Category Archives: STOCK MARKET BASICS
Inflation: The Real Culprit…. Its effects on the stock market
In principle, the stock market should do well under conditions of strong economic growth and low inflation.
Ah, and there’s the rub: inflation!
If inflation is a growing problem, investment analysts become suspicious of high economic growth or good market reports. So, what’s Inflation?
In simple terms, Inflation is rise in price of several items over the period of time. Its a financial term.
Example:
Our grandparents were able to do shopping with just Rs.1 per month, in recent times, we need at-least Rs.10000 per month. So this rise in prices year after year is the effect of inflation.
Say, movie tickets were o.50 paisa before, now we pay Rs.100. Inflation reduces the price of money.
Ok, Higher Inflation rates decreases the Purchasing power ….
We had the Inflation data today, the number showed down from expected 7.25 percent to 6.87 percent. Its not a very good news for the market.
Sooriya
FII AND FDI
FII FOREIGN INSTITUTIONAL INVESTOR
Institutional investors are big organizations which pool large sums of money, and invest them in securities and other investment assets. They act as financial intermediaries in securities market.
So these FII invest in indian securities market and leave great impact on the market and our economy.
This image shows the data of past one year FII Purchase and Sales in our market.
FDI FOREIGN DIRECT INVESTMENT
Its Investment directly into the production in a country by a company located in another country, either by buying the target in other country or my expanding its business in that country.
Benefits are
- Cheaper wages or resources in the other country
- Special investment privileges like tax exemption
- Trade
- Economic growth
- Diffusion of technology and knowledge
- Employment
- Human Development
- Increased competition
- and much more.,,
What is their main intention???????
Its to make capital gain…..and this is for a investment of shorter duration.
Factors affecting FII are
- Interest rate- If high,its more preferable
- Money supply and Inflation rate- will have to be adequate and stable enough to reap profits
- Exchange rate- Highly volatile is not preferred
- BOP(Balance of Payment)- it should not be deficit.
- Economic growth- fast enough for countries to get benefits.
So, Investment in other country is beneficial and promotes growth and increased efficiency.
Happy Learning,
Sooriya jayaseelan
Sectors of Stock Market
Stock market is made up of various sectors and sub- sectors. I will just give you a broad understanding of how it is mapped into categories.
Sectors will always out perform other sectors, it is well worth researching the best and worst sectors in the stock market to aid your stock picking decisions.
Here is a picture showing the sectors and each sectors contribution to the market.
Each of the sector includes these industries…
| Sector | Industries included are |
| Basic Materials | aluminium, steel, gold mining, metals, paper, containers, lumbar |
| Capital Goods | aerospace, engineering, construction, machinery, manufacturing , electrical equipment |
| Communications | communication equipment, mobile phone, broadband |
| Consumer Cyclical | automobiles, building materials, leisure time, retail, restaurants, textiles, homebuilding |
| Consumer Staples * | beverages, cosmetics, foods, medical products, tobacco |
| Energy | gas, oil |
| Financial | banks, insurance, loans, brokerages |
| Health Care | pharmaceuticals, private hospitals |
| Technology | computer software, electronics, photography, office equipment |
| Transportation | delivery services, logistics |
| Utilities * | water, electric, gas |
Pivot Point Trading
I love to use Pivot Point Levels to base my strategy… In fact this was the first thing I learnt technically from the market in a simple and easy way. These were originally used by floor traders and it comes with easy calculation which gives you a glimpse of how the market/stock is heading for the day.
What is a pivot point???
A pivot point is a level at which the market direction turns for the day.
How are the pivot levels derived?
Calculation of these levels are just derived from some simple arithmetic with the following previous data’s.
They are
- The previous day’s High
- The previous day’s Low
- The previous day’s Close
Download here
Note: You can download our excel sheet and enter these data’s of your required stock to derive the pivot levels or you have many on-line sites which gives you the pivot levels for your required stock.
If you rather prefer to work it out yourself, here is the formula for traditional calculations of pivot,
Resistance 3 = High + 2*(Pivot – Low)
Resistance 2 = Pivot + (R1 – S1)
Resistance 1 = 2 * Pivot – Low
Pivot Point = ( High + Close + Low )/3
Support 1 = 2 * Pivot – High
Support 2 = Pivot – (R1 – S1)
Support 3 = Low – 2*(High – Pivot)
Now, you will end up getting seven different points, they are the PIVOT, 3 RESISTANCE and 3 SUPPORT POINTS.
These points derived are called PIVOT LEVELS – the critical support , resistance and pivot point.
What do you mean by Resistance and Support points?
In markets, prices are driven by supply and demand.
Support is the price level at which demand is thought to be strong enough to prevent the price from declining further and Resistance is the price level at which selling is thought to be strong enough to prevent the price from rising further.
The concept here is,
I am showing you a Pivot Point Calculation generated for AXISBANK.
After inputting the High, Low and Close, we will get the pivot levels. Now lets see how to interpret.
