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When there is no movement in Nifty it becomes very difficult for option traders to decide what direction to trade – in fact same for future traders. See this:

Nifty 25-06-18

Its like a small mountain – down, then up, then down, then up, but over all its just 26 points move – so which direction to trade?

This is confusing for traders.

This is the reason trading volume in derivatives drop when there is little movement in Nifty. By looking at the intraday chart most traders will buy puts only to see Nifty rising to hit stop loss and then fall.

Call buyers will have similar fate.

Its sad that in-spite of this traders keep trading on hope to see success.

Here is one such trader who is my free newsletter subscriber since long but is still not willing to do my course because he believes 3% a month is too less so trying out technical. I do not believe technical analysis because technical analysis is past not future. The 3 or 10 red candles consistently, does not guarantee that next candle will also be red. Then in that case isn’t technical pure gambling? In fact I Googled for “person who made a lot of money by trading technical analysis” – the result was like what is technical analysis, will it make money etc. But no names were given in Google search.

See how he is failing in technical too – though now he is slowly understanding the importance of hedging after probably losing money trading by technical indicators:

Until and unless you have a plan that works and you have hedged your position properly all you are doing is gambling. If you want to continue gambling in the stock markets I have nothing to say. But if you want to start real trading with proper practice you can do my courses.

Nifty is for beginner traders and bank nifty is for experienced traders. Since the support is for one year its better to do both the courses with a discount. Click here to know the fees and pay for the course.

See this bank nifty intraday profits:

After paper trade client trades one lot:

Rs.208/- profit intraday. Results may vary for users

Then he got exited and traded this:

Took some risk and traded the bank-nifty aggressive strategy in Voltas and made a stellar profit of Rs.37,650/- in a single day. Results may vary for users

I told him to calm down and take it slow – stock markets will not close tomorrow:

So this:

Rs.17,952.00 profit again in a single day. Results may vary for users

Then this:

Rs.18,192.00 profit again in a single day. Results may vary for users

He is still doing great almost everyday.

If you are a trader losing money my course will help you to make a start like above though it might take you sometime to send me such testimonials.

But somewhere down the line you have to start.

Nifty is for beginner traders and bank nifty is for experienced traders. Since the support is for one year its better to do both the courses with a discount of Rs.3000/-.

Click here to know the fees and pay for the course.

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In this post you will learn 10 rules of successful trading.

Problems start from misconception of share market. It all starts with “Share Market is Gold – I will invest and become very rich very soon and leave my job”. Well dreaming is ok but over-dreaming is not.

Its not the fault of a new investor or trader – the way things are marketed – its their fault – the media and people who get benefit from your trading like tip providers, trading software providers, high cost brokering firms etc.

And yes some fault lies with people I mean you too – most of them even today believe that traders who have done technical analysis are laughing to the banks every day. They also believe that there is some magic where they can make 50k every month from 50k. This is simply not possible. But to make 50k a month they start losing 50k a month but still do not understand unless a big damage is done.

I was having a chat with a trader who said that 3% a month is very less – technical analyst make 2000 everyday with 50,000.

My next question was – please name that person I will pay him 25k to learn what he does.

Silence…

2k everyday with 50k is 44k a month (22 trading days a month) – this is a return of 88% a month. 88*12 = 1056% return a year… does it make sense?

If you have something in mind – all you have to do is take out a calculator and see if what you have heard makes sense. If not – do not believe in any theory that does not support what you are not seeing on Earth.

I agree some people may be doing very well trading options or futures – but they are less than 0.1% traders in the world. Ravi is one of them – but the question is can you reach that level? If yes how fast? Have a look at this:

Rs. 16.26 Lakhs on Rs. 38 Lakhs margin blocked

Rs. 16.26 Lakhs on Rs. 38 Lakhs margin blocked – 42.78% return in 5 trading days – Results may vary for users

The above you are seeing is real trade results but exceptional. He is still doing very well but I am yet to find another Ravi. Yes some of my clients are doing very well but they are still not near Ravi.

It’s a myth that you can double your money every year in stock markets – this even an excellent trader like Ravi is not able to do. So what makes you believe you can?

