Trading On the Indian Stock Exchange
The Indian stock market is without a doubt one of the most unpredictable in the world; many people have won millions of dollars while also losing millions. The problem is that 90% of traders in India rely on tips from amateurs and some so-called technical analysts who claim 90% or even 100% accuracy. This is extremely immature, and some autonomous body in India should come in and closely monitor these analysts, assigning them rankings or ratings on which investors can rely, and then subscribe to them based on the autonomous body’s ratings. In any case, this will take time to develop, but once completed, it will undoubtedly bring rationality to the minds of day traders and investors who place large bets based on these analysts’ recommendations.
Usually brokers are more concerned with providing profits to the average investor, but they also like the investor or day-trader to grasp the concept of technical analysis, which is a widely done among professional traders who read blogs and watch television. Technical analysis is a partial study of statistical indications; no single indicator is ideal, so you must combine several indicators to arrive at a certain conclusion about whether a stock will correct or fall.
Learn more: how to select stock for intraday
Many elements influence investment in stock market when investors are trading stocks. A trader can trade in three different ways:
1) A trader can call his broker and place a deal over the phone.
2) The trader can trade from his home using the internet and place his own orders.
3) The trader can go to the broker’s office and do all of his or her trading there.
The first and third approaches are outdated and can result in significant losses for the trader; the second way is also risky, but less so if the trader understands technical analysis. The third approach can be useful if the trader is familiar with technical analysis; nevertheless, the broker’s trading software should provide stock graphs with technical indicators. Technical analysis necessitates a focused mind; it is not as simple as brewing a cup of tea and drinking it to become a renowned analyst; rather, it necessitates patience, a focused mind, and, without a doubt, the four-letter word “PLAN.” You cannot succeed in technical analysis without planning; once you decide to short sell Reliance the next trading day, you watch for a breakout of a key support level and short sell it. During the intra-day and while short selling, you also make sure that the Sensex and Nifty are showing weakness or are clearly in a downtrend.
This is a pretty simple technique that is just explained to you, but it obviously includes a lot of graph analysis, which cannot be detailed theoretically. When you hear the word “plan,” numerous concepts come to mind: what kind of planning should I do if I know the market will collapse or rally tomorrow? Many strategies exist, but the better method is to follow the trend and large stocks such as SBI, RELIANCE, TCS, INFOSYS, and Adani.
Let us check first investment done by you as an example for better comprehension: To follow the trend, you monitor the BSE SENSEX chart every day and intra-day, looking for critical turning points where the Sensex will correct or bounce back from, and once that is confirmed, you take a directional call on a stock, such as a short sell. Suppose, Reliance at 750 is broken, with a target of Rs742 and a stop loss of Rs757, which is almost 1% of Reliance’s cash market price. Now set a target of 742 and see a bullish pattern building at bottoms in the Sensex, and Reliance is trading at 744, you buy it at that price or wait for it to touch 743, and make it a point to cover the short sell quickly. 90% of people who lose money in short sells do so because they are either overconfident or want higher profits, so they wait for lower targets. If they are confident that the market is correcting, why should they cover it? Let the market correct. This policy can yield good profits, but it can also wipe out a lot of money. So, if you make a profit after short selling Reliance at 749.50 and it currently trades at 743, you will make INR 6.50 profit per share. Reliance figures here are taken for the convenience of explanation and are not actual trending numbers.
If you shorted 500 shares, then 500 x 6.50 = INR 3250, and the transaction fee is.0005 (5 paisa), so:
Brokerage was purchased.
188 sold brokerage = 0005 x 500 x 749.50
Total brokerage = ₹374 (0005 x 500 x 743 = 186). Rs3250 – 374 = ₹2876 total profit
5 paisa brokerage equals 5 / 100 =.05, which equals.05 / 100 =.0005, which is the percent to apply to determine the real brokerage.
If dependence reaches that level, simply exit at 743 for a profit of ₹2876 in a single day. You would quit even if Reliance reaches 744 because volatility might be high at times, and you don’t trade for targets; you trade for profits. You track sensex, because it’s a broad-based index compared to NSE. Broad-based index, is reference to the fact that sensex has more stocks listed in its exchange and its base dates back to 1986, as opposed to nifty, and it is also one of Asia’s oldest index (while NSE was founded in 1992). The Sensex, unlike the Nifty, can sometimes deliver very early correction signs.
Another rule, you should follow is to trade only after 9:20 a.m., because when the market opens at 9:00 a.m., it is at its most volatile, and the first 20 minutes determine the market’s trend. If the market opens in the negative, the market may correct and start moving up in the first 20 minutes, and if you short sell during that time, you will get stuck on lower levels, triggering your stop loss, and you will lose money. To utilize technical analysis, you must first establish some guidelines, the most significant of which is to trade after the market has moved for 15-20 minutes and some sort of stability has developed. After 10:15 a.m., one should review the indices’ charts to determine the index’s main trend, and then look for stocks that are moving with the index and are near critical support and resistance levels. Once those levels are broken, one can trade in the stock that has clearly broken out in the trend’s direction as well as its crucial support or resistance.
Technical analysis is not a magic wand that you can wave and receive instant results in a few minutes; rather, technical analysis is a tool that may be used to profitably enter and exit stocks, or any financial markets. Volume is heavily weighted in technical analysis. Check that the stocks you’re looking at have enough volume to ensure that your analysis is accurate based on the tools you’re utilizing. For example, a thumb rule is that a stock must have at least 1 million shares traded in order to be included in an analysis list; otherwise, you do not need to analyse that stock.