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Lesson Posted on 01 Feb Tuition/BCom Tuition/Stock and Commodity Markets Financial Planning/Stock Market Investment Financial Planning/Stock Market Trading +1 Financial Planning/Investment Planning less

Financial Derivatives

Arun Kumar S

I am having an experience of 19 Years in various industries including Education. Professional Experience: Visiting...

What are Derivatives? A derivative is a financial instrument whose value is derived from the value of another asset, which is known as the underlying. When the price of the underlying changes, the value of the derivative also changes. A Derivative is not a product. It is a contract that... read more

What are Derivatives?

  • A derivative is a financial instrument whose value is derived from the value of another asset, which is known as the  underlying.

  • When the price of the underlying changes, the value of the derivative also changes.

  • A Derivative is not a product. It is a contract that derives its value from changes in the price of the underlying.

Example:

  • The value of a gold futures contract is derived from the value of the underlying asset i.e. Gold.

Underlying Assets:

  • Crude Oil.

  • Precious Metals.

  • Interest Rates.

  • Agricultural  Commodities.

  • Bonds.

  • Currency.

  • T-Bill.

  • Interest Rates.

Features of Derivatives:

  • Traded on Exchange.

  • All Transaction in derivatives take place in future  specific date.

  • Hedging Device-Reduces Risk.

  • Derivatives are often leveraged, such that a small  movement in the underlying value can cause a  Large difference in the value of the derivative.

Types of Derivatives Contract:

1. Forwards:

  • A forward contract is a customized contract between  two entities, where settlement takes place as a specific  date in the future at Predetermined price

  •  Forwards are also known as Private Contracts Normally traded outside exchange

Features of forward contracts:

  • They are bilateral contracts and hence, exposed to counterparty risk.

  • Each contract is customer designed, and hence is unique in terms of contract sixe, expiration date and the asset type and quality.

  • Each contract is customer designed, and hence is unique in terms of contract sixe, expiration date and the asset type and quality.

  • The contract price is generally not available in public domain.

  • On the expiration date, the contract has to be settled by delivery of the asset and if party wishes to reverse the contract.

Limitations of Forward contract:

Forward markets are facing many problems. They are:

  • Lack of centralization of trading,

  • Liquidity and Counterparty risk.

  • The basic problem in the first two is that they have too much flexibility and generality.

  • Counterparty risk arises from the possibility of default by any one party to the transaction. When one of the two sides to the transaction declares bankruptcy, the other suffers

2. Futures:

  • Future contract is an agreement between two parties to buy or sell an asset at a certain time in the future, at a certain price. But unlike forward contract, futures contract are standardized and stock ex-changed traded.

  • A Financial contract obligating the buyer to purchase an  asset, (or the seller to sell an Asset), such as a physical  commodity or a financial instrument, at a predetermined  Future date and price.

  • Some of the most popular assets on which futures  Contracts are available are equity stocks, indices,  Commodities and Currency.

For example:

  • Sugar cane or wheat or cotton farmers may wish to have contracts to sell their harvest at a future date to eliminate the risk of change in price by that date.

  • There are commodity futures and financial futures.

The standardized items in a futures contract are:

  • Quantity of the underlying,

  • Quality of the underlying,

  • The date/month of delivery,

  • The units of price quotation and minimum price change and,

  • Location of settlement.

Important terms in future contract:

  • Spot price: The price at which an instrument/asset trades in the spot market.

  • Future Price: The price at which the futures Contract trade in the future market.

  • Contract cycle: The period over which a contract trades. The index futures contract typically have one month, two months and three months expiry cycles that expire on the last Thursday of the month.

  • Expiry Date: It is date specified in future Contract. This is the last day on which the contract will be traded, at the end of which it will cease to exist.

  • Contract Size: The amount of the asset that has to be delivered under one contract.

  • Basis: Basis is defined as the future price minus spot price. There will be difference basis for each delivery month for each contract. In the normal market, basis will be positive. This reflects that futures price normally exceeds spot price.

Distinction between Forward and Future Contract:

S.No

Forward Contract

Future Contract

1

Over the counter in nature

Traded on organized stock exchange

2

Customized contract hence less liquidity

Standardized contract, hence more liquidity

3

No Margin Payment

Requires Margin Payment

4

Settlement happens at the end of the period

Follows daily settlement

3. Options:

  • American options can be exercised at any time up to the expiration date.

  • European options can be exercised only on the expiration date itself.

Types of Options:

i. Call option gives the holder the right to buy the underlying asset by a certain date for a certain price but not the obligation to buy the underlying asset.

ii. Put option gives the holder the right to sell the underlying asset by a certain date for a certain price but not the obligation to sell the underlying asset.

  • The price in the contract is known as the exercise price or strike price.

  • The date in the contract is known as the expiration date or maturity.

