Exit Polls have predicted victory of BJP. If this comes true there is a chance of Nifty opening gap up on Tuesday. But how much gap up? No one knows.

But in many instances exit polls have been proved wrong. So what happens if BJP looses? Nifty will open gap down on Tuesday. But how much gap down? No one knows.

This where speculators lose money.

I am sure some 50% traders will put their hard earned money on the line in the long straddle trade.

If no move comes and VIX dropped, they are set to lose money.

Keep in mind that these are the times when speculators are betting on heavily. I think per trader the money on risk will be Rs. 50,000. And average loss will be 50%. So just in a matter of days 50% of traders money will be lost.

Disclaimer: The above is a pure guess as per my experience. Unfortunately there is no data monitoring of total money made a lost in a day. Only data monitoring is about trades done not who lost and who won. So there is no way to know total money made for how many traders and total money lost for how many. Data is only open for open interest. So the above is a pure guess on what happens when traders speculate trading or take a gamble.

That does not mean we should not trade during these days. This is the reason the directional strategy is there in my course. In the event in a loss two things happen:

1. Loss is limited and minimized, and
2 .There can be a profit even if the direction the trader takes is wrong. Yes you read that right. Even if your view is wrong you can make money.

See this:

WhatsApp Testimonial on 24-Aug-2015 the day Nifty Fell by 500 points for Directional Futures Trade of my course – It was Futures Buy – The trade still made money – Results may vary for users

His view was wrong yet he made profits. How many times do you make money when you traded a future or option and went wrong on your prediction and yet made money?

My guess is not even once as how can you make money if the trade went against you? Yes it is possible. How it is possible is written in my course.

Conservative Options & Futures Trading Course – Directional and Non-Directional

Do not forget you get 6 months support and paid emails to trade the strategies, for a one time payment.

You can pay here using credit card.

Read how trading without knowledge can take all your profits away and even your principal amount.

A few months back I got this email from one of my potential customers:

Dear Mr Dilip,

I have read the articles in your website and all the emails that you have sent to me for the past 5 days which were very informative and educative. They were very useful and soothing also.

I was doing delivery trading as a long term investor from 2003 and till 2007 I had earned Rs 4.24 lakhs as profit. In 2012, I entered into day trading and till date I have lost Rs 2.70 lakhs through it. Six months before some devil worked on my mind and I entered into Options trading without any strategy and lost Rs 1.12 lakh till date. All those money could have been saved by me had I gone through your educative articles earlier.

My balance amount with my broker have shrunken to Rs 30,000 and it seems I have to add some 50,000 to undertake your course.
So, I will contact you on joining your course after 5 or 6 months.

I thank you very much for taking efforts and spending time to educate the so called greedy investors like me.

Selvamani

Here is the screenshot of his email:

From 4 Lakhs to 30 Thousand Rupees Loss

This is what happens with traders who have made money on either luck, fluke or got lucky taking tips. Over a long period of time neither luck or fluke nor tips can help you make money in stock markets or any other business.

Luck and fluke are temporary, knowledge is permanent.

Let the above not happen to you. Let greed not conquer you take away all your profits or increase your losses. He has not mentioned his principal amount. i am sure his losses are not just 4.2 lakhs it is much more than that if principal is included. Assuming he was lucky and doubled his money in 4 yours his loss is:

4.2 lakhs + 42. lakhs – 30000 = 8.4 lakhs – 30000 = 8.10 lakhs loss.

If you have made even 1 lakh loss do my option and future trading course today. The course fee is 6% of your loss or even less. Control your loss and do the course today. You can get the payment details here.

Date: 3-March-2017

Please read my yesterdays article: Markets are Looking A Bit Stretched.

The highest it reached yesterday was 8985, then a fall.

See this NSE close 02-Mat-2017:

Nifty Close 2-Mar-2017

Right now it is at 8874 (11.30 am, Date: 30-March-2017). This has happened earlier too.

Read this:

8000 a big support for nifty comes true

Even though I feel fall will not be sharp, so it is better to trade non-directional strategies. You can learn non-directional strategies in my conservative options course.

The idea is to trade in the correct way with proper hedge and not go by what science or astrology says about the markets.

