Markets are at their 15 months high. Retail investors are back and I am sure you must have got the left out feeling by now, as stock market have gained more than 100% in last 6 months.
What shall one do now, Shall we invest for long term now, Will markets go up or down. Trading is Probability and hence we shall take our decisions based on probability only. Lets see what are my views on current market conditions.
Markets have crossed important levels of 4850 before some days and have been stable there for some days .. Once it crosses 5300, which is another important level, I would be very much bullish then and will be willing to agree that markets can again see the all time high of 6000+ in another 1 yr.
See the chart below.
Source : icharts.in
Above is a 3 yrs weekly chart of Nifty. If you see the chart below you will see that another important resistance is at 5300 and you can also see some good negative divergence on ADX . This gives an indication that we must be cautious at the moment .. The upside might be limited to 5300, from where it can take a reverse turn.
But, As you must be knowing, markets are supreme and hence if it sustains that level. We will have to obey its order and remain bullish. You should have a look at Deepak Shenoy article on Nifty P/E and EPS growth some days back.
What about Nifty PE?
As of 21st sept 2009, current Nifty PE is at 22.40. Now this kind of number is not show very attractive valuation for long term. Below is the chart of nifty PE for last 3 yrs .. you can see how its has crossed important zone of 20+ and now heading to 25 which I personally consider as “SELL at any cost” level at the moment.
Even though High nifty PE of 22 does not reflect great valuations, it can be used as short term indicator for catching some momentum move . So I would love to buy right now to get out at 10%-15% profit in another 1 month or so, or till market reverses heavily . But I would not like to make some long term commitments right now at this level, Better wait than never.
So what are the Possibilities
Markets can reverse now anytime before touching 5300 levels
Markets can sustain 5300 levels and then see 6000+ levels from where it will crash again
Conclusion
This post is just trying to see where we are and not trying to entice you to do trading, trading is a personal activity and can be done in many different ways. Where is will market go is a trivial question, the more important thing is “what will you do when market moves in any direction”
If you have any doubt you can leave your query in our comment section.
Some of thebeginners to online stock trading do not understand relationship between Share Trading account and Demat Account . In this short article lets see the relationship between Demat account , Trading Account and your Bank Account . We will also see how many trading or Demat account you can have in total . Work Flow
Below is a short chart where I have tried to give the flow when you buy a share . click to Enlarge
Demat Account : Account where your Shares are stored in electronic form .
Trading Account : An account which is used to place orders for Buying and Selling of shares .
So Trading account is an interface between your Bank account and your Demat account , when you buy something , Trading account takes money from your Bank Account (Its already taken from your Bank account and saved in Trading account) and buys shares and stores it in your Demat account . When you Sell something , Your trading account takes back the shares from your Demat account and Sells them in Stock Market and get back the money and that goes back to your Bank account (actually you manually transfer it to Bank account from Trading account most of the times .
Question : Does any one know maximum how many demat account can one open ?
This is the 4th and last part of the series on Stock Markets articles Newcomers. In other parts we discussed some important things which newcomers should know when they enter Markets.
In this article we will see how a new comer in stock market should start. Go through other 3 parts before this to get maximum out of this article .
“Small babies like Teddy Bears, and Market Bear likes Babies (newcomers) in Stock markets”
There are 5 things a new comer has to do , I will call it CLOPS model of starting in stock Markets .
Calm Down
Learn
Observe
Practice
Start Small
This model of learning is totally obvious and logical and applies to all the areas of life. Stock Markets are no different. Lets see each of them separately and what they mean in Stock markets.
Calm Down
The first thing a newcomer has to do is to calm down and not rush. Just be where you are. Most of the people come in stock markets and its totally a new place for them and every thing looks like a great “get-quick-rich” opportunity to them and they want to make most of that once-in-a-lifetime opportunity.
They don’t know its every-day thing in stock markets. Markets are like a wonderland for them. Markets are not going anywhere and its more true for the opportunities they provide.
So the first thing is to just calm down and do-not rush to get in. There are other important things you have to do before you get-rich-quick. Most common mistakes which newcomers do is mainly because of excitement and getting in without preparation not because of lack of skill or because of there abilities.
When you calm down first and don’t get excited you are doing an important thing which is not jumping in without thinking and making yourself ready for another important things which are discussed below.
Learn
The next step is to Learn, Learning is an ongoing process which will never stop as far as Stock markets are concerned, but at the starting level you need to learn lots of basic stuff.
