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  • Downside Tasuki Gap Candlestick Pattern

    Downside Tasuki Gap Candlestick Pattern

    Have you ever seen a scenario in which the asset price is consistently declining and suddenly starts consolidating before moving further down? The scenario described can be seen on the chart in the form of a Downside Tasuki Gap pattern. Traders constantly search for such opportunities to make huge profits. 

    In this blog, we will discuss the Downside Tasuki Gap pattern and its interpretation. Moreover, we will understand the trade setup with the help of a real-world example.

    What is the Downside Tasuki Gap pattern?

    The Downside Tasuki Gap is a bearish continuation pattern seen in candlestick charts, indicating the potential ongoing downward momentum in stock or asset is expected to continue. This pattern appears during a downtrend and is made up of three distinct candles. 

    1. First Candle:  The first candle is bearish, which signifies selling pressure. 
    2. Second Candle: The second candle opens with a gap down, continuing with the negative sentiment, and closes considerably below the close of the first candle. 
    3. Third Candle: The third candle is bullish, opens within the previous candle’s body and attempts to fill the gap created between the second candle and the first candle. However, it fails to fill the gap.

    Interpretation

    The Downside Tasuki Gap pattern is interpreted as a strong bearish signal, suggesting that selling pressure is dominant and a downtrend is likely to persist. When this pattern forms, it indicates that the sellers are pushing the prices lower, with buyers unable to regain control even as they attempt to fill the gap with the third bullish candle. The inability of the third candle to close above the gap signals a bearish sentiment and a lack of buying momentum. Traders view this as a confirmation of the downtrend, often using it to enter or add to short positions in anticipation of further declines. In essence, the pattern reflects sustained bearish sentiment, reinforcing the notion that the downward momentum is still intact. 

    Read Also: Bullish Tasuki Line Pattern

    How to Determine Target and Stop-Loss?

    Setting the Target and Stop-loss (SL) levels while trading using the Downside Tasuki Gap pattern requires careful technical analysis to manage risk and maximize the potential gains. Here’s a guide to determining each:

    Target Price

    • Gap Size Measurement: Measure the distance between the close оf the first bearish candle and the open of the second bearish candle. This gap size provides an initial estimate of the likely downward move after the formation of the pattern. Project the gap below the close of the third candle to get a target price.
    • Support Levels: Identify nearby support zones based on historical price movements. Set the target price just above these support levels as the prices often pause or reverse near established support.
    • Fibonacci extensions: Technical traders often use Fibonacci extensions to set more precise targets.

    Stop Loss (SL)

    • Above the gap: Set the stop-loss just above the gap between the first and second candles. If the price closes above the gap, it indicates the bearish signal is weakening, making the stop-loss necessary to limit losses.
    • Key Resistance Levels: Individuals can place a stop-loss just above the nearest resistance level, as a breakout above resistance could indicate trend reversal.
    • Risk-to-Reward Ratio: Ensure the target and SL offer a favorable risk-to-reward ratio, typically 1:2 or 1:3, to optimize potential profits while controlling the losses. 

    Example of Downside Tasuki Gap of Reliance Industries Ltd.

    Example of Downside Tasuki Gap of Reliance Industries Ltd.

    The above image displays the chart of Reliance Industries (RIL) stock on a daily timeframe. The stock made a high of INR 1,608 on 8 July 2024 and then declined to a low of INR 1,563 on 10 July 2024, indicating a resistance zone near the INR 1,600 level. The stock again tried to give a breakout above the resistance on 15 July 2024 but failed to do so and made a Downside Tasuki Gap pattern on 18 July 2024. The stock fell from 1,586 to INR 1,500 within the next two days.  

    Advantages of Downside Tasuki Gap Pattern

    The advantages of using a Downside Tasuki Gap pattern are:

    • Clear Bearish Signal: The pattern strongly indicates a continuation of the downtrend, making it valuable for traders looking to capitalize on bearish market movements.
    • Clear entry and exit points: The Downside Tasuki Gap provides the specific points for setting the entry, target and stop-loss (SL) levels, helping individuals in strategic trade planning and effective risk management.
    • High Reliability in Downtrends: The Downside Tasuki Gap pattern is more reliable in established downtrends, reflecting sustained selling pressure.
    • Versatile Across Markets: The pattern works across various financial instruments, including stocks, forex and commodities, allowing the traders to apply it in different markets.
    • Easy Identification: Consisting of only three candles, the Downside Tasuki Gap is easy to identify, making it accessible for traders of all experience levels to spot bearish continuations. 

    Limitations of Downside Tasuki Gap Pattern

    The limitations of using a Downside Tasuki Gap pattern are:

    • Limited Accuracy in Isolation: The pattern may not reliably indicate a downtrend if used alone. It works best when combined with other technical indicators to confirm the bearish signal.
    • Risk of False Signals: In choppy or sideways markets, the Downside Tasuki Gap can produce false breakouts, which can result in losses.
    • Not Ideal for All Market Conditions: This pattern performs best in clear downtrends and may not work well in low volatility or consolidation markets.
    • Short-Term Reversal Risk: If the gap fills or if buying pressure emerges, the trend may reverse, which can potentially result in unexpected losses.

    Read Also: Upside Tasuki Gap Pattern

    Conclusion

    The Downside Tasuki Gap pattern can be a valuable tool for traders to identify bearish continuation signals in a downtrend. It offers clear entry and exit points, is easy to recognize and is most effective when used in combination with other technical indicators to confirm trends. Its reliability decreases in choppy or consolidation markets as it can generate false signals, which can lead to a bullish reversal. Understanding how to set accurate stop-loss and target is essential. Overall, the Downside Tasuki Gap is a useful chart pattern for experienced traders when applied strategically in suitable market conditions. 

    Frequently Asked Questions (FAQs)

    1. What is the Downside Tasuki Gap pattern?

      The Downside Tasuki Gap is a bearish continuation candlestick pattern that occurs in a downtrend. It features two bearish candles with a gap between them and is followed by a bullish candle that doesn’t fully close the gap, signaling the potential continuation of the downward trend.

    2. How to identify the Downside Tasuki Gap pattern?

      The pattern consists of three candles: a bearish candle, a second bearish candle and a bullish candle with a gap between the first two candles. The third bullish candle partially fills the gap and doesn’t close above it. This confirms that bearish sentiment remains strong.

    3. What does the Downside Tasuki Gap indicate to traders?

      The Downside Tasuki Gap pattern indicates that sellers are in control, and the downtrend is likely to continue. Traders often interpret it as a bearish signal to enter or add to short positions.

    4. What are the limitations of using the Downside Tasuki Gap pattern?

      It can produce false signals in sideways or consolidation markets. Additionally, setting the accurate stop-loss (SL) and target can be challenging without combining it with other indicators.

    5. Can the Downside Tasuki Gap be used in any market?

      The Downside Tasuki Gap pattern can be applied in various financial markets, including stocks, forex and commodities, but it is the most effective in a strong downtrend. 

  • Why Invest in an IPO and its Benefits?

    Why Invest in an IPO and its Benefits?

    Initial Public Offering (IPO) has long been one of the ways companies raise funds from the general public, but recently, many IPOs have been receiving extraordinary interest from investors. The rising popularity of IPOs is due to the various benefits they offer to investors.

    In this blog, we will explore the reasons why companies launch an IPO and the various benefits of investing in an IPO.

    What is an IPO?

    A firm that intends to be listed as a public company must first raise money via an IPO or initial public offering. The funds raised can be used for growth, repayment of debts, acquisition, etc. There are also situations when shares offered in an IPO are sold by the early-stage investors or the firm’s promoters. After the IPO, the shares of the company are listed on the stock exchange and can be traded.

    Why Do Companies Offer IPO?

    Companies choose initial public offerings (IPOs) for the following reasons:

    1. To raise capital: Businesses typically seek to raise funds for business expansion since they can use the funds to expand their operations.

    2. Debt Repayment: With the money raised, the company may pay off its current debt and improve its debt ratios, making this another reason for raising capital.

    3. New Opportunities: Businesses can use the funds to establish operations in overseas markets by exporting their goods and services.

