10 Tips for Market investment

1

Keep a Long Term Plan

If you are among those who think that long-term investment means buying shares at low prices and forgetting about them, you are taking a huge risk. The economic environment and market scenario are very dynamic. It does make sense to sell if the stock price appreciates too much above its value or if the fundamentals have drastically changed since purchase so that the company is unlikely to be profitable any more.

However don’t invest money which is required by you in less than 3 years. If you do so, you may need to sell your stocks for loss when market is not performing well. Short term investment may be detrimental to your wealth. Profits from Short Term Investment may not sustain in stock market. Your quick profit from one scrip could be offset by another.

2

Don’t Invest Borrowed Money

Before you can invest, you need money. When you invest borrowed money into stock market, you tend to make more mistakes than you do usually. You might expect quick profit to repay your loan and you might expect more profit% to pay off the interest on borrowed money.

Don’t start investing until you have six to twelve months of living expenses in a savings account, as an emergency fund.  Stay away from market till the time you save money for investing and spend your quality time on learning market.

3

Creating a Good Portfolio

Choose stocks of companies with proven records of profitability with at least some earning in each of the past ten years, pay at least some dividend in each of the past 15-20 years, at least 30 percent EPS growth over the past 10 years. A portfolio should contain different stocks from different sectors to minimize the risk and utilize the growth of different sectors.

An investor should review his portfolio at regular intervals. If the outlook of a company improves, or at least remains stable, he should buy or hold the stock. When the assumptions under which he bought the shares no longer hold true, it might be time to offload them.

4

Don’t be Greedy, Don’t Fear and Don’t Panic

These three important emotions drives the market. When greed sets in, all a trader can focus on is how much money they have made and how much more they could make by staying in the trade. However, there is a major fallacy with this type of reasoning. A profit is not realized until a position is closed. Greediness leads to Destruction.

When traders become afraid, they will sell a position regardless of the price. Fear leads to panic, and panic leads to poor decision making. Fear is a survival response. People have been known to jump off of buildings during market panics. By contrast, no one has ever jumped off of a building because of greed.

5

Don’t Buy on Margin

Margin trading is buying stocks without having the entire money to do it. The exchanges have an institutionalised method of buying stocks without having the capital through the futures market. Read this to understand What is Margin Trading?

Leverage is a multi-faceted and complex tool. Use of leverage can be quite profitable, but the reverse is also true. Your entire capital can be wiped out in a single trade. Be careful!!!

6

Practice with Paper Trading

Though paper trading is age old practice and very different from actual trading with real money, its recommended for novice trader to begin from this. It is a great tool if taken seriously. Trade stocks on paper before actually trading stocks with real money. Record your stock trades on paper, keeping track of dates of the trades, number of shares, stock prices, profit or loss, including commissions, taxes on dividend, and short or long term capital gains taxes you would have to pay for each trade. Calculate your net profit or loss less commissions and taxes for at least  1 year and compare it against the performance of index. Do not start trading with real money until you are comfortable with your trading abilities.

7

Don’t Buy on Expert Tips

No one can predict/decide the future of stock market. Learn strategies and techniques from experts but don’t buy anything based on their tips.

Thanks to cheap bulk messages, you might have received SMSes tipping you about a ‘golden opportunity’ to earn huge profits. If you have acted on any of these tips, you probably have lost some money. Success/Failure doesn’t matter, take your own decision. If success, be happy else learn from your mistakes. This is how you learn stock market. If you can’t take your own decision, don’t enter into stock market.

Always perform due diligence before placing an order with your broker.

8

Are you Tracking Global Markets?

There are many factors which impacts Indian Market such as Oil price, Dollar Rate, Gold Price, Key Interest Rate decisions from Federal Reserve Bank etc. It’s good to track US, European and Asian market conditions on daily basis.

9

Learn Fundamental Analysis

Investors should look at companies that have consistently delivered earnings growth and good corporate governance. Never invest in a firm without understanding the dynamics of the business. Try to understand the basic facts of company through Balance Sheet which reveals a company’s assets, liabilities and owners’ equity (net worth). Successful investors always base their investment decisions on a shares’ intrinsic value and hunt for bargain stocks. They will buy shares of a company with strong fundamentals when it’s beaten in the market and sell when prices surge.

10

Learn Technical Analysis

Technical analysis is a method used to forecast future trends of stock prices using past market data. It is widely used among stock traders and investment professionals. Technical analysts do not measure the stock’s intrinsic value but they use stock market charts to identify patterns and trends that may suggest future price movements.

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Different types of share trading

Day trading and Delivery trading (it is also called as investing) are the two main types of share trading.

