Contributed by: Meera Siva
The Chennai chapter of the IAIP conducted a speaker event about “Trading” on September 19, 2014. The speaker, Nithin Kamath is the founder and CEO of Zerodha, a pioneer in discount broking in India since 2010. Nithin has been a professional trader for over a decade, familiar with the subtle, and not so subtle nuances and pitfalls of the Indian broking industry. Earlier, he started “Kamath Associates”, an advisory/sub-brokerage firm, with over 500 active clients. Recently, Nithin won the 2013 Confederation of Indian Industry (CII) Emerging Entrepreneur Award. Outside work, you will find him working out, running triathlons, playing poker, basketball, and guitar.
Highlights of the event:
Trading is seen as gambling by many – for the excitement it brings and the instant gratification. The fact is that only 0.5 per cent of those who do trading take home over 25 per cent return consistently. About 10 per cent only break-even and the rest lose money. Why is success so elusive and importantly what is special about the small group of winning traders?
Nithin condenses the wisdom gathered from his extensive interviews of nearly 120 successful traders. In his talk, peppered with humour and real life examples of traders, he notes that there are indeed a few key character traits that are common among winners and may be worth following.
- Trade purposefully – When you decide to place a trade, it is important to be conscious of why you are doing it. Often time traders tend to do something for the ‘heck of it’. It also helps to keep a journal of the trades so you can go back and analyse what worked and what did not. Learning from our mistakes will help avoid it.
- Money management – Only trade with the amount of money that you are comfortable handling. If the position you take is large, the ‘scared money’ makes you take wrong decisions. One strategy is to keep only small amount of money in the account and make it difficult to transfer from other sources.
- Tested strategy – Be it based on technical or other metrics, you need a strategy to enter and exit trades. Still, only a few ‘test’ their strategy to see if it gives results. Winners tend to do paper trades or back-test their strategy before taking larger bets.
- Discipline – In a fitness program where work-out gets a lot of attention but diet and other habits actually contribute 75 per cent towards the overall results. Similarly, in trading, strategy is talked about a lot, but discipline is what is paramount. Be it position size or following rules or keeping log, you have to unlearn bad habits you may have acquired and pick up right habits that suit your nature.
- Calming atmosphere – The place you sit and trade is also important. Be in a calming atmosphere rather than in a place where you are stressed or surrounded by people who are negative.
- Take responsibility – Instead of blaming ‘them’ – the market, the FIIs, the institutions – winners take responsibility for their losses.
- Setting stops – A key aspect of money management is setting stop limits. Each one may have a different limit they are comfortable with, but you must pay attention to limiting losses. Also, if the trades are not going well, one must stop trading for a while. It is okay to also accept that trading is not for you and stop altogether rather than double up on bets and rake up losses.
Members and candidates had an opportunity to get candid insights into the enticing and exciting world of trading and the many pitfalls to watch out for.