Zebu blog

Tag: trading strategy

  • Everything You Should Know About Breakout Trading


    Did you know that sometimes on the stock market, fake breakouts can happen? But what are breakouts? How can you tell if a breakout is real or not?

    Assume that there is a resistance for the market at 18,000. When the price reaches there, sellers might come in and try to push the price down. However, if the price manages to move above 18,000, then it is called a breakout.

    Similarly, you could say that there is some support. When the price gets to the support level, everyone buys. When the price hits this level twice in a row, it means something. When there is a third strike and the price goes through the support level line, this is called a breakdown. Simply put, breakouts and breakdowns are a rise and a fall.

    First, let’s talk about what “breakout” means. What price action will help you the most if there is a breakout? For our breakout to happen, a bullish engulfing pattern must form. Now, the price breakout should be supported by the volume breakout, which means that when the price breakout happens, there should be a lot of volume. This can be seen when the volume bars at the bottom of the chart break over the black line that shows the volume line. The first thing is that a bullish engulfing candle pattern forms, and this is the second thing.

    The third and most subtle trait is called consolidation. Think about how the market always forms bullish candlestick patterns right before a breakout during intraday trading on a 15-minute time frame. Many people think the upward trend is reliable, but they will learn over time that after the candle breaks out, smaller green candles, a doge, and finally a huge giant red candle are seen, and smaller red candles start moving sideways. As a result, a lot of people lose. Then, how can we stop this?

    Consolidation. When a breakout happens, it should follow a significant pattern, like three or four contact points. This tells us that the breakout is real, and the breakout of the candle and the volume should back this up. If there has been no consolidation and there is a straight breakout, there is a higher chance that the trade will fail. We should enter those breakout trades when there is a strong consolidation.

    The fourth quality is that it’s been tested more than once. It’s important to test the level of resistance more than once. Let’s say that over the course of 15 minutes, you can see a lot of consolidations against the resistance level, that the resistance line has been reached before and really broken through the day before. It will be less likely that the stock will break through resistance.

    When we talk about breakdown, it’s for the same reason that bearish engulfing candle patterns, the volume breakout, consolidation, and several tests all work. Once all of these checklists are met, then you can go ahead and take your trade. As always, follow a strict stoploss.

    Breakout trading is a simple price action strategy that can work wonders if you know how to prevent false breakouts. To open a trading account with Zebu and start trading breakout strategies today, please get in touch with us.

  • Everything You Need To Know About Crude Oil Trading In India – Part 2

    In continuation with the previous article, we discuss more about the opportunities available in trading crude oil in the commodities market.

    Demand for crude oil is lower for immediate delivery than for delivery in the future. Investors don’t want fast delivery because it’s hard to get oil to where it needs to go. Because of this, end users and investors often choose futures contracts.

    By entering a commodities futures contract, a trader promises to buy or sell a certain amount of crude oil at a certain price on a certain date. An example is the best way to understand the idea of trading in commodities.

    Example 1: Buying and selling goods to protect against risk
    Let’s say you’re a farmer who grows wheat and sells it for 500 rupees per quintal on the market. You make a good profit. Since you have a lot of rice to sell, you need to make sure you won’t lose money if the price of wheat drops quickly. To protect yourself from losing money, you can buy a futures contract to sell the wheat at Rs. 500 per quintal at a later date. This is known as “hedging.”

    Example 2: Trading goods for the sake of speculation
    Let’s say, for now, that you are a trader who wants to trade crude oil futures. You are optimistic about crude oil (meaning you think that crude oil prices will increase in the future). A futures contract for crude oil has 100 barrels and costs Rs. 3,00,000 (Rs. 3,000 per barrel), but you don’t have to pay the full amount to buy it. There must be a 5% margin, which costs Rs. 15,000.

    Think about a rise in the price of crude oil to Rs. 3,500 per barrel. In this case, if you spend Rs. 3,000, you might make Rs. 500 per barrel and Rs. 50000 in total. As a result, trading commodities gives traders a lot of power.

    The commodities market is another place where it might be profitable for crude oil prices to go down around the world. For example, if you bought an oil futures contract on December 1 with a strike price of Rs. 4520, the price of a barrel of oil dropped to Rs. 4500 But if the sale was for 10,000 barrels, you could still sell the futures for Rs. 4520 and make a profit of Rs. 100 per barrel, or a net profit of Rs. 10 lakh (10,000 barrels x 100).

    In order to trade oil futures, a trader must find the right exchange for the oil benchmark he or she wants to use.

    Oil benchmarks:The benchmark price for crude oil is used by both buyers and sellers as a standard. The three most important oil benchmarks around the world are the West Texas Intermediate (WTI), the Brent Blend, and the Dubai Crude.

