Trading Basics

Friends,

Here is the transcript of portion of the subject teached in class conducted by me few days back.We have discussed about various wise investment options/ideas/decision making etc.

In this post some of the basic things one must follow while trading (considering one has subscribed for any Tips provider.Which is dangerous thing to do in most of the cases !!) will be covered. I hope these basic things would help you increase your profits and minimise your losses.

1. Never Jump into a trade or do compulsive trading.

It is a common habit of many people to trade just for the sake of trading. Traders, for the sake of trading something, become desperate to trade which results in losses. Always try and trade at the levels given. If after the trade is given, and before you buy, the prices have shot up, please apply your brains before entering that trade. Or, if a trade is given and it is over, and again you find the script at the recommended price, don’t try and enter the same until advised.

For eg: Tip provider give a trade to buy a Call "comany A "trading at Rs.100 with s/l 90 for a target of 110-120. When you receive the call, the call is trading at Rs 105, and you enter it just for trading. Please apply your mind and see that the call has already reached halfway from the entry levels given, and if you enter it, you are playing for a target of just 5Rs. against a stop loss of Rs.15. Also, there is a chance that amount you earn will be gone towards brokerage. At the most, you can enter around 101-102 levels.
Again, suppose the call given hits the 1st target and again comes back at 100. This does not mean that you will again long it with the same stop loss and target, until and unless advised.

2. Play with proper stop loss and targets.

Whenever a call is given please stick to the stop loss until Tip provider instruct you to change/ignore it. Please do not alter the stop loss as you wish. Please do not rely on hope that the call will see targets after hitting the stop loss, so stick to the stop loss. The same goes with targets. Don’t be greedy for bigger profits. Keep on booking profits. Remember, a good trader is one who can not only book profits but also book losses. Also, a good trader will always keep on booking profits.

Suppose Tip provider has given 3 targets for a call and you are holding 4 lots. Try to book 2 lots at 1st target and increase your stop loss to cost , book 1lot at 2nd target with stop loss at target 1 and the last lot at 3rd target with stop loss at target 2.However, if you are a safe player, I suggest you to book all lots at the 1st target itself. If you are holding a single lot then try and book at first target or trail above cost.

3. Play with trailing stop loss.

Please do trail your positions. Trailing means to keep on increasing the stop loss towards cost and ultimately trying to bring the stop loss above cost. This would reduce your losses and keep you in profits most of the time.


For eg: You buy " company A " call at 100 for target 120 - 150 with stop loss 90. After a few minutes, you see that the call is trading at 110, here you must increase your stop loss from 90 to may be 98-100 (depends on your risk appetite). Now after a few minutes the call is trading at 120, try to keep the stop loss at 108-110 now. Even if the trailing stop loss of the new stop loss is hit, you will still be in profits as your stop loss is above cost now. If trailing stop loss is hit then exit instead of relying on hope or altering it.

Trailing stop loss minimizes your chances of losses and increases profit.

4. Please trade on all calls given by tips provider

Please trade on all calls given by Tips Provider and trade in equal number of lots. This would reduce your chances of losing and would help u in earning. It is very difficult to have an accuracy of 100% in the calls. So, at times, some of the calls may hit stop losses. So it might happen that 10% of the calls hit stop loss and to your utter dissatisfaction, you would have traded in those 10% calls only. And this happens with people who choose between calls. If you have relied on Tip provider and joined the service, then have faith and trade in all calls rather then using your brains and selecting calls. Trading in all calls gives you the advantage of earning the profits in accurate calls and make up for the calls which hit stop loss.


5. Please trade equally.

Please trade in all calls in equal quantity. If you have decided that you will trade only 1 lot, and then on every call given tip provider, trade in 1 lot only. Please don’t be selective. It might so happen that you traded in more than 1 lot and you suffered a loss and hence you decided to trade in just 1 lot. Please don’t do this. If it is mentioned by Tip provider in his/her call, that trade in this many number of lots then you can have a different number of lots traded, else please trade equally on each call.

In general even if no update is given on any call given, tip providers presume that a trader will book half of his holdings at the first target. If he holds only 1 lot, then he must book that at 1st target or trail it above cost.


Happy Investing :-)

God Bless all of Us !

RECENT CALL PERFORMANCE

By Gods grace,
 zee learn achived medium term tgt of 20%
Kiri dyes achived medium term tgt of 20%

within a week.

December 22nd performance

By Gods Grace
Harrisons Malayalam Ltd Short Term TGT achieved in single day 4.7% returns
Jayshree tea Short Term TGT achieved in single day 4% returns
Long term call Voltam given B@700 levels now trading @800levels within a month time-- 14% returns till now

December 20th performance

By Gods Grace
Herohonda TGT achieved in 1 days--13.9% profit
HEG TGT achieved in 1 day-- 8.7% profit
camlin hit SL  --4.4% loss
Tech mahindra missed TGT by 1 rs..days high 709..tgt given 710..upside till now 9%

GOLD B@20500 on 16th S@ 20538--3800Rs. profit per lot--4.75% profit per lot

Insurance FAQs

1)What is the difference between nomination and assignment?