Participants in options markets:

  1. Buyers of calls option: Those who buy Call option 

  2. Seller of calls option: Those who sell Call option

  3. Buyer of puts option: Those who Buy Put Option

  4. Seller of puts option: Those who sell Put Option

Market Players:

  • Hedgers: Transfer of Risk component of their portfolio

  • Speculators: Intentionally taking the risk from the  Hedgers in pursuit of profit

  • Arbitrageurs: Operating in different markets  Simultaneously, in pursuit of profit and eliminate  mis-pricing

In India, three type of derivatives are available in exchanges:

 

Equity Derivatives

Commodities Derivatives

Currency Derivatives

Segment

Future and Options

Futures

Futures

Underlying Assets

Index DerivativesStock Derivatives

Bullion: Gold, Silver Energy: Curde Oil, Natural Gas Base Metals: Aluminium, Copper,Zinc, Nickel Agri commodiites: Cardamom, Cotton, Black Pepper.

USD: USDollorEUROJPY: Japanese YENGBR: Great Britain Pound.

Exchange

NSE / BSE

MCX /NCDEX

NSE

Regulator

SEBI

SEBI / FMC

SEBI / RBI

 

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Lesson Posted on 31 Jan Financial Planning/Stock Market Investment Financial Planning/Stock Market Trading Tuition/BCom Tuition/Stock and Commodity Markets +5 Tuition/BCom Tuition/International Banking & Forex Management Financial Planning/Investment Planning Tuition/BCom Tuition/Financial Markets and Institutions Financial Planning Financial Planning/Stock Market Trading/Intraday Trading less

Know These Important Things About Investing & Trading In Bitcoins

Trading Coach

Real life professional with 10+ years of experience in trading and investing on markets. Learn wide variety...

The talk of the trading town these days is bitcoins. As you might know, I have already written some articles on bitcoin but due to overwhelming request of many Indian investors and trader, here’s my short and sweet know how article about Bitcoins. It specifically addresses some common questions... read more

The talk of the trading town these days is bitcoins. As you might know, I have already written some articles on bitcoin but due to overwhelming request of many Indian investors and trader, here’s my short and sweet know how article about Bitcoins. It specifically addresses some common questions such as whether it’s good to invest in bit coin or not? What are risks involved in Bitcoins? Are Indians allowed to invest in bitcoin? etc.

The concept of bitcoin was proposed by an unknown developer who identified himself as Satoshi Nakamoto in 2009. Nakamoto left the project in 2010 but the community grew exponentially thereafter. Bitcoin owners use various websites to trade and buy goods or exchange it with other physical currencies.The bitcoins developers should oblige to what investors want, long or short term returns to keep the value in check. It’s time to carry on a minor research and analyze whether it’s an advantage or disadvantage to Invest and trade in Bitcoins.  

Bitcoin Technical Analysis:

Bitcoin depicts Bubble like scnario

If your intreseted in analysing and trading markets- We cover such Technical analysis and Fundamental analysis, Strategies in our real time training. 

What is Bitcoin?

As a digital currency exchanged entirely over the internet, Bitcoins are categorized under the vision of crypto currency. Most of these currencies are decentralized. All information on its transactions, creation, and validation of authentic exchange are secured through cryptography or crypto codes.

Bitcoins - Boon or Curse for Indian Investors and Traders?

Investors are rapidly growing till-date in a temptation to make quick investment returns in a shorter time span with bitcoin. But the prices have fluctuated widely in past few weeks. The Central Bank has now issued a warning against investments in cryptocurrencies. Cryptocurrency is not legalized by Reserve Bank of India (RBI) or any other agency. As the prices fell by 30% in recent weeks following are the reasons that investors should consider:  

Volatility and Other Issues:

  • High-risk factor.
  • No fundamental analysis can be done.
  • Imperfect information in many scenarios.
  • Widespread losses are inevitable if value drops.
  • Will be used for Illegal and non-treatable activities.
  • Not a Currency as Widely propogated.
  • Not backed by any Commodity or Asset.
  • Not controlled by any government or Institutions.
  • Risky for businesses, industry, and people to trade or invest in, as no one is regulating the transactions.
  • Safety and Transaction Risks.
  • No authority like SEBI to approach for grievance redressal.
  • Not governed by government entities or financial bodies, unlike stocks, bonds etc.
  • In case of fraudulent bitcoin transaction, it is impossible to get the money back.
  • Not yet Legalised.
  • One major hurdle is the confusion over its legal status.
  • Not recognized by Reserve bank of India or Indian authorities.
  • Investors should invest at their own risk.                                                                      
  • Government has issued warning against trading or Investing in cryptocurrencies

Last but not the least, it is better to see the present circumstances and Investment environment yourself before investing in bit coins. The bitcoins bubble is waiting to burst anytime soon, it has lot of ways to make investors money vanish. For traders it’s still risky as the transactions are not regulated as most of these cryptocurrencies are traded with non regulated intermediaries. The block chain technology can radically change the global economy but Bitcoins are just one of the Cryptocurrencies using the block chain technology to some extent, so don’t get blinded if someone says bitcoin is the future, it’s not, Block chain is the future.

