BASIC MARKET COURSE

1. Basics of Share market.

+ NSE, BSE, INDEX, SENSEX, SEBI
+ Options to make money in Stock Markets :
Investment, Equity, Derivative, Dividend, Fut and Options

2. Introduction to Stock market analysis.

+ Fundamental analysis
+ Technical analysis : Charts, Price action, Support , Resistance

3. Technical Indicators ( Leading and Lagging)

+RSI, MACD, STOCH, SUPERTREND
+Bollinger band, Moving average
+Application of technical indicators together.

4. Candlestick and its pattern.

+ Candlestick patterns, volume, candle as support/resistance
+ Chart patterns (continuation and reversal)

5. Price action trading.

+ Support, Resistance, BO, Volumes

6. Introduction to Futures and Options.

7. Option chain and its analysis.
+ Option strategy
+ Option Greeks and calculation.

8. Important points and logics, Rules of market.

9. Mutual funds.
 If You plan your exit before taking any trade, Your Future in
stock market is always bright. No one can stop you from having
a great Career if you know your Exit. You should only
concentrate on Exit and follow it with Discipline, Profit will be a
Bi Product which will keep accumulating.

• INTRODUCTION TO THE MARKETS

• OPTIONS TO MAKE MONEY IN STOCK MARKETS
• FUNDAMENTAL ANALYSIS
• TECHNICAL ANALYSIS
• INTRODUCTION TO DERIVATIVES
• GENERAL MARKET RULES
• DAILY ANALYSIS
INTRODUCTION TO THE MARKETS :

1. Financial Markets : Financial market is mechanism that allows

people to trade financial securities like bonds, shares etc.
2. Money Market : Money market is a market of debt securities like
treasury bills. It facilitates issuance and trading of short term non
equity debt instruments.
3. Capital market/ Stock market : Capital market is a market for long
term debt and equity shares. In this market both debt and equities are
traded.
4. Exchanges : In India there are many regional stock exchanges
through which shares of listed companies are bought and [Link]
from thr regional eschanges, there are two major exchanges on
which most of the trades are done.
(i) Bombay Stock Exchange (BSE) : It is the oldest stock exchange
not only in India but also in Asia.
(ii) National stock Exchange (NSE) : NSE commenced its operations
in Wholesale Debt Market in April 1994 and in Capital market
segment in June 1994.
It formed first clearing corporation, which carries out clearing and
settlement of trades executed in Equities and Derivatives
segments.

Brokers have to become member of the respective exchanges, so

that investorsand traders can trade in the market through them.
Currently trading hours non both the exchanges are from 0900 to
1530 hrs.
5. INDEX : An Index is a benchmark used for measuring the
performance of a fund managers and is a comprehensive measure of
market trends, intended for investors who are concerned with general
stock market price movements.

An Index comprises stocks that have large liquidity and market

capitalization. Each stock is given a weightage in the Index equivalent
to its market capitalization.
  BSE Index : Sensex, It has become the barometer of the Indian
Stock Market. It is comprised of 30 well established and financially
sound companies.
 NSE Index : Nifty 50, It is a well diversified 50 stock index
accounting for 22 sectors of the economy.
 Securities and Exchange Board of India (SEBI) : The SEBI was
established on April 12, 1992. It is an interim administrative body
to function under the overall administrative control of the Ministry
of the Central Government.

Major activities of SEBI are :

+ To protect interest of Investors in securities.

+ To promote the development of and to regulate the securitird market.

+ Regulation of Futures and Options, Index Market.

+ Guideline for Portfolio Management services.

+ Guideline for Brokers and other market intermediaries.

+ Regulations on insider trading.

Investors can write to SEBI for various grievances like, non-receipt of

dividend from the company, complaints related to a sub broker or broker.

