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 4B : Trading Fundamentals - Trading Modes

Types of Trading

The trading style can be broadly classified into 2 categories:

On the basis of Holding period - Investors/ Traders according to their trading capacity of their analysis either trade and square off their positions Intraday or take a Delivery of the stock.

Intraday Trade - When a trader squares off (closes the transaction) his position during the same trading session, it is known as Intraday trading. Here the trader would get an intraday trading limit/ leverage / exposure on his deposited amount.

Delivery Trade - A trade where the investor does not square off his trading position intraday and carries over his trade for the next trading session, is known as Delivery trading. Normally the client needs to pay full amount of the transaction value and no leveraging benefit is available here. The brokerage too is more than that of Intraday.

On the basis of Trend - Traders can buy or sell the shares and then square off their positions gradually on the basis of trend they perceive on a stock.

Buy/ Long - A trader with a bullish (upward movement) view on the stock buys the share first and then sells. Ex: A trader is bullish on Reliance Industries trading @ 1000, he buys 200 shares at 10:30 am @ 1000 and then sells 200 shares @ 02:00 pm at 1010 (remember it is not always that a client can sell his shares on a profit).

Short Sell - This is a very unique concept, where a trader sells a share first (without having that share in his demat account) and then buys it back. The trader has a bearish view on the stock here. Ex: A trader is bearish on DLF limited, which is currently trading at 250; he sold 800 shares @ 250 at 10:30 am and bought back 800 shares @225 at around 03:00 pm, making a profit of Rs 5000. Here the trader has to take huge care that he squares off his trading position before the close of the market.

Modes of Trading

Online Trading - Brokers have now developed their in-house Online trading software, which allows the traders to trade from their home, office, travelling etc via a normal computer and internet connection.

Mobile Trading - Now traders who have a mobility access and WAP facility can trade online via their hand held devices like mobile, tablets etc. Every Trading system is connected to Exchange servers via broker's internal server and Risk Management System. Exchanges have clearly prescribed for a dual password mechanism which has a login and a trading password which expires every 14 days.

Offline Trading - Traders who don’t wish to trade online or cannot operate computers, visit their broker’s dealing room or calls their broker for trading, where a Dealer punches orders for them.

Difference b/w Online and Offline Trading accounts Points of Difference	Online	Offline
Trade execution	Self	Dealer
Trade mode	Desktop/ laptop/Mobile	Phone/ physical visit
Options available	Trading, reports, fund transfer etc	Only trading
Time saving	Huge	Later order punching

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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 3 : Stock Fundamentals

A stock is a type of security that signifies ownership in a corporation and represents a claim on part of the corporation's assets and earnings. It is also known as "shares" or "equity".

Grouping of Shares:

Stock exchanges have divided the stocks in several groups on the basis of their market capitalization, compliance, volatility etc.

‘A' Category shares - The top 200 shares on the basis of merit as prescribed by BSE

‘B' Category shares - The remaining shares other than A, Z and T category shares

'T' Category shares - Also known as Trade to Trade (T 2 T) category shares; are those shares which cannot be traded on an intra-day Basis and only a delivery trade can be done in the Equity cash segment

'Z' Category shares - Those shares which have failed to comply with listing requirements, failed to resolve investor complaints or have not provided for their dematerialization of shares to CDSL, NSDL

Trading Volume - In capital markets, volume, or trading volume, is the amount of a security (or a given set of securities, or an entire market) that was traded during a given period of time.

Today's Low - The lowest price at which a stock trades over the course of a trading day is known as Today’s Low.

Today's High - The highest price at which a stock trades over the course of a trading day is known as Today’s High.

Opening Price - The price at which trading on the securities exchange starts on a particular day, is known as the Opening Price for that day.

Last Traded Price (LTP) – The last price, at which a stock traded at the end of a trading day, is known as the Last Traded Price (LTP).

Closing Price - The closing price of a stock is [not the LTP (Last Traded Price) of the stock but] the average price between 03:00 to 03:30 pm. This calculation takes place between 03:30 to 03:40 pm daily.

