425 Day trading rules from a traders manual I often think of day trading as being similar to a military operation,

where pulling the trigger is probably the easiest part. Day trading is about discipline and training of the mind. It is about waiting in the trenches till the right opportunity (setup) appears. It is about quantifying the risk in every trade. It is knowing when to hit and when to run. Yes, its about guerrilla warfare. Its about recognising temporary demand-supply mismatches and capitalising on them. Its not about standing in the way of large trends and letting the institutions maul you. A guerrilla should never think of himself as a general. Similarly, the day trader should always remember that he is in the trade for a day, maximum two. He should not try to be a position trader. The following are suggestions, some general, others specific, that I believe will help day traders achieve their goals. Do Your Homework The study of specific stocks or derivatives and their relationship to the overall market is an absolute essential. It is suggested that the trader work at least one hour outside of market hours on familiarising himself with stocks that could be traded the next day. For Indian derivatives, this can be done on the Internet on Indian investment sites, including www.walletwatch.com

Day traders in particular and traders in general should remember that trading is a global profession and they should thus be receptive to ideas from traders of other countries. Also, traders should study global currency and commodity charts, not only because it will enhance their knowledge of charting but also because these derivatives are also likely to be launched in India in the future. Gold and silver futures are already available for trading with most Indian stock brokers. A serious day trader should acquire a good charting software and try to get hold of as many trading books as are available. You need to understand that successful trading is a passion and the rewards are enormous. Also, it is critical to take your mind off trading with some other activity as well. I, for one, play tennis every morning to keep myself fresh for the day ahead. Stick to a Schedule A standard schedule is essential. A trader should arrive at his trading centre half-an-hour or more before the market opens and plan on being there all day. Before the market opens, the trader should have a list of potential trading stocks or derivatives based on his homework of the previous evening. Learn How to Manage Your Losses Not being able to manage your losses, or letting them run, is the number one reason why traders lose money. Losses are inevitable. Nobody makes money everyday. The key to winning overall is to limit ones losses and to be able to offset them with profitable

426 trades. All big losses start by being a small loss. If the market is not acting according to your expectation, just get out. Also make sure you dont overtrade, and be extremely careful on entries. Its much easier getting into a trade than getting out of one. An easy way to tackle the problem is in terms of limiting the rupee value loss on a trade, for example, Rs.10,000. The per trade figure you set should be no more than 2% of your total trading capital, you can then figure out how many shares that means. Thus, if you are trading 1,000 shares of any stock or futures, then your stop loss cannot be more than Rs. 10. You should also be aware of the range a market is trading in during the day in order to make an assessment of the stop loss in terms of points. In a day trading scenario, and unless there is some unexpected news, eight times out of ten the market forms a range in the first couple of hours by establishing a high and low, and then towards the end of the day breaks out or down from that range and establishes a direction. Money Management Another thing most Indian traders tend to overlook is the proper use of leverage. Most unsuccessful traders feel that if they have enough money to pay the margin, they are ready to play. Or, that whatever capital they have should be used in taking the maximum possible position. Both these are very dangerous methods of trading. Based on his trading capital, a trader needs to carefully work out the amount of leverage he will employ so that even a string of losses do not put him out of business. Drawdowns are a part of every traders life. A streak of losses can easily reduce your equity by 1520%. A trader should trade only a given number of contracts against his entire capital based on whether he employs a conservative or an aggressive approach to trading. Ones position size should be increased only when ones trading capital doubles. Leverage produces some very exciting returns but can easily wipe out a trader if used excessively. Maximum Shares per Trade Traders with little experience get wiped out in short order by trading large numbers of shares. Until the trader is consistently making money, i.e. ten trading days in a row with no losing days, the number of shares should be limited. In choppy sideways markets, you should also reduce your volume. Remember, bull markets should not be confused with brilliance. Conversely, choppy markets will not allow you to be brilliant. When the markets are slow, reduce your exposure size. Number of Trades per Day Trading too much in a day is the third reason why traders consistently lose money. There is absolutely no reason to trade more than five trades per day. The maximum number of trades should be limited to five per day. And even five trades are justified only if a trader is trading more than one stock at a time. I like to look at a successful day when I make one entry and one exit or position. Successful trading is about making entries extremely carefully and then a period of inactivity while the market does what you want it to, followed by an exit when you have made profits several times the risk. Overtrading is the

427 single biggest pitfall a trader has to combat everyday. And overtrading happens because traders have no plans. Avoid Trading during the Slow Period of the Day Trades are consistently more successful before 11.00 a.m. and after 2.00 p.m. This is because before 11.00 a.m. you tend to catch the highs or the lows of the day and after 2.00 p.m. you catch the breakout or breakdowns. Trades are consistently less successful between 11.00 a.m. and 2.00 p.m. There is only one exception; if a particular stock is in play (being traded heavily due to some factor such as a big news announcement), this rule can be broken with relative safety. Use Stops and Targets It is critical for day traders to use stops and targets as, indeed, it is for all traders. But it is all the more important for day traders since most times they square up their positions by the end of the day. Day traders should have a clear plan before they come to the trading centre. They should also book profits on a regular basis so as not to lose profits on the table; they need these profits to cover the inevitable losses. It is very critical that the day trader should have a risk/reward ratio of at least 1:2. Also, day traders should be alert and open to reversing position if the patterns are not working out because failed patterns lead to extremely strong moves in the opposite direction. As a rule of thumb, I keep stops at the previous pivot in the direction opposite to the trend that I am trying to trade in all time frames. Time stops is another effective technique which works well for day traders; for example, they can keep a stop loss of three hours, and at the end of three hours into the trade they can square up, whether they have made a profit or a loss. There are other traders, however, who prefer stop losses based on rupee value or percentages.

The
Arun

pleasures
Rajendran and Vikram

and
Srivastava

perils
in

of
Mumbai |

day-trading
July 28, 2003

7.30 am: Woke up groggy-eyed. Reached out for the newspaper and watched CNBC for about half an hour. So many results, so many stocks to check out. 8.45 am: Feel all pepped up for another day of gains (hopefully). No sign of Monday morning depression. It feels good when you have just made Rs 50,000 on a Friday. 9.20 am: Arrived at broker's office. It's raining heavily, but not enough to dampen my spirits. 9.30 am: Greeted my fellow day-traders. 'Kem cho, bhai? Majaa ma?' Feels just like family. Hirenbhai tells me Satyam should be really hot today. Let's see.

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10.05 am: Looks like Hirenbhai was right. Satyam is seeing fairly large volumes. I checked to see if the price was moving as fast as the volumes. Seems so. "Hirenbhai, buy 3,000 Satyam at Rs 180". The screen is my guide. 12.30 pm: I have executed five safe trades in the first two hours of trading; spotting uptrends has become so easy with experience. Buying and squaring off positions in a particular scrip within the span of a few minutes may not net me much, but I have made Rs 10,000 so far. Not a bad start. Let me check out Satyam. Rs 183, Hirenbhai was right. Anil got out at Rs 183. Fool, he should not have capped his profits so soon. But then, he has always been bull headed. 1.05 pm: Hirenbhai tells me to check out Welspun Gujarat. The stock has moved one way in the last three days. I have already made some money in it. Hate to touch stocks like this, but no risk, no fun. "Hirenbhai, buy 6,000 Welspun Gujarat at Rs 23.70". Satyam is at Rs 184.35. Suresh and Amit have got out and yell out the news. Maybe, I must get out, too. Perhaps after lunch. Checked out the price of Welspun on the way - down 75 paise. Not a good sign. 1.55 pm: Felt a bit queasy after lunch. May be it was the numbers of the screen, which showed Welspun down Rs 1.25. Hirenbhai tells me that the stock is bound to come back and he has news from a reliable source. In the last five years I have survived just because I know when to cut my losses. "Hirenbhai, sell my 6,000 Welspun now." Can't say making a loss does not hurt, even though Satyam is still going strong at Rs 185. Almost all my friends are through for the day. "Arre bhai, get out," yells Anil. I think I will do that in just a few minutes. 2.35 pm: Welspun has recovered to Rs 23. May be Hirenbhai was right after all. But I don't believe in looking back. HLL is looking good. "Hirenbhai buy 3,000 HLL at 156". Sold half my Satyam shares at Rs 185.30. But now it has fallen to Rs 184.70. "Hirenbhai Satyam, poora nikalo". 3.20 pm: HLL has risen slowly by Rs 1.50. I can live with that. "Hirenbhai, sell all my HLL. Checked out Welspun just for the heck of it - Rs 22.05. That feels good. Made Rs 35,000 today. If my luck is even half as good for the rest of the week, I can surely be off to Dubai. Wife's been complaining all of last week. May be she won't complain if we can go shopping in Dubai. 4.05 pm: Cutting chai after a day like this is infinitely satisfying. Anil looks sheepish for having bailed out early. I feel bad for him. Hard luck, bhai. If day-traders had time to maintain daily diaries, their daily jottings about personal highs and lows might well have resembled the one above. Last year, when the market appeared to be heading nowhere, many of them may have considered diary-keeping a more exciting vocation. After all, nothing much was happening on their screens.

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Defining a day-trader What makes a day-trader tick? A passion for trading is certainly a major factor. But it's the gambler's instinct that differentiates. Day-traders get their kicks from the inherent risk underlying the activity -- usually referred to as 'satta.' Driven by the urge to react instinctively to market information, a phone call from the broker assumes significance for day-traders. Other callers are cut off with curt apologies. Many small-time day traders hold jobs as a safety net. These people either have excellent time management skills to do both activities reasonably well or they just manage to keep things going at work while concentrating on trading. Successful traders end up chucking their jobs to do trading full-time; unsuccessful ones get thrown out by brokers and return to their jobs to pay off their debts. Not any more. With day-trading offering easy pickings in a 12-week bull run, compulsive intra-day traders are emerging from the woodwork and chancing their arms in pursuit of the proverbial quick buck: thousands, if not lakhs. The foreign institutional investors may be driving up the market with their billion-dollar investments, but it is the day-traders who are enjoying the ride. Heavy, delivery-oriented trading brings just the right kind of price volatility and trading volumes needed for day-traders to hitch a free ride. Day-traders love volatility since big money can be made only if prices fluctuate widely enough for them to cover brokerage and other costs. It is easy to think of day-trading -- the business of taking up positions in stocks with the intention of squaring up your positions before the closing bell -- as a mug's game. It is -- for some. Anyone who dabbles in day-trading to keep the home fires burning is probably likely to lose his shirt and deservedly. Day-trading doesn't not depend too much on stock fundamentals. The game is played more by seat-of-the-pants instinct than anything else, though it has it own science. Says Jamshed Desai, head of research, Taib Securities: "There is a risk component to it, but daytrading is a science in itself. You have to have an aptitude for it. Those who day-trade cannot invest and those who invest cannot day-trade." The math is beguiling. If you bet Rs 100,000 on a scrip that rises or falls 3-5 per cent on an average trading day, your potential gain could be Rs 3,000-5,000 daily (assuming you exit before the day's peak on grounds of prudence). A gain of 3 per cent a day means a return of over 1,000 per cent annually. In good months, lower- to middle-rung traders make over Rs 70,000-80,000 after deducting brokerage and other charges. For the veterans, the sky is the limit. If that's the major attraction of day-trading, the downsides are equally dounting. To deal with the risks, small-time day-traders fix a particular amount as the maximum loss they are willing to suffer on any particular day. The range can be anything from a couple of thousands to lakhs. Big-time traders net in or lose lakhs on any particular day as they do not have any fixed limits.

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"Never stretch your resources; keep an amount that you can afford to lose," is the advice of Hemen Kapadia, a seasoned player. Clearly, day-trading is not for everyone. The trading floor is replete with stories of traders who have lost everything in the pursuit of millions. So much so that 'Fort to Goregaon' is a familiar riches-to-rags phrase. (Fort, in downtown Mumbai, is where the BSE is located. Goregaon is a distant suburb, where you rebase yourself after a hectic losing streak on Dalal Street.) "Day-trading is not for people who cannot bear to see their capital go down. Those who cannot do this should not even think about it", says Ajay Kejriwal of Jet Age Securities. For successful day-trading, decent capital backing and a strong financial background are obvious advantages. Other requirements are a sound ability to deal with stress along with persistence and a willingness to take losses. One should also have a broker with whom you keep a certain margin to begin day-trading. A majority of day-traders are given terminals by brokers to execute their trades. Access to the latest news and being well networked are the other requirements. "Day trading is a good profession. It has its risks but could prove to be extremely rewarding if done the right way", adds Kejriwal. Most day-traders stress discipline and prudence as key to making daily stock calls. Since intraday prices tend to move on the basis of both rumour and fact, canny day-traders must also have the ability to filter out genuine news from garbage. "To be a successful day-trader, two factors are imperative: an acute sense of momentum in stock prices; and the right psychology," says Desai of Taib. "Assimilation of knowledge and a perception on what kind of news moves the markets are very important. Day-trading is not everyone's cup of tea. One has to be focused and also make use of the sea of technical data available," he adds. Desai stresses that a key requirement for day-trading is the ability to stay detached from any particular stock. You can't afford to fall in love with an Infosys if you are a day-trader. The best day-traders look at stocks as moving numbers to be taken advantage of, says Desai. Volumes are the key and sectors, financials and information do not matter much. Dos and don'ts for day-traders DO... Have an analytical mindset Be street smart Be flexible Develop your own system Keep a stop-loss for every trade

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Decide your total loss limits DON'T... Believe in hearsay Stretch your resources Go against the main trend Cap your profits too soon Be sentimentally attached to stocks Give up too easily The Smart Investor spoke to four day-traders to understand their world, and the pleasures and perils of day-trading. Here they are: Hemen Day-trader since 1986 Kapadia

At first glance, Hemen Kapadia seems to fit the bill of a typical Dalal Street veteran with his saltand-pepper hair and eyes which sparkle when certain stocks cross his mind. Here's a shocker: he's just 32 and that sprinkle of white hair is the result of premature greying. But then, he says breezily, he has always been mature beyond his years. He claims he is prosperous today only because he has been a successful day-trader. Kapadia has a flair for technical analysis and all his transactions are based on technicals. "Technicals are what work for me. I don't need fundamentals and hot tips," he says. As a college student, Kapadia used to study balance-sheets before buying stocks. After graduating in commerce, he discovered the joys of technical analysis and out went the balance-sheets. How does Kapadia pick stocks for day-trading? He says he looks at all BSE indices and analyses prices and volumes. He also applies the Elliot Wave Theory along with normal mechanical indicators like ROC (rate of change) and MACD (moving averages convergence-divergence), two key numbers to watch in technicals. He also looks at patterns, angles and retracements. He then narrows it down to a particular sector and then a particular scrip. Despite being technically focused, Kapadia has his sentimental favourites -- Tisco and Reliance -of which he has fond memories. "One tends to develop feelings for a particular stock after some memorable trades. However, in most cases, sentimentality could work against you", he admits. His favourite trading cycle used to be the four-six week cycle during badla's heyday. However, nowadays he is more of a day-trader. Kapadia doesn't believe in derivatives. Badla was the real thing, as he used to make five times as much in those days. When he is not trading, Kapadia advises a select client group for a fee. Till about five years ago, he could not bear the thought of going through a whole day without a single trade. But he has matured. " If you don't see it, don't do it," he says.

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In other words, sometimes inaction is also necessary to guard your assets. In fact, he had recently done time away from the screen -- two whole months without taking up a single position. Despite his belief in technicals, he admits that sometimes technicals can go wrong. But the gains he made from them clearly outweigh the losses. The 'growing up' extends to the way he thinks about profit targets, too. Kapadia used to have humungous profit targets of 60 per cent on capital employed during the bull market phase in the days of badla. In a bear market, he is happy if he gets around 15-20 per cent. Kapadia claims that he has not used a financier for years and follows a very traditional method of trading through a broker. He claims to have benefited by reading two books The Elliot Wave Principle, by R N Elliot, and Technical Analysis for Stock Trends by Robert Edwards and John Magee. Best deal Kapadia's most memorable trade was in his sentimental favourite Tisco in April 1992, when he benefited tremendously as the stock price shot up from Rs 250 to Rs 750. Worst deal Kapadia has also undergone disasters in scrips like Pentamedia and Mura Black, which shaved off a significant part of his investments. Lessons The market will always do what it has to do to prove the majority wrong; The market takes 90 per cent of its time to make up its mind and 10 per cent to get there; When the panwalla talks about buying shares, it is time to get out of the market.

Key success factors in day-trading Discipline and mental toughness; Scientific approach to stocks; Strict stop-loss levels. J Shah

Gunjan Day-trader since 1990

Gunjan J Shah is another example of a day-trader who has hit it big in the market. A day-trader for almost 12 years now -- he has been into it ever since he completed his second year in college -- Shah trades with Angel Broking Ltd. Shah's stock selection process is fairly simple. To figure in his radar, a stock must have reasonably good fundamentals such as growth prospects and attractive price-earnings (P/E) multiples. Once he has filtered these stocks, Shah looks at trends in liquidity. His rule of thumb: if volumes increase by 25 per cent over the previous day's levels, buy the stock; if they fall by 25 per cent, sell it. Right now, Shah has restricted trading to sectors such as banking, power, refineries and cement. Reason: it's easier to make money through day-trading in sectors which are in favour or trending upwards.

