Stock Market Valuation

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How does investors decide  share market

The price of a firm’s stock represents the value of the firm per share of stock:

Share /stock price=  value of the firm /number of share,

• Stock does not always indicate the firms.
• The return on the investment is determined by dividends received and the price of the stock from the time when they purchased the shares until they sell them

Return on the investment is decided by the dividend received & the price of the stock from the time they are purchased the share till the time they are sold.

Here is one example : company DCW Ltd

NSE    15.40 0.90 (6.21%)

BSE    15.45 0.98 (6.77%)

Open 14.25 Previous Close 14.50 Day's Range 14.2 - 15.5 EPS 1.46 Avg Volume(10 days) 370104 Price / Earnings 10.53 52 Week Range  26.80 - 11.15

Market Cap 323.08 Cr. Equity Shares 0.94 Cr. Divd Payable 22-09-2012/28-09-2012 Divd Yield 2.34 Declared Divd % 18.00 Ex - Divd Date 20/09/2012

Stock Valuation Methods:-

The price-earnings (PE) method means PE ratio based on expected earnings of all traded competitors to the firm’s expected earnings for the next year.

• Assumes future earnings are an important determinant of a firm’s value.
•  Assumes that the growth in earnings in future years will be similar to that of the industry.

Reasons for different valuations:-

• Investors may use different forecasts for the firm’s earnings or the mean industry earnings.
•  Investors disagree on the proper measure of earnings.

Limitations of the PE method:-

• May result in inaccurate valuation for a firm if errors are made in forecasting future earnings or in choosing the industry composite .
• Some question whether an investor should trust a PE ratio 

Valuing A Stock Using the PE Method:-

A firm is expected to generate earnings of Rs 110 per share next year. The mean ratio of share price to expected earnings of competitors in the same industry is 14. Then the valuation of the share as per PE method is calculated as below.

Valuation per share = (Expected earnings of firm per share) × (Mean industry PE ratio)

                                 = 110 × 14 = 1540 Rs

Stock Quotation:-

• 52-week price range (high/low and YTD% change)
• Stock symbol
• Dividend annualized and dividend yield
• Price-earnings ratio
• Volume in round lots
• Previous day’s price close and net daily change
• Remainders in cents, not eighths

How investor decisions affect the stock price:-

• Investors buy or sell shares based on their valuation of the stock relative to the prevailing market price.
• Investors arrive at different valuations which means there will be buyers and sellers at a given point in time.
• As investors change their valuations of a stock, there is a shift in the demand for and supply of shares and the equilibrium price changes.
• Investor reliance on information.
• Favourable news increases the demand for and reduces the supply of the security.
• Unfavourable news reduces the demand for and increases the supply of the security.
• Investors continually respond to new information in their attempt to purchase or sell stocks.

Globalization of Stock Markets:-

• Barriers between countries have been reduced.
• Firms can tap foreign markets funds are needed.
• Investors can purchase foreign stocks.
•  Foreign stock offerings in the U.S.
• Large privatization programs in Latin America and Europe can not be digested in local markets.
• By issuing stock in the U.S., foreign firms diversify their shareholder base.
• SEC regulations may prevent some firms from offering stock in the U.S.
• Some foreign firms use American depository receipts (ADRs).
• Many U.S. investment banks and commercial banks provide underwriting services in foreign countries.
• Listing on a foreign stock exchange:-

1. Enhances the liquidity of the stock.

2. May increase the firm’s perceived financial standing.

3. Can protect the firm against hostile takeovers.

4. Entails some costs

Equity Valuation: Time Value of Money

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Valuation is the process of estimating the market value of financial asset or liability. Valuations are required in many contexts including investments analysis, capital budgeting, merger and acquisition transactions, financial reporting, taxable events to determine the proper tax liability and litigation.

Time Value of Money

The calculation of time value of money is important in the financial manager’s decision making process because the basic security valuation models are based on the idea that money has a time value. This means that a rupee received now is worth more than a rupee in the future. An individual would ready to invest a rupee only if he receives more than a rupee in exchange in the future. The time value of money concepts states that earlier receipts are more worth than later receipts because earlier receipts can be reinvested to bring additional return before the later receipt is generated.

The process of computing the future value, based on the initial amount, the interest per period and the number of years, is called compounding. Future value received after a stipulated year can be calculated with following compound interest formula:

FV = PV (1 + r)^n;

FV – Future value

PV – Present Value

r – Rate of interest per period

n – No of compounding periods

To calculate the present value of sum to be received in future by a reverse process known as discounting. The process of finding present value based on future value, the interest rate and the no of periods is known as discounting.

PV = FV / (1 + r)^n

The most theoretically acceptable stock valuation method, called income valuation or discounted cash flow method, involves discounting the profits (dividends, cash flow, earnings) the stock will bring to the stockholder in the foreseeable future, and final value on disposition. The discount rate normally has to include a risk premium.

