KNOWLEDGE BASE-INDIAN STOCK MARKET: Indian stock market guides for beginners

Questions to Ask

Are you thinking of giving day trading a try? If so, here are some preliminary questions which you need to ask yourself before starting out. The answers will begin to help you decide whether or not you are ready to take the plunge into the rather fast-paced (and risky) arena of day trading.

Why do I want to day trade?

Ask yourself why you want to day trade. Is it because you perceive day trading to be a relatively easy way to get rich quickly? Is it because several of your friends and colleagues are doing it. If so, be aware that none of these reasons are valid reasons to commence day trading. First, although one can make a lot of money day trading, it is far from easy to do so, and the risk of large losses is often there. Second, successful day traders have a true love or passion about their trading activities. If you do not enjoy reading charts, dealing with numbers, reading market news, interpreting stock quote screens, learning new trading strategies and working independently in a fast-paced environment, then day trading is probably not your cup of tea. In other words, day trade only if you think you will enjoy the challenge, and are prepared to spend considerable time to acquire the knowledge and experience necessary to become successful. Otherwise, look for something else to do.

Do I have enough capital to day trade and is this money I can risk?

Even if you get past the previous question, and conclude that day trading is something that you would truly love to try, you must ask yourself whether you have capital on hand to effectively day trade. Although opinions differ, Rs 50,000 is about the minimum capital required. Further, this should be "100% risk capital". In other words, if you were to lose the whole of this capital, would there be any significant negative effect on your finances and would you be devastated at losing it? Day trading is an extremely risky venture, and you must be able and prepared to assume all of the risk. Can you afford to? If not, forget about day trading.

What experience/knowledge level do I have?

One of the main reasons beginning day traders fail is a lack of knowledge. Ask yourself how much trading/investing experience you have. How long have you been involved in the stock markets as a buyer/seller of shares? What do you know, and what is your knowledge level, concerning the equities markets. In particular, can you answer all of the following:

What is a bid? An ask?What is a bid size?An ask size?What is the tape? What is a market maker?What is a specialist?What is a block trade?What is a gap open? What is a tick?What is a market order? What is a limit order? What is a stop order?

Just a Start

The questions posed above are by no means all of the questions you should ask before you commence day trading. They do however provide a good start, and should help you decide if you are likely to be ready for day trading and whether day trading is for you.

Rising inflation is one of the biggest stories of recent weeks and has received a great deal of attention from the media and political parties. At the same time, inflation is an economic problem that the average person meets on a daily basis in terms of higher prices; particularly of food products.

Ask yourself the following questions:
- Is inflation affecting you? How?
- Is the recent increase in prices of essential goods of daily use affecting you? By how much have your monthly budgets increased compared to what you spent last March-April?
- Have you stopped/reduced the number of social outings in a month with your friends/family/spouse because it costs you more now?
While generally speaking, inflation means a general rise in the level of prices, the textbook definition says inflation reflects the situation where the demand for goods far exceeds the supply of goods.
Simply put: What you could buy for Rs 100 today, you will have to pay Rs 103 for the same, if inflation increases at the rate of 3 per cent. This might sound small right now but after a few years, this is capable of eroding your capital.
The value of Rs 100 in your wallet was not the same as it was the previous year.
How it has affected us:

Food prices are soaring
All essential items like vegetables, oil, milk, sugar are getting costlier
Rentals and real estate rates have almost doubled in just a few months in most cities
The real estate prices are at record highs, making life miserable, especially for people who have migrated to cities for jobs
Action plan for combating inflation
What is the right investment portfolio that beats inflation and also gives you good returns?

Some allocation to debt. Even in today’s high-inflation environment, one should stick to the basic principles of investment. Adopt a long-term investment horizon and ensure safety of capital. To safeguard capital, continue to invest some amount in fixed-income instruments.

Increased allocation to equity. But in today’s high-inflation environment, if you invest too much in debt the strategy could backfire. Since returns from fixed-income securities are negative when you factor in inflation, a larger chunk of your investment should be invested in equities. Equity exposure is a must to beat inflation.

In the light of the current high level of inflation, you could tweak your asset allocation—by slightly increasing your exposure to equity.


Invest in gold. Gold as an investment class has done very well over the last one year. Not only has it beaten inflation, the returns from gold exchange traded funds (ETFs) is equal to that from the Sensex. According to Delhi-based Surya Bhatia, “Gold acts as a hedging tool. It gives good returns when the economic outlook turns negative. If the current global turbulence continues, gold could do well in the coming year as well.” Bhatia suggests allocating 10-15 per cent of your portfolio to gold.
Make your investments work harder. Finally, do not allow money to lie idle. As Bhatia says: “Keeping money in a bank’s savings account does not help at all but depreciates your investments.” So keep the minimum in your savings bank account and invest the rest in a variety of instruments, depending on your liquidity needs: liquid funds for six months; fixed maturity plans for six months to two years; short-term plans of debt funds for two to three years; and equity funds for longer periods.


Living as we do in the world’s second-fastest growing economy, we will have to get accustomed to a high level of inflation. The only way we can beat inflation is by participating in India’s growth story, and that means investing in equity, the current downturn and volatility notwithstanding.

In cases where the markets are set to open up strongly, there will often be large gaps in the opening prices of certain stocks from the prior day's closing prices. This can provide profitable opportunities for day traders. The following sets out an easy to implement strategy or tactic that may be used to capitalize on these opportunities.

Suppose that, prior to the opening bell, indications are that the market will open up quite strongly. A large amount of buy orders for many stocks that have been placed prior to the market open will cause market makers to increase the price of such stocks at the commencement of trading. In many cases, the amount which the market maker opens or "gaps" up a particular stock will be higher than what is justified. This creates what is often referred to as a "Bull Trap".

In other words, the stock is sometimes opened up excessively high to entice investors to buy simply because the stock shows strength at the open.The setting up of a Bull Trap is the main reason why many stocks that gap up at the open tend to retreat back in price after the first hour or so of trading. Once the pre-market open buy orders have all been filled, the demand for these stocks often subsides.

There are exceptions, however, and these are what create some potentially profitable day trading opportunities. In particular, chances are good that if a stock thathas opened up is able to reach a new daily high after the first hour of trading, the strength shown at the open was real and not artificial because there has been additional and continued buying after the pre-market orders have been filled. This provides day traders the opportunity to use the following tactic or strategy:

1. Choose a Stock
Choose a stock that has opened by at least Re. 1.00 over the prior day's closing price.
2. Allow Trading for One Hour
Permit the stock to trade for the first hour after the market opens and monitor it closely.
3. Set the Alert
After the first hour, set an alert 1/4 point above the high of the day
If the stock in fact moves to a new daily high, the alert will be triggered and you should then immediately buy and, at the same time, place a stop loss sell order below days low.

Summary

This tactic or strategy provides day traders with a fair degree of profit potential. There is also limited down side risk because of the protective stop loss sell order.

Personality

What are the key personality traits that successful day traders tend to have in common? Here are some of the most important ones:

Confidence

This is perhaps the most important personality trait of good day traders. You won't succeed at day trading unless you have a high measure of confidence in yourself. Lack of self-confidence will result in doubt, indecision and second-guessing which, in turn, will lead to missed trading opportunities and frequent losses. You must believe in yourself when day trading. If not, you will be better off pursuing some other endeavor.

Discipline

In order to day trade successfully, you must develop a trading plan and consistently stick to it. You must avoid a "shooting from the hip" or a "seat of the pants approach" to day trading. Get out of the market when you have reached your objective and do not let emotions like fear and greed influence your trading decisions.

Decisiveness

Good day traders do not hesitate to "pull the trigger" when entering and exiting trades. Traders who are in the habit of being tentative or indecisive will never become successful.

Passion

Most successful day traders have a true love or passion about their trading activities. If you do not enjoy reading charts, dealing with numbers, reading market news, interpreting quote screens, learning new trading strategies and working independently in a fast-paced environment, then day trading is probably not your cup of tea.

Ability to Accept Failure

Good day traders know that many of their trades will fail to meet the original objective. They do not, however seek to blame someone else for their loss, and they don't dwell on it. They attempt to learn from their mistakes and move on to the next trade.

Ability to Accept Risk

Another personality trait of good traders is that they are comfortable with risk and are prepared to lose money from time to time. If you are afraid that you will, on occasion, lose money, then day trading is not for you.

Patience

Good traders do not rush into trades. They take the time to select good trading opportunities and do not place orders simply for the sake of holding a position in the markets at all times. On some market days, where few good trading opportunities exist, they are content to simply stand aside and wait.

Concentration

In day trading, a great deal of real-time information has to be absorbed, analyzed and acted upon in intense bursts throughout the trading day. This requires a great deal of concentration and stamina on the part of the trader, and the ability to avoid distractions. Day trading can be very hard work and a lack of concentration can doom a trader to failure.

