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  • Fibonacci Retracement: Complete Guide on How to Use and Strategy

    Fibonacci Retracement: Complete Guide on How to Use and Strategy

    The origin of the Fibonacci series can be traced back to the ancient Indian mathematic scripts. This series was first introduced by an Italian mathematician Leonardo of Pisa, who was also known as Fibonacci. He lived from the late 12th century to the 13th century. His seminal work, “Liber Abaci” (The Book of Calculation), which was published in 1202 helped him introduce the Fibonacci sequence to Europe. The Fibonacci sequence is a series of numbers in which each number is the sum of the two previous numbers, generally starting with 0 and 1. The Fibonacci series is a set of infinite numbers i.e., no matter how many numbers you add to the series, it never ends.  

    Fibonacci Retracement

    The Fibonacci series is as follows,

    (0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233, 377)

    In the above set of numbers if you divide any number by the previous number; the ratio is always around 1.618. The Golden Ratio, approximately 1.618, also called Phi is a mathematical constant derived from the Fibonacci sequence. It has many applications in nature, art, and science. Our readers need to keep in mind that 0.618, when expressed in percentage is 61.8%. A number divided by the next highest number comes near to .6180

    (13/21=.6190, 21/34=.6176, 34/55=.6181, 55/89=.6179). The estimate nears 0.6180 as the numbers increase. This forms the base for the 61.8% retracement. A number divided by another two places higher comes near to .3820

    (13/34=.382, 21/55=.3818, 34/89=.3820, 55/=144=3819). This is the base for the 38.2% retracement

    A number divided by another three places higher comes near to .2360

    (13/55=.2363, 21/89=.2359, 34/144=.2361, 55/233=.2361).  

    What is Fibonacci Retracement?

    fibonacci retracemnet

    Fibonacci retracement is an indicator of technical analysis that is used in the stock market. The purpose of this tool is to recognize potential support and resistance levels in a candlestick chart of different financial assets. It is constructed on the Fibonacci sequence and the Golden Ratio, and it is a well-known indicator among traders and technical analysts.

    Calculation Of Fibonacci Retracement

    Calculation Of Fibonacci Retracement

    The commonly used retracement levels by analysts are 23.6%, 38.2%, 50.0%, 61.8%, and 76.4%.

    Any trader needs to follow these steps to calculate the retracement levels of a particular stock.

    Step 1. You need to identify a significant price move on your chart. This move can be either an uptrend or a downtrend. The starting point that a trader marks on the chart after applying the indicator should be a significant swing high or swing low.

    Step 2. Determination of the Fibonacci Ratios

    23.6% (0.236): we calculate this level by taking 23.6% of the pre-decided price range and adding it to the low point of an uptrend or subtracting it from the high point for a downtrend.

    38.2% (0.382): To Calculate 38.2% of the price range the trader needs to follow the same addition or subtraction technique as above.

    61.8% (0.618): To Calculate 61.8% of the price range use the same addition or subtraction method as above.

    Other levels of the Fibonacci Retracements like 50% or 76.4% are also calculated similarly.

    Step 3. Once you are done with the calculation of retracement levels start drawing horizontal lines at the calculated Fibonacci retracement levels. These lines represent the support and resistance levels for future price action that is expected to happen.

    Now, start observing how the price of the asset reacts to these retracement levels. Any kind of bounce or reversal near these levels may provide buyers and sellers with some good trading opportunities.

    Example of Fibonacci Retracement:

    Let us understand Fibonacci Retracement with an easy and simplified example

    Suppose you have identified a swing low of Rs.1000 and a swing high of Rs.1500 in an uptrend of a stock.

    After determining these points, you need to calculate the price range by subtracting the swing low from the swing high

    which implies that the price range will be (Rs.1500 – Rs. 1000) which equals Rs. 500

    Having found the difference between the price ranges you can now calculate the retracement levels

    Firstly, calculate 23.6% of the price range and add it to the swing low i.e., 23.6%*500=118+1000=1118

    Then calculate 38.2% of the price range and add it to the swing low i.e., 38.2%*500=191+1000=1191

    Now for the retracement level of 50%, divide the price range by 2 and add it to the swing low i.e., 500/2=250+1000=1250.

    Similarly, calculate the 61.8% of the price range and add it to the swing low i.e., 61.8%*500=309+1000=1309

    The values so derived (1118, 1191, 1250 and 1250) are the expected retracement levels.

    Since we all know that Fibonacci retracement is a leading indicator as well as a widely used and famous tool in technical analysis applied by traders, it also has some advantages and limitations that traders should keep in mind before making any sort of trading decision.

    Advantages of Fibonacci Retracement

    Advantages of Fibonacci Retracement

    Traders commonly value the following advantages of Fibonacci retracement

    1. Fibonacci retracement can be applied to various financial markets, including stocks, commodities, forex, and cryptocurrencies, on different timeframes like hourly, daily, weekly, and monthly, making it a multipurpose indicator for technical analysts.
    2. Traders use Fibonacci retracement in combination with other technical analysis tools, such as trendlines, moving averages, or oscillators. When different indicators give the same indication, like Fibonacci, chances are that the stock will move in the desired direction.
    3. Fibonacci retracement is used by traders to identify stop-loss orders range as per their risk levels.
    4. Fibonacci retracement can be used to identify potential profit targets. Traders often use the levels as reference points for setting profit targets.
    5. Fibonacci retracement is particularly useful for swing traders who often look for short- to medium-term price movements to earn from the stock market.

    Disadvantages of Fibonacci Retracement

    Disadvantages of Fibonacci Retracement
    1. Selecting the starting and ending points for the Fibonacci retracement analysis can be a tough task. It depends from trader to trader on what point they are choosing, which can eventually lead to varying retracement levels and trading decisions. This can lead to unnecessary confusion.  
    2. Relying solely and completely on Fibonacci retracement may lead to false buy or sell signals or missed trading opportunities.
    3. Even though traders use this indicator widely, there is no assurance that the price will precisely bounce at the estimated Fibonacci retracement levels.
    4. Fibonacci retracement may be difficult for beginner traders to understand since it might be confusing for them to choose the swing high or swing low.  
    5. Different timeframes can yield different retracement levels. Traders may face variations in levels on daily, weekly, or intraday charts.

    Relation between Fibonacci Series and Fibonacci Retracement

    The Fibonacci series and the numbers derived from it, such as the Golden Ratio (1.618), are used in the construction of Fibonacci retracement levels.

    The important retracement levels in Fibonacci retracement are ratios that are derived from the Fibonacci series. For example, the 61.8% retracement level corresponds to the inverse of the Golden Ratio (1/1.618).

    Fibonacci retracement is a real-world application of the Fibonacci series in technical analysis. Traders use the Fibonacci series and its ratios to find levels of support and resistance in financial markets for making sound trading decisions.

    Read Also: 5 Must-Read Best Swing Trading Books for Trader

    Conclusion

    conclusion

    Remember that the effectiveness of Fibonacci retracement levels varies, and they should be used in combination with other technical analysis indicators and risk management strategies to make informed trading decisions. Additionally, the choice of starting and ending points can be somewhat subjective, so practice and experience are essential when applying Fibonacci retracement in real trading sessions.

    FAQs (Frequently Asked Questions)

    1. Which are the most popular Fibonacci retracement levels?

      The most popular Fibonacci levels are 0.236, 0.382, 0.618.

    2. Is Fibonacci a leading or lagging indicator?

      Fibonacci is a leading indicator.

    3. Can I use Fibonacci in intraday trades?

      Yes, Fibonacci can be used on various timeframes including intraday.

    4. Who discovered the Fibonacci series?

      Leonardo Pisano discovered the Fibonacci series in the 12th century.

    5. What is the Fibonacci Series?

      The Fibonacci sequence is a series of numbers in which each number is the sum of the two preceding ones, typically starting with 0 and 1.

  • Cost of Carry in Futures Contract

    Cost of Carry in Futures Contract

    What is Derivative Trading?

    Future Contracts

    Before understanding what is derivative trading, let’s first understand what are derivatives in the stock market. So, derivatives are basically contracts that do not have any monetary value of their own but derive it from the underlying asset. Now, derivative trading involves the buying and selling of these contracts through your demat account. These derivatives derive their value from an underlying asset, which can be a commodity, stock, currency, interest rate, or market index. The main purpose of derivative trading is to speculate on the price movements of the underlying asset or to hedge against price fluctuations.

    derivative trading

    Here are some key concepts and aspects of derivative trading:

    • Futures are standardized contracts to buy or sell an underlying asset at a predetermined price and future date. They are commonly used in commodities, currencies, and financial markets
    • Options give the holder the right (but not the obligation) to buy (call option) or sell (put option) an underlying asset at a specified price and within a defined time frame.
    • Swaps involve the exchange of cash flows or liabilities between two parties based on a notional principal amount. Common types of swaps include interest rate swaps and currency swaps.
    • Forwards are similar to futures contracts but are not standardized and are typically traded over-the-counter (OTC). They involve an agreement between two parties to buy or sell an asset at a future date and an agreed-upon price.
    • It’s important to note that derivative trading can be complex and carries a higher risk level than traditional stock trading. As such, it’s vital for traders to carefully understand the derivative products they are trading and have a clear trading strategy to manage market risk effectively.  

