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  • Different Types of Charges in Online Trading

    Different Types of Charges in Online Trading

    The process of buying and selling financial assets, such as stocks, bonds, commodities, currencies, and derivatives, through your demat account in electronic form is known as online trading. Individuals and institutional investors trade and invest in various financial markets from the comfort of their homes to earn and generate good returns over time. The online trading platforms provide their customers with hassle-free trading facilities, thereby increasing the popularity of online trading. These platforms offer user-friendliness, convenience, and real-time access to financial markets. Later in this blog, we will be discussing these platforms in detail.

    Before we proceed further, here is an overview of some characteristics of trading online

    Different Types of Charges in Online Trading

    What is Online Trading

    What is Online Trading

    The platforms involved in online trading allow traders to execute their buy/sell orders whenever they want to help them access & analyze market data, and manage their holdings of stocks.

    Traders can place various types of orders while trading online, such as market orders, limit orders, and stop-loss orders, which help traders decide their entry and exit points.

    Investors can have access to different financial instruments, including stocks, bonds, options, futures, foreign exchange, etc. This allows the investor to diversify their portfolio and minimize risk since Warren Buffet once said “Don’t keep all your eggs in one basket”.

    Online trading is often cost-effective and has lower transaction fees and charges when compared to traditional brokerage services.  

    Proper rules and encryption followed by broker houses, provide a guarantee to the client about the safety of personal and financial information of the investor when he/she trades online.

    Online trading platforms provide real-time market data, including current market prices, candlesticks charts, news, and analysis. Traders can make informed and sound decisions since these platforms provide them with accurate information about the market.

     A Brief Introduction to Brokerage Firms

    Broker houses also known as brokerage houses or brokerage firms, are financial companies that enable easy buying and selling of stocks, bonds, commodities, and currencies for traders and investors. These institutions play a vital role in financial markets by connecting buyers and sellers and helping them in trade execution.

    Some of the important functions of broker houses or brokerage firms are listed below

    • Brokerage firms execute buy and sell orders from their clients in various financial markets, including stock exchanges, commodity markets, and foreign exchange markets.
    • Many broker houses provide research reports, market insights, and analysis services to their clients, which eventually helps them build investment portfolios that align with their financial goals and risk tolerance.
    • Many broker houses offer their clients margin trading facilities, allowing clients to trade with extra funds, which can increase profits and losses.
    • These firms also provide educational resources and training either through social media or their websites to help clients have a clear understanding of the stock market.

    Types of Brokerage Houses

    types of broker houses

    Broker houses can differ in terms of the services that they are offering, the markets they specialize in, and their fee structures. There are two main types of brokerages:

    1. Full-Service Broker Houses:

    These houses offer a variety of services, including investment advice, research, mutual funds etc. They charge higher fees and help their clients in managing their portfolios, retirement planning, and wealth management. They help their clients in choosing the investment option as per his/her risk appetite and time horizon.  

    •  HDFC Securities: It is a subsidiary company of HDFC Bank, and offers a range of trading and investment services, including equities, derivatives, mutual funds, and more.
    •  ICICI Direct: ICICI Direct is the retail trading and investment company of ICICI Bank. It provides online trading services for equities, derivatives, commodities, mutual funds, etc.

     2. Discount Broker Houses

    These broker houses offer fewer services as compared to full-time brokerage houses and their main focus is on order execution. They are generally cost-efficient and are popular among self-reliant investors and traders. A few examples of the same are as follows:

    •  Zerodha – It is one of the leading and well-recognized discount brokerage firms in India and is famous among traders for the services it provides. It offers trading not only in equities but also in commodities, currencies, and derivatives.
    •  Pocketful – It is also a discount brokerage firm that provides online trading services for equities, derivatives, and commodities.

    Full-service brokerages are befitting for clients who wish to have personalized assistance and are willing to pay higher fees, while discount brokerages are meant for independent investors looking for cost-efficient trading options.

    Having known the benefits of online trading and types of broker houses let us go through the detailed explanation of various charges that an investor needs to pay to the broker while trading online.

