Archive for September, 2008

Investing In Stock Market – Part 4

September 28, 2008 · Filed under Business, Finance, Stock Market · Tagged , , , , ,

This post is a continuation of my previous post titled “Investing In Stock Market-Part 3″.

 

As I could guess by the end of the previous week of expiry all my positions in call options ended up worthless. On the positive side the losses were minor as all of these were bought quite cheap. The idea was to sell them with some profits in the event of an upside rally of moderate nature, good profits in the event of a bull run and at the same time not to loose anything significant if situation takes an U-turn. I also went long in a few cheap put options as a cover to the formers and that kind of worked well as part of the loss was compensated rendering the net loss insignificant. The lesson learnt was significant however. Never go for naked calls in the expectation of big shows unless you are very sure of the trend and are backed up by sound technicalities and very good inputs on the overall market scenario that is likely to unfold.

 

Now, for the next session I have bought quite a number of similar cheap calls with the same expectations. It could be seen as a mildly risky medium-term investment as the whole month is ahead of me. Mildly risky – as the amount involved, once again, is not significant and part of that has already been recovered by cover positions taken simultaneously. It is also a part of my strategy to keep trying various combinations until one or the other works well in the course of time. Plan for the next week is to recover the full amount rendering those positions free of cost and then to go for other short term positions to make some profits. I have to go slow taking into consideration of my risk taking capacity, skill, experience etc. From whatever little experience I have in this realm coupled with studies of relevant articles, I advocate the following so far as trading in option, or rather anything relating to the stock market is concerned:

 

One should put only a minor percentage of their investment portfolio for trading purposes as it, after all, involves in certain amount of risks depending on the expertise of the trader. There may not be any hard and fast rules about the percentage, but I feel 15 to 20% for a novice and 40 to 50% for an expert could serve the purpose. Basically, it depends on one’s individual perceptions, risk taking capacities etc. Yet, the more one is exposing oneself to trading the more is the chance of his capital getting wiped out. Better to limit one’s exposure initially and then probably increase it gradually, once one gets comfortable with their trades. For a beginner initial losses are must and are part of the game. That is another reason for limiting the exposure initially. If one continues to loose over a long period, one should probably stop trading and opt for sound investments or otherwise revise one’s strategy. Revising strategy could involve in learning technicalities, trying new techniques with small trades, finding an expert or a mentor etc.

 

For an intra-day trade a stop-loss is a must as it would limit the probable loss in the event of a contrary movement. One invariably needs to familiarize oneself about the nitty-gritty of this aspect of trading. Profits should be booked at regular intervals without giving in to the lure of a big one. Often this greed brings us down to nowhere which is my personal experience.

 

Also, once one is into a trade, one needs to follow up their trades consistently. If one does not have time or patience for that, trading is not for him. One, to an extent, can probably afford to do that in medium to long-term investments.

 

Trading should not be based on emotions like greed, panic etc. One needs to be driven by sound reasons or trends to enter and exit a trade in order to turn it into a profitable one. This however is not easy and can be acquired primarily through experience, learning etc. Alternatively, cues could be obtained from someone who is an expert in the game.

 

There are many other qualities one needs to inculcate in their trading system in order to transform it into a successful venture. Plenty of books, articles etc. have been written on these aspects. It is always easy to point out these qualities but not so to follow these verbatim. Probably, time only equips one with these arms provided one is a cautious trader. The quicker one acquires these virtues or the quicker one learns from their mistakes the better is one’s chance of making it big.

 

And once one makes it big in trading, which is not at all an easy catch, there is no looking back. That is something we all would agree on perhaps!!

 

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Investing In Stock Market – Part 3

September 20, 2008 · Filed under Business, Finance, Stock Market · Tagged , , , , ,

After a long bear-run the market has suddenly shown a kind of uptrend now. The important point is how long this trend would continue in the backdrop of a global, especially US, economic scenario which does not seem to be comfortable yet. One certainly needs to trade caution as of now.

 

Of late, I have been trading primarily in options to minimize my investment exposure to the market, limiting potential losses and also to have a greater leverage with an expectation of greater profits. Call it lure or whatever. It is the lure of having some reasonable profits that keeps me going in this arena. Since I am relatively inexperienced, so far as market technicalities or investment ideas are concerned, I try to get the pulse of the market from various websites, TV channels etc.

