a strategic study on the general public view on equity based

8/12/2019 A Strategic Study on the General Public View on Equity Based

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Third Eye collegeH.B Road, Panbaza, Kalpataru Buliding

Guwahati 7!""!, #$ $ode % "&7&

Submitted by,

ame - 'ilabh (yoti )ahataRoll 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 my original work and

not submitted for any other degree, diploma, fellowship, or

any other similar title or prie!

Place Mr. Nilabh Jyoti Mahnata

Registration 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 viewon %quity based

Investment 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 certify 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 (usiness Administration of

Sikkim Manipal University of health, Medical and

technological science!

Mr' (ilabh )yoti Mahnata

)as worked under my supervision and guidance and that

no part of this report has been submitted for the award of

any degree, *iploma, fellowship or other similar titles or

pries and that the work has not been published in any

journal or Magaine!

+ertified

Mr. Abhijeet Dev

C.W.A


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ACKNOWLEDGEMENTACKNOWLEDGEMENT

I would like to epress my gratitude to all

those who gave me the possibility to complete this

project work! I like to thank Sikkim Manipal

University and management of 'hird %ye +ollege for

introducing this project work into our M!(!A

program!

I-m deeply indebted to Share.han for allowing

me to conduct this project work in their esteemed

organiation, I like to specially thank Mr! Sumit

Sengupta who happened to be my $roject guide in

Sharekhan, and sparing his valuable time in helping

me out during my project work!

And lastly but not the least I am deeply

indebted to my /aculty #uide Mr! Abhjeet *ev of

third eye whose help, stimulating suggestions and

encouragement helped me in all the time duringpreparation 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 %ork

A strategic study on the #eneral $ublic

view on %quity based

Investment 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 (Whenever the US sneezes, theworld catches a cold, and this is quite evident from thefact how rest of the world reacted to US recession. One ofthe major areas that were badly affected by globalrecession is Stock market. n ndia also im!act of theglobal recession was felt badly. t its quite evident fromthe fact that our Share "arkets are touching new lowseveryday. 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 marketsaround the world on the basis of !ossible US economy slowdown. +he *S Sense# inde# went into a free fall andcurrently it is at ((-% as on $'th feb, $&&-, when started this !roject work/. 0s for 1ifty it come down to$'23 as on $'th4eb, $&&- from 5$-(. 0ll this means !ricesof the shares are falling quite dramatically. So to sum it

u! it is a crunch time for the investors and as they havelost a huge chunk of their money,

0!art form that one of the major question thatoccu!ying every one mind is how long this recession goingto stay. +hough analysts around the world doing there bestto !redict the market. Since no !attern seems to fit and noformulae in sync with this gra!h, one can only assume thatthe fundamentals are highly un!redictable. ven though oureconomic !olicies may serve as a guide as to how themarkets will move in the long term, the daily swings 6 u!s

and downs 6 are still an enigma. 1ews, s!eculation, insidertrading, and !ro!aganda bring about these short7termmovements and the reasons for the fluctuations could bemany. 0t the end of the day, it is the !eo!le who drivemarket. 0mong them are retail traders, who constitute $573&8 of the market. "ost of the times the numbers that wesee flashing through the Sense# screen are genuine outcomesof economic !olicies. 9owever, sometime movements arenothing but emotional numbers on how !eo!le react to asituation. So it:s very im!ortant to know the mind set ofthe investors their !erce!tion toward future, because at

the end of the day it is the action and reaction of general!eo!le that drives the economy. 4rom marketing !oint ofview it:s very hard time for shares firms to convince thereclient to invest in such a scenario when overall economy isslowing down and investor around the world in is buried inmist of fear and kee!ing themselves away from the marketthat once gives them returns beyond there 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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esearch Methodology 6 +he research deigns has been!re!ared in such a way that the !erce!tion and view of thetarget res!ondent on investing in shares es!ecially inrelation to current scenario can be analyzed and at the endsome recommended strategies can be !oint out. Aee!ing inview the !ur!ose and im!ortance of the study, Survey studyand analytical study has been ado!ted. +he objective ofado!ting the survey study is to find out the general viewof investors of ;uwahati. Buestionnaires are !re!ared forthe target !eo!le to find out the general view of thetargeted res!ondent +he objective of analytical study is tointer!ret and analyze the current market situation.