    Read Also: Demat Account Charges Comparison 2025

    Different Types of Charges in Online Trading

    1. Brokerage charges

    These charges also known as brokerage fees or commissions, are the fees that investors pay to brokerage firms for executing buy and sell orders for various financial instruments, such as stocks, bonds, options, futures, and more. These charges can differ from company to company depending upon the type of brokerage and the specific services offered.

    These charges apply to buying and selling stocks in the equity markets as well as futures and options.

    2. The Securities Transaction Tax (STT)

    STT is a tax which is levied on the value of securities transactions in India. It was introduced in 2004 and is applicable to various securities, including equities, derivatives, and equity-oriented mutual funds. The STT helps the Government of India to collect revenue and to regulate financial markets. It is borne by the investor or trader and is collected by the stock exchange on behalf of the government.

    The STT rates may change based on the type of transaction

    If you carry stocks on delivery i.e., for next day STT applicable is 0.1% of the transaction value.  

    For intraday STT applicable on securities is 0.025% of total value

    The STT is collected by the stock exchanges from the brokers, who, in turn, collect it from their clients.

    3. GST (Goods & Services tax)

     When you pay brokerage charges or service charges to your brokerage firm a GST of 18% is already included.

    4. Depository Participant Charges

    A Depository Participant (DP) is an entity that acts as an intermediary between the investors and the central depository or CDSL. DPs facilitate the holding and transfer of securities from one brokerage firm to another in electronic form.  

     Below mentioned are some common DP charges in India:

    • Account Opening Charges: DPs may charge an account opening fee when you open a Demat account with them. The account opening fee is a one-time payment made by the client and may differ from DP to DP.
    •  Annual Maintenance Charges (AMC): DPs generally levy an annual maintenance charge for maintaining your Demat account. This fee is paid annually that is once a year.
    •  Account Closure Charges: When you decide to close your Demat account with a DP, you need to pay a certain amount as charges and also you have to clear your debit balance if any.

    The charges of Mutual Funds are described below

    • Expenses Ratio/Management Fees – When you invest in mutual funds, the Asset Management Company will charge a fee to manage your portfolio. This is called the expense ratio or management fees. The expense ratio ranges from 0 to 2.5%. These charges are deducted from your investment.
    •  Entry Load – Earlier in 2009, investing in mutual funds attracted an entry load, which meant when you invest in mutual funds, you will end up paying some amount to the asset management company that too at the time of investment. However, this was abolished by SEBI in the year 2009.
    •  Exit Load – This charge is payable by the customer on the redemption made by them before the prescribed investment period. This exit load may vary from 0.5% to 3%, depending on the fund. The exit load is deducted before the proceeds are paid out.

    Read Also: What is a Stock Broker? Meaning, Features, Types, and Commissions Explained

     Conclusion

    conclusion

    It’s important for traders to carefully review the fee structure of their chosen broker and understand all the costs that are linked with their demat account and transactions before starting online trading. The fee structure and charges can significantly impact the profitability of the trader, so it’s essential to factor these costs into trading strategies and decisions. Additionally, traders should consider other aspects, such as the quality of services and trading conditions, when choosing a brokerage firm

    FAQs (Frequently Asked Questions)

    1. Do I need to pay charges for trading?

      Yes, you need to pay charges for trading.

    2. What are brokerage charges?

      Brokerage charges, also known as brokerage fees or commissions, are the fees that investors pay to brokerage firms for executing buy and sell orders of financial assets.

    3. What is Discount Broker?

      These broker houses offer fewer services, and their main focus is on order execution. They are generally cost-efficient and are popular among self-reliant investors.

    4. Is STT paid on mutual funds?

      Yes, STT is payable on mutual funds also.

    5. Explain DP charges.

      Charges levied by DP for holding the securities in your demat account.

  • Understanding the Difference Between Credit and Debt

    Understanding the Difference Between Credit and Debt

    Understanding the Difference Between Credit and Debt

    What is Debt?

