Satyam scam: The mega corporate fraud

Ramalinga Raju and his brother Rama Raju accused of committing an Rs40 billion fraud that threaten to shake the very foundation of Satyam Computers, are in jail. The three-member director board constituted by the Government has got down to brass tacks. The Government has further offered financial support to bail out the beleaguered Satyam. The 50,000 odd employees of Satyam find themselves at sea, with some IT majors deciding against hiring displaced Satyam staff. There are fears over the adverse fallouts of the Satyam fraud on the international reputation of the exports-driven Indian IT industry. The picture is getting curiouser and curiouser by the day.

Satyam's Rs5000cr disappears in three months!

New Delhi: Bank statements show that Satyam had funds of over Rs 5,000 crore as of September 2008, but by January 2009 when company founder Ramalinga Raju admitted to fudging accounts the IT firm could have been left with just Rs 200 crore of maturable fixed deposits.

The scam-tainted firm had short-term or long-term fixed deposits of over Rs3,300 crore, and another Rs 300 crore of accrued interest, in addition to current account deposits of over Rs 1,800 crore, as per the last auditing done by Price Water House for the quarter ending September 2008.

The company is believed not to have made any term deposit after mid-February 2007, though it did make a few short-term or margin money deposits, amounting to about Rs 10 crore till September 2008.

The auditing was done on the basis of statements sent by a host of banks detailing the fixed long-term deposits, along with maturity, ranging between October 2008 and February 2009.

With such a cash and deposits position, the IT Company should not have had any worry on the cash front and a concern to mobilize resources for the payment of salaries to staff.

In his statement on January 7, Raju had said that he was disclosing the manipulation of accounts after failing in his last-ditch effort to salvage Satyam through acquisition of the two Maytas firms on December 16.

However, the bank statements, on which PWC relied for the auditing, reveal that more than 90 per cent of the total deposits had matured by January 7.

Secret to success in trading markets

Success in trading is a worthy goal. But it will be useless if not accompanied by success in your life.

Don't try to copy the individual traders' method but understand the process they went through in order to achieve success. This is where you will find your answers. Jack Schwager, in his quest to understand traders and how the big futures traders made their fortunes, whilst many failed, interviewed and tried to find the "secret to their success."

Not surprisingly, he found there was no one secret to successfully making a lot of money from the markets. Jack Schwager found that each trader had their own, unique style of trading. Most importantly, Jack Schwager found that each trader traded a method which suited his/her own personality. This, it was established, was the "secret" to making a fortune ion the markets. Not the system, or method, or the markets traded but the real secret is finding and becoming one of the very best traders at one METHOD of trading.

Here is what Jack Schwager was left to believe about successful trading, after writing his two Market Wizards books:

The markets are not random

They are not random because they are built on human psychology.

There is no Holy Grail but there are methods that can lead to superior profits (M.S.T.S is one)

There are many ways to make money from the markets

The markets are always changing, yet they are always the same.

To secret to success lies within the individual.

To excel in trading requires talent and extremely hard work.

In the world of money

In the world of money, which is a world shaped by human behavior; nobody has the foggiest notion of what will happen in the future. Mark that word - Nobody!
We are in a spectacular bear market from January 10, 2008 to till date, before that we enjoyed a secular bull market from August 2003. Now most investors are in deep red (more than the profits made in the last 3 to 5 years, including capital - wiped out)…. Bulls and bears make money, but pigs get slaughtered.

Ones very survival as a trader depends on followings. When one ignores this, is lost and doomed:


Trade money not markets- Don't blame the market for your losses. You are the reason for your losses.

Use a trading system and don't deviate from it. Follow it with rigid DISCIPLINE.

Use money management at all times and understands risk-reward ratios

Accept small losses as part of the game if you want to win don’t liquidate a winner to keep a loser. A losing position means you were wrong. Trend Followers cut their losses and let their profits run.

Stay the course so you are around for the big moves. Sustain your patience. Big movements take time to develop. Trade markets from the short side also

Don’t be overly curious about the rationale behind a move. The key to wealth in trading is simplicity. Avoid techniques you don't understand. Don't predetermine your profits. Remind yourself there is nothing new in the markets.

Trend, what is:

Trends always go further than rational people expect, or even imagine. Most investors don't have the stomach for extended rallies or declines. The philosophy of not having a predetermined profit objective allows trade to continue with a trend for its full duration and then some. Trends endure for a specified time, longer than most imagine. In a very uncertain world, perhaps nothing makes more sense than simply following trends.

A Perfect Trader:

A trend following person with disciplined & systematic approach in trading, psychologically more powerful than others to keep control over emotions; patience waiting for opportunity to enter the trade as well as exit much before the trend reverse. They have the quality to accept failures – to cut losing potions, when stop triggered and prepared to stick with their trade-culture through good times and bad.

Why trading system:

The emotional reactions to trading, hope, fear, guilt, over-confidence, panic, etc., are avoided with trading systems based on price. The personal burden is lifted and trading can become objective when price is the only variable. The price already reflects all other variables filtering out subjective nuances of whoever is offering the information. Focusing on price, to the exclusion of fundamental data such as earnings, crop reports, consumer confidence and market news, allows for a scientific approach to trading. A systematic approach over time -only one way to profit in the market, compounding as time goes. Trust that time and the power of compounding- will take over if you stick with your system. Don't be so naive to expect you will get rich overnight. Remind yourself that patience is a virtue when it comes to trend following.

Dangers in Trading caused by Human Nature: psychology:

Fearful of profits and acts too soon And Hope for a change in the forces against one
People believe what it pleases them to believe.

An Ideal Trading System:

A trading system that works best for you - To choose a method that is consistent with your own personality & comfort level . . . The approach you use must be right for you; it must feel comfortable. Successful trading systems adapt to change. Trading system is designed to remain valid for years. Trading systems should ideally trade successfully at all times, in all markets, in all conditions, difficult to kill even in bad markets. Ride winners: One of the biggest mistakes a trader can make is not letting a good trade run. Trading systems will keep you in that winning trade and stops look at the price action & will lock in profits at most opportune time. Eliminate losers: A trading strategy must eliminate large losers with consistent risk management to be successful. No more guesswork: Completely automated trading removes any luck- Enter & exist with rules. One can't expect to enter a market at the precise moment a bottom is hit, nor will exit a market at the exact top, Capture the middle of the trend. Exits: is the hardest part of trading. One often exits too soon or too late. To use stop loss orders to protect profits, and to take out of losing positions. As the profit grows, move the stop to lock in more profit. Don't try to catch every move. There are often times, just sit and wait for safe to re-enter the market.

Dhirubhai Ambani The Graet Indian Entrepreneur

Some of his wise words

“Growth has no limit at Reliance. I keep revising my vision. Only when you dream it you can do it.”
“Our dreams have to be bigger. Our ambitions higher our commitment deeper and our efforts greater this is my dream for Reliance and for India.”
“You do not require an invitation to make profits.”
“If you work with determination and with perfection, success will follow.”
“Pursue your goals even in the face of difficulties, and convert adversities into opportunities.”
“Give the youth a proper environment. Motivate them. Extend them the support they need. Each one of them has infinite source of energy. They will deliver.”
“Between my past, the present and the future, there is one common factor: Relationship and Trust. This is the foundation of our growth”
“We bet on people.”
“Meeting the deadlines is not good enough, beating the deadlines is my expectation.”
“Don’t give up, courage is my conviction.”
”Think big, think fast, think ahead, ideas are no one’s monopoly”
Growth through Vision
“Growth has no limit at Reliance. I keep revising my vision.
Only when you can dream it, you can do it.”
- Dhirubhai H. Ambani
Founder Chairman

Dhirubhai Ambani Biography

Born: December 28, 1932
Died: July 6, 2002
Achievements: Dhiru Bhai Ambani built India's largest private sector company. Created an equity cult in the Indian capital market Reliance is the first Indian company to feature in Forbes 500 list

Dhirubhai Ambani was the most enterprising Indian entrepreneur. His life journey is reminiscent of the rags to riches story. He is remembered as the one who rewrote Indian corporate history and built a truly global corporate group.

Dhirubhai Ambani alias Dhirajlal Hirachand Ambani was born on December 28, 1932, at Chorwad, Gujarat, into a Modh family. His father was a school teacher. Dhirubhai Ambani started his entrepreneurial career by selling "bhajias" to pilgrims in Mount Girnar over the weekends.

After doing his matriculation at the age of 16, Dhirubhai moved to Aden, Yemen. He worked there as a gas-station attendant, and as a clerk in an oil company. He returned to India in 1958 with Rs 50,000 and set up a textile trading company.

Assisted by his two sons, Mukesh and Anil, Dhiru Bhai Ambani built India's largest private sector company, Reliance India Limited, from a scratch. Over time his business has diversified into a core specialisation in petrochemicals with additional interests in telecommunications, information technology, energy, power, retail, textiles, infrastructure services, capital markets, and logistics.