Stock Market And Options Trading Is Not Astrology or Science

Neither Science Or astrology has anything to do with Markets.

I read a lot of websites daily on stock markets. Most of them said 8950 is a very strong level for Nifty to cross. If it crosses then there will be a sharp breakout on the upper side which may take Nifty up to 9200.

But as you can see the ground reality was totally different. Nifty does not know the difference between 8950 and 6950, it is just a software to manage trades. It can neither push itself higher nor push lower. It can only do what the traders do that is all.

If trading was science technical analysis would be a subject of specialization in engineering colleges. Fact is it is not. Stock market trading is not science. Of course there are some technical terms that are used to define what it is – like support, resistance, PE ratio etc. But trading is not science, its a completely different game altogether.

Traders mind set and Economy of a Country Has to Do with Markets

Some people go by astrology to trade. Really? What has the position of The Sun, Mercury, Venus, Earth, Mars, Jupiter, Saturn, Uranus, Neptune or Pluto has to do with stock markets? Nothing.

Their positions, shapes or sizes cannot do anything to stock markets. Please do not trade according to astrology.

Astrology trading is same as speculative trading. Do not follow Astrology Trading.

One person called me yesterday and said he will pay me today. When I asked why, he said because tomorrow will be 03-03, an auspicious day according to astrology because it is 3 and 3.

I am sorry if you are reading this but frankly 3-3 makes no sense as far as stock markets are concerned. If it was something personal then fine I am ok, but if the thinking was that astrology will help you to make money in stock markets, then no you are wrong my dear trader.

Please do not take it negatively, I am only saying what my experience says.

When you pay for my course you not only help yourself, but help me to keep working hard to keep writing and helping other gain trading knowledge through my blog, It is obvious my time does not come for free neither money to keep this site up and running.

So thanks to all who have paid for my course, I will keep writing as along as possible in the site.

Payment detail for my course is here.

Conservative Option Course Details is Here.

Happy Trading Everyone.

Date: 02-March-2017

9000 may be touched soon, but Nifty is looking a bit stretched. This has happened after Trump speech. This can be said as emotional reaction to his emotional speech.

In my experience stock markets do not run on emotions for long. Once 9000 is breached, a lot of people will start booking profits and Nifty may fall. So chances of fall after 9000 is breached is more than Nifty crossing 9100.

Why do I think so?

Because in the ground there is no dramatic change in the profit statements of most companies. In fact in India after the demonetization of Rs.500.00 and Rs.1000.00 notes many companies suffered losses or got lower business than usual. Things are normal now, but it will definitely show in the next two quarterly results. GDP will also come down this financial year.

Here it is, Nifty fell after hitting almost 8985 today – 02-March-2017. This is image of Nifty closing on 02-March-2017:

Nifty Close 2-Mar-2017

I am sure all Technical Analyst must be saying that Nifty will go even higher. I am not a TA, I just look at how Nifty behave as per the economics of our country and trader’s mindset. 🙂

Disclaimer: This is not an investment advice to go short in the markets. I am not an investment advisor. If you want to take any investment decision please do thorough research before investing in any stock or take advice from authorized investment advisors. Stock markets investments are subject to market risk please invest with proper research.

Even if you want to trade on your own it is better to get good education in stock trading and then trade properly. Of course like our school and college education, no good education comes for free. Its good to invest to learn and trade or invest, rather speculate and invest.

To help you become a better trader and investor I offer two online courses which you can do anywhere from your home:

1. Conservative Option and Futures Trading Course for Short Term Derivative Traders.

2. How To Invest Well & Retire Rich for Long Term Investors.

If you are interested to know about these courses please contact me.

History has it that Benjamin Graham and Warren Buffett are role models as far as value investing in stocks is concerned. These two accumulated so much wealth that Warren Buffett, even today is one of the richest man in the world.

However it is not easy to emulate these two great investors, but there is a slightly easier way to hand pick a few stocks to do value investing which is defined in the course how to invest well to retire rich. Those details cannot be shared here. However this article will help those who have done my course more.

Here are some of the important things to before investing in a stock for the long term:

Buffett’s Investing principles of investment:

Note: These Investing principles will look very easy, but the fact is they are not.