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Lesson Posted on 25/09/2017 Financial Planning/Investment Banking Training Financial Planning/Investment Planning

P2p Lending: The New And Emerging Asset Class In Fintech Market

TachyLoans

TachyLoans is an online money lending marketplace catering to both Individuals and Small and Medium Enterprises...

FinTech organization wandered into P2P loaning space in the FinTech Industry in India. The p2plending platform is a one of its kind advanced commercial center that overcomes any issues between individuals who are searching for a lucrative resource class to put their salary in and the ones who are looking... read more

P2P loans in India

FinTech organization wandered into P2P loaning space in the FinTech Industry in India. The p2plending platform is a one of its kind advanced commercial center that overcomes any issues between individuals who are searching for a lucrative resource class to put their salary in and the ones who are looking for credits at low rates of interests. The stage is a perfect decision for the two people and Small and Medium Enterprises (SMEs).

Peer to Peer lending in India is as yet a novel idea and is getting the pace in the market. The P2P lending platform enables this new stage with best in class innovation – the blockchain innovation. The innovation gives the clients a protected situation to execute budgetary units in. Tachyloans additionally makes the ideal usage of Artificial Intelligence and machine figuring out how to improve the client encounter. TachyLoans.com is a base hazard stage as they screen the borrowers and loan specialists with an exact confirmation process which incorporates a careful individual verification of the two gatherings. Tachyloans is the brainchild of the veterans from the field of innovation and saving money, who guarantee that TachyLoans gives the best nature of administration to the clients.

The P2P lending platform opens up a new world of opportunities for people who do not get loans from the traditional sources. The company aims to change the way India invests and borrows money. P2P Lending Platform offers unsecured personal loans to loan seekers, which means no hassle of providing an asset as collateral. Personal loans can be used as education loans, loan for renovating homes, loans for wedding expenses, etc. as far as investors are concerned, investing in P2P lending is by far the best investment option in India. Lenders can decide the rate of interest that they want to charge and can earn returns as high as 25%. Both borrowers and lenders can connect with each other over the platform and can also negotiate the rate of interest. Hence, TachyLoans makes the whole process transparent and seamless.

Peer to peer lending in India is the next big thing in the FinTech Industry and opens new avenues for individuals and SMEs. Tachyloans is the most user-friendly and safe platform for multiple lenders and borrowers. A secure and transparent asset class that involves minimum market risks should be a part of your investment portfolio.

 

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Lesson Posted on 11/09/2017 Financial Planning/Investment Planning Financial Planning/Investment Banking Training

Why Personal Loans Are Your Best Bet At Becoming Debt-Free?

TachyLoans

TachyLoans is an online money lending marketplace catering to both Individuals and Small and Medium Enterprises...

P2P Loans in India. Have you seen the misnomer in the feature? Consummate! Be that as it may, before we clear the disarray, initial, a little foundation. There's a decent possibility that you're living in the red. It could be an understudy advance, a maximized Visa or an up front installment on that... read more

P2P loans in India

P2P Loans in India. Have you seen the misnomer in the feature? Consummate! Be that as it may, before we clear the disarray, initial, a little foundation. There's a decent possibility that you're living in the red. It could be an understudy advance, a maximized Visa or an up front installment on that new auto. Paying enthusiasm on overdrawn cash is the standard. Also, it has worked wonders for the individuals who have possessed the capacity to utilize it shrewdly. Be that as it may, in some cases individuals have a tendency to go over the edge and wind up getting squashed under the weight of mounting interest installments. People spend a decent piece of their wage paying off their charge cards and making up front installments. Be that as it may, why experience all that bother when there's a simpler way out? Enter the idea of Peer-to-Peer Lending (P2P Lending).

What’s P2P Lending about?

P2P stages unite potential borrowers and banks. The borrowers are checked in view of their E-KYC, CIBIL, ITR information, and bank validity among others. The loan specialists, then again, are people who have the cash and are searching for chance free methods for making a better than average return (one that is somewhere in the range of 7% to 22%).

Why should you opt for a Personal Loan?

Maybe you relate Personal Loans with horrendous cash moneylenders or saves money with relentless financing costs. Indeed, you'll be happy to know this developing class of benefits is definitely not the previously mentioned. Furthermore, in the event that you end up spending near a large portion of your compensation paying off obligations, it's a great opportunity to take a Personal Loan and here's the reason:

1. Low-interest rates:

The financing costs charged on P2P Loans in India is essentially lower (somewhere in the range of 5% to 11%)  than what you're paying on those Visas. This implies you can pay off your obligations considerably speedier and for a lower loan cost than what you're right now being charged.