Just imagine checking your credit card details one fine day,
only to find many fictitious purchases in your name, with the
amount running into several thousands , or maybe even lakhs.
Well, it is highly debatable whether you can stay calm and
composed after that. But this, and other kinds of credit card
misuse, has been in vogue of late and though there haven’t been
too many such cases, it is only advisable to follow the wise
‘better safe than sorry’ policy.

Coming to the latest incident, the miscreants used the art of
‘skimming’ Explaining this, Arindam Bhattacharya, an ex-banker and now a
consultant with a leading banking software development company
in Mumbai, says, “All your personal data is stored inside the
black magnetic strip of the card.

Miscreants mostly use a small keypad and an extra swipe on a
scanning machine makes all that confidential information get
copied. They then plant the same on plastic cards and have dummy
cards that can be easily used without the owner’s knowledge.”
So, better be alert the next time you visit a restaurant. “You
should personally go to the cashier instead of handing over the
card to a waiter,” is how Bhattacharya puts it.
He also adds that the concerned people at cash counters of
shopping outlets “should verify signatures.”Internet transactions may make you feel all empowered and on top of the world, but there are risks involved. Also, for internet transactions, Bhattacharya says that one should “preferably use
one’s own PC as softwares may be installed to capture details of
your card” and also “log out completely from the site once the
transaction is over.”

Dos

Preferably use your own PC during Internet transactions.
Log out from the site after the transaction . Be present
personally when card is swiped.
Strike out the CVV number and write it down somewhere else.
Check your account balance regularly.

Don’ts

Never hand over your card to anybody. Try and avoid cyber cafes
for internet transactions.
Never disclose your password or card/CVV number.

A crucial aspect of day trading Money management, also referred to as "risk management, is absolutely critical to successful day trading on an ongoing basis. Many traders regard it as the single most important aspect of trading. Indeed, lack of proper money management is a major cause of failure among new traders. There is little doubt that practicing good money management will lead to more traders being able to achieve success, or to avoid devastating failures.

Capital Preservation is the Goal

One of the main ideas behind money management is to preserve capital so as to enable one to live to trade another day. Before you ever enter a trade, the first thing you should ask yourself is how much money am I risking here and can I afford to lose it? One of the most common mistakes new day traders make is that of "risking the whole wad" on one or two stocks.

There is not a quicker way to face disastrous results than engaging in this practice. Bearing too much risk in trying to secure a huge win in a single stock isn't worth it, if the risk can knock you out of the trading game due to a very large loss of capital. Attempting to get the big win may be exhilarating, but failure in the attempt can wipe you out.

The 2% Rule of Thumb

There is a so-called "rule of thumb" in the day trading world which states that you shouldn't risk more than 2% of your total trading capital on any one trade. Doing so ensures you can make many bad trades and still not be knocked out of the game. Despite this general rule of thumb, many traders will define their maximum risk tolerance level differently. Larry Hite, an experienced day trader, has said: "Never risk more than 2% of your total equity in any one trade. By risking 2%, I am indifferent to any individual trade. Keeping your risk small and constant is absolutely critical." The idea here is that no one trade is going to significantly affect you if it results in a loss. If a trade goes against you, you are not going to go broke, or have to sell your house, car, art and jewelry in order to continue trading. The way to define risk for purposes of the 2% rule is by determining the loss you will incur if the stock price goes down. For example, if you own 1000 shares of XYZ at Rs.100 with a Rs.2 stop loss order in place, your risk is: Rs.2 * 1000 = Rs.2,000. So long as you have capital amounting to at least Rs.100,000 on hand, you would not be considered to be in breach of this "rule".

Cut Losses, Let Profits Run

There is an old investing adage about cutting ones losses and letting profits run. What this means is that you should strive to keep your losses manageable, and ensure that no single trade does too much damage. The thinking here is that if you keep the losses small, the profits will take care of themselves. In the case of profits, you can exit the position once you have determined that you have earned a sufficiently "large" enough amount. But, what exactly is a small loss? What's a large enough profit? There is no one answer, and what is right for one trader will not necessarily be right for another.

There are several types of trading styles that persons seeking to profit from short term trades in the market may wish to use. Here is a brief description of the most widely used short term trading styles.

Day Trading

Day traders buy and sell stocks throughout the day in the hope that the price of the stocks will fluctuate in value during the day, allowing them to earn quick profits. A day trader will hold a stock anywhere from a few seconds to a few hours, but will always sell all of those stocks before the close of each day. The day trader will therefore not own any positions at the close of any day, and there is overnight risk. The objective of day trading is to quickly get in and out of any particular stock for a profit anywhere from a few cents to several points per share on an intra-day basis.

Day trading can be further subdivided into a number of styles, including:

Scalpers: This style of day trading involves the rapid and repeated buying and selling of a large volume of stocks within seconds or minutes. The objective is to earn a small per share profit on each transaction while minimizing the risk.

Momentum Traders: This style of day trading involves identifying and trading stocks that are in a moving pattern during the day, in an attempt to buy such stocks at bottoms and sell at tops.

Swing Traders

The principal difference between day trading and swing trading is that swing traders will normally have a slightly longer time horizon than day traders for holding a position in a stock. As is the case with day traders, swing traders also attempt to predict the short term fluctuation in a stock's price. However, swing traders are willing to hold stocks for more than one day, if necessary, to give the stock price some time to move or to capture additional momentum in the stock's price. Swing traders will generally hold on to their stock positions anywhere from a few hours to several days.

Swing trading has the capability of providing higher returns than day trading. However, unlike day traders who liquidate their positions at the end of each day, swing traders assume overnight risk. There are some significant risks in carrying positions overnight. For example news events and earnings warnings announced after the closing bell can result in large, unexpected and possibly adverse changes to a stock's price.

Position Trading

Position trading is similar to swing trading, but with a longer time horizon. Position traders hold stocks for a time period anywhere from one day to several weeks or months. These traders seek to identify stocks where the technical trends suggest a possible large movement in price is likely to occur, but which may not be fully played out for several weeks or months.

Online Trading
Online trading is not really properly described as a trading style. Rather, online trading is simply a term that refers to the medium used to enter and execute trades. Online traders, which can include long term investors, as well as day, swing and position traders, use either an Internet connection or a direct access online trading platform to access and execute trades with Web based brokers.

Bull market refers to a market that is on the rise, it has sustained increase in market share prices.In such times, participants have faith that the uptrend will continue in the long term.Typically,country's economy is strong and employment levels are high. Bear market is one that is in decline,share prices are continuously dropping,resulting in a downward trend that participants believe will continue in the long run,having a spiraling effect. During a bear market,the economy typically slows down and unemployment may rise as companies begin laying off workers.

Where did this terms come from?
Bear and Bull markets are named after the way in which each animal attacks its victims. It is characteristic of the Bull to drive its horns UPWARDS into the air,therefore upward moving markets are termed Bull Markets. Bear on the other hand,swipes its paws DOWNWARDS upon its unfortunate prey,therefore downward moving markets are termed Bear Markets.

Characteristics of a Bull and Bear Market

Supply and Demand - In a bull market, we see strong demand and weak supply for shares. Many participants are willing to buy shares while few are willing to sell. As a result, share prices usually rise as participants compete to obtain available equity. In a bear market, the opposite is true as more participants are looking to sell than buy. Demand is significantly lower than supply, as a result, share prices drop.

Psychology - Stock market performance and participants psychology are mutually dependent. In a bull market, almost everyone is interested in the market, willingly participating in hopes of obtaining a profit. During a bear market, on the other hand, market sentiment is negative as participants are beginning to move their money out of equities and waiting in fixed-income assets until there is a positive move. Decline in stock market prices shakes investor confidence, which causes investors to keep their money out of the market,which has spiralling effect,causing the stock markets to decline further.

Economy - Since the businesses whose stocks are trading on the exchanges are the participants of economy, the stock market and the economy are strongly connected. Bear market is usually associated with a weak economy as most businesses are unable to record huge profits because consumers are not spending nearly enough. This decline in profits, of course, directly affects the way the market values stocks. In a bull market, the reverse occurs as people have more money to spend and are willing to spend it, which, in turn, drives and strengthens the economy.

Whether Bull or Bear Market ?
Whether a change is a correction or rally can be determined only with hindsight. When trends begin to appear, market analysts debate whether it is a correction/rally or a new bull/bear market, but it is difficult to tell. A correction sometimes foreshadows a bear market. The key determinant of whether the market is bull or bear is the long-term trend. Long-term trend usually lasts 5 to 25 years. A secondary trend is a temporary change in price within a long-term trend. These usually last a few weeks to a few months. A temporary decrease during a bull market is called a correction; a temporary increase during a bear market is called a bear market rally. Expectations play a large part in financial markets and in the changes from bull to bear environments. More precisely, attention should be paid to reactions to information, chiefly positive surprises and negative surprises. The tendency is for positive surprises to fuel a bull market, and negative surprises tend to feed a bear market.