Gap-up Opening - If the opening price of a Stock/Index is more than the previous Day’s closing prices, it is known as a Gap-up Opening.

Gap-down Opening - If the opening price of a Stock/ Index is less than the previous Day’s closing prices, it is known as a Gap-down opening.

Tick size - The minimum movement allowed for a share on either side is called the Tick Size. The tick size in Equity markets is 0.05.

Dividend - A distribution of a portion of a company's earnings, decided by the board of directors, to a class of its shareholders is known as Dividend. Dividends may be in the form of cash, stock or property. Most secure and stable companies offer dividends to their stockholders. Their share prices might not move much, but the dividend attempts to make up for this. High-growth companies rarely offer dividends because all of their profits are reinvested to help sustain higher-than-average growth.

Circuit Breakers:

In order to prevent HNI or Super HNI traders take undue advantage of their money power and to reduce the chances of artificial price manipulations, exchanges have put in a price band/ market protection limit or circuit limits on every stock on the exchanges which is calculated on the last closing price of the stock on a daily basis. Daily price bands are applicable on securities as below -

Daily price bands of 5% (either way), daily price bands of 10% (either way) and price bands of 20% (either way). No price bands are applicable on scripts on which derivative (F&O) products are available or scripts included in indices on which derivative products are available.

Ex: The closing price of a stock on Friday was 500, the price band currently applicable to the stock is 10%, the upper circuit limit for the stock would be 550 (110% of 500) and lower limit would be 450 (90% of 500).

Circuit_limits on Nifty/ Sensex :

The index-based market-wide circuit breaker system applies at 3 stages of the index movement, either way viz. at 10%, 15% and 20%. These circuit breakers when triggered bring about a coordinated trading halt in all equity and equity derivative markets nationwide. The market-wide circuit breakers are triggered by movement of either the BSE Sensex or the NSE S&P CNX Nifty, whichever is breached earlier.

• In case of a 10% movement of either of these indices, there would be a one-hour market halt if the movement takes place before 01:00 pm.
• If the 10% trigger is reached on or after 01:00 pm but before 02:30 pm, there would be trading halt for ½ hour.
• if the 10% trigger is reached on or after 02:30 pm, there will be no trading halt at the 10% level and market shall continue trading.
• In case of a 15% movement of either index, there shall be a two-hour halt if the movement takes place before 01:00 pm.
• If the 15% trigger is reached on or after 01:00 pm but before 02:00 pm, there shall be a one hour halt.
• If the 15% trigger is reached on or after 02:00 pm, the trading shall halt for remainder of the day.
• In case of a 20% movement of the index, trading shall be halted for the remainder of the day.

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 1) : Market Fundamentals - Segments of Market

As we see, market segments can be classified into Equity, Commodity and Currency. We will study each market step by step.

Equity

Points of Difference	Cash Segment	Derivatives Segment
Contract Trading	No contract trading exists, Position can be held life-long	Trading happens in contracts, 3-month contract cycle exists
Lots	Trading happens in unit shares	Trading happens in unit lots (i.e. bundle of shares)
Short Sell	Short Selling is allowed only for Intraday (i.e. NO STBT)	Short Selling is allowed for both Intraday and Delivery
Index Trading	Index trading is not possible	Index trading is possible

I. DERIVATIVES, as the name suggests is an instrument which is derived from some Underlying Asset and its movement depends on the movement of the underlying Asset. The price of underlying asset is known as Spot price.

A derivative is a product whose value is derived from the value of an underlying asset, index or reference rate. The underlying asset can be equity, forex, commodity or any other asset. Currently the highest turnover in Derivative segment happens on NSE Derivative segment

II. Why have derivatives?

A derivative transaction helps cover risk, which would arise on the trading of securities on which the derivative is based and a small investor too can take part in the Derivative instrument to Hedge his risk or speculate on market conditions.

