USE ONLY INDEX STOCK FOR SWING TRADE
FOR THE SWING TRADE THAT HAS BEEN EXPLAINED IN PREVIOUS TIPS, YOU SHOULD USE ONLY STOCKS FROM NIFTY 50, NIFTY MIDCAP 50, BANK NIFTY AND BSE SMALL CAP, ETC.
WHY?
AS ALL THE WELL-KNOWN FUND HOUSES AND FOREIGN, INVESTORS ALSO TRADE IN THEM, MORE OF VOLUME AND FLUCTUATIONS MAY BE SEEN IN THEM DURING THE DAY, HENCE, YOU MAY ACHIEVE 4.5% TO 2.5% RETURM IN MOST OF SUCH TRADES VERY EASILY.
FOR THOSE READERS WHO HAVE STARTED READING THIS CHAPTER FROM THE MIDDLE, I SHOULD CLARIFY THAT, IN MY THEORY, SWING TRADE REFERS TO TRADES IN CASH AND CARRY WITH HOLDING PERIODS RANGING FROM 1 TO 30 DAYS. YOU SHOULD NOT TREAT THIS AS INTRADAY TRADE.
IF, INFORTUNATELY, DESPITE USING AND INDEX STOCK, THE STOCK GOES THROUGH SOME FUNDAMENTAL CHANGE AND THE SAME IS REMOVED FROM THE INDEX LIST, AND YOU CONTINUE AVERAGING OUT ONCE A WEEK AT VWAP, THE TARGET WOULD KEEP ON FALLING AND SETTLE AT 0.5 % AND YOU WOULD BE ABLE TO EXIT IN 9 TO 10 WEEKS IN ANY CASE. AFTER THAT, YOU SHOULD NOT TRADE IN THE STOCK THAT HAS BEEN REMOVED FROM INDEX. YOU SHOULD CHOOSE SOME NEW INDEX STOCK IN ITS PLACE.
THE FUNDA IS THAT USING SWING TRADE METHOD WITH STOCKS IN ANY OF THE INDEXES OF NSE OR BSE PROVIDES BETTER CHANCES OF EARLY PROFIT BOOKING.
THERE IS NO CHANCE OF GETTING STUCK EVEN IN THE CASE OF A FALLING STOCK. THAT IS THE SCIENTIFIC FEATURE OF THIS METHOD THAT YOU AVERAGE OUT ONLY ONCE A WEEK AND THAT ALSO ONLY IN STRONG STOCKS AND EVEN IN THEM, AS YOU AVERAGE, OUT, YOU KEEP BRINGING YOUR TARGET DOWN. IN THE END, YOU BECOME SUCCESSFUL IN EXITING WITH YOUR BASIC CAPITAL, EVEN EARNING A SMALL PROFIT.
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COME TAX HARVESTING TO SAVE CAPITAL GAINS
IN THIS TIP, I WILL TELL YOU HOW TO GO ABOUT INCOME TAX FARMING OR TAX HARVESTING IN STOCK MARKET.
YES, INCOME TAX FARMING IN STOCK MARKET IS A WELL-KNOWN PROCESS THAT IS CALLED "INCOME TAX HARVESTING" IN USA. IN AMERICA POLITICS, MR.TRUMP WAS ONCE ACCUSED OF NOT PAYING FULL INCOME TAX ON HIS INCOME FROM THE STOCK MARKET. IT WAS CLARIFIED AT THAT TIME THAT HE HAD NOT DONE ANYTHING ILLEGAL. WHAT HE HAD DONE IS CALLED TAX HARVESTING OR INCOME TAX FARMING THAT IS TOTALLY LEGAL AND THAT FACILITIES AVOIDANCE OF TAX ON CAPITAL GAINS MADE IN A STOCK MARKET. YOU WOULD LEARN THE SAME TAX HARVESTING IN THIS TIP.
IN FACT, THIS HAS A VERY SIMPLE ARITHMETIC. FOR THE ENTIRE YEAR, YOU KEEP ON MAKING SMALL INVESTMENTS IN GOOD DIVIDEND PAYING STOCKS AS EXPLAINED IN PREVIOUS TIPS. BOOK PROFITS IN THE STOCKS THAT GAIN AS PER YOUR TARGETS. HOLD ON TO THE REST OF THE STOCKS ENJOY DIVIDENDS.
DURING THE LAST FEW DAYS OF MARCH, YOU MAY GO FOR INCOME TAX HARVESTING FOR THE STOCKS THAT YOU ARE HOLDING.