    Debt refers to the money that you borrowed & is yet to be paid. Debt is an obligation, and a fixed amount of interest is charged. It is suggested to avoid taking debts since later you may find it difficult to repay. Examples of debts are home loans, credit card bills, car loans, mortgages, personal loans, etc. Debt characterizes a financial burden.

    DEBT

    Types of Debt

    Debts can be categorized into the following types

    • Secured Debt
    • Unsecured Debt
    • Revolving Debt

    Let us go through each of the types in detail.

    Secured Debt

    Secured debts are backed by collateral such as assets, investments, or property. In this debt, if the borrower fails to repay the debt amount, the lenders seize the borrower’s collateral, and the debt is covered from the same.

    Unsecured Debt

    Unlike secured debts, unsecured debts are not covered by any collateral as security. These debts are granted to the borrower once the lender relies on him. The approval depends on the payment of the past debts. For example, education loans and automobile loans.

    Revolving Debt

    A debt that does not have a fixed payment amount every month is known as a revolving debt. The payment amount and interest rate depend upon the amount that you borrow. Once the borrower repays the existing debt amount, he can again borrow either the same or a different amount. It is like a line of credit. Credit card is an example of revolving debt.

    Merits Of Debt

    • Debt can help you achieve your financial goals by leveraging your current resources.
    • Debt can offer individuals, corporations, and governments immediate access to funds in case of emergency.
    • Paying your debts on time can help you improve your credit score.

    Demerits of Debt

    DISADVANTAGES
    • Borrowing money typically comes with interest costs. The interest payments can add up over time, making the overall cost of the debt higher than the initial borrowed amount.
    • Failing to make debt payments can lead to default, resulting in penalties, fees, and damage to credit score.
    • High debt can lead to anxiety and financial stress because monthly payments can be a burden.
    • Long-term debts can land you in a cash crunch, and your savings capacity will also be affected.
    • Debt can also lead to loss of collateral security that you must have given to the lender at the time of agreement.

    Having discussed the debt, let us understand the concept of credit.

    What is Credit?

    Credit means an individual can borrow the fund to repay it later. Let’s say that you have a credit limit of 2 lakhs and the amount that you used from this amount to 50 thousand; then 2 lakh is your credit, and 50 thousand is the amount you owe to the creditor. Creditors decide an individual’s eligibility for credit after analyzing their past debt repayments.

    CREDIT

    Read Also: Why Debt Funds Are Better Than Fixed Deposits of Banks?

    Types of Credit

    Credits can be majorly categorized into 3 types

    • Open credit
    • Revolving credit
    • Installment credit

    Open Credit

    Credits are like trade credits in which the goods can be exchanged between the buyer and the seller based on the buyer’s ability to repay it later on a pre-decided date.

    Revolving Credit

    Revolving credit allows borrowers to use credit continuously as long as they make minimum payments, including the interest charged.

    Instalment Credit

    When an amount is borrowed for a fixed period and fixed interest rate, you repay it monthly. EMIs (easy monthly installments) are an example of installment credit. Our readers should also know that when you pay your debt on time, you earn a credit score, which increases your creditworthiness.

    What is a Credit score?

    A credit score is several 3-digit, which lies somewhere between 300 to 850. The higher the credit score, the chances of you to avail a loan are more likely. A credit score of 700+ indicates that you make timely repayments of your debt amount. Some companies are known as credit rating agencies like CRISIL and ICRA that helps creditor generate a credit score.

    Merits of Credit

    Advanatges
    • Just like debt, credit also provides immediate access to the funds
    • Credit cards can offer the consumer financial flexibility or take advantage of time-sensitive opportunities.
    • Timely repayment of credit will help you secure your loans more easily and conveniently.

    Demerits of Credit

    DISADVANTAGES
    • Non-payment or late payments can lead to default and heavy interest expenses, reducing your credit score.
    • Credit availability can lead to overspending, as individuals may be tempted to make purchases they cannot afford.
    • If credit is used to cover recurring expenses and debt payments, it can lead to a cycle of increasing debt.
      Also, read the case study of Satyam Scam.

