In the world of stock market, people are often in search of such tools and strategies which can help them in making quick money from the market. One such tool or method which has been very popular almost since the beginning of trading is technical analysis. Technical analysis is a method that investors and traders use to predict price movements in stock, currency, commodity and derivative markets. Many of you might have heard about it but very few people would be aware of it. In today’s article, we will learn in detail about technical analysis, its concept and method of learning. After reading this article, you will completely understand about technical analysis and know why traders and investors give it so much importance.

What is Technical Analysis?

Technical analysis is a method of analyzing an asset or stock in which its future price is predicted by looking at the historical movement of the price chart of that asset. Technical analysis helps you to know at what price any share should be bought, how long it can be held and at what price it should be sold.

It is often said in the stock market that all the information about the increase and decrease in the price of a stock is hidden in its price chart and if one learns to analyze and understand it well, then anyone can become a great player in the stock market. Could. Technical analysis is also based on this, where an attempt is made to predict the further movement of the stock with the help of only the price movement of the chart and many other tools called indicators.

Unlike fundamental analysis where stocks are selected for long term investing by studying only the balance sheet, financial ratios and market trends, technical analysis mainly focuses on price action and price volume to draw conclusions and is mostly short term. Used for term trading.

How does technical analysis work?

There is a saying that we hear many times, “History repeats itself” and the same holds true for technical analysis. What do we analyze in technical analysis? Historic market data. That is, data on how the price of a stock, commodity, currency has performed in the past and the possibility that the stock can repeat its past price action.

The second thing that plays an important role in technical analysis is the market trend. Everything in the stock market moves in trend and this trend can be of three types. Uptrend, downtrend and sideways. The price of any stock moves on one of these three trends at a time. In an uptrend, the price of the stock continuously moves upwards in the formation of higher high and higher low, whereas in a downtrend, the price of the stock continuously decreases in the formation of lower high and lower low. In sideways market, the price does not move in any one direction but keeps moving through a channel or price range.

Due to the trend of price, many types of patterns are formed in the stock chart, on the basis of which we can predict the future price movement of the stock. For example, the chart pattern given below is called double top pattern.

According to this pattern, when the stock price tries to go up by breaking its middle neckline or the middle price of the pattern, then it is considered as a buy signal and the trader can take this trade with the per-determined target and stop loss price level. Is. There are many similar chart patterns in technical analysis like falling wedge, cup and handle, bullish/bearish flag, ascending triangle etc. which work very well in favorable market conditions. Apart from these patterns, there are many tools and indicators which help us in taking any trade decision in technical analysis.

Tools of technical analysis

Price Chart: Price chart can be called the basis of technical analysis. It shows the price movement of any financial instrument over a specific time frame by plotting it in a chart. Candlestick charts, bar charts and line charts are most commonly used in technical analysis.

Indicators: Indicators are tools used in technical analysis which are made on the basis of some mathematical calculations. They drive their data from price action and give buy and sell signals based on that. Some commonly used indicators are moving average, bollinger bands, RSI etc.

Chart Patterns: Patterns are a type of chart formation that are formed due to the price movement of a stock. Based on these chart formations, the trader can decide to buy or sell a stock.

Support and Resistance: Support is the price level at which buyers become active on a stock and prevent its price from falling further. On the contrary, resistance is that price level where sellers of the stock are active and prevent the price of the stock from increasing further. These two levels play an important role in technical analysis.

Volume: The quantity in which stock is transferred from a buyer to a seller and from a seller to a buyer is called volume. In simple language, volume means how many shares have been traded in a specific time frame. If the volume of shares is high then we can assume that many traders are interested in that share, whereas if the volume is low then we can say that the chances of the price going in the same direction in the future are less.

Types of charts

In technical analysis, mainly an attempt is made to understand charts and chart patterns. There are many types of charts and traders use them depending on their convenience and skill. Some of the most commonly used charts are:

Line Chart: This is the simplest form of chart. In this, price movement is shown only through line graph. This line graph is based on the closing price of the stock and detailed information is not available in it.

Bar Chart: This chart shows the high, low, open and close price of the stock in a certain time frame. They provide better information than line charts and are used by many traders.

Candlestick Chart: Candlestick charts are a gift from Japan and were used by rice traders there. They present the price movement of the stock in the best way, hence using them it becomes very easy to take any kind of trading decision.

How to learn technical analysis?

