GROW A SMALL PLANT INTO A BIG BANYAN TREE
HAVE YOU EVER WATCHED A PLANT GERMINATING? HAVE YOU SEEN A BANYAN TREE AND A BANYAN SEED IN YOUR LIFE? THE BANYAN SEED IS SMALL AS A MUSTARD SEED. CAN THIS GROW INTO A FULL-GROWN BANYAN TREE IN A SINGLE DAY?
OF COURSE NOT! THE BANYAN SEED FIRST GERMINATES INTO A SMALL PRETTY SPROUT. NEXT DAY, THE SAME GROWS FURTHER A BIT. GRADUALLY, THAT SMALL SOFT SPROUT GROWS INTO TWO LEAVES. THOSE SMALL REDDISH LEAVES LOOK SO PRETTY. NATURE IS TRYING TO TEACH YOU TRADING THROUGH THE SAME. IT'S A DIFFERENT MATTER HOWEVER, IF YOU ARE REALLY INTERESTED TO LEARN FROM THE SAME!
THERE IS NO PLACE FOR HURRY IN NATURE. THAT BANYAN PLANT KEEPS GROWING GRADUALLY. WITHIN A FEW YEARS, THIS BECOMES CAPABLE OF PROVIDING SHELTER TO BIRDS. AFTER FEW MORE YEARS, THIS BECOMES CAPABLE OF PROVIDING SHADE TO TRAVELLERS. AND VERY SOON THIS TURNS INTO A HUGE BANYAN TREE. WOULD YOU PREFER TO CREATE A TRADING STRATEGY SOMEWHAT SIMILAR TO THAT WHERE THE BUSINESS OF YOUR TRADING STRATEGY SOMEWHAT SIMILAR TO THAT WHERE THE BUSINESS OF YOUR TRADING DEVELOPS LIKE A BANYAN TREE? OR, WOULD YOU LIKE TO MAKE SOME GOOD MONEY OUT OF ONE TO SEVEN EXCITING TRADES AND THEN, AFTER LOSING ALL YOUR MONEY, RUN AWAY FROM STOCK MARKET AND CURSE THE SAME FOR THE REST OF YOUR LIFE?
YOU MUST HAVE BY NOW UNDERSTOOD MY SECOND TIP OF THE DAY. YOU SHOULD INVEST A SMALL AMOUNT FOR YOUR FIRST TRADE, JUST LIKE A BANYAN SED. GRADUALLY, AS YOU KEEP MAKING PROFITS, YOU SHOULD KEEP INCREASING YOUR TRADING AMOUNT ACCORDINGLY.
LET ME EXPLAIN THIS IN DETAIL. SUPPOSE YOU HAVE A CAPITAL OF $5LAKHS. YOU WANT TO USE THAT MONEY FOR TRADING IN STOCK MARKET AND EARN A LARGE PROFIT THAT WOULD BE ENOUGH TO GENERATE A MONTHLY INCOME OF 40 TO 50 THOUSAND OF RUPEES. THEN, YOU JUST NEED TO START TRADING WITH A SUM OF $10,000 ONLY. HAVE AN AIM IN YOUR MIND - IF I AM ABLE TO MAKE A PROFIT OF $2,000 WITH THIS $10,000, I.E., I AM ABLE TO CONVERT MY INVESTMENT OF $10,000 INTO $12,000 , I WOULD INCREASE MY WORKING CAPITAL USED FOR TRADING TO $20,000, JUST LIKE A BANYAN TREE. WHEN I EARN A PROFIT TO $4,000, I WOULD INCREASE THE WORKING CAPITAL TO $30,000. WHEN I EARN A PROFIT OF $6,000, I WOULD INCREASE THE SAME TO $40,000. THUS, FOR EVERY $2,000 MADE AS PROFIT, THE WORKING CAPITAL MAY BE INCREASED BY $10,000.
YOU MAY SAY, "WHAT IF I AM NOT ABLE TO MAKE PROFIT?"
AS SUCH, I DO NOT BELIEVE YOU WOULD SUFFER LOSS IN TRADING IF YOU GO THROUGH THIS BOOK FULLY. YOU CAN SURELY MAKE PROFIT. IT IS ALSO NOT SO DIFFICULT TO MAKE MONEY IN THE STOCK MARKET WITH DISCIPLINED TRADING. ON THE CONTRARY, IT IS EASIER TO MAKE MONEY FROM TRADING AS COMPARED TO INVESTING, AS YOU MAY BE ABLE TO EARN ON YOUR INVESTMENTS ONLY IN A BULL MARKET, WHEREAS TRADING PROVIDES EARNING OPPORTUNITIES IN BOTH BULL AND AND BEAR MARKETS.
