Single Candlestick

September 29, 2022July 21, 2022 by Deepanshu

Technical analysis

• Technical analysis
• Introduction
• Types of charts
• Candlesticks
• Candle sticks patterns
• Multiple candlestick Patterns
• Trading – get started
• Trading view

• Support & resistance
• Volume trading
• News and Events
• Moving averages
• Indicators
• Fibonacci Retracements
• Notes

Introduction

Firstly, A single candlestick design, as the name implies, made up of a single candle. As you may expect, the trade signal is generate based on one day’s trading activity. Trades based on a single candlestick pattern can be tremendously rewarding if the pattern is accurately identified and executed.

Secondly, When trading with candlestick patterns, one must pay attention to the length of the candle. The length represents the day’s range. The longer the candle, in general, the more intensive the buying or selling activity. If the candles are short, it indicates that the trade action was quiet.

At last, The following illustration depicts the long/short – bullish and bearish candle.

Moreover, Trades must also be fit depending on the length of the candle. Trading on muted short candles should be avoid. We shall comprehend this viewpoint as we learn about specific patterns.

The Marubozu

Importantly, The Marubozu is the first single candlestick pattern we’ll learn. In Japanese, the word Marubozu means “Bald.” We shall soon understand the terminology’s context. The bullish marubozu and the bearish marubozu are the two forms of marubozu.

Furthermore, Let us first establish the three most important candlestick rules. We discussed it in the previous chapter, and I’ve reprinted it below for your convenience:

First, Invest in strength and sell weakness.

Second, Patterns must be adaptable (verify and quantify)

Third, Look for the previous pattern.

Surely, Marubozu is likely the only candlestick pattern that breaches guideline number three, which is to look for a past trend. A Marubozu can emerge anywhere on the chart, regardless of the previous trend, and the trading implications are the same.

Definitely, Marubozu defines in the textbook as a candlestick with no upper and lower shadows (therefore appearing bald). As depicted below, a Marubozu possesses only the true body. There are, however, exceptions. We will investigate these exceptions as soon as possible.

Without a doubt, The bearish marubozu represents the red candle, while the bullish marubozu represents the blue candle.

Bullish Marubozu

Undoubtedly, In a bullish marubozu, the lack of the upper and lower shadows indicates that the low is equal to the open and the high is equal to the close. As a result, whenever the Open = Low and the High = Close, a bullish marubozu forms.

Especially, A bullish marubozu suggests that there is so much purchasing interest in the stock that market participants were willing to buy it at every price point during the day so the stock closed near its day high. Whatever the previous trend was, the performance on the marubozu day implies that sentiment has shifted and the stock is now positive.

Surely, The anticipation is that this quick shift in attitude will result in a wave of bullishness, which will last for the next few trading sessions. As a result, when a bullish marubozu appears, a trader should search for purchasing chances. The buying price should be around marubozu’s closing price.

Last but not least, The circled candle in the above chart (ACC Limited) is a bullish marubozu. It’s worth noting that the bullish marubozu candle lacks an upper and lower shadow. The candle’s OHLC data is as follows: Open = 971.8, High = 1030.2, Low = 970.1, Close = 1028.4

It should be noted, Please keep in mind that the textbook definition of a marubozu is Open = Low and High = Close. However, there is a slight exception to this rule. When measured in percentage terms, the price change is little; for example, the difference between high and close is 1.8, which is 0.17 percent of high. This is where the second rule comes into play: be flexible, quantify, and verify.

Also, With the occurrence of a Marubozu, the expectation has shifted to the upside, and one would be a buyer of the stock. The following is the trade setup for this:

Stoploss = 970.0 and Buy Price = Around 1028.4

As a present, candlestick patterns do not provide us with a target. However, we will return to the topic of defining goals later in this session.

As well as, When do we buy the stock after we’ve decided to buy it? The answer is dependent on your risk tolerance. For example, Assume two categories of traders with differing risk profiles: risk-takers and risk-averse traders.

Clearly, The risk taker would purchase the shares on the same day that the marubozu accepted. The trader must, however, authenticate the occurrence of a marubozu. Validation is a simple process. At 3:30 p.m., Indian markets close. So, at about 3:20 PM, check to see if the current market price (CMP) is roughly equal to the day’s high price and the day’s opening price is roughly equal to the day’s low price.

Indeed, If this condition is encounter, you can buy the stock around the closing price because the day is building a Marubozu. However, It is also important to notice that the risk-taker is buying on a bullish/blue candle day, therefore adhering to Rule 1, i.e., buying on strength and selling on weakness.

Another risk-averse trader would buy the stock the following day, that is, the day after the pattern has formed. To comply with rule number one, before purchasing the trader, confirm that the day is bullish. This means that a risk-averse buyer can only purchase the stock near the end of the day.

Besides, The disadvantage of buying the next day is that the buy price is far higher than the indicated buy price, and so the stop loss is rather large. As a result, the risk-averse trader buys only after double-checking that the bullishness is truly established.

According to the ACC’s graph above, both the risk taker and the risk-averse would have profited from their trades.

Another case in point is Asian Paints Ltd, where both the risk-taking and risk-averse traders would have profited.

Accordingly, A bullish Marubozu has encircled in the chart above. The risk-taker would have opened a deal to buy the stock near the close of the day, only to lose money the next day. On the other hand, The risk-averse, on the other hand, would have avoided purchasing the stock totally since the next day occurred to be a red candle day. According to the rule, we should only buy on blue candle days and sell on red candle days.

The Stoploss on Bullish Marubozu

What if, after purchasing, the market reverses its course and the deal fails? As I previously stated, candlestick patterns include a risk control system. In the case of a bullish marubozu, the stock’s low serves as a stop loss. If the markets go in the opposite direction after you execute a buy trade, you should quit the stock if the price breaches the marubozu low.

While Here’s an example of a bullish marubozu that qualified as a purchase for both risk-averse and risk-taking investors. O = 960.2, H = 988.6, L = 959.85, C = 988.5 is the OHLC

However, the pattern eventually collapsed, and one would have had to take a loss. The stop loss for this trade would be the Marubozu low, which is 959.85.

In addition to this, Booking a loss is a necessary element of the game. Even seasoned traders experience this. The nicest part about following the candlestick is that the losses cannot continue endlessly. Apart from this, If the transaction begins to move in the opposite direction, there is a clear agenda for what price one must get out of the deal. In this situation, taking a loss would have been the logical thing to do as the stock continued to fall.

Of course, there may be times when the stop loss trigger and you exit the trade. However, the stock may reverse course and begin to rise after you exit the deal. But, regrettably, this is part of the game and cannot keep away from. Whatever happens, the trader should follow the regulations and not look for reasons to break them.

Bearish Marubozu

Previously, Bearish Marubozu denotes excessive pessimism. In this case, the open is equal to the high and the close is equal to the low. Close = High, while Open = Low.

A bearish marubozu signifies that there is so much selling pressure in the stock that market participants sold at every price point during the day, causing the stock to close near its day low. Whatever the previous trend was, Even so, the behavior on the marubozu day implies that sentiment has shifted and the stock is now bearish.

The idea is that this abrupt shift in attitude will carry forward over the following several trading sessions, and hence shorting possibilities should consider. The selling price should be close to marubozu’s closing price.

Whereas, The circled candle in the chart above (BPCL Limited) indicates the presence of a bearish marubozu. It’s worth noting that the candle lacks an upper and lower shadow. The candle’s OHLC data is as follows:

Close = 341.7, Open = 355.4, High = 356.0, Low = 341.

As previously discussed, a tiny variance between the OHLC figures resulting in modest upper and lower shadows is acceptable as long as it is within a fair range.

Remember, once you start a trade, you should stick with it until either the target or the stop loss encounter. If you try to do something else before any of these event triggers, your trade will almost certainly fail. Staying on track with the plan is therefore critical.

Absolutely, A trade can initiate based on the individual’s risk tolerance. On the same day, around the closing, the risk-taker can initiate a short transaction. He must, of course, ensure that the candle is creating a bearish marubozu. To accomplish this at 3:20 PM, The trader must confirm whether the open is roughly equal to the high and the current market price is roughly comparable to the low. If the condition runs into, it is a bearish marubozu, and a short trade can open.

Despite, If the trader is wary of taking risks, he can wait until the next day’s close. After establishing that the day is a red candle day, the short trade will be complete at 3:20 PM the following day. This is important to guarantee that we follow the first guideline of buying strength and selling weakness.

In the BPCL chart above, both risk takers and risk-averse investors would have profited.

Moreover, Cipla Limited is another chart where the bearish marubozu has been successful for both risk-taking and risk-averse traders. Remember, these are short-term trades, and profits must book quickly.

Here’s a chart of a bearish marubozu pattern that would not have worked out for the risk-taker, but a risk-averse trader would have avoided the transaction because of rule 1.

The Trade Trap

We discussed the length of the candle earlier in this chapter. Trading should be avoided during a modest (less than 1% range) or extended candle (above 10 percent range)

A small candle implies low trading activity, making it harder to determine the trade’s direction. A lengthy candle, on the other hand, suggests high activity. The positioning of stop loss would be a difficulty with long candles. The stop loss would be high, and the penalty for paying would be severe if the deal went bad. As a result, trading on candles that are either too short or too lengthy should be avoided.

Conclusion

Remember the rules that govern how candlesticks work.
Marubozu is the sole pattern that breaks rule number three, i.e. Look for the previous pattern.
A bullish Marubozu signifies that you are bullish.
Buy near the close of a bullish Marubozu.
Maintain the Marubozu’s low as the stop loss.
A bearish Marubozu suggests that you are bearish.
Sell near the close of a bearish Marubozu.
Maintain the Marubozu’s high as the stop loss.
An ambitious trader can enter the trade the same day the pattern appears.
Risk-averse traders can place the transaction the following day, as long as it follows rule number one, i.e. buy strength and sell weakness.
Candles with unusual lengths should not be traded.
A short candle implies low activity.
Long candles imply high activity; nevertheless, setting stop loss becomes difficult.

Leverage & payoff

September 27, 2022July 21, 2022 by Bala gumber

Forward market

• Forwards market
• Futures contract
• Future trades
• Leverage & payoff
• Margin & M2M
• Margin calculator
• Open interest

How to short
• Nifty futures
• Nifty futures
• Futures pricing
• Hedging with futures
• Notes

Leverage & payoff

4.1 – A quick recap

We were able to understand the operation of futures trading with the use of the Tata Consultancy Services (TCS) example from the previous chapter. In the hypothetical futures deal, we were forced to buy Tata futures since we believed the stock price would eventually rise. Additionally, we made the decision to square off the contract for a profit the very next day. You may remember, though, that we asked a crucial question right at the start of the example. I’ll restate it here for your convenience.

The idea that TCS stock price had overreacted to the management’s announcement was the foundation of the rationale for going long on TCS. I anticipated that the stock price would rise eventually. A futures transaction was started once a directional view was created. The question was: Considering that it is expected that the stock price would increase, why bother buying futures when one could simply buy the shares on the open market?

In fact, signing a digital contract with the counterparty is a requirement for purchasing futures. A futures agreement is also time-bound, which means the directed perspective must come true within the allotted time frame. One must experience a loss if it does not materialise within the allotted time (as in the expiry). Compare this (purchasing futures) to simply purchasing stock and letting it sit in your DEMAT account. There is no time constraint or contractual duty. Why then do people actually need futures? Why is it so appealing? Why not simply purchase the stock without paying attention to the price or the time?