    Exchanges: In India, oil futures are traded at the Multi Commodity Exchange, which is also known as MCX. On the MCX, crude oil is one of the commodities that is traded the most. 8500 barrels of oil, worth Rs 3000 crores, are often traded on the exchange every day. In FY19, close to 32% of the MCX’s over Rs. 66 lakh crores in income came from crude oil.

    Every day, crude oil futures worth more than Rs. 3,000 crore are traded on the MCX.

    On the MCX, there are two kinds of crude oil futures:

    Brent crude (Main) – 100 barrels
    Brent crude (Mini) – 10 barrels

    Crude oil micro is more popular among dealers because the lot sizes are smaller and the required margin is lower.

    Can an individual investor buy and sell oil futures?

    There’s no question that you only need a small amount of money to start, and the higher leverage gives you the best chance of making more money. But oil futures are not only easy to buy and sell, but they are also very volatile, which makes it hard to guess how prices will change.

    If your broker works with commodities and is connected to the MCX or NCDEX, you can talk to them about trading crude oil futures. It’s better to start out trading with professionals and then gradually go it alone. To get started with trading with crude, open your demat account with Zebu today.

  • How Traders Earn Passive Income From Cash Covered Puts

    Futures and options are two types of derivatives contracts. They are used not only to protect the equity position but also to make a steady income. Many traders and investors combine futures, call options, and put options to make regular money from the stock market. They do this by using their holdings and balance margin to start trades.

    In this blog post, we’ll look at how selling cash-secured puts can be used as a way to make money on the stock market.

    Are you a regular trader? Then, Zebu’s lowest brokerage for intraday trading plans is what you need. As a share broking company, we understand that the lowest brokerage plans can help our users tremendously.

    How do cash-secured puts work?

    As part of an option-selling strategy called “cash-secured put selling,” you set aside enough money to buy a stock at a certain price and then sell the put option for that price. The goal is to buy the stock for less than what it is worth on the market.

    There are, however, some risks involved. The first risk is that the price of the stock may never drop to the level where the trader wants to buy it. This could make it impossible to buy the stocks in the long run. The second risk is that the price of the stock could fall way below the strike price.

    Why selling cash-secured puts is a good idea

    To make money from the option premium, cash-secured puts are usually sold. How much you get depends on the value of the security and how much you are willing to pay for it.

    Gains Invested Quickly

    Cash-secured puts can give you cash right away. It can make option income more appealing and can also help reduce risk.

    You can get paid to invest

    A cash-secured put strategy is a great way to get paid to buy the stock you want to buy. This strategy lets you choose from a number of strike prices and expiration dates.

    Low-dividend stocks can be profitable

    If you want to increase your cash flow but don’t want to be limited by a low dividend yield, you can do so by selling cash-secured puts.

    Risks involved in this strategy

    Multiples of the Lot Size
    Futures and options, which are examples of derivatives, can only be traded in lots. This method won’t help you if you want to buy stocks in a very small amount or a fraction of the lot size.

    Not being able to profit from price correction
    Most investors who want to own shares of a company in the long run shouldn’t use the cash-secured put strategy. If the price of shares stays high, they may never be able to buy any.

    Repeated Actions
    Most investors are more interested in a simple “buy and hold” strategy. In this strategy, you sell cash-secured puts so that you can buy stocks when the person who bought the put options decides to sell. Since the option doesn’t have to be used, it takes more time to go through the same process every time it expires.

    Effects on tax
    When you sell cash-secured puts, the money you make is considered business income and is taxed based on the trader’s tax slab. If the trader owned the stock, he or she would get money from dividends and the increase in value of the stock. Together, these two types of income might have a lower tax rate.

    Getting to Know with an Example
    Let’s say that the price of Stock XYZ is Rs. 250 right now. Stock XYZ’s derivatives contract has a lot size of 100 shares, and you want to buy 100 shares of XYZ for Rs. 235.

    You can make money by selling the 235 strike price put option every month and keeping the premium. Let’s say that for the current month, the premium for 235 put options is Rs. 8. You get Rs. 800 when you sell that put option (Rs. 8 x 100 shares).

    This means that you are willing to buy 100 units of the stock XYZ for Rs. 235 at the end of the expiration period if the price at that time is Rs. 250 or less. For this obligation to buy, you need to keep an account balance of Rs. 23,500 (Rs. 235 x 100 shares).

    If the stock price goes above Rs. 235, you get to keep the entire premium you got for selling the put option with a strike price of Rs. 2350.

    The Bottom Line: Cash-secured put selling is a strategy that involves buying a security at a price that you would be willing to pay. This method works for people who want to make more money or feel safer without spending too much. You might not want to sell cash-secured puts because the deal is complicated and you don’t want to own the security. This strategy could be better for investors and traders who want to make money on the stock market without doing much work.

