Nifty intraday movement has become very volatile now. For intraday traders, this is a problem.

Check this intraday movement of NSE on Friday, 18-Dec-20. Intraday movement is more than 100 points:

Source: https://money.rediff.com/index.html

What you can do if you are an intraday trader?

Keep your profit target more than stop-loss every day. For example, if your profit target is 50 points a day then your stop loss should be 25 points.

Personally, I do not like intraday trading. I was caught doing it while in a job in 2007 and was sacked.

If you have a job you just cannot do intraday trading and also do your job. The fear of getting caught. The fear of losing and of course loss of focus.

Read the above sentence again. Do you think with so many problems one can actually trade intraday and make some money that too consistent and also at least 20,000 a month?

With positional trading it is possible. To make approx 20,000 a month you need a capital of 5 lakhs.

This comes to about 4% a month.

If you trade with 5 lakhs do you make 20k a month?

If not you can do my nifty and bank nifty course and start doing it without stress from next onward.

Some people ask me which course they should do first. Nifty or Bank Nifty?

The answer is – its better to do both as you will save some money.

If you do nifty course first, there is a high chance that you will do bank nifty also later. So you end up paying more. It’s better that you pay less and learn both. Become a good trader in both nifty and bank nifty options trading. The nifty course will teach you how to trade options for monthly income, and bank nifty course will teach you how to make money trading the weekly options.

So both the courses are important.

Click Here to check the course fee and enroll in both the courses.

Do not forget that you will just not get well documented and explained PDF files, you also get my support for one year to understand the strategies. Plus you become my paid subscriber and get paid emails for life that does not go to the free newsletter subscribers.

This email can be investment advice, a trade etc.

This post was written & posted on Monday, 30-Nov-20, therefore you may read some words as Today/Tomorrow etc. Please keep this date in mind while reading.

Some help was taken from these sources to write the article:
1) ZERODHA – India’s No. 1 discount broker, &
2) UPSTOX – India’s No. 2 discount broker.

If you click on the above link and open an account mapped to me I will teach you a good equity investment strategy where you will learn how to choose stocks for short term investment and how to choose stocks for long term investment. You will feel good choosing and investing yourself rather than depending on advisory services.

From tomorrow (01-Dec-20), the margin for Intraday trade will increase. Please note that exact margin may differ up to 10% from broker to broker – but in short, by Sep 2021, the margin will increase by three times for all intraday trades. Please read for more details.

Clearing Corporations (CC – https://www.nscclindia.com/ ) – will now take 4 snapshots of client positions at random times during the day and see if there was sufficient margin available with the broker at that time. If not, brokers will charge a penalty to the client at the end of the trading day.

A word on Clearing Corporation – NSE CLEARING, Website: https://www.nscclindia.com:

NSE Clearing Limited (NSE Clearing) (formerly known as National Securities Clearing Corporation Limited, NSCCL), a wholly-owned subsidiary of NSE is responsible for clearing and settlement of all trades executed on NSE and deposit and collateral management and risk management functions. NSE CLEARING was the first clearing corporation to be established in India and they introduced settlement guarantee before it became a regulatory requirement.

In other words, nscclindia.com will now have access to your trading account and will know what trades you are taking.

In this post, I will try to explain the margin changes coming into effect from Tuesday, 01-Dec-20.

Who will not be affected?

Options buyers will not be affected. The risk to buy options is blocked fully right from the day options trading started. It cannot increase from here, neither it will decrease in future.

But option buyers rarely make money.

Who will be affected?

Everyone other than option buyers. Intraday option sellers, intraday future buyers, intraday future sellers, intraday equity buyers and sellers. This will happen across the board, means the commodity traders will also be affected.

Here is some more bad news.

This margin increase is not final. They will keep increasing the margin with time. By Sept 2021 Intraday margin will match that of positional margin blocked. Please note that because there is just one day gap (not even 24 hours) for brokers to make changes to their software, there may be such that a client trade will go through without following the rules of the new margins. If that happens the brokers will charge a penalty to the client at the end of the trading day.

Here is how with time margin will increase and penalty that a client will face:

Dec 2020 to Feb 2021 — penalty, if margin blocked, is less than 25% of the minimum 20% of trade value (VAR+ELM) for stocks or SPAN+Exposure for F&O. The minimum margin the broker has to collect while entering a position is 25% of the prescribed limit.

March 2021 to May 2021 — penalty if margin blocked less than 50% of the minimum margin required. The minimum margin the broker has to collect while entering a position is 50% of the prescribed limit.

June 2021 to Aug 2021 — penalty if margin blocked less than 75% of the minimum margin required. The minimum margin the broker has to collect while entering a position is 75% of the prescribed limit.