• Day trading
Buying and selling of shares on daily basis is called day trading; this is also called as Intra day trading. Whatever you buy today you have to sell it today OR whatever you sell today you have to buy it today and very importantly during market hours that is between 9.00 am to 3.30 pm (Indian time). In day trading, brokers provide margin to do trading. Means you get extra amount for day trading. Suppose if you have 10,000 rupees in your account then you can buy and sell shares worth rupees 40,000(four times more - basically margin amount depends on your broker).

So if you use margin amount for day trading then you have square off your shares before market closes irrespective of share price or whether you are making loss or profit.
Please note - If you don’t use margin amount and trade only with your available amount then no need to square off your positions.

For example if the you buy some shares and the share prices falls then you can hold them and take delivery and sell them whenever the share prices increases.
Important note - New comers should not start by day trading as it is very risky.Day trading requires lots of knowledge including share, entire share market, global markets, news and many more parameters.

• Delivery Trading
In Delivery Trading, as the name say, you have to take the delivery of shares and after getting these shares in your demat account you can sell them at anytime (or you can hold them till you want, there is no restriction).

In delivery trading you need to have the amount required to buy share in other words you don’t get margin amount as you get in day trading

For example - If you want to buy 10 shares of Reliance at price 1200 than you must have (100x1200) Rs 12,000 in your account; once you purchased these shares will get deposited in your demat account (after trading day and 2 additional days). Then you can sell these shares when the price of these shares goes up or else you can hold them as long as you want.
Please Note - First you have to buy and sell. You can’t sell before buying in delivery trading while it’s possible in day trading which is called as short selling.

Methods of buying and selling of shares

Different methods of buying and selling of shares

Following are the two methods of buying and selling of shares in Indian share market.
Market Order
Limit Order
• Market Order
When you put buy or sell price of a stock at market rate or select market order option in trading terminal then the price get executes at the current rate of market. The market order gets executed immediately at the current available price. In market order the shares will get executed at the best current available price. Market order is used if you want to execute your order very fast and at available price. If you wish to buy or sell shares at any specific price then market orders is not suitable for you then have to go for limit order.Market order is for those who want to buy or sell immediately at the current available price.
• Limit Order
It’s totally different from market order. In limit order the buying or selling price has to be mentioned and when the share price comes to that price then the order will get executed. But here it’s not sure that the price will come to your limit order and the order get executes.
In other words in limit order the specific price is mentioned and trader or investor wait till the stock price reaches that price and once the stock price reaches that price then the order will get execute.
Day traders has to take very precaution while using limit order, especially who make use of margin amount In day trading, because you have to close all your transactions before 3:30 PM and if in case the price doesn’t reach to your limit order then your order will be open (pending) and then you have to go through the penalties. Importantly limit order and stop loss order are used together to minimize the risk.
• Stop Loss Order
Stop loss orders are used to reduce or to minimize the losses. This is very mportant term especially if you are doing day trading (intraday trading).Stop Loss order as the name indicates this is used to reduce the losses.In Stop loss order the trigger price has to be mentioned, by the trader, and once the price reaches the trigger price the order get executed with the best price available between the trigger price and the limit price.
For example - Suppose the trader bought the Reliance Industries at Rs 1000.So he puts the following order to protect his losses.The limit order of Rs 990 and stop loss trigger price at Rs 985 So if the reliance industries stock price starts falling and if it reaches 985 then his trade executes with the current market available price.
Note - The stop loss trigger price is placed below the limit price in buy order and above the limit price in sell order.

7 steps to better investment planning

We invest to safeguard ourselves for a rainy day. If you’ve just started investing or want to start, then you could use our 7-step plan to become your own investment consultant!

Managing your investments becomes easy when you make it a habit to save, even if it’s very little money. You need to keep a meticulous account of personal income versus expenditure on a monthly basis before you start investing. Here are some steps you can follow:

Step 1:  Create a budget and track your expenses

A budget helps you identify problem spending areas and also helps regulate your cash flow. Tracking your expenses against the budget helps you control spending and free up cash to clear existing debt and save for retirement or your child’s education. For example, your budget allocation includes a certain amount for groceries for a week. You discover on comparing that amount against actual expenses that you have overspent on buying additional items that you did not really need. This will caution you against making similar expenditure next week and at the end of the month, you will end up saving money!

Step 2:  Pay off your existing credit card debts

Are you surprised that paying off credit card debt is a step towards investments? Credit cards charge a high amount of interest along with the principal repayments. When you clear this amount, you‘ll be glad to realize that all the interest amounts and late fees you paid to credit cards can be utilized for your savings and investment program.
 

Step 3:  Save effectively for a rainy day

Emergencies often arrive unannounced. Ensure that some money is set aside to cover monthly expenses for at least three months. These funds should be invested or set aside in instruments that can be readily accessed should you need cash. For example, keep these funds in a savings account in a bank or invest in a money-market mutual fund.
 