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His favourite picks are: Bank of India, UTI Bank, BSES, Tata Power, Grasim, L&T and ONGC. His earnings net to Rs 70,000-80,000 a month after taking into account commission and brokerage. Besides engaging in day-trading he also trades in the derivatives market. However, in the latter he prefers to keep his positions open for seven-eight days. The reason for his remaining invested for a longer time period is that he aims for 15 per cent returns on investments. Such high level of returns are necessitated by the high margins that he has to keep with his broker. For every trade that he enters into, he has to keep a 50 per cent margin with the broker. The margin comes in the form of stocks that he has bought in the past. The brokerage that is charged is also high: 0.5 per cent for each leg of the transaction. Best deal The maximum amount that Shah made was in February 2002, on Budget day, when he made Rs 300,000. Gunjan had taken long positions in ITC and Tata Tea as he expected the finance minister to make some provisions that would boost the prospects of these companies. The expectations materialised and the two stocks shot up right after the announcement of the Budget. Gunjan decided to sell half of the stocks bought on the same day, and took delivery of the other half expecting a bigger jump in prices the following day. Fortunately, the upward movement in stocks continued the next day also and both hit the upper circuit filter. Shah sold the remaining holdings and made a terrific profit. Worst deal Shah's worst trade cost him about Rs 350,000. Some time in late 1998 he had taken up a long position in HFCL as volumes were rising. But the stock hit the lower circuit almost immediately, blocking any efforts on the part of Shah to square off his position. The stock opened at a lower price the next day, too, resulting in a huge loss for Shah. Lessons Never put all the money in the same basket. Divide the total money to be deployed into at least three parts and then trade. This will provide enough opportunity to learn from mistakes and correct them. Key success factors Stick with sectors and stocks you are comfortable with; Strict stop-loss a must. Nandurdikar

Prashant Trading for about two months

To begin with, Prashant Nandurdikar was confident of pulling it off on his own. But very few are lucky in the stock markets and Prashant was certainly not lucky in his first few trades. Within a week, Nandurdikar lost about Rs 50,000. After a post-mortem on his trades, he found that he was ill-disciplined.

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Like most amateur investors, Nandurdikar lost money by allowing himself to get carried away by market sentiment instead of squaring off positions at the right prices most of the time. Nandurdikar quit his cushy job as a regional manager at a printing press in Mumbai to choose day-trading earlier this year. He was simply tired of the nine-to-five routine and wanted to be his own boss. Day-trading sounded an interesting option. Compared to starting his own business, day-trading seemed a better idea since it had fewer constraints. Before becoming a day-trader, he had been dabbling in stocks for some time. So it wasn't exactly a new business for him. Nandurdikar may not be a pro yet. But with the help of expert friends and brokers, he has laid down a few rules to make steady profits. For one, he has chosen a few companies, based on fundamentals, to trade in. He restricts trading only to this set of stocks, including Tisco, Telco, Arvind Mills and Tata Chemicals. The surprise element: there are no technology companies in his set. Nandurdikar says he chose his companies because of the "reasonable trading range" they offered. That is, the stocks are not expected to move by more than 5-6 per cent in either diretion on any particular day. His loss-limit on any day is Rs 5,000. The trades that he enters into are executed on the basis of technical analysis tips and market intelligence sourced from his broker. While the selection of stocks is done on fundamental factors, trading is done on the basis of technicals. The technical analysis tools he relies on the most are trend lines. Nandurdikar declines to indicate the amount he trades daily, though he does indicate that they run into lakhs. He relies on the financial newspapers for news. Lessons Get into day-trading only if you have some experience in trading. Otherwise, look for guidance to familiarise yourself with the nuances of trading. Key success factors Selection of stocks on the basis of fundamental factors; Insistence on a select set of stocks. Desai

Sudhir Day-trader for 12 years

Sudhir Desai trades actively in the market, besides running a chartered accountancy business. The style of trading ranges from delivery-based to squaring off positions within the same day. Though this may appear a bit surprising, there are good reasons for it. As he explains, a market that is trending in a particular direction offers better opportunities for making profits within a short span of time. He says that a market bound in a trading range limits the gains per day, which makes deliverybased trading attractive. Thus he follows the basic tenet of day-trading: money can be made only if prices fluctuate enough to cover the brokerage charges.

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Desai primarily depends on factors such as sectors that have been seeing some volumes, and their price movements on the previous day, to select stocks. He says that if a stock has seen a major change, say of 10 per cent, it qualifies as a tradable stock. However, he points out that it must be accompanied by an increase in volumes also. His benchmark for a change in volume is 50 per cent if he has to take a position in a stock. Unlike the other pros, Sudhir does not work with stop-loss. Rigid stop-loss trades tend to increase losses, as one may prematurely book losses, he says. Desai has left the everyday working of his company to his subordinates, and visits his office only twice or thrice a week. Instead, he works a five-hour shift at the broker's office for rich pickings of several thousands a month. Best deal Desai earned more than Rs 10,000 in one day a couple of weeks back when he bought United Phosphorous. The scrip had hit the upper circuit the previous day. Desai entered the stock at Rs 357 and sold at Rs 380 within just 15 minutes. Worst deal In 1999, Desai lost Rs 20,000 in Vikas WSP. He had bought the shares after the price had fallen from Rs 1,200 to Rs 400. However, the price continued to fall till it reached Rs 6, a level at which it was delisted by Sebi. Lessons Rely on your own experience in day-trading. Act on advice that you get from outside only if you are reasonably certain that it is correct. Else you may make losses. Analyse your past successes and failures to develop a profitable trading strategy. You will also get to learn the normal trading volumes in a stock. Any deviation can be used to book a profit. Key success factors A unique trading strategy whereby losses were limited; A good information source.

Day-trader's tool-kit A broker/online trading account Computer & telephone Technical packages like ASA, Trend, etc. A information network -- people, Internet and news

"TRADING: HARD WORK + DISCIPLINE = SUCCESS

"Today's mantra: "Get rich quick," "Easy money," "Who Wants to Be a Millionaire?" Who is not sold on the idea of something for nothing? Game shows

436 are popular as they cater to the idea of easy money; just answer a few trivia questions, "Hey, I know that one," "I could do that." It gives the easy money mentality hope and a promise of a better life, without effort. "But people, please, take off your rose colored glasses and look around. This market has gone too far, too fast. Explore the possibility that the markets are still far over bought; Internet company valuations are out of control. "When we have so called "hugely successful" companies hemorrhaging millions of dollars every quarter, something is terribly wrong.

"BUSINESS MODEL: NO PROFIT + HIGH COSTS = TROUBLE

"How long can a company continue to lose money yet stay in business? We may soon find out. Case in point, Amazon.com, whose business model is based on selling goods at less than cost. I note that in the last 52 weeks, Amazon (AMZN) has gone from a high of 113 to a low of 32 15/32 with the current value (as of July 17, 2000) at 41 3/16. "Are you one of the Amazon stock owners who recognized the downturn and sold at a nice profit somewhere around 113? What about 95? 87? Anywhere? This is where learning short-term trading strategies will pay off for longer-term traders." Today is the "Buy and Hold Strategy" for investing still viable? Forever it seems we have seen the markets rise. Buy a stock, and if you did your homework, the company was sound and had a good business model, chances were fairly good that your stock's price would rise in value over time. It was easy pickings. Today, that practice is growing more difficult. Who knows what twists and turns our technology will take? Today's successful companies are tomorrow's flameouts. Remember Amazon.com referenced above in July, 2000? Then it was at 41 3/16. The last available quote of March 23, 2001 is 10.81. Are you still holding Amazon? Why? Or, worse, are you buying in the hopes that it is now a "bargain?"

437 Everyone is complaining that their stock holdings have lost money. Pensions, Mutual Funds, all down. IRA's, 401K's -- the money we all planned to retire with is disappearing into the brokers and analysts pockets. Why do we still hear the word "bargain" when an analyst is talking? Who are they kidding? It is a crime the way the gullible public has been played for a fool, enticed into the markets while they were hugely over bought. Why are analysts afraid to say "bear market?" Remember who pays their salaries -- brokerages, huge companies like PaineWebber, Smith Barney. Their holdings are affected by what the analysts say and do, and it is in their best interests for them to keep it light. Keep the public buying. We need the dollars in the market. Do whatever it takes to keep people from pulling out of the market. Doom and gloom talk is not good for their employers and it is not good for America. So what's the simple answer? Short-term strategies applied to long-term holdings. Most brokers are not savvy about following the market. They are recommending stocks their companies tell them to recommend. Learn to do your own homework. With today's technology and inexpensive data, you can learn some easy techniques for knowing when your holdings are no longer worth keeping. Get out, make profits, get back in when the time is right. From time to time, regardless of whose data service you use, you may experience a data transmission blackout or failure. This past week, on February 8th, 2001 at 10:00, I experienced a 9-minute loss of data, which is about the most I have experienced in recent years at any one time. Fifteen years ago, we had this type of interruption several times a week and occasionally failures would occur several times a day depending on the data source. If you have entered a trade just prior to the loss of data information, it is probably best to exit at the market and relieve yourself of the risk of being in the market. Trying to follow price with a streaming data window on the TV set will suffice in my opinion. The first time this happens to a new trader it is like someone cutting off your breathing or your blood supply. It is a panic type situation if price was previously moving rapidly in one direction or another when your datafeed suddenly fails. You could call a friend that uses a different data source and see if he or she is receiving data or you could call your broker, but your broker is not going to be

438 willing to allow you to sit on the phone line while he gives you prices, at least not for very long. It is inconsiderate to expect your broker to do this for you, as you are not their only customer. If you are trading electronically with one of the newer broker services that may be hooked directly into Globex it is a great way to trade and eliminates voice contact with another human being. Another human voice on the other end of the phone can be a source of difficulty and emotional problems if the broker should ask "You want to do what?" as he has not been listening to you as you gave your order. It will immediately cause you to question your decision and from that day forward that behavior will be associated with a live broker. Trading on the Internet is fun, fast and easy. There is no emotion or comment from the other end of a phone line. It can also be expensive. If you enter the wrong information into your order screen, you may sell instead of buy and viceversa, or you may be too slow and the order will be rejected as it arrived to Globex late and the price of the stop order has already traded. Then there is failure. Failure of your ISP, failure of your computer or failure of the Internet routing system, which may not stop your order but will surely slow it up. The biggest problem of them all is failure of Globex itself. This happened on Friday, February 9, 2001 at about 3:03 PM Eastern Time. Globex "went down" and was not functioning. It did not matter where your account was or how well your broker liked you -- the entire system went down. What happens to your trade when this takes place? If you are "in" a position you are IN and there is absolutely no way to get OUT unless you have a quantity on that is comparable to or is a multiple of the full size contract in the open outcry pits, and you can offset your position in that manner. If you have a 1,2,3, or 4 lot and do this offset you have a totally different situation to deal with. You have offset one position and taken on another for which there is no ready solution until Globex comes back on line. Globex came back on line at 3:46 Eastern Time, by my data feed, on Friday February 9th, 2001 and when it came back price wasn't far from where it was when Globex "went down." There is little one can do however, if the cash markets have moved away from price while the system is down. You will reopen with a gap that may be in your favor or it may be against you. I know of one instance this year where a friend of

439 mine gained several thousand dollars while the "system" was down. It could have just as easy been against him. In this instance the system was down for 45 minutes or so and the orders you may have in the system are just that. They are in the system with no way of changing them. If Globex had not come back up Friday afternoon, you could have been long or short all weekend. Do not count on the exchange making good on losses incurred due to a system failure. You may or may not be relieved of this risk by the exchange. To my knowledge I know of no one that has ever been relieved from this type of risk. This may or may not be a serious factor to consider. In a small account I see it as a real detriment as the account could be decimated by such an event. In the case of larger account I see a drawdown as upsetting but with a profitable system it is just a matter of time until new equity highs are made. Just beware the hidden risks, and have a contingency plan. Know your position at all times, and if you lose your datafeed, either find a way to exit quickly, or plan for some surprising news.

Entry Methods for Daytraders

There are many methods for entry in the market place. Since our focus is on day trading we will concentrate on day trading methods rather than get involved in daily or weekly methods which will be very similar. 1. Present Bar's High. One method I like is when the present bar's high is less than the low of two bars ago. It is a good selling entry. Another, of course is the opposite, a low on the present bar that is higher than the high of the bar two bars ago. It is a good buying entry bar. 2. Upticks Greater than Downticks. Another method that bears watching is when Upticks are greater than Downticks by a factor of say 175% or 150%, perhaps 125%, the close is greater than the open and the close is greater than the previous close. When you get this and a low that is higher than the high two bars ago, you have a solid entry and a definable stop for what should be a good long trade. The opposite is true as a short sale when Downticks are greater than Upticks by some multiple amount such as listed above and even more so when the high is below the low of the bar two bars back. (You that have TradeStation can program this easily.)

440 3. ABC Correction. When we have made an obvious ABC correction upward in a downtrend, selling on a stop below the high bar or the bar after the high bar of an ABC correction is a good choice for an entry. Likewise, in an uptrend, buying above the high of a low bar of an ABC correction, or the bar following the low bar of an ABC correction, becomes a prudent practice. 4. Buying a Three Bar High or Low. Joe Ross in many of his writings suggested buying a three bar high or low. I personally like to use the high bar or low bar if we have achieved a mathematical level of significance. Significance? Yes, with experience, you will know when you have a level of significance in the Math of the Markets. 5. News and Gaps. In day trading, after the initial bar of the day session we seldom get a gap so we will not discuss gaps at this time as are found on daily bar charts in some markets. We do need to keep in mind that Gap openings on an intraday chart have a high probability, at some point, to return to yesterday's closing area or price. In some markets I have found this to be true as much as 85% of the time. News events may prevent a gap closing to take place. In considering news events, it is said that 80% of the traders forget the news event that caused whatever movement up or down in three days. And the other 20% of the traders lose because they still are dwelling on the news event that disrupted things as they were. Disrupting news events are difficult to catch and trade as complete chaos generally occurs. My son pointed out to me that the S & P was at 1370 on Wednesday (Jan. 3, 2001) when the Fed cut rates unexpectedly. I was still setting at about 1303 at the time. So much for "Real Time Data." 6. Sharp Trending Market. Another method is to sell lows or buy highs in a sharp trending downtrend or uptrend. I would only attempt this with a good data feed or after bar range had settled down to a normal range. Big range bars are indicative of big orders or lots of orders in quantity, so they may be way behind on your quote system. These are some thoughts to mull over for entry, to make profits in the difficult task of trading for profits intraday.

Mindful Daytrading - See What You May be Missing

Do You See What I See?

Ten witnesses will describe the same event 10 different ways. This is because they saw the same event, but from 10 different perspectives. Their physical location, personal background, and mental state would also affect their recollection.

441 At any given moment your brain is collecting and processing millions of unique bits of information. Everything you see, hear, feel, and sense is categorized and filed away. Research has shown that our brains record and store every detail of our perceptual world. We simply could not function, if we were unable to delete much of this detail from our conscious awareness. Your brain will focus on whatever you deem important at any given moment, and consequently, what you regard as less important (in that same moment), your brain will file away. Your conscious mind is then able to deal with the "important" information, making the decisions necessary to perform the task(s) at hand. This deletion explains why, "It was there a minute ago," happens to all of us. It is why you'll later find that same object, right where you were looking. It was there all along. You likely formed a mental snapshot of what you were seeking, then as you scanned the area, your brain helped by deleting much of the detail that didn't match your picture. Think of how this affects your "view of the markets" when you are trading. If you have already determined market direction, you will only see that which confirms your directional bias. You could be seriously jeopardizing your ability to see "what is."

Fighting the Market

If you expect a down day, and have strong emotional reasons backing up that belief, you may choose not to notice clear indications the market is trending up. You may be stubbornly attached to your idea of market direction and find yourself fighting the market, placing one losing trade after another. You may exit good trades far too soon, knowing the market will reverse, only to be proven wrong. If you've just had three or more losing trades in a row, pull back. Look at the market from a different angle. Whatever time frame you use for a trigger, look at slightly longer-term charts. Do you still see entry triggers, or have things changed? Another way to shake up your belief that you know what the market will do, is to look at the market from the opposite position than that which you "know" is correct. Seek that which you don't wish to find, and you may see more clearly. If you've ever said, "I can't believe I took that trade," now noticing all the indications you wish you'd seen earlier, it is an example of this phenonoma at work.

