Post on 13-Jan-2015
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ONLINE TRADING AND
STOCK RESEARCH TECHNIQUES
RESEARCH OBJECTIVE
•To qualitatively view the prevalent analysis techniques used for selecting a Company’s stock for investment purpose. •To identify the factors to be considered while selecting a particular stock.
RESEARCH METHODOLOGY
RESEARCH DESIGN EXPLORATORY
DATA COLLECTION Secondary Data
TOOLS USED MetaStock
Period of Study 8 weeks
A Stock Exchange is an organized market for purchase and sale of
existing or second hand securities.
STOCK EXCHANGE
SIGNIFICANCE OF STOCK MARKETS
Stock markets are true indicators of the economy of a country wherein they take into consideration factors such as GDP growth, Industrial growth, Global cues, Government policies, Budget, Inflation(WPI) and Demand & Supply to reflect the growth of the economy by showcasing the variations as fluctuations in the Index; NSE and the BSE.
•
Surplus capital.Speculative instincts.High risk appetite.
Stock Market provides them with a platform wherein the variations in its Index levels amounts to huge gains/losses in a short span of time (minutes to several days).
The quick and high returns from Stock Market lures Traders and Investors to invest.
A variable RoR.
Why Invest in Stock Market?
PARTICIPANTS
An investors attitude makes him synonymous to animals in the market.
Bull – If a person is optimistic, believing that stocks are going up, he or she is called a “bull" and said to have a "bullish outlook".
Bear - If a person is pessimistic, believing that stocks are going to drop, he or she is called a "bear" and said to have a "bearish outlook".
Chicken - Chickens are afraid to lose anything. Their fear overrides their need to make profits, so they avoid the market completely and never take any risk.
Pig – Pigs are impatient, greedy, and emotional investors who blindly invest in high-risk securities without strategizing.
Traders- are those people who invest in the market with an aim to earn quick money in a short term.
Investors- are people who invest their capital in a fundamentally solid company for a long term.
• DOW THEORY• ELLIOTT WAVE THEORY
THEORIES OF RESEARCH
DOW THEORY
DOW THEORY
1. The market has three trends- Up trend, Down trend and Sideway
2. Major trends have 3 phase - Accumulation - A public participation- A distribution
3. The stock market discounts all news. 4. Trends are confirmed by volume
Accumulation
Participation
Distribution
Reliance Industries 1/9/06- 29/8/08DOW THEORY
ELLIOTT WAVE THEORY
Proposed by Ralph Nelson Elliott in the 1930s.
•Market prices unfold in specific patterns known as the Fractal Pattern
•5 waves up.
•3 waves down.
Dominant Trend Corrective Trend
Motive waves
Corrective waves
ELLIOTT WAVE PATTERN
ELLIOTT WAVE: A PRACTICAL EXAMPLE
Technical Analysis
Philosophy or Rationale•Market action discounts everything•Prices move in trends•History repeats itself
•Candlestick charts are the oldest type of charts use for price prediction•Date back to the 1700’s,when they were used for predicting rice price•Sokuta Honma is said to have executed over 100 consecutive winning trades!!•Sakata’s method is the first verifiable beginning of pattern recognition
CANDLESTICK
CANDLESTICK PATTERN
The signals are created by the change in investor sentiment
Type of Chart
White Candlestick
Black Candlestick
Hammer
Doji Line
Common Candlestick Terminology
HAMMER
Engulfing
STAR FORMATION
CANDLESTICK PATTERN
Reliance Industries 4 month Chart
Hanging Man
Piercing Pattern
Dark Cloud
Crow Pattern
• Support and Resistance
• Trendlines
• Trading Range (Channel)
• Price patterns
• RSI
TOOLS FOR TECHNICAL ANALYSIS
SUPPORT AND RESISTANCE
•Draw a trendline through the edges of congestion areas•The most important feature of a trendline is its angle•Trendlines show the action of bulls and bears
TREND LINES
TRENDLINES
A S O N D 1999 A M J J A S O N D 2000 A M J J A S O N D 2001 A M J J A S O N D 2002 A M J J A S O N D 2003 A M J J A S O N D 2004 A M J V
200
250