Technical analysis is a skill that can help us a lot in making trading and investing decisions. To learn this, there are many free videos, blogs and courses available on the internet and social media from which you can easily get information about it. Apart from this, there are some steps given below which can be followed to learn technical analysis step wise from beginning to end.

Start from Basic: First understand the basic concepts of technical analysis on the basis of which it works like price, volume, charts, support and resistance and indicators etc. Read about it thoroughly and try to understand the price movement on the chart.

Trading Books: The best way to learn about anything is to learn it from people who are experts in that field. There have been many such traders in history who have earned crores of rupees with the help of technical analysis in the stock market. Some such traders and the books written by them are: “Technical Analysis of the Financial Markets” by John J. Murphy and “Japanese Candlestick Charting Techniques” by Steve Nison. By studying these books, you will get thorough knowledge of all the basic and advanced concepts of stock market and technical analysis.

Understand technical indicators: As already mentioned, technical indicators are some tools which give you buying and selling signals on the basis of price data. Study these indicators and try to use them in your trading strategy.

Join the trading community: Social media, Telegram and many charting platforms have communities of traders who discuss and share things related to technical analysis and charts. Join such communities and try to overcome the difficulties related to technical analysis.

Do paper trading: There are many sites and apps online which allow us to do paper trading. Paper trading does not involve any kind of real money and is done only with virtual money through the app. In this you can trade exactly like the real stock market and the practice done in this way helps you a lot in trading in the future. You can practice your technical analysis knowledge on these platforms without any loss.

Create a trading journal: A trading journal is a trading record that contains accounts of the trades you make on a daily basis. In this, keep notes of when the trade was taken, what is the reason for taking it, stop loss, target and on the basis of which chart pattern the trade was taken etc. which is a good way to improve your trading by finding your mistakes and shortcomings.

Backtesting: Backtesting means testing the trading strategy you are using on historical data before using it in the real market. By doing this you will get to know whether a chart pattern and strategy works or not in trading.

Risk Management: The most important and important thing to pay attention to in learning and trading technical analysis is risk management. Risk management means entering into any trade by managing your trading properly so that even if the trade goes in your opposite direction, you know how much loss you can incur and when to exit the trade. If we understand risk management in simple language, then keep in mind the target and stoploss of the trade taken.

Right Mindset: The mindset of the person doing it plays a big role in the success of any business or work. A positive and disciplined mindset can improve your trading manifold. Whatever be the strategy or chart pattern, if it is used as discipline by following the rules properly, then you will remain in profit even if less trades are placed correctly.

Continuous learning: Any business keeps changing according to the market, technology and people’s thinking. Similarly, in stock market and technical analysis also, new technologies and rules keep coming with the passage of time. Therefore, it is important that you keep improving your mindset and trading with time so that you will be able to survive in trading even in adverse circumstances.

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Conclusion

Almost every trader uses technical analysis in short term trading. It requires less time and less skill as compared to fundamental analysis. Also keep in mind that learning and applying technical analysis is an ongoing process. It gets better with practice. You should work on any strategy in the long term instead of the short term and with the passage of time you will become an expert in it. Do not be afraid of loss because it is a part of trading and trading cannot be done without it. Yes, such a discipline can definitely be brought in that in every trade you have minimum loss and the profit is much more than that.

IIFRA Indian Institute of Financial Research & Analysis

IIFRA is India’s top stock market training institute, renowned for its integrity and innovation. They offer expert-led courses covering everything from basics to advanced strategies. With small classes and personalized attention, students get tailored guidance to achieve their goals. IIFRA fosters a vibrant community and provides networking opportunities for students to connect with industry professionals. It’s not just education; it’s a pathway to success in finance.

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Algo trading is the short form of algorithmic trading. This is a method of trading in which trading is done by feeding instructions with the help of algorithm in computer software. In other words, in this method of trading, some instructions are fed into the computer software by programming which tells it at what price to buy the stock and at what time to sell it. It can be used for all types of assets such as stocks, bonds, commodities and currencies.

Algo trading was first introduced in India in 2008. In the initial days, it was limited to only big institutions, mutual fund houses and big brokers, but as its popularity grew with time, its doors were opened to common traders as well.

The main function of algo trading is to automate trading and execute trades without any human intervention. Through the given instruction set, the algo software can place orders, set stop loss, analyze market data and do many other tasks. There is no room for human emotions in this because all the work is done according to a set of rules and instructions.

Algo trading has gained a lot of popularity in India in the recent past. It works as per the guidelines set by SEBI and is capable of executing a large number of trades in a short period of time.

