Buying shares and holding them for certain period of time is called delivery based trading. The shares you bought will be in your demat account. Once you take delivery of shares you can hold them as long as you want. To take delivery of shares, you must have sufficient funds in your account. You don’t get any margin to buy shares in delivery.
If you have Rs.5000 means you can buy shares worth of Rs.5000 and not more than this.
TIPS FOR DELIVERY BASED TRADING
Please study following points, carefully, and get best returns in short period of time.
Basically, delivery based trading can be minimum one week, one month or couple of months. How long to hold your scrip’s/shares will depend on other technical indicators and averages.
How to select best scrips : There are thousands of shares/stocks, which one is best for delivery trading and which one will give maximum profit in short period of time.
Points to remember for fundamental screening:
1. Sector – 50% of stocks rise and fall is directly related to the strengths and weakness of its industry group.
2. Never lose more than 1-2% of your total amount on any one trade.
3. Promoters holding more than 40% indicate safety for retail investors. (Promoters means who run the company).
4. FII holding minimum 20 and maximum 25 is safe for retailer, not much volatility.
More FII investment=more volatility.
5. Liquidity—buying and selling of shares.
Consistent earnings : Generating profit consistently year after year or quarter after quarter.
EPS : Earning per share is calculated by taking a company’s net earning and dividing by the numbers of outstanding shares of the stock the company has.
Note – Last year’s EPS would be actual, while current year and forward year EPS would be estimates.
P/E Ratio : EPS is a great way to compare earnings across companies, but it doesn’t tell you anything about how the market values the stock. That’s why fundamental analysts use the P/E ratio, to figure out how
much the market is willing to pay for a company’s earnings.
P/E Ratio=Price of the share/EPS
Higher the PE ratio, more people are convinced to pay high for that share expecting higher growth in coming future.
Dividend yield : It is calculated by taking the amount of dividends paid per share over the course of a year and dividing by the stocks price.
Its percentage return a company pays out to its share holder in the form of dividends. The higher the better.
Price/Book ratio : The higher the ratio the higher price the market is willing to pay for the company above its assets. Its more useful to value investor than growth investor.
Price/Sales ratio : As with earning a book value, you can find out how much the market is valuing a company by comparing the company’s price to its annual sales.
Low Price/Sales ratios (below one) are usually thought to be the better investment since their sales are priced cheaply.
P/S ratios are usually used only for unprofitable companies, since such companies don’t have a P/E ratio.
Returns on Equity (ROE) : It is used as a general indication of the company’s efficiency, in other words, how much profit it is able to generate given the resources provided by its stockholders.
Investors usually look for companies with ROE that are high and growing.
Debt to equity ratio : This should not be more than 1, and less than 1 indicates company has very less debt. This is very important during market down trend as company has to pay lots of interest ratio beside low profitability. So its good sign, if company has less debt and that is debt equity ratio.
Remember also following points to increase your profit and reduce losses :
Buy shares of different companies : Don’t ever try to put all your money in single share. Try to get shares of multiple companies and if possible from different sectors.
You will always get benefited by investing in companies of different sectors, because we never know which sector will have good news and which sector will have bad news.
“Market always reacts for news.”
Be Patient : When you buy shares, they may go down. In share market it’s general practice that shares go up and down. If they go down then don’t panic and sell your shares.
Most of the investors/traders wait till their shares come to their buying level and then sell, but generally they forget that is the actual buying level of shares and from this level onwards the share price will start moving upwards.