    Read Also: Credit Score: What Is It And How It Impacts You?

    Conclusion

    Credit and debt are closely related financial concepts, but they have distinct meanings and implications in personal finance. In summary, credit represents the ability to access resources or make purchases with the promise of future repayment. In contrast, debt represents the obligation to repay borrowed funds, goods, or services with interest, often over a specified period. Irresponsible use of credit can lead to debt accumulation, but not all credit usage necessarily results in debt if payments are made promptly.

    Frequently Answered Questions (FAQs)

    1. Are debt and credit the same?

      No debt and credit are not same.

    2. Name of credit rating agencies?

      CRISIL & ICRA are 2 credit rating agencies.

    3. Are home loans a debt or credit?

      Home loans are a kind of debt.

    4. Explain secured debt.

      Secured debts are backed by collateral such as assets, investments, or property if the borrower fails to repay the debt amount, the borrower’s collateral is seized by the lenders.

    5. Define Credit.

      Credit means an individual can borrow the fund to repay it later.

  • Is It Better To Buy Stocks When The Market Is Up Or Down?

    Is It Better To Buy Stocks When The Market Is Up Or Down?

    It is technical to decide the right time as to when to buy a stock. Your investment’s chances to perform well depend on when you enter the market. Well, when we talk about stock buying, the first question that comes to our mind is whether to buy a stock in a bull run or a bearish trend. 

    No worries! We have got you covered. Below are a few points you could consider before buying stocks in the stock market to clarify when it is the right time to enter the market. In the following blog, the topics that we’ll be covering are:

    • Understanding the market trend
    • Buying stocks in a bull market
    • Buying stocks in a bear market
    • Causes of market correction
    • What to do when the market corrects
    • Conclusion

    Understanding the market trend

    What does it mean when we say the market is up or down? 

    Up trend

    So, when we say that the market is up, it is making higher highs continuously, and we can observe a bull run in the economy. The indexes and stock prices are constantly rising, giving tremendous returns to people who have invested in the favour of the market. For example, before the 1992 Harshad Mehta scam was exposed, we observed a bull run in the economy. 

    Downtrend

    On the other hand, when we say that the market is down, it implies that the market is constantly making lower lows. Thus, we can observe a bearish market movement in the economy. The market indexes and the stock prices of the company are continuously falling. A fun fact about the stock market is that you can make money even in declining markets. You can profit from the market if you short your positions and bet against the rising trend. 

    What moves the market?

    Now that we have understood the meaning of up and down in the market. Let’s discover the reasons for the up or down in the stock market. The stock market works on the simple economics concept of demand and supply. The market forces of demand and supply determine the prices of the stocks. One thing to remember is that the supply for the no. of stock in the stock market is limited as a listed company can only issue a countable number of shares. The demand depends upon the company’s financial performance and the news in the market surrounding it. Generally, we see a rally in share prices when the company declares good financial results. Apart from this, companies announcing dividends, mergers, or acquisitions also significantly impact the price movement. On the contrary, other legal, geopolitical, technological, global, and social factors also affect the markets holistically. 

    Buying stocks in an Up upmarket

    As we have discussed above, about the up trend in the stock market. The bull run generally occurs when the overall economy is strengthening, when the stock prices are up by 20% following a 20% previous decline in the share prices. We can observe a bull run with increased investor confidence in the market; companies will be more willing to launch IPOs, and the businesses will get higher valuations for their equity. 

    Buying stocks during a bull run is considered less risky because it doesn’t make sense for you to sit on the cash pile and ignore the ongoing rally in the market. Investing your money in the stock market when the market is up requires less research. But still, 

    Buying stocks in a down market

    Talking about the downtrend in the market. A downtrend is followed by the 20% fall in the stock prices from the recent highs amid widespread pessimism and negative investor sentiment. Generally, bear runs occur when the overall economy falls, and rising unemployment persists in the nation. Another definition of a bear market is when investors are more risk-averse than risk-seeking.

