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 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.

Investing Strategies

When it comes to investing in the stock market, the fact is, you can become a millionaire with the right strategy and discipline. Investing in the stock market is easy. Take your first steps and learn to invest in the stock market here.

1. Investing isn't just for high rollers

You don't have to have WarrenBuffett's bank balance to dabble on the stockmarket. Most investment funds will accept monthly deposits or lump sums. You do, however, have to be able to stomach watching your savings fall in value as well as rise.

Investing is a long game, so you must be prepared to lock your money away for a minimum of five years, ideally a decade or more. It is therefore best suited to those with long-term financial goals, saving for retirement or a child's education, for example, rather than a house deposit or a new car. 

 
2. Beware reckless caution

Gambling your money on unpredictable markets can be nerve-wracking. But history has repeatedly shown that over the long term equities outperform cash savings. This is hardly surprising when you consider the pitiful returns offered by banks on savings accounts. The average bank pays just 4%. That is less than the current rate of inflation of 8%, meaning that the majority of cash savers are actually losing money in real terms.

3. There are tax advantages of investing

Savers are entitled to an annual tax-free allowance of up to Rs.1,50,000 under Section 80C. Invest in tax saving instruments to reduce large tax outlay. 

4. Think about what you want to invest in

Cash is traditionally seen as the least volatile asset class, your money is safe unless a bank or building society goes bust. But as shown in point two, its buying power can be eroded by inflation so you end up losing money in real terms. Fixed interest investments, which are loans to companies (in the case of corporate bonds) or governments (known as government bonds or gilts), provide modest but reliable returns are traditionally regarded as lower risk than equities.

However this risk profile is changing and when interest rates start to rise their prices could fall and the risk of capital loss increases. Shares, also known as equities, offer a stake in a company. Shares tend to rise in value when a company does well and fall when it does not.

5. Don't put all your eggs in one basket

If you funnel all your hard-earned cash into shares in one company and the company tanks, you will lose it all. The idea is to 'diversify', which involves dividing up your lump sum across a portfolio and investing portions into varied companies, asset classes or global markets.

As some markets fall, others will rise and cancel out losses. How you spread your money will be led by your attitude to risk. 

6. Think about investing through a fund

You can buy shares directly but this can be expensive, difficult and risky. For a beginner, it's usually better to invest through a mutual fund, which offers an affordable way to buy up lots of different assets without the responsibility of making your own investment decisions

A fund manager then uses their expertise to buy and sell shares (or bonds) on your behalf to maximise returns for investors. There is a charge for investing in funds, but because you are spreading the cost with your fellow investors, it works out much cheaper than it would be for you to invest in the same shares yourself.

7. Spend time choosing the right fund

You need to do your homework to pick one that meets your financial goals and suits your appetite for risk. The funds invest in more than 30 sectors, categorised by asset class (equities, say, or fixed-income); sector type, such as technology or property; and investment style such as growth or income.

Monitor the performance of a fund over a period of time, five or seven years, rather than just looking at whether a fund did well last year. Remember you are playing a long game.

8. Invest regularly to minimise losses

It is impossible to pick the perfect moment to invest to beat the market. Improve your chances of maximising your returns by drip-feeding your money into a fund on a regular basis, for example once a month, rather than investing a lump sum in one go. This is known as rupee-cost averaging. You buy fewer shares if you catch the market when it is rising but you can buy more at cheaper prices if it is falling, averaging out the overall cost and risk.

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.