How to do Algo trading?

Unlike normal trading, in algo trading, buying and selling is done through computer software which is programmed by an instruction set. It includes the following steps:

Strategy Development: Intraday traders use technical analysis to trade in the market and algo trading also works on this basis. In technical analysis, buy and sell signals are generated on the basis of price movement, indicators, support and resistance, price patterns etc. All these methods are converted into strategies so that any trading decision can be taken.

Coding: Once the strategy is developed, it is converted into programming language so that the algorithm software can understand and execute it. For this, programming languages like python, c++ are used.

Backtesting: Backtesting means testing a strategy based on the historical price movement of a stock before actually using it in trading. This gives the trader an idea of whether the strategy will work or not.

Risk Management: Before stepping into any trade, it is very important to know about the risks and losses involved in it and this is what helps you in becoming a good trader. In algo trading, along with the strategy, necessary code is also developed and implemented for stoploss, position sizing and risk control.

Executive Platform: To run an algo trading program, an API and a good trading platform are required. API means Application Programming Interface which is given to brokers by SEBI. Through this, brokers are able to access real-time market data which is required to run the algo trading software. You can do algo trading by running your strategy on the trading platform provided by the brokers.

Algo trading software

Seeing the popularity of algo trading, SEBI has given the right to brokers to offer their API based software on which algo instructions can be fed to traders. There are many algo trading software available in India, some of which are mentioned below:

1. Zerodha Streak
2. Algo Test
3. RoboTrader
4. Tradetron Tech
5. quantitatively

Benefits of Algo trading

Speed and Accuracy: The biggest advantage of algo trading is to execute trades quickly without any mistakes. Share prices change very rapidly in the stock exchange and due to this traders are often unable to enter a trade at the right price. Because algo trading is done by a computer software, it works in milliseconds which is not possible by any human being.

Emotionless Trading: In trading, a person often takes wrong trade due to emotions or can make a mistake in any trade but this is not possible in algo trading. It takes a decision only on the basis of the given instruction set and if that condition is not fulfilled then there is no possibility of taking the trade.

Diversification: In algo trading, many trades can be executed simultaneously which is not possible for any common trader.

Disciplined Trading: In algo trading, the trade is executed only when the conditions of the instructions given in the computer program are fulfilled. A common trader can lose his discipline due to market FOMO and can make a loss by making a mistake in trading, but in algo trading the possibility of this is negligible.

Back-testing: In algo trading, the strategy can be backtested on an old database before actually using it. This back-testing can save us from losing money in actual trading.

Disadvantages of Algo trading

Complexity: To do algo trading you must have knowledge of programming and coding. If you are not aware of this, then you have to pay money to someone else to get this work done and in case of any problem, you are not able to take any action yourself. This aspect of algo trading makes it complex for the common trader.

Technical Cost: To do algo trading you must have a good system and software. Apart from this, maintenance, good internet and backup also increase your trading cost to a great extent. Therefore, it becomes difficult for a small trader to do algo trading.

Lack of flexibility: The stock market does not always remain the same and its trend always keeps changing. Algo trading works well in trending markets but it does not work well in sideways markets. In such a situation, there is a risk of repeatedly hitting stoploss in trade because the market does not have a clear direction.

Technical Issues: Algo trading completely depends on computerized systems. If there is any kind of problem or technical issue in the system, there can be a loss in the trade and a good trade can be lost.

Impact on the market: In algo trading, many trades can be executed simultaneously, due to which there can be more volatility and liquidity in the market. This volatility can cause losses for many traders.

Future of Algo trading

As technology is advancing in the present times, algo trading can be widely used in the future. Being a new technology, it is currently limited to big institutions and traders as it increases the cost of trading to a great extent. But one thing worth noting here is that with the advancement of AI, we will not need to learn programming or any other skill, so in the future, you will be able to write code according to your strategy without depending on anyone else.

Apart from this, platforms like Zerodha Streak provide the facility to create trading strategies and use them in trading even without any coding knowledge. It is expected that in future the cost of algo trading will also reduce and small and common traders like me and you will also be able to take advantage of it.

Conclusion

There is no doubt that algo trading will emerge as a new way of trading in the future. While currently it is used only by a few people, the time is not far when it will be used by all traders. It is also important to note that SEBI has been coming out with guidelines from time to time regarding algo trading and only time will tell what impact it will have on the future of algo trading. We hope that this article has given you complete information about algo trading, but if you still have any question in your mind, then you can ask us in the comment section.

