THE TRADER’S CODE

THIS BOOK COULD BE WORTH A

FORTUNE TO YOU

ABHISHEK NINANIYA

Editor: Dr. Sudhir Dixit

 Reviews of the First Edition
"The Trader’s Code explains in step-by-step fashion how to
undertake technical and fundamental analysis. Filled with
powerful and inspiring quotes of successful traders and specific
set of rules to be followed by traders, this book shares what it
takes to go from a beginner to a professional. The Trader’s Code
is a valuable resource for any serious seeker of success in the
financial market.”

– CA Ravi Khanal, SEBI Registered Research Analyst

“I have always appreciated Abhishek’s direct and to the point

communication. The Trader’s Code contains simple yet profound
insights and a step by step formula for traders that actually
works! Read this book, and most importantly, do what it says.”

— Sandeep D’souza, Full Time Trader, Investor & Broker

“I have enjoyed reading and learnt a lot of new and valuable

information from this book. The Trader’s Code is a solid winner! It
is full of profound insights, inspiring quotes and practical
examples. I highly recommend it!”

– Rajnish Thukral, Full time Trader & Investor

 Dedication

Dedicated to YOU

May this E-Book help you achieve your goals!

 Index

The Adventure Begins: Author's Amazing Introduction

Section 1: Getting Started

1. Getting Started

2. Difference between Fundamental Analysis & Technical

Analysis

Section 2: Fundamental Analysis

3. Where to Find Stocks to Analyze

4. How to Read the Profit & Loss Statement (Result)

5. Valuation Analysis of Stocks & Moat Investing

6. Valuation of the Market - When is the Right Time to

Invest
 Section 3: Technical Analysis

7. Basics of Technical Analysis

8. Trend Analysis & Trend Reversal

9. Beware of Circuit Stocks& Abrupt Movement Stocks

10. Support & Resistance are the Magical Keys to Profit

11. Reversal & Continuation Chart Patterns

12. Buy & Sell Signals

Section 4: Intraday Trading Strategies

13. Intraday & BTST Trading Strategies

Section 5: Trading Psychology

14. Trading Psychology

About the Authors

.

THE TRADER’S CODE

Copyright © 2020 by Abhishek.

All rights reserved. Distribution and reproduction are strictly prohibited by law.

No part of this publication may be reproduced, stored in a retrieval system, or

transmitted in any form, or by any means, electronic, mechanical, photocopying,
recording, scanning, or otherwise, without the prior written permission of the publisher
or author. Prior permission has been received from ChartNexus for including snapshots
of their charts stating their source will be acknowledged in the book. Requests to the
author should be addressed @ [email protected]

Disclaimer: There is a very high degree of risk involved in trading. Past results are not
indicative of future returns. The book, the author and all individuals affiliated with it
assume no responsibility for your trading and investments results. The indicators,
strategies, methodologies and all other content of this book are for education purposes
only and should not be construed as investment advice. Although the author believes his
statement to be true and has given his best in the book, there is no guarantee that any
specific strategy will work all the time. No liability of any form is accepted for any content
of this eBook. Subject to Gurgaon (Haryana) jurisdiction only. You must access the risk of
any trade with your broker and make your own independent decisions regarding any
securities you intend to buy. The author recommends that you consult with a qualified
investment advisor, one licensed by appropriate regulatory agencies in your legal
jurisdiction.
For information contact :

[email protected]

http://www.multiplierwealth.com

https://twitter.com/the_stockking

https://www.facebook.com/groups/567793243342990/

Book and Cover design by Designer

ISBN: 123456789

Edition: N

10 9 8 7 6 5 4 3 2 1
“You don't have to be great to
get started, but you have to get
started to be great.”

– Les Brown
 The Adventure Begins: Author’s Amazing
Introduction

If you’ve been struggling with your trading or you're not getting the results you want,
then you have taken the right decision to read this book.

If you’ve been wondering how to make good profits and stay motivated using some
cutting-edge trading strategy, you’ve come to the right place.

If you’ve been confused how to make the best of your life as a trader and turn it all
around, then you are at the right place now and your decision to get this e-book can be
a game changer for you.

My Name is Abhishek Ninaniya and I intend to help you achieve your goals now. I don’t
care what you do for a living or where you live. I don’t care about your education or
experience. I don’t care if you have a job or a business right now. I care about you,
without knowing any more than this that you are ready for a change in your trading
style. How do I know? Because you have bought this e-book and are reading it. You have
given a green signal that you are ready for help.

I guarantee that I can help you through this book, if you take inspired action on what
you learn in this program. I’ve developed it especially for you and its goal is to make you
successful. All you have to do is to read this e-book and then take action. In a way I will
help you in helping yourself. You can once and for all leave the struggle, the failure and
the losses behind. And you can finally break free from desperation and find the trading
results you've always dreamt of.

In an era of no guarantees, I can guarantee you that this book will help you improve
your trading.
Why am I so confident about this book?

I was once in a very bad situation. NO car. NO money. NO job. NO Hope. NOTHING was
working for me. I started trading in the stock market, but I sustained massive losses…
until I discovered the trading strategies mentioned in the book. Let me tell you that it
took blood, sweat and tears to learn it all using trial and error methods. I don’t want
anyone of you to go through all that. This is why I am revealing all my knowledge to you
in this book.

Today I’m a successful stock market trader and I have all that I had dreamt of. I have a
big house, car and everything I wanted. Above all, an ever-increasing bank account.

How did I do that?

I used the methodologies revealed in this eBook. These have worked for me. These have
worked for others. And these will work for you too. If you are ready to experience the
change from struggle to security, from worry to wealth, form fear to freedom, then just
scroll through the pages.

So, without wasting your time I would like to welcome you on this awesome learning
journey. Over next few chapters this book will be teaching you how to trade profitably
in the stock market. It will give you an overview of various strategies and rules, which
will give you a lot of ideas you can use to your advantage.

I started trading with a very small capital of Rs. 10,000, which I borrowed from my
parents. I traded based on tips from others, stock advice from TV, newspapers, forums,
market gurus etc. At times, I used to buy a stock randomly. Yes! I do remember buying
stocks like Larsen & Toubro, Grauer Weil, Ingersoll Rand etc., just because their names
were very fancy and interesting. I also bought many penny stocks just because their
price was very cheap, so I could buy them in large quantity. I made some money initially
riding on the bull market wave and got extremely excited, borrowed more money from
friends, relatives etc. promising multifold returns to them. But pretty soon market
changed its direction and I found myself struggling to recover my capital back.

Forget profits! It was hard just to break even! So I know what it is like to lose your
money in the market and trying to recover it back. I used to feel very sorry for myself at
that time. But very soon, I found that every successful trader begins his journey in the
same manner, with losses and mistakes. Practically everyone who is doing well in the
market today, started off making the same mistakes. It is a sort of trader's curse to
make initial mistakes and suffer losses in the beginning before they learn and become
successful.

Inspired by this information I started studying about successful traders. I spent countless
nights reading books, articles, blogs, researches and magazines written on trading and
investing. I started filling up my bookshelves with books written by these trading
legends.

After spending so much time researching on the subject, I found that all successful
traders have certain qualities in common. They all made mistakes and suffered losses
initially, then they learnt from their mistakes and eventually developed their own
strategies. They had their own specific rules and values, which they followed and THE
BIG NEWS is this that everything they knew and practiced is learnable.

You can also learn the same rules and strategies as I did. Suppose you want to learn
cooking, what will you do? You may decide to read about cooking on internet, you may
get some good books on it or you may consult your family member or some good chef
to learn about various recipes, ingredients to be used, spices to be mixed etc. Initially,
you will cook badly and you will surely make some mistakes, but with time you will start
cooking well. To conclude, cooking is a skill you can learn, working on a computer is a
skill you can learn, using smartphones is a skill you can learn. Trading in the markets
profitably ……… is also a skill YOU CAN LEARN!

Now, that I have your attention, let me tell you what works in the stock market. Until
now you might be buying stocks on the advice of others, based on tips from some
persons, listening to TV experts, following your broker’s call or some blog/website etc.
Some of you may have even tried stuff like Gann, Elliott Waves, buy-sell softwares, so-
called sure shot tips, excel sheets, astrology and all that stuff. But, wait for a moment
and ask yourself: have these things worked for you the way you wanted them? Have you
got the results you wanted?

I believe your answer must be “NO” i.e. you haven’t succeeded in your trading using
these methods. Even if they have made some money for you two-three times, I am
pretty sure they may not have worked for you over a longer horizon. I want to tell you
that the net result of using above strategies (i.e. following others) will always be the
same: it will reduce the money of your trading account.

Now, let’s have a look what Anthony Robbins, the Success Guru, has to say on it:

“If you do what you've always done,

you'll get what you've always gotten.”

—Anthony Robbins

If you keep following the above mentioned strategies in stock market, you are bound to
fail. These strategies are tested by every beginner in the stock market just to lose money
and finally understand that they DON’T WORK.

So, the first decision you should make now is to stop doing all the things which haven’t
worked for you so far and start doing something new. Something which has more
chance to work for you than the things you have already tried!

According to a popular survey, 70% of the traders quit within first two years. I could also
have been one of those 70%, but fortunately I didn’t. I wanted to change my results, so I
changed myself and my strategies. This book is written so that you may also change, if
you choose to do so.

Now, let’s understand what works in the stock market. In my view, there are few key
factors one needs to learn if he or she wants to be successful in the market; we have
divided this book into five sections-

1. Getting Started- The first part of the book consists of a brief overview about
stock market and its working

2. Fundamental Analysis- This includes analyzing a company like a businessman,

before investing our money in its stock. Here we check the underlying business,
profits, sales, growth, management quality, debt levels etc. We will learn how to
do valuation analysis not only of stocks, but also of markets. You see, when
market is trading at super high valuation, even if we choose the best companies
to invest, our chances of making profits will be slim. So, analyzing the valuation of
the market is also very important. We should invest only when the market is
decently valued.

3. Technical Analysis- This is the study of price and volume action on the basis of
charts plotted digitally. Here we look for trends, indicators and recurring
patterns.
 4. Intraday Trading Strategies- In this section we will learn specific strategies for
BTST (Buy Today Sell Tomorrow), intraday trading, stocks and index trading.

5. Trading Psychology- This includes factors like fear, greed, emotions etc. that
come in our way while applying technical and fundamental analysis. Here we will
tell some simple rules to succeed in the stock market, which a trader must follow
to get a psychological edge over others.

Over next few chapters you will be learning the basics and “how-tos” in a simple, clear
and no-nonsense way. By the time you finish this book, you will start to feel a dramatic
change in your thinking and perspective about the stock market.

So, let’s begin the journey and move towards understanding the basics of stock market
first. But before that we should know 'How to start trading or investing? What are the
nuts and bolts of this? How to Get Started?'

Abhishek Ninaniya

Founder Multiplier Wealth

SEBI Registered Investment Advisory

https://www.multiplierwealth.com/

Email- [email protected]
 “I learned early that there is
nothing new in Wall Street.
There can’t be because
speculation is as old as the hills.
Whatever happens in the stock
market today has happened
before and will happen again.
I’ve never forgotten that.”
—JESSE LIVERMORE
“How much of a role does luck play in trading?
In the long run, zero. Absolutely zero. I don’t
think anybody winds up making money in this
business because they started out lucky.”

—Richard Dennis

https://t.me/mwglobal

Download Telegram App Free from Playstore/ App Store and Click on the Link Above to
get Market Updates, Stock Tips, and News directly to Your Mobile for FREE
 Section 1

Getting Started

 Companies & BSE groups

 What are large-cap, mid-cap and small-cap stocks

 Difference between Primary Market & Secondary Market

 Difference between Trading and Investment

 Where and How to Open Accounts?

 What is Intra-day Trading?

 Virtual Trading

 ChartMantra Game

 Income Tax on Share Market Gains

 How to Make a Portfolio

 Two Strategies: Pyramiding and Averaging

 1. Getting Started

In this chapter we will be learning the basics of stock market. Most of you might be
aware of these concepts already. Still it's not a bad idea to take a quick look at the basics
before moving on to the more important stuff.

Before starting a business, you have to make a lot of preparations. You just don't jump
into it with the dreams of overnight success. You know that in order to make your
business successful, you have to do due diligence, arrange capital, develop a market
plan, undertake market surveys or tests and to prepare a successful strategy. And you
know that you will have to work very hard for several months, even years, before your
business finally becomes successful.

Look at stock market trading in the same manner. Look at it just like a new business.

Here also you have to prepare yourself for success. Here also you have to work very
hard for several months and prepare a successful strategy.

Let us begin with some elementary information for a new investor. It will give you some
idea of how the stock market works and how you can start trading in it.

Initially, you should know that India has 2 main stock exchanges, where investors can
trade or invest - The Bombay Stock Exchange (BSE) and the National Stock Exchange
(NSE). Most of the top stocks trade on both the exchanges, but NSE enjoys more
liquidity and popularity.

Several small stocks are listed on BSE only (they are not listed on NSE) and most of them
have either liquidity problems or they may be operator-driven. So it is usually safe to
trade on NSE, at least initially till you can get a hang of it.
One more thing, at the outset you should trade or invest in Nifty 50 companies only,
which have no significant problems of liquidity or operators. Once you get an idea of
trading/investing here, you can safely move on to other stocks relying on your
experience.

Companies & Groups

Sensex & Nifty 50:

Sensex is the name of the BSE index, which has top 30 stocks in it.

Nifty 50 is the name of the NSE index, which has top 50 stocks in it.

These stocks have good volume and provide good liquidity.

For the guidance of investors, BSE has classified equity stocks into A, B, T, Z, XC, XD, XT,
X groups on certain qualitative and quantitative parameters. You can check the list on
BSE Website.

'A' Group: This group usually has good companies with good liquidity.

'T' & 'TS' Groups: These stocks are considered speculative and subject to price
manipulation. These are considered risky for retail investors, as they have sudden
abnormal price movements (circuit stocks and abrupt movement stocks usually belong
to these groups, which have been explained later in a separate chapter).

'Z' group: These companies have failed to comply with the listing requirements of stock
exchanges and/or have failed to resolve investor complaints or there is some other
serious problem with them. Z category stocks are the riskiest scripts, as trading in these
stocks can be suspended any time.
'S' group: The stocks of ‘S’ Group fall under the BSE’s Indonext segment, which
comprises small and medium companies, that are listed on the regional stock
exchanges. These stocks usually have liquidity issue.

'B 'Group: B Group comprises those stocks, that don’t fall in any of the other groups.
They may also have liquidity problems and some of the low-volume stocks in this group
may be subject to price manipulation by operators.

XC, XD, XT, X: BSE has further classified the securities listed exclusively on BSE as sub-
segments as X and XT. XT includes all the stocks which are exclusively listed on BSE and
settled on the trade-to-trade basis. Trade-to-trade is a segment means these shares can
be traded only for compulsory delivery basis. It means trade-to-trade shares cannot be
traded for intraday. Here each share is purchased or sold on delivery basis after paying
full amount.

Rest stocks exclusively listed on BSE fall under the sub-segment X.

Previously there were XC and XD groups also, which were merged to group X on 24 Nov.
2017

How to check the group of a particular stock?

1. Simply visit BSE website https://www.bseindia.com/index.html

2. Write the first three letters of the name of the stock in search option

3. In the search result the group of your stock would be displayed.

 Stock Classification on the basis of Market Capitalization

You must have heard such terms like large-cap or mid-cap or small-cap stocks. How is it
decided whether a stock is a large-cap or mid-cap?

Classifications such as large-cap, mid-cap and small-cap are only approximations and
may change over time. It is based on the Market capitalization of the company. Market
capitalization of the company is defined as:

Market Capitalization = Share Price X Number of shares outstanding

Small cap is a term used to classify companies with relatively smaller market
capitalization. A company’s market capitalization is the market value of its outstanding
shares. In US, a company is classified as small cap if its market capitalization is less than
$2 billion and in India, normally a company below a market capitalization of Rs. 5,000
crores is classified as a small cap company.

A mid-cap company is a company with a market capitalization between $2 billion and

$10 billion in US. In India, normally a company with a market capitalization above Rs.
5,000 crores and less than Rs. 20,000 crores is considered as a midcap company. As the
name implies, a mid-cap company is a medium sized company and falls in the middle of
the pack between large-cap and small-cap companies.

So far as Large cap is concerned, normally companies with the market capitalization
above Rs. 20,000 crores are considered as large cap companies in India.

Always remember that these terms of “large cap,” mid cap” or “small cap” are only
approximations and they keep changing over time.

Why? Because the market cap of a company changes daily with the change in its share
price. The market cap of a company measures the market value of its share capital.
Traded stocks are often categorized by market cap.

 Blue-chip stocks represent the largest companies by market cap that also enjoy a
high level of liquidity. These are also called large cap stocks.

 Mid cap stocks refer to those companies which enjoy a good level of liquidity but
are medium in terms of size.

 Small cap stocks are those stocks that are smaller in size and therefore do not
enjoy much liquidity.
In terms of returns, large cap stocks tend to be less volatile than mid-cap stocks.

In bull markets mid-caps tend to run ahead of large-caps, while in bear markets mid-
caps usually fall more than large-caps.

If large-cap stocks represent liquidity and stability, mid-cap stocks represent momentum
and opportunity (partly due to their comparatively less volume and lack of much
intraday interest).

Securities and Exchanges Board of India (SEBI) has defined the companies according to
their market capitalization:

Large-cap companies – 1st to 100th company in terms of market capitalization

Mid-cap companies – 101st to 250th company in terms of market capitalization

Small-cap companies – 251st company onwards in terms of market capitalization

It is important to note that since the share price of a company keeps fluctuating, its
market cap also keeps changing. Also, when a company issues more shares to the
public, its market capitalization increases. On the other hand, in case of buyback the
market cap of the company dips.

Difference between Primary Market and Secondary Market

When a company issues shares for the first time or in other words launches its Initial
Public Offer (IPO), it is called the primary market. The normal purpose of an IPO is to list
the stock in stock exchanges.

Secondary market is a market, where already issued securities are traded. Once the
share gets listed through IPO, it starts trading in the secondary market. Trades happen
between investors/traders and there is no impact on the capital of the company.

Difference between Trading and Investment

The fundamental difference is simple; their time-frames are different.

 Trading means short term buying and selling of shares.

 Investment refers to long term buying and holding of shares.

Where and How to Open Accounts?

If anyone wants to start trading or investing in stock market, he or she needs to have 3
accounts:

1) Savings Bank Account,

2) Demat Account and

3) Trading Account.

The Savings Bank Account is used for funding your trading account.

The Demat Account is used to electronically store all the shares, ETFs, Mutual Funds or
bonds that you purchase through your trading account. The word demat is the short
form of "dematerialized," that is, share certificates that have been converted from
paper format to electronic format.

The Trading Account is used to buy and sell shares.

When you buy something: Your trading account takes money from your Bank Account,
buys shares and stores them in your Demat account.
When you sell something: Your trading account takes the shares from your Demat
account and sells them in stock market and deposits the received money in your bank
account.

3-in-1 account or 2-in-1 account?

Most of the banks offer 3-in-1 account, which is Saving/Trading/Demat accounts

combined in one account, though you can save yourself some money by opening a 2-in-
1 account with an independent stock broker and get your savings account linked to it. 3-
in-1 accounts like ICICI, Kotak, SBI etc. usually charge higher brokerage compared to 2-
in-1 accounts.

Full Service Provider/Discount Broker?

Discount brokers charge much less brokerage, some of them even charge 0 brokerage
on delivery trades and for intraday they charge maximum of 20 rupees per trade. If you
are looking to trade regularly or do a lot of trading, you should certainly opt for discount
brokers. On the other hand, if you invest occasionally and for long term, you may go for
a full service provider broker.

Those who want less brokerage should choose discount brokers.

When opting for discount brokers make sure you go with big names only like Zerodha,
Upstox etc. and don't get lured by offers from small unknown brokers, as they can be
unreliable and unsafe.
 Documents Required for Opening Accounts

Usually the following documents are required for opening a trading and demat account
(for KYC):

 Pan Card

 Aadhaar Card

 Proof of Residence

 Photographs

 Cancelled check or Bank statement

 Signature

 Income Proof (It is mandatory to submit income proof, if you wish to trade in
Futures and options – Equity, Commodity, and Currency. You can submit Form-
16, ITR acknowledgment copy, 6-month Bank statement or your latest salary
slip as proof.)

After opening your 3-in-1 account, you will be given User ID and password.

You can log in on the website or mobile app of your service provider and do
transactions. The bank will send a mail or message or both in the evening to inform you
about your daily transactions.

How to Open an Upstox account

Upstox is a Ratan Tata backed discount broking firm and offers both 2-in-1 and 3-in-1
accounts.
The 3-in-1 account with Upstox is a bundle of Upstox Demat Account, Upstox Trading
Account, and IndusInd Bank Account. You can open an online account in Upstox, which
saves a lot of time and inconvenience.

For opening Upstox account you can reach Market Update website; they are Authorized
partner/ sub-broker of Upstox and offer 10 video courses and other benefits absolutely
free to anyone, who opens an Upstox account through them.

https://marketupdate999.blogspot.com/2018/11/free-video-course-package-on-
opening.html?m=1

Upstox charges NIL means zero brokerage fee for trading in the equity delivery segment.
However, brokerage charges for equity intraday trades including both buy and sell
orders are charged at Rs. 20 per order or 0.05% (whichever is lower). Similarly, futures &
options are also charged at maximum Rs. 20 for each order.

How to Open a Zerodha Account

Zerodha is India's largest stock broker with 2+ million Zerodha clients and contribute to
over 15% of all retail order volumes in India daily. You can open 2-in-1 or 3-in-1 account
with Zerodha.

To open a 3-in-1 account at Zerodha, you need to have an existing account with IDFC
FIRST Bank. Once your IDFC FIRST Bank account is open, you can open a 3-in-1 account
with Zerodha online. You can also link any other bank account with 2-in-1 Zerodha
account.

