What are candlestick patterns and how to use them to trade stocks? - part 4 This is the last part of the series and we will be learning today the applications of candlestick patterns using the T.A.E. framework as used by the exceptional trader Rayner Teo.  What is the T.A.E. framework? The T.A.E. framework includes 3 aspects: The trend: First of all, it is important to know how the market is moving, which can be tracked by 200MA (a usual standard). 200MA is nothing but a 200 days moving average of the price of the particular stock. It is very easy to understand with the help of moving average whether there is an uptrend or a downtrend. If the price is above the 200 days moving average, you will have a long bias. A long bias means that you aim to purchase the stock in expectation of prices to rise and sell at the higher price. In similar fashion, if the price is below 200 days moving average, then you will have a short bias i.e. you will be selling the stock prior with the expectat...

What are candlestick patterns and how to use them to trade stocks? - part 3  In the previous part we talked about combining candlesticks to understand the market better, to identify whether the buyer is in control or the seller is in control. We also discussed about taking into consideration different time frames for candlesticks, so as to get a clear picture of the trend and predict the future price movement. Let's talk about few other important candlestick patterns. Dragonfly and Gravestone Doji: If you observe the above candlestick, you will see that it lacks the body and only has the wick. Even though the opening price and closing price for the session is the same, the market is not indecisive. Taking into consideration the Dragonfly Doji, it represents a sign of strength by the buyers. The reason being the sellers were in control and reduced the price but the buyers came back in and again influenced the price, now equivalent to the opening price. This is an indication of rejec...

What are candlestick patterns and how to use them to trade stocks? In the previous post we learned about how to read candle stick. A candlestick will show you who is in control of the market, the buyer or the sellers. What you need to do is look at the body and the wick and the body relative to the wick. Now, I am gonna discuss about candlestick timeframes: Candlestick time frames: In the above picture you will see a lot of green and red bars. Each bar represents the movement of stock price in a particular time frame. The time frame can be one hour or one day, depending on which timeframe chart you see. Suppose you are seeing a 60 min candlestick chart, it means, one bar will give you information about the opening price at the start of that hour, the highest or lowest price of that hour and the closing price at the end of the hour. However, when you see these charts, many times it doesn't make sense as to what is happening in the market and therefore, you might need ...

What are candlestick patterns and how to use them to trade stocks? Candlestick pattern, in simple words, is a method of technical analysis wherein the candlestick chart shows the stock price movement in the form of a graph and this pattern can be used to predict the future price movement in stocks. Now, this series is going to be for all the beginner traders as well and therefore, I will be starting off from the very basics. There are 4 main parts to see in a candlestick: Open: This is the price at which the trading session opens. High: This is the highest price that the stock touches during the session. Low: This is the lowest price that the stock touches in the session. Close: This is the price that the stock reaches when the trading session ends. Note: Session can change depending on the graph you are seeing, it can be an hour or a day etc. You will usually find two colours in candlestick: Green: A green bar is called a bullish bar and represents that the pr...

What should be your thinking process when analyzing companies? This blog is not meant to give you a list of ratios, which you can use in order to analyze the performance of different companies. The purpose here is to help you think in unconventional ways and make your own ratios. You can have different ratios applied to different industries and even different segments of the same company. Let's take for example, the transport industry. Companies like CJ Darcl Logistics Ltd. have businesses of shipping your goods from one city to another and from one state to another. These companies work like ancillary companies , the reason being they give support to all other physical product based companies to deliver their products to where their customers exist. They usually use trucks to deliver a lot of products. Now, the question is how can I analyze the performance of this company. For, the transport industry I can use the ratio, revenue earned per 1,000 km, or profit earned per 1...

How can numbers be deceptive when analyzing 2 stocks for investment? Most of the analysts commit this mistake that I am gonna be telling you about. There is one question that the analsyts forget to ask before giving one company an upper-hand over the other. See for yourself, whether you commit the same mistake or a question arises in your mind? So here it goes. Let us say there are stocks of 2 companies, A and B. Both have been operating under a duopoly, there is a strong competion between the two companies and more often than not, both the companies have close to 50% customers in the entire market segment. Seems like both are quite similar , right? I am giving you the below numbers(imaginary) , see if you can now decide which company is better in terms of less risk for your money and more ability to raise funds and acquire the customers of the other company. Company A - Assets: Land - 55,000 , Machinery - 40,000 , Current Assets - 15,000         ...

What is the liquidity drawback in a debt scheme? Well, as people say you learn from experiences, it turns out, you do. I was a lover of debt schemes that used to give constant returns of 9-11% on your investments. By debt schemes, I mean investing in debt mutual funds. But soon after Franklin debt schemes closure happened, I just realized I was not allowed to withdraw or invest any more in their fund. Amidst the worsening economic situation, a lot of investors started to pull out there money and it put huge financial stress on Franklin. There were many debt schemes that were stopped and these schemes had an asset under management of close to 31,000 crores. My money was stuck and so was other investor's money. I am grateful to my mentors that I know the importance of diversification and this didn't impact me much. But where do you think I went wrong or why did the company fail to repay the money back to investors, when demanded? This is where I went wrong and I...

