Investment Vs Trading
Investment BasicsWhy People Invest in Financial Markets• To achieve financial goals• To increase income• To gain wealth and feeling of security Based on long term / short term
financial goals investments could have
• Targeted Rupee amount• Targeted maturity date
• They are often thought of as interchangeable actions while they are not
• Commonality is the application of capital in the pursuit of profits
• Investing is more open ended; trading is close ended with exit targets
• With the same process and stock, intention and definition of objectives separate trading from investing
Investment Vs Trading
Investing
• When savings are put buy stock that will earn a decent amount of income and/or go up in value over time
• Decisions are made for the longer term. Stock is bought because it is valuable now or likely to become more valuable in the future
Trading
• Time the market — buying low and selling high as quickly as possible
• Successful trading requires close attention to price trends, insight to market movements and the courage to make quick decisions
Do not trade like an investor or invest like a trader
INVESTING v/s TRADING
• Buy and hold/wait for the markets to come back
• Never Buy or hold/wait for the market to come back
INVESTING v/s TRADING
• Averaging • Never Average
INVESTING v/s TRADING
• Never use a stop
• Never trade without a stop loss
INVESTING v/s TRADING
• Shorting is a integral part of trading
• Never short the market
INVESTING v/s TRADING
• Focus on the fundamentals
• Focus on Technical Parameters
Which One is Better?
• Both the styles have numerous arguments in favor and in against. A client should stick to its goal and investment objectives.
• HOWEVER combining both would be an excellent ‘style’ diversification. Obviously one should not miss the opportunity when market offers it on any given day.
The winning Combination1. Have clarity in terms of investment
objectives
2. Set targets / rules for opening and closing the position, closely follow the calls.
3. Define exposure. Follow it and manage it closely.
Portfolio : An Example
Investment Positional Trade
Day Trade Exposure
100% 0 0 100%
80% 20% 0 100%
80% 10% 10% 130%
• Before going for a transaction ask this very basic question:
What type of transaction this is?
Decide Before Ordering
• Investments
• Positional Trade
• Intra-day
Investments
• Few months to few years
• Fundamental Factors
• BUY & HOLD till the theme & under valuation persists
• Let long term remain long term and do not book short term profits.
Products
• Inquire Research Reports
• Updates, Visit & Result Notes
• MOSt Value
• Results Preview
Positional
• Overnight to few days• Technical Factors• May not be in Sync with Fundamental
factors• Always make use of STOP-LOSS loss
levels• Should not be converted into Long-term
Investments- HFCL, GTL etc..
Positional
• Market Diary
• Awacs or Derivative Products
Intra-day
• Same day square-off • Technical Factors• May not be in Sync with Fundamental
factors : Remember MAY 17th
• Always make use of STOP-LOSS loss levels
• Should not be converted to Positional or investments
Product GridInvestors are advised by dedicated relationship managers through various advisory products
Market Analysis Technical Analysis Fundamental Research
Thematic Research
Regular Inquire Company & Sector reports
Yearly Wealth Creation report Budget Coverage Quarterly Results
Preview India Strategy
Monthly MOSt Momentum
MOSt Value MOSt Mutual
Weekly Futures Weekly Guide
Daily MOSt Commodity
Morning Calls
Derivative Strategy Market Dairy Pivot Points MOSt Market Action
MOSt Morning Research
Market Hours
Market Information & Intraday Calls
Mathematics of Trading
Intraday- Assumptions
• Success Ratio of not more than 60-65%
• Reward –Risk Ratio of 2:1• For an expected profit of
Rs.2, you are accepting a risk of losing Re.1
Success
Ratio
No. of times Stop-loss(Re.1)
is hit
Total Loss No. of times
(Re.2) is earned
Profit
Earned
Net
Position
40% 6 6*1=Rs.6 4 4*2=Rs.8 +Rs.2
50% 5 5*1=Rs.5 5 5*2=Rs.10
+Rs.5
60% 4 4*1=Rs.4 6 6*2=Rs.12
+Rs.8
70% 3 3*1=Rs.3 7 7*2=Rs.14
+Rs.11
If you know where you're going and why, you will
Thank You