Stock Market Terms and Meanings “The difference

between playing the stock market and the horses is that one of the horses
must win”
- Joey Adams Bull market: - A time
of market when stocks prices are
increasing. Bull relates to the animal
due to its aggressive behavior. Bull
market is the sign of good times.
Bear Market: - A time of market when stock prices are decreasing. Bear
relates to the animal and its slow behavior. Bear market is the sign of bad
times.
Green: - Price of a stock is increasing.
Red: - Price of a stock is decreasing.
Sideways: - When the market is not up or down but flat. Sideways is when
market is trading on the same range for long time.
Trend: - Way of the market to which it’s heading. If heading up then uptrend
and if heading down then downtrend.
Shorting: - Selling of stocks. Also called short selling. Sell (stocks or other
securities or commodities) in advance of acquiring them, with the aim of
making a profit when the price falls. Shorting is selling in a future price when
price fall is expected.
Equity: - Stocks.
Derivatives: - Instruments which derive their value from other instruments
like options and future.
Day trading: - Buying a stock and selling it in the same day.
Commodities: - Goods that are traded on a separate platform. Commodities
include agricultural products and natural resources. For example menthe oil,
gold, silver, dal etc.
Diversification: - Act of cutting the investment risk by acquiring shares of
different companies operating in different sectors.
Dividend: - A portion of the company’s earnings decided to pay to its
shareholders in return to their investments. It is usually declared as a
percentage of current share price or some specified INR value, usually
decided by the board of directors of the company.
Face value: - It is the cash denomination or the amount of money the holder
of the individual security going to earn from the issuer of the security at the
time of maturity. It is also known as par value.
Index: - Index is a measurement of growth or decline in the economy.
Generally indices hold lists of shares. For example- Sensex, Nifty.
Initial Public Offering (IPO):- A company’s first issue of shares to general
public. IPOs are issued by smaller, younger companies seeking funds for
expansion and growth, but large companies also practice this to become
publicly traded companies and raise funds.
Limit Order: It’s a market order to buy or sell a share at a specified price.
The order will be executed only at the specified price. It sets a minimum
price the seller is willing to accept and maximum price the buyer is willing to
pay for it.
Market Capitalization: The total value in rupees of company’s all
outstanding shares. Market Capitalization is calculated by multiplying all the
outstanding shares with the current market price of one share. Market
Capitalization determines the company’s size in terms of its wealth.
Mutual Fund: A pool of money managed by experts by investing in stocks,
bonds and other securities with the objective of improving their savings.
These experts will create a diversified portfolio from these funds.
Portfolio: Holding of shares by any individual or institution. A portfolio may
include various types of securities of different companies operating in
different sectors.
Price Earnings (P/E) Ratio: - A ratio of companies last traded share price to
its latest reported 12 months earnings per share. For example, if the last
traded share price of any company is INR 40 and earnings over a last 12
months per share is INR 2, then the P/E ratio of that company is INR 20
(40/2).
Strike Price: - The price at which the holder of an option can buy (in case of
call option) or sell (in case of put option) the securities they hold when the
option is executed.
Yield: - Measurement of return on investments in terms of percentage of a
specific stock. It is calculated by dividing the current price of the share by
the annual dividend paid by the company for that share. For example, if the
current price of the share is 100 Rs. and the dividend paid is 5 Rs. per share
annually, then the stock yield is 5.
Dividend:- Dividend is a portion of a company’s earnings that is paid to
shareholders, or people that own company’s stock, on a quarterly or annual
basis. Not all companies give dividends.
Volume: - The number of shares of stock traded during a particular time
period, normally measured in average daily trading volume.
Volatility: - This refers to the price movements of a stock or the stock
market as a whole. Highly volatile stocks are ones with extreme daily up and
down movements and wide intraday trading ranges. This is often common
with stocks that are thinly traded, or have low trading volumes.
Demat: - Demat Account or dematerialized account provides the facility of
holding shares and securities in electronic format. During online trading,
shares are bought and held in a demat account, thus facilitating easy trade
for the users. demat account is necessary for trade/invest in markets.
Delivery: - Delivery is the final stage of a contract for the purchase or sale of
an instrument. Delivery means bought shares are actually allotted to
portfolio and are showing in Demat account.
IOC Order: - An immediate or cancel order (IOC) is an order to buy or sell a
security that must be executed immediately, and any portion of the order
that cannot be immediately filled is cancelled.
Swing Trade: - Swing trading is a type of trading for short period. Typically a
swing trade lasts two to six days.
Futures: - A futures contract is a forward contract, to buy or sell something
legally at a predetermined price at a specified time in the future.
Options: - An option is a contract that gives the buyer the right, but not the
obligation, to buy or sell an underlying asset or instrument at a specified
strike price on a specified date, depending on the type of the option.
Bonds: - A bond is a fixed investment in which an investor loans money to
an entity which borrows the funds for a defined period of time at a variable
or fixed interest rate.
How to buy stocks in Market “One of the
very nice things about investing in the stock
market is that you learn about all different
aspects of the economy. It's your window into
a very large world”
-Ron Chernow When
you are familiar with how to choose good stocks, you are ready for trading
in markets. The first step is to open a trading account. Most of the public,
private banks and some brokers provide trading accounts. They are called
brokers as they help you to buy and sell stocks in the exchange. In return
they charge a brokerage fees. Brokerage fees depends on the individual
brokers. For opening brokerage account you need to fill up KYC provided by
the broker along with documents such as pan card, address proof etc.
Brokers also charge fees on account opening depending on individual
brokerage houses. When trading account is created demat account is also
being created at the same time. For creating trading account online banking
is necessary. Make sure you have activated online banking on the bank
account you want to link to trading account.
When trading account is ready you are ready for buying shares of listed
companies. Remember, stocks can be bought or sold only on the market
hours. That means when market is functioning. Generally Indian stock
markets are open at 9 am and closed at 3 pm. So you need to buy sell during
this time. However commodities markets are open till 11 pm. When you
choose a stock you need to give buy order on the portal so that the shares
are transferred to demat account. For delivery trades shares are transferred
to the account after 3 days. Means you can sell those bought shares after
three days but not in between. For intraday trades the shares are sold on
the same day. In intraday if you don’t sell the shares it will be automatically
sold on closing time of the market. This is also called square off. Means your
position on the market is squared off. If you make any profits that will be
transferred to the bank account after t+2 days which means Trading
day+2days=3rd day of the trade. For Example-If you buy 100 shares of TATA
motors on Monday on delivery mode. You shares are actually transferred on
your demat account on Wednesday. Same is the case for transferring profits
into your bank account.

