Candlestick patterns are key components of technical analysis, providing traders and investors a glimpse into market psychology and trends. The Closing White Marubozu pattern is one of the most reliable patterns that signals a bullish trend. It is easy to spot, and therefore, someone doesn’t need to be an expert to use this pattern.
In this blog, we will discuss the features, significance, advantages and limitations of the Closing White Marubozu pattern. Moreover, we will give you a trading setup to assist you in effectively executing trades based on this pattern.
What is a Closing White Marubozu pattern?
The Closing White Marubozu pattern is a bullish candlestick pattern, signifying an intense bullish movement is around the corner. The pattern consists of a single candlestick, and an overview of key features of the pattern is mentioned below.
Long white/green body: The candlestick has an elongated white or green real body, indicating substantial upward price movement.
Opening Price above the Low: The opening price of the candlestick is above the low of the trading session.
Close at the High: The trading session’s close price is approximately equal to the high, resulting in no upper shadow and a small lower shadow.
Interpretation: The pattern shows that buyers drove the price up consistently as the closing price is near the high of the trading session. The small lower shadow indicates minor support near the opening price, and the overall sentiment remains bullish. The candlestick often appears during a downtrend and signals a possible bullish reversal. However, during an uptrend, this pattern acts as a continuation pattern and strengthens the bullish trend.
Entry, Target and Stop-loss are the most important aspects of a trading setup, which helps traders take advantage of a trading setup. Traders can follow the methods mentioned below to set a target and stop-loss.
Entry: Wait for the subsequent candle to close above the Closing White Marubozu candlestick to validate the bullish momentum. Create a long position upon confirmation.
Stop-Loss: Place the stop-loss slightly below the low of the Closing White Marubozu candle. This is because a breakdown below the low would invalidate the bullish signal. Add a small buffer to account for market noise and avoid premature exits.
Targets: Use Fibonacci extensions to identify target projections for the Closing White Marubozu pattern after the price gives a breakout above the pattern. Furthermore, traders can identify historical resistance levels where prices may reverse. These levels can serve as targets.
Assess the risk by calculating the distance from your entry point to the stop-loss. Establish a target that aligns with a defined risk-to-reward ratio, such as 1:2 or 1:3. Additionally, use trailing stop-loss to secure your profits as the price moves towards your targets.
Example of Closing White Marubozu Pattern of Nifty 50 Index
The image shows the chart of NIFTY 50, the Indian index representing the top 50 companies. A clear formation of a Closing White Marubozu pattern on 27 July 2022, and the index gave a breakout on 28 July 2022 at 16,929. On 19 August 2022, Nifty 50 closed at 17,758, i.e. more than 800 point move.
Advantages of Closing White Marubozu pattern
The advantages of using a Closing White Marubozu pattern are:
Strong Bullish Signal: The Closing White Marubozu pattern signals a strong surge in buyer activity, showcasing a bullish sentiment. The pattern helps predict a possible bullish trend.
Simplicity: It is easily identifiable due to its distinct elongated white body, characterized by the absence of an upper shadow and the presence of a small lower shadow. Beginner traders can easily use it since it does not require extensive trading knowledge.
Versatile application: The pattern works across various time frames, seamlessly adapting to intraday, daily, and weekly charts. It can also be used across multiple markets, including stocks, commodities, etc.
Can be combined with other indicators: Combining it with other indicators, such as RSI, MACD, or Bollinger Bands, enhances its reliability as these other tools confirm the bullish signal of the pattern. Volume analysis can increase confidence in the signal of a pattern.
Limitations of Closing White Marubozu pattern
The limitations of using a Closing White Marubozu pattern are:
Vulnerable to Market Noise: In volatile markets, a Closing White Marubozu pattern can emerge, following which the asset price may struggle to increase. Abrupt reversals or unexpected news can lead to false signals.
Limited Context on its own: It offers no insights into the overall market trend or key fundamentals. To use it effectively, the trader must do additional analysis, like support or resistance levels and overall trends.
No Guarantee of Success: Patterns do not assure price direction; their effectiveness depends on market conditions, timeframes, and supporting analysis.
May Fail in Downtrend: Amid a downtrend, a Closing White Marubozu pattern can often signify a mere temporary retracement instead of indicating a reversal in the trend. Taking action without considering the bigger picture may result in losses.
Conclusion
The Closing White Marubozu candlestick pattern signals strong bullish momentum and offers insights into the market sentiment in technical analysis. Its simplicity and clarity make it an easy pattern for novice and experienced traders, especially when combined with other indicators and market context. It should not be used in isolation; rather, it must be integrated into a comprehensive strategy that includes confirmation signals, effective risk management, and a deep understanding of market trends. Traders can improve their trading performance by using their strengths and addressing their limitations. Always trade with a plan and consult a financial advisor before trading.
Frequently Asked Questions (FAQs)
Is the Closing White Marubozu a bullish or bearish pattern?
It is a bullish pattern, often signaling an upward momentum or trend continuation.
What is the difference between a White Marubozu and a Closing White Marubozu pattern?
A White Marubozu pattern has no shadows, i.e. the candle opens at the low and closes at the high, while a Closing White Marubozu candlestick pattern has a small lower shadow.
How can volume confirm the pattern?
High trading volumes during the pattern’s formation increases the reliability of the pattern.
What timeframe is best for using this pattern?
It works on all timeframes, but higher timeframes like daily or weekly provide more reliable signals.
Can the Closing White Marubozu pattern signal a breakout?
Yes, the Closing White Marubozu pattern can signal a breakout when it forms near resistance levels or after consolidation.
As an investor, you have probably heard that a firm is planning an Initial Public Offering (IPO), representing the company’s first attempt to raise money from the general public. But what if the business wishes to raise more money after already launching an IPO? There is a procedure called a “Follow-on Public Offer” whereby a company already listed on the stock exchange can raise money from the general public after the IPO.
In this blog, we will give information about the Follow-on Public Offer (FPO),
What is a Follow-on Public Offer (FPO)?
A publicly traded corporation can raise money by issuing shares through follow-on public offerings. The corporation raises money to meet capital requirements, expand operations, pay off debt, and other goals. Since the procedure is comparable to an Initial Public Offering (IPO), it can be regarded as a fantastic choice for an established business with a solid track record.
How does a Follow-on Public Offer (FPO) work?
The steps involved in a Follow-on Public Offer are as follows-
1. Deciding for FPO – The company must first determine whether to raise money through a follow-on public offering. It must also determine the reason behind the FPO, which can be expansion, paying off debt, etc.
2. Preparing the Document – After determining the goal of the follow-on public offer, the corporation must prepare the document containing FPO’s details, including the number of shares, pricing, and usage of proceeds.
3. Filing the document with the Regulator – The prepared paperwork must be sent to the Securities and Exchange Board of India, the Indian capital market regulator.
4. Type of FPO – When developing its offering, the business must choose between a dilutive and a non-dilutive FPO.
5.Price Band– The price band within which the investors can bid for shares offered in the FPO must be decided.
6.Subscription – Investors can subscribe to the issue by submitting applications through their brokers.
7. Allocation of Shares – Following the subscription period, the shares are credited to the demat accounts of investors.
8.Listing of Shares – The latter stages involved listing the shares on the market and allowing the general public to trade them.
Types of Follow-on Public Offers (FPOs)
The two kinds of Follow-on Public Offer are –
1. Diluted Follow-On Public Offers – The corporation issues new shares in a diluted follow-on public offer, increasing the overall number of free float shares in the market over time. As a result, existing investors’ shareholding is diluted, but the business gains from this since they can use the funds for debt reduction or expansion.
2.Non-Diluted FPO – As stated in the Non-diluted Follow-on Public Offer, current shareholders, including promoters and venture investors, sell a portion of their shareholding rather than the company issuing new shares. This signals that current shareholders are selling their stakes, which raises the market’s share count and liquidity. Investors must exercise caution when investing in such FPOs.
Examples of Follow-on Public Offers
Two of the most recent Follow-on Public Offers in India are given below-
1.Ruchi Soya Limited launched its follow-on public offer of INR 4,300 crores in 2022 to raise capital to reduce its debt.
2.Yes Bank launched an FPO in 2020 to raise INR 15,000 crores and it was a dilutive FPO.
What are the Benefits of a Follow-on Public Offer?
FPO offers various benefits for both companies and investors, as shown below.
For Companies – The significant benefits of Follow-on Public Offer for companies are as follows-
Capital – Companies can raise adequate funds through follow-on public offerings that can be used for various purposes.
Increased Liquidity – The company’s number of shares will increase after the IPO, which increases liquidity.