    Before diving deep into the cost of carry in the futures contract, here is a detailed overview of what are future contracts.

    Future Contracts

    future contratcs

    A futures contract is a standardized financial agreement between two parties to buy or sell a specified quantity of an underlying asset at a predetermined price on a future date. These contracts are traded on organized exchanges and serve various purposes, including hedging against price fluctuations and speculating on future price movements.

    Read Also: What is Carry Trade? Definition, Example, Benefits, and Risks

    Here are the key components and characteristics of futures contracts:

    1. Futures contracts are highly standardized, with predefined terms and conditions, including the quantity of the underlying asset, the contract’s expiration date (delivery month), and the contract’s price, which is known as the futures price or strike price.
    2. Futures contracts are marked to market daily. This means that any profit or loss on the contract is realized and settled daily. If the contract has moved in your favour, you receive a gain; if not, you incur a loss.
    3. Many market participants use futures contracts to hedge against price fluctuations in the underlying asset. For example, a wheat farmer can use wheat futures to lock in a selling price and protect against a potential price drop. This is known as Hedging.
    4. There are certain opportunity costs linked with futures contracts. These costs in the context of futures contracts refer to the gains or losses that a trader or investor foregoes by choosing to enter into a specific futures contract and allocate their capital to that contract. The missed opportunity to invest in other assets or strategies that might have offered a better return.
    5. In the context of futures contracts, the terms “near month” and “far month” refer to the different dates of expiry of futures contracts within the same underlying asset.
    •   The “near month” refers to the futures contract with the closest expiry date relative to the current date. It is the contract that will expire soonest.
    •  Traders and investors often use the near-month contract to establish short-term positions or to respond to forthcoming market developments. Near-month contracts generally have greater trading activity and volume.
    • The “far month” refers to futures contracts with expiry dates in the future compared to the current date.
    • ·Traders and investors may use far-month contracts for longer-term trading or investment strategies. Far-month contracts typically have lower trading volumes.

    Determination of Price in Future Contracts

    determing the best future contracts

    The price of future contracts is determined by various key factors, including supply and demand dynamics, the current price of the underlying asset which is also known as Spot Price, interest rates, carrying costs, etc.

    Here’s an overview of the primary factors that influence the pricing of futures contracts:

    1. The current market price of the underlying asset, known as the “spot price,” is one of the most fundamental factors affecting the price of a futures contract. The futures price typically coincides with the spot price as the contract’s expiry date approaches.

    2. Interest rates play a significant role in futures pricing. If interest rates are high, it becomes more expensive to hold a futures position because traders have to finance their positions. The relationship between interest rates and futures prices is known as the cost of carry.

    3. For assets like stocks, dividends and income generated by the asset can impact futures pricing. In the case of stock index futures, for example, expected dividends can influence the futures price.

    It’s important to note that the pricing of futures contracts aims to remove the arbitrage opportunities, meaning the futures price should converge with the spot price by the contract’s expiration. This process is known as the “cost-of-carry model.” If futures prices deviate significantly from the spot price, it can create opportunities for arbitrage traders to profit by buying low and selling high (or vice versa). To learn trading from scratch check out this blog.

    Read Also: What Is Contract Note and Its Significance

    Cost Of Carry in Future Contracts

    cost to carry futures

    The “cost of carry” in the context of futures contracts refers to the costs associated with holding a position in a futures contract until its expiration date. These costs primarily include

    Interest cost

    If you buy a futures contract, you are essentially agreeing to buy the underlying asset at a specified future date. To do this, you may need to borrow money or use your own funds to pay for the contract. The interest or financing costs associated with borrowing this money represent a significant part of the cost of carrying.

    Carrying Costs

    These are costs related to holding the physical underlying asset if you intend to take delivery upon the contract’s expiration. These costs might include storage fees, insurance, and maintenance costs for the asset.

    Dividends & Income

    If the underlying asset pays dividends or generates income during the holding period, you might have to factor these into the cost of carry. The cost of carry is essential to consider while trading in futures because it can impact the profitability of a position & convenience yield which you are able to earn especially in situations where the cost of carry exceeds the gains from the futures contract.

    Formula for Cost of Carry in Futures Contract

    Cost of Carry (CoC) = (Futures Price – Spot Price) + Financing Costs – Income

    Here’s what each component represents:

    Futures Price

    This is the current price of the futures contract you are trading.

    Spot Price

    The spot price is the current market price of the underlying asset that the futures contract represents.

    Financing Costs

    This component accounts for the interest costs associated with borrowing the money to trade the futures contract. For long positions, this cost is usually positive and for short positions, it can be negative, as you may earn interest on the money received from the sale.

    Income

    Refers to any benefits generated from holding the futures contract. For example, if you are holding a stock index futures contract, you may receive dividends.

    Read Also: What is Future Trading and How Does It Work?

    Conclusion

    In conclusion, the cost of carry is a critical concept in futures trading. It plays an essential role in determining the pricing and profitability of futures contracts and the above-mentioned formula takes into account various factors, including the difference between the futures and spot prices, financing costs or benefits, and any income generated from holding the contract. It also helps in analysing the financial implications of holding futures positions.

    FAQs (Frequently Asked Questions)

    1. Define Future Contracts.

      A futures contract is a standardized financial agreement between two parties to buy or sell a specified quantity of an underlying asset at a predetermined price on a future date.

    2. What is the cost-of-carry model?

      The pricing of futures contracts aims to eliminate arbitrage opportunities, meaning the futures price should converge with the spot price by the contract’s expiration. This process is known as the “cost-of-carry model.

    3. Mention the formula of cost-of-carry in futures contracts.

      The formula for the same is mentioned belowCost of Carry (CoC) = (Futures Price – Spot Price) + Financing Costs – Income

    4. What is near month & far month in futures contract?

      The “near month” refers to the futures contract with the closest expiry date relative to the current date and the far month is referred to futures contracts with expiry dates in the future compared to the current date.

    5. Explain Carrying costs.

      These are costs related to holding the physical underlying asset if you intend to take delivery upon the contract’s expiration. These costs might include storage fees, insurance, and maintenance costs for the asset.

  • Trading For Beginners: 5 Things Every Trader Should Know

    Trading For Beginners: 5 Things Every Trader Should Know

    What Is Trading?

    Trading For Beginners

    Trading refers to the buying and selling of financial assets, such as stocks, bonds, currencies, commodities, and derivatives, with the aim of earning profits from either short-term or long-term price movements. Trading can take many forms, and it is conducted by a diverse group of market participants, including individual retail traders, institutional investors, and financial institutions.

    Investors use fundamental analysis (evaluating an asset’s underlying value based on economic and financial data) and traders use technical analysis (examining historical price and volume data) to make informed trading decisions. (For your information there is a significant difference between trading and investing).

    Trading can be pursued as a full-time profession or as a part-time endeavour, depending on individual goals and resources. It requires a strong understanding of market dynamics. After knowing what is trading let us understand stock exchanges in India and how they have evolved over time.

    Read Also: What Are The Challenges Traders Face When Trading In The Stock Market?

    Stock Exchanges in India

    The two major and most prominent stock exchanges in India are

    National Stock Exchange (NSE)

    national stock exchange

    The NSE is one of the leading stock exchanges in India. It was established in 1992 and is located in Mumbai. The NSE is known for its electronic trading platform and is considered the largest stock exchange in India in terms of daily trading volume. It lists a wide range of financial instruments, including equities, derivatives, exchange-traded funds (ETFs), and more.

    Bombay Stock Exchange (BSE)

    Bombay stock exchange

    The BSE is one of the oldest stock exchanges in Asia, dating back to 1875. It is also located in Mumbai and is sometimes referred to as the “BSE Sensex” because it is home to the Sensex, one of India’s most widely followed stock market indices. BSE lists various financial products, including equities, fixed-income securities, derivatives, and mutual fund units.

    In addition to the NSE and BSE, India has several other stock exchanges, including regional stock exchanges and commodity exchanges. However, the NSE and BSE dominate the Indian financial markets and serve as the primary platforms for trading and investment.

    Trading Platforms

    trading platforms

    Trading platforms are software applications or online interfaces that facilitate the execution of financial transactions in various asset classes, including stocks, bonds, commodities, currencies, and derivatives. These platforms provide traders and investors with the tools and resources to analyse financial markets, place orders, and manage portfolios. There are various types of trading platforms available, each catering to specific needs and preferences. Many brokerage firms offer mobile apps that allow traders to trade on the go using smartphones and tablets. Mobile trading apps provide essential features for executing trades and monitoring portfolios.

    When selecting a trading platform, traders and investors should consider their specific trading objectives, experience level, preferred asset classes, and budget. Additionally, they should evaluate factors such as user interface, charting tools, order types, technical analysis features, and customer support. Most platforms offer demo accounts for users to practice and explore the platform’s functionality before commencing real trading.

