Stress and anxiety is universal and quite a common phenomenon among traders. To an extent stress is good as it releases adrenaline and increases focus and alertness but if it goes beyond that it can be harmful.
Some classic stressful trading behavior :
1.) Some traders increase their risks while in stress.
2.) Some experience paralysis in action like they don’t get out when they should or don’t get in when they should.
3.) Some trade under-capitalized due to fear.
4.) Some traders don’t let their profit run and bail out too soon due to fear and to taste the feeling of winning as early as possible.
5.) Some traders let their losses run too long and don’t cut losses on time.
6.) Some traders don’t set any goal in terms of what they want to earn in an year or a quarter or a month or even in a trade and they depend upon the market for their output.
The thing to note here is that one’s response to stress is repetitive means that one tends to do the same thing while under stress unless one actively and consciously tries to change that.
Below are the ways to keep stress and indiscipline in check: Read More
An Option Contract is an agreement between buyer and seller to exchange shares at a certain price and at a certain time in future.
Terminologies used in Option :
The price at a future date at which shares would be exchanged is known as strike price
The future date on which shares would be exchanged is known as expiry date.
The Option Seller collects some amount from option buyer to enter into an agreement and for carrying the risk. This amount is known as Option Premium.
The person who pays premium and buys an option contract is termed as buyer of an option.
The person who receives premium and sells an option contract/or creates an option contract is termed as seller of an option.
The instrument on which an option contact is made is called as an Underlying.
A call option gives the holder the right but not the obligation to buy an asset by a certain date for a certain price.
2. Put option:
A put option gives the holder the right but not the obligation to sell an asset by a certain date for a certain price.
If an option Buyer is bullish on the underlying, he will buy a call option else if he is bearish on the underlying, he will buy a put option. An option seller does the reverse in this case; he sells a call option if he is bearish and sells a put option if he is bullish.
If the underlying of an option is an index such as nifty 50/bank nifty, it is called as an Index Option
A Call option is said to be in-the-money (ITM) option when the price of an underlying is greater than its chosen strike price (i.e. underlying price / spot price > strike price). If the underlying price is much higher than the strike price, the call is said to be deep ITM.
A Put option is said to be in-the-money (ITM) if the underlying price is below the strike price i.e. underlying price / spot price < strike price). If the underlying price is much lower than the strike price, the put is said to be deep ITM.
If an in-the-money option is exercised immediately it would lead to a positive cash flow.
An Call/Put option is said to be at-the-money when the current underlying price equals the strike price (i.e. underlying price / spot price = strike price).
An at-the-money (ATM) option is an option that would lead to zero cash flow if it were exercised immediately.
A call option is said to be out-of-the-money when the current underlying price is less than the strike price (i.e. spot price < strike price). If the underlying price is much lower than the strike price, the call is said to be deep OTM.
A put option is said to be OTM if the underlying price is above the strike price. An out-of-the-money (OTM) option is an option that would lead to a negative cash flow if it were exercised immediately.
Intrinsic value of an option:
The option premium can be broken down into two components – intrinsic value and time value. The intrinsic value of a call is Max[0, (Spot — Strike)] which means the intrinsic value of a call is the greater of 0 or (Spot — Strike). Similarly, the intrinsic value of a put is Max[0,Strike — Spot],i.e. the greater of 0 or (Strike — Spot).
Time value of an option:
The time value of an option is the difference between its premium and its intrinsic value. Both calls and puts have time value. An option that is OTM or ATM has only time value. Usually, the maximum time value exists when the option is ATM. The longer the time to expiration, the greater is an option’s time value, all else equal. At expiration, an option doesn’t have any time value.
Time Value = Premium – Intrinsic Value
IN THE SHORT TERM STOCK MOVEMENTS ARE GOVERNED BY MARKET SENTIMENTS & POSITION OF BIG PLAYERS. IN THE LONG TERM STOCK MOVEMENTS ARE GOVERNED BY COMPANY PERFORMANCE AND ITS FUNDAMENTALS.
Below are few tricks and strategies based on my experience that I follow before taking my trading decisions-
If the high price of the entire week is achieved on Friday, expect higher prices next week.
If the low price of the entire week is achieved on Friday, expect lower price next week.
In a highly uptrending market weekly low’s is achieved on Tuesday
If market is in strong down trend (if main trend is down), the weekly highs are generally achieved on Wednesday.
