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Tag: investors

  • TIP’S OF INVESTORS FOR INVESTING

    TIP’S OF INVESTORS FOR INVESTING

     

    Today we are learning some strategies or techniques on how to deal with the share market and how to invest in the share market. Here, some legend investors share their knowledge & experience with us. These tips are more helpful for our trading/investing lifestyle. 

    Jack Schwager

     

    Jack Schwager (born 1948) is an American trader and author. His books include Market Wizards (1989), The New Market Wizards (1992), Stock Market Wizards (2001).

    Schwager is an eminent industry expert and author of a number of critically acclaimed financial books, including The Market Wizards series. He was one of the founders of Fund Seeder. Previously, he was a partner at a London-based hedge fund advisory firm, the Fortune Group (2001-2010). He has also been a Director of futures research for some of Wall Street’s leading firms.

    Tips for individuals who want to trade:

    1. Schwager advises individuals who want to pursue their career as traders to first do extensive reading. He doesn’t recommend any book in particular, but encourages individuals to just go and explore different books.
      Check on the web, go to a library or go to a bookstore, if you can still find one these days. However you do it, just pick up different things. Look at different things, See what they’re saying, Once you figure out where you’re gravitating to, read more on that,” he says.
    1. He also advises traders to start thinking about ideas based on what they have read and how they could implement them in the market.
    1. Then he recommends traders to evolve those ideas into some sort of a methodology for which they can define the rules and come up with risk management plans.
    1. Traders can practise dummy trading to check whether their methodology has the required edge to become successful.

     

    • Finally, once traders feel they have an edge, they can start trading with small amounts of money and implement their strategies.

     

      1. Gradually if one is trading with real money successfully, then one can increase the amount as per his comfort.

     

    Tobias Carlisle

     

    Tobias Carlisle is the Chief Investment Officer at Acquirers Funds, and is best known as the author of the book Deep Value: Why Activists Investors and Other Contrarians Battle for Control of Losing Corporations.

    A graduate from the University of Queensland in Australia with degrees in Law and Business (Management), Carlisle has plenty of experience in investment management, business valuation, corporate governance and corporate law and has also worked as an analyst at an activist hedge fund.

    7 principles of deep value investing

    Carlisle lists out 7 simple principles for deep-value investing that one can follow to ensure solid returns in the long run.

    1. Focus on cash flows: Carlisle feels a share of a company shouldn’t be considered a mere ticker symbol. When one invests in a stock, she becomes a partial owner of that business. This, Carlisle believes, has two important implications. First, a shareholder has rights and can exercise those rights by voting at meetings; and secondly, an owner pays attention to all that a company owns and owes, especially its cash.
    1. Zig when the crowd zags: Carlisle encourages investors to follow a contrarian approach towards investing, and advises them to avoid following the herd. But he warns that before taking a contrarian approach, one should know the crowd’s consensus, which can be found in the difference between a stock price and its value.
    1. Find a margin of safety: Deep value stocks have a built-in margin of safety, and they are undervalued because the possibility of a worst-case scenario is already priced in. That gives it a high upside/low downside bet, he says.

    “The worst-case scenario provides a low downside. So you can’t lose much if you’re wrong. But if you’re right, the high upside can bring exceptional returns. So even if you’re right as often as you’re wrong, you do okay. Be more right than wrong, you will do great,” he says.

    1. Be cautious of fast growing companies: Carlisle says fast-growing and profitable companies attract competition, leading to erosion of margins and profits. Although moats do help, strong and sustainable moats are hard to find, and it is tough to gauge whether a moat will remain strong and sustainable in the future, he says. Also, due to reversion to mean, over time, high growth and profit companies eventually become just average companies.

    So Carlisle advises investors to look at companies that are currently facing difficulties and have prices that reflect those challenges.

    1. Don’t have a concentrated portfolio: Carlisle believes a concentrated portfolio focuses only on a few high performing stocks for investment due to which it comes with two important trade-offs. First, a concentrated portfolio is more volatile than a diversified one, so a whole good year for the market can be a great year for the portfolio, but a bad year can turn out to be a terrible one.
    1. Follow simple, concrete rules to avoid errors: Investors should follow simple concrete rules that can be both back-tested and battle-tested to avoid major errors. Back-testing checks the rules for theoretical strength, especially when tested in different countries and different stock markets. A battle-test can ensure the rules work in the real world. “No strategy has ever failed in theory. Almost all have failed in reality,” says he.
    1. Have patience for long-term success: Carlisle says investors often misprice stocks of companies that are facing tough times. This, he feels, can be an opportunity for patient investors willing to put up with below-average results in the short term. Carlisle believes investors who follow a buy-and-hold strategy and wait for a turnaround to happen have an enduring edge as they are focused on the long-term gains.

