Stock-Picking Strategies: Technical Analysis

Technical analysis is the polar opposite of fundamental analysis, which is the basis of every method explored so far in this tutorial. Technical analysts, or technicians, select stocks by analyzing statistics generated by past market activity, prices and volumes. Sometimes also known as chartists, technical analysts look at the past charts of prices and different indicators to make inferences about the future movement of a stock's price.

Philosophy of Technical Analysis
In his book, "Charting Made Easy", technical analysis guru John Murphy introduces readers to the study of technical analysis, explaining its basic premises and tools. Here he explains the underlying theories of technical analysis:

"Chart analysis (also called technical analysis) is the study of market action, using price charts, to forecast future price direction. The cornerstone of the technical philosophy is the belief that all factors that influence market price - fundamental information, political events, natural disasters, and psychological factors - are quickly discounted in market activity. In other words, the impact of these external factors will quickly show up in some form of price movement, either up or down."

The most important assumptions that all technical analysis techniques are based upon can be summarized as follows:

1. Prices already reflect, or discount, relevant information. In other words, markets are efficient.
2. Prices move in trends.
3. History repeats itself.

What Technical Analysts Don't Care About
Pure technical analysts couldn't care less about the elusive intrinsic value of a company or any other factors that preoccupy fundamental analysts, such as management, business models or competition. Technicians are concerned with the trends implied by past data, charts and indicators, and they often make a lot of money trading companies they know almost nothing about.

Is Technical Analysis a Long-Term Strategy?
The answer to the question above is no. Definitely not, Technical analysts are usually very active in their trades, holding positions for short periods in order to capitalize on fluctuations in price, whether up or down. A technical analyst may go short or long on a stock, depending on what direction the data is saying the price will move. (For further reading on active trading and why technical analysis is appropriate for a short-term strategy,

If a stock does not perform the way a technician thought it would, he or she wastes little time deciding whether to exit his or her position, using stop-loss orders to mitigate losses. Whereas a value investor must exercise a lot of patience and wait for the market to correct its undervaluation of a company, the technician must possess a great deal of trading agility and know how to get in and out of positions with speed.


Support and Resistance
Among the most important concepts in technical analysis are support and resistance. These are the levels at which technicians expect a stock to start increasing after a decline (support), or to begin decreasing after an increase (resistance). Trades are generally entered around these important levels because they indicate the way in which a stock will bounce. They will enter into a long position if they feel a support level has been hit, or enter into a short position if they feel a resistance level has been struck.

How to Make Consistent Profits

A lot of people do not realize that they buy the stock because of greed and they sell the stock because of fear because what they have in their mind is how to make money as quick as possible and as easiest as possible without knowing the behavior of the stock market. In order to make profit, we should be able to acknowledge some strategy and be discipline.

Therefore, some people take their money away from the stock market and switch to commodity or foreign exchange. However, one thing we should realize that there are some industries/sectors that do not get impact the during this recession even some stocks rally up due to high inflation and wide market segmentation, meaning to say that people worldwide still use the product or service for doing everyday need or for supporting to run the business. As swing traders, this is good opportunity to growth our portfolio and to make consistently profit.

Even, we can pick up some stocks are really really undervalue in which people are fear to lose therefore they sell everything, not knowing fundamental of the companies. Also, for option trader, we can take profit from bi-directional by using some particular strategies. Therefore, the question that we should ask to our self is are we getting poorer or richer after this recession?, do you want to know how to find those stocks? For option trader, do you want to know the strategy that will generate us profit in bi-directional market?

 

How to make Rs 5000 a day in Trading

Can you claim to be able to make Rs 5000 a day in profits from your trading? In fact how many traders you know can teach you a way to make Rs 5000 a day everyday?

I dare say not many, because if you work out the sums, Rs 5000 a day works out to $10,000 a month. The professional traders make much more than this, while the private trader who lives by trading makes around this figure per month.

