Indian share market Tips; Free stock tips, cash and future tips for December 20, 2013

Updating on all trading days

Five stock market tips are given free for today's (December 20, 2013) trade on 'The Indian stock market'. This include one index future tip (BANKNIFTY future tip), one stock future tip and three intraday cash tips. Be cautious while trading.
Trading strategy
 Always keep stop loss. After achieving first target (T1) move your stop loss to just below entry level.After achieving second target (T2) move stop loss to first target (T1).

  

BANKNIFTY Future Tip 20.12.2013

BANKNIFTY Future DECEMBER 26 B-11255 T-11300,11400,11590 SL-11210
S-11045 T-10920,10775,10630 SL-11420

Stock Future Tips 20.12.2013

TECHM Future DECEMBER 26 B-1807 T-1817,1832,1867 SL-1797
S-1777 T-1767,1747,1715 SL-1784

Intraday Cash Tips 20.12.2013

CIPLA B-401.50 T-404,406.50,409.50 SL-399
S-395 T-392.50,390,386 SL-397.50
HCLTECH B-1242.50 T-1252.50,1267.50,1282.50 SL-1235
S-1227 T-1217,1203,1183 SL-1235
ADANIPORTS B-168.70 T-170.40,172.10,175.70 SL-167
S-163 T-161.30,159.60,157.50 SL-164.50

More free stock market tips posted at stockforyouindia

These stock market trading tips are prepared for intraday trading purpose.Trading in market direction is the best option.Always buy only at/above buy (entry) price.Sell only at/below sell (sell) price.Keep strict stop loss for all trades.Not initiate any intraday call after 2.30 PM.Book partial profits (at least 33 per cent) at first target.Those who are going to third target book partial profits at second target (at least 33 per cent) and then move stop loss to T1.Close all intraday positions before 3.15 PM If scrip opens above(buy)/below(sell) target levels then don't trade on that stock or try to trade only when it comes near to entry level.
NB-This post is only for education purpose.Trading on stock market is risky.Trade at your own risk.We are not responsible for any loss booked by the traders.

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Earnings per share (EPS); An important fundamental indicator used in stock market

 

 Earnings per share (EPS) is a fundamental indicator used in financial markets, which measures the earnings value of each outstanding share of Company's common stock. It is considered as an indicator of company's profitability. It is calculated by dividing net income (net profit) by the number of outstanding common shares. You can find the EPS of the companies in their consolidated results and income statement. By multiplying EPS with outstanding shares you will get the company's income.

Earnings per share (EPS) Formula

Basic earnings per share can be calculated by using the following formula



 For example, If the net profit of the company 'XXXX' For the financial year 2013 is 100,000,000,000 and the average number of common shares of the company is 33,000,000,000, then EPS can be calculated as
EPS= 100000000000 / 33000000000= 3.03 = 3

There is not much difference between net profit and net income. So some people use this formula as

   Earnings Per Share (Weighted) Calculation

Weighed earnings per share is more reliable than basic earnings per share. It is calculated by making some changes. It excludes the amount of dividend paid by the Company to its share holders.

Now the formula becomes,

 For example, If the net income of the company 'XXXX' For the financial year 2013 is 100,000,000,000 dollars, the average outstanding number of shares of the company is 33,000,000,000 and the dividend paid to its share holders is 11,000,000,000, Then weighed EPS can be calculated as
EPS= 100000000000-11000000000 / 33000000000= 2.69 = 2.7

Uses of Earnings Per Share (EPS)

Like other fundamental indicators, Earnings per share is also considered very important while buying securities. It must be considered with other indicators such as Price-to-Earings ratio, market capital, share prices, dividends, liquidity and the company's long term financial outlook. Among them the first priority goes to EPS, because it gives us an idea of profitability of the company. Higher EPS indicates higher profitability. But we can't say above or below a fixed range of EPS a security is a buy or sell. It depends upon market condition and sentiments. So a trader or investor must consider the EPS of other companies of the same sector before considering a buy.

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Price-to-earnings ratio or PE; An equity evaluation tool for stock market investors

 The price-to-earnings ratio, which is commonly known to us as P/E ratio, often called P-E ratio or PE is used to calculate the value of equities through relative evaluation. In other words it is an equity valuation multiple and the valuation ratio of a company's current share price compared to its earnings per share (net profit). It is the most simplest and common method used for valuation.
It can be calculated by using the following formula




 Suppose, the shares of the company 'XXXX' is trading at 975 Rupees (per share) and the earnings over last one year was 45 Rupees then PE ratio is 21.7
 Different methods are used to calculate PE depending upon the type of earnings.
 'Trailing PE' or 'historical PE' is calculated by using the net income for the most recent one year (last four quarters or two half years) divided by the weight-age average of common shares in issue during this period. It is the most common form of PE.
 'Trailing PE from continued operations' uses operating earnings only to calculate PE. That means earnings from discontinued operations and extra ordinary items are excluded from calculation.
 Another form of PE is called 'forward PE' or 'projected PE' or 'prospective PE', in this method estimated net earnings (published by a selected group of analysts) over next one year is used to calculate PE.

Features of PE

 Higher PE ratio indicates that the company may get higher growth in earnings compared to the companies with lower PE.
 As I said above it is an equity valuation multiple. For example, If the PE ratio of a security is 25, it means that people are willing to pay 2500 RS for a company whose earnings per share is 100 Rupees.
A security with an average PE of 20-25 is considered as a good one. Above that the stock is not advisable.
 Comparing the PE ratio of the companies in the same sectors are useful. The PE ratio of its sector and the whole index may also help investors to identify whether the security is expensive.
 The companies which bear losses do not have a PE ratio.

