“Trading is not a side-business. It’s a full-time profession. If you don’t take this seriously, you are going to lose a lot of money in trading. Traders follow a different kind of daily routine. They are disciplined, pragmatic, flexible & passionate. If you want to become a successful trader, you should follow the daily routine mentioned in this chapter.”
Every day when you come for work, every time when you pull up a stock have a game plan. If you don’t have one, develop one. When you pull up a stock, the following questions should go through your mind:
- What kind of day is it?
Market Day or Stock specific day?
- What kind of money is it?
Is it hard money or easy money?
The trader should make a plan in the morning & execute the same. If market or stock doesn’t behave as per his expectations, he should have an alternate plan with him. He should be flexible enough to change his gears according to market movements. We would be discussing in detail that what kind of routine a day-trader should have? Let’s look at the routine of a disciplined day trader:
Before the Market Open
A trader tries to find out important information about the market which is as follows:
- Any major announcement by Govt., SEBI, RBI, Exchange or any company. These announcements create lots of volatility in a particular stock, index or the market as a whole. You don’t need to analyze these announcements but, you should be ready with unexpected movements. Any change in regulation, tax structure, disclosure issues, and liquidity may impact market to a large extent. For example, if Exchange increases turnover tax, it would put a negative impact in terms of liquidity & overall volume of the exchange.
- Inflation numbers, Employment data, GDP numbers, Earnings or any other regular economic activity. These numbers create momentum in the market. When market is expecting such events, there is less volatility & less movement in the market. Just after the announcement of the numbers the volatility & movement increases. The trader should be aware of exact timing of announcement of such numbers. He can also design strategies on the expectation of the numbers. For example, interest rate announcement would affect banking & real estate sector. Following strategies can be adopted.
- Buy HDFC Bank & Short Sell Axis Bank or
- Buy DLF & Short Sell Unitech or
- Buy SBI & Short Sell DLF or
- Buy Nifty & Short Sell SBI or
- Buy Unitech & Short Sell Nifty
Always remember, the strategies mentioned here are not ideal strategies for every situation. The trader should try to understand the market conditions & design his own strategy. He should always keep a stop loss. Sometimes, stop loss of both sides may get triggered but most of the times, market/stock start trending after declaration of numbers.
These numbers are declared after a particular interval e.g. Inflation numbers declared weekly, company results declared quarterly etc. Traders should identify the market expectations of the numbers & compare the same with numbers actually declared & try to be with the trend after declaration of numbers. There can only be three types of impacts i.e. Positive, Negative or Neutral.
- Positive, if numbers are better than street expectations;
- Negative, if numbers are worse than market expectations; &
- Neutral, if numbers are in line with investors’ expectations.
- Future & Option Cues:
Future & options data can give you lots of information about the trend and momentum of the market or a particular stock. The traders can find out easily available information relating to future & options and predict the market or stock direction. Following are the important indicators:
- Premium vs. Discount: Premium and discount can be calculated by comparing future price with spot price. There can be three different situations:
| Spot Price | Future Price | Prem./Dis. | Amount |
| 100 | 103 | Premium | 3 |
| 100 | 98 | Discount | 2 |
| 100 | 100 | At Par | 0 |
General notation can be, if a stock is trading at premium, investors & traders are expecting the stock to rise. If it’s trading at discount, investors & traders are expecting the stock to fall. If the stock is trading at par, investors & traders are neutral about the stock.
The trader should compare the premium or discount of previous day with the current day. If premium of a stock is increasing it means the sentiments about that particular stock is still positive. If premium starts decreasing, the stock may see some profit booking at that level. In the similar way, if discount of a stock get increased, the stock is still in the bearish pattern; if the discount of the stock get decreased, some buying support may emerge at that level. Same concept can be applied to an index as well.
- Open Interest Analysis: Open interest resembles the volume activity in a stock or index. Derivatives analyst are supposed to be actively involved in open interest analysis. Following are the cues from open interest analysis:
| Open Interest | Price | Expectation |
| Increase | Increase | Bullish |
| Increase | Decrease | Bearish |
| Decrease | Increase | Consolidation |
| Decrease | Decrease | Consolidation |
Increase in open interest & increase in price of the underlying stock/index is a sign of strength. Increase in open interest & decrease in price of the underlying stock/index is a sign of weakness. Whereas, other two conditions i.e. decrease in open interest with increase in price & decrease in open interest with decrease in price are considered as sign for consolidation. The trader should try to find out stock with highest open interest and make the strategies accordingly.
- Call & Put Analysis: Traders should try to find out most active calls & puts in a particular underlying that would give you range for the stock. If a trader can find out data of buying & writing of various calls & puts, it can help him to decide the trend direction. For example, if Nifty is trading at 6000 & there is lot of call writing in strike price of 6200 & put writing in strike price of 5900. It means the range for the Nifty would be 5900 to 6200, where, 5900 would act as an important support level & 6200 would be major resistance. On the other hand if there is lot of buying in the calls of 6100 & 6200, it means the sentiment of the overall market is positive which would lead to market above 6200.
Note: This book is not on Future & options analysis. We are not going to discuss the same in detail in this book. The trader should update himself than plan his trading-day.
- Global Market Cues
- US Markets (Check Indian ADRs):S. is considered as the leader of the world economy. Most of the markets in the world take cues from the US markets. Dow Jones, Nasdaq and S&P 500 are the leading indices of the NewYork Stock Exchange. It’s not necessary that Indian markets behave exactly like US markets, but, if the market has taken a directional move (either upside or downside), it would impact Indian markets & other markets in the world. Lots of Indian companies are listed in Newyork Stock Exchange; it doesn’t mean that the stock would behave in the similar manner as it has behaved in the US markets. But we can take cues from the movements & decide about the direction of a particular stock or market as a whole. US market opens at 7pm in the evening & closes at 1.30 pm at night as per Indian Standard Time.
- European Markets: European market opens at mid-day according to Indian Standard Time. Indian markets take cues from European markets during mid-day & towards the close of the market. There are three main markets in Europe, i.e. CAC – France, DAX – Germany, FTSE – UK. If all markets open positive, it would give a positive impact on Indian markets. And if all European markets open negative, it would give a negative impact on Indian
- Asian Markets: Asian markets open one hour before the Indian markets. Indian markets take cues from other Asian markets at the time of opening. Major Asian markets are Nikkei – Japan, HangSang – Hongkong, Shanghai Composite – China, RTSI – Russia, Kospi – Korea, Strait Times – Singapore. Indian markets follow mix cues from US markets & Asian markets. One should take cues from the sentiments from both of these markets & make his strategy for the opening.
- SGX Nifty: SGX Nifty is the future of leading NSE Index Nifty traded on Singapore exchange. As Singapore exchange opens before Indian markets, the SGX Nifty also start trading at the same time. Traders can take cues from SGX Nifty for the direction of the market. Nifty actually may open at different point from SGX Nifty. But, traders can take cues about the trend or direction of the market i.e. Positive, Negative or Flat.
- Pre-Market Session: This is basically a new concept where traders put their bid & offers to buy and sell shares. After a small session, exchange would start matching these orders. This would give you a level after adjustment where Nifty / Sensex would be most likely to open. Keep a close watch on the pre-open session of the markets. This would give you the indication of sentiments of traders during the day.