Here is one email I got from a novice trader:

Mr. Dilip, I am totally novice into options and while talking to good reputed stock brokers, assessing my risk capacity and capital investment (max 30k), they have informed me to do in derivatives (options) trading, where you pay minimum margin and also will get time to put in your stop-loss gap and other triggers, where you can earn minimum profit of Rs.5,000/- pm or more.

Next, in the cash or equity segment, you have to pay entire margin money and the sale value after brokerage and other taxes parentage will be far less than options trading.

But to me all these terms are very new and not able to practically do the things.

So, persons like me who are very conservative, middle aged and income generation is more priority, what will be your suggestions.

Read the first paragraph carefully. Traditional brokers who have a target to achieve making money from brokerages will tell anything to their clients so that they generate a brokerage.

One of the best ways to make money from brokerage is to sell a dream like in options you can invest 5k and make 10k.

Well technically its true but not many are able to live that kind of dream every day.

Invest 5 and make 10 is 100% return. A new comer will dream something else when he listens to this. He will dream like – invest 10 lakhs and make 20 lakhs (this may be his savings), or invest 20 make 40, now invest that 40 and make 80…the dream goes on and on.

What happens next? The poor trader immediately agrees to their brokers advice and ask them to buy the trade they recommend. Brokerage made. Target Next customer.

Why brokers never suggest Futures? Because 50% of their clients do not have the margin required to trade Futures. What is the point in selling a dream to someone who does not have the cash to buy that dream?

Note: Future trading requires more money as margin than Options buy trading. Option selling requires same margin as Future buy/sell, so options selling is never sold to the clients.

Money getting double is a great dream to sell and it will continue.

Now the real answer:

1. Stock trading is a business and risk is involved.

2. Option buy and sell can double your money but the chances are less than 1%, as either the trader exists at 2-5% profit or takes a stop loss at 50% or let the option expire worthless (all money gone down the drain).

3. Option buyers must always hedge their positions but that still does not guarantee profits. Naked option buying a very risky. Unfortunately this is the most sought after trade by option traders because option buying is very cheap and comes with limited loss.

4. Yes you get more leverage with less money in options, but you should know that it has an expiry time and you should be correct in your trade before the expiry comes.

5. See point no 1. Stock trading is a business but what business you can start with 30K? Even if you make a return of 10% on 30k that is just 3000. What difference does that make?

Change your mindset of investing less and making more. Options are a great tool if you learn to trade them properly.

Arbitrage is done my big financial institutions. It is simultaneous selling and buying of two similar financial products to take benefit of difference in prices.

Though arbitrage is no more popular now, it was very popular a few years ago. Trading volumes were less so arbitrageurs took a lot of benefit. However now trading volumes have increased and there are a lot of systems that make sure there is not too much volatility in markets.

But still arbitrageurs exist.

Some traders use automated trading systems to arbitrage.

One Simple Arbitrage example – This is called Pairs Trading

A trader can buy one stock and at the same time sell one stock from the same business sector. If one side move comes more in that sector the arbitrageur can make money. However this is very risky due to the nature of stock markets.

Earlier it was not that hard because stocks of the same business sector used to move in same direction, however now stocks at company dependent not sector specific dependent.

One Example of Risky Arbitrage

Acquisition of one company of another company is very common. This news is open to all and is known sometimes 30 days before the actual acquisition actually takes place. Suppose news has come that company A will acquire company B, then arbitrageurs will buy stocks of company B and sell stock of company A. This is very risky arbitrage strategy but there are people who try it.

Selling in One Exchange and Buying in Another

This can be done my institutional investors only who have the right to sell or buy the same stock at different exchanges.

Suppose a company stock is listed in New York Stock Exchange (NYSE) and also in London Stock Exchange (LSE). Now because of different demand and supply, prices can be different in different markets. Let say company A is 45 in NYSE but 46 in LSE then an arbitrageur will sell in one stock market and buy same number of shares in another. After sometime one will give profit.

But they need to enter large positions to make huge gains.

Please note that earlier not many traders had the software or technology to know these arbitrage opportunities but in this modern world there are technologies, media, software etc that almost everyone has access to. Therefore these arbitrage opportunities are no longer available. Still arbitrageurs exist and try to take benefit.

I keep getting emails form traders losing money while trading however sometimes the losses are so much that I feel like telling you to make sure you are also not in the same page.

