How to start investment in stocks
Stocks are exactly opposite of bonds. Stocks will provide high returns with high risk. If you buy some stocks then you will become share holder responsible for profit as well as loss for that company. If company makes profit then it may pay you back in terms of dividends, but it is not guaranteed. Some companies reinvest the profit for further growth and expansion plans which will increase the stock price of that company. If the company makes loss then the stock price may come down.
What is Value Investing?
Investing in stocks which are undervalued or not overpriced or which are below their actual cost.
Benefits of Investing in Stock Market for Long term
1) Investing for long term in stock market consist of low risk with high returns, provided you invest in value and growth stock. It is proved by many analysts and noted investors like Warren Buffet that value investing gives you excellent returns and also it is verified and confirmed by companies through their past annual reports and prices.
2) No need to worry for daily ups and downs in share prices or market volatility.
3) No need to monitor daily share prices sitting hours and hours in front of stock market, watching news etc. It’s not required daily but periodically you can update yourself about your stocks through news etc to track your stock prices.
Investment in Short term, Medium term and Long term trading
Short Term Trading -
Stock trading done for 1-5 days or 1 week is called short term. .
Medium term Trading -
Stock trading done for 1-4 weeks or 1 month is called medium term trading.
Long term trading -
Stock trading done for 1 month or couple of months is called long term trading. Companies whose fundamentals are good and have good future plans then the stocks of these companies are used for long term trading. Generally traders having good capital go for long term trading.
Stock trading done for 1-5 days or 1 week is called short term. .
Medium term Trading -
Stock trading done for 1-4 weeks or 1 month is called medium term trading.
Long term trading -
Stock trading done for 1 month or couple of months is called long term trading. Companies whose fundamentals are good and have good future plans then the stocks of these companies are used for long term trading. Generally traders having good capital go for long term trading.
Based on size of market capitalization
1. Large Cap Stocks - Companies having market capitalization over Rs.1000 crores.
The stocks of such companies are called Large cap or heavy weight stocks.
2. Mid Cap Stocks - Companies having market capitalization between Rs.100 crores
and Rs. 1000 crores. The stocks of such companies are called as Mid cap stocks.
3. Small Cap Stocks - Companies having market capitalization less then Rs.100 crores.
The stocks of such companies are called as Small cap stocks.
Difference between Trader and Investor
Do you want to become trader or investor?
Whenever any new person comes to stock market automatically two questions comes into picture.
1. One is where to invest and
2.Second is how long to invest and how to get best returns.
Whenever any new person comes to stock market automatically two questions comes into picture.
1. One is where to invest and
2.Second is how long to invest and how to get best returns.
But after going through following paragraphs you may be in better position to take best decision. Ask following two questions to yourself and you will get the answers automatically.
1. Do you want to take high risk or low risk?
2. Do you have time on daily basis to sit in front of stock market to monitor the prices?
1. Do you want to take high risk or low risk?
2. Do you have time on daily basis to sit in front of stock market to monitor the prices?
Read below explanation for your choices
If you decided to take high risk and have lots of time -
If you want to take high risk and have lots of time to sit in front of the stock market to monitor the stock prices then you can go for short term trading. Day trading or buy today or sell tomorrow or buy today and sell after few weeks etc. these all comes under trading (and not investing) and also called as short term trading.
Returns in short term trading -
Returns (profits) are not sure. You may get high returns or low returns or some time you may end up into loss especially in day trading or future trading.
Please note - Returns in stock markets are not guaranteed.
How to start Day Trading
Strategies of Day Trading
Primary objective of day trading The primary objective of day trading is to earn consistent money on daily basis.
Secondary objective of day trading
Observe carefully the stock price movements. One more important factor to watch is stock price fluctuations. Keep a close watch on Supply and Demand - Supply and demand means how many buyers are willing to buy (this indicates the demand) and how many sellers are aggressive to sell (this indicates the supply). Always remember the stock price movement depends on supply and demand. Simple thing to remember (not only in stock market or day trading but also in general life) that more demand and less supply means price is going to move up and if more supply and less demand then price is going to come down. Overall if you study this strategy carefully then you will come to know whether the people are interested to buy or sell the stock and hence the price moves accordingly that is if see more buyers than the price is going to move up and if you see more sellers than price is going to fall down.
