based investments in current market scenario

8/12/2019 Based Investments in Current Market Scenario

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Third Eye collegeH.B Road, Panbaza, Kalpataru BulidingGuwahati 7!""!, #$ $ode % "&7&

Submitted by,

ame - Nilabh Jyoti MahataRoll o 510815695

A project report submitted in partial fulfillment of the requirement for the degree of

Master of Business Administration of Sikkim Manipal University,ndia

Sikkim Manipal University of health,

Medical and technological sciences Distance education wing Syndicate house ,Manipal 576!"

Annexure B

Student Declaration


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I here by declare that the project report entitled

!A strategic study on the "eneral #ublic vie$ on %quity based

nvestment in the current market scenario&

Submitted in partial fulfillment of the requirement for the degree of

Master of business Administration of Sikkim Manipal University, India is myoriginal work and not submitted for any other degree, diploma, fellowship, orany other similar title or prie!

Place Mr. Nilabh Jyoti MahnataRegistration No 51015!"5

Date


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Annexure #

Examiners Certification

$he %ro&et re%ort o'

Mr. Nilabh Jyoti Mahanta

"A strategic study on the #eneral $ublic view on %quity basedInvestment in the current market scenario&Is approved and acceptable in quality and from

(nternal )xa*iner )xternal )xa*iner

Na*e Na*e

+uali'ication +uali'ication

Designation Designation


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Annexure D

,ni-ersity study center certi'icate

his is to cert ify that the project report entit led!A strategic study on the "eneral #ublic vie$ on %quity based

nvestment in the current market scenario&

Submitted in part ia l fulf i l lment of the requirement for the degree ofMaster of B us iness Admin istrat ion of S ikk im Manipa l Univers ity of h ealth ,Med ica l and technolog ica l sc ience Mr' (ilabh )yoti Mahnata

!as "orked under my superv is ion and guidance and that no part ofth is report has been submitted for the a"ard of any degree, # ip loma,fe l lo"sh ip or other s imi lar t it les or pr i$es and that the "ork has not be enpubl ished in any journa l or Maga$ine

%ert if iedMr. Abhijeet Dev

C.W.A


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ACKNOWLEDGEMENTACKNOWLEDGEMENT

# would like to e$press my gratitude to all those who

gave me the possi%ility to complete this pro&ect work' # like

to thank Sikkim Manipal University and management of (hird

)ye *ollege for introducing this pro&ect work into our M'+'

program'

#-m deeply inde%ted to Share.han for allowing me toconduct this pro&ect work in their esteemed organi/ation, #

like to specially thank Mr' Sumit Sengupta who happened to

%e my 0ro&ect guide in Sharekhan, and sparing his valua%le

time in helping me out during my pro&ect work'

nd lastly %ut not the least # am deeply inde%ted to my

1aculty 2uide Mr' %h&eet Dev of third eye whose help,

stimulating suggestions and encouragement helped me in allthe time during preparation and writing of this study'


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Tabe of Content

Exec!tive "!mmar#

$. $ntro%!ction &$$. Objective '

$$$. Metho%oo(# )

$*. Ana#sis an% major fin%in(s +

*. ,ecommen%ation -

*$. Conc!sion &

/art $

$ntro%!ction of the com0an# '

/art $$/roject Overvie1

. $ntro%!ction

$. $ntro%!ction of the 0robem &

$$. $ntro%!ction to "hare Mar2et &&

&. Objective 3-

3. Metho%oo(# 3-

'. Ana#sis

$. Mar2et s!rve# Ana#sis '&

$$. $rrationa $nvestors 4'

$$$. "mart $nvestors 45

$*. 6!n%amenta Ana#sis 4+

*. Technica Ana#sis )4

*$. 6!n%ament ana#sis v emotiona investors 7'

*. "toc2 8!bbe 7)

*$. 8ehavior 6inance 7-

*$$. $n%ian stoc2 mar2et 37

*$$$.9n%erstan%in( stoc2 c#ce '7

:$. "hort "ein( '

4. ,ecommen%ation '4

). Conc!sion '+

/art $$$

. A00en%ix 47

&. 8ibio(ra0h# 4&

3. ,eference 43


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(itle of the pro&ect 3ork

A strategic study on the #eneral $ublic view on %quity basedInvestment in the current market scenario

PA#) / /R2 3 G!1ahati

/R4AN(A$(/N 3 "hareKhan Lt%; G!1ahati.

A#,$6 4,(D) 3 Mr.Abhijeet *ev'

6ac!t# Member

Mana(ement De0artment

Thir% E#e Coe(e; G!1ahati.

/R4AN(A$(/N 4,(D) 3Mr'Sumit Sengupta '

Territor# Mana(er.

"hareKhan Lt%; G!1ahati


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#ntroduction of the pro%lem 4Whenever the US sneezes, the world catches acold, and this is quite evident from the fact how rest of the world reactedto US recession. One of the major areas that were badly affected by global

recession is Stock market. n ndia also im!act of the global recession wasfelt badly. t its quite evident from the fact that our Share "arkets aretouching new lows everyday. Sense# went on to touch all time !eak of $%&'(on )anuary &(, $&&(. *ut by third week of )anuary $&&(, the Sense#e#!erienced huge falls along with other markets around the world on thebasis of !ossible US economy slow down. +he *S Sense# inde# went into afree fall and currently it is at ((-% as on $'thfeb, $&&-, when startedthis !roject work/. 0s for 1ifty it come down to $'23 as on $'th4eb, $&&-from 5$-(. 0ll this means !rices of the shares are falling quite dramatically.So to sum it u! it is a crunch time for the investors and as they have lost ahuge chunk of their money,

0!art form that one of the major question that occu!ying every onemind is how long this recession going to stay. +hough analysts around theworld doing there best to !redict the market. Since no !attern seems to fitand no formulae in sync with this gra!h, one can only assume that thefundamentals are highly un!redictable. ven though our economic !oliciesmay serve as a guide as to how the markets will move in the long term, thedaily swings 6 u!s and downs 6 are still an enigma. 1ews, s!eculation, insider

trading, and !ro!aganda bring about these short7term movements and thereasons for the fluctuations could be many. 0t the end of the day, it is the!eo!le who drive market. 0mong them are retail traders, who constitute $573&8 of the market. "ost of the times the numbers that we see flashingthrough the Sense# screen are genuine outcomes of economic !olicies.9owever, sometime movements are nothing but emotional numbers on how!eo!le react to a situation. So it:s very im!ortant to know the mind set ofthe investors their !erce!tion toward future, because at the end of the dayit is the action and reaction of general !eo!le that drives the economy. 4rom

marketing !oint of view it:s very hard time for shares firms to convincethere client to invest in such a scenario when overall economy is slowing downand investor around the world in is buried in mist of fear and kee!ingthemselves away from the market that once gives them returns beyondthere e#!ectations.


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%&ectives

Objective of this research studies is to find out the ;eneral


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Scopes and imitations

Scopes

+he sco!es of the research study are given below>

i. +he re!ort will be beneficial to the organization in making strategic

marketing decision es!ecially in regard to recession.

. findings?recommendations may !rovide the necessary

requirement?solution in the area of marketing to the concerned

organization.

imitations

@uring the research study various unseen obstacles, tasks, !roblems etc. was

encountered. +he following are some of the few limitations of the !roject

study>

i. +he research was conducted within a short !eriod few information

and analysis are not made !ossible.

ii. +he biasness of res!ondent deviate actual result from its actual

!arameters as res!ondent don:t want to give actual information

regarding there investment habits.

iii. +he survey was restricted only %&& res!ondents. t is very small

!ercentage to the total !o!ulation of the entire ;uwahati city. So

there may be error between the actual result and result shown in the

survey.


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8esearch Methodology6+he research deigns has been !re!ared in such away that the !erce!tion and view of the target res!ondent on investing inshares es!ecially in relation to current scenario can be analyzed and at theend some recommended strategies can be !oint out. Aee!ing in view the

!ur!ose and im!ortance of the study, Survey study and analytical study hasbeen ado!ted. +he objective of ado!ting the survey study is to find out thegeneral view of investors of ;uwahati. Buestionnaires are !re!ared for thetarget !eo!le to find out the general view of the targeted res!ondent +heobjective of analytical study is to inter!ret and analyze the current marketsituation.

Data sources6+o find out the general view of the !ublic about investing inShares


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Observation research Survey research 0nalytical research

8esearch #nstrument *asically questionnaires are used as researchinstrument.