Zerodha charges zero brokerage fee for trading in the equity delivery segment.
However, brokerage charges for equity intraday trades including both buy and sell
orders are charged at Rs. 20 per order or 0.03% (whichever is lower). Similarly, Futures
& Options are also charged at maximum Rs. 20 for each order.

For opening a Zerodha account you can reach Stock Market Update website; they are
Authorized partner/ sub broker of Zerodha and offer 10 video courses and other
benefits absolutely free to anyone, who opens a Zerodha account through them.

https://stockmarketupdates11.blogspot.com/2017/07/zerodha-brokerage-
account.html

What is Intra-day Trading?

Day trading or intraday trading is very popular, but more risky, because here you have
to settle your trades at the end of the day. If you have bought stocks in the morning for
intra-day trading, you will have to sell till market close; if you have short-sold stocks in
the morning for intra-day trading, you will have to buy back till close.

You need to square off the trade before the close of the day’s trading session. Timing of
closing the trade may vary from broker to broker, but it is usually 3:15 pm for most
brokers. If you don't do it yourself, some brokers themselves square off your intra-day
trades. However, there is an option to convert intra-day position into delivery or
delivery into intra-day if you want.

In the beginning you should avoid intra-trading.

In India, you can do intraday trading in Equity, Equity Derivatives (also called Equity
F&O), Currency F&O and Commodity F&O (on MCX).
 Virtual Trading

It is strongly advised that before starting trading with real money, you should practice
and increase your skills through virtual trading and tracking your gains and losses
carefully.

There are several websites and apps, which offer virtual trading.

Moneybhai is an investing simulation game. Here you are given Rs 1 crore cash in your
portfolio account and Rs 1 crore intraday trading limit. You can start trading right away!!

Another virtual trading platform is Dalal Street Market Challenge. Here you get Rs. 10
lakh to make your portfolio and also an opportunity to discuss the strategies in
discussion groups.

ChartMantra Game

ChartMantra is an online virtual game, which gives you an opportunity to practice stock
market trading. Here you are shown historical charts one day at a click and you can
apply your technical analysis with several technical indicators like volume, RSI and
Moving Averages. It is strongly advised to play ChartMantra game for sharpening your
understanding of technical indicators and other tools. This platform lets you learn
technical analysis and play on historical markets. Every new investor should play
ChartMantra game before starting his investments in the stock market.

Above are some popular websites; if you don't find them user-friendly, search the web
to find similar websites.
 Make your Watchlist

After selecting stocks, you should create a watchlist, so that you can keep your selected
stocks on your radar. Moneycontrol website is a good resource, where you can not only
create a 'watchlist,' but also track your investments in equity, mutual funds etc. in the
Portfolio tab. With the help of Moneycontrol, you can easily track the latest value of
your investments also.

Income Tax on Share Market Gains

 Short-term capital gains and losses

If equity shares listed on a stock exchange are sold within 12 months of purchase, the
seller may make short term capital gain (STCG) or incur short-term capital loss. Short
term capital gains are taxable at the rate of 15%, irrespective of your tax slab (However,
if your total taxable income excluding short term gains is below taxable income i.e. Rs.
2.5 lakh, you can adjust your gains in this category.)

 Long-term capital gains and losses

If equity shares listed on a stock exchange are sold after 12 months of purchase, the
seller may make long-term capital gain (LTCG) or incur long-term capital loss. LTCG of
more than Rs. 1 lakh per year is taxable at 10%, without indexation.
 Carrying Forward of Losses

Any short term capital loss from sale of equity shares can be set off against short term
or long term capital gain from any capital asset. If the loss is not set off entirely, it can be
carried forward for a period of 8 years and adjusted against any short term or long term
capital gains made during these 8 years. Long Term capital loss can be set off against
long term capital gain and can be carried forward for 8 years.

It should be noted that a taxpayer will only be allowed to carry forward losses, if he has
filed his income tax return within the due date. Therefore, even if the total income
earned in a year is less than the minimum taxable income, filing an Income Tax
Return on time is a must for carrying forward stock market losses.

QUICK SUMMARY

 Before you start trading, sharpen your trading skills and increase your technical
knowledge by doing virtual trading and playing ChartMantra game.

 Open your account with a discount broker, preferably Zerodha or Upstox to

save brokerage.

 Initially trade only in Nifty 50 stocks. Here profit margin may be less, but risk is
also much less, because these stocks are not usually operator-driven.

 In the beginning, play conservatively and focus on gaining knowledge rather

than gaining quick profits.
2. Difference between Fundamental Analysis &
Technical Analysis

 Basics of Fundamental Analysis

 Basics of Technical Analysis

 Key Differences between Fundamental & Technical Analysis

 2. Difference between Fundamental Analysis &
Technical Analysis

'Fundamentals are good long term. Charts are

better short term.' -David Linton

Fundamental Analysis and Technical Analysis are the two major analytical tools of
analyzing the stock market.

In this book, you will learn how to benefit from Fundamental Analysis as well as
Technical Analysis. Both are important and both are useful, if used properly.

This short chapter will tell you in a nutshell how and why these two are different.

Fundamentalists study CAUSE, while technicians study EFFECT.

Technicians just need to worry about the way the price is moving, not for the reasons
which are causing the price movement.

All traders classify themselves into technicians or fundamentalists, but practically they
need to have a working knowledge of both of these.

Fundamentals take time to get reflected on price, while the technicals are reflected in
the price quickly. So if you are looking for quick money or hot money, then technical
analysis is your obvious choice.
You can trade solely on basis of technicals and get good results, however trading just on
fundamentals can't guarantee you quick results, unless you are ready to hold your
stocks for long term.

Technical approach is simpler to use and learn as compared to the fundamental

approach, because charts are easily available, whereas doing an in-depth fundamental
analysis can be a hard nut to crack for retail investors.

Basics of Fundamental Analysis

In fundamental analysis we study the conditions and future of the company, economy,
sector or industry, financial statements, balance sheets, liquidity ratio etc. Here we do
company analysis, industry analysis and economy analysis. Here we also have to study
shareholding pattern, share pledging etc.

In fundamental analysis, we want to find the intrinsic value of the company, so that we
can decide whether the stock is under-priced or over-priced. The aim is to find
underpriced companies and then to buy their stock as cheaply as possible. The cheaper,
the better.

Fundamental analysis is a method of determining a stock's real value. Then fundamental

analysts search for undervalued stocks that are currently trading at prices below their
real value.

Fundamental analysis examines several economic and financial factors, like state of the
economy, industry and company. Fundamental analysis uses Revenue (topline), Earnings
(bottom line), return on equity, profit margin etc. to determine the real value of the
company.
Fundamental analysis studies balance sheets, annual reports and financial results, which
you can easily find on BSE website. For other ratios, you can look at Moneycontrol page
of the stock. Fundamental analysis requires time and effort on your part, whereas
technical analysis can be done in comparatively less time.

Basics of Technical Analysis

Technical analysis uses past charts, patterns, technical tools and stock trends to forecast
the future price movements of a stock. Technical analysts use charts of stock prices to
identify patterns and trends that suggest what a stock will do in the future.

Charts are easily available on BSE website itself and EOD charts are available on
ChartNexus.

You can easily learn the basics of chart and our next section would show you how to do
it.

Technical analysis believes that the price of a share is based on the interaction of
demand and supply forces.

Technical analysis uses stock's price and volume as the only inputs. The core assumption
is that all known fundamentals and all the available information are factored in the
current price, so there is no need to pay close attention to them.

Simple moving averages, support and resistance, trend lines, and momentum indicators
are the chief tools used in Technical Analysis and you will get a good practical
knowledge of all of them in this book.
 Key Differences between Fundamental & Technical Analysis

Fundamental analysis Technical analysis

Fundamental Analysis is a practice of Technical analysis is a method of

analyzing securities by determining the determining the future price of the stock
intrinsic value of the stock. using charts to identify the patterns and
trends.

Uses Economic reports, news, events and Uses Chart Analysis.

industry statistics.

Focuses on long-term Focuses on short-term

Believes in investing Believes in trading

Preferred by long term position traders Preferred by swing traders and short-term
or day-traders

The basic objective is to identify the The basic objective is to identify the right
intrinsic value of the stock time to enter or exit the stock

Value is of foremost importance Timing is of foremost importance

Future price is predicted on the basis of Future price is predicted on the basis of
past and present performance and charts and indicators.
profitability of the company.

You can use fundamental analysis to decide: What to buy or sell? (stock)

And you can use technical analysis to decide: When to buy or sell? (price)

QUICK SUMMARY

 Fundamental analysis is a method of evaluating securities by attempting to

measure the intrinsic value of a stock and then to buy the stock as cheaply as
possible.

 Technical analysis uses only stock's price and volume to anticipate future price.

 Both methods can be used either together or alone for researching and
forecasting future trends in stock prices.
 Section 2

Fundamental Analysis

"Value stocks are about as exciting as

watching grass grow. But have you ever
noticed just how much your grass grows in
a week?" -Christopher Browne
 3. Where To Find Stocks to Analyze?

 Stocks Trading Near 52 Week High

 Stock screeners

 Advice of market experts

 Rakesh-jhunjhunwala.in Website

 Other Resources
 3. Where To Find Stocks to Analyze?

As promised earlier, I would explain everything to you in a simple, clear and no-
nonsense manner. We don’t need to sit for any exam, so I won't be using any complex
words or terms. My goal would be direct and to-the-point communication.

In Fundamental Analysis, we analyze the company’s business to find the real worth of
the company. Here we look at the company’s financial statements such as profit and
loss account, balance sheet, cash flow statement, product lines, and competitors etc. to
find out the real worth of the company. If the market price of the company is less than
its real worth, the stock is considered undervalued and good for buying. On the other
hand, if the market price is already above its real worth (or intrinsic worth), then the
stock is not good for buying.

I know that you are scratching your head in confusion. You are saying, 'Abhishek, there
are thousands of companies listed on stock exchanges. Do you expect me to analyze
each and every company of the stock market?'

No, No. You don't need to analyze the fundamentals of each and every company of
stock market. I will show you a time-tested shortcut to shortlist the companies for
financial analysis: Use Screeners.

Where to find good stocks to analyze?

In order to find good stocks, you can use various sources such as TV, newspapers,
magazines, advice on social forums, popular blogs etc. I believe perhaps you are using
some of these already. However, remember one thing. Listen to everyone, but don't
trust or follow anyone blindly. If you learn this one thing from the whole book, it is well
worth it. Just listen to what others are saying (or even better, follow Warren Buffett and
shut your ears from external noise), but do your own analysis to decide, whether you
should invest in a particular stock or not. After all, it is your hard-earned money, so the
final decision should be yours and it should be based on your own analysis only.

To help you, I am giving here some sources, which you may use in your decision-making
process.

1. Stocks Trading Near 52 Week High- These are buzzing stocks, which are making
new highs regularly. Investors and traders are bullish on them, so there must be
some good reason for their enthusiasm. This is why you should analyze these
stocks on fundamental parameters and if you find any of them good enough,
choose it for investment.

I always prefer the stocks, which are trading at all-time highs. Just perform a
simple Google search with keywords “stocks trading near 52 week high.” Several
websites and their lists of stocks will come up in the search result.

The advantage of this technique is obvious. Stocks trading at 52 week high have
no overhead supply to contend with. On the other hand, stocks trading near their
52-week low have huge overhead supply to work through and they also lack
upside momentum. In other words, stocks on their 52 week high have no
resistance on the upside, while the stocks on their 52 week low have several
resistances on the way up. William O’Neil once said, “What seems too high and
risky to the majority generally goes higher and what seems low and cheap
generally goes lower.”

One thing should be kept in mind. Stocks may be trading near 52 week high due
to some news or rumour (which may be able to provide only a short-term push or
upside). This is where your analysis would help. You should decide very rationally
whether the stock is really valuable or not. Just because a stock is trading at 52
week high is not a good reason to buy it. You should use this criterion to screen
 the stocks only.

2. Stock screeners- Screener.in is an amazing site for Indian traders. There are
hundreds of readymade stock screeners, which you can use. Or if you like, on this
website you can develop your own screener, using your own specific parameters.
Bull cartel & Growth stocks are my personal favorites for hunting mega baggers.
Here is the link to screener screens https://www.screener.in/screens/ Apart
from Screener.in, links of some other screeners are given below.

Trendlyne Stock screener

https://trendlyne.com/stock-screeners/

Moneyworks4me screener

https://www.moneyworks4me.com/stock-market/stock-screener

Even Moneycontrol provides a screener on its website

https://www.moneycontrol.com/stock-screener/

After finishing this section of the book, you can check these websites and their
screeners and decide which one suits you and your specific requirements.

3. Advice of market experts- Moneycontrol website has a very good page, which
you may not have visited as yet. Here they compile the market views/advice of
several top market experts. You can just scroll through the pages to check their
views. If you find any of their recommendations interesting, you should analyze it
on your own parameters. That means you should use this page for screening
 purposes only. Here is the link https://www.moneycontrol.com/markets/stock-
advice/

https://www.moneycontrol.com/stocks/advice/display_more.php

4. Rakesh-jhunjhunwala.in Website- This is another good website to be followed by

traders. In fact, I think it is the best in its field; better than the screeners listed
above. It keeps track and updates buying and selling activities of major stalwarts,
portfolio managers and big bulls. So, it is a must track site for you guys. Also, this
website tracks various research reports issued by brokerage houses. So, Check it
out here: http://rakesh-jhunjhunwala.in/

5. Other Sources- Apart from these there can be several other sources such as
business channels, newspapers, magazines, Facebook groups, stock forums and
so on.

Remember, we are not going to trust anybody's words or follow anybody's

recommendations or advice. We are just looking for screening or shortlisting good
stocks, which we can analyze on our own. We are just using the screeners to narrow
down the scope of our analysis. There are over 5,000 listed companies in the Indian
stock market and we can’t analyze each of them. This is why we have to use above
screeners to undertake our analysis and then decide where to put our money.

It’s just like a businessman conducting his research before investing his money. While
going through this book, you too are becoming a businessman now. A businessman
engages in the business of buying undervalued stocks at the right time and selling them
at good profit. And this is what you should be doing too!
In the next chapter, we will talk about some important ratios of fundamental analysis.
There you will also learn how to read a Profit & Loss statement or Result, as it is
popularly called. So there we go!

(Disclaimer: I don’t have any associations with the websites/ portals mentioned above,
these are being recommended only because I have found these useful for myself.)

QUICK SUMMARY

1. Trading is a skill and you can learn it with practice like any other skill such as
dancing, cooking, running etc.

2. You can’t make money on a consistent basis until and unless you study stocks
yourself and undertake your own analysis before investing. If you follow others
blindly, you are bound to lose.

3. Four key pillars of trading/investing are fundamental analysis, technical

analysis, market analysis and trading psychology.

4. Various sources to find stocks for analysis include:

 Screeners on Screener.in, moneyworks4me, EquityMaster website.

 Stocks trading at 52 week high

 Moneycontrol stock advice page

 Rakesh-jhunjhunwala.in website and its research reports

 Other sources such as blogs, forums, Facebook groups etc.

 4. How to Read the Profit & Loss Statement
(Result)?

 Get A Brief Idea about the Business of the Company

 An Analysis of the Profit & Loss Statement

 What to look at in Sales & Profitability

 Some Important Margins & Ratios

 Read Cashflow Statement

 How to do Management Analysis

 Check Dividend Yield

 4. How to Read the Profit & Loss Statement
(Result)?

Got some stocks to analyze? Good, now you should follow some basic steps given
below:

1) Get A Brief Idea about the Business of the Company- Simply Google search the
name of the company. You will come across the company website. Browse
through the pages such as 'About Us', products, history etc. to understand what
business the company is actually doing. During the Google search sometimes you
will also come across research reports, analysis etc. done by various blogs,
website etc. Just go through them to learn more about the company. No need to
dig too deep here; our goal is just to get a general idea about the company and
its business. No harm in searching for the stock in Moneycontrol too!

2) Sales & Profitability- After getting a rough idea of the business of the company,
our next step will be to check its sales and profitability growth. I would never
invest in companies that are making losses or earning just peanut profits. As told
earlier, there are over 5,000 companies to choose from, so why put our precious
money in those companies that are making losses and eating up the money of
their investors.

Sales is known as topline and profitability is called bottom line. These two terms
are among the most popular terms of the stock market.

For getting information regarding these, you have to look at the profit and loss
statement. In Screener.in website you will find this statement under the heading
Quarterly Results and Annual Results.
 Check the sales and net profit figures in both quarterly and yearly results. If they
are growing it’s a really good sign. I prefer to invest in stocks with compounded
sales and profit growth of 12% or more over a period of past 3 and 5 years.

You can find this figure under annual results on Screener.in website:

Reading a Profit & Loss Statement is a must for financial analysis. The problem is that
most of the new investors are unable to understand the meaning of various terms used
in these statements. To solve this problem, I am giving a basic and simplified version of
Profit & Loss Statement below. Various items given in the Profit and Loss Statement can
be understood with the help of the following example:

Let’s say the business of ABC Ltd is to manufacture bulbs. It produces 10,000 bulbs
annually and sells them at the price of Rs. 100 each. Its net sales will be 10,000 X 100 =
Rs. 10,00,000.

But does it mean that the company makes a profit of Rs. 10 Lakh? Definitely not. To
manufacture those bulbs, the company must have spent money on raw material and
salary to its workers etc. So this figure of 10,00,000 will appear in the sales/revenue
column of the profit & loss account or statement.

The Expenses of this company may look like this:

Raw Material- Rs. 2, 00,000

Rent of factory- Rs. 50,000

Wages to Labour- Rs. 50,000

Other operating expenses- Rs 2,00,000

Total Operating Expenses

= Rs. (2,00,000+50,000+50,000+2,00,000) = Rs. 5,00,000

Thus, operating expenses of the company will be Rs. 5,00,000.

Sales of the company is Rs. 10,00,000.

By these two figures, we can get the figure of operating profits. We just have to deduct
the operating expenses from the sales figure.

Operating profits = Sales – Operating Expenses

= Rs. 10,00,000- Rs, 5,00,000

= Rs, 5,00,000

Once we get the figure of operating profits, we can also calculate operating profit
margin (OPM), which is considered to be an important ratio in financial analysis.

= (5,00,000/10,00,000) x 100

= 50%
Thus, an operating profit margin of 50% means that on the sale of goods worth Rs. 100,
the company makes a profit of Rs. 50. On the other hand, if the operating profit margin
is 10%, it would mean that on the sale of goods worth Rs. 100, the company will make a
profit of only Rs. 10.

You can find the OPM figure under operating profit in annual and quarterly results on
Screener.in. Alternatively, you can also calculate it yourself by using the formula given
above.

Always prefer companies with healthy operating profit margins. If the margins of the
company are improving over years, it is a very good sign. On the other hand, if OPM is
falling or fluctuating wildly, then I would rather skip and not invest in the company.

I will prefer to invest in companies with operating profit margins of 20% or above;
companies with low operating margins can easily become loss-making companies, as
low margins suggest low pricing power. Also, OPM will tend to vary from industry to
industry. Service sector will have higher OPM compared to the manufacturing sector.

Next figures in the profit and loss statement will be Other Income, Interest and
Depreciation.

Suppose in our example, the bulb manufacturing company ABC Ltd. sells some
scrap/waste to a scrap dealer for Rs. 10,000. This Rs. 10,000 is certainly its income, but it
cannot be classified as its regular income from operations, so it will be shown under the
head of other income.

Depreciation means reduction in the value of assets/machinery due to wear, tear, usage
etc. Let’s assume it to be Rs. 10,000.

If the company has taken any loan, then its interest will come under the head of Finance
Cost/Interest.

After reducing depreciation and interest cost, we can calculate Profit before Tax.
Companies have to pay taxes also on their profit, so we will have to deduct taxes to
finally arrive at the figure of net profits.

If we want to draw the Profit and Loss statement of our hypothetical company ABC Ltd.,
it will be drawn as under:

Sales/Revenue 10,00,000

Expenses 5,00,000

Operating Profits 5,00,000

OPM 50%

+Other Income 10,000

-Depreciation 10,000

-Interest 0

Profit Before Tax 5,00,000

-Tax @ 30% 1,50,000

Net Profit 3,50,000

Net Profit Margin 35%

I hope you might have got a good idea about how Profit and Loss Account or Income
Statement of the company is prepared.

Every company listed on stock exchanges has to submit its quarterly and annual Profit &
Loss Statement (popularly called Result), as it is mandatory. You can view the annual
and quarterly profit and loss statements of the company under quarterly and annual
results. The same are available on BSE & NSE websites; though the website of BSE is
more friendly than that of NSE.

3) Interest Coverage- In Profit and Loss Account itself, you can get another very
important ratio, which is Interest Coverage Ratio.

EBIT stands for Earnings before Interest and Taxes.

Interest Coverage Ratio shows the financial capability of a company to pay its interest
on stipulated time. You can get this ratio by using “enter a ratio name” feature of
Screener.in or by using the above formula.

I would prefer an interest coverage ratio of at least 3. The higher, the better it will be.

4) Positive Cashflow- The Cashflow Statement shows inflows and outflows of cash
in company categorized under various heads viz. Operating, Financing and
Investing. Here, our requirement is that the cashflow from operating activities
must be positive. If you wish to learn more about it, just do a simple Google
search.
5) Management Analysis- Under management analysis you need to check the
following factors:

 Promoter’s holding in the company- I prefer promoter’s holding to be

50% or above. If promoter’s holding is increasing over the years, it is a very
good sign. For finding promoter’s holding, go to Moneycontrol.com and
search company name at the top and finally click on Shareholding. If
mutual funds, insurance companies, financial institutions, FIIs etc. have
bought the shares of a company, it is also a positive sign. Here you can
check the promoter holdings over different quarters.

