A PRACTICAL HANDBOOK ON

STOCK MARKET TRADING

MAHESH KAMATH
Your Essential Guide to Financial Empowerment!
 TERMS AND CONDITIONS

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 TABLE OF CONTENTS
FOREWORD

CHAPTER 1:
What are Equities or Shares

CHAPTER 2:
What is a Stock Market

CHAPTER 3:
What Is A Stock Exchange ?

CHAPTER 4:
What Is A Stock Market Index ?

CHAPTER 5:
What Are Stock Futures?

CHAPTER 6:
What Are Stock Options?

CHAPTER 7:
Which Are The Different Types Of Charts for technical
analysis?
 CHAPTER 8:
What Are Japanese Candlestick Charts ?

CHAPTER 9:
What You Need To Know Before You Start Trading ?

CHAPTER 10:
What Are Long & Short Positions?

CHAPTER 11:
Understanding Entry, Stoploss & Target

CHAPTER 12
Understanding Reward To Risk Ratio

CHAPTER 13
Understanding Bid,Ask & Spread

CHAPTER 14
What Are The Different Styles Of Trading?

CHAPTER 15
What Are Indicators & Oscillators ?
 CHAPTER 16:
What Is Price Action Trading ?

CHAPTER 17:
What Is Supply & Demand Trading ?

CHAPTER 18:
What Is Momentum Trading?

CHAPTER 19:
How Many Shares Should You Buy or Sell ?

CHAPTER 20
How To Manage Trades?

CHAPTER 21
How to overcome fear & greed in trading?
 CHAPTER 1

WHAT ARE EQUITIES OR SHARES

Equities, also known as shares or stocks,

represent ownership in a company. When
you own shares in a company, you become
a partial owner and have a claim on the
company's assets and earnings. Each share
you own gives you a proportionate
ownership stake in the company.

Equities are a form of investment that allow

individuals and institutions to participate in
the financial performance and growth of a
company. As a shareholder, you may benefit
from various rights and potential rewards:
1.Ownership Rights: Shareholders have the
right to claim a portion of the company's
assets and earnings. If the company is
profitable, you may receive a portion of the
profits in the form of dividends.

2. Dividend Entitlement: Some companies

distribute a portion of their earnings to
shareholders as dividends. Dividends are
typically paid out on a regular basis and provide
shareholders with a source of income.

3. Voting Rights: Depending on the type of

shares you own, you may have the right to vote
on important company decisions, such as
electing the board of directors or approving
major business transactions.

4. Capital Appreciation: As the company's

value and profitability increase over time, the
value of your shares can also appreciate. This
potential for capital appreciation is a key driver
of equity investment.
Equities are traded on stock exchanges, and
their prices can fluctuate based on various
factors, including company performance,
industry trends, economic conditions, and
investor sentiment. Investors buy and sell shares
in the open market, and the price at which
shares are traded reflects the collective opinion
of investors about the company's prospects.

It's important to note that investing in equities

involves risks, including the possibility of losing
money if the company's performance
deteriorates or if the overall market
experiences a downturn. However, equities also
offer the potential for significant long-term
returns and are a fundamental component of
many investment portfolios.

*****
 CHAPTER 2
WHAT IS A STOCK MARKET

A stock market is a centralized marketplace where

various financial instruments, primarily stocks
(equities), are bought, sold, and traded. It serves as a
platform for companies to raise capital by issuing
shares and for investors to buy and sell those shares.
The stock market plays a crucial role in facilitating the
flow of funds between investors and companies.
Key features and concepts of a stock market include:

1. Listed Companies: Companies that wish to raise

funds by issuing shares to the public can list their
shares on a stock exchange. This process involves
meeting certain regulatory and financial requirements.

2. Shares (Stocks): Shares represent ownership in a

company and entitle the shareholder to a portion of the
company's assets, earnings, and voting rights. Investors
buy and sell shares in the stock market, and prices are
determined by supply and demand dynamics.

3. Stock Exchanges: Stock exchanges are institutions

or platforms where trading of shares and other
securities takes place. Examples of well-known stock
exchanges include the National Stock Exchange in
India (NSE), Bombay Stock Exchange in India (BSE)
,New York Stock Exchange (NYSE), NASDAQ, London
Stock Exchange (LSE), and Tokyo Stock Exchange (TSE).

4. Market Participants: The stock market is accessed

by various participants, including individual investors,
institutional investors (such as mutual funds, pension
funds, and hedge funds), traders, and market makers.
5. Bull and Bear Markets: A "bull market" refers to a
period of rising stock prices and optimistic investor
sentiment, while a "bear market" indicates a period of
declining prices and pessimism.

6. Indices: Stock market indices, such as the Nifty

50, Sensex, S&P 500, Dow Jones Industrial Average
(DJIA), and FTSE 100, track the performance of a
selected group of stocks and provide an overall
snapshot of market trends.

7. Market Regulation: Stock markets are regulated

by government agencies and financial regulatory
bodies to ensure fair and transparent trading
practices, prevent market manipulation, and protect
investors' interests. SEBI is the governing agency in
India.

8.Trading Mechanisms: Stock markets when they

started used to follow open outcry trading mechanism
(where traders used to physically gather on the
trading floor). They have evolved now and follow
electronic trading platforms, to match buy and sell
orders.

9. Liquidity: The stock market provides liquidity to

investors by allowing them to easily buy or sell shares,
which enhances the tradability of stocks.
10.Market Capitalization: The total value of all
outstanding shares of a company is known as its market
capitalization. It is calculated by multiplying the
company's share price by the number of shares
outstanding.

The stock market is a dynamic and complex financial

ecosystem that plays a crucial role in the global
economy. It provides companies with access to capital
for growth and expansion while offering investors the
opportunity to participate in the potential returns and
risks associated with business ownership.

*****
 CHAPTER 3
WHAT IS A STOCK EXCHANGE ?

A stock exchange is a regulated marketplace where

securities, including stocks (equities), bonds,
exchange-traded funds (ETFs), and other financial
instruments, are bought and sold. It serves as a
platform for investors to trade these securities,
facilitating the flow of capital between investors and
issuers. Stock exchanges play a critical role in the
global financial system by providing a transparent and
organized marketplace for trading and price discovery

Key features and functions of a stock exchange

include:
1. Listing of Securities: Companies seeking to raise
capital by issuing shares to the public can apply to list
their securities on a stock exchange. Listing
requirements often include financial disclosure,
corporate governance standards, and minimum market
capitalization.

2. Trading Platform: Stock exchanges provide a

centralized platform where buyers and sellers can
submit their orders to trade securities. These orders
are matched electronically or through designated
market makers.

3. Price Discovery: Stock exchanges facilitate the

process of determining the market price of securities.
The prices at which securities are traded on the
exchange reflect the collective opinions and actions of
investors.

4. Market Transparency: Stock exchanges provide

real-time trading information, including prices, trading
volumes, and bid-ask spreads. This transparency helps
investors make informed decisions.

5. Market Regulation: Stock exchanges are subject to

regulatory oversight by government agencies or
financial regulatory bodies. They enforce rules to
ensure fair trading practices, prevent market
manipulation, and protect investors' interests.
6. Market Indices: Stock exchanges often calculate
and publish market indices that track the performance
of specific groups of stocks. These indices provide
benchmarks for evaluating market trends and
investment performance.

7. Market Participants: Stock exchanges attract a wide

range of participants, including individual investors,
institutional investors, traders, market makers, and
algorithmic trading systems.

