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June 30, 2013

NIFTY: July View

NIFTY was bearish in June with the MIDCAPS leading the sell off. Every other day, we had some or the other midcaps falling 15%-20% and some of these were in the derivatives segment! Apollo Tyres, Titan, JSPL, FRL to name a few. Last Week we had told the importance of the 5500-5550 level and had forecasted a good bounce from these levels. The monthly rising trend has a good support at this base.

Last week's NIFTY monthly chart

And indeed, NIFTY got a good bounce from 5570 levels and within a span of 2 trading sessions gave a bounce of 250 points! So what do we expect in July? Well, July will be a busy month as Q1 results start pouring out which will considerably drive the markets. We won't speculate the results (Yet). Let's have a look at INDIAVIX.

INDIAVIX
Fear Factor: INDIAVIX

VIX is also known as the volatility indicator. It is an indicator of fear in the markets. When it spikes, it shows negative momentum and fear in the markets. When in falls, it shows rising confidence. This is a daily chart of the INDIAVIX. On 24th, 25th and 26th June, the VIX gave spikes and nroke resistances at 20.5-21 levels. That made our view of downside being open. But then on the last 2 trading sessions of June, the VIX reversed and fell! That means the breakout was false. The VIX fell and found support at it's rising trendline support of 17.62. Now the VIX gives a pattern of higher lows and higher highs. This means that some negative momentum still exists. If however, 17.62 breaks then that means the markets will get stronger. The VIX will find supports at 15.9/14/13. If these levels come, we can see 6300 on NIFTY. But if VIX takes a bounce now, it will find resistance at 20. Also touching 20 will form a H&S pattern in making. If however, 20 breaks we can see 22-25 levels soon. That will be bearish for the markets.

NIFTY
NIFTY LINE CHART
Sometimes, lines are more clear than candlesticks. This chart shows a beautiful range being formed with upside ay 6250-6300 levels and a neat breakout at 5700 levels. The resistances are at 5850/5950/6050. +/-20 points on each levels. Nifty has formed a gap at 5700-5740 levels and all will expect this gap to be filled. But going short just could be a way of capital erosion now. It might take days, weeks, months or years for this gap to be filled. Or maybe the gap won't be filled at all!

NIFTY
Look at the gap, it is a big gap. Close to 1% in price. This makes 5700 a very strong support. Also, look at the MACD crossing the signal. It has NOT YET crossed but could be a possitive sign if it manages to cross. Now for this week, markets will face selling pressure at 5880-59000 level which could take it down to 5750 and 5700 levels. A lot will depend on the results coming, dollar. A key trigger we believe will be the raising of the FDI Cap which could happen earlier next month. Breaking above 5900 could send the markets to 5950-70 levels which become the next resistance.
For individual stock queries: raghav@dalalstreetbulls.com 

June 26, 2013

RBI, DOLLAR, GOLD and BONDS

Earlier, whenever USD used to touch levels of 56-57, we would see intervention from the Reserve Bank of India to control the rise and bring back stability. But now what has happened? Look at the chart to get a clear picture:

USD/INR Chart


This is the chart of the USD/INR pair and the shocking rise of 10% from the first week of May till the end of June has sent jitters in the Indian economy. Imports are getting costlier and most importantly the fuel we import is getting dearer which makes the situation inflationary. But what might be the reason that RBI is not interfering in the markets now to control the dollar beast?
We will explain how RBI, DOLLAR, GOLD & BONDS are all related in the moves.

Keep a few points in mind:
1. RBI has $290 Billion in foreign currency reserves which can pay our import bills for next 7 months.
2. RBI has nearly 550 tonnes of gold in it's reserves.
3. During the crash of 2008, to revive the USA economy, FED had lowered interest rates from near 5% to almost 0.5% which has still not been raised.