    4. Research: Companies can use the money raised from the initial public offerings (IPOs) to improve the quality of their goods and services by developing new technologies. 

    5. Liquidity for Current Investors: Founders, venture capitalists, and early investors occasionally sell their ownership stake through an initial public offering (IPO) process and look for other investment opportunities.

    6. Acquisitions: Funds raised in an IPO can be used by the company to acquire other businesses.

    7. Increase in Popularity: A successful initial public offering (IPO) increases the popularity of the company among investors and its customers, which can result in higher sales and profits.


    Why Should You Consider Investing in an IPO?

    The primary reasons to consider investing in an IPO are as follows- 

    • Listing Gains – In an IPO, if the shares trade at a price higher than the offer price on the listing date, then the investors can sell their shares and realize substantial listing gains. 
    • Investment Opportunity – An IPO offers individuals a chance to invest in companies in their early stages.
    • Portfolio Diversification — If the company is operating in a different sector than the ones you are currently invested in, individuals can invest in IPOs of such companies and minimize their overall portfolio risk.
    • Potential Long-Term Growth — Companies with strong historical performance tend to have longer-term growth potential. Investors can judge the past performance of the company by using the data provided in the Red Herring Prospectus (RHP).
    • Lower Pricing – Some initial public offerings (IPOs) are intentionally issued at a lower price to attract more investors, making them an excellent investing opportunity for traders or investors.
    • Transparency – The annual reports and other documents of companies launching an IPO are subject to strict regulations, which makes them more transparent.
    • Liquidity – Once a firm makes its shares public, its shares can be easily bought and sold on the stock exchange.

    Benefits of Investing in IPO

    The major benefits of investing in an IPO are as follows:

    1. Immediate Gains: If the company opens at a price higher than the offer price, investors can choose to exit by selling the shares received and realizing substantial listing gains. There were several instances in the recent past when the shares offered in an IPO increased substantially as the investors who didn’t get the allocation tried to purchase it on the listing date.

    2. Flexibility: Investors can purchase and sell shares at any time without incurring high transaction costs in the stock market, as the company is publicly listed.

    3. Fair Opportunity: SEBI has several regulations in place to ensure that small investors have an equal opportunity to receive shares in an initial public offering (IPO). In case of an oversubscribed issue, a lottery system is used to allot IPO shares to the general public. However, if the IPO is not fully subscribed, each IPO applicant receives the number of shares they have applied for.

    4. Compliances: SEBI has established strict regulations for companies launching an IPO to safeguard individual investors. To allow investors to make an informed choice, the company’s prospectus must include all necessary information, such as performance, financials, growth, risks, and plans. 

    5. Purchase at a Discount: Companies can choose to offer their shares at a reduced price when they go public to attract more investors. Due to the initial low price, the shares typically list at a premium, which creates a positive image of the company and results in listing day gains for the investors. 

    6. Ownership: Investors who are allotted shares in an IPO are regarded as shareholders of the business and can cast their votes at the annual general meetings.

    7. Early Stage Opportunity: An initial public offering (IPO) allows investors to purchase stock of a company during its early stages. Some of these companies can become a major success in the future and deliver multi-bagger returns to their investors.

    8. Consistent Income: Several companies distribute dividends to their shareholders. Therefore, investing in these dividend-paying businesses allows you to generate a steady income. 

    Conclusion

    On a concluding note, you may be considering investing in an IPO the next time an opportunity comes across by reading the advantages mentioned above. However, keep in mind that an IPO’s performance solely depends on the subscription data of a particular IPO. Market sentiment on the listing date and several other factors also affect listing gains. To make an informed investment decision, one must conduct a thorough financial analysis, which includes evaluating the company’s historical performance, growth prospects, and reasons for raising funds. Before making any investing decisions, you, as an investor, must speak with your investment advisor.

    Frequently Asked Questions (FAQs)

    1. Why does the company launch an IPO?

      A corporation launches an initial public offering (IPO) to raise funds, which it might utilize for debt repayment, business expansion, and other purposes. 

    2. Is an IPO a good option for short-term or long-term investments?

      Shares allotted in an IPO can be kept for the long term as well as the short term, depending on the future growth prospects of the company. The holding period also depends on the investor’s goal; some may seek listing gains, while others hold it for long-term potential growth.

    3. Can I apply for an IPO without a Demat Account?

      Investors cannot apply for an IPO if they do not have a Demat account.

    4. How are the IPO’s issue prices determined?

      In a fixed price issue, the company’s underwriter sets the price at which the investors can purchase shares. In a book-building issue, the company announces a price range, and the investor bids within that range to determine the issue price.

    5. Is it right to invest in every Initial Public Offering (IPO)?

      No, it is not wise to participate in every initial public offering (IPO) since there may be instances where the company may be aggressively priced, and the IPO’s issue price may be too high. Instead, it is advised to research the company’s fundamentals before investing.

  • What is NII in IPO?

    What is NII in IPO?

    An IPO is an opportunity for a company to raise capital by offering shares to the general public for the very first time. Companies use the funds raised to expand, pay off debts or acquire other companies. In the world of IPOs, the investors are classified into anchor investors, retail investors, qualified institutional buyers, and non-institutional investors, all of which play an imperative role in making an IPO successful. 

    In this blog, we are going to discuss what NIIs are, categories of investors in the NII category, rules and regulations, key features of the NII category, and how investors impact IPO success. This information will allow you to make informed decisions for investment in IPOs, whether you are an experienced investor or new to the stock market.

    What is NII?

    The NII full form is Non-Institutional Investors. A retail investor invests relatively smaller amounts in an IPO, whereas NIIs are high net worth individuals or entities with the ability to invest large amounts of money, often higher than the minimum amount defined under the market regulations. Any individual, company, trust, or other entity except retail and institutional investors can be referred to as an NII.

    For example, in India, a company applying for more than INR 2 lakh in an IPO is considered an NII. NII quota in an IPO is equal to 15%, i.e., 15% of the shares offered in the IPO are reserved for NIIs. NIIs are different from QIBs as they are not SEBI registered. NIIs compete for the allocation of IPO shares in their category based on demand and supply in the NII segment of the IPO.

    Since the NIIs are sophisticated investors, their participation in an IPO is an affirmation of the company’s potential and stability. High levels of NII participation increase the perceived value of an IPO and positively influence other investors, hence increasing the overall subscription.

    Categories of NII in IPO

    The NII category consists of several subtypes that have varying attributes and investment objectives. Below are some of the main categories under NIIs:

    • High-Net-Worth Individuals (HNIs): HNIs form a significant chunk of the NII category. Usually, HNIs are individuals with a high income and a net worth of at least INR 5 crore. HNIs could comprise entrepreneurs, high-income earners, experienced investors, etc., seeking sizable returns from IPO allocations.
    • Corporations and Trusts: The NII category often consists of applications from corporations, partnerships, and trusts, among others, that are not part of the retail segment. Corporations invest in IPOs to diversify their asset portfolios or to acquire stakes in companies that are perceived to have growth potential within their industries. Trusts may also seek IPO allocation for the management of wealth, among other growth strategies.
    • Family Offices: Family offices managing the wealth and assets of high-net-worth families are also a part of the NII category in IPOs. The investments are generally long-term growth plays, as they look to buy stakes in promising companies in their initial phase.

    NIIs Rules and Regulations

    The NII segment is highly regulated by rules and regulations, which are different from the regulations applicable to retail and QIB segments in IPOs. A few of the significant rules are as follows:

    • Quota Allocation: At least 15% of the total IPO issue size is reserved for NIIs. This percentage is known as the NII quota in the IPO. All the remaining shares are allotted to Retail Investors, QIB Investors, etc.
    • Minimum Investment: NIIs must apply for IPO shares worth more than INR 2 lakhs, with no upper limit to the investment amount. NIIs are further categorized into sNII and bNII. Investors with IPO application amounts between INR 2 lakhs to INR 10 lakhs are categorized as small NII or sNII. Meanwhile, those investing more than INR 10 lakhs fall under the bNII category.
    • Allotment Rules: In oversubscribed IPOs, each NII applicant is allotted shares worth minimum application size, i.e., INR 2 lakhs, subject to the availability of equity shares in the NII portion. The same is applicable for both sNII and bNII. 
    • IPO Application Modification and Cancellation: Once the IPO application is submitted, NIIs cannot cancel their bid. NIIs can modify their application and are allowed to increase the bid quantity or price.

