INTRODUCTION TO TECHNICAL ANALYSIS

INTRODUCTION TO TECHNICAL ANALYSIS

Learning objectives

After studying this chapter the student should be able to understand:

• The basis of technical analysis

• The strengths and weaknesses of technical analysis

1.1 What is Technical Analysis?

Technical Analysis can be defined as an art and science of forecasting future prices based on an examination of the past price movements. Technical analysis is not astrology for predicting prices. Technical analysis is based on analyzing current demand-supply of commodities,stocks, indices, futures or any tradable instrument.

Technical analysis involve putting stock information like prices, volumes and open interest on a chart and applying various patterns and indicators to it in order to assess the future price movements. The time frame in which technical analysis is applied may range from intraday (1-minute, 5-minutes, 10-minutes, 15-minutes, 30-minutes or hourly), daily, weekly or monthly price data to many years.There are essentially two methods of analyzing investment opportunities in the security market viz fundamental analysis and technical analysis. You can use fundamental information like financial and non-financial aspects of the company or technical information which ignoresfundamentals and focuses on actual price movements.

The basis of Technical Analysis

What makes Technical Analysis an effective tool to analyze price behavior is explained by

following theories given by Charles Dow:

• Price discounts everything

• Price movements are not totally random

• What is more important than why

1.1.1 Price discounts everything

“Each price represents a momentary consensus of value of all market participants – large commercial interests and small speculators, fundamental researchers, technicians and gamblers- at the moment of transaction” – Dr Alexander Elder Technical analysts believe that the current price fully refl ects all the possible material information which could affect the price. The market price reflects the sum knowledge of all participants, including traders, investors, portfolio managers, buy-side analysts, sell-side analysts, market strategist, technical analysts, fundamental analysts and many others. It would be folly to disagree with the price set by such an impressive array of people with impeccable credentials. Technical analysis looks at the price and what it has done in the past and assumes it will perform similarly in future under similar circumstances. Technical analysis looks at the price and assumes that it will perform in the same way as done in the past undersimilar circumstances in future.

1.1.2 Price movements are not totally random

Technical analysis is a trend following system. Most technicians acknowledge that hundreds of years of price charts have shown us one basic truth – prices move in trends. If prices were always random, it would be extremely difficult to make money using technical analysis. A technician believes that it is possible to identify a trend, invest or trade based on the trend and make money as the trend unfolds. Because technical analysis can be applied to many different time frames, it is possible to spot both short-term and long-term trends.

“What” is more important than “Why”

It is said that “A technical analyst knows the price of everything, but the value of nothing”.

Technical analysts are mainly concerned with two things:

1. The current price

2. The history of the price movement

All of you will agree that the value of any asset is only what someone is willing to pay for it. Who needs to know why? By focusing just on price and nothing else, technical analysis represents a direct approach. The price is the fi nal result of the fi ght between the forces of supply and demand for any tradable instrument. The objective of analysis is to forecast the direction of the future price. Fundamentalists are concerned with why the price is what it is. For technicians, the why portion of the equation is too broad and many times the fundamental reasons given are highly suspect. Technicians believe it is best to concentrate on what and never mind why. Why did the price go up? It is simple, more buyers (demand) than sellers(supply).

The principles of technical analysis are universally applicable. The principles of support,resistance, trend, trading range and other aspects can be applied to any chart. Technical analysis can be used for any time horizon; for any marketable instrument like stocks, futures and commodities, fi xed-income securities, forex, etc

Top-down Technical Analysis

Technical analysis uses top-down approach for investing. For each stock, an investor would analyze long-term and short-term charts. First of all you will consider the overall market, most probably the index. If the broader market were considered to be in bullish mode, analysis would proceed to a selection of sector charts. Those sectors that show the most promise would be selected for individual stock analysis. Once the sector list is narrowed to 3-5 industry groups, individual stock selection can begin. With a selection of 10-20 stock charts from each industry, a selection of 3-5 most promising stocks in each group can be made. How many stocks or industry groups make the fi nal cut will depend on the strictness of the criteria set forth. Under this scenario, we would be left with 9-12 stocks from which to choose. These stocks could even be broken down further to fi nd 3-4 best amongst the rest in the lot.

1.1.3 Technical Analysis: The basic assumptions

The field of technical analysis is based on three assumptions:

1. The market discounts everything.

2. Price moves in trends.

3. History tends to repeat itself.

1. The market discounts everything

Technical analysis is criticized for considering only prices and ignoring the fundamental analysis of the company, economy etc. Technical analysis assumes that, at any given time, a stock’s price reflects everything that has or could affect the company - including fundamental factors.The market is driven by mass psychology and pulses with the fl ow of human emotions.Emotions may respond rapidly to extreme events, but normally change gradually over time.It is believed that the company’s fundamentals, along with broader economic factors and market psychology, are all priced into the stock, removing the need to actually consider these factors separately. This only leaves the analysis of price movement, which technical theory views as a product of the supply and demand for a particular stock in the market.

2. Price moves in trends

“Trade with the trend” is the basic logic behind technical analysis. Once a trend has been established, the future price movement is more likely to be in the same direction as the trend than to be against it. Technical analysts frame strategies based on this assumption only.

3. History tends to repeat itself

People have been using charts and patterns for several decades to demonstrate patterns in price movements that often repeat themselves. The repetitive nature of price movements is attributed to market psychology; in other words, market participants tend to provide a consistent reaction to similar market stimuli over time. Technical analysis uses chart patterns to analyze market movements and understand trends. 

1.1.4 Strengths and weakness of Technical Analysis

1.1.4.1 Importance of Technical Analysis

Not Just for stocks

Technical analysis has universal applicability. It can be applied to any fi nancial instrument - stocks, futures and commodities, fi xed-income securities, forex, etc

Focus on price

Fundamental developments are followed by price movements. By focusing only on price action, technicians focus on the future. The price pattern is considered as a leading indicator and generally leads the economy by 6 to 9 months. To track the market, it makes sense to look directly at the price movements. More often than not, change is a subtle beast. Even though the market is prone to sudden unexpected reactions, hints usually develop before signifi cant movements. You should refer to periods of accumulation as evidence of an impending advance and periods of distribution as evidence of an impending decline.Supply, demand, and price action Technicians make use of high, low and closing prices to analyze the price action of a stock. A good analysis can be made only when all the above information is present Separately, these will not be able to tell much. However, taken together, the open, high, low and close refl ect forces of supply and demand.