IIFRA Indian Institute of Financial Research & Analysis

IIFRA is India’s top stock market training institute, renowned for its integrity and innovation. They offer expert-led courses covering everything from basics to advanced strategies. With small classes and personalized attention, students get tailored guidance to achieve their goals. IIFRA fosters a vibrant community and provides networking opportunities for students to connect with industry professionals. It’s not just education; it’s a pathway to success in finance.

iifra.com/blog

The post What is Algo Trading? appeared first on IIFRA's Official Blog - Indian Institute of Financial Research & Analysis.

Companies and government agencies require capital from time to time and fulfill this need through many methods like loan, stock market, public issue, institution investment etc. If we talk about loan, then apart from taking loan from the bank, it can also take loan directly from the common people and it does this through debentures. Debentures are certificates issued by companies in exchange for which they commit to give a fixed return to investors. Investment in debentures is a good means for us to earn good returns at low risk. In today’s article “Debenture meaning in Hindi” we will try to give you complete information about Debenture.

What is Debenture?

Debentures are a way through which companies can raise money from people in the form of loans. Debentures are issued by government agencies and companies when they need money, in return for which they pay a fixed interest rate. Generally debentures have a fixed maturity period. In exchange for investing in debentures, companies give the investor a legal certificate which contains details of the amount invested and the interest rate received. When the debentures mature, the investor gets a fixed interest amount as return along with the principal amount. However, if debentures are listed in the secondary market i.e. stock exchange, they can be sold through trade even before maturity.

The interest rate on debentures depends on its credit rating, market reputation and creditworthiness of the issuing company. We can take this interest rate either cumulatively i.e. at one time on maturity or non-cumulative i.e. at regular intervals like monthly, annually.

How many types of debentures are there?

Companies keep issuing debentures from time to time to raise money. These can be of different types according to their needs, which are:

Secured Debentures: Such debentures are secured by some kind of asset or collateral. If in any case the company defaults, the money is recovered by auctioning the mortgage security.

Unsecured Debentures: These debentures do not have any security or asset to back them up. These debentures are completely based on the creditworthiness and goodwill of the company.

Convertible Debentures: In such debentures, the debenture holder has the option to convert them into equity shares of the company in future. When debentures are issued, all the information related to it like conversion rate, conversion date, term and conditions etc. is told to the holder. These debentures can be fully or partially convertible.

Non-Convertible Debentures: Such debentures cannot be converted into equity shares in future, hence the interest rate available in these is also higher than ordinary debentures.

Redeemable Debenture: The maturity or interest payment date of this type of debenture is fixed. That is, these debentures are issued with a fixed maturity period where the investor is returned his money with interest after a certain time.

Non-Redeemable Debentures: Such debentures do not have any fixed maturity date. The interest rate available in these is periodic and is paid as long as the company is in existence. Investors can redeem debentures only when the company is going bankrupt or is being closed down. As of today, no company in India issues such debentures.

Fixed Interest Rate Debenture: As the name suggests, the interest rate on such debentures is fixed. This interest rate is declared by the company at the time of issuing debentures.

Floating Interest Rate Debentures: Such debentures do not have any fixed interest rate. Their interest rates vary depending on market conditions and benchmarks.

Registered Debenture: In this type of debenture, the name, address and all the information of the investor is given, that is, these debentures are registered in the name of one person and the amount of interest and maturity of the person in whose name they are registered. is also given only to him

Bearer Debenture: No information about the investor is given on such debentures and they are transferable. The person who holds these debentures can also claim the applicable interest on it.

How much return is given in Debenture?

The return received on debenture investment is called coupon rate or interest. The creditworthiness and rating of the company matters a lot in determining the coupon rate. This rating is determined by different credit rating agencies, information about which is available online or in the public notice of the debenture. The better the rating, the more secure the investment is, but the interest rate is also lower. At the same time, lower credit rating means more risk and to cover this, higher interest rates are also offered. In fixed interest debentures the interest rate remains fixed till maturity but in floating interest rate debentures it can be more or less.

How to invest in Debenture?

Whenever a company or government organization wants to issue debentures, it issues a public notice. The debenture opens for subscription on a fixed date during which you can buy it directly from the company’s office or its website. After the subscription is closed, some debentures get listed in the secondary market i.e. stock exchange where you can easily invest in them through your broker like zerodha etc. Keep in mind that even if you are applying physically for debentures, you must open your demat account because most of the debentures are issued in de-materialized form and are stored in your demat account.

