It’s been almost a month since I posted about Intraday Shorting Strategy and I have been very busy with the launch of Technical Analysis Forum – A closed forum for my eBook customers where we discuss stocks, technical’s, investments as well as how we can make forum a better place for everybody to learn and share the art of trading and investing in market.

Only members can read the forum but I would like to share few things that we have been discussing in forum.

Discussing Opportunities

Members when they see opportunities in any particular stock and can ask my views on it as well as other members views on it.

Spotting Opportunities

When I see formation of any pattern, I share the same with other members.

Lighter Stock Discussions

Members shared their list of best stocks and as expected Nestle India was among the members choice of stock by members possibly because I share a lot here about Nestle.

Final Thoughts and A Free Invite

To grab your free invite to the forum, share your view and thoughts in comments and I will select one reader in the next 24-48 hours from the comments who get his/her free forum access.

Just in case you want to join forum instantly, grab a copy of my eBook now.

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In Chapter 7 of my eBook I have explained the complete theory of Morning Panic and Afternoon Fade pattern and Infosys on Friday the 13th ( ) was a perfect setup to make truckload of money. Let me explain my intraday shorting strategy to understand when to short a stock with Morning Panic and Afternoon Fade chart pattern..

Infosys results were not as per market expectations and so morning panic was expected in the stock. The stock opened 10% gap down from Thursdays closing and then we see the following for the whole day.

Infosys Chart on Friday April 12, 2012

Few things to note in the above chart that are explained in my eBook.

• Morning panic is followed by spike. We saw it in the first few minutes of trade.
• The Spikes are never very strong.
• Few Shorting opportunities in the spikes as well as when morning low cracks.

So let us understand morning panic and afternoon fade chart pattern once again with Infosys.

The gap down is clear indication of morning panic and then it becomes a waiting game to verify the pattern formation and trade accordingly.

In the above chart I have marked 5 vertical blue lines from point 1 to point 5. Each of those points can be an entry point for going short on Infosys depending on your risk appetite. So let us understand what each point signifies.

Point 1: 9:30 AM

Gap down opening followed by a spike which we see fading at around 9:30 AM. Things are happening very fast in the stock and it is not able to make sustainable rally after the gap down. This could be your first chance to go short in the stock. The spike after Gap down could be mainly because of short covering from people who are short on stock from the previous day.

The first spike is very risky position and is recommended only for active traders. Shorting at point 1 is more of an anticipatory pattern (pattern not actually formed yet but is giving signals that it may form soon). So we can take position early for more gains. You can either take small position or play the waiting game. Management interviews in news channel can create spikes in the stock and can even start a recovery process and if you see recovery you should be ready to take a stop loss.

Point 2 and Point 3: 10:40 AM to 11:20 AM

We see management views are not very positive and so there will be no hope for intraday recovery for this stock apart from short covering and so we move to point 2 where we see yet another spike which is not very long lasting and so you can go short here or add more to your initial position. Even if you are not convinced at point 2 you can go short at point 3 because now you can clearly see that spikes are all fading too fast and so there is not much buying happening in the stock.

Point 4 and Point 5: 1:30 PM and 2:20 PM

Even if you missed the above shorting opportunities there are couple more sure shot ways to make money from Infosys. 2450 was a morning low and 2475 was a low after the morning low and so stock below 2475 can be yet another level to go short in the stock. Even if you missed 2475 crack, you can go short when 2450 cracked. Crack of morning low means afternoon fade to follow which is one of the safest patterns to make money.

Final thoughts

Such perfect setups are very rare but when you get them you should be ready to cash on them because even if you shorted at 2445 i.e. after cracking the morning low of 2450 you can easily target for 2410 or 2405 because 2400 may or may not crack the same day and you are taking position after 2 PM.

Note that this post is about what could have been done and same thing may not repeat on Monday because there may be more short covering. Trade when you have the ideal setups because few ideal setup trades in a year can make you lot more money than trading for every stock tips.

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Why technical analysis works?

It was the first question in my recent one on one consulting with one of my blog reader but similar questions are the starting point of discussions most of the time. Questions vary slightly like

1. Why you think technical analysis may work for me?
2. What is the theory behind technical analysis to work?
3. Is working of technical analysis based on any principles or it works because it has worked in the past?

And the list of such questions continues … but the underlying question remains the same that is why technical analysis works in the Market?

To answer this question let me share with you 3 basic principles of technical analysis.

Principles of Technical Analysis

1. Stock Price reveals Everything – Anything upcoming – Good results, bad results, strategic decisions, management decisions, dividend, buybacks or anything else it will always be reflected in stock price. Technical analysts believe it is important to see how market reacts on the news and stock price gives clearer picture about the news than the news itself. Technical analysts don’t prefer digging into the news and trying to understand how it will affect the stock price but they try to understand the news based on the stock price movement.

