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  • What is Circuit Breaker in Stock Market

    What is Circuit Breaker in Stock Market

     

    A circuit breaker is a mechanism used in the stock market to prevent large, sudden price declines or increases. It is designed to give investors time to assess market conditions, reduce panic selling, and provide stability to the market.

    Circuit breakers are triggered when the stock market experiences sharp price movements within a short period of time. The circuit breaker system is designed to halt trading temporarily to allow investors to take stock of the situation, assess market conditions, and reposition themselves accordingly. This mechanism is put in place to prevent large, sudden losses and to protect investors from panic selling.

    In India, the Securities and Exchange Board of India (SEBI) has put in place a circuit breaker system that applies to both the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE). The circuit breaker system has three levels of trigger points based on the movement of the benchmark indices – Sensex and Nifty.

    • The First level of circuit breaker is triggered if the Sensex or Nifty moves up or down by 10% from its previous close. If this happens, trading is halted for 45 minutes. This is called the Level 1 circuit breaker.
    • The Second level of circuit breaker is triggered if the Sensex or Nifty moves up or down by 15% from its previous close. If this happens, trading is halted for two hours. This is called the Level 2 circuit breaker.
    • The Third level of circuit breaker is triggered if the Sensex or Nifty moves up or down by 20% from its previous close. If this happens, trading is halted for the remainder of the day. This is called the Level 3 circuit breaker.

    It is important to note that circuit breakers are only activated during trading hours. If a sharp movement occurs before trading hours, the circuit breaker system will not be activated.

    The circuit breaker system is intended to give investors a chance to reassess their positions and make informed decisions based on market conditions. It also helps to prevent panic selling and buying that can lead to sharp price movements.

    However, it is not foolproof and cannot guarantee complete protection against losses. Investors should always be aware of the risks associated with investing in the stock market and should have a diversified portfolio to mitigate risks.

    Benefits of circuit breaker in stock market:

       1. Reducing panic selling  

    The circuit breaker system is designed to halt trading temporarily when there is a sharp movement in stock prices. This gives investors time to assess market conditions and make informed decisions, reducing the likelihood of panic selling.

       2. Preventing large losses 

    Circuit breakers are activated when stock prices move up or down by a certain percentage within a short period of time. This mechanism helps to prevent large losses by giving investors time to reassess their positions and make informed decisions.

       3. Promoting market stability

    The circuit breaker system promotes market stability by preventing large, sudden price movements that can disrupt the market. This helps to maintain investor confidence in the market.

       4. Providing time for information dissemination

    Circuit breakers provide time for information dissemination. When trading is halted, news and information can be disseminated to investors, allowing them to make informed decisions.

       5. Preventing market manipulation

    The circuit breaker system can prevent market manipulation by preventing sudden, large price movements that can be caused by manipulation.

       6. Encouraging long-term investing

    The circuit breaker system encourages long-term investing by reducing the likelihood of panic selling and providing a stable market environment.

    Disadvantages of circuit breaker in stock market:

       1. Reduced liquidity

    When trading is halted due to the circuit breaker system, it can reduce liquidity in the market, making it harder for investors to buy and sell stocks. This can lead to increased volatility and wider bid-ask spreads.

       2. Market inefficiencies

    The circuit breaker system can lead to market inefficiencies, particularly if trading is halted for an extended period of time. This can result in price distortions and may prevent the market from reflecting accurate prices.

       3. Uncertainty

    Circuit breakers can create uncertainty among investors, particularly if they are triggered frequently. This can lead to increased volatility and decreased investor confidence.

       4. Unintended consequences

    Circuit breakers can have unintended consequences, particularly if they do not function as intended. For example, they may fail to prevent large losses or may be triggered too frequently, leading to increased volatility.

       5. Time delay

    The circuit breaker system introduces a time delay into trading, which can be problematic for investors who need to make quick decisions. This delay can also prevent the market from reacting quickly to news or events.

    In conclusion, circuit breakers are a mechanism put in place by stock exchanges to prevent large, sudden price movements and to protect investors. They help to provide stability to the market, reduce panic selling, and give investors time to assess market conditions.

