Sebi Sensex Nifty

Once each month you should be checking to see if your various stocks are advancing as planned. Forget all those pretty research reports your broker sent you. Burn them. Now you must not care anything about that company. What you care about now is your money. As long as the stock price is advancing you may continue your love affair, but when it starts down it is time for a divorce. Time to leave before the damage gets worse.

This is where emotion becomes expensive. If you just bought it your ties are strong and you know if you sell you will have a loss. Never fall for that old broker’s adage that you don’t have a loss until you sell. Anyone who believes that will be eating cat food at retirement.

The Bad News

Time for a reality check. Certainly all of the above benefits are there to be enjoyed, but it’s a huge step from full time employee to full time trader. Are you really ready to give up that monthly pay-check just yet? Can you really cope not knowing how much money you’re going to make month to month? Are you prepared for the months when you actually lose money instead of make it? There are many things to consider before taking the leap of faith.

Considerations

Before you even think about trading for a living you have to know how much money you need to live on, that is, how much cash do you need to generate every month in order to survive. As a financially minded person you already have good home accounts, or are at the very least vaguely aware of where the money goes. So take the annual figure (monthly is no good, you need to account for annual recurring items like insurance premiums, car servicing, and vacations), add 50% and divide by 12. Why add 50%? Because there will always be unexpected expenses, and as traders we are always prepared to expect the unexpected.

An important but often overlooked aspect of under capitalisation is the effect it will have on your trading; if you are trading because you need the money, then you are trading scared and you’re almost certainly going to lose. You cannot distance yourself from the money-aspect of the trade if you are relying on the money.

Living expenses are only one part of the financial equation. Next you must consider how much trading capital you need. This is the money actually facilitate trading, in other words your account balance for trading margin, and the money you will be spending on data feeds, software, and internet access. You must account for this separately, you cannot start eating into your daily living expenses money just because you took a bad trade and need some more margin.

If the brokerage company analyst tells the truth that he doesn’t think a company is a good buy anymore and to sell you can be sure the executives at that company have a long memory should they decide to sell more stock. Issuing a sell signal would be the death knell for the brokerage company ever selling any new issues for that company. And the analyst would probably get fired.

There is a successful way to Buy and Hold, but it will take about 15 minutes of your time each week. You could do it monthly, but you will have better results if you do it weekly. One of my basic criteria for owning any stock or mutual fund is that it must be going up. Not down or sideways. Let’s say you have from one or several stocks in your portfolio.