Sample unit Sam!le unit for this survey is com!osed of ;overnmentem!loyees, 1on ;overnment m!loyees,


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naly/e 9 1indings

Ma&or 1indings

t is found that !eo!le are not aware of sharekhan =td as only F 8 ofres!ondent heard about share khan before. Where as only $8 knew abouttheir branch in ;uwahati.

nsurance seems to be the most !referred choice of investment for!eo!le, though the trend is shifting toward "utual 4und may be becauseof +a# advantage and higher return in com!ression to nsurance.nvestment in Share, ;old, commodities is not !referred at all.

t is interesting to know that F38 of res!ondent believe that byinvesting in share market they can e#!ect to earn return as high as F& 8annually.

t seems !eo!le are more aware of risk factors then the reward as mostof the res!ondent gives unsafely and lack of knowledge as !rime reasonfor not investing in share market.

t is found that most of the res!ondent lack knowledge about thefundamental mechanism of stock market.

t found that ndian stock market is still in co7 relation to thefundamentals and !rice reflects true valueG though sometime emotiontakes the market beyond its real value, but the investor who investirrational are the one who lose money in the share market.


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8ecommendation

$he 'ollo7ing are the reco**endations based on the analysis and 'indings 'ro* the

research study %ro-ided to the organi8ation

4irst of all would suggest before making any investment decision oneshould analysis the market and the client should also be asked to doso. feel fundament analysis or technical analysis are still wouldsuggest that investor should be aware of emotional sentiment andmake themselves familiar with behavior finance to check their ownemotion and also of the crowd.

would highly recommended that ShareAhan start some educationaland awareness !rogram to s!read an awareness about investing instock market, what feel is that investing in share market requires!ro!er knowledge and guidance and this something lacking from theshare firms. 0n educational or awareness !rogram will not only teacha investor how to invest !ro!erly but it can be benefited to the firmin following way

One of the basic reasons for not investing share market is !eo!legive over em!hasis to risk factor but there is a scientific way tomanaged that risk so that investor get there desired returnsbased on there risk taking ca!acity and most common !eo!le arenot aware of it. So it is im!ortant for marketers to make investoraware of the investment !rocess and how risk can be controlled sothat !eo!le feel confident about investing in shares. +here are!eo!le like Warren *uffet who over the year creating !ortfolio for!eo!le that gives return that even out!erform the market, so it

humanly !ossible to out!erform the market if one has the !ro!erknowledge.

t is seen that !eo!le who have lost money in the share market notbecause fundamental are wrong it is because they lack basicknowledge, they make emotional based decision or they become


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too greedy by holding on to the stock for more then they shouldhave in antici!ation of more !rofit. 1ow as a marketer one can donothing about that, but they certainly can and should !reventthese rotten mangoes from s!oiling the whole basket. t is

observed that !eo!le have a negative attitude toward investing inshare market because they are afraid of losing money as they haveseen other losing money, and this fear can be removed only if!eo!le become more aware of the market through education andawareness !rogram.

With recent downfall that feeling of unsafely is stronger thenever. 0gain as a marketer or a broker one can:t make the economyshiny but they can convey a massage that it is a !art of the

economy and that doesn:t mean that they have to loss money everytime a recession hit the market and there are e#am!les of !eo!lemaking good earning even in bears market. 0gain this !ossiblethrough education and awareness !rogram.

One of the biggest advantage of this educational or awareness!rogram would be that it will create a brand image for ShareAhanwhich will be diffidently going to hel! in long run.

t is seen that during bear market !rofit of most of the firm comedown, as volume of trading come down when !eo!le tend to shy awayfrom the market. don:t know if there is any rules or !olicy regardingshort selling, but if there are not !eo!le should be encouraged to gofor short selling as it won:t harm there !ortfolio that much because ofeconomic slow down or due to bear market. 0gain investor must beaware of the s!ecific risk involved in short selling.

0nother im!ortant suggestion would be to ste! u! the !romotional and

advertising activity as it is found that most of the res!ondent neverheard of ShareAhan before. 0nd !romotional actively can becoordinated with educational or awareness !rogram.

;enerally it is seen that telemarketing is used to generate lead tobring in new client to the firm which is a age old method that firm al


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over the world using for years. *ut with changing time think it istime to look for alternative tools, and

what feel is that !otential customer should be invited to seminarwhich should be a !art of education and awareness !rogram/ thinkthis will attract a customer more and he will be motivated to makeinvestment when he will come to know about share market, ratherthen sim!ly asking them whether the are interested in investing inshares.

"y final suggestion to investor and share firm is that if you are losingslee! due to rescission and you shouldn:t because it is just a cycle inthe economy and it won:t going to last for ever, but surely it will hit us

again but the e#!erience one again form this time certainly going tohel! for the ne#t one. So my suggestion is to learn form thise#!erience.


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*onclusion

0fter going trough facts, finding and analysis what believe stillstock market is the best investment o!tions for investors who are in searchof high returns and those who want to meet their financial goals. Still itseems investor from our region still !referred insurance as favorable o!tionas it involves low risk and ta# benefits. *ut that trend is now shifting toward"utual 4und as it gives more returns in com!ression to insurance and alsogives them ta# benefitsH. t seems investment in share is still and riskyo!tion for investors as they feel unsafe.

When analysis ndian stock market found that it is still in co relation tofundamental !rinci!les. Ies there is a emotional as!ect that influence themarket so as investor one should be aware of this emotional as!ect and makethemselves familiar with behavior science. *ut they can have full faith infundamental !rinci!als to make there investment decisions, and would sayinvestment in shares is safe o!tion if one is rational and know how marketworks. Ies !eo!le have lost money in the share market but mostly it is notbecause fundamental are wrong it is because they lack basic knowledge, theymake emotional based decision or !urely they become too greedy buy holdingon to the stock for more then they should have. 1ow as a marketer one cando anything about that but they certainly can and should !revent theserotten mangoes to s!oil the whole basket as that is what observed in theres!ondent. Ies stock market is risky but not as unsafe as they !retend toand most of this fear is in mind and as result !eo!le forget that there ishigh reward attached to that risk. 0nd with some much tools and methodthat risk can be managed according to individual and investing in share canbe a safer then it is assumed by the !eo!le. 4or that it is advisable forshare firms to take initiative to s!eared awareness and education cam!aignto encourage !eo!le to invest in share. When it come to marketing equitybased !roduct in our region it is like selling shoes in an island where !eo!ledon:t wear shoes and there is two way to look at this situation, and if we seeit !ositively it reflect that there is a huge !otential for market develo!mentand that is the reason share firm one after another is o!ening there outlet


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here. 1ow it is u! to the res!ective firms who can jum! on to thato!!ortunities and teach them to wear shoes.


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PART I


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Brief introduction of the company

Sharekhan is online stock trading company of SSKI (S.S. KantilalIshwarlal Securities Limited) Group, provider of India!ased investment !ankingand corporate finance service. ShareKhan is one of the largest stock !rokinghouses in the country. SSKI has !een among India"s leading !roking houses formore than a century.

Sharekhan#s e$uity related services include trade e%ecution on &S', S',

erivatives, commodities, depository services, online trading and investmentadvice. *rading is availa!le in &S' and S'. +long with Sharekhan.comwe!site, ShareKhan has around - offices (share shops) in -/ cities aroundthe country.

Share khan has one of the !est state of art we! portal providing fundamental andstatistical information across e$uity, mutual funds and I01s. 2ou can surf across, companies for indepth information, details a!out more than -, mutualfund schemes and I01 data. 2ou can also access other market related detailssuch as !oard meetings, result announcements, 3II transactions, !uying4selling!y mutual funds and much more.


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"ervice 0rovi%e b# share2han

0llow investor to buy and sell stocks online along with the following features

like multi!le watch lists, ntegrated *anking, demat and digital contracts,

Deal7time !ortfolio tracking with !rice alerts and nstant credit E transfer.

T'( dedicated nu)ber* +or placing ytheir order* with ytheir cell phone orlandline. Toll +ree nu)ber !%""%&&%7"-". or people with di++iculty inacce**ing the toll%+ree nu)ber, we al*o ha/e a Reliance nu)ber 01their #ocal

2T3 $ode4 5"5"76"" which i* charged at a* a local call.