Here is the email from my free subscriber I got a few days back. My reply is in bold.

Hello Dilip,

Good day. I have been following your mails and I understand that your courses would help traders earn up-to 5% a month on the capital invested, through options trading. I have done options, strictly CALL and PUT and I have gone through all the trouble and mental stress you were talking about in your mails in 2015.

I lost about Rs.8 Lakhs right from the day I started in stocks from 2010, till 2016. Out of that, 1 lakh I lost in options. I was under the impression that I could gain all my losses, through options, ended up losing 1 more lakh. Other losses being through buying and selling of stocks in cash market, bad judgements, etc.

Well with 99% losers story is same including me 🙂 This is life do not worry.

Even though I am well educated, am not good in math. Probably that could be one of the reasons for my losses, but, it could be my notion. My question is, will I be able to understand and use the strategy of yours effectively, even if I am not good in math and analytical strategies? What level of intelligence would be required to become unfailing in the market?

Not knowing math is NOT a reason to lose money. Yes you will be able to able to understand and use my strategies in live market because it is written that way. Technical Analytic is not required. Class 4 math is required and some hard work. See even people not good in English have done my course and doing good. In simple words it is easy to understand.

Honestly if I had that money I lost, I could have used it in better ways. Sir, I am not asking anything for free from you as I know how frustrating it would be for any one. I had the above doubt in bold above, which I would like you to clarify as you only can answer me.

Lost money is lost money it does not matter where you lost. Now you will not get that money back. Only way out is learn to trade well and make sure you are not losing anymore trading options.

Start learning to trade options well by doing my course today and stop losing money trading options.

Novice traders are confused to see Bid and Ask when they trade options in their trading account. In this article you will learn what is Bid And Ask Spread In Options Trading.

Ok let me start here. Have you ever walked in a bank and did you see this? USD Sell price and Buy Price? Did you notice that sell price is always higher then buy price? Why because banks cannot make money if they buy and sell USD at the same price.

When a trade is going on in a market place there has to be some kind of negotiation. This depends a lot on supply and demand.

Supply is how many people are willing to sell that stock or option in a market place.
Demand is how many are willing to buy.

If there is not much gap between the supply and demand the spread between the bid and ask will be smaller.

Live Example of Supply and Demand Working

Assume that stock markets are open for trading. There is one stock XYZ which bagged a project worth millions. Obviously the company’s stock demand will increase. Assuming that its price currently is 300 in the market place.

Let us assume that there is just one seller and one buyer for that stock.

Stock at 300. Seller keeps the sell price at 301 in “Limit Order”. When a seller keeps a price to sell he is “Asking” a price to sell. Therefore Sell price is the “ASK” in Ask and Bid.

The buyer sees the Ask price at 301, but wants to negotiate. If he hits “Market Order”, he will get the stock for 301, however he wants to buy thousands of stocks so wants to negotiate the price.

He keeps the buy price at 300.50. Buy price is the “BID” price in Ask and Bid.

If none of them changes their price the stock will not be sold.

However after some time let us assume that some bad news has come in the stock and one more seller pops us and sets the sell price or Ask price at 300.60 (seeing the Bid at 300.50).

Note that the Best Bid and the Best Ask prices are shown to everyone in the market place so that no one is cheated.

After some time another seller pops up and is in a hurry to sell his stocks in panic. He keeps “Market Order” and hits submit. The share gets sold at 300.50 as this was the best BID price at that time in the market.

Hope it is clear now:

1. What is Ask and Bid price.
2. Why there is a difference between Ask and Bid price.
3. The price difference between Ask and Bid price is called the Ask and Bid price spread.
4. The Ask and Bid price spread is wider if traders are less for that stock at that time, and
5. The Ask and Bid price spread is smaller if traders are more for that stock at that time.

Same is applied in derivative (Futures and Options) trading too.

If you have any questions please write in the comments section below.

Moving Average aka “MA” is a very popular technical analysis tool. This is very useful for short term traders. Moving average is based on past prices. It helps traders to find the direction or the trend of the stock for the short term.

Two commonly used moving averages are the Simple Moving Average (SMA), and the Exponential Moving Average (EMA).

Simple Moving Average is very simple. It is average closing prices of a stock over time.