2. Improved Credit Scores:

For every one of the circumstances you've defaulted on advance installments, your FICO assessments proceed to plunge and to be perfectly honest, that is not a decent place to be in. This diminishes your possibility of taking credits or settling on EMIs later on. Paying back your obligations at the soonest causes you settle the circumstance and that should be possible with a Personal Loan.

3. Speedy Process:

Taking a Personal Loan is significantly less demanding when contrasted with bank credits. There's less printed material, the credit endorsement period is extensively shorter, and you're headed to getting to be sans obligation substantially prior. TachyLoans is a P2P loaning stage that interfaces borrowers and money lenders over secured documentation forms with the goal that the two gatherings, commonly advantage from the trade.

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Lesson Posted on 19/08/2017 Tuition/BCom Tuition/Stock and Commodity Markets Financial Planning/Stock Market Investment Financial Planning +5 Financial Planning/Investment Planning Financial Planning/Investment Banking Training Financial Planning/Stock Market Trading/Commodities Trading Financial Planning/Stock Market Trading/Derivatives Trading Financial Planning/Stock Market Trading/Intraday Trading less

Concept Of Angel Investing

Gold Rock Internationals Pvt Ltd

Gold Rock Internationals was formed with the idea to assist, educate and transform the mindset of people...

The 21st century is known as the entrepreneur age where numbers of young & enthusiastic individuals are starting up their own ventures individually or collectively. Today most of these companies are built upon innovative ideas that were formed at the inception stage of a company. When an individual... read more

The 21st century is known as the entrepreneur age where numbers of young & enthusiastic individuals are starting up their own ventures individually or collectively.  Today most of these companies are built upon innovative ideas that were formed at the inception stage of a company.  When an individual or a group has generated an idea to start a venture the main obstacles they face is lack of funds. At the initial stage they invest their savings, take help from family and friends and set up the business. The main problem arises when they need capital to meet the daily operational costs and for future expansion plans. Taking loans from banks or financial institutions is not advisable for start-up ventures at this stage due to the burden of the EMI on the working capital. Also they require lot of documentation and collateral and the loan approval process can be tedious.

In this scenario we have individuals known as angel investors who push in their own funds in businesses which have high potential for growth. The word ‘Angel Investor’ came up in the US when wealthy individuals invested their surplus incomes into the production house of the Broadway theatre so that they could commence operations otherwise it would shut down. Their contributions were compared to help from angels.

Below are the benefits which are helpful for start up ventures:

  • Funding at the initial stage of business
  • The time span of investment decision is also less as they invest their own funds
  • Most of the angel investors are entrepreneurs themselves so they tend to share their experiences and knowledge which can help the business grow
  • They invest in the business without any collateral and have high risk appetite and have a very optimistic approach.
  • The documentation is minimum. In some cases it is just a case of mutual trust.
  • They do not charge monthly interests or repayments which lessens the financial burden on the business instead they tend to take a share in profit distribution or a stake in the business. One companies issue equity shares some angel investors liquidate their investments
  • Some Angel investors tend to invest in business of their interest or in their neighbourhood areas as a sense of social responsibility.

All these things make angel investors a very cost efficient and lucrative method for start up ventures who are looking for the initial capital for their operational and expansion plans.

There are few drawbacks about Angel investing which can affect the owners of the business:

  • They will need to give up a percentage of stakes in their share capital which can prove to be costly.
  • Some investors try to interfere in the day to day operations as they own a stake in the business.
  • They may also ask for the return of their investments at any period of time without any prior notice.
  • Due to lack of documentation between both parties there can be cases of forgery and disputes.

Hence an entrepreneur needs to be very careful and should conduct a thorough study before approaching an angel investor.  The background of the investor, his risk appetite, his patience level, review of his past financial decisions all these characteristics need to be kept in mind. It is always better to have some sort of legal document such as Memorandum of Understanding, or a an agreement contract between the two parties to avoid future disputes and all details such as the percentage of stake issued to the investor and the time span for which the investment is made all this needs to be documented.

Silicon Valley in the US has provided funds to various starts up companies which in turn has lead to revenue and employment generation. In India, there is now  a sudden rise of angel investors with individuals like Cricketer Yuvraj Singh starting ‘You WeCan Ventures’ which funds business with new and innovative ideas then Sachin Bansal of Flip kart who invested in companies such as Madrat games, Spoonjoy and more. Most of the investments are in the field of Technology as we move into the age of computers. Innovative software, applications and social networking websites have a huge scope and most of the investments are diverted into that sector. Nowadays Government has also launched initiates such as MUDRA bank to support small medium enterprises to handle their finances.

