10 vital variables for successful trade analysis

10 vital variables for successful trade analysis
20/12/2017

As the share market is highly volatile, investors rely on some variables which can help them trade successfully. These variables are flexible as they change according to the condition of the share market and adapt themselves accordingly.

Every investor must consider using the given below variables when logging their trades as these can help them to avoid losses and analyze their mistakes in a better way to make successful share market strategies.

1. Stop loss price: The stop-loss price is the price level where stocks are automatically sold if their rate falls below a specific amount. It can be both physical (putting the stop loss price in your trade order) and mental (selling the stocks yourself if the price falls below a certain level). It allows investors to cut losses if the market trend becomes negative and prevent them from losing a huge amount of money.

2. Strategy: Strategy is a set of specific rules followed by an investor while placing a trade in the market. Some of the strategies used by investors are CAN SLIM, Momentum Trading, Swing Trading, etc. By marking your trades with the strategies you used while executing that particular trade, you can analyze your strategies and know which ones are working and which ones you should stop using in the future.

3. Risk amount: Risk amount is the actual amount of money you are risking on your investments in the share market. So, if you buy 100 shares of 200 Rs each and put a stop loss at 180 Rs, you are risking Rs 2000 {100x (200-180)}, which is your risk amount. It is wise that the risk amount is limited to the lowest amount possible to avoid losing a considerable amount of money in the share market.

4. Risk percentage: When the risk amount is displayed in the form of a percentage, it refers to the risk percentage. Looking at the example from the above point, the risk percentage would be 10 % (2000/20,000). If you lose money on this investment, it will mean that the trade was a 10 % loser.

5. Target price: It is the price which the investor wants to see his/her investment rise to. Target price is the initial goal of an investor when they decide on investing in the company. So, if you buy 100 shares for Rs 200 each, you can set your target price at Rs 250 per share. It means that your goal is to keep the shares with you until the share price reaches Rs 250.

6. Return amount: Return amount is the actual profit you make on your investments after selling them at the higher price from which you bought them. If you sell 100 shares which you bought for Rs 200 at Rs 250, your return amount would be Rs 5000 {100x(250-200)}.

7. Return percentage: When the return amount is depicted in the form of a percentage, it constitutes the return percentage. If you sell 100 shares at Rs 250 after buying them for Rs 200, your return percentage would be 25% {(100x50)/(100x200)}x100. It means that the trade you completed was 25% profitable for you.

8. Mistake: Investors often make mistakes as the decision they take proves to be wrong in the long run. Analyzing the mistakes is one the most crucial aspects of becoming a successful trader. Mark the trades which proved terrible for you with the tag of ‘Mistake’ and learn from them so that you don’t repeat the same mistakes again in the future.

9. Notes: Making notes is not necessarily a variable but is equally essential for trading as the other variables. Write notes regarding your every trade of what went wrong and what went right. Analyze them, learn from them and use the knowledge to trade better in the future.

10. Risk/Reward ratio: It is the ratio between your risk amount and the reward amount you wish to get per share. If you buy 100 shares at Rs 200 and put a stop loss at 180, you risk amount is Rs 20. And if you want to sell your shares when the price reaches Rs 250, 50 is your reward amount. So the risk and reward ratio comes to 2:5. Same as the profit and loss ratio, it means that you can be right five times and wrong only two times.  

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10 Signs to Know that You Are Ready To Trade

10 Signs to Know that You Are Ready To Trade
20/12/2017

When you see friends around you trading, you get interested in the stock market. You have the urge to start trading yourself and then open a demat account in excitement. However, opening a demat account is not the only thing one requires to start trading in the stock market. One needs to have an in-depth knowledge about trading. No one is an expert in trading; it has seldom been said that “if stock market experts were so expert, he or she would trade stock, not advice.” So what shows you are ready to trade? Here are some check points one should crosscheck before trading.

1) Substantial Capital - Having a financial plan, while trading is necessary, as a rookie trader is bound to make monetary losses while trading. Hence, it is always important to have enough money in hand while trading. It is often said that one should not marry a trade, but if someone decides to do so, he should at least have a pre-nuptial.