Step 4:  Design a disciplined savings program

You can open a recurring deposit account. In this case a particular amount from your income gets deposited every month for a fixed tenure. You can also invest in a series of fixed deposits (FDs). For example, if your cash reserve is USD 24,000, this amount can be divided into six FDs of equal amounts, each with a 6-month maturity. At the end of 6 months, you’ll have a fixed deposit maturing every month. You can continue to roll them over to create a source of regular income and minimize risk.

Step 5:  Invest in education, pension, and retirement insurance plans

You can get life cover, education cover and save for retirement when you invest in insurance. Besides this, you get tax exemptions to reduce your current tax payout. For example, you can invest in the insurance plans which offer not only life insurance, but riders for investment of the premium amount so that you get good returns when you retire.

Step 6:  Buy yourself your dream home

Investing in a house is one of the best investments you can make.  First, your payments towards interest and real estate taxes are tax deductible. Second, your property increases in value over time.

Step 7:  Invest in a diversified investment program or systematic investment plan

Your risk tolerance level goes a long way in defining your investment approach. If you’re not averse to taking risks, then you may want to invest in an equity based mutual fund. Else, you may want to invest in a plan that involves bonds and other safe securities. Also, ensure that you keep in mind your investment objectives before you subscribe to an investment plan.

Do you have tips and/ or tried and tested plans for managing finances effectively? Do you have your own version of a 7-step plan? Do share it with us!

Five Investments for your money

Investments on the following domains are increasing and can be rewarding after a period of time. If you choose to call on a specialist, he will help in all processes to step through before completing the investment. For managing investments, you have to open accounts, transfer accounts and assets, buy and sell investments in each account and more.  Other several procedures are also necessary for an investment in a big company. Before choosing among the five investments below, be sure to complete all processes. Here are the top 5 investments for your money.

Shares and Actions

Some people won’t call it an investment but rather speculation. There are some facts that we ought to admit: they are offering stability. Even in case of collapse of the stock market, betting on this fall down is still feasible. Turning to and gambling on new technologies and researches can be another option. Anyway, although a little dangerous, various people still continues investing in this field.

Insurance companies

Subscribing to an insurance company is almost compulsory meaning that this sector, except for a huge financial crisis, is certain to flourish even more. Let’s take the case of France. French are insured on all sides (life insurance, car insurance, etc.). Investing in insurance cannot be but profitable. Among the best option for this 2014, you can choose Axa.

Invest in oil companies

Things have changed, and the oil companies are making huge profits especially in emerging countries. Fuel demand is increasing every day since the population is growing in number as well as appliances. Oil Companies such as Total and others have their business flourishing. Putting your money in this field can lead to a long-term profit.

Gas production

If you choose to invest money each year in this company, you can be sure of the profit you will get right after. Emerging countries are resourceful and taking profit of this situation and at the same time providing the country with the necessary for living can be a great bargain. Moreover, you can notice that energy companies and especially gas providers are stable for several years.

Aeronautics and Pharmaceutical companies

Here we can cite Sanofi on top of the list. The population so but this company does not know crisis.  Demands do not stop increasing as well as new medicine on prescription. Apart from Sanofi, several industries in drug manufacturing almost never encounters in crisis except trials and law cases. Orpea and Medica are also prosperous fields worth investment. AEDS, the European Aeronautics is also in position that can rarely come across crisis and problems. You are given lots of option to invest your money. Nevertheless, specialists in the field advise people to put money in themselves. They said that investing in one’s own project or of a friend that is building a company remains the best options in terms of investment.

Tips to invest in volatile markets

Is the current volatility in the markets unsettling you? Are you wondering whether you should invest in stocks at all? Volatile markets call for a bit of circumspection. Read on for smart tips that will help you make the right investment decisions.

 

Volatility is a fact of life in the stock markets. Emerging markets such as ours, with more at stake and less stability, tend to fluctuate more easily when compared with established markets. They sway often due to smaller issues because emotions run high. This, of course, is part of the excitement that gets you to invest in these markets.

 

So, what do you do in the face of so much volatility? Do you cut and run; or rough it out? What stocks can you invest in, in times of uncertainty? Remember that volatility makes no difference to the long-term investor. So, if you have long positions in your portfolio, forget the index today and go back to the sports pages of your newspaper. However, volatility does perk up your life if you prefer to turn over your portfolio regularly.

 

The volatility today is due to a rising Rupee impacting IT company wage bills, performance and results, the governmental dithering on the nuclear deal, the SEBI’s new guidelines for P-notes and fears of the sub-prime credit contagion revisiting the markets.

 

The big four IT firms have slowed down compared to previous years, the nuclear issue has undermined the stability of the government, and Citibank has reportedly taken a hit of over $15 billion from mortgage related losses. Some FIIs have withdrawn from the markets.

