There are some questions which I get on a regular basis related to trading and psychology, I would be putting up and updating all about it in this page addressing quite a few range of topics.
TRADING FAQs
Q. How do I learn to trade?
A. One can start with various books which are available online for beginners, trading is all about technical analysis so one should understand all the aspect of it and various candle patterns that we see day-in day-out.
After reading few books, start analyzing the historical charts right away, understand the nuances and in few weeks start trading with small capital.
Few books recommendation for beginners are as follows:
- NCFM – Technical Analysis Module
- Zerodha Varsity (one of the best resources)
I will soon be putting up a media section to offer free books and other resources in this blog.
Q. What amount is sufficient to start trading?
A. Amount as small as 500 Rupees is enough to begin trading with. It depends on an individual, how much one is ready to lose.
Although, Rs.10,000 is a decent amount to begin trading and explore various avenues. The leverage provided by various stock brokers are really charming but one should understand the complete risk of over-leveraging the position. It can wipe out the whole capital in seconds.a
eg. If one has a capital of Rs. 10,000 then trading a stock with a price of Rs. 1000 one can buy 10 shares of that stock.
Therefore, if you supposedly go long or short and the trade doesnt go your way, you need a 1000 points movement opposite to your direction to wipe out your capital.
If one takes a 20X leverage which equals to about Rs. 2,00,000 then one can buy around 200 Shares (Rs.1000 each).
Now, you need only 50 points movement to wipe out your capital or double it (if it is in the right direction).
That is the power of leverage.
Q. Is intraday trading right for me?
A. This is a question that everyone goes through their initial trading days, when they are struggling to let alone profit but to even get to a break even point.
Intraday trading is not a rocket science, I have seen quite high IQ people failing miserably in it within short span of time. It doesn’t require intelligence, had it been that way then most of the High IQ people would have been trading all day long and making loads of money.
Trading requires:
- Self-Motivation – If you are not self-motivated enough, you are bound to fail in time.
- Perseverance – The frequent set backs, poor execution, missing out on big opportunities and etc. will leave even a highly self-motivated individual to question, “Is intraday trading really profitable?”. Has happened with me.
- Ability to Protect Capital – Forget making profit for few good months or even a year or two. Your first job is to protect your capital and nothing else.
- Risk – You have to risk only the amount you are comfortable to lose, and that amount should not affect your lifestyle as a whole.
- Stop-Loss – Use it! It is the best way to protect your capital you just cannot do it without it.
- Ready to Learn – One must always be ready to learn new things in the market. The losses you make is the fees paid to the markets.
- Right mindset.
- Passion
- Humble – If one is not humble enough then markets will make sure you get humbled.
Q. When can I start trading full time ?
A. One can start trading full time only when he/she full fills the following criterion:
- For intraday having capital of at-least Rs. 20Lakhs (15,00,000 – is bare minimum)
- Profitable history of at-least 2 years
- Sound-proof strategy
- No liabilities
- Emergency fund for at-least 1 year
- Excessive funds to sail you through for 2 years if your trading doesn’t make money
- Have gone through 20-30% drawdown and having it recovered
- Clocking returns of 30% atleast year on year.
If you full-fill these then I suppose you are good to go. Take risks early in life, sooner the better, because afterwards responsibilities increases and there is more stress to perform.
Q. What do I need to start trading?
A. Things needed for trading:
- Computer + Phone ( if one dies out the second one is for backup)
- Atleast, 2 brokerage account I would advise to have a full service brokerage account for black swan events because most of the discount brokers will give up on such days so have 1 more account to protect your capital.
- Internet connection
- Decent Charting tools
- Decent observation skills
- Right mindset
- Trading Capital
Q. Should I do paper trading before I start trading?
A. In my opinion paper trading is a joke. I would never ask anyone to do it. It just takes off the stress from your mind and you will never even reach 50% of the returns in real compared to your paper trades.
Risk REAL MONEY, so that the emotion of fear and greed is implanted in you from the beginning itself, otherwise you will find it hard to control. Rather they will control you.
Q. When can I trade in Options and Futures?
A. These days many people are falling into the trap of option selling, and trading in them. Options are quite complex to be honest and I bet not even half of the people understand the 5 variables of options which affects its pricing.
Selling options although is a very good strategy and gives you an edge from the beginning because of theta decay but one should be vary of UNLIMITED RISK involved.
There’s a saying, “Option sellers eat like ants and shit like elephants”
One move, trust me just one QUICK and Panicky move is enough to destroy the capital of option sellers. Just one and it takes seconds. One black swan event and 95% of the so-called, “Option sellers” will go broke.
Q. Which are some good brokerages that I can use?
A. I personally use Zerodha, Upstox and Sharekhan’s Tiger Terminal. I find them good.
The Mechanical Trader 