basics of trading - nse guide

8/8/2019 Basics of Trading - NSE Guide

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LEARNING TECHNICALS FROM NSE GUIDE

Dos & Donts

It is imperative for the investors to follow the Dos and Dont in general while dealingin the stock market. As there are attendant risks associated with it.

Given below are the Dos and Donts in general for investors who are dealing in Stockmarkets.

Dos

Always deal with the market intermediaries registered with SEBI / Exchanges.

Give clear and unambiguous instructions to your broker / agent / depository

participant.

Always insist on contract notes from your Broker. In case of doubt of the transactions,verify the genuineness of the same on the Exchange website.

Always settle the dues through the normal banking channels with the marketintermediaries.

Before placing an order with the market intermediaries please check about thecredentials of the companies, its management, its fundamentals and recent

announcements made by them and various other disclosures made under variousRegulations. The sources of information are the websites of Exchanges andcompanies, databases of data vendor, business magazines etc.

Adopt trading / investment strategies commensurate with your Risk bearing capacityas all investments carry risk, the degree of which varies according to the investmentstrategy adopted.

Please carry out due-diligence before registering as client with any Intermediary.Further, the investors are requested to carefully read and understand the contentsstated in the Risk Disclosure Document, which forms part of investor registration

requirement for dealing through brokers in Stock Market.

Be cautious about stocks, which show a sudden spurt in price or trading activity,especially low price stocks.

Please be informed that there are no guaranteed returns on investment in stockmarkets.

Donts

Dont deal with unregistered brokers / sub-brokers, intermediaries.

Dont deal based on rumours .


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Dont fall prey to promises of guaranteed returns.

Dont get misled by companies showing approvals / registrations from Governmentagencies as the approvals could be for certain other purposes and not for the securitiesyou are buying.

Dont leave the custody of your Demat Transaction slip book in the hands of anyIntermediary.

Dont get carried away with onslaught of advertisements about the financialperformance of Companies in print and electronic media.

Dont blindly follow media reports on corporate developments, as they could bemisleading.

Dont blindly imitate investment decisions of others who may have profited from their

investment decisions.

What is Trend Trading?

A.Trend trading is one of the most effective and easy to use methods for makingmoney in the market. Trend trading success depends on identifying and catching thetrend after it has started and getting out of the trend as soon as possible after the trendreverses.

Trend Trading involves taking a position in the markets with a view of holding thatposition for weeks to months for larger than normal gains. Trend traders or investorsgenerally trade the long term or secular trends and are not concerned with the day today market volatility.

Q.What is Swing Trading?

A.Swing Trading takes advantage of brief price swings in strongly trending stocks toride the momentum in the direction of the trend.

Swing trading combines the best of two worlds the slower pace of investing andthe increased potential gains of day trading.

Swing traders hold stocks for days or weeks playing the general upward or downwardtrends.

Swing Trading is not high-speed day trading. Some people call it momentuminvesting, because you only hold positions that are making major moves.

By rolling your money over rapidly through short term gains you can quickly build upyour equity.


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Q.How does Swing Trading work?

A.The basic strategy of Swing Trading is to jump into a strongly trending stock afterits period of consolidation or correction is complete.

Strongly trending stocks often make a quick move after completing its correctionwhich one can profit from.

One then sells the stock after 2 to 7 days for a 5-25% move. This process can berepeated over and over again. One can also play the short side by shorting stocks thatfall through support levels.

In brief a Swing Traders goal is to make money by capturing the quick moves thatstocks make in their life span, and at the same time controlling their risk by propermoney management techniques.

Q.What is Day Trading?

A.The term day trading is a widely misused and misunderstood term. Real daytrading means not holding on to your stock positions beyond the current trading day;in other words, not holding any position overnight. This is really the safest way to doday trading because you are not exposed to the potential losses that can occur whenthe stock market is closed due to news that can affect the prices of your stocks.

Unfortunately, many people who claim to be day trading, hold stocks overnightbecause of fear or greed, thus setting themselves up for the catastrophic elimination of

their capital. When day trading currencies, the term day trading changes slightly.Since currencies can be traded 24-hours-a-day, there is no such thing as overnighttrading. Thus, you can have open positions for longer than a day with active stoplosses that can be activated at any time.

Day trading can be further subdivided into 2 styles, including:

1.Scalpers: This style of day trading involves the rapid and repeated buying andselling of a large volume of stocks within seconds or minutes. The objective is to earna small per share profit on each transaction while minimizing the risk.

