STOCK'S KNOWS

Thursday, May 3, 2018

Candlestick Patterns: Part 1

Gaurav Candlestick Patterns, Technical Analysis

Hey friends, welcome to Stock’s Knows. This is the 4th article of technical analysis. In this article, we will learn about some candlestick patterns and their interpretation. Candlestick charts are most useful charts because different types of candlestick patterns have their different interpretation which is very helpful to understand the market.

1)Marubozu:

A candlestick pattern which has the only body but no shadow or small shadow is known as marubozu. A rarely found marubozu candlestick pattern is of both types bullish and bearish. For bullish marubozu, always open equals Low and Close always equals high, in bearish Marubozu open equals High and Close equals Low. Marubozu type candlestick pattern can be both continuation and reversal pattern.

Marubozu as Bullish continuation pattern:

If you find Bullish marubozu in the uptrend, it indicates the continuation of that uptrend.

Marubozu as Bullish reversal pattern:

If you find Bullish marubozu after the downtrend, it is the indication of a reversal of trend and uptrend may be coming.

Marubozu as Bearish Continuation pattern:

If you find Bearish marubozu in the downtrend it is the indication of the continuation of that downtrend.

Marubozu as bearish reversal pattern:

If you find bearish marubozu after the uptrend, it is the indication of trend reversal may be coming.

2)Spinning top :

In spinning top candlestick pattern, a body is very small as compare to shadows. Generally, shadows are more than double size of the body. This looks like a spinning top toy, so it named as spinning top candle. It is the sign of indecision and it generally forms at the end of an uptrend or a downtrend. After spinning top candlestick pattern one need to wait for next candle, which will indicate the situation.

Spinning Top candlestick pattern can indicate both bullish and bearish reversal.

Spinning top as bullish trend reversal:

Spinning Top as Bearish Trend Reversal:

3)Doji:

Doji patterns have very small or nobody and long shadows, there are four types of doji patterns:

a)Gravestone doji,
b)Dragonfly doji,
c) Doji
d)Long-legged Doji

a)Gravestone Doji generally forms after an uptrend and it is the indication of the end of an uptrend or reversal of an uptrend and downtrend might start.

b)Dragonfly doji generally forms after a downtrend and it is the indication of an end of downtrend or reversal of trend and uptrend might start.

c)Doji forms both after the uptrend or after the downtrend. If it forms after the uptrend, it indicates the bearish trend reversal. If it forms after the downtrend, it indicates the bullish trend reversal.

d)Long-legged doji forms after both of trends. If it forms after uptrend it indicates the bearish trend reversal ( or indecision) and if it forms after downtrend it indicates bullish trend reversal (or indecision).

3)Hammer and Inverted Hammer pattern:

i)Hammer candlestick pattern looks like the hammer, it has the small body, small upper shadow, and longer lower shadow. There is no bullish or bearish hammer, hammer generally forms after significant downtrend near the bottom of the downtrend. whether it has the bullish body or bearish body it indicates that bottom may be hammered out and uptrend might start. Price will go up from here.

Hammer candlestick pattern as bullish reversal pattern

ii)Inverted hammer candlestick pattern looks like the inverted hammer, it has the small body, small lower shadow, and long upper shadow. Generally, length of the shadow is more than double of the length of the body. It generally forms after both uptrend and downtrend. If it forms at the bottom, after significant downtrend it indicates that buyers are coming back and sellers are exhausted.

Inverted Hammer as Bullish reversal candlestick pattern

iii)Shooting star:

If inverted hammer form at the top, after significant uptrend it is known as shooting star because it looks like when a star shooting from the sky. If low of shooting star breaks in next candle it clearly indicates of bearish reversal and downtrend might come because of sellers are back in the game.

Shooting star Candlestick as Bearish reversal

This was the part 1 of candlestick patterns, in 2^nd part will understand candlestick patterns formed by more than one candle. If you find helpful above information then please Share our article and Subscribe to the newsletter of our blog.

