Thursday, March 17, 2022

20 Best Tips for Buying, Holding and Selling Stocks in India


Share market investment is seen as an extremely lucrative avenue for investment, and generating wealth in the long run. Historically, the vast majority of the Indian population has shied away from investing in the stock market, fearing volatility, and in turn, losses.

 

However, with the rapid growth of technology in the last couple of years, and of course, with amazing online investment platforms like Goodwill, investment in stock market online is becoming more lucrative.

 

We're seeing a huge number of new users signing up everyday, and realize that there is still hesitation when it comes to investing their money and working towards achieving their financial goal. We've come to understand the necessity for some solid advice when it comes to buying, selling and holding stocks in India.

In an effort to ensure you build towards your financial dream, and not give in to uncertainties and fears festered on by bad advice, we're providing you with 20 of the best tips that we wish we had when we began our investment/trading journey.

 

Top 10 Advice on Buying Stock in India

 Sell a Loser  

It is essential that you stay realistic about your investments - there is literally no guarantee that once a stock goes to a period of protracted decline, that it will rebound. Though it might have an adverse psychological impact, acknowledging the losses, and moving on is the best thing you can do for your investments. There is no shame in accepting that a mistake has been made, as long as you ensure that you don't fall trap to the same mistakes again.

 

 Don't Sweat the Small Stuff 

If you're an investor, stop focusing on small term price movements, and look at the big picture. As Warren Buffet quoted, purchase only the stocks that you'd be comfortable holding, even If the stock market is closed for the next 10 years. Do not panic over the short term volatility, and do not sell the stock, unless there is a major fundamental change in the company that you don't agree with. Have confidence In the long term growth trajectory of the company that you bought into, instead of the short term falls in prices and paper losses.

 

Do not overemphasize the few rupee difference you may save from using, say a limit order, as opposed to a market order. The active traders who have years of expertise and knowledge struggle to consistently grasp the opportunities presented in the short term price movements.

 

 Don't Chase a Hot Tip 

Stock tips are not for investors - especially ones with a moderate risk appetite. All our regular tips are for intraday trading purposes only, as there is no way to predict how a stock will move over a certain period of time. Even if we come up and give you a stock tip, don't accept it at face value. Conduct your own research and analysis about the investment, before putting your hard earned money to work.

 

Long term investment success depends on the deepest of research that you must be ready to invest.

 

 Pick a Strategy and Stick With It 

If you ask us, or research the internet, you'll quickly find that there are quite literally a million ways to pick stocks. There are multiple different strategies, starting from analysing the financials of the company, to understanding the basic fundamentals of the operations - it is essential that you  choose one method and stick with it.

Oscillating between multiple methods will affect the overall balance of your portfolio, and will make you a market timer - which is considered extremely risky unless you know what you're doing.

 

Even the great Warren Buffet stuck to his guns, and invested only based on his value-oriented strategy. Because of this, he was able to successfully navigate the dotcom bubble, and the major losses that went along with it.

 

 Don't Overemphasize the P/E Ratio 

Investors often place great importance on price-earnings ratios, but placing too much emphasis on a single metric is ill-advised. P/E ratios are best used in conjunction with other analytical processes.

 

Therefore a low P/E ratio doesn't necessarily mean a security is undervalued, nor does a high P/E ratio necessarily mean a company is overvalued.

 

 Focus on the Future and Keep a Long-Term Perspective 

Investing requires making informed decisions based on things that have yet to happen. Past data can indicate things to come, but it’s never guaranteed.

 

In his 1989 book "One Up on Wall Street" Peter Lynch stated: "If I'd bothered to ask myself, 'How can this stock possibly go higher?' I would never have bought Subaru after it already had gone up twentyfold. But I checked the fundamentals, realized that Subaru was still cheap, bought the stock, and made sevenfold after that."2  It’s important to invest based on future potential versus past performance.

 

While large short-term profits can often entice market neophytes, long-term investing is essential to greater success. And while active trading short-term trading can make money, this involves greater risk than buy-and-hold strategies.

 

 Be Open-Minded 

Many great companies are household names, but many good investments lack brand awareness. Furthermore, thousands of smaller companies have the potential to become the blue-chip names of tomorrow. In fact, small-cap stocks have historically shown greater returns than their large-cap counterparts.

 

From 1926 to 2017, small-cap stocks in the U.S. returned an average of 12.1% while the Standard & Poor's 500 Index (S&P 500) returned 10.2%.3

 

This is not to suggest that you should devote your entire portfolio to small-cap stocks. But there are many great companies beyond those in the Dow Jones Industrial Average (DJIA).

