Market volatility is quite like Voldemort. No one wants to talk about it though it is inevitable. It will creep into your equity trading life at some point or another. So, what should you do? Leave everything to fate or prepare for the fight like Harry Potter. If the answer is latter, continue reading. You will get to know some great equity trading tips that will ensure that you weather the volatility without a crease on your brow.
What causes volatility in the markets?
Volatility refers to big swings or fluctuations in the price of stocks in the market. The movement can be in either direction – up or down. When the stock prices come down significantly, it is referred to as a bear market. On the other hand, if the prices keep on rising, it is called a bull market.
Some factors which result in market volatility
- Global and national political scenario (including election results)
- Fluctuations in crude oil prices
- Economic or policy reforms
- Unexpected developments (positive or negative) in the market, earnings or news about a reputed company
Equity Trading Tips for Volatile Markets
Equity trading in India has been on a rise in the last couple of years. But so has been market volatility. Hence, it is important to understand factors that can make trading in equity a fruitful exercise.
These equity trading tips will come handy while chalking out an investment strategy for effectively handling the volatility in the markets:
- Stick around for the long-term
- Step into the market
- Average out the cost of purchase
- Book profits
- Gracefully exit from non-performers
- Go Long and Short
- Covered Call
Things to avoid when the markets become volatile
The list for equity trading tips will not be complete with only the DOs. One also needs to be aware of the DONTs or the mistakes to avoid in equity share trading.
- Panic or contingency sell
- Go for the cheapest option
- Leveraged bets
Volatility in the market is not always an adversary. It also provides opportunities to invest at better (read more cost-effective) valuations and leads to market corrections. The idea is to remain cautious and alert and not fall prey to grapevine rumors or take knee-jerk reactions. And now that you know the DOs and DON’Ts, you can safely do equity trading in India (and also anywhere else in the world).
One can also take the services of professional experts for equity trading in India who can help you navigate market volatility with ease. IndiaNivesh is one such partner who offers a wide range of financial services (equities, derivatives, commodities, mutual funds, insurance, IPO and online trading). Their “client-first approach” ensures that each customer gets customized inputs based on their financial goals, risk appetite, and investment horizon. So, whether you are new to trading in equity or just looking for some expert advice, IndiaNivesh can help you out. So, make sure you take help from the best and then even the worst of the market fluctuations will not trouble your trading aspirations.
Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.
How does Share Market Work in India?
There are many investment avenues available for individual investors. Right from fixed income options to equity-related products, there can be many options to choose from, depending on investors’ risk appetite and time horizon. Though the share market is a popular investment choice, many individuals don’t understand how share market works. Given the technicalities involved, it is not surprising. So, let’s breakdown the concept of share market and understand how share market works.What is the share market?In the simplest of terms, the share market is the platform that allows investors and traders to buy and sell shares, derivatives or bonds. The share market, therefore, acts as a middleman between the investors and the companies offering their securities for sale.Participants of the share marketBefore understanding what is share market and how it works, it is important to understand the participants which constitute the share market. A share market has four main participants which are as follows –1. SEBI – The regulatory bodyThe Securities and Exchange Board of India (SEBI), is the head of the share market which acts as its regulator. It lays down the rules of the share market and the market participants, as well as the traders and investors, have to follow the rules and guidelines prescribed by SEBI. SEBI also governs and monitors the working of the share market and ensures that the market works as per the prescribed guidelines.2. Stock Exchange – The platformStock Exchange is the place where the shares and derivatives are listed and traded. There are two stock exchanges in India – the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE).3. Brokers – The middlemenBrokers are individuals or companies who are authorized to conduct buying and selling of stocks and derivatives listed on the stock exchange on behalf of their clients. For rendering their services, brokers get a brokerage on the amount that they transact.4. Investors and traders – The playersInvestors and traders are the final participants who buy and sell securities on the stock exchange. They can be an individual or a company.How share market works?Now that you know the important participants of the share market, it is time to understand how share market works. The following process is a step-by-step guide to the workings of a share market: There are two stock markets – primary and secondary. To be able to trade its securities on the stock market, a company has to get listed on the