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This article was posted on Jun 11, 2008 It is imperative for the investors to follow the Dos and Don’t in general while dealing in the stock market. As there are attendant risks associated with it. Given below are the Dos and Don’ts in general for investors who are dealing in Stock markets. Dos Always deal with the market intermediaries registered with SEBI / Exchanges. Give clear and unambiguous instructions to your broker / agent / depository participant. Always insist on contract notes from your Broker. In case of doubt of the transactions, verify the genuineness of the same on the Exchange website. Always settle the dues through the normal banking channels with the market intermediaries. Before placing an order with the market intermediaries please check about the credentials of the companies, its management, its fundamentals and recent announcements made by them and various other disclosures made under various Regulations. The sources of information are the websites of Exchanges and companies, databases of data vendor, business magazines etc. Adopt trading / investment strategies commensurate with your Risk bearing capacity as all investments carry risk, the degree of which varies according to the investment strategy adopted. Please carry out due-diligence before registering as client with any Intermediary. Further, the investors are requested to carefully read and understand the contents stated in the Risk Disclosure Document, which forms part of investor registration requirement for dealing through brokers in Stock Market. Be cautious about stocks, which show a sudden spurt in price or trading activity, especially low price stocks. Please be informed that there are no guaranteed returns on investment in stock markets. Don’ts Don’t deal with unregistered brokers / sub-brokers, intermediaries.
Don’t deal based on rumours . Don’t fall prey to promises of guaranteed returns. Don’t get misled by companies showing approvals / registrations from Government agencies as the approvals could be for certain other purposes and not for the securities you are buying. Don’t leave the custody of your Demat Transaction slip book in the hands of any Intermediary. Don’t get carried away with onslaught of advertisements about the financial performance of Companies in print and electronic media. Don’t blindly follow media reports on corporate developments, as they could be misleading. Don’t blindly imitate investment decisions of others who may have profited from their investment decisions.
What is Trend Trading?
This article was posted on Jun 11, 2008 Q.What is Trend Trading? A.Trend trading is one of the most effective and easy to use methods for making money in the market. Trend trading success depends on identifying and catching the trend after it has started and getting out of the trend as soon as possible after the trend reverses. Trend Trading involves taking a position in the markets with a view of holding that position for weeks to months for larger than normal gains. Trend traders or investors generally trade the long term or secular trends and are not concerned with the day to day market volatility.
A.Swing Trading takes advantage of brief price swings in strongly trending stocks to ride the momentum in the direction of the trend. Swing trading combines the best of two worlds — the slower pace of investing and the increased potential gains of day trading. Swing traders hold stocks for days or weeks playing the general upward or downward trends.
2008 Q. Real day trading means not holding on to your stock positions beyond the current trading day. including: 1. This process can be repeated over and over again. Unfortunately. The objective is to earn a small per share profit on each transaction while minimizing the risk. Q. One can also play the short side by shorting stocks that fall through support levels. because you only hold positions that are making major moves. Since currencies can be traded 24-hours-a-day. This is really the safest way to do day trading because you are not exposed to the potential losses that can occur when the stock market is closed due to news that can affect the prices of your stocks. In brief a Swing Trader’s goal is to make money by capturing the quick moves that stocks make in their life span. By rolling your money over rapidly through short term gains you can quickly build up your equity. the term “day trading” changes slightly. One then sells the stock after 2 to 7 days for a 5-25% move. not holding any position overnight. you can have open positions for longer than a day with active stop losses that can be activated at any time. .What is Day Trading? A.Swing Trading is not high-speed day trading. in other words. and at the same time controlling their risk by proper money management techniques. What is Day Trading? This article was posted on Jun 11. When day trading currencies.The term “day trading” is a widely misused and misunderstood term.How does Swing Trading work? A. Thus.” hold stocks overnight because of fear or greed. Some people call it momentum investing. Day trading can be further subdivided into 2 styles. many people who claim to be “day trading. there is no such thing as “overnight” trading. thus setting themselves up for the catastrophic elimination of their capital. Strongly trending stocks often make a quick move after completing its correction which one can profit from.The basic strategy of Swing Trading is to jump into a strongly trending stock after its period of consolidation or correction is complete.Scalpers: This style of day trading involves the rapid and repeated buying and selling of a large volume of stocks within seconds or minutes.