    Features of an NII Category

    The features of the NII category specify the type of behavior that the investor adopts in the IPO market. Some of the basic features of NIIs include the following:

    • High Investment Threshold: NIIs are required to invest a minimum of INR 2 lakhs in IPO. In India, retail investors can invest a maximum of INR 2 lakhs in an IPO. High investment requirements clearly distinguish NIIs from retail investors.
    • Flexibility in Lot Size to Invest: The NIIs, on the other hand, are not subject to this maximum investment amount applicable to the retail investor.
    • High Risk and Reward: Given that NIIs invest more, a higher risk is associated with the participation of NIIs. However, often, this risk is balanced by the prospect of high returns when IPOs perform well post-listing.
    • Strategic and Informed Investment Approach: Unlike retail investors, NIIs typically do extensive research before applying. They rely on market analysts, financial advisors, or in-house teams to assess the company’s financials, management, industry position, and potential for future growth.
    • Tax Considerations: They also have to weigh the tax implications of their investment returns. NIIs can sell their shares on the listing date but need to be cautious of the taxes applicable to the returns realized.  

    Read Also: What Is An IPO Mutual Fund? Should You Invest?

    Conclusion

    In conclusion, NIIs play a crucial role in the success of an IPO, as they invest substantial amounts of funds and also affect the overall subscription levels. Investment flexibility, high net worth, and special quota reserved for them are some of the key features of the NII category. NIIs lend credibility and attract greater interest and participation from retail investors.

    Every high-net-worth investor, as well as a corporate body intending to invest in an IPO, should be aware of the nuances in the NII category, due to which only those with relevant experience and capital can participate in the NII segment in IPOs.

    Frequently Asked Questions 

    1. What is NII in IPO? 

      NII stands for Non-Institutional Investor. This refers to an individual or organization investing substantial amounts in an IPO, usually exceeding INR 2 lakh in India.

    2. How much is reserved for NII in an IPO? 

      NIIs have 15% of the IPO size reserved for them.

    3. Are NIIs required to be registered with SEBI?

      No, NIIs are not required to be registered with the SEBI.

    4. Do HNIs fall under the category of NII?

      High Net-Worth Individuals (HNIs) fall under the category of Non-Institutional Investors (NIIs).

    5. Can NIIs cancel their IPO bids?

      NIIs are not allowed to cancel their IPO bids but can modify them by increasing the quantity or price.

  • Bullish Belt Hold Pattern

    Bullish Belt Hold Pattern

    Imagine you are closely monitoring the charts of a stock that has been in a downtrend for several days. Every attempt to rebound appears weaker, and the downtrend shows no signs of weakening. Suddenly, one candlestick draws your attention: a big green candle that closes near its high, standing out against the bearish backdrop. Could this be the reversal sign you’ve been waiting for?

    In this blog, we will introduce you to the Bullish Belt Hold Pattern, a simple yet impactful single candlestick pattern that may suggest the initial phase of a bullish trend reversal. We will learn about its advantages, disadvantages and steps for setting entry, targets, stop-loss, etc.

    What is the Bullish Belt Hold Pattern?

    The Bullish Belt Hold is a single candlestick pattern indicating a possible reversal of a downtrend. This pattern, rooted in the Japanese candlestick charting methodology, is used by technical analysts to spot changes in market sentiment.

    The Bullish Belt Hold pattern consists of a long green candlestick with minimal or no lower shadow. The candlestick opens near its low and then closes much higher, slightly below the high of the trading session. The pattern usually forms at the bottom of a downtrend, indicating a possible shift to bullish sentiment. The candlestick has a non-existent lower shadow and a short upper shadow. 

    The Bullish Belt Hold pattern shows that while sellers may initially drive prices down, buyers promptly intervene, resulting in a significant price surge and a closing near the peak. The change from negative to positive sentiment may signal the onset of an uptrend.

    Additionally, traders often look for validation from subsequent candles. A bullish candlestick after the formation of the Bullish Belt Hold pattern reinforces confidence in the bullish reversal.

    How to Determine Target and Stop-Loss?

    An individual can follow the below steps to determine price levels for entry, target and stop-loss:

    • Entry: Enter a long position when the price closes above the high of the Bullish Belt Hold candlestick or after the formation of a confirming bullish candle. Even though the candle suggests a trend reversal, it is safer to wait for a second bullish candle to confirm the shift.
    • Stop-loss: Set the stop-loss just below the lowest point of the Bullish Belt Hold candle for optimal protection against losses. This ensures that if the pattern gives false signals, your losses are limited. Also, allow a slight buffer of around 0.5% below the lowest point to avoid getting the stop-loss triggered due to minor price fluctuations.
    • Target: The most common approach for determining targets involves measuring the size of the Bullish Belt Hold Candle (from open to close) and projecting this distance upwards from the closing price. For instance, if the pattern’s candle is of 10 points, you could aim for a target that is 10 points higher than your entry point.

    Additionally, you can also identify the closest resistance level or recent high to use as a target point. When the price nears a strong resistance level, it is wise to take profits or keep a trailing stop-loss.

    Read Also: Closing White Marubozu Pattern

    Example of Bullish Belt Hold Pattern of Aarti Pharmalabs Ltd.

    Example of Bullish Belt Hold Pattern of Aarti Pharmalabs Ltd.

    The image above shows the clear formation of the ‘Bullish Belt Hold’ pattern on the daily timeframe of Aarti Pharma Labs Limited, a manufacturer and seller of pharmaceutical and nutraceutical products. It can be seen that the pattern formed on 15 April 2024, and the stock’s closing price was INR 460. On 16 April 2024, the stock price increased to INR 468 and gave a breakout above the high of the pattern’s candlestick. The stock was in an uptrend and made a high of INR 515 on 25 April 2024. 

    Advantages of Bullish Belt Hold Pattern

    The advantages of the Bullish Belt Hold pattern are:

    • Clear Reversal Sign: The pattern signals a possible bullish reversal in a downtrend, making it easier for traders to identify a change in the market sentiment.
    • Simple Pattern: Its distinct structure- a lack of lower shadow paired with a strong close near the high- makes it easy to identify for traders.
    • Versatile across Multiple Time Frames: This pattern can be used on daily, hourly or minute charts, making it suitable for different trading styles, such as intraday and swing trading.

    Limitations of Bullish Belt Hold Pattern

    The limitations of the Bullish Belt Hold pattern are:

    • Unreliable in Strong Downtrends: In a strong downtrend, a Bullish Belt Hold pattern may just represent a temporary pullback rather than a bullish reversal, leading to false signals.
    • Single Candlestick Pattern: Though useful, the pattern lacks the contextual insights that multi-candle patterns offer, making it inherently riskier to depend on without further analysis or supportive indicators.
    • Confirmation Needed: To enhance reliability, it is often necessary to seek confirmation from subsequent candles or indicators, but this can lead to delayed entry and diminished possible profits.

    Read Also: Introduction to Bullish Candlestick Patterns: Implications and Price Movement Prediction

    Conclusion

    To summarise, the simple structure and ability to predict changes in market trends make the Bullish Belt Hold pattern a useful tool for traders. Despite its effectiveness, this single candle pattern does have its limitations, especially in volatile markets or strong downtrends. Hence, one should remember that the pattern can give false signals if used alone, so combining it with other indicators like resistance levels, trendlines, or volume analysis is best. Ultimately, understanding the context in which the ‘Bullish Belt Hold’ appears is important for making good trading decisions. By incorporating this pattern into a comprehensive analysis, traders can confidently navigate changing market dynamics.

    Frequently Asked Questions (FAQs)

    1. In what market conditions is the Bullish Hold most effective?

      It is most effective in a downtrend.

    2. Does the Bullish Belt Hold pattern work across all markets?

      Yes, the pattern can be used to trade in different markets such as stocks, forex, commodities and currencies.