Reducing Debt – The debt of the company can be reduced through proceeds received from follow-on public offerings.
Attracts Investors –Investors usually want to invest in companies that are raising funds to fund their expansion projects.
Acquisition – With the raised capital, the company can acquire different companies and expand its business.
International Expansion – Through FPO, companies can raise capital and export their goods to other countries to expand their geographical reach.
For Investors – The significant benefits of Follow-on Public Offer for investors are as follows-
Opportunities – The investors consider a follow-on public offer as an investment opportunity.
Proven Track Record – Established companies with proven track records issue follow-up public offers.
Discounted Prices – Follow-on public offers are typically offered at a discount compared to their market price.
Diversification – If the company has strong fundamentals, you can add it to your portfolio to diversify it.
Why does a Company bring its Follow-on Public Offer?
The major factors which make a company bring its Follow-on Public Offer are as follows-
Additional Capital – The company might require additional funds to expand its operations, acquire new companies, etc.
Debt Reduction – The companies can use the capital raised to reduce debt, which eventually reduces interest expense.
Improve Liquidity – When a company floats new shares in the market, the liquidity increases.
Opportunity to Raise Funds– When the company is performing well and the market sentiment is favorable, the companies can raise funds through follow-on public offers to leverage the investor’s high interest.
Compliance – Some companies are required to maintain a minimum of a certain percentage of public shareholding; therefore, a follow-on public offer can be a way to increase the number of shares available for trading in the market.
Mergers and Acquisitions – The company can use the funds raised through follow-on public offers to acquire new companies without taking any loans from banks.
How to Apply for a Follow-on Public Offer?
There are two ways to apply for a Follow-on Public Offer-
Online Method
1. Login – Through online mode, the first step is to log in to your broker account.
2. Choosing Option – Then go to the section of FPO or IPO.
3.Choosing the FPO – A table will list FPOs open for subscription, and you can choose the FPO you want to apply for.
4. Details of Application– Enter the details, such as the quantity of the shares and the price at which you wish to apply.
5. ASBA– ASBA stands for Application Supported by Blocked Amount, which is the method approved by SEBI to participate in an FPO. Ensure that the amount required to apply for an FPO is in the bank account.
6.Submission – The last step would be submitting the application form.
7. Approval of Mandate – The investors are requested to approve the mandate request received on their UPI application. This will block the amount in the investor’s account.
Offline Method
1. Getting the Form – You must visit your broker’s branch and ask about the FPO application form.
2. Filling the Details – The form provided by the brokers requires various details, such as a Demat account number, PAN Card, quantity to be purchased, and bidding details.
3. ASBA Form Submission: Visit your bank branch and fill out an Application Supported by Blocked Amount (ASBA) form with all the details related to the FPO application.
4. Submission of Form – Submit the form to the broker with complete details.
5. Confirmation – Then, your broker will process your application form and provide you with confirmation.
Differences between an Initial Public Offer (IPO) and a Follow-on Public Offer (FPO)
The significant differences between an Initial Public Offer (IPO) and a Follow-On Public Offer (FPO) are as follows-
Particulars
IPO
FPO
Meaning
An initial public offering (IPO) is the first time a private firm issues shares before going public.
It is a publicly listed company’s subsequent issuance of shares.
Stage of Company
A private limited firm that is going public for the first time launches an IPO.
FPO is launched by a business that is already listed on the stock exchange.
Price Range
The company determines the IPO price depending on its valuation. A book-building process is used to make the decision.
To attract investors, the shares in an FPO are often sold at a price lower than the current market price.
Compliance
The IPO is subject to strict regulations as the company is getting listed for the first time on the stock exchange.
Regulations requirements for an FPO are less stringent as the company is already listed.
Potential Returns
IPOs usually offer higher chances of capital appreciation.
FPOs usually have a lower potential for capital appreciation.
Risk
These are considered more risky due to the unavailability of adequate data related to the company’s past financial performance.
It is generally considered less risky because the company’s performance is already known to the investors.
Conclusion
To sum up, a follow-on public offering is a fantastic method for a publicly traded company to raise more money, which it may use to grow its operations or pay down its debt. Additionally, it offers investors a fantastic chance to invest in an already listed company at a discount, as FPO shares are usually offered at a price lower than the current market price. It is recommended that you speak with your financial advisor and consider the risks associated with investing in an FPO of a particular company.
Frequently Asked Questions (FAQs)
What is the difference between FPO and IPO?
An FPO is issued by a company that has already gone public, while an IPO is a corporation’s initial sale of shares to the general public. This is the main distinction between the two. FPO is typically less risky for investors since the company’s stock has already been listed on a public exchange and offers a history of the business’s financial and operational performance.
Why do companies consider issuing FPO?
To boost the liquidity of the company’s stock, companies might conduct follow-on public offers by issuing more shares if they want to obtain additional funds for expansions, acquisitions, and debt reduction.
How can an FPO impact the stock price?
Share prices may drop in the short term in the event of a dilutive FPO, but in the case of a non-dilutive issue, the FPO issue has no effect on share prices, and if the firm does well, share prices will eventually rise in the long term.
How do you access the valuation of a follow-on public offer?
One must assess several key financial aspects, such as historical performance, regulatory risks, reasons behind raising funds, etc., before applying for a follow-on public offer.
How can I subscribe for a follow-on public offer?
An investor can subscribe for a follow-on public offer through their broker. The application process is similar to an IPO, and individuals can apply during the subscription period and may receive the allocation based on demand.
There are several chart patterns that a trader can utilize to determine a stock’s trend. Suppose while searching for a trading opportunity, you find a stock that is steadily declining. Then suddenly, you notice a bullish candle out of nowhere, which suggests the stock price may be about to reverse. One such pattern is called the Bullish Harami candlestick pattern.
In this blog, we will describe the Bullish Harami candlestick pattern, its interpretation, advantages and limitations. We will also discuss the target and stop-loss levels traders should use while trading this pattern.
What is the Bullish Harami Candlestick Pattern?
A Bullish Harami pattern is a bullish reversal pattern with two candlesticks, which signifies a change from a downward to an upward trend. The Bullish Harami pattern consists of two candlesticks:
1. First Candle – The first candle is a long bearish candlestick that indicates the continuation of the downturn and constant selling pressure.
2. Second Candle – The second candle is a tiny bullish candle that forms within the first candle’s range and signifies that buyers are taking control of the market and the sellers are losing control.
Interpretation of Bullish Harami Candlestick Pattern
Traders can interpret the pattern on the following aspects:
1. Sentiment – Determining the momentum of the stock price also heavily depends on the market’s sentiment. A big bearish candle shows that sellers are aggressively pushing the stock price downwards. A smaller bullish candle after the downtrend suggests positive enthusiasm in the market, and the downtrend may be nearing its end.
2. Next Candle – Investors can view this as a buying opportunity if the candle that forms after the Bullish Harami pattern is also bullish and closes higher than the open price of the first candle, indicating that buyers are taking control.
How to Determine Target?
A couple of the techniques used to identify the target in a Bullish Harami pattern are listed below:
1. Resistance Level – A trader can identify the nearest resistance level and use that as a target level.
2. Previous High – The previous highs made by the stock previously can be considered as a target.
How to Determine Stop-loss?
To determine the stop-loss while trading a Bullish Harami pattern, some effective methods are mentioned below-
1. Low of Bullish Candle – Traders can place the stop-loss just below the low of the bullish candle or the second candle of the Bullish Harami pattern.
2.Low of the Bullish Harami Pattern – The stop-loss can also be placed below the low of the first bearish candle of the Bullish Harami pattern.
3. Support Level – The nearest support level can also be considered as a stop-loss before taking any long position.
4. Risk Reward – One can also set a stop-loss based on their risk appetite or as a fixed percentage of their total investment in such stock.
Example of Bullish Harami Candlestick Pattern of Reliance Industries Ltd.
The Reliance Industries daily chart pattern above shows a Bullish Harami Candlestick Pattern. A bearish candle first forms on the chart on 24 March 2023, followed by a bullish candle with open and close prices within the range of the first bearish candle. The appearance of the bullish candle shows the buyers are gaining control. On 28 March 2024, the stock gave a breakout above the high of the first candle and closed at INR 1,020. From the image above, we can see that the stock made a high of INR 1,100 on 17 April 2024.
Advantages of Bullish Harami Candlestick Pattern
The major advantages of the Bullish Harami candlestick pattern are as follows-
1. Early Indication – The Bullish Harami candlestick pattern provides an early indication of a trend reversal as it indicates that the trend is changing from bearish to bullish.
2. Low Risk – This pattern generally forms at the end of a bearish trend or near the lowest point of the downtrend. The downside is limited, which helps traders achieve a good risk-to-reward ratio.
