The A-Z Guide Of Share Market
October 14, 2018
In a share market, shares are bought and sold. The stock market is a share market, however besides shares of companies, other instruments like bonds, mutual funds and derivative contracts too are traded in the stock market.
There are two kinds of share markets:
Primary share market
A company enters the primary market to raise funds. It is in the primary market that a company gets registered to issue shares to the public and raise money
Secondary share market
In the secondary market, investors trade already listed securities by buying and selling them. Secondary market transactions are transactions where one investor buys shares from another at the prevailing price
For example: Shares of Punjab national bank are trading in the market at Rs 230 a share. An investor can buy these shares at current market price and will get part-ownership of the company and become a shareholder.
TECHNICAL ANALYSIS VS FUNDAMENTAL ANALYSIS FOR TRADING
Technical analysis is a trading discipline which is employed to evaluate investments and identify the trading opportunities by analyzing statistical trends, graphs, charts and patterns gathered from trading activity, such as price movement and volume.Technical analysts focus on patterns of price movements and trading signals
Technical analysis focuses mainly on price changes of virtually any tradable instrument that is subject to forces of demand and supply including stocks, bonds, futures and currency pairs.
There are hundreds of patterns and signals that have been developed by researchers as foundation of technical analysis trading. Technical analysts have also developed numerous types of trading systems. Commonly used technical indicators and charting patterns include trend lines, channels, moving averages.
Fundamental analysis is the study of interpreting and analyzing a business based on certain key factors like financial standing and financial health of a company. This will help us to arrive at the best value of a stock with a reasonable level and gives us the price range. However this is to be understood that the market value of the stock may vary slightly or significantly from the value we arrive at.
Some stocks sell at a premium while others sell at a discount .In general investors want to buy a stock that has good value and gives a long term return.
Following factors are considered for fundamental analysis:
• Market capitalization
• Profits after tax (PAT)
• Long term share price return
• Price earnings ratio (PER)
• Dividend yield
• Earnings per share
• Earnings before interest and tax
• Debt Equity ratio
• Available funds
• Company management
• Profits and losses
• Sales orders
• Future demand of their products
Commonly used indicators for technical analysis are:
• trend lines
• Simple moving averages
• Daily moving averages
• Exponential moving averages
• Trend analyzer
The price level of a stock drop a number of times and then bounce back up in price, this nature of stock is caused by human nature or common human reactions. It is quite interesting to watch a stock rise to a certain level each time like it is hitting a ceiling. They show up on stock charts as support and resistance levels.The resistance level is the price at which one may expect a large increase in supply whereas support level is a price at which one may expect a huge increase in demand for a stock.
The simple moving average is probably the most basic form of technical analysis. A technical analyst or a trader must be careful to avoid analysis paralysis, because there are an unlimited time frames and number of averages you can choose from.
This article is written by Mr. Kishan Soni manager of Future Wings Media that provides Share Market Course In Delhi and many other courses.