Valuation process is centred on present value which is computed as discounted value of future stream of benefits. Valuation process is comparatively simpler in case of fixed income securities and preference share and is rather complicated in case of equity shares.

Calculation of Returns in Stock Marketing

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When an investor invests in securities he expects two types of returns:

Periodic cash inflows and the Selling Price to be received when it is sold.

Total return from an investment can be calculated as

Total Return = Income + Price Change

Rate of Return is calculated as follows

Rate of Return = ((Income + Price change) / Purchase price)* 100

Example:

Price at the beginning of an equity share is 140. Price at the end was 160. The holder received a dividend of rs 8. What would be the rate of interest.

Rate of Return = ((Income + Price change) / Purchase price)* 100

= ((8+20)/140)*100

= 20%.

Investment and Gambling

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What is the difference between Investment and Gambling???

In order to differentiate between the two, we should start by defining them. Investing is any activity in which money is put at risk for the purpose of making a profit, and which is characterized by the following:

1.       Sufficient Research has been conducted;

2.       The behaviour is risk-averse;

3.       The systematic approach is being taken;

4.       Emotions such as greed and fear play on role;

5.       The activity is ongoing and done as part of a long term plan;

6.       The activity is not motivated solely by entertainment or compulsion;

7.       Ownership of something tangible is involved.

8.       A net positive economic effect results;

On the other hand gambling is any activity in which money is put at risk for the purpose of making a profit, and which is characterized by the following:

1.       Little or no research has been conducted.

2.       The behaviour is risk-seeking;

3.       An unsystematic approach is being taken;

4.       Emotions such as greed and fear play a role;

5.       The activity is discrete  event or series of discrete events not done as   part of a long term plan;

6.       The activity is significantly motivated by entertainment or compulsion;

7.       Ownership of something tangible is not involved.

8.       No net positive economic effect results;

Difference between Stock investing and Gambling

Following are the important differences between Gambling and Investment

1.       Tangible vs Intangible

Gambling is an intangible product whereas stock marketing is tangible product or business.

2.       Gamble for Fun Invest for Profit

Gambling is a type of entertainment and nobody consider it is a means of better financial future. Stock marketing is a good way to build personal wealth long term investment will appreciate and at the same time one also earn dividend income from stocks.

3.       Relationship

In stock market investment relationship with a company ends only when one sell the shares and not based on the price fluctuation of the shares in the market, where as in gambling relationship ends when the game is over.

4.       Recovering of Losses

In gambling there is no option for recovering losses but in stock market investing, one can wait till the market prices goes up. Investing after proper analysis can help reduce the loss.

5.       Risk

Risk is involved in both gambling and stock investing, but stock investment risks can be managed or minimized through hedging and structuring portfolio with different types of stocks to match the risk appetite.

6.       Knowledge and Skill

In gambling no skill is required to win but in stock investment investor who analyses and understands the market and invests will get more profit than a person investing without prior knowledge about the stock market.

Types of Investments and Characteristics

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There are many investment options available today for investment. The traditional tax saving investments are National Saving Certificate (NSC), PPF, etc. Essentially there are three forms of investments they are

1.       Real Investments

2.       Financial Investments

3.       Non-Securitized Financial Securities

Real Investments

Real investments are physical investments which includes real estate, gold, silver, precious stones rare coins and art objects. Real investments are traditional form of investments

•       Real estate
•       Commodities
•        Bullion
•       Art

Financial Investments

Financial investments are freely tradable and negotiable. Financial investments would include equity shares, preference shares, convertible debentures, public sector bonds, saving certificates, guilt edged securities and money market securities. Broadly speaking, following are the important financial investments.

Debts

Debts are investments, which give a fixed rate of interest for a fixed period of maturity. Hence they are low risk, low return investments. Debts could be in the form of government bonds, treasury bills, corporate bonds, bonds of public sector companies like railway bonds, ONGC bonds, etc. government bonds are treasury bills issued by the government are absolutely risk free security.

Equities

Equity investments carry more risk than investing in debts. There is no assured returns when we invest in a share of a company, we become an owner of the company to the extent of the capital invested. So one can invest in different types of stocks belonging to different sectors. For instance, one can invest in IT stocks like Infosys, a telecom share like Bharati Telecom, etc., depending on his risk appetite. There are two types of stocks for investments:

•          Aggressive stocks
•          Conservative Stocks

Conservative stocks for example HLL, are less risky but give fewer returns, where as aggressive stocks are more risky but give higher returns.

Mutual Funds

If an investor doesn’t directly want to invest in the markets, he can do it through a mutual fund scheme. A mutual fund pools money from investors and invests in different securities. A professional fund manager decides the investment strategies and securities, where one can purchase unit of a fund. But one must also note that mutual fund investments bear the same risk as the market, the only difference lies in the fact that the funds are managed by professional portfolio manager who may be better equipped, has access to analysed information and follows the market carefully. These schemes are mainly growth oriented, income oriented or balanced schemes.