 

I have incurred substantial losses in futures and options and as of now have abandoned trading in futures to minimize the risks in current situation. My experience in option trading tells me that unless one is an expert in the field or is very sure of the trend trading in option without hedging is quite dicey. Hence, nowadays I am carrying hedged positions only.

 

Las week I took few positions in options keeping in mind the probabilities for the next week which I gathered from various sources seemingly having some technical expertise. At the moment I am keeping my fingers crosses and can’t do much but wait and see the results when market comes to life next week. Of the positions, few are cheap call options for the month of November and one put option for the same month to hedge the call positions. Basically I am expecting some bullishness to be followed by profit bookings. What is worrying me is my position in put options for this month as expiry is round the corner. There is a good chance that I could come a cropper in this position. In that case, I will have to try to compensate this limited yet probable loss in my positions for the coming month as I am shy of trading in this month’s options as of now keeping in view of my financial muscles.

 

What happens in reality would however be obvious in the coming week only. Let’s see.

 

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Investing In Stock Market – Part 2

September 20, 2008 · Filed under Business, Finance, Stock Market · Tagged ,

This is continuation of the first page with heading “Investing In Stock Market”.

 

Some other important factors which could affect stock markets are the crude price, the status of other stock markets such as the US markets, European markets or the Asian markets, the status of currency exchange rates etc.

 

 

The fluctuation of crude price seems to have reasonable, and drastic at times, impact on stock markets in macro as well as micro levels. A lower crude price means cheaper fuel and thus comparatively cheaper commodities which in turn is a boost to the economy. For countries like India this means a lot as it has to import substantial amount of crude. A lower crude price implies hefty savings in the import bills as well as cheaper commodities in the domestic markets due to lesser transportation or production costs. This is a boon to the overall economic status which in turn is reflected in the stock market sooner or later. In fact, certain stocks are directly related to crude price, specially the stocks of refining or crude exploring companies. A higher crude price seems to have a positive and a negative impact in the stocks of crude refining and the producing companies respectively and vice versa. The movement of crude price is thus an important factor to keep an eye on for traders or investors. Crude prices can be found from newspapers, business TV channels, websites etc.

 

 

Some of the weblinks which track movement of crude prices among host of other information are www.oil-price.net, www.bloomberg.com/markets/commodities/energyprices.html,  www.wtrg.com/daily/crudeoilprice.html etc. Besides getting the latest price one could also track the way crude price has been moving in live charts published by some websites. One may use these information in trading crude also besides having an idea of its impact on the overall market prospects.

 

 

The latest status of stock markets of other countries gives important global cues. In the era of globalisation economies of many countries have moderate to major influences on each other. Many economies are closely related to each other due to matters like export, import etc., thus influencing each other in a subtle or obvious ways. Besides, fund managers from other countries may have substantial exposure in the markets of some other countries. Thus economic conditions of the countries highly influence the investment decision making processes and thus the inflows and outflows of money to and from the countries. If most of the world markets are in red in a particular day or over a particular period, the market of a country has good reason to open and be in the red unless some others domestic factors are weighing heavily in favour of it. Hence, keeping an eye on influential markets of the world is relevant. For example the status of the US stock markets like Dow Jones or Nasdaq etc. tend to influence the stock markets of many other countries like India because of the abovementioned reasons. Stock markets of some other countries too give important global cues to the Indian market.

 

 

Some of the websites which show the latest status of various world markets are www.en.stockq.org,  www.tdd.lt/slnews/Stock_Exchanges/Stock.Exchanges.html,  www.money.cnn.com/data/world_markets, www.finance.yahoo.com/intlindices?e=asia etc. etc. All these weblinks would lead one to host of other information too which are relevant to economy and stock market.

 

 

The status of currency exchange rates also may have reasonable impact on the stock markets, specially the exchange rate of the currency of a particular country versus the US dollar. For example the status of the exchange rate between the US dollar and the Indian Rupee could have noteworthy impact on the overall economic scenario of India as most of the external monetary dealings including the oil import bills are settled in terms of US dollars. Companies in India which procure plenty of business from other countries like US etc. are very much affected by the exchange rate fluctuations. A stronger rupee means more revenue for these firms and vice versa. Thus a gradually strengthening rupee tends to leave gradual positive impact on the stocks of such companies and weakening rupee tends to erode their values to an extent. Keeping an eye it could pay well in the process of investment, especially in such stocks. Few popular links for this purpose are www.xe.com/ucc,  www.x-rates.com, www.exchangerate.com,  www.finance.yahoo.com/currency?u  etc. etc.

 

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