Dhirubhai Ambani is credited with shaping India's equity culture, attracting millions of retail investors in a market till then dominated by financial institutions. Dhirubhai revolutionised capital markets. From nothing, he generated billions of rupees in wealth for those who put their trust in his companies. His efforts helped create an 'equity cult' in the Indian capital market. With innovative instruments like the convertible debenture, Reliance quickly became a favorite of the stock market in the 1980s.

In 1992, Reliance became the first Indian company to raise money in global markets, its high credit-taking in international markets limited only by India's sovereign rating. Reliance also became the first Indian company to feature in Forbes 500 list.

Dhirubhai Ambani was named the Indian Entrepreneur of the 20th Century by the Federation of Indian Chambers of Commerce and Industry (FICCI). A poll conducted by The Times of India in 2000 voted him "greatest creator of wealth in the century".

Dhirubhai Ambani died on July 6, 2002, at Mumbai.

Jesse Livermore The Great Trader

What's so interesting About Jesse Livermore?

Time Magazine described Jesse Livermore as the most fabulous living U.S. stock trader.
His progress from office boy to Wall Street legend - his trading lessons - his triumphs and disasters - is probably the most fascinating of any of Wall Street's stories.
Even today, many stock and commodity traders owe Jesse Livermore a deep debt of gratitude for sharing his trading experiences in Reminiscences of a Stock Operator.
The techniques Jesse Livermore made public between the 1920s and 1940s have survived him. This follows from the durability of his basic trading rules - rules that made him millions of dollars, provided he remained faithful to them.
Livermore also lost his entire fortune on more than one occasion, when he ignored his trading rules.

Reminiscences of a Stock Operator

In a series of interviews with "Lawrence Livingstone" (a pseudonym for Jesse Livermore) the financial journalist Edwin Lefebvre got to the heart of the methods and psychology of a master stock market trader. Lefebvre published his interviews in Reminiscences of a Stock Operator. Interviews with Livermore were highly prized because, as far as his market activities were concerned, Livermore was a secretive loner.
The purpose of this site is to discuss and analyze Livermore's experiences and methods in order to provide useful information for today's novice traders.
To give you a brief taste of where we will go, here are some comments from Jesse Livermore himself:
"The game of speculation is the most uniformly fascinating game in the world. But it is not a game for the stupid, the mentally lazy, the man of inferior emotional balance, or for the get-rich-quick adventurer. They will die poor."
"...the fruits of your success will be in direct ratio to the honesty and sincerity of your own effort in keeping your own records, doing your own thinking, and reaching your own conclusions."
"There is nothing new in Wall Street. There can't be because speculation is as old as the hills. Whatever happens in the stock market today has happened before and will happen again."
"There are times when money can be made investing and speculating in stocks, but money cannot consistently be made trading every day or every week during the year. Only the foolhardy will try it. It just is not in the cards and cannot be done."
"The point is not so much to buy as cheap as possible or go short at top price, but to buy or sell at the right time."
"I am tired of hearing the public and papers blame Wall Street for parting fools from their money... It's the successful business man who is the biggest sucker of the lot. He has made a fortune in his own line. How? By being on the job for years; by learning all there was to know about it; by taking reasonable chances; by utilizing his knowledge and experience to anticipate probabilities. He wants to increase that fortune at a faster rate and with less effort."
"It took me five years to learn to play the game intelligently enough to make big money when I was right."
"Speculation is far too exciting. Most people who speculate hound the brokerage offices... the ticker is always on their minds. They are so engrossed with the minor ups and downs, they miss the big movements."
The Beginning of Jesse Livermore's Trading Career
Jesse Livermore began his working life at the age of 14, as a quotation board boy in a stockbroker's office. He was, he believed, particularly suited to the job because of his strong abilities in mental arithmetic and number memorization.
Stock prices came into the stockbroker's offices on a ticker tape, a continuous strip of paper bringing the prices from Wall Street. It was Livermore's job to take the prices from the tape and write them on the board for the stockbroker's customers to see. Little did the 14 year old boy realize that, for the rest of his life, his fortunes would be inextricably linked to the tape and his ability to read its message.
Patterns in Prices - The Message of the Tape
As time passed, Livermore began to believe he could discern patterns, or repetitions, in the waves of numbers that flowed each day from the tape. He began to write the numbers in a notebook and tested himself, predicting the direction that different stock prices would take:
"Say that after studying every fluctuation of the day in Sugar I would conclude that the stock was behaving as she always did before she broke eight or ten points. Well, I would jot down the stock and the price on Monday, and remembering past performances I would write down what it ought to do on Tuesday and Wednesday. Later I would check up with the actual transcriptions from the tape.
That is how I first came to take an interest in the message of the tape. The fluctuations were from the first associated in my mind with upward or downward movements. Of course there is always a reason for fluctuations, but the tape does not concern itself with the why and wherefore. It doesn't go into explanations... The reason for what a certain stock does today may not be known for two or three days, or weeks, or months. But what the dickens does that matter? Your business with the tape is now - not tomorrow. The reason can wait. But you must act instantly or be left. Time and again I see this happen."

Jesse Livermore's First Trade

One day another office boy told Livermore that he had been given a tip to buy shares in Burlington and asked if Livermore had any money to join him, predicting they would quickly double their money. Livermore took out his notebook and looked at the prices he had recorded for Burlington. In Livermore's estimation, Burlington's price was acting in the way he would expect it to if it were going to rise.
Livermore invested all he had in Burlington - just a few dollars - and was rewarded two days later with $3.12 profit. Buoyed by his success, in the following months Jesse Livermore went on to make his first $1,000 - a very large sum indeed - by virtue of his ability to read the message of the tape.
"After that first trade, I got to speculating on my own hook in the bucket shops. I'd go during my lunch hour and buy or sell - it never made any difference to me. I was playing a system and not a favorite stock or backing opinions. All I knew was the arithmetic of it. As a matter of fact, mine was the ideal way to operate in a bucket shop, where all that a trader does is to bet on fluctuations as they are printed by the ticker on the tape.
It was not long before I was taking much more money out of the bucket shops than I was pulling down from my job in the brokerage office. So I gave up my position. My folks objected, but they couldn't say much when they saw what I was making. I was only a kid and office-boy wages were not very high. I did mighty well on my own hook."
Having learned that prices could behave predictably, it was time for the boy Livermore to expand his operations.

Jesse Livermore's Trading Methods

At the heart of Jesse Livermore's spectacular trading success was the skill he acquired as eager 14 year old transferring stock prices from ticker tape to quote board - the skill of deducing the likely future movements of stock prices.
Livermore said, "To invest or speculate successfully, one must form an opinion as to what the next move of importance will be in a given stock. Speculation is nothing more than anticipating coming movements. In order to anticipate correctly, one must have a definite basis for that anticipation... "
Livermore believed that, if you thought a stock would move in a certain way, you should enter a trade as early as possible after the market had confirmed your judgment.

What Patterns Did Livermore Look For?

Jesse Livermore liked to trade stocks whose price was moving in an obvious trend. He was not interested in trading stocks whose price was meandering - moving up and down with no strong trend - such as the one shown on the left.
The patterns he sought to identify were patterns in the prices. Modern traders - and indeed many traders in Livermore's time too - plotted the prices and volumes against time on a chart. Jesse Livermore, however, did not use charts. He preferred to look at the numbers themselves.

What is Monetary policy

Monetary policy is the process by which the government, central bank, or monetary authority of a country controls (i) the supply of money, (ii) availability of money, and (iii) cost of money or rate of interest, in order to attain a set of objectives oriented towards the growth and stability of the economy. Monetary theory provides insight into how to craft optimal monetary policy.
Monetary policy is referred to as either being an expansionary policy, or a concretionary policy, where an expansionary policy increases the total supply of money in the economy, and a concretionary policy decreases the total money supply. Expansionary policy is traditionally used to combat unemployment in a recession by lowering interest rates, while concretionary policy involves raising interest rates in order to combat inflation. Monetary policy should be contrasted with fiscal policy, which refers to government borrowing, spending and taxation.

what is an annual report and why is it useful to investors?

An annual report provides a company's shareholders with information about its operations. This is an obligation stipulated by law. This is extremely beneficial to investors because it helps make informed decisions.

The report tells you how well the company is doing while also forecasting its future earnings and dividends. The Chairman's letter in the report also profiles the company's future goals.

What are advances and declines?

Advances and declines give you an indication of how the overall market has performed. You get a good overview of the general market direction.

As the name suggest ' advances' will inform you how the market has progressed.
'Declines' signal if the market has not performed as per expectations. The Advance-Decline ratio is a technical Analysis tool that indicates market movement. Advance Decline ratio is calculated using the formula:

Number of stocks that advanced/number of stocks that declined.

