How High Brokerage Can Kill You in F&O

If you are a trader in Nifty futures, who wants to double his capital by intraday trading within 1 year, then see the calculation below and see why a low brokerage is absolutely MUST to achieve this aim.

Who - Traders in Nifty Futures
Aim - Double a Capital of 1 lac in 1 year
How - Trade in Nifty Futures on Intraday Basis

With a Capital of Rs. 1 lac, you should be able to trade in 4 lots of Nifty Futures at current rates. To double your money, you actually need to earn 500 Nifty Points, if you are trading with Nifty Futures. To do that, you have approximately 220 trading days. Lets assume you trade on a Daily Basis and Intraday only. Hence, you need to earn 500/220 = approximately 2 points per trade. Easy? Now look at the calculations below:

Total No. of trades = 250 (for ease of calcuation)
No. of Points earned = 500
Total money earned on 4 lots = Rs. 1,00,000
Brokerage per lot = Rs.150-250 per lot
Total Brokerage per day for 4 lots = Rs. 600 to Rs. 1000
Total brokerage for the entire year = Rs. 1,50,000 to Rs. 2,50,000

Net Profit - Brokerage = Rs. 50,000 to Rs. 1,50,0000 LOSS

Now one can argue that by trading in Nifty Futures, 500 points can be achieved in half of that time. Lets assume that you can achieve this target in 6 months, instead of 1 year. This is a pretty aggressive assumption, because if this is true, you can potentially double your capital every 6 months. Still, lets go ahead with this calculation:

Total No. of trades = 125
No. of Points earned = 500
Total money earned on 4 lots = Rs. 1,00,000
Brokerage per lot = Rs.150-250 per lot
Total Brokerage per day for 4 lots = Rs. 600 to Rs. 1000
Total brokerage for the entire year = Rs. 75,000 to Rs. 1,50,000

Net Profit - Brokerage = Rs. 25,000 PROFIT OR Rs.50,0000 LOSS

Hence, we see that with a brokerage of Rs. 150-250, which is the prevailing rates for most brokerages as of now in India, it is next to impossible to generate consistent returns from the market by Intraday Trading.

If YOU still want to trade, find out a brokerage which will charge you less than Rs. 20/lot in Nifty Futures.Or else, negotiate with your Broker to offer you Low Brokerage. If he refuses, better to STOP trading with him, rather than making him rich, while you become poor. It is only when these brokers start losing clients, will they think of their benefit first rather than theirs. A reduced brokerage is a win-win situation for both the Brokers and the Clients, as if the client makes money, the Broker will keep getting a regular and predictable income from him. However, in present situation, majority of traders Stop trading after losing their capital by paying high brokerage fees.

Similar calculation can be shown to be true for Nifty Options Traders and other Intraday Traders. But that is for later.

When in Doubt, Stay Out!!

I have talked to a lot of traders over over the years, an found some very common traits among the winners, as well as the losers. New entrants into the market come for various reasons. Their ambitions run from just earning enough to pay the telephone bill, to earning a living out of trading. But most of the ambition usually ends up in trying to get rich within a very short span of time. These traders are generally the ones who are destined to lose in the market.

When I talk to the winning traders of the market, the one common thing I find in them is the acceptance that Market is Supreme. While this statement is pretty common to all the traders, it is very hard to practice. Lets look at examples, when a Trade goes wrong for a winning and a losing trader.

Wiinning trader: He expects the market to correct and prices to go down. Takes a short trade, at the right level with good Risk: Reward Ratio and proper stoploss. The stoploss gets hit and He is out of the trade. He realizes that the markets has beaten him and is heading higher. He is still biased on the short side, based on his study, and hence Do Not Enter Long Trades. However, he has also understood that the market has acted against his expectation, and hence decides to wait patiently until the market again gives him a Selling Opportunity. Most probably, on the next trade, he will be able to recover his small loss and make decent profits.

Losing Trader: Same thing happens to him. However, this person cannot stay out of the market. Instead of waiting for the next opportunity, He would almost immediately re-enter the trade, either on the Long Side or the Short Side. The first trade was based on studies and logic. However, the second trade is based on Emotions. It is the act of not accepting that the Market is Supreme. Such type of traders would usually end up on the Losing Side in the Long Run.