     

    Also Read | List of Stock Exchange in India

  • Benefits of investing in Stock Market

    Benefits of investing in Stock Market

     

    Investing in the stock market can offer several benefits. But these benefits also comes with lot of risk. Below are the list of some of the major benefits which can give you a clear picture on it.

       1. Potential for Capital Appreciation:

    Stocks have the potential to provide capital appreciation, which means that your investments can increase in value over time. As companies grow and become more profitable, their stock prices may rise, providing investors with capital gains. By investing in a diversified portfolio of stocks, you can increase your chances of earning strong returns over the long term.

       2. Diversification:

    Investing in the stock market can help you diversify your investment portfolio, reducing the risk of being overly exposed to any one particular asset class. By investing in a range of stocks across different industries and sectors, you can reduce the risk of your portfolio being negatively impacted by factors that affect only one industry or sector. This can help to smooth out the overall performance of your portfolio, making it more stable and predictable over the long term.

       3. Dividend Income:

    Some companies pay dividends to their shareholders, which can provide a steady stream of income for investors. Dividends are payments made by companies to their shareholders out of their profits, and can provide a regular source of income for investors. While not all companies pay dividends, many established, financially healthy companies do, and this can be a source of income for investors seeking a steady, reliable stream of returns.

       4. Inflation Hedge:

    Investing in the stock market can also help to protect your portfolio against inflation. Over the long term, stocks have historically provided higher returns than many other asset classes, such as bonds or cash. This means that, over time, your investments in stocks may increase in value at a rate that outpaces inflation, helping to maintain the purchasing power of your portfolio.

       5. Access to Professional Management:

    By investing in mutual funds or exchange-traded funds (ETFs), you can benefit from the expertise of professional fund managers who research and select stocks on your behalf. This can help to save time and effort for individual investors, who may not have the time or resources to research individual stocks themselves. By investing in professionally managed funds, you can benefit from the expertise of experienced managers who are dedicated to finding the best investment opportunities in the market.

       6. Liquidity:

    The stock market provides a high level of liquidity, meaning that it is easy to buy and sell shares in publicly traded companies. This means that, if you need to access your funds quickly, you can do so relatively easily. This is in contrast to other investment options, such as real estate or private equity, which can be more difficult to buy and sell quickly.

    It is important to note, however, that investing in the stock market is not without risks. Stock prices can be volatile, and the market can experience significant fluctuations over short periods of time. As such, it is important for investors to have a long-term perspective when investing in stocks. It is also important to do your own research and seek advice from a financial professional before making any investment decisions.

    In summary, investing in the stock market can provide a range of benefits, including potential for capital appreciation, diversification, dividend income, inflation protection, access to professional management, and liquidity. While investing in stocks can be risky, with careful research and a long-term perspective, it can be a valuable component of a well-diversified investment portfolio.

     

    Also Read | Best Sectors for Investment

  • 20 Important Terms in Stock Market

    20 Important Terms in Stock Market

     

    Today we are discussing the most important stock market terms which are essential for each & every beginner of the share market to know about it. When I entered the world of stock market then I search lots of words on google which consume plenty of my time. So, here we thought of explaining some of the important terms of the stock market.

    https://www.youtube.com/watch?v=tHOssUgrkQA

    Here are some stock market terms :

    1. Buy – Buy is a term used to describe the purchase or acquisition of an item or service that’s typically paid for via an exchange of money or another asset. When buyers look to acquire something of value, they assign a monetary value to that product or service.
    1. Sell – The term sell refers to the process of liquidating an asset in exchange for cash. In investment research, sell refers to an analyst’s recommendation to close out a long position in a stock because of the risk of a price decline.
    1. The Bid Price – The bid price is the price that an investor is willing to pay for the security.

    For example if an investor wanted to sell a stock, he or she would need to determine how much someone is willing to pay for it. This can be done by looking at the bid price. It represents the highest price that someone is willing to pay for the stock.