    What is a Demat Account

    A Demat account, or “Dematerialized account,” is an electronic or digital account that allows individuals to hold, store, and manage their financial securities and investments in electronic form. It is equivalent to a physical share certificate, eliminating the need for paper-based records and transactions. Demat accounts are commonly used for purchasing various types of securities, including stocks, bonds, exchange-traded funds and mutual fund units. The purchased securities are credited to or debited from the Demat account. Demat accounts generally offer a high level of security and protection for investors’ holdings. Transactions and securities are recorded and stored electronically, reducing the risk of fraud or loss. These accounts come in various types, including individual, joint, corporate, and minor accounts, catering to different types of investors.

    To open a Demat account, an individual needs to approach a Depository Participant (DP), which could be a bank, financial institution, or brokerage firm. The DP facilitates the account opening process, verifies documents, and provides the account holder with a unique Demat account number.

    Open your Demat account today with Pocketful.

    Types of Trading

    types of trading

    Trading encompasses a variety of approaches and strategies to buy and sell financial instruments with the goal of making a profit. Different types of trading cater to different time frames, risk profiles, and strategies. Here are some common types of trading:

    Intra-Day Trading

    Day traders open and close positions within the same trading day, often making numerous small trades to profit from intraday price fluctuations. They do not hold positions overnight.

    Swing Trading

    Swing traders aim to capture price swings or “swings” in the market over a period of a few days to several weeks. They rely on technical and fundamental analysis to identify potential entry and exit points.

    Positional Trading

    Position traders take a longer-term approach, holding positions for weeks, months, or even years. They often rely on fundamental analysis to make investment decisions and are less concerned with short-term price fluctuations.

    Scalping

    Scalpers make a large number of small, rapid trades, often holding positions for just seconds to minutes. They profit from small price movements and aim to capitalize on liquidity and order flow.

    Algorithmic Trading (Algo Trading)

    Algorithmic traders use computer algorithms to execute high-frequency trades based on predefined criteria, such as technical indicators, news sentiment, and market patterns.

     Each type of trading has its own advantages and challenges, and traders often choose the approach that aligns with their risk tolerance and trading strategy. It’s important to thoroughly understand the chosen trading style and to practice risk management to minimize losses.

    Now let us understand about price movements and technical analysis of stocks.

    Price Movement

    Price movement, in the context of financial markets, refers to the changes in the price of a particular financial instrument, such as a stock, bond, commodity, currency, or cryptocurrency, over a given period of time. Monitoring and analysing price movements is a fundamental aspect of trading and investing, as it provides valuable information for making informed decisions.

    Price movement can be observed and analysed over various time frames, ranging from intraday (minutes or seconds) to longer-term (daily, weekly, or monthly). Traders and investors often choose their time frames based on their trading or investment strategies.

    Candlestick charts are commonly used to visualize price movement. Each candlestick represents a specific time period and includes information about the opening, closing, and high, and low prices during that period. The patterns and shapes of candlesticks can provide insights into market sentiment.

    Price movement can exhibit trends, which are sustained directional movements. Trends can be classified as bullish (upward), bearish (downward), or sideways (in consolidation). Traders often seek to identify and follow trends.

    Support levels are price levels where an asset tends to find buying interest and reverse upward, while resistance levels are where it finds selling interest and reverses downward. Identifying these levels can help traders make decisions.

    A breakout occurs when the price moves above a significant resistance level, while a breakdown occurs when it falls below a key support level. Breakouts and breakdowns can signal potential changes in trend direction.

    With the help of price movements, we can technically analyse a particular stock and for that, we need to learn technical analysis.

    What is Technical Analysis?

    Technical analysis is a method of analysing financial markets and making investment or trading decisions based on the historical price and volume data of assets, primarily stocks, bonds, currencies, and commodities. It relies on the premise that past price movements and trading volumes can provide valuable insights into the future direction of an asset’s price. Technical analysts use various tools and techniques to study price charts, identify patterns, and make predictions about future price movements.

    Technical analysts identify key price levels where an asset tends to find buying interest (support) and selling interest (resistance). These levels can influence trading decisions.

    Chart patterns, such as head and shoulders, double tops and bottoms, flags, and triangles, are formations that appear on price charts. Analysts look for these patterns to make predictions about future price movements.

    Technical analysts use a wide range of technical indicators, such as moving averages, Relative Strength Index (RSI), and Moving Average Convergence Divergence (MACD), to provide quantitative measures of price movements, trend strength, and overbought or oversold conditions.

    It’s important to note that technical analysis is based solely on historical data and patterns, and it does not consider fundamental factors like earnings, economic indicators, or company financials.

    Read Also: What is Options Trading?

    Conclusion

    conclusion

    To conclude, as a beginner every trader must have some basic idea of the above explained points before starting his/her investment journey for several safety concerns otherwise chances are likely that he/she may commit errors.

    As a beginner, you must start educating yourself by reading books or taking online courses and should start practising with a demo account and implement risk management strategies like setting a stop-loss. 

    FAQs (Frequently Asked Questions)

    1. What is trading?

      Trading refers to the buying and selling of financial assets, such as stocks, bonds, currencies, commodities, and derivatives, with the aim of earning profits.

    2. Name two stock exchanges in India.

      Two stock exchanges of India are the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE).

    3. What is a demat account?

      A Demat account is an electronic or digital account that allows individuals to hold, store, and manage their financial securities in electronic form.

    4. Define intra-day trading.

      When traders open and close positions within the same trading day before the closing of the market i.e., 3:30 p.m.

    5. How an individual can do risk management in the securities market?

      Any individual can manage his/her risk by setting stop losses according to his capital.

  • What is MACD: Definition, Meaning, Uses and Strategy

    What is MACD: Definition, Meaning, Uses and Strategy

    What is MACD?

    what is MACD

    MACD stands for Moving Average Convergence Divergence. It is a popular and versatile technical indicator used in trading and technical analysis. MACD is used to identify potential trends, momentum shifts, and trading signals in financial markets, particularly in stocks, forex, and commodities. Here’s an overview of MACD and how it works:

    The MACD indicator consists of three key components:

    1. The MACD line is the main component of the indicator. It is calculated by taking the difference between two Exponential Moving Averages (EMAs): a shorter-term EMA and a longer-term EMA. The most common settings are a 12-period EMA and a 26-period EMA. The MACD line represents the momentum of the stock’s price.
    2. The signal line is a 9-period EMA of the MACD line. It helps smooth out the MACD line and generate trading signals. When the MACD line crosses above the signal line, it may be a bullish signal, and when it crosses below, it may be a bearish signal.
    3. The MACD histogram is created by plotting the difference between the MACD line and the signal line. The histogram visually represents the convergence or divergence of the two lines. When the histogram is above the zero line and increasing, it indicates bullish momentum. When it is below the zero line and decreasing, it indicates bearish momentum.

    The Moving Average Convergence Divergence (MACD) indicator was developed by Gerald Appel, an American trader and technical analyst. He introduced the MACD in the late 1970s and published it in his book “The Moving Average Convergence-Divergence Method” in 1979. The MACD has since become one of the most widely used and recognized technical indicators

    What Is MACD

    Read Also: Moving Average Convergence Divergence, MACD

    How MACD is used?

    How is MACD used

    Traders and technical analysts use MACD in various ways to analyse price data and make trading decisions:

    • When the MACD line is above the signal line and both are above the zero line, it indicates a potential bullish trend. On the contrary, when the MACD line is below the signal line and both are below the zero line, it suggests a potential bearish trend.
    • Traders use MACD to confirm the strength of a trend. For example, if a stock is in an uptrend and the MACD is also rising, it represents strong bullish momentum.
    • The divergence between the MACD line and the stock’s price can provide early signals of trend reversals. A bullish divergence occurs when the price is making lower lows, but the MACD makes higher lows. Bearish divergence is the
    • MACD crossovers between the MACD line and the signal line can generate trading signals. A bullish crossover (MACD line crossing above the signal line) suggests a buy signal, while a bearish crossover (MACD line crossing below the signal line) suggests a sell signal.
    • Traders often focus on the MACD histogram. Rising histograms indicate strong momentum in the current trend while falling histograms suggest weakening momentum.
    • When the MACD line crosses above the zero line, it can indicate a shift from bearish to bullish momentum. On the other hand, a cross below the zero line can signal a shift from bullish to bearish momentum.
    • MACD is a useful indicator that can be used in combination with other technical tools and techniques. It provides valuable insights into a stock’s trend, momentum, and trading opportunities. However, it is necessary to understand that no single indicator should be used in isolation, and traders should consider other factors and indicators when making trading or investing decisions.

    Limitations of MACD

    limitations of MACD
    1. MACD is a lagging indicator, which means it reacts to price movements that have already occurred. It may not provide timely signals in instantly changing or volatile markets.
    2. Like other technical indicators, MACD can generate false & fake signals, especially in choppy or consolidated markets. It’s important to use additional indicators or tools for confirmation of the trend.
    3. Quick reversals in price can result in false MACD crossovers and misleading signals. 
    4. The MACD’s effectiveness is highly dependent on the choice of parameters, such as the number of periods for the EMAs. Different settings can result in different signals.
    5. MACD is solely based on price data and doesn’t consider fundamental factors. For a comprehensive analysis, combining it with fundamental analysis is sometimes necessary.
    6. The concept of MACD and its calculations can be complex for beginners. Understanding how to use MACD efficiently may require some time and practice.

