Wednesday, February 1, 2012
Tuesday, November 1, 2011
Stop Loss.............insurence policy for your stocks
What is Stop Loss?
A stop loss is an order to buy (or sell) a security once the price of the security climbed above (or dropped below) a specified stop price. When the specified stop price is reached, the stop order is entered as a market order (no limit) or a limit order (fixed or pre-determined price).
With a stop order, the trader does not have to actively monitor how a stock is performing. However because the order is triggered automatically when the stop price is reached, the stop price could be activated by a short-term fluctuation in a security's price. Once the stop price is reached, the stop order becomes a market order or a limit order.
In a fast-moving volatile market, the price at which the trade is executed may be much different from the stop price in the case of a market order. Alternatively in the case of a limit order the trade may or may not get executed at all. This happens when there are no buyers or sellers available at the limit price.
Types of Stop Loss order
1) Stop Loss Limit Order
A stop loss limit order is an order to buy a security at no more (or sell at no less) than a specified limit price. This gives the trader some control over the price at which the trade is executed, but may prevent the order from being executed.
A stop loss buy limit order can only be executed by the exchange at the limit price or lower. For example, if an trader is short and wants to protect his short position but doesn't want to pay more than Rs.100 for the stock, the investor can place a stop loss buy limit order to buy the stock at any price up to Rs.100. By entering a limit order rather than a market order, the investor will not be caught buying the stock at Rs.110 if the price rises sharply.
Alternatively a stop loss sell limit order can only be executed at the limit price or higher.
Advantages and disadvantages of the stop loss limit order
The main advantage of a stop loss limit order is that the trader has total control over the price at which the order is executed. The main disadvantage of the stop loss limit order is that in a fast moving volatile market your stop loss order may not get executed if there are no buyers/sellers at the limit price.
1) Stop Loss Limit Order
A stop loss limit order is an order to buy a security at no more (or sell at no less) than a specified limit price. This gives the trader some control over the price at which the trade is executed, but may prevent the order from being executed.
A stop loss buy limit order can only be executed by the exchange at the limit price or lower. For example, if an trader is short and wants to protect his short position but doesn't want to pay more than Rs.100 for the stock, the investor can place a stop loss buy limit order to buy the stock at any price up to Rs.100. By entering a limit order rather than a market order, the investor will not be caught buying the stock at Rs.110 if the price rises sharply.
Alternatively a stop loss sell limit order can only be executed at the limit price or higher.
Advantages and disadvantages of the stop loss limit order
The main advantage of a stop loss limit order is that the trader has total control over the price at which the order is executed. The main disadvantage of the stop loss limit order is that in a fast moving volatile market your stop loss order may not get executed if there are no buyers/sellers at the limit price.
2) Stop Loss Market Order
A stop loss market order is an order to buy (or sell) a security once the price of the security climbed above (or dropped below) a specified stop price. When the specified stop price is reached, the stop order is entered as a market order (no limit). In other words a stop loss market order is a order to buy or sell a security at the current market price prevailing at the time the stop order is triggered. This type of stop loss order gives the trader no control over the price at which the trade will be executed.
A sell stop market order is a order to sell at the best available price after the price goes below the stop price. A sell stop price is always below the current market price. For example, if an trader holds a stock currently valued at Rs.100 and is worried that the value may drop, he/she can place a sell stop order at Rs.90. If the share price drops to Rs.90, the exchange will sell the order at the next available price. This can limit the traders losses (if the stop price is at or below the purchase price) or lock in some of the profits.
A buy stop market order is typically used to limit a loss (or to protect an existing profit) on a short sale. A buy stop price is always above the current market price. For example, if an trader sells a stock short hoping the stock price goes down in order to book profits at a lower price, the trader may use a buy stop order to protect himself against losses if the price goes too high.
Advantages and disadvantages of the stop loss market order
The main advantage of a stop loss market order is that the stop loss order will always get executed. The main disadvantage of the stop loss market is that the trader has no control over the price at which the transaction is executed.
