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Understanding Indian Stock Markets – Investment Club

I am relatively new into stock markets, what are the best lessons I can pick from those who have already lost money in this market? 
Guys I must admit, this is one question which I could say really made my day today. This question looks more like a bullet shot at Point Blanc, with pure innocence :). Even before we dig at individual investor’s profile as to what went wrong, there are few things we can bluntly tell.

Knowing but Not Doing: Yes, you can find many in our global stock market setup who knows many things but implements few. We can easily tell, at least 70-80% of our people knew “what are stop losses & when to apply it” but just didn’t implement it. I am not just talking about individuals, but I am including companies too… coz it is run by same set of like minded people. Anybody who has lost anything more than 20% of their capital, it’s due to this reason. Stop loss is the very first chapter which people should know & it’s absolutely not difficult to implement.

For Ex: If you buy a share for 100 rs, & you know that you can afford to loose only 10 rs on your capital & not more than that… then 90 rs becomes your stop loss. You should sell your share at any cost, when it reaches 90 bugs. I feel, this lesson is too simple which is one reason people failed to re-think about this. :) hmm.. end of day it’s more like … a costly tuition fees for a simple lesson, isn’t it .. :)

How do I judge which stock to buy in the market? Could you please share few tips that would help us in such stock selection..
Stock selection principles always differs while two people analyze. I could certianly share few general practices, while betting on a stock selection.

  1. The stock price of any company would always have two components in it two move either ways.. its Stock News & Index News. Stock news includes all news & noise the company makes in the market all about itself. Index news is the news & noise that the entire indices create about many different companies in the market. So this way, make sure you analyze why a particular stock moves up.
  2. Volumes with which a stocks getting traded, is definitely a must & should which you should consider. Coz Less volumes means the stock is less liquid. For Ex: If you can 100 shares of ABC company for 29.50rs, very next moment you should be able to sell the 100 shares of ABC company @ 30rs. If you find no buyer for 30 rs, then the stock is less liquid & indicates its less attractive in the market.
  3. Study a stock which you want to buy for atleast 10 trading sessions/days … Check out the 52 weeks highs/lows for that stock & where it is currently standing & fix your target accordingly.
  4. Checking out on the average price of that stock on that particular day while you buy, is certainly a good idea. As that helps you while setting a target if you wish you sell the same day.
  5. Long term traders could also check …. The Price to earnings ratio[P/E ratio], Earnings per share [EPS] & Dividend yield figures in the charts before making a decision to buy. [you can find this technical info in all commercial websites these days]

 

How do we judge markets when they are highly volatile? 
Wow!! Judging stock markets when the volatility is at its peak, could most of the times prove to be tough challenge. There are no bench marks that could possibly be set, which may suggest … “okie it’s this, this & that one – which you need to keep in mind while judging volatile markets. “ No, it work’s too less that way. But there are few strategies that come through experience which I shall let you know, which even you guys could possibly think – while you judge & time the markets next time.

1> Understanding the Common Phenomenon’s: - On any given trading day, when you decide to trade – make sure you ask yourself “which are the factors that might influence the markets today?” & make a note of all possibilities that you come across. For Ex: If it’s a Thursday… you should know that Inflation numbers will be rolled out, If it’s the 15th day of the month or close to that date… IIP number for the previous month will be rolled out … etc. These are few things which we can call it as common phenomenon which you can easily keep a tab on & time the markets accordingly. IIP & Inflation, are two numbers that will certainly leave effect & thus move the markets either up or down.

2> Knowing the Corporate Result Calendar: - This is a “Must Know” element. Keeping a track of corporate calendar will help you decide, how much effect it can have on an individual stock & cause to move. For Ex: If you know that the result will be out for Infosys stock tomorrow, you can choose to buy the stock today & sell tomorrow when the stock price will rally on account of a good result.

3> Knowing Current Global Sentiment: - Knowing what’s currently making headlines in the global market is a costly information. For: If you know that US auto bail out package has failed in the US senate today, then you can certainly expect global stock markets to react to this sentiment & pull the market down. So in such cases, if you are trading on delivery based buying – you can sell it today. And then buy Nifty Puts or go short on Nifty futures.

These are few stock market funda’s which you can consider while you choose to play with markets. Your experience in this dynamic markets, Swift reaction to information & off course ability to “Analyze” information when everybody around you just “Reads” – are few parameters based on which an individual trader can script his success in stock markets.

What will be the future of stock markets, since it looks tragic at the moment & the signs of recovery are pretty bleak?
Good one mam. Phir bhi, Aap ne tho sawal ko seedha keechke, hamari pet [stomach] par hi maar diya, huh ? Okie, let me channelize your thinking a little bit so that you can could add more views to it, even before you jump into thinking that, there could be an end for the stock markets.

Please know that a stock market of a country is the symbol of trade & commerce and economic prosperity indicators. And an economy, if it were to be explained in simplest of terms, is the profit a country makes by judging the sentiments between a buyer & a seller. So this clearly suggests that, as long as there is “a buyer when somebody offers to sell” & as long as there is “a seller when somebody wants to buy”, a trade pattern will be set based on this. And it is this same buying & selling trade pattern on a broader level, that is called as stock markets of a country. So if think you there might be an end for stock markets in future, it may happen only when you as an individual completely stop buying what you need & stop selling what you have. :)

I understand that there are too many rounds of advice sessions going on about “how to analyze market trends”… I would not like to add on to that… One thing which I would persist on always would be….. do not get over cautious about Sensex numbers or Nifty numbers… Its only a representative sample of collective stocks on a weighted average basis. Watch out for prices of individual stocks, Compare it with previously valued prices, if you see that its low… just go ahead & buy those stocks … Coz any individual stock, comprises of two types of news

1> – Stock News
2> – Index news.

Index news comes into picture only during big fall & big upside for indexed numbers such as NIFTY or a Sensex… & the Stock news is much based on news about individual company & this an indicator that the company that stands out & moves a stock price upwards. So a fair game plan should be to go through individual companies’ capacities, which ever sector it belongs to. Speaking about the slowdown of Indian markets, as I have told even earlier we are just reacting to a global sentiment prevalent all across the world market at the moment. Indian markets are just paying this small cost, for being aligned parallel to other emerging economies of the world.

Also feel free to express your views after reading it, as it helps we analysts judge our thought process & avoid having conservative ideas about the markets. We completely respect your views on this.