SEBI website : [Link]

OPTIONS TO MAKE MONEY IN STOCK MARKETS :

We can make money in Stock Markets in following ways :-

1. Investment ( Delivery based trade)

2. Speculation ( Intrday and Derivatives Positions)
3. Hedging and Arbitrage.
4. Margin Funding.
5. Dividend Income.
FUNDAMENTAL ANALYSIS

1. Value investing :
(i) Intrinsic value : Check Intrinsic value of stock. If value less
then price of stock , Buy otherwise the stock can be consider
as Overvalued. (Intrinsic value must be less then the price of
stock for value buying)
(ii) Ratios :
(a) PE Ratio : How much you pay to earn Re 1.
For eg if PE is 10 then I am paying Rs10 to earn Re 1.
If PE < 20 then it is Good and compare it with the
sector PE also.
(b) PB Ratio : Price to book Ratio. Book value is the
actual value of stock/share. PB ratio should be less.
A Good PB is ‘1’ and ‘2’. Rest depend on other factors.
(c) Debt Ratio : Debt to [Link] tells about the value of
loan to Equity. If it is ‘2’ then company taken twice loan
of its Equity shares.(Debt/Equity)
Debt is good if Repaying capacity is Good.
Loan is Cheap, Equity is expensive.
(d) Current Ratio : Current Asset/Current liabalities.
It is good, if it is high.

PE RATIO low DEBT RATIO high

PB RATIO low CURRENT RATIO high

2. Balance Sheet :
(a) Sales : It must increase YOY basis.
Profit : It should increase YOY basis.

(b) Total Assets : Increase

Total liabilities : Decrease
 (c) Cash : Company should be in possession of good cash. Cash
flow must increase YOY.
3. ADVANCE FUNDAMENTALS :

(i) Business : Need of Business in day to day life.

(ii) Future Perspective of Business : Is future growth is there.
Requirement of business in Future. Direction of business.
Is there any need in future.
(iii) Monopoly : Advantage, If company alone in the field.
(iv) Competition :

Company A Company B
sales 200 CR 20 CR
Cash flow 100 CR 15 CR

This is competition. Company A can Crush Company B.

4. PROMOTER HOLDINGS : Promoter holding trend.

If promoter pledging increases means ‘NO’ BUYING.

Promoter buying and holding increases then ‘YES’.

Promoter holding must increase or stable , It should not

decrease.

If everything is good and FII, DII not present then buy the
stock for big up move.
TECHNICAL ANALYSIS :

The fundamental basis for technical analysis is that prices shift

with supply and demand. If the demand exceeds the supply ,
the price will rise. If the supply exceeds the demand, the price
will fall. Charts reflect this rise and fall. By studying this
movement on a chart and using the technical studies, you can
make predications on which way the price is likely to go.

Introduction to Candlestick :

Candlestick charting was discovered in Japan. Comparing with

all other types of chart, we will see that candlestick charting is
much more efficient and useful charting system, which provide
immediate clarity.

Patterns formed due to combined candles gives vital signals at

different stages of market continuation or reversals.

By combining more then two candles, one can predict whether

the present advance or decline will more forward or not.

A Candle formation consists of :

(i) Real Body.
(ii) Upper shadow
(iii) Lower shadow

CANDLESTICK PATTERNS :

SINGLE CANDLE PATTERN :

 1. Doji : It means that there is little or no difference
between the open and close price for that particular
day.
 Gravestone Doji : It indicates bearishness. It signifies the failure of
a rally attempt. The pattern when occurs at bottom, indicates that a
trend reversal is imminent. It looks similar to inverted English
Letter ‘T’.
 Dragon Fly Doji : A strong bullish candle-indicating end of a bear
phase and a strong bullish reversal. It looks similar to English
Letter ‘T’.
 Long Legged Doji : A Long legged Doji have upper and lower
shadows, that are nearly equal in lengths. Such a candle indicates
a great amount of indecision in the market and that a change of
trend could be coming soon.
2. Shooting star : It is a Small candle with upper shadow
at least more than two times longer than the candle.
3. Hammer : A small candle that has got a long lower
shadow. Which indicates that price declined much
during the day, but pulled back sharply. This candle
when forms on the top is called hanging man and
when forms at the bottom is called hammer.
 Inverted hammer.
4. Marubozu : open equal to low and close equal to high.

DOUBLE CANDLESTICK PATTERN :

1. Piercing Line : This is a trend reversal pattern. It indicates end of

downtrend and start of uptrend. In this pattern first day is a long red
bearish candle followed by a long green bullish candle which forms
the second day. Second day open is lower than the previous day low
and the closing is within the first days candle range, but above the
mid range of the candle.
2. Dark cloud cover : It indicates end of uptrend and start of down
trend. In this pattern first day is a long green bullish candle followed
by a long red bearish candle which forms the second day. Second
day open is higher than the previous day high and the closing is
within the first days candle range, but below the mid range of the
candle.