2. and then after sometime(within) the month he decides to sell his contract i. Working When a trader buy’s or sell’s an option. lets look at Reliance 1000 May CALL. What is Open Interest? This article was posted on Jun 11.e he is opening his position in a futures contract. Thus a seller and a buyer combine to create only one contract. which means investors are creating long positions and vice versa. he is buying the calls to ‘open’. Open interest will tell you the total number of option contracts that are currently open. and it is shown as a positive or negative number. down. it helps the measure the flow of money into the futures Market. Open Interest is mostly used to confirm a trend for a particular futures contract. For each seller of a futures contract (eg RELIANCE 1000 CALL) there must be a buyer of that contract. If he buy’s 5 RELIANCE May 1000 CALL. A rise in open interest in a futures contract along with its price indicates bullishness. the open interest might tell us that there have been 5 options open in the month of May. flat) will continue .e close his position in a particular contract. As you might be aware of volume in a particular stock in equity market. then he is causing the open interest to go down by 5. is the total number of options and futures contracts that are not closed on a particular day. option trading involves the creation of a new option contract when a trade is placed. Open Interest RISING -> Indicates that the present trend (up. For eg. 2008 Meaning Open Interest also know as OI. the transaction needs to be entered as either an opening or a closing transaction. Advantages of monitoring Open Interest Changes in the Open Interst as mentioned earlier can help a trader interpret the future trend of a particular contract. The open interest position that is reported each day represents the increase or decrease in the number of contracts for that day. in an attempt to buy such stocks at bottoms and sell at tops. Open interest applies primarily to the futures market.Momentum Traders: This style of day trading involves identifying and trading stocks that are in a moving pattern during the day. i. a trader might then wonder does this refer to the number of contracts bought or sold. which causes the Open interest to rise by 5.
2009 A Large number of people are confused with what is trading and what is Investing.50. on the other hand Stocks trading below their 30. some traders intenend to buy stocks for short term and then sell them off in profits . flat) is likely to change or is coming to and end Contract Price Rising Rising Falling Falling Open Interest (%) Rising Falling Rising Falling Future Trend(predicts) The Contract is likely to trade strong in the coming days The Contract is likely to see some downside in the coming days The Contract should not be entered as of now The Contract can be entered.50. Investing on one hand is like buying a asset (a bunch of stocks is Stock market) and holding it for a long time say 10 or more years. 2009 Simple moving average or DMA frequently used in technical analysis showing the average value of a security’s price over a set period. down. Trading on the other hand it like buy a stocks for 2-4 Days or Intraday trading.Open Interest FALLING-> Indicates that the prest trend(up. Some big investors such as Warren Buffet have made more money in Long Term Investing or Investing rather that in Trading (Intraday). Moving averages are generally used to measure momentum and define areas of possible support and resistance. it largely depends on the market conditions Difference between Trading and Investing This article was posted on Jun 25. Many Investors buy stocks for long run and then sell them off in huge profit. as its likely to go up What is DMA (Simple moving average) in stock market ? This article was posted on Jun 25. In these volatile markets its very difficult to make good profits in Intraday trading.150 or 200 DMA are considered as those stocks that are above their resistance and are likely to go up.150 or 200 DMA considered as those stocks that are below their support levels and are likely to come down. Stocks trading above its 30. NOTE: This is not only a single factor that should be taken into account while purchasing or selling a stock.
the price of the Stock should easily increase by 100% in Short term rather than thinking what will happen if it manages to go down. Your thinking should note be “That whenever I purchase a script. This statement clearly states that Buffett wanted to be rich. and his mind us always thinking about being rich. it is difficult not to be rich eventually. I Believed it to be a Multibagger. This is not something that I say and use. It is very important to have positive beliefs & attitudes. . until it was decided that their success rate is no better than chance. 2010 and is filed under Stock Views Most people think that after they buy a stock. This always anticipates them to think before purchasing any stock or share that they are likely to loose money in a script invested in.The Stock I BUY goes down!!! This article was posted on Jan 25. irrespective if the concerned person is a trader or a investor. being rich all the time. In other words. But. I have heard people say that luck & patience plays a very important role for Stock Market players and Investors. 2009 The stock market used to be filled with technical analysts deciding what to buy and sell.” There’s no harm in thinking that the investment you made in quality stocks will fetch very good returns. one should also remember that thinking positive for the money invested in any investment actually tends to give huge profits. In-fact this shall actually help you to earn more in the Long run. This is very true. that stock tends to move down rather than moving up. but this should be rule followed by all the traders and investors. this is worth a try… What is Technical Analysis ? How is it different from Fundamental Analysis ? This article was posted on Jun 25. I dream of it to be a Multibagger. This is what most of the successful Investors till date have followed and earned huge profits over the time. Our subconscious minds control most of our behavior. being rich. I don’t think I ever doubted it for a minute “. Warren Buffett quoted “I always knew I was going to be rich. a Short term trader should start thinking that after purchasing say a Stock named “A”(Always invest after studding the company fundamentally personally). being rich. Now technical stock analysis is virtually non-existent.” instead your thinking should be “That whenever I purchase a script. and when you have such strong conviction of being rich.
