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Trade Smart Online is India's one of the leading discount brokerage firm. We offer online Share trading in NSE & BSE Stocks in India.

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Trading lessons from day-to-day games like Poker and Monopoly

The marketplace is inundated with thousands of books and other reading material related to investing and trading.

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Insider Trading: What It Means For You

It is not a coincidence that corporate executives seem to always know when to buy or sell shares at right times.

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Overbought Stocks: How to Identify and Take Advantage

The term “overbought” is used to describe a stock or market that has advanced or reached a point, from where it historically retreated or moved lower.

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Discipline in Trading: Don’t let the Emotions Flow!

There are many skills required to be a successful trader. In addition to possessing the fundamental know-how about the capital markets and various technical aspects used in trading, maintaining discipline is a very important trait that every trader must give birth. We all have discovered accounts of traders losing millions by not maintaining discipline or by becoming excited. Such cases have led to increased focus on this particular skill among the trader’s world.

Meaning of Discipline in trading

The meaning of discipline with respect to trading is rather straight. A trader gets a number of buy and sell side entries in a daytime. A trader has or should have a fixed plan in mind before executing every single trade. This plan includes estimating the entry and the exit price along with a stop loss. Giving way to watch these without any solid reason may prove to be fatal in the long term.

Lets get to the Maths            

For example, suppose a trader plans to buy a stock at the price of 100 with a target of 103 and a stop loss of 98.5. If he gets filled at 100 and market in a while comes down to 98.5, he should exit the trade without a second thought if there is no substantial grounds to support that. If a trader holds it for some time with a blind hope of prices going back to 100 or 103, he is not sticking to the plan and the stock price may fall to 96 because of the reasons a trader is not cognizant of. Hence in such a case, a trader is losing more than what he planned to clear from that trade, which will affect rest of his trading. The price may go back to 100 or 103 but such type to trading will not be helpful in the long term.

Source: SP500, Long Haul Trend Monitor

The Correlation between Greed and Hope

Likewise, greed accompanied by hope may even vanish his account. From the previous example, if the traders call for that period gets right and the market goes to 103, the trader should book his profit. By being greedy and hoping to get 103.5 or 104 will also be a breach of discipline as the market might reverse from 103 and goes back to 100 at the close of the day.Thus even after making a right call, the trader might not gain money precisely by being greedy.

Fear: The Most expressive Emotion

Likewise, fear of losing is an arena where a trader should work upon. A trader might exit a trade just with the fright of missing. And then he might leave a deal before the target price or the stop loss price comes because he is unsure about his craft. Such a concern should be acted upon and a trader should refrain from any trades which he is not certain.

The correlation between Major and Minor

A trader must put his maximum money in the sphere of his expertise and should constantly put a minor sum to learn other markets or strategies. If a trader is experienced in the options market and is lured by the returns from the futures market, he must discover the futures market first with an amount which will not move his primary trading before moving all-in on that marketplace. As well, daily profit and loss targets must be observed and reviewed from time to time. These traits will build consistency among the trader.

Steps to observe

Be consistent about following your trading rules

Planning trades in advance

No greed and no promises

Casinos are better for gambling, not markets

The market is always right, remember

Research – fundamental and technical

Proper risk to reward ratio

Trade your strengths

Discover new strategies from time to time, but with a less amount

Review your performance periodically

Conclusion

A trader might receive a good fundamental and technical knowledge and is ready to move in the world of capital markets. But these soft skills like discipline and emotions also play a critical part in a trader’s success and must never be ignored. It will take years to acquire these skills. Once acquired, it will be helpful throughout your life. Disciplined trading will certainly accomplish your goal of a profitable trading.

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Stock market bubble- Friend or Enemy?

Market bubble is a phenomenon, where the stocks are inflated way beyond their intrinsic value in response to exaggerated high expectation of resale value. The bubble is said to burst, when the stock prices suddenly collapse or go into decline, creating panic among the investors leading to a large amount of selling.

In simpler terms, the bubble is another way of telling investors that despite short-term fluctuations higher or lower, the markets will eventually determine the proper value of a security sooner or later.

For instance, if a stock’s proper value is Rs.10, but it is being increased to Rs.50  because of industry rally or speculations, then you can be rest assured that the stock price will eventually come down to its proper value sooner or later. The same logic applies to the markets as a whole.

How to Identify Stock Market Bubble?

