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Old 17-03-2010, 08:38 AM
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Default Beginners Guide

Hi friends,

just came into need of starting this thread as most people out there know nothing about trading. i am starting this thread for the beginners, so they can start the trading from the scratch.

Today i felt like there should be thread where we need to tell the users about starting trading from opening account, calculating brokerage To technical Analysis to advanced trading method step by step.

I request all the senior members to help me with my thread and suggest me time to time, as some of my basics might be unclear and they can correct me whereever necessary.

BUT FIRST OF ALL: - Is this thread relevant to opening here on inditraders. Means is there any one needing the beginners stuff. If not then i will request the mode to close the thread.
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Old 17-03-2010, 09:25 AM
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Originally Posted by rajputz View Post
Hi friends,

just came into need of starting this thread as most people out there know nothing about trading. i am starting this thread for the beginners, so they can start the trading from the scratch.



looking forward for your posts, great initiative, hope to see a real trader in you.
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Old 17-03-2010, 01:24 PM
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Basics of stock market

These Basic Include the various terms that are around in stock market.

What is meant by stock exchange?
a stock exchange is a constituted body for the purpose of assisting, regulating or controlling the buisness of buying, selling or dealing in securities. Stock exchange could be a regional stock exchange whose area of operation is specified at time of its recognition or national exchanges, which are permitted to have nationwide trading since inception. In our country NSE was incorporated as National Stock Exchange.

"an exchange where security trading is conducted by professional stockbrokers"


What is an equity Share?
Total equity capital of company is divided into equal parts of small denominations each called a share. For example, in a company the total equity capital of Rs. 2,00,00,000 is divided into 20,00,000 units of Rs. 10 each. Each such unit of 10 Rs. is called a Share. Thus a company tehn is said to have 20,00,000 equity shares of 10 Rs. each. The holders of such shares are members of the company and have the voting rights.

What is Derivative?
Derivative is product whose value is derived from the value of one or more basic variables, called underlying. the underlying asset can be equity, index, forex, commodity or any other asset.

What is an Index?
An Index Shows how a specified portfolio of shares prices are moving in order to give and indication of market trends. It is basket of Securities and the average price movement of the basket of securities indicates the index movement, whether upward or downward.

What is depository?
A depository is like a bank wherein the deposits are securities like equity shares, debentures, bond, government securities etc., in electronic form. A depository holds securities in an account. it transfers securities between accounts on the instruction of the account holder. A depository further Facilitates transfer of ownership of securities without having to handle securities. it also facilitates safe keeping of shares in electronic form.

What is dematerialization?
It is the process by which the physical certificates of an investor are converted to an equivalent number of securities in electronic form and credited to investor's account with his depository participant.

What are the depositories in India?
NSDL - National Securities Depository Limited
CDSL- Central Securities Depository Limited

What is meant by Market Capitalization?
the market value of a quoted company, which is calculated by multiplying its current share price(market price) by the number of shares in issue is called as market capitalization. For example a company A has 120 million shares in issue. the current market price is Rs. 100. the market capitalization of the company A is Rs. 12000 millions.

How does investor get access to internet based trading facility?

Internet based trading facility is the brokerage trading account. Generally refferred as Demat account.

A demat account is like a storage for your shares, just as bank is for your money.

Demat account is mostly needed, whether you trade online or offline.

The trading account is a service from the broker which allows you to buy or sell between market and you.

The demat account is linked to your trading account to faciliate easy clearing of shares.

Demat account is required to take delivery of shares. If you are trading in derivatives, demat is not a necessary.

Formalities or documents needed for Demat: - A person needs to have a ICICI or HDFC(in most cases) bank account, Pan Card, Address proof, Chequebook with MICR Code on it(For producing a Cancelled Check.

Choosing Brokerage: - There are many Brokerage firms like ICICI Direct, Ventura, Geojit, Indiainfoline, 5Paisa, kotaksecurities. We can visit the sites of these and choose the company with least brokerage and best Facilities. Facilities like charting etc. Higher the Turnover of the trading, least is the brokerage the company will charge you.

Then the Brokerage firm links your bank account with the demat account. Linking of the account means that you can pay-in our pay-out money from demat account from terminal itself. The Share you purchase will remain in your Demat account.
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Old 18-03-2010, 08:23 AM
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What is Brokerage and how one should calculate the brokerage

The brokerage that some company charges you is 0.01-0.03 percent in intraday 0.01-0.03 percent in futures, and 0.1-0.3 in delivery. It varies from company to company.

A general table is given below how to calculate it.



So on Intraday we have total Brokerage of 0.08220% on each trade of buy and sell, and 0.05684% in futures buy and sell. It is to be noted that the total is applied to one side only here as the buy and sell are already summed. You can include your brokerage in the above table and get the total brokerage that is charged.

