Earning Per Share (EPS) and Price / Earning (PE) for Dummies

Fundamental

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EPS & PE

You must have heard about all these terms used by experts but a few of you must be knowing how to use it! These both are terms which should be there in everyone's financial vernacular.

See imagine you are running a company and the prime focus of yours would be to grow the company and increase its profits...

The primary function of a business is to increase profits, everything else is secondary...

Now to increase profits you need to "expand" your operations and for that you need money....

There are two ways with which one can acquire funds...

1) By taking a loan ( DEBT)

2) Raising funds from capital markets(Stock Markets)by selling your stake in the company ( EQUITY)

Thats how a company is listed on the stock exchange by a process called as IPO (Initial Public Offer).

IPO is nothing but a way by which a company sells its shares to the public.

Now lets say I am a company with 1 lakh shares.

Now every company which is listed on the stock exchange has to declare its financial results every quarter. This is important as the shareholders of the company need to know how the company is performing from time to time. Basically to understand the interim performance of the company and its growth and progress to facilitate further investment decisions.

See the financial years in India starts from 1st April and ends on 31 st March.

So the period from

• April to June is Q1(Quarter 1)
• July to Sept is Q2
• Oct to Dec is Q3
• Jan to March is Q4

All 4 quarters together is called as a fiscal year or financial year.

Now we assumed that our hypothetical company has 1 lakh shares. Shares is nothing but a part of ownership.

So if you have 1000 shares out of the 1 lakh shares you are 1% owner in the company. Similarly if you have 5000 shares you are 5% owner in the company and so on.  A person needs to have atleast 51% stake in the company to take decisions.

These numbers are just for illustration purposes and to make understanding easier.

In reality a company has lakhs and crores of shares.

So now we have 1 lakh shares

Lets say in Q1 co posts Rs. 5 Lacs as profits.

Now we can say that Earning Per share( EPS) is

Net profit ÷ No of shares

So in this case our profits were 5 lakhs and we had 1 lakh shares so our earning or profit per share is Rs 5.

Now lets say in remaining quarters

Q2 profits - 8 Lakhs

Q3 profits- 6 Lakhs

Q4 profits- 11 Lakhs

So in Q2, Q3 and Q4 profits will be Rs8, Rs 6 and Rs 11 respectively.

So we can say that the EPS posted by the company in financial year was 5 + 6 + 8 + 11= 30 EPS

Explanation on PE - Coming Soon

Written by - Yash

Edited by   - #Raj

                     #ow

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Authorised Share Capital

                  

#TermoftheDay - Authorised Share Capital

Suresh Baskaran: Authorised share capital is the maximum amount for which a company can issue shares to its investors/shareholders. However, company can choose to not to fully issue shares worth total authorised share capital. It can issue shares at a later date also when it wants to raise capital. For example: If a company's authorised share capital is 10 crore, it can issue shares worth 3 crore to its investors/shareholders and can keep remaining 7 crore worth shares with the company itself for future fund raising.

Pawan Bajaj: Authorised Share capital is the maximum amount by which company can raise the capital from Public. It is written in Memorandum of Association and divided in the shares of Face value, it may be from Rs.1 to Rs.10. Issued capital is part of Authorised capital & Difference between Authorised capital and Issued capital can be issued by company in future.

Ramlal: ASC is the maximum amount of share capital that the company is authorized to issue to shareholders.

Sandhya G: AS is the max number of shares a company can issue to its shareholders...to increase this limit, shareholders approval and a fee payment to government is required. This amount a mentioned in the memorandum of association of the company which is made when u r applying for a company license. The company may or may not utilize this limit completely.

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Periodic Call Auction

                  

#TermoftheDay - Periodic Call Auction

Alex Maria: It is a trading mechanism implemented by sebi for all illiquid stocks (such as avg daily trading volume is less than 10000 in a quarter, average daily nonpf trades is less than 50 in a quarter) in equity market to be traded in a different way during normal trading hours.. it will be conducted in sessions where each session longing for one hour where 45 mins for 45 mins for order entry/modification, next 8 min for trade execution and the last 7 mins for idle time for transition to the next session.

