TRADE LIKE A MONK

How to Trade with Multi-time frame analysis

2024-04-11T14:01:00.000+05:30

You must have heard about the "Top-Down" approach in trading. It is basically a trading style where you analyze the higher time frame charts and then move on towards the lower time frames before finally executing a trade.
It helps in making sure that the trade which we are taking, has more probability of moving towards our desired way.

For swing trading, i generally use the top-down approach of moving from the monthly chart, all the way down to the daily chart.

Let's check it out with the help of an example.

This is the monthly chart of PNB-

The first thing that we can notice here is that the next resistance is far away (upper highlighted area) which is exactly what we need.
We don't need to trade in a stock where the higher time frame has a resistance just around the corner. As it has much more importance than the lower time frame charts.

The lower highlighted zone shows us that the price is trading well above it and the momentum is good so far in the higher time frame.

Now let's check the weekly chart -

In the weekly chart, we have to use 20 Exponential Moving Average. This will basically filter out if the stock is in momentum in the weekly chart or not.
Most of the times we will notice that the price usually bounces back up after it retraces to the 20 EMA in the weekly charts.

So, if we are looking to buy a stock, the weekly price should be above the 20 EMA.

Now let's check the daily chart-

In the daily chart, we can see that it has broken out of a range and now the upper most highlighted zone, which was acting as a resistance is now acting as a support.
Usually this gives us a great buy zone as the risk is really small( we can exit if it breaks below the highlighted zone )

So, this is how we do a multi-time frame analysis where we always start from the monthly chart, then weekly and eventually the daily chart.

I hope this helped and if you want to checkout my favorite trading strategy, check out my Heikin Ashi + SuperTrend strategy on Upsurge Club

You can also checkout my APP if you want to learn technical analysis in the most simplest way.

Swing Trading can be very rewarding. But there are some rules to follow -

2024-04-05T12:13:00.003+05:30

Sharing some of my rules which have helped me a lot in my trading journey -

1. Don't look at your PnL all the time.

It really messes up your emotions. To ride stocks for longer, we need less volatility of our emotions too. If we keep looking at the profit and loss screen, we will most of the time, end up either selling our profitable stock which will keep on moving higher after we exit hit or we will keep riding a losing stock looking at our loss because we would start hoping that it might again turn into profit some day. When trading, it is always better to focus on the charts and not how much we are making every single minute.

2. Don't login in the 1st hour of the day.

I generally watch the daily and weekly charts for swing trading, so there is no need to watch the market in the most volatile period. Many times we end up taking trades without a proper plan if we see some huge gap up or gap down in some of our favorite stocks.

3. Size kills performance.

Start with 3-5% position size and hold them till at least they are above 20 ema ( better than buying position size of 10-15% and panicking with every move )

4. Nothing good happens below the 50 ema.

A simple rule i follow is, i don't consider to buy anything if it is trading below the 50 ema on a daily chart. Better to buy high, sell higher for better momentum trading.

5. When not many stocks are breaking out and sticking, stay in cash.

Sitting out of market when things are not working out, is a super power. Embrace it. We don't need to trade daily to make money in the markets.

If you are interested in swing trading, you would love the strategy that i have shared in collaboration with Upsurge - Swing Trading Strategy for Beginners.

We all should have our own rules of trading and should stick to what works best for us. I would love to know about your trading rules, please feel free to share them in the comments section below :)

My app for learning more about Technical Analysis - Harneet Kharbanda App

Still using normal candlesticks in 2024 ?? Use the better candlesticks !

2024-03-28T16:12:00.000+05:30

Yes i am talking about the Heikin Ashi candlesticks. But before we learn more about them , lets quickly understand what are basic candlesticks and how they are used -

- Candlesticks were invented by the Japanese back in 1700's to track the price of rice.

- Candlesticks make it really easy to know the sentiments of all the traders collectively. By glancing at a chart, we can know what is the overall trend.

- These are most widely used all over the world by equity, forex and crypto traders.

- We can know the sentiment of the traders by looking at how the candle opened, how high it went, how low it went and finally where it closed. The closing is really important as it reflects who won the battle on that specific time frame.

This is how a basic bearish and bullish candlestick is formed.

Some of the most widely used bullish candlestick patterns are -

Bullish Engulfing-

In this scenario, the bearish candle is completely engulfed by the bullish candle.
It would be of even more importance if this occurs at the support zone.

Bullish Harami-

In this type of pattern, the bullish candle is completely inside the bearish candle's range. Harami in japanese means pregnant. Here from the pattern we can see that a big mother candle has a baby candle in front of it and hence it got this name.

There are many more patterns but these are the most common ones.

Now let's understand Heikin Ashi candles-

Heikin Ashi literally means "Average Bar" in Japanese.
As the name suggests, it smoothens out the candlesticks and make it really easy to follow the trends.

Heikin ashi candle is calculated as follows -

Heikin Ashi candle = Open + High + Low + Close/ 4

Another point to note is that the Heikin Ashi candle opens at the middle of the previous candle's body as it is taking in account the previous candle's close too while making the current candle.

These candlesticks remove all the noise that a normal candlestick chart has as we will see in the following charts comparing the normal candlesticks and Heikin Ashi candlesticks.

First, let's check the Nifty chart using normal candlesticks -

Here you can see that there are a lot of gaps, many bearish candles inside the uptrend and vice versa. Basically there is a lot of choppiness in this chart which can confuse a new trader.

Now let's check the same chart using Heikin Ashi candles -

As you can see, the overall trend has been smoothened out beautifully and the uptrends and downtrends are very easy to identify.
There are no gaps too as we had learned above that the Heikin Ashi candle opens at the middle of the previous candle's closing price giving us a average and smooth pattern.

Some points to note about Heikin Ashi candles-

Green or white candles indicate an uptrend ( color may vary depending upon the platform that you use )
Red or black candles indicate a downtrend
Green or white candle with no lower shadow indicate a strong uptrend and it means that it is better to keep riding the trend when that happens.
Small body with upper and lower shadows indicate that the trend can reverse from here (Indecision). During this time, it is better to wait for the confirmation or either side.
Black or red candles with no higher shadows indicate a strong downtrend. We should keep riding our shorts position at that time as it tells us that the bearishness can continue from here.

I hope you liked these new candlesticks and if you want to learn more about Heikin Ashi candles and want to learn a really easy to follow strategy using Heikin Ashi candlesticks and Super Trend, you can check out my strategy on the Upsurge Platform.

"EQUITY"- Richer Journey That Leads To Success

2021-05-31T17:49:00.002+05:30

"One of the most important things every investor and cash holder must cognize: never let your emotions persuade your investment decisions."

One of the main reasons why people move towards towards investing in stocks is the possibility of making quick money and to get rid of job life. While that does sound enticing, especially when you're old, you need to be smart about where you invest your money. Having said that, there are mainly two ways of making money—by working, or by making your money work for you.

Not everyone likes equity investing. Some equate it with gambling; some see it as a zero-sum game, and therefore, wasteful; some are suspicious because money seems to be made easily; some dislike anything that does not come with guarantees.

But rather than keeping your cash stashed away if you choose to invest your money in equity, then you're getting your money to create more money in the form of higher returns. Another way is to let your stock grow in value and then buy and sell them at a profit.

Generally, the word 'Equity' is closely associated with 'Risk' and it is rightly so. However, it is important to have an Equity component in the portfolio as a part of asset allocation and portfolio diversification,

If you're a part of the Public Provident Fund scheme offered by the Indian Government, you've already taken part in India's tried and tested way of getting long-term returns.

However, PPFs and Fixed Deposit offer lower returns when compared to stocks. That is why stocks are the best way to boost your retirement amount.

"The wealthiest people in the world today are equity investors. Don't get left behind because you don't understand how a business should be run".

The benefits of having 'Equity' in a portfolio:

· Helps in beating inflation

· Assists in portfolio diversification

· Excellent Return on Investment in the Long-Term

· Regular Income by way of "Dividends"

This is the simplest reason to invest and is often at the core of why people buy stocks.

Saving or Equity Investing:

Saving is the safer route because the dollar amount in your bank account won't typically decrease unless you withdraw funds, but interest rates on savings accounts don't allow your money to grow very quickly. Unfortunately, interest rates are often lower than the rate of inflation. This means your savings could lose purchasing power over time.

Rightly said:

"Putting your money in the securities market is risky yet profitable. Whereas, holding that cash is ineffectual".

When choosing rightly, you can grow the money you invest by anywhere from 10%-12% per year over the long term in Equity as compared to a saving account that gives you not more than 5%-6% yearly.

If you invest Rs.30,000 in the stock market today and it gains roughly 10% per year, you'll turn that Rs.30,000 into Rs.78,000 (approx.) in just 10 years.

Think about that.

Imagine 10 years ago you put Rs.30,000 into an account, invested it in some stocks, made some trades, and now 10 years later you have your original Rs.30,000 plus another Rs.30,000 you made from investing.

Or imagine a longer-term example where you're both a good saver and a smart investor. Imagine you invest Rs.30,000 of your savings into the market every year for 30 years.

That's Rs.30,000 this year, another Rs.30,000 next year, another Rs.30,000 the year after that, and so on for 30 years. So, in total, you will have invested Rs.900,000 in stocks over 30 years (Rs.30,000 per year x 30 years).

And let's assume you achieve the same average yearly returns we used above, 10% per year.

So, you've invested a total of Rs.900,000 over 30 years — but guess how much you have in your account at the end of that 30 years.

You know it's going to more than the Rs.900,000 you invested over 30 years because the money will have grown. After all, you invested it in stocks.

But it's how much it's growth that's truly surprising. That Rs.30,000 investment per year for 30 years would now be worth Rs. 54,28,303

Bottom line — through regular investing, you can turn Rs. 30,000 per year into more than a million over 30 years.

Now, Rs. 900,000 of that million is the money you directly invested each year. But the other Rs. 45,28,303 is money you made from investing in stocks.

Investing in Equity or Fixed Income:

Equity investing has the potential for a higher return on your money than fixed income investing. If you invested in the stock of a particular company that has good management and valuations and also potential of attaining good profitability in future, you could experience a large return on your investment.

Whereas the low return on most fixed-income products can mean your investment might not even be able to keep pace with the rate of inflation, which in effect means that you're actually losing money in the long run.

Let's understand this by way of the below illustration:

If a debt scheme can double your money in 7 years@12% p.a. The Equity schemes can double it in 4 years@20% p.a. If you have invested Rs. 100,000 for a period of 20 years. It can be clearly seen here that the small difference in %age return can make it big in the long term. Rs. 100,000 invested at the rate of 12% for a period of 20 years would give you Rs. 9,64,630 and the same amount invested at the rate of 20% for the same period would give you Rs. 38,33,760

Whether equity or fixed-income products are right for you will be determined in large part by your tolerance for risk. If you're something of a riverboat gambler, you may prefer equity products. If you still have your first piggy bank and it still contains the first pennies you ever owned, the safer fixed-income track may be better for you. You can also strive for a balanced portfolio by investing in a combination of fixed-income and equity products.

Investing by yourself is thrilling, but fraught with mistakes as you climb the learning curve. Choose your pick but do choose equity.

So, what is stopping your money to grow….

Open your eyes to a fresh financial perspective.

"A whole new look at Personal Finance - to make it simple, accessible and workable for all"

Author Bio: Rashi Sadhu is a Financial Planner and a Finance Content Writer. She’s on a mission to spread financial literacy. She believes financial freedom should be a vital goal for every common person. Her passion involves writing poetry on real scenarios

Connect with her on twitter: https://twitter.com/RashiSadhu

Sources:

www.equity4profit.in

www.moneyunder30.com

www.budgeting.thenest.com

Important Points from the book - Total Money Makeover by Dave Ramsey

2021-05-17T14:56:00.000+05:30

I recently read the book - The Total Money Makeover and here are the important points which i had marked and thought to share it over here for the benefit of all.

" Overspending that doesn't feel like overspending because things are going well is still overspending "

" Using debt to invest in real estate or stock market and the hope of a quick return will cause you to go broke the minute market turns "

" Winning at money is 80% behavior and only 20 % head knowledge "

" 90% of people in our culture buy things they can't afford "

" If you will live like no one else, later you can live like no one else "

" The story goes that if you drop and frog in boiling water, he will sense the pain and immediately jump out. However, if you put a frog in room-temperature water, he will swim around happily, and as you gradually turn the water up to boiling, the frog will not sense the change. The frog is lured to his death by gradual change "

" In US, 88% of graduate college seniors have credit card debt before they even have a job ! "

" When you think short term, you always set yourself for being ripped off by a predatory lender. If the red faced kid ( I want it, and i want it now ! " ) rules your life, you will stay broke ! "

" Most people get a car payment and keep it throughout their lives. As soon as a car if paid off, they get another payment because they " need " a new car then. "

" Myth: you can get a good deal on a new car at 0 percent interest.

