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1.INTRODUCTION

2.OVERVIEW OF STOCK EXCHANGE

3.TECHNICAL ANALYSIS

5.

RESEARCH METHODOLOGY

6.DATA ANALYSIS ANDINTERPRETATION

7.FINDING AND CONCLUSION

8.BIBLIOGRAPHY

9.ANNEXURE


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INTRODUCTION

Of all the modern service institutions, stock exchange is perhaps

the most crucial agents ad facilitators of entrepreneurial progress.

After the industrial revolution, the size of business enterprises grew; it

was no longer possible for proprietors or even partnerships to raise

colossal amounts of money required for undertaking large

entrepreneurial ventures. Such huge requirement of capital co uld only

be met by participation of a very large number of investors; their

number running in to hundreds, thousands and even million, dependingon the size of the business venture.

In general, small time proprietors, or partners of a proprietary

partnership firm are likely to find it rather difficult to get out of their

business should they for some reason wish to do so. This is because it

is not always possible to find buyers for an entire businesses or even a

part of business, just when one wishes to sell it. Similarly it is not easy

for some one with savings especially with a small amount of savings,

to readily find an appropriate business opportunity or a part thereof, for

investment. These problems would be even more magnified larger

proprietorships and partnerships. Nobody would like to invest in such

partnership in the first place, since once invested, their saving would

be very difficult to convert in to cash. And most people do have a lot

of reasons, such as better investment opportunity, marriage, education,

death, health and so on, for wanting to convert their savings in to cash.

Clearly then, big enterprises will be able to raise capital form the

public at large, only if there were some mechanism by which the

investors could purchase or sell their share of the businesses and when

they wished to do so. This implies that ownership in business has to be


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broken up in to a large number of small units such that each unit may

be independently and easily bought and sold without hampering the

business activity as such. Also such breaking up of business

ownership would help mobilize small savings in economy in to

entrepreneurial ventures.

This end is achieved in a modern business through the

mechanism of shares. A share represents the smallest recognized

fraction of ownership in a publicly held business. Each such fraction

of ownership is represented in the form of a certificate, known as the

share certificate. The breaking up of the total ownership of a business

into small fragments, each fragment represented by a share certificate,enables them to be easily bought and sold.

The institutions were this buying and selling of shares essentially takes

place in the stock exchange. In the absence of stock exchange, i.e.,

institutions where small chunks of businesses could be traded, there

would be no modern business in the form of publicly held companies.

Today, owing to the stock exchange we do not have to be electronics

wizards to be owners or part owners in an electronics company we can

be part owners of one company today and another company tomorrow

we can be part owners in a company hundreds or thousands of miles

away, we can be all of these things, and none of them, should we for

whatever reason decided to convert all our ownership stake in to cash

at short notice. Thus, by enabling the convertibility of ownership in the

product market in to financial assets, namely shares, stock exchanges

bring together buyers and sellers (or their representatives) of fractional

ownership of companies, much as buyers and sellers of vegetable come

together in a vegetable market. And for that very reason, activities

relating to stock exchange are appropriately enough; know as Stock

market or Security market. Also just as a vegetable market is


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distinguished by a specific locality and characteristics of its own,

mostly a stock exchange is also distinguished by a physical location

and characteristics of its own. In fact, according to H.T Parekh, the

earliest location of the Bombay Stock Exchange, which for a long

period was known as The Native Share and Stock Brokers

Association, was probably under a tree around 1870.

Characteristics of Stock exchanges in India

Traditionally, a stock exchange has been as association ofindividual members called member brokers (or simp ly members or

brokers) formed for the express purpose of regulating and facilitating

the buying and selling of securities by the public and institutions at

large. A stock exchange in India operates with due recognition from

the government under the Securit ies and Contract (Regulation) Act,

1956. The member brokers are essentially the middlemen, who carry

out the desired transactions in securities or on their own behalf. New

membership to a stock exchange is through election by the governing

board of that stock exchange.

At present there are 21 stock exchanges in India (excluding NSE

and OTCEI) the largest among them being the Bombay stock exchange

(BSE). BSE alone accounts for over 80% of the total volume of

transactions in shares. Typically, a stock e=xchange is governed by a

board consisting of directors largely elected by the member brokers,

and a few nominated by the government. Government nominees

include representation of the Ministry of Finance, as well as some

public representatives, who are expected to safeguard the public

interest in the functioning of the exchanges. A president, who is an


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elected member, usually nominated by the government from among the

elected members, heads the board. The Executive Director, who is

usually appointed by the stock exchange with government approval, is

the operational chief of the stock exchange. His duty is to ensure that

the day - to - day operations of the stock exchange are carried out in

accordance with the various rules and regulations governing it are

functioning. The overall development and regulation of the securities

market has been entrusted to the Securities and Exchange Board of

India (SEBI) by an act of parliament in 1992.

All companies wishing to raise capital from the public are

required to list their securities on at least one stock exchange. Thus, allordinary shares, preference shares and debentures of publicly held

companies are listed in stock exchanges.

While in the developed countries, brokers have long since

graduated to rendering a whole range of consulting and advisory

services to their clients based on their own research and analysis,

unfortunately, the profession of brokers in Indian has remained a

closed club, traditional and primitive. Their function has largely

remained limited to carry out the transaction orders on behalf of their

clients (and often at prices far from satisfactory). In their role as sub-

brokers and jobbers (jobber is a brokers, or one who specializes in

specific securities catering to the needs of other brokers), their

activities are even less organized and regulated.

To be fair though, share broking is not only the Indian

Institution in its primitiveness. It has plenty of company. The good

news however is, things are beginning to look up. Measures are a foot

for professionalized the service through various means. For example,

the BSE has set up a full-fledged training college with a view to

developing the professional standards of its members as well as


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investors. Other institution like the various Indian Institutes of

Management (IIMs), Institute of Chartered Financial Analysts of India,

Unit Trust of India etc. are also beginning to play a useful part in

professionalized the discipline of investment analysis. Also there is an

increasing trend to admit qualified professionals as member of the

exchange. Corporate membership to Stock exchanges has already been

introduced. So over a period of time it can reasonably hope that the

service would get increasingly professional.

SECURITIES AND EXCHANGE BOARD OF INDIA

The Government has setup the Securities and Exchange Board

of India (SEBI) in April 1988. For more than three year it had no

statutory powers. Its interim functions during the period were:

(i) To collect information and advise the government on matters

relating to Stock and Capital Markets.

(ii) Licensing and regulation of merchant banks, mutual funds etc.

(iii) To perform any other functions as may be entrusted to it by the

government and

The malpractices were noticed in the case of companies,

Merchant Bankers in the capital Market. The need to curb the

malpractices and to promote healthy capital market India was felt.

The government issued an ordinance abolishing the capital

issues Control Act, 1947. Accordingly SEBI has been setup under the

SEBI Act, 1992.

POWERS AND FUNCTIONS OF SEBI (Section 11)


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The board is expected to protect the interests of investors in

securities and to promote the development of, and to regulate the

securities market, by such measures as it think fit. To fulfill these

objectives, the following are the powers and functions of the Board,

granted under Section - 11 (3) of the Act: -

1. Regulating the business in Stock exchange and any other

securities markets.

2. Registering and regulating the working of stockbrokers, sub -

brokers, share transfer agents, bankers to an issue, merchant bankers,

underwriters, and portfolio managers etc who may be associated with

securities markets in any manner.3. Registering and regulating the working of collective schemes,

including mutual funds.

4. Promoting and regulating self-regulatory organizations.

5. Prohibiting fraudulent and unfair trade practices relating to

securities market.

6. Promoting investors education and teaching of intermediaries of

securities market.

7. Prohibiting inside trade in securities.

8. Regulating substantial acquisition of share and take -over of

companies.

