The Stock Trading Plan

1. That discipline contributed more to their success than their trading philosophy itself. Remember that the key to any plan is how well it holds over time.

2. There is no "sure thing", and there is no trading system that is 100% accurate. Your goal, as a trader, is to usethe tools available and try to develop an edge. Base your trades on sound fundamental and technical reasoning, rather than on hunches and long shots. If you can develop an edge, however small, over time you will be successful.

3. A trader must be able to admit they have made a mistake. Do not become emotionally or financially committed to a losing trade. Avoid the pitfall of becoming emotionally involved with any trade.

4. An investing edge is only part of the equation. A trader should diversify sufficiently so that the growth in equity can be consistent and the likelihood of a catastrophic loss can be diminished. The lower the percentage of a traders’ account dedicated to any one trade the greater the chance of the trader being successful.

Even if the trader has a perceived investing edge, it is unwise to run the risk of ruin, and bet it all on one trade. The goal is not only to make money, but also to be able to continue to make money consistently for an extended period of time. A trader must learn the basic concepts and the importance of money management.

5. Lack of experience in the market causes many traders to make the mistake of taking small profits and letting losses run.

Fundamental trading wisdom dictates the exact opposite. When in a winning trade, be patient and fully capitalize on the success. The trading axiom is, "cut your losses short and let your profits run".

6. A trading system does not have to be difficult, time consuming, complicated and stressful in order to be profitable.

In trading systems, as in many other things in life, simple can be better

7. As a trader, be cautious, and never let greed take control of a winning position.

8. Be aware that declining volume usually indicates the market is not accepting higher or lower prices, and this could indicate a market turn.

9. Learn from your trading mistakes. Never make a trading mistake without asking yourself why.

10. Do not make trading decision based solely on margin requirements, and always trade within your capabilities.

Remain true to your trading plan and follow the trading style that works best for you.

11. Do not trade markets that you don’t understand. Trade with confidence and conviction. Trade only with risk capital and be aware of the risk of losing. Divide your capital into 6 equal parts and never risk more than one-tenth of your capital on any one trade.

12. After a long period of success or a period of profitable trades, try to avoid the natural tendency toward increasing your trading activity. Conversely, use self-discipline when a trade goes against your position. Take your loss and wait for another opportunity. Never increase your trading after a loss.

13. Avoid getting into the market because you are anxious from waiting and/or out of the market because you have lost your patience. Never over trade and adhere to your risk management rules

14. Do not make a trading decision to buy just because the price of the stock is low or sell just because the price is high. Never change your position in the market without a good reason that is based on a fundamental or technical rule indicating a change in trend.

15. Trade the most active stocks and refrain from trading the slow moving markets. Trade "at the market" whenever possible and try to avoid a fixed buying and selling price.

16. When the market is moving with your position and you are using a stop loss order, then raise your stop loss so as to lock in your profit. Protect yourself against the possibility of turning a profit into a loss.

17. The "trend is your friend," and never buy and sell if you are insecure of the trend according to your fundamentals and technical rules. If you are in doubt, then exit the market. Only trade when you feel confident with your trading strategies.

18. Trade in five or six different stocks at a time, so as to avoid tying up all of your capital in any single stock.

19. A trader should establish a "surplus account" after a series of successful or winning trades. The goal is to retain the "surplus account" for times of emergency or panic 20. It is difficult to try and guess where the top and bottom of the market is, instead let the market prove its top and bottom.

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Monetary and Credit Policy - Expectations

RBI would announce the monetary and credit policy on 31/Jul/07. What can we expect?


RBI would hold all rates steady

This is because inflation is under control - the inflation currently is around 4.27% as against 5.94% as of end of Mar/07. And the inflation is likely to remain around 5% because of the favourable base effect that would continue till second quarter of FY08. There are some pressures though - the main one being that of crude oil prices that have gone up significantly now (a round of fuel price hike in India cannot be ruled out - infact it is definitely expected).


There has also been a moderation in credit growth - the credit growth is lower at 25% from around 30%.


Also, any future hikes would attract larger capital inflows and leave the economy with a problem of plenty.

RBI would definitely focus on liquidity management, no CRR hike

There currently is excess liquidity in the system due to multiple factors - capital flows have remained quite strong prompting RBI intervention and there has been a surge in deposits accompanied by a contraction in credit in Q1. The capital flows would continue to remain strong and so RBI would prefer to keep the pace of appreciation at bay as a sharp pace of appreciation is not going to be good for sectors like exporters and IT. The rupee has appreciated by 7.5% against USD in Apr-Jun07.

