Understanding Demat and Trading account relationship

Some of the beginners to online stock trading do not understand relationship between Share Trading account and Demat Account . In this short article lets see the relationship between Demat account , Trading Account and your Bank Account . We will also see how many trading or Demat account you can have in total .

Work Flow

Below is a short chart where I have tried to give the flow when you buy a share . click to Enlarge

Demat Account : Account where your Shares are stored in electronic form .

Trading Account : An account which is used to place orders for Buying and Selling of shares .

So Trading account is an interface between your Bank account and your Demat account , when you buy something , Trading account takes money from your Bank Account (Its already taken from your Bank account and saved in Trading account) and buys shares and stores it in your Demat account . When you Sell something , Your trading account takes back the shares from your Demat account and Sells them in Stock Market and get back the money and that goes back to your Bank account (actually you manually transfer it to Bank account from Trading account most of the times .

Question : Does any one know maximum how many demat account can one open ?

I am a believer that our environment, surroundings, and our education shape our thought process. Knowingly or unknowingly our thinking will demonstrate what we have been through in past. It is applicable to every living being including us humans and present Indian population. Still there are very few who think and visualize beyond their surroundings. And it is these few who evolve and succeed over long term.

Our present 20s and 30s generation, of which I am part of, is very vibrant, inquisitive, and very progressive and has a desire to succeed in one way or the other. As they say, life is very fast in today’s India! The IT generation is very impatient which reflects the IT domain’s continuous changes in short one year. What is new today is considered to be obsolete in 2 years. Unfortunately, we fail to understand it is not same in investing.  Here are few interesting tidbits: (more…)

Why it Attracts ?

You must have heard lots of stories about people who got millionaire over night or in a short span of time from stock markets, there are two kind of people who make money from stock markets

- First kind are the people who make money because of luck. They buy some thing , it goes up and they think it was your skill . Next time they buy something again and wooo!! .. it makes money again , and now they are the king !! . Then comes one day when there “best time in the market” is over and they start loosing money , this time its “bad luck” as they say !! and they keep on trying and trying to prove that they are knowledgeable . At last they go bust and return from where they came from . Smart people in this category are those who make money once or twice because of luck and don’t come back , I appreciate their smartness .

- Second kind of people are those who are real game players , they have done their home work , failed lot of times , learned from their mistakes and worked hard to make money . They know the rules of stock markets and take it seriously . They are successful traders or investors .

People hear that lots of people make lots of money in short span of time from stock market and how easy it is to just open your trading account , choose some stock , buy or sell and magic !!, you make money . Far from truth !! .

This thinking that “Lots of money can be easily made from stock market without much hard work” is the main reason why stock markets attract lots of people .

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The Pivot for nifty today is around 4535 . SGX Nifty is trading about those levels and India Markets are also expected to go lower today as other Asian markets are also trading lower .

Nifty seems to be tired now and it would be a healthy for it , if it corrects itself now , otherwise it will become more vulnerable for a big and sudden fall later .

If you see 9 months chart , ADX seems to be falling now from many days indicating that its tired now and the momentum is declining .

If you are looking for buying , wait for short term . If you want to short , do it on pullback on intra-day .

The short-term NIFTY chart is showing a big MACD divergence on 60 minute chart as shown in the attached image. Although not a guarantee for a sell off, it does suggest that the prices may retrace a bit before deciding on the next big move. It’s also worth noting that Nifty has displayed bearish divergences in the last month (marked in blue) - which did not result in any significant sell-offs, but markets did remain subdued for a few days in a consolidation.

In the medium term - which is the next couple of months, I expect the NIFTY to cross 5000 before running into stiff resistance. I’ll try and explain the rationale for NIFTY’s medium term target in a separate post this week.

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Markets are now entering Overbought area . I am putting up two charts which shows up historical relationship between Nifty levels and Nifty PE . Nifty PE is now in around 21 and hence its the time to be cautious .

Overbought Examples

Oversold Examples

Also there was good time to buy in Mar when Nifty PE was around levels of 12-13 . historically it has been shown that markets reverses after those levels in nifty PE

Conclusion :

Markets are now in overbought region and hence its time for cautious moves . Invest for short term to get good returns as it can go little more up . But better book profits once PE reaches around 25 levels .