Taxation on Debentures

Taxation on debentures can be applied in two ways. One is in the form of interest income and the other is in the form of capital gain. When you hold the debenture till its maturity, you get returns as per the interest rate on the principal amount invested. While paying income tax, this interest income is taxable as per your tax slab. When you file ITR, this interest income has to be declared under income from the other source.

The second is capital gains tax which is applicable when you sell the debenture by trading in the secondary market or stock exchange before maturity. In such a case, if you sell it before one year then short term capital gain is applicable on it and if you sell it after one year then long term capital gain is applicable on it. Short term capital gain is applicable as per your tax slab while long term capital gain is applicable at 10% without indexation and 20% after indexation (whichever is lower).

Benefits of Debenture

Fixed Income: Debentures are a fixed income instrument. When a company issues them, it also declares the interest or coupon rate to be received by the investor, which remains fixed for the entire tenure of the debenture except in a few cases.

Low Risk: Debentures involve much less risk than mutual funds and stocks. The companies that issue them are given a credit score by various credit rating agencies on the basis of the risk involved and credibility, which gives an idea of the safety of a debenture and the risk involved in it.

Diversification: You can diversify your equity portfolio by investing in debentures. Being a fixed return, it helps in maintaining your portfolio returns even in adverse market conditions.

Trad-ability: Some debentures can also be traded in the secondary market. Unlike other fixed income instruments where sometimes you have to keep the investment for a lock-in period, you can encash these debentures by trading them on the stock exchange as and when required.

Regular Income: There are both cumulative and non-cumulative options in debenture interest payout. In non-cumulative interest payout, interest is paid to you at monthly or yearly intervals, which can become a good source of regular income.

Disadvantages of Debenture

Interest Rate Risk: Changes in interest rates in the market can affect the value of your invested debentures. If interest increases, the interest rate on your already purchased debentures becomes lower than the current one.

No voting rights: Unlike shares, debenture holders do not have any voting rights in the management and decision making of the company.

Inflation Risk: The interest rate on most debentures is fixed. If inflation rate increases in the economy, then debentures are unable to increase your wealth much in the long term.

Difference Between Bond and Debenture

1. The company can issue debentures for short term or long term as per its requirement, whereas bonds are usually issued for long term.
2. Debentures are mostly issued by private companies, whereas bonds are mainly issued by government agencies, corporations and financial institutions.
3. Higher interest rates are offered in debentures because they are generally not secured and depend on the market reputation of the company. At the same time, the interest rate on bonds is lower and stable than that on debentures.
4. Debentures are more risky than bonds. Before investing in these, you can take help of the rating given to them by the credit rating agency. Bonds are less risky and more secure than debentures.
5. Debentures can be converted partially or completely into equity shares of the company after a period of time but this is not possible in the case of bonds.
6. If in any case the company goes bankrupt, the debenture holder is paid after the bond holder, whereas the bond holder gets priority in payment.

Conclusion

Debentures are an excellent means of raising funds for companies and an excellent means of investment for us. It plays an important role in the Indian financial system through which the flow of capital between the company and the investor is promoted. By investing in debentures, we not only get a good fixed interest rate but we can also diversify our portfolio through it. But here it should also be kept in mind that debentures are generally not secured and the investment made in them completely depends on the creditworthiness of the company. Any company that issues debentures has a rating determined by its credit rating agency, which is very important to keep in mind before investing.

IIFRA Indian Institute of Financial Research & Analysis

IIFRA is India’s top stock market training institute, renowned for its integrity and innovation. They offer expert-led courses covering everything from basics to advanced strategies. With small classes and personalized attention, students get tailored guidance to achieve their goals. IIFRA fosters a vibrant community and provides networking opportunities for students to connect with industry professionals. It’s not just education; it’s a pathway to success in finance.

iifra.com/blog

The post What Is Debenture and How Many Types Are There? appeared first on IIFRA's Official Blog - Indian Institute of Financial Research & Analysis.

The Indian stock market, like any other market in the world, is full of uncertainty. There is a special tool to measure this uncertainty, which we know as India VIX. VIX, i.e. ‘Volatility Index’, is also called ‘fear gauge’ or ‘fear index’, as it is a measure of future market movements and volatility.