2i)ple and 2ecure nteracti/e 8oice Re*pon*e ba*ed *y*te) +orauthentication

9o waiting ti)e. Enter ytheir TP9 to be tran*+erred to their telebro:er*

1ou al*o get the tru*ted, pro+e**ional ad/ice o+ their telebro:er*;+ter htheir* order place)ent +acility between


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Dematerialisation and trading in the demat mode is the safer and

faster alternative to the physical existence of securities. Demat as a parallel

solution offers freedom from delays, thefts, forgeries, settlement risks and

paper work. This system works through depository participants (DPs) who

offer demat services and the securities are held in the electronic form for the

investor directly by the Depository.

Sharekhan Depository Services offers dematerialization services to

individual and corporate investors. We have a team of professionals

and the latest technological expertise dedicated exclusively to their

demat department, apart from a national network of franchisee,

making their services quick, convenient and efficient.

At Sharekhan, their commitment is to provide a complete demat solutionwhich is simple, safe and secure


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; *ingle plat+or) +or )ultiple e=change B2E > 92E 0$a*h > >(4,?$@, 9$3E@, ?utual und*, P(*

?ultiple ?ar:et 'atch a/ailable on 2ingle 2creen

?ultiple $hart* with Tic: by Tic: ntraday and End o+ 3ay $hartingpowered with /ariou* 2tudie*Graph 2tudie* include ;/erage, Band%Bollinger, Know 2ureThing, ?;$3, R2, etc

;pply *tudie* *uch a* 8ertical, Horizontal, Trend, Retrace)ent >

ree line*

A*er can *a/e hi* own de+ined *creen a* well a* graph te)plate,that i*, *a/ing the layout +or +uture u*e

A*er%de+ined alert *etting* on an input 2toc: Price triggerTool*a/ailable to guage )ar:et *uch a* Tic: uery, Tic:er, ?ar:et

2u))ary, ;ction 'atch, (ption Pre)iu) $alculator, 2pan$alculator2hortcut :ey +or ;2T acce** to order place)ent* >report*

(nline +und tran*+er acti/ated with !& Ban:*

Get e/erything you need at a 2hare:han outletC


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0ll you have to do is walk into any of their 2F& share sho!s across $(& cities in ndia

to get a host of trading related services 7 their friendly customer service staff

will also hel! you with any accouts related queries you may have. 0 Sharekhan

outlet offers the following services>

Onine 8"E an% N"E exec!tions

6ree access to investment a%vice from "hare2han?s ,esearch team

"hare2han *a!eLine


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5ow to open account with Sharekhan6

'or online trading with Sharekhan, investor has to open an account! 'ollowingare the ways to open an account with Sharekhan! (all them at phone number

provided below and ask that you want to open an account with them!

1. Call on Toll free number: 1-800-22-7500 to speak to a Customer

Servie e!eutive

2. "f #ou are in $umbai all on 022-%%%21111

&isit one of t'eir bran'es. S'arek'an 'as a 'u(e net)ork

all over "n*ia. Clik on 'ttp:++s'arek'an.om+,oateus.asp!

t'is link to fin* out about t'eir nearest bran'. ust selet

t'e plae near #ou an* #oull fin* a mana(er to assist #ou

t'ere.

/ou an sen* t'em an mail on infos'arek'an.om to

kno) about t'eir pro*uts an* servies.

"f #ou )is' to 'at )it' ustomer servie representative

#ou an 3oin t'e 'at session.


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PART II


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(itle of the pro&ect 3ork 4"A strategic study on the #eneral $ublic viewon %quity based Investment in the current market scenario&

#ntroduction of the pro%lem 4Whenever the US sneezes, the worldcatches a cold, and this is quite evident from the fact how rest of the world

reacted to US recession. One of the major areas that were badly affectedby global recession is Stock market. n ndia also im!act of the globalrecession was felt badly. t its quite evident from the fact that our Share"arkets are touching new lows everyday. Sense# went on to touch all time!eak of $%&'( on )anuary &(, $&&(. *ut by third week of )anuary $&&(, theSense# e#!erienced huge falls along with other markets around the world onthe basis of !ossible US economy slow down. +he *S Sense# inde# wentinto a free fall and currently it is at ((-% as on $'thfeb, $&&-, when started this !roject work/. 0s for 1ifty it come down to $'23 as on $'th

4eb, $&&- from 5$-(. 0ll this means !rices of the shares are falling quitedramatically. So to sum it u! it is a crunch time for the investors and asthey have lost a huge chunk of their money,

0!art form that one of the major question that occu!ying every onemind is how long this recession going to stay. +hough analysts around theworld doing there best to !redict the market. Since no !attern seems to fitand no formulae in sync with this gra!h, one can only assume that thefundamentals are highly un!redictable. ven though our economic !olicies

may serve as a guide as to how the markets will move in the long term, thedaily swings 6 u!s and downs 6 are still an enigma. 1ews, s!eculation, insidertrading, and !ro!aganda bring about these short7term movements and thereasons for the fluctuations could be many. 0t the end of the day, it is the!eo!le who drive market. 0mong them are retail traders, who constitute $573&8 of the market. "ost of the times the numbers that we see flashingthrough the Sense# screen are genuine outcomes of economic !olicies.9owever, sometime movements are nothing but emotional numbers on how!eo!le react to a situation. So it:s very im!ortant to know the mind set of

the investors their !erce!tion toward future, because at the end of the dayit is the action and reaction of general !eo!le that drives the economy. 4rommarketing !oint of view it:s very hard time for shares firms to convincethere client to invest in such a scenario when overall economy is slowing downand investor around the world in is buried in mist of fear and kee!ingthemselves away from the market that once gives them returns beyondthere e#!ectations.


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ntroduction to *toc: )ar:et

Before moving into my topic let me give a brief introduction about shares, share marketand few terms that we come across most often.

Definition

Plain and simple, a stock is a share in the ownership of a company. A stock

represents a claim on the company's assets and earnings. As you acquire more stocks,

your ownership stake in the company becomes greater. Some times different words likeshares, equity, stocks etc. are used. All these words mean the same thing.

3hy does a company issue stocks:

Now comes the question why would the founders share the profits with

thousands of people when they could keep profits to themselves? The reason is that at

some point every company needs to "raise money". To do this, companies can either

borrow it from somebody or raise it by selling part of the company, which is known as

issuing stock.

A company can borrow by taking a loan from a bank or by issuing bonds. Both methods

come under "debt financing". On the other hand, issuing stock is called equity

financing. Issuing stock is advantageous for the company because it does not require

the company to pay back the money or make interest payments along the way.

All that the shareholders get in return for their money is the hope that the shares will

someday be worth more than what they paid for them. The first sale of a stock, which isissued by the private company itself, is called the initial public offering (IPO).

It is important that you understand the distinction between a company financing

through debt and financing through equity. When a investor buy a debt investment


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such as a bond, they are guaranteed the return of their money (the principal) along with

promised interest payments.

This isn't the case with an equity investment. By becoming an owner, investor assume

the risk of the company not being successful - just as a small business owner isn'tguaranteed a return, neither is a shareholder. Shareholders earn a lot if a company is

successful in a way of dividend, but they also stand to lose their entire investment if

the company isn't successful.

So what does ownership of a company give us:

Holding a company's stock means that we are one of the many owners (shareholders) of

a company and, as such, we have a claim to everything the company owns.

This means that technically we own a tiny little piece of all the furniture, every

trademark, and every contract of the company. As an owner, we are entitled to our

share of the company's earnings as well.

These earnings will be given to us. These earnings are called dividends and are given

to the shareholders from time to time.

A stock is represented by a "stock certificate". This is a piece of paper that is proof of

our ownership. However, now-a-days we could also have a demat account. This

means that there will be no stock certificates. Everything will be done though the

computer electronically. Selling and buying stocks can be done just by a few clicks.

Being a shareholder of a public company does not mean we have a say in the day-to-day

running of the business. Instead, one vote per share to elect the board of directors ofthe company at annual meetings is all we can do. For instance, being a Microsoft

shareholder doesn't mean we can call up Bill Gates and tell him how you think the

company should be run.


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The management of the company is supposed to increase the value of the firm for

shareholders. If this doesn't happen, the shareholders can vote to have the management

removed. In reality, individual investors dont own enough shares to have a material

influence on the company. It's really the big boys like large institutional investors and

billionaire entrepreneurs who make the decisions.

For ordinary shareholders, not being able to manage the company isn't such a big deal.

After all, the idea is that don't we want to have to work to make money, right? The

importance of being a shareholder is that you are entitled to a portion of the companys

profits and have a claim on assets.

Profits are sometimes paid out in the form of dividends as mentioned earlier. The more

shares we own, the larger the portion of the profits well get. Our claim on assets is

only relevant if a company goes bankrupt. In case of liquidation, we'll receive what's

left after all the creditors have been paid.

