Future trading is something considered to be of highest risk .Needless to say highest return too..
so first of all wat is future? In future trading we buy and sell similar way as of trading but here the style and game is different.
Futures trading consist of lots of a company . These lots depends upon various aspects , markets capitalization , current market price of share. Lots may be of 1000,2000, 7000, 14000..as hogh and as low as 500,200.150 , 100 in case of infy.
SO when u buy a Futrs lot u seems to be have bought that much shares virtually , usually people do that on the margin they have got with their brokerage house.
It not some thing u have to pay for these many quantity .U just buy them with a fixed amount of security required as per the norms with ur brokerage house that may be 1 lac, 2 lac, 5 lac . Depends upon the capital required and value of futrs.
For eg : if one buys a Fut lot of Infosys @ 2000 he has done a buy of 2000X100 (100 as lot size) so = 200000 comes out to be 2 lac .
so for that the brokerage may ask for 1 lac for security.
Similarly prices of futrs lot varies as the prices varies in cash buy ..Why Risky ?Simple if the price falls , and u are holding a future lot of 5000 shares , every rupee fall will make ur wealth less by 5000 so a 10 rs fall in market means 50,000 loss.
But similarly a 10 Rs gain means 50,000 rs profit . and that happens within minutes .
Futrs u can buy any time in the month but u need to sell it on or nefore last thursday as it is termed as F&O Expiry day . If u dont sell Exchange will sell it on ur behalf at the closing on curent market price.
There is also a term called market rollover . Which is nothing but when u continue holding ur future lot of shares to next month and that is done by selling the current month Future and buying the next month future.so in the end u are having same company share for next month also .
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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