What is volume??

When I started trading, I was familiar with volume which was in geometry. If you are not aware of this term in stock market then don’t worry, I’ll help you.

Volume in stock market is very important factor to look at while taking buy or sell position. Volume is like an early indicator for any changes in price movement.

First of all what is volume? Volume is traded quantity of a stock for a given day. Suppose person A sell 100 stocks of TISCO and Person B buys those 100 stocks in same day, that means total volume of TISCO for that day is 100.

Volume is used for determining the current trend of the stock.If the stock moves higher or lower with strong volumes, it justifies that day’s movement in the stock.

I know your next question is how to determine if the volume traded is strong or weak, it is usually decided by comparing current day’s volume with average volume of last two weeks (14 trading days). Am I being too technical, don’t worry I am not trying to explain any rocket science here. Let me explain with the example.

I’ll take the current scenario of reliance communication.

On 1st September price was up by Rs.3 to Rs.263 with 7,558,100 as Volume. Average Volume for that day was 5,788,958 so this movement is justifying the increase in price on that day. After that it went up all the way to Rs.317. During this there were time when volume was higher than average volume but not by significant amount.

On Oct 6, RCOM slided to 268 from 299 on that day traded volume was 31,398,500 whereas average volume was 10,535,551 on NSE. Traded volume was almost 3 times higher than the average volume. That justified the down trend started in RCOM, it is trading at Rs.228 right now. These data are readily available on NSE or yahoo charts.

Morale of the story is, volume helps you identify the short term trend but volume is not the only indicator to identify short term trend.

There can be certain exceptions, generally on FNO (Futures and Options) expiry day, volume have unexpected movements, wait for one or two trading days after expiry day to confirm the trend.

Hope I am putting all these in simple and easy terms. I tried to get the chart but i was unable to include it in this post. If you know how to insert a chart, please let me know.

Off for Dhan Teras puja..

Wishing you all a happy Diwali in advance !!

P.S. My Diwali Muhurat Picks

• Bharti Airtel
• TISCO
• Financial Technology
• Camlin Ltd.

Let me know what you’re buying on muhurat !!!

Reliance Industries bonus issue

Reliance announced a bonus issue of 1:1. Dividends were declared at Rs 13 per share.

After all if a company has 100 shares in issue and has a market cap of 100, it is worth 1 per share. Double the shares to 200 and all that happens is that shares become worth 0.50 each.

So what this news means to you, should you buy more right now or wait till bonus shares are allocated. Will the prices go up? There are lot of questions one can have.

Let me share my 20 cents on this one.

First of all lets look at the Reliance Industries (RIL) past performance. In mid june RIL was trading at 2025 and right now it’s 2167, only 7% increase while nifty was at 4250 in mid june and right now it’s 5054, that’s 20% increase. Bombay high court judgement related to the company’s gas supply to Reliance Natural Resources Ltd (RNRL) and this year’s union budget impacted RIL prices very much.

This bonus issue is to boost the sentiments of investors. One more time following Dhirubhai’s ideology. RIL will see some temporary boost by bonus issue announcement and Ani’s proactive approach to resolve the gas dispute. One have to remember that bonus issue will not add anything to valuation of the company. Valuation will still remain the same.

In India, normally the dividend per share is not cut following a bonus issue; which means the yield doubles. Suppose the Pre Bonus Share value is Rs 2,000 with a dividend of Rs 13. Post bonus you have 2 shares worth Rs 1,000 each with a total dividend of Rs 26. So thats an advantage.

Long term outlook for RIL is very attractive, company is expecting large amount of cash flows from it’s operations. If you want to enter in this, enter by 1850-1950 which I think is a fair value for RIL or 900-950 (Post bonus price).

Happy Trading!!!Don’t forget to give your vote today for Maharashtra elections.

Appreciate your feedback on this.

Start Trading

I am planning to write a series on basic trading – only stocks, Intermediate level – Margin(Day trading) , advanced level : Derivatives for stocks and currency. Simultaneously I’ll post something on current market situations also.

My first rule with which I started trading ” Start with the risk capital which you can lose it, losing this capital should not affect your regular life and your goals”. Don’t invest all your savings in stock market.

Let’s get our basics clear.

• How to start trading : Select your broker. There are plenty of options available these days like icicidirect, Reliance Money, SBI, KOTAK etc. all are almost same. I would prefer online trading which gives more control and understanding of what’s going on with your trading.
• Settlement types: When you buy a stock, it’s called transaction day=t. Amount will be deducted on t+1st business day and stock will be available in your account on t+3rd day. Same thing with sell, stocks will be deducted from your account on t+1st day and amount will be deposited on t+3rd day. This is applicable for cash (delivery) trades.
  There are some variations available like spot sell: with little bit extra brokerage you can get the selling amount on the same day.
• Buy today sell tomorrow (BTST): Some stocks qualify in this category. You need to check your broker for which stocks qualify for this. Generally almost all A group shares fall in this category. Suppose you bought 100 bharti airtel at 340 today and it shoots to 380 in next trading day you can sell your 300 bharti and book your profit even though shares are not arrived in your account. There might be some extra brokerage for this, it depends on each broker.

With this you can start buying and selling stocks. For all non traders, you can start trading this Diwali.

All existing traders, what are your picks for muhurat trading??

Finished putting up lights in balcony in freezing 8 Celsius temperature but it was worth it, Now Its looking like Diwali is coming.

Happy Trading!!

Trading Basics

I don’t know why they don’t teach how to invest money as a subject in college. One of the biggest question I had with my first salary was what to do with the money left after paying rent and buying gifts for my family.

Being from a traditional Gujarati family, I was familiar with stocks and I have seen 90% of people investing in stocks for making money in short time. Very few people consider it as an long term investment.

I know some people who trades in stock market just for sensation – a gambling sensation. One should have control on his mind about entry and exit points. There should be some reasoning behind your buying / short position, I have seen people blindly following recommendation from investment web sites. It’s like going to a fortune teller and asking about your future in return of some fees. If he is capable of forseeing the future, he himself would have been a millionaire by now.

Before buying any stocks, you should ask very basic questions to yourself like what is the nature of business it do? How’s it order book? What price range it is trading in last year.

Successful trading requires the ability to take meaningful risk, but also the capacity for controlling that risk. One can trade for sensation and one can trade for profits, but rarely can one do both.

Gold crossed $1000 mark today, I am very bullish about this commodity. I am seeing more upside today in Asian as well as Indian markets!!

Looking forward to Nadal’s game today in USOpen!!!

Happy Trading !!!!