Saturday, May 29, 2010
Watch Nifty Technical Analysis for the Last Week
- NIFTY TECHNICAL ANALYSIS FOR LAST WEEK
1) NIFTY HAS MADE A REVERSAL FROM CHANNEL BOTTOM. MACD HAS NOT GIVEN A BUY YET.
2) AS YOU CAN SEE THE LAST TWO TIMES WHEN NIFTY CAME CLOSE TO THE CHANNEL BOTTOM IT COMBINED WITH MACD CROSSOVER TO GIVE A GOOD REVERSAL
3) I AM EXPECTING IT TO HAPPEN AGAIN. BUT HAS RESISTANCE AROUND 5080.
4) IT MAY GO DOWN A BIT FROM CURRENT LEVELS.
5) BUT THE CORRECTION FROM HERE MAY NOT BE TOO LARGE AND AN UP MOVE FOLLOWED BY THE BREAKING OF 5080 WILL TAKE NIFTY TO NEW HIGH'S
Watch Nifty Reversal not Changed the Weekly Down Trend
Inspite of a 300 point rise, Nifty could not close above 5-wk sma. But just squeezed into the rising channel - Can it keep up with the rising channel in the coming weeks..?
Nifty managed to close above this falling "Daily channel" suggesting upside possibility. The next pivot high of 5105 coincides with the "Monthly ema" and Monday is the monthly close - Can it close above that after failing the weekly close (Closed below 5077)..??
Nifty , in the past, risen sharply (once from 3900 & another from 4500) - But this time the higher time frame TA is down and a crucial monthly close is awaited on Monday.
Nifty managed to close above this falling "Daily channel" suggesting upside possibility. The next pivot high of 5105 coincides with the "Monthly ema" and Monday is the monthly close - Can it close above that after failing the weekly close (Closed below 5077)..?? Nifty , in the past, risen sharply (once from 3900 & another from 4500) - But this time the higher time frame TA is down and a crucial monthly close is awaited on Monday.
Tips for How to Earn Minimum 30% Profit in One Month
How much profit you will make in a month? Will you believe, if we say 30%?
If you follow a simple strategy which is called as “Take small profits and do multiple trades” which is explained in following example
Let’s see the following example
Please note - Currently our intraday brokerage charges are 0.03% for buying and 0.03% for selling,
Taxes to pay for intraday trading :
1. The Service tax is 10.36% only on brokerage.(Update Mar 09- The service tax is reduced to 10.30% including education cess )
2. The STT (Security Transaction Tax) is 0.025% only on selling amount.
3. The Stamp duty on total turnover for a day which is 0.002%.
4. and finally you have to pay Regulatory charges on total turnover for a day which is 0.004%
No need to worry about these taxes as all these taxes will add up to very small amount at the end of the day compared to intraday profits.
Example -
Suppose you have bought the shares of Bharati Airtel at Rs.315 and quantity 100 so the total amount you have to pay is Rs.315 x 100 = Rs.31,500.
Let’s see how to calculate the brokerage and taxes.
Your buying amount is
Rs.31500 (Rs.315x100 Qty shares)
Brokerage charges
0.03% as brokerage (It’s our brokerage rates) on 31,500 comes to Rs.9.45
Service Tax
The service tax is 10.36% only on brokerage amount, so 10.36 % on Rs.9.45 comes to Rs 0.98.
Total charges you have to pay on buying amount is :
The total brokerage + service tax which come to Rs.9.45 + Rs.0.98 = Rs.10.43
Now let’s calculate the Brokerage and Taxes on selling amount :
Your selling amount
Suppose you sold Bharati Airtel shares at Rs.316 (you took profit of only Rs 1), Qty - 100 so the amount comes to Rs.31,600 (Rs.316 x 100 Qty shares). Your profit is Rs 100.
Brokerage charge
0.03% brokerage on 31,600, comes to Rs.9.48
Service Tax
The service tax is 10.36% only on brokerage amount, so 10.36 % on Rs.9.48 comes to Rs 0.99.
STT (Service Transaction Tax) is only on selling amount
The STT (Service Transaction Tax) is 0.025% on selling amount (the selling amount is 31,600) which comes to Rs.6.32.
Total charges you have to pay on selling amount is = Brokerage + service tax + STT
= Rs.9.48 + Rs.0.99 + Rs.6.32
= Rs.16.79
Total amount you have to pay on buying and selling is (including Brokerage and taxes) :
= Rs.10.43 (buying) + Rs.16.79 (selling)
= Rs.27.22
Also you have to pay stamp duty and regulatory charges on total turnover:
Rate - The stamp duty on total turnover for a day is 0.002% and Regulatory charges are 0.004%.