2.Momentum Traders: This style of day trading involves identifying and tradingstocks that are in a moving pattern during the day, in an attempt to buy such stocks at

bottoms and sell at tops.

Q.What is Open Interest?

A.Open Interest is the total number of outstanding contracts that are held by marketparticipants at the end of the day.

It can also be defined as the total number of futures contracts or option contracts thathave not yet been exercised (squared off), expired, or fulfilled by delivery.


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Open interest applies primarily to the futures market. Open interest, or the totalnumber of open contracts on a security, is often used to confirm trends and trendreversals for futures and options contracts.

Open interest measures the flow of money into the futures market. For each seller of a

futures contract there must be a buyer of that contract. Thus a seller and a buyercombine to create only one contract.

Therefore, to determine the total open interest for any given market we need only toknow the totals from one side or the other, buyers or sellers, not the sum of both.

The open interest position that is reported each day represents the increase or decreasein the number of contracts for that day, and it is shown as a positive or negativenumber.

Simple moving average orDMA

frequently used in technical analysis showing the average value of a securitys priceover a set period. Moving averages are generally used to measure momentum anddefine areas of possible support and resistance.

Stocks trading above its 30,50,150 or 200 DMA are considered as those stocks thatare above their resistance and are likely to go up, on the other hand Stocks tradingbelow their 30,50,150 or 200 DMA considered as those stocks that are below theirsupport levels and are likely to come down.

NOTE: This is not only a single factor that should be taken into account whilepurchasing or selling a stock, it largely depends on the market conditions

Difference between Trading and Investing

A Large number of people are confused with what is trading and what is Investing.Investing on one hand is like buying a asset (a bunch of stocks is Stock market) andholding it for a long time say 10 or more years.

Many Investors buy stocks for long run and then sell them off in huge profit. Somebig investors such as Warren Buffet have made more money in Long Term Investingor Investing rather that in Trading (Intraday).

Trading on the other hand it like buy a stocks for 2-4 Days or Intraday trading. Inthese volatile markets its very difficult to make good profits in Intraday trading, sometraders intenend to buy stocks for short term and then sell them off in profits

What is Technical Analysis ? How is it different from

Fundamental Analysis ?


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The stock market used to be filled with technical analysts deciding what to buy andsell, until it was decided that their success rate is no better than chance. Now technicalstock analysis is virtually non-existent.

Research and examination of the market and securities as it relates to their supply and

demand in the marketplace. The technician uses charts and computer programs toidentify and project price trends. The analysis includes studying price movements andtrading volumes to determine patterns such as Head and Shoulder Formations and WFormations. Other indicators include support and resistance levels, and movingaverages. In contrast to fundamental analysis, technical analysis does not consider acorporations financial data.

Technical analysts study trading histories to identify price trends in particular stocks,mutual funds, commodities, or options in specific market sectors or in the overallfinancial markets. They use their findings to predict probable, often short-term,trading patterns in the investments that they study. The speed (and advocates would

say the accuracy) with which the analysts do their work depends on the developmentof increasingly sophisticated computer programs.

Technical Analysis supposes markets have memory.If so, past prices, or the currentprice momentum, can give an idea of the future price evolution. Technical Analysis isa tool to detect if a trend (and thus the investors behavior) will persist or break. Itgives some results but can be deceptive as it relies mostly on graphic signals that areoften intertwined, unclear or belated. It might become a source of representivenessheuristic (spotting patterns where there are none)

Technical analysis has become increasingly popular over the past several years, asmore and more people believe that the historical performance of a stock is a strongindication of future performance. The use of past performance should come as nosurprise. People using fundamental analysis have always looked at the past

performance of companies by comparing fiscal data from previous quarters and yearsto determine future growth. The difference lies in the technical analysts belief thatsecurities move according to very predictable trends and patterns. These trendscontinue until something happens to change the trend, and until this change occurs,

price levels are predictable.

There are many instances of investors successfully trading a security using only their

knowledge of the securitys chart, without even understanding what the companydoes. However, although technical analysis is a terrific tool, most agree it is muchmore effective when used in combination with fundamental analysis.

Fundamental Analysis

Fundamental analysis looks at a shares market price in light of the companysunderlying business proposition and financial situation. It involves making bothquantitative and qualitative judgments about a company. Fundamental analysis can becontrasted with technical analysis, which seeks to make judgements about the

performance of a share based solely on its historic price behavior and without

reference to the underlying business, the sector its in, or the economy as a whole.This is done by tracking and charting the companies stock price, volume of shares


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traded day to day, both on the company itself and also on its competitors. In this wayinvestors hope to build up a picture of future price movements.