There are many instances of investors successfully trading a security using only their knowledge of the security’s chart. The use of past performance should come as no surprise. It involves making both quantitative and qualitative judgments about a company. The technician uses charts and computer programs to identify and project price trends. and until this change occurs. or the economy as a whole. without even understanding what the company does. or the current price momentum. In contrast to fundamental analysis. both . The speed (and advocates would say the accuracy) with which the analysts do their work depends on the development of increasingly sophisticated computer programs. However. The difference lies in the technical analyst’s belief that securities move according to very predictable trends and patterns. can give an idea of the future price evolution. the sector it’s in. most agree it is much more effective when used in combination with fundamental analysis. mutual funds. volume of shares traded day to day. as more and more people believe that the historical performance of a stock is a strong indication of future performance. It might become a source of representiveness heuristic (spotting patterns where there are none) Technical analysis has become increasingly popular over the past several years. unclear or belated. Technical Analysis is a tool to detect if a trend (and thus the investor’s behavior) will persist or break. This is done by tracking and charting the companies stock price. price levels are predictable. often short-term.If so. It gives some results but can be deceptive as it relies mostly on graphic signals that are often intertwined. or options in specific market sectors or in the overall financial markets. Fundamental analysis can be contrasted with ‘technical analysis’.Research and examination of the market and securities as it relates to their supply and demand in the marketplace. which seeks to make judgements about the performance of a share based solely on its historic price behavior and without reference to the underlying business. past prices. Technical analysts study trading histories to identify price trends in particular stocks. They use their findings to predict probable. The analysis includes studying price movements and trading volumes to determine patterns such as Head and Shoulder Formations and W Formations. technical analysis does not consider a corporation’s financial data. Fundamental Analysis Fundamental analysis looks at a share’s market price in light of the company’s underlying business proposition and financial situation. commodities. People using fundamental analysis have always looked at the past performance of companies by comparing fiscal data from previous quarters and years to determine future growth. Other indicators include support and resistance levels. Technical Analysis supposes markets have memory. although technical analysis is a terrific tool. These trends continue until something happens to change the trend. and moving averages. trading patterns in the investments that they study.
and costly. 2009 Open Offer: Perhaps the most above board of takeover bids. In the past that behaviour has been a sure recipe for missing a market rebound. especially when you start making investing decisions with your gut instead of your brain. What is Open Offer ? This article was posted on Jun 25. higher levels. paving the way for a merger. The bidder may thus acquire a sufficiently larger number of shares to have a controlling interest in he target company. Daniel Kahneman won the Nobel prize in economics seven years ago for his work on how irrational humans systematically make mistakes. 2009 By Scott Woolley Emotions can be expensive. Emotional Investors’ Seven Dumbest Mistakes . They’re having a hard time accepting the fact that stocks might really be good values at their new. Those people have “anchored” themselves to the value of the stock market at its trough. In this way investors hope to build up a picture of future price movements. where they bailed out. Since then. says Amy Barrett. says Barrett. a fee-only financial adviser and director of investments at Savant Capital. research in the field of behavioural finance has exploded. usually quite above the ruling market price. there are ways to avoid–or at least limit–the mistakes that we oh-so-human investors tend to make. in which the bidder makes its intention known through an open advertisement.on the company itself and also on its competitors. followed by letters of offer to shareholders. Seven dumbest investment mistakes This article was posted on Aug 11. People who bailed out of stocks after losing as much as half of their investments are now anxiously sitting out the market recovery. mistakes should investors be especially vigilant to avoid making today? One is a direct result of the stock market plunge. “I’d like to shake these people and tell them to get out of their rut. Fortunately. to buy the shares of the target company at a stated price.” she says. Given the recent market turmoil what common.
Is the company’s market cap more than Rs 250 crore (Rs 2. a state-owned company. For example. how do you pick the right company? It’s always important to spend time in knowing a company. 2. But.000 per share. 7 ways to shortlist the right stocks This article was posted on May 17. 3. it can become difficult to get out when the markets fall.400 per share. The 30-day average trading volume of this stock is just about 338 shares and the stock is trading at Rs 12. but its trading volume is very thin. Generally. But do you have the time. Both rise and fall is sharp in stocks with low volume. MMTC. its business. 1. This makes tracking them difficult. About 500 companies at NSE pass this criteria. 2009 Equity as an asset class outperforms all other asset classes in the long run. resources and energy to study about 1. sample these: the market capitalisation of these companies ranges from a few lakhs to over Rs 2 lakh crore and the prices of shares from less than a rupee to over Rs 12.400 companies listed on the National Stock Exchange (NSE) and about 4. how and where do you make a start? We give you seven basic screening criteria. Also.000 crore (Rs 620 billion).Here are descriptions of the most common cognitive errors investors make–and some tips for getting your rational mind to override your potentially costly emotions. True. we do not look at companies that have a market cap of less than Rs 250 crore. financial health and prospects. Are the company’s trading volumes high? The company should have a reasonable trading volume — at least a few thousand shares per day. At Outlook Money. which will help you shortlist companies that are worth researching in the first place. small companies have a small revenue base and they do not spend too much on investor relations.50 billion)? Setting a minimum market cap floor really helps — it eliminates very small companies. the impact cost is high. This is an easy test. It is always advisable to avoid these kinds of stocks.900 on the Bombay Stock Exchange (BSE) before selecting the one to invest? If these numbers make you uncomfortable. If you buy into a stock that has low volume. All you have to do is visit the company website and see press releases and results for the last few . Does the company make quality disclosures? The company should have good quality disclosures. or penny stocks. has a market cap of over Rs 62. So.