 Promoter's Pledging: After doing the above, you can check the share
pledge status of the promoters also. If more than 25% promoter holding is
pledged, it should be taken as a red flag. Pledging means that promoters
had taken loans and given their shares as collateral to lenders. This also
means that the company may be suffering from debt problems or at least
liquidity problems. If you find pledging to be more than 50%, you certainly
need to dig deeper into its cause.

 Analysis of the Management- On the same page where you viewed

promoter’s holding, you can click on “Company Info” section. Here you will
find details about the company’s management. You can perform Google
search on them to know more about them and their background,
experience etc. In this process if you come across some frauds done by
them in past, penalties imposed, regulatory actions taken, it’s better not
to invest in that company.

6) Dividend Yield- It is not a necessary condition, but if you are choosing to invest
over longer term, then you should expect to receive income in the form of
 dividends as well.

Dividend Yield = Annual dividend per share/ Price per share

If a company with market price of Rs. 100 pays an annual dividend of Rs. 10
(inclusive of interim dividend and final dividend), its dividend yield is 10%.
Dividend is similar to bank's interest, but unlike bank's interest this one will keep
on fluctuating, because market price of the stock will keep on changing daily.

You can check this figure using “enter ratio name” feature of Screener.in. We
prefer this figure to be high; the higher the better. Usually PSU companies pay
hefty dividends, but you have to check their growth potential thoroughly. Merely
investing for dividend's sake is a very conservative strategy and it was a popular
strategy in the past, especially for retired persons.

We should not forget that some 30-40 years back, when shares used to be in
physical form and couldn't be traded online, conservative or retired people didn't
buy stocks for capital appreciation; they bought them primarily for their dividend
yield. Dividend yield used to be a significant criterion for stock selection and even
Warren Buffett used it in his investment parameters; no wonder his company
annually earns 4 billion dollars from dividends alone. Just imagine, 4 billion
dollars from dividends alone!

So, in this chapter we have got some brief fundamental pointers that we need to check
before investing in any stock. Remember, these are not the only parameters to be
checked. There are dozens or even hundreds of ratios and parameters, which are used
in the fundamental analysis of stocks. But so far as I am concerned, I use these only. And
if I am successful while using them only, you can also rest assured that they are enough
initially. Later on, when you get experience, you are free to develop certain additional
parameters or ratios.
 QUICK SUMMARY

Things To Check Out In Fundamental Analysis:

 Get a rough idea of the company’s business, products, management etc.

 Sales and Profit growth of 12% or more over past 3 and 5 years.

 Operating margins of 20% or more. Improving/ rising OPM is considered a good

sign.

 Interest coverage ratio of 3 times or more

 Cashflow from operating activities in Cashflow Statement should be positive

 Analysis of Management- Preferably promoter’s shareholding should be above

50%, rising promoter’s stake is considered good, Google the names of key
management persons to know more about their history, experience, frauds,
irregularities etc.

 If you intend to hold the stock for long term, check dividend yield also. Higher
dividend yield stocks are more attractive.
“Price Is What You Pay,
Value Is What You Get”

—Warren Buffett
 5. Valuation Analysis of Stocks & Moat
Investing

 Valuation Analysis using PE Ratio

 Valuation Analysis using PEG Ratio

 Valuation Analysis using Earning Yield

 Margin of Safety

 What is Moat Investing

5. Valuation Analysis of Stocks & Moat Investing

We have already learnt, how to get started, how to use screeners to find good stocks for
fundamental analysis and how to read Profit & Loss Statement. In this chapter, I will tell
you how to do the valuation analysis of a stock and in the next chapter we will discuss
the same about the index valuation.

Valuation is the foundation of fundamental analysis and though valuation analysis of

stocks can be really complicated, I will try to keep it simple here.

For the sake of easy understanding, let us learn it through a practical example of daily
life. Suppose Samsung launches a new mobile with all the latest features, say solid
battery backup, latest android operating system, a high pixel camera and many other
attractive features. Let us suppose that the price of this mobile phone is Rs. 30,000. Mr.
A does a quick market research on internet about its various features and decides to buy
it next month.

Next month his phone beeps, “Your account XXXXXX is credited with Rs. 50,000 salary
for month XX.” Yippee time for Mr. A! Now he can buy his dream phone, as he had
decided last month. Instantly he opens his Flipkart website on his laptop. When he looks
at the price of the Samsung phone, he is shocked. Shit! What's this? Its price has
increased during this period. Now instead of 30,000, it is costing 37,000. Perhaps the
special discount offer, which was available last month, has been withdrawn this month.
Now what to do?

Mr. A feels bad and frustrated, but suddenly remembers that there was another similar
phone that he liked during his market research. That was a Sony mobile and it had
almost similar features and it was also priced at Rs. 30,000, but Mr. A had chosen to go
with Samsung. Now Mr. A searches for Sony mobile and finds that it is still available at
its old price of Rs. 30,000. As there isn't much difference in features, Mr. A makes up his
mind and places an order for the Sony phone.

In the above case, what happened? Even though the Samsung phone was still as good as
earlier, Mr. A decided not to buy it due to increased price for the same value offered.
While in the case of Sony phone, he got good value for his money, this is why he chose
to buy it.

Apply this story in stock market and you will get the idea that we should avoid stocks
with inflated valuations.

In previous chapters, we have learnt how to find a good stock. But do you think that we
should buy it, even if its market valuations have substantially increased without any
changes in the fundamentals?

No way buddy, we will pick another stock, as Mr. A did in the above story.

Let’s look at another example here. Suppose you find a good stock trading at 90, which
satisfies all the fundamental criteria we have discussed earlier. But as next morning you
had to leave for a 2-week holiday, so you forgot to buy it. After enjoying your 2 week
holiday, you come back to work and check the price of the same stock. Wolla! It’s now
trading at Rs. 160. Now, do you think this will offer the same value to you, as it was
offering at Rs. 90? Definitely not! If we don’t buy phones that give us the same value at
increased price, we shouldn't buy stocks too. Remember, we are comparing stocks with
phones, simply because both have a value and price associated with them.

In previous chapters, we have learnt to analyze whether the fundamental features of a

stock are good or not. In this chapter we will learn to analyze whether the stock offers
sufficient value at the market price. If it offers good value for money, we will buy it;
otherwise we will skip it.

We will be learning various valuation methods to ascertain whether a stock is

undervalued or overvalued and take our decisions accordingly.

Broadly speaking, valuation analysis is done using PE Ratio, PEG Ratio and Earning Yield
methods. Let’s look at these methods one by one-

1) Valuation Analysis using PE Ratio -

PE Ratio = Market price per share/ Earnings Per Share (EPS)

PE ratio means number of years the present earnings of the company will take to cover
the market price of the share.

This figure can be found on Moneycontrol, Moneyworks4me, BSE or any other financial
website. If the PE of your stock is less than industry PE, it is considered undervalued. If
the PE of your stock is higher than industry PE, it is considered overvalued. However, it
should be noted that industry leader or sector leader enjoys higher PE than the rest of
the stocks of that industry or sector.

In Moneycontrol.com, search for the stock name in Valuations. Here you will find both
figures- PE of the stock as well as the PE of the industry.
 2) Valuation Analysis using PEG Ratio-

PEG Ratio = PE Ratio / Annual Earnings per Share Growth

PEG Ratio attempts to compare the Price to Earnings (PE) ratio with the growth of the
company. As a thumb rule if PEG Ratio is less than 1, the stock is considered
undervalued, otherwise overvalued.

You can add it up to your screener in Screener.in by using Enter a Ratio Name feature.

3) Valuation Analysis using Earning Yield-

Earning Yield = 1/PE Ratio

Earning yield tells us what percentage return the company is making, on the basis of its
after-tax income and the price we will be paying for it.

For example, if the PE Ratio of a company is 30, its Earning yield will be 1/30= 3.33%.

We compare the earning yield of a company's stock with the earning yield of risk-free
government bonds. More simply, you can compare it with the fixed deposit rate of the
banks, which is around 5-6% these days. If the earning yield of the company is more
than this risk-free rate, then it is considered good for investment, otherwise overvalued.
If this yardstick is strictly followed to the letter, stocks trading above PE ratio of 14-15
should be avoided (1/14=7.14%). But an investor should use other ratios also to
determine the future growth possibilities.

The difference between Earning Yield and risk free FD return is termed as Margin of
Safety (MOS). If you want safe investments, try to invest in stocks with PE ratio of 10 or
less, as they offer better margin of safety. Again, such stocks are more easily found in
PSU sector, but there growth may be an issue.

Earning Yield can be added in screener using Enter a Ratio Name and MOS is simple
Earning Yield-7. If this figure is positive, it is good for investment, otherwise overvalued.

These are the three most popular valuation analysis methods regarding stocks. Now
let’s have a look at another very significant concept: the concept of moat investing.

Moat Investing

The concept of Moat Investing was popularized by Warren Buffett. Literally, a moat is a
deep, wide ditch surrounding a castle, fort, or town, typically filled with water and
intended as a defence against attack.

Moat Investing means investing in those companies, which have some specific
competitive advantage over their competitors. Such companies have the capacity to
sustain and grow consistently over long term, as they are safe from competitors.

Moat is something which sets a company apart from its competitors. Moats can mean
several things-

1. Strong Brand Name- Any company which has a strong brand name and
reputation in the market, with which no other company can compete
significantly. Example can be Royal Enfield motorcycles.

2. Patented Products or Secrets- Companies with patented products or some

specific trade secrets have “moats,” as direct competition with them becomes
very difficult. Example can be Apple.

3. Toll- If the company has exclusive control over some market and has the ability to
collect “toll” or some form of “fee” from all the users of that service or product, it
can be termed as “moat” or “specific competitive advantage.”

4. Products with No Alternatives- If the company manufactures products that are

part of people’s lives and are used widely with little or no competition, then moat
is present there. In such cases switching to alternative products should be
difficult or unfeasible for the customers. For example, softwares in banks etc.

5. Strong Pricing Power- Suppose ABC Ltd. has low cost access to raw material and
can produce and sell its goods at such price that no one else can match it, then
“moat” is present.

We can look around us to find companies with moats. One can consider visiting stores,
manufacturing plants, warehouses and talk with suppliers, customers and vendors of
the company to gather more information about the business if possible. Otherwise
presence of moat is also indirectly suggested by the following features-
  Consistently Growing Sales & Profit

 Better OPM & growth Compared to Peers

 Strong Cashflow

 ROE in Double Digit

You can watch this YouTube Video to know about Indian companies with the best Moats

https://www.youtube.com/watch?v=hD_Jwxuab_I&t=16s

With this we finish our valuation analysis of stocks. Now let us do a quick recap of this
chapter.

QUICK SUMMARY

1. Valuation Methods-

 Stock PE- Stock PE < Industry PE means undervalued, otherwise overvalued.

 PEG- PEG < 1 means the stock is undervalued, otherwise overvalued.

 Earning Yield- Earning Yield > 7, good for investment otherwise overvalued.
Higher the Earning Yield, better it is.

 Margin of Safety- MOS = Earning Yield – Risk Free Rate of return (7%). The
higher the margin of safety, the better it is to invest in the company.

2. Moat Investing- Moat investing means a specific advantage that a company has
 over its competitors, which can help it to retain its market share and earn more
and more profits in future. Such companies have consistently growing sales and
profits, positive cash flows and better margins compared to their competitors.

“Timing is Everything

Three men came to Wall Street.

The first always knew what was the best buy.

The second knew why it was best to buy.

But the third knew neither of these things; he

only knew when to buy.

He made the most money.”

—Richard D. Wyckoff
 6. Valuation of the Market - When is the Right
Time to Invest?

As we all know, timing is very important in stock market. It is of utmost importance,

when you enter or exit a trade. If you enter in an undervalued market, your chances of
making good money are higher. On the other hand, if you enter the market at higher
valuation, then your chances of making good money are lower.

How can you know whether market is overvalued or undervalued?

Market PE ratio or PE of the CNX Nifty Index is a wonderful tool, which gives you a fair
idea about the valuation of the stock market. In a way, it tells us when to buy and when
to sell.

PE Ratio of Nifty is calculated by dividing the sum of market capitalization by the sum of
earnings of all companies, which constitute the Nifty Index. Don't worry, we don't need
to do this calculation manually; NSE Website has got a very good tool with which we can
get historical PE Ratio very easily. Click Here

Let's have a look at the Nifty PE Ratio Chart below:

Analysis of the past data suggests that whenever Nifty PE is close to 25 or above, market
sells off and similarly when Nifty PE is in the range between 12 to 15, heavy buying is
seen. Remember, there is guarantee that this is sure to happen. For example, the PE of
Nifty was 32.64 on Aug. 26, 2020. If you had sold all your holdings at the PE of 25, you
would have felt sorry about it. So always consider other factors also, but as a rule of
thumb be more cautious while investing in a highly-valued market. Long term investors
should have the patience of not only holding their stocks, but also of waiting for their
favorite stocks to come to their desired price levels.

If we calculate historical returns given by the Nifty index, assuming that we invest at
different levels of Nifty PE, we get the following result:

PE RATIO 3Y 5Y 7Y 10Y
RETURNS RETURNS RETURNS RETURNS

LESS THAN 12 38.7% 29.2% 22.3% 18.9%

BETWEEN 12 & 16 28.3% 24.9% 19.1% 16.3%

BETWEEN 16 & 20 13.2% 13.8% 14.4% 14.8%

BETWEEN 20 & 24 4% 7.8% 12.3% 13.8%

ABOVE 24 -4.9% 3.4% 9.6% 12.2%

The above table shows the historical 3, 5, 7 and 10 year returns of Nifty index, when we
invest at different levels of PE ratio. If we invest when the market is trading at a high PE
ratio, our chances of low or even negative returns also increase substantially.

Although individual stocks may react differently compared to the Nifty 50 index, but the
fact remains that it gets really hard for any stock to move upwards, when the entire
market is witnessing a sell off.

Professor Sanjay Bakshi, a renowned value investor, once said, "Recent research done
by my firm shows just how dangerous it is to remain invested in an expensive market.
Since NSE started, every time when Nifty’s Price/Earnings ratio exceeded 22, the
average return from Indian equities over the subsequent three years became negative."

I would suggest following actions for traders at different valuation levels:

Nifty PE Interpretation Action

Below 12 Highly Undervalued Rare Event, Very Strong Buy

12 to 15 Undervalued Strong Buy

15 to 20 Fairly Valued Buy/Hold

20 to 25 Slightly Overvalued Start booking partial profit, be careful in stock picking

25 to 30 Highly Overvalued Strong Sell, Book Profits & Sit on Cash

Another important thing to note here is that every time PE reaches close to 25, you
won’t see a quick fall or sell-off. It doesn't happen like that. It happens quite differently.
Strong buying will be observed at such high levels and most stocks (most of all penny
stocks, which are the darlings of retail investors) will start running strong and retail
investors will be tricked into bullishness and then suddenly everything will start tanking,
without giving any chance to investors to get out or book profits.

You don’t have to be part of the crowd from now, you have to act and be smarter than
the majority to become successful.

So apart from the valuation of individual stocks, you need to look at the valuation of the
entire market as well. Buying right stocks at the right time will give you the best returns.
So from now onwards, whenever market PE reaches 25, you should start booking profits
in your longs and switch to a cautious mode before everybody else. If you happen to be
a Futures/Options trader, you can also keep watch on stocks that have moved very
strongly recently so that you can consider shorting them, when the right signals appear.

Many people firmly believe that in the overvalued markets, it’s good to shift to blue
chips or large cap stocks that provide good dividend. My experience is that in a major
bear market, virtually everything will crash or come down. The stocks that appear to be
strong, sooner or later their momentum will also slow down. There is no point in holding
your portfolio for 3-4% annual dividend, when you are sustaining 2-3% capital loss daily.

So whenever market valuations are high, it is better to consider short term trading
rather than investing lumpsum in the market for long term. At such times, it is prudent
to shift your portfolio holdings from equity to cash or debt. Now the market is too hot;
let it cool down; sooner or later it always does!

One question is often asked, 'Where should we invest after a market crash or big fall,
when the PE of Nifty comes to reasonable levels?' The answer is simple: Use Index Fund,
as you never know which particular stock will bounce the most. At such times you can
buy ETFs like NiftyBees or Index funds of Mutual Funds. If you like, you can invest in
bluechip mutual funds also, as bluechip companies will be the first to bounce back when
market recovers.

Here our section of Fundamental Analysis ends.

In our next section, we will learn about Technical Analysis.

QUICK SUMMARY

Nifty PE Interpretation Action

Below 12 Highly Undervalued Rare Event, Very Strong Buy

12 to 15 Undervalued Strong Buy

15 to 20 Fairly Valued Buy/Hold

20 to 25 Slightly Overvalued Start booking partial profit, be careful in stock picking

25 to 30 Highly Overvalued Strong Sell, Book Profits & Sit on Cash

“The four most
dangerous words in
investing are 'This time
it's different'.”
—John Templeton
 Section 3

Technical Analysis
 7. Basics of Technical Analysis

 Why We Need To Learn Technical Analysis?

 Types of Stock Charts: Bar Chart, Line Chart and Candlestick

Chart

 The structure of a Candlestick

 Two good sources for charting

 7. Basics of Technical Analysis

Technical Analysis is nothing but the study of market action through the use of charts.

"Market action" does not include only rise and fall in price, it also includes change in
volume, overall trend of the market or the stock etc. and charts are the graphical
representations of this price movement digitally or on a piece of paper.

Since price action takes place as a result of the perceptions of the majority of investors
and traders, we can say that a stock chart gives us a distinct snapshot of opinions and
views of thousands or even lakhs of people. So if we manage to learn to read charts, we
will be able to understand the behavior of the masses and we can go along with it
instead of going against it.

Technical Analysts Assume Nothing

Technical analysts or technicians believe that everything that can affect the price of a
stock (i.e. the profits, ROE, OPM, the business model, sales, expansion projects, investor
sentiments etc.) is already reflected in the price of a share, so we shouldn't bother
researching about them and we need to look only at the price movement to anticipate
its future direction.

Technicians believe that so far as fundamental analysis is concerned, efficient market

theory or hypothesis holds true, which maintains that the price of stocks reflects all the
available data in a liquid market. Therefore, no amount of analysis can give the investor
an advantage over others and market prices should react only to some new information
or news. This is why technicians ignore financial analysis.

However, it must be kept in mind that technicians don't trade on news; instead they
trade on the way people react to news, which is already reflected in the price of the
stock. Recently, a company which I track came up with a very good result, yet the stock
fell 8% on the same day. The reason was not bad results, but the perception of the
people about the results. People were perhaps expecting fantastic results, so they were
not satisfied with merely very good results, hence the stock tanked. So our objective in
learning technical analysis will be to spot how people react to different news and trade
on it.

Why Do We Need To Learn Technical Analysis?

In previous chapters we have learnt how to do fundamental analysis, valuation analysis

and valuation of the overall market as a whole using PE Ratio.

Suppose, ABC Ltd. is a company with low PE ratio, high growth, high interest coverage
ratio and satisfies all the fundamental parameters we have discussed earlier. Now the
question is, will it start moving on its own just because it has good value? No, definitely
not. It won’t move until and unless it comes on the radar of some big sharks (high net
worth investors, operators or institutions).

They are the ones, who have the capacity to significantly drive the price upwards or
towards higher levels. By following fundamental analysis, we find which stocks are good
and satisfy the criteria that these big sharks look for. In technical analysis, we try to find
whether the sharks have started buying or not.

One of the biggest secrets of stock market is that individual traders like us can’t move
the price upwards for long. If a stock becomes a multibagger, usually there is the
sustained and continuous buying of some operators, high net worth individuals, funds
etc. behind it. By using technical analysis, we actually try to find the footprints of these
people on charts. They buy good stocks when they are cheaper and then drive the price
upwards by continuously buying from multiple accounts and at times they risk their
entire fortune while doing it.

Our job is simply to search for those counters, which the pros think are awesome and
invest in them. If we succeed in doing this, we will be getting the same kind of returns,
which they are getting.

Types of Stock Charts

As told earlier, a stock chart is a graphical representation of the price and volume action
in the stock market. Here you get to see price movements like high, low, open, close etc.
and the corresponding volumes. There can be different types of charts. Let’s understand
them one by one:

1) Bar Chart- Here take a look at a bar chart-

This is the bar chart of DLF for the period October 2014 to February 2015. We may
notice that the chart consists of several bars, each of which sums up the price
movement of one day.

Source: ChartNexus
The green and red bars at the bottom represent volume, which means the number of
shares traded on that particular day. If the volume bar is high, it represents high volume
on that particular day and if it is low, it represents low volume. We will discuss its
significance later on, for now we just need to concentrate on the basics of charting.

Now we will analyze an individual bar of the bar chart, so that you can understand it
better:

The above figure clearly explains what each individual bar represents. The node on the
left side signifies the open price and the right one represents closing price. While the
high and low are represented by upper and lower points of the bar.

In the first red bar you can see that the stock opened high and closed low, so it is
considered bearish.

In the second blue bar you can see that the stock's close was higher than its open, so it
is considered bullish.

Of course, a bar in itself can't tell the whole story and you will have to understand its
significance in the context of chart due to gap ups or downs.

In charting softwares and websites, when you hover your mouse over a particular bar, it
will show the details about open, high, low, close and volume of the stock on that
particular day. We will discuss about the use of softwares for charting purposes later on.
2. Line Chart- In line charts we just plot the closing price of a stock in the form of points
on graph and then join the points and ultimately it looks like a line as you can see in the
figure below:

Source: ChartNexus

In this graph you can see the line chart of DLF for the same period October 2014 to
February 2015, which we saw in the bar chart above. We can compare both the charts
and notice how different they seem?

While the bar chart gives entire date with respect of open, high, low, close etc., the line
chart uses the data of closing price only. Some people prefer line charts, as they think
that closing price is the final verdict of that day. They think that a line chart tells them
about the trend in a single glance and filters out the unnecessary data.