Non – Securitized Financial Securities

These investment instruments are not tradable, transferrable or negotiable and would include bank deposits, post office deposits, company fixed deposits, provident fund schemes and life insurance.

Characteristics of Investment

Following are the important characteristics of all types of investments.

1.       Expected Return

Expected return is the overall profit that an investor might expect to receive from investment. Investor invests his or her money to earn return either as income, interest, and dividend or as capital gains resulting in the changes in the market value of the security.

2.       Risk

Risk is the degree of uncertainty about expected return from an investment, including the possibility that some or all of the investment may be lost.

3.       Liquidity or Marketability

Liquidity is the ease with which investor can convert his investment quickly into cash, at or near the current market price. For non-redeemable securities, liquidity will depend on the owner’s ability to sell the securities to other investors in the open market.

4.       Tax considerations

Income tax considerations are important because they will affect the net return from an investment. Interest, dividends, capital gains and capital losses are all treated differently for tax purposes.

Why to invest in share market?

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Share market for many is gamble. But the reality is something far from that. Stocks are also an investment option that helps the investors to make huge returns if the investment is done properly. Many factors are there which makes share market a chosen area of investment for millions of investors

Stocks can give multiple returns on investment that no other asset class can match. If invest wisely in the potentially strong stocks, results in huge gain.

There are so many options in stock market investment. One can choose to do intraday trading or delivery trading also can trade in cash segment or in derivative segment. Variety of choice in equity trading are available. One can invest in growth stocks to gain rapidly, or invest in dividend stocks for long term and enjoy the dividends that keep coming to. In short share market investments have plenty of options where one can choose according to their need and budget.

With the advent of online trading, investing in the stock market and trading in the stock market has become easier for the individual stock investors. They can buy or sell stocks by themselves with just a click of the mouse and that too sitting at the comfort of their home or office. In case of online stock trading, neither broker involved nor paper work is involved. The brokerage charges for online trading is lower than the conventional stock trading. In short online share trading has made the share market investment a profitable proposition for the individual investors.

In this Modern era where internet and media booming, information can be easily accessed. Anyone can get detailed information on any business quite easily through internet. Companies publish quarterly and annual reports which is helpful to judge the financial health and standing of the company.

There are so many institutions who offer analysis and tips on stock trading. Once you get registered with one of them, they will send you detailed analysis reports and suggestions on buying and selling stocks that are very much helpful in making profitable investments.

With the new regulations and monitoring authorities at place the operations at the stock exchanges have become transparent and easy to do.

When To Buy & Sell Stocks????

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People tend to know everything about the stock market but in reality most of them are ignorant and they do not know how stock market functions. 

When to buy & sell stocks?

It is very important that in order to be successful in the stock market, one needs to have a good knowledge of the stock market.

One should know the role played by NSE or BSE or NASDAQ in the stock market. Its always recommended that one should make a good research of the whole market before going ahead & investing in any stocks. If one doesn’t have the clear picture of the functioning of the stock market then it will lead to disaster.

One need not be an expert to know how to invest in stocks online. But has to do good research of the website where they are willing to invest their shares in the stock market. If one wish to have an online trading account then they need to have a trading account. In order to have a trading account one need to fill up an application where they needs to fill up their personal details. There are many websites where it offers free advice about the stock market but there are also some fraudulent websites that gives wrong advice to the investors who seeks to invest in the stock market. There are websites that takes into account all your banking details and also your credit card details. You should never reveal your credit card details to anybody as you might never know when you become bankrupt.

The investment plans should be made in such a way that one should know what they want. One can go for short-term or long term trading depending upon their investment plan. If one is good at market research then they can be successful in stock market because they know which stock is good for them. One should be the sole decision owner of their stock.

However there are good stock market consultancy which could help in choosing the right stock.

Do's & Don'ts of Share Trading

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What Do’s and Don’ts should an investor bear in mind when investing in the stock markets? 

§ Ensure that the intermediary (broker/sub-broker) has a valid SEBI registration certificate. § Enter into an agreement with your broker/sub-broker setting out terms and conditions clearly. § Ensure that you give all your details in the ‘Know Your Client’ form.

 § Ensure that you read carefully and understand the contents of the ‘Risk Disclosure Document’ and then acknowledge it. § Insist on a contract note issued by your broker only, for trades done each day. 

§ Ensure that you receive the contract note from your broker within 24 hours of the transaction. § Ensure that the contract note contains details such as the broker’s name, trade time and number, transaction price, brokerage, service tax, securities transaction tax etc. and is signed by the Authorised Signatory of the broker. § To cross check genuineness of the transactions, log in to the NSE website (www.nseindia.com) and go to the trade verification facility extended by NSE at www.nseindia.com/content/equities/ eq_trdverify.htm. 

 Issue account payee cheques/demand drafts in the name of your broker only, as it appears on the contract note/SEBI registration certificate of the broker.
While delivering shares to your broker to meet your obligations, ensure that the delivery instructions are made only to the designated account of your broker only. 
Insist on periodical statement of accounts of funds and securities from your broker. Cross check and reconcile your accounts promptly and in case of any discrepancies bring it to the attention of your broker immediately. 