 

So, where should your money go? Invest in solid areas such as engineering capital goods, Crompton Greaves, for example; commodities, especially copper; infrastructure firms such as Lanco and banks such as Vijaya and Yes Bank. Check out the seriously oversubscribed IPOs and watch new developments like the Mundhra Port.

 

Do you stay the course or do you exit? Never get out in a hurry. Volatility is not a market crash. This phase will pass, just like several others before this one.

 

Is volatility a sign of an immature market? Do you think that the Indian stock market is too uneven? Do you have suggestions to improve this?

Basics of Technical Analysis

Stock Charts   New to Trading and Technical Analysis? Learn the Basics of  Technical Analysis of Indian Stocks and Stock Market Trend Stock Charts and Trends. Stock charts gained popularity in the late 19th Century from the writings of Charles H. Dow in the Wall Street Journal. His comments, later known as "Dow Theory", alleged that markets move in all kinds of measurable trends and that these trends could be deciphered and predicted in the price movement seen on all charts.  FUNDAMENTAL ANALYSIS seeks to determine future stock price by understanding and measuring the objective "value" of an equity. The study of stock charts, known as TECHNICAL ANALYSIS, believes that the past action of the market itself will determine the future course of prices. A stock chart is a simple two-axis (x-y) plotted graph of price and time. Each individual equity, market and index listed on a public exchange has a chart that illustrates this movement of price over time. Individual data plots for charts can be made using the CLOSING price for each day. The plots are connected together in a single line, creating the graph. Also, a combination of the OPENING, CLOSING, HIGH and/or LOW prices for that market session can be used for the data plots. This second type of data is called a PRICE BAR. Individual price bars are then overlaid onto the graph, creating a dense visual display of stock movement.  Stock charts can be created in many different time frames. Mutual fund holders use monthly charts in which each individual data plot consists of a single month of activity. Day traders use 1 minute and 5 minute stock charts to make quick buy and sell decisions. The most common type of stock chart is the daily plot, showing a single complete market session for each unit. Stock charts can be drawn in two different ways. An ARITHMETIC chart has equal vertical distances between each unit of price. A LOGARITHMIC chart is a percentage growth chart. It has equal vertical distances between the same percentages of price growth. For example, a price movement from 10 to 20 is a 100% move. A move from 20 to 40 is also a 100% move. For this reason, the vertical distance from 10 to 20 and the vertical distance from 20 to 40 will be identical on a logarithmic chart. Stock chart analysis can be applied equally to individual stocks and major indices. Analysts use their technical research on index charts to decide whether the current market is a BULL MARKET or a BEAR MARKET. On individual charts, investors and traders can learn the same thing about their favorite companies.

Trends   Use the stock chart to identify the current trend. A trend reflects the average rate of change in a stock's price over time. Trends exist in all time frames and all markets. Day traders can establish the trend of their stocks to within minutes. Long term investors watch trends that persist for many years. Trends can be classified in three ways: UP, DOWN or RANGEBOUND.  In an uptrend, a stock rallies often with intermediate periods of consolidation or movement against the trend. In doing so, it draws a series of higher highs and higher lows on the stock chart. In an uptrend, there will be a POSITIVE rate of price change over time.  In a downtrend, a stock declines often with intermediate periods of consolidation or movement against the trend. In doing so, it draws a series of lower highs and lower lows on the stock chart. In a downtrend, there will be a NEGATIVE rate of price change over time. Rangebound price swings back and forth for long periods between easily seen upper and lower limits. There is no apparent direction to the price movement on the stock chart and there will be LITTLE or NO rate of price change.  Trends tend to persist over time. A stock in an uptrend will continue to rise until some change in value or conditions occurs. Declining stocks will continue to fall until some change in value or conditions occurs. Chart readers try to locate TOPS and BOTTOMS, which are those points where a rally or a decline ends. Taking a position near a top or a bottom can be very profitable.  Trends can be measured using TRENDLINES. Very often a straight line can be drawn UNDER three or more pullbacks from rallies or OVER pullbacks from declines. When price bars then return to that trendline, they tend to find SUPPORT or RESISTANCE and bounce off the line in the opposite direction. A famous quote about trends advises that "The trend is your friend". For traders and investors, this wisdom teaches that you will have more success taking stock positions in the direction of the prevailing trend than against it.