Truth: A new car loses 60% of it's value in the first four years: that isn't 0 % "

" The average millionaire drives a two-year old car with no payments. The average millionaire is unwilling to take the loss that a new car dishes out: that is how they became millionaires. "

" Myth: you need a credit card to rent a car, check into a hotel and buy something online.

Truth: a debit card will do all that. "

" Remember, there is one thing the debit card won't do- get you into debt. "

" An American Bankruptcy institute study of bankruptcy filers reveals that 69% of the filers say credit card debt caused the bankruptcy. "

" A budget is people telling their money where to go , instead of wondering where it went "

" The need for approval and respect drives us to do some really insane things. One of the paradoxically dumb things we do is to destroy our finances by buying garbage we can't afford to try to make ourselves appear wealthy to others "

" People who win at anything have written goals. Zig Ziglar says- If you aim at nothing, you will hit it every time. P.T Barnum said - Money is an excellent slave and a horrible master "

" You wouldn't build your house without a blueprint, so why do you spend your lifetime income of over $2 million without a blueprint ? "

" According to Brian Tracy, a study of Harvard graduates who had written goals achieved more financially than the others 97 percent combined !! "

" The first baby step to your Total Money Makeover is to begin the emergency fund. A small start is to save $1000 in cash fast ! "

" The bottom line is that it is easy to become wealthy if you don't have any payments. You may get sick of hearing it, but the key to winning any battle is to identify the enemy. The reason i am so passionate about your getting rid of debt is that i have seen so many people make huge strides towards being a millionaire in the short term after they got rid of their payments."

" List down your debts from smaller to largest and start clearing them 1 by 1. Start with the smallest few ones first. Once you pay the smaller ones off, it will light a fire inside you. I don't care if you have a master's degree in psychology: you need quick wins to get fired up. And getting fired up is super-important"

" When you pay off a nagging $52 medical bill or that $122 cell phone bill from eight months ago, your life will not change mathematically yet. You have, however , begun a process that works, and you have seen it work, and you will keep doing it because you will be fired up about the fact that it works. "

" A good rule of thumb on items ( except the house ) is this : If you can't be debt free on it in eighteen to twenty months, sell it. If you have a car or a boat that you can't pay of in 18-20 months, sell it. I loved my car too, but i found keeping that huge debt while trying to get out of debt was like running a race wearing ankle weights. Get a total money makeover so later you can drive anything you want and pay cash for it. "

" Keep your emergency fund in something that is liquid. Liquid is a money term that means easy to get to it with no penalties. "

" To make more money, you have to plan to make more money. Some people's problem is income, not spending."

" Investing with the long-term goal of security is not a theory to ponder every few years; it is a necessity that you must act on now. You must actually fill out the paperwork for your mutual fund. You must actually put money in that thing. The level of denial the average person has on this subject is alarming "

" Another baby step is not " Get rich quick ". The investing you do systematically and consistently over time will make you wealthy. IF you play with this by jumping in and out, always finding something more important than investing, you are doomed to work till old age because you just have to work. Systematic , consistent investing is the tortoise that beats the hare in the race. When you keep at it, the investing compounds and explodes."

Are you Still making these Trading Mistakes ??

2021-01-18T00:35:00.005+05:30

Hello my dear trader friends. I know trading is not an easy field to earn money from as over here we are competing with ourselves, that is, competing with our own Ego, Desires and Discipline.

I recently posted a thread on my trading mistakes on twitter and a lot of my followers/ friends appreciated it so i thought i should write a detailed article too on the same topic. Will try to keep it as simple as possible so that all the new traders can also understand it easily and would get some important lessons from it and it might help them in their trading careers.

1. Too Many Indicators -

I have seen this pattern now and even i followed the same when i started trading, that is, to use a lot of indicators on the chart thinking that more indicators would help me in understanding the price as at least one of those indicator would be accurate. But, as we know, indicators are derived from the " Price " itself and we should focus on learning price action itself.

Price action in itself is the most important element of a chart but we tend to ignore it and try to run behind fancy indicators. Having said that, i admit that we should learn some basic indicators in our initial days of trading as they are an " additional " tool that compliments the price action and can be used in understanding the underline trend. However, once we have enough practice of reading charts, we should try to use as less indicators as possible.

2. Revenge Trading -

Revenge trading, as the name suggests is the trading style which we generally follow compulsively due to a recent losing streak. The loss could be sometimes so big, or frequent, that it really hurts the ego of a trader and he/she is desperate to make back the money that they lost.

If we keep thinking like this, we might soon blow up our entire capital as we would be trading with Fear and Anger and hardly with a trading plan.

We should learn to accept our losses as try to keep them as small as possible because losses would always be there, it's a part of the game. They should be treated as lessons and not as losses. Every losses teaches us a lot if we are ready to evaluate what caused them in the first place. That's where a journal comes into the picture.

3. Leverage -

Leverage is a double edged sword, i agree, but, in the initial weeks/months of trading, we should try to stay as far away from it as possible. If we totally new or are not trading under someone's guidance, we can't even imagine how quickly we can blow up our capital.

I suggest to first try to be profitable in cash trading for at least 2 years before even thinking to leverage trading.

4. FOMO ( Fear Of Missing Out )

This is a very important point but is generally ignored by most of the traders as they don't even realize that they are trading out of Fear Of Missing Out.

Ask yourself, haven't you faced a situation in which you bought a stock just because it kept rallying and you thought that you are really missing a great opportunity and you jumped onto it and most probably, as you bought it, it started to decline and you felt really bad.

We should be buying a stock when the risk to reward ratio is in our favor, that is, we have less to lose and more to make in it and we can then decide whether the stock should be bought or missed at a particular price. Having a checklist is a great way to avoid fear of missing out as you would buy something only if your pre determined check points are being full filled to buy a stock. These could be something as simple as buying a stock which is above it's 20 day moving average or buying only if the RSI is above 50 etc.

5. Discussing trades with others.

I agree that we should discuss our trading strategy with others so that we can improve it and refine it as much as possible. There are a number of trading strategies out there which we can use and we generally have to find out which one is suiting our personality after a lot of trials and errors, so discussing it with someone helps us to keep a track of our progress.

But, once we are happy with out trading style, we should not discuss our individual stocks and trades with others as we all have different temperament and personality and most importantly, risk apatite. We can easily get influenced by someone else and might end up exiting a trade just because they convinced us that it's not looking good. That's the reason i am not a part of any discussion groups or whatsapp groups and prefer to trade alone in my home office.

6. Get Rich Quick ??

Trading is generally marketed as a device to get rich quick. We can create enormous amount of wealth along with generating cash flow for our day to day expenses, but it should never be looked as a means of getting rich quick. We can generate huge profits very quick here if we take huge leverage and bet the house in a few trades or just a single trade, but it generally goes back to the market in the same way as losses.

Trading is a business and it should be looked upon as one. In any business, over leverage generally kills and we should have rational expectations from the market. The more disciplined we are and the more patience we have towards reaching our financial goals, higher would be the chances to accomplish them.

There are many more points which i want to discuss but i think it's better to discuss them later in a separate post as i know people don't like reading long posts. If you guys want to discuss anything related to this topic, feel free to ask questions in the comment section below.

Thank you.

What is MACD and How To Use it ?

2020-09-15T11:58:00.001+05:30

MACD is a very simple to follow but a great tool to find and ride trending moves. It is a complete indicator in itself and it is alone sufficient for identifying , entering and even riding the trend with trailing stop loss. It is usually not given much importance because it seems " too simple " on most of the times, but i have noticed that the simplest things works best in markets and in " life " in general.

If we have a relatively easy tool to follow, we should not try to make our process complicate just so that it looks fancy. I have been using MACD for quite some time now and it has been working great for me to find trends and even ride them without any noise.

MACD is calculated by subtracting the 26 EMA by the 12 EMA. Whatever value comes is known as the " Macd line " and it is then used along a 9 EMA " signal line ".

So basically when the signal line crosses above or below the MACD line, we have to enter or exit the trade and simply ride it till it doesn't converges on the opposite side.

Will try to explain this concept with some examples from the US markets.

This is Daily chart of Netflix. You can see here that the blue line is the signal line and the orange line is the MACD line. So when the signal line crosses the MACD line from below, we can buy it and keep holding it till it doesn't breaks down from it and shown in second arrow.

You will notice that it even gets us out of the stock almost at the top and saves our money as well as time. We can re enter only if it again crosses the MACD line from below, till then we can sit on the sidelines of even short if it is an FNO stock.

This is Daily chart of TESLA. Here i have marked with horizontal lines whenever the signal line crossed over from the MACD line. You can see the points that we got if we would be riding along with the signal line. It is as easy as that, nothing fancy. It is a great indicator for swing trade and for positional or long term too, in that case, use higher time frame charts such as weekly and monthly.

Charts are used from TrendSpider website. Link - https://trendspider.com

Enjoy Day Trading but Avoid Addiction

2020-08-28T10:53:00.001+05:30

Proceeding with caution might not be in the nature of a day trader. But taking this approach may lead to the best results, that is, experiencing successful outcomes without flirting with disaster.

Don’t let the potential risks scare you, because day trading can be good. It might actually be safer.

By finishing your trading during the day so you don’t hold risky positions overnight, you might have a better chance of protecting your investments.

Do you want to be in charge? If you are independent and disciplined and want to call all the shots, day trading could be for you.

If you have a financial cushion, if you love attention to detail and are financially savvy, if you are disciplined and can make a plan and stick to it, and if you enjoy the satisfaction of knowing at the end of each day that your success relies on you, day trading could be a good fit.

Anchor Your Passion with Wisdom

As with other pursuits, don’t just jump in blindly. Do some research or take some classes. Take time to study and learn the patterns. Doctors go to medical school. Teachers major in elementary education.

Many professionals earn degrees in their fields before they start working. But there is no certificate guaranteeing your readiness before you begin to day trade.

Although there is no Daytrading University, there are resources available to help you start your career. Consider making an appointment with someone who specializes in trading and ask questions and advice.

Take advantage of resources related to day trading. There are boot camps, courses, and playbooks and you can also research the histories of profitable traders. Some information about day trading includes:

Day Trading and Swing Trading the Currency Market: Technical and Fundamental Strategies to Profit from Market Moves – Kathy Lien
Digital Day Trading: Moving from One Winning Stock Position to the Next – Howard Abell
Financial Freedom Through Electronic Day Trading – Van K. Tharp & Brian June
How to Day Trade Stocks for Profit – Harvey Walsh

Learn the trends and the patterns of stocks. If you know that a certain stock will most likely go down before it goes up, if you’re familiar with the patterns, you won’t be stressed and feel compelled to drink or use drugs to fight your anxiety.

When you have a passion for something, it is wise to feed this passion with knowledge. It is thrilling to gain sound wisdom about something that you love.

Writer Khalil Gibran said that doing work you love is one of life’s greatest joys: “You work to keep pace with the earth and the soul of the earth. For to be idle is to become a stranger unto the seasons, and to step out of life’s procession, that marches in majesty and proud submission towards the infinite.”

Could this be how passionate day traders feel when they wake up each morning and can’t wait until the moment when they implement their trading plans for the day?

Addiction and Day Trading

Just as some people might compulsively shop or gamble, people can and do become addicted to day trading. If despite your best efforts, things too often aren’t moving in the right direction, and you think you’re becoming addicted, if your dreams seem to be turning into a nightmare, you’re drinking too much when you lose and the local bar has become your second home, consider finding alcohol addiction rehabilitation.

How can you tell if you’re addicted? You could be if you feel worse at the end of each day instead of better -- but you still can’t stop trading. People with addictions often risk more than they can afford to lose, have a history of depression, and are habitual risk-takers.

People who strike it rich and earn enormous profits almost immediately can become hooked. If you don’t know when it will happen again, it might be tempting to keep trading compulsively, even if you’re going broke.

You might be able to avoid this scenario if you devise a solid plan. Proceed exactly as you planned and operate according to the guidelines you established for yourself.

But if you’ve lost college tuition or your life savings and are drinking a lot to cope with your worries, don’t lie to yourself and don’t fool yourself. If you’re drinking heavily, don’t try to quit cold turkey. Quitting suddenly could be dangerous, even deadly.

Do you want to quit drinking and overworking but don’t know how? Help is available. Alcohol addiction rehabilitation can be the next step toward healing and finding balance in your professional and personal lives.

Author Bio: Patrick Bailey is a professional writer mainly in the fields of mental health, addiction, and living in recovery. He attempts to stay on top of the latest news in the addiction and the mental health world and enjoy writing about these topics to break the stigma associated with them.

Sources

forbes.com - Day Trading? Smart or Stupid?

thebalance.com - A Day in the Life of a Day Trader

benzinga.com - Best Day Trading Courses

goodreads.com - Kahlil Gibran > Quotes > Quotable Quote

tradelikeamonk.com - Do You Have a Pro Trader’s Mindset?