ConclusionA stop loss market order is an order to buy (or sell) a security once the price of the security climbed above (or dropped below) a specified stop price. When the specified stop price is reached, the stop order is entered as a market order (no limit). In other words a stop loss market order is a order to buy or sell a security at the current market price prevailing at the time the stop order is triggered. This type of stop loss order gives the trader no control over the price at which the trade will be executed.
A sell stop market order is a order to sell at the best available price after the price goes below the stop price. A sell stop price is always below the current market price. For example, if an trader holds a stock currently valued at Rs.100 and is worried that the value may drop, he/she can place a sell stop order at Rs.90. If the share price drops to Rs.90, the exchange will sell the order at the next available price. This can limit the traders losses (if the stop price is at or below the purchase price) or lock in some of the profits.
A buy stop market order is typically used to limit a loss (or to protect an existing profit) on a short sale. A buy stop price is always above the current market price. For example, if an trader sells a stock short hoping the stock price goes down in order to book profits at a lower price, the trader may use a buy stop order to protect himself against losses if the price goes too high.
Advantages and disadvantages of the stop loss market order
The main advantage of a stop loss market order is that the stop loss order will always get executed. The main disadvantage of the stop loss market is that the trader has no control over the price at which the transaction is executed.
Stop loss orders are great insurance policies that cost you nothing and can save you a fortune. Unless you plan to hold a stock forever, you should consider using them to protect yourself.
SHORT SELL
Short Selling
Profit from Short selling the Indian Futures Markets
What differentiates futures traders for most ordinary investors is the fact that most of them are as likely to sell a market as they are to buy it. Unlike many equities strategies that focus only on advancing markets, in futures you can just as easily make money if prices are going up or down.
Have you ever been absolutely sure that a stock was going to decline and wanted to profit from its regrettable demise? Wouldn't it be nice to see your portfolio increase in value during a bear market? Both scenarios are possible. Many investors make money on a decline in an individual stock or during a bear market, thanks to an advanced investing technique called “short selling.”
Short selling is neither terribly complex nor entirely simple. In other words, it's a concept that many investors have trouble understanding. In general, people think of investing as buying an asset, holding it while it appreciates in value, and then eventually selling to make a profit. Shorting is the opposite: an investor makes money only when a shorted security falls in value.
Most investors know the adage, "buy low, sell high." But, did you know that in the futures markets, the adage can also be turned around so you "sell high, buy low?" When you sell before a purchase, you are "selling short."
A short sale is made when prices are expected to drop, at which point you could offset the position with a buy, and claim a profit.
Why Short Sell?
There are two main motivations to short sell:
1. To trade
The most obvious reason to short is to profit from an overpriced or downward trending bear market.
2. To hedge
Very few investors short as an active investing strategy. The majority of investors use shorts to hedge. This means they are protecting other long positions with offsetting short positions.
Advantages of Short Selling Stock and Index Futures?
Make money in downtrends and bear markets when prices fall.
It may seem obvious, but what goes up must come down. If you think prices are due for a fall you can sell short to position yourself to gain from that drop.
Take a position with margin.
Futures positions tie up less money than stocks. Whether you're long or short, a position in single-stock futures requires margin equal to a certain % value of the contract's value.
Sell without owning.
In the futures markets, unlike the cash markets, you can sell stocks without actually owning or having them in your demat account. Shorting stock or index in futures have no such restrictions. Going short is just as easy as going long.
Sell at a better price.
Single-stock futures can sometimes be sold at a price higher than the actual stock itself. This happens because most single-stock futures trade at a premium to the stock price, called "basis."
How To Sell Short With Stock and Index Futures
For many investors the question is not whether to go short, but rather, how best to go about it. This is the easy part. When the time comes to position yourself for a downward move, simply place your order to sell. You can go to the market, work a limit order or enter a new position with a sell stop — just as you could with any buy order.
With futures, you're not selling the actual stock or index. Instead, you're entering into an agreement to deliver or close out your position before the contracts expiry date. Most investors simply buy back their short positions before the contracts expire.
And Finally...
Some people mistakenly believe that making profits on a short sale is unpatriotic, unethical or mean-spirited. But remember that for every buyer there is a seller taking the other side of the trade. That's what makes a market — two parties with different opinions about the future direction of the item being sold.
