I am going to reveal the biggest secret professional day traders use to make tons of money. To make it more exiting, I suggest you to try out what I am saying for the next 20 days and post your Profit or Loss in the comments below. If you do exactly what I am saying, you will be sitting in good profit by the end of 20 days.
Disclaimer:
- I am not responsible for any losses. Stock market is very risky. If you can’t take risk, don’t try it.
- Try this system with small capital Rs.3000. DON’T TRY IT WITH HUGE CAPITAL. (Read my 1st point).
- You need to follow everything I am saying to make money.
- You will be taking 1 trade a day, so totally 20 trades. Daily enter your Profit/Loss in excel sheet. Loss will happen. You may even lose 3 trades continuously. You should not give up, you need to finish 20 trades to see the final results.
- This answer is written with the perspective of Indian stock market. It will work in any market.
Ok, what is the that big secret? Is it some holy grail strategy which has 90% success rate? NO. To make money in stock market you don’t need Holy grail strategy. You need Risk Management. Risk Management is the holy grail in trading, not the Strategy. I am pretty sure that you heard about Risk Management before and you find it boring. Believe me, if you don’t apply risk management in your trade, YOU WILL NEVER MAKE MONEY IN TRADING. Strategy is the least important thing when comes to trading, even the basic moving average cross over strategy works wonderfully if you follow strict risk management.
So, stop searching for holy grail strategy. It doesn’t exist. If such strategy exists, those who know will become billionaire in matter of months.
Moreover, never believe anyone selling you magical strategy or magical indicator which has 90% success rate. If it really has 90% success rate they won’t be selling anything, they will be enjoying their life in some exotic island.
Ok, what is risk management? The main part of trading is not to make lot of money, it is to limit your losses when price didn’t move in your direction. Personally, there were times I made 50% return in 5 trades. I was jumping up and down. Next day I lot everything in a single trade. I am pretty sure that everyone will have experience this. To limit the losses we will be using Risk management.
For this strategy, I strongly suggest you to start with small capital of Rs.3000. Your risk per day is 5% of your capital. Meaning, lets say, you took long trade, but price didn’t move up. It came down and hit your stoploss. Your loss should be Rs.150. It should not be more than Rs.150.
NOTE: Many traders will tell you to risk only 2% of your capital. The reason why I am asking you to risk 5% is because your capital is very low (just Rs.3000).
You need to set the “Quantity” accordingly so that when your stop loss hits you will be losing only 5% of you capital. To give you an example.
You capital is Rs.3000.
Risk is 5% (or 0.05).
Current price of Tata motors (Entry price) is Rs.250.
Your stop loss is at Rs.248.
Qty = (3000 x 0.05) divided by 250–248 (difference between entry price and stoploss).
Qty =(3000x0.05)/(250–248)
Qty =75
In Tata motors you are buying 75 quantities at the price of Rs.250 with the stop loss of Rs.248. Now if the stop loss gets hits you will be losing Rs.150.
What is the target? You target should be twice the risk. Which is 10% or Rs.300. When price reaches Rs.254, you exit with the profit of Rs.300.
That is it. If you are new, it may look somewhat confusing. It is not, believe me.
You need to apply the above risk management in every single trade you take. When you are lose your maximum loss should be Rs.150.
After you take position, you should only exit at two scenarios, either target got achieved or stop loss got it. YOU SHOULD NOT EXIT BEFORE YOUR TARGET GETS REACHED.
This is the risk management part. Now the strategy part. You can use any strategy you want. But for this answer, let stick with the basic 20 EMA strategy. After 10 AM. Look at the direction of nifty, if it is moving up, add top 5 stocks from top gainers and if nifty is going down, add top 5 stocks from top losers.
Open 5 mins candle stick chart. Add 20 EMA. Wait for the any one of the 5 stocks to touch 20 EMA. Once it touches, look for the bullish candlestick pattern. Here are two of my favorite bullish patterns.
Candle should not close below the 20 EMA. Pattern should be touching and forming above the 20 EMA.
Same for short trade. Look for price to touch 20 EMA and wait for bearish pattern (See below).
Once the pattern is formed. Set the stoploss to fraction of points below the low of the candle. Entry price should be fraction of points above the high of the candle. Calculate the quantity using entry price and stop loss (above calculation). Target should be twice your risk. That is it. Simple.
Your success rate in this strategy is around 50%. Meaning, if you take 20 trades, around 10 trades will be profit. 10 will be loss (stop loss hit). But don’t worry. If you strictly follow what I said you will be sitting in profit by the end of 20 trades. How so?
Here it is.
Your loss is Rs.150 / losing trade. You are losing 10 trades. So your total loss is Rs.1500.
Your profit is Rs.300 / winning trade. You will be winning 10 trades. So your total profit is Rs.3000.
Rs.3000-Rs.1500 = Rs.1500.
Brokerage and taxes will comes down to around Rs.300. So your net profit will be around Rs.1200. Which is 40% return of capital in 20 trades (or in 1 month).
Best case:
I said 50% for the sake of simplicity. Winning rate is around 60%. So 12 trades will be profitable. 8 will be the loser.
12*Rs.300 = Rs.3,600.
8*Rs.150 = Rs.1,200.
Rs.3600-Rs.1200 = Rs.2400 - Rs.300 (brokerage, taxes) = Profit of Rs.2100. (70% return)
Worst case:
Something bad happened and your win rate is just 40%. You lose 12 trades. You are winning only 8 trades.
8*300 = Rs.2,400.
12*150 = Rs.1800.
Rs.2400-Rs.1800 = Rs.600 - Rs.300 (brokerage, taxes) = Profit of Rs.300. (still 10% return, better than FD)
This is how you make money even if you lose half of your trades. This is the holy grail. Of course what I thought you is the very basic. There are more like taking multiple entries, trialing stoploss, slippage while taking position, etc., But as of now, stick with the basic.
Happy trading.
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