Trading
Handbook
Understand the business.
Master the mind.
From our Executive Chairman
“The market rewards understanding. It punishes excitement.”
Namaste,
Thank you for choosing to learn with ABC Securities. This handbook is our way of sharing what years in Nepal’s capital market have taught us, in plain language and without shortcuts.
Most people come to the market with one question: what should I buy? It is the wrong first question. The better ones are these. What am I actually buying? What is it worth? How much can I afford to lose? And how will I behave when the price moves against me? These pages are built around those questions. They cover the chart, the business behind every share and, most of all, your own mind when money is on the line.
Today everyone sees the same prices, the same news and the same tips. Information no longer separates good investors from the rest. Understanding does, along with the calm to act on it.
Read slowly. Come back to these pages when the market is loud and your thinking feels rushed. Test every idea with small amounts before you trust it with larger ones. And remember that no pattern or ratio in this book is a promise. They are tools for better decisions, not guarantees.
Wealth in the stock market is built by people who keep learning, protect their capital and stay patient long enough for good decisions to compound.
I wish you clear thinking and steady progress.
Five parts.
One discipline.
Most investors learn the market the expensive way, one loss at a time. This handbook is the cheaper route: what to look at, what it means, and how to stay in control of yourself while you act on it.
Inside this handbook
The Chart
Ten lessons on reading price: candles, trends, levels, patterns, volume and momentum.
Price is the only thing every participant agrees on. Learn to read it before you try to predict it.
Three ways to see the same prices
Every chart below uses the same 30 trading days. Each one shows a different amount of what happened inside each day.
Reading a single candle
“Bodies show who won. Wicks show who tried.”
The body spans the open and the close. The wicks (shadows) mark the high and the low. A long wick means price went there — and was pushed back. Read candles as a record of a fight between buyers and sellers, never as a forecast on their own.
Candlestick patterns
Hollow body = closed above the open. Solid body = closed below the open. Grey candles show the context a pattern needs.
Trend is the context for everything
Forget indicators for a moment. Price moves in swings. The sequence of swing highs and swing lows tells you who is in control.
Support & resistance
Support is a price area where buying has repeatedly appeared. Resistance is where selling has. They are memories in the market — places where many participants made decisions before.
Chart patterns
Patterns are crowd behaviour drawn on a chart. The yellow dot marks the usual confirmation point: until price gets there, the pattern is only a possibility.
Volume: the fuel behind the move
Price tells you what happened. Volume tells you how many people agreed. A breakout on heavy volume carries more information than one on a quiet day.
Moving averages
A moving average smooths daily noise into a single line, so the direction of the trend becomes easy to see.
Momentum: RSI and MACD
Momentum indicators measure the speed of price changes. They are calculated from price, so they confirm — they never replace — what price itself is doing.
Scales recent gains against recent losses from 0 to 100, usually over 14 periods. Readings above 70 are often called overbought, below 30 oversold.
Watch for: divergence — price makes a new high while RSI makes a lower high. Momentum is fading.
In strong trends RSI can stay above 70 for weeks. “Overbought” is not a sell signal.
The 12-period EMA minus the 26-period EMA, with a 9-period EMA of that line as the signal. The histogram shows the gap between the two.
Watch for: crossovers of the signal line, the MACD line crossing zero, and a shrinking histogram as momentum slows.
Built from moving averages, so it lags. Expect late signals and false ones in sideways markets.
Anatomy of a setup
A setup is not a feeling about a stock. It is a defined situation with an entry, a point where you are proven wrong, and a planned exit — decided before the order.
The Business
Nine lessons on what you own: statements, ratios, sectors, corporate actions and the economy behind NEPSE.
Behind every ticker is a business. The chart tells you what people think of it; the numbers tell you what it is.
What you actually own
A share is a slice of a real business — its profits, its assets, its debts and its management. The ticker is just the name on the slice.
| Scenario | EPS | P/E | Price | Change |
|---|---|---|---|---|
| Today | Rs. 20 | 20× | Rs. 400 | |
| A: earnings grow, multiple holds | Rs. 24 | 20× | Rs. 480 | +20% |
| B: earnings grow, multiple shrinks | Rs. 24 | 16× | Rs. 384 | −4% |
In both scenarios the company grew its earnings by 20%. In scenario B the investor still lost money, because the market became less willing to pay for those earnings. Paying too much can undo a great business.
Three statements, one story
Every listed company in Nepal publishes quarterly results and an audited annual report. Three statements sit at the heart of each.
Valuation ratios
Ratios turn financial statements into comparable numbers. None of them works alone — read them together and against the sector.
Quality & strength ratios
Valuation tells you what you pay. These ratios tell you what you are paying for: profitability, growth and financial resilience.