Data sources6+o find out the general view of the !ublicabout investing in Shares


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esearch &nstrument *asically questionnaires are used asresearch instrument.

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


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1naly/e 2 .indings

Ma$or .indings

t is found that !eo!le are not aware of ShareAhan =td as

only F 8 of res!ondent heard about share khan before.Where as only $8 knew about their branch in ;uwahati.

nsurance seems to be the most !referred choice ofinvestment for !eo!le, though the trend is shiftingtoward "utual 4und may be because of +a# advantage andhigher return in com!ression to nsurance. nvestment inShare, ;old, commodities is not !referred at all.

t is interesting to know that F38 of res!ondent believethat by investing in share market they can e#!ect to earn

return as high as F& 8 annually.

t seems !eo!le are more aware of risk factors then thereward as most of the res!ondent gives unsafely and lackof knowledge as !rime reason for not investing in sharemarket.

t is found that most of the res!ondent lack knowledgeabout the fundamental mechanism of stock market.

t found that ndian stock market is still in co7

relation to the fundamentals and !rice reflects truevalueG though sometime emotion takes the market beyondits real value, but the investor who invest irrationalare the one who lose money in the share market.


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ecommendation

$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 anyinvestment decision one should analysis the market andthe client should also be asked to do so. feelfundament analysis or technical analysis are still would suggest that investor should be aware ofemotional sentiment and make themselves familiar withbehavior finance to check their own emotion and alsoof the crowd.

would highly recommended that ShareAhan start someeducational and awareness !rogram to s!read anawareness about investing in stock market, what feelis that investing in share market requires !ro!erknowledge and guidance and this something lacking fromthe share firms. 0n educational or awareness !rogramwill not only teach a investor how to invest !ro!erlybut it can be benefited to the firm in following way

One of the basic reasons for not investing share

market is !eo!le give over em!hasis to risk factorbut there is a scientific way to managed that riskso that investor get there desired returns based onthere risk taking ca!acity and most common !eo!leare not aware of it. So it is im!ortant formarketers to make investor aware of the investment!rocess and how risk can be controlled so that!eo!le feel confident about investing in shares.+here are !eo!le like Warren *uffet who over theyear creating !ortfolio for !eo!le that gives returnthat even out!erform the market, so it humanly

!ossible to out!erform the market if one has the!ro!er knowledge.

t is seen that !eo!le who have lost money in theshare market not because fundamental are wrong it isbecause they lack basic knowledge, they makeemotional based decision or they become too greedyby holding on to the stock for more then they should


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have in antici!ation of more !rofit. 1ow as amarketer one can do nothing about that, but theycertainly can and should !revent these rottenmangoes from s!oiling the whole basket. t isobserved that !eo!le have a negative attitude towardinvesting in share market because they are afraid oflosing money as they have seen other losing money,and this fear can be removed only if !eo!le becomemore aware of the market through education andawareness !rogram.

With recent downfall that feeling of unsafely isstronger then ever. 0gain as a marketer or a brokerone can:t make the economy shiny but they can conveya massage that it is a !art of the economy and thatdoesn:t mean that they have to loss money every timea recession hit the market and there are e#am!les of!eo!le making good earning even in bears market.0gain this !ossible through education and awareness!rogram.

One of the biggest advantage of this educational orawareness !rogram would be that it will create abrand image for ShareAhan which will be diffidentlygoing to hel! in long run.

t is seen that during bear market !rofit of most of

the firm come down, as volume of trading come downwhen !eo!le tend to shy away from the market. don:tknow if there is any rules or !olicy regarding shortselling, but if there are not !eo!le should beencouraged to go for short selling as it won:t harmthere !ortfolio that much because of economic slowdown 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 foundthat most of the res!ondent never heard of ShareAhanbefore. 0nd !romotional actively can be coordinatedwith educational or awareness !rogram.