Conclusion
There is no sure way to predict market trends, but Technical Analysis does help. Technical analysts believe that financial markets are cyclical and move in and out of bull and bear market phases regularly.

Habit #1 - The Habit of Trading ONLY with Risk Capital.

Many people have entered the activity of trading with money they could not afford to lose and as a result they started off trading with "scared" money. They' re fear of loss was bigger than they're desire for gain and they traded with a nervous and anxious state of mind. Scared money never wins. It's wrong to borrow money to trade or take out a second mortgage on your home for trading capital. The way to begin is to determine how much you could afford to lose financially and then from that amount determine how much money you could afford to lose emotionally. Many beginning traders will look to their accountant, financial planner or spouse for advice regarding the amount they could lose financially without considering the emotional side. If your accountant says you could afford to lose Rs. 5, 00, 000 without it severely impacting your financial status, the next thing to do is ask yourself "How would I feel if I lost Rs. 500000 trading in the next 12 months"?
As you can see, financially allocating an amount of money for risk capital is very different form emotionally allocating it. Anything can and will happen in the market. Develop the habit of only trading with money you can afford to lose financially and emotionally.

Habit #2 - The habit of accepting full responsibility for their own trades.

Successful traders always take full responsibility for their own actions in all of life and when it comes to trading they're no different. In today's day and age it 's easier and more convenient to blame others for our actions or to lie to ourselves. From our president all the way down to our children we can see examples of not wanting to own up and take responsibility for what we do. Successful traders realize that their success or failure is all their own and while it may be convenient to blame the specialist for screwing them on an execution or blame the stock picking service for a string of bad picks, the ultimate responsibility for their actions falls directly on their shoulders and they know it. "I lost "X" amount of money taking the advice of so- and- so" is not something you' ll hear a successful trader say. You can learn a lot from an experienced trader but your results are the result of YOUR actions.

Habit #3 - The Habit of Focusing on 1 or 2 Techniques that Work.

Rather than constantly searching for new strategies and techniques, the profitable trader will constantly use 1 or 2 approaches and nothing else. New traders often get in the habit of constantly searching for new trading strategies before they've even executed 1 trade with a proven strategy they've read about. They buy someone's book, then another then another and now they have 10 books on trading without doing a single trade. Or they'll trade stocks, then switch to options then switch to commodities then something else. Most professional traders use only 1 or 2 techniques and nothing else. One of the best traders I know made over Rs. 2500000 in one month using 1 technique. I personally watched him do almost every trade that month. Some days were better than others, which is true of all trading, but at no time during that period did he ever consider trying anything else. Even the most average of techniques, when executed with focus, will yield better results that the technique-du-jour if you're changing approaches every week. Find a system that works and work the system. The grass isn't greener on the other side of the fence. Learn your market, refine your personal approach to it and stick with it.

Habit # 4 - The Habit of Properly Managing their Trades.

Without exception, every trading author on the face of the earth say's that cutting losses is one of their "cardinal rules" of trading. But if you've ever traded you know how your own mind can work against you when it comes time to sell at a loss. You 'll start rationalizing why you shouldn't sell - "it will come back", "it's just moving around", "I'll sell when it comes back to the price I paid", take your pick of excuses but none of them are the right way to think - and the next thing you know you've got a nightmare loss on your hands. Everyone has had this happen to them in the learning stages. Successful traders identify their profit and loss parameters BEFORE they enter a trade. They set their stops and stick to their parameters.

Habit # 5 - The Habit of Staying Emotionally Neutral.

Successful traders don't get too high when they have a winning day and they don't get too low when they have a losing day. Taking a loss is as much a part of trading as is taking a gain. The difference is in how you emotionally deal with the losses and the gains. The market goes up and down constantly but successful traders don't come home and kick the dog after a bad day in the market. Nor do they rush out and buy a new Mitsubishi Lancer after a good day. Successful traders don't let the market put them on an emotional roller coaster. Staying emotionally neutral is the key to long term trading success. New traders often experience "burn out" which is more a result of emotional ups and downs than anything else. Don't buy into the hype that is constantly coming out of Dalal Street. Don't get scared when the market drops or pop the champagne when it roars higher. Just trade it. Save your emotions for the things that really matter in life like family and friends, not stocks and trading.

Habit # 6 - The Habit of Trading Without Certainty.

Successful traders are comfortable with risk. They know that they can't wait for certainty that the trade will be profitable before they do the trade. They trade in anticipation of a pattern or event. This mind set is extremely difficult for new traders. New traders want all the facts before they do a trade and by the time all the facts are out the trading opportunity is gone, then they enter the trade and wonder why it didn't work. If you're about to drive to town and you need every traffic light to turn green before you leave, you'll never get out of the driveway. Accept the fact that you can't have proof that a trade will work. Get comfortable with risk and learn how to manage it.

Habit # 7 - The Habit of Keeping a Trade Journal

Successful traders keep a trade journal of their trades and periodically review it as a way to refine their approach to profiting from the stock market. There is a tremendous amount of valuable information in your losing trades. Sometimes you can find easily identifiable patterns in your losing trades that you can easily eliminate. When reviewing their trade journals, successful traders don't think of them as profits and losses but simply results. Just because you have a loss doesn't make you a loser and just because you have a winning trade it doesn't make you a winner. Successful traders use their trade journal to find out about themselves in an objective way. They realize that their trading activities produce results and the results hold valuable information about themselves and offer the keys to improving the results of their activities. Keep good notes on each trade and review your notes often, it will help you trade b.

Balance Sheet
Statement of he financial position of a company on a particular date, showing the nature and amount of a company’s assets and liabilities on a particular date, usually the end of the accounting year. The assets include fixed assets (GROSS BLOCK less DEPRECIATION), investment, current assets (which include INVENTORIES, sundry debtors, cash and bank balance), and loans and advances. The liabilities include shareholders fund (equity capital plus reserves), loan funds (secured and unsecured loans) and current liabilities and provisions. The assets and liabilities must balance. See APPENDIX A.

Imbalance of Orders
Too many brokers trying to buy or sell the same share, without opposite matching orders. The situation arises in the event of a takeover, adverse government regulation, or some dramatic event affecting the fortunes of a particular company. The jobber may in such an even suspend trading until enough matching orders are received.

Gold Certificates Issued in exchange of specified amounts of gold, these are tradable in the market in a deregulated economy. The central bank of the country fixes the price of the certificates daily in line with price of gold in the London Metal Exchange and the dollar rate against the local currency. Investors have an option to receive cash equivalent or gold when surrendering the certificates. The interest rate offered is usually low.

Government have modified the central ideal in various small ways to suit their requirements, sometimes in an attempt to unlock the country’s hidden gold, sometimes to mobilize black money (with the promise of no – questions – asked), and sometimes to meet a national emergency.

Investing is not just about picking winners, but also about avoiding mistakes. Retail investors can be better off if they avoid making the following mistakes.

Overconfidence - Don't be unrealistically optimistic

A bull market makes retail investors believe that they are geniuses - after all, anything they put money into goes up. This overconfidence in their own abilities leads to a complete disregard of the risks involved. Every new generation that invest in the market ignores past experience. These new investors wrongly believe that stock prices only go up.

Don't be overconfident and don't start believing that you have superior skills compared to the market. Recognise that in a bull market you are benefiting because the whole market is going up. If those around you are getting unrealistically optimistic, start managing your risk accordingly. Remember that sometimes markets do come crashing down.

Over enthusiasm to trade - Not every ball should be hit

Good batsmen realise that some balls outside the off-stump should be left alone. Similarly, professional investors realise that sometimes its better to just stand still than to rush into a stock.Retail investors often make the mistake of "flashing outside the off-stump" because they cannot resist the temptation to trade in every opportunity. And, like an inexperienced batsman, they suffer the same fate.

Too much trading will lead to a lot of churn, extra commissions to your broker and huge tax implications for you. Some of the world's best investors follow a buy and hold strategy - you should too.

Missing the benefits of compounding of capital - Learn from Einstein

Albert Einstein is reputed to have said that compounding of capital is the 8th wonder of the world because it allows for the systematic accumulation of wealth. Even though any one in class 5 could tell you how compounding works, retail investors ignore this basic concept.

Compounding of capital can benefit you only if you leave your money uninterrupted for a long period of time. The sooner you start investing, the bigger the pool of capital you will end up with for your middle-aged and retirement years.