3. Candlestick Charts- These are the most significant and popular charts and we will be
using them only. Candlesticks are Japanese version of bar charting and have become
very popular, as they provide rich information on chart. In order to understand the
difference among the three forms of charts we have used the same stock DLF and
same time period of October 2014 to February 2015 in all the three charts (Bar Chart,
Line Chart and Candlestick Chart).
Let's look at the candlestick chart of DLF for the same time period.

Source: ChartNexus

Bar charts consist of several individual bars; likewise candlestick charts consist of several
individual candles. Both provide almost the same information, yet a candlestick chart is
easier to understand at a glance.

You may have noticed here that some candles are black and some are white. In some
websites you may find a combination of red and green. This is color-coding of open-to-
close pricing.

If the closing price of a particular day is higher than the opening price, then the candle is
white or green.

On the other hand, if the closing price is lower than the opening price, then the candle
will be dark or red.

Remember, in a candle we are concerned with the opening price of the day; we do not
bother with the previous day's closing price. Suppose, a stock opens with a gap up of 5%
high as compared to previous day and closes at only 4% high, then the candlestick will
be dark, as the close was lower than the opening price, despite the fact that we ended
4% positive for that day.
Let's now understand the structure of a candle

The above figure clearly explains the structure of a candlestick.

The upper wick (top thread) represents the high of the day; the lower tail (bottom
thread) represents the low of the day.

Real body would represent open and close. In case of a dark/red candle, the open would
be the upper point of the real body, as open was higher than the close. Likewise, in case
of a white/green candle, the open would be the lower point of the real body, as close
was higher than the open.

Depending on the price movement, candles can be of different sizes and shapes, each
signifying something. We will read the bars like this:

 White Bar- White bar is drawn, when closing price is higher than the opening
price. It shows that the demand for the stock during the day was high. It holds
good especially in cases, where a stock does not trade much below the opening
price.

 Black/Dark Bar- Depending on the software used, we can have red/black/blue or

any other dark bar for days, where closing price is lower than the opening price.
 A dark candle shows that the supply during the day was high and demand was
less. It holds good especially in cases, when a stock does not trade much above
the opening price.

 No Bar - Depending on the price movement and volume, we may see some days
where no big bar is formed and just a pin point or horizontal line is formed. It
occurs when the closing price is the same as the opening price or when volumes
are thinly concentrated at particular levels. It is called a no-bar. It is also a doji.
Four-price dojis are usually found in circuit stocks, though they are rare in high-
volume stocks of reputed companies, which rarely hit circuits.

The combination of these individual bars together forms a chart. Also, you can use
weekly, monthly or even yearly charts, if you wish to analyze the price movement of a
longer duration.

We again look at the chart of DLF.

Source: ChartNexus

Here we have taken information of 4 years: 2013, 2014, 2015 and 2016. But due to this,
the chart has got congested and individual candles are not clearly visible. So, from the
options we can select weekly instead of daily. Now this weekly chart will show one
candle for a week, representing the opening, closing, high, low etc. for the week just like
the daily candlestick.
Let’s look how it will look like

Source: ChartNexus

The purpose of using weekly or monthly or even yearly charts is to analyze price action
of a longer duration more easily. We should normally use daily charts only. Of course,
we should use weekly charts also to confirm the signals of daily charts.

For charting you may use -

1. Chart Nexus Software

2. Chartink Website

Or any other website or app of your choice

Before moving on to next chapter here is a quick recap of this chapter.

 QUICK SUMMARY

 Technical Analysis is the study of market action with the help of charts. Market
action includes rise and fall in price and volume. Chart is the graphical
representation of price and volume digitally or on a piece of paper.

 Our objective behind doing technical analysis is to find the actions of expert
traders and follow them, so that we can get the same results they are getting.

 Stock charts can be of three types - bar charts, line charts and candlestick
charts. Candlesticks are best to use as they provide more detailed information
in the same chart.

 A white candle is formed if the closing price is higher than the opening price; a
dark candle is formed if the closing price is lower than the opening price; no
candle will form or just a small horizontal line will be drawn, if closing price is
equal to the opening price and high and low are also the same.

 While analyzing information of longer durations, we may switch from daily to

weekly or monthly charts. Normally, use daily charts for 1-1.5 year horizon; for
confirmation you may look at weekly or monthly charts of longer horizons.

 For charting one may use ChartNexus software or Chartink.com website.

“The trend is your friend.”

—Unknown
 8. Trend Analysis & Trend Reversal

 What is a Trend?

 Three types of Trend - Uptrend, Downtrend and No-

trend/Sideways trend

 Charts of Uptrending stocks

 Charts of Downtrending stocks

 Charts of Sideways Stocks

 Trend identification using Simple Moving Average (SMA)

 8. Trend Analysis & Trend Reversal

I personally consider trend analysis as the most important thing in stock investing &
trading.

This is something which has worked for me the most and has made most profits for me.

I can divide my trading career into two parts-

Part I, the time when I didn’t know about trend analysis and made huge losses, and

Part-II, the time when I understood the concept of trend following and started making
good profits.

This may be the most important thing for you to learn in this entire book, so please
follow very carefully; this chapter will train your eyes to recognize the trend.

What is a Trend?

First of all, we should know what is a trend?

Trend is basically "the direction of the price movement."

Trend can be of different horizons, e.g. short term, medium term and long term.

Imagine yourself working in a big brokerage house that deals in buying and selling of
shares for high net worth individuals, experts and institutions. While working there you
will have access to all the information about what the big guns are continuously buying
and which counters they are pushing upwards. So, if you copy their trades in your
personal account, you will also get exactly the same percentage of profits. If a
professional trader makes 50% profit in any stock, you too will be making the same
amount of profit in your account, simply because you are copying his trades.

But wait for a second. Do you really need to join a big brokerage firm that trades on
behalf of these big professionals? Am I asking you to do that? Definitely NOT!

Which stocks the operators, HNIs, professions and fund managers are buying, is not
exactly a mystery. All we need to do is to look for their footprints on the charts.
Whenever they are buying, they will leave clues on the charts in the form of volume or
trend. They often choose multiple accounts under the names of different persons to
avoid showing bulk deals in exchange, but with chart reading and trend analysis we can
become Sherlock Holmes and catch them out.

Trend analysis shows us what the institutions think about a particular stock. If a stock is
rising and rising upwards, it shows that institutions perceive that stock to be very good
and hence they are buying it continuously. On the other hand, if a stock is going down
and down, it shows that institutions think it is a bad investment and hence are selling it,
due to which its price is falling continuously. It shows us where the momentum lies.

Important to note here is that we won’t buy any stock just because somebody else has
bought it, or just because we see a bulk deal in the exchange. No, we won't do that,
because they sometimes use this strategy to trap investors. They often show a bulk or
block buy deal in the exchange, while they may be selling huge quantity from other
unknown accounts. So, we have to just look at the charts and trend to make our buying
decision instead of finding out who is buying or why is he buying.

Now, let's look at the different types of trend in the market.

Types of Trend

There are three types of trend- uptrend, downtrend and no-trend/sideways trend. Let’s
look at them one by one.
1) Uptrend-

In an Uptrend or bullish trend, the overall direction of the price movement is upwards.

As we already know, price moves in waves of ups and downs. Price can't rise in a
straight upmove all the time, so in an uptrend a stock will be making higher highs and
higher lows each time, so that the overall movement would be skyward.

When the market or any particular stock is in uptrend, it is the best time to go long and
remain invested. Get into it and ride it till the trend reverses or fizzles out.
2) Downtrend-

In a downtrend, the overall price movement is downwards and the price makes lower
highs and lower lows, as can be seen in the above figure. This is why we should never
get into any stock, which is in downtrend. It would be like catching a falling knife.

3) Sideways Trend-

In a Sideways trend or No trend, price neither moves downwards nor upwards, but
keeps on trading in a range for several days. It is better to stay away from the market,
when it does not show any trend at all. However, swing traders can trade between
support & resistance for small gains.

The following figure will help you understand this sideways trend easily:
In order to be profitable we should buy the stocks which are in an uptrend. When they
start moving sideways, that's the point where we should start booking our holdings
partially. We should never hold or buy any stock, which is in a strong downtrend.

Trends can also be identified using moving averages, as is described below:

Uptrend-

 Closing Price should be above 50 days Simple Moving Average (SMA)

 Slope of 50 days SMA should be upwards

Downtrend-

 Closing Price should be below 50 days SMA

 Slope of 50 days SMA should be downwards

In the coming pages, we will learn more about moving averages. For now we can keep
these points in our mind.
Now let’s look at some real life examples of stocks, that are in uptrend, downtrend and
sideways trend.

Examples of Uptrend

 Hindalco

Source: ChartNexus

You can see in the above chart that the overall direction of the price movement is
upwards. Also, the slope of 50 days Simple Moving Average is upwards and the current
market price is around 175, which is above 50 days SMA line. So here all conditions of
the uptrend are satisfied.
  ONGC

Source: ChartNexus

Here again we can see that the slope of blue 50 days SMA line is upwards and the price
is trading above it. Also, the overall direction of the price movement in this stock is
upwards, so we can say that this stock is in an uptrend.
  Garware Wall

Source: ChartNexus

Hope now you must have got the idea what an uptrend stock looks like. The main thing
is to find out where the momentum of the price lies.

Let us have a look at two more examples of uptrending stocks.

  DCM Shriram Ind.

Source: ChartNexus

 Hindustan Zinc

Source: ChartNexus
I hope that by looking at these examples, you may have got the idea. When you look at
the chart of any uptrending stock, it should look like the above charts. It should fulfill
these 3 basic conditions-

 Overall price direction upwards i.e. going from lower levels to higher levels

 Current market price above 50 days SMA line

 The slope of 50 days SMA line should be upwards.

Examples of Downtrend

Let’s have a look at few examples, so that we can learn to recognize stocks that are in a
downtrend-

 Just Dial

Source: ChartNexus
Here we can see the overall direction of price is downwards, price is below 50 days
Simple Moving Average and the slope of the 50 day Simple Moving Average line is
downwards i.e. it is coming downwards. So, we can conclude that Just Dial is in a
downtrend.

 S Kumars Nationwide Ltd.

Source: ChartNexus
  Kaveri Seed

Source: ChartNexus

Here also you can see all the conditions of a downtrend are being satisfied-

 Downward price movement

 Price below 50 days SMA

 Downward slope of 50 days SMA line

By now I believe you must have got an idea about how the charts of uptrend and
downtrend stocks look like. Now let’s move on to the third type of trend - No trend or
Sideways trend.
 Examples of Sideways Trend or No Trend

 Jindal Worldwide

Source: ChartNexus

Here we can see that price is playing hide and seek with the 50 Days SMA. This is neither
an uptrend nor a downtrend. This is basically sideways price movement or
consolidation. You can also see at the end that the 50 days moving average is flat now,
without any specific slope. Price is sometimes below it, sometimes above it.

Let’s take a look at some more examples of Sideways Trend-

  Quickheal Ltd.

Source: ChartNexus

In the above chart, although current market price is above 50 days SMA, other two
parameters are not satisfied-

 Overall price movement is neither upwards nor downwards; it is sideways.

 Slope of 50 days SMA is also sideways, not showing any specific trend.

Thus, we can say that Quickheal Tech is in Sideways trend or No trend right now.
  Omkar Speciality

In below chart also we can’t see any specific direction of price and the slope of 50 days
SMA is also sideways. Thus we can conclude that this stock is also in a sideways trend.

Source: ChartNexus

.So, having looked at these examples I think we can come up with the conditions of
stock with no trend-

 You can’t identify the overall direction of price movement; it will be volatile
moving up and down within a range

 There won’t be any specific or clear slope of the 50 days SMA line, it will be
moving up and down or sideways

 Higher highs or higher lows are not visible

 Current price of the stock can be below or above 50 days SMA line
An important point worth adding here is that the stock market seems to follow
Newton's First Law of Motion. The chances of continuation of an existing trend are
much higher than the chances of reversal. This is why it is always prudent to choose only
up-trending stocks for the purpose of investment. As trend tells us what big institutions
are doing, we should follow the same rather than betting against it. For entry we should
look for consolidations and pullbacks during the uptrend.

After analyzing my personal trades over several years, I have found that my best trades
were those in which I took position in an uptrending stock and held the position until
the trend remained up. I just played the momentum and never made the mistake of
playing against the long term trend.

Apart from some big stock manipulators, traders who really do well in the market are
long-term positional traders. They are trend followers. I have been fortunate to get
associated with some of them and learn their tactics of trading. What I found after
learning the concept of trend analysis is that trading with the trend can result in big
gains. So, when the market is working as per your anticipation, resist the temptation to
take smaller gains and trade against the trend. Once the stock is behaving as per your
analysis and you are getting decent gains out of it, you should consider adding on minor
swings rather than trading against the trend. Hold your positions until sell signal is given
by moving averages, which we will learn later.

Also note that a trend can be either short term or long term. It depends on our
timeframe, which charts we should see to determine the direction of the trend. Rule of
the thumb is that if our holding timeframe is one year, we should look at the charts of
one year or more to determine the direction of the trend. Before taking any decision, I
generally look at a chart of 9 to 12 months.
 QUICK SUMMARY

1) Look at charts before taking position in any stock; buy only if the stock is in an
uptrend.

2) In an uptrend the overall direction of the price movement is upwards, in a downtrend

the price movement is downwards and in a sideways or no trend, the price movement
remains more or less within a range.

3) Uptrend, downtrend or sideways trend can be of short term, medium term and long
term durations. Look at the charts of 9 to 12 months to get an idea of the immediate
trend.

4) Uptrend-

 Closing Price should be above 50 days SMA

 Slope of 50 days SMA line should be upwards

 Overall price movement should be upwards

5) Downtrend-

 Closing Price should be below 50 days SMA

 Slope of 50 days SMA line should be downwards

 Overall price movement should be downwards

 6) Sideways Trend-

 Overall Price movement will be volatile or sideways

 Price can be below or above 50 days SMA

 There won’t be any specific or clear slope of the 50 days SMA line; it will be flat or
sideways

 Higher highs or higher lows (or Lower highs or lower lows) are not visible

Since trend is the most important thing that a trader or investor must understand in
order to be profitable, I think this is a good time now for you to test your skills. I have
given below some charts. You should look at them and write on a paper whether these
are in:

A) Uptrend

B) Downtrend or

C) Sideways Trend or No trend

Once you have done it, you can move on to the last page of this chapter to check your
answers.

Here are the charts, start writing your answers — to get full benefit of this exercise,
please check the answers only after you have guessed each of these. Remember, you
have to focus on only 3 points to give your answer, which you have already learnt in this
chapter - overall direction of price movement, slope of 50 SMA line and whether price is
below or above 50 SMA… just that!
Q. 1

Source: ChartNexus

Q. 2
Source: ChartNexus

Q. 3

Source: ChartNexus

Q. 4
.

Source: ChartNexus

Q. 5

Source: ChartNexus

Q. 6
Source: ChartNexus

Answers:

1. Downtrend

2. Sideways Trend

3. Downtrend

4. Sideways Trend

5. Uptrend

6. Sideways Trend
9. Beware Of Circuit Stocks & Abrupt Movement
Stocks

 What is a Circuit Stock?

 Why should we avoid it?

 Sample charts of Circuit Stocks

 What is an Abrupt Movement Stock?

 Why should we avoid it?

 Sample charts of Abrupt Movement Stocks

 9. Beware Of Circuit Stocks & Abrupt Movement
Stocks

The main objective of discussing different types of stock movement is to train you to
identify the type of the stock. If you come across any stock or some blog or analyst
recommends you to buy a stock, you can simply check in which category it falls and take
your decision accordingly.

In this chapter you will learn about two types of stocks, which you should avoid
completely:

1. Circuit Stocks, and

2. Abrupt Movement Stocks.

Usually such types of stocks are listed only on BSE (though sometimes they can be listed
on both the exchanges) and they are usually low-volume stocks, so that operators can
easily manipulate their prices. They are often found in T, TS or Z groups of stocks on BSE.
So if you want to avoid such types of stocks, it is advisable to trade in only A group of
stocks, which are somewhat less open to price manipulation. However, volume is the
key; if a stock has low volume, it can be operator-driven. On the other hand, if a stock
has high volume, its chances of being operator-driven are less.

Circuit Stocks

Circuit stocks are those, which move in circuits, whether lower or upper. Every day they
directly open at upper or lower circuit limit, with low volume and lack of liquidity.

As already told, circuit is the maximum limit to which a stock can move up or down on a
particular day and it varies from stock to stock. Circuit limits can be 2%, 5%, 10% or 20%
in case of non-F&O stocks. Circuit limits are set to check the manipulations or one-way
price movement in any stock.

There are clear-cut rules about circuit limits. If a stock with a circuit limit of 20% hits two
consecutive upper circuits, on the third day the circuit limit will be reduced to 10%. If
still the price movement continues in the same direction, it can be further reduced to
5% or 2% depending on the case. For derivative segment stocks, there are no upper or
lower circuit limits. You can check the list of stocks trading in Futures and Options
segment by clicking on the link given below

https://www1.nseindia.com/content/fo/fo_underlyinglist.htm

The question is how to deal with these circuit stocks. First, you should check out their
movement. They hit upper circuits on a continuous basis without any obvious or logical
reason, so no one knows when they will start trading on lower circuits. Mostly these
stocks belong to those companies, which have unfamiliar names and their fundamentals
are mostly very pathetic. So it is best to avoid buying such a stock, especially when the
charts show a significant number of upper circuits and the fundamentals are also not
good.

But if a stock, that you already hold in your portfolio, starts off giving non-stop upper
circuits all of a sudden, you can sit back and relax and keep booking partial profits at
every 40-50% rise, because these upper circuits may be followed by lower circuits and
no one knows when they will start hitting the lower circuits, so it is best to secure your
profits so that in no case you end up giving your profits back to the market.
Below see some sample charts of circuit stocks.

Medinova Dia

Source: ChartNexus

We can clearly see that here the candlesticks are not at all visible and the stock is
opening straight away in upper circuits and after several upper circuits, it starts hitting
lower circuits all of a sudden. You can recognize Circuit Stocks by continuous no-bars
(where open, close, high and low prices are same).
Dynacons Tec

Source: ChartNexus

Dynacons Tec is another example of circuit stocks, as can be seen from the above chart.

SKM Egg Exports Ltd.

Source: chartink.com

SKM Egg Exports also hit continuous upper circuits from October to December 2013.

In fact it is not possible for any stock to hit such large number of upper circuits
continuously without some sort of manipulation. These stocks are low-volume and
operator driven stocks and it is best to avoid them, even if someone asks you to do so
talking about fantastic fundamentals or golden future or sureshot returns or whatever.

As these are operator driven stocks, they can shatter even good fundamentals into
pieces. For example, Shree Hari Chemicals Exports Ltd.

Shree Hari Chemicals Exports Ltd.:

Source: chartink.com

This stock had good fundamentals, low PE compared to industry PE, massive sales
growth, massive profit growth and everything great. Then it started to hit continuous
upper circuits. Greedy investors entered it even at 200 levels, but then it started falling
and came back to 70 levels despite all its fundamentals being intact.

The main reason for such 60% loss of capital was that people made a mistake of
investing in a circuit stock, which was operator driven. So please avoid putting your
money in such stocks in future. Put your money well and safely, as you will learn in this
book.

ABC Gas Ltd.

Source: ChartNexus

ABC Gas Ltd. is hitting non-stop continuous upper circuits, so we may get tempted to
buy it, but we should not forget that unlimited upper circuits are usually followed by
unlimited lower circuits. So stay away from such stocks from now onwards.

Aadhar Ventures
Source: ChartNexus

See here how upper circuits in Aadhar Ventures were followed by lower circuits,
trapping all the retail investors. Many times it started hitting small number of upper
circuits in order to mislead investors, but the overall trend remained negative. As a
result, retail investors lost a lot of money here.

Now after discussing Circuit Stocks at length, we come to the second type of stocks,
which we should avoid. We call them Abrupt Movement Stocks, which are closely
related to circuit stocks.

Abrupt Movement Stocks

Abrupt Movement Stocks appear like this one:

Source: ChartNexus

The chart appears scattered, showing ups and downs; sometimes hitting circuits;
sometimes candles are visible, sometimes they are not.

Such stocks involve high degree of risk and don’t give good returns ever, except to their
operators. So, if you ever come across them, it is best to stay away from them. You
should pick only those stocks, which are worth investing. One in thousand among such
stocks may give fabulous returns, but the chances of your finding such a rare stock are
very less, so the best thing is to avoid getting trapped in such stocks.

Below are given some more examples of stocks with abrupt movement:

Monet Sugar
Source: ChartNexus

Monet sugar is another stock that shows wild and abrupt movements, as can be seen
from the above chart. Volume is also irregular, which is indicated by green bars just
below the price panel. Sometimes there are long bars showing high volume and
sometimes the bars are totally absent, which means that less than 100 shares were
traded throughout the day.

In the next few pages you will see some more stocks, which have shown abrupt or
irregular movement.

Pasupati Finance
Source: ChartNexus

Modern India

Source: ChartNexus
In fact, such stocks are just garbage. Avoid such stocks, no matter what anyone tells you
about them.

Following are some more examples of abrupt movement stocks so that you can get a
clear idea what these stocks are all about.

Gujrat Cotex

Source: ChartNexus

Martin Burn
Source: ChartNexus

GSB Finance

Source: ChartNexus
GSB Finance chart shows abrupt movements. You may also notice that sometimes it hits
upper circuits, attracting retail investors to invest in it. But no matter how attractive
such stocks look, never put your money in them as they are just garbage.