2) Proper trading strategy - Without a well thought out strategy, trading is pointless and pure gamble. A rookie trader should be aware of the entry and exit price point at which he plans to book profit.

3) Time management skills - Trading cannot be a fun activity; there should always be time to spare. Observing the market at the opening and closing time, gathering information about the current world news requires time dedication. You need to track the market when at regular intervals.

4) Discipline – A disciplined approach is required in order to practice trade. Having a systematic approach to grave situations is needed. For example, one should be disciplined enough to decide how much money he is going to invest in a month.

5) Risk management skills - Having mathematical soundness can always help managing risk. Though taking risk in stock markets is essential, everyone has a different approach of managing risks.

6) Understanding of analytical tools - Learning about technical indicators makes you understand the share market. Technical indicators such as balance value, accumulation line, averages, etc. are essential tools to study. A lot of online trading sites help you understand graphs in a simpler way. Learning graphs assist you in spotting market trends. Technical analysis at your fingertips increases your probability of having a thriving trade.

7) Control over emotions - If one gains adrenaline rush while trading, something is deliberately wrong. Being emotionless makes you follow the rules, and helps you understand winning scenarios against losing scenarios. Having a gambler approach is fatal as also believing in two words, hope and luck. Thus if you have control over emotions, you are fit to trade.

8) Differentiate between right and wrong- Having a sense of correctness is necessary as it is always a two-way path in trading. Selecting one and emerging victorious is essential.

9) Having a sense of reality - Losing an eye on reality is harmful as one should know that the income earned by trading cannot suffice your daily needs. Also winning always is an illusion.

10) Enough practice in paper trading - Practicing trade online is an important task to accomplish before trading in huge numbers. Paper trading is done using simulated trading to practice buying and selling stocks without actual money being involved.

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The ‘right’ way to exit a losing trade

Exit a losing trade

Every trader has his share of bad trades in his portfolio and you do not need all your stocks to be multi-baggers to be successful in the share market. While gains from a stock have no upper limit, the loss from a stock is limited to the value invested in it. Exiting a losing stock is not only a financial loss for a trader, but also an emotional or psychological loss. It is human tendency not to accept losses readily. We have a few recommendations that will help you exit a declining trade.

Let’s take a look

Use stops to restrict your financial losses

Stops are calculated, pre-determined price levels at which the investor chooses to go short or sell his stocks to limit losses. When the stock price hits the stop loss price, a sell order is executed and the stock is automatically sold at that price. Stop loss orders work well as they define the losses beforehand and the loss amount is in the control of the investor. Have a personalized stop loss strategy and use it effectively to limit your losses while investing in stocks.

Keep a check on the stock even after exiting to find a re-entry point

Once you exit a position, keep an eye on it to identify any bullish indication of reversal, which can be a potential re-entry point. Using stops, you might sometimes exit your position because of price volatility. In no time, you may find the prices rising again. However, using proper stops is proven to be effective as it limits your losses in most cases. Analyze the charts, study the candlestick patterns, and re-enter, only, if it coincides with your research and not in hope or revenge. If there is no valid reason to re-enter the trade after the initial exit, walk away and search for new opportunities.

Do not emotionally connect with your stock picks

You should accept your wrong picks and move on rather than lingering onto the stock in the hope of a rebound. You need to monitor and notice the developments around your shares continuously, and if stocks are taking the wrong direction, you will sometimes need to book losses and accept your wrong stock picks. Don’t fall in love with your shares, sell them if the fundamentals do not appear correct and restrict your losses. Booking losses or hedging them at an early stage can help minimize losses.

Accept responsibility and analyze your mistakes and find out where your investment plan can be improved

This will help reduce the chances of the same happening again. Handling trading losses well is a leading characteristic of successful investors. Treat a failure as an opportunity to learn and improve it in your next move. Many opportunities are waiting out there in the market for you to find and grab hold of.