The best way to identify a bubble stock is to look for overpriced assets with no real reason to rally. And following ways can help you to identify such stocks:

Media is all over it: Media seems to be a very essential tool to draw attention. When media has a hold of the story, they beat it to death. They suddenly put all efforts to pull a lot of investors in a single stock, resulting in an overbought condition. So, to avoid being trapped to such flattery investment and hot picks, you just need to shift focus.

Books, magazines and analysts preferences: Some time books, newspaper and analysts seem to be very much bullish on the stock or a particular sector at the same time. Therefore, you just need to be a little cautious as many times a stock is intentionally promoted for personal gains and benefits.

Herd Behaviour: Many times people start following advises and find themselves trapped with overpriced stock. So, the stock that shows a lot of buy interest from past few weeks needs to be evaluated first, and not be followed immediately.

Look At Past Prices: If the chart of past prices has increased upward sharply, there is a good chance that, when it returns to more normal levels it will move sharply as well. Sometimes the stock is said to rise because of some sudden increase in supply and demand or because company is reflecting impressive fundamentals. However, if there is a rise without any reasons, be cautious.

Look for Put buying: For identifying bubble we just need to see if professionals are buying more puts than calls. That’s an indication that the tide may turn. Professional seems to buy puts if they expect the price to fall.

Example of a Bubble

The global recession in the year 2008 affected almost every sector badly. The following example is the chart of S&P BSE Realty, which clearly shows a market bubble in the end 2007, where the overpriced sector appreciated. After that, in the middle of the year 2008, the overpriced market crashed, in which the real state sector paid its price mostly.  S&P BSE Realty from 13650 levels in the year 2007 dropped around 80% to 1150.

How investors can gain from Stock market Bubble?

Attract investors: The stock market bubble, in a way, encourages trading and investing. Many investors, who do not even know the fundamental very well, earn good amount of money by analyzing simple strategies.  They just figure out the stock, which is overvalued and undervalued, from any of their investor friend or internet and create buy & sell position accordingly.

Can gain while rally: A rising share can be tracked easily than any other share. It has been seen that investors create a very short position and earn a good amount of money from the share that is appreciating without any rational fundamental reason. Day traders and swing traders mostly make gains from such share. However, investors must be cautious while deciding the time of exit.

Good position to short: Some savvy and professional investors gain immensely by identifying the stock prone to bubble burst or selling pressure as they know the fundamentals of the stock, and follow the market regularly. Shorting the stock at top is a very good decision, which could get them a high gain.

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Insights into Commodity Trading

Commodities are the actual physical goods like corn, soybeans, gold, and crude oil. They are interchangeable with other goods and can be bought and sold physically as well in future market. They are tradable in the same way as financial futures with only one difference that this commodity can have physical settlement and asset quality is taken into consideration unlike financial futures. Futures are contracts of commodities that are traded at a futures exchange like the Chicago Board of Trade (CBOT), COMEX in USA and MCX and NCDEX in INDIA. They are standardized contracts among buyers and sellers of commodities that specify the amount of a commodity, grade/quality and delivery location. Each futures contract has a standard size that has been set by the futures exchange it trades on. Each contract has fix delivery month. Date of expiry has to do with delivering the actual commodity The contract will expire after the designated date in the delivery month.

Major types of commodities

Agri commodity:  Guarseed, Wheat, Jeera, Sugar, Rice, Soyabean, Potato, Cotton, Chilly, Dhaniya, Cottonseed, Bajra, Castor, Chana Metal: Gold, Silver, Lead, Nickel, Zinc, Copper, Alluminium Energy: Crude oil, Natural gas In USA  orange juice is the most heavily traded commodity. Even commodities like cocoa, coffee, and sugar, lumber are traded. Before one starts investing in any commodity he should analyze following queries

Which country/countries hold the largest reserves of the commodity?

Is that country politically stable or is it vulnerable to turmoil?

How much of the commodity is actually produced on a regular basis? (Ideally, get data for daily, monthly, quarterly, and annual basis.)

Which industries/countries are the largest consumers of the commodity?

What are the primary uses of the commodity?

Are there any alternatives to the commodity? If so, what are they and do they pose a significant risk to the production value of the target commodity?

Are there any seasonal factors that affect the commodity?

What is the correlation between the commodity and comparable commodities in the same category?

What are the historical production and consumption cycles for the commodity?