Some more examples of Abrupt Movement Stocks are given below:

Aadi Indus

Source: ChartNexus

Ace software
Source: ChartNexus

Ad Manum Finance

Source: ChartNexus
 QUICK SUMMARY

1. Avoid Circuit Stocks

1) Circuit stocks are those stocks, which hit continuous upper circuits or lower
circuits

2) These stocks are low-volume and operator driven and their main objective is to
trap retail investors

3) Don’t buy such stocks ever

4) If any stock you are already holding starts hitting upper circuits, book profits at
every 40-50% rise; on the other hand if your already purchased stock starts
hitting non-stop lower circuits, exit it as soon as you get a chance to do so.

2. Avoid Abrupt Movement Stocks

 Abrupt movement stocks are those stocks, which don’t show any specific
trend

 Candlesticks are not clearly visible in their charts

 These stocks are not worth investing and involve a high degree of risk

 These stocks are not liquid and such companies usually exist only on paper

 Never get tempted to buy such stocks

10. Support & Resistance are the Magical Keys
to Profit

 What is Support?

 What is Resistance?

 The System of Trading Support and Resistance

 Support and Resistance in an uptrend

 Support and Resistance in a downtrend

 Support becomes Resistance and vice-versa

 Psychology of Support and Resistance

 Trendlines

 How to draw a Trendline

 Valid Trendline Breakouts

 Channels: Bullish, Bearish and Horizontal

 Channel Breakouts

 Reversal Days: Buying & Selling Climax

10. Support & Resistance are the Magical Keys

to Profit

At times you might have seen me or someone else giving you targets or stop loss. In
this chapter you will learn how they do it, because you are just about to learn one of
the most important concepts used by technical analysts: the concept of support and
resistance.

Support:

Oxford Dictionary defines support as something which "bears all or part of the
weight of, hold up." Applying the same definition to our field we can interpret
support as something which holds up the price levels. To be precise, support is that
point on the chart, from which the price stops dropping further and may bounce
back upwards or at least stays there for a while.
Source: ChartNexus

This is the chart of Kwality Ltd. It bounces back every time it comes down to 45
levels, as there is someone who feels that it is good to buy it at 45, so he buys in
large quantity every time it approaches 45, due to which this stock bounces
upwards. And his act of buying can be spotted in the chart as support levels.

Look at the Adani Ports chart in 2013 here. It has formed support at 118 levels. For a
support to be valid, the stock should have reversed at least two times from a
particular point.
Source: ChartNexus

Resistance:

While support is that point from which the price bounces upwards, resistance is that
point from which the stock turns downwards and starts correcting. It is the point,
which stops a stock from moving up further, at least for the time being.

Following chart will help you understand the actual significance of resistance levels:
Source: ChartNexus

In this chart of Kwality, the resistance is at 50-51 levels. Every time the stock touches
this barrier of resistance, it reverses its direction.

I hope you must have understood the concept of resistance. The resistance is
created due to the bulk sell orders by some HNI or some other big player with big
holding, who has placed sell orders at that level and as soon as the price touches it
the order gets activated on the exchange and as it happens to be a big order, buyers
can't absorb such huge quantity, so the price reverses and bounces back downwards.
As long as someone doesn’t absorb all the available quantity at that price level, price
won’t move above that level and it will bounce back downwards from it. And it is not
only HNIs who do it; day-traders or short-sellers also play their role quite
enthusiastically; they know about horizontal resistances, so they are eager to short-
sell at that level, bringing the stock's price down and earning some quick money for
themselves.
 Do you want the magical key to successful trading? Well, here is the master key to
riches: buy near the support and sell near the resistance. Just that! That should be
enough!

Here we will use the same chart of Kwality, which you have seen above.

Source: ChartNexus

Every time Kwality touches 45, it bounces back upwards to 50 levels within a few
days as labelled in the chart with three arrows. If we buy the stock as it touches 45
and sell it at 50, we can get a good 11-12% return in Kwality every time. That’s not
bad for the trading of a few days. In other stocks, this margin of profit between
support and resistance may be even bigger, but in Kwality it is around 12%.

For safety's sake we will buy the stock slightly above the support (by this we ensure
that the stock doesn't give a breakdown), say 1.5% above the support. And for
ensuring our profits we sell it 1.5% below the resistance. Still there is a possibility
that the stock may break down below 45 after our buy, so it’s always a good practice
to place a stop loss slightly below the support levels, in our case the stop loss can be
placed slightly below 45 at 44 or 43.90 levels as you wish (this last figure of 43.90 is a
better stop loss than 44, because in small stocks, traders are very alert about round
numbers. Whenever you want to buy a stock, place an order 10 paise above the
round number, for example, 44.10. On the other hand, when you want to sell a stock
at 44, sell it at 43.90. The difference is only of 10 paise, but it may make a crucial
difference at times. (Due to this psychological factor Bata always prices its shoes or
sandals at Rs. 499 instead of Rs. 500 or Rs. 999 instead of Rs. 1,000.)

This will ensure that even in worst case scenario you don’t end up making loss
through this system. Now calculate your risk-reward ratio here. Our reward is 8-9%,
because we are leaving margins of 1.5% on both the support and the resistance. Our
risk is our stop loss, which is 2% below the support level. So our risk-reward ratio is
1:4, which is good. Always pay attention to risk-reward ratio and look for a ratio of at
least 1:3 or better.

Don't feel bad that you are getting only 12% or 8% profit here, whereas in other
stocks the difference between support and resistance may be higher, say 25%. But
there is a catch. In higher profit margin stocks, you may have to wait for a longer
period to achieve your profit objective. The higher the profit margin, the more time
you should give to the stock for reaching your target.

Also don’t be impatient! Once you buy a stock, give it time and it will surely reach
the target.

Let’s move on to our next example Om Metals & Infra:

Source: ChartNexus

Here we have got our support at 25 and resistance at 33 levels. So we buy it slightly
above 25, say 4% higher at 26 and sell it slightly below 33, say 3% lower at 32 levels,
with stop loss of 4% below the support level at 24 (or still better, at 23.90).

So our profit margin in Om metals will be 24%. Wow! As I said earlier, margin of
profit varies from stock to stock. Profit percentage is calculated as
(Return/Investment) X 100. Here our Return is Rs. 6, that is (32-26). So our profit
percentage would be 6/25 X 100 = 24%.

While trading support and resistance, it is advisable to keep stop losses slightly
under the support levels, so in case a stock breaks down the support level or is
unable to hold the support, you get out of it, as breakdown of support is a bearish
sign.

The system of buying at support and selling at resistance can be summed up in five
points:
1) Buy slightly above the support
2) Keep stop loss slightly below the support
3) Sell below the resistance
4) Be patient once you buy the stock; let it take its time to perform
5) Exit the stock if the support levels are broken on lower side

In above examples we saw flat or horizontal support and resistance levels, where
stocks were in consolidation or moving sideways. Now let's see support and
resistances in uptrends and downtrends.

In an uptrend both the support and resistance keep shifting upwards, while in a
down trend the support and resistance keep shifting downwards as can be seen from
the following figure, which applies support-resistance concept in the form of three
types of channels: ascending (bullish), descending (bearish) and horizontal.

Support and Resistance in an Uptrend:

In the below chart of Bajaj-Auto you can see that here support and resistance are
moving in the form of an ascending channel.

Support and Resistance in a Downtrend:

Below in the chart of Tata Power you can see that support and resistance are in the
form of a descending channel.

We can use support and resistances for choosing ideal entries or exits in case of
uptrends and downtrends.
Trend Confirmation using support and resistance:

If the stock breaks resistance on the upper side, it is a very bullish sign and usually
there is one pullback towards the point of resistance. This pullback is the perfect
point to enter. As can be seen in the following chart of Bajaj Holding:

On the other hand, a stock's breakdown from support levels is a bearish sign and if
your stock breaks its support level, it is better and safer to exit from your longs and
go short.

Here is an example of breakdown in the chart of Jyothy Lab:

Support becomes Resistance and Vice-versa:

At times old support acts as resistance and old resistance works as support.

In this chart of OFSS you can see that the old support has turned out to be resistance
in an ascending channel. The stock tries to break the old-support/new-resistance
three times, but fails and ultimately falls down.
Example of Resistance Becoming New Support:

In the chart of Phoenix given below, you can see that old resistance has become new
support.

Psychology of Support and Resistance:

This concept of support and resistance looks magical. But there is really no magic in
it. I have already told you that charts depict the buying and selling behavior of the
masses. Resistance is created due to the fact that majority of the people believe that
at that particular level the stock is overpriced or the stock doesn't deserve more than
that price, so every time the stock reaches that level, majority of the traders sell the
stock and book profits and short-sellers also contribute by short-selling the stock.
This makes the stock fall from that level and hence resistance is formed on the
charts.

On the other hand, in case of support investors feel a particular point to be an ideal
entry point or the fair value of the stock or a bargain at that level, so every time the
stock reaches that level, investors start buying it and short-sellers promptly cover
their shorts. This takes the price to higher levels and it is seen on the charts in the
form of support levels.
Jesse Lauriston Livermore, one of the most renowned speculators of all time,
explains, “I go long or short as close as I can to the danger point, and if the danger
becomes real I close out and take a small loss.” By this he means that if the stock is
moving in a range of 100-120, he will buy it as near to 100 as he can to reduce the
risk. It also helps in setting stop loss, because if he buys exactly on 100 and if the
stock breaks the support of 100, he will manage to avoid a big loss.

Avoid buying near resistance levels and avoid selling near support levels.

Buying near resistance and selling near support will be the same as buying a wooden
house in the midst of a burning forest.

Think twice before doing it!

“The game taught me the game. And it

did not spare the rod while teaching.”

– Jesse Livermore
 Trend Lines

Trend lines are simple yet powerful tools of technical analysis.

We join successive lows of an uptrending stock (support line, as we mean to go long

here).

On the other hand, we join successive highs of a downtrending stock (resistance line,
as we may choose to short it there).

Following figures show examples of up trendline and down trendline:

Trendlines in Real Life Charts:

Following are some examples of trendlines in real life charts:

 How to Draw a Trendline

All major charting softwares and websites discussed in this book provide an option
to draw trendlines.

In order to draw a trendline, first confirm that there is a trend.

As you already know, trends can be of three types: Uptrend, Downtrend or Sideways
or No trend.

If the stock is in an uptrend (if it is making higher highs, higher lows), draw an up
trendline. To draw an up trendline there must be at least two successive lows on the
charts, with the second low higher than the first one.

If the stock is in a downtrend (if it is making lower highs, lower lows), draw a down
trendline. To draw a down trendline there must be at least two successive highs on
the chart, where the second high must be lower than the first one.

The more times the trendline is tested, the more significant the trend
becomes. Draw a trendline joining as many price points as possible. This measures
how persistent a trend is, where persistence means that market respects that trend
and agrees on its validity.

How to Trade the Trendlines

An up trendline can be used to buy, while a down trendline is ideal for going short.
With an up trendline in place, you can buy the stock each time it comes near the
trendline support and make good profits with the subsequent rise.
Breakouts and breakdowns are possible in trendlines also, as we have seen in our
discussion on Support and Resistance. A breakout of a down trendline is considered
a bullish sign and on breakout, shorts should be covered. On the other hand, a
breakdown of up trendline is a bearish move and it is the ideal point to book our
profits. But first we must ensure that it is a valid trendline breakout and not just a
fake-out or false breakout.

Valid Trendline Breakouts

On a trendline breakout we should not hurry to take position immediately in any

stock. First we have to make sure that it is a valid breakout. We need to check the
price movement of next few days to make sure whether the breakout is genuine or
not. But a breakout, either of up trendline or down trendline, should always be an
alarm bell for us.

Another point worth mentioning here is that we should focus on the closing price of
the day and not on intraday fluctuations. Hence, a breakout or breakdown will be
considered valid only if it happens on closing basis.

Following weekly chart of Nifty shows examples of two false breakdowns in an

uptrend:
 Support as Resistance after Breakout

Once a trendline breaks support levels on the lower side, the support line starts
acting as resistance, which can be observed in the following chart:
The same will also be true for resistance acting as support. A properly drawn
trendline will help us to know both the trend and the volatility of the market, and
will give us early warning of what’s coming next.

Channels

The Channel lines are a variation of trendline. Often we see price of stocks trending
between two trendlines. Once we recognize this channel pattern, we can use it to
our advantage.
As you can see in the above figure, drawing a channel is pretty simple. Once we see
that a stock is in uptrend, we can join the lows made by it and the highs made by it
as shown in the figure, and we should get a channel like this. The same can be done
in case of downtrend or sideways trend.

Let’s have a look at some examples of channels:

The main idea behind channel is that the price fluctuates between upper
(Resistance) and lower (Support) channel lines. Once we recognize it, we can use this
channel pattern to our advantage. As can be seen in the above charts, the channel
can also provide us ideal entry and exit points. We can go long as soon as the price
touches the lower channel and go short when it touches the upper channel.
However, in order to be profitable we should never trade against the trend. By
trading against the trend we mean that in a downtrend we should avoid going long,
while in an uptrend we should generally avoid going short.

Channel Breakouts

The breakout on either side of channel should be taken as a signal for reversal or
change of trend. Breaking above the upper channel line is a bullish sign and we can
add to our long positions. On the other hand, breaking down the lower channel is a
bearish signal as can be seen in the following examples:
In the above example once Dow Jones broke above the upper channel, it turned
bullish and did pretty good later on. In the same way breakdown of a channel is a
weak signal.

But, at this point it is important to note that once a breakout happens, we should not
hurry up to take a position. Ideally we should wait for the pullback. If we are long, it
is a good idea to put stop loss at the next immediate support and wait for next few
moves to confirm that the trend has actually reversed. Also, we should wait for a
clear cut breakout and not just buy a stock in anticipation of breakout. Why buy an
egg before it is hatched? Let someone else hold the stock and wait for it to give a
breakout; you should always buy it after the breakout and preferably when the
pullback shows you that the breakout is valid. This rule holds good for all forms of
breakout trading.

See an example of a channel breakout to get the idea.

 Reversal Days: Buying & Selling Climax

When it comes to technical analysis, at times we find ourselves searching for

something which really works. Something which can really turn it all around! I don't
know how many of you have heard of this principle before, but I can assure you this
is something which is going to work almost all the time. Whenever this pattern
occurs on the charts, the next moves will be exactly the same as we are going to
learn now. So without wasting another second of your precious time let's move
straight away to the concept.

Climax Principle is a very important concept, which helps us in spotting a trend

reversal. This particular chart formation goes by different names like top reversal
day/ down reversal day/ buying climax/ selling climax etc. First of all let's understand
what a reversal day is.

Reversal day usually occurs either at the top or the bottom of the chart.
A top reversal day can be defined as the setting up of a new high in an uptrend,
followed by a lower close on the same day. In simple words, the price moves up
during the day establishing a new high but at the end of the day weakens and closes
below the open price.

A bottom reversal day occurs during a downtrend, when the price moves to a new
low during the day and at the end of the day recovers and closes above the open
price.

Wider the range and heavier the volume on reversal days, greater would be the
significance of trend reversal. The reversal days or buying/selling climax may not be
the final high or low in a trend, but they signal a possible reversal of trend.

Let's have a look at the following chart, which shows bottom reversal or selling
climax.
The main idea behind bottom reversals is that at such lows the selloff starts getting
absorbed by the buying pressure, which gets reflected in the chart. Hence, the trend
reverses and starts moving upwards.

In the chart below, you can see the climax principle clearly. The stock opened gap
down after good downtrend with huge volumes and then the trend reversed from
that day. Reversal day’s low was not violated after that.

On the other hand, top reversal or buying climax occurs in an uptrend as can be seen
in the following chart. The price moved to a new high and yet closed lower than the
opening price depicted by the dark candle. This point is a major signal of trend
reversal.
Another point to put here is that buying and selling climax works only, when we have
a clear trend on the charts. In case of sideways trend, it is better not to draw any
conclusions.

See some more examples of Buying & Selling Climax:

Source: ChartNexus
 QUICK SUMMARY of the Climax Principle

1) In a downtrend, the price should move downwards during the day, establishing a
new low and then close above the open price.

2) In an uptrend, the price should move upwards establishing a new high and then
close lower than the open price.

3) The price movement should be spread over a large area, which means the high or
low established during the day should be at least 7-8% more than the previous high/
low on the charts followed by a close against the trend.

4) Higher the volume on reversal days, more significant will be the results of climax
principle.
 11. Reversal & Continuation Chart Patterns

Reversal Patterns

 Head & Shoulders

 Inverted Head & Shoulders

 Triple Top

 Triple Bottom

 Double Top

 Double Bottom

Continuation Patterns

 Triangles: Symmetrical, Ascending & Descending

 Wedges: Rising Wedges & Falling Wedges

 11. Reversal & Continuation Chart Patterns

According to John J Murphy, "Price Patterns are pictures or formations which appear
on the price charts of stock or commodities, that can be classified into different
categories, and that have predictive value."

This more or less sums up the concept of price patterns found in a chart. Especially
pay attention to the phrase 'predictive value,' which means that one can predict the
future direction by looking at these patterns.

In a previous chapter we have discussed about trend analysis, which explains the
overall direction of the price movement. If price is making higher highs and lower
lows, it shows an uptrend and if it is making lower highs and lower lows it shows
a downtrend. But at times we see sideways price action. In the sideways price
movement it is difficult to decide whether the trend will continue or it will reverse.
Here a technical analyst takes help of price patterns, which have predictive value.
Keep it in mind that nothing works in the stock market all the time or 100%; you just
increase your odds of success by relying on the price patterns.

There can be two types of price patterns:

1. Reversal patterns, and

2. Continuation patterns.

1) Reversal Patterns- Reversal patterns indicate that a major change or shift

in trend is going to take place. If the stock is in an uptrend, reversal patterns suggest
that the stock may start correction soon. On the other hand, if a stock is
in downtrend, the occurrence of reversal patterns would suggest that the stock may
begin an upmove soon. While learning these patterns, our aim will be to spot the
reversal as early as possible.
2) Continuation Patterns- While a stock is in consolidation mode or is moving
sideways, the occurrence of a continuation pattern signals that the stock's ongoing
trend prior to consolidation will continue. Here also our aim is to spot such signals at
the right time to take their full advantage.

Let us first discuss Reversal Patterns.

Head & Shoulders Chart Pattern

The Head & Shoulders chart pattern is probably one of the most popular and reliable
chart patterns used by technical analysts. This is why we will discuss it in detail. This
pattern has been named Head & Shoulders, as it resembles human head and
shoulders.

Over time, people generally act the same way in the stock market as they did in the
past. Reason is that human emotions like fear, greed, hope and ignorance also affect
today's traders in the stock market, as they have affected the traders of previous
ages. This is why these patterns and formations occur on charts again and again.
These chart patterns are nothing but the reflection of human emotional behavior,
which remains the same.

Imagine an uptrend, where the stock is making higher highs and higher lows. Then,
gradually the peaks and troughs begin to lose momentum and price starts moving
sideways. Subsequently, the lower support of the sideways movement is broken and
a new downtrend starts. Let's see how such a situation will look like:
In the above chart, price was moving upwards with higher highs and higher lows and
the overall price trend was up. Then the price began to lose momentum and started
moving sideways for some time and ultimately the support level of this sideways
movement was broken.

Main points to be noticed in the Head & Shoulders pattern:

1) This pattern occurs after an uptrend.

2) The left and right shoulders labelled as S in the above chart are more or less at the
same levels.

3) The Head (H) formed in the middle is higher than both the shoulders.
4) The pattern will be completed when the neck line support is broken towards the
downside.

The following figure will help you understand this pattern even better :

Here notice that once the neckline is broken on lower side, there was a pullback
upwards to the point of breakdown. Though there is no guarantee of pullbacks, yet
sometimes price pulls back to the neckline to retest it. Usually it is advisable that a
trader should book his profits at the right shoulder, but if he couldn't do so due to
his optimistic mindset, the pullback gives him an ideal opportunity to liquidate all his
long positions and go short.

Setting a Price Objective/Target:

The Price objective or target in a Head & Shoulders chart pattern is easy to set. It is
done by measuring the distance from the neckline to the top of the head. Once the
neckline is broken down, price generally retraces equal to this distance. The figure
above may have given you a rough idea about it, but the following figure will explain
the point more clearly:

In the above chart, distance between neckline and head is Rs. 600 (1550-950 = 600).
So, once the neckline is broken down, the price will fall approximately 600 points
from the neckline, which comes out to Rs. 350 (950-600 = 350).

It is important to note here that these are the minimum price objectives; price may
go down even lower after achieving the target of 350. This is why it is usually good to
consider the major support and resistance levels on the charts while arriving at the
price targets. Suppose target is 350, but we have a major support at 360 levels, then
in such a case it would be better to adjust our price target to 370, because the best
technical analysts are those who combine various concepts together and then arrive
at their conclusions.

Here are some more examples of the Head and Shoulders chart pattern:

Head & Shoulders chart pattern is not always horizontal like the above chart.
Sometimes it can be somewhat twisted on one side, as you can observe in the
following chart, where the left shoulder is lower than the right shoulder, but still the
pattern is clearly visible:
 Inverted Head & Shoulders

The Inverted Head & Shoulders chart pattern is just the opposite or the mirror image
of the Head & Shoulders chart pattern discussed above.

A typical Head and Shoulders pattern occurs in an uptrend at the top and signals
bearish move after the neckline is broken.

On the other hand, an inverted Head & Shoulders pattern occurs in a downtrend at
the bottom and signals an upcoming bullish move after the neckline is broken.

Here is how an Inverted Head & Shoulders will look like:

So, the major conditions of an Inverse or Inverted Head & Shoulders pattern are:

1) The stock should be in a downtrend.

2) There should be a formation of inverted head and shoulders, with the shoulders at
more or less at the same levels and the head deeper than both the shoulders.

3) The pattern is completed, once the price breaks out above the neckline support
and signals a bullish upmove.

4) Price target can be arrived at by measuring the depth of head from neckline
support.

Following charts will help you understand this pattern even better:
In this chart all our conditions are fulfilled:

1) The stock is in a downtrend before the appearance of this pattern.