Exponential Moving Average (EMA), is also the average of closing prices of a stock over time, but it gives more importance recent closing prices.

Moving averages are used to determine the trend of stocks. It can also help to know the support and resistance level of a stock.

Explaining Moving Averages

Assuming stock XYZ closed at the following prices in last 15 trading days:

Week 1) 102, 104, 110, 105, 107

Week 2) 106, 111, 108, 105, 108

Week 3) 112, 109, 113, 115, 119

How To Calculate the 10 Day Moving Average

Adding the first 10 days moving average:

102 + 104 + 110 + 105 + 107 + 106 + 111 + 108 + 105 + 108 = 1066

Moving Average of Day 1 through Day 10 = 1066/10 = 106.60

You can similarly calculate the Day 2 to Day 11 moving average for 10 days.

However for long term prediction 200-day moving average works better.

See the image below – It is a graph of closing prices of last 200 days of a stock:

For short term:

When consecutive two highs are less than the previous one it is time to sell. When consecutive two lows are higher than previous one it is time to buy.

As I have said earlier, for long term prediction 200-day moving average works better.

For 200-day moving average follow this rule:

Sell the stock if the price of the stock falls below the 200-day moving average.
Buy the stock if the price of the stock rises above the 200-day moving average.

Important Note:

Please note that 200-day moving average will only predict but not confirm the direction of a stock. Therefore it is not a gurantee that if you follow only the 200-day moving average the stock will move the correct direction. There are other indicators as well that that Technical Analysts follow all over the world.

If you are a long term investor there are simpler ways to find stocks to invest for the long term.

Learn Intraday trading tricks, techniques and ideas for Nifty and Indian stock markets.

Retail traders journey starts from investing then to Intraday day trading. Intraday trading is very attractive especially to the younger generations. However most lost money because they either speculate their trades or take to tips providers.

What is Intraday Trading?

Intraday or day trading is buying and selling or selling and buying a financial instrument in same trading day. It attracts traders because they are eager to make money every day.

It can be a very good way to trade if you are good at it else day trading has lots of dangers involved. 95% intraday traders lose money. Almost 100% intraday traders lose money. Trading without plan, no financial management, no basic knowledge about trading – all this combined make traders lose money.

Here are some ideas to become better Intraday trader.

Get knowledge

Any business needs knowledge to succeed otherwise the business will fail. If you want to become a better trader it is very important to know what you are day trading and why? How much money you are willing to risk. You should know basic trading procedures – like difference between “MIS” and “NRML”.

For intraday day trading MIS orders are used. MIS stands for MARGIN INTRADAY SQUARE-OFF. These orders are closed before the market closes the same day.

For positional trading NRML orders are used. NRML stands for Normal Margin. These are derivatives delivery based trading. These can be squared off any day before or on the expiry day.

Intraday traders must keep a watch on the business news and related information that can affect stocks. Government policies, its economic effects and the companies it may effect. Like the recent news of Cigarette taxation to raise revenue made ITC stock fell by 15%. Those who knew this would have shorted ITC and made a lot of money in a single day.

Yesterday I read a news and traded Axis Bank and made quick Rs. 850 in 40 minutes of trading. See this image:

If you read current business news before start of day trading chances of winning will be more.

You Must Know The Amount You Are Willing To Trade

Intraday trading is more risky than positional trading because there is no way to hedge an Intraday trade. Hedge is very important in positional trading as it can limit losses to a large extend in an event of a stock market crash.

There is no need also as the position is closed the same day. But you cannot have a job and still do day trading. Intraday day trading needs your 100% attention else you can never become a good day trader.

Therefore it is very important to know how much you are willing to risk every day. This may change from day to day depending on your view. If your view is very strong then you may increase the risk to give some room for the stock to move.

But risked amount should not exceed 3% of the margin blocked for the trade. Average is 1-2% per day. Profit percentage should be double of the loss percentage every day.

Never day trade with borrowed money, you will trade in panic.

Never trade with the money you need in the next six months. You must be absolutely sure you have money to manage your daily expenses for the next six months.

Keep a Separate Time to Day Trade

Even if you are a full time Intraday trader you must fix a time to trade. Intraday trading is very stressful so it is highly recommended that you fix a time to trade. Note that you cannot take break in day trading. You have to watch you trades like an owl. If a break is necessary then put a stop loss order and profit booking order both in the system, then ask your broker to cancel the not-executed order once any one is executed – either the stop loss or the profit booking order.