Fundamental Analysis “I think

businesses live longer that are on the stock
market”
-Brunello Cucinelli Fundamental
analysis is the way of security analysis. It’s very
broad and it actually shows the fundamental facts
of the underlying business of a stock. By having
fundamental analysis one can have idea of the
businesses and their future. If a company is called
fundamentally strong or sound that means it’s
share price may go higher and vice versa.
The biggest part of fundamental analysis involves delving into the financial
statements. Also known as quantitative analysis, this involves looking at
revenue, expenses, assets, liabilities and all the other financial aspects of a
company. Fundamental analysts look at this information to gain insight on a
company's future performance.
But there is more than just number crunching when it comes to analyzing a
company. This is where qualitative analysis comes in - the breakdown of all
the intangible, difficult-to-measure aspects of a company.
The goal of analyzing a company's fundamentals is to find a stock's intrinsic
value, a term meaning what you believe a stock is really worth – as opposed
to the value at which it is being traded in the marketplace.
The idea behind intrinsic value equaling future profits makes sense if you
think about how a business provides value for its owner. If you have a small
business, it’s worth is the money you can take from the company year after
year (not the growth of the stock). And you can take something out of the
company only if you have something left over after you pay for supplies and
salaries, reinvest in new equipment, and so on. A business is all about
profits, plain old revenue minus expenses – the basis of intrinsic value.

Some Key Tools of Fundamental Analysis are:-

1. Earnings per Share (EPS) Earnings Per Share is helpful in comparing one company to
other.
It has a formula i.e., EPS = Net Earnings / Outstanding Shares.
For example, Company A had earnings of 100 Rs. and 10 shares outstanding,
which equals an EPS of 10 (100 / 10 = 10). Company B had earnings of 100
Rs. and 50 shares outstanding, which equals an EPS of 2 (100 / 50 = 2).
In this case company A is better than B in relation to EPS. But don’t assume
Company A is good to buy as there are other factors to see also along with
EPS. The EPS is helpful in comparing one company to another, assuming
they are in the same industry.

2. Price to Earnings Ratio P/E

The price-earnings (P/E ratio) are the ratio for valuing a company that
measures its current share price relative to its per-share earnings.
The P/E ratio= Market Value per Share / Earnings per Share PE is most often
derived from the last four quarters. In general, a high P/E suggests that
investors are expecting higher earnings growth in the future compared to
companies with a lower P/E. A low P/E can indicate either that a company
may currently be undervalued or that the company is doing exceptionally
well relative to its past trends. When a company has no earnings or is
posting losses, in both cases P/E will be expressed as “N/A.” Though it is
possible to calculate a negative P/E, this is not the common convention.