Another extremely important feature of stock is "limited liability", which means that, as

an owner of a stock, we are "not personally liable" if the company is not able to pay its

debts.

It is important to note that there are no guarantees when it comes to individual stocks.

Some companies pay out dividends, but many others do not. And there is no obligation

to pay out dividends. Without dividends, an investor can make money on a stock only

through its appreciation of the stock price in the open market.

On the downside, any stock may go bankrupt, in which case investment is worth

nothing.

Having understood this, we now want to know what makes stock prices rise and fall.If we know this, we will know which stocks to buy.

)hat makes stock prices go *up* and *down*+


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Stock prices change every day because of market forces. By this we mean that stock

prices change because of supply and demand. If more people want to buy a stock

(demand) than sell it (supply), then the price moves up!

Conversely, if more people wanted to sell a stock than buy it, there would be greatersupply than demand, and the price would fall. (Basics of economics!)

Understanding supply and demand is easy. What is difficult to understand is what

makes people like a particular stock and dislike another stock. If we understand this,

we will know what people are buying and what people are selling. If we know this we

will know what prices go up and what prices go down!

To figure out the likes and dislikes of people, we have to figure out what news is

positive for a company and what news is negative and how any news about a company

will be interpreted by the people.

The most important factor that affects the value of a company is its earnings. Earnings

are the profit a company makes, and in the long run no company can survive without

them. It makes sense when we think about it. If a company never makes money, it isn't

going to stay in business. Public companies are required to report their earnings four

times a year (once each quarter).

Dalal Street watches with great attention at these times, which are referred to as

earnings seasons. The reason behind this is that analysts base their future value of a

company on their earnings projection. If a company's results are better than expected,

the price jumps up. If a company's results disappoint and are worse than expected, then

the price will fall.


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3hy Stocks prices 2o Up

77 +he com!any entered in to a big new contract77 0 great !ositive news coverage on the com!any in the media

77 Scientists discovered and o!ined that the !roduct is good for something im!ortant77 0 famous investor is buying shares77 =ots of !eo!le are buying shares77 0n analyst u!grades the com!any, changing her recommendation from, for instance, JbuyJto Jstrong buyJ77 Other stocks in the same industry go u!77 "ost of the stock market is u!77 0 com!etitorKs factory burns down77 +he com!any wins a lawsuit77 "ore !eo!le are buying the !roduct or service77 +he com!any e#!ands globally, and starts selling in other countries77 +he industry is JhotJ

77 !eo!le e#!ect big things for good reasons77 +he industry is JhotJ77 !eo!le donKt understand much about it, but theyKre buying anyway77 ncreasing sales and !rofits77 0 great new e#ecutive is hired to run the com!any77 0n e#citing new !roduct or service is introduced77 +he com!any is bought by another com!any77 +he com!any might be bought by another com!any77 0dditional e#citing new !roducts or services are e#!ected77 +he com!any is going to Js!in7offJ !art of itself as a new com!any77 Dumours

77 4or no reason at all


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3hy Stocks prices 2o Down

77 =ots of !eo!le are selling shares77 0 factory burns down77 Other stocks in the same industry go down77


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3hat are the Sense$ 9 the ;ifty:

The Sensex is an "index". What is an index? An index is basically an indicator. It givesyou a general idea about whether most of the stocks have gone up or most of the stocks

have gone down.

The Sensex is an indicator of all the major companies of the BSE.

The Nifty is an indicator of all the major companies of the NSE.

If the Sensex goes up, it means that the prices of the stocks of most of the majorcompanies on the BSEhave gone up. If the Sensex goes down, this tells you that the

stock price of most of the major stocks on the BSE have gone down.

Just like the Sensex represents the top stocks of the BSE, the Nifty represents the top

stocks of the NSE.

Just in case you are confused, the BSE,is the Bombay Stock Exchange and the NSEis the

National Stock Exchange. The BSEis situated at Bombay and the NSEis situated at

Delhi. These are the major stock exchanges in the country. There are other stockexchanges like the Calcutta Stock Exchange etc.In our Guwahati we have Guwahati

stock exchange, but they are not as popular as the BSEand the NSE. Most of the stock

trading in the country is done though the BSE & the NSE.

Besides Sensex and the Nifty there are many other indexes. There is an index that gives

you an idea about whether the mid-cap stocks go up and down. This is called the BSE

Mid-cap Index. There are many other types of indexes.

There is an index for the metal stocks. There is an index for the FMCG stocks. There is an

index for the automobile stocks etc.


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The Sensex has a very important function. The Sensex is supposed to be an indicator of

the stocks in the BSE. It is supposed to show whether the stocks are generally going

up, or generally going down.

To show this accurately, the Sensex is calculated taking into consideration stock prices

of 30 different BSE listed companies. It is calculated using the free-float market

capitalization method. This is a world wide accepted method as one of the best

methods for calculating a stock market index.

It is important to note that the method used for calculating the Sensex and the 30

companies that are taken into consideration are changed from time to time. This is done

to make the Sensex an accurate index and so that it represents the BSE stocks properly.

To really understand how the Sensex is calculated, we simply need to understand what

the term free-float market capitalization means. But, before we understand what

free-float market capitalization means, we first need to understand what market

capitalization means.

3hat is >market capitali/ation>:

When you are talking about mid-cap, small-cap and large-cap stocks, we are

talking about market capitalization!

Market cap or market capitalization is simply the worth of a company in terms of its

shares! To put it in a simple way, if we were to buy all the shares of a particular

company, what is the amount we would have to pay? That amount is called the

market capitalization!

To calculate the market cap of a particular company, simply multiply the current share

price by the number of shares issued by the company!


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3hat is >free4float market capitali/ation>:

Many different types of investors hold the shares of a company! The Govt. may hold

some of the shares. Some of the shares may be held by the founders or directors of

the company. Some of the shares may be held by the FDIs etc. etc!

Now, only the open market shares that are free for trading by anyone, are called the

free-float shares. When we are calculating the Sensex, we are interested in these

free-float shares!

A particular company, may have certain shares in the open market and certain shares

that are not available for trading in the open market.

According the BSE, any shares that DO NOT fall under the following criteria, can be

considered to be open market shares:

Holdings by founders/directors/ acquirers which has control element

Holdings by persons/ bodies with "controlling interest"

Government holding as promoter/acquirer

Holdings through the FDI Route

Strategic stakes by private corporate bodies/ individualsEquity held by associate/group companies (cross-holdings)

Equity held by employee welfare trusts

Locked-in shares and shares which would not be sold in the open market in normal

course.

A company has to submit a complete report about who has how many of the

companys shares to the BSE. On the basis of this, the BSE will decide the free-float

factor of the company. The free-float factor is a very valuable number! If wemultiply the "free-float factor" with the market cap of that company, we will get the

free-float market cap which is the value of the shares of the company in the open

market!

A simple way to understand the free-float market cap would be, the total cost of

buying all the shares in the open market!


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Now let us come let us discuss how do we find out the value of the Sensex at a

particular point?

First we have to find out the free-float market cap of all the 30 companies that makeup the Sensex!

Second we have to add all the free-float market caps of all the 30 companies!

Third well Make all this relative to the Sensex base. The value you get is the Sensex

value! For example suppose, for a free-float market cap of Rs.100, 000 Cr... the

Sensex value is 4000

Then, for a free-float market cap of Rs.150,000 Cr... the Sensex value will be.. The

Sensex value will be 6000 if the free-float market cap comes to Rs.150,000 Cr!

It is important to note that Every time one of the 30 companies has a stock split or a

"bonus" etc. appropriate changes are made in the market cap calculations.

Now, there is only one question left to be answered, which 30 companies, why those 30

companies, why no other companies?

The 30 companies that make up the Sensex are selected and reviewed from time to timeby an index committee. This index committee is made up of academicians, mutual

fund managers, finance journalists, independent governing board members and other

participants in the financial markets.

The main criteria for selecting the 30 stocks is as follows:

Market capitali/ationThe Company should have a market capitalization inthe Top 100 market capitalizations of the BSE. Also the market capitalization of each

company should be more than 0.5% of the total market capitalization of the Index.


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(rading fre?uencyThe company to be included should have been traded on eachand every trading day for the last one year. Exceptions can be made for extreme reasons

like share suspension etc.

;um%er of tradesThe scrip should be among the top 150 companies listed byaverage number of trades per day for the last one year.

#ndustry representationThe companies should be leaders in their industrygroup.

isted historyThe companies should have a listing history of at least one year onBSE.