 

 Resist the Lure of Penny Stocks 

Some mistakenly believe there’s less to lose with low-priced stocks. But whether a $5 stock plunges to $0, or a $75 stock does the same, you've lost 100% of your initial investment, so both stocks carry similar downside risk.

 

In fact, penny stocks are likely riskier than higher-priced stocks, because they tend to be less regulated and often see much more volatility.

 

 Be Concerned About Taxes but Don't Worry 

Putting taxes above all else can cause investors to make misguided decisions. While tax implications are important, they are secondary to investing and securely growing your money.

 

While you should strive to minimize tax liability, achieving high returns is the primary goal.

 

 Top 10 tips for Selling Stocks in India 

 

 Always Use a Trading Plan 

A trading plan is a written set of rules that specifies a trader's entry, exit, and money management criteria for every purchase.

 

With today's technology, it is easy to test a trading idea before risking real money. Known as backtesting, this practice allows you to apply your trading idea using historical data and determine if it is viable. Once a plan has been developed and backtesting shows good results, the plan can be used in real trading.

 

Sometimes your trading plan won't work. Bail out of it and start over.

The key here is to stick to the plan. Taking trades outside of the trading plan, even if they turn out to be winners, is considered poor strategy.

 

 Treat Trading Like a Business 

To be successful, you must approach trading as a full- or part-time business, not as a hobby or a job.

 

If it's approached as a hobby, there is no real commitment to learning. If it's a job, it can be frustrating because there is no regular paycheck.

 

Trading is a business and incurs expenses, losses, taxes, uncertainty, stress, and risk. As a trader, you are essentially a small business owner and you must research and strategize to maximize your business's potential.

 

 Use Technology to Your Advantage 

Trading is a competitive business. It's safe to assume that the person sitting on the other side of a trade is taking full advantage of all of the available technology.

 

Charting platforms give traders an infinite variety of ways to view and analyze the markets. Backtesting an idea using historical data prevents costly missteps. Getting market updates via smartphone allows us to monitor trades anywhere. Technology that we take for granted, like a high-speed internet connection, can greatly increase trading performance.

 

Using technology to your advantage, and keeping current with new products, can be fun and rewarding in trading.

 

 Protect Your Trading Capital 

Saving enough money to fund a trading account takes a great deal of time and effort. It can be even more difficult if you have to do it twice.

 

It is important to note that protecting your trading capital is not synonymous with never experiencing a losing trade. All traders have losing trades. Protecting capital entails not taking unnecessary risks and doing everything you can to preserve your trading business.

 

  Become a Student of the Markets 

Think of it as continuing education. Traders need to remain focused on learning more each day. It is important to remember that understanding the markets, and all of their intricacies, is an ongoing, lifelong process.

 

Hard research allows traders to understand the facts, like what the different economic reports mean. Focus and observation allow traders to sharpen their instincts and learn the nuances.

 

World politics, news events, economic trends—even the weather—all have an impact on the markets. The market environment is dynamic. The more traders understand the past and current markets, the better prepared they are to face the future.

 

 Risk Only What You Can Afford to Lose 

Before you start using real cash, make sure that all of the money in that trading account is truly expendable. If it's not, the trader should keep saving until it is.

 

Money in a trading account should not be allocated for the kids' college tuition or paying the mortgage. Traders must never allow themselves to think they are simply borrowing money from these other important obligations.

 

Losing money is traumatic enough. It is even more so if it is capital that should have never been risked in the first place.

 

 Develop a Methodology Based on Facts 

Taking the time to develop a sound trading methodology is worth the effort. It may be tempting to believe in the "so easy it's like printing money" trading scams that are prevalent on the internet. But facts, not emotions or hope, should be the inspiration behind developing a trading plan.

 

Traders who are not in a hurry to learn typically have an easier time sifting through all of the information available on the internet. Consider this: if you were to start a new career, more than likely you would need to study at a college or university for at least a year or two before you were qualified to even apply for a position in the new field. Learning how to trade demands at least the same amount of time and fact-driven research and study.

 

  Always Use a Stop Loss 

A stop loss is a predetermined amount of risk that a trader is willing to accept with each trade. The stop loss can be a dollar amount or percentage, but either way, it limits the trader's exposure during a trade. Using a stop loss can take some of the stress out of trading since we know that we will only lose X amount on any given trade.

 

Not having a stop loss is bad practice, even if it leads to a winning trade. Exiting with a stop loss, and therefore having a losing trade, is still good trading if it falls within the trading plan's rules.

 

The ideal is to exit all trades with a profit, but that is not realistic. Using a protective stop loss helps ensure that losses and risks are limited.

 

 Know When to Stop Trading 

There are two reasons to stop trading: an ineffective trading plan, and an ineffective trader.