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William's %R; Calculation and how to use in financial markets

In previous posts we have discussed about  some important technical indicators used in stock markets such as fibonacci levels, moving averages, stochastics and bollinger Bands. In this topic let us try to learn about 'Williams %R'. Like 'Stochastic Oscillator', Williams %R is also a momentum indicator used to  measure overbought and oversold conditions in financial markets. It is the inverse of the Fast Stochastic Oscillator. This method was developed by Larry Richard Williams, an American author and commodity trader.
 'Williams %R' is also called '%R', which shows the current closing price in relation to the high and low of the past N days* (usually 14 days). It is used to know where the financial markets are trading, near the high or near the low, or somewhere in between high and low, of its recent trading range. In other words it is used to calculate the entry and exit points. The values are from '0' (zero) to '-100' (minus hundred). Above '80' it is considered as oversold and below '20' it indicates over bought.

According to the rule a security or financial instrument is considered as a good buy when the following conditions satisfy,
1. '%R' touches -100%
2.  Then wait for 5 days after -100% reached
3.  When '%R' once again rises above -95% to -85% levels it is a buy.
 A security or financial instrument is considered as a good sell if the following conditions satisfy,
1. '%R' touches 0%
2.  Wait for 5 days after 0% reached
3.  When '%R' once again falls below -5% to -15% levels it is a sell.

'Williams %R' is calculated by using the following formula.

%R = (high of look-back period- current close / high of look-back period - low of look-back period) * -100 

A chart showing William's %R levels is given below.

A spreadsheet showing 'Williams %R' levels is given below.

* Instead of days you can use weeks or months to calculate medium term to  long term over bought or over sold conditions and buy or sell signals.

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Stochastic Oscillator a momentum indicator; Fast, slow and full stochastics

'Stochastic Oscillator' is a momentum indicator developed by George C. Lane in late 1950s.It uses the support and resistance levels. Stochastic compares the security's current closing price to its price range over a specific time period. But it does not blindly follow price, volume. Instead it is purely based on the speed or  momentum of price.

 Stochastic Oscillator is used to identify the bullish bearish trend and a possible future reversal. It also indicates the over sold and over bought levels.
 The Stochastic Oscillator can be defined as
%K = 100 * (Current close price - Lowest price of the period) / (Highest price of the period - Lowest price of the period)
%D = 3-period Simple moving average of %K
There are three types of Stochastic Oscillator. Fast stochastic oscillator, Slow stochastic oscillator and the Full stochastic oscillator. Among them the fast stochastics is the original stochastic oscillator based on the above said formula of Dr. George Lane. The fast stochastics is very choppy and more sensitive (too responsive to price changes) compared to slow stochastic. This will result in the premature unwinding of positions. So some traders prefer slow stochastics than fast stochastics.
 The slow stochastics uses three-period simple moving average smoothed fast stochastic's %K instead of '%K basic calulation' of the fast stochastics.
After the first simple moving average is applied to the fast stochastic's %K, another three-period moving average is applied to get the slow stochastic's %D.
The formula is
        Slow %K = Fast %K smoothed with 3-period Moving average
        Slow %D = 3-period Moving average of slow %K
Using slow stochastics reduces the chances of false crossovers and thus prevents false unwinding of positions.
 The full stochastics is more advanced type of stochastic oscillator. It is the generalization of fast stochastic oscillator and the slow stochastic oscillator.
The formula is,
    Full %K = N1 Period simple moving average of the fast %K
    Full %D = N2  period Simple moving average of Full %K
Here N1 is the number of periods used to calculate the fast %K and N2 is the number of periods by which the full %K line is smoothed.
 Unlike the The fast stochastic oscillator and the slow stochastic oscillator, the full Stochastic oscillator has three parameters.The first one is the look back period, second one is the number of periods for slow %K and the third one is the number of periods for %D moving average. In a full stochastic oscillator with parameters 14,3,3 , (14,3) is the fast stochastic oscillator parameters and (14,3) is the slow stochastic oscillator parameters.
 There are three different ways to trade using stochastic oscillators.
1. Crossover method-
 The first one is based on the crossing of %K and %D signals. When stoch %K crosses above stoch %D 'buy' signal occurs. When %K line crosses below %D line 'sell' signal occurs.
 The second one is based on the 50 level cross over. When %K line crosses above 50 a 'buy' signal occurs and when %K line crosses below 50 a 'sell' signal occurs.
2. Divergence in Stochastics and Price method-
 In this method traders uses the divergence between price and stochastic oscillator. When lower lows in price and higher lows in stochastic oscillator is formed it is called bullish divergence and here a 'buy' signal occurs. When higher highs in price and lower highs in stochastic oscillator is formed it is called bearish divergence and here 'sell' signal occurs.
3. Over sold and Over bought levels method-
 If the stochastic oscillator is higher than or equal to 70% level it  is called over bought. To confirm the condition wait till it crosses 80% level. After crossing 80% level if it moves back to 70 level a 'sell' signal occurs. When the stochastic oscillator is lower than or equal to 30% level it  is called over sold. To confirm Wait till it crosses 20% level. After crossing 20% level if it moves above to 30% level a 'buy' signal occurs.

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Relative strength index in Stock market; Importance and calculation of RSI

 Like MACD, Relative strength index (RSI) is also a technical indicator used in financial markets. It was introduced in 1970's by Welles Wilder. It is a momentum oscillator which measures the speed and change of price movements. RSI also determines the strength or weakness of a security. It compares the magnitude of gains to losses in a specific period of time. By using this we can identify or confirm over bought and oversold conditions in securities.
 According to Wilder's theory when the price increases very rapidly, at some point it is considered as over bought and when the price decreases, at some point it is considered over sold. At this point a reversal is possible. Wilder suggested a smoothing period of 14.
 In stock market graph RSI moves between 'zero' and 'hundred'. RSI indicator has an upline at 70, a down line at 30 and a midline at 50.Above 70 line the security or financial instrument is over bought and below thirty line it is over sold. The midline 50 shows that there is no trend.
 Wilder also described the divergence in RSI. According to him a bullish divergence happens when price makes a newer low and RSI makes higher low. A bearish divergence happens when price makes a higher high and RSI makes lower high.
 Andrew Cardwell added some new interpretations of RSI which helps us to determine the up and down trends. According to him in up trends RSI usually moving between 40 and 80 and in down trend it moves between 20 and 60. He also observed that when the trend changes in financial instruments, that is from up trend to down trend or from down trend to up trend RSI will pass through a 'range shift'.
 Cardwell also described the positive and negative reversals in the RSI. According to him Reversals are the opposite of divergence. A positive reversal happens when price correction results in a higher low and RSI results in a lower low compared to the prior correction in an uptrend . A negative reversal happens when price correction results in a lower high and RSI makes a higher high compared to the prior rally in down trend.

