Twenty simple Rules of Trading in Stock Market

1 Trade like a guerilla warrior
You must learn to adapt quickly to changes. If the winning side is
changing, don't hesitate to join the new party and to commit all your
forces to this side (capital ,mental, emotional)...until the market
conditions change. Don't get married to trades.

2 Be disciplined
Create a game plan then stick to it. A trade does not simply consist of
a position. It consists of a position plus reasons for having the
position plus a stop loss level plus profit taking levels. In the long
run your discipline will save you when markets get rough.

3 Buy high...Sell higher - Sell Low...Buy Lower
Do not try to bottom fish or pick tops. When you think you know the
trend then follow it.

4 Think big picture but trade like a technical analyst
You must understand the fundamentals behind your investment ideas but
you need to understand the Technical Analysis too. When your fundamental
and technical signals point to the same direction...you have a good
chance to have a winning trade.

5 Do not use excessively tight stop losses
Spend more time identifying a good entry point. Be patient. Give some
freedom to the market. Place your stop losses carefully.

6 Hit your stops
The first stop is the cheapest stop on a losing position. Do not follow
the temptation to "hang onto" a losing position that has gone through
your stop loss level. It might work a few times but one day you will be
hammered if you trade without discipline.

7 In a Bull market...Be Long or Neutral - in a Bear market ...Be Short
or Neutral
A lot of people forget this rule and trade against the trend by calling
for short term changes in market conditions. This usually causes
psychological imbalance and frequently leads to losses.

8 Go for the most powerful market trend
Do not focus too much on markets where the trend is not strong enough or
the market is range bound or choppy. Commit your forces to the stronger
trend.

9 Accept losses they are part of the game
Prepare yourself mentally and emotionally for this eventuality. Take
some time off and come back fresh if you have been hit hard. Do not
fight with the trade, curse the market or make some bargain with
yourself (...if the market goes to my initial level I will get out... ! ).

10 Resist the urge to trade against the trend too early
The trend is usually right (fundamentally). Be patient. Wait for the
trend to turn. When the fundamentals and technicals are turning to the
other direction, wait a bit longer then enter.

11 Never add to a losing position
This is a recipe for disaster. Just add to winning positions especially
when the market is retracing.

12 Do not make a winning position lose
Use trailing stop losses. You must learn to take profits.

13 Bear markets are more violent than bull markets
You can trade bear markets with smaller positions. Expect violent
retracements so get in the habit of taking profits.

14 Keep all your technical analysis simple
Use simple support and resistance, Fibonnaci retracement and reversal
days. A good tip: When yesterday's daily trading range is the smallest
of the previous last 11 days trading range...be ready for a big move and
some volatility.

15 Be aware of market liquidity at all times
Assets do not just have prices. They have liquidity levels too, and just
as prices change so too does liquidity. Illiquid assets do not trade in
the same way as highly liquid assets. Only trade lower-liquidity assets
if there is sufficient compensation for the lack of liquidity and you
are a true expert in the asset class.

16 Be intellectually honest
When you are wrong admit it , learn from it and go on to the next trade.
The market rewards intellectual arrogance with losses and pain. If you
want to stick to your point of view no matter what the evidence may be
to the contrary… become a politician.

17 Wall Street climbs on a wall of worry
Be aware that the most likely time for a bull market to end is when
everyone is bullish and the bottom of a bear market occurs when
everybody is bearish. When everyone is on the same bandwagon… be careful
and get ready to get out.

18 Be aware of Psychological biases in the markets
Bond traders tend to make most money as economies slow and dip into
recession. Stock traders tend to make most money when the economy booms.
So many bond market participants are always pessimistic and many stock
analysts are perpetual optimists. Try to remain objective and observe
which market commentators appear objective too.

19 Be patient
The more profound your ideas the longer it will take for others to see
them as well and thus the longer it will take for markets to move your
way. Be patient and give yourself and your trades time.

The 20th rule
If you have to...break the rules.

Fundamentally Strong Stocks Trading at PE of Less than 5

Stocks With PE Less then Five:

The recent stock market carnage has spared not even fundamentally strong stocks. Thus, some very good stocks are trading at a PE of less then 5. It's true that forward PE always is a better indicator of valuations. But these stocks should not have very significant decline in earnings. So current low PE makes then attractive bets.

1)Financial Technologies (India) Ltd - PE ratio 3.22

2)Ruchi Soya Industries Ltd - PE ratio 3.98

3)Jindal Saw Ltd - PE ratio 2.23

4)Hindustan Zinc Ltd - PE ratio 3.48

5)Sterlite Technologies Ltd - PE ratio 3.81



Attractive Stocks in the Agriculture Sector:


This is one sector which will do very well the next time the markets make a upmove. That might be sometime away but slow accumulation on these stocks can be considered.

1)Jain Irrigation Systems Ltd

2)Kaveri Seed Company Ltd

3)Karuturi Global Ltd



Attractive Stocks in the Water Sector:

Two stocks which might be big companies of the future in the water related sector in my opinion are:

1)Subhash Projects & Marketing Ltd

2)Mount Everest Mineral Water Ltd

Should You buy in big numbers now:
If anyone does plan to buy any stock for long term also then he/she should buy only in small numbers. No one can say for sure that the stock markets have bottomed out or are even close to that. Yes some valuations are very attractive but it might get more attractive. So I would suggest to invest only 10-15% of the money allocated towards investment purpose in stocks now. For now capital preservation is the top priority.