In Trading, it is very important to know when to Stay Out of the Market. Even if you do Intraday Trading, it does not mean that you have to trade Daily. Trade only on those days when you See clear Direction/ Trend in the market. Else, stay out. A Winning Trader is not the one who is always right in the market. Instead, he is the one who is right in taking the decision of whether to be "In" or "Out" of the Market. Different type of traders follow different methods/ time frames to gauge the Nature of the Market and to Speculate about its direction. All methods would not give Buy/Sell at the same time.

Remember, When in Doubt, Stay Out! Follow this one simple rule, and you will be able to trade much more peacefully and logically than ever.

Intraday Nifty Tips

The Importance of Technical Analysis

I have come across a lot of critics of Technical Analysis. These critics always have similar statements to make - "The markets cannot be predicted", "Markets make the Charts, the Charts do not make the market", and so on. I agree with all such critics of Technical Analysis and Chartists. These people have become critics of technical analysis because they did not understand the purpose of technical analysis. They thought that Charts and TA was something, which could show them the Future. It would help them to make money. Well, it is not that easy. To make money from the markets, you need Sound Money management. If you do not have that, you would still not be able to make money. To quote - "Even if you give tomorrow's Newspaper Today to some people, they would still make Losses in the market".

If Sound Money management is the key, then why do we need Technical Analysis? The answer is, to see the "PRESENT". Yes. TA does not predict the future, but it shows you the present. With the help of Charts, Levels and Systems, a trader is able to see the Market As It Is, and not as he wants it to be. This is very important. TA helps to keep the emotions of a trader away from his trading. No matter how Bearish he may be, if the screen tells him to Buy, a Smart Trader will either Buy or Stay Out till more clarity emerges. He will not go against his charts. That, my friends, is the whole essence of TA. use it as a tool for making your Buy and Sell decisions, and you will be highly rewarded. if you use it as the Holy grail or as a Fortune Telling Crystal Ball, you re bound to be disappointed.

Know when to go "ALL-IN'

For those of you who are avid players of "Poker", would recognize and understand the meaning of the title of this post. For the uninitiated, you can read about the card game here.

"In the end, poker is gambling, so victory is never guaranteed. Nevertheless, if you're armed with knowledge, you'll improve your chances of coming out on top" (from HowStuffWorks.com). Some people compare the Trading business, especially intraday and Short Term Trading to Gambling. Well, then why not learn a few tips from the Gamblers themselves.

A seasoned Poker player would keeps betting small hands, till he gets the winning combination of cards, which can get him a JackPot. He would "Fold" or "Win" small amounts in a lot of his bets. But when the actual winner comes his way, he would Bet Big (ALL-IN) and win Bigger. What does the smart traders do then? They do exactly the same thing. They keep nibbling here and there for the right trade, scalping a few 10-20 points here and there or losing 10-20 points on the way. They would not put much money in these trades. These trades are only to keep them "interested" in the "Game" and observe how the game is evolving and how "Other" players are playing. But as soon as he finds his Trade Setup evolving, the Trend becoming Clear, He goes ALL-IN with all his might. This ensures a Big Win and a Bulging Bank Account for the Smart Trader.

At NiftyPower, I always tell my subscribers this thing. We take about 20-25 trades in a month in Intraday Packages. In a normal month, 4-5 of these will hit stoplosses. Another 8-10 would result in small profits (15-20 points in Futures). The remaining trades are the JackPot trades. The problem is, no one knows which of these 20-25 trades are the JackPot Trades. So what do we do? We have to take each one of them and treat them alike. Place stoploss on each of them, or keep booking small profits and trailing with stoploss at Cost. This we continue till we finally discover that JackPot Trade, which gives us maximum profits. The Smart Trader cannot Afford to Miss These JackPot Trades at any cost!

Trading With the Levels

Every morning, we send out 8-10 levels as Supports and Resistance Levels for Nifty. Similarly, other analysts also give out their own levels. These number differ from analyst to analyst and from trader to trader. Then, you may ask, What's the use of such levels? Do they really work? Read on for Answers.