When the price crosses the high of the last four weeks, it’s an advance indication of higher prices.
When the price breached the low of the last four weeks, it’s an advance indication of lower prices.
In an up trending market if the prices breaks the 30 DMA & remain below it at last for 2 consecutive days, it tells us of a much more great correction and vice-versa.
If the market rises for 5 consecutive days, there is a high probability that correction will last for 3 days. (Ratio is 5:3)
When the price starts rising from a particular level, Rs.100 or 100% rise whichever is earlier becomes a strong resistance.
When price crosses the high of the last 3 days it tells us about more higher prices on the 4th day. (Traders can buy it on the 4th day and place a SL order Rs. 3 below the last 3 days high) (vice-versa).
If subsequent correction is greater than the previous correction both in terms of price & time magnitude, this is an advance indication that trend is changing
50% of the last highest selling Price is the strong support area. Any stock which is trading below this 50% level is not the useful for Trading
If a price is rising for 9 consecutive day’s at a stretch, then there is highly probability for a correction for 5 consecutive days. (Ratio is 9:5)
Don’t ignore a double bottom & triple bottom signal on a monthly chart, after a minimum gap of 6 months. ( advance indication for mid term investment)
Don’t ignore a double top & triple top signal on a monthly chart, after a minimum gap of 6 months.(Not the right place for investment / entry, price may fall)
Hope this article will help you to take better trading decisions.
Since beginning of my Share market days, I always heard about bulk deals and block deals. Earlier I thought both to be same, and never tried to dig deeper into the subject. But later I came to know that both are different and impact of both is also different. So let me explain what exactly are the differences between Block deal and Bulk deal.
What is a block deal?
It is a transaction of a minimum quantity of 500,000 shares or a minimum value of Rs 5 crore between two parties, wherein they agree to buy or sell shares at an agreed price among themselves. The deal takes place through a separate trading window and this happens at the beginning of trading hours for duration of 35 minutes i.e. from 9.15 am to 9.50 am.
Rules set by SEBI state that the price of a share ordered at the window should range within +1% to -1% of the current market price or the previous day’s closing price. Block deals are not visible to the regular market as they happen in a separate window. Read More
√ OTM options are cheaper so trader gets tempted to buy
√ Out of the money options contain only time value & no intrinsic value.
√ You will get profit only if spot price move above your strike, else time decay will erode premium and will become zero by expiry.
√ So you may loose total capital applied in trade.
√ It is highly difficult to earn consistent money with this approach
√ So avoid OTM option buying
√ This is biggest mistake people do, they neither decide target nor stop loss
√ Because of which you may loose profitable trade into loss
√ Also at what loss to exit.? If you don’t decide this you may end up with big loss.
√ How to deal with it.? Decide target & stoploss before entering in trade and put the same in system not in mind.
√ Use trailing stoploss to protect profit.
One of the basic and crucial aspects of healthy stock picking is carrying out Fundamental Analysis for a particular company.
Fundamental analysis means evaluating a security by studying the various factors associated with it – like the revenue of the company, its profits (past and present), the debt repaying capacity and its immediate contemporaries.
This analysis helps in creating
a financial horoscope of the company and in essence, provides the investor a clear picture of the security he/she wishes to invest in.
All investment worth companies have some common attributes that sets them apart.
Similarly, all wealth destructors have some common traits which can be seen by an astute investor.
Fundamental Analysis is the technique that gives you the conviction to invest for a long term by helping you identify these attributes of wealth creating companies.
There are many tools which help conduct this fundamental analysis, for example study of audited financial statements, ratio analysis, study of industry data and company news.
Ratio Analysis for Stock Selection:
‘Wise’ stock selection entails using some ratios to help you figure out the mettle of your investment. It will pay to keep in mind that a single financial ratio can never determine the true value of a stock.
It is advisable to use a combination of ratios to get the bigger picture on the canvas about the financials of a company, its earnings and the value of its stock.
1. Map the Trends
Study long-term charts. Begin a chart analysis with monthly and weekly charts spanning several years. A larger scale map of the market provides more visibility and a better long-term perspective on a market. Once the long-term has been established, then consult daily and intra-day charts. A short-term market view alone can often be deceptive. Even if you only trade the very short term, you will do better if you’re trading in the same direction as the intermediate and longer term trends.