300
350
400
450
500
550
600
650
700
750
800
850SET (591.480, 614.990, 591.480, 614.990, +32.4800), pp (Dow 30) :: Retrace (2 Plots) *, pp (Dow 30) :: Fibonacci Ladder *, pp (Dow 30) :: Fibonacci Ladder *
Dec 2002 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2003 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2004 Feb Mar Apr May Jun W
5000
10000
15000
x1000
25
30
35
40
45
50
55
60
65
70
75
80
85
90
95
100
105
ADVANC (80.5000, 84.0000, 80.5000, 83.5000, +3.50000), zz (82.6667)
CHANNEL
•Five most major reversal patterns:
•Head & Shoulder
•Triple top and bottom
•Double top and bottom
•Spike top and bottom
•Rounding
PRICE PATTERNS
1997 1998 1999 2000 2001 2002 2003 2004 W
150
200
250
300
350
400
450
500
550
600
650
700
750
800
850
900
950
1000
1050SET (604.870, 614.990, 576.630, 614.990, +5.27002), pp (Dow 30) :: Retrace (2 Plots) *, pp (Dow 30) :: Fibonacci Ladder *, pp (Dow 30) :: Fibonacci Ladder *
H & S
November December2003 February March April May June July August September October November December 2004 February March April May JuneV
50001000015000200002500030000350004000045000
x1000
45
50
55
60
65
70
75
80
85
90
95
100
105
110
115
BBL (88.0000, 91.0000, 87.0000, 91.0000, +4.50000)
DOUBLE TOP
A S O N 1998 A M J J A S O N D 1999 A M J J A S O N D 2000 A M J A S O D 2001 A M J J A S O D 2002 A M J J A S O N D 2003 A M J J A S O N D 2004 A M J A
500010000
15000
2000025000
3000035000
x100000
0
10
20
30
40
50
60
70
80
90
100
110
120
130
140
150
160
170
180
190
200
210
220
230
240
250
260
270
280
290
300
310
320PROP (129.170, 129.170, 116.450, 127.950, -2.21001)
ROUNDING
RSI
Relative Strength Index does not compare the relative strength of two securities, but rather the internal strength of a single security.
FUNDAMENTAL ANALYSIS
Data collected from Company’s Balance Sheet.
Factors considered:
•Dividend•PAT•Reserves and Surplus•EPS•PE ratio
FURTHER RESEARCH
•Fiscal Policy of Governmento Varied tax slabs for different sectors
•RBI’s Monetary Policyo Repo Rateo CRRo SLRo FOREX policy
•Tracking Global Cues•Inflation – 5p.m every Thursday
•Imported inflation •Domestic Inflation
•Speculative Instincts
Contd.
•Sector specific announcements•Windfall tax•Corporate Tax on IT companies•Subsidy to Agri sector•Ban on Iron Ore to control inflation•Increased export duty on metals
•Re-Dollar equation•FII Turnover•Domestic turnover•Keeping a check on Commodity driven stocks•Keeping a check on Demand-Supply of Crude oil
WORLD BOURSES
The markets the world over
•Japan Nikkei•China Shanghai composite•Thailand Set•India Nifty 50/Sensex•London FTSE•USA Nasdaq/Dow Jones•Brazil Bovespa•Korea Kospi
SAMPLE ANALYSIS
Inflation is receding as threat.
New problem :Liquidity and Growth
What can the banks do:
•Cut interest rates•Increase liquidity
India caught in a ripple of financial crisis.
High counter party risk and thus no lenders resulting in reduced liquidity
Current Market Scenario
Bull markets are born in despair, rise in skepticism and die in mania.
By- John Templeton
Famous Quote
ONLINE TRADING MECHANISM
1. Open a DEMAT Account for Equity Trading with their Depository Participant (DP) who is their Stock Broker or the Online Trading Company registered with the Stock Exchange. Negotiate Brokerage
Requirements for opening a Demat a/c are as follows:•Fill the DEMAT Form provided by the Stock Broker. •Provide the PAN number with it. •Provide residence proof.•Draw a cheque in favour of NSCCL as the a/c opening fee.
2. After the DEMAT a/c has been opened and mapped to a Stock Broker’s VSAT terminal, one can commence trading.
TRADE EXECUTION
1.ORDER PLACING2.Bids are communicated to the mainframe of the
Stock Exchange.3.Bid entered is first TIME stamped and then PRICE
stamped.4.TRADE -Stock Exchange mainframe automatically
matches the orders and as soon as the price quotations are matched, Order is converted into Trade.
5.Trade confirmation is given to the Broker or the Client immediately.
6.CONTARCT NOTES are issued by the Brokerage Houses.
QUESTION AND ANSWERS