From Sept 2021 onwards (final change) — penalty if margin blocked less than 100% of the minimum margin required. The minimum margin the broker has to collect while entering a position is 100% of the prescribed limit.

Advice: Try to take just one intraday trade from 01-Dec-20. Since the calculation is not easy it is better to avoid a penalty. With time I am sure software will be upgraded.

One more change – only 80% credit from selling holdings can be used on the same day for intraday. Till today (30-Nov-20) clients were allowed to use 100% of the credit from selling the holdings.

Here is an example:

If you had 100 shares of Infosys and sold them at a profit. Then imagine that, after you sold, price of Infosys dropped by 5% the same day. You want to book that 5% profit. Now, till today (30-Nov-20), you were able to buy back 100% of the shares – means you can buy back all 100 shares sold few minutes/hours ago, but from tomorrow (01-Dec-20), you can only buy back 80 shares as 20% money of the sold holdings will be blocked and released only after the trading day is over.

Frankly, I do not understand why they have done this. I sold my shares, so I should be allowed to buy it back. Not sure of the reason why SEBI has done this. There are absolutely ZERO risks for both the client and brokers in selling a holding and buying it back intraday. This can easily be treated as a Margin Intraday Square-up (MIS) trade. If you understand the risk please do let me know in the comments section.

Of course, had they blocked this for other intraday trades I can understand, but buying the same shares back the same day has no risk at all. Of course, you can buy back all of them if you have money in your Demat account for those 20% shares.

Here is another important change that you should keep in mind: Always first exit the high risk (margin) leg of a portfolio of your F&O positions.

Example:

Suppose you bought a Call Option (CE) at strike 10 and sold a Call Option (CE) at a strike 9. Now the sold option at strike 9 is completely hedged by the bought option at strike 10. The margin for this trade will be Rs. 30,000/- approx. in Nifty (as on Nov 20). Now suppose Nifty is rising extremely fast, and the sold option at strike 9 is losing money and is at huge risk. You want to liquidate the position due to losing money fast.

Earlier a trader could have exited the position by getting out of any one position first, and then the remaining position later. Now if you exit the bought Call Option at strike 10 first and then the sold Call Option, there can be a penalty. Why? Because once you exit the bought position – the sold option is a naked trade – completely unhedged – so even for 2 minutes if you keep that and by chance in that 2 minutes Clearing Corporations take a snapshot – you will have to pay a penalty.

Not sure how the real world will work out as there are no details on if the snapshot of the wrong margin used trades will be penalized, or brokers will see and snap a penalty. And for every second how will the brokers keep a tab? This change in brokers software in less than 24 hours is next to impossible. So some traders who do not know about the margin rules or do not read emails sent by brokers may end up paying a penalty for a trade written above or may not if they are not caught. But this will be for a limited time. I think within 15 days all top brokers would have changed their software and I feel they will not allow these kinds of trades to go through.

But who knows, greed is such a bad thing that some brokers may just love to eat money of their clients in the name of penalty where the poor clients will not have the power to fight. Honest brokers will not do this and make sure their clients are not able to trade trades that are supposed to fall under the penalty path.

The true picture will come out from tomorrow onwards.

So remember two things especially if you are an intraday trader from 01-Dec-20 onwards:

2. Exit the sold option or future first then the bought option or future to avoid a penalty. Exit the sold F&O position first even if it’s making a profit to avoid the penalty.

Hope this will help you to save a penalty.

Yesterday I had written that the current rising stock market is news based uptrend.

The question is how good news has to be that it keeps going up? Well, the answer is that there can be no news good enough that the markets will keep going up always.

WHY?

Well lets us go back to how stock markets work.

Very Simple Logic:

If Demand is more than Supply (there are more buyers than sellers), then the stock moves up.

Similarly, if Supply is more than Demand (there are more sellers than buyers), then the stock moves down.

When good news hits the market, traders and investors jump in with cash to buy stocks. This increases demand. Similarly, when a company shows great results you will see the stock in action – it goes up for some time or even days depending on the results.

And exact opposite happens. When bad news hits the market – investors panic and start selling the shares – thus bringing the stock market down.

The question remains – why then going up has a resistance somewhere and coming down also has resistance somewhere a.k.a support?

No, unlike what many traders beleive, candlesticks do not decide resistance and support levels. It is the news and limitation of investing that brings resistance.

Talking about a recent example – both down and up you can see this year 2020:

As you can see from 12000 levels – coronavirus news to less than 8000 in three months – and then lockdown ends – (good news) – so slight rise and then Biden wins – shooting up.

Can you now see a correlation between news and movements of the stock markets?