How to Use Basic Moving Averages

2020-08-23T12:19:00.006+05:30

For any new trader or infact pro ones too, Moving Averages can be a great indicator. It acts as a dynamic support and resistance tool and we can easily follow them to keep holding our positions by following the trend or even enter or exit current positions.

What's best about moving averages is that they are not subjective like the trendlines. In trendlines, i have seen people plotting it the wrong way and trying to forcefully make a trendline even if there shouldn't be one.

In the case of moving averages, we won't face this problem as it is the same for everyone. We can't put our personal bias into them and they are a calculation of the average of the prices.

Moving averages has been used by many pro traders from a long time and it is still a great tool to analyse are trades. We can combine it with basic price action to add icing on the cake or even use them as a stand alone too.

They are basically a complete tool in themselves. It makes trading and investing very easy. Even for long term investing, we can use these moving averages in higher time frames to see if the trend is intact or not and decide accordingly if we want to keep holding our positions or not.

There are basically many moving averages and people have their own favourite ones which they use accordingly. I have been using 200,50 and 20 Exponential Moving Average ( Ema ) for sometime now.

The 200 moving average is used to see if the long term trend is intact or not and 50 is for medium term and 20 for short term. The trend of the stock depends upon which moving average it is generally bouncing back from. Many of the strong stocks will always bounce back after touching the 20 ema itself , some come and take support near the 50 ema and on some rare occasions like in the time of Covid - 19, almost most of the stocks came to take support at their 200 ema.

In the following chart of Visa Inc, Weekly Chart, we can notice the same thing as i have marked.

It generally took support at 20 ema, sometimes it came to touch 50 ema and recently it touched 200 ema and bounced from there. Whenever price comes near these supports and shows a bullish sign, we can take a nice low risk entry and keep riding till it is above the same.

So as we can see, just by following the basic moving averages, we can keep riding our long term holdings and even add them at great prices, when they are near support.

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Similarly, we can also take entry and exits for short term using the crossovers of various moving averages.

I will try to explain one of the basic methods which we can use to trade swing easily using a crossover of two of the moving averages. These are 20 and 50.

So, we will take entry whenever 20 ema crosses 50 ema from below and we will keep riding till it again crosses it from above. We can always re enter when the 20 ema again crosses and goes above the 50 ema as highlighted in the chart.

The following can be seen in the chart as highlighted :-

The black one is 20 ema and blue one is 50 ema.

Common Sense, Sweet Investing v1.0

2020-07-29T17:43:00.000+05:30

Well, the whole world is crazy about investing considering the sharp pullback in global markets in this pandemic. This article is all about the result of a strategy that I backtested. I’ve been into financial markets since 9 months and luckily have observed both peak and bottom(only if it doesn’t retest those levels of March). Being a beginner, I have worked on something in the past 2 weeks and will be sharing the insights of “Common Sense” investing.

Investing

We have been hearing this term for a long time. We have always read the stories of Infosys, Amazon, Apple, etc. being the greatest compounders in history. Anyone can get attracted to investing, the way it is being portrayed on news channels, blogs, and what not. Everyone will say if you had invested 100USD in Amazon, it would have been worth of 154,654 USD at CAGR of 37.61%.

This chart is showing the run of AMZN. Clearly, it is leading NASDAQ in this rally after the COVID crash. Common Sense, Sweet Investing v1.0

Investing

This chart is showing the run of AMZN. Clearly,

it is leading NASDAQ in this rally after the COVID crash.

But there is a lot of risk /analysis behind these lucrative stories. Now, the question is how we would have guessed that Amazon will rule the world? Well, we need luck, hard work, and common sense to pick these kinds of multi-baggers. One needs to give time to study annual reports, financials, and future prospects whatnot. Warren Buffett bought more than $1 billion of Coca-Cola (KO) shares in 1988, an amount equivalent to 6.2% of the company.

Let’s analyze the three factors:

Common Sense: He assumed that no matter what changes, people will still drink Coca-Cola.

Luck: Assumption became true. We are still drinking Coca-Cola with joy.

Hard work: No one gives credit to Buffet over this factor. But the reality is different.

Now, I’ll show one more example of why no one is perfect in investing bets. Let’s study the case of one more investing bet, airline stocks. Warren Buffett started investing in 4 Airlines Stocks in 2016 and we all know what happened due to COVID-19.

A similar trend is there for other airline stocks which he bought.

Common Sense: He may have assumed that no matter what changes, people will still travel from countries to countries.

Luck: Unfortunately, Corona Virus has impacted the airline industry the most. Speaking at the annual shareholders’ meeting in 2020, Mr. Buffett said “the world has changed” because of the coronavirus. He sold those shares.

Hard work: This is still the same in both cases.

This shows there is always a risk in investing. Now, it is not possible for everyone to do this tremendous amount of research being busy in jobs, businesses, and risk-taking appetite. There is one simple solution for everyone, INDEX FUNDS.

Being a Warren Buffett fan, I always admire this quote.

“Index funds are ‘the most sensible equity investment’ for most people”

Well talking about Index Funds, they are simply the baskets of top companies as per market capitalization which keeps on changing as new companies fit into them and dropping the laggards ones. So basically, they keep on growing although not at Amazon pace but surely with less risk. Every country has some famous indices like Dow Jones 🇺🇸, Nifty 50 🇮🇳, Sensex 🇮🇳, DAX 🇩🇪, FTSE MIB 🇮🇹, etc.Talking about Nifty 50, it is group of top 50 companies in India. It is managed by NSE(National Stock Exchange). I searched a lot about the hypothetical Nifty 10 index but it wasn’t there, so I created a one by using the Yahoo Finance database, NSE monthly reports. Unfortunately, NSE had the monthly reports of the names of individual stocks from 2010 only. So, I have backtested this on 10 years of data.

Idea of Strategy

NSE rebalances the Nifty50 on a semi-annually basis with very mild changes. I have used the data of stocks in the index from March 2010. I have used two methods of Investing: Direct and Annual SIP. Annual SIP is just used to make calculations as normally Monthly SIPs are famous and better. Idea is to compare Nifty 50 and Nifty 10, not monthly SIPs and Annual SIPs. We will be buying the top 10 Stocks every 30th March of the year as per their weightage from the Nifty 50 index.

In Direct Case, we will invest 100INR only once on 30th March 2010 and will look at it exactly after 1 year. We will look at the updated Nifty 10 stocks, their updated weightage and will reallocate the invested capital as per the new parameters.

In Annual SIP, we will be investing an additional 100INR every 30th March and will reallocate the total capital on updated weightage as per new parameters.

So, on 30th March 2010, the top 10 companies were:

Weightage2 is the weightage of stock in the Nifty-10 index.Now, what matter most is the comparison of Nifty 10 to Nifty 50, let’s observe this:

This simple performance has been repeated for the next 10 years and I have calculated and plotted the same things for all year. If one wants to have a look at it, it is available here.

Let’s come straight forward to 30th March 2020, let’s see how our NIFTY 10 looks like,

Clearly we have some stocks which are still in Nifty-10 which were there in 2010 too. That’s a good sign.

Now, let’s compare the performance of NIFTY 10 vs NIFTY 50 on various aspects over the past 10 years:

Why Nifty 10?

The reason for adopting Nifty 10 was their healthy weightage in Nifty 50 in comparison to the other 40 stocks... Let’s have a look at the weightage on a YoY basis.

CAGR Comparison:

Now, let’s have an in-depth look at our 8 leaders which were always there in the Nifty-10 index.

Inspiration:

The inspiration behind conducting this analysis is Warren Buffett (Patience), Peter Lynch(Common Sense), and Alok Jain(Systematic Approach).

Disclaimer:

Due to some errors in Yahoo Database, HDFC has some missing data for 2014 to 2016. It may have affected yearly return for 2014–15,2015–16 sessions by some margin, but considering the linear growth in HDFC, the overall analysis might be affected by the tiniest of margin. All data has been taken till 19th June 2019. Even after that leaders have played important role to take Nifty over 11200. Don’t invest specifically on the basis of this strategy, it has been working well from the last 10 years and one can’t assure the same future returns. Please look at data from NSE too for your confirmation of this study before investing. Annual SIPs are taken just for SIPs reference, if I would be applying this strategy, I’ll be using monthly SIPs for investment.

I have used Python and Jupyter Notebook to perform this. Thanks to Vipin Joshi for fixing the bugs in codes. Some ideas are taken from randerson112358 article. I’m passionate about Investing and Trading which is backed by data. Hit me up on my social handles for chats on these topics.

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Let’s analyze the three factors:

Common Sense: He assumed that no matter what changes, people will still drink Coca-Cola.

Luck: Assumption became true. We are still drinking Coca-Cola with joy.

Hard work: No one gives credit to Buffet over this factor. But the reality is different.

A similar trend is there for other airline stocks which he bought.

Common Sense: He may have assumed that no matter what changes, people will still travel from countries to countries.

Hard work: This is still the same in both cases.

Being a Warren Buffett fan, I always admire this quote.

“Index funds are ‘the most sensible equity investment’ for most people”

Idea of Strategy

In Annual SIP, we will be investing an additional 100INR every 30th March and will reallocate the total capital on updated weightage as per new parameters.

So, on 30th March 2010, the top 10 companies were:

Weightage2 is the weightage of stock in the Nifty-10 index.Now, what matter most is the comparison of Nifty 10 to Nifty 50, let’s observe this:

This simple performance has been repeated for the next 10 years and I have calculated and plotted the same things for all year. If one wants to have a look at it, it is available here.

Let’s come straight forward to 30th March 2020, let’s see how our NIFTY 10 looks like,

Clearly we have some stocks which are still in Nifty-10 which were there in 2010 too. That’s a good sign.

Now, let’s compare the performance of NIFTY 10 vs NIFTY 50 on various aspects over the past 10 years:

Why Nifty 10?

The reason for adopting Nifty 10 was their healthy weightage in Nifty 50 in comparison to the other 40 stocks... Let’s have a look at the weightage on a YoY basis.

CAGR Comparison:

Now, let’s have an in-depth look at our 8 leaders which were always there in the Nifty-10 index.

Inspiration:

The inspiration behind conducting this analysis is Warren Buffett (Patience), Peter Lynch(Common Sense), and Alok Jain(Systematic Approach).

Disclaimer:

Twitter

Analyzing the Market Profile Is Easier Than You Think!

2020-07-10T19:02:00.000+05:30

Even if you don't take intraday trades, or don't have any idea about Market Profile whatsoever, being able to predict the smart money activity can be a massive benefit to your trading and investment.

It's important to understand that two herds exist in the market:

1. Smart Money and

2. Dumb Money

"Smart Money" refers to institutional investors, big sharks who have money and information power who give direction to markets. In the Market Profile world, we call them as Other Time Frame (OTF) participants.

"Dumb Money" refers to nonprofessional traders, retail traders who often want to quick money.

Market Profile helps us identify and differentiate the activities of the "smart money," and hence we can identify many profitable trade opportunities.

Introduction

Market Profile is a technical concept with a unique charting technique developed by Peter Steidlmayer when he was trading at the Chicago Board of Trade (CBOT), and it was open to the public in 1985. Market profile is a style of plotting price on the Y-axis and time on the X-axis (Generally 30 minutes is considered as one session), which most of the time form a bell-shaped image as the body of the profile.

The three essential components of the auction process are (in the same order of importance):

1. Price—it advertises all the opportunities.

2. Time—it regulates all the opportunities.

3. Volume—it measures the success or failure of all the advertised opportunities.

Market Profile gives more importance to "TIME" as compared to "VOLUME." There are many reasons for this:

· Volume is essential as 80% of the trading volume is given by 20% of the big players. However, time also plays a crucial role, because a price that is not accepted over time is the sign of rejection of that price level.

· A spike in volume can only be seen after a big move in the price. Hence, many times intraday traders and short term traders may not be able to reap the benefits.

· In intraday trading, the opportunity is inversely proportional to time. Day traders, especially options traders, should know the importance of time. Option buyers will lose the money if the price doesn't show a quick move, and similarly, the Option seller will lose significant money if the price shows a rapid movement.

· On any trading day, long -liquidation or short-covering rally generally happens due to the result of time running out for day traders, rather than a lack of volume. Very rarely, these situations are caused by a combination of both factors.

This article aims to give market profile outsiders a no-nonsense four-step in detailed explanation to understand the market profile in a better way.

Step-1 Candlestick vs. Market Profile chart

Many traders don't understand the influence of time on both the price and opportunity. An attractive opportunity to buy the below value or sell the above value will not last long as smart money will act very quickly, and their position size pushes the price very soon to the other side.

Image 1: Candlestick chart.

In a candlestick chart, Price variations are plotted in 'Y' axis against the Time 'X' axis. In this type of chart, time remains constant throughout the price variations, which means we are not using the time parameter effectively.