Stamp duty and regulatory charges are applied on total turnover of a day.
The total turn over is calculated by adding the buying and selling amount happened through out the day.
In above example the Buying amount is 31500 and selling amount is 31600 which adds up to Rs. 61300
Stamp duty is 0.002% and Regulatory charges are 0.004% which adds up to 0.006%
So on total turnover amount of Rs. 61300 and the stamp duty and regulatory charges on that comes to Rs 3.8.
So the total amount you have to pay for the trade of buying 100 shares of Bharati Airtel at Rs 315 and selling them at Rs 316 comes to = Rs 27.22 + 3.8 (stamp and regulatory charges) = 31.02 which includes brokerage rates and various taxes
Conclusion :
So now the conclusion is you paid Rs.31.02 (brokerage and taxes) while you earned the profit of Rs.100.
So your Net profit is Rs 69 [Rs 100 - Rs 31 (brokerage and taxes) ]
So don’t you think 69% profit in single trade is quite enough to do thousands per day?
If you continue doing such small trades with small profits then you will end up with big amount at the end of the day.
Let’s see how it will add up to thousands :
Suppose if you do only 10 trades in a day by taking only Rs 1 as profit then it will add
up to Rs 690 (Rs 69 x 10 trades in a day).
Please note - One rupee movement in share price of Rs 300 happens very easily and for many times in a day.
So if possible select higher prices share for day trading so that you can take small profits and do multiple trades.
How to make thousands in a day? :
Now let’s see how to do thousands with same strategy as mentioned above.
Its simple, you just have to increase your quantity of shares.
In above example you have bought only 100 quantities, if you just make it double then your profit will also get doubled.
How much will you make in a month?
Rs.69 per trade as net profit (as per above example).
10 trades per day (how much trades are possible, you will come to know by doing paper trading practice, which we already explained in day trading section, and according to our analysis 10 trades in a day are very easily possible)
Total Rs.69x10 trades = Rs.690 per day.
Total approximate 20 trading days in a month.
So Rs.690x20 = Rs.13,800.
Please note - You can also do 5 trades in a day and earn good amount in a day and adding it with thousands at the end of the month.
Let’s consider some losses while trading :
Trading without losses is not possible for any trader, but trader has to reduce the losses and maximize the profits.
(Please visit our different day trading sections to read about reducing the losses in day trading)
Now let’s suppose you made loss on some days or due to some reason you are not able to trade on some days, so let’s consider 5 days as compensation as loss in a month.
So 5 days losses comes to Rs 3450 (Rs 690 per day x 5 days).
So the compensation for losses for 5 days in a month comes to is Rs.3450.
Final Total Net Profit
You are making profit of Rs 10350 (Rs13,800 - 3450) profit per month.
Your investment is Rs 35,000 and you are getting profit of Rs 10,350 per month so in just 3 to 4 months you are making your money double.
Trading on Margin Amount :
In the above example the margin amount is not used but only the investment amount Rs 35000 is used.
Margin amount is the extra amount given by the broker to trade for a day.
Margin amount varies from broker to broker but generally they provide 3 to 4 times.
Big Disadvantage of Margin amount - If you use the margin amount then you have to square off your trades before market closes. Whether you are in profit or loss you have to square off your trades before market closes or else heavy penalty will apply.
Important Precaution - In margin amount the risk is very high. You have to square off your trades on same day.
We generally advice to not to use margin amount for new comers to trading.
If you dont use margin amount then you can hold your positions for next day or as long as you want because you are using your own money and not broker's money (margin amount).
New comers to day trading :
You can invest small amount like Rs 5000 or 10,000 and earn profits in a month and once you gain experience then you can invest big amount.
The conclusion is forgetting the "Greed Factor and Taking Small Profits" will make miracle to your Trading.
If you follow a simple strategy which is called as “Take small profits and do multiple trades” which is explained in following example
Let’s see the following example
Please note - Currently our intraday brokerage charges are 0.03% for buying and 0.03% for selling,
Taxes to pay for intraday trading :
1. The Service tax is 10.36% only on brokerage.(Update Mar 09- The service tax is reduced to 10.30% including education cess )
2. The STT (Security Transaction Tax) is 0.025% only on selling amount.
3. The Stamp duty on total turnover for a day which is 0.002%.
4. and finally you have to pay Regulatory charges on total turnover for a day which is 0.004%
No need to worry about these taxes as all these taxes will add up to very small amount at the end of the day compared to intraday profits.