The brokerage structure mentioned in the above table is the hidden charges or we can say the additional charges other then brokerage which are always payable. Most of the broker wont tell you that…so whenever some broker tell you that they are giving you this brokerage then just add the above mentioned.

For example: -
If you a share in intraday (Same day square off) of XYZ company at price say 100. Then total price of the share you should consider is 100 X 0.08220% i.e. = 100.0822 Rs.
This means is that until and unless you sell the above share above 100.0822, you didn’t gained any profit, because until that part you have paid price of the share plus the brokerage. So if you sell the share on 100.50 then total profit you made is not 50 paisa but 100.50-100.0822 = 42 paisa appx.
Now this does matter to some new traders that what impact 10 paisa can make on a trade. But when we trade on high volume and large capital this 10 paisa makes the big difference.
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Old 19-03-2010, 05:25 PM
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What is Day Trading?
Day trading involves taking position either long(Buying at Lower, selling at higher Price) or short(Selling at higher, buying at lower price) in the stock market and closing(square off) that position at the End of the day(EOD). A day trader enter and exit from stocks with in few minutes to few hours on the same day. the aim of a day trader is to take advantage of the price movements with in one day to earn profits. A day trader may trade several times a day in same stock or different stocks, but he will close all his positions before the EOD.


Advantages of day trading?

First, thing about Day trading is that it is the most difficult trading where profit or loss can be unlimited.
Day traders can utilize exposure on their money i.e. the broker provides some exposure to them for extra trading. Consider an example below: -
You have 10,000 in your account and your broker provides you exposure of 1:5(Some brokers even provide 10-12). Then it means that you can trade worth 50,000 of equity/shares.
Secondly, Day traders can take either position long or short i.e they can buy and sell at higher rate or sell at higher and then buy at lower rate. this is bit confusing but means the same. For Example.
You Buy 100 shares of 100 Rs. each and sell at 102 Rs. it is a long trade. It is done in an Up trending market.
You Sell 100 Shares at 102 Rs. each and buy at 100 Rs. it is short trade. It is done in a down trending market.

In this way day trader can take profit in any market direction.


Disadvantage of Day trading?
at the EOD you have to square off your position at whatever loss or profit you have. profit and loss are both in your account. Brokerage Company only provides you the exposure. they have nothing to loose. if in some case you are not able to square off your buying position at the EOD then next morning before 9:30 you have to transfer extra money to your account to carry the trade or the brokerage company will square off the position at whatever rate it is trading. If you are not able to square off your selling position at the EOD, then you are in big trouble. The reason being that, you have sold the shares without physically having them in your demat account. Next day, exchange tries to deliver the Sold shares from your account. since you dont have the Shares, the order goes into bad delivery/short sell. Exchange blocks your Money worth No. of shares sold, and at the fifth working day, 5-8% penalty is charged. So buying and not squaring off is not big problem but selling and then not squarring of is a big problem.

What is Draw Down?
Draw Down is a frightening word in day trading. but everytrader will experience some draw down. It is the percentage of money we lose from our capital after finishing a trade. For example if you start day trading with 1,00,000 capital and if you lose 20,000, your drawdown would be 20%. now lets say you make a gain of 40,000 and your capital increases from 80,000 to 1,20,000. now if you lose 20,000 again your drawdown will be 16.7%.
the most important factor is that, if you start with 1,00,000 and your capital comes to 50,000 then it means that you faced drawdown of 50%. you will need to make 50,000 from lowest point in order to get back to break eve(starting point). this is important point, because you loose 50% from your capital and would need to make 100% on Rs. 50,000.

Measuring Draw Down Recovery
A detailed Table is Given Below showing how much percentage of profit you require to recover a given percentage of drawdown.

LossOfCapital/Percentage of Profit Required
10% ----- 11.11%
20% ----- 25%
30% ----- 42.86%
40% ----- 66.67%
50% ----- 100%
60% ----- 150%
70% ----- 233%
80% ----- 400%
90% ----- 900%
100% ----- Blowout/Broke
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Old 19-03-2010, 05:25 PM
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Line Chart, Bar Chart and Candle Stick Charts

What Does Line Chart Mean?
A style of chart that is created by connecting a series of data points together with a line. This is the most basic type of chart used in finance and it is generally created by connecting a series of past prices together with a line.



As you can see from the chart above, a line chart can give the reader a fairly good idea of where the price of an asset has traveled over a given time frame. Since the closing prices are often seen as the most important ones to keep track of, it is not difficult to see why line charts have become so popular.


What Does Bar Chart Mean?
A style of chart used by some technical analysts, on which, as illustrated below, the top of the vertical line indicates the highest price a security traded at during the day, and the bottom represents the lowest price. The closing price is displayed on the right side of the bar, and the opening price is shown on the left side of the bar.



What Does Candlestick Mean?
A price chart that displays the high, low, open, and close for a security each day over a specified period of time.



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Old 19-03-2010, 11:39 PM
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What is Sensex and Nifty?

