CHAPTER 6C : Importance of above / below level calls

In our earlier chapters you learnt some of our trading strategies, wherein we discussed on why is it essential to put a stop-loss in every call and why is it necessary to invest with equal amount in each call. Our third trading strategy is to trade with “Buy Above and Sell Below” levels.

When a trader buys/sells particular scrip, that buy/sell order should be placed at certain levels based on the technicals. This is essentially important in case you are not a full-time trader.

‘Buy Above’ indicates that you have to buy scrip above the specified value. If the price reaches that value, then it will gain strength to go further up and reach your target level. Otherwise, if the scrip does not reach buy above level, the scrip may not have strength and hence may go down. Similar is true for ‘Sell Below’ levels, If the price goes down below that specified level, then it will move further in the downward direction. Otherwise, if the scrip does not reach the sell below level, it may not go down below the level and hence may move upward.

DreamGains as an advisory firm provides Buy Above / Sell Below trading tips only. The reason for this is if you are trading with an advisory firm and they give you a recommendation, you will need a certain amount of time to check your SMS/call and inform about the same to your broker, in case you trade offline. Giving recommendations at market price will lead to you missing out on the trading opportunity.

Also, since buy above and sell below have an advantage of setting the order in advance (either through broker or your terminal), you do not need to wait and watch the market till it reaches that price. Just inform your broker about your entry (buy above or sell below) level, target and stop-loss and you can get busy in your other work. Your broker will put the order in his terminal, and trade will automatically be executed when that price arrives in market and profit/loss will automatically be booked through your target and stop-loss orders.

Buy above and Sell below strategy thus not only indicates good buying/selling levels, but also gives you sufficient time to enter into your positions and the flexibility to trade as per your convenience.

Let’s take an example where we have given a recommendation to buy SBI above Rs. 300/-, with a target of Rs. 310/- and a stop-loss of Rs. 290/-. This means that we have to buy SBI at the rate of Rs. 300.05/- or slightly above only. The scrip should not be purchased at any rate lower than this. If you buy the scrip at Rs. 299.95/- also, there is a good chance that the scrip may fall down from there and hit a stop-loss, as it has not broken our given level of Rs. 300/-.

Let’s take another example where we have given a recommendation to sell SBI below Rs. 290/-, with a target of Rs. 280/- and a stop-loss of Rs. 300/-. This means that we have to sell SBI at the rate of Rs. 289.95/- or slightly below only. The scrip should not be sold at any rate lower than this. If you sell the scrip at Rs. 290.05/- also, there is a good chance that the scrip may go upward from there and hit a stop-loss, as it has not broken our given level of Rs. 290/-.

About DreamGains

DreamGains Financials India Private Limited formed in 2004 as an independent and privately owned company is build upon the principles of teamwork and partnership.It is a trusted name in the financial service arena and provides you with an entire gamut of services under one roof. It today has emerged as a premium Indian stock consultancy, with an absolute focus on business and a commitment to provide “Real value for money” to all its clients.

CHAPTER 6B : Trading Strategies - Why trade with equal investment in each call?

Trading with equal investment in all calls is a trading strategy, which results into a minimal loss. A brief explanation for same is as mentioned below:

Example 1 –

On Day 1, a trader buys 800 shares of SBI @ Rs. 300/- and exits in profit @ Rs. 310/-.

Investment = Rs. 2,40,000/-

Profit = Rs. 8,000/-

On Day 2, the same trader buys 1000 shares of Axis Bank @ Rs. 450/- (as he had got a good profit on day 1) and exits in a loss @ Rs. 435/-.

Investment = Rs. 4,50,000/-

Loss = Rs. 15,000/-

Trader resulted into a net loss of Rs. 7,000/-.

Example 2 –

On Day 1, a trader buys 800 shares of SBI @ Rs. 300/- and exits in profit @ Rs. 310/-.