OTHER MEASURES TAKEN BY SEBI

The Securities and Exchange Board of India, in addition to the

guidelines for disclosure and investor protection has taken a number of

other measures for healthy development and regulation of the capital

markets.

1. Guidelines for Merchant Bankers.


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2. Guidelines for EURO issues.

3. Guidelines for Mutual Funds and Asset Management

Companies.

4. Guidelines for Foreign Institution Investors.

5. Guidelines to development Financial Institutions for

disclosure and investor protection.

SEBIS ROLE IN STOCK EXCHANGE

Every Stock exchange needs recognition from Central

Government. Any stock exchange, which is desirous of being

recognized, may make an application to Central Government. Theapplication should be accompanied by a company of byelaws of the

stock exchange for the regulation and control of contracts and a copy

of the rules regarding in general to the constitution of the s tock

exchange. If the Central Government is satisfied that byelaws of the

exchange ensure fair dealing and protect investors, stock exchange is

willing to comply by other conditions which Central Government my

impose and it is in the interest of trade and of the public to grant

recognitions, it may recognize the stock exchange.

SEBIS POWERS IN RELATION TO STOCK EXCHANGE

The SEBI ordinance has given it the following powers:

1. It may call periodically returns from stock exchange.

2. It has the power to prescribe maintenance of certain documents by

the stock exchange.

3. SEBI may call upon the exchange or any mate to furnish explanation

or information relating to the affairs of the stock exchange or any

member.


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4. It has the power to approve byelaws of t he stock exchange for

regulation and the control of contracts.

5. It can amend byelaws of stock exchange.

6. In certain areas it can license the dealers in securities.


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In general, the financial market divided into two parts, Money

market and capital market. Securities market is an important,

organized capital market where transaction of capital is

facilitated by means of direct financing using securities as a

commodity. Securities market can be

divided into a primary market and secondary market.

PRIMARY MARKET

The primary market is an intermittent and discrete market where

the initially listed shares are traded first time, changing hands

from the listed company to the investors. It refers to the process

through which the companies, the issuers of stocks, acquire

capital by offering their stocks to investors who supply the

capital. In other words primary market is that part of the capital

markets that deals with the issuance of new securities.

Companies, governments or public sector institutions can obtain

funding through the sale of a new stock or bond issue. This is

Financial

Market

Money

Market

Capital

Market

Security

Market

Primary

Market

Secondary

Market


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typically done through a syndicate of securities dealers. The

process of selling new issues to investors is called underwriting.

In the case of a new stock issue, this sale is called an initial

public offering (IPO). Dealers earn a commission that is built into

the price of the security offering, though it can be found in the

prospectus.

SECONDARY MARKET

The secondary market is an on-going market, which is equipped

and organized with a place, facilitie s and other resources required

for trading securities after their initial offering. It refers to a

specific place where securities transaction among many and

unspecified persons is carried out through intermediation of the

securities firms, i.e., a licensed broker, and the exchanges, a

specialized trading organization, in accordance with the rules and

regulations established by the exchanges.

List of Stock Exchanges in India

Bombay Stock Exchange

National Stock Exchange

Regional Stock Exchanges

Ahmedabad

Bangalore

Bhubaneshwar Calcutta

Cochin

Coimbatore

Delhi


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Guwahati

Hyderabad

Jaipur

Ludhiana

Madhya Pradesh

Madras

Magadh

Mangalore

Meerut

OTC Exchange Of India

Pune Saurashtra Kutch

UttarPradesh

Vadodara

onth/Year

No of

co.s

listed

*

No. of co.s

permitted

*

No. of

co.s

available

for

trading*$

No. of

trading

days

No.

of

secur

ities

trade

d #

No. of

trades

(lakh)

Traded

Quantity

(lakh)

Turnover

(Rs.cr)

Average

Daily

Turnove

r (Rs.cr)

Average

Trade

Size

Demat

Securiti

es

Traded

(lakh)

Demat

Turnover

Market

Capitalisation

(Rs.cr)*

Current Month

Mar-2010 1,470 37 1,359 21 1,371 1,235 137,971 286,246 13,631 23,184 137,971 286,246 6,009,173

Feb-2010 1,461 31 1,342 20 1,328 1,133 123,541 245,143 12,257 21,645 123,541 245,143 5,755,305

Jan-2010 1,457 31 1,338 19 1,320 1,403 180,424 338,443 17,813 24,124 180,424 338,443 5,782,965

Dec-2009 1,453 10 1,303 21 1,297 1,256 150,384 292,900 13,948 23,324 150,384 292,900 5,699,637

Nov-2009 1,443 10 1,292 20 1,528 1,317 157,401 324,477 16,224 24,630 157,401 324,477 5,430,088

Oct-2009 1,439 - 1,291 20 1,365 1,347 168,479 362,969 18,148 26,953 168,479 362,969 5,024,830

Sep-2009 1,434 - 1,287 20 1,376 1,387 196,512 365,063 18,253 26,320 196,512 365,063 5,353,880

Aug 2009 1,431 1,288 21 1,608 1,475 194,427 364,969 17,379 24,741 194,427 364,969 4,975,800

July 2009 1,426 - 1,282 23 1,326 1,709 219,356 426,143 18,528 24,929 219,356 426,143 4,816,459

June 2009 1,426 - 1,282 22 1,535 1,800 274,851 482,414 21,928 26,807 274,851 482,414 4,432,596

May 2009 1,425 1,280 20 1,390 1,483 229,028 382,561 19,128 25,791 229,028 382,561 4,564,572

Apr 2009 1,420 - 1,279 17 1,372 1,271 183,156 266,696 15,688 20,980 183,156 266,696 3,375,025

2008-2009

1,432 - 1,291 243 1,327 13,6511,426,35

42,752,023 11,325 20,160 1,426,354 2,752,023 2,896,194


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2007-2008 1,381 - 1,236 251 1,264 11,7271,498,46

93,551,038 14,148 30,281 1,498,469 3,551,038 4,858,122

2006-2007 1,228 - 1,084 249 1,191 7,846 855,456 1,945,285 7,812 24,793 855,456 1,945,285 3,367,350

2005-2006 1,069 - 929 251 956 6,088 844,486 1,569,556 6,253 25,781 844,486 1,569,556 2,813,201

2004-2005 970 1 839 253 870 4,510 797,684 1,140,071 4,506 25,279 797,684 1,140,071 1,585,585

2003-2004 909 18 787 254 804 3,780 713,301 1,099,535 4,328 29,088 713,301 1,099,535 1,120,976

2002-2003 818 107 788 251 899 2,398 364,065 617,989 2,462 25,771 364,049 617,984 537,133

2001-2002 793 197 890 247 1,019 1,753 278,408 513,167 2,078 29,274 277,717 512,866 636,861

2000-2001 785 320 1,029 251 1,201 1,676 329,536 1,339,510 5,337 79,923 307,222 1,264,337 657,847

1999-2000 720 479 1,152 254 -- 984 242,704 839,052 3,303 85,270 153,772 711,706 1,020,426

1998-1999 648 609 1,254 251 -- 546 165,327 414,474 1,651 75,911 8,542 23,818 491,175

1997-1998

612 745 1,357 244 -- 381 135,685 370,193 1,520 97,164 -- -- 481,503

1996-1997

550 934 1,484 250 -- 264 135,561 294,503 1,176 111,895 -- -- 419,367

1995-1996 422 847 1,269 246 -- 66 39,912 67,287 276 101,950 -- -- 401,459

1994

-1995

135 54

3 678 102 -- 3 1,391 1,805 17 60,167 -- -- 363,350

Bombay Stock Exchange (BSE)

The Stock Exchange, Mumbai, popularly known as BSE was

established in 1875 as The Native Share and Stock Brokers

Association. It is the oldest one in Asia, even older than the Tokyo

Stock Exchange, which was established in 1878. It is a voluntary non -

profit making Association of Persons (AOP) and is currently engaged

in the process of converting itself into demutualised and corporate

entity. It has evolved over the years into its present status as the

premier Stock Exchange in the country. It is the first

Stock Exchange in the Country to have obtained perman ent

recognition in 1956 from the Govt. of India under the SecuritiesContracts (Regulation) Act, 1956.