Don't wait to start investing only when you have a large amount of money to put to work. Start early, even if it's with a small amount. Watch this grow to a very large amount with the passage of time.
Worrying about the market - But there is no answer to your favourite question

Smart investors don't worry about the direction of the market - they worry about the business prospects of the companies whose stocks they own. Retail investors are obsessed with the question "Where do you think the market will go?" This is a wrong question to ask. In fact, no one knows the answer.

The right question to ask is whether the company, whose stock you are buying, is going to be a much bigger business 10 years from now or not? Don't take a view on the market, take a view on long-term industry trends and how your chosen companies can create value by exploiting these trends.

Timing the market - Around 99% of investors will fail in this strategy

Its very difficult to time the market, i.e, be smart enough to buy at the absolute bottom and sell at the absolute top. Professionals understand that timing the market is a wasted exercise.

Retail investors always wait for that elusive best opportunity to get in or to get out. But by waiting they let great investment go by. You should use systematic or regular investment plans to make investments. You'll have to make fewer decisions and yet can accumulate substantial wealth over time.

Selling in times of panic - You should be doing the opposite

The best opportunity to buy is when the markets are falling and there is fear in the minds of investors. Yet, many retail investors do exactly the opposite. They sell when the markets are falling and buy only when the markets are high. This way they end up losing twice - by selling low and buying high, when they should be doing exactly the opposite.

If nothing has changed about the long-term outlook for the company that you own, then you should not sell this company's stock. Use this opportunity to buy more of the same stock in falling markets. Some of the world's biggest fortunes were made by buying when others were selling in panic.
Focusing on past performance - Its like driving forward while looking backwards

It is a very common perception that because a stock has done well in the past one year, it's the best stock to invest in. Retail investors do not realise that often the best performers will underperform the market in the future because their optimistic outlook has already been priced into the stock.

Don't go after hot sectors that are currently producing high returns. Don't let greed drive your investment decisions. Look forward to see whether the gains produced in the past can get repeated or not. Short-term trends of the past might not get repeated in the future.

Diversifying too much will kill you - Investing is all about staying alive

Beyond a point, having too many names in a portfolio can be counterproductive. You might end up duplicating, or end up taking too much exposure to a sector. Over-diversification can upset your portfolio, especially when you have not done enough research on all the companies you have invested in.

If you are an active investor in the stock market maintain a manageable portfolio of 15-25 names. Instead of adding new names to this portfolio, recognise ideal ones. Then back them with more capital. In the long-run, this will produce better returns for you than adding another 20 names to your portfolio. Investing is all is about patience and discipline. By avoiding mistakes you can improve the long-term performance of your portfolio, whatever the economic conditions prevailing in the market.

A fiscal year (or financial year or accounting reference date, or
sometimes budget year) is a 12 or 13-month period used for calculating annual ("yearly") financial statements in businesses and other organizations. In many jurisdictions, regulatory laws regarding accounting require such reports once per twelve months, but do not require that the twelve months constitute a calendar
year (i.e. January to December). The financial results presented to shareholders are therefore a "photocopy" (or "snapshot") of the company's accounts at the accounting reference date. Fiscal years vary between businesses and countries.

Often the fiscal or tax year is specifically established not to match the calendar year so that accounting year-end work does not coincide with periods of high activity, such as the Christmas shopping rush for retailers, or with holiday periods when employees may prefer to take vacation.

A popular use of a non-calendar year as the fiscal year involves retailers. In many countries, at the end of December, levels of inventory, receivables and payables will be higher than at other month ends and consequently more complex and time-consuming to measure accurately. Therefore, retailers commonly use a month other than December to end their fiscal year. January may be chosen as the last month of the fiscal year because activity levels are likely to be closer to normal by the end of January.

In addition, many companies find that it is convenient for purposes of comparison and for accurate stock taking to always end their fiscal year on the same day of the week, where local legislation permits. Thus some fiscal years will have 52 weeks and others 53. Major corporations that adopt this approach include Cisco Systems and Tesco.

In the United Kingdom, a number of major corporations that were once government owned, such as BT Group and the National Grid, continue to use the government's fiscal year, which ends on the last day of March, as they have found no reason to change since privatisation.

Nevertheless, for about 65% of publicly traded companies in the United States and for the vast majority of large corporations in the UK and elsewhere, except in Australia and Japan, the fiscal year and calendar year are identical.

Many universities have a fiscal year which ends during the summer, both to align the fiscal year with the school year, and because the school is normally less busy during the summer months. Examples include Harvard University and the University of Oxford.

Operation in various countries

Such fiscal years are typically numbered using a calendar year and quarter thereof. A fiscal quarter is 3 months (1/4 of a year). For example, the United States government fiscal year for 2008 ("FY08", sometimes written "FY07–08") is as follows:

* 1st Quarter: October 1, 2007 – December 31, 2007
* 2nd Quarter: January 1, 2008 – March 31, 2008
* 3rd Quarter: April 1, 2008 – June 30, 2008
* 4th Quarter: July 1, 2008 – September 30, 2008

So the U.S. government's fiscal year begins on October 1 of the previous calendar year and ends on September 30 of the year with which it is numbered. Prior to 1976, the fiscal year began on July 1 and ended on June 30. The Congressional Budget and Impoundment Control Act of 1974 stipulated the change to allow Congress more time to arrive at a budget each year, and provided for what is known as the "transitional quarter" from July 1, 1976 to September 30, 1976. As stated above, the tax year for a business is governed by the fiscal year it chooses.

The Australian government's fiscal year begins on July 1 and concludes on June 30 of the following year. This applies for personal income tax and the federal budget. In Canada, the United Kingdom, New Zealand, India and Hong Kong, the government's financial year runs from April 1 to March 31, and the United Kingdom corporation tax is charged by reference to that period.

In the UK, the tax year (which governs liability to income tax and capital gains tax) runs from April 6 to April 5. This reflects the old ecclesiastical calendar, with New Year falling on March 25 (Lady Day), the difference being accounted for by the eleven days "missed out" when Great Britain converted from the Julian Calendar to the Gregorian Calendar in 1752 (the British tax authorities, and landlords were unwilling to lose 11 days of tax and rent revenue, so under provision 6 (Times of Payment of Rents, Annuities, &c.) of the Calendar (New Style) Act 1750, the 1752–3 tax year was extended by 11 days). From 1753 until 1799, the tax year in Great Britain began on 5 April, which was the "old style" new year of 25 March. A 12th skipped Julian leap day in 1800 changed its start to 6 April. It was not changed when a 13th Julian leap day was skipped in 1900, so the tax year in the United Kingdom is still 6 April. Ireland also used this year until 2001 when it was changed to match the calendar year (the 2001 tax year was nine months, from April to December).

Companies that are units within a "group" of businesses must all use nearly the same fiscal year (differences of up to three months are permitted in most jurisdictions, such as the U.S. and Japan), with consolidating entries to adjust for transactions between units with different fiscal years, so the same resources will not be counted more than once or not at all.

AGM or Annual General Meeting is a Meeting held once a year where the directors of the company report to the shareholders on the year’s performance and nay vacancies in the board of directors are filled by shareholders’ consent. The chief of the company comments on the future outlook of the company, and answers questions from shareholders. Notice of the meeting, along with a copy of the ANNUAL REPORT (or an abridged version of it) has to be compulsorily sent to every shareholder, who may send a proxy to attend on his behalf. Shareholders can insist that all resolutions on company policy be voted upon by the equity shareholders of the company. This meeting also receives the auditors’ report, appoints auditors, and fixes their remuneration.

EGM

Extraordinary General Meeting. A meeting of shareholders which may be called to approve special events such as a take-over or major acquisition.

Inflation, is an economic concept. What the cause of inflation is, is not important to us from the point of view of this article. What is important to us is the effect of inflation! The effect of inflation is the prices of everything going up over the years.

A movie ticket was for a few paise in my dad’s time. Now it is worth Rs.50. My dads first salary for the month was Rs.400 and over he years it has now become Rs.75,000. This is what inflation is, the price of everything goes up. Because the price goes up, the salaries go up.

If you really thing about it, inflation makes the worth of money reduce. What you could buy in my dad’s time for Rs.10, now a days you will not be able to buy for Rs.400 also. The worth of money has reduced! If this is still not clear consider this, when my father was a kid, he used to get 50paise pocket money. He used to use this money to go and watch a movie (At that time you could watch a movie for 50paise!)

Now, just for the sake of understanding assume that my dad decided in his childhood to save 50paise thinking, that one day when he becomes big, he will go for a movie. Many years pass. The year now is 2006. My dad goes to the theater and asks for a ticket. He offers the ticket-booth-guy at the theater 50paise and asks for a ticket. The ticket booth guy says, “I am sorry sir, the ticket is worth Rs.50. You will not be able to even buy a “paan” with the 50paise!!”