;enerally it is seen that telemarketing is used togenerate lead to bring in new client to the firm whichis a age old method that firm al over the world using


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for years. *ut with changing time think it is timeto look for alternative tools, and

what feel is that !otential customer should beinvited to seminar which should be a !art ofeducation and awareness !rogram/ think this willattract a customer more and he will be motivated tomake investment when he will come to know about sharemarket, rather then sim!ly asking them whether the areinterested in investing in shares.

"y final suggestion to investor and share firm is thatif you are losing slee! due to rescission and youshouldn:t because it is just a cycle in the economyand it won:t going to last for ever, but surely itwill hit us again but the e#!erience one again formthis time certainly going to hel! for the ne#t one. Somy suggestion is to learn form this e#!erience.


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-onclusion

0fter going trough facts, finding and analysis what believe still stock market is the best investment o!tionsfor investors who are in search of high returns and thosewho want to meet their financial goals. Still it seemsinvestor from our region still !referred insurance asfavorable o!tion as it involves low risk and ta# benefits.*ut that trend is now shifting toward "utual 4und as itgives more returns in com!ression to insurance and alsogives them ta# benefitsH. t seems investment in share isstill and risky o!tion for investors as they feel unsafe.

When analysis ndian stock market found that it isstill in co relation to fundamental !rinci!les. Ies thereis a emotional as!ect that influence the market so as

investor one should be aware of this emotional as!ect andmake themselves familiar with behavior science. *ut theycan have full faith in fundamental !rinci!als to make thereinvestment decisions, and would say investment in sharesis safe o!tion if one is rational and know how marketworks. Ies !eo!le have lost money in the share market butmostly it is not because fundamental are wrong it isbecause they lack basic knowledge, they make emotionalbased decision or !urely they become too greedy buy holdingon to the stock for more then they should have. 1ow as amarketer one can do anything about that but they certainly

can and should !revent these rotten mangoes to s!oil thewhole basket as that is what observed in the res!ondent.Ies stock market is risky but not as unsafe as they !retendto and most of this fear is in mind and as result !eo!leforget that there is high reward attached to that risk. 0ndwith some much tools and method that risk can be managedaccording to individual and investing in share can be asafer then it is assumed by the !eo!le. 4or that it isadvisable for share firms to take initiative to s!earedawareness and education cam!aign to encourage !eo!le toinvest in share. When it come to marketing equity based

!roduct in our region it is like selling shoes in an islandwhere !eo!le don:t wear shoes and there is two way to lookat this situation, and if we see it !ositively it reflectthat there is a huge !otential for market develo!ment andthat is the reason share firm one after another is o!eningthere outlet here. 1ow it is u! to the res!ective firms whocan jum! on to that o!!ortunities and teach them to wearshoes.


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/A,T(


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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

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

like multiple watch lists, Integrated Banking, demat and digital contracts,

Real-time portfolio tracking with price alerts and Instant credit & transfer.

T*+ dedicated nuber- or placing ytheir order- with ytheir cell phone orlandline. Toll ree nuber/ !%""%&&%7"0". 1or people with diiculty inacce--ing the toll%ree nuber, we al-o ha2e a Reliance nuber 34their #ocal

5T6 $ode 8"8"79"" which i- charged at a- a local call.

5iple and 5ecure :nteracti2e ;oice Re-pon-e ba-ed -y-te orauthentication

'o waiting tie. Enter ytheir TP:' to be tran-erred to their telebro.8" a 3tiing- tobe e?tended -oon

Reliable -er2ice, where2er you are


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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.

harekhan Depository ervices offers

demateriali!ation services to individual

and corporate investors. "e have a teamof professionals and the latest

technological expertise dedicated

exclusively to their demat department,

apart from a national network of

franchisee, making their services #uick,

convenient and efficient.