Research

Research is a critical part of a commodity trader’s regime. After understanding the basics of commodity one can apply fundamental as well as technical analysis to particular commodity to find long term as well as short term trend. Fundamental analysis is a means of analyzing commodities and trying to predict where the prices of commodities should be trading and what they will do in the future. The main basis for fundamental analysis is supply and demand. Commodities trade in cycles. Sometimes supplies will be tight and prices will be high. Other times, we just have too much of a commodity and prices fall.  Price movements in commodities using fundamental analysis can be broken down into these simple formulas:

Demand > Supply = Higher Prices Supply > Demand = Lower Prices

Supply of Commodities

The supply of a commodity is the amount that is carried over from previous year(s) of production and the amount that is being produced during the current year.  Typically, the more that is carried over from the previous season, the lower the prices will fall. There are many factors that can impact the supply of commodities like weather, amount of acres planted, production strikes, crop diseases and technology. The main thing to remember when using fundamental analysis is that high prices for commodities will lead to an increase in production, as it is more profitable to produce commodities when prices are higher. As you might expect, demand will typically drop as prices move higher.

Demand for Commodities

Demand for commodities is the amount that is consumed at a given price level. The rule of thumb is that demand will increase when the price of a commodity moves lower. Oppositely, demand will decrease as the price of a commodity increases. One should look for trends that are developing that will cause a shift supply and demand factors. One should look for trends in production and consumption and trade with that bias. For example, if the supplies of corn are at a five-year high and we just planted a record amount of acres of corn for this season, it is likely that corn future will trade with a downward bias.Now, at some point, the price of corn will get too low and demand will increase. Or, there might be weather problems during the growing season that will lower the production of corn. In these cases  it trades with upward bias. The longer-term trends in commodities are easier to spot with fundamental analysis Most professional commodity traders like to know what the big picture is with commodities using fundamental analysis and then they use technical analysis to time their entries and exits because price is factoring in everything. Fundamental news which are going to come are already factored in the price . So technical analysis of price allow us to enter and exit early before the news. Yellow arrow in the below chart shows that when fundamentally silver was in down trend silver price technically had started giving the bullish signal.

One can also use intermarket relationship when predicting future of commodity. If inflation is high interest rates are high so equity market will decline, currency weakens and price of commodity rises. When interest cycle reverts again commodity will decline and stock rises higher. On 10th July when budget was announced, Nifty started its distribution process and declined sharply. Gold and silver along with crude triggered a sharp rise. This shows how hedge funds and FII do their asset allocation and rearrangement of portfolio.

Silver

Nifty

Players of Commodity market Different participants ensure liquidity and efficient price discovery in the market.

Commercials:  The entities involved in the production, processing or merchandising of a commodity.

Large Speculators:  A group of investors that pool their money together to reduce risk and increase gain. Like mutual funds in the stock market, large speculators have money managers that make investment decisions for the investors as a whole.

Small Speculators:  Individual commodity traders who trade on their own accounts or through a commodity broker. Both small and large speculators are known for their ability to shake up the commodities market.

Arbitragers:  They do the simultaneous purchase and sell in different market or different contract and take the advantage of mispricing of commodities. They help to equalize price and restore market efficiency

Hedgers: They use the future market to reduce the risk of the commodity in which they deal.

Commodity trading offers a more level playing field for traders than the stock market Here traders need not guard against inside cliques. Dividends are not unexpectedly passed or increased overnight in the cotton market or in wheat or corn. In the long run commodity prices are governed but by one law – the economic law of demand and supply. But just like other side of coin there are inherent risks with trading in Commodities. One of the inherent risks of commodities is that the world’s natural resources are located in various continents and the jurisdiction over these commodities lies with sovereign governments, international companies, and many other entities. For example, to access the large deposits of oil located in the Persian Gulf region, oil companies have to deal with the sovereign countries of the Middle East that have jurisdiction over this oil.International disagreements over the control of natural resources are quite commonplace. Recent situation of Iraq is exemplary of this fact. Also there is speculative risk with commodities. The commodities markets, just like the bond or stock markets, are populated by traders whose primary interest is in making short-term profits by speculating whether the price of a security will go up or go down. One should constantly check the pulse of the markets, finding out as much as possible about who the market participants are so that one can distinguish between the commercial users and the speculator.

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How can you tackle sideways Market?

Sideways Trend, as the name suggests, is sideways- absence of any clear directional bias in the market.