Support and resistance

Charting is a technique used in analysis of support and resistance level. These are trading range in which the prices move for an extended period of time, saying that forces of demand and supply are deadlocked. When prices move out of the trading range, it signals that either supply or demand has started to get the upper hand. If prices move above the upper band of the trading range, then demand is winning. If prices move below the lower band, then supply is winning. 

Pictorial price history

A price chart offers most valuable information that facilitates reading historical account of a security’s price movement over a period of time. Charts are much easier to read than a table of numbers. On most stock charts, volume bars are displayed at the bottom. With this historical picture, it is easy to identify the following:

• Market reactions before and after important events

• Past and present volatility 

• Historical volume or trading levels 

• Relative strength of the stock versus the index. 

Assist with entry point

Technical analysis helps in tracking a proper entry point. Fundamental analysis is used to decide what to buy and technical analysis is used to decide when to buy. Timings in this context play a very important role in performance. Technical analysis can help spot demand (support) and supply (resistance) levels as well as breakouts. Checking out for a breakout above resistance or buying near support levels can improve returns. First of all you should analyze stock’s price history. If a stock selected by you was great for the last three years has traded fl at for those three years, it would appear that market has a different opinion. If a stock has already advanced signifi cantly, it may be prudent to wait for a pullback. Or, if the stock is trending lower, it might pay to wait for buying interest and a trend Reversal. 

1.1.4.2 Weaknesses of Technical Analysis

Analyst bias

Technical analysis is not hard core science. It is subjective in nature and your personal biases can be reflected in the analysis. It is important to be aware of these biases when analyzing a chart. If the analyst is a perpetual bull, then a bullish bias will overshadow the analysis. On the other hand, if the analyst is a disgruntled eternal bear, then the analysis will probably have a bearish tilt. 

Open to interpretation

Technical analysis is a combination of science and art and is always open to interpretation. Even though there are standards, many times two technicians will look at the same chart and paint two different scenarios or see different patterns. Both will be able to come up with logical support and resistance levels as well as key breaks to justify their position. Is the cup half-empty or half-full? It is in the eye of the beholder. 

Too late

You can criticize the technical analysis for being too late. By the time the trend is identifi ed, a substantial move has already taken place. After such a large move, the reward to risk ratio is not great. Lateness is a particular criticism of Dow Theory.

Always another level

Technical analysts always wait for another new level. Even after a new trend has been identifi ed,there is always another “important” level close at hand. Technicians have been accused of sitting on the fence and never taking an unqualified stance. Even if they are bullish, there is always some indicator or some level that will qualify their opinion.

Trader’s remorse

An array of pattern and indicators arises while studying technical analysis. Not all the signals work. For instance: A sell signal is given when the neckline of a head and shoulders pattern is broken. Even though this is a rule, it is not steadfast and can be subject to other factors such as volume and momentum. In that same vein, what works for one particular stock may not work for another. A 50-day moving average may work great to identify support and resistance for Infosys, but a 70-day moving average may work better for Reliance. Even though many principles of technical analysis are universal, each security will have its own idiosyncrasies.TA is also useful in controlling risk It is Technical Analysis only that can provide you the discipline to get out when you’re on thevwrong side of a trade. The easiest thing in the world to do is to get on the wrong side of a trade and to get stubborn. That is also potentially the worst thing you can do. You think thatvif you ride it out you’ll be okay. However, there will also be occasions when you won’t be okay.

The stock will move against you in ways and to an extent that you previously found virtually unimaginable.

It is more important to control risk than to maximize profits!

There is asymmetry between zero and infinity. What does that mean? Most of us have very finite capital but infi nite opportunities because of thousands of stocks. If we lose an opportunity,we will have thousands more tomorrow. If we lose our capital, will we get thousands more tomorrow? It is likely that we will not. We will also lose our opportunities. Our capital holds more worth to us than our opportunities because we must have capital in order to take advantage of tomorrow’s opportunities.It is more important to control risk than to maximize profi ts! Technical Analysis, if practiced with discipline, gives you specifi c parameters for managing risk. It’s simply supply and demand.Waste what’s plentiful, preserve what’s scarce. Preserve your capital because your capital is your opportunity. You can be right a thousand times, become very wealthy and then get wiped out completely if you manage your risk poorly just once. One last time: That is why it is more important to control risk than to maximize profi ts!

How to know what to look for? How to organize your thinking in a market of thousands of stock trading millions of shares per day? How to learn your way around? Technical Analysis answers all these questions.

Conclusions

Technical analysis works on Pareto principle. It considers the market to be 80% psychological and 20% logical. Fundamental analysts consider the market to be 20% psychological and 80% logical. Psychological or logical may be open for debate, but there is no questioning the current price of a security. After all, it is available for all to see and nobody doubts its legitimacy. The price set by the market refl ects the sum knowledge of all participants, and we are not dealing with lightweights here. These participants have considered (discounted) everything under the sun and settled on a price to buy or sell. These are the forces of supply and demand at work.By examining price action to determine which force is prevailing, technical analysis focuses directly on the bottom line: What is the price? Where has it been? Where is it going?

Even though some principles and rules of technical analysis are universally applicable, it must be remembered that technical analysis is more an art form than a science. As an art form, it is subject to interpretation. However, it is also fl exible in its approach and each investor should use only that which suits his or her style. Developing a style takes time, effort and dedication,but the rewards can be signifi cant.

WHAT IS A MUTUAL FUND?

 A mutual fund is a type of investment vehicle that pools money from multiple investors to invest in a diversified portfolio of securities such as stocks, bonds, money market instruments, or a combination of these assets. It is managed by professional investment managers or fund managers.