§ Please ensure that you receive payments/deliveries from your broker, for the transactions entered by you, within one working day of the payout date.

 § Ensure that you do not undertake deals on behalf of others or trade on your own name and then issue cheques from a family members ’/ friends’ bank accounts.

 § Similarly, the Demat delivery instruction slip should be from your own Demat account, not from any other family members’/friends’ accounts.

 § Do not sign blank delivery instruction slip(s) while meeting security payin obligation. 

§ No intermediary in the market can accept deposit assuring fixed returns. Hence do not give your money as deposit against assurances of returns.

 § ‘Portfolio Management Services’ could be offered only by intermediaries having specific approval of SEBI for PMS. Hence, do not part your funds to unauthorized persons for Portfolio Management. 

§ Delivery Instruction Slip is a very valuable document. Do not leave signed blank delivery instruction slip with anyone. While meeting pay in obligation make sure that correct ID of authorised intermediary is filled in the Delivery Instruction Form.

 § Be cautious while taking funding form authorised intermediaries as these transactions are not covered under Settlement Guarantee mechanisms of the exchange. 

§ Insist on execution of all orders under unique client code allotted to you. Do not accept trades executed under some other client code to your account.

 § When you are authorising someone through ‘Power of Attorney’ for operation of your DP account, make sure that: § your authorization is in favour of registered intermediary only. 

§ authorisation is only for limited purpose of debits and credits arising out of valid transactions executed through that intermediary only.

 § you verify DP statement periodically say every month/ fortnight to ensure that no unauthorised transactions have taken place in your account.

 § authorization given by you has been properly used for the purpose for which authorization has been given.

 § in case you find wrong entries please report in writing to the authorized intermediary.

 § Don’t accept unsigned/duplicate contract note.

 § Don’t accept contract note signed by any un-authorised person. § Don’t delay payment/deliveries of securities to broker.

 § In the event of any discrepancies/disputes, please bring them to the notice of the broker immediately in writing (acknowledged by the broker) and ensure their prompt rectification.

 § In case of sub-broker disputes, inform the main broker in writing about the dispute at the earliest and in any case not later than 6 months.

 § If your broker/sub-broker does not resolve your complaints within a reasonable period (say within 15 days), please bring it to the attention of the ‘Investor Grievances Cell’ of the NSE.

 § While lodging a complaint with the ‘Investor Grievances Cell’ of the NSE, it is very important that you submit copies of all relevant documents like contract notes, proof of payments/delivery of shares etc. along with the complaint. Remember, in the absence of sufficient documents, resolution of complaints becomes difficult. 

§ Familiarise yourself with the rules, regulations and circulars issued by stock exchanges/SEBI before carrying out any transaction.

What is Screen Based Trading?

The trading on stock exchanges in India used to take place through open outcry without use of information technology for immediate matching or recording of trades. This was time consuming and inefficient. This imposed limits on trading volumes and efficiency. In order to provide efficiency, liquidity and transparency, NSE introduced a nationwide, on-line, fully automated screen based trading system (SBTS) where a member can punch into the computer the quantities of a security and the price at which he would like to transact, and the transaction is executed as soon as a matching sale or buy order from a counter party is found. 

What is NEAT?

 NSE is the first exchange in the world to use satellite communication technology for trading. Its trading system, called National Exchange for Automated Trading (NEAT), is a state of-the-art client server based application. At the server end all trading information is stored in an in memory database to achieve minimum response time and maximum system availability for users. It has up time record of 99.7%. For all trades entered into NEAT system, there is uniform response time of less than one second.

 How to place orders with the broker?

You may go to the broker’s office or place an order on the phone/internet or as defined in the Model Agreement, which every client needs to enter into with his or her broker. 

How does an investor get access to internet based trading facility?

There are many brokers of the NSE who provide internet based trading facility to their clients. Internet based trading enables an investor to buy/sell securities through internet which can be accessed from a computer at the investor’s residence or anywhere else where the client can access the internet. Investors need to get in touch with an NSE broker providing this service to avail of internet based trading facility. 

What is a Contract Note? 

Contract Note is a confirmation of trades done on a particular day on behalf of the client by a trading member. It imposes a legally enforceable relationship between the client and the trading member with respect to purchase/sale and settlement of trades. It also helps to settle disputes/claims between the investor and the trading member. It is a prerequisite for filing a complaint or arbitration proceeding against the trading member in case of a dispute. A valid contract note should be in the prescribed form, contain the details of trades, stamped with requisite value and duly signed by the authorized signatory. Contract notes are kept in duplicate, the trading member and the client should keep one copy each. After verifying the details contained therein, the client keeps one copy and returns the second copy to the trading member duly acknowledged by him. What details are required to be mentioned on the contract note issued by the stock broker? A broker has to issue a contract note to clients for all transactions in the form specified by the stock exchange. The contract note inter-alia should have following:

 § Name, address and SEBI Registration number of the Member broker.
 § Name of partner/proprietor/Authorised Signatory.
 § Dealing Office Address/Tel. No./Fax no., Code number of the member given by the Exchange.
 § Contract number, date of issue of contract note, settlement number and time period for settlement.
 § Constituent (Client) name/Code Number. § Order number and order time corresponding to the trades.
 § Trade number and Trade time.
 § Quantity and kind of Security bought/sold by the client.
 § Brokerage and Purchase/Sale rate.
 § Service tax rates, Securities Transaction Tax and any other charges levied by the broker.
 § Appropriate stamps have to be affixed on the contract note or it is mentioned that the consolidated stamp duty is paid. § Signature of the Stock broker/Authorized Signatory. 

What is the maximum brokerage that a broker can charge?

The maximum brokerage that can be charged by a broker from his clients as commission cannot be more than 2.5% of the value mentioned in the respective purchase or sale note.

Why should one trade on a recognized stock exchange only for buying/selling shares? 

An investor does not get any protection if he trades outside a stock exchange. Trading at the exchange offers investors the best prices prevailing at the time in the market, lack of any counter-party risk which is assumed by the clearing corporation, access to investor grievance and redressal mechanism of stock exchanges, protection upto a prescribed limit, from the Investor Protection Fund etc. How to know if the broker or sub broker is registered? One can confirm it by verifying the registration certificate issued by SEBI. A broker's registration number begins with the letters ‘INB’ and that of a sub broker with the letters ‘INS’. What precautions must one take before investing in the stock markets? Here are some useful pointers to bear in mind before you invest in the markets: 

§ Make sure your broker is registered with SEBI and the exchanges and do not deal with unregistered intermediaries.

 § Ensure that you receive contract notes for all your transactions from your broker within one working day of execution of the trades.

 § All investments carry risk of some kind. Investors should always know the risk that they are taking and invest in a manner that matches their risk tolerance. § Do not be misled by market rumours, luring advertisement or ‘hot tips’ of the day.

 § Take informed decisions by studying the fundamentals of the company. Find out the business the company is into, its future prospects, quality of management, past track record etc Sources of knowing about a company are through annual reports, economic magazines, databases available with vendors or your financial advisor. 

§ If your financial advisor or broker advises you to invest in a company you have never heard of, be cautious. Spend some time checking out about the company before investing.

 § Do not be attracted by announcements of fantastic results/news reports, about a company. Do your own research before investing in any stock.

 § Do not be attracted to stocks based on what an internet website promotes, unless you have done adequate study of the company.

 § Investing in very low priced stocks or what are known as penny stocks does not guarantee high returns. 

§ Be cautious about stocks which show a sudden spurt in price or trading activity.

 § Any advise or tip that claims that there are huge returns expected, especially for acting quickly, may be risky and may to lead to losing some, most, or all of your money. 

How to Overcome Loss in share Trading

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As i mentioned in the previous posts risk is involved in trading business, you earn big profits and some times you will loose too so how to manage such loss...

• Take a break and analyse what had happened. Find out what you had done wrong and make changes in your trading strategies and approach to the market. Re-enter the market with new strategies.

• Refocus and spent time away from trading to work on other aspects of my life and career. Try to understand on the things which you can control and things which you cannot.

• Loss is always painful. but there is no gain without pain, try to find the mistakes and make sure the same mistakes wont happen again. be motivated. don't depend completely on trading focus on your career.

Initially it will be depressing, and initially you may not be able to handle your depressed feelings well. Depressed feelings are a normal response to loss: the loss of money, the loss of dreams. Sometimes you have to go through that loss before you can come out the other side as a different person, one who has learned from the experience.

Success Mantra's of Share Trading

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Successful traders will have a simple system

No matter which technique you use as long as you stick to it. A Successful trader knows only their own techniques and makes trades based ONLY on this system. "The secret to being a winner is consistency of purpose". Use the same strategies to enter the market and to exit the market and you'll always know what your getting. A successful trader knows the difference between defensive and offensive behavior, and when to use each. - protect your money first, profit later.

Develop the necessary mental skills to trade well

Spend time learning how to stay focused on the present moment. Learn how to 'mentally park' losses and trading errors. Learn how to let winning trades run and cut losing trades short. These are all crucial mental skills that are not found in reading the MACD or price bars.Trading is a tough business with lots of adversity. If you haven't got a clear sense of what you are all about in your trading, you will find trading very difficult.

DON'T CHASE THE MARKET

If you are slow, and miss a day trade that suddenly looks like it would have made you a fortune, do NOT panic and try to jump in late - you will almost certainly be buying the top or selling the bottom. Remember that the market will be there tomorrow, and the day after, and for ever, so ANY trade, no matter how important it looks, can be ignored if necessary. Keeping your powder dry, and being ready for the next one, is more important than hitting every day trading opportunity you see. Many successful day traders only trade for a few hours a day - they miss plenty of action but don't care, because they know the market will be around when they come back.