8. Trading Mechanisms: Different trading mechanisms

may be used on stock exchanges, including continuous
trading, auction-based trading, and hybrid systems that
combine electronic and floor trading.

9. Liquidity: Stock exchanges provide liquidity to

investors by creating a marketplace where securities
can be easily bought or sold. Liquidity enhances the
efficiency and functionality of financial markets.

10. Global Connectivity: Many modern stock

exchanges are interconnected through electronic
trading platforms, allowing investors to trade securities
across borders and time zones.

Overall, stock exchanges play a crucial role in

facilitating capital formation, investment opportunities,
and risk management in the financial markets.
 CHAPTER 4
WHAT IS A STOCK MARKET INDEX ?

A stock market index is a numerical representation that

tracks the performance of a specific group of stocks or
securities in a stock market. It serves as a benchmark to
measure the overall movement and trends of the market
or a particular sector. Stock market indices are used by
investors, analysts, and financial professionals to assess
market performance, compare investment returns, and
make informed decisions.

Key characteristics of a stock market index include:

1. Composition: An index is composed of a predefined
selection of stocks or securities that meet certain
criteria. These criteria could include factors such as
market capitalization, industry sector, geographic
location, or specific attributes.

2. Weighting: The weight of each individual stock

within the index is determined based on its market
capitalization (market value of outstanding shares) or
other factors. Some indices use equal weighting, while
others use a modified approach to give more influence
to larger companies.

3. Calculation: Index values are calculated using a

formula that takes into account the prices or market
values of the constituent stocks. Changes in stock
prices directly impact the index value.

4. Base Value and Base Date: Every index has a

starting point with a base value assigned on a specific
base date. Changes in the index are usually measured
as percentage changes from the base value.

5. Index Points: Index values are typically expressed in

index points. For example, if an index has a value of 2,500,
it means the index is currently at 2,500 points.
6. Types of Indices: There are various types of indices,
including broad market indices , sector-specific indices
,regional indices and specialized indices based on
certain criteria.

In India, there are several leading stock market indices

that serve as benchmarks for various segments of the
Indian stock market.

Some of the most prominent ones include:

BSE Sensex (S&P BSE Sensex):
The BSE Sensex, often referred to simply as the
Sensex, is one of the most widely tracked stock
market indices in India. It represents the
performance of 30 of the largest and most actively
traded stocks on the Bombay Stock Exchange (BSE).

Nifty 50 (NIFTY):
The Nifty 50 is another key benchmark index and is
managed by the National Stock Exchange (NSE). It
consists of the 50 largest and most liquid stocks
across various sectors in the Indian economy.

BSE 100:
The BSE 100 is an index that represents the
performance of the top 100 companies listed on
the BSE. It provides a broader view of the Indian
stock market compared to the Sensex.
Nifty Bank:
The Nifty Bank index includes the most liquid and
prominent banking stocks in India. It serves as a
key indicator of the banking sector's performance.

Nifty IT:
The Nifty IT index comprises stocks of information
technology companies. It is used to monitor the
performance of the IT sector in India, which
includes both software services and IT hardware
companies.

Nifty Auto:
The Nifty Auto index includes stocks of companies
in the automotive sector, encompassing automobile
manufacturers, auto ancillaries, and related
businesses.

Nifty Pharma:
The Nifty Pharma index tracks the performance of
pharmaceutical and healthcare-related companies
in India.

Nifty FMCG:
The Nifty FMCG index represents the fast-moving
consumer goods sector, which includes companies
involved in the production and distribution of
everyday consumer products
Nifty Realty:
The Nifty Realty index includes real estate and
construction companies, providing insights into the
performance of the Indian real estate industry.

Nifty Metal:
The Nifty Metal index tracks companies in the metal
and mining sector, offering a view of the
performance of the metal industry in India.

7. Purpose: Stock market indices serve as a tool for

measuring market performance, tracking trends, and
evaluating the relative performance of investments.
They also provide a way to create investment products
like index funds and exchange-traded funds (ETFs)
that aim to replicate the performance of the index.

8. Market Insight: Changes in index values can

provide insights into overall market sentiment,
economic conditions, and investor confidence.

9. Comparison: Investors use index performance as a

benchmark to compare their investment returns. A
fund manager, for example, may compare the
performance of their portfolio to a relevant index to
assess how well they are doing.
10. Diversification: Investors often use index-based
investment products, like ETFs, to achieve
diversification by gaining exposure to a broad market
or specific sector.

Prominent stock market indices include the Nifty 50,

BSE Sensex ,S&P 500, Dow Jones Industrial Average
(DJIA), NASDAQ Composite, FTSE 100, and Nikkei
225, among many others. These indices are important
tools for analyzing and understanding market trends
and investment performance.

*****
 CHAPTER 5
WHAT ARE STOCK FUTURES?

Stock futures are financial derivatives contracts that

allow investors to speculate on the future price of a
specific stock or a group of stocks. These contracts
generally obligate the parties involved to buy or sell the
underlying stocks at a predetermined price and date in the
future. Stock futures are traded on futures exchanges and
are commonly used by investors and traders for various
purposes, including hedging, speculation, and portfolio
management.
Key features of stock futures include:

1. Underlying Asset: Stock futures derive their

value from an underlying stock or a basket of
stocks. Each futures contract represents a certain
number of shares of the underlying stock(s).

2. Contract Specifications: Stock futures

contracts have standardized specifications,
including the quantity of underlying shares,
expiration date, and contract multiplier (which
determines the total value of the contract).

3. Expiration Date: Stock futures have a specified

expiration date, after which the contract becomes
void. At expiration, the contract settles by either
physical delivery of the underlying stocks or cash
settlement, depending on the contract terms.

4. Contract Settlement: Stock futures can be

settled in two ways:
• Physical Delivery: The buyer of the futures
contract takes delivery of the actual stocks from the
seller at the contract's expiration.

• Cash Settlement: Instead of physical delivery, the

contract settles with a cash payment based on the
difference between the agreed-upon futures price and
the actual market price of the underlying stocks at
expiration.

Until recent times, trading in equity futures and options

was cash settled in India. What this means is that upon
expiry of the contract, buyers or sellers had to settle their
position in cash without having to take delivery of the
underlying security.

On April 11, 2018, SEBI released a circular making

physical delivery of stocks for all stock F&O contracts
mandatory in a phased manner. The aim was to curb
excessive speculation which would result in too much
volatility in individual stocks.
What is Physical Settlement?
It means all stock F&O contracts at expiry, are
required to be given/taken delivery of the
underlying security. From October 2019’s expiry,
all stock F&O contracts are compulsorily settled
physically.

Let’s understand this with an example, before the

introduction of physical settlement, if you bought
only a lot of RIL (Reliance) futures expiring this
month, on expiry, the contract will be cash-settled
based on the settlement price and you will
receive the credit or debit in your trading
account.

But with the physical settlement, if you don’t

close or rollover your position till expiry, you are
required to pay the total contract value and you
will receive the delivery of shares to your Demat
account.
5. Leverage: Stock futures allow investors to control a
large position of the underlying stocks with a relatively
small amount of capital, as only a fraction of the
contract's total value (margin) is required to enter a
position.

6. Hedging: Investors can use stock futures to hedge

against potential price movements of their stock
holdings. For example, if an investor holds a portfolio of
stocks and wants to protect against a potential market
decline, they can take a short position (sell) in stock
futures.

7. Speculation: Traders can use stock futures to

speculate on the direction of stock prices. They can
take either long positions (buy) to profit from expected
price increases or short positions (sell) to profit from
expected price decreases.