$t harekhan, their commitment is to provide

a complete demat solution which issimple, safe and secure


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= -ingle plator or ultiple e?change B5E @ '5E 3$a-h @ 1@+,)$A, '$6EA, )utual 1und-, :P+-

)ultiple )ar


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Get e2erything you need at a 5hare


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5ow to open account with Sharekhan6

/or online trading with Sharekhan, investor has to open an

account! /ollowing are 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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/A,T((


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#itle of the pro$ect %ork ( "A strategic study on the#eneral $ublic view on %quity based Investment in the

current market scenario&

&ntroduction of the pro'lem (Whenever the US sneezes, theworld catches a cold, and this is quite evident from thefact how rest of the world reacted to US recession. One ofthe major areas that were badly affected by globalrecession is Stock market. n ndia also im!act of theglobal recession was felt badly. t its quite evident fromthe fact that our Share "arkets are touching new lowseveryday. 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 marketsaround the world on the basis of !ossible US economy slowdown. +he *S Sense# inde# went into a free fall andcurrently it is at ((-% as on $'th feb, $&&-, when

started this !roject work/. 0s for 1ifty it come down to$'23 as on $'th4eb, $&&- from 5$-(. 0ll this means !ricesof the shares are falling quite dramatically. So to sum itu! it is a crunch time for the investors and as they havelost a huge chunk of their money,

0!art form that one of the major question thatoccu!ying every one mind is how long this recession goingto stay. +hough analysts around the world doing there bestto !redict the market. Since no !attern seems to fit and noformulae in sync with this gra!h, one can only assume that

the fundamentals are highly un!redictable. ven though oureconomic !olicies may serve as a guide as to how themarkets will move in the long term, the daily swings 6 u!sand downs 6 are still an enigma. 1ews, s!eculation, insidertrading, and !ro!aganda bring about these short7termmovements and the reasons for the fluctuations could bemany. 0t the end of the day, it is the !eo!le who drivemarket. 0mong them are retail traders, who constitute $573&8 of the market. "ost of the times the numbers that wesee flashing through the Sense# screen are genuine outcomesof economic !olicies. 9owever, sometime movements are

nothing but emotional numbers on how !eo!le react to asituation. So it:s very im!ortant to know the mind set ofthe investors their !erce!tion toward future, because atthe end of the day it is the action and reaction of general!eo!le that drives the economy. 4rom marketing !oint ofview it:s very hard time for shares firms to convince thereclient to invest in such a scenario when overall economy isslowing down and investor around the world in is buried in


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mist of fear and kee!ing themselves away from the marketthat once gives them returns beyond there e#!ectations.

:ntroduction to -toc< ar


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$ll 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 is issued by the private

company itself, is called the initial public

offering (-P).

-t is important that you understand the distinction

between a company financing through debt and

financing through e#uity. "hen a investor buy a

debt investment such as a bond, they are guaranteed

the return of their money (the principal) along

with promised interest payments.

This isnt the case with an e#uity investment. %ybecoming an owner, investor assume the risk of the

company not being successful /ust as a small

business owner isnt guaranteed a return, neither

is a shareholder. hareholders 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 isnt successful.

So what does ownership of a company give us3

0olding a companys 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. $s an owner, we are

entitled to our share of the companys earnings as

well.


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These earnings will be given to us. These earnings

are called &dividends' and are given to the

shareholders from time to time.

$ stock is represented by a +stock certificate+.

This is a piece of paper that is proof of our

ownership. 0owever, nowadays we could also have a

&demat' account. This means that there will be no

&stock certificates'. 1verything will be done

though the computer electronically. elling and

buying stocks can be done /ust by a few clicks.

%eing a shareholder of a public company does not

mean we have a say in the daytoday running of the

business. -nstead, &one vote per share' to electthe board of directors of the company at annual

meetings is all we can do. 2or instance, being a

3icrosoft shareholder doesnt mean we can call up

%ill 4ates and tell him how you think the company

should be run.

The management of the company is supposed to

increase the value of the firm for shareholders. -f

this doesnt happen, the shareholders can vote to

have the management removed. -n reality, individualinvestors don5t own enough shares to have a

material influence on the company. -ts really the

big boys like large institutional investors and

billionaire entrepreneurs who make the decisions.

