Thread : An expensive lesson in Risk Managmenent 🧵
1) I would like to share my nerve wracking experience that forever imbibed in me the importance of risk management.
On Aug 2016, I lost -20L in a minute,what lessons I learnt from this incident & how did I bounce back !
2) On August 2016, I suffered my highest intraday loss of 18 lacs due to a unknown risk.
I had shorted Just Dial 500 CE & was in a profit of 1.3 lacs at 3:19 pm. But to my dismay, at 3:20 pm, I saw a whopping loss of 18 lacs. In less than 60 seconds, I had lost over 20 lacs.
3) I had huge qty in Just Dial CE but as my position was huge and Just Dial being an illiquid script. My position got squared from 0 to 10 Rs. I was in 1.3 L profit at 3.19 & 3:20 -18 L.
Lost almost 20 L in a min
Check my email to @zerodhaonline and their reply to understand
4) I was totally upset as I never thought that I could lose so much due to illiquidity.
There was nothing wrong with system or risk management but this was a risk which I was never aware.
This made me believe in risk management ever then before.
5) That was quite a hard time for me and I started doubting my trading abilities.
I couldn’t digest the fact that in 60 seconds I lost -20 L due to illiqudity :(
This was the lowest point of my trading career and the future looked gloomy☹️ as confidence was badly shaken !
6) Inspite of the huge loss, I kept following my system.
Market were kind🙏 & I made the highest ever profit in % term in next 3 months.
Almost 75L profit in 3 months from sept 2016 to Dec 2016.
Check the PnL attached !
7) I thanked God for helping me sail through the painful drawdown.
After this incident, I vowed that I’ll never take the markets lightly and always manage my risk at all times.
8) On 21st Sept 2018, I had sold 330 PE overnight and YesBank opened 10% lower and closed the day at -33%. But I survived as I bought 320 put as protection.
If I had not bought 320 PE then would have lost 10 L
I managed overnight risk also after an expensive lesson in Just Dial
9) Ms. Nirmala Sitaraman Candle
On 21st Sept 2019, BankNifty rallied almost 10% intraday with huge IV spike in calls.
I had 27200 CE sold and booked loss in that at 220. The same option was trading at 2230 few hours later.
Would have lost heavily if I had not managed my risk
10) Demonetisation
- Surgical Strike
- Flash Crash in March 19
- Lower Circuit on index in March 20
Have survived all major black swans without any major loss.
After making huge losses at the start of my career, I have realised that good trading is all about managing risk.
11) I have been in drawdowns several times since then but never lost the convinction to follow my systems.
Drawdowns are inevitable for a trader.
We can only manage risk & follow our systems.
Never take markets lightly & never make a loss so big that affects you emotionally
12) Consistent success in trading lies in effective management of risk & sticking to your system even through prolonged periods of drawdown.
13)Rules I follow to manage Risk
- Never open any trade without knowing the initial risk ( R)
- Define PnL in terms of R
- Limit losses under 1 R and profits should be >1 R
14) Read this book
Van Tharp’s Definitive guide to position sizing
It’s a great book risk management & position sizing
-Focus on risk management & types of risks
-Backtest &Follow your systems with conviction
-Don’t be afraid of losses & drawdown as no system can make money all the time
Goodluck on your Trading Journey !
-End
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1) I saw few tweets saying that this is the most difficult market ever.
As a trader, we have signed up for these risks & All we can do is be prepared & manage them
Lets have a look at days when markets action was crazier than current times !
2) 18th may 2009
Markets opened at 9:55 AM as this was the market opening time at that time
Nifty immediately hit an 20 % upper circuit at 10.01 am and the markets froze.
So markets were open only for 6 minutes.
3) 24th Aug 2015 (Vega Risk)
On 24th August 2015, the Indian markets declined close to 5.92%.
Nifty around 490 points but something unusual happened on that day.
Far otm Call options shot up inspite of such a huge fall😲
1) @sachin_rt is undoubtedly one of the greatest batsmen of all time & has played several amazing knocks. But one that stands out is his 241* at Sydney. He did not play a single cover drive in the entire innings
2) Look at his stance on the crease. Look at the balance. Perfect. Simply elegant. Looks so pleasing to the eye.
Even @bhogleharsha once said, “When Sachin hits a cover drive, the world seems all the more beautiful.”
3) But in the series against Australia. Sachin had been getting out by trying to drive the ball outside off.
He had scored just 88 runs in the previous three matches and had registered 2 ducks as well. So he decided that he needs to change something to score more runs
We have done this program at many large proprietary trading desks such as Futures First, KIFS Trade Capital, Marwari Shares etc and institutes like IIT-D, IIT-B,IIM-B, NMIMS,JBIMS to name a few.
So we surely have good credibility in the this domain :)