Read how Stock markets are structures, what are different indices, what is Nifty and Sensex? What are the factors affecting markets? How to analyse a company? what are important things to consider while investing?
Read books, Read blogs, Read anything you can get on the subject. Some of the good resources are:
Books for Value Investing (Thanks to Rohit Chauhan to provide the names)
Watch this video for beginners to learn how to invest in share market:
Observe
After learning, the next thing is to Observe the markets. See market movements, watch how prices are behaving on each news or with volumes, see what kind of patterns are developing on charts and does it behave every time in almost same way?
When you observe these things, you will develop some understanding on relationship and you can validate those with what you have learned so far. A good amount of time should be given to this, markets have different faces and you need to see all the faces, just one good up move is not enough, see at least all different kind of moves.
Up-move, Down-move, trading in range. All of these in different time frame.
You can actually start this early and do it side by side your learning. Collect charts for each day for later reference so that you can see it later. If you know some programming , make a small program which can download the charts from yahoo customized to your purpose.
I have downloaded 15,000 daily and weekly charts for all the Nifty, Midcap stocks and Asian Indices. I can go back to them and test any of my strategy on those charts. Keep History to learn about the future 🙂 .
Practice
Now come the fun part and very important part, Practicing what you will do in real. So you have learned things and observed things, now is the time to practice. Before you try out anything in stock market with real money, just see if you able to make any money with practice or not.
I would recommend just have an excel sheet and put all the transactions there like
– Buy price
– Sell price
– Profit
– Profit percentage
– Time of holding the position
– Average Loss per trade
– Average Profit per trade
These are the statistics you should keep in mind and see how you are progressing each week, Don’t concentrate on each trade too much. It’s better to have a weekly target while you are practicing. I would recommend at least 2-3 months of practice.
This step is important because when you get into market to trade, its totally a different thing. Your reactions to markets movement will be too different than what you had thought. If you jump in markets without practice, you will do lots of mistakes.
Better practice before getting in real. Important thing here is that even with practice (without money). It wont help you a lot but will give you good idea of things. The fun part comes when you start with money then you truly get idea of your behavior 🙂 .
Anyways this is important.
Some people think practice is taking all the time and they are losing all the money, which they “could” have made. This is a wrong way of seeing things.
Though it looks like a opportunity lost, you are in learning mode and the best part is that you are not “losing” anything and getting ready for making money. There is a chapter on Practicing from a book “Enhancing Traders performance” on this post article by Brett Steenbarger, download it and read, its copyrighted material so i cant put it directly here.
Start Small
Now after you have learned things, Observed things and Practiced, here comes the last part, Starting Small, Start putting money in markets in small quantities, Grow gradually. View your self as a small baby who has just born, first start moving, then crawl, finally stand up one day and walk, once you can walk with speed then try Marathon. The same thing applies to Stock market.
But most of the new comers just want to win the marathon and start running fast without understanding that there body is not ready for marathons. they need to first know how to crawl and they want to win marathon.
You will fall a lot of times, you will have losses and will make money too. But if you don’t start small, one big loss will wipe you out of markets.
In the start it would be difficult for you to control your losses, you will need to have string of losses and the best way to tackle the situation is to start small and put little money in markets so that even a series of bad trades don’t hurt you much.
Many people may go slow and play small for learning and practicing part but when they start with real money, they start too big and that’s because of there over-confidence that are now ready to make money. First crawl baby, Marathon is long way to go. Make your legs healthy first, then dream of running.
Conclusion
Each and every newcomer in the market, should understand that Stock markets are places and from centuries people are trying to make money from it consistently but very few people are successful! This profession has very less success rate if your compare it with other professions like Medicine, Engineering, Computer Science etc.
There has to be some reason why you need to give time to it and learn things here. Take it as another professional course like any other and work hard on it. I think one should seriously give around 2 yrs for learning purpose.
See it as a career not just another place to get-quick-rich, that doesn’t happen in Stock Markets. Its a gradually getting rich place rather than get-quick-rich place. There is a famous quote in markets that “There are old traders and bold traders in stock markets, but not both”. that’s true!
In this article we will discuss the 8 Key points which a new comer should understand before entering in the world of stock markets.
It may happen that you already have all of this in mind and you do understand them at a subconscious level but let’s go through them again and discuss it.
This is Part 3 of “How a newcomer should start in Stock Markets” series. Read Part 1 and Part 2 before reading this article. We have some so called Cosmic Rules in Stock Markets which if broken will eventually ruin your someday is not immediately.