Example -
Suppose you have bought the shares of Bharati Airtel at Rs.315 and quantity 100 so the total amount you have to pay is Rs.315 x 100 = Rs.31,500.
Let’s see how to calculate the brokerage and taxes.
Your buying amount is
Rs.31500 (Rs.315x100 Qty shares)
Brokerage charges
0.03% as brokerage (It’s our brokerage rates) on 31,500 comes to Rs.9.45
Service Tax
The service tax is 10.36% only on brokerage amount, so 10.36 % on Rs.9.45 comes to Rs 0.98.
Total charges you have to pay on buying amount is :
The total brokerage + service tax which come to Rs.9.45 + Rs.0.98 = Rs.10.43
Now let’s calculate the Brokerage and Taxes on selling amount :
Your selling amount
Suppose you sold Bharati Airtel shares at Rs.316 (you took profit of only Rs 1), Qty - 100 so the amount comes to Rs.31,600 (Rs.316 x 100 Qty shares). Your profit is Rs 100.
Brokerage charge
0.03% brokerage on 31,600, comes to Rs.9.48
Service Tax
The service tax is 10.36% only on brokerage amount, so 10.36 % on Rs.9.48 comes to Rs 0.99.
STT (Service Transaction Tax) is only on selling amount
The STT (Service Transaction Tax) is 0.025% on selling amount (the selling amount is 31,600) which comes to Rs.6.32.
Total charges you have to pay on selling amount is = Brokerage + service tax + STT
= Rs.9.48 + Rs.0.99 + Rs.6.32
= Rs.16.79
Total amount you have to pay on buying and selling is (including Brokerage and taxes) :
= Rs.10.43 (buying) + Rs.16.79 (selling)
= Rs.27.22
Also you have to pay stamp duty and regulatory charges on total turnover:
Rate - The stamp duty on total turnover for a day is 0.002% and Regulatory charges are 0.004%.
Stamp duty and regulatory charges are applied on total turnover of a day.
The total turn over is calculated by adding the buying and selling amount happened through out the day.
In above example the Buying amount is 31500 and selling amount is 31600 which adds up to Rs. 61300
Stamp duty is 0.002% and Regulatory charges are 0.004% which adds up to 0.006%
So on total turnover amount of Rs. 61300 and the stamp duty and regulatory charges on that comes to Rs 3.8.
So the total amount you have to pay for the trade of buying 100 shares of Bharati Airtel at Rs 315 and selling them at Rs 316 comes to = Rs 27.22 + 3.8 (stamp and regulatory charges) = 31.02 which includes brokerage rates and various taxes
Conclusion :
So now the conclusion is you paid Rs.31.02 (brokerage and taxes) while you earned the profit of Rs.100.
So your Net profit is Rs 69 [Rs 100 - Rs 31 (brokerage and taxes) ]
So don’t you think 69% profit in single trade is quite enough to do thousands per day?
If you continue doing such small trades with small profits then you will end up with big amount at the end of the day.
Let’s see how it will add up to thousands :
Suppose if you do only 10 trades in a day by taking only Rs 1 as profit then it will add
up to Rs 690 (Rs 69 x 10 trades in a day).
Please note - One rupee movement in share price of Rs 300 happens very easily and for many times in a day.
So if possible select higher prices share for day trading so that you can take small profits and do multiple trades.
How to make thousands in a day? :
Now let’s see how to do thousands with same strategy as mentioned above.
Its simple, you just have to increase your quantity of shares.
In above example you have bought only 100 quantities, if you just make it double then your profit will also get doubled.
How much will you make in a month?
Rs.69 per trade as net profit (as per above example).
10 trades per day (how much trades are possible, you will come to know by doing paper trading practice, which we already explained in day trading section, and according to our analysis 10 trades in a day are very easily possible)
Total Rs.69x10 trades = Rs.690 per day.
Total approximate 20 trading days in a month.
So Rs.690x20 = Rs.13,800.
Please note - You can also do 5 trades in a day and earn good amount in a day and adding it with thousands at the end of the month.
Let’s consider some losses while trading :
Trading without losses is not possible for any trader, but trader has to reduce the losses and maximize the profits.
(Please visit our different day trading sections to read about reducing the losses in day trading)
Now let’s suppose you made loss on some days or due to some reason you are not able to trade on some days, so let’s consider 5 days as compensation as loss in a month.
So 5 days losses comes to Rs 3450 (Rs 690 per day x 5 days).
So the compensation for losses for 5 days in a month comes to is Rs.3450.