India VIX, which is based on options pricing on the Bombay Stock Exchange (BSE) or the National Stock Exchange (NSE), indicates market volatility over the next 30 days. If the India VIX price is high, it means that more volatility is expected in the market and conversely, a low VIX price means that the market is more likely to remain stable.

For investors and traders, India VIX is an important tool. This helps them understand the potential risks associated with the market and adjust their portfolio accordingly. For example, if you think the market will fall in the near future, you can take steps to protect your investment if India VIX goes higher.

How does India VIX work?

Understanding stock market movements is a difficult task, and an important tool to understand and master it is the India VIX, so it is important to understand how the India VIX works. India VIX is calculated based on options trading data from the National Stock Exchange (NSE). Its price tells us how much volatility there can be in the market in the next 30 days.

When the price of India VIX is high, it indicates that there is more volatility in the market and investors need to be more cautious. Conversely, when the VIX price is low, it indicates that the market is stable and it may be a good time for investors.

In this way, India VIX provides investors with advance warning of market volatility, allowing them to make more informed investment decisions. This helps them avoid market volatility and keep their portfolio safe. India VIX is not just an indicator but a means of understanding the depth of the market.

Why is India VIX important?

Below are the five main reasons that make India VIX important:

Estimating Market Volatility: India VIX helps in accurately estimating market volatility. It helps investors understand market sentiment and prepare them for potential market fluctuations, allowing them to make more informed investment decisions.

Risk Management: India VIX helps investors manage their risks. This gives them direction to balance their portfolio based on market volatility.

Helpful in investment planning: India VIX provides guidance to investors in their investment planning. In case of possibility of high volatility, short term investors may avoid taking large positions, whereas in case of low volatility investors have a good opportunity to create large positions.

Helpful in hedging strategy: Generally India VIX affects short term investors more, but it can be very helpful for big and long term investors also. India VIX helps investors adopt hedging strategies when market volatility is high. Under this, he can buy or sell option or future contracts equal to the stock he has, due to which even if he is facing loss from one side, he can easily cover it with the help of this strategy. .

Assessing market sentiment: India VIX is helpful in assessing market sentiment. This helps in detecting the feeling of fear and greed among investors, so that we can take better investment decisions.

How is India VIX calculated?

India VIX is calculated by a complex mathematical model known as the Black Scholes (B&S) model. This model is mainly used to determine the price of derivatives, such as options, by calculating the price of the factors affecting it. Many factors are taken into account to calculate India VIX, with the help of which the potential volatility of the market for the next 30 days is estimated. These factors are explained below:

Market Price: Market price, i.e. the current price of Nifty 50 index and the stocks included in it. This price is taken on the basis of latest available data.

Strike Price: Strike price is the price at which an option contract on Nifty is bought and sold. According to the current price of Nifty, it can be In the money, Out of the money or At the money. The price of out of the money option contracts is used to calculate India VIX.

Time to Expiry: This is the time period after which the Nifty option contract expires or becomes invalid, that is, its value becomes zero. This expiry time is of one week and one month.

Volatility: This is the most important factor, which reflects the price changes that may occur in the index in the next 30 days. It is calculated on the basis of option price of Nifty 50 index.

Risk Free Rate: This reflects the yield on government bonds. Investing in these bonds is considered risk free and safe, and hence their comparison contributes significantly to the VIX calculation. Considering these as benchmarks, India VIX is compared with them, in which bonds with maturity in 30 to 90 days are used.

The calculation formula of India VIX is:

India VIX = 100 * √((Sum[Weighted Implied Volatility Squared])/Total Weight)

What is the relationship between India VIX and Nifty?

• India VIX and Nifty, both are the main indicators of the Indian stock market. India VIX reflects the volatility of the market, and Nifty reflects the performance of the top 50 stocks of the stock market. Both of these are interconnected in a way, and are also dependent on each other. Let us understand this relationship with the help of the facts given below:
• The direction of both India VIX and Nifty is opposite. When VIX increases, Nifty falls, and when VIX decreases, Nifty rises.
• The rise in India VIX price indicates upcoming and ongoing volatility and risk in the market, which may lead traders and investors to avoid investing in Nifty derivatives and stocks.
• The fall and rise of India VIX also indicates increase and decrease in liquidity in the market. Due to high volatility, volume in trading and investing increases, which also increases liquidity.
• Keeping India VIX in mind, traders and investors make their strategies in Nifty derivatives and stocks. At high VIX, investors can use strategies to reduce risk, and at low VIX, investors can use more risky strategies.

In this way, the relationship between India VIX and Nifty helps investors to understand the market movements and take their decisions accordingly.

