Right Stock at Right Price for Right Time
Have you ever invested in a stock on someone's advice to make profit and then waited for months, maybe years, to recover your capital? Not anymore.
I get this question quite often, which is something like this.
I have a job [Job Qualification] where I am making [an amount (in range of 10 to 25k)] per month but I am not satisfied in my job. I want to quit the job and am looking to be a full time trader. Wanted to know if I can be a successful full time trader.
To answer this question I need to know lot more things and so normally I shoot few questions.
- What is the amount you are looking to trade and invest as a full time trader?
- What is your expertise in the market? I know for sure the person asking this question is most of the time a newbie in the market or planning to enter the market but still I prefer to ask this question.
- Have you considered technical analysis for understanding the market sentiments and how market works?
1. The Investment Amount
Most of the time people are looking to invest Rs 100,000 or less and have a target of 10 to 25k per month which means they are trying to double the money in time span of 1 year.
I am into the market for 7 years now and I am yet to double my money in any given 365 days timeframe. If you look at one of the most discussed trade that I shared here where I made more than 50,000 in just one trade, it was just 4% of my total investment. If I can make one such trade every month consistently (which is quite unlikely) and not make any losses (which is again impossible as I hit stop losses) still I may not be able to double my money in a given year. I will just make 12 times 4% that is 48% return on my investment amount.
So my answer is No you cannot be a full time trader and be successful because you are expecting too much out of the market.
So now the question comes what is return that you can expect when you trade and invest in market. Ideally in range of 1% to 2% per month to start with and once you are full timer with couple of years of experience, you can make it around 2% to 3%.
Ideally you should be able to double your investment in 3 to 4 year time frame and not before that. If you are expecting anything more than that, you will not be successful as a full time trader.
2. Market Expertise
I most of the time know answer to this question but still I prefer asking it because this is the most interesting part. The reason I ask them this question is because with an education qualification of B.Tech you normally get salary in range of 10 to 20k per month. So B.Tech is a 4 years course but normally we at least spend 3 to 4 years getting a degree and then a job.
Being an employer and entrepreneur I have a different perspective. So if I look at it from the other side of it. To make 10 to 25k per month, you invested 3 to 5 years of your time educating yourself.
So do you think you can just dive into the market now and make the same amount? Don’t you think you need to be education about how market works?
On top of that I try to explain that market is a zero sum game. Which means someone needs to loose money for others to gain money. Other businesses are not zero sum game like your job or may be a restaurant. If you go to a restaurant and pay for having food, you are paying the restaurant business for food and ambiance. So the restaurant as a business makes profit from you and you as a customer pay for it.
When it comes to market, the total sum of money in the market is from the people who invest their hard earned money. So if you are making a profit in the market means someone else has to loose the same amount of money. Yes it may so happen that he may not be loosing the money just when he is buying the stock but if he cannot find someone else buying even at higher price, he may eventually has to loose.
So in this zero sum game, smart investors needs people who are ready to try the market without much information so they can easily loose the money for them to gain. 90% of the people loose money in the market and so the rest 10% of the people can make handsome profits.
So if you want to be getting into the market without knowledge it would be tough for you to move from those 90% people to those 10% people.
3. Technical Analysis
If you want to be a full time trader, technical analysis is a must. For longer term investments of 3+ years technical analysis can be neglected but not for traders and investors who want to be investing for less than 3 years. Most of the time people have just heard about the term or have read few tricks on blogs here and there about technical analysis and so want to dive into market to try those tricks.
I try to stop them from doing such blunders because it is not about those tricks but as a trader, you have to understand pulse of the market based on technical.
How to be a successful Trader?
As a trader how one defines success will decide if he is successful as a trader or not?
At times I take a long break from the market because things don’t work as I expect. It is better to be not trading than being in those 90% of the people who loose money trying to force things. I also make mistakes like I anticipated a fall in market in the January to March 2014 timeframe that never happened.
If you decide based on how much money I have invested and what is return on the amount, I may not be considered a success because most of the time I don’t have the time for making trades and generating the most out of the money lying in my demat account.
So if you judge me on the basis of the above mistakes, you may say I am not a successful trader.
There is different perspective to it as well.
So I am not a full time trader but still roughly estimating 70% of the trades done by me are when I hit the target, 18% is when I hit a loss and rest were no profit no loss trades. In the middle of so many things to deal with, if I can manage those numbers, its pretty good going as far as I am concerned. I would say I am a successful trader.
Being in market is not a sprint but a marathon. Just invest in the right stock at the right time and the right price and then keep an active eye on your investment to be successful in market. Share your views in comments below and if you think this article will be helpful to your friends, make sure you share it with them.