8. Arbitrage: Traders may use stock futures for

arbitrage opportunities, where they simultaneously buy
and sell related securities in different markets to exploit
price discrepancies.

9. Diversification: Stock futures can be used to gain

exposure to a specific sector or market without having
to buy individual stocks.
10. Risk and Rewards: While stock futures offer
potential for significant gains, they also carry a high
level of risk due to price volatility. A wrong bet on the
market direction can result in losses.

It's important to note that stock futures trading

involves a complex level of risk and may not be
suitable for all investors. Traders and investors should
have a good understanding of the underlying market,
contract specifications, and risk management
strategies before engaging in futures trading.

*****
 CHAPTER 6
WHAT ARE STOCK OPTIONS?

Stock options are financial derivatives that provide

investors with the right, but not the obligation, to buy or
sell a specific number of shares of a company's stock at a
predetermined price (the "strike" or "exercise" price) within
a specified time period. Stock options are a form of
contract that allow investors to speculate on the future
price movements of a company's stock or to hedge their
existing stock positions.
There are two main types of stock options:

1. Call Options: A call option gives the holder the

right to buy shares of the underlying stock at the
specified strike price before or on the expiration
date. Call options are typically used when an
investor expects the price of the underlying stock to
rise. If the stock price increases above the strike
price, the call option can be profitable.

2. Put Options: A put option gives the holder the

right to sell shares of the underlying stock at the
specified strike price before or on the expiration
date. Put options are used when an investor
anticipates the price of the underlying stock to
decrease. If the stock price falls below the strike
price, the put option can be profitable.

Key features of stock options include:

• Expiration Date: Stock options have a specified
expiration date, beyond which the option becomes
invalid.

• Strike Price: The strike price is the predetermined

price at which the underlying stock can be bought or
sold.
• Premium: The premium is the price paid by the
option buyer to the option seller for the right to buy
or sell the stock. It represents the cost of the
option and can fluctuate based on various factors,
including the stock price, time to expiration, and
market volatility.

• American vs. European Options: American

options can be exercised at any time before or on
the expiration date, while European options can
only be exercised on the expiration date itself.

• Intrinsic Value and Time Value: The value of an

option is composed of its intrinsic value (the
difference between the stock price and the strike
price) and its time value (reflecting factors such as
volatility and time remaining until expiration).

• Leverage: Options offer leverage, allowing

investors to control a larger position with a smaller
investment compared to purchasing the underlying
stock outright.
• Hedging: Investors can use stock options to hedge
against potential losses in their stock holdings. For
example, an investor holding a portfolio of stocks can
buy put options to protect against a market decline.

• Speculation: Traders can use options for

speculative purposes, aiming to profit from price
movements without owning the underlying stock.

• Complex Strategies: Investors can create various

options trading strategies, such as covered calls,
protective puts, straddles, and spreads, to achieve
specific risk and reward profiles.

It's important to note that options trading involves

significant risks, including the potential loss of the
entire premium paid for the option. Options are
complex instruments and require a good
understanding of their mechanics and potential
outcomes before engaging in options trading.

*****
 CHAPTER 7
WHAT IS FUNDAMENTAL & TECHNICAL
ANALYSIS ?

Fundamental analysis and technical analysis are

two different methods used to analyze and evaluate
investments, particularly in the context of stocks and
other financial securities. Each approach offers unique
insights into the potential value and future
performance of investments.

1. Fundamental Analysis: Fundamental analysis

involves evaluating the intrinsic value of an investment
by analyzing various factors related to the underlying
asset, such as a company's financial statements,
economic indicators, industry trends, and management
quality. The goal of fundamental analysis is to
determine whether an asset is overvalued or
undervalued based on its underlying fundamentals.
Key concepts and factors in fundamental
analysis include:

• Earnings and Profitability: Assessing a

company's earnings, revenue, profit margins, and
growth trends over time.

• Financial Statements: Analyzing balance sheets,

income statements, and cash flow statements to
understand the company's financial health.

• Valuation Ratios: Calculating metrics such as

price-to-earnings ratio (P/E), price-to-book ratio
(P/B), and dividend yield to gauge whether a stock
is priced fairly.

• Industry and Market Analysis: Studying

industry trends, competitive landscape, and market
conditions to assess a company's position within
its sector.

• Management and Governance: Evaluating the

quality and competence of a company's
management team and its corporate governance
practices.
• Macroeconomic Factors: Considering broader
economic indicators, interest rates, inflation rates,
and geopolitical events that could impact the
investment.

Fundamental analysis aims to provide a

comprehensive understanding of the underlying
asset's intrinsic value and long-term prospects. It is
often used by long-term investors and value-
oriented investors.

2. Technical Analysis: Technical analysis involves

studying historical price and volume data of an
investment, typically presented in the form of charts
and graphs, to identify patterns, trends, and signals
that can help predict future price movements.
Technical analysts believe that historical price data
can provide insights into market sentiment and
investor behavior.

Key concepts and tools in technical analysis

include:
• Price Patterns: Identifying recurring patterns in
price movements, such as head and shoulders,
triangles, and flags, that may indicate potential
reversals or continuation of trends.
• Trend Analysis: Analyzing price trends (upward,
downward, or sideways) to make predictions about future
price direction.

• Indicators and Oscillators: Using technical indicators

like moving averages, relative strength index (RSI), and
MACD (Moving Average Convergence Divergence) to
provide insights into potential overbought or oversold
conditions.

• Supply and Demand Zones : Identifying levels of

imbalance created because of Institutional Buying &
Selling Activity.

• Support and Resistance Levels: Identifying levels

where prices tend to stall or reverse based on historical
price behavior.

• Volume Analysis: Examining trading volume to

gauge the strength or weakness of price movements
and identify potential trends.
Technical analysis focuses on short- to medium-term
price movements and is often used by traders who
make decisions based on short-term market
fluctuations.
 Both fundamental analysis and technical analysis have
their strengths and limitations. Some investors use a
combination of both methods to make informed
investment decisions. The choice between the two
approaches often depends on an investor's
investment goals, time horizon, and risk tolerance.

Which Are The Different Charting

Platforms/Softwares Available In India ?

There are several charting platforms and software

options available for traders and investors in India.
These platforms offer a range of features for technical
analysis, charting, and trading. Keep in mind that the
availability of platforms and their features may change
over time. Here are some popular charting platforms
and software used in India:

1. Zerodha Kite: Zerodha, a prominent brokerage firm

in India, offers the Kite platform that provides
advanced charting tools, technical indicators, and real-
time data for trading and analysis.

2. Upstox Pro: Upstox offers the Upstox Pro platform,

which includes customizable charts, technical
indicators, and real-time market data for trading and
analysis.
3. Sharekhan Trade Tiger: Sharekhan's Trade Tiger
platform offers advanced charting tools, technical
analysis features, and a user-friendly interface.

4. Angel Broking Angel SpeedPro: Angel Broking

provides the Angel SpeedPro platform, which includes
charting tools, technical indicators, and features for
both traders and investors.

5. 5Paisa Trader Terminal: 5Paisa's Trader Terminal

offers technical analysis tools, charting features, and
access to real-time market data.

6. Motilal Oswal MO Investor: Motilal Oswal's MO

Investor platform provides technical analysis features,
charting tools, and real-time market updates.

7. Fyers : Fyers is a trading platform that offers

advanced charting tools, technical indicators, and
features for technical analysis.

