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How To Lock In Your Profits

Stock markets are at all time high and a lot of investors may be thinking of what to do with the profits they have made on stocks. If you are one of them, these are the things you can do:

1. Sell part of your holdings and book profits: This will help you to re-enter the stock if it falls again or you can get into another stock.

2. Sell all stocks and buy calls: Some investors do not want to sell their stock holdings thinking that it may go up even further. For them it is suggested to do the “Stock Replacement Strategy”. In this strategy, stock profits are taken and replaced by derivatives. read more


Checklist For New Stock Traders

Before new traders start trading they have “high hopes”. Here are some of the high hopes:

1. I will invest 5000 and make 10000 every month. They forget that its 100% return a month.
2. If Nifty will open gap up I will buy calls, if it opens gap down I will buy puts and make money. Its a myth that if there is a gap up the stock will keep going up or if gap down the stock will keep going down. Reversal is always possible.
3. Thought process of a new but rich-son trader: I will invest 1 lakh and make 1 crore in one year and prove my dad that he is a fool working hard in his business making just 30% return a year.
4. In five years time I will be a multimillionaire.
5. New option trader: I will buy an option for 10 and sell at 20 – doubling my money every time I trade because I have seen that happening many times. read more

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Making Trade Adjustments Is It Helpful

Making trade adjustments can help you reduce losses to some extend but not eliminate loss. For example sometimes option buyers average out buying options. Like buying at 10 then 7 then 5, thinking that since the average buy rate has come down, if the stock takes a U-Turn they can exit in profits.

Very rarely it happens, their entire money invested becomes zero (option expires worthless). There is only 1% chance that within limited time-frame the stock revives and takes a U-turn and the trade becomes either profitable or the trader exits with a small loss. read more


What Is Swing Trading

Swing trading is buying low and selling high in a short span of time. Some traders do it Intraday called as day traders and some take position for a few days.

Swing trading combines fundamental and technical analysis in order to find the stocks direction from the current position. Swing traders do not look for only up direction, if they feel the stock may go down they short them. All they are looking for is short momentum.

When they see the stock is not poised to move they do not take the trade. The benefit of swing trading is efficient use of time and money and higher returns. However their are drawbacks as well like high brokerage commission and high losses if their trade goes wrong. read more


Calculating PE Ratio Of A Company

PE Ratio is one of the most overlooked by novice investor and sought after and studied by experienced investors of a company’s stock since ages.

PE Ratio gives an idea on whether the stock price is undervalued or over valued at a given time.

Most of the times when a stock is overvalued it falls and if undervalued it goes up.

PE Ratio is just one of the indicators to invest in stocks, there are others as well but PE Ratio is a very important indicator.

Let say you are undecided to buy shares between two companies in the same business field, then PE Ratio is the best indicator to look at before buying share of a company. read more


Covered Call Explained

Covered call is very popular among the high net worth individuals who buy shares for the long term. These people take benefit of covered call to make money every month. Covered calls are very poplar in US where high net traders are many.

What Is Covered Call

Covered Call is a method to sell shares in a future date with no obligation to buy back if certain conditions are not met.

When you own a stock you have the right to sell anytime at market price or in future at a higher price using options. Covered call is selling the stock to someone else at a higher price in a future date for an agreed money as shown in in system. This money varies from stock to stock and price to price. read more


Warren Buffet Investing Style

This week I finished reading a book written by Robert G. Hagstrom about Warren Buffett – the best investor in world entitled “The Warren Buffett Portfolio.”.

This book is different than what I have read on Warren Buffett in other books.

Here I would like to point out some very important highlights of the book.

Stock Is a Business

Before you buy a stock you must think whether you want to be a part owner of that business? If you are not comfortable being its owner then do not buy that stock. read more


Stop Loss Methods

Traders trading Intraday should know where to take a stop loss. This article discusses some stop loss methods that you can follow.

Points / Cash Stop Loss Method:

This is the most common method that most Intraday traders use. Basically it is the amount one trader is willing to lose. Let say his total margin blocked is 1 lakh, and he is targeting 2%. This is 2000 profit a day. In that case his stop loss can be anywhere between 1000 or 2000 not more. This way if the trader is successful in 60% of the trades he makes money. This cash can be converted to points also. For example if 1 point is Rs. 2000, then profit can be 1 point and loss can be 0.5 to 1 point. read more


Does Averaging Out Options Makes Sense

Learn why averaging out options does not make sense – it is a pitfall of losses.

In one word if I have to answer that if averaging out options makes sense. The answer is


Why? Because when you buy options you are racing against time. This time can be few months, or few days or even few hours.

The option you are averaging has to be above average for you to profit – for that it has to take a “U” turn.

Assuming Nifty ran from 8000 to 10000 levels like it did from Jan 2017 to July 2017 and a trader thought it will run more and bought 10100 Call Option at 100. Now Nifty fell at 9900, the trader bought few more lots at 75 premium of the same strike. Nifty falls more, on hope that it will reverse, the trader buys more at 40, and “averages” the option at 50. The option is right now at 40. read more


Is Option Trading Science Or Art

Traders who are firm believers of Technical Analysis and try to trade Greeks of Options, they feel option trading is a science. They try to derive a formula so that they come out winners every time.

Traders who trade on hope think option trading is an art. They “Feel and Trade”.

As it is obvious they both lose money.

No one can predict what is the future option Greek for a given option. Neither can anyone predict what premium the option will have in 2-3 days time. This is the reason most option traders who trade on hope or who trade trying to manage Greeks lose money. read more