WHY DO WE LOSE MONEY IN TRADING

* LACK OF DISCIPLINE

* INABILITY TO TAKE LOSS OR PROFIT

* OVER TRADING

* NO CLEAR PLAN

* AVERAGING DOWN LOSING TRADE

* INABILITY TO READ PRICE

* READING THE TREND WRONG

* GETTING IN TO TRADE VERY LATE

* DEPENDING TOO MUCH ON TRADING INDICATORS

* REPEATING SAME MISTAKES AGAIN AND AGAIN

* IN OPTIONS NOT UNDERSTANDING THE CONCEPT OF TIME DECAY.

BY GUIDING YOU TO ESTABLISH TOTAL CONTROL OVER YOUR TRADING.

COMMON QUESTION ASKED ABOUT TRADING :-

BEST TIME FRAME TO TRADE - IF YOU ARE TRADING INTRADAY

ANALYSE ON 15 MIN CHART FOR LARGER GAINS AND FOR

SMALL PROFIT AND SMALL LOSS TAKE ENTRY ON 1 OR 3 MIN CHART.

BEST TIME TO TRADE DURING THE DAY - MARKET IS MOST

VOLATILE BETWEEN 9:15 TO 10:30 AND 2:30 TO 3:15. IF YOU ARE LEARNING, TRADE IN BETWEEN THESE TIME FRAME. THE REALITY IS YOU SHOULD TRADE WHEN THERE IS A SET UP

IT CAN BE FORM ANY TIME. YOU SHOULD BE LIKE A LION WAIT

FOR THE RIGHT OPPORTUNITY BECAUSE YOUR MONEY IS ON

THE LINE IF YOU BECOME IMPATIENT YOU LOSE IT ALL. 

INTRODUCTION TO OPTIONS:-

An option is a contract written by a seller that conveys to the buyer the right - but not the obligation - to buy or to sell a particular asset, at a particular price (Strike price / Exercise price) in future. In return for granting the option, the seller collects a payment (the premium) from the buyer. Exchange-traded options form an important class of options which have standardized contract features and trade on public.

exchanges, facilitating trading among large number of investors. They provide settlement guarantee by the Clearing Corporation thereby reducing counter party risk. Options can be used for hedging, taking a view on the future direction of the market, for arbitrage or for implementing.

strategies which can help in generating income for investors under various market conditions.

OPTION TERMINOLOGY:-

* Index options: These options have the index as the underlying. In India, they have a European style settlement. E.g. Nifty options, Bank Nifty options etc. (they have weekly expiry)

* Stock options: Stock options are options on individual stocks. A stock option contract gives the holder the right to buy or sell the underlying shares at the specified price. They have an American style settlement. (means monthly expiry)

* Buyer of an option: The buyer of an option is the one who by paying the option premium buys the right but not the obligation to exercise his option on the seller/writer.

* Writer / seller of an option: The writer / seller of a call/put option is the one who receives the option premium and is thereby obliged to sell/buy the asset if the buyer exercises on him.

* Call option: A call option gives the holder the right but not the obligation to buy an asset by a certain date for a certain price.

* Put option: A put option gives the holder the right but not the obligation to sell an asset by a certain date for a certain price.

* Option price/premium: Option price is the price which the option buyer pays to the option seller. It is also referred to as the option premium.

* Expiration date: The date specified in the options contract is known as the expiration date, the exercise date, the strike date or the maturity.

* Strike price: The price specified in the options contract is known as the strike price or the exercise price.

* In-the-money option: An in-the-money (ITM) option is an option that would lead to a positive cashflow to the holder if it were exercised immediately. A call option on the index is said to be in- the-money when the current index stands at a level higher than the strike price (i.e. spot price> strike price). If the index is much higher than the strike price, the call is said to be deep ITM. In the case of a put, the put is ITM if the index is below the strike price.

* At-the-money option: An at-the-money (ATM) option is an option that would lead to zero cashflow if it were exercised immediately. An option on the index is at-the-money when the current index equals the strike price (i.e. spot price = strike price).

* Out-of-the-money option: An out-of-the-money (OTM) option is an option that would lead to a negative cashflow if it were exercised immediately. A call option on the index is out-of-the-money when the current index stands at a level which is less than the strike price (i.e. spot price < strike price). If the index is much lower than the strike price, the call is said to be deep OTM. In the case of a put, the put is OTM if the index is above the strike price.

* Time value of an option: The time value of an option is the difference between its premium and its intrinsic value. Both calls and puts have time value. An option that is OTM or ATM has only time value. Usually, the maximum time value exists when the option is ATM. The longer the time to expiration, the greater is an option's time value, all else equal. At expiration, an option should have no time value.

STRATEGY 1: LONG CALL/NAKED CE

For aggressive investors who are very bullish about the prospects for a stock / index, buying calls can be an excellent way to capture the upside potential with limited downside risk.

Buying a call is the most basic of all options strategies. It constitutes the first options trade for someone already familiar with buying/selling stocks and would now want to trade options. Buying a call is an easy strategy to understand. When you buy it means you are bullish. Buying a Call means you are very bullish and expect the underlying stock / index to rise in future.

