ALL ABOUT DAY TRADING.

What is the general meaning of Day Trading?
Day Trading means taking a position in the markets with a view of squaring that position before the end of that trading day (Within the trading hours). The goal of a day trader is to capitalize on price movement within one trading day. Unlike investors, a day trader may hold positions for only a few seconds or minutes, and never overnight.

What does Day Trading do really mean?
The term "day trading" is a widely misused and misunderstood term. Real day trading means not holding on to your stock positions beyond the current trading day; in other words, not holding any position overnight. This is really the safest way to do day trading because you are not exposed to the potential losses that can occur when the stock market is closed due to news that can affect the prices of your stocks.Unfortunately, many people who claim to be "day trading," hold stocks overnight because of fear or greed, thus setting themselves up for the catastrophic elimination of their capital. When day trading currencies, the term "day trading" changes slightly. Since currencies can be traded 24-hours-a-day, there is no such thing as "overnight" trading. Thus, you can have open positions for longer than a day with active stop losses that can be activated at any time.

Advantages & Disadvantages of Day Trading:
Though it’s a very tactful game and need to be played with full strategy to avoid any confusion and miscalculation. Any simple mistake could stuck you in such a mess that there is chance of great destruction of the capital.
Though the main two advantages of the same could be summarized as below:-
1. Zero Overnight Risk: Since positions are closed prior to the end of the trading day, news and events that affect the next trading day's opening prices do not effect your portfolio.
2. Increased Leverage: Day Traders have a greater leverage on their trading capital because of low margin requirements as their trades that are closed in the same market day. This increased leverage can increase your profits if used wisely.

MOST COMMON MISTAKES IN EQUITY

1. TRYING TO PICK TOPS AND BOTTOMS

Trying to pinpoint tops and bottoms is a risky business where the possibility of taking a loss far outweighs the potential gain. By exercising patience and waiting for a definite high or low to appear, you’ll increase your odds for making a profit while reducing your risk and stress.

2. AVOIDING STOP ORDERS

Using stop Orders is easy discipline, but remember to use discretion when using them. When placed too tightly, stops can take you out of the action before the market has made a significant move.

3. BEING GREEDY

You need to decide first that What you want ?Then a trade goes in your favor and you’ve already made a handsome profit, it’s sometimes a good idea to take the money and run. One of the biggest mistakes some traders make is staying in the market for too long hoping for a windfall that will make them rich all at once. Of all the emotions that can affect trading results, greed is the most destructive.

4. TRADING TOO MANY MARKETS AT ONCE

You would have lack of concentration if you spread yourself too thin by trying to trade too many different markets at once, you won't have the information and "feel" you need to make good decisions. Most expert traders recommend that you limit your trading to one or two markets. If you do choose to trade several different futures, it’s best to trade groups that move in relation to one another.

5. NOT DOING YOUR HOMEWORK

Do you home work on regular basis as you should know where are you investing ? Why had you chosen that? and whats your target?. Best traders are the ones who have made a commitment to do what it takes to become a success. They’re willing to study charts or learn new trading methods so they’re always ready for what the market throws their way. Once you’ve made that commitment yourself, you’ve taken your first step toward trading success.

6. LETTING LOSSES RUN

Don’t ever be afraid to accept defeat.If you had played wrong due to unceratin causes or lack of information or simply due to bad luck try to accept the loss and get out of it instead making the trap more severe in order to recover your losses instantly.

7.REVERSING YOUR POSITION

If your position is wrong, avoid the temptation of making a 180-degree turn. Instead, get out and give your trading a rest before taking another position. Ignore this advice, and you run the risk of being whipsawed—losing as the market moves against you, then losing more when the market turns and goes against you again.

8. FOLLOWING THE MAJORITY

Successful traders know that it’s better to "lead the pack" than it is to blindly "follow the herd." Because the biggest profits are made by catching moves before the crowd has a chance to react.