primary stock market. This listing is done through an IPO (Initial Public Offering) wherein the company offers its stock to the public to trade for the first time. The company is required to issue an offer document containing the details of the IPO, the company details, the stock being issued, etc. The company would also have to register itself with SEBI and the stock market. Once the company is successfully listed, it's stock trades on the secondary market. The secondary market is the platform wherein the traders and investors buy and sell stocks of the listed companies. Since there are thousands of investors who want to trade on the listed securities, it becomes impossible for them to assemble at one platform for trading. That is where brokers come into the picture. Brokers represent a set of investors and trade on their behalf. Brokers are also registered with the stock exchange and serve as an intermediary between the participating company and the investors. If you, as an investor, want to buy a particular stock at a particular price, you have to communicate your purchase desire to your broker. The broker would then process your order on the stock exchange. Your broker lists your purchase order on the exchange which, in turn, searches for a seller willing to sell the stock that you want. When the seller is found, a price is fixed and the exchange informs the broker of the confirmation of the purchase order. The broker then informs you and you need to pay the money to purchase the requested stock. The details of the buyer and seller are also confirmed by the exchange to ensure that an authentic transaction is taking place and that there would not be any default by either of the parties in buying or selling the stock. Once the records of the buyer and seller are recorded, the exchange starts the process of transferring the ownership of the stock. This process is called settlement and it takes T+2 days for the actual transfer to complete. This means that, if you request to buy a share today, the share would be bought and deposited in your Demat account the day after tomorrow. It is also the responsibility of the exchange to ensure that the purchase goes through without any default. It ensures that the buyer gets the desired number of shares after paying for them. The trading of the stock also impacts its price. The share market is volatile wherein the stock prices rise and fall on a continued basis. This rise and fall are due to the theory of demand and supply and the perception of the participating company which investors have. If investors perceive a company to be very profitable, they would be motivated to buy the shares of such a company. This would increase the demand for the company's shares. As the demand rises, the price of the shares also increases. The same holds true for a stock whose prices plummet. If there are too many sellers looking to sell off their stocks, the company would be perceived in a bad light. As the supply of shares increase and the demand is lower than the supply, the price of the stock would fall. You can also track established indexes like the Nifty 50 to select which companies to invest in. Nifty 50 is a benchmark index that monitors the movement of the share prices of selected bluechip companies. 50 selected companies are tracked by the index covering 13 sectors of the industry. The index, therefore, covers about 65% of the float-adjusted market capitalization of leading companies.Also, when investing, you should understand the types of stocks trading on the stock exchange. There are, broadly, three types of stocks which include the following – Large-cap stocks are stocks belonging to companies that have a large market capitalization. These are those companies which are established from a long time and enjoy a very good reputation. Mid-cap stocks are stocks that belong to companies which have a medium market capitalization. These companies lie between the spectrum of large-cap and small-cap companies having a market capitalization ranging between INR 5000 crores to INR 20,000 crores. Small-cap stocks are stocks belonging to companies that are relatively new in the market and have a low market capitalization. The art of investing in the share marketUnderstanding what is share market and how it works is not enough. You should also understand how to invest. Always understand your risk appetite before investing in a stock market. Though the market promises good returns, there is an equally high chance of a loss when the market falls. You should, therefore, invest only up to the limit which suits your risk profile.Always study the market and the participating stocks before selecting a particular stock for yourself. Do a trend analysis of the price movement of the selected stock and go through market predictions. Don't get too emotional in case of falling markets because, given time, the market can correct itself.Be patient with your investments and invest only what you can afford. Don’t get greedy about the returns. Start small and then build up your investment as you learn the ropes of share market investing. Take the help of a good broker who has the required expertise in the field to guide you to invest wisely. IndiaNivesh is an online platform wherein you can get expert guidance on how share market works in India. You can trust IndiaNivesh’s experts to give you investment advice suitable to your risk profile. Your money is hard-earned and at IndiaNivesh you can make your money work harder to give you a good corpus.Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.
