,
8 tweets,
2 min read
Read on Twitter
Jocks go around with a 'mine is bigger than yours' mentality whereas the truth is that it has nothing to do with performance. Similarly in Trading ROC is the most overrated metric. There are no free lunches in the Market and Returns are always related to Risk
Trading with 5 lacs may be a good pastime or hobby but there is no way that you can make a living doing it- no matter how high your ROC or frugal your Requirements. As your Capital increases, it becomes more and more difficult to do the same Trades as you did with smaller amounts
The analogy is taking a narrow plank and walking across it. Do it with the plank across 2 tables in your room- simple. Now do it across the second floor of a building. Not so simple right? Now try it across the top floors of two skyscrapers. Same plank but now can you do it?
To my mind a Trader who can generate 2% on 50cr requires far more skills and is far superior to the one who generates 100% on 5 lacs. And as night follows day, a person generating fantastic Returns on any amount of Capital is just one Trade away from Bankruptcy
Buffett is more of an Investor and not really a Trader but his lifetime Return has been 28% CAGR. That's enough to have made him one of the richest men in the world. The multi million Prop Traders you see on SMB make around 30% and earn millions. Can we really do much better?
The biggest problem with most new Traders is heightened expectations. With just 3% a month and a 6% Annual Return on your Margin, you double your Capital every 2 years. It requires an exceptional level of Skill and a lot of luck to do better than this
In any case before thinking of an esoteric concept like ROC, one should think of becoming consistently Profitable- even if it means making only 1% a month. A lower steady Return with a lower level of Risk is superior to a choppy high Return model which takes on higher Risk
Personally when I see 3-4 months of Returns of over 3%, I reckon that either I'm taking on too much Risk or I've been exceptionally lucky and I will revisit my Trades to see which of the two is true and readjust accordingly.
