Things to know before first trade

please enlighten me what exactly is meant by staying short or long...and what is a position?

Dear Mrkanitkar

Nice write up. Only point 17 can not be used, as it is very misleading and tries to show off a bad view on options.

If a share options loses money, then the share by itself also loses money. If the options atm lost 90% in a day, then the shares also lost huge value on that specific day.

As one option moves 100 shares, then the loss in those shares are much bigger compare to what can be lost with one option. That is a very simple calculation: 100 times the price of the share = .......Rp and ones the price of one options = ......Rp. If I now lose 90% on the value of the option or if I now lose 90% from the value of the shares shows how low risk options are if understood and used the right way. Not to mention that in option trading we also use stop loses or hedge them.

With other words: Options are not more or less dangerous as shares or futures as long as we do not know or know how to trade them.

Good trading

DanPickUp

We have very good threads here from seniors. I thought to put up some basic things in place.
I myself registered here on Traderji.com in 2005, I am using this forum for long time.
I think one must do following basic things which will help him avoid some common mistakes.

1. Do not jump in trading just because of your friend, colleague, girl friend, boy friend, neighbor made greats profits.
2. There is nothing called tips which can make you net profits. Selling tips is way to make safe money for tipsters.
3. Please visit http://www.investorfirst.in and go thru basic guides. Also go thru CPFA study material.
4. You must have basic computer skill and basic MS excel skill. Please find course like http://www.mkcl.org/mscit/.
5. Please understand products. Do NCFM Certifications ( http://www.nseindia.com/education/content/module_ncfm.htm) or Also go you http://www.bseindia.com/ and find training courses from BSE training institute, you can also do NISM http://www.nism.ac.in/ for currency certifications.
6. Manipal provides class room training http://www.nseindia.com/education/content/manipal_edu_prg.htm who teach proper courses.
7. Do not attend any private courses about markets most of them are about to sell their products.
8. The cost involved in training can be zero if you do not take exams and download training material (it's free). I suggest going for exams, it's not costly.
9. Read business papers & watch business TV channels for three months and track all tips, you will learn that free tips make you NET big losses. So stop reading business new papers, magazines for free / professional tips. You will learn running business daily, business TV channel, being job of anchor on TV channel, being Analyst on TV channel is safer way to make money than trading.
10. Prepare your Financial Planning in excel sheet. ( CPFA material provides all details) and find amount which you want to risk from your hard earnings. Please ensure you have insurance for health (family floater), accident insurance and your EMI for next 6 months are in bank & you are already investor in pension schemes or Postal MIS schemes.
11. If you lose all money you keep for trading in markets, your BP should not go up or you should not lose calmness . Remember you are coming to markets, it's your greed pushing you to go to markets. You must know how to stop, when to stop. Your family should be aware of your plans on trading game.
12. Investment / trading amount should be in separate account than family account & should be divided for different investment vehicles like Mutual funds.
13. Please be clear about your risk limits, available quality time to spend on investment/ trading activity.
14. Open your account with two brokers, I suggest Motilal Oswal and Zerodha. MOSL is full service provider, they offer good fundamental reports and Zerodha is discount broker who offers one of best trading terminal. Remember big banks or brokers are here to take big brokerage and not to make you rich. Please see quality of service. Please do not start trading once you open account.
15. By now you must be have done NCFM / certification in Capital markets, FNO, Options.
16. Please understand benefits & risks of trading in cash, Futures, Options and markets like equity, commodity, currency.
17. Do not select options as your first choice because it can double your money in 3 hours, remember it can make it close to zero in few minutes. Ask people who bought Infy call options at ATM calls before results for almost last 2 years. They all lost 90% money in 2-3 minutes. Options is most complex and different game.
18. Now know important resources like trading holidays, market timings, results calender, events calender. Knowing events, results dates just does help, you need to know actual timings. Like RBI event, it happens around 11 am in morning, markets will not move before that or Reliance results comes post market hours or Infy results always come just before market starts. All channels and print media gives non sense historical info which does not help initiating any trades in first place. If you see news, analyst discussions and then go to trade you will see price already moved in that direction, so you will be mostly last person in row to trade.
19. Please buy second hand books of technical analysis explained by Martin Pring, Alexander Elder trading for a living. Second hand books are studied by someone, the person who reads book before you marks important lines, comments, it helps to get this faster and books are also cheap in second hand market.
20. Do technical analysis course with either NSE, BSE or Technical analysis explain is enough. Remember Technical analysis is all about Stats and not any mechanical or engineering thing.
21. Now get a copy of Metastock, Amibroker (you can download trial copy or get one from roadside shop in Mumbai). Get eod data by using getbhavcopy.com or get datafeed from any vendor.
22. Learn patterns, moving avg, RSI at minimum.
23. Please understand one thing, you must know if stock is in bull or bear market, if it's above 200 moving average line, it's called long bull market. Stock may be in bull or bear market, it may have direct relationship with Nifty or Industrial index or may not. Like Nifty went down but Tata motors & Hero Honda went up, so don't get carried away.
24. Once you learn to read charts (you can read them on yahoo finance, google finance as well), it will help to figure out if you can buy/short stock.
25. The most important thing is you need scanner, you can not go thru 4000 stock charts every day to find out any opportunity. Decide your scanners and indicators in your technical analysis software. Apply one of trading systems discussed on forum and walk back to last 10-15 years on eod chart and see what happened. If you would have placed orders in past, would you make money?
26. Do complete analysis for at least Nifty and Sensex and it's relation ship on eod charts like Dow, FTSE from 1997 (for eod) onward as minimum.
27. Take a exam given in trading for living or technical analysis explained and some psychology test for traders/ investors. This will help.
28. Now understand brokerage calculator, back testing, use of averaging in loss making or profit making positions.
29. Understand broker terminal, emergency way to run SL. Ordertypes, taxation on profits, reading contract notes, benefit and risk involved in leverage.
30. Start paper trading for at least 3 months on daily basis. Learn from it.
31. Now make sure you have best quality, high end infrastructure with N+1 redundancy (fail-over systems in place). Best quality eod and intraday (if day trader) data feed. (commercial data feed makes sense as it saves time in managing data like adjustments for splits, dividends etc).
32. Go thru bulk data deals every day.
33. Once your systems are up and running, do a dry run.
34. Learn money management rules. Probability rules.
35. Divide your amount to 10 pieces, Have 1:3 risk reward ratio. This will keep you safe. If you have say 100 Rs, you can do 10 trades of 10 rs. each. If you lose 1 Rs, get out. If you lose money in 7 trades out of 10 then you lose Rs. 7 and assuming you will win in at least 3, you make 9 Rs. So 9-7=2. (Rs. 1 will be taken by STT and broker) and you will make 1 which is 1% in worst case. There are lot of ideas like this.
36. Identify possible trade by using scanner on eod basis or intraday, have risk reward as 1:3.
37. Enter in trade with limit order as per decision. Do not enter SL in systems if you are eod trader, if you are intraday trader enter SL in System.
38. Follow your rules strictly. No emotions.
39. Have trading diary, remember when you win, someone loses , when you lose, someone win but industry (stock exchange, banks, brokers, Govt, Sebi, NSDL/CDSL) will always make money in all cases. It's not zero sum game. If you want to go from Pune to Mumbai and you go in opposite direction and trigger SL, next time you have to travel Pune Mumbai distance + loss in last trade + brokerage etc. So it pains. Generally 70% of total trades make losses and only 30% make money and those 30% have to wash out losses made by 70% trades + brokerage etc and give you great returns.
40. Identify your targets, like banks give 10% PA, market gives 20%, FNO can give 100% on daily basis or can take 100% on daily basis. Take care and all the best.