    Strategies for MACD

    MACD Crossover Strategy

    • Buy Signal:

    When the MACD line crosses above the signal line, it generates a bullish (buy) signal. Traders often enter long positions at this point.

    • Sell Signal:

    When the MACD line crosses below the signal line, it generates a bearish (sell) signal. Traders often enter short positions at this point.

    Zero Line Cross Strategy

    • Buy Signal

    When the MACD line crosses above the zero line, it indicates a shift from bearish to bullish price movement. This can be a buy signal.

    • Sell Signal:

    When the MACD line crosses below the zero line, it indicates a shift from bullish to bearish momentum. This can be a sell signal.

    Other Strategies for MACD

    Combine MACD with other technical indicators, such as support and resistance levels, moving averages, or chart patterns, for more robust trading signals.

    Use MACD on multiple timeframes to confirm signals. For example, Traders may use a longer-term MACD on a daily chart to identify the primary trend and a shorter-term MACD on an hourly chart for entry and exit signals.

    It’s essential to back-test any MACD strategy on historical data and use proper risk management. No single strategy works perfectly in all market conditions, so be prepared to adapt and refine your approach based on changing market dynamics. Additionally, consider combining MACD analysis with other forms of technical and fundamental analysis for a better trading strategy.

    The formula for MACD

    The Moving Average Convergence Divergence (MACD) is calculated using the following formula:

    MACD Line (12-day EMA – 26-day EMA)

    1. Calculate the 12-day Exponential Moving Average (EMA) of the stock’s closing prices.

    2.  Calculate the 26-day EMA of the stock’s closing prices.

    3.  Subtract the 26-day EMA from the 12-day EMA to get the MACD line.

                     (12-day EMA – 26-day EMA) = MACD line

    Signal Line (9-day EMA of MACD Line)

    1. Calculate the 9-day EMA of the MACD line.

     2. This 9-day EMA becomes the signal line.

    MACD Histogram (MACD Line – Signal Line)

    1.   Subtract the signal line (9-day EMA of the MACD line) from the MACD line to get the MACD histogram. (MACD line – Signal line) = MACD Histogram

    In summary, the MACD is derived by taking the difference between two Exponential Moving Averages (EMAs) of the stock’s closing prices. The MACD line is the primary component, while the signal line and the MACD histogram are derived from the MACD line.

    Conclusion

    CONCLUSION

    To conclude, MACD is a valuable tool for trend identification, momentum confirmation, and generating trading signals. However, it should be used in combination with other technical indicators and analysis methods to improve signal quality and accuracy. Additionally, recognizing its limitations, that it is a lagging indicator and its sensitivity to parameters, is essential for informed trading decisions.

    Also, read about mutual funds and ETF

    FAQs (Frequently Asked Questions)

    1. What is the full form of MACD?

      MACD stands for Moving Average Convergence and Divergence.

    2. Who developed MACD?

      MACD was developed by Gerald Appel, an American trader.

    3. Is MACD a leading or lagging indicator?

      MACD is a lagging indicator.

    4. Mention three components of MACD.

      Three components of MACD are the MACD line, signal line and MACD histogram.

    5. Why is MACD beneficial?

      MACD helps us identify the strength of the momentum and the current trend of stock price.

  • Best Options Trading Chart Patterns

    Best Options Trading Chart Patterns

    In this blog, we will be discussing the technical trading chart patterns that are used by investors and traders to analyse the price movement of the stock.

    To explain,
    You must have heard the quote “History repeats itself”. In the same way, when it comes to the stock market, chart readers analyse the history of price movement on technical charts which are made up of certain red and green candlesticks in order to predict the future target price of that particular stock. This is known as technical analysis.

    • Now technical analysis comes with various chart patterns which are made up of candlesticks.
    • One can use these patterns while trading either in cash or in the options segment.
    • These patterns can help someone discover some of the best trading opportunities.

    First, we need to understand the meaning of cash and option segments.

    Cash Trading

    casg trading


    Refers to the buying and selling of financial instruments, such as stocks, bonds, commodities, or currencies, for immediate delivery and settlement.

    Options Trading

    It is a financial strategy that involves buying and selling options, which are derivative contracts that give the holder the right (but not the obligation) to buy or sell an underlying asset at a specified price (strike price) on or before a specified expiration date. There are two primary types of options: call options and put options.

    option trading

    The next question that would come to your mind would be, how patterns are formed on stock charts? So, the answer to this is, that patterns are made up of candlesticks. A candlestick consists of a rectangular area, known as the “body,” and two “wicks” or “shadows” extending from the top and bottom of the body. Candlesticks can be coloured to represent whether the price of the asset increased or decreased during the time frame. There are basically two types of candlesticks:

    Read Also: Ascending Triangle Chart Pattern

    Bullish And Bearish Candlesticks

    candlesticks

    A “bullish” or “up” candlestick is typically white or green and indicates that the closing price is higher than the opening price, signifying a price increase.

    A “bearish” or “down” candlestick is typically red or black and indicates that the closing price is lower than the opening price, signifying a price decrease.

    Traders often look for specific candlestick patterns, such as “doji,” “hammer,” “engulfing,” and “morning star,” to make trading decisions. These patterns can provide insights for upcoming trend reversals in the market.

    After having some basic idea about the technical analysis, it is important to go through some terminologies that are linked with chart patterns.

    First and foremost, one must identify the support and the resistance lines in order to understand the basic price movement.  

    • A resistance level is a price level at which a stock encounters selling interest, preventing it from rising further. It acts as a “ceiling” for the price, where the supply of the stock increases, and buying interest diminishes.
    • A support level is a price level at which an asset tends to find buying interest, preventing it from falling further. It’s like a “floor” for the price, where demand for the stock increases, and selling interest diminishes.

    Support and resistance are fundamental concepts of technical analysis and play a crucial role in the same.

    Best Options Trading Chart Patterns

    Reversal Patterns

    Reversal patterns in technical analysis are chart patterns that suggest a potential change in the direction of an existing price trend. These patterns are valuable for traders and investors seeking to identify points at which an asset’s price may reverse from an uptrend (bullish) to a downtrend (bearish) or vice versa. Reversal patterns can help in making informed decisions about buying or selling a stock.

    Read Also: Triple Top Reversal Chart Pattern

    Continuation Patterns

    Continuation patterns are technical chart patterns that suggest a temporary consolidation or pause in an existing price trend, followed by the continuation of the prior trend. Some of the examples of continuation patterns are listed below

    This is the most basic and widely used flag pattern in trading. The pattern above that you are seeing is known as the bullish flag pattern

    The pattern begins with a strong and sharp upward price movement called the pole of the flag. Following the flagpole, there is a period of consolidation or sideways price movement. This consolidation takes the form of a rectangular or parallel channel as one can see in the image, sloping downward slightly. This is the flag portion of the pattern. Then comes a bearish flag pattern. The bearish flag pattern is characterized by a flagpole that continues in a consolidation phase. The pattern is considered complete when the price breaks out to the downside, indicating a trend reversal.

    Now, our readers must be aware a bit about the target and stop loss. We will also explain through this blog how you can set your estimated target and stop loss while using chart patterns and for this, you need to understand the meaning of target and stop loss. Traders typically place a stop-loss order just below the lower boundary of the flag pattern. This helps protect against potential losses if the price unexpectedly changes its direction.

    The price target is usually calculated by measuring the length of the flagpole and adding it to the breakout point.

     Descending Triangle

    This is a continuation pattern with a flat support level and a declining resistance line. The price is expected to break down below the support level, leading to a bearish trend continuation.

    descending triangle

    Symmetrical Triangle Pattern

    Symmetrical triangles do not have a specific bullish or bearish bias by themselves. The breakout direction provides the bias for the pattern. It is considered a continuation pattern, indicating that the price is likely to continue the existing trend after a period of consolidation.

    symmetrical triangle pattern

    Head And Shoulders

    The head and shoulders pattern consists of three peaks. The middle peak (the head) is higher than the two outer peaks (the shoulders). This pattern suggests a potential trend reversal from bullish to bearish.

    head and shoulders

    Wedge Pattern

    It is a technical chart pattern used in technical analysis to identify potential trend reversals or trend continuations in the price of a stock, currency pair, or commodity. Wedge patterns are named for their shape, as they resemble a narrowing or converging pattern on a price chart. There are two primary types of wedge patterns: rising wedges and falling wedges.

    wedge pattern
    downward wedge trend

    The above figure displays the falling and rising wedge chart patterns respectively.

    Read Also: High-Wave Candlestick Chart Pattern

    Conclusion

    It is better to trade with chart patterns since they provide the trader with better market insights and a competitive advantage over those who use technical analysis tools while trading. Chart patterns represent a comprehensive approach and its analysis can help in a deep understanding of market psychology.

    FAQs (Frequently Asked Questions)

    1. What is Options Trading?

      Options trading involves buying and selling options, which are derivative contracts that give the holder the right (but not the obligation) to buy or sell an underlying asset.