    1. The Ask Price – The ask price is the price that an investor is willing to sell the security for.

    For example if an investor wants to buy a stock, they need to determine how much someone is willing to sell it for. They look at the ask price, the lowest price someone is willing to sell the stock for.

    1.  Bid-Ask Spread – Bid-Ask spread is typically the difference between ask (offer/sell) price and bid (purchase/buy) price of security. Ask price is the value point at which the seller is ready to sell & bid price is the point at which a buyer is ready to buy.
      When the two value points match in a marketplace, i.e. when a buyer and a seller agree to the prices being offered by each other, a trade takes place. These prices are determined by two market forces – demand & supply, and the gap between these two forces defines the spread between buy-sell prices.
    1. Bull Market – A bull market is the condition of a financial market in which prices are rising or are expected to rise. The term bull market is most often used to refer to the stock market but can be applied to anything that is traded, such as bonds, real estate, currencies, and commodities.
    1. Bear Market – A bear market is a situation when the stock market experiences price declines over a period of time. Generally, a bear market is declared when the price of an investment falls at least 20% from its high.

           In other words, a trend of falling stock prices for an extended period is considered a bear market.

    1. Stop Loss – Stop Loss can be defined as an advance order to sell an asset when it reaches a particular price point. It is used to limit loss or gain in trade. The concept can be used for short-term as well as long-term trading. This is an automatic order that an investor places with the broker/agent by paying a certain amount of brokerage. Stop Loss is also known as ‘stop order’ or ‘stop market order’.
    1. Lot Size – Lot size refers to the quantity of an item ordered for delivery on a specific date or manufactured in a single production run. In other words, lot size basically refers to the total quantity of a product ordered for manufacturing .

    For Example When we buy a pack of six chocolates, it refers to buying a single lot of chocolate.

    1. Market Order – A market order is an order to buy or sell a stock at the market’s current best available price. A market order typically ensures an execution, but it doesn’t guarantee a specified price. Market orders are optimal when the primary goal is to execute the trade immediately. A market order is generally appropriate when you think a stock is priced right, when you are sure you want a fill on your order, or when you want an immediate execution.
    1. Limit Order – A limit order is an order to buy or sell a stock with a restriction on the maximum price to be paid or the minimum price to be received (the limit price). If the order is filled, it will only be at the specified limit price or better. However, there is no assurance of execution. A limit order may be appropriate when you think you can buy at a price lower than—- or sell at aprice higher than—– the current quote.
    1. Day Order – A day order is defined as an instruction from a trader to their broker, to buy or sell a certain asset. Setting a day order means that the deal has to be executed if an asset hits a specified price at any point during the trading day on which the order is made. The day order will expire if the price specified in the order is not met by time the market closes.
    1. Volatility – Volatility measures the risk of a security. It is used in option pricing formulas to gauge the fluctuations in the returns of the underlying assets. Volatility indicates the pricing behavior of the security and helps estimate the fluctuations that may happen in a short period of time.
    1. Averaging Down – When a trader purchases an asset, the asset’s price drops, and if the trader purchases more,it is referred to as averaging down. It is called averaging down because the average cost of the asset or financial instrument has been lowered. Because of this, the point at which a trade can become profitable has also been lowered.

    15. Capitalization – Market capitalization is one of the most important characteristics that helps the investor determine the returns and the risk in the share. It also helps the investors choose the diversification criterion.

    16. IPO – Initial Public Offering is the process by which a private company can go public by sale of its  stocks to the general public. It could be a new, young company or an old company which decides to be listed on an exchange and hence goes public.

    17. Portfolio – A collection of investments owned by the investor is called a portfolio. An investor may have just one stock or multiple securities in a portfolio. It contains a diverse range of financial instruments like shares, bonds, futures, options, etc.

    18. Dividends – Dividend is a part of profit distributed by a corporation among its shareholders. When a company earns profit during a financial year, a part of that profit is usually distributed as dividend among its shareholders.

    19. Agent – An agent is a stock brokerage firm which does the buying/selling of shares on behalf of the investor in the stock market. 