For an entrepreneur it is important that he displays hi business plan in a very well planned format. The goals, future projections, capital requirements all must be put forward to the investor and he should be in clear frame of mind before investing in the business and should believe in the venture.

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Lesson Posted on 13/07/2017 Financial Planning/Stock Market Investment/Technical Analysis Financial Planning/Stock Market Trading Financial Planning/Stock Market Investment +1 Financial Planning/Investment Planning less

Technical Analysis

International School Of Financial Market.

THE Five CHART PATTERNS EVERY TRADER NEEDS TO KNOW There are a number of different tradable patterns seen on futures price charts. These patterns help traders define trends, determine when to get into a trade and when to get out of one. Chart patterns are a structural part of the futures market (and... read more

THE Five CHART PATTERNS EVERY TRADER NEEDS TO KNOW


There are a number of different tradable patterns seen on futures price charts. These patterns help traders define trends, determine when to get into a trade and when to get out of one. Chart patterns are a structural part of the futures market (and any market) because they occur based on human psychology, and they work because of human psychology. Chart patterns occur across all time frames; for example you'll see triangles both on oneminute charts and daily charts. Which patterns you opt to trade is determined by your trading preferences. Short-term traders focus on patterns that appear on short-term charts, such as five-minute or fifteen-minute charts. They may also keep an eye on longer-term charts, such as the hourly or daily charts to spot major levels which may affect short-term trading. Long-term traders focus on daily charts, as the chart pattern trades on this time frame typically don't need constant monitoring and will last several weeks or more. Here are the five chart patterns every trader should be able to spot and trade:

1) The Triangle

2) Flags and Pennants

3) Head and Shoulders

4) Cup and Handle

5) Double/Triple Tops and Bottoms


The Triangle There are three types of triangle patterns: descending, ascending and symmetric. For trading purposes they are all the same. Figure 1 shows a symmetric triangle. It's symmetric because both lines are angled towards each other. With a descending triangle the lower trendline is horizontal and the upper trendline is descending (angled down). For an ascending triangle the upper trend line is horizontal and the lower trend line is ascending (angled up). Figure 1. Symmetric Triangle in Light Sweet Crude - Daily Chart
Source: Thinkorswim Triangles are often considered continuation patterns because the price is expected to break out of the pattern in the same direction as the prevailing trend. In figure 1 the price was trending higher before the triangle, so an upside breakout is slightly more probable than a downside breakout. The breakout direction doesn't need to be assumed though; traders can wait for the breakout and trade it then. Trading Triangles The simplest way to trade a triangle involves buying or selling when the price breaks out of
the triangle pattern--this could be in the same direction, or against, the prevailing trend. A stop loss order is placed just outside the triangle, on the opposite side of the breakout. A target is established based on the height of the triangle at the widest point, and then added or subtracted from the breakout price (upside or downside breakout respectively). Figure 2. Trading Triangle Breakout in Japanese Yen Futures - Daily Chart
Source: Think or Swim In figure 2, a short trade is initiated as soon as the price breakout below the lower triangle trendline. A stop is placed above the triangle. The height of the pattern is approximately 10.4 minus 9.90 (where trendlines start, and circled), or 0.50. This is subtracted from the breakout price of 10.03 to give a target of 9.53. An alternative method is to assume the breakout direction, and then enter a position on the opposite side (within the triangle) of the anticipated breakout. In figure 2 the trend is down so the more likely breakout direction is to the downside. A short trade could have been taken near the upper trendline; the stop loss and target are placed and calculated using the same method discussed prior. With this method, risk is reduced because the entry price is much closer to the stop level, but the breakout direction is unknown at the time of the trade.
Figure 3. Early Triangle Entry in Japanese Yen Futures - Daily Chart
Source: Thinkorswim Triangles Perks and Disadvantages No matter what method you use, with a triangle your potentially profit is going to be larger than your risk. This is because the widest part of the triangle is used to establish a target, yet the stop is placed using a narrower part of the triangle. A disadvantage of triangles is that multiple price swings may not align exactly with the trendlines. This can make trading them subjective because the exact breakout point is unknown. A triangle could be drawn a number of different ways, in which case it is up to the trader to do decide which version provides the best entry, stop and target.
Flags and Pennants Flags and pennants are also a continuation pattern, although we don't need to assume the breakout direction for these patterns. Flags and pennants are created by a very sharp price move either up or down--this is the flag pole. The price then consolidates in a tight flag or pennant-like appearance. A flag consolidation is when the price moves between parallel lines. A pennant, which is less common, appears as a very small triangle. Trading Flags and Pennants Figure 4 shows a pennant pattern in coffee futures. Figure 4. Trading a Pennant in Coffee Futures - Daily Chart
Source: Thinkorswim The surge higher (or lower) is labeled as the flag pole. This length of the flag pole is used to establish the profit target. In case of upside breakout the flag pole length is added to the bottom of the pennant/flag formation. For a downside breakout the length of the pole is subtracted from the top of the pennant/flag formation.
A long trade is taken when the price breaks above the pattern, and a stop loss is placed just below pattern at the time of the breakout. If price breaks below the flag/pennant portion of the pattern, a short trade is initiated, and a stop loss placed just above the pattern at the time of the breakout. A flag is traded and same way. It looks almost the same, except the consolidation, or flag portion, is moving between parallel lines and can be slanted up, down or moving sideways. Figure 5. Trading a Flag in Emini Euro FX Futures - Daily Chart
Flags and Pennants Perks and Disadvantages Because the profit target is based on the flag pole is which is typically much larger than the flag/pennant upon which the stop is based, the reward to risk ratio on these patterns is quite favorable. Since the flags/pennants are so small though, false breakouts are common. This is when the price just edges past the pattern trendlines only to move right back into the pattern. These small patterns can also, sometimes, be drawn in different ways, based on different interpretations. This can make choosing which breakout point to use subjective. Also, traders will need to differentiate a strong move from a normal move. Strong trending moves are common, but a flag or pennant should be based on a move that is larger than what is typically seen. This increases the subjectivity to trading these patterns.
Head and Shoulders A head and shoulders (H&S) pattern is typically a reversal pattern. A H&S at the top of a long trend higher usually indicates the uptrend has lost momentum and is transitioning into a downtrend. A H&S at the bottom of a long downtrend usually indicates the downtrend is over and a transition into an uptrend has begun. A topping pattern is created by the price making a swing high, then pulling back, then making a higher high, pulling back and then making a lower high. The two pullback lows are connected with a trendline, called the neckline. When the price breaks below the neckline, or the low of the right shoulder pullback, the pattern is considered complete and downtrend is likely underway. A bottom pattern is created by the price making a swing low, then pulling up, then making a lower low, pulling up, and then making a higher low. The two pullback highs are connected. When the price breaks above the neckline, or the right shoulder pullback high, the pattern is considered complete and an uptrend is likely underway. Trading Head and Shoulders Reversals The H&S reversal is the most recognized by traders, yet because it is occurs at major market turning points, it isn't seem frequently or daily or weekly charts. It is seem more frequently on hourly charts, or smaller time frames. Figure 6 shows a H&S topping pattern in oat futures. Figure 6. Trading a Head and Shoulders Topping Pattern in Oat Futures - 4 Hour Chart
Source: Thinkorswim Once the right shoulder has formed there is potential for the pattern to complete. In order to