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5 Stock Tips This Dussehra

5 Stock Tips This Dussehra
by Nikita Bhoota 02/06/2018

Dussehra is considered to be an auspicious festival in India. On this day, Lord Rama has killed Ravana. This festival signifies the victory of good over the evil. Similarly, an investor can overcome their loss-making investments by adding the right stocks in their portfolio. Based on research, fundamentals and valuations, we recommend the following stocks for investment this Dussehra.

Infosys

Infosys is the second largest IT Company in India. The company’s service lines are more focused on discretionary spends like ADM and ERP constituting 67% of the revenues. On the vertical front, BFSI accounts for 33% of the revenue. Geographically, North America contributes ~61.9% of the revenue followed by Europe (~22.5%) in FY17. We expect 11% revenue CAGR over FY17-19E due to pickup in BFSI and retail segment supported by higher customer spends in the US. Similarly, large deal wins will keep the growth momentum. We expect 8% EBITDA CAGR over FY17-FY19E due to increasing focus on cost optimization. We expect 5% PAT CAGR of over FY17-FY19E. The appointment of Mr Nandan Nilekani as the non-executive chairman would restore a sense of security among investors, employees, and clients. We expect an upside of 15% from CMP of Rs 898 over a period of 1 year.

Year Net Sales (Rs Cr) OPM (%) Net Profit (Rs Cr) EPS (Rs) PE (x) BVPS (Rs) P/BV (x)
FY17 68,485 27.2 14,353 62.5 14.4 296.2 3.0
FY18E 70,746 26.6 14,326 62.4 14.4 358.6 2.5
FY19E 76,058 27.1 14,993 65.3 13.8 423.9 2.1

Source: 5paisa research

Aurobindo Pharma

Aurobindo Pharma Limited (Aurobindo) manufactures generic pharmaceuticals and active pharmaceutical ingredients in India. The company's product portfolio is spread across six major therapeutic categories of antibiotics, anti-retrovirals (ARV), CVS, CNS, gastroenterological, pain management, and anti-allergic.  It derived 79% of revenue from generic pharmaceuticals and remaining from active pharmaceutical ingredients in FY17. Geographically, US business contributes 44% to Aurobindo’s total revenue.  We expect 20% revenue CAGR over FY17-FY19E due to strong pipeline of 134 products which majorly includes niche and high value products. Clearance to unit 7 in Hyderabad is also beneficial for the company. Further, recent approval for serum and tablet formulations of gRenvela will also boost the revenues. We expect margins to improve by 110 bps as strategic backward integration of marketing with API manufacturing is expected to reduce the intensity of ongoing pricing pressure. We expect 28% PAT CAGR over FY17-FY19E. We expect an upside of 15% from CMP of Rs 698 over a period of 1 year.

Year Net Sales (Rs Cr) OPM (%) Net Profit (Rs Cr) EPS (Rs) PE (x) BVPS (Rs) P/BV (x)
FY17 15,089 23.1 2,301 39.3 17.5 161.0 4.3
FY18E 16,301 23.2 2,386 40.7 16.9 201.7 3.4
FY19E 18,173 25.5 2,947 50.3 13.7 252.0 2.7

Source: 5paisa research

Manappuram Finance

Manappuram Finance is an NBFC, offering gold loans, microfinance, housing loans and commercial vehicle loans. Its AUM comprised of gold loan (81.4%), microfinance (13.14%), housing finance (2.2%) and others (1%) in FY17. We expect income to grow at 28% CAGR over FY17-FY19E on account of pickup in gold segment. The company is strongly focusing on short-term gold loans owing to current volatility in gold prices. Manappuram is also focusing on housing finance and microfinance and targets to derive 50% of revenue from these segments in next three years. We expect AUM to grow at 20% CAGR over FY17-FY19E. We expect GNPA to remain flat at 0.8% in FY18E. We expect an upside of 18% from CMP of Rs 95 over a period of 1 year.