Nomination is an authorization to receive the claim arising out of policy in the event of the death of the life assured, it does not give the nominee an absolute right over the money received to the exclusion of other legal heirs. Further, the Nomination can be changed or cancelled at any time during the lifetime of the policyholder at his will and pleasure or by a subsequent assignment. On the other hand, assignment of an insurance policy is a transfer or assignment of all rights and liabilities to the insurance policy in favour of the assignee.

To be continued...

LOAN TO REVAMP YOUR HOUSE

This article came in news paper Times Property dated 17-12-2010

 You can avail a home improvement loan to complete all those pending repairs, says Kavita Sriram

    Some homes may require urgent repairs. Homeowners need not wait indefinitely till they can augment enough money towards revamping their house. Banks lend money not only to buy a property but also for any home improvement project you may undertake.
    The process of renovating or making additions to your house is home improvement. It includes painting, flooring, upgrading cabinets and wardrobe, expanding capacity of electrical and plumbing systems, and roofing. Some people may want to add a room or convert an unused corner to a living space. Home improvement loans are meant to finance these activities that could cost anywhere from a couple of lakhs to around Rs 10 lakhs.
    Technological additions like installing security systems, fire prevention gadgets, water recycling units and rain water harvesting systems are expensive. Homeowners can also use the home improvement loan amount to buy home electronics like microwave oven, washing machine, hobs, kitchen chimney and air conditioners. This loan enables homeowners to concentrate on home improvement, free from the fretters of financial limitations.
    Homeowners with a stable income over the last couple of years and a minimum age of 21 years are eligible for this loan. Most lenders limit the repayment period to 10 years. If you have a home loan already, applying for the new loan with the existing lender may be a good idea. This could make the loan process less cumbersome with minimal paperwork.
    Most lenders expect margin money (down payment) to the tune of 20 percent of the cost of home improvement project.
    The financial estimate can be made by an architect or may be based on the cost of gadgets you would like to purchase. Estimated cost of home improvement project includes cost of repairing, renovation or extension. Before applying for a loan, try to raise funds to meet the down payment.
    Some banks finance the entire project cost for their existing customers with impressive repayment track record. Consider availing home improvement loan if you have pending internal and external repairs and other structural improvements to your home.

IT ’SBETTER TO BUY PROPERTY WITH HOME LOAN

This article came in news paper Times Property dated 17-12-2010

It is always advisable to buy a property with a home loan as you get tax benefits and the advantage of the bank carrying out a due diligence process, writes V Nagarajan

    Most homebuyers need a home loan to buy a residential property. There are some who prefer to buy using their own funds. But there are risks associated in such cases. Many people have invested in vacant plots without seeking a site loan and there are instances where such investments have gone sour. The process of seeking a home loan not only assists a homebuyer in tiding over the financial need, but also helps him to a great extent in the due diligence process.
NRIs get benefit of due
diligence
    For instance, take the case of NRIs who are away from home and who may have to go through the process of legal scrutiny while investing in a property. They have to depend on their relatives or friends. The best way out is to seek a home loan as the legal cell in the bank will scrutinise the documents and certify that the property is free from encumbrances before lending. It is always wiser for such people to invest in projects approved by banks as that ensure that all due diligence process has been completed. Incidentally, the Foreign Exchange Management Act (FEMA) rules prohibit NRIs from investing in agricultural land, farm land and plantation property.
Tax planning done
    From a tax planning point of view as well, it would be better to buy a house with a home loan. It is also equally beneficial for those who have an investible surplus to invest in residential property through a home loan. The interest on the loan up to Rs 1.5 lakhs is tax deductible for a self-occupied house. This means a tax saving of nearly Rs 45,000 per individual. A housing loan of Rs 18.75 lakhs attracts around Rs 1.5 lakhs as interest at present. The interest payment can also be adjusted against salary income, business or profession income, or any other income. A loan can be taken from a bank, financial institution, relative or friend.
    There is no limit on the deductibility of interest in the case of let-out and commercial properties. It is advisable to go in for a home loan especially when the property is to be let-out. So, you can take as much loan as one you can get from the lending institution. Here again, the interest payment is allowed as a deduction in full while computing 'income from house property'.
    Further, capital repayments are eligible for deduction under Section 80C within the overall aggregate limit of Rs 1 lakh. Payments on account of stamp duty, registration fee and other expenses which have been incurred for the purpose of transfer of the house are available for deduction also.
Co-borrowers get benefits
    Even while making a joint investment in property, every member gets a special deduction in respect of interest on the loan and also repayment of capital. From the point of wealth tax planning as well, one property is exempt from the purview of wealth tax irrespective of the value of the property for every individual.
Avoid wealth tax
    Above all, if an investor is holding more than one residential property, he can avoid payment of wealth tax if the residential properties are given on rent for more than 300 days in a calendar year. Maximum marginal tax rate of 30 percent can be brought down to 21 percent in case the property owned is leased out.
    So, go for a home loan while investing in property.