How can budgeting make you grow your money and help become financially free? A lot of time I come across people who have big cars, apartments in big cities, luxury watches and all of the stuff which you might think can be afforded by only someone who earns at least a couple of hundred thousand dollars a month. But the sad reality is that they have taken debt for such things and fallen into the vicious debt cycle. Because in today's world you can get debt for anything. This debt not only takes away your sanity and peace of mind, but it also sucks away all your earning because eventually, you are paying off more money in form of interest for something which is not worth that much. This problem arises mainly due to not budgeting all your expenses and incomes and not being aware of where your money went. Today, I just want you to take away from this blog how you can manage your money in a well-designed manner and can achieve financial freedom in a matter of a few years. ...

What is passive income? Passive income is that source of income that comes in your bank account even if you have little or no involvement in the source of that income stream i.e. you might be chilling with your family or friends at a hill station and your bank account would still keep getting credited each and every day without you being actively involved in the setup from where the income arrives. Passive income is a way to make your money work for you or your one-time efforts give you a sustainable income for a long period of time. You need to start building these sources as soon as you can. This is a sure-shot way to create a side hustle and quit the 9 to 5 race before 40.  What are the sources of passive income? Hardcover books and Ebooks: With some efforts put in initially you can create great content for a certain audience by putting it in an e-book or hardcover book. With Amazon KDP, publishing your books is just a click away. One can earn for a long time from ...

What is the importance of diversification in investment strategy? Imagine you have 50 eggs in a basket. You plan to organise an outdoor house-warming party with your friends. You have decided to make egg cutlet for the starters. Now you are carrying all the eggs together in a basket to the backyard but guess what? You stumble upon a small rock and the basket falls from your hand. Definitely a bad day! Most of the eggs will be spoilt in this case. If you would have instead kept the eggs in different trays and brought them 1 by 1 there is a better chance of more eggs to be fine. The saying "don't keep all your eggs in one basket" holds true in the field of finance as well. The whole collection of eggs in finance is termed as a portfolio and the individual trays are called the asset classes. Portfolio: A portfolio represents the total of all the different investments you hold. For eg. if you have 5 lakhs at disposal for you and you choose to keep 1 lakh in a gol...

Is it worth investing small amounts in mutual funds like Rs. 5000 per month? A majority of young professionals who start their career with humble earnings usually spend all their money on living (rent) and food costs. They usually use the phrase " I am broke" at the end of the month. A major reason for the same is that they spend a lot on maintaining an out of reach lifestyle and think that they don't have lots of money to invest it. Well, that is where the fault lies. One needs to understand that the earlier you start investing the better it is gonna make your future financially free and that even small amounts like Rs.5000 per month will return you crores in the future.( keep in mind this assumption involves you investing the same Rs5000 even after years when you would have more disposable income and can invest even more than Rs.5000) If you take the CAGR(Compounded annual growth rate) of Sensex, you will observe that the index has increased a modest 13% ...

What is the data collection bias in valuation? Whenever we have to invest in a company or for that matter a debenture or a bond, our first step will always be to value the company's stock (if it is a listed company) or the business as a whole (unlisted company) or the bond's current and future value for making the right investment decision. If you see a company is undervalued, one will try to buy its stocks. On the other hand, if the value of the stock is overvalued, one will not see that as a good investment opportunity because of the chances of you losing your money due to consolidation of the stocks price is very high. Now, the question is from where does this bias creep into the valuation process. Well, I have divided the answer into 4 parts for ease of understanding. Outliers: When you are analyzing say for example a new e-commerce company, then you may want to refer to other companies for comparison of their PE Ratios. However, your comparison can be deeply a...

What profession is pursued by the 10 richest people in the world? 1. Jeff Bezos: Jeff Bezos has a net worth of an astounding $131 billion. He is the founder and CEO of the e-commerce company Amazon (founded in 1994). He also owns The Washington Post and Blue Origin. Amazon made a net profit of $10 billion last year. His stake in Amazon is 16%. 2. Bill Gates: Bill Gates  has a net worth of $96.5 billion. He founded Microsoft with Paul Allen in 1975. He is also the Chair of Bill and Melinda Gates Foundation, the world's largest private charitable foundation. As of today, his stake in Microsoft is only 1%. He has donated $35.8 billion worth of Microsoft stock to the Gates Foundation. 3. Warren Buffett: Warren Buffett  has a net worth of $82.5 billion. He is one of the most successful investors of all time. He runs the Berkshire Hathaway, which owns more than 60 companies, including Geico, Duracell, and Dairy Queen. He bought a stock at age 11 and filed taxes at the age...

What are cryptocurrencies and what will be the effect of active trading of cryptocurrencies in India? The mode of retail payments in the world is changing at a very fast pace, and here is a new innovative mechanism which has come into limelight these days. The new innovative mechanism is cryptocurrency. What are cryptocurrencies? Let us first understand what are digital currencies. Digital currencies are the currencies which are in the global a financial system (mobile wallet like PayTm, Freecharge, etc.) and not held in physical form. Cryptocurrencies are just a part of these digital currencies, which are based on certain algorithms. A cryptocurrency is a fully digital currency, which is not issued by the government and there is no government intervention. It is designed to work as a real currency. It is designed to work as a real currency. It is a currency that has no intervention from the banks or any other financial institution unlike in the case of other money. ...