III. FUTURES contract is an agreement between two parties to buy or sell an asset at a certain time in the future at a certain price. Index futures are all futures contracts where the underlying is an Index (Nifty or Sensex) and helps a trader to take a view on the market as a whole.

In India we have index futures contracts based on S&P CNX Nifty and the BSE Sensex. 3 months duration contracts are available at all times. Each contract expires on the last Thursday of the expiry month and simultaneously a new contract is introduced for trading after expiry of a contract. If last Thursday is a holiday the expiry would fall on the previous trading day.

III A. NIFTY Future - Nifty future is the most traded contract on NSE Derivative segment, with a lot size of 50 shares.

III B. Bank NIFTY - Bank Nifty future contract is derivative from the Bank nifty spot Index which represents the Banking sector stocks, lot size being 25 shares.

III C. Stock Future - Future contracts on Stocks are called Stock futures. Currently there are 200+ Future contracts in NSE Derivative segment.

III D. Some Technical Terms:

• Open Interest: The total number of outstanding contracts which are yet to be squared-off as on date.
• Roll over: A process of squaring off the current open position and taking the same directional position in the next series of the Future contract. Ex: A trader has Long 5 lots of Bank Nifty Future on 27th Nov’14 (Expiry day), he is still bullish on the contract, he sells his November month contract and simultaneously buys 5 lots Bank Nifty in December month. 
• Ban Period: Exchanges have prescribed a MWPL (Market wide position limit) of every future contract in the Exchanges. If the open interest of the contract crosses 95% of the MWPL limit, fresh positions in the underlying are banned and penalized. Traders can square off their existing positions but fresh positions cannot be take until the open interest falls below 80% of the MWPL.

III E. Advantages of Future segment:

• Lower Margin
• No Delivery obligation
• High Liquidity & high profit potential
• Trading in Index allowed

III F. Risks in Future segment:

• Huge loss due to leverage positions
• High Volatility
• Difficult for retail investors to manage trades

IV. The OPTIONS contract - The biggest limitation of Future contract is high margin requirement and unlimited loss potential, which sometimes makes it difficult for a retail trader to hedge/ trade in Futures contracts. Options, as the name suggests gives huge kind of options to choose while the trader wants to trade in derivative contracts.  Similar to the Future contract we have same Index and stock option contracts for the same underlying in the options segment with same expiry cycle. Premium is the price paid by the buyer of an option to own the right of that option.

IVA. Options

• Gives right but not the obligation for the option buyer
• Has the same contract cycle and underlying Asset (Stock & Indices) as in Future Contracts
• Limited loss ,Unlimited profit to the option buyer
• Full premium amount has to be paid upfront for buyer
• Seller has to pay margin
• Different strike prices available in a particular Contract Cycle
• Useful in all kinds of markets Bullish, Bearish, Volatile, Stable

IV B. Types of Options:

• Call option - A Call option is a contract between two parties giving the taker (buyer) the right, but not the obligation, to buy a lot of shares at a predetermined price possibly on, or before a predetermined date. To acquire this right the taker pays a premium to the writer (seller) of the contract. When you expect prices to rise, then you take a long position by buying calls. You are bullish. When you expect prices to fall, then you take a short position by selling calls. You are bearish.
• Put Option - A Put Option gives the holder of the right to sell a specific number of    shares of an agreed security at a fixed price for a period of time. When you expect prices to fall, then you take a long position by buying Puts. You are bearish. When you expect prices to rise, then you take a short position by selling Puts. You are bullish.

IV C. Why Trade in options?

• Low Investment required
• Limited Loss
• Can trade for Bullish and Bearish views
• No Delivery obligations

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 2E : Market Fundamentals - Bulls, Bears, Chickens and Pigs

On Dalal Street, the bears and bulls are in a constant struggle for profits.

The Bulls - A bullish market indicates that economy is running good, GDP (Gross Domestic Product) is growing, people are finding jobs, and stocks are rising. If a person is optimistic and believes that stocks will go up, s/he is called a "bull" and is said to have a "bullish outlook". 