(rack recordIn the opinion of the index committee, the company should have anacceptable track record.

Here are the full lists of companies that have been part of

the BSE Sensex since its inception in 1986 (baseline to

1979). (s of !anuar" 1#$ #%%9)

Co%e Name "ector A%j. 6actor

500910 A## :ousing Related 0.55

50010; B:) #a%ital 4oods 0.;5

5;


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500;00 4rasi* (ndustries Di-ersi'ied 0.=5

500010 :D# inance 0.5

50010 :D# Ban> inance 0.5

500990 :indalco (ndustries Metal? Metal Products @ Mining 0.=0

500!"! :industan e-er i*ited M#4 0.50

5; inance 1.00

500


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500"00 Sterlite (ndustries Metal? Metal Products? and Mining 0.90

5


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*olumns 9 B 5B43eek


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*olumn E (rading Folume 4This figure shows the total number of sharestraded for the day, listed in hundreds. To get the actual number traded, add "00" to the

end of the number listed.

*olumn G 9 ! Day


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(he +ears 4A bear market is when the economy is bad, recession is looming andstock prices are falling. Bear markets make it tough for investors to pick profitable

stocks. One solution to this is to make money when stocks are falling using a technique

called short selling. Another strategy is to wait on the sidelines until we feel that the

bear market is nearing its end, only starting to buy in anticipation of a bull market. If aperson is pessimistic, believing that stocks are going to drop, he or she is called a "bear"

and said to have a "bearish outlook".

%&ectives 6Objective of this research studies is to find out the ;eneral


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1or secondary sources

nternet )ournals and 1ews!a!er

*ooks.C8esearch approaches Out of the five ty!es of Desearch a!!roaches thefollowing three a!!roaches are used.

Observation research Survey research 0nalytical research

8esearch #nstrument *asically questionnaires are used as researchinstrument.

Sample unit Sam!le unit for this survey is com!osed of ;overnmentem!loyees, 1on ;overnment m!loyees,


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naly/e 9 1indings

Analysis has been done on the basis o' res%onse %ro-ided by the res%ondent 7ith the hel%o' uestionnaire. Necessary diagra*s li>e bar diagra*? %ie chart etc. has been used to

ha-e a better understanding and -ie7 o' the re%ort. $hen an inde%th study is conducted

to analysis the (ndian stoc> *ar>et.


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nalysis of Market Survey

+hese major findings are based on the analysis of the collected data for the!ur!ose of the !roject study. +he following are the findings7

t is interesting to know that only F 8 is of !eo!le have heard about sharekhan before. which is terribly low.

9o


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t is found that insurance seems to be most favorable investmentchoice of most of the res!ondent, and one of the main reasons may be thelow risk involved in this kind of investment, and another !rime reason forinvesting in insurance is ta# benefits. t seems


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t is observed that !eo!le s!ecially the salary class get insurance!olicy not mainly because of investment !ur!ose but !rimarily to save ta#. nan attem!t to find out the awareness among !eo!le whether they know thatthere are other investment scheme that offer ta# benefit it seems 25 8 of

the res!ondent already know about it. One of the reason may be the mutualfund agents are already !laying there !art in wooing investor toward "utual4und. So now we can say that the investment trend which seems to bensurance is now moving toward "utual 4und and it will move toward equitybased investment only if it can give something better then "utual 4und.

1e*

6-D

9o

5-D


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*omparison of #nsurance, Mutual 1und 9 Shares

#nsurance Mutual 1und )?uity

Disk 1il 9igh 9igh

Deturns =ow "edium 9igh

+a# benefits M M H MHH

H Mutual fund offer ta benefit only in few selected schemes andwith a lock period of C years'HH nly dividend received form #ndian *ompany are ta$ free'

4rom the above table it is clear that there is no other investmentthat gives higher return then investment in equity. *ut on negative side itmore risky and does not offer any ta# benefits like the insurance and onother hand in com!ression to "utual fund it si as risky as equity becausemost mutual fund invest in equity to give higher returns but it loss out to"utual 4und as some schemes offer ta# benefits. So if we leave out ta#benefits there are no other investment that is as fruit full as equity. Only

if you invest smartly/


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t is seen for last $& years ndian Stock market on average giving returnsaround $&8. 9igh return is only factor that should attract the investor toinvestment in share market and generally most annalist and share firm try toout !erform an average return that market offer and they claim that they

can give 3& 6 F& 8 return !er annum which though not guaranteed but seemsquite !ossible. 1ow question is 7 are !eo!le aware of this and this is howres!ondent res!onse to the above question

9o

-7D

1e*

E5D

0ercentage of respondent %elieve that they can earn C! "! I returns

F3 8 of res!ondent believe that they can earn return u!to F&8 in a year. +his seems to be quite a high !ercentage, in com!ressionto !ercentage of !eo!le invested in shares even after knowing that

they can e#!ect to earn such a high returns.


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1ow it will be interesting to find out what are the factors that are kee!ingaway investors from investing in share and this is how res!ondent reacted.

&E

6"

5s. and someare even worth paise. &ut the price of the stock is not important. *he price ofthe stock does not make a stock good to !uy. =hat is important is how much theprice of the stock is likely to rise.

If we invest >s. in one stock of >s. and the price goes up to >s.; wewill make >s.;. 5owever, if we invest >s. in a >s.- stock, we will have stocks. If the price of the stock goes up from >s. - to >s.9, then the >s. weinvested is now >s.-.and we made a profit of >s..

So the price of the stock is not important. =hat is important is the rise in thestock"s price. 8ore specifically the @percentageA rise in the stock price isimportant.

If the >s. stock !ecomes worth >s.;, then that is a EF rise. *his EF riseonly makes us >s.;. 1n the other hand when we invest the same >s. in the

>s. - stock and the stock price goes up to >s.9, it is a -F rise as the stockprice has dou!led. *his -F rise makes us >s..

*he point is that when picking a company, we are interested in a company whosestock price will rise !y a large percentage.

&ut one important thing looking at the a!ove paragraphs, it may seem like a goodidea to !uy all the really cheap >s. - and >s.9 stocks hoping that their pricewill rise !y -F or more. *his sounds good, !ut it can also !e really really !adsome timesC *hese really small stocks are very volatile and unless one knowwhat we are doing, do it is !etter not to get into them.

5owever, the point to !e noted is that we are interested in stocks that will havethe highest F rise in the stock price. ow the $uestion is, how do you comparestocks. 5ow do you compare a stock worth >s. to a stock worth >s. - andfigure out which one will have a higher percentage rise.


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5ow do we compare two companies that are in different fields and differentindustries6 5ow do we know which one is fundamentally strong and which one isweek6

If we try to compare two companies in different industries and different customers

it is like comparing apples and elephants. *here is no way to compare themCSo fundamental analysts use different tools and ratios to compare all sorts ofcompanies no matter what !usiness they are in or what they doC

e%t let me get into the tools and ratios that tell will a!out the companies andtheir comparison....

Earning* per *hare 0EP24 ratio

'ven comparing the earnings of one company to another really doesn"t make any

sense 'arnings will tell us nothing a!out how many shares the company has.&ecause we do not know how many shares a company has, we do not know howmany parts that companies earnings have to !e divided into. If the company hasmore shares, the earnings will !e divided into more parts.

3or e%ample, companies + and & !oth earn >s.-, !ut company + has -shares outstanding, so each share holder has in effect earned >s.-.

1n the other hand, if company & has shares outstanding and they too haveearned >s.- then each shareholder has earned >s.9. So it is important toknow what is the total num!er of outstanding shares are as well as the earnings.

*hus it makes more sense to look at earnings per share ('0S), as a comparisontool. =e can calculate earnings per share !y taking the net earnings and divide!y the outstanding shares.

'0S H et 'arnings 4 1utstanding Shares

So looking at the '0S ratio, we should !uy 7ompany + with an '0S of -, !ut'0S is not the only !asis of comparing two companies, !ut it is one of themethods used.

*here are three types of '0S num!ersD

*railing '0S J last year"s num!ers and the only actual '0S 7urrent '0S J this year"s num!ers, which are still proections 3orward '0S J future num!ers, which are o!viously proections

'0S doesn"t tell you whether it"s a good stock to !uy or what the market thinks ofit. 3or that information, we need to look at some other ratios.


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Price to earning 0PFE4 ratio

If there is one num!er that people look at than more any other num!er, it is the@0rice to 'arning >atio (04')A. *he 04' is a ratio that investors throw around withconfidence as if it told the complete story. 1f course, it doesn"t tell the wholestory if it does investing in share would have in much easier.