The Exchange, while providing an efficient and transparent market for

trading in securities, debt and derivatives upholds the interests of the

investors and ensures redressal of their grievances whether against the


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companies or its own member-brokers. It also strives to educate and

enlighten the investors by conducting investor education programmes

and making available to them necessary informative inputs.

A Governing Board having 20 directors is the apex body, which

decides the policies and regulates the affairs of the Exchange. The

Governing Board consists of 9 elected directors, who are from the

broking community (one third of them retire ever year by rotation),

three SEBI nominees, six public representatives and an Executive

Director & Chief Executive Officer and a Chief Operating Officer.

The Executive Director as the Chief Executive Officer is responsiblefor the day-to-day administration of the Exchange and he is assisted by

the Chief Operating Officer and other Heads of Departments.

The Exchange has inserted new Rule No.126 A in its Rules, Bye-laws

& Regulations pertaining to constitution of the Executive Committee

of the Exchange. Accordingly, an Executive Committee, consisting of

three elected directors, three SEBI nominees or public representatives,

Executive Director & CEO and Chief Operating Officer has been

constituted. The Committee considers judicial & quasi matters in

which the Governing Board has powers as an Appellate Authority,

matters regarding annulment of transactions, admission, continuance

and suspension of member-brokers, declaration of a member-broker as

defaulter, norms, procedures and other matters relating to arbitration,

fees, deposits, margins and other monies payable by the member -

brokers to the Exchange, etc.

INDEX


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BSE has 5 sectoral indices viz. BSE IT Sector index, BSE FMCG

Sector index, BSE Capital Goods Sector Index, BSE Consumer

Durables Sector Index and BSE Healthcare Sector Index. All these

Sectoral indices are calculated and displayed on the BOLT system on

the real time basis.

Bombay Stock Exchange Limited has constructed a new index,

christened as BSE-500, consisting of 500 scrips .The changing pattern

of the economy and that of the market have been kept in mind while

constructing this index.

August 23, 2004 BSE launched Sector Series (90/FF) indices with

the view to provide the Indian Capital Market with quality sector

benchmarks. The Sector Series (90/FF) Indices are a set of indices

across 9 significant sectors listed on the BSE. They are constructed and

maintained as per the global best practices.

BSE-500 index represents nearly 93% of the total market capitalization

on Bombay Stock Exchange Limited. This means BSE-500 indexideally represents total market. This index represents all 20 major

industries of the economy. The BSE-500 index had been calculating on

a full market capitalization methodology and effective August 16, 2005

calculation methodology was sh ifted to a free-float methodology in

line with Sensex.

Existing BSE sectoral indices

BSE IT.

BSE FMCG.

BSE Capital Goods.

BSE Consumer Durables.


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BSE Healthcare.

BSE BANKEX

BSE Auto.

BSE Metal.

BSE Oil & Gas index.

Scrip selection criteria for BSE Sectoral Indices:

Eligible Universe:

Scrips classified under various sectors that are present constituents of

BSE-500 index would form the eligible universe.

Trading Frequency:

Scrips should have a minimum of 90% trading frequency in preceding

six months.

Market Capitalization:

Scrips with a minimum of 90% market capitalization coverage in each

sector based on free-float final rank will form the index.

Buffers:

A buffer of 2% both for inclusion and exclusion in the index is

considered so that movements in and out of the index are minimized.

E.g. A Company can be included in the index only if it falls within

88% coverage and an existing index constituent cannot be excluded

unless it falls above 92% coverage. However, the above buffer

criterion is applied only after the minimum 90% market coverage is

satisfied.


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How is stock market index computed

The general stock market movement is usually measured by

a stock market index consisting of a sample group of securities that is

supposed to reflect the entire market. The samples of companies are

chosen in such a way that major industries in the economy are

represented. Moreover, these securities must have large capital base so

as to be traded regularly in the stock exchange.

The index is computed as: first of all, a base year is chosen

and the index value is taken to be equal to 100. Then the current price

of each stock in the index is multiplied by their corresponding number

of equity shares outstanding, so as to obtain the Market Capitalization.

Then the index will be calculated as follows :

Total Market capitalization of representative securities at

present values

Total Market capitalization of representative securities values as in

the base year X 100

The index is not an average of share prices but a weighted

average to reflect the price as well as volume of shares. It is assumed

that as this index goes up or down, the market in totality would rise or

fall.

The most popular market index is BSE sensitive index also

called BSE Sensex, which is the weighted average of market

capitalization of 30 well traded securities.


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To broaden the equity base, so as to make representation

of many other industries in a balanced way, another index called

BSE National index was introduced, which never became as

popular as the BSE Sensex. There are other indices developed by

popular business newspapers.

ORIGIN OF INDIAN STOCK MARKET

The origin of the stock market in India goes back to the end of

the eighteenth century when long-term negotiable securities were

first issued. However, for all practical purposes, the real

beginning occurred in the middle of the nineteenth century after

the enactment of the companies Act in 1850, which introduced

the features of limited liability and generated investor interest in

corporate securities.

An important early event in the development of the stock market

in India was the formation of the native share and stock

brokers 'Association at Bombay in 1875, the precursor of thepresent day Bombay Stock Exchange. This was followed by the

formation of associations/exchanges in Ahmedabad (1894),

Calcutta (1908), and Madras (1937). In addition, a large number

of ephemeral exchanges emerged mainly in buoyant periods to

recede into oblivion during depressing times subsequently.

Stock exchanges are intricacy in ter-woven in the fabric of anation's economic life. Without a stock exchange, the saving of

the community- the sinews of economic progress and productive

efficiency- would remain underutilized. The task of mobilization

and allocation of savings could be a ttempted in the old days by a


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much less specialized institution than the stock exchanges. But as

business and industry expanded and the economy assumed more

complex nature, the need for ' permanent finance ' arose.

Entrepreneurs needed money for long term whereas investors

demanded liquidity the facility to convert their investment into

cash at any given time. The answer was a ready market for

investments and this was how the stock exchange came into

being.

Stock exchange means anybody of individuals, wheth er

incorporated or not, constituted for the purpose of regulating or

controlling the business of buying, selling or dealing in securities.

These securities include

(I) Shares, scrip, stocks, bonds, debentures stock or other

marketable securities of a like nature in or of any incorporated

company or other body corporate;

(ii) Government securities; and

(iii) Rights or interest in securities.

The Bombay Stock Exchange (BSE) and the National Stock

Exchange of India Ltd (NSE) are the two primary exchanges in

India. In addition, there are 22 Regional Stock Exchanges.

However, the BSE and NSE have established themselves as the

two leading exchanges and account for about 80 per cent of the

equity volume traded in India. The NSE and BSE are equal in

size in terms of daily traded volume. The average daily turnover

at the exchanges has increased from Rs 851 crore in 1997-98 to

Rs 1,284 crore in 1998-99 and further to Rs 2,273 crore in 1999-

2000 (April - August 1999). NSE has around 1500 shares listed

with a total market capitalization of around Rs 9, 21,500 crore.


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History of Stock Market of India

The Stock Market of India was set up in 1875. At that time there

were 22 brokers who met and established the Bombay Stock

Exchange. From that time onwards the Indian Stock market has

grown in leaps and bounds, and has become a forceful and

competent stock market in the continent. It is equal to any

international market in the world. It has the same level of

efficiency and organizational ability. The market caters to the

huge population of India and gives them investment

opportunities. It also provides the institutions and organizations

with funds. The unpredictable nature of the Indian stock market

has made it very difficult for the common man to understand it.

So prior to investing in the stock market you have to research it

properly.