It is actually not difficult to make such consistent profits at all. You will have to work hard to achieve such results of course. Here are the steps you need to take to be able to make such a sum.

Step 1

Have a good money management plan. This is the crucial step, without it you can very well forget about getting any profits at all. A good money management plan consists of rules to guide leverage and margin, stop loss, profit objectives and position size.

Profit objectives are something that a lot of traders seem to have forgotten. In my classes I come across statements from students that ask why not let their profits run and try to cut their losses. My answer is this, "we are not doing a wild wild west here, allowing any from of control to escape your hands shows a severe lack of professionalism and foresight"

Not exactly a mild rebuke, but the idea of allowing a run away profit is not good financial planning. The reason for this is answered in step 2. But before we get there, remember to focus on a good money management plan. There is very resources on this but try to get as much information as possible as this is the corner stone of your trading.

Step 2

In your quest to make Rs 5000 a day in trading, your focus should be on your mind. You need to attract the money to you. You need to want to profit and you need to control all emotions. How this works is that you use your brain before and after the trade. During the trade you switch it off. You use your heart before and after your trading day. During the trading day, you detach your emotions.

Now this is a tough step to master. For money management it is easier because there are tangible elements, but for psychology everything is inside of you. Psychology is concerned about discipline, emotional detachment, and the ability to handle losses and profits.

In answer to the question in money management, when you allow profits to run and not set profit objectives you set yourself up to be too emotionally involved in the trade. How many of you can say enough is enough when you see your trade making more and more money? The reality is that most will just keep in the trade and then become like gleeful school children after the trade is over.

When that happens you have "programmed" your mind to behave in this way. So when you start to lose money you will also become so attached to your trade. Then what happens is that you refuse to exit the trade. You shift your stop loss position, finally you are out of money and then you are forced to end the trade. You may think that this may never happen to you, but after 20 years of trading and teaching I can safely tell you that 100% of traders that do not have a money management plan always face this crisis.

Last Step

A well crafted trading plan. This is where most traders are quite comfortable. Unfortunately there are a lot of half baked trading plans out there in the market. A good trading plan is one that covers 4 core areas. An intra day trade, a daily trade, a weekly trade and a monthly trade. There is too much information to write about it here, the blog provides a lot more information for you so pop by and visit.

How to make Rs 5000 a day in trading is to follow the above 3 steps. Just be sure to know that it is not easy. You will need time and effort to be able to reach such a figure per day. Just think that if you need 6 years of schooling to be an architect, you are considered lucky to take a year to learn how to trade properly and profitably.

 

How to Become Day Trader

There are many of us who would like to know exactly how to gain financial freedom through day trading. This is becoming an increasingly popular way to supplement your regular income, because you can work whenever you feel like it without having to answer to anyone. The first thing you need to do is to make sure you have the basics: a high speed internet connection, a charting service, real-time quotes and a broker service. However, keep in mind that if you truly want to become a day trader you need to possess a number of skills that are essential for your trading success.

Here are 7 useful tips to become a successful day trader:

1. Don't use borrowed money: Stocks are unpredictable and can fall at any time, so only trade with money you can afford to lose.
2. Start small: don't invest too much money on your first try. Wait until you have gained enough experience and then gradually increase you investments.
3. Learn from you mistakes: every time you fail you should carefully examine what where the factors that led you to failure. There are many people who keep repeating the same mistakes without ever questioning their techniques.
4. Don't give up too early: as soon as they lose some money many traders quit, believing that this is just a waste of time. You need to stay strong and focus on the target.
5. Always record your trades: keeping a record of every action that worked or failed will help you develop your own profitable strategy.
6. Establish a stop loss policy: money management is a very important skill. Don't risk wiping out your whole account.
7. Learn from the best: finding a great mentor and getting a good trading education is critical for your success. You need to learn how to analyze market trends and develop the correct money management strategy.

 

Global Financial Crisis affect the Day Trader

During the last two decades most markets were in long term bullish up trends.

