Trading is hard. It demands patience, discipline, years of dedication, and knowledge to excel. For beginners, it can be overwhelming initially. To support new traders, we are launching our #30Days30TradingConcepts initiative. Over the next 30 days, we will address all your questions and provide a fundamental understanding of trading. Let’s get started!
When you engage in trading with companies’ shares, it’s termed as stock market trading.
The key difference is that the stock market involves several intermediaries: Shares are traded on platforms like NSE, BSE, and MCX. To trade shares, you need a broker like Dhan. Transactions are settled through clearing corporations like CCIL. Once settled, your shares are digitally held in your dematerialized (demat) account with depositories like NSDL or CDSL.
Trading comes in various forms:
Day Trading Swing Trading Position Trading Scalping Momentum Trading Algorithmic Trading News Trading High-Frequency Trading
This is just the beginning! Stay tuned for our series #30Days30TradingConcepts and delve deeper into the world of trading with us.
Indices are like a thermometer for the stock market, offering a quick check of its health. Nifty 50 tracks the top 50 companies on the NSE, while BankNifty tracks the top 12 banking stocks.
Similarly, Sensex and BankEx track BSE stocks. The value of an index represents the average price of its tracked stocks. Indices are important because they provide a snapshot of the market’s performance and allow you to trade and invest directly through ETFs or Mutual Funds, making it easy to invest in a whole sector or market without picking individual stocks.
There are several types of trading accounts to consider when investing in the stock market. An Equity Trading Account is used for trading stocks, while a Commodity Trading Account is for trading commodities like gold and silver.
An Online Trading Account allows you to place trades through the internet, whereas an Offline Trading Account involves trading through a broker’s office. There are also 2-in-1 and 3-in-1 Accounts, which combine trading, demat, and bank accounts. Additionally, Discount Broking Accounts offer lower fees and advanced platforms, such as Dhan, whereas Full-Service Trading Accounts charge higher fees but provide services like research and financing support.
The three basic types of stock orders: Market Orders execute immediately at the best available price, Limit Orders specify a price for execution, and Stop Loss Orders trigger to limit losses when a stock reaches a predetermined price.
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Day 5:
Cover Order :
In Intraday trading, a cover order is a powerful tool designed to help traders manage risk. It’s an order type that includes an entry order and a built-in stop loss, acting as a superhero sidekick for your trades.
When you place a cover order, you simultaneously set an entry price and a stop loss price. For example, if you buy 100 shares at ₹50 and set a stop loss at ₹45, the shares will automatically be sold if the price drops to ₹45, limiting your loss to ₹5 per share. This ensures that you don’t have to constantly monitor the market, as the stop loss order will take care of protecting your position.
Using cover orders provides additional security, allowing you to set your exit price in advance and letting the order handle the rest. This can be particularly useful for traders who want to avoid significant losses during market volatility.
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Basket Orders not only streamlines your trading process but also offers the benefit of hedging, leading to lower margin requirements and freeing up your capital for other investments—especially useful in options trading.
On the Dhan platform, you can rearrange the scrips in your basket and select the order execution sequence. Plus, you can create these baskets even after market hours, ready for execution the next day. Save time and energy with Basket Orders and take your trading game to the next level with DhanHQ!
Trading can be intimidating due to various risks, but understanding and managing these risks can lead to more effective and confident trading. Market volatility, where prices fluctuate rapidly, requires traders not to time the market and to use stop-loss orders to limit losses.
Overtrading increases risk, overconfidence, and potential negligence, so setting daily or weekly trade limits is essential. Additionally, a lack of knowledge about different sectors, companies, and global events can hinder successful trading, making it crucial to stay informed.
Stocks represent an investment in a single company, like buying a Reliance share makes you a shareholder.
ETFs (Exchange-Traded Funds), on the other hand, are like a basket containing a mix of multiple stocks or other assets, similar to a platter with various dishes. For instance, the Nifty 50 ETF includes all the stocks from the Nifty 50 index.
ETFs offer diversification in a single trade, reducing risk while providing moderate returns, whereas stocks have higher growth potential but come with higher risk. Managing stocks requires active involvement, while ETFs are passively managed, usually tracking an index, and require less effort and lower expense ratios.
Gainers are market stars, trading higher than their previous day’s closing price with significant daily increases.
Losers are the underperformers, trading lower than their previous day’s closing price with significant decreases.
52W High is the highest price a stock has reached in the past 52 weeks, indicating peak annual performance, while 52W Low is the lowest price in the same period, showing long-term struggles.
Understanding these terms helps you grasp market trends and make informed decisions.
Upper Circuit is the highest price a stock can reach in one trading day, and trading stops at this limit to prevent extreme volatility. Lower Circuit is the lowest price a stock can drop to in one trading day, with trading halting at this point to prevent panic selling and a market crash.
These limits, set based on the previous day’s closing price and typically 5%, 10%, or 20%, help maintain market stability and prevent excessive losses or gains
In intraday trading, stocks are bought and sold within the same trading day, between market opening and closing hours. Intraday traders aim to profit from small price fluctuations, with trades lasting from seconds to hours. Their goal is quick profits through high-volume trading for small margins.
However, higher profit potential comes with higher risk. Intraday trading requires quick thinking, fast decision-making, and a solid technical strategy. It can be profitable and exciting but demands good market knowledge, effective risk management, and emotional control.
Fundamental Analysis and Technical Analysis are contrasting methods used in stock market analysis. Fundamental Analysis involves evaluating a company’s financial health, management competence, and industry trends to determine its intrinsic value and growth potential over the long term. It appeals to investors seeking to identify undervalued stocks for sustained growth.
In contrast, Technical Analysis relies on historical price and volume data, using charts and mathematical indicators to forecast future price movements based on market trends and patterns. It is favored by traders aiming for short-term gains through timely buying and selling decisions. Both approaches offer unique insights into market behavior and can complement each other in forming a robust investment strategy that balances long-term stability with short-term opportunities.
Shares are traded on platforms like NSE, BSE, and MCX.
To trade shares, you need a broker like Dhan.
Transactions are settled through clearing corporations like CCIL.
Once settled, your shares are digitally held in your dematerialized (demat) account with depositories like NSDL or CDSL.
Day Trading
