Tuesday, 24 March 2015

Profits - Expectations vs achievements in Stock Markets

Received a call , " What is the monthly profit I can make by using strategies in futures & options ? "

"4  to 5 %  is doable. " we replied.

"Oh , its not attractive at all. I am looking for something like 25 to 30 % per month. "

Received Call 2 - " What is the monthly profit I can make by using strategies in futures & options ? "

"4  to 5 %  " we replied.

" Oh ,great. Even if  I get 2 to 3 % per month, that would be really great. "

SAME question , SAME answer , DIFFERENT reactions.

Why do we loose money in stock markets ?

Number one reason for this is highly unrealistic expectations. New people come to stock markets with  expectations which will shake  even a gambler. No logic, No practical experience. 
No doubt , they get lured by fraudulent operators in market space.

What should be a real ,  rational expectation ?

You analyse any business. Go through quarterly results of best of the companies. You will get your answers. Even best of the companies do not have more than 7% to 8% earnings in a quarter. And see the kind of infrastructure and manpower they have to deploy,  to generate these earnings. And risk is equally high. 

So if with so much of collaborative effort, these huge organisations are able to produce these kind of returns, how can we expect extraordinary , abnormal returns from an alternate business ( if you treat stock market trading as business) ?

Yes , anybody trading or planning to start trading in markets , must first rationalise his/ her expectations. With gambling mindset, you may get one or two good hits but misses will be much more in number. But if you come with a business mindset, with rationalised expectations , you know you are already ahead of at least 90% of retail traders in the market.

Trading in stock markets is also a mind game and market makers know this fact,  better than anybody else. They are fully aware of the fears and greeds of a small investor and hence this knowledge is very well used to take money out of investor's pocket. 

So , first step to avoid these losses is to make realistic expectations from the market . Once expectations are realistic, achievements will be much more closer. And we all know , when achievements meet expectations , there is no place for frustration.

Pradeep Singla

(We conduct options trading workshops in following cities of India -  Bangalore,Hyderabad , Chennai, Mumbai, Delhi and Kolkata.  Online workshop is also available).