Just a small note on why more demand takes the stock up. Hope you must have seen Ask and Bid prices when you trade anything on your trading terminal. If you do not know – Bid-Ask Spread is typically the difference between ask (offer/sell) price and bid (purchase/buy) price of a stock. Ask price is the value point at which the seller is ready to sell and bid price is the point at which a buyer is ready to buy. If the demand is high the seller usually tries to keep the sell price of a stock slightly higher than LTP (Last Trading Price). Since investors are desperate to buy the stock, they accept the offer – thus taking the stock price higher.

Similarly when bad news hits the market/stock the investor panics and is willing to sell at whatever price they get. This time the Bid is lower than the Ask – frustrated seller accepts the offer taking the LTP lower.

When trading was done offline you must have seen such images in your news channels – I am talking about late ’80s and 90s:

This is where a broker is signalling a stock sell/buy price to another broker. If they agreed the stock price moved.

But now since its all online the broker’s job is limited to make sure the trading goes through online.

Hope I have made it clear how the stock markets. So if you want to be small-time investors (short term investor) then your best friend is the news, not any charts of a technical indicator – actually, they will become your enemy in the long run.

This is news based uptrend.

News 1: Joseph Robinette Biden Jr won the US election 2020. He is known to be pro-business and less anti-china. This is positive news for stock markets across the world.

News 2: Pfizer, BioNTech say their COVID-19 vaccine is more than 90% effective:
https://indianexpress.com/article/coronavirus/pfizer-says-early-data-signals-covid-19-vaccine-is-effective-7028254/

So two news both positive for the markets.

What amuses me is that so-called experts of stock markets will not admit this – rather they will make a confusing technical chart and fool people that look I had predicted a huge run for the markets because of so and so candlestick etc.

Seling candlesticks make money not looking at them and predicting market movements.

I suggest if you cannot stop yourself from trading then go for Call Debit Spread.

Most importantly, become a conservative trader, try to make 3 to 5% a month on the money used to trade. Anything beyond that is impossible to make. Too much fake profit screenshots are there in social media nowadays. I suggest just get out of these channels. They take one buy future position in one account and one sell future in another and show the screenshot of the winner. It’s that easy 😉

If you look closely they will not show call or put buy position at all as buying a call and a put seldom makes money.

When markets are near all-time high one should try to invest as little as possible. Or you can wait for a few days and then re-invest.

NSE as on 09-Nov-20:

NSE as on 09-Nov-20

Source: https://money.rediff.com/index.html

Why wait for a few days?

Because markets may retrace back / fall by about 2-3% and give you an opportunity to invest again.

When markets are at all-time high it is better to book profits and wait for a reversal back to mean.

Mean is the average of the numbers. It is easy to calculate – add up all the numbers, then divide by how many numbers there are. In other words, it is the sum divided by the count.

What is the best mean for stock markets?

Six months. Yes, I have seen that many times and actually benefitted from that – but it requires a lot of analysis to select stocks and then wait for the correct reversal to invest.

Or, if analysing stocks out of thousands available in the stock markets is difficult for you or you are very busy you can get my long term coupled with short term profit booking (waiting for reversal and re-investing) course for free.

No – this particular course is not for sale. The only way to get it is to open a ZERODHA / UPSTOX account mapped to me.

Here is the link to open a ZERODHA Demat account mapped to me – please click and register immediately to start the process::

CLICK HERE TO OPEN ZERODHA ACCOUNT MAPPED TO ME!

And here is the link to open a UPSTOX Demat account mapped to me – please click and register immediately to start the process::

CLICK HERE TO OPEN UPSTOX ACCOUNT MAPPED TO ME!

Benefits of trading with ZERODHA / UPSTOX:

There is a limit to invest your money in stock markets. Yes, ideally you should save 20-25% of your income and out of that 40% can be invested in stock markets.

Still, I do not advocate investing too much money in stock markets?

Let me give you an example.

Vijay’s take-home salary is 1 lakh a month.

– 25% saving is 25,000
– 40% of 25000 is 10,000
– In a year Vijay can invest 10,000*12 = 1,20,000 in stock markets which in other word is 10% of his take-home salary.

Assuming his salary is same for the next 30 years, or he invested Rs.1,20,000 for the next 30 years in stock markets and makes a return of 25% a year.

His invested money in 30 years = 120000 * 30 = 36,00,000 (36 Lakhs).

This is an investment that most can afford in 30 years, but the investment should not be made in one month or year – it should begin at a young age and by the time one needs money for financial goals like kids higher education in a foreign country or costly private colleges the money should be there.