8. Dhan: Dhan is a rapidly growing trading platform

which is gaining rapid popularity due to it’s ease of
operations and advanced analysis tools.

9. ChartInk: ChartInk is a web-based charting platform

that offers customizable charts, technical indicators,
and screening tools for Indian stocks.
10. Investar: Investar is a comprehensive technical
analysis software that provides advanced charting
features, technical indicators, and pattern recognition
tools.

11. TradingView: While not an Indian-specific

platform, TradingView is widely used by Indian
traders and investors for its intuitive charting
interface, extensive technical analysis tools, and
social features.

Before choosing a charting platform or software, it's

important to research and compare the options
based on your specific trading or investing needs.
Additionally, some platforms may require you to have
an account with the respective brokerage firm to
access their features.
Which Are The Different Types Of Charts for
technical analysis?

Technical analysis involves the use of various types of

charts to visually represent price and volume data of
financial instruments. These charts help traders and
analysts identify patterns, trends, and potential
trading opportunities. Here are some of the most
common types of charts used in technical analysis:

1. Line Chart: A line chart connects closing prices of

a security over a specific period using simple lines. It
provides a basic view of price trends and is often
used to identify general direction and key
support/resistance levels.

2. Bar Chart: A bar chart displays price data using

vertical bars. Each bar represents a specific time
period and shows the opening, closing, highest, and
lowest prices during that period. Bar charts are useful
for identifying price ranges and patterns.

3. Candlestick Chart: Similar to a bar chart, a

candlestick chart shows the same price data, but it
presents it in a more visual and intuitive way. Each
"candlestick" represents a time period and displays
the opening, closing, high, and low prices.
The body of the candlestick is shaded differently based
on whether the closing price is higher or lower than the
opening price.

4. Renko Chart: A Renko chart displays price

movements using bricks or boxes that are either filled
or hollow. These bricks only appear when a specified
price movement (e.g., a certain number of points)
occurs, filtering out smaller price fluctuations. Renko
charts are useful for identifying trends and eliminating
noise.

5. Point and Figure Chart: A point and figure chart

uses Xs and Os to represent price movements. Xs
represent price increases, and Os represent price
decreases. The chart focuses on significant price
changes and helps identify reversal patterns.

6. Heikin-Ashi Chart: Heikin-Ashi charts modify the

candlestick chart by using averaged values of open,
close, high, and low prices. They smooth out price
movements and provide a clearer picture of trends and
reversals.

7. Kagi Chart: A Kagi chart consists of vertical lines

that change direction when the price moves by a
predetermined amount. This type of chart is helpful for
identifying trends and reversals.
8. P&L Chart (Profit and Loss Chart): P&L charts show
the potential profit or loss of an options position at
different underlying asset prices. They are particularly
useful for options traders.

9. Tick Chart: A tick chart displays the number of

trades (ticks) that occur during a specific period, rather
than using time intervals. Tick charts are useful for
observing market activity and identifying short-term
patterns.
10. Volume Chart: Volume charts display the trading
volume for each time period. They help traders analyze
the strength of price movements and identify potential
trends and reversals.

Each type of chart offers a unique perspective on price

movements and market trends. Traders often choose
the chart type that best suits their trading style and
preferences. Additionally, technical analysts may use
multiple chart types in combination to gain a more
comprehensive view of the market.

***
 CHAPTER 8
WHAT ARE JAPANESE CANDLESTICK
CHARTS ?

Japanese candlestick charts are a popular and

widely used method in technical analysis to represent
and visualize price movements of financial assets,
such as stocks, currencies, commodities, and indices.
These charts originated in Japan and have been used
for centuries to analyze rice trading before being
applied to modern financial markets. Japanese
candlestick charts provide valuable insights into
market sentiment, trends, and potential reversals.
Each candlestick on a Japanese candlestick chart
represents a specific time period (e.g., one day, one
hour) and displays four key price points: open, close,
high, and low. The body of the candlestick is shaded
differently based on whether the closing price is
higher or lower than the opening price.
Here's how a Japanese candlestick is constructed:

1. Candlestick Body: The rectangular area between

the opening and closing prices is called the "body."
If the closing price is higher than the opening price,
the body is typically filled or colored, indicating a
bullish (upward) movement. If the closing price is
lower than the opening price, the body is usually
hollow or colored differently, indicating a bearish
(downward) movement.

2. Upper Shadow (Wick): The thin line or shadow

above the body represents the highest price (high)
reached during the time period. It extends from the
top of the body to the high price.

3. Lower Shadow (Wick): The thin line or shadow

below the body represents the lowest price (low)
reached during the time period. It extends from the
bottom of the body to the low price.
Candlestick patterns and formations provide
insights into market psychology and can help
traders anticipate price movements. Some
common candlestick patterns include:

• Doji: When the opening and closing prices are

very close or equal, forming a small-bodied candle
with no or very short shadows. Doji candles suggest
indecision and potential trend reversals.

• Hammer and Hanging Man: Both patterns have

a small body with a long lower shadow. A hammer
typically forms after a downtrend and signals a
potential bullish reversal, while a hanging man
forms after an uptrend and could indicate a bearish
reversal.
• Engulfing Patterns: These patterns involve two
candles, where the body of one candle completely
engulfs the body of the previous candle. Bullish
engulfing patterns suggest a potential upward
reversal, while bearish engulfing patterns indicate
a potential downward reversal.
• Morning Star and Evening Star: These are
three-candle patterns that indicate potential
reversals. A morning star forms after a
downtrend and suggests a bullish reversal, while
an evening star forms after an uptrend and
suggests a bearish reversal.

• Shooting Star and Inverted Hammer: These

patterns have a small body with a long upper
shadow. A shooting star forms after an uptrend
and could signal a bearish reversal, while an
inverted hammer forms after a downtrend and
suggests a potential bullish reversal.
Japanese candlestick charts are valuable tools for
technical analysis, as they provide traders with
visual representations of price patterns and help
in making informed trading decisions based on
market sentiment and trends.

****
 CHAPTER 9
WHAT YOU NEED TO KNOW BEFORE YOU
START TRADING ?

Before you start trading in financial markets, whether

it's stocks, forex, commodities, or any other asset
class, there are several important factors and
considerations you should be aware of to increase
your chances of success and manage your risks
effectively:

1. Education and Knowledge:

• Gain a solid understanding of financial markets,
trading terminology, and basic trading concepts.

• Educate yourself about different trading strategies,

technical and fundamental analysis, and risk
management.
2. Risk Tolerance and Capital:

• Determine your risk tolerance and how much capital

you're willing to invest or trade with.
• Never invest more than you can afford to lose.
Trading involves a risk of loss, and there's no
guarantee of profit.

5. Market Research:
• Conduct thorough research on the markets you
intend to trade in.
• Stay updated on news, economic indicators,
and events that can impact the markets.

6. Technical and Fundamental Analysis:

• Learn the basics of technical analysis (chart

patterns, indicators) and fundamental analysis
(economic data, company reports) to make
informed trading decisions.

7. Demo Trading:

• Practice with a demo trading account to familiarize

yourself with the trading platform and test your
strategies without risking real money.
8. Risk Management:

• Set stop-loss and take-profit levels for each

trade to limit potential losses and lock in profits.

• Never risk more than a small percentage of your

trading capital on a single trade.

9. Emotional Discipline:

• Control your emotions, such as greed and fear,

which can lead to impulsive decisions.

• Stick to your trading plan and avoid chasing

losses.