*he 04' looks at the relationship !etween the stock price and the company"searnings. *he 04' is the most popular stock analysis ratio, although it is not theonly one we should consider.

we calculate the 04' !y taking the share price and dividing it !y the company"s'0S ('arnings 0er Share that we saw a!ove)

04' H Stock 0rice 4 '0S

3or e%ampleD + company with a share price of >s.; and an '0S of E wouldhave a 04' ofD (; 4 E) H

'hat doe* PFE tell u*

Some investors read a high 04' as an @overpriced stockA.

5owever, it can also indicate the market has high hopes for this stock"s futureand has !id up the price.

7onversely, a low 04' may indicate a @vote of no confidenceA !y the market or itcould mean that the market has ust overlooked the stock. 8any investors madetheir fortunes spotting these overlooked !ut fundamentally strong stocks !eforethe rest of the market discovered their true worth.

In conclusion, the 04' tells you what the market thinks of a stock. It tells uswhether the market likes or dislikes the stock.

0'G (0rice to future growth ratioC)

*he market is usually more concerned a!out the future than the present, it isalways looking for some way to figure out what is going to happen in thecompanies future.


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Summary of fundamental analyst analysis

-. 7heck the political situation. Is it safe6 +re there pro!lems6 7ould thegovernment !e overthrown and could there !y difficulties as a conse$uence6

9. =hat is revealed !y the economic indicators6 Is the growth rate reasona!le65ave e%port improved6 5ow comforta!le is the !alance of payment position6

:. 7heck the industry or industries in company is in6 =hat is its competition65ow easy is it to enter or e%it the !usiness6

;. *hen check the company. *he factors one should look at is its managreement+nd its annual report. *he ratios should !e analy?ed and thecash flow checked.

.3inally, !efore purchasing or selling a share, check its intrinsic value.+ decisionshould only !e taken after this is done.

7alculation of Intrinsic value

5ow does one calculate the intrinsic value of a share6 Let us assume that onee%pects a return of 9F on an investment every year for : years. Let us alsoassume that the company would pay dividends of 9F, 9F and :F on its>s.- share.*he dividend received on a share would therefore !e >s.9. in thefirst year, >s.9. in the second, and >s.:. in the third. Let us also assumethat the share can !e sold at >s.9 at the end of : years. *he intrinsic value ofthe share will !eD

9 M 9. M : M 9 H >s.-9.EE-.9 (-.9)9 (-.9):

*he logic is to discount the dividend received and anticipated to !e received in3uture years and the e % p e c t e d price at a future date with the return or yield'%pected. Since the price at that future date is also considered, the possi!ility of7apital appreciation is considered and this is why this method of arriving at theintrinsic value is considered the most !alanced and fair. If the market price of the


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share is !elow >s.-9.EE then the share is !elow its intrinsic value and thereforewell worth purchasing. If, on the other hand, the market price is higher, it is a sellsignal and the share should !e sold.

In our earlier e%amples 8r. + incurred loss where 8r. & and 8r. 7 madea profit of >s. 9 and >s. / if we leave out 8r. + and 8r. & out of the picture wehave 8r. 7 who is termed as smart investors since he use scientific methods like3undamental analysis made a profit of >s. / in three year. ow let me introduceanother investor into the frame and let say 8r. N who enter the market only ayear !ack and invested in same company as 8r. c has invested !ut difference is

he made a profit of >s. - in the same year. In a same stock 8r. 7 take threeyears to earn a profit of / whereas 8r. N enter in a market where fundamentallyone shouldn"t invest as the stock already a!out to touch it"s intrinsic value andstill made more profit. ow $uestion is what his formula is. =ell formula is*echnical analysis. *here is a long argument !etween fundament annalist andtechnical analysis and what is !etter method. 5ere I"m not going to oin thatargument !ut I ust like to mention if we see the graph of any stock it has up anddown in every stages. 0rice of stock does not go up or down in a flat line and ithad movement within a trend. + technical annalist makes !est use of those smallmovements to earn more returns.


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Technical ;naly*i* ntroduction

*he methods used to analy?e securities and make investment decisions fall into two very!road categoriesD fundamental analysis and technical analysis. 3undamental analysis involves

analy?ing the characteristics of a company in order to estimate its value. *echnical analysis takesa completely different approach it doesn#t care one !it a!out the OvalueO of a company or acommodity. *echnicians (sometimes called chartists) are only interested in the price movementsin the market.

espite all the fancy and e%otic tools it employs, technical analysis really ust studiessupply and demand in a market in an attempt to determine what direction, or trend, will continuein the future. In other words, technical analysis attempts to understand the emotions in the market!y studying the market itself, as opposed to its components. If you understand the !enefits andlimitations of technical analysis, it can give you a new set of tools or skills that will ena!le you to!e a !etter trader or investor.

*he field of technical analysis is !ased on three assumptionsD

- the market discounts everything.9. 0rice moves in trends.:. 5istory tends to repeat itself.

*he 8arket iscounts 'verything

+ maor criticism of technical analysis is that it only considers price movement, ignoringthe fundamental factors of the company. 5owever, technical analysis assumes that, at any giventime, a stock#s price reflects everything that has or could affect the company includingfundamental factors. *echnical analysts !elieve that the company#s fundamentals, along with

!roader economic factors and market psychology, are all priced into the stock, removing the needto actually consider these factors separately. *his only leaves the analysis of price movement,which technical theory views as a product of the supply and demand for a particular stock in themarket.


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0rice 8oves in *rends

In technical analysis, price movements are !elieved to follow trends. *his means thatafter a trend has !een esta!lished, the future price movement is more likely to !e in the samedirection as the trend than to !e against it. 8ost technical trading strategies are !ased on thisassumption.

5istory *ends *o >epeat Itself

+nother important idea in technical analysis is that history tends to repeat itself, mainly interms of price movement. *he repetitive nature of price movements is attri!uted to marketpsychology in other words, market participants tend to provide a consistent reaction to similarmarket stimuli over time. *echnical analysis uses chart patterns to analy?e market movementsand understand trends. +lthough many of these charts have !een used for more than - years,they are still !elieved to !e relevant !ecause they illustrate patterns in price movements that oftenrepeat themselves.

*he Pse of *rend

1ne of the most important concepts in technical analysis is that of trend. *he meaning infinance isn#t all that different from the general definition of the term a trend is really nothing morethan the general direction in which a security or market is headed. *ake a look at the chart !elowD


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It isn#t hard to see that the trend in the a!ove diagram is up. 5owever, it#s not always this easy tosee a trendD

*here are lots of ups and downs in this chart, !ut there isn#t a clear indication of which directionthis security is headed.


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+ 8ore 3ormal efinition

Pnfortunately, trends are not always easy to see. In other words, defining a trend goeswell !eyond the o!vious. In any given chart, one will pro!a!ly notice that prices do not tend to

move in a straight line in any direction, !ut rather in a series of highs and lows. In technicalanalysis, it is the movement of the highs and lows that constitutes a trend. 3or e%ample,an uptrend is classified as a series of higher highs and higher lows, while a downtrend is one oflower lows and lower highs.

the a!ove diagram is an e%ample of an uptrend. 0oint 9 in the chart is the first high, which is determinedafter the price falls from this point. 0oint : is the low that is esta!lished as the price falls from the high. 3orthis to remain an uptrend, each successive low must not fall !elow the previous lowest point or the trend isdeemed a reversal.

*here are three types of trendD

Pptrend

owntrends

Sideways45ori?ontal

*rends +s the names imply, when each successive peak and trough is higher, it#s referred to

as an upward trend. If the peaks and troughs are getting lower, it#s a downtrend. =hen there

is little movement up or down in the peaks and troughs, it#s a sideways or hori?ontal trend. If

one want to get really technical, one might even say that a sideways trend is actually not a

trend on its own, !ut a lack of a welldefined trend in either direction. In any case, the market

can really only trend in these three waysD up, down or nowhere.


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*rend Lengths

+long with these three trend directions, there are three trend classifications. + trend of

any direction can !e classified as a longterm trend, intermediate trend or a shortterm trend.In terms of the stock market, a maor trend is generally categori?ed as one lasting longer than

a year. +n intermediate trend is considered to last !etween one and three months and a

nearterm trend is anything less than a month. + longterm trend is composed of several

intermediate trends, which often move against the direction of the maor trend. If the maor

trend is upward and there is a downward correction in price movement followed !y a

continuation of the uptrend, the correction is considered to !e an intermediate trend. *he

shortterm trends are components of !oth maor and intermediate trends. *ake a look a

3igure ; to get a sense of how these three trend lengths might look.