Final Total Net Profit
You are making profit of Rs 10350 (Rs13,800 - 3450) profit per month.
Your investment is Rs 35,000 and you are getting profit of Rs 10,350 per month so in just 3 to 4 months you are making your money double.
Trading on Margin Amount :
In the above example the margin amount is not used but only the investment amount Rs 35000 is used.
Margin amount is the extra amount given by the broker to trade for a day.
Margin amount varies from broker to broker but generally they provide 3 to 4 times.
Big Disadvantage of Margin amount - If you use the margin amount then you have to square off your trades before market closes. Whether you are in profit or loss you have to square off your trades before market closes or else heavy penalty will apply.
Important Precaution - In margin amount the risk is very high. You have to square off your trades on same day.
We generally advice to not to use margin amount for new comers to trading.
If you dont use margin amount then you can hold your positions for next day or as long as you want because you are using your own money and not broker's money (margin amount).
New comers to day trading :
You can invest small amount like Rs 5000 or 10,000 and earn profits in a month and once you gain experience then you can invest big amount.
The conclusion is forgetting the "Greed Factor and Taking Small Profits" will make miracle to your Trading.
Some Important Tips for Day Trading
Emotions in day trading :
In order to be a successful day trader as you need to have the right tools, right market direction, and the right trading systems in the same you also need to have control on your emotions because the buy and sell orders initialize from your emotions.
It is totally true that it is not possible to get rid of your emotions completely but managing at some extent will prove beneficial.
According to our experience emotions pals a major role in day trading.
If you have bad or sad mood then your trading may not be too successful.
If you are happy and cheerful then your trading will see its positive effects.
Following are few emotions which play a major role during taking decisions :
Fear and greed
Increasing Targets
Moving from Paper Trading to Live Trading
Patience and Discipline
Patience, Decisiveness, and Calmness
Recognizing and Overcoming Stubbornness
Fear and Greed :
The two main emotions that day traders experience are fear and greed, and while you will probably not be able to remove these emotions completely, you will need to manage them for some extent.
Fear :
Fear is the emotion that stops us from doing things that might be too risky. In the right quantity, fear is obviously an emotion that we need, but when fear becomes too great then we can be prevented from doing things that might be necessary.
In day trading, the main fear a trader has is that they are going to lose money. This is a normal fear as no trader wants to lose money, but it is illogical if it prevents the trader from taking any trades.
As an example, a trader might make loose an initial trade, and then be too fearful to make the next trade which should not happen in day trading.
The emotion of fear can be overcome by acknowledging that all day traders have losing trades occasionally, but as long as they are less frequent than the winning trades, there is nothing to be afraid of as there will still be in a net profit.
Greed :
Greed is the opposite emotion to fear.
The right amount of greed is necessary because it gives us the motivation to work at something, but when we are too greedy we will start doing things even when we know that we should not.
In day trading, greed can make traders to make unnecessary trades, or hold on to positions which are in loss, wait for big profit in single trade and so on.
The emotion of greed can be overcome by following the “Analyze, wait, watch and trade” principle which is mention in our next subsections
Increasing Targets :
Day traders should put their exit (square off) order which is nothing but limit order once they buy or short sell their trade.
This is the right method for winning strategy.
Because traders keep increasing the targets once the share price start moving in their favor but this can be risky. This happens due to greed factor to get more and more profit in single trade.
So book your profits on your already decided targets.
While shifting from paper trading to Live Trading :
When you are planning to start actual day trading, once you successfully complete the paper trading practice, then you may get fear while trading because you are using you actual money
Fear of Losing Money :
The reason that your trading system suddenly stops working because the additional emotion that comes while using own real money. The fear of losing one's own money is a very strong emotion, and can cause even experienced traders to make mistakes. Hesitating before entering a trade, moving their stop loss to break even too early, or taking a smaller profit than they would normally, are all common mistakes that are made because of the emotion of fear.
Overcoming the Fear :
If you are experiencing these problems then you have keep faith in practice trading practice what you did before doing your actual day trading.
If you would have made profits consistently in paper trading then you need to have faith in your trading system, and follow it exactly and on the other side still if you are not feeling confident then you should go back to paper trading practice.
Patience and Discipline :
Professional traders know that their emotions are going to affect their trading whether they like it or not. As a result, they develop personalities that allow them to overcome their emotions and trade profitably. Two of the most important personality traits are patience and discipline, because they allow you to handle one of the most difficult aspects of trading.