    2. Is Cash Trading different from Options Trading?

      Yes, Cash trading is different from option trading.

    3. What is the resistance level?

      A resistance level is a price level at which a stock price faces difficulties in continuing its trend.

    4. What is a candle stick?

      A candlestick consists of a rectangular area, known as the “body,” and two “wicks” or “shadows” extending from the top and bottom of the body.

    5. What is a reversal pattern?

      Reversal patterns in technical analysis are chart patterns that suggest a change in the direction of an existing price trend.

  • What is ATR (Average True Range): Calculation, Advantages & Disadvantages Of ATR

    What is ATR (Average True Range): Calculation, Advantages & Disadvantages Of ATR

    In our previous blogs, we have discussed about stocks and technical analysis.

    For reference, here are some insights into technical analysis.  

    Technical Analysis

    Technical analysis is a method of analysing financial markets and making trading or investment decisions based on the historical price. It is primarily focused on studying past price movements and chart patterns to predict future price direction. Technical analysts identify support and resistance levels, which are price levels where an asset tends to find buying or selling pressure, respectively. Various technical indicators, including moving averages, Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD), provide quantitative measures of price momentum. The average true range is one such technical indicator. Let us go through an in-depth analysis of ATR.

    What Is ATR (Average True Range)

    What is ATR?

    ATR Average true range

    The Average True Range (ATR) is a technical indicator used in the analysis of stocks, primarily for estimating the volatility and price range of an asset. Developed by J. Welles Wilder in his book “New Concepts in Technical Trading Systems.” ATR is a valuable instrument for traders and investors to measure market conditions and manage risk.

    Here are the key points about the Average True Range:

    1. The ATR is designed to measure the volatility of an asset, representing the average range between the daily high and low prices. A higher ATR value indicates greater volatility, while a lower value indicates lower volatility.
    2. The ATR is derived from the True Range, which is the greatest of the following three values:
    • The current day’s high minus the current day’s low.
    • The absolute value of the current day’s high minus the previous day’s close
    • The absolute value of the current day’s low minus the previous day’s close.
    1. To calculate the Average True Range, a moving average is taken of the True Range values over a specified period. The most commonly used period is 14 days, but traders can adjust this period as per their preferences.
    2. Higher ATR values imply that the asset is going through greater price fluctuations, which can be understood as increased uncertainty or risk. Lower ATR values indicate relatively stable or less volatile market conditions.
    3. A rising ATR can confirm the strength of a trend, especially when in combination with other technical indicators. It suggests that the market is experiencing strong price movement.
    4. The choice of the ATR’s look-back period depends on the trader’s goals and time period. Shorter periods provide more responsive values, while longer periods offer a smoother, more stable measure of volatility.

    The Average True Range is a multipurpose tool of technical analysis that when used in combination with other indicators and strategies can help in making informed trading decisions. It helps traders better analyse and manage the risks linked with market volatility, allowing for more precise stop-loss and position sizing.

    Read Also: Best Options Trading Chart Patterns

    Calculation of ATR.

    calcualtion of ATR

    The Average True Range (ATR) is calculated by following a specific formula. It involves several steps and the use of True Range values for a selected number of periods.

    Here’s the formula and a step-by-step explanation of how to calculate the ATR:

    Step 1:

    Calculate True Range (TR)

    True Range represents the greatest of the following three values for a given trading period.

    1. The difference between the current day’s high and the current day’s low.
      (Current Day’s High – Current Day’s Low)
    2. The absolute value of the difference between the current day’s high and the previous day’s close
      (Current Day’s High – Previous Close)
    3. The absolute value of the difference between the current day’s low and the previous day’s close. (Current Day’s Low – Previous Day’s Close)

    Step 2:

    Calculate the Average True Range (ATR)

    The ATR is calculated as a moving average of True Range values over a specified number of periods (usually 14 days is the default period).

    Here’s how to do it:

    1.   Select the number of periods (e.g., 14).

    2.   For the first True Range value (TR1), simply take the TR of the first period.

    3.  For the next ATR calculations, use the following formula:

    • ATR = [(Prior ATR x 13) + Current TR] / 14
    • Where “Prior ATR” is the ATR value calculated for the previous period, “Current TR” is the True Range value for the current period, and “14” represents the selected number of periods.

    The process is repetitive for each subsequent period. Then continue to calculate the ATR by using the prior ATR and the current True Range.

     Here’s an example to illustrate the calculation of the ATR:

    Let’s say we want to calculate the 14-day ATR of a stock:

    Day 1:

    ATR1 = 2 (True Range for the first day)

    Day 2:

    ATR2 = [(2 x 13) + 4] / 14 = 2.07

    Day 3:

    ATR3 = [(2.07 x 13) + 3] / 14 = 2.01

    Day 4:

    ATR4 = [(2.01 x 13) + 6] / 14 = 2.06

    The ATR value provides an indication of the average price range and volatility over the selected number of periods. Traders use it to assess the level of price volatility, set stop-loss levels, and determine position sizes based on their risk tolerance.

    Advantages & Disadvantages Of ATR

    Pros and cons ofusing ATR

    The Average True Range (ATR) is a widely used technical indicator in trading and investing. Like most tools, it comes with its own set of advantages and limitations.  

     Here are the advantages and disadvantages of using the ATR:

    Advantages of ATR:

    • ATR is a purely mathematical indicator, which means it provides objective data. It’s not influenced by subjective opinions or emotions, making it a reliable tool for risk management.
    • Traders can adjust the look-back period for the ATR to match their specific trading strategies and time horizons. Common periods include 14 days, but you can choose longer or shorter periods based on your needs.
    • A rising ATR often indicates increased price volatility, which can confirm the strength of a trend. This is especially useful for trend-following traders.

    Disadvantages of ATR:

    • ATR is based on historical price data, and it doesn’t predict future price movements. It provides information about past volatility, which may not always reflect current or future market conditions.
    • Like many technical indicators, the ATR is a lagging indicator, which means it reacts to price movements that have already occurred. This lag may limit its effectiveness in rapidly changing or highly volatile markets.
    • ATR can generate false signals, especially in choppy or sideways markets. Traders need to use it in conjunction with other indicators or tools to minimize false signals.
    • For beginners, the concept of ATR and its calculations can be complex. Understanding how to use ATR effectively may require some time and practice.
    • ATR provides information on volatility but doesn’t offer insights into other important factors like trend direction, market sentiment, or the potential impact of news events.

    Conclusion

    CONCLUSION

    To conclude, the ATR is a valuable tool for traders and investors looking to measure and manage volatility and risk. However, it’s essential to use it in combination with other indicators and analyse it carefully to create a comprehensive trading or investment strategy. Additionally, identifying its limitations can help the investor to use it effectively and in a much better way.

    Read Also: Rising Window Candlestick Pattern

    FAQs (Frequently Asked Questions)

    1. What is the full form of ATR?

      ATR stands for Average True Range.

    2. What is prior ATR?

      Prior ATR” is the ATR value calculated for the previous period.

    3. Who developed ATR?

       ATR was Developed by J. Welles Wilder in his book “New Concepts in Technical Trading Systems”.

    4. What is the default period of true range for calculating ATR?

      The default period of the true range for calculating ATR is 14 days.

    5. Is ATR a leading or lagging indicator?

      ATR is a lagging indicator.

  • Wipro Case Study and Marketing Strategy

    Wipro Case Study and Marketing Strategy

    Today’s blog dives into the intriguing world of Wipro as we bring you an in-depth Wipro Case Study, analyzing the journey of one of India’s leading tech giants.

    Before diving into Wipro marketing strategies, let’s have some basic ideas about the company and how it became India’s leading tech service provider.

    Wipro Overview

    Wipro Limited is a leading global information technology, consulting, and business process services company based in India. It provides a wide range of services to clients worldwide, including IT consulting, application development and maintenance, infrastructure management, business process outsourcing, and more. Wipro serves various industries, including technology, healthcare, financial services, and manufacturing.

    Founder of Wipro

    Azim Premji

    Azim Premji is an Indian billionaire entrepreneur and philanthropist who is widely recognized for his significant contributions to the Indian information technology (IT) industry. He is the chairman of Wipro Limited, one of India’s largest and most prominent IT services companies. Here are some key details about Azim Premji

    Azim Premji was born in Mumbai, India, on July 24, 1945. He studied Electrical Engineering at Stanford University in the United States but returned to India in 1966 following his father’s untimely death to take over the family business.

    Azim Premji took charge of Western India Vegetable Products Limited (Wipro’s precursor) in 1966, primarily dealing with vegetable oil production. Under his leadership, the company diversified into IT and eventually became Wipro Limited. He played a pivotal role in transforming Wipro into one of India’s leading IT services companies. His strategic vision and leadership steered the company’s growth, and it expanded its global footprint, offering a wide range of IT services and solutions.

    He has been featured on various Forbes lists of billionaires. His philanthropic efforts have also earned him recognition, including being named one of Time magazine’s 100 most influential people worldwide. In July 2019, Azim Premji retired as the chairman of Wipro Limited after leading the company for several decades. His son, Rishad Premji, succeeded him as the company’s chairman.