Frankly there is not hidden formulae. To be successful trader you must have a good logic, proper hedging, patience and discipline. And there is more – in one financial year if you took 12 trades and DID NOT lose money – then welcome to the club of successful traders. Please note I am not talking about profits here – I am only talking about NOT LOSING Money in a total of 12 trades or an entire year with minimum of 12 trades. Then your next target should be 10% – 20% – 30% a year. Anything more than this – you have to do a lot of research and hard work. With my courses I can help you reach level one which is more than 25% a year – anything more you have to do your own research which Ravi did and succeeded.

Read what you should have in you to be a successful trader and investor – the Top 10 Rules of Successful Derivative Trading:

1. Time is Money:

If you have decided to be a trader then get all the knowledge possible to set up your trades and start paper trading. Do not put money on the line if you are researching something. Do paper work or home work like you used to do in school. Once you get a good strategy start trading. Wasting time on speculative trading does not only destroy your money but your time also. The more you delay the more profits you are losing. The more time you are losing the more time you are letting go the power of compounding.

2. Increase your trading income once you see success:

You see 3% of one lakh is three thousand, but 3% of one crore is 3 lakhs. Can you see the difference? Percentage wise both are same but money wise 3k vs 3 lakhs. If you start with 1 lakh and start seeing success, bring more money to the table to increase your returns. Even if percent remains same, you will make more every month.

Side note: If you are making more than 10,000 per month from trading – take out 20% of it to enjoy your success. Watch movies, eat in costly restaurant, go on a vacation etc. You see you should not leave all the money for compounding – just take out a small portion to enjoy your hard work else after some time you will lose interest in trading.

3. Trading has nothing to do with bear of bull markets:

Bear market is good for investing and bull market is good for booking profits but only for stock investors not traders. Remember the phrase “Buy when everyone else is selling”, by none other than Warren Buffett. This still stands good for investors but for trades time is short – expiry comes in one month so you cannot and should not take your trades based on bull or bear markets. A bull market or a bear market is not for one month – it runs for months or years. For example the 2007-08 bear market and then 2009-10 bull market. It took three years to complete a bull market and a bear market.

So do not take your trades based on bull or bear market – take your trades based on your research.

4. Look for yearly returns not intraday returns:

It’s foolish that most traders start with Intraday without any research or plan and lose money almost every-day. They look at everyday return for fun. Everyday return is not important. A months return is important and more important is yearly return. You will certainly not be able to make profits in every trade but you must limit your losses to ensure you are in the game for long.

5. Think 5-6 years from now not next month:

Most traders want to get a return of two-three times in the next six months. They so not have patience to wait. You have started to invest and trade that’s fine but do not think your life will change in a month or six months. It will take about 5-6 years for your life to change. Be patient till that time but do not take the current time easy whether you are losing money or you are making money.

Note your trades and study them everyday. You should write why you took a loss and why you took a profit. If you study your trades with time you will become a smart trader.

6. Do not trade with all your money in one strategy:

Strategies require a certain amount of money. If you find a good strategy that’s fine but its always better to find other strategies that work in different market situations so that you can divide your cash. In my Nifty and Bank Nifty course you will get strategies for both volatile and non-volatile market condition. The idea is to make sure your cash is divided into different strategies.

This will keep you relaxed.

7. Do not take a loan to invest:

I have said this several times in my blog. Here is one article that explains it well.

First get rid of your debts then invest in stock markets. If you trade with loaned money you will be under severe stress and you may not be able to perform at your best.

Trade with the money that you can afford to lose to some extend not all.

8. Trade in strategies that have limited risk:

You must make sure that whatever strategy you are trading – it has limited risk. If you are trading positional futures and not hedging it then you are playing with fire. Future trading is leverage on top of that no hedge is financial suicide. You may not survive for long trading naked futures. You can learn future hedging in my course.

