[ranjitnair77]

Originally Posted by Raul258

Came across this thread while I was contemplating a career change to trading in a few years. Want to ask the experienced members how viable it is to live off the earnings from trading? (Spouse has a permanent job)

SEBI came up with a white paper titled Study - Analysis of Profit and Loss of Individual Traders dealing in Equity F&O Segment. Here's the link . Please read it in full. I'll quote a section of this report.

Loss Makers

• 89% of the individual traders(i.e. 9 out of 10 individual traders)in equity F&O segment incurred losses,with an average loss of Rs. 1.1 lakh during FY22, whereas, 90% of the active traders incurred average losses of Rs. 1.25 lakh during the same period.
• For the group of active traders (excluding outliers), on average, loss makers registered net trading loss close to ₹50,000 in FY22.
• For the group of active traders (excluding outliers), the average loss of a loss maker was over 15 times the average profit by a profit maker during FY22.

You can read this in detail on page 4 of the study. Do note that this is a study on F&O but most active traders will eventually move into F&O. The lucre of leverage is hard to resist.

Now people can look at this and argue that they can be in the 11%. Sure, but wouldn't it be better to look at building wealth with more favourable odds?

A individual trading career is a risky path, regardless of what YouTube tells you. Focus on improving your earnings and increasing your investments systematically over time. Stay invested in great companies for a longer duration. Look at starting a viable business in an area of interest/passion/skill. Look at building up your individual skills and become a freelance consultant. All of these offer far more favourable odds to wealth creation.

[vijaysrk]

Have been dabbling in the stock market since the early 2010s, but systematically got into it during Covid. Having the luxury of - not time, but the flexibility to plan my day better, I started with equipping myself with the knowledge required to move towards making this a full time gig in the future. Attended multiple training courses on fundamental analysis, technical analysis and F&O (mainly options) strategies, all the while doing paper trading and testing out my success ratio.

Fast forward to now, we have a significant portion of our family net-worth invested in our trading firm, and through a combination of stock picking for both short term trades as well as longer term investment plays and running positional options strategies (I don't have the time to day-trade), have managed to generate >20% returns over the past three years.

Just like with any other profession, this is one that demands the requisite amount of education, time and dedication to be decent (or good, or great) at it. I suspect that the 1% of investors who actually make consistent profits in F&O belong to this category.

[alpha1]

Originally Posted by ranjitnair77

SEBI came up with a white paper titled Study - Analysis of Profit and Loss of Individual Traders dealing in Equity F&O Segment. Here's the link . Please read it in full. I'll quote a section of this report.

Loss Makers

• 89% of the individual traders(i.e. 9 out of 10 individual traders)in equity F&O segment incurred losses,with an average loss of Rs. 1.1 lakh during FY22, whereas, 90% of the active traders incurred average losses of Rs. 1.25 lakh during the same period.
• For the group of active traders (excluding outliers), on average, loss makers registered net trading loss close to ₹50,000 in FY22.
• For the group of active traders (excluding outliers), the average loss of a loss maker was over 15 times the average profit by a profit maker during FY22.

You can read this in detail on page 4 of the study. Do note that this is a study on F&O but most active traders will eventually move into F&O. The lucre of leverage is hard to resist.

Now people can look at this and argue that they can be in the 11%. Sure, but wouldn't it be better to look at building wealth with more favourable odds?

A individual trading career is a risky path, regardless of what YouTube tells you. Focus on improving your earnings and increasing your investments systematically over time. Stay invested in great companies for a longer duration. Look at starting a viable business in an area of interest/passion/skill. Look at building up your individual skills and become a freelance consultant. All of these offer far more favourable odds to wealth creation.

You forget that most of the retail "traders" are either people who have retired or people who have considerable ancestral wealth.
For them, trading is like "day-job" where you are engaged, under some kind of pressure, thrill, ecstasy and frustration etc. It is addictive.

The key points from SEBI report that you mention need to be acknowledged before logging into any trading portal. But how many actually read and understand that they are also the part of the same statistics.

The issue, I find, is with people who are in the earning age, who might be gambling their savings, funds earmarked for spouse/kids/old age into stock market for quick gains.

[SmartCat]

Originally Posted by ranjitnair77

Now people can look at this and argue that they can be in the 11%. Sure, but wouldn't it be better to look at building wealth with more favourable odds?

Low entry barrier messes up these statistics. People who have not developed enough knowledge/experience will indulge in day trading or even dabble in derivatives to see how it goes. They have a very high probability of ending up on the 90% side.