Generally, it is seen that in Bullish markets the number of stocks that advance is more than the ones that declined and the converse can be said to hold true in a bearish market. The breadth of market indicator is used to gauge the number of stocks advancing and declining for the day.
'Remains unchanged' is a term used if the market scenario shows no advancement or decline compared to the earlier day.

Advances and declines are calculated from the previous days closing results. However, a market that is significantly on one side either in terms of advances or declines may have a hard time reversing out of that direction the next day

Good-till-canceled (GTC) or Day Order Or Normal Orders

Day orders are orders given to your broker that hold true only during the period of the trading day for which the orders have been given. If the order has not been executed on that day, it will not be passed on to the next trading day. Thus they are orders that are only "good until it is canceled" or "good for the day."

For e.g. you place a stop loss order with your broker to sell a stock, if its price reaches to level X. Now, if it does not reach limit X, your broker will not sell the stock.
However, the stop loss order given to your broker will not hold true for the next day. For, even if the stock reaches level X on Day 2, he will not execute the trade till you instruct him to do so again.

What is a Stop Loss Order?

A stop loss order is a Normal order placed with a broker to sell a security when it reaches a certain predetermined price Trigger Price. Sometimes the market movements defy your expectations. Such market reversals often result in loss bearing transactions. The stop loss trigger price is your defense mechanism- an amount at which you will be able to sustain yourself against such unanticipated market movements. Your stop loss instruction is an order to sell when the price of contracts reaches a pre-determined level - the trigger price. Naturally, this price cannot be more than the price of the stock you are trading.

For e.g. If you bought a stock at Rs 10, you place a stop loss order with your broker to sell it, if it reaches Rs 8. This helps you prevent further loss, in the eventuality that the price of the stock might dip even further. Thus, it helps limit your loss or protect unrealized profits, whichever the case.

What is a Limit Order?

To avoid buying or selling a stock at a price higher or lower than you wanted, you need to place a limit order rather than a market order. A limit order is an order to buy or sell a security at a specific price. You could use a limit order when you want to set the price of the stock. In other words, you want to sell/buy particular scrip at a price other than the Current Market Price. However, a limit order guarantees a price but cannot guarantee execution of the trade, because the scrip might not reach the desired price on that particular trading day owing to Market related factors.

What is a Market Order?

A market order is an order to buy or sell a stock at the current market price. It signals your broker to execute the order at the best price currently available. However, as market prices keep changing, a market order cannot guarantee a specific price.

Where do I buy stock?

Stock trading happens on Stock Exchanges, but one cannot individually buy stocks off the exchange. To do so, you need to find a suitable broker who will understand your needs and buy stocks on your behalf. You can think of them as agents who will conduct transactions for you without actually owning any of the securities themselves. In exchange for facilitating or executing a trade, brokers will charge you a commission.

Why would I choose stocks?

Stocks are one of the most effective tools for building wealth, as stocks are a share of ownership of a company. You thus have great potential to receive monetary benefits when you own stock shares. Owning stocks of fundamentally strong companies simply lets your money work harder for you since they appreciate in value over a period of time while also offering rich dividends on a periodic basis.

what are the instruments traded in the stock markets?

There are various types of instruments in the stock market. They include Shares, Mutual Funds, IPO's, Futures and Options.

What are the various types of the risks once I start trading?

Market Risk
This is the risk of investing in the stock market in general. It refers to a chance that a securities value might decline. Although a particular company may be doing poorly, the value of its stock can go up because the stock market value is collectively going up. Conversely, your company may be doing very well, but the value of the stock might drop because of negative factors inflation, rising interest rates, political instability etc that are effecting the whole market. All stocks are affecting by market risk.
Industry Risk
This is risk that affects all companies in a certain industry. For e.g. Utility companies are often viewed as relatively low in risk because the utility industry is stable and operates in a predictable environment with relatively little change. In contrast, internet and other technology industries are usually viewed as high in risk because the industry is changing so quickly and unpredictably. The dotcom bubble burst in the 90s affected the valuation of all stocks in that industry.
All stocks within an industry are subject to industry risk.

Regulatory Risk
Virtually every company is subject to some sort of regulation. 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 risks unique to an individual company. It refers to the uncertainty regarding the organizations ability to perform business or provide service Products, strategies, management, labor force, market share, etc., which are among the key factors investors consider in evaluating the value of a specific company.

What is Insider Trading?

In your dealings with the stock world, you will often come across the term 'insider trading'. In simple words, the meaning of insider trading is 'the trading of shares based on knowledge not available to the rest of the world.

Insider trading has 2 connotations.

Corporate personnel of a company buying and selling stock in their own company when corporate insiders trade in their own securities, they must report their trades to the exchange Illegal insider trading refers to buying or selling a security after receiving 'tips' of confidential securities information. Thus it is considered as a breach of confidence while in possession of non-public information about the company.
Examples of insider trading
• Corporate officers, directors, and employees who traded the corporation's securities after learning of significant, confidential corporate developments;
• Employees of law, banking, brokerage and printing firms who were given such information to provide services to the corporation whose securities they traded;
• Government employees who learned of such information because of their employment by the government; and
• Other persons who misappropriated, and took advantage of, confidential information from their employers.

How the Badla system works?

On every Saturday, a CF system session is held at the BSE. The scrip’s in which there are outstanding positions are listed along with the quantities outstanding. The CF rates are determined depending on the demand and supply of money. There is more demand for funds when the market is over bought, and consequently the CF rates tend to be high.

However, when the market is oversold the CF rates are low or even reverse i.e. there is a demand for stocks and the person who is ready to lend stocks gets a return for the same.

The scrip that have been put in the Carry Forward list are all 'A' group scrip, which have a good dividend paying record, high liquidity and are actively traded. The scrip are not specified in advance, as it then gets difficult to get maximum return. The Trade Guarantee Fund of BSE guarantees all transactions; hence, there is virtually no risk to the Badla financier except for broker defaults. Even if the broker through whom you have invested money in Badla financing defaults, the title of the shares would remain with you and the shares would be lying with the "Clearing house". However, the risk of volatility of the scrip will have to be borne by the investor.

What is Badla financing?

As the term itself signifies, 'Badla' means 'something in return'. Badla is the charge, which the investor pays for carrying forward his position. This hedge tool lets the investor take a position in scrip without actually taking delivery of the stock, thus carrying forward his position on the payment of small margin. The Badla system of transactions has been in practice for several decades in the Stock Exchange, Mumbai and serves 3 needs of any stock exchange:

A) Quasi-hedging:
If an investor feels that the price of a particular share is expected to go up or down, without giving or taking the delivery he can participate in the possible volatility of the share.

B) Stock lending:
If a stock lender wishes to short sell without owning the underlying security, he employs the Badla system and lends his stock for a charge.

C) Financing mechanism:
If he wishes to buy the share without paying the full consideration, the financier steps into the CF system and provides the finance to fund the purchase The scheme is known as "Vyaj Badla" or "Badla" financing.

For example, X has bought a stock and does not have the funds to take delivery he can arrange a financier through this carrying-forward mechanism. The financier would make the payment at the prevailing market rate and would take delivery of the shares on X's behalf. X will only have to pay interest on the funds he has borrowed. Vis-à-vis, if you have a sale position and do not have the shares to deliver, you can still arrange through the stock exchange for a lender of securities. An investor can either take the services of a Badla financier or can assume the role of a Badla financier and lend either his money or securities.

What are Circuit filters & trading bands?

In order to check the volatility of shares, SEBI has come up with the concept of Circuit Filters. Under this, Sebi has specified the fixed price bands for different securities within which they can move on a given day.

Recently, in a bid to check the rampant price manipulation in small-cap stocks (known as penny stocks), stock exchanges reduced the circuit filter maximum permissible rise in prices in a day to 5 per cent. Earlier, stocks were allowed to rise up to 20 per cent in a session.

The NSE has also reduced the circuit filter in all the stocks, which are traded on a trade-to-trade basis to 5 per cent. As the closing price on BSE and NSE can be significantly different, this means that the circuit limits for a share on BSE and NSE can be different.

What is margin trading?

Margin trading is trading with borrowed funds/securities. It is almost like buying securities on credit.

Margin trading can lead to greater returns, but can also be very risky. While it lets you actively seize market opportunities it also subjects you to a number of unique risks such as interest payments charged for the borrowed money.Kotaksecurities.com offers its customers the facility of Margin trading.

What is the meaning of the term selling short?

An investor sells short when he anticipates that the price of the shorted stock will fall from the existing price. He borrows a share and sells it. As the share price dips, he buys the same share at a lower price and returns it back, while pocketing a profit in the bargain. An adage that describes short selling is ("selling high and buying low'.) Selling Short (Shorting) is an effective tool for traders as it allows us to profit from declining stock and index prices.

A definition of "Selling Short"

Selling short implies establishing a market position by selling a security one does not own, in anticipation that the price of the security will fall.