2) The formation of head and shoulders is there with the left and right shoulders at
approximately the same levels.

3) The neckline support was broken and it turned bullish for targets equal to the
depth of the head from the neckline support.
Whenever such pattern occurs, we can go long as soon as the price breaks above the
neckline with targets as labelled in above charts.

Here I would like to give you a fair warning. Granted that it is one of the most
reliable and popular methods of spotting reversals, still it may not work all the time.
Just remain cautious about pullbacks: once the price has crossed the neckline, it
must not break the neckline support again. So it would be a good idea to place your
stop loss slightly below the neckline support, so that in case the pattern doesn't
work according to our expectations, we can get out at the right time.

As John Murphy said, "One of the keys to survival in the financial markets is to keep
trading losses small and to exit a losing trade as quickly as possible. The ability and
willingness to quickly recognize trading errors and to take defensive action
immediately are qualities not to be taken lightly in the financial markets."
Now you must be wondering, how we will screen for stocks forming Head &
Shoulders chart pattern or Inverted Head & Shoulders chart pattern, as it is difficult
to do it manually on thousands of stocks listed in Indian stock exchanges.

Here is the website to screen these chart patterns. Here you can screen several other
chart patterns also besides Head & Shoulders and Inverted Head & Shoulders.

http://www.topstockresearch.com/HeadAndShoulder/HeadAndShoulderChartPatt
ern.html

Triple Bottoms & Triple Tops

Triple tops and bottoms are also major reversal chart patterns. These occur when a
stock bounces back repeatedly from a particular price level after the occurrence of a
major trend. If we compare them with the Head & Shoulders pattern discussed
above, it seems to be just a small variation of the same concept. Let's have a look at
it:

 Triple Bottom

As you can see in the above chart, there are three requirements of the triple bottom
chart pattern:

1) First of all, there should be a downtrend prior to the occurrence of this pattern.

2) The stock bounces upwards from a particular point and then moves in a range for
some time forming three bottoms as can be seen in above chart.

3) Breakout is confirmed when the neckline is crossed by the stock.

If we compare it with the Inverted Head & Shoulders pattern, the only difference we
find is that the head and shoulders are at approximately the same level. Targets are
determined by measuring the depth of the bottoms from the neckline as can be seen
in the following chart.
These are just approximate targets; actual targets can be even higher.

Now let's have a look at triple top, which is also a major reversal signal. However,
while Triple Bottom is a bullish price pattern, Triple Top is just the opposite; it is a
bearish price pattern.
 Triple Top

As you can clearly see in the above figure, triple top chart patterns are just the
opposite of triple bottoms.
The conditions of Triple Top chart pattern are:

1) First of all there should be an uptrend prior to the occurrence of this pattern.

2) The stock bounces downwards from a particular point and then moves in a range
for some time forming three tops as can be seen in the above chart.

3) Breakout is confirmed when the neckline support is broken by the stock.

Targets are determined by measuring the depth of neckline support to the resistance
levels, as can be seen in the above chart.

Another variation of this pattern is Double tops and Double bottoms.

 Double Top

In case of both double top and triple top, there is signal of trend reversal from up to
down as soon as the neckline support is violated. In such a case it is best to liquidate
your long positions and go short as soon as this pattern is confirmed.
 Double Bottom:

Like triple bottom, double bottom pattern also signals trend reversal as soon as the
neckline is broken and once you see it, it would be a good idea to go long here. But
one valid warning: wait for a clear cut breakout before rushing to buy stocks. In
order to make sure that the breakout is clear-cut, following additional criteria can be
used:

1) The breakout above or below the neckline should be done on a closing basis; an
intraday penetration is not enough to confirm the breakout.

2) Two day penetration rule can be used conservatively to confirm the breakout,
which states that price should close above the breakout levels for two consecutive
days.

3) Percentage criteria, which requires a close, which is 3-4% above the breakout
levels.

These criteria mentioned here are not infallible, but they increase the odds of
success in your favor. In order to avoid false signals you can keep fake-out zones in
your charts of say 4%, to stay away from false signals.

Let us look at some more examples of double/triple tops and bottoms:

You must be thinking, Oh, the concept is fine, but how would I search for these
patterns out of thousands of available stocks. So, here is the website that will help
you scan for this chart pattern:

link to topstockresearch website

After going through major reversal patterns, now we will discuss some major
continuation patterns.

Continuation Patterns

In Continuation Patterns price moves sideways for some time and then it continues
the trend which existed before the consolidation. It means that if the price was in a
downtrend before its sideways consolidation, the continuation pattern will lead to
further downward movement. And if the price was in an uptrend before its sideways
consolidation, the continuation pattern will lead to the continuation of the uptrend.

Triangles are the most important continuation patterns.

There are three types of technical triangles: symmetrical triangles, ascending

triangles and descending triangles.

Let's have a look at the following figure to check the price movement in each type of
triangle:
1. Symmetrical Triangles:

Symmetrical Triangles are usually continuation patterns.

In the above figures please note that the price stops its actual trend and then
consolidates in waves for sometime and then continues the old trend after the
breakout or breakdown. During the consolidation the support will be rising and
the resistance will be falling as represented by above charts. The pattern gets
completed, when the price breaks out on either side.

The point where the resistance and support lines meet each other is known as apex.
There is also a time limit which helps us in spotting the breakout. It’s usually
between 2/3rd to 3/4th of the triangle starting from the base, which is marked as
point 1 in above charts. So, suppose the length of the entire triangle comes out to be
15 days then the possible time when the stock will give a breakout is 2/3 of 15= 10
days or 3/4 of 15 = 11 days i.e. around 10-11 days.

Setting Targets:

Target after breakout is set by measuring the widest portion or the base of the
triangle from the point of breakout, as can be seen in the following chart:
Now whenever you spot these triangles on charts, you should be able to guess
what's coming next.

Check out some real life examples of symmetrical triangles:

In the above GPK chart, price is in a downtrend and it finally broke out the
symmetrical triangle to continue the prior downtrend.
The above Cipla chart is another example of bullish symmetrical triangle, in which
price broke upwards and achieved the targets quite comfortably.
This chart of SLV also shows how a symmetrical triangle will look like at the point of
breakout.

To sum up, in case of symmetrical triangles please keep the following points in
mind:

1) A symmetrical triangle is usually a continuation pattern, which means that the

prior trend will continue after the breakout.
2) The support line will be rising upwards and the resistance line will be falling.

3) The point where two lines meet each other is known as apex and the breakout
duration is usually 2/3 to 3/4 the size of the triangle.

4) The target is set by measuring the base of the triangle from the point of breakout,
towards the direction in which breakout has occurred.

Now we will discuss Ascending Triangle chart pattern.

 Ascending Triangle:

In case of an ascending triangle formation, we will see the lower support line to be
rising, while the upper resistance line will be constant or at the same horizontal
level. This pattern is bullish in nature and represents increasing buying power or
pressure. The pattern is completed once the price breaks above the upper resistance
line. The ideal entry point occurs, when the price breaks out above upper resistance
line. As the chart shows there is usually a pull back towards the resistance line after
the breakout has occurred, which offers technical analysts another good entry point.

Targets are set by measuring the base of the triangle from the point of breakout as
labelled in the diagram.

Following are some more examples of Ascending Triangle chart pattern:

As we have discussed, ascending triangles are bullish in nature, but in downtrends
they may give a breakdown to continue the downtrend, as we can see in the above
Gold chart.

Sometimes due to market conditions, ascending triangles may not completely reach
its target, so we have to be cautious.

In the below Axis Bank Weekly chart, we find an ascending triangle after an uptrend.
The chart gives a breakout to continue the uptrend, but due to market conditions it
crashed. The target was about 900, but the stock managed to reach only 825. As we
are saying again and again, nothing works in the market 100% and all the time, so
you should always remain alert and cautious.
So, the major points to remember for Ascending Triangle chart pattern:

1) In an ascending triangle formation, the support line will be rising and resistance
line will be flat or horizontal.

2) The pattern is completed when the price breaks above the resistance line.

3) Targets are established by measuring the width of the base of the triangle from
the point of breakout.

4) After breakout, there can be a pull back again towards the point of breakout,
which is an ideal entry point.

5) Remember that technical analysis deals with probabilities, and in stock market
nothing will work 100% all the time, so it would be good to keep stop loss slightly
below the point of breakout, so that if things don't happen according to our
expectations, we can get out of the stock at the right time.
  Descending Triangle:

In a Descending Triangle formation, we will see the lower support line to be flat or
horizontal, while the upper resistance line will be falling downwards. This pattern is
bearish in nature and represents increasing selling power or pressure.

The pattern is completed once the price breaks below the lower support line. The
ideal entry point for short-selling occurs, when the price breaks out below the lower
support line. As the charts show, there is usually a pull back towards the support
line after the breakdown, which offers technical analysts another good point to short
the stock.

Targets are set by measuring the base of the triangle from the point of breakout as
labelled in the diagram.
Following are some more examples of Descending Triangle chart pattern:
In the above weekly chart of M&M you can see a descending triangle, where the
price broke down and achieved its target quite comfortably.

So, the major points to remember for descending triangle chart pattern:

1) In case of a Descending Triangle formation, the support line will be constant and
resistance line will be falling downwards.

2) The pattern is completed, when the price breaks below the support line.

3) Targets are established by measuring the width of the base of the triangle from
the point of breakout.

4) After breakout there can be a pull back towards the point of breakout, which is an
ideal entry point to go short or exit your long positions.

5) As technical analysis deals with probabilities, and here nothing will work 100% all
the time, so it would be good to keep stop loss slightly below the point of breakout,
so that if things don't happen according to our expectations, we can get out of the
stock at the right time.

Wedges

Wedges are a variation of Technical Triangles. Wedges are more or less similar to
triangles; the only difference is that there is a slight slant either on the upside or
downwards. If the slant is on the upside it is considered a bearish wedge, while if the
slant is on the downside it is considered bullish.
The above figure represents different types of wedges.

1) Falling Wedge- Falling wedges are considered bullish in

both downtrend and uptrend. The formation is more or less the same as descending
triangle, the only difference is that instead of a flat support line, the support line in a
wedge also slides downwards. The pattern is completed once the price breaks above
the upper resistance line.
Following are some examples of falling wedges:
2. Rising Wedge- While a falling wedge formation is considered bullish, a rising
wedge is a bearish one.

A Rising Wedge can occur in both uptrend and downtrend. It resembles Ascending
Triangle pattern; the only difference is that the upper resistance line is not flat or
horizontal, but its slope is slightly upwards. The pattern gets completed once the
price breaks down from the lower support line.

Following are some examples of the Rising Wedge formation:

The figure below will help you further distinguish between falling and rising wedge:

QUICK SUMMARY

1) Wedges are variations of triangle breakout patterns.

2) Wedges are of two types: i) Rising Wedge ii) Falling Wedge

3) Wedges can occur either in an uptrend or in a downtrend.

4) A Rising Wedge is considered bearish, while a Falling Wedge is considered bullish.

5) The pattern gets completed after breakout; downwards in case of rising wedge
and upwards in case of falling wedge.

6) So we can go long after breakout in case of a falling wedge and short after
breakdown in case of a rising wedge, with a stop loss slightly above/below the point
of breakout.
“I’ve always felt that smart people learn from
their mistakes but really smart people learn
from other people’s mistakes.”

– Mark Minervini
 12. Buy & Sell Signals

 Buy & Sell Signals of Moving Averages

 Types of Moving Averages

 Double Crossover Method

 Triple Crossover Method

 Buy & Sell Signals of RSI

 Tops & Bottoms

 Centreline Crossover

 Divergence warning about trend change

 Confirming RSI Signals by Candlesticks

 Confirming RSI Signals by Volume

 12. Buy & Sell signals

Now we come to the last chapter of this section, which can well be the most
important chapter for you as a trader: Buy & Sell signals.

Trading is all about buying right and selling right. However, you must keep in mind
that though several people claim to do so and brag about their predictive power, but
nobody, just about nobody, can sell at the perfect top or buy at the perfect bottom
consistently. However, you can improve your buying and selling points by studying
several technical indicators. There are several buying and selling strategies, like
breakout strategy (which we have discussed in our chapter on support and
resistance and also in the previous chapter on triangles and wedges). Here we will
discuss the two most popular buy/sell signals: Moving Averages and RSI (momentum
oscillator).

Buy & Sell Signals of Moving Averages

Moving Average is one of the most popular and widely used technical indicators.
Simply said, moving or running average is the average of price movements during a
certain time period, plotted on the graph.

There are several types of moving averages: Simple Moving Average (SMA),
Exponential Moving Average (EMA) and Weighted Moving Average (WMA).

SMA is the easiest to calculate. If we want to calculate 20 days' Simple Moving

Average (SMA), we will have to just add the closing prices of the last 20 days and
divide the sum by 20. For example, if the sum of last 20 days' closing prices is 1000,
the SMA would be 50 (1000/20 = 50).
The term 'moving' is used, because only the latest 20 days are used for the purpose
of calculation. The moving average is essentially a trend following device and works
well in trending markets (on the other hand RSI is a momentum oscillator and works
particularly well in sideways or trendless market).

A moving average shows the trend. It signals whether the prevailing trend will
continue or a new trend has started. SMA and EMA are the two most commonly
used moving averages in stock market. SMA assigns equal weight to all time units,
whereas EMA assigns more weight to recent price movements. We need not get into
the details regarding how EMA is calculated, as both SMA and EMA already exist in
your ChartNexus software. We will now just discuss how to use them to generate
buy and sell signals:

1) Double Crossover Method: - This is by far the most popular strategy to

generate buy and sell signals. In Double Crossover method, two moving averages
(MA) are plotted on a chart; one of shorter duration (say 9) and another of longer
duration (say 31). A buy signal is generated, whenever the shorter MA crosses
the longer MA from below. This crossover is also called Bullish cross. Likewise, a
sell signal is generated, whenever the shorter MA crosses the longer MA from the
above to below. This crossover is also called Bearish cross.

When a shorter MA crosses longer duration MA from below to above, it is also

called Golden cross (however, this term is mostly used for 15MA/50MA crossover
or 50MA/200MA crossover).

When a short duration MA crosses longer duration MA from above to below, it is

called Death cross (this term is mostly used for 50 MA/200MA crossover).

Interesting thing is that different traders use different Moving Averages to

 generate buy & signals. Most popularly used combinations are 5 and 20 days MA
10 and 50 days MA or 20 or 50 days MA. As a rule of thumb, if you are a very
short term trader, use shorter averages. On the other hand, if you are a long term
trader, use longer averages.

Some traders use SMA, some use EMA. It doesn't much matter which you are
using, because in both the cases the objective of this Double Crossover strategy is
fulfilled: to get an idea of trend continuation or trend shift/reversal.

You can plot Moving Averages on ChartNexus software or our favorite charting
site chartink.com.

Search for your stock and turn on desired Moving Average from the given options
and click update chart.
Observe the above Nifty chart. Here check out the sell signal generated by 10-20
days moving average. When we got this sell signal, the trend reversed and Nifty
cracked big.

Now we will check one more chart to give you a clear idea of how to get buy and sell
signals in a single stock. For this purpose, we are taking the chart of Reliance
Industries.
Here observe where we have written 'SELL,' just before that the Moving Averages
gave false signal or whipsaw movement. This usually happens when a trend is about
to reverse. So when you get erratic or whipsaw movements from Moving Averages,
treat it as a potential warning about the possibility of trend reversal.

After the SELL signal, the stock behaves nicely and the Double Crossover Method
also gives a BUY signal, which was very reliable.

Always keep this one thing in mind, don't expect Moving Averages to indicate exact
top or bottom. Moving Averages are basically lagging indicators, but for this very
reason they are safer and less prone to give false signals. In the above Reliance chart,
you get BUY signal after 8 days of the exact bottom.

If you want to be more adventurous and get the BUY signal more quickly, you should
use Shorter Term Moving Averages, but here the risk is that you will get more false
signals. We are just giving you an example here of the same Reliance Industries
chart, which you have seen above. Here we have taken 5 day Moving Average (short
duration) and 10 day Moving Average (long duration). And as you can see, we here
get this BUY signal early; exactly 4 days after the exact bottom.
Look at some more examples of Moving Average Crossover:

Hourly chart given below shows both buy and sell signals generated using Double
Crossover Method (20MA/50MA) on the same chart.
I prefer using 20 and 50 days SMA for this purpose. Buy as soon as 20 Day SMA
moves above 50 Day SMA and sell as soon as it falls below it. You can use both
simple and exponential moving average for this purpose.

2) Triple Crossover Method: - The most popular triple crossover method is

the 4-9-18 MA method, which was first discussed by R.C. Allen in his book "How
To Build A Fortune in Commodities".

Here the 4 day MA follows the price most closely, followed by 9 MA and 18 MA. A
buy signal is generated in a downtrend, when the 4 MA moves above 9 & 18, and
the signal is confirmed when the 9 MA moves above 18. This indicates that short
term trend is up, because the all the three moving averages are in proper bullish
alignment: 4 above 9 and 9 above 18.
 In the same manner, a sell signal is generated, when the 4 MA moves below 9 MA
and the signal is confirmed when 9 MA moves below 18 MA. This indicates that
short term trend is down, because all the three moving averages are in proper
bearish alignment: 4 below 9 and 9 below 18.

Another variation of the 4-9-18 method is 10-20-50 method which can be seen from
the following figure.

That's all we need to know about moving averages, let's summarize what we have
learnt so far
 1) Use options given on chartink.com to turn on moving averages in a chart

2) In case of double crossover method, two averages are used: one short-term and
the other longer-term. Buy when the short-term moving average moves above the
longer term moving average. Sell when the short-term moving average moves below
the longer term moving average.

3) Most popular combinations in case of Double Crossover are: 5-10, 10-20, 20-50

4) In case of Triple Crossover, three averages are used, either 4-9-18 or 5-10-20. In
the case of 5-10-20, a buy signal is generated when the short term MA (5) moves
above the other averages and it is confirmed when the medium term MA (10) moves
above the long term MA (20). The averages have to be in proper alignment 5 at the
top, 10 below it and 20 at the bottom. And of course, the stock price has to be above
all the averages.

5) For sell signal in case of Triple Crossover, this order gets reversed.

Buy & Sell Signals of RSI

As already told, RSI or Relative Strength Index works particularly well in sideways market
and is supposed to be a leading indicator in terms of trend reversal. A key difference to
remember is that as far as trend reversal is concerned, RSI is a leading indicator,
whereas the Moving Averages are by default lagging indicators.

RSI is different from Moving Averages in another respect. Moving Averages can travel
along with the price right to bottom or top, but the movement of RSI is restricted from 0
to 100 only.
RSI is a momentum oscillator, which is measured on a scale of 0 to 100. On this scale,
high and low levels are marked at 70 and 30, which respectively show overbought and
oversold levels.

The default period for RSI is 14 day in a daily chart.

Momentum indicator indicates buying or selling strength or power. In simple language,

if buying pressure is more, the indicator will rise. If buying pressure weakens, the
indicator will fall.

RSI Tops and Bottoms

Tops and bottoms are indicated when the RSI goes above 70 or below 30. According to
Wilder, who is the inventor of RSI, 'The Index will usually top out or bottom out before
the actual market top or bottom, giving an indication that a reversal or at least a
significant reaction is imminent.'

RSI gives an indication of overbought and oversold conditions, so the simplest thing in
the world would be to BUY a stock, when the RSI reverses from 30 levels and SELL it
when the RSI reverses from 70 levels. Simple as clockwork! It mostly works like that in
sideways market; however in a trending market this particular strategy doesn't work so
perfectly.

A problem with this strategy is that RSI sometimes doesn't travel straight to the
opposite line, but at times it reverses in the mid-field to touch the same line again.
 Centreline Crossover

If RSI line crosses the centreline (50 level) from below to up, it means that the average
gains are exceeding the average losses now. It signals a bullish momentum shift and
therefore it is considered to be a good BUY signal.

On the other hand, if RSI line crosses the centreline from above to the downside, it
means that the average losses are exceeding the average gains. It signals a bearish
momentum shift and therefore it is considered to be a good SELL signal.

RSI centreline of 50 is considered to be a support and resistance in itself.

When RSI rallies above 50, it is considered a bullish confirmation; when it falls below 50,
it is seen as a bearish confirmation.

Bullish & Bearish RSI Divergence

Divergence means non-confirmation. As Wilder puts it, 'Divergence between price

action and the RSI is a very strong indicator of a market turning point. Divergence occurs
when the RSI is increasing and the price movement is either flat or decreasing.
Conversely, divergence occurs when the RSI is decreasing and price movement is either
flat or increasing.' Divergence means that price is moving in one way, while the RSI is
moving another way.
As you can observe in the above picture,

 Bearish divergence occurs, when price makes higher high and RSI
makes lower high.

 Bullish divergence occurs, when price makes lower low and RSI makes
higher low. This is a sign that the strength and momentum of the falling
price movement is decreasing - at least temporarily - and thus
increasing the likelihood of an interim price upturn.

Bullish Divergence Made at the bottom, made Price makes new lows, RSI
in bearish trend, bullish makes higher lows
signal

Bearish Divergence Made at the top, made in Price makes new highs, RSI
bullish trend, bearish signal makes lower highs
RSI divergence is a signal that RSI has reached overbought/oversold levels and it is also a
signal that the momentum is changing and the current trend is weakening. Usually a
stock gives two or more divergences before actually reversing its direction, so you
shouldn't impulsively trade on the first divergence signal itself.

Divergence is one of the most powerful signals of RSI. RSI alerts traders about the
possibility of trend reversal or at least retracement. As Paul Dean observes, 'Divergences
act like little spies alerting you to events before they happen so that you will have an
edge.'

Confirm the Validity of RSI signals by Candlesticks

RSI signals should not be independently traded. We need to confirm these signals by
candlesticks or volume.

Candlestick patterns or a single candle can also confirm trend reversals.