Volume   Volume measures the participation of the crowd. Stock charts display volume through individual HISTOGRAMS below the price pane. Often these will show green bars for up days and red bars for down days. Investors and traders can measure buying and selling interest by watching how many up or down days in a row occur and how their volume compares with days in which price moves in the opposite direction.  Stocks that are bought with greater interest than sold are said to be under ACCUMULATION. Stocks that are sold with great interest than bought are said to be under DISTRIBUTION. Accumulation and distribution often LEAD price movement. In other words, stocks under accumulation often will rise some time after the buying begins. Alternatively, stocks under distribution will often fall some time after selling begins.  It takes volume for a stock to rise but it can fall of its own weight. Rallies require the enthusiastic participation of the crowd. When a rally runs out of new participants, a stock can easily fall. Investors and traders use indicators such as ON BALANCE VOLUME to see whether participation is lagging (behind) or leading (ahead) the price action.  Stocks trade daily with an average volume that determines their LIQUIDITY. Liquid stocks are very easy for traders to buy and sell. Illiquid stocks require very high SPREADS (transaction costs) to buy or sell and often cannot be eliminated quickly from a portfolio. Stock chart analysis does not work well on illiquid stocks.  Breakouts accompanied by volume much higher than the average for that stock are healthy for the continuation of the price movement in that direction. But after long rallies or declines, stocks often have a day of very high volume known as a CLIMAX. During these days, the last of the buyers or sellers take positions. The stock then reverses as there are no longer enough participants to cause price to move in that direction.

Patterns and Indicators   How can you organize the endless stream of stock chart data into a logical format that doesn't require rocket science to interpret? Charts allow investors and traders to look at past and present price action in order to make reasonable predictions and wise choices. It is a highly visual medium. This one fact separates it from the colder world of value-based analysis.  The stock chart activates both left-brain and right-brain functions of logic and creativity. So it's no surprise that over the last century two forms of analysis have developed that focus along these lines of critical examination.  The oldest form of interpreting charts is PATTERN ANALYSIS. This method gained popularity through both the writings of Charles Dow and Technical Analysis of Stock Trends, a classic book written on the subject just after World War II. The newer form of interpretation is INDICATOR ANALYSIS, a math-oriented examination in which the basic elements of price and volume are run through a series of calculations in order to predict where price will go next.  Pattern analysis gains its power from the tendency of charts to repeat the same bar formations over and over again. These patterns have been categorized over the years as having a bullish or bearish bias. Some well-known ones include HEAD and SHOULDERS, TRIANGLES, RECTANGLES, DOUBLE TOPS, DOUBLE BOTTOMS and FLAGS. Also, chart landscape features such as GAPS and TRENDLINES are said to have great significance on the future course of price action.  Indicator analysis uses math calculations to measure the relationship of current price to past price action. Almost all indicators can be categorized as TREND-FOLLOWING or OSCILLATORS. Popular trend-following indicators include MOVING AVERAGES, ON BALANCE VOLUME and MACD. Common oscillators include STOCHASTICS, RSI and RATE OF CHANGE. Trend-following indicators react much more slowly than oscillators. They look deeply into the rear view mirror to locate the future. Oscillators react very quickly to short-term changes in price, flipping back and forth between OVERBOUGHT and OVERSOLD levels.  Both patterns and indicators measure market psychology. The core of investors and traders that make up the market each day tend to act with a herd mentality as price rises and falls. This "crowd" tends to develop known characteristics that repeat themselves over and over again. Chart interpretation using these two important analysis tools uncovers growing stress within the crowd that should eventually translate into price change.

Moving Averages   The most popular technical indicator for studying stock charts is the MOVING AVERAGE. This versatile tool has many important uses for investors and traders. Take the sum of any number of previous CLOSE prices and then divide it by that same number. This creates an average price for that stock in that period of time. A moving average can be displayed by recomputing this result daily and plotting it in the same graphic pane as the price bars. Moving averages LAG price. In other words, if price starts to move sharply upward or downward, it will take some time for the moving average to "catch up". Plotting moving averages in stock charts reveals how well current price is behaving as compared to the past. The power of the moving average line comes from its direct interaction with the price bars. Current price will always be above or below any moving average computation. When it is above, conditions are "bullish". When below, conditions are "bearish". Additionally, moving averages will slope upward or downward over time. This adds another visual dimension to a stock analysis. Moving averages define STOCK TRENDS. They can be computed for any period of time. Investors and traders find them most helpful when they provide input about the SHORT-TERM, INTERMEDIATE and LONG-TERM trends. For this reason, using multiple moving averages that reflect these characteristics assist important decision making. Common moving average settings for daily stock charts are: 20 days for short-term, 50 days for intermediate and 200 days for long-term. One of the most common buy or sell signals in all chart analysis is the MOVING AVERAGE CROSSOVER. These occur when two moving averages representing different trends criss-cross. For example, when a short-term average crosses BELOW a long-term one, a SELL signal is generated. Conversely, when a short-term crosses ABOVE the long-term, a BUY signal is generated. Moving averages can be "speeded up" through the application of further math calculations. Common averages are known as SIMPLE or SMA. These tend to be very slow. By giving more weight to the current changes in price rather than those many bars ago, a faster EXPONENTIAL or EMA moving average can be created. Many technicians favor the EMA over the SMA. Fortunately all common stock chart programs, online and offline, do the difficult moving average calculations for you and plot price perfectly.