Understanding Stock Market Trends & their Types in India
Switch on a news channel when it is talking about the market and you are likely to hear a discussion about what the stock market trend was today and experts sharing their inputs on the Indian stock market trend analysis. But to make any sense of those discussions, it is important to know the trends in stock markets and their impact on our trading decisions.What is a trend in stock market parlance?Most investors look at the stock price chart and see those small lines going up and down. However, beneath all the daily fluctuations (or no movements sometimes) is a particular market trend. A trend is nothing but the general direction of the movement of the stock market or an asset’s price. Timing your transactions plays a key role in making money in the stock market. Correct understanding of what is the current trend in the stock market enables the investors as well as traders to make their buy or sell decisions. When the market is moving upwards (stock prices are on the rise) it is called a bullish trend. On the other hand, when the market moves down south and stock prices fall considerably, it is referred to as a bearish trend. How to know the stock market trend today?So, can you look at the stock price of a day and establish what is the stock market trend today? The answer is No. The Stock Market trend today is not decided basis only today’s stock price but rather its movement when compared to the earlier time points. Trends get established over a longer period. To know the stock market trend one needs to look at the movements for a certain period of time. There is no fixed guideline or specified duration for the movements to be considered as a trend. However, it is said that the longer the duration of the movement (irrespective of the direction – upward or downward), more noteworthy or reliable the trend is considered.What is Trend AnalysisTrend Analysis is the process of making use of the current trends (or past data) to predict future movements. For instance, with the help of stock market trend analysis experts try to make a forecast if a specific market sector which is currently growing will continue to do so in the upcoming future.How to identify trends in the stock market?Before we let you know how to identify trends in the stock market, you need to understand some important terminologies and the types of market trends. When you want to interpret a stock chart, think of your last visit to the mountains. Like how you would have observed many hills or valleys there, you would see such points even on a stock market. These are the points we will be talking about. Peaks or Tops This term is similar to the peaks of mountains. The highest or topmost price point that a stock touches is referred to as the “Peaks”. Troughs or Bottoms The lowest or minimum price point that a stock falls to is called the "Trough".Stock Market Trends Market trends are divided into three categories: Uptrend An uptrend describes the price movement of a financial asset when the overall direction is upward. In the case of an uptrend, the stock chart creates new milestones. Both the ends – peaks as well as troughs keep going further successively. Hence, on a continuous and regular basis, the stock’s price would touch a new high or fall lower than what it did before. However, one important thing to understand is that it may not be the lifetime low or high. This is the movement or status in the last few days, weeks or maybe months (depending on the duration of the trend).As long as the price keeps on making the higher swings, the uptrend remains intact. The steady rise in peaks and troughs indicates a positive sentiment in the market. The general expectation is that the stock would appreciate more rather than depreciate. Downtrend In the case of a downtrend, the stock price keeps on falling continuously. In addition to the successive tops getting lower, the successive bottoms are also lower. The general view in case of a downtrend is that the stock value will fall further. Usually, no further buying transactions take place and investors use each peak (however little it may be) to sell off their current stock quota. Sideways Trend A sideways trend is a phase of ambiguity. The stock prices do not move significantly in either direction over an extended time frame. Both tops and bottoms continue to be constant. There is no notable movement to enable the market participants to make a buying or selling decision.Distribution DaysRemember that old saying, “All good things must come to an end”. It applies to the stock market as well. Eventually, in all up-trending markets, there comes a time when the selling activities overtake the buying activities. The day when the index closes (from the earlier day) on a higher volume (more selling than buying), is referred to as a “Distribution Day”. Market analysts believe that about five such distribution days over five weeks can easily reverse a market trend from upward to downward. Hence, one may pay close attention to Distribution days as they indicate the end possibility for an uptrend.Solid Market Rally Every cloud has a silver lining. One must continue to monitor the market when it enters a downward trend. At some given point of time, it will rally and get better for a couple of days. However, many such rallies are fake outs. Before taking any market-related action one must confirm that there has been a trend change towards the upward direction. This usually comes as an explosive day and signals the market trend has reversed. This in market parlance is referred to as “follow-through day”. On this day, the market closes upwards by a substantial and decisive amount.No new bullish phase has begun without this “follow-through” day. However, it is important to note that not every such day will lead to a new start (bull market). It just gives an indication and a timely heads-up to the investors (or traders) that they need to keep a constant look-out for their preferable stocks. How to act on stock market trends?There are many platforms (online or otherwise) that offer daily updates about the Indian stock market trend analysis. But before relying on any such analysis, it is important to establish the credibility of the source. IndiaNivesh is one trusted and well-renowned partner whom you can reach out to for stock market related expert opinion. Their team consists of experienced professionals with a deep understanding of the market who have helped investors create wealth for the last eleven years. The IndiaNivesh website has live updates and expert insights that help you make informed decisions. Now that you know what are the possible trends in the stock market and also know a reliable expert who can help you realize your financial goals, what are you waiting for? Remember, time is money! Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.
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