EVEN OTHERWISE, YOU DON'T NEED TO INVEST YOUR ENTIRE 10,000 REPEES IN A SINGLE STOCK. YOU ARE READING A BOOK FROM MAHESH KAUSHIK AND I CAN'T SEE MY READERS LOSING. I NEVER ADVISE YOU TOINVEST YOUR ENTIRE MONEY IN A SINGLE TRADE TRANSACTION. WE WOULD TRADE BY DIVIDING THAT AMOUNT INTO 10 SMALLER PARTS. AFTER ALL, HOW SMALL IS THAT BANYAN SEED THAT GROWS INTO A PLANT! SIMILARLY, IN ORDER TO GROW LIKE BANYAN TREE, WE ALSO WOULD HAVE TO START WTH TRADES IN SMALLER LOTS AND THEN, AS SOON AS WE EARN A NET PROFIT OF $2,000, WE WOULD INCREASE OUR CAPITAL TO $20,000. THIS WAY, WE WOULD HAVE $22,000 FOR TRADING - $20,000 FROM OUR BASE CAPITAL AND $2,000 FROM OUR PROFITS.
HERE, I AM REPEATEDLY REFERRING TO "NET PROFIT", AS A BUSINESS GENERALLY INVOLVES BOTH PROFIT AND LOSS. INCURRING LOSS IN NOT A BADTHING FOR A BUSINESS, ACTUALLY AN ENDEAVOUR CANNOT BE CALLED A BUSINESS IF IT DOES NOT INVOLVE ANY KIND OF LOSS. AND A BUSINESSMAN IS REGARDED AS SUCCESSFUL WHEN PROFITS IN HIS BUSINESS EXCEED LOSSES. "NET PROFIT" HERE REFERS TO THE AMOUNT LEFT AFTER ADJUSTING ALL THE LOSSES AGAINST ALL THE PROFITS, AND YOU HAVE TO INCREASE YOUR CAPITAL ONLY WHEN YOU EARN TO NET PROFIT OF $2,000.
THUS, THE SECOND TIP TO THE DAY IS - START YOUR TRADE WITH 1/50TH OF YOUR TOTAL CAPITAL AND KEEP ON INCREASING YOUR WORKING CAPITAL WITH 1/50 TH OF ORIGINAL CAPITAL EVERY TIME YOU EARN 20% 'NET PROFIT', THUS GROWING YOUR TRADING BUSINESS LIKE A BANYAN TREE.
MAKE SMALL TRADES ONLY
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YOUR BROKEN GENERALLY PROVIDES YOU FACILITY TO MAKE TRADES IN INTRADAY TRADING WITH A VERY SMALL MARGIN, I.E., IF YOU MAKE TWO TRADES - BUY AT A MARGIN AND SELL WITH AN APPROPRIATE 'STOP LOSS' - SIMULTANEOUSLY, THE BROKER ASSUMES THAT YOUR LOSS IS LIMITED BECAUSE OF YOUR 'STOP LOSS'. HENCE, HE PROVIDES YOU FACILITY TO BUY-SELL STOCKS FOR AMOUNTS ANYWHERE BETWEEN 50,000 AND ONE LAKH RUPEES WITH A MARGIN OF JUST $1,000. THIS IS REFERRED TO AS 'MARGIN PLUS' OR SIMILAR NAMES.
MOST OF THE NEW TRADERS LOSE THEIR MONEY BECAUSE OF THIS ONLY. WHY SO?
HAVE YOU EVER GOT CAUGHT IN A TRAFFIC JAM? YOU WOULD HAVE NOTICED THAT SMALL VEHICLES LIKE BICYCLES AND MOTORCYCLES ARE ABLE TO WEAVE THROUGH THE JAM, BUT HEAVIER VEHICLES LIKE TRUCK CAN'T.
IN THE SAME WAY, YOU ALSO WOULD GET CAUGHT IN THE JAM JUST LIKE THAT TRUCK IF YOU MAKE TRADES OF THAT SIZE IN THE MARKET.
THIS HAPPENS BECAUSE THIS IS A MARKET. A 'BUY' TRADE FOR A SPECIFIC QUANTITY OF STOCK WOULD GET EXECUTED ONLY WHEN A SELLER IS AVAILABLE WITH THE MATCHING QUANTITY OF THAT STOCK. SIMILARLY, A 'SELL' TRADE FOR A STOCK WOULD GET EXECUTED ONLY WHEN A BUYER IS AVAILABLE FOR THE MATCHING QUANTITY OF THE SAME STOCK.