RBI would have to absorb liquidity through MSS (market stabilisation scheme) and the MSS ceiling is likely to be revisited.

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Biggest scare since 2 April 2007

The BSE 30-share Sensex's 541.74-point, or 3.4%, decline to 15,234.57 is its biggest rout in a single trading session in nearly four months.


The previous biggest point fall in Sensex had occurred in early April 2007. The Sensex had tumbled 617 points on 2 April 2007 following the Reserve Bank of India (RBI)'s surprise hike in interest rates announced after trading hours on 30 March 2007. RBI had raised its short-term lending rate, the repo rate, by 25 basis points (bps) to 7.75%. It had also raised its cash reserve ratio (CRR) by half a percentage point.

On 27 April 2007, the Sensex had witnessed a big fall of 320 points when feeble Asian markets weighed on domestic bourses.

Today's fall was triggered by a setback in Asian markets. Stocks across Asia fell today, 27 July 2007, after the US market dropped 2.3% on Thursday, 26 July 2007, on signs of further weakness in the US housing market and deteriorating conditions for corporate buyouts. Key benchmark indices in Hong Kong, Japan, South Korea, Singapore and Taiwan were down between 2.4% to 4%

The fall was broad based. All the sectoral and niche indices on BSE ended in the red. The market breadth was weak: 1,951 shares declined on BSE as compared to 570 that rose, while 55 were unchanged. Losers outpaced gainers by a ratio of 3.4:1.

The fall materialised after a recent solid surge as FIIs stepped up buying on strong Q1 results and in anticipation of good results from companies which were yet to unveil their numbers. Ths Sensex had gained 5.5% in the past one month and nearly 42% in the past one year.

The top losers from small-cap and mid-cap space were Sterling Biotech (down 11.8% to Rs 173.60), Tele Data Informatics (down 10.8% to Rs 61.45), NIIT Technologies (down 9.7% to Rs 491.10), Wire & Wireless India (down 8.2% to Rs 57.50), Bombay Rayon (down 8% to Rs 202.70), Emkay Share & Stock Brokers (down 9.5% to Rs 99), KS Oils (down 8.9% to Rs 52.70), Energy Development Corporation (down 7.9% to Rs 58.20) and Nectar Lifesciences (down 7.9% to Rs 227.65).

Select stocks, however, rose in an otherwise weak market: Venky's (India) (up 16% to Rs 175.25), Timex Watches (up 10% to Rs 29.70), Triveni Engineering (up 9.7% to Rs 57.15), Assam Company (up 6.5% to Rs 17.80), JK Tyres (up 5% to Rs 147.95), Ballarpur Industries (up 7% to Rs 131.65), and Alok Industries (up 5.5% to Rs 67.65)

Turnover surged on BSE to Rs 6,593 crore compared to Thursday's Rs 5,758 crore

The key event next week is the review of the monetary policy by RBI on Tuesday, 31 July 2007. RBI is likely to keep rates steady. However, it remains to be seen whether the central bank will raise CRR to suck out excess liquidity in the banking system.

Data released today, 27 July 2007, showed India's wholesale price index rose 4.41% in the 12 months to 14 July 2007, higher than the previous week's 4.27% due to increase in food prices

Meanwhile, a development that could increase domestic liquidity is the approval given by the Cabinet Committee on Economic Affairs on Thursday, 26 July 2007, to public sector companies enjoying Navratna and Miniratna status to invest up 30% of their surplus funds in equity mutual funds. The total surplus of central PSUs in 2005-06 was estimated at about Rs 2,39,500 crore, according to public enterprises survey. This means that about Rs 70,000 crore may flow to equity mutual funds. However, investments would be allowed only in public sector mutual funds.

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ZEE TV -Surges ahead

ZEE SURGES AHEAD

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RBI’s monetary policy review holds key

With most of the frontline companies having already declared their Q1 June 2007 results, the market will closely watch the monetary policy review of RBI due on Tuesday, 31 July 2007. RBI is likely to keep rates steady. However, it remains to be seen whether the central bank will raise cash reserve ratio (CRR) to suck out excess liquidity in the banking system.

The 30-share BSE Sensex lost 330.98 points or 2.13% to 15,234.57 in the week ended 27 July 2007, on profit booking. The S&P CNX Nifty lost 120.85 points or 2.6% to 4,445.20 in the week. Prior to this, the market had been posting weekly gains since the past six weeks.