At the end of 30 years, he would have Rs. 43,79,16,180.51 (Mind-boggling 43 crores+)
Total interest earned in the invested money of just 36 lakhs: Rs. 43,43,16,180.51 (Mind-boggling 43 crores+)

Can you see that almost all money Vijay gets back after 30 years is total money made from the stock markets? Assuming he started at 30, by the time he is 60 he will be richer than his own boss.

Today I got an email that I want to share with you.

Hi Dilip,

I have resumed work now (after coronavirus). Thanks for the promo of your new course. I only want to ask you is that whether potential revenues by way of referral commission from Demat accounts is enough to cover your costs or you have opened up this route recently and are testing the outcome? I will probably open a Demat a/c with Upstox and that I will map to you.

By the way, Nifty has today broken a modified Gann swing low (as per Marc Rivalland method) on 15-minute chart, at today opening. (14-10-2020).

Vivek

My reply was:

Vivek they pay me 30% of the brokerage generated. Yes, it’s less, but even 1 rupee is a rupee earned, right?

This is pure risk diversification (risk management is different). Me being conservative – not just in trading but in life – I cannot put too much money in stock markets even after knowing I am comparatively at par with some experts giving advice in moneycontrol or having Telegram channels of 50k people. This is risk management. I will pay a price if I do not follow. Actually, anyone will pay a price if they break the rules of risk management.

Nifty usually copies US markets, not technical. Tell me one reason – from 7600 to 12k in 4 months – where is economics? In fact, the virus is worst now and economics has not improved in the last 4 months. Nifty started to rise when US markets started to rise.

Thanks,
Dilip

Tip for those who trade directional future positional in Nifty: Read above – Nifty usually copies US markets. Try to copy what happened in US last trading day – with a stop loss half of the profits you want to take. Your success rate will be 70%.

What do you learn from my newsletters?

That be conservative in life – in spending as well as stock markets. The more you become conservative the more money will keep generating in your savings account and then route them in safe deposits like debt funds / FDs / Post Office savings etc. Keep a serious check. I write them down in an excel sheet every month. I assume less than 1% of earners do a simple thing as write down the savings and investments every month. It takes less than 15 minutes to do this check. Get alert if the savings go down by 10% in any month compared to the previous month. Check what mistake you did and never repeat the mistake again ever.

It is always advisable to keep 70% of your savings in guaranteed returns. Today the rate of Fixed Deposit is almost 6%. Yes, it’s less – but it’s not about money-making-money (even that’s good), but its more about saving for a better future and keeping the money safe with ZERO risk.

Here is Upstox link if you want to open an account mapped to me. If you are in 30% tax bracket, I suggest, to save taxes, open an account in your wife’s name. Learn to save money – there are many ways. This is one of them. Why pay 30% of the profits to the government when you can easily save it.

I will not name the broker, but you know that it does not allow selling deep out of the money option due to some reason – whatever – but with Upstox you can sell any option you want even if its 9% away – that’s guaranteed 1% a month. Please click on this link and open the account:

Of course, I will send a long term strategy combined with short term profit booking if you open an account mapped to me as a thank you gesture. It’s good if you don’t find time to trade options or futures and cannot monitor much the stock markets. It’s for investors who want to scale and are willing to wait for profits.

If you already have Upstox acc, you can learn the investing course by paying a small fee of 3500. You can click here and pay, (or pay by Google Pay to 9051143004). I will send you the course to your email for studying. If you have any doubts do ask me. Please note that its lifetime earning. You will lose only if you get stuck in a stock that keeps falling never to rise. But you will be doing this in 10+ stocks. Even if 2 fail – the rest will keep making money – in short term as well as long term. We will do scalping too in the stocks to take out small profits in between. You will learn everything.

Note that for stock investing there is no brokerage in Upstox too – so I make nothing if you just buy stocks. But that’s not important – what’s important is that you play safe and keep making over 20% return a year from stock markets. Start small then scale.

BTW, Ratan Tata has invested in Upstox. I am sure he must have done his research before putting his money there. He is a venture capitalist in Upstox – so he gets a share of profits every quarter.

Please take this email very seriously and become a conservative trader. I have many customers who want to trade with over 1 crore. I just fail to understand what’s the need? Have you ever asked yourself what will you do with that money? 1 crore needs to be saved first not to be traded.

If you can give good education to your kids and have more than 50 lakhs when you retire – that’s enough to live a peaceful retired life in India (as of 2020) unless of course, you plan to buy a Lamborghini when you retire. 😉

If you really have 1 crore spare, then keep at least 70% of it in safe deposits in 2-3 good rated debt fund. They make 1% more than FDs in the bank. Rest 30 lakh you can trade.

Hope you listen to me. If you have any question do ask.

In this article I will discuss when to trade Long Straddle and Long Strangle.