3. Bullish Engulfing : It also indicate end of downtrend and start of an

uptrend if formed at bottom of a downtrend.

In this pattern first day is generally a small red candle that forms in
line with the bearish trend, followed by a long Green candle which
completely engulfs the previous day red candle.

A positive opening on the third day is the confirmation signal to go

long.
4. Bearish Engulfing : It indicates end of uptrend and start of a
downtrend.

In this pattern first day is generally a small green candle that forms in
line with the bullish trend, followed by a long Red candle which
completely engulfs the previous day green candle.

A negative opening on the third day is the confirmation signal to go

short.

5. The Harami : The Harami occurring in an uptrend implies that the

buying has stopped. Likewise , a Harami occurring in a downtrend
indicates that the selling has stopped.

 Bullish Harami : In order for bullish Harami signal to be valid, the

following conditions must exists :-

i. The stock must have been in a definite downtrend.

ii. The Second day of the signal should be green and the body
should be completely engulfed by the previous day red candle
body.

 Bearish Harami : In order for Bearish Harami signal to be valid, the

following conditions must exists :-

i. The stock must have been in a definite uptrend.

ii. The Second day of the signal should be red and the body should
be completely engulfed by the previous day green candle body.

Three Day Candlestick Pattern : The Morning Star and Evening

Star are very powerful three day reversal signals and once
mastered they help traders reap huge profits.

 Morning Star Signal : This is a bullish reversal candlestick pattern.

Downtrend is in place. The first day in this pattern is signified with
a bearish long candle. Second day prices gap’s below the first
day’s close and prices fluctuate in narrow range. Closing whether
positive or negative for that day, is still below the previous day’s
close. Third day is a long green day where prices open above the
second candle and manage to close near or above the centre of
the first candle’s body.
 Evening Star Signal : This is a bearish reversal candlestick
pattern. Uptrend is in place. The first day in this pattern is signified
with a bullish long candle. Second day prices gap’s up the first
day’s close and prices fluctuate in narrow range. Closing whether
positive or negative for that day, is still above the previous day’s
close. Third day is a long red day where prices open below the
second candle and manage to close near or below the centre of
the first candle’s body.
 PRICE ACTION TRADING :

Price trends : The purpose of charting prices is to

identify price trends as they begin to develop and to
make trading decisions based on that trend. Another
way of identifying price trends is by looking at the past
price movement.

On a chart , prices are reflected in a series of peaks

and valleys. The direction of these peaks and valleys
make up the price trend.

 Uptrend : An uptrend would have a series of successively higher

peaks and valleys.
 Downtrend : A down trend would have a series of successively
lower peaks and valleys.
 Sideways trend : A sideways trend would have a series od
successively level peaks and valleys.

Typically , to determine a tentative trend, there must be at least

two lows with the second low higher than the first to indicate an up
trend, or two lows with the second low lower than the first to
indicate a down trend.

Support , Resistance and Volumes :

Support : Support is the price level at which demand is strong

enough to prevent the price from declining further. At this level
demand overcome supply and prevent the price from falling below
support.
When support level is broken, it means that bears have won over
bulls.
 Support taken at a particular level repeatedly forms a support zone
which is not easily broken.
Resistance : Resistance is equivalent to ‘Supply’ line. When selling
occurs repeatedly near specified level, resistance forms at that
price level.
When a Resistance level is successfully penetrated that level
becomes a Support level. Similarly when Support level is
successfully penetrated, that becomes resistance level.

 The advantages of Support and Resistance level can be taken

when stocks form some patterns, where one buys at supports and
sells at resistance levels.

Volumes : Volume is the total number of shares traded on one side of the
transaction. Volume should be kept in check, when you buy a share. Low
volume stocks should be avoided.

 When prices rise and volume increase it is a positive sign.

 When prices fall and volume rises, it is negative sign.
 When prices rise and volume falls, it indicates that the rally is not
very healthy and some speculation might be going on.
 If prices fall with volume decreasing, it can be considered a
positive sign and a sign of imminent trend reversal is achieved.

Trend Reversal : As prices continue in this upward trend and a

corrective dip in the trend comes all the way down to the previous
low, it may be an early warning that the trend is ending or at least
moving to a sideways trend. I f the support level is penetrated, a
trend reversal is probable. Failure to exceed previous peaks in an
upward trend is also an early warning that the existing trend is
changing.