For the short term technical investor a perenial question is which indicators to follow; does the RSI give a truer picture than the ADX, should an MACD cross-over signal be followed etc… Whatever your personal preference, a common criticism of price indicators is that they are by their nature, lagging. They tell you when a trend has already started, not when it is about to start.

So what if there was a leading indicator which didn’t rely on  historical prices and which anticipated movements rather than measuring them?

With that question in mind the MoneyVidya team has devised the MoneyVidya Community Strength Index (MVCSI). The indicator is based on the Relative Strength Index but the underlying driver is not stock price movement it is movement in the volume of Buy and Sell picks made on MoneyVidya.com.

The logic behind this is that the Indian markets (now more than ever) are sentiment driven. If you can measure sentiment it informs your view of where prices are going. An upmove in sentiment anticipates an upmove in price (and vice versa). So how do you measure sentiment?

The approach we have taken is to track the volume of Buy picks Vs Sell picks. When sentiment is positive members make more Buy picks, when it turns negative members make more Sell picks. Creating an oscillator out of the volume of Buy and Sell picks allows you to summarise sentiment and  anticipate price movements.

This all sounds good but does this idea actually work?

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This afternoon, I was discussing Nifty’s recent price movement with another trader friend. His reaction was the same as mine - disbelief at recent price movements!

Even though he is relatively more bullish about overall prospects of Indian markets in the short term -he agreed that the recent one way price action was simply unsustainable over any time frame. Both of us were just thankful that we were not caught with any short positions when the election results came out!!

He showed me his chart for Nifty P/E - which I am reproducing below,. The chart itself is self explanatory - read the full article.

NIFTY Price-to-Earnings Ratio

That still leaves us with a question as to what is the best way to trade Nifty in the short term. The downward retracement after the initial burst high has not been sharp enough - Sure, we could still see it this week but the best moves typically come almost immediately after the big move up.. and the probability for a sharp down move decreases with every passing day as the element of surprise is no longer there.

The way I look at the recent price action, there was a lot of open short interest in the markets before the election results were out, as lot of people were expecting a close result with no clear mandate for any party. More than anything else, the insane price action that we saw on the day after election results was a result of the shorts stopping out of their positions rather than anyone entering the market with fresh longs. Moreover, this rally had the effect of short positions having changed hands from one set of traders to another set, who were not short to begin with but saw this rally as a chance to get short at inflated prices. Typically, in absence of fresh longs coming in the market - Nifty should have retraced most of its gains within 2-3 trading sessions of the rally. Since this has not happened, I suspect that there has been some retail long positions entering the market. Now there is still a small chance that downward move could gather steam this week - especially if S&P remains weak during the week as well, However, more importantly, a break of these recent highs would mean that the last of committed bears would throw in the towel clearing the way for a move towards 5000 level.

In terms of immediate levels, please keep an eye on 4185-90 levels - If Nifty closes above 4190 this week as well, then the chances for a break higher would increase dramatically.

This article was written by Ashish of Analysing the (Great) Indian Stock Markets Blog.

Next week is Expiry week .

Markets have made spectacular moves this month after elections result and looks extremely overbought and bullish both . What does that mean ?

I am not saying markets may not go up more , there is no limit of insanity and emotional buying . But understand that this is the time to be extremely cautious . If you buy emotionally and put a big chunk and then market reverses back telling you that this was just a big rally in bear market . Your money will be stuck and you may take big losses .

Markets are consolidating and it resting before moving forward . Be patient and wait for the right opportunity to buy . This is from long term investing point of view . If you are short term trader with 1-2 days of time frame , what i just talked about may not be relevent for you .

Trade lightly this week because of expiry .

Pivot Levels for Monday 25th May

R2 4,308
R1 4,273
Pivot 4,215
S1 4,180
S2 4,121

Strategy for Monday

- Buy if markets open above Pivot levels .
- If markets open below pivot BUY only only when it reached support levels of 4160 .
- Better not to short now as it has already been in red for some days in this strong upmove .

- Have logical Stop losses .
- Control your losses .
- Dont prematurely book your profits thinking that you will loose what has already come to you .

As I write this , DOW is 140 points down .

There is suddendly this bearish environment all over the place . Indian markets are down for last 3 days including today . We are near important support levels of 4170 now and breaking that would mean , bears coming back in the game for short to medium term .