Possibly the most emotional time for a trader is when their profit / loss is negative, and they are waiting for their next trade to come along. During this time they will be impatient and anxious, and they will be desperate to take their next trade in order to make back the money that they have lost. Most new traders (and also many experienced traders) will start taking trades that are not part of their trading system. As soon as this happens, their loss will increase, and will continue to do so until they realize what they are doing and correct their behavior.
By developing a personality that counteracts your emotions you will be able to continue making logical decisions.
Patience and discipline are vital personality characters for professional traders.
Being patient allows you to wait for your next trade regardless of your current profit / loss, and being disciplined allows you to take only trades that are part of your trading system and not making unnecessary trades.
Maintain trading Log :
One method of learning how to be patient and discipline is to keep a detailed log of every trade that you take. At the end of the day (or week, or month), replay every trade, and compare the replayed trades to your trading log. If there are any differences, you should be able to determine what caused them, and hopefully know what you need to avoid the next time.
Another method of becoming patient and disciplined is to have absolute confidence in your trading system. Knowing that your trading system will make money over the long term can be enough to overcome the negative emotions that occur when you are experiencing a negative profit / loss. The only way to build confidence is to test your trades repeatedly in paper trading. If you have tested your trading system over a significant length of time, and it is consistently profitable, there is no reason to question that it will continue to be profitable
Patience, Decisiveness, and Calmness :
The idea of making a living as a day trader appeals to a large number of people, but not everybody has a personality suitable for day trading. Even people that are successful in other fields (even related fields), often find that they are not compatible with day trading.
Day trading is a flexible profession but there are few qualities that all day traders need to have in their personalities, in order to be successful (profitable) and those are
Patience
Decisiveness
Calmness
Patience :
Day trading is performed by sitting quietly in front of a computer, waiting anywhere from a few minutes, to several hours for the trade to come along.
Being able to wait patiently is a necessity; otherwise you will find yourself taking trades that are not part of your trading system and most likely losing money on them.
Decisiveness :
Deciding when to enter and exit trades is one of the most basic functions of a day trader, and it is important that these decisions are made as efficiently as possible. Being decisive is vital to successful day trading, otherwise you will only sit and watch trades that you should have actually taken. Being decisive does not mean being bold, and taking trades that you are not sure about, but it does mean acting promptly when a trade does come along.
Calmness :
Remaining calm during trading is one of the most important personality character for a day trader, but it is also one of the most difficult to obtain and practice.
As humans, the natural reactions to a winning trade are excitement and joy, and the natural reactions to a losing trade are panic and sadness, but day traders need to control these emotions, otherwise they will adversely affect their trading decisions (particularly the negative emotions).
For example, the panic that occurs after a losing trade might make you take a new trade almost immediately in an attempt to make the money back, even though there was no trade according to your trading system.
Paper trading practice :
It is a good way to practice your patience, decisiveness, and calmness during trading, without risking any real money.
After many hours, days, or weeks of practice you will have a good idea of how your personality and your emotions will affect your day trading, but even then, there will still be an emotional response when you start trading live.
Recognizing and Overcoming Stubbornness :
A large part of being a successful day trader is having the right personality character, or if not, at least being able to control the opposing personality traits. Human traders will always be influenced by their personalities and their resulting emotions, but professional traders have learned to overcome the emotions that are counter productive to their trading.
Stubbornness (inflexibility) :
One such personality characteristic is stubbornness.
Stubbornness (inflexibility) causes people to become attached to their decisions regardless of the consequences.
Day traders need to be decisive in order to make their trading decisions promptly, and then act upon those decisions without any hesitation, but they also need to be flexible and able to react when a decision was incorrect.
In order to be successful, day traders need to find the right combination of decisiveness and flexibility for their personality
Overcoming Stubbornness :
Stubborn people usually refuse to admit that they are stubborn, so recognizing that stubbornness is causing problems with their trading can be difficult. Stubbornness usually causes several different trading mistakes, with the following mistakes being the most common. If you are making any of these mistakes in your trading, it is probable that you have some degree of stubbornness in your personality, and that it is affecting your day trading:
Refusing to use targets and stop losses, and certainly refusing to actually place target and stop loss orders
Choosing not to follow a trading system, because you know what the market is going to do
Holding losing trades until the pain is just too much to bear (or even until your brokerage exits the trade for you, because you no longer cover the required margin)
For any other reason, these mistakes are actually easy to overcome, but not when they are being caused by stubbornness. In order to overcome these mistakes, stubborn traders first need to recognize that the mistakes are being caused by a natural human emotion, and that there is nothing wrong with admitting this. As being stubborn is a form of control, it may help to think that by recognizing the cause, you can have more control over yourself, and hence over your trading.