The moral of the story is that, the worth of the 50paise reduced dramatically. 50paise could buy a whole lot when my dad was a kid. Now, 50paise can buy nothing. This is inflation. This tells us two important things.

Firstly: Do not keep your money stagnant. If you just save money by putting it your safe it will loose value over time. If you have Rs.1000 in your safe today and you keep it there for 10years or so, it will be worth a lot less after 10 years. If you can buy something for Rs.1000 today, you will probably require Rs.1500 to buy it 10 years from now. So do not keep money locked up in your safe.
Always invest money.
If you can’t think where to invest your money, then put it in a bank. Let it grow by gaining interest. But whatever you do, do not just lock your money up in your safe and keep it stagnant. If you do this, you will be loosing money without even knowing it. The more money you keep stagnant the more money you will be loosing.

Secondly: When investing, you have to make sure that the rate of return on your investment is higher than the rate of inflation.

What is the rate of inflation?

As we said earlier, the prices of everything goes up over time and this phenomenon is called inflation. The question is: By how much do the prices go up? At what rate do the prices do up?

The rate at which the prices of everything go up is called the "rate of inflation". For example, if the price of something is Rs.100 this year and next year the price becomes approximately Rs.104 then the rate of inflation is 4%. If the price of something is Rs.80 then after a year with a rate of inflation of 4% the price go up to (80 x 1.04) = 83.2

So, when you make an investment, make sure that your rate of return on the investment is higher than the rate of inflation in your country. In our county India, for the year 2005-2006 the rate of inflation was 4% (Which is really low and amazing!). This rate keeps changing every year. The finance minister generally gives the official statement on the inflation rate of the country for a particular year.

What is the rate of return?

The rate of return is how much you make on an investment. Suppose you invest Rs.100 in the market and over a year, you make Rs.120, then you rate of return is 20%.

If you invest Rs.100 in the market today and you make money at a 3% "rate of return" in one year you will have Rs.103. But now, since the rate of inflation is at 4%, an item costing Rs.100 today will cost Rs.104 a year from now. So what you can buy with today’s Rs.100, you will only be able to buy with Rs.104 a year from now.

But the Rs.100 that you invested has grown only at a 3% rate of return and so it is worth Rs.103. In effect, you are loosing money!

So in conclusion, the rate of return on your investments, have to be higher than the rate of inflation.

From the above paragraphs you can note how silently, inflation eats into your money. You would not even know about it an your money would sit loosing value for no fault of yours. But inflation is not the only thing you should be considering, there are other things too that eat into you money. The first thing is “brokerage” and the second thing is “taxation”.

Correction A short and sharp reversal, usually downwards, in the price of and individual share or shares in general. Corrections usually occur during any long-term move upwards or downwards, as share prices seldom move straight up or down.

Writing off of he assets of a company over a number of years, not necessarily depending on the life of the assets, for the purpose of their replacement of renewal. It is different from depreciation, which is periodic writing off of the asset based on its normal life expectany. Amoritization is usually accompanied by putting aside money in a SINKINGFUND, so that the considerably increased cost of replacement or modernization can be met, when it is needed.

A system to curb excessive speculation in the stock market, applied by the stock exchange authorities, when the index spurts or plunges by more than 5%. Trading is then suspended for some time to let the market cool down.

Although introduced in November 1992, it was used for the first time in the Bombay Stock Exchange on Tuesday, 9 March 1993 when the Sensex declined by more than 5% from the opening level, i.e. from 2451.20 to 2318.26.

There are several ways to profit from a falling stock, but for tonight we are going to discuss the two most basic principals, shorting stock versus buying "put" options.

If you have been with us for any length of time you know I have written many times about how to "short" a stock. Basically you are simply selling a stock now, taking in the cash for the sale, and "buying back" or covering the sale at a cheaper price. so if you "short" ABC at 60 Rs and you sold 1000 shares, you took in 60,000 Rs. Now if ABC falls to 50, and you "Cover" you are buying it back cheaper. In this case you will spend 50,000 Rs. The difference between where you sold and what you spent, 10 K's is your profit.

That really is as easy and as basic as it gets friends. Don't let all the talking heads throw you a curve ball, shorting is easy and its really no more risky than going long as long as you use stops to protect yourself. Since the market goes up and down, if you only play the long side, you are missing a lot of profit potential.

But there are problems with this approach. First you need a margin account to do it, all short sales are through margin. Second, it eats up a lot of your buying power because when you go short, you are holding that position with margin that will tie up your money.

The other play is a put option. Here again market has tried to buffalo the average investor into thinking options are for the big boys. What nonsense! Anyone can and should use call and put options as a trading strategy. The risk is limited, and the returns can be phenomenal because of the leveraging inherent in options. With a put option, you are placing a bet that the stock is going to fall. Win the bet and you will win big time. Lose the bet and just like Vegas, your loss is limited to how much you bet.

If the market is going to run up for a few weeks and then spiral back down, which way should you play? That is impossible to say, we don't know your style, your risk tolerance, your bank account balance etc. but for us it's an easy call, put options win out over shorting in a scenario like that.

By using put options we can use a relatively small amount of money to be in several "plays" and each of them could return several hundred percent returns. Look at it like this. If you short ABC at 100 and it falls to 60 fantastic! You made 40 points and 40%. But if you buy put options for 1.75 and they go to 10.00, what is the percentage there? Over 500%. And look at the cost. It's next to nothing, to get such a shot at big returns.

For our money, when the time is right, buying puts against the BSE , the NSE and the Composite and select individual stocks that carry high P/E's will be the way to go as we feel those will be taken to the woodshed for a spanking.

Averaging Buying a share at different times, in different quantities. And at different prices, so that an advantageous average price is obtained. For example, someone has bought 100 shares at Rs 80 in a rising market; when the price falls to Rs 60 he may buy another 200. By averaging he has obtained a price of Rs. 66.33 for a share. If he buys still further shares when the price is lower, by averaging he may obtain an even lower price. Averaging is often done to offset the high price once paid in a rising market. Also, averaging is a means of not paying too high a price when buying a lot of shares (there is no violent change in price, since the buying is in small lots), or not getting too low a price when selling a large chunk of shares (the price doesn’t drop suddenly).

NEWS

MUMBAI: Are you sitting on unrealised losses from the recent downturn in the stock market? If the investments are less than a year old, you could put it to good use and lower your tax liabilities for the current financial year. Tax experts are advising investors to book their losses on or before March 31 this year and buy back those positions in the next financial year.

By doing so, the tax on short-term capital gains (if any) can be set off to the extent of the short-term capital losses.

Market watchers are expecting some sharp swings in many small and medium cap stocks over the next few weeks as investors try to balance their account books.

“Short-term capital losses for the year can be set off against any capital gains, short or long term, reported under the head, income from capital gains. In case the gains are lower than the losses, the excess short-term capital losses can be carried forward and set off against capital gains for eight successive assessment years,” says Vinod Ambavat, partner, Jain Ambavat and Associates, explaining the tax law.

He, however, adds that long-term capital losses on security transactions liable to securities transaction tax cannot be offset against any income, and cannot be carried forward for offsetting against any future gains.

“This trend (of lowering tax liability by booking temporary losses) is also seen in other countries like the US, subject to fulfilment of certain conditions, where it is widely known as January effect,” says Sunil Goyal, partner, Singrodia Goyal and Company.

However, investors have to bear in mind that short-term capital loss (STCL) first has to be adjusted with any short-term capital gains and only then with long term capital gains on transactions not liable to STT (like sale of gold, real estate, etc), adds Mr Goyal.

The theory behind the January Effect is that small stocks that perform poorly during the year fall victim to tax-related selling by mutual funds and other investors late in the year to capture the capital gains. As this drives prices down, presumably below true value, in December, investors buy back the same stocks in January, resulting in high returns.

However, there is a rule (wash sales rules) preventing investors from selling and buying back the same stock within 45 days for tax purposes.

“But in India, there is no such restriction that forbids investors from benefiting from this. So, many small-cap stockholders look for ways to avoid being taxed on non-profitable stocks. If they can sell these shares before the following year begins, their capital gains taxes should be lower,” says Vikram Bhatt, director, Ajmera Associates.

MISTAKE ONE

Lack of Knowledge and No Plan

It amazes us that some people expect to trade the stock market successfully without any effort. Yet if they want to take up golf, for example, they will happily take some lessons or at least read a book before heading out onto the course.

The stock market is not the place for the ill informed. But learning what you need is straightforward – you just need someone to show you the way.

The opposite extreme of this is those traders who spend their life looking for the Holy Grail of trading! Been there, done that!

The truth is, there is no Holy Grail. But the good news is that you don't need it. Our trading system is highly successful, easy to learn and low risk.

MISTAKE TWO

Unrealistic Expectations

Many novice traders expect to make a gazillion Rupees/dollars by next Thursday. Or they start to write out their resignation letter before they have even placed their first trade!