    His contributions have not only made a significant impact on the IT industry in India but also on social and educational initiatives aimed at improving the lives of people across the country.

    Having known about the person behind creating one of India’s biggest tech giants, let us know the marketing strategies adopted by the company to evolve itself among its competitors.

    Read Also: TCS vs Wipro: Comparison Of Two IT Giants

    MARKETING STRATEGY OF WIPRO

    MARKETING STRATEGY OF WIPRO

    Wipro serves clients across various industries, including technology, healthcare, financial services, manufacturing, retail, energy, and more. Its services help organizations leverage technology and innovation to enhance efficiency, improve customer experiences, and achieve business goals.

    1. Product

    product

    Wipro is a well-known and globally recognised company that aims to provide the best of the best services to its customers

    it has several products ranging from automobile, consumer goods, retail, professional service, product engineering, and many more.

    When it comes to IT services, the company provides us with:

    • Application Development and Maintenance
    • Infrastructure Services
    • Cybersecurity Services
    • Quality Engineering and Testing
    • Blockchain Services
    • Artificial Intelligence and Machine Learning
    • Data Analytics and Business Intelligence

    Not only this, it also provides us with services like Finance and Accounting Services, Customer    Relationship Management (CRM) and Customer Experience Management, Supply Chain Management

    2. Pricing

    MARKETING STRATEGY OF WIPRO

    Wipro Limited, a large and diverse IT services company, employs various pricing models and strategies depending on the services and solutions offered to clients. Pricing in the IT services industry can be complex and customized based on factors such as the scope of work, the difficulty of the project, the duration of engagement, and the client’s requirements. Below are some common pricing models and factors that may influence Wipro’s pricing policy are below. Under the time and materials model of the company, clients are billed based on the actual hours worked and the cost of materials or resources used. This is generally used for projects where the scope is not properly defined.

    In a fixed-price model, the project scope, deliverables, and costs are agreed upon upfront. The client pays a predetermined, fixed price for the entire project. His model is suitable when the project requirements are well-defined and stable.

    In a Subscription Pricing model, clients pay recurring fees for ongoing services or access to software solutions. This model is commonly used for software-as-a-service. Apart from the above-mentioned major pricing policies, various other models comprise the overall prices of the company’s products.

    Various factors influence the pricing policy of the company. Some of them are listed below.

    • Difficult projects may have higher pricing.
    • Long-term contracts with other companies can lead to heavy discounts or different pricing structures.
    • Pricing of the products offered by other tech companies also leads to variations in the pricing policy of Wipro.

    3. Promotion

    MARKETING STRATEGY OF WIPRO

    We all know that promotion plays a significant role when it comes to the growth of the company. Wipro maintains a strong online presence through its website and social media channels. It uses these platforms to share news, updates, success stories, and thought leadership content. Regular engagement with followers helps foster a sense of community.

    Wipro frequently shares case studies and success stories highlighting its collaboration with clients. This eventually impacts the further onboarding of clients. The company also always fulfils its corporate social responsibility.

    Partnerships with technology partners and other organizations are highlighted in its advertising strategy. These partnerships help Wipro provide complete solutions and reach a wider audience. The company also has occasionally used industry experts as brand ambassadors or spokespersons to increase brand visibility. The company also involves itself in environmental awareness initiatives. Not only this but also the company adopts a client-centric approach in its advertising, highlighting its dedication towards the existing client base. 

    For the information of our readers

    MARKETING STRATEGY OF WIPRO

    Wipro Limited, primarily an IT services and consulting company, is not a manufacturer of consumer goods like household products or consumer electronics. Instead, Wipro provides information technology services, consultancy services, and digital solutions to businesses and organizations across various industries. It’s essential to differentiate between Wipro Limited, the IT services company, and Wipro Enterprises, a separate entity within the Wipro Group, which manufactures and sells consumer goods, lighting products, and healthcare products under various brand names. Wipro Enterprises includes businesses like Wipro Consumer Care and Lighting and Wipro GE Healthcare.

    NOTABLE ACQUISITIONS OF WIPRO:

    • Appirio (2016):   Wipro acquired Appirio, a cloud consulting company based in the United States, for approximately $500 million.
    • Info SERVER (2017): Wipro acquired InfoSERVER, a Brazil-based IT services provider, to strengthen its presence in the Latin American market.
    • International TechneGroup Incorporated (ITI) (2019): Wipro acquired ITI, an engineering solutions and services company based in the United States, to enhance its engineering and manufacturing solutions capabilities.
    • Capco (2021) – Wipro acquired Capco, a global management and technology consultancy, for approximately $1.45 billion.

    Also, read our success story of Mumbai Dabbawalas.

    Read Also: Maruti Suzuki Case Study: Business Model and Marketing Strategy

    Conclusion

    We assume that by now, our readers must have a basic idea about the company, its services and the acquisitions made by the company. Now, let us conclude today’s blog by updating you with the company’s current market price and returns because our readers feel like investing after reading these company insights. The company has traded for 406 with above-average returns over the past few years.

    The company is constantly developing and evolving to new heights. 

    S.NO.Check Out These Interesting Posts You Might Enjoy!
    1D Mart Case Study: Business Model and Marketing Strategy
    2Gillette India Case Study: Business Model, SWOT Analysis, and Financial Overview
    3Nykaa Case Study: SWOT Analysis, Business Model and Marketing Strategy
    4Varun Beverages Case Study: Business Model, Financials, and SWOT Analysis
    5Coca-Cola Case Study and Marketing Strategy

    FAQs

    1. Who is the founder of Wipro?

      Azim Premji founded Wipro.

    2. When was Wipro founded?

      Wipro was founded in the year 1945.

    3. What are the major services provided by Wipro?

      Major services provided by Wipro are consultancy services.

    4. What is the current market price of Wipro?

      The current market price of Wipro is 406.

    5. Is Wipro Limited and Wipro Enterprises the same?

      No, Wipro Limited and Wipro Enterprises are different.

  • Flipkart Case Study- Business Model and Marketing Strategy                                          

    Flipkart Case Study- Business Model and Marketing Strategy                                          

    Welcome to our yet another blog, today we bring you yet another success story of a startup.

    When it comes to online shopping or e-commerce businesses, in recent years various platforms have evolved. Some of the most widely used sites for online shopping are Amazon, Flipkart, Myntra etc.

    One of the primary reasons for the popularity of online shopping is convenience. Shoppers can browse and make purchases from the comfort of their homes using computers, smartphones, or tablets. There is no need to visit physical store hours to consider, making it accessible 24/7.

    In today’s blog, we shall be focusing on one of the above-mentioned online shopping apps, how it evolved, the people behind its success, what is the business model and the efforts that the app makes to keep its position intact in the market.

    So, let us talk about FLIPKART.

    How Flipkart Originated

    Flipkart, an e-commerce company was founded in the year 2007, by Mr Sachin Bansal and Binny Bansal. Both were alumni of the Indian Institute of Technology, Delhi. They had been working for Amazon earlier. With a desire to start something new and of their own, they launched Flipkart with a capital of Rs. 4 lakhs. The plan was simple – customers would place an order for books online through Flipkart and would receive them at their doorstep

    sachin bansal- founder of flipkart

    Now, Flipkart functions entirely in India, with headquarters in Bangalore, Karnataka and earning 4500 crores annually. In no time, Flipkart also started offering other products like electronic goods, stationery supplies, fashion, home essentials and groceries.

    The company now gives employment to around 22,000 people. It has a registered consumer base of more than 400 million and the company claims to deliver more than thirty thousand parcels per day.

    Currently, Flipkart stores its products in its warehouses across the country. They have a delivery network across 27 cities. It helps the company to deliver orders to their customer within an appropriate time.

    With passing time, internet penetration has grown across the world, hence it also acts as a booster for e-commerce platforms as it provides a secure payment option to customers.

    What led to the growth of Flipkart was increasing internet connectivity in rural and urban areas.

    Availability of a wide range of products from anywhere and that too at the customer’s doorstep with feasible and affordable prices.

    Equipped work schedules of the young population led to more online and indoor shopping which eventually helped Flipkart grow at a faster pace.

    Though, Flipkart currently faces tough competition from Amazon, what remains is the main objective is to create a unique image in the consumer’s mind.

    After having an idea about the company’s evolution and how it created its own space in the Indian e-commerce markets, let’s dive deep into what are the marketing strategies that Flipkart adopted.

    Flipkart Case Study

    Business Model of Flipkart

    The Flipkart business model is a comprehensive framework that leverages diverse revenue streams and strategic innovations, making it a leader in India’s e-commerce industry.

    • Marketplace Operations: Flipkart connects millions of sellers and buyers, earning commissions on each sale. Sellers list products on the platform, while Flipkart facilitates transactions.
    • Logistics Services: Flipkart’s subsidiary, Ekart, ensures efficient deliveries and returns. Sellers can use these services for packaging, storage, and shipping, contributing to Flipkart’s revenue.
    • Advertising Solutions: Flipkart provides sellers with advertising options like sponsored product listings and banner ads. These services boost visibility and drive sales.
    • Subscription Model: Flipkart Plus offers benefits like free delivery and early sale access, fostering customer loyalty and generating subscription revenue.
    • Financial Services: In 2024, Flipkart introduced UPI services in partnership with Axis Bank, streamlining transactions and expanding financial offerings.
    • Technological Innovations: AI-powered tools like Flippi enhance customer engagement, while Flipkart Green promotes sustainable shopping.