Investment = Rs. 2,40,000/-

Profit = Rs. 8,000/-

On Day 2, the same trader buys 533 shares of Axis Bank @ Rs. 450/- (equal investment in all calls strategy) and exits in a loss @ Rs. 435/-.

Investment = (approx.) Rs. 2,40,000/-

Loss = (approx.) Rs. 8,000/-

Trader resulted into a net no profit – no loss.

Over a long period of time (a month or a year), investing equal ion all calls thus yields more returns when compared to random investments (by emotions) of any amounts in these calls.

DreamGains thus suggests “Equal investment in all calls as a golden rule to follow”.

About DreamGains

DreamGains Financials India Private Limited formed in 2004 as an independent and privately owned company is build upon the principles of teamwork and partnership.It is a trusted name in the financial service arena and provides you with an entire gamut of services under one roof. It today has emerged as a premium Indian stock consultancy, with an absolute focus on business and a commitment to provide “Real value for money” to all its clients.

CHAPTER 6A : Trading Strategies - Why put a Stop Loss?

What Is a Stop-loss Order?

It is an order placed with a broker to buy or sell once the stock reaches a certain price. The purpose of a stop-loss is to limit a trader's/investor's loss on a script. Example – A trader purchased SBI at Rs. 300 per share and put a stop-loss order for Rs. 295. According to the trade, if the stock price falls below Rs. 295, his shares will be sold at the market price. DreamGains suggests to always trade with a Sop-loss.

Benefits

1. The benefit of a stop-loss order is that you don't have to monitor on a continuous basis about how a particular script is trading in the market. On a lot of occasions (example – you are in a meeting or on a vacation), it will not be possible for you to keep a track of your positions.
2. Stop-loss orders are also used to book profits. In such cases, the stop-loss order is set at a price/percentage level below the current market price (which is in profit at current level). The stop-loss levels can be changed as the script price fluctuates. Using a stop-loss for this purpose allows traders and investors to run in profits while guaranteeing that they book at least some profits in case the stop-loss triggers. Example – In our SBI example, let’s say that the current market price has reached to Rs. 315 (i.e. Rs. 15 profit per share). A trader can then (according to his judgment) put a stop-loss at Rs. 310, so that even in case the prices fall down, he will book at least Rs. 10 profit per share. This helps the trader remain bullish on the script; while safe-guarding his profit in case a dip in prices occurs.
3. A stop-loss order costs nothing to be placed. Brokerage is charged only once the stop-loss triggers and the stock is sold.
4. Also, a stop-loss allows the traders/investors to take decisions without any emotional influences. A general tendency of people is to keep believing that if they give their script another couple of days/months, it will rebound to its original price. This, in a majority of cases causes further losses to traders/investors.

Disadvantages

1. The disadvantage of a Stop-loss Order is that the SL (Stop-loss) price could be triggered by a short-term movement in a stock's price. The art lies in selecting a stop-loss that allows your script to fluctuate in small ranges on a daily basis while preventing the risk of getting triggered. There are no strict rules for the levels at which the stop-loss should be put. This completely depends on a trader’s trading strategies and style - an active trader might use 5% while a long-term investor might choose 10% or more and some risky traders/investors might choose more than 20% also.
2. When a stop-loss is triggered, the stop-loss order becomes a market order and the price at which your position exits may be much different from the stop-loss price. This becomes more of a risk in a fast-moving market.
3. Yet another disadvantage of a stop-loss order is that in a lot of cases, brokers do not allow to place a stop-loss order on certain scripts.

A stop-loss order is thus a simple strategy, yet there are only a few traders/investors who use it. A stop-loss order is to safe-guard a trader’s/investor’s interests. You hope you never have to use it, but it's always good to know that you have the protection in case you need it.

About DreamGains

DreamGains Financials India Private Limited formed in 2004 as an independent and privately owned company is build upon the principles of teamwork and partnership.It is a trusted name in the financial service arena and provides you with an entire gamut of services under one roof. It today has emerged as a premium Indian stock consultancy, with an absolute focus on business and a commitment to provide “Real value for money” to all its clients.