10. Continuous Learning:

• The trading landscape is always evolving. Stay

open to learning and adapting your strategies as
market conditions change.

11. Diversification:

• Diversify your trades to spread risk across

different assets or markets rather than
concentrating on a single trade.
 12. Time Commitment:

• Trading requires time and attention. Determine

how much time you can dedicate to trading and
select a trading style that suits your schedule.

13. Trading Costs:

• Be aware of trading costs, including spreads,

commissions, and fees, which can impact your
overall profitability.

14. Performance Tracking:

• Keep a record of your trades, including entry

and exit points, reasons for the trade, and
outcomes. Regularly review your performance to
identify areas for improvement.

Trading can be both rewarding and challenging. It's

important to approach trading with a realistic mindset
and a willingness to learn and adapt. If you're new to
trading, consider seeking guidance from experienced
traders or financial advisors. Remember that successful
trading takes time, practice, and dedication.
Enhance your financial knowledge and master the
art of stock market trading with our comprehensive
Stock Market Course. Discover proven strategies,
expert insights, and practical tips to make informed
investment decisions. Join our course today to
unlock the secrets of successful trading and pave
your way to financial success! Enroll Now

****
 CHAPTER 10
WHAT ARE LONG & SHORT POSITIONS?

Long and short positions are fundamental concepts

in trading and investing that describe the
directional stance an investor takes in the market.
They refer to whether an investor expects the price
of an asset to rise (long position) or fall (short
position). These positions are commonly used in
various financial markets, including stocks, forex,
commodities, and derivatives.

1. Long Position: A long position refers to the

ownership of an asset with the expectation that its
price will increase over time. In other words, when
an investor holds a long position, they anticipate
that the value of the asset will rise, allowing them to
sell it at a higher price in the future and make a
profit.
Example:
• MAK buys 100 shares of Company XYZ at Rs.50
per share, with the belief that the stock price will
increase. He is in a long position.
If the stock price of Company XYZ rises to Rs.60
per share, MAK can sell his shares at a profit,
realizing a gain of Rs.10 per share.

2. Short Position: A short position involves selling

an asset that the investor does not currently own,
with the intention of buying it back later at a lower
price. Investors take short positions when they
expect the price of an asset to decline. In a short
sale, the investor borrows the asset from a broker,
sells it on the market, and then buys it back at a
lower price to return to the broker, profiting from
the price difference.

Example:
• MAK borrows 50 shares of Company ABC from
his broker and sells them at Rs.80 per share,
expecting the stock price to decrease. He is in a
short position.
If the stock price of Company ABC drops to Rs.70
per share, MAK can buy back the shares at the
lower price and return them to his broker, making
a profit of Rs.10 per share.
 In Indian stock markets short selling of equities can
be done only on intraday basis, one cannot carry the
short position overnight. If a trader wants to carry
the short position overnight, then has to trade it in
the derivatives segment.

It's important to note that short selling carries higher

risk and potential losses compared to long positions. In
a long position, the maximum loss is limited to the
amount invested, while in a short position, the potential
loss is theoretically unlimited if the asset's price keeps
rising.
Long and short positions can be used for various
purposes, including speculation, hedging, and portfolio
management. Traders and investors often employ these
positions based on their market outlook and risk
tolerance.

****
 CHAPTER 11
UNDERSTANDING ENTRY, STOPLOSS &
TARGET
Understanding entry, stop-loss, and target levels is
crucial for effective trading and risk management.
These concepts help traders plan and execute their
trades while managing potential losses and aiming
for desired profits.

1. Entry Level: The entry level is the price at which a

trader decides to initiate a trade by buying (going
long) or selling (going short) a financial asset. It is
based on the trader's analysis of the market, such as
technical patterns, fundamental factors, or a
combination of both. The entry level is the point at
which the trader believes there is a favourable
opportunity to enter the market.

For example, if a trader believes that a stock is about

to experience an uptrend, they may decide to enter a
long position by buying the stock at a specific entry
price.
2. Stop-Loss (SL) Level: The stop-loss level is a
pre-defined price level at which a trader decides to
exit a trade to limit potential losses. It is a risk
management tool that helps protect the trader
from significant adverse price movements. When
the market reaches the stop-loss level, the trade is
automatically closed, and the trader accepts the
predetermined loss.

For example, if a trader enters a long position on a

stock at Rs.50 and sets a stop-loss at Rs.45, they
are limiting their potential loss to Rs.5 per share. If
the stock price drops to Rs.45, the trade is
automatically closed, and the trader avoids further
losses.

3. Target (Take-Profit) Level: The target level,

also known as the take-profit (TP) level, is the price
level at which a trader decides to exit a trade to
secure profits. It represents the price point at which
the trader believes the market has reached a
favourable level for profit-taking based on their
analysis.
For example, if a trader enters a long position on a
stock at Rs.50 and sets a target at Rs.60, they are
aiming to take profits when the price reaches
Rs.60, potentially capturing a Rs.10 gain.
In summary:

• Entry level: The price at which a trade is initiated

based on the trader's analysis.
• Stop-loss level: The pre-defined price level at which a
trade is exited to limit losses.
• Target level: The price level at which a trade is exited
to secure profits.

Effective use of these levels is essential for managing

risk and maximizing potential rewards in trading.
Traders often calculate their risk-reward ratio by
comparing the potential profit (target) to the potential
loss (stop-loss) before entering a trade. This helps them
make informed decisions that align with their trading
strategy and risk tolerance.

****
 CHAPTER 12
UNDERSTANDING REWARD TO RISK
RATIO

The reward-to-risk ratio (RRR), also known as the risk-

reward ratio, is a key concept in trading and investing that
measures the potential profit of a trade relative to the
potential loss. It helps traders assess the potential return
they could earn for each unit of risk they take on. The
reward-to-risk ratio is a critical tool for risk management
and trade evaluation.

The reward-to-risk ratio is typically expressed as a ratio or

a proportion, comparing the potential profit (reward) to
the potential loss (risk) in a trade. The formula for
calculating the reward-to-risk ratio is:
Reward-to-Risk Ratio = Potential Profit /
Potential Loss

Here's how to interpret and use the reward-to-risk

ratio:

• A reward-to-risk ratio greater than 1 indicates that

the potential profit is higher than the potential loss.
For example, if the ratio is 2, it means the potential
profit is twice the potential loss.

• A reward-to-risk ratio of 1 (or 1:1) indicates that

the potential profit is equal to the potential loss. In
other words, the trader aims to break even if the
trade is successful.

• A reward-to-risk ratio less than 1 indicates that

the potential loss is greater than the potential
profit. For example, if the ratio is 0.5, it means the
potential loss is twice the potential profit.
When evaluating potential trades, traders often
seek trades with a favourable reward-to-risk ratio. A
higher ratio implies that the potential profit is
relatively larger than the potential loss, which can
help traders achieve a positive overall outcome
over the long term, even if not every trade is
successful.

For example:

• If a trader sets a take-profit target of Rs.200 and

a stop-loss level of Rs.100, the reward-to-risk ratio
would be 2 (potential profit of Rs.200 divided by
potential loss of Rs.100).

• If a trader sets a take-profit target of Rs.100 and

a stop-loss level of Rs.150, the reward-to-risk ratio
would be 0.67 (potential profit of Rs.100 divided by
potential loss of Rs.150).