Debt will increase the risk while equity will dilute the earnings. see if cost has increased. Is its return to equity (RTE) constantly above 10 per cent? . These businesses sound exciting. Actually. In the results part. setting up plants. are generally good at this. especially in the information technology sector. New projects involve a lot of regulatory approvals and can get delayed. Therefore. which does not have any of its plants in operation. it is always safer to be in companies that generate profits from their operations. which can escalate cost. Does the company generate constant cash flows? At times. which possibly answers all the questions that investors have. stock prices of such companies are the first to fall during any broader market correction. 5. Tata Consultancy Services [Get Quote]. 6. you need not get into numbers in detail as of now. Its public issue got heavily oversubscribed (73 times) due to general euphoria in the market. either through debt or equity. These companies are in their expansion stage. They have to generate cash eventually and create value for the shareholders.quarters. It is advisable to avoid such companies. has a transcript of analyst conference call on its website. Does the company have operating profits? Sometimes. The issue went on to become one of the biggest disasters in the markets. which will get reflected in the share prices also. they are in a stage when they spend money for. Large companies. This is exactly what happened with Reliance Power. 4. or margins have declined. fast-growing companies may show profits without generating cash. and whether there is an explanation for it. as there are no earnings to support the prices. Companies with a negative cash flow may have to seek additional capital. but sentiments changed between issue and listing. say. but do see how the developments of last quarter have been explained. or research and development facilities. Availability of information makes tracking easy and decision-making becomes quicker while you are invested in the company. India’s largest IT company by revenue. For example. but can be risky. Also. companies raise money from the equity markets in their initial stages and hope to cover the costs by generating profits from operations later.
94 billion) in the March 2006 quarter compared to Rs 282 crore (Rs 2. net sales for the company went up Rs 394 crore (Rs 3. But by the end of the December quarter. and any demand-supply mismatch in one corner of the world can disturb prices all over.86 billion) and the share price to Rs 140. Use 10 per cent as the minimum limit for companies to qualify. P/E: . saw its share prices soaring from Rs 200 in November 2005 to Rs 550 in April 2006 on the back of rising sugar prices. This is commonly seen in commodity companies. Important terms to check while purchasing a stock This Short Term Call was posted on Jun 11. If you carry out these seven checks. Bajaj Hindustan . Sugar is a classic example of cyclical earnings. Companies in the pharma and FMCG space have stable growth in the long term as demand in these sectors depends on the business cycle and macroeconomic movements. by and large. Commodity prices are interlinked globally. Is the earnings growth constant or cyclical? Cyclical earnings implies that profits move up or down depending on the business cycle. The biggest risk in investing in cyclical or commodity stocks is that you could enter at the wrong time. However. There are just about 400 companies listed on NSE with a market cap above Rs 250 crore that generated return on equity above 10 per cent in the financial year 2007-08. net sales went down to Rs 286. where a shortage or sudden rise in demand helps prices to move up. Once the cycle is reversed.RTE is the profit a company generates with the shareholders’ money and is calculated by dividing net profits with shareholders’ equity. 7. 2008 pe 1. you will. be able to eliminate companies that are not worth investing. The services sector also has stable earnings growth compared to commodity stocks. resulting in super normal profits for a while. investors must note that these conditions are not fool-proof and there can always be exceptions. The RTE is generally low in case of manufacturing companies and is higher for services companies as the cost of setting infrastructure is low in services companies.82 billion) in the September 2005 quarter. Businesses generally move in cycles.64 crore (Rs 2. It indicates how well a company has deployed investors’ money. it becomes difficult to get out. the largest sugar company in India.