Suresh Baskaran: Periodic call auction is a process to limit the volatility in a illiquid stocks (stock with less volumes, less no of trades, less traded value). This call auction is done every one hour starting at 9.30 am. Each session has three phases. First 45 minutes for trade entry, modification and cancellation; next 8 mins for matching orders and trade confirmation; next 7 minutes are buffer time for closing that particular session. These order entry is valid for that one hour session only. Trade will executed if matching orders are there in that particular session.

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Flag & Pole Pattern

                  

#TermoftheDay - Flag & Pole Pattern

Mukesh Gupta: As name suggests, it’s a candlestick formation resembles an either a upwards flag (bullish one) or a downwards flag (bearish one). In a bullish formation price moves upwards with a consistent pace and forms a pole, than consolidate in a bearish trend (in a range) by making a lower highs and lower lows (*imp-these lower lows are always high than the low of pole*) thus forming a flag structure. Trade entries are made on the upper channel breakout of flag range. Exact opposite of this bearish flag.

Suresh Baskaran: As the name suggests, Flag & pole pattern consists of two parts- pole (sharp up move) and a flag (consolidation or minor profit booking). Support and resistance line of range bound Flag portion is either horizontal or trending downwards. Once the resistance line of flag portion is crossed, stock will breakout on upside. Target of the breakout move can be set as length of the previous pole above the resistance line of flag portion.

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My Trades - Equity - March 2017

Click here to view my Trades - Equity - January 2017
 
Click here to view my Trades - Equity - February 2017
 
Click here to view my Performance Report

Date: 1st Mar, 2017

Time: 8:41 IST

DLF - News of Rental arm selling - Flashing - Expected to see BTST returns. Will book profits as per my appetite.

Time: 9:08 IST

DLF -155

Time: 9:13 IST

Axis Bank made a low of 504.60. We calculated 503.60 and now it is trading at 511

Time: 10:12 IST

Motherson Sumi flying in new territory, if could sustain 370, in very well reachable range.

Time: 15:24 IST

Will carry Sunpharma for tomorrow with the target of 707.

Time: 19:30 IST

Tata Global Beverages look like it is cooked well. Tomorrow can trade 150 CE.

Motherson Sumi can see the levels of 365 tomorrow and 370 day after. If closes above 370 this week, can reach 390 soon.

Expecting DLF opening 162 with the hurdle at 167 and if crosses with volumes can reach to 182


                  

Date: 2nd Mar, 2017

Time: 8:41 IST

Tata Global Beverages - Inverted Head N Shoulder Pattern. Confirmation

Short Term Trade 146.20 above
Mid Term Trade 150.50 Above.

Volumetrics showing strength for breaking out. Delivery - anytime. Breakout will buy above 147.20 (If trades above and sustain. I think it can reach to 150.50, 154.50, 165, 181.4 levels.

Time: 9:09 IST

Motherson Sumi Opening 365.8
DLF consolidate and then move again
I have exited Sun Pharma 720 CE at 14
International Combustion 633

Time: 10:32 IST

I will buy Lakshmi Energy & Foods at 71.60 with a target of 90

Time: 14:54 IST

I will keep SL - Buying Rate - DLF. No doubt - DLF bet for delivery for the target of 240. But it will retest waters now.

Date: 5th Mar, 2017

Time: 23:16 IST

Few charts - which explains theory on its own. Love at first sight with Geometric charts. I will buy Pyramid - 265, 219, 180 with a target of 320, 365, 409. Recently Reliance Mutual Fund has also bought the shares.

Date: 6th Mar, 2017

Time: 20:16 IST

LICHSGFIN - Daily Charts - Ascending Triangle Formation

Reliance Capital - Will buy at 542 / 539 with a stoploss of 534 and will sell it at 552 / 556

LICHSGFIN - Will buy at 567 / 564 with a stop loss of 559 and sell it at 573 / 580

Time: 20:16 IST

Avantel - I will buy at 145. I am looking for a whopping target of 15X ie. 2175 in 2 years.