Here are some key features of mutual funds:

Diversification: Mutual funds offer investors access to a diversified portfolio of securities. By pooling money from multiple investors, a mutual fund can invest in a wide range of assets across different industries, sectors, or regions. This diversification helps reduce risk by spreading investments across various holdings.

Professional Management: Mutual funds are managed by experienced investment professionals who make decisions on behalf of the investors. These fund managers conduct research, monitor the markets, and make investment decisions to achieve the fund's investment objectives.

Variety of Investment Objectives: Mutual funds come in various types, each with its investment objective and strategy. Some mutual funds aim for capital appreciation by investing in stocks, while others focus on generating income through bonds or dividend-paying securities. There are also balanced funds that invest in a mix of asset classes.

Liquidity: Mutual funds are generally liquid investments, meaning investors can buy or sell their shares on any business day at the fund's net asset value (NAV). The NAV is calculated by dividing the total value of the fund's assets by the number of outstanding shares. This provides investors with the flexibility to enter or exit their investment positions.

Accessibility: Mutual funds are accessible to a wide range of investors, from individual investors to institutional investors. The minimum investment requirements can vary, but they are generally lower compared to other investment options such as individual stocks or bonds.

Transparency: Mutual funds are required to provide regular disclosure of their holdings, performance, expenses, and other pertinent information. This allows investors to monitor the fund's activities and make informed investment decisions.

Fees and Expenses: Mutual funds charge fees and expenses to cover operating costs, management fees, and other expenses. These costs are typically expressed as an annual percentage known as the expense ratio. It's important for investors to consider these fees when evaluating the performance and suitability of a mutual fund.

It's worth noting that mutual funds can be classified into different categories based on their investment objectives, asset class, risk profile, or other criteria. Investors should carefully consider their investment goals, risk tolerance, and time horizon when selecting mutual funds to align with their investment strategy.

WHAT IS MEANT BY MARKET CAPITALISATION?

 Market capitalization, often referred to as market cap, is a measure of the total value of a publicly traded company. It represents the market value of a company's outstanding shares of stock. Market cap is calculated by multiplying the company's current share price by the total number of its outstanding shares.

Market capitalization is an important metric for investors and analysts as it provides an indication of a company's size and its relative position in the market. It is widely used to categorize companies into different groups, such as large-cap, mid-cap, and small-cap.

Here are the commonly used categories based on market capitalization:

1-Large-Cap: Companies with a market cap generally exceeding $10 billion are considered large-cap. These are typically well-established, financially stable companies with a significant presence in their respective industries. Examples include Apple, Microsoft, and Amazon.

2-Mid-Cap: Mid-cap companies have a market cap between $2 billion and $10 billion. They are often in a phase of growth and expansion, with potential for further development. Examples include Airbnb, Zoom Video Communications, and Chipotle Mexican Grill.

3-Small-Cap: Small-cap companies have a market cap between $300 million and $2 billion. They are generally younger companies with potential for rapid growth but may also carry higher risk. Examples include Roku, Etsy, and Wayfair.

4-Micro-Cap: Micro-cap companies have a market cap below $300 million. These companies are often early-stage startups or smaller, niche businesses. They can be more volatile and have higher investment risk due to their size and limited resources.

Market capitalization is not the only metric to evaluate a company, as other factors like revenue, profitability, and growth prospects also play a crucial role. However, market cap provides a useful snapshot of a company's overall value in the stock market and is widely used as a reference point for investors and analysts when comparing companies or constructing investment portfolios.

The market value of a quoted company, which is calculated by multiplying its current share price (market price) by the number of shares in issue is called as market capitalization. E.g. Company A has 120 million shares in issue. The current market price is Rs. 100. The market capitalisation of company A is Rs. 12000 million.

WHAT FACTORS DETERMINE INTEREST RATES?

 
 

Interest rates are determined by a variety of factors, and their specific influences can vary depending on the country and the type of interest rate in question (e.g., short-term rates, long-term rates, mortgage rates, etc.). Here are some key factors that commonly impact interest rates:

1-Monetary Policy: Central banks, such as the Federal Reserve in the United States or the European Central Bank in the Eurozone, play a crucial role in setting interest rates. Through monetary policy tools like adjusting the benchmark interest rate or open market operations, central banks aim to manage inflation, stabilize the economy, and promote growth.

2-Inflation: Inflation refers to the general increase in prices of goods and services over time. When inflation is high, lenders demand higher interest rates to compensate for the eroding purchasing power of money. Central banks often raise interest rates to curb inflation and vice versa.

3-Economic Growth: Interest rates tend to be influenced by the state of the economy. In periods of robust economic growth, central banks may increase rates to prevent excessive borrowing and spending, which could lead to inflationary pressures. Conversely, during economic downturns, central banks may lower rates to stimulate borrowing, investment, and economic activity.

4-Government Policy: Government fiscal policies, such as taxation and government spending, can impact interest rates indirectly. If the government runs large budget deficits, it may need to borrow more, increasing demand for credit and potentially pushing interest rates higher.

5-Supply and Demand for Credit: The availability and demand for credit also influence interest rates. When there is a high demand for borrowing, lenders may raise rates to make credit more expensive and manage their risk. Conversely, when demand for credit is low, lenders may lower rates to attract borrowers.

6-Market Expectations: Interest rates can be influenced by market expectations of future economic conditions, inflation, and central bank actions. If investors anticipate higher inflation or tighter monetary policy, they may demand higher interest rates on loans and bonds.

7-Global Factors: Global economic trends, geopolitical events, and international capital flows can impact interest rates. Changes in foreign exchange rates, trade policies, and global financial stability can influence borrowing costs in individual countries.

It's important to note that these factors are interrelated and can influence each other. The exact relationship between these factors and interest rates can be complex and can vary across different economies and time periods. Central banks and monetary authorities closely monitor these factors to make informed decisions about interest rate adjustments.

BASICS OF STOCK MARKET

 Investment & Need of Investment

• The money you earn is partly spent and the rest saved for meeting future expenses. Instead of keeping the savings idle you may like to use savings in order to get return on it in the future. This is called Investment.