If the market opens/trades above the pivot point then the bias for the day is long trades.
If the market opens below the pivot point then the bias for the day is for short trades.
The three most important pivot points are R1, S1 and the actual pivot point.
The general idea behind trading pivot points are to look for a reversal or break of R1 or S1. By the time the market reaches R2,R3 or S2,S3 the market will already be overbought or oversold and these levels should be used for exits rather than entries.
A perfect set would be for the market to open above the pivot level and then stall slightly at R1 then go on to R2. You would enter on a break of R1 with a target of R2 and if the market was really strong close half at R2 and target R3 with the remainder of your position.
The reason why pivot points are popular is that its very predictive and you can easily get information for the day you are trading with form the previous data. One more fact what i observed is that, since so many traders use these levels, market often reacts at these levels. Thus giving you an opportunity to trade.
Happy Trading,
Sooriya
Read more on Technical Analysis
Post by Sooriya jayaseelan
Equity trading : An easy start
To start with, what do you really understand by the term buy , short sell, intraday …?? You don’t need to know all the details of how trading mechanism is,however its very important to know the basics of how markets work. If you want to dig deeper we also have other articles where you can understand the technicals of trading.
Ok, lets start with what a trade is.
TRADE = BUY OR SELL
When an order is executed for buy or sell, we call it as a trade.
In order to place a trade, you need to have an account with a registered stock broking firm either online or offline. Now a days, Online stock trading is very much opted with the growing knowledge of self trade and convenience. It is very easy to watch your own portfolio at work and leisure.
Understanding ASK/BID PRICE
Unlike most things you buy, the stock prices are set by both buyers and sellers.
The buyer states what price they will pay for the stock. Its the BID PRICE.
The seller states what price they will give the stock for. Its the ASK PRICE.
You will notice that the bid price and the ask price are never the same. The ask price is always a little higher than the bid price. What this means is if you are buying the stock you pay the ask price (the higher price) and if you are selling the stock you receive the bid price (the lower price).
Placing normal market orders
An Buy order form
Example: I am placing an Buy order for 100 Quantity of TCS Shares at the price 1251.90. The order placed is sent to the exchange electronically and as soon as the trade is executed,the shares comes into our position.
An sell order form
Example: I am selling the 100 Quantity of TCS Shares bought at Rs. 1251.90 for Rs. 1262.20.
Thus the difference between the buy and sell price is the profit or loss incurred in the transaction of a particular stock.
Here the profit/loss made is calculated
BUYING LOW , SELLING HIGH FETCHES YOU PROFIT.PROFIT/LOSS = (BUY PRICE -SELL PRICE) *QUANTITY OF SHARES
=(1251.9-1262.2)* 100
= (10.3) *100
= 1030
In cash market, two types of trading can be done.
- Buy today, Sell today- INTRADAY
- Buy today, Sell tomorrow or when the stock reaches its target- DELIVERY
Intraday seemingly looks to be the simplest and the most rewarding. But in intraday trading one has to be very fast and quick and have to be on your toes always, so there are certain rules which one has to keep in mind.
Delivery is for Short Term Traders and Investors who wait and sell until their target price is reached.
What do you mean when your broker says, Go long on TCS ? Or Go short on LT?
When an investor goes long on an investment, it means that he or she has bought a stock believing its price will rise in the future.
Conversely, when an investor goes short, he or she is anticipating a decrease in share price.It means a Short sell. Short selling is the selling of shares that you do not own. In simple words, shares are first sold and then bought back by you,which we call it us COVERING. If the price drops, you can buy back the stock at the lower price and make a profit on the difference. If the price of the stock rises, you have to buy it back at the higher price, and you lose money.
In Equity market, we have to be very cautious in buying back the stock before the end of market on the very particular day short in order to avoid the stocks entering auction. However you can hold in a Futures Contract till the expiry, which we can deal in later chapters.
I hope now you understand by the term trade.
Happy Reading!!!!
Dream of becoming a stock market expert? A short guide to technical analysis.
There is a saying in stock market that says ” History repeats itself “. Based on this assumption, we interpret charts to decide on the timing of investment and trading.
For a beginner, knowing Little facts on technical analysis and charts interpretation will turn you into a stock market expert in no time. Ok, coming to the technical analysis, If a certain pattern of activity has in the past produced certain results nine out of ten, one can assume a strong likelihood of the same outcome whenever this pattern appears in the future. However technical analysis lacks a strictly logical explanation.
It is the study of the internal stock exchange information and purely not of any external factors which are reflected in the stock market.
Few of the most commonly used technical analysis methods for share market Trading are
- Candlestick charts (most powerful stock charting method)
- Support and Resistance
- Trend Lines
- Moving averages
- Technical Indicators like MCAD, RSI
Our Technical Analysis guide will help you to become technical analyst on your own.