Year NII (Rs Cr) Net Profit (Rs Cr) EPS (Rs) ROE (%) P/BV
FY17 1,943 726 1.7 24.8 2.8
FY18E 2,185 836 2.0 24.9 2.5
FY19E 2,489 959 2.3 24.9 2.1

Source: 5paisa research

Titan

Titan Company is India’s leading player in branded jewellery, watches and precision eyewear. Its revenue consists of Jewellery (78%), Watches (15%), Eyewear (3%) and others (4%) in FY17. We expect 42% revenue CAGR over FY17-FY19E on account of sub-brand Rivaah in wedding jewellery segment. With this, Titan targets to reach 40% market share in FY21E vs 22% in FY17E. Additionally, the entry in high value studded jewellery will also support the revenue growth. Recently, government has fixed GST rate of 3% (expected 5%) on gold which bodes well for the company. We expect EBITDA margins to improve by 90bps over FY17-FY19E on account of cost saving initiatives by the company. Titan is a debt free company which lends financial stability. We expect 60% PAT CAGR over FY17-FY19E. We expect an upside of 15% from CMP of Rs 587 over a period of 1 year.

Year Net Sales (Rs Cr) OPM (%) Net Profit (Rs Cr) EPS (Rs) PE (x) BVPS (Rs) P/BV (x)
FY17 12,614 9.5 761 8.6 68.5 48.6 12.1
FY18E 15,075 9.9 1,019 11.5 51.1 60.0 9.8
FY19E 17,968 10.4 1,285 14.5 40.6 74.5 7.9

Source: 5paisa research

Asian Paints Ltd (ASL)

Asian Paints is the largest paint manufacturer in India with market share of 53% in decorative paints and has a strong dealer network of ~45000 dealers. We expect revenue CAGR of 14% over FY17-FY19E on account of strong demand for decorative paints due to shorter repainting cycle (repainting forms 65% of the decorative paint demand). ASL is working on 2 Greenfield projects (Mysuru-6,00,000 KL and Vishakhapatnam- 5,00,000KL) to expand its decorative paint capacity.  The first phase of both the capacities- 3,00,000 KL will be completed by FY19E. GST will reduce the tax arbitrage for the unorganized segment (30% of industry) and will provide additional benefit to the organized players in the long run. We expect EBITDA CAGR of 14% over FY17-FY19E due to shift from distemper to external emulsion (high margin) in decorative paint business. We expect PAT CAGR of 11% over FY17-FY19E. We expect an upside of 15% from CMP of Rs 1161 over a period of 1 year.

Year Net Sales (Rs Cr) OPM (%) Net Profit(Rs Cr) EPS (Rs) PE (x) BVPS (Rs) P/BV (x)
FY17 15,290 19.8 2026 21.1 55 79.3 15.1
FY18E 17,244 19.6 2173 22.7 51 93.8 12.8
FY19E 19,908 19.9 2533 26.4 44 110.7 10.8

Source: 5paisa research

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5 Penny Stocks which are not Penny

5 Penny Stocks which are not Penny
by Nikita Bhoota 03/06/2018

Penny stocks are the ones which trade at a very low price. Usually, these stocks lack liquidity and carry high risk. The public information available on these stocks/companies is very limited, which makes it difficult for an investor to understand the future prospects of the business. However, penny stocks with good fundamentals and strong business models have the potential to become multi baggers in the long run. Here are some of these stocks.

Sintex Plastics (SPTL)

SPTL was established by transferring the plastic business (66% of FY17 revenue) and the Prefab & Infra business of Sintex Industries (34% of FY17 revenue). Sintex Plastics, a leading player in custom molding business (mainly composites), stands to benefit from growing trend of composites replacing metal parts across industries. Thus, we expect revenue CAGR of 12.8% over FY18E-20E. We see EBITDA CAGR of 15.6% over FY18E20E due to operating leverage and better product mix over FY18E-20E. Owing to the decline in interest outgo, we expect SPTL to post 17.5% PAT CAGR over FY18E-20E. SPTL is done with its capex cycle and has lowered its focus on w/c intensive Prefab & Infra business, thus enhancing cash generation. This will lead to net debt declining by ~Rs1,500cr over FY17-20E.