How to understand India VIX?

India VIX is very easy to understand. To understand this, we just have to keep in mind its price. This shows the volatility that may occur in the stock market in the next 30 days. When the price of VIX is high, it shows that there is high volatility in the market and investors should be cautious. This means that there can be huge fluctuations in the market. On the other hand, if the price of VIX is low, it shows the stability of the market. This could be a good time for investors as the market is less risky.

The price of India VIX moves against the direction of the market. If VIX is increasing, the market may fall and if VIX is falling, the market may rise. Investors should prepare their investment strategy based on the price of VIX. A strategy of reducing risk at high VIX value and increasing investment at low VIX value should be adopted. By looking at the history of India VIX, investors can understand what kind of volatility there has been in the market and what the possibilities may be in the future. This helps them avoid market fluctuations and take necessary decisions to keep their portfolio safe.

Normal range of India VIX

Normal range of India VIX, i.e. the price range in which the price of India VIX mostly trades. Like every stock in the index, its price changes every second during trading hours, based on Nifty options data and market volatility.

If you look at the chart of India VIX, you will be able to guess that the normal range of India VIX is between 10 to 30. That is, this is the price zone between which the price of India Vix usually trades. Even within this range, the value of India VIX between 12 to 20 is considered normal. That is, in this range, there is stability in the market and investors are able to invest and trade in the stock market without much fear.

If the value of VIX goes above 20, it is considered a sign of increasing volatility in the market. In this situation, investors need to be more cautious. At the same time, when the value of VIX falls below 12, it is considered a sign of low market volatility. This can be a good time for investors to invest money, as the market may see a rise in the coming times.

How to use India VIX for trading?

India VIX helps in knowing the volatility that may occur in the stock market in the next 30 days. This helps both long term and short term investors to predict the future state of the market. However, if you are a long term investor, then it should not make much difference to you, because you do not need to pay much attention to the market volatility happening in the short term. But if India VIX has been rising for a long time, then you may have to make some important changes in your portfolio.

A short term investor needs to pay more attention to India VIX than a long term investor, as he can make his trading and investing positions according to the movement of India VIX. In case of high price of India VIX, the risk and possibility of loss involved in one’s trading and investing positions increases. Although trading in the stock market keeping India VIX in mind does not guarantee that you will always avoid loss or that your risk will be low, yes, it does give you a measure of the volatility that may occur in the market in the coming time. Due to which you can take necessary steps to avoid it to some extent.

Conclusion

India VIX is not just a number, it is like an indicator showing the condition of NSE and the entire stock market. By understanding this and its importance, we can make our investment decisions more accurate, and it also helps us in understanding market cycles. Whether you are a trader, investor, or just fascinated by the stock market, studying and understanding the India VIX can not only add to our financial knowledge but also help us understand the market better. .

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IIFRA is India’s top stock market training institute, renowned for its integrity and innovation. They offer expert-led courses covering everything from basics to advanced strategies. With small classes and personalized attention, students get tailored guidance to achieve their goals. IIFRA fosters a vibrant community and provides networking opportunities for students to connect with industry professionals. It’s not just education; it’s a pathway to success in finance.

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What is Stop Loss?

Stop loss is a buy or sell order that protects the trader from losing more than a limit on the trade taken. This order helps the trader in reducing the losses due to market volatility by keeping his losses within the limit.

The stop loss order can be set by the trader as per the risk taken in his trade. For example, a trader has bought some stocks for Rs 100 on intraday basis and his target price is Rs 106. The trader does not want to take more than 3% risk on this trade so he can set a stop loss order at Rs 97. This is an advance order that you can place at the time of taking the trade or after taking it. If the trade goes in your favor then you can book profit, but when the trade goes in the opposite direction, your shares will be sold automatically due to the stop loss order as soon as the price reaches 97. In this way the possibility of loss in the trade will be limited to just 3%.

Why is stop loss necessary?

The stock market is full of uncertainty and only those who protect their capital from loss can stay here for a long time. To control losses, it is very important to keep your risk strategy in mind. When you have clarity about the maximum loss you can take in a trade and at what price you have to close the trade, only then you will be able to become a good trader.

Here your question may be that as an active trader, we can keep an eye on the trade as long as we are in it and as soon as the price comes within our loss range, we can sell it, then what is the need of stop loss in such a situation? ? In such a situation, it is important for us to know that the price of the stock changes every second in the stock exchange and sometimes it changes rapidly and crosses your set price in the blink of an eye and you do not get a chance to place the order. Finds. Even if you place an order, it cannot be executed. In such a situation, the stop loss ensures that the order is executed only at the limit set by you.