Basics of trading and important things to know while trading.

Gaurav Technical Analysis,

Hey friends, welcome to Stock’s Knows. This is the 3^rd article of Technical Analysis, in today’s article, we will know Basics of Trading.

What is Trading?

Trading is a method to make a profit from buying and selling shares or security or currency during the shorter time frame. There are different types of traders in the market. Risks, rewards and time frames are different for different types of traders. We can classify mainly three types of traders shown in the market.

1)Intraday Trader:

An intraday trading is a method to get profit from changes in the price of shares during the day. An intraday trader needs to close his opened position before closing the market, whether it is a profitable position or losing position. Intraday traders are players which play in direction of Market.

Intraday traders always try to book their profit quickly or cut loss quickly. Though intraday trading removes the overnight risk of carrying shares, it is not the easy task to do.

2)Positional Trader:

Positional trading is like day trading but positional traders do not square off their position before closing the day but they take their position in any security and hold for some days to the week and try to get profit from changes in share price during some time period.

Although it consists of overnight carrying risk, as per my view in positional trading you have some more time as compare to intraday to take decisions as per your risk or reward capacity. They book profit or cut losses as per their plan on basis of the movement of share or security price.

3)Short term or Swing Trader:

Short term or swing trading is trading for a time period of 1 week to 4 weeks. A swing trader always tries to get profit from market swings during some weeks. Swing trading also carries Overnight holding risk but it is less risky as compared to intraday and positional trading as per my view.

They always buy at low and sells at high. Risk and reward in swing trading are different from both above types of trading. Though all types of trading are risky but if you trade strictly as per your plan, you will get profit in the long run.

Some important things to decide while trading:

1)The risk to reward ratio:

The risk to reward ratio is first important thing while trading. The risk to reward ratio is defined as: How much reward you expect per share while taking risk of Rs.1 per share.

If you expect Rs.5 per share as a reward while taking risk of Rs.1 per share your risk to reward ratio will be “1:5” (Risk: Reward or Risk/Reward). Higher the reward compares to risk better it is. A ratio of 1:5 is better than 1:1 ratio.

For different type trader risk to reward is a different but minimum risk to reward ratio is always 1:1 because minimum reward while taking risk of Rs.1 per share is not less than Rs.1 per share.

2)Target:

Target is a level near that one need to book full or partial profit. Booking profit is very important because the market is always volatile and if someone waits for more and more profit and not book profit, it is possible that market may reverse its direction and profitable position will become losing position.

To avoid those scenarios one needs to set the target and continue to book at least partial profit. In above condition trailing stop loss will help you.

3)Stop loss:

In any type of trading cutting losses is as much important as booking profit. STOP LOSS is a level beyond that one need to square off his position to cut the loss as per his risk-carrying capacity.

As per trader’s risk to reward ratio and on the basis of charts, stop loss must be decided. Because of news, events, and volatility, the market can change its direction any time.

To protect himself from that volatility and to limit the losses, one always need to place stop loss orders.

If you are in buy side, your stop loss level would be just below the nearest support level, if you are in sell-side your stop loss level must be above the nearest resistance level.

There are many support and resistances possible in any price range, one needs to decide that where to put stop loss as per his risk to reward ratio and as per his trading style.

There are different stop loss levels in the same position for Intraday or Positional or swing trader.

In trading, many people because of emotions prevent to cut losses earlier and think the market will reverse to give him reward so they hold their positions but an ideal trader do the exact opposite of it, he always tries to cut losses quickly and try to run his profitable position.

Thinking that market will reward me because so and so reason is not good quality of a trader.

Accepting whatever real condition is, the best quality of a trader. If you want to be profitable in trading you need to do like the ideal trader.

Types of STOP LOSS:

1)Trailing stop loss:

Trailing stop loss is moving stop loss which moves in favor of the position as price goes in favor of the opened position.

