WHAT IS STOCK MARKET?

Single Candlestick patterns (Part 1) a single candlestick pattern is formed by just one candle. So as you can imagine, the trading signal is generated based on 1 day’s trading action. The trades based on a single candlestick pattern can be extremely profitable provided the pattern has been identified and executed correctly. One needs to pay some attention to the length of the candle while trading based on candlestick patterns. The length signifies the range for the day. In general, the longer the candle, the more intense is the buying or selling activity. If the candles are short, it can be concluded that the trading action was subdued. The following picture gives a perspective on the long/short – bullish, and bearish candle. The trades have to be qualified based on the length of the candle as well. One should avoid trading based on subdued short candles. We will understand this perspective as and when we learn about specific patterns. The Marubozu The Marubozu is the f

economic data  we know how to use an economic calendar (which should be checked daily), what are the market movers that usually generate the most volatility and, in some cases, opportunities? a) Central Bank Meetings: it is not a wise thing to trade around a central bank meeting. But central bank meetings can set the tone for the days ahead, which can be traded on the back of the theme (if there is one). Central banks set the price of money by controlling the short term lending rate. Generally speaking, when a central bank increases interest rates it attracts capital to the country because investments will yield more. This is all positive for the domestic currency. The opposite is also true: if a central bank decreases interest rates, then it is negative for the domestic currency. But even more important than the interest rates themselves is the general direction of interest rates. If a central bank is pointing at rising rates, then the market will already be in “buy the d

The Beginner’s Guide to Technical Analysis Combining Fundamental and Technical Analysis On the left: 4H chart of EUR/USD with various technical methods applied (source: Twitter) On the right: Kandinsky horizontale (Source: Google Images) Up to this point, we’ve explored Support & Resistance, Candle Patterns, Moving Averages, Fibonacci Retracements, Oscillators, Bands, Channels and Envelopes. However, it would be too simplistic to reduce successful speculation to mere technicals. Sure, technical analysis is an easy empirical method, which is actually very useful for: Measuring market sentiment on a given asset  Timing potential entries and exits  Managing risk. However, it is rare to find a successful FX speculator that relies on technicals alone. In reality, behind successful FX speculation lies a decision making process that most likely blends technical analysis and fundamental analysis. Picture this: you are a trader for a hedge fund, prop desk or an ass

Candlesticks Patterns Candlesticks are important signals individually. However, combination of the candlesticks can also generate very strong reversal signals. 1. High-Wave A group of candlesticks that have small bodies and long shadows are called High Wave. High Wave is a very strong reversal signal at the top of an uptrend or bottom of a downtrend. 2. Engulfing Pattern This pattern is a very strong reversal signal at the end of a trend. Engulfing pattern is formed by two candlesticks with different colors. The body of the second candlestick should completely engulf the first one. The shadows may also be engulfed but it is not necessary. The first candlestick can also be a Doji. Engulfing pattern is stronger when the first candlestick has a small and the second candlestick has a big body. Also when the second candlestick engulfs more than one candlestick, the pattern is stronger.

What Should You Do When You See a Doji? As I said, Doji means indecision and uncertainty. When it forms at the top of an uptrend or at the bottom of a downtrend, it means the price is uncertain to go up or down or sideways. When you see a Doji, if you already have a position, you have to take your profit and if you don’t have any positions, you have to wait for the confirmation candlestick to choose a direction and enter a trade. What do I mean by “confirmation candlestick”? One of the very next a few or few candlesticks, can work as a confirmation. For example, when you see a Gravestone at the top of an uptrend, you should get ready to go short, but first you have to wait for the next candlestick or even next two candlesticks sometimes. If they are Bearish, it means bears (sellers) have taken the control and the price will go down. You can go short after the confirmation candlestick close. Please note that Doji candlesticks that have longer shadows, are stronger. As you se

Doji Doji means unskillfully formed. These kinds of candlesticks are called Doji or unskillfully, because they don’t have a body. Why? When the open price and close price are the same, the candlestick will have no body and is called Doji candlestick. Doji candlesticks have no color, and so they are neither Bullish nor Bearish. What does it mean? It means both Bulls and Bears have the same power and are matched and the price doesn’t know where to go. It doesn’t know if it goes up or down, because Bulls are not able to increase the price and Bears are not able to decrease it. So Doji candlesticks are indecision and uncertainty signals. Of course, sometimes the open and close prices are not exactly the same, and so the Doji candlestick will have a small body. However, when the body is too small, still the candlestick can be known as a Doji candlestick that should have no body typically. All kinds of Doji candlesticks need confirmation. I will tell you what confir

Japanese candlestick Candlesticks are the oldest form of technical analysis in the world. Japanese Candlesticks were invented by a Japanese rice trader, Munehisa Homma, in 17th century. He spent about ten years of his life in researching and analyzing of the effect of weather, psychology of buyers and sellers, and many different conditions on the rice price. Then he made 100 successful trades and retired a rich man and wrote two books about technical analysis. Candlesticks are the indicators of the markets’ psychology. This is the first and most important thing you have to know about the candlesticks. Price volatility is the result of nothing but behavior of buyers (Bulls) and sellers (Bears). When there is more tendency to buy, the price goes up and visa versa. Candlesticks are the indicators that reflect the emotions (fear and greed) of buyers sellers. Candlesticks have their own language which is very easy to learn. If you learn their language, you will see