    3. Should I wait for confirmation before taking a position based on the Bullish Belt Hold pattern?

      Traders should wait for confirmation from other indicators to reduce the risk of false signals.

    4. How does it differ from other bullish reversal patterns?

      Unlike other bullish reversal patterns, the Bullish Belt Hold is a single-candle pattern that provides a quick reversal signal.

    5. Is the Bullish Belt Hold pattern suitable for day trading?

      Traders use the Bullish Belt Hold pattern for day trading and swing trading because of its reliable bullish reversal signal.

  • What is an IPO Subscription & How Does it Work?

    What is an IPO Subscription & How Does it Work?

    You may be interested in investing in an Initial Public Offering (IPO) as a new investor. Still, you may need to check IPO subscription status before investing to gauge the demand for IPO shares. Moreover, after applying for the shares, you might be curious about the status of your allocation. 

    In this blog, we will discuss the IPO subscription procedure and how to verify the IPO’s subscription and allotment status. 

    What is an IPO Subscription?

    The procedure by which an investor applies for the shares of a company when they are first made available to the public is known as an Initial Public Offering (IPO). The goal of such an issue varies from company to company; some may use the proceedings to pay off debt, while others may use them to expand their operations. IPO subscription is the process in which the investor applies for the shares offered in the IPO. The investors specify the quantity and the price in their IPO application to subscribe to the IPO. The corporation offers its stock or shares to the public to raise money, and investors subscribe to these shares. This process is known as an Initial Public Offering (IPO).  

    How Does an IPO Subscription Work?

    The steps which are involved in IPO subscription are as follows-

    1. Announcement – A prospectus that includes all of the firm’s information, such as its business model, financials, and the way the funds will be used, must be released when a company chooses to go public and seek money through an initial public offering (IPO). 

    2. Setting The Price – The company must set the price of the issue at which they want to offer their shares to the public in a fixed price issue. On the other hand, in a book-building issue, companies specify a price range within which investors can bid for the shares.

    3. Subscription Period of an IPO – The dates on which the investors can apply for an IPO must be announced. Generally, the IPO opens for 3 to 5 days.

    4. Categorization of Investors –  In an IPO, there are different categories of investors, subject to different rules for participating in an IPO. Different types of investors are mentioned below:

    • Retail Investors – These small investors can apply up to INR 2 Lakhs.
    • Non-Institutional Investors – These investors are considered HNI individuals or corporate houses and invest large amounts.
    • Qualified Institutional Buyers – This category includes banks, mutual fund houses, insurance companies, etc.
    • Anchor Investors – These include large institutions that apply for shares before the issue opens for subscription for the general public.

    5. Bidding – During this phase, the investors apply for the shares. They can specify the quantity and the price at which they wish to apply for IPO shares.

    6. Status of Subscription – Real-time tracking of IPO subscriptions is possible. If the IPO is popular and the investor’s demand for shares exceeds the number of shares offered, the offering is deemed oversubscribed.

    7. Allotment of Shares – The shares offered in an IPO are allotted to the investors in the following way:

    • Allotment to QIB: Shares are allocated to QIBs at the discretion of merchant bankers. But if the IPO is oversubscribed, shares are allotted proportionately.
    • Allotment to Retail Investors: If the IPO is undersubscribed or fully subscribed, retail investors receive the number of shares they applied for. On the other hand, if the IPO is oversubscribed, the investors will be allotted shares based on a lottery system.
    • Allotment to HNIs: In case of an oversubscription, shares are allotted to HNIs proportionately.

    8. Credit of Shares – The allotted shares will be credited to the investor’s demat account.

    9. Listing – Finally, the shares get listed on the stock exchange and become available for trading for investors.

    What is the IPO Process?

    The significant steps of the IPO process are as follows-

    1. Deciding the Issue Size – The first step would be deciding on the issue size or the amount of capital the company wants to raise.

    2. Appointment of Underwriter – The company must appoint an underwriter or investment bank to handle all the regulatory procedures, which includes setting the price range and other due diligence.

    3. Preparing DRHP – The next step would be preparing a Draft Red Herring Prospectus (DRHP), which contains all the company’s business details and financials.

    4. Submission of DRHP– The DRHP is filed with the Securities and Exchange Board of India to get regulatory approval.

    5. Investor Presentation – The company identifies potential investors to present their future plans for the company and tries to convince investors to invest.

    6. Pricing of the Issue – The issue price is set in a fixed price IPO, and in a book-building IPO, a price range is determined, and the issue price is set based on market demand.

    7. Subscription Period – Typically, an IPO opens for subscription for a period of 3 to 5 days, during which an investor can apply for the IPO.

    8. Allotment – Once the subscription period is over, the shares are allotted to the successful bidders and are credited to their demat account.

    9. Listing – The shares are listed on the exchange and become available for trading for the investors.

    How to Check IPO Subscription Status?

    The steps to check the IPO subscription status are as follows-

    1. Through Exchange – One can visit the websites of Indian stock exchanges, i.e. the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE). Select the Initial Public Offering (IPO) and review the subscription data for different investor categories.

    2. Registrar – Another choice is to go to the registrar’s website, which manages the IPO allocation procedure and offers real-time subscription information. An investor can check the allocation status on the website as soon as the shares are allocated. 

    How to Check IPO Allotment Status?

    The process to check the IPO allotment status on the registrar’s website by following the steps mentioned below –

    1. Registrar Website – Investors can visit the website of the relevant registrar and click on the IPO allotment status tab.

    2. Select IPO – An investor must select the IPO from the drop-down menu.

    3. Enter the Details – Enter the details such as PAN number, application number, or Demat account number.

    4. Status – Click on the submit button, and you can review the status of the IPO application, whether the shares are allotted to you or not.

    Conclusion

    To sum up, as an investor, you need to understand what an initial public offering (IPO) is and the associated procedures. One must know how to track the IPO subscription status, and once the subscription period ends, monitoring application status is also essential. IPO does not ensure a guaranteed return because sometimes IPO shares get listed on the stock exchanges at a discount. Therefore, before making any investment decisions, you should assess your risk tolerance and speak with your financial advisor.

    Frequently Asked Questions (FAQs)

    1. What will happen if an IPO is oversubscribed?

      If an IPO is oversubscribed, the allotment of shares will be based on a lottery system.

    2. Is an oversubscribed IPO good?

      Generally, investors view an oversubscribed IPO favorably since it shows positive market sentiment and faith in the company’s future growth strategy. Oversubscription, however, is not always a sign of a strong stock exchange listing.

    3. What is the meaning of ASBA?

      Application Supported by Blocked Amount, or ASBA, is a way to pay for IPO shares in which the amount required to apply for an IPO is blocked in the investor’s bank account.

    4. How long will it take to get the refund if shares are not allotted in an IPO?

      If shares are not allotted to the investor, the blocked amount is unblocked within three to seven days.

    5. Where can I check the IPO allotment status?

      You can check the IPO allotment status on the registrar’s website after entering the required details.

  • Closing White Marubozu Pattern

    Closing White Marubozu Pattern

    Candlestick patterns are key components of technical analysis, providing traders and investors a glimpse into market psychology and trends. The Closing White Marubozu pattern is one of the most reliable patterns that signals a bullish trend. It is easy to spot, and therefore, someone doesn’t need to be an expert to use this pattern.

    In this blog, we will discuss the features, significance, advantages and limitations of the Closing White Marubozu pattern. Moreover, we will give you a trading setup to assist you in effectively executing trades based on this pattern.

    What is a Closing White Marubozu pattern?

    The Closing White Marubozu pattern is a bullish candlestick pattern, signifying an intense bullish movement is around the corner. The pattern consists of a single candlestick, and an overview of key features of the pattern is mentioned below. 

    • Long white/green body: The candlestick has an elongated white or green real body, indicating substantial upward price movement.
    • Opening Price above the Low: The opening price of the candlestick is above the low of the trading session.
    • Close at the High: The trading session’s close price is approximately equal to the high, resulting in no upper shadow and a small lower shadow.

