SUCCESSFUL F&O INVESTING GUIDE Ver FEB 2008
Many of the Indian individual investors who are into F&O segment, might have a common concern i.e., why I always end up losing money in F&O…why I always end up squaring off earlier and end up minimising my loss…There are few rules which we grossly violate and thereby design our operations for disaster….Following tips are aimed at helping you in ensuring that you are SUCCESSFUL IN F&O INVESTING IN FUTURE.
Rule 1
No shorting in Individual Stocks….stock markets always go to extremes i.e, Individual stocks are taken to abysmally low levels and also to abnormally high levels….U go short and the stock goes up by another 5% or more…you end up losing…
Rule 2
F&O Investing also must be for long term…and for only those stocks wherein you have done your homework with clear INPRICE…OUTPRICE…POSSIBLE DOWNSIDE…
Rule 3
F&O investing must always be with a strict stop loss…U must always work out your own MAX POSSIBLE BOTTOM PRICE somewhere close to your entry price…You must strictly put a stop loss at this price for F&O, and must get out of it if the price drops below this imdtly. This only means that your understanding of the DOWNSIDE for the share price is totally wrong…Keep monitoring the stock / review the numbers analysis again / reset your INPRICE / OUTPRICE / POSSIBLE DOWNSIDE …then entry again.
Rule 4
Put only 10% of your corpus into F&O at any point of time…Do not add to the corpus blindly to continue holding the positions…Many investors would have lost good part of their total corpus due to this in January 2008 market crash wherein majority of the A F&O shares dropped by 40%+ in just three trading sessions.
Rule 5
DO NOT OVER LEVERAGE…U need to use only max upto 50% of your F&O corpus for investing eg…If you have blocked 1 lac for investing in F&O route, you need to commit only 50000 max for investment…balance 50000 must be kept for taking care of POSSIBLE DOWNSIDE…and also for buying some more lots in case of further downside…If you have invested more than 80% of your corpus, even a 5% decline will force you to compulsorily book losses (WHICH WE ALWAYS DO METICULOUSLY).
Rule 6
DO NOT AVERAGE OUT TILL THERE IS ATLEAST 10% DECLINE FROM YOUR ENTRY PRICE and also only if the price is above your BOTTOM PRICE TARGET. eg..If you have invested in Infosys at 1800 one lot…wait for it to go down by another 10% i.e, to 1620 for buying your next lot to average out.
Rule 7
SPREAD YOUR INVESTMENT OVER THREE / FOUR SECTORS…This is necessary to take care of uncontrollable developments…You will be able to utilise any upsurge in one / two of the shares you have taken position , to make good the loss you are making in others.
Rule 8
LIMIT YOUR LOSSES …DO NOT LIMIT YOUR PROFIT…You need to always have the practice of putting stop loss limits to ensure that you limit your losses at all times…Even in case of an abnormal market crash your loss will be limited..eg..If you have bought one lot of BHARTIAIRTEL at 900…and you do not expect the price to go down below 850…then have the practice of putting a STOPLOSS at 850 on day one…and on a daily basis later on, keep revising the stoploss to previous day closing minus a little more than the expected volatility , say Rs. 50/- , so that your loss is always limited.
Rule 9
Stay till you get the OUTPRICE…You need to wait till you get the targeted OUTPRICE…You also need to be content on booking the profits once you get your OUTPRICE…Most of the investors become greedy once the Share reaches their Target price…and they tend to UNDULY REVISE THE TARGET PRICE UNREALISTICALLY…and their profits will be always notional.
Rule 10
PLS KEEP DAILY TRACK OF THE MACRO / MICRO FACTORS AFFECTING THE COMPANIES / SECTORS YOU HAVE INVESTED…eg., If you have invested in Software sector, you need to atleast track the Rupee/ Dollar movements and also the US recession trends , to take a call on your investments.
Rule 11
Always check for RESEARCH REPORTS by various Investment Bankers / Companies on your stocks to get more related data which can help you in fixing your INPRICE / OUTPRICE / buying quantity / Investment period.
HAPPY INVESTING IN F&O…AND BEST WISHES FOR SUCCESSFUL INVESTING.