2or ordinary shareholders, not being able to manage

the company isnt such a big deal. $fter all, the

idea is that dont 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

company5s 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 we5ll


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get. ur claim on assets is only relevant if a

company goes bankrupt. -n case of li#uidation,

well receive whats left after all the creditors

have been paid.

$nother 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.

-t is important to note that there are no

guarantees when it comes to individual stocks. ome

companies pay out dividends, but many others donot. $nd there is no obligation to pay out

dividends. "ithout dividends, an investor can make

money on a stock only through its appreciation of

the stock price in the open market.

n the downside, any stock may go bankrupt, in

which case investment is worth nothing.

0aving understood this, we now want to know what

makes stock prices rise and fall. -f we know this,

we will know which stocks to buy.

0hat makes stock prices go 1up1 and 1down12

tock prices change every day because of market

forces. %y this we mean that stock prices change

because of &supply and demand'. -f more people want

to buy a stock (demand) than sell it (supply), then

the price moves up6

7onversely, if more people wanted to sell a stock

than buy it, there would be greater supply than

demand, and the price would fall. (%asics of

economics6)


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8nderstanding supply and demand is easy. "hat is

difficult to understand is what makes people like a

particular stock and dislike another stock. -f we

understand this, we will know what people are

buying and what people are selling. -f we know this

we will know what prices go up and what prices go

down6

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. 1arnings are the profita company makes, and in the long run no company can

survive without them. -t makes sense when we think

about it. -f a company never makes money, it isnt

going to stay in business. Public companies are

re#uired to report their earnings four times a year

(once each #uarter).

Dalal treet watches with great attention at these

times, which are referred to as earnings seasons.

The reason behind this is that analysts base theirfuture value of a company on their earnings

pro/ection. -f a companys results are better than

expected, the price /umps up. -f a companys

results disappoint and are worse than expected,

then the price will fall.


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%hy Stocks prices 4o Up

77 +he com!any entered in to a big new contract77 0 great !ositive news coverage on the com!any in the media77 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, JbuyJ to 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 JhotJ77 !eo!le e#!ect big things for good reasons77 +he industry is JhotJ77 !eo!le donKt understand much about it, but theyKre buying anyway

77 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 Dumours77 4or no reason at all


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%hy Stocks prices 4o 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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%hat are the Sense 2 the ifty3

The ensex is an +index+. "hat is an index* $n

index is basically an indicator. -t gives you a

general idea about whether most of the stocks have

gone up or most of the stocks have gone down.

The ensex is an indicator of all the ma/or

companies of the %1.

The ifty is an indicator of all the ma/or

companies of the 1.

-f the ensex goes up, it means that the prices of

the stocks of most of the ma/or companies on the %1

have gone up. -f the ensex goes down, this tells

you that the stock price of most of the ma/or

stocks on the %1 have gone down.

9ust like the ensex represents the top stocks of

the %1, the ifty represents the top stocks of the

1.

9ust in case you are confused, the %1, is the

%ombay tock 1xchange and the 1is the ational

tock 1xchange. The %1is situated at %ombay and

the 1is situated at Delhi. These are the ma/or

stock exchanges in the country. There are other

stock exchanges like the 7alcutta tock 1xchange

etc.-n our 4uwahati we have 4uwahati stock

exchange, but they are not as popular as the %1

and the 1. 3ost of the stock trading in the

country is done though the %1 : the 1.

%esides ensex and the ifty there are many other

indexes. There is an index that gives you an idea

about whether the midcap stocks go up and down.


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This is called the &%1 3idcap -ndex'. There are

many other types of indexes.

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

index for the 2374 stocks. There is an index for the

automobile stocks etc.

ow to calculate 8S9 S9S9:3

The ensex has a very important function. The

ensex is supposed to be an indicator of the stocks

in the %1. -t is supposed to show whether the

stocks are generally going up, or generally goingdown.