    Geraldine Weiss

     

    Geraldine Weiss (born March 16, 1926) is the co-founder of Investment Quality Trends and is nicknamed “the Grande Dame of Dividends” and “The Dividend Detective” for her unconventional value approach investment style by focusing on a company’s dividends rather than earnings. Geraldine Weiss, known as the ‘blue chip stocks guru‘ is the founder of the advisory newsletter, Investment Quality Trends. She is also a co-author of two books.

    Weiss says, she shortlists companies that meet six “blue chip” criteria:

    1. The dividend must have been raised five times in the past 12 years
    2. Have an “A” credit rating from S&P
    3. At least five million shares must be outstanding
    4. It must have at least 80 institutional investors
    5. A total of 25 uninterrupted years of dividend payouts
    6. Earnings improvements must have been recorded in at least seven of the past 12 years

    Weiss’ 7 investing rules

    Weiss came up with seven rules of investing from her years of experience in the investing world, which has helped investors of all ages from time to time to make better investment decisions.

    1. Stocks must be undervalued as measured by its dividend yield on a historical basis
    2. It must be a growth stock that has raised dividends at a compound annual rate of at least 10% over the past 12 years
    3. It must be a stock that sells for two times its book value, or less
    4. It must have a price-to-earnings ratio of 20 or less
    5. It must have a dividend payout ratio of around 50% to ensure dividend safety plus room for growth
    6. The company’s debt must be 50% or less of its market value
    7. It must meet a total of six “blue chip” criteria
  • How to Identify Swing Highs and Swing Lows

    How to Identify Swing Highs and Swing Lows

     

    I always pay strict attention to price formations when evaluating any market. Swing highs and lows are two of the most important formations to learn to identify.
    Many traders use these areas as entry areas on pullbacks when trading with the trend. Because their orders will be there as a ‘buffer’ to slow the counter-trend rise or fall of price, I often hide my orders above swing highs and below swing lows.

    But many traders, especially those just learning to read charts, have trouble understanding just what it takes to make a particular high a ‘swing high’ or a particular low a ‘swing low’.

    The chart shows a more common method of charting swing highs and lows. 

    Looking at this chart, I have already marked a Swing High “A” and a Swing Low “B”. And note that price has now climbed above the price extreme labeled Swing High “A”. Does that make this new high in price a swing high? No, because I don’t yet know whether the new high is in place or if the price will continue to work its way higher.

    In the back of my mind, I should be thinking that price is ‘working’ on a new swing high. But it is not a swing high until a price formation confirms it as an extreme high. It’s not as confusing as it sounds. Let me try to show a better example of extremes that are not yet confirmed by price formation extremes:

    Looking at this chart, I see a series of lower lows and lower highs that came after prices made an extreme high. But note that price has not yet traded below the prior low [at the far left of this chart].

    Nothing yet says to me: “The extreme low is in for this swing!” That means a true swing low has not been put in yet. Let’s look at another example:

    At first glance, it looks as if price left an extreme high and then traded lower and most traders would be tempted to say a swing high had just occurred.

    But is it a swing high? In this case, price made a new high and then came down and is now re-testing the prior low—In fact, at the moment the last bar is part of “double bottoms”, which is an important price formation but cannot be used to confirm a swing high or low. Only a low lower than Swing Low ‘A’ can ‘confirm’ the high that price made two bars earlier as a true swing high.

    Price breaks below the double bottoms and the low of Swing Low ‘A’ and that confirms the high three bars earlier as Swing High ‘B’.

    It takes new lows to confirm Swing Highs and new highs to confirm Swing Lows. Trading these back and forth motions in the market is swing trading. Once you learn to identify swing highs and swing lows, you can begin to anticipate what it will take to make the next price extreme a swing high or low and how to use that in your trading.

    Swing High ‘B’ is confirmed when price breaks below the prior low that formed Swing Low ‘A’ and note that price is now making a series of lower lows and lower highs. Has the price made a swing low yet? Remember, only a new swing high above a price extreme can confirm a swing low. There is nothing yet to even hint that price has made an extreme low.

    After the sharp fall, price consolidates, forming an Energy Coil [an area of tight congestion]. Energy Coils is generally a sign that price is re-storing energy, taking a break after an extreme move. Note that they are often followed by a series of false breakouts, so it can be dangerous to blindly buy or sell breakouts from these areas. Did the price just make a new swing low? Let’s take a closer look:

    I view the Energy Coil and the engulfing bar before it as a price formation. Now that price has climbed back above both the Energy Coil and the engulfing bar before it, the double bottoms below the Energy Coil are confirmed as Swing Low ‘B’.

    This is a classic bottoming formation, by the way, and unless price quickly ‘zooms’ through this area to the down side, this area should provide very good support. Note that we cannot identify a new swing high yet.

     

     

     

     

     

     

  • 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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