This might sound exciting, but the truth is, it's been a roller coaster ride since I started four months ago. I need to understand many strategies before entering the market, but the market itself threw plenty of learning opportunities my way.
I started by earning 1,000-2,000 rupees per day, increasing to 5,000-10,000 per day within a week, only to lose double what I've earned so far. This is a crucial lesson: stay humble and calm even when your account shows flourishing profits.
I started with a capital of 20,000 rupees but end up putting in another 1 lakh, hoping to recoup losses. This only highlights the importance of patience and proper risk management strategies before taking any trades.
Even after overcoming these initial failures, I thought I understand the market and its directions, but continued encountering new challenges like chart levels, false breakouts, expiry dates, theta decay, and more!
So, why am I telling you all this? What can you learn from my experience?
Frankly, if your finances are stable and you can afford to lose 50000 per month or potentially gain an additional 10,000 rupees per month with a capital of 2 lakhs (and understand that human psychology can make consistent profits difficult - you can research this further online), then this advice might not be for you.
But if you're serious about growing your money over the long term and want to focus on what you truly love (job, business, family, hobby), then these learnings are for you:
1. Zero-Sum Game: Options Trading is a zero-sum game. One person's gain is another's loss. The probability of winning is 0.5 or lower, thanks to human psychology. You need to be right more than 50% of the time, which is incredibly difficult. For Example - At any moment of time, a stock price can either increase or decrease from current levels, so the probability of stock price increasing becomes 1/2 = 0.5 . Even if your first prediction with stock price movement has got right, the probability of 2 consecutive correct prediction becomes 1/4 = 0.25 . Chances for 6 consecutive successful trade becomes 1.56%, hence its impossible to continue making money in trading without actually incurring the losses.
Number of Successful Trade | Chance |
1 | 50% |
2 | 25% |
3 | 12.5% |
4 | 6.25% |
5 | 3.13% |
6 | 1.56% |
2. Patience is Key: Building wealth through trading takes a lot of time. Unless you have a Scrooge McDuck money bin already overflowing, forget making your monthly expenses from it. Focus on investments that allow you to sleep soundly while your wealth grows. An investment in HDFC Bank share in May 2021 would have given an annual return of ~1% over last 3 years and an investment in ITC have given an annual return of 27% over last 3 years. Similarly, ICICI Pru Bluechip mutual fund has given an annual return of 21% over last 3 years and Kotak Bluechip mutual fund has given an annual return of 17% over last 3 years. Hence you can still make a crore if you start your investments in mutual funds instead of investing in individual stocks with a continued fear of getting a higher return than mutual funds. At Sampann, we have made financial planning accessible to everyone. Download the Sampann app from the Play Store and get started today!
3. Discipline is Your Best Friend: Discipline is crucial for building wealth, whether through trading or long-term investments. Always track your risk management strategies. Just like mutual fund managers with years of experience, prioritize securing your capital while delivering strong returns that beat average trading results.
4. Grow Wealth Like a Bonsai Tree: Compounding is the key to beating market benchmarks. Quick money might be tempting, but it can be damaging to your mental and financial health. Even a Systematic Investment Plan (SIP) of 10,000 or 30,000 rupees per month for 10 years can help you build a corpus of 28 lakhs or 83 lakhs, respectively.
Yes, I haven't made a crore from options trading yet, but I'll definitely get there someday with my continued investments in mutual funds.
'The single greatest edge an investor can have is a long-term orientation.' - Seth Klarman
Discuss your financial goals with your advisor and choose a strategy that works for you and your family, allowing you to live your life around your "Ikigai" (your reason for being)."
You can start your financial planning on our Sampann App. Our user-friendly app empowers you to plan, invest, and track your progress towards your financial goals – all in one place.
For more information on how to identify your financial goals, you can check our youtube video on understanding your financial goals, evaluating future value for those goals and choosing right instruments for each goal. The link for the video is here.
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