Trading Indian Stock Market Using Technical Analysis

Posted by stock on May 20, 2012
stock-brokers / No Comments

Indian stock market is no doubt one of the most volatile stock market in the world; many people have made millions of profits, and sadly lost millions also. The problem is that 90% of traders in India rely on tips which are given by amateurs and some so called technical analysts who claim 90% or in some cases 100% accuracy, this is very immature and I really feel that some autonomous body in India should come who should track these analysts closely and give them ranking or ratings on which investors can rely and then subscribe to them on the basis of the ratings, of the autonomous body. Anyways this will take time to formulate, but if done then it will surely bring sanity to the minds of day-traders and investors who invest huge sums of money on the basis of these analysts’ tips.

I am more interested in delivering profits to an average investor but on the same time I would like the investor or day-trader to understand the concept of technical analysis, which is a very widely used word among traders who do some reading on websites and watch TV channels. Technical analysis is an incomplete study of statistical indicators, not one indicator is perfect, you have to use many indicators together in order to come to a particular conclusion that a stock is going to correct or is it going to fall.

There are many factors which effect a trader’s mind while trading in stocks. There are three ways a trader can trade:

1) The trader can call his broker on phone and place the trade via phone.

2) The trader can trade from home via internet, and place order by himself.

3) The trader can go to the broker’s office and do trading from there only.

1st and 3rd are old methods, and can bring huge losses to the trader, the 2nd method is also dangerous, but less, if the trader knows’s technical analysis. The 3rd method can be good again if the trader knows technical analysis, but then the broker’s trading software should have graphs for stocks, with technical indicators. Technical analysis requires a focused mind, technical analysis is not just making a cup of tea and then drinking it and then you become a renowned analyst, NO!, it requires patience, a focused mind, and surely a four letter word “PLAN”. Without planning you cannot succeed in technical analysis it is the fuel which runs technical analysis, once you plan that you want to short sell Reliance the next trading day, you watch out for a breakout of crucial support level and the short sell it, during the intra-day and while short selling you also make sure that Sensex and Nifty also show weakness or are in clear downtrend.

This a very simple technique just explained to you, but obviously it includes a lot of graph analysis which is not being discussed right now as then this article will be of more than 100 pages and I have just started typing this article and will like to do so, in future . When you read the word “PLAN” then many thoughts come in the mind, what sort of planning should I do when I know market is going to fall tomorrow, or rally? There are many methods but the best method which I have followed is to follow the trend and big stocks like SBI, RELIANCE, TCS, INFOSYS, and SATYAM.

Let me give you an example: To follow the trend I track BSE SENSEX chart everyday and in intra-day as well, the moment I find important turning points, where Sensex will correct or from where Sensex will bounce back at, and when that is confirmed I take a directional call on a stock for example short sell Reliance at 750 is that is broken and keep a target of Rs742, stop loss I keep as 757, which is roughly 1% of Reliance cash market price. When I keep a target of 742 and I see a bullish pattern forming at bottoms in Sensex and at that time reliance is at 744, then I buy it at that price or wait for it to touch 743, and make it a point to cover the short sell fast. 90% of people who loose money in short sell is that they either get over confident or they want higher profits, and wait for lower targets as they get confident that market is correcting then why should we cover it, let the market correct, this policy sometimes give good profits but sometimes take away money also, and loads of money. So when you are getting profit after short selling Reliance at 749.50 and Reliance is at now 743 you are getting Rs6.50 profit per share. Say you shorted 500 shares then 500 x 6.50 = Rs3250, say the brokerage is .0005 per transaction (5 paisa), then:

Bought brokerage .0005 x 500 x 749.50 = 188 sold brokerage .0005 x 500 x 743 = 186 total brokerage = Rs374 Total profit = Rs3250 – 374 = Rs2876

5 paisa brokerage is equivalent to 5 / 100 = .05 then .05 / 100 = .0005 which is the % to be used in order to calculate the actual brokerage.

Just exit at 743 if reliance touches that level, Rs2876 profit in a single day is enough. Even if Reliance touches 744 I will exit, because volatility sometimes is huge and I don’t trade for targets, I trade for profits. When I say I track sensex it is because Sensex is a broad based index as compared to NSE, when I say broad based index, it is because sensex has more stocks listed in its exchange and its base starts from 1975 onwards, than nifty and also sensex is the oldest index in Asia, NSE came in 1995 or 1996 if i am not wrong. Sensex gives sometimes very early signals of correction which Nifty does not.