Once the cause has been recognized, trading in simulation will provide time to correct the trading mistakes without risking any real money. Trade in simulation until you are consistently profitable (by consistently, I mean several weeks, not just one day), and then move to live trading.
In order to be a successful day trader as you need to have the right tools, right market direction, and the right trading systems in the same you also need to have control on your emotions because the buy and sell orders initialize from your emotions.
It is totally true that it is not possible to get rid of your emotions completely but managing at some extent will prove beneficial.
According to our experience emotions pals a major role in day trading.
If you have bad or sad mood then your trading may not be too successful.
If you are happy and cheerful then your trading will see its positive effects.
Following are few emotions which play a major role during taking decisions :
Fear and greed
Increasing Targets
Moving from Paper Trading to Live Trading
Patience and Discipline
Patience, Decisiveness, and Calmness
Recognizing and Overcoming Stubbornness
Fear and Greed :
The two main emotions that day traders experience are fear and greed, and while you will probably not be able to remove these emotions completely, you will need to manage them for some extent.
Fear :
Fear is the emotion that stops us from doing things that might be too risky. In the right quantity, fear is obviously an emotion that we need, but when fear becomes too great then we can be prevented from doing things that might be necessary.
In day trading, the main fear a trader has is that they are going to lose money. This is a normal fear as no trader wants to lose money, but it is illogical if it prevents the trader from taking any trades.
As an example, a trader might make loose an initial trade, and then be too fearful to make the next trade which should not happen in day trading.
The emotion of fear can be overcome by acknowledging that all day traders have losing trades occasionally, but as long as they are less frequent than the winning trades, there is nothing to be afraid of as there will still be in a net profit.
Greed :
Greed is the opposite emotion to fear.
The right amount of greed is necessary because it gives us the motivation to work at something, but when we are too greedy we will start doing things even when we know that we should not.
In day trading, greed can make traders to make unnecessary trades, or hold on to positions which are in loss, wait for big profit in single trade and so on.
The emotion of greed can be overcome by following the “Analyze, wait, watch and trade” principle which is mention in our next subsections
Increasing Targets :
Day traders should put their exit (square off) order which is nothing but limit order once they buy or short sell their trade.
This is the right method for winning strategy.
Because traders keep increasing the targets once the share price start moving in their favor but this can be risky. This happens due to greed factor to get more and more profit in single trade.
So book your profits on your already decided targets.
While shifting from paper trading to Live Trading :
When you are planning to start actual day trading, once you successfully complete the paper trading practice, then you may get fear while trading because you are using you actual money
Fear of Losing Money :
The reason that your trading system suddenly stops working because the additional emotion that comes while using own real money. The fear of losing one's own money is a very strong emotion, and can cause even experienced traders to make mistakes. Hesitating before entering a trade, moving their stop loss to break even too early, or taking a smaller profit than they would normally, are all common mistakes that are made because of the emotion of fear.
Overcoming the Fear :
If you are experiencing these problems then you have keep faith in practice trading practice what you did before doing your actual day trading.
If you would have made profits consistently in paper trading then you need to have faith in your trading system, and follow it exactly and on the other side still if you are not feeling confident then you should go back to paper trading practice.
Patience and Discipline :
Professional traders know that their emotions are going to affect their trading whether they like it or not. As a result, they develop personalities that allow them to overcome their emotions and trade profitably. Two of the most important personality traits are patience and discipline, because they allow you to handle one of the most difficult aspects of trading.
Possibly the most emotional time for a trader is when their profit / loss is negative, and they are waiting for their next trade to come along. During this time they will be impatient and anxious, and they will be desperate to take their next trade in order to make back the money that they have lost. Most new traders (and also many experienced traders) will start taking trades that are not part of their trading system. As soon as this happens, their loss will increase, and will continue to do so until they realize what they are doing and correct their behavior.
By developing a personality that counteracts your emotions you will be able to continue making logical decisions.
Patience and discipline are vital personality characters for professional traders.
Being patient allows you to wait for your next trade regardless of your current profit / loss, and being disciplined allows you to take only trades that are part of your trading system and not making unnecessary trades.
Maintain trading Log :
One method of learning how to be patient and discipline is to keep a detailed log of every trade that you take. At the end of the day (or week, or month), replay every trade, and compare the replayed trades to your trading log. If there are any differences, you should be able to determine what caused them, and hopefully know what you need to avoid the next time.