Unless a short sale involves fraud or manipulation, it is a routine valued aspect of liquid markets. After all, short-sellers will eventually be buyers — either to cover their short or to make delivery.
Why limit your opportunities with preconceived notions of what is or is not appropriate? If you think the market is due to rally, then buy. If you're bearish, then sell. And if you decide to take action on your bearish opinion, the short sale can get the job done nicely.
Profit from Short selling the Indian Futures Markets
What differentiates futures traders for most ordinary investors is the fact that most of them are as likely to sell a market as they are to buy it. Unlike many equities strategies that focus only on advancing markets, in futures you can just as easily make money if prices are going up or down.
Have you ever been absolutely sure that a stock was going to decline and wanted to profit from its regrettable demise? Wouldn't it be nice to see your portfolio increase in value during a bear market? Both scenarios are possible. Many investors make money on a decline in an individual stock or during a bear market, thanks to an advanced investing technique called “short selling.”
Short selling is neither terribly complex nor entirely simple. In other words, it's a concept that many investors have trouble understanding. In general, people think of investing as buying an asset, holding it while it appreciates in value, and then eventually selling to make a profit. Shorting is the opposite: an investor makes money only when a shorted security falls in value.
Most investors know the adage, "buy low, sell high." But, did you know that in the futures markets, the adage can also be turned around so you "sell high, buy low?" When you sell before a purchase, you are "selling short."
A short sale is made when prices are expected to drop, at which point you could offset the position with a buy, and claim a profit.
Why Short Sell?
There are two main motivations to short sell:
1. To trade
The most obvious reason to short is to profit from an overpriced or downward trending bear market.
2. To hedge
Very few investors short as an active investing strategy. The majority of investors use shorts to hedge. This means they are protecting other long positions with offsetting short positions.
Advantages of Short Selling Stock and Index Futures?
Make money in downtrends and bear markets when prices fall.
It may seem obvious, but what goes up must come down. If you think prices are due for a fall you can sell short to position yourself to gain from that drop.
Take a position with margin.
Futures positions tie up less money than stocks. Whether you're long or short, a position in single-stock futures requires margin equal to a certain % value of the contract's value.
Sell without owning.
In the futures markets, unlike the cash markets, you can sell stocks without actually owning or having them in your demat account. Shorting stock or index in futures have no such restrictions. Going short is just as easy as going long.
Sell at a better price.
Single-stock futures can sometimes be sold at a price higher than the actual stock itself. This happens because most single-stock futures trade at a premium to the stock price, called "basis."
How To Sell Short With Stock and Index Futures
For many investors the question is not whether to go short, but rather, how best to go about it. This is the easy part. When the time comes to position yourself for a downward move, simply place your order to sell. You can go to the market, work a limit order or enter a new position with a sell stop — just as you could with any buy order.
With futures, you're not selling the actual stock or index. Instead, you're entering into an agreement to deliver or close out your position before the contracts expiry date. Most investors simply buy back their short positions before the contracts expire.
And Finally...
Some people mistakenly believe that making profits on a short sale is unpatriotic, unethical or mean-spirited. But remember that for every buyer there is a seller taking the other side of the trade. That's what makes a market — two parties with different opinions about the future direction of the item being sold.
Unless a short sale involves fraud or manipulation, it is a routine valued aspect of liquid markets. After all, short-sellers will eventually be buyers — either to cover their short or to make delivery.
Why limit your opportunities with preconceived notions of what is or is not appropriate? If you think the market is due to rally, then buy. If you're bearish, then sell. And if you decide to take action on your bearish opinion, the short sale can get the job done nicely.
Sunday, October 30, 2011
Trade with Support and Resistance
What is the meaning of resistance and support?
How to calculate resistance and support for trading and for investing?
Resistance
In simple words the meaning of resistance is opposition.
As the name indicates, it opposes the share price going in upper direction.
It is the level where share price may stop before continuing its upper journey.
But if the buying starts from all sides then no resistance come into picture the resistance level is just broken and share price will continue its upward journey.
To break the resistance level volumes also play the major role.
If the share price moves above the resistance level with huge support of volumes then it is considered as confirm up trend.