Trading to Win
Follow your trading system, notice when it is not working, and adjust accordingly. Pay attention to your preconceived notions of what kind of trading day it will be, or which direction it will trade. None of us know the market in advance. Stop trading to be right, and start trading to win.

Forex Traders Are Braver Than Superman

442
By Paijo Lopez Article Word Count: 592 [View Summary] Comments (0)

Are you trading at the moment? Live or demo? Forex trading is a lot easier than some people would have us believe, but it requires discipline. If you have a workable strategy, and the discipline to only trade that strategy, you will make money, guaranteed. Where a lot of traders go wrong and lose vast amounts of money is by making trades that do not meet the criteria required by their strategy. They start to listen to other people's ideas and follow trades, they trade on a whim when they think a currency will move a certain way, they trade data, they let losses run out of control hoping the market will turn, they take the first profit available...none of that comes within their trading strategy and they ultimately lose. It's human nature unfortunately, we are impulsive. Retailers spend millions of dollars a year finding ways to exploit that impulsive urge in us. To be a successful trader we need to control our impulsive urges and discipline ourselves to obey our strategy without exception, we know it works, and we must stick to it in order to be successful. With absolute discipline comes control. We will have total control over ourselves and only trade exactly what our strategy says we should trade and in a way it says we should trade it, no exceptions, none. So now we have discipline and control we can trade our strategy without hesitation or deviation. Once our strategy has signalled a trade and even before we have entered the market we already know what the outcome will be. We will either gain, break even, or lose, there are no other choices. Our gains can be either a set amount that we decided to make each trade, or trailed with stops. Break even speaks for itself. Losses will be the amount of pips our strategy dictates we should risk. There are no unknowns, we know without any doubt what can happen because we have disciplined ourselves to trade our strategy and not deviate from it. A classic example of losing control....you enter a trade and set a stop in your mind of 30 pips. You are confident the trade will come good, everyone said it would, even your Uncle Bedjo said it would. The price goes the wrong way by 10....15....20....25.....30 pips, it's time to close, but instead you wait because it may come back. The price moves away further....35....40....45, oh no, this wasn't the plan. Ok, I'll close at what I said I would for -30 when it comes back....the price moves further....50....55....60, oh no, I cannot afford to lose that much, it is bound to come back, it has to, I'll close at -40 when it retraces.....65.....70.....75...no way! I'm not closing now and losing all that money, no way!.....80.....85...., ok ok I'll close for -50 when it comes, damn I knew I should have taken -50, please, ok -60 then, please?...90......95.....100, oh shit I better close, it could go

443 anywhere...closed for -100. Shit and xxxx and xxxxx's, that's all this weeks gains down the crapper! Now desperate to get back your losses you'll trade anything that moves, roll on more losses....and more losses, and maybe the odd profit pip grabbed here and there. We've all been there, we've had reccuring nightmares about it! Discipline = control = nerves of steel. Take no prisoners, you're in this game to make a killing not get killed. Plan the trade, and trade the plan....no exceptions. Hope that helps, and may the pips be with you :)

7 Traits of a Successful Trader

By Slav Fedorov Article Word Count: 429 [View Summary] Comments (0)

Trading is an entirely learned skill. Yet not everybody achieves the same level of success in trading. Having passion for the markets is most important. But are there other traits that will give you an edge? I believe there are several. Being a loner / corporate misfit Trading is a lonely endeavor. It's you against the market. Team building, consensus seeking, and conformity will only hold you back. Many novice traders make the mistake of seeking confirmation from several "trusted" sources before taking action, by which time it may be too late. If you need to be told what to do, you may be a good brokerage client but not trader material. You must be able to form your own opinions and act on them quickly. Self-discipline and flexibility You must be able to develop a successful system that works for you and stick to it. On the other hand, you should be able to adapt quickly to the constantly evolving market conditions. Being humble The market is a level playing field that has a remarkable ability to humble the arrogant. It does not care what you think or whether you have a PhD. The market is always right. The only time you are right is when you are making money. Sticking stubbornly to your opinion or arguing with the market will only compound losses. Taking personal responsibility

444 The only right thing to do when you realize you made a mistake is to correct it, learn from it, and move on. Blaming others ("them", the market makers, Jim Cramer) won't reverse your loss. Controlling your emotions Emotions are a trader's worst enemy. Every investor has a pain threshold which is usually denominated in dollars. When that threshold is reached, pain becomes unbearable and you start acting irrationally. There are several techniques to control your emotions in the market which are beyond the scope of this article, but suffice it to say that poise, detachment, and discipline are essential. Being able to make decisions with incomplete information The market is like a battle field - fraught with deception, smoke screens, sudden shifts in balance, and unexpected blowups. Trying to find out why something is happening before taking action can cost you dearly as the damage might be done by the time the explanation arrives. Having a thick skin Being easily offended by others' opinions or taking a stock's move personally will cloud your judgment. What do you care what others think? If they are right - learn from them, if they are wrong - you are the one making money, and that's all that counts in this business.

The Most Difficult Thing A Trader Can Do

By Ron Lewis Article Word Count: 443 [View Summary] Comments (0)

I expect that most of you watched the absolutely amazing Super Bowl yesterday. Most every one that I knew was rooting for the Patriots... and why not? Throughout the entire year they were perfect. They won every game, broke every record and really dominated everyone they played. Enter the New York Giants. They came into last nights game with a 10-6 record, even losing the last game of the season to the Patriots. Why am I going through all of this in an article about the most difficult thing for a trader do? Because last night the Giants, when it really mattered, came back to win in the final nerve wracking minute of the game. Everyone said they couldn't do it. No one gave them a chance. With the odds against them, there backs against the wall... THEY WON!

445 More than that, they are a testament to every thing a trader needs to be. With everything on the line, they rose to the occasion. They took chances and gave it all they had. Even though no one expected they could win, they beat the perfect undefeated team... when it mattered most. No matter who you were rooting for, you really had to admire their spirit, their heart. So, here is the point. Wherever you are in life right now, don't forget that no matter what happens to you...you can win. Don't worry about the last losing trade you took. Don't even think that you can't do it; that its too difficult, to hard to master day trading. It has been my experience that my thought process contributes a great deal to my trading performance. This one thing is what I believe is the most difficult thing for a trader to master. Forget what family or friends say, forget about what is supposed to happen and just believe. Take a page out of the Giants play book and believe in yourself. Believe in your rules. When you do that, something wonderful happens. All of a sudden you start to have positive expectations about what you are going to get the next time press the button to take a trade. Your attitude totally changes. You become more confident. You feel like you finally understand the market. Life becomes much easier as you continue to develop your strategies and work on your positive mind set. Hold on to your dreams and continue to work hard every day to become the best trader that you can be. Just like the New York Giants,you can beat the odds by persevering. Don't give up and one day you will be able to "catch a whopper."

Fibonacci Levels & Day Trading

By Kunal Vakil Article Word Count: 763 [View Summary] Comments (0)

Fibonacci ratios, when applied to trading stocks, correlate two trends; let's refer to them as primary and secondary. The primary trend refers to a trending move in one direction while the secondary trend will refer to countertrend moves in the opposite direction. The three most common Fibonacci retracement levels are 38.2%, 50%, and 61.8% of the primary trend and most basic stock charting applications will use these as standard levels. These Fibonacci retracement levels act almost as magnets once the countertrend rally takes place. These are very common, however, there are a few other Fibonacci levels that can provide resistance. These are the 75%, 78.6%, 87.5%, and 88.7% retracement levels. The common rule of thumb is that when the 50% retracement level is taken out, the four levels I just mentioned become magnets to attract price. Price action must be analyzed at those levels to understand if the countertrend move will cease or whether it will continue to fully retrace the primary move. Fibonacci retracement levels are used by many floor traders and therefore become very relevant to your trading activities. These levels are so widely used now by traders, including systematic trading, that they almost become a selffulfilling prophecy.

446 Defining the Primary Trend Let's start with the characteristics of the primary trend of which we would want to play the countertrend. I found that Fibonacci retracement levels are most accurate after the primary trend has been a sharp move in price accompanied by heavy volume at the end of that move. These types of moves typically exist in the story stocks of the day or the appear on the list of highest percentage gainers or losers list which complements my trading style as these are the only stocks that I will trade. I am asked many times how to define the starting and ending points in order to calculate the length of the primary trend. I see many traders make the mistake of using the highest point and lowest point of a trending move to define the starting and ending point of primary trend. While this may work in some cases, it is best to look for double tops or double bottoms when locating your starting and ending points. This may or may not coincide with the highs or lows of the move. How to Use Fibonacci Levels I do not use Fibonacci levels as a primary trading technique, however, I found that it greatly improves my odds of generating a winning trade when Fibonacci retracement levels start correlating with price objectives using other patterns, such as candlestick charting formations for example. I use Fibonacci levels in two ways: 1) After identifying the primary trend, use price reversal pattern recognition (through candlesticks or any other trading technique that you employ) to coincide with a Fibonacci retracement level to confirm that the countertrend move has ceased. I then look for the stock to test the recent lows and double bottom or break through that level. That is where I employ the usage of Tape reading to determine whether I should play the double top/bottom or whether I should play a breakout in the direction of the primary trend. 2) Many times, a stock will spike down on high volume and that will signal capitulation and put a floor in the market. Usually, an automatic rally will ensue and fail when the dip buyers lose their buying pressure. Oddly enough, this coincides with Fibonacci retracement levels (usually 38.2% or 50%). Once that rally kicks in, a retest of the recent lows will be attempted and a trading range can be created between the lows that were put in with spike volume and the highs of the automatic rally. This trading range carries on for a bit of time before a breakout up through the range occurs. This breakout can be bought with good tape action and then the tape action must be hawked as well as keeping an eye on Fibonacci levels which could act as resistance. If I see buying pressure fizzling out at one of the key Fibonacci levels mentioned above, I get out of the trade immediately. As you can see, Fibonacci trading is a secondary part of my game but a pivotal one. You can really hit the sweet spot in trading if you can combine a few key trading elements together and design your own trading system where you put the odds in your favor. The bottom line, you probably shouldn't leave Fibonacci retracement levels out of that mix.

Fibonacci Levels - A Few Trade Secrets

447

Revealed
By Ron Lewis Article Word Count: 731 [View Summary] Comments (0)

First off, I don't claim to be a "guru" on fibonacci levels. Like any other trading technique, a new trader needs to do their own homework and see exactly how the market reacts to various fibonacci levels (from this point forward, I am going to abbreviate the fibonacci word by "fib" because to type fibonacci out every time would lengthen this article by half again). I am not going to look at any other indicators (like moving averages, or other technical indicators). In my full trading plan, those indicators play an important part of deciding if I take a trade or not. In another words, just because you have reached some of the fib levels I am going to talk about in this article, DO NOT take a trade unless other criteria have been met. Fib levels, while important, are not a be all, end all, stand alone strategy. The 61.8% Fib Level When I first started trading, many of the trading books and manuals that I studied recommended using the 38.20% (38%) fib level, and the 50% fib level to analyze support/resistance areas. While I have found those to be somewhat useful, there are other levels that I have found to really give a trader a better edge in making decisions on where support/resistance areas are. The first of these levels is the 61.8% (61%) fib level. Most charting platforms have a fib tool built in. In Tradestation, the fib tool is very easy to use. Let's assume that the market opened (point 1), moved down and bounced off of a certain level (point 2) and then began to rally back up to point 1. The price stops there and begins a pullback. Using your fib tool, click on point 1 and then on point 2 and release. Your fib levels will then be marked. It is important to see how the price reacts to the 40%, 50% and ultimately the 61% fib level. The market can turn and go in the other direction at any of these levels. My research has shown that the larger the pullback (specifically the 61% fib level), the better chance that the market will turn around and go in the other direction. I have seen many times that the market will pause at the 61% fib level, almost as if it is trying to make up it's mind if its going to stop there, or head on in the original direction it was headed. I urge you to start watching the 61% fib level and see how many times that level holds the price in. The 127% Fib Level If the 61% fib level described above is broken, then the next two fib levels come into play. The second fib level that my testing shows is worthy of mention is the 127% external fib level. Usually (but not always), once the 61% fib level is crossed, the market will travel to the 127% external fib area. An interesting point is that many traders don't

448 acknowledge or use the external fibs to determine possible stopping areas. I am amazed at how many times the market turns on a dime at this level. The 161% Fib Level Another level that I think needs to be addressed is the 161% external fib level. If the 127% fib level doesn't hold the price in, the next stopping point is the 161% fib level. This level also seems to stop a trend in its tracks. How To Use Fib Levels In my opinion, there are two ways to use fib levels. If I am looking to enter a trade and the 61% fib level is right above/below my entry, I will pass on the trade and wait for a set-up without that area to compete with. Secondly, if the 61% fib level has been broken, I know that there is a reasonable chance for the price to go to the 127% or 161% fib extension area. Conclusion As you began to work with fibs, understand that these areas are just that, areas. That means that when the price approaches a fib level, it can go past that level by a few ticks or more and still be a valid fib level. I hope that if you are serious about learning how to day trade, you put fibs in your tackle-box as a tool to help evaluate strong support and resistance levels. Charts describing the above set-ups and more free commentary are available on my blog. I hope that Fib levels help you be able to: Catch a whopper!!

Rules Vs Guidlines - Undermining Your Trading Results

By Ron Lewis Article Word Count: 703 [View Summary] Comments (0)

I have discussed the importance of having a game plan to day trade in various articles recently (A Tale Of Two Traders, Trading For A Living and Mind Over Market). Yesterday afternoon, while I was doing my Daily Wrap Up of market commentary, trades of the day, and trading tidbits, I typed something to the effect that a certain trade did not fit my trade "guidelines". I got to thinking after I typed that word. Why did I use the word guideline instead of rule? To me, the word guideline is a looser interpretation of the word rule or rules. If you read my article "A Tale Of Two Traders", I explain how integrity plays an important part of MY trading strategy. I think that it is important to be true to your trading strategy and follow your rules to the letter. Therefore, my use of the term

449 guideline was probably not appropriate as that may lead many of the traders reading this article to believe that you can change your rules at a whim, move stops or not adhere to the limit orders you have in place. Now some of you my think that this whole article is a matter of semantics. I don't agree. If I use the terms interchangeable, my sub conscience mind might think that it is OK to move stops, or make changes in the way I trade. I work daily on my trading mind set and how I place trades and most importantly, how I manage the trade once I am in that trade. ANY influence that could affect that mind set and cause me to stray from my tried and proven strategies is not acceptable. So, I hope you study your own lexicon and make sure that you are not doing something that will submarine your results. One other thing that I would like to touch on is very near and dear to my heart. If you have a trading buddy or partner, having a true conviction about your trading rules is extremely important. I have several friends that trade for a living. The lesson that I am about to share with you has come a great cost and frustration. If you are not totally convinced that your trading strategies have the ability to make you money, then you can be easily swayed. Here is the story that happened to me. When I was first learning how to day trade, I studied many courses and manuals regarding the subject (some free and some costing thousands of dollars). Going through this process with me was a good friend of mine. We would cuss and discuss various trading strategies that we had studied and how we interpreted the various results we were receiving. Then finally it occured to me that I was responsible for MY trading results and MY trading results only. Although my friend and I are very close, when it comes to trading, it is important not to focus on what anyone else is saying to you. I can't tell you the number of times that I was influenced by what my friend said. The markets going up, down, sideways, etc. It always made me feel that he was right and I was not. Finally, I became confident enough in my own strategies that I started to take his advice and comments with a grain of salt and trade MY trading criteria. My advice to you is once you have a set of rules and have tested those rules, become so focused on how you trade those rules that no one else can sway your thinking. You will be surprised how much better your trading results become. One final thought. As I have discussed many times in my articles, I have gone from one strategy to another, usually paying lots of dollars to learn the secrets from so called gurus. What I have found out is that many of the so called gurus out there are just selling you something. Some of the best strategies that I have learned have been FREE. Keep that in the back of your mind next time your are asked to cough of thousands of dollars to learn a new concept.

8 Steps to Become a Master Day Trader

By Arindam Chattopadhyaya Article Word Count: 372 [View Summary] Comments (0)

450 Success in any form of trading implies that you are betting your wits against every other person in the market. Every penny you make is on the back of someone else's losses. This is also true for day, future and forex trading. Day trading is full time job and you want to make your living on day trading in stock or currency, you need to follow followings: 1. It is unrealistic to make profit from day one in stock or currency trading. You will make mistakes and you need to learn from your mistakes. Do not get depressed if you loose money during your initial period. 2. You need to be ready while market is trending. These are great opportunity to make big profits. 3. You need to work hard to limit your losses while day trading. This is more important than make big profits. 4. You should always set yourself a limit on how much you are prepared to lose on any particular trade, and set your stop loss at that level. 5. You should have 100% confidence on your chosen method of trading. Remember that success is nothing but strong desire. 6. It's your success so learn to hold yourself accountable if things don't go the way you want them to. You should be disciplined, determined, persistent, and most of all enjoy day trading in your chosen market like currency, stock or commodity. 7. You need to do intensive study and master all the tools like charting, Fibonacci sequence, and technical analysis to become a consistent trader. 8. Best day trading tips are to manage your fear and greed. Let's discuss more on trading psychology The fear of loss and the fear of missing out are two fears for all traders. If you sell stocks out of fear probably, you will fail to capitalize and recover fully on the trade. The fear of missing out forces people to abandon their rules so that they don't lose out on another major stock move. The best suggestion to mitigate these risks is to have a defined entry and exit criteria as a part of your trading strategy. Other side of fear is greed. Greed comes from overconfidence. Traders need to teach themselves on how not to loss focus from their trading rules.