Some people trade Intraday who have night-shift jobs. In that case you need some rest. You cannot trade without proper sleep and with bad health. In that case make sure you set your time to trade and take rest.

For example it could be from 1 to 3.30 pm. You can take rest before that to prepare well for Intraday trade and your night-job.

Start Day Trading With A Small Amount

When you start Intraday trading it is almost likely that you will lose money. Therefore it is very important to start small. Do not start with more than 10000 rupees. Try to trade with this money for one or two months then if making profits increase the amount.

Do not increase your trading money if you are losing money. This is one of the worst habit of traders. Once they have lost money they bring more money to take a “revenge” on stock markets. Remember stock market is neither your friend nor your enemy. It is an indicator or demand and supply. If there are more buyers than sellers it moves up, if there are more sellers than buyers it goes down.

If you try to take revenge on stock markets you will never succeed. If you trade with a plan you will.

Take Only Two Trades A Day And Learn From Every Trade

As a beginner Intraday trader it is important that you do not take too many trades in a single day. Start with one or two stocks trading a day and then you must learn from every trade. Write down every trade details in a notepad and what you learned from it. Make sure whatever you learn from every trade, you never repeat that mistake again. This way within six months you will be a better trader.

Do Not Trade Penny Stocks

Penny stocks looks great to trade because of their movements. But they are not stable and could result in fatal loss in a single trade. Penny stocks are not liquid as well. It is better to avoid them and trade only in the large cap stocks.

Yesterday a young man just out of college called me in the night and inquired about the option course. I told him what I tell everyone. Then he asked about the returns. I said approx 2-3% a month. Then he said in Bangalore I will get a loan at 18% per year then how can I make a living with just 30% return a year. 30-18 = 12% return a year. He went on to say if I drive a rickshaw I will make more. He wanted to loan at least 10 lakh and trade. He told me that Rs.30k is not good enough to survive in Bangalore.

I told him the first principal of stock markets is that trade with the money you can risk. It is not at all a good idea to take a loan and trade.

Here is the article that explains why it is not good to take a loan and trade.

A young graduate should first take a job and then think about trading. When I told him this, then he said he do not want to do a job he wants to make trading a profession. When I asked him how much money he has to start trading business? He said 50,000.

Think about this? Which business in the world you can start with 50k?

Anyway there was no point in talking to him anymore, so I told him – young man first get a job, think about becoming a traders later. Then I kept my phone down.

If you want to make trading a profession make sure you have at least 20-30 lakhs to risk. You should have some extra money to run your home for the next six months at least, so that you are not worried about day to day expenses.

Even after this you must trade conservatively. At least do not make losses. Even 1% profit initially as a trader consistently every month for six months is much better than making 10% a month then losing 12% next month then making 20% next month and losing 26% next month.

Small steps every day ahead will take you ahead, not a big jump then a big fall.

Think about it.

I have been telling this for years now but it looks like – well what can I say?

Learn conservative options trading and make small profits a month. Small profits are much better than huge losses to make huge gains.

Update: After I wrote this article. One of my email subscribers wrote an email that I would like to share with you all.

His email:

Dilip you are absolutely right, I am reading your mails since last 2 years. I also asked same question from you in 2015 & you gave me exactly the same answer.

But I took risk on my own hope of becoming rich & I took Personal Loan of Rs.3.50 Lakh.

Initially I started with equity cash and I was making small profits too. But after few days I entered into the ocean of F&O.

And after 3-4 profitable trade. I started loosing it. And in emotions and hope of recovering I kept trading without any SL & Hedging.

Mean time I was also reading your mails. Always I thought why to give you 5 or 6K for course, I will learn hedging by myself as you (Mr. Dilip) has learned.

But till now I don’t know ABC of hedging. At that time one of my heart corner was always have feeling that Mr. Dilip is right I should take the course. But I ignored that every-time.

Anyway, I kept making positions overnight & one day came when I put all my money in averaging DLF CE of 170 in year 2015 without any stop loss. And you can guess what would happened with me.

I quiet trading completely & then I realized you was always right.

I understood one lesson that greed & indiscipline in trading can destroy you completely.