The financial leverage present in all financial derivatives, including futures, provides the answers to all of these queries. Leverage, as they say, is a true financial innovation that can produce wealth if applied appropriately. Let’s quickly examine this aspect of futures trading.

4.2 – Leverage in perspective

We all employ leverage at some point or another in our lives. We don’t approach it the right way when we think about it. We fail to see behind the numbers and, as a result, never fully understand leverage.

This is a prime illustration of leverage, and many of you may be able to identify.

My friend is a real estate trader; he enjoys purchasing homes, land, and structures to hold onto for a while before selling them. He thinks this is preferable to trading stocks, and I beg to differ. We could argue about this for hours, but maybe another time.

Anyway, below is a synopsis of a recent real estate deal he completed. Popular builders in Bangalore, Prestige Builders, located a plot of land in South Bangalore in December 2013. They revealed a brand-new undertaking: an opulent residential building with cutting-edge features. For the price of Rs. 11,000,000/-, my friend jumped in and reserved a two-bedroom, hall, and kitchen apartment that was supposed to be built on the ninth level. By the middle of 2018, the project is supposed to be finished. The prospective purchasers only needed to pay 10% of the actual buy value because the flat had just been notified and no work had begun. When it comes to purchasing brand-new apartments, this is essentially the standard. Scheduled for payment was the remaining 80%.

So, in December 2013, my friend was able to purchase a house worth Rs. 11,000,000 for an initial financial outlay of Rs. 11,000,000 (10 percent of 11,000,000). In fact, the property was so popular that it only took two months after Prestige Builder announced the brand-new project for all 120 flats to be snapped up like hotcakes.

When December 2014 rolled around, my friend’s apartment had a potential buyer. My acquaintance, who trades real estate, seized the chance. A brief survey found that the area’s real estate had increased in value by at least 25% (well, that’s how crazy Bangalore real estate is there). My friend’s apartment, which was on the ninth floor, was now worth Rs. 12,500,000. The sale price was agreed upon by my friend and the prospective buyer at Rs. 12,500,000.

It is obvious that not much about this deal stands out.

By contributing just 10% of the transaction value, my friend was able to take part in a significant deal.
My acquaintance had to pay 10% of the total amount to participate in the transaction (call it the contract value)
In terms of the “Futures Agreement,” the initial value he pays (10 lakhs) can be viewed as a token advance, or it would be the initial margin deposit.
A slight change in asset value has a significant influence on return.
It should be clear that a 25% rise in asset value led to a 250% return on investment.
This kind of transaction is known as a “Leveraged Transaction.”

Because all futures transactions are leveraged, please make sure you fully comprehend this example. It is extremely similar to a futures trade. As we return to the TCS trade, do remember this scenario in perspective.

4.3 – The Leverage

Let’s rework the TCS example with additional specifics because we previously examined the overall framework of the futures contract. The transaction information is as follows for the sake of simplicity: We’ll assume there’s a chance to purchase TCS on December 15 at a price of Rs. 2362 per share. Furthermore, we’ll presume that the opportunity to square off this position at Rs. 2519 on December 23rd presents itself. Additionally, we’ll presumptively find no distinction between the spot and futures prices.

With Rs. 100,000 in hand and a strong outlook for the price of TCS stock, we must choose between Option 1 — buying TCS stock on the open market — and Option 2 — buying TCS futures from the derivatives market. Let’s assess each choice in order to comprehend its dynamics.

Option 1: Purchase TCS shares on the open market.

We must determine the price at which TCS is trading on the spot market and determine how many other equities we can afford to purchase (with the capital at our disposal). It takes at least two working days (T+2) after purchasing the stock on the spot market for the funds to be credited to our DEMAT account. We merely need to wait for the best chance to sell the equities once they are in the DEMAT account.

Several key benefits of purchasing stocks on the spot market (based on delivery) include:

We must wait for at least two working days after we purchase the stock (for delivery to DEMAT) before deciding whether or not to sell it. This implies that we are unable to actually sell the shares, even if a good opportunity to do so arises the very following day.
Depending on the amount of capital we have available, we can purchase the shares. Meaning that if we have Rs. 200,000 available for spending, we can only spend up to this amount and not more.
There is no time constraint; if one has the patience and leisure, they can put off selling for a very long period.

Specifically, on December 15th, 2014, we can purchase It with Rs. 200,000 in our pocket.

=2,00,000/250

~ 80 shares

Now, on December 23, 2014, at a price of Rs. 2600, we can close off the trade for a profit.

=80 * 2600

=2,08,000

=[6000/2,00,000]*100

=3%

An amazing return of 3.00% over a period of 9 days. In actuality, an annualized 9-day return of 3% gives roughly 215 percent. This is amazing!

How does this compare to choice 2 though?

Option 2: Purchase TCS Stock on the Futures Exchange.

Variables for recall in the futures market are predetermined. For instance, TCS requires that 150 shares or multiples of 150 shares be purchased as the minimum number of shares (lot size). The “contract value” is determined by multiplying the lot size by the futures price. Given that we are aware of the futures price per share of Rs. 2500, the contract value is.

=125 * 2500

=3,12,500

Does that imply that I need Rs. 3,12,500 in total funds to engage in the futures market? No, the contract value is Rs. 3,12,500; however, in order to trade in the futures market, one only needs to deposit a margin amount that represents a specific percentage of the contract value. With respect to TCS futures, we require roughly 15% margin. All we require to enter into a futures arrangement is Rs. 46,875 at a margin of 15% (15% of Rs. 3,12,500). You might have the following inquiries at this point:

What happens to the remaining funds? Specifically, Rs. 2,65,625 (Rs. 3,12,500 minus Rs. 46,875).

Actually, that money is never disbursed.

2. When I say “never really paid out,” what do I mean?

When we get to the chapter on “Settlement – mark 2 marketplaces,” we will comprehend this more clearly.

3. Is the 15% fixed across all stocks?

No, it changes depending on the stock.

Let’s now examine the futures trade in more detail while keeping these aforementioned points in mind. The amount of money in hand is Rs. 200,000. However, the cash requirement for the margin is only Rs. 46,875 ($).

This suggests that we might buy two lots of TCS futures rather than just one. The number of shares with 2 lots of TCS futures would be 250 (125 * 2), costing Rs. 82,670/- as the margin required. We would still have cash remaining after committing Rs. 82,670 as margin for 2 lots, which is Rs. 17,330. But since we truly can’t do anything with this money, it is best to leave it alone.

The TCS futures equation now looks like this:

Size of Lot: 125

No of lots – 2

Futures Buy price – Rs. 2362/-

Futures Buy Price * Lot Size * Number of Lots = Futures Contract Value at the time of purchase.

= 125 * 2 * Rs. 2362/-

= Rs. 590,500/-

Margin Amount – Rs.82,670/-

Futures Sell price = Rs.2519/-

Futures Contract Value = 125 * 2 * 2519 at the time of sale.

= Rs.629,750/-

This translates to a profit of Rs. 39,250/-!

Do you notice the distinction? In the spot market, a move from 2361 to 2519 yielded a profit of Rs. 5,798; nevertheless, the same move yielded Rs. 39,250. Let’s take a peek at the percent return to see how juicy this appears.

Recall that we invested Rs. 82,670 in the futures deal; therefore, the return must be calculated using this as the base.

[39,250 / 82,670]*100

This equals a staggering 47 percent spread across 9 days. Compare that to the spot market’s 5.79 percent. This amounts to a 1925% yearly return for the purpose of annualization. I hope I’ve persuaded you by now as to why short-term traders favour transactions on the futures market over those on the spot market.

Alternatives to a standard spot market transaction include futures. You need a lot less money to enter into a comparably significant transaction because “Margins” exist. Your gains could be very high if your point of view is correct.

Leverage is the ability to take positions that are significantly larger than the available money. Leverage has two sharp edges. Leverage may build wealth if employed with the proper mindset and expertise; if not, it can destroy it.

We have talked extensively about the benefits of trading futures, but what about the risks? What if the direction is not as clear-cut as anticipated? We need to comprehend how much money we stand to make (or lose) dependent on the underlying movement in order to comprehend both sides of a futures trade. “Futures Payoff” is the name given to this.

4.4 – Leverage Calculation

How much leverage are you exposed to is a question that is frequently addressed when discussing leverage. Leverage affects risk and potential reward in a positive feedback loop.

Calculating leverage is quite easy –

[Contract Value/Margin] = Leverage. Consequently, the leverage for TCS trade is

= [295,250/41,335]

= 7.14, which is read as 7.14 times or simply as a ratio – 1: 7.14.

This means every Rs.1/- in the trading account can buy upto Rs.7.14/- worth of TCS. This is a very manageable ratio. However, if the leverage increases, then the risk also increases. Allow me to explain.

To lose the entire margin amount with a leverage ratio of 7.14, TCS must decline by 14%; this may be computed as –

1 / Leverage

= 1/ 7.14

= 14%

Let’s pretend for a while that the margin required was only Rs. 7000 instead of Rs. 41,335 at this time. The leverage in this situation would be –

= 295,250 / 7000

= 42.17 times

There is no doubt that this leverage ratio is exceedingly high. If TCS declines by – one will forfeit all of his capital.

1/41.17

= 2.3%.

Therefore, danger increases as leverage does. When leverage is excessive, the margin deposit can be lost with just a slight change in the underlying.

To double your money, however, you only need a 2.3 percent change in the underlying at about 42 times leverage.

Personally, I dislike using too much leverage. I limit my trading to trades with leverage of no more than 1:10 or 1:12.

4.5 – The Futures payoff

Consider the following scenario: I purchased TCS futures with the hope that the stock price would increase, allowing me to profit from the futures trade. But what if the price of TCS stock declined instead of rising? I would undoubtedly lose money. After starting a futures trade, consider it. I would either stand to make a profit or a loss at any price point. A futures transaction’s payout structure only illustrates the degree to which I gain or lose money at various potential price points.

Let’s construct one for the TCS trade to better understand the reward structure. Keep in mind that this was a lengthy trade started on December 16th at Rs. By December 23rd, after the trade has started, the price of TCS could change drastically. As I said, I will either earn a profit or a loss at any pricing point. While a result, as I create the structure’s pay, I will make a variety of price point assumptions that could materialize by December 23. I will then examine the P&L situation for each of these assumptions.

You should view this table this way: Provided you are a buyer at Rs. 2362, the P&L by Dec. 23 would be Rs. 2160, assuming TCS is trading. According to the table, you would experience a loss of Rs. 202 per share (2362 – 2160).

What would your P&L look like if TCS was trading at 2600 as well? As the table indicates, you would earn Rs. 238 ($0.38) per share (2600 – 2362). I could go on forever.

If you remember from the last chapter, we actually indicated that if the buyer is making a profit of Rs. X, then the seller is losing Rs. X. Therefore, if 23rd Dec TCS is trading at 2600, the buyer will gain a profit of Rs. 238 per share and the selling will suffer a loss of Rs. 238 per share, assuming the seller shorted the share at Rs. 2362 per share.