CHARTS
BAR CHART
The chart shows that every 1 hour a price will register on the chart and the bar will show opening, high, low and closing prices that the stock has been traded at for that particular hour. The value of the next bar will then fluctuate as the price move until the end of the next hour at which point the next bar is sealed, and so on.
INTERPRETING BAR CHARTS
The lines are interpreted as
Up bar – where the market has risen and the closing price is higher than the opening price
Down bar – Where the market has fallen and the closing price is below the opening price
You can generate these charts online and find the details of a particular line by hovering over your cursor on the chart.
Identifying the trend
An up-trend is a series of bars with higher highs and higher lows. A down-trend is a series of bars with lower highs and lower lows.
With proper technical analysis and good market forecast ,you can make your investment strategies much better.
Happy Trading!!!!!
Stock Market Indices
What is meant by NIFTY/ SENSEX?
These are the index of stock market. “An index is basically an indicator of stock market, whether the market is going up or down.” In short, it’s a performance indicator which represents itself by capturing the overall behavior of Equity markets.
INDEX captures the news that is common to all the stocks and brings an average.
How is this achieved?
Every Stock has two good reasons to move up and down
- News about the company like new product launch or dividend etc…
- News about the country and that is specific to the company like budget announcement or any natural disaster …
A good index captures these data’s and projects its figures.
SENSEX
- The index of BSE (Bombay Stock Exchange)
- Meaning sensitivity index
- The largest 30 stocks that meet the criterion go into the index.
NIFTY
- The index of NSE (National Stock Exchange).
- The largest 50 stocks that meet the criterion go into the index.
- Meaning national fifty
Major Indices
S&P CNX Nifty
- It is a well diversified 50 stock index accounting for 22 sectors of the economy.
CNX Nifty Junior
- The next rung of liquid securities after S&P CNX Nifty.
- S&P CNX Nifty and the CNX Nifty Junior makes up the 100 most liquid stocks in India.
- The most liquid of the stocks excluded from the S&P CNX Nifty are accounted here for index calculation.
- The two indices are well synchronized such that a stock will never appear in both indices at the same time.
CNX 100
- Its a diversified 100 stock index accounting for 38 sector of the economy.
The other such Indices are CNX 200,S&P CNX 500,CNX Midcap,Nifty Midcap 50,CNX Smallcap Index,S&P CNX Defty,S&P CNX Nifty Dividend,CNX Midcap 200,India Vix.
Sectoral Indices
CNX Auto Index
- It is designed to reflect the behavior and performance of the Automobiles sector which includes manufacturers of cars & motorcycles, heavy vehicles, auto ancillaries, tyres, etc.
- The CNX Auto Index comprises of 15 stocks that are listed on the National Stock Exchange.
CNX Bank Index
- It is an index comprised of the most liquid and large capitalised Indian Banking stocks.
- It provides investors and market intermediaries with a benchmark that captures the capital market performance of Indian Banks.
- The index will have 12 stocks from the banking sector which trade on the National Stock Exchange.
CNX IT Index
- It provides investors and market intermediaries with an appropriate benchmark that captures the performance of the IT segment of the market.
The other Indices are CNX Energy Index, CNX Finance Index, CNX FMCG Index, CNX Media Index , CNX Metal Index, CNX MNC Index, CNX Pharma Index, CNX PSU Bank Index, CNX Realty Index and S&P CNX Industry Indices
Are you new to stock market? A beginners guide
Very frequently we use to hear the news like, “SENSEX or NIFTY has touched the scale of 16,000…” or “BANKING on rally…” or something like this…
As you come across this frequently in news, you start thinking what it is all about. Yes, it’s one of the greatest tools ever invented for building wealth “STOCK MARKET”. Stocks are a part, if not the cornerstone, of nearly any investment portfolio. When you start on your road to financial investment, you need to have a solid understanding of stocks and how they trade on the stock market.
Over the last few years, the average person’s interest in the stock market has grown exponentially. This demand coupled with advances in trading technology has opened up the markets so that nowadays nearly anybody can trade and own stocks.
Despite their popularity, however, most people don’t fully understand stocks. Much is learned from conversations in the office with others who also don’t know what they’re talking about. Chances are you’ve already heard people say things like, “Amazing time to buy Asian stocks…I have a jackpot call for short term investment…” or “Watch out with stocks–you can lose your shirt in a matter of days!” So much of this misinformation is based on a get-rich-quick mentality.
Stocks can (and do) create massive amounts of wealth, but they aren’t without risks.
The only solution to this is education. The key to protecting yourself in the stock market is to understand where you are putting your money.
It is for this reason that we’ve created this blog to lay you with the foundation you need to make investment decisions yourself.
We’ll start by explaining
- what a stock is and the different types of stock
- about how they are traded
- news and market
- how to buy and sell
- basic technical tools to watch yourself
- trading floor secrets
- rules of successful trading
And much more on this blog !!!!!
Happy Reading!
Sooriya Jayaseelan
Venkat Raman S
CHARTVIEW 