    Interpretation: The pattern shows that buyers drove the price up consistently as the closing price is near the high of the trading session. The small lower shadow indicates minor support near the opening price, and the overall sentiment remains bullish. The candlestick often appears during a downtrend and signals a possible bullish reversal. However, during an uptrend, this pattern acts as a continuation pattern and strengthens the bullish trend.

    Read Also: Black Marubozu Candlestick Pattern

    How to Determine Target & Stop Loss?

    Entry, Target and Stop-loss are the most important aspects of a trading setup, which helps traders take advantage of a trading setup. Traders can follow the methods mentioned below to set a target and stop-loss. 

    Entry: Wait for the subsequent candle to close above the Closing White Marubozu candlestick to validate the bullish momentum. Create a long position upon confirmation.

    Stop-Loss: Place the stop-loss slightly below the low of the Closing White Marubozu candle. This is because a breakdown below the low would invalidate the bullish signal. Add a small buffer to account for market noise and avoid premature exits.

    Targets: Use Fibonacci extensions to identify target projections for the Closing White Marubozu pattern after the price gives a breakout above the pattern. Furthermore, traders can identify historical resistance levels where prices may reverse. These levels can serve as targets.

    Assess the risk by calculating the distance from your entry point to the stop-loss. Establish a target that aligns with a defined risk-to-reward ratio, such as 1:2 or 1:3. Additionally, use trailing stop-loss to secure your profits as the price moves towards your targets. 

    Example of Closing White Marubozu Pattern of Nifty 50 Index

    Example of Closing White Marubozu Pattern of Nifty 50 Index

    The image shows the chart of NIFTY 50, the Indian index representing the top 50 companies. A clear formation of a Closing White Marubozu pattern on 27 July 2022, and the index gave a breakout on 28 July 2022 at 16,929. On 19 August 2022, Nifty 50 closed at 17,758, i.e. more than 800 point move. 

    Advantages of Closing White Marubozu pattern

    The advantages of using a Closing White Marubozu pattern are:

    • Strong Bullish Signal: The Closing White Marubozu pattern signals a strong surge in buyer activity, showcasing a bullish sentiment. The pattern helps predict a possible bullish trend.
    • Simplicity: It is easily identifiable due to its distinct elongated white body, characterized by the absence of an upper shadow and the presence of a small lower shadow. Beginner traders can easily use it since it does not require extensive trading knowledge.
    • Versatile application: The pattern works across various time frames, seamlessly adapting to intraday, daily, and weekly charts. It can also be used across multiple markets, including stocks, commodities, etc.
    • Can be combined with other indicators: Combining it with other indicators, such as RSI, MACD, or Bollinger Bands, enhances its reliability as these other tools confirm the bullish signal of the pattern. Volume analysis can increase confidence in the signal of a pattern.

    Limitations of Closing White Marubozu pattern

    The limitations of using a Closing White Marubozu pattern are:

    • Vulnerable to Market Noise: In volatile markets, a Closing White Marubozu pattern can emerge, following which the asset price may struggle to increase. Abrupt reversals or unexpected news can lead to false signals.
    • Limited Context on its own: It offers no insights into the overall market trend or key fundamentals. To use it effectively, the trader must do additional analysis, like support or resistance levels and overall trends.
    • No Guarantee of Success: Patterns do not assure price direction; their effectiveness depends on market conditions, timeframes, and supporting analysis.
    • May Fail in Downtrend: Amid a downtrend, a Closing White Marubozu pattern can often signify a mere temporary retracement instead of indicating a reversal in the trend. Taking action without considering the bigger picture may result in losses.

    Conclusion

    The Closing White Marubozu candlestick pattern signals strong bullish momentum and offers insights into the market sentiment in technical analysis. Its simplicity and clarity make it an easy pattern for novice and experienced traders, especially when combined with other indicators and market context. It should not be used in isolation; rather, it must be integrated into a comprehensive strategy that includes confirmation signals, effective risk management, and a deep understanding of market trends. Traders can improve their trading performance by using their strengths and addressing their limitations. Always trade with a plan and consult a financial advisor before trading.

    Frequently Asked Questions (FAQs)

    1. Is the Closing White Marubozu a bullish or bearish pattern?

      It is a bullish pattern, often signaling an upward momentum or trend continuation.

    2. What is the difference between a White Marubozu and a Closing White Marubozu pattern?

      A White Marubozu pattern has no shadows, i.e. the candle opens at the low and closes at the high, while a Closing White Marubozu candlestick pattern has a small lower shadow.

    3. How can volume confirm the pattern?

      High trading volumes during the pattern’s formation increases the reliability of the pattern.

    4. What timeframe is best for using this pattern?

      It works on all timeframes, but higher timeframes like daily or weekly provide more reliable signals.

    5. Can the Closing White Marubozu pattern signal a breakout?

      Yes, the Closing White Marubozu pattern can signal a breakout when it forms near resistance levels or after consolidation. 

  • What is FPO: Meaning, Types, Benefits & How it Works?

    What is FPO: Meaning, Types, Benefits & How it Works?

    As an investor, you have probably heard that a firm is planning an Initial Public Offering (IPO), representing the company’s first attempt to raise money from the general public. But what if the business wishes to raise more money after already launching an IPO? There is a procedure called a “Follow-on Public Offer” whereby a company already listed on the stock exchange can raise money from the general public after the IPO. 

    In this blog, we will give information about the Follow-on Public Offer (FPO), 

    What is a Follow-on Public Offer (FPO)?

    A publicly traded corporation can raise money by issuing shares through follow-on public offerings. The corporation raises money to meet capital requirements, expand operations, pay off debt, and other goals. Since the procedure is comparable to an Initial Public Offering (IPO), it can be regarded as a fantastic choice for an established business with a solid track record. 

    How does a Follow-on Public Offer (FPO) work?

    The steps involved in a Follow-on Public Offer are as follows-

    1. Deciding for FPO – The company must first determine whether to raise money through a follow-on public offering. It must also determine the reason behind the FPO, which can be expansion, paying off debt, etc. 

    2. Preparing the Document – After determining the goal of the follow-on public offer, the corporation must prepare the document containing FPO’s details, including the number of shares, pricing, and usage of proceeds. 

    3. Filing the document with the Regulator – The prepared paperwork must be sent to the Securities and Exchange Board of India, the Indian capital market regulator. 

    4. Type of FPO – When developing its offering, the business must choose between a dilutive and a non-dilutive FPO. 

    5. Price Band– The price band within which the investors can bid for shares offered in the FPO must be decided. 

    6. Subscription – Investors can subscribe to the issue by submitting applications through their brokers. 

    7. Allocation of Shares – Following the subscription period, the shares are credited to the demat accounts of investors. 

    8. Listing of Shares – The latter stages involved listing the shares on the market and allowing the general public to trade them.

    Types of Follow-on Public Offers (FPOs)

    The two kinds of Follow-on Public Offer are –

    1. Diluted Follow-On Public Offers – The corporation issues new shares in a diluted follow-on public offer, increasing the overall number of free float shares in the market over time. As a result, existing investors’ shareholding is diluted, but the business gains from this since they can use the funds for debt reduction or expansion. 

    2. Non-Diluted FPO – As stated in the Non-diluted Follow-on Public Offer, current shareholders, including promoters and venture investors, sell a portion of their shareholding rather than the company issuing new shares. This signals that current shareholders are selling their stakes, which raises the market’s share count and liquidity. Investors must exercise caution when investing in such FPOs.

    Examples of Follow-on Public Offers

    Two of the most recent Follow-on Public Offers in India are given below-

    1. Ruchi Soya Limited launched its follow-on public offer of INR 4,300 crores in 2022 to raise capital to reduce its debt.

    2. Yes Bank launched an FPO in 2020 to raise INR 15,000 crores and it was a dilutive FPO.

    What are the Benefits of a Follow-on Public Offer?

    FPO offers various benefits for both companies and investors, as shown below.

    For Companies – The significant benefits of Follow-on Public Offer for companies are as follows-

    Capital – Companies can raise adequate funds through follow-on public offerings that can be used for various purposes.