9. Keep reading business news:

Factors that affect stock market should be known to you. These factors are market movers. For example as soon as the Nirav Modi case came out, it was clear that PNB stock will fall. A good trader would have gone short in PNB with proper hedge and of course you know the result. Business news can help you take trading decisions. Keep one hour aside everyday for reading news. Please ignore what experts say – that is not news – I am talking about real business news – what has happened, not what experts are saying.

10. Never repeat a mistake:

If you repeat a mistake you will see the same result. Once you know your mistake write it down and never repeat it. Please note that occasional losses are fine but mistakes are not. Mistakes are like not taking a stop loss ever after you had defined a stop loss. Not taking profits in hope of higher returns. Trading without hedge etc.

Hop you learned top 10 rules of successful derivative trading in this post.

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It’s a myth that technical analysis works great in stock market trading. Technical Analysis is just a beautiful drawing of the past but not an assurance of the future. Otherwise all technical analysts would have been sitting in huge pile of cash trading the stock markets. But this is not happening.

There was a time when I used to believe a lot on technical analysis but I saw that it had a success rate of only 50%.

If you also trade on 5 min candle stick charts you will know what I am saying. TA is a beautiful presentation of what is happening in the markets but NOT what will happen in the markets.

When I saw the success rate to be 50% then I thought what is the difference between speculative trading and technical analysis? To me they both are same. I know may be you will not agree with my views as you are hearing it for the first time in your life.
I don’t know but maybe some guys are really good at it and are making a killing using TA. But they must have great methods. The real picture is, for most, Technical Analysis does not make money. And this I am saying after talking to at least 25 traders who are doing Technical Analysis in stock markets. 100% of them lost money using TA.

Social Science Research Network – a research company based in US, did a research on individual traders doing Technical Analysis and found that most traders doing TA lost money. Here is the link.

If you want to download the research report you can download it here.

Here is the abstract:

We find that individual investors who use technical analysis and trade options frequently make poor portfolio decisions, resulting in dramatically lower returns than other investors. The data on which this claim is based consists of transaction records and matched survey responses of a sample of Dutch discount brokerage clients for the period 2000-2006. Overall, our results indicate that individual investors who report using technical analysis are disproportionately prone to have speculation on short-term stock-market developments as their primary investment objective, hold more concentrated portfolios which they turn over at a higher rate, are less inclined to bet on reversals, choose risk exposures featuring a higher ratio of unsystematic risk to total risk, engage in more options trading, and earn lower returns.

Anyway if you still want to learn technical analysis its your choice – but frankly you will get the same answer as mine. It works only 50% of the times. And if it works 50% of the times – the rest 50% of the time when you lose money it takes away whatever you made in the 50% of the profitable trades.

In any case if you have to limit your unlimited loss you should learn proper hedging. And then there are strategies that are direction independent in my course which even a new trader can learn and start making monthly income.

You are struggling to make profits trading because you are trying to make too much from trading. This is where you are doing a mistake. If you had made just 30% a year in last 4-5 years of trading you would have had a lot more money in your account than what you have today.

You can do my course and learn strategies both conservative and aggressive to make trading profits. Low risk Low Returns to Low Risk High Return Strategies are there in Nifty and Bank Nifty Course.

If others can learn and do good why can’t you?
What traders say about this course.

Course fees details is here.

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In this article you will learn how to trade using the risk to reward ratio.

Risk to Reward Ratio is the concept where a trader knows before taking a trade where to take a stop loss and where to take profits out.

A novice trader never writes anywhere before taking a trade where to take a stop loss. However an experienced trader knows very well what risk he is taking in a trade and what reward he is expecting. An experienced trader will never move away from a decision he/she takes.

Let me take an example of a Long Call. Let us assume that Nifty ATM CE is trading at 100. A novice trader will buy it “thinking / hoping” that Nifty will move up without realizing that options have time value that melts away with time if there is no move. They treat an option buy equal to futures buy which is not.

However an experienced trader will write somewhere where he will exit the trade either profit or loss.

Side-Note: I have seen new option trader averaging out option buy if the position is going in loss. IT IS VERY DANGEROUS TO AVERAGE OUT AN OPTION BUY IF IT’S GIVING LOSS. In fact if an option is making a profit you must not still buy more of it in hope of bigger profits. Once an option buy or sell is done you must not increase the lot size whatever happens. You may decrease the lots when the trade is on – its perfectly ok – but you must not increase.