Divergence :
 Divergence occurs when the indicator fails to imitate the pattern on
the price chart, a sign of trend weakness and likely reversal.
 There are two types of divergences i.e, positive divergence and
negative divergence.
 In an up trend , if price make a new High but the indicator fails to
do so, that is a bearish divergence.
 In a down trend , if price makes a new low but the indicator does
not, a bullish divergence occurs.
 When a positive divergence is observed on a chart between price
and an indicator, it implies that in short term we will see a positive
breakout.
 When a negative divergence observed between price and an
indicator on charts , it implies that in short term we will see a
negative breakdown.

Technical Indicators :
 The study of Technical analysis is done with help of indicators.
There are many indicators prevalent in the market with the help of
which we can indicate the momentum, the trend, volatility etc of
the market in general or an individual stock.

We will focus on the popular one’s and make sure that with a few
selected indicators we are able to do a proper study of the market
without being confused by overflow of information.

Types of Indicators :

Most indicators are categorized into two main types Leading and
Lagging Indicators.

Leading Indicators : By definition we can understand that these

types of indicators lead the prices. i.e. Price follow the movement
in such indicators.

 Relative Strength Index ( RSI)

 Stochastic Oscillator
 Bollinger Bands

Lagging Indicators : Lagging Indicators are also known as trend

following indicators as they follow the price action. They are
designed to keep traders in and keep them in till the trend is intact.

 Moving Averages.
 MACD

Relative Strength Index (RSI) :

 RSI is a price following oscillator and it measures the relative
strength of the stock.
 It ranges between 0 and 100.
 Its important levels are 30, 50 and 70.
 14 day RSI is popular in market. Fewer days used to calculate RSI
more volatile the indicator.
 RSI tops above 70 and bottoms below 30.
 Security is considered oversold below 30 levels.
 Security is considered overbought above 70 levels.
 When RSI remains above 50, instrument shows overall bullish
trend.
 When RSI remains below 50, instrument shows overall bearish
trend.
 Buy when RSI after going below 30 levels, manages to give a
positive breakout above 30 levels. As soon as it crosses 30 on
upside, one can initiate buy.
 One can also Buy when RSI takes support at 30 and starts
climbing up.
 Sell, when RSI breaks below 70, after retracing from above 70
levels. Or one can sell after RSI touches 70, faces resistance there
and starts declining.
 When RSI is above 70 in weekly and monthly charts, when it
crosses 70 upwards in daily charts, strong upward momentum is
witness.
 In monthly and weekly if RSI is up, but in daily charts when RSI
declines and makes a bottom, it gives opportunity to buy.
 Same way when in Monthly and weekly RSI is down, but in daily
charts RSI tops out, it gives an opportunity to sell.
 RSI divergence positive and negative.

Stochastics Oscillator :

 The stochastic oscillator is displayed as two lines.

 The main line is called “%K” the second line, called “%D” is a
moving average of “%K”.
 This indicator oscillates between 0 and 100.
 Important levels to lookout are 20 and 80.
 3, 14 setting is popularly used in %K and %D.
 When %K line crosses above %D line, Buy signal is established.
 Buy when the Oscillator falls below a specific level (e.g. 20) and
rises above that level.
 When %K line crosses below %D line, sell signal is established.
 Sell when the Oscillator rises above a specific level (e.g. 80) and
then falls below that level.
 When Stochastic is below 20 it is considered oversold.
 When Stochastic is above 80 it is considered overbought.
 When Stochastic forms a narrow top, it indicates weakness of
bulls, which means that the imminent downtrend can extend for
longer time.
 When Stochastic forms a narrow bottom, it indicates weakness of
bears, which means that the imminent uptrend can extend for
longer time.
 When Stochastic forms broad tops, it indicates strength of bulls
and up trend can continue with very little room on the downside.
 When Stochastic forms a broad bottom, it indicates strength of
bears, and down trend can continue with very little room on the
upside.

Bollinger Bands : Bollinger Band is a commonly used volume

indicator. In Bollinger bands in centre there is a moving average
and on both sides of it there are bands of standard deviation lines.
 Popularly used setting fro Bollinger band is 20 and simple moving
average is used.
 When there is huge volatility, bands are expanded.
 After the bands contract too much, the probability of a breakout
increases.
 When price line crosses Bollinger bands on upside or downside,
the trend can continue in respective direction for some time.