What is Open Offer ?

Open Offer: Perhaps the most above board of takeover bids, in which the biddermakes its intention known through an open advertisement, followed by letters of offerto shareholders, to buy the shares of the target company at a stated price, usually quiteabove the ruling market price. The bidder may thus acquire a sufficiently largernumber of shares to have a controlling interest in he target company, paving the wayfor a merger.

Seven dumbest investment mistakes

Emotions can be expensive, especially when you start making investing decisions

with your gut instead of your brain. Fortunately, there are ways to avoidor at leastlimitthe mistakes that we oh-so-human investors tend to make.

Daniel Kahneman won the Nobel prize in economics seven years ago for his work onhow irrational humans systematically make mistakes. Since then, research in the fieldof behavioural finance has exploded.

Given the recent market turmoil what common, and costly, mistakes should investorsbe especially vigilant to avoid making today?

One is a direct result of the stock market plunge. People who bailed out of stocks afterlosing as much as half of their investments are now anxiously sitting out the marketrecovery, says Amy Barrett, a fee-only financial adviser and director of investments atSavant Capital.

Those people have anchored themselves to the value of the stock market at itstrough, where they bailed out. Theyre having a hard time accepting the fact thatstocks might really be good values at their new, higher levels. In the past that

behaviour has been a sure recipe for missing a market rebound, says Barrett.

Id like to shake these people and tell them to get out of their rut, she says.

Emotional Investors Seven Dumbest Mistakes

Here are descriptions of the most common cognitive errors investors makeand sometips for getting your rational mind to override your potentially costly emotions.

7 ways to shortlist the right stocks

Equity as an asset class outperforms all other asset classes in the long run. True.

But, how do you pick the right company?


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Its always important to spend time in knowing a company, its business, financialhealth and prospects. But do you have the time, resources and energy to study about1,400 companies listed on the National Stock Exchange (NSE) and about 4,900 on theBombay Stock Exchange (BSE) before selecting the one to invest?

If these numbers make you uncomfortable, sample these: the market capitalisation ofthese companies ranges from a few lakhs to over Rs 2 lakh crore and the prices ofshares from less than a rupee to over Rs 12,000 per share.

So, how and where do you make a start? We give you seven basic screening criteria,which will help you shortlist companies that are worth researching in the first place.

1. Is the companys market cap more than Rs 250 crore (Rs 2.50 billion)?

Setting a minimum market cap floor really helps it eliminates very smallcompanies, or penny stocks. Generally, small companies have a small revenue base

and they do not spend too much on investor relations. This makes tracking themdifficult. At Outlook Money, we do not look at companies that have a market cap ofless than Rs 250 crore. About 500 companies at NSE pass this criteria.

2. Are the companys trading volumes high?

The company should have a reasonable trading volume at least a few thousandshares per day. If you buy into a stock that has low volume, it can become difficult toget out when the markets fall. Both rise and fall is sharp in stocks with low volume.Also, the impact cost is high.

For example, MMTC, a state-owned company, has a market cap of over Rs 62,000crore (Rs 620 billion), but its trading volume is very thin. The 30-day average tradingvolume of this stock is just about 338 shares and the stock is trading at Rs 12,400 pershare. It is always advisable to avoid these kinds of stocks.

3. Does the company make quality disclosures?

The company should have good quality disclosures. This is an easy test. All you haveto do is visit the company website and see press releases and results for the last fewquarters. In the results part, you need not get into numbers in detail as of now, but do

see how the developments of last quarter have been explained.

For example, see if cost has increased, or margins have declined, and whether there isan explanation for it.

Large companies, especially in the information technology sector, are generally goodat this. Tata Consultancy Services [Get Quote], Indias largest IT company byrevenue, has a transcript of analyst conference call on its website, which possiblyanswers all the questions that investors have.

Availability of information makes tracking easy and decision-making becomes

quicker while you are invested in the company.


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4. Does the company have operating profits?

Sometimes, companies raise money from the equity markets in their initial stages andhope to cover the costs by generating profits from operations later. Actually, they arein a stage when they spend money for, say, setting up plants, or research and

development facilities.