Year Net Sales (Rs Cr) OPM (%) Net Profit (Rs Cr) EPS (Rs) PE (x)
FY18E 5,996 15.0% 332 5.6 11.6
FY19E 6,757 15.3% 392 6.6 9.9
FY20E 7,635 15.7% 458 7.8 8.4

Source: 5paisa research

NHPC

NHPC is a hydropower generation company with power generation capacity of 5,171MW in FY17. The company generated 23,275mn units of electricity against a target of 23,000 for FY17. The company is planning a significant expansion of power generation capacity over the coming years. A total of 8,481MW is currently under the clearance/approval stage. This includes plans to setup a thermal plant (1,320MW capacity) through a joint venture. We expect the company to report revenue CAGR of 18.1% over FY18E-20E aided by 7.2% CAGR in generation volumes and Plant Load Factor (PLF) remaining at 62-63% over the same period. We see EBITDA CAGR of 28.2% over FY18E20E aided by better utilization of newly added capacity. We expect PAT CAGR of 20.8% over FY18E-20E.

Year Net Sales (Rs Cr) OPM (%) Net Profit (Rs Cr) EPS (Rs) PE (x)
FY18E 9,031 57.3% 2855 2.8 9.9
FY19E 10,700 63.3% 3,593 3.5 7.9
FY20E 12,600 67.4% 4167 4.1 6.8

Source: 5paisa research

MEP Infra

MEP Infrastructure is independently and collectively engaged in toll projects, OMT (Operate, Manage & Transfer), Hybrid Annuity Model (HAM) and BOT. Due to MEP's JV with San Jose India, it is strategically planning to extend its road development portfolio based on HAM. It has bagged 5 new projects under HAM model worth Rs3,230cr.  MEP has achieved the first milestone for the Nagpur, Package-II and Mahuva to Kagavadar project. The Authority paid the first milestone payment (20% of physical progress) for Nagpur, Package-II and Mahuva to Kagavadar. The appointment date for other two HAM projects is expected shortly. The company has started collecting toll from 124 entry points to Delhi. EPC order book of Rs3,000cr also provides strong revenue visibility. Thus, we expect 27% CAGR in revenue over FY18E-20E. We see PAT CAGR of 39% over FY18E-FY20E.

Year Net Sales (Rs Cr) OPM (%) Net Profit (Rs Cr) EPS (Rs) PE (x)
FY18E 2,444 44.2% 67 4.1 20.9
FY19E 3,877 33.3% 116 7.2 12.0
FY20E 3,994 33.6% 124 7.6 11.3

Source: 5paisa research

IDFC Ltd

IDFC Limited, through its subsidiaries, operates as a non-banking financial company in India. We expect NII to grow at CAGR of ~23% over FY18E-20E led by ~20% growth in credit. Among segments, faster growth is expected to come from retail. Expansion of banking business and non-interest income growth from AMC and securities business will lead to strong loan book growth. Its NIM is expected to expand by ~20bps yoy to 2.30% in FY18E. We foresee non-interest income to grow by ~16% yoy in FY18E supported by the Infra Development Fund worth ~Rs440cr. Alternative Investment Fund is expected to benefit from PE deals and infra debt management. Due to higher granularity, we expect NPA to improve in FY18E. It has increased its focus on branch efficiency, which should improve cost/income ratio.

Year Net Profit (Rs Cr) EPS (Rs) PE (x) P/BV
FY18E 851 5.3 9.8 0.7
FY19E 1,193 7.5 7.0 0.6
FY20E 1,445 9.1 5.7 0.6

Source: 5paisa research

SJVN

SJVN is a power generation company which operates hydro, wind and solar plants. The total power generation capacity at the end of FY17 stood at 1,964.6MW. Hydroelectric sources generate power of 1,912MW with wind and solar accounting for 47.6MW and 5MW respectively. SJVN is also planning to set up a 1,320MW thermal power plant at Buxar, Bihar. The company has committed to develop 1,000MW of solar power generation capacity over the next 5-7 years. We expect the company to report revenue CAGR of 7% over FY18E-20E aided by near ~100% utilization levels over FY18E-20E. We foresee EBITDA CAGR of 6.9% over FY18E-20E aided by better utilization of new capacity added by the end of FY19E. We expect PAT CAGR of 6.9% over FY18E-20E.