Assume one person wanted to travel from Delhi to Mumbai, and you are allocating 2-hours for this journey. Another person wanted to fly from Delhi to Melbourne, and again you are assigning 2-hours for this journey. It is not a wise move as Melbourne is very far as compared to Mumbai from Delhi, and definitely, the second person needs more time allocation to reach that place.

However, for the first person, 2-hour is enough to reach Mumbai from Delhi on a flight. In other words, it is sensible to allocate the time based on the distance to be covered in the journey and not just giving fixed time to all journey irrespective of the distance.

Image 2: Nifty 20-12-2018 30-min candlestick chart showing the same time allocation.

Image 2 shows a Nifty 30-minute candlestick chart for the day 20-12-2018. In the middle of the session, we have a small candle with an entire range of 10 points, and in the end, we have a big candle with a big range of 46 points. If you look at the time axis, the amount of time allocated to both these candles are the same! It gives just a 2D view on the price auction with respect to time.

In the first case, 30-minutes price auction resulted in a 10 points range, and in the second case, 30-minutes price auction resulted in 46 points. Do you think price auction with respect to time is the same in both cases? Don't you think we are missing some crucial information? Just recall Delhi to Mumbai and Delhi to Melbourne's journey example in the previous paragraphs.

Image 3 – Nifty 20-12-2018 Market Profile chart showing different time allocation.

Now look at the same day in a market profile chart in image 3, it is evident that the time has been allocated effectively based on the price variations. It gives a 3D view of the price auction with respect to time. Also, you can see the Value Area, unfair high, unfair low, and even point of control (POC).

Point of Control (POC) is the price level in which maximum time was spent (Price Profile) or maximum trading activity (Volume Profile) occurred on any day.

Value Area (VA) is the 70% price range around POC. It is the fair price of the Nifty on this particular day. VAH and VAL are the upper and lower boundaries of Value Area respectively.

The construction of a market profile chart is easy. Click here if you want to know how to construct a market profile chart.

Step-2 Edge in Market Profile

The marketplace is full of different players like long-term buyers, long-term sellers, scalpers, intraday traders, swing traders, Positional traders, etc. The combined action of these players together is the main reason behind price fluctuations.

Image 4: Market activity in a day.

Big buyers and big sellers (two entities of smart money) will execute their plans at different price levels, and they cannot trade with each other at the same price level. Other participants (most of them are retail traders) act as a bridge between these two payers by providing liquidity for both these players, as shown in the above image 4.

Let's say a script is trading at 100. Long-term buyers will have a plan to buy this script only below 50, and long-term sellers will have an intention to sell this script just above 150. If we restrict the trading activity in this script only to long-term buyers and long-term sellers (OTFs or two entities of smart money), the price will be stuck at 100 as both of them don't have plans to trade at this level.

If we allow other players such as scalpers, retail traders, swing traders etc. then they provide liquidity to the market. Their participation will take the price to either 150 or 50 depending on the combined effort of all other traders except the OTF's (smart money). If the price reaches 50, long-term buyers (OTF Buyers) will pitch in, and if the price reaches 150, long-term sellers (OTF Sellers) will pitch in to initiate their trades.

The entry of these big players can be identified through certain Market Profile concepts such as Extremes, Range Extension, TPO Count. All these concepts indicate that whether the price is getting accepted or rejected.

If you want to get success in intraday trading, then you have to stop taking trades in between the value. Besides, one can look for smart money entry patterns at the critical price levels. The next step explains this concept in detail.

Step-3 Initiative and Responsive Activities

On any trading day, it is essential to know whether smart money is acting on their initiative, or they are just responding to excellent opportunities. It can be done using current day price auction with respect to the previous day value area/range.

What is Responsive Activity?

It is a good idea to explain this concept with a real-life example first.

For a moment, assume you are an iPhone dealer, and your main job is to buy and sell iPhones. Besides, also imagine there will be enough buying opportunities and selling opportunities (as we are comparing this example with the market and there will be enough buying and selling opportunities in the markets too).

Currently, iPhone 6S is trading in the range of Rs. 25,000 – Rs.30,000 in India. This price might vary in different parts of India based on the availability and due to many other reasons. However, we consider this is the price range for iPhone 6S. It is the Value Area for iPhone 6S.

Image 5 – Responsive Activity

In normal situations, whenever the price trades at Rs 25,000 (or below), it is a good idea to buy as the price is near the lower band and you can expect price movement up to Rs 30,000, and you will get a profit of Rs.5,000 or more if you sell at (or above) Rs 30,000. It is one type of Responsive Activity, and more specifically, it can be called as Responsive Buying.

Similarly, when the price trades at Rs 30,000 (or above), it is a good idea to sell your holdings, and you can also go short. You will anticipate the fall of up to Rs 25,000, and you will make a profit of Rs.5,000 or more if you close your position at Rs 25,000 (or below). It is also another type of Responsive Activity, and more specifically, it can be called as Responsive Selling.

This situation will continue until some significant news breaks out. It can create an imbalance in the price, and those imbalanced situations lead to the Initiative activity later on.

What is Initiative Activity?

We will continue with our iPhone example, and we have to make one assumption. Imagine, suddenly, Apple has decided not to supply iPhones to India (for some reason) for next year. As a premier dealer, you got the information from a closed source, and this information is yet to come in the news.

Now, what do you think, and how do you react to this situation?

Do you think buying more iPhones even at a higher cost (to accumulate for one year) as demand will increase due to the shortage of supply, and thereby you can sell it at the time of shortage even at a higher price, right?

However, the current market price of the iPhone 6S is already at Rs 31,000. Do you still buy it at this price level?

If your answer is YES, then it is called Initiative Activity and, more specifically, Initiative Buying!

Image 6 shows the explanation for the Initiative Buying scenario.

Image 6 – Initiative Buying

Now, it's time to make one more assumption. For some reason, the central government has decided to ban the iPhone 6S!

However, the price is trading near 25,000.

What do you do at this moment?

Do you buy iPhone 6S, or do you sell at any price?

I am sure you decide to sell iPhone 6S at any available price, right?

It is another form of Initiative Activity and, more specifically, Initiative Selling!

Image 7 shows the explanation for the Initiative selling scenario.

Image 7 – Initiative selling

Step-4 Smart Money in Action!

If you can differentiate the Initiative activity and Responsive activity, then you can easily predict the plans of smart money. In most of the situations, an Initiative action is more potent as compared to Responsive Action (except at major reversals). Hence, it is good to spot Initiative Action so that traders can apply trending strategy to take the trades in the direction of Initiative activity to get the maximum benefits. Besides, they can deploy the mean reversion technique for responsive activity.

As you know, when the price opens above previous day value area or previous day range, it attracts Responsive sellers (at the moment we are not sure whether its smart money and their real intention to cause it) and price auction downwards until it draws the buyers.

Image 8 – Price open above previous day range

Image 8 shows that the price is opened above the previous day range, and this indicates that some Initiative buying has been involved in this process before the open, but we don't know their real intention.

As the price is opened above the previous day range, it immediately attracts Responsive Selling.

Now, after 15 minutes from the open, the price is still trading above previous day range, what this indicates?

It indicates that the Responsive Sellers are absent or Responsive Selling is not as powerful as Initiative Buying!

As explained earlier, the market profile gives more importance to time over volume as the price level, which is not accepted over time, will be rejected. Also, time is the most critical parameter for an intraday trader as compared to volume.

In the above case, the price opened above the previous day range, and it advertised an opportunity for responsive activity. However, the price stayed above the previous day range for 15 minutes. It indicates the absence of responsive activity or lack of strength in responsive activity. It confirmed that the initiative buyers are involved in this process to drive the prices up.

So in this case, taking a Long trade, keeping stop-loss a few points below the open or previous day high makes sense. One should carry their trades until End of Day with trial stop-loss concept as Initiative activity always gives their close at peaks.

Image 9 – Responsive Selling with open-high and open-test-drive-down

Now in a similar scenario, if the price opens above (or near) previous day high and if it shows open-high or open-test-drive-down open on a 15-minute chart, then it indicates the failure of initiative buying as the price is getting rejected. It confirms only responsive selling is the remaining option for the rest of the day. Hence, intraday traders can plan a short trade below the low of the 15-min candle, keeping a strict stop-loss above 15-min candle high or above few points above the previous day high, and they can target value area low or previous day low as the target.

The proper knowledge of the price auction around a reference point is very crucial to differentiate an initiative and responsive auction and to make successful trades. If you want to become a successful intraday trader, then you should deploy a trend following trading technique during initiative setups and mean reversion trading techniques during responsive trade setups.

Do you think you get some fundamental clarity on the market profile?

Do you still have any doubts?

If yes, please leave your comments!

Indrazith Shantharaj is Market Profile Trader and Author of two Trading books, "Trade and Grow Rich" and "Mind Markets and Money."

ABCD of Intraday Trading

2020-07-04T09:41:00.000+05:30

A few years back, when I was struggling to become a profitable intraday trader, I had an opportunity to discuss with one famous positional trader/Investor in India. During my conversation with him, he made a strong statement "In the long run, intraday trading doesn't work, and intraday traders will burn out very soon!". It was a devastating statement for me as I wanted to become a successful intraday trader.

That time, I didn't dare to debate with him, and today I don't want to argue with anyone on any topic related to trading because I believe the below quote:

Don't suggest anything unless a person asked for it, and he is open-minded.

Because he will not value your suggestion if he is not asked for it, and your advice will not reach his mind if he is not open to it.

However, I am happy to share my thought process. In this article, I will answer two most frequently asked questions on intraday trading. They are:

1. Is Intraday Trading is Profitable?

2. Which Financial Instrument is the Best for Intraday Trading?

Is Intraday Trading Profitable?

A good question!

Before I answer this question, let me ask you a question.

Do you know how to fly an airplane?

Yes? No?

In either case, how do you feel if anyone asks you this question - "Whether airplane works?"

Do you think they are mad?

Irrespective of whether a person knows to fly an airplane or not, the value of the aircraft will not change, isn't it?

If a person doesn't know how to fly an airplane, then he should say, "I don't know how to fly an airplane,"

Do you agree with me?

Now, we will come back to the main question.

Do you still ask, "Is Intraday Trading is Profitable?"

I hope you got the point!

If a person doesn't know how to make money in intraday trading, then he should say, "I don't know how to take profitable intraday trades."

Right?

In that case, at least there is a small chance to become a successful intraday trader as it opens up your mind for tremendous learning opportunities in the world of intraday trading!

Besides, there is nothing about intraday trading profitable or not. It is only a type of trading in which you have to close the trade on the same day. If you are right, you make money, and if you are wrong, you lose money. That's all!

Few tips on Day Trading

One should have an open mindset to learn day trading, understand the associated risks & benefits associated with it, and should practice it consciously to get success in day trading.

- CLARITY is the key – Day trading is all about opting and closing the trade on the same day. When you get into a lower timeframe, the risk always increases, so is the reward. You may play safe with positional trading or swing trading. Still, quick money can only be made with intraday trading (only if you are at the right side of the market).

- Importance of FOCUS –One should develop the skills demanded by intraday trading and has to wait for better trade opportunities. Many times we get better trade opportunities like Trend days, which provides excellent risk-reward trades. In stock markets, always expect the unexpected and be ready for the reversal anytime.

- Importance of TRADING SYSTEM – Many traders quarrels with their trading system, and only a successful trader has the right trading tools. With time, he develops the skill to understand how to use those tools practically. You can use any indicator or concept, be it Market Profile, Order Flow, RSI, or Moving Averages. But you should know the effective utilization of those concepts, and they should match your temperament.

- TIME Stop-loss–Many traders say 'Never trade without a stop-loss,' but they refer to price stop-loss, which means they will be in the trade until the price hits their stop-loss level or their target level. However, in intraday trading, just price stop-loss is not sufficient (especially if you are trading in 'Options'). One should know how to exit early even if the price doesn't take your stop-loss to prevent time decay loss in options (I will explain the importance of "TIME" in intraday trading in my next article).

- Importance of BREAK – World famous trader Jessy Livermore said, "There is time to go long, time to go short and time to go fishing." You should know when to take that break from trading. It may be because of market conditions or if you have any issues with your mindset. Do understand fools trade day in and day out to create opportunities for patient traders to trade when the opportunity unfolds.

- Importance of LEVERAGE – Most intraday traders have risk management strategies. However, they fail to apply this in the live market. At many times they ignore it and take a more substantial trade than they usually do. There are many reasons to this – you want to do revenge trading, you might have several losing trades in a row, you don't want to miss an opportunity, or you feel so confident that you can't lose, etc. Successful traders never commit this mistake. So, one should know when to use leverage effectively. Leverage is a two-edged sword. It will increase your profits if you are on the right trade and also your losses if you are on the wrong one.

Major Learnings

Our belief system and mindset have to be correct to make money in day trading.
Accepting I don't know how to take profitable day trades instead of saying "day trading doesn't work or day is not profitable" will open the doors for learning and earning.
Day trading offers many advantages as compared to other types of trading.