Traders often consider a reward-to-risk ratio of 2 or

higher to be favourable, as it indicates that the
potential profit is at least twice the potential loss.
However, the choice of reward-to-risk ratio
depends on the trader's individual risk tolerance,
trading strategy, and market conditions.
Using the reward-to-risk ratio helps traders make
more informed decisions by assessing whether a
trade aligns with their risk management goals and
overall trading strategy. It encourages traders to
focus on trades that offer a potential reward that
justifies the risk taken.

****
 CHAPTER 13
UNDERSTANDING BID,ASK & SPREAD
Understanding bid, ask, and spread is essential for
navigating financial markets, especially in trading
stocks, forex, and other assets. These terms are
related to the pricing of securities and play a
significant role in executing trades.

1. Bid Price: The bid price is the highest price that a

buyer (trader or investor) is willing to pay for a
particular security at a given moment. It represents
the demand for the security from potential buyers.
When you're looking to sell a security, the bid price is
the price you'll receive if you choose to sell at that
moment at Market Price.

For example, if the bid price for a stock is Rs.50, it

means there are buyers willing to purchase the stock
at that price.

2. Ask Price: The ask price, also known as the offer

price, is the lowest price at which a seller is willing to
sell a particular security at a given moment. that
moment at Market Price.
It represents the supply of the security from potential
sellers. When you're looking to buy a security, the ask
price is the price you'll pay if you choose to buy at

For example, if the ask price for a stock is Rs.52, it means

there are sellers willing to sell the stock at that price.

3. Spread: The spread is the difference between the bid

price and the ask price of a security. It represents the cost
of executing a trade and is a key component of transaction
costs. The spread is often measured in pips for forex
trading or paisa /cents for stocks.

For example, if the bid price for a stock is 500.20 and the
ask price is 500.25, the spread is 5 paisa.
The bid-ask spread reflects the market's liquidity and the
costs associated with trading. A narrower spread generally
indicates higher liquidity and lower trading costs, while a
wider spread may indicate lower liquidity and higher
trading costs.
When executing a trade:

• If you're an aggressive buyer, you'll typically execute

a trade at the ask price.
• If you’re an aggressive seller, you'll typically execute
a trade at the bid price.

It's important to note that bid and ask prices can

change rapidly based on market supply and demand
dynamics. Traders should be aware of bid-ask spreads
when entering or exiting trades, as they can impact
the overall profitability of a trade, especially for
frequent traders or high-frequency trading strategies.

*****
 CHAPTER 14
WHAT ARE THE DIFFERENT STYLES OF
TRADING?

There are several different styles of trading that traders

use to participate in financial markets. Each style is
characterized by its approach to timeframes, trading
frequency, and overall trading strategy. The choice of
trading style depends on an individual's preferences, risk
tolerance, time commitment, and trading goals.

Here are some of the most common trading styles:

1. Day Trading:

Day traders open and close positions within the

•
same trading day, avoiding overnight exposure.

They take advantage of short-term price

•
movements and fluctuations.

Day traders often use technical analysis and focus

•
on intraday charts.

2. Swing Trading:

Swing traders hold positions for several days to a few

•
weeks.

They aim to capture short- to medium-term price

•
trends and reversals.

Swing traders often use a combination of technical and

•
fundamental analysis.
3. Position Trading:

Position traders hold positions for an extended period,

•
ranging from weeks to months or even years.

They aim to capitalize on long-term trends and

•
fundamental factors.

Position traders use a mix of technical and

•
fundamental analysis to make trading decisions.

4. Scalping:

Scalpers make multiple quick trades throughout the

•
day to capture small price movements.

They aim to profit from minor price fluctuations and

• may execute dozens or even hundreds of trades in a
single day.

Scalping requires rapid decision-making and high-

•
frequency trading.
5. Algorithmic Trading (Algo Trading):

Algo traders use computer algorithms to

• execute trades automatically based on
predefined rules.

Algorithms can analyze market data, execute

• trades, and manage risk without direct human
intervention.

Algo trading is popular among institutions and

•
high-frequency traders.

6. High-Frequency Trading (HFT):

HFT involves executing a large number of

• trades in a very short period, often in
milliseconds or microseconds.

HFT relies on advanced technology and

• algorithms to capitalize on tiny price
discrepancies.

HFT is typically used by institutional traders and

•
requires specialized infrastructure.
7. Trend Following:

Trend followers aim to identify and ride

• existing price trends, regardless of their
direction.

They use technical analysis and indicators to

• determine the prevailing trend and enter
trades accordingly.

8. Contrarian Trading:

Contrarian traders go against the

•
prevailing market sentiment.

They look for overbought or oversold

• conditions and trade in the opposite
direction of the crowd.
9. Event-Driven Trading:

Event-driven traders focus on specific events

• such as earnings announcements, economic
data releases, or geopolitical developments.

They aim to capitalize on short-term price

•
movements triggered by these events.

10. Conventional Pattern Trading:

• Pattern traders look for specific chart patterns,

such as head and shoulders, triangles, and flags,
to predict potential price movements.

11. Supply Demand Trading:

. Supply demand traders focus on identifying and

timing their entries as per the Supply and Demand
Zones formed due to Institutional buying and selling
activity. In doing so it ensures that they participate
along with the institutional traders, enhancing the
probability of their trades working in their favour.
Each trading style has its advantages and
challenges, and success depends on factors like
skill, strategy, risk management, and market
conditions. Traders may choose to specialize in one
style or employ a combination of styles based on
their goals and preferences. It's important for
traders to thoroughly understand their chosen style
and develop a disciplined approach to trading.

****
 CHAPTER 15

WHAT ARE INDICATORS & OSCILLATORS ?

Indicators and oscillators are essential tools in

technical analysis that help traders and analysts make
informed decisions about financial markets. They
provide insights into price trends, momentum,
volatility, and potential reversals. These tools are
applied to charts to visualize and quantify market
data, assisting traders in identifying patterns and
making trading decisions.

Indicators: Indicators are mathematical calculations

applied to historical price and volume data to derive
meaningful insights about market trends and
potential future price movements. They can be plotted
on charts alongside price data to provide additional
information and help traders validate their trading
hypotheses. There are several types of indicators,
including trend-following indicators, volatility
indicators, and volume indicators.
Some commonly used indicators include:
• Moving Averages (Simple Moving Average,
Exponential Moving Average)
• Bollinger Bands
• Average True Range (ATR)
• On-Balance Volume (OBV)
• Relative Strength Index (RSI)
• Moving Average Convergence Divergence (MACD)
• Fibonacci Retracement

Oscillators: Oscillators are a subset of technical

indicators that fluctuate between two extreme values,
typically within a defined range. They provide
insights into overbought or oversold conditions,
helping traders identify potential reversal points.
Oscillators are especially useful in ranging markets
or when price movements lack a clear trend.

Some commonly used oscillators include:

• Relative Strength Index (RSI)
• Moving Average Convergence Divergence (MACD)
• Stochastic Oscillator
• Commodity Channel Index (CCI)
• Williams %R
• Momentum Indicator
Traders often use a combination of indicators and
oscillators to gain a more comprehensive view of
the market and validate their trading decisions.
These tools can assist in confirming trends,
identifying potential entry and exit points, and
managing risk.

It's important to note that while indicators and

oscillators can provide valuable insights, they are
not fool proof and should be used in conjunction
with other forms of analysis. Traders should also be
cautious of overcomplicating their analysis by using
too many indicators, which can lead to conflicting
signals or confusion. Additionally, these tools work
best when used in conjunction with proper risk
management and a well-defined trading plan.