• One needs to invest to

1. earn return on your idle resources

2. generate a specified sum of money for a          specific goal in life

3. make a provision for an uncertain future

When to Start Investing

• The sooner one starts investing the better. By investing early you allow your investments more time to grow, increases your income, by accumulating the principal and the interest or dividend earned on it,year after year.

• The three golden rules for all investors are:

1. Invest early

2. Invest regularly

3. Invest for long term and not short term

Where to Invest

• One may invest in:

1. Physical assets like real estate, gold/jewellery,commodities etc

2. Financial assets such as fixed deposits with banks, small saving instruments with post offices,insurance/provident/pension fund etc or security market related instruments like shares, bonds,debentures etc.

Short & Long Term Options for Investment

• Short Term:

1. Savings Bank Account

2. Money Market or Liquid Funds

3. Fixed Deposit with Banks

• Long Term:

1. Post Office Savings

2. Public Provident Fund

3. Bonds

4. Mutual Funds

Before investing in a Market

• Before investing, it is always wise to learn the Basics Of Stock Market. We have compiled articles and tutorials on the Share Market Basics. Also included here explanation of Stock Market Terms and jargon used by people involved in trading stocks and shares. Whether it is Bombay Stock Exchange (BSE),National Stock Exchange (NSE), London Stock Exchange (LSE) or New York Stock Exchange (NYSE),trading terms or more or less similar

Why Trade In Stock Market

 1. You do not need a lot of money to start making money, unlike buying property and paying a monthly mortgage.

• 2. It requires very minimal time to trade - unlike building a conventional business

• 3. It’s ‘fast’ cash and allows for quick liquidation (You can convert it to cash easily, unlike selling a property or a business). 

• 4. It’s easy to learn how to profit from the stock market. But You need to have your basics clear. Unless you do….you will be wasting your time and loosing money. You need to be crystal clear of each and every aspect of Investments, stock options, Stock Trading, Company, Shares, Dividend & Types of Shares, Debentures, Securities, Mutual Funds, IPO, Futures & Options, What does the Share Market consist of? Exchanges, Indices, SEBI , Analysis of Stocks – How to check on what to buy?, Trading Terms (Limit Order, Stop Loss, Put, Call, Booking Profit & Loss, Short & Long), Trading Options – Brokerage Houses etc.

Stock Market System

• Primary market

• stock market is a secondary market

• trade stock for listed corporations

• Progressive development of stock

market

Primary Market

• The primary market provides the channel for sale of new securities. Primary market provides opportunity to issuers of securities; Government as well as corporate to raise resources to meet their requirements of investment and/or discharge some obligation.

• They may issue the securities at face value, or at a discount/premium and these securities may take a variety of forms such as equity, debt etc. They may issue the securities in domestic market and/or international market

Why Companies need to issue shares to Public

• Most companies are usually started privately by their promoter(s). However, the promoters’ capital and the borrowings from banks and financial institutions may not be sufficient for setting up or running the business over a long term. So companies invite the public to contribute towards the equity and issue shares to individual investors. 

• The way to invite share capital from the public is through a ‘Public Issue’. Simply stated, a public issue is an offer to the public to subscribe to the share capital of a company. Once this is done, the company allots shares to the applicants as per the prescribed rules and regulations laid down by SEBI.

Secondary Market

• Secondary market refers to a market where securities are traded after being initially offered to the public in the primary market and/or listed on the Stock Exchange. Majority of the trading is done in the secondary market. Secondary market comprises of equity markets and the debt markets

• Difference between Primary and Secondary Market is In Primary Market securities are offered to public for subscription for the purpose of raising capital or fund Secondary Market is an equity trading venue in which already existing/pre-issued securities are traded among investors.

Equity Investment

• When you buy a share of a company you become a shareholder in that company. Shares are also known as Equities. Equities have the potential to increase in value over time. It also provides your portfolio with the growth necessary to reach your long term investment goals. Research studies have proved that the equities have outperformed most other forms of investments in the long term.

• Equities are considered the most challenging and the rewarding,when compared to other investment options.

• Research studies have proved that investments in some shares with a longer tenure of investment have yielded far superior returns than any other investment.

• However, this does not mean all equity investments would guarantee similar high returns. Equities are high risk investments.One needs to study them carefully before investing

Types of investors

• Speculators

• Hedgers

• Arbitragers

Important Jargons

o BSE Sensitive Index or SENSEX

o Bull Market

o Bear Market

o Delivery

o Intraday

o Dematerialization

o Long Buy

o Short Selling

o Stop Loss

o Portfolio

o Tick Size

o Averaging

o Booking Profit or Loss

o Crash - Curciuts

o Right Issue

o Stock bonus

o Stock Split

Jargons 

SNP CNX NIFTY 50

Nifty CNX 100

Nifty Junior

Future Index

Future Contract

Margin

Premium

Discount

Market lot

Roll over

Options

Call

Put

Long Positions

Short positions

Expiry

UNDERSTANDING THE DIFFRENT WAYS TO BUY AND SELL STOCK OR TYPES OF ORDERS IN STOCK MARKET

The seC’s office of Investor education and Advocacy is issuing this Investor Bulletin to help educate investors about the different types of orders they can use to buy and sell stocks through a brokerage firm. The following are general descriptions of some of the common order types and trading instructions that investors may use to buy and sell stocks. Please note that some of the order types and trading instructions described below may not be available through all brokerage firms. Furthermore,

some brokerage firms may offer additional order types and trading instructions not described below. Investors should contact their brokerage firms to determine which

types of orders and trading instructions are available for buying and selling as well the firms’ specific policies regarding such available orders and trading instructions.

-Market and Limit Orders

The two most common order types are the market order and the limit order. 

1-Market Order

A market order is an order to buy or sell a stock at the best available price. Generally, this type of order will be executed immediately. However, the price at which

a market order will be executed is not guaranteed. It is important for investors to remember that the last-traded price is not necessarily the price at which a market order will be executed. In fast-moving markets, the price at which a market order will execute often deviates from 

the last-traded price or “real time” quote. 

