Basic guidelines and recommendations while trading:
Ø First observe and understand the fact that it’s about “trading” and not “investing”. Trading is all about Capital Generation, and investing is all about Capital Appreciation.
Ø Never sit in hope. Always be realistic, practical and disciplined.
Ø Always understand the risk involved in a trade BEFORE entering into it. Always understand that a trading idea is valid only if a support / resistance is not broken, as assumed.
Ø Quality trading is not being sure shot. It’s about managing your risks and focusing on the reward.
Ø Never book your profits early. Always hold your trades with a trailing stop. When targets are met, do not think of more. Book profits.
Ø When target1 is met, then for working on target2 you have the following options: either book now and buy when target1 price is crossed; or book and buy near immediate supports; or hold on with a trailing stop.
Ø While leveraging, always hedge. If you have a shorting trade to do, do that. If you don’t have a shorting trade, buy puts of the support level of index. Take this expenditure as capital insurance premium.
Ø While trading, at times when there is no clarity or there is a 50-50 chance at a situation, you may choose to reduce your risk by paying for it. This looks complicated, but is very simple to understand. For example you are long on reliance, and say at a point it is moving flat. It may turn towards down or up, you are not sure. So in that case, you can either wait with a trailing stop of immediate support, or you may take a calculated risk. If you take a naked risk, then you pay the least for it. But if you want to reduce your risk, you have to pay some capital for it. This is a concept of capital insurance. So, while trading you can choose to exit then and resume as and when the picture gets clear. Obviously if Reliance rallies and you exit and resume again, some of your profits will go. But this will reduce your risk at the moment of insecurity.
Ø Always try to bargain. Stocks move in waves of up and down motion. On minute basis, they may oscillate 1%, and on intra basis they may oscillate 5% avg., and on weekly basis they may oscillate 15% for say. Even if the buy above levels are crossed, just wait for 2 minutes, you might get a cheaper price!
Ø Always focus on one basic concept: Earn 100, loose 10. Focus on making a system wherein you earn a fixed reward on regular basis.
Ø Never try to speculate. Always focus on one basic motto: MONEY. Till the stocks are moving, there are countless opportunities. You just need to choose something that suits you!
Ø Always try to understand the reason behind an action. You should ask your advisor for what reason you are being advised a particular trade. So that when you are in the trade, you should stay there till that reason is valid.
Ø Never buy in bulk in one go. When you have option to spread out, buy or sell in installments.
Ø Be mentally prepared to bear the loss while entering a trade. Never feel bad to exit if your stop loss hits. Just make sure that you take small risks and that the loss money is not too much for you. Do not ignore stop loss and keep sitting in hope.
Entering a trade:
While entering a trade, first of all focus on one thing that what is the risk involved in it, and what is the reward expectation. A good trade should have reward of atleast 4 times the risk. A great trade can have 5-6 times, and an excellent trade has atleast 10 times the reward. There can be either of two things:
1) Entering near supports with support level as a stop loss, and targets would be the resistance. These carry a small risk but the chances that it will rally are small.
2) Entering when a resistance is crossed, and putting a stop loss of near support. Here the supports are usually far off, so they carry a big stop loss but a fair degree of probability that the anticipated trend has set in.
There is no other way to trade.
While entering, understand other risks also: like scope of further movement left in the index, and banning in fno.
Trailing:
When you have entered a trade, it’s very important to trade patiently and intelligently. One has to be patient, But at the same time one has to remember the levels and anticipated movements. When you are trailing, book near intermediate resistances if trading long, and book near intermediate supports if trading short. If you search a reason while entering, then you should have a reason to exit also. Always hold with a trailing stop.
Targets:
Targets are usually the resistance level and if your stock just touches your target and reverses back immediately, that means your target was precise. So, targets have a small trading time, and hence, its better to exit 0.5% early as on the targets, the stock just might remain for a very short time.
Exiting:
When you exit, either exit on target1, and wait for another dip to enter again; Or, enter at new supports; Or, hold on with a trailing stop; Or enter when the intermediate resistance given by target1 is broken. This is a choice, and depends on situation, feeling, and style of the trader. Never exit without any reason.