2. Stock price move in trends – If a stock is following a trend (uptrend or downtrend or bullish or bearish trend) it would continue to follow the trend (unless trend reversal patterns are formed) for some more time.

3. Pattern repeat itself – There are certain set of events that occur on a regular basis in the market and if a pattern is formed with those set of events, the price pattern would repeat yet again when those chain of evens repeat.

Understanding the principles of technical analysis clearly suggests why it is more likely that technical analysis will work but still let us take an example to understand them in a better way.

Examples

Let us try to understand the principles of technical analysis with an example of Kingfisher Airlines. It is one of those stocks, which is in the news lately and so let us look at the 2 years and 6 months charts of Kingfisher Airline at ChartInk.

Kingfisher Airlines 2 Years

Kingfisher Airlines 6 Months

I don’t track Kingfisher Airlines from trading or investing point of view and so I will not be able to comment on the exact dates of news outcome but from my traveling habits I know it is in news for last few months.

Looking at the above charts, we clearly see that stock has not done much when it is in the news but has done lot of things ahead of the news and such a big fall in the stock price revealed everything (even well ahead of time).

To see how chart patterns repeats itself read this.

Final thoughts

I hope I have managed to clarify why technical analysis has more probability of working in the market but if you have any questions about anything please share them in comments.

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In my article on PowerYourTrade Review many readers suggested alternative solutions to PowerYourTrade service and my answer was pretty much the same for all of other stock tips providers i.e. stock market tips don’t work. Let me share why stock market trading tips don’t work but before going into the details of why stock tips don’t work let us understand the type of stock tips.

Types of Stock tips

There are 3 major types of stock tips floating around.

1. Fundamental
2. Trading (Intra day or buy today sell tomorrow)
3. Positional

Fundamental Tips- Fundamentals stock tips means that fundamentals of the company is improving and so you don’t need to be buying the shares immediately and you can have such stock in the list of buy items and once you think stock is at the right price of good support levels or strong break out levels, you can buy.

Trading Tips – For intra-day trading tips understand one thing which is – Are you acting on the trading tips when everybody else is? When a stock tips is shared to large number of subscriber, everyone would act on it and may inflate the price of the stock. If you also do the same you may be buying the stock in a spike which means you would not be able to make lot of money out of the news and so it is important for you to understand that you not only read the stock tips but also understand how and when you should be buying that stock. The idea of morning spike pattern described in my book pretty much works for such news inflow and you need to understand how to play them.

Positional tips - Positional tips are for the time frame of few weeks to a month and in such positional tips you have to understand the underlying basis of the tips. Is the result of the company expected to be good, or is any board meeting coming up with possible chance of declaration of dividend etc. And once you know the basis of the tips you should understand that you should not wait for the actual event to happen but offload you position in the run-up to the expectation of the event. I have explained in my book and also in how chart pattern repeats by itself where good result of good companies does not mean stock prices go higher on the result days.

These are other types of stock tips floating around as well and they are

Tips from Distant Relatives – How many times I see people are investing in equity market because some of their relative has made a fortune in market. They try to buy the same stock and yet cannot make anything out of it because they don’t understand that it is not only the name of the stock that matters but level at which you trade also matters a lot.

Email Spam tips - There are hundreds of thousands of free email scammers that give stock tips via email. They will send an email to thousands of people to try and push the stock price up and so if you react on those stocks, you will be trapped.

Insider Information Tips – I believe in one thing which is I be the last person to know any insider information of a company because the owners and large players have more chances of knowing that well before time and then possibly the reporters and then it is we the retail investors and so if you know how to play the insider information based on price action, you can be safer in the market or else yet another way to get trapped.

Why stock tips don’t work for you?

When people subscribe to stock tips, they tend to trade blindly based on tips and then end up making no money. Avoid trading blindly believing the stock tips services.

So you can subscribe to those tips and get alerts but trade only based on your availability and if you see a perfect setup.

So the important thing to understand is – How you apply those tips and make them work for you.

Final Thoughts

Every stock tips should always be coupled with a stop loss and so if you are playing in the market on the tips make sure you also respect the stop loss as well and be ready to take the short term losses as well.

Share your stock tips stories in comments below.

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Anyone selling you insurance policies is actually not selling you an insurance policy but they are selling you the worst investment product ever. If we take an example from LIC, more often than not agents sell either Jeevan Anand policy or Money Back policy. Even my father in law has taken money back insurance policy for my kids . Each time I ask him why or recommend canceling it and he replies kaam ata hain (It works) but cannot explain how, when or why. Cannot argue beyond this point with him.