Day trading made easy
Day trading -
Buying and selling of shares on daily basis is called day trading this is also called as intraday trading. Whatever you buy today you have to sell it today OR whatever you sell today you have to buy it today and very importantly during market hours that is 9.00 am to 3.30 pm (Indian time).
Advantages of Day Trading -In Day trading you get most important advantage is that you have to pay is less brokerage (commissions) on day trading (Intraday) as compared to delivery trading. This brokerage again depends from broker to broker (or on your online trading system). In day trading you can sell and then buy this is called short sell which you can’t do in delivery trading. You can sell shares when prices are falling and then buy when price falls further.
Points to remember for day trading
Following are very important points to be always remember by day traders. Entry & exit points, stop loss limits, profit targets, your desired risk/reward profile, amount of capital to be committed to trades, how long you need to hold the share if incase it is against your favor
Following are very important points to be always remember by day traders. Entry & exit points, stop loss limits, profit targets, your desired risk/reward profile, amount of capital to be committed to trades, how long you need to hold the share if incase it is against your favor
Day trading rules for Indian share market
It’s important to do practice or paper trading before you starts actual trading. Following are the few reasons, Very importantly you will come to know how to place buy/sell orders, and will become familiar and perfect about using your trading system. You will gain confidence in yourself. The fear of trading will vanish. It is very important to keep fear away while doing day trading. You will become active to enter and exit the trade. It’s vital important that you must be pretty fast to enter and exit the trade (i.e. open positions).
Calculate risk and reward
This is the most frequently asked question by all day traders as you cannot move original Stop-loss level to any other levels. Then it’s become very difficult to decide in how much quantity you should trade. Let’s take a case that your trading capital is Rs 50000. As per 2% calculation you should take only Rs 1000 risk per trade. Now question comes that how much quantity should I trade so that if stop-loss triggers than I must loose only 1000 Rs per trade. Infect your trading quantity depends on your risk ability. Means your risk ability will decide in how much quantity you should trade. For Example you got tips to buy SBI at 2000 with stop loss of 1950. And your risk ability is Rs 1000 per call. Than how much quantity u should buy of SBI??? Confused????
EXAMPLE 1; Quantity=Risk Ability/(buy price- stoploss price)
=1000 / (2000-1950)
=20
That means should purchase 20 shares of SBI so that if stoploss trigger than you will lose only Rs 1000 as you had decided earlier.
It’s important to do practice or paper trading before you starts actual trading. Following are the few reasons, Very importantly you will come to know how to place buy/sell orders, and will become familiar and perfect about using your trading system. You will gain confidence in yourself. The fear of trading will vanish. It is very important to keep fear away while doing day trading. You will become active to enter and exit the trade. It’s vital important that you must be pretty fast to enter and exit the trade (i.e. open positions).
Calculate risk and reward
This is the most frequently asked question by all day traders as you cannot move original Stop-loss level to any other levels. Then it’s become very difficult to decide in how much quantity you should trade. Let’s take a case that your trading capital is Rs 50000. As per 2% calculation you should take only Rs 1000 risk per trade. Now question comes that how much quantity should I trade so that if stop-loss triggers than I must loose only 1000 Rs per trade. Infect your trading quantity depends on your risk ability. Means your risk ability will decide in how much quantity you should trade. For Example you got tips to buy SBI at 2000 with stop loss of 1950. And your risk ability is Rs 1000 per call. Than how much quantity u should buy of SBI??? Confused????
EXAMPLE 1; Quantity=Risk Ability/(buy price- stoploss price)
=1000 / (2000-1950)
=20
That means should purchase 20 shares of SBI so that if stoploss trigger than you will lose only Rs 1000 as you had decided earlier.
Strategies for day trading
Most of the new comers to stock market and even some of the experienced traders are not aware of truth of the day trading.
Basic Rule
Day Trading in stock market is all about managing risk, nothing works 100% accurate. Even if you have a trading system which generates 99% of success, there is always a certain chance and probability to lose in day trading.
Day Trading Requirement
Day trading requires whole market awareness and try to get latest updates on stocks, companies and its related news, very important is to get market direction (either positive or negative).
Day Trading Monitoring
Financial Television channels provide all latest buzz on stocks, news, markets and companies. This will really helps for day trader to enter and exit on news based stocks.