INVESTMENT RULES IN EQUITY MARKET

Not only the small investors but also institutional investor has the challenge to find the right opportunity to invest in stock market and at right time (To enter/exit). Generally investor are happy to make heavy gains during rally but with agreed doesn't book profit but on other hand when market scenario get reverse they are scared faster and sell out the holding even at loss.

In short, investing in equities can be a difficult proposition for retail investors. However, equity must form a part of every investor’s portfolio. The proportion could vary, depending on the investor’s age, monetary requirements, risk appetite, etc.

It is important to have a disciplined and systematic approach to equity investment. Set your own rules and more importantly, follow them strictly.

A long-term monetary commitment, adherence to discipline in investment and decisions based on company fundamentals are essential ingredients for successful equity investment.

Golden rules for investment

1. To be a long term investor

2. Do Your home work Regularly

3. Try to average Price at both buying and selling time

4. Diversification of portfolio

5. Always focus on fundamentals

6. Don’t sell in panic

7. Don’t take loan to invest

8. Invest regularly & gradually

9. Have targets & exit at those level strictly.

INFLATION CALCULATION

FACTORS CONSIDERED FOR CALCULATING INFLATION FIGURES

Here are some of the things that are used to Calculate the rate of inflation. The price changes in these things is taken as an indicator of inflation.

1. Consumer price indices (CPIs) : which measure the price of a selection of goods purchased by a "typical consumer".

2. Cost-of-living indices (COLI) : which often adjust fixed incomes and contractual incomes based on measures of goods and services price changes.

3. Producer price indices (PPIs) : which measure the price received by a producer.
This differs from the CPI in that price subsidization, profits, and taxes may cause the amount received by the producer to differ from what the consumer paid. There is also typically a delay between an increase in the PPI and any resulting increase in the CPI. Producer price inflation measures the pressure being put on producers by the costs of their raw materials.

4. Wholesale price indices :which measure the change in price of a selection of goods at wholesale, prior to retail mark ups and sales taxes. These are very similar to the Producer Price Indexes.

5. Commodity price indices : which measure the change in price of a selection of commodities.

IN INDIA WE USE WPI SYSTEM TO CALCULATE INFLATION AND FRESH FIGURES ARE FLASHED ON EVERY FRIDAY:

ANALYSIS OF WPI SYSTEM :

1. India uses the Wholesale Price Index (WPI) to calculate and then decide the rate of inflation in the economy. Most developed countries use the Consumer Price Index (CPI) to calculate inflation.

2. WPI was first published in 1902, and was one of the major economic indicators available to policy makers until it was replaced by the Consumer Price Index in most developed countries by in the 1970s.

3. WPI is the index that is used to measure the change in the average price level of goods traded in wholesale market. In India, price data for 435 commodities is tracked through WPI which is an indicator of movement in prices of commodities in all trades and transactions. It is also the price index which is available on a weekly basis with the shortest possible time lag -- two weeks. The Indian government has taken WPI as an indicator of the rate of inflation in the economy.

4. CPI is a statistical time-series measure of a weighted average of prices of a specified set of goods and services purchased by consumers. It is a price index that tracks the prices of a specified basket of consumer goods and services, providing a measure of inflation.

5. CPI is a fixed quantity price index and considered by some a cost of living index. Under CPI, an index is scaled so that it is equal to 100 at a chosen point in time, so that all other values of the index are a percentage relative to this one.

6.Some economists argue that it is high time that India abandoned WPI and adopted CPI to calculate inflation.

7.India is the only major country that uses a wholesale index to measure inflation. Most countries use the CPI as a measure of inflation, as this actually measures the increase in price that a consumer will ultimately have to pay for.

8.CPI is the official barometer of inflation in many countries such as the United States, the United Kingdom, Japan, France, Canada, Singapore and China. The governments there review the commodity basket of CPI every 4-5 years to factor in changes in consumption pattern.

9.WPI does not properly measure the exact price rise an end-consumer will experience because, as the same suggests, it is at the wholesale level.

10.The main problem with WPI calculation is that more than 100 out of the 435 commodities included in the Index have ceased to be important from the consumption point of view. By this commodity which is insignificant, but continues to be considered while measuring inflation.