When it was started the Bombay Stock Exchange had only a few

hundred people taking membership in Stock Broker Association and

Native Share. In 1965 BSE was recognized permanently by the

Government of India, The BSE and National stock exchange are both

the main stock exchange of Indian stock market. Government of India

gave permanent identification to the BSE. BSE along with National

Stock Exchange both are main part of Indian Share Market and are the

two national stock exchanges of India. BSE has about 5000 listings at

the starting.

The stock and shares are issued to the public for investing in various

companies. The revenue generated from the stocks and shares is used

for business expansion or any government projects. The profit of the

company is then shared by the public, which has invested in the


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company. The share market allows for public trading of companies

and has become an important source of raising fund for the companies.

The government has also formed the Securities and Exchange Board of

India (SEBI) which controls the functioning of stock exchanges,

investment advisors, portfolio managers, brokers and sub-brokers. The

Sensex is made on the basis of the performance of the stocks of 30

sound financial companies.

The Indian stock market is basically divided in two parts; the first

is the primary part and the secondary part. In the primary market

the shares are issued directly by the company are dealt by share

brokers appointed by the companies. In the secondary market the

stocks of various companies are listed in the stock exchange and

are represented by the share brokers, the investors invest in

companies through these share brokers.

Types of Stock Brokers

Stock brokers handle most of the buying and selling activities onthe stock market. An average investor will hire the services of a

broker to handle his trades. A broad range of brokerage services

is available nowadays. Full -service brokers can give advice about

which stocks to buy or which stocks to sell. They often have full

research facilities that they use to analyze market trends and to

predict market movements.

The services provided by full-service brokers do not come in

cheap since they charge the highest commission rates in the

industry. Hiring a full-service broker is optional and it depends

on the number of trades level of confidence, and the knowledge

of stock markets of the investors.


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Some investors, with the hopes of saving on commission fees,

hire discount brokers instead. Although these types of brokers

ask for much lower commissions, they dont offer advice or

analysis like full-service brokers. Discount brokers are ideal for

those investors who like to make their own trading decisions.

Some investors use both types of brokers for strategic purposes.

Some brokers offer better rates by operating exclusively online.

There are even some full-service and discount brokers who offer

discounts for orders which are placed online. Online brokerage is

considered to be the least expensive way of trading stocks.

Investors need to open an account. Every broker sets his own

requirements for the maintenance of an account bal ance. This is

usually between $500 to $1000. Before choosing a broker,

investors have to look at the fine print first in order to know more

about he involved fees because some brokers charge annual

maintenance fees. There are even some brokers who charge f ees

every time the account balance falls below the minimum.

There are two basic types of brokerage accounts: a cash account

and a margin account. In a cash account, an investor has to pay

the full amount of the stock price that he wants to buy. In a

margin account, however, an investor is given the chance to buy

the stock on margin which means that the brokerage will carry

some of the cost of the stock. The amount of the margin, which

varies from broker to broker, has to be protected by the value of

the clients portfolio. Adding more funds or selling some stocks

are the only two options of the investor in case his portfolio falls

below the specified amount. The investors, through the margin


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accounts, are allowed to buy more stocks with less cash thereby

realizing greater gains and losses. Inexperienced traders are not

recommended to opt for margin accounts since they are a lot

riskier than cash accounts.

Choosing a particular broker has to be based on the specific

needs of the investor. If an investor wishes to receive advice

about which stocks to buy or to sell and yet he is uncomfortable

with making trades on the Internet, then he is suggested to hire a

full-service broker. On the other hand, technology savvy

investors with enough confidence and knowledge to make their

own trading decisions are better off with discount brokers.

After deciding on which type of broker to hire, investors are

advised to compare a few competitors in order to find out the

significant differences in the costs. When choosing a bro ker,

investors also have to consider the number of trades to be made,

the amount of cash to be deposited, the type of margin accounts

to be used, or the kind of services to be rendered

The Truth about Stock Splits

The prospect that a certain stock may spli t to give the

stockholders twice as many shares as they had before is one of

the most alluring myths that surround the stock market. Although

investors have more stocks after a split, the value of each sharethey receive is actually reduced. A company that decides to split

its stocks will issue one new share for every single outstanding

and will cut the value of each share in half. Even if the shares of


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the stockholders actually double, the total value of the stocks are

still the same as before.

The reason why companies do stock splits can be explained by

investor psychology. A stock with an excessively high price -per-

share will cause the investors to feel that it is out of their reach.

To make the shares more affordable to smaller investors, the

company will opt for a stock split in order to reduce the price of

the stocks. Small investors can actually buy a smaller number of

pre-split shares for the same price but they sometimes opt to buy

split shares due to the appeal of buying stocks for much lower

prices.

There are a lot of ratios used in splitting stocks but the most

commonly used are 2-for-1, 3-for-2, and 3-for-1. The reduction

of the number of outstanding shares that will cause the

stockholders to have fewer shares than before is called reverse

splitting. Reverse stock splits are less common than stock splits.

There are several reasons why companies do reverse stock splits.

These may be due to an attempt to stave off possible de -listment

on the stock exchange, an effort to push out minority

stockholders from the company, an attempt to shed off possible

consideration as a poor investment, or an effort to push through

ideas of going private.

Advantages

A low price per share can result to greater liquidity since stocks

with lower prices are easier to sell. This is true especially for the

stocks which are priced in hundreds of dollars because small


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investors consider them to be out of their budget. The high

bid/ask spread, which is the difference between the buying and

selling prices, can also put off bigger investors.

A stock split is considered to be an indicator of a bullish market,

which is a market condition wherein the prices of the stocks and

the profits of the companies both increase. Even if there is a

short-term rally around a stock that splits, the market tends to

normalize after a short period of time. The possibility that the

investors will expect the company to perform much better is one

downside of stock splits. If the expectations are not met, the

investors will tend to lose their confidence which will then cause

a drop in the share prices.

The bottom line is that stock splits do not have any effects on the

worth or the performance of a company. Although it may be nice

for the investors to own more shares, they also have to face the

fact that the value of their shares still remains the same.

The Meaning of the Different Stock Trading Signals

Skilled investors sometimes base their decisions by reading the

different signals that are given off by clearly defined market

conditions. Some signals may indicate a favorable time to buy

stocks while some may indicate a favorable time to sell. Because

the value of particular companies can be watched daily, long -term investors do not consider signals to be that crucial. Day -

traders, however, consider these signals to be very important

because they have to act quickly in order to keep up with the

stock market movements.


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Full-time investors have the chance and the time to watch the

stock market movements for some signals. Signals can be

automated and integrated into trading software that allows the

investors to choose which signals to be alerted about. These

signals automatically appear on the screen. A lot of services

charge hundreds of dollars every year for a complete package of

software signal subscriptions. Aside from the trading software,

the package also offers an access to up-to-the-minute charts for

the latest information about the stock market.

A subscription to services that publish signals on either a daily or

an hourly basis is one of the best options for investors who

cannot watch the market movements closely. Market analysts are

employed by these services to follow the indicators in order to

arrive at a particular signal. The systems of these services are

now completely automated. The signals are now being generated

by software that examines the different market conditions. When

relying on a third-party signal provider, investors will do better ifthey know how the signals are being generated. A large number

of market indicators can actually cause a co ntradiction among the

different indicators. There are even some indicators that send out

conflicting signals depending on the time frame.

The accuracy of indicators is also reliant on the market

conditions. An upswing in the market will cause trend indicators

to send out buy signals but it will cause long -term oscillator

indicators to send out sell signals because it will view the market

as being overbought. Trend indicators are most accurate during

trend conditions and oscillators are most accurate during


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transitions. The two types of indicators are almost always in

variance with each other.