Another rule I follow is to trade only after 10:15am, this is because when market opens at 9:55am then market is at peaks of volatility and first 20minutes decide the trend of the market, and this phenomena is very important to follow the trend, what happens that if market opens in negative then in first 20min itself market might correct and start moving up which if you short sell in those 20min you will get stuck on lower levels and hence stop loss will trigger and you loose. To use technical analysis you have to set some rules, and the most important rule is to trade after 15-20min market has moved and some sort of stability has formed, in the market. After 10:15am one should read the charts of the indices and try to figure out the main trend of the index, and then try to find those stocks which are moving with the index and are near very crucial support and resistances, and then once those levels are broken then one can trade in that stock which obviously has broken out in the direction of the trend and also its crucial support or resistance.

Technical analysis is not a magic wand which you can swing and get instant results in a few minutes, instead technical analysis is a tool which can be used to enter and exit from stocks profitably, or in any financial markets, technical analysis lays a lot of weightage on volume. Make sure the stocks you are analysing have enough volume so that your analysis is accurate on the basis of tools you are using. For example my thumb rule is based on atleast 1 million shares are traded on that stock to be listed in my analysis list, otherwise I don’t do analysis on that stock.

Right now I have not mentioned how to find that support and resistance levels, neither i have explained how to find the main trend of the index, these key points will be discussed in the later articles. I use Japanese candlesticks, in order to find the trend reversal points and also to find the main trend of the index or the stock in which i want to take my entry. Japanese candlesticks is vast study and requires at least 100 pages (can go to 300 pages) of articles with examples to be explained in order to make it clear to you. If you follow Japanese candlesticks and other technical indicators and are an amateur, then the method explained above will bring some method and refinement in your trading.

I will end here my article which is a short one, but will post many other articles to bring clarity in your mind in order to catch the trend in stock market at right time, as that is the key to success in day trading, otherwise indian stock market is big jungle and you can get lost in it!

DISCLAIMER

This article is written by Mohit Thapar, technical analyst and trader in stock market who is managing his website http://www.bookprofit.com, and are his views and any decisions taken by any reader of this article after reading it, in stock market then the reader is solely responsible for his/her actions. Stock market is a very volatile place to invest your hard earned money, and you might incur losses if you don’t follow some rules, or you should hire either a technical analyst or financial analyst to manage your money. If you are interested to post this article on your site, then please don’t delete this disclaimer and give a link back to http://www.bookprofit.com, Bookprofit is a registered trade mark. Bookprofit is registered. Thanks.

Mohit Thapar is a technical analyst and webmaster for http://www.bookprofit.com He also conducts technical analysis training for 2 days on weekends, in New Delhi, India. He gives free technical analysis support to all his students, for 1 month after successful completion of a 2 day workshop which is 7 hrs each day.

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Tips to Finding the Best Stock Broker

Posted by stock on May 20, 2012
stock-brokers / No Comments

If you want to venture into the stock market and have no time or idea how it operates, you need to get a good broker. This is an individual who will be responsible for trading on your behalf. To be a successful trader, there are a few factors you need to consider to get the best one to work well for you. To begin with, get a broker who has had experience in the market. This is because he or she will have mastered the market and will have all the necessary skills to make sound judgments on the best decisions to make.

Cost is also important when choosing a broker who will assist you in the penny stocks market. Most brokers are only out to make money from their clients. Carry out intensive research to get one that offers reasonable rates so that you don’t have to spend too much money. Compare the rates offered by different broker companies to get an average of what you should be spending. You can get reference from a friend or colleague to help make an informed decision.

Qualifications- it wouldn’t hurt to hire someone who has had some formal training on the subject. This shows that they have the knowledge and skills needed to penetrate the penny stocks market with ease. Ask if they can trade multiple markets and get one who can do so without a problem. The broker you choose should be alert, fast and reliable. This will ensure you get high quality services, as they will not miss anything that could cause you to lose. Always open a fresh new account with your broker so that you don’t have to share your financial details with them. When choosing an online broker, ensure they have all the software needed to be successful in the trading process. This should include backups in case anything happens.