Day Trading Caution
Day trading can’t be done based on single technical charting or based on only technical software. Market awareness is must to exceed in day trading. There is no any technique or calculation to earn in day trading. Very importantly - Market experience is required to get success in day trading. New comers to stock markets should be very careful, but in fact they must avoid it unless and until they gain proper knowledge.
Basic Rule
Day Trading in stock market is all about managing risk, nothing works 100% accurate. Even if you have a trading system which generates 99% of success, there is always a certain chance and probability to lose in day trading.
Day Trading Requirement
Day trading requires whole market awareness and try to get latest updates on stocks, companies and its related news, very important is to get market direction (either positive or negative).
Day Trading Monitoring
Financial Television channels provide all latest buzz on stocks, news, markets and companies. This will really helps for day trader to enter and exit on news based stocks.
Day Trading Caution
Day trading can’t be done based on single technical charting or based on only technical software. Market awareness is must to exceed in day trading. There is no any technique or calculation to earn in day trading. Very importantly - Market experience is required to get success in day trading. New comers to stock markets should be very careful, but in fact they must avoid it unless and until they gain proper knowledge.
Important Strategy to Follow by Day Trader
As you are doing day trading you have to book profits on low margins and do multiple trades because you never know when markets turns back, so book profit and get ready for another trade unless you are 100% sure of the trade and market direction.
Remember before you start your Day Trading
1. Buying and selling or selling and then buying (which are called as short selling) are two basic trades done in day trading.
2. Before you decide to do any one of the trade you have to find out the direction of the market. - It’s not possible to find this 100% accurate.
For example - Indian stock markets will open mostly based on the situation on Asian markets and Asian markets in turn will open based on USA markets.
This is not any hard and fast rule but it is observed most of the time.
Truth of Day Trading
Most of the day traders get success by avoiding over trading.
For example - If you have RS 5000 then brokerage firms provide margin on your amount, means you can trade 4 times (margin percentage varies from broker to broker) more on your amount. But if you make use of margin amount then you have to square off your trade before market closes or some brokers provide two days time. This means even if your trade goes against you, you have to square off in loss.
Now let’s see other side - If you day trade only on your amount then there is no restriction for you to square off because you are not using any margin amount provided by your broker. Now suppose if market turns back and you are in loss then you can take them in delivery and hold them as long as you wish or till that scrip goes up.
As you are doing day trading you have to book profits on low margins and do multiple trades because you never know when markets turns back, so book profit and get ready for another trade unless you are 100% sure of the trade and market direction.
Remember before you start your Day Trading
1. Buying and selling or selling and then buying (which are called as short selling) are two basic trades done in day trading.
2. Before you decide to do any one of the trade you have to find out the direction of the market. - It’s not possible to find this 100% accurate.
For example - Indian stock markets will open mostly based on the situation on Asian markets and Asian markets in turn will open based on USA markets.
This is not any hard and fast rule but it is observed most of the time.
Truth of Day Trading
Most of the day traders get success by avoiding over trading.
For example - If you have RS 5000 then brokerage firms provide margin on your amount, means you can trade 4 times (margin percentage varies from broker to broker) more on your amount. But if you make use of margin amount then you have to square off your trade before market closes or some brokers provide two days time. This means even if your trade goes against you, you have to square off in loss.
Now let’s see other side - If you day trade only on your amount then there is no restriction for you to square off because you are not using any margin amount provided by your broker. Now suppose if market turns back and you are in loss then you can take them in delivery and hold them as long as you wish or till that scrip goes up.
Day Trading Techniques
Buy near open price If possible try to buy shares below open price, or at open price. Don’t buy shares if price is gone very high then open price, wait for the price to come down near open price and then buy that stock.
Check buying volumes Before buying check out the buying and selling quantity (volumes). If buying volume started increasing then the stock may go up.
Check derivative status If possible try to check out the derivative of the stock which you want to buy. If derivative of that particular stock is going up with increasing buying volumes then you can immediately grab (buy) that share/stock. Most of the time, it is seen that if the derivative goes up, then its stock or share also goes up.
Wait for the target price to buy For example, if buy is given at 150.5 then don’t buy below this price, only buy at 150.5 price or slightly higher then price. Because the given buy price may be the resistance price, if it breaks then share price goes up or else may not go up above 150.5. So plan to buy at given targeted price, don’t buy below target price.