We day traders could have been forgiven for becoming defensive about our craft as, week after week; we read sober articles exhorting investors not to "fall into the trap of trying to time the markets". Do not, they were told, act like day trading cowboys.

Instead of trying to time markets, clients were advised to take the Warren Buffet approach. Buy great companies and hold the stocks long term.

[Ironically, we now know that some of the organizations promoting this advice to clients were actually trading highly-leveraged, under-secured derivative instruments around the world. In comparison, most day traders act like pin-striped conservatives.]

Buy-and-hold is sound advice in a rising market. It is bad advice in a falling market, as countless unfortunate investors have found to their cost. It is especially bad if you are forced to liquidate holdings for any reason - to meet margin calls, for example.

When markets rise for years, buy-and-hold can become the default wisdom for all occasions. People are hypnotized into thinking the strategy will ride through occasional "downturns" and, when hit with a full blown recession, they sit and watch in horror as profits erode and turn into massive losses.

I believe day trading is inherently much safer than buy-and-hold investing for three reasons:

• The day trader makes money in rising or falling markets. Short term traders have the skills, tools and techniques to work with long or short positions. Unlike the buy-and-hold investor they are not locked into a world view that profit can only be made if prices go up.
• The day trader holds capital on the side lines most of the time waiting for a trading opportunity, then moves in for a quick strike. (I am rarely exposed to the market for more than an hour each trading day, often it is just a few minutes.) In contrast, the buy-and-hold investor is exposed to "event risk" twenty four hours per day, week after week, year after year. When war, natural disaster, or economic catastrophe strikes, the buy-and-hold investor takes the hit and hopes the markets will recover.
• A day trader is a disciplined risk manager. (Otherwise he or she will not last long in the business.) There is a plan for every trade entered, and if the trade does not work out a small loss is taken without emotion. in contrast, the average buy-and-hold investor has no risk management plan, other than to hold on and hope the markets will come back.

I am not being quite fair here. I am comparing an average buy-and-hold investor, a person who decides to buy some shares, with a competent day trader. But even if the long term buy-and-hold investor is a sophisticated operator, they are still more subject to unexpected event risk, still less flexible for short trading, and still find risk management (portfolio protection) more complex.

I trade the grain futures markets each day. During the last two years, prices in these markets rose relentlessly to record peaks, before plunging by more than 50%. That is the macro view.

However, the macro picture makes absolutely no difference to the way I approach my daily trading activity!

I go through the same routine, make decisions on the same basis, whether wheat is $10 per bushel and going to the moon, or $5 and collapsing.

This stability, this consistency of approach through all market conditions, this capacity to prosper in all market phases; these are the things I truly enjoy about day trading!

 

Day Trading Advice

Becoming a day trader is becoming a hot means for the average person to earn an income. You will find individuals who treat it as a full time job and others treat it as a method to make some extra money. Several individuals earning good livings with day trading which explains why numerous people are tempted to try it out.

Now obviously you can't simply start and make sizeable cash without understanding what you're doing! You want to have a certain level of knowledge when you get started so that you can make the best of your money. As we know, purchasing shares at a low price and selling high is how you earn money in the stock market. Obviously, the big question is - how can you know when to purchase and sell?

Employ these important day trading tips to increase your income possibilities.

Know what's in the market news and stay informed about the markets. You want to stay on top of happenings in the markets such as mergers, stock issuance, and earnings announcements for leading businesses. It's essential to gain a sound overview of the happenings in the markets.
Don't spend too much time on stocks with little movement. Changes in share prices are the key for day trading. In day trading you are buying and selling shares every day so you need to be invested in stocks that have daily price variations.

Improve your quantitative analysis skills. You'll need to be capable of analyzing trending and financial data at a glance. There's no need to be a master mathematician, but you need to know what the financial numbers mean so that you can make fast, accurate assessments.
Stay cool and determined. You need to keep your emotions even to avoid clouding your assessments. Whether you are too excited about a big trade, or deeply disappointed about a loss, both of these responses can hinder your ability to remain in the game, take smart actions, and keep a clear mind.