Now I am paying my loan EMI from my salary. 🙁

I want to restart but I don’t have courage & I fear to loose.

Many time I thought that I should share all this with you but I didn’t. Today I saw your email with same subject I decided to reply this guy that you are right don’t take Personal Loan for trading & if you take than at least maintain discipline.

In the end I have high desire to learn hedging techniques. May be soon I will pay you course fee.

Thanking you for your free but highly Valuable daily mails.

Keep in touch.
Name Withheld

To him I then replied:

Sad to know this. What has happened has happened.

Tell me one thing. What stopped you from doing the course?

1. Course fee too high?
2. Dilip is wrong? 3% a month is less, profits are more so I will not do his course.
3. Hedging cannot make money.
4. I do not have 75k.

Or any other reason?

You see like you there are many traders who do not do my course and suffer.

Of course the course cannot be free as it takes too much of my time plus free is not valued.

So tell me frankly, please do not feel shy saying the truth.

What was the reason that you did not do the course?

I will not mind even if you say something disturbing but please open up and tell the truth.

To which he replied:

Dear Sir

If I say true then.

I thought that 3% per month is too low because I had taken Personal Loan @14.5% interest annually.

Secondly I did not want to give 6K in one go just to do your course in which I didn’t have full faith.

Regards,
Name Withheld

I think this is very common. 3% too low. Why to pay for the course for such a low return. etc. Fact is it is not a low return if compounded.

And of course some traders are doing much better than this. So take your call.

If you also think 3% a month is too low then think about this. When will you ever make more than 3% a month? After 50 years? By that time you will have lost 50 lakhs or more then even 10% a month will look small. Then you will try for 15% a month, then you know what. Everything ends.

Those who think making 10% a month is possible every month let me tell you clearly – it is just not possible at least every month.

Over all if you make even 25-30% return a year on your trading capital then it is a great return.

Another email:

To answer your questions:

1. Course fee too high?
Answer: There is no cost that one can pay for good education.

2. Dilip is wrong? 3% a month is less, profits are more so I will not do his course.
Answer: This is good return.

3. Hedging cannot make money.
Answer: It can, but only if required trades execute at asked price.

4. I do not have 75k.
Answer: I have this much for trading.

I am skeptical to buy your course because I think everything is available on google and I have read a lot :). The hedging techniques I have learned are only good if they execute at asked prices. If the price is not right then you have to buy overpriced Item that will end up with loss. Do you suggest your courses will control prices 🙂 ?

My reply:

Thanks for the answers.

Limit Orders is your answer. But frankly if trading Nifty, this thing is not required as Nifty is highly liquid.

My course strategies except one, needs to be traded in Nifty.

Instead of trying to control prices – try to control your emotions, plan your strategy, have an entry exit plan. Rest hedging will take care.

Hope I was able to solve your problem.

And yes just because you read hedging techniques online does not mean you learn hedging.

To become an expert in hedging like strike selection, entry, exit all this takes time.

You are paying for that, not just the “hedging” word.

One more thing – there are a lot of people who keep waiting for a discount to do my course.

Let me tell you clearly this course deserves Rs.10,000 at least. And the price you see is already discounted so there is no need for any discount.

In any case 1k saving is not a big amount.

That’s the reason I have made my course 100% risk free for you. If you do not like the course within 7 days just ask for a refund and I will refund your money.

You are now at 0% risk while paying for the course.

So go ahead and pay, at least try to learn something or keep loosing money trading – the choice is yours.

Once you pay I will be with you.

Stock markets have recently seen growth in huge percentage. This kind of amazing growth comes after at least three range bound years.

Nifty – the most popular stock Index in India has grown from 8000 to almost 9900 in few months. From 26-Dec-2016 to 14-Jul-2017 it has increased from 7908.25 to 9886.35.

In percentage terms this is: 9886.35-7908.25 = 1978.10 = (1978.10 / 7908.25) * 100 = 25.02% growth in 6 and half months.

Now what is the question in most traders mind. In fact at the time of writing it is 9918.50. Highest in the history of stock markets in India.

What you can do in rising markets? Here are some ideas that you can do:

1. Book Partial Profits: If you are a long term stock investor, this is the time to book profits. Yes stock markets may go even higher but at least take some part of your money out and book partial profit if not all. Now the partial profit depends on how much you want to book profits on your investment. This can vary from 10% to 80%. This comes purely under your financial management plan. Decide and book partial profits on your holdings.