Such horizontal price movement occurs when the  forces of supply and demand (of the underlying)  are nearly equal. Generally, sideways trend is a period of consolidation before the price  continues in the direction of the previous move. Sideways price action is also known as “horizontal trend”.

Moving on to today’s discussion: “how to tackle sideways markets”, there are two distinct trading philosophies:

Buy low, sell high (for Sideways markets, i.e. MCX wheat prices right now)

Buy high, sell higher (for trending markets, i.e. Indian stock indices right now)

So our trading strategy depends on the market conditions we are in. The real problem is to know “which market condition is prevailing?”

Importance of Entry Point: When market is trending, Mantra is “Trend is your friend”. Every price would eventually become a good price so long as you are with the trend. In such conditions we find even a layman claiming victory and making at least some money. However trouble starts when market loses its bias and conditions become “zig-zag”. Laymen loses calm while helplessly watching his position on both sides of the equator. It is in such an environment that, entry point becomes particularly important.

Volumes: Falling volumes are typically associated with sideways market conditions. As the sideways conditions extend hedgers lose interest. On persistent sideways conditions, hedgers would start believing that this market doesn’t need hedging. Speculators also lose interest as they don’t get enough return to cover the cost of carrying positions. For speculators, managing such unproductive positions become fruitless efforts.

Open Interest: Slowly as market participants leave the market-place, open-interest also take a hit. Hence, sideways conditions are marked by falling volumes and open-interest.

Other way of saying the same would be, falling volumes and open-interest is an indication that trend is about to end. The end of the sideways market conditions is often preceded by increasing volumes and/or open interest.

Technically speaking sideways conditions may form few set patterns. We would like to highlight here that identifying sideways patterns are the most difficult part of technical trading. Often price patterns can develop into more than a single set-up.

We suggest playing the probability game: attaching probability to all possible outcome and then trading based on most probable next move. Here are a few possible sideways technical set-ups:

Channel Patterns are indecision areas that usually break-out in the direction of the existing trend. The pattern does see some drop in volumes, as is normal for sideways conditions. But the drop in volumes was not as much as you would expect in other sideways patterns. Like the others sideways pattern, however, volumes should noticeably increase on the breakout to confirm the breakout.

o   Target post breakout: On confirmed breakout, prices are expected to move as much as width of the rectangle from the breakout point.

o   Stop for any such trade should be kept below the horizontal line which observed the breakout.

Triangles are formed by drawing couple of trendlines connecting previous swing-lows and swing-highs. The lines get narrower over time because of lower tops and higher bottoms (unlike in channel).

o   Target on break out is equal to the vertical distance at the start of the triangle, and is measured from the breakout point.

Triple Tops and Bottoms are formed when the price movement tests a level of support or resistance three times and is unable to break through; this signals a reversal of the prior trend.

Wedges are triangle look-a-like pattern but with “lower highs and lower lows”. The pattern normally sees breakout in the direction of the trend.

So these are some ways of tackling Sideways Market.

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Carry Trade: What is the return on your Investment?

A carry is generally classified as the difference between the cost of funding an asset and the return different derived from it. Needless to say, it may not always be positive. For there could be situations where the profits generated by a company may not be more or equal to the cost of funds, thereby generating a loss and incurring a negative carry.

Carry trades, though same in principle, are however not viewed in terms of business generating profits. They are looked at more globally in terms of various currencies and the borrowing / lending interest rates that these currencies offer. It is a termed a currency Carry Trade. Carry trades are available in commodities as well, copper carry trade being most popular, but the underlying theme of carry trades in the financial world arises from the interest rate differential between several countries.

Currency Carry Trade:

A text book definition of a (Currency) Carry Trade will be: A phenomenon where you borrow a currency that commands a low interest rate (borrowing cost) in the market and invest in a currency that offers a high interest rate (Lending rate).

A simple example of the same being: Borrow JPY @0.1% p.a. and invest in AUD @ 3.75% p.a., thereby enjoying a carry of 3.74% (Ceteris Paribus). For the Indian audience – You can think of it as borrowing US dollars @ Libor (0.44%), converting the USD into INR and investing the INR in the call money market (approx.. 8% p.a.), thereby enjoying a good carry.

Now for all those who wonder about how do we go about borrowing and investing in these currencies from your home, all you have to is sell JPY/AUD or buy AUD/JPY in the spot market on your broker provided market platform. FXCM is one of the most popular platforms for currency trading in the spot market. This will automatically do the needful and you will net the interest rate differential in terms of rollover gains every day.