For more information about Penny Stocks, visit pennyreport.com. They offer loads of information on different types of Stocks, as well as trade options.

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What Do You Need For Stock Market Trading?

Posted by stock on May 20, 2012
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A lot of people want to make loads of cash from stock market trading. Unfortunately, they jump into the complicated world of investments without even knowing that there are tools and resources that they absolutely need. Before you consider making money by investing, you need to consider these five vital things.

Trade Plan

Plans or systems are exactly what they imply. These are what traders follow to enter or exit trades. Good blueprints essentially help their users avoid losses that are simply too huge for them to bear or to recover from. You can set up your own plan by adopting someone else’s or by making one entirely from scratch. If you do choose to use a stock trading system devised by another trader, you need to make sure that it fits your personality as a trader. This means making sure that the rules and policies in it are in line with your risk level preferences.

Charting Software

Every serious trader invests in charting packages. Aside from actually helping you make charts, the right software also helps you perform technical analysis on trade data. At a basic level for instance, you can use a chart package to explore thousands of securities and pick those that match your preference. With just a few inputs and clicks, you can get your hands on such information as highs, lows, annual revenue, earnings per share, dividends, minimum price, closing price and average volume among other security specific stock market trading data.

Back Testing Tool

This is what traders need to determine if their plans can work well using historical data. This is a crucial resource to have because untested systems can lead to huge and unexpected losses. If a plan functions well using past data, there is a good chance it will work perfectly on present trade conditions. Some charting packages have their own testing tools but some don’t quite make the cut. A lot of expert traders opt to use separate products that focus specifically on testing.

Data Provider

Charting product manufacturers can also offer their own data feeds. In a lot of cases though, it is less costly for traders to go for third party providers. In choosing a data provider for stock market trading it is best to pick one that can support multiple markets, provide fast downloads and perform regular database checks. Also, you need a provider that has a long and reputable track record. This will increase its chances of staying for a long time and saving you from having to switch to another provider.

Broker

Having a broker is a requirement. Otherwise, you will not be allowed to place trades. What you need to determine though is whether you should settle for a discount or full service broker. The difference is that full service providers are more expensive because they give additional trade advice. You may not need this if you are confident with the system that you are using.

Of all the tools and resources that you need, your stock trading system is the most important. Always bear in mind though that the other four tools are what you require to execute an excellent trade plan.

Need Help Hatching A Trading Plan?
Visit http://www.freetradingsystems.org.

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Finding a Broker For Penny NASDAQ Stocks

Posted by stock on May 19, 2012
stock-brokers / No Comments

When trading stocks of any kind you are going to need the services of a broker to place buy and sell orders. There are dozens of different kinds of brokerage services to choose from. There are full service firms, discount services, and online brokerage houses just to name a few. It can be difficult to know what to do first or even who to believe. The average person can find themselves in a maze of choices before he or she purchases their first stock.

This process is not nearly as complicated as some would lead you to believe, but it does require a little knowledge and a little shopping around. First, you are going to need a stock broker. Brokers have passed a series of formal tests and are registered to buy and sell stocks on behalf of an individual. The SEC requires this sort of registration to protect the consumer from fraud. You CANNOT buy and sell stocks without a broker unless you buy a seat on the exchange or unless you do what’s called a “Drip” which means you buy the stock straight from the company which is not usually available with penny stocks. There are three main types of brokers that stock traders use: A full-service broker, a discount broker, and an online broker.

A full service broker offers much more knowledge and stock selection help than do the other two. They also offer full blown financial management services. Many times this is more than a penny stock trader needs. Penny stock traders tend to hold onto their stocks for just a few days and then sell. Many full service brokers are more geared toward “buy and holders.” Full service brokers are also more expensive to cover the cost of the extra services they offer.

A discount broker is exactly what it sounds like. They offer cheaper fees than do full service brokers but do NOT offer extra services and many times will not help build you a balanced portfolio. Penny stocks are high risk and do not lend themselves well to a traditional portfolio anyway. With lower fees and commissions it can be much more economical for a penny stock trader to use a discount instead.

The online brokers can fall into the same category. Some full service and discount brokers also offer online services. The brokers I am referring to as “online brokers” only have online ports, although many online brokers today offer order by phone services but for a much higher fee. Usually, you can pay for your trades with an online broker by paying a flat fee for a certain number of trades. For example, with one online broker you will pay $9.95 a month for 0-499 trades. This means you’re not paying a large fee plus commissions each time you buy and sell a stock, but both are included in the same monthly fee.