                          100
    RSI = 100 -  --------
                         1 + RS
    RS = Average of up closes of 'n' days / Average of down closes of 'n' days.

 An example for RSI calculation is given below

Date	Close	Change	Gain	Loss	Average Gain	Average Loss	RS	RSI (14)
01-Jul-13	120.2
02-Jul-13	125.4	5.2	5.2
03-Jul-13	124.8	-0.58		0.58
04-Jul-13	128.4	3.53	3.53
05-Jul-13	129.3	0.92	0.92
08-Jul-13	128.5	-0.82		0.82
09-Jul-13	132.5	4.05	4.05
10-Jul-13	134.2	1.7	1.7
11-Jul-13	133.3	-0.9		0.9
12-Jul-13	135	1.7	1.7
15-Jul-13	136.5	1.5	1.5
16-Jul-13	135.5	-1		1
17-Jul-13	137	1.5	1.5
18-Jul-13	135	-2		2
19-Jul-13	132.5	-2.5		2.5	1.44	0.56	2.58	72.04
22-Jul-13	131	-1.5		1.5	1.33	0.62	2.13	68.10
23-Jul-13	132	1	1		1.31	0.58	2.26	69.31
24-Jul-13	132.7	0.7	0.7		1.27	0.54	2.35	70.16
25-Jul-13	133.4	0.7	0.7		1.23	0.50	2.45	71.02
26-Jul-13	134.2	0.8	0.8		1.20	0.46	2.57	72.02
29-Jul-13	133.7	-0.5		-0.5	1.11	0.40	2.81	73.73
30-Jul-13	135	1.3	1.3		1.12	0.37	3.06	75.37
31-Jul-13	136.1	1.1	1.1		1.12	0.34	3.29	76.69
01-Aug-13	137	0.9	0.9		1.11	0.32	3.49	77.74
02-Aug-13	137.7	0.7	0.7		1.08	0.29	3.66	78.55
05-Aug-13	138.6	0.9	0.9		1.06	0.27	3.90	79.59
06-Aug-13	137	-1.6		1.6	0.99	0.37	2.69	72.88
07-Aug-13	137.5	0.5	0.5		0.95	0.34	2.79	73.63
08-Aug-13	136.3	-1.2		1.2	0.89	0.40	2.20	68.73
09-Aug-13	134.7	-1.6		1.6	0.82	0.49	1.68	62.73
12-Aug-13	135	0.3	0.3		0.78	0.45	1.73	63.38
13-Aug-13	135.9	0.9	0.9		0.79	0.42	1.88	65.32
14-Aug-13	136.5	0.6	0.6		0.78	0.39	1.99	66.59
15-Aug-13	137.8	1.3	1.3		0.82	0.36	2.25	69.22
16-Aug-13	138.5	0.7	0.7		0.81	0.34	2.40	70.56
19-Aug-13	139	0.5	0.5		0.79	0.31	2.51	71.52
20-Aug-13	138	-1		1	0.73	0.36	2.02	66.84
21-Aug-13	138.5	0.5	0.5		0.71	0.34	2.12	67.97
22-Aug-13	139.7	1.15	1.15		0.74	0.31	2.38	70.46

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Moving averages and moving average convergence divergence

  Moving averages is one of the most popular and reliable tool used in stock market technical analysis. In statistics it is also known as rolling average or running average. Some people call this as moving mean or rolling mean. Moving average is the average price of a stock over time. It is calculated by averaging the initial fixed subset of number series or data points.
 In stock market moving average (MA) is used to determine the trend of the market or a security. Upward trend is confirmed when short term moving average crosses above a longer term moving average and downward trend is recognized when short term moving average breaches below longer term moving average. For example if 50 MA crosses above 100 MA it is considered as up trend. If 50 MA falls below 100 MA trend is bearish.
 Simple moving average (SMA), Cumulative moving average (CMA), Weighted moving average (WMA) and Exponential moving average (EMA) are important  types of Moving averages.Modified moving average (MMA) or Running moving average (RMA), or Smoothed moving average is also considered as a moving average.
 As I said above Moving averages allow traders to recognize and confirm the trend. Thus by identifying the trend he can achieve success in his trade.

Moving Average Convergence Divergence (MACD)
MACD or moving average convergence divergence was developed by Gerald Appel in late 1970's. It is also a simplest and useful technical indicator used in stock market. It is based on exponential moving average. In a chart it is a collection of three signals namely MACD line, Signal line and the divergence (difference) line. These signals are calculated from historical prices of a financial instrument (indice or stock).Most people use closing prices to calculate MACD.
 The first signal 'MACD line' is the difference between a short term (fast) exponential moving average , and a longer term (slow) exponential moving average. In a chart MACD line is changing over time along with 'signal line'. MACD histogram time series is an oscillator which shows the divergence between MACD line and Signal line.
 The standard setting for MACD used in stock market is 12,26 and 9. MACD 3,10,16 is also used by some traders.