These businesses sound exciting, but can be risky. It is advisable to avoid suchcompanies. New projects involve a lot of regulatory approvals and can get delayed,which can escalate cost. Also, stock prices of such companies are the first to fallduring any broader market correction, as there are no earnings to support the prices.

This is exactly what happened with Reliance Power, which does not have any of itsplants in operation. Its public issue got heavily oversubscribed (73 times) due togeneral euphoria in the market, but sentiments changed between issue and listing. Theissue went on to become one of the biggest disasters in the markets.

Therefore, it is always safer to be in companies that generate profits from theiroperations.

5. Does the company generate constant cash flows?

At times, fast-growing companies may show profits without generating cash. Thesecompanies are in their expansion stage. They have to generate cash eventually andcreate value for the shareholders.

Companies with a negative cash flow may have to seek additional capital, eitherthrough debt or equity. Debt will increase the risk while equity will dilute theearnings, which will get reflected in the share prices also.

6. Is its return to equity (RTE) constantly above 10 per cent?

RTE is the profit a company generates with the shareholders money and is calculatedby dividing net profits with shareholders equity. It indicates how well a company hasdeployed investors money.

The RTE is generally low in case of manufacturing companies and is higher for

services companies as the cost of setting infrastructure is low in services companies.Use 10 per cent as the minimum limit for companies to qualify. There are just about400 companies listed on NSE with a market cap above Rs 250 crore that generatedreturn on equity above 10 per cent in the financial year 2007-08.

7. Is the earnings growth constant or cyclical?

Cyclical earnings implies that profits move up or down depending on the businesscycle. Businesses generally move in cycles.

This is commonly seen in commodity companies, where a shortage or sudden rise in

demand helps prices to move up, resulting in super normal profits for a while. Sugaris a classic example of cyclical earnings.


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Bajaj Hindustan , the largest sugar company in India, saw its share prices soaringfrom Rs 200 in November 2005 to Rs 550 in April 2006 on the back of rising sugar

prices; net sales for the company went up Rs 394 crore (Rs 3.94 billion) in the March2006 quarter compared to Rs 282 crore (Rs 2.82 billion) in the September 2005quarter.

But by the end of the December quarter, net sales went down to Rs 286.64 crore (Rs2.86 billion) and the share price to Rs 140. The biggest risk in investing in cyclical orcommodity stocks is that you could enter at the wrong time.

Once the cycle is reversed, it becomes difficult to get out. Commodity prices areinterlinked globally, and any demand-supply mismatch in one corner of the world candisturb prices all over.

Companies in the pharma and FMCG space have stable growth in the long term asdemand in these sectors depends on the business cycle and macroeconomic

movements. The services sector also has stable earnings growth compared tocommodity stocks.

If you carry out these seven checks, you will, by and large, be able to eliminatecompanies that are not worth investing. However, investors must note that theseconditions are not fool-proof and there can always be exceptions.

Important terms to check while purchasing a stock

1. P/E:

The P/E ratio (price-to-earnings ratio) of a stock (also called its earnings multiple,or simply multiple, P/E, or PE) is a measure of the price paid for a sharerelative to the annual income or profit earned by the firm per share.A higher P/E ratiomeans that investors are paying more for each unit of income. It is a valuation ratioincluded in other financial ratios.The reciprocal of the P/E ratio is known as theearnings yield. Stock having a P/E less than 30 are said to be good investmetseps2. EPS:

EPS. Total earnings divided by the number of shares outstanding. Companies oftenuse a weighted average of shares outstanding over the reporting term. EPS can becalculated for the previous year (trailing EPS), for the current year (current EPS),

or for the coming year (forward EPS). Note that last years EPS would be actual,while current year and forward year EPS would be estimates.dvield3.DVI (Sividend yield):

The yield a company pays out to its shareholders in the form of dividends. It iscalculated by taking the amount of dividends paid per share over the course of a yearand dividing by the stocks price. For example, if a stock pays out $2 in dividendsover the course of a year and trades at $40, then it has a dividend yield of 5%. Mature,well-established companies tend to have higher dividend yields, while young, growth-oriented companies tend to have lower ones, and most small growing companies donthave a dividend yield at all because they dont pay out dividends


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Options: The basics of call and put

What is an option?

An option contract gives the buyer the right, but not the obligation to buy/sell anunderlying asset at a pre-determined price on or before a specified time. The option

buyer acquires a right, while the option seller takes on an obligation. It is the buyersprerogative to exercise the acquired right. If and when the right is exercised, the sellerhas to honour it. The underlying asset for option contracts may be stocks, indices,commodity futures, currency or interest rates

What are the types of options?

