New trader, confused with the choice of segment (MCX, NSE) for trading in India?

November 10th, 2017 → 2:40 pm @

Confusion regarding Selection of Segments for Trading

 

“Which one I select, MCX or NSE” is the challenge most people faces when enter into trading. In this article I will share the information about how you can select a segment for day trading. And which is the best time for trade in MCX and NSE for both part and full time traders. 

Commodity Trading

There are two types of traders in the market. One is full time traders and other part-time traders. For a novice trader commodity trading is better to start. Gold, Silver, Crude oil, Natural Gas, Nickel, Zinc, Copper, Lead, and Aluminium are the best intraday and swing trading products. These are some of the huge volume and volatility commodity products and most widely traded product. Each of these products has twelve expiry contracts on monthly basis over a period of one year. In some years back only rich businessmen who have crores of capital can only be able to trade in gold. But now a day’s in this modern world with very less amount of capital one can trade in gold mini with just a capital of twenty five thousand rupees. There are many benefits in commodities trading. There is large volume and volatility which is good for intraday. 

Best time to trade MCX commodity market

Best trading time for working people without disturbing his job is in the evening 6.00 to 9.00 pm. Stock market timing is from morning 9.15 am to 3.30 pm. So that some of the stock market traders are busy at that time. But at the evening time there are more number of participants in the market this result in high volume and high volatility. So select evening time for trade in commodity for intraday trading. In the case of positional trading timing is not a matter. If you are doing position you can hold that position up to the last day of expiry contract. If it is not done by you then the exchange will square-off the position and settle the contract.

Golden rules for commodity trading  

• Volatility is a non-separable component of the trade market and will be present all the time. So never enter or exit position in panic.

• Always be patient in trading and minimize your risk by placing strict and regular stop loss values.

• A non-disciplined trader does not make sizeable gains and high returns. So try to become a disciplined trader so that you can make sizeable gains and high returns. 

• Avoid illusions and do not trade with borrowed fund, trade with your own fund. 

• Also keep this in mind that you cannot become a Billionaire overnight.

• Accept changes in the market. Implement that change immediately because you cannot use yesterday’s ideas for today’s business. Everything keeps changing.

Equity Trading

Commodity market and stock market are two different areas. Do not approach these with same trading ideas. Stock market trading idea is different from commodity trading idea. Both generally have opposite thumb rules and trading patterns. Peoples those who have not enough time for day trading due to tight time schedule can pick up positional trading. NSE stocks are really better for positional trading. There are thousands of stocks available for trading. Each day hundreds of people bought and sold these stocks. But pick any and start trading is not a good trading practice. 

Stock picking criteria

Selection of stock is not a simple matter. It should be done with extreme care. For a novice trader identifying the best stock for buy is an overwhelming task. TCS, Reliance Industries, Infosys etc are the names heard by majority of Indian traders. But don’t stick on the thought that these are the only stocks that are best. YES, there is no doubt these are best. But there are also some best stocks other than these. Buying popular stock is not bad but popular stocks generally trade at overvalued price levels so you must be very cautious while buying popular stocks. RIL and TCS are the two main stocks in Indian market. Compared to other stocks these have largest margin capitalization. So you think these are the best stocks. Don’t think so because they are very overvalued stocks. There are 5000+ stocks available in Indian stock market. Among these there exist less popular stocks with better price levels. Think about stock valuation if you want to make money. The reality is that, trader’s way of money making is different. Their way of money making resembles GAMBLING because they ride on the stock’s price momentum. So the best way of selecting stock is as follows,

• First make a list of your favourite stocks. 

• Wait for their price to fall to buy them. When the price falls, the stocks which were not attractive in the earlier time become attractive. Likewise, when price rise preferable earlier stocks become undervalued. 

• If a company is fundamentally strong the business health of the company will also remains the same even if the stocks market price movement occur. But market price valuations have been effected.

• Modify your stock list in every three months. Check your selected company performance frequently and decide continue or change.

• Companies declared their financial statements which express their performances in quarterly basis. At this time you can recheck your stock list and can make accurate changes in it.

• A good business doing company can be identified by financial ratios. There are host of financial ratios.

• To do in-depth stock analysis collect the stocks last 10 years financial report.

• Consider companies with wider moat. A company with wider moat implies it have a well protected future potential.

After all these fundamental examinations on the companies, it is important to examine the price valuation of the stocks. Price check is essential to identify best stocks. Usually strong stocks have overvalued price levels. So do price valuation before buying it. Price valuation can be done by using these such as Price Earning Ratio (P/E), PEG Ratio, Dividend Yield. In P/E Ratio method, first evaluate average P/E ratio of stocks in the same sector. Arrange the stocks with higher P/E in your list. And then track that stock when its P/E falls below the average P/E ratio you can buy that stock at that time. If some stocks have extra high P/E ratio it is not necessary to discard it. Find PEG ratio it is P/E ratio divided by 5 years EPS growth rate. If this ratio is higher than one then avoid that stock. The next is dividend yield. First step is calculating an average dividend/share by noting down last five years dividend/share of any stock. Next divide this by the current market price of the stock. If average dividend per share is above 4% it is good to buy.

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