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Exponential moving average and how to calculate EMA

Exponential Moving Average (EMA)
 Exponential moving average or EMA is also known as exponentially weighted moving average (EWMA). It gives more weight to recent prices in other words the weight of old prices decreases exponentially.
 A seven day EMA applies 25 per cent weighting Calculation of EMA is a complicated one. Stock market traders can get EMA from almost all technical charts.
In order to calculate EMA, first calculate SMA.
SMA = Mean or average of previous n days= Sum of n days / n
For eg, 7 SMA= Sum of Seven days closing price / 7
Then you have to find smoothing factor.
Smoothing factor = (2 / (Time periods + 1) ) = (2 / (7 + 1) ) = 0.25 (25 per cent weighting; ie 0.25*100)
Then calculate EMA by applying the following formula.

EMA= [Close - EMA(Yesterday)] x Smoothing Factor + EMA(Yesterday).

Note that Some people use current price instead of close.

If you know the per cent and want to get time period you can use the following formula.

Time period= (2/Smoothing Factor)-1
Here smoothing factor is per cent divided by 100.
For eg;- If the per cent is 25, smoothing factor is 25/100= 0.25
Then time period= (2/0.25)-1= 7; so seven is the time period.

An example of EMA calculation on a sheet is given below

Day	Close	7 SMA	Smoothing Factor	EMA 7
1	87.50
2	86.00
3	85.00
4	86.20
5	87.00
6	85.00
7	85.70	86.06		86.06
8	86.70	85.94	0.2500	86.22
9	87.20	86.11	0.2500	86.47
10	87.50	86.47	0.2500	86.72
11	87.70	86.69	0.2500	86.97
12	88.00	86.83	0.2500	87.23
13	88.80	87.37	0.2500	87.62
14	89.20	87.87	0.2500	88.01
15	90.20	88.37	0.2500	88.56
16	91.20	88.94	0.2500	89.22
17	91.70	89.54	0.2500	89.84
18	91.90	90.14	0.2500	90.36
19	92.50	90.79	0.2500	90.89
20	93.00	91.39	0.2500	91.42
21	93.50	92.00	0.2500	91.94
22	93.20	92.43	0.2500	92.25
23	92.70	92.64	0.2500	92.37
24	90.50	92.47	0.2500	91.90
25	91.70	92.44	0.2500	91.85
26	92.30	92.41	0.2500	91.96
27	93.80	92.53	0.2500	92.42
28	94.50	92.67	0.2500	92.94
29	94.80	92.90	0.2500	93.41
30	95.50	93.30	0.2500	93.93

EMA 5, 10, 20, 50, 100, and 200 are very common in stock market trading

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What is Simple moving average: How to calculate SMA

As the name indicates Simple moving average (SMA) is the simplest form of all the moving averages. It is the unweighted mean of the previous 'n' data points.
 In stock market SMA is simply calculated by taking the mean (average) of a security over a specified number of days. One can calculate moving averages from open, high, low or close prices. But in most cases, close prices are used to calculate SMA.
 If you want to calculate a seven day simple moving average of a security, add the previous seven day closing prices and divide it by seven (mean or average of last seven days). You can't calculate simple moving average if you don't have last seven days closing price.
 An example of a seven day moving average is given below
 

Day	Close	7 Day SMA
1	58
2	64
3	62
4	60
5	63
6	65
7	65	62.43
8	67	63.71
9	68	64.29
10	67	65.00
11	66	65.86
12	64	66.00
13	65	66.00
14	67	66.29
15	69	66.57
16	70	66.86
17	67	66.86
18	65	66.71
19	62	66.43
20	63	66.14
21	66	66.00
22	68	65.86
23	71	66.00
24	69	66.29
25	70	67.00

 You can also calculate simple moving average of 'n' days using the following formula.

 Suppose  previous 'n' day closing prices are 

 Then Simple moving average



In order to calculate simple moving average in a row (for successive values) use the following formula

  

For short term trading most people use 5, 10, 20 and 50 SMA. For long term 100, 200 SMA's are considered as important.

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Book value per equity and book value per share; its importance

 In accountancy 'book value' is the value of an asset as per balance sheet. It is also called carrying value or net asset value, which is equal to the original cost of the asset less any accumulated depreciation, amortization or impairment costs made against the asset.
 In share market traders use book value to determine the safety level of shares after the payment of all debts.
 Total Book value of an equity is the value that the equity worth after the repayment of all debts and liquidation of all assets.
 Total Book value of equity is calculated by the following formula,
 Total Book value of an equity= Book value of assets- Book value of liabilities

 Book value of all Common shares is calculated as
 Book Value of Equity- Book Value of Preferred Stocks

Book value per share is defined as the value, that share worth after repaying all debts and liquidating all its assets.
  Book value per Common share is calculated by using the following formula
 Book Value per Common Share = (Total stock holder's equity- Preferred Equity)/(Total Number of outstanding Shares)

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Stock market trading; How to be a successful trader

If you are a stock market trader, it is advisable that you must follow some basic principles. By doing these you can achieve success in day and delivery trading.

1. Virtual stock market trading

It is important that before entering and investing money to stock market, spend some time  on virtual stock market trading or paper trading or on stock market trading games. By doing this you will get some trading experience before entering in market. Many brokerages offer virtual stock trading.    

2. Put small amount of money first time

If you are trading for the first time or you are not an experienced trader put small amount of money in to market. Then increase the amount very slowly.

3. Make a trading plan
If you want to become a successful trader you must keep a trading plan. You have to do some home work before trading. This include study of chart patterns.

4. Identify the trend of market
It is very important that you identify the right trend of  the market before trading or investing. Also try to understand strong and weak sectors.

5. Pick right trading or investing stock for you
Before trading a security, try to pick the right stock for you. It depends upon your trade (intraday or short term)

6. Research about the stock before investing

Now a days it is found that investors are going behind brokerage research and calls. Before following brokerage calls it is strictly advised to do your own research.

7. Keep an eye on important trading levels
Before trading it is important to keep an eye on technical levels like pivot points, camarilla levels, fibonacci retracement levels, wave and Gann levels.

8. Book profits or loss in right time
Keep targets and stop loss for every trade. Book partial profit on all targets. If your trade hits stop loss avoid repeated trade in that direction.