Now, don't get us wrong. The stock market can be a great way to replace your current income and for creating wealth but it does require time. Not a lot, but some.

So don't tell your boss where to put his job, just yet!

Other beginners think that trading can be 100% accurate all the time. Of course this is unrealistic. But the best thing is that with our methods you only need to get 50-60% of your trades "right" to be successful and highly profitable.

MISTAKE THREE

Listening to Others

When traders first start out they often feel like they know nothing and that everyone else has the answers. So they listen to all the news reports and so called "experts" and get totally confused.

And they take "tips" from their buddy, who got it from some cab driver…

We will show you how you can get to know everything you need to know and so never have to listen to anyone else, ever again!

MISTAKE FOUR

Getting in the Way

By this we mean letting your ego or your emotions get in the way of doing what you know you need to do.

When you first start to trade it is very difficult to control your emotions. Fear and greed can be overwhelming. Lack of discipline; lack of patience and over confidence are just some of the other problems that we all face.

It is critical you understand how to control this side of trading. There is also one other key that almost no one seems to talk about. But more on this another time!

MISTAKE FIVE

Poor Money Management

It never ceases to amaze us how many traders don't understand the critical nature of money management and the related area of risk management.

This is a critical aspect of trading. If you don't get this right you not only won't be successful, you won't survive!

Fortunately, it is not complex to address and the simple steps we can show you will ensure that you don't "blow up" and that you get to keep your profits.

MISTAKE SIX

Only Trading Market in One Direction

Most new traders only learn how to trade a rising market. And very few traders know really good strategies for trading in a falling market.

If you don't learn to trade "both" sides of the market, you are drastically limiting the number of trades you can take. And this limits the amount of money you can make.

We can show you a simple strategy that allows you to profit when stocks fall.

MISTAKE SEVEN

Overtrading

Most traders new to trading feel they have to be in the market all the time to make any real money. And they see trading opportunities when they're not even there (we’ve been there too).

We can show you simple techniques that ensure you only "pull the trigger" when you should. And how trading less can actually make you more!

After-Tax When one is investing in loan instruments like debentures or bonds or fixed deposits, and when one is an income-tax payer, it is the after-tax return which is the real return, not the rate of interest. The relevant rate of interest on the investor’s slab of income should be deducted from the earnings, and the actual return compared with returns from tax-sheltered instruments, such as tax-free bonds.

Margin trading is buying stocks without having the entire money to do it. The exchanges have an institutionalised method of buying stocks without having the capital through the futures market.

For example, if you were to buy 2000 shares of say Company A, which trades at Rs 300, you will need about Rs 6 lakh. But if you buy a future contract of that company, which comprises 2000 shares, you only need to pay a margin of 15 per cent. So by putting Rs 90,000, you can get an exposure of Rs 6 lakh.

The same operation can also be executed through margin trading. Here, the trader will buy 2,000 shares, which are partly funded by the broker, and the rest by the trader.

The Sensex's rise and fall: Coverage

The percentage of margin funding may range between 50-90 per cent, depending on the broker and his relationship with the client. The broker, in turn, funds his line of credit from a bank, and keeps the shares in his account with any profit/loss going to the client.

Margin trading vs futures

Most investors buy the futures, but there are times when margin trading makes mores sense. If a stock is not in the futures list, the client can go for margin funding.

Since futures are generally not available beyond one or two months, if the client has a longer view, then margin trading is better. Also, some brokers offer lower interest rates on margin trading than the prevalent rates in the futures market.

The margin call

Once the trader buys a future or stocks in the margin account, the client gets the profit/loss since his purchase in his account.

In both futures market and margin trading, if the value of the share falls below the purchase price, the broker will make margin calls, asking the client to deposit additional margin.

In a normal market, these margin calls are not a problem as clients can deposit the additional amount easily.

When clients are not able to meet the margin requirement, the broker sells the security so that he does not have to bear the risk in case the stock falls further.

This typically become a problem when the markets fall far more than expected and traders are not liquid enough to meet the margin calls. And when a lot of traders can't meet margin calls, the situation snowballs.

This is what happened in the past few days when traders, who were over-leveraged could not meet the margin calls, and their securities kept being sold.

1. Persistence

Who is going to succeed and who is going to fail? What does it finally come down to? It is persistence that keeps us working at our full potential. You must develop a "PHD" attitude: poor, hungry, and driven. Persistence is the attitudes that will never allow you to be content but will always drive you to learn more and be better. The key is to keep working as hard as you ever
have, because the harder you work the harder it is to surrender. You must never quit. No matter what, you must have a never-ending pursuit of your dreams - that is what persistence is all about.

2. Learn From Role Models :

We must learn from the successful traders who have made the journey before us. They can tell us which pitfalls to avoid, and they can also show us the way. The important thing is to select the right role models. We are not looking for people to entertain us. We are not looking for people who make us feel good. We are not looking to join a fan club. We are interested only in individuals that we can use to make ourselves better. We also must learn from other’s mistakes. Sometimes learning what not to do is more important than learning what to do. Take advantage of lessons learned by successful traders who have made the journey before you.

3. Be Ferociously Persistent message.

The key is to stay positive in tough times. The rule is simple: the more trying the times are, the more positive you have to be. You must look at change as possibilities, and a chance to be more successful. You must learn to maximize the good times and shrink the bad times to as small as we can possibly make them. Each time you fail it means you are that much closer to success.

4. Survive Success :

Becoming successful is a process that never ends. The methods you use to become successful must always be a part of your life, or you will start to drift back to the same bad habits that caused you to put so much time and effort into changing in the first place. Success comes with no guarantees. Today’s success is often tomorrow’s failures. A failure to maintain discipline causes success to evaporate immediately. Success is that fragile.


5. Learn From Adversity :

There are two kinds of adversity. The first kind of adversity occurs when you experience a major failure. This is the kind that can level you and leave you doubting yourself. You have to examine your role in the failure and accept your share of the blame. You have to learn from your mistakes. The second kind of adversity that strikes us comes from events that we cannot control-the personal setbacks or tragedies that we must deal with. We must force ourselves to appreciate the good that is still around us.

6. Always Be Positive :

The problem is that negative people constantly surround us whether it is friends, co-workers, family, or a cynical culture. You must try to at least be aware of their destructive 1. Set Demanding Goals:
Dreams are all about the big promotion, the nice house, the nice car, financial independence, being famous and having unlimited vacations. Let say that you are a successful trader. You will not fantasize about all the sacrifices you make; hard work and adversity you have gone through to become successful. If you are a professional athlete, you will not fantasize about doing the drills or practice sessions, but this is how you will get to your dreams. Goals can only be achieved
through hard work and making sacrifices. Goals are the individual steps that we must take in pursuit of our dreams. You must also be willing to consistently push yourself. Don’t be content with small victories. Maintain your excitement by making your victories bigger and bigger. The key is to fight through the tough times by reminding yourself, that if you stay true to the course at hand, there will be a big payoff in the end. There is no end point to your dreams. It is not enough to become successful. The trick is to become more successful every year. The great ones are always fixing what they do. They keep trying to get better. They realize that striving for excellence, striving for success is a never-ending process, something that has no end. Never stand still: if you are not getting better you are almost certainly getting worse.

7. Thrive On Pressure :

Stress is the enemy. It robs us of our focus and inhibits our performance. Pressure is only a negative if we allow it to be. Identifying what is causing the pressure is the first step, because if we do not deal with the source, it will turn into stress and affect our performance. Pressure becomes a negative only when we are ill prepared to handle it, and not ready to perform in a given situation. If we take the steps to anticipate how we can deal with this situation, we can actually turn up the volume of pressure and let it benefit us. Pressure can also bring out extraordinary accomplishments. It pushes us harder, and it focuses our efforts on the important goals.

8. Establish Good Habits :

The way to establish good habits as a successful trader is to be organized. Getting organized will immediately start to put some discipline in our lives, and give our day the structure that we all need. If we are not organized, we set ourselves up to be unfocused, to under achieve, and to ultimately fail. Do your homework, and prepare yourself. A successful trader must learn everything that they can possibly learn about the trading market.

9. Mastering The Art Of Communication :

Listening and having the ability to interact with successful traders in meaningful ways on a daily basis are essential to the long-term relationships that we want to build with them and to the impressions they will have of us. Most of us can instantly improve our communication skills by simply listening more and speaking less. Your goal is to communicate, not to try and win every conversation as if it were a contest with a winner and loser. You must also communicate your needs and goals to other successful traders so that everyone can benefit.