Support and Resistance   The concept of SUPPORT AND RESISTANCE is essential to understanding and interpreting stock charts. Just as a ball bounces when it hits the floor or drops after being thrown to the ceiling, support and resistance define natural boundaries for rising and falling prices. Buyers and sellers are constantly in battle mode. Support defines that level where buyers are strong enough to keep price from falling further. Resistance defines that level where sellers are too strong to allow price to rise further. Support and resistance play different roles in uptrends and downtrends. In an uptrend, support is where a pullback from a rally should end. In a downtrend, resistance is where a pullback from a decline should end. Support and resistance are created because price has memory. Those prices where significant buyers or sellers entered the market in the past will tend to generate a similar mix of participants when price again returns to that level. When price pushes above resistance, it becomes a new support level. When price falls below support, that level becomes resistance. When a level of support or resistance is penetrated, price tends to thrust forward sharply as the crowd notices the BREAKOUT and jumps in to buy or sell. When a level is penetrated but does not attract a crowd of buyers or sellers, it often falls back below the old support or resistance. This failure is known as a FALSE BREAKOUT. Support and resistance come in all varieties and strengths. They most often manifest as horizontal price levels. But trendlines at various angles represent support and resistance as well. The length of time that a support or resistance level exists determines the strength or weakness of that level. The strength or weakness determines how much buying or selling interest will be required to break the level. Also, the greater volume traded at any level, the stronger that level will be. Support and resistance exist in all time frames and all markets. Levels in longer time frames are stronger than those in shorter time frames.

New to Trading and Technical Analysis? Learn the Basics of  Technical Analysis of Indian Stocks and Stock Market Trend Stock Charts and Trends.

Market Advise in general

1. Never chase a stock.


2. Buy when markets are in the grip of panic.


3. Only buy fundamentally strong stocks, which are undervalued.


4. Buy stocks grown in top line and bottom line over the past years.


5. Invest in companies with proven management.


6. Avoid loss-making companies.


7. PE Ratio and Growth in earnings per share are the key.


8. Look for the dividend paying record.


9. Invest in stocks for sure returns.


10. Stocks have been the high yielding asset class over the past.


11. Stocks are an asset class.


12. The basic property of any asset class is to grow.


13. Buy when everyone is selling and sell when everyone buys.


14. Invest a fixed amount each month.

Do's and Don'ts in stock market investment

What must I do now?
This is the question probably every equity investor would have asked himself a number of times in the past few months.

With the stock market moving to dizzying heights before succumbing to gravity, it's easy to get nervous or over-excited.

Here's what we suggest you do when the bulls and bears kick up a lot of dust.


What you must NOT do
1. Don't panic

The market is volatile. Accept that. It will keep fluctuating. Don't panic.

If the prices of your shares have plummeted, there is no reason to want to get rid of them in a hurry. Stay invested if nothing fundamental about your company has changed.

Ditto with your mutual fund. Does the Net Asset Value deep dipping and then rising slightly? Hold on. Don't sell unnecessarily.

2. Don't make huge investments
When the market dips, go ahead and buy some stocks. But don't invest huge amounts. Pick up the shares in stages.

Keep some money aside and zero in on a few companies you believe in.

When the market dips --buy them. When the market dips again, , you can pick up some more. Keep buying the shares periodically.

Everyone knows that they should buy when the market has reached its lowest and sell the shares when the market peaks. But the fact remains, no one can time the market.

It is impossible for an individual to state when the share price has reached rock bottom. Instead, buy shares over a period of time; this way, you will average your costs.

Pick a few stocks and invest in them gradually.

Ditto with a mutual fund. Invest small amounts gradually via a Systematic Investment Plan. Here, you invest a fixed amount every month into your fund and you get units allocated to you.

3. Don't chase performance
A stock does not become a good buy simply because its price has been rising phenomenally. Once investors start selling, the price will drop drastically.

Ditto with a mutual fund. Every fund will show a great return in the current bull run. That does not make it a good fund. Track the performance of the fund over a bull and bear market; only then make your choice. 

4. Don't ignore expenses
When you buy and sell shares, you will have to pay a brokerage fee and a Securities Transaction Tax. This could nip into your profits specially if you are selling for small gains (where the price of stock has risen by a few rupees).

With mutual funds, if you have already paid an entry load, then you most probably won't have to pay an exit load. Entry loads and exit loads are fees levied on the Net Asset Value (price of a unit of a fund). Entry load is levied when you buy units and an exit load when you sell them.

If you sell your shares of equity funds within a year of buying, you end up paying a short-term capital gains tax of 10% on your profit. If you sell after a year, you pay no tax (long-term capital gains tax is nil).

What you MUST do
1. Get rid of the junk
Any shares you bought but no longer want to keep? If they are showing a profit, you could consider selling them. Even if they are not going to give you a substantial profit, it is time to dump them and utilise the money elsewhere if you no longer believe in them.