PC assures the Nation
Our view on why RBI has not yet started intervening:
 1. The dollar index has been getting strong and all emerging market currencies have seen a rise in dollar. This shows that the strength in dollar is indeed very massive. Selling dollar might just provide a temporary relief in such a scenario.
 2. The volatility is too much to effectively curb the rising dollar.
 3. The forex reserves are just sufficient enough to cover 7 months of import bills. Selling dollar now will reduce this reserve. A big amount of reserves will go into curbing dollar at this stage. Losing so much of reserves when we already have a dangerously widening Current Account Deficit will hurt our economy very badly.
 4. Our gold reserves are too valuable to the RBI. The fact that they have hiked import duties on Gold shows they do not want a slump in gold prices! A rising dollar is very well contributing to supporting the bullion prices in India. RBI surely is looking forward to the gold market becoming less volatile.
 5. If RBI let's the prices of gold in India to fall, there will be a mad frenzy to buy gold in India despite higher duties, which again will mean that we have to import more of gold and that will burden our CAD.

SO DOES THE RBI HAVE ANY PLANS OF CURBING THE DOLLAR RISE?
RBI will surely look forward to a more fundamental way of curbing this rise. It will look to attract more $'s into India. It will not only help reduce the dollar price but will also increase our Foreign Exchange reserves and narrow the Current Account Deficit. For this, it waits for the Government of India to raise the cap on FDI ceiling in various sectors and also encourage FDI in different sectors. In short, our economy has to be opened up and new reforms are needed now.

 

As the interest rates in India started getting lower over the past few months, the prices of Government bonds started rising. And finding an arbitrage opportunity, Indian entities and investment houses borrowed dollar at cheap rates from USA, converted it to INR and invested in the G-Bonds. This happened over a period of time and when FED told that sooner or later it will start increasing the interest rates, USA G-Bonds got attractive and investors sold Indian G-Bonds to invest in USA G-Bonds. With such a huge outflow of money at once, the Indian bonds recently have hit lower circuits quite a few times and this has also sent Dollar rising. (They sell the bond in rupees, convert it to $ and run away which makes demand for $ go up).

June 24, 2013

Tata Motors and Tech Mahindra Positional Trades

Tata Motors
This stock has entered a bearish phase now with the Macd, Moving averages and Stochastic indicating weakness. The 14dma breaking the 50dma shows weakness for a few more sessions. The stock has support at 280 levels. For safe traders we advice to go short below 280, for others take the trade now. Stoploss will be at 294-295. As the risk size is big for futures below 280, we advice buying 280PE at 10, 270PE at 6-7 for July series. TGT will be double. SL 295 on closing basis.

Tata Motors

Tech Mahindra
Tech Mahindra

After consolidation, Tech Mahindra is seeing a good buying in a falling market. With the 14dma moving over the 50dma, we see bullishness in the stock till 1100 levels. But as it happens in many cases, stocks fall after merger news and buy backs. It will be safe to hedge longs with 960PE. Support for TechMah is seen at 960. We expect 1075-1100 by July end.

For detailed view see our analysis on youtube:

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June 23, 2013

Ambuja Cement: Ready to Blast?

Ambuja Cement is one stock we have been monitoring closely and it seems to have been squeezed in a narrowing range. The break out doesn't seem far away. Have a look at the chart.

Ambuja Cement

A general look at the chart shows the narrowing range. Now, if the stock breaks 188-190 range and closes above it, the upmove can come till 220 and then eventually 245-250. Notice how the stock has shown good strength in the current NIFTY downtrend. Also, the close should come with a rise in volumes. As of now, this stock could fall once again till 175-172. We don't have any trade in it as of now. If the stock breaks below the 170 range then we could see 130 levels. Investors can take position if the close above 190 comes with high volumes (1.5x) of daily average. 

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DSB Market View: 24June and Ahead

NIFTY:
From 5470 to 6220 in 2 months was a great rally with a lot of FII funds flowing in, but DII action was missing. Now, there seems a hope from DIIs. Supports are coming and breaking and the market once again is drifting lower after reaching the 6200-6300 zone. This has been the case for the last 5+ years. We are bullish and believe that a new high will be made in the coming months. NIFTY 7000 in 2013 itself? No comments.

Coming to the current scenario, first have a good look at the monthly chart of Nifty for last 6 years period.