Another way to look at this is that the buyer is receiving the money that was previously in the seller’s pocket. It is only a money transfer, not the creation of new money!

Another way to look at this is that the buyer is receiving the money that was previously in the seller’s pocket. It is only a money transfer, not the creation of new money! Transferring money and making money are two different things. When value is created, money is produced. For instance, if you purchased TCS shares with the long term in mind, the company’s performance would result in higher profits and margins. It goes without saying that a share price undervaluation will be advantageous to you as a shareholder. This is wealth production or the creation of money. In contrast to futures, money is not created in this situation; rather, it is transferred from one pocket to another.

Futures (or financial derivatives in general) are known as “Zero Sum Games” for precisely these reasons.

Let’s now create a graph showing the potential price on December 23 in relation to the buyer P&L. Also known as the “Payoff Structure,”

As you can see, a profit is made at any price above the buy price (2362), while a loss is experienced at any price below the buy price. A 1 point rise (from 2362 to 2363) in the value of the trade, which required buying 2 lots of futures (250 shares), results in a profit of Rs. 250. The same goes for a 1 point downturn (from 2362 to 2361), which results in a loss of Rs. 250. There is definitely a sense of proportionality at play here. The proportionality results from the fact that the seller’s loss is equal to the buyer’s gain when they both buy or sell at the same price.

Most importantly, because the P&L is a smooth straight line, it is said that the futures are a “Linear Payoff Instrument”.

CONCLUSION

The use of leverage is crucial when trading futures.
By using margins, we can take a tiny initial investment and participate in a high-value transaction.
Typically, margins are levied as a percentage of the contract value.
We can only deal with the amount of our capital on the spot market because it is not leveraged.
A modest change in the underlying has a significant impact on the P&L when there is leverage.
The buyer’s earnings are comparable to the seller’s losses, and vice versa.
Leverage increases risk and, as a result, increases the likelihood of financial success.
Futures instruments merely enable money transfers between pockets. As a result, it is known as a “Zero Sum Game.”
A futures instrument’s payout structure is linear.
512 remarks.

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Candlestick

September 29, 2022July 21, 2022 by Deepanshu

Technical analysis

• Technical analysis
• Introduction
• Types of charts
• Candlesticks
• Candle sticks patterns
• Multiple candlestick Patterns
• Trading – get started
• Trading view

• Support & resistance
• Volume trading
• News and Events
• Moving averages
• Indicators
• Fibonacci Retracements
• Notes

The big assumption is that history tends to repeat itself.

Firstly, As previously stated, one of the key assumptions of technical analysis is that history tends to repeat itself. This is most likely one of the most crucial assumptions in Technical Analysis.

Secondly, It would make important to analyze this assumption more at this point because candlestick patterns rely significantly on it.

Assume that on July 7, 2014, a few things are happening in a specific stock. Let us refer to this factor as:

Factor 1:-The stock has fallen for four consecutive trading sessions.
Factor 2:-Today is the fifth session, and the stock is sliding on somewhat lesser volumes.
Factor3:-The stock’s trading range today is quite narrow in comparison to the previous four days.

Thirdly, With these factors in play, let us imagine that on the next day (8th July 2014), the stock’s decline is arrested and the price rises to a positive close. As a result of the three variables, the stock increased on the sixth day.

Moreover, After a few months, say, the same collection of circumstances is seen for 5 consecutive trading sessions.

What would you anticipate for the sixth day?

Importantly, The assumption is that history tends to repeat itself. However, there is one limitation to this assumption. When a group of circumstances that has worked in the past tends to repeat itself in the future, we expect the same outcome to occur, providing the factors are the same.

Besides, Based on this assumption, we can expect the stock price to rise in the sixth trading session even this time.

Candlestick Patterns what to expect?

Furthermore, Trading patterns are identified using candlesticks. Patterns, in turn, assist the technical analyst in establishing a trade. The patterns are created by arranging two or more candles in a specific order. However, powerful trading signals can sometimes be spotted by a single candlestick pattern.

As a result, candlesticks can be divided into two types: single candlestick patterns and multiple candlestick patterns.

We shall learn the following under the single candlestick pattern.

Marubozu
Bullish Marubozu
Bearish Marubozu
Doji
Spinning Tops
Paper umbrella
Hammer
Hanging man
Shooting star

Not only but also, Multiple candlestick patterns are made up of several candles. We shall study the following from the various candlestick patterns:

Engulfing pattern
Bullish Engulfing
Bearish Engulfing
Harami
Bullish Harami
Bearish Harami
Piercing Pattern
Dark cloud cover
Morning Star
Evening Star

Indeed, You’re probably wondering what these names mean. Some of the patterns keep their original Japanese names, as I explained in the last chapter.

Especially, Candlestick patterns assist traders in developing a comprehensive point of view. Each pattern includes a built-in risk mechanism. Candlesticks provide information on both the entry and stop-loss prices.

Few assumptions specific to candlesticks

Surely, Before we go in and start learning about the patterns, there are a few more assumptions to consider. These assumptions apply just to candlesticks. Pay close attention to these assumptions because we will be returning to them frequently later.

At last, These assumptions may not be evident to you at this point. I’ll go through them in greater depth as we go along. However, keep the following assumptions in the back of your mind:

First, Buy strength and sell weakness:-A bullish (blue) candle represents strength, while a bearish (red) candle represents weakness. As a result, whenever you buy, make sure it’s a blue candle day, and whenever you sell, make sure it’s a red candle day.
Second, Be flexible with patterns (quantity and verify):- While the textbook description of a pattern may mention specific parameters, there may be slight deviations in the pattern due to market conditions. As a result, one must be somewhat adaptable. However, one must be flexible within boundaries; therefore flexibility must always be quantified.
Third, Look for a prior trend:-If you are searching for a bullish pattern, the preceding trend should be bearish, and vice versa if you are looking for a bearish pattern, the prior trend should be bullish. We’ll start with single candlestick patterns in the future chapter.

Conclusion

History tends to repeat itself; we changed this premise by including the factor angle.
Candlestick patterns are classified as single or multiple candlestick patterns.
Three key assumptions apply to candlestick patterns.
Invest in strength and sell weakness.
Be adaptable; quantify and verify.
Look for a previous pattern.

Types of Chart

September 27, 2022July 20, 2022 by Deepanshu

Technical analysis

• Technical analysis
• Introduction
• Types of charts
• Candlesticks
• Candle sticks patterns
• Multiple candlestick Patterns
• Trading – get started
• Trading view

• Support & resistance
• Volume trading
• News and Events
• Moving averages
• Indicators
• Fibonacci Retracements
• Notes

Introduction

Firstly, After determining that the Open (O), High (H), Low (L), and Close (C) are the best ways to describe the trading action for the given period, we require a charting technique that displays this information most understandably. Charts can become fairly complex if a quality charting technique is not used. Each trading day has four data points, namely the OHLC. A 10-day chart requires the visualization of 40 data points (1 day x 4 data points per day). You can imagine how difficult it would be to show 6 months or a year’s worth of data.

Secondly, As you may expect, standard charts such as the column chart, pie chart, area chart, and so on are ineffective for technical analysis. The line chart is the sole exception.

Thirdly, Regular charts do not function since they only show one data point at a given time. Technical Analysis, on the other hand, requires four data points to be display at the same time.

The following are some examples of chart types:

First, the Line chart

Second, Bar chart

Third, Japanese Candlestick

Furthermore, The focus of this section will be on Japanese Candlesticks; but, before we get there, we’ll learn why we don’t apply line and bar charts.

The Line and Bar chart

Importantly, The line chart is the simplest basic chart type, with only one data point used to create the chart. A line chart is create in technical analysis by plotting the closing prices of a stock or an index. Each closing price represents a dot, and a line connects the dots.

Undoubtedly, If we are looking at 60-day data, a line chart is create connecting the dots of the closing prices for 60 days.

Especially, Line charts can be produce for a variety of time frames, including monthly, weekly, and hourly. If you want to create a weekly line chart, you can utilize weekly closing prices of securities as well as other time frames.

Surely, The simplicity of the line chart is its advantage. The trader can identify the whole security trend with a single glance. However, the simplicity of the line chart is also a disadvantage. The line chart provides no further information to analysts other than a general perspective of the trend. Furthermore, the line chart considers only the closing prices, omitting the open, high, and low values. As a result, traders prefer not to utilize line charts.

The bar chart, on the other hand, is more adaptable. A bar chart shows each of the four price variables: open, high, low, and close. A bar made up of three parts.

The Central Line:-The top of the bar indicates the highest price the security has reached. The bottom end of the bar indicates the lowest price for the same period.

The left mark/tick:-Indicates the open.

The right mark/tick:-Indicates the close

For example

Open – 70

High – 75

Low – 65

Close – 74

For the above data, the bar chart would look like this:

As you can see, we can plot four different price points in a single bar. If you want to see a 5-day chart, we will see 5 vertical bars, as you could expect. So forth and so on.

The left and right marks on the bar chart change based on how the market has moved throughout the day.

If the left mark, which represents the initial price, is lower than the right mark, it means that the close is higher than the open (close > open), indicating that the markets had a positive day. Consider the following: O = 51, H = 56, L = 51, C = 56. The bar is color blue to signify that it is a bullish day

Similarly, if the left mark is higher than the right mark, the close is lower than the open (close open), indicating a bad day for markets. Consider the following: O = 79, H=81, L=74, C=75. The bar is color red to show that it is a bearish day.

Importantly, The length of the central line represents the day’s range. The difference between the high and low can be characterize as a range. The longer the line, the bigger the range; the shorter the line, the smaller the range.

However, Even though the bar chart displays all four data points, it lacks visual attractiveness. This is most likely the most significant disadvantage of a bar chart. When looking at a bar chart, it might be difficult to see potential patterns. When a trader has to evaluate many charts throughout the day, the complexity rises.

History of the Japanese Candlestick

As well as that, The length of the central line represents the day’s range. The difference between the high and low can be characterize as a range. The longer the line, the bigger the range; the shorter the line, the smaller the range.

Indeed, Even though the bar chart displays all four data points, it lacks visual attractiveness. This is most likely the most significant disadvantage of a bar chart. When looking at a bar chart, it might be difficult to see potential patterns. When a trader has to evaluate many charts throughout the day, the complexity rises.

Candlestick Anatomy

Clearly, In a bar chart, the open and close prices represent a tick on the left and right sides of the bar, respectively, but in a candlestick chart, the open and close prices represented a rectangular body.

Absolutely, Candles in a candlestick chart can be categorize as bullish or bearish and are often represented by blue/green/white and red/black candles. Needless to add, the colors can be change to any color of your choice using the technical analysis software. This module has chosen blue and red to represent bullish and bearish candles, respectively.

Besides, Consider the bullish candle. The candlestick, like the bar chart, made up of three parts.

The Central real body:-The real body rectangular connects the opening and closing price.

Upper Shadow:-Connects the high point to the close.

Lower Shadow:-Connects the low point to the open.

Last but not least, Have a look at the image below to understand how a bullish candlestick is form:

An example will help you understand this better. Assume the pricing is as follows.

Open = 68 High = 75 Low = 63 Close = 72

Similarly, the bearish candle has three components:

The Central real body:-The rectangular actual body that connects the opening and closing prices. However, the opening is at the top of the rectangle, and the closure is at the bottom.