Intrinsic Value of the Stock Is Very Important:

Intrinsic value of a stock is its current price compared to the company’s future earnings power. This is very difficult to assume. And for those who believe in back testing when they want to test any option strategy here is where all their back testing will fail.

This is the reason never believe in back-testing. It is just what may have happened in the past but it is not guaranteed to happen in future. There is no dearth of many strategies that have performed very well in back testing, but failed in actual live trading. People still believe in back testing for reasons better known to them.

Nifty is not a living thing that it will keep repeating its own history in the future. 2007-08-09 is the best example of back-testing gone bad. Nifty went 50% down and then 50% up within two year.

And then it never happened till now. How in that case is back testing worthwhile?

Back-testers are the ones who look at the past but are unable to look at the future. A far as stock investing is concerned those who look at future only make money.

Past is past – if a stock has given 100% return in 12 months then there is no guarantee it will give the same return in future. Back testing cannot find out the intrinsic value of a stock.

Future earnings can be guessed by how well the company is performing and what are the chances of it doing the same business and keep the pace of its growth in the same rate as last few years.

Obviously this cannot be done in any stock, you need to classify stocks to do that. There is a way to do that written in the how to invest well course.

Once you have selected the stocks to research future valuations gets a bit easier to reach because you research only in good stocks.

Area of business

Like if its morally legal (like food), morally illegal (like gutka, tobacco etc), cultural or modern depending on the current prevailing society, is this business sustainable by future generations etc.

Business Management

Who are the people who are running the business and managing it. Have the decisions they taken in the past benefitted the company or not? Is some kind of fighting going between them etc.

Financial Measures and Value

Some of the Buffett principals were easy to execute but difficult to calculate. For example Economic Value Added (EVA), is difficult to calculate but easy to implement.

Economic Value Added (EVA) is an estimate of a firm’s economic profit in future. EVA is the net profit less the equity cost of the firm’s capital. The idea is that value is created when the return on the firm’s economic capital employed exceeds the cost of that capital.

Please read above the Intrinsic value to some extent is trying to figure out how well is the stock price placed in compare to its future profits.

EVA is hard to know, but once you know its easy to implement. If EVA signs are positive he bought the stock immediately without looking for support resistance etc which most day traders do. If the company’s future is bright it’s stock will definitely rise in future.

Calculation of EVA needs a lot of mathematics and adjustments. Once you get to know how to calculate EVA, it’s easy to take a decision to buy a stock or not.

Small Note: For intraday day traders these things does not matter. All they need is to control emotions and trade. On top of that intraday day traders get a huge margin of over 200% on the capital used therefore they can exit with small profit or loss. However stock investors for the long term need 100% of the capital to be invested. For them the above does matter. For multimillionaires like Buffett it is even more important because they deploy a lot of capital in one stock. They cannot do it without proper research.

Buffett had to foresee the future of a company before investing millions.

As you can see the above is very easy to understand but difficult to find out. Buffett initially did it all alone but later had resources to look into these before investing the money.

Today 23-February-2017, is India’s Stock Markets Exchange Derivatives – Futures and Options expiry day for derivatives for the month of Feb 17 not other months.

Which means all options and futures contract for this month Feb 17 will expire today at 3.30 pm. Out of The Money (OTM) options will expire worthless and In The Money (ITM) options will have only the intrinsic values left in the premium at around 3.25 pm.

Therefore you must close all options for Feb 17 contracts before 3.25 pm (5 minutes before market closing to avoid leaving it open by mistake), if possible, especially In The Money (ITM) options. Please read carefully to know the reason. In short it is dangerous to leave it not closed.

Old subscribers may remember that I have keep saying in my blog since last two years, do not let your options expire worthless, there can be a penalty by the exchanges.

Securities Transaction Tax (STT) is A Huge Danger to Let Option Exercised and Not Closed Before Expiry Day

Now there is even more and severe danger of letting them expire exercised (not worthless). The Securities Transaction Tax (STT) tax on options that do not expire worthless but get exercised face a huge Securities Transaction Tax (STT) of 0.125% on the Total Value Of the Options.