10. Build Self-Esteem :

We can’t be an over achiever without self-esteem. The important thing to remember is that self-esteem must be earned. You must deserve it, just as you must deserve anything else. If the effort is there, along with the discipline, you will automatically start to feel better about yourself. You do have control over your life. Life is not something that just happens to you. You must
make the choice to succeed or you fail. You decide this through your work ethic and your will, and there is no time limits on this nor is they’re any limit on age. It is never too late to transform your life and implement changes that are going to lead you to your dreams.

The best way to start is to design an investment plan to suit your individual circumstances and regularly monitor the same. As you begin and travel on your financial expressway, these ten lessons should ensure that you remain on track and keep achieving your financial goals on the way.

Define your starting point – What are:
Your resources?
Your risk tolerance?
Your time horizon?
Your goals?

Risk is inevitable – Manage it
Once you decide to put your money to build long-term wealth, you have to decide, not whether to take risk, but what kind of risk you wish to take. Determining your risk appetite involves measuring the impact of a loss on your financial health - and mental well being too.

Money in a savings account is safe. But inflation will erode its’ value, a risk that would almost ensure your failure to reach your goal of long-term wealth.

On the other hand, investment in stock market may be risky over the short-term, but should provide consistent and remarkable growth over the long term.

Start early – Benefit from compounding
There is no truth to statements like ‘I am too young to start saving’.

For example, if you want to be crorepati by 45, you would need to invest only Rs.1.6 lakh per year if you start at the age of 25 (assuming 10% returns p.a.). But if you start at the age of 35 you will need to invest Rs.5.7 lakh per year to achieve your ‘crorepati at 45’ objective.

If you start saving and investing early, it will set the stage for significant financial growth later in your life.

Have realistic expectations – Greed is bad
Most people invest in stocks and expect them to double in quick time. If you want to double your money, either buy a lottery or go to a casino (but be prepared to lose everything). Stock market is not gambling.

The market is ultimately a reflection of economic growth. As such one needs to align one’s expectation of returns in line with the expected GDP growth. Compare the performance of your portfolio with relevant benchmark indices and develop realistic expectations.

Expecting unreasonable returns will surely cause disappointment, leading to excessive risk-taking.

Invest regularly – Use time not timing
Market timing is impossible. You may be lucky once or twice but history has not produced a single investor who has made money regularly by timing the market.

Don’t panic when the market is dropping and don’t become greedy when prices are rising. Emotions can be the greatest enemy to your long-term investment plan. History has shown that when most investors are selling, you may have been better off buying.

Stay Invested – Be a marathon runner
The markets have seen lots of ups and downs, but history shows that over time the value of a well-diversified portfolio will increase. That’s because prices don't rise every day – they spurt only during a few short intervals of time.

Stay invested for longer periods. It will keep you from making common mistakes such as timing the market, picking bad stocks, speculating on stocks that are worthless, investing on borrowed money, trying to make a killing in some fad-of-the-day stock, etc.

The reason most people don't get rich with stocks is that they don’t stay in long enough.

Don't churn your investments – It only increases costs
Don’t buy stocks. Buy businesses and that too after due research. And since businesses generally don’t change fortunes overnight, there is no need to get in/out frequently as and when some short-term events play out in the market.

Too-frequent trading cuts into the investment returns more than anything else. Remember that the only person who makes money in regular churning is your broker.

Asset allocation – Each investment class is important
Build a portfolio that is diversified among different types of investments. Because different sectors of the market move at different times in different patterns, asset allocation tends to reduce the risk of huge losses and improves the chances of stable returns. Lack of a well-diversified portfolio, would leave you vulnerable to fluctuations of a particular investment.

However, remember not to over-diversify and own too many investment products – more so if the corpus is small – resulting in higher fees relative to the corpus size. Always seek to maintain a balance between the two.

Sell your losers – Hold the winners
Historically it is seen that investors book profits by selling the stocks, which have appreciated, but continue to hold onto stocks that have declined, in hopes of a bounce back. This one single fact has been the reason why most investors don’t get the true benefit of the markets.

While it's important not to underestimate good stocks, it's equally important to be realistic about investments that are performing badly. Recognizing your losers is hard because it's also an acknowledgment of your mistake. But it's important that one should be honest and book a loss, else future losses may even be greater.

In both cases, judge the companies on their merits according to your own research. You will never have a tenbagger if you simply sell everything that has say doubled or tripled.

Hot tips usually burn your investments – A them
Relying on so-called hot-tips from someone, be it your friend, broker, neighbor or anyone else, is akin to gambling. Sure, you may sometimes be lucky with tips, but they will never make you an informed investor, which is what you need to be to be successful in the long run.

Focus on the future of the company whose stocks you plan to acquire and not on the share price or some hot news. If you’ve got some information, chances are that so have many others and so the information is already factored into the market price.

Taxes are important - But not that important
The primary goal of investing is long-term growth of your money through sound investment decisions. Tax implications are important, and you should always try to minimize taxes thereby maximizing your after-tax returns. But putting taxes above all else can often lead to poor decisions.

For instance, people invest in insurance because it gives tax sops. But in the process they forgo opportunities of earning good returns and end-up compromising on the achievement of their financial objective.

Keep the above rules in mind and chances are that you will more often than not turn your dreams into reality

1.Handling Your Emotions.

Stress and Anxiety.
Fear.
Over confidence.
Self discipline.

2.Developing a Trading Strategy.

3. Maximize profits by understanding the psychology of the traders in the market.

Trading psychology - Introduction

Prices fluctuate not because of fundamental news or technical analysis .
It is traders who move prices. How a trader interprets the news or events will govern the way in which he enters the market. By executing the trade he would either have made prices go higher or lower. For trade to be struck there must always be a buyer and a seller , obviously there can be only one winner both the buyer and seller truly believe there was an opportunity for profit when they enter into the trade if the looser does not act objectively and cut his loses he would be falling into another trap. A trap that will cost him dearly , not only financially but also psychologically .
The first and hardest to becoming successful trader is knowing how to control not the markets but your own emotional behavior towards the market .
Therefore before you start trading know your self what your strength and weaknesses are learn how to control your emotions and approach the market objectively

Trading rules

1. The market is always right
2. Cut your losses
3. Never average a bad position
4. Don’t be greedy
5. Be committed to your decisions
6. Do not be influenced by others
7. Too much analysis breeds hesitation
8. Know the difference between gut feeling and wishful thinking
9. Take a break .

Handling your emotions

Stress and anxiety

When the market is in your favor you will rarely feel any stress or anxiety but once it starts going against you the need to do some thing which will cause pain ( in this case loss of money ) will stop you from reacting , the more the market moves against you the more stressful the situation becomes and the greater the urgency to react which will finally lead to panic and irrational behavior at this point what ever you do will most likely be disasters.

FEAR

After suffering a heavy loss its normal to have a fear of the market and stop trading the need to suppress this fear is vital the longer you stop trading the more time your letting this fear to take route also you will be missing all the other opportunities to capitalize on the market.

OVER CONFIDENCE

Your first few trades are a success the feeling of being on the right side feels great and you think the trading is the thing to do.

WATCH OUT HEROES DIE YOUNG

Being over confident could be more disasterous than in being state of fear because you think you know every thing there is to know about trading and you have shut out the possibility of learning , your ego has taken over and when you eventually find yourself on the wrong side of a trade you will not be able to handle the situation of having to cut your position .
Not only have all the profit from previous trades been wiped out you might also have lost a huge portion of your initial capital if not all of it.


SELF DISCIPLINE

To avoid the feeling of stress and fear you should know exactly what you want to do before you enter the market know where you want to take your profit and more important where you would cut your losses . if prices hit your predetermine levels you must execute your liquidations without hesitation excepting the consequences of your trade even before you enter the market will alleviate the stress involved in trading in this situation even if you suffer a loss you will not feel fear having looked at the market objectively in the first place you will not be afraid to enter the market again when the next opportunity rises .

1. This is the question probably every equity investor would have asked himself a number of times

What you Must NOT Do in Stock Market
Don't panic
Don't make huge investments
Don't chase performance
Don't ignore expenses

2. What You Must Do in Indian Stock Market
Don't panic
Get Rid of the Junk
Diversify
Belive in your Investment
Stick To your Strategy

A brokerage is a firm that acts as an intermediary between a purchaser and a seller. More commonly, a brokerage is referred to as a brokerage firm. To broker a deal is to communicate with both the buyer and seller as to acceptable price on anything sold or purchased.

A broker, a single person, or the brokerage firm completes any necessary legal paperwork, obtains the appropriate signatures, and collects money from the purchaser to give to the seller. Since the buyer and seller are employing the brokerage to complete the deal, the brokerage may collect a portion of the money obtained. In some cases, a brokerage receives money from both parties. In others, the brokerage receives a commission only from the seller.