When should we trade Long Straddle and Long Strangle?

When the markets are volatile (very volatile) then Long Straddles and Long Strangles work well.

What is Long Straddle trade?

A Long Straddle is a combination of buying a call and buying a put, both with the same strike price and expiration. Together, they produce a position that should profit if the stock makes a big move either up or down. I have written in details about Long Straddle here that you can read.

What is Long Strangle trade?

The Long Strangle also called as Buy Strangle or Option Strangle, is a neutral strategy wherein slightly OTM (Out of The Money) Put Options and Slightly OTM (Out of The Money) Call Options are bought simultaneously with the same underlying asset and expiry date. Both the lot size of the call and put options bought must be same. I have written in details about Long Strangle here that you can read.

Please note that both Long Straddle and Long Strangle will benefit only if the stock moves a lot in any side. It is very important that when these trades are placed then Vega must increase to negate the theta depreciation.

India VIX is a measure of Vega that you can see here.

What is the problem with Long Straddle and Long Strangle?

The problem comes when the trade is placed near to expiry and the theta depreciates very fast. In that case, even if there is huge volatility the options may lose their premium faster than delta increase. The trader in that case may lose money.

However, if there is enough time left for the expiry and Vega increases – then Long Straddles and Long Strangles will work very well.

But trades get confused to trade between the two. So which one is better?

I suggest that if enough time is left for expiry then go for cheaper options – Long Strangles are better when there are a minimum three days to expiry. They are cheaper because the trader buys OTM (Out of the Money) options.

So what is the con? In a Long Strangle trade, the stock or index needs to make a huge move either side to succeed any time before expiration, not necessarily at the start.

Long Straddle on the other hand comes at a cost as the trader buys ATM (At The Money) options – but the move they need to succeed is less. However, since they are costly it’s advisable to trade them when the expiry is near like one day.

Let me compare Long Straddle vs a Long Strangle on bank nifty.

Here is the current spot of Bank Nifty as on 13-Sep-20 (EOD – Sunday):
22,479.95

Bank Nifty 13-Sep-20

Source: http://www.moneycontrol.com/terminal/index_v1.php?index=23

So the Long Straddle trade for options expiring on 17th-Sep-20 is:

BUY 22500 CE (Call Option) Premium is 355.00
BUY 22500 PE (Put Option) Premium is 294.20

If you are wondering why there is a price difference between the ATM CE and PE then the reason could be that traders are anticipating that Bank Nifty may go up – due to huge demand of the Call option and less demand of the Put options – the prices may differ even if one is slightly in the money and the other is out of the money.

If you look closely then in the above situation the Call option is still Out of The Money (OTM) and the Put option is slightly In The Money (ITM), yet call option is costlier than the put option just because the option sellers are not willing to sell a call option at a lower cost. In the actual marketplace lots of bargain goes on – this bargain leads to the disparity of premium of the call and put options even if they are equidistant from the current stock price.

Today is 15-Sep-20. Here is the current spot of bank nifty as on 15-Sep-20 (11.15 am markets are open – Tuesday):
22,186.05

Bank Nifty 15-Sep-20

Now let me calculate the difference:
22,479.95 – 22,186.05 = 293.90

And the premiums of
22500 CE (Call Option) Premium is 173.00
22500 PE (Put Option) Premium is 457.00

Let’s total to see if the trade is a winner:

355.00+294.20 = 649.20 (As on 13-Sep-20)
173.00+457.00 = 630.00 (As on 15-Sep-20)

So that’s 649.20-630.00 = 19.20 points loss.

For a 300 point move the Long Straddle was not profitable – nevertheless not a huge loss as well. So you can conclude that for a Long Straddle to be profitable minimum 400 points move is required in Bank Nifty index 2 days to start seeing some profit, or there will be a loss.

Now let me check if the trader took Long Strangle on the same day – 13-Sep-20 – to see which one performs better for the same move.

I have made 300 points OTM (Out of The Money) Long Strangle in Bank Nifty. Here is the trade:

(22500 + 300) = 22800 CE: Premium = 213.40 on 13-Sep-20
(22500 – 300) = 22200 PE: Premium = 203.05 on 13-Sep-20

And now currently on 15-Sep-20:

22800 CE: Premium = 104
22200 PE: Premium = 236

Now lets total to find profit or loss:

Note that time and date for the below premiums are when on 15-Sep-20 Bank Nifty was at 22255.00:

213.40 + 203.05 = 416.45
104.00 + 236.00 = 340.00
Loss = 416.45-340.00 = 76.45 points loss

That’s huge loss compared to Long Straddle.