If you have bought some shares at 200 and your stop loss is at 196, suppose price moves from 200 to 204 then you need to increase stop loss from 196 to 200, in this condition your trade is protected and you won’t lose anything.
After sometime price further increases to 208 then you need to increase your stop loss to 204, in this condition your profit of Rs.4 per share is locked and in any market condition you will get minimum that profit. This is known as trailing stop loss.

No. CONDITION STOP LOSS PRICE

1) Just Bought 196 200

2) After some time 200 200

3) More time passed 200 208

2)Fixed stop loss:

After understanding about trailing stop loss, you will think people need to always use trailing stop loss, but it is not true.

Sometime trailing stop loss will give unnecessary losses, because in the highly volatile market it is possible that price of purchased share suddenly decrease and hit your stop loss and quickly increase from that level and hit your target, but your position was squared off and you will get the unnecessary loss.

So trailing stop loss is a good idea but not in all cases. In the highly volatile market, you have to increase your risk, need to find strong support below that you can put stop loss, to increase the probability of hitting it.

In that case, you can not trail your stop loss. This type of Stop loss is known as strict or fixed stop loss.

This was some basic and important things of trading.

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10 Most Important Fundamental Parameters of a Company.

Gaurav Fundamental Analysis,

Hey friends, welcome to 2nd article of fundamental analysis of Stock’s Knows. In this article, we will know 10 Most Important Fundamental Parameters of a Company.

1)Market Capitalization (Market Cap):

Market cap is a representation of a value of a company in the market. Higher the market Cap larger the company’s size. Market Cap is calculated by multiplying a company’s share price with its total number of outstanding shares in the market.

i.e.If a company’s share price is Rs.100/share and a number of outstanding shares in the market are 100 then Market Cap of a company will have calculated:

Market Cap = (Price of a share x Total Number of Outstanding Shares)

=(100x100)
= Rs.10000

Total Value of that company in market is Rs.10000.Companies also categorized in terms of market cap: Large Cap, Mid Cap, Small Cap.

Large-cap companies are large size companies, which are in their businesses from decades or some from a century. Hence, they are less risky as compare to any other.

Mid Cap companies are larger than Small Cap companies but smaller than Large-cap companies. They are less risky than Small Cap companies but riskier than large-cap companies.

Small Cap Companies are smaller in size. They are higher riskier than both above types of companies.

2)Book Value:
Book value is another type of the value of a company. It is a value as per company’s books. It is the difference between a company’s total assets and total Liabilities. It is shareholder’s total fund for a company.

If we divide Book Value of a company to a total number of outstanding shares of a company, then we will get Book Value per share of a company. Which is the value of 1 share of a company as per its books?

We can calculate the price to book value per share for a company by dividing a company’s share price with its book value per share.

From which we can analyze the price of a company, how much times the price is currently as compared to its book value. Higher the Price to book value, higher the valuation of a company.

3)Face Value:
Face Value is the original value of a share, which is printed on share certificate. In previous days shares were issued in certificate form. 1 certificate for 1 share. Now because of regulatory rules, all shares are dematerialized saved in Demat account of Shareholders. In India generally, the face value of a company is between 1 to 1o.

4)Market Value or Market Price:
Market price is a company’s current share price as per Stock Exchanges where it is listed. Market value is also the sum of Face Value and Premium given by Market to a share.

5)Dividend and Dividend Yield: By Investing in shares of a company, one can get benefit from two sides: 1)Dividend 2)Capital Appreciation.

1)Dividend:
It is some part of a company’s earnings, which is paid to its shareholders on the behalf of taking the risk in that company.

It is very important to note that paying the dividend is not compulsory, it depends on the company, whether to give dividend or to use that capital to improve company’s growth. A dividend is given as a percentage of a company’s face value. i.e. If a company declares the dividend of 150% and a face value of it is Rs.1 then the company will pay Rs.1.5 per share to its shareholders.