The reality is every insurance agent is selling such insurance policies and unknowingly we all buy them. I also had couple of them but decided against it in 2008. Total premium paid by me was 200,000 and when I decided not to pay and get my money back I got back 110,000. Deepak Bhattacharya on March 13 asked a question about insurance here

I have used a very harsh words worst investment product ever. So let me justify why it is actually worst investment product ever and why I decided to make a loss of 90,000 investing in LIC policy would be better option for me.

Insurance and investment cannot go hand in hand and I explained why in my article – Is Insurance an Investment Option?. Let us actually see if we can be insured with Jeevan Anand or Money Back type of insurance policies.

Based on my current earnings, expense and other liabilities I need an insured amount of 1 crore. I am 32 years old now and so adding those data into LIC’s insurance calculator this is what I see as the premium amount I need to pay for Money Back Policy and Jeevan Anand Policy.

Money Back Policy

Jeevan Anand Policy

I cannot afford 40,000 Rs as monthly premium and I am damn sure very few can actually afford such amount.

So what is the solution. Definitely not reducing the sum insured because the amount of 1 crore is not by choice but by compulsion based on my requirements. The solution is term insurance and LIC’s product name for term insurance is Amulya Jeevan.

Amulya Jeevan

The sum I need to pay is 32,800 Rs per year or 2733 Rs per month for being insured for Rs 1 crore which I think everybody can afford for an insurance cover of 1 crore.

This concludes that Jeevan Anand and Money Back type of insurance policies are not for your insurance but only for investments because you are anyway not insured. So if you are only investing in those policies then why you are giving away those insurance fees and administrative charges each year and reducing your return on your investment?

I know there is no answer to it and don’t worry I also had no answer to it when I took that LIC Policy. There is nothing to feel shy about and this happens to everybody.

Average return on non-equity linked insurance policies are in range of 7-12% and debt investment don’t work for the longer term because beating the inflation with debt only investment is very tough.

Let me give a small task to all my readers. List all your insurance policies you have and then ask to yourself – Are you really insured with those policies? Or can you actually afford to be insured with those insurance policies?

If your answer is NO make sure the next insurance agent calls you, ask him to give you Amulya Jeevan (or equivalent term insurance policy in his insurance company) and you will see how he will convince you that it is worst possible product that will not give you any return.

The reality is 3000 Rs as monthly premium would mean he would get hardly few hundred as commission and on top of that would need to get lot of documentation to get you insurance cover of 1 crore.

Remember insurance with returns is not affordable by any individual and so treat insurance as insurance and not as investment. Invest in investment products and not in insurance products.

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I have the following credit cards

1. HDFC Bank – Platinum Plus Card
2. Citibank – Platinum Card
3. Standard Chartered Bank – Titanium Card
4. Barclays Yatra card – Platinum
5. SBI Card – Silver Card

And use them in such a manner that I get thousands of rupees worth gifts and cash back each year. I will show you how I do it but before I begin please understand that you may not need so many credit cards and you don’t need to manage so many credit cards to get the same benefits. The idea is to managing your credit cards efficiently so you can earn money each time you purchase something. I can manage more number of credit cards because I purchase lot of things online and have a complete business of websites, domains and hosting online and so I can spend lot of money on my credit cards and manage them efficiently. So don’t think that having more cards can help but the idea is to manage them in a manner such that you get most benefits out of your day-to-day purchasing activity.

Managing Your Credit Cards

1. Read TOS

The first step to managing your credit cards is to understand the terms of service or terms of usage. There are very few people who actually read them but I always read them. Remember these terms are not the ones that your sales person tells you but these terms are in the booklet that you get along with your new credit card. Ideally you should know them before applying for a credit card. You can read about the terms for your card you are applying online. It makes me aware of the minimum amount I need to spend on each of those credit cards each year to make them free for me and I don’t need to pay anything for using those cards.

So the first point of having a credit card is to use it because there are very few credit cards that offer you completely free card even if you don’t use it. SBI card is an exception and they don’t charge anything even if you just have the card and don’t use it for years but that is one of such cards. All other credit cards may charge you yearly fees for non-usage. My Citibank credit card offers me cash back but they also need that I use my card for at least 20,000 Rs per year to make fees waived off.

2. Automate Payments

Always make an ECS payment from your bank account for each of your credit card. I always do 100% payment to be debited from my bank account. I never want to be found guilty of not making a payment even if I am not around my computers for few days to make the payment but if you don’t prefer 100% payment, make sure you opt for minimum payment due to be debited from your bank account.