What is an Exercised Option?

An option is considered exercised if it was bought any day before expiry, is In The Money (ITM) and not sold before the expiry day of the that expiry month options only.

An option is considered worthless if it was sold any day before expiry, is Out of The Money (OTM) and not bought back before the expiry day of the that expiry month option only.

Securities Transaction Tax (STT) is not applied on worthless options which were sold and not bought back and are Out Of The Money (OTM)

Securities Transaction Tax (STT) is applied on exercised options which were bought and not sold before market closing on expiry day and if they are In The Money (ITM)

Important Note:

To avert chances of any penalty or to avert risk of STT (no one knows all the rules of STT), it is better to close all derivatives, options or futures, In The Money (ITM) or Out Of The Money (OTM), before the expiry day.

Though some of my options too expired worthless in Jan 2017 too, but luckily they were all sold not bought and they were Out of The Money (OTM). There was no brokerage and no STT levied on my options since they expired worthless and were sold not bought back.

But even if there was no STT done on sold options that expired worthless, I still recommend close all derivatives before expiry day. Now we just do not know what may happen. If your brokerages are too high you can register with a low cost brokerage firm which costs next to nothing to close options and futures. It is better to pay a small fee rather take the risk of letting options expire in the money or out of the money, exercised or worthless.

Contact me to help you open an account with the lowest and one of the best brokerage form in India.

Please note that only February 17 month options will expire today, not any other months options.

So, this rules applies today to February 17 month options only. Today is options and futures expiry day of February 17 month options and futures contacts only, rest of the remaining months options and futures will not expire today.

Small Note: My Conservative Options and Futures course is designed in such a way that we do not wait till expiry day to avert these kinds of dangers. They are very conservative in nature and have risk management inbuilt due to hedge. This is the reason a lot of traders are doing pretty well trading my strategies since 2014. Contact me to know more about it.

What About Securities Transaction Tax (STT) on Options That Are Closed Before Expiry Day

In the case of options trading and closed when the markets are opened anytime before the expiry day, the Securities Transaction Tax (STT) is 0.05% on the premium. This is ok and it makes sense and is easily affordable.

But here is the problem and a BIG one.

What About Securities Transaction Tax (STT) on Options That Are Not Closed Before Expiry Day?

The Securities Transaction Tax (STT) on exercising an option is 0.125% on the total value of the options bought. Exercising of the option is that you bought an option (it does not matter when you bought – 60 days, 50 days, 40 days, 30 days, 20 days, 10 days or on the expiry day for Intraday day trading), but are not willing to close the trade to save brokerages and taxes, or have forgotten to close it and leave it till expiry day’s markets close – after which you cannot trade them.

This is where the problem lies. When an option is exercised, the Securities Transaction Tax (STT) is paid on the entire value of the option and not just the total profits made.

Example on Securities Transaction Tax (STT) On Options Getting Exercised

For example let’s say Trader “A” forgot to sell his option on expiry day. Nifty closed at 8872.55.

It does not matter what the premium was of the options he bought when Nifty closed.

Suppose Trader “A” made a profit or loss of Rs.1 lakh. Again it does not matter what the profit or loss was made on an exercised option.

Why profit or loss does not matter here you will know soon.

The Securities Transaction Tax (STT) will be Not be levied on Rs.1 lakh profit or loss. It will be levied on total value of the In The Money (ITM) options.

Supposing the above trader bought 1000 lots of Nifty options and forgot to sell it and it got exercised. Nifty on that day closed at 8872.55.

Since Trader “A” allowed the Nifty options to be exercised, he has to pay STT on the full value of the options bought.

Here is the Calculation of STT on Exercised Options Bought but Not Sold Before Expiry Day

One lot of Nifty option currently is 75. He bought 1000 lots. Nifty closed at 8872.55

Total value of the option:

8872.55 * 1000 * 75 = Rs.66,54,41,250.00 (Rs. 66 Crores, 54 Lakhs, 41 Thousand and 250.00)

0.125% of 66,54,41,250.00 = Rs.831,801.56 (Rs. 8 Lakhs 31 Thousand 801.56)

Profit was Rs.1 lakh.