2)Capital Appreciation:
It is in terms of increase in share price which is purchased by shareholders. i.e. In June 2016, the per share price of MRF was more than Rs.30000 and now in April 2018, the per share Price of MRF is more than Rs.80000. If someone has invested in money around 2016 then, he or she have made more than 160% money as capital Appreciation.

Another Example: Price of your house Rented to someone gives two incomes: Increase in Price of Property as capital appreciation and Rental Income as Dividend, although rental income does not depend on Paying Guest right, it is decided by you right?

Dividend Yield:

Dividend Yield is represented in terms of percentage. It is the ratio of annual dividend per share and price per share. How much a company paid to its shareholders as a percentage of its share price.

The higher Dividend yield is attractive for majority people, it is like extra income. Which is attractive.

6)EPS or Earning per share:
The most important financial ratio of a company is EPS or Earning per share. It is clear from its name, it is earning per share by a company.
It is always for some particular time period. Generally, EPS used of Trailing twelve months or EPS(TTM) which is the sum of EPS of last for Quarter. The formula for calculating EPS for a particular period is as below:

EPS = (Net profit of company / Total Number of outstanding Shares)

EPS of a company having the net profit of Rs.100 cr and Total Number of shares outstanding 10 cr is EPS= (100/10) = RS.10 per share.

7)Price to Earnings Ratio or P/E ratio:

Another most important Ratio is Price to Earning or P/E ratio, it is defined as the current market price of the share of a company by its EPS or Earning per share of a company. Highest the P/E ratio, richest the valuation of a company.

PRICE TO EARNING OR P/E = (current Market Price of a Share / EPS for that company)

i.e. P/E of a company having price rs 200 and EPS RS.20 will be P/E =(200/20)=10x (10times)

8)Industry P/E:
Industry P/E is PRICE to Earning multiple of the whole industry. By Comparing a company’s P/E ratio with its industry’s P/E one can identify, is company overvalued or undervalued?

P/E < Industry P/E Then Undervalued

P/E > Industry P/E Then Overvalued

P/E = Industry P/E Then fairly valued

9)Deliverables:
It is the percentage of delivery from traded quantity for a particular period of time. You can find deliverables for any company at its respected Stock Exchanges. (Exp. NSE, BSE, MCX, NYSE).

Higher percentage delivery is a good sign for a company for that particular price.

10)Market Lot:
It is a minimum quantity of shares which one can able to trade. It is different for the company to company. Generally, in India Market lot is 1 share for most companies (except SMEs (Small and Medium Enterprises)).

This was 10 most important fundamentals of a company. If you find helpful above information then please Share our articles and Subscribe to the newsletter of our blog.

Technical Analysis of Stocks : Support and Resistance Levels

Gaurav Support and Resistance Levels, technical analysis of stocks

Hey friends, welcome to Stock's Knows.

This is the 2nd article of technical analysis of stocks , in our first article of technical analysis of stocks we learned three basic principles of Technical Analysis.

Today we will understand the very basic concept of Technical Analysis of Stocks which is known as Support and Resistance levels.

Before starting about Support and Resistance level we need to understand types of charts used in technical analysis of stocks which are given below:

Three basic chart types:

1) Line Chart:

Line chart looks like a line, it is very simple and basic representation of chart. The line chart shows the only closing price of a security during the particular time period.

Nifty50 Line Chart

2) Bar chart:

Bar chart looks as shown in below picture. In the bar chart, a bar type representation formed by using information of open, high, low and close price of a security.

Nifty50 Bar Chart

3) Candlestick chart:

Most famous and majority technical analysts use candlestick charts, by using high, low, open and close price for the particular time period, a candle type representation is formed in candlestick chart. Candle's color is decided by the price action of open and close:

If Close > Open then Green

If Close < Open then Red

(There is no hard and fast rule for the color of candles you can change as you want.)