You may not get wealthy right away, but these hints are going to get you on the route to earning great cash with day trading. When you have the best tools and resources, you can experience the unbelievable money making potential that day trading offers.

Successful Traders Use Successful Trading Techniques

What are the successful trading characteristics of today's successful traders?

Some people are very comfortable doing stock analysis and some are not. And just because you feel confident and comfortable trading stocks, it doesn't necessarily mean you will be good at it. There are no hard and fast rules on what makes a successful stock trader, yet there are several characteristics that those who make the most amount of money in the least amount of time all have in common.

1. To be successful, a trader must be patient. A successful trader let’s winning positions run, but is able to swallow his pride and close the trade when it isn't working. Patience means knowing how to be resilient, courageous, and disciplined when the markets go against you.

2. The exploration of stocks is a key ingredient to becoming a successful trader. Developing skill in both fundamental and technical analysis is suggested.

3. The successful trader is passionate and has a biting desire to succeed. The biting desire to succeed can make all the difference in educating yourself about what you want to know and sticking to your strategy when the going gets rough.

4. As they practice stock trading, potential embarrassment is not a concern with successful traders. They expect to have losses and know when to cut them as soon as they are recognized.

5. Successful traders are highly disciplined. Extremely disciplined a successful trader does what needs to be done, even if he isn't in the mood. Discipline also means sticking to your strategy, not suddenly buying or selling on a whim, or because of a" hot tip".

6. Successful traders know that mistakes are going to happen. They realize and appreciate that the ability to make their own mistakes is a necessary part of the learning process.

7. A winning trader knows the difference between defensive and offensive behavior, and when to use each - protect your money first, profit later.

8. Successful traders balance their lives. Stock trading can be addicting, a successful trader can break away 'at will' before putting too much at risk.

9. Successful traders are risk adverse. They don't like losing money and control themselves before losing a large quantity, even if they have to admit they made a mistake.

10. Getting emotionally involved or placing trades based on hunches or rumors are not characteristics of successful traders. To be victorious you have to be able to resist the urge to prove you are right and be ready to make mistakes. Greed and fear should not affect your decisions. Setting stop losses on every trade is something that promotes success in trading. This means that on more than one occasion, you will have to admit that you are wrong. By using stop loss strategies correctly, your ego and your portfolio will survive and you may be able to get back into your "pet" position again when trends tell you it is the appropriate time to do so. You will have to learn to disregard any emotional ties you have to your stock and make quick stock trends your master. Although you might miss the lowest entry points and the top selling points, you will be able to sleep at night and look at yourself in the mirror in the morning. Learning to get out of a stock position before your profits turn to losses becomes a necessity. Learn solid stock investing concepts.

Successful Tips for Day Trader

It is a well-known fact that the majority of day traders incur losses in their trades. But there are a handful of successful day traders that consistently make healthy profits over the longer-term. The question is, what really makes the difference between profitable and unprofitable day traders? The answer is, successful day traders possess a number of characteristics that their unprofitable counterparts do not. If you want to be a profitable day trader, read through this list of successful day trader characteristics in order to determine what you can do to improve your performance:

Adjusting to the market. Financial markets are entities that are constantly changing. They are influenced by a myriad of economic, political, and social factors that we have no control over. As much as technical analysis and identifying patterns is crucial to profiting from day trading, their effectiveness can only take you so far. A good day trader must be able to spot external factors that will have an impact on the price of a financial instrument and adjust his strategy accordingly.

The ability to stay neutral. You cannot let your emotions get in the way of objective trading. A successful day trader does not think the whole world is coming to end when he loses $1000 on a trade just like he doesn't open a bottle of champagne every time he makes $1000 on one. He doesn't let the outcomes of individual trades guide his strategy. Instead, he focuses on the overall outcome over a period of time and judges his performance upon it.