Why Sector Study Is Crucial Before Investing in Stock Market ?

Investors tend to underestimate the importance of sector before investing in a stock. They generally concentrate on stocks but forget about the importance of sector. Investors in IT and sugar stocks missed to capitalise on the glorious bull run in 2007. Except in rare instances, even good stocks in bad sectors will underperform while bad stocks in momentum sectors generally outperform due to positive sentiment. Just see how even good commodity stocks are now falling to unreasonable levels. In USA, many waste management stocks are now trading near 1-year highs. 

Investors in power sector got bumper returns in the December, 2007 rally. Textiles are the hot stocks in early 90’s, while IT stocks are the hot ones in late 90’s. Metal stocks are star players in 2007 while they are the worst performers in 2008. When sentiment turns to negative in a sector, even strong fundamentals will not save good companies from free fall.

Why sector is so important?

1. 2001: Nifty gave -16% returns while top sector, Auto, gave 29% returns. Hero Honda was a star in those days.

2. 2002: Nifty gave just 4% returns while top sector, Energy, gave 74% returns and Metals and Banks gave 50% returns. 

3. 2003: Nifty gave 74% returns while top sector, Metals, gave 238% returns. Real Estate and Capital goods gave 170% returns.

4. 2004: Nifty gave just 9% returns but top sector, Real Estate, gave 144% returns. Telecom gave 63% returns.

5. 2005: Nifty gave 36% returns while top sector, Real Estate, gave 290% returns. Capital goods stocks gave 110% returns.

6. 2006: Nifty gave 40% returns but top sector, Real Estate, gave 200% returns. Metals and Telecom gave 70% returns. Unitech and Bharti Airtel investors may not forget those days.

7. 2007: Nifty gave 55% returns while top sector, Metals, gave 190% returns. Capital goods and energy stocks gave 110% returns.

8. 2008: Nifty gave big negative returns but investors in FMCG and Sugar Stocks escaped from big losses.

SO BEFORE INVESTING MAKE STUDY OF EACH SECTOR.....BECAUSE ITS OUR HARD EARNED MONEY

India’s GDP growth estimates

India’s GDP growth rate is at 9% in the last financial year.....Will It Continue...See the Changes...

1. Morgan Stanley: GDP growth rate for FY09 to 7% from 7.5% and for FY10 to 5.7% from 6.5%.

2. Goldman Sachs: GDP growth rate for FY09 to 6.7% from 7.5% and for FY10 to 5.8% from 7%. Massive downgrade.

3. Fitch Ratings: GDP growth rate for FY09 to 6.3% from 7.8% and for FY10 to 6% from 6.8%.

4. Prime Minister's Economic Advisory Council: GDP growth rate for FY09 to 7% from 7.7%.

5. RBI: GDP growth rate for FY09 to 7.5-8%.

Indian Stock Markets: Is It Absolute Madness ??

Couple Of days before China announced stimulus package- Indian stock markets crossed 10,000 levels. Lupin announced good news-stock fell. Sensex and Nifty rose on Friday-FIIs and MFs are net sellers on Friday-who are buyers on Friday and why are they buying? Volumes are falling-stocks are rising. When international rating agencies are aggressively downgrading GDP estimates, Indian stocks are moving upwards. When exports fell for the first time in 5 years, exports stocks are making gains. When textile sector is expected to cut 7 lakh jobs, textile stocks are gaining. Speculators are enjoying free ride and share markets became gambling centres in the last 2 days. Absolute madness! Will this madness continue?  (  Your Comments Are Welcome....)

Global economic crisis updates

1. Job Losses: Companies in the United States cut an estimated 157,000 jobs in October, the most in almost six years. Unemployment rate rose to 6.3% and is expected to touch 8% in the next few months. Pharma Company GSK will lay off 1,000 jobs in America. Obama has no magic wand to create jobs immediately unless he took severe steps on outsourcing. America will continue to lose around 2,00,000 jobs in the next few months.

2. Steel: Arcelor Mittal cuts production by 35% due to weak global demand. Company announced disappointing results. 

3. USA: Services industry retracted at fastest space in October due to slowdown in sales. Non-manufacturing index (ISM Index) dropped to the lowest level since records began in 1997. Americans are rapidly cutting their consumption and economy is slipping quickly into contraction due to job losses and fall in real estate prices which are taking huge toll on the consumer confidence which is vital for any country to grow. Consumer spending accounts for 70% of US economy. If it contracts by biggest margin since 1980, what will happen? UK is reporting slump in services industry growth.

4. US: American mortgage application demand slumped by 30% and touched 8-year low.

5. Software: Google which recorded 120% growth in hiring in the last 2 years has unofficially stopped recruiting.

6. Banking: European banks UBS and RBS warned of further deterioration in the economy in the next quarter. Both banks warned that the outlook for the rest of the year was gloomy. RBS will post its first full year loss.

7. European Union: Retail sales fell across 15 nations in Euro Zone. Spain is the worst sufferer. European Central Bank will cut interest rates by tomorrow to improve consumer spending. Diagnosis is right but treatment is wrong.