3. PEG Ratio
The price/earnings to growth ratio (or PEG ratio), is a modified version of
the P/E ratio that also takes earnings growth into account. Looking for
stocks based on their PEG ratios can be a good way to find companies that
are undervalued but growing, and could gain attention in upcoming
quarters.

4. Dividend Payout Ratio

A dividend is a portion of a company’s earning which is shared or paid to the
shareholder of a company. For example if you buy 100 Tata Motors shares
and company announces dividend of 5 Rs. Then you will get 100*5=500 Rs
as dividend.
However, the dividend payout ratio is the amount of dividends paid to
stockholders relative to the amount of total net income of a company.
Normally 55%-75% are considered high.

5. Dividend Yield
Dividend yield is measuring how much cash flow you are getting for each
rupee invested in an stock position. It measures how much you are getting
from dividends. In the absence of any capital gains , the dividend yield is
effectively the return on investment for a stock.
Suppose company ABC’s stock is trading at 20Rs. and pays annual dividends
of 1Rs. per share to its shareholders. Also suppose that company XYZ’s stock
is trading at 40Rs. and also pays annual dividends of 1Rs. per share. This
means that company ABC’s dividend yield is 5% (1 / 20 = 0.05), while XYZ’s
dividend yield is only 2.5% (1 / 40 = 0.025). Assuming all other factors are
equivalent, then, an investor looking to use his or her portfolio to
supplement his or her income would likely prefer ABC's stock over that of
XYZ, as it has double the dividend yield.
Dividend yield is the financial ratio that measures the quantum of cash
dividends paid out to shareholders relative to the market value per share.

6. Price to Sales – P/S

The price-to-sales ratio is a valuation ratio that compares a company’s stock
price to its revenues. The price-to-sales ratio is an indicator of the value
placed on each dollar of a company’s sales or revenues. It can be calculated
either by dividing the company’s market capitalization by its total sales over
a 12-month period, or on a per-share basis by dividing the stock price by
sales per share for a 12-month period.
7. Book Value
Book value is the net asset value of a company. Book value is total assets
minus intangible assets (patents, goodwill) and liabilities. Book value may be
net or gross of expenses such as trading costs, sales taxes, service charges
and so on.

8. Return on Equity
Return on equity measures a corporation's profitability. It measures how
much profit a company generates with the money shareholders have
invested. It’s the amount of net income returned as a percentage of
shareholders equity.
 Technical Analysis “There is a
disconnect between the performance in stock
market and the performance in many
companies”
-John Paulson Technical Analysis is the
study of supply and demand of a stock or market
as a whole to know about the current health of
the market. Technical Analysis is evaluating
securities or stocks by statistical analysis of market
activity such as price and volume. Technical
Analysis mainly rely on chart patterns, indicators
and oscillators. Generally a combination of all
tools is also being used. A chart is a price
movement diagram of a stock.

Fig1:- SBI share chart Technical analysis is based on three assumptions:-

1. The market discounts everything.

 2. Price moves in trends.
3. History tends to repeat itself.

1. Market is already discounted in terms of future. As per market

fundamentals are already reflected in the price (charts- price,
volume, open interest) etc. This is also called efficient market
hypothesis.
2. Prices of stock can move any directions either up, down or
sideways. The market trend is simply the direction of market
prices, a concept which is absolutely essential to the success of
technical analysis.
3. Technical analysis is studying the psychology of the market.
Patterns of human behaviour have been identified and
categorized for several hundred years and are repetitive in
nature. The repetitive nature of the marketplace is illustrated
by specific chart patterns which will indicate a continuation of
or change in trend.

Volume:-
Volume is the amount of shares traded over a given period of time, usually
in a day. Volume is an important aspect of technical analysis because it is
used to confirm trends and chart patterns. Any price movement up or down
with relatively high volume is seen as stronger. If volume is starting to
decrease in an uptrend, it is usually a sign that the upward run is about to
end.