    If you are a regular trader then, Zebu’s lowest brokerage for intraday trading plans is what you need. As a share broking company, we understand that the lowest brokerage plans can help our users tremendously.

  • Why You Should Know Time Value Before Trading In Options

    When it comes to trading options, the time value of an option is one of the most basic and important things to understand. In technical terms, it is called “Theta,” which shows how an option’s value decreases over time. Before we get into the details of time value and time decay, let’s take a quick look back at what options are and how they work.

    Before we get into understanding the importance of time value in trading, we should understand that the right technology is equally important. As a share broking company, we offer our clients a seamless online trading platform and also provide them with the lowest brokerage on intraday trading, to make their journey as a trader as smooth as possible.

    So, what are options really all about?

    As the word “option” suggests, it is a right that doesn’t have to be used. Unlike a futures contract, which is both a right and a duty, this is not the case. The buyer of the option has the right to buy or sell the underlying asset at an agreed-upon price (strike price). If the price change goes in the buyer’s favour, he will make money, but if the price change goes against him, he will not use the option. That doesn’t seem fair to the person who sold the option, does it?

    Not at all! Since the person who buys the option has a right but no obligation, the person who sells the option has a duty but no right. The seller won’t do that for free, that much is clear. The person who buys an option pays a certain fee to the person who sells the option for the right to do something without having to do it. This fee is called an “option premium,” and it is what gets traded on the NSE when you buy and sell options. The buyer of the option pays the option premium to the seller of the option as a reward for taking on the obligation without the right.

    Options can be either “call” or “put.”

    Call options give you the right to buy something, while put options give you the right to sell something. You buy a call option if you think the price of a stock will go up. If you think the price of a stock will go down, on the other hand, you will buy a put option. Even though it sounds easy, it’s not as easy as it sounds.

    Getting to the heart of an option’s intrinsic value and time value.

    Before you can understand the idea of time value, you need to know about the three types of options below.

    1. An In-The-Money (ITM) option is a contract for an option that has an intrinsic value that is greater than zero. If the market price of the Nifty is higher than the strike price, a call option on the Nifty is in the money. If the market price of the 17000 Nifty call option is Rs.70 and the spot Nifty is at 17100, then the intrinsic value of the Nifty call will be Rs. 100 (17100-17000). The option’s time value will be the remaining value, which is Rs.30. So, of the Rs.70 option premium that is being quoted on the market, Rs. 100 is due to intrinsic value and Rs. 30 is due to time value. If the spot price of the Nifty is lower than the strike price of the put option, the option is in the money.

    2.An “at the money” (ATM) option is a contract for an option that has a value of zero. If the market price of the Nifty is the same as the strike price, it will be an ATM for a call option on the Nifty. Since there is no intrinsic value, the time value is the only thing that makes the option worth anything.

    3. Out-of-the-Money (OTM) options are option contracts where the market price is lower than the strike price for a call option or higher than the strike price for a put option. According to our formula, the intrinsic value will be negative, but since the intrinsic value can’t be negative, we’ll treat it as zero. So, only time value will make up the option premium.

    At the beginning of the month, ATM options have the highest time value, followed by ITM options and then OTM options. In the long run, the time value of all three options will tend toward zero as the expiration date gets closer. Even though the OTM and ATM options themselves have no value, the option premium for ITM options will still be positive because they have intrinsic value.

    Why is time value such an important part of trading options?

    An option is a wasting asset because its time value tends to go to zero as its expiration date gets closer. This loss of time is also called “Theta.”

    Time and volatility are two of the most important parts of time value. For both call options and put options, the time value goes up as the time to expiration goes up. Even if the option is still Out of the Money, a rise in volatility can cause the time value to rise. The person who buys the options bets that volatility will make the time value go up, while the person who sells the option hopes that the time value will work in his favour so that the option expires worthless. This is the main idea behind trading with options.

    As a share broking company, we offer our clients a seamless online trading platform and also provide them with the lowest brokerage on intraday trading, to make their journey as a trader as smooth as possible. Contact us to know more.


  • Ideal Timeframe For Intraday Trading

    Intraday trading often proves that taking fewer trades gives you better profits. Instead of buying and selling stocks the whole trading day, it might be smart to do intraday trading only during a few key hours. In fact, traders who work with stocks, index futures, and ETFs have found that it’s better to spend one to two carefully chosen hours a day on trading.