Once the right shoulder has formed there is potential for the pattern to complete. In order to complete, and initiate a trade, the price should break below the neckline. Occasionally the neckline will be at a steep angle, either up or down, making it ineffective as an entry point. When this occurs, the pattern is considered complete the price breaks below the low of the pullback on the right side of the pattern. Enter short when the price breaks below the neckline. If already in a long position, this is also sign that the uptrend is over and the price is likely to trend lower. The profit target is based on the height of the pattern. The head is near 500 and the low of the right shoulder is near 420, making the height of the pattern approximately 80. This is subtracted from the breakout price of 420 to give a target near 340. The process for spotting and trading a H&S bottoming pattern is the same, except the head and shoulders will be upside down--commonly called an inverse head and shoulders pattern. In the case of an upside breakout from a bottom H&S, the height of the pattern is added to the breakout price to give the target. Head and Shoulders Reversals Perks and Disadvantages Since the profit target is based on the whole height of the pattern, and the stop is based on the right shoulder, the potential reward for the trade is larger than the risk. This is favorable If the right shoulder is almost as high as the head though, the reward to risk ratio approaches 1:1, which isn't ideal. Focus on patterns where the right shoulder shows a lot of weakness, and peaks well below the head. Head and shoulders usually don't appear perfectly, with only a left shoulder, head and right shoulder. In the real world the patterns can be more complex. For example there may be two left shoulders, a head and two right shoulders. The pattern is traded in the same way, but it can take time to see the overall structure of the H&S when it doesn't appear exactly like a text book example.
Cup and Handle The Cup and Handle is traditionally a reversal pattern, and is usually associated with market bottoms, but can also be seen at market tops. It can also be a continuation pattern, when seen in the context of the trend--these are often the best patterns to trade since the trade direction aligns with the current trend. A bottoming Cup and Handle occurs when the price trends lower. It then levels off and rallies up to the start of a prior downtrend wave. This creates a cup-like appearance. The price then consolidates near the top of the cup (lip), creating the handle. A Cup and Handle that marks a potential top has the same characteristics but is flipped upside down. The price trends higher, levels off and then declines to the start of a prior up wave. This creates the cup, and the price consolidates near the lip of the cup to create the handle. Trading the Cup and Handle For the bottoming pattern, let the cup and handle form. The handle should be relatively small in size compared to the cup, approximately 50% of less. For example if the Cup is 10 points high, the handle should ideally be 5 points or less in height. The small handle shows buyers are willing to step in and support the price. Buy on a breakout above the handle. This will require drawing trendlines on the handle to define its edges. Figure 7 shows this in action. Figure 7. Trading Cup and Handle Continuation in British Pound Futures - 4 Hour Chart
Source: Thinkorswim
Place a stop loss just below the handle to control risk on the trade. The cup and handle does not have a specific price target since it attempts capture the ensuing trending waves in the breakout direction--this can result in long-term or short-trades. One way to estimate a profit target is to add the height of the cup to the bottom of handle. In figure 7 the high point of the cup is 1.6793 and the low point is 1.6462, for a height of 0.0331. This is added to the low point of the handle at 1.6689, for a target of 1.702. Sometimes the price won't make it to the target, and other times it will surpass it. Therefore, this profit target calculation should only be used as an estimate. Trading a topping Cup and Handle is similar. Let the upside down cup form, and the handle which develops shouldn't retrace more than 50% of the cup. Short when the price breaks below the trendline of the handle, and place a stop just above the handle. There is no specific target since the trade attempts to participate in the downside trend which develops following the handle. A target estimate can be created by taking the height of the cup and subtracting it from the top of the handle. Cup and Handle Perks and Disadvantages Cup and Handles can mark significant trend changes, and the new trend can last a long time resulting in big profits for a small amount of risk. Even when seen as a continuation pattern, the trending wave(s) following the handle breakout will typically more than compensate the trader for the risk. Figure 8. Cup and Handle within Larger Cup and Handle - British Pound Futures 4-Hour Chart
The downside is that breakouts from handles can be hard to pinpoint. Not every handle will be easily defined by trendlines, in which case the trader may need to estimate the breakout price. Spotting cup and handles can also be subjective; they are a fairly common pattern. In figure 7 a large Cup and Handle bottoming pattern is shown. Within that pattern though there is smaller cup and handle, shown in figure 8. Both these patterns (figure 7 and 8) highlight another potential drawback--breakouts may occur on price gaps, which means the price paid to enter the position is different than the anticipated breakout price. This can dramatically increase the risk as the entry point is further from the stop price than expected. Usually the ensuing trend will still compensate the trader for his or her risk though. Double/Triple Tops and Bottom Double and triple bottoms are reversal patterns that signal a downtrend has run out of steam and is now reversing to the upside. A double bottom is created is when the price makes a new low, rallies, declines back to same area as the prior low and then rallies gain. This second low may be slightly lower or higher than the prior low but should be in the same area. A triple bottom is similar, except the same point is tested three times. The price declines to a new low, rallies, declines to that point again, rallies, declines there again and then rallies. Since the price isn't able to drop much below the former low shows sellers are losing strength and buyers are stepping in. Double and triple tops are reversal patterns that signal an uptrend is reversing. Double tops are created when the price makes a new high, declines, rallies back to the same point and then declines again. For a triple top the price makes one more run to the former high points and then declines again. Since the price is unable to make progress higher, on multiple attempts, shows that the next most likely direction is lower. Trading Double/Triple Tops and Bottoms For a double or triple bottoming pattern, buy when the price breaks above the high point(s) of the rallies which separate the low points. Traditionally the stop loss is placed below the double or triple low point, but once the break higher has occurred, any swing low can low be used. Using a stop that is higher than the lows reduces risk, since the stop is closer to the entry price. Figure 9 shows the "traditional" stop level and "alternative" stop loss levels. A profit target can be established based on the height of the pattern. Measure the distance from the low points to the high points (rallies) between them, then add this distance to the breakout point. In figure 9 the low of the pattern is approximately 16, the high is very close to 17.50, so the height is 1.50. Add this to the 17.50 breakout point for a target of 19.
This is one potential exit. read less