you will acquire an obligation to deliver the stock. “P/E”. you acquire a right to buy the stock. EPS can be calculated for the previous year (”trailing EPS”). while the option seller takes on an obligation. dvield 3. The option buyer acquires a right. It is the buyer’s prerogative to exercise the acquired right.DVI (Sividend yield): The yield a company pays out to its shareholders in the form of dividends. in which. on a stock. Total earnings divided by the number of shares outstanding. You can also sell a ‘call’ option. Mature. the seller has to honour it. or simply “multiple”. you acquire an obligation to buy the stock. you acquire a right to sell the stock. currency or interest rates What are the types of options? Broadly speaking.The reciprocal of the P/E ratio is known as the earnings yield. well-established companies tend to have higher dividend yields. If and when the right is exercised. then it has a dividend yield of 5%. It is a valuation ratio included in other financial ratios. if a stock pays out $2 in dividends over the course of a year and trades at $40. 2009 What is an option? An option contract gives the buyer the right. Companies often use a weighted average of shares outstanding over the reporting term.The P/E ratio (price-to-earnings ratio) of a stock (also called its “earnings multiple”. indices. or for the coming year (”forward EPS”). for the current year (”current EPS”). commodity futures.A higher P/E ratio means that investors are paying more for each unit of income. while current year and forward year EPS would be estimates. And when you buy a ‘put’ option. EPS: EPS. For example. And when you sell a ‘put’ option. or “PE”) is a measure of the price paid for a share relative to the annual income or profit earned by the firm per share. and most small growing companies don’t have a dividend yield at all because they don’t pay out dividends This article was posted on Jun 11. while young. Note that last year’s EPS would be actual. but not the obligation to buy/sell an underlying asset at a pre-determined price on or before a specified time. It is calculated by taking the amount of dividends paid per share over the course of a year and dividing by the stock’s price. Stock having a P/E less than 30 are said to be good investmets eps 2. When you buy a ‘call’ option. growth-oriented companies tend to have lower ones. The underlying asset for option contracts may be stocks. What do you understand by the term option premium? . options can be classified as ‘call’ options and ‘put’ options.
How does an American option differ from a European option? In ‘European’ options. on the other hand. 4. respectively. 5. What is the strike price or the exercise price of the option? The right or obligation to buy or sell the underlying asset is always at a pre-decided price known as the ‘strike price’ or ‘exercise price’. five or more)-divided equally on either side of its spot price.Option premium is the consideration paid upfront by the option holder (buyer of the option) to the option writer (seller of the option).Take a position only when you know where your profit goal is and where you are going to get out if the market goes against you. that is.his maximum profits are limited to the premium received. 3.Trade with the trends.while his losses are limited to the premium paid. the underlying asset-the quid pro quo relationship. index options are European style. Basic Rules for Futures Traders This article was posted on Jun 11. while stock options are usually American in nature. 2008 Following are some basic rules for Future Traders : 1. both the buyer and the seller are obligated to buy and sell. a buyer can exercise his option only on the expiration date. How do options differ from futures? In futures.Apply money management techniques to your trading. the last day of the contract tenure. rather than trying to pick tops and bottoms. it’s not so in the case of options. while buyers and sellers face a… : linear payoff profile in futures. which is linked to the prevailing price of the underlying asset in the cash market. . but is not obliged to exercise it. Whereas in ‘American’ options. a buyer can exercise his option any day on or before the expiration date. 2. In case of options. Effectively. however.Don’t trade many markets with little capital. option contracts are available on the underlying asset on various strike prices (generally. For the option seller. the buyer has the right.Do not overtrade. Usually. The option holder gets the right to buy / sell the underlying.In the Indian equity market context. while his loss potential is unlimited. An option buyer’s upside potential is unlimited.
not react. By now you’ve lost quite a bit. or fear.Use technical signals (charts) to maintain discipline – the vast majority of traders are not emotionally equipped to stay disciplined without some technical tools. Use discipline to eliminate impulse trading. fight the natural tendency to give some of it back. 12. cut your losses short. it’s hard for any of us to admit we’ve made a mistake. are bound to turn around in the meantime. 16. the reasons for entering the trade are still there. 8. exit points. and then comes the worst. After all (you reason). what’s a little more? Panic sets in. Besides.Cut losses short. but it isn’t. or the fundamental reason for taking the position changes.Have a disciplined.When you have successful a trade. exit. plan how much you will risk on the trade. You say to yourself.Decide on entry points. do not get out unless the stop is reached.Follow your plan. you probably aren’t thinking very clearly about the position. then guard against the risk of holding it too long. 7Calculate the risk/reward ratio before putting a trade on.e. Once a position is established and stops are selected. and objectives. 10. greed. 11. when you figure: “That contract doesn’t expire for a few more months. and all your “good” reasons for putting the position on are still there.” Also.” It’s easy to convince yourself because. Let’s say a position starts going against you. Subject your decisions to only minor changes during the session. 14. the most fallacious reasoning of all. the more the position goes against me. and plan where you will take your profits. not each individual trade.Don’t just trade the volatile contracts. you’ve lost so much already. Let’s look at some of the reasons many traders have a hard time “cuttings losses short.. the most devastating.6. objective. Profits are for those who act. systematic process to eliminate impulse or emotional trading. 9. 15.” . The overall objective is end-of-year bottom line. Most importantly.” First. detailed trading plan for each trade. Plan where you will get in the market. Don’t change during the session unless you have a very good reason.Use a disciplined trade selection system…an organized. by this time. 13.Establish your trading plans before the market opening to eliminate emotional reactions. with no changes unless hard data changes. let your profits run. things. i. the better chance it has to come back – the odds will catch up. Disciplined money management means intelligent trading allocation and risk management. you sell yourself on giving it “one more day. “it’s only a temporary set-back.Trade with a plan – not with hope. entry. It sounds simple.