One way of overcoming these problems is to find a signal

generator that uses at least three market indicators for verification

purposes. Because they are verified by three different indicators,

the signals are considered to be strong and accurate. Looking at

signals from different time frames is also important. Upswings

may be short-term corrections and they may result to a downward

movement afterwards. A broad view of the different market

conditions allows the investors to see the variations more clearly.

Signals, depending on the type of service subscribed to, can be

delivered via emails, viewed on websites, or integrated into

trading software. The latter causes the appearance of screen pop-

ups for the particular signals being watched out for. These signals

may be delivered either on a daily basis or a monthly basis. Some

companies offer expensive services that charge up to several

hundreds of dollars for every month. The more expensive

services are obviously intended for professional traders and

investors.

Individual investors need to weight the value of the different

signal services. Although they can be great time savers, these

services can also encourage laziness when it comes to market

analysis. Aside from having the necessary tools which are needed

to judge signal system effectiveness, knowledgeable traders also

have the ability to make calculations so that they can stay on the

top of their games


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The Different Types of Trading Strategies

Barrel shooting and trading strategies are the two basic ways of

stock market trading. Stock trading strategies are used by

investors to determine the stocks to buy and the time to sell. It

also helps them protect their investments. Trading strategies

outperform barrel shooting by a large margin. The different types

of trading strategies, which count to over a hundred, are tried and

trued methods that have worked well over many years. Before

exploring new strategies, beginners in the world of investments

are advised to investigate some of the basic trading strategies

first.

Hedging

The way of protecting an investment through the reduction of the

risks that are involved in holding a particular stock is called

hedging. Buying a put option that allows the selling of the stock

at a particular price within a certain period of time can offset therisk of a decrease in the stock prices. There will be an increase in

the value of the put option once the price of the stock falls. The

most expensive hedging strategy is to buy put options against

individual stocks. People with broad portfolios will do better if

they buy a put option on the stock market itself because it will

protect them against general market declines. Selling financial

futures such as the S&P 500 futures is another way of hedging

against market declines.

Dogs of the Dow


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Dogs of the Dow, which gained popularity during the 90s, is a

strategy that involves buying of best -value stocks in the Dow

Industrial Average. These are ten stocks with the lowest P/E

ratios and the highest dividend yields. This strategy presents the

idea that the ten lowest companies on the Dow have the most

potential for growth over the coming year. The companies listed

on the Dow Index are those which offer a reli able investment

performance. Pigs of the Dow is a new twist on the Dogs of the

Dow. In this strategy, five of the worst stocks on the Dow are

selected by looking at the price decline percentage from the

previous year. Like in the Dogs of the Dow, the idea in Pigs ofthe Dow is that the worst five stocks are going to rebound more

than the others.

Buying on Margin

The strategy of buying stocks using borrowed money, which is

usually from the broker, is called buying on margin. Because

they receive more stocks despite the low initial investment, the

investors are given much more return by margin buying than by

full payments. In the event that the stock loses its value, the

losses in margin buying will also be correspondingly greater. In

order to limit the losses in case of market reversal, investors

should have stop-loss orders when they buy on margin. The

margin amount has to be limited to about 10% of the total

account value.


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The Different Types of Stock Trading

The stock market serves as a reliable indicator t he actual value of

the companies that issue stocks. Stock values are based on

verifiable financial data such as growth, assets, and sales figures.

The stock market is considered to be a good choice for long term

investments since this reliability that well-run companies should

continue to grow and provide dividends for their stockholders.

Short-term investors are also given opportunities in the stock

market. Market skittishness, even without a financial basis, can

cause the rapid fluctuation of prices. Investor psychology, on the

other hand, can also cause the prices of the stocks to either fall or

rise.

The suspicions of investors about a companys value increase can

be ignited by news reports, economic conditions, and rumors.

When the price of a stock either rise or fall, some investors will

quickly jump on the bandwagon to cause an even faster priceacceleration. Eventually though, the market will correct itself.

Savvy short-term investors who watch the market closely see

these kinds of situations as great opportunities for profitable

trading.

Short-term trading is divided into 3 categories:

y Position Trading

y Swing Trading

y Day Trading

Position Trading


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The longest term trading style among the three is position

trading. Compared with the other styles, the stocks in position

trading can be held for a relatively longer period of time. Position

traders are expected to hold on to their stocks for anywhere from

5 days to 6 months because they watch out for the fundamental

changes in the value of the stocks. Position trading doesnt

require a great deal of time since the time needed to study the

stock market can be as little as 30 minutes a day and it can be

done after regular work hours. A quick examination of daily

reports is enough to plan trading strategies. This type of trading is

ideal for those who invest in the stock market for the purpose ofsupplementing their income.

Swing Trading

Swing traders, when compared with position traders, hold their

stocks for a shorter period of time that generally lasts only for

about one to five days. In looking for stock market changes, the

swing trader is more driven by the emotion rather than the

fundamental value. This type of trading requires more time in

researching stocks and conceptualizing strategies because the

swing traders need to identify the trends in order to pick out the

best trading opportunities. They tend to rely on daily and intra-

day charts to plot the movements of the stocks. This type of

trading usually generates a greater payback.

Day Traders

Day trading is considered to be the riskiest way to play the stock

market. This may be true for slightly uneducated traders but not


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for well experienced ones. Day trading involves the buying and

selling of stocks in very short periods of time. It generally takes

less than a day but it can be as short as a few minutes. Day

traders need to stay rational and analytical to survive this type of

trading. They create plots of when to get in and out of a position

by relying mostly on the information that can influence the

movement of the stock prices. Day trading has to be a full-time

profession since it requires paying a close attention to the

different

The Different Types of Stock Indexes

The statistical average of a particular stock exchange or sector is

called a stock index. Indexes are composed of stocks that are

either parts of the same exchange, the same industry or the same

companies. The most common stock indexes in the United States

are the Dow Jones Industrial Average, the NYSE Composite

index, and the S&P 500 Composite Stock Price Index. Stock

indexes are used to give an overall perspective of the economic

health of a certain industry or stock exchange.

There are different ways to calculate the indexes of stocks. Price

weighted index, which is based solely on the p rice of stocks, does

not take into consideration the importance of any particular stock

or the size of any company. The index that takes into account the

size of the companies is called market value weighted. The fact

that the price shifts of small companies have less influence than

those of larger companies is considered in this type of index.

Another type of index, which is based on the number of shares


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rather than the total value, is called the market -share weighted

index.

Indexes, aside from giving overall grades to particular

economies, can also be used as investment instruments. Mutual

funds which are based on indexes are called passively managed

mutual funds. Managed funds are shown to be consistently

outperformed by these kinds of funds. A mutual fund that is

based on an index simply duplicated the holdings where the

index is based on. So if there is a 1% rise in Dow Jones, the fund

based on Dow Jones also experiences a 1% rise. This causes a

lower cost advantage for transactions and researches because the

savings can be passed on to the participating investor.

The Differences between Stocks and Bonds

Investors buy stocks to acquire a partial ownership in a particular

company and buy bonds to make a loan to corporations or

governments. While stockholders benefit from the companyprofits, the bondholders receive returns. A fixed rated return is a

percentage of the bonds original offering price. The return is

called a coupon rate. The principal amount of bonds is returned

during the maturity date. Because they can be issued for any

period of time, there are some bonds which take about 30 years to

mature.

The risk of not being paid back with the principal amount is

always carried by bonds. Although companies with higher credit

worthiness are more likely to be safe investments, their coupon

rates will be lower than those companies with lower credit


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ratings. Firms such as Standard and Poor and Moodys Investor

Service provide such credit ratings that range from a high AAA

to a low D.

The safest type of bonds is the US Government bonds. Blue chip

corporations, which are companies with established performance

records for over several decades, are also considered to be safe

bond investments. Although smaller corporations carry greater

risks of defaulting bonds, bondholders of smaller corporations are

considered to be preferential creditors because they will be

compensated before stockholders in case the business goes

bankrupt.

