Dematerialisation is the modern approach to stock trading. It simply refers to the substitution of paper-form of securities by book-entry securities. The book entry securities are in digital format to avoid theft, forgery, scam, loss of share certificates, mismatch ids, delays and backlog settlement. This is an electronic ecosystem of indirect holdings where an intermediary, such as a broker or central securities depository, or the issuer itself holds an e-record of the ownership in digital format.
Trading of securities such as stocks, options, futures and derivatives has seen huge surge of acceptance since dematerialisation. In India, almost 95% of the majority of securities are held and transacted in dematerialised form.
Once you determine which business cycle the economy is currently in you can start researching for a trade. It is best to have some sort of a method in place that will be used before each trade. Here is a simple 5 Step formula to help get you started.
How Dematerialisation of Securities in Indian stocks made it easy for investors?
1. Find a stock instantly
This is the most common and yet complex step in Indian stock trading. With well over 23 stock exchanges and thousands of unique stocks traded daily in India, it would have been cumbersome process in paper form to keep track on each of the positions. With dematerialisation it is easy to identify the favourable stocks and invest accordingly.
2. Fundamental Analysis
Many short term intra-day traders do not believe in the need of any Fundamental Analysis, however knowing the chart patterns from the past and the news regarding the stock is relevant. An example would be earnings season in terms of commodities. If you are planning on playing a stock to the upside that has missed its earnings target the last 3 quarters, caution could be in order. This analysis of caution is possible due to dematerialisation of securities.
3. Technical Analysis
This is the part where indicators come in. Statistical indicators are majorly three forms of technical analysis charts: candlestick, bar, and line charts. These are all developed using the same price data but display the data in different ways. Dematerialisation of securities is integral part of giving the technical input on long term and short term impact of positions.
Other flexible forms of analysis include SWOT, stochastics, the MACD, volume, margin, support levels, resistance levels and all the rest. The batch of indicators you choose, whether lagging or leading, may depend on where you get your research done.
Keep it simple when first starting out, using too many indicators in the beginning is a ticket to the land of big losses. Get very comfortable using one or two indicators first. Learn their intricacies and you will be sure to make better trades.
4. Follow your picks
Dematerialisation of securities immensely help in keeping track of positions. Once you have placed a few stock trades you should be able to manage them properly. If the trade is meant to be a short term trade watch it closely for your exit signal.
If it’s a swing trade, watch for the indicators that tell you the trend is shifting.
If it’s a long term trade remember to set weekly or monthly checkups on the stock. Use this long time of waiting period to keep abreast of the news, determine your price targets, set stop losses, and keep an eye on other stocks that you may want to own as well.
5. The decision
Dematerialisation of securities play important role in decision making process. As the saying goes, all ships rise and fall with the tide but the storm is unpredictable. Knowing which sectors are heating up stacks the chips in your favour.
Let us take a simple example, if you are long (expecting price to go up) on an oil stock and most of the oil sector is rising then more likely than not you are on the right side of the trade. Dematerialised trading platforms will give you access to sector-wide information so that you can get the education you need. Stock broking company also guide you in making better decisions. Here, you can download stock trading app.