To show this accurately, the ensex is calculated

taking into consideration stock prices of ;6 ?'aseline to

=7=@A ?1s of Banuary C, C!!=@

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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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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5;


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-olumns 2 C+ 5C(%eek igh and *ow (These are thehighest and lowest prices at which a stock has

traded over the previous EI weeks (one year). This

typically does not include the previous days

trading.

-olumn F+ -ompany ame 2 #ype of Stock ( Thiscolumn lists the name of the company. -f there are

no special symbols or letters following the name,

it is common stock. Different symbols imply

different classes of shares. 2or example, +pf+

means the shares are preferred stock.

-olumn "+ #icker Sym'ol ( This is the uni#uealphabetic name which identifies the stock. -f youwatch financial TJ, you have seen the ticker tape

move across the screen, #uoting the latest prices

alongside this symbol.

-olumn 5+ Dividend 0er Share (This indicates theannual dividend payment per share. -f this space is

blank, the company does not currently pay out

dividends.

-olumn 6+ Dividend Gield ( The percentage return onthe dividend. 7alculated as annual dividends per

share divided by price per share.

-olumn 7+ 0rice9arnings atio (This is calculatedby dividing the current stock price by earnings per

share from the last four #uarters.

-olumn >+ #rading Holume (This figure shows thetotal number of shares traded for the day, listed

in hundreds. To get the actual number traded, add

+


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throughout the day. -n other words, these are the

maximum and the minimum prices that people have

paid for the stock.

-olumn + -lose (The close is the last tradingprice recorded when the market closed on the day.

-f the closing price is up or down more than EG

than the previous days close, the entire listing

for that stock is boldfaced.-t is important to

Keep in mind, we are not guaranteed to get this

price if we buy the stock the next day because the

price is constantly changing (even after the

exchange is closed for the day). The close is

merely an indicator of past performance and except

in extreme circumstances serves as a ballpark ofwhat we should expect to pay.

Lolumn %$> 1et Lhange 7This is the value change inthe stock price from the previous days closing

price. "hen we hear about a stock being +up for the

day,+ it means the net change was positive.

Euotes on the &nternet

owadays, its far more convenient for most to getstock #uotes off the -nternet. This method is

superior because most sites update throughout the

day and give us more information, news, charting,

research, etc.

8ull and 8ear

#he 8ulls ($ bull market is when everything inthe economy is great, people are finding /obs,

gross domestic product (4DP) is growing, and stocks

are rising. Things are /ust plain rosy6 Picking

stocks during a bull market is easier because

everything is going up. %ull markets cannot last

forever though, and sometimes they can lead to

dangerous situations if stocks become overvalued.


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-f a person is optimistic and believes that stocks

will go up, he or she is called a +bull+ and is

said to have a +bullish outlook+.

#he 8ears ($ bear market is when the economy isbad, recession is looming and stock prices are

falling. %ear markets make it tough for investors

to pick profitable stocks. ne solution to this is

to make money when stocks are falling using a

techni#ue called short selling. $nother 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. -f a person

is pessimistic, believing that stocks are going to

drop, he or she is called a +bear+ and said to havea +bearish outlook+.)'$ectives 6Objective of this research studies is to findout the ;eneral


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+ele!hone interview


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1naly/e 2 .indings

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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1nalysis of Market Survey+hese major findings are based on the analysis of thecollected data for the !ur!ose of the !roject study. +hefollowing are the findings7

t is interesting to know that only F 8 is of !eo!le haveheard about share khan before. which is terribly low.

'o

>9E

4e

FE

0ercentage of respondent heard a'out share Ihan 'efore

0nd what is more interesting is that only $ 8 form theabove know that they have a branch in ;uwahati.

