6 types of self-goals to avoid when trading

6 types of self-goals to avoid when trading
07/04/2018

Of the many ways in which FIFA World Cup has made a mark, there is also a dubious distinction that belongs to the 2018 edition of the games. Besides the 1998 World Cup that was held at France, this is another World Cup that has seen the maximum number of self-goals. A self-goal is when the soccer player nets the ball into his own goal post and, in the process, gifts a free point to the opposition. In many ways, self-goals are unpardonable; you not only put your own team behind but also give the opposition an advantage. At a time when FIFA 2018 has already seen 6 self-goals, let us look at 6 such self-goals you should avoid when trading.

 

Boasting about your trading strategy

This is the first major self-goal that a lot of traders are guilty of. Your strategy has been framed with multiple iterations and at a stiff cost. They are meant for your proprietary use. Don’t make it public so easily. The beauty of any trading strategy is that it works as long as it is not being tried by too many traders at the same time. If you publicize your trading strategy, you are literally inviting others to join the party. You don’t need to do that. Give a generic idea of your trading strategy to others but never discuss the specifics. The more you play your cards close to your chest, the longer your strategy will work in the markets.

Trying to outsmart the market

This is a game that countless traders have tried and lost out. Trying to outsmart the market is something an investor with a long trading horizon and a big capital can try. When the market moves in a particular manner, it is actually trying to give you a hint of the underlying trend in the market. Your job as a trader is to read this trend and trade accordingly. If you try to outsmart the market, you are always going to end up on the losing side because the market represents collective wisdom and is always smarter than individual traders.

Averaging your losing positions

That is a classic self-goal as the temptation to average your position can be quite strong. Say you bought Reliance at Rs940 with a stop loss at Rs920. If the stock price comes down to Rs930, the inclination is to average your position and reduce your cost of buying. This approach has two problems. Firstly, you were wrong once and now you are trying to be wrong again. Secondly, you are inadvertently increasing your exposure to a stock which is not in line with your trade rule book.

Trying to behave like an investor with the capital of a trader

The most important point to remember is that you must think like a trader. A trader always trades with finite capital. The definite of finite will be different for you and for George Soros, but the bottom-line is that capital is still finite. A common self-goal in such cases is to convert a trading position into a delivery position just because you can arrange the funds required. Don’t behave like an investor. You can do that with your investment portfolio; not with your trading portfolio.

Creating overly complex trades

This is not too frequent in cash markets but traders who trade in futures and options have the tendency to create overly complex positions. You sell calls and puts of multiple strikes and also buy calls and puts of multiple strikes. This approach has two problems. Firstly, you yourself do not know if you are long or short. Secondly, this multi-layered position also has to be closed, which liquidity and cost a major issue. Ideally, formulate a view and keep your trade as simple as possible.

Not bothering about trading costs

This is perhaps the biggest self-goal that traders tend to indulge in. If you are a trader, you are looking to churn your capital aggressively. That automatically implies that you need to keep your trading costs low. When you are trading, it is not just the transaction cost but also the statutory costs that can add up to quite a bit. You will be doing yourself a disservice by not keeping a tab on your costs.

In soccer, a self-goal is a sign of carelessness, lack of discipline, and a casual approach to the game. That is why captains frown upon self-goals and it would be best if you avoid it in your trading too!

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5 Stocks for next week 16th-20th April 2018

5 Stocks for next week 16th-20th April 2018
by Gautam Upadhyaya 13/04/2018
Untitled Document

1) Nilkamal Limited-Buy

Stock

Nilkamal Limited

Recommendation

The stock has witnessed a flag pattern breakout on the daily chart backed by a surge in volumes and has managed to give a close above its 200 day EMA. We expect the uptrend in the stock to continue in the following week.

Buy/Sell

Range

Target

Stop Loss

Buy(Cash)

1752-1764

1874

1686

NSE Code

Market Cap(Rs in Cr)

52-week High /low

200 Day-EMA

NILKAMAL

2624

2274/1491

1719


 

2) Escorts Limited – Buy

Stock

 Escorts Limited

Recommendation

The stock has managed to give a breakout above its resistance levels backed by an uptick in volumes and is currently trading at its all-time high. The stock has also shown positive momentum on the daily MACD Histogram, which affirms our bullish view on the stock.