We should not understand that we are in a bear market till now and may be markets have made its top for the rally . That is a possibility . But confirmation would come only after some days . Next week is expiry and that makes it more difficult to predict what can happen . Better to wait on side lines now till a clear trend emerges .

Nifty Pivot levels for Friday 21 may :

R2 4,363
R1 4,287
Pivot 4,243
S1 4,167
S2 4,123

I expect market to open flat to a bit high and then move lower .

As per NSE website :

NSE is the 3rd largest Exchange in the World in terms of number of trades in the Equity Segment. Today further landmark was reached with record number of trades, volume traded and number of shares traded in this segment at NSE.

The turnover in Cash segment on 19th May was Rs 40,000 Crs, surpassing the previous high of 28,476 Crs on 1st Nov 2007.

Number of trades touched an all-time high of 1.12 crores (1,12,60,392 trades). Similarly number of shares traded was in excess of 1.92 billion. In the Currency Segment for a 2nd day in row, NSE clocked more than 1 million contracts. The segment clocked USD 1.06 billion (Rs.5090.80 Crs) on May 18, 2009 and over USD 1 billion (Rs. 4845.72 crs) on May 19, 2009.

Lets see last 2 days action

If you see today’s volumes , it was highest ever and was more than double of the average volumes from many days . That tells that there was a huge participation today . We can see that there was a DOJI made today on daily chart , DOJI tells us that there is uncertainty in markets . DOJI with strong volumes means strong uncertainty , Markets went up to 4500 and then reversed from there on profit booking , 4500 is also a good resistance level point if you see 2 yrs charts .

IF you see previous day chart , There was almost no volumes , and there was great price action . This rise in index looks weak to me , It has come up too fast , It needs rest . I expect it to consolidate around 4000 levels , because thetas the logical levels for it . After a correction , markets must go up again .

This post is written by Manish Chauhan , he writes on http://www.jagoinvestor.com

If we see satyam charts for 3 months , we can see a short term range of 44-50 and we will see that on Friday , Satyam bounced back from support levels of 44 and closed about it with a green candle . This green candle was also accompanied by a DOJI a day before

Now today is Saturday and with news of UPA-without-LEFT coming in Power , gives a great signal to go long in this market .

Strategy :

- Go long on satyam with SL of 41-42 on closing basis .
- When It moves up to 50 , Raise SL to Buy price .
- Once It crosses 55 , raise SL to 48 .
- Once it moves above 60 (major resistance point) , add more shares in your long side and Raise SL to Rs 56 .
- Keep shares untill next weakness or your targets are achieved .

See my previous Analysis on Satyam a say before here

I am going to do some Analysis on Satyam this time .

Satyam is ready for some serious move on some side (hopefully upside). If we look at the 6 months chats , we can see that satyam is moving in a very narrow range from last some months , which gives us indication that on breakout , there will be explosive move .

Now , What about other internal things , Is there some serious buying happening ? Are people accumulating the stock ? We will see later . Let us look at volumes and prices once again

Volume : Volumes have dramatically decreased in last 2-3 months . Which gives the hint that lots of people are waiting to get into this stock , once prices show a clear trend . When it breaks out , There is a possibility that there will be heavy volumes .

Price : We have already seen , but lets see once again , the prices have been moving in a narrow range of 40-50 from last many months .
% Deliverable Stock : Now this is the main tool , It is the percentage of stocks which are actually delivered out of total stocks traded . from last many months its rising , which means that The stock is being accumulated by people . There is less speculation happening on this counter .

Conclusion : When a stock moves in a range for long time , it often explodes after that , once a stock is not on the radar of most of the people , its the best thing to buy , Everyone has forgotten Satyam these days , and often it indicates a good opportunity . If you buy this early it can be getting into the bus early , but you have to wait patiently for it to move .

This post is written by Manish Chauhan , He writes on http://www.jagoinvestor.com

Introduction

Stochastic oscillators are technical tools first devised by George Lane in the 1950s. They compare the closing price of a stock with its trading range over a given timeframe and can be used in a variety of ways to generate or confirm trading signals. 

The main principle behind the use of this type of momentum indicator is that in a rising bull market prices tend to close near their recent highs, whereas in a falling bear market prices often close near their recent trading lows. Monitoring trends in the position of closing prices, relative to the stock’s recent highs and lows, can therefore be useful in understanding the nature of the underlying price trend.