9. Never try to buy a security on a new low
If a security make a new low don't try to buy that security. There may be reasons behind the new decline. Try to buy the stock only on a clear indication of reversal (Rising in  price to a specific level).

10. Never try to sell a security on a new high
If a security make a new high don't try to sell that security. There may be reasons behind the new price increase. Try to sell the stock only on a clear indication of reversal(Falling in  price to a specific level).

11. Avoid over trading

If you want to be a successful trader you must avoid over trading. It is the best solution to avoid huge losses.

12. Avoid impulsive trading

Traders must avoid impulsive trading. It will result in the loss of large amount of money. If you believe that you made a bad trade you must exit from the trade or keep a strict stop loss to keep the losses small.

13. Alertness is required for day trading
Day trading requires alertness. So  is advisable to watch movement of market and scrip from terminal or visual media.

14. Keep a positive attitude

A trader must look on getting profits. But if a particular plan not works for you you must reduce or close positions and watch what is happening. If a trade fails on a day, there is no need to become mood out. Participate in other activities to keep your right mood.

 By applying these principles one can easily trade on stock market.

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Market order and Limit order in stock markets

In stock markets, trades occurs when orders are placed. When one trader places buy order and another trader places sell order at the same price trade occurs.
 One can place buy order or sell order in order to enter or exit the trade in stock markets. If some body enters to trade by placing a buy order he can exit from that trade by placing a sell order. If some one enters to a trade by placing a sell order he can exit from that trade by placing a buy order.

Market order

Market order is an order placed with a brokerage to buy or sell shares in the current market place. In market order trader tells the number of shares he or she want to buy or sell. Market order will be executed immediately. If you place a market order to get some shares of a company you will get the shares at a price somewhere between the ask and bid price. In high volume markets, market orders are comparatively safe. Market order guarantee the execution subjected to the liquidity of that scrip, but does not guarantee the price.
 For example a security is trading at 500 RS and you place an order for 100 shares, 100 shares of that security would be bought for you at the price of 500 RS per share.

Limit Order

Limit order is a conditional order, which can be defined as the order placed to buy when the market price of the stock comes to the limit price you set. Limit orders are some times classified as buy limit orders and sell limit orders. Limit order guarantee the price, but does not guarantee the execution.

For example if you place an order for 100 shares of a security at 500 RS, which is trading at 550 RS, your order would be executed when the price come down to 500 RS.

Buy Limit Order

If you think that the price of a security will decrease in short term and then rebound to a higher price you can place an order to buy the security at lower levels.
For example A security is trading at 100 RS. If you think the price of that security will decline to 80 RS, you can place a buy order at RS 80. Only if the price come down to 80 RS, your trade will be executed.

Sell Limit Order

If you own a security, and think the price will go higher in short term. Then you can place a sell order at a higher price. If the price reaches that higher level your limit order will be executed.
For example A security is trading at 100 RS. If you think the price of that security will increase to 120 RS, you can place a sell order at RS 120. Only if the price go higher to 120 RS, your trade will be executed.

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What is Initial Public Offering (IPO); Definition and importance

The term Initial public offering (IPO) refers to the first issue (sale) of the shares of a private company to general public on a securities exchange. It is the stock market launch of the company. IPO's are issued by the companies to expand their capital, equity base, prestige and public image. Along with smaller, younger companies large private companies also issues IPO's. By this process a private company transforms to a public company.
 The company which sell shares not require to repay the capital to public investors. When the shares trade in open market, money passes through public investors.
The company which sells shares, only can make primary offering or Initial public offering.The conductors of IPO's are usually investment banks.
 According to the Securities act of 1933, the process of IPO starts when the company files a registration statement with Securities and Exchange Commission (SEC). Then after proper investigation Securities and Exchange Commission approves the disclosure. After getting approval from Securities and Exchange Commission, price and date of IPO are fixing.
 Investment in an Initial public offering is risky. It is mainly because the prediction of initial day's trade is very difficult.  As it is speculative, only Speculators with risk tolerance are advised to buy IPO's.

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Long position in stock market

In finance, the term 'Long position' or 'Long' is used to describe the ownership of a stock, security, contract,commodity or another financial instrument.In other words the buying of a financial instrument with the expectation of rise in price is called  Long.It is the opposite of the 'short position' or  'short'. If one person or entity is long on a security, it means that the holder owns the security or financial instrument. He will get profit if the price rises. The 'long position' (long) is established by placing a buy order.
 If an investor is long on 100 shares of SBIN, it means he owns 100 shares of SBIN.
 A trader can go long on underlying instrument by buying call options or writing put options.The call seller can be long on an underlying if he has the shares on hand.If the number of contracts bought exceeds the number of contracts sold, he is said to be long.If you want to close a long position, you must sell an equal amount of the same security to reduce your long position to zero.
 If a trader on investor is long on a security, the risk factors are less compared to short on that scrip.But it does not mean that there is no risk. Bull markets are better to go long on a stock. One must keep stop loss to avoid heavy losses while trading.