Date: 7th Mar, 2017

Time: 10:10 IST

Bharti Airtel - I will buy at 337 / 323 with a stoploss of 312 and sell it at 472 levels.

Time: 21:38 IST

I have been sensing distribution on screen and decided to offload part of my portolio - It seems larger player are off loading the screen to collect back on downfall on 11 March UP Election Event.

I will pick on fall - Support - 8720 -

Bharti Airtel

Pioneer Embriodery

DLF

Escorts

SBIN

Axis Bank

Nifty Bees

Motilal Oswal

PNB

Most of the traders usually trade both PE and CE either to play volatility or to hedge the portfolio. If could be non event in any case. We might open Gap and fail to sustain - Valuations are not up to mark - to sustain the rally.

Probability -

- One more quarter of consolidation - post - Fed guidance and new legs with new strategy

- Remember this volatility is based on liquidity and whole structure is balanced on stability of international markets. Any unexpected event can ruin the card structure.

Stay connected to events possible outcome and plan the unplanned probability.

Most of premium are built before event and operators are too hungry to share benefits.

Date: 8th Mar, 2017

Time: 20:05 IST

Bharat Financial Letter states - Company has been exploring options from time to time - means promoters are willing to discover the idea - Valuations of 13000 crs - Reckons - 942 / a piece

The share volatility has always injected terror amongst investing community - Seems fully operated and controlled move. Last time when it was around 950 offs - I got the heads up of 1200. And stock fell to low of 470 - And I'm two months stock recovered the loss - The timing of news - 5% NPA of total Book - and now Indusind Rumor - Shows declaration of participation as per my understanding. The stock will blast above closing of 870. I will try to play options rather and avoid large exposure. Last two days volume attracts any Chartist - Some big and fishy. Open Interest - Feb - 27 / First Day of March Series - 1.03 Crs. Today - 8th March - 1.57 Crs.

This shows Bharat Financial is standing with volumes to break previous highs. Tomorrow if market take this negative and opens gap down - Which I feel anywhere between 825 / 836, I will buy with a target of 898.

Date: 9th Mar, 2017

Time:7:57 IST

Bajaj Hindustan - I will buy for 6 months at 14.3 with a stop loss of 11.50 and sell it at a target of 28

Time:10:19 IST

Bharat Financial - I will stick to my levels. Denial News must have created fresh shorts and crossing above today high will lead the stock to 870 - thereafter momentum short covering can take place. I am being watchful - Open Interest - 1.59 CRs.

Time: 12:50 IST

Bharat Financial - Low - 837. Second half stock watcvh - Bharat Financial and Reliance Capital - Probably upside.

Time: 13:50 IST

Jyothi Lab - Symmetrical Triangle Formation on Charts - I will buy above 375 and sell it at 390 / 408

Date: 14th Mar, 2017

Time: 13:36 IST

I will buy Adani Port at 309.50 / 307 with a Stop loss of 303 and will book profits at 324

Time: 13:36 IST

DHFL - I will buy DHFL March 350 CE at 7.5

Date: 15th Mar, 2017

Time: 9:25 IST

I have booked 3900 Rs profit in DHFL  March 350 CE at 8.8 Time: 9:51 IST

Regency investments - I will buy 25 to 50 shares at 20

Time: 10:05 IST

Adani Port - I have changed the stoploss of Adani Ports to 307

Long term bet I am taking in Mahindra and Mahindra and I will buy at 1305 / 1260 / 1185 with a target of 1420 / 1500

Date: 17th Mar, 2017

Time: 15:25 IST
Motherson Sumi - I will buy Motherson Sumi March 370 CE at 6.6

Date: 20th Mar, 2017

Time: 09:25 IST
I booked 5000 Rs profit in Motherson Sumi March 370 CE at 8.6

Time: 11:08 IST
Regency investments - I will add 100 more shares at 20. I am looking for a target of 27 / 30 in 2 to 3 months time frame with a stoploss of 17.