=hen analy?ing trends, it is important that the chart is constructed to !est reflect the type of trend

!eing analy?ed. *o help identify longterm trends, weekly charts or daily charts spanning a five

year period are used !y chartists to get a !etter idea of the longterm trend. aily data charts are

!est used when analy?ing !oth intermediate and shortterm trends. It is also important to

remem!er that the longer the trend, the more important it is for e%ample, a onemonth trend is

not as significant as a fiveyear trend.


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Trend line*

+ trend line is a simple charting techni$ue that adds a line to a chart to represent the

trend in the market or a stock. rawing a trendline is as simple as drawing a straight line that

follows a general trend. *hese lines are used to clearly show the trend and are also used in the

identification of trend reversals. &elow is an e%ample of time line.


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7hannels

+ channel, or channel lines, is the addition of two parallel trend lines that act as strongareas of support and resistance. *he upper trend line connects a series of highs, while the lowertrend line connects a series of lows. + channel can slope upward, downward or sideways !ut,regardless of the direction, the interpretation remains the same. *raders will e%pect a givensecurity to trade !etween the two levels of support and resistance until it !reaks !eyond one ofthe levels, in which case traders can e%pect a sharp move in the direction of the !reak. +long withclearly displaying the trend, channels are mainly used to illustrate important areas of support andresistance.

+!ove figure illustrates a descending channel on a stock chart the upper trend line has !een

placed on the highs and the lower trend line is on the lows. *he price has !ounced off of these

lines several times, and has remained range!ound for several months. +s long as the price does

not fall !elow the lower line or move !eyond the upper resistance, the range!ound downtrend is

e%pected to continue.

*he Importance of *rend

It is important to !e a!le to understand and identify trends so that you can trade with rather than

against them. *wo important sayings in technical analysis are Othe trend is your friendO and Odon#t

!uck the trend,O illustrating how important trend analysis is for technical traders.


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Support and >esistance

*he ne%t maor concept is that of support and resistance. we often hear technicalanalysts talk a!out the ongoing !attle !etween the !ulls and the !ears, or the struggle !etween

!uyers (demand) and sellers (supply). *his is revealed !y the prices a security seldom moves

a!ove (resistance) or !elow (support).

+s we can see in the a!ove 3igure, support is the price level through which a stock or marketseldom falls (illustrated !y the !lue arrows). >esistance, on the other hand, is the price level thata stock or market seldom surpasses (illustrated !y the red arrows).

=hy does it happen6

*hese support and resistance levels are seen as important in terms of market psychologyand supply and demand. Support and resistance levels are the levels at which a lot of traders arewilling to !uy the stock (in the case of a support) or sell it (in the case of resistance). =hen thesetrend lines are !roken, the supply and demand and the psychology !ehind the stock#s

movements is thought to have shifted, in which case new levels of support and resistance willlikely !e esta!lished.


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>ound um!ers and Support and >esistance

1ne type of universal support and resistance that tends to !e seen across a largenum!er of securities is round num!ers. >ound num!ers like -, 9, :, , - and -, tend!e important in support and resistance levels !ecause they often represent the maorpsychological turning points at which many traders will make !uy or sell decisions.

&uyers will often purchase large amounts of stock once the price starts to fall toward a maor round num!ersuch as >S.9 , which makes it more difficult for shares to fall !elow the level. 1n the other hand, sellersstart to sell off a stock as it moves toward a round num!er peak, making it difficult to move past this upperlevel as well. It is the increased !uying and selling pressure at these levels that makes them important pointsof support and resistance and, in many cases, maor psychological points as well.

>ole >eversal

1nce a resistance or support level is !roken, its role is reversed. If the price falls !elow a support level, thatlevel will !ecome resistance. If the price rises a!ove a resistance level, it will often !ecome support. +s theprice moves past a level of support or resistance, it is thought that supply and demand has shifted, causingthe !reached level to reverse its role. 3or a true reversal to occur, however, it is important that the pricemake a strong move through either the support or resistance.

3or e%ample, as it seen in the a!ove 3igure, the dotted line is shown as a level of resistance thathas prevented the price from heading higher on two previous occasions (0oints - and 9).5owever, once the resistance is !roken, it !ecomes a level of support (shown !y 0oints : and ;)!y propping up the price and preventing it from heading lower again.

8any traders who !egin using technical analysis find this concept hard to !elieve and don#treali?e that this phenomenon occurs rather fre$uently, even with some of the most wellknowncompanies.


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*he Importance of Support and >esistance

Support and resistance analysis is an important part of trends !ecause it can !e used to maketrading decisions and identify when a trend is reversing. 3or e%ample, if a trader identifies animportant level of resistance that has !een tested several times !ut never !roken, he or she maydecide to take profits as the security moves toward this point !ecause it is unlikely that it willmove past this level.

Support and resistance levels !oth test and confirm trends and need to !e monitored !y anyonewho uses technical analysis. +s long as the price of the share remains !etween these levels of

support and resistance, the trend is likely to continue. It is important to note, however, that a!reak !eyond a level of support or resistance does not always have to !e a reversal. 3ore%ample, if prices moved a!ove the resistance levels of an upward trending channel, the trendhas accelerated, not reversed. *his means that the price appreciation is e%pected to !e fasterthan it was in the channel.

&eing aware of these important support and resistance points should affect the way that onetrade a stock. *raders should avoid placing orders at these maor points, as the area around themis usually marked !y a lot of volatility. If one feel confident a!out making a trade near a support orresistance level, it is important that we follow this simple ruleD do not place orders directly at thesupport or resistance level. *his is !ecause in many cases, the price never actually reaches thewhole num!er, !ut flirts with it instead. So if we#re !ullish on a stock that is moving toward animportant support level, it is !etter to not place the trade at the support level. Instead, place it

a!ove the support level, !ut within a few points. 1n the other hand, if we are placing stops orshort selling, it is good to set up our trade price at or !elow the level of support.


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*he Importance 1f Qolume

=hat is Qolume6

Qolume is simply the num!er of shares or contracts that trade over a given period of time, usually a day. *hehigher the volume, the more active the security. *o determine the movement of the volume (up or down),chartists look at the volume !ars that can usually !e found at the !ottom of any chart. Qolume !ars illustratehow many shares have traded per period and show trends in the same way that prices do.

=hy Qolume is Important

Qolume is an important aspect of technical analysis !ecause it is used to confirm trends and chart patterns.

+ny price movement up or down with relatively high volume is seen as a stronger, more relevant move

than a similar move with weak volume. *herefore, if you are looking at a large price movement, you should

also e%amine the volume to see whether it tells the same story.

Say, for e%ample, that a stock umps F in one trading day after !eing in a long downtrend. Is this a sign of

a trend reversal6 *his is where volume helps traders. If volume is high during the day relative to the average

daily volume, it is a sign that the reversal is pro!a!ly for real. 1n the other hand, if the volume is !elow

average, there may not !e enough conviction to support a true trend reversal.

Qolume should move with the trend. If prices are moving in an upward trend, volume should

increase (and vice versa). If the previous relationship !etween volume and price movements

starts to deteriorate, it is usually a sign of weakness in the trend. 3or e%ample, if the stock is in an

uptrend !ut the up trading days are marked with lower volume, it is a sign that the trend is starting

to lose its legs and may soon end.


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=hen volume tells a different story, it is a case of divergence, which refers to a contradiction !etween two

different indicators. *he simplest e%ample of divergence is a clear upward trend on declining volume.

Qolume and 7hart 0atterns

*he other use of volume is to confirm chart patterns. 0atterns such as head and

shoulders, triangles, flags and other price patterns can !e confirmed with volume, in most chart

patterns, there are several pivotal points that are vital to what the chart is a!le to convey to

chartists. &asically, if the volume is not there to confirm the pivotal moments of a chart pattern,

the $uality of the signal formed !y the pattern is weakened.

Qolume 0recedes 0rice

+nother important idea in technical analysis is that price is preceded !y volume. Qolume

is closely monitored !y technicians and chartists to form ideas on upcoming trend reversals. If

volume is starting to decrease in an uptrend, it is usually a sign that the upward run is a!out to

end.

ow that we have a !etter understanding of some of the important factors of technical analysis, we can

move on to charts, which help to identify trading opportunities in prices movements.


