Stock Trading में कितना Capital और कितना Stop Loss होना चाहिए? | #Learn2Trade Session 17
Welcome to the 17th session of Learn2Trade I am Vivek Bajaj and I am teaching trading to Annapurna Hello Annapurna! Hello Sir! How are you? I’m good sir. How are you? I’m good too I hope you don’t have any covid problem. No sir. Good It’s good that you don’t have the problem, the situation is getting worse day by day Take good care of yourself and trade as you’re in the home due to covid Start trading by using what I’ve taught you You’ve already opened the account with the broker and opened the demat account You’ve put in the money as well. How much money have you deposited? 50,000 for now. It’s good to start with but you can’t get high returns with 50000 You need minimum 5 lac to get big returns and I’ll tell you why How much returns can you generate by trading? Logically how much do you think one can generate returns? 10% at least? Monthly 10%? It's good that you didn’t say 100% 10% is a very high expectation. Don’t expect so much or else you’ll be sad
Like people say that don’t expect a lot from others. Expect 5% monthly It’ll be good if you get 5% monthly and 50% yearly If we want to generate 5% returns monthly which is realistic You can keep a target of 50%, what’s there in keeping a target. If we want to generate 5000 and if we have 50000, then 5% of 50000 is 2500 What will happen with 2500? After putting in so much effort in the market, if you just earn 2500 Then it’s not worth it If you generate 5% of 5 lac, then you generate 25000. It’s a good figure You can atleast do something with that figure If we take 50% yearly, then 50% of 5 lac is 2.5 lac You’ll get your time’s value if you’re able to generate at least 2.5 lac yearly
So start valuing your time and how much you want Like we do offerings, you’ll only enjoy it if the flame is big Will you enjoy it if the flame is small? No We add ghee to it so that the flame is big. Money is like ghee The more ghee you add, the bigger the flame it will be and the more you’ll enjoy Even trading is similar. You won’t get anything by trading with small amount Build it gradually. 50000 is a good amount to start with as losing 50000 will be bearable It won’t be life changing but you get internally weak if you lose 2 lac You start feeling bad and angry at yourself and lose your worth And your family also doesn’t appreciate it Have you put the 50000 from your own pocket? Yes. Don’t borrow from anyone
You shouldn’t borrow money from anyone in addition to your 50000 A lot of people use their credit card balance to trade. The amount gets deducted from credit card It gets carried over to the next month. There’s a minimum payment option in credit card Do you use credit card? No. Very good. I want to address to the people who use credit card There’s a concept of Minimum Payment Balance in credit card and then there’s full payment Suppose you’ve purchased worth 1 lac and logically you should pay the entire 1 lac But the credit company allows you to pay a minimum of 5000 So people think paying 5000 is enough for now and will pay the rest 95000 next month They don’t know that there’s an interest levied on those 95000 which is as high as 3% per month For those who don’t know the interest keeps accumulating and the balance of 1 lac Gradually increases to 5 to 6 lac and eventually people get into debt trap And if you enter the stock market using the credit card balance then even god will not be able to save you Then your intention of going down is defined. Please ensure this and it’s good that you don’t use credit card But don’t swipe your father’s credit card if you feel like. Entering stock market with your credit card is a crime
Never do that. This was a small pep talk related to how much capital should you bring in Today we will talk about a topic which is not there in the chart but it’s a very important topic To become a trader and that is stop loss. I have used Stop loss a lot in the past 17 videos How you can add stop loss but you should know what is the right way to put a stop loss And how many shares per trade should you be trading with. I’ll answer the second question first and answer the first question later The second question is how much quantity should you work with per trade You can’t trade in 100 shares on a stock worth 2000 and another stock worth 20 Can we do that? No. You need to see the value that you’re committing per trade Will there be a problem if I do it? Yes, there is. If it’s wrong then it’s wrong
There is a problem and my duty is to not let you face that problem so let me do it Let’s open an excel sheet. Let’s go back to our excel. I call it excelgiri. Let’s do some excelgiri You’ve got in 50000. The first thing that we need to define is how much loss of capital can you bear? How much can you bear per trade so that you don’t have a nervous break down? 5% You can bear 5%? If you’re bearing 5% per trade then you’re ready to lose 2500 If 20 consecutive trades go wrong, that means your capital is over Isn’t it too much? 2500 might seem small in absolute terms but your estimated returns are also that much You’ll only generate 3k to 4k. You can’t generate 1 lac with 50000. We should be a bit more conservative Let’s reduce it from 5%. Let’s negotiate. Maybe 2% or 3%. Let’s negotiate at 2% So that if 25 consecutive trades go wrong, then your capital will be over.