Time: 11:23 IST
Adani ports - I have booked profit at 326 which I entered at 309.5 on 14th march 2017
DHFL - I have exited my positions at 361

Date: 22nd Mar, 2017

Time: 22:43 IST
BHEL - I am sensing long term reversal in the structure of BHEL and I will buy on dips and hold. I will buy at 157.4/155.35 and I will average at 148. I am looking at a target of 177/193/214 with a stoploss of 131.5

Bank of Baroda - I will buy at 148 with a target of 200 and stoploss of 137.2

Reliance capital - I will buy  at 578 and will sell it at 624/637/644/654

Date: 23rd Mar, 2017

Reliance capital -It Couldnt Hit - 578 as I reckoned. It is trading at 614 now.

Time: 12:32 IST
SQSBFSI - I will buy at 545/541 with a stoploss of 530 and will sell at 568/598/614

Time: 12:58 IST
Bombay Dyeing - I will buy at 72.5 and will average at 67 if it if falls to that level. I will sell it when it reaches 130

DIVIS LAB - Looking Pretty Weak on Charts. I feel it can touch levels of 559. I am avoiding buying till that level.

Time: 14:21 IST
TATA GLOBAL BEVERAGES - I will buy in futures at 148.

Time: 14:36 IST
TATA GLOBAL BEVERAGES - I have booked profit at 150.5 with in 15 minutes.

Time: 15:36 IST
DLF - I feel charts are very promising and Just looking forward for move - am expecting in April

Date: 28th Mar, 2017

Time: 16:20 IST
I am finding Public sector banks are forming Rounding base and are closing Ascending Traingle formations - Volumes are ticking in -

Arun J - Hired on policy measures to be declared on NPA recovery soon - I am Keeping an eye on -

• SBIN
• Bank of Baroda
• PNB
• Canara bank
• Oriental Bank of Commerce

I am sensing that following Stocks are forming strength and am expecting those to make new highs - April Series

• Suntv
• Bharat Financial
• Escorts
• India bulls Housing
• HDIL
• DLF
• Mothersun
• LICHSGFIN
• Regency Investments

Date: 29th Mar, 2017

Time: 11:54 IST
PIONEER EMBROIDERY - I will buy at 47/48 and will sell at 51.2.
Bombay dyeing is quoting at 90
Sun tv rallied from 682 to 782 in 45 days

Time: 15:48 IST
I will average Lakshmi food if it comes down to 58. I am looking at a target of 140.

Date: 30th Mar, 2017

Time: 10:19 IST
I am taking Lakshmi Overseas for long term and not trading on intra day basis . I am confident it will give me returns. Short term volatility leads to emotions and I am not being emotional in stock market.

Time: 12:15 IST
Concor - 1280. I have this in portfolio for bit long term.

Time: 12:23 IST

Presently looking in overbought zone. I will wait for correction and I will buy at 43.25.

Time: 12:25 IST

NCC: Symmetrical Triangle Breakout - Some Resistance at upper level - pushing buyer down. Waiting for fresh entry - 79.90, 78, 75 with the target of 94

Time: 13:05 IST

Script Colpal - I will buy at 977 / 945 for positional Delivery and sell it at 1126. Time Frame 3 months

Time: 13:14 IST

Fresh Buying is observed in Tata Global

Time: 13:33 IST

Colpal - 1013

Time: 13:40 IST

Tata Global - Consolidating - 155 April CE - Seems attractive - I will buy when cash crosses 154 and stay above that for atleast an hour.

Fresh 5 lacs added

Scrip Just Dial - I will buy at 538.50, 532, 526 for the target of 560

Time: 14:57 IST

Indiabulls Housing finance - I will buy for delivery at 975/972 and will sell at 1012

Time: 15:09 IST

Indiabulls Housing finance - I have booked complete profit at 989 within 12 minutes

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Journey of Novice Investor by Samrat Sridhara

My romance with Stock Market began from an early age when I was probably in my 7th standard when my father would talk to me and teach me couple of his tricks. Owing to financial constraints he couldn’t purchase much of sizable equity. I have begun investing directly in equity little late. Here are some tips which I have picked up from the journey so far, which I believe has just started. You can read it with a pinch of salt as these are based on my introspection. Let us start from where most middle class would begin

Your first pay doesn’t matter: I know you’d want to yell, ‘Of course it does you moron!’. Here Ladies and gentlemen the following applies to those who want to create wealth through Stock Market. That said, why first pay isn’t important. Recollect your classroom grades? How many of them topped the class? One? Two? Or May be Three? If you drill down further, toppers need not necessarily would have topped every subject. There must be other students, probably including yourself who would have topped one or the other subject. If you have chosen Stock Market as your subject to specialize in the ‘Real’ college (world). 