The following are the most common trend reversal signals found in a candlestick chart:

 Morning Star (bullish) and Evening Star (bearish)

 Abandoned Baby

 Doji Star

 Spinning Top

 Hammer

 Bullish Engulfing and Bearish Engulfing

 If you find them soon after the divergence signal, probably the divergence is
valid.

Confirm the Validity of RSI signals by Volume

Volume shift may also confirm the RSI divergence. In the downtrend, price falls on high
volume. But after divergence, the volume dries up, as now the price movement is
against the trend, for the time being. If the volume dries up, it is a signal that traders
are cautious and not entering the new trend, but waiting for confirmation.
If the volume picks up and you observe higher volume on those candles which are in
the direction of the new trend, it confirms the validity of the divergence.

QUICK SUMMARY

Buy/Sell Signals of Moving Averages

1) Use options given on chartink.com to turn on Moving Averages in a chart.

2) In case of Double Crossover method, two averages are used: one of short period
and the other of longer period. Buy when the short term MA moves above the
longer term MA and Sell when the short term MA moves below the longer term MA.

3) Most popular combinations in case of Double Crossover are 5-10, 10-20 and 20-
50.

4) In case of Triple Crossover, three averages are used, for example 4-9-18 or 5-10-
20. In the case of 5-10-20, a buy signal is generated when the short term MA (5)
moves above the other averages and it is confirmed when the medium term MA (10)
moves above the long term MA (20). The averages have to be in proper alignment: 5
at the top, 10 below it and 20 at the bottom. And price above all the averages.

5) For sell signal in Triple Crossover Method, the order of the moving averages gets
reversed.

Buy/Sell Signals of RSI

1. RSI works well in a sideways market, but not so well in a trending market.

2. RSI divergence is a good predictor of trend reversals, but usually 2-3 divergences
are needed before a long-term trend actually reverses.
3. In sideways market, BUY when RSI reverses from 30 levels and SELL when RSI
reverses from 70 levels. For short-term traders, centreline crossover also gives
good BUY and SELL signals.

4. RSI signals should not be traded independently; they should be confirmed by

candlesticks or volume or both.
 SECTION 4

INTRADAY TRADING STRATEGIES

 Strategy 1: Open=High/Low

 Strategy 2: Top Gainers & Losers

 Strategy 3: 45 Degree Intraday Strategy

 Strategy 4: Sectoral Intraday Trading Strategy

 Confirming Intraday Buy/Sell Signals

 Nifty/Bank Nifty Futures BTST Trading Strategy

 BTST in Individual Stocks

 13. INTRADAY TRADING STRATEGIES

As we have discussed before, intraday trading means buying and selling shares on the
same day in order to profit from intraday moves. In this chapter we will learn some of
the most popular trading strategies that are used by the successful day traders. First of
all we will learn how to screen stocks to buy or sell in intraday and later on we will learn
about setting target / stoplosses.

Short sell means selling a share before buying, for this you need not
worry about how it happens. Simply add the stock you want to shortsell
in watchlist, place intraday sell order and if it goes down from your sell
price you will make gains. In order to close the position you will buy the
share again before market closing.

STRATEGY 1- OPEN=HIGH/LOW

OPEN = HIGH means SHORT SELL

OPEN = LOW means BUY

This strategy is very simple. If the open price of the stock is also the high of the day we
should sell it and if the open price is also the low of the day, we should buy it for
intraday trading. Now, the question is how we will find the stocks, where opening price
= high of the day or opening price = low of the day.

For this you will

 i. Go to https://www1.nseindia.com/ website

ii. Click on Live Market

iii. Click on Equity Stock

iv. Out of Nifty stocks you will find out those stocks, in which open
and high are same (for selling) or open and low are same (for
buying)

In the above image you can see that Tata Steel and Cipla both are shorting candidates,
because in both of them opening price is also the high of the day: open = high. As you
can see Cipla's opening price of 652.95 is also its day high; later during the day it made a
low of 635.5. Similarly, Tata Steel's opening price of 337 was also its day high; later
during the day it fell 327.35.
You need to check this screen around 10 a.m. every trading day to find out suitable
stocks for buying or selling for the day. Of course, you can check it at 9.30 also, but for
the sake of caution let us do it at 10 a.m.

STRATEGY 2- TOP GAINERS & LOSERS

This is another important intraday trading strategy that is used by professional traders.
In this you take long position in top gainers of the day and take short or sell position in
the top losers of the day.

1. Go to https://www1.nseindia.com/ website at 10 a.m. in morning

2. Click on Live Market

3. Under live analysis you will find top ten gainers/ losers. Click on it
Click on losers to see top losers of the day

4. This strategy simply says buy any one out of the top 3 gainers of the
day and sell any one out of the 3 top losers of the day.

5. So, as per above example the buy candidates for the day are- Eicher
Motors, Adani Ports and Bharti Airtel. Sell candidates are JSW Steel, Tata Steel and
IndusInd Bank.
Let’s have a look at the intraday charts of our buy and sell candidates for the day

BUY CANDIDATE 1- EICHER MOTORS

You can check the above chart. If you have taken buy position in Eicher Motors at
10 am based on our top gainers strategy you would have made good intraday
profits as the stock moved from 18580 and closed at high of the day near 19136
BUY CANDIDATE 2- ADANI PORTS

Moved from 357.5 at 10 am to 366 during the day

BUY CANDIDATE 3- BHARTI AIRTEL

Moved from 367.5 at 10 am to 383 + during the day giving good intraday gains.

Now let's have a look how our sell candidates performed during the day.

Our sell candidates were JSW Steel, Tata Steel and IndusInd Bank.
SELL CANDIDATE 1- JSW STEEL

Stock fell from 193 to 191 and closed near day’s low
SELL CANDIDATE 2- TATA STEEL

It went from 332 to 329, closed near day's low.

SELL CANDIDATE 3- INDUSIND BANK

It fell from around 490 to 487.5 till the end of the day

As you can see, our strategy worked perfectly during the day. However, it is
important to note that no strategy in the world will work all the time or have
100% hit rate. That’s why its important to use target, stoploss properly in our
trades. The strategies stated above have high probability of success, but they too
 can fail at times, as market movements depends on hundreds of news flows and
price actions. After placing the trade, keep target stoploss in system in advance
and book gains or exit a position at the right time. We will learn that later on. Not
let us have a look at our 3rd intraday trading strategy.

STRATEGY 3- 45 DEGREE INTRADAY STRATEGY

This is a very simple and good strategy for intraday trading. In this you check charts of all
the stock in Nifty 50 at 10 a.m. and buy those, whose chart is pointing 45 degree
upwards and sell the ones which are in downtrend and are pointing 45 degree
downwards. Below is an example of how 45 degree angle looks like

Here are the steps you will follow to implement this 45 degree strategy
1. Go to https://www1.nseindia.com/ website at 10 a.m. in morning

2. Click on Live Market

3. In Live market, click on equity stock

4. In View selection should be Nifty 50 from drop down

5. You need to see third column against the stock name, showing Today’s chart and
find out charts which are pointing 45 degree upwards or 45 degree downwards.
For your reference, below is an image of how a 45 degree angle chart looks like.

6. Buy the stocks whose chart is pointing 45 degree upwards and sell the stocks
which are pointing 45 degree downwards since market opening.
In above you can see IndusInd Bank, Bajaj Finance, Bajaj Finserve, Axis Bank, Zee Limited
are examples of 45 degree up charts. So, these are our buy candidates for the day.

Similarly Reliance, Bajaj Auto, Bharti Airtel, M&M, Coal India, NTPC, ITC, Powergrid and
Adani Ports are some examples of 45 degree downwards sloping chart patterns. These
are our sell candidates.

STRATEGY 4- SECTORAL INTRADAY TRADING STRATEGY

This is another profitable intraday trading strategy, where you buy the strongest shares
of the strongest sector and sell weakest shares of the weakest sector for intraday
profits. Follow the below points to implement this strategy

1. Go to https://www1.nseindia.com/ around 10 am in morning

2. Live market—Click on index

3. Out of the sectoral indices, find out the ones which are down or up more than
1%

4. Like in above example in sector indices- Nifty Auto, Nifty IT, Nifty Media, Nifty
Realty are down more than 1% and Nifty PSU Bank index is up more than 1%.

5. Now click on these indices to know the components of these indices.

6. Take buy position in top 3 gainers in the rising index and take sell position in the
top 3 losers of the wining index.
7. For example- In Nifty Auto Index, Balkrisind, TVS Motor and Tata Motors are our
top 3 selling candidates.
 Similarly in Nifty PSU Bank Index, you can take buy position in MahaBank, J&K Bank
and Canara Bank.

Hope the strategy is clear.

CONFIRMING INTRADAY BUY/SELL SIGNALS USING 16 EMA-

The buy/sell signals generated using above strategies can be confirmed using 16 ema
strategy. For that please follow the below steps.

1. Go to https://www.investing.com/indices/s-p-cnx-Nifty website at
10 a.m. in morning

2. Scroll down and click on technical chart

3. Make the chart full screen with this button

4. Click here and turn on candlestick chart

5. Click on indicator tab and search moving average exponential

6. Click on it so that it gets applied to your chart.

7. Investing.com shows 9 EMA by default, but for our strategy we need 16

EMA, so you will double click the EMA line and update length to 16 from 9
and press OK.
 8. 16 EMA gives very good intraday buy and sell signals. From the Search Box,
you can search any stock in which you want buy or sell confirmation.

If your chart is showing 9 EMA also with 16 EMA, double click on that again and select
16 in that also, so that the 9 EMA line will disappear.
9. Make sure you are using 5 minutes chart. Click on 5 icon next to search box to get
5 minutes chart.

10. Now if the last closing candle is below 16 EMA line, that is a confirmation of sell
signal and if the last closing candle is above 16 EMA line, that is a confirmation of
buy signal.

Let’s suppose you get a buy signal with open= low strategy. Now you can additionally
use 16 EMA for confirmation.

- You will go ahead with the buy trade, if the last closing candle is above 16 EMA
line
 - You will skip the trade, if the last closing candle is below 16 EMA line.

See the example below-

In Tata Consumer the last candle when we see our chart is below 16 EMA, so,

1) If there is a buy signal using the intraday strategies we discussed earlier, we

will skip the trade

2) If there is a sell signal we will go ahead with the trade

EXAMPLE 2-

In this stock last candle when we see our chart is above 16 EMA, so,

1) If there is a buy signal using the intraday strategies we discussed earlier, we will
do that trade.

2) If there is a sell signal, we will skip the trade.

CONFIRMING INTRADAY BUY/SELL SIGNALS USING MARKET SETUP

When Nifty and global markets are positive, the chances of a stock's going up are high.
Same way when Nifty and global markets are red, chances of a stock's going low
increases. To use this correlation of stocks and markets in our favor, It’s a good idea to
take buy trades only on the day when Nifty and global market are positive and take sell
trades only when Nifty and global markets are negative.

To Check Global Markets

 Download Moneycontrol app from Playstore or Appstore

 On Home Page scroll rightwards and click on global indices

 If most of the global markets and Indian markets are green, prefer a buy trade.
If they are red, prefer a sell trade.

 Remember you will see both red and green colours among the indices, but you
need to find out what is the overall picture of global markets: green or red

 If markets are mixed, focus on Nifty only; if Nifty is in green zone, take long
trades; if Nifty is in red zone, take sell trades.

 Like, in below example 6 markets are red and 7 are green, in this we will
consider overall market as positive and take buy trades, because Nifty is green.
 TARGET & STOPLOSS IN INTRADAY

Any fixed level of target or stoploss can’t work for all stocks, so below are the few
strategies to work out on stoplosses-

1. Percentage Method

2. Support/Resistance Method

3. High-Low Method

1. Percentage Method

In this method you set a fixed amount of percentage as stop loss, with which you are
OK, if trade doesn’t go your way. For example, you can keep a fixed stoploss; say 1%,
1.25% or 1.5% or 1.75% from your entry levels.

2. Support/Resistance Method

In this method you will keep stoploss at the support or resistance levels of the chart. If it
is a buy trade, you will keep the stoploss at support level; if it is a sell trade, you will
keep stoploss at the resistance level. If the support or resistance levels are too far, for
example 3-4%, you can skip the trade. Try not to keep stoploss of more than 2% in
intraday trades.

3. High-Low Method

In this method stoploss is kept at day’s high for sell trades or day’s low for buy trades.
As you all know, in market anything can happen at any time. So, stoploss is the key to
survival in intraday trading. As soon as you take a trade, put target stoploss in the
system so that you can exit your trade at the right time. Remember, you will never be
100% or 90% accurate in intraday trading, so don't try it. If you can get an accuracy of
80% or even 70%, it would be considered very good. Just make sure that your gains are
more than your losses and you are in net gains on overall basis.

After a buy signal is generated you can keep stoploss, based on your chosen strategy
and target would be 1 to 1.5 times of the stoploss. Make sure your stoploss doesn’t
cross 1.5-2% limit. In intraday trading, targets can be anywhere between 1 to 2%. Also
trading on excessive margins should be avoided. Suppose if you are trading on 20 times
margin, even a stoploss of 1% would eat 20% of your capital. So, don’t take more than 2-
3 times limit in intraday. Different stoploss and target strategies work well for different
traders, so you can initially learn the proper strategy via paper trading or on virtual
trading platforms, which we discussed earlier and find out what works best for you
before putting actual money in it. Another option is that you can start working out on
the strategies discussed above with a small trading capital like 5k or 10k, just to sharpen
and fully develop your trading style.

NIFTY/ BANK NIFTY FUTURES & BTST TRADING STRATEGY

The Nifty 50 is a benchmark Indian stock market index that represents the weighted
average of 50 of the largest Indian companies listed on the National Stock Exchange. It is
one of the two main stock indices of India, the other being the BSE Sensex. Bank Nifty
on the other hand represents the 12 most liquid and large capitalized stocks from the
banking sector, which trade on the National Stock Exchange (NSE). It provides investors
and market intermediaries a benchmark that captures the capital market performance
of the Indian banking sector.
Bank Nifty and Nifty futures derive their values from Nifty and Bank Nifty Index. To put it
simply, if Nifty goes up Nifty future will also go up and if Nifty goes down Nifty future
will also go down. Likewise, if Bank Nifty goes up, Bank Nifty Future will also go up and if
Bank Nifty goes down Bank Nifty Future will also go down. So, if you think that Nifty will
rise, you may take a buy position in Nifty futures and if you think that Nifty will fall, you
may take a sell position in Nifty futures.

NIFTY/ BANK NIFTY FUTURE BTST STRATEGY

3) Open Nifty/Bank Nifty futures chart at 3:15 p.m.

https://www.investing.com/indices/india-50-futures-streaming-chart

4) If the CMP or current market price is above the previous day’s low, you may take
a buy trade for the next day.

5) If CMP is below the previous day’s low, you may take a sell trade.
6) For example, as you can see on 23rd when we checked the chart at 3:15 pm, Nifty
future was trading at 11138.75 which is higher than previous days, that is 22nd’s
low of 11042. So we will take a Buy trade in BTST (Buy Today, Sell Tomorrow).

7) In the above example, if Nifty future was trading below previous day’s low of
11042, we would have taken a sell trade for next day.
 TARGET/ STOPLOSS STRATEGY

The main idea of doing BTST is to get advantage from overnight price movement, which
happens in the form of gap up or gap down. So, next day you will follow the following
strategy for profit booking/ exiting

1) If position opens in your favour or if you are in gain, exit immediately and book
gains

2) If position opens in loss or if you are in loss, keep a stoploss of 40 pts in Nifty
Future from opening price and 100 pts in Bank Nifty Future and wait, if your
position comes in profits or you will exit the trade.

Trading in Futures is risky and sometimes overnight news can cause big gap ups or gap
downs, so it is prudent to trade in small quantity only, when someone risks overnight
trades in futures segment. Overnight positions should be avoided when some major
event is scheduled after market hours, for example budget, press conference of Prime
Minister, Finance Minister, weather department, RBI policy etc.

CONFIRMING BTST BUY/SELL SIGNALS USING MARKET SETUP

When the global markets are positive, chances of Nifty's going up are high. Likewise,
when the global markets are red, there is a high probability that Nifty will also go down.
To use this correlation of Nifty and global market in our favour, It’s a good idea to take
buy trades only on the day when global market are positive and take sell trades only
when global markets are negative.

For checking global markets:

1. Download Moneycontrol app from Playstore or Appstore

2. On Home Page scroll rightwards and click on global indices

3. If most of the global markets are green, prefer a buy trade. If most of them are
red, prefer a sell trade

4. Remember you will see both red and green colour among the indices but you
need to find out what is the overall picture of global markets: green or red

5. If markets are mixed, i.e., half of them are green and half are red, you can skip
BTST trading that day.

6. In the example given below, 6 markets are red and 7 are green. It is a close call,
yet we have taken buy trades here, because our own index Nifty is in green.
 BTST IN INDIVIDUAL STOCKS

BTST in individual stocks, especially small and mid-caps, can yield good results. Idea
behind BTST is to make profit from overnight moves in the stock. For taking BTST trades
in individual stocks, we will follow this simple strategy

1. Check top gainers of NSE stocks at 3:15 pm

https://money.rediff.com/gainers/nse

2. Ignore stocks that are in upper circuit, as we can’t buy them

3. Out of the remaining Top Gainers, focus on the first 5 stocks

4. Check the daily charts of the stocks on https://chartink.com/. If the stock is

in an uptrend or neutral trend on daily chart, you can take it as BTST; avoid
BTST in those stocks that are in downtrend or move in circuits.

5. Check the example given below

In the above example - Gokaldas Exports and Onward Tech are already at 20% circuit. It
means that there are only buyers in these stocks and no sellers, so we will ignore these
and focus on next 5 top gainers of the day which are-

1) Lokesh Machines

2) Agrotech Foods Ltd.

3) Mphasis Ltd.

4) Ramky Infra

5) Indo Count Inds

After we got top 5 stocks we will check daily charts of each one of these on chartink.com
or any other website. We will primarily check their trend; whether they are in uptrend,
no trend or downtrend.

As we can see in the above chart, the stock was in an uptrend previously and at present
it is consolidating around 22- 29 levels, so it is in an uptrend or no trend. Thus, we can
take BTST in this stock.
Our next stock ATFL is in a clear uptrend. So it is good for our BTST trade.
MPhasis is also in an uptrend, so it is good for BTST trade.
Ramky infra is in no trend, so we can take BTST trade in it.
BTST trades can be taken in ICIL also, as it is in an uptrend.

TARGET/ STOPLOSS STRATEGY

Main idea behind BTST is to gain from overnight price movement which happens in the
form of gap up or gap down. So, next day you will follow the following strategy for
profit booking/ exiting:

1) If position opens in your favour or if you are in profit, exit immediately and book
gains.

2) If position opens in loss, keep a stoploss of 2% below the open price, target
would be 2-3% above your purchase price.
BTST trades are risky and sometimes overnight news can cause big gap ups or gap
downs, so its prudent to do it in small quantity only. Overnight positions should be
avoided when some major event is scheduled after market hours, for example budget,
press conference of Prime Minister, Finance Minister, weather department, RBI policy
etc.
Section 5: TRADING PSYCHOLOGY

Become A Smart Trader

 14. Trading Psychology

Now you guys have understood the various aspects of Valuation analysis, Fundamental
analysis and Technical analysis, besides day trading, BTST and Index as well as Stock
trading.

Now there is only one thing left for you to master, and it is perhaps the most difficult of
them all:

Trading psychology!

"Individuals who cannot master their

emotions are ill-suited to profit from the
investment process." -Benjamin Graham

Trading psychology is very important, because you as a trader have to make quick
decisions in the heat of the moment, when your money is on the line and there is greed
or panic in the air.

This is why if you wish to succeed as a trader, you should understand and follow various
rules and regulations.
 First learn then earn, Always keep it in mind that when you begin trading, you
are not going to make money for the first few months, as you will be making silly
mistakes. Nothing wrong in it; it is a part of learning process and every trader has
to go through the same learning curve. So, initially start trading a very small
amount or practice paper trading on sites like Moneybhai or Dalal Street Market
Challenge. If you are able to make money consistently for one year or at least 3
to 4 months by paper trading or with your initial small amount, only then plan to
increase your capital or put a larger amount in the markets. Remember, low
capital is not an issue, as returns are calculated in percentage. So try to make
your initial investment of Rs. 10,000 profitable and check your ROI, Return on
Investment. If you get consistent returns in your first year, then only you should
try to increase your trading capital. If one year seems too long to you, at least do
it for 3-4 months to check if you are able to make gains.

 At times you will come across random people claiming that they have some
magic solution, some great strategy, inside news, astrological powers blah blah!
But always remember, no magical solution works in the market. Only thing that
can work is discipline and technical and fundamental analysis, which you have
learnt in this book. Don’t fall for these scams. The so-called auto buy-sell
softwares signals and all that stuff don’t work. Even if they work a few times, in
the end you will lose for sure using those systems. Successful trading is a process
and markets are not static, but dynamic, so no single style, approach or strategy
can provide you superior results for long.

 Most Important thing! Promise to yourself that you are in this market for long
term and you won't quit like 90% of the traders do. Promise yourself that you will
be a trader even 25-30 years from now. If you keep that in mind, you won’t be in
 a hurry to become the fastest millionaire and go for risky trades and risk your
hard earned money for some quick bucks at the cost of your long term survival in
the market.

 Focus on learning. Knowledge is an endless process, so read good books, blogs

and articles to enhance your knowledge. Listen to everyone and follow the
sources told in this book to get good stock ideas, but don’t trust any source
blindly. Do your own analysis, as companies do due diligence before buying
anything. Buy only and only if you are fully satisfied. Remember, you shouldn't be
in a hurry, because these sources will be updated daily and you will get new stock
ideas every day.