NIFTY Monthly Chart. Charted on www.chartink.com by DalalStreetBulls

As the chart shows, Nifty has been taking support at the rising trendline on the monthly charts with the next support on the line lying at 5520. So, this gives a very strong support at 5500. Also, 5500 is a crucial level which many analysts see as a pivot level for the bullish and bearish market. ( Bullish above 5500, Bearish below 5500 ). Also, as the rising trendline makes a bullish channel which has the current upper range at 6300. If we take a support at 5500 levels, a good upmove can be seen till 6300 once again. Now, this makes a squeeze. The market range is getting narrower. Look at the volumes too, they are not showing a pattern but make our belief stronger that soon a big fund inflow will happen and rally Nifty to new highs.

What could be the trigger?
The government is looking to increase the FDI cap in many areas which will boost the inflow of funds. This event could happen in July end or August. This will be a green signal for the foreign funds. Also, this move will be crucial for the government because they see it as a measure to stop the dollar rising. Also, next month kicks in the Q1 results. Watch out for surprises.

NIFTY Short Term View

For the coming few days, the short term moving averages make a bearish view by crossing the medium and long term MA from above. Support levels for NIFTY are 5660, 5600, 5550 and 5500. On the upside, the index faces resistance at 5750, 5780 and 5850. For those who trade NIFTY for intraday, we advice having a 20 point stop loss.
Trades can be initiated as below (Spot Levels):
 BUY above 5660, SL: 5645-5660 (20 points of your buying price), TGT: 5720/5750.
SELL near 5750, SL: 5750-5770, TGT: 5700/5670.
BUY above 5750, SL: 5730, TGT: 5780/5800/5850.
SELL near 5850, SL: 5870, TGT: 5780/5760.
SELL below 5660, SL: 5680, TGT: 5620/5600.
SELL below 5600, SL: 5620, TGT: 5550
BUY near 5500, SL: 5480, TGT: 5600/5620+
Follow our levels as advised. Keep in check your risk and the supports and resistances.

BANK NIFTY:
We see the range for Bank Nifty being 10880-11730. If an upmove is seen, BNF could fill the gap by kissing the 11730 mark. For short term, any slide till 11200 should be seen as a buying opportunity with SL at 11150. If 11400 is broken, put a 50 point SL and 11600 could be seen.
Supports: 11200, 11050, 10880.
Resistances: 11400, 11700.
As per our view, BNF should not break 10880 in the current scenario and a close above 11340 will keep the strength intact.

Bank Nifty

Bank Nifty Monthly Chart


S&P-500:


S&P-500

Even a casual look at the chart shows that the bullish channel has broken. Downside on the S&P-500 is now open. Selling pressure might be seen and the correction could last upto 1480 levels. On the upside, we see the resistance at 1630 level. And don't see it breaking soon.


DOLLAR:
Dollar is at 60 and we won't post a chart here as we don't see any really low risk trade. We believe dollar will eventually come down to 56/55/52. But won't go into timing it yet. 58.5 is the low range for the current rally. People are saying 65 will come. It might come. Any trades taken will be intraday/BTST and will be updated on our facebook page. We look for swing opportunities. We hedge our forex trades. If bullish, we BUY Euro, Sell $ and if bearish we SELL Euro and buy $.

June 20, 2013

Why is Dollar rising?

The recent spike in $ is astronomical! The strength of the $ has shaken up all the emerging economies, commodities and other financial markets. For our economy, this means really big trouble.


DOLLAR RISING

June 17, 2013

18th June: Watchlist

1. McDOWELL-N
We got an amazing 100 point upmove on this stock on 17th June giving us 12,000 per LOT gain. Now, as the chart shows that this stock is closing in on the falling trendline resistance and the momentum indicator compliments that. The stock is above the 200DMA and the stochastic is crossing over the line below the 50% mark. For swing traders, this a BUY signal. Keep an eye if it breaks the 2475 levels, as it can then move to 2520/2540 levels. Again, breaking above this level will be a bit tough. But if it breaks then we will be seeing 2610 levels. Now as the stock has created a lower low at 2295, closing below 2475 levels will be a bearish signal as it indicates a lower low and lower top.

