Beginners Guide

[rajputz]

There is no specific method that you can use to trade futures. What ever methods you use on equity, same can be used on Futures also. just That you buy fixed lot in futures rather then number of shares and you buy with appx 25% of money or as specified by SEBI.

Like for Nifty you pay 10 percent -11 percent of total value on a lot of 50 nifty contracts. Simmilarly it can varry from scrip to scrip. A scrips will need less margin then b, c and D.

The other thing to remember while working with Futures is M2M gain or loss. What ever your losses or gains are added or deducted from your account at the eod. So next day you have a fresh position of the contract.

For eg. you buy nifty 1 lot of 50 contract at 5000, and at the the end of day the nifty closes at price 5020. Your account will be added with profit of 20 points. 20 X 50 = 1000 rs. Simmilarly if it closes at 4980, 20 points worth money will be deducted from your account. So when you start trading next day, the profit or loss has already been credited or debited from your account.

So when buying a future contract make sure that you keep some extra money in account, if at the eod the price falls. Cause it can take your account to negative and next day your broker will square off the position at loss.

 

[vssoma]

hi raj,
is there any specific strategy to follow while trading with futures, other than equities. and what is the reason behind to trade with particular amount of shares and particular time( expiry date) and how can we cash with these points.

 

[rajputz]

all the methods discussed on equites, is what we can use on futures. The only difference futures has with equity is: -

1. Futures have less brokerage.
2. You can buy or even sell(which is not there in equity trading) and hold till expiry like, last thursday of the month.
3. You only need to give appx 25% of money to buy a lot. So it means that you can hold more shares till expiry (but remember that margin is double edged sword. If gains are four times, so are the loses).
4. M2M profit is added or deducted from your account at eod. You have new position everyday.

 

[rajputz]

hi raj,
is there any specific strategy to follow while trading with futures, other than equities. and what is the reason behind to trade with particular amount of shares and particular time( expiry date) and how can we cash with these points.

Y do we need some special strategy for futures. All we need to do is trade the charts. And the chart of futures instrument is approximately 95% similar to the shares and moves simmilarly as any other share. Value of same equity share and future contract revolve around each other. Means there can be a difference of 1 or 2 rs between the boths current price, but is almost same. All the method that you use on equity work on futures. They just provide you with extra facility of holding with margin till expiry date on either long or short side of the market. Which you cannot do in case of equity. If you want to hold equity, you have to buy it all with your own money. and moreover you cannot take short position with equity.

 

[rajputz]

Stock equity are physical or digital deliverable shares, but the future contract is a virtual dealing, where nothing is delivered, only money is transacted to and from the account.

 

[twist]

hi raj from last couple of days i am playing with some technical indicators like EMA, Fast Stochastics ect for intraday but i am getting lots of whipsaws so can u please suggest me some techiniques of any other indicators which i can study for intraday?


btw Thanks alot for posting about FUTURES n explainin it in simple words

Thanks

 

[balab]

I find that there is a lot of gap between the futures and cash for NIFTY index. For example today intraday when NIFTY went down to 5124, then the future only went down to 5128. The same applies to highs also. There seems to be some decrease in volatility when it comes to NIFTY future.
My question: Is it possible to buy NIFTY index on cash basis? Will the broker give 10x margin to trade this intraday? (my broker gives 10x margin on equity trades). If this is possible will it not be the same as Futures trade (except you cannot hold to expiry, only 3-5 days- but this questio is for intraday trade only, anyway)

Thanks

 

[rajputz]

hi raj from last couple of days i am playing with some technical indicators like EMA, Fast Stochastics ect for intraday but i am getting lots of whipsaws so can u please suggest me some techiniques of any other indicators which i can study for intraday?


btw Thanks alot for posting about FUTURES n explainin it in simple words

Thanks

Think it this way twist. If the indicators were that much easy to apply and gain profit, then who would be losing. The reason is that when we study indicators and try to see their results on End of Day charts, they seem to be quite good and profit giving, but in the real time, price moves the indicators, not the indicators moving price. So ultimate positioning of the indicators will be according to price only. That creates a whipsaws. Say, you will be entering at the crossing of the Stochastics, but suddenly the new price candle forms down and you get a whipsaw. So to avoid them, you need to work on atleast two indicators according to me and have a combination of them, to give you buy and sell signal. Along with it try to understand the movement of price with respect to volume. Price and volume are the ultimate tool for trading. If you can understand the connection between those, then you wont be needing any indicator. Plus with me working on intraday trading for last one year, i have found that the techniques i have given in this thread about buying at second higher bottom and selling at second lower top are best for intradays. You might catch some stoploss but at the EOD you will be in profit. But then also these methods require time and experience. So better paper trade and build some confidence. If you can perfect them only soon you will realize that you dont need any indicators. Just understand the pattern formation ann price and volume movement. These are the ultimate source which moves the indicators.