2. Do Not Stop Your Mutual Fun SIPs: History is proof that most mutual fund investors stop their monthly SIP when they see that markets have hit high. This is trying to time the markets. Stock investing is different that mutual fund investing. In mutual funds you allow your fund manager to take decisions on your behalf with you money. Give them a free hand. Mutual funds are always for the long term not short term. Let them grow with time. Do not stop your SIPs in a down market or an up market. Let them continue. However it is very important to chose the right mutual funds that can do wonders to your saved hard earned money. If you do not chose the correct mutual fund you may end up getting returns less than stock markets. This is not good. Therefore choosing the correct mutual fund to invest is very important.

Read: How to choose the correct mutual funds to invest.

3. Futures and Options Traders Must Hedge Their Positions: Naked trading is financial destruction for 95% of traders who lose money. If you are not good at naked trading then it is better you stop trading or learn how to hedge your trading. Hedging is a big arsenal in the hands of stock trader. Hedging not only limits the losses but gives confidence required for trading.

Hedging is a kind of insurance for a trader. It protects your capital to a large extend. Learn good hedging strategies in this course. Once you know hedging methods then you can scale up your trades as you will be confident and fearless in trading. Once you know that 98% of your capital is protected then the fear of trading will go away and you can bring in more money to trade and make more. Naked trading will not allow you to bring more money to trade because of the fear of losing it. Hedging will ensure the fear is gone.

4. Do Proper Financial Planning Even If Trading On Charts: Some traders trade seeing technical charts. Do not forget that charts can also go wrong therefore financial planning is important. Just because your chart says this stock is headed up you must know before investing how much you are willing to risk. My advice is do not risk more than 25% of your capital in one stock. Anything more can be dangerous if the stock does not perform. Moreover you still have 75% capital left to invest in other stocks. So even if the first one does not perform you have some money left to try another stock.

5. Do Not Go Against The Trend: There are many contrarian traders. Contrarian traders bet against the trend. There is nothing wrong in doing but be willing to take a stop loss if markets prove you wrong. I am sure at 9000 – a huge psychological mark of Nifty – a lot of Future traders must have gone short on Nifty. They must have huge lots of money. Contrarian traders have a lot of ego discussed in next point.

6. Do Not Be Egoistic In Trading: Especially the contrarian traders have a lot of ego in rising markets. They think that speculators have taken the markets up and it is bound to fall huge and they take large bets without hedging. Because they are absolutely sure stock markets will fall. Understand that stock markets does not have any ego or does not favour or is against any trader. Stock market is a non-living thing. They will do what most investors do. There is no point showing ego to stock markets. Plan your trades take a stop loss or take out your profits when they come. Trading without a plan is a great way to failure.

Date: 13-July-2017

This bull market is not showing any decline at all. It is getting frustrating now. I think GST has a big role to play.

Current position Nifty as on 13-07-2017 at 11.22 am:

Last six months graph of Nifty:

India VIX also hovering from 10-12.

So what are option traders trading?

The answer lies in trading volume or most active options open interest. This information can be obtained from the NSE site here.

According to today’s data as of 11 am:

Highest open interest at Call Options (most active option):

OPTIDX NIFTY 27JUL2017 CE 10000: 41,71,575

Highest open interest at Put Options (most active option):

OPTIDX NIFTY 27JUL2017 PE 9600: 68,13,525

Highest Open Interest means both option buyers and sellers are doing the most trading in these 2 strikes.

What do you infer with the Highest Open Interest?

You see open interest only tells where most people are trading. But for every buyer there is a seller.

So here the most speculative trading is going on. 50% of them are buyers and 50% of them are sellers.

Now which side will you take? That is the problem with open interest.

Lot of traders see daily open interest and trade there. Obviously 50% become buyers rest become sellers,.

50% of them make a profit, 50% make a loss.

Here is where it can create a confusion. You can’t flip a coin and become seller or buyer right?

Open interest will give you data of where most traders are trading but it never reveals what is going on in their minds. So there is not much to do with open interest. Just trade conservatively without being biased for any direction and keep making profits consistently. Though conservative trades make small profits – but a profit is a profit not a loss. Even a small profit is better than a small loss for a big gain right?

You can read about the conservative option course here.