The Chart Types we need a charting technique that displays this information in the most comprehensible way. If not for a good charting technique, charts can get quite complex. Each trading day has four data points’ i.e the OHLC. If we are looking at a 10 day chart, we need to visualize 40 data points (1 day x 4 data points per day). So you can imagine how complex it would be to visualize 6 months or a year’s data. As you may have guessed, the regular charts that we are generally used to – like the column chart, pie chart, area chart etc does not work for technical analysis. The only exception to this is the line chart. The regular charts don’t work mainly because they display one data point at a given point in time. However Technical Analysis requires four data points to be displayed at the same time. Below are some of the chart types: 1. Line chart 2. Bar Chart 3. Japanese Candlestick The focus of this module will be on the Japanese Candlesticks however before we get

Introducing Technical Analysis Application on asset types Probably one of the greatest versatile features of technical analysis is the fact you can apply TA on any asset class as long as the asset type has historical time series data. Time series data in technical analysis context is information pertaining to the price variables namely – open high, low, close, volume etc. Here is an analogy that may help. Think about learning how to drive a car. Once you learn how to drive a car, you can literally drive any type of car. Likewise you only need to learn technical analysis once. Once you do so, you can apply the concept of TA on any asset class – equities, commodities, foreign exchange, fixed income etc. This is also probably one of the biggest advantages of TA when compared to the other fields of study. For example when it comes to fundamental analysis of equity, one has to study the profit and loss, balance sheet, and cash flow statements. However fundamental analysis for c

Stock markets, trading, and investments – Simplified we now know that developing a well researched point of view is critical for stock market success. A good point of view should have a directional view and should also include information such as: 1. Price at which one should buy and sell stocks 2. Risk involved 3. Expected reward 4. Expected holding period. Technical Analysis (also abbreviated as TA) is a popular technique that allows you to do just that. It not only helps you develop a point of view on a particular stock or index but also helps you define the trade keeping in mind the entry, exit and risk perspective. Like all research techniques, Technical Analysis also comes with its own attributes, some of which can be highly complex. However technology makes it easy to understand. Technical Analysis, what is it? Imagine you are vacationing in a foreign country where everything including the language, culture, climate, and food is new to you. On day

Scene 2 – The Venture Capitalist His hard work pays off and the business starts to pick up. At the end of the first two years of operations, the company starts to break even. The promoter is now no longer a rookie business owner, instead he is more knowledgeable about his own business and of course more confident. Backed by his confidence, the promoter now wants to expand his business by adding 1 more manufacturing unit and few additional retail stores in the city. He chalks out the plan and figures out that the fresh investment needed for his business expansion is INR 7 Crs. He is now in a better situation when compared to where he was two years ago. The big difference is the fact that his business is generating revenues. Healthy inflow of revenue validates the business and its offerings. He is now in a situation where he can access reasonably savvy investors for investing in his business. Let us assume he meets one such professional investor who agrees to give him 7 Cr

Before we jump ahead to seek an answer as to why companies go public, let us spend some time figuring out a more basic concept – the origins of a typical business. To understand this concept better, we will build a tangible story around it. Let us split this story into several scenes just so that we get a clear understanding of how the business and the funding environment evolves. Scene 1 – The Angels Let us imagine a budding entrepreneur with a brilliant business idea – to manufacture highly fashionable, organic cotton t-shirts. The designs are unique, has attractive price points and the best quality cotton is used to make these t-shirts. He is confident that the business will be successful, and is all enthusiastic to launch the idea into a business. As a typical entrepreneur he is likely to be hit by the typical problem – where would he get the money to fund the idea? Assuming the entrepreneur has no business background he will not attract any serious investor at the init

Scene 2 – The Venture Capitalist. His hard work pays off and the business starts to pick up. At the end of the first two years of operations, the company starts to break even. The promoter is now no longer a rookie business owner, instead he is more knowledgeable about his own business and of course more confident. Backed by his confidence, the promoter now wants to expand his business by adding 1 more manufacturing unit and few additional retail stores in the city. He chalks out the plan and figures out that the fresh investment needed for his business expansion is INR 7 Crs. He is now in a better situation when compared to where he was two years ago. The big difference is the fact that his business is generating revenues. Healthy inflow of revenue validates the business and its offerings. He is now in a situation where he can access reasonably savvy investors for investing in his business. Let us assume he meets one such professional investor who agrees to give him 7

                                The IPO Markets Origin of a Business Before we jump ahead to seek an answer as to why companies go public, let us spend some time figuring out a more basic concept – the origins of a typical business. To understand this concept better, we will build a tangible story around it. Let us split this story into several scenes just so that we get a clear understanding of how the business and the funding environment evolves. Let us imagine a budding entrepreneur with a brilliant business idea – to manufacture highly fashionable, organic cotton t-shirts. The designs are unique, has attractive price points and the best quality cotton is used to make these t-shirts. He is confident that the business will be successful, and is all enthusiastic to launch the idea into a business. As a typical entrepreneur he is likely to be hit by the typical problem – where would he get the money to fund the idea? Assuming the entrepreneur has no business backgr