'o

>E

4e

&E

0ercentage of respondent know a'out 4uwahati 'ranch of sharekhan

t is found that insurance seems to be most favorableinvestment choice of most of the res!ondent, and one of themain reasons may be the low risk involved in this kind of


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investment, and another !rime reason for investing ininsurance is ta# benefits. t seems


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t is observed that !eo!le s!ecially the salary classget insurance !olicy not mainly because of investment!ur!ose but !rimarily to save ta#. n an attem!t to findout the awareness among !eo!le whether they know that thereare other investment scheme that offer ta# benefit it seems25 8 of the res!ondent already know about it. One of thereason may be the mutual fund agents are already !layingthere !art in wooing investor toward "utual 4und. So now wecan say that the investment trend which seems to bensurance is now moving toward "utual 4und and it will movetoward equity based investment only if it can givesomething better then "utual 4und.

4e-

90E

'o

80E

-omparison of &nsurance, Mutual .und 2 Shares


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&nsurance Mutual.und

9


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t is seen for last $& years ndian Stock market onaverage giving returns around $&8. 9igh return is onlyfactor that should attract the investor to investment inshare market and generally most annalist and share firm tryto out !erform an average return that market offer and theyclaim that they can give 3& 6 F& 8 return !er annum whichthough not guaranteed but seems quite !ossible. 1owquestion is 7 are !eo!le aware of this and this is howres!ondent res!onse to the above question

'o

07E

4e-

F8E

0ercentage of respondent 'elieve that they can earn F! "! K returns

F3 8 of res!ondent believe that they can earnreturn u!to F& 8 in a year. +his seems to be quite ahigh !ercentage, in com!ression to !ercentage of!eo!le invested in shares even after knowing that theycan e#!ect to earn such a high returns.


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1ow it will be interesting to find out what are the factorsthat are kee!ing away investors from investing in share andthis is how res!ondent reacted.

&F

9"

8>

!"

F

:gno

ranc

Bn-a

.Ti,

eKno

wle

d:n.ra-tu

ct

Series-

eason for not investing in shares

2& 8 !eo!le say it is because of risk involved in

share market, 3- 8 say because of lack of knowledge, $F 8totally ignore the stock market, and rest %F 8 because oflack of time and infrastructure are the factor for notinvesting in share market.


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f they ha!!ened to be investing in shares what are thethings they we look for and this is how res!ondent reacted.

.

-.

9.

:.

;.

,.

egular

income

3inan

cialg

oals

5igh

retur

ns

Li$uid

ity

Series-

Series9

&f they had to invest they would have invested for the a'ove reasonsA

Where most of them goes for Wealth creation, =iquidityE high returns what is most sur!rising is that 2&8 of!eo!le would have invested in share to meet their finicalgoals.

n order to know how much !eo!le are aware of basic thingslike do they know that they can invest from home or officethrough internet, or !hone '' 8 res!ondent resonded thatthey are aware of it.


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'o

&8E

4e-

77E

0ercentage of respondent know that they can invest through 0hone

or internet

Same way when ask are they aware that investment in shareis most liquid from of investment which gives share a edgeobserved any from of investment and again found that '38of !eo!le have reacted !ositively

'o

&7E

4e-

78E

0ercentage of respondent know that share is very li


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'o

&0E

4e

70E

)verall response if we com'ine the a'ove two


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:gnorance

!7E

Bn-a.e

0"E

Ti,e

&E

Knowledg

e8!E

t seems unsafe is the !rime reason for not investingin shares. nvestor feels they might loss money in sharemarket and this seems to be one reason for not investing inshares, and s!ecially at a time when recession is affectingthe economy and market seems to be volatile unsafe iscertainly a cause of concerns for the !eo!le.

What interested me and feel as a !ositive sign isthat second reason for not investing is lack of knowledge.

n my earlier !art analyses why !eo!le loss money instock market, and lack of knowledge was one of the !rimefactors for making irrational investment decision andlosing money in share market, and they not only loss moneyfor themselves but also crate a notion that stock market isrisky and unsafe for investment and have a negativeinfluence on others, and !eo!le as a whole give moreim!otence to risk factors and !eo!le s!ecially from ourregion tend too kee! themselves away from the share market.