Year Net Sales (Rs Cr) OPM (%) Net Profit (Rs Cr) EPS (Rs) PE (x)
FY18E 2,669 78.8% 1561 3.8 9.2
FY19E 2,856 78.7% 1,691 4.1 8.5
FY20E 3,055 78.6% 1784 4.3 8.1

Source: 5paisa research

Disclaimer: Stocks mentioned in this article are not stock recommendations. They get mention in the story on the basis of their performance.

Research Disclaimer

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Do’s and Don’ts of Stock Market Investing for Beginners

Do's and Don'ts for beginners

With a trading account and demat account you are ready to trade. But if you are a beginner in the stock markets, then that is not all. You also need to keep a tab on some major do’s and don’ts before you venture into investing in the stock markets. Let us look at 10 such key dos and don’ts for investors.

10 important do’s and don’ts for investment beginners

Do’s are about doing the right things in the market when you are starting off on your investing journey while the don’ts are the ones to avoid. Here are ten such important dos and don’ts for investing beginners.

  1. Do your research before investing? Remember, research of a stock is not a rocket science and it is all about getting your research process right. Get comfortable reading the balance sheets and income statements of a company. Also read the Management Discussion and Analysis (MDA) of the stock you are planning to invest in.

  2. Start with your goals in mind. You must be clear about how much risk you are willing to take and how much risk you can afford to take. Your equity portfolio should be within the limits defined by your allocation. Always start with a plan.

  3. Don’t put all your eggs in one basket. That is age old wisdom and applies to investing as well. In technical parlance it is called diversification where you effectively spread your equity investments across sectors and themes so that your investment performance is not dependent on any one stock or sector.

  4. Take a long term view and cultivate that habit in the very beginning. It is futile to time the market. Not only that it is hard to consistently get the tops and bottoms of the market right but it hardly makes any difference to your eventual returns.

  5. Try to invest consistently and regularly instead of putting a large corpus in a stock of your choice. The advantage of being regular is that it instils discipline in your investment and also gives the added benefit of rupee cost averaging. That means; over time your average cost of investing comes down.

  6. Even through equity is about the long term, try to get bargains. Even if you are convinced about the long term prospects of Infosys, it makes a lot of business sense to buy at Rs.650 than at Rs.750. Quite often, a market correction creates salivating bargains. Use such corrections to add quality stocks at low prices.

  7. Divide your equity portfolio between core holdings and satellite holdings. Your core holdings are your long term investment portfolio and you don’t sell these stocks at every correction. On the other hand, the satellite portfolios are more of a trading portfolio where you look out for short to medium term opportunities in the market. Have a separate approach to both these types of stocks.

  8. Don’t ignore trading costs. Even if you are a long term investor, take at a close look at your costs. Your cost is not just about brokerage costs but there are a number of other costs too. There are statutory costs, exchange charges, demat AMC, DIS charges, demat and remat charges etc. All these need to be added to calculate your effective cost. Nowadays, it makes a lot of sense to opt for low-cost discount brokers who can give the same execution at a much lower cost.

  9. As a beginner, remember that quality always wins in the end. When we talk about quality we are talking about quality at a number of levels. Look at quality of earnings; more of the earnings must be coming from the core business. Look at profitability; the company must be earning more margins than the peer group. Take stock of asset turnover; it tells you how efficiently the business is using assets. At a qualitative level, prefer companies that have high standard of disclosure and transparency. Large caps or mid caps, this quality approach always works in your favour.

  10. Make effective use of technology and if you are a beginner then you better get used to it early. Ideally use the online trading platform; it gives you a lot more control over your trades. Also, if possible you can download the app on your smart phone which allows you to trade on the run. Get used to reading electronic contract notes and ledgers; they are a lot more convenient and environment friendly than printed stuff.

In an effort to chase stocks, investors tend to forget that investment success is a lot more about discipline than about skills or flair. It is in your hands to make your investments work in a systematic manner.