Bonds, just like stocks, can be bought and sold on the open

market. The fluctuation of their values is based on the level of

interest rates in the general economy. For example, an investor

who holds a $1000 bond that pays 5% per year in interest is

capable of selling the bond at a price that is higher than the face

value as long as the interest rates are below 5%. If the interest

rates rise above 5%, the bond can still be sold but it is usuall y at a

price that is less than the face value. Because the potential buyers

are capable of getting a higher interest rate than what the bond

pays, the seller has to sell at a lower cost in order to offset the

difference of the bond.

Most bonds are traded in the Over-the-Counter (OTC) Market

that is composed of banks and security firms. Corporate bonds

which are listed on stock exchanges may be bought through stock

brokers. New bond issues are usually sold in $5000 increments


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while initial bond issues are quoted in $100 increments. A bond

listed at 96 indicates a selling of $96 per $100 face value.

Stocks or Bonds

The risks and the potentials have to be weighed when deciding to

invest either in stocks or bonds. Stocks carry a greater potential

to increase in value but they also hold a greater vulnerability to

market fluctuations. Investment grade bonds, which are rated

BBB or better, carry slightly lower risks but offer relatively low

yields.

A lot of investors agree that bonds offer greater security and

return for short-term situations but when a time span over ten

years is considered, the situation changes. The stock market has

consistently outperformed bond investments by a large factor

since companies tend to increase in value and any short -term

fluctuations in the stock market are smoothed out over time.

Because they provide a stable investment that helps cushion

against stock market fluctuations, bonds still have their place in

most investor portfolios. A mixture of investments that includes

stocks from different industries, bonds from various corporations,

and other fixed-income investments is one strategic way of

providing maximum growth while securing investment funds for

the future.

The Definition of Penny Stocks

A stock which sells for less than one dollar per share (or in some cases,

less than five dollars per share). Most penny stocks have only a few

million dollars in net tangible assets and have a short operating history.


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Penny stocks are almost always small cap stocks, but the reverse isn't

necessarily true.

Search volume for penny stock

A penny stock hopeful doesn't need to fret much over getting startedbecause the requirements that must be followed in good penny stock

trading are just the same with those further stocks in the market. You

will still need to make a brokerage account. However, buying penny

stocks trading may not be easy since the info on the stocks of penny

list is not accessible in the market. It's a prerequisite in the intelligence

market for shareholders to make the correct investment decision and so

the info on stocks of penny has to be personally collated from lots of

sources.

Having a broker may be a good plan since half of your task in

searching for information on good penny stocks can be managed by the

broker. Alternatively, if you're fortunate, the agent could have a good

stocks of penny list accessible to him. Getting information on hot

stocks of penny and trends on the stocks for long-term otherwise

would be helpful in your investments. Brokers have also enough

knowledge to be mostly correct on timing; the buying and selling the

stocks of penny would be good in your goal to make money in your


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outlay. Just be sure that you provide your broker w/ your requirements

so information and ideas can be given to you accordingly.

The stockbrokers regularly charge you with particular commission on

your every business in his account, or even charges on guidance ma y

also be used. However, they'll always be there, willing to offer you

their professional outlook on the information you may need, like the

details on the stocks of penny list he might have supplied you. Yet, if

you think of that, you could explore and dev elop your own in

purchasing the good penny stocks you will invest on, details on the

stocks of penny bid can be seen on the OTCBB every day.

Additionally, important information on the businesses that are traded

can as well be obtained from the Over The Counter Bulletin Board.

Before, this information weren't accessible under the law to be shared.

Nevertheless, subsequent rules framed by the NASB to share the key

details on the penny stocks list. Even the AMEX and NASDAQ now

give info on stocks of penny and so the price movements of the penny

stocks and some stocks may be tracked by investors already.

Even published news sheets by brokers are accessible to provide

information on trading of good stock of penny. Making use of them

would aid investors like you to gather info on stocks of penny where

you could probably invest your funds now. Doing these, no added

money is necessary to be utilized for the collection of the information

you need in your arrangement of buying stocks as investments. With

all the ideas on trading the stock of penny given for you, it is still

essential that you use your analytical thinking in making success with

penny stocks. All said, there is still no one hundred percent sure ways

in acquiring success in hot penny stock trading. Getting enough


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knowledge on the stock of penny trading insight to understand the

difficulty might provide you an edge in the management of such

outlay.

Lack of information about the company

Most companies have very little reportable history and those

which are listed in the Pink Sheets or in the OTCBB arent

required to issue financial statements.

Low liquidity

Finding potential buyers is difficult because penny stocks are

infrequently traded. In order to interest an investor to buy the

stock, the price of the penny stocks need to be lowered

substantially.

Potential fraud.

Penny stocks, as a result of their unregulated nature, are often

sold by con artists through spam emails or off-shore brokers.

Not all penny stocks are issued to gain money by fraud or to deal

with bankruptcy. There are some penny stocks which are used to

represent hard-working businesses that are struggling to meet the

necessary requirements to get listed on NYSE of NASDAQ.

Investing in such companies offers real growth potential because

investors have the opportunity to get in at the ground floor and

ride all the way to the top.

Finding companies with this growth potential is difficult. A lot of

research is needed to get this information. Unless they willingly

take the time to personally investigate a company, investors

could be victimized by fraud. Nowadays, there are some


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list of stock prices in the newspapers. There is a wide

variety of stock prices and there are many people who kept

on wondering why some well-known companies are being

traded for relatively low prices while some lesser known

companies are being traded for excessively high prices.

Stock prices, to a certain extent, are determined by the

confidence of an investor that is based on either a real or a

perceived performance. The financial status of companies are

reported on a quarterly basis when the ir cash flow, sales, and

earnings are disclosed. The worth of a company is based on its

financial status but it can be overrode or undermined by the

speculation of the investors.

Rumors spreading in the stock market usually affects the fate of

the stocks. For example, an ongoing rumor stating that a

particular company is planning to make a strategic move will

cause investors to come flocking just to buy stocks from that

company. The principle of supply and demand applies in the

stock market. A sudden upsurge in the interest of investors will

cause the stock prices to rise while a fear among investors will

cause the prices to plummet. The worth and the performance of a

company are still considered to be the biggest factors in the

determination of stock prices.

Stock prices can be found in the daily market summaries of

newspapers or online sources. They provide information about

the current prices and market movements around the clock. Stock

brokers also provide quotes which can be accessed either via the

Internet or via a telephone.


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A stock quote table, which can be found in a newspaper or an

Internet website, contains useful information that can help

investors to make their decisions regarding the buying or selling

of stocks. Reading a stock table requires a n ecessary skill for

anyone who is interested in the activities of the stock market.

The first column of the stock quote table contains a 3 or 4 -

character long ticker symbol that indicates the name of the

company. For example, BCE stands for Bell Canada Enterprises

while MSFT stands for Microsoft. The list of ticker symbols can

be searched through the Internet.

The latest price indicates the current price at the time the table

was published. The latest price in the tables found in newspapers

describe the closing price for the day. The prices in the Internet,

however, are updated every few minutes.

Change is the difference between the previous day closing price

and the current stock quote. High indicates the highest pricewhile Low indicates the lowest price of the stocks sold as of the

last trading day. Volume describes the number of shares that have

been traded for the day. The 52-week High and Low shows the

highest and lowest prices in the previous year.

Some tables contain additional columns to make room for other

information such as the Bid Price, which is the price a buyer iswilling to pay; the Ask Price, which is the price a seller is willing

to sell; the Price/Earnings Ratio, which is the stock price divided

by the earnings per share; the Market Cap, which is the

outstanding shares multiplied by the current market price; and the


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Dividends Per Share, which is the current annual dividend that

the company pays.

Getting Started on the Stock Market

Stocks can be bought and sold by anybody who has money.

Knowing the basics will help people understand how stock

trading works despite the processs own specialized vocabulary.