Another method of becoming patient and disciplined is to have absolute confidence in your trading system. Knowing that your trading system will make money over the long term can be enough to overcome the negative emotions that occur when you are experiencing a negative profit / loss. The only way to build confidence is to test your trades repeatedly in paper trading. If you have tested your trading system over a significant length of time, and it is consistently profitable, there is no reason to question that it will continue to be profitable
Patience, Decisiveness, and Calmness :
The idea of making a living as a day trader appeals to a large number of people, but not everybody has a personality suitable for day trading. Even people that are successful in other fields (even related fields), often find that they are not compatible with day trading.
Day trading is a flexible profession but there are few qualities that all day traders need to have in their personalities, in order to be successful (profitable) and those are
Patience
Decisiveness
Calmness
Patience :
Day trading is performed by sitting quietly in front of a computer, waiting anywhere from a few minutes, to several hours for the trade to come along.
Being able to wait patiently is a necessity; otherwise you will find yourself taking trades that are not part of your trading system and most likely losing money on them.
Decisiveness :
Deciding when to enter and exit trades is one of the most basic functions of a day trader, and it is important that these decisions are made as efficiently as possible. Being decisive is vital to successful day trading, otherwise you will only sit and watch trades that you should have actually taken. Being decisive does not mean being bold, and taking trades that you are not sure about, but it does mean acting promptly when a trade does come along.
Calmness :
Remaining calm during trading is one of the most important personality character for a day trader, but it is also one of the most difficult to obtain and practice.
As humans, the natural reactions to a winning trade are excitement and joy, and the natural reactions to a losing trade are panic and sadness, but day traders need to control these emotions, otherwise they will adversely affect their trading decisions (particularly the negative emotions).
For example, the panic that occurs after a losing trade might make you take a new trade almost immediately in an attempt to make the money back, even though there was no trade according to your trading system.
Paper trading practice :
It is a good way to practice your patience, decisiveness, and calmness during trading, without risking any real money.
After many hours, days, or weeks of practice you will have a good idea of how your personality and your emotions will affect your day trading, but even then, there will still be an emotional response when you start trading live.
Recognizing and Overcoming Stubbornness :
A large part of being a successful day trader is having the right personality character, or if not, at least being able to control the opposing personality traits. Human traders will always be influenced by their personalities and their resulting emotions, but professional traders have learned to overcome the emotions that are counter productive to their trading.
Stubbornness (inflexibility) :
One such personality characteristic is stubbornness.
Stubbornness (inflexibility) causes people to become attached to their decisions regardless of the consequences.
Day traders need to be decisive in order to make their trading decisions promptly, and then act upon those decisions without any hesitation, but they also need to be flexible and able to react when a decision was incorrect.
In order to be successful, day traders need to find the right combination of decisiveness and flexibility for their personality
Overcoming Stubbornness :
Stubborn people usually refuse to admit that they are stubborn, so recognizing that stubbornness is causing problems with their trading can be difficult. Stubbornness usually causes several different trading mistakes, with the following mistakes being the most common. If you are making any of these mistakes in your trading, it is probable that you have some degree of stubbornness in your personality, and that it is affecting your day trading:
Refusing to use targets and stop losses, and certainly refusing to actually place target and stop loss orders
Choosing not to follow a trading system, because you know what the market is going to do
Holding losing trades until the pain is just too much to bear (or even until your brokerage exits the trade for you, because you no longer cover the required margin)
For any other reason, these mistakes are actually easy to overcome, but not when they are being caused by stubbornness. In order to overcome these mistakes, stubborn traders first need to recognize that the mistakes are being caused by a natural human emotion, and that there is nothing wrong with admitting this. As being stubborn is a form of control, it may help to think that by recognizing the cause, you can have more control over yourself, and hence over your trading.
Once the cause has been recognized, trading in simulation will provide time to correct the trading mistakes without risking any real money. Trade in simulation until you are consistently profitable (by consistently, I mean several weeks, not just one day), and then move to live trading.
Some Important Tips for Trading in Futures Derivatives
Futures derivatives trading :
Future trading can be done on stocks as well as on Indices like IT index, Auto index, Pharma index etc.
Stock future trading -
Let’s 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 can’t buy future contract of expiry period of not more than 3 months.
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.
Most of the times on 3rd month expiry future you may see very less trading volumes.
Generally most of the traders/investors trade or invest on current month future or second month future contract and you may see very low volumes on last month means third month expiry .
But on Nifty index contract or on other index contract you may see good trading volumes even on 3rd month expiry future also.
You can also buy and sell or sell and buy future contract on the same day of any expiry month. This is called as day trading or intraday in futures.