    20. SEBI – SECURITIES And EXCHANGE BOARD OF INDIA is the regulator that oversees the stock market in India. It provides a platform for investors and traders to trade efficiently, and for companies to raise capital fairly. It protects the interests of the investor and ensures accurate information is provided to the investors.

     

     

    Also Read | What is RSI in Stock Market

  • PENNY STOCKS

    PENNY STOCKS

    DEFINITION:

    “Penny stocks are those that trade at a very low price, have very low market capitalization, are mostly illiquid, and are usually listed on a smaller exchange. Penny stocks in the Indian stock market can have prices below Rs.10/-. These stocks are very speculative in nature and are considered highly risky because of lack of liquidity, smaller number of shareholders, large bid-ask spreads and limited disclosure of information.”

                         The concept of Penny stocks originated in the USA and derived from the unit of currency called “penny”. Penny is equivalent to one hundredth of USD. Penny stocks or penny shares as they are referred to are stocks which trade at a low prices and have extremely low market caps. In India, usually stocks which are priced below Rs.10/- are commonly known as penny stocks.

                            However, it is important to note that not all stocks which are priced low are penny stocks. Some great companies and businesses may also be trading at single or double digit prices due to smaller face values but they are essentially large companies with large capital structures and market capitalization and not essentially penny stocks. Therefore it is very important to distinguish between penny stocks and penny business. 

    5 things you must know before investing in penny stocks in India:

    1) Don’t look at the share price, but look at the value: 

                         Penny stocks are available at a relatively low share price. Share price would tempt investors to buy in such stocks. For example, Infosys stock price is Rs.2,180/- per share. On the other hand, one of the penny stocks like GV Films is Rs.0.58/- per share. Now if you have Rs.10,000/- to invest, you would get only 4 Infosys Shares, while on the other hand you would get 17,240 shares of GV Films. Here one should not think how many shares they are getting, but what value these stocks offer.  I am not saying this penny stock is good or bad, but an investor should assess how good such a stock is before investing in such stocks.

    2) Low volumes means low liquidity:

                        Several Penny stocks generally trade at low volume. Means if you want to sell and come out, there might not be any buyers.  Hence invest in penny stocks that have high volume so that you can liquidate if required. E.g. Odyssey Corp share price is Rs.4.23/- and avg. trading volume is 24,200 shares only. The maximum amount traded is only Rs.1 Lakh. Such stocks have less liquidity as it would depend on demand from buyers.  

    3) Upper circuit and lower circuits:

                       Penny stocks have upper circuit and lower circuit. Upper circuit means a stock price cannot increase beyond a predetermined percentage move. Generally it would be 5% to 10%. Lower circuit on the other hand means a stock price cannot reduce by specified percentage. As an investor, you should know that you cannot double your money in a short span, just because a stock has been locked in the upper circuit for a couple of days. Penny stocks may see the upper circuit for a few days and can see the lower circuit by a few days based on demand from buyers.

    4) Brokers / Promoters can manipulate share prices: 

                      Since penny stocks have low volume, share prices for such stocks can be easily manipulated by market participants, stock brokers or promoters of the company. If a penny stock price is reaching the upper circuit every day without any news about the company, it clearly indicates that someone is manipulating the share price. As an investor if you hear positive news about the company and think the future prospects are good, you can invest in a company irrespective of whether it is hitting the upper circuit or not.

    5) Ignore success stories:

                       Many stock brokers, websites, blogs, etc. indicate a success story about penny stocks. While these look good, no one wants to talk about hidden stories about investors losing money on penny stocks. Many brokers charge high fees, giving penny stock recommendations indicating a success story saying a penny stock raised by 100% or 500%. Investors fall for that trap, invests and loses money. As an investor, you should understand why a penny stock price has gone up, the reasons behind that and future prospects. If you are convinced by this, you can adopt similar strategies for other penny stocks and invest based on such strategies.