CHAPTER 5 : Brokerage Fundamentals

Every Trader/ Investor has to pay a brokerage for every trade entered via the Trading terminal whether online or offline.

Intraday Brokerage - 0.03% for buying and 0.03% on selling, plus taxes.

Delivery Brokerage - 0.30% for buying and 0.30% for selling, plus taxes.

Although the maximum brokerage which can be charged, according to SEBI should not be more than 2.5% of the trading volume.

Brokerage is levied on the total transaction value. Ex: A trader has bought 1000 shares @100 and sold them @105 in intraday, the brokerage calculation would be

• Buying Brokerage = (1000 *100) * 0.03% = Rs. 30
• Selling Brokerage = (1000 * 105) * 0.03% = 31.50

Various brokerage firms charge brokerage in different ways. Some firms charge on total turn-over (buying and selling), some charge a fixed amount per lot whereas some others charge a fixed amount per month irrespective of number of trades or turn-over. Based on the brokerage charging method and available margin, customer can select the brokerage firm. DreamGains customer support team can assist you with finding the right broker for you and providing advice on short-term/ long-term positions. Just follow the link for more information.

Brokerage and Tax Calculation - Intraday

Buy Side

• Brokerage: 0.01 % to 0.03% (Charged on order amount). It is a broker's income.
• Service Tax: 12.36 % (Charged on brokerage). It is excise department's income.
• NSE / BSE turn over charges: 0.003% (Charged on order amount). It is exchange's income.
• Stamp duty / Notary Tax: 0.002 % (Charged on order amount). It is State Government's income.

Sell Side

• Brokerage: 0.01 % to 0.03% (Charged on order amount). It is broker's income.
• Service Tax: 12.36 % (Charged on brokerage). It is excise department's income.
• NSE / BSE turn over charges: 0.003% (Charged on order amount). It is exchange's income.
• Stamp duty / Notary Tax: 0.002 % (Charged on order amount). It is State Government's income.
• STT Security Transition Tax: 0.0125% (Charged on order amount). It is Central Government's income.

If a client has bought 1000 shares at Rs. 100, then the calculation of charges would be done as follows:

Buy Side

• Brokerage: 30 (0.03 paise brokerage)
• Service Tax: 3.7
• NSE / BSE turn over charges: 3
• Stamp duty / Notary Tax: 2
• Total Amount: 38.70

If the client has now booked profit at 103, the calculation of charges would be done as follows:

Sell Side

• Brokerage: 30.90
• Service Tax: 3.82
• NSE / BSE turn over charges: 3.09
• Stamp duty / Notary Tax: 2.06
• STT Security Transition Tax: 12.88
• Total Amount: 52.75

Total Charges = Buy + Sell = Rs. 38.70 + Rs. 52.75 = Rs. 91.45

Brokerage and Tax Calculation - Delivery

Buy Side

• Brokerage: 0.3% (Charged on order amount). It is broker's income.
• Service Tax: 12.36 % (Charged on brokerage). It is excise department's income.
• NSE / BSE turn over charges: 0.003% (Charged on order amount). It is exchange's income.
• Stamp duty / Notary Tax: 0.002 % (Charged on order amount). It is State Government's income.

Sell Side

• Brokerage: 0.3% (Charged on order amount). It is broker's income.
• Service Tax: 12.36 % (Charged on brokerage).It is excise department's income. 
• NSE / BSE turn over charges: 0.003% (Charged on order amount). It is exchange's income.
• Stamp duty / Notary Tax: 0.002 % (Charged on order amount). It is State Government's income.
• STT Security Transition Tax: 0.0100% (Charged on order amount). It is Central Government's income.
• DP Charge: Rs. 18 to 20/- per script, whether the client sell 1 share or 100 shares as it is the charge to close/ Sell Off a particular trade.

