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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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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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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