Dabba trader following 'Modified Martingale Strategy' goes broke
So we now have answer to the question below. How smart is it to add one lot to your short position, when the market moves x points against you? The answer : Not very - or it depends. If you know (or are not aware of the risk of) what you are doing. It's fine if adding to a short position when the market moves says 100 points away from you - when the market is in a downtrend or sideways. But if you have a system (or lack thereof) and are doing something basis 'what has worked' or your past experience of making money - even if over a period of time, the market will eventually catch up, and hurt badly.
I was looking fw. to meet this 'Dabba trader' again on this visit to Gujarat, who for some period of time, had made good amount of money, consistently. This time, however, his shop was closed, and he was nowhere to be seen. So I asked my friend (who was a passive investor and a partner in his scheme) as to what happened. He remarked - This is *#$## pure gambling.... The 'Dabba trader' had folded up and had to close all his short positions having incurred a 16 lakh rupee loss.
The market is unforgiving, and has the capability to take away all the winning and some more from a trader or an investor, at any point of time. Any trader intending to be long time standout, (while traders around him fold away and fade over time), has to make understanding of his strategy and understanding the market, a cornerstone for a start. Add to that, he has to understand his own mindset and psychology, to be able to implement his strategy or trade it with confidence in real time. So this becomes the third leg to the stool which gives balance. And lastly, having all these three, one has to have proper risk and money management in place. No matter how well financed a trader is, if the position sizing and risk management is not in place, a trader can place his entire capital at risk go bankrupt. In essence, a trader over time has to imbibe all good practice to succeed.
So what did this 'Dabba' trader do wrong? In my view : He failed to read the market sentiment. While shorting on every 100 point rise would have worked in a falling or a sideways market, the strategy should have been reversed to go long and 'add' position on every 100 point fall in the index in a rising market. A simple look at charts or having mind in synch with the market would have sufficed. Trading can be simple and easy - if one's mind and position is fluid and in synch with the market and the timeframe one is trading. Else one will see every up and down move in index corresponding to his/her heartbeat. Not a good way to trade in the long run. So finally, another trader bites the dust. Sobering thought, considering the size of the loss, and a lesson about having 'firm conviction' of a winning strategy - while disregarding risk management.
Originally Posted by DSM (Post 935781)
Was exchanging notes with a guy who is a 'Dabba Trader' This is what he has to say with full confidence. Only 'Dabba Traders' take money away from the market. I know these guys trade without stop loss and live dangerously. Many of these guys following modified Martingale strategy (adding the same lot size to position - but not doubling) as the market moves certain points against them) as they have a directional view of the market. How smart is that? For what it is worth, I asked this guy for his view on Bank Nifty. His call for Monday? : Sell Bank Nifty around 10,230-250 for a target of 10,150
I had previously met another Dabba Trader when I went on a visit to Gujarat. While talking to him in his office, he removed a printout of his ledger extract from his broker. He had made 70K that month, and his average take was around 50K each month.
What is surprising is that both these guys trade basis their familiarity of the numbers or levels. They know the support and resistance levels to buy and sell. But if I were to ask them to look at the chart, am sure, it would not make sense to them. This guy was a real-estate broker and a part time trader. He did not even own a laptop or computer and would not even know what a candlestick would be!! And as against the regular traders, most of these guys are perennial bears. But what matters in the end I guess is that one makes money - though it should not happen that a day comes that they blow up badly. Some food for thought.
P.S : Dabba is a word meaning 'box' or 'container' and equivalent of the 'Bucket trading shops' in the US before it was outlawed there. Dabba trading is illegal as it is off line trading and not connected to the stock or commodity exchange. It is risky as well, since counter party risk is not known.
So we now have answer to the question below. How smart is it to add one lot to your short position, when the market moves x points against you? The answer : Not very - or it depends. If you know (or are not aware of the risk of) what you are doing. It's fine if adding to a short position when the market moves says 100 points away from you - when the market is in a downtrend or sideways. But if you have a system (or lack thereof) and are doing something basis 'what has worked' or your past experience of making money - even if over a period of time, the market will eventually catch up, and hurt badly.
I was looking fw. to meet this 'Dabba trader' again on this visit to Gujarat, who for some period of time, had made good amount of money, consistently. This time, however, his shop was closed, and he was nowhere to be seen. So I asked my friend (who was a passive investor and a partner in his scheme) as to what happened. He remarked - This is *#$## pure gambling.... The 'Dabba trader' had folded up and had to close all his short positions having incurred a 16 lakh rupee loss.
The market is unforgiving, and has the capability to take away all the winning and some more from a trader or an investor, at any point of time. Any trader intending to be long time standout, (while traders around him fold away and fade over time), has to make understanding of his strategy and understanding the market, a cornerstone for a start. Add to that, he has to understand his own mindset and psychology, to be able to implement his strategy or trade it with confidence in real time. So this becomes the third leg to the stool which gives balance. And lastly, having all these three, one has to have proper risk and money management in place. No matter how well financed a trader is, if the position sizing and risk management is not in place, a trader can place his entire capital at risk go bankrupt. In essence, a trader over time has to imbibe all good practice to succeed.
So what did this 'Dabba' trader do wrong? In my view : He failed to read the market sentiment. While shorting on every 100 point rise would have worked in a falling or a sideways market, the strategy should have been reversed to go long and 'add' position on every 100 point fall in the index in a rising market. A simple look at charts or having mind in synch with the market would have sufficed. Trading can be simple and easy - if one's mind and position is fluid and in synch with the market and the timeframe one is trading. Else one will see every up and down move in index corresponding to his/her heartbeat.
Not a good way to trade in the long run. So finally, another trader bites the dust. Sobering thought, considering the size of the loss, and a lesson about having 'firm conviction' of a winning strategy - while disregarding risk management. Originally Posted by DSM (Post 935781)
Was exchanging notes with a guy who is a 'Dabba Trader' This is what he has to say with full confidence. Only 'Dabba Traders' take money away from the market. I know these guys trade without stop loss and live dangerously. Many of these guys following modified Martingale strategy (adding the same lot size to position - but not doubling) as the market moves certain points against them) as they have a directional view of the market. How smart is that? For what it is worth, I asked this guy for his view on Bank Nifty. His call for Monday? : Sell Bank Nifty around 10,230-250 for a target of 10,150
I had previously met another Dabba Trader when I went on a visit to Gujarat. While talking to him in his office, he removed a printout of his ledger extract from his broker. He had made 70K that month, and his average take was around 50K each month.
What is surprising is that both these guys trade basis their familiarity of the numbers or levels. They know the support and resistance levels to buy and sell. But if I were to ask them to look at the chart, am sure, it would not make sense to them. This guy was a real-estate broker and a part time trader. He did not even own a laptop or computer and would not even know what a candlestick would be!! And as against the regular traders, most of these guys are perennial bears. But what matters in the end I guess is that one makes money - though it should not happen that a day comes that they blow up badly. Some food for thought.
P.S : Dabba is a word meaning 'box' or 'container' and equivalent of the 'Bucket trading shops' in the US before it was outlawed there. Dabba trading is illegal as it is off line trading and not connected to the stock or commodity exchange. It is risky as well, since counter party risk is not known.
They take 10 % upfront margin and do M to M at the end of every week ...some have Thursday as their M to M day.
Dabba operators dont take positions against a trader who keeps stoplosses and who runs his profits. I have known few Dabba operators and they do pay in and payouts based on M to M very efficiently ( as they say that dishonest business is conducted most honestly )....but all in cash....so this business is unsafe and illegal and also a punishable crime.
Smart_trade
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