Example: An investor places a market order to buy 1000 shares of XYZ stock when the best offer price is $3.00 per share. If other orders are executed first, the investor’s market order may be executed at a 

higher price. In addition, a fast-moving market may cause parts of a large market order to execute at different prices. Example: An investor places a market order to buy 1000 shares of XYZ stock at $3.00 per share. In a fast-moving market, 500 shares of the order could execute at $3.00 per share and the other 500 shares execute at a higher price. 

2-Limit Order

A limit order is an order to buy or sell a stock at a specific price or better. A buy limit order can only be executed at the limit price or lower, and a sell limit order can only 

be executed at the limit price or higher. A limit order is not guaranteed to execute. A limit order can only be filled if the stock’s market price reaches the limit price. While limit orders do not guarantee execution, they help ensure that an investor does not pay more than a pre-determined price for a stock.

Example: An investor wants to purchase shares of ABC stock for no more than $10. The investor could place a limit order for this amount that will only execute if the price of ABC stock is $10 or lower.

Special Orders and Trading Instructions

In addition to market and limit orders, brokerage firms may allow investors to use special orders and trading instructions to buy and sell stocks. The following are

descriptions of some of the most common special orders and trading instructions.

Stop Order 

A stop order, also referred to as a stop-loss order, is an order to buy or sell a stock once the price of the stock reaches a specified price, known as the stop price. When the stop price is reached, a stop order becomes a market order. A buy stop order is entered at a stop price above the current market price. Investors generally use a buy

stop order to limit a loss or to protect a profit on a stock that they have sold short. A sell stop order is entered at a stop price below the current market price. Investors generally use a sell stop order to limit a loss or to protect a profit on a stock that they own.

Before using a stop order, investors should consider thefollowing:

-- short-term market fluctuations in a stock’s pricecan activate a stop order, so a stop price should beselected carefully.

-- The stop price is not the guaranteed execution price for a stop order. The stop price is a trigger that causes the stop order to become a market order.The execution price an investor receives for this market order can deviate significantly from the stop price in a fast-moving market where prices change rapidly. An investor can avoid the risk of a stop order executing at an unexpected price by placing a stop-limit order, but the limit price may prevent the order from being executed.

--For certain types of stocks, some brokerage firms have different standards for determining whether a stop price has been reached. For these stocks, some brokerage firms use only last-sale prices to trigger a 

stop order, while other firms use quotation prices. Investors should check with their brokerage firms to determine the specific rules that will apply to stop orders.

Stop-limit Order

A stop-limit order is an order to buy or sell a stock that combines the features of a stop order and a limit order.once the stop price is reached, a stop-limit order becomes a limit order that will be executed at a specified price(or better). The benefit of a stop-limit order is that the investor can control the price at which the order can be executed.

Before using a stop-limit order, investors should consider the following:

--As with all limit orders, a stop-limit order may not be executed if the stock’s price moves away from the specified limit price, which may occur in a fast-moving market.

--short-term market fluctuations in a stock’s price can activate a stop-limit order, so stop and limit prices should be selected carefully.

-- The stop price and the limit price for a stop-limit order do not have to be the same price. For example,a sell stop limit order with a stop price of $3.00 may have a limit price of $2.50. such an order would become an active limit order if market prices reach

$3.00, although the order could only be executed at a price of $2.50 or better.

-- For certain types of stocks, some brokerage firms have different standards for  determining whether the stop price of a stop-limit order has been reached. For these stocks, some brokerage firms use only last-sale prices to trigger a stop-limit order, while other firms use quotation prices. Investors should check with their brokerage firms to determine the specific rulesthat will apply to stop-limit orders.

Day Orders, Good-Til-Cancelled Orders,

and Immediate-Or-Cancel Orders

Day orders, Good-til-Cancelled (GtC) orders, and Immediate-or-Cancel (IoC) orders represent timing instructions for an order and may be applied to either market or limit orders. unless an investor specifies a

time frame for the expiration of an order, orders to buy and sell a stock are Day orders, meaning they are good only during that trading day.A GTC order is an order to buy or sell a stock that lasts until the order is completed or cancelled. Brokerage firms

typically limit the length of time an investor can leave a GtC order open. This time frame may vary from broker to broker. Investors should contact their brokerage firms to determine what time limit would apply to GtC orders.An IOC order is an order to buy or sell a stock that must be executed immediately. Any portion of the order that

cannot be filled immediately will be cancelled.

Fill-Or-Kill and All-Or-None Orders

two other common special order types are Fill-Or-Kill(FOK) and All-Or-None (AON) orders. An FoK order is an order to buy or sell a stock that must be executed immediately in its entirety; otherwise, the entire order will be cancelled (i.e., no partial execution of the order is allowed). An Aon order is an order to buy or sell a stock

that must be executed in its entirety, or not executed at all. However, unlike the FoK orders, Aon orders that cannot be executed immediately remain active until they are executed or cancelled.

Opening Transactions

Investors should be aware that any order placed outside of regular trading hours and designated for trading only during regular hours will usually be eligible to execute

at an opening price. Investors should contact their brokerage firms to find out their broker’s policies regarding opening transactions

TRADING WEAKNESSES

 1.EMOTIONS:

The good news here is that with more experience you will get better at managing your emotions, the bad news is that you will never get to a level where you just don't feel anything and trade like a robot. For example, Stanley Druckenmiller, a billionaire macro
trader, once got hurt badly because he FOMO()ed into the dot.com bubble even if he had 30 years of experience.
The way I fixed this, is by having a macro fundamental approach to my trades. I started as a pure technician, but luckily I found out early that it's just not enough.
When you know why something should go one way or the other, you will have less emotional pressure. Your emotions are generally impacted because you don't know WHY you're in a trade and especially because you may have never had a positive year.

2.ENTRIES: 

This is another weakness I fixed with a macro approach. I recently made a post on timing the market with fundamental catalysts. I just find it easier to enter the market in line with my big picture view when I actually have a reason to enter at that precise moment. If I see the trade isn't working out as expected and the price even breaks some strong levels I marked, I just cut the trade and move on.You can still have a fundamental big picture view and time the market with technicals, but the problem 

here is that you don't really know what technical level or setup will work and thus you may get stopped out more than once before you get it right. And the more 

you get stopped out, the bigger your drawdown will be and the less confidence you will have.