Besides. it gives you a nice warm feeling to close out a winning position and tell yourself (and maybe even your friends) how smart you were (particularly if you’re beginning to doubt yourself because of all those past losers). many experienced traders say if a position still goes against you the second day in. 19. If you’re trying to make money without a plan – forget it.That kind of reasoning and emotionalism have no place in futures trading. sound reasons you used to put on the position are still there. “You can avoid the emotionalism. riskreward ratios. ask yourself why. and now one of your positions is developing into a pretty good winner. you have to fight human nature. Cut those losses fast. and here’s a chance to cash in on a pretty good winner. exit points.” Perhaps they think a plan might take the fun out of it for them. Let’s say you’ve had several losses (like most traders). 17.Let profits run. out of sound fundamental and/or technical reasoning…do. Following that philosophy almost assures you of losing in the futures markets because the nature of trading futures usually means that there are more losers than winners. smart plan is the answer to cutting your losses short and letting your profits run. Very successful traders generally have more losing trades than winning trades. This is even harder because who knows when those profits will stop running? Well. Trading a sound. you should strongly consider staying. The winners are often big. information about historical price levels. out of impatience…don’t.) and follow it. Just be sure they are little lumps. but there are some things to consider. big. they like to “wing it. you are bound to overstay a bad one also. You’re sick about all those losses. entry points. Win – even if it’s only by one touchdown. seasonal influences. stops. Now to the “letting profits run” side of the equation. The temptation to close it out is universally overwhelming. prices of related markets. no one does. You don’t want it to get away. fine. Most of us were raised that way. so cut those losses short. 18. the next time you are about to close out a winning position.” Use stop loss orders. “Cut my losses fast. Here again. . Of course. the second guessing. calculating. 5000 per contract loss limit…or whatever works for you. etc. before the losing position starts to infect you.Do not overstay a good market. big winners. It’s just that they don’t leave any hang-ups about admitting they’re wrong. Most traders don’t want to bother. government reports. the agonizing. or one run. out of greed…don’t. aim for a Rs. In fact. If the cold. not “one run” winners. of course. but do it. The easiest way is to inscribe across the front of your brain. chart analysis. if you have a sound trading plan (including price objectives. and have the ability to close out losing positions quickly. If you’re like that and trade futures for the fun of it. before you “fall in love” with it. therefore. out of ego… don’t. First of all. 20. out of anxiety…don’t.Take your lumps. get out. but if you are exiting a winning position out of fear…don’t. If you do. the wondering.“So it goes. be aware that there is an urge in all of us to want to win…even if it’s only by a narrow margin. one point. you can use trailing stops to protect your profits.
impatience. Markets can (and should) also be traded frown the short side. It’s amazing how many people simply don’t know what they’re doing. Patience is important. Chemistry between account executive and client is very important.. give him your account. so when the time comes. 29.Client and broker must have rapport. Don’t worry about getting your account executive in trouble. both parties are mentally programmed to take the necessary action without delay. 27.Watch for divergences in related markets – is one market making a new high and another not following? 25. ignorance. Most people would rather own something (go long) than owe something (go short). so choosing a broker is the most important step to profitable futures trading.21.Most people do not have the time or the experience to trade futures profitably.Trade all positions in futures on a performance basis. If you find one who has room for you. and that there is no fundamental method to recognize these factors. 28.Standing aside is a position. Pick a broker who will protect you from yourself…greed. generosity. stupidity. 31.Program your mind to accept many small losses. the office certainly would rather have you switch AEs than to lose your business altogether. 22. fear. subconscious desire to lose (actually true with some traders). or else the broker and client should part company early in the program.Recognize that fear.Learn to trade from the short side. Phone the manager of the local office. ego. self-delusion. let him describe some of the other AEs in the office. 23. . or else get out. think about just changing AEs instead. 30. Ask someone who trades if they know a good futures broker.Learn the basics of futures trading. unless they have a strong broker to guide them and keep them out of trouble. the odds of picking the right Account Executive (AE) the first time are remote.Sometimes. They’re bound to lose.Broker/client psychology must be in tune. Program your mind to “sit still” for a few large gains. can cost you a lot more money than the market(s) going against you. Client and broker should be in touch repeatedly. greed. and see if any of them seem right enough to have a first meeting with. 24. when things aren’t going well and you’re thinking about changing brokerage firms. etc. The position must give a profit by the end of the second day after the position is taken. 26.