Support and Resistance:-

Support is the point which prevents the price from declining further.
Support is from where the stock price is bounced back. The support level is
always below the current market price. Generally support is the point at
which stock is good for buying.
Here is the Tata Motors stock chart of 5 years. It’s clearly seen that at 297
prices is bounced back twice. So it’s a support point. Also as the chart is
approaching on 2018 if the prices are bounced back on same price 297 then
the support point is confirmed. One can buy at these levels once the
support is confirmed.
Resistance is the price at which the price stops from further rising. The
resistance level is always above the market price. That means resistance
level or the resistance point is the highest price of the stock in a certain
amount of time.
On a different note resistance can be noted as it’s the point where selling
pressure is more than the buying pressure or supply is greater than
demand.
Here is the 5years chart of Tata Motors. We can see prices are resisted at a
price range of 570-580. We can clearly say that it’s the resistance point. Also
the price of Tata Motors was high at these levels.
Support and Resistance levels are used to trading stocks. When a support is
confirmed we buy a stock and on resistance sell the stock.
Indicators:-
Indicators are those tools which indicate to buy or sell. Indicators looks on
trends, money flow, momentum and volatility and provide a secondary
measure to actual price movements and help traders confirms quality of the
chart.
Oscillator:-
An oscillator is a technical analysis indicator that varies over time within a
band (above and below a center line, or between set levels). Oscillators are
used to discover short-term overbought or oversold conditions.

Moving Averages:-
Moving Averages are the most popular form of indicator. It’s used to
spotting correct trend. Moving averages is the average price of a stock for a
certain time period. When plotted in a chart moving averages is connected
with a line it shows the average price movement.
Here we can see 6 months Chart of Tata Motors. We can see 10 Day (Upper
line) and 21 Day (Lower Line) Moving Averages on the chart.
MACD (Moving Average Convergence Divergence):-
MACD is one of the most popular moving averages. Developed in 1970s it’s
still the most popular Indicator. The MACD is calculated by subtracting the
26-day exponential moving average (EMA) from the 12-day EMA. The MACD
fluctuates above and below the zero line as the moving averages converge,
cross and diverge. Traders can look for signal line crossovers, centerline
crossovers and divergences to generate signals. Because the MACD is
unbounded, it is not particularly useful for identifying overbought and
oversold levels.
The MACD fluctuates above and below the zero line as the moving averages
converge, cross and diverge. Traders can look for signal line crossovers,
centerline crossovers and divergences to generate signals. Because the
MACD is unbounded, it is not particularly useful for identifying overbought
and oversold levels.
Here is the Tata Motors Chart for six months. MACD line (Upper line) is seen
below.

RSI (Relative Strength Index):-

RSI is a momentum indicator which measures the speed and change of price
movements. The RSI oscillates between zero and 100. RSI is considered
overbought when above 70 and oversold when below 30. Signals can be
generated by looking for divergences. RSI is also used to identify the general
trend. In bull market or uptrend, the RSI tends to remain in the 40 to 90
range with the 40-50 zones acting as support. During bear market the RSI
tends to stay between the 10 to 60 ranges with the 50-60 zones acting as
resistance. These ranges will vary depending on the RSI settings and the
strength of the security’s or market’s underlying trend.
Here is the 1 year chart of Tata Motors. We can see the RSI line below.

On-Balance Volume (OBV):-

The On Balance Volume (OBV) line is an indicator of positive and negative
volume. A timeframes volume is positive when the close is above the prior
close. Volume is negative when the close is below the prior close. It also
considers whether volume was pushing prices up or down. The indicator
acts as a confirmation tool for price trends, and when OBV and price are
moving in opposite directions, it indicates that a price trend reversal could
soon develop.

Here is the 6 months chart of Tata Motors. OBV line seen clearly below.
Some Historical Facts of Indian Stock Market “History
proves that a smart central bank can protect the
economy and the financial sector from the nastier
side effects of a stock market collapse”
-Ben Bernanke Indian Stock
Market is regarded as one of the oldest
Stock Market in Asia. Bombay Stock
Exchange is the oldest stock exchange in
Asia. Some groups of Stock Brokers
organized themselves in 1875 and were
formally organized as Bombay Stock
Exchange (BSE). Bombay Stock
Exchange was considered as the first Stock
Exchange in the country under the
Securities Contracts (Regulation) Act by
the Government of India in 1956, .
Premchand Roychand founded the Bombay Stock Exchange. He was one of
the most renowned businessmen in 19th-century Bombay. He made fortune
in stock broking business and came to be known as the Cotton King, the
Bullion King or just the Big Bull. He was also the founder of the Native Share
and Stock Brokers Association, an institution that is now known as the BSE.
The first venue of the earliest stock broker meetings in the 1850s was in
under banyan trees - in front of the Town Hall, now the Horniman Circle.
Some years later, the brokers moved their venue under banyan tree at the
junction of Meadows Street and what is now called Mahatma Gandhi Road.
As the number of brokers increased, they had to shift from place to place.
At last, in 1874, the brokers found a permanent place. The new place was
later called Dalal Street (Brokers' Street) BSE:-
The Bombay Stock Exchange is the oldest stock exchange in Asia. It was
founded by 22 stockbrokers in 1855. The stockbrokers initially meet at
Mumbai’s town hall and years later shifted to a place under an banyan tree.
The place is today called Dalal Street and it became an official organisation
on 1874. In 1875 they named it “The Native Share & Stock Brokers
Association ” .
Initially it was an open outcry floor trading exchange but later they switched
to an electronic trading system developed by CMC Ltd. in 1995. It took the
exchange only 50 days to make this transition. This automated, screen-
based trading platform called BSE On-Line Trading (BOLT) had a capacity of
8 million orders per day. They also introduced a centralized exchange-based
internet trading system, BSEWEBx.co.in to enable investors anywhere in the
world to trade on the BSE platform. Now BSE has raised capital by issuing
shares and as on 3rd May 2017 the BSE share which is traded in NSE only
closed with Rs.999.