Before taking the trade write somewhere where you have to exit

Taking a call where to take profits and where to take a stop loss is not as easy as you may think but with experience it gets easier.

I have written here how to use the trailing stop loss method. This will help you to decide how to take stop loss.

You see if you are trading with many lots you can take your time to take both trailing stop loss and trailing profits.

Here is an example:

Anil bought 5 lots options of XYZ stock at 50. Now its 55 he exited one lot. Four lots left, 5 points profit. At 60 another option sold. Three left and 15 points profit.

Option is back to 50. Anil decides to sell two more at 50 and keep one. Sold off 2 more lots. One lot left and 15 points profit. Option is now 45. Anil takes a stop and takes a loss of 5 points.

Trade over total profit = 15-5 = 10 points. Assuming 1 point equals Rs.1000/- which is quite common in stocks in India. His total profit stands at Rs.10,000/-.

Assuming 500 goes away in brokerage and STT 0 still he is left with Rs.9500/-.

Can you see a well-planned strategy can yield great results? If he did not take a stop loss at 45 and waited in hope that the option will reverse then he could have lost (15-45 = -30) Rs.30,000/- in a trade where he made more than 9k profit.

I hope it is now clear that Risk to Reward Ratio is NOT what your software made a P&L graph for you. It’s not final – the Risk to Reward Ratio is what YOU DECIDE and NOT what a graph decides.

Here is the Risk to Reward Ratio of a Buy Call Option – but reality is where a trader decides to exit. This P&L graph gives an illusion that option buy is an unlimited profit – many traders fall in this trap and do not book profits waiting for MORE profits because they fall for making an unlimited profit according to the P&L graph.

Long Call Risk Reward P&L Graph

But the fact is Long Call or Long Put is not unlimited profit – you have to decide both your risk and reward – failing which you may lose all your money in this trade.

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One of the best ways to short stocks, nifty or banknifty is on a bad news. I am a great fan of bad news. See this chart of PNB after the news came out of the Nirav Modi scandal. The Punjab National Bank scam came to light on 14 February 2018, and since then it has been a downhill ride for the Indian Banking community especially PNB – Punjab National Bank.

See the downhill chart of PNB from the news came out:

PNB Stock Chart 13-Feb-18

The downhill continues for months for PNB:

PBN on 18-May-18

It is almost certain that a stock will fall heavily when bad news hits the company. Resignation of a top manager, employee specific scandal, tax hiding getting caught (like Satyam), any illegal activity – even a small illegal activity will take the stock down by 5%.

Remember the Axis Bank scandal during demonetization in 2016? See this how Axis Bank fell from 490 to 432 in about a month:

Axis Bank 8-Nov-16

Then it started to go up slowly.

Basically when a bad news is hit it is almost certain that a stock will fall heavily. However when a good news hits, the stock may rise approx 5% only.

Why this happens?

Because fear of losing money spreads very fast and people take out their money as soon as possible without even reading the news properly. But when a good news has come in a company, people start reading the newspapers to verify the news, try to figure out the outcomes, start seeing business channels – by this time the smart investors (HIIs and DIIs) have already bought the stock in huge quantity – they know very well the late comers (retail traders like you) will join the party at the top of the hill – this is the time they start to sell.

Who loses? Retail investors.

However if you track how a stock behaves to bad news vs good news you will see that impact of bad news is much higher than the impact of good news.

The scandal of Punjab National Bank broke out on 14 February 2018, but the stock has not yet come out of the shock of the bad news till now.

PNB stock falling since the news of scandal

So when to sell a stock?

As soon as a bad news hits the company. Read newspapers looking for bad news in any company and see if there is derivative trading allowed there. If yes do not waste time in shorting the stock. Of course this can be risky. If the management comes out with an announcement to counter allegations, then the stock may rebound within seconds of announcement. Therefore it is very important to hedge your traders to make sure that the risk is minimized.