You can expect to pay a number of normal fees for brokerage service. You will have a fee and a commission each time you buy or sell a stock. Some brokers charge per stock, some charge per order, and some charge a flat fee. You can also be charged “routing fees.” 

A routing fee is what “market makers” charge brokers. Market makers are the guys who own inventories of stock. The only people who can purchase stock from the market makers are the brokers and sometimes brokers pass along the fee they are charged for taking certain inventory to the trader. This is not true of all brokers, but many.

Don’t settle for the fees presented to you. Brokers will haggle. I would treat choosing a broker like buying a new pair of pants. Try on a couple. Find one whose goals are similar to your own. There are many “penny stock friendly” brokers out there.

Do not be intimidated when choosing a broker. Be sure to ask all the needed questions. Walk them through what you are looking to do step by step and ask for all the fees along the way. This will sound something like:

“I’m looking into opening a brokerage account for the purpose of trading penny stocks. What are the fees and what is the initial investment that goes with that?” It is important that you let the broker know what you intend to do with the account ,i.e. penny stocks, because there are different plans for different types of traders.

“When I decide on my first stock and I want go to buy it, explain that process and what fees are involved there?” It is good, but not necessary; to have a broker that offers “hot keys.”  That means that while online the one touch button allows you to buy and one allows you to sell.  NOTE:  You don’t want to buy and sell the same ticker symbol on the same day because that, in the eyes of the SEC, would make you a day trader and there are heavy rules that go along with that.

“When I decide to sell that stock what are the fees and practices associated with that?”

“When I earn money with my stocks and that money goes into my brokerage account, how do I get access to it?”

“Is there a minimum balance I am required to keep in that account?”

“How do I close my account and what are the fees involved with that?”

Understanding and finding a penny stock broker is an important process to go through and should not be taken lightly. Taking the necessary time to find a good fit will save you time, money and headache,  And will pay dividends well into the future.

Randall Taylor is a amateur penny stock investor and enthusiast. To read further on the topic of penny nasdaq stocks [http://www.squidoo.com/penny-NASDAQ-stocks], visit [http://www.squidoo.com/penny-NASDAQ-stocks] for more a more in depth discussion.

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Understanding How to Invest in the Best Penny Stocks

Posted by stock on May 19, 2012
stock-brokers / No Comments

Any time you are investing your hard earned cash there can be risk involved. Trading and investing is never a sure thing. However, the best penny stocks can allow you to learn the ropes without risking your life savings.

What are penny stocks?

Penny stocks are not traded in the standard way. Instead of listing the stocks on a public stock exchange such as the NASDAQ, companies release these microcap stocks in small amounts and at a reasonable price. They are purchased via private transactions, either directly from the company or through a microcap broker. The best penny stocks allow the investor a good opportunity to learn the ropes with just a few hundred bucks.

Understanding the Risks

There are always risks when you invest. However, the best penny stocks offer a perfect way to control the level of risk that you are comfortable with. Whether you are a day trader or have a long term strategy, you should only work with money that you already have in hand and that you can afford to lose. This takes a lot of the fear out of making picks. Every trade then becomes a learning experience.

Always Do Your Homework

Most microcap stocks are not listed with the standard regulatory agencies. You won’t be able to watch what is going on in the same way you can with a standard stock buy. It’s important to always do your homework when doing and investment of this sort. Research the company, the owners and their product. It can also be a good idea to break into penny stocks with a company that you are already familiar with. One of the advantages of the best penny stocks is how closely they work with their investors, so know what you are dealing with at all times. Because of the more lax regulation, fraud is much more common when buying penny stocks. Never give your money to a company that hasn’t been thoroughly vetted, whether by yourself, your broker or a regulatory agency.

Take the Process Seriously

Playing with stocks can be a lot of fun. When you get the newest hot list of top picks, it can be tempting to just buy, buy, buy! However, like any of your other investments, you need a solid plan. Create buy and sell margins that you are comfortable with and stick to them. This will ensure that you are never in over your head when investing in this exciting and lucrative market.

If you do your research, the best penny stocks are not hard to find. There is always risk in trading penny stocks, but the rewards can be tremendous.

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