Upper Shadow:-Connects the high point to the open.

Lower Shadow:-Connects the Low point to the close.

This is what a bearish candle would look like:

It should be noted, This is best understood with an example. Let us assume the prices as follows.

Open = 461 High = 475 Low = 425 Close = 440

On the other hand, Reading candlesticks to discover patterns becomes much easier once you understand how they are plot.

Also, If you plot the candlestick chart on a time series, it looks like this. The blue candle signifies bullishness, whereas the red candle shows bearishness.

Also, a long-bodied candle indicates intense buying or selling activity. A short-bodied candle indicates that there is less trading activity and thus less price change.

To summarise, candlestick charts are easier to comprehend than bar charts. Candlesticks allow you to rapidly visualize the link between the open and close price points as well as the high and low price points.

A note time in the frames

A time frame defines as the time spent studying a certain chart. Technical analysts frequently employ the following time frames:

Monthly Charts

Weekly Charts

Daily or end-of-day Charts

30-minute, 15-minute, and 5-minute intraday charts

The time frame can be change to suit the needs of the user. A high-frequency trader, for example, may prefer to use a 1-minute chart above any other time frame.

Here’s a basic tutorial on various time frames.

Time Frame	Monthly	Weekly	Daily or EOD	Intraday 30 minutes	Intraday 15 minutes	Intraday 5 minutes
Open	The opening price on the first day of the month	Monday’s Opening Price	The opening price of the day	The opening price at the beginning of the 1st minute	The opening price at the beginning of the 1st minute	The opening price at the beginning of the 1st minute
High	The highest price at which the stock traded during the entire month	The highest price at which the stock traded during the entire week	The highest price at which the stock traded during the day	The highest price at which the stock traded during the 30-minute duration	The highest price at which the stock traded during the 15-minute duration	The highest price at which the stock traded during the 5-minute duration
Low	The lowest price at which the stock traded during the entire month	The lowest price at which the stock traded during the entire week	The lowest price at which the stock traded during the entire day	The lowest price at which the stock traded during the 30-minute duration	The lowest price at which the stock traded during the 15-minute duration	The lowest price at which the stock traded during the 5-minute duration
Close	The closing price on the last day of the month	The closing price on Friday	The closing price of the day	The closing price as on the 30th minute	The closing price as on the 15th minute	The closing price as on the 5th minute
No of Candles	12 candles for the entire year	52 candles for the entire year	One candle per day, 252 candles for the entire year	Approximately 12 candles per day	25 candles per day	75 candles per day
Intraday 5 minutes	The opening price at the beginning of the 1st minute	The highest price at which the stock traded during the 5-minute duration	The lowest price at which the stock traded during the 5-minute duration	The closing price as on the 5th minute	75 candles per day

As shown in the table above, the number of candles (data points) rises when the time frame decreases. You must decide on the time frame you needed based on the type of trader you are.

Data can be either information or noise. As a trader, you should separate information from noise. A long-term investor would benefit from looking at weekly or monthly charts because they would provide information. An intraday trader performing 1 or 2 trades per day, on the other hand, are better off looking at end of the day (EOD) or at best 15 minute charts. Similarly, 1-minute charts can provide a lot of information to a high-frequency trader.

Conclusion

Because we need to plot four data points at the same time, traditional chart types cannot be use for technical analysis.

A line chart can be use to interpret trends, but it cannot provide any further information.

Bar charts lack aesthetic appeal and make it difficult to discern trends. As a result, bar charts are not often used.

Candlesticks classifies into two types: bullish and bearish. The structure of the candlestick, on the other hand, remains unchanged.

When close > open, the candle is bullish. When close = open, the candle is bearish.

Time frames are extremely important in determining trading performance. This must done with caution.

As the frequency rises, so does the amount of candles.

Appreciation

Undoubtedly, learning sharks institute works hard to maintain this list of share market Training courses up to date. However, In the event of a dispute between the programs mentioned in the Learning sharks Academic Calendar and this list, the Calendar will take precedence nevertheless. In addition, Please contact the Enrollment Desk if you have any further questions about admissions or program offerings. Nevertheless, Please contact us at feedback@learninghsharks.in to edit a program listing. Alternatively, you can reach us directly for any course queries. On the contrary, one can call our number 8595071711.

Even so, we launch new stock market integrated trading programs every 6 months. In spite of stock market trends and conditions. While we have you here. Of course, we do not want to miss asking you to share a review. Clearly, It is necessary and appreciated. our Trading community has been growing evidently. Surely, the credit goes to our mentors and our hard-working trading students. For this reason, we keep coming out with discounts and concessions on our programs. Besides, We believe each citizen has the right to learn about the market.

Because we believe each student should be successful. Since our program is so powerful. So, we encourage and invite more applications, therefore. Of course, we feel proud to invite the differently abled students too. Moreover, the stock market does not care about any race, religion, family background, or religion also. Then, again, We are there to assist you with the best education. Finally, head over to our contact page to speak to our counselor. For one thing, we do not want our students to fail, which is why give regular and repeated classes too.

Financial interdependence

September 27, 2022July 20, 2022 by Rohansharma

Why invest?

Basics of stock market

• Why invest?
• who regulates
• financial interdependence
• IPOs
• Stock Market returns
• Trading system

• Day end settlements
• Corporate actions
• News and Events
• Getting started
• Rights, ofs,fpo and more
• Notes

Overview of Financial Intermediaries

At this time corporate entities are actively involved in making this work for you from the point at which you access the market —say, let’s buy a stock—to the point at which the stocks arrive and hit your DEMAT account. These organisations quietly carry out their duties in the background while always abiding by SEBI regulations, ensuring a simple and straightforward experience for your stock market transactions. The Financial Intermediaries are the general name for these organizations.

Also, interdependent financial intermediaries work together to form the ecosystem that supports the financial markets. You can learn more about these financial intermediaries and the services they provide by reading this chapter.

The Broker of Stock

One of the most crucial financial intermediaries you should be aware of is the stockbroker. Whereas stockbroker is a business that has registered with the stock exchange as a trading member and has a stockbroking licence. They adhere to the rules established by SEBI.

Your entry point into stock exchanges is a stockbroker. To begin, you must open a “Trading Account” with a broker who satisfies your requirements. Your requirement might be as straightforward as the broker’s office’s proximity to your home. At the same time, finding a broker who can give you a single platform through which you can conduct business on numerous exchanges around the world can be challenging. We’ll go over what these requirements might be later on, as well as how to pick the best broker at this time.Firstly you can conduct financial transactions in the market using a trading account. A trading account is a broker account that enables the investor to buy and sell securities.

How to deal with broker

First, assuming you have a trading account, you must communicate with your broker whenever you want to make a transaction in the markets. There are a few common ways you can communicate with your broker

1.You can meet the dealer in the broker’s office and go there to tell him what you want to do. An employee of the stock broker’s office known as a dealer executes these transactions on your behalf.

2.You can call your broker and place an order for your transaction by providing your client code (account code) during the call. While you are still on the call, the dealer on the other end will execute the order for you and confirm its status.

3.Do it yourself: This is arguably the most popular market trading strategy. Through a programme referred to as the “Trading Terminal,” the broker grants you access to the market. Once you’ve logged in to the trading platform, you can view real-time market price quotes and submit your own orders.

The basic services provided by the brokers include…

Give you access to markets and letting you transact
Give you trading margins; we’ll talk about this in more detail later.
Dealing support is available if you need to call and trade. If you have problems with the trading terminal, contact software support.
Create contract notes for the exchanges A contract note is a document that confirms in writing the actions you have taken throughout the day.
Make it easier to transfer money between your trading account and bank account.
Give you access to a back-office login so you can view a summary of your account.
For the services he delivers, the broker is paid a fee known as the “brokerage charge” as well as that simply brokerage. Finding a broker who strikes a balance between the fee he charges and the services he offers is up to you because brokerage rates vary.

Depository Participants and Depository

Producing the property papers is the only way to prove your ownership of a property after you purchase it. Importantly, keeping the property papers in a safe location becomes crucial.

The only way to prove your ownership of a share, which represents a portion of a company, is to present your share certificate. A share certificate is nothing more than a piece of paper proving your ownership of company shares.

Prior to 1996, share certificates were printed on paper; however, after 1996, they were converted to digital format. “Dematerialization,” also known as DEMAT, is the process of converting a paper share certificate into a digital share certificate.

Whereas Share certificates must be digitally stored in DEMAT format. The “DEMAT Account” is where the digital share certificate is kept. A Depository is a type of financial intermediary that provides the Demat account service. All the shares you purchased in electronic form will be stored in a DEMAT account in your name. Consider your DEMAT account to be a virtual safe for your shares.

Infosys example

For instance, if your plan is to purchase Infosys stock, all you have to do is open a trading account, check the stock’s prices, and place your order. Your trading account’s function is finished once the transaction is finished. The Infosys shares will automatically arrive and sit in your DEMAT account after you make a purchase.

Similar to buying Infosys shares, selling them only requires opening a trading account and doing so. This completes the transaction part… However, the shares that are currently in your DEMAT account will be debited in the background, and the shares will then move out of your DEMAT account.

At present, only two depositaries are offering you DEMAT account services. They are The National Securities Depository Limited (NSDL) and Central Depository Services (India) Limited. There is virtually no difference between the two, and both of them operate under strict SEBI regulations.

You cannot open a DEMAT account by walking into a Depository, just as you cannot open a trading account by walking into the office of the National Stock Exchange. Contact a Depository Participant if you want to open a DEMAT account (DP). Your DEMAT account is created with a Depository with the aid of a DP. A DP serves as the Depository’s agent. Of course, even the DP is subject to the rules established by the SEBI.

Banks

The role that banks play in the market ecosystem is very simple. They assist in making the money transfer between your bank account and trading account easier. A bank account that is not in your name cannot have money transferred from it.

Even so you can transfer money between and trade through various bank accounts that you can link to your trading. You can add up to 2 secondary bank accounts in addition to 1 primary bank account at Zerodha. All the bank accounts can be used to deposit money, but only the primary bank account can receive withdrawals. Additionally, dividend payments and buyback proceeds will be transferred to the main bank account. Your trading account, as well as the Depository, Registrar, and transfer agents, are all connected to your primary bank account (RTA).

Finally you must have realised by this point that the three financial intermediaries each use a different trading account, DEMAT account, and bank account to conduct their business. You will have a very seamless experience thanks to the interlinking and electronic operation of all three accounts.

NSCCL and ICCL

NSCCL – National Security Clearing Corporation Ltd and Indian Clearing Corporation are wholly owned subsidiaries of National Stock Exchange and Bombay Stock Exchange.

Even so, clearing corporation’s responsibility is to guarantee the settlement of your trades and transactions. For instance, if you were to purchase 1 HDFC share at Rs. 1,363.55 per share, that share must have previously been sold to you for Rs. 1,363.55. You will have Rs. 1,363.55 taken out of your trading account for this transaction, and someone else must credit that amount to the sale of HDFC. The clearing corporation’s responsibility in a transaction like this is to guarantee the following:

1.dentify the buyer and seller and match the debit and credit process

2. Ensure no defaults – The clearing company also makes sure neither party defaults. For example, after selling the shares, the seller shouldn’t be able to cancel the deal and default on his obligations.

