Stock Market Analysis

"Price is what you pay. Value is what you get." - Warren Buffett

Stock Market is an amazing place to be if one knows the right formula and secrets. But still even after knowing all the tricks and secrets, there are huge set backs that can ruin participants. Stock Market is a huge world and to know all its rules for survival can be a daunting task. Still some drives out with enormous profits while some gets hit badly with heaps of loses. So, there is a need of very scrutinized approach towards Stock Market Analysis so that loses can be minimized to the largest possible extent. 




Firstly towards Analysis is Patience. Once needs to showcase extreme patience in Stock Market. Only then can one have the right mindset to proper analysis. In this era of technological advancement, analyzing Stock Market has become very transparent and easy to realize. The competition between bull and bear is ever going and to successfully master the science behind it has become more less complex that it was compared to traditional analysis. 

Stock Market Analysis is one of the most interesting subject that one can cater to. World class Software's have made our trading much easier that before. Still, to do the right analysis, one needs to know the Trading Analysis Fundamentals, Market Participants and their roles, Market Trends and Forecasts, Technical Analysis, Fundamental Analysis, Chart Patterns etc. I have tried to capture some of the most basic and vital aspects through my posts, that should be taken care of while doing Stock Market Analysis. 

But the foremost thing that should be taken extreme caution is to have the good quality data feed. By quality standard, I mean to say the data with which analysis is being done should be standard with respect to Quality, Accuracy, Recoverability, Integrity, Stability, Simplicity, Price. But the thing is there are too many unconventional companies rising and emerging in the market and thereby fooling customers by claiming too good for nothing. Amongst them, one company I found to be very professional and customer centric is www.rtdsdata.com. With their simplistic and highly focused products and by maintaining the the optimum quality parameter, they are slowly rising to the occasion in becoming first choice for numerous traders both amateurs and experienced. The reason is simple if being comprehended. Providing 24 hours technical support adds to the cause pretty good as well. And when you have large customer base from every corner of the country, it does a world of good in maintaining levels of satisfaction. 




So, to be a successful trader, one needs to master the market with proper analysis. One needs to very cautious while selecting any data service providers. Only then can one make true success out of it.


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Market Trend and Types

What is Market Trend?

Market Trend can be defined as the overall direction of trading in the broader market on either a short- mid- or long-term basis. A trend that moves generally higher is called an uptrend, and one that moves generally lower is called a downtrend.Trends can be short- or long-term. Short term trends cycle within the broader trend, sometimes moving with it and sometimes against it. Many issues affect rises and falls in share prices, whether gradual changes or sharp spikes. The best way to understand how the market fluctuates is to study trends.

Significance of Market Trend

We all have seen how a Stock Trader buys numerous shares of a hot stock or dumps shares of a stock that has crashed or is at point of plunge. We also have seen TV commercials of many Brokerage Firms that claim to have exciting prospects and ventures and strong portfolios. And also perhaps we also have researched about a hundred different ways to predict the rise and fall of the stock market.

But the main question of how these Traders and Broker Firms predict when to buy or sell the shares, remains partially solved I would say. The truth is there is no magical or short cut way to predict the stock market behavior. There are numerous issues affect rises and falls in share prices, whether moderate changes or sharp spikes. The best way to understand how the market fluctuates is to study the market trends carefully. By recognizing a trend in the stock market or in an individual stock, we will be able to choose the best times to buy and sell.

Market Mentalities - 

Before analysis of Market Trend, we must be aware of the different Market Mentalities . Market Trends can be classified into Primary & Secondary Market Trend and Secular Market Trend

Primary Market Trends - 

A primary trend has broad support throughout the entire market (most sectors) and lasts for a year or more duration of time. Primary Market Trend can be sub-classified into Bull Market Trend & Bear Market Trend.

• Bull Market - 

Bull markets are characterized by sheer optimism, investor confidence and expectations that strong results will continue. 

A Bull Market is when the market appears to be in a long-term climb. Bull markets tend to develop when the economy is strong, the unemployment rate is low, and inflation is under control. The emotional and psychological state of investors also affects the market. For example, if investors have faith that the upward trend in stock prices will continue, they are likely to buy more stocks. If there are more buyers interested in buying shares at a given price than there are sellers who are willing to part with their shares at that price, stock prices will continue to rise. 

• Bear Market -  

Bear Markets are characterized by sheer pessimism. investor skepticism and uncertainty.

A Bear Market describes a market that appears to be in a long-term decline. Bear markets tend to develop when the economy enters a recession period, unemployment rate is high, and inflation is rising. Investors lose faith in the market as a whole, which in turn decreases the demand for stocks. Keep in mind that a sustained bear market is something that you should expect to occur from time to time, and that, in the past, the stock market has risen more than it has declined.