Stop comparing yourself with others and learn the trade of the job. Pick a job which you’d love to work as. Even if you end up in a job which you had to pick up because of some constraints, pick up important skills like – Execution, Team work, being Sincere to your job, Conviction, Learning attitude, Follow up, Voicing out your view. Though all skills are important, I would personally rate having a view and voicing it out a notch higher. Having a view and expressing it doesn’t make you adamant. Present it politely. But have one. Remember the time when you were a single cell organism and expressed your views correctly and how you’ve now turned into a functional dynamic multi cellular organism, negating millions of your siblings’ views?

                  

How should I start? Initial years, start by investing in yourself. I know you’d want to roll your eyes. Let me ask you how many of CAs, CAT aspirants, MBBS aspirants or International level sportsmen that you know achieved success in first attempt. If you’re one of them congratulations. I am talking about most of us who are not successful in the very first attempt. Common do not feel bad about it, we have already stopped comparing ourselves with others from previous point remember? What made others successful? Preparation. A really thorough one. You can exaggerate with all the superlatives you want to. Now may I ask you for what joy do you want to appear in the final examination called ‘Stock market’ without preparation? There are veterans who are learning each day probably even after 20 years of experience. Preparation gives you courage to face initial hurdles which are common.

How do I invest? Any ledger entry begins with Credit and Debit. Check on your earnings and expenditure. With your initial salary, pick up a house close to your work place. Any travel beyond 45 mins kills your productive time. The lesser the commute time to work the better. (please do not mix up with ‘on work’. Unless you’re in sales, our performance systems do not capture the time taken for commuting as Productive, though ironically the time you start to work is considered as beginning the job!). Get yourself some professional certifications which can help you reach next level in your career. Pick up a hobby and make it a habit. Travel to a destination with in your budget be it your grandparents house. Ear-mark some amount for investments. Use it to buy Term-insurance plan (contact Mr. Sanjeev Sharma at +91 9417007659 to know best insurance plan for you*), some tax-saving instruments (contact Mr. Kumar Bhatia at +91 9769321013*) etc., gradually shift to philosophy of spend after you made your savings. Know small leakage points which you wouldn’t otherwise bother, for example if you have set a standing instruction with your bank to make your mutual fund payment, some banks charge INR 25 excluding taxes. So if you’re investing in four mutual funds – that is INR 1,200 per year going down the drain

Investor vs Trader: Though most people use the words interchangeably. They are as different as Nelson Mandela and Morgan freeman. Both investing and trading are fields in themselves. Both at times test your nerve and grit. Both question your hypothesis. Till such time you decide your game, ignore what your neighbor earned. Ignore news. Every news has two facets, one, what media wants you to know and second, the reality. Till you have an opinion never trust any news on face-value, explore more and more. Read about Warren Buffet, Charlie Munger, Peter Lynch, subscribe to Prof. Aswath Damodaran’s classes on Youtube. As a tip you can start with purchasing stocks, try beating inflation or FD rates. Assess your nature. Do you get nervous when stock market fluctuates? What’s your risk taking ability etc.,? Till you get comfortable with how Mr.Market deals, never even look at trading with real money. Keep doing paper trading till the time you have understood your nature and your risk profile.

How to pick stocks? Once a Russian Chimpanzee beat 94% of bankers. Do not be that Chimp though. Pick a company whose business you understand. Try and understand the economics of the business. Follow the sector closely. Do not invest all your money at one shot. Try and invest in intervals and in increments. For example if you plan to invest INR 10,000 rather than purchasing stock at one shot, buy stock in amounts of INR 1,500 – 3,000 and 5,500. (Well this is where you should have your own view) and most importantly set a stop loss. This is where learning Technicals of stock market can help you minimize your losses. Never speculate with your money. Investing in bad companies is like drinking poison and hoping that you’d not die or sleeping with a Cobra and not knowing when it is going to bite you.