Hedging:
Always make a couple strategy if you are leveraging. If you are trading in cash on your own money, then you cant book loss until you wish to. Nobody can force you to do so. While you are leveraged, you should NEVER ignore the fact that markets may fall also. We don’t have to sit idle fearing a fall, but we have to trade and at the same time take some steps to insulate from the risks involved. For this, you can either take a shorting trade alongwith longs, or you may take a put of support level.
While shorting, you may enter a particular stock future or any index. At times, there happens to be a situation where one of the two stocks rallies at a time. This happens due to a possible ongoing tug of war between the two companies. Recent example: RCOM Vs Bharti.
If you don’t have anything to short, you can take index puts of strike price of intermediate and basic support levels. You can choose to wait and take puts as and when you see the critical supports breaking. Ask your advisor about the index support levels.
Example: 5900 PUT.
The point being stressed upon is that always manage risks involved in trading. Markets are right, and if you have right strategies, you are going to make unlimited money.
Supports:
Markets move in wave. There are no immediate falls nor rallies. There are waves. The local waves or Short Term waves happen every minute. The basic waves happen on positional basis. The supports of these waves are called long term supports. There are intermediate pullbacks and downfalls happening around medium term or intermediate supports.
Stop Loss:
Decide the time frame for which you have taken a trade. Do not attempt to alter your time frame in between the trade. Always exit once if your stoploss hits. Exiting stop loss is an art. You need not to panic immediately and exit, rather you should wait for 2 3 minutes, and exit on a local rally (means a normal 0.5 – 1% up and down happening in every minute). Once it hits, you can enter again on next support. If the support levels are known, its ok, if not, then ask your advisor. To recover the stop loss money, you may even short the stock below stop loss level.
Always wait for 5 minutes before deciding that stop loss has hit or not hit. Because there are panic sellings which happen only for a few seconds. Do not sit idle, if you are long in fut, then you may short next month fut, or you may short in cash (say 50%) to hedge against. Generally, if your stop loss hits, you still will see it pulling back, but it will not cross more than 0.5% from the stop loss levels. For example: RCOM had a stop loss of 780 levels, once it hitted, it went to 778. It went up to 781 and then crashed to 730. Reason: THE SUPPORT BECOMES A RESISTANCE ONCE IT BREAKS.
Profits:
If you book 10 rs profits where you should have booked 100 rs profits, then you are at risk. Reason you might take a trade with 10 rs stop loss which might hit and you might loose what you earned. So, once you are in profits in a trade, do not attempt to book your profits early. You might feel that you might loose this money too. Okay, agreed. But even if you loose in this one, if your success ratio is good, there are bright chances that you enter a trade whose complete targets are met. So, earn 100, loose 10. If you make 10, loose 10, you are wasting your time.
Time Frame:
If you have taken for short term, then stick to the fact that you have taken for short term. If the stop loss hits and you don’t exit, you see the prices crashing. In 90% cases, people start saying that we had bought it for positional trade! Don’t fool yourself and exit when stop loss hits. Exit then and buy at more dips. Even if you have bought it for positional, the rates go down as stop loss is support level while trading long.
Invest the profits:
Generate capital by trading, and Appreciate the generated capital by investing. Always invest your generated capital in any stock and forget for sometime. This will keep your capital away from risks, and shall secure it from being wasted. You will end up generating a huge capital for yourself.
Simple Procedure for trading:
1) See the trade carefully. See whether the you can afford the stop loss or not. See if the risk/reward ratio is good or bad.
2) If the trade is about buying at supports, buy at supports. If the trade is about buying above resistance, then buy above resistance, once its crossed. Once it has crossed, don’t jump in immediately, just wait for 1 2 mins and buy at cheapest possible rate.
3) Once in considerable profits, see that what is the trailing stop. If there is no trailing stop, then put mathematically, say 50% of the gains which you are getting.
4) Once your target hits, exit. Buy again either on next support (ask advisor), or hold on with a trailing stop of nearest support (ask advisor), Or buy above target1.