Latest Data released on Friday, 27 July 2007, showed India's wholesale price index rose 4.41% in the 12 months to 14 July 2007, higher than the previous week's 4.27% due to increase in food prices. The inflation is within the central bank's medium-term target of 4-4.5% and annual target of 5% for this fiscal. The Finance Minister, P Chidambaram, hinted recently that high crude oil and food prices did not necessary mean that money policy would be tightened further.
Among the frontline companies - Bharat Heavy Electricals, Bharat Electronics, Mahindra & Mahindra, Cairn India and i-flex Solutions, will declare their June 2007 quarter results in the coming week

Gujarat Mineral Development Corporation, India Cements, Balkrishna Industries, Bharati Shipyard, Dredging Corporation of India, Gitanjali Gems, India Infoline, Indiabulls Real Estate, Nagarjuna Construction Company, Wanbury, Asian Electronics, Development Credit Bank, Ashapura Minechem, Parsvnath Developers, Birla Corporation, Financial Technologies (India), Provogue (India), Madhucon Projects, Sterling Biotech and United Phosphorous, will also declare their result

Oil prices have held firm above $75 a barrel on fears of tight summer supplies would offset a fresh wave of risk aversion that struck US equities and dragged oil down a day ago. Any sharp rise from these levels, may dampen the sentiment

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Assessing Your Personal Strengths

Assessing Your Personal Strengths: What They Mean for Trading

Brett N. Steenbarger, Ph.D.

A common perspective is that traders run into problems because of personal (or personality) flaws. My experience with successful traders in professional settings, however, finds that the successful traders often have as many of those shortcomings as other traders. The difference lies in their personal strengths--and how they bring these to bear in their trading.

It's only been fairly recently--with the rise of "positive psychology"--that research has taken a hard look at strengths and subjective well-being. One excellent compilation of this research is the large text "Character Strengths and Virtues" by Christopher Peterson and Martin E. P. Seligman. It is an attempt to pull together everything we know about such qualities as wisdom, courage, love, kindness, justice, leadership, modesty, optimism, spirituality, and much more.

Another effort to study strengths are the Values in Action questionnaires that evaluate 24 positive personal qualities. (Interested readers can register on the research site and take the questionnaires for themselves).

My experience is that many trading problems occur, not because of traders' weaknesses, but because their strengths do not align properly with their trading. In an upcoming post, I will update the Trading Coach project and illustrate this concept. Interestingly, very few trading coaches/psychologists seem to spend a great deal of time assessing specific trading and personal strengths. The assumption seems to be that, if you address a weakness, you'll then succeed.

The opposite approach is that, if you build strengths, you can work around your shortcomings.

Let's try a little exercise. Below is a list of strengths from the VIA survey. Identify what you consider to be your five greatest strengths from this list and jot them down:

creativity, curiosity, open-mindedness, love of learning, wisdom, bravery, persistence, integrity, vitality, love, kindness, social intelligence, citizenship, fairness, leadership, forgiveness, modesty, prudence, self-control, appreciation of beauty, gratitude, optimism, humor, spirituality

Once you've written down what you believe to be your five greatest strengths, now--next to each of these strengths--write down how you specifically employ that strength in your day to day trading.

What I find is that, sometimes, how a trader is trading does not make concrete use of his or her greatest strengths. As a result, the trader is pulled two ways: toward what he or she "should" do according to the chosen trading style and toward what comes most naturally as a personal interest and strength. This is not a problem with discipline per se; it is a problem of a lack of fit between trading approach and personal competencies.

It is not necessary for trading to actively engage all your strengths. If many of your top strengths are not regularly utilized in your trading, however, two consequences are likely to result: a) you will not be as successful as you could otherwise be; and b) you will likely find trading less than fully satisfying and will not sustain the motivation to develop yourself fully.

In our Trading Coach project, Trader C. is running into some difficulties that have reduced his profitability. As we shall shortly see, it is his strengths that are getting in his way. In an upcoming post, I'll show what we're doing to remedy that situation.

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Sensex recovers on late buying

The market resumed in the green despite weak Asian cues and rallied sharply led by capital goods and auto stocks. Energy majors Reliance Industries and ONGC also supported indices. The Sensex came of its high as profit selling began in mid-morning trades and slipped into the red as investor confidence waned. The index majors ACC and Bharti Airtel led the slump and the Sensex touched the intra-day low of 15,654. The market remained subdued thereafter but recovered on a hectic buying in heavyweights, IT and pharma stocks towards the close. The Sensex finally wrapped up the session with the gains of 77 points at 15,776. The Nifty closed 31 points up at 4,620.