Bollinger Bands and RSI :

 When price line touches the upper band of Bollinger bands and at
that time RSI is rising, but is still below 70, it indicates that the
current up trend can continue for some more time.
 When price line touches the lower band of Bollinger bands and at
that time RSI is declining below 50, but is still above 30, it
indicates that the downside could continue for some more time.
 When price line is above Bollinger Bands and RSI is above 70 or
80, then the changes of trend reversal are high.
 We get Sell signal when the price line crosses the upper band on
downside and RSI breaks below 70.
 When price line is below Bollinger Bands and RSI is below 30 or
20, then the changes of trend reversal are high.
 We get Buy signal when the price line crosses the lower band on
upside and RSI rises above 30.

MOVING AVERAGES : The Moving averages are lagging

indicators i.e. they are trend following indicators and are used to
identify changes in trends.
 The moving averages is a way of calculating the average price of
an instrument over a given time span. As prices change over time,
the average price reflects the change but at a lower pace.

If the current price moves above the X day moving average, it

indicates a buy signal. Same way if X days of average moves
above its higher average, buy signal is achieved. The value of X
depends on the time frame selected.

If the current price moves below the moving average, it indicates a

sell signal.

 The important moving averages used are 5,9,14,21,50,100 and

200 DMA.
 It is said that Bulls live above 200 DMA and Bears live below 200
DMA.
 Moving averages will help ensure that a trader is in line with the
current trend. Don’t expect to get out at the top and in at the
bottom using moving averages.
 When a lesser day moving average crosses above a greater value
moving average, Buy signal is generated.
 Use shorter periods for early entry and then move to longer
periods for confirmation of continuation of trend.

Exponential Moving Average :

 In order to reduce the lag in simple moving averages, technicians

use Exponential moving averages.
 Exponential moving averages reduce the lag by applying more
weight to recent prices relative to older prices. It reacts quicker to
recent price changes than the simple moving averages.

 5 EMA : Short term trend.

 9/10 EMA : Strong momentum.
 20/21 EMA : Dynamic support and Resistance.
 50 EMA : Long term support and Resistance.
 100 EMA : First hurdle between 50 and 200 EMA.
 200 EMA : Lat line of Defence.

Moving average Convergence/Divergence (MACD) :

It is a trend following indicator, i.e. a Lagging indicator.

 There are two lines in MACD. One fast line and one slow line.
 Both these lines oscillate above and below the “0” line and given
indication of trend.
 The basic MACD trading rule is to sell when MACD falls below its
signal line.
 Similarly a Buy signal occurs when it rises above the signal line.
Thus it is popular to buy/sell when MACD goes above/below Zero
levels.
 When slow line crosses above and below the fast line, Buy and
Sell signals are generated.
 When MACD is making a new high and price fails to reach new
highs divergence occurs, similarly when Prices makes new highs
and MACD fails to make new highs, divergence occurs.
 When price make new lows and MACD does not, divergence
occurs giving a reversal signal.
 When MACD is positive in Monthly and Weekly charts, trend
remains intact.

Technical Analysis step by step :

 Start with monthly charts, It helps to determine the long term trend.
 Then check Weekly chart, It helps to determine the intermediate
trend.
 Last check daily chart, It helps to determine the short term trend.
 If all three Charts are positive, then expect a great bullish move.
 I f Monthly Chart and Weekly Chart are showing an up trend, but
daily chart shows an down trend, then it presents us with an
opportunity to Buy at Supports.
 If Monthly and Weekly Charts are showing a downtrend, but the
Daily chart is showing an up trend, then it presents us with an
opportunity to sell at Resistances and get out of the position.
 Always trade in the direction of the trends, the longer term trends
are more reliable.

Chart Patterns :

Chart patterns presents various factors like buying, selling and tug
of war between Bulls and bears and most importantly who is
winning the battle into pictorial form so that investors can take
position accordingly.
 Chart pattern analysis can be used to make short term or long
term forecasts. The data can be intraday, daily, weekly or monthly.

The vast majority of chart patterns fall in two groups, Reversal and
Continuation Patterns.

Reversal Patterns :

Reversal Patterns indicate a change of trend and can be broken

down into top and bottom formations.

 Head and Shoulder :

The Head and Shoulder pattern is generally regarded as a

reversal pattern and is most often seen in uptrends.

