Share Market Basics

You can buy and sell any stock over the Internet that is online stock trading, you don't need to call up a broker. You can do online stock trading with a minimal investment you should get started today and then start learning about the stock market and choose the stocks you want to invest in.

Day Trading

Day trading is defined as the buying and selling of a security within a single trading day. It is designed to produce short-term profits. Day trading demands access to some of the most complex and sophisticated financial services and instruments in the markets. Trading with a stop-loss is extremely important for all traders to cut losses while they are still small, and to preserve their trading capital in case the market moves against their trade. Trading at certain times of the day is simply not profitable and in fact is highly risky. Day trading involves taking advantage of price movements in stocks within one trading day. Day trading strategies demand the use of leveraged or borrowed money to make profits. Day trading used to be the sole preserve of financial firms and professional investors and speculators. Day trading is however a mentally and psychologically challenging activity and is by no means meant for everyone. If you can't be highly disciplined and stick by predetermined selling points, day trading is not for you.

What is Technical Analysis?

Day trading is defined as the buying and selling of a security within a single trading day and market directions based on statistical analysis of variables such as trading volume, price changes, etc., to identify patterns. Research and examination of the market and securities as it relates to their supply and demand in the marketplace. The technician uses charts and computer programs to identify and project price trends. Now technical analysis has become increasingly popular. Technical analysts use their findings to predict probable, often short-term, trading patterns in the investments that they study. It suppose markets have memory. If so, past prices, or the current price momentum, can give an idea of the future price evolution.

What is Fundamental Analysis?

Fundamental analysis is about using real data to evaluate a security's value. Although most analysts use fundamental analysis to value stocks, this method of valuation can be used for just about any type of security. It is scientific study of the basic factors which determine a share's value. The analyst studies the industry and the company's sales, assets, liabilities, debt structure, earnings, products, market share; evaluates the company's management, compares the company with its competitors, and then estimates the share's intrinsic worth. More effective in fulfilling long - term growth objectives of shares, rather than their short - term price fluctuations.

The truth of the matter is that the market is a game of money flow played by the big players as they move money around from stocks, to options, to financial futures, and back and forth in a number of different ways, all in the pursuit of greed and large profits. And remember, I previously mentioned that "a good portion of that money is being made off the backs of the uninformed individual stock trader and investor who blindly trades and invests in the stock market today." The principle in the markets is "Buy when everyone else sells and sell when everyone else buys". Investors should know that when buying a stock they are simply buying ownership in the companies.

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Moving Average Formula

Moving Averages (MA) are one of the most popular technical analysis tools. It is an indicator that shows the average value of a security's price over a period of time. It is used to eliminate short-term fluctuations in time series and to highlight long-term trends and cycles.

Moving averages may be : - 1. Simple
2. Weighted
3. Exponential

The two most popular types of moving averages are the Simple Moving Average (SMA) and the Exponential Moving Average (EMA).

Simple Averages -------
The most basic is the Simple Moving Averages which takes the Prices from the previous user defined number of periods, sums them up and divides the summation by the number of Periods.

Weighted Averages --------
In order to reduce the lag of the Simple Average, more weight can be assigned to Recent Data and less to Older Data. A weighted 10 day Moving Average assigns a weight of 1 to first Day, 2 to the Second Day and so forth until the most Current Day which is assigned a weight of 10. The 10 weighted values are added together and the sum is divided by the sum of the weights which in this case is 55.

Formula:- ( P1x1 + P2x2 + P3x3 + ……… P9x9 + P10x10) / 55,
Where P10 = Yesterday’s, i.e., the most current Day’s Price
And P1 is the first Day’s, 10 Days back.

Exponential Average -------

A weighted average is an arithmetic weighting whereas an Exponential Average is geometric weighting. As such, it gives much more weightage Current Data than the weighted average. So, it reacts faster to Price changes than the other averages. In today’s computerized environment putting or plotting Exponential Weighted Average gives us no pain.

Formula:- Exponential Moving Average = P today x K + EMA yesterday x ( 1 – K)
When, K = 2 ( N + 1 ), N is number of days in the EMA (e.g., in 13 EMA, n=13)
P today = Price today and EMA testrday = EMA of yesterday.
For computation of EMA value, you can start with the Simple Moving average at the beginning.