The breadth of the market was positive, with gainers outnumbering losers in the ratio of 1.42:1. Of the 2,657 stocks traded on the BSE 1,529 stocks advanced, 1,062 stocks declined and 66 stocks ended unchanged. Among the sectoral indices the BSE IT Index flared up by 1.92%, the BSE Realty Index rose 1.54%, the BSE Oil & Gas Index and the BSE HC Index moved up by 1.49%. However, the BSE Bankex Index, the BSE CG Index and the BSE Metal Index closed in the red.

Among the index heavyweights, Ranbaxy was the star performer and surged 9.49% at Rs373. Cipla spurted 4.19% at Rs194, Maruti Udyog scaled up 3.88% at Rs841, Wipro soared 3.24% at Rs515, TCS advanced 3.21% at Rs1,186, Reliance Energy moved up by 2.80% at Rs780 and M&M added 2.36% at Rs801. However, ACC tumbled 4.56% at Rs1,022, Ambuja Cement slipped 2.84% at Rs125, Bharti Airtel fell 2.28% at Rs925, BHEL was down 1.93% at Rs1,755 and HDFC Bank shed 1.82% at Rs1,219.

IT stocks registered significant gains. Rolta India surged 4.35% at Rs493, Mphasis soared 3.29% at Rs278, Infosys firmed up by 2.26% at Rs2,035 and HCL Technologies added 1.81% at Rs327.

Over 2.84 crore IFCI shares changed hands on the BSE followed by Manglore Chemical & Fertilizer (1.47 crore shares), Suryachakra Power Corporation (1.36 crore shares), IDFC (1.31 crore shares) and IKF Technologies (80.04 lakh shares).

HDFC was the most actively traded counter on the BSE and registered a turnover of Rs369 crore followed by IFCI (Rs160 crore), Reliance Industries (Rs153 crore), IDFC (Rs151 crore) and DLF (Rs145 crore)

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IVR Prime - IPO

MAX. ISSUE SIZE (Rs) : 849 crores
PRICE BAND (Rs) : 510 - 600
ISSUE OPENS/CLOSES : 23rd to 26th July, 2007
LISTING : NSE, BSE.

IVR Prime is a subsidiary of IVRCL Infrastructures, which will still hold around 62 per cent stake in the company post-IPO. At the outset itself, it is worth noting that it is the parent company that benefits in terms of inflows from two of the company’s IPO objectives, namely, repayment of loans and payments for development rights.

In aggregate and percentage terms this works out to around Rs.362 crore and 40 per cent of the IPO proceeds. For the record, the other issue objective revolves around completing projects.

IVR Prime’s land bank comprises 2,478 acres, of which only 14 per cent is owned by the company or its subsidiaries. Notably again, around 70 per cent of the payment on land is still outstanding, primarily on account of pending installments for the Noida parcel.

A review of the RHP indicates that the bulk of the planned development is at a preliminary stage thus suggesting the possibility of execution risks resulting into time and cost overruns. The RHP also clearly indicates that the company expects the projects to be completed only by 2012. The financials are satisfactory with the topline for 2006-07 standing at Rs.148 crore and bottomline at Rs. 21 crore. The OPM of 25 per cent, though satisfactory also suggests limited scope for further improvement.

On a SWOT snapshot scale, the other negatives would include potential conflict of interest, limited geographical coverage area ( primarily Hyderabad and Chennai), and the fact that the lions share of the profits from the Noida project will be pouched by the parent company. Almost ironically, IVR Prime’s only real positive besides being engaged in the booming realty segment is its parentage.

At a historical P/E demand of 150 odd, chances are, investors would rather back the parent company, which clearly is a significant beneficiary of this IPO.

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Central Bank of India - IPO

MAX. ISSUE SIZE (Rs) : 816 crores
PRICE BAND (Rs) : 85 - 105
ISSUE OPENS/CLOSES : 24th July 2007 to 27th July, 2007
LISTING : NSE, BSE.

Sorabji Pochkanawala, the pioneer of Indian banking was one of the founder fathers of this bank. Sadly, his legacy does not seem to have inspired this bank in more recent times. Possibly the last to benefit from the ‘great Indian PSU banking trick’ of extinguishing accumulated losses against capital, Central Bank wrote off approximately Rs.680 crore of accumulated losses against capital in March 2002. What’s more, as recently as this March, it ‘restructured’ its capital base of Rs 1,124 crore to include a perpetual preference share component of Rs.800 crore.

