Dear Friends
Let me thank you all, for your support to the articles I have been writing
In my blog. (www. beleinvestments.blogost.com)
I have been getting number of suggestion from investors, regarding material
Posted and its significance.
I have been trying to make it more simple and informative to all those
Who are not well averse with technical aspect of the market?
At times it is difficult to explain certain details, in a daily posting,
due to fear of it becoming very big and to some extent out of place.
One of the main suggestions was, regarding understanding
The ‘Technical terminologies’ their importance and
Its applied importance in day to day markets (The complicated
Appearance of ‘Technical’ data kept number of traders and
Investors away from reading it)
I am of the opinion that, if one is interested in stock market for
a longer duration and with an intention of ‘ Not, only, earning
short term profit, but is interested in ‘Wealth creation’ then he
should try to go in to ‘minimum details’ of very commonly used
Technical tools and terminologies. This will help you in taking
timely and proper view of stock market,
This is the reason I have decided to give some details in a
Simple language the meaning and use of common
Technical tools used in my blog
Those who are interested in additional details can
ask them on my blog or use my e mail address, I will
Be delighted to satisfy them to the best of my knowledge and capacity
It is a common practice to write ‘Stock’
It is synonymous to ‘Share’ or Equity’
All three terms are same.
Day trade:
This indicates that the stock is purchased/sold any time during trading
Hours but the reverse transaction (Sell/ purchase0 is completed in that
day only, here
One does not carry the trade for next day. Shares are not transferred
to the account.
Profit or loss will be transferred to the account of the client
Positional Trade
If the participant is not sure of desired price movement (expected)
to take place
In that day he can carry the position for next few days, shares
will be transferred to his account on third day of the trade,
here trader has positioned himself for a short term period of
say 5/10 days.
Long term investment
In this situation share purchase is done with the view of keeping
for a longer Period, these are invariably a studied
calls and with the intention of getting
Substantial profits. (Not always)
‘Long’ trade
Here the stock is bought expecting that it will move up.
‘Short’ Trade
This does not indicate only selling the stock, but to borrow the stock
Expecting that the price will move down (here individual does not
Owen the stock)
Market order
Here the order, either to buy or sell, is placed at the current price at
Which immediate seller is in queue, no specified price is quoted?
If not one can specify the price at which he desires to buy or sell.
Bull :
One who feels, and wish, that the stock price or markets will go
up and up?
(Bullish sentiment or trend)
Bear:
One who feels, and wish, that the stock price or market will go down.
(Bearish sentiment or trend)
All this indicates the attitude of the participants
52 week high/low
These indicate the highest closing or lowest closing price/Index in a year.
Break out (Stock Price or Index)
This indicates that the price of the stock or index moved UP the last
Known resistance/support level. It moves very fast as there is no know
Resistance/support level beyond that price.
Breakdown (Stock price or Index)
This indicates that the price of the stock or index moved DOWN the last
Known support/resistance level. It moves very fast as there is no known
Resistance or support beyond that price
Stop loss
It is a price instruction to the broker beyond which you do not want
To hold the stock, if the price moves to the indicated value the trade
will be automatically executed.
Example
Purchase value is @ 100 Rs
Stop loss indicated @ 94
As soon as the price reaches the indicated value the trade will
Be executed. (It protects your losses), Stop loss is very
Important tool when markets are unstable and volatile.
Target
It is the desired value at which one decides to or advised to
Sell the stock or book profit if you have purchased the stock.
It is an anticipatory value , considering that the stock will move
Up
Example
Purchase value is 100
Target Price is 110
One can sell at the target price or carry on, depending on his
Perception, It can be notified to the broker. It protects your profits
From getting converted in to losses, in case markets suddenly fall.
RESISTANCE –R- (R1: First resistance level, like that R2/R3)
The price at which a stock or market can trade, but not exceed, for a
certain period of time.
Often referred to as "resistance level". The stock or market stops rising
because sellers start to outnumber buyers. The level at which some of the
buyers at earlier price start booking profit leading to either some reduction of
the price or maintaining the price till fresh buyers enter , fresh entry after some
Period will take the value to next resistance level. And so on.