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=hat Is a 7hart6

In technical analysis, charts are similar to the charts that you see in any !usiness setting.+ chart is simply a graphical representation of a series of prices over a set time frame. 3or

e%ample, a chart may show a stock#s price movement over a oneyear period, where each point

on the graph represents the closing price for each day the stock is tradedD

*he a!ove figure provides an e%ample of a !asic chart. It is a representation of the price movements of astock over a -. year period. *he !ottom of the graph, running hori?ontally (%a%is), is the date or time scale.1n the right hand side, running vertically (ya%is), the price of the security is shown. &y looking at the graphwe see that in 1cto!er 9; (0oint -), the price of this stock was around >s. 9;, whereas in une 9(0oint 9), the stock#s price is around >s. 9


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day"s trading condensed into one point. +gain, each point on the graph can !e simply the closing price orcan entail the open, high, low and close for the stock over the day. *hese data points are spread out overweekly, monthly and even yearly time scales to monitor !oth shortterm and intermediate trends in pricemovement.

=eekly, monthly, $uarterly and yearly charts are used to analy?e longer term trends in the movement of astock#s price. 'ach data point in these graphs will !e a condensed version of what happened over the

specified period. So for a weekly chart, each data point will !e a representation of the price movement of theweek. 3or e%ample, if you are looking at a chart of weekly data spread over a fiveyear period and each datapoint is the closing price for the week, the price that is plotted will !e the closing price on the last trading dayof the week, which is usually a 3riday.

*he 0rice Scale and 0rice 0oint 0roperties

*he price scale is on the righthand side of the chart. It shows a stock#s current price and compares it to pastdata points. *his may seem like a simple concept in that the price scale goes from lower prices to higherprices as you move along the scale from the !ottom to the top. *he pro!lem, however, is in the structure ofthe scale itself. + scale can either !e constructed in a linear (arithmetic) or logarithmic way, and !oth ofthese options are availa!le on most charting services.

If a price scale is constructed using a linear scale, the space !etween each price point (-, 9, :, ;) isseparated !y an e$ual amount. + price move from - to 9 on a linear scale is the same distance on thechart as a move from ; to . In other words, the price scale measures moves in a!solute terms and doesnot show the effects of percent change.

If a price scale is in logarithmic terms, then the distance !etween points will !e e$ual in terms of

percent change. + price change from - to 9 is a -F increase in the price while a move from

; to is only a 9F change, even though they are represented !y the same distance on a

linear scale. 1n a logarithmic scale, the distance of the -F price change from - to 9 will not

!e the same as the 9F change from ; to . In this case, the move from - to 9 is

represented !y a larger space one the chart, while the move from ; to , is represented !y a

smaller space !ecause, percentagewise, it indicates a smaller move. In 3igure 9, the logarithmic

price scale on the right leaves the same amount of space !etween - and 9 as it does !etween

9 and ; !ecause these !oth represent -F increases.


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7hart *ypes

*here are four main types of charts that are used !y investors and traders depending onthe information that they are seeking and their individual skill levels. *he chart types areD the line

chart, the !ar chart, the candlestick chart and the point and figure chart. In the following sections,we will focus on the SB0 Inde% during the period of anuary 9< through 8ay 9


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&ar 7harts

*he !ar chart e%pands on the line chart !y adding several more key pieces of informationto each data point. *he chart is made up of a series of vertical lines that represent each datapoint. *his vertical line represents the high and low for the trading period, along with the closingprice. *he close and open are represented on the vertical line !y a hori?ontal dash. *he openingprice on a !ar chart is illustrated !y the dash that is located on the left side of the vertical !ar.7onversely, the close is represented !y the dash on the right. Generally, if the left dash (open) is

lower than the right dash (close) then the !ar will !e shaded !lack, representing an up period forthe stock, which means it has gained value. + !ar that is colored red signals that the stock hasgone down in value over that period. =hen this is the case, the dash on the right (close) is lowerthan the dash on the left (open).


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0oint and 3igure 7harts

*he point and figure chart is not well known or used !y the average investor !ut it has

had a long history of use dating !ack to the first technical traders. *his type of chart reflects pricemovements and is not as concerned a!out time and volume in the formulation of the points. *hepoint and figure chart removes the noise, or insignificant price movements, in the stock, whichcan distort traders# views of the price trends. *hese types of charts also try to neutrali?ethe skewing effect that time has on chart analysis.

=hen first looking at a point and figure chart, you will notice a series of Ns and 1s. *he Ns

represent upward price trends and the 1s represent downward price trends. *here are also

num!ers and letters in the chart these represent months, and give investors an idea of the date.

'ach !o% on the chart represents the price scale, which adusts depending on the price of the

stockD the higher the stock#s price the more each !o% represents. 1n most charts where the price

is !etween >s. 9 and >s.-, a !o% represents >s. -, or - point for the stock. *he other critical

point of a point and figure chart is the reversal criteria. *his is usually set at three !ut it can also

!e set according to the chartist#s discretion. *he reversal criteria set how much the price has to

move away from the high or low in the price trend to create a new trend or, in other words, how

much the price has to move in order for a column of Ns to !ecome a column of 1s, or vice versa.

=hen the price trend has moved from one trend to another, it shifts to the right, signaling a trendchange.


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7andlestick 7harts

*he candlestick chart is similar to a !ar chart, !ut it differs in the way that it is visuallyconstructed. Similar to the !ar chart, the candlestick also has a thin vertical line showing theperiod#s trading range. *he difference comes in the formation of a wide !ar on the vertical line,which illustrates the difference !etween the open and close. +nd, like !ar charts, candlesticksalso rely heavily on the use of colors to e%plain what has happened during the trading period. +maor pro!lem with the candlestick color configuration, however, is that different sites usedifferent standards therefore, it is important to understand the candlestick configuration used atthe chart site you are working with. *here are two color constructs for days up and one for daysthat the price falls. =hen the price of the stock is up and closes a!ove the opening trade, thecandlestick will usually !e white or clear. If the stock has traded down for the period, then thecandlestick will usually !e red or !lack, depending on the site. If the stock#s price has closeda!ove the previous day"s close !ut !elow the day#s open, the candlestick will !e !lack or filled

with the color that is used to indicate an up day.

7onclusion

7harts are one of the most fundamental aspects of technical analysis. It is important that you

clearly understand what is !eing shown on a chart and the information that it provides. ow that

we have an idea of how charts are constructed, we can move on to the different types of chart

patterns.


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7hart 0atterns

+ chart pattern is a distinct formation on a stock chart that creates a trading signal, or asign of future price movements. 7hartists use these patterns to identify current trends and trend

reversals and to trigger !uy and sell signals.

I we talked a!out the three assumptions of technical analysis, the third of which was that intechnical analysis, history repeats itself. *he theory !ehind chart patters is !ased on thisassumption. *he idea is that certain patterns are seen many times, and that these patterns signala certain high pro!a!ility move in a stock. &ased on the historic trend of a chart pattern setting upa certain price movement, chartists look for these patterns to identify trading opportunities.

=hile there are general ideas and components to every chart pattern, there is no chart pattern that will tellyou with -F certainty where a security is headed. *his creates some leeway and de!ate as to what agood pattern looks like, and is a maor reason why charting is often seen as more of an art than a science.*here are two types of patterns within this area of technical analysis, reversal and continuation. + reversal

pattern signals that a prior trend will reverse upon completion of the pattern. + continuation pattern, on theother hand, signals that a trend will continue once the pattern is complete. *hese patterns can !e found overcharts of any timeframe. In this section, we will review some of the more popular chart patterns.


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7up and 5andle

+ cup and handle chart is a !ullish continuation pattern in which the upward trend has

paused !ut will continue in an upward direction once the pattern is confirmed.

+s we can see in the a!ove 3igure, this price pattern forms what looks like a cup, which ispreceded !y an upward trend. *he handle follows the cup formation and is formed !y a generallydownward4sideways movement in the security#s price. 1nce the price movement pushes a!ove

the resistance lines formed in the handle, the upward trend can continue. *here is a wide rangingtime frame for this type of pattern, with the span ranging from several months to more than ayear.


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ou!le *ops and &ottoms

*his chart pattern is another wellknown pattern that signals a trend reversal it isconsidered to !e one of the most relia!le and is commonly used. *hese patterns are formed aftera sustained trend and signal to chartists that the trend is a!out to reverse. *he pattern is createdwhen a price movement tests support or resistance levels twice and is una!le to !reak through.*his pattern is often used to signal intermediate and longterm trend rever

based investments in current market scenario

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