In my Nifty and Bank Nifty course you will find strategies where you can learn hedging and also get strategies to make monthly income consistently without worrying too much about your money and the direction of the stock. Wherever the stock goes you can make a profit.

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Learn the psychology of option traders and learn why they lose money.

There are certain days when Option Buyers make small profit and Option Sellers lose HUGE.

Look at this graph of Nifty on 07-June-18:

NSE 7-June-18

There is no stopping.

What does an option buyer think?

Wow huge profits – buy at 10 am and sell at 3 pm.

But what happens in reality? Buy at 10 am and sell at 10.30 am. A very small profit and then regret of leaving money on the table.

And what happens to option seller?

Sell at 10 am on the hope that Nifty will fall down – but do not exit at 11 or 12 or 1 or 2 because of the HOPE that Nifty will fall and they can exit in profit. Ultimately exit at 3-3.25 pm with a huge loss.

When you become a buyer you take a small profit and exit and regret later leaving more profits on the table and when you become a seller you take huge losses in hope of reversal.

This life of a trader when he trades without a plan, without hedge, pure speculative trading or worst way to trade – take tips.

If you keep trading like this you will NEVER succeed as a trader.

You must learn to trade with a plan, learn to hedge and take help from a mentor to trade correctly.

You must not lose money to make huge money – that is the MOST IMPORTANT PART OF TRADING OR INVESTING.

Today morning I got a call from someone who lost 7 lakhs due to tips providers in a single day. If you will not learn trading yourself you will go to tip providers and lose even more money.

So if you really want to be a good trader and trade without stress and make monthly income you can do my course.

Nifty Conservative Course is for beginners:

Bank Nifty is for experienced traders.

Fees can be paid here. There is a discount if you do both the courses.

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In media, news channels and among traders there goes a lot of buzz on what will be decision of RBI policy, its impact on stock markets, what trade to take based in RBI policy – go long or short, buy calls or puts, which stock to buy or short etc.

Whenever someone gets a strategy they start back-testing forgetting that a strategy can be made based on back test, but can you really future-test a strategy? You cannot. For that you have to trade that in live markets.

I personally do not believe in back-testing but for those who believe one of my course subscribers did a back-test on my Conservative Nifty Strategy for 2 years and found it too be superb. He is an experienced Technical Analyst and Full Time Trader. He did my course in 2015, so is it working now? Yes Course Testimonials of Year 2018 are proof of that. Three years in a row if a strategy is working in live markets then it will work in future too.

My strategies work because they are non-directional in nature and are properly hedged. Non-directional takes care of avoiding speculative trading, trying to be rich overnight and hedging takes care of restricting the losses. Hedging takes out the fear factor and non-directional takes out the greed in you.

Both combined obviously will have an effect for a life time and then you can pass this knowledge to your kids as well.

Coming back to the topic – it is quite strange that no one is interested in back-testing what happens to stock markets when RBI policy is declared. The result is known to everyone – nothing major happens to Index at least, barring a few stocks here and there – yet traders in India take too many speculative trades on this day.

Banking stocks will see increased volumes on the RBI policy day. And India VIX will increase. Here is a screenshot of India VIX on 06-June-2018 – see that it has slightly increased:

India VIX on 6-June-18 1.29 pm

There is a chance that India VIX will drop once the RBI policy is announced. This is the only common factor that happens on any major policy decision day either by RBI or by the Government of India.

And here is screenshot of NSE on RBI policy day 06-June-18:

NSE on 06-June-2018

Can you see it looks like just other normal trading day.

Yes it is only the General Budget that moves the markets for a short time, otherwise other news if not major – it really does not have any major impact on the stock markets. It may have a minor impact but should it really matter to you as a trader?

You can back test and see what I am saying is true, yet traders increase their speculative traders on the RBI policy day.

Let media do what they want to do, but you as a trader, its better you avoid such noise else you will damage your trading account.

Hope you have learned something from this article. Speculative trading either on a major news day or a normal day will do nothing to your trading account except adding losses.