Conclusion:

Just because Long Straddle lost less than Long Strangle – it does not make it a better strategy. If the move is bigger, Long Strangle makes more in percentage terms than Long Straddles. Not to forget that Long Strangle trade setup requires less money than Long Straddles. However everything depends on the move. If the stock moves a lot both will be profitable and if the stock moves less both will make a loss. Long Strangle will make more loss than Long Straddle but on the other side Long Strangle will make more profit than Long Straddle in a huge move.

So why trades lose money trading Long Straddles and Long Strangles?

They lose because they want immediate profit. Please note that it takes some time for the stock or index to move further from where the trade was taken.

What is the best time recommended to wait for a move?

I recommend waiting for 2 trading days before taking off the Long Straddles or Long Strangles.

What is the best time recommended to trade Long Strangle or Long Straddles?

At least 5 days must be left for the expiry. It is suggested not to enter Long Straddles or Long Strangles when only 3 or fewer days are left for the expiry. This is the time when options lose the theta (time) value very fast. Even a good move may not be sufficient to overcome the time lost in the options.

Hope after reading this post you will be able to trade Long Strangle or Long Straddles better. If you have any questions please ask in the comments section.

Today I received an email from one of my subscribers that I believe most of the traders think most of the traders think the same way. So I have shared his email here.

What he believes?

That the stock operators and brokers control the stock market price action. Since they want traders to lose money – most of them play against them and operate the stock in such a way that it almost always hits the stop loss – thus making them money.

However, let me tell you that this is simply not true. Assuming that even if its true, stock price manipulation by any mean other than demand and supply is illegal in India. One day or the other they will get caught and their license will be cancelled. No broker can take a risk with their business license for a few thousands rupees a month. But the main reason is that stock brokers are just that stock brokers, they can help us to get a trade go through, they do not have access to main sources/resources where final transaction between a seller and a buyer is done. Therefore there is no way they can manipulate the prices.

Having said that, stock price can be manipulated by illegal means, but right now this post talks about brokers only – so I leave that for another day.

Here is his email:

Hi Dilip Sab, many thanks for all your emails, I am gathering some confidence in your Tutorials, I have some questions. I have been Trading in Equities for the last 4 years and have finally lost huge money, not because of my wrong market analysis, but SYSTEM itself is corrupted. I was using STOP LOSS wisely. Say at placing order after market stabilizes at entry price and gradually keep raising as the price move up. Always the operator at the Board reverse back and cancels and climbs up fast, even if I think of re-enter the stock, it will be at much higher price thereby reducing my profits. Then I thought of putting STOP LOSS at the purchase price itself. Here believe me, the operator starts coming down slowly even 20/30 rupees and cancels and climb up very fast where re-entry is at very much at very high price, so net result is loss. This is when the market is in Ist & 2nd hour.

The next experience is, if the market falls, operator cross the STOP LOSS mark duly cancelling the TRIGGER PRICE and go down very fast, wherein you have to use SQUARE OFF option which is always at a very low price.

Next experience is say you have to sell of the stock when the movement is not there, by putting SELL option say for example Price of 100, the operator will never cross that 100 mark, on the contrary he keep playing between 90-99 and to induce excitement, even he will touch 99.95, even 100 and stage back. Unless it crosses 100 sell off option will not be executed. It invariably forces one to use the SQUARE OFF option leading to considerable loss.

Next experience, say. if I think I am very wise, NO, and if I modify my sell price to say 99.50 and confirm, price falls very rapidly and quickly to say to 99, (This may be programmed in the Computer in advance) somehow you are forced to use SQUARE OFF option which is always say 3 or 4 Rupees less.

This is how I have lost my wealth. I consider this is purely a GAME of Stock operator and Broker AND not all it is Shares Buying/Selling most of the time, of course there may be one or two exceptions.

Having Stopped Trading in Equities, I want to try FUTURE/OPTIONS in ONLY NIFTY to recover some of my losses. Please advise me, will same thing happens in F&O also, when you say talking of HEDGING, is the same trick exits there also and how effective is Hedging and Rules connected with if it fails to protect my money which will be the very huge loss and end of my Trading career.

Now I shall await for your Expert Opinion to think further in the matter.

With regards,
H Ramachandra

Since you have read the email, think hard. Is what he is saying possible? No.

I have already given the reason above that brokers cannot at will manipulate any option or strike price. Its a global pricing. Someone in Africa will also see the same LTP (last trading price), as someone in India. Billions of trades are going on when the markets open for trading – it is virtually impossible to manipulate all these trades in a particular stock or indices. Just to make a few bucks from one single trader a broker will not try to do anything illegal.

Moreover systems are in place to control price manipulation.

