Having grown my Zerodha account 5x in last 19 months since I started systematic intraday options trading, felt I am eligible enough to share my principles around below topics that helped me scale up.
A thread on my style of position sizing, compounding and handling drawdown 👇
My money management principles first:
1. Do not risk more than 1% capital per trade
2. Account for DD while sizing position
3. Do not reduce position size while on a losing streak
4. Increase position size during winning streak
5. Compound capital daily to scale up quick and big
Why cap rupee risk at 1% capital per trade?
- We can be wrong in any trade and got to cut losers short
- Intraday price action is random and can be irrational
Market can stay irrational longer than a trader can stay solvent
Risking <1% per trade⬆️odds of trader staying solvent
Why account for impending DD upfront while sizing position?
- because I do not want to reduce position size while on a losing streak, but I also want to increase position size while on winning streak
- because when DD happens I am not disappointed as I already factored that in
Why do I not want to reduce position size in a losing streak?
- Because if I do, I will need 25% gain to recover from 20% DD which is an uphill task
- If I factored in 20% DD upfront for sizing position, then I need only 20% gain (not 25%) to recover from 20% DD