    • Increased Liquidity – The company’s number of shares will increase after the IPO, which increases liquidity.
    • Reducing Debt – The debt of the company can be reduced through proceeds received from follow-on public offerings.
    • Attracts Investors –Investors usually want to invest in companies that are raising funds to fund their expansion projects.
    • Acquisition – With the raised capital, the company can acquire different companies and expand its business.
    • International Expansion – Through FPO, companies can raise capital and export their goods to other countries to expand their geographical reach.

    For Investors – The significant benefits of Follow-on Public Offer for investors are as follows-

    • Opportunities – The investors consider a follow-on public offer as an investment opportunity.
    • Proven Track Record – Established companies with proven track records issue follow-up public offers.
    • Discounted Prices – Follow-on public offers are typically offered at a discount compared to their market price.
    • Diversification – If the company has strong fundamentals, you can add it to your portfolio to diversify it.

    Why does a Company bring its Follow-on Public Offer?

    The major factors which make a company bring its Follow-on Public Offer are as follows-

    • Additional Capital – The company might require additional funds to expand its operations, acquire new companies, etc.
    • Debt Reduction – The companies can use the capital raised to reduce debt, which eventually reduces interest expense.
    • Improve Liquidity – When a company floats new shares in the market, the liquidity increases.
    • Opportunity to Raise Funds– When the company is performing well and the market sentiment is favorable, the companies can raise funds through follow-on public offers to leverage the investor’s high interest.
    • Compliance – Some companies are required to maintain a minimum of a certain percentage of public shareholding; therefore, a follow-on public offer can be a way to increase the number of shares available for trading in the market.
    • Mergers and Acquisitions – The company can use the funds raised through follow-on public offers to acquire new companies without taking any loans from banks.

    How to Apply for a Follow-on Public Offer?

    There are two ways to apply for a Follow-on Public Offer-

    Online Method

    1. Login – Through online mode, the first step is to log in to your broker account.

    2. Choosing Option – Then go to the section of FPO or IPO.

    3. Choosing the FPO – A table will list FPOs open for subscription, and you can choose the FPO you want to apply for.

    4. Details of Application– Enter the details, such as the quantity of the shares and the price at which you wish to apply.

    5. ASBA– ASBA stands for Application Supported by Blocked Amount, which is the method approved by SEBI to participate in an FPO. Ensure that the amount required to apply for an FPO is in the bank account.

    6. Submission – The last step would be submitting the application form.

    7. Approval of Mandate – The investors are requested to approve the mandate request received on their UPI application. This will block the amount in the investor’s account.

    Offline Method

    1. Getting the Form – You must visit your broker’s branch and ask about the FPO application form.

    2. Filling the Details – The form provided by the brokers requires various details, such as a Demat account number, PAN Card, quantity to be purchased, and bidding details.

    3. ASBA Form Submission: Visit your bank branch and fill out an Application Supported by Blocked Amount (ASBA) form with all the details related to the FPO application.

    4. Submission of Form – Submit the form to the broker with complete details.

    5. Confirmation – Then, your broker will process your application form and provide you with confirmation.

    Differences between an Initial Public Offer (IPO) and a Follow-on Public Offer (FPO)

    The significant differences between an Initial Public Offer (IPO) and a Follow-On Public Offer (FPO) are as follows-

    ParticularsIPOFPO
    MeaningAn initial public offering (IPO) is the first time a private firm issues shares before going public.It is a publicly listed company’s subsequent issuance of shares.
    Stage of CompanyA private limited firm that is going public for the first time launches an IPO.FPO is launched by a business that is already listed on the stock exchange.
    Price RangeThe company determines the IPO price depending on its valuation. A book-building process is used to make the decision.To attract investors, the shares in an FPO are often sold at a price lower than the current market price.
    ComplianceThe IPO is subject to strict regulations as the company is getting listed for the first time on the stock exchange.Regulations requirements for an FPO are less stringent as the company is already listed.
    Potential Returns IPOs usually offer higher chances of capital appreciation.FPOs usually have a lower potential for capital appreciation.
    RiskThese are considered more risky due to the unavailability of adequate data related to the company’s past financial performance.It is generally considered less risky because the company’s performance is already known to the investors.

    Conclusion

    To sum up, a follow-on public offering is a fantastic method for a publicly traded company to raise more money, which it may use to grow its operations or pay down its debt. Additionally, it offers investors a fantastic chance to invest in an already listed company at a discount, as FPO shares are usually offered at a price lower than the current market price. It is recommended that you speak with your financial advisor and consider the risks associated with investing in an FPO of a particular company.


    Frequently Asked Questions (FAQs)

    1. What is the difference between FPO and IPO?

      An FPO is issued by a company that has already gone public, while an IPO is a corporation’s initial sale of shares to the general public. This is the main distinction between the two. FPO is typically less risky for investors since the company’s stock has already been listed on a public exchange and offers a history of the business’s financial and operational performance. 

    2. Why do companies consider issuing FPO?

      To boost the liquidity of the company’s stock, companies might conduct follow-on public offers by issuing more shares if they want to obtain additional funds for expansions, acquisitions, and debt reduction. 

    3. How can an FPO impact the stock price?

      Share prices may drop in the short term in the event of a dilutive FPO, but in the case of a non-dilutive issue, the FPO issue has no effect on share prices, and if the firm does well, share prices will eventually rise in the long term. 

    4. How do you access the valuation of a follow-on public offer?

      One must assess several key financial aspects, such as historical performance, regulatory risks, reasons behind raising funds, etc., before applying for a follow-on public offer. 

    5. How can I subscribe for a follow-on public offer?

      An investor can subscribe for a follow-on public offer through their broker. The application process is similar to an IPO, and individuals can apply during the subscription period and may receive the allocation based on demand. 

  • Bullish Harami Candlestick Pattern

    Bullish Harami Candlestick Pattern

    There are several chart patterns that a trader can utilize to determine a stock’s trend. Suppose while searching for a trading opportunity, you find a stock that is steadily declining. Then suddenly, you notice a bullish candle out of nowhere, which suggests the stock price may be about to reverse. One such pattern is called the Bullish Harami candlestick pattern.

    In this blog, we will describe the Bullish Harami candlestick pattern, its interpretation, advantages and limitations. We will also discuss the target and stop-loss levels traders should use while trading this pattern.

    What is the Bullish Harami Candlestick Pattern?

    A Bullish Harami pattern is a bullish reversal pattern with two candlesticks, which signifies a change from a downward to an upward trend. The Bullish Harami pattern consists of two candlesticks:

    1. First Candle – The first candle is a long bearish candlestick that indicates the continuation of the downturn and constant selling pressure.

    2. Second Candle – The second candle is a tiny bullish candle that forms within the first candle’s range and signifies that buyers are taking control of the market and the sellers are losing control. 

    Read Also: Closing White Marubozu Pattern


    Interpretation of Bullish Harami Candlestick Pattern

    Traders can interpret the pattern on the following aspects:

    1. Sentiment – Determining the momentum of the stock price also heavily depends on the market’s sentiment. A big bearish candle shows that sellers are aggressively pushing the stock price downwards. A smaller bullish candle after the downtrend suggests positive enthusiasm in the market, and the downtrend may be nearing its end. 

    2. Next Candle – Investors can view this as a buying opportunity if the candle that forms after the Bullish Harami pattern is also bullish and closes higher than the open price of the first candle, indicating that buyers are taking control. 

    How to Determine Target?

    A couple of the techniques used to identify the target in a Bullish Harami pattern are listed below: 

    1.  Resistance Level – A trader can identify the nearest resistance level and use that as a target level.

    2.  Previous High – The previous highs made by the stock previously can be considered as a target.

    How to Determine Stop-loss?

    To determine the stop-loss while trading a Bullish Harami pattern, some effective methods are mentioned below-

    1. Low of Bullish Candle – Traders can place the stop-loss just below the low of the bullish candle or the second candle of the Bullish Harami pattern.

    2. Low of the Bullish Harami Pattern – The stop-loss can also be placed below the low of the first bearish candle of the Bullish Harami pattern.

    3. Support Level – The nearest support level can also be considered as a stop-loss before taking any long position.

    4. Risk Reward – One can also set a stop-loss based on their risk appetite or as a fixed percentage of their total investment in such stock.