Same as in all type chart you can analyze from 1-minute candlestick chart to 1-month candlestick chart.

Now we need to understand the very basic topic of technical analysis, without using it, one cannot able to predict the price of any tradable security.

Support and Resistance Levels:

We already know that market does not move like a straight line, it always moves in trends.

In this journey of the market we can find some levels from where the direction of the market starts to reverse its trend those levels are known as support and resistance levels.

Suppose the market is in an uptrend and from any level, it changes its direction to downtrend then that level is known as a resistance level.

And if the market is in a downtrend and from any levels, it stops its downtrend and goes to the direction of uptrend then those levels are known as support levels.

It is very important to identify support and resistance levels for any tradable security.

Because by using support and resistance, we can predict the price and direction of the price of any tradeable security.

How to identify Support and Resistance levels?

To identify support or resistance levels, one needs to find trend reversal points of price in a chart of any security.

From where Uptrend becomes downtrend, or downtrend becomes uptrend.

Method to Identify Support and Resistance is given below picture.

Trend reversals from support and resistances

Important things to remember about Support and Resistance levels:

Resistance will become support, if price crosses that level and sustains above it and support will become resistance, if price cross it and sustains below it.

Resistance became Support

Support and Resistances are levels, not just simple lines, they are regions of support and resistances.

Importance of support and resistance will increase in the proportion of the number of time they are tested. More time-tested resistance or support levels are more important than less time-tested levels.

It is very important to remember that there is always demand available near support levels and supply available near resistance levels.

How to use Support or Resistances for Trading?

Having lots of information is meaningless if you don't know how to use that information.

Same in the technical analysis also, if you know the concept of support and Resistance levels but don’t know how to use that concept to improve your analysis, then there no benefit for it.

Uses of support and resistances are very much important.

Suppose the price of any security is started from Rs.101 and faced resistance at 105, after some time it successfully crossed 105 with high trading volume, then you can predict the next level of resistance this way:

Find the difference between breakout level and support level (In above case 105-101=4).

Add it to breakout level (105+4=109).

This will be your target or next possible resistance level(109).

In above example, we found the target of 109, but what if the price will not increase to 109 level and go below 105, 104, 103, 102..., this is known as a false breakout.

Our position will become losing position.

For avoiding those condition you need to find risk and reward both while analyzing charts.

In trading we always need to look on both side until price doesn't fall below this level, there is a high probability that price will go around this level.

And if fall below this level one needs to exit in a loss to limit his or her loss.

In above example we found breakout level at 105 and our calculated target is 109 but risk calculation depends on our risk taking capacity.

If one is conservative trader and is able to take Rs.1 risk to get Rs.4 then risk level is 104 (breakout level-Risk capacity)for his or her trade.

And if price will go below 105 , he or she will wait until price is above 104, if price will go below 104 he will exit immediately with loss of Rs.1 per share.

Limiting your loss is a most important thing in trading.

We will discuss Risk Reward, Target, Stop loss and where to put that to limit loss in our another article of Basics of Trading.

If you find helpful above information then please Share our articles and Subscribe newsletter of our blog.

What are Shares? Why will a company issue shares?

Gaurav Fundamental Analysis,

Hey friends, welcome to Stock's Knows. Today's topic of the article is: what are shares? Why any company will issue shares?

In simple words, Shares are ownership part of something. But in the market, this part ownership is of any company or organization's profit.

Do you think, if a share means ownership then companies issuing shares are selling their ownership, this is true that companies are selling their ownership but if you just have shares of any company you don't have any right to use their products or services without paying them.

i.e. If you have shares of Dmart you don't have right to go to any of DMart store and take anything from that without paying them.

There are two types of shares:

1) Preference shares:

A Preference shareholder has right to get preference to receive money while liquidation of a company after paying to all the debt holders.

1)Preference shareholders do not have any voting rights.

2)They only paid by mostly fixed or at fixed rate dividend and capital after completing the term of preference issued.