If a client has bought 1000 shares at Rs. 100, the calculation of charges would be done as follows:

Buy Side

• Brokerage: 300 (0.30 paise brokerage)
• Service Tax: 37.08
• NSE / BSE turn over charges: 3
• Stamp duty / Notary Tax: 2
• Total Amount: 342.08

If the client has now booked profit at 105, the calculation of charges would be done as follows:

Sell Side

• Brokerage: 315
• Service Tax: 38.93
• NSE / BSE turn over charges: 3.15
• Stamp duty / Notary Tax: 2.10
• STT Security Transition Tax: 10.50
• Total Amount: 369.68 (DP Charge excluded)

Total Charges = Buy + Sell = 342.08 + 369.68 = 711.76

About DreamGains

DreamGains Financials India Private Limited formed in 2004 as an independent and privately owned company is build upon the principles of teamwork and partnership.It is a trusted name in the financial service arena and provides you with an entire gamut of services under one roof. It today has emerged as a premium Indian stock consultancy, with an absolute focus on business and a commitment to provide “Real value for money” to all its clients.

CHAPTER 4C : Trading Fundamentals - Types of Order

Order Matching Criteria

Order matching process is a price/ time priority order matching mechanism, where priority is given to price and then time. Ex: Trader 'A' enters an order of buying 100 shares of ABC @ 100 at 09:30 AM and Trader 'B' enters an order of buying 100 shares of ABC @ 100.05 at 10:00 AM.

Here the order of Trader 'B' will get the priority of execution over Trader 'A', but if the price of both Traders would have been equal the time priority would have placed Trader 'A' on top.      

Types of Orders

Limit Order - An order (buy/sell) which clearly specifies the price at which the trader wishes to trade is known as Limit Order. DreamGains suggests "Buy Above / Sell Below" (Limit Order) strategies.

Market Order - An order where trader doesn't specifies the prices, and wishes to buy/ sell at the current prevailing market price, is known as Market Order.

SL Order - A Stop Loss Order is used where the trader wishes the order to enter the system when a certain price level occurs on the trading system. Stop loss as the name suggests, is to stop or restrict the losses in a trade to a particular price point. Ex: A trader has bought a share @ 100 and decided 97 as a price point where he will exit, thereby stopping the loss per share to Rs. 3/share.

Trigger Price - Every stop loss order needs to put in a trigger price, which specifies the price point where the order will enter the system and not before that.

Buy SL Order - A stock is trading @ 100, a trader wants to buy the share above 103, he will be putting a SL order where the Trigger Price is 103 and limit price could either be 103 or 103.10

Sell SL Order - A stock is trading @ 100 and the trader wants to sell the share below 97, he would put the trigger price as 97 and limit price at 97 or 96.95.

Bracket Order - Bracket orders are designed to help limit your loss and lock in a profit by "bracketing" an order with two opposite-side orders.

• BUY Order is bracketed by a high-side sell limit order and a low-side sell stop order
• SELL Order is bracketed by a high-side buy stop order and a low side buy limit order

About DreamGains

DreamGains Financials India Private Limited formed in 2004 as an independent and privately owned company is build upon the principles of teamwork and partnership.It is a trusted name in the financial service arena and provides you with an entire gamut of services under one roof. It today has emerged as a premium Indian stock consultancy, with an absolute focus on business and a commitment to provide “Real value for money” to all its clients.

CHAPTER 4A : Trading Fundamentals - Trading Mechanism Terminologies

Trading & Demat Account - Any trader who wants to trade in Equity markets need to open a Demat and trading account with a SEBI registered Broker/ Sub Broker by filling up a KYC (Know your client) form with necessary documents.

A Trading account is used for the purpose of trading which stores information regarding the Buy, sell price, average price, Limits, Profit and loss statement of the client.

A Demat account acts as a warehouse to store shares bought through the Trading account of the Client; demat account is an electronic account similar to the bank account the only difference being a demat account is used to store Dematerialized shares of a company. DreamGains customer support team can assist you with opening Demat account. Follow the link for more updates.