Let’s see them very briefly.
1. Don’t put all your money in stock markets:
Never ever, put all your money in stock markets. If things go wrong you will be ruined for ever. If you have 50 Lacs and you choose to put all your money in markets because “you are sure that its going to double in 4 months” this means you are also saying that “I am ready to get ruined if the markets crash and goes down to 10 lacs”.
Most of the people like to see the first picture but don’t expect second one to happen even though probabilistic the second one is more likely to happen. Better look for “low risk-or-good” returns, rather than “fatal-or-exceptional” returns. Any money which you want to throw in trash can be used for such high risk Investing or trading.
2. Cut your losses Short:
I know telling you this gives no surety that you would follow this. It takes time to understand by making mistakes over and over again and learning from it. But still, “Cutting your losses short” is the “Rank 1” Rule in Stock Markets. One who can master this single rule can rule markets.
When you start making losses, your emotions come into play and it says to you “Its coming back and once its back to Rs XXX I will get out”. Don’t listen to it to this voice. The simple rule is “You were wrong, accept it and get out and look for something else” and its damn too tough to understand this in the initial stages.
Mistakes in Stock markets are fantastic if you learn from them. They are more valuable then the right things you do in markets.
We know that markets move in zigzag fashion, up-down-up-down like this and its true. But some people wire this in mind in such a way that they always try to force market to reverse from its path and justify that it moves in up down fashion.
If markets are going up, in their subconscious mind they feel like markets will now reverse “because they move in zigzag fashion” and hence it should now reverse, this belief entices them to invest or trade in opposite direction. The interesting thing is that people don’t understand what encourages them to go against the trend.
My one and half years of trading experience (not very beautiful one) tells me that this is the reason why we do against the trend and once we control this, it can change our luck. There is no luck in stock markets, it’s simply your thinking. “Change your thinking, your luck will change”
5. Everything is Probabilistic here:
“Buy RELIANCE above 255, Target 273, Stop loss at 245”. Now our Mr. Newcomer will read this in newspaper or listen it from the GOD a.k.a “Markets Expert on CNBC” and take the trade, things will go weird or may go the way predicted but most of the times things will go wrong.
He will be wondering who is wrong? Market? That expert on TV? His Dog? Mr Obama? whom to blame? Everyone in the world but not himself. He will never look inside himself. Everything is probabilistic here, Out of 100 times things may work 60-70% (depends) of time and not work rest of the times.
When it does not work, you have to control yourself and accept that its not working rather than forcing markets to work for you.
6. Don’t listen to Stock Markets Experts on TV:
Why do I say this? Markets “Calls” are least important things in Stock markets (i believe) and you only get that least important information from TV experts. What you don’t get is vital things like psychology to trade, Money management rules, Discipline to follow every time you take the trade. Those calls are in isolation.
They are not generated by a consistent rule, you can get calls from here and there and all of them will be kind of random to you. Other problem can be that you don’t know the time frame of the call. If you don’t understand all that I just told the easy way to understand is to answer this
“If listening to TV experts was really worth, Why am I not making money”
“How many people do you know who make living or earn exceptional returns by trading what experts tell them”
At last, the point is not that the ‘calls and advice’ works or not? They may work but not for you. There is lot more than getting calls and acting on them.
Another important thing why you should stay away and avoid listening to them is because most of their calls are for “forcing you to trade more” which will eventually generate more brokerage and commissions for trading companies.
Read this article from Shyam Pattabi to understand more on this.
Question : Why do experts give more of BUY calls and very less of “SELL” calls?
My Answer : When some one “SELLS”, he is out of trap, he is out of stock market, he pays commission once. But when Someone “BUYS”, he is trapped in markets, He already paid once and has to pay one more time to get out, so SELL = Commission 1 time and BUY = Commission twice for sure :), Ohh.. Did I discover something here 🙂
7. Have realistic Expectations:
One of the important reason for failure in stock markets is setting unrealistic goals. You see 100% made in a week, 50% in a year, 10% in a day and you think: If 10% is possible in a day or a week then 100% in a year is a child’s play OR you think like if I buy this I will sell only after its tripled.
Once again I say “We learn from History that we do not learn from History”. Have you seen what is the best long term returns from stock markets all over the world. That’s around 15%-20%. That’s it. I am not saying that you can’t get 50% in a year ever, you will get it and everybody gets it, but sometimes.