*****
 CHAPTER 16
WHAT IS PRICE ACTION TRADING ?

Price action trading is a popular and widely used

approach in technical analysis, where traders analyse and
make trading decisions based solely on the movement of
price on a chart. Price action traders focus on the actual
price movements of an asset, rather than relying on
indicators, oscillators, or other technical tools.
This approach is rooted in the belief that all relevant
information is already reflected in the price itself.

Key principles of price action trading include:

 Candlestick Analysis: Price action traders often use candlestick charts
to analyze price movements. They pay close attention to individual
1.
candlestick patterns, such as doji, hammer, engulfing patterns, and more,
to identify potential trend reversals or continuation patterns.

Supply and Demand Zones: Supply Demand Traders look for areas of
imbalance formed due to institutional buying and selling activity. These
2.
zones help in predicting key reversal points with a great degree of
accuracy.

Support and Resistance: Traders look for key support and resistance
3. levels on the chart, which are areas where price has historically stalled or
reversed. These levels help traders identify potential entry and exit points.

Trend Identification: Price action traders seek to identify trends by

analysing the sequence of higher highs and higher lows (uptrend) or
4.
lower highs and lower lows (downtrend) on the chart. They may also use
trend lines and channels to visualize and confirm trends.

Patterns and Formations: Traders look for various chart patterns and
5. formations, such as head and shoulders, triangles, flags, and pennants, to
anticipate potential price movements.

Price Rejections: Traders pay attention to instances where price

6. approaches a certain level (support, resistance, trendline) and then
reverses, indicating a potential change in market sentiment.

Multiple Timeframe Analysis: Price action traders often analyze price

7. movements on multiple timeframes to get a broader perspective of the
market and confirm trends.

Naked Charts: Price action traders prefer "naked" charts, which display
8.
only the price data without any additional indicators or oscillators.
Price action trading requires a deep understanding
of chart patterns, candlestick formations, and the
ability to interpret market sentiment based on price
movements. It also relies on a trader's intuition and
experience in reading price patterns to make
informed trading decisions.

One of the main advantages of price action trading is

its simplicity and its ability to work across various
asset classes and timeframes. However, it also
requires practice, patience, and discipline to master.
Traders who use price action trading often combine it
with proper risk management techniques and a well-
defined trading plan to increase their chances of
success.

*****
 CHAPTER 17
WHAT IS SUPPLY & DEMAND TRADING ?

Supply and demand trading is a trading approach that

focuses on identifying and utilizing areas of imbalance
between supply (sell orders) and demand (buy orders) in
the market. This approach is rooted in the economic
principles of supply and demand, which play a significant
role in shaping price movements. Supply and demand
traders aim to capitalize on price reversals and trends by
analysing these key areas of supply and demand on a price
chart.
Key concepts of supply and demand trading include:

1. Supply Zones: These are areas on the chart where

an excess of sell orders (supply) has caused price to
reverse or stall. Traders look for opportunities to sell
or short an asset when price revisits a supply zone.

2. Demand Zones: These are areas on the chart

where an excess of buy orders (demand) has caused
price to reverse or stall. Traders look for opportunities
to buy or go long an asset when price revisits a
demand zone.

3. Imbalance and Price Movement: Supply and

demand traders believe that price moves when there
is an imbalance between supply and demand. For
example, if there is more demand than supply at a
certain level, price is likely to rise. Conversely, if there
is more supply than demand, price is likely to fall.

4. Market Orders vs. Limit Orders: In supply and

demand trading, limit orders are often used to enter
trades at specific price levels within supply or demand
zones. This contrasts with market orders, which are
executed at the current market price.

5. Confirmation: Traders can look for additional

factors to confirm the validity of supply and demand
zones, such as candlestick patterns, price action clues
etc.
Supply and demand trading can be applied to
various financial markets, including stocks, forex,
commodities, and more. It requires careful
observation and analysis of price movements to
identify areas of imbalance.

Like any trading approach, supply and demand

trading has its strengths and limitations.

Successful implementation requires practice,

experience, and the ability to identify valid supply
and demand zones. Traders using this approach
often combine it with proper risk management and
a well-defined trading plan to enhance their
trading results.

LIVE TRADING EXAMPLES

 CHAPTER 18
WHAT IS MOMENTUM TRADING?

Momentum trading is a trading strategy that focuses on

taking advantage of strong and persistent price
movements in the short to medium term. Traders who use
momentum trading aim to capitalize on assets that are
currently exhibiting significant upward or downward price
trends. This strategy is based on the belief that assets
that have been performing well (or poorly) in recent times
are likely to continue moving in the same direction.
Key characteristics of momentum trading include:

1. Identifying Trends: Momentum traders identify

assets that are experiencing strong and sustained
price movements, either in an uptrend (bullish
momentum) or a downtrend (bearish momentum).

2. Entry and Exit Points: Traders enter trades when

they believe an asset's momentum will continue,
seeking to ride the price trend for a certain period.
They aim to exit the trade when momentum appears to
be waning or reversing.

3. Technical Indicators: Momentum traders often

use technical indicators to confirm the strength of a
trend and identify potential entry and exit points.
Common indicators include Relative Strength Index
(RSI), Moving Average Convergence Divergence
(MACD), and Stochastic Oscillator.

4. Short-Term Focus: Momentum trading is generally

a short- to medium-term strategy, with trades typically
held for days to weeks rather than months or years.

5. Risk Management: Due to the volatile nature of

momentum trading, risk management is crucial.
Traders set stop-loss orders to limit potential losses in
case the trade doesn't go as expected.
 6. Contrarian Approach: While momentum traders
aim to capitalize on strong trends, some traders may
also take a contrarian approach, looking for potential
trend reversals when momentum becomes
overextended.

7. News and Catalysts: Momentum can be driven

by news releases, earnings reports, economic data,
or other significant events that impact the asset's
fundamentals.

Momentum trading can be highly profitable when

executed successfully, but it also carries a higher level
of risk due to the potential for sudden reversals or false
breakouts. Traders need to be disciplined and quick to
react to changing market conditions. Additionally,
momentum trading requires constant monitoring of
price movements and the ability to differentiate
between temporary fluctuations and sustainable trends.
It's important to note that momentum trading is not
suitable for all traders and may require a certain level of
experience and skill. Traders who engage in momentum
trading often develop their strategies, backtest their
approaches, and continuously refine their techniques to
improve their trading outcomes.
The Momentum Trading Strategy will provide you with
the essential knowledge and practical skills needed to
navigate the complexities of the stock market with
confidence. Whether you are a beginner or an experienced
trader, our comprehensive curriculum, expert guidance,
and real-world insights will empower you to make informed
investment decisions . you'll gain the competitive edge and
the tools necessary to build a strong and sustainable
portfolio, setting you on the path to achieving your
financial goals

*****
 CHAPTER 19
HOW MANY SHARES SHOULD YOU BUY OR
SELL ?

The number of shares you should buy or sell in a trade

depends on several factors, including your trading
strategy, risk tolerance, account size, and the specific
stock or asset you're trading. Proper position sizing is
crucial for effective risk management and maximizing
potential returns while minimizing potential losses.
Here are some considerations to help you determine
the appropriate number of shares to buy or sell:
1. Risk Management:

Before placing a trade, determine the maximum

percentage of your trading capital that you're willing to
•
risk on that trade. This is often referred to as the "risk
per trade" or "risk percentage."

Calculate the rupee amount you're willing to risk on the

trade by multiplying your account balance by the risk
• percentage. For example, if you're willing to risk 2% of a
Rs.10,000 account, your maximum risk would be
Rs.200.