[thirugata]

Originally Posted by ranjitnair77

SEBI came up with a white paper titled Study - Analysis of Profit and Loss of Individual Traders dealing in Equity F&O Segment. Here's the link . Please read it in full. I'll quote a section of this report.

Your concerns are well placed.
However his query was about how to go about learning which is the right thing to do. He understands it needs learning to be successful in stock market. It is not rocket science, trading/investment skills can be acquired like any other skill which most people are ignoring even after knowing before they try their "luck" in market.

Transport department keeps publishing reports of road accidents of vehicles and pedestrians. Do we study that report and say I wont drive or walk on the road side from next day?

One need to understand the risk involved in everything they do and learn to avoid or minimize the damage if it is unavoidable. This is true for every walk of life.

Originally Posted by ranjitnair77

A individual trading career is a risky path, regardless of what YouTube tells you. Focus on improving your earnings and increasing your investments systematically over time. Stay invested in great companies for a longer duration. Look at starting a viable business in an area of interest/passion/skill. Look at building up your individual skills and become a freelance consultant. All of these offer far more favourable odds to wealth creation.

Again another good advise, but not the only way one can make money in life.
There are enough examples in market who bought "good companies" and lost money too. So it is not fail safe method. End of the day if one does not know what they are doing mishaps are likely to happen. Learning is the key.

[NerdSpeaks]

Originally Posted by SmartCat

The Thoughtful Investor by Basant Maheshwari

Good to see Mr Basant Maheshwari is being recommended by our respected fellow bhpian as well.

I really like Mr Maheshwari's stock analysis & business models analysis ...
Love his Youtube channel, although sometimes it can be a lot of repetition for regular followers.

[SmartCat]

Originally Posted by NerdSpeaks

Good to see Mr Basant Maheshwari is being recommended by our respected fellow bhpian as well.

Basant is an old friend of mine. He used to run a forum (now defunct) called TheEquityDesk. If you look around, you will find my posts there:

[ranjitnair77]

Originally Posted by SmartCat

Low entry barrier messes up these statistics. People who have not developed enough knowledge/experience will indulge in day trading or even dabble in derivatives to see how it goes. They have a very high probability of ending up on the 90% side.

I agree SmartCat. It will be interesting if there can be a study where SEBI can apply a threshold (say #of trades + time in the market) to see if the odds improve for individual traders. My feeling is that it won't significantly change because individual traders are always pitted against larger institutional traders who are usually at a knowledge advantage. That's just an opinion though.

Originally Posted by thirugata

However his query was about how to go about learning which is the right thing to do. He understands it needs learning to be successful in stock market.

There are enough examples in market who bought "good companies" and lost money too. So it is not fail safe method. End of the day if one does not know what they are doing mishaps are likely to happen. Learning is the key.

I agree that the OP should learn as much as possible, it will make him a better investor. My post was to dissuade him from taking trading up as a full time career, which he is contemplating. The odds are considerably against him.

I agree that there are plenty of people who have bought good companies and lost money. There is no fail safe in any market. However I'm talking about probabilities and not absolutes. The probability of losing money by buying a basket of well diversified quality stocks (or simply an index) is lower than active trading, if you take a large enough cohort of individuals and a long enough period of time

To conclude, I would also recommend reading about the famous Warren Buffet bet

[DigitalOne]

Originally Posted by ranjitnair77

Now people can look at this and argue that they can be in the 11%.

Originally Posted by SmartCat

People who have not developed enough knowledge/experience will indulge in day trading or even dabble in derivatives to see how it goes.

There actually is a behavioral psychology term for this called the Dunning-Kruger effect. Essentially it tells that humans overestimate their own abilities (in any field). If you ask a bunch of students to estimate their scores of a test, the estimates will be higher than the actuals.

The Dunning–Kruger effect is defined as the tendency of people with low ability in a specific area to give overly positive assessments of this ability. This is often seen as a cognitive bias, i.e. as a systematic tendency to engage in erroneous forms of thinking and judging.

Inaccurate self-assessment can lead people to make bad decisions, such as choosing a career for which they are unfit or engaging in dangerous behavior.

Some researchers include a metacognitive component in their definition. In this view, the Dunning–Kruger effect is the thesis that those who are incompetent in a given area tend to be ignorant of their incompetence, i.e., they lack the metacognitive ability to become aware of their incompetence. This definition lends itself to a simple explanation of the effect: incompetence often includes being unable to tell the difference between competence and incompetence.