3. Practically speaking, you don’t need to know much about the NSCCL or ICCL since you won’t be dealing with them directly as a trader or investor. You should be aware that some professional institutions are subject to strict regulation and work to ensure efficient clearing activity.

Forward Market

September 27, 2022July 20, 2022 by Bala gumber

Forward Market

• Forwards market
• Futures contract
• Future trades
• Leverage & payoff
• Margin & M2M
• Margin calculator
• Open interest

• How to short
• Nifty futures
• Nifty futures
• Futures pricing
• Hedging with futures
• Notes

Future Trades

Before the Trade

We learned a variety of futures market-related ideas in the previous chapter. Keep in mind that any trader who enters into a futures agreement is doing so with the intention of earning money. The trader needs to be able to predict the direction of the underlying asset’s price.

Perhaps it’s time to use a real-world futures deal as an example to show how this is . Let’s look at an example with stocks as we depart from the gold example.

Today (15^th Dec 2014), Tata Consultancy Services (TCS) management, a leading Indian Software Company, had investors meet, wherein the TCS management announced that they are cautious about the revenue growth for the December Quarter. The markets do not like such cautious statements, especially from the company’s management.

After the statement, the markets reacted to it, and as we can see from the TCS’s spot market quote, the stock went down by over 3.6%. In the snapshot below, the price per share is in blue. Ignore the red highlight; we will discuss it shortly.

As a trader, I believe that the TCS stock price reaction to the management’s statement is .

Here is my rational – If you follow TCS or any Indian IT sector company in general, you will know that December is usually a lacklustre month for the Indian IT companies. December is the financial year-end in the US (the biggest market for the Indian IT companies) and the holiday season; hence the business moves quite slowly for such companies. This furlough has a significant impact on the IT sector revenues.

This information is already known and factored in by the market. Hence, I believe the stock sinking by 3.6% is unwarranted. I also feel this could be an opportunity to buy TCS, as I believe the stock price will eventually go up. Hence I would be a buyer in TCS after such an announcement.

Notice, based on my thoughts (which I perceive as rational), I have developed a ‘directional view’ on the asset’s price (TCS). I believe the TCS (underlying asset) stock price will increase in due course of time from my analysis. In other words, I am bullish about TCS at the current market price.

I choose to purchase TCS Futures rather than TCS Shares on the Spot Market (for reasons I will discuss in the next chapter). I only need to look at the price at which the TCS Futures are trading after deciding to purchase futures. On the NSE website, the contract information are easily accessible. In reality, the spot market quotes have a link to access specifics for a TCS futures contract. In the picture above, I’ve the same thing in red.

Remember that the futures price ought to constantly mirror the spot price, thus if the spot price has decreased, the futures price ought to decrease as well. Here is a screenshot of the TCS Futures price from the NSE website.

Because the futures price has, as anticipated, followed the spot price, the TCS Futures are likewise down 3.77 percent. Now, you might have two inquiries:

TCS is down 3.61 percent in the spot market. TCS futures, however, are down 3.77 percent. Why the distinction?
TCS spot price is at Rs.2362.35, but Futures price is at Rs.2374.90? Why the difference?

Both of these are legitimate questions at present moment, and the answers to them depend on the “Futures Pricing Formula,” a subject we shall cover later. But the most crucial thing to remember at this time is that the spot price and the futures price have moved in lockstep and are both down for the day.

Let’s take another look at the futures contract and analyse a few crucial components before moving on. I’ll re-post the futures contract with a few key points .

The box indicated in red at the top contains three crucial details, beginning at the top:

Instrument Type: Keep in mind that the underlying asset is a company’s stock, and that we are in the future contract for the asset. As a result, the type of instrument in this case is “stock futures.”
Symbol – This draws attention to the stock’s name, in this case TCS.
Expiry Date – This is the date on which the contract ceases to exist. As we can see, the TCS futures contract specifies 24^th Dec 2014 as the expiry. You may be to know that all derivative contracts in India expire on the last Thursday of the month. We will discuss more what happens on the expiry date at a later point.

The blue box, which just displays the future price, is something we had briefly examined earlier.

Finally, the black box draws attention to two crucial variables: the market lot and the underlying value.

The price at which the underlying is on the spot market is as the underlying value. TCS was reportedly trading at Rs. 2362.35 a share when I took the above picture, but it had since dropped by a few more points. Consequently, the share price we see here is Rs. 2359.90.
Remember that a futures contract is a standardised contract with a market lot (lot size). It prefixes the parameters. The minimum number of shares we must buy or sell in order to reach an agreement is as the lot size. The TCS futures’ minimum lot size is 125 shares, hence in order to trade TCS futures, a minimum of 125 shares (or a multiple of 125 shares) must be.

Recall that the “contract value,” which is equal to the “Lot size” times the “futures price,” was in the previous chapter. Now, we can determine the contract value for TCS futures using the formulas below.

Lot size times futures price equals contract value.

=150x 2500.00

=3,75,000

Let’s quickly look at another “Futures Contract” to cement our understanding before moving on to the TCS futures deal. Here is a screenshot of the “State Bank of India (SBI)” futures contract.

You might be able to provide answers to the following queries using the above snapshot:

What kind of instrument is it?
What is the futures price for SBI?
How does the future price of SBI compare to the current pricing?
What is the expiry date of the Futures contract?
What are the lot size and the contract value of SBI futures?

The Futures Trade

Returning to the TCS futures trade, the plan is to purchase a futures contract because I anticipate an increase in the stock price of TCS. I would purchase TCS Futures at a cost of Rs. 2374.9 per share. Keep in mind that I must purchase a minimum of 125 shares. A more common term for the bare minimum of shares is “one lot.”

How do we purchase the “Futures Contract” then? It’s really easy to do; we can either phone our broker and ask him to purchase 1 lot of TCS futures at a cost of Rs. 2374.99 or we can do it ourselves using the trading platform.

I like using the trading terminal to place my own transactions. I advise reading the chapter on the Trading terminal if you are unfamiliar with it. The only thing I have to do to buy the contract is press F1 once TCS Futures has loaded on my market watch.

Several things take place in the background as soon as I press the F1 key on my trading terminal to indicate my want to purchase TCS futures.

1. Margin Validation- Keep in mind that we must always deposit a margin amount (sort of a token advance) when we engage into a futures agreement. This amount is merely a percentage of the contract value. Margin will be shortly. If the margin is insufficient, we cannot concur. Therefore, the risk management system or software of the broker verifies as the first step that I have enough funds in my trading account to satisfy the margin requirement to engage into a futures agreement.

2. The counterparty search- Following margin validation, the system looks for a suitable counterparty match. It is necessary to match the seller of TCS futures with me as the buyer of TCS futures. Keep in mind that the stock market is a “financial supermarket” with a wide range of players who have different opinions on how much an asset should be worth. The seller of TCS futures clearly believes that the price of TCS futures will continue to decline. The seller has a similar justification for his directional perspective as I have for my prediction that the price of TCS stock would increase. Thus, he desires to work as a seller.

3. The signoff – The buyer and seller digitally sign the futures agreement after Steps 1 and 2, which involve validating the margin and identifying the counterparty, are complete. The majority of this process is symbolic. By deciding to purchase (or sell) the futures agreement, each party authorises the other to abide by the terms of the contract.

4. The margin block –The necessary margin is in our trading account after signoff is complete. The margin cannot be for any other purpose. As long as we continue to hold the futures contract, the money will be .

I now hold 1 lot of TCS Futures Contract after completing these 4 procedures. You might be to learn that all of the aforementioned procedures take place consecutively in the real markets in a matter of seconds!

What does it imply when it says, “I now possess 1 lot of TCS Futures Contract,” exactly? Simply put, it means that by acquiring TCS futures on December 15th, 2014, I have digitally negotiated with a specific counterparty to acquire 125 TCS shares from me (the counterparty) at Rs. 2374.9/- each share. The counterparty and I have a futures contract that expires on December 24, 2014.

The 3 possible scenarios post the agreement

After agreeing, 3 possible scenarios can pan out by 24^th Dec 2014. We know what these scenarios are (we studied them in chapter 1) – the price of TCS can go up, the price of TCS can come down, or the price of TCS could stay the same. Let us arbitrarily take up a few possible price situations and see the price’s impact on both the parties involved.

Scenerio 1- TCS stock price goes up by 24^th Dec.

In this instance, my prediction about the trajectory of TCS shares was correct. I therefore stand to gain from this.

Consider that on December 24, 2014, TCS’s stock price increased from Rs. 2374.9 to Rs. 2450 per share. As a result of the increase in the spot price, the futures price would likewise rise.

This indicates that I am to purchase TCS shares at Rs. 2374.9/- per share, which is significantly less than the going market rate. (Rs. 2450 – Rs. 2374.9) My profit per share will be Rs. 75.1. Since there are 125 shares involved in the transaction, my entire profit will be Rs. 9387.5 (Rs. 75.1 * 125).

The seller plainly loses money since he is to sell TCS shares at Rs. 2374.9 per share rather than at the substantially higher price of Rs. 2450 per share on the open market. Without a doubt, the vendor loses out to the buyer.

Scenario 2: The TCS stock price declines by December 24.

This is an instance where my analysis of the direction of TCS stock was incorrect. I would therefore stand to lose.

Assume that on December 24th, 2014, TCS’s stock price drops from Rs. 2374.9/- to Rs. 2300/- per share; as a result, the futures price will likewise drop to a level that is roughly equivalent.

As a result, I am to purchase TCS shares at Rs. 2374.9/- a share, which is significantly more expensive than the market price. My loss will be Rs. 75 (Rs. 2374.9 – Rs. 2300) per share. Since there are 125 shares involved in the deal, my overall loss will be Rs. 9375 (Rs. 75 * 125).

As I am to purchase Tata shares for Rs. 2374.9 per share rather than purchasing them on the free market for a far lower price of Rs. 2300 per share, I will undoubtedly suffer a loss. It is obvious that the seller’s benefit is the buyer’s loss.

Situation 3: The Tata stock price stays the same.

In such a case, neither the buyer nor the seller gain, hence no party is financially impacted.

Utilising a trading chance

Following agreement, three potential outcomes could occur by December 24th, 2014. These possible outcomes are known to us because we studied them in chapter 1; the price of TCS may increase, decrease, or remain unchanged. Let’s arbitrarily choose a few different price scenarios and examine how the prices affect the two sides.

Scenario 1: Tata stock price increases by December 24.

In this instance, my prediction about the trajectory of TCS shares was correct. I therefore stand to gain from this.

Consider that on December 24, 2014, TCS’s stock price increased from Rs. 2374.9 to Rs. 2450 per share.

As a result of the increase in the spot price, the futures price would likewise rise. This indicates that I am to purchase TCS shares at Rs. 2374.9/- per share, which is significantly less than the going market rate. (Rs. 2450 – Rs. 2374.9) My profit per share will be Rs. 75.1. Since there are 125 shares involved in the transaction, my entire profit will be Rs. 9387.5 (Rs. 75.1 * 125).

Scenario 2: The Tata stock price declines by December 24.

This is an instance where my analysis of the direction of TCS stock was incorrect. I would therefore stand to lose.