3.GREED: 

Guess what? I fixed this problem with fundamentals as well. When the reasons I got into a trade change, then I move accordingly. For example, I recently shorted WTI OIL because of the big miss in the US Jobless Claims and the trade moved in my favour.Although I never have targets, I was eyeing the recent low at $64 for this trade, but the next day I saw that the big jump in claims was related to fraud attempts in Massachusetts, so it wasn't really a big miss if you exclude Massachusetts data. So, I closed the trade even if I was in profit. If I held the trade just because of greed, Ivwould have lost all the gains.

4.REVENGE AND OVERTRADING: 

Again I may sound repetitive but most of my 

weaknesses have been fixed by adding macro fundamentals to my trading. 

In fact, both of these problems can be fixed by just waiting for the right catalyst. In the meantime, you can do whatever you want. If you rely solely on technicals, you may just go down to trade the I minute timeframe and start overtrading, but if you actually wait for the right catalyst, you won't overtrade. 

Regarding the revenge part, it has mostly to do with unrealistic expectations. You WILL have losses, so your job is to keep them small. Also, don't believe to people telling you that you can make like 10%/month 

consistently. It's all BS.

5. MOVING THE STOP LOSS: 

Finally something that talks about technicals right? Look, everyone has its own trade management method. Some move the SL behind every new swing point, some others place the SL below/above strong technical levels. I just move it to breakeven at some point and keep it there. That's because if the trade goes in my favour, and the reasons I got in are still very valid, I don't want to get stopped out prematurely because of a 

bigger pullback. I can also take some profits off the table while the trade is running. 

If you are just day trading, fine, moving the SL behind the swing points should do the job, but it's not for me.

6.OTHER: 

The other weaknesses you shared were: 

fundamentals, intepreting news releases, filtering the noise, having the right bias and not having a plan. These are all interrelated. The only thing that fixes them is knowledge and experience. You cannot pretend to become good at trading after just a few 

months or a year. People study 5 years or more to become doctors, lawyers or to become good at playing the piano. It takes time. Trading is a job, sure it can be a very rewarding job but it's still a job. I know very well that most poeple have unrealistic expectations from trading because on social media influencers and marketers need to 

sell a dream. I can't change your mind, but maybe I can make you reflect. 9/10

SUPPORT AND RESISTANCE IN STOCK MARKET CHART ANALYSIS.

 WHAT IS SUPPORT? 

• Support is something that prevents the price from falling further.

 • The support level is a price point on the chart where the trader expects maximum demand in terms of buying) coming into the stock/index. Whenever the price falls to the support line, it is likely to bounce back. The support level is always below the current market price.

• Support levels can be visualized using different technical indicators or simply by drawing a line connecting the lowest lows for the period. The rationale is that as the price drops and approaches support, buyers (demand) become more inclined to buy and sellers (supply) become less willing to sell.

WHAT IS RESISTANCE ? 

• The very term resistance in the stock market; suggests something of a kind of a barrier. 

• Resistance is the price level wherethe probability of the price moving above the level is much lower than the probability of the stock meets a price barrier and falling lower. 

• Resistance is one of the criticaltechnical analysis tools that any trader or market participant looks at in a rising market.

• When a stock is going up on momentum, the price often tends to overshoot such technical levels. However, it often returns to below the resistance as the supply builds up at the resistance level. The resistance level is normally shown on charts as a horizontal line and is generally higher than the current market price.

BACKTESTING IN TRADING

 BACKTESTING

A "MUST DO" FOR EVERY TRADER

Backtesting is a process where a trader assesses how a strategy would have performed in the past. During backtesting, the trader follows strictly all strategy rules to get an objective view on the performance to see if something needs to be changed.

TYPES OF PUBLIC OFFERING (DIRECT PUBLIC OFFERING AND INITIAL PUBLIC OFFERING)

 DPO

DIRECT PUBLIC OFFERING

The company is not required to use underwriters. 

Saves money for not using underwriters.

Investment banks and financial institutions that act as underwriters may be costly, they help ensure that federal regulations are followed. It chooses to raise cash through a DPO,its corporate team is responsible for making sure federal regulations are followed

IPO

INITIAL PUBLIC OFFERING

The company uses services of intermediaries called underwriters.

Have to pay fees for Underwriters. Regulated & stable because the underwriter buys the shares, the company gets the cash immediately upon completion of contracts. This allows the company to put that money to work much more quickly.while the underwriter worries about selling the shares.

THE WYCKOFF METHOD FOR STOCK MARKET

 THE WYCKOFF METHOD

:-Work on getting a broader understanding of the market. This will identify markets likely to trade higher,lower, or sideways.

:-Once you understand the probable direction,identify stocks that have historically followed the same trend.

:- Use point-and-figure charts to identify potential investments that have an early-stage accumulation or re-accumulation.

:-Look for a stock's readiness to move, indicated by trading ranges and instances of stock accumulation and re-accumulation, distribution, and redistribution.

:-Time your investment plans to benefit from a broader market trend change. Then,implement stop-loss limits and follow the stock price until the trend changes.

BEST BOOKS PDFS ON TRADING AND INVESTING

 BEST BOOKS PDFS ON TRADING AND INVESTING

1. THE INTELLIGENT INVESTOR

2. LEARN TO EARN

3. RICH DAD AND POOR DAD

4. A RANDOM WALK DOWN WALL STREET

5. HOW TO MAKE MONEY IN STOCKS

6. THE DHANDHO INVESTOR

7. THE WARREN BUFFET WAYS

8. BEATING THE STREET

9. THE LITTLE BOOK THAT BEATS THE MARKET

5 USEFUL POSITION TIPS FOR TRADING

 5 USEFUL POSITION TIPS FOR TRADING

• USE FUNDAMENTAL UPDATES TO GAIN A

STRONG UNDERSTANDING OF MARKET

DIRECTION

• ONLY USE KEY LEVELS THAT PRICE HAS

RESPECTED FIVE OR MORE TIMES AS

SUPPORT/RESISTANCE

• USE RISK/REWARD RATIOS OF 15 OR

HIGHER

• USE THE 200 EMA TO HELP DETERMINE

TREND

. CONSIDER THE BUY & HOLD METHOD FOR

BULLISH INDICES AND CRYPTO

FIBONACCI NUMBERS

 FIBONACCI NUMBERS

There is a special ratio that can be used to describe the proportions of everything from natures smallest building blocks such as atoms to the most advanced patterns in the universe.