 

An ineffective trading plan shows much greater losses than were anticipated in historical testing. That happens. Markets may have changed, or volatility may have lessened. For whatever reason, the trading plan simply is not performing as expected.

 

Stay unemotional and businesslike. It's time to reevaluate the trading plan and make a few changes or to start over with a new trading plan.

 

An unsuccessful trading plan is a problem that needs to be solved. It is not necessarily the end of the trading business.

 

An ineffective trader is one who makes a trading plan but is unable to follow it. External stress, poor habits, and lack of physical activity can all contribute to this problem. A trader who is not in peak condition for trading should consider taking a break. After any difficulties and challenges have been dealt with, the trader can return to business.

 

 Keep Trading in Perspective 

Stay focused on the big picture when trading. A losing trade should not surprise us; It's a part of trading. A winning trade is just one step along the path to a profitable business. It is the cumulative profits that make a difference.

 

Once a trader accepts wins and losses as part of the business, emotions will have less of an effect on trading performance. That is not to say that we cannot be excited about a particularly fruitful trade, but we must keep in mind that a losing trade is never far off.

 

Setting realistic goals is an essential part of keeping trading in perspective. Your business should earn a reasonable return in a reasonable amount of time. If you expect to be a multi-millionaire by Tuesday, you're setting yourself up for failure.

 

These were some of the important tips and pieces of advice that we wished we had when we first started out our journey of trading and investment.  Why don't you test out the new-found knowledge that you've gained through Goodwill's free online demat and trading account now? Trust us, the first stepis truly the hardest!


Friday, February 25, 2022

Intraday Options Trading in India - Everything You Need To Know

 

By now, you're sure to have listened to many success stories about traders from stock exchanges. Be it on YouTube videos, friends, neighbours, or even intrusive advertisements from financial brokers in the country. The fact is, one of the most commonly utilized methods for generating wealth through the stock market is intraday trading in India.

 

As the name suggests, you will be entering and exiting a position within the same day. This is one of the commonly used tools for speculators and traders to enter the position on the same day, without having to take delivery of the underlying asset.

 

You may have also heard about the risks involved in intraday trading.

 

Yes - intraday trading is highly risky. Yes, the returns are mind-blowing. But if you don't create a proper intraday trading strategy, and stick to it, it is extremely easy to lose all the money you've earned.

 

Before we go into detail on what's necessary to create the best intraday trading strategy online, Here are some of the basics that you need to know.

  

Intraday Options Trading In India - The Basics

What are Options?

Options are a type of derivatives contract that gives the holder the right (not the obligation) to purchase/sell the underlying asset at a specified price, after a specific time.

 

For instance, say you purchase a put options contract for a specific equity stock. When the duration of the options is over, you will have the option/choice to sell that equity stock at the pre-agreed upon price.

 

Types of Options Contracts 


There are two major types of Options Contracts.

  1. Put Options - Gives the holder the right to sell the underlying shares at an agreed upon price, at the agreed upon time.

  2. Call Options - Gives the holder the right to buy the underlying shares at an agreed upon price, at the agreed upon price

 

Options Trading - Some Common Terminologies

  1. Expiration date - The date after which the contract expires. In American options (rare in the Indian markets), the options contract can expire anytime before the expiry date. In European Options (the most common type), the options contract has to be exercised on the expiration date.

  2. Strike Price - The price at which the holder has the right to purchase/sell the stock.

  3. Premium - The price per share that you pay to purchase the option contracts. Usually consists of two parts

    1. Intrinsic Value: The value of the options contract derived based on the difference between the current market valuation of the stock, and the strike price.

    2. Time value: The value of an options contract derived based on the duration left before the expiry of the options contract. Typically, the larger the duration left before expiry, the higher the value of the options contact would be (as the possibility that the options contract's intrinsic value would increase in the meantime). This "decay" in value is called "theta".

  4. Last: The price that was paid to purchase/received to sell the option the last time it was traded.

  5. Bid: The price a buyer is willing to pay for the option. If you're the seller, you may either choose to sell the options at this price, or wait for a better price.

  6. Ask: The price at which the seller is willing to accept the option.

  7. Change: The change in price since the close of the previous trading day, usually expressed in percentage

  8. Open Interest: The quantity of options contract that are currently traded in the market.

  9. Volatility: A measurement of how much the price of the underlying asset can swing in a day.

 

Benefits of Intraday Options Trading

  1. High Upside Potential, Limited Downside Potential - Options contracts allow you to cash in on all the positive price movements, while the negatives are limited only to the amount of premium paid to purchase the options contract. In other words, the sky is the limit when it comes to profit, but you don't stand to lose a single penny more than the amount you used to purchase the options contract.