3. Simple – Identification of this pattern is simpler than other technical candlestick patterns.
4. Timeframes – This pattern can be used across various timeframes ranging from hourly to weekly and monthly.
Disadvantage of Bullish Harami Candlestick Pattern
The major disadvantages of the Bullish Harami candlestick pattern are as follows-
Reliability – During a strong downtrend, this pattern might not be very reliable as market sentiment can overpower the bullish reversal signal.
False Signal – This candlestick pattern indicates a minor bullish pullback, which can lead to a false breakout above the pattern. Hence, this pattern must be used with other technical tools.
Additional Confirmation – The Bullish Harami pattern requires additional confirmation from the following candles, which can delay the entry point and cause the traders to miss out on profits.
To sum up, traders use the Bullish Harami candlestick pattern as it makes it easy to spot the turning point in a downward trend. A trader should, however, wait for a bullish candle that confirms the Bullish Harami pattern. In order to reduce losses in the event of market volatility, it is advised that traders set a stop-loss below the bottom of the Bullish Harami pattern. Before making any investments, you are advised to speak with your investment advisor.
Frequently Asked Questions (FAQs)
Is Bullish Harami a reliable trading pattern?
A Bullish Harami pattern is considered more reliable when it appears in an established downtrend and is used with other technical patterns.
What will be the target of the Bullish Harami pattern?
The target price of the Bullish Harami pattern can be considered as the nearest resistance level or as per the risk-to-reward ratio.
Is the Bullish Harami a continuation or trend reversal pattern?
The Bullish Harami is a bullish trend reversal pattern, typically appearing during a downtrend and indicating a potential bullish reversal.
Is the Bullish Harami pattern a leading or lagging indicator?
It is considered a leading indicator because the upside movement in the stock price starts after the formation of this pattern.
Can a beginner use the Bullish Harami pattern?
The Bullish Harami pattern is easy to identify and has clear entry, target and stop-loss levels, which makes it easy for beginners to use.
Have you ever tried to predict when a downtrend is about to reverse and if it’s a good time to enter a trade? The ‘Three Inside Up’ candlestick pattern is popular among traders for identifying bullish reversals. Whether you are a beginner learning the basics of technical analysis or an experienced trader, grasping the details of this pattern can help you make better trading decisions.
In this blog, we will explore the Three Inside Up pattern. We will analyze the meaning of each candle occurring in the pattern, how to set targets and stop-loss levels and discuss when this pattern is most effective as well as when it might produce false signals.
What is the Three Inside Up pattern?
The three inside-up candlestick patterns indicate a bullish reversal, signaling a possible change from a downtrend to an uptrend. It involves a sequence of three specific candlesticks used by technical analysts to forecast upward market momentum.
The structure of Three Inside Up is as follows;
First Candle – A long, red bearish candle that signifies an ongoing downtrend and strong selling pressure.
Second Candle – A smaller green bullish candlestick that opens inside the first candle and closes higher than it opened, staying within the range of the first candle. This suggests a possible reversal as buyers begin to take control.
Third Candle – A long green candle that closes above the first candle, indicating a momentum shift or a bullish reversal as buyers take complete control.
Traders often interpret the Three Inside Up pattern as a favorable signal to initiate a long (buy) position or to close an existing short position. The pattern is more reliable if it occurs after a downtrend and is confirmed by high trading volume. The larger the bodies of the first and third candles, the stronger is the reversal signal.
How to Determine Target and Stop-Loss?
Target and stop-loss are important for traders to trade effectively using this pattern. Below are a few ways to place targets and stop-loss orders while trading the Three Inside Up pattern.
Target
Risk-Reward Ratio: A widely adopted strategy involves employing a fixed risk-reward ratio, such as 1:2 or 1:3. For instance, if your stop-loss is 10 points below the entry, a 1:2 risk-reward ratio means setting your target 20 points above the entry.
Resistance Levels: Identify nearby resistance levels or recent highs as possible targets for taking profits. This is considered as a strategic point where the asset price faced resistance or failed to cross in the past.
Stop-Loss
First Candle’s Low: A general placement for the stop-loss is just below the lowest point of the first candle in the Three Inside Up pattern. If the price falls below this level, it indicates that the reversal may not be successful.
Second Candle’s Low: Furthermore, some traders also place it just below the low of the second green candle. This can lower risk but may raise the likelihood of triggering stop-loss in a volatile market.
Example of Three Inside-Up Pattern of 3M India Ltd.
The chart above shows the clear formation of Three Inside Up on the daily chart of 3M India. The stock made a Three Inside Up pattern on 27 March 2023. The stock price increased from INR 22,752 and made a high of INR 23,250 on 29 March 2023. We can also notice a significant uptrend with some minor retracements in the following months.
Advantages of Three Inside Up Pattern
The advantages of using a Three Inside Up pattern are:
Clear Reversal Sign: The pattern signals a possible bullish reversal in a downtrend, making it easier for traders to identify a change in the market sentiment.
Easy to Recognize: The pattern features a combination of three candles with distinct characteristics, which helps traders to easily identify this pattern on a price chart without the need for deep analysis.
Support for Momentum-Based Strategies: The third candle shows strong buying pressure, making the pattern effective for momentum trading, especially when backed by indicators like volume.
Versatile across Multiple Time Frames: This pattern can be used on monthly, daily or hourly charts, making it suitable for several trading styles like swing and day trading.
Limitations of Three Inside Up Pattern
The limitations of using a Three Inside Up pattern are:
Risk of False Signals in Consolidation: In choppy markets, the three inside-up pattern often give false signals. If there is not a clear downtrend beforehand, the pattern might not signal a true reversal, which could result in losses.
Strong Downtrends: In a strong downtrend, the bullish signal might be weak because the downtrend momentum could overpower it. Reversal patterns tend to be more effective when the downtrend weakens, or the price approaches support levels.
Not 100% Accurate: Like any other candlestick pattern, the Three Inside Up pattern is not always accurate. Market factors like news or economic conditions can override technical signals, causing unexpected price movements.
Limited Profit: The pattern usually has targets near resistance levels or follows a fixed risk-reward ratio, which may cause traders to miss significant moves during a strong uptrend.
In conclusion, the three inside-up pattern is a well-known pattern among traders looking to spot bullish reversals near the bottom of a downtrend. The structured three-candle formation suggests a possible transition from bearish to bullish sentiment, offering simple guidelines for entry points, stop-loss placements and targets. However, like all technical patterns, it has its limitations. In volatile markets, this pattern may give you false signals during a strong downtrend. Therefore, using this pattern alongside other technical indicators or market analysis is important to enhance accuracy. Traders can effectively use the three inside-up pattern by understanding its strengths and weaknesses, enhancing their ability to spot trend reversals while managing risk.
Frequently Asked Questions (FAQs)
What is the structure of the Three Inside Up pattern?
The pattern consists of three candles: a big red candle, a smaller green candle within it, and a third bullish candle that closes above the first.
What does the Three Inside Up pattern suggest to the traders?
It signals that selling pressure is weakening and buyers are gaining control, suggesting a possible trend reversal.
Is high volume important for this pattern?
Yes, the high volume during the formation of the third candle strengthens the pattern’s reliability as it shows strong buying interest.
How can I use the Three Inside Up pattern in trading?
Traders often use it as a buy signal after a downtrend and create long positions after the third candle closes above the first candle’s high.
What is the difference between the Three Inside-Up and Three Outside-Up pattern?
Three Outside Up is a similar bullish reversal pattern, but the second bullish candle completely engulfs the first bearish candle.
Have you ever wondered who the influential investors are that step in to support a company’s initial public offering (IPO)? Known as anchor investors, these key players are essential for the success of any public offering.
In this blog, we will give information about anchor investors in Initial Public Offerings (IPOs), examining how their participation impacts share pricing and demand. We will also highlight the advantages they offer to companies and the overall market.
What is the meaning of Anchor Investor?
An anchor investor is a qualified institutional buyer (QIB) who invests at least INR 10 crores or more in a mainboard IPO or INR 1 crore in an SME IPO. Securities and Exchange Board of India (SEBI) introduced the concept of Anchor investors in 2009.
These investors boost credibility and attract interest in an IPO by investing a large amount early because anchor investors are well-established institutions like mutual funds, pension funds, etc. Their involvement can stabilise prices, boost demand, and lessen volatility.
Why do companies need Anchor Investors?
Companies require anchor investors for the following reasons:
Enhance Credibility and Confidence: As mentioned above, anchor investors consist of reputable financial institutions whose participation is a strong endorsement of the company. When these investors commit to buying shares, it instils confidence in other investors, making the IPO an attractive investment opportunity.