    Despite challenges, including regulatory scrutiny and competitive pressures, Flipkart maintains a 48% market share. Its blend of marketplace efficiency, logistics, and innovation continues to define the Flipkart business model, solidifying its leadership in the Indian e-commerce landscape.

    Read Also: Nykaa Case Study: SWOT Analysis, Business Model and Marketing Strategy

    Subsidiary Companies of Flipkart

    Flipkart has acquired controlling stakes in numerous companies over the years, turning it into an e-commerce giant. Some of the prominent companies are:

    Name StakeIndustryAcquisition year
    Myntra100%Fashion2014
    Ekart100%Logistics2015
    Flipkart Wholesale100%B2B Cash & Carry2020
    Cleartrip80%Travel2021
    Shopsy100%B2C E-Commerce2021
    Flipkart Health+75.1%Healthcare2021

    Most of the companies have been acquired after Walmart took a controlling stake in Flipkart in 2018. Over the years, Flipkart has made 22 acquisitions and 27 investments in businesses operating in different industries.

    Did you know?

    Flipkart Health+ was formerly known as SastaSundar Healthbuddy Limited before being rebranded after its acquisition by Flipkart in 2021. It is also one of the only companies under the Flipkart group that has been listed on the Indian stock exchanges. It trades under the name “Sastasundar Ventures Limited” and has a market price of ₹241 and a market capitalization of 768 crores as of 19 March 2025.

    Marketing strategies of Flipkart

    The “Flipkart Marketing Strategy” focuses on diverse product offerings.

    1. Product:

    product

    The company generally offers its customers with wide range of products. It deals in almost all segments except for automobiles. Flipkart has recently started a grocery store to increase its market share.

    The major reason Flipkart for being the most used app for online shopping is that the app is user-friendly which gives the user a phenomenal experience while browsing.

    2. Pricing:

    price

    The company provides several filters for the products as per the price range selected by the customer, and easy payment options. Flipkart was the first company to provide. cash on delivery option to its users in the year 2010. The products are delivered on time and are of good quality since they are packed with utmost care to avoid any sort of damage.

    The 15-day exchange policy of the company gains consumers’ confidence in buying products. Recently launched pay later option with a minor convenience fee, helps the customer to easily convert their buying into EMIs. The company also offers exclusive discounts and price drops on the occasion of Indian festivals and sales.

    3. Promotion:

    promotion

    Flipkart can target every age group of audience irrespective of what product they are looking for online. The smart marketing strategy of Flipkart grabs the attention of its viewers who hold the power to buy and are aware that online shopping is better than offline shopping since it provides them with much better options to explore than any retailer would ever give them.

    You must have heard about the term SEO; it stands for search engine optimisation.

    Now what exactly is SEO It is a set of strategies and practices used to improve a website’s visibility in search engine results pages like Google, Bing, and Yahoo. The primary goal of SEO is to increase non-paid traffic to a website and boost its overall online presence.

    As per the latest findings, Flipkart tops the online search results with a total of 55.6 million searches, out of which 11.3 million were mobile searches and 44.3 million were desktop searches. Also, when it comes to SEO, the loading speed of the site plays an important part since it will decide if the users will visit your site or not. Flipkart does this job great. It just takes 2 seconds for the site to load the content for its consumers.

    To promote the app Flipkart has also collaborated with various Indian celebs who act as influencers for people who search for online products.

    4. Advertising campaigns launched by Flipkart

    advertising

    One of Flipkart’s most significant annual sales events is the “Big Billion Days.” Flipkart runs wide-ranging marketing campaigns, offering discounts and deals across various product categories. These campaigns feature engaging advertisements to build eagerness and attract customers.

    Flipkart ran an advertising campaign centred around our toddlers and teenagers —a voice search for kids. The campaign showcased how kids could use their voices to search for toys and other products on the app, making it easier for parents to shop for their children.

    Flipkart often runs campaigns emphasizing mobile phone exchange offers, encouraging customers to upgrade their phones by exchanging their old ones. These campaigns ensure that consumers should get cost-efficient and best deals.

    Flipkart introduced “Flipkart Plus,” a loyalty program offering benefits such as free and faster delivery, early access to sales, and reward points for regular customers.

    Flipkart’s marketing team has a great quality of analysing consumer behaviour and based on this, they started a sort of advertising campaign which you guys must have seen while scrolling through the app, “Frequently Bought Together”. In this Flipkart suggests the buyer the product which is frequently bought by the audience.

    There are various other marketing strategies that Flipkar̥t tries to implement to promote the app globally.

    By now our readers must have got an idea why Flipkart holds an essential place in the market and gives tough competition to Amazon.

    Read Also: Amazon Case Study: Marketing Strategy, Product Portfolio and Pricing Strategy

    Conclusion

    Flipkart’s business model depends on simplifying transactions between buyers and sellers, charging fees for various services, and constantly inventing to improve the customer experience and seller support.  

    Flipkart operates as a recognized e-commerce platform in India with a business model that revolves around being an online marketplace. It connects a wide range of sellers with consumers, offering diverse products and services. Flipkart’s marketing strategy is essential in establishing its brand, attracting customers, and maintaining a competitive edge in the e-commerce industry. 

    S.NO.Check Out These Interesting Posts You Might Enjoy!
    1Zara Case Study: Business Model and Pricing Strategies
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    3TCS Case Study: Business Model, Financial Statement, SWOT Analysis
    4Hindustan Unilever Case Study: Business Model, Financials, and SWOT Analysis
    5Vedanta Case Study: Business Model, Financial Statement, SWOT Analysis

    FAQs (Frequently Asked Questions)

    1. When was Flipkart founded?

      Flipkart was founded in the year 2007.

    2. Who founded Flipkart?

      Sachin Bansal & Binny Bansal founded Flipkart.

    3. Is Flipkart an Indian company?

      Yes, Flipkart is an Indian company with its headquarters in Bangalore. Later it was acquired by Walmart in 2018 taking over 80% stake in the company.

    4. What is the current annual revenue of Flipkart?

      The current annual revenue of Flipkart is 4500 crore.

    5. Which is the biggest sale of Flipkart?

      BIG BILLION DAYS is the biggest sale of Flipkart.

  • Coca-Cola Case Study and Marketing Strategy

    Coca-Cola Case Study and Marketing Strategy

    Welcome to yet another blog. Hope, you enjoyed our Satyam Scam case study. Today, we bring you the success story and market strategy of another giant business in India. Guess??

    Yes, you guessed it right. It’s Coca-Cola, the most loved soft drink in human history. The black drink has its journey to motivate you.

    In today’s blog, we will be focusing on some of the below-mentioned points:

    • How does Coca-Cola originate?
    • With changing times, what business model was opted by the company to keep the business going at the same pace?
    • And lastly, how does the black soft drink never miss a chance to make its consumers happy?

    So be it your kid’s 1st birthday celebration or, the 25th anniversary of your parents or your friend’s promotion party, coca-cola is the first thing to cross our minds when it comes to aerated drinks.

    Over the past few years, coca-cola has captured the market with some of the best advertising techniques and has a monopoly in this sector.

    Now without wasting much time let’s start our today’s blog.

    First of all, we need to know what was the idea behind Coca-Cola and who started it

    Introduced almost 120 years back, coca-cola is the most widely used beverage of all time.

    It is currently consumed in more than 200 countries. It is the world’s largest manufacturer of non-alcoholic drinks.

    History of Coca-Cola

    Coca-Cola was founded by a pharmacist Dr. John S. Pemberton from Atlanta. He wanted to make a different-tasting soft drink that could be sold. He made a flavoured syrup and mixed it up with carbonated water. Later on, his partner Frank M. Robinson named that water-mixed drink Coca-Cola. The first newspaper ad for Coca‑Cola soon appeared in The Atlanta Journal.

    History of Coca-Cola

    Dr. John gradually sold his business in portions and before he died in 1888, Coca-Cola was finally sold to Asa G. Candler.

    Starting from 9 servings in a day, now it serves around 1.9 billion drinks per day.

    Read Also: Varun Beverages Case Study: Business Model, Financials, and SWOT Analysis

    MARKETING STRATEGY OF COCA-COLA

    Although every brand has its way of advertising its products, Coca-Cola has been one of the most recognizable brands now for over a century because the company first experiments with the strategy that it plans and then implements. For any strategy they make, customer satisfaction for the company comes first. Let’s discuss the widely used strategies in detail.

    Coca Cola Case Study

    Worldwide Advertising

    Worldwide Advertising

    Coca-Cola every time comes up with a different and creative idea to advertise their product. At first, they analyse their global consumer base and their demands. For example, initially, coca-cola was sold through soda fountains but then two talented minds secured exclusive rights to selling coca cola in bottles. This eventually helped them to leave an imprint in their consumer’s minds since the bottles were sold globally and that too with labelling done in regional language.