A business plan. Day trading is a business, and like any other business, it requires you to have a plan. A good day trader maps out every crucial aspect of his business. What are your start-up costs? How much do you want to work? What is the maximum loss you can sustain? What techniques do you want to focus on? These are questions that you should already have answered and put down on paper before you even made your first trade. If not, now would be a good time to do so.

Focus on techniques. Have you ever heard the saying "specialization is the key to success"? If you watch an experience day trader for a while, you will notice that he tends to stick to a few techniques that have proven to work for him. If you find a certain technique that works for you initially, test its viability over a period of time. If the outcome is positive, then stick to the technique. Experimenting with too many different strategies can be costly and is not a wise decision.

Money management. Successful day traders protect their accounts and manage their risks properly. With every trade they make, they risk a controlled percentage of their money (typically ¼% to 2%). If a trader has a $25,000 account and risks 2% on each trade, then the maximum loss he chooses to incur is $500. It is a relatively small loss when compared with the size of his account and will surely not spell doom for his day trading career. The key is to be disciplined enough to stick to your risk percentage.

Risk appetite. Day trading, by nature, is a risky business. A successful day trader must have a healthy tolerance for risk and be emotionally able to handle the idea of losing money. There is no comfortable trading pattern in this business that will earn you money 100% of time, so you have to get over your fear of uncertainty.

Risk Capital. A shrewd day trader always risks money he can afford to. He never trades with money that is set aside for paying off student loans, mortgages, or electricity bills. Knowing that you won't have to live off food stamps if you lose all your money in day trading actually helps you focus better because the psychological strain is less acute

To be a good, profitable day trader, there really is no need to re-invent the wheel. If you follow in the footsteps of those who have met with success, you have a much higher chance of doing the same. Use this knowledge to your advantage and be brave, but prudent at all times.

Strategies for day trading

Basic Rules:

·         Select liquid stocks only.

·         Select a few stocks only.

·         If you are already holding the stock wait for the peak or the bottom

·         Watch the general sentiment (Index Support/Resistance)

·         Don't be over enthusiastic.

·         Never challenge the market.

·         Place stop loss orders in a highly volatile market after long or short trades

 
Strategies:

Trade on unknown trends: When the market opens trade on a stock based on the previous day’s movements. Partially or fully cover the trade within half an hour

Trade on known trends: When the market is about to close (half an hour before) trade on a stock based on the day's movements

Trade on resting stocks: Stocks which have risen/fallen substantially will take rest for some time. Watch it and trade

Trade when trends are known: In a bull market raising stocks will raise further. Wait for correction and buy. In a bear market falling stocks will fall further. Wait for up move and sell.

Trade on news: The general philosophy is to buy on rumors and sell on news. When the news is favorable and the stock has risen considerably go short. When the news is unfavorable and the stock has fallen considerably go long.

Trade on appetite: If you think that you have made enough profit/loss stop trading.

Trade after trails: Start with small lots and go for volumes after enough study.

Trade on previous trend: Instead of buying a stock with previous days declining trend, it will be prudent to buy a stock with previous day’s uptrend on declines.

Instead of selling a stock with previous days up trend, it will be prudent to sell a stock with previous days downtrend on up move.

Trade on dates: Stocks rise/fall prior to announcement of results. Have knowledge on this date which will help in making decisions.

Trade on volumes: Rising/Falling Stocks which shrink in volume indicate that the run is nearing final state. Watch for change in trend.

Stock Market Returns

What the Real Traders’ Make

When I tell people I often make over 100% per annum in the stock market they look at me is disbelief. Why? Probably because they have been told by their, friendly financial advisor, the normal B*S* when it comes to what you realistically expect from the stock market

You know the kind of drivel we hear every day from these so called "experts" who have probably never read a book on stock trading never mind actually traded their own accounts. Words such as:

"Invest for the long term"

Usually after your portfolio is down about 50%

"Buy and Hold Blue Chip Stocks":

Their favorite stock has fallen 90% in the past 6 months.