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Day Trading Stock Tip Lesson - DoubleDivergences For Back-Testing Ideas

By Matthew Mc Dermott Article Word Count: 488 [View Summary] Comments (0)

If you trade stocks online using a technical stock chart (such as a bar chart or Candlestick chart), chances are that you have heard about day trading stock strategies using "divergences." A divergence is when you see prices making "relative" new highs or lows, but the corresponding indicator is not following the same action. An example might be if a certain stock made a 12-month low 30 days ago, but the technical indicator you use actually shows that the indicator now has a higher value than the value 30 days ago. In this instance there would be a divergence between the stock price's action and the indicator's action. Many day trading systems incorporate divergences into their calculations, but many fail to get the extra confirmation from another time frame. Since you should never trade live money without first doing some form of testing, consider adding in an extra condition to your strategy when back-testing: have a larger time frame also show signs of a divergence in the same direction. The technical indicators you would use are oscillators, and the most common ones are Stochastics, Relative Strength Index (RSI), and Moving Average Convergence-Divergence (MACD). Consider looking at a time frame of 5 to 6 times greater than your intraday trading time frame. Let's use an example for this day trading stock tip lesson:
SYMBOL = ABCXYZ (not a real symbol) Trading Time Frame = 5 minute chart Longer Time Frame = 30 minute chart (6 x the Trading Time Frame length) Lowest Price in last 30 bars was 23 bars ago (on 5-minute time frame) at $24.32 14-Period RSI 23 bars ago had a value of 21.00

Now, if the last bar made a new low at $24.20 (12 cents lower than the previous low), look at the RSI indicator. If it has a value of 29.50 you will note that the indicator is actually HIGHER than it was at the previous low price, even though the stock's price is now LOWER. This is the "positive divergence." Be alert for a possible reversal if market conditions are otherwise normal, or at least be careful on any short positions you may have in symbol ABCXYZ. To get EXTRA confirmation, consider looking at the 30 minute chart. If you notice another "positive divergence" on the 30 minute chart (as well as the 5 minute chart), then consider your actions accordingly. Incorporate this second, longer time frame divergence as part of a new strategy to be back-tested. You may find that filtering divergences by

452 having a second divergence may help you improve your trading results. As always, before committing any money be sure to back-test on the symbols (or universe of symbols) which you anticipate that you will trade. If you have any questions at all, speak with a competent professional financial advisor who can help you with your trading strategies. Remember that in all trading and investing, especially day trading, you risk losing significant amounts of money. Follow all standard financial disclaimers and spend significant time on your risk and money management techniques.

Margin Trading Basics

By Alton Hill Article Word Count: 410 [View Summary] Comments (0)

Definition of Margin Trading Margin trading is when you borrow additional funds from your broker for trading. Each broker has their own margin trading requirements which is dependent upon a number of factors, such as the volatility of the stock, account size, etc. In order to trade on margin, you will need an approved margin account. Requirements for a Margin Account In order to create a margin account, you will need a minimum deposit between $2,000 and $5,000. This deposit is used as collateral against your trading activities. There will also be some sort of application you will have to complete, in order to have your account elevated from a cash account to a margin enabled account. Once an account has been approved, you will only need 50% of the cash on hand to purchase or sell short a stock. For example, if you wanted to purchase $10,000 worth of stock, you will only need $5,000. The one caveat to this, is that for some volatile stocks, there are strict margin requirements. There are some stocks that will require you have up to 80% of cash required to hold the position. Maintenance Margin For each stock you trade, there will be a minimum cash balance required to hold the position. This maintenance margin is calculated real-time and brokers will require that you keep the minimum cash on hand to maintain the positions, or (1) you will have to liquidate all or part of your position, or (2) deposit more cash. If you are on the wrong side of the trade, this can become a slippery slope as you will quickly find yourself depositing funds quite frequently.

453 Margin Calls My rule regarding margin calls is not to answer them, meaning, do not fund the account to get it above the maintenance margin requirement. If you get a margin call, it is because the market is signaling that you are incorrect regarding your trade. You do not want to throw more money into a bad situation. More times than not, you will be happy you cut your losses short and sold the stock (or covered it if you were short). Interest Brokers do not provide margin for free, this is capitalism. Brokers will charge you interest daily for your positions. This interest rate is much lower than a standard loan, but nonetheless it is money out of your pocket. So, it is in your best interest to use margin for short-term trading activities to avoid the fees.

Five Things You Absolutely Need To Know To Become A Successful Day Trader
By Leroy Rushing Article Word Count: 612 [View Summary] Comments (0)

Most people feel the lure of day trading: seeing the frenzy on the floor of the New York Stock Exchange, grabbing onto the tail of a skyrocketing stock, and earning your millions. They want to start day trading and find the answer to that famous quote from the movie Wall Street: "How many yachts can you water-ski behind?" Unfortunately, the vast majority of these beginner traders want to see results faster than it takes to watch the movie. In fact, about 90% of beginner day traders are knocked out of the game within the first few months. The good news is that this fact can easily be addressed. Just about all of those who crashed and burned did so because they didn't have a plan. If you take the time to develop a plan and learn how to trade, you stand a much better chance of making that top 10% of day traders who go on to successful day trading careers. Here are five things you need to know before you start day trading: 1. Is Day Trading Right For You? - This seems like a basic question, but you should seriously evaluate your trading personality. Will risking that much money make you nervous? Can you afford to lose money in the stock market? Are you financially - and emotionally - prepared to leave your job and co-workers behind you? These and other questions must be answered before you go any further in planning your day trading career.

454 2. How to Control Your Emotions - What most beginner day traders don't realize is that trading psychology has a huge impact on your success - and the market likes to play with your mind! There are many different emotions that come into play, but it boils down to two main dangers: fear and greed. It is vitally important you learn how to control your emotions before you try to tackle the market. 3. How to Develop a Solid Trading Plan - If you fail to plan, you plan to fail. And yes, it really is that simple. A solid trading plan will include details like determining what type of trader you are, your trading strategies (see below), what products (stocks, e-minis, etc.) you will trade, what software you will use, even your entry points, exit points, and stop loss points. The more detailed your plan, the more likely you are to have day trading success. 4. What Kind of Trading Strategies You Will Use - There are many trading strategies that will help you succeed at day trading. As a beginner trader you will probably be best served learning one or two to start with. For example, the Bull Trap is an easy type of momentum play for beginners to learn that allows you to predict a trend reversal, and cash in by following the momentum. But there are many different trading strategies; the key is finding the right set of strategies for you. 5. How to Develop a Business Plan - You should approach day trading as a business, not a hobby. Even if you plan to trade just part time, make sure you develop a full business plan that covers all the financial basics like how much trading capital you have, what your short-term and long-term financial goals are, developing cash flow statements, etc. You should also decide how you will work: where your office will be, what time you will be in your office in the morning, what daily preparation you will need, etc. Learning these five things won't guarantee that you will become a successful day trader. But if you start day trading before you find out these answers, you most certainly won't get too far.

Day Trading Basics

By Amit Malhotra Article Word Count: 622 [View Summary] Comments (0)

1. What is day trading? This is like regular trading in the stock market, involves the buying and selling of stocks, options, currencies and futures in the financial market with the aim of making a profit from the difference between the buying and selling price. However, it differs from the regular trading in that the positions are traded within 24 hours between the openings and closing of the market; they are rarely, if ever, held overnight.

455 Historically day trading as an option was available to limited financial companies such as banks. This was mainly due to the fact that these companies alone had access to the market data as also to the exchanges where the stocks were traded. The advent of technology, however, has changed the picture significantly. Individual traders too have access to the data and therefore, they can also make the same trades. 2. What are the different ways of day trading? Depending on the individual's personal trading style, it can be done through: Short-term trading Long-term trading Short-term trading: As the name itself suggests, in short-term trading, positions are held for either a few seconds or a few minutes. Long-term trading: In long-term trading, the positions are held for a period ranging from a few hours to the entire trading day. Trading styles can also be classified on the basis of the direction of the current price movement of the stocks, currencies, or futures. Accordingly, these styles are: Trend trades Counter-trend trades Ranging trades Trend trades: Day traders buy when the price of the stock goes up and sell when it goes down. In other words, they trade in the direction of the movement of the prices. Counter trades: According to this method, traders go back and forth between two prices; this generally happens when the market is moving sideways. A day trader, depending on his requirements, can choose between any one of the styles or choose a multiple combination, depending on the prevalent market conditions. No matter which style you choose, one thing remains constant: you have to have a thorough knowledge of the financial market and an ability to make quick decision in order to reap the profits. Finally, trading can also be classified base on the number of trades a trader makes in a day. While there may be traders who make their trades throughout the day, there may be others who wait for the best time to trade, and in some cases, make only a single trade in a day. No matter how positions are traded, or how many trades are made in a single day the bottom line is to reap the maximum profits during the day.

456 3. Which are the markets for day trading? A person can trade in stocks, currencies, options or futures. Accusingly, the financial markets for trading are: stock, currencies, options and futures. These include market based on stock indexes such as Dow Jones and the DAX, currency exchange rates such as the Euro to US Dollar exchange rate, and commodities exchange rates such as gold and oil. The day traders can access these markets through direct access brokers that provide a direct access to the exchange, and a faster trade execution at lower costs. What are the tools required for day trading? Given the time limited associated, it makes sense to use some tools to analyze the market and the performance of the companies whose stock you are trading in. In modern times, it is mostly electronic with the exchanges being run by computers and accessed by the individual players through the Internet. This makes it possible for day traders to operate from anywhere in the world by using a few tools such as a computer, Internet, software such as charting software and a telephone.

Trading Support and Resistance

By Kunal Vakil Article Word Count: 1339 [View Summary] Comments (0)

Support and Resistance Dynamics -----------------------------------------------------------------------Defining Support and Resistance Defining the concept of support and resistance is fairly simple. When discussing it in the context of the stock market, it defines the levels at which buyers and sellers step into a market or where the law of supply and demand come into play. Imbalances in supply and demand create support and resistance levels. For example, when an overwhelmingly high number of buyers (demand) step into the market, an indication of support is being put into the market. Conversely, a large number of sellers (supply) indicates that there is overhead resistance preventing the stock from moving higher. The price levels which create support and resistance in a stock only tell half of the story. We mentioned a key phrase above; "overwhelmingly high". Volume, is the second half of the equation and shows us the strength behind the buying or selling at support and resistance levels. The stronger the buying or selling is at support and resistance levels, the more important of a signal is being given.

457 Support and resistance can come in many forms:

Blow off tops or panic selloffs can put tops and bottoms into markets and mark important support or resistance levels for a stock. An increasingly popular technique for determining support and resistance can be derived through the use of Fibonacci levels. These levels are viewed by some as imaginary levels but have now developed a strong significance due to their widespread use. It is almost a self-fulfilling prophecy which causes prices to stop and reverse at these levels. Speaking of imaginary levels; many traders, especially day traders, use whole numbers to define support and resistance levels. Decade ($10, $20, etc) and century numbers ($100, $200, etc) are looked at very closely by many traders. Many traders also use trend lines and other technical indicators such as the RSI, slow stochastic, moving averages, and CCI to derive logical levels of support and resistance in a stock. Gaps often act as magnets for prices; for example, if a stock opens down 3 points in the morning, that price gap will most likely be filled at some later point. The close of the bar prior to the gap is considered to be support on gap ups and resistance on gap downs.

While all of these are important, let's take the time and focus on point #1 above. The other four points have been discussed in detail in other articles and can be viewed by following the links above. Example of Support and Resistance in Action with Volume **The original article has the image related to this section Blow off tops and panic sell-offs are a result of extreme movement in price and volume in a stock. They signify massive shifts in ownership and can provide very strong support and resistance in a market. Let's take a look at a very good example. We are going to take a look at a trade that we actually were involved with back in 2004. Sirius Satellite (SIRI) announced that Howard Stern was going to move over to their platform and the stock catapulted much higher in a very short time. Let's review the graph. Look at point A on the graph above. Notice that SIRI moved from $2 to $4 with climactic volume. The expansion in volume and price created a large imbalance between buyers and sellers and once it ran its course, it set up a resistance level that took 9 months to penetrate. Typically after a blow off top, an immediate response will follow in the opposite direction due to profit taking and new shorts speculating that a top is at hand. The low point put in, as seen at point B, is called an "automatic reaction". Automatic reactions are typically fast and swift in nature just as the preceding up move was. Points A and B now set up your range of support and resistance that you can expect the stock to trade within until an indication is made by the stock that it wants to break out of the top or bottom. Moving on to point C; frequently, you will see a re-test of the blow off top (A), this is commonly known as a "secondary test". In our case, the secondary test came in with lower volume and failed to take out the price highs that we set back in January '04.

458 SIRI failed at the $4.20 level and moved back down into support at around $2.50 and actually broke through our support area designated by point D in the graph. The zone highlighted in blue is very important because it is a false break to the downside. This break came on very light volume and then moved right back into the trading range in early September. This indicates to us that a move back to the top of the trading range may be in store. Point E was just that. SIRI bursted up to $4.20 with strong volume and actually penetrated the level by a few pennies before reversing lower again. This test was very telling. The increase in volume over the January levels told us that the buyers were strong and looking to push prices higher. We should now be on watch for a break higher. SIRI had now set up a triple top at the $4.20 level. The price action between points E and F were of strong significance. Notice how the price retracement off that high was shallow and notice also how volume contracted by quite a bit as well. Price was rejected but not severely. SIRI refused to go lower and went right back up to the $4.20 resistance level and closed above it. This confirmed a breakout on the chart. Notice how the stock moved significantly higher into point G where it set up an island top candlestick reversal with gigantic volume. This was the beginning of the end for this stock and these levels were never seen again. Our expectations for this stock were slightly higher due to the nature of the trading range that the stock was within. We are talking about the the relationship between "cause" and "effect". In a nutshell, the greater the preparation, the stronger the result. We have to keep our charts in perspective, a shorter term formation will most likely not produce as dramatic a result as a longer term formation such as the one we discussed above. Not an Exact Science Defining support and resistance levels is not an exact science. You will rarely get support levels retested at exact prices. Keep an open mind; most of the time, you will see zones of support and resistance. Trading Ranges A few key points we want to mention regarding trading ranges. If a stock moves out of its support and resistance boundaries with heavy volume, you are possibly looking at a shift in the character of the stock. For example, if a stock moves up through the top of its range with heavy volume, it is indicating that the buyers were able to take hold of the stock and overpower the sellers at that level. This is bullish and the former resistance level should now be considered as support on a pullback. You can almost look at it as if the bulls claimed victory at that price level. A breakout of a trading range in which the preceding trend was sharply down is more reliable than a breakout of a trading range that comes after a rally. These are considered secondary rallies and are more prone to failure. ConclusionIn conclusion, you must study how a stock behaves at key support and resistance levels and take note of climactic increases in volume as it typically is associated with panic or extreme levels of greed. This is a good time to look for take the

459 opposite side of the primary trend. Remember, climactic volume eats up a large amount of buyers and sellers and tends to produce sharp snap backs in either direction as buyers have put in major support and sellers will have put in major resistance going forward.