Buy/Sell

Range

Target

Stop Loss

Buy (Cash)

942-948

1006

907

NSE Code

Market Cap(Rs in Cr)

52-week High /low

200 Day M.A

ESCORTS

11620

948/535

739


 

3) TVS Motor Company Limited-Buy

Stock

TVS Motor Company Limited

Recommendation

The stock has witnessed a flag pattern breakout on the daily chart backed by a surge in volumes. The stock has also taken support near its 200 day EMA and given a positive bounce.

Buy/Sell

Range

Target

Stop Loss

Buy(Cash)

657-662

702

633

NSE Code

Market Cap(Rs in Cr)

52-week High /low

200 M.A

TVSMOTOR

31498

794/461

639


 

4) Bharat Electronics Limited - Sell


Stock

Bharat Electronics Limited

Recommendation

The stock is trading in a lower top lower bottom chart structure and has given a breakdown below its support levels on the daily chart. Derivative data indicates fresh short positions in the stock.

Buy/Sell

Range

Target

Stop Loss

Sell (April Futures)

143-144

135

149.2

NSE Code

Market Cap(Rs in Cr)

52-week High /low

200 M.A

BEL

35048

192-138

160


 

5) Bajaj Finserv - Sell


Stock

Bajaj Finserv

Recommendation

The stock has witnessed a correction after forming a bearish engulfing candlestick pattern on the daily chart. It has also seen a bearish crossover on the daily MACD indicator.

Buy/Sell

Range

Target

Stop Loss

Sell (April Futures)

5335-5360

5060

5534

NSE Code

Market Cap(Rs in Cr)

52-week High /low

200 M.A

BAJAJFINSV

85057

5835/3796

4922


Research Disclaimer

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How much to invest when you first start trading

How much to invest when you first start trading
13/04/2018

A lot of new people who starting trading in equities make the mistake of putting too much of their wealth at the beginning. Before you even think about getting into equity trading, it is vital that you prepare an extra buffer fund to prepare yourself for any unpredicted events.

Even though several specialists may argue over the sum of money required for trading, the agreement is that you must be able to maintain your lifestyle for 3-6 months from your alternative fund.

Since an emergency fund is intended to guard you in case of a disaster, that money has to be readily available in a highly-liquid savings bank account or money market account. Under no conditions should you consider using these funds to trade. These funds must only be located in accounts that are exposed to very little threat.

You don't need much money to be successful at stock trading. However, a little wealth makes it tremendously tough to get a steady start in the stock market.

For a decent start, lookout for accounts at a minimum brokerage. This amount is typically fixed because it is in the broker's top interest to retain trading for as long as possible so that they bring more and more commissions. These minimums are frequently put into place to decrease the risk of you utilizing your funds in a small number of trades.

Risk, too, is unquestionably relevant to trading; where there is no risk, you can't think of making a good return.

It is also significant to think about diversification. The dividend-paying stocks of top-50 companies are rather safe, and financiers can predict to make mid-to-high, single-digit returns throughout several years. Diversification is a significant portion of the risk. Holding a portfolio of funds that all have similar risk can be dangerous.

Bottom line

If you are new to the share market and especially if you are still in the learning stage, it is suggested to begin with small risks. Invest as little as possible and emphasize more on the learning. Anything between Rs1,000-5,000 will be a good amount to start. It's also vital to acquire knowledge on how to value invest for attaining true, life-long wealth.

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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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Top Gainers On BSE 500 In First 3 Months of 2018

Top Gainers On BSE 500 In First 3 Months of 2018
by Nikita Bhoota 16/04/2018

Indian equity markets touched a new high in January 2018. Both the benchmark indices Nifty 50 and Sensex touched a closing high of 11,130 (January 29, 2018) and 36,283 (January 29, 2018) levels for the first time respectively. Fading effect of economic reforms like GST and RERA along with gradual pickup in corporate earnings supported the market rally.