Assume that on December 24th, 2014, TCS’s stock price drops from Rs. 2374.9/- to Rs. 2300/- per share; as a result, the futures price will likewise drop to a level that is roughly equivalent. As a result, I am to purchase TCS shares at Rs. 2374.9/- a share, which is significantly more expensive than the market price. My loss will be Rs. 75 (Rs. 2374.9 – Rs. 2300) per share. Since there are 125 shares involved in the deal, my overall loss will be Rs. 9375 (Rs. 75 * 125).

I will undoubtedly lose money since I am to purchase TCS shares for Rs. 2374.9 instead of doing it on the open market for Rs. 2300. The seller’s gain is unquestionably the buyer’s loss.

Situation 3: The Tata stock price stays the same.

In such a case, neither the buyer nor the seller gain, hence no party is financially impacted.

Exploiting a trading opportunity

So let’s look at the situation: after purchasing TCS futures on December 15 for Rs. 2374.9/-, the price of TCS increased the following day, on December 16. It is currently trading at Rs. 2460. What shall I do? Clearly, I stand to gain a lot from the price hike. I am currently sitting at a profit of Rs. 85.1 per share, or Rs. 10,637.5 (Rs. 85.1 * 125) as an overall profit, at the time the picture was .

Suppose I am happy with the money that I have made overnight. Can I close out the agreement? Or rather, at Rs.2460 per share, what if my view changes? What if I no longer feel bullish about TCS at Rs.2460? Do I really need to hold on to the agreement until the contract expiry date, i.e. 24^th Dec 2014, by which time if the price goes down, it could lead to a loss?

Well, the futures agreement is tradeable, as I had already mentioned in the previous chapter. By transferring the futures agreement to another party, I can easily exit the agreement at any time after entering it. As a result, I am able to close my open TCS futures position and make a profit of Rs. 10,637.5. Not bad for a day’s work, huh?

“Squaring off” refers to the closing of an existing futures position. I offset an existing open position by squaring off. I initially purchased 1 lot of TCS futures in the TCS example, and when we square off, I must sell 1 lot of TCS futures (so that my initial buy position is offset). The idea of square off is in the following table in general:

When I want to square off a position, I may either use the trading terminal to do it myself or phone my broker and ask him to do it. In the illustration, we are long TCS futures with an open trade (1 lot). The square off position would be to “sell 1 lot of TCS futures” in order to balance this open position. When I choose to square off the TCS position, the following things take place:

The broker searches for a counterparty prepared to purchase my futures position via the trading terminal. To put it another way, “my current purchase position will just be to someone else.” By purchasing the contract from me, that “someone else” now assumes the risk of the Tata price fluctuation. As a result, this is known as the “Risk Transfer.”
Keep in mind that the transfer will occur at the market’s current futures price, or $2460 per share.
After the trade is, my position is regarded as offset (or squared off).
The margins that were previously barred would be after the trade is. I can use this money for other purchases.
The transaction’s profit or loss will be or debited to my trading account that very same evening.

The futures trade is now likely to be with this.

Note that I might keep holding the stock futures if, at Rs. 2460, I start to believe that the price will go considerably higher. In fact, I can keep the futures until the contract’s expiration, which is December 24th, 2014. I will continue to be exposed to the risk of TCS price volatility as long as I keep the futures. In actuality, the TCS futures snapshot shown here was obtained on December 23, 2014, one day before the contract’s expiration. Since TCS futures are currently trading at Rs. 2519.25 per share, my returns would have been significantly larger had I chosen to hold the futures until December 23rd.

In truth, “someone else” purchased the TCS futures from me on December 16, 2014, when I decided to book profits at Rs. 2460. In other words, I sold someone else my purchase position, and even that “someone else” (the counterparty) would have profited from this contract by purchasing it from me for Rs. 2460 and holding it until Dec. 23, 2014. Here are two straightforward questions for you:

What would my profit and loss (P&L) be if I had held the Tata futures from December 15, 2014 (Rs. 2374.9) to December 23, 2015, both per share and overall? (Rs.2519.25)
I closed out my position on December 16th, 2014, for Rs. 2460. This was done because the contract’s square had definitely been assigned to a counterparty. What would the counterparty’s total and per-share profit and loss (P&L) be if he kept the TCS futures contract open until December 23rd, 2014?

If you are unable to respond to either of the two questions above, please leave a question in the comment section below, and I will be pleased to explain the solution. But I genuinely hope you discover the solutions to the aforementioned queries on your own.

In the next chapter, we will discuss margins, an essential aspect of futures trading.

CONCLUSION

By entering into a futures agreement, you can profit financially from having a directional opinion on the price of an asset.
A token advance known as the margin must be deposited in order to transact in a futures contract.
We digitally sign the contract with the counterparty when we trade in a futures transaction, obliging us to uphold the terms of the deal.
Due to the futures pricing mechanism, there is a difference between an asset’s futures price and spot price (we will discuss this topic later)
The bare minimum number of shares that must be traded is one lot.
Until the contract’s expiration, we are under no duty to abide by the terms of any futures arrangement we enter into.
Every futures deal needs a certain amount of margin, which is blocked when you place the order.
The agreement is revocable at any time, so you have a little window of time after entering it to withdraw your consent.
We essentially transfer the risk to another party when we square off an agreement.
Margin unblocking occurs once the futures position has been squared off.
Your trading account is immediately credited or debited with any profits or losses you incur during a futures transaction.
In a futures transaction, the gain of the buyer is the loss of the seller, and vice versa.

What is the stock market and Who Regulates ?

September 27, 2022July 19, 2022 by Rohansharma

Basics of stock market

• Why invest?
• who regulates?
• financial interdependence
• IPOs
• Stock Market returns
• Trading system

• Day end settlements
• Corporate actions
• News and Events
• Getting started
• Rights, ofs,fpo and more
• Notes

What is the stock market?

Firstly, One crucial investment we make to produce returns that outperform inflation is in stocks. We came to this conclusion after reading the previous chapter. After that, how do we invest in stocks? It is imperative to comprehend the environment in which stocks operate before we delve further into this subject.

Similarly, Similar to how we visit our local supermarket or Kirana store to buy our daily necessities, we visit the stock market to buy and sell equity investments. Anyone looking to buy or NRI’s and OCI –sell shares goes to the stock market. To buy and sell is to transact, to put it simply. Practically speaking, there is no other way to purchase or sell shares of a publicly traded company like Infosys than through the stock markets.

Moreover, The stock market’s main goal is to make your transactions easier for you. Thus, the stock market facilitates the meeting of buyers and sellers of shares.

Furthermore, The stock market does not have a physical location like a supermarket, however. It is accessible electronically. You use your computer to access the market electronically and proceed to complete your transactions (buying and selling of shares).

Importantly, It is also significant to remember that a registered intermediary known as a stockbroker can be used to access the stock market. The stockbrokers will be covered in more detail later.

At last, e-stock markets in India are composed of the two main stock exchanges. They are the National Stock Exchange and the Bombay Stock Exchange, respectively. In addition to these two exchanges, there are numerous other regional stock exchanges, such as the Bangalore Stock Exchange and the Madras Stock Exchange, that are essentially being phased out and no longer serve any significant function.

The need for regulation of stock market participants

Accordingly, The stock market draws companies and people from all walks of life. A market participant is a person who engages in stock market trading. The market participant can be divided into several groups. Following are a few of the different types of market participants:

1. Domestic Retail Participants – These are regular people like you and me who conduct transactions in markets.

2. NRI’s and OCI – These individuals are based outside of India but have Indian ancestral roots.

3. Domestic Institutions – These are large corporate entities based in India. A classic example would be the LIC of India

4. Domestic Asset Management Companies (AMC) –Typical participants in this category would be the mutual fund companies such as SBI Mutual Fund, DSP Black Rock, Fidelity Investments, HDFC AMC, etc

5. Foreign Institutional Investors –corporate bodies that are not Indian. These could be other investors, hedge funds, and foreign asset management firms.

Now, everyone’s goal is the same: to conduct profitable transactions, regardless of the category of market participant. To put it more simply: to make money.

Especially, Human emotions such as fear and greed are often at their peak when money is involved. These feelings are easily exploited, and engaging in unfair behavior is easy. Due to operations run by Harshad Mehta and other individuals, India has its fair share of such perverse practices.

Nevertheless, Given this, the stock markets require a person who can establish the rules of the game (commonly referred to as regulation and compliance) and make sure that players abide by them, creating a level playing field for all participants.

Who Regulator

For this reason, The Securities and Exchange Board of India, or SEBI, is the organization in charge of regulating the stock market in India. Whereas, The mission of SEBI is to safeguard the interests of small investors, advance the growth of stock exchanges, and control the activities of market participants and financial intermediaries. SEBI generally ensures:

The BSE and NSE stock exchanges operate ethically.
The way that stockbrokers and sub-brokers conduct business are ethical
Corporate entities (such as Satyam Computers) do not unfairly benefit from the markets.
Participants refrain from engaging in unethical behavior.
The interests of small retail investors are safeguarded
Market manipulation should not be done by large investors with large cash reserves.
Overall development of markets

Introducing Future contract

September 27, 2022July 19, 2022 by Bala gumber

Forward market

• Forwards market
• Futures contract
• Future trades
• Leverage & payoff
• Margin & M2M
• Margin calculator
• Open interest

• How to short
• Nifty futures
• Nifty futures
• Futures pricing
• Hedging with futures
• Notes

Introducing Future contract

Establishing the context

The simple Forwards Contract example from the previous chapter involved two parties agreeing to trade cash for items at a later date. We looked at the transaction’s structure to see how the price variation would affect the various participants. By the end of the chapter, we had identified four major concerns (or hazards) relating to forward contracts, and we came to the conclusion that a futures contract is to address these concerns.

Liquidity risk
Default Risk
Regulatory Risk
The rigidity of the transitional structure

In this chapter, we will also make reference to the same example. Therefore, it could be a good idea to review your grasp of the example from the previous chapter.

One thing is quite evident from the last chapter: If you observe the price of an asset, you can gain a lot by engaging into a forward arrangement. Finding a counterparty prepared to adopt the opposing position is all that . A forward agreement is obviously constrained by the associated risks, which are entirely eliminated by a futures agreement.

A modification of the forwards agreement is the futures contract or futures agreement. The fundamental transactional structure of a forwards market by the way the futures contract is constructed. It also does away with the dangers related to the forward contract. If you have a precise understanding of the direction in which an asset’s price is moving, a forward agreement could be profitable for you; this is what I mean by the phrase “basic transactional structure.”

This may seem a little ludicrous, but consider that the “transaction structure” of an automobile from a previous generation was to get you from point “A” to point “B.” Airbags, seat belts, ABS, power steering, etc. are among the safety elements that have been improved in the new generation of cars.

An overview of the Futures Agreement

Since we now understand that the fundamental transactional structure of futures and forwards is the same, it seems reasonable to consider the elements that set futures apart from forwards. In this chapter, we’ll give you a brief overview of these aspects; later on, we’ll delve deeper into each one.

Remember that in the example from the previous chapter, ABC Jeweller and XYZ agree to buy a specific amount of gold at a specific time in the future. Imagine that ABC had a difficult time locating XYZ to serve as a counterparty to the transaction. Even though ABC has a particular opinion on gold and is eager to enter into a financial arrangement, it would be helpless in such a situation since there would be no counterparty to take the other side of the agreement.

