Defining yourself in Capital Market Trade Intra-day, Invest for 5-6 Years and in case you are the one who play positional at least do have Weightage Hedge” ……………..this is the thumb rule of the capital market which one needs to adhere to, and for those who define their own rules in this market I doubt is it worth to go for such dare, because risk is something that is in build in capital market, and I am sure no one wants to get this risk factor multiplied. The participation in Equity market has increased manifold over the last decade, with technology playing the role of catalyst ………….Each participant works on his/her own way of reaching the goal, that is to create wealth………………….But when we do the reality check I guess 95% of the participant see their capital being eroded or portfolio in red. In day to day life we read quotes of Investment gurus on wealth creation, risk management, diversification etc………..if we try to do a micro level analysis of all the quotes we can come up with 4-5 basic facts that this quotes deal with (defining/controlling risk, think long term, diversify/hedge your investment, being flexible, investing in knowledge etc. “Trade Intra-Day”- if you are the one who speculate this is the best thing on earth for you, ensure that you take care of your risk management; I guess the SL Option below the Order Type in your trading platform will take care of it, speculation without risk management is like stepping over the bowling crease & you give the batsman an advantage to go for a free hit……….. Understand the pros n cons of intra-day trading before stepping on to the accelerator, else you can be taken for a ride, the few pros n cons that needs to be looked into are, defining the trigger price, defining spread between trigger & SL price for a given script, the circuit limit for a given script, liquidity of the script, lastly look out for any upcoming intra-day events that can have its toll on the market/script on intra-day basis. “Invest for 5-6 Years” This theory is based on the rule of 72/r, r=9% given the current state of economy where the interest rate scenario is 9%, if one invest in a Bank FD assuming the IT slab at 30% it takes close to a period of (8 yrs. as per rule mentioned + 3 years taking the tax factor into account) =11 -12 yrs. this is the time frame in which your invest double in case of a traditional saving instrument, given the premium which I must get for taking risk in equity at least I need to have patience for 5-6 years to see the above said magical number which I can see in case of a debt investment in a span of 11-12 years. Majority chunk of investment should be made in large cap (Risk Appetite, Income Level, Age Group) defines the proportion at different stages, but the thumb rule says Large cap should take the major chunk of you pie given any stage. It is easier for Large to Become Larger, but for Mid to become Large it needs a leap, in corporate world we see a very small number of script that are able to cross the line in a given time frame & secondly the downside risk associated with the Mid-Cap & Small Cap stock is high vis a vis Large Cap in case of any correction in the market. “Positional Trade “If positional trade is in your cerebrum than Weightage Hedge will provide you with necessary edge………Weightage hedge is just like creating bull or bear spread by taking position (Long Position in Cash) /(Short/Long in Future) & Option plays the role of hedger .In capital market nothing is certain, if anyone can claim he know what will happen in market tomorrow with 100% accuracy then market will cease to exist…the capital market is driven by N number of factors, one can predict the movement of the market with consistent accuracy but the figure of cent percent accuracy will seldom happen ,this is where the hedge will play its part –Hedge helps you to define your downside risk at the time of entering into the trade. Hope the above mentioned will be a thought provoking for trader/investor, this are few basic and simple rules which everyone is aware of ,but they are still needed to be reminded of for some introspection Equity made easy…………..Happy Trading fiiwin
Posted on: Sat, 18 Oct 2014 12:06:54 +0000
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