Can you go wrong in 25 consecutive trades? You’re not that bad that you’ll go wrong in 25 consecutive trades So what is my point then if you go wrong in 25 consecutive trades. Maybe you go wrong in 10 to 12 consecutive trades. We’ll lose 20000 if you go wrong in 10 to 12 trades But there will be 1 right trade that’ll give you confidence and then you’ll investigate, do post-mortem Why were those 10 trades wrong? You need to make a trade journal for it I’ll record a video for you on how to make a trade journal As a sensible person will always analyse their losses. I hope you understand post-mortem
All your losses are like dead body and you need to do a post-mortem of how did it die? 2% of your capital deployed in the market can be loss per trade. Consider this as your circostant That this is final because I told you so You can lose upto 1000 per trade. This will help you in deciding the trade quantity Let’s take an example of a stock. I have listed 10 stocks that you follow regularly There was a lot of fall in the market today. No worries It’ll only go up when it falls and it’ll fall after going up. Our job is to participate in both
Let’s see this stock, Reliance. Let’s consider this point to be the stop loss. I’ll tell you how de we decide that Let’s consider 1950 to be the stop loss in this stock. 1950 is the stop loss and the current price is 1990 We have considered 1950 to be the stop loss so don’t argue with me over it. I’ll tell you the reason What can be the loss? 40. We can lose 40 and you are ready to lose 1000 per trade That means we can trade in 25 shares. If I buy 25 shares of Reliance and the price hits 1950, which is my stop loss Then I’ll lose my 1000. Let’s go back to your example when you were ready to lose 5% per trade
Then you need to buy 62.5 shares for 5% loss. Can you buy 62.5 shares? No You can either buy 62 or 63 shares. Let’s take 63. You have to buy 63 shares If you’re willing to lose 2500 in Reliance given a stop loss of 40 Given the price of reliance, will I be able to purchase that many shares? That’s a good question. Let’s check. Yes, but when it was 62.5. You won’t be able to
You can buy this but you have to put in all your money in Reliance which is also not a good idea What do you think your per stock exposure should be? I remember you said that don’t see the price of the share Then probably 6% to 7%. Don’t keep the exposure of more than 10% per stock It means that if you want to trade in Reliance, then 10% of 50000. You’ll only participate with a value of 5000. Price is 1990 and the value is 5000 That means you can only trade in 2 stocks. You are getting 25 shares as per this formula But you only get 2 shares if we follow the other approach. So ideally you’ll only trade with 2 shares So you’ve limited your working that you will only trade with a certain % in a stock If you want to trade in just 2 shares, then your stop loss can be bigger and your take profit can also be big As you’re working in less shares. You don’t have any hurry to square it up at this point
As the stop loss for 2 shares can be bigger. Ideally when you’re planning a trade You need to keep 2 aspects in your mind of how much value can you lose and The % of capital that you’re interested to put in 1 trade. If you put all 100% then you’re putting the entire risk on 1 stock Technically if you change it to 100, then you can buy 25 shares as we’ve got the value of 50000 But that is not an ideal situation, you can change it to 10% if you want to keep it very aggressive That you only want to work in 4 to 5 stocks, like you said. You can change it to 20%. You will only trade with 20000 worth of shares in Reliance that is equivalent to 10000/1990 You can trade with 5 shares in Reliance. I have another question
We calculated 25 with an approach, but we can’t trade with 25 shares The other quantity we calculated was by allotting a % to it. Then my stop loss will change Yes, the stop loss will change. If we’re ready to lose 1000 per trade You have a rule of putting in 20% of your capital per trade Then you have a room to buy only 5 shares of Reliance, but you’re ready to lose 1000 in those 5 shares Then your stop loss is bigger. Now you have a bigger room to keep the stock for a longer time period The smaller the stop loss, the more you have to do micro-tracking to see when the stop loss gets hit But the longer distance you get for the stop loss the better it will be. If I buy only 5 shares and I get the space to lose 1000 for those 5 shares then 1000/5 Rs. 200. If I less 200 from 1990 in Reliance, then technically you get a stop loss of 1790
Either you don’t consider this parameter. You might be okay in taking 100% exposure in 1 stock with a stop loss Either the stop loss is close and you put 100% exposure in 1 stock like in this example Or the stop loss is far as you have taken more room in that stock to incur loss from a stop loss standpoint view Did you get it? Yes, but I have another question. Like you mentioned in the start that If I go wrong in 20 consecutive trades, then I lose my capital, so we took an average of 2% Which is 1000 loss per trade. So if I buy 5 shares in Reliance and 2 in some other stock So my stop loss will keep increasing in each trade.