Financial markets also conform to this Golden Ratio.

A Fibonacci sequence is derived by simply adding two preceding terms. (1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144.....)

The important point in this is that the ratio of one to the next is roughly 1.618 and the inverse is 0.618.

Everything in nature adheres to this ratio, including dividing our height from our head to our toes by the distance from our belly button to our toes we get 1,618.

5 KEY EVENTS EVERY TRADER SHOULD KNOW

 5 KEY EVENTS EVERY TRADER SHOULD KNOW

EVENT

1.MONETARY POLICY- EVERY TWO MONTHS

2.INFLATION - 2ND WEEK OF EVERY MONTH

3.IIP(INDEX OF INDUSTRIAL PRODUCTION)

-EVERY MONTH (ALONG WITH INFLATION DATA)

4.BUDGET - ANNUALLY (LAST WEEK OF FEB)

5.CORPORATE EARNINGS - EVERY QUARTER

THESE ARE THE MAJOR EVENTS WHICH EVERY TRADER

SHOULD BE AWARE OF

INTRADAY TRADING BASICS

 DAY TRADING BASICS

. CUT YOUR LOSSES.

. CONTROL YOUR EMOTIONS.

• FIND YOUR STRATEGY.

• PRACTICE PAPER TRADE.

.SET RISK/REWARD.

• DON'T GO ALL IN.

. AVOID FOMO

. TRACK TRADES

• BUILD A WATCHLIST

• DON'T FOLLOW OTHERS.

• PROTECT CAPITAL

JESSE LIVERMORE'S TRADING RULES FROM 1940

 Jesse Livermore's trading rules from 1940.

1. Nothing new ever occurs in the business of speculating or investing in securities and commodities. 

2. Money cannot consistently be made trading every day or every week during the year. 

3, Don't trust your own opinion and back your judgment until the action of the market itself confirms your opinion. 

4. Markets are never wrong — opinions often are. 

5. The real money made in speculating has been in commitments showing in profit right from the start, 

6. At long as a stock is acting right, and the market is right, do not be in a hurry to take profits. 

7. One should never permit speculative ventures to run into investments. 

8. The money lost by speculation alone is small compared with the gigantic sums lost by so-called investors who have let their investments ride. 

9. Never buy a stock because it has had a big decline from its previous high. 

10, Never sell a stock because it seems high-priced. 

DOUBLE BOTTOM STRATEGIES FOR INTRADAY TRADING

 

DOUBLE BOTTOM STRATEGIES :

In a downtrend. the stock sells off and find 

support at point A Then the price moves 

up to point B and can't keep the uptrend' 

selling off to point C holding support of 

Point A and begins to go up again, 

c Stop Loss 

This is when a potential double bottom 

reversal is setting up.

TECHNICAL INDICATOR ROAD MAP

 Technical Indicator Road Map: 

MACD - Price swings 

RSI - Overbought/Oversold 

Bollinger Bands - Trading Range 

ATR - Volatility 

ADX i-, Strength of a trend 

Keltner Channels - Extension from 

the mean 

Moving averages - Trend direction 

What else would you add?

BEST WAY TO INCREASE A QUANTITY INTO A TRADE

Pyramiding into a trade: 

Don't take the full position at once 

Maybe buy 25% on the initial signal 

Add another 50% on a confirmation 

of the signal 

Add another 25% on the follow 

through of price action 

Build your position 1 step at a 

time,add to winners & losers are cut 

short 

TRADING PSYCHOLOGY

 YOUR BRAIN IS A 

SUPER COMPUTER 

UPDATE ITS SOFTWARE 

• Books 

• Podcasts 

• Experiences 

PROTECT ITS BATTERY 

• Eight hours of sleep 

• Connect with nature 

• Technology detox 

CLEAN ITS HARD DRIVE 

• Meditate 

• Journal 

• Positive self talk

PROPER POSITION SIZING

proper Position Sizing Cheat Sheet 

Position sizing isn't random. It's calculated based on ACCOUNT RISK (AR) and TRADE RISK (TR). 

A formula controls risk so we know exactly how many stocks, futures contracts, or forex lots to buy on a given trade. There are many ways to calculate position size. Here are a few simple ones: 

Fixed % Risk Method 

Step 1. Choose an AR% you wish to risk on a trade. 2% or less. or less is preferred. 

Step 2. Covert the to AR$, based on your account size. 

ARI% on $10,000 account means you can risk/lose up to SIOO/ trade. 

Step 3. Determine TR$, This may vary by trade; it's the difference between the entry and stop loss (SL) price. The SL is the exit point if the price doesn't move in the expected direction. 

• Entry at $15,SLat $14.25, means TRS is $0.75. 

POSTION SIZE AR$ / TR$ - $100/$0.75 - 133 shares. 

Fixed S Allocation Method 

Step 1. Choose the maximum number of trades you want to allocate your total capital to. If you choose 5, each trade gets a maximum of 20% of the capital. 4 trades, each gets 25%, and so on. 

Step 2. Apply the SL to the trade. AR% should still be under 2%, ideally under of account. 

• 5100K account spread over 5 trades. 520K into each. Assume TR% is 7% (difference between entry and SL). 0.07 x $20K — $1400, that's 1.4% of the 5100K account. Acceptable. 

If the TR% is 15% the AR% risk exposure is too high. 0.15 x 520K - or 3% of account. 

• Reduce capital allocation (S) until the is below ideally lfTR%is 15%, allocating SIOK to it means overall account risk is now down to 1.5%. Acceptable. 