    The ideal time-frame for intraday trading

    Long-term intraday traders will do well to find the best time frame. Using these hours can help you get the most done because they are when important things happen on the market. On the other hand, people who trade all day have little time for other things and don’t make enough money. Even intraday traders who have been doing it for a long time can lose money if they trade outside of the best time frame for intraday trading. This raises the question: what is the best time frame for intraday trading? Most say that it is between 9:30 and 10:30 in the morning.

    Should you buy or sell within the first 15 minutes?

    Intraday trading is best done in the first one to two hours that the stock market is open. But in India, most stock market trading channels don’t open until 9:15 a.m. Why not start at 9:15 instead? If you have been trading for a long time, trading in the first 15 minutes might not be as risky. For people who are just starting out, it’s best to wait until 9:30. This is because, in the first few minutes after the market opens, stocks are probably reacting to the news from the night before.

    A trade will often show sharp price movements in one direction. This is nicknamed the “dumb money phenomenon” because people rely on old news. Traders with a lot of experience may make some good deals in the first 15 minutes. They are mostly mean reversal traders. Beginners who have never heard of “dumb money” or the strategy that experienced traders use to fight against it will think the market is very volatile. So, it’s better to wait until 9:30 than to jump in at 9:15.

    Trading at the open

    Not all moves are bad. After these first extreme trades, the market will have the right amount of volatility for beginners. Since this is the case, the best time to trade is between 9:30 am and 10:30 am. There are many benefits to intraday trading in the first few hours after the market opens:

    The first hour of the day is usually the most volatile, giving you plenty of chances to make the best trades of the day. The market is liquid enough to get in and out of during the first hour. Since there is more volume, liquid stocks are likely to be sold off faster.
    – It has been shown that the stocks bought or sold in the first hour make some of the biggest moves of the whole trading day. If you do it right, it can give you the best returns of any time during the trading day. But you should also prepare for large losses in the first hour due to volatility.
    – After 11 a.m., trades usually take longer and involve fewer people, which is bad for intraday traders who need to finish their deals by 3:30 p.m. If you need more time, it would be a good idea to keep this session going until 11 a.m. But day trading is a better fit for the strategy of only trading in the first hour.

    Think about the bigger picture.
    The range of 9:30 to 10:30 is not a rule that every trader must follow. It’s good for beginners in general, but you can change it to fit your needs. It’s smart to think about the bigger picture.

    For example, one strategy for intraday trading is to keep the day of the week in mind along with the best time frame. Monday afternoon is often a good time to buy on the market because prices tend to go down at the beginning of the trading week. Experts say that you should sell on Fridays, right before the drop on Monday.

    Also, not every trader needs to do something during that first hour. People who usually make more than one trade in a day can choose a shorter time frame. Intraday traders who only make a few trades each day can choose a longer time frame instead. Traders with a lot of experience may also change their time frame on different days, depending on how busy they are.

  • How To Get Started With Algo Trading

    As a regular investor, here’s how you can start Algo trading.

    As top brokers in share market , Zebu, allows you to use algo trading for free, along with offering the lowest brokerage for intraday trading options and proving users with the best trading accounts

    1. Learn about the market

    Before you do any kind of trading, you need to learn about the market. Before you start Algo trading, you should learn as much as you can about the instrument or market you can trade in. This will help you come up with a hypothesis that you can use to guide your trades.

    2. Know how to code

    If you don’t know how to code, you can learn a language like Python and make an algorithm that works for you, or you can pay a professional to do it for you.

    3. Backtesting

    You must test your algorithm before putting it into use. Back-testing is a way to make sure that your strategy will work in the future. You can also use software from a third party to check if your algorithms work. You can change your code based on whether or not they work.

    4. Decide on the Best Platform

    As crucial as your coding is, you must also choose the correct broker and platform. Choose a broker that supports your algorithm and gives you a variety of tools to help you improve your trading strategy. For example, at Zebu we offer a free algo-trading provision that traders can use to execute their trades. If you would like to know more, please get in touch with us.

    5. Go Live

    When you’re happy with your algorithm, take it live. Monitor its market and real-world performance. Your algorithm might not always work. You might then have to start over or make changes to fit your needs.

    6. Keep Evolving

    Even if your first strategy doesn’t work, you don’t have to give up on algorithmic trading. Keep trying out different codes to see what works best.

    If you don’t have the time or skills to make your own algorithm, you can buy Algo software that will do the job for you. Do your research, try out the strategies with past data, and choose the one that works best for you.


    Conclusion

    Traditional investors can boost their trading approach by trying Algo trading. You can take advantage of short-lived trading chances that you would have missed otherwise. Algo trading can help you become a good trader who is quick, efficient, and successful.

    Is algo trading costing you a bomb? Zebu, As top brokers in share market allows you to use algo trading for free, along with offering the lowest brokerage for intraday trading options and proving users with the best trading accounts.