Reading NEPSE’s sectors
Each sector earns money differently, so each needs different numbers. P/E alone will mislead you across sectors.
| Sector | What drives it | Numbers to check |
|---|---|---|
| Commercial banks | Interest-rate cycle, credit growth, liquidity, loan quality | NPL ratio · Capital adequacy · Net interest margin / spread · CD ratio · Distributable profit |
| Development banks & finance | Same drivers as banks, usually with higher sensitivity | NPL ratio · Capital adequacy · Cost of funds · Spread |
| Microfinance | Rural credit quality, cost of funds, regulatory directives on lending | NPL ratio · Loan-loss provisions · Cost of funds · Return on assets |
| Hydropower | Generation, power purchase terms, hydrology, construction progress | Installed capacity · Generation vs contract · Debt-to-equity · Interest coverage · Project status |
| Life insurance | Premium growth, investment income, actuarial valuation | Premium growth · Investment yield · Solvency ratio · Expense ratio |
| Non-life insurance | Premium growth, claims experience, reinsurance | Claims ratio · Combined ratio · Solvency ratio · Premium growth |
| Hotels & tourism | Tourist arrivals, occupancy, room rates, seasonality | Occupancy · Average room rate · Margins · Debt |
| Manufacturing & processing | Demand, input costs, exchange rates, capacity | Gross margin · Capacity utilisation · Inventory · Debt-to-equity |
| Investment companies | Value of underlying holdings | Net asset value vs price · Concentration of holdings |
Corporate actions, decoded
Bonus shares, right shares and mergers are a big part of investing in Nepal. Understand the arithmetic and you will never confuse more shares with more wealth.
Profits are converted into new shares and given free to existing holders. After book closure the price is adjusted, so total value does not change.
Existing holders may buy new shares at the issue price. Theoretical price after the right: (P × N + R × n) ÷ (N + n).
Paid to shareholders on the register at book closure. Tax is withheld at the rate in force. Look at yield on the price you pay, not the percentage of face value.
The date that decides who is entitled. Allow for the settlement cycle in force — buying on the last day may be too late. Always read the company’s official notice.
Shareholders of one company receive shares of the merged entity at a fixed swap ratio. At 1 : 0.85, every 100 shares become 85. Judge the deal on both companies’ values — not on the share count.
New shares sold to the public, applied for through MeroShare. When an issue is oversubscribed, allotment is by lottery. An allotment is a starting point, not a profit: judge the listed price against the business like any other share.
What moves NEPSE
Individual stocks move on company news; the whole market moves on money and mood. NEPSE has historically been especially sensitive to interest rates and bank liquidity.
Company research sheet
A blank framework for your own research — copy it into a notebook for every new company. Not a recommendation.
Fundamentals tell you what.
Technicals tell you when.
Risk tells you how much.
| Investing | Trading | |
|---|---|---|
| Time horizon | Years | Days to weeks |
| Main question | Is the business worth more than the price? | Is the setup valid — and where am I wrong? |
| Key tools | Statements, ratios, sector drivers | Chart, levels, volume, position sizing |
| Exit trigger | The business thesis breaks | The stop, the target, or the time stop |
| Biggest risk | Overpaying, or ignoring a broken thesis | Overtrading, or moving stops |
The Mind
Twenty-one lessons on the part of trading nobody can sell you: how you think, feel and decide when money is on the line.
Most trading mistakes are not analysis mistakes. They are good plans abandoned under pressure.
Knowing is not the hard part.
Almost every trader knows the rules. Cut losses, size small, don’t chase. Most still break them. The gap between what you know and what you do under pressure is where most money is lost.
Reacts to every tick. Feels fear and greed instantly. Wants action now. It is the part of you that actually clicks Buy.
Writes the plan, weighs probabilities, follows rules. It tires easily and goes quiet under stress, which is exactly when you need it.
Psychologist Daniel Kahneman popularised the names System 1 and System 2 for these two ways of thinking.
Think in probabilities.
One trade tells you almost nothing. A hundred trades tell you whether you have an edge. The goal is not to be right today — it is to make decisions that pay over a long series.
Losses are not symmetrical.
Lose 50% and you need +100% just to get back to where you started. The deeper the hole, the steeper the climb. This is why professionals obsess over the downside.
The cycle of market emotions.
Prices move in cycles, and so do the feelings of the people trading them. The crowd feels safest near the top and most hopeless near the bottom. That is exactly the wrong way round.
Every emotion has a favourite mistake.