TAKE A LOSS WHERE NECESSARY

Knowing when to take a loss is the most important lesson any day trader ever learns. If you keep your losses small, you can come back to fight another day. As long as you control the loss in a calm, professional way, keeping it within the limits you have set for your money management strategy, it is STILL a good trade!

As a trader , losses are part of our business

You can’t avoid them . However , there’s a huge difference between losing big on a regular basis and losing small in controlled trading plan . If u can’t accept that fact , you simply shouldn't trade.If you need to succeed with trading , then you MUST invest both time and money to acquire the knowledge that you need , the discipline to follow your trading strategy and the patience to wait for the “ Perfect Trade “

In order to be a successful day trader, you need to have the right tools, choose the right markets, and trade the right trading systems. However, it is just as important to have the right psychological and emotional outlook. Without the right psychology, your emotions will have a big impact on your trading, and may even prevent you from trading at all. The two main emotions that day traders experience are fear and greed, and while you will probably not be able to remove these emotions completely, you will need to manage them.

Have successful Trading ahead...:)

Discipline in Share Trading

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Discipline: Make it a Habit 

This is the part of the definition of discipline of most relevance to day traders, the key word being "habit". At its simplest, in the context of day trading, discipline is the practice of making what you do a habit. As a day trader is often faced with making certain decisions, discipline implies the need to act consistently, in a reliable manner, and in accordance with the pre-determined trading strategy or system set forth in your trading plan.Have a trading plan or system is essential to the exercise of good discipline, as it normally imposes certain parameters and sets out certain criteria which dictate how trading decisions should me made and what needs to be done in certain situations. Habitually following your plan is what is meant by the exercise of good trading discipline, which, in turn, will help you realize the best expected results possible from your plan. If you find that your trading plan or system is not meeting your expectations, despite habitually following it for a reasonable period of time, good discipline requires that you be prepared to review it and make any adjustments or fine tuning necessary for future use.

Lack of Discipline

Day traders who suffer from lack of discipline often allow their emotions to rule their trading decisions, which often leads to bad decisions and unacceptable trading losses. Never allow your emotions to rule your trading. In order to day trade successfully, you must develop a trading plan (subject to any changes to it that you feel may be necessary from time to time) and consistently stick to such plan. You must avoid a "shooting from the hip" or a "seat of the pants approach" to day trading. Get out of the market when you have reached your initial objective and do not let emotions like fear and greed influence your trading decisions.

Many inexperienced traders demonstrate lack of discipline by being afraid or reluctant to take losses and to get out of a stock when it goes down, in the often vain hope that the share price will rise again. Often, however, the share price tumbles even lower, and the trader's initial small loss in the trade becomes a large one. Likewise, some day traders often get greedy if the share price rises and are reluctant to take profits off the table when their trading plan or system suggests they should. They think the share price will rise even more, and they can make even more profits. However, the share price may subsequently drop, causing their gains to dwindle or become losses. Fear or greed are two emotions that should play no role in the life of a disciplined day trader.

What Discipline actually means in Share Trading???
In short, discipline requires that you: Trade on the basis of trading plan or system and not on the basis of your hunches or emotions. Take a profit when you're supposed to in accordance with your pre-determined plan. Take a loss when you're supposed to in accordance with your pre-determined plan Don't trade when there's no need to (over trading; trading for the sake of making a trade) If you exercise the qualities of discipline outlined above, the likelihood of you achieving day trading success will be greatly enhanced.

Golden Rules For Share Trading

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Risk Capital

It is advisable that one would divide the risk capital in ten equal parts. Risk capital is the capital which you can afford to lose (Remember as there is profit there is loss too in share trading). Considering the successful money management one should keep in mind that none of the single trade should have more than 3 parts of the capital. it is advisable to keep some spare money to buy share when there is a buying opportunity.

Trading  in active & high Volume Stocks

Always rely on high volume stocks over a period of time, but most of the time people invest in low volume stocks wanting for the liquidity. High volumes are advised for easy entry, exit and stop loss. Spread is too high in low volume stocks and the chance of stop loss failure is also too high, so it is advisable to go with high volume stocks.
Have a Trading Plan
Before investing money on shares be prepared to have a trading plan. One must keenly observe the market trend for atleast two before actually buying any share. Investing on right stocks or shares at the right time can fetch you great profit.

Dont be Evil - Never Over Trade

After few successful tradings most people makes this mistake of over trading. It wipes off all the profit and put the trader in heavy loss.here comes the risk capital, never ever trade beyond your risk capital.
Trade with strict Stop Loss
This is one of the important thing one should consider, at any time market can reverse so monitoring all the trades cannot be done so to avoid loss have strict stop loss. when market is up profit is more but one should consider the reverse also and it can sometimes happen without any indication.