    Branding

    Branding

    Branding generally means how the consumers perceive the product visually i.e., identification of any product when first seen. Seems like Coca-Cola has already mastered the art of branding. The brand needs to maintain the logo that they are using and also update it from time to time as per the consumer’s taste and preferences. Coca-Cola did it so well by trademarking its logo.

    Diversification of products

    Diversification of products

    Coca-Cola does not limit itself after inventing one soft drink. They have expanded their bucket of products over the years. Some of the products of Coca-Cola are Sprite, Diet Coke etc. and companies like Maza and Fanta depended on Coca-Cola for their growth.

    Pricing 

    Pricing

    With increasing recognition, more competitors came into the picture. Coca-Cola still kept their products cost-effective and maintained the quality of the product. This helped them in keeping their customers loyal and intact.

    Promotion 

    Promotion 

    Coca-Cola promoted its products through different advertising media such as newspapers, radio, television, billboards, banners, and magazine covers. The company also used artistic taglines like “Things go better with coke”.

    Partnership

    Partnership

    The company used partnerships as brand visibility to increase their market share and consumers. This helped them grow rapidly. Coca-Cola sponsored the Olympics, FIFA, Basketball tournaments and other reality shows such as American Idol. The company also bought various other businesses.

    Personalisation

    Personalisation

    Coca-Cola always tries to connect with customers at a personal level.

    Labelling their bottles in regional languages helped them increase their sales. They targeted their audience as per their age groups.

    Secret of Coca-Cola’s Success

    Before getting to any conclusion, you must know the secret of success for Coca-Cola’s marketing strategies. They follow a rule of 70:20:10 rule. As per this rule, 70% is the total allocation of the marketing budget of the coca-cola into their existing marketing strategies like Google ads and Facebook ads which are currently giving them good results, 20% is the allocation of the total marketing budget to the current trending marketing strategies like promoting their products on Instagram reels, YouTube shorts etc. remaining 10% they allocate into risky yet innovative marketing idea. Chances are likely that this 10% allocation will give them amazing results.

    Read Also: Flipkart Case Study- Business Model and Marketing Strategy                                          

    Conclusion

    By now you must have an idea of how Coca-Cola has placed itself differently in the market even after facing tough competition from competitors since its establishment. With different promoting and pricing techniques, the company is reaching new heights every day. Coca-Cola has also upgraded itself with advancing technologies to satisfy its consumers.

    To conclude the iconic brand COCA-COLA is still in every heart, no matter how many competitors enter the market. Their efforts of “THANDA MATLAB COCA-COLA” are irreplaceable.

    FAQs (Frequently Asked Questions)

    1. When was Coca-Cola founded?

      Coca-cola was founded in the year 1886.

    2. Who founded Coca-Cola?

      No, Coca-Cola is not an Indian brand. It is a USA-based brand.

    3. How was Coca-Cola sold in the initial days?

      Coca-Cola was sold through soda fountains initially.

    4. How many drinks are served per day now?

      1.2 billion drinks of Coca-Cola are served every day now.

  • Mumbai Dabbawala Case Study And Sucess Story

    Mumbai Dabbawala Case Study And Sucess Story

    You might already be familiar with today’s tale, but some stories are too inspiring not to share again. This case study on Mumbai dabbawala delves into the fascinating world of these men who, in the bustling city of Bombay, ensure that a ‘dabba’—a simple lunch box—becomes the most important part of a corporate employee’s day. They are responsible for collecting, organizing, and transporting these tiffins between homes and workplaces with remarkable precision. Originating during British rule in the 19th century, this concept was pioneered by MAHADEO HAVAJI and has since become a symbol of Mumbai’s culture and reliability.

    Mumbai Dabbawala Case Study

    Who Was Mahadeo Havaji?

    In the late 1800s when people used to relocate to Bombay from different cities for work, they found that there was a lack of proper hygienic food. Everyone kind of missed their home-cooked food. So, here comes in picture of the hardest working and dedicated, Mahadeo Havaji. He started delivering lunch boxes and hired about 100 people for this and his business soon started growing.

    mahadeo havaji

    Around 50% of dabbawallas at that time were uneducated or 2nd-grade drop out of school. A charitable trust named “Nutan Mumbai Tiffin Box Suppliers Trust” was established in the year 1956. It was also registered as a commercial organisation in the year 1968 as the Mumbai Tiffin Box Suppliers Association. It was headed by Raghunath Medge.

    Background Of Dabbawalas

    These tiffin providers were responsible for carrying lunch boxes from the homes of employees to their workplaces. This service has been in operation for over a century, and it involves thousands of lunchbox deliveries every day. You must have come across the word Six Sigma while reading about dabbawalla stories.

    history of mumbai dabbawlas

    Now what six sigma is?  Let’s understand Six Sigma in detail. Six Sigma is a quality control method that was launched in the year 1984 by Motorola engineer Bill Smith. The main objective of this method is to reduce the number of faults in a company’s product with only 3.4 defects per million opportunities so that the income and profit margins of the company can be increased along with the satisfaction of the consumer. To summarize, work faster with fewer mistakes.

    There are two methods for Six Sigma, one is for existing businesses and the other one is for new products or services that a company wants to launch.

    1. FOR EXISTING BUSINESSES
    FOR EXISTING BUSINESSES

    2. FOR NEW BUSINESSES

    for new business

    The concept of Six Sigma can be implemented not only in companies with big organisational structures with skilled people but also in small businesses.

    Read Also: Case Study on Starbucks Marketing Strategy

    How This Was Implemented In The Dabbawala Business

    Approximately 2 lakh tiffin are delivered daily by this popular tiffin service provider of Bombay and with 100% accuracy without any error. You must be shocked that, is this even possible.

    So Dabbawallas picks up the tiffin from the residence of the respective customer and brings it to Andheri station. All the dabbas are then transported via train to their final destinations. Dabbas are then unloaded sorted and finally delivered to the customers. Empty Dabbas are then recollected at the later part of the day and are again transported to their substations at which they were initially unloaded. Then they are again transported to their original destination from where they were picked up and are finally returned to the customer by the evening. This complete process is repeated every day and the fun fact is that a specific time and spot is pre-decided for all the pickup, loading, unloading, and drop tasks.

    For our reader’s convenience and a better idea of the whole process let’s explain this with the help of a flow chart.

    the whole business process model

    By now you must have got an idea about the daily working of the dabbawalla business. Their main motive is to improve the process and methods to minimise the error. 

    Dabbawalla adopted colour coding for their lunch-box i.e., there are different colours imprinted on the boxes. Yellow colour for the street code of the residential station, orange colour for the substations at which the boxes are dropped, and red colour is for the destination code including floor numbers and building numbers and this is how Six Sigma was implemented in Dabbawalla business.

    REWARDS AND RECOGNITIONS

    The Mumbai Dabbawallas have received numerous rewards, and recognition for their exceptional service and efficient lunchbox delivery system. Some of the awards and recognition they have received include

    • Six Sigma Certification: The Dabbawallas have been certified as a Six Sigma organization for their remarkable accuracy and efficiency in delivering lunchboxes.  
    •  Prince Charles’ Visit: In 2003, Prince Charles of the United Kingdom visited Mumbai and met dabbawallas to learn about their journey.
    •  ISO Certification: The Mumbai Dabbawallas received ISO 9001:2000 certification for quality management.
    •  Recognition by Harvard Business School: Harvard Business School conducted a case study on the dabbawallas, which further raised their global recognition  
    •  Featured in Documentaries and Books: The dabbawallas’ unique system has been featured in several documentaries and books.
    •  Apart from this, Dabbawallas have also been invited to speak at various international events and conferences.
    • The Indian government has recognized the Mumbai Dabbawallas for their contribution to providing employment opportunities to many individuals.
    • The dabbawallas have received attention from global media, including newspapers, television channels, and magazines, which has helped promote their work internationally.
    • Various business and industry associations have presented awards to the dabbawallas for their outstanding work in the field of logistics and supply chain management.
    •  Social and Cultural Recognition: The dabbawalla plays an important role in Mumbai’s social and cultural fabric. They are often invited to participate in local events and festivals, where they are recognized and celebrated.

    Must read unveils the truth of the Satyam Scam

    Read Also: Coca-Cola Case Study and Marketing Strategy

    Conclusion

    These rewards and recognitions highlight Mumbai Dabbawalla’s dedication, commitment, and the extraordinary accuracy of their lunchbox delivery system, which has become an inspiration for businesses and organizations around the world.

    See you in the next blog, until then don’t forget to share your thoughts on our today’s newsletter. By the time do not forget to share this article on WhatsApp, LinkedIn & X (formerly Twitter).

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    4Hindustan Unilever Case Study: Business Model, Financials, and SWOT Analysis
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    FAQs (Frequently Asked Questions)

    1. Who founded Dabbawala?

      Dabbawala was founded by Mahadeo Havaji. 

    2. What was the main objective for starting Dabbawala?

      The main objective was to provide home-cooked food to people at their workplaces.

    3. What is Six Sigma?

      Six Sigma is a quality control method that is used by businesses to make it cost-effective and errorless

    4. Who founded Six Sigma?

      Six Sigma was founded by Motorola.

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