For e.g. Trader anticipates stock ABC will decline
Trader enters order to SELL 2000 shares of ABC at market price and later buys the 2000 shares of ABC at a much-reduced price. The difference in the prices of the selling and buying is his profit. However if the share prices increase after he has sold at a reduced price earlier, then he ends up with a loss. Hence Short selling is something that is speculatory to a certain extent and is done in anticipation of quick profits.

What are rolling settlements?

Let us understand Rolling Settlements with an example.
Supposing your friend agrees to buy a book for you from a bookshop, you will have to pay him for it eventually. Similarly, after you have bought or sold shares through your broker, the trade has to be settled. Meaning, the buyer has to receive his shares and the seller has to receive his money. Settlement is just the process whereby payment is made by all those who have made purchases and shares are delivered by all those who have made sales.
A Rolling Settlement implies that all trades have to settle by the end of the day. Hence the entire transaction, where the buyer has to make payments for securities purchased and seller has to deliver the securities sold, have to complete in a day.
In India, we have adopted the T+2 settlements cycle, which means that a transaction entered into on Day 1 has to be settled on the Day 1 + 2 working days, when funds pay in or securities pay out takes place.
'T+2" here, refers to Today + 2 working days.
For instance, trades taking place on Monday are settled on Wednesday, Tuesday's trades settled on Thursday and so on.
Hence, a settlement cycle is the period within which the settlement is made.
For arriving at the settlement day, all intervening holidays -- bank holidays, Exchange holidays, Saturdays and Sundays are excluded. From a settlement cycle taking a week, the Exchanges have now moved to a faster and efficient mode of settling trades within T+2 Days.

What are stock symbols?

A stock symbol is a unique code that is given to all participating companies in securities trading. Once you know the stock code/symbol of the company (sometimes referred to as a ticker symbol) you can easily obtain information about the company. This is important, as a wise investor will always do a financial analysis before purchasing a stock.
For ex- tcs stands for Tata Consultancy Services Infy stands for Infosys

How can you qualify the market as bull or bear?

Bull and Bear markets signify relatively long-term movements of significant proportion. Hence, these runs can be gauged only when the market has been moving in its current direction (by about 20% of its value) for a sustained period. One does not consider small, short-term movements, lasting days, as they may only indicate corrections or short-lived movements.

What drives bull and bear markets?

The uses of "Bull" and "bear" to describe markets have been derived from the manner in which each of these animals attacks its opponents. A bull thrusts its horns up into the air, and a bear swipes its paws down. These actions are metaphors for the movement of a market: if the trend is up, it is considered a Bull market. And if the trend is down, it is considered a Bear market.

The supply and demand for securities largely determine whether the market is in the Bull or Bear phase. Forces like investor psychology, government involvement in the economy and changes in economic activity also drive the market up or down. These combine to make investors bid higher or lower prices for stocks

Getting Familiar with Market Related Concepts

Once you enter the Stock market, you will frequently come across terms like Market Capitalization, Small-Cap Stocks, Mid-Cap Stocks and Large-Cap Stocks. In this section you will get an understanding of what these terms mean in the context of stock markets.

Let us first understand MARKET CAPITALIZATION

MARKET CAPITALIZATION
"Cap" is short for capitalization, the market value of a stock, indicating the size of the stock available.

Calculating a stock's capitalization
Market Capitalization = Market Price of the stock x The number of the stock's outstanding* shares

*Outstanding means the shares held by the public

For example, if Stock A has a Current Market Price of Rs 20 per share, and there are 1,00,000 shares in the hands of public investors, then Stock A has a capitalization of 20,00,000.

The company's capitalization is an effective parameter to group corporate stocks.

In the US, mid-cap shares are those stocks that have a market capitalization ranging from Rs 9,000 crore to Rs 45,000 crore. In India, these shares would be classified as large-cap shares. Thus, classification of shares into large-cap, mid-cap, small-cap is made on the basis of the relative size of the market in that particular country. The total market capitalization of US markets is $15 trillion. In India, the market capitalization of listed companies is around $600bn.

SMALL-CAP STOCKS
The stocks of small companies that have the potential to grow rapidly are classified as small-cap stocks. These stocks are the best option for an investor who wishes to generate significant gains in the long run; as long he does not require current dividends and can withstand price volatility. Generally companies that have a market Capitalization in the range of up to 250 Corores are small cap stocks

As many of these companies are relatively new, it is difficult to predict how they will perform in the market. Being small enterprises, growth spurts dramatically affect their values and revenues, sending prices soaring.

On the other hand, the stocks of these companies tend to be volatile and may decline dramatically.

Most Initial Public Offerings are for small-cap companies, although these days large companies do tend to source the capital markets for expansion plans. Aggressive mutual funds are also enthusiastic about adding small-cap stocks in their portfolios. Because they have the advantage of being highly growth oriented, small-cap stocks can forego paying dividends to investors, which enables the profits earned to be reinvested for future growth.
MID-CAP STOCKS
Mid-cap stocks are typically stocks of medium-sized companies. These are stocks of well-known companies, recognized as seasoned players in the market. They offer you the twin advantages of acquiring stocks with good growth potential as well as the stability of a larger company. Generally companies that have a market Capitalization in the range of 250-4000 crores are mid cap stocks

Mid-cap stocks also include baby blue chips; companies that show steady growth backed by a good track record. They are like blue-chip stocks (which are large-cap stocks) but lack their size. These stocks tend to grow well over the long term.
LARGE-CAP STOCKS
Stocks of the largest companies (many being blue chip firms) in the market such as Tata, Reliance, ICICI are classified as large-cap stocks. Being established enterprises, they have at their disposal large reserves of cash to exploit new business opportunities.

The sheer volume of large-cap stocks does not let them grow as rapidly as smaller capitalized companies and the smaller stocks tend to outperform them over time. Investors, however gain the advantages of reaping relatively higher dividends compared to small- and mid-cap stocks while also ensuring the long-term preservation of their capital.

What are Stock Exchanges?

A Stock Exchange is a place that provides facilities to stock brokers to trade company stocks and other securities. A stock may be bought or sold only if it is listed on an exchange. Thus it is the meeting place of the stock buyers and sellers. India's premier Stock Exchanges are the Bombay Stock Exchange and the National Stock Exchange.

Introduction to SEBI

The Government of India established the Securities and Exchange Board of India, the regulatory body of stock markets in 1988. Within a short period of time, SEBI became an autonomous body through the SEBI Act passed in 1992, with defined responsibilities that cover both development & regulation of the market while also giving the board independent powers. Comprehensive regulatory measures introduced by SEBI ensured that end investors benefited from safe and transparent dealings in securities.

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
SEBI has contributed to the improvement of the Securities Market by introducing measures like capitalization requirements, margining and establishment of clearing corporations that reduced the risk of credit
Today, the board continues on its two-fold mission of integrating the Securities Market at the National level and also diversifying the trading products to increase the number of traders (including banks, financial institutions, insurance companies, Mutual Funds, primary dealers etc) transacting through the Exchanges. In this context the introduction of derivatives trading through Indian Stock Exchanges permitted by SEBI in 2000 AD has been a real landmark.

Primary and Secondary Markets

Primary Market
An Issuer/Company enters the Primary markets to raise capital. They issues new securities in Exchange for cash from an investor (buyer). If the Issuer is selling securities for the first time, these are referred to as Initial Public Offers (IPO's). Summing up, Primary Market is the means by which companies float shares to the general public in an Initial Public Offering to raise capital.
E.g. 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 Markets
Once new securities have been sold in the Primary Market, an efficient mechanism must exist for their resale, if investors are to view securities as attractive opportunities. Secondary Market transactions are referred to those transactions where one investor buys shares from another investor at the prevailing market price or at whatever prices both the buyer and seller agree upon. The Secondary Market or the Stock Exchanges are regulated by the regulatory authority. In India, the Secondary and Primary Markets are governed by the Security and Exchange Board of India (SEBI).
For e.g. 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. Normally investors transact in securities using an intermediary such as a broker who facilitates the process

Rewinding back to the Stock Market trading history of India

In the earlier days, stockbrokers kept scouting for 'natural' sites to 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 robustness of the Indian Economy and finance is measured.
The trading scenario in India then underwent a paradigm shift 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

Stock Market Fundamentals 1

What are the basics of financial instruments?
Let us understand the two fundamental types of investments, namely bonds and stocks with an example. E.g. imagine you want to start your own grocery store. You will need a capital amount to get started. You acquire the requisite funds from a friend and write down a receipt of this loan ' I owe you Rs 1, 00,000 and will repay you the principal loan amount plus 5% interest'. Your friend has just bought a bond (IOU) by lending money to your company.
Thus a bond is a means of investing money by lending money to others. When you invest in bonds, the bond you buy will show the amount of money being borrowed (face value), the interest rate (coupon rate or yield) that the borrower has to pay, the interest payments (coupon payments), and the deadline for paying the money back (maturity dates).
There are several Pro's and Con's to investing in bonds
Pro's
Bonds give higher interest rates compared to short-term investments.
Bonds are less risky when compared to stocks.

