The first rule to understand is this: Futures trading may not be suitable for everyone. The risk of loss can be substantial.
One of the most common mistakes made by FNO traders is overtrading.
When you create a trading position which is much larger than justified by your capital, this is overtrading.
What is too large? A simple rule is to ensure that any single loss should not exceed 2% of your trading capital. If your trading positions require you to take a loss which is larger then your volume is too large – you are overtrading.
Here are some psychological signals that you are taking more risk than proper:
Sweating during trading hours while sitting in an AC room
Watching Television but switiching channels hoping that some channel will provide you with “suitable” news
Closing your position at a loss which actually brings you relief, only to see that the market moves in your favor after you exit
Shouting at your spouse, children, office people for no apaprent reason (the real reason is that you are losing money on a large position)
Calling your broker every five minutes seeking assurance that your positions are correctly placed.
This is not the life of your dreams, is it ? The solution is to reduce your volume and trade small. But, you will ask, how can I trade small and make a living ? I will answer this question here.
On trading small volumes:
My thinking is that if you’re a good trader with good ideas, each trade you make isn’t significant. It’s the sum total of a lot of good ideas over a lot of years that will make you wealthy. Everyone is wrong sometimes and what happens If you risk it all (or most of it) on a single trade, and you’re wrong? If what I’m saying makes sense, then trading small makes sense. Good opportunities come along fairly often.
Trading with a small capital
Use the Mini Nifty contract
Trade only in stock futures which have a small value
Learn how to hedge with options