Create Demand & Price Stability: Anchor investors buying a large stake upfront helps establish a stable price floor for the stock. It lowers the risk of price volatility when the stock begins trading because these investors own a substantial portion of the shares.
Attract Retail Investors: Investments by anchor investors make the IPO popular, which encourages smaller retail investors to invest.
Reducing Underwriting Costs and Risks: Pre-allocating some shares makes it easier and cheaper for companies to sell the rest. Anchor investors reduce the risk of unsold shares, making the IPO process more efficient and cost-effective.
Ensuring Long-term Commitment: Anchor Investors commit to a lock-in period, during which they are prohibited from selling their shares for a specified duration following the IPO. This guarantees that a segment of shares stays with investors who are invested based on a long-term outlook, thus increasing stability during the crucial early post-listing phase.
Importance of Anchor Investors
Anchor investors are important for the financial market due to the following reasons:
Strong Financial Base: By investing substantial capital upfront, anchor investors create a financial cushion that enables companies to achieve their fundraising objectives.
Enhanced Reputation: Securing investments from esteemed investors enhances the company’s reputation in the market. Their involvement highlights the company’s growth potential, thus increasing its attractiveness among other investors.
Reduced Volatility Post-IPO: The commitment to a lock-in period effectively narrows price fluctuations in the initial trading phase, resulting in a more stable stock price.
Positive Market Perception: Anchor Investors boost positive sentiment for the IPO, often resulting in oversubscription. This optimistic outlook can ultimately benefit the stakeholders involved.
How Do Anchor Investors Operate?
The company issuing the IPO selects anchor investors based on their financial strength, reputation and compatibility with its vision. Anchor investors receive a significant allocation of IPO shares, generally around 30% of the total offering or 60% of the total QIB quota. These investors pledge substantial investments, providing a reliable financial foundation for the offering. Let’s understand how anchor investors operate.
The company unveils a price range for the IPO, which is the basis for determining the final price.
Anchor investors submit their bids at a fixed price, indicating the quantity of shares they wish to acquire and must pay the entire amount at the time of application. Anchor investors can place bids one day before the issue opens to the general public.
Shares are allocated to anchor investors one day before the IPO opens for the general public. The final offer price is determined through the book-building process.
They commit to staying invested for 30 days for 50% of the shares, and the rest of the shares must be held for 90 days after the allotment date. This period is often referred to as the lock-in period.
The lock-in period decreases the chances of immediate sell-offs, fostering price stability for the stock during its initial post-IPO trading phase.
Once the lock-in period is over, anchor investors can sell their shares either on the open market or through alternative methods.
Things to know about Anchor Investors
Some important facts about the Anchor investors are:
For anchor investors, the minimum bid amount is INR 10 crore.
One-third of the Anchor Investor Portion will be reserved for domestic mutual funds, provided they submit valid bids at or above the valid price.
Anchor Investors must submit their bids exclusively through one of the Book Running Lead Managers (BRLMs) associated with the offering.
Bidders and applicants seeking information based on the allotment for Anchor Investors can review the RHP or the prospectus.
The price at which equity shares are allocated to anchor investors will be decided by the company after consulting the BRLMs.
Allocation to anchor investors is discretionary and subject to the following conditions:
For allocation up to INR 10 crores, a maximum of two anchor investors is allowed.
For allocations between INR 10 crores and INR 250 crores, a minimum of 2 and a maximum of 15 anchor investors are allowed, with a minimum investment of INR 5 crore per investor.
Lock-in period for Anchor Investors
In India, the lock-in period for anchor investors is structured as follows:
Anchor Investors cannot sell 50% of the shares for 30 days starting from the date of allotment.
The remaining 50% of the shares will be locked in for 90 days starting from the date of allotment.
Furthermore, the staggered lock-in period facilitates the gradual selling of shares, minimising the risk of volatile price fluctuations that could arise from large-scale sell-offs by anchor investors right after the listing date.
Anchor Investor’s Reservation in IPO
Additionally, anchor investors in an IPO represent a specific group of Qualified Institutional Buyers (QIBs) who are allocated a share of the total issue size during the IPO. These investors can reserve a maximum of 30% of the total IPO size and 60% of the QIBs’ quota. One-third of the allocation for anchor investors is designated for domestic investment funds.
In summary, anchor investors play an important role in the IPO process. Their early commitment and reputation create a strong foundation for a successful IPO, reassuring investors about the company’s potential. Anchor investors help improve stock performance by driving demand, stabilising prices, and establishing credibility. In today’s evolving market, having trustworthy anchor investors is not merely beneficial; it is essential for companies aiming for a solid debut on the stock exchange.
Frequently Asked Questions (FAQs)
Can an individual become an anchor investor?
An individual investor cannot become an anchor investor. To be classified as an anchor investor, the entity must be a qualified institutional buyer (QIB).
Do anchor investors affect the IPO’s success?
The participation of anchor investors often attracts more investors, which increases participation that can lead to a more robust stock performance on the listing date.
Can anchor investors sell their shares immediately after listing?
Anchor investors cannot sell their shares immediately after the listing date because of the lock-in period. This lock-in period helps stabilise the stock price during the early days of trading on the stock exchange.
How do anchor investors impact IPO?
By investing significant capital, anchor investors establish a solid base, which enables companies to secure a significant portion of their fundraising target quickly and enhances investor confidence in an IPO.
What are the minimum investment requirements to qualify as an anchor investor?
To be eligible as an anchor investor, the financial institution must invest at least INR 10 crores in a mainboard IPO and at least INR 1 crore in an SME IPO.
You must have employed a variety of candlestick patterns to determine the momentum and direction of a stock’s price if you are a stock market trader who believes in short-term trading based on technical tools. While some candlestick patterns feature two candlesticks, others may just have one. However, you’ll be surprised to learn that several candlestick patterns with three candlesticks give traders greater confidence when placing bets.
In this blog, we will explain the top 7 three-line patterns and the advantages and disadvantages of using such patterns.
What are Three-Line patterns?
The combination of three successive candlesticks that predict a continuation or a reversal of an ongoing trend in an asset price is known as the “three-line” pattern. Compared to the two-line pattern, these patterns are uncommon. When combined with other technical indicators, these patterns are very accurate in predicting future price movement, boosting investor confidence.
Top 7 Three-Line Patterns
The top 7 Three-line patterns are mentioned below:
1. Three White SoldiersPattern – The Three White Soldiers can be used to predict a significant upswing following a consolidation or downtrend. Three consecutive long white or bullish candles make this pattern, with all the successive candles opening inside the previous candle’s body and closing steadily higher. Since there is no or very little wick on any of the candles, the buyers continue the bullish trend throughout the session. The candlestick pattern indicates a significant change in market sentiment from bearish to bullish.
2. Three Black CrowsPattern – Three Black Crows is a bearish reversal candlestick pattern that suggests a downturn may begin after a period of uptrend or consolidation. The pattern consists of three consecutive long red or bearish candles that close steadily lower than the previous candle, indicating selling pressure. When traders spot this pattern, they use it with other technical tools to create a short position.
3. Evening StarPattern – The evening star candlestick pattern is a bearish reversal pattern that indicates a potential shift from a bullish to a bearish trend at the apex of an upward trend. The pattern consists of three candles: a long bullish candle, a small body candle that can be either bullish, bearish, or Doji and a long bearish candle. The bearish candle appears at the top of an uptrend and closes above the low of the first bullish candle, which marks the start of a downtrend.
4.Morning StarPattern – A Morning Star pattern is a bullish reversal candlestick pattern that indicates the end of a downward trend and the start of a potential upward trend in the stock price. This pattern usually appears at the bottom of a downward trend and comprises three candlesticks. The first candle is a long, bearish candle that indicates intense selling pressure and the continuation of the downward trend. The second candle could be a Doji, bullish, or bearish candle with a small body, indicating that the intensity of the downturn is decreasing. The third candle is a bullish candle that closes below the high of the first bearish candle, suggesting buyers are pushing the price upward.
5. Three Inside Up Pattern– Three Inside Up is a bullish reversal pattern that indicates a shift in a stock price’s momentum from downward to upward. Traders utilize this candlestick pattern to predict when a downward trend is about to reverse, and buyers are taking control of the stock. This pattern shows that the bears are in control, as the first candle is bearish. The second candle is bullish and forms within the range of the first candle. The third candle is bullish and closes above the first candle’s high, indicating a successful bullish reversal.