Calculation

There are two commonly used Stochastic Indicators; the slow stochastic (often called %D) and a fast stochastic (%K). The single parameter in the calculation of Stochastic Indicators is the period of time over which the trading highs and lows are consdered, 14 days, 9 days or 5 days are commonly used but in theory any time period can be used.

The fast stochastic oscillator (%K) calculates the ratio of two price ranges and converts it to an oscillator which ranges between 0 and 100. The two ranges used are the difference between the latest closing price and the lowest price in the last N days and the difference between the highest and lowest prices in the last N days.

%K=((Close-Period Low)/(Period High-Period Low))×100

If the latest closing price is the period low, then the numerator is 0, as is %K.  When the latest closing price is the periodic high, the numerator and denominator are equal and %K is 100.

The slow stochastic oscillator (%D) is just a simple moving average of %K over the last N days. Most commonly this is calculated as a 3 period moving average but this also can be varied according to the situation.

%D=SMA (%K)

The %K and %D oscillators are often plotted as lines on or below the price chart in most technical charting packages. 

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On May 4, 09 , I had given a trading call on our jagoinvestor google groups .

hi all
I am giving a trading call in this post . Please understand what I am
saying and take your decision .

Nifty was moving in a trading range from many weeks and finally Nifty
has broke out from 3520 levels and now its a very strong support
point . At the time of writing this , Nifty has already moved up to
2630 and hence now its showing positive momentum on upside .

People can buy Nifty Futures or Options If Nifty comes back to 3550
levels back , That would present a good opportunity to BUY . Please
understand that It does not guarantee that Nifty will go up again ,
but probability favours it and from Risk/reward point of view , its a
good Trade . So be patient and wait for it to come back to 3550
levels . If it comes then BUY , else forget it .

People who dont understand Derivatives can buy or sell Nifty ETF’s .

- Dont be greedy and put limited capital , dont sell your home and put
all your money .
- Be Patient and wait for this to happen , If it doesn’t happen , leave
it and look for another opportunity .

Manish (more…)

Nifty was moving in a trading range from many weeks and finally Nifty has broke out from 3520 levels and now its a very strong support point . At the time of writing this , Nifty has already moved up to 2630 and hence now its showing positive momentum on upside .

People can buy Nifty Futures or Options If Nifty comes back to 3550 levels back , That would present a good opportunity to BUY . Please understand that It does not guarantee that Nifty will go up again, but probability favours it and from Risk/reward point of view , its a good Trade . So be patient and wait for it to come bacm to 3550 levels . If it comes then BUY , else forget it .

People who dont understand Derivatives can buy or sell Nifty ETF’s .

- Dont be greedy and put limited capital , dont sell your home and put all your money .
- Be Patient and wait for this to happen , If it doesnt happen , leave it and look for another opportunity .

Below is some basic Technical Analysis of 3 shares .

You can take trading calls on your risk , Always use SL , dont take bigger positions than you can afford , Dont be greedy , When SL Hits , just get out without feeling “its coming back again” .

JAI PRAKASH ASSOCIATES : Closed above the channel , But RSI started Falling , so its a wait and watch for some time . Better to buy near 105 if corrects .

SUZLON : Fundamentally there is no news which gives a BUY signal , price has also bounced back from resistance level , Now again approaching towards Resistance line , A short term Trade is possible for a target of 72 , but only after a dip .

SATYAM : Some serious consolidation is going on in this counter and there is no wild activity going on from last some weeks , this is quiteness before the Storm . Breakout or Breakdown will offer wonderful trading opportunity , Dont miss it , wait for it to come patiently .

Risky traders can buy it around 42 , for a target of 60 atleast .

This post of written by Manish Chauhan of www.jagoinvestor.com

Nifty spent the week  of April 20, 2009 consolidating and giving a hint of its intentions in Friday’s trading. The attached chart shows it clearly, the fast averages are once again attempting to crossover and signaling the start of another leg up. Despite all this, I continue to be reluctant to dip my toes in the water from the long side as I remain unconvinced that this rally will hold long term steam. On the weekly charts 3640-3650 still remains a formidable target for Nifty and for me it’s a place to attempt a short.