Still one cannot completely deny that some powerful brokers have taken unethical paths to make profit from their clients money or stock holdings. Please note that when they do all or majority of their clients suffer. When they decide to do something illegal they want to make it big not small so that if they do not get caught they end up making millions.

In November 2019 SEBI banned Karvy Stock Broking Ltd (https://mfs.kfintech.com/mfs/) for pledging clients’ shares and transferring Rs 1,096 crore worth of clients’ securities to its group company Karvy Realty Pvt Ltd WITHOUT their consent.

Once this was known investors with Karvy demat accounts had to transfer their securities and close their Karvy demat accounts. It will be considered as off-market transfer and investors need not pay any capital gains tax. Transferring select securities attracts charges, transferring all securities does not.

As you can see investors did suffer for some time but later were able to exit from Karvy. So yes stock brokers can manipulate the portfolios of their investors but not pricing of stocks.

Please do not worry after reading the above as SEBI has put in place stricter rules and regulations for stock pledging for all brokers after this fiasco.

However, investors still need to be vigilant, as dishonest brokers may find ways to subvert the system. Today discount brokers have given a though competition to small traditional brokers. But even a big broker may try something that may get you in a problem. Struggling with cost of survival, many big brokers are known to indulge in such practices. I gave one recent example above.

Which broker is likely to do such malpractices?

Brokers who over-leverage themselves resort to such doings.

That should not stop investors to invest in stock markets. You can safeguard against fraud. Here are some tips:

1. Make sure your mobile number and email ID records are updated with the depository.
2. Check SMS or email statements sent by depository after every transaction in Demat account.
3. Ask the broker to furnish ledger balance and stock statements at least once in 90 days.
4. In case of fraud or inaction by broker, make timely complaint to the depository.
5. Avoid keeping excess money in broking account; transfer money from savings account only at time of purchase.
6. Avoid keeping signed delivery instruction slip with broker for offline trades.
7. Open your Demat account with banking brokers for better safety.
8. Study the financial health of the broker

Some other safety tips to keep investments safe:

You can register on the portals of either NSDL or CDSL and get all details related to your holdings from these depositories online or using their mobile applications. For example, CDSL offers an ‘Easy’ facility to view the Demat holdings and transactions and an ‘Easiest’ option to view and transact in your Demat account.

Users need to reconcile their holdings regularly with depository statements — specifically number of shares and not value of shares — sent every month. NSDL sends an email every month of all holdings in stocks and mutual funds which you must check.

Is there any solution to any fraud if it happens?

The only practical solution to any such frauds in the financial sector is complaining to SEBI immediately after noticing any discrepancy or malpractice. Before posting your problems on social media, you should promptly bring the issue to the notice of the concerned authorities.

Hope the information helps.

This is INDIA VIX on 31-Aug-20 at 1.19 pm (Source: https://www.google.com/search?q=india+vix):

INDIA VIX 31-Aug-20
INDIA VIX 31-Aug-20

This is NSE on 31-Aug-20 at 1.24 pm Source: https://money.rediff.com/index.html:

NSE 31-AUG-20

Can you see that both are inversely proportional?

Check out this post where I had also given a caution of India VIX surging and NSE falling.

What can you make out from a surging India VIX?

That when India VIX surges NSE will fall and vice versa.

How can this help the directional traders?

Well, this will not help 100% of the times, but if from 11 to 11.45 am you see that India VIX is surging then you can short Nifty futures and if from 11 to 11.45 am you see that India VIX is filling then you can buy Nifty futures. However, this trading must be done Intraday only. Next day the situation can change and you may see the position reversing.

Why India VIX Surges?

India VIX (Volatility Index) is a measure of PANIC in Indian markets or the environment. This could be due to some business news like good results/bad results/RBI policy/Budget etc and political news like it happened today (31-Aug-20).

Here is what happened today that spoofed the markets and India VIX surged:

Intrusion by Chinese troops in Eastern Ladakh gave enough ammunition to stock market bears to push domestic indices sharply lower on Monday, wiping off all morning gains. A general profit booking also weighed on the indices, analysts said.

Source: https://economictimes.indiatimes.com/markets/stocks/news/sensex-plunges-900-points-from-days-high-what-triggered-this-sudden-crash/articleshow/77847411.cms?

As I am writing this article at 1.47 pm Sensex is down by almost 700 points. This is the reason why India VIX is a very important factor to look at before taking a trade especially if its a directional trade.

Full-time traders like me, have time to read news and then take a decision to go long or short for the day if they decide to do Intraday trade, however people who have a job or are busy may not find the time to read the news. So for them, India VIX gives a good indication to take a trading decision.

