In this article, we will discuss
- The Golden Formula for Trading Success
- A Handy Benchmark that Helps You Become a Better Trader
- Optimize Your Trading Strategy with Samco’s New-Gen Trading App
You’ve no doubt come across news articles of stock market experts earning profits in the lakhs of rupees — sometimes on a single trade. Stories like these can be extremely inspiring for the average retail investor. Hearing of such successful trades drives you to dig a little deeper into how these experts trade, so you can emulate their trading patterns and strategies.
When you think of the market greats, there’s one name that has been immortalized in the Indian stock market. We’re talking about Rakesh Jhunjhunwala. Generations of retail investors in the country have drawn inspiration from this market pro. Interestingly, Jhunjhunwala had extremely humble beginnings; he entered the share markets with a capital of just Rs. 5,000 back in 1985. His first big profit came only a year later — a gain of Rs. 5 lakhs in 1986. His winning streak continued over the next few years, with his profits stacking up to around Rs. 25 lakhs by 1989.
That’s not to say that Jhunjhunwala never made unsuccessful trades in the market. Over the course of his 37-year-long career in the markets, he had his fair share of hefty losses. What set him apart, however, was what he did when he realized a position was no longer profitable. Where the average retail investor attempts to hold on to losing position in the hope that they may turn around, Jhunjhunwala did the opposite and exited losing positions instead. This was simple yet genius — because it allowed him to cut his losses short and let his profits run.
The Golden Formula for Trading Success: Your First Step to Trading Like a Pro
To follow in the footsteps of expert traders like Jhunjhunwala, it’s not enough if you simply chase profits. You need to:
- Identify your winning strategies
- Discover the market segments in which you are more successful
- Figure out how to keep the profits coming in consistently
There’s one golden formula that can help you achieve all this and more — Samco’s trade score. Check out this formula below.
Samco’s Trade Score = (Winning Trade % x Average Gain %) ÷ (Losing Trade % x Average Loss %) |
Here, the winning (or losing) trade percentage represents the percentage of your profitable (or loss-making) trades in a given period. And the average gain (or loss) percentage is the average profit (or loss) percentage from your total profitable (or losing) trades over the same period.
Calculating this score for each trade or every month can be tedious and prone to errors. But with Samco’s new-gen trading app, you need not worry about manually calculating the score at all. Not only does the app give you the trade score for each of your online trading strategies and every market sector or segment you trade in, be it intraday trading or futures and options, but it also tells you how to interpret the results.
Here’s a preview of what the different ranges of scores mean.
Your Trade Score: A Handy Benchmark that Helps You Become a Better Trader
The trade score is not just a number. If you use it right, you can improve your trading strategy and elevate your trading game easily. Here are some actionable tips to help you use the trade score optimally.
Refine Your Sector-Based Approach to Trading
If you are a seasoned trader, you likely have preferences or specialities in specific market sectors. Using the trade score, you can pinpoint the sectors that are enhancing your profitability and the ones that might be dragging you down. If a particular sector undermines your trade score consistently, this might be a cue to reassess and tweak your strategies, or perhaps even shift resources to more fruitful sectors.
For instance, say you've been actively trading in stocks in both the healthcare and automotive sectors. Over a given quarter, your trade score reveals that your strategies in the healthcare sector consistently outperform those in the automotive sector. By concentrating more on healthcare or by revisiting your approach to automotive stocks and options, you can aim to optimize your score in subsequent quarters.
Capitalize on Short-Term Trends
You can do this by tracking how quickly your trade score rises or falls during a given period. If there’s a sudden spike or dip, it might indicate a short-term trend or market anomaly. You can then use this information to make quick, tactical moves in the market and capitalize on these trends.
For example, say your trade score sees a sharp uptick during a week when a major tech firm announces unprecedented quarterly earnings. This might be a sign that tech stocks are in a short-term bull market. Using this insight, you can position yourself to exploit this momentum before it potentially wanes.
Get Better at Risk Management
Your trade score also reflects the effectiveness of your risk management. A low score could indicate not just poor trade selections but also inadequate stop-loss or take-profit points. Use the score as a prompt to revisit and potentially adjust these parameters in your trades.
For instance, say you notice that your trade score has been declining over the past few months. Upon closer inspection, you find that your losing trades have larger losses compared to the gains from your winning trades. This might be a sign that your stop-loss points are set too far, causing bigger losses than necessary. To improve your trade score, all you need to do is adjust the stop-loss limits.
Adjust Your Trading Frequency
If your trade score is on a downtrend, it might be beneficial to adjust the frequency of your trades. Rather than making numerous trades in a day or week, consider focusing on fewer, high-quality trades. This can potentially improve your trade score and also reduce the transaction costs that eat into your profits.
For instance, if you realize that on days with more than ten trades, your score often dips, it may be a good idea to focus on fewer but more informed trades.
Identify Trading Strategies that Work
Another excellent way to use the trade score is to evaluate the efficacy of different options trading strategies you employ, like straddles, iron condors or even vertical spreads. By determining which strategies have the effect of improving your score, you can allocate more resources to those techniques.
Here’s an example. Say you often employ both iron condors and straddles in your trading. Over time, you notice your trade score is consistently higher when implementing the iron condor option trading strategy. Using this information, you might decide to focus more on iron condor setups or refine your approach to straddles to enhance their profitability.
Implied volatility plays a pivotal role in options pricing. By correlating periods of high or low IV with your trade score, you can identify if you're effectively capitalizing on volatility or if it's working against you.
For instance, suppose you notice a spike in your score during earnings season, it could indicate that you're efficiently leveraging the elevated implied volatility ahead of earnings announcements. With this knowledge, you can double down on your current futures and options strategy in subsequent earnings seasons, confident in its potential to boost your trade score.
Optimize Your Trading Strategy with Samco’s New-Gen Trading App
As the trade score indicates, you need to focus on making frequent and adequate profits to become successful in the markets. While this may seem simple in theory, achieving consistent profits can be challenging even for the most seasoned traders. With the right tools, however, you can significantly improve your trading performance and align your strategies with the legends of the market.
Samco’s new-gen trading app, designed to revolutionize your trading journey, can help you with this. The app brings together advanced analytics, real-time stock market insights and the powerful trade score formula all under one platform. With such robust features at your fingertips, you're better equipped to make informed decisions and improve your trading strategies.
Don't let this opportunity to elevate your trading game pass you by. Take the first step towards trading excellence by opening a trading and demat account through the Samco app today!
Disclaimer: INVESTMENT IN SECURITIES MARKET ARE SUBJECT TO MARKET RISKS, READ ALL THE RELATED DOCUMENTS CAREFULLY BEFORE INVESTING. The asset classes and securities quoted in the film are exemplary and are not recommendatory. SAMCO Securities Limited (Formerly known as Samruddhi Stock Brokers Limited): BSE: 935 | NSE: 12135 | MSEI- 31600 | SEBI Reg. No.: INZ000002535 | AMFI Reg. No. 120121 | Depository Participant: CDSL: IN-DP-CDSL-443-2008 CIN No.: U67120MH2004PLC146183 | SAMCO Commodities Limited (Formerly known as Samruddhi Tradecom India Limited) | MCX- 55190 | SEBI Reg. No.: INZ000013932 Registered Address: Samco Securities Limited, 1004 - A, 10th Floor, Naman Midtown - A Wing, Senapati Bapat Marg, Prabhadevi, Mumbai - 400 013, Maharashtra, India. For any complaints Email - grievances@samco.in Research Analysts -SEBI Reg.No.-INHO0O0005847
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