Broadly speaking, options can be classified as call options and put options. Whenyou buy a call option, on a stock, you acquire a right to buy the stock. And when

you buy a put option, you acquire a right to sell the stock. You can also sell a calloption, in which, you will acquire an obligation to deliver the stock. And when yousell a put option, you acquire an obligation to buy the stock.

What do you understand by the term option premium?

Option premium is the consideration paid upfront by the option holder (buyer of theoption) to the option writer (seller of the option). The option holder gets the right to

buy / sell the underlying.

What is the strike price or the exercise price of the option?

The right or obligation to buy or sell the underlying asset is always at a pre-decidedprice known as the strike price or exercise price, which is linked to the prevailingprice of the underlying asset in the cash market. Usually, option contracts areavailable on the underlying asset on various strike prices (generally, five or more)-divided equally on either side of its spot price.

How does an American option differ from a European option?

In European options, a buyer can exercise his option only on the expiration date, thatis, the last day of the contract tenure. Whereas in American options, a buyer can

exercise his option any day on or before the expiration date.In the Indian equitymarket context, index options are European style, while stock options are usuallyAmerican in nature.

How do options differ from futures?

In futures, both the buyer and the seller are obligated to buy and sell, respectively, theunderlying asset-the quid pro quo relationship. In case of options, however, the buyerhas the right, but is not obliged to exercise it. Effectively, while buyers and sellersface a

: linear payoff profile in futures, its not so in the case of options. An option buyersupside potential is unlimited,while his losses are limited to the premium paid. For the


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option seller, on the other hand,his maximum profits are limited to the premiumreceived, while his loss potential is unlimited.

Basic Rules for Futures Traders

Following are some basic rules for Future Traders :

1.Apply money management techniques to your trading.

2.Do not overtrade.

3.Take a position only when you know where your profit goal is and where you aregoing to get out if the market goes against you.

4.Trade with the trends, rather than trying to pick tops and bottoms.

5.Dont trade many markets with little capital.

6.Dont just trade the volatile contracts.

7Calculate the risk/reward ratio before putting a trade on, then guard against the riskof holding it too long.

8.Establish your trading plans before the market opening to eliminate emotionalreactions.

9.Decide on entry points, exit points, and objectives. Subject your decisions to onlyminor changes during the session. Profits are for those who act, not react. Dontchange during the session unless you have a very good reason.

10.Follow your plan. Once a position is established and stops are selected, do not getout unless the stop is reached, or the fundamental reason for taking the positionchanges.

11.Use technical signals (charts) to maintain discipline the vast majority of tradersare not emotionally equipped to stay disciplined without some technical tools. Usediscipline to eliminate impulse trading.

12.Have a disciplined, detailed trading plan for each trade; i.e., entry, objective, exit,with no changes unless hard data changes. Disciplined money management meansintelligent trading allocation and risk management. The overall objective is end-of-year bottom line, not each individual trade.

13.When you have successful a trade, fight the natural tendency to give some of itback.

14.Use a disciplined trade selection systeman organized, systematic process to

eliminate impulse or emotional trading.


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15.Trade with a plan not with hope, greed, or fear. Plan where you will get in themarket, plan how much you will risk on the trade, and plan where you will take your

profits.

16.Cut losses short. Most importantly, cut your losses short, let your profits run. It

sounds simple, but it isnt. Lets look at some of the reasons many traders have a hardtime cuttings losses short. First, its hard for any of us to admit weve made amistake. Lets say a position starts going against you, and all your good reasons for

putting the position on are still there. You say to yourself, its only a temporary set-back. After all (you reason), the more the position goes against me, the better chanceit has to come back the odds will catch up. Also, the reasons for entering the tradeare still there. By now youve lost quite a bit; you sell yourself on giving it one moreday. Its easy to convince yourself because, by this time, you probably arentthinking very clearly about the position. Besides, youve lost so much already, whatsa little more? Panic sets in, and then comes the worst, the most devastating, the mostfallacious reasoning of all, when you figure: That contract doesnt expire for a few

more months; things; are bound to turn around in the meantime.

So it goes; so cut those losses short. In fact, many experienced traders say if aposition still goes against you the second day in, get out. Cut those losses fast, beforethe losing position starts to infect you, before you fall in love with it. The easiestway is to inscribe across the front of your brain, Cut my losses fast. Use stop lossorders, aim for a Rs. 5000 per contract loss limitor whatever works for you, but doit.