Sell Short as often as you go Long

Most of common the investors/ Traders love to see prices going up only. Stocks are bought by to make profit on rise. They have large holdings and mentally they wish and pray for the market to rise only. But facts are different. actually the Bull Phases have shorter duration than that of Bear phases. Since most investors are Bulls by heart they normally do not book profit at higher levels to re-enter later at lower levels instead they prefer to increase their portfolio at lower levels. Successful Traders know how to capitalize such correction. They are always prepared to go 'Short' as often as they trade on 'Long' side.

Don't Trade if you are not Clear 

Many Traders, because of their daily habits trade even when there are no signals to buy or short. Normally such situation arrives after a sharp rise or decline when stocks are adjusting their values. While some stocks attempt to move up, few may be taking breather before next move. Such situation are often confusing. There is no harm in taking rest for a day or two or short period if the trend is choppy, unclear or doubtful, instead of putting your money at higher risk.
Don't expect Profit on Every Trade
If you consider you are a smart trader who can make profit on every trade, you are 100% wrong. Always be flexible and accept the fact as soon as you realize that you are on wrong side of the trade. Simply get out of the trade without changing your strategy during the market; it may cause you double losses.

Withdraw portion of your profits

Share trading is an excellent business as long as you are making profits. Unlike other business your losses can be unlimited and rapid if market does not move as per your expectations. While in other businesses you may have other remedial measures available but in trading it is you only who has to control it. Traders have large egos particularly after series of successful trades and their tendency to enlarge commitments in overconfidence may cause major financial set back. There fore it is must that trader must take a portion of the profit and put it in separate account. This is absolutely must for long term stability in the market.

A step by step guide to Buy shares - Make a successful Trade today!!!!

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Here are the few steps for making your first successful trade…

Introduction

Before entering into the step by step guide it’s good to know the share market and about the share trading. When you hear about share trading the first thing comes into everyone mind is the graph, yes the stock market graph and the values with + on green colour and – or red colour. Stock market graph is the pictorial representation of the price value of the share market. +ve indicates Profit and –ve indicates loss.

A Typical Stock Market Graph

SENSEX Graph

1. Do your Analysis First

Analysis is the important thing and it is the first and foremost thing one should do before investing a penny in the stock market. So you will be thinking how to analyse??? what to analyse?? Yes these two questions will be covered in this post.

Before you have grasp anything from the graphs and percentage change or price value of shares and trading you should have some basic knowledge about the share market

These are the key concepts that need to be learnt before moving onto learning to trade:

• Know what a share is : share has e.g. dividends, bid/ask price, its chart etc.
• Know what information (software/websites) is required to buy shares.
• Learn how the stock market works.
• Understand the risk involved in Share Trading

2. Trading Practice with a practice account

The best thing about practice trading is that you can experiment with strategies and not lose any money! This is because when trading you are using ‘pretend’ cash balances which you can edit to represent how much cash you would actually want to trade with. Practice accounts also have free charting tools which will enable you to get used to technical analysis.

Concepts of buying and selling share can be known by using practice account. Even though you feel you are ready to trade, you need to understand many more thing before you invest your money.

4. Grasp the most about share trading

Read how much ever you can on the share marketing and trading before you actually invest. There are so many online sites available which will give in-depth knowledge about the market analysis and various courses on share trading. Before you attend any course make you are clear with the concepts on share trading and that will help you to make most out of the courses.

5. Open your brokerage account

once your covered with the basics its time you can start with opening your brokerage account. Choose a right plan and start your account. Be patient don’t invest immediately until unless you are 100% ready.

You will get in-depth analysis reports and market details once have your account opened. Watch the market carefully for at least two weeks and analyse the changes of particular shares.

6. Understand the chart                   

Technical analysis is important thing one should look into and it help to understand the market in much better way. The most popular chart method representation is Japanese candlestick method and the other is western chart.

There are software available for chart analysis and which is important for making trading decision. These software will provide accurate and extensive technical analysis on the share market.

7. Observe the market trend

observing the market trend is the other most important thing, continuously monitor the trend and decide upon the buying and selling, it is important that you watch the market atleast for two weeks before investing.

8. it’s time to Trade

Once you understand the basics and gained all knowledge about share, market and done with your technical analysis then it’s time for trading..!!!

Happy Trading….!!! J

Share Trading: Share Market & Classification

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How to trade in share market?

In order to answer the above question we must first know what the share market is all about? 

In simple words share market is the place where shares are brought & sold. It’s the place where share or derivatives of the companies are traded at the agreed price.

Stock Market Trading history of India  

In the earlier days, stockbrokers conduct their trading activities, shifting from one set of Banyan trees to another. As the number of brokers kept increasing and the streets kept overflowing, they simply had no choice but to relocate from one place to another.

Finally in 1854, trading in India found a permanent address, Dalal Street, now synonymous with the oldest stock Exchange in Asia, The Bombay Stock Exchange. With a heritage that goes back to over 130 years, BSE was the first stock exchange in the country to be granted permanent recognition under the Securities Contract Regulation Act, 1956. The exchange has played a pioneering role in the development of the Indian Securities Market - one of the oldest in the world. After India gained independence, the BSE formulated a comprehensive set of guidelines adopted by the Indian Capital markets. Even today, the BSE Sensex remains one of the parameters against which the ups & downs of the Indian Economy and finance is measured. 