3)Preference shares are not traded on the stock market.

2)Common or Equity shares:Remaining all the shares which do not have right of preference are known as common or equity shares. All the shares traded in the stock market, are common or equity shares.

As Equity or common Shareholder, you have some benefits:

1) You can sell your shares of any company to anyone in open market at any time and any price.

If you purchased a company's 100 shares at around Rs.100 and after some time you notice that price of that shares reached to Rs.200 per share and if you want to sell then you can sell shares you owned either full or part of it at Rs.200 per share.

2) You have a right to vote in decisions taken in Shareholder 's meeting as a proportion of shares owned by you.

3) You have a right to get dividend at any time when declared by a company as a proportion of shares owned by you.

If a company declares the dividend of Rs.5 per share and if you have 100 shares of that company. You will receive Rs.500 to your account.

Why will a company issue shares?

A company’s major purpose of issuing shares is to collect capital for improvements in the company like reducing loans, for working capital, for general corporate purposes, to purchase new instruments or machines or to build buildings or factories or any plants or maybe something different.

Benefits of issuing shares rather than taking loans from banks or any institutions.

1)The major benefit of issuing shares rather than taking debts (loans or bonds) is that if a company suffer from economic slowdown it doesn’t need to pay hefty interests to debt holders so that it can survive in bad time also.

While if a company have higher levels of debt as compare to equity or share capital then in bad time also it needs to pay hefty interests. Though a company is profitable in its top line but may not be profitable in the bottom line and if a company isn’t able to pay interest then it may be going to bankruptcy and maybe the company will not survive. i.e.

Image source: Screener.in

Videocon industries have declared the standalone result of Mar 2017, operating profit was 1184.94 Cr and Net profit of -1915.68 Cr, due to the high-interest payment due of 3205.80 Cr, if it hasn’t taken such high loans it doesn’t have to pay such hefty interest and it would be profitable in net profit.

2)Although a company needs to pay a dividend. But dividend policy is depending on the company if a company is suffering from an economic slowdown or weaken performance then it doesn’t need to pay a dividend to its shareholders.

3)While liquidation of a company (if it happens) debt owners are preferred to pay by selling assets of a company after that preference shareowners are payable and then equity shareholders are payable.

Benefits to shareholders to buying shares:

1)Price of shares of any company depends in long-term on performance of company, a well-known quote by Ben Graham is “In short run, market is voting machine, but in long run it is a weighing machine.” means that in short-term price of a company may not be depends on its performance but in long term it depends on performance of that company.

If a company do well in long run, in the long run, the price of its shares will go higher which will give benefit to its shareholders as capital appreciation. If a company does not do well in long run then in long run also the share price of it will go lower which will give drawbacks to its shareholders.

2)If a company give dividend then it will also benefit shareholders. Though it is not necessary to declare dividend it depends on a company’s dividend policy.

Hence investment in equity is risky, any investment in any company should be done after doing proper research on that company.

This was the answer to what are shares and why a company will issue shares. Below is the video link to my YouTube channel’s video on what are shares and why a company will issue shares? In the video, I took an example to explain what are shares and why they are issued.

If you find helpful above information then please Share our articles and Subscribe to the newsletter of our blog.

Thursday, May 3, 2018

Candlestick Patterns: Part 1

Tuesday, May 1, 2018

Basics of trading and important things to know while trading.

Monday, April 30, 2018

10 Most Important Fundamental Parameters of a Company.

Wednesday, April 25, 2018

Technical Analysis of Stocks : Support and Resistance Levels

Three basic chart types:

1) Line Chart:

2) Bar chart:

3) Candlestick chart:

Support and Resistance Levels:

How to identify Support and Resistance levels?

Important things to remember about Support and Resistance levels:

How to use Support or Resistances for Trading?

Sunday, April 22, 2018

What are Shares? Why will a company issue shares?

1) Preference shares:

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