Nithin Kamath on the secret to longevity and secure profits in trading

ETMarkets.comLast Updated: Oct 23, 2024, 04:30:00 PM IST

Synopsis

Zerodha founder Nithin Kamath emphasized the importance of risk management for longevity in markets. He shared insights from Tom Basso's podcasts, focusing on risk exposure and appropriate sizing of positions to avoid blowing up your account.

Zerodha founder Nithin Kamath on Wednesday said risk management is one of the most important factors that will allow investors or traders to maintain longevity in markets.

"In the 20+ years in this business, I haven’t seen anyone who has kept profits from trading without good risk management. I know many who've lost quickly. If you don't have a plan to manage risk and size your bets, it's impossible to keep the money you make," Kamath said.

Taking to social media, Kamath, the CEO of India's leading broker, went on to share a few tips for investors based on the podcasts of a market veteran, Tom Basso.

The insights delve into the secrets behind Tom Basso's longevity, where the focus is completely on risk management.

Basso said risk exposure of each position and the risk exposure of the portfolio would be the first thing that has allowed him the longevity in trading and markets.

"So there’s some kind of reasonable maximum that you can logically take. On one end, there’s zero risk, which would get you zero return, and on the other end, there’s a happy medium in between that each trader must decide for themselves. It needs to be comfortable, not lead to blowing up your account, and allow you to size positions appropriately so that all positions are contributing to the potential profit or loss as a portfolio," Kamath quoted Basso as saying.

Once investors get position sizing and risk management correct, the next thing one needs as a trader is awareness and discipline. "Investors need the awareness to recognize when they go off your plan, and they need the discipline to get back on track."

"If you don’t have those two things - and you should work on both of them - start with awareness so you can tell whether you’re being greedy, wanting to cut a trade short a little too quickly, and not letting it run as you should, or if you’re upset because the last trade was a loser and you’re determined to make the money back quickly by doubling the position size just to “teach the market a lesson” or something. Those are classic problems over the long run if you have that kind of mentality," Kamath said quoting Basso.

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