People who have knowledge about stock trading are the ones

who are most likely to be successful in the investment industry.

Most stock trading activities are done through an intermediary

called a broker. Brokers, who take and execute orders from the

investors, can also offer investment advices and analyses to their

clients. Such brokers are called full-service brokers and they

charge a relatively high commission. The types of brokers that do

not offer investment advices to their clients are called discount

brokers. Investors who wish to save more money usually hire

discount brokers because they charge less commission.

Online trading and broker-assisted trading are two of the most

commonly offered services by brokers. There are some brokers

who use an Interactive Voice Response System for placing orders

via telephones and a Wireless Trading System for making orders

via web-enabled cellular phones or other handheld devices.

There are some brokers who use their own proprietary software

for placing online orders while some give their website

passwords for


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accessing order departments. Brokers allow their clients to track

the stock market movements by offering a variety of charting

options. The analysis software provided by brokers may be

included in their services either for free or for an extra fee.

Types of Orders

The orders made when buying or selling stocks can be classified

into different types. An instruction to buy or sell a stock at the

current market price is called a market order. This order is

usually executed near the quoted price at the time of the order

was made. There may be a difference between the actual

transaction and the quote if there is some inactive trading of

stocks or rapid fluctuation of prices.

An expectation of stock price movements that leads to the

interest of buying or selling stocks at a certain price above or

below the current price initiates the placing of eith er a stop

order or a limit order. A stop order instructs the broker to

trade at a certain stock price, while a limit order instructs the

broker to trade at a specified stock price or something better.

Stop orders, which help in limiting losses and protecting profits,

become effective when the market hits the stop price. Because

the stocks are traded at market price after they become active,

brokers who are given stop orders are allowed to trade above or

below the stop price. Limit orders, on the other hand, may not be

placed at all even if the market reaches the limit price. The fast


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movement of the market may not provide enough time to execute

the order before the price falls out of the limit price range.

All orders can be placed as either good til canceled (GTC) or

day order. A GTC order will remain in effect until it is

canceled but a day order will remain in effect only until the end

of the current trading day. Stocks are commonly traded in

multiples of 100 that are called round lots. Trading o ther

amounts of stocks, which is called an odd lot, is also possible.

Trading software can handle either type of orders but odd lot

orders are considered to be more difficult to fill than round lot

orders.

Reasons to invest in Indian stock market

The Indian economy is a fast growing economy. The growth rate

of Indian industry is high. If you want to invest in Indian stock

market you can do it without any qualms as there are many

reasons to do so.

The Indian democracy is the largest democr acy in the world and

the rules and policies governing the Indian market as also

stringent. The Indian government is a steady government with

regular governments formed by elected members. The stability

allows for steady growth and development in the countr y.

As India has such huge population there are more consumers in

the country. So the market is also large. The economy is

witnessing a steady growth and the markets are developed. The

GDP has increased; there is larger foreign currency reserve so


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steady development is seen in the market.

The Indian infrastructure has improved vastly. There is

improvement in the field of road network, power,

telecommunications, and transportation. With excellent

infrastructure there is progress in every filed of Indian industry.

The Indian industry is showing good potential in the IT sector

and multinational companies. Many multinationals have invested

in India seeing the trend of growth of Indian Industry.

The Securities and Exchange Board of India look after theoverseas activities of the stock exchanges in India. It does strict

monitoring and has stringent rules so the Indian stock market has

become more transparent, efficient and trustworthy. The facilities

of online trading have also helped in the making stock market of

India more popular.

The easy accessibility and transparency in the market has made itvery popular. Now the younger generation Indian has started

investing in shares and stocks. You will find many people with

many types of portfolios dealing with shares and stocks. The

online index of shares has made it possible to see the up and

down trend of the market. It has evolved into a very stable and

return giving industry.

Golden Rules of investing in Indian Stock market

There are certain golden rules that you have to abide by

to be successful in investing in India stock market. The

experienced traders always talk about the profits made by them


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and not the losses sustained by them. However, you should know

that it is not possible to only have gains and not to have losses in

the stock market. If you want to have steady profit from your

investments, then make no such move that can eat into your

capital. Even if you miss an opportunity, you should know that

you have not lost anything, which is a g ood sign in the stock

market.

Money invested in the stock market is your hard -earned

money. Protect it with all your power of will and wit, as it is a

game of might is right. After that point fully understood, you

should now try to follow a few golden rules of CapitalManagement in stock market.

The first golden rule you should try to follow is that the

capital that you invest in the stock market should be from your

disposable income. You should never take a loan or borrow

money to invest in stock. The second golden rule is that you

never consign 10% of your capital. So even if the share incurs

loss you dont have mush loss. If you invest around 75% of your

capital in one stock only, then the loss will be huge

The third rule is that you should try to take out the profit

you earn from stock market and keep it in separate bank. You

should keep this profit until it reaches the amount equal to your

initial capital invested in stock market. This way you keep your

capital secure and invest further in other shares. When the rules

are followed properly then it will help you gain you in the long

run.

The attraction of Indian stock market


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The undeniable attraction in Indian stock market is like a

lure for many people. You are not able to deny its attraction.

Even if you suffer losses, the next day you are ready with to

invest again in some other shares. It is just like the passion for

gambling. You just cant resist it. Even if you want to get up and

leave you are pulled back again with its att raction.

You are glued to TV sets with the latest stuck new and

trend being televised. You watch the graph like a hawk ready to

pounce on every upward going share. At the end of the day there

is joy for some people and sorrow for the others. Those who have

gained with shares are full of joy while those who have lost wait

for the next day so that they can change their losses to gain.

The thrill of investing is a thrill just like racing or gambling, you

just cant stay away from it. You watch the trend of a particular

share for a week before you try to invest in it. The life of the

stock broker is very thrilling as there are daily ups and downs.

There is a huge data base, stock to be read thoroughly, graphs to

be deciphered and watching people making million and people

losing millions. There is no other excitement, which is so much

full of thrill and enjoyment.

It is like a game which has to be played regardless of

whether you win or lose. You have to play it and you cant resist

it. It needs guts to play this money game, you have to keep your

cool, be calm hold on to your nerves and react very fast to gain

money. All of it is done within second so no late reactions. Once

you get in the excitement of share trading, you wont like to leave

it.


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TECHNICAL ANALYSIS

Stock Market Technical Analysis

Technical Analysis is the study of prices and volume, for forecasting

of future stock price or financial price movements.Technical analysis

can help investors anticipate what is "likely" to happen to prices over

time.

Technical analysis is not an exact science. It's an ar t and takes

considerable experience. But don't worry everyone with each

knowledge can learn it.

Basic Principles

Technical Analysis is based on these three basic principles:

#1 - Price Discounts Everything

Technical analysts believe that the current price fully reflects all

information. Because all information is already reflected in the price, it

represents the fair value, and should form the basis for analysis. After

all, the market price reflects the sum knowledge of all participants,

including traders, and

Stock Market Technical analysis utilizes the information captured by

the price to interpret what the market is saying with the purpose of

forming a view on the future.

#2 - Prices Move in Trends


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Technical analysts or chartists believe that prof its can be made by

following the trends. In other words if the price has risen, they expect

it to continue rising; if the price has fallen, they expect it to continue

falling. However, most technicians also acknowledge that there are

periods when prices do not trend.

#3- History Repeats Itself

Technical analysts believe that investors en masse repeat their behavior

and they assume that there is useful information hidden within price

histories; that it is a way of analyzing the past actions of people in a

particular market as reflected by their actual transactions.

Technical Analysis Tools

Every technical analyst needs charts and indicators to study market.

Three common types of charts are used by investors: Line Chart, Bar

Chart and Candlestick Chart.

Line Chart is formed by plotting one price point, usually the close, of

a security over a period of time. Connecting the dots, or price points,

over a period of time, creates the line.


