Stock Market - Introduction

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Stock Markets Simplified


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Introduction


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What are Stock Markets?Stock Markets / Stock Exchanges are the (electronic) platforms where the shares

of the companies are bought and sold.


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What are Shares?Shares or commonly called as Stock, are the part ownership of the company.

Companies issue the shares to general public to raise funds for their projects and

business needs.

The value and the prospects of the shares and its value is dependent on the

business prospects of the company we invest in.


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What are Sensex/ Nifty / NSE / BSE?There are two prominent Stock Exchanges in India, they are:

NSE = National Stock Exchange

BSE = Bombay Stock Exchange

These stock exchanges have individual indexes. Index is made of few high value

companies and hence Index helps us understand the common direction and

movement of all the stocks .

Sensex = SENSitive indEX (of Bombay Stock Exchange)

Nifty = Nse fITFY (of National Stock Exchange)


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How can I invest?Since, Stock Exchange is the only place where we can buy or sell the shares, to

invest or trade is shares, one needs to be a Member of stock exchange. And

because the membership is very limited and not required for most people,

investors and traders open a trading account with the Stock exchange members,

also called as brokers.

An account with stock brokers is a must to buy or sell shares. First step to

investing and trading is to open an account with a broker.


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What happens to money I give to broker?Brokers will and only follow account-holders directions to buy or sell. Brokers only

executes the clients order. Your money is safe with the broker and broker

cannot withdraw the funds or shares from your account.


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3 Myths of Stock Markets


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3 common myths of Stock MarketEverybody would have heard somebodys opinion about stock markets either in

person or through newspapers and television. Given the bad perception it creates

over a period of time, it is important to clear three most common misperceptions .


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Myth 1: Stock Markets are RiskyTrue. Stock Markets are risky and one must excercise all caution in trading and

investments as there is always a risk of loosing money.

Risks in stock market must be managed well, and if you dont manage the RISK

then it can hurt you. Some simple initial steps to be taken are:

1. Always trade with money you can afford to loose. (Risk Capital.)

2. Do not trade with excessive leverage or brokers funds

3. Invest only in some of the best companies in the country

4. Do not invest in companies that you dont understand

5. Stick to a reliable advisor or broker


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Myth 2: Stock Markets are GamblingStock market is gambling if you only treat it that way. If you treat stock markets as

a business then you should give it is due credit of planning, research, budgeting

(money management) and investments.

Trading and Investments is a reliable business if done with great discipline.


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Myth 3: We can make lots of money Stock marketsGreed is never good for any investments. You can always expect to make

reasonable sum of money from markets and from companies that you invest.

Greed however on the longer term always looses money.


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Misperceptions of Stock MarketsMajority of people who invest or trade in stock markets loose money because

they miss one or more factors that are crucial. And these leads to misperceptions.

Have a good disciplined approach to investments and markets would not fail you.


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3 Common FAQ


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FAQ 1: Should I trade or invest in Mutual Fund?As stated earlier, trading and investing requires some discipline which involves

some studying, research and tracking the companies you have invested in. It

would also involve learning concepts that you may not understand now. If you are

unable to do this or too busy in your profession, it would be better to go with a

mutual fund or a good research broker.


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FAQ 2: Knowledge of FinanceContrary to belief, extraordinary knowledge of finance is not essential to be

successful in stock markets. As long as you follow few basic principles of investing

in a diciplined way, it will keep your money safe.


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FAQ 3: How much to invest?Always remember that there is a chance that you may loose all the money you

invest. Hence you should always and only invest your risk-capital, the money that

you can comfortably loose without hurting you lifestyle. Also invest money with

no return expectation, as this will give you patience to stay with your investments.


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3 Simple Risk Management Strategies


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Risk Management Rule 1: DiversifyDiversification, or putting eggs in different baskets, reduces risk a lot.

Concentrating your investments into a select few stocks multiplies the risk one or

few stock may have. Its also good to diversify across industries, if possible.

Thing to remember however, too much diversification reduces the profitability of

the investments. Optimum level of concentration and diversification should be

maintained.


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Risk Management Rule 2: Stop LossPLAN YOUR TRADE. TRADE YOUR PLAN.

As long as you stick to your plan of buying and of selling, your portfolios have

good probability of growing. Chalk out the possibilities when you enter the trade,

and follow that plan.


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Risk Management Rule 3: Select stocksAlways trade in select few stocks whose business / sector you understand. Also

stick to the large and prominent companies with good management track record.

The closer and more selective your basket of stocks, lower the risks to the

portfolio.


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3 Simple Trading Strategies


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Strategy No 1 : AlligatorBUY / SELL stocks when the Alligator / Moving Averages gives a clear sign on UP or

DOWN momentum. The signal is determined when (atleast) three moving

averages move in a same direction , and price remains above or below the

averages.


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Strategy No 1 : Alligator


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Strategy No 2 : Supports & ResistancesEvery price point ultimately is a level to buy or sell. And it is a frequent behavior

of the stock prices that they like to honor these levels. This creates for us Buy

Zones and Sell Zones. As long as we indentify such Buy Zones and Sell Zones we

can trade these levels.

Note: As stock price moves from one level to next the Sell Zones turn into Buy

Zones and vice versa.


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Strategy No 2 : Supports & Resistances


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Strategy No 3 : Trend FollowingPerhaps the easiest and the most effective form of investing, with a cult-like

following among the best traders and investors in the world, trend-following is

one of the best ways to trade or invest.

At the core, the trend following principle is buy as long as the stock is going up

and sell as long as stock is going down. Simple!


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Strategy No 3 : Trend Following (Buy)


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ConclusionStock Markets are an important element in attaining financial freedom. They are

not to be feared but to be approached in a knowledgable and disciplined manner.

They are inherently risky, as are everything that brings rewards, however stock

markets also allow us to manage our risk in best way. If one has a strong risk-

management principles, stock markets can become one of the best and nearly

riskless forms of investments.

However it should be noted that direct investing in markets are not for everyone

and may not fit your profile. Its always better to approach qualified advisor or

broker for advice before you start direct investments and trading.

Happy Trading and Good Luck!


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Contact usAgastheeshwaran Securities and Trading Pvt Ltd.

No 212, 3rd floor, Palace Orchard,

Bellary Road, Sadashivnagar,

Bangalore 560 080

Email: [email protected]

Phone: +91 87490 94542
mailto:[email protected]:[email protected]:[email protected]:[email protected]


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DisclaimerTrading and Transactions in Financial markets - equities, forex , commodities and other markets are risky, and

has potential for substantial losses. All the suggestions and information shared by HedgeFx through its

reports, websites, orally or through any other communications, are shared in good faith and to best of our

knowledge and expertise. Hedgfx or any of its officials are not responsbile and cannot be held responsible for

any losses or risks arising from following these suggestions and reports. Under all and every circumstances,

the maximum liability of Hedgfx is absolutely limited to the subscription or service fees paid by the customer.Users and Customers by using this reports, information and other communications agree and accept this

disclaimer.


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Stock Market - Introduction

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