BUY above: 2475, SL: 2445, TGT: 2520/2540/2610+

MCDOWELL-N


2. IDEA
Another stock where we are bullish is IDEA. Look at the break out the chart is showing. Also, after many days the MACD is crossing the line. The stock has seen good buying. We have are positions as advised in our previous article. For short term traders, the stop loss should be at 135, for positional traders 135 must be used for "buy-on-dips" strategy and 125 must be the SL. Click here to see the levels and the chart as well.

3. CENTURY TEXTILES
Click here to see the levels and the chart. A big bullish stock for positional traders with SL 278.

4. UNITECH
A nice reversal candlestick formed. BULLISH.
BUY @ 21.8-22.2, SL: 20.8, TGT:  23/23.25/24
For derivatives, BUY options with the same levels.

UNITECH

Understanding ETF's - Part 2

In our previous article we had seen the basics of the concept of ETFs. Let's throw some more light on this topic. If you are reading this article directly, I suggest you read our part 1 completely.

As an investment tool, ETFs give you the power to exploit the growth prospects of a particular country, sector ( IT, Pharma, Banking, etc ) or an index. In India, we do not have ETFs totally developed for all sectors or other developing countries, we do have some for USA, HongKong, etc. Even when it comes to sectors, we do not have ETFs for all the sectors excepting banks. The best ETFs to invest in here are for NIFTY and GOLD. These have good trading volumes, the expense ratio is approximately 1% and thus provide good investment opportunities.


India Shining?

June 16, 2013

Introduction to Derivatives - Part 1

WHAT ARE DERIVATIVES? - INTRODUCTION, FUTURE CONTRACTS and OPTION CONTRACTS

Ever got confused looking at the terms S&P-500 JUNE FUTURES, NIFTY12MAY 5100 CE, etc? Ever wondered what are forward contracts, call options, put options? Well, these are nothing but derivative instruments traded in the financial markets. It is a form of deferred credit. These exist for stocks, indices, commodities, currencies, interest rates, weather ( yes, it is WEATHER ), freight to name a few. The world's oldest derivative is said to be rice futures traded at Dojima Rice Exchange in Japan. 

June 15, 2013

Hot Stocks: Week 17th June and ahead

1. IDEA
This has been one of the favourite stocks for traders to move in and out with a few predictable moves. The stock is close to a strong resistance zone at 138.6. It could correct down to 133/132.5 levels.Short it at around 137 levels and if 138.6 breaks, exit positions. Buy above 139 with SL at 137 for good upmoves.
SELL @ 137+ levels, SL: 138.6, TGT: 133/132.5
BUY above 139, SL: 137, TGT: 141.5/145+

IDEA


2. HDFC
The momentum is turning positive and if the 840 resistance breaks, HDFC could give quick moves to 850/860+ levels. With the RBI policy due on monday, any positive news can be the trend reversal for HDFC.
BUY above 840, SL: 830, TGT: 850/860+
SELL below 828,SL: 835, TGT: 816/805

HDFC


3. JP ASSOCIATES
Another stock that could see some short covering is the heavily beaten down JP Associates. Every time this stock gives an upmove, people think that finally the time has come for this stock to give a rally till 100 levels and beyond and all of a sudden it just crashes. A mild resistance is at the 63.55 levels. A break out above these levels can see it test 65.25/67.5 levels.
BUY above 63.55, SL: 62 (Cash) or 62.75 (F&O)

JAIPRAKASH ASSOCIATES


4. MAHINDRA FORGINGS
This stock is at a 52 week high and the price action on friday shows it is ready for another round of upmove. The 20DMA has broken above the 200DMA and it means further bullishness for the stock. Also, big volumes indicate that long positions have been made in this counter. Positional traders and long term investors can add on dips till 58 and hold with an SL of 54 for 80/90+ levels. Short term traders hold with an SL of 62 for 70/75+

MAHINDRA FORGINGS



5. CENTURY TEXTILES
The falling trendline resistance breaks above 285, and support is at 270. This could be a good break out play for derivative traders.
BUY above 285, SL: 282.5, TGT: 288/292

CENTURY TEXTILES


6. LUPIN
LUPIN is still in an uptrend. A break above 785 can push it to test the previous high of 809. Above that the stock could move upto 850/875 levels. Support is at 773 & 748 levels.
BUY above 786, SL: 773, TGT: 810/850/875

LUPIN


7. MARKSANS PHARMA
This stock has nearly doubled and has seen huge volumes in past few days. Use dips to buy it positionally. Beware, it is a risky trade. BUY with SL 5 and TGT 8-9.