Another major reason for setting stop loss is the trader’s mindset and discipline. Many times in a trade, the price of the stock comes to the limit set by you and you also have a chance to get out of it, but due to our greed and the expectation that the price will recover again, we do not place the order and we lose as much as we can. There was a fear that he would suffer huge losses. Therefore, it is very important to set stop loss here also because it brings discipline in our trading and mindset.

How to set stop loss?

Placing a stop loss order is as simple as placing a buy or sell order. In our trading platform we can easily place stop loss orders while taking or after taking a trade. Suppose you have bought 50 stocks of ABC company for Rs 100. You want that under no circumstances should you take a loss of more than 5%. In this case, you can place a stop loss order in two ways and these are the two main types of stop loss orders:

Stop Loss Limit – SL Price + Trigger Price

Stop Loss Market – Only Trigger Price

Stop Loss Limit: This type of stop loss order is placed with a trigger price and the trigger price should always be greater than or equal to the stop loss price (less in case of short selling). In the above mentioned case, if you want your stock to be sold at Rs 95, then for this you can keep the trigger price at 95.50. When the stock price comes to Rs 95.50, a sell limit order will be sent to the exchange and will be sold until it comes to Rs 95. The selling price can be between Rs 95.50 to Rs 95 or so but will not be less than that.

Stop Loss Market: In case of stop loss market only the trigger price needs to be set. You can place an order at whatever price you want to place the stop loss. For example, if you set a stop loss at Rs 95, then whenever the price hits Rs 95, the order will be sent to the exchange and your position will be closed at whatever price is in the market near Rs 95.

Stop Loss order strategy

Now we have learned why it is important to set stop loss and how to set stop and we also know how to calculate stop loss. While setting the stop loss, we have to keep in mind that it should be placed at a price where it does not hit the price movement caused by general volatility in the market. That is, the level where the loss in the trade is minimal and the order is not easily triggered. We can use two methods to determine the stop loss price. he is:

Percentage based

Support and resistance based

Percentage Based: According to this method we calculate the stop loss on the basis of a fixed percentage. That means how much percentage loss can we take in a trade. For example, if you have bought 100 stocks for Rs 500 and you want that you should not suffer more than 10% loss on it, then you can set the stock loss at the level of Rs 450. When the stock price goes below 450 or below, the stock will be sold automatically.

Sport and Resistance Based: Whenever you take a trade, you take it based on some pattern or price action on the chart. Such as the price breaking a resistance level or reversing from a support level. In these cases, you can place the stop loss around that sport or resistance level so that when the trade does not work as per your planning, the trade gets closed automatically. You can understand this through the chart given below.

Benefits of Stop Loss

The biggest advantage of stop loss is that it works to reduce the trader’s risk by keeping him within his loss limit. Because of this, it helps us to avoid sudden decline in the market or rapid losses. It also works to increase discipline in a trader. Without stoploss, the trader is unable to exit the trade at the right time or starts resorting to averaging, which is not good for both his capital and time. Stop loss helps us to work on a rule based mindset rather than following emotions in trading.

Disadvantages of Stop Loss

While stop loss limits your losses in trading, it can also sometimes turn your potential profits into losses. Many times, due to high volatility in the market, the stock price first hits your stop loss but later goes higher than the target price. In such a situation, no matter how correct your strategy or trading plan is, due to having a fixed stop loss, you end up incurring losses instead of profits.

Conclusion

Use of stop loss plays an important role in protecting us from huge losses in trading. New traders especially must use it. We will be successful in trading only when we have capital for trading and hence it becomes necessary for us to protect the capital from loss. Although stop loss does not guarantee that you will always be in profit, it definitely helps in maintaining our profits.

IIFRA Indian Institute of Financial Research & Analysis

IIFRA is India’s top stock market training institute, renowned for its integrity and innovation. They offer expert-led courses covering everything from basics to advanced strategies. With small classes and personalized attention, students get tailored guidance to achieve their goals. IIFRA fosters a vibrant community and provides networking opportunities for students to connect with industry professionals. It’s not just education; it’s a pathway to success in finance.

iifra.com/blog

The post What is Stop Loss? appeared first on IIFRA's Official Blog - Indian Institute of Financial Research & Analysis.