    Example of Bullish Harami Candlestick Pattern of Reliance Industries Ltd.

    Example of Bullish Harami Candlestick Pattern of Reliance Industires Ltd.

    The Reliance Industries daily chart pattern above shows a Bullish Harami Candlestick Pattern. A bearish candle first forms on the chart on 24 March 2023, followed by a bullish candle with open and close prices within the range of the first bearish candle. The appearance of the bullish candle shows the buyers are gaining control. On 28 March 2024, the stock gave a breakout above the high of the first candle and closed at INR 1,020. From the image above, we can see that the stock made a high of INR 1,100 on 17 April 2024.

    Advantages of Bullish Harami Candlestick Pattern

    The major advantages of the Bullish Harami candlestick pattern are as follows-

    1. Early Indication – The Bullish Harami candlestick pattern provides an early indication of a trend reversal as it indicates that the trend is changing from bearish to bullish.

    2. Low Risk – This pattern generally forms at the end of a bearish trend or near the lowest point of the downtrend. The downside is limited, which helps traders achieve a good risk-to-reward ratio.

    3. Simple – Identification of this pattern is simpler than other technical candlestick patterns.

    4. Timeframes – This pattern can be used across various timeframes ranging from hourly to weekly and monthly.

    Disadvantage of Bullish Harami Candlestick Pattern

    The major disadvantages of the Bullish Harami candlestick pattern are as follows-

    • Reliability – During a strong downtrend, this pattern might not be very reliable as market sentiment can overpower the bullish reversal signal.
    • False Signal – This candlestick pattern indicates a minor bullish pullback, which can lead to a false breakout above the pattern. Hence, this pattern must be used with other technical tools.
    • Additional Confirmation – The Bullish Harami pattern requires additional confirmation from the following candles, which can delay the entry point and cause the traders to miss out on profits.

    Read Also: Three Inside Up Pattern

    Conclusion

    To sum up, traders use the Bullish Harami candlestick pattern as it makes it easy to spot the turning point in a downward trend. A trader should, however, wait for a bullish candle that confirms the Bullish Harami pattern. In order to reduce losses in the event of market volatility, it is advised that traders set a stop-loss below the bottom of the Bullish Harami pattern. Before making any investments, you are advised to speak with your investment advisor.  

    Frequently Asked Questions (FAQs)

    1. Is Bullish Harami a reliable trading pattern?

      A Bullish Harami pattern is considered more reliable when it appears in an established downtrend and is used with other technical patterns.

    2. What will be the target of the Bullish Harami pattern?

      The target price of the Bullish Harami pattern can be considered as the nearest resistance level or as per the risk-to-reward ratio.

    3. Is the Bullish Harami a continuation or trend reversal pattern?

      The Bullish Harami is a bullish trend reversal pattern, typically appearing during a downtrend and indicating a potential bullish reversal.

    4. Is the Bullish Harami pattern a leading or lagging indicator?

      It is considered a leading indicator because the upside movement in the stock price starts after the formation of this pattern.

    5. Can a beginner use the Bullish Harami pattern?

      The Bullish Harami pattern is easy to identify and has clear entry, target and stop-loss levels, which makes it easy for beginners to use.

  • Three Inside Up Pattern

    Three Inside Up Pattern

    Have you ever tried to predict when a downtrend is about to reverse and if it’s a good time to enter a trade? The ‘Three Inside Up’ candlestick pattern is popular among traders for identifying bullish reversals. Whether you are a beginner learning the basics of technical analysis or an experienced trader, grasping the details of this pattern can help you make better trading decisions.

    In this blog, we will explore the Three Inside Up pattern. We will analyze the meaning of each candle occurring in the pattern, how to set targets and stop-loss levels and discuss when this pattern is most effective as well as when it might produce false signals.

    What is the Three Inside Up pattern?

    The three inside-up candlestick patterns indicate a bullish reversal, signaling a possible change from a downtrend to an uptrend. It involves a sequence of three specific candlesticks used by technical analysts to forecast upward market momentum.

    The structure of Three Inside Up is as follows;

    • First Candle – A long, red bearish candle that signifies an ongoing downtrend and strong selling pressure.
    • Second Candle – A smaller green bullish candlestick that opens inside the first candle and closes higher than it opened, staying within the range of the first candle. This suggests a possible reversal as buyers begin to take control.
    • Third Candle – A long green candle that closes above the first candle, indicating a momentum shift or a bullish reversal as buyers take complete control.

    Traders often interpret the Three Inside Up pattern as a favorable signal to initiate a long (buy) position or to close an existing short position. The pattern is more reliable if it occurs after a downtrend and is confirmed by high trading volume. The larger the bodies of the first and third candles, the stronger is the reversal signal.

    How to Determine Target and Stop-Loss?

    Target and stop-loss are important for traders to trade effectively using this pattern. Below are a few ways to place targets and stop-loss orders while trading the Three Inside Up pattern.

    Target

    • Risk-Reward Ratio: A widely adopted strategy involves employing a fixed risk-reward ratio, such as 1:2 or 1:3. For instance, if your stop-loss is 10 points below the entry, a 1:2 risk-reward ratio means setting your target 20 points above the entry.
    • Resistance Levels: Identify nearby resistance levels or recent highs as possible targets for taking profits. This is considered as a strategic point where the asset price faced resistance or failed to cross in the past.

    Stop-Loss

    • First Candle’s Low: A general placement for the stop-loss is just below the lowest point of the first candle in the Three Inside Up pattern. If the price falls below this level, it indicates that the reversal may not be successful.
    • Second Candle’s Low: Furthermore, some traders also place it just below the low of the second green candle. This can lower risk but may raise the likelihood of triggering stop-loss in a volatile market.

    Read Also: Three-Line Patterns

    Example of Three Inside-Up Pattern of 3M India Ltd.

    Example of Three Inside-Up Pattern of 3M India Ltd.


    The chart above shows the clear formation of Three Inside Up on the daily chart of 3M India. The stock made a Three Inside Up pattern on 27 March 2023. The stock price increased from INR 22,752 and made a high of INR 23,250 on 29 March 2023. We can also notice a significant uptrend with some minor retracements in the following months.

    Advantages of Three Inside Up Pattern

    The advantages of using a Three Inside Up pattern are:

    • Clear Reversal Sign: The pattern signals a possible bullish reversal in a downtrend, making it easier for traders to identify a change in the market sentiment.
    • Easy to Recognize: The pattern features a combination of three candles with distinct characteristics, which helps traders to easily identify this pattern on a price chart without the need for deep analysis.
    • Support for Momentum-Based Strategies: The third candle shows strong buying pressure, making the pattern effective for momentum trading, especially when backed by indicators like volume.
    • Versatile across Multiple Time Frames: This pattern can be used on monthly, daily or hourly charts, making it suitable for several trading styles like swing and day trading.

    Limitations of Three Inside Up Pattern

    The limitations of using a Three Inside Up pattern are:

    • Risk of False Signals in Consolidation: In choppy markets, the three inside-up pattern often give false signals. If there is not a clear downtrend beforehand, the pattern might not signal a true reversal, which could result in losses.
    • Strong Downtrends: In a strong downtrend, the bullish signal might be weak because the downtrend momentum could overpower it. Reversal patterns tend to be more effective when the downtrend weakens, or the price approaches support levels.
    • Not 100% Accurate: Like any other candlestick pattern, the Three Inside Up pattern is not always accurate. Market factors like news or economic conditions can override technical signals, causing unexpected price movements.
    • Limited Profit: The pattern usually has targets near resistance levels or follows a fixed risk-reward ratio, which may cause traders to miss significant moves during a strong uptrend. 

    Read Also: Three Outside Up Pattern

    Conclusion

    In conclusion, the three inside-up pattern is a well-known pattern among traders looking to spot bullish reversals near the bottom of a downtrend. The structured three-candle formation suggests a possible transition from bearish to bullish sentiment, offering simple guidelines for entry points, stop-loss placements and targets. However, like all technical patterns, it has its limitations. In volatile markets, this pattern may give you false signals during a strong downtrend. Therefore, using this pattern alongside other technical indicators or market analysis is important to enhance accuracy. Traders can effectively use the three inside-up pattern by understanding its strengths and weaknesses, enhancing their ability to spot trend reversals while managing risk.