Con's
Selling bonds before they're due, may result in a loss, known as a discount.
If the issuer of the bond declares bankruptcy; you may lose your money. Hence you must critically evaluate the credibility of the issuer of the bond, ensuring that he has the capability to repay the bond amount.
Now, let us continue with the same example. To accrue more capital for your new grocery store, you sell half your company to your brother for Rs 50,000. You put this transaction in writing 'my new company will issue 100 shares of stock. My brother will buy 50 shares for Rs 50,000.' Thus, your brother has just bought 50% of the shares of stock of your company.

Thus, to explain stocks:

Stocks, also known as Equities, are shares in a company. It is the certificate of ownership of a corporation. In simple terms, when you invest in a company's stock or buy its shares, you own part of a company. Thus, as a stockholder, you share a portion of the profit the company may make, as well as a portion of the loss a company may take. As the company keeps doing better, your stocks will increase in value and yield higher dividends.
Dividend: A sum of money, determined by a company's directors, paid to shareholders of a corporation out of its earnings.

This example covers the 2 major types of investments: bonds and stocks

Greed and Fear

Greed and fear management are two of the most important factors in your stock market investing education. These two emotions have an overwhelming power over almost all stock market participants, including institutional managers, stockbrokers, investors, traders and yourself.

Your capacity to resist greed and fear in your trading may not be as resolute as you think. However, it's nothing to be ashamed of and affects the entire stock market community. You should admit that these emotions exist and address them directly in order to make money investing in stocks.

How does greed and fear manifest themselves in your stock market strategies?

Here's an example. You have been watching a particular stock for some time now. It finally set itself up perfectly for your purposes, so you decide to enter the position. You have bought it at the best possible price and it starts moving higher just as you predicted.

At a certain point, greed instantly steps in and convinces you that the stock will explode to higher levels in the very near term, so you buy more shares. Or, the stock moves up just a little above your predetermined target and you feel that it still has room to go even higher. You decide to hang on to this baby because it will surely go higher tomorrow. When this happens, it isn't just you that sees what's going on. Greed causes all the cumulative market participants, who are also looking for hot stock market picks, to also join in for the ride.

A stock price usually falls faster than it goes up. When this happens, fear takes over and the stock plummets.

In the example above, you could have gotten out when the stock reached your preset target. However, you held on because greed was at your side. The next morning the stock price gaps down and sells off all morning. Greed is telling you to hang in there and the stock will come back. Unfortunately for you, the stock continues to go down, down, down. You start to feel sick. How could this have happened? Fear is now at your side, but by now it's too late. Your potential profit has turned into a loss.

Everyone goes through this until they have mastered the ugly faces of greed and fear. Harnessing the emotions of greed and fear will put you well on your way to becoming a successful stock trader.

Stock-Picking Strategies: Technical Analysis

Technical analysis is the polar opposite of fundamental analysis, which is the basis of every method explored so far in this tutorial. Technical analysts, or technicians, select stocks by analyzing statistics generated by past market activity, prices and volumes. Sometimes also known as chartists, technical analysts look at the past charts of prices and different indicators to make inferences about the future movement of a stock's price.

Philosophy of Technical Analysis
In his book, "Charting Made Easy", technical analysis guru John Murphy introduces readers to the study of technical analysis, explaining its basic premises and tools. Here he explains the underlying theories of technical analysis:
"Chart analysis (also called technical analysis) is the study of market action, using price charts, to forecast future price direction. The cornerstone of the technical philosophy is the belief that all factors that influence market price - fundamental information, political events, natural disasters, and psychological factors - are quickly discounted in market activity. In other words, the impact of these external factors will quickly show up in some form of price movement, either up or down."
The most important assumptions that all technical analysis techniques are based upon can be summarized as follows:
1. Prices already reflect, or discount, relevant information. In other words, markets are efficient.
2. Prices move in trends.
3. History repeats itself.

What Technical Analysts Don't Care About
Pure technical analysts couldn't care less about the elusive intrinsic value of a company or any other factors that preoccupy fundamental analysts, such as management, business models or competition. Technicians are concerned with the trends implied by past data, charts and indicators, and they often make a lot of money trading companies they know almost nothing about.

Is Technical Analysis a Long-Term Strategy?
The answer to the question above is no. Definitely not, Technical analysts are usually very active in their trades, holding positions for short periods in order to capitalize on fluctuations in price, whether up or down. A technical analyst may go short or long on a stock, depending on what direction the data is saying the price will move. (For further reading on active trading and why technical analysis is appropriate for a short-term strategy,

If a stock does not perform the way a technician thought it would, he or she wastes little time deciding whether to exit his or her position, using stop-loss orders to mitigate losses. Whereas a value investor must exercise a lot of patience and wait for the market to correct its undervaluation of a company, the technician must possess a great deal of trading agility and know how to get in and out of positions with speed.


Support and Resistance
Among the most important concepts in technical analysis are support and resistance. These are the levels at which technicians expect a stock to start increasing after a decline (support), or to begin decreasing after an increase (resistance). Trades are generally entered around these important levels because they indicate the way in which a stock will bounce. They will enter into a long position if they feel a support level has been hit, or enter into a short position if they feel a resistance level has been struck.

Stop Loss Strategies

Check out our Stop Loss Strategies & Techniques Training Video!

A 'stop loss' is a pre-defined point at which you will get out of a position in a stock based on the idea that it is not moving in the direction that you had anticipated. Every successful and experienced trader utilizing the basics of stock market investing will tell you that establishing and adhering to a reasonable stop loss is extremely important if you are going to make profits in the long run.
There are many reasons why traders will not sell shares when a loss is imminent. This is problematic because there will be many occasions when a trade they enter does not head in the right direction. At times, it is difficult to adhere to the rule of 'cutting your losses' when it obviously the right thing to do. This is often done by traders who feel a strong sense of greed and fear, or an unearned feeling of self-confidence, and may find it difficult to close the trade because, in doing so, it acknowledges the fact that they got the trade wrong in their minds. This may be a bitter pill to swallow so the easier option is to keep the trade open in the hopes that their ego will not be adversely affected. Yet, they will be violating one of the most important trading rules there are. To most traders, the idea of not closing a trade at a loss means that they haven't had a loss despite the fact that they may have a larger loss down the road.
A detailed plan that guides successful traders when to close positions is one of the things that separates them from the majority of the stock market community for them, this is a necessity. It is fair to say that a lot of traders don't have a clue about what conditions would warrant closing a trade. It is also fair to say that the majority of market participants routinely adopt a 'buy and hold' approach.
While a stock market investing strategy will always require decision making, there are no more important decisions you have to make than when to sell shares. This part of trading is often overlooked its importance is frequently underestimated. The act of buying simply puts one in a position where money can be made. It's the act of selling a position that is directly related to whether or not any money is made from the trade.
When it comes to considering your stock market investing strategy for exiting, what is important is not the manner in which you decide to exit, but the fact that you have a plan in place to advise you when to exit. What is also important is that you remain consistent in whatever approach to exiting you adopt.
Selling shares is probably the most complex money management decision you will face but, as a rule, it is the most important. The decision is especially difficult when you are faced with a loss and all you want to do is wait for the shares to return to your buying price. When the shares move away from you, making your loss even greater than you would have ever imagined, it makes the situation even more difficult.
Regrettably for many traders, they cannot bring themselves to set stop losses. If they do, they abandon them when the pressure is turned on. To make money investing in stock, cutting your losses is one of the most important trading rules there is. If you fail to do that, you are most likely going to be worse off for it.

Risk Reward Ratios

Risk reward ratios are a critical component to successful trading. Trading can quickly become gambling if you continue to press your bets by taking positions with poor risk reward ratios. While identifying good risk reward ratios does not guarantee success, ignoring them usually guarantees failure.

Candlestick traders look for patterns with proven higher probabilities for placing trades. Once the pattern is identified, the next step is determining entry and exit points. For both, profit targets and stop loss targets. These points can be determined based upon moving averages, Bollinger bands, or other technical indicators to evaluate possible support and resistance levels. The onslaught of computerized trading programs provides traders with quick calculations to base one’s risk/reward targets.

Calculating Risk Reward Ratios

let’s assume our computerized scanning program provides us with a dozen high probability patterns from which to choose. Most traders will only be able to add one or two new positions to their portfolio. This is where utilizing risk reward ratios come into play.

The simplest calculation will take into account:

1) Entry Price

2) Profit Target

3) Stop Loss Target

For example:

Stock XYZ has the Entry Price of Rs20.35 with our Profit Target of Rs21.50 and Stop Loss target of Rs19.85. Our Risk = the difference between our Entry Price of Rs20.35 and our Stop loss of Rs19.85 or Risk = .50. Our Reward is the Entry Price of Rs20.35 plus the Profit Target of Rs21.50 or Reward = Rs1.15. We are risking .50 to make Rs1.15. In this example a little better than a 2:1 ratio the rule of thumb for a reasonable risk reward ratio is a minimum of 2:1. It is important to analyze your potential loss in the event your analysis is wrong and the trade does not follow in the expected direction. And no fair setting your targets using fuzzy math the risk reward ratio is meant to provide an unemotional evaluation before risking your hard earned money. Don’t ‘jiggle’ the figures to justify the trade.