Day Trading Time Zones

By Kunal Vakil Article Word Count: 1187 [View Summary] Comments (0)

Understanding Specific Time Zones during the Trading Day Having a successful trading career not only depends on the trading system or style that you use but also depends on other intangibles, such as day trading time zones. Understanding the market dynamics during different times of the day will take your trading to the next level. Think about your trading history and notice if you see a pattern in the different day trading time zones in relation to winning and losing trade percentages. What a day trader must understand is that even if a chart has a great setup, the time at which the trade is placed may be in a day trading time zone which typically starts a countertrend move. For example, many traders who day trade breakouts will be far more successful during the first two hours of the day than any other timeframe during the day. Typically breakout attempts will fail and reverse which will only serve to frustrate the trader and cause you to doubt your approach to trading. Let's now take a look at the different time zones and understand the general market dynamics during each time zone. Day Trading Time Zones The opening bell - 9:30am to 9:50am The first 20 minutes of the day are the most volatile of the trading day. While this is the most dangerous day trading time zone, it can also provide to be the most lucrative if you understand how to trade in this time frame. It is usually recommended that novice traders stay out of this zone and wait for the imbalances created from overnight news or earnings releases to settle down. Many technical indicators do not work well in this time frame as the volatility is too strong. In most cases, volume will also be the highest of the day during this time. The Morning Reversal- 9:50am to 10:10am

460 The first reversal zone of the day begins at around 9:50am and lasts for 20 minutes. This is a very important period of the day for day traders. I look for this time zone to put on continuation trades. For example, a stock may gap down by 10% on the open and then bounce for 10 to 15 minutes coming into this time zone. However, this is where day traders will look for a reversal of the bounce and a continuation in the primary trend. Once the dust has settled from the opening bell, you will be able to more clearly see what the traders in this security will want to do. Volume will drop off a little bit compared to the open but will still be very high during this day trading time zone. This time period is my favorite for trading as the price stability returns to the market but volatility is still present for profitable trading. In strongly trending markets, reversals may be small or non-existent Low Risk Trading - 10:10am to 10:25am During this day trading time zone, volatility shrinks again and you want to look for clues in the Dow, S&P, and Nasdaq as to the direction that the market wants to take. This is an opportune time for bigger traders to move the market the way they choose. Watch the tape of the stocks that you track for any indications of direction. Decision Time - 10:25am to 10:30am The market will be settled for the most part and most of the days volatility will have passed. There may have been a few reversals in the first hour but during this small zone, many traders will cash out of profitable positions and finish the day while others will position themselves for the next move in the market. I look at this period as a time for consolidation and preparation. The move following this day trading time zone can last until lunchtime. Final Move of the Morning - 10:30am to 11:15am This time zone will be the final major time zone as far as morning trading is concerned. It is safer in relation to the other zones in that technical indicators such as the slow stochastic or RSI will have a more pronounced effect than some of the earlier time zones. Be careful near the end of this range as it leads right into the lunch time hour which can start early or start late. A rule of thumb is that the more volatile the preceding day trading time zones are, the greater the chance that this move will extend further into the 11 o'clock hour. Go Eat your Lunch!! - 11:15am - 2:15pm Lunchtime trading can be brutal. False breakouts and choppy sideways moves characterize this time period. If you must trade, trade lightly until you have a good track record of putting on winning trades in this time zone. Also, please let me know how you do it! The risk to reward is very high here. Volume will fall out of the market as floor traders and other institutional traders will take their lunches. Don't let this time zone turn profitable morning trading into a loss. Back to Business - 2:15pm - 3:00pm

461 Traders will work their way back into the market during this time frame. For the most part, trends have been established and trading during this timeframe will provide you with opportunities where the use of technical indicators is applicable. Remember, the CME closes at 3pm so you will see a pickup in volume due to some of the bond traders coming into the equity and futures markets. It's GO Time - 3:00pm - 3:10pm Bond market closes and bond traders will flood the equities markets; watch for sharp moves in either direction. Moves can be fast and large. Use Caution & Stay with the Trend - 3:10pm - 3:25pm During this day trading time zone, use caution as you are approaching the 3:30pm timeframe which tends to produce a reversal or a stall of the prior trend. During this zone, you want to stay with the trend that has been established from the 2:15pm and even 3:00pm timeframe but don't get attached to the positions. Portfolio Re-balancing - 3:30pm - 4:00pm I tend to recommend traders not trade during the last half hour of the day. There are many funds and institutions rebalancing their portfolios and it can get a bit tricky. If your day trading, you only have 30 minutes max to get out of your trade and I don't like working under that type of pressure. If your an action junkie or like putting on very short term trades, the volatility is there for you to do so. Conclusion Personally, I trade up until about 11:00am to 11:30am. The volatility in the morning fits my trading style. That is key; you need to understand who you are as a trader and trade accordingly. As you can see, the chart setup or systems that you look at are not the only factor in putting a day trade on. Remember, day trading is not absolute; it is a game of odds. Your job is to put the odds in your favor and by utilizing the different day trading time zones that we have discussed, your trading will become more consistent. Day Trading Training Strategies of Day Trading
Main (or First) Objective of Day Trading The primary objective of day trading is to earn consistent money on daily basis. (Please dont worry we will tell you HOW in following topics) Secondary Objective of Day Trading. Observe carefully the stock price movements - Stock price movements like Open, (the first price at which the stock opens when market opens in the morning) High, (The stock price reached at the highest level in a day) Low (The stock price reached the lowest level in a day) and finally Close. (The stock price at which

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it remains or the final price of the stock when the market closes for a day). One more important factor to watch is stock price fluctuations. Stock price fluctuations means by how many dollars or cents the stock is moving (either up or down). This gives you an idea on what price to buy and at what price to sell (or first sell and then buy). This strategy is very useful for day trading but in fact you get more superior idea (or plan) for TOMORROWS DAY TRADING for this particular stock. 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. Overcall 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 then the price is going to move up and if you see more sellers then 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 Intra day 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 9.55 am to 3.30 pm (Indian time). Advantages of Day Trading Margin trading In Day trading you get margin on your balance amount means you get more leverages (amount) on your available balance amount to do day trading this concept is called margin trading. Margin trading is only possible in day trading and not in delivery trading. How much extra amount (margin) you are going to get that totally depends on your broker, or your online trading system brokers. Some broker provides 3, 4, 5, and 6 times extra margin. If you do margin trading then you have to square off your open trades on the same day (means if you bought shares then you have to sell and if you sold shares then you have to buy)before market time (that is 3:30 PM) finishes. Second 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 cant do in delivery trading. You can sell shares when prices are falling and then buy when price falls further. Disadvantage of Day Trading

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As you are benefited to get more extra amount to trade (that is margin trading) and get more extra profit it is also equally true that you are also taking more risk of loss. At any cost you have to square off the open transaction before 3:30 PM (especially if you are doing margin trading) at that time the price may not be in your favor.

Information on day trading tools

A successful day trader or share market trading requires couple of disciplines and following trading requirements PC with internet - If you need to do trading yourself then you need to have a PC or else you can do trading in internet caf also. A PC with good internet connection speed. The internet connection should not be slow or should not face any other problem especially in Day Trading. Online Trading Account (Demat Account) - You need to open online share trading account with any of the available banks or online brokers. If you want to know more about demat account then please go to Basics of Indian stock market and check in share market and its analysis part.
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Day trading stocks

In day trading, traders mostly wish to do buying and selling on small profits or else they look for overbought or oversold shares. Taking into consideration these important points following basic things you should look in for shares while choosing them for day trading. Price Volatility Volume (quantity) What exactly these terms mean and how to use them while Day Trading. Price Volatility The Price volatility means the movement (up and down) of share price should be more (or high) through out the day. In other words the fluctuation in share prices should be on high rate so that it will be easy for you to buy and sell on different prices. Suppose if share is moving up and down in very narrow range then on what price you will buy and sell?So it is always better if you choose shares which have high volatility in price movement. Volume (quantity) Volume means trading quantities. The shares which you choose for day trading should have high volumes (or high traded quantity). Why this is required? The high volume indicates that there is more liquidity. Liquidity means lots of transactions had took place on this share and more people are interested to trade in this share. This will ease your trading job because you will get more exposure to the price to buy and sell at anytime. Due to high volumes there will be also high price fluctuations.

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.For more information go to Day trading techniques

Day trading rules for Indian share market

Its important to do practice or paper trading before you starts actual trading. Following are the

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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. Its vital important that you must be pretty fast to enter and exit the trade (i.e. open positions).

Guide for daily profit in day trading

Dont jump in trend early - Wait and get paper confirmation of trend change, and then plan and do your trades (buy/sell). Dont jump in or do early trades before any trade change confirmation this may damage your capital (bank balance). Dont wait in trade for long time - Suppose that you had done one trade (either buy or sell) but the scrip is not moving either up or down, it is just stable or moving with very low price difference, then you should get out of that trade and look for other scrips. You may encounter these type of situations when indices (NSE or BSE) and not moving (or moving with narrow range). At such time either you wait or come out of trade, dont loose patience and fall under loss. Dont change your trend on volume volatility - Some time you enter in trade by seeing the buy and sell quantities. For example, suppose you brought shares by seeing more buy quantity then sell quantity, expecting more buy quantity may push the share/stock up but after few minutes you see exactly reverse that you see more sell quantity and less buy quantity or both buy and sell high quantity or the difference of buying and selling quantity is decreased as compared to what you had seen before. So this point is very important, dont panic here and sell off your stock, wait and realize the situation properly and then take action. This situation comes many times but if you are sure that your share is going to move up then stick to it. Beware of companies acquisition or any announcement by Government - Suppose in the morning, before market begins, you should read or viewed the news of any Indian Company has acquired any foreign company (or part of foreign company) if you see this is actually best news/things that Indian company. But if acquisition amount is far more than expectation then this good news will turn into worst news. The shares of that company will start falling. So you should not get in trade and buy shares you have to wait and watch how market or other people are responding to these shares and once you understand then you can trade. So always watch where the market heading towards and then react. Announcement of Government - You should also be very careful to decide your tarde based on any

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government announcement. For example, if government has declared any hike in interest rate then its good news for bank stocks and hence the shares will rise but if government has declared 2nd rate hike in very less span of time as company to first one ( stay within duration of one, two month or three month) then this news will be worse for bank stocks, the share may keeping fall during the trading period. So realize and analyze the news and finally watch market behavior and this fall or do trade you will get success.

Resources to start your day trading

Read financial newspaper like Business Standard, Economics Times, etc. If possible note done the high lights/breaking news with respective company names and keep close watch on them for that day. If possible watch share (stock) market related TV channels like Zee Business, CNBC, etc. In these TV channels you get over all idea/movements of all share prices and markets (BSE, NSE). And also it becomes easy to catch and keep close watch on related companies if any breaking news comes out during that day. Especially some share market related websites always displays current news, market affairs, share market trends, breaking news and various announcement done by company or government which may effect the share market and related companies. So try to access and have all ok on such types of websites before starting trading and also through out the day, if possible. So in short before starting you stock market trading you should be well aware of all the current news of financial market and if possible note down the breaking news or effective news and its related company and keep watch on that share and trade accordingly on that day. For latest market news, latest stock updates on day to day basis and also latest share market updates which may affect your shares. To have a look please Go here

Day traders secrets

Never invest all your money in same sector this method is called as diversification of shares. This will protect your money from downtrends of any particular sector as you can make money from other sector. There are various sectors like IT, Pharmacy, Banking, Steel, Petrol and Oil, construction and infrastructure, auto etc.

Day trading tips

Prepare your Trading Plan Strictly maintain stop loss Control your Emotions Don't try to get big profits in single trade Accept and Limit Losses Check out volumes before buying Don't Over-Trading 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.

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Wait for the target price to buy For example, if buy is given at 150.5 then dont 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, dont 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.

Online Stock Trading Tips

Online stock trading India Online stock trading services in India Best Online stock trading Learn Online stock trading Problems in Online stock trading Online stock trading tips

Go Here What is offline stock trading - Trading done through stock broker is called offline stock trading method. Just to brief you about offline trading. If you need any more advice about offline stock trading then please drop a line to support@stockmarketindian.com and we will get back to you within 24 hours. As this section is only dedicated to online stock trading so lets proceed. So till now you would have been understood about online stock trading. Now lets go to next chapter.

Online stock trading services in India

There are three primary things required to start online stock trading. Demat account (Trading account), a computer and internet connection or else you can go to internet cafe. A) Online Demat Account -

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You have to open online trading account that is also called as demat account.( If you want to know more about demat account then please go to Basics of Indian stock market and check in stock market information and its analysis section.There are number of stock broker agents with whom you can open your trading account. Following are the some of the names of broker agent where you can contact them and open your trading account. www.icicidirect.com, www.sharekhan.com. www.5paisa.com , www.indiabulls.com etc. these are just few agents you will find more. Points to remember while opening your trading account Enquiry about brokerage rates and taxes you have to pay for your trading account. You have to open the trading account with the agent who is offering you the lowest brokerage rates. Different brokerage rates are available for different trading methods like delivery trading and intraday (day trading) trading. Before opening your account try to insist the agent to get demo of there online trading software or terminal and check your reliability and Speed. Also confirm about there charges and any hidden charges if you have to pay. Please properly verify above points and then decide with whom you would like to open the trading account. Now you have your on online trading account, lets go for another most important requirement needed for you to start your online trading account. B) Computer Second most important requirement is computer. Nowadays you get very good computer in very affordable price. You may also go for second hand (used) computer but its better to go for new one as they are available for very less prices. Precaution - Get the computer configuration details and price and compare with other shops and then finalize your deal.Because the price of computer varies due to configuration so get proper configuration details. NOTE - If you cant afford to buy a computer, then you can go to Internet caf and do your trading. This method is also absolutely fine. C) Internet Connection Third requirement is your internet connection. Nowadays you get internet broadband connection very fast and very importantly at very less price. Following are the companies which provide broad band internet connection. Tata broadband, Sify broad band, Reliance Broad band etc. Precaution - Get proper price range and speed of the internet connection they are going to provide you. The price depends on internet speed and data they provide to you. So get proper confirmation and then go for that companys connection Another option Alternate option for Internet Broad band connection is GPRS connection. GPRS connection is the internet connection has to be activated on your cell phone (mobile phone) and then the cell phone has to be connected to your computer. The GPRS connection is bit cheaper as compared to broad band connection but you may get less speed as compared to broad band connection. The choice is yours. On the second part the Airtel, Tata Indicom Reliance, Idea etc these all and many other provides GPRS connection and they will help you to set up your mobile phone with your computer for internet access. Above three are the primary requirements for starting your own online stock trading. NOTE - If in case if you dont want to purchase a computer and dont want to get internet

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connection then you can go and trade in internet cafe. This is also absolutely possible and fine. After getting your prime requirement for starting your online stock trading now its time to start your stock trading. Lets go to next chapter

Best online stock trading

Please make a note of following things before starting your online stock trading. Must be aware of Stock Market - You must be well aware about stock trading, knowledge of stock market and stocks, fully aware of your online trading software or terminal. Refer our website fully - To have basic idea about different types of stock trading and other stock market related information. Keep yourself updated - It always very important to keep updated yourself about latest news about stock market and companies etc. it really helps you in stock trading. Stock market always reacts to appropriate news Resources - To keep updated yourself you have to read financial newspaper like business standard, economic times etc. On the internet you can access/open financial related websites like www.businessstandard.com , www.economictimes.com , www.capitalmarket.com etc. On these websites you will get all news related to stock market, government news, companys announcements etc which will affect the stock market. Stock market daily open at 9:5 am and closes at 3:30 pm, Saturday and Sunday are holidays for stock market.If you open the financial websites before market opens then you will get the idea about todays stock market movement, either it is bullish (going up) or bearish (coming down), ( want to know other terms then please check our website ) other information like movement of other Asian markets and USA market which has huge impact on our Indian stock market. Asian markets start early then our Indian market. Action Plan - Now you have to plan your action as you are ready will all the information required for stock market. Now your action plan is to select stocks which are I news or select stocks from sector which is in news. Sector like IT, cement, Petrochemical etc. If there is news on any particular companies/stocks or on any sector then definitely there will be movement, if the news is appropriate. During market hours also you have to keep alert about news. Always trade or select stocks/companies which are involved in news. This is one of the easiest methods of tracking stocks and doing trading on them. Also it is also always better that do some study and research before starting your trading. For example note down todays top gainers, top losers, and volume toppers etc and tomorrow keep a close watch on them this is also one method of selecting stocks and trading on them. One more very important point is you should be always aware about news like when company is declaring its dividend, companies merger plans, demerger plans, quarter results, major acquisitions, collaborations etc . This type of news will definitely makes great movement on related company stocks.
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Learn Online Stock Trading

There are very important benefits (advantages) of online stock trading over offline stock trading. A) No need to depend on broker First up of all you need not have to depend on any stock broker for buying and selling of stocks. Depending on broker may result in delay of buying and selling of stocks which may in turn result in huge loss or less profit. If you are doing online stock trading then you can execute your trades at any time because you are observing every movement of stock market right in front of your computer screen. B) All updates on your computer screen -

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As you have internet connection with you will get all updates of government news, companies announcements, and corporate declaration etc during market hours. Its not so practically for your broker to provide you all the updates and news. So its very important point that you get all news, especially those news which affects stock market right in front of your computer screen. Stock Market always reacts to appropriate news C) Independent for your trades On the other part you will get all information of your traders on your computer screen. You can view yourself your profits and losses done and depending on your current situation you can plan your further trades. In other words you are totally independent for your trades from your broker. You are boss of your self.

Problems in online stock trading

As there are couples of good advantages there are also some technical disadvantages. As every coin have two sides. A) Disconnection from Internet - In online stock trading there is the possibility that your internet connection may get slow or get stopped, this may result in disconnection from stock market. At such critical times you have to call your executive (from whom you opened your trading account) and place your order or square off your pending orders. B) Computer Problem - If your computer stops functioning then this may also result in disconnection from stock market at this time also you have contact your executive. C) Other Problem - Other problems like electricity disconnection. Solution for this is inverter or battery backup. Above all technical problems which may exist at any time and they are beyond our control means not in control.