    Here are the some List of Penny Stocks:

    SERIAL NUMBERSTOCK SYMBOL (NSE)PRICE (IN INDIAN RUPEES)
    13IINFOTECH2.3
    23PLAND6.15
    3A2ZINFRA8.45
    4AKSHOPTFBR6.95
    5ANDHRACEMT2.05
    6ANIKINDS8.3
    7ANSALAPI5.25
    8ASHIMASYN7.25
    9ATLANTA6.35
    10BAJAJHIND6.95
    11BHANDARI1.3
    12BILENERGY1.05
    13BKMINDST0.7
    14BLBLIMITED4.1
    15BLKASHYAP9.2
    16BSELINFRA1.05
    17BURNPUR1.5
    18CELEBRITY6.9
    19CENTEXT2.5
    20CHROMATIC0.5
    21CINEVISTA8.15
    22CKFSL0.45
    23CNOVAPETRO7.85
    24COMPUSOFT7.8
    25COUNCODOS1.65
    26DHARSUGAR8.05
    27DIGISPICE5.05
    28DPSCLTD9.05
    29DUCON5.25
    30ENERGYDEV6.4
    31ESSARSHPNG6.7
    32FCSSOFT0.25
    33GAL2.3
    34GENUSPAPER5.2
    35GINNIFILA8.25
    36GISOLUTION2.55
    37GLOBOFFS5.35
    38GOLDTECH8.4
    39GTL1.6
    40GTLINFRA0.4
    41GTNIND6.25
    42GVKPIL3.95
    43HCL-INSYS7.3
    44HINDMOTORS5.9
    45HOTELEELA5.9
    46IDEA6.1
    47IFCI6.7
    48INDBANK7.1
    49INDOWIND3
    50INDSWFTLTD3.1
    51ISMTLTD4.5
    52IVC4.1
    53JAYNECOIND3.6
    54JBFIND7.25
    55JISLDVREQS8.6
    56JISLJALEQS9.1
    57JMTAUTOLTD1.25
    58JPASSOCIAT2
    59JPINFRATEC1.35
    60JPPOWER1.7
    61KMSUGAR8.05
    62LGBFORGE3.7
    63LPDC1.6
    64LSIL0.55
    65LYPSAGEMS4
    66MADHUCON3.75
    67MAGNUM3.65
    68MANAKALUCO4.45
    69MANAKCOAT4.25
    70MBLINFRA4.45
    71MCLEODRUSS4.55
    72MEGASOFT7.35
    73MERCATOR0.85
    74METALFORGE4.85
    75MIRCELECTR8.6
    76MOHITIND4.3
    77MOHOTAIND8.85
    78MSPL7.35
    79MTNL9.9
    80NAGREEKCAP7.6
    81NATNLSTEEL2.25
    82NECCLTD5.45
    83NEXTMEDIA9.7
    84NIBL6.6
    85NILAINFRA4.5
    86NILASPACES1.15
    87NOIDATOLL3.45
    88OISL3.15
    89OMKARCHEM4.85
    90ONELIFECAP6.75
    91OPTOCIRCUI2.95
    92OSWALAGRO5.7
    93PARACABLES8.5
    94PENINLAND4.05
    95PILITA5.6
    96PRAENG6.05
    97PRAKASHSTL0.25
    98PROSEED0.3
    99PSL0.55
    100RADAAN1.05
    101RENUKA9.2
    102RHFL2.85
    103RKDL5.4
    104ROLLT1.85
    105RPOWER3.5
    106RTNPOWER2.1
    107SABEVENTS0.65
    108SABTN1.25
    109SAKHTISUG9.25
    110SAKUMA6.75
    111SALSTEEL2.75
    112SAMBHAAV2.55
    113SANWARIA1.7
    114SCAPDVR0.2
    115SEPOWER2.7
    116SETUINFRA0.85
    117SGL6.05
    118SHAHALLOYS8.55
    119SHIRPUR-G8.15
    120SHREERAMA5.2
    121SHRIRAMEPC5.1
    122SHYAMCENT3.05
    123SIMBHALS6.95
    124SOMATEX3.5
    125SREINFRA9.8
    126STAMPEDE0.45
    127STINDIA4.6
    128SUBEX6.15
    129SUNDARAM1.3
    130SUPREMEINF9.65
    131SURANASOL6.35
    132SURANAT&P3.55
    133SUZLON2.7
    134SYNCOM0.9
    135TALWALKARS3.7
    136TALWGYM3.45
    137TCIFINANCE8.45
    138TECHIN3.1
    139TGBHOTELS3.6
    140TIJARIA7.25
    141TREEHOUSE5.35
    142TRIDENT6.75
    143TRIL7.7
    144TTML2.35
    145TVVISION1.2
    146UJAAS4
    147UMESLTD1.05
    148UNIPLY8.95
    149UNITEDBNK8.85
    150UTTAMSTL8.4
    151UVSL0.15
    152VASWANI5.3
    153VIJIFIN0.45
    154VIKASECO2.9
    155VIKASMCORP3.2
    156VIKASPROP7
    157VIKASWSP8.8
    158VIPCLOTHNG8.45
    159VISASTEEL5.05
    160WSI0.85
    161ZENITHBIR0.5
  • MOVING AVERAGE

