Writing is something that does not come naturally to me. As you can see from my blog, the last time, I wrote was almost 10 months ago. I was very passionate about SEO and Google products then. However, one thing that I am very passionate about is stock markets. The people who know me, can explain the importance of stock markets in my life.
Hence, I thought, why not share this passion with fellow traders or people interested in trading. Let us see, how much serious I get with writing this time. However, there are many motivating factors this time around. I will list them some other time. Right now, just believe that I will be talking about stock markets about every day. I believe that the markets teaches us a lot about life. Wait, before getting all philosophical about markets, let me tell you more about the products that are traded.
So, there are stocks, then are futures, there are options, commodities and currencies. Today, I will tell you about futures, index futures. To gauge the market performance, the exchanges come up with something called INDEX, which is a basket of stocks representing the entire markets. For example, the National Stock Exchange has approximately 1600 companies listed on it. To determine the performance of these companies, NSE has something called the NIFTY, which is the index of 50 stocks representing the 1600 companies.
Now, let us talk about futures. A future is a contract to buy or sell an item in the future at a fixed price. When one gets into a sale agreement to buy a house, he or she is actually getting into a futures contract of the house. The sale agreement is the future contact of the house. Similarly, there are stock futures, commodity futures, currency futures and also index futures.
How does index futures work?
Current market price of NIFTY is at 7000. Assume that is is Rs. 7000. NIFTY futures are traded in lot size of 75. Which means the price of one lot is Rs. 7000 * 75 = Rs. 525000. Which means that if you have to trade one lot of NIFTY future, you need to pay Rs. 525000. However, the futures work on a concept of margin. Which means that you need to only put a margin money to trade this amount. Say, the margin amount is Rs. 50,000. Which means that if you invest Rs. 50,000, you can make Rs. 75 for each point the NIFTY changes. Hence, if you go for 10 points in a day, you make Rs. 75*10 = Rs. 750. That is 1.5% of your investment. Assuming that you trade for 200 days in a year and everyday, you make this 10 points, you make Rs. 150000, or 300%. However, in real life making 1.5% daily is not possible. So, what happens is that you also loose trade sometimes. And overall, you returns get adjusted. With any good trader, making 80 – 100% returns consistently is not a big deal. However, I will explain in detail about how to manage money some other day. Today, we want to focus on the trade that took place on 24th Feb, 2016.
Consider the chart below:
The chart shows that how looking at certain technical lines, one can make 10 points or 1.5% profit in 10 minutes on Nifty charts. Now, you would ask, as to how do we know where to buy and where to sell. Where to sell, is easy. The target is 10 points and hence you take your 10 points and move out.
But the big question is, where to buy?
Technical analysis is the study of charts, the price movement and understanding the concept of demand and supply. There are certain indicators that one looks at to give the buy and sell signals. I will be talking about different kind of indicators and how to use them on a day to day basis in my upcoming posts. But most importantly, I will be sharing charts where I was able to tap the 1.5% opportunity.
So, say tuned and thank you for reading my blog. If you have any suggestions on what is it that you would like to read around stock markets, please let me know and I will truly put some effort to share as much information as possible.
Very nice and simple to understand writing. All the best
Thank you very much Vidyanag Sir. A comment coming from an author of a book is truly encouraging. It means a lot.
Nicely explained. Even I was and is interested in understanding the techinal parameters.
Sure Vipul. I will cover a lot of technical parameters in my upcoming posts. Let us go through some products and basics first.
Very nice ,quite knowledgeable and simple to understand
All the best
Thank you Nalini for the comment.
Nice explanation. Keep up the good work.
Thank you Rajesh. Means a lot.
Explained in simple words, nice on Gaurav
Thank you Giridhar. Appreciate it.
very nice explanation.very keen to learn things from u.