When to Use: Investor is very bullish on the stock/index.

Risk: Limited to the Premium. (Maximum loss if market expires at or below the option strike price).

Reward: Unlimited

Breakeven: Strike Price + Premium

STRATEGY 2: LONG PUT / NAKED PE

Buying a Put is the opposite of buying a Call. When you buy a Call you are bullish about the stock / index. When an investor is bearish, he can buy a Put option. A Put Option gives the buyer of the Put a right to sell the stock (to the Put seller) at a pre-specified price and thereby limit his risk.

A long Put is a Bearish strategy. To take advantage of a falling market an investor can buy Put options.

When to use:
Investor is bearish about the stock/index.

Risk: Limited to the amount of Premium paid. (Maximum loss if stock / index expires at or above the option strike price).

Reward: Unlimited

Break-even Point:
Stock Price - Premium

STRATEGY 3: LONG STRADDLE

A Straddle is a volatility strategy and is used when the stock price / index is expected to show large movements. This strategy involves buying a call as well as put on the same stock / index for the same maturity and strike price, to take advantage of a movement in either direction, a soaring or plummeting value of the stock / index. If the price of the stock/index increases, the call is exercised while the put expires worthless and if the price of the stock/index decreases, the put is exercised, the call expires worthless. Either way if the stock / index shows volatility to cover the cost of the trade, profits are to be made. With Straddles, the investor is direction neutral. All that he is looking out for is the stock / index to break out exponentially in either direction.

When to Use: The investor thinks that the underlying stock / index will experience significant volatility in the near term. Risk: Limited to the initial premium paid.

Reward: Unlimited

Breakeven:

Upper Breakeven Point = Strike Price of Long Call + Net Premium Paid

Lower Breakeven Point = Strike Price of Long Put - Net Premium Paid

MOST USED WHEN THERE IS AN EVENT COMING UP WHICH CAN

AFFECT THE STOCK OR INDEX IN A SIGNIFICANT MANNER.

ANY LARGE MOVE CAN MOVE

STRATEGY 4: LONG STRANGLE

A Strangle is a slight modification to the Straddle to make it cheaper to execute. This strategy involves the simultaneous buying of a slightly out-of-the-money (OTM) out and a slightly out- of-the-money (OTM) call of the same underlying stock / index and expiration date. Here again the investor is directional neutral but is looking for an increased volatility in the stock / index and the prices moving significantly in either direction. Since OTM options are purchased for both Calls and Puts it makes the cost of executing a Strangle cheaper as compared to a Straddle, where generally ATM strikes are purchased. Since the initial cost of a Strangle is cheaper than a Straddle, the returns could potentially be higher. However, for a Strangle to make money, it would require greater movement on the upside or downside for the stock / index than it would for a Straddle. As with a Straddle, the strategy has a limited downside (i.e. the Call and the Put premium) and unlimited upside potential.

When to Use: The investor thinks that the underlying stock / index will experience very high levels of volatility in the near term. Risk: Limited to the initial premium paid

Reward: Unlimited

Breakeven:

Upper Breakeven Point = Strike Price of Long Call + Net

PremiumPaid

Lower Breakeven Point = Strike Price of Long Put - Net Premium

Paid

PLEASE NOTE:

THESE ARE THE MOST COMMON OPTIONS STRATEGIES

AVAILABLE FOR OPTIONS BUYING. THERE ARE OTHER

STRATEGIES WHICH REQUIRE OPTIONS SELLING / WRITING. THEY REQUIRE LARGE CAPITAL AND THE GAINS ARE LIMITED TO

PREMIUM PAID. ON THE OTHER HAND, THEY ARE HIGHLY RISKY.

CANDLE STICK PATTERNS AND THEIR PROPER APPLICATION

BULLISH ENGULFING:-

REASON - BULLISH ENGULFING CANDLE SHOWS THAT BUYERS
ARE GAINING CONTROL JUST AFTER HEAVY SELLING.

IMPACT - THE HEAVY GREEN CANDLE SIGNIFIES THAT THE
FRESH BUYING HAS TAKEN PLACE IT ALSO INDICATES THAT
THE SELLERS HAVE EXHAUSTED HENCE UP MOVE CAN BE
EXPECTED.

WHEN AND WHERE TO USE THEM - LOCATION IS VERY
IMPORTANT - THEY WORKS BEST IN THE DIRECTION OF THE
TREND OR AT IMPORTANT SUPPORT LEVELS. BULLISH
ENGULFING WITH STRONG VOLUME SIGNIFIES STRONG
UPTREND AHEAD.

BE CAREFUL - THERE IS GOOD AND BAD IN EVERYONE AND IN EVERYTHING

FAKE BULLISH ENGULFING:-

BEARISH ENGULFING CANDLE:-

REASON - BEARISH ENGULFING CANDLE SHOWS THAT SELLERS
ARE GAINING CONTROL JUST AFTER HEAVY BUYING

IMPACT - THE HEAVY RED CANDLE SIGNIFIES THAT THE FRESH
SELLING HAS TAKEN PLACE IT ALSO INDICATES THAT THE

BUYERS HAVE EXHAUSTED HENCE UP DOWNWARD MOVE CAN
BE EXPECTED.