Its topline has grown at a CAGR of 7 per cent over the past three years while its bottomline has fluctuated. In fact, over the last three years, it has actually declined from Rs.620 crore to Rs.504 crore. With computerization, now a ‘buzz word’ even among some PSU banks, seeming to have given Central Bank a miss, barely one third of its business is covered under CBS.

A study of its Balance Sheet indicates its asset composition being tilted heavily towards lower yielding corporate and commercial loans. Adding to this concern is the net NPA level of 2.6 per cent which is a throw-back to those darker banking days of the past.

Notwithstanding the modest financials, the reduced equity base positively impacts the EPS, which exceeds Rs.13 for FY07. At a P/E multiple of 8 though, the bank is in the same range as proven peers of comparable size like Corporation Bank and Canara Bank.

Given this scenario, it can hardly be surprising if discerning investors steer clear of this issue and back some of its other listed peers, who are better positioned to ride the expected banking upsurge, on the back of the ‘India growth story’.

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Market Ended Weak

Market ended weak amid volatile trade on one day ahead of expiry. Sensex was down by 96 points at 15699, which swung 200 points during the day. Nifty was down by 32 points at 4588 and swung 65 points during the day. CNX Midcap, BSE Small-cap indices were down by 1.2% each. ITC was the stock of the day, which was up 9% on brokerage reports of re-rating. Cement stocks fall on MRTPC notice. Major losers were, ACC, down 4.5% and Ambuja Cement, down 4.1%. BSE Realty index was down by 2.9% while BSE Capital Goods index was down by 2.5%. BSE Auto index was down by 2% and BSE Metal index was down by 1.7%. Major index losers were Suzlon, down by 6.5%, Satyam, down by 5.7% and SAIL, down by 5%. The NSE advance-decline ratio stood at 3:8. New listing: Allied Digital listed today which closed at Rs 330.15 per share as against the listing price of Rs 332.5 per share (Issue price Rs 190). F&O turnover was at all-time high and was of the tune of Rs 72,365 crore. The total market turnover was at all time high of Rs 91,063 crore vs Rs 84066.75 crore on Tuesday. Rupee depreciated by 15 bps at 40.32 and hit high of 40.3425 during the day. F&O Snapshot Nifty July futures premium at 4-7 points Vs 11 points discount yesterday (there are short rollover happening in IT, Auto, Cement sector) Nifty Aug futures discount at 10-13 points Vs 27 points discount yesterday Nifty July futures shed 6.5 8 lakh shares Aug Futures add 83 lakh shares in shares Short rollovers seen in cement, technology and auto stocks Nifty July series discount turns into premium; Nifty Aug discount narrows down FMCG ITC up 8.5%; net shed 2.8 lakh shares in OI (rollover at 55%) HUL up 1.5%; net shed 10000 shares in OI (rollover at 64%) Cement India Cement down 9%; net add 19 lakh shares in OI (rollover at 43%) ACC down 4.5%; net add 8 lakh shares in OI (rollover at 58%) Ultratech Cement down 4.5%; net add 91000 shares in OI (rollover at 78%) Shree Cement down 7.5%; net shed 200 shares in OI (rollover at 23%) Kesoram down 5%; net add 1.3 lakh shares in OI (rollover at 48%) Birla Corp down 5.5%; net add 60000 shares in OI (rollover at 63%) Infrastructure Lanco down 10%; net add 11 lakh shares in OI (rollover at 52%) DLF down 2.4%; net add 13.5 lakh shares in OI (rollover at 61%) Peninsula Land down 4.5%; net add 1.2 lakh shares in OI (rollover at 45%) Others Winners in FNO Educomp up 8.2%; net add 10000 shares in OI (rollover at 41%) IFCI up 6.5%; net add 52 lakh shares in OI (rollover at 53%) Pantaloon up 5.5%; net add 6 lakh shares in OI (rollover at 57%) HDIL up 4.5%; net add 16 lakh shares in OI (rollover at 85%) Reliance Cap up 4.2%; net add 7.5 lakh shares in OI (rollover at 53%) Rollover % HDIL 85 Ultratech Cement 78 Satyam 76 Cipla 73 Jindal Stainless 72 Infosys 71 L&T 69 DLF 66

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