Online stock trading tips

Do not over trade - Do not put all your money in stock market. Do not put all your money in single stock or single sector - Put or divide your money in multiple stocks or sectors. This may reduce the risk of heavy loss. Do not panic or fear - Think twice before making your trade/plan and once done stick to it, dont panic or fear. Accept Loss - If you trade is going against you and if you are not sure about your trade then immediately accept the loss and come out of your trade. It will save you from heavy loss. Right Opportunity - Do not fall in trade early, wait for right opportunity and then trade. Its very important. "Wait, Watch and then trade you will get success. Everyday is not trading day - Do not force yourself to do trading everyday. Its wrong. If you are not sure about the market movement for that day then it always wise decision to be away from market and not to trade. Keep you greediness away - Most of the people loose in stock market due to greediness. Get satisfied whatever profit you get and come out of that trade and wait for next opportunity. Dont wait to take huge for that single trade. More points and articles will be coming soonKeep watching this website.

Online stock trading India

In Online stock trading the trading is done by using computer and internet connection.

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In other words trading done through computer having internet connection is called online stock trading. Instead of going to any stock broker you can do trading yourself using online stock trading method. In this method you must have a computer and internet connection or else you can make use of internet cafe. Nowadays due to internet facility lots of things have become easier as compared to earlier days. So making use of the great internet facility you can start your own online stock trading. The stocks may rise or fall due to numerous reasons, some of them are mentioned below. If you at least keep a watch on following factors. You can save yourself been big loss (if stocks are falling) or earn good amount (if stocks are rising)

A) News
Stock market always reacts for appropriate news. Always read financial news like Business Standard and Economics Times etc. or else watch financial news channels. What is appropriate news? News - Like merger announcement, this news will impact more if the merger is related to foreign company, positive news - stocks may rise. Demerger announcement will have negative impact - negative news - stocks may fall Merger and Demerger announcement may have major impact on Indian Stock Market. Acquisition (takeover) Announcement - Takeover of some part (or whole) of companies, especially those having larger capacity / turnover or foreign companys. This news will have major impact on that particular stock - very positive news - stocks may rise, dont miss this opportunity. Buy stocks of such companies. Takeover may have positive impact on Indian Stocks. Expansion Plan - Announcement like major expansion plan of a company or entering into other sectors or opening new plants, branches, turnover increase announcement, new product launch etc. Above announcement will have a positive impact on a stock market - stock may rise. Political News - News like elections in the country or in any particular state, news of any major change in political upfront or in any change in rules will also have major impact on Indian stock market. Political news related to any particular State will have major impact on companies located in that state for example major Sugar Companies are located at Uttar Pradesh like Balrampur Chinni, Triveni Engg, Bajaj Hindustan etc. so any major political news especially related to any sector will have major impact on stocks of that sector. Sector News - The stocks of Indian stock market have different sectors and if any announcement of news by Government for any particular sector will have major impact on stocks of that sector. Following are few sectors, few companies and few related news that may affect stock prices in Indian Stock Market Sector Companies News Announcement BankingICICI, SBI, UTI, Indian Bank etcHike or decrease in interest rates, loan rates etc. OilIPCL, BPCL etcHike or decrease in diesel prices, hike or decrease in crude oil prices etc. RetailDabur, ITC, etc News related to any taxes etc. CementIndian Cement, Gujambcem etc Hike or decrease in cement prices. In short sector news will affect stocks from that sector. For latest market news, latest stock updates on day to day basis and also latest share market updates which may affect your stocks. To have a look please Go here

B) Impact of Other Asian Market

Most of the time it has been observed and studied that Indian Market (Nifty/Sensex) follows other Asian markets and USA markets. Asian markets like China - Shanghais market, Japan - Nikkei market, Hong Kong - Hang Sung

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market. Above all Asian markets open early than Indian market. Most of the time Indian market will follow this Asian markets. If these Asian markets open in positive and lead to positive direction than the Indian markets will react in the same manner and vice-versa provided that there is no major news in India. USA market - USA markets like NASDAQ and DOW will also have major impact on Indian market. So, in short in the morning around 9.30 am (Indian market opens at 9.30 am) get all news above USA markets (which opens and closes in our night time which is their day time) and Asian markets and plan yours day trading. Individual stock - If the stock is over bought, then some profit taking will takes place ( price may come down) and if stock is over sold then you may see some buying (price may go up) of those stocks with large volumes, than you can plan your trades accordingly.
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C) Quarterly Results - (Very important)

Quarterly results declared by all Indian Companies will have major impact on that company and hence their stocks in Indian stock market. Every company declares its quarterly results. If any company declares extra-ordinary results that will definitely affects its stocks. Most of all stock traders concentrate on much profit and target sales that company had made. If company achieved good profit than they declare dividend, bonus stocks etc. This will make positive impact on stocks of that company.

D) Fundamental News
Fundamental news means companies own news. Companies own news means future turnover announcements, any change in director body, future releases etc. If the company has good fundamentals like board of directors, companies expansion plans, future acquisition etc then its worth to invest in such companies for long term.

E) Inflation Rate - (Very important)

Inflation rate is wholesale prices of consumer goods. This rate is declared by Government for every week at Friday (weekend) 12.00 pm. The inflation rate indicates what the wholesale price was for that week. If it is low As compared to previous week, then it is positive news and you may see stock prices going up and if the rate is higher as compared to previous week, then it is negative and this may affect stock prices negatively and stock prices may come down. So keep a watch. Inflation rate declare by Indian Government at every Friday 12.00 pm and trade accordingly. Indian stock market reacts to inflation rate.

F) Future/Derivative Expiry - (Very important)

Future/Derivatives has expiry period of one month. Derivatives get expired on last Thursday of a month. Future/Derivative gets expired means you have to sell your future/derivatives which you carry for whole month and buy for next month. Due to this expiry period stock traders sell there derivatives, due to which stocks prices may come down. If you watch the stock market carefully this selling movement starts before one or two days of expiry. So be cautious and plan your trade accordingly. During this expiry period you may see stocks prices coming down then you can plan your buying and selling in next month when prices go up.

G) Where to Keep Watch - (for day traders)

Keep a close watch on stocks which comes under top gainers, top losers and which are touching all time high. What can be done in after market hours (when market closes at 3.30 pm) you can

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make a list of all those stocks then plan your trade. Touching all time high is positive news.

Trading in Futures Derivatives (F&O)

Idea about futures derivatives
Future trading can be done on stocks as well as on Indices like IT index, Auto index, Pharma index etc Stock future trading Lets first understand what the meaning of futures trading is. In simple language one future contract is group of stocks (one lot) which has to be bought with certain expiry period and has to be sold (squared off) within that expiry period. Suppose if you buy futures of Wipro of one month expiry then you have to sell it within that one month period. Important - Future contract get expires at every last Thursday of every month. If you buy October month expiry future contract then you have to sell it within last Thursday of October month. Likewise you can buy two months and three months expiry period future contract. You can buy maximum of three month expiry period. For example - suppose this is month of October then you have to buy till maximum month of December expiry and you have to sell it within last Thursday of December month. You can sell anytime between these periods. Lot size (group of stocks in one future contract) varies from future to future contract. For example Reliance Industries future lot size has 150 quantities of shares while a Tata Consultancy service has 250 shares. In the same manner all futures have different lot sizes decided by SEBI (Securities Exchange Board of India). The margin (in other words price of one lot size) varies on daily basis based on its stocks closing price. Future trading can be done on selected stocks listed under Nifty and Jr. Nifty and not on all stocks. The price of future contract is determined by its underlying stock. Important - You cant buy future contract of expiry period of not more than 3 months.
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Indices future trading

As you can do future trading on stocks likewise you can do trading on different indices like Nifty index, IT index, Auto index, Pharma index etc.

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. rd Most of the times on 3 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 rd 3 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.
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Major Advantages of Futures Trading over Stock Trading
1) Margin is available In future trading you get margin to buy (but can hold only up to maximum of 3 months), while in stock trading you must have that much of amount in your account to buy. For example - If you plan to buy stock XYZ at Rs. 100 and quantity 1000 shares then you have to pay 1 lakh rupees (RS 100 x1000 qty). But if you plan to buy XYZ future contract and that contract lot size has 1000 quantity of shares then instead of paying 1 lakh rupees you have to pay just 20% to 30% of whole amount which comes to 20 thousand to 30 thousand rupees. In short in future trading you have to pay just 20% to 30% of the whole amount what you pay if you buy stock of that price. But limitation for this is your expiry period. Means if you bought future of one month expiry then you have to square off within that one month likewise you can buy maximum of three months expiry. 2) 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 cant 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 like wise 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 then three months. In short selling of futures also you get margin as you get in buying of futures. 3) Brokerages are low Brokerages offered for future trading are less as compared to stock delivery trading.

Disadvantages of Future Trading over Stock Trading

1) Limitation on holding If you buy or sell a future contract then you have limitation of time frame to square off your position before expiry date. For example - If you buy or sell future contract of one month expiry period then you have to square off your position before your expiry date of that month, so in this example you got one month period. So likewise if you go for two month expiry period then you get 2 months and if you go for three month expiry then you will get 3 month expiry period to square off your position. 2) Level of Risk Due to margin facility in future trading you may earn huge profit by investing fewer amounts but at the contrary side if your trade goes wrong then you may have to suffer huge loss. 3) Limitation on stocks You cant do future trading on all stocks. You can only do on listed stocks on Nifty and Jr. Nifty.

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Important points to Remember while doing future trading

1) First up all you have to decide whether you want to buy stock derivatives or index derivative. After this you have to select the expiry period. Once you buy certain expiry period then you have to sell (cover off) your order before that period. Its no need to wait till the expiry period, you can even square off on the same day (if you are getting profit) or anytime whenever you feel to book profit, no compulsion to cover off your order on the last day of expiry. 2) Check out for Futures current market price. 3) Futures Lot Size (number of shares in that particular Lot). 4) Futures Lot price (this is the amount you must have in your account to buy one lot of future) also called as margin amount. rd 5) Selection of expiry period - you want to trade on expiry of one month, two month or last 3 month. 6) No need to wait till expiry period can book profit wherever applicable.

Method of Short Selling

Short selling (selling before buying in future trading) In future trading you can do short selling and buy (cover) later when price comes down from your selling price you can short sell stock future as well as index future. But again same restriction will apply and that is of expiry period.

Finding growth stocks

Find out stocks with the latest P/E (price to earning) ratio of less than 10. Filter the companies with net sales of less than Rs.100 Crore in latest financial year. To find out real growth stocks, filter out all companies whose 3 years average sales and PAT (profit after tax) figures are less than 15%. Further to get more refined stocks, filter out stocks having debt to equity ratio more than 1.5 and return on capital employed (ROCE) less than 15%. Drop out all stocks having Interest Coverage Ratio of less than four times over the past 3 financial years. This ratio indicates how company is capable to pay its debits. If you need further to filter out these stocks and wish to have one or two stocks then you can

Get Best Returns in Short Period Investment in Delivery based trading

Delivery based trading means buying shares and holding them for certain period of time is called delivery based trading. The shares you bought will be in your demat account. Once you take delivery of shares you can hold them as long as you want. To take delivery of shares, you must have sufficient funds in your account. You dont get any margin to buy shares in delivery. If you have Rs.5000 means you can buy shares worth of Rs.5000 and not more than this.

Tips for stocks investment in delivery based trading

Please study following points, carefully, and get best returns in short period of time. Basically, Delivery based trading can be minimum one week, one month or couple of months. How long to hold your scrips/shares will depend on other technical indicators and averages. How to select best scrips There are thousands of shares/stocks, which one is best for delivery trading and which one will

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give maximum profit in short period of time. Please have a look following selection criteria points. Points to remember for fundamental screening, 1. Sector - 50% of stocks rise and fall is directly related to the strengths and weakness of its industry group. 2. Never lose more than 1-2% of your total amount on any one trade. 3. Promoters holding more than 40% indicate safety for retail investors. (Promoters - who run the company) 4. FII holding minimum 20 and maximum 25 is safe for retailer, not much volatility. More FII investment = more volatility. 5. Liquidity - buying and selling of shares minimum 1L/day Consistent earnings Generating profit consistently year after year or quarter after quarter EPS Earning per share is calculated by taking a companys net earning and dividing by the numbers of outstanding shares of the stock the company has. Note - Last years EPS would be actual, while current year and forward year EPS would be estimates. P/E Ratio EPS is a great way to compare earnings across companies, but it doesnt tell you anything about how the market values the stock. Thats why fundamental analysts use the P/E ratio, to figure out how much the market is willing to pay for a companys earnings. P/E Ratio = Price of the share/EPS Higher the PE ratio, more people are convinced to pay high for that share expecting higher growth in coming future. Dividend yield It is calculated by taking the amount of dividends paid per share over the course of a year and dividing by the stocks price. Its percentage return a company pays out to its share holder in the form of dividends. The higher the better. Price/Book ratio The higher the ratio the higher price the market is willing to pay for the company above its assets. Its more useful to value investor than growth investor. Price/Sales ratio As with earning a book value, you can find out how much the market is valuing a company by comparing the companys price to its annual sales. Low Price/Sales ratios (below one) are usually thought to be the better investment since their sales are priced cheaply. P/S ratios are usually used only for unprofitable companies, since such companies dont have a P/E ratio. Returns on Equity (ROE) It is used as a general indication of the companys efficiency, in other words, how much profit it is able to generate given the resources provided by its stockholders. Investors usually look for companies with ROE that are high and growing. Debt to equity ratio This should not be more than 1, and less than 1 indicates company has very less debt. This is

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very important during market down trend as company has to pay lots of interest ratio beside low profitability. So its good sign, if company has less debt and that is debt equity ratio.

Investment tips in Delivery based trading

Remember following points to increase your profit and reduce losses, Buy shares of different companies Dont ever try to put all your money in single share. Try to get shares of multiple companies and if possible from different sectors. You will always get benefited by investing in companies of different sectors, because we never know which sector will have good news and which sector will have bad news. Market always reacts for news. Be Patient When you buy shares, they may go down. In share market its general practice that shares go up and down. If they go down than dont panic and sell your shares Most of the investors/traders wait till their shares come to their buying level and then sell, but generally they forget that is the actual buying level of shares and from this level onwards the share price will start moving upwards.

Corporate investment for long term trading

Taking delivery of shares during Q1, Q2, Q3 and Q4 results is very common among investors/traders who knew the historical performance and current market situation of those particular companies or sector, so study historical yearly profits and sales ratios of top companies and buy shares of those companies. Some weeks before, their quarterly results and after declaring their huge growth in quarterly results, obviously share price will shoot up then you may sell your shares and make handsome profit in very few weeks. If you hold bit longer, then you may also get benefited of dividend. If companies make outstanding profit then they may declare dividend. For more guidance or advice on trading on news e-mail us at support@stockmarketindian.com

Technical indicators for Delivery based trading

Its very important to make use of technical indicators in Delivery based trading. As this topic is very vast, we will try to brief about important indicators to use. If you need any extra free support/guidance then drop an e-mail to support@stockmarketindian.com You can use following indicators for entry and exit signal, over bought and over sold levels etc. MACD RSI Moving Averages For more guidance about these indicators please use mention link http://stockmarketindian.com/nse_bse_technical_analysis.html

Returns on investment in indian companies

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There are very important benefits of Delivery based trading Hold as long as you want If you buy shares and if it goes down, then you can hold them and sell them only when your shares go above your buy price. Loan Nowadays some banks and some financial firms provide loans on your shares. So you can utilize your shares in your bad times. Dividend (very important) If companies make good profit, then they may declare dividend per share. If you hold shares of such companies then you may get dividend per share. Good returns Nowadays if you keep your money in banks then you get maximum 9% or 9.5% per year. If you invest in shares of good growing companies then you can earn minimum 15% returns per year. Some companies give 30 to 40% returns per year. Best share market returns are based on delivery based trading for long term. Bonus share If company makes extra ordinary profit then company may declare bonus shares. Bonus share like 1:1 means if you have one share then you may get another free. So if you have delivery of such shares then you are liable for such bonus shares.

Money making opportunities for long term trading

It become very important to decide for delivery based trading that how long to hold shares of a company------right? Please watch on following two important points, Watch Q1, Q2, Q3, Q4 results of a company and check whether company is declaring/posting consistent profit or sales, its very important for a company to declare quarterly results in good profit percentage in order to prove its consistent growth in the market. Declaration of future plans, expansions, acquisitions, mergers etc. Any good such plans can boost companies profit, so you may plan to hold such shares. Such plans are very important.