The Sensex is an "index". What is an index? An index is basically an indicator. It gives you a general idea about whether most of the stocks have gone up or most of the stocks have gone down.

The Sensex is an indicator of all the major companies of the BSE.

The Nifty is an indicator of all the major companies of the NSE.

If the Sensex goes up, it means that the prices of the stocks of most of the major companies on the BSE have gone up. If the Sensex goes down, this tells you that the stock price of most of the major stocks on the BSE have gone down.

Just like the Sensex represents the top stocks of the BSE, the Nifty represents the top stocks of the NSE.

Just in case you are confused, the BSE, is the Bombay Stock Exchange and the NSE is the National Stock Exchange. The BSE and NSE are both situated in Bombay. These are the major stock exchanges in the country. There are other stock exchanges like the Calcutta Stock Exchange etc. but they are not as popular as the BSE and the NSE.Most of the stock trading in the country is done though the BSE & the NSE.

Besides Sensex and the Nifty there are many other indexes. There is an index that gives you an idea about whether the mid-cap stocks go up and down. This is called the “BSE Mid-cap Index”. There are many other types of indexes.

There is an index for the metal stocks. There is an index for the FMCG stocks. There is an index for the automobile stocks etc.
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Old 19-03-2010, 11:58 PM
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Introduction to Stop Losses

Risk management is one third of the key to successful trading, along with a trading plan and psychology. Many people are taught to use stop losses, but use them incorrectly. A plan for stop losses is crucial to take the emotion out of your stop loss process and preventing stopping out too early. Once you have a plan it is a question of just sticking to the rules. Easier said than done!


in my opinion before entering into the world of trading one should prepare his mind or take an oath, that "whatever position, no matter how sound it is, how well technical analyzed it is, I will always use a PROPER STOPLOSS in all my trades.". The reason being that it protects your capital, like in the illustration of DRAW DOWN. Once you are proved wrong you are taken out of the wrong trade with small loss rather then taking huge losses. So Prepare your mind before trading that you will use stoploss. Believe me when i Say - i myself incurred losses many times just because i didnt used stoploss and thats y i am compelling to use it.

I am Providing the introduction to stoploss that might not be understood for new traders but dont worry u will understand it once we go ahead with the thread....just read it like novel.


how to use these stoploss depends from person to person. i am introducing these stoploss here only for information purpose. they will be in use as we learn advance strategy. Here in our forum there are many advance strategy where we can use these undergiven stoploss method. But Just go through it, so that elementry of stoploss is Learnt.

Monetary Stop: - This is the least effective method and used by most. This involves choosing an amount of money, pips, points or percentage of acccount value to determine a stop loss level. The problem is that stop losses should be based on technical indications not a monetary value. These are the type of stops that get stopped out most frequently and are based on emotions rather than technical analysis.

Bar Stop: - This is a form of trailing stop. E.g. as a stock moves in the intended direction, the stop will trail with it. The strategy involves placing your stop 10 points below the low of the two most recently closed candles. Remember the candles must be closed, do not use open candles. As the next candle closes move your stop loss accordingly. For example if you were long then determine the low of the two most recent candles. If the stock moves up reallocate the stop loss 10 points below the low of the previous two candles. As the stock increases, move the stop accordingly but NEVER lower the stop. If he stock moves down leave the stop where it is. If you were short you place your stop 10 points above the high of the two bar candle.

Candle Stop: - If you are entering a trade on a candlestick signal then you can use the open, high, low, close to determine your entry point and stop. If you are entering a long position after a hammer and confirmation, place your stop loss 5 points below the low of the hammer. Ask yourself at what level is my original analogy wrong. If it comes below the low of the hammer it is probably not a reversal and a good place to stop out.

Support and Resistance Stop: - As Market Makers are aware that people place stop losses just below and above support and resistance, you need to be one step ahead of the game when using this strategy. To prevent Market Maker manipulation adopt the following strategy when placing stop losses at support and resistance levels. Measure the range between the support and resistance. Place your stop loss 10% of the range either beneath support if long, or above resistance if short. If there is too much risk then reject the trade.

Parabolic SAR Method: - Parabolic SAR is not just an indicator; it is a complete trading system. It is an ‘always in’ system, meaning if you follow the method you are always long or short. It works best in trending markets. SAR stands for Stop And Reverse. When putting SAR into charting software, it gives you a stop loss level represented by a dot on the chart. As each andle closes, the stop is moved closer to the price. When the stop is hit, the trader reverses direction. When using SAR, remember the Market Maker diary, you do not want to use SAR unless there is a good trend. It is not very useful during the Market Makers lunch period where there is little volatility.
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Old 20-03-2010, 12:44 AM
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Excellent thread friend,hope the same zeal prevails...
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Old 20-03-2010, 04:53 AM
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an excellent thread !!!.Maintain the zeal
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