It does not make any sense to be using your credit card for minor loan or making a due rollover to next month because the interest rate on credit cards is very high. This is the only reason I recommend you to have 100% payment as ECS from your bank account to your credit card. Use other means of loan if you actually need it. Even a personal loan is better than loan on a credit card.

Apart from that never ever use your credit card for cash withdrawal because that has even higher interest rate. Just remember never purchase anything from your credit card that you think you cannot pay by the due date.

3. Don’t be Afraid

I have seen lots of Indians are afraid when it comes to using a credit card. I am not talking about people who are 50+ because they are not used to using cards anyway but even computer geek’s or even an MBA from reputable colleges are afraid of having a credit card. They are even terrified when using it online.

This does not mean you should be using your credit card online everywhere but if you see a reliable Internet payment processor or verified by Visa things on the site you should be fine using your credit card on that site.

Tip: If you see a transaction in your credit card statement that you are sure is not done by you, you can call your credit card company and get your card hot listed and launch a complain about the transaction. They would investigate and credit your money back for the transaction. Do this only if you are 100% sure or else you may be charged a fee for the unnecessary complain.

How I use my Credit Cards

You may wonder how I am able to manage so many cards, their payment dates and other such stuff. I have a complete plan the way I use my credit cards. Remember I don’t need to worry about the payments because they are always taken from my bank accounts and so this means I never have to worry about that part of my credit card management. This also means for all my credit cards, I have never missed a payment till date.

Where I use what

• Standard Chartered Bank Credit card is used for making payments for my hosting, domains and other online stuffs.
• HDFC Bank card is used in Google Adwords and at CESC (my electric bills).
• Barclays Card is used in Bing Adcenter and Facebook Advertising as well as in one of my smaller Adwords Account.
• Citibank card is used mainly for booking tickets online, making offline purchases like my MacBook Pro as well as pay my telephone and internet bills for my home and office.
• SBI Card is used for recharge my prepaid mobiles and DTH accounts as I have very small credit limit in SBI Card.

The diversification of what is spent on which card allows me to know which type of transaction can appear on which of my card statement and so if I see anything that is not right, I can act accordingly.

The Benefits

Let me show you some of the benefits I get when using my credit cards.

1. HDFC Bank Credit Card

HDFC Bank’s credit card is the most heavily used card and so I accumulate lot of reward points with them. I have accumulated lot of points in the card without redeeming it because they have PlayStation as an option if you make 20,000+ rewards points which I think is not very far for me.

Apart from that they also offer cash back for my electricity bills which when paid offline would mean I have to waste time visiting the place to make the payment. It not only saves me time but also pays me back for using it.

2. Barclays Yatra card

Barclay cards offer gifts vouchers of various brands and I personally prefer Lee vouchers from the pack. I get 1 or 2 Lee jeans each year just for using my Barclays Credit Card. Indirectly Bing, Google and Facebook sponsors my Lee Wardrobe.

3. Citibank Card

Citibank card is one of those cards where I get instant cash back and you can see how I managed 2 cash back’s in the last 5 months.

4. Standard Chartered Bank Card

I make all my USD payments through my Standard Chartered bank card because they have very good online interface for details about the transactions and so I can get details about any transactions before a statement is generated and it helps me if I need to verify my credit cards anywhere by entering the transaction ID or things like those. Apart from that like HDFC Bank card, Standard Chartered Bank card also offers lot of options and items as rewards and so it makes more sense to accumulate lot more points before redemption.

5. SBI Card

SBI Bank Credit cards is not very heavily used and so I don’t make anything significant as rewards from them but still I am accumulating points which I can redeem for big rewards when I think they are worth it.

Final Thoughts

According to me everyone should have a credit card and learn how to benefit from it. I am damn sure there will be no one who don’t pay electricity bills, telephone bills and make mobile and DTH recharges and just doing them with your credit card can not only save you lot of time but also help you get some rewards out of it.

Do you agree that credit cards can actually help you actually earn money? Share your views in comments below.

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Manish Chauhan of Jago Investor and I share few things in common and one of them is we both are from non-financial background and yet have fairly successful blog in finance niche and it is our interest in the niche that has driven us this far in an overly crowded space.

Manish has written a book on principle of personal finance. As I was reading his book, I found that it is one of those books that should be read by everybody who is new to managing his finance and trying to achieve financial goals. So I will do a very detail review about his book and explain what is covered in each chapter of the book but before I get into the details of the chapter let me share few lines about the book in general.

The 170 page book is written in a very simple and easy to understand language so anybody from non-finance background can grasp the concept of financial planning. The book focuses more on principles of personal finances and the financial mistakes a common man make and does not focus on where you should be managing your financials. So I think it is one of those book that can help you get started to understanding the basics of financial planning.

