Mastering the Market: From Entry to Exit Strategies and Capital Allocation
Thread 🧵
Thread 🧵
1/ Capital Allotment Rule: Think of your capital as your treasure. You need to use it wisely to keep your trading ship sailing smoothly. The 5% rule helps you do just that. It means you only risk a small part of your treasure on each trade, so if one trade goes wrong, you don't lose everything.
Example: Imagine you have ₹10 lakh. Following the 5% rule, you'd only risk ₹50,000 on each trade.
Example: Imagine you have ₹10 lakh. Following the 5% rule, you'd only risk ₹50,000 on each trade.
2/ Risk Management through Capital Allocation:
Risk only 30-50% of the allocated capital for long-term trades and 5-10% for intraday trades.
Example:
-Long-Term Trade (30% risk): Allocate ₹50,000, risking ₹15,000 (30%) = 1.5% of total capital.
-Intraday Trade (10% risk): Allocate ₹50,000, risking ₹5,000 (10%) = 0.5% of total capital.
Risk only 30-50% of the allocated capital for long-term trades and 5-10% for intraday trades.
Example:
-Long-Term Trade (30% risk): Allocate ₹50,000, risking ₹15,000 (30%) = 1.5% of total capital.
-Intraday Trade (10% risk): Allocate ₹50,000, risking ₹5,000 (10%) = 0.5% of total capital.
3/ Using Limit Orders for Buying:
When you buy stocks, it's essential to get them at the right price. Using limit orders helps you do just that. Instead of rushing in and paying too much with a market order, you set a price you're willing to pay. It's like shopping with a budget, making sure you get the best deal.
Example: Imagine a stock is selling for ₹100 per share. Instead of buying right away, you set a limit order to buy at ₹101. This way, you avoid overpaying and get a better deal.
When you buy stocks, it's essential to get them at the right price. Using limit orders helps you do just that. Instead of rushing in and paying too much with a market order, you set a price you're willing to pay. It's like shopping with a budget, making sure you get the best deal.
Example: Imagine a stock is selling for ₹100 per share. Instead of buying right away, you set a limit order to buy at ₹101. This way, you avoid overpaying and get a better deal.
4/ Setting Stop Loss: In trading, things can change quickly. That's why setting a stop loss is crucial. It's like putting a safety net under your trade. If things start going wrong, the stop loss kicks in and helps you avoid big losses.
Example: if you buy a stock for ₹100, you might set a stop loss at ₹90. If the stock price falls to ₹90 or below, the trade automatically closes, limiting your losses.
Example: if you buy a stock for ₹100, you might set a stop loss at ₹90. If the stock price falls to ₹90 or below, the trade automatically closes, limiting your losses.
5/ Profit Booking: When you make money in trading, it's essential to lock in your profits. Profit booking means selling part of your investment when the price goes up. This way, you secure some profit while still leaving room for more gains.
Example: If you've bought 1000 shares, sell 30% at the first target, another 30% at the second target, and hold the remaining 40% with a trailing stop loss.
Example: If you've bought 1000 shares, sell 30% at the first target, another 30% at the second target, and hold the remaining 40% with a trailing stop loss.
6/ Setting Targets: To succeed in trading, you need to have goals. Setting targets helps you stay focused and know when to take action. You aim to sell your stocks when they reach certain prices, which are often where resistance levels are found.
Example: You set targets near resistance levels, like selling some shares when the price hits ₹120 and more when it reaches ₹130. This way, you take profits at key points and protect your gains with a trailing stop loss.
Example: You set targets near resistance levels, like selling some shares when the price hits ₹120 and more when it reaches ₹130. This way, you take profits at key points and protect your gains with a trailing stop loss.
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