Which financial instrument is the best for day trading?

We have below three trading instruments in the stock market:

1. Equity

2. Futures

3. Options

So, a trader should know how these trading instruments work before they plan to take any intraday trade.

Now assume a new trader has Rs. 2,00,000 in his trading account, and he wants to make a trade with APOLLO HOSPITALS as on 20/06/2020 (CMP 1370).

Case-1 With Equity:

The current Market Price of APOLLO HOSPITALS is 1370.

So, the total shares he can buy is 146 (approx) with a capital of Rs. 2,00,000.

Now we will try to understand both the 'Profit' and 'Loss' from this trade.

Profit - Assume, on the next trading day, this script moved 10% on the upside. In this case, he will make a profit of Rs. 20,000, and his current portfolio value is Rs. 2,20,000.

Loss - Assume, on the next trading day, this script moved 10% on the downside. In this case, he will make a loss of Rs. 20,000, and his current portfolio value is Rs. 1,80,000.

Case-2 With Futures:

The current Market Price of APOLLO HOSPITALS is 1370.

Image - Margin requirements information (as on 20/06/2020)

So, with a capital of Rs. 2,00,000, he can buy 1 lot (500 quantity) (Ignoring extra 121 Rs)

(This info can be found in F&O Margin calculator from most of the broker sites)

Now we will try to understand both the 'Profit' and 'Loss' from this trade.

Profit - Assume, on the next trading day, this script moved 10% on the upside.

10% of 1370 (CMP) is 137.

Total Profit = 1 lot (500 quantity) X 137 = Rs. 68,500

In this case, his current portfolio value is Rs. 2,68,500.

Loss - Assume, on the next trading day, this script moved 10% on the downside.

10% of 1370 (CMP) is 137.

Total Loss = 1 lot (500 quantity) X 137 = Rs. 68,500

In this case, his current portfolio value is Rs. 1,31,500.

Case-3 With Options:

We have two types of Options:

- Call Option (CE) - A call option is a type of options which gives the call owner the right, but not the obligation to buy a security at a specified strike price within a specified time frame. In simple words, the premium of the CE will go up if the underlying script price goes up (assuming all the other factors constant).

- Put Option (PE) – A Put option gives the option holder the right to sell an underlying security at a specific strike price within the expiration date. In simple words, the premium of the PE will go up if the underlying script price goes down (assuming all the other factors constant).

Further Options Trading can be divided into two types:

- Options Buying (either CE or PE)

- Options Selling (either CE or PE)

Option Selling demands enormous capital, and hence only institutional traders or big traders deploy this type of trading.

To keep the article simple, I am explaining the Options trading only from buying perspective.

The current Market Price of APOLLO HOSPITALS is 1370.

One should look at the option chain for the nearest strike price on the NSE India website or with your broker terminal to get the LTP.

Image - APOLLO HOSPITALS Option chain CE/PE info at 1380 strike price (as on 20/06/2020) (from NSE INDIA website)

So, with a capital of Rs. 2,00,000, he can buy 4166 (LTP of both CE and PE is 48) quantity (ignoring Lot size at the moment)

Now we will try to understand both the 'Profit' and 'Loss' from this trade.

Profit - Assume, on the next trading day, this script moved 10% on the upside.

Option LTP approximately increase by 75% of the change in the underlying price (Implied Volatility is also around 70–75% for this script).

10% of 1370 (CMP) is 137 (change in the underlying instrument), and 75% of 137 is 102.75.

So, Total Profit = 4166 quantity X 102.75 = Rs. 4,28,056

In this case, his current portfolio value is Rs. 6,28,056

Loss - Assume, on the next trading day, this script moved 10% on the downside.

In this case, the LTP of 1380 CE will become zero.

Hence, this trader will lose his entire capital.

Summary:

Image - Capital size after the execution in Equity, Futures, and Options (Initial Capital – Rs. 2,00,000)

The above image is self-explanatory.

Most retail traders try their luck in options to make quick money. However, my sincere caution to all the retail traders is to master their trading skills before trying anything in options. The above explanation is only a theoretical assumption, and in the live market options, LTP may change due to other factors (like time for expiry, volatility, etc).

Image - Thumb rule of risk-reward in 3 trading instruments

Both Risk & Reward is less with Equities.

Both Risk & Reward is medium with Futures.

Both Risk & Reward is high with Options.

About Me

Indrazith Shantharaj is Market Profile Trader and Author of two Trading books, "Trade and Grow Rich" and "Mind Markets and Money."

This Is Why We Get Addicted to Over Trading !

2020-07-01T18:57:00.000+05:30

I was reading a great book on trading psychology by Mark Douglas named " Trading In the Zone "

He has explained this concept beautifully in it so i thought that it would be a great to share a summary of it with all of you guys. Will try to keep it as simple and short as possible.

So an experiment was done with 3 Monkeys. A task was given to all the monkeys and then their behavior was observed depending upon the reward that they got after completing the task.

In the first case, the monkey was instructed to do the task and when he completed it, a Banana was given to him. Every time he completed the task, he was rewarded with a banana. So, what happened was, he kept on doing the task until he got exhausted and could no longer do the task. He was quite happy as he collected good number of bananas with him and now he could enjoy his reward.

In the second case, the monkey was instructed to the task, but he was not given any reward. The monkey still did the task, but when he saw that he was not getting anything in return, he just stopped doing it after some time. The instructors tried a lot to guide him so that he could do the task, they even tried to make him do the task forcefully, but he just did not do it as there was no reward included. It could be observed that the monkey was really sad that he did not got any reward and he felt no excitement to do the task and just sat down in a corner.

In the third case, the monkey was given the reward " randomly " that is , he was instructed to do the task, but he was given reward only on some random occasions. He got the reward on the 1st attempt, then on the 3rd, then on the 7th, then 12th and so on. So, since he didn't knew that when he will get the reward, he kept on doing the task endlessly. He kept doing it because he was not sure when he would get the reward, but he was sure that he will get it " sometime " or " someday " in our case.

He kept on performing the task just like the 1st monkey even though he did not got the reward every time like him.

What i want to prove through this example is, that in our trading career, there always is a chance that we get some huge profit very early on in our trading career. That huge profit will keep us hooked to over trading as we won't know when the huge profit will come again.

We would basically keep on doing over trading till we exhaust our capital. We can avoid this by trading with a proper and well written plan and prepare a checklist of our own. We should enter into a trade and exit it only if all the points of the checklist are fulfilled.

The checklist could be short and simple too, Like buying a stock only when the MACD turns positive in daily time frame and exiting when it turns negative, but a checklist and plan is a must.

I hope the message behind this example is clear. Happy Trading :)

Also read : Why do Losing Traders keep Losing

Basics of Breakout Trading

2020-06-17T20:54:00.002+05:30

I fear not the man who has practiced 10,000 kicks once, but I fear the man who has practiced one kick 10,000 times. Bruce Lee

I feel this is also true for trading, as for a successful trader you needs only one setup or strategy. The set-up you choose or design for trading is quite critical for your success as sometime setup doesn’t gives you enough trade signal or some doesn’t have good risk reward or too difficult to trade and understand. To overcome all this one good and clean strategy is Breakout trading. Breakout trading is quite simple and you can trade in all market with minimal amount of risk and good profit potential.

Nicholas Darvas, was trading legend, the author of “How I Made $2,000,000 in the Stock Market”, says: “My only sound reason for buying a stock is that it is rising in price. If that is happening, no other reason is required. If that is not happening, no other reason is worth considering.”

In simple words breakout trading is nothing special but an attempt to enter the market when the price moves outside a defined price range (support or resistance). However, a genuine breakout needs to be accompanied by increased volume. You can’t make good money in trading while market is sideways.

In order to understand breakout trading, it is important to remember two types of breakouts. Most common identified two types of breakout trading setups are:

· Support and Resistance breakouts

https://www.investopedia.com/trading/support-and-resistance-basics/

· Swing high and Swing Low breakouts

https://www.investopedia.com/terms/s/swinghigh.asp

https://www.investopedia.com/terms/s/swinglow.asp

Breakout trading is under rated now a days because there are so many fancy looking strategy available in the market. Many popular writers says ‘’ wait for pullback ‘’ or ‘’ most breakout fails in first attempt’’. The problem is that many strong moves doesn’t gives pullback or they are so late that risk reward doesn’t looks in favour in that point.

So the most important skill required for breakout trader is ‘’understanding the market phase’’. This refers to being able to recognize whether the market is trending or not. Most of retail new young trader will say that ‘’ I know that ‘’ but still they lose money consistently and will go away from market eventually. It’s because they don’t have well defined method for determining market phase and if few does they don’t stick to plan (Sometime I also lose trade because of this). Let’s consider the following chart

Please click on the charts to view them in full resolution.

In this chart price was consolidating within box 1 and above MA channel but once price broke below box and channel it was moving down swiftly with few more short entry opportunity when it reaches near MA channel. Similar after down move from Box 1 some consolidation in Box 2 and fresh break down.

Box 3 tested its support and resistance multiple times then breaks upside and price was above MA channel and we got good upside. Box 4 is also gave handsome amount of profit. Next chart is continuation of above.

Here we may use 20 MA High Low channel for trailing SL purpose. If it closes above or below of channel in opposite direction, we will close the position and wait for new trade as showing in above picture. In this case you might have more no of trade but limit your risk.

Note: In all the trades there was no pullback so as a trader there is nothing more frustrating than waiting for trade and miss the opportunity. Although in the following Nifty-50 chart all trades have pullback

How to trade this whole setup

Entry: We enter in trade once it gives a strong close outside of a price rectangle. Most important point to look out for this trade is the characteristic of the candle. Candle must have a strong close and volume should be more than average.

In the following chart of Asian Paint we can see that once it breaks the channel with nice candle and volume it keep moving higher.

The greatest of breakout trading is that you get in start of trend at great price and hold the trade for large profit.

Stop Loss: Sometimes, the market gives breakout or penetrate a few ticks and enter back into range. So, it’s always compulsory to have a stop loss in system. Stop loss may depends on person risk but a 10-15% inside the range could be a good stop loss so you not shaken out and also get taken out when trend failed.

Profit Booking: The most difficult problem after putting SL in trading is: where do we take profit..?

Good breakout usually have quite big move and most of the time trader can’t even imagine or anticipate. So one option is if you have more than 1 quantity book some at double of your risk. Example if you have SL of 15 points book partial once your trade in profit of 30 points. Consider the same Asian Paint 5 min chart we may not expected such move while in HUL SL got hit twice first long then short.

This is also good strategy for investment following examples

How to improve success rate for this setup: It is quite common saying for trading that follow the trend for good profit. In other words, look at the market you are trading on a higher timeframe. If you trade 5 minutes, look at a day chart. If you trade 30 minute charts, look at a daily & week chart.

We combine this with the strategies discussed in the pdf ‘’ Summary of Candlesticks, Fibonacci, and Chart Pattern Trading Tools A Synergistic Strategy to Enhance Profits and Reduce Risk (Wiley Trading) by Robert Fischer, Jens Fischer ’’ we can get more better results as then we are combining multiple signal for same trade.

What to avoid in Breakout trading: There are few special point that you need to avoid if you are breakout trader

· Choose setup properly with favourable risk reward

· Mismanage the position once you entered in trade

SOME FINAL REMARKS

To have absolute return in a portfolio, the trading concept must implement some basic ideas:

· A systematic trading approach tested on historical data either with a computer or by hand.

· Five to ten products in a portfolio, analysed by the same approach (a few products less might be sufficient on intraday portfolios).

· Long and short signals allowed.

· Stop-loss protection, profit targets, and/or trailing stops on every position.

No matter how good a trading approach is, a trader who does not know how to execute it will never be successful. Some factors that can lead to bad decisions in trading even though they have nothing to do with the trading strategy itself:

· Put your ego aside.

· Hoping and praying do not help.

· Living with losses must be learned.

· Never double your losses.

· Know your pain level.

· Diversify risk.

· Making money with trading is hard work.

· Recognize the importance of a trading plan.

· Nothing is more important than discipline.

I am sorry if its unorganised, typos or not good to read. For your valuable comment please feel free to write me on twitter (@bishwesvar).

( This is a guest post by Bishwesvar Pratap Singh )

Suggestions are welcome for future work & motivation

Lessons That Bear Market 2020 Taught Me

2020-06-11T20:44:00.001+05:30

( This is a Guest Post by my friend - Shabbir Hussain )

I am a novice in the market, so I want to share you some of my learnings to you.

I lost all the money that I had made in the previous Bull Run, but due to god’s mercy my capital was protected. I never used to put stops, just rode the run without calculating any risk.

And for every one of you who are reading this “even a fool can learn from his own mistakes but a wise will even learn from others mistakes”.