The book is divided into 7 chapters and each chapter elaborates one of the key aspects of finance management and wealth creation.

Chapter 1 talks about how starting your investment at an early age can make the real difference to your final target corpus amount along with facts and figures.

Chapter 2 deals with the misconceptions about insurance among common Indian investors and explains why insurance is INSURANCE and not an investment. You can also read my related article about Is Insurance an Investment Option?

Chapter 3 explains the importance of financial goal in your life and how you need to remind yourself about it and invest towards achieving it. He suggests writing your financial goals but being a tech junkie I prefer my desktop wallpaper to have my goals especially the financial goals. I did this when I was looking to buy a flat for me.

Chapter 4 explains how equity is less risky in longer term (10-15 years) and more risky in shorter term (2-3 years) and how debt is more risky in longer term and less risky in short term with examples. Apart from that the chapter also talks about ideal portfolio with balanced risk profile based on stage of life i.e. bachelor, married, kids and so on.

Chapter 5 focuses on changing your attitude towards managing finance better with a want to do attitude and re-iterates the same concept about having a financial goal and starting investments early.

Chapter 6 focuses on ways to simplify your financials and how you can UN-complicate your financials by consolidating your bill payment dates and reminders to avoid lot of hassles and late payment fees.

Chapter 7 explains the common issues among Indian investors who invest with different motto – like getting insurance only for the sake of saving tax or even buying a property when they could have delayed that buy or even smaller property would have been a better option.

This pretty much sums up the content of the book but I have also found few areas in the book, which I think should be improved upon. I think I need to share them as well.

Area of improvements

Chapter 4 does not talk about finance management for people who have loans and always assume debt free situation to start with, which is very rare. When I was doing job in 2008, I had lot of my friend in the IT industry but I found very few people were debt free. Some had personal loans for marriage and other occasions, some had car loans and rest had a home loan.

Chapter 5 could have been more about attitude in general towards finance management instead of re-iterating what has already been told in the opening chapters about financials goals and starting investments early.

Chapter 6 focuses on simplifying financials but on page 136 a he suggests a simple portfolio that states

1-2 Credit Cards (if one needs them).

I think (if one needs them) is not what I expect in a personal finance book. Credit cards are must in today’s life style and so it is all about knowing how to use them efficiently and to your advantage. So I don’t agree that you should have a card only if you need it but I think you should always have a credit card and learn how to use it efficiently.

My credit cards fetch me 10,000+ Rs worth of free gifts and cash back yearly. I will share an article on how I do it soon but as an example I would like to share here about my Citibank Cash Back Credit Card that pays me roughly 2 to 3 thousand Rupees as cash back each year but if I don’t use that card for at least 20,000 each year I will be charged a fee of few hundreds (don’t remember the exact amount now) for keeping that card with me. So if I know the terms I am fine managing that card well to my advantage.

Final Thoughts

I think it is a very good book for beginners in personal finance.

Update: The book is available at 25% discount rate. Grab your copy now at FlipKart.com.

Update: Manish has agreed to give one free copy of his book to my blog readers. To grab your free copy of the book share your views about this review in comments below and I will select one reader in the next 24-48 hours from the comments who get his/her free copy delivered at his/her doorstep.

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My Technical Analysis eBook covers chart patterns that I use when trading in market but that does not mean you cannot learn my way of doing technical analysis from my blog only. You can learn most of my way of trading from my blog archive but there are scenarios that are exclusive explained in detail in my ebook. So without much of promotion about my ebook, let me share articles from my blog archive and make it a collection of Free Technical Analysis Tutorials.

1. How to Calculate Support & Resistance Levels – How to Calculate Support and Resistance Levels as well as stop losses for a stock based on chart patterns taking example of MIC Electronics India limited.
2. Understanding Support Levels – Support and Resistance is what I prefer when trading in market and see how crucial support levels can be even for the best of stocks.
3. Understanding Resistance Levels – We saw how crucial support level is now see how crucial resistance levels can be.
4. How Chart Patterns Can Save You From Panic Selling – In my ebook I have a complete chapter on how to deal with morning panics and I have shared a practical application of the same.
5. Breakout Chart Pattern – A break out chart pattern formations that made me few thousand bucks in a matter of few minutes. I have shared how you can also do the same.
6. See How Chart Pattern Repeats by Itself – The basic principle of technical analysis is History and pattern repeat by itself and see how Hindalco follows the same Chart pattern of better than expected result.
7. Learn From My Trading Mistake – No one can predict the market each time; every time and you tend to make mistakes all the time. An Important thing is you learn from those mistakes and move forward. I did a horrible trading mistake. The mistake reminded me few of my trading lessons. Learn from my mistake.
8. Are You Still Buying Stock With Better than Expected Results? – Consistent good results from company means you should be selling the better than expected result and not buying. See why.
9. Understanding Signals of Market Crash – Can you predict a market crash well ahead of time? Yes you can. See what are the signs of market crash.
10. How to Trade Against the Market Trend – I don’t recommend trading against the trend but if you know what you are doing you can deal with it in a better way.