Volume has a greater importance. Volume generally follows the

price higher on the left shoulder, However the Head is formed on
diminished volume indicating the buyers aren’t as aggressive as
they were. On the last rallying attempt the left shoulder volume is
even lighter than on the head, signaling that the buyers are
exhausted.

New selling comes in and previous buyers get out. The pattern is
complete when the market breaks the neckline.

 Inverted Head and Shoulder :

The head and shoulder pattern can sometimes be inverted. The

inverted head and shoulder pattern id typically seen in
downtrends.
 In an established down trend, the bears starts showing signs of
fatigue.

 Rising Wedge :

This pattern is an indicator of a bearish phase imminent. The rising

wedge can be one of the most difficult chart patterns to accurately
recognize and trade.

The rising wedge is a bearish pattern that begins wide at the

bottom and contracts as prices move higher and the trading range
narrows.

The series of higher highs and higher lows keeps the trend
inherently bullish, which can make the interpretation a bit
confusing.

 Falling Wedge :

The Falling wedge is a bullish pattern that begins wide at the top
and contracts as prices move lower.

In falling wedge through lower top and lower bottoms are made in
succession, the decrease in downside momentum, alert the
traders that a trend reversal is imminent.

 Double bottom :

Double bottom is an intermediate to long term reversal pattern that

can takes a few days to a few weeks or a few months to form.
 A “W” like formation is completed and the stock can even surpass
the previously established resistances depending on the dynamics
of market at that time.
Positive breakout was witnessed when prices managed to cross
the trend line resistance.

 Double Top :

A double top occurs when a stock attempts to break out above a

recent peak but fails.

If a stock doesn’t immediately get through an old peak, it doesn’t

mean a double top is forming.

In order to get confirmation, the correction low between the two

peaks must be broken to the downside.

Time Frame between two Gaps :

For short term a gap of 3 to 4 weeks between two tops can be

considered.

For medium term study a gap of 3 to 6 months can be considered.

For long term study a gap of 1 to 2 years or more can be

considered.

One can be a bit flexible in these time frames depending on

respective chart behaviours.

 Rounding bottom :

The rounding bottom is a long term reversal pattern. This pattern

demands great patience from investors, as it takes a lot of time to
complete its formation.
 Its formation in weekly and Monthly charts, can give a clear signal.

In simple words it represents a long consolidation period that turns

from a bearish bias to a bullish and extends its bull run to complete
a saucer like shape of it.

Continuation Patterns :

Continuation Patterns indicates a pause in the trend and indicate

that the previous direction will resume after a period of time.

Some important continuation pattern are :

 Triangles :

- Symmetrical triangle :

This pattern can form in either an up trend or a down trend, it

usually forms during a trend as a continuation pattern.

During an up trend or a down trend, there comes a phase

where the stocks goes into a consolidation, with it forming
successive higher bottoms and lower tops, with volume fizzling
out and the range becoming narrower.

At one stage the volume dries up and the range is almost

absent, when suddenly either bulls or bears take charge and a
breakout is observed with great spurt in volumes.

- Ascending Triangles :

The ascending triangle is a bullish formation that usually forms

during an uptrend as a continuation pattern.
 Whether they form at top or in bottom, ascending triangles are
bullish patterns that indicate accumulation.

An ascending triangle has a definitive bullish bias before the

actual breakout.

The prices faces resistance near a certain level and each time
the decline forming a bottom, which is higher than the previous
one.

Till then higher bottoms are formed, with diminishing volumes

and resistances are faced, without a big sell off either.

At one stage, the bulls get upper hand and a positive breakout
is witnessed with huge spurt in volumes.

- Descending Triangles :

The descending triangle is a bearish formation that usually

forms during a downtrend as a continuation pattern.

Regardless of where they form, descending triangles are

bearish patterns that indicate distribution.

Successive lower highs are formed with prices taking support at

a certain level on downside every time.

As the pattern approaches it completion, the volatility

diminishes and so does the volumes.

Once the breakout is achieved on downside, it happens with

huge volumes.

 Flag continuation pattern :

 Flags are short term continuation patterns that mark a small
consolidation before the previous move resumes.

It is important that flags and pennants are preceded by a sharp

advance or decline. Without a sharp move, the reliability of the
formation becomes questionable.