STT needs to be paid = Rs.831,801.56

So the trader is in loss of = Rs.(100000 – 831,801.56) = -731,801.56 (Rs. 7 Lakhs 31 Thousand 801.56)

This in spite of making a profit if Rs.100,000.00 on the options he bought.

Or even after making a profit of Rs.1 lakh, Trader “A” will be in a huge loss of Rs. 7 Lakhs 31 Thousand and 801.56.

Do not let such a situation ever come in your entire life of trading.

A real trader Mumbai-based Chirag Gupta, is currently facing a loss of Rs.18 Lakhs even after making a profit of Rs.6.07 lakh on the options he bought but did not close on the expiry day of January 2017. He bought options for 0.05 but did not close for reasons known to him. I cannot say why he did not close as he has not said it anywhere, so I do not know.

In absolute shock he has started an online petition to stop this STT on exercised options. Here is the petition:

https://www.change.org/p/security-transaction-tax-stt-a-trap-for-traders-and-a-systemic-risk-for-capital-markets

A Note to Mr. Chirag Gupta: If you are reading this let me tell you that I am extremely sad with what happened to you. I am sure my readers must be also be very sad after knowing your story. Please let us know in the comments section why you did not close the options you bought before markets closed on that fateful day? It will help us tremendously to avert such a situation. Sorry Mr. Chirag Gupta, but lets hope for the best.

His article is published in Economictimes as well.

Conclusion

Close all Futures & Options on or before its expiry day to save huge Securities Transaction Tax (STT).

This is continued from page 1 Learn Warren Buffett Investing Style. Please also read the first page of Learn Warren Buffett Investing Style.

Its Long Term Investment Not Short Term

This is where a lot of traders lose patience. They buy stock with a long term view but after one month when they see a profit of even 5% they exit happily. This is known as change of plan for a short term profit.

After a few days they see the stock has gone up further then they rue their decision to sell at a small profit, so they buy it again only to see the stock going down, then of course they sell it. Time waits for none so over the long term they see they are making no profits either in their derivative trading or stock investing.

The reason is pretty simple when you plan something stick to your plan.

How to choose stocks to invest and how to invest in them and when to exit is written in my course how to invest well and retire with crores. Since its a paid course it cannot be explained here.

Reduce Buying And Selling of Stocks Very Often

Some traders love to keep buying and selling stocks just for fun. These people are doing two mistakes here:

1. They are increasing taxes like STT (service transaction tax), brokerage commissions, and income tax of profits from short term investment in capital gains.

2. They exit some stocks in small profits and sell some in small loss. If they take into account the taxes paid, brokerages paid and profit and loss ultimately they end up making nothing. in fact they may end up losing money.

Please understand that since RBI knows every trade there is no escape from paying taxes. So please keep taxes in mind before making profits.

If I buy a stock for the long term minimum term I keep is one year to save taxes. In between I try not to even see the stock price to control my emotions to sell. Even if I see the stock is giving me good profit I calculate the taxes I need to pay on profits. If still comfortable I see else I don’t even if the stock is giving a good profit.

When you are buying a stock you are buying a part of a business. Give it some time to grow. In other words you do not buy a stock, you bought a part of that business.

Think long to avoid paying huge brokerage commission fees and short-term capital gains taxes.

Ignore short term fluctuations which is natural and enjoy the dividends over time and long term profits without paying any taxes.

Recommended Reading:

Page 1 of Learn Warren Buffett Investing Style.

Robert G. Hagstrom in 1999 wrote a book on legendary investor Warren Buffett. The book was titled “The Warren Buffett Portfolio.”

This book explains how the Warren Buffett used to pick stocks to buy and when. You will learn about “Focus Investing” too. Focus investing is study of management, how they work and the companies’ financial position compared with other companies in the same business and most importantly their stock price. If the economics of the company is strong he believed it will bring great returns. Once this stock is discovered to invest he called it a stock with great Stock Moat.

Warren Buffett rarely averaged his stocks. Once he decided to invest, he used to buy it in huge quantity and average time holding was five years. Once the company lost its Stock Moat he used to sell.

Focus investing is good for long term investors. The books also deeply studies psychological mindset of Warren Buffett while researching a stock.