Similarly with a dud fund; sell the units and deploy the money in a more fruitful investment.

2. Diversify
Don't just buy stocks in one sector. Make sure you are invested in stocks of various sectors.

Also, when you look at your total equity investments, don't just look at stocks. Look at equity funds as well.

To balance your equity investments, put a portion of your investments in fixed income instruments like the Public Provident Fund, post office deposits, bonds and National Savings Certificates.

If you have none of these or very little investment in these, consider a balanced fund or a debt fund.

3. Believe in your investment
Don't invest in shares based on a tip, no matter who gives it to you.

Tread cautiously. Invest in stocks you truly believe in. Look at the fundamentals. Analyse the company and ask yourself if you want to be part of it.

Are you happy with the way a particular fund manager manages his fund and the objective of the fund? If yes, consider investing in it.

4. Stick to your strategy
If you decided you only want 60% of all your investments in equity, don't over-exceed that limit because the stock market has been delivering great returns.

Stick to your allocation.

10 Deadly Trading Mistakes!

The following are 10 most common but deadly Trading Mistakes, which traders should avoid at all costs. Anyone of them can literally destroy one’s financial dreams and goals!

1. Trading for excitement & thrill Not for profits.
Many traders consider stock market as casino and trade for thrill and fun only. As soon as one has a losing trade, he wants to quickly make back the lost money. He thinks about the other things he could have done with the money, regret taking the trade and want to recover as quickly as possible. This in turn leads to further mistakes. Be patient and wait for the next high probability opportunity. Don't rush back in. 


2. Trading with a high ego. 
Many individuals who have remained highly successful in other business ventures have failed miserably in trading game. Because they have a fairly big ego and thought they couldn’t fail. Their egos become their downfall because they can not except that they would be wrong and refuse to get out of bad trades. Once again, whoever or wherever has any one come from does not concern the markets. All the charm, powers of persuasion, number of degrees & diplomas of business management on the wall or business savvy will not budge the market when you are wrong.


3. Three 4-letter words that will kill you! HOPE--WISH--FEAR--PRAY 
If you ever find yourself doing one or more of the above while in a trade then you are in big trouble! Markets has own system of moving up & down. All the hoping, wishing and praying or being fearful in the world is not going to turn a losing trade into a winning one. When you are wrong just use a simple 4-letter word to correct the situation-GET OUT! 


4. Trading with money you can't afford to lose. 
One of the greatest obstacles to successful trading is using money that you really can’t afford to lose. Examples of this would be money that is supposed to be used in any other business, money to be paid for college/school fee, trading with borrowed money etc. Ultimately what happens is that when someone knows in the back of their mind that they are risking the money they can not afford to lose, they trade out of fear and emotion versus logic and no emotion. If you are in this situation It is highly recommend that you stop trading until you earn enough to put into an account that you truly can afford to lose without causing major financial setbacks. 


5. No Trading Plan 
If you consider yourself a trader, ask yourself these questions: Do I have a set of rules that tell me what to buy, when to buy and how much to buy, not just for the next trade, but for the next 10 trades? Before I enter a trade, do I know when I will take profits? Do I know when I will get out if I am wrong? These questions form the first part of a trading strategy. There simply cannot be any expectation of success if we can't answer these questions clearly and concisely. 


6. Spending profits before you make them. 
Nothing is more exciting then getting into a trade that blasts off and puts you into a highly profitable situation. This can cause major problems however, because this type of trade puts you in a highly euphoric state and leads to daydreaming about the huge profits still to come. The real problem occurs as you get caught up in the daydream and expectations. This causes you to not be prepared to get out as the market reverses and wipes off all your profits because you have convinced yourself of the eventual outcome and will deny the reality of the situation. The simple remedy for this is to know where and how you will take profits once you enter the trade. 


7. Not Cutting Losses or letting Profits run
One of the most common mistakes made by traders is that they let their losses grow too large. Nobody likes to take a loss, but failing to take a small loss early will often result in being forced to take a large loss later. A great trader is not someone who has never had a loss. Great traders have made many losses. But what makes them great is their ability to recover quickly from a string of losses. 
Every trader needs to develop a method for getting out of losing trades quickly. Research and learn to apply the best methods for placing protective stoploss orders. 
The only way to recover from many (small) losing trades is to make sure the winning trades are much larger. After a series of losing trades, it becomes difficult to hold a winning trade because we fear that it will also turn into a loss. Let your profitable trades run. Give them room to move and give them time to move. 


8. Not Sticking to your plans & Changing strategies during market hours 
If you find yourself changing your strategy during the day while the markets are still open, be mindful of the fact that you are likely to be subject to emotional reactions of fear and greed. With rare exception, the most prudent thing to do is to plan your trading strategy before the market opens and then strictly stick to it during trading hours.