Is it that easy?

Wow, it seems like a cakewalk, doesn’t it!! All you have to do, is find out which two countries have the highest interest rate differential, open an account with FXCM, sell/buy the currency pair depending on where the carry is, negotiate the leverage terms with your broker to amplify your returns, book a  world tour and let the returns from the carry trade fund your leisurely expenses.

Now let’s get you out of that dream. In a couple of paragraphs above, where I had given the example of the AUD/ JPY 3.74%  carry trade,  two magic words namely Ceteris Paribus were mentioned. This is a latin phrase that means “All other things being constant”. We all know the dynamic world of currencies (Mexican currency crises, Southeast currency crises etc.), where the basic assumption of anything being constant is a sure shot road to hooverville.

A carry trade as we just saw involves shorting a currency and buying another. This is what you do when you go long (short) a currency pair – You go long (short) one currency and short (long) the other. So inherently, your trade faces a big risk of that currency pair going against you. Carry on with the AUD/JPY example: When you borrow / short JPY, you create a liability. Simultaneously when you invest in/ lend / long AUD you are creating an asset.

Now three situations can arise:  

AUD/JPY doesn’t move much over our trading Horizon à You pocket the carry and everything is fine.

AUD/JPY starts moving up i.e. AUD(Asset) appreciates / JPY(Liability depreciates) à Bonanza à You pocket the carry as well as the price gain

AUD/JPY starts moving down i.e. AUD(Asset) depreciates / JPY(Liability appreciates) à You pocket the carry but lose out on the price front.

Looking at the above scenarios, it doesn’t look a bad bet since you will only loose in one of three situations and that too has a cushion of the carry.

However, this requires a deeper study.

1) If you look at the interest rate differentials ( so called carry), their nominal value is not  that high to entice so many investors into taking that sort of a risk. What makes it luring and equally risky then, is the leverage (mentioned earlier). A 10:1 leverage enjoyed through your broker can help you amplify the 3.74% p.a carry into a 37.4% p.a return. However this leverage will also amplify the gains and losses that you incur on the price, thus making this trade a risky proposition.

2) Countries that offer high interest rates, generally undergo high levels of inflation, some sort of deficits, have low to mid level of FX reserves and are more emerging in nature. This makes them more volatile to global and domestic shocks thereby making their currency a risky asset. Classic example are the Indian Rupee, Brazilian Real etc.

Thus, the most imperative step in the carry trade process becomes the currency pair selection.

So let us conclude by looking at some of the characteristics that we will like to see while choosing a currency pair and the market environment where we would like to play this strategy.

The article will end with a GBP/JPY carry trade example taken from FXwordpress. This will substantiate the importance of the carry in the overall returns obtained in the trade.

Terminology:

Currency that you borrow or sell (on your platform): This is the funding currency.

Currency that you invest in or buy (on your platform): This is the investing currency.

Characteristics of a funding currency:

1) Low interest rates

2) Dovish outlook of interest rates / QE in the pipeline – Depreciating effect on that currency

3) Negative data primers such as PMI, unemployment, deflation – Something that can force the central bank to provide for an accommodative/easing/expansionary monetary policy.

Characteristics of the investing currency:

1) High interest rates

2) Hawkish outlook of interest rates

3) Positive data primers such as PMI, employment, inflation etc – Something that can force the central bank to provide for tightening monetary policy.

Characteristics of the global environment:

1) High risk appetite – This is measured by the VIX index. Low levels of VIX indicate risk on. Also booming stock markets is an indicator of risk on attitude. On the other hand, rising Treasury bond prices, CDS spreads and safe haven commodity gold predict risk averse nature.

2) Confidence in economic recovery.

In General, Safe haven currencies are USD, JPY, CHF and the Risk Currencies: Euro, GBP, AUD, NZD, emerging market currencies.

GBP/JPY carry Trade: 

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Diversification: Is the Stock Market similar to arranged Marriages?

Marriage -- an option without a future and a future without an option! “Any portfolio must be diversified in order to mitigate the risks and maximize the returns”. This is a well known statement.

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Markets from an Analyst's Eye

 Most of us must have came across a plethora of    traders and analysts through various media. Whole  day long they generously spread their wisdom on  stocks markets across all the channels.

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Blame it on the Wall Street Movies?