NIFTY April 26, 2009

I am also attaching the chart of S&P 500 showing the progress of the Trend Channel that I had tried to anticipate a couple of weeks back. As we can see from the attached chart - prices have already taken resistance once and could approach the outer line of the channel now. All the best for your trading during the week April 27.

S&P500 : Still in the Channel

This article was written by Ashish of Analysing the (Great) Indian Stock Markets Blog

In the last Article , we had seen an Introduction to trading . In this section we will see what are the 3 M’s of Successful Trading as per Dr Alexander Elder .

I will give brief introduction of each of it , Its your responsibility to take it further and learn it in detail . take this as just a starting point .

The 3 M’s are :

- MIND
- METHOD
- MONEY

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What does it takes to be successful in Trading ?

We are going to see 2 articles on this subject , this is Part 1 .

In this part I will give introduction to Trading and tell you what exactly is it and how should you approach it (if you want to do it) .

Dr. Alexander Elder , explains in his legendary book “Come in to My Trading Room” , the 3 M’s of Successful trading , which I will touch upon today and will explain it in my own way to you . In the second part we will see the 3 M’s in my way of explanation .

Let us first see what exactly is the difference between Trading and Investing and then we will go over the explanation .

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The Average Direction Index (ADX) is part of a system of indicators developed by Welles Wilder, which were designed in order to identify whether the price of a security was trending or operating within a trading range. The advantage of this knowledge is that certain other indicators perform better in trending situations vs a range bound ones. For example moving averages are most informative in a trending scenario whereas within a trading range oscillators become more useful.

The ADX is constructed using two other indicators, the Positive Directional Indicator and the Negative Directional Indicator, usually denoted by +DI and –DI respectively. These indicators can also be used to identify trend reversals and confirm trading signals. The –DI measures negative (downwards) trends the +DI measure positive (upward) trends.

The ADX measures the magnitude but not the sign (direction) of the difference between the two. In other words it is a measure of how strongly price has been trending in the selected period. Because of the way it is calculated the ADX ranges from 0-100, the higher the ADX the stronger the underlying security has been trending. This can be used to not only identify trending and range bound scenarios but also to identify/confirm  trend changes.

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Hi Readers

This is 3rd part of “How to become Better than average investor” Series . Read

Fundamental and Technical Analysis , What and When ? : Part 1
Using Support and Resistance : Part 2 .

Let us today discuss how can we use Trendlines to use Support and resistance levels and make better Entry or Exits .

What is a TrendLine ?

A trend line is a straight line that connects two or more price points and then extends into the future to act as a line of support or resistance. In the Uptrend , we join two low prices points and in Downtrend we join two high prices and extend it further . Next time when prices approach them , it should probably act as Support or resistance point .

Let us see one example of each of them.

Example of trend line while DOWNTREND

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This is Part 2 of the How to become a better than average Investor series , see Part 1

In the last post we discussed the importance of Fundamental and Technical Analysis . Now we will see one of the most simple , easy and powerful thing called Support and Resistance .

This is for people who have no idea about what is it and have at most heard about it .

Let us see both of them one by one .

Support : Support for a price is a price area where there are lots of buyers ready to buy the stocks rather than sellers . At that price point , the general perception is that its a good buy , and lots of buyers come to buy it . Hence buyers outnumber sellers and there is a higher possibility that prices will bounce back from that point . This is a point where Buying has less risk .

In other words , at support levels demand is thought to be strong enough to prevent the price from declining further . Please understand that Support point is not a place from where it will for sure bounce back , Its only the higher probability that it will bounce back . Also understand that its not exactly a fixed price which should be considered as Support , generally its a range like 98-100 or 560-570. (more…)

I am starting a series of articles which will deal with “How to invest in stocks efficiently” . This post is Part 1 .

There are two important questions which you have to answer when you want to buy shares ? They are “What to buy” and “When to buy” ?

You may be familiar with Fundamental Analysis , Fundamental Analysis answers the question “What to buy” ? . It a study of companies Financial statements , cash books , markets study to find out the future prospects of a company. It answers the question “Will this company be a good buy for long term” ? , “Will it be more valuable than what it is now ” etc etc ”

But !! , Even though you have picked up some excellent companies for your long term investments , That’s not the end of the story . Now the biggest challenge and question you have is “When to buy it” ?