Emotions are not the problem. Acting on them without a rule is. Learn what each one whispers, what it pushes you to do, and the rule that stops it.
| Emotion | It whispers | So you… | Your rule |
|---|---|---|---|
| Fear | “What if it falls further?” | Exit a good trade early, or skip a valid setup | Exit only at the stop, the target or a planned time stop. |
| Greed | “This could go much higher.” | Remove the target, add size, hold too long | Size and target are fixed before entry. |
| Hope | “It will come back.” | Move the stop, or average down a loser | A stop can be tightened. It is never widened. |
| FOMO | “Everyone is buying.” | Chase a move that has already happened | Missed the entry? Wait for the next setup. |
| Regret | “I should have…” | Jump in late to “fix” a missed trade | A missed trade is logged, never chased. |
| Anger | “I’ll win it back.” | Revenge trade, often with bigger size | Two losses in a row: 30 minutes away from the screen. |
| Euphoria | “I can’t lose.” | Oversize after a winning streak | After wins, same size, same checklist. |
| Boredom | “Nothing is happening.” | Invent trades out of nothing | No setup is a decision. Write it down. |
| Anxiety | “I can’t stop checking.” | Exit on noise, lose sleep over a position | If it costs you sleep, it is too big. Reduce it. |
The market will
open again.
Use this page the moment you feel pulled into a trade you did not plan. Answer before you act.
Six biases that cost traders money.
Biases are not character flaws — every human brain has them. The edge is in noticing them while they are happening, and having a rule ready.
Six more biases to watch.
The previous lesson covered the biases that hit most often. These six are quieter. They rarely start a bad trade, but they keep you in one far longer than your plan allowed.
Before you buy, imagine it is three months later and this trade has failed badly. Write down the most likely reason. If the answer worries you, fix it before you enter, or don’t enter at all.
Anatomy of a rumour-driven move.
In thinly traded stocks, a story can move the price faster than results ever do. Learn the shape of these moves so you are never the last buyer.
Spreading false information to move a share price is market manipulation, which Nepal’s securities law prohibits. Treat anyone offering “sure” profits with suspicion.
Fact. Interpretation. Opinion.
Most bad trades in a rumour-driven market start with information you never checked. Sort everything you hear into one of three boxes before it reaches your order window.
Think like a professional.
What separates amateur traders from professionals is rarely intelligence or information. It is how they think about risk, losses and time.
| The amateur | The professional | |
|---|---|---|
| Before entry | How much can I make? | How much can I lose, and can I accept it? |
| Information | What’s the tip? | What’s my setup, and where am I wrong? |
| Being right | Needs to be right on this trade | Needs to be profitable over a series |
| A loss | A personal failure | A business expense, planned in advance |
| After a loss | Wants to win it back today | Reviews, then waits for the next valid setup |
| Activity | Trades daily to feel involved | Trades only when the setup is there |
| Position size | Changes with mood | Fixed by the rulebook |
| Results | Judged by today’s P/L | Judged by process, over 20+ trades |
| Learning | Blames the market, operators or luck | Reviews own decisions, trade by trade |
Trade the market, not your mood.
Your state of mind changes how you read the same chart. Check it before you check prices, and let it decide how much you are allowed to trade today.
Rested and calm. Following the plan. No urge to trade.
Tired, distracted or rushed. One painful loss today. Checking prices compulsively.
Angry. Daily limit hit. A “need” to make money back. Euphoric after a big win. Unwell or upset.
Any “yes” means Amber at best. Fix it first, or trade smaller.
Patience is a position.
Most of a good trader’s time is spent waiting. Not trading is not missing out — it is holding cash, and cash is a position with zero risk and full optionality.
| Date | Symbol | Why I passed | What happened |
|---|---|---|---|
The winning-streak protocol.
Losses are loud. Wins are quiet and dangerous: they make rules feel optional and leverage feel safe. Most large losses arrive right after a run of success.
Have a plan for the bad months.
Every trader has drawdowns. The ones who survive them decided in advance what they would do at each level of loss, before the pain arrived and the thinking got cloudy.
Re-read your rulebook. Are the losses rule breaks or normal variance? Size unchanged.
Halve your position size. Trade only your best, most proven setup.
No new trades for a week. Review your last 20 trades line by line.
Stop trading. Rebuild your plan from your trade records before you return.
After a bad trade
You are not your P/L.
When your self-worth rides on every trade, every loss becomes personal — and personal losses lead to revenge trades. Separate who you are from what the market did today.
Discipline is a system, not a personality.
Willpower runs out, usually at the worst moment. Professionals don’t rely on it. They set up their rules and their surroundings so the right action is the easy one.
You can’t control the result. You can control the actions that lead to it.
| Outcome goal | Process goal |
|---|---|
| Make NPR 1 lakh this month | Run the checklist before every order |
| Win 70% of my trades | Log every trade the same day |
| Never have a losing week | Respect every stop, every time |
Psychologists call these implementation intentions. Studies by Peter Gollwitzer and others found that people who plan their response in advance follow through more often.
Routine beats motivation.