The trading scenario in India then underwent huge change in 1993, when NSE or National Stock Exchange was recognized as a Stock Exchange. Within just a few years, trading on both the exchanges shifted from an open outcry system to an automated trading environment.
Today, the Indian Securities market successfully keeps pace with its global counterparts through the use of modern day technology.

Stock market milestones

• 1875 BSE established as 'the native Share and Stock Brokers Association' 
• 1956 BSE became the first stock exchange to be recognized under the Securities Contract Act. 
• 1993 NSE recognized as a stock exchange. 
• 2000 Commencement of Internet trading at NSE. 
• 2000 NSE commences derivatives trading (Index futures) 
• 2001 BSE commences derivatives trading

The Bombay stock exchange or BSE is a conventional stock exchange with a trading floor and operating through mostly offline trades, the National Stock Exchange or NSE is a completely online stock exchange and the first of its kind in the country. The trading is carried out at the National Stock Exchange through the electronic limit order book or the LOB. With the immense popularity of the process and online trading facility other exchanges started to take up the online route including the BSE where you can trade online as well. But the BSE is still having the offline trading facility that is carried out at the trading floor of the exchange at its Dalal Street facility

Classification of Share market:-

1.          Primary market
2.          Secondary market

Primary Market:-

It is the place where shares are issued for the first time. When a company is getting listed for the first time at the stock exchange and issuing shares – this process is undertaken at the primary market. That means the process of the Initial Public Offering or IPO and the debentures are controlled at the primary stock market.

Example:-

If the promoters of a private company, say XYZ makes its shares available to investors, company XYZ is said to have entered the primary market.

Secondary market:-

It is the place where existing stocks are bought and sold by the investors through the brokers. It is the secondary market that controls the price of the shares (stocks). Generally when we speak about investing or trading at the stock market we mean trading at the secondary stock market. It is the secondary market where we can invest and trade in the stocks to get the profit from our stock market investment.

Example:-

If one of the investors who had invested in the shares of company XYZ sold it to another at an agreed upon price, a Secondary Market transaction is said to have taken place.

Apart from above stated to classification share market is also classified based on the type of instrument that is being traded at the market. 

• Equity market 
• Derivative Market

Equity Market:-

In this type of trading the trader or buyers of the shares book a buying order with a bid price and the order is executed through the broker at a negotiated ask price offered by the sellers at the market. In this type of trading the buyer pays the entire amount of the value of the stock (share) that is determined by multiplying the number stocks with the current price of the stock(share). Once the buyer pays the entire amount along with the brokerage and taxes of the transaction the stocks are deposited to the DP account of the buyer.

Derivative Market:-

In the derivative market trading is done through future contract & option contract. In both these types the stocks or shares are bought and sold in lot. For trading in derivative market one has to buy either the future contract or the option contract. In a future contract you are bound to close the deal within a specific time and at a fixed rate. While in case of option contract you can also choose to ignore the contract.

In India, the Secondary and Primary Markets are governed by the Security and Exchange Board of India (SEBI). SEBI is the regulatory body of stock markets establish in 1988.

The basic objectives of the Board were identified as:-

·         To protect the interests of investors in securities.

·         To promote the development of Securities Market.

·         To regulate the Securities Market.

Online Stock Exchange:-

Online stock exchange is the place where share are brought & sold electronically. There is no physical location for the exchange at all. National Association of Securities Dealers Automated Quotations System (NASDAQ), an American stock market, is the first electronic and online stock exchange founded in 1971 by National Association of Securities Dealer. The process of the trading is in online stock exchanges is the same as the secondary market. In case of online stock exchanges the bids are given in the form of instructions from the buyers and seller through an electronic medium, which is internet. The advantage of the online stock exchange is that, one can trade from any part of the country and even from abroad in a convenient way. As there is no middle and or broker directly involved in the process, the process is much more transparent and trustworthy.

Risk associated with trading:-

·         Market risk

·         Industry risk

·         Regulatory risk

·         Business risk

Market Risk:-

It means the risk of the securities value going down. You might have noticed that a particular company is not doing well even then it’s share value is going up. This is because the stock market value is collectively going up & vice-versa. This is because of the factors like inflation, rising interest rates, political instability which effect the whole market.

Industry Risk:-

It is risk that affects all companies in a certain industry. For example, internet and other technology industries are usually viewed as high in risk because the industry is changing so quickly and unpredictably.

Regulatory Risk:-

It refers to the risk that the government will pass new laws or implement new regulations, which will dramatically affect a business.

Business Risk:- 

These are the risk related with individual organisation.  It refers to the uncertainty regarding the organizations ability to perform business or provide service Products, strategies, management, labour force, market share, etc., which are among the key factors investors consider in evaluating the value of a specific company.