MARKSANS


8. SYNDICATE BANK
It's a squeeze trade, this stock is just getting squeezed between it's 100DMA and 200DMA. A break out on either sides can give us good trading moves. Above 124, the stock can test 125.5 levels and below 121, our target is 115.5 for a positional trade.
BUY above 124, SL 123.5, TGT: 125.5
SELL below 121, SL: 123, TGT: 119.5/117/115.5

SYNDICATE BANK

9. SUN TV
Sun TV has turned very bearish with huge volumes just hammering down the stock, our price target for this stock is eventually 300 and below. As risk is big, dealing in futures can be very risky. So this makes up a good options trade.
BUY 340PE at 16-18
SL: 375 on spot
TGT: 40.

SUN TV

10. MAHINDRA FINANCE
With positive news flows and heavy volumes, this stock will fly above 258. 258 is the falling trendline resistance. Support will be seen at the 20DMA. We expect 300 in this stock in the next 1 month.
BUY above 258, SL: 245, TGT: 270/285/310+

MAHINDRA FINANCE

June 14, 2013

SILVER: Going Ahead

In just the last 5 years, silver has seen a rise from $8 to $50 and then a decline to current levels of $22. Analysts are having views of either doubling from here or just falling down another 50%. One thing, volatility will exist and traders can exploit it to profit from it. Volatility is the time traders have the opportunity to make profitable trades.

  1. The last time silver made a higher high on the monthly charts was OCTOBER 2012.
  2. The last time silver gave a close above the 21DMA was 21st March 2013.
  3. Silver is in a "stepping-down" ladder pattern. It falls heavily, consolidates and falls again.
  4. Silver is at major supports which if broken could send it tumbling down further.
Let's look at some charts on the monthly, weekly and daily basis to get a clearer view.

SILVER-Monthly

Silver has support at $21.3, if it closes below those levels, it could see $19.3, $18.5, $17 levels. On the upside, the monthly resistance for silver is at $26. This gives the broader outlook for silver.


SILVER-Weekly
The weekly chart indicates that silver is at a monthly support but as this support is from a trendline from the recent lows, it doesn't indicate much strength. It could possibly give an upmove till $22.4. If $22.4 breaks then the next upside target comes to $25.


SILVER-Daily
On the daily chart silver is close to it's moving average resistance of 22.3 which co-incides with the falling trendline of the past 1 month. Breaking this range will set the move for silver to touch $24-$25 mark.

Overall, Silver is in a negative territory with no sign of a bottom yet. A mild support exists at $21.3 which could give it an upmove to $22.3.  If $22.4 breaks then $24-$25 will be seen and above that $27. But more than that chances exist of silver breaking $21.3 and tumbling down to $19.3, $18.5 and $17 over a period of time. At the time of this article, silver is at $21.95. Bearish days for silver ahead unless the crucial resistances break. Keep an eye on the levels. Happy Weekend.

June 10, 2013

11 June and Ahead: Watchlist

1. WIPRO
IT Stocks are the flavour of the season especially with the strengthening dollar. Wipro has given a bullish break out and we suggest to BUY and add on dips till 335 with SL at 332 and TGT: 360/382/400.

