Becoming a Profitable Trader in One Article
If you want to become a profitable trader, you must pay attention to a few things and commit to following them. If you go against these principles, you will never be able to become a profitable trader.
Whatever I’m about to tell you, you should either write it down by hand or print it out and place it right in front of your trading desk so your eyes fall upon it every time.
First: The Two Pillars
- Money Management
- Risk to Reward Management
These are the two main things that transform a trader into a profitable trader. If you start focusing on and learning these two key elements from the beginning, you will become profitable within 2 to 3 years. Everyone learns how to trade, but they don’t know how to manage their trading. Let’s understand this with an example.
Just like our father works hard to earn money, he could choose to spend that money on himself or on things that aren’t necessary. But what does he actually do? He gives the money to our mother, or he manages the accounts himself. For example, if he earns ₹20,000 a month, he divides that money into different parts, or he gives it to Mom, who then divides it into various segments.
For instance, out of that:
- Rent (if the house is rented) might be ₹2,000.
- The monthly electricity bill is ₹500.
- Gas and other utilities might be ₹1,500.
- Household groceries cost ₹5,000 per month.
- Children’s education expenses take another ₹4,000 – ₹5,000.
- Then, some amount is put into savings, and another part is saved for medical expenses.
This is Money Management. I’ve explained it in the simplest language—how money is managed within a household—and you must manage your trading capital in the exact same way.
Let’s simplify it a bit more for trading:
Just as the monthly income is ₹20,000, you should have a fixed amount for trading, say ₹50,000 to ₹100,000. It can be more, but I suggest starting with ₹50,000 to ₹100,000.
Now, just as the ₹20,000 was divided into different parts, you must do the same with your ₹50,000.
- You should keep ₹25,000 in a savings account or as cash.
- Out of the remaining ₹25,000, put ₹10,000 into your trading account.
- Use the final ₹15,000 to trade, and only use 1 lot.
As the money in your trading account decreases due to losses, you must replenish it from your allocated trading capital.
If you lose ₹500 every day, you will lose ₹15,000 in 30 days. By following this method, you can survive for 3 months with your ₹50,000 capital.
Note: Big traders say that this time will go into learning. I say no; if you spend time in the market observing how and where the market reverses, and you understand this, then when you come to trade with actual money, your chances of failing are lower. It’s not that big traders don’t incur losses—they do, and so will you and I—but you will learn how to cover those losses from the market itself. No one else can teach you this.
Second: Risk to Reward Management
You need to think about profits and losses just like Mom and Dad do. Let’s understand this in an even simpler way.
Remember the medical expenses I mentioned? You save that money so it can be used whenever something happens. That is your Risk.
Let’s understand this better. When you go to the market to buy groceries for the month, say the market is 5km away, and the fare is ₹20 one way, making it ₹40 for the round trip. Now, the question is, would you go to the market just to buy 2 or 3 items and spend ₹40 on fare? Absolutely not! If you go to the market, you’ll go to buy as many items as possible, and if you have any personal work, you’ll get that done too. This means gaining maximum benefit for minimum expense (risk).
This is how you manage risk, but people don’t understand it. This happens in every household, yet when we read articles or watch many videos, we only grasp bits and pieces of it.
I hope I was able to explain to you how to manage money and how to manage risk. It’s difficult to find someone who has explained this in such easy and simple language, as it’s hard to explain it better than this. No one else can.