Over long term you should have expectations of 5-10% more than what safe instruments return or have a target of 4-5% more than what markets give. So anywhere from 12%-20% is good return to expect from long term. In short term there will be chances where you get exceptional returns like 50% in a week or 500% in a year.
But let them come to you don’t force them to happen. Unrealistic Expectations force us to meet them by hook or by crook and that’s when we do mistakes and take unnecessary risk to achieve them and burn out hands badly.
“Want to understand markets, have a girlfriend and try to understand her psychology. People who are already in relationship (males) have an edge I think as Markets and Girls are very much same”
8. Be ready to Make mistakes and Learn:
Some of the best Traders and Investors who are successful today and are multi-millionaires didn’t become one overnight. They Failed miserably in Markets but never quited. They learned, learned and learned from their mistakes. Markets like Life give us opportunity to make mistakes and learn.
As I like to say “Making Mistakes in a privilege which unsuccessful people don’t get in life”. Making mistakes is Great, if you are ready to learn from them.
I came up with the first ebook on “Basics of Technical Analysis” . For now I have used the data of my earlier posts only for this ebook , but it has all the data at one place and hence will be good for readers who only want to concentrate on Technical Analysis . Download Link
Please let me know how is the Ebook and If you are finding any difficulty in downloading it . Also feel free to share the ebook with your Family and Friends . No issues .
I hope to come up with another Ebook soon , on “Basics of Financial Planning for New bees” .
As always , Shyam Pattabi came up with an excellent article on his blog where he shares his views on how mis-selling happens in India and why people fall in trap of “advice” and “calls” from agents and other financial services companies , And his analogy on he post is excellent . I came up with similar topic some days back on “Why do you need a Financial Planner” , have a look on that too .
Today we will discuss the important aspect that all the new beginners must understand to know what exactly they want to do in stock markets. In this post we will see what are the different types of things they can do.
In this first post, “Why Stock Markets attract and looks Easy we saw the reasons why Stock Markets attract new people and the issues related to it. In this post let’s explore what are the different options available for you.
So, you are new to stock markets and you have heard lots of people making good money. You jump in, open a trading account, read some blogs online which claim to have 80-90% success rate and you jump in to buy some stocks. You make money or loose money which really doesn’t matter in short run.
What you are concerned with is the long term view if you are serious about investing and trading. If you are not serious, I would recommend you to go somewhere else, if you take stock market as hobby, it can be proved expensive hobby and I am telling you this upfront!
Below is the way how New comers behave in Stock Markets, click on the pic to enlarge.
Let’s see some of the most important things a new comer should ask himself/herself.
Who am I? A Trader or an Investor?
This is one of the most important question you have to answer. Are you a Trader or an Investor?
Who is Investor?
Investor is someone who buys the stock for long term. Investing in itself is a word which means that you are putting your money in something and you expect it to grow over time. This has to take with fundamentals, company’s potential, long term prospects, cash flow, profit and losses.
See it as investing in a business, now what type of business would you choose to invest in? It has to be something which will grow over time from its current levels. You are not concerned about the short term movements as the focus should be on the long term view.
If the company’s share prices are providing value over its current price and it has consistent track record along with good future prospects and many more things like these, you will buy it.
Who is Trader?
Trader on the other hand is someone who buys and sells the stock for short term. He is not concerned much about long term prospects of a company. He is more interested in what stock will do good in short term. His decisions are more based on news, technical analysis, gut feeling and things like those.
If you are a beginner to the stock market investments then you should watch this video:
What will I Trade/Invest In?
Another important question to ask is What you want to trade or Invest in?
If you are an investor you can choose from Large Cap companies (NIFTY companies), MID CAP companies or very small penny companies. Each of them offer different risk and reward opportunity. But you have to be clear with what you are going to invest in.
Because once you are clear with it you can make some strategy for it and follow it. Juggling from one stock to another will lead to confusion and is definitely not recommended.
If you are Trader, you have to choose from Stocks, ETF’s, Futures or Options. Each of them are different from one another and requires specific knowledge to understand them. Its a critical factor to know what you are going to trade into.
Once you know what you are going to be involved with you have a clear road map and then you can move forward to next thing.
What will be my Time Frame?
Another important thing to consider is the time frame for which you are going to invest or trade.
For Investors, it can be very long term (10+ yrs), medium term (3+ yrs), short Term (1+ yrs). It depends on your personality, your ability and time to be involved with stock markets.