Should I go for IPOs? Vidya Balan has a famous dialogue in ‘Dirty Picture’, "In a film, only three things matter: entertainment, entertainment and entertainment and Silk is entertainment. With all the listing gains, IPOs may look like a heroine calling out your name. Do not even venture there, unless you’re very sure about the company. Most IPOs are a route for initial investors to exit. Read any draft red herring prospectus (oh by the way, did you know the synonym for red herring? a clue or piece of information which is or is intended to be misleading or distracting) you’ll get to know most of the disclaimers and realise that initial investors who would have lent money at 15% compounded on a quarterly basis are forcing a company to let them exit and want public to share the burden of debt. Do not become a source of entertainment for investment bankers.

When should I sell? If you had made it this far, you should know, you are your own judge. If you are comfortable with a price which a bidder is quoting, you should sell. Profit taking is also equally important. Unlike Warren most of us do not own the capacity to purchase a company or change its management in the initial stages. What then should be our premise? ‘Buy low and Sell high’.

Author: Samrat Sridhara. Samrat is passionate about Stock Market and is working as a Market Pricer in an hitech industry. He loves to read and share his experience with his friends.

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*Contacts provided as we know they are into the business of Insurance and Mutual Funds. Author or our blog has no relation with those contacts and nor endorsing them

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Right Issue

                  

#TermoftheDay - Rights Issue

Dharma says Rights issue is when a company issues its existing shareholders a right to buy additional shares in the company. Company will offer more shares to its shareholders to raise extra money for the company. 

Vikas explains Rights issue - company gives the rights to the existing shareholders to buy more/new shares. The company receives more capital and the no of shares in market also increases.

Yogesh Sharma: An issue of shares offered at a special price by a company to its existing shareholders in proportion to their holding of old shares.

Tejas Vora: Right issue means company gives a right to buy shares in some proportion of holding current quantity of shares. The price of this right shares is at discount rate.

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ESOP

                  

#TermoftheDay - ESOP

Dinesh Shah explains ESOP -- employee stock ownership plan
Given to a higher levels of employees where they are offered shares at discount with some lockin

Rohan Vaidya adds that an option provided to employees by the company to buy fixed quantum of equity shares at fixed price. The purpose is to provide extra motivation to employees by giving them chance to participate in profits of the company. For listed entities, the share price may be lower to some extent as compared to market price, which may provide profit opportunity.

Sunil Shinde further adds Employee stock option plan is one of the way company tries to retain talent by rewarding shares at discounted price.

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Doji

                  

#TermoftheDay - Doji

Tushar Popat says Doji is a type of candle which signals that buyers and sellers are almost equal in strength with no significant direction.

Mukesh Gupta adds Doji is a candle which is formed by a very small body indicates that opening and closing of the candle are in a close range + typically it has long shadows. Doji indicates an indecision in the price movement for that particular duration, meaning people are not certain what will be the next move. After a good trend in either up or down side if a Doji is formed, many a times it is considered to be a reversal point and a next candle in opposite direction confirms the reversal. One can look for trading opportunity if a doji is forming on a chart and as always bigger the time-frame of chart, better the possibility of trade in your favor.

Narendra Tank further adds when a doji is formed it mostly suggest that there would be a change in trend

Jaya Prakash Reddy informs that the location of a doji is also important. If it is formed after a significant uptrend or after a significant downtrend, it will have high importance. During such situations if other indicators such as RSI, Stochastic etc are in overbought r over sold areas then we may have a high probable trade.

Vineet Singh adds Doji is especially meaningful near support & resistance levels. Near these levels trend change probability is very good.

Jaya Prakash Reddy explains How to trade a doji:

If a doji is spotted after an uptrend chances are there for a downside reversal. If the candle formed after the 'doji candle' closes below the Low of the 'doji candle' then chances of reversal r more. So we can go for a short trade by keeping stop loss slightly above the high of the 'doji candle'.If the candle next to the 'doji candle' breaks the high of the 'doji candle' then downside reversal is negated and there is no short trade.