WIPRO


2. TECH MAHINDRA
Another IT company. Tech Mahindra has seen accumulation till 990 levels and the stock has corrected till 910 with very low volumes comparatively. BUY with SL at 910, TGT: 978/1020++

TECH MAHINDRA

3. TCS
We have been bullish on TCS for the past few weeks now and have told to use every dip to BUY. TCS is still a BUY and above 1550, it will explode further. Buy on dips till 1475 with SL 1450 on closing basis. TGT: 1550/1600+

TCS

4. TATA MOTORS
Very strong on charts, buy on dips till 285 with SL at 285 on closing basis.TGT: 310/320++

TATA MOTORS

5. TATA STEEL
SELL with SL at 298, TGT: 280/270/260 and below. LOT SIZE: 1000. Safer is to BUY puts of 280 and 270.
BUY 280PE at 4-5 range, SL: 1.75, TGT: 10/20+

TATA STEEL

6. TATA COFFEE
A traders favourite, we are ready for a positional with 5% SL after many days in this. BUY with SL 1375, add on dips with closing SL at 1375, TGT: 1500/1550/1600.

TATA COFFEE


June 09, 2013

Week 7th June and ahead

For NIFTY, 5850 is a pivotal point of the previous rally. Market will be said to be in a weak zone only if it closes below 5780 level. One the upside, 5980-6020 is a resistance level. Support levels are 5850-5870 level, Resistances are 5970-6020 level. If range breaks, 5760-5780 is next support and 6120 the next resistance. Any trade in NIFTY should be taken with SL of 20 points for intraday or 40 points for positional. Keep booking profits in jump of 40-60 points.

NIFTY is consolidation after a BIG RUN

Bank Nifty is the trade we are taking this week. With a support of 12,155 we expect 12350/12450 levels in the index. Below 12150, the next levels are 12030, 11970.

BANK NIFTY

The IT Index is showing an uptrend and is in a range of 6370 and 6560. We expect further upward movement in IT stocks and maintain a BUY in TCS on every dips as well as call options for june months for 1500, 1550 and 1600 strike prices.

IT INDEX

June 05, 2013

Understanding ETF's - Part 1

ETF, also known as Exchange Traded Fund has been generating a lot of curiosity in the investor community in the past few years. Indian investors are yet to discover the power of this investment vehicle and are still confused with the myths, "hidden charges" and other things surrounding it. In this article, we will try to put forward the concept of the Exchange Traded Funds.

1. What is an ETF?
An ETF is a unit which tracks a particular index, fund or a commodity. It is similar to an underlying of a that index, fund or commodity. It also is similar to an equity share in the sense, it can be bought, sold, held in your demat for years just like an any other stock. The price of an ETF is again determined by the demand and supply but usually trades at around a particular % of an index or commodity if it tracks it.

Eg: NIFTYBEES is an ETF which tracks NIFTY and is usually 1/10th of the the NIFTY INDEX.
Suppose NIFTY is at 5700, NIFTYBEES will trade approximately around 570 (The difference might be due to demand and supply). Now NIFTY moves up to 6000. NIFTYBEES will now trade at approximately 600.

ETF: Wealth Creation?


2. How do I buy an ETF?
An ETF can be bought and sold just like a normal equity share during the market hours and the units are settled on T+2 basis. The cost for buying the ETF is the normal brokerage which you pay for your cash segment transactions.

3. Can I trade an ETF for intraday?
Yes, as an ETF is just like an equity share, you can trade it at intraday brokerage charges as well.

4. What are the costs associated with an ETF?
Apart from the normal brokerage costs, ETF's generally have an expense ratio which is charged for their administrative expenses. This costs usually ranges from 0.5%-1.25% per annum. This rate in India is pretty high compared to what it is in other developed countries. It is ideally 0.2%-0.3% there and is expected to come down in India as well over the coming years.

5. What are the tax implications?
Once again, it is the same as equity shares. The Short-term capital gains tax and the Long-term capital gains tax is the same for ETF and equity shares.

End of part 1. Click here to read Part 2.

Read other helpful articles:

1. How to open a demat account?
2. How to place a Stop Loss?

June 04, 2013

Opening a Demat Account

Are you new to the world of stocks?
Fascinated by the ever changing numbers and how people make a living out of it?
Want to get a first-hand experience trading and investing in stocks?

The first and foremost step to trading in real is getting a Demat Account.