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Short selling in Stock, Commodity and Forex markets

In finance We can define short selling as the practice of selling securities (stocks, commodities, currencies or other financial instruments) which are not currently owned by the seller. When a trader or investor anticipating a decrease in share price, goes short but it is promised to be delivered. Shot selling is also known as shorting or going short.
 The purchasing of the stock after short selling is called 'Short Covering', 'covering the short' or 'covering the position'. If the price of the scrip declines at the time of short covering, the short seller will get profit as the cost of repurchase is less than the price of selling.If the price of a scrip increases prior to repurchase the short seller will incur a loss. The risk in short selling is that the potential loss of a short sale is unlimited. The short seller requires to keep a minimum margin to cover losses and keep the position. If the trader fails to keep the margin the broker or counter party may liquidate the position.
 On speculative markets traders uses the fluctuations to short a scrip to quickly make big profits.It is like gambling and in some cases it may result in heavy losses and as I mentioned above the loss of a short is theoretically unlimited.So one must keep strict stop loss to restrict the losses.
  In short selling, when you sell a financial instrument the broker will lend it to you from their own account or from some body else account (who is a customer of the firm) or from another brokerage to you.That is, you are borrowing the scrip and selling to some body else.You can hold the short as long as you want by keeping the margin. Some times interest may be charged to margin accounts. If the lender wants the stock back you borrowed from him you may either have to cover the short or borrow from another lender.
 In short, You are not the owner of the financial instruments you have sold. You must have to pay the dividends* or rights declared during the period of short to the  lender. In case of a stock split you must have to return the increased number of shares at lower price. That is if the stock splits in a ratio 2:1 you have to return twice the number of shares at half the price.
 Short selling plays a big role in day trading and it safer than short term short selling as the over nigh risk is not present. Hedge funds and large institutions also uses short selling to make some money. Some wealthy investors also uses short selling to make profit. How ever a short trader must be a dedicated person and he must be aware of the market condition and general conditions to avoid possible losses.
*The actual dividend paid by the company goes to the new buyer. The lender of the financial instrument who holds the shares in margin account also expects dividend (He is unlikely to be aware that his shares are lent out for short selling). There fore the short seller have to pay the dividend amount to compensate.

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How to trade on stock markets using using fibonacci retracement levels

 Fibonacci retracement level is one of the very popular tools used for technical analysis in stock market.This method is used to determine the support and resistance levels. It is based on the key numbers which was first identified in thirteenth century by the mathematician Leonardo of Pisa, who is also called Fibonacci.
 Fibonacci retracement theory is based on the idea that markets will retrace a predictable portion of a move, after which they will continue to move in the original direction.
The start of the retracement level is '0%' and when it reaches 100% there will be a reversal to the original path.
Fibonacci series
The fibonacci numbers or fibonacci sequence is called as fibonacci series.
Look at this,
 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233, 377, 610........
 Here 'o' and '1' are the first two numbers in the fibonacci series. There after all numbers are the sum of previous two numbers.
 For example the third number '1' is the sum of first number '0' and second number '1'.The fourth number '2' is the sum of second number '1' and third number '1' and so on...
 This sequence can also be extend to negative like this
−21, 13, −8, 5, −3 , 2 , −1, 1, 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233, 377, 610...

Fibonacci ratio
The fibonacci ratios are derived from fibonacci series. The key Fibonacci ratios are 0%,  23.6%, 38.2%, 50%, 61.8% and 100%.

The key Fibonacci ratio is 0.618, which is also called 'the golden ratio',  is derived by dividing one number in the series by the number which immediately follows it. For example: 55/89 is approximately 0.6180 and 144/233 is approximately 0.6180.

The 0.382 ratio is found by dividing any number in the sequence by the number that is found two places to the right. For example: 89/233 is approximately 0.3820.

The 0.236 ratio is found by dividing a number in the sequence by the number that is three places to the right. For example: 21/89 is approximately 0.2360.

The 0 ratio is derived from :

  In addition to these ratios stock market traders use 50%, 76.4% and 78.6% levels.

The 76.4% (0.764) ratio is the result of subtracting 0.236 from the number 1.

The 78.6% (0.786) ratio is :

The 50% (0.50) ratio is not really a fibonacci ratio. It is derived from dividing the number 1 (second number in the series) by the number 2 (third number in the series).

Fibonacci retracement levels
  As I said earlier fibonacci retracement levels are used to trade on stock market, currency and commodity markets. It is also said that the key fibonacci ratios are 0%, 23.6%, 38.2%, 50%, 61.8% and 100%. 76.4% and 78.6% are also used by several traders. We also know that o% is the start and 100% is the reverse path. In the price movements of a security the 0.236, 0.382, 0.5, 0.618, 0.764 and 0.786 retracement levels act as the potential resistance and support point.
 I have earlier mentioned that markets will retrace a predictable portion of a move, after which they will continue to move in the original direction.
  Now let us come to the point.The Fibonacci retracement is the potential retracement of a financial asset's (stocks, commodities or currencies) original movement in price. Here the ongoing trend stops and new trend starts against its previous trend. In supports the price starts going lower and in resistance the price stops going higher. And then going against the trend.If it happens this is a correction and one can enter the counter here.
Trade using fibonacci retracement levels
  The fibonacci retracement levels are here divided in to three areas.
 Range bound area-Now suppose the security is trading between 38.2% and 23.6% levels.That is security gets support at 38.2% level and gets resistance at 23.6 per cent level or gets support at 23.6 per cent and resistance at 38.2 per cent level.If a breakout not happens there is a chance of range bound trading.
 Medium area -The security is trading between 50% and 38.6% levels.That is gets support at 50% level and resistance at 38.2% level or gets support at 38.6% level and resistance at 50% level.There is a possibility that market may go to the previous trend.
 Danger Area- The security is trading between 78.6% and 50% levels.That is the security gets support at 76.4% to 78.6% levels and resistance at 61.8% level (golden level) or resistance at 50% level and support at 76.4% to 78.6% level.Then the security may not go to the previous trend.
 Entry point for a trader
 If you are long on a security which is trading at danger area from the swing high, go for short with 50% level as the first stop loss and 38.2 per cent level as second stop loss.You may fix targets at 100%, 127% and 161.8% levels from the swing high.
 If the security is trading at danger area from the swing low you can go long on that scrip with 50% level as the first stop loss and 38.2% as the second stop loss.Targets are 100% level, 127% level and 161.8% level from the swing low.

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PAN Card; its importance and how to get a PAN card

Permanent Account Number (PAN) is an unique alphanumeric combination consists of ten characters (6 letters and four numbers) issued to all juristic entities identifiable under the Indian Income Tax Act 1961.It is almost equivalent to a national identification number. One can not open demat account with out PAN card.So it is necessary for trading in Stock Market.
 PAN is issued in the form of a laminated card, by the Income-tax department under the auspices of the Central Board for Direct Taxes (CBDT). One person can apply and obtain only for one PAN. Obtaining or possessing more than one Permanent Account Number is against the law.