6. Three Inside Down Pattern – This candlestick pattern is a type of bearish reversal pattern and usually forms near the peak of an upward trend, suggesting that the momentum may be turning bearish. The three candles in this pattern indicate that sellers are starting to enter the market and buyers are losing power. Based on the first bullish candle, the buyers appear to be active and in control. The second candle, a bearish little candle, forms within the body of the previous one and shows that buyers are losing ground to sellers. The last or third candle is bearish and closes below the first candle’s low, which confirms that the sellers are in control.
7.Abandoned Baby Candlestick Pattern – The abandoned baby candlestick pattern is a reversal candlestick pattern that can show up in both up-trend and down-trend markets and suggests either a bullish or bearish price reversal. Since this pattern contains a noticeable gap between the second and the other two candles, traders view it as highly dependable. However, these patterns are extremely uncommon. A Doji candle, which has no overlap with the first and the third candle, will be the second candle. The first candle may be very bullish or bearish. The third candle is the exact opposite candle of the first candle. The third candle also forms a gap with the second candle, i.e. if it is bullish, it gaps up from the Doji, indicating a price reversal; if it is bearish, it gaps down from the Doji.
The significant advantages of using a three-line candlestick pattern are as follows-
Trend Reversal – The three-line pattern indicates a significant shift in a stock’s momentum, which can help a trader predict a downtrend or an uptrend.
Increased Accuracy – Chart patterns consisting of three candles are usually more accurate than two-line patterns.
Entry and Exit – After properly analyzing the three-line candle stick pattern, traders can plan a better entry and exit point and adjust their strategies accordingly.
Timeframe – The three-line pattern can be used in various time frames, such as daily, hourly, weekly and monthly.
Market Sentiments – This pattern reflects the market sentiment, which helps traders accurately predict future price movements.
Identification – Due to their simplicity, three-line candlestick patterns are easy to identify for both experienced and new traders.
Disadvantages of using a three-line pattern
The significant disadvantages of the three-line candlestick pattern are as follows-
False Signal – The three-line candlestick pattern sometimes might give a false signal due to volatility in the market, low volumes or other factors.
Lagging Indicator – As it takes three candles to form a three-line pattern, it lags behind the market. A trader waiting for the pattern to complete may miss a major portion of price movement.
Dependency – This pattern depends on other indicators for confirmation, such as RSI, MACD, etc.
Magnitude – Three-line patterns do not provide details about the strength and duration of the trend.
Rare– These patterns are rare to find, which makes backtesting trading strategies based on these patterns extremely difficult.
To sum up, traders utilize a variety of patterns found in the field of technical analysis to determine a stock’s future price movement. Some of the most popular patterns among these are the three-line patterns. The Three-Line pattern consists of three candlesticks, which makes them more reliable in predicting price movement than two-line patterns. However, it is difficult to find a three-line pattern, and traders may miss out on a trading opportunity while waiting for a pattern to form completely. It is advised to combine the three-line patterns with other indicators for enhanced accuracy.
Frequently Asked Questions (FAQs)
What is a three-line candlestick pattern?
The three-line candlestick pattern consists of three candles, which indicates a potential reversal or continuation trend in the stock price.
What are some commonly used three-line candlestick patterns?
The most commonly used three-line patterns are three white soldiers, three black crows, three inside up, morning star, etc.
Are the three-line candlestick patterns reliable?
Yes, the three-line candlestick patterns are considered reliable because, in most cases, the third candle acts as a confirmation signal, which reduces the risk of false signals.
Can a three-line pattern give a false signal?
Yes, three-line patterns might give false signals sometimes because of excessive market volatility and other stock-specific news.
Does the three-line candlestick pattern work on different time frames?
The three-line candlestick pattern can be used across different time frames, such as intraday, weekly, or monthly.
With the wide range of investment options available in India today, a lot of people have chosen the stock market to secure their financial future. A Demat account is essential to participate in the stock market, and individuals usually open one by contacting a stockbroker who is a Depository Participant (DP). But can an investor open a Demat account without a broker? The answer is yes! It is possible to open a Demat account without a broker.
In this article, we will discuss how to open a demat account without a broker, the documents required to open a demat account in India, and its benefits.
What is a Demat Account?
A Demat account is a form of an electronic account that stores stocks and securities in the form of electronic records. This account provides a convenient location for the storage of stocks, bonds, and mutual funds, among other investment instruments. The Demat system in India was created to facilitate the storage and transfer of shares without the need for physical certificates. Some of the inherent features of a Demat account include the following:
Secure Holdings: A demat account makes it convenient for investors to secure different types of securities in one account and eliminates the hassle of handling numerous physical certificates.
Enhanced Efficiency in Share Trades: Buying and selling shares becomes simpler due to the short settlement period.
Lesser Danger: Because the shares are in the Demat account, it eliminates potential dangers like theft, loss or damage to physical share certificates.
Comprehensive Record of All Holdings: An investor has online access to information about his/her holdings, transaction details and his/her account balance within any given time frame.
You might be thinking, “Can I start trading without a Demat Account?” The answer to your question is yes. Investors can open a trading account with a broker to trade securities listed on the stock exchange.
Considering the advancements in technology and the rise of online trading platforms, questions arise regarding the relevance of a broker in the process of opening up a Demat account.
First, we need to understand the difference between a Depository Participant (DP) and a broker. A DP acts as an intermediary between the investor and the depository, i.e., CDSL and NSDL. On the other hand, a broker acts as a link between the investor and the stock exchange. Some of the financial institutions in India offer services of both DP and a broker.
According to SEBI regulations, investors can only open a Demat account with the help of a DP. This makes it possible to open a Demat account with the help of a financial institution that is a DP but not a broker. However, you might think, “Can I buy shares without a broker?” The short answer is no. One must open a trading account with a broker to buy and sell shares.
Opening a Demat account without a broker is an easy task. Below is the step-by-step procedure.
1. Select Financial Institution
First, choose a financial institution that is a Depository Participant (DP) but not a stockbroker. Many banks, financial services companies, and even fintech platforms offer Demat account opening facilities.
2. Official Website
Open the official website of the selected financial institution. Most of them have online account opening procedures in place. Click on a subsection for Demat Accounts entitled “Open a Demat Account” or “Account Opening.”
3. Fill the Application Form
Fill an application in which you provide the following details:
Full name and address and mobile number/landline phone number, Email ID
Source of income and job particulars.
4. Mandatory Documents
You will be asked to submit the following documents :
Proof of Identity
Proof of Address
PAN Card
Passport-sized Photographs
Verification and Activation of Account
After submitting the application and the documents, the financial institution will verify the information. This can take some hours to a few days. Upon verification, you will receive the details of your Demat account, including your login credentials.
1. Proof of Identity: The following documents can be submitted as a proof of identity:
Aadhar card
Passport
Voter ID
Driving License
2. Proof of Address: The following documents can be submitted as a proof of address:
Utility bills: electricity, water, gas, etc.
Bank statement
Rental agreement
Any government document with your address
PAN Card: You cannot open a Demat account without a PAN Card, making it a mandatory document.
Passport Size Photographs: Typically, two passport-sized photographs are required, not older than six months from the date of submission of the application.
Bank Account Information: A canceled cheque or bank statement might be required to link your trading account with your bank account for smooth transactions.
All the documents must be accurate and complete, which will help in speeding up the process of opening an account.
Advantages of Opening a Demat Account Without a Broker
There are many advantages to opening a Demat account without a broker. These are:
1. Cost Savings
Opening a Demat account without a broker helps investors avoid paying charges related to trading. DPs who are not stockbrokers offer a simple fee structure that consists of AMC.
2. Control Over Investments
Brokers usually give out trade recommendations to their clients. Due to the absence of brokers, investors can continue to hold investments without any distractions and have complete control over their investments.
3. Access to the Other Services
Investors opening only a Demat account are usually long-term investors. Investors can take advantage of other services provided by the non-broker DPs, such as loans against securities or other privileges for opening a Demat account with the DP.
The investors can open a Demat account without a broker, which enables the investor to focus on the safe storage of financial assets without worrying about trading. Using the procedure mentioned above, one can easily open a Demat account.
Opening a Demat account without a broker is ideal for investors who just want a safe storage facility for their investments and wish to hold them for a long time. However, if you are thinking, “Can I trade without a broker?” The answer is no, as you must have a trading account with a broker to execute buy and sell transactions.
Frequently Asked Questions (FAQs)
Can we buy shares in India without a broker?
It is not possible to buy shares listed on the stock exchange without a broker.
Can I trade without a Demat account?
You only need a trading account to buy and sell shares, and a Demat account is required to store them electronically.
What are the charges associated with opening a Demat account without a broker?
The charges vary across different DPs, but most of them don’t charge account opening fees. However, DPs charge account maintenance charges to keep your demat account active.
