Stock Market Day Trading – What the Advisory firms don’t tell you!!

Stock Market Day Trading – What the Advisory firms don’t tell you!!

Blame game in our country is at an all-time high based on the stock market tips given/received from Advisory firms/amateur day traders. Sometimes, both are to be equally applauded for the skills and commitment they showcase but most of the time must also be held responsible for promising and believing in quick profits.

Competition is intense and ‘it has become a rat race’ is an understatement. The average pay for individuals has increased many folds when compared to earlier times enabling them to look out for better liquid investments. Therefore stock market takes spot among one of the top investing/trading destinations. Therefore, everyone wants a piece of this large cake. Sometimes, among the unwelcomed guests could be a Stock Market Advisory Firm.

Let’s take an example of a Stock market advisory firm named – SureShotTIPS Advisory Services (SST) (Name made up for illustration purpose).

SST is the firm containing different teams such as customer service, HR and Analysis. Their main objective is to attract and retain customers though their Stock Market TIPS on various shares in BSE & NSE.

·         Objective: To acquire clients and retain them

·         Procedure: Provide tips on share movements of various companies and gain profitability on the same

·         Result: Either the client makes profit/loss. If profit is made, it acts as an added advantage for the advisory firm to sell their services. If the client makes loss, they lose out on them

In order to accomplish their objective, they start contacting customers and provide them with tips. But not all the customers are aware of the following incident which may take place.

Let us assume there is a good level of technical support for State bank of India (SBIN) share at 330. The SST calls 100 customers to provide their view on SBIN. Out of which, they call up 50 customers and ask them to buy the Shares of SBIN as it has a strong technical support at 330 and remaining 50 customers are asked to go short (Sell) at 330. Let us look at the two cases which could emerge:

Case 1: If there is a rise in share price of SBIN

Looking at the above statement, it is given that those who bought the shares are sitting on nice profit and would also like to liquidate their positions, which means they will be selling and booking profit. Once this is done, they will be called again and SST makes sure to sell their services with an advisory fee of 3000 per month. Let us assume even if 20% of these clients get converted, they make an amount of 30,000/- per month. Those who shorted the stock are making losses and will never be getting a call.

Case 2: If there is a fall in share price of SBIN

If this happens, it is a vice-versa of the above explanation. Those who shorted are in profits and those who went long (BUY) are in losses who will not be hearing from the SST again.

The most important factor here is not if someone made profits/losses, but how the advisory firm is conducting its business. They say they have a great team of research, if this is true, why did the other half lose? This can happen with anyone who has a smart phone with a little hope of making an extra amount.

Therefore, one has to have at least a basic understanding of technical analysis such as support/resistance before they even hear to any advisory firm ending up losing their hard earned money. Hope this article helps! Do let me know your thoughts on this and sharing this might help our fellow aspiring retail traders.