Secondary Market Trends

Secondary trends are short-term changes in price direction within a primary trend. The duration is a few weeks or a few months.  The two types of Secondary Market Trends are Correction and Bear Market Rally.

• Correction - 

A market correction is a secondary or short-term stock market trend where stock prices fall 5-20% over a relatively short period of time, such as a few weeks or up to several months. Corrections are generally temporary price declines interrupting an uptrend in the market (or an asset). A correction has a shorter duration than a bear market or a recession, but it can be a progenitor to either. 

Note: A bear market should not be confused with correction, which is a short-term trend that has a duration of less than two months. While corrections are often a great place for a value investor to find an entry point, bear markets rarely provide great entry points, as timing the bottom is very difficult to do.

Application - Some investors may perceive a correction as a good time to buy more shares of stocks at relatively lower prices before the bull market trend resumes. However, other investors may detect this as a new and prolonged downward trend which will continue into a full bear market trend and reduce their exposure to stocks or stock mutual funds.

• Bear Market Rally - 

A bear market rally is a sharp move up in the context of a larger bear market. It is actually a period in which prices of stocks increase during a bear market. A bear market rally is usually a short-lived market increase following a period of market decline and is followed by another period of market decline leading to a highly down trend. Bear market rallies occurred in the Dow Jones index after the 1929 stock market crash leading down to the market bottom in 1932, and throughout the late 1960's and early 1970's. Although there are no official guidelines for a bear market rally, it is sometimes defined as an overall market increase of 10-20% during an overall bear market. 

Secular Market Trends

A secular market trend is a long-term trend that lasts 5 to 25 years and consists of a series of primary trends. A secular bear market consists of smaller bull markets and larger bear markets; a secular bull market consists of larger bull markets and smaller bear markets.Secular markets are typically driven by large-scale national and worldwide events, which occur in combination. For example, wars, demographic/population shifts and governmental/political policies are all events that could drive secular markets.

Types of Market Trends - 

The direction of the trend is absolutely essential to trading and analyzing the market.

The chart depicts Upward Trend (Rise in Value)

The chart depicts Downward Trend (Fall in Value)
The chart depicts Sideways Trend (Neither Rise nor Fall)

Market Trend Classification

The chart depicts the different Trade classifications 

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Market Trend Analysis

What is Market Trend Analysis?

An aspect of technical analysis that tries to predict the future movement of a stock based on past data. Trend analysis is based on the idea that what has happened in the past gives traders an idea of what will happen in the future. 

Market trends are the upward or downward movement of a market, during a period of time. The direction of any market at any given time is either Bullish (Up), Bearish (Down), or Neutral (Sideways). " Markets move in waves", and in order to make money, a trader must catch the wave at the right time. 

Understanding the Trendlines

The chart depicts a Trendline being drawn from left of the chart to the right from the highest price peak to lower price thus displaying a Bearish Outlook

The chart here shows a trendline being drawn from left to right but the prices have been broken and not exactly collinear and are also closed above it. this phase indicates the beginning of new trend

The chart depicts the possible buying areas for Traders by the help of Trendline supporting boundaries

Channel Lines

When prices remain within two parallel Trendlines they form a Channel. When prices hit the bottom trendline this may be used as a buying area. Similarly, when prices hit the upper trendline this may be used as a selling area. So, channel lines helps traders a great deal in decision making. Waves or Patterns should be carefully noticed while doing analysis. 





Support Trend Line 

A Support Level is a price level where the price tends to find support as it is going down. Buying interest is strong enough to overcome Selling interest, keeping prices at a uninterrupted level.

Resistance Trend Line

A resistance level is the opposite of a support level. It is where the price tends to find resistance as it is going up. Selling Interest overcomes Buying interest. 

The following chart depicts the Support Trend Line and Resistance Trend Line 

Conclusion

So, Trend analysis examines data to determine if certain actions or reactions occur in a Patterned Market Trend. Trend analysis helps traders and analysts in a different way as they attempt to make predictions about Market Direction and Price Movements. But all works good when you have the right quality of Data Feed into the Analysis Platform. If quality of real time data feed is not up to mark then the analysis becomes more or less insignificant and highly risky. There are many Real Time Data Service Providers in the country but very few are among them who really maintains quality standard. Some companies like Rtdsdata.com are very good when it comes to maintaining quality standard. Besides the fact of real time data, there is also another factor of Data Recoverability that plays a vital role as well in analysis. Lost Data or Gaps in data will act as a barrier towards effective analysis. Such vital factor should not be neglected and thus Service Providers like Rtdsdata.com are gradually becoming very popular when it comes to maintaining parameters like Quality, Data Recoverability, Prompt Technical Support. So traders will have to be very cautious while choosing the right Data Service Provider.