Share your feedback in comments below.

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What kind of Investors use Technical Analysis and What Kind of Investors use Fundamental Analysis? Though I am more inclined towards technical analysis I will try to answer this question from a neutral point of view.

When to use Fundamental Analysis

If you are trying to invest into companies business and can remain invested into the stock for few years, you should focus on the fundamentals of the company. Something I did when investing into Hitech Plast about 15 months ago.

When to use Technical Analysis

If you are a day to short term (aka weekly) trader you should focus more on the technicals of the stock because fundamentals of the company has very little impact on the daily or hourly price movement.

When to use both the right way?

The scenario looks pretty clear as to what kind of investors use Technical Analysis and What Kind of Investors use Fundamental Analysis but most of us do not fall into the above categories of trader and investor. We are mostly a positional trader or short-term investor.

• By position trader I mean those who take up position with a time frame for a month or two and expect good news outcome and profit out of that news.
• By short-term investor I mean a positional trader with an investment horizon of 6 month’s to a year’s time frame.

And this is where the actual dilemma of what you should be using – fundamental analysis or technical analysis comes in.

The one that works best for me is I use fundamental analysis and technical analysis both. Fundamentals of the company lead me to the stock and the technicals decide when I get in & when I get out of that stock. You can see how I use my long-term portfolio to trade for profit.

I have seen most people use both the analysis in the wrong way which is they take a technical trading position and keep holding the stock based on good fundamentals or vice versa.

What you do?

So my question is what you use – Technical or fundamental analysis and how? Share your strategy in comments below.

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I was thinking to get fresh new look to this blog for quite some time. I was working passively on it for quite some time and finally decided to get it live yesterday. I would love to hear your feedback on the new design. Apart from that if you see any other broken images or other things do let me know.

For those you have not seen the old design you can refer the screenshots below

Eagerly waiting for your feedback and as always you can speak your heart out about it in comments below.

No related posts.

I get this question quite often – What is the best way to learn technical analysis? I will answer this question in a very short and simple one liner which is…

You need to know the basics of technical analysis that work in the market aka Support and Resistance and couple of mathematical patterns and then practice to implement them when you have the terminal open in front. The mistake that many investors make is they try to learn too many patterns that makes it impossible for them to apply when it comes to trading in live market.

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PowerYourTrade is one of the most known stock tips website among Indian investors because it is very heavily promoted on moneycontrol.com. My honest review about their service would certainly mean my account can have some trouble but I think my readers deserve to know the truth and that is more important to me than my account status in PowerYourTrade.

I opted for yearly option for combo offer of PWT (PowerYourTrade) just to make sure I am not judging their service on a very small time frame.

My Account Status

On 26th Jan 2012, my account status is as follows.

I am a member of PWT for last 90 days now and it is quite a long time for me share my review about their service. So let me share some of the key facts about the service.

The Sales Page

When you are not a paid member in PWT you are mainly driven into being a member by the following recommendations.

You see multibaggers that have gained few hundred percentages over a period of few years. Not only that if you see previous multibaggers here, you see everything green. On Jan 26th 2012 I see it as follows.

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Reality of Multibaggers

Reality of Multibaggers as on 26th January 2012 when logged in is…

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The obvious question that you may have – Is the first screenshot wrong? No it is not wrong. You may have not noticed one thing that makes first image correct, which is the date of recommendations by experts. If you note the recommendation date you will see that those gains are for stocks recommend in June 2011 and beyond and nothing after that. It means very few Multibaggers have done anything substantial in the current market scenario.

Many can argue that that having dates means they have the accurate information but that is also not the case all the time.

The Hidden Truth

On April 19th 2011 SP Tulsian initiated a buy call on FAG Bearings, which is up by 30% now. The reality is on April 29th 2011 SP Tulsian initiated a sell call on the same stock and so even if you purchased the stock on his call you would have sold it anyway and it means the recommendation is not at all a reality where you make 30% but as guest you only see that a recommendation is up by 30%. See the screenshot below for sell call for the same stock after 10 days on 29th April 2011.

This actually reveals the secret to gains of 2000% as well. They recommended the stock at some point and that stock is now up by 2000% but that does not mean they have not initiated any sell call in between and you can actually make 2000% in reality. There may be buy and sell call but they only show the calls they have taken some time back that has gained few hundred percentage.

