Checklist for stock trading
Critical indicators to look for before buying or selling any stock for longer term:
- Economic Trends: For investing in stocks, buying makes sense when economic parameters like
a) India GDP growth is trending higher,
b) Interest rates are stable or declining,
c) Inflation is low or declining,
d) Crude Oil price is stable or not rising aggressively,
e) Global macro economic scenario is stable. No major negative surprises like Euro pains etc.
- Understanding Business: Buy only if you understand company's business & not because someone told you so.
- Company Fundamentals:
a) Company management: Strong background with good governance.
b) Financials: Rich in cash, good revenue growth and financial compliance.
c) Debt: Not too high relative to revenue earnings & profitability.
d) Future Growth: Stock price goes up not just on recent good performance but more so on future growth potential.
- Risk Distribution: Diversify by buying stocks of companies in different domains like Pharma, FMCG, IT etc.
- Penny Stocks: Avoid stocks trading at less than Rs. 10 as they might be prone to trader manipulations.
- Panic Selling: Never panic & sell because of fear or nervousness. If market has corrected more than 20% from its all time high, then it usually is a good time to buy individual stocks at good valuation.
- Invest for Longer Term: Hold stocks for 2-3+ years. Avoid short term trading unless you are an experienced trader.
- Number of Stocks: Invest more money in a few (10 to 12) stocks versus buying too many stocks.
- Stick to Asset Allocation: Ensure you are investing as per following asset classes based on your age...
a) For people < 50 years: 50% in equity stocks, 20% in balanced funds, 20% in Debt/Fixed Deposits, 10% in gold.
b) For 50+ years: 30% in equity stocks, 20% in balanced funds, 40% in Debt or Fixed Deposits, 10% in gold.
- IPOs: Avoid buying stocks via IPOs as most are overvalued and lose money in the short/medium term when listed.
- Invest YOUR Own Money: Never take loans and invest into stock market. It just does not make economic sense.
- Regular Buying: Law of averages does not work in huge bear market. So research & buy only on good valuations.
- Sell for Profits: You profit only by selling stocks, not when you buy. Sell in small percentages after decent returns.
- Sell for Minimal Loss: Sell or put stop loss for stocks whose growth potential over next couple of years is not good.
- Check Sales/Profit Trends: Before buying/selling any share, check performance over last 4 quarters: Click here
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Exchange hours / Circuit limits: BSE and NSE operating hours and list of holidays?
- Operating timings of stock market differs according to the Stock exchanges. For BSE/NSE...
a) BSE Operation Timing: 9:00 am to 3:30 pm (IST).
b) NSE Operation Timing: 9:15 am to 3:30 pm (IST). For details: Click here
- For Indian Stock Markets 2013 Holidays: Click here
- Circuit limits in case of a rise or fall of 10% in either index:
- Before 1 pm: Trading is halted for 1 hour.
- Between 1 pm and 2.30 pm: Trading will stop for 30 minutes.
- After 2:30 pm: There is no trading halt at the 10% level.
- Circuit limits in case of a rise or fall of 15% in either index:
- Before 1 pm: Trading is halted for 2 hours.
- Between 1 pm and 2.00 pm: Trading will stop for 1 hour.
- After 2:00 pm: Trading is stopped for the day.
- Circuit limit in case of a 20% movement of either index, trading is halted for remainder of the day.
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Tax: What is the income tax liability on earnings from stocks?
- Short term capital gains (accrued when shares sold after holding for less than 12 months) is treated as income and one needs to pay applicable taxes.
- Long term capital gains (accrued when shares sold after holding for 12+ months) is totally tax free.
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BSE/Sensex and NSE/Nifty stock exchanges information:
There are many stock exchanges in India but following 2 are most significant stock exchanges:
- BSE (Bombay Stock Exchange):
a) Asia's oldest stock exchange with over 5,000 Indian listed companies.
b) BSE Sensex: Group of 30 well-established & financially strong companies listed in BSE, also known as BSE 30.
c) Sensex indicates the performance of shares of these 30 listed companies in the BSE. Click here
- NSE (National Stock Exchange):
a) 9th largest stock exchange in world & largest in India.
b) NSE Nifty: A group of 50 most established companies listed in NSE, also known as Nifty 50.
c) Nifty indicates the performance of shares of these 50 listed companies in the NSE. Click here
- To check authorized BSE and NSE stock price quotes: Click here
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How to start investing in stocks? Tips for stock market beginners:
- Educate yourself: Watch CNBC/ET Now/NDTV Profit. Get knowledge about the Market & Trends.
- Choose a good established broker or brokerage firm: Refer to 'How to get into stock market' question above.
- Start with small investments: Learn about money management. As a beginner do not go for big trading/investment.
- Invest in big companies first: Once you have the experience & opportunity go for small companies.
- Expect Volatility: Be prepared for unexpected changes in market or wild 20 to 30% swings but do not panic.
- Buy stocks that you can hold for 3-5 years: Invest in local companies in which you have confidence.
- Take informed buy/sell decisions: See above for stock buying/selling tips.
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How to get into stock market?
- To start trading in stock market, you need to have:
- Proof of Identity (Driving license, Voter's ID, Passport or Photo ration card)
- Proof of Residence (Utility Bill, Bank Statement, Passport, Photo ration card)
- Online Trading/Demat accounts with a brokerage firm.
- PAN Card and two passport size photographs.
- Few top Stock brokerage companies in India: for opening a trading/demat account (Listed in random order):
- Click here for ICICI Direct (with ICICI Bank).
- Click here for Indiabulls.
- Click here for Angel Broking.
- Click here for Karvy Stock Broking.
- Click here for Religare.
- Click here for Reliance Money.
- Click here for Anand Rathi Securities
- Click here for Sharekhan.
- Click here for Motilal Oswal.
- Click here for Edelweiss.
- To view the latest Stock market news and quotes: Click here
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Stock market basics and some key terminology for beginners:
- Stock: Partial ownership share in a company- bought & sold via trading in a stock exchange.
- For market basics video: Click here
- Stock Market: A public exchange where people buy and sell stocks of listed companies at an agreed price.
- Bull Market: Stock market upward trend when index/stock prices are expected to rise over next few months.
- Bear Market: Stock market downward trend when index/stock prices are expected to fall over next few months.
- Fundamental Analysis: Trend analysis of company business parameters like revenue, profitability etc.
- Technical Analysis: Analysis of stocks chart over last few weeks/months, people's buying/selling behavior and speculating future stock price trends.
- Stockbroker: An individual or brokerage firm- deals in buying & selling of shares on behalf of the investors- charging the investor a small commission/brokerage fee for its services.
- Internet Trading: One can now easily trade (buy/sell stocks) over internet using a secured connection.
- Minimum Spend: There is no minimum quantity buy requirement. One may buy just 1 share of a company.