"The stock market has gone up on average 15% over the past 50 years"-

Trying to explain why your account is down over 50% and their strategy stinks.

"Even the best funds rarely outperform the stock averages"-

The fact is most doing not even perform with the averages.

"Trading is risky and only professionals should do it"

Right.... Then why do so many fail dismally at it?

"No-one can outperform the stock market averages"

Trying to make you feel better after you see your pension fund is now down over 50% and you'll have to work an extra five years.

I don't see too many money managers worrying about trying to outperform the market. Do you ever ask your-self why not? They'll tell you it can't be done. WRONG. The fact is they get paid for MANAGING your money not from trying to create money for you.

If you don't think outstanding returns can be made from the stock markets then read on: Think of your 401k and pension fund as you see these staggering returns:

 

 Michael Marcus: Turned a $30,000 account into over $80 MILLION

 Tom Baldwin: $25,000 into over $2 Billion

 Paul Tudor Jones: Triple digit returns five years in a row.

 Ed Seykota: 250,000 percent returns on his account over 16 years!
Shall I carry on? Let's do so.

 Richard Dennis: Turned a $2,000 into $200 Million.

 Nicolas Darvas (the best): $25,000 into $2, 25 million (in 18 months)

 Jesse Livermore: $500 - $100 million - $0 - $100, million - ZERO....

 Michael Lauer: Provided investors with a 50-fold return over seven years.

 Mark Cook: Registered back to back gains of 563% and 322%.

 Steve Lescarbeau: Trading system that has averaged a 70% return ever year.

 Steve Cohen: Manages billions of dollars and averaged returns of 90% during the past seven years

 Mark Minervini: Averaged 220% annual returns in the past five years.

O.K, your first question might be who are these people?

They are real people, who not only make massive gains from the markets but do it with millions under management. These aren't day traders.

So the next time your mutual fund manager tries to fob you off with an excuse as to why he could not even match the stock market averages tell him about some of those traders listed above.

Pivot Point Trading

You are going to love this lesson. Using pivot points as a trading strategy has been around for a long time and was originally used by floor traders. This was a nice simple way for floor traders to have some idea of where the market was heading during the course of the day with only a few simple calculations.

The pivot point is the level at which the market direction changes for the day. Using some simple arithmetic and the previous days high, low and close, a series of points are derived. These points can be critical support and resistance levels. The pivot level, support and resistance levels calculated from that are collectively known as pivot levels.

Every day the market you are following has an open, high, low and a close for the day as this information basically contains all the data you need to use pivot points.

The reason pivot points are so popular is that they are predictive as opposed to lagging. You use the information of the previous day to calculate potential turning points for the day you are about to trade (present day).

Because so many traders follow pivot points you will often find that the market reacts at these levels. This gives you an opportunity to trade.

If you would rather work the pivot points out by yourself, the formula I use is below:

Resistance 3 = High + 2*(Pivot - Low)
Resistance 2 = Pivot + (R1 - S1)
Resistance 1 = 2 * Pivot - Low
Pivot Point = ( High + Close + Low )/3
Support 1 = 2 * Pivot - High
Support 2 = Pivot - (R1 - S1)
Support 3 = Low - 2*(High - Pivot)

As you can see from the above formula, just by having the previous days high, low and close you eventually finish up with 7 points, 3 resistance levels, 3 support levels and the actual pivot point.

If the market opens above the pivot point then the bias for the day is long trades. If the market opens below the pivot point then the bias for the day is for short trades.

The three most important pivot points are R1, S1 and the actual pivot point.

The general idea behind trading pivot points is to look for a reversal or break of R1 or S1. By the time the market reaches R2, R3 or S2, S3 the market will already be overbought or oversold and these levels should be used for exits rather than entries.