17.Let profits run. Now to the letting profits run side of the equation. This is evenharder because who knows when those profits will stop running? Well, of course, noone does, but there are some things to consider. First of all, be aware that there is anurge in all of us to want to wineven if its only by a narrow margin. Most of uswere raised that way. Win even if its only by one touchdown, one point, or one run.Following that philosophy almost assures you of losing in the futures markets becausethe nature of trading futures usually means that there are more losers than winners.The winners are often big, big, big winners, not one run winners. Here again, youhave to fight human nature. Lets say youve had several losses (like most traders),and now one of your positions is developing into a pretty good winner. Thetemptation to close it out is universally overwhelming. Youre sick about all thoselosses, and heres a chance to cash in on a pretty good winner. You dont want it to

get away. Besides, it gives you a nice warm feeling to close out a winning positionand tell yourself (and maybe even your friends) how smart you were (particularly ifyoure beginning to doubt yourself because of all those past losers).

18.That kind of reasoning and emotionalism have no place in futures trading;therefore, the next time you are about to close out a winning position, ask yourselfwhy. If the cold, calculating, sound reasons you used to put on the position are stillthere, you should strongly consider staying. Of course, you can use trailing stops to

protect your profits, but if you are exiting a winning position out of feardont; outof greeddont; out of ego dont; out of impatiencedont; out of anxietydont;out of sound fundamental and/or technical reasoningdo.


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You can avoid the emotionalism, the second guessing, the wondering, the agonizing,if you have a sound trading plan (including price objectives, entry points, exit points,risk-reward ratios, stops, information about historical price levels, seasonalinfluences, government reports, prices of related markets, chart analysis, etc.) andfollow it. Most traders dont want to bother, they like to wing it. Perhaps they think

a plan might take the fun out of it for them. If youre like that and trade futures for thefun of it, fine. If youre trying to make money without a plan forget it. Trading asound, smart plan is the answer to cutting your losses short and letting your profitsrun.

19.Do not overstay a good market. If you do, you are bound to overstay a bad onealso.

20.Take your lumps. Just be sure they are little lumps. Very successful tradersgenerally have more losing trades than winning trades. Its just that they dont leaveany hang-ups about admitting theyre wrong, and have the ability to close out losing

positions quickly.

21.Trade all positions in futures on a performance basis. The position must give aprofit by the end of the second day after the position is taken, or else get out.

22.Program your mind to accept many small losses. Program your mind to sit stillfor a few large gains.

23.Learn to trade from the short side. Most people would rather own something (golong) than owe something (go short). Markets can (and should) also be traded frownthe short side.

24.Watch for divergences in related markets is one market making a new high andanother not following?

25.Recognize that fear, greed, ignorance, generosity, stupidity, impatience, self-delusion, etc., can cost you a lot more money than the market(s) going against you,and that there is no fundamental method to recognize these factors.

26.Learn the basics of futures trading. Its amazing how many people simply dontknow what theyre doing. Theyre bound to lose, unless they have a strong broker to

guide them and keep them out of trouble.

27.Standing aside is a position. Patience is important.

28.Client and broker must have rapport. Chemistry between account executive andclient is very important; the odds of picking the right Account Executive (AE) the firsttime are remote. Pick a broker who will protect you from yourselfgreed, ego, fear,subconscious desire to lose (actually true with some traders). Ask someone whotrades if they know a good futures broker. If you find one who has room for you, givehim your account.

29.Sometimes, when things arent going well and youre thinking about changingbrokerage firms, think about just changing AEs instead. Phone the manager of the


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local office, let him describe some of the other AEs in the office, and see if any ofthem seem right enough to have a first meeting with. Dont worry about getting youraccount executive in trouble; the office certainly would rather have you switch AEsthan to lose your business altogether.

30.Broker/client psychology must be in tune, or else the broker and client should partcompany early in the program. Client and broker should be in touch repeatedly, sowhen the time comes, both parties are mentally programmed to take the necessaryaction without delay.

31.Most people do not have the time or the experience to trade futures profitably, sochoosing a broker is the most important step to profitable futures trading.

32.When you go stale, get out of the markets for a while. Trading futures isdemanding, and can be draining especially when youre losing. Step back; get awayfrom it all to recharge your batteries.

