In our last blog, we discussed how typical investors achieve average returns through Systematic Investment Plans (SIPs). We concluded that if someone invests ₹6,00,000 over five years, they could expect it to grow to ₹11,60,000 in ten years. Today, we’re going to explore how the same investment amount can be leveraged in two different ways to potentially achieve returns of 25% to 50%. While 50% may sound ambitious, it’s not unattainable, and we will examine this possibility by integrating both investing and trading strategies.

We highlighted the success of legendary investors like Jim Simons, who achieved an annual return of 66%, while Warren Buffet averaged 22%. Though we are not legendary investors, we can still aim for returns higher than the average market by blending investment and trading strategies. Many investors focus solely on long-term investing, anticipating their money will grow over time. Others are engaged in short-term trading, including intraday trading, seeking immediate profits or losses. By combining these two approaches, we can potentially benefit from the long-term growth of investments and the daily profits from trading, effectively doubling the compounding effect on our money.

Investing and trading both come with risks. Long-term investments can sometimes show negative returns, and trading can result in losses as well. However, by strategically combining both, one can aim for higher returns. If a 50% return sounds too high, targeting 25% to 30% is still feasible. The key is understanding the methods and applying them consistently.

In the previous blog, we discussed why ETFs (Exchange-Traded Funds) are preferable to mutual funds. ETFs have a lower expense ratio and no exit load, making them more cost-effective. We also mentioned the strategy of buying on dips, which involves investing when the market falls to maximize returns. Furthermore, ETFs can be pledged to gain margin money for trading without requiring additional funds.

Effective trading should be designed to limit losses and predict profits. For those who aren’t expert traders, some strategies allow for automatic trading with predetermined profit and loss limits. This automation means you only need to spend about five minutes daily to manage your trades, letting compounding work its magic over time.

To illustrate, let’s look at a trading platform we mentioned earlier. This platform provides strategy templates that you can use directly or customize. For instance, consider a strategy where two lots of Bank Nifty are sold with a 1% stop loss. This means if a trade worth ₹1,10,000 incurs a loss of ₹1,100, the trade is automatically closed. This strategy requires a margin of approximately ₹1,10,000 and could yield substantial returns.

When back-tested, such a strategy shows that an initial margin of ₹1,13,000 could potentially generate ₹43,000 in profit over a year. Over two years, the profit could be around ₹70,000, translating to an annual return of about 35%. After accounting for charges, a realistic return might be closer to 30%. Monthly, this strategy could yield around ₹10,000, and over three months, around ₹16,000. However, it’s important to note the drawdowns, which represent periods of loss.

Customizing the strategy can lead to different outcomes. For example, by adjusting the trailing profit, a variation of the strategy could generate ₹1,06,000 in profit over two years, compared to ₹69,000 with the original setup. The goal is to minimize drawdowns while maximizing profits. Trading strategies can often seem complex and daunting, especially for beginners. However, deploying a trading strategy, particularly through an ad broker, can be simplified with a step-by-step approach. This guide aims to demystify the process, highlighting the key steps and considerations to ensure a seamless experience.

Deployment of your chosen trading strategy is straightforward. Once you’ve devised or selected a strategy, you need to deploy it. This begins with a simple click on the ‘deploy’ button. After clicking deploy, you will be prompted to choose your broker. Your broker could be any one of the numerous options available in the market. For instance, you might choose Upstox, known for its zero brokerage on API orders, which can be a significant advantage.

A critical aspect of any trading strategy is managing risk. In this case, the maximum loss is predefined and set at ₹1100. This means that no matter what happens, your loss will not exceed ₹1100. If you decide to scale up your trading, say by doing 10 lots instead of 1, the potential loss will multiply accordingly. Therefore, it’s important to start with paper trading. Paper trading allows you to simulate trades without using real money, helping you understand the potential profit and loss over a set period. You might decide to run the simulation for 10 or 20 days to get a clearer picture of your strategy’s performance.

It’s essential to remember that this is a learning exercise. The objective is to familiarize yourself with the process and assess whether it suits your trading style and risk tolerance. If you find the strategy beneficial, you can proceed with live trading. To do this, select your broker, click on deploy, and your strategy will be deployed. You can monitor your Profit and Loss (P&L) in real-time, giving you a clear view of your trading performance.