Psychology before we trade like greed, fear, planning works to a great extend while researching a stock, option or futures to invest.

I will try to discuss the important suggestions and points to remember from the book. All topics may not be covered but the most important topics are covered below.

Stocks is Not Just A Stock It’s a Business

Most people buy stock to make money fast without thinking that they are actually investing in a business. When you buy a stock you actually become part owner of the company. If the company performs well the stock goes up you make a profit. If it does not perform well, the stock value goes down and you make a loss if you sell.

The point is think about the company before you invest your money, not to invest because you think this stock will go up, instead you must ask yourself will this company perform better over the long term?

To help you learn the best possible investment decisions I have designed a new course on How To Invest Well And Retire Peacefully. It will help you to chose good stocks and mutual funds. Every detail is there like how to chose, when to average, when to sell etc. If interested please contact me.

Size of Your Investment Does Matter

Warren Buffett never invested in too many companies because he believed over diversification may hamper returns. He never invested in just one or two companies either. He had a well balanced portfolio.

How to create a well balanced portfolio is also written in my investment course.

Size allocation, risk management, when to invest and sell, everything is there. This is known as doing your home work before investing in a stock. Buffett use to do his home work properly before investing in any stocks. How to do this home work is there in the investing well course.

Allocation in some good companies over the years may bring amazing returns if the stocks you chose are good and well managed companies. In fact if stock investing is done well you may retire with crores of rupees.

Invest in companies with favorable long-term prospects.

Recommended Reading:

Page 2 of Learn Warren Buffett Investing Style.

A lot of traders get confused on what kinds of stop loss orders to take. Experienced traders put limit orders and watch the markets while new traders watch the markets and take normal stop loss when they see the stock is moving against their trade.
When things can be automated we should automate the process of stop loss orders. This is the Stop Loss Limit Orders. Once the trade is taken a trader can decide where to take a stop loss and keep that order in the system.

If the stock comes near it and breaks the level, the stop loss limit order gets triggered.

Do not get confused Stop Order does not mean that it is just the stop loss order, it can be placed to book profits as well.
However to place a stop loss or stop profit order in the system there is a problem.

When you put the first stop system either the profit taking or the loss, no extra margin money is blocked as the system knows it is only to close the order so nothing extra is required.

But when you place the second stop or profit taking order it is considered a new trade and more margin is required.
Why?

Let say you bought a stock for 100 and want to take profit out at 105. But you are in a hurry and leave your system but want to make sure you want to take a SL at 95. You are first worried about stopping the loss so keep 95 in the system as sell the stock at 95. Now as soon as you want to keep the profit booking stop at 105 this will be treated as a new trade. Your system does not care about your profit or loss. It does not have any brains. All it knows till now is that you bought the stock at 100 and want to sell it for 95, so no more margin is required. But as soon as you keep another stop sell at 105 it treats as a new trade as it considers the first one as the final stop, the second one as a new trade.

So as soon as you keep another sell at 105 it will ask for new margin.

There is another problem. Let say you had the margin and kept the stop loss at 95 and profit stop at 105 and left your system for the urgent work. Let us assume after 1 hour the stop loss is hit at 95 and the order is not complete, but the sell the stock at 105 is still alive in the system.

Why?

Because the system treat edit as a new trade so why should it close that?

Please note that you may consult about this from your broker as well. Some brokers have this facility to cancel any other trade in the same stock or option if one of the stop got triggered. However the second stop has to be in of same type and same stock same number of shares.

For example if the stock was XYZ, then the second stop should be also be of XYZ. If the shares bought was 10 then the second stop should also ne 10 only. If the stock was bought for Intraday then the second stop should also be for Intraday not positional.

Hope you got the point, everything – the type of trade, the indices, the number of shares all should be same only then the second stop will also get cancelled.

But please make sure that your broker allows this or not. As far as I know most brokers only allow one stop else, they treat the second stop as a new order and ask for more margin plus they will not cancel the second order automatically, you will have to manually cancel the second order.

That is the reason it is always better to hedge the trade as soon as you take the original trade. There is no tension there is no extra margin required.

How to hedge the trades is properly explained in my course.