HAVE A LOOK AT THE FOLLOWING SNAP. I AM JUST SHOWING YOU THE MARKET DEPTH FOR TCS STOCKS AS DISPLAYED ON NSE WEBSITE.
YOU MAY OBSERVE THAT MARKET PRICE OF THE STOCK IS $2,362.35. LOOK AT THE ORDER BOOK - SOMEBODY IS READY TO BUY 5 STOCKS AT $2,362.15 PER STOCK. ON THE OTHER SIDE, 9 STOCKS ARE AVAILABLE FOR SALE AT $2,362.35. PER STOCK. SUPPOSE YOU PLACE AN ORDER TO BUY 100 STOCKS IN INTRADAY TRADING USING A GOOD AMOUNT OF MARGIN. YOU MAY ASSUME THAT YOU ARE BUYING AT $2,362.35, BUT WHEN TRADE GETS EXECUTED, YOU WOULD GET 9 STOCKS AT $2,362.35. AND 48 STOCKS AT $2,362.60 - THE RATE INDICATED FOR THE NEXT SELLER ABOVE. NEXT 10 STOCKS WOULD BE BOUGHT AT $2,362.65. THUS THE PRICE OF THE STOCK WOULG GO UP BECAUSE OF YOUR ORDER ITSELF, AND WHEN YOU SELL THIS BIG LOT, YOUR SALE ORDER ITSELF WOULD RESULT IN THE STOCK PRICE GOING DOWN. THIS IS JUST AN EXAMPLE FOR TCS THATIS A LARGE-CAP AND LIQUID STOCK. THUS, YOUR ORDER BRINGS A CHANGE IN STOCK PRICE BY SOME 40 TO 50 PAISE. IF YOU PLACE A SINGLE BUY ORDER OF 2 TO 3 LAKHS OF RUPEES FOR A LOW-VOLUME STOCK, THAT ITSELF MAY TAKE THE STOCK TO UPPER CIRCUIT, AND WHEN YOU SELL THE SAME LOT, STOCK PRICE WOULD JUST CRASH.
YOU MAY GET SURPRISED TO OBSERVE ALL THIS. YOU RECEIVED STOCKS AT PRICES HIGHER THAN THE PRICE AT WHICH YOU HAD PLACED THE 'BUY' ORDER, AND YOUR STOCKS GOT SOL AT PRICES LOWER THAN THE PRICE AT WHICH YOU HAD PLACED 'SELL' ORDER, AND YOU INCURRED A GOOD AMOUNT OF LOSS.
YOU MAY THINK YOU COULD HAVE PLACED A 'LIMIT' ORDER INSTEAD OF A 'MARKET' ORDER. BUT, IN THAT CASE, YOUR ORDER MAY NOT GET EXECUTED IF NO SELLER OR BUYER COULD BE FOUND SELLING OR BUYING AT THE 'LIMIT' RATE QUOTED BY YOU.
HENCE, YOU SHOULD NOT BUY OR SELL STOCKS ON MARGIN FOR MORE THAN 40 TO 50 THOUSAND OF RUPEES IN A SINGLE TRADE, USING MINIMUM BROKERAGE CHARGES FROM YOUR BROKER. DO CHECK THE MARKET DEPTH OF A STOCK BEFORE SELECTING THE SAME FOR TRADE. SELECTED STOCK SHOULD BE A HIGH VOLUME STOCK SO THAT SELLERS OR BUYERS ARE ALWAYS AVAILABLE FOR YOUR 'BUY' AND 'SELL' ORDERS, ELSE, YOU MAY END UP BUYING STOCKS AT PRICES CLOSE TO UPPER CIRCUIT AND SELLING AT PRICES CLOSE TO LOWER CIRCUIT. EVEN 'STOP LOSS' DOES NOT WORK HERE AS IN THE CASE OF A LOW-VOLUME STOCK, BUYERS AND SELLERS ARE GENERALLY NOT AVAILABLE AT YOUR QUOTED 'STOP LOSS' PRICE.
THUS, HERE IS MY THIRD TIP - USE SMALL TRADERS TO EARN SMALL PROFITS.
IT TAKES DROP BY DROP TO FILL A PITCHER. IF YOU MAKE A PROFIT OF 200 TO 500 RUPEES IN A SIGLE TRADE AND IF 7 OUT OF YOUR 10 TRADES IN A DAY ARE PROFITABLE, YOU END UP MAKING A PROFIT OF 2,000 TO 2,500 RUPEES, BUT YOU SHOULD MAKE ONLY SMALL TRADERS.
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