The price is increasing but the value of your loss is only 1000 always I’m freezing the value of loss so that my losses don't go beyond 1000 That decides the quantity and if I freeze the stock specific exposure Then it gives me an add-on factor to decide the stop loss The more parameters you add, the more comfortable you’ll be with your stop loss Currently just keep these 2 parameters in mind that you can’t lose more than 2% per trade And you can’t have more than 20% exposure in each trade As per this mathematics, I get exposure of 5 shares with a stop loss of 200 As the price of Reliance is 1990. Let’s take another example and remove Reliance Let’s change 1990 to 200. So any stock, the market price of which is 200 And the stop loss according to your chart analysis. We have not yet defined that stop loss But let’s consider the stop loss at 185. Your loss can be 15 You have fixed your value based loss at 1000, so 1000 can be total loss and 15 in each stock The number of shares you can buy is 67. This is very simple. But you’ve fixed another criteria
That you won’t take exposure of more than 20%in each trade. You’ll only take the exposure worth 10000. 10000/200 (the current market price) means 50 shares 10000/200 is 50. So you can buy 50 shares as per this and buy 67 shares as per the other approach Take the lower of the two. So you’ll only buy 50 shares. You’ll get the exposure of 10000 with 50 shares So what can be your loss? 1000/50. So you can put a stop loss at 180
Why? As if the stop loss is 180 then you lose 20 and 20 multiplied by 50 is 1000 This is the best way. Either you freeze your stop loss. In some cases both the vale can be same It depends on the price of the stock. Suppose you had decided your stop loss of 180, then it’ll be equal Now the question arises how do you set the stop loss? There are 2 to 3 ways to do it One is capital based stop loss, which is this approach. You define the % of capital in each stock And you define the stop loss accordingly, so you get the stop loss of 180 This is capital based stop loss. The second approach is price based stop loss. It means that if there’s any action on the price you bought, then you square it up What can be the action? If it breaks the low on the day you bought, then you’ll sell If it breaks the VWAP of that day, then you’ll sell it. You’ll sell it if it breaks that week’s low. It is more price driven
What is low? We haven’t learnt candle till now, but I’ll still use candle Suppose you’ve bought it on this day and the price is 1990, then what is the day’s low? 1962. So you decide to sell if it goes beyond 1962. That’s a price driven stop loss And your quantity will adjust accordingly. How? Your quantity will adjust with the change in stop loss The most commonly used stop loss is the high and low if the candle that you enter in When will there be a high stop loss? When you’re shorting the stock, low stop loss when you’re buying This is daily chart, if I convert it to 2-hourly chart the low of the 2-hourly candle in which you entered can be your stop loss Candle of each tenure is created. The stop loss can be that week’s low If you change it to weekly, then the day you enter will belong to a week Then that week’s low can be a stop loss. Or that week’s VWAP can be the stop loss I’ll add the indicator of VWAP. This is the weekly VWAP
I’ll hide the supertrend and the moving average. This is VWAP It is tracking the entire week’s VWAP. So you’ll sell if it goes beyond the week’s VWAP It depends on your model and comfort. Then there is indicator based stop loss
We had learnt 2 to 3 indicators. What all did we learn? Moving Average 4 moving averages - 21, 55, 100, 200 and supertrend. We are adding stop loss as per the daily chart as we’re trading as per the daily chart If you’re trading as per the 2-hourly chart, then the stop loss will be as per 2-hourly If you’re trading as per the weekly chart, then the stop loss will be as per weekly Stop loss can be. Super trend is giving the sell signal, so you won’t buy Let’s figure out a stock which you can probably buy. Tata Steel for example
I’ll hide the VWAP. Suppose you’ve bought Tata Steel So you’re stop loss can probably be the 21-day moving average Or 55-day moving average, or 100-day moving average. The lower you put your stop loss, number of shares will also keep reducing How? Let’s go back to excel. If you’re buying at 870, and if I put a stop loss of 760
Then you will buy 9 shares. It says 9 here, and 11 there. So you’ll buy 9, whichever is lower. If I don’t consider 760, but I consider 740 Then the number of shares have reduced if I change it to 740 If I consider 710, then the number of shares have reduced further.