  2. Low Cost of Entry - Day trading in options allows you to enter and exit positions much quicker, and with much less capital than with other types of securities. These options contracts are cheaper than the underlying asset, enabling you to control the same number of shares with much less capital.

  3. Improved Opportunities for Diversification - Since options contracts are way cheaper, when compared to the underlying asset, you can be exposed to multiple assets and asset classes.

  4. Win-Win - Contrary to what most people say, Options trading is not "I win at your loss". Most options contracts are written by people looking to hedge their long term positions, and limit their market risk. They are insuring themselves against the risk of market volatility, and by trading in options you're essentially absorbing their market risk for a premium.

 

 Disadvantages Of Intraday Options Trading 

  1. Low Liquidity - Options contracts, while priced way lesser than the underlying asset, can also suffer from limited liquidity. This leads to a wider bid-ask spread, leading to higher chances of lesser than optimal profitability.

  2. Price Movement Reductions - Even if the stock/underlying asset moves favorably, the extent of such price movement can be undermined by the nearing expiry (recall time decay/theta). However, when day trading with options, the time value shouldn't be an issue as you're literally holding a position for a day, at the very max.

 

 How To Get Started with Intraday Options Trading 

This is one of the popularly asked questions, that we here at Goodwill get from time to time.

 

How to Get started with intraday Trading? Isn't Options Trading risky?What are the pre-requisites that I need to have before I begin my journey of trading options intraday?

 

Here's everything you need to know to begin your Intraday Options Trading Journey.

 

 Open Trading and Demat Account 

The first thing you need to do when you begin your options trading journey is to open your free Demat and trading account online. Different brokers have different fees, and regulations and it is best for you to do your own research and choose what's the best for you.

 

One of the best Options Trading Brokers - Goodwill Wealth Management Pvt Ltd. offers the best trading and Demat account online for absolutely free. Goodwill allows you to trade/invest in equities, mutual funds, futures and options, ETFs and Commodities - all from a single margin.

 

Here are some of the benefits that you can enjoy, should you choose to open a free trading account online with Goodwill.

  1. Lowest Brokerage Ever - Flat INR 11 per intraday trade or 0.02%, whichever is lower, across all segments.

  2. Free Multilingual Support - Language should not be a barrier for your successful trades. Don't miss out on important trading information and support due to language!

  3. Free Real-time Research Calls - Join Goodwill to enjoy free real time research support from experts in the field.

  4. 0 Hidden Charges - Opening Demat and Trading account is completely free. Annual Maintenance Cost is waived off for the first year.

  5. Higher Exposure for Options Trading - Goodwill offers high levels of exposure for options writing. Used in combination with our real time research calls and expert support - sky is the limit for profitable trades.

  6. Free Trainings and Webinars - Don't know how to use the different financial instruments differently? Don't worry - Goodwill has got you covered.

  7. Access to Advanced, Free Tools - Along with access to state of the art mobile app - GIGA, you get access to free charting tools and research platform, enabling you to take informed decisions for decisive trades.

  8. Free Intraday Tips delivered to your phone- Access to highly-rated, free intraday tips with an amazing track record, delivered right at your finger tips.

 

 How do I Open a Trading and Demat Account with Goodwill? 

Opening a trading and Demat account online is effortless with Goodwill. Fill out your KYC here, and wait for us to do the rest!  

 

Step 1: Enter The Required Personal Details.

Step 2: Fill Pan no, Date of Birth, Aadhar Number and the other required details.

Step 3: Fill Communication Address.

Step 4: Upload the necessary Documents

Step 4.5: Documents that you'll need - PAN card, Passport Size Photograph, Aadhar Card, Latest Salary Slip/Latest ITR/Bank Statement going back six months.

Step 5: E-Sign and complete the KYC process - Your account will be open for trading shortly.

 

That's it, 5 simple steps, and you're well within your journey to begin employing the best intraday options strategies that you've learned through the resources that we'll mention in the next section.

 

Where do I learn The Best Intraday Options Trading Strategies?


For you to pick out the best intraday options trading strategies online consistently, it is necessary that you develop a trading system based on some of the popular trading strategies. Different trading strategies vary in complexity, and the time taken to learn, and a good training resource can go a long way in helping you make your trades successfully. Goodwill offers training programs to all our clients, along with calls and webinars to help you generate wealth.

 

 

The derivatives market is one of the most profitable markets (definitely the largest) in the world. However, before making trades or investments, make sure you read all the related documents, and understand the associated risks.

 

What are you waiting for? Open a free Demat and Trading accounts now, and get started with your Options trading journey.


 

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