Use this approach to narrow down your trades until you find the highest probability patterns with the greatest risk reward ratio. The more systematic you become in evaluating your trades the more likely your portfolio will prosper. Additionally, this approach helps to remove emotional trading which is a continued struggle for many investors.

Where to Begin

Evaluate you’re previously closed positions, using both your winning and loosing trades. Since you should constantly be evaluating your previous trades to evaluate the success of your most important technical analysis tools, you will kill two birds with one stone. Yes, I realize this is a boring exercise but it is essential to your success. The old adage ‘Insanity is doing the same thing over and over again but expecting a different outcome’ was never more true. At least take the time to consider whether you want to add the risk reward ratio to your trading criteria.

There is another other element to consider after the risk reward ratio has been determined. What is the length of time you expect to be in the trade? The shorter the time period the more trades you can place and the more money you can make. A 5:1 ratio is less attractive if your opportunity money will be tied up for too long a period. You must use your capital on the highest probability trades. Using the simple risk reward ratio should produce more profits to your portfolio.

To summarize; you should be willing to risk Rs1 to make Rs2. You should not be willing to risk a Rs1 to make a Rs1. Keep it simple and keep your targets honest, (the data is only as good as the person plugging in the figures).

By doing the risk reward calculations for every potential trade you will have your exit criteria before placing your trade. This keeps you from getting greedy when your profit target has been reached. You can take your profit and re-enter if the new trade meets your criteria. This also helps you from dropping your stop-loss, in the hopes that your trade will soon go your way.

What if I determine one of my open positions has a poor ratio?

Over the years, I have found one of the best ways to evaluate if it is time to take a loss is to look at my existing trade as if I were considering placing it today. If I could not justify taking it at the current price, using the same criteria I use for entering a trade, then it is time to take a loss. If you would not buy it today then more than likely, you already know the answer. Allowing your losses to grow is not a good habit to get into. Hoping and praying are not profitable stock market trading tools. The key is to win more than you lose. Loses are simply the cost of doing business. Every business has an income and expense allowance and candlestick stock trading is no different.

Stock Fundamental Analysis - A Key Component for Success

When it comes to investing in the stock market, one measurement stands out above the rest; how much did the investor earn at the bottom line. Traders use many tools to help determine their stock trading plan, but the best tool for assisting an investor is basic stock fundamental analysis. Stock fundamental analysis is the process of examining businesses at the most essential levels. This method of review evaluates key risk reward ratios of a business to attempt to determine the stability and financial health of a company and to determine the value of its stock.
Many investors use stock fundamental analysis alone for their determination of future stock purchases. While stock fundamental analysis is a powerful practice, it should be an important part of an investor’s overall stock trading plan. This plan should include stop loss strategies, as well as a stock trading system such as Japanese Candlesticks. Such a trading system, coupled with basic fundamental analysis can provide the trader with a valuable insight into the murky waters of the stock market.
Basic fundamental analysis helps an investor to know how much money a company earns. This is the ultimate measurement of its success, both currently and in the future. Earnings can be difficult to calculate, but that is to be expected when dealing with the stock market. When a company is growing and profitable, its stock generally increases; earnings create higher stock prices and in some cases, regular dividends and successful trading. Lower stock value can have the opposite effect, making the market bearish on the stock. By evaluating a stock with stock fundamental analysis, it is possible to look for basic candlestick chart formations and determine the direction of a stock. When the direction is known, an investor can implement stock market strategies which reflect either a bullish or bearish approach.
In addition to understanding a company’s earnings, there are a number of ratios involved in basic fundamental analysis that help the investors to evaluate the worth of a company’s stock. These ratios focus on earnings, growth and value in the market. Evaluating these dynamics together can provide unique reflections on the value of the company. When a company can be identified by basic fundamental analysis, its stock can be tracked using candlestick chart analysis. With this information, an investor can move confidently to make a trade.
Stock fundamental analysis is a key component in any trading plan. Investors can find patterns and trends in the stock price history and use this information to help make decisions about a company’s value and the value of its stock. Incorporating a stock trading system such as Japanese Candlesticks teams up with stock fundamental analysis to form a powerful team in evaluating stock.
The bottom line is the ultimate measure of the success of an investor. Using basic fundamental and technical analysis, a stock trading plan and a stock investing system, an investor increases the possibility of moving from the hope of being a good trader to the reality of becoming a highly successful trader.

D0’s and Don’ts in Stock Trading

Every trader loses initially.

We strongly believe that every investor who comes for trading initially gives losses as he/she is unable to have control over his greed and fear. At times with all the information and luck in his favor, he makes profit, and then because of his new over confidence, trades more which results in his profit gone and also sometimes a portion of his capital gone, This cycle of fear of the losses and greed to earn more makes him initially give losses

The trader begins to make no profit no loss

Out of the total investors who enter the first stage, 80% of them finish off at the first stage only and after a year or two find that the stock market is not their cup of tea. So in the 2nd stage only the 20% investors try to break even in their trading and quite a lot of them are able to have control over their fear and greed with a result that they stop giving losses. Now these traders are ready for the 3rd stage

The trader starts to make profits

This stage where a trader makes consistent profit i.e. he does not give loss cheque to the broker. In fact this is the stage which everyone wishes to have in the stock market. But we strongly believe that anybody who wishes to
come to the 3 rd Stage has to pass through the above 2 stages.

* Never risk more than 10% of your trading capital in a single trade.
* Always use stop loss orders. (Here you should know your loss you can give in a situation where the trade starts going against you.)
* Never do over trading.
* Never let a profit run into a loss.
* Don't enter a trade if you are unsure of the trend.
* When in doubt, get out, and don't get in when in doubt.
* Only trade active markets.
* Distribute your risks equally among different markets.
* Never limit your orders. Trade at the markets
* Extra monies from successful trades should be placed in a separate account.
* Never trade to scalp a profit.
* Never average a loss.
* Never get out of the market because you have lost patience, or get in because you are anxiously waiting.
* Avoid taking small profits and large losses.
* Never cancel a stop loss after you have placed it.
* Avoid getting in and out of the market too soon.
* Be willing to make money from both sides of the market.
* Never buy or sell just because the price is low or high.
* Never hedge a losing position.
* Never change your position without a good reason.
* Avoid trading after long periods of success or failure.
* Don't try to guess tops or bottoms.
* Don't follow a blind man's advice.
* Avoid getting in wrong and out wrong; or getting in right and out wrong. This is making a double mistake.
* When you lose don't blame it on luck.


Investors come to the stock market and buy and sell the stocks eyeing the future. The future valuations they arrive at by either calculating the

Fundamental factors on the basis of technical they take their positions.

In the short term it is always the technical factors that are demand and supply of the stock which gives us the directions of the movement of the stock.

Here for the reference of this side, we find that people who come here have a more short term view of the market.

They predict the short term movement of the market, technical analyst gives better results hence, and we follow all the standard technical analysis tools.

There are two advantages in the following technical firstly; it tells us where the share/market is moving up or down.

Secondly, technical are not bothered about the fundamentals or the news (it overrides them).

In technical we are only concerned with price charts and volumes. We believe that at any given point of time, a stock price reflects everything.