POSITION SIZE = Capital allocation ($) / purchase price Assume $65 entry and S20K allocation $20K / $65 307 shares using leverage? Use total buying power (TBP) not total capital. 5100K, 2K leverage S200K TBP Forex 0LEuturesSizing 

Utilize the Fixed % Risk Method, Establish your and convert to ABS. Determine TR in pips or ticks/points and know the pip/tick/point value. 

Assume a $15,000 USD account, AR% is 1% (can lose up to $150), buying EURUSD at 1.1510 with SLat 1.1498 (12 pips risk). Pip value is $10/standard lot. 

POSITION SIZING = AR$ / (TRpips x Pip value) 

• $150/ (12pips x $10) — 1.25 standard lots. Itjs standard lots because we used it in the equation. Use micro lots (SI) for the position size in micro lots. This position size requires 10:1 leverage (1.25 lots is €125k, with only $1SK in the account).

MOVING AVERAGE ROAD MAP

 Moving Average road map: 

      5 day EMA- Strong Momentum 

      10 day EMA- Short Term Trend 

      20 day EMA- Pullback Support 

      50 day SMA- Uptrend Defense Line 

      100 day SMA- Big Price Dip 

      200 day SMA- Bulls last stand in 

                     uptrend, bears in downtrend

      250 day SMA- Value Zone

TRADING STYLES!

 -TRADING STYLES

A METHOD WHICH USED BY TRADER IN EQUITY,CURRENCY,BONDS AND FUTURES MARKET TO GAIN THE PROFITS. 

-WELL KNOWN TRADING STYLES ARE OF 4 TYPES

1.SCALPING

A method in which trader holding a positions for several minutes.

2.DAY TRADING

A method in which trader holding a positions for a day or less.

3.SWING TRADING

A method in which trader holding a positions for several days.

4.POSITION TRADING

A mehtod in which trader holding a postions for several several weeks. 

DEVELOPING YOUR TRADING PLAN

1-Time frame

a) intraday trading

5 minutes to 1hour candle

b) swing trade

4hour to day candle

c) long term/holding

Day to week candle

2-Risk management

Risk 1-3% of capital per trade

3-Conditions for trade

Ranging or trending

4-Markets

-equity

-currency

-bonds

-futures

4-Entries

-Pulback

-Breakout

-Crossover

5-Stops

-Away from market structure

6-Targets

Fixed with trailing stoploss

Fig-A complete knowledge for how to developing a trading plan

MARKET RECAP OF 27/01/2022

Market recap of 27january 2022

Short notes

Top gainers and top losers

News about some stocks

1-Cipla and streer estimates

2-Macrotech goes macro sales bookings

3-United sprits tumbles

 

WHATSAPP GROUP LINKS FOR CALLS AND TIPS!

 Hey guys welcome to our website some peoples are asking for the whatsapp group where they can take a tips and calls from experts related to which stock they have to buy or sell.. 

Whatsapp group link-https://chat.whatsapp.com/KxWCwmF3iQS5vIjnDmClCn

Whatsapp group link-https://chat.whatsapp.com/KxWCwmF3iQS5vIjnDmClCn

You guys doesn't have to pay any additional money for it... It's a profit sharing and loss covering strategy-- you only have to pay the 30% profit when you win in the trade.. 

MARKET CYCLE||ACCUMULATION||DISTRIBUTION

MARKET CYCLE -REPEATATION PATTERN IN MARKET. After period of time marker repaeats it's moves. And this repeatetive moves are very helpful to take a trade. 

ACCUMULATION

DISTRIBUTION

HOW TO TRADE? 

RIDE THE TREND

 

PRICE ACTION TUTORIAL||NIFTY 50

WHAT IS PRICE ACTION? 

PRICE ACTION-IT IS THE MOVEMENT OF PRICE IN COMPARE TO TIME! 

 

WELCOME TO THE STOCK MARKET JUNGLE!

IN THIS POST WE COMPARED INVESTORS TO ANIMALS BECAUSE IT DEFINES THE CHART PATTERNS SUCH AS. 

1.BULL (see below image) 

2.BEAR(see below image) 

3.CHICKEN(see below image)

4.WOLVES(see below image) 

5.OSTRICH(see below image) 

6.PIGS(see below image) 

7.STAGS(see below image) 

 WHICH ONE ARE YOU? 

Let us know in the comment! 

WHAT IS SWING TRADING?||SWING TRADING TUTORIAL!

WHAT IS SWING TRADING? 

-SWING TRADING IS THE TRADING STRATEGY THAT ATTEMPTS TO GAIN A  PROFIT IN STOCKS(OR ANY FINANCIAL SECURITIES)  FOR SHORT TERM

-SWING TRADING IS FOR PERIOD OF A FEW DAYS TO SEVERAL WEEKS.

SWING TRADING TUTORIAL (see image-1)

image-1

STEP 1- DRAW THE TRENDLINE AND SUPPORT/RESISTANCE(see image-2)

Image-2

STEP 2-BREAKOUT(see image-3)

Image-3

STEP 3-PULLBACK (see image-4)

Image-4

STEP 4- TRADE SETUP (see image-5)

Image-5

STEP 5-CONFIRM THE MOVING AVERAGES(see image-6)

image-6

 

ASSCENDING TRIANGLE PATTERN PSYCHOLOGY

WHAT IS ASSCENDING TRIANGLE PATTERN?

-ASSCENDING TRIANGLE PATTERN IS THE CANDLESTICK CHART PATTERN WHICH TELLS ABBOUT THE BREAKOUT AND ALSO GIVES THE SIGNAL FOR THE TRADE ENTRY!
*ASSCENDING TRIANGLE PATTERN PSYCHOLOGY(see image-1)

Image-1

*HOW TO CHECK BREAKOUTS IN ASSCENDING TRIANGLE PATTERN? (see image-2)

Image-2

*CONFIRMATION OF BREAKOUT?

-FOR THE CONFIRMATION OF BREAKOUT YOU HAVE TO WAITE FOR THE RETESTING .(see image-3)

Image-3

*ENTERING AT THE RETESTING LEVEL.AND RIDE THE TREND.(see image-4)

Image-4