 How to get a PAN card?
  You can get PAN card by applying at UTI website or NSDL website.
In order to apply for a PAN one must fill in one of the following forms.
If you are an Indian citizen, you have to submit your ‘Application for allotment of new PAN’ in Form 49A and if you are a foreign citizen you will have to submit your ‘Application for allotment of new PAN’ in Form 49AA.

Uses of PAN
It is used as an important Identity proof.PAN is Mandatory for financial transactions such as opening bank account, to file income tax returns and to purchase assets above specified limits.The primary aim of PAN is to bring a universal identification key factor for all financial transactions.It indirectly prevent tax evasion by keeping a track of monetary transactions of high net worth individuals.

Features
PAN is unique and permanent.Address change inside the country will not affect PAN.

The other areas where PANCARD is useful
 Earlier I have mentioned in this post PANCARD is must for trading in Stock markets.There are many other areas where Pan Card is mandatory or useful.
1. Pan card is necessary for filing Income tax return online (E-Filing).
2.Pan Card is useful for bank transactions.If you have a fixed deposit on a Bank that exceeds RS 50,000, a copy of PAN card needs to be given. If you are not submitting a copy of PAN card, the bank will deduct TDS of 20% or at the prevailing rate (whichever is higher).
3. It is useful in the purchase of real estate and vehicles.
4. In hotels, restaurants and travel agencies if your bill exceeds RS 25,000 you may have to produce a copy of PAN Card.
5. Jewellery Purchase- For Higher value jewellery purchasing Pan Card is essential.
For tele phone installation, Visa and other credit cards, and in some purchasing Pan card is necessary.
 To invest and file tax returns in India NRI's also need PAN Cards.

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Demat account, its importance and how to open

 Demat is the short form of dematerialization.It is defined as the movement from the use of physical certificate into an electronic form.In demat the securities are held electronically instead of physical possession of certificates.
 If you want to save money on a bank a savings account is must.You need to open a demat account to buy or sell stocks.Unlike savings account no minimum shares are required to maintain a DP account.But there is an annual account maintenance fee, which may vary on different DP's.
 Demat account is used to keep all kind of financial assets and instruments like stocks, debentures, bonds, debt and NSC in a dematerialized form.The demat number is quoted When a trade or transaction take place in electronic mode.
 If you have 1000 shares of JP Associates, 100 shares of Reliance Industries and 10 shares of MRF, all your shares are listed on your demat account.If you buy or sell shares they will be adjusted in your account.
The features of Demat system
 Demat system was started in India on 1996 with the introduction of Depository Act.After that the purchasing and transfer of shares become easier because electronic sharing eliminates problems like signature mismatch, postal delays, risk of forgery and certificate damage.
Benefits of demat account
1. It is the easiest way to hold securities
2.One can immediately transfer securities using demat account (Fast)
3.Unlike Physical format it does not require stamp duty for transactions
4.No need to keep papers shares.So it is safe.
5.Paper works are very rare.
6.Transaction cost is very low compared to physical shares.
7.One can sell even if he has only one share.
8.Address change is very easy.Needed only once for all shares in case of change in residence.
9.No need to report the transaction to company.It is done by DP.
10.Only a single demat account is needed to hold all investments.
11.Account holder can do transactions from anywhere.
The difference between the broker and DP
A broker is a member of Stock exchange. They can buy or sell shares either on their own behalf or on behalf of their clients.
DP just provides a safe place to hold the shares bought by the clients.
How to open a demat account-
You have to approach a DP (Depository Participant) to open demat account.Most banks, brokers and other financial institutions are depository participants.You can choose the DP you like.
Complete list of depository participants are available on NSDL and CDSL Websites.

Essential documents required to open a demat account

Identity proof 
PAN CARD
Voters ID Card
Passport
Driver's license
ID card with photo of the applicant, issued by Central or State government and departments, statutory or regulatory authorities, public sector undertakings scheduled commercial banks, public financial institutions
Photo ID card issued by colleges affiliated to universities to their students, professional bodies such as ICAI, ICWAI, ICSI or Bar council to their members
Credit card or Debit cards
IT Returns/Electricity Bill/Land Phone Bill
Bank Pass Book

Address Proof
Ration Card
Passport
Voter ID Card
Driving licence
Bank Passbook
Electricity Bills (Verified copy only; not more than two months old)
Telephone Bills (Verified copy only; not more than two months old)
Verified copy of leave and license agreement
Verified copy of agreement for sale.
Identity card/ document with address (Issued by Central or State government, statutory or  regulatory bodies, public sector undertakings or scheduled banks
Identity card issued by public financial institutions or professional bodies like ICAI, ICWAI, Bar council etc to their members
Identity card issued by Colleges (affiliated to Universities) to students (Valid till the period of study)

Passport size photograph
Copy of PAN Card
You must have to produce original documents for verification at DP.

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Important terms used in stock market trading

Ask price (Offer price/ Offer)- Ask price is the price a seller is willing to accept for a security

Ask Size-The total number of shares in board lots of the most recent ask to sell a particular security.

Bid price-The highest price a buyer is willing to pay for a security is called bid

Bid Size-The total number of shares in board lots of the most recent bid to buy a particular security

Business Day- Any Week day from Monday to Friday, excluding statutory holidays is called business day

Clearing Day- Any week day from Monday to Friday on which the clearing corporation is open to effect trade clearing and settlement.

Clearing Number- It is the trading number of the clearing Participating Organization or Member.

Client Order- It is the order placed by a retail customer of a Participating Organization.

Close- Price of a scrip when market closes for the day

Day Order- It is the order placed for intraday, which is valid only for the day it is entered.