ACTUALLY THIS IS VERY SIMPLE. DURING THE LAST FEW DAYS OF MARCH, SELL ALL THOSE STOCKS IN YOUR PORTFOLIO THAT ARE IN RED AND BOOK LOSSES ON PAPER, BUT AT THE SAME TIME, SAME DAY, BUY THE SAME STOCKS BACK IN THE QUANTITY AT THE SAME MOMENT IMMEDIATELY AFTER SELLING.
WHAT DO YOU GET OUT OF THIS?
THIS WILL NOT HAVE ANY IMPACT ON THE QUANTITY OF STOCKS, AS WE ARE BUYING THE SAME QUANTITY OF STOCKS ON THE SAME DAY, SAME TIME AS THAT OF THE STOCKS SOLD FOR BOOKING LOSS.
WE WOULD HAVE TO ONLY PAY BROKERAGE THAT IS GENERALLY QUITE LOW THESE DAYS WITH DISCOUNT BROKERS. EVEN TO SAVE THAT BROKERAGE, YOU MAY KEEP SOME SMALL DIFFERENCE BETWEEN YOUR SALE AND PURCHASE PRICES, BUT THE LOSS THAT WE HAVE BOOKED MAY BE ADJUSTED AGAINST THE PROFITS BOOKED DURING THE ENTIRE YEAR, THEREBY REDUCING THE RESULTANT SHORT-TERM CAPITAL GAINS.
HOW?
SUPPOSE, YOU HAVE MDE A TOTAL PROFIT OF $60,000 TILL 20 MARCH, 2019 BY BOOKING PROFITS IN VARIOUS STOCKS DURING THE CURRENT YEAR. AS PER INCOME TAX REGULATIONS, YOU WOULD HAVE TO PAY SHORT TERM CAPITAL GAINS TAX AMOUNTING TO $9,000 BEING 15% OF THE TOTAL GAINS.
LET ASSUME THE STOCKS THAT WE ARE STILL HOLDING AS ON 20 MARCH ARE SHOWING A LOSS OF $45,000. WE WOULD SELL THESE STOCKS TO BOOK LOSSESS AND BUY BACK THE SAME QUANTITY OF THE STOCKS. AFTER ADJUSTING THIS LOSS OF $45,000 AGAINST PROFIT OF $60,000, WE WOULD BE LEFT WITH NET PROFIT FOR THE YEAR AS $15,000 ONLY. WE WOULD HAVE TO PAY SHORTTERM CAPITAL GAINS TAX ON THIS AMOUNT ONLY, I.E,$ 2,250 AT THE RATE OF 15%. THUS, TAX LIABILITY IS REDUCED FROM $9,000 TO $2,250 ONLY AND THIS IS WHAT IS CALLED INCOME TAX HARVESTING.
EVEN IF YOU HAVE TO PAY $750 TOWARDS BROKERAGE IN THE ABOVE PROCESS, YOU ARE STILL SAVING A NET AMOUNT OF $6,000 ON CAPITAL GAINS TAX.
HERE, SOME OF THE READERS MAY RAISE A DOUBT THAT SELLING AND BUYING STOCKS ON THE SAME DAY MAY BE TREATED AS INTRADAY, I.E,. SPECULATION INCOME AND HOW WOULD WE ADJUST THE AMOUNT OF THAT LOSS AGAINST SHORT-TERM CAPITAL LOSS? THE ANSWER TO THE SAME IS THIS. IF YOU ARE ALREADY HOLDING THE STOCK AND YOU SELECT CASH AND CARRY OPTION WHILE PLACING THE ORDER, THAT KIND OF SALE OF STOCK IS NOT TREATED AS INTRADAY TRADING. YOU HAVE JUST BOOKED LOSS IN YOUR STOCKS ALREADY HELD WITH YOU.
SIMILARLY, FRESH STOCK IS ALSO BOUGHT THROUGH A FRESH ORDER WITH CASH AND CARRY OPTION PAYING FULL AMOUNT AND DELIVERY OF THE SAME IS ALSO TAKEN, HENCE, THIS IS A NEW TRADE. WHENEVER WE SELL THIS STOCK, TAX ON THE PROFIT WOULD BE DECIDED BASED ON THE PERIOD OF HOLDING. THUS, SELLING THE STOCK ALREADY UNDER HOLDING THOUGH A CASH AND CARRY ORDER AND TAKING FULL PAYMENT AND ALSO TAKING DELIVERY OF THE SAME WOULD NOT BE TREATED AS INTRADAY TRADE.
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