However, for non-directional trades India VIX is not that important measure as either way they make money in 75% of the trades. My course strategies are mainly non-directional trading only. A non-directional trader may not look at India VIX if he/she decides to take a trade, however its a very important indicator for a directional trader.

People all over the world do absolutely no planning on how much to invest in stock markets. They just keep investing on gut feelings, as much as possible, to recover losses. This is a poor money management skill. In this article I will help you learn how to properly plan investing in stock markets. This post will help you a lot to plan your investments in future in stock markets, especially if you are young.

Contrary to traditional belief, you do not need too much money to start investing in stock markets but you must know where to invest. In fact it is very important for a beginner not to invest too much money at the very beginning. It is important that you separate the cash that you want to invest in stock markets from what is needed to live a life. Never take a risk with the money you cannot afford to lose.

As a thumb rule, not more than 10-15% of your salary should be invested in stock markets. Which means if your take-home salary is Rs. 50,000/-, then at max invest 5000 – 7500 per month in stock markets.

This can be done for 24 months. Which means once your investment in the stock market equals two years of your salary – you should stop investing in stock markets unless you start making profits.

In other words, if you invested for 2 years in stock markets, 10-15% of your salary then at the end of 2 years if:

a) You are making losses – stop investing any more money in stock markets – educate yourself – start paper trading.
b) You are making profits – you can keep investing up to 20% of your salary in stock markets – but up to the next 10 years only.

Here is some calculation. Ram’s salary is 50,000 pm. He starts investing 10% of it in stock markets for 2 years.

5000*2*12 = Rs. 1,20,000 invested. He is making profits. How much here is not important – what is important is that he is making profits.

He now decides to invest 15% of his salary in stock markets for the next 3 years. His salary now is 60,000.

9000*3*12 = Rs. 3,24,000 invested.

Since he is still making profits he decides to invest 20% of his take-home salary which is 75,000 per month now, for the remaining 5 years.

15000*5*12 = Rs. 9,00,000 invested.

Total invested till now in 10 years: 1,20,000+3,24,000+9,00,000 = Rs. 13,44,000/-

That’s it, he decided to control his greed and stop investing in stock markets. He will from now on invest in fixed deposit schemes in banks, liquid funds and post office schemes.

What you read above is proper money management.

Assuming that Ram got the job at 25, by this time his age is 35. He is still young and has a growing portfolio of more than 13 lakhs in stock markets, plus he is now free to invest in guaranteed return schemes by the government. By now his salary is 1 lakh pm and he invests 25% of it in FDs giving a return of 6% a year.

Assuming that his salary increases, but he still is able to save only Rs. 25,000/- per month as his expenses have also increased.

Suppose his stock market returns are just 25% a year – here is the calculation of what he will get when he retires at 60 (calculated as Rs. 13,44,000/- giving an ROI of 25% a year for 35 years):

Well, it’s coming too much therefore I am not showing you the calculations. You can see for yourself here.

Ok, here is what he will get at retirement (age 60): Rs. 108,56,74,553.98 (One Hundred Eight Crores+)

Well that looks like too much, so let’s reduce it to 20% return a year (calculated as Rs. 13,44,000/- giving an ROI of 20% a year for 35 years):

Future Value: Rs. 31,90,33,765.75 (Rs. 31 Crores 90 Lakh+)

Did you notice even 20% a year will fetch you amazing returns – then what is the need to try 10% a month which is equal to 120% a year? Making 10% a month for a long time in stock markets is simply impossible.

Now here is what he will get from his fixed deposits:

Here is the calculation for Rs. 25,000/- deposit every month for 25 years giving an ROI of 6% a year:
Final investment value: Rs. 1,70,96,817.59 (Rs. One Crore 70 Lakh+)
Total interest earned: Rs. 95,71,817.59 (Rs. 95 Lakh+)
Total monthly deposits: Rs. 75,00,000.00 (Rs. 75 Lakh+)
Effective Annual Rate: 6%
Even 6% is a good return.

Total at retirement Ram will get:
31,90,33,765.75 + 1,70,96,817.59 = Rs. 33,61,30,583.34 (Rs. 33 Crores +)

Isn’t that enough money to fulfill all financial goals and live a great retired life even in 2050?

Do not forget that Ram was still living a good life when he had an average paying job. By the time he was 40, he had a good income spread over many investment vehicles that he can withdraw to buy a car, home, and other expensive items without too much financial burden on him.

Can you see proper money management can help you live a good life? Assuming that his stock market returns turned negative or gave some loss when he was 60 and withdraw all the leftover money – still, he has over one crore 70 lakh rupees to live a comfortable retired life.

Hope this article will help you to plan your investments in stock markets wisely. Be very conservative with your trading and your story may be same as Ram in this article. I will be very happy if that happens. 🙂