How long does it take to open a Demat account without a broker?
If all details and documents submitted are correct, then it may take a few hours to a few days to open a demat account, depending on the DP’s verification process.
Is it safe to open a Demat account without a broker?
It is safe to open a Demat account without a broker as these DPs are authorized by the depositories to offer Demat account services.
If you are a stock market investor, you have probably heard of the Initial Public Offering (IPO), which is the procedure by which a business makes its shares available to the general public for the first time. However, have you ever thought about how the share price is determined? A business determines the price of its share by using a procedure known as the Book Building Process.
In this blog, we will describe the book-building process, its advantages and how it differs from the fixed price issues.
What is the Book Building Process in an IPO?
Businesses that want to go public and list their shares on the stock market use the book-building process as a price discovery technique. It is the most popular approach businesses use to set the price of the shares offered in an IPO, as it is the most effective and transparent way to determine the share price based on market demand. The Book Running Lead Manager is responsible for establishing the cut-off price by using a weighted average method.
Example:-
Assume ABC Limited chooses to issue shares to the public to raise money. This is known as an initial public offering. To determine the issue price, they chose to use a book-building process and hired an underwriter. The corporation chose to issue 10,000 shares in total, with a price range of INR 100 to INR 110. Below is the tabular representation of investor bids:
Investor Number
Number of Shares Applied
Bid Price
Investor 1
1000
100 INR
Investor 2
2000
105 INR
Investor 3
5000
108 INR
Investor 4
7000
104 INR
The underwriter determines a weighted average price based on the above data, and we’ll assume that the corporation ultimately decides on a cut-off price of 105. Shares may be allotted to investors who bid on or above the cut-off price; investors who applied for the IPO with a bid below the cut-off price will not get any shares. Only Investors 2 and 3 are eligible to receive an allotment, whereas the IPO applications of Investors 1 and 4 will be rejected in the above scenario.
How does the Book Building Process Work?
The steps which involve the book-building process are as follows-
1. Investment Banks – The first step is to select an investment bank as an underwriter for the Initial Public Offering (IPO). They assist the company in determining the issue size and establishing the share price range.
2.Price Band – The next stage would be to determine the minimum and maximum price of the shares offered in the IPO.
3.Drafting Prospectus – A prospectus is prepared by the underwriter and contains details about the financials, business model, the objective of the issue, the shareholding pattern of the company, etc.
4.Approval of Prospectus – Once the prospectus is drafted, it will be sent to the Securities and Exchange Board of India. SEBI thoroughly analyzes and approves the document.
5. Bidding – Investors can apply for the IPO during the bidding period specified by the company, which typically lasts for 3 days.
6. Compiling Bids – Once all the bids are received, the lead manager compiles them and analyzes the quantity of shares applied by the investors at different price levels.
7. Cut-Off Price – Based on the bidding data, the lead managers determine the cut-off price. The investors who have applied for shares at or above the cut-off price may receive shares, but those who have applied below the cut-off price will not get any shares.
8. Allocation – Successful bidders will receive shares in their demat account.
Types of Book Building
There are generally two types of book-building process-
1.Accelerated Book Building – Accelerated Book-Building process is used when businesses want to raise funds quickly. The process is completed within one to two days because the underwriters approach institutional investors due to their ability to invest large amounts quickly.
2.Partial Book Building – In this process, the issuer reserves a limited number of shares for the Book-Building process, and the rest of the shares are offered at a fixed price.
Why do Companies Opt for the Book Building Process?
For several reasons listed below, the majority of Indian businesses choose to use a book-building process to determine the share price for their initial public offering.-
1.Market Price – The price of the IPO share is decided by the market participants, which generally reflects the actual market value based on the sentiments of the investors.
2.Increased Participation – Due to the market-driven pricing mechanism, investor confidence increases, which encourages more participation by the investors.
3. Fair Value – The shares may be overpriced or underpriced if a company chooses to issue at a predetermined price; however, the fair value of the issue will be determined if the company chooses to use the book-building process to determine the issue price.
4.Regulations – The Securities and Exchange Board of India has issued certain guidelines for the book-building process, which ensures fairness and transparency in price discovery.
5. Allocation of Shares – Determining price through a book-building process ensures a more efficient allocation of shares.
Advantages of Book Building in IPOs
The major advantages of the building process in IPO are as follows-
1.Flexibility – The book-building process allows the company to adjust the share price within the price range, which helps maximize investor participation.
2. Reflects Demand – Book-building issues help companies determine the demand for shares among investors.
3. Maximizes CapitalRaised– This method can help the company raise more capital as it determines the fair value of shares based on investor demand.
Difference between Fixed Price Issue and Book Building
The major differences between fixed price and book-building issues are as follows-
Particulars
Fixed Price Issue
Book Building
Mechanism
In this method, the price is determined by the underwriters.
The price of the issue is determined by the investors through the bidding process.
Price Discovery
Fixed Pricing doesn’t allow price discovery as the price is fixed by the company.
Book-building process allows for price discovery with the help of investor bidding.
Flexibility
The investor doesn’t have the flexibility to choose the price and must accept the price set by the company.
Investors can place bids within the price range specified by the company.
Risk
There might be some risk related to underpricing and overpricing of the share price.
The pricing risk is much lower in the book-building issue.
Usage
This method is generally used by smaller companies with smaller issue sizes.
The book-building process is widely used by the company with large IPO issue sizes.
Determining the share price of an IPO is an important task in the Initial Public Offering (IPO) process. The company may miss out on raising the maximum capital possible funding if the offer is underpriced. Conversely, investors may decide not to subscribe if the issue is overpriced. Therefore, before investing in any initial public offering (IPO), investors should determine whether the issue is reasonably priced and speak with their investment advisor.
Frequently Asked Questions (FAQs)
Can I change my bid price after submitting an IPO application?
No, investors cannot modify their bids after submitting an IPO application. However, investors can cancel the existing IPO application and apply again before the share allotment happens.
What will happen if I submit the IPO application below the cut-off price?
If you submit your IPO application’s bid price is below the cut-off price, you will not be eligible for any allotment.
What is the meaning of the 100% book-built issue?
The 100% book-built issue refers to the IPO in which all the shares are offered through bids or a book-building process.
What is the floor price in an IPO?
It is the minimum price at which investors can place bids in an IPO.
What is the bid price in an IPO?
It is the price at which an investor wishes to buy the securities that are being offered during the book-building process of IPO.
Intraday trading has become popular in India, particularly among retail investors looking to earn profits by taking advantage of frequent market fluctuations. While the opportunity for substantial profit exists, it is accompanied by the risk of considerable losses, which can be worsened by leverage and excessive speculative trading practices. The SEBI has introduced new regulations to protect retail investors, focusing on margin requirements, reduction in weekly expiries, etc. These regulations demonstrate SEBI’s dedication to fostering a balanced marketplace that allows both experienced traders and newcomers to engage with minimum exposure to high risks. SEBI is implementing these measures to mitigate excessive speculation and foster responsible trading practices.
In this blog, we will learn about intraday trading and the rules new traders can follow to succeed. Moreover, we will discuss the new regulations implemented by the SEBI.
What is Intraday Trading?
Intraday trading is a trading approach in which securities, such as stocks, currencies, commodities, etc., are bought and sold within the same trading day. Intra-day traders aim to earn profits from short-term price fluctuations in the market and do not carry their positions overnight.
Key facts about Intraday trading
Intraday trading is carried out in short time frames, such as 1 minute, 5 minutes, 15 minutes, 1 hour, and 4 hours.
Day traders develop a strategy based on technical analysis and get an opportunity to leverage their trading position, enabling them to buy more stocks with a lesser amount of capital. However, the availability of leverage varies based on asset class.
Intraday traders tend to be prompt decision-makers to capture frequent price fluctuations executions.
7 Important Rules for Successful Intraday Trading
Here are seven essential rules for successful intraday trading:
1. Create a Plan for Trading
Establish a clear plan for your entry and exit points, stop-loss measures, and profit targets. Stay true to your plan and avoid hasty choices because of short-lived price movements. Set the risk-reward ratio of at least 1:2 to remain profitable over the long run.
2. Use Stop-Loss
Utilize stop-loss orders to protect your capital by limiting the maximum loss when a trade goes unfavorably. A stop-loss is essential for risk management, especially in a highly volatile market.
3. Don’t Let Emotions Dominate
Your judgment and trading decisions can be affected by fear, greed, or impatience. Stay calm, and do not trade on emotions. Focus on technical signals rather than on revenge trading or trying to recover losses. Being patient and maintaining objectivity will help you achieve success in the long term.