Strictly maintain Stop Loss Strictly maintain the given stop losses. This will help you to prevent from huge loss. Suppose, for moment the share/stock what you bought falls drastically down, then you may end up with huge loss. So always maintain given stop loss. “Stop Loss will reduce your loss”.
Down wait for huge profit in single stock If you are getting some profit and if you notice that is not further moving up (its called consolidation) then you have to sell your share/stock and come out of that trade. In this manner, you can earn small profit instead of loss then you can do another trade and again earn small profit. Likewise if you keep earning couple of small profits in a single day then all your small profits will add up to huge profit amount in a single day.
“Get satisfied in small profit and do multiple trades”.
Strictly maintain Stop Loss Strictly maintain the given stop losses. This will help you to prevent from huge loss. Suppose, for moment the share/stock what you bought falls drastically down, then you may end up with huge loss. So always maintain given stop loss. “Stop Loss will reduce your loss”.
Down wait for huge profit in single stock If you are getting some profit and if you notice that is not further moving up (its called consolidation) then you have to sell your share/stock and come out of that trade. In this manner, you can earn small profit instead of loss then you can do another trade and again earn small profit. Likewise if you keep earning couple of small profits in a single day then all your small profits will add up to huge profit amount in a single day.
“Get satisfied in small profit and do multiple trades”.
Trading in Futures/Derivatives
Successful trading in futures
Future or derivative trading is the process of buying or selling stock future or index future for a certain period of time and squaring off before the expiry date. Expiry period can be of one month, two month and three month and not more then of three month.
Its not compulsion that you have to square off your positions on the expiry date or wait till the expiry period but in fact you can square off at any time even, at the same day, or you can hold as long as you want but remember to square off before expiry date. Mostly, 3rd month expiry future you may see very less trading volumes.
Generally most of the traders/investors trade or invest on current month future or second month future contract and you may see very low volumes on last month means third month expiry. But on Nifty index contract or on other index contract you may see good trading volumes even on 3rd month expiry future also. You can also buy and sell or sell and buy future contract on the same day of any expiry month. This is called as day trading or intraday in futures. Selling future contract before buying is called short selling. Short selling is allowed in futures trading.
1) Possible to do short selling -
You can short sell futures- You can sell futures without buying them which is called short selling and later buy within your expiry period, to cover up your positions. This is not possible in stocks. You can’t sell stocks before buying them in delivery (you can do in intraday). You can short sell futures and can cover off within your expiry period.
For example - If expiry period of your future contract is of 1 month then you have time frame of one month to cover off your order likewise if your future expiry period is of two months then you have time frame of two months and this continues till three months and not more than three months. In short selling of futures also you get margin as you get in buying of futures.
2) Brokerages are low -
Brokerages offered for future trading are less as compared to stock delivery trading.
Future or derivative trading is the process of buying or selling stock future or index future for a certain period of time and squaring off before the expiry date. Expiry period can be of one month, two month and three month and not more then of three month.
Its not compulsion that you have to square off your positions on the expiry date or wait till the expiry period but in fact you can square off at any time even, at the same day, or you can hold as long as you want but remember to square off before expiry date. Mostly, 3rd month expiry future you may see very less trading volumes.
Generally most of the traders/investors trade or invest on current month future or second month future contract and you may see very low volumes on last month means third month expiry. But on Nifty index contract or on other index contract you may see good trading volumes even on 3rd month expiry future also. You can also buy and sell or sell and buy future contract on the same day of any expiry month. This is called as day trading or intraday in futures. Selling future contract before buying is called short selling. Short selling is allowed in futures trading.
Major Advantages of Futures Trading over Stock Trading
1) Possible to do short selling -
You can short sell futures- You can sell futures without buying them which is called short selling and later buy within your expiry period, to cover up your positions. This is not possible in stocks. You can’t sell stocks before buying them in delivery (you can do in intraday). You can short sell futures and can cover off within your expiry period.
For example - If expiry period of your future contract is of 1 month then you have time frame of one month to cover off your order likewise if your future expiry period is of two months then you have time frame of two months and this continues till three months and not more than three months. In short selling of futures also you get margin as you get in buying of futures.
2) Brokerages are low -
Brokerages offered for future trading are less as compared to stock delivery trading.
