Getting started! in stock market

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Getting started!


At this stage, it is extremely important for you to understand why we have so many different learning modules, and how these modules are interrelated. To give you a head up, here are some of 

the modules that we will cover in Varsity.

1.Introduction to Stock Markets

2.Technical analysis

3. Fundamental Analysis

4. Futures Trading

5.Option Theory

6.Option Strategies

7.Quantitative Concepts

8.Commodity Markets

9.Risk Management & Trading Philosophy

10.Trading Strategies & Systems

11.Financial Modeling for Investment practice


13.1 - So many modules – how are they interrelated?

In order to be successful in the markets, what according to you is the single most important factor? Success in markets is easily defined – if you make money consistently you are successful, and if you don’t you are not!

chances are you will think about factors such as risk management, discipline, market timing, access to information etc as the key to be successful in markets.

While one cannot deny the importance of these factors what is even more compelling and primary is developing a point of view (POV).

A point of view is an art of developing a sense of direction on a stock or the markets in general. If you think the stock is going up, your POV is bullish hence you would be a buyer of the stock.

To develop a point of view, one needs to develop a systematic approach to analyze the markets. 

There are a few methods using which you can figure out/ analyze what to buy or sell. They are:

1. Fundamental Analysis (FA)

2.Technical Analysis (TA)

3. Quantitative Analysis (QA)

4. Outside views

FA based POV – The quarterly numbers looks impressive. The company has reported a 25% top line and 15% bottom-line growth. The company’s guidance also looks positive. With all the fundamentals factors aligned, the stock looks bullish hence the stock is a buy.

TA based POV – The MACD indicator has turned bullish along with a bullish engulfing candlestick pattern, with that study the stock’s short term sentiment looks positive therefore the stocks is a buy.

QA based POV – With the recent up move, the stock’s price to earnings (PE) touched the 3rd standard deviation. There is only 1% chance for the PE to breach the 3rd standard deviation. Hence it is prudent to expect a reversion to mean; therefore the stock is a sell.

Outside view – The analyst on TV is recommending a buy on the stock therefore the stock is a buy.

The POV you take should always be based on your own analysis rather than an outsider’s view If the POV is bullish, you can choose to do one of the following:

1.Buy the stock in the spot market

2.Buy the stock in the derivatives markets.

a.Within derivatives you can choose to buy the futures

b.Or choose to trade via the option market

i) Within the option market there are call options and put options.

ii) You can also do a combination of call and put options to create a synthetic bullish 

trade For example, if I’m extremely bullish on a stock from 1 year perspective then I’m better off doing a delivery trade. However if I’m out rightly bullish on the stock from a short tem perspective (say 1 week) then I’d rather choose a futures instrument to trade.

If I’m bullish with constraints attached (example - I’m expecting the markets to bounce because of a great budget announcement, but I don’t want to risk much) then it would be prudent to choose an options instrument.


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