4. Follow-up With Market Events and News
Stay informed about economic reports, earnings, company announcements, and market trends that could sway your investment decisions. Mark out important events that could lead to wide price swings.
5. Trade Liquid Stocks
Small bid-ask spreads reflect high liquidity, which, in turn, leads to quick execution of orders alongside minimal price movement. A quick entry and exit from a position is critical for an intraday trader, which makes liquidity important. Search for stocks with high daily trading volume for smoother transactions.
6. Set Realistic Profit Targets and Manage Expectations
Consistent, incremental gains lead to superior outcomes than pursuing substantial profits from a single trade. Set realistic targets and stick to your exit strategy when you reach them. Resist the urge to hold investments beyond targets in the hope of earning greater returns, as this can ultimately result in losses.
7. Review and learn from trades regularly
Keep a trading journal, noting the logic behind each trade, outcomes, and lessons learned. Analyze both successful and unsuccessful trades to uncover patterns and learn from mistakes. Regular evaluation helps identify mistakes, improve strategies, and enhance future trading decisions.
New SEBI Rules for Intraday Trading
The SEBI has implemented a series of new regulations for intraday and derivatives trading designed to reduce risks and deter speculative trading practices.
1. Increased Contract Sizes: According to SEBI’s new regulations, the contract size of index derivatives would increase from INR 5-10 lakh to INR 15 Lakh from 20 November 2024, with a maximum contract value of INR 20 lakh. The restriction would protect small traders and reduce speculative activities.
2.Weekly Expiry Limitations: SEBI has announced a significant reduction in the number of weekly expiry contracts from 20 November 2024, i.e. weekly derivative contracts would only be available on one benchmark index for each exchange. Only the Nifty and Sensex indices will have weekly expiries.
3. Upfront Collection of Premiums: Starting 1 February 2025, brokers will be required to collect entire option premiums in advance. This will prevent traders from using too much leverage and ensure they have enough funds or collateral for their positions.
4. Intraday Monitoring: Beginning on 1 April 2025, exchanges will implement intraday monitoring of position limits for index derivatives. This step will ensure that traders remain compliant with the permitted limits, as their positions will be assessed multiple times throughout the trading day.
5. Elimination of Calendar Spread Benefits on Expiry Days: SEBI has officially removed the calendar spread benefits, i.e. traders will no longer be allowed to create offsetting positions across different expiries on the expiry day from 1 February 2025.
6. Additional Margins on Expiry Days: An Extreme Loss Margin (ELM) of 2% will be applicable for short positions in options on expiry days from 20 November 2024. This step is aimed to protect against increased volatility.
Practical Tips and Strategies for Intraday Success
Below are some practical tips and strategies a trader can follow to increase their chances of success in intraday trading.
Select the right stocks:Choose stocks with significant daily price fluctuations, as they present greater chances of profit.
Seek out Liquid Stocks: High-volume stocks enable traders to quickly buy and sell shares without significantly affecting the price, which is important for successful intraday trading.
Use Chart and Indicators: Utilize charts and indicators such as moving averages, MACD, RSI, etc., to identify trends and make well-informed decisions. Identify patterns such as double tops, head and shoulders, triangles, etc., to predict price reversals or breakouts.
Timeframes are Crucial: Traders usually focus on shorter intervals, like the 5-minute or 15-minute charts, while monitoring longer trends to grasp the overall market sentiment.
Master Timing with the Right Entry and Exit Points: Individuals should avoid trading until the market stabilizes post-opening bell, as the first 15-20 minutes can be marked by volatility and unpredictability. Traders can try scalping for quick trades and small profits. Alternatively, individuals can do momentum trading, where you hold positions as long as the price trend is favorable.
Stay Disciplined: Avoid impulsive trades and follow a structured plan with pre-determined entry, exit, and stop-loss levels. Stick to a set number of trades per day and focus on quality rather than on quantity of trades.
Paper Trade: You traders can do paper trading to practice new strategies without risking real money until you are more confident. It helps you assess strategies success rate and how well it aligns with your trading style. Refine your risk management skills and familiarize yourself with various market situations.
Use News-Based Trading Strategies: Keep track of news and announcements, like earnings reports and economic updates, that could affect stock prices. Identify gap-and-go trading opportunities, i.e., stocks that open with a gap from news events usually keep trending in that direction during the early trading session.
The recent updates to SEBI’s intraday trading regulations highlight the board’s commitment to cultivating a stable and secure market atmosphere. SEBI is taking these measures for retail investors who may be more vulnerable to losses in volatile market conditions. These new regulations will force traders to adopt more cautious strategies, focusing on thoughtful decision-making over high-frequency, speculative trading. Tightened regulations may seem restrictive, but they protect investors and support long-term market health. To successfully adapt to these changes, embracing flexibility and focusing on quality over quantity in trading practices is essential.
Frequently Asked Questions (FAQs)
What is the upfront collection of premiums?
Traders must now deposit entire option premiums before entering an intraday trade. Brokers can no longer extend leverage, assuring trades are fully covered by the trader’s capital.
Can I use intraday profits immediately for further trading?
Intraday profits cannot be used by the trader on the same day, i.e. gains made on a particular day can only be used the next day for trading or settlement after settlement.
Why did SEBI impose additional margin requirements on expiry day
SEBI has increased margin requirements on expiry days to reduce excessive speculation and promote cautious trading practices.
What are the benefits of paper trading?
New traders can analyze the performance of their trading strategy and refine their risk management practices through paper trading, which helps them improve their strategy before investing real capital.
What are the benefits of SEBI’s new regulations?
SEBI’s regulations aim to protect retail traders by limiting leverage, preventing speculative trades, and encouraging long-term careful trading practices for a more efficient financial market.
Individuals invest their hard-earned money to maximize profits. A dematerialized account helps investors hold and manage securities electronically. However, there are numerous charges that one must pay brokers while investing, which makes the selection of an appropriate demat account a necessity in today’s financial markets. A lifetime free demat account is a type of Demat account that provides all the benefits of a Demat account at zero Annual Maintenance Charges (AMCs).
This blog aims to outline the concept of Annual Maintenance Charges (AMCs) and how zero AMCs can help you save money. Moreover, we will discuss the advantages of a lifetime-free demat account and the factors an individual should consider when selecting the right demat account.
What is AMC?
Annual Maintenance Charges (AMC) for a Demat account are fees charged by a depository participant (DP), like a bank or brokerage, to keep the account active. This account is used to hold and manage securities electronically, with AMCs typically charged on an annual or quarterly basis. However, some DPs may offer reduced fees for a specific duration, after which regular demat account charges may be applied.
AMCs can vary based on the type of account or DP. Additionally, many DPs waive the AMC for the first year. When selecting your depository participant, comparing AMCs is important to avoid high charges.
Top 10 Brokers Offering Lifetime Zero AMC in India
Pocketful
m.stock
Dhan
Fyers
Groww
Pro Stocks
Paytm Money
Ventura
Firstock
IND Money
Overview of Top 10 Brokers Offering a Lifetime Zero AMC in India
1. Pocketful
Pocketful is an emerging new-age discount broker by two brothers, Sarvam and Rishabh Goel. It is a subsidiary company of Pace Stock Broking. The founders have experience of more than 30 years. The company offers various services such as broking services in stocks and commodities etc. The company offers free account opening and annual maintenance charges, along with zero delivery fees.
2. m.Stock
m.Stock is a discount broking wing of Mirae Asset Capital Market. This was launched in the year 2022. Mirae Asset Capital Market is a subsidiary of a South Korean financial firm known as Mirae Asset Financial Group. It offers a wide range of products, including equity, futures and options, ETFs, etc.
3. Dhan
Dhan is a tech-driven discount broking platform founded in 2021. The company offers a margin for trading. Along with this, the company offers various advanced trading tools. It also offers investment in a direct mutual fund through its application. Dhan does not charge any fees for opening a demat account.
4. Fyers
This broking firm was founded in the year 2016 and has its headquarters in Bengaluru. It offers a special account for NRIs. The company name refers to “Focus Your Energy and Reform the Self” It indicates the value of the company. Both the web and the trading platform offered by the company have a unified interface.
5. Groww
The company was founded in 2016. This is a Bengaluru-based firm founded by ex-Flipkart employees. In 2017, the company launched its direct mutual fund investment platform. The company is expected to launch its IPO in the coming year.
6. Pro Stocks
The company is a discount broking vertical of Sunlight Broking Limited Liability Partnership. The founders of the company had experience of more than 25 years. The company reduces its cost of operation by reducing its branches. The company offers web and desktop-based trading software.