Be it a myth or a reality, but whenever a movie on Wall Street is released markets have reacted in a negative way as if it was a signal for all the investors to book profits and exit.

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Blame it on the Wall Street Movies?

Be it a myth or a reality, but whenever a movie on Wall Street is released markets have reacted in a negative way as if it was a signal for all the investors to book profits and exit before the release. Do they really track markets and release a movie whenever its time up for investors or are these movies being considered as a bad omen for investors?

Let us have a look what the data has to say:

The first two Wall Street movies came out in 1929, the first one in January and second one in December 1929; while the Black Tuesday struck in October of the same year, followed by the Great Depression. The third Wall Street movie came out in 1987, released in December, after the October Black Tuesday crash. The production had however started before the crash. Boiler Room, another movie on the stock markets was released in mid-February 2000, and the Dot-com bubble peaked in mid-March 2000.

If history repeats – and history has a funny way of doing that – then the release of Martin Scorsese’s “The Wolf of Wall Street” should warn investors of an impending market crash.

So will Martin Scorsese ruin the recovery?

It has almost been a year since the release of the movie, which depicts the not-so-abstemious life of Stock Exchange operators. However the world markets haven’t corrected ever since and as a matter of fact have raised post the release.

Do the Producers predict Crash?

Film producers around the world are worried about their investments in films, to be more specific they are more concerned about turnover or box office collections rather than the substance or message. At the same time they are very much aware what people want to see and it is this chord which they need to strike, some do it very well and while others fail to do so. It is clear that these producers obviously do not predict crash but it is purely the timing of the release which makes so. The catch here is probably when certain thing is in vogue or is just catching up, the film makers take it up and by the time the film is released the actual event has lost its sheen and it’s probably the beginning of the end. We think, this simply portrays a coincidence and not an image that movie-makers have special instincts to smell irrational exuberance, waste, excess and greed in the stock markets.

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What should an ideal Portfolio contain?

With the start of a new government term a month ago, investors have high hopes of this government in terms of economic valuations. While a large sight of the masses has started investing, a large group is yet waiting to kick start their investment journey. They are still waiting to get an answer to the question: How to build an ideal portfolio? We will lecture about some major components of a portfolio and the investment guidelines and how every portfolio varies from investor to investor.

EQUITIES

This is the most luring component of a portfolio. It benefits investors who are willing to take high risks to gain good returns on their investment. It is really significant to invest across various industries which are anticipated to rise in time to come. Ideally an investor should invest in 15-20 companies across 8-10 different industries, but then it all depends on an investor’s appetite of holding risks.

DEBT SECURITIES

This is one of the safest component in a portfolio. An investor who doesn’t desire to risk much and needs an assured take on his investment should invest heavily in debt. Debt securities can be government bonds or corporate bonds. Investment depends on the credit quality of the bond issuer. A high return bond will have relatively more risk than a lower return bond.

REAL ESTATE

This is common investing scheme which serves the twofold intent for an investor: Savings from rents and a lift in the property price. The returns are highly uncertain and depends on the type of the property as well as its locality.

MUTUAL FUNDS

An investor who is unsure on where to invest and has basic financial knowledge should opt for such a type of investment. A peek into the performance history of a fund would give an insight on whether to invest in it or not.

GOLD

Gold is the most common investment in India. It has acquired the status of “safe haven” meaning any problem in the universe would probably increase its cost. Its investment term is longer compared to other investments.

ALTERNATE INVESTMENTS

This category refers to investments which are totally different from the above investments. They are extremely specialized and require high knowledge about the investiture. Some models may be wine, art collections like paintings and sculptors, etc. The investment horizon is really large; usually in the range of 40-50 years.Likewise, on that point is no structural market for this which may lead to liquidity concerns.

An example of a Portfolio allocation for a medium risk investor can be as shown in the chart below:

After recognizing the ingredients of a portfolio, an investor should also keep in mind the following things before going ahead with the construction operation.

Know your level of risk

As an investor, you should recognize the extent to which you can gamble your money. This is a first step as the amount you are putting on the line should be in conformity with your financial goals.

Branch out

Never invest all your money in a single investment. Diversify all your investments based on the class of investment. For instance, pick industries which you are familiar with and then look for 2-3 stocks in that diligence which you think might outperform the group.

General Market Sentiment

An investor should look at the general market sentiments in that particular investment before taking in any investment move.How others are looking at that investment is very important for young investors.