Learn from your losses. 39. If you’re in futures simply for the thrill of gambling. get away from it all to recharge your batteries. You can really learn more from your bad ones. as so many people do. which could improve your trading record.If you’re just getting into the markets.32.Don’t trade on rumors. 37. 43.K.When you go stale. your fills. the ones who stay around long enough to be there when those “big moves” come along are often successful. If you don’t start with enough money. 36. Trading futures is demanding. I’ll trade till my stake runs out. Have a business-like approach to the markets. Step back. and jot down interesting market information. stop orders.Approach the markets with a reasonable time goal.Be more careful if you’re extra smart. Just knowing this about yourself may cause you to be more prudent. Write down the market openings. then analyze your good trades and your bad ones. They’re expensive lessons.” Experience shows that many who have been at it over a long period of time end up making money. be a small trader for at least a year. and your own personal . Smart people very often put on a position a little too early. 34. not financial condition.Analyze your losses. They see the potential for a price movement before it becomes actual.Don’t trade unless you’re well financed…so that market action. have I made money or lost money trading on rumors? O. and treat it as such. and helps avoid the Las Vegas approach of “Well. 40. If speculation is a business. stop it.Carry a notebook with you. dictates your entry and exit from the market. chances are.Never add to a losing position. 38. and can be draining – especially when you’re losing. Stay out of trouble.Thrill seekers usually lose. then. you paid for them. If you have. They become worn out or “tapped out. ask yourself this: “Over the long run. the money does not mean as much to you as the excitement. Most traders don’t learn from their mistakes because they don’t like to think about them. decide on the length of time you should trade. your first loss is your smallest loss.Anyone who is inclined to speculate in futures should look at speculation as a business. They were too busy trading to make money. 42. When you open an account with a broker. anyone in that business should learn and understand it to the best of his ability. 35. you may not be able to hang in there if the market temporarily turns against you. 41. don’t just decide on the amount of money.Survive! In futures trading. This approach helps you conserve your equity. 33.” and aren’t around when a big move finally gets under way. get out of the markets for a while. price ranges. Do not regard it as a pure gamble. you’ll probably lose because.
Always use stop orders. always…always… always Do’s And Dont’s For Intraday Traders This article was posted on Jun 11. It is not necessary that a stock which is weak today during intraday trading might be weak tomorrow also. so one should be quite careful when buying stocks as the general psychology of public is to buy when good news is there. This position can be increased only when you are satisfied with your trading for a month. and then you’ll surely lose. Re-read your notes from time to time. which have very high volume because as entry and exit can be very fast in such stocks.Take windfall profits (profits that have no sound reasons for occurring).” and no real movement of importance ends in one day. A speculator should have enough excess margin in his account to provide staying power so he can participate in big moves.g. If your personal financial situation changes and the risk capital becomes necessary capital. 44. “Rome was not built in a day. If you don’t. Keep your volume constant e.e. 46. It should not be that one day you buy five lots and next day you trade in ten lots and third day you get a loss and stop trading for two days. simultaneously if a stock is strong today might not be strong tomorrow Being a contrarians is very important while trading intraday. you’ll most likely start trading with your heart instead of your head.: if you trade in five lots of nifty future then trade in five lots only. Stop loss is a must while trading intraday. . 45. Always trade in very liquid stocks i. the markets here in all probability will open strong.Periodically redefine the kind of capital you have in the markets. If US Markets have gone up overnight. use them to help analyze your performance.observations. don’t wait for “just one more day” or “one more price tick. 2008 If index is in minus then one should look to short stocks which are minus and not stocks which are in plus. If index is in positive from yesterday and the share you are holding is in minus then it should be cut and if intraday trend of index is in buy then one should buy a stock in which is in plus.” get out right away.