 You don’t need to trade every day to make money. Now you have the knowledge,
but still you should choose your trading time-frame: short term, medium term or
long term. Focus on doing that only. Avoid trading just for the sake of trading.
Place a trade only when you are comfortable about the position getting in your
favor. If you can’t find a good stock to enter, just sit back and relax. Don’t trade.
Take some rest and begin your hunt for the great business again. If you have
some personal work on that day during market hours, due to which you may not
be able to track your open positions, you should avoid trading that day.

 You are not going to make money every day, you will have negative days as well
as positive days while trading, so be prepared for it. Keep realistic expectations
from the market. Don’t aim to double up your capital every month, as it is a
sureshot recipe of financial disaster.
  Be careful with tip providers- free or paid. There is nothing bad in taking help
from anyone’s research, but before putting your real money watch the tips for
few days or do paper trading for few days to analyze whether the tip provider or
researcher is genuine or not. Same holds true for analyst on TV channels, self-
proclaimed analysts, gurus, trainers etc. Exit all unnecessary stock market-related
groups or channels or apps (like WhatsApp, Facebook, Telegram etc.). Keep
yourself in a few good quality groups only. Never ever give your account to
anyone for handling. Trade in your account yourself. If you don’t have time to
trade regularly, better stick to investment only or follow strategies like BTST (Buy
Today Sell Tomorrow).

 Never trade on borrowed capital, never ever do that.

 Maintain a trading journal to keep a record of all your trades. At the end of the
day look for patterns in your losses/ profits and try to take necessary action to
increase the number of profitable trades and decrease the number of loss-
making trades. Following are some columns that you can maintain in your trading
journal:

1. Date and time

2. Stock you bought or sold

3. Quantity and Price

4. Risk - How much of trading portfolio you invested in the trade

5. Reason for taking the trade? (Important column)

6. Your Target

7. Your Stoploss

8. Result of the trade- What actually happened and why it happened?

9. Your profit/ loss

10. If I made money - did I make more than expected? Why did it exceed my
expectation - because of my skills or some good luck event? If I made lesser
than expected then why - is it my incompetence or an uncontrollable market
event?

11. If I lost - how much of my portfolio did I lose?

12. Lessons (most important) - What did I learn from this trade? I believe that
every trade teaches you something new.

 Use limit orders while buying your stocks. Buy at only good price or don’t buy at
all. Remember there is always another good stock. However, in case you spot a
really good stock, you can consider buying in parts like buy a part at present price
and wait for dips to buy more at your preferred price. But don’t buy all at once at
high or inflated price. Limit orders also help in reducing the ask-bid spread in case
of low-volume stocks, where sellers and buyers are few. However, in cases where
your stock is at perfect entry point or you wish to exit the position in a hurry you
can use market orders.

 Before entering a trade, try to analyze it by using different tools, strategies and
 knowledge at your disposal. Before entering a stock, try to get as many factors in
your favor as possible.

 Alexander Elder in his awesome book Trading for a Living has put down three
goals of traders: Goal 1- Long term survival, Goal 2- Steady Growth of Capital,
Goal 3- High Profits. However, the irony is that majority of traders just focus on
Goal no. 3; they don’t even know that the first two goals exist.

 No strategy will be sure shot or work all the time. There are no guarantees or
warranties in stock market. It is rather a game of probabilities or odds, so always
try to know what you would do, if and when a trade goes against you. Ideally you
should write your trade setup on paper for easy reference.

 Professionals usually trade in the latter half of the day, just one or two hours
before market close; so watch out carefully. What matters most is that how
professional trade and what they think.

 Avoiding losses is much more important than making profits. If you don’t follow
rules, one bad trade can take away the gains of several good trades.

 If a stock suddenly breaks down after a long term uptrend with a gap down or 10-
15% crash, it usually suggests that the uptrend is over and it is time to get out of
the stock. Such fall may or may not be the result of any news or event.
 For investment, buy only those stocks that are in uptrend and sell them when the
trend changes. Consider trading as a business and treat yourself like a
businessman.

 Check out how a stock reacts on news, such as good results. Is it getting sold at
higher levels? After falling down, has it recovered from lower levels? It will give
you a brief idea of its strength.

 At times you will see stocks of an entire industry going up like sugar, chemicals
etc. At such times choose the best stock from that industry and don’t forget to
diversify in the stocks of other industries as well.

 Stocks which fall least during weak market will perform best during bull markets.

 Moving Average will be the best tool for entries and profit booking. Go through
that chapter of this book once again. This can be your single most important and
simplest tool in technical analysis.

 Before getting into a position, set maximum downside loss or risk you are ready
to take. Say to yourself: if the stock goes 5%, 10% or wherever the stop loss is
there, I will exit the position. Or keep a maximum loss per trade. Say to yourself:
if I lose more than Rs. 1,000 in any stock, I will exit the position. Remember here
 1,000 or 5% 10% are used only as examples; your levels will vary depending on
your capital and strategy.

 The easiest way to prevent big losses is to exit the losing position, when the
losses are small. My trading results went form average to awesome, once I drew
a line on what is the maximum loss I am willing to take per trade and exited all
those which hit that Lakshman Rekha. I ride the winners and cut the losses
quickly.

“I know this will sound like a cliche, but the single

most important reason that people lose money in
financial markets is that they don't cut their losses
short. It is a curiosity of human nature that no
matter how many books talk about this rule, and no
matter how many experts offer this advice, people
still keep making the same mistake.”

—Victor Sperandeo

 When asked about the elements of successful trading, the famous trader Ed
 Seykota said, “The elements of good trading are: (1) cutting losses, (2) cutting
losses, and (3) cutting losses. If you can follow these three rules, you may have a
chance.”

 Enter your investments in parts; don’t buy huge quantity all at once. Keep your
entry small. If the stock moves in your expected direction, buy more and keep
adding at proper dips and intervals. If the trade doesn’t go in your favour or
according to your plans, don’t hesitate or delay in booking losses.

 For stop losses use Market orders. If the stock hits that Lakshman Rekha, don’t
look for bargains any more. Don't think of averaging or catching a falling knife.
Exit, Exit, Exit… immediately.

 If your stop loss is getting hit too often, recheck your exit criteria and try to trade
with a smaller amount. During trend-reversals or weak markets, even good
trades may go against your desired direction. You can also consider taking break
for few days or try paper trading on such days.

 Diversify your capital into several trades. Don’t put all your eggs in one basket or
all your money in a single trade. Your stop loss should never be more than 10%
away from your entry. If you are going for short term trading, don’t put more
than 5-7% of your capital (your total money in your trading account) in a single
trade. Choose 5-6 good companies and hold them for decent periods. In
uptrends, buy and hold strategy works very well.
 Don’t over-diversify and keep hundreds of stocks in your portfolio. You will never
achieve super-performance with this strategy. Most stalwarts keep maximum 4-6
stocks in their portfolio. Concentrate on the very best stocks and stay invested
until the trend remains bullish.

 Sometimes you enter a stock and it blasts immediately, giving you a quick 25-30%
profit. In such cases it is usually a good idea to book partial gains in that stock.

 A successful trader:

 Comes prepared to trade.

 Spends time on learning and takes trades only when he is confident.

 Is detached from the results. He focuses on making best trades; money comes
later.

 Is willing to accept loss. He understands that stock market does not offer any
guarantee, but is a game of probabilities or odds. One need not be right every
time to be successful here.

 Takes controlled risk. He doesn’t put all his capital in a single trade.

 Understands and follows the rules set by others, who have already excelled in
this field.

 Is comfortable with uncertainty. He knows that markets are uncertain and

anything can happen any time and is prepared for it.
 Takes the long term view of the market. Knows that he is in the market for a
longer horizon.

 Has an attitude of positivity and optimism.

 Is disciplined.

 When you are doing short term trading or trading in derivatives, never
forget to protect your gains. Once you make decent gains, shift to profit
protection mode. Use trailing stop losses or shift stop losses to cost. Never
allow a winning position to become a losing position. Today’s profits will
be part of tomorrow’s principal. Also, don’t set your stops too tight; allow
your stock to go through its natural swings and consolidation. But protect
your gains. Many traders keep two targets; they book half profit on first
target and then shift their stoploss to cost, so even if stock comes down
from there they won’t make loss. If you are trading a single lot or small
quantity, booking all at first target will be a good decision.

 For positional traders, closing price matters most. Sometimes the stock
may give wild swings in intraday, but positional traders should wait and
watch the price till market close before taking a decision.

 Market will often have corrections, pullbacks and panic; be prepared for
them.
 Never run after a stock. Wait till it offers you a good bargain for the price
you are paying. You should wait for a pullback consolidation.

 You can’t control the market where it is going, what it is doing or what it
will do in future. So, forget predictions and theories about what may
happen in future. See what market is telling you by price, chart and
volume. Don't expect the market to follow you; instead you should follow
the market movements. Always follow your rules.

 Don’t put pre-market order or aftermarket order. Wait till market opens.
Check price movements and then only place your order. Remember, if the
market opens higher, it has a tendency to go towards yesterday's low to
fill the gap. And also remember that in the first hour usually retailers are
most active, while the professionals are most active in the last hour of the
day to determine the closing price.

 If you make big loss or profit, take a break for few days and then get back
to market.

 When some major life events are near, avoid trading big. Like marriage in
the family, death of a close one etc. Take some break during such period
and then get back once you are comfortable.
 If you are planning to enter a stock and in morning it opens with a gap up
of say 5-6% then don’t jump in to buy with rest of the crowd. Wait and see
the price action, buy only if the price sustains at the higher levels after
opening i.e. near its day’s high. If the gap is really big and the stock keeps
on going higher and higher, then don’t run after it; let it go. If the gap is a
small one like 2-3%, then you may consider the entry.

 Stocks in uptrend are more likely to go up than the ones in downtrend and
approaching support levels.

 Bull markets end with a big upside move, while bear markets end with a
big downside on the lower side. This usually coincides with some major
event such as budget, election results etc.

 You must be willing to exit, when the stock hits your stop loss. Taking a
loss doesn’t mean that you are a loser. If you are not willing to book
losses, when they are small, then you will eventually end up losing really
big. Losses are not failures. They are market feedback. Learning from such
feedbacks will take you ahead and help you learn more and more.

 When volatility and momentum become insane, avoid short term trading.
In such market environment, consider lightening up your investment
positions.
 Suppose you are in a stock that is in uptrend and you are looking for
liquidly and planning to sell due to reasons other than technical or
fundamental. In such a case, sell a part of your position only. Don’t exit
your winning stock entirely, because these stocks in uptrend often
generate massive gains for their investors and become multibaggers.

 Learning to trade successfully takes time. Marty Schwartz, author of The

Pit Bull, revealed that it was 10 years before he become consistently
profitable in his trading. So there is hope for everyone. Don’t rush to enjoy
the process of becoming a successful trader instead. According to Malcolm
Gladwell, it takes the committed focus of 10,000 hours in any field to
achieve expertise. So, be patient and trust the process; you will be
successful. Market will be there forever; it is not going to run anywhere.

 Never let any bad trade wipe away your entire capital and profits. If you
follow your stop losses and be quick in exiting bad trades, you can always
get back again.

 When you are making good gains, don’t forget to withdraw capital from
your account and invest or use it for other purposes. Don’t go on
increasing and increasing your trading account endlessly. This is especially
useful in case of windfall gains and margin profits.

 For investing always prefer stocks with least upside resistance and the
 ones trading at 52 week highs or all-time highs. These stocks are always
the favorites of institutions and professions, as they don’t have any pent-
up or overhead supply on the upside.

 Follow just technical and fundamental knowledge; don’t let your emotions
interfere in stock selection. According to Mark Douglas, author of
awesome trading books Trading in the Zone & The Disciplined Trader,
“95% of the trading errors you are likely to make will stem from your
attitudes about being wrong, losing money, missing out, and leaving
money on the table - the four trading fears.”

 Don’t buy a stock when its price is dropping very fast, even if you like its
fundamentals. You must look at stability in the price before taking a
position. I believe charts are the most unemotional way to view a stock’s
behavior and potential.

 Never trade by taking huge margins from your broker. The sure shot path
towards financial disaster is to trade a position that is too large for your
portfolio. When you trade too big, you are creating big swings of profit and
losses, which in turn create big swings of your emotions as well. Don’t take
a leverage of more than 2 to 3 times your capital.

 Invest in stocks that are already rising and take some risk that it may start
to decline than investing in stocks that are in downtrend and hoping for
them to turn around.
 As told in the beginning of this book, trading is a skill like any other
performance skill, be it sports, music, chess, cooking or acting—and with
practice you can improve at it. Trading appears harder than other fields
because of the involvement of money and emotions attached to it. Also
there are no college teams or practice leagues for development. It
becomes more difficult, as we have to compete with the pros from the
beginning itself. If we fail to train and practice, we won’t be able to survive
such a stiff competition for long.

 Never average down losing positions. Paul Tudor Jones once said, “Losers
average losers.” Don’t be a loser.

 Successful traders don’t marry stocks; they only date them. So hold stocks
as long as they are profitable. If charts or other indicators are giving you a
sell signal, simply exit and move on to new picks.

 Don’t exit a winning position early. Your winning positions have to cover
all your costs plus losses made from bad positions as well.

 Don't trade on the basis of wishful thinking. Instead, trade on the basis of
charts and fundamental analysis. Different traders face this familiar
situation, when they expect the market to go up, but instead market
behaves otherwise and starts falling. What will you do? Initially you will try
 to find some excuses for it. You may give lot of reasons behind it. Later on
if market continues to fall and doesn't go up, you will find yourself baffled.
When your emotions are in turmoil, your thinking and reasoning centers
would stop functioning properly. You may take it as a personal attack on
your ego and will try to do anything to win (or not lose), e.g. averaging the
position, buying more and more in order to cover the losses. Such
situations can tear you apart both financially and emotionally, so it is
always advisable to understand the rules and follow them. Follow charts,
not what others are saying or what you think.

 Understand that there is nothing wrong in making a mistake or choosing a

bad trade. Problem starts when you continue to stay wrong i.e. keep
holding a losing position or keep averaging down.

 Set realistic expectations from stock market. Don’t dream to be an

overnight millionaire here.

 Abraham Lincoln has said, 'If I had six hours to cut down a tree, I would
spend the first four Sharpening the Saw.' You should also Sharpen Your
Saw i.e. learn to trade profitably.

 No matter where you exit a trade, you are going to feel bad. If the trade is
a winner, you may think if you had held it longer, you would have got
more profit out if it, while if it’s a loser you may think it would have been
better to exit, when you were in small profits. Or if it goes up after your
 exit, you may think if you had held it longer, you would have exited in
gains. Such feelings are natural and these will be there, but don’t allow
them to cloud your brain and affect your thinking process. Enter and exit
only on the basis of your strategies and signals and after making an exit,
don’t monitor that stock any more, otherwise you might feel bad about
your decision.

 Lord Keynes has said, 'When the facts change, Change!' So when the
underlying technical reasons or the fundamental reasons change, on the
basis of which you entered a trade, you should also change your position,
i.e. reduce/exit. Don’t just hope or pray for the things to work out.

“The key element that finally put me into the

winner’s column was the realization that risk
control was absolutely essential to successful
trading. I decided that I would never again allow
myself to lose everything on a single trade—no
matter how convinced I was of my market
view.” – Jack Schwager

 It is always possible to find reasons for being long, short, or just sit and
watch at any time. Suppose, a stock is rising continuously. In this situation,
 we can think three things to take decision: 1) It has moved too much, so I
should sell 2) It is moving up continuously, so I should buy and hold for
profits 3) It has already moved, let’s wait for some dips to buy. Did you
notice something here? Charts are same, fundamentals are same, but just
because of our thinking pattern we can do anything and have a logical
reason to back our all three decisions. But remember, this is just another
example of wishful thinking based trading without even realizing that we
are doing it. In reality we should just follow the trend; nothing else. If
there is no signal of reversal on charts, we shouldn’t impose our wishful
thinking on our trading decisions. This is the reason why many pros say we
are trading against ourselves, not the markets and our real opponent is we
ourselves.

“You have to be willing to sit there day after

day, week after week, without having any huge
successes right away. Don’t ever get
discouraged, because every big trader out there
has had challenging moments”. - Linda Raschke

 Don’t trade on the basis of tall claims of inside news or rumours. Market
reacts in its own way, which may not be foreseeable. On good results, a
stock may move up, down or remain unchanged, so don’t speculate on the
basis of news or rumours. Speculation should be done on basis of charts
and probabilities that are in your favor.
 Don’t try to look for reasons for fall or rise of markets; they don’t exist. No
matter where market goes, TV analysts and experts will come out with
reasons for it, but remember they may be able to do so, only after it has
happened.

 You shouldn’t be in the market all the time. Depending on the situation
you can sit 100% on cash, waiting for the perfect opportunity to make
money.

 Keep some amount as emergency fund in your portfolio and don't use it in
normal time. It should be kept only for emergency and extraordinary
market conditions.

 You should have discipline and you should develop your strategy, rules and
tactics. Otherwise you will fall into the emotional pitfalls of the market. In
such case you will jump from one stock to another, hold a losing position
too long and cut out a winner too soon due to the fear of losing the profit.

 Statements made by management on TV shows should be ignored, as

most of the time the management cleverly paints a rosy picture in front of
the investors.
  Many people sell their profitable stocks too early and keep holding losing
stocks in hopes that these will also turn green soon. But most of the time it
is observed that profitable stocks keep going higher and the losers keep
going lower and lower. So, winners should be held and losers should be
sold.

 The main idea of your trading should be “Heads, I win; tails I don’t lose
much!”

 Before entering a trade, decide whether it is a trade or investment. You

should never convert a trade into a long term investment.

 Buy after doing homework and keep on monitoring; don’t buy and forget.

“You have to learn the rules of the game.

And then you have to play better than anyone
else.” – Albert Einstein

 Buy only the best stocks, only at the right time. Here is what Mark
Weinstein has to say on it: "I also don’t lose much on my trades, because I
wait for the exact right moment. Most people will not wait for the
 environment to tip itself off. They will walk into the forest when it is still
dark, while I wait until it gets light. Although the cheetah is the fastest
animal in the world and can catch any animal on the plains, it will wait
until it is absolutely sure it can catch its prey. It may hide in the bush for a
week, waiting for just the right moment. It will wait for a baby antelope,
and not just any baby antelope, but preferably one that is also sick or
lame. Only then, when there is no chance it can lose its prey, does it
attack. That, to me, is the epitome of professional trading."

 The big secret to making money in stock market is to cut down the number
of trades you make. Buy only those stocks in which everything is in your
favor i.e. fundamentals, technicals and the market trend as a whole. My
best trades were the ones in which all these factors were in my favor.

 Decide your rules, strategies, entry points and exit points in advance.
Write them down for easy reference. Sun Tzu's words are right on the
mark here, "Plan for what is difficult while it is easy, do what is great while
it is still small. The most difficult things in the world must be done while
they are still easy, the greatest things in the world must be done while
they are still small."

 Four principles that will make you successful in trading are

1. Trade only with the trend, i.e. buy stocks that are in uptrend and sell those
that are in downtrend.
2. Cut losses short and follow stop losses. Set the maximum amount you will
lose in any trade.

3. Let profits run. Don’t hurry to book uptrending stocks too early.

4. Manage risk. If you have positions going against you, simply get out. If they
are going as per your estimate, hold them.

 Maintain positivity using visualization- In the end visualize your successful

trades to experience the same sense of calmness you had, when you
booked the gains or when you were seeing the greenery in your portfolio.
Replay your successful trades in your mind to achieve a winning mindset.
Do it every morning and evening.

 Each successful traders or investor has his own way of trading and
investment, you can’t just copy anyone’s way or strategies and achieve
same success as them. If that was the case there would be several copies
of stalwarts investors like Warren Buffett, Rakesh Jhunjhunwala etc. but
there are none. So, you now have the ways, strategies, rules and tools
required to trade and invest successfully your job is to work on these and
find out which strategy or which method works best for you and proceed
with it.
 https://t.me/mwglobal

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“If you want to be successful, then you need to

engross yourself in the business and do your
research. I have probably done over ten thousand
hours of research, constantly studying charts, price
action, and just thinking about different approach.”

– Linda Rashcke
 Thanks for reading!

Please add a short review on Amazon and let me know what you think
about the book!
 About the Author

Abhishek Ninaniya, Founder & CEO of Multiplier Wealth, is a well-known stock market
analyst and commentator. He is registered as an Investment Advisor with The Securities
and Exchange Board of India (SEBI) (Registration No. INA100008452 ). He has covered
Indian markets for over a decade and is well-regarded for his skills in technical &
fundamental analysis.

Prior to founding multiplierwealth.com, Abhishek had been an active trader & investor
himself. Abhishek holds MBA (Finance & Marketing), M.Com. and PGDIBO. He pursued
his graduation from prestigious Shri Ram College of Commerce, New Delhi. Thanks to his
admiration for John J. Murphy, Phillip Fisher & Marty Schwartz, Abhishek has over the
years become proficient in charting and investment analysis. He is also known for
consistently identifying early stage investment opportunities.

He started multiplierwealth.com with a goal of creating wealth for the retail and HNI
category investors by giving out institutional quality research & recommendations at a
very reasonable price.

One of the key reasons to start multiplierwealth.com was to get away from the crowd,
keep noise at bay and focus on generating consistent returns over long period of time.

You can get in touch with him on [email protected].

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Dr. Sudhir Dixit is a renowned translator, who has translated more than 200
international bestsellers in Hindi, including J.K. Rowling's Harry Potter series, Rhonda
Byrne's The Secret series, Robert Kiyosaki's books including Rich Dad Poor Dad, Dale
Carnegie, Norman Vincent Peale etc. He has also written more than 20 popular books
including the Kindle Bestsellers 'Dear Traders, There is Magic in RSI' and 'How to See a
Breakout Before It Really Happens'. He is currently translating Peter Lynch book, 'One
Up on Wall Street.'

E-mail [email protected]