Deciding a STOP LOSS

The first thing a trader ensures before taking a trade is deciding the stoploss. For some it is the 20DMA, 100DMA, Support level, rising trendline, resitance level, pivot point or some other of the many technical indicators. Few traders go for a % stop loss, that is, exiting the trade if the price moves a fixed % against you. For some it is 1% or 2% or as big as 10-12% in positional trades. But which is the best way of putting a stop loss?


Losing is frustrating


What is a stop loss?
Assume, you have purchased 100 shares of Sterlite Industries at 102 per share which brings your cost to 10,200 (excluding brokerage). Now the price will wither move above or below your price. It could go up to 150, giving you 5000 as profit or it could go down to 60 leaving your capital invested to around 50% of what it was. So, while making a trade you have to decide your risk in the trade. Assume you can risk 500 total loss on this particular trade, so as you are carrying 100 shares, you can take a risk of 5 per share, so you place you decide that once the share goes below 97 (102-5), you will close this trade.
Another way is, suppose the 20DMA is at 98.3 and so you decide, once the share moves below the 20DMA, as it is showing signs of weakness, you will close this trade.

So, stoploss is that price level where you square off your position in any investment or trade where the price moves against you and results in a loss for you. It is used as a tool to stop losses from becoming big and eating up a substantial part of your portfolio.

Various types of stop loss and how can you use them:

1. Loss per trade capacity:
In this method, you decide your loss taking capacity per trade and accordingly decide the price where you will book your loss and square off.

2. Technical Indicators:
In this method, you look at charts and decide the level where you will book your losses based on technical indicators such as moving averages, momentum oscillators, supports and resistances.

3. News Events:
This is usually when you speculate a forthcoming event which could decide the future course of action for a stock or asset and once the news come out, you exit if the news you feel is negative for your profits.


Traders have always agreed that many times, the trade hits their stop loss, they square off and later it goes on to hit the target. This is really very frustrating! You are drained out, you curse your luck and next time, you won't book your loss the moment your stop loss is hit. And then your loss widens, and all you do is again curse your luck! Agree? I do. It happened to me in my early years. But that was the best lesson learnt back then.

How to squareoff once a stop loss as been hit:

I personally always give my trade some space to move below my SL. Keep in mind, "SOME SPACE".
While looking at charts for really volatile stocks, I have noticed many of them, break technical supports during trading hours and some how manage to close above the supports. In suck stocks, I place my SL based on closing price.

Let's look at an example of Ajanta Pharma:

Ajanta Pharma

Ajanta Pharma is one stock I have actively traded over the last one year in and out. It is a traders favourite stock! Ask me where will it be 1 year from now, I will be as blank as the person who never heard of stocks!

Look at the number of instances where the stock has broken 20DMA and closed above it, look at the times it has closed BELOW the 20DMA and gone on to rally! How did I trade these?

In my recent trade (still open as on 4th June, 2013) I have placed a SL at 900 though the 20DMA is at 912! 900 is a short term support which I believe should be held intraday! But if around closing, the stock is below 20DMA, that is between 900 & 910, I will book my loss. So what if the stock continues rising like before?

Simple, I will buy it once it is above the 20DMA again. A fresh entry.


What is a TRAILING STOPLOSS?
Assume you purchased 10 shares of Ajanta Pharma at 940, stoploss at 910 closing basis, and the stock moves upto 990. What will you do? Book profit here or still hold for a further rise?

In my case, I will book 30% at the current level, and hold the rest with a trailing stoploss ABOVE my cost to keep my profits protected. If the stock falls, I will book another 30% at say maybe 965 and the rest at 940. If the stock was giving decent profits, I WILL not book a loss. Maybe I'll re-enter again but for this trade, something is better than nothing.

The best way?
Their is no such BEST WAY. Every trader has his own comfort level. Practice and design a system which suits you well. The important part is: FOLLOW THE RULES STRICTLY. 
Never get emotional and keep holding your losses. Be quick to book a loss and let profits keep running.

To debate, suggest and present your views or any other queries, drop in an email on my id:
raghav@dalalstreetbulls.com

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