2
Stop-Loss Level:
.

Set a stop-loss level for your trade. The stop-loss

• represents the price level at which you'll exit the trade if
it moves against you.

Calculate the difference between your entry price and

• the stop-loss price to determine the potential loss per
share.
3
Volatility of the Asset:
.

Consider the volatility of the stock or asset

you're trading. More volatile assets may
•
require smaller position sizes to manage risk
effectively.

4
Target Price:
.

Determine your target price or profit objective

• for the trade. This will help you calculate the
potential reward.

5
Reward-to-Risk Ratio:
.

Calculate the reward-to-risk ratio (RRR) by

dividing the potential reward by the potential
•
risk. A common RRR is 2:1, meaning the
potential reward is twice the potential risk.
6
Stock Price and Lot Size:
.

Take into account the current price of the

stock and the lot size in case of derivative
trading (number of shares per lot) for that
•
stock. Some stocks may have higher prices
and larger lot sizes, while others may have
lower prices and smaller lot sizes.

7. Account Size:

Your account size plays a role in determining

the number of shares you can trade. Smaller
•
accounts may have limitations on position
size due to capital constraints.
8
Trading Strategy:
.

Different trading strategies may require

different position sizes. For example, day
• trading may involve smaller positions due to
the shorter holding period, while swing
trading may involve larger positions.

9
Liquidity:
.

Consider the liquidity of the stock or asset.

Highly liquid assets may allow for larger
•
position sizes, while less liquid assets may
require smaller positions to avoid slippage.
 10. Margin and Leverage:

If trading on margin, be cautious of

leverage, which can amplify both potential
•
profits and losses. Only use leverage if you
fully understand its implications.

Ultimately, the goal is to find a position size that aligns

with your risk tolerance, trading strategy, and account
size. It's important to practice proper risk management
and avoid overleveraging, which can lead to significant
losses. Many traders use position sizing calculators or
tools provided by trading platforms to help determine
their position sizes based on their risk parameters.

****
 CHAPTER 20
HOW TO MANAGE TRADES?

Managing trades effectively is a critical aspect of

successful trading. Proper trade management involves
making informed decisions during a trade's lifespan to
optimize profits, minimize losses, and protect your
capital.

Here are some key principles and strategies for

managing trades:
1. Setting Stop-Loss and Take-Profit Levels:

Determine your stop-loss (SL) and take-profit (TP) levels

before entering a trade. The SL level is where you'll exit
• the trade if it moves against you, limiting potential
losses. The TP level is where you'll take profits if the
trade moves in your favour.

Use technical analysis, support/resistance levels, and

•
volatility to set these levels.

2
Trailing Stop-Loss:
.

Consider using a trailing stop-loss, which

adjusts as the trade moves in your favour.
•
This allows you to lock in profits while
giving the trade room to breathe.
3
Scaling Out:
.

Instead of closing the entire position at once,

consider scaling out by partially closing the
trade at different price levels as the trade
•
progresses. This allows you to secure some
profits while letting the remaining portion
run.

4
Breakeven Stop-Loss:
.

Move your stop-loss to the entry point

(breakeven) once the trade has moved
• significantly in your favour. This ensures that
you won't incur a loss even if the trade
reverses.
5
Partial Profits:
.

Take partial profits as the trade reaches

predefined price targets or resistance levels.
•
This allows you to lock in profits while still
participating in potential further gains.

6
Monitoring and Adjusting:
.

Continuously monitor your trades and stay updated on

• market developments, news, and events that could
impact the trade.

Adjust your SL and TP levels if new information emerges

•
or if the trade's dynamics change.
7
News and Events:
.

Be aware of upcoming news releases or

events that could affect the trade. Consider
• reducing position sizes or closing trades
ahead of significant announcements to
manage risk.

8
Time Management:
.

Consider the timeframe of your trade.

Shorter-term trades may require more
•
frequent monitoring, while longer-term
trades may allow for more flexibility.
9
Emotional Discipline:
.

Stick to your trading plan and avoid

making impulsive decisions based on
• emotions. Trust your analysis and follow
your predetermined trade management
strategy.

10
Record Keeping:
.

Maintain a trading journal to document

your trades, including entry and exit
• points, reasons for the trade, and
outcomes. This helps you review and
learn from your trades over time.
 11. Adaptability:

Be willing to adapt your trade

management strategy based on
•
changing market conditions. Flexibility
is key to successful trade management.

Remember that there is no one-size-fits-all approach to

trade management. Each trade is unique, and your
management decisions should be based on your analysis,
risk tolerance, and trading strategy. Consistent practice,
experience, and continuous learning are essential for
improving your trade management skills over time.

****
 CHAPTER 21
HOW TO OVERCOME FEAR & GREED IN
TRADING?

Overcoming fear and greed in trading is a common

challenge that many traders face. These emotions
can lead to impulsive and irrational decisions, which
can negatively impact your trading performance and
results.

Here are some strategies to help you manage and

overcome fear and greed in your trading:
 1.Education and Knowledge:
• The more you understand the markets, trading
strategies, and the psychology of trading, the
better equipped you'll be to manage your
emotions. Education helps you make informed
decisions based on analysis rather than emotions.

2.Develop a Trading Plan:

• Create a well-defined trading plan that outlines
your goals, risk tolerance, entry and exit criteria,
and trade management strategies. Having a plan in
place can help reduce uncertainty and emotional
reactions.

3. Set Realistic Expectations:

• Set achievable goals and expectations for your
trading. Unrealistic expectations can lead to
frustration, impulsive actions, and disappointment.

4. Risk Management:
• Use proper risk management techniques, such as
setting stop-loss orders and position sizes that
align with your risk tolerance. This helps limit
potential losses and prevents fear from taking over.
 5. Stick to Your Plan:
• Discipline is crucial. Stick to your trading plan and
avoid deviating from it due to fear or greed. Trust your
analysis and decisions.

6. Practice Patience:
• Avoid the urge to chase quick profits or enter trades
impulsively. Wait for valid setups and opportunities that
align with your strategy.

7. Embrace Losses:
• Losses are a natural part of trading. Accept that not
every trade will be profitable. Learn from your losses and
use them as opportunities for growth.

8. Focus on the Process, Not the Outcome:

• Shift your focus from making money to executing your
trading plan correctly. Concentrate on following your
strategy rather than obsessing over profits.

9. Mindfulness and Self-Awareness: - Develop self-

awareness by recognizing when fear or greed is
affecting your decisions. Practice mindfulness
techniques, such as deep breathing or meditation, to
stay calm and focused.
 10. Take Breaks: - If you're feeling overwhelmed by
emotions, take a step back and take a break from
trading. Give yourself time to regain a clear perspective.

11. Seek Support: - Connect with fellow traders,

mentors, or a trading community. Sharing experiences
and learning from others can help you manage
emotions and stay on track.

Remember that overcoming fear and greed takes time

and practice. It's a continuous process of self-
improvement. Be patient with yourself, stay disciplined,
and focus on developing a healthy and balanced
mindset toward trading.

*****
 Thank you for taking the time to explore the
valuable insights and strategies outlined in this
ebook. We hope that the information provided has
equipped you with a deeper understanding of the
stock market and has inspired you to embark on
your investment journey with confidence.
Remember, knowledge is the key to successful
trading, and continuous learning is essential in
the ever-evolving world of finance. We wish you
the best of luck in your future endeavors and hope
to see you excel in your financial pursuits. Happy
trading

https://www.maktradingschool.com

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