NSE:-
NSE was founded due to the effects of Harshad Mehta Scam. Then finance
minister Mr. Manmohan Singh felt the need of another stock exchange
other than BSE. He assigned Industrial Development Bank (IDB) to take the
initiative.
In November 1992, National Stock Exchange (NSE) was established as the
first electronically traded Stock Exchange in India. After a few years of
operations, the NSE has become the largest stock exchange in India.
Three segments of the NSE trading platform were established one after
another. The Wholesale Debt Market (WDM) commenced operations in
June 1994 and the Capital Market (CM) segment was opened at the end of
1994. Futures and Options segment began operating in 2000. NSE is
regarded as the 14th of the top 40 futures exchanges in the world.
In 1996, the National Stock Exchange of India launched S&P CNX Nifty. CNX
Nifty (Nifty = National Fifty) is a diversified index of 50 stocks from 25
different economy sectors.
In 1998, the National Stock Exchange of India launched its web-site and was
the first exchange in India that started trading stocks on the Internet in
2000. Today, NSE has roughly 66% of equity spot turnover and roughly
100% of equity derivatives turnover.

MCX:-
Established in 2003 in Mumbai the Multi Commodity Exchange of India Ltd
(MCX) is a commodity derivatives exchange. Commodity futures and options
are traded on this exchange. MCX supports options trading in gold and
futures trading in non-ferrous metals, bullion, energy, and a number of
agricultural commodities (for example Mentha oil, cardamom, crude palm
oil, cotton and others).
From September 28, 2015, MCX is being regulated by the Securities and
Exchange Board of India (SEBI). Earlier it was regulated by the Forward
Markets Commission (FMC), which got merged with the SEBI on September
28, 2015.

NCDEX:-
National Commodity & Derivatives Exchange Limited (NCDEX) is an online
commodity exchange which provides a commodity exchange platform for
derivatives. It was incorporated on 23 April 2003 under the Companies Act,
1956 and obtained its Certificate for Commencement of Business on 9 May
2003. It’s a public company and it commenced operations on 15 December
2003.

SEBI:-
In the late 1980s, new economic forces, the economic growth and currency
crisis felt the need for modernization of the financial system. Government
created the Securities and Exchange Board of India (SEBI) in 1988. SEBI
currently is the main regulatory body in the financial markets and their role
is to protect the interests of investors.

Some Facts:-

1. Bombay Stock Exchange (BSE) in India has the highest number

of listed companies in the world with an estimated 5689
companies. National Stock Exchange (NSE) of India has around
1750 companies.

2. Indians are hugely equity averse. Only 1.2% of the Indian

household financial savings is directly invested in shares
(20102011). This amounts to a laughable figure of 2.5 Billion
dollars for the entire Indian household population

3. In a country of 1.2 billion, there are only 20 Million demat

accounts and 248 portfolio managers.
 4. Foreign Institutional Investors (FIIs) hold a larger stake in listed
Indian companies (10.45%) than the combined stake of Indian
Mutual Funds (2.68%) and Indian Financial
Institutions/Insurance Companies (5.32%).

5. The National Stock Exchange (NSE) has a monopoly in the

Equity Derivatives market. It ranks very high in global rankings
for the number of contracts traded – 2nd in Stock Index
Options, 3rd in Stock Index Futures and 3rd in Single Stock
Futures. The daily turnover in the derivatives segment is
around $30 Billion.

6. Around 70% of the trading volume is done by the top 100

brokers. Algorithmic and co-location trading accounted for
about 25% of derivatives volume and around 30% of equities
volume on the NSE and BSE.

Earlier foreign citizens were prohibited from trading directly in the Indian
stock markets but since Jan 2012, these restrictions are withdrawn and now
they are permitted to invest freely.