4undamentally rescission is the best time to investin stock market and they say one should buy when there is ablood in the street, and this is how smart knowledgeableinvestors invest. it is antici!ated and now !roven thatduring month of "arch and 0!ril it will be a good time tobuy stock as most of the stocks is trading in their lows orabout to make a u!ward movement so fundamentally it is a


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good time to enter the market and any knowledgeableinvestor will say that it is a good time for buying, butfrom the res!ond of the !eo!le it is found that 2- 8 of!eo!le doesn:t know this. 4rom this fact had a feelingthat !eo!le are not aware of how the market works and theytotally lack knowledge and this also one of the !rimereasons why they feel unsafe about investing in shares andtend to shy away from the market.

'o

9>E

4e

8!E

0ercentage of people 'elieves that current market situation is good for investment

What found from above analysis is that there tend tobe a fear or negative attitude toward stock market. f take from marketing !oint of view, for a share firm interms of !roduct and service share is their !roduct andservice will be to ma#imize returns of their client. *ut


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with such a negative sentiment and fear among investors itis going to be very difficult for firm to encourageinvestors to invest in market. 0s investor won:t!artici!ate in market as long as they have this fear orunsafe feeling about the market. 0s marketer of course wecan:t change the economy or make the stock market moneymaking machine again to attract client, but we cancertainly analysis and find out is it really stock marketis unsafe or it is just a !sychology of !eo!le. 4or that did a little analysis on how smart investor:s investment instock market and remain ahead of the other and how someirrational investor:s loss money and create a irrationalnegative notion that share market is unsafe and kee! othersaway.


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ow irrational investors invest in market

ow let us assume that 3r. $ is irrational investors. o

the #uestion come to our mind is who is an irrational

investor, well sometime irrational investors also termed asemotional investors. Though irrational may have other

characteristic but the basic character he inherent is he

lack proper knowledge about stock market and tend to take

investment on euphoria and on emotional sentiment.

o now let us assume that 3r $ inhernite the above

mentioned character but no matter weather one is rational

investor or emotion investor all investors have one common

character that is higher return on there investment.

upposed 3r $ and his friend 3r. % has a fixed deposit of

B


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there are other also making good money in share market. o

3r. % is little tempted so after doing a little research he

decided to withdraw his bank deposit of BIE and decided to

invest in company $ but now he have to purchase it on BEs. 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 3EP5 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 3PE 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- PE 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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+ ratio that will help you look at future earnings growth is called the 0'G ratio.

=e can calculate the 0'G !y taking the 04' and dividing it !y the proectedgrowth in earnings.

0'G H (04') 4 (proected growth in earnings)

3or e%ample, a stock with a 04' of : and proected earning growth ne%t year of-F would have a 0'G of : 4 - H 9.

*echnically speaking the lower the 0'G num!er, the less we pay for each unit offuture earnings growth. So even a stock with a high 04', !ut high proectedearning growth may !e a good value. So, to put it very simply, we are interestedin stocks with a low 0'G value.

ust for the sake of understanding, consider this situation, we have a stock with alow 04'. Since the stock is has a low 04', we start do wonder why the stock hasa low 04'. Is it that the stock market does not like the stock6 1r is it that thestock market has overlooked a stock that is actually fundamentally very strongand of good value6

*o figure this out, you look at the 0'G ratio. ow, if the 0'G ratio is !ig (or closeto the 04' ratio), you can understand that this is pro!a!ly !ecause the @proectedgrowth earningsA are low. *his is the kind of stock that the stock market thinks isof not much value.

1n the other hand, if the 0'G ratio is small (or very small as compared to the04' ratio, then we should know that it is a valua!le stock) you know that theproected earnings must !e high. 2ou know that this is the kind of fundamentallystrong stock that the market has overlooked for some reason.

&ut important fact is one must understand that the 0'G ratio relies on theproected F earnings. *hese earnings are not always accurate and so the 0'Gratio is not always accurate.

+nd in order to find out the proected growth a fundament analyst goes through indepth study of the company. +t this point it is !eyond my scope to go deep intothe various ratio or fact that fundament analyst go through !efore they come tointrinsic value of the particular stock.


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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 involvesanaly?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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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

a strategic study on the general public view on equity based

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