Terminologies

COT stands for Carry Over Transactions. These transactions are moved by the customer to the next trading day and the carry over is arranged by the brokerage house.

Day Trade: A day trade is made when a customer buys a particular share and sells it during the same day.

Dividends are returns on shareholding. The return is paid by the company out of its profits. This return may be in the form of cash or additional shares referred to as ‘bonus shares’. Dividends are announced by the company usually once or twice a year depending upon company policy.

Earnings per share (EPS): A profitability indicator calculated by dividing the earnings available to common stockholders during a period by the average number of shares actually outstanding at the end of that period.

Spot Market: A commodities market in which goods are sold for cash and delivered immediately. A futures transaction which will expire in 1 month or less.

Spot Price: The current price at which a particular commodity can be bought or sold at a specified time and place.

Buy Back: The buying back of shares by a corporation in order to reduce the number of shares in the market.

Buy and Hold: A passive investment strategy with which an investor buys stocks and holds them for a long period regardless of fluctuations in the market.

Trading Style

Match Your Trading Style To Your Lifestyle.

Your choice of trading style is especially important from a lifestyle perspective. Day trading usually means you will be at your computer for hours at a time. Longer term online stock trading doesn't require as much attention.

As a rule, the shorter the time frame the more intense the trading.

Types of Technical Indicators

Three types of technical indicators are commonly used to get a handle on the technical picture. They are:

• Trend indicators, such as moving averages and moving average convergence/divergence (MACD)
• Momentum indicators, such as the relative strength index (RSI)
• Volume indicators, such as Chaikin money flow (CMF)

Trend indicators are used to ascertain the general direction of price. Rising peaks and troughs form an uptrend, while falling peaks and troughs form a downtrend. Moving averages and moving average convergence-divergence are among the more commonly used trend indicators, which are often lagging indicators.

Momentum Indicators measure the rate of price change of a security and are usually leading Indicators. Momentum is often assessed using oscillators that compare the magnitude of recent losses with magnitude of recent gains and indicates this by a number ranging between 0 and 100. The relative strength index (RSI) is a popular momentum indicator.

Volatility

• In general, volatility is a statistical measure of the tendency of a market or security to rise or fall sharply within a short period of time. Volatility is typically calculated by using variance or annualized standard deviation of the price or return. 
• Volatility is a variable that appears in option pricing formulas. In the option pricing formula, it denotes the extent to which the return of the underlying asset will fluctuate between now and the expiration of the option.

Things to AVOID When trading in Stock Market

• Greed; being greedy can be a problem as it corrupts wisdom, 
• Making the same mistake twice, 
• Following the crowd, as the loss at the end is of the individual and not the crowd itself 
• Putting all your ‘eggs in one basket’. You should diversify and spread your investment, 
• Using rumors as tips, as this can result in losses. A tip can end up as a ‘pit’ 
• Emotions; being emotional can effect reasoning. Traders should use research backed by fundamental reasoning. 
• Impatience; patience pays, perseverance gains, 
• Over borrowing; loan repayment is not an investment.

Why Use Indicators?

Indicators serve three broad functions: to alert, to confirm and to predict.

• An indicator can act as an alert to study price action a little more closely. If momentum is waning, it may be a signal to watch for a break of support. Or, if there is a large positive divergence building, it may serve as an alert to watch for a resistance breakout. 
• Indicators can be used to confirm other technical analysis tools. If there is a breakout on the price chart, a corresponding moving average crossover could serve to confirm the breakout. Or, if a stock breaks support, a corresponding low in the On-Balance-Volume (OBV) could serve to confirm the weakness. 
• Some investors and traders use indicators to predict the direction of future prices.

Bollinger Bands

• Bollinger Bands are placed two standard deviations above and below a central moving average. 
• When the stock price touches the lower band, it is often considered an oversold signal, and a bounce in the stock price is expected.
• Similarly, when the stock price touches the upper band, it is often considered an overbought signal, and reversal in the stock price is expected.