    MOVING AVERAGE

     

    Definition:

                  “ A moving average is simply the average value of data over a specified time period, and it’s used to figure out whether the price of a stock or a commodity is trending up or down. Although simple to construct, moving averages are dynamic tools, because you can choose which data points and time periods to use to build them. For instance, you can choose to use the open, high, low, close or midpoint of a trading range and then study that moving average over a time period, ranging from tick data to monthly price data or longer.”

              Moving Average (MA) is a stock indicator that is commonly used in technical analysis. Technical Analysis is more important than Fundamental Analysis. Moving Average is one of the most popular techniques. moving averages that are used in timing a financial market. These averages are employed to detect the direction of the stock price trend and identify turning points in the trend in real time.

                      Moving Average smooth the price data to form a trend- following Indicator. They do not predict price direction, but rather define the current direction with a lag. Moving Average is primarily the summary of momentum & trend. Moving average reduces the noise in the price and also helps to follow trends.

    Popular Time Period Of Moving Average:

    1. 10 Period MA
    2. 20 Period MA
    3. 50 Period MA
    4. 200 Period MA

    Moving Average COMBINATION:

    This is the main calculation

    Sr.No. DAILY  WEEKLY
    1 10 SMA 2 SMA
    2  50 SMA 10 SMA
    3 100 SMA 20 SMA
    4 200 SAM

    MOVING AVERAGE SETUP FOR:

    DAILY INCOME TRADING (DIT)

    1. I put 10 EMA, 21/20 SMA & 50 SMA on the daily chart.
    2. If 10 below 20/21 below 50 I consider that stock is trading in the down trend & I focus on short trades. 
    3. If 50 below 20/21 below 10 I consider that stock is trading in the up trend & I focus on long traders.
    4. Apply your strategy & take your trade accordingly.

    TYPES OF MOVING AVERAGE:

    The most popular type of moving averages are Simple moving average & Exponential moving average. These moving average uses for identifying the trend of the market.

    a. SIMPLE MOVING AVERAGE

                       SMA is the easiest moving average to construct. The Simple Moving Average (SMA) is calculated by adding the price of an instrument over a number of time periods and then dividing the sum by the number of time periods. The SMA is basically the average price of the given time period, with equal weighting given to the price of each period. Most moving averages are based on closing prices

    CALCULATING SIMPLE MOVING AVERAGE

                                  If you plotted a 5 period simple moving average on 1hour chart, you would add up the closing prices for the last 5 hours, then divide that number by 5. 

    Example: 

    A 5-day simple moving average is calculated by adding the closing prices for the last 5 days and dividing the total by 5. 10+ 11 + 12 + 13 + 14 = 60 (60 / 5) = 12

    b. Exponential moving average

                              Exponential Moving Average can be specified in two ways- as a percent based EMA or as a period based EMA. A percent based EMA has a percentage as its single parameter. A period based EMA has parameters that represent the duration of the EMA. 

    CALCULATING EXPONENTIAL MOVING AVERAGE

    EMA = K * (Current Price – Previous EMA) + Previous EMA

    K: The weighting factor the EMA

    K = 2/(n+1)

    Where:

    n = the selected time period

     

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