 Investment Timing

It is not necessary to assign everything you have in a day or two. An investor should maintain his buying decisions in a range of days or months. For instance, when the equity market is in a range, investors should stagger at different prices instead of travelling all in at a single price.

To conclude, a well balanced portfolio in desired risk limits should be reviewed time to time in parliamentary procedure to earn maximum from it.

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YTD (July’14) Performance Review (for Indian Stocks)

The Indian equity market was marginally positive in July 2014 with Nifty moving up another 1.4%. Pharma and FMCG stocks were winner of the month as they moved higher by 9.5% and 7.7%, respectively. On the other hand, Realty and Energy stocks were worst performer with indices moving down by 8.4% and 4.6%, respectively.Small cap stocks also lost ground in July’14 as they moved lower by 6.1% after 5 months of consecutive gain.

Chart1: July’14 Performance 

Source: NSE

On YTD basis, small cap stocks (+46.2%) maintained the lead followed distantly by mid cap stocks (33.6%). In sector terms, banking stocks (+34.1%) took lead over realty stocks (+28%) in July 14. IT (+8.9%) and FMCG (+10.1%)stocks remained the worst performed on YTD basis.

Union Budget was the most important and awaited event in July 14. However, the main Indian stock indices declined during the budget week after Finance Minister Arun Jaitley presented a mixedbag Union Budget. While there were adequate measures to boost economic growth and maintain fiscal discipline, lack of major reforms like GST roadmap and subsidy reduction left investors disappointed.

FIIs inflows continued to be robust in July 14 driven by an investment friendly government at the centre; overseas investors have pumped in a staggering $6 bln into the Indian securities market in July ­ taking their overall net inflows since beginning of 2014 to more than $26 bln.

Foreign investors have poured in $2.18 bln (Rs 13,124 crore) into the equity markets. They made net investments worth $3.83 bln (Rs 22,977.65 crore) in debt securities, during July ­ the highest inflow for a month so far this year.

Chart 2: YTD (July’14) performance 

Source: NSE

Some important domestic headlines that impacted Indian equity market include:

India’s factory output grew at the fastest pace in 17 months last month, according to the HSBC PMI. The manufacturing PMI rose to 53.0 in July from 51.5 in June, its highest since Feb. 2013.

The nationwide average rain during July was 260.8mm, close to the prediction of 93% rains for July madeby the India Meteorological Department (IMD). Seasonal deficit is now down to 22% versus 43% at the end of June.

  On the international front, following headlines turned out to be market mover:

The US economy rebounded in 2Q2014 and expanded at the fastest pace since last fall, fueled by an upturn in consumer spending on big-ticket items such as cars and trucks besides a sharp rebound in business investment.The Fed said that the US economy is improving but emphasized that significant slack remains in the labor market. The central bank gave no hint of timing of the first rate hike.

Standard & Poor’s Ratings Services declared Argentina in “selective default” after talks aimed at a settlement with holdout creditors fell apart late on Wednesday. Argentine stocks sank over 8% after the default news.

Federal Reserve Chairwoman Janet Yellen told Congress that the US central bank could act sooner on interest rates if the labor market keeps surprising. But, she added, that time is not yet here. The Fed’s Beige Book said that economic conditions and labor markets showed improvement across the US into early July.

China government said that its economy grew faster than expected in 2Q – rising by 7.5% YoY while June retail sales were up 12.4% and industrial output jumped 9.2%. Elsewhere in Asia, the Bank of Japan scaled down its GDP forecast but kept monetary policy unchanged.

The US economy added 288,000 new jobs in June, and the unemployment rate fell to 6.1%. Meanwhile, weekly jobless claims, a proxy for layoffs, increased by 2,000 to 315,000 in the week ended June 28, hovering near a post-recession low for several months.

Indian stocks appears stable to positive over the medium-term to long-term, as the new Government is expected to start addressing the imbalances in the economy. Foreign investors have been betting big on the Indian market mainly on account of a stable and reforms-oriented government at the centre.Globally, investors will continue to track the ongoing economic recovery in the US, rebalancing in China and impact of latest ECB easing on the Eurozone economy.

[trade-smart-online]

We all love Warren Buffett, the greatest Investor alive! But their are certain facts about him that we do not. So lets find out what they are!

[trade-smart-online]

WHERE WOULD YOU MOST LIKE TO VISIT ON YOUR PLANET?

May be Paris!

[commoditiestrading]

Ok, now where is the oil?