I learned the following things in this market

1) Position sizing

a. Never take more than 1% risk or allocate only 5% of capital in a stock.

b. It saves you from most of the uncertainties.

c. You can always have a peaceful sleep as your risk is defined

d. You won’t have an urge to book profits or losses early

2) No matter how the market is always have some cash on hand.

3) Always cut the losses mercilessly (cutting short losses are better than bearing big losses which corrode your capital).

4) Capital protection is most important in capital market.

5) Set alerts and sit back, avoid making more and more decisions.

6) Momentum to momentum will never lead to wealth, retracements are a part of the game.

7) Avoid ego, anger, greed and fear.

8) Be a trend follower

9) See P&L at the last date of the month only

10) Have trust on god, and don’t expect more, if you do this then if you are in loss you won’t regret more and if you are in profits you will be more happy and grateful.

11) And at last, always book out some profits timely and enjoy the money.

Though my profits are gone but these lessons are far more valuable than the cost I paid, I am too grateful for that..

Chat with Super Traders – Steve Burns

2020-06-05T00:17:00.001+05:30

Q: You started investing in 1993, can you walk us through your journey?

A: I started as an investor in tech mutual funds in 1993 and my focus was on being long the tech sector and growth stocks as I thought that is where the capital gains would be. I was right and had beginners’ luck and did very well compounding capital up until March 2000 when that stopped working. I began actively trading after that and learned the valuable lesson about having an exit strategy to lock in profits and risk management.

I began developing strategies to trade trends and had another great run up compounding capital and locked in my 2003-2007 profits in January of 2008 and was even positive in 2008.

From 2009-2020 I focused on developing quantified trading signals to create big wins and small losses and continued to trade my system and grow my capital.

I enjoyed the game of learning to trade the stock market and my trading lead to my financial independence.

Q: – What is your Trading Style and how has it evolved over the years ? Have you made any changes to it or is it the same which you started with ?

A: It has been a continual evolution of me as a trader and my trading system. I was more aggressive and took on more risk when I was younger, and my accounts were smaller but needed less risk to achieve the same dollar returns in later years. I have focused more on keeping what I have than trying to press bigger risks for big returns.

I have gone from a tech sector investor, to a trend trader, I tried and disliked day trading, I traded options, and now really enjoy swing trading in recent years.

Q: You are author of some best selling books ( My favourite is “ New Trader Rich Trader” ). What inspired you to write these books and which one is your personal favourite ?

A: I wanted to create the trading book I wish I had when I started that would short cut the learning curve for other new traders. It was a book I felt I just had to write and release. That is one of my favorite books ever to write. I also really enjoyed writing my newest book ‘The Working Dead’ and have received great feedback on it as well.

Q: Can you tell us a bit about your latest book “The Working Dead”?

A: The ‘The Working Dead’ is a manifesto that tries to open the eyes of employees and show them how to create wealth for their self. It is a step by step starter guide on escaping the cycle of consumer debt and being trapped in the corporate grind of working a job you dislike making someone else rich with no other options.

Q: In this book, you have talked about “ Low stress finances and financial freedom “ , Can you briefly explain what do you mean by these and why are these topics important for everyone ?

A: Low stress finances are where you do not have to worry about having the money to pay your bills every month. You have removed financial stress from your life through having plenty of capital on hand and cash flowing assets and your bills and debt are minimal. You may not have enough money to do nothing for the rest of your life but you have enough to choose to do only what you want to do.

Financial freedom is when you have enough money to do whatever you want to do. You control the allocation of your own time and energy. You have the freedom to only work on things you love to do.

Q: Can you give some tips to New Traders ? what should they focus on in the early stages of their trading career ?

A: A new trader should never put real money at risk until they have a quantified trading system with an edge that fits their own risk tolerance and return goals. Then they must trade it with discipline and the right risk management consistently over a long period of time if they want a chance to make money.

Random trades, opinions, predictions, big position sizing, emotions, and ego lead eventually to financial and mental ruin.

Q: What is your daily routine like ? How often do you monitor your portfolio ?

A: I use end of day signals so my work in trading is done in backtesting, system creation, and the last 30 minutes of the trading day.

I look at the futures at night just out of curiosity to see what they are doing.

I look at my positions in the pre-market in the morning to ensure nothing dramatic has happened to trigger one of my rare emergencies stops.

I look at my positions in the last 30 minutes of stock market trading to see if any of my stop losses or trailing stops are triggered. I also look at my full watchlist to see if any new entry signals are triggered to buy a new position.

I only go in my brokerage accounts to make trades I usually only look at my trading P&L when it is near all-time highs, there is a huge market gap up, and at the end of the month.

I monitor all time highs in stocks, 52-week highs, and the Investor’s Business Daily Big Cap 20 for new stock ideas to backtest and put on my watchlist.

Multi - Time Frame Analysis | L&T Finance Holdings | 14th May 2020 |

2020-05-13T21:38:00.001+05:30

Hello friends, i was just scanning through some charts and i found this one. I thought that it could be a good one to show you how to do Multi Time Frame Analysis.

In this , we will basically go through all the major time frame charts, that are - Monthly, Weekly and Daily. We will notice at important levels in all these charts and finally try to take a deicision based on daily chart.

Please note that this is only for educational purpose and i am not recommending this to anyone.

Please click on charts to zoom them.

So, let's start with the Monthly Chart first.

In this, you can notice that the 50 levels are acting as a long term support as earlier also it has taken support from the same level. When a stock retests the same support and makes a bullish candle over there, it is basically a good sign and the chances of that level being respected increases. It would be even better if we cross last month's high.

Next we will look at the Weekly Chart.

Over here, we can see that it is also moving in this range and whenever it touched the support , it bounced and moved towards the upper trend line, or the resistance area as marked in the chart.

Now we will go to the Daily Chart.

In the Daily Chart, we can see that it is moving in a triangle and the triangle is converging to a very narrow point and a breakout above this range can result into a good breakout.

The next levels are also marked in the chart as 80 and 90-95 levels. Please note that we have to wait for the breakout to enter the trade.

Disclaimer : This post is just for educational purpose and not a recommendation to buy or sell.

Charts are used from Chartink website.

I have even made a video about multi time frame analysis. You can check that here : Multi - Time Frame Analysis of Manappuram

Why Do Losing Traders Keep Losing?

2020-04-30T13:26:00.002+05:30

Have you ever wondered that there are hundreds or maybe thousands of traders who have never been profitable but they still keep trading? They just don’t admit that there is something wrong in their approach and they should be working on improving that instead. It has actually got a lot to do with our brain, the way it is wired.

There was an experiment done, in which a monkey was given a reward whenever it performed a given task. Since the monkey was getting the reward every single time, it kept doing it.

In another case, the monkey stopped getting the reward, so it stopped doing the task completely because it knew that there was no reward involved now.

In another experiment, a monkey was given a reward on some random occasions. Do you know what happened??

They monkey still kept doing the task because it did not knew when he will get the reward and when he won’t… so he kept at it and did not stopped.

When we as traders, get a big financial reward, our brain releases a hormone, known as the "Dopamine" .This is a feel good hormone and our brain literally craves for it. It is the same hormone which is released when we eat sugar, consume drugs or even gamble.

Since each and every trader at some point of time, would have got a huge profit. That huge profit and the dopamine released from it, has triggered your brain to crave for more as it felt very nice the first time it happened. To feel that same emotion again, traders tend to keep trading endlessly and mostly without a plan. They are so much glued to that same feeling that they want to experience it by hook or by crook.

That’s the reason traders blow up their capital but still keep trading, even by borrowing money from friends or financial institutions. This could be very dangerous from the financial as well as the emotional aspect since we are always expecting the same result, when we don’t get it, not only are we deprived financially, we are even exhausted emotionally. A series of losses often leads to depression and traders quit their trading careers before they see any meaningful gains out of it.

It is always advisable to have a rational expectation from the markets and trade only according to the plan and not to focus on the result. When we shift our focus from the result to the plan, we tend to keep our emotions in control. This is easier said than done and needs a lot of practice and discipline but once we master it, we will see a significant improvement in our results and would feel much more relaxed.

Also Read : How to Trade Like Nicolas Darvas

Must Watch Stock Market Movies !

2020-04-20T18:29:00.001+05:30

Since most of us are free these days in our homes due to Lock down, it's always a good idea to watch something which is relevant to our field of interest and provides entertainment along with it.
Presenting a list of must watch movies related to stock market and finance.

1. Bazaar

This is Bollywood's latest take on stock market. It's a good movie overall and is about a small time stock market trader who is all excited to go to Mumbai and join one of the leading stock brokers of India , under the guidance of his role model. He has no clue that his life is going to be a roller coaster ride from there on.

2. Gafla

This is a comparatively old movie and i really didn't liked it's editing and direction., but it's a good one time watch. It's a story about a middle class man who tries his hand of stock market and eventually ends up into a huge scam.

3. Wolf of Wall Street

This is no doubt one of the best movies on Stock Market. Leonardo's acting is amazing in this one !
It is about the journey of a stock broker who made it big with his aggressive and persuasive nature but get's carried away with the wealth and lands himself into trouble.

4. The Big Short

This is another great movie which is made just like a thriller and explains the 2008 stock market crash. We can also learn about the complex concpets of credit default swaps in it and how the housing bubble created a ripple all around the globe !

5. Money Monster

This is a not so popular one but is a great watch ! George Clooney and Julia Roberts played their roles really well. It is about a common man who lost all his life savings by following a news reporter. The movie is about how he decides to take revenge from the TV host and finds about the dirty side of financial markets.

6. Boiler Room

This one Released in the year 2000 and is all about how companies pump and dump stocks for their own greed and what all goes behind the curtains. This movie is a work of fiction but these kinds of firms do exist and it really impacts the lives of the victims who fall prey to these kids of companies.

Also Read : 4 Biggest Intra Day Trading Mistakes And How To Avoid Them

Add your favorites in the comments section below :-

Multi - Time Frame Analysis ( With Example - Today's Sun Pharma Trade )

2020-04-15T18:33:00.000+05:30

Multi - Time Frame Analysis is a great and simple way to execute trades. It ensures that we look at the overall picture before taking a trade just to be double assured for the trend and to properly locate support and resistances. In Multi - Time Frame analysis, we have to follow a top down approach , which basically means that we have to look at the larger time frames, then the next one ( smaller ) and then finally the one in which we have to take our final decision.

It is important to look at bigger time frames because sometimes what might look like a support to us in a smaller time frame, could be a resistance in a bigger one.

I traded Sun Pharma today (Bought puts for intraday ), so i thought it would be better if i explained it to you with the help of this example.

This is the trade that i took.

I bought 450 strike price puts at 23.8 and sold it at 28.3. Will try to explain with the help of the following charts -

The first one is Weekly Chart.

Here you can see that i was looking at this resistance line and wanted to see how the price reacts at this level. As it was an important resistance zone and it had rejected the price earlier also from the same levels.

If we look at the Daily Chart now -

In Daily chart, we can see that it tried to give a breakout above yesterdays high but did not and even came below yesterday's high. It came down with momentum and along with more than average volume. It was a sign that the weekly resistance was actually acting stiffly and so i decided to look at the hourly chart for further clarification.

This is the Hourly Chart now -

In Hourly chart, you can see that in the candle marked as 1- an indecision candle started to form at the top which sounded some bells that this could be giving an exhaustion sign.

In the candle marked as 2 - We saw a candle with a higher wick, which showed that there was definitely supply coming at this zone.

In the zone marked as 3 - There was a Bearish Engulfing candle and finally in candle 4 -it broke the previous candle low too. It was a decent sign to go short or buy puts at this point of time.

The Reason Why i DID NOT carry this trade for tomorrow -

However, the daily candle which formed today is looking bearish, but i decided not to carry this trade for tomorrow as it bounced back from the support zone ( last 2 day's low ) ( Check Chart Above ). It merely touched the same zone and bounced back today, so i decided that it's better to short again when i get a confirmation close.

I hope this article helped you in understanding the logic behind the trade and how you can use the same strategy to take these kinds of trades.

Disclaimer - This is an example and for education purpose only and not to be treated as a Buy or Sell signal.

Charts are used from Chartink website.

More Articles :-

How To Start Trading In Stock Market : 6 Steps for Beginners

4 Biggest Intra Day Trading Mistakes and How To Avoid Them

4 Biggest Intra Day Trading Mistakes and How to Avoid Them

2020-04-07T20:57:00.000+05:30

Intra Day Trading is not for everyone mainly because of the reason that requires very quick and rational thinking and we can’t just think emotionally during trading. The process of getting in and out of a trade is very short and because we are trading just for a few points, we need to trade with a sizeable position so as to make a difference to our trading account. There are a lot of mistakes that intraday traders make but I will list some of the biggest mistakes which I feel that most of us make or have made in some point of our trading career.

1. Trading throughout the day :- We all must have made this mistake or are still making it in which we think that we need to trade all day long and we need to capture each and every move that we see in front of us. This is a really big problem because we are generally watching smaller time frames when we trade intraday, so we may find some buy or short signals on almost all of the watchlist stocks.