    Buying stocks when the overall market is down is a strategy opted by various big investors, as when the whole economy is down, you could get shares at a discounted price than their real worth.

    Causes of Market Correction

    Causes of Market Correction

    Market corrections are generally short-term in nature. However, chances are likely that corrections can be a call for the bearish market. But in the long run, markets and stocks manage to retrieve their original levels once the correction is over. A correction is generally a 10% to 20% drop in value from a recent peak. Corrections are seen on the stock indexes or even on the shares of your favourite company. Some of the causes of market correction are listed below.

    1. Not-so-favourable economic data like job reports, lower GDP, etc. 
    2. A change in interest rate by the central bank (RBI in India) eventually makes it difficult for consumers to get loans at a lower rate.
    3. Political instability, conflicts, trade tensions, or unexpected geopolitical events can create market uncertainty and fear.
    4. Lower earnings from the part of top-performing companies represent the benchmark for the performance of the indices.
    5. General profit booking at the market’s highs and some technical indications like a bearish candlestick pattern can also lead to market corrections.

    A market correction can be quite challenging, but you do not need to start liquidating your portfolio or selling your assets (unwanted selling during a market correction can lead to realizing losses); instead, consider it an opportunity to enter the market at lower valuations.

    Read Also: What Is The Gap Up And Gap Down Strategy?

    What to do when the market corrects?

    what to do when the market corrcts

    We have mentioned earlier that there are typically two types of participants in the market i.e., trader and investor. From the point of view of a trader, one needs to analyse the technical charts and patterns, book their unrealised gains and start looking for some other trading opportunity. But an investor needs to have a long-term mindset and he should have a well-thought-out plan in place to navigate market corrections. Investors generally consider market corrections as a fortunate action since it provides them with an opportunity to buy on dips or lows.

    Investors generally develop a curated portfolio with a dynamic allocation of assets. Our suggestion to the investor would be to stick to the investment strategy which they initially adopted and instead of realising your gains, average the stocks that you are holding in your portfolio.

    (Note- Averaging is buying more stocks when the price of the stock falls since it lowers the overall buy price of the stock that an investor holds.) Market corrections are like second chances for investors since they get an opportunity to re-evaluate their holdings analyse the stocks that have underperformed and adjust the holding as per their risk appetite. The market has historically recovered and continued to grow over the long term. Avoid making knee-jerk reactions based on short-term events. If you are an investor, you should have an ample amount of funds or sufficient cash in hand so that you can either average the existing stocks or buy any fresh stocks since portfolio readjustment is a part of happy investing.

    Read Also: What is a good rule for investing in stocks?

    Conclusion

    conclusion

    We all know that market corrections are inevitable, and one should keep their emotions in check while trading or investing in the market. When the market bottoms itself out, leave your holdings in isolation and do not try to time the markets because sometimes anticipating corrections creates more loss than the actual correction. Buying on dips will help you create wealth, and buying on lows will help you generate short-term profits.

    For example, if someone had invested in the market during the 2008 global financial crisis or COVID-19, the returns generated on his/her portfolio would have been phenomenal. This is the power of the stock market. To conclude, always invest or trade as per your risk appetite and financial goals. The market will always give you second chances to buy stocks at their highs or lows. Decisions and capital are all yours!

    Successful investing requires patience and discipline.

    FAQs (Frequently Asked Questions)

    1. What are the two categories of capital markets?

      Two categories of capital markets are primary market and secondary market.

    2. Define Correction.

      A correction is generally a 10% to 20% drop in value from a recent peak.

    3. Mention two causes of market correction.

      Two causes of market correction are stock earnings and changes in interest rates.

    4. What is the averaging of stocks?

      Averaging means buying more stocks when the market is down.

    5. When should we buy a stock while investing?

      While investing in the stock market, one should buy according to their risk tolerance, investment horizon and capital.  

  • 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.

    Read Also: Lowest MTF Interest Rate Brokers in India | Top 10 MTF Trading Apps

    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.

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