A flag is similar to rectangle pattern with the difference that it

slopes a little, which is not the case in rectangle.

If the already established trend were up, then the flag would slope
down.

If the established trend were down, then the flag would slope up.

Once the breakout is achieved with higher volumes, the trend

extends itself.

 Rectangle Pattern :

A rectangle is a continuation pattern that forms as a trading range

during a pause in the trend.

Rectangles represent a trading range in which bulls and bears

fight for the eventual win.

As the price nears support, buyers step in and push the price
higher. As the price nears resistance, bears take over and force
the price lower.

 Price Channel :

A price channel is a continuation pattern that slopes up or down

and remains range bound by an its upper and lower trend line.
 Traders take advantage of this trend line bound movement, but
buying near the support of lower trend line and selling near the
resistance of upper trend line.

Long term investors just keep their positions long or short until the
respective trend line is broken against their position.

 Cup and Handle :

The Cup with Handle is a bullish continuation pattern that marks a

consolidation period followed by a breakout.

In this pattern after an up move, it is followed by a selloff, This

selloff forms the initial part of the pattern.

After sell of the trend remains uncertain for some time and then an
up move is witnessed.

Then again after reached the previous recorded high in this

pattern, the prices correct again to form a handle like shape.

A subsequent breakout from the handles trading range signals a

continuation of the prior advance.

The cup pattern is like a semi circle. The pattern is a consolidation

period among a major trend already established.

If the volumes increase when breakout is witnessed, the trend that

follows can be considered stronger.

Introduction to Derivatives :

Derivative trading includes Future and Options trading. Derivative

is a product whose value is derived from the value of one or more
basic variables. If the price of the underlying asset increase or
 decrease then the price of the future (derived product) will also
increase or decrease.

 Future trading :

Futures are derivatives, which are financial contracts whose value

comes from changes in the price of the underlying asset. Stock
market futures trading obligates the buyer to purchase and the
seller to sell a stock or set of stocks at a predetermined future
date.
It includes :- Expiry, lot, buy and sell, margin.

 Option trading ;

An options contract involves the payment or receipt of a premium

for the right to buy or sell the underlying asset at a particular price,
within a specified period.

Buyer of an option : The buyer of an option is the onre who by

paying the option premium buys the right but not the obligation to
exercise his option on the seller/writer.

Writer/seller of an option : The writer of a call/put option are the

one who receives the option premium and is thereby obliged to
sell/buy the asset if the buyer exercises on him.

Call option : A call option gives the holder the right but not the
obligation to buy an asset by a certain date for a certain period.
Traders buy calls when they anticipate the underlying asset to go
up in price.

Put option : A put option gives the holder the right but not the
obligation to sell an asset by a certain date for a certain price.
Traders buy put option when they think the underlying asset price
will go down.
Option price/premium : Option price is the price which the option
buyer pays to the option seller to buy the right. It is also referred to
as the option premium.

Expiration date : The date specified in the options contract . This

is the last day of the contract to exercise the right, after this the
contract becomes void.

Strike price : The price specified in the options contract. This is

the agreed price to exchange the assets.

Spot price : The spot price means the price of the underlying
asset. This is the actual/real price of the asset.

In the money options (ITM) : A call option on the index/stock is

said to be ITM when the spot price is higher than the strike price.
In case of a put, the put is ITM if the spot price is below the strike
price.

At the money option (ATM) : An option on the index is ATM

when the current inex is equal to the strike price.
(i.e. spot price = strike price)

Out of the money option (OTM) : A call option on the index is

OTM when the current index stands at a level less than the strike
price. In the case of a put, the put is OTM if the inex is above the
strike price.

Intrinsic value of an option : The option premium has two

elements, intrinsic value and the time value. The intrinsic value is
the difference between the underlying price and the strike price.
(Option premium = Intrinsic value + Time value)
Intrinsic value of call options = underlying price – strike price
Intrinsic value of put options = strike price – underlying price
 ITM options have the intrinsic value.
Intrinsic value of OTM options is Zero.

ITM call options = Strike price < Underlying price.

ITM put options = Strike price > Underlying price.

Time value of an option : The difference between the options

premium and its intrinsic value is called as time value of options.
(Time value of options = Options premium – Intrinsic value)

Options which are out of the money or at the money have only
time value. At the money options have maximum time value. At
expiration options have no time value. The longer the time to
expiry, the greater is the option time value.