CRR, Repo rate, Reverse Repo rate

Cash reserve Ratio (CRR) is the amount of funds that the banks have to keep with RBI. If RBI decides to increase the percent of this, the available amount with the banks comes down. RBI is using this method (increase of CRR rate), to drain out the excessive money from the banks.
Definition
Discount rate at which a central bank repurchases government securities from the commercial banks, depending on the level of money supply it decides to maintain in the country's monetary system. To temporarily expand the money supply, the central bank decreases Repo rates (so that banks can swap their holdings of government securities for cash), to contract the money supply it increases the Repo rates. Alternatively, the central bank decides on a desired level of money supply and lets the market determine the appropriate Repo rate.
Definition 1
Banking: Rate at which a bill of exchange or an accounts receivable is paid (discounted) before its maturity date.
Definition 2
Commerce: Rate by which an invoice amount is reduced when a condition is complied with, such as payment on delivery or an order amount that exceeds a certain minimum figure.
Definition 3
Investment appraisal: Multiplier that converts anticipated returns from an investment project to their current market value (present value). It is always less than 1, and depends on the cost of capital (current compound interest rate) and the time interval between the investment date and the date when returns start to flow. Formula: 1 ÷ (1 + r) ^n where 'r' is the required rate of return (interest rate) and 'n' is the number of years. Also called discount factor or present value factor. See also discounted cash flow.
Definition 4
Securities trading: Amount by which the market value of a bond, certificate of deposit, or share (stock) is below its par value.
Definition
Autonomous or semi-autonomous organization entrusted by a government to, administer certain key monetary functions, such as to (1) issue, manage, and preserve value of the country's currency, (2) regulate the amount of money supply, (3) supervise the operations of commercial banks, (4) and serve as a banker's bank and the local lender of last resort. Some Central banks (such as the Bank Of England) provide all these functions, others (such as in Germany and the US) employ two or more organizations. Most Central banks are owned by their respective governments (such as Bank Of England, Banque De France, Reserve Bank Of India), others (such as Belgian Central Bank and Bank Of Japan) have mixed ownerships, and two (Germany's Bundes bank and the US Federal Reserve System) are owned by private banks. Bank of Sweden (1656) was the first Central bank, followed by the Bank of England (1694) and the Bank of France (1800). Bank of Japan was established in 1888, and the US Federal Reserve System in 1913.
Definition
Bonds, notes, and other debt instruments sold by a government to finance its borrowings These are generally long-term securities with the highest market ratings

Definition
Privately owned financial institution which (1) accepts demand and time deposits, (2) makes loans to individuals and organizations, and (3) provides services such as documentary collections, international banking, trade financing. Since a large proportion of a commercial bank's deposits is payable on demand, it prefers to make short-term loans instead of the long-term ones (which are handled by organizations such development finance companies and home mortgage companies).

Definition
Set of mechanisms by which a government provides money (cash) in a country's economy. It usually consists of a mint, central bank, and commercial banks.

Definition
Establishment authorized by a government to accept deposits, pay interest, clear checks, make loans, act as an intermediary in financial transactions, and provide other financial services to its customers.

Definition
Exchange of one type of asset, cash flow, investment, liability, or payment for another Common types of swap include: (1) Currency swap: simultaneous buying and selling of a currency to convert debt principal from the lender's currency to the debtor's currency. (2) Debt swap: exchange of a loan (usually to a third world country) between banks. (3) Debt to equity swap: exchange of a foreign debt (usually to a Third World country) for a stake in the debtor country's national enterprises (such as power or water utilities). (4) Debt to debt swap: exchange of an existing liability into a new loan, usually with an extended payback period. (5) Interest rate swap: exchange of periodic interest payments between two parties (called counter parties) as means of exchanging future cash flows.

Definition
Ready money For accounting purposes, cash includes money in the cash pan, petty cash, cash in the locker, bank account balance, customer checks, and marketable securities. It may also include the un-utilized portion of an overdraft facility or line of credit.

Definition
Voluntary, deliberate, and legally enforceable (binding) agreement between two or more competent parties A contractual relationship is evidenced by (1) an offer, (2) acceptance of the offer, and a (3) valid (legal and valuable) consideration. Each party to a contract acquires rights and duties relative to the rights and duties of the other parties. However, while all parties may expect a fair benefit from the contract (otherwise courts may set it aside as inequitable) it does not follow that each party will benefit to an equal extent. Existence of contractual-relationship does not necessarily mean the contract is enforceable, or that it is not void (see void contract) or void able (see void able Contract). Contracts are normally enforceable whether or not in a written form, although a written contract protects all parties to it. Some contracts, (such as for sale of real property, hire purchase agreements, insurance policies) must be in writing to be legally binding and enforceable. Other contracts (see implied in fact contract and implied in law contract) are assumed in, and enforced by, law whether or not the involved parties desired to enter into a

Definition
Actual or conceptual (see market space) place in commercial world where forces of demand and supply operate, and where buyers and sellers interact (directly or through intermediaries) to trade goods, services, or contracts or instruments, for money or barter. Markets include mechanisms or means for (1) determining price of the traded item, (2) communicating the price information, (3) facilitating deals and transactions, and (4) effecting distribution. Market for a particular item is made up of existing and potential customers who need it and have the ability and willingness to pay for it. All markets, ultimately, consist of people. Also called marketplace



Indian banks are required to hold a certain proportion of their deposits as cash. In reality they don’t hold these as cash with themselves, but with Reserve Bank of India (RBI), which is as good as holding cash. This ratio (what part of the total deposits is to be held as cash) is stipulated by the RBI and is known as the CRR, the cash reserve ratio. When a bank’s deposits increase by Rs100, and if the cash reserve ratio is 10, banks will hold Rs10 with the RBI and lend Rs 90. The higher this ratio, the lower is the amount that banks can lend out. This makes the CRR an instrument in the hands of a central bank through which it can control the amount by which banks lend. The RBI’s medium term policy is to take the CRR rate down to 3 per cent

the hike in CRR from 4.5 to 5 per cent will increase the amount that banks have to hold with RBI. It will therefore reduce the amount that they can lend out. The move is expected to shift Rs 8,000 crore of lend able resources to RBI. In the past few months the money that banks has available for giving out as credit is greater than the amount they have been lending out. This has led to “an overhang of liquidity” in the system. The objective of the CRR hike is to “mop up” some of the “excess liquidity” in the system

the hike in CRR is not likely to lead to an immediate increase in interest rates. There is excess liquidity in the system even after a higher amount is deposited with RBI as reserves.

Unless the demand for credit picks up to the extent that the money is all lent out, banks will not have an incentive to raise interest rates.

The inflation rate may continue to be high, the economy may also continue to witness growth which will keep the demand for credit high, and international trends are for rates to move up. This means that sooner or later interest rates will go up. The first rates to get impacted are yields on government bonds. We have already seen this happening. If the inflation rate keeps rising, RBI may raise the ‘Repo rate’, the short term rate at which banks park excess funds with the RBI. This makes it less attractive for banks to lend.

Further, RBI may raise the bank rate, the rate at which it lends to banks.

At this point you may expect interest rates on home loans and fixed deposits to go up as well. Over a year rates could go up by as much as 3 per cent

I don’t know about the SLR CAR PLR AND SDR

but I expect SLR is for a liquid ratio.

Liquid ratio = Liquid Asset/Current Liabilities
Liquid Asset = Current Asset-Stock

Current Asset Ratio (CAR)

Current asset/ Current Liabilities
Current asset is the asset which is easily liquefied with in a span of maximum 1 year.

Current liabilities are the liability which has to be played in with in 1 year.

SLR is statutory liquid ratio, this is the % of deposits that need to be maintained as liquid thru' investing in RBI bonds. SLR includes CRR, for example CRR is 7% and SLR is 10%, the 3% should be can non-cash investments.

SDR: The SDR is an international reserve asset, created by the IMF in 1969 to supplement the existing official reserves of member countries

PLR: Prime lending rate is the rate that the bank will lend to its best customers. Floating rate loans will be quoted as some thing like PLR+_ 1%, when RBI changes SLR, CRR etc banks will announce change in PLR and other loans interest will be changed accordingly

CAR: Capital Adequacy ratio is the amount of capital that shareholders should put in for each 100 deposits with bank. For ex if CAR is 12.5% and a bank has a deposit base of 100, then Bank's share capital reserves and surplus should be at least 12.5