Solution - We should keep a filter of how many trades we have to take in a day, If we don’t keep a filter or rule which limits our trades in a day, we might end up sitting all day long and just randomly keep trading only to make the broker rich. In these cases, we will notice that the profit that we might have made in the first trade is given back to the markets along with some of our capital.

2. Jumping on the Trade at the market open :- This is one of the most common mistake which I always used to do. I usually used to sit in front of the system at 7 AM and used to watch all the world markets, Sgx Nifty , Currencies, and what not. What happened was that when the market finally opened, I was so charged up by all the over analysis that I usually couldn’t resist myself to take a trade at the very first minute. Sometimes I didn’t even waited for a 5 min candle to close.

Solution – It is always better to wait for at least first 15-30 minutes to let markets “settle” and trade only when the morning fizz is settled down. I have noticed that most of the trades which have good risk reward, generally come up after 1^st hour and then around 2 hours before the market closes.

3. Chatting with other Traders During market hours :- This might look like normal to most of us, but this is seriously a big problem. When we are confident on our studies and we have analysed everything that we can, we should just sit back and execute our trade. If we start chatting with our trader friends and start taking their opinion about our trade, we will be bound to be influenced by their view of our trade. Trading should be noise- free and for a technical analyst , only chart is

his/her best friend.

Solution – It’s ok to chat with your trader friends and discuss trades AFTER the market closes and not during the market hours. You will feel trading to be very peaceful when you will trade alone without any external distraction and would be able to execute your trades better.

4. Trade According to the plan :- Most of us end up taking random trades because we get over whelmed by all the flickering red and green ticks in front of us and we feel that if we don’t take
the trade every single day, we might lose some great opportunity. Trading without a plan is just like gambling in which we are just lured by all the money making possibilities in front of us and we
just get into the “hope” category with every trade that we make. This is a very risky way of trading and we might end up blowing our trading accounts like this.

Solution – Always have a checklist and follow it religiously. A checklist could simply be in a

simple hand written format which lays out the criteria which is to be met before taking any trade. It could be made up with your best strategy combined with risk to reward and position sizing factors.

These were some of the mistakes that we all have done at some point of our trading career. There

are many more mistakes that we do which i will cover in some other article in the future. Thanks for reading and Happy Trading !

Read : Do You Have a Pro Trader's Mindset ?

How to Trade like Nicolas Darvas

2020-03-09T20:41:00.006+05:30

A few weeks ago, I came across a book named “How I made $ 2 million in the Stock Market “. At first I was skeptical of buying it as I thought it would talk about get rich quick thing or maybe the author would only be talking about how great he was so that he made this fortune in such a short span of time. But I am glad I ordered the book and I was hooked as soon as I started reading it!

Read : Best Stock Market Books For Trader and Investors

Nicolas Darvas was extremely famous in the Stock Market realm not only because of the fact that he made $ 2 Million in the stock market, but because of the way in which he made it. He had no prior knowledge of the market and was a professional dancer and continued to pursue his dancing profession and he used to tour the world for the same even when he was carrying leveraged open stock positions. As any other trader, he also went through a lot of ups and downs and lost a lot of money initially and even thought of quitting the markets.

He also, like most of us, started trading with a gambler’s mindset and tried to make quick money and got attached to his trades. It resulted in him holding on to his losses for longer and quickly booking out his profits. He was affected by all the news flow and quickly jumped in and out of trades and bought shares by following the tips of his broker and friends. He even tried to sit in the broker’s office and traded from there only to realize later that whenever he was close to the action, he lost the most.

He was thankful that his career made him tour the world and he eventually traded just by following the prices at the end of the day which he got via the telegrams that he had instructed his broker to keep sending to whichever part of the planet he would be. He was essentially following the “eod” or the end of day trading technique, in which traders usually ignore all the noise that goes on during the market hours and look at only the closing price at the end of the day and trade accordingly.

What basically propelled his success was his findings that the strong stocks kept rising and the weaker ones kept falling and he just had to keep riding the rising stocks and book his profits only by trailing the stop loss. He was no longer interested in buying for 2-3% profits and wanted to ride the trend till it lasted. His way of buying the momentum stocks, gave birth to the famous Box Theory which is still widely used by traders all over the globe.

Let me try to explain the theory with the help of a few Indian stocks.

This is Daily chart of Icici Securities. As you can observe, stocks move as if they are climbing stairs. Nicolas used to monitor the closing prices and used to make a box which consisted of the highs and lows of that range or box.
Whenever the price used to leave a particular box and moved to a higher box, he used to buy it or even added position if was already holding it. He kept buying whenever the stock moved to a higher box. This simple technique made him win big when he was winning and he lost little when he was thrown out of a stock, that is, when the low of the box was broken.

This is Daily chart of Abbott India. It also gave a lot of opportunities to add position in it and is still continuing to move in boxes. This is a sign of a good stock as it is not closing below the low of the current box or range.

I hope this article gave you an idea of how Nicolas Darvas traded and maybe you can try to implement this simple strategy into your own trading.

Do you have a Pro-Trader’s Mindset?

2020-03-09T11:55:00.000+05:30

Well anybody can learn about the Technical part of trading and it is sad to observe that most of the new traders or even experienced ones keep focusing on this part of the equation only. I know that understanding the technical part is of utmost importance as they are the basics of chart reading and everybody should be well acquainted with them before setting their foot into the journey of successful trading, but a trader’s mindset should be given much more importance as that decides how a trader would perform and manage the trades and rather, more importantly, himself or herself.

We can learn about technical aspects of trading by following the traditional approach that we use to learn anything else in this world, that is, by reading books or by taking guidance from teachers/mentors. What is really difficult is to learn the mindset as we are not aware how to do it and we were never taught about it in our school or colleges.

People can learn about the mindset by following some tips and tricks but it will still take a lot of time and experience before one can even think about mastering the mind. It’s not an easy game and there is no substitute for it. The journey is a very long and laborious one but that’s what trading is all about. It’s about enjoying the journey and most of the successful traders are really passionate and enjoy this journey of trading and they have realized that money is a byproduct of good trading.

Some points which I would like to share are as follows:-

1. It’s a probability game – Trading is a game of probabilities and I have often said that “whenever we make a loss, we should not take it to our heart and if we make a profit, we should not take it our mind!” Both these situations will have a negative impact on our minds and we are bound to take irrational decision going forward.

We all know that we should not trade with ego but at the same time, if we make a loss, we should not feel bad or punish ourselves or doubt our abilities. The purpose should be to keep making good trades and not to think much about the monetary reward.

2. Don’t get attached to a trade – I know it is easier said than done but I have realized that we generally get attached to a trade because we tend to build up a lot of excitement once we find a trade and we just can’t wait to take that trade with full expectations. When that trade moves in the opposite direction, we get disheartened and start to feel about that trade and even about ourselves as traders.

We have to remember that the trade that the trade that we are taking is just 1 of the next 1000 trades which we are going to take and we should not get so much emotionally attached to it that we end up losing our sleep if it doesn’t goes according to the plan. By minimizing the importance of that one particular trade, we can really trade with ease and would be in a better situation to take sound decisions.

3. Write down the plan before taking the trade – This may look like a very common thing to do but most of us skip this part. It is very essential to write down our plan before taking the trade as once we have a plan written on paper, with well-defined entry, exit, position size and reason for the entry and most importantly, exit, we literally transfer our anxiety out of our brains to a well-structured plan. The next step is to just sit back and just execute our plan. I have observed that a written plan takes care of most of the fretfulness that we may develop once we are in the trade.

4. Information overload – Earlier there was very less information available and people always used to hunt for any piece of information that they could lay their hands on regarding to the company in which they have invested or regarding the stock price which of that particular company. People used to get the stock prices by going to the broker’s office or in the newspapers. Most of the traders didn’t had the privilege to real time prices. These days, on the other hand, as the information is abundantly available, we are actually confused to decide that what is important and what is not. We tend to be overwhelmed with the information flow out there and it eventually makes us feel really confused and can very easily deviate us from our own plan.

These days with all the business channels running 24 X 7 and giving away free stock recommendations and traders and analysts giving their views on social media, it is actually very difficult to remain sane. A few steps that I have taken and I have seen many of my trader friends also practice, is that we don’t look at business channels at all and we don’t log into social media during the market hours. Most of the people that I follow are my friends and don’t give away stock suggestions. This helps me to focus only on my study irrespective of what the world out there is doing. This is very important as we can easily say that we don’t get carried away with other’s opinions but even if someone’s contrary view about our trade is in back of our mind, we will get worried if that particular stock starts moving against us. We might start thinking like “what if that guys knows much more than me??” “Did I really take a good decision by entering into this trade?”

These were some of the points which I wanted to discuss. If you have any more points that we should discuss and help each other, please feel free to share them in the comments section below. Thank you and Happy Trading !

Your First Investments

2020-02-29T02:04:00.001+05:30

We are fairly new into the year and soon it will be time that many of you readers will be fresh out of college and will start with new jobs. Some of you might even have been working for a while now. Better sooner than later to decide upon an investment regime which helps you build wealth in the long term, provides mental peace in the short term with some degree of cushion to fall back upon in bad times. What better time to discuss as to how to start with your investments. It’s always a good time.

What I intend to do here is to help you understand what can be your flow of money once you receive that paycheck.

We will, in this article, read about some of the investment options available to you. These will be mentioned in increasing order of returns and hence the increasing order of risk as well. Meaning, the investment products which come ahead in the list have somewhat lesser returns yet, high degree of safety. While the suggested instruments lower in the list deliver higher returns but have a certain degree of risk associated with them.

Let’s get started. Our journey will be: Protection → Savings → Investments

Protection

First things first – Life Insurance

You just cannot start with any financial planning without securing your life and health first. And that of your family. Road accidents, health issues, environmental impact, our sometimes unhealthy habits are all working against us. One bad day any one of these might catch up with you. You have to have a life insurance on your name. Talk to any financial expert or an investment advisor, they will suggest you to go with something called the “Term Insurance”.

When you buy a “Term Insurance”, you yearly pay a very small amount to keep that policy going, up to a pre-decided tenure, or a certain age. At the end of this “term”, if you are alive, you get nothing. You should be happy about it because you are still alive. But, god forbid, if you meet an unfortunate end, your “added beneficiary” (parents, spouse, children, etc) in the policy will be paid by the insurance company an amount equal to the Sum Assured of your policy.

My humble suggestion, whatever your yearly income might be, multiply it with 10, and take an insurance policy of that amount. Add your parents as beneficiary. When you get married add your spouse as well. As your income increases, your lifestyle grows, increase your sum assured as well. The earlier you start, lesser your premiums will be.

Health Insurance

Many of the organizations which you start working with do provide some kind of health insurance. In times of need they might not prove to be sufficient. Go out and hunt for a decent health insurance policy from any of the big insurance providers. This might feel like a task that “can be done later”, but again, as with any kind of insurance – earlier the better.

Also, if your organization provides for it, then add your parents as dependents in your policy and DO NOT REMOVE THEM in any given year. Once they are dropped from the policy, in most cases you won’t be able to add them back.

Even if health insurance is being provided by your organization, I would recommend to take one from open market, albeit for a smaller amount. Should you in future find yourself in a company which does not provide health insurance, or you are self-employed, then increase the sum assured of the policy purchased outside.

On a personal note, I got my mother operated for a knee replacement surgery last year. I didn’t pay a penny. Thanks to the health insurance. Recently my wife and I had a baby, again, didn’t pay a penny.

The process to acquire both the above mentioned insurances, is fairly simple. Start with them today.

Savings

Savings Account

This is the plain vanilla savings bank account at the neighborhood branch of a bank in which you receive your salary. Interest in these accounts vary from 3% to 7-7.5% depending on the bank and is calculated mostly on the “Average Monthly Balance”. Higher interest rates promised by certain newer banks are subject to certain “Terms and Conditions” which in most cases will deny you the higher promised returns.

One should just leave enough money in this account to help with immediate ATM withdrawals, monthly expenses, and Debit Card swipes. Leaving large sums of money in this account, unutilized, letting your salary accumulate here is out-right foolishness and highly inefficient way of managing money.

Well then what should be done? Answer: We will discover soon.

Current Account

For most of the salaried folks, this is a reimbursement account in which they get paid for most of the official expenses. Many of the self-employed people who provide some kind of service do get paid to the Current Account as well. This account DOES NOT PAY ANY INTEREST. Please do not leave any money in it. With large sums of money left in savings and current accounts, only the banks will have fun with it. It is the banks’ cheapest source of funds. This is exactly the reason why all the banks want to have a large “CASA Franchise”. (CASA – Current Account Savings Account).

Dear readers, honestly please raise your proverbial hand if you are guilty of leaving large-to-decent amounts in these accounts while “waiting to explore” your investment options.