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Currency Trading Basics

What is Currency Trading?


Currency Trading is the act of buying and selling (trading) different currencies of the world. The Foreign Exchange (or Forex) is the market that allows you to trade currencies in volume. A currency trader – whether bank, corporation, or individual – must be well acquainted and skilled in the ways of the Forex market, monitoring and acting on the subtle changes that indicate the potential for profit. 


Some Currency Trading Basics - 





How to read a Quote?

Because you are always comparing one currency to another, Forex is quoted in pairs. This may seem confusing at first, but it is actually pretty straightforward. For example, the EUR/USD at 1.5011 shows how much one euro (EUR) is worth in us dollars (USD).

What is a Lot?

A lot is the smallest trade size available. FXCM accounts have a standard lot size of 1,000 units of currency. Account holders can however place trades of different sizes, so long as they are in increments of 1,000 units like, 2,000, 3,000, 15,000, 112,000 etc.

What is a Pip?

A pip is the unit you count profit or loss in. Most currency pairs, except Japanese yen pairs, are quoted to four decimal places. This fourth spot after the decimal point (at one 100th of a cent) is typically what one watches to count "pips". Every point that place in the quote moves is 1 pip of movement. For example, if the EUR/USD rises from 1.5045 to 1.5051, the EUR/USD has risen 6 pips.

What is Leverage/ Margin?

Since, all trades are executed using borrowed money. This allows you to take advantage of leverage. Leverage of 50:1 allows you to trade with $1,000 in the market by setting aside only $20 as a security deposit. This means that you can take advantage of even the smallest movements in currencies by controlling more money in the market than you have in your account. On the other hand, leverage can significantly increase your losses. Trading foreign exchange with any level of leverage may not be suitable for all investors.

The specific amount that you are required to put aside to hold a position is referred to as your margin requirement. Margin can be thought of as a good faith deposit required to maintain open positions. This is not a fee or a transaction cost, it is simply a portion of your account equity set aside and allocated as a margin deposit.

What is Bid/ Ask Spread?

It is common for any currency pair to be quoted with both a bid and an ask price. The former, which is always a lower price than the ask, is the price at which a broker is ready and willing to buy, which is the price at which the trader should sell. The ask price, on the other hand, is the price at which the broker is ready and willing to sell, meaning the trader should jump at that price and buy.

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Currency (Foreign Exchange) Markets

What are Currency (Foreign Exchange) Markets?

• The Currency Trading Market(Forex Market) is a huge (3.2 Trillion US dollar) market where world currencies are exchanged back and forth on a daily basis. Currency Trading means buying and selling currency on the foreign exchange (or "Forex") market with the objective to make money,  

• Currencies are the money of different countries, and currency trading is the buying and selling of these currencies. There are almost as many different currencies as there are countries, but the most popular currencies for trading are the US Dollar, the Euro, the British Pound (Sterling), and the Japanese Yen. 

• The currency markets are one of the most popular day trading markets, and they therefore have some of the highest volume (number of contracts) and liquidity. This high volume and liquidity makes the currency markets attractive to all types of traders, including individual day traders, trading firms, financial and non financial companies, banks, and governments. For example, in Europe the currency in circulation is called the Euro (EUR) and in the United States the currency in circulation is called the US Dollar (USD). An example of a Forex trade is to buy the Euro while simultaneously selling US Dollar.

• Currency markets are unique as they are not traded at exchanges, but are traded directly between traders instead. 

Who trades currencies?

• Currencies are traded by individual retail investors, financial and non-financial institutions , Banks & Governments and corporations doing business. Retail investors and banks trade to earn profits and corporations usually trade in the normal course of the international business process. trades are directly between two traders (or a trader and a Forex broker). This means that there could be several different exchange rates for the same currencies, depending upon factors such as the location of the traders, and the brokers being used.

• Forex markets trade the currencies directly (rather than trading contracts), and the minimum amount that can be traded is known as a 'LOT'. The size of a lot is dependent upon the Forex broker being used. This amount is usually margined, so individual traders borrow most of the lot size from their Forex broker instead.

Popular Currency Markets  

• EUR / USD - The Euro to US Dollar exchange rate    
• GBP / USD - The British Pound to US Dollar exchange rate
• USD / JPY - The US Dollar to Japanese Yen exchange rate
• CHF / USD - The Swiss Franc to US Dollar exchange rate
• EUR / GBP - The Euro to British Pound exchange rate
• AUD / USD - The Australian Dollar to US Dollar exchange rate
• CAD / USD - The Canadian Dollar to US Dollar exchange rate
• EUR / CHF - The Euro to Swiss Franc exchange rate

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Understanding Forex Chart and it's influence

How to Read a Forex Chart

Forex traders have developed several methods for attempting to figure out the direction of a currency pair. Technical traders use charting tools and indicators to identify trends and important price points of where to enter and exit the market. But no matter what type of trader you are, you'll need to learn how to read Forex charts...