A perfect set would be for the market to open above the pivot level and then stall slightly at R1 then go on to R2. You would enter on a break of R1 with a target of R2 and if the market was really strong close half at R2 and target R3 with the remainder of your position.

Formula for Day Trading

choose a share for intraday and apply this formula
H+L+C=A (where H= Previous day high, L=Previous day low, C=Previous day close, A= sum. of H L &C)
A*0.67=Z (0.67 is a constant fraction and Z=Result)
Z- H = S (S = Support for that day)
Z- L = R (R = Resistance for that day)
Z- C = P.B (P.B = Possible Buy)

If P.B is found nearer to R sale it for intraday
This is called FRACTION THEORY and every one can get support resistance for nifty /Sensex by this method.
Try this theory and it is very effective.

What you MUST do

1. Get rid of the junk

Any shares you bought but no longer want to keep? If they are showing a profit, you could consider selling them. Even if they are not going to give you a substantial profit, it is time to dump them and utilize the money elsewhere if you no longer believe in them.

Similarly with a dud fund; sell the units and deploy the money in a more fruitful investment.

2. Diversify

Don't just buy stocks in one sector. Make sure you are invested in stocks of various sectors.

Also, when you look at your total equity investments, don't just look at stocks. Look at equity funds as well.

To balance your equity investments, put a portion of your investments in fixed income instruments like the Public Provident Fund, post office deposits, bonds and National Savings Certificates.

If you have none of these or very little investment in these, consider a balanced fund or a debt fund.

3. Believe in your investment

Don't invest in shares based on a tip, no matter who gives it to you.

Tread cautiously. Invest in stocks you truly believe in. Look at the fundamentals. Analyze the company and ask yourself if you want to be part of it.

Are you happy with the way a particular fund manager manages his fund and the objective of the fund? If yes, consider investing in it.

4. Stick to your strategy

If you decided you only want 60% of all your investments in equity, don't over-exceed that limit because the stock market has been delivering great returns.

Stick to your allocation. 

What you must NOT do

1. Don't panic

The market is volatile. Accept that. It will keep fluctuating. Don't panic.

If the prices of your shares have plummeted, there is no reason to want to get rid of them in a hurry. Stay invested if nothing fundamental about your company has changed.

Ditto with your mutual fund does the Net Asset Value deep dipping and then rising slightly? Hold on. Don't sell unnecessarily.

2. Don't make huge investments

When the market dips, go ahead and buy some stocks. But don't invest huge amounts. Pick up the shares in stages.

Keep some money aside and zero in on a few companies you believe in.

When the market dips --buy them. When the market dips again, , you can pick up some more. Keep buying the shares periodically.

Everyone knows that they should buy when the market has reached its lowest and sell the shares when the market peaks. But the fact remains, no one can time the market.

It is impossible for an individual to state when the share price has reached rock bottom. Instead, buy shares over a period of time; this way, you will average your costs.

Pick a few stocks and invest in them gradually.

Ditto with mutual fund Invest small amounts gradually via a Systematic Investment Plan Here, you invest a fixed amount every month into your fund and you get units allocated to you.

3. Don't chase performance

A stock does not become a good buy simply because its price has been rising phenomenally. Once investors start selling, the price will drop drastically.

Ditto with a mutual fund every fund will show a great return in the current Bull Run. That does not make it a good fund. Track the performance of the fund over a bull and bear market; only then make your choice. 

4. Don't ignore expenses

When you buy and sell shares, you will have to pay a brokerage fee and a Securities Transaction Tax. This could nip into your profits especially if you are selling for small gains (where the price of stock has risen by a few rupees).

With mutual funds, if you have already paid an entry load, then you most probably won't have to pay an exit load. Entry loads and exit loads are fees levied on the Net Asset Value (price of a unit of a fund). Entry load is levied when you buy units and an exit load when you sell them.

If you sell your shares of equity funds within a year of buying, you end up paying a short-term capital gains tax of 10% on your profit. If you sell after a year, you pay no tax (long-term capital gains tax is nil).