11.India constituted the last WPI series of commodities in 1993-94; but has not updated it till now that economists argue the Index has lost relevance and can not be the barometer to calculate inflation.

12.The WPI is published on a weekly basis and the CPI, on a monthly basis. in India, inflation is calculated on a weekly basis and announced on every Friday.

SYSTEMATIC INVESTMENT PLAN (SIP)

Systematic Investment Plan or simply known as SIP works on the principle of regular investments. It is like your recurring deposit where you invest in a fixed base petty amount after every define period and on a regular basis. It allows you to invest in a MF by making smaller periodic investments (monthly or quarterly) in place of a heavy one-time investment i.e. SIP allows you to pay 10 periodic investments of Rs 1000 each in place of a one-time investment of Rs 10,000 in an MF. Thus, you can invest in an MF without altering your other financial liabilities.

While making small investments through SIP may not seem appealing at first, it enables investors to get into the habit of saving. And over the years, it can really add up and give you handsome returns.

SIP has brought mutual funds within the reach of an average person as it enables those category having tight budgets to invest Rs 500 or Rs 1,000 on a regular basis in place of making a heavy, one-time investment.

Even for the cash-rich, SIPs reduces the chance of wrong investment decision. However, the true benefit of an SIP is derived by investing at lower levels. Other benefits include:

1. Discipline

The best rule of building your corpus is to stay focused, invest regularly and maintain discipline in your investing pattern. A few hundreds set aside every month will not affect your monthly disposable income. You will also find it easier to spare a few hundreds every month, rather than set aside a large sum for investing in one shot.

2. Power of compounding

Investment gurus always recommend that one must start investing early in life. One of the main reasons for doing that is the benefit of compounding.

3. Convenience
This is a very convenient way of investing. You have to just submit cheques along with the filled up enrolment form. The mutual fund will deposit the cheques on the requested date and credit the units to one’s account and will send the confirmation for the same.

4 Rupee cost averaging

This is especially true for investments in equities. When you invest the same amount in a fund at regular intervals over time, you buy more units when the price is lower. Thus, you would reduce your average cost per share (or per unit) over time. This strategy is called 'rupee cost averaging'. People who invest through SIPs capture the lows as well as the highs of the market. In an SIP, your average cost of investing comes down since you will go through all phases of the market, bull or bear.

5. Other advantages
· There are no entry or exit loads on SIP investments.
· Capital gains, wherever applicable, are taxed on a first-in, first-out basis.

MUTUAL FUND

First we will understand Net Asset Value (NAV)

NAV is the total asset value per unit of the fund and is calculated by the AMC at the end of every business day.

NAV calculation

The value of all the securities in the portfolio in calculated daily. From this, all expenses are deducted and the resultant value divided by the number of units in the fund is the NAV.

Open- and Close-Ended Funds

Open-ended FundsAt any time during the scheme period, investors can enter and exit the fund scheme (by buying/ selling fund units) at its NAV (net of any load charge). Increasingly, AMCs are issuing mostly open-ended funds.2) Close-Ended FundsRedemption can take place only after the period of the scheme is over. However, close-ended funds are listed on the stock exchanges and investors can buy/ sell units in the secondary market (there is no load).

Expense Ratio

AMCs charge an annual fee, or expense ratio that covers administrative expenses, salaries, advertising expenses, brokerage fee, and other likewise charges. A 1.0% expense ratio means the AMC charges Rs1. for every Rs100 in assets under management.A fund's expense ratio is typically to the size of the funds under management and not to the returns earned. Normally, the costs of running a fund grow slower than the growth in the fund size - so, the more assets in the fund, the lower should be its expense ratio.

Load

Some AMCs have sales charges, or loads, on their funds (entry load / exit load or both) to compensate for distribution costs. Funds that can be purchased without a sales charge are called no-load funds.


Important documents

Two essential documents that focus the fund's strategy and performance are

1) Prospectus (legal document) and
2) Shareholder reports (normally quarterly).