Short Selling is something that keeps market regulated and on track . It is useful in certain cases say :when markets are moving more than what was expected and when a certain share is trading higher than wat is expected .SO in these cases and many more short selling is done . It a highly risky trade.
SO what exactly short selling is ?
Short selling is nothing but when a person sells the stock before buying it .Strange : yes..but here how it goes..SAY Mr X thinks that th current market price of a script eg : infosys is highand he thiks that it can fell from cmp of 2000 to 1800 rs .so he sells the infosys @ 2000 and if surely infosys fells to 1800 he can buy (also called recover)in market @ 1800 rs ..so by doing above actually he had made a buy at 1800 and sold at 2000 so a profit of 200 rs per share.
but in the worst case if Mr x sold infosys at 2000 and the share price rises further to 2100 after selling and he thinks its not coming down and it does'nt so he will buy at 2100 rs now .. which is same as buying at 2100 and selling at 2000so a loss of 100 rs per share.
Wednesday, October 31, 2007
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The basics of trading: Buying Low and Selling High
Almost all of us hear this term, buy low and sell high. Most of the analyst also say that if you buy low and sell high then you will make good money.
Now the question is what is low and what is high?
This is very difficult question as well as a very easy one. I will try to explain that below with examples. This strategy can be used for intraday, short term as well as long term trading. Why? How can one strategy be used for all the trading types? Well, trading is no rocket science and you don’t need to know a hell lot of things to learn trading. It is all about doing the basics right.
Now lets take some example.
IDBI
Now the question is what is low and what is high?
This is very difficult question as well as a very easy one. I will try to explain that below with examples. This strategy can be used for intraday, short term as well as long term trading. Why? How can one strategy be used for all the trading types? Well, trading is no rocket science and you don’t need to know a hell lot of things to learn trading. It is all about doing the basics right.
Now lets take some example.
IDBI
What I have picked up above is not an ideal case. This is a general case which you can find in almost all the scrips.
Both the charts are of IDBI. The intraday chart is for 28th August, 2007.
The market was volatile on this day and was oscillating between red and green for the entire day.
Now lets read the charts. I will start with the intraday chart.
As the day was volatile so you can also see that the entire day trade was volatile. But can you see a buying opportunity and selling opportunity in this chart?
I can see one opportunity to short sell first and buy at a later stage.
Where? At the top?
The answer is no. You can never catch a high or a low. If some one tells you can do that, then I would say he is bluffing. If some one did catch the high or a low, then it is just a coincidence and nothing else.
So where is the short sell opportunity in this chart?
The opportunity is around 12 o’ clock.
If you see the chart, the charts were making a lower high and a lower low for every spike. This means that the trend is bearish and the scrip is going to fall to lower levels. So this is an entry point for intraday trade. Short sell at this point.
Now the next question comes, where to exit this trade?
If you around 1:30 pm, you can see that the bearish trend has changed and the chart shows that the scrip is making higher high and higher lows. This is a signal of change in mood of the traders and you can exit at this point. i.e. cover you shorts.
Now, you must have noted that I have not taken an opportunity to short sell at the highest point nor have I covered at the lowest point. Why?
The answer is simple. How do you know which is a high and which is a low?
So rather than trying to catch a high or low, always try to catch a trend.
What I have shown you above is a very small move and you might catch a 1% move in this chart. On a better day, you will get a much better move.
So what you should do now? Choose your scrip. Watch the intraday chart for the scrip and try to identify entry and exit points. And then compare your calls at the end of the day. You need not trade. But be honest with your calls and let me know what calls you had identified. If the calls failed, I will try to tell you why it failed.
While identifying your calls, keep two things in mind. Try to go with the general trend in the market. If the market is bearish, look out for short sell opportunity. If the market is bullish, look out for buying opportunity.
Can you identify any buying and selling opportunity in the 1st chart given?
Both the charts are of IDBI. The intraday chart is for 28th August, 2007.
The market was volatile on this day and was oscillating between red and green for the entire day.
Now lets read the charts. I will start with the intraday chart.
As the day was volatile so you can also see that the entire day trade was volatile. But can you see a buying opportunity and selling opportunity in this chart?
I can see one opportunity to short sell first and buy at a later stage.
Where? At the top?
The answer is no. You can never catch a high or a low. If some one tells you can do that, then I would say he is bluffing. If some one did catch the high or a low, then it is just a coincidence and nothing else.
So where is the short sell opportunity in this chart?
The opportunity is around 12 o’ clock.
If you see the chart, the charts were making a lower high and a lower low for every spike. This means that the trend is bearish and the scrip is going to fall to lower levels. So this is an entry point for intraday trade. Short sell at this point.
Now the next question comes, where to exit this trade?
If you around 1:30 pm, you can see that the bearish trend has changed and the chart shows that the scrip is making higher high and higher lows. This is a signal of change in mood of the traders and you can exit at this point. i.e. cover you shorts.
Now, you must have noted that I have not taken an opportunity to short sell at the highest point nor have I covered at the lowest point. Why?
The answer is simple. How do you know which is a high and which is a low?
So rather than trying to catch a high or low, always try to catch a trend.
What I have shown you above is a very small move and you might catch a 1% move in this chart. On a better day, you will get a much better move.
So what you should do now? Choose your scrip. Watch the intraday chart for the scrip and try to identify entry and exit points. And then compare your calls at the end of the day. You need not trade. But be honest with your calls and let me know what calls you had identified. If the calls failed, I will try to tell you why it failed.
While identifying your calls, keep two things in mind. Try to go with the general trend in the market. If the market is bearish, look out for short sell opportunity. If the market is bullish, look out for buying opportunity.
Can you identify any buying and selling opportunity in the 1st chart given?
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