You profit in this case is 600*5. Here is a simple example: Suppose you own 600 shares of RPL.00 = 3000. A company can raise money by issuing either debt or equity. Arbitrage trading takes place all day long on most days that the markets are active. Anybody can go out and incorporate a company: . 2008 “Arbitrage” trading is simply the trading of securities when the opportunity exists during the trading day to take advantage of differences in value between the markets the trades are made within. One trading day you notice that RPL is trading at 150 on the BSE and 145 on the NSE. The profit is the spread between the two assets. it’s known as an IPO. What is Arbitrage Trading ? This article was posted on Jun 29. In fact arbitrage is responsible for a large part of the daily volumes on the NSE & BSE exchanges.Do paper trading before you actually start trading so that when you start making paper profits. You sell your 600 shares on the BSE at 150 and simultaneously buy back the 600 shares on the NSE at 145. A market arbitrageur would short sell the higher priced stock and buy the lower priced one. Fear and Greed are at maximum levels while trading intraday so always have less position when you are new to intraday trading as otherwise you will be mostly under tension. IPO Basics: What Is An IPO? This article was posted on Jun 11. or IPO. Arbritrage is legally allowed. 2008 Selling Stock An initial public offering. is the first sale of stock by a company to the public. Companies fall into two broad categories: private and public. What mainly takes place in India is called Market Arbitrage Market Arbitrage involves purchasing and selling the same security at the same time in different markets (BSE & NSE) to take advantage of a price difference between the two separate markets. If the company has never issued equity to the public. A privately held company has fewer shareholders and its owners don’t have to disclose much information about the company. then shift to actual trading.00 less brokerages if any.
Most small businesses are privately held. From an investor’s standpoint.just put in some money. Being publicly traded also opens many financial doors: Because of the increased scrutiny. IPOs were done by smaller startups seeking to expand their businesses. In the United States. How can this happen? Remember: an IPO is just selling stock. and usually a lot of it. Founded on venture capital funding. you can raise a lot of money. This makes it possible to implement things like employee stock ownership plans. you can invest. You can approach the owners about investing. Trading in the open markets means liquidity. The IPO then becomes the end of the road rather than the beginning. but they’re not obligated to sell you anything. which help to attract top talent. file the right legal documents and follow the reporting rules of your jurisdiction. The CEO could hate your guts. Firms no longer needed strong financials and a solid history to go public. but most of these firms had never made a profit and didn’t plan on being profitable any time soon. like any other commodity. There’s nothing wrong with wanting to expand. If you have the cash. Why Go Public? Going public raises cash. If you can convince people to buy stock in your company. Public companies. Domino’s Pizza and Hallmark Cards are all privately held? It usually isn’t possible to buy shares in a private company. In other countries. public companies report to the Securities and Exchange Commission (SEC). on the other hand. they spent like Texans trying to generate enough excitement to make it to the market before burning through all their cash. They must have a board of directors and they must report financial information every quarter. This is why doing an IPO is also referred to as “going public. Thus. In cases like this. The internet boom changed all this. It’s all about the sales job. have sold at least a portion of themselves to the public and trade on a stock exchange. but there’s nothing he or she could do to stop you from buying stock. As long as there is market demand. companies might be suspected of doing an IPO just to make the founders rich. What is Stock Jobbing ? This article was posted on Oct 7. public companies are overseen by governing bodies similar to the SEC. the most exciting thing about a public company is that the stock is traded in the open market. implying that there’s no desire to stick around and create value for shareholders. mergers and acquisitions are easier to do because stock can be issued as part of the deal. Instead. a public company can always issue more stock.” Public companies have thousands of shareholders and are subject to strict rules and regulations. Did you know that IKEA. But large companies can be private too. This is known as an exit strategy. 2008 . public companies can usually get better rates when they issue debt.
The buying and selling of securities with the intent of generating quick profits. Pricing is an important factor and need to be considered carefully. Investment in IPOs is no different. Share allotment is based on proportionate allotment system depending upon the number of persons who have bid for that number of shares in which category you fall. Not all issues coming with huge premiums are good and not all issues coming with low premiums are inexpensive. Beware. So do your calculations correctly.an 18thcentury stock that literally wiped out the savings of many British citizens. Never follow the herd mentality. IPOs. you can make a complaint to the lead manager to the issue or SEBI against the company for misleading investors. If you believe that adequate disclosures were not made by the company. While most investors seek value through long-term investments. Plan for a long term investment. 100000/. The term stock jobbing is largely used in reference to the South Sea Bubble . In case of good issues. Remember how much effort you make while making purchase decisions for your other needs. 2008 Like all investments. Remember we are in disclosure based regime and not merit based regime. IPOs are also not risk free. There are quotas available for retail investors and which are not available for high net worth investors. So be careful about such operators. During bull run. Good investment for a longer period of time will give decent returns. However you can manage the risk by carrying out due diligence and planning. . stock jobbing takes on a more speculative short-term tone. you may get far less number of shares than what you have bid for. a number of fly by night companies tend to take investors for a ride.if you want to be called as retail investor.How to make money This article was posted on Jun 11. Be yourself. Also remember that not all shares you are bidding for would be allotted to you. This means that any company which meets the requirements can come out with a public issue provided adequate disclosures are made. Remember to limit your investment within Rs.