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Long Unwinding

                  

#TermoftheDay - Long Unwinding

Vijay Singh says Long unwinding means selling long time holding by FII’s and DII’s.

Dinakara adds Long unwinding is the place where profit booking starts after going long i.e., may be positional stock till then

Deepa Bhatia: Unwind means offloading your position. Long means going long with your stocks i.e. holding a stock for longer period. Long unwinding means selling the positional stock or selling the stocks which are owned for longer period.

Mukesh Gupta: To understand the term better lets first understand what is long buildup...

During certain period mostly when a stock is corrected and taking support, traders often start opening buy positions and when you analyze that most of the open interest is towards either buy of future contracts and call options, this process is called *long buildup* where people are bullish and entering into  long positions.

After certain time the price due to long buildup gets pushed upwards and reached to a resistance level (often retailers enter here in long positions), people who entered in long at lower levels starts covering their positions resulting into decrease in OI, this is called *long unwinding*

One needs to understand the difference between long unwinding and short buildup, long unwinding may not result into price crash as people are getting out of long positions in anticipation of no more price upmove whereas short buildup is a clear sign that people are expecting a good fall in price.

Sanjeev Sharma Long Unwinding

जो स्टॉक्स की आपके पास काफी लंबे समय से होल्डिंग है उसको जब आप sell करते हो तो उसको technical भाषा मे long unwinding कहा जाता है।

Sambashiva Bhat adds Selling the shares which are taken for delivery

Tushar Popat: Long position : Buying the stock is the first part of the trade and owning the shares.

Long unwinding : Selling the stock that was previously owned and the said position is called long unwinding.

J.K Sobti: Long Unwinding means a scrip where you have a position for a long period of time you decide to sell the scrip

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Reverse Repo Rate

                  

#TermoftheDay - Reverse Repo Rate

Balesh Daga says rate at which RBI lends money to the banks.

Harshil Shah adds Reverse Repo rate is the short term borrowing rate at which RBI borrows money from banks. RBI uses this tool when it feels there is too much money floating in the banking system and wants to reduce the money flow in the market. This can also be used to reduce the inflation rate in very short period.  But it has both pros and cons

Tanmoy Mallick further adds RBI lends to commercial banks at repo rate against approved securities. So under falling repo rate, lending rates come down and borrowing from RBI becomes cheaper.

The falling repo rate indicates cheap money policy increasing money supply in the country. This revives economic growth. 

Similarly reverse repo rate is the rate at which RBI buys back securities from banks reducing money supply in the economy. This contains inflationary pressure by reducing money supply.

There is always a margin (0.5 to 1%) of difference between repo and reverse repo rate and repo rate is higher than reverse repo rate.

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Spinning Top

                  

#TermoftheDay - Spinning Top

Ankur Neshti explains Spinning top is a candle with its wicks equally distributed from its body, while the body is comparatively smaller. It can be considered as a neutral indicator because it can be bearish or bullish. It indicates is indecisiveness.

Suresh Bhaskaran adds Spinning top is a candle with short body and long shadow on both sides. It indicates indecisiveness as neither bulls nor bears had control in the price movements.

Tanmoy Malik further says a spinning top is a type of candlestick formation where the actual body is small despite a wide range of price movement throughout the trading day. It is often regarded as neutral and used to signal indecision about the future direction of the stock. 

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Double Bottom

                  

#TermoftheDay - Double Bottom

Gopi Narayanaswamy says a double bottom is a charting pattern used in technical analysis. It describes the drop of a stock or index, a rebound, another top to the same or similar level as the original drop and finally another rebound.

Tushar Popat adds double bottom is one of the chart pattern used in Technical Analysis. Double Bottom happens in a down trend where in stock price reaches the support level 2 times and shoots up from there. The trend changes from down trend to up trend. It may also be called W pattern with two swing bottoms and one swing top. At double bottom most traders having short position squares it off and buying for longs starts.