2009 Multibaggers

You can view 10 pages of Multibaggers stocks recommended over time and as of today I see the following calls in Multibagger calls from 2009.

Click on Image to View Complete Screenshot

Very few have performed from 2009 till date.

Final Thoughts about PowerYourTrade

You can subscribe to PowerYourTrade tips if you understand that every multibagger stock suggestion is not a multibagger and they are just any other stock suggestion. Apart from that Hem Securities Multibagger calls are more reliable and works far better than any other calls. This is my personal experience based on some tracking that I did for last 3 months.

Update: I don’t share any stock tips and so please do not email me for any stock ideas. I am a personal blogger who let you understand how to trade and invest in market but don’t prefer sharing what stocks you should be trading in market.

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If you watch business news channel, you may have heard the term top line and bottom line and if you read the definition of those terms they sound very complex to understand. Today I will try to explain top-line and bottom-line in a very simple language and simple examples as well as clarify the difference between them.

What is Top line?

Amount received from the sale of products or services before the expenses. Is also referred to as Gross sales.

What is Bottom line?

Bottom line is the total income after adding total revenue and gains and subtracting all expenses and losses. It is also referred to as Net Income

Example

From the above definition we know what is top line and what is bottom line. Now let us take a simple example to understand it further.

We all use mobile phones and so let us take an example of dummy mobile phone manufacturing company. We call the company is XYZ company. XYZ Company has come up with a brilliant handset and so the sales of the company in the current month have increased by 20% from the previous month.

It means XYZ company is generating 20% more cash compared to previous month and so XYZ company sees a top line growth of 20%+ (+ is because XYZ had some nominal growth without this new handset anyway)

Does the above scenario also means XYZ company is also making 20% in net profit. No because to manufacture such high number of mobile phones, the company had to setup new manufacturing units. So XYZ company has taken a loan that has increased expense of the interest part that they are paying to the bank. Taking the interest expense the company’s bottom line did not grow at 20% but say it grew only by 8%.

This means you have good sales and good top line growth but then bottom line is lagging behind. As the sales are good with good cash inflows, company decides to pay off major part of the loan and soon the bottom line of the company starts catching up.

Real Example

We assumed an XYZ company but it is always better to see a real example to understand the real market terminologies. Let us take an example Infosys and understand the difference between top line and bottom line.

Let us look at the yearly result for the last 5 years for Infosys at MoneyControl.

Our focus will be for the time period Mar 09 and Mar 10. There is an increase in total income from 20,766 to 22,050 and so we see a gross profit rise from 7408 to 8270 but if you see the net profit, it remained flat at 5819 to 5803. This is mainly because of the extra 900 Cr tax from 895 to 1717 Cr Rs. We see growth in topline for Infosys but there is hardly any growth in bottom line of Infosys in the same time period.

I hope this clear the confusion among fellow investors about the terms top-line and bottom-line and what do they mean.

How scenarios can impact top-line and bottom-line?

A company would be experiencing top-line growth if a new product or campaign increases sales for the company.

Bottom-line growth would occur in a situation where a company found a method to reduce the cost. It could be by having new supplier for raw materials or government has some policy change that can reduce the cost or a management decision to generate cash to pay off the loans.

The significance of each of them

Bottom line significance is the efficiency in operation of a company that can include spending and operating costs. Top line, on the other hand, only indicates how effective a company is at generating sales and driving customers.

Drastic change in bottom line effects the price of the share almost instantly but the growth in sales may not impact the share price in the same direction every time.

Final Thoughts

A company can always have growth in both top-line and bottom-line growth at the same time if it can increase sales (top line) and reduces its operating costs (bottom line). Share your views and feedback in comments below.

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I don’t recommend trading against the trend unless you understand it completely. So let me share my trades against the trend and explain the rules to trading against the trend.

Let us first identify a trend in a stock.

In VIP Industries, you can spot a downtrend easily.

Stock went from 175 to 110 in pretty much a straight line. At 110 some buying or short covering was seen and then again it was back to 110 in couple of days time clearly suggesting down trend. The important thing was it did not break 110 and I anticipated that 110 could prove to be a pivot of trend reversal. This is when I took a trade against the trend.

Here are my trades.

Nov 22 2011 is when I took a small position of 100 shares in VIP Industries at a price of 118ish. 24th Nov is when I was convinced that bounce is evident and so I added to my initial position.

Stop loss was 110 with a target of 130 odd. The ROI for the trade was I would either make 12 Rs per share or loose 8 Rs per share i.e. a ratio of 1.5 is to 1 for target versus stop loss.