Using Candlestick Charts 

The default chart type is called a ‘candlestick' chart. This chart type is used frequently in the Forex market. A bar on a candlestick chart shows the open, close, high and low prices for the selected period. The body of the candle shows the open and close prices where the wicks show the high and low prices. 

If the closing price is higher than the opening price of the previous candle, then the candlestick will be blue. If instead the closing price is lower than the opening price of the previous candle, then the candlestick will be red. Candlesticks simply make it easier to see if the trading period ended up or down.

Adding an Indicator

Just looking at Forex charts can be helpful in making a trading decision, but many traders also use technical indicators to help them make more informed trading decisions. These tools help a trader locate price trends and predict future price movements. The trading station is equipped with over thirty popular pre-loaded indicators. Over six hundred popular and custom indicators are downloadable online. To add an indicator to a chart, right click on the chart and select ‘add indicator.

Drawing a Trend Line 

Prices trend in one of three ways: up (bull market), down (bear market) or sideways (range bound market). A trend line is used to help a trader visually recognize which trend direction is in place. Until the trend is "broken," a trader can reasonably expect the trend to continue. Trend lines are drawn with the ‘pencil' tool. Typically, when you draw a trend line, you want to connect two or more extreme high or low prices that define the trend. Here are a few examples:

 UP TREND
                                                                                                                    

DOWN TREND

   

HORIZONTAL TREND












How Currency Exchange Rate affects a nation - 

Currency Exchange rates play a vital role in a country's level of trade, which is critical to most every free market economy in the world. For this reason, exchange rates are very popularly analyzed and government manipulated economic steps. Currency Values change due to several factors. Sometimes they may change due to political and economic factors, and sometimes they react to other external changes as well. But before going into the factors, we must know how a movements in Exchange Rate influence a country's trading relationship with other country. A higher Currency rate makes a nation's exports more expensive and and Import's cheaper in the Foreign Market and vice verse. A higher exchange rate lowers the country's Balance of Trade and Balance of Payment, while a lower exchange rate would increases them.

Why does Currency Value change? 

• Inflation Levels- A country with lower Inflation Rate have rising value in Currencies as the power of purchasing increases relatively as compared to countries that are exhibiting higher Inflation Rate and vice verse. 

• Interest Rates - Interest Rates, Inflation & Exchange Rates are highly co-related with each other. Higher interest rates offer lenders in an economy a higher return compared to other countries. Thus, higher interest rates attract foreign capital and cause the exchange rate to rise and vice verse.

• Debts and Debtors - A large Debt rises Inflation levels and we know what effect does rise in Inflation levels have with Exchange Rate. A large debt usually means that the debt will be paid off with cheaper price and thus countries having large debts are less attractive to Foreign Investors.

• Trading Terms - By trading terms, we mean the ration between export price to import price. If a country's exports increase at a greater rate than it's imports, then it means that the trading terms have done well and is favorable. Hence, an increase in country's terms of trade shows a greater demand for exports, and thus increased demands for country's currency and subsequently Currency Value.

• Political Stability and Economic Performance -  Foreign investors inevitably look out for politically and economically sound countries to invest their capital. A country with such positive factors will draw more investment funds and away from other countries which are perceived to have greater political and economic risk and turmoil. 

How Currency Trading (Forex) works?

The currency exchange rate is the rate at which one currency can be exchanged for another currency. Currency market trading symbols are constructed using the two currencies that are being traded. For example, the trading symbol for the Euro to US Dollar market would be EUR/USD. Each currency market has a minimum price change (tick size), and a minimum trading amount, with which the value per minimum price change can be calculated. It is always quoted in pairs like the EUR/USD (the Euro and the US Dollar).

For example, The GBP/USD rate represents the number of US Dollars one GBP ( British Pound) can purchase. If we think that the GBP ( British Pound) will increase in value against the US Dollar, we will buy British Pounds with US Dollars. If the exchange rate rises, we will then sell the British Pounds back, making a profit. 

How risky is currency trading ? 

Currency trading can be very risky indeed. 

Currencies tend to be very volatile compared to other markets. The real key to success with currency trading is to use efficient risk management strategies to keep a control of the above mentioned factors that influences exchange rates. There are many components to effective currency risk management, but the bottom line is to use caution and have a trading plan.

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