As given in my earlier posts too, there is no point in trying to predict the market. The supports and resistances are defined by markets. They are not defined by any formula or trader. Then, what is the use of having such levels? The answer is - Trade Plan. These levels help a trader to plan his trading for the day/ week/ month etc. Markets do move on levels. The volumes will be more at certain points, while between these points, you will find Low volume areas. The problem is, to predict these important Support and Resistance level consistently is impossible. However, we can find our important resistance/ support "Zones" for the Nifty, where high volume trades have taken place in the recent past. If you see our posts in Nifty View on www.niftypower.com, you will see that we always provide Resistance and Supports in multiples of "5", not as exact point (for e.g. 5435 instead of 5437). The reason is that these levels are not to be taken as Points, instead, these are the Zones where a trader has to watch the market action and decide on a trade. How to make use of these levels - Read On.

Once you have the levels for the next day with you, you plan your trade around these levels. Then as the market starts to trade near these levels, you execute your trade as per your trade plan and intraday positioning of other indicators that you use for taking a Buy/ Sell decision. You also know where to place your stoploss. It would generally be a few points below/ above the next level.

Here, the most important thing is that you take all the Buy/ Sell decisions at your pre-planned levels only. What this ensures is, you wait patiently for market to come to your level and then execute as per the plan made by you. All the thinking for the trade had been done on the previous day. In Live Market, you are executing your plans. This ensures that your Emotions stay out of your trading. That, is the first and most important Step for achieving Trading Success!

To receive these Nifty Levels daily on your mobile, visit www.niftypower.com and Join us on Twitter, smsgupshup OR Yahoo Messenger.

Plan Your Trade and Trade the Plan

People often ask me, where do you think market is headed to? Will it cross XXXX level, or will it fall below XXXX level. My answer is -Why do you care? As a trader, I care only about what I would do, if markets do what I expect. Each and every day, I go in with an expectation. I have a plan in mind. I have 3-4 scenarios in mind, and an action plan for each of this scenario. Once a scenario starts to play out, there is no fear of executing the plan. Then how does it matter where the market is headed to? Wherever it goes, I will be Ready.

In trading, it is not important what the Market is going to do. The most important thing is What YOU would do if the market does as you expected. And also, what your action would be if the market does not behave on expected lines. Remember, it would not always pan out as you planned. Simply because there are infinite probabilities on how the market would unfold. Hence, if it is not moving on expected lines, Stay Out. Leave it for someone else, whose plan may be panning out.

Emotions can Kill You!

In Trading, I have come across many analysts and traders, who are always trying to predict where the markets are going. Someone caught the market bottom and made windfall gains. He cannot control his excitement. Why? Because he has been trying to catch this bottom while the markets were falling like crazy. Today's gain and excitement would ensure that he will forget about his losses, think that he can make money from the markets, and again risk his money on tomorrow's trade. That is how the market works. It never ceases to amuse me.

Another Trader, He predicted the fall very well Yesterday. His reaction was also similar. He thought that he had caught the market pulse. Today, when the markets were rising, he did not believe that it could, as his analysis pointed to more downsides. He refused to acknowledge that he could go wrong. After all, he was right yesterday, when he predicted the fall while all around him were thinking that the markets were going to up. He definitely is a better analyst than the other. He continues to hold on to his losing position, even adding to it trying to average, and the markets continue to rise.

This is one emotion that can kill you in the market. This emotion is that of Excitement. It can lead you to believe that you are next to God! Get rid of this emotion. Understand that in the market, it is not important How much you made today or tomorrow. What matters most is How Much You are Making Consistently and What You Have Done to your Bank Account. You do not need to Predict the market to make money. It is your Actions which should be Predictable. You have to be Consistent in Executing your Plans. With a trading plan, good execution and sound money management, you would start making money without the need for Predicting the market. Believe me, No one has, and Will be able to predict accurately over a long period of time. A 50% prediction ability is Normal according to the laws of Probability. Then why get excited over it? Everyone will be right sometime or the other.