However, in the next two months (February-March 2018), market has corrected sharply on account of implementation of LTCG from April 1, 2018 and speculation of trade war emerging between China and United States. Additionally, scams in the Indian banking sector and increase in current account deficit to 2% of GDP for quarter ended December 2017 have hurt the market sentiments.

Amidst this volatility there are some stocks that have outperformed the benchmark in the last 3 months ((January 01, 2018 till March 28, 2018). In the same period, both the benchmark indices, Nifty 50 and Sensex have plummeted ~3% and ~2.5% respectively.

Company Name

Price in Rs as on
1-Jan 2018

Price in Rs as on
28-Mar 2018

Gain %

VenkyS (India) Ltd.

2,800.5

3,872.5

38.3

NIIT Technologies Ltd.

652.0

864.3

32.6

Jubilant FoodWorks Ltd.

1,776.8

2,326.7

30.9

HEG Ltd.

2,437.6

3,181.5

30.5

Firstsource Solutions Ltd.

40.9

53.0

29.7

Mindtree Ltd.

606.0

774.0

27.7

V-Mart Retail Ltd.

1,487.7

1,894.8

27.4

Tech Mahindra Ltd.

502.6

638.3

27.0

GE Power India Ltd.

739.8

928.0

25.4

Ashok Leyland Ltd.

118.9

145.3

22.3

IDBI Bank Ltd.

60.4

72.3

19.7

Cyient Ltd.

577.5

688.8

19.3

Future Lifestyle Fashions Ltd.

343.8

407.5

18.5

KPIT Technologies Ltd.

184.8

216.8

17.3

Lakshmi Machine Works Ltd.

5,865.0

6,872.9

17.2

Larsen & Toubro Infotech Ltd.

1,146.7

1,341.2

17.0

L&T Technology Services Ltd.

1,067.8

1,239.6

16.1

Gruh Finance Ltd.

497.7

577.2

16.0

Bajaj Electricals Ltd.

488.1

561.8

15.1

Source: Ace Equity
*Stocks are taken from BSE 500 list

 

Research Disclaimer  

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Learn to identify your winning stocks

Learn to identify your winning stocks
16/04/2018

Many investors are often in a dilemma about which stock to hold for the long-term and which to not. This is an everyday challenge traders face in the stock markets. To invest long-term, one needs to look at specific factors along with focusing on long-term goals and understanding the complete cycle.

Many instances from the past have proved that winning stocks produce better returns in the long term. SIP has produced losses in 10 out of 40 years, signifying stocks in the short run as they are subject to market volatilities.

Hence, it is imperative to understand which stocks are to be held for a longer time. Here are a few points to identify winning stocks:

1. Fundamental analysis: The technical indicators tell us about the health of a company and predict, to a certain extent, its future health.

  • Retained earnings: It tells us about the company’s abilities to pay dividends. Also, historical data will help predict consistency in the company’s performance. If the company is steady enough on its retained earnings, then the stock can be invested for a long term.
  • P/E Ratio: If the P/E ratio of a stock is less compared to industry standards, it indicates that the stock is undervalued. Hence, an investor should hold on to it as it will give high returns in the future.
  • Debt Ratio: This is a useful indicator to know whether to hold a stock for the long-term or not. During economic slow-down and change in monetary policies to higher rates, high debt can be dangerous for a company. However, if the economic situation is under control, then higher debt is acceptable. With further analysis of the other factors, a decision regarding the stock can be taken.
  • Current ratio: Capital ratio is current asset divided by current liability. It is also an indicator of a company’s financial health. A higher current ratio indicates good condition and the stock can be held for an extended period.

2. Macroeconomic factors: Many macroeconomic factors affect stock prices. Hence, one should be updated with these issues to decide on the long-term possession of stocks. Macroeconomic factors help us judge the market dynamics.

3. Political factors: Political instability in any corner of the world, primarily in developed countries, affects the sentiments of people, and they often decide to sell out the stock. It is a significant mistake committed by many. Instead of rushing to sell the stock, one should analyze the effect of the scenario on its share and hold on unless there is a legitimate threat.