Financial planning for your stock returns

Its another important point to consider, if you hold more than one share then it is always advisable to prepare technical document for all your shares. You can prepare excel or word sheet on your computer or you can write in your notebook. Points to involve/write with date All quarterly results - Including profits and sales ratio and other financial ratios Declaration of bonus or dividend. Declaration of acquisition, expansions etc Weekly volume, close price, PE ratio, any company news etc. In this manner you will come to knew what is happening about your share and you can decide when to sell or till what period to hold. This system is called portfolio maintaining. Even you can keep a close watch on share which you are planning to buy and if you get proper

478
signal or feel comfortable with its quarterly results or news/future plans, then you can jump and buy that share. Don't Overtrade - making profit First and very important is overtrade - Never put all your money in share market. Best Investment in different sectors Do not invest your money in single share/company invest in multiple shares/companies but not in same sector. Invest in different sectors this will save you from big loss. Wait, watch and trade Do not jump in market early. Wait, watch and trade. Make sure all strategies before jumping in a market/trade. Study tips carefully Do not react to tips given by anybody - First observe that share, check the volume, where they are increasing or decreasing and then decide your trade. Do not buy or sell the share blindly following the tips. Always go with Market trend Dont short sell, if the market is going up and dont buy if the market is falling down. Try to minimize your Loss and increase profit Come out of your trade if you have entered in wrong time by accepting loss, instead of waiting and running into huge loss. Be ready to accept loss, if you went in wrong trade. Dont Panic Dont make early trades and dont square off early -Even if you see the scrip has moved up drastically, dont buy, confirm the volumes of buying and selling and then decide your trade. Dont square off /exit from your trade early if you see scrip/share has come down bit from top. If it is coming down from top means it is cooling, if you see more buyer than seller then you should hold your position. You must know which share has what momentum, means if the share price is Rs.120 then you can expect upside from Rs.1 to 5 and not Rs.50 to 100. If the scrip is going up, it will go 1 odder fashion, it will go up and it will come down bit and it will again continue its upward journey. How to invest in Share market for long term market Share market returns are long term returns. If you planning for short term, then its bit risky. Some day traders also do quite well earning on day to day basis. If you dont know proper day trading, then you should not do its big risk and same about short term trading. Invest in shares having good fundamental background and wait for long term, you will get good returns as compared to any other investment method. Wait for opportunity If you are not sure about market movement then watch and wait for opportunity, dont trade forcefully. Some times market move in range bound means market move up-down in very small range at that time it becomes very difficult to judge the market direction. Dont expect too much Dont expect too much - Be happy in whatever profit you get, dont try to grab too much from market. Be realistic, and dont expect too much. Online investment advice for high returns Lack of Knowledge is very risky and very dangerous, so dont do trading or investing without having proper knowledge.

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Read books, refer websites and get prepared before you plan for share market trading or investing.

TECHNICAL ANALYSIS
This technical analysis will be very useful for those who are new to technical analysis in share market. The following points will explain how to make use of different types of indicators, support level, resistance level etc. If proper technical analysis is done then the investment strategies will improve drastically.

Technical Analysis and Charting of Stocks

This article has all basic terms of technical analysis but this will give you better idea of the share market but if you are interested to know more about technical analysis then drop an email to us at support@stockmarketindian.com and we will provide free guidance. The Foundation of technical analysis is the chart.

Charts
Mainly there are 2 types of charts Line Chart and Candlestick Chart Line charts A chart shown below is the Line chart is the simplest type of chart. As shown in the chart the single line represents the stocks closing price on each day. Dates are displayed along the bottom of the chart and prices are displayed on the side(s). Line charts are typically displayed using stocks closing prices. Candlestick charts A candlestick chart displays stocks open high, low, and closing price. These type of charts are the most popular type of all charts. As shown below the top of each vertical bar represents the highest price of the stock and the bottom of the bar represents the lowest price of the stock it reached on that day. A closing price (last price) is displayed on the right side of the bar. The red bar indicates that stock has closed lower then its open price and white bar indicates that the stock has closed above its open price. At the bottom you can see time frame.

Support and Resistance

Support and Resistance prices are very important in stock market and in technical analysis. Support - The support level is considered when the stock is falling down. The support is the level at which the stock price gets support when the stock is falling down, and if the support breaks then that stock may witness further down movement. Resistance - The Resistance is taken into picture when stock price is moving up. The resistance level is the price at which stock price get stoppage and if this stoppage/resistance breaks then further upside is expected in that stock price. Generally, stocks comes to support and resistance points and get constant before further movement and further movement either down side or upside depends on buyers expectation and other technical aspects. The breaking of support and resistance levels can also be triggered by fundamental changes, and that is up to investor expectations (fundamental changes like changes in profits, expansion, takeover, management etc). Supply and demand There is nothing strange about support and resistance levels. It is just supply and demand. The supply is the number of shares that sellers are willing to supply (sell) at a given price. The demand is the number of shares that buyers are willing to buy at a given price. The investor expectations keeps on changing and so do the prices of stocks. A breakout above a resistance level is evidence of an upward move as more buyers (demand) are willing to buy at higher prices. Similarly, the failure of a support level indicates that more supply (seller) is available and ready to sell at lower levels.

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The Basic foundation of technical analysis tools is in the concept of supply and demand. So Charts provide us the best view and analysis of these levels in action. Traders Regret (unhappy) Level After the break out of a support/resistance level, it is common for stock traders to think on the new price levels, whether this price is suitable or not which results in further upward or downward movement. So in other words we can call this as traders regret. So due to this the price may come back to support/resistance level. In such scenarios one of the two things can happen. Either the stock prices will move back to their previous level OR investors/traders will accept the new price and the stock price will keep moving up in the direction of breakout How to understand what is going to happen and when? A breakout generally happens with the support of huge volumes. If the price breaks through the support/resistance level with a large increase in volume and the traders regret period is on relatively low volume then this indicates that the new price up lift will keep ongoing. Conversely, if the breakout is on moderate volume and the traders regret period is on increased volume then this indicates that very few investor expectations have changed and hence return to the original price. Changes in price are the result of changes in investor expectations of the stocks future price.

Trends
In the earlier chapter, we saw how support and resistance levels can be penetrated by a change in investor expectations which results in shifts of the supply/demand and hence change in stock price. This type of a change is always based on News. In this TRENDS section, we will see what is trend and how it influences stock prices. A trend represents a consistent change in prices. A trend is different from support/resistance levels. Trends represent change, whereas support/resistance levels represent barriers to change. Upper Trend = A rising trend is defined as stock prices keep touching higher prices. A rising trend can be thought of as a rising support level and the bulls are in controls which are pushing the stock prices higher and higher. Falling trend = It is defined as stock prices keep touching lower prices. A falling trend can be thought of as a falling resistance level and bears are in controls which are pushing the stock prices lower and lower. The break out takes place when investors expectations change in support with increase in volumes. As in support/resistance, in trend lines also Volumes plays a major role in continuing the trend or in break out of the trend.

Moving Averages
Moving averages are one of the oldest and most popular technical analysis tool. This section describes the basic of moving average and interpretation. Nowadays you get moving averages readily available on most of the websites. To brief you moving average is calculated by adding the closing prices of a stock for most recent 15 days and then dividing by 15 the result what you get is the 15 day moving average. How to trade on moving average Suppose If the stock price is above its 25 day moving average, it means that investor's current expectations (the current price of the stock) are higher than their average expectations over the last 25 days, and that investors are becoming increasingly bullish on this stock and result is that the stock price may go up. Conversely, if today's price is below then its 25 day moving average, it shows that current expectations are below average expectations over the last 25 days and this may bring stock price lower. The moving average is used to observe changes in prices. Investors typically buy when a stock price rises above its moving average and sell when the price falls below its moving average.

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Indicators
Indicators are used to predict or analyze future changes in stock price. There are hundreds of indicators but in this section we will discussed the indicators which are most widely used and important ones. MACD This is one of the widely used indicator. MACD stands for Moving Average Convergence Divergence. This indicator is based on moving averages Nowadays MACD is readily available on any web sites. No need to sit and calculate. But just to understand let us brief about it. The MACD is calculated by subtracting a 26-day moving average (long term) of a security's price from a 12-day moving average (short term) of its price. The result is that MACD is an indicator that goes above and below zero. How to trade on MACD indicator? Have a look on following chart of MACD Red line is short term moving average and blue line is long term moving average. When the short term moving average crosses above the long term moving average (as shown in following chart) in the upward direction, it means investor expectations are becoming bullish and there may be rise in stock price. As it is shown in following chart with green lines how price increases. When the short term moving average crosses below the long term moving average (as shown in following chart) in the downward direction, it means investor expectations are becoming bearish and there may be decrease in stock price. As it shown in following chart with red lines lines how orice decreases. Relative Strength Index (RSI) The RSI is another one of the most used and well-known leading momentum indicators in technical analysis. The main use of RSI is used to find whether the stock is overbought or oversold. The RSI indicator is plotted in a range of between 0 and 100. If RSI is reached above 70 then it is considered that stock is overbought and if it reaches below 30 then it is considered that the stock is oversold. The bullish signal How to trade on RSI Indicator Basically the RSI is a price-following indicator used to look for a divergence in which the stock is making a new high, but the RSI is failing to exceed its previous high. This divergence is an indication of an impending reversal. When the RSI then turns down and starts falling. To put more light, have a look on following chart. If you need more guidance on technical analysis, please drop us mail at support@stockmarketindian.com
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484 PAPER TRADING:

1. Your first trade - go from paper trading to trading profits. 2. A special offer to help you succeed. Your First Trade As we note in the course, all the knowledge in the world will not amount to anything without action. And unless and until you take action you will also never know whether you can do something. The first step is critical. You may know everything there is to know about parachuting but unless you take that first step, you will never experience what it means to be a parachutist. In the same way you could read every book and attend every course on trading and paper trade for years, but until you step into the market you will never become a trader. And until you take that step you will never make a dime. ========= GENIE TIP Knowledge alone is not enough. Massive action is necessary for success. ========= Procrastination We cover this in the tutorials but it is well worth revisiting here. One of the most significant dangers for novice traders is procrastination. The stock market is an endless source of information. And there are huge numbers of people offering conflicting advice. It is easy to fall into the trap of too much thinking and too much analysis that just leads to confusion. Or of wanting everything to be absolutely perfect before placing a trade. ========= GENIE TIP The only way to learn how to trade is to do it. ========= Paper trading is potentially a perfect vehicle for procrastination. Some practice it for years and never place a real trade. The reality in the market, as in most areas of life, is that you can never know all there is to know. You

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just have to take educated action. And then see what results you get. Fine tune and try again. And just keep taking action. Keep trading. ========= GENIE TIP If you wait until all conditions are perfect before you trade, you'll never trade. ========= Do not wait; the time will never be "just right". If you have read all the material we have sent you, you have analysed the trade according to our easy to follow rules and it fits the criteria, then you have already done all the hard stuff. It's time to place the order. Placing the order is the easy bit, you've already done the hard work in selecting the options and analysing the trade, now place yourself in a position to reap the reward. Place the order. If you only paper trade, you won't experience the emotional ups and downs that you will go through once you have REAL money at stake. It is only then, that YOU begin to see how you trade. It is only then, that YOU begin to make money. We are all different and you need to see how you react when you're winning and losing to see what sort of trader you are and where you can improve on how much money you take from the market. So go ahead, make the trade, it may just make your day.

Understanding Derivatives
Share Market is a Platform To Make Profit by Trading in Shares or Securities. Of
course, sometimes, profit may be negative.

THE SMALL
In this article, the phrase The Small stands for people with small fund or small holding capacity.

THE BIG

486 In this article, the phrase The Big stands for people with large or unlimited fund or large holding capacity. Besides Moneyed Individuals, FIIs, Big Institutions like LIC, UTI, MUTUAL FUNDS etc. can be regarded as THE BIG. In order to trade, it is necessary to do a transaction. A transaction is a pair of Buy & Sale. In order to make transactions in Share Market, we have two segments. One is CASH SEGMENT & the other is DERIVATIVE SEGMENT.

SEGMENTS

CASH SEGMENT

DERIVATIVE SEGMENT

CASH SEGMENT
. This is the most preferred segment. This is safe one. Those who have enough fund, should go for this segment. This segment is good for both THE SMALL & THE BIG. In this segment you can buy shares within your capacity by making 100 % payment and taking delivery. You have to wait till you get your favorable rates and then sell the shares. You can buy back the same shares when the rates are reasonably low. Your ownership of position remains with you unless and until you have squared off. Such people are known as Investors. They dont undergo frequent or day-to-day trading. It is observed that investors earn a good percentage of profit and that also without any tension. POINTS TO REMEMBER 1. In Cash Segment do not buy all of your required quantity at a time. Buy in certain units. If you desire to buy 500 shares, buy 100 at a time so that you can have fund to buy if the shares are available at lower rates. 2. Similarly while selling do not sell all the shares at a time. If you want to sell 500 shares, sell in the unit of 100 shares so that you may get higher rates for the remaining lots.

487 3. Do not square off at a very low profit. Try to earn substantial profit. This strategy will help you when you are about to make a substantial loss. 4. Do not do the next transaction in the same item at a very narrow interval of profit. Try to get at least 5 % gain. 5. Try to accumulate a reasonable quantity of a volatile share like RELIANCE at various downward rates. You can do profit churning in Reliance with a quantity of say unit of 50 shares in an open ended way.

DERIVATIVE SEGMENT

This is the segment where one can do higher volume with less fund compared to Cash Segment. There are two parts in this segment. (1) Future Trading & (2) Option Trading

CASH SEGMENT
1. 100 % payment is to be made for buying and similarly 100 % payment is received while selling 2. Ownership Ownership remains with you unless and until you have squared off the position. 3. Quantity Any quantity of shares can be bought or sold. There is no compulsion 4. Delivery is to be given or taken.

DERIVATIVES
1. Prefixed Margin say 20-40 % is to be paid as Deposit (known as margin) to meet with any risk or liability due to the trade done. 2. Ownership of the position remains with you until you have squared off or till the last Thursday of the Contract Month. 3. One cannot buy any odd quantity but has to buy or sell the Lot in prefixed size. 4. There is nothing like delivery.

DERIVATIVES

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FUTURE TRADING

OPTION TRADING

FUTURE TRADING
Future Trading is jut like Cash Segment Trading. In Future Trading you are not to pay 100 % payment as you have to do in Cash Segment and there is nothing like delivery. MARGINS In order to trade in Future, you are required to pay two types of margins. (1) Initial Margin (2) Daily Margin. Initial Margin is to be paid initially while taking the position. Suppose you buy One Contract of Reliance Future. At that time say the rate is Rs. 400/-. The lot of Reliance is of 600. So the total value of the lot will be Rs. 2,40,000/-. Suppose the Initial Margin fixed for Reliance is say 25 %. So you will have to pay Rs. 60,000/- initially as Initial Margin. The next day the rate becomes Rs. 398/-. So book loss of Rs. 1200/- appears to be there. So you will have to pay this difference to your broker and this amount you pay is known as Daily Margin. Again on the next of the next day, the rate becomes Rs. 395 which means further book loss of Rs. 3 amounting to Rs. 1,800/-. You will have to pay this as Daily Margin. Remember the margin is one kind of Deposit in order to safeguard against any default. Similarly on the third day say the rate becomes Rs. 403 and so your F&O account will be credited with Rs. 4,800/- as there is a book profit of Rs. 8/- per share. In order to avoid daily Give & Take, the client is advised to keep something more than the margin amount that might be required. In case of continuous loss situation when you are not in position to pay margin, your transaction is squared off and the respective loss is debited to your account. In Case of Profit situation you can decide when to square off the transaction.

Future Trading is the most Dangerous One. The people with low funding capacity should not even think of Future Trading.
OPTION TRADING
In option Trading you can take either of the positions viz. BUYERS POSITION OR SELLERS POSITION (ALSO KNOWN AS WRITER)

GENERAL EXAMPLE IN A LAYMANS LANUGAGE

489 Let us consider an example. Say Rameshbhai & Sureshbhai are two friends, both dealing in shares. Now Rameshbhai feels that Reliance will be trading at Rs. 500 at the close of the month. At present it is available at Rs. 400 but Rameshbhai does not have fund to buy the lot of 600 shares of Reliance. His friend Sureshbhai is a rich capable person and so Rameshbhai explains Sureshbhai his feelings about Reliance. Rameshbhai says to Sureshbhai that he(Rameshbhai) may buy Reliance from him(Sureshbhai) at the rate of Rs. 410/- later during the month before the expiry date provided that Sureshbhai agrees to make the arrangement. Rameshbhai also gives temptation that he will give him non-refundable commission of Rs. 7 per share immediately in advance. Sureshbhai agrees to take the responsibility of providing Rameshbhai 600 shares of Reliance if he demands the shares and accepts the commission of Rs. 7/- per share from Rameshbhai. Thus Rameshbhai succeeded in getting the right of buying 600 Shares of Reliance at Rs. 410 and for getting the right he had to pay the not-refundable commission of Rs. 7 per share in advance. In this example, in derivative language, Rameshbhai is the option buyer and Sureshbhai is option-seller or option-writer. The word commission is known as premium. The pre-decided price of Rs. 410 is known as Strike Price. The right to buy is known as Call. Hence we can say that Rameshbhai bought a Reliance Call with the strike price of Rs. 410 at a premium of Rs. 7/-. Now the Reliance will cost Rs. 410+7=417 to Rameshbhai. When the rates of Reliance is more than Rs. 417, it will be a time for Rameshbhai to exercise his right at a proper time he likes. BUYER Buyer of the option has a chance of limited loss in an unfavorable situation and unlimited profit in the favorable situation. Generally those with small fund should be buyer of the option so that he occurs a pre-decided or pre-imagined loss or limited loss in an odd situation but can have unlimited profit in a favorable situation. SELLER (WRITER) Seller of the option has a chance of limited profit in a favorable situation and unlimited loss in an unfavorable situation. Generally those, with large stock with them purchased at a very low rate and with good funding arrangement, become Seller of the option. If one does not have fund arrangement, one should not be seller or writer.