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Bar Chart is drawn by high, low and closing price. Sometimes, bar

charts are drawn by opening price. In this case, bearish bars are drawn

with another color.

Candlestick Chart A form of Japanese charting that has become

popular in the West. A narrow line (shadow) shows the day's price

range. A wider body marks the area between the open and the close.


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Technical Indicators

Technical indicators are the basis of technical analysis. There are

dozens of technical indicators, how to choose good stock indicators?

Technical indicators are used to know when to enter or exit a trade. If

you know how to enter and exit a trade, you can easily make profits.

That is why choosing good stock indicators are important.

Some of stock indicators are more common and useful than others.

Also you need a few of them to know when to enter or exit a trade not

all off them.

Technical indicators can be divided into four major categorizes:

1- Price Indicators: Oscillators, Bollinger Bands2- Trends

3- Number Theories: Fibonacci numbers, Gann numbers

4- Waves: Elliott's wave theory

Price Indicators are computed by prices data. A subcategory of Price

Indicators are oscillators. Oscillators are indicators that are usually

computed from prices and tend to cycle or oscillate within a fixed or

limited range.

Common oscillators are: Momentum and Rate of Change (ROC),

Moving Average Convergence/Divergence (MACD), Relative Strength


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removes some of the trend, highlighting cycles and sometimes moving

in coincidence with the market .

Relative Strength Index (RSI)

RSI measures the relative changes between up-moves or down-moves

and scales its output to a fixed range, 0 to 100. RSI is an oscillator and

Welles Wilder devised it.

The formula for calculating RSI is:

RSI = 100 [100/ (1+RS)]

Where: RS is average of N days up closes, divided by average of N

days down closes and N is predetermined number of days that usually

chosen 14.

RSI can use as an overbought/oversold indicator. A buy signal is when

the RSI moves below a threshold, into oversold territory, and then

crosses back above that threshold, usually 30 is taken for oversold

threshold. A sell is signaled when the RSI moves above another

threshold, into overbought territory, and then crosses below that

threshold, usually 70 is taken for overbought threshold.

Technical Indicators - part 2

Oscillators are technical indicators that tend to cycle or oscillate

within a fixed or limited range, and Momentum in general term means

strongly movement of prices in a given direction.

Stochastic Oscillator


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The Stochastic Oscillator is a momentum indicator, it indicates

whether the market is moving to new highs or new lows or is just

meandering in the middle. This indicator is based on George Lane 's

observations.

The Stochastic Oscillator is plotted in two lines Fast %k and Fast %D.

The formula is:

Fast %k = 100 * [( C L (n) ) / ( H (n) L (n) )]

Where:C is the most recent closing price.

L (n) is the low of n previous trading day (or bar).

H (n) is the high price of the same n previous day (or bar ).

Usually n is chosen 14.

A 3-period (day or bar) moving average is taken from Fast %k and

called Fast %D. Fast %D is used as a signal line in the same way that

the moving average of the MACD is used as a signal line for the

MACD.

Stochastic Oscillator is plotted in two lines but, usually these lines

cross each other many times. Now to smooth the chart, a 3 -period

moving average is taken from Fast %D and called Slow %D (Also,

Fast %D is called Slow %K), so the smoothed chart is plotted with

Slow %K and Slow %D.

Using of Stochastic Oscillator


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1- Oscillators are used as an overbought/oversold indicator. A buy is

signaled when the oscillator moves below 20, and then crosses back

above 20. A sell is signaled when the oscillator moves above 80, and

then crosses below 80.

2- Also, when %K crosses above or below %D, Buy and sell signals

can be given. But, may be crossover occurs frequently in short periods

and causes bad results. This using isn't very common.

Bollinger Bands

John Bollinger created Bollinger Bands in the 1960s; Bollinger Bands

are used to determine support and resistance levels. This indicator

consists of three lines; the middle line is an exponential moving

average of price data and the two outside bands are equal to the

moving average plus or minus standard deviation.

Standard Deviation is a statistical measure that indicates volatility of

price. The bands will expand when price becomes volatile and they

will contract during less volatile periods.

Using of Bollinger Bands

1- Bollinger Bands are used to determine the boundaries of market

movements. If a market moved to the upper band or lower band, then

there was a good chance that the market would move back to its

average. In the other words, when price closes to upper band, ma rket is


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overbought and when price closes to lower band, market is oversold.

2- Another using of Bollinger bands is that to indicate up-trends and

down-trends. If price deflects off the lower band and crosses above

moving average then price fluctuate between upper band and moving

average, it comes to indicate upper price target. It is visa versa to

indicate lower price.

Fundamental Analysis

The definition of Fundamental Analysis

Fundamental analysis is a stock valuation method that uses financial

and economic analysis to predict the movement of stock prices.

The fundamental information that is analyzed can include a company's

financial reports, and non-finanical information such as estimates of

the growth of demand for competing products, industry co mparisons,

and economy-wide changes.

Main Strategy

To a fundamentalist, the market price of a stock tends to move towards

its intrinsic value. If the intrinsic value of a stock is above the current

market price, the investor would purchase the stock, and i f the intrinsic

value of a stock was below the market price, the investor would sell the

stock.


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To start a fundamentalist makes an examination of the current and

future overall health of the economy as a whole. In this step you should

attempt to determine the direction and level of interest rates.

After you analyzed the overall economy then analyze firms

individually. You should analyze factors that give the firm a

competitive advantage in its sector such as management experience,

history of performance, growth potential, low cost producer, and etc.

Some expressions of Stock Fundamental Analysis

For beginning I describe some stock fundamental analysis expressions

that are more important:

#1- EPS: (Earnings Per Share)

The portion of a company's profit allocated to each outstanding share

of common stock. The amount is computed by dividing net earnings by

the number of outstanding shares of common stock. For example, a

corporation that earned $10 million last year and has 10 million shares

outstanding would report earnings per share of $1.

#2- P/E Ratio: (Price/ EPS)

Also called its "earnings multiple", Price of a stock divided by itsearnings per share. The P/E ratio may either use the reported earnings

from the latest year or employ an analyst's forecast of next year's

earnings. P/E gives investors an idea of how much they are paying for

a company's earning power.


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An important notice here is that the P/E ratio is ultimately not an

objective measure; a high P/E ratio might show an overvalued stock, or

it might reflect a company with high potential for growth.

#3- Dividend

Dividend is an amount of the profits that a company pays to people

who own shares in the company. When a company earns a profit, some

of this money is typically reinvested in the business and called retained

earnings, and some of it can be paid to its shareholders as a dividend.

#4- Book Value

The book value of an asset or group of assets is sometimes the price at

which they were originally acquired ( historic cost ), in many cases

equal to purchase price.

#5- Growth Stocks

Growth Stocks in finance , are stocks that appreciate in value and yield

a high return on equity (ROE). Analysts compute ROE by taking the

company's net income and dividing it by the company's equity. To b e

classified as a growth stock, analysts expect to see at least 15 percent

ROE.

Ratios, Financial Statement Analysis & Capital Structure

Return on Investment:


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ROI = Operating Income / Investment Required

Project A = 200000 / 500000 = 40%

Project B = 150000 / 250000 = 60%

Residual Income:

RI = Net operating Income - Imputed Interest

Imputed Interest refers to the cost of capital.

RI tells you how much your company's operating income exceeds what

it is paying for capital.

Economic Value Added:

EVA = (I - C) * (L + S)

Where I = Income

C = After Tax cost of capital

L = Long-term Liabilities

S = Stockholder's Equity

ROI or Residual Income

Under ROI, the message is go forth and maximize your rate of return, a

percentage.

Under RI, the message is go forth and maximize residual income, an

absolute amount.

Invested Capital:


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To apply either ROI or residual income, both income and invested

capital must be measured and defined.

Total Assets

Total assets employed

Total assets less current liabilities

Stockholders' equity

EBIT &am

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