Introduction
The
primary reason people enter into equity trading is because of its
potential to offer huge returns and rewards. Even I was drawn into it
for the same reason. It looks all shiny and glittery. But all this
shine and glitter comes at a cost known as RISK. Most of the time
traders (and not investors) enter market with a short term
perspective which has enormous risks associated with it. The only way
to avoid or at least marginalize the risk is to research exhaustively
and play it smart.
My
experience
I
am a novice to first-hand equity investing, having just six months of
experience but I have been following the stock markets and some
specific stocks since the last four to five years. I slowly started
to develop my knowledge and expertise in this field by reading
newspaper (Economic Times and Financial Express) and books (CFA
course material) and of course the internet which is undoubtedly the
most informative source.
My
strategy
I
am a kind of trader who believes in inter-day and medium-term
investments and very rarely will I involve in intraday trade. Here
are some strategies I apply :
1)
Look out for undervalued shares (Value Investing):
Sometimes
the markets are not efficient in itself and a stock may be
undervalued by the market. So I try to find out such undervalued
stocks by looking at the past one year graphs and financial ratios.
The information is easily available on hdfcsec.com and others other
websites. The comparison of last one year price range and current
price of the stock provides valuable information about it. It can be
interpreted differently by different people, however while interpreting one must take note of the prevailing market conditions
corresponding to the particular value of stock at that time. Eg. When
the market (Sensex or Nifty) is at its years highest point and a
stock of ABC company is trading at its years lowest levels then there
is a possibility that the stock is undervalued.
2)
Look out for news and announcements
Reading newspaper and online news reports can provide important information
about a company's operations. Lookout for news of mergers and
acquisitions, about commissioning of new production facility set-up
and other important developments. Now in this respect one must keep
in mind that not every merger/acquisition will result in a positive
return or increase in price of stock. Here I'd like to share an
experience with you. Once, around two years ago, I read in The
Economic Times that SAIL is going to set up some new plants in tho locations and the profits are expected to rise etc. etc... The very
same day I bought its shares at 220/share. And today the price is
howering at 80/share. So this means I had not researched properly
about the stock and had invested in vain and had to pay the price.
3)Comparing
financial ratios of company with other competitors
Financial
ratios of a company like Leverage ratios, solvency ratios etc. are
very useful in determining the position of a company and ability to
pay debts. Comparing these ratios and other financial statements like
balance sheets, profit-loss statements with other peers can help in
taking a smart decision for investing in a stock. However, studying
and understanding these ratios require some patience but I assure you
that once you start understanding them, it will be very useful.
4)
Insider information
Insider
information is the information provided by some management level
employee of a company. It may be about a news about a new deal or
merger or takeover of some other company and has not yet been made
public. Obtaining such information is very difficult but if obtained
from some reliable source, believe me, it can work wonders.
5)
Future prospects and expectations from the company
Expectations
about sales growth and global scenario. Foresight about how the sales
of the company are going to be affected can be helpful.
Conclusion
Trading
in equity is considered in of the riskiest business but also it is
the business which can bring you from rags to riches in the matter of
months (if not days). The strategies followed by any investor cannot
be fool proof and should be subjected to continuous evolution. Net
theories and practices should be developed, iterated and reiterated.
Older theories which have proven wrong should be discarded or
modified according to individuals discretion. There is no thumb-rule
which can be applied to equity trading for booking profits. Portfolio
should be built in such a way such that the risk is minimized and
profit maximized. Cheers !!!
With the value of rupee starting to appreciate again (1$=50.30Rs.) as compared to previous low of Rs. 53.40, things seem to be getting back to track. Although this might me a little early to say so, but further signs and stimulus is provided by the increase in FII net inflows. 