7. Paytm Money
It is a subsidiary company of One 97 Communication Limited, founded in 2017. The company first launched its direct mutual fund platform in 2018, and later entered into the discount broking business. The company launched its IPO in 2021. The company has its headquarters situated in Noida.
8. Ventura
Ventura Securities was founded in 1994 by two students who were studying Chartered Accountancy. Initially, it was a small setup; later, as time went on it expanded exponentially. Initially, the company was focusing on providing advisory services to HNI clients and later entered into equity broking. The company has its headquarters in Mumbai.
9. Firstock
Initially, the company was known as NCO Securities and Share Broking Private Limited, and it was rebranded as Firstock Broking in 2021. Recently, in June 2025, the company relaunched its new trading platform. The company also has a self-clearing status via the Indian Clearing Corporation Limited. The company offers its services through the CDSL depository.
10. IND Money
The company was founded in 2021 by an ex-employee of Goibibo named Ashish Kashyap. Initially the company was offering only a wealth tracking application. Later, it started offering services including brokering to loan offering, etc. Through this application, one can invest in U.S. Stocks. The company raised funding from various Venture capitalists. The headquarters of the company is situated in Gurugram.
Benefits of a Lifetime Zero AMC Demat Account
The key benefits of a Lifetime Zero AMC Demat Account are as follows:
Cost-effective: As one is not required to pay any annual maintenance charges, it can help one save money over a period of time.
Long-term investor: The investors who prefer to invest for a longer period of time can consider opening a lifetime zero AMC Demat account.
Simplified Structure: A beginner investor can easily understand the lifetime zero AMC cost structure.
No Penalty: In case of no activity in the demat account, an investor is not required to pay any penalty or any additional expenses.
Why are Annual Maintenance Charges Charged?
Below is the breakdown of why these charges are applied.
DPs use advanced technology and secure systems to manage and store digital investment records. This includes costs for data storage, transaction processing, and cybersecurity. Regular system upgrades, software maintenance, and server expenses are important for maintaining the platform’s smooth and secure operations.
DPs are also required to adhere to the regulatory standards established by major depositories such as the NSDL and CDSL. These standards involve KYC compliance, security protocols, etc., all of which incur operating costs. Meeting these obligations requires dedicated compliance teams, which increases operational costs.
AMC is used by DPs to hire people for customer support teams, enabling them to effectively assist account holders with their inquiries. Delivering prompt customer service demands considerable resources.
For brokers and DPs, annual maintenance charges provide a steady income that covers the costs of maintaining demat accounts, particularly for customers who trade rarely and produce little brokerage. AMC helps DPs provide Demat account services without depending only on brokerage fees.
How can Zero AMC Help You Save Money?
A Demat account with zero AMC can be a substantial money saver, particularly for long-term investors or individuals managing smaller portfolios. Here is how it can help you save money.
Annual maintenance charges (AMCs) generally range from INR 300 to INR 1,000, depending on the DP. Over time, this can add up, eating into investment returns. Eliminating the AMC allows investors to save on fees annually, resulting in enhanced compounding of returns.
For long-term investors who rarely trade, asset management companies or DPs impose a fixed cost that does not correspond with their minimal transaction activity. Zero AMC lets them keep their investments with no maintenance fees, maximizing long-term growth. An individual who trades frequently pays brokerage for each transaction but eliminates extra costs due to zero AMC.
Note: A Lifetime Free Demat account is certainly beneficial, but the investors must review other charges that may be applicable to open a Lifetime Free Demat account. Usually, the brokers offering such accounts charge customers an account opening fee or have higher transaction charges than competitors with nominal AMCs but lower transaction fees. Investors must thoroughly compare the services of different DPs before opening a Lifetime Free Demat account.
Why Open a Demat Account with Pocketful?
Below are some of the compelling reasons why one should open a demat account with Pocketful:
User-friendly Design: Pocketful’s platform prioritizes simplicity, ensuring effortless navigation for both novice and seasoned investors alike.
Seamless Experience: Users have access to a wide range of analytical tools and resources to enhance their trading strategies.
Cost-effective Trading: Pocketful offers competitive brokerage fees, enabling users to reduce the impact of fees on returns.
Dedicated Support Team: Pocketful provides excellent customer support through a dedicated support team, which helps the customer get timely guidance from experienced professionals.
Any other valid identity card issued by Central or State Government
Proof of Address
Voter ID Card
Driving License
Passport
Ration Card
Aadhaar Card
Utility bills, e.g., electricity bill or gas bill.
Proof of Income: (For investors who wish to trade in Derivatives – F&O/ Commodities/ Currency)
Bank account statement for the last 6 months
Latest Salary Slips/ Form 16 in case of salaried person
Copy of ITR Acknowledgement
Passport
Copy of Net-worth Certificate issued by a Chartered Accountant
Canceled Cheque
Advantages of Lifetime Free Demat Account
Lifetime free Demat accounts offer a host of benefits that appeal to novice and advanced investors alike. Some of the advantages are as follows:
By waiving off annual maintenance charges, these accounts allow investors to save hundreds or possibly even thousands of rupees per year. For long-term investors, this cost-saving strategy leads to increased compounded returns, as it releases them from the burden of recurring fees annually for a lifetime.
Lifetime free Demat accounts perfectly suit beginners and small investors. New investors can enter the stock market with small investing amounts without worrying about the annual maintenance charges.
Lifetime free demat accounts provide an easy solution for investors who believe in passive buy-and-hold investing since they will incur the least amount of expenses. By getting rid of the annual maintenance charges, they can allow their investments to grow without recurring fees.
Tips for Choosing the Right Demat Account
Selecting the right demat account is important for efficiently managing your investments. Here are some valuable tips to help you choose the perfect demat account that suits your needs.
Consider AMC and Other Fees: Choose brokers with low or no AMC, especially if you are a beginner or have a small portfolio. Compare transaction fees across brokers if you trade frequently, as these costs apply to every trade. Additionally, brokers may have hidden fees, such as custodian fees or extra charges.
Ease of Online Account Management: Check whether the broker provides a user-friendly mobile application for managing your Demat account. Seek out essential features such as real-time updates, tracking of your investments, and quick execution of transactions for a seamless experience.
Quality of Customer Service: Choose a broker that offers responsive customer support via phone, email, chat, etc., particularly if you are a beginner in need of assistance and guidance.
Reputation and Reviews: Assess the broker’s reputation by exploring online reviews and ratings, with a focus on their reliability and transparency. Examine any grievances or concerns about service quality or undisclosed charges.
Account Opening Process: Choose brokers with an easy and quick account opening process that includes digital onboarding and KYC verification.
In today’s financial environment, selecting an ideal Demat account is essential for both novice and experienced investors alike. A lifetime free demat account is appealing because it lets your investments grow without ongoing Annual Maintenance Charges (AMCs). This cost-effective approach not only maximizes your investment returns but also provides an accessible entry point for those looking to begin their financial journey. When selecting a broker offering lifetime free Demat accounts, consider their transaction fees, customer support, and trading tools. Making the right choice can truly empower you to invest with confidence and clarity, bringing your financial goals well within reach. As the Indian economy continues to grow, there are numerous investing opportunities available to investors today. The use of a lifetime free demat account can help investors create a pathway to a more sustainable and rewarding investment journey.
Frequently Asked Questions (FAQs)
What is a lifetime free demat account?
A lifetime free demat account is a demat account that does not charge any annual maintenance charges (AMCs) for as long as the account is active.
Are there any hidden fees with a lifetime free demat account?
While AMCs may be waived, brokers can still charge transaction fees, pledging fees, etc. Always review the fee structure of the Depository Participant (DP) before opening an account.
Can I open multiple Zero AMC accounts with various brokers?
Yes, an investor can open multiple zero AMC Demat accounts.
Do lifetime zero AMC demat accounts provide all the benefits of a regular account?
Yes, a lifetime zero AMC demat account provides all the benefits, such as IPO application, trading, and other value-added services like a regular account.
How can a broker earn by offering a zero AMC demat account to its investors?
Zero AMC demat account broker earns revenue from brokerage charges, margin facility, along with fees for other value-added services offered by them.
Do all brokers offer a Lifetime free demat account?
No, not all brokers offer a lifetime free demat account to their investors. They generally charge a fixed fee at the end of each year or quarter for maintaining a demat account with them.
Can I hold all types of securities in a lifetime free demat account?
You can hold stocks, mutual funds, bonds, and other financial instruments in a Demat account.
Can I close my lifetime free demat account at any time?
Yes, you can close your account whenever you choose.
Why do the brokers charge AMCs?
Brokers charge AMCs to cover their operational costs, such as maintaining technological infrastructure, providing customer support, etc.
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