The Bears - A bearish market indicates that economy is bad, recession is looming and stock prices are falling. In bearish markets some investors make money by short selling whereas others wait until they feel that the bear market is nearing its end, and then buy in anticipation of a bull market. If a person is pessimistic, believing that stocks prices are going to fall down, s/he is called a "bear" and is said to have a "bearish outlook". 

The Chickens - Chickens are afraid to lose everything. Their fear tops their need to make profits and so they invest only in money market securities or get out of the markets entirely.

The Pigs - Pigs are high-risk investors looking for that one big shot in a short span of time. Pigs buy on hot tips and invest in companies without doing their due diligence. They are impatient, greedy, and emotional about their investments, and they usually invest in high-risk securities. Professional traders love the pigs, as it's often from their losses that the bulls and bears reap their profits. 

What Type of Investor Will You Be?

There are ample of investment strategies in market. The bulls and bears constantly struggle, but they both make money with changing trends in the market. Even the chickens see some returns, though not a lot. The only loser in this market is the pig.

You have to make sure what type of investor will you be. Always remember the saying: "Bulls make money, bears make money, but pigs just get slaughtered!"

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 2D : Market Fundamentals - Market Timings

Trade time: The normal trading time for Equity Market is between 09:15 am to 03:30 pm, Monday to Friday.

Pre-open session: This session is basically to decide the opening price of the markets in Normal trading session, where trading for only Nifty 50 shares takes place the session is from 09:00 am to 09:15 am, Monday to Friday.

Closing price calculation: The closing price of a stock is not the LTP ( Last traded price) of the stock but the average price between 03:00 pm to 03:30 pm, this calculation takes place between 03:30 to 03:40 pm, Monday to Friday.

Post close trading: The post close trading happens between 03:40 pm to 04:00 pm, basically used for squaring off some positions created by mistake, the prices in this segment do not change and trading is done only on the adjusted closing prices.

Trade time: The normal trading time for Commodity (MCX) Market is between 10:00 am to 11:30 pm, Monday to Friday.

Trade time: The normal trading time for Agri-Commodity (NCDEX) Market is between 10:00 am to 05:00 pm, Monday to Friday.

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 2C : Market Fundamentals - Exchanges and Indices (Equity)

Stock Exchange

A stock exchange or share market is a corporation or mutual organization which provides facilities for stock brokers and traders, to trade company stocks and other securities. Stock exchanges also provide facilities for the issue and redemption of securities as well as other financial instruments and capital events including the payment of income and dividends.

There are 2 recognized Stock Exchanges in India for Share Trading:

A. BSE (Bombay Stock Exchange) is the oldest stock exchange in Asia with a rich heritage, now spanning three centuries in its 133 years of existence. What is now popularly known as BSE was established as "The Native Share & Stock Brokers' Association" in 1875, there are around 5000 + shares listed on BSE.

B. NSE (National Stock Exchange) was incorporated in November 1992 and currently has around 1500 shares listed and has a trading facility for Cash, Derivative and Currency derivative products. The highest turnover in Indian Equity markets happen on NSE currently.

These are an Electronic platform based trading exchanges graduated from the traditional OTC (over the counter) mode of trading.

Stock Market Index

A stock index or stock market index is a measurement of the value of a section of the stock market. It is computed from the weighted average prices of selected stocks. It is a tool used by investors and financial managers to describe the market, and to compare the return on specific investments.

Sensex and Nifty are the two major indices of Indian Share Market. The Sensex is an indicator of all the major companies of the BSE. The Nifty is an indicator of all the major companies of the NSE. If the Sensex goes up, it means that the prices of the stocks of most of the major companies on the BSE have gone up. If the Sensex goes down, this tells you that the stock price of most of the major stocks on the BSE have gone down. Same goes for Nifty and NSE.