Something which works for a person with short term view may not work with a person who has long term view. So each time frame has its own advantage and disadvantage. You just have to choose one and be clear about it.
For Traders, you again have to choose your time frame and your style of trading. You can be
Positional Trader whose holds the trades from some weeks to some months
Understand that each time frame is different and each will yield different result. Two people with different view on market and different time frame can both make money.
Example:
You are bearish on market and you say that Markets are going to fall soon. I say that I am bullish and markets may go up. For next 3-4 days markets move up and I make money based on my judgement and then markets fall heavily and you can make money based on your judgement.
So the important thing here is no one is wrong the only thing is different time frame. So before listening to anyone you also have to understand their time frame.
Many analysts on TV channels will give calls like “BUY RELIANCE at 2130, with target of 2200, SL 2100″, Don’t go and buy RELIANCE next day because you have no idea about the time frame of the person advising you to buy such stock, what is the analysis behind it and what are the risks involved. It may work once in a while but its a recipe for disaster for long term.
Conclusion
” A person who wants to do everything eventually cant do anything “
Stock Markets have different kind of things and offer different ways of making money. If you are not clear on how exactly will you do things.
Its a tough game then, the first important step is to Identify what you want here, just like in Life we must be clear of what we want to do and then be good at it, learn about it and just consistently improve in it. The same we must do in Stock Markets.
This is going to be important and useful series of article. Today we will discuss how a new-comer to stock market should start. In these series of articles we will discuss following things.
Why stock markets attract and look easy
Understanding what you want to do exactly
What are important things when you are in stock market
How a new comer should start in stock markets
Why Stock Markets attracts?
You must have heard lots of stories about people who became millionaire over night or in a short span of time from stock markets trading.
There are two kinds of people who make money from stock markets:
# First kind, are the people who make money because of luck. They buy some thing, it goes up and they think it was their skill that made the profit. Next time they buy something again and wooo!!! It makes money again and now they are the king!!
Then comes one day when their “best time in the market” is over and they start loosing money and this time its “bad luck in market” as they say!! They keep on trying to prove that they are knowledgeable and have mastered the skill to understand how markets operate.
At last they go bust and return from where they started. Smart people in this category are those who make money once or twice because of luck and don’t come back. I appreciate their smartness.
# Second kind of people are those who are real game players, They have done their homework, failed lot of times, learned from their mistakes and worked hard to make money. They know the rules of stock markets and take it seriously.
They are successful traders or investors.
People hear that lots of people make lots of money in short span of time from stock market and how easy it is to just open your trading account then choose some stock, later on buy or sell and magic happens! You make money. This is Far from truth!!
This thinking that “Lots of money can be easily made from stock market without much hard work” is the main reason why stock markets attract lots of people.
Why it looks easy?
“BUY OR SELL”, that’s all you have to decide? Either you will Buy something or you have to sell something. One of the renowned trader Larry Williams says this is the reason why most of the people think that its an easy thing to make money in stock market because they have very less decisions to make i.e. BUY or SELL
This is a human psychology which tends to believe that anything with less decisions is easy and one can do it. Everyone thinks “I am different”, “I know all these people where not able to make money, but I can understand things better and I can do it in a different way”!
This thinking is appreciated but, until it becomes over confidence. It’s true that you are different and you can do it but each and every area has some ground rules and unless you follow it thoroughly it’s almost impossible for you to succeed.
What you must understand?
You have to understand that you are a newbie and a small player! A new born baby ,who cant even crawl in the world of stock markets, but dreams of running a marathon and that too on one leg 😉 . Each profession needs specialization and experience and Making money from stock markets is no different.
Just like becoming a Doctor, Engineer or anything like that demands extreme study, experience, knowledge and other things specific to that profession, stock market demands all of that. The people who want to make money without doing it can not sustain for long and will hurt themselves very very badly.
We will discuss more of this in 4th part of this article “How a new comer should start in stock markets?”.
Investments are similar to small plants; they need time to grow and flourish. Most of the investors make a common mistake of not giving enough time to their investments to grow and take a good shape.
If you think about how you plant a sapling and manage it well for years so that it can become a fully grown tree so give you the fruits, the process of investing through shares and mutual funds is the same way.
Lets take each case and see the similarities between these two concepts.
Growing Tree
You take a small plant (or a sapling), put it in soil and then water it, monitor it, take the weeds out, clean the plant and take care of it from pests which might be destroying your plant. It takes patience for the plant to grow and become a full grown tree. Then it servers you with the fruits which you deserve for your hard work and patience.
