Summer Project

ONLINE TRADING AND STOCK RESEARCH TECHNIQUES

RESEARCH OBJECTIVE
To qualitatively view the prevalent analysis techniques used for selecting a Company’s stock for investment purpose.

To identify the factors to be considered while selecting a particular stock.

RESEARCH METHODOLOGY RESEARCH DESIGN EXPLORATORY DATA COLLECTION Secondary Data TOOLS USED MetaStock Period of Study 8 weeks

A Stock Exchange is an organized market for purchase and sale of existing or second hand securities. STOCK EXCHANGE

SIGNIFICANCE OF STOCK MARKETS Stock markets are true indicators of the economy of a country wherein they take into consideration factors such as GDP growth, Industrial growth, Global cues, Government policies, Budget, Inflation(WPI) and Demand & Supply to reflect the growth of the economy by showcasing the variations as fluctuations in the Index; NSE and the BSE.

Surplus capital. Speculative instincts. High risk appetite. Stock Market provides them with a platform wherein the variations in its Index levels amounts to huge gains/losses in a short span of time (minutes to several days). The quick and high returns from Stock Market lures Traders and Investors to invest. A variable RoR.
Why Invest in Stock Market?

PARTICIPANTS
An investors attitude makes him synonymous to animals in the market.
Bull – If a person is optimistic, believing that stocks are going up, he or she is called a “bull" and said to have a "bullish outlook".
Bear - If a person is pessimistic, believing that stocks are going to drop, he or she is called a "bear" and said to have a "bearish outlook".
Chicken - Chickens are afraid to lose anything. Their fear overrides their need to make profits, so they avoid the market completely and never take any risk.
Pig – Pigs are impatient, greedy, and emotional investors who blindly invest in high-risk securities without strategizing.
Traders - are those people who invest in the market with an aim to earn quick money in a short term. Investors - are people who invest their capital in a fundamentally solid company for a long term.

DOW THEORY
ELLIOTT WAVE THEORY
THEORIES OF RESEARCH

DOW THEORY
DOW THEORY
The market has three trends
Up trend, Down trend and Sideway
Major trends have 3 phase
Accumulation
A public participation
A distribution
The stock market discounts all news.
Trends are confirmed by volume

Accumulation Participation Distribution Reliance Industries 1/9/06- 29/8/08 DOW THEORY

ELLIOTT WAVE THEORY
Proposed by Ralph Nelson Elliott in the 1930s.
Market prices unfold in specific patterns known as the Fractal Pattern
5 waves up.
3 waves down.

Dominant Trend Corrective Trend Motive waves Corrective waves ELLIOTT WAVE PATTERN

ELLIOTT WAVE: A PRACTICAL EXAMPLE

Technical Analysis
Philosophy or Rationale
Market action discounts everything
Prices move in trends
History repeats itself

Candlestick charts are the oldest type of charts use for price prediction
Date back to the 1700’s,when they were used for predicting rice price
Sokuta Honma is said to have executed over 100 consecutive winning trades!!
Sakata’s method is the first verifiable beginning of pattern recognition
CANDLESTICK

CANDLESTICK PATTERN

The signals are created by the change in investor sentiment Type of Chart

White Candlestick Black Candlestick Hammer Doji Line Common Candlestick Terminology

HAMMER

Engulfing

STAR FORMATION

CANDLESTICK PATTERN Reliance Industries 4 month Chart Hanging Man Piercing Pattern Dark Cloud Crow Pattern

Support and Resistance
Trendlines
Trading Range (Channel)
Price patterns
RSI
TOOLS FOR TECHNICAL ANALYSIS

SUPPORT AND RESISTANCE

Draw a trendline through the edges of congestion areas
The most important feature of a trendline is its angle
Trendlines show the action of bulls and bears
TREND LINES

TRENDLINES

CHANNEL

Five most major reversal patterns:
Head & Shoulder
Triple top and bottom
Double top and bottom
Spike top and bottom
Rounding
PRICE PATTERNS

DOUBLE TOP

ROUNDING

RSI Relative Strength Index does not compare the relative strength of two securities, but rather the internal strength of a single security.

FUNDAMENTAL ANALYSIS
Data collected from Company’s Balance Sheet.
Factors considered:
Dividend
PAT
Reserves and Surplus
EPS
PE ratio

FURTHER RESEARCH
Fiscal Policy of Government
Varied tax slabs for different sectors
RBI’s Monetary Policy
Repo Rate
CRR
SLR
FOREX policy
Tracking Global Cues
Inflation – 5p.m every Thursday
Imported inflation
Domestic Inflation
Speculative Instincts

Contd.
Sector specific announcements
Windfall tax
Corporate Tax on IT companies
Subsidy to Agri sector
Ban on Iron Ore to control inflation
Increased export duty on metals
Re-Dollar equation
FII Turnover
Domestic turnover
Keeping a check on Commodity driven stocks
Keeping a check on Demand-Supply of Crude oil

WORLD BOURSES
The markets the world over
Japan Nikkei
China Shanghai composite
Thailand Set
India Nifty 50/Sensex
London FTSE
USA Nasdaq/Dow Jones
Brazil Bovespa
Korea Kospi

SAMPLE ANALYSIS

Inflation is receding as threat.
New problem :Liquidity and Growth
What can the banks do:
Cut interest rates
Increase liquidity
India caught in a ripple of financial crisis.
High counter party risk and thus no lenders resulting in reduced liquidity
Current Market Scenario

Bull markets are born in despair, rise in skepticism and die in mania. By- John Templeton Famous Quote

ONLINE TRADING MECHANISM
Open a DEMAT Account for Equity Trading with their Depository Participant (DP) who is their Stock Broker or the Online Trading Company registered with the Stock Exchange. Negotiate Brokerage
Requirements for opening a Demat a/c are as follows:
Fill the DEMAT Form provided by the Stock Broker.
Provide the PAN number with it.
Provide residence proof.
Draw a cheque in favour of NSCCL as the a/c opening fee.
After the DEMAT a/c has been opened and mapped to a Stock Broker’s VSAT terminal, one can commence trading.

TRADE EXECUTION
ORDER PLACING
Bids are communicated to the mainframe of the Stock Exchange.
Bid entered is first TIME stamped and then PRICE stamped.
TRADE - Stock Exchange mainframe automatically matches the orders and as soon as the price quotations are matched, Order is converted into Trade.
Trade confirmation is given to the Broker or the Client immediately.
CONTARCT NOTES are issued by the Brokerage Houses.

QUESTION AND ANSWERS

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Summer Project

by abhinav5884 on Jan 13, 2009

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