Margin/ Trading limit/ Exposure - Every Trader is given leverage on the amount of cash and non-cash margin deposited with the member broker, the leverage could range from 4- 8 times on Intra-day basis. Ex: If a client has 50,000 Credit balance in his Trading account he can get limit up to 4 lakh (8 times 50,000). An offline trader normally gets more limit/ leverage than an online trader.

NCL (Non Cash Limit) - Brokers give trading limit not only on the cash available in the trading account of the client but also on the shares deposited with the broker, remember this is only an intraday limit, useful for HNI clients having huge holding with them.

BTST (Buy Today Sell Tomorrow) – It is a technique mainly used to take the advantage of the movement in the stock for 1 day, especially when a news/event is awaited to happen on a particular stock.

STBT (Sell Today Buy Tomorrow) – In this technique, the trader sells a stock today and buys it tomorrow. This CANNOT be done in Cash segment.

Outstanding Order - Any pending order which is not yet executed is known as Outstanding Order. It can be modified or cancelled as required.

Trade Confirmation - A confirmation of trade sent by the exchange is known as Trade Confirmation. It contains a trade number which proves the execution of order.

Order Modification/ Cancellation - Exchanges provide a facility to either modify the price or quantity or completely cancel the existing pending order, but a trade once executed cannot be modified.

Contract Notes - Every investor has a right to get a contract note which is like a bill of his/her trading for the day which mentions everything regarding the trade done for the day, including the name of the share, quantity, time of trade, brokerage levied, net delivery amount, taxes etc. It is suggested that every investor must keep their contract notes with them.

Support - The price point where a stock witnesses buying (demand) and normally stops to fall is known as Support. There could be multiple support price points stating as S1, S2, and S3.

Resistance - The price point where a stock witnesses selling (supply) and normally stops to rise is known as Resistance. Similar to a support point there could be different resistance points – R1, R2, and R3.

Target - Target, as the name suggest is used to book the profits in a trade at a particular price point. Ex: A trader has bought a share @ 500 and decided 510 as a price point where he will exit out of the stock, thereby stopping the profit per share to Rs. 10.

Stop Loss - Stop loss, as the name suggest is to stop or restrict the losses in a trade to a particular price point. Ex: A trader has bought a share @ 500 and decided 490 as a price point where he will exit out of the stock, thereby stopping the loss per share to Rs. 10. DreamGains always suggests to trade with a Stop-loss.

Trigger price - A trigger price is the price which specifies the price point where the order will enter the system and not before that.

About DreamGains

DreamGains Financials India Private Limited formed in 2004 as an independent and privately owned company is build upon the principles of teamwork and partnership.It is a trusted name in the financial service arena and provides you with an entire gamut of services under one roof. It today has emerged as a premium Indian stock consultancy, with an absolute focus on business and a commitment to provide “Real value for money” to all its clients.

CHAPTER 2F (Part 2) : Market Fundamentals - Segments of Market

Commodity

Commodity trading in India is from the primitive times which transformed from the old barter system to the current modern derivative form. Commodity trading in India is done in physical markets (mandis) and through Electronic Trading platforms like MCX, NCDEX.

The Regulator for this segment is FMC – Forward Market commission.

Types of commodities:

• Agriculture commodities - All those commodities which are produced via agricultural activities like Wheat, Guar, Soya-bean, cotton, turmeric, etc.
• Base Metals - Metal commodities used mainly in industrial production units like Copper, Zinc, Aluminum, Nickel, and Lead.
• Precious Metals - Commodities which are used as an investment and are precious in nature like Gold, and Silver.
• Energy - Commodities which are used as energy source like Crude Oil and Natural Gas.