Imagine a different scenario: Now, you pick up a plant and put it in soil, 10 days later you go to see it expecting that you will get some fruits out of it. Obviously, you will be disappointed! It can’t give you any fruit and you think that either something is wrong with the plant or the soil is not the right type.
You take the plant out and put another plant, again 10 days later you come to see the plant, nothing happens. You take it out and put another and another and another and then you realize its not working. Now you think that the culprit is the type of soil, you take the same plant out of the soil and put it at another place which you think has better soil. But nothing happens there too!
Because your concentration and focus is on wrong things. It will definitely not grow if you don’t give it enough time to settle. It’s roots need to get hold of the soil, adapt to the conditions.
There will be different cycles of weather which will challenge and threaten the plant growth and you will have to take care of those scenarios. But one thing is sure that you have to give enough time to it.
Making Investments
When you invest in a share for Long term, the biggest mistake you tend to do is not give enough time for it to grow! If it does not move up quickly or as per your expectation, then you tend to think that you have picked a wrong share. You redeem your investment and again invest money in some other “better looking” share.
This keeps on happening, the prices of the share moves up, then down and it is never ending cycle. The volatile movements in share price gives sleepless nights to the investor and makes them believe that their investment might go in loss and hence its a good idea to liquidate it and finally shareholder sells it and takes the money out; Then again buys some other share.
This buying and selling goes on and on and one! The investor never gives one share enough time to grow. I am not saying that buying any arbitrary share and keeping it for long term will make you profits.
Picking good fundamentally strong stocks is a separate topic in itself. Here we are discussing about the scenario where assuming the investor has put his money in good stock but he just needs to give enough time to let it grow.
Later if the investor looks back and analyses his previously picked stocks, he will find that most of them have gone up or has crossed more than his expected levels. He then realizes that the only thing he missed was to give enough time for his investments and sit back tight without doing anything.
CASE STUDY
Imagine a person who invested Rs 10,000 in Wipro in year 1999 . What do you think the stock prices were in next 3 months or 6 months. What if the investor had sold the shares within a year because of a small loss or some good profit. In 1 or 3 yrs he might have got excellent returns ,which is fine. But the best returns comes when you give an excellent stock enough time. What do you think the stock was worth for in 28-29 yrs.
Rs 10,000 invested in 1979 was worth 200 Crores in next 28-29 yrs. The pick was good, no doubt! but it was the patience that got rewarded in the end.
What is it that makes it difficult for investors to keep patience with there investments?
Right from our birth, we are taught that life is ALL about winning, getting right and not making mistakes, being perfect. This has got inside our brains and its just not acceptable for us to be wrong, we want to achieve success, and be right.
When you invest in a share and it goes up in price, the first thing which comes to every mind is, “I should book it now and take the profit, else it can again go down and I may go in loss”. Actually in our mind we are saying “I should be out of this investment so that I can show others that I made a winning investment, or else I will make a loss and hence be called a loser”.
Have you faced this situation?
When you buy something at Rs 100 and it goes to Rs 99. Its so difficult to sell the share at Rs 1 Loss (that’s 1%). You just want it to come to Rs 100 back and then sell so that you are a winner and not a loser. But you only find it dropping further to Rs 90 and then Rs 80 and so on .. you are just helpless about the whole scenario.
Investments and Trading is not about Winning, its about making money and losing a little in case you are losing. Stop thinking in terms of Winning and Losing!!!
Think in terms of Keeping your losses at minimum and once you are in profits, let it run till you find a reason to sell the share. Selling a share just because its in profit is not a wise thing to do! You can make some profits out of it, but wealth is created by letting your profits run and run for a long enough time.
Note : This article from me was also appeared on Valuenotes.com .
Let us see some analysis of current market conditions. Most of the people are rushing to buy now for long term . but this may not be a market to buy for long term. I am myself Bullish now, but for short term not long term.
I would not be surprised to see markets rise by over 10-15% more over next 1-2 months till the Budget but sooner or later I expect.
– A nice correction if this is another bull market
– Bull rally coming to an end in the strong bear market
Historically Nifty has been considered and shown instances of being oversold in range of 10-13 and overbought in range of 20-25. Nifty has had a crash after after getting in the range of 20-25 and have rallied after touching the range of 10-13 .
OVERBOUGHT MOMENTS in Indian Markets
Click to enlarge , Data for last 10 yrs (Jan 1999 – 31st May 2009)
You will see that whenever nifty crossed 20. It was time to be cautious. its not exactly the time to go short sell, but at least book your partial profits and be cautious with further buying for long term.
