Nature of Financial

Markets
The only certainty in financial markets is that it is
uncertain. Most of the investors take decision in such an
uncertain environment. This makes it difficult for
investors to choose the right path. Hence a great amount
of time and knowledge is required to develop the
strategies which maximize the gains of the investors by
minimizing the uncertainty in the stock markets. The
guidelines mentioned here help the decision makers as
follows :
Gather all the necessary information which is required
under different situations.
Make a list of all the possible events
Make a priority list. The sequence of arranging these
events may vary from investor to investor according to
his/her personality.

BEHAVIOURAL FINANCE MARKET STRATEGIES: Market Timing

The most difficult thing in stock market is

Timing the Market. Most bubble
creations are largely a matter of timing. If an
investor gathers the information about
the fundamental parameters and the market
response towards an industry, the investor
can create a bubble and invest just before it
begins and divest just before it bursts. This
exercise will fetch the investor maximum
returns


BEHAVIOURAL FINANCE MARKET
STRATEGIES : Buy and Hold Strategy
In buy and hold strategy, investor invest in a
particular stock by maintaining a diversified
portfolio that will be a tailor made solution
according to the return objectives and risk
tolerance of the investor.
Buy and hold strategy can further be divided
into two categories as follows:

 Passive Investment Strategy : In

this strategy the security
selection is ignored. since the
investors invest in the index
funds for asset classes. For
example ,IT Index or investment
in NIFTY
Active Investment Strategy:
This strategy involves selection
of securities with a view to

BEHAVIOURAL FINANCE MARKET STRATEGIES :

Technical Analysis as a Tool

Technical Analysis is a helpful tool in

analyzing the past trends and estimation
of future events of a stock or the market.
Technical analysis provides various
theories (for example, Dow Jones Theory,
Elliot Wave Theory) that explain that the
market moves in trends and hence, the
previous trends can provide estimation
about the upcoming trend.

 BEHAVIOURAL FINANCE MARKET STRATEGIES :

BEHAVIOURAL INDICATORS
Behavioral indicators are used to explain the reasons to
why most of the investors, who are termed as crowd
underperform, even if they copy the strategies of investment
advisors. Two leading indicators of investor behavior are
listed as follows:
Put-Call Ratio
In the option markets, the Put position is held by investors
who are bearish about the market, whereas the Call buyers
are believers in an upcoming bullish trend. Thus, a high PutCall ratio indicates pessimism in the market, whereas a low
Put-Call ratio on the other hand, implies a lot of optimism

 Moving Average
Now let Now let us consider the comparison of a 10-day
moving average of the Put-Call ratio and the Nifty Index, since
2002. When the ratio reached high levels towards the end of
the last quarter of 2002, the sentiments of the investors
started shifting from a bear perspective of market to the
expectation of the beginning of a bull phase.
BEHAVIOURAL FINANCE MARKET STRATEGIES:
Limitations of Technical Analysis
Future forecasts in technical analysis are motivated by
historical events/trends.
It provides the estimation of occurrence of future events.
All the indicators face challenges such as stock market
anomalies because of the behavioral aberrations of investors.