RSI

The RSI (Relative Strength Index) is an oscillator that ranges from zero to 100. A low reading suggests a stock is oversold and ready to bounce. A typical buy level for this indicator is when it falls below 30. The selling level is when in crosses above 70.

Pairing the Stochastic & MACD

When used individually, both technical oscillators help to isolate great opportunities in a range-bound market. The stochastic indicator can be aptly applied for short-term trades, while the MACD is best used for longer term opportunities. Together, however, they are able to harness the power of market dynamics as short-term price action rejoins the longer term trend, offering further potential in changing market conditions.


This team works well because the stochastic is comparing a stock's closing price to its price range over a certain period of time, while the MACD is the formation of two moving averages diverging from and converging with each other. This dynamic combination is highly effective if used to its fullest potential.

The MACD Indicator

The MACD indicator is the most popular tool in technical analysis, because it gives traders the ability to quickly and easily identify the short-term trend direction. The clear transaction signals help minimize the subjectivity involved in trading, and the crosses over the signal line make it easy for traders to ensure that they are trading in the direction of momentum. Very few indicators in technical analysis have proved to be more reliable than the MACD, and this relatively simple indicator can quickly be incorporated into any short-term trading strategy.

The Secret Principals

The Secret Principals of Success in the Stock Market

• Identify a Blue-chip stock
• Buy at a great price
• Sell at a suitable time

Moving Averages - Simple and Exponential

Moving averages smooth the price data to form a trend following indicator. They do not predict price direction, but rather define the current direction with a lag. Moving averages lag because they are based on past prices. Despite this lag, moving averages help smooth price action and filter out the noise. They also form the building blocks for many other technical indicators and overlays, such as Bollinger Bands, MACD and the McClellan Oscillator. The two most popular types of moving averages are the Simple Moving Average (SMA) and the Exponential Moving Average (EMA). These moving averages can be used to identify the direction of the trend or define potential support and resistance levels.

Even though there are clear differences between simple moving averages and exponential moving averages, one is not necessarily better than the other. Exponential moving averages have less lag and are therefore more sensitive to recent prices - and recent price changes. Exponential moving averages will turn before simple moving averages. Simple moving averages, on the other hand, represent a true average of prices for the entire time period. As such, simple moving averages may be better suited to identify support or resistance levels. Moving average preference depends on objectives, analytical style and time horizon. Chartists should experiment with both types of moving averages as well as different time-frames to find the best fit.

Blue-chip shares?

• Blue chip stocks are large companies whose shares are considered to be relatively safe than normal shares. It gains that status from its past record of being a high growth, high dividend paying company. These companies would be leaders in its field. 

• There is no hard and fast rule to find out which a blue chip company is and which one is not. A blue-chip typically would have stable earnings and dividend history, a strong asset position, high credit rating and an excellent record of being a leader in its field. These are huge companies in terms of market capitalization and revenues.

ARE THESE SHARES SAFE FOREVER?

• No. These shares may be assumed to be relatively safer than others, provided, the positive factors that drive the company remain intact. Just like any other company, a blue chip company can also run into financial troubles and become dead one day. No one can guarantee you that a blue-chip will remain like that in future also. 
• May be, some of the future blue chips are hidden in mid caps right now. If you have managed to spot them right now, you have a chance to become a millioner soon. 

SHOULD YOU INVEST IN BLUE-CHIPS?

• Of course, Yes! You must have some portion of your investments in Blue-chips. They bring the required solidity in your portfolio, since they do not fluctuate heavily like mid caps or small caps. 
• Investing in blue chip also requires lot money because; typically these shares will cost more. Hence, there is a necessity to valuate it meticulously.

Do stock indices tell the right story?

Stock market indices, gives you a snapshot of how the economy is going forward. It’s just a snapshot.

If the index rises, it is not necessary that your investment would also rise.

Stock indices are unimportant to an ordinary investor. What’s important is to pick stocks that are fundamentally good. Fundamentally good stocks perform well in any situations. There are many stocks which steadily rise, unnoticed by many, even when the market index is going no where.