Current situation : As I write this, Nifty PE is around 21. Its not a very good situation to madly buy for long term. Its a time when euphoria is at high point and it can take markets a little further. So you can jump in now with short term perspective, not long term !!, because markets may fall in some weeks or months.
Who all missed the current Rally? I missed it. there are two reasons, I am a trader not an investor for long term (at least currently).
So I do not concentrate on it. But you could have not missed it if you had read this concept earlier and had the guts to go against the so called “experts on CNBC” who were talking about 5k or 6k for NIFTY some months back.
Click to enlarge , Data for last 10 yrs (Jan 1999 – 31st May 2009)
If you see the chart, you can see that after touching the PE levels of 11-13, markets have rallied back as it was too oversold !! Again, just touching these levels of PE does not signal a BUY, its only a signal to be cautious and make your mind for long side, and start the accumulation process without fear.
Markets will still make lower levels and experts on CNBC will still cry over economy conditions and world coming to an end. But market rewards the “risk assumption”, not the actions on obvious facts. You also have to decide how much money of your portfolio would you like to put in stock market after considering your risk-appetite.
What can we learn from this PE Concept?
“We can learn from history that we do not learn from History”
This is true for almost 95% of the long term investors all over the world. They do not learn things, they do not do any research, they do not go and read blogs or tons of informational sites, they just want tips from others and make money. the mathematical expectation of that kind of investing is negative and cant work for long term.
Lets develop a simple concept of PE based Investing. here it is:
BUY Signal : Once PE crosses below 13.
When NIFTY PE reached levels of 13 , start accumulating the stocks and invest your money in 4-5 installment over some months. Make sure that markets are going up and down and moving in a range . If PE crosses below 11 , its a must BUY !!
SELL Signal : Once PE crosses above 20.
Book the profit once NIFTY PE crosses above 20, Don’t book all profits at once. Book it in parts. PE crossing above 20 does not mean markets has to fall, its only an indication that markets may be oversold and now “smart people” will starting selling there shares to mad public.
Short sell the shares once PE and Markets start falling down from PE levels of 20. If PE crosses above 25, its a must SELL !!
There have been cases of PE going up to 25-28 levels. That will happen at the peak of strong bull markets like Jan 2008. In very strong bull markets you have to understand that PE will cross even above or below its extreme points. That’s the risk part of stock markets from which not even GOD can save you from !! 🙂
This is the time when your buying in parts and putting capital which you can afford to loose will help !!
Anyone who puts 100% of there money in stock market at once on one single time on a single bet has a secret affair with financial disaster which he/she himself is not aware of. So don’t put all your money at once. Only put a part of your capital at any point .
Where do you get the PE data for Indices? (Nifty and other Indices)
PE data : https://www.nseindia.com/content/indices/ind_pepbyield.htm
Note :
I have divided Nifty Value by 100 to make the graph look the way it is . In graphs , so on X axis if you see 40 , then read it as 4000 for nifty . but exact 40 for PE .
PE value will be separate for individual stocks as PE ratio for stock can go up or down for many other reasons . So if you are doing Stock analysis , see its historical PE values and find some pattern yourself . Innovate !!
I hope you have got a clear idea about Nifty PE. If you still have any confusion you can leave your query in our comment section. Also do let us know your opinion about this article.
This is a guest Article from a fellow blogger friend and a very good Technical Analyst, Nooresh Merani. This is an interesting article where he presents how a profile of a Day trader looks like.
A part of this article was published in May 14th Issue of Money Today Magazine. I hope it would be a good read for everyone , Even If you are not related to Trading , you will come to know what is Day trading and how it can be a full time profession and very rewarding one . Read the article Below .
THE JOB = Day Trading
Job description: 6 hours a day / 5 days a week which requires hardly any physical activity apart from grunting or swearing in anger or thumping hands, tables and chairs in happiness.
Desired Profile: The desired candidate should be good at accounts and quick at using the computer keyboard or mobile keypads. No formal education or age bar.
Company Profile: It’s one of the oldest organizations (BSE is formed in 1875!) which is open to all candidates provided they have capital to trade with.
Remuneration: The salary has no upper limit but the candidate has to forego a small amount as brokerage/ taxes on the transactions.
The above job description seems a dream job!!