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OPTION BUYER
1. He has right of buying or selling. 2. He has no obligation.

OPTION SELLER/WRITER
1. He has no right. 2. He has obligation (responsibility) to provide the buyer with the position. 3. He receives premium. 4. Chance of Unlimited Loss. 5. Chance of Limited Profit.

3. He has to pay premium. 4. Chance of Limited Loss. 5. Chance of Unlimited Profit.

OPTION

CALL

PUT

CALL Call means a right to buy. If you expect TEJI, you should buy a Call. PUT Put means a right to sell. If you expect MANDI, you should buy a Put. PREMIUM Premium is the amount payable by an Option-Buyer. The rates of premium are different for different strike price. STRIKE PRICE Strike Price is the price at which the option-buyer desires to buy the shares.

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TOP 9 TRADING STRATEGIES IN DERIVATIVES

1. BUY CALL When market is down, buy just out of money Call. 2. BUY PUT When market is Up and correction is due, buy Put. 3. BUY FUTURE AND SELL CALL When you are bullish but at the same time you want to cover any downward. 4. BULL SPREAD When market is in narrow range, buy IN THE MONEY CALL and sell OUT OF MONEY CALL. 5. CALENDER SPREAD When you want to take TEJI POSITION for the next month, Sell Current Month CALL and Buy Next month Call. 6. STRANGLE When you are not sure in which direction the market will go, Buy CALL & PUT of the same strike price. 7. STRADDLE When results are expected and you do not know in which direction the stock will move, Buy OUT OF MONEY Call and OUT OF MONEY Put.

8. STOCK INSURANCE Buy Future and Buy PUT to cover down side.

9. SELL CALL & PUT In the last days of the Contract Period, Sell naked OUT OF MONEY Call & Put.

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Examples of Some Complex Transactions TEST YOURSELF 1. Mukesh expects Teji from now. He buys a Realince Future @ Rs. 439 and sells Reliance 450 Call (with 450 strike price) at the premium of Rs. 9. At the close of contract period, Reliance was Rs. 462. Could Mukesh make profit? If yes, how much ? (Lot Size = 600) 2. Popatlal expects Teji ahead. He buys HLL 180 Call at premium of Rs. 12 and sells 190 Call at the premium of Rs. 8. At the time of settlement end, HLL was trading at 196. Explain Popatlals position. (Lot Size = 2000) 3. Manubhai expects Teji ahead. He buys a Realince Future @ Rs. 437 and sells Reliance 450 Call at the premium of Rs. 6. At the close of contract period, Reliance was Rs. 435. Could Manubhai make profit? If yes, how much ? (Lot Size = 600) 4. Lalu expects Teji ahead. He buys HLL 180 Call at premium of Rs. 11 and sells 190 Call at the premium of Rs. 9. At the time of settlement end, HLL was trading at 191. Explain Lalus position. (Lot Size = 2000) Dhondiba bought a Reliance 450 Call at Rs. 12 and sold Reliance Future @ Rs. 465. What would be his position when Reliance was quoting at Rs. 445/- ? (Lot Size = 600) Dhakkan sold HLL 180 Call at Rs. 11 and bought HLL 190 call at Rs. 6. What will be his position when HLL is trading at Rs. 189 ? (Lot Size = 2000) Makaiwala sold HLL 180 call at Rs. 6 and HLL 180 PUT at Rs. 7 ? What will he occur when HLL is trading at Rs. 175 ? (Lot Size = 2000) Bhikhamchand sold HLL 190 call at Rs. 5 and HLL 190 PUT at Rs. 6 ? What will be his profit range of rates of HLL? When will he start making loss? (Lot Size = 2000)

5.

6.

7.

8.

9. Deepak sells Infosys 4500 call @ Rs. 75 and buys Infosys future at Rs. 4400. What will be his position when the rate of Infosys suddenly falls to Rs. 3800. (Lot Size = 50) 10. Manoj buys Infosys Future at Rs. 4600 and buys Infosys 4500 PUT at Rs. 50. What will be his position when the rate is Rs. 3850 ? Lot quantity for Infosys is 100. (Lot Size = 50) 11. Pradeep bought HLL 180 CALL at Rs. 12 and sold HLL 190 PUT for Rs. 17, both at a time. What will be his position when HLL is trading at Rs. 185 ? (Lot Size = 2000)

493 12. Manali sold HLL 180 PUT at Rs. 6/-. She also sold HLL 190 CALL at Rs. 3/-. What will be her position when HLL is about to close at Rs. 184? (Lot Size = 2000) 13. Nitin bought INFOSYS 4400 CALL at Rs. 90/-. He sold INFOSYS 4600 CALL at Rs. 60/-. What will be his position when INFOSYS is about to close at Rs. 4685/- ? (Lot Size = 50) 14. Bhavesh bought Infosys 4400 CALL at Rs. 120/- and Infosys 4400 PUT at Rs. 105. What will be his profit zone ? (Lot Size = 50) 15. Rachana sold HLL 180 CALL at Rs. 12 and HLL 180 PUT at Rs. 10/-. What will be her profit zone? (Lot Size = 2000) 16. Kishor bought Arvind Mills Future at Rs. 44 and sold Arvind Mills 50 Call at Rs. 3/-. How much profit or loss will he occur when the closing rate is Rs. 38 ? (Lot Size = 4300) 17. Bharat bought SATYAM FUTURE @ 286.00. He sold SATYAM 300 CALL at the premium of Rs. 5/-. He also bought SATYAM 280 PUT at the premium of Rs. 4/-. What will be his position when SATYAM closes at Rs. 292? (Lot Size = 1200) 18. Ravindra sold INFOSYS 5000 PUT at premium of Rs. 85/-. He sold INFOSYS FUTURE at Rs. 5300/-. What will be his position if INFOSYS finally closes at Rs. 5050/-? (Lot Size = 50) 19. Ashok bought HLL 130 CALL at premium of Rs. 4.00 and HLL 130 PUT at premium of Rs. 6.00. What will be final effect on him when HLL closes at Rs. 119/-? (Lot Size = 2000) 20. Vijay sold ACC FUTURE at Rs. 238/-. He also sold ACC 230 PUT at the premium of Rs. 8.00. What will be final effect on him when ACC closes at Rs. 219/-? (Lot Size = 1500) 21. What have I done, TEJI or MANDI, in the following situations: 1. 2. 3. 4. 5. 6. 7. 8. When I bought a CALL? When I have sold a CALL? When I have bought a PUT? When I have bought both CALL & PUT? When I have sold both CALL & PUT? When I have sold a PUT & bought a CALL? When I have bought a PUT & sold a CALL? When I have sold a PUT? Answers of Question-21.

494 1. TEJI 2. MANDI 3. MANDI 4. TEJI & MANDI 5. MANDI & TEJI 6. TEJI & TEJI 7. MANDI & MANDI 8. TEJI Note: Lot Sizes of Contracts given at end.

495 Note: + means incoming value and - means outgoing value.

ANSWERS OF COMPLEX EXAMPLES

Sr 1 Details Initially Buying Reliance Future Selling Reliance 450 Call Finally Squaring off Reliance Future Loss Due 450 Call Profit 2 Initially Buying HLL 180 Call Selling HLL 190 Call Finally Due to Buying HLL 180 Call Due to Selling HLL 190 Call Profit 3 Initially Buying Reliance Future Selling Reliance 450 Call Finally Squaring off Reliance Future Due to Expiry of 450 Call At 435 Profit -262200.00 3600.00 261000.00 2400.00 600 600 435.00 0.00 600 600 -437.00 6.00 -24000.00 16000.00 32000.00 -12000.00 12000.00 2000 2000 16.00 -6.00 2000 2000 -12.00 8.00 -263400.00 5400.00 277200.00 -7200.00 12000.00 600 600 462.00 -12.00 600 600 -439.00 9.00 Value Qty Rate

496

Initially Buying HLL 180 Call Selling HLL 190 Call Finally Due to Buying HLL 180 Call Due to Selling HLL 190 Call Profit -22000.00 18000.00 22000.00 -2000.00 16000.00 2000 2000 11.00 -1.00 2000 2000 -11.00 9.00

Initially Buying Reliance 450 Call Selling Reliance Future Finally Due to Expiry of 450 Call At 445 Squaring off Reliance Future Profit -7200.00 279000.00 -267000.00 4800.00 600 600 0.00 -445.00 600 600 -12.00 465.00

Initially Selling HLL 180 Call Buying HLL 190 Call Finally Due to Selling HLL 180 Call Due to Expiry of 190 Call At 189 Loss 22000.00 -12000.00 -18000.00 -8000.00 2000 2000 -9.00 0.00 2000 2000 11.00 -6.00

Initially Selling HLL 180 Call Selling HLL 190 Put Finally 12000.00 14000.00 2000 2000 6.00 7.00

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Due to Expiry of 180 Call At 175 Due to Selling HLL 190 Put Loss 8 Initially Selling HLL 190 Call Selling HLL 190 Put Finally

-30000.00 -4000.00

2000 2000

0.00 -15.00

10000.00 12000.00

2000 2000

5.00 6.00

Break Even for Call is 195 and for Put is 184. He will make profit when HLL remains between 184 and 195. Profit Range : 184 to 195 9 Initially Selling INFOSYS 4500 Call Buying INFOSYS Future @ 4400.00 Finally Due to Expiry of 4500 Call At 3850 Squaring Off INFOSYS Future Loss 10 Initially Buying INFOSYS Future @ 4600.00 Buying INFOSYS 4500 Put @ 50 Finally Squaring Off INFOSYS Future Due to INFOSYS 4500 Put Loss 11 Initially Buying HLL 180 Call -24000.00 2000 -12.00 192500.00 32500.00 -7500.00 50 50 3850.00 650.00 -230000.00 -2500.00 50 50 -4600.00 -50.00 190000.00 -26250.00 50 50 0.00 3800.00 3750.00 -220000.00 50 50 75.00 -4400.00

498

Selling HLL 190 Put Finally Due to Buying HLL 180 Call Due to Selling HLL 190 Put Profit 12 Initially Selling HLL 180 Put Selling HLL 190 Call Finally HLL 180 Put Expired at 184 HLL 190 Call Expired at 184 Profit 13 Initially Buying INFOSYS 4400 Call Selling INFOSYS 4600 Call Finally Due to INFOSYS 4400 Call Due to INFOSYS 4600 Call Profit 14 Initially Buying INFOSYS 4400 Call Buying INFOSYS 4400 Put Finally Due to INFOSYS 4400 Call Due to INFOSYS 4400 Put

34000.00 10000.00 -10000.00 10000.00

2000

17.00

2000 2000

5.00 -5.00

12000.00 6000.00 18000.00

2000 2000

6.00 3.00

2000 2000

0.00 0.00

-4500.00 3000.00

50 50

-90.00 60.00

14250.00 -4250.00 8500.00

50 50

285.00 -85.00

-6000.00 -5250.00

50 50

-120.00 -105.00

14250.00 -4250.00

50 50

285.00 -85.00

499

Break Even for Call is 4280 and for Put is 4505. He will make profit when INFOSYS remains between 4280 and 4505. Profit Range : 4280 to 4505 15 Initially Selling HLL 180 Call Selling HLL 180 Put Finally Break Even for Call is 192 and for Put is 170. She will make profit when HLL remains between 170 and 192. Profit Range : 170 to 192 16 Initially Buying ARVIND Future @ 44 Selling ARVIND 50 Call Finally Due to ARVIND Future at 38 ARVIND 50 Call Expired at 38 Loss 17 Initially Buying SATYAM Future @ 286 Selling SATYAM 300 Call Buying SATYAM 280 PUT Finally Due to SATYAM Future at close SATYAM 300 CALL expired at 292 SATYAM 280 PUT expired at 292 Profit 18 Initially 350400.00 8400.00 1200 1200 1200 292.00 0.00 0.00 -343200.00 1200 6000.00 -4800.00 1200 1200 -286.00 5.00 -4.00 163400.00 -12900.00 4300 4300 38.00 0.00 -189200.00 4300 12900.00 4300 -44.00 3.00 24000.00 20000.00 2000 2000 12.00 10.00

500

Selling INFOSYS 5000 PUT Selling INFOSYS Future Finally INFOSYS 5000 PUT Expired at 5050 Buying INFOSYS Future Profit 19 Initially Buying HLL 130 Call Buying HLL 130 Put Finally HLL 130 Call expired at 119 Due to Buying HLL 130 Put Profit 20 Initially Selling ACC Future Selling ACC 230 PUT Finally Buying ACC Future Due to ACC 230 PUT Profit

4250.00 265000.00

50 50

85.00 5300.00

-252500.00 16750.00

50 50

0.00 -5050.00

-8000.00 -12000.00 22000.00 2000.00

2000 2000

-4.00 -6.00

2000 2000

0.00 11.00

357000.00 12000.00

1500 1500

238.00 8.00

-328500.00 1500 -16500.00 24000.00 1500

-219.00 -11.00

501

Permitted Lot Sizes of Contracts As On 12th June, 2004.

No. 1 2 Underlying Symbol NIFTY CNXIT Derivatives on Individual Securities 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 Market Lot 200 100

S&P CNX Nifty CNX IT Associated Cement Co. Ltd. Andhra Bank Arvind Mills Ltd. Bajaj Auto Ltd. Bank of Baroda Bank of India Bharat Electronics Ltd. Bharat Heavy Electricals Ltd. Bharat Petroleum Corporation Ltd. Canara Bank Cipla Ltd. Dr. Reddy's Laboratories Ltd. GAIL (India) Ltd. Grasim Industries Ltd. Gujarat Ambuja Cement Ltd. HCL Technologies Ltd. HDFC Bank Ltd. Hero Honda Motors Ltd. Hindalco Industries Ltd. Hindustan Lever Ltd. Hindustan Petroleum Corporation Ltd. ICICI Bank Ltd. I-FLEX Solutions Ltd. Infosys Technologies Ltd. Indian Petrochemicals Corpn. Ltd. Indian Oil Corporation Ltd. ITC Ltd. Mahindra & Mahindra Ltd. Maruti Udyog Ltd. Mastek Ltd. Mahanagar Telephone Nigam Ltd. National Aluminium Co. Ltd.

ACC ANDHRABANK ARVINDMILL BAJAJAUTO BANKBARODA BANKINDIA BEL BHEL BPCL CANBK CIPLA DRREDDY GAIL GRASIM GUJAMBCEM HCLTECH

1500 4600 4300 400 1400 3800 550 600 550 1600 1000 200 1500 350 1100 1300 600 800 400 300 2000 650 1400 300 50 1100 600 300 625 400 1600 1600 1150

Housing Development Finance Corporation Ltd. HDFC

HDFCBANK HEROHONDA HINDALC0 HINDLEVER HINDPETRO ICICIBANK I-FLEX INFOSYSTCH IPCL IOC ITC M&M MARUTI MASTEK MTNL NATIONALUM

502
34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51

NIIT Ltd. Oil & Natural Gas Corp. Ltd. Oriental Bank of Commerce Punjab National Bank Polaris Software Lab Ltd. Ranbaxy Laboratories Ltd. Reliance Energy Ltd. Reliance Industries Ltd. Satyam Computer Services Ltd. State Bank of India Shipping Corporation of India Ltd. Syndicate Bank Tata Power Co. Ltd. Tata Tea Ltd. Tata Motors Ltd. Tata Iron and Steel Co. Ltd. Union Bank of India Wipro Ltd.

NIIT ONGC ORIENTBANK PNB POLARIS RANBAXY REL RELIANCE SATYAMCOMP SBIN SCI SYNDIBANK TATAPOWER TATATEA TATAMOTORS TISCO UNIONBANK WIPRO

1500 300 1200 1200 1400 400 550 600 1200 500 1600 7600 800 550 825 900 4200 200