You should not just go next day and buy the share , that’s not the right approach . There can be a price area where buying is best in terms of risk/reward .

Technical Analysis is the study of charts , price and volume patterns and other indicators derived from price and volume . Technical Analysis gives us hint on what can happen in future , understand that it only gives you chances, not a guarantee . So everything should be taken with crossed fingers , Decisions taken on basis of TA only increases your risk/reward scenario .

I will give you an example :

Reliance is a very good long term Investment (do your own analysis to find out why, but it is ) .

On Feb 1 2009 , Ajay and Robert want to invest Rs 1 lac in Reliance for long term . Both of them understand that Reliance is truly long term buy . Ajay invests in Reliance on Feb 1 , because share is going up and he feels its a good time to enter other . He buys the stock at Rs 1360 . After some days Stock starts falling and reaches around Rs 1,150 . Roberts buys the stock at that time .

see the chart here

Here you can see that Robert has got the stock at 15% lower price , which means his profits will always be more than Ajay’s by that much . What did Robert do ? Robert used simple Technical Analysis concepts and entered in the stock with better prices , It does not mean it will always happen , but there are good chances for getting better price .

In the above case of Reliance , there is no significant price difference , but there can be cases ,where there can be drastic differences , and it would be really worth to use basic Technical Analysis .

Dont be scared , I will tell you some very basic things of technical Analysis in some of next post .

Watch out for second part soon .

Please share any real life example which happened with you , May be we all can try to find out what could have been done to make a better entry or exit from stock .

cheers

Manish

Support and resistence levels are one of the most commonly discussed features of the stock market and for technical analysts, establishing the current support and resistence levels is an ongoing task. A support level is a price which the market thinks a stock will struggle to fall below. A resistence level is a price which it will struggle to rise above.

The most common resistence levels are the prices at which a previous advance was halted, the previous high. The most common support levels are those prices at which previous declines were reversed, the previous low. The reason that these levels provide support and resistence is mainly due to plain old human psychology. When a rising price approaches the level at which it started to fall last time, human nature makes people wonder if it will fall again. Many people who bought close to that level the last time round, sell in order to break even rather than risk another fall. This extra selling pressure can push the price back down. (more…)

Unlike other technical indicators which use on the concept of “relative strength”, the Relative Strength Index, commonly referred to as simply RSI, provides a comparison of the performance of a security, relative to itself.  

The RSI was developed by Welles Wilder in 1978 and has gained popularity because of the ease of interpreting it. It compares the magnitude of a stock’s recent gains to the magnitude of its recent losses and turns that information into an osciallator which ranges from 0 to 100. The RSI can be used to; identify overbought and oversold conditions, confirm other technical indicators and warn of potential reversals through divergence with price trends. (more…)

The use of trading bands or price envelopes has a long history and can be traced back to J. Hurst’s The Profit Magic of Stock Transaction Timing; in which he manually drew smoothed envelopes to aid in cycle identification. In the 1970s, shifted moving averages were increasingly used to identify trend changes and then Bomar Bands, which are constructed in order to contain a fixed percentage of the data, became popular.

Bollinger Bands were developed by John Bollinger in the 1980s and unlike other price envelopes use volatility to determine the position of the upper and lower bands. Bolinger Bands use a simple moving average of price as the centre line. The upper and lower bands are calculated by adding and subtracting a multiple of the standard deviation of the data. In essence, moving standard deviations are used to create price bands around a moving average. The standard Bollinger Band uses 2 standard deviations.

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Legend: Purple bars - put, Blue bars - call

Observations:

A simple look at two figures below explains bearish shift in the market. On 20th January, number of calls and puts at 2800 strike price were almost equal, while on 23rd January the same position is at 2700 strik price.

There is huge addition of puts for strike price of 2600 and 2500. This means investors expect market to go further down and hence wants to cover their positions from further sell off in the market. At 2700, there are fresh call additions and there are no significant fresh call additions at strike price of 2800 and 2900.

Analysis:

Investors are rolling down their positions on the NIFTY (build up in lower strikes and wind up of higher strike options)

• Smart money writing Puts at 2500 indicates next support expected at 2500
• Smart money writing Calls at 2700 indicates next resistance expected at 2700
• Clear bearish picture emerges from the Put-Call Distribution