Commodity	Price Quotation	Lot Size	Tick Size in Rs.	Mini Lot
Gold	Per 10 grams	1 Kg (100 units)	1	10, 8, 1 grams
Silver	Per 1 Kg	30 Kgs	1	5, 1 Kgs
Crude Oil	Per barrel	100 barrel	1	NA
Natural Gas	Per mmbtu	1250 mmbtu	0.10	NA
Copper	Per Kg	1000 Kgs	0.05	250 Kgs
Nickel	Per Kg	250 Kgs	0.10	100 Kgs
Aluminium	Per Kg	5000 Kgs	0.05	1000 Kgs
Lead	Per Kg	5000 Kgs	0.05	1000 Kgs
Zinc	Per Kg	5000 Kgs	0.05	1000 Kgs

Commodity	Price Quotation	Symbol	Tick size	Trading Unit	Lot size
Barley	1 Quintal	BARLEYJPR	0.50	10 MT	100
Chana	1 Quintal	CHARJDDEL	1.00	10 MT	100
Maize	1 Quintal	MAIZYRNZM	1.00	10 MT	100
Wheat	1 Quintal	WHTSMQDELI	1.00	10 MT	100
Gur	40 Kg	GURCHMUZR	0.50	10 MT	250
Cardomom (MCX)	1 Kg	CARDOMOM	0.10	100 Kg	100
Pepper	1 Quintal	PPRMLGKOC	5.00	1 MT	10
Chilli	1 Quintal	CHLL334GTR	2.00	5 MT	50
Coriander	1 Quintal	DHANIYA	1.00	10 MT	100
Turmeric	1 Quintal	TMCFGRNZM	2.00	5 MT	50
Jeera	1 Quintal	JEERAUNJHA	2.50	3 MT	30
Ref. Soya Oil	10 Kg	REFSOYOIL	0.05	10 MT	1000
Soybean	1 Quintal	SYBEANIDR	0.50	10 MT	100
Mustard seed	1 Quintal	RMSEED	1.00	10 MT	100
Castor seed	1 Quintal	CASTORDSA	1.00	10 MT	100
Guargum	1 Quintal	GARGUMJDR	0.10	1 MT	100
Guarseed	1 Quintal	GARSEDJDR	1.00	1 MT	100
Kapas (MCX)	20 Kg	KAPAS	0.10	4 MT	200
Cotton (MCX)	1 Bale	COTTON	1.00	25 bales	25
Mentha Oil (MCX)	1 Kg	MENTHA OIL	0.10	360 Kg	360
Potato	1 Quintal	POTATO	0.10	15 MT	150
Potato (MCX)	1 Quintal	POTATO	0.10	30 MT	300

1 Quintal = 100 Kgs

1 MT (metric tonne) = 1000 Kgs

Need of Commodity Trading:

• Hedging tool for producers/farmers
• Speculative instrument
• Investment opportunity in Precious metals
• Arbitrage opportunity between Domestic and Foreign commodity markets

Currency 

Currency Derivative started in India back on 29th August 2008 by NSE currency derivative segment, currently there are 4 contracts traded in the Currency Derivative segment. RBI and SEBI are the regulators for this Product in India.

Currencies Traded in Indian Currency segment:

• US Dollar-Indian Rupee (USDINR)
• Euro-Indian Rupee (EURINR)
• Pound Sterling-Indian Rupee (GBPINR)
• Japanese Yen-Indian Rupee (JPYINR)

In India all the currencies are pegged to INR and the traders cannot trade in cross currency. GBP vs USD or EUR vs JPY is still not allowed in Indian Currency derivative markets. USDINR is the most widely traded currency.

RBI reference rate - RBI declares a reference rate daily at 12 noon, which acts as the spot price for currency derivative contracts.

Spread/ PIP - Spread is the minimum difference between buyer and seller also known as ‘Percentage in point’ in International Forex exchanges.

Lot Size – USD, EUR, JPY and GBP, all have a lot size of 1000 and a tick size of 0.0025.

About DreamGains

DreamGains Financials India Private Limited formed in 2004 as an independent and privately owned company is build upon the principles of teamwork and partnership.It is a trusted name in the financial service arena and provides you with an entire gamut of services under one roof. It today has emerged as a premium Indian stock consultancy, with an absolute focus on business and a commitment to provide “Real value for money” to all its clients.