Daily Price Limit- It is the maximum price change (advance or decline) permitted for a futures contract in one trading session compared to the previous day's closing price.

Delist- It is the removal of a particular security's listing on a stock exchange.

Face Value- Face value is the nominal value value of a security stated by the issuer. In case of stocks, it is the original cost of the stock shown on the certificate.

Futures- Futures is a financial contract to buy or sell securities at a future date

Hedge- Hedge is a strategy used to reduce the risk of adverse price movements in a security, by making a transaction that offsets an existing position in a related security.

High- When the price of a scrip/ Indice reaches day's highest level while trading it is called high

Initial Public Offering (IPO)-The first issue of shares of a company to the general public through primary market.

Long- In stock market the term long refers to ownership of securities.If you are long on 1000 shares of a company, it means that you own 1000 shares of that company.

Low-When the price of a scrip/Indice reaches day's lowest level while trading it is called low

Market Order- Market order is the order that a trader makes through a broker to buy or sell securities immediately at the best current price.

Net Change- The difference between the previous day's closing price and the last traded price of a security or Index.

Open-Open is the first price of a scrip/indice when the market opens

Open Interest- The term open interest refers to the net open positions of a futures and/or option contract.

Open Order- An order to buy or sell securities that remains in the system for more than one day.It remains in effect until it is canceled by the customer or until it is executed or until it expires.

Par Value- The normal face value of a security is called par value.

Position Limit- It is the maximum number of futures and/or options contracts of one underlying security, any individual or corporate is allowed to hold at one time.

Previous Close- Close price of a scrip on previous day

Price-Earnings (P/E) Ratio- It is the valuation ratio of a company's current share price compared to its per-share earnings.It is calculated as
a particular security's last closing market price per share divided by the latest reported 12-month earnings per share (EPS).

Spread- The difference between the bid and the ask price of a security is called spread.

Strike Price- It is the price at which a specific derivative contract can be exercised.It is commonly used in option trading.The purchases and sales are known as calls and puts.In calls the strike price is the price that a security can be bought with in expiration date. In puts the strike price is the price that a security can be sold with in expiration date.

Trading Session- Trading session is the period during which the Exchange is open for trading.That is the time between the opening bell and closing bell on a trading day.

Volume- Number (quandity) of Scrips traded

52 week high (Year high)- When the price of a scrip/Indice reaches 52 week's highest level

52 week low (Year low)-When the price of a scrip/Indice reaches 52 week's lowest level

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Bank rate, Repo, CRR ,SLR and other key rates

Bank Rate
Bank rate is the interest rate charged by the central bank [in India Central bank is the Reserve Bank of India (RBI)] to commercial banks for the loans and advances.In other words, this is the rate at which Reserve Bank of India lends money to financial institutions and banks.If the bank rate is hiked, long term interest rates also tend to move in upward direction.It is because the banks use the fund they borrowed at a lower rate, for lending to individuals and corporates at a higher rate of interest to make profit.
When unemployment of a country is high, lower bank rate is helpful to expand the economy.It will lower the burden of borrowers.When inflation of a country is high, higher bank rates help to control the inflation by controlling the flow of money.
 In India the bank rate acts as the penal rate charged on domestic banks for shortfalls in meeting their reserve requirements (That is, cash reserve ratio and statutory liquidity ratio). The bank rate is used as a reference rate for indexation purposes by several organizations.
 In United States of America, the bank rate is the federal funds rate.It is controlled by the Federal Open Market Committee (FOMC). FOMC buys and sells securities to regulate money supply.The process of regulation of the economy by the Federal Open Market Committee (FOMC) is called  monetary policy.
 Increase in bank rates will affect the growth of Industries as the money circulation becomes very low.Hence only in case of higher or hyper inflation the central bank hike bank rates that too only for a short period.
Repo Rate
Repo (Repurchase) rate is the rate at which banks borrow funds for short term use from the central bank.Decrease in Repo rate helps banks to get money at a cheaper rate. On the other hand the increase in repo rate makes borrowing expensive.When liquidity crunch occurs in the market central bank increases repo rate.
 In case of an inflation, central bank will try to reduce the money supply by increasing the repo Rate. When repo rates are hiked, banks will borrow less amount of money from central bank and thus the amount of money they are lending to the public will decrease.If deflation occurs, central bank will want to inject more money supply and they will reduce the repo rate.
Reverse Repo Rate
Reverse Repo Rate is the exactly opposite to repo rate.It refer to the rate at which the Cental bank [In India Reserve Bank of India (RBI)] borrows excess money from domestic banks (private and public sector banks), when there is too much money flowing in the banking system.
Reverse repo rate helps to control the economic stability of the country.
 The defferance between repo and reverse repo is that in repo, the central bank injects liquidity and in reverse repo it absorbs liquidity.
Call Rate
The interest rate paid by the domestic banks for borrowing for their daily fund requirement is called 'Call Rate'. Banks some times need funds on daily basis, for that they borrow from other banks according to their requirements on a regular basis.
Cash reserve Ratio (CRR)
The meaning of CRR is Cash reserve Ratio.The domestic or national banks have to maintain or keep a portion of their deposit with Central Bank.This minimum ratio is known as Cash reserve ratio.It enables Central bank to control the liquidity in the system.It also ensures that a portion of bank deposit is risk free.In case of Inflation, the central bank increases the CRR rate and thus the available amount to banks becomes down.If the central bank decreases the CRR rate the availability of money increases.That is, more money will come on hands of banks.
Statutory Liquidity Ratio (SLR)
 SLR means Statutory Liquidity Ratio.The ratio of liquid assets to demand and time liabilities is known as Statutory Liquidity Ratio.Before providing credit to its customers the banks have to maintain or keep a part of its deposits in the form of gold, cash or other government approved securities as a part of SLR requirements.In India SLR is determined and maintained by Reserve Bank of India.With the SLR tuning, RBI can control the inflation through controlling credit growth and money supply.

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