Consider this further. What if ABC decides to stroll into a financial supermarket where numerous counterparties are eager to take the opposing stance instead of investing the time and effort to look for a counterparty? The willing counterparties would line up to take the opposing position as soon as ABC announced its plan in the presence of such a financial supermarket. Furthermore, a real financial supermarket of this nature would not just feature individuals with opinions on gold but also on silver, copper, crude oil, and pretty much every other asset class, including stocks!

The Futures Contracts are actually made available in this manner. They are accessible and open to all of us, not just corporations like ABC Jewelers. We have access to futures contracts through the financial (super) market, also known as the “Exchange.” The exchange could be a commodity or stock exchange.

We are aware that a futures contract and a forwards contract are structured somewhat differently. The major goal of this is to reduce the risks associated with the forward market. Let’s examine each of these features that set futures apart from forward contracts.

Be aware that you can still be unclear about the future; it’s okay; just keep the following things in mind. You should understand how a futures agreement operates before we analyze a futures example.

The underlying is by futures contracts

The forward’s agreement between ABC Jewelers and XYZ Gold Dealers was on gold (as an asset) and its price. A futures contract, on the other hand, is on the asset’s anticipated price in the future. The asset, also known as the underlying, by the futures price. One such asset is gold, which has a “Gold Futures” contract. Consider the underlying and its futures contract as being somewhat sibling twins. The futures contract mirrors the actions of the underlying asset. As a result, the price of the futures contract would increase if the price of the underlying rose. Likewise, if the cost of the underlying decreases, the cost of the futures contract does as well.

Contracts –

Using the ABC jewelers and XYZ Gold Dealers example once more, the agreement called for dealing with 15 kg of gold of a specific purity. If both parties had agreed, the agreement may have been for 14.5 kg, 15.25 kg, or any other weight they deemed appropriate. The specifications, however, in a futures contract are standardized. They cannot be.

Futures contracts can be –

Trading futures contracts is simple. Contrary to a forward contract, I am not to honor a contract until it expires if I enter into one with a counterparty (also called the expiry day). If my opinion changes at any time, I can assign the contract to another party and terminate the agreement.

Futures markets are subject to strict regulation by a regulatory body (or, for that matter, the entire financial derivatives market). “Securities and Exchange Board of India (SEBI)” is the regulating body in India. This implies that someone is continually keeping an eye on market activity and ensuring everything goes according to plan. This also indicates that it is extremely unlikely that a futures contract will default.

Futures contracts are time-bound.

We will discuss this issue in more detail later, but for the time being, keep in mind that each of the futures contracts you have access to has a unique time frame. In the previous chapter’s example, ABC Jewellers had a particular perspective on gold while keeping a 3-month time frame in mind. ABC would have access to contracts in the 1-month, 2-month, and 3-month time frames if they entered into a comparable agreement on the futures market. The term “contract expiry” refers to the end of the contract’s duration.

Cash –

The majority of futures contracts are in cash. This indicates that simply the cash difference is out. Moving the physical asset from one location to another is not a concern. The regulatory authority oversees the cash settlement, ensuring complete openness in the cash settlement procedure.

Here is a table that briefly compares the “Forwards Contract” and “Futures Contract” differences.

I believe it is necessary to emphasize the difference between the spot price and the futures price at this time. The price at which the asset trades in the “regular” market, also known as the “spot market,” is known as the spot price. If we are discussing gold as an underlying, for instance, there are two prices we are referring to: gold on the spot market, also known as the normal market, and gold on the futures market, also known as the Gold Futures. Prices in the spot market and prices on the futures market move together, so if one increases, both do as well.

With these historical contexts in mind, let’s concentrate on a few additional futures contract quirks.

Ahead of your initial futures trade

We must first comprehend a few other facets of futures trading before delving further and understanding how a futures contract functions. Please keep in mind that we will return to these topics later and go into more detail about them. But for the time being, solid practical understanding of the following topics is need.

Lot size – Future is a standardized contract where everything related to the agreement is pre-determined. The lot size is one such parameter. Lot size specifies the minimum quantity that you will have to transact in a futures contract. Lot size varies from one asset to another.

Contract Value – In our example of ABC jeweller and XYZ Gold Dealers, ABC agreed to buy 15 kgs of Gold at the rate of Rs.2450/- per gram or Rs.24,50,000/- per kilogram. Since the deal was to buy 15 kgs, the whole deal was valued at Rs.24,50,000 x 15 = Rs.3.675 Crs. In this case, it is that the contract Value’ is Rs.3.675 Crs. Simply put, the contract value is the quantity of the price of the asset. We know the futures agreement has a standard pre-determined minimum quantity (lot size). The contract value of a futures agreement can be to “Lot size x Price”.

Margin – Again, referring back to the example of ABC jeweller and XYZ Gold Dealers at the time of the agreement, i.e. on 9^th Dec 2014, both the parties would have had a gentleman’s word and nothing beyond that. Meaning both the parties would have just agreed to honour the contract on the agreement’s expiry day, i.e. 9^th March 2015. Do notice there is no exchange of money on 9^th Dec 2014.

However, in a futures agreement, the moment a transaction occurs, both the parties involved will have to deposit some money. Consider this as the token advance required for agreeing. The money has to be with the broker. Usually, the money that needs to be is as a % of the contract value. This is the margin amount’. Margins play a pivotal role in futures trading; we will understand this in greater detail later. For now, remember that to enter into a futures agreement, a margin amount is required, which is a certain percentage of the contract value.

Expiry – As we know, all futures contracts are time-bound. The expiry or the expiry date of the futures contract is the date upto which the agreement is valid. Beyond the valid date, the contract ceases to exist. Also, be aware that the day a contract expires, the exchanges introduce new contracts.

With these few points that we have discussed so far, I guess we can now understand a simple example of futures trading.

CONCLUSION

The forwards and futures markets give you a financial benefit if you have an accurate directional view of an asset’s price.
The Futures contract is an improvisation over the Forwards contract.
The Futures price generally mimics the underlying price in the spot market.
Unlike a forwards contract, the futures contract is tradable.
The futures contract is a standardized contract wherein all the variables of the agreement is predetermined.
Futures contracts are time-bound, and the contracts are available over different timeframes.
Most of the futures contracts are cash-settled
SEBI in India regulates the futures market.
The lot size is the minimum quantity specified in the futures contract.
Contract value = Lot size times the Futures price.
To enter into a futures agreement, one has to deposit a margin amount, a certain % of the contract value.

Introduction to forward market

September 27, 2022July 19, 2022 by Bala gumber

Forward market

• Forwards market
• Futures contract
• Future trades
• Leverage & payoff
• Margin & M2M
• Margin calculator
• Open interest

• How to short
• Nifty futures
• Nifty futures
• Futures pricing
• Hedging with futures
• Notes

Introduction to forward market

Firstly, Because the forwards and futures markets are comparable, I believe that understanding the “Forwards market” is the best method to introduce the futures market. Comprehending the forwards market well would lay a strong foundation for understanding the futures market.

Secondly, The universe of financial derivatives includes the futures market in its entirety. When the value of a security is from another sort of financial asset known as an “Underlying Asset,” it is to as a “Derivative.”

Any kind of stock, bond, commodity, or money can serve as the underlying asset.

Financial derivatives have been in use for quite some time. Around “Kautilya’s Arthashastra,” which was in 320 BC, the use of derivatives is first discussed in relation to India. According to popular belief, Kautilya wrote about the pricing structure of the standing crops that were awaiting harvest in the ancient Arthashastra (study of Economics) script. He reportedly utilized this technique to pay the farmers well in advance, creating a true “forwards contract.”

Thirdly, Because the forwards and futures markets are comparable, I believe that understanding the “Forwards market” is the best method to introduce the futures market. Understanding the forwards market well would lay a solid foundation for understanding the futures market.

Forward contracts are the most straightforward type of derivative.Think of the forwards’ contract as the futures contract’s more ancient incarnation. Both futures and forward contracts have a similar transactional structure, but over time, traders have tended to favor futures contracts by default. The forward contracts are still in use, but only by a select group of parties, including businesses and financial institutions.

This chapter’s main goal is to explain the structure of a typical forward transaction, following which we will dissect it into its component parts and examine its benefits and drawbacks.

A Simple EXAMPLE OF FORWARD MARKET

Importantly, The Forward market was primarily established to safeguard farmers’ interests from unfavorable price changes. Forward market, the parties agree to trade products for money. Besides, The trade takes place on a given future date at a particular price. Both sides agree on a day to establish the price of the items.

Similar manner, the day and time of delivery of the items are also determined. Without a doubt, the agreement is in person with the help of a third party. Also known as “Over the Counter” or “OTC,” this agreement. Only the OTC (Over Counter) market, where individuals and institutions transact through one-on-one discussions, allows for the trading of forwarding contracts.

Take into account that there are two parties in this scenario.

For example, One works as a jeweler, designing and creating jewelry. Call him “ABC Jewelers,” please. The other is a gold importer, whose responsibility it is to offer gold to jewelers at a discount. Let’s refer to him as “XYZ Gold Dealers.”

Another, On December 19th, 2014, ABC and XYZ made a deal for ABC to purchase 15 kg of gold at 999 purity from XYZ within three months (19th March 2015).

They set For gold, a price of Rs. was chosen. per gram or Rs. 3000,000 per kilogram, which is the going rate on the market. Therefore, by this contract, on March 19, 2015, ABC is required to give XYZ a total of Rs. 4.000 Cr. (30,00,000/Kg*15) in exchange for the 15 kg of gold.

Surely, This is a pretty straightforward and typical business agreement that is often used in the sector. A “Forwards Contract” or “Forwards Agreement” is the term used to describe such an agreement.

Furthermore, Keep in mind that due to the fact that the contract was on December 19, 2014, regardless of the price of gold on March 19, 2015, both ABC and XYZ must comply with its terms. Before proceeding, let’s first review the reasons that each party chose to enter into this Agreement.

Indeed, Why do you think ABC this contract, in your opinion? Because ABC believes that the price of gold will rise during the following three months, they wish to lock in the present market price. ABC intends to safeguard itself against a downward trend in gold prices.

Obviously, In a forwards contract, the party agreeing to buy the asset at a later time is referred to as the “Buyer of the Forwards Contract”; in this case, that party is ABC Jewelers.

Similar spirit, XYZ wants to benefit from the high price of gold that is now being sold on the market. Also, They predict that the price of gold will decline over the next three months. Forwards contract, the party promising to sell the product at a later date is referred to as the “Seller of the Forwards Contract”; in this case, that party is XYZ Gold Dealers.

Last but not least, Due to their divergent perspectives on gold, both sides consider this agreement to be in keeping with their expectations for the future

3 possible scenarios

Even though each of these parties has a different perspective on gold, there are only three outcomes that could occur after three months. Let’s examine these scenarios and how they might affect each party.
In case 1, the cost of gold rises.

Suppose that on March 19, 2015, the cost of 999-percent pure gold is Rs. 2700 per gramme. It’s obvious that ABC Jeweler’s assessment of the gold price was accurate. The arrangement was worth Rs 4.00 crores at the time of the agreement, but due to the rise in gold prices, it is now worth Rs. 4.38 crores. According to the contract, ABC Jewelers has the right to purchase Gold (999 pure) from XYZ Gold Dealers at the previously agreed-upon price of Rs. 3000 per gramme.