Selling future contract before buying is called short selling. Short selling is allowed in futures trading.
Major Advantages of Futures Trading over Stock Trading :
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.
Possible to do short selling :
You can short sell futures- You can sell futures without buying them which is called short selling and later buy within your expiry period, to cover up your positions.
This is not possible in stocks. You can’t sell stocks before buying them in delivery (you can do in
intraday). You can short sell futures and can cover off within your expiry period.
For example - If expiry period of your future contract is of 1 month then you have time frame of one month to cover off your order 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.
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 can’t do future trading on all stocks. You can only do on listed stocks on Nifty and Jr. Nifty.
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.
5) Selection of expiry period - you want to trade on expiry of one month, two month or last 3rd month.
6) No need to wait till expiry period can book profit wherever applicable.
Future trading can be done on stocks as well as on Indices like IT index, Auto index, Pharma index etc.
Stock future trading -
Let’s 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 can’t buy future contract of expiry period of not more than 3 months.
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.
Most of the times on 3rd month expiry future you may see very less trading volumes.
Generally most of the traders/investors trade or invest on current month future or second month future contract and you may see very low volumes on last month means third month expiry .
But on Nifty index contract or on other index contract you may see good trading volumes even on 3rd month expiry future also.
You can also buy and sell or sell and buy future contract on the same day of any expiry month. This is called as day trading or intraday in futures.
Selling future contract before buying is called short selling. Short selling is allowed in futures trading.
Major Advantages of Futures Trading over Stock Trading :
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.
Possible to do short selling :
You can short sell futures- You can sell futures without buying them which is called short selling and later buy within your expiry period, to cover up your positions.
This is not possible in stocks. You can’t sell stocks before buying them in delivery (you can do in
intraday). You can short sell futures and can cover off within your expiry period.
For example - If expiry period of your future contract is of 1 month then you have time frame of one month to cover off your order 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.
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 can’t do future trading on all stocks. You can only do on listed stocks on Nifty and Jr. Nifty.
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.
5) Selection of expiry period - you want to trade on expiry of one month, two month or last 3rd month.
6) No need to wait till expiry period can book profit wherever applicable.
Golden Rules Tips for Successful Smart Trading
Stock markets are driven by greed and fear.
- Fear of losing money
Simple basic rules to tame the Fear Factor
* Always paper trade before putting in your own money.
A new trader should first learn trading through paper trade.
It is the better way to learn trading in stock market. Here there is no is involved and hence no fear of losing money, but one a beginner will experience the entire trading process.
* Only trade with money you can afford to lose
Trade only with money you can afford to lose.
Never trade with the money which is meant for your basic needs, such as food, rent, and other necessary expenses.
* Identify you risk threshold
Never exceed your individual fear threshold.
When the market goes against your trading, try to stay cool and have clear precise exit plans. Implement your trades with logic and common sense.
* Diversification
Never try to put all of your eggs in one basket.
Never invest a major amount of money in just one stock. Diversify your positions by investing in more than 5 stocks.
Investment Strategy
* Get Information Before You Invest, Not After
* Set a well defined objective for each individual investment.
* Be specific
* Be reasonable in expectations
* Consider Risk
* Be measurable
* Buy Low, Sell High. Buy High, Sell Higher
* Buy on the Rumor, Sell on the News
* Buy the Stock That Splits
* Never Buy a Stock Only Because It Has a Low Price
* Avoid Over trading
* Always paper trade before putting in your own money.
A new trader should first learn trading through paper trade.
It is the better way to learn trading in stock market. Here there is no is involved and hence no fear of losing money, but one a beginner will experience the entire trading process.
* Only trade with money you can afford to lose
Trade only with money you can afford to lose.
Never trade with the money which is meant for your basic needs, such as food, rent, and other necessary expenses.
* Identify you risk threshold
Never exceed your individual fear threshold.
When the market goes against your trading, try to stay cool and have clear precise exit plans. Implement your trades with logic and common sense.
* Diversification
Never try to put all of your eggs in one basket.
Never invest a major amount of money in just one stock. Diversify your positions by investing in more than 5 stocks.
Investment Strategy
* Get Information Before You Invest, Not After
* Set a well defined objective for each individual investment.
* Be specific
* Be reasonable in expectations
* Consider Risk
* Be measurable
* Buy Low, Sell High. Buy High, Sell Higher
* Buy on the Rumor, Sell on the News
* Buy the Stock That Splits
* Never Buy a Stock Only Because It Has a Low Price
* Avoid Over trading
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