Suresh Arcot confirms that double bottom is a bullish reversal pattern

Anand Priy says it is when stock touching same support level 2 times during downtrend and bouncing back.

Suresh Bhaskaran adds double bottom reversal is bullish reversal pattern. Double bottom consists of two bottom points and one high point in between (resembles letter "W" ). In a significantly long downtrend, the lowest level is considered as bottom1. It rebounds from that bottom1 and reaches an intermediate high point. Again it falls to level bottom2 which is almost the same level of bottom1. The second fall should be with less volume. It should rebound from that bottom2 level and should cross the high point (which is formed in between bottom1 and bottom2) with good volumes. Longer the duration between two bottom levels, better the chart pattern.

Prashant Patel adds that the Double Bottom Reversal is a bullish reversal pattern typically found on bar charts, line charts and candlestick charts. As its name implies, the pattern is made up of two consecutive troughs that are roughly equal, with a moderate peak in-between

Jaya Prakash Reddy further adds 

1. Double bottoms may not be traded blindly. We should get support from volumes also. After a double bottom is formed, observe the buyer’s volume % should be more by a good amount than the previous seller’s volume percentage. Then it may be a good signal.

2. Take support also from the RSI, Stochastic after a double bottom is formed.

3. If the second bottom pierces the first bottom but closes above the first bottom then chances are good for reversal.

Narendra Tank adds Double bottom means the share does not go below certain price level and it bounces off from that level

Vyas concludes by saying when stock bounces after coming from again to the same support level can be termed as Double Bottom

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Grey Market Premium

                  

#Termoftheday - Grey Market Premium

Grey Market Premium, as explained by Pratik Mehta, is the extra price which is charged over & above the issue price for any Upcoming IPO. GMP varies according to the demand of the IPO amongst the public before the issue.

Rohit Sachdev explains Grey market premium as the premium which people are willing to pay for an ipo above the issue price to buy it from people before the allotment. It gives an indication of demand and supply for an IPO.

Mukesh Gupta adds Grey market premium or kostak price is the premium amount which grey market trader is willing to pay before an IPO opens to purchase applications from retailers. For example if IPO price is Rs 100 per share and someone is ready to pay the applicant Rs. 110 per share than Rs. 10 is the gray market premium. It is illegal to trade equity outside market and before IPO gets listed, so it’s called grey market. 

Grey market premium indicates demand of an upcoming stock, higher the premium, better chances that listing will be on higher price, but we need to understand the size of IPO and operators interest also before applying for an IPO just on the basis of GMP. Some IPO would fly without fundamentals because of high operator interest while others won't, one who wants to invest for long term should not care about GMP.

J.K Sobti further says Grey Market Premium - as the term itself defines the Gmp is the premium available in the market for a new Ipo before the share gets listed. The premium is a combination of demand, supply, issue size, promoters, industry & so many other factors. Grey market premium is to an extent indicator of IPO success but should not be the sole criteria for applying to an Ipo because like equity trading it may have been artificially jacked up by operators

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Short Covering

                  

#Termoftheday - Short Covering

Pratik Mehta explains Short Covering happens when Shorts (Sell First Buy Later) that are built anticipating fall in a scrip, are bought back or covered, is called Short Covering. It signifies that the downtrend for the scrip has come to an end and we can see some upside in coming sessions.

Mukesh Gupta further adds a scrip which is in a finite downtrend, short covering is a halt where people who shorted on higher levels starts booking profits, it may or may not a trend reversal, sometimes short covering creates a spike which may give a feel of trend reversal but after a certain point again shorting comes in a push the script on new lows. Short covering usually happens on certain support level where many traders who think that the downfall may stop here so the profit booking.

One needs to understand the difference between short covering and proper trend reversal before going long on spikes between downtrend to avoid getting trapped. For more details read concepts of short buildup, long buildup, short unwinding and long unwinding.

J.K Sobti says my understanding of short covering is that people who have shorted a scrip start buying the scrip in anticipation of an impending price hike for what ever reason.

Anand Priy explains that in derivatives when the sold script are being bought  back aggressively its called  short covering.

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