This is self-adjusting. If you’ve fixed your loss margin, then you’re adjusting the stop loss as per your comfort The further you set the stop loss, the more time you’ll get to spend in the trade The closer you set the stop loss, the higher will be the possibilities of squaring up the trade So moving average and super trend emerge as a good stop loss That once this hits, then it’s best to square up the trade once This is the 3rd form of stop loss. 1st is capital based stop loss. 2nd is price High, low, VWAP as per the price based stop loss and 3rd is indicator based stop loss I’ve only taught you the moving average and supertrend indicators, but there are more indicators There are other indicators like RSI, MACD, RS. All these indicators are somewhat derived from the price And the parameter of these indicators can also be used as stop loss. That if the RSI goes beyond 30, then I’ll sell. The price may move anywhere
But you’ve created the model that if there’s activity in any of these indicators, then you’ll square it up We will discuss this in the due course. We will discuss about all these indicators The template that we create after the 50 sessions should be able to tell you That this stop loss fits perfectly with this model. I was about to ask this question How do I decide which stop loss to follow? It’ll be easy to follow the value based stop loss That you have this much money and a fixed % of capital on each trade which will give you a value How many shares can you work with as per that and what will be your stop loss? Follow this way. Gradually, when you’re able to identify supply zone and demand zone
The more accurate will be your stop loss. Even demand zone can be a stop loss Just below the demand zone and just above the supply zone As people are there to buy on demand zone, if you add the stop loss there, it’ll hit it So a bit below. Currently, a lot of computers are trading in the market, robots are trading So they know where will people set the stop loss. So they let you hit your loss and make a fool out of you So don’t set an obvious stop loss. You should set a different stop loss which most people won’t set
Most people will set a stop loss at 50-day moving average, then you set a stop loss at 55-day A bit different. Gradually as you gain maturity, trade in the market, after a lot of your stop loss gets hit Finally you’ll be able to find a solution of what works best for you. So what did you learn today? Stop loss. Give me an example in life which can be used as a stop loss
Not in the market, in the life. I remember your example of CA. I have given exam Giving it multiple times. CA means Come Again. But there needs to be a stop loss The biggest stop loss in your life is your time. If you’re spending a lot of time in something Then it’s your stop loss. I’ll give you the same suggestion in trading. Try and put effort and be dedicated but put a stop loss. If I can’t succeed in 6 months, then I’ll leave
If I can’t succeed in 1 year, then I’ll leave. You’ll be able to work with more focus if you define your stop loss That you only have 6 months and that’s what I have to give myself. It cannot be a lifetime attempt It doesn’t work for anything. So time is your biggest stop loss, start respecting that and value it It was a long video but I hope you’ve understood the system and the process Try to implement the model, practice it in excel You’ll get the quantity comfort and the second point is You’ll get an idea of how much you can lose so that you don’t get a nervous breakdown As everyone is different. I might be okay in losing 1000, 10000 or 1 lac But it might affect me if I lose 10 lac in a trade. You might not get affected with 1 crore The more you work on this model, the better you’ll understand the amount you can lose Without any problem.That is what stop loss is all about.
Thank you for watching this video. Do share this series with your friends I hope you’re liking the effort, and if you share more, I’ll definitely get more motivated Thank you. Bye