basic of investing in stock market

1. by RP Saxena
Basic of Investing
-
1R P Saxena

2. Why investment
• To safeguard future.lic/nps
• To get better return on saving.MF
• To park surplus money.FD
• Investment for future need
• Child education ,Marriage , House
• To meet emergency.Liquid funds
• To get regular income when not
working /retired.MIP
• Investment depends on future needs
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3. Investment avenue
• MF
• FD
• PPF
• POST OFFICE LIC etc
• NPS
• Real estate.difficult to dispose
• GOLD..inconsistent
• Stock mkt high risk high gain
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4. Investing in Stock Market
• Small Investor can gain by investing in
Stock Market provided he follows
some basic Investment Management
Principles
• Discipline in investing
• Think ,ink , invest…avoid impulse trade
• Decide target and stop loss in advance
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5. Risks in Equity Markets-
• Timing of Investment is very important.
• Protect Portfolio during market volatility
• Do not invest with borrowed money
• Follow basic rules of investment
• If deviate from rules then
• Be prepared to loose your Investment ,you
may not lose if luck is at your side
• Market works on fear and greed
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6. Investment in stock
• Investment in stock mkt is risky but
disciplined investor get high return
• Diversified MF are safe investment
• Long term inv..more than 1or 3 year
• Short term investment..less than yr
• For me long/short term - 3 month/5 days
• Long term capital gain introduced in 2018-
19 if gain is more than a lakh
• Stock market can give consistent 20% tax
free return
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7. Strategy for long& short term
investment
• Strategy diff for short and long term
• Long term ..buy at lower support-opposite
to trend
• Short term- in direction of trend or at trend
reversal point
• Short term- Do not square up 1st
day if
gaining and do not c/f loss making trade
• Be ready to bear loss .follow stoploss
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8. Long term in some blue chip..may
not always be paying
name 2008 2011 2014 2017
reliance 1485 1023 813 1033
infosysis 500 722 931 939
LT 1450 1118 1069 1360
SBI 225 320 165 248
M&M 400 600 900 1300
airtel 563 332 309 348
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9. Investment in mkt
• On line..on trading portal
• Off line..phone to broker
• Equity-cash
• Equity-future ..a lot cost 5-7 lakh
• Options..call and put.Limited loss
• Currency
• Commodity
• Need dmat,bank acct and acct with
broker and High speed internet
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10. basic fundamentals
• 50% decision should be right .try
mock trading for month
• Do not borrow to invest
• Always trade with stop loss
• Do not marry with share
• No share is good or bad..
• Timing of entry and exit is imp
• Do not invest in one go-sip
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11. Some basic principle
• The purpose to invest is to make
money and not to gain experience
• If you do not lose ,you will gain
• Reduce your loss
• Do not trade without SL
• Think ..ink and execute..
• avoid impulse or tips
• 5 days rule
• Do not borrow to trade
• Money is everything..
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12. Stop loss
• Skill is not to loose money
• so gain is automatic if no loss
• Gavasker said ..do not get out..runs will be
automatic ..test cricket ..long term inv
• Minimize loss
• protect profit..trailing stop loss
• Do not trade without stop loss
• Stop loss order should be put first
• Decide target and trailing stop lossR P Saxena 12

13. What should be stop loss
• Depends on risk taking capacity
• As a thumb rule ,it should be half of
your targeted profit
• I suggest 4% for long term and 2% for
short term ..you may have your own
• For day trading I suggest 1% stop loss
and 2% profit
• Lot of complicated theories to fix stop loss so that
daily variation taken care off but that is in
advanced stage R P Saxena 13

14. Why stop loss
• Nobody can predict the stock market and
even proven strategies can go wrong
• use stop loss to restrict your losses.
• It is generally seen in the market that
traders hung on to losing investments for
longer period causing more loss..
• Accept realty..you may be wrong
• Money is everything in stock market
• Gaining experience with loss of money is
of no use
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15. -Example-gain in day trading
• Starting capital 1 lakh
• Do 20 trade –each of 50000 in a month
• Keep tgt at 2 to 3% and stop loss 1 to 2
percent— tgt should be at least 1% higher
than stoploss
• Loss/gain 1000/1500 in 10 trades
• If 10 trade right and 10 wrong gain
will be.10(1500-1000)=Rs 5000 in a
month on capital of one lakh ie 60%
annual return
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16. Follow guide line.5 days rule
• Mkt follows either trends or news
• Think yourself why mkt is up or down
• Follow trends..trends are friends
• Follow 5 days rule..Newton law
• Do not go by tips.keep eyes open
• Use common sense.look at charts
• Buy on rumor sell on news
• Do not carry over loosing trade
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17. Trends are friends
• Never trade against the trends
• Swimming against water..tough
• Follow trends for gains
• Against trends..always covering loss
• Tracking the broad market trend is
one of the most important tasks of an
alert investor.
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18. How to select winnner
• See yesterday winner
• See charts..follow Newton law
• See general trends
• Think..ink..execute..put SL
• Decide entry and exit price ,Place order .
• Avoid impulsive trades .main cause of
loss
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19. FEAR & GREED
• Fear and greed are important
reason of loss
• Mitigate fear with SL
• Mitigate greed with trailing stop
loss
• Avoid impulsive trade
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20. Advice to day traders
• See trend up to 11am..
• Enter trade following trend with tgt
of 2% & stop loss 1%
• Review trend at 14 hr
• Short if falling..long if rising
• Square up if losing by 14 hr
• Can carry if gaining-be with winner
• Every day is new day
• Opportunity lost is a loss in day trade-
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21. Common mistakes..do not repeat
• Do not catch falling knife
• Do not average losing stock
• Do not sell winner early and hold loser
• Do not limit gain and be open for unltd loss
• Do not do impulse trade ..entry pt may be
wrong even if stock is good
• Do not convert day/short term trade in long
term as strategy are different
• Do not depend on luck for gain . use skills
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22. Newton Law of motion-
Law in investment
• All assets which attract money,
continue to attract money till
they become very expensive.
• Conversely, all assets which
lose investor interest continue
to slide till they bottom out
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23. Investor vs speculator
• The individual investor should act
consistently as an investor and not as a
speculator.
• This means.....that he should be able to
justify every purchase he makes
• and each price he pays by impersonal,
objective reasoning
• that satisfies him that he is getting more
than his money's worth for his purchase.”
Ben Graham
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24. Final advice
• It is best to start small trade and
take risks with money you are
prepared to lose.
• As you gain confidence and become
more adept in reading the market
sentiment, you can start making
bigger trades and investments.
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25. • Any question is most welcome
• rajendrasaxena@gmail.com
• THANKS
25R P Saxena