33.Thrill seekers usually lose. If youre in futures simply for the thrill of gambling,youll probably lose because, chances are, the money does not mean as much to youas the excitement. Just knowing this about yourself may cause you to be more

prudent, which could improve your trading record. Have a business-like approach tothe markets.

34.Anyone who is inclined to speculate in futures should look at speculation as abusiness, and treat it as such. Do not regard it as a pure gamble, as so many people do.If speculation is a business, anyone in that business should learn and understand it tothe best of his ability.

35.Approach the markets with a reasonable time goal. When you open an accountwith a broker, dont just decide on the amount of money, decide on the length of timeyou should trade. This approach helps you conserve your equity, and helps avoid theLas Vegas approach of Well, Ill trade till my stake runs out. Experience shows thatmany who have been at it over a long period of time end up making money.

36.Dont trade on rumors. If you have, ask yourself this: Over the long run, have Imade money or lost money trading on rumors? O.K. then, stop it.

37.Dont trade unless youre well financedso that market action, not financialcondition, dictates your entry and exit from the market. If you dont start with enoughmoney, you may not be able to hang in there if the market temporarily turns againstyou.

38.Be more careful if youre extra smart. Smart people very often put on a position alittle too early. They see the potential for a price movement before it becomes actual.They become worn out or tapped out, and arent around when a big move finallygets under way. They were too busy trading to make money.

39.Never add to a losing position. Stay out of trouble, your first loss is your smallest

loss.


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40.Analyze your losses. Learn from your losses. Theyre expensive lessons; you paidfor them. Most traders dont learn from their mistakes because they dont like to thinkabout them.

41.Survive! In futures trading, the ones who stay around long enough to be there

when those big moves come along are often successful.

42.If youre just getting into the markets, be a small trader for at least a year, thenanalyze your good trades and your bad ones. You can really learn more from your badones.

43.Carry a notebook with you, and jot down interesting market information. Writedown the market openings, price ranges, your fills, stop orders, and your own

personal observations. Re-read your notes from time to time; use them to help analyzeyour performance.

Rome was not built in a day, and no real movement of importance ends in one day.A speculator should have enough excess margin in his account to provide staying

power so he can participate in big moves.

44.Take windfall profits (profits that have no sound reasons for occurring).

45.Periodically redefine the kind of capital you have in the markets. If your personalfinancial situation changes and the risk capital becomes necessary capital, dont waitfor just one more day or one more price tick, get out right away. If you dont,youll most likely start trading with your heart instead of your head, and then youll

surely lose.

46.Always use stop orders, alwaysalways always

Dos And Donts For Intraday Traders

If index is in minus then one should look to short stocks which are minus and notstocks which are in plus.

It is not necessary that a stock which is weak today during intraday trading might beweak tomorrow also, simultaneously if a stock is strong today might not be strongtomorrow

Being a contrarians is very important while trading intraday.

If index is in positive from yesterday and the share you are holding is in minus then itshould be cut and if intraday trend of index is in buy then one should buy a stock inwhich is in plus.

If US Markets have gone up overnight, the markets here in all probability will openstrong, so one should be quite careful when buying stocks as the general psychology

of public is to buy when good news is there.


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Stop loss is a must while trading intraday.

Always trade in very liquid stocks i.e. which have very high volume because as entryand exit can be very fast in such stocks.

Keep your volume constant e.g.: if you trade in five lots of nifty future then trade infive lots only. This position can be increased only when you are satisfied with yourtrading for a month. It should not be that one day you buy five lots and next day youtrade in ten lots and third day you get a loss and stop trading for two days.

Do paper trading before you actually start trading so that when you start making paperprofits, then shift to actual trading.

Fear and Greed are at maximum levels while trading intraday so always have lessposition when you are new to intraday trading as otherwise you will be mostly undertension.

What is Arbitrage Trading ?

Arbitrage trading is simply the trading of securities when the opportunity existsduring the trading day to take advantage of differences in value between the marketsthe trades are made within. Arbitrage trading takes place all day long on most daysthat the markets are active.

Arbritrage is legally allowed. In fact arbitrage is responsible for a large part of thedaily volumes on the NSE & BSE exchanges.

What mainly takes place in India is called Market ArbitrageMarket Arbitrage involves purchasing and selling the same security at the same timein different markets (BSE & NSE) to take advantage of a price difference between thetwo separate markets. A market arbitrageur would short sell the higher priced stockand buy the lower priced one. The profit is the spread between the two assets.