Just for the information sake as you have worked with indicators....try to paper trade these methods...

1 EMA: - Check the angle of the EMA (keep EMA to 34). If the angle of the Ema approximately is > 15 then buy as the price touches the EMA and makes first Green Candle. for eg. price approaches the EMA34 making red candles. As the Candle penetrates EMA34 with EMA34 angle Still apprx = 15 or greater, wait for the green candle. Just before the candle is about to close, say 15 seconds before in 5 minute time frame, you go for buying. Keep a fixed stoploss. and choose your own exit. According to me, second red candle should be the exit

2. Stochastic: - Try trading with divergence on stochastic. You will find better results. Also study the End of day chart of the share you are about to trade. If the chart is giving a sell, then enter according to stochastics in sell condition, and if EOD chart is giving a buy, then enter only in buy stochastic Signal. In any condition dont ever trade against the trend. Stochastics are very tricky and very much prone to whipsaws so i wont suggest this one to be good.

 

[rajputz]

I find that there is a lot of gap between the futures and cash for NIFTY index. For example today intraday when NIFTY went down to 5124, then the future only went down to 5128. The same applies to highs also. There seems to be some decrease in volatility when it comes to NIFTY future.
My question: Is it possible to buy NIFTY index on cash basis? Will the broker give 10x margin to trade this intraday? (my broker gives 10x margin on equity trades). If this is possible will it not be the same as Futures trade (except you cannot hold to expiry, only 3-5 days- but this questio is for intraday trade only, anyway)

Thanks

Keep it a task for yourself in learning the price difference and their correlation between spot and future. You will see that at some time future is trading above the cash and some times it is below the cash. If you can understand this then a lot of your queries will itself be solved.

Nifty is an index. Not some equity share of a company. So you cant buy it with cash. You can trade with nifty as near, next and far month future. Near is the most volatile future. Volatility decreases as the next and far month futures are chosen.

When you trade futures, you are already margined by SEBI to pay a percentage of money to buy more quantity of shares then you can actually hold, plus the brokerage is also less as the transaction is virtual and requires no delivery. So brokers are not allowed by SEBI for providing extra margin to be used in trading futures. Cause you are already provided margin for selling and buying.

 

[twist]

Think it this way twist. If the indicators were that much easy to apply and gain profit, then who would be losing. The reason is that when we study indicators and try to see their results on End of Day charts, they seem to be quite good and profit giving, but in the real time, price moves the indicators, not the indicators moving price. So ultimate positioning of the indicators will be according to price only. That creates a whipsaws. Say, you will be entering at the crossing of the Stochastics, but suddenly the new price candle forms down and you get a whipsaw. So to avoid them, you need to work on atleast two indicators according to me and have a combination of them, to give you buy and sell signal. Along with it try to understand the movement of price with respect to volume. Price and volume are the ultimate tool for trading. If you can understand the connection between those, then you wont be needing any indicator. Plus with me working on intraday trading for last one year, i have found that the techniques i have given in this thread about buying at second higher bottom and selling at second lower top are best for intradays. You might catch some stoploss but at the EOD you will be in profit. But then also these methods require time and experience. So better paper trade and build some confidence. If you can perfect them only soon you will realize that you dont need any indicators. Just understand the pattern formation ann price and volume movement. These are the ultimate source which moves the indicators.

Just for the information sake as you have worked with indicators....try to paper trade these methods...

1 EMA: - Check the angle of the EMA (keep EMA to 34). If the angle of the Ema approximately is > 15 then buy as the price touches the EMA and makes first Green Candle. for eg. price approaches the EMA34 making red candles. As the Candle penetrates EMA34 with EMA34 angle Still apprx = 15 or greater, wait for the green candle. Just before the candle is about to close, say 15 seconds before in 5 minute time frame, you go for buying. Keep a fixed stoploss. and choose your own exit. According to me, second red candle should be the exit

2. Stochastic: - Try trading with divergence on stochastic. You will find better results. Also study the End of day chart of the share you are about to trade. If the chart is giving a sell, then enter according to stochastics in sell condition, and if EOD chart is giving a buy, then enter only in buy stochastic Signal. In any condition dont ever trade against the trend. Stochastics are very tricky and very much prone to whipsaws so i wont suggest this one to be good.

thanks for replying.
i will study abt price n volume plus will also paper trade second higher bottom & second lower top technique for intraday

Thanks.