2. Spot the Trend and Go With It
Determine the trend and follow it. Market trends come in many sizes – long-term, intermediate-term and short-term. First, determine which one you’re going to trade and use the appropriate chart. Make sure you trade in the direction of that trend. Buy dips if the trend is up. Sell rallies if the trend is down. If you’re trading the intermediate trend, use daily and weekly charts. If you’re day trading, use daily and intra-day charts. But in each case, let the longer range chart determine the trend, and then use the shorter term chart for timing.
3. Find the Low and High of It
Find support and resistance levels. The best place to buy a market is near support levels. That support is usually a previous reaction low. The best place to sell a market is near resistance levels. Resistance is usually a previous peak. After a resistance peak has been broken, it will usually provide support on subsequent pullbacks. In other words, the old “high” becomes the new low. In the same way, when a support level has been broken, it will usually produce selling on subsequent rallies – the old “low” can become the new “high.”
4. Know How Far to Backtrack
Measure percentage retracements. Market corrections up or down usually retrace a significant portion of the previous trend. You can measure the corrections in an existing trend in simple percentages. A fifty percent retracement of a prior trend is most common. A minimum retracement is usually one-third of the prior trend. The maximum retracement is usually two-thirds. Fibonacci Retracements1) of 38% and 62% are also worth watching. During a pullback in an uptrend, therefore, initial buy points are in the 33-38% retracement area.
5. Draw the Line
Draw trend lines. Trend lines are one of the simplest and most effective charting tools. All you need is a straight edge and two points on the chart. Up trend lines are drawn along two successive lows. Down trend lines are drawn along two successive peaks. Prices will often pull back to trend lines before resuming their trend. The breaking of trend lines usually signals a change in trend. A valid trend line should be touched at least three times. The longer a trend line has been in effect, and the more times it has been tested, the more important it becomes.
6. Follow that Average
Follow moving averages. Moving averages provide objective buy and sell signals. They tell you if the existing trend is still in motion and they help confirm trend changes. Moving averages do not tell you in advance, however, that a trend change is imminent. A combination chart of two moving averages is the most popular way of finding trading signals. Some popular futures combinations are 4- and 9-day moving averages, 9- and 18-day, 5- and 20-day. Signals are given when the shorter average line crosses the longer. Price crossings above and below a 40-day moving average also provide good trading signals. Since moving average chart lines are trend-following indicators, they work best in a trending market.
7. Learn the Turns
Track oscillators. Oscillators help identify overbought and oversold markets. While moving averages offer confirmation of a market trend change, oscillators often help warn us in advance that a market has rallied or fallen too far and will soon turn. Two of the most popular are the Relative Strength Index (RSI) and the Stochastics Oscillator. They both work on a scale of 0 to 100. With the RSI, readings over 70 are overbought while readings below 30 are oversold. The overbought and oversold values for Stochastics are 80 and 20. Most traders use 14 days or weeks for stochastics and either 9 or 14 days or weeks for RSI. Oscillator divergences often warn of market turns. These tools work best in a trading market range. Weekly signals can be used as filters on daily signals. Daily signals can be used as filters for intra-day charts.
8. Know the Warning Signs
Trade the MACD indicator. The Moving Average Convergence Divergence (MACD) indicator (developed by Gerald Appel) combines a moving average crossover system with the overbought/oversold elements of an oscillator. A buy signal occurs when the faster line crosses above the slower and both lines are below zero. A sell signal takes place when the faster line crosses below the slower from above the zero line. Weekly signals take precedence over daily signals. An MACD histogram plots the difference between the two lines and gives even earlier warnings of trend changes. It’s called a “histogram” because vertical bars are used to show the difference between the two lines on the chart.
9. Trend or Not a Trend
Use the ADX indicator. The Average Directional Movement Index (ADX) line helps determine whether a market is in a trending or a trading phase. It measures the degree of trend or direction in the market. A rising ADX line suggests the presence of a strong trend. A falling ADX line suggests the presence of a trading market and the absence of a trend. A rising ADX line favors moving averages; a falling ADX favors oscillators. By plotting the direction of the ADX line, the trader is able to determine which trading style and which set of indicators are most suitable for the current market environment.
10. Know the Confirming Signs
Don’t ignore volume. Volume is a very important confirming indicator. Volume precedes price. It’s important to ensure that heavier volume is taking place in the direction of the prevailing trend. In an uptrend, heavier volume should be seen on up days. Rising volume confirms that new money is supporting the prevailing trend. Declining volume is often a warning that the trend is near completion. A solid price uptrend should always be accompanied by rising volume.
