Baby step 1

Hello Dears,

How are you? I know it has been more than year since I have blogged. I hadn't been idle but learning new skill.

Now you would have an idea that what I am going to share with you now. Yes, I can hear your mind voice saying, yeah man it will be about your new skill? yes you are 100% correct.

Before getting in to the topic, I would like to ask you a question, do you like to earn money apart from your salary? I mean secondary income. Most of the people answer would be "BIG YES". Then you are on the right post. Here I am going to share my basic insights, about my newly learned skill "Share Market (Trading)".

So Guys, please don't confuse between the terms called  "trading" and "investing". Whenever and wherever you see money as the output, there is always terms and conditions included in tiniest font with * on top of it. Let us get on with the topic.

Basic terms (differences) between Trader vs Investor.

Trader: If you want to invest in few stocks only for a short period of time and to get few bucks. Time period vary from seconds to months.

Investor: Investing money on stocks for retirement or for some bigger event going to happen in future (minimum years of time).

Okay, now it is up to you to decide based on your available time to be a Trader or Investor. I hope, now we have decided the direction, what will be the next questions in our mind.

1. How to invest?

2. How much Capital needed?

3. Where to invest?

4. When to invest?

5. When to sell the stocks which we bought?

Lets take a baby step at a time, we will see how to invest.

1. How to invest?

There are N number of brokers available in the market to help you to trade or invest in market. Search for the reliable broker, read about their conditions, services provided, brokerage charges and get a Demat account created (with the broker who is providing better in all terms based on you) and start trading.

Okay, now we have opened the account and can we move to the second question? I hope you are curious to know the answers but before that there are huge number of steps to learn. Yeah dude, it took year of time to learn, lets learn steadily.

I am sharing my knowledge based on how I learnt it.

Now lets assume that we have an account opened with reliable broker and logged in to the application or their trading plat form. Now how to proceed forward? Basic activities that we do is Buy and Sell, correct? Yeah, correct but we can do Buy and Sell in different ways. We will see bit deeper about it.

Limit order:

1. Buy at certain price.

2. Sell at certain price.

1. Buy at certain price. 

--> Now let's assume that Share 1 is trading at the price 10 rs.

--> You want to buy this but you wanted to buy this only at 9 Rs 

You don't want to sit all day in front of screen & watch the price. In this case you can place a buy request using "Limit" order.

If you place a limit order at certain price i.e is 9 Rs, this share will be bought only if current price comes to the price that you have quoted.

2. Sell at certain price.

Okay, now we have bought the good quantity of shares at each 9 Rs and we want to sell it when it reaches 13 Rs. Yeah, I can hear that many of you are answering that you will use limit order. If your answer is that, then wow! we have learnt about limit order.

Market order:

1. Buy at Market price

2. Sell at Market price

1. Buy at Market price.

--> We are watching the share and its price is constantly increasing from time to time. In this case, we have to buy at the current market price because we know this price will not go down.

At this situation, placing limit order will also be good but lets see when to buy using Market price.

If you use limit order to buy 100 shares at 10.10 Rs (because price is increasing constantly)it means you are buying 100 shares for 1010 rs.

If you use market order, you can buy shares at 10 rs, it means you are buying 100 shares at 1000 rs.

By using market order we are getting the same shares for lesser price.

2. Sell at Market Price

Exactly, reverse scenario from buy.

Now we have 100 shares bough at 10 Rs using market order. After reaching 13.30 Rs, price started reducing .10 paisa now from time to time instead of placing limit at 13.20 Rs we sell at market price.

so we will get 1330 rs and end up in higher profit, rather selling at 13.20 rs that is 1320. 

Okay, above scenario's are applicable for both traders and investors. Now lets see something specific for traders.

Bracket Order (BO):

1. Buy and sell using BO order.

Yes, you read it correct. Using BO (Bracket Order), we can perform both buy and sell by placing only one order. With BO order we know our "risk:reward%".

lets see with example,

--> A share is trading at 10 RS.
--> Its price is dangling between the range of 9 to 12 rs. 
--> You decided to buy this share at 9 Rs. As the price is fluctuating, we will not be ready to take risk.

--> We are not sure whether it will break low of 9 to make new low or high of 12 to make new high.

If the price goes below 8.75 rs, we want to sell it (Selling in .25 rs loss per each share), in order to minimize the loss.

If the price goes to 11.80 rs, we want to sell it (Selling with 2.80 rs profit per share), in order to get maximum profit.

Stop Loss order:

Now lets assume that we have bought 100 shares of a company at 10 Rs. We know that price of this company is constantly increasing and still we don't want take risk in one side direction, then here comes "Stop Loss" order.

We decided that, if price of this won't go below 9.75 Rs, but we are not sure how market will behave, here our SL order will help. 

While buying certain shares using SL order, we can set a limit saying if the price goes below, 9.75 Rs it should sell automatically. If not, you can hold this share. 

Now here the risk is 0.25*100 = 25 Rs. As per our prediction, if the share value goes higher and higher we will be in profit. If start going down or price decreased to 9.50 rs after crossing 9.75, our sell order would have executed at 9.75 and saved from extra .25 rs loss per share.

Here our risk is 25 rs and reward is infinite :)

Trailing Stop Loss order:

Have you notice any small drawback in Stop loss order? If not let us see this scenario

--> We bought 100 shares at 10 rs.

--> Set Stop loss at 9.75 Rs.

--> Share price went upto 13 Rs and then came down to 9.50 Rs.

What would have happened in the above scenario, if we had placed Stop loss order we would have sold the shares of a company with 25 rs loss over all. But what we missed? If we would had sold the shares at 13 rs we would have ended up in 300 rs profit.

so how to avoid such a situation? You are correct by using Trailing Stop Loss. Let us see how this one works.

--> We are buying 100 shares at 10 Rs.

--> Setting Trailing Stop Loss as .25 Rs, that is 9.75 Rs based on current price 10 Rs.

--> Now price of our share is increased by .25 Rs, then current price will be 10.25 rs and value of our Stop loss will be increased by .25 rs that is 10 Rs.

--> If the value of share hits 10 our sell will execute and our loss will be avoided.

--> similarly our share price keep increasing, our Stop loss price will be increased by system automatically.

So we can ensure, max profit with minimum loss.

These are the basic powerful options, if we use it efficiently, we will end up in minimum loss or maximum profit. 

As we are trying to take one step at a time. I hope this will be enough for now. But as  quick actions, we can learn few market terms.

1. CMP - Current Market Price.

2. Target (Tgt) - Price which the share will reach.

3. Stop Loss  (SL)- Till how long we can hold the share if the price dips from CMP.

4. Trailing Stop Loss (TSL) - It talk about the trailing value.

5. Go Long - This means nothing "buy"

6. Go Short - This means "Sell"

7. BTST - Buy Today Sell Tomorrow

9. STBT - Sell Today Buy Tomorrow (It is under home work topic)

As we have come to the conclusion, I would like to share a home work or research topic for us.

Research word : Short Selling.

Key for research word: Selling the share which you haven't bought.

Fast Forward: We will start next post with Intra-day and Carry forward Trade & how to perform it.

Interested People can follow this Telegram channel: https://t.me/NiftyChamps

Guys, it is a process of learning. Please feel to add your questions, I will try to answer them at the earliest.

V  Divaakar Guptha.