I saw a peak in VIP Industries at 128 and not at 130, which was my target and so I sold of on 29th Nov 2011 at around 125 odd levels.

On Nov 30 I took up yet another position at around 123 levels. I actually rushed into this trade but as I was trading against the trend I had a strict stop loss of 120 that was previous days low. As the stock broke 120 I was out of it with a small loss.

3 Golden rules when trading against trend

1. Don’t rush - When you are trading against trend, wait for the support (resistance if shorting) to be created and tested more than once before you even think about trading against the trend.
2. Follow strict stop loss – Genius of a trader can be wrong and there is no harm in accepting you were wrong but trying to prove you were right and holding on to a position can prove more fatal. I could loose 33 % of my investment from 120 to 80 if I would not have followed the stop loss.
3. No trade is good trade - Don’t trade if you are not sure because it is better not to trade against the trend. Wait for the trend reversal. You may miss the sharp bounces from support but that means you are trading with more conviction.

I hope this helps fellow traders trade with more conviction in market.

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Guest Post by Mayank Gupta of NineMillionDollars explaining 5 most common mutual fund myths among mutual fund investors.

Pankaj, my friend just realized that he had been facing some financial instability. Not that he was not able to manage his funds well but was just too unsure whether he had a good portfolio of investments or not. Just like Pankaj, today the common man not just looks for growth of his investment but also safety of his fund. In such a scenario investing in mutual funds is still regarded as unsafe bet. If you feel yourself stuck in a situation like this then definitely the article below will help you with some understanding.

It has been seen in the recent past that Mutual funds have been in the top most rung as regards to investment tools. Thanks to the much needed hype by the mutual fund agencies by its immense advertising and publicity gone for it. Very few people realize that inside of all the rosy look there lies a dark picture of mutual funds which is hidden. There are few mutual fund myths which if not carefully taken into consideration can lead to serious trouble

In this article, we debunk 5 popular mutual fund myths.

1. Funds with more stars/higher rankings make better buys

Often people fall prey of the rating of the mutual fund and blindly invest in the same. People must understand that these ranking are done on the basis of past performance which does not take into consideration the future market conditions. Moreover these ranking keep on changing with time according to the performance of various funds. Ranking does not specify the kind of investor it will benefit. Different investors look for different kind of gains.

TIP- One must not blindly look at the ranking and rating but should conduct his own research as the financial goal for each investor may be different and ranking may not have been done taking in mind the individual financial goal.

2. Once the fund makes a grade, so do all its funds of same fund house

It is not always true that a good fund house may have all good funds. Many investors often make this mistake of judging a fund because of its fund house reputation. It’s quite a possibility that one fund in a particular fund house may perform exceptionally well and on the other hand another fund may not perform well. It is true that negligence of the fund house towards a particular fund may lead to its performance but it is not correct to say that all funds in a particular fund house will be equally good.

TIP-It is good to review the fund house but along with this it is equally important to access the performance of the fund separately.

3. Equity funds also invest a high %age in debt

Many mutual fund state that their strategy is to invest up to a certain percentage of the funds in debt so as make use of the assets and generate growth by use of both equity funds as well as debt funds. Unfortunately the reality is that the equity fund basically invests most of their assets in equity market and very little in debt funds. In such a scenario investors whose main aim is to invest was to get maximum revenue due to asset allocation are misguided.

TIP-If you are looking to generate revenue by making use of asset allocation the its advisable to invest in balanced funds or hybrid funds.

4. A fund invests in the same stocks as its benchmark index

Many investors are under a preconceived notion that mutual fund operates under a specific index. This may be true but only in the case of an index fund. In all other case it is under the will of the fund manager. Hence in other cases it becomes difficult for the investor to benchmark the performance. In case of an index fund it is easy for the investor to find out the size of the fund and its performance.

TIP-It is wrong to assume that the fund will always invest in one kind of fund from time to time. This is just possible in case of the index fund and all other funds have the desecration of the fund manager.

5. Dividend option is better than Growth Option

Due to lack of understanding and wrong information many investors believe that investing in dividend option of a mutual fund is better as it yields more returns in the form of dividends. It is mostly concluded the dividend option is better than the growth option as it keeps you happy when money comes home after every few months in the form of dividends. But you must take this into consideration that your mutual fund NAV is reduced by the similar amount once you get dividend. And you won’t be able to take the best possible advantage of power of compounding which is considered as the eighth wonder of the world.

TIP: Dividend option may not always prove to be beneficial .In fact the investor must value his goals and liquidity while deciding on growth or dividend option.

This article is written by Mr. Mayank Gupta who runs a personal finance blog Ninemilliondollars.com where you can find articles on tax saving options and provides financial planning services

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