The profile of a day trader is not as rosy as it seems as they don’t have a fixed salary, instead they have to risk a security deposit (trading capital) paid up with the company (exchanges/brokers) which may be blown off in few hours, days or weeks or years.90% of Traders pay salaries for the rest 10%.
Trading is one serious business and a highly disciplined profession but, a large section of traders who don’t have this attitude get thrown out of the system very quickly. A trader learns from the mistakes, accomplishments through his trading career and by honing his technical and intuitive skills.
Initial grind:
Every traders goes through the initial grind (sometimes recurring) of losses, depression, self -realization and more.
A must Quote for every traders’ desk, “People who learn from their own mistakes are Wise, People who learn from others mistake are Wise and Lucky and, those who do not learn at all are Traders (Suckers)”
So, to be successful in trading, the most dynamic profession, where even a richest man can’t afford an hour’s lunch break (the Gujarati Thali would cost somewhere in Lakhs!!), one needs to learn, evolve, adapt and be disciplined. Always learn from the past, apply it to the present so that you can gain in future!!!
A Traders Day!
Pre-Morning work:
First thing a trader checks is how Dow Jones, European indices performed overnight and the current situation of Asian markets. SGX Nifty in Singapore opens up much before India so a trader gets hint of Nifty opening.
The trader makes modifications to the stock lists and observations made for the day. Technical, Pivot and data traders are ready with a list whereas system traders rev up their mechanical engines which generally don’t deliver much.
Trading Hours:
Although every trader has to see the ticker on his computer monitor for prices, but, there is a section of traders who only rely on ticker reading, which is a study of price & volume fluctuations. For best results, a combination of intuition, ticker reading and knowledge of technical analysis is a must.
Indian markets are one of the most volatile ones and it’s a common saying out here – Nazar hati durghatna ghati (Moment you get your eyes off you will meet with an accident). So a trader has to be attentive and nimble footed to make split-second decisions and follow the personal trading style/rules.
Post Trading Hours:
This is the best time for the trader to catch up on a snack or freshen after finishing of the calculations and noting down the open trades or the profits made in the day.
Analysis and Self-Evaluations:
The amateur traders don’t realize that this part of a trader’s life is equally important. Technical traders go through their charts; mechanical traders test their system to come out with a list of possible stock trading ideas for the next trading session and evaluate the current positions.
Trading as a profession has the most ups and downs with terribly bad trading sessions and equally high performance sessions. Every trader needs to keep evaluating, modifying and optimizing their trading styles to stay in the loop or the market knows a way to kick you out.
Latest Experience with the Screen!
Although I and many of us traders do follow the above plan but human nature is frail and one does make mistakes. One thing I have realized with experience is if you make a cheap mistake (small loss) early you would make a killing next time around by not repeating it.
The last mistake I made off late was to pre-empt and anticipate a big down move in 2nd week of March which didn’t come but luckily got saved because of stop losses and the screen. The next time around I did the simpler thing of re-acting to the ticker sense.
My one such encounter with markets was on 15 April 2009 when Indian indices outperformed global indices.
Many traders were yet again caught on the wrong side of the trade by watching the performance of Dow Jones overnight.
The index opened lower and drifted lower. But, ticker did not show signs of weakness and out of index counters continued to gain strength. What lot many traders missed out was, that Hang Seng (Hong Kong) was up 600 points on 14th March, the day Indian markets were closed due to a holiday.
Any technical analyst would confirm Hang Seng bears the closest co-relation statistically with India. So, this simple observation kept my bias bullish though the index was negative to start with.
The ticker was purely biased towards the mid cap segment in the last few sessions so my focus was on them.
We kept on holding to the previous open positions (namely Crompton, ks oils, guj nre, gtl infra, ghcl).
Also, seeing the momentum, added on to my technical picks Dishman Pharma, Everonn & Crompton for the day at higher levels then opening which gave awesome moves of 10% + in the day!!
Sensing that the up move was backed by nervous morning sellers squaring up, we booked out of previous positions to reduce the risk exposure and raising stop-losses to cost to conserve gains. A combination of aggressive buying along with disciplined money management did the trick as index closed 200 points lower the next day.
The learning from above experience was “Respect the Screen & Markets are Supreme”. A Trader looks for intuitive hints from the screen and doesn’t ask why it’s performing so, but, just follows it on the path to making money.
Above all would like to end this with few words of wisdom in Gujarati – Market Ni kamai market ma samai – (Money made in the market, stays in the market). A wise trader makes money and takes it home regularly!