9. Not knowing how to get out of a losing trade. 
It’s amazing that most of the traders don’t have any clear escape plan for getting out of a bad trade. Once again they hope, pray wish and rationalize their position. It must be kept in mind that market does not care what you think. It does what it does and when you are wrong you are wrong! The easiest way to keep a bad trade from going really bad is to determine before you get in, where you will get out. 


10. Falling in love with a stock (Just Flirt). 
Many traders get fascinated by just a stock or two and look for opportunities to trade in those stocks only ignoring the other profitable trading opportunities. It is because they have simply fallen in love with a stock to trade with. Such tendencies can be suicidal as for as trading is concerned. It may cost any one dearly.

GOLDEN RULES FOR TRADING

GOLDEN RULES FOR TRADING

• Divide your Risk Capital in 10 Equal Parts.

As part of the Successful money management, it is always advised to divide your Risk Capital (which you can afford to lose) into 10 equal Parts and at any given time none of your Single Trade should have more than 3 parts of your capital in it even if you are in a winning position. At the same time always keep some spare money for any Buying Opportunity, which may come any time.

• Trade ONLY in active & high Volume Stocks/ Futures.

Many Traders get stuck with stocks for want of liquidity. Always rely upon Stocks which have reasonably high volume over a period of time. High Volume are always advised for easy Entry, Exit and Stop Loss. In low volume stocks the spread is too high and chance of Stop Loss limit getting failed is too high as there would be no Buyer or seller at your Stop Loss Level.

• Come Prepared with a Trading Plan

Successful traders always keep their Trading Plans ready before entering into any transactions. One must prepare a Watch List or Probable candidates for Day's trading and remain focused on the movement of those stocks only. For example a Stock 'X' is on verge of a Bullish Breakout from any pattern or stock 'Y' has declined substantially after an initial sharp upmove or stock 'Z' is close to an important support level. Successful trader would concentrate on the movement of those stocks only and enter the trade as soon as stock 'X' gives the anticipated breakout or stock 'Y' starts an upmove or stock 'Z' breaks the support level to initiate a trade for quick gains.

• Never Over Trade

This is the most common mistake committed by Traders, particularly after a Streak of winning Trades. This mistake Generally not only wipes off all the profits, but puts traders in heavy losses. In order to remain in market while making consistent Profits, under no circumstances, traders should go beyond their Risk Capital.

• Trade in 2 to 4 Stocks at a time with strict Stop Loss.

In a Bull move, most of the stocks move up and similarly in any Bear Move, most of the stock moves southwards. As a Trader you know this fact but can you Buy 20 Stocks and try to make profit in all the 20 stocks just because all are moving up or vice versa in a Down trend? What will happen if market reverses without any indication on any bad news? Would you be able to monitor all your trades in such situation? Smart and Successful trader would trade in 2 to 4 stocks with strict Stop Loss and keep a strict vigil to avoid any misfortune in case of any eventuality.

 

• Sell Short as often as you go Long.
  

More than 90% of common investors/ Traders are 'Bulls' by nature. Because they love to see prices going up only. Stocks are bought by anybody/ corporate/ financial institutions/ Mutual Funds to make profit on rise. They have large holdings and mentally they wish and pray for the market to rise only. But facts are different. History shows that Bull Phases have shorter duration that Bear phases. So every stock that moves up will retrace back to 38%-50%-66%. Since 90% investors are Bulls by heart they normally do not book profit at higher levels to re-enter later at lower levels instead they prefer to increase their portfolio at lower levels. Successful Traders know how to capitalize such correction. They are always prepared to go 'Short' as often as they trade on 'Long' side.

• Don't Trade if you are not Clear. 

Many Traders, because of their daily habits trade even when there are no signals to buy or short. Normally such situation arrives after a sharp rise or decline when stocks are adjusting their values. While some stocks attempt to move up, few may be taking breather before next move. Such situation are often confusing. There is no harm in taking rest for a day or two or short period if the trend is choppy, unclear or doubtful, instead of putting your money at higher risk.

• Don't expect Profit on Every Trade.

If you consider you are a smart trader who can make profit on every trade, you are 100% wrong. Always be flexible and accept the fact as soon as you realize that you are on wrong side of the trade. Simply get out of the trade without changing your strategy during the market; it may cause you double losses.

• Withdraw portion of your profits.

The business of Trading is excellent as long as you are making profits. Unlike other business your losses can be unlimited and rapid if market does not move as per your expectations. While in other businesses you may have other remedial measures available but in trading it is you only who has to control it. Traders have large egos particularly after series of successful trades and their tendency to enlarge commitments in overconfidence may cause major financial set back. There fore it is must that trader must take a portion of the profit and put it in separate account. This is absolutely must for long term stability in the market.