Once the resistance is broken then the share moves till its next resistance level or go in consolidation (share movement with very less price variation) phase and then after getting appropriate buying with good support of volumes then it tries to break its next resistance level and will proceed and this continues.
The major bullish resistance is considered as 200 DMA (daily moving average)
As long as the share or index is trading above this level then it is considered as bullish or if share or index moves from bottom and breaks this level then further upside is confirmed and on the opposite side if the 200 DMA is broken from above then the down trend will continue and this is what happened with Nifty and Sensex when they broke their 200 DMA in January 2008.
Market has seen more then 60% fall after the broke of 200 DMA support level.
Resistance broken will act as support level (in case of moving average method)
You will come to know different types of calculating support and resistance.
Trade with Support and Resistance
Resistance and Support
What is the meaning of resistance and support?
How to calculate resistance and support for trading and for investing?
Support
As the name indicates it provides support for to share price to prevent it from falling further.
If the share price starts falling then it is expected that it may take halt at its support level but if the selling and especially short selling is taking place then no support will comes into pictures.
If the selling pressure is from all sides then it may or may not take halt or wait near its support level and will continue its downward journey till it finds next support levels.
The resistance broken will act as its support level.
If a stock price is moving between support and resistance levels, then a basic investment strategy commonly
used by traders, is to buy a stock at support and sell at resistance, then short at resistance and cover
When judging entry and exit investment timing using support or resistance levels it is important to choose a
chart based on a price interval period that aligns with your trading strategy timeframe. Short term traders
tend to use charts based on interval periods, such as 1 minute (i.e. the price of the security is plotted
on the chart every 1 minute), with longer term traders using price charts based on hourly, daily, weekly or
monthly interval periods. Typically traders use shorter term interval charts when making a final decisions
on when to invest, such as the following example based on 1 week of historical data with price plotted every
15 minutes.
How to calculate the support and resistance levels?
There are many ways to calculate the resistance and support levels which is generally based on traders and investors strategies and trading and investing methods.
Following are few common methods used to find support and resistance.
1. Moving average based
2. Pivot point based.
3. Making higher highs and lower lows
Golden Rules for day Trader to be Successful
There is no 100% successful day trading formula because market daily reacts to lots of external factors like American market, Asian market, European market, news announcement etc. So markets are beyond anybody’s control.
Golden Rules for day Trader to be Successful
1. First do paper trading and if you get success then start your actual day trading. If you don’t get success in paper trading then do not do day
trading, you will lose all your money.
2. Initially don’t use margin amount for day trading. Once you get lots of experience then you can use margin amount. Trade only with the money
available with you so that if the trade goes wrong you can take delivery of those stocks and sell later instead of bearing loss. This is only possible
if you have bought shares and not possible for short sell trade.
3. Don’t try to trade daily. If markets are very volatile then it is better to wait and watch instead of start trading immediately.
4. Trading without losses is not possible so try to reduce losses and increase profit so that at the end of the month you should be in profit.
5. Be in touch with news/events in the market. Most of the time it has been observed that News and Events affect the market.
So instead of trading blindly on any techniques it is highly recommended and advised to keep yourself in touch with the market news and updates.
Please note - There is no guarantee that following parameters and factors will work in all market conditions and will achieve targets so we advice to do Paper Trading Practice and gain experience and market knowledge before actual start trading with money.
Following strategy applies only for day trading (intraday trading)
There are four ways
1) If stock opens between R3 and S3
To Buy -
Wait for the price to go below S3 and then when it moves back above S3 then Buy.
Stoploss - Place Slightly below S4 level.
Target - See below this article to know how to set the target and book profit.
To Short Sell -
Wait for the price to go above R3 and then when the price moves down below R3 then Short Sell.
Stoploss - Place Slightly above R4.
Target - See below this article to know how to set the target and book profit.
2) If stock opens between R3 and R4
To Buy
When price moves above R4 then Buy.
Stoploss - Place Slightly below R3.
Target - See below this article to know how to set the target and book profit.
To Short Sell
When the price goes below R3 then Sell.
Stopless - Place Slightly above R4.
Target - See below this article - to know how to set the target and book profit.
3) If stock opens between S3 and S4
To Buy
When price moves above S3 then Buy.