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I keep getting calls from people all around India telling me that they have allowed someone else to trade in their account and are now losing money heavily. Do not let anyone else trade in your account. Keep your account username and password secured like you keep your bank account password secured. Let us see what damage it can do.

Out of greed/expectation/laziness/in faith or for whatever reason people let someone else (mostly brokers) trade in their account.

This is a a very bad practice and should never be done. Do not allow anyone whether your broker or friend or relative trade in your account on your behalf. You do not know what they have in mind and what they may do to your account.

I hope you have an idea of trading fraud. Trading fraud is shorting a low liquid stock in huge quantity in someone else account and when the stock falls buy in their own account. When the stock rebounds, they immediately sell for a profit.

Of course this is not possible in a small account but possible in a big account like 10 lakhs and above. For Intraday shorting 5x (five times) leverage is given. So a 10 lakh account can short a stock intraday for 50 lakhs. For a low volume stock this is a huge short and immediately the stock will fall, giving a great opportunity for a trading fraudster to make 5 times the money in his account in a single day.

Look at this PC Jewellers stock price on 2-Feb-2018. The stock opened at 460, went down all the way to around 220 and bounced back to around 400. All within minutes. Imagine if someone bought the stock with 5 times intraday leverage 10 lakhs at 220 and sold at 400. This would have resulted a profit of:

50,00,000/220 = 22727 stocks bought.

400-220 = 180*22727 = 40,90,860.00

That is a profit of Rs. 40,90,860.00 (40 lakhs 90 thousand 860) in a single day:

PC Jewellers stock price on 2-Feb-18

However the above is just an example. It may not have happened but I wanted to explain to you a fraud possibility. Who bears the loss of Rs. 40 lakhs 90 thousand 860? The person on whose account the stock was shorted.

May 6, 2010, Flash Crash was done by Navinder Singh Sarao, a trader who damaged stock markets in US sitting in his home. This was a United States trillion-dollar stock market crash done by not fraud as written above but spoofing algorithms. He made more than $40 million in profit from trading during the Flash Crash in a single day. Sarao was released on a £50,000 bail with a full extradition hearing scheduled for September with the US Department of Justice. No idea where he is now.

Spoofing is shorting millions of dollar of stocks and then cancelling immediately and then buying at the bottom. This is done in milliseconds by software. The world over now spoofing is banned. Now before placing an order a check is done. If you place a limit order for shorting stock, a check is done by system to see if the shorting is done within specified limits else the limit order is cancelled.

So do not let anyone trade on your behalf in your account.

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On 24-May-2018, BANKNIFTY closed at 26016.18:

BankNifty 24-May-2018

But something strange happened. See this image:

BankNifty Option Closing Price on 24-May-18

What is the problem?

Options on the expiry day after trading is over expire worthless if Out Of Money (OTM), or At The Money (ATM), or just have the intrinsic value left for options that are In The Money (ITM).

If you are trading bank nifty weekly options my bank nifty weekly course will help you a lot to trade bank nifty weekly either intraday or positional. You can use these properly hedged strategies to trade in stocks and nifty also.

What is intrinsic value of options?

Intrinsic value of options is the difference between the index/stock price and the strike price of the option. For example if BankNifty spot is 26100 then 26000 CE on expiry day will be trading near the difference between 26100 and 26000:

26100 – 26000 = 100

But sometime they trade below their intrinsic value. A few points is ok and accepted but yesterday something strange was seen. Check the image above. Look closely the closing price of 25800 CE. It closed at 132.90.

Lets us check its intrinsic value:

26016.18 – 25800 = 216.18. But it closed trading at 132.90.

Difference between actual intrinsic value and closing price:

216.18 – 132.90 = 83.28

I have seen difference up to 10-20 points and its common now a days.

Why this happens?

This happens because liquidity is very low in deep In The Money options when it nears expiry and traders trade at whatever rates they get. You see the system decides a rate but if no one is willing to trade at that rate then option will be trading lower than its intrinsic value. System cannot force them to trade at the proper intrinsic value.