In other words, stupid people lack the intelligence to know that they are stupid . They will overestimate their abilities/knowledge , believe themselves to be the top 10% traders and keep losing money.

[OffRoadFun]

If you have to ask this on team-bhp, definitely a bad idea!

Most traders make losses. It's not a fair game, especially in India, where odds are stacked against you if you are a small fish.

Trying to make money out of statistical noise?
Hard to make money against automatic trading algos and platforms which execute in milliseconds, where chaos theory experts have worked for years to squeeze money out of gullible (small scale) traders who take "seconds" for execution.

Besides, pure trading is of little constructive value as there is no value added in trading.

[neeravnaik]

Another point to look at is many people will think they will be one of the 10% of traders who will make money. IT would be interesting to know even among them those 10% how many are able to beat even FD rate of returns.

So when you are approaching a 90-95% chance of failure it can be safe to assume that a novice trader will not be able to make money of trading consistently.

Stock market is not a very good source for income generation. It is highly volatile. However it is a great way to build long term wealth for long term goals.

[ValarMorghulis]

A senior colleague often boasts to me that he has been getting returns around ~45% per annum for the last 3-4 years consistently. His net volume of trading, F&Os etc. is to the tune of ~1- 2cr INR and now he is planning to get some capital from VCs so that he can make bigger gains.

He also told me that since he was investing for his brother and they both got taxed at the gains he is planning to open an LLC to minimize taxes and eventually leave his job (his CTC is ~1cr).

He must in top 1% of the traders in the country. Any of this smell funny?

[SmartCat]

Originally Posted by ValarMorghulis

now he is planning to get some capital from VCs so that he can make bigger gains. they both got taxed at the gains he is planning to open an LLC to minimize taxes

Trading in derivatives with other people's money might be illegal, unless he has proper certification and SEBI registration.

Whatever plan he has, ask him to check with a SEBI lawyer/consultant (not CA or corporate lawyer) in his city. He can Google "SEBI Lawyer/consultant Mumbai" for example

[adimicra]

Originally Posted by ranjitnair77

A individual trading career is a risky path, regardless of what YouTube tells you. Focus on improving your earnings and increasing your investments systematically over time. Stay invested in great companies for a longer duration. Look at starting a viable business in an area of interest/passion/skill. Look at building up your individual skills and become a freelance consultant. All of these offer far more favourable odds to wealth creation.

I whole-heartedly agree with this, but this doesn't mean it can't be done.
As I posted earlier, like every other profession, it needs passion, dedication to succeed. If someone thinks of trading as an easy way to make money, he/she will most likely end up in the 90%.

Having interacted with many traders and some of my friends who started alongside me, almost everyone has failed because most of them never put in the effort to learn the skill and continuously improve the same.

PS - I am not a full-time trader yet, but plan to quit my job in another 2-3 years. For me, it is not a risky decision for me as I am close to financial independence and my track record of last 3 years CAGR/IRR is more than twice the midcap and smallcap indices (or category average of mutual funds) But, as I said, I probably have put in more efforts in learning the skill than I did in my 4 years of engineering

[vimalvittaladas]

Originally Posted by Raul258

Came across this thread while I was contemplating a career change to trading in a few years. Want to ask the experienced members how viable it is to live off the earnings from trading? (Spouse has a permanent job)
I don't intend to invest my capital straight away in trading and understand there is a lot to learn and have been reading a few books by Peter Lynch and John J. Murphy in addition to materials from SEBI (NISM) on stock markets
Now my question to the experienced members are
How can I structure my learning process?
How is the video series by Anton Kreil? (https://itpm.com/education/). His team appears to know what they are doing but their courses cost a bomb.
Are there any alternative courses that I can take up?

I am a banker with 12 years of experience in forex/domestic market and still continuing the same. Even though I have the basic and technical experience, I never played with my own money for any kind of speculation. I opted SIPs/Gold ETFs as my monthly investment and the tenure will be minimum 20 years. There too, I have balanced the risk by 60% in equity funds with high risk and balance in debt fund with guaranteed returns.

I strongly believe that speculative trading allways results in no profit no loss/actual loss. Otherwise you should thorough on fundamentals (balance sheet analysis and tracking a particular company) and then invest for a prolonged period. On a serious note, in official capacity also for each position I take, a stop loss or TP is mandatory.

So consider those and be adament on your stop losses and also don't be greedy in booking profit. All the very best