Stoploss - Place slightly below S4.
Target - See below this article - to know how to set the target and book profit.
To Short Sell
When the price goes below S4 then Sell.
Stoploss - Place slightly above S3.
Target - See below this article - to know how to set the target and book profit.
4) Open price is outside the R4 and S4
Wait for the prices to come in range and trade accordingly as mentioned in above scenarios.
Now lets see the Target calculation
According our strategy we advice our traders to book low profits and do multiple traders because
markets are uncertain and beyond anybody’s control.
So if the stock price is till Rs100, trader can take 0.5 paise as profit per stock.
• If the Stock price is between Rs 100 to Rs 200, trader can take profit of 0.8 paisa to Rs 1.0.
• If the stock price is between Rs 200 to Rs 300, trader can take profit of Rs 1.0 to Rs 1.5
• If the stock price is between Rs 300 to 400 , trader can take profit of Rs 1.5 to Rs 2.0
• If the stock price is between Rs 400 to 500 , trader can take profit of Rs 2.0 to Rs 2.5
• If the stock price is between Rs 500 to 600 , trader can take profit of Rs 2.5 to Rs 3.0
• If the stock price is between Rs 600 to 700 , trader can take profit of Rs 3.0 to Rs 3.5
• If the stock price is between Rs 700 to 800 , trader can take profit of Rs 3.5 to Rs 4.0
so on it continues…..
Please note - Basically traders think this is very small profit but in day trading if you want to
get success then this type of booking profits assures you good returns at the end of the day.
To know how much profit can be generated using this technique please visit below link and you will
be surprised to see the profits.
We call this strategy as “Take small profits and do multiple trades”.
There are four ways
1) If stock opens between R3 and S3
To Buy -
Wait for the price to go below S3 and then when it moves back above S3 then Buy.
Stoploss - Place Slightly below S4 level.
Target - See below this article to know how to set the target and book profit.
To Short Sell -
Wait for the price to go above R3 and then when the price moves down below R3 then Short Sell.
Stoploss - Place Slightly above R4.
Target - See below this article to know how to set the target and book profit.
2) If stock opens between R3 and R4
To Buy
When price moves above R4 then Buy.
Stoploss - Place Slightly below R3.
Target - See below this article to know how to set the target and book profit.
To Short Sell
When the price goes below R3 then Sell.
Stopless - Place Slightly above R4.
Target - See below this article - to know how to set the target and book profit.
3) If stock opens between S3 and S4
To Buy
When price moves above S3 then Buy.
Stoploss - Place slightly below S4.
Target - See below this article - to know how to set the target and book profit.
To Short Sell
When the price goes below S4 then Sell.
Stoploss - Place slightly above S3.
Target - See below this article - to know how to set the target and book profit.
4) Open price is outside the R4 and S4
Wait for the prices to come in range and trade accordingly as mentioned in above scenarios.
Now lets see the Target calculation
According our strategy we advice our traders to book low profits and do multiple traders because
markets are uncertain and beyond anybody’s control.
So if the stock price is till Rs100, trader can take 0.5 paise as profit per stock.
• If the Stock price is between Rs 100 to Rs 200, trader can take profit of 0.8 paisa to Rs 1.0.
• If the stock price is between Rs 200 to Rs 300, trader can take profit of Rs 1.0 to Rs 1.5
• If the stock price is between Rs 300 to 400 , trader can take profit of Rs 1.5 to Rs 2.0
• If the stock price is between Rs 400 to 500 , trader can take profit of Rs 2.0 to Rs 2.5
• If the stock price is between Rs 500 to 600 , trader can take profit of Rs 2.5 to Rs 3.0
• If the stock price is between Rs 600 to 700 , trader can take profit of Rs 3.0 to Rs 3.5
• If the stock price is between Rs 700 to 800 , trader can take profit of Rs 3.5 to Rs 4.0
so on it continues…..
Please note - Basically traders think this is very small profit but in day trading if you want to
get success then this type of booking profits assures you good returns at the end of the day.
To know how much profit can be generated using this technique please visit below link and you will
be surprised to see the profits.
We call this strategy as “Take small profits and do multiple trades”.
Wednesday, October 26, 2011
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