The objective of this section is to explain the stock selection process for the purpose of generating Trading Income and Wealth Generation using Technical Analysis and Fundamental Analysis.

Stocks are broadly classified into two groups (on the basis of time horizon for holding a stock).

1. Trading Stock
2. Investment stock.

Trading stocks

are Big Companies (large cap stocks, Index stocks). Usually, a trading stock moves within a range, for a long time. Such companies have already given big returns in past, and the possibility of giving big returns after growing as a Large cap are lesser. Usually these stocks trades within a range, and frequently they move between the lower end of the range to high end of the range, in a cyclical manner., with each cycle, the range will change by some percentages. By investing in such stocks for long term, the probability of making big returns are lesser.

The best way to handle such stocks is to identify the lower and higher range of these stocks , buy at lower range and sell at higher range. this method is called , Trading the stock .

Approximate time frame for holding a trading stock will vary between 3 months to one year. (medium term holding).

Sales growth of such companies can grow only between 5% to 15% per anum, approximately.

EBITA margins in the range of 10-15% depending on sectors. So there will be a cap on stock price growth.

The advantages of a such stocks are , that the stock price predictability are higher. Support and resistance levels are well established. Promoters and management are well known.

Investment stocks

are stocks that are in the early stages of their growth phase. Mid cap stocks Qualify as a potential investment stock. Sales growth for such companies will be easily growing more than 20 – 30 % per anum., with increasing sales, they get benefit of improving margins, which will result in increased stock price. They are the potential candidates for getting a multibagger returns.i,e returns of more than 100% - 500 % or more. We have to stay invested in such stocks for longer periods of time, usually more than 3 to 5 years or more, until they reach their full business potential. The risk in such stocks, are that, the growth may not be sustainable for long term, promoters risk could cropup sometimes, and policy changes could abruptly halt growth story. So , before buying a stock, we have to know to which category a stock belongs. If we start trading on an

Investment stock

, then we will be losing out on wealth creation. If we stay invested in a

Trading stock

, for long term, we may not make much returns.

An ideal portfolio should contain a mix of trading stocks and investment stocks in different sectors.

Some basic information is required to know to invest in stock markets successfully. The following FAQs will give the required inputs for understanding the markets.

What is an economy ?

An economy is an “X” amount of business activity to sustain a population. If the population of a country is large, we wil have a big economy (GDP), if a country is small the economy will be small.

What is a public limited company ?

Business require capital, Small companies can rise capital internally (personal savings, partnerships , pvt companies, llp), a large business requires more capital, which it has to rise from public and institutuions. Such companies are called public limited companies. They rise the capital by allotting shares to the public that are interested to invest money in such companies.

What is a stock market ?

When a share holder of a public limited company wishes to exit the company, by selling the shares he will come to a stock market where he can find a buyer for his share. In olden days a stock market was a physical area, where people use meet and make a transaction. Now a stock market is a virtual place(online market)

What is an ipo ?

IPO(initial public offer) is a process of rising capital from public. Here new shares can be created to rise capital that is required to expand the business.

What is an OFS ?

Existing share holder can sell their shares to public(Offer for Sale,OFS,). If new shares are created, money will go to the company to do the business. In case of OFS , money will go to the person selling his share.

What is a stock exchange ?

Stock exchange is a organized form of stock market, where an exchange guarantees the settlement process of a transaction.

What is a listed company ?

A company which has gone in the process of IPO or OFS , its shares will be traded in an exchange. Such companies are called listed companies.

Who is a share holder ?

A share holder is a person who has purchased share/s of a limited company. He has freedom to sell his share in that company if he does not want to stay invested any longer. But he can exit from company only if he can find an other buyer for his shares. For a listed company , especially large cap and mid cap companies, it is easy to find buyers and sellers on any day. The entry and exit into such companies is easier, compared to small cap companies. So it is allways recommended to be within these companies , so that your invested money is not stuck up, with no buyers for your stock.

What makes a share price to go up ?

If an Increase in sales, results in increased margins, then a share price will move up.

What makes a share price to go down ?

Flat sales or decrease in sales , will result in decreased margins,- this will result in falling share price.

What are the tools of analysis to buy or sell a stock ?

The methods or tools of analysis are broadly divided into two catagories
a. Fundamental Analysis
b. Technical Analysis.

What is fundamental analysis ?

Fundamental analysis is study of performance of the company Following inputs are required to do fundamental analysis of a company.
1. Study of Business of the company
2. Promoters
3. Sector In which that company is operating
4. Past performance, with reference to its competatiors
5. Management
6. Financial statements and ration analysis
7. Future business opportunities in that sector

What is Technical Analysis ?

Technical analysis is the study of share price behavior of the company. We require historical price of a company share. Studying the past price behavior, we can predict future price behavior.

Common reasons for traders and investors for losing money in stocks ?

Some of the reasons are
1. Leveraging
2. Intraday trading
3. Trading in Futures and Options without learning Technical Analysis, or some other trading
strategies and methods of analysis
4. Buying stock Randomly, without analysis
5. Not rebalancing on a regular basis
6. No exposure to multiple sectors
7. Maximum money concentrated in few stocks.
8. Buying small cap or illiquid stocks.

Technical Analysis in Detail

Understanding technical analysis will help us to identify right price to buy a stock, how long can we hold the stock and when to sell the stock.

There are many tools for technical analysis, few are mentioned below.

1. Trendlines
2. Moving averages
3. Candlesticks
4. Relative Strength Index
5. Volume of shares traded
6. Price patterns.

The most reliable tool of all the tools are Trendlines and moving averages.

More about trendlines.

There are two types of trendlines

1. Rising Trendline and
2. Falling Trendline.

Rising Trendlines: in a price chart, if we join two points from the lower range and extend we get a rising trendline. If we spot a rising trendline, we can buy the stock.

Rising Trendlines: in a price chart, if we join two points from the lower range and extend we get a rising trendline. If we spot a rising trendline, we can buy the stock.

Falling Trendlines : in a price chart if we join two price points from the higher range and extend the line, we vill get a falling trendline. Such stocks are to be avoided from buying, until the price breakes the falling trendline.

Moving Averages : By adding the closing prices of the past “X” number of days of a stock price we will get an average price. Next day again we remove the first price of the series of data and add new price.

The resulting series of data is called moving average series. This moving average price chart is also drawn along with the actual price chart and analysed for trends. Here the “X” number of days can be custom defined. It can be 5 days, 10 days , 50 days or 200 days or any other numbered series can be selected.

In technical analysis of stock prices 200 day moving average is most reliable.

So a combination of Trendlines and moving averages will give good accuracy for stock selection process.

Next 3 pages on this website contains technical analysis charts on stocks and indices , using Trendlines and Moving Averages.By observing the technical charts for a long period of time , persons can learn technical analysis.

Indices :

Technical analysis of Nifty and Bank Nifty – Daily support/and resistance levels with stoploss levels will be updated between 9 am to 9.30 am, and updated again on same day if there is any change in the levels.

Stocks :

Technical analysis of stocks that are good to be in a portfolio will be analyse here.(UpdatedDaily)

Stocks in news :

stocks that are in focus on any particular day, will be analysed here.

News could be on Financial Results, Take over, Management changes, promotor news, Takeover, Merger, Union Budget, Policy changes effecting corporates etc. Such stocks will be Fundamentally and Technically analysed . (Updated daily)

Contact 9164746605 for more detailed technical analysis training and portfolio management.