WHEN AND WHERE TO USE THEM - LOCATION IS VERY
IMPORTANT - THEY WORKS BEST IN THE DIRECTION OF THE
TREND OR AT IMPORTANT RESISTANCE LEVELS.

PUTTING ALL TOGETHER WHAT WE HAVE JUST LEARNT

BULLLISH AND BEARISH PIN BAR CANDLESTICKS PATTENS

REASON - THESE CANDLESTICK FORMS WHEN PRICE RETESTS
IMPORTANT LEVELS BUT IT FAILS TO SUSTAIN THERE
RESULTING IN SHARP STRONG BOUNCE OR FALL.

IMPACT - THIS CANDLE TRIGGERS STOP LOSSES. MOST OF THE
TIME MOVE IS SO SHARP THAT MANY TRADERS WILL NOT BE
ABLE TO RE ENTER THEIR TRADE AT LOWER PRICE

WHEN AND WHERE TO USE THEM - LOCATION IS VERY
IMPORTANT - NEAR GAPS / NEAR STRONG SUPPORT
RESISTANCE LEVELS / IF PRICE IS TOO FAR FROM BASE IT CAN
COME HANDY

LOCATION IS MOST IMPORTANT PART-WATCH CAREFULLY

PUTTING ALL TOGETHER WHAT WE HAVE LEARNT

BEARISH PIN BAR CANDLESTICK PATTERN

REASON - THESE CANDLESTICK FORMS WHEN PRICE RETESTS
IMPORTANT LEVELS BUT IT FAILS TO SUSTAIN THERE
RESULTING IN SHARP STRONG BOUNCE OR FALL.

IMPACT - THIS CANDLE TRIGGERS STOP LOSSES. MOST OF THE
TIME MOVE IS SO SHARP THAT MANY TRADERS WILL NOT BE
ABLE TO RE ENTER THEIR TRADE AT LOWER PRICE

WHEN AND WHERE TO USE THEM - LOCATION IS VERY
IMPORTANT - NEAR GAPS / NEAR STRONG SUPPORT
RESISTANCE LEVELS / IF PRICE IS TOO FAR FROM BASE IT CAN
COME HANDY

WHAT HAVE WE LEARNT SO FAR

AS MOST PEOPLE DO NOT KNOW THAT MARKET IS CLEARLY A
REFLECTION OF PSYCHOLOGY AT A GIVEN POINT. IF YOU TOSS A
COIN THERE WILL BE 50% CHANCES OF WIN AND LOSS.

IN STOCK MARKET IN ORDER TO WIN SOMEBODY HAS TO LOSE.
BUT IN ORDER TO MAKE MOST RETAIL OR SMALL INVESTORS
LOSE BIG PLAYERS WILL HAVE TO MAKE THEM THINK THAT
THEY ARE THINKING RIGHT OR THEIR VIEW IS 100% AND
MARKET MUST GO IN THEIR DIRECTION BECAUSE IT HAS
FORMED CERTAIN PATTERN.

IN MOST CASES THESE PATTERNS ARE FAULTY. MOST PEOPLE
WILL PERCEIVE THEM AS PERFECT PATTERN DUE TO THEIR
INABILITY TO DIFFERENTIATE BETWEEN THEM.

I HAVE SIMPLY SHOWN YOU THE MOST IMPORTANT
CANDLESTICK PATTERNS YOU NEED TO KNOW IN ORDER TO BE
PROFITABLE. YOU HONESTLY DO NOT NEED 100% INFORMATION
WHICH IS AVAILABLE IN THE MARKET BECAUSE IT IS USELESS
AND IT DOES NOT SERVE THE PURPOSE.

NOW YOU KNOW HOW NOT TO GET TRAPPED IN A WRONG
SETUP.

NOW YOU KNOW THAT WHEN TO TAKE A RIGHT TRADE NOW
YOU KNOW THE RIGHT CANDLE TO GET IN.
NOW YOU KNOW WHAT INFORMATION MARKET IS PRESENTING
IN FRONT OF YOU. AND WHICH SIDE HAS UPPER HAND BY
LOOKING AT THE ABOVE CANDLESTICKS.

THESE CANDLESTICKS WILL GIVE YOU TOTAL CONTROL OVER
YOU’RE TRADING AND HOW YOU INTERPRET THE INFORMATION
WHICH IS FORMING RIGHT IN FRONT OF YOU SECOND BY
SECOND.

PRACTICE PRACTICE …………………

NOW GO AND PRACTICE - APPLY THESE CANDLESTICKS
PATTERNS TO YOUR CHARTS AND SEE HOW PROFITABLE YOU
CAN BE. ALSO LOOK CLOSLY FOR THE INFORMATION WHICH I
HAVE PRESENT YOU AND DIFFERENTIATE BETWEEN GOOD
SETUP AND BAD SETUP.

READ MORE:"CANDLE STICK PATTERN"