“11.” Keep at it. Technical analysis is a skill that improves with experience and study. Always be a student and keep learning.
As the name suggests, Open Interest (OI) is the INTEREST that is OPEN. What is INTEREST? INTEREST is the POSITIONS of TRADERS. And What is OPEN? OPEN means OUTSTANDING. So, OPEN INTEREST means POSITIONS of TRADERS which are OUTSTANDING and not yet squared off. There are only two type of positions that a trader can take in the market. LONG & SHORT. Now, since for every LONG there is a SHORT and for every SHORT there is a LONG, so we don’t count OI as LONG + SHORT but either TOTAL LONGS or TOTAL SHORTS. They both would always be equal. So, as I said OI is a number that tells you how many futures (or Options) contracts are currently outstanding (open) in the market. So, Let us say the seller sells 1 contract to the buyer. The buyer is said to be LONG on the contract and the seller is said to be SHORT on the same contract. The open interest in this case is said to be 1 not 2.
HOW CAN YOU JUDGE BULLISHNESS OR BEARISHNESS WITH OI DATA
1.) If PRICE is rising and OI is rising, it means market is STRONGLY BULLISH.
DESCRIPTION: If PRICE and OI both are rising, it means that every new contract that is being added is dominated by bulls, that’s why PRICE is rising with every new contract addition. Never think that since PRICE is rising, more LONGS are being created than SHORTS. LONGS will always be equal to SHORTS just that LONGS are dominating SHORTS in the transaction, that is why PRICE is rising. See, it’s like a normal share transaction. Number of shares bought is ALWAYS EQUAL to number of shares sold. Then why PRICE rises or falls? It does so because of buying pressure or selling pressure. So, if buyers of a share are dominating the sellers, PRICE will rise and if sellers are dominating the buyers, PRICE will fall. But BUYERS will always be equal to SELLERS. So, OI is rising, means new contracts are being added. But since PRICE is rising with it, it means that LONGS are DOMINATING the transactions. Thus, market/share is STRONGLY BULLISH.
2.) If PRICE is rising but OI is falling, it means market is WEAKLY BULLISH.
When a share market collapses and we hear that investors lost lakh and crores of rupees, where do the lost lakhs and crores of rupees go? Who is the actual beneficiary?
Firstly, let us understand something fundamental.
‘Price’ of anything is actually more of a perception. Yes, you read it right, ‘Price’ of a commodity is influenced by how it is perceived by the interested people.
Let me explain this with these four cases,
This is one of the most basic strategy used for intraday. Before applying this strategy make sure that you trade only in good liquid stock and don’t forget to use Sto ploss. So here are the steps –
👉 Select any stock on intraday chart with 15 mins candle
👉 Note High & Lows of first candle i.e 9.15 am to 9.30 am range
👉 Draw channel as seen in chart with taking high & lows of first candle.
👉 Buy when stock cross above high of channel with stop loss as channel range low
Companies like HPCL, BPCL, IOCL etc. comes under downstream sector of oil and gas industry while ONGC, OIL etc. comes under upstream sector.
Now let’s understand what’s the difference between upstream and downstream sector of oil and gas industry.
The oil and gas industry is usually divided into three major sectors: upstream, midstream and downstream.
Investor: What happening in market?
Advisor: Market is always good, in long-term
Investor: That is fine, but our portfolio is down more than 20% in last 10 months, whereas Sensex is going up.
Advisor: Hardly 6-7 companies out of 30 in Sensex are rising because of which it is going up. Broadly, the markets are down.
Investor: Why don’t we have those companies in our portfolio?
Advisor: Because they are Bluechip companies which are not expected to give good returns in the long run, as these companies are almost saturated. Exceptions can be there, but they are rare.
Investor: But as an Advisor, you should have known that these stocks would go up and we could have invested in them.
Previous month of September, Indian share market saw a crash. Especially midcap and small cap cracked the most. And only few companies are somehow holding the large cap Index. A lot of people asked me if market has bottomed out. In reality no one can predict market bottom. So I asked the same question to Big players of the market(both traders as well as investors). After talking to them (big brokers, HNIs, Portfolio Managers) following are my key takeaways:
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