So now that it has been recommended that “not much” cash should be left in “CASA”, you must be wondering where else should you park your money for a shorter duration. Read on.

Liquid Funds

Now, you have to “park” your money for a short duration, you don’t want a drop in investment value, which means safety of money, you want full flexibility of redemption, while you are OK with lower returns (still higher than CASA). Liquid funds are the place to be. These funds carry very little risk. They invest in various money market instruments such as: Commercial Papers, Term Deposits, Treasury Bills, and Certificate of Deposits etc.

Liquid funds should be used to park surplus cash for shorter durations, say up to 3 months. It works very much like a Mutual Fund with units allocated to you upon investment. And the increase or decrease in investment value measured through a change in NAV. Select from the Liquid Fund offerings of any of the large fund houses in India and you will see an annual return rate of around 7%. There’s no exit load on Liquid Funds even if full redemption is made in a single day.

Investments

Provident Fund

This is currently the safest investment option available in India. The rate of interest currently hovers a little above 8% and is expected to remain in the 8%-9% range in the coming years. Fixing of this rate of interest has political implications as well and hence is not expected to go too low.

Contributions of up to 1.5 lakh Rs. to PPF are covered under section 80C of Income Tax Act. With a lock in period of 15 years in PPF, this is one of the best investments which help you realize the time value of money and compounding effect. Under certain conditions however earlier withdrawals can be made but that is a discussion for another day.

Now most of the organization in what they pay to an employee are setting the PF contribution to the minimum. To overcome this, one can opt for the Voluntary PF route or simply open a PPF account with any of the public sector banks. Some private banks too have started to offer this facility. Your money is very safe here.

Fixed Deposits - Banks

In India, probably this is the first investment that most of the people make. Our plain old vanilla Fixed Deposits done in Public or Private sector banks. Some things never go out of fashion, some things never should.

One of the safest investment options available to you. Doesn’t mean that you cannot lose your money in Fixed Deposits. You can if the bank goes bankrupt. Your bank buys an insurance on your FD for up to a certain amount.

The rate of interest various across banks and are a function of duration of holding and principal amount. Choose what suits you best. For larger amounts try splitting it across fixed deposits of variable maturity if you wish to do so, to have a maturing fixed deposits at regular intervals. Much said.

Fixed Deposits - NBFCs

There are many financial institutions which have been allowed by RBI to accept deposits from retail investors. These are a tad bit riskier that “bank fixed deposits” but offer higher rate of return. From taxation point of view they are absolutely similar to bank fixed deposits. You can, for the sake of higher promised returns, have a limited exposure to these offerings.

Select from some of the most stable NBFCs in India and you should do fine. Check for branch availability near you for the sake of customer service as these companies are not as spread out as banks.

I would suggest to strictly stick to the largest NBFCs for this category of FDs. Big ones are few in number and include some public sector housing finance companies, vehicle finance companies and a big consumer finance company. (Go to buy a cellphone or a big TV and chances are you will be offered a loan/EMI payment option from this consumer finance company.)

Recurring Deposits

Fixed deposits as well as Recurring Deposits come under the “Term Deposit” umbrella. They offer the same interest rate, just that the added convenience with RD is that you don’t need to wait for corpus to build up before making an investment decision. Choose an amount and a duration which suits you.

Corporate Bond Fund

So you think you have invested a decent amount in term deposits and have exhausted the PPF limits but you are not yet ready to take the plunge in to equity – directly or through equity mutual funds. Yet you wish to have a higher rate of return compared to Term Deposits without taking on too much risk on to your investment portfolio. You must take a look then at Corporate Bond Funds.

It is mandated by SEBI (Securities and Exchange Board of India) that these funds invest 80% of their corpus in AAA rated instruments (eg. these might be NCD and bonds issued by the most stable companies in India- Reliance, SBI, NHPC, NTPC etc). Ideal investment horizon should be 3-5 years. Many investment portal will provide you with the historical returns of these funds. Corporate Bond funds are essentially debt funds however are less riskier and less volatile than Credit Risk funds, Gilt funds and some long-term debt schemes.

Investments in Corporate Bond funds works in the same manner as equity mutual funds with investment value being calculated and managed through NAVs and allocated units. It is never recommended to retail investors to individually pick and choose the bonds to invest in. Let the professional fund managers do it.

Select from the Corporate Bond funds of the largest Mutual Fund houses in India and you will observe that there is little variance in returns in the Corporate Bond Fund portfolio of these fund houses. Stick to the fund houses owned and operated by the largest Indian banks. These fund houses have the lion’s share of AUM (Asset Under Management) and you too don’t need to venture beyond.

Equity Mutual Funds

A sincere request to all investors who have full time jobs to invest in equity ONLY through respected mutual fund houses. Please do not open “FREE DEMAT ACCOUNTS” offered by your “salary-account-bank”. Unless and until you are working in Financial Services industry or have a good understanding of balance sheets, stocks, corporate actions, corporate governance issues, ROI ratios etc, please do not get into it directly. You just do not have the time and intellect to manage a portfolio. Leave this job to the professional fund manager, pay him a small “fund management fee/Expense ratio” and you will do very fine in the long term.

For beginners in equity investments and even for people who have been investing for a while, it is recommended that they stick to the following categories of equity mutual funds (in that order and decreasing order of investment corpus):

1. Large cap funds

2. Index funds

3. Mid cap funds

There are dozens of funds houses and hundreds of funds available in the marketplace. But you do not have that kind of money and risk appetite to invest in that many funds. Too many funds do actually hit you return percentage. One does not need to look beyond the top 5 AMCs (Asset Management Companies – Mutual Fund houses).

The richest people in India, the HNIs have rested their faith in a few fund houses. You too do not need to be adventurous. Just check once the AUM (Asset Under Management) of these companies and their funds of the said categories, will realize how big these are compared to some others. (One can use moneycontrol or valueresearchonline for this purpose).

As I have already mentioned in article earlier, the best mutual fund houses for you are the ones setup and managed by the biggest Indian banks (one public sector and 3-4 private sector banks). These aren’t too tough to guess. They provide excellent customer service and a good online experience. If the market does good, be sure that the best performing funds will be one from these fund houses. Starting with equity mutual funds one just cannot guess which fund will do better. You just don’t know. What you can do is proper allocation to fund categories (large cap, index, mid cap and so on) and a considerate selection of fund houses. Followed by sticking around long enough through SIPs and occasional lumpsum investment.

From the suggested categories of funds, select 2 best performing Large cap funds from the large AMCs and 2 Mid cap funds from the same AMCs. Index funds have very little variance among themselves, hence a single Index fund from one of the AMCs should suffice.

I had said in the beginning that the instruments suggested in this article follow Low Risk-Low return to High Risk and higher return regime. This might lend to the suggestion that since equity comes way down in the list it must be extremely risky. Well it is risky if you are mismanaged in your approach and the amount allocated to it. The point I am trying to drive home is that, you do not need too many funds across too many fund houses to gain a good return. Over-diversification of your mutual fund portfolio will be very detrimental to your returns. Stick to a few funds through SIPs and you will do far better in the long term than your colleagues who start investing in stocks on hear-say and stock-tips.

Conclusion

In closing comments I would say, that it’s your hard earned money at stake, choose wisely, tread carefully. Sudden large equity exposure is never a way to quick riches. In the initial days of your career you have to build a solid foundation both in work as well as investments. Stop thinking from the “returns” perspective and start thinking from the “risk” perspective. You will have a completely different view of investments. Start with larger amounts allocated to the instruments higher up in the list while taking on “some exposure” to the ones lower in the list. Amounts for each instrument will vary from person to person depending upon their individual needs, their income, risk appetite and stability of job. Manage your risk properly, leave equity investments to professional fund managers through mutual funds. Once you start doing this you will gain a lot mental peace and freedom to pursue bigger things in your career. You will more enjoy your hobbies and time spent with family and friends. It’s a good bargain.

DISCLAIMER: The information provided in this article is intended to provide general information only and the information has been prepared without taking into account any particular person’s objectives, financial situation or needs. Before acting on such information, you should consider the appropriateness of the information having regard to your personal objectives, financial situation or needs. In particular, you should obtain professional advice before acting on the information contained in this website and review specific products on their merits.

This is a Guest Article by Mr. Rohit Shourya.

-Rohit Shourya

I am a full time trader and an investor. I worked in Insurance for a good 10 years before I decided to venture out on my own. I wish to remain a student for life of markets and financial products. Here to help retail investors organize their investments spread across various asset classes.

How to Start Trading in Stock Market: 6 Steps for Beginners

2020-02-15T02:14:00.002+05:30

Are you a new trader and want to make it big in stock market?

Are you fascinated by the red and green flickering numbers on the screen and want to know how they work ?

Have you heard amazing stories of some of the legendary investors or traders who have made it big in stock market and now you also want to walk on the same path ?

Have you always wanted to understand what the technical charts indicate and how you can use them to make real money ?

These are some of the questions that every new trader has in his/her mind and they just want to enter the realm of stock market with full excitement and make it to the top. Stock market is a great place to fulfill your dreams and many have conquered this subject but let me tell you that it’s not as easy as it looks and it needs years of practice to master.

These are some basic steps which every aspiring trader should follow before actually trading with their hard earned money –

1. Learn the basics – We learn subjects in school or college from the very basics. It is very important to learn the basics of stock market too, like what is a stock and why do stocks move up and down and how can we buy them and short them and make money out of it. Learn the basic terminologies.

2. Learn Technical Analysis – Technical Analysis is the study of technical charts or price behavior laid down on a graph. It is a very prominent study followed by millions across the globe and really helps in decision making. To further study technical analysis, you can study the following points –

a) Candle Sticks – There are various types of candle sticks and they basically tell us about the movement of the price on a particular time frames, for example, daily, weekly, monthly, etc.

It is very important to learn the basics of candle sticks as they are the starting point of learning technical analysis. People also use other forms of price reading as line chart, bar chart, Heikin Ashi candle sticks etc.

b) Patterns – After learning about candle sticks, we can learn about the basic patterns that the price forms, like Cup and Handle, Head and Shoulders, Pole and Flag etc. It is very important to understand why price makes these kinds of patterns and what’s the psychology behind them that makes it work? I believe that if we understand the concept, rather than just following the patterns, we would get more conviction to trade on these patterns when we see one.

c) Indicators – Indicators help a lot when a trader is trying to get a hold of technical analysis. It is often seen that once a trader has enough experience of the markets, they usually remove all the indicators and use virgin price action to trade but in the initial days/weeks/years/ it is very important to take advantage of these. There are a lot of indicators out there and you should try a couple of them before you can chose a few or even one which suits you. Some of the famous indicators which every trader should study are Rsi, Macd, Moving Averages, etc.

d) Strategies – once you get a hold of the candle sticks, patterns and indicators, you can make your strategies of learn a few from a mentor of books. Strategies are a like a written "plan of action" and help to take the noise out of the trading calculation. Strategies help a lot as trading is a game best played with minimum or no emotion and once we have a written plan, more than half of the work is done.

3. Psychology – It is the most important part of trading but often under estimated by new traders. Trading is all about managing our emotions while our money is on the line and it’s not an easy task as we are more concerned about the technical aspects of trading that we forget that we are not playing this game alone. We are playing this game with millions of other traders and their human behavior.

We need to understand why people do things the way they do it and what influences their behavior and decisions and most importantly our own. Reading a few psychology books really helps ( Recommended Books article ) and the psychology part of trading is even understood best when we learn from our own mistakes. I know we have to pay the fees to the market to learn about these concepts but believe me, it will be worth the lessons that the market will teach us.

4. Fundamentals – We should have a great deal of understanding of the technical part of trading but learning about fundamentals also helps a lot. The combination of technical and fundamental study is a great recipe for success in the stock market. Fundamental analysis is a very broad study but we can use the basic aspects of it along with our technical study.

5. Risk factor – Risk is the most important factor that should be taken into consideration. Remember, that this is a battle of minimizing our risk as much as possible as it is the only thing under our control. We can’t control the price movement, but we can surely control how much we are willing to lose in a trade or in a series of trades. I have seen some great and knowledgeable traders blow up their entire trading account because they didn’t gave emphasis to risk.

6. Journal – a journal helps a lot in giving us a clear picture of what went good and what didn’t. We should maintain a trading journal as it helps in reflecting our mistakes and keeping a record of all our trades. We can rectify our mistakes only if we keep an account of them.

We should include important aspects in our journal as what trade we took, when did we took it, what was the reason behind it, what is our stop loss, how much did we lose or gain from that trade, what was the reason for exit etc.

There is a lot more that goes into trading but these are the basic steps that each and every aspiring trader should consider before diving into the ocean of stock market trading.

I hope it helped clear some doubts as I got a lot of requests from my Twitter friends regarding this topic as there are many who want to start their journey but have no idea how to go about it. Any further clarifications are most welcomed in the comments section below. Happy Trading !