If you are an experienced trader you may be knowing that deep out of the money options on bank nifty weekly expiry are traded at lot. Basically traders sell these options to make a quick buck the same day. Sometimes they succeed, sometimes they do not. But frankly trading deep out of the money options is a very dangerous game. One sudden spike may take out months of profits. And if you go very deep you will get like 2-3 points. What will you do with that 2-3 points which will go anyway in brokerages?

So should you sell In The Money Options on expiry day?

This is even more dangerous. What if this does not happen next week? You sell deep In The Money Option and suddenly BankNifty jumps 100 points – then you will find the In The Money Option also jumping 70-80 points straight away. Do not forget that today more than 20% of options are traded on algorithms. As soon as there is a spike these algorithms will take either a stop-loss or get into a buy position to take benefit of spike and eat 5-10 points that they are supposed to do. Yes algorithmic trading is like that. They get into the trade and get out of trade in seconds as soon as they see a profit.

Retail traders are fighting against the algorithmic trading done a lot and massively on expiry day – that is the reason they make money some days and lose it all on other days.

This is the reason you must trade Nifty and BankNifty with proper hedging else you will lose more than you will make on bad days. Over all your trading account will be a loss making business.

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What Is Volume?

Stocks trade when markets are open. Some stocks are traded less some more. The number of shares that is bought and sold over a given time period is volume. Note that volume can change over given time period.

For example when the PNB Scam news came the next day PNB witnessed more than average volume.

Where to find high volume shares on a particular day in India?

Top 25 – Volume Gainers – Source NSE India

Most Active – Volume – Source Economictimes

Stocks that are witnessing a huge surge in volumes – Source Moneycontrol

Note for people who trade looking at candlestick:

At the bottom of the chart most software will show you volume of the share traded on one candle stick on whatever time-frame you are looking at. For example if you look at daily chart time frame, you will see the number of shares traded each day of a stock. If you switch to the 5 minute chart, you will see the number of shares traded every 5 minutes of a stock. 5 minutes chart is very popular among the intraday day traders.

Volume is mentioned a lot in trading community but people cannot interpret it correctly. Most traders think that volume increase means buy the stock. This is wrong interpretation.

When sellers are more than buyers – the stock will go down.
When buyers are more than sellers – the stock will go up.

In both the above cases volume may increase. So what is the problem? The problem is we cannot know for certain at what time the volume of buyers will increase or the sellers. This is where traders go wrong.

How To Use Volume To Trade Stocks?

Stocks that have suddenly gained momentum have seen a surge in volume. These stocks you can find from the above links. So the hard work is already done for you.

The best momentum stocks have high relative volume.

What is relative volume?

All shares have an average volume trade per day. When a move suddenly it is almost certain that they are trading above their average volume. Stocks will usually trade at above average levels of volume when they open gap up or down. This can be due to a news, announcement, merging, quarterly earnings, dividend declaration and many other factors.

When they become momentum stocks they are trading well above the relative (average) volume. This does not mean that they will go up or down in future.

Look at Reliance Communications chart on 16-May-18 time: 11.19 am – see that volume has increased but stock has fallen 13.31%:

Reliance-Communications-16-05-18

When volume increases the stock may move above or below their daily trading range.

So what is the benefit to a day trader trading momentum stocks?

They can capture big profits if they get the direction right. However they can take a small stop loss.

Trading momentum stocks is good for a intraday trader.

When a stock gaps up or down with more than 3% then you can rest assure that its volume has increased. Some shares will see an increase of volume in first 10-15 minutes then the volume goes down. But for a good trader this time is enough to make good money.

Go With Momentum In First Five or Ten Minutes

When you see a volume surge then you can go with the momentum to trade that stock intraday with strict profit and loss targets. Keep the targets in the system not in your mind.

Here are some articles I have written on stop loss that you can read:

1. Percentage On Margin Blocked Stop Loss Method
2. Using Trailing Stop Loss To Increase Profits
3. Stop Loss Methods

Conclusion

  • Surge in volume in a stock is good for day traders
  • Go with the momentum if the first few minutes
  • Make sure your profits and stop loss is in the system and not in your mind
  • Do not worry about the volatility of a stock – it is nature of the stock markets
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