What Are Trading Calls and How Do They Work?
Pradeep is a 27-year-old chartered accountant who doesn’t believe that individuals should only stick to earning one income. In addition to consulting with a senior practitioner, he also does a freelancing gig on the side to grow his experience and develop an alternate source of money. But that is not all. In his free time, he studies the stock market and applies his deductions to make informed trading calls. Pradeep is not alone in his proactive stance towards trading, as can be seen from the huge quantum of money being exchanged on the bourses, on a daily basis. Just on the last Friday of May, 180.37 crore shares and contracts, worth a total of 481.9 billion rupees, were traded on the National Stock Exchange, indicating the depth and scope of the market. Gone are the days when only a few intrepid individuals dared to make trading calls and put their skills or intuition to the test – today, scores of people are looking towards the share market to boost their income and participate in the growth of the sector.
Traders are always on the lookout for the next big break – while some of them may buy a share or contract today, and sell it tomorrow for a neat profit, others hold their positions for a week and square off when their bets pay out. The share market, once considered the bastion of a few, well-informed players, is now a huge part of people’s lives, especially thanks to applications like Zerodha and Upstox. These new age solutions make it extremely simple for upcoming traders to start a demat account on their smartphone and trade seamlessly while on the go. The ease of use, and the potential for immediate returns, has prompted many people to try their hand at trading.
What are trading calls?
There are two common ways for you to approach the market – you can either try the fundamental, long-term investing route, or become a trader benefitting from informed trading calls. Traders are market participants who try to earn returns through the purchase and sale of assets such as stock shares and they usually focus on capitalising on short-term market events or trends to either purchase stocks at a discount, or sell stocks for a profit. For instance, Pradeep, who keeps a keen eye on the news, noticed that steel stocks plunged to record lows following the news on export duty. Tata Steel, one of the premium companies in the segment, saw its stocks plummet 18%. Considering the strong financials of the company, and the potential for returns over the short-term, Pradeep made a trading call and purchased 200 stocks for about 2 lakh rupees and, the very next day, he managed to sell the shares for a tidy profit of 10,000 rupees.
How do trading calls work?
While some traders may end up making calls based on tips or general information, or even a gut sense, there are several trading strategies that are followed by seasoned practitioners. Some of the popular ones include news trading strategy, like the one used by Pradeep, end-of-day trading, swing trading and day trading. As the name implies, end-of-day trading involves trading towards the end of the day’s trading session, as prices usually settle by this time. Swing trading, on the other hand, plays on both sides of the market – traders purchase a stock when they see it going down, and swing to the sell side when they notice the prices rising, while keeping an eye on the support and resistance levels. finally, day traders consider trading a full-time occupation and they make profits from the intra-day fluctuations in the stocks.
Some practitioners make trading calls based on a technical analysis of the underlying stocks. This involves an in-depth study of historical data, and takes into account aspects such as price and volume, to predict future movements. Traders also apply behavioural economics, market psychology and quantitative analysis to develop actionable insights and astute trading strategies.
Every trading strategy involves an amount of risk, as no one can time the market with absolute certainty. From overnight exposure to a lack of information and discipline, trading can pose varied risks, as experienced by 25-year-old Mukesh, who ended up losing 50,000 rupees during his 5-day trading adventure. Unless you have significant market experience, it is advisable to consult a professional while trading. Alternatively, you can invest in curated portfolios focused on trading as these help you minimise risk and access expert trading calls. As beginners, protect your corpus and avoid making trading calls yourself. Invest in professional fund managers who will do it on your behalf.
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