The dashboard plays a crucial role in this process. It is designed to be user-friendly, allowing you to see your profit and loss at a glance. There are two key components you need to activate each morning before 9:15 AM: the terminal and the trade engine. The terminal is where you log into your broker’s platform. Once logged in, the trade engine needs to be turned on to run your strategy. This process typically takes only about 10 minutes each morning.

Once the trade engine is active, it automates your trading. Deals are executed automatically based on the strategy parameters, removing the need for constant monitoring. The system takes care of entering and exiting trades at the specified times, ensuring discipline in your trading approach. Profit booking and loss booking need to be done manually, but the predefined loss limit ensures you never exceed your risk threshold.

For instance, consider a scenario where you have an account set up for a family member, say your sister. You can activate the terminal and trade engine in the morning, and let the automated system handle the trades throughout the day. This setup can be particularly useful if you are managing multiple accounts. For example, in your father’s account, you might apply a simple 1% SL (Stop Loss) triangle strategy. This strategy aims to make steady gains without overtrading. The simplicity of the strategy ensures minimal adjustments, reducing the risk of overtrading and potential losses.

One of the significant advantages of using a broker like Upstox is the absence of brokerage fees on API orders. This benefit can lead to considerable cost savings over time. With no brokerage fees, more of your profits remain intact, enhancing your overall returns. This is particularly beneficial in algorithmic trading, where frequent trades can otherwise lead to high brokerage costs.
Understanding these benefits is crucial. Deploying a strategy is not about promoting a specific platform but about leveraging the tools available to maximize your trading efficiency. By automating trades, you can focus on strategy refinement rather than the execution process.

In the world of intraday trading, the right strategy can make a significant difference. Let’s delve into a concept that balances risk and reward effectively. Imagine a strategy where the stop loss is set at 1%, and despite an annual loss around 50%, the monthly returns hover around 3% or more. To put this in perspective, if you consistently achieve a 3% monthly return, that translates to an impressive 36% annually. Even with conservative estimates, say at a 12% annual return from another investment source, combining these could place you far ahead of the average investor. This compounded advantage is what makes an efficient strategy so enticing.

However, one must approach intraday trading with caution and adequate preparation. Intraday trading can be particularly tempting due to the potential for quick profits. Nevertheless, it’s crucial to recognize that significant capital is necessary to start trading seriously. Let’s say you have ₹50,000 or ₹2,00,000. In this scenario, it’s wise to focus on investing rather than trading. Trading should ideally commence when you have around ₹4,00,000 to ₹5,00,000. Think of it this way: setting up a business, like a cloth shop today, would require substantial investment. Similarly, trading is a business and needs considerable capital to be successful.

Expectations often lead to disappointment in trading. Many novice traders believe that ₹2,00,000 should quickly turn into ₹20,000 or ₹50,000. This is an unrealistic expectation. Instead, if you manage to generate even ₹2,000 from ₹2,00,000 consistently, which is a 1% return, it’s a commendable achievement. The goal should be to make steady profits while minimizing losses. Achieving a small but consistent profit, even with occasional losses, is far better than chasing large, unrealistic returns.

For those who treat trading like a lottery or a jackpot, it’s advisable to rethink their approach. Trading should not be seen as a quick way to make a fortune. Instead, it should be viewed as a long-term strategy for wealth accumulation. Properly executed investment and trading strategies can act as powerful wealth compounders over time.

In a blog discussion, these concepts were explained in detail, highlighting the importance of approaching trading with the right mindset and expectations. It’s suggested that viewers read the blog multiple times if necessary to grasp the concepts thoroughly. Questions related to algorithmic trading can be particularly beneficial, and there are additional resources available for those interested. For instance, the blog references a previous discussion on algo trading, accessible via a link on the screen.

Sharing personal success stories and strategies that have benefited others can also be invaluable. If certain approaches have worked for your family, they might be useful to others as well. It’s important to sift through advice, taking what resonates and discarding what doesn’t.

Building wealth through trading requires patience, discipline, and the right tools. Algo trading software can significantly enhance trading efficiency by automating processes and reducing emotional biases. Signing up for such tools can provide a structured and data-driven approach to trading.

In conclusion, while intraday trading offers the potential for substantial returns, it’s crucial to approach it with a well-thought-out strategy and realistic expectations. Start trading only when you have adequate capital, and view it as a long-term investment rather than a get-rich-quick scheme. By doing so, you can leverage the power of compounding to achieve significant financial growth over time.


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