    Frequently Asked Questions (FAQs)

    1. What is the structure of the Three Inside Up pattern?

      The pattern consists of three candles: a big red candle, a smaller green candle within it, and a third bullish candle that closes above the first.

    2. What does the Three Inside Up pattern suggest to the traders?

      It signals that selling pressure is weakening and buyers are gaining control, suggesting a possible trend reversal.

    3. Is high volume important for this pattern?

      Yes, the high volume during the formation of the third candle strengthens the pattern’s reliability as it shows strong buying interest.

    4. How can I use the Three Inside Up pattern in trading?

      Traders often use it as a buy signal after a downtrend and create long positions after the third candle closes above the first candle’s high.

    5. What is the difference between the Three Inside-Up and Three Outside-Up pattern?

      Three Outside Up is a similar bullish reversal pattern, but the second bullish candle completely engulfs the first bearish candle.

  • Anchor Investors in IPOs – Meaning, Role & Benefits

    Anchor Investors in IPOs – Meaning, Role & Benefits

    Have you ever wondered who the influential investors are that step in to support a company’s initial public offering (IPO)? Known as anchor investors, these key players are essential for the success of any public offering.

    In this blog, we will give information about anchor investors in Initial Public Offerings (IPOs), examining how their participation impacts share pricing and demand. We will also highlight the advantages they offer to companies and the overall market.

    What is the meaning of Anchor Investor?

    An anchor investor is a qualified institutional buyer (QIB) who invests at least INR 10 crores or more in a mainboard IPO or INR 1 crore in an SME IPO. Securities and Exchange Board of India (SEBI) introduced the concept of Anchor investors in 2009.

    These investors boost credibility and attract interest in an IPO by investing a large amount early because anchor investors are well-established institutions like mutual funds, pension funds, etc. Their involvement can stabilise prices, boost demand, and lessen volatility.

    Why do companies need Anchor Investors?

    Companies require anchor investors for the following reasons:

    • Enhance Credibility and Confidence: As mentioned above, anchor investors consist of reputable financial institutions whose participation is a strong endorsement of the company. When these investors commit to buying shares, it instils confidence in other investors, making the IPO an attractive investment opportunity.
    • Create Demand & Price Stability: Anchor investors buying a large stake upfront helps establish a stable price floor for the stock. It lowers the risk of price volatility when the stock begins trading because these investors own a substantial portion of the shares.
    • Attract Retail Investors: Investments by anchor investors make the IPO popular, which encourages smaller retail investors to invest.
    • Reducing Underwriting Costs and Risks: Pre-allocating some shares makes it easier and cheaper for companies to sell the rest. Anchor investors reduce the risk of unsold shares, making the IPO process more efficient and cost-effective.
    • Ensuring Long-term Commitment: Anchor Investors commit to a lock-in period, during which they are prohibited from selling their shares for a specified duration following the IPO. This guarantees that a segment of shares stays with investors who are invested based on a long-term outlook, thus increasing stability during the crucial early post-listing phase.

    Importance of Anchor Investors

    Anchor investors are important for the financial market due to the following reasons:

    • Strong Financial Base: By investing substantial capital upfront, anchor investors create a financial cushion that enables companies to achieve their fundraising objectives.
    • Enhanced Reputation: Securing investments from esteemed investors enhances the company’s reputation in the market. Their involvement highlights the company’s growth potential, thus increasing its attractiveness among other investors.
    • Reduced Volatility Post-IPO: The commitment to a lock-in period effectively narrows price fluctuations in the initial trading phase, resulting in a more stable stock price.
    • Positive Market Perception: Anchor Investors boost positive sentiment for the IPO, often resulting in oversubscription. This optimistic outlook can ultimately benefit the stakeholders involved.

    How Do Anchor Investors Operate?

    The company issuing the IPO selects anchor investors based on their financial strength, reputation and compatibility with its vision. Anchor investors receive a significant allocation of IPO shares, generally around 30% of the total offering or 60% of the total QIB quota. These investors pledge substantial investments, providing a reliable financial foundation for the offering. Let’s understand how anchor investors operate.

    1. The company unveils a price range for the IPO, which is the basis for determining the final price.
    2. Anchor investors submit their bids at a fixed price, indicating the quantity of shares they wish to acquire and must pay the entire amount at the time of application. Anchor investors can place bids one day before the issue opens to the general public.
    3. Shares are allocated to anchor investors one day before the IPO opens for the general public. The final offer price is determined through the book-building process.
    4. They commit to staying invested for 30 days for 50% of the shares, and the rest of the shares must be held for 90 days after the allotment date. This period is often referred to as the lock-in period.
    5. The lock-in period decreases the chances of immediate sell-offs, fostering price stability for the stock during its initial post-IPO trading phase.

    Once the lock-in period is over, anchor investors can sell their shares either on the open market or through alternative methods.

    Things to know about Anchor Investors

    Some important facts about the Anchor investors are:

    1. For anchor investors, the minimum bid amount is INR 10 crore. 
    2. One-third of the Anchor Investor Portion will be reserved for domestic mutual funds, provided they submit valid bids at or above the valid price.
    3. Anchor Investors must submit their bids exclusively through one of the Book Running Lead Managers (BRLMs) associated with the offering.
    4. Bidders and applicants seeking information based on the allotment for Anchor Investors can review the RHP or the prospectus.
    5. The price at which equity shares are allocated to anchor investors will be decided by the company after consulting the BRLMs.

    Allocation to anchor investors is discretionary and subject to the following conditions:

    1. For allocation up to INR 10 crores, a maximum of two anchor investors is allowed.
    2. For allocations between INR 10 crores and INR 250 crores, a minimum of 2 and a maximum of 15 anchor investors are allowed, with a minimum investment of INR 5 crore per investor.

    Lock-in period for Anchor Investors

    In India, the lock-in period for anchor investors is structured as follows:

    1. Anchor Investors cannot sell 50% of the shares for 30 days starting from the date of allotment. 
    2. The remaining 50% of the shares will be locked in for 90 days starting from the date of allotment.

    Furthermore, the staggered lock-in period facilitates the gradual selling of shares, minimising the risk of volatile price fluctuations that could arise from large-scale sell-offs by anchor investors right after the listing date.

    Anchor Investor’s Reservation in IPO

    Additionally, anchor investors in an IPO represent a specific group of Qualified Institutional Buyers (QIBs) who are allocated a share of the total issue size during the IPO. These investors can reserve a maximum of 30% of the total IPO size and 60% of the QIBs’ quota. One-third of the allocation for anchor investors is designated for domestic investment funds.

    Read Also: What is an IPO Subscription & How Does it Work?

    Conclusion

    In summary, anchor investors play an important role in the IPO process. Their early commitment and reputation create a strong foundation for a successful IPO, reassuring investors about the company’s potential. Anchor investors help improve stock performance by driving demand, stabilising prices, and establishing credibility. In today’s evolving market, having trustworthy anchor investors is not merely beneficial; it is essential for companies aiming for a solid debut on the stock exchange.

    Frequently Asked Questions (FAQs)

    1. Can an individual become an anchor investor?

      An individual investor cannot become an anchor investor. To be classified as an anchor investor, the entity must be a qualified institutional buyer (QIB).

    2. Do anchor investors affect the IPO’s success?

      The participation of anchor investors often attracts more investors, which increases participation that can lead to a more robust stock performance on the listing date.

    3. Can anchor investors sell their shares immediately after listing?

      Anchor investors cannot sell their shares immediately after the listing date because of the lock-in period. This lock-in period helps stabilise the stock price during the early days of trading on the stock exchange.

    4. How do anchor investors impact IPO?

      By investing significant capital, anchor investors establish a solid base, which enables companies to secure a significant portion of their fundraising target quickly and enhances investor confidence in an IPO.

    5. What are the minimum investment requirements to qualify as an anchor investor?

      To be eligible as an anchor investor, the financial institution must invest at least INR 10 crores in a mainboard IPO and at least INR 1 crore in an SME IPO.

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