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Very useful information for all new traders, follow it this will help you a lot in your trading:thumb:

Long= You are buying a stock, future, option.
Short= You are selling when you do not have it.

Generally people know only one way of business, buying material and the selling it. Like in case of shopkeepers, you buy bread, sabji, what every material and then you sell it to your customer at higher price and make profits. When you buy it from Supplier, farmer, Distributor, it's called "Long" in markets.

When you sell, it's called "Sell".

Remember one thing, PROFIT = SELL - BUY, if difference of SELL - BUY is negative value it's LOSS, if difference of SELL - BUY is positive value, it's PROFIT. Now understand "BUY' and "SELL" are two legs of any business transaction. You can always initiate business with any LEG, either BUY or SELL. Our general understanding in life is to "SELL" something, you need to have it's delivery in your custody. How about "SELLING' first at higher value and "BUY" at lower value? This action also completes business transaction same as Buy first and Sell later. It's not different. Since you do not have delivery in hand, such SALE is called "SHORT" and such action called "BEAR".
Since you do not have delivery ready post sale, action is called SHORTING.
What you are doing is you expect prices go down and you want to take benefit of it. SO you sell first and within given period, (may be 1 month in futures, 6 hours in Intraday) you buy the SOLD security at lower price and make PROFITS. It's not different. Many people are worried about Shorting and then Buying. The risk involved in Buying first and Selling later is very equal to Selling (Shorting) first and Buying later.
Any such first leg initiation is called taking position in market.
Buy & Sell is as good as walking on floor, you can either take first step by left leg and then right one or right first and then left. Remember unless you take second step by another leg you will not able to progress in walking on floor, same thing works in markets.
Hope this is easy to understand. Let me know.