Motivation fades by the third losing day. A routine does not need to be felt — only followed. Tick the parts of this routine you will commit to, then add your own.
Score your trading mind.
Rate each statement from 1 (rarely true) to 5 (almost always true). Be honest; nobody else will see it. Retake it every quarter and compare.
Ten principles to trade by.
Everything in this handbook comes back to these ten. Copy them into your trading notebook, or tear out this page and keep it beside your screen.
The Rules
Risk first, the maths of risk, the Pre-Trade Checklist, and a rulebook you write and sign yourself.
Knowledge finds the trade. Rules decide whether you take it, how big, and when you leave.
Risk before return.
You cannot control the return.You can control how much you risk.
Round quantity down to whole shares. Brokerage and other charges are not included — account for them separately. An educational framework, not a recommendation.
Why win rate is not the score
A trader who wins most of the time can still lose money. A trader who loses most of the time can still make money. The difference is the size of the wins against the size of the losses.
Breakeven win rate = 1 ÷ (1 + reward-to-risk). At 1 : 2 you only need to be right one time in three to break even.
Brokerage, fees and taxes make every win a little smaller and every loss a little larger. Your real breakeven is higher than the chart.
Before I click
Buy or Sell…
One unchecked box is reason enough to wait.
My rulebook
Write them now, while you are calm. Re-read them before the first session of every trading week.
The Playbook
Nine setups explained step by step: context, trigger, stop, target, and when to stay away.
A setup is a question you ask the market. The stop is the answer you accept in advance.
The trend pullback
Buy strength on a temporary weakness. In an established uptrend, wait for price to pull back to support or a rising average — then let the market show you it is resuming.
| Date | Symbol | Entry | Stop | Exit | Result (R) | Rules followed? |
|---|---|---|---|---|---|---|
Breakout & retest
A base is a battle between buyers and sellers at a level. When buyers finally win, the old ceiling often becomes the new floor. The retest is your chance to enter with a tight, logical stop.
| Date | Symbol | Entry | Stop | Exit | Result (R) | Rules followed? |
|---|---|---|---|---|---|---|
Range trading
When a stock moves sideways, the edges of the range are where risk is smallest and reward is clearest. Buy near support only after buyers show up — and respect the stop if the range breaks.
| Date | Symbol | Entry | Stop | Exit | Result (R) | Rules followed? |
|---|---|---|---|---|---|---|
The exit playbook
Entries get the attention, exits make the money. Decide how you will leave before you arrive — and note which exit you used on every trade.
| Date | Symbol | Entry | Stop | Exit | Result (R) | Rules followed? |
|---|---|---|---|---|---|---|
Fundamental filter, technical trigger
Quarterly results season is when the fundamentals change. Use it to rebuild your watchlist with improving businesses — then let the chart decide the timing.
| Symbol | EPS this qtr | Same qtr last yr | Growth | Key sector metric | Watchlist? |
|---|---|---|---|---|---|
Corporate-action season
Bonus, right and dividend announcements move NEPSE crowds every year. A calm process protects you from buying entitlements at inflated prices.
| Company | Action | Ratio | Book closure | Issue price | My decision |
|---|---|---|---|---|---|
Sector rotation & relative strength
Money moves between sectors. A rising market lifts most stocks, but the leaders rise most. Relative strength shows you where the money is going — before the news explains why.
| Sector | Sector change | NEPSE change | Difference | Rank |
|---|---|---|---|---|
Leverage with guardrails
Margin trading lets you control a bigger position with less capital. It magnifies everything — the gains, the losses, the costs and the emotions. Used with rules, it is a tool. Without them, it is the fastest way to lose capital.
| Cash | Margin | |
|---|---|---|
| Your own capital | NPR 1,00,000 | NPR 1,00,000 |
| Borrowed | — | NPR 1,00,000 |
| Position size | NPR 1,00,000 | NPR 2,00,000 |
| If price rises 10% | +10% | +20% before interest |
| If price falls 10% | −10% | −20% plus interest |
| If price falls 25% | −25% | −50% plus interest |
Core & satellite
Investing and trading are different games with different rules. Keep them in different buckets, so a trade never quietly turns into an ‘investment’ just because it went against you.
| Symbol | Why I own it | Exit only if… | Next review |
|---|---|---|---|
Glossary
Definitions are simplified for learning. Limits, charges and procedures are set by SEBON, NEPSE, CDSC and your broker and can change. Check the current rules before acting on them.
Then trade.
A practical guide for traders and investors on NEPSE. Learn to read a chart, understand the business behind every share and, most of all, understand yourself: the fears, biases and habits that decide what you actually do when money is on the line. Written in plain language, for Nepal’s market.
This handbook is an educational resource. It does not constitute investment advice or a recommendation to buy or sell any security. Illustrations and examples are educational.