To compute 13 days EMA:-

1) You may compute the Simple Moving Average at first for the 13 days,
P1 + P2 + P3 + P4 + P5 + ………… P13 / 13
2) On the 14th day, Multiply Closing Price by K,
3) Multiply previous days M.A. ( as calculated in step 1) by ( 1 – K )
4) Add the two ( 2+ 3 ). The result will be the 13 EMA for the 14th day.
5) Now, the process will be continued and extended with the EMA as obtained.
6) Here, K will be = 2/13+1 = 2 /14 = 1/7
7) 1 – K will be = 1 - 1/7 = 6/7

Drawbacks of Moving Average~~~~~~~~
These are lagging indicators. They summarize Previous Data and plot it on Current Prices so an analyst using only Moving Averages will probably not be able to call Tops and Bottoms in the market. The change in Trend will be seen only after it has happened. So, these are Trend following indicators. They cannot tell us the Trend in advance.

Moving Averages are very useful in trending market. But if no Trend is present in the market, i.e. in sidewise phases, they fail and cannot provide the Analyst any good signal.

Before investing, it is always wise to learn the Basics of Stock Market. You need to have your basics clear. Unless you do….you will be wasting your time and loosing money. You need to be crystal clear of each and every aspect of Investments, stock options, Stock Trading, Company, Shares, Dividend & Types of Shares, Debentures, Securities, Mutual Funds, IPO Futures & Options.

Stock

Stock is an equity investment that represents part ownership in a corporation and entitles you to part of that corporation’s earnings and assets. Common stock gives shareholders voting rights but no guarantee of dividend payments. Preferred stock provides no voting rights but usually guarantees a dividend payment. In the past, shareholders received a paper stock certificate — called a security — verifying the number of shares they owned. Today, share ownership is usually recorded electronically, and the shares are held in street name by your brokerage firm.


Stock market

An institution that facilitates the buying and selling of stocks
A stock market may be a physical place, sometimes known as a stock exchange, where brokers gather to buy and sell stocks and other securities.The term is also used more broadly to include electronic trading that takes place over computer and telephone lines. In fact, in many markets around the world, all stock trading is handled electronically.

What is share?

A share is simply a divided-up unit of the value of a company. If a company is worth £100 million, and there are 50 million shares in issue, then each share is worth £2. As the overall value of the company fluctuates so does the share price.
In simple Words, a share or stock is a document issued by a company, which entitles its holder to be one of the owners of the company. A share is issued by a company or can be purchased from the stock market.
By owning a share you can earn a portion and selling shares you get capital gain. So, your return is the dividend plus the capital gain. However, you also run a risk of making a capital loss if you have sold the share at a price below your buying price.

Quick view on Stocks and Shares ~~~~~

Owning a stock or a share means you are a partial owner of the company, and you get voting rights in certain company issues.
Investments in stocks can generate returns through dividends, bonus share, right issue and capital appreciation of share value.

The 3 basic requirements needed for trading :

· D-MAT Account
· Trading Account
· Bank Account

D-MAT Account----

D-MAT account, short term for dematerialised account is a type of banking account which dematerialize the paper-based physical shares.The idea of dematerialised account is to avoid the need to hold physical shares--the shares are virtually being bought and sold through the demat account and save the fraudlent factor.

Trading Account----

An account similar to a traditional bank account, holding cash and securities, and is administered by an investment dealer. An account held at a financial institution and administered by an investment dealer that the account holder uses to employ a trading strategy rather than a buy-and-hold investment strategy.

Bank Account----

A Bank account is required for carrying out various financial transactions associated with trading of shares. This is where the money on sale of shares will be credited or money for buying shares will be debited from. A normal Savings Account is enough and nothing additional needs to be done with the Bank account.

Once the D-MAT account, Trading account and Bank account are in place, an individual is ready to start trading.

To trade successfully requires a well-defined plan

1. Learn the basics --------- Education
2. Determine a strategy -------- Back-testing, Stock Screens, Charts, Java Charts
3. Identify opportunity --------- Stock Screens, Charts, Java Charts
4. Track stocks ----------- Watch List, Charts, Java Charts
5. Set alerts ---------- Trade Alert
6. Initiate trades
7. Monitor positions -------- Risk Keeper, Charts, Java Charts

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