Besides Sensex and the Nifty there are many other indexes. There is an index that gives you an idea about whether the mid-cap stocks go up and down. This is called the “BSE Mid-cap Index”. There is an index for the metal stocks. There is an index for the FMCG stocks. There is an index for the automobile stocks etc. There are many other types of indexes.

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 2B : Market Fundamentals - Types of Capital Market

Primary Markets

The market system where the promoter/promoter group of the company sells his/ their shares for the first time to the public

IPO: Initial Public offer is the process of selling the shares of company from the primary or the initial owner to the public.

• A company can raise funds through 2 modes namely Equity and Debt.
• Hence, when one studies the balance sheet of any company, the capital structure will have two components namely Equity and Debt.
• The market in which the company can raise funds is the primary market.
• In the primary market the transaction of securities is unidirectional i.e. Company sells and the investor buys.
• Suppose the company wants to raise funds through the equity mode, It is usually done through a public issue or an IPO(initial Public offer).
• The companies have to follow a well-established legal procedure and involve a number of intermediaries such as underwriters, brokers, etc. who form an integral part of the primary market.
• The process of an IPO is not important in this training program but it is important to know that the IPO of a company is done through a collaboration with an underwriter(investment banker) and through this collaboration, the company releases a prospectus known as the DRHP (Draft Red herring prospectus).
• In brief the DRHP states all important details of the company like the future prospects, financial valuation, inherent risks, capital structure, future revenue sources, etc.
• These details are extremely important to be disclosed to the public prior to raising funds as mandated by SEBI. This is lieu with the complete disclosure norms set by SEBI to protect investors from fraudulent companies.

Secondary Markets

As the name suggests Secondary Markets is a market place where the trading of Equity share of a company takes place Second time, earlier in primary markets the seller was the Promoter group of the company now here the seller as well as the buyer are investors and the ownership of the share is in public’s domain.

Secondary markets are synonym to Stock exchanges in India as all the Secondary market activity takes place in Stock Exchanges.

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 2A : Market Fundamentals - Participants of Market

I. Regulator is a body which regulates and overlook to the smooth Functioning of Financial Market Systems, they do recognize, allow, dis-allow other financial intermediaries for working in financial markets, redresal for the Investors, Creates / Modifies rules and regulations in financial markets.

A. SEBI: Securities Exchange Board of India is the Big Boss of Financial markets and the main regulator in the Capital Markets, SEBI regulates Equity Markets and Currency Derivative segments, came into power in 1992

B. RBI: Reserve Bank of India mainly controls the Banking and monetary systems in the Country making Monetary policies, looking after the working of Banks. They regulate Currency Derivative Segment along with SEBI

C. FMC: Forward Market Commission is the regulator for Commodity Derivatives in India

II. Exchanges provide a facility for Traders to exchange (Buy/ Sell) Securities, Commodity, Currency via an electronically driven platform.

A. Equity Exchanges

NSE- National Stock Exchange

BSE- Bombay Stock Exchange

B. Commodity Exchanges

MCX-Multi Commodity Exchange

NCDEX- National Commodity and Derivative Exchange

C. Currency Exchanges

MCX- SX

NSE Currency Derivative USE

III. Brokers/ Intermediaries are the body which acts as a interface between the Client and the Financial System and facilitates the proper trading in Financial Products like India Infoline, JM Financial, Sharekhan, Religare, ICICI Direct, Angel Broking, SMC Global Reliance Money to name a few.

Sub Broker: A sub broker is like a ' Franchisee' of a stock broker registered with SEBI and can act like and on behalf of a Broker i. e. Open Trading account and service clients, in turn he gets a sharing out of the total brokerage earned from the clients trading under the Sub Broker.

IV. Investors and Traders: These are the makers of the market, the real end client for whom the whole system exists. All the products and systems in Financial Markets are designed keeping in mind these real Investors and Traders of the System. These comprise of all the Indian Retail, HNIs, Institutional and Foreign Direct and Institutional Clients (FII) trading in the Indian Financial Markets for this Category of Participant in the Markets.

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.