Stock Markets offer various ways of trading or investing. Broadly, direct investments can be done in following different ways :-

 

1. Fundamental analyses – This may also be known as value picking. One of the oldest method of investing in stock markets. Here, you analyse stocks based on various fundamental attributes such as – cash flows, dividends , guidance , market capitalization, P/E ratio, expected growth, management quality etc etc. There can be many other factors also. Most of them on one side can be very reliable but on other side, are very dynamic and can change considerably. After committing investments , big changes in any of the parameters, can hurt capital.

 

Investment needs to be done for longer terms. Hence, is vulnerable to long term fluctuations, government policies and various external factors.

Although a good old method to create long term wealth but there are no monthly incomes (or even yearly incomes). Also, works only in one direction, i.e. give good results only when the chosen stock and broad markets move upside. If there is a long term bearish cycle , investment can get stuck without giving any returns. In past, it has been seen, fundamentally good stock purchased at Rs 1200 is now trading at less than Rs 20. And that too, within a period of 4 years ! So diversification is the key. Also, a strong research based method to read in between financial statements and ratios is a must.

Easier said than done !

 

2. Technical analyses – This can be another extreme to fundamental analyses. Here investor tracks the movement in price of stock, based on certain standard patterns (double top, triple bottom, head and shoulder, rising channels etc.). And tries to predict the direction of stock to take bearish or bullish positions in the stock. It can be as short term trade as 30 minutes to a long term trade wherein you are analyzing charts for even 3 to five years.

One thing which is very certain in this trading is that “nothing is certain” . So , you are always protecting your positions / investments by taking small loses ( through a popular method – Stop Loss) . There can be big gains also , but it requires lot of patience, skill , guts and time to make success out of this method. Brokers love it, as it solves their purpose of generating brokerages. Many trades are done in short period.

Falling or rising markets are good for these kind of trades. Sideways markets can be quite disappointing , as number of opportunities go down considerably.

Can this kind of trading give consistent , dependable monthly income ? This is a million dollar question. I wish i had the answer. Because we find people claiming losses, far outnumber people, claiming profits !

 

3. Non Directional Hedged Option Strategies – Third trading style worth considering is trading through Option Strategies. These are not normal but are hedged and Non- Directional strategies in nature. Non-directional means that you are not trying to predict the direction of market. You are creating positions in such a way, that wherever market goes, you can generate profits. So consistent returns in falling markets, rising markets and even sideways markets.

Inherent advantages –

 

– Consistent and dependable returns can be generated in almost all the situations.

– Skill level required is not as high as that in technical analyses.

– One need not wait for months or years for making profits, as in fundamental picks.

 

Then why everybody is not doing this ?

 

Main reason behind this is that this kind of trading is relatively new for Indian Markets. Started in and around 2002 ,it has become very popular in volume terms. But major volume is because of speculative activity rather than Strategic or hedged trading.

For using it as a strategic , non-directional instrument, we need to spend some time and effort to learn it. You will spend effort, time & money in learning , only if you are serious about taking stock markets as a business. Culturally also, it may take some more years, for trading to get more acceptance as an full time occupation.

Want to check its acceptance ?

 

Talk to your parents or elders, they will hate stock markets like anything and would also discourage you to maximum possible extent !!

And more than 99% chances are, that they have never even heard of option trading strategies ! No intention at all to insult them but this is a new tool of trading, to which they are not exposed. Just like , using whatsapp as a new way of communication does not mean that earlier method of writing letters, was not good. Whatsapp was not there at all!

Out of these three methods, you need to choose your trading style. Choose style which suits your temperament, working conditions and comfort level. For example, if you are in a job or business and is not a full time trader, technical analyses may not be your style. Then you need a more passive style of trading which again can be Option Strategies.

If you need some monthly returns, again fundamental analyses may not be that great.

 

Can you combine all three ? To some extent yes but primarily you need to choose one because we do not want to be JACK OF ALL TRADES AND MASTER OF NONE !

We can surely help you in mastering Option trading Strategies. Our faculty has more than 11 years of trading experience in Option Strategies. He is full time trader , involved in NON-DIRECTIONAL, HEDGED trading. Learn from the experiences of real trader.