system or strategy........least important of all.


1.  Managing risk.........in other word..never loose money or 
     cut your Losses


Almost all the legends said or quote that they never took or hardly took big losses. Even though  they knew that 
in future that trade will be in their favour, they took small losses.

How small the losses you take?

At given time you should not put more than 2% of your capital at risk.

I don't remember from where  I get this 2% figure but one thing is sure that if you be in the market for longer period of time your chances of winning is better, mean say with 1 Lack capital at any given time don't put more than Rs 2000 at risk. By putting Rs 2000 at risk you can trade many a times that your system can survive. This means with 1 Lack capital in trading account either you trade 1 lot of nifty with 40 point stop-loss ( your risk is 40*50=2000) or 2 lot of nifty with 20 point stop-loss ( your risk is 20*100=2000)....(I prefer 2 lot with 20 pt SL for Nifty)

Now, 
 
what should be your system parameter which need to manage risk

I read 3-4 books on Risk Management or Money management while trading in stock market.

In market there is only two possibility, either you bankrupt or you make fortune.

If you can stop bankruptcy in market you make fortune.

Here is the parameter of the system to avoid being bankrupt.

   

 This table tells you that if you have a system which give you so and so percentage of winning trade with so and so payoff ratio then what will be your chances of being bankrupt with 2% of your capital at risk.


Let me explain in my language.

Say if you have Rs. 1 lack capital and you are risking 2% of that means Rs.2000 on one trade and if your system has 30% of winning probability with say 1.5 payoff ratio means your loosing trade is of Rs.2000 and your winning trade is of average Rs.3000 then in future one day your bankruptcy   chances are 100%. You will definitely blow your account.


Your system must have more than 50% probability of winning trade with payoff ratio of at-least 2 or if lesser probability with higher payoff ratio to being in profitable longer period of time.


 
 2. Discipline........Plan your trade  and trade your plan.

  Discipline and confidence in your system is the second most important thing.

  I can not write much on discipline but I can say that most of the successful fund manager said that the discipline
  they got in their earlier profession has help them a lot for successful trading career.

  
 3. Trading system or strategy........least important of all.



 Although Trading system is important in trading,  I put it on the last important thing of all three requisite.

 Because there are plenty trading system available. You take any system with above criteria it will work for you.

The only thing here important is you should have your own system. If you follow others system, he might have way to work out for above criteria but you might not.

Develop your own system so that you get confidence.

Once you have confidence in your system, you can easily take that stop-loss of yours no matter how many times it comes.


I hope you bear with my language and writing as this is the first time I write something this big.
( I am more of a thinker than a writer!!!!)