5) If your stop loss hits, EXIT. Don’t start asking your mind that it will bounce back if I hold or not. Even if you plan to be in the stock, atleast exit intraday and buy at next supports. This should ideally reduce your buying level.
6) Never try to speculate about stocks. If there is a fundamental reason, then understand that fundamentals take time to show the effect.
7) Always remain hedged while trading on leveraged positions.
8) If you don’t require the profits, do invest the generated capital in some fundamentally good stock and forget. You may choose to buy the stocks of the company which you were trading. Since you didn’t physically pay for these stocks, you cant loose anything on them. Believe me, if somebody had bought Unitech of 1 lakh 4 yrs back, it would have been 20 crores now!
So, just follow these practices in real life. It will take some time to be used to of it, but once you get used to, you will notice a sudden improvement in your skills, profits, and reduction in your holdings. If you hold your loss making trades after stop loss, you will ultimately reduce your aggression in new trades, and you will reduce your capacity to get into new trades. But always make sure that the stop loss should be small.
Even if you are emotionally concerned about the stock, you should exit your capital and buy some shares in cash or buy an option. If your stock is fundamentally right, it will rally in some time. As and when it rallies, the cash stock or option you are holding, will definitely bring your stop loss money back!
Suppose lot size is 100, you lost 10 rs in stoploss, means 1000 rs lost. Now if you take 10 stocks in cash, and leave them for 1 month, and if the stock rallies 100 rs, your money is back!
There are countless opportunities, you just need to stop your heart from interfering in financial matters. The moment it stops, you will find that its so simple!
Believe me, its all about managing and reducing your risks and taking steady profits.
KNOW INDIA STOCK MARKET
INDIAN SHARE MARKET
STOCK EXCHANGE
Methods of new issue
The company, which raises finance through new issue, may follow any of the following methods:
· Public issue
· Offer for sale
· Through intermediaries
o Private placment
o Sundry intermediaries
o Managing brokers
· Undewriting
· Rights issue
a) PUBLIC ISSUE:
This is a commonly used method. It involves direct sale of securities to the public for fixed price. The company gives a notice or advertisement inviting the public to subscribe for the shares. The circular or notice or advertisment
Is a legal document called ‘prospectus’. No intermediaries are involved. This method is expensive.
b) OFFER FOR SALE:
Under this method, shares floated through an intermediary such as ‘issue house’. The company allots or agrees to allot shares to ‘Issue house’ for a fixed price. The ‘Issue house’, in turn, sells the shares to the public at a higher price. When investors buy the shares, it becomes direct allotment from the company.
c) THROUGH INTERMEDIARIES:
Companies may utilize the services rendered by intermediaries for issuing shares. Intermediaries like brokers, issue house, underwriters purchase shares from issuing companies and sell these shares to their clients.
1) PRIVATE PLACMENT:
Sometimes intermediaries may not buy the shares in their name. In selling the shares, they act as agents of the company. The shares are sold to clients. Such sales are called “PRIVATE PLACMENT”. This method is cheaper than public issues and offer for sale.
2) THROUGH SUNDRY INTERMEDIARIES:
The companies may, some times appoint agents, salesmen existing share holders to secure market for their securities. But these agents for salesmen do not guarantee for the complete sale of securities.
3) MANGING BROKERS:
These brokers help the companies in selling the debentures or bonds. To avoid clash between competing concerns, these brokers advise the companies on matter like the right time for issue, issue terms etc. they also assist the companies in listing the securities in the stock exchanges. They help the companies to prepare prospectus, and give advertisement before the issue of shares.
d) UNDER WRITING:
Large issue are made through ‘under writing ‘. Under this method the underwrites give a guarantee to the companies making new issue. They guarantee to the companies making new issue. They guarantee the shares offered to the public, which will be fully subscribed. In the event of less subscription, the balance of shares will be taken over by under writers.
e) RIGHT ISSUE:
An existing company may get finance required for expansion in two ways (i) right issue (ii) issue of bonus shares
Under rights issue method, new shares are offers to the existing shareholders. These shares are issued in proportion to the shares held by the existing share holders. Issue of bonus shares cannot be treated as new issues.
Of all the above methods , public issues and right issue are the popular methods in India
Read more...