Repo (Repurchase) Rate
Repo rate is the rate at which banks borrow funds from the RBI to meet the gap between the demands they are facing for money (loans) and how much they have on hand to lend.
If the RBI wants to make it more expensive for the banks to borrow money, it increases the Repo rate; similarly, if it wants to make it cheaper for banks to borrow money, it reduces the Repo rate.
Reverse Repo Rate
This is the exact opposite of Repo rate.
The rate at which RBI borrows money from the banks (or banks lend money to the RBI) is termed the reverse Repo rate. The RBI uses this tool when it feels there is too much money floating in the banking system
If the reverse Repo rate is increased, it means the RBI will borrow money from the bank and offer them a lucrative rate of interest. As a result, banks would prefer to keep their money with the RBI (which is absolutely risk free) instead of lending it out (this option comes with a certain amount of risk)
Consequently, banks would have lesser funds to lend to their customers. This helps stem the flow of excess money into the economy
Reverse Repo rate signifies the rate at which the central bank absorbs liquidity from the banks, while Repo signifies the rate at which liquidity is injected.
Bank Rate
This is the rate at which RBI lends money to other banks (or financial institutions.
The bank rate signals the central bank’s long-term outlook on interest rates. If the bank rate moves up, long-term interest rates also tend to move up, and vice-versa.
Banks make a profit by borrowing at a lower rate and lending the same funds at a higher rate of interest. If the RBI hikes the bank rate (this is currently 6 per cent), the interest that a bank pays for borrowing money (banks borrow money either from each other or from the RBI) increases. It, in turn, hikes its own lending rates to ensure it continues to make a profit.
Call Rate
Call rate is the interest rate paid by the banks for lending and borrowing for daily fund requirement. Since banks need funds on a daily basis, they lend to and borrow from other banks according to their daily or short-term requirements on a regular basis.
CRR
Also called the cash reserve ratio, refers to a portion of deposits (as cash) which banks have to keep/maintain with the RBI. This serves two purposes. It ensures that a portion of bank deposits is totally risk-free and secondly it enables that RBI control liquidity in the system, and thereby, inflation by tying their hands in lending money
SLR
Besides the CRR, banks are required to invest a portion of their deposits in government securities as a part of their statutory liquidity ratio (SLR) requirements. What SLR does is again restrict the bank’s leverage in pumping more money into the economy.
Regarding Repo and Bank Rate:
Repo is short term whereas Bank rate is long term. Thus Repo rates are also called short term lending rate and Bank rates are called long term lending rates. Now if the Repo rate > Bank rate, it signifies that short term borrowing of funds is more expensive for commercial banks. Incidentally, this short term borrowing through Repo is required by the banks to maintain its CRR. Thus if Repo rate is increased, bank will reduce its lending to public because to maintain the CRR bank will have to now borrow from RBI at a higher Repo rate. Thus increase of Repo is done to suck liquidity from the economy.
CRR-Is the percentage of amount deducted from the total liability of the bank and which should be kept in the liquid form with the bank(say total liability of bank is 100 and amount for CRR is fixed 5%,than Rs. 5 will be kept in the liquid form ),remaining amount will be Rs.95-/
SLR- it is the percentage (fixed by the RBI) of money (left after deduction of CRR) which is invested in the government securities. (Say the Percentage fixed for the SLR is 25% than 25%of95 will be invested as the SLR
PLR .Is the percentage of amount left after deduction of CRR and SLR from the total liability of any bank, and lend to the Sectors at lower rate of interest as compare to another lending.
RR-Lending rate offered by the RBI to other banks for short term lending against the private securities.
RRR- It is the opposite of RR (means rate at which RBI offers the securities to the banks)
BR- It is the rate at which the RBI lends the loan to other banks for long term against government securities.
RR-Lending rate offered by the RBI to other banks for short term lending against the private securities.
CRR, Repo rate, Reverse Repo rate, SLR, Bank rate, Call rate

Recognizing Trader Stress

Traders are unique people. Just think about it. How many people can sit in front of a computer analyzing charts, watching numbers flash, making calculations, and risking money based on a prediction that a currency will move in a particular direction? No, it's not a life that the general population dreams of living. But it's a traders dream life. And many traders do this every day for a living.

While traders often experience highs and lows of trading, one factor is a constant threat: trader stress. Traders live under a high amount of stress in their daily lives. Of course, stress is also experienced in the general population in high and unhealthy levels. But trader stress is manifested differently so it often goes unrecognized and, therefore, uncontrolled. This can affect a traders health, trading capacity, and life. No one needs to experience trader stress. This article will discuss the unique signs of trader stress. Ways to control stress is discussed separately way.

The signs of trader stress

These three signs may surprise both novice and experienced traders alike, but as an experienced trader, I have engaged in these behaviors myself and witnessed them in other traders as well.

* Breaking from a trading system

Every responsible trader has a trading system because it helps to identify potentially profitable trades, minimize losses on bad trades, and know when to take profits.

Why would a trader depart from his trading system? A trader can give many excuses, but it is basically a stress-based reaction. Perhaps he has experienced a series of losses and feels the need to quickly recoup those losses. Perhaps she needs more cash flow because a birthday, anniversary, or Christmas is coming soon. Whatever the reason, a departure from one's trading system usually signals a high level of trader stress.

As an example, some of my Forex students were experiencing large losses in their trading accounts. When I reviewed their trades, I noticed that all had departed from the trading system. Their reasons ranged from fear of losing money to panic if their trade took a small downward dip. Or they wanted to make money quickly. At the root of all their responses was stress. If you're tempted to stray from your trading system, stress may be at the root of your temptation.

* Watching and reacting to every movement of your trades.

Of course, a trader watches his or her trades very closely. We're not investors who can buy, hold, and occasionally take a quick look at how the currency is performing.Traders need to watch their trades and look for a price movement that will allow us to take our profit and move on to the next money-making trading opportunity. This kind of behavior is not a sign of trader stress.

The type of behavior that does signal trader stress is obsessively watching your trades. It's the kind of behavior that makes a trader afraid to leave the computer. The trader begins to ignore basic needs and responsibilities so that he can watch his trades or monitor the market. The trader will often react to what he has watched by shouting at the computer, screaming at friends, or throwing something within reach.

In more extreme cases, reactions can include excessive drinking or abusing drugs. I know traders who can't sit through a short meal without checking their trades. They constantly run to the computer or watch their mobile phones to check the status of their open trades.

Sometimes, they are quite happy. Other times, they are miserable. Or they are angry or frustrated. They are rarely happy. Imagine swinging from mood to mood in this manner throughout the trading day! Stress is at the root of this kind of obsessive behavior.

* Getting swept up in trading waves or euphoria.

As all traders know, the market will ebb and flow. In the morning, trading may be light and uneventful. After lunch, it may begin to move. Later in the day, the market could be hitting new highs. Or it could be dwindling to an uneventful close at the end of the week. Part of the excitement of trading is that traders never know exactly what will happen from one hour to the next.

The problem is that it is very easy for a trader to get caught up in the market's roller coaster ride. Rather than following the trading system or dispassionately watching the market, the trader becomes a part of the euphoric momentum of the market. While it may seem that the trader enjoys the excitement, the trader is actually experiencing a high degree of stress that can cause him or her to break from his trading system, jump into the market without properly researching the trade, or practicing many other types of irresponsible behavior. Stress is at the root of this behavior.

These are a just a three common signs of trader stress. Of course, there are many more signals that a trader is experiencing stress. Every trader is different, but with a level of awareness, each trader can learn to recognize his or her unique stress signals and respond to them in a healthy and appropriate manner.

How to Control Trader Stress

Now, that we can recognize the signs of trader stress, let's learn how we can control it. Here is when the hard work begins, right? Wrong. Controlling trader stress requires only a few simple steps. But you must also make a commitment to change bad trading habits and constantly monitor your behavior as a trader.

Every trader is different. Every trade is different. The market is constantly changing. This constant change can be a major source of stress for any trader. Most traders hold multiple open trades at any one time. The market is constantly changing and moving. Events happen: war, peace, elections, natural disasters, weather, and even holidays. Almost any event can affect the market and your trades. Change can be very stressful all change even happy events. Every traders life is constantly full of change. Does that mean that a traders life is constantly full of stress? Not necessarily.
Three Steps to Controlling Stress

There are many things that traders can do to control stress, including implementing the stress-free trade. However, three basic steps should help the trader to manage trader stress. Let's review the three steps to controlling stress.

* Use a trading system.

This is very important! One way to control change and stress is to use a trading system. A trading system can limit your response to change. It can also remove stress from the traders life by preparing for any event in the market.

A trading system can help a trader know when to buy and sell at certain prices, know how long to hold, know when to take a profit and when to cut losses, and know when to do nothing. A lot of events might still be happening, but the trader who follows a system has his eyes and attention on the trading system rather than the fluctuating events.

A trading system is an empowering and consistently stress-reducing tool for all traders.

* Make a trading schedule.

Many traders hold the belief that they must be constantly trading. Instead of trading on one's own schedule, they feel that they must trade whenever the market is open and slow down only when the market closes. Stock traders have a built-in limitation since the market is open for a limited number of hours every day. The Forex market is different because it is open for 24 hours a day. Without a schedule for one's trading, a trader can feel guilty, overwhelmed, and panicky.

A trading schedule helps the trader regain control over his day and trading activities. The schedule can be a daily or weekly schedule though I don't recommend a monthly schedule because it's not specific enough to be helpful.

Most importantly, when you've made a schedule, stick with it. Hold it sacred. Consider it your work schedule (actually, it is!) so you have control over your trading day.

* Set goals for trading.

This is an incredibly powerful way to stay focused. Traders often get buried in the minor details of trading that cause them to forget their ultimate goals. Having trading goals will help to place every trade in perspective. Each trade is not a life or death event when placed in the context of one's long-term and short-term goals. The problem is that goals are often vague or ill-defined.

A goal is tangible and achievable. A trader can have many goals”related and unrelated to trading. An example of a goal: To earn Rs5, 000 a month trading, to learn how to use oscillators, or to work full-time as a trader. Many people add a time element to their goal setting, but this is optional.

Finally, write down your goals and review them on a regular basis otherwise, it's very easy to forget your goals and start focusing on the daily details.

So, yes, there are a few stress-controlling tools every trader can use even when the trades go badly. I must emphasize, though, that stress is caused only by one's response to an event or situation. Control the response. Control the stress!
A Few Reminders

Let's conclude with a few reminders:

* Traders can control stress,regardless of what is happening in the market.
* Traders can live healthy, enjoyable, and stress-managed lives -- forget what you see on television or in movies!
* Either stress controls you or you control the stress. You decide.