Brokerage firms are most commonly thought of in relationship to the sale and purchase of stock shares. Fees are variable, depending on the degree to which the brokerage is involved in decisions about purchase. Some stockowners give their brokers power of attorney to make decisions about when to buy or sell stock and depend upon their brokers for researching new stock for purchase. This type of brokerage firm usually assesses a fairly large fee, and regardless of whether the owner loses or earns money, the firm is paid.

Other brokerage firms are employed by people who like to do their own research and make all their own decisions about what and when to buy and sell. These firms have a tendency to charge per transaction and can be quite reasonable to employ. In the past few years, several brokerage firms have begun stock trading on the Internet, allowing their clients access to information that will help them carefully research their decisions. These companies are not a sound economical choice for clients who do not do adequate research or cannot consistently read up on their stocks. Extensive involvement by the stockowner is necessary to hopefully make the best deals.

In other areas of business, brokerage firms may be employed to acquire and sell real estate. Brokerages exist to acquire art or antiquities. Also, restaurants and other service companies may use brokerage firms to obtain meat and produce, restaurant supplies, or furniture. Sometimes, employing a broker in this last sense is not initially expensive to the purchaser, because the broker receives a fee from the companies used by their clients. However, the price of merchandise obtained through a broker generally has a mark-up that makes up for this lack of commission.

Brokerage firms can be helpful because they save their clients, whether buying or selling, time. Not everyone has time to look at 40 real estate properties before purchasing. Not every restaurant manager wants to interview a slew of potential food supply companies before selecting one.

For those who are cost conscious, however, employing a brokerage firm may mean added expense. Buyers and sellers who come to an arrangement between each other “cut out the middle man,” and are thus able to save money. On the other hand, employing a reputable brokerage firm generally means that the firm assumes liability for the seller’s claims. Should any portion of a sale be conducted illegally, the brokerage firm must often compensate the purchaser and take legal action against the seller.

A stock broker is a person or a firm that trades on its clients behalf, you tell them what you want to invest in and they will issue the buy or sell order. Some stock brokers also give out financial advice that you a charged for.

It wasn’t too long ago and investing was very expensive because you had to go through a full service broker which would give you advice on what to do and would charge you a hefty fee for it. Now there are number of discount stock brokers such as sharekhan.com,moneycontrol.com,hdfcsec etc.

I can think of three different types of stock brokers.

1. Full Service Broker - A full-service broker can provide a bunch of services such as investment research advice, tax planning and retirement planning.

2. Discount Broker – A discount broker let’s you buy and sell stocks at a low rate but doesn’t provide any investment advice.

3. Direct-Access Broker- A direct access broker lets you trade directly with the electronic communication networks (ECN’s) so you can trade faster. Active traders such as day traders tend to use Direct Access Brokers

So as you can tell there a few options for a stock broker and you really need to pick which one suits you needs.

PRIMARY MARKET

Market for new issues of securities, as distinguished from the Secondary Market, where previously issued securities are bought and sold.

A market is primary if the proceeds of sales go to the issuer of the securities sold.

This is part of the financial market where enterprises issue their new shares and bonds. It is characterised by being the only moment when the enterprise receives money in exchange for selling its financial assets.


SECONDARY MARKET

The market where securities are traded after they are initially offered in the primary market. Most trading is done in the secondary market

To explain further, it is Trading in previously issued financial instruments. An organized market for used securities. Examples are the New York Stock Exchange (NYSE), Bombay Stock Exchange (BSE),National Stock Exchange NSE, bond markets, over-the-counter markets, residential mortgage loans, governmental guaranteed loans etc.

Judging by the fact that you've taken the trouble to navigate to this page my guess is that you don't need much convincing about the wisdom of investing. However, I hope that your quest for knowledge/information about the art/science of investing ends here. Read on. Knowledge is power. It is common knowledge that money has to be invested wisely. If you are a novice at investing, terms such as stocks, bonds, futures, options, Open interest, yield, P/E ratio may sound Greek and Latin. Relax. It takes years to understand the art of investing. You're not alone in the quest to crack the jargon. To start with, take your investment decisions with as many facts as you can assimilate. But, understand that you can never know everything. Learning to live with the anxiety of the unknown is part of investing. Being enthusiastic about getting started is the first step, though daunting at the first instance. That's why my investment course begins with a dose of encouragement: With enough time and a little discipline, you are all but guaranteed to make the right moves in the market. Patience and the willingness to invest your savings across a portfolio of securities tailored to suit your age and risk profile will propel your revenues and cushion you against any major losses. Investing is not about putting all your money into the "Next big thing," hoping to make a killing. Investing isn't gambling or speculation; it's about taking reasonable risks to reap steady rewards.

Investing is a method of purchasing assets in order to gain profit in the form of reasonably predictable income (dividends, interest, or rentals) and appreciation over the long term.

Why should you invest?

Simply put, you should invest so that your money grows and shields you against rising inflation. The rate of return on investments should be greater than the rate of inflation, leaving you with a nice surplus over a period of time. Whether your money is invested in stocks, bonds, mutual funds or certificates of deposit (CD), the end result is to create wealth for retirement, marriage, college fees, vacations, better standard of living or to just pass on the money to the next generation or maybe have some fun in your life and do things you had always dreamed of doing with a little extra cash in your pocket. Also, it's exciting to review your investment returns and to see how they are accumulating at a faster rate than your salary.

When to Invest?

The sooner the better. By investing into the market right away you allow your investments more time to grow, whereby the concept of compounding interest swells your income by accumulating your earnings and dividends. Considering the unpredictability of the markets, research and history indicates these three golden rules for all investors

1. Invest early

2. Invest regularly

3. Invest for long term and not short term

While it’s tempting to wait for the “best time” to invest, especially in a rising market, remember that the risk of waiting may be much greater than the potential rewards of participating. Trust in the power of compounding. Compounding is growth via reinvestment of returns earned on your savings. Compounding has a snowballing effect because you earn income not only on the original investment but also on the reinvestment of dividend/interest accumulated over the years. The power of compounding is one of the most compelling reasons for investing as soon as possible. The earlier you start investing and continue to do so consistently the more money you will make. The longer you leave your money invested and the higher the interest rates, the faster your money will grow. That's why stocks are the best long-term investment tool. The general upward momentum of the economy mitigates the stock market volatility and the risk of losses. That’s the reasoning behind investing for long term rather than short term.

How much to invest?

There is no statutory amount that an investor needs to invest in order to generate adequate returns from his savings. The amount that you invest will eventually depend on factors such as:

1 Your risk profile 2. Your Time horizon 3. Savings made

Remember that no amount is too small to make a beginning. Whatever amount of money you can spare to begin with is good enough. You can keep increasing the amount you invest over a period of time as you keep growing in confidence and understanding of the investment options available and So instead of just dreaming about those wads of money do something concrete about it and start investing soon as you can with whatever amount of money you can spare.

Thankyou for reading..................

There are two classic market types used to characterize the general direction of the market. Bull markets are when the market is generally rising, typically the result of a strong economy. A bull market is typified by generally rising stock prices, high economic growth, and strong investor confidence in the economy. Bear markets are the opposite. A bear market is typified by falling stock prices, bad economic news, and low investor confidence in the economy.

A bull market is a financial market where prices of instruments (e.g., stocks) are, on average, trending higher. The bull market tends to be associated with rising investor confidence and expectations of further capital gains.

A market in which prices are rising. A market participant who believes prices will move higher is called a "bull". A news item is considered bullish if it is expected to result in higher prices.An advancing trend in stock prices that usually occurs for a time period of months or years. Bull markets are generally characterized by high trading volume.

Simply put, bull markets are movements in the stock market in which prices are rising and the consensus is that prices will continue moving upward. During this time, economic production is high, jobs are plentiful and inflation is low. Bear markets are the opposite--stock prices are falling, and the view is that they will continue falling. The economy will slow down, coupled with a rise in unemployment and inflation.

A key to successful investing during a bull market is to take advantage of the rising prices. For most, this means buying securities early, watching them rise in value and then selling them when they reach a high. However, as simple as it sounds, this practice involves timing the market. Since no one knows exactly when the market will begin its climb or reach its peak, virtually no one can time the market perfectly. Investors often attempt to buy securities as they demonstrate a strong and steady rise and sell them as the market begins a strong move downward.

Portfolios with larger percentages of stocks can work well when the market is moving upward. Investors who believe in watching the market will buy and sell accordingly to change their portfolios.Speculators and risk-takers can fare relatively well in bull markets. They believe they can make profits from rising prices, so they buy stocks, options, futures and currencies they believe will gain value. Growth is what most bull investors seek.

What is a Bear Market?

The opposite of a bull market is a bear market when prices are falling in a financial market for a prolonged period of time. A bear market tends to be accompanied by widespread pessimism.A bear market is slang for when stock prices have decreased for an extended period of time. If an investor is "bearish" they are referred to as a bear because they believe a particular company, industry, sector, or market in general is going to go down.