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Lesson Posted on 24/04/2017 Financial Planning/Investment Planning Financial Planning/Stock Market Investment Financial Planning/Stock Market Investment/Fundamental Analysis +1 Financial Planning/Stock Market Investment/Technical Analysis less

Remember FIVE D's before investment in securities like Equity, Mutual fund

Pratap Paul

I am a B. Sc and my main subjects at the graduation are Mathematics, Physics and Chemistry. I had passed...

1. Distribution -- Divide your investment amounts in small packets. It will decrease risk factor. 2. Divercification -- select security from different sectors. 3. Debt-Test -- Consider debt amount of the company. Higher debt % higher risk factor. 4. Dividend Pying -- A earning company pay dividend... read more

1. Distribution  -- Divide your investment amounts in small packets. It will decrease risk factor.

2. Divercification -- select security from different sectors. 

3. Debt-Test  -- Consider debt amount of the company. Higher debt % higher risk factor.

4. Dividend Pying -- A earning company pay dividend to share holder.

5. Dilusion Vallue -- If company is diluted for some reason how mutch will you get. 

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Lesson Posted on 03/03/2017 Financial Planning/Stock Market Investment Financial Planning/Mutual Funds Financial Planning/Investment Planning

Mutual Fund Basics

Santosh D.

I have extensive experience as a stock market investor and trader. Stock market trading and investing...

Mutual Funds are one of the best ways for retail investors to participate in the stock markets. However, with 40+ Mutual Funds and 5000+ schemes, it is diffcult to choose the right scheme unless you know how the mutual funds are structured, classified and more importantly sold. I have created a series... read more

Mutual Funds are one of the best ways for retail investors to participate in the stock markets. However, with 40+ Mutual Funds and 5000+ schemes, it is diffcult to choose the right scheme unless you know how the mutual funds are structured, classified and more importantly sold.  

I have created a series of video tutorials covering one topic at a time. Please visit my youtube channel for more videos.

 

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Lesson Posted on 15/01/2017 Financial Planning/Investment Banking Training Financial Planning/Stock Market Investment Financial Planning/Stock Market Trading +2 Functional Training/Finance Training Financial Planning/Investment Planning less

Money Saving Ideas for Investors and What to do and Don't in the Market

International School Of Financial Market

Established in 2013, ISFM has become a center for excellence of learning about stock market in Delhi...

01. Open your R.D a/c with your bank or post office.02. Never borrow fund to entertainment or luxury items.03. Always take calculated risk for your money.04. Avoid to go for first movie show on first day. Same film you can see on another day.05. Try to avoid buying new car and phone buy from user, you... read more

01. Open your R.D a/c with your bank or post office.
02. Never borrow fund to entertainment or luxury items.
03. Always take calculated risk for your money.
04. Avoid to go for first movie show on first day. Same film you can see on another day.
05. Try to avoid buying new car and phone buy from user, you may get 40% cheaper.
06. Make you budget in the beginning of the month and be strictly for that.
07. When you have desire to buy a luxury item then invest the same money in any securities.
08. Buy clothes only on discount day, special day. You will get the them 50% cheaper.
09. Use all customer activity where you can get free reward.
10. Buy things online and use promotion code to avail the discount.
11. Must open a Demat a/c and buy share of blue chips company frequently.
12. Always try to find the passive income source in your life: referral income etc.
13. Use public transport if possible whenever go for out of home, town etc.
14. Avoid fast food it is also not good for health as well as for wealth.
15. Never buy costly books, movies vcd etc. because a lot is available on the internet free of cost.
16. Recharge online, pay online your bill of mobile, data card etc to get discount.
17. Book you ticket in advance if it is possible and you can get great discount.
18. Don't pay extra money to buy lucky number for mobile, bike, car etc. because it is just a superstitious.
19. Believe in simple living and high thinking it will give you inner peace as well as cost saving life schedule.
20. Use daily Yoga and Meditation it will help you keep aside from doctor.


What to do in Market

01. Read the Prospectus/ Abridged Prospectus.
02. Use the ASBA (Application Supported by Blocked Amount) process for applying IPOs/FPOs.
03. Transact only through SEBI-recognised stock exchanges.
04. Before investing, check the credentials of the company, its management, fundamentals and recent announcements made by them.
05. Give clear and unambiguous instructions to your broker/sub-broker/ depository participant.
06. Issue cheques/drafts only in the trade name of the broker.
07. In case you are not transacting frequently, use the freezing facility in your demat account.
08. Be aware of the risks associated with derivatives in the market.
09. In case of disputes with sub-broker, inform the main broker about the dispute within 6 months.
10. Familiarise yourself with the rules, regulations and circulars issued by the stock exchanges/SEBI before carrying out any transactions.


What don`t

01. Don`t follow rumours or illusory advertisements. High return in short time is impossible.
02. Don`t invest based on the prevailing bull run of the market index.
03. Don`t undertake off-market transactions in securities.
04. Don`t forget to take account of the potential risks that are involved in the investment.
05. Don`t blindly follow investment advice given on TV channels/websites/SMS.
06. Don`t leave signed blank Delivery Instruction Slips of your demat account lying around.
07. Don`t start trading in derivatives unless you have understood the Risk Disclosure Documents.
08. Don`t undertake deals on behalf of others.
09. Don`t get carried away by luring advertisements.
10. Don`t go daily trading trend use positional trade.
11. Don`t trade on any product without knowing the risk and rewards associated with it.

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Answered on 15/01/2017 Financial Planning/Investment Planning

International School Of Financial Market

You have to choose some good equity share if your vision is long term or can buy good mutual fund also for better growth and safe return.
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