Here is a simple example:

Suppose you own 600 shares of RPL. One trading day you notice that RPL is tradingat 150 on the BSE and 145 on the NSE. You sell your 600 shares on the BSE at 150and simultaneously buy back the 600 shares on the NSE at 145.

You profit in this case is 600*5.00 = 3000.00 less brokerages if any.

IPO Basics: What Is An IPO?

Selling StockAn initial public offering, or IPO, is the first sale of stock by a company to the public.A company can raise money by issuing either debt or equity. If the company hasnever issued equity to the public, its known as an IPO.


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Companies fall into two broad categories: private and public.A privately held company has fewer shareholders and its owners dont have todisclose much information about the company. Anybody can go out and incorporate acompany: just put in some money, file the right legal documents and follow thereporting rules of your jurisdiction. Most small businesses are privately held. But

large companies can be private too. Did you know that IKEA, Dominos Pizza andHallmark Cards are all privately held?

It usually isnt possible to buy shares in a private company. You can approach theowners about investing, but theyre not obligated to sell you anything. Publiccompanies, on the other hand, have sold at least a portion of themselves to the publicand trade on a stock exchange. This is why doing an IPO is also referred to as going

public.

Public companies have thousands of shareholders and are subject to strict rules andregulations. They must have a board of directors and they must report financial

information every quarter. In the United States, public companies report to theSecurities and Exchange Commission (SEC). In other countries, public companies areoverseen by governing bodies similar to the SEC. From an investors standpoint, themost exciting thing about a public company is that the stock is traded in the openmarket, like any other commodity. If you have the cash, you can invest. The CEOcould hate your guts, but theres nothing he or she could do to stop you from buyingstock.

Why Go Public?Going public raises cash, and usually a lot of it. Being publicly traded also opensmany financial doors:

Because of the increased scrutiny, public companies can usually get better rates whenthey issue debt.As long as there is market demand, a public company can always issue more stock.Thus, mergers and acquisitions are easier to do because stock can be issued as part ofthe deal.Trading in the open markets means liquidity. This makes it possible to implementthings like employee stock ownership plans, which help to attract top talent.

The internet boom changed all this. Firms no longer needed strong financials and a

solid history to go public. Instead, IPOs were done by smaller startups seeking toexpand their businesses. Theres nothing wrong with wanting to expand, but most ofthese firms had never made a profit and didnt plan on being profitable any time soon.Founded on venture capital funding, they spent like Texans trying to generate enoughexcitement to make it to the market before burning through all their cash. In cases likethis, companies might be suspected of doing an IPO just to make the founders rich.This is known as an exit strategy, implying that theres no desire to stick around andcreate value for shareholders. The IPO then becomes the end of the road rather thanthe beginning.

How can this happen? Remember: an IPO is just selling stock. Its all about the sales

job. If you can convince people to buy stock in your company, you can raise a lot ofmoney.


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What is Stock Jobbing ?

The buying and selling of securities with the intent of generating quick profits. Whilemost investors seek value through long-term investments, stock jobbing takes on amore speculative short-term tone.

The term stock jobbing is largely used in reference to the South Sea Bubble - an 18th-century stock that literally wiped out the savings of many British citizens.

IPOs- How to make money

Like all investments, IPOs are also not risk free. However you can manage the risk bycarrying out due diligence and planning.

Never follow the herd mentality. Be yourself. Remember how much effort you make

while making purchase decisions for your other needs. Investment in IPOs is nodifferent.

Remember to limit your investment within Rs. 100000/- if you want to be called asretail investor. There are quotas available for retail investors and which are notavailable for high net worth investors. So do your calculations correctly.

Also remember that not all shares you are bidding for would be allotted to you. Shareallotment is based on proportionate allotment system depending upon the number of

persons who have bid for that number of shares in which category you fall. In case of

good issues, you may get far less number of shares than what you have bid for.

If you believe that adequate disclosures were not made by the company, you canmake a complaint to the lead manager to the issue or SEBI against the company formisleading investors.

During bull run, a number of fly by night companies tend to take investors for a ride.Beware. Remember we are in disclosure based regime and not merit based regime.This means that any company which meets the requirements can come out with a

public issue provided adequate disclosures are made. So be careful about suchoperators.

Plan for a long term investment. Good investment for a longer period of time will givedecent returns.

Not all issues coming with huge premiums are good and not all issues coming withlow premiums are inexpensive. Pricing is an important factor and need to beconsidered carefully.

basics of trading - nse guide

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