As a result, XYZ Gold Dealers will have to purchase gold at a cost of Rs. 2700 per gramme on the open market and sell it to ABC Jewelers at a cost of Rs. 3000 per gramme, incurring a loss in this transaction.

Scenario 2: The cost of gold decreases.

Take into account that on March 19, 2015, the price of 999-percent pure gold is Rs. 2050 per gramme. In these circumstances, the gold price prediction made by XYZ Gold Dealers has come to pass. The arrangement was worth Rs 3.67 Cr at the time of the agreement, but now that gold prices have dropped, it is only worth Rs. 3.075 Cr.

However, according to the terms of the agreement, ABC Jewelers must buy Gold (999 pure) from XYZ Gold Dealers for Rs. 2450 per gramme.

Despite the fact that gold may be bought on the open market for much less money, ABC Jewelers is compelled to pay more through XYZ Gold Dealers, incurring a loss.

Scenario 3: The cost of gold remains unchanged.

If the price is the same on 19 March 2015 as it was on 19 December 2014, neither ABC nor XYZ will profit from the agreement.

A quick note on settlement

On March 19, 2015, let’s assume that the price of gold is Rs. 3000 per gramme. At Rs. 3000 per gramme, it is obvious that ABC Jewelers stands to gain from the agreement, as we have just learned. 15 kg of gold was worth Rs. 4.00 crores on the agreement date (19th December 2014), but as of 19th March 2015, it is worth Rs. 4.38 crores. If both parties uphold the agreement at the end of the three-month period, on March 19, 2015, they have two choices for resolving the dispute:

Physical Settlement: In this scenario, the seller delivers the actual asset after receiving complete payment from the forward contract buyer. XYZ purchases 15 kg of gold on the open market for Rs.4.38 crore and agrees to deliver it to ABC in exchange for Rs.4.00 crore. It’s referred to as a physical settlement.
Cash Settlement: No real delivery or receipt of security occurs in a cash settlement. The buyer and the seller will swap the cash difference in a cash settlement. According to the contract, XYZ must sell Gold to ABC for Rs. 3000 per gramme. To put it another way, ABC pays Rs. 4.00 Crs in exchange for 15 kg of gold, which is worth Rs. 4.38 Cr on the open market. Instead of carrying out this transaction, in which ABC would pay Rs. 4.00 Cr. for gold valued at Rs. 4.38 Cr., the two parties could agree to simply exchange the cash difference. It would be Rs.4.38Cr – Rs.4.00 Cr = Rs.38 Lakhs in this instance. Therefore, in order to close the agreement, XYZ would pay Rs. 38 lakhs to ABC. Known as a cash settlement.

At a much later time, we shall know a lot more about the colony. However, you still need to be aware that a forwards contract has two fundamental types of settlement alternatives available: physical and monetary.

What about the risk?

While we are clear on the agreement’s structure (terms and conditions) and how a price variation will affect each party, what about the risk? Keep in mind that there are other significant disadvantages to a forward contract as well, including the following:

Liquidity Risk: For the purposes of our scenario, we have naively assumed that ABC discovers a party XYZ that holds the exact opposite opinion with respect to gold. So they quickly come to an agreement. This is not as simple in reality. In the real world, the parties would go to an investment bank and explain what they wanted. The investment bank would research the market to identify a party with a different viewpoint. Naturally, the investment bank charges a fee for this service.
Counterparty risk and default risk– Think about it. Assume that after three months, gold would cost Rs. 2700. With the financial decision they had taken three months earlier, ABC would be happy. They are anticipating payment from XYZ. But what if XYZ makes a default?
Regulatory Risk: No regulatory body is in charge of overseeing the Forwards contract structure, which is carried out with the agreement of the parties concerned. Without a supervisory body, a perception of anarchy sets in, which in turn makes defaulting more appealing.
Rigidity: On December 19, 2014, both ABC and XZY entered into this agreement with a specific gold view. What would happen, though, if their viewpoint were to drastically alter midway through the agreement? They cannot close the agreement in the middle because of how tight the forward agreement is.

Future contracts were to lessen the risks associated with advance agreements because the forward contracts had some drawbacks.

India’s Financial Derivatives Market, which is incredibly active, includes the futures market. We will study more about futures and effective trading strategies during the course of this module!

So let’s get going!

CONCLUSION

A futures contract’s fundamental foundation is by the forwards contract.
A forward is an exchanged off-exchange (OTC) derivative.
Since forwarding contracts are private agreements, each one has a different set of criteria.
A forward contract has a straightforward structure.
The person who commits to buying something in a forward contract is known as the “Buyer of the Forwards Contract.”

Overview In Technical Analysis

September 27, 2022July 19, 2022 by Deepanshu

Technical analysis

• Technical analysis
• Introduction
• Types of charts
• Candlesticks
• Candle sticks patterns
• Multiple candlestick Patterns
• Trading – get started
• Trading view

• Support & resistance
• Volume trading
• News and Events
• Moving averages
• Indicators
• Fibonacci Retracements
• Notes

We got a quick introduction to Technical Analysis in the previous chapter. This chapter will concentrate on the adaptability and assumptions of Technical Analysis.

Application on asset types

Technical analysis may learn about any asset class as long as it has historical time series data, which is one of its most adaptable features. In the context of technical analysis, time series data is information about price variables such as open high, low, close, volume, and so on

. Here’s an example that might help. Consider learning to drive a car. You can drive any car once you’ve learned how to drive. The same is true for technical analysis; it simply has to be re-master initially. After that, you can apply TA’s principle to any asset class, including stocks, commodities, foreign exchange, and fixed income. This is perhaps one of the most significant advantages of TA over other fields of study. When it comes to fundamental equity analysis, for example, one must examine the profit and loss, balance sheet, and cash flow statements

. The fundamental examination of commodities, on the other hand, is entirely different. If you are working with an agricultural product such as coffee or pepper, the fundamental analysis will include an examination of rainfall, harvest, demand, supply, inventory, and so on. The fundamentals of metal commodities, however, differ from those of energy commodities. As a result, the fundamentals vary every time you select a commodity. In each case, regardless of the item under consideration, the premise of technical analysis remains the same. An indicator like the Moving Average Convergence Divergence (MACD) or the Relative Strength Index (RSI), for example, is the same way when trading stocks, commodities, or currencies.

Assumption of Technical Analysis

Technical analysts are unconcern, unlike fundamental analysts whether a stock is overvalue. The only thing that matters is the stock’s previous trading data (price and volume) and the knowledge this data can provide regarding the security’s future movement.

A few key assumptions underpin technical analysis. To achieve the greatest results, one must be conscious of these assumptions.

1. Markets discount everything:-This theory presupposes that the latest stock price reflects all known and undiscovered information in the public domain. For example, an insider may be buying the company’s stock in big quantities in anticipation of a positive quarterly earnings announcement. While he is doing this covertly, the price reacts, revealing to the technical analyst that this could be a good buy.

2. The how is more important than why? :-This is a development of the initial assumption. Using the same scenario as before, the technical analyst isn’t interested in why the insider acquired the stock as long as he understands how the price reacted to the insider’s move.

3. Price moves in trend:-All major market movements are the result of a trend. The foundation of technical analysis is the idea of trends. For example, the recent rise in the NIFTY Index from 6400 to 7700 did not occur overnight. This transition occurred in stages over 11 months. The price will go in the direction of the trend after it has been forming due, to put it another way.

4. History tends to repeat itself:-The price tends to repeat itself in the context of technical analysis. This occurs when market participants regularly react in a surprisingly comparable manner to price fluctuations in a given direction. In up-trending markets, for example, market participants become greedy and want to buy regardless of the high price. Similarly, in a slump, market players desire to sell regardless of the low and unappealing pricing. The repetition of price history is ensuring by his human response.

The trade summary

From 9:15 a.m. to 3:30 p.m., the Indian stock exchange is open. Millions of trades take occur during the 6 hour 15 minute trading period. Take a look at a certain stock: on the exchange, trades have made every minute. Do we, as market participants, need to keep track of all the many price points at which a trade is going well?

Consider this particular stock with several trades to further explain this point. Take a look at the image below. Each point reflects a transaction that was finish at a particular moment. A graph with every second from 9:15 AM to 3:30 PM included will have numerous points. As a result, for clarity, I’ve drawn a limited time scale period in the chart below: The market began at 9:15 a.m. and closed at 3:30 p.m., with several trading taking place.

Keeping track of all these distinct price points will be next to impossible. In actuality, what is a summary of the trading activity rather than data on -The highest price at which market players were willing to transact on a given day. . The closing acts as a guide for intraday strength.

The day is consider positive if the close is higher than the open; otherwise, it is referring to as negative. Of course, as we move through the module, we will go over this in greater depth.

Technical analysis

Forward market

Leverage & payoff

4.1 – A quick recap

4.2 – Leverage in perspective

4.3 – The Leverage

4.4 – Leverage Calculation

4.5 – The Futures payoff

CONCLUSION

Appreciation

Technical analysis

Technical analysis

Introduction

Furthermore, The focus of this section will be on Japanese Candlesticks; but, before we get there, we’ll learn why we don’t apply line and bar charts.

Time Frame

Monthly

Weekly

Daily or EOD

Intraday 30 minutes

Intraday 15 minutes

Intraday 5 minutes

Open

The opening price on the first day of the month

Monday’s Opening Price

The opening price of the day

The opening price at the beginning of the 1st minute

The opening price at the beginning of the 1st minute

The opening price at the beginning of the 1st minute

High

The highest price at which the stock traded during the entire month

The highest price at which the stock traded during the entire week

The highest price at which the stock traded during the day

The highest price at which the stock traded during the 30-minute duration

The highest price at which the stock traded during the 15-minute duration

The highest price at which the stock traded during the 5-minute duration

Low

The lowest price at which the stock traded during the entire month

The lowest price at which the stock traded during the entire week

The lowest price at which the stock traded during the entire day

The lowest price at which the stock traded during the 30-minute duration

The lowest price at which the stock traded during the 15-minute duration

The lowest price at which the stock traded during the 5-minute duration

Close

The closing price on the last day of the month

The closing price on Friday

The closing price of the day

The closing price as on the 30th minute

The closing price as on the 15th minute

The closing price as on the 5th minute

No of Candles

12 candles for the entire year

52 candles for the entire year

One candle per day, 252 candles for the entire year

Approximately 12 candles per day

25 candles per day

75 candles per day

Intraday 5 minutes

The opening price at the beginning of the 1st minute

The highest price at which the stock traded during the 5-minute duration

The lowest price at which the stock traded during the 5-minute duration

The closing price as on the 5th minute

75 candles per day

Appreciation

Basics of stock market

Overview of Financial Intermediaries

The Broker of Stock

How to deal with broker

The basic services provided by the brokers include…

Depository Participants and Depository

Infosys example

Banks

NSCCL and ICCL

Forward Market

Future Trades

Before the Trade

The Futures Trade

The 3 possible scenarios post the agreement

Utilising a trading chance

Exploiting a trading opportunity

CONCLUSION

Even though each of these parties has a different perspective on gold, there are only three outcomes that could occur after three months. Let’s examine these scenarios and how they might affect each party.
In case 1, the cost of gold rises.