SUPPORT –S – (S1 First support level, like S2/S3)
The price level which, historically, a stock has had difficulty falling below.
It is thought of as the level at which a lot of buyers tend to enter the stock.
Often referred to as the "support level".
Often referred to as the "support level".
the price of a stock falls towards a support level it is a test for the
stock: the support will either be reconfirmed or wiped out. It will be
reconfirmed if a lot of buyers move into the stock, causing it to rise
and move away from the support level. It will be wiped out if buyers
will not enter the stock and the stock falls below the support.
Resistance and Support levels can be given for Intra day values
Or weekly values or beyond that.
Resistance and support levels help traders and investors to decide
Selling or buying values and/or the trend of the stock or index.
PIVOT
This value indicates that the ‘Largest’ price movement is expected
To occur around this value. Pivot point will act as a primary support
Or resistance level.
Pivot points are short term indicators
It can be used in two ways
First to determine the overall market trend, if the pivot price is
Broken in an upward movement, then the market is ‘bullish’ and
Vise versa.
Second, you can use pivot point price level to enter or exit the
Stock or market.
DMA (Day Moving Averages)
There are two types of day moving averages
A) SMA or DMA( Simple moving average)
B) EMA ( Exponential moving average)
Moving averages are calculated on ‘Historical’ prices of stock
Or Index. That’s why they lag.
Moving averages help in deciding the trend
By identifying trends, moving averages allow traders to make those trends
work in their favor and increase the number of winning trades.
Moving averages can be used to decide the potential trend and or
Find support and resistance levels.
There are two most popular types of moving averages.
SMA & EMA
Moving averages can be computed for any length of period, like
Hours, Days and weeks.
SMA (DMA) (Simple moving average)
The simplest form of a moving average, appropriately known as a
simple moving average (SMA), is calculated by taking the arithmetic
mean of a given set of values. For example, to calculate a basic
10-day moving average you would add up the closing prices from
the past 10 days and then divide the result by 10.
Why it is called moving average and not a simple mean of 10 days value?
The answer is ……..
Every day there are new values available so
as new values become available, the oldest data points must be dropped
from the set and new data points must come in to replace them.
Thus, the data set is constantly "moving" to account for new data as
it becomes available. This ensures that only the current information is being
accounted for.
EMA (Exponential moving average)
The exponential moving average is a type of moving average that
gives more importance to recent prices and make it more responsive
to new information.
It is calculated by a formula, which I think is not necessary for traders
To learn.
EMA, places more emphasis on the recent data points,
Significance and use of Moving averages
Moving averages are a totally customizable indicator, which means
that the user can freely choose whatever time frame they want when
creating the average. The most common time periods used in moving
averages are 15, 20, 30, 50, 100 and 200 days. The shorter the time
span used to create the average, the more sensitive it will be to price
changes. The longer the time span, the less sensitive, or more smoothed
out, the average will be. There is no "right" time frame to use when setting
up your moving averages.
One of the primary functions of a moving average is to identify trends
And reversal of the trend and determine potential areas where a stock
Or index will find support or resistance.
Common use of moving averages is in determining potential price supports
And resistance
The support and resistance indications of moving averages make them
A great tool for managing stop loss and targets.
Using moving averages to set stop-loss orders is a key to successful trading
VXI (Volatility Index)
During day trading there are lot of fluctuations in stock prices and Index
VXI acts as ‘market sentiment meter’
Volatility
It's basically the variation from the average value over a
measurement period. If a price varies a great deal from
day to day, the volatility will be high, and conversely if the
day to day variation is low, the value of volatility will be low
This is an Index value designed to trade market as an independent entity.
It is used as an indicator of investor sentiment in a given situation.
High values indicate pessimism while low values indicate optimism
VXI is calculated with the help of standard deviation, average traders
Should not enter in calculating details as the data is readily available.
Thanks
Dr. Vasant Bele
(Expecting your suggestions and comments in a 'Comments Space' below)
All the information is simplified for the beginners, veterans should
Pardon and correct me in case some of the details are not up to mark
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