 Option Greeks :

Options have certain properties called Greeks that define how the
option premium will change depending on the factors affecting the
underlying asset.

There are primarily four Greeks we will focus on :

- Delta : It indicates how much the option premium will change if

the underlying asset changes by 1 point. Delta essentially
measures the probability of the option being ITM at expiration.
Calls have +ve Delta and Puts have –ve Delta.

- Gamma : This greek indicates how much the Delta of your

position will change when the underlying asset price moves by
1 point. Gamma in other words is a Delta generator.
Gamma is highest for ATM options and tends to be near 0 for
OTM and deep ITM options.
 - Theta : This Greek indicates how much the option premium will
theoretically change due to the passage of time. It is the
measure of how much the extrinsic value will decay each day
as the options approach expiration.

- Vega : Vega is a measure of change in the option premium for

a 1% change in the underlying asset implied volatility. Long
positions, be the Calls or Puts, always have positive vega.
When volatility rises, long options benefit from it. Vega is
highest for ATM options and lowest for far OTM options.

 Option Strategies :

There are multitudes of ways one can construct option positions.

Using the basic building blocks of Calls and Puts, traders can build
complex positions limited only by their creativity.

 Option chain :

An Option chain is a table displaying all available call and put

option contracts for a specific stock, index, structured by expiration
date and strike price. It serves as a dashboard for derivatives
traders, providing real time data on metrics like open interest,
volume, bid and ask price, implied volatility, Option Greeks.

General Market Rules :

 Trend is my Friend.
 Start with the Weekly chart to establish the Long term trend. Than
work through the daily and hourly charts to trade in direction of
 trend. The odds are better if you trade in the direction of the long
term trend.
 50 Day SMA, Money managers adding to their long term positions
by buying at 50 DSMA pullback.
 The maximum time a Support or Resistance level is tested, the
greater the odds that it will be Broken. Old Resistance can become
the new support and the Old support may become the new
Resistance.
 The longer the Market Gaps, the greater the odds of continuation
of the trend. If the gap don’t fill in the first hour of trading, the odds
are that they aren’t going to fill and price will continue move in the
direction of the gap for the reminder of the day.
 The last hour often tells the truth about how strong a trend truly is.
Smart money shows their hand in the last hour, continuing to mask
positions in their favour.
 As long as Market is having consecutive Strong closes, look for an
uptrend to continue.
 The uptrend id most likely to end, when there is morning rally first
followed by a weak close.
 Trend never turns suddenly, Reversal build slowly. The first sharp
dip always find buyers and the first sharp rise always find sellers.
 Wishful thinking must be banished, Hope is a dangerous emotion
in market.
 Trade the market not the money, Trading decision should be made
based on price action and not the need to make money. Focus on
your trading system and following the prices for entries, exit and
position size, rather than the money you are losing or making at
any particular moment.
 When there is nothing to do, do nothing, The ability to do nothing
unless there is a signal is a powerful and a profitable habit to
develop. Self control and Patience will save you a lot of time and
money.
 Trade what happening not what you think is gonna happen, Get in
the habit of going with the flow and avoid to predict where the flow
going.
 Manage losses and maximize gains, all your trades should end in
one of the four ways :
+ A small win.
+ A big win.
+ A small loss.
+ Break even.
 Never lose more than 1% of your total capital on any one trade.
 Never lose more than 3% of your total capital on your worst day.
 Normal correction in a bull market comes for 1-2 days.
 During correction market bounce back quickly on same day from
imp support levels.
 First find the right SL level that will shoe you that you are wrong
about a trade, Then set your positions size based on the price
level.
 Losers average loses, Get in habit of never adding to a losing
trade. Learn from the experience and move on to the next trade.

 Five qualities of a trader : Passion, Patience, Consistency,

Discipline and Confidence.

Daily Market Analysis : Index (Nifty50)

 Day OPEN
 Day HIGH
 Day LOW
 Day CLOSE
 Nifty PCR
 PE ratio
 RSI
 MACD
 FII Long positions
 FII Cash/Fut position
 VIX
 Supertrend
 Dow Fut
 Dollar index
 Crude
 US 10Y BY
 Gift Nifty
 MMI (Market Mood Indicator)
 Candle pattern
 MA C/D
 RSI + MACD + BB
 Option chain