One of the best features of candlestick charting is that it helps you visualize market movements without overpopulating your monitor with numbers or complicated indicators and news feeds. You can also tell whether the sellers or buyers have dominated on a given day along with the sense of the trend. It is an excellent way for traders to identify and decide when is the best time to buy, sell, or wait.
After learning how to use and read the candlestick basics, you can easily start to spot the opening and closing price of a security and see patterns forming. You can then begin using more advanced patterns like the hanging man candlestick pattern in your trading. One of the major bonuses of using candlesticks in your trading is that you can start to use more and more advanced patterns as you start to become better at using them. Whilst one and two candlestick patterns are commonly used, you can start to use other patterns like the head and shoulders pattern and the reversal pattern.
As we are about to go through, some of the most high profit candlestick patterns and trading strategies are when you use confluence. Whilst candlesticks can be successfully used by themselves, they are often far better when combined with other strategies and indicators. These can include using your other favorite indicators or technical analysis tools to confirm high probability trades.
Whilst there are endless ways you can use candlestick patterns with other indicators and price action methods, you will often find that the simplest strategies will work the best. These strategies include finding and trading with the obvious trends and trading from key market support and resistance areas.
As the old saying goes, the trend is your friend until it bends. This is the same when using candlesticks in your trading. You can use the trend to find and make very high probability trades. After you have found a clear trend, you can use your favorite candlestick patterns to fine-tune your entry signal. Sir, I want to know that If a company declare bonus issue on If you hold it on " Record date" Different with declare date find it on BSE site then you get bonus shares.
Thanks Sir, a question regarding mutual fund. I want to know that in case of mutual fund, stocks spilit or bonus issue or divident payment benefit, it goes to whether Mutual fund Holder Investor or Mutual Fund Company? Dear Mahesh, I am Planning to start investing in share marketing but realy fearing what are the basic things which we have to take care in? Kindly guide please. Do not pay for guide lines from brokerage houses, read my book and make your own stock picks then open your online d mat plus trading account in icici direct.
Dear sir please share me share beginners book , how to start this business etc i want to know and start please my id :arvraj gmail. Dear Sir,I want tpo download The little book on commomsense investing,please me the link or send the soft copy on my mail akhilesh. Thank you bakibilla ji for your patience , Now I resolve the error for link no 4 and add more public domain free e books links in this article hope now you satisfied , Regards.
Have u heard about Scripbox. Plz guide me whether I should trust them or not. Plz provide ur guidance Whether I should start investing through Scripbox. I wanted to start SIP through it. I think you open your own demat account in icicidirect and try to make your own portfolio, for scripbox I am not familiar with it Regards. Thank you sir I think this is due to including of technical analysis in my recommendation Second on Sir is any books available for beginner leave.
I am a student and very much intrested in stock market ans trading. A sale does not occur when a company places goods at the shop of a dealer with the clear understanding that payment need be made only after the goods are sold failing which they may be returned. In such a case, the ownership and risks are not transferred to the dealer nor any consideration paid.
Companies do give trade discounts and other incentive discounts to customers to entice them to buy their products. Sales should be accounted for after deducting these discounts. However, cash discounts given for early payment are a finance expense and should be shown as an expense and not deducted from sales. There are many companies which deduct excise duty and other levies from sales. It is preferable to deduct these from sales since the sales figures would then reflect the actual mark-up made by the company on its cost of production.
Other Income - Companies may also receive income from sources other than from the sale of their products or the provision of services. These are usually clubbed together under the heading, other income. The more common items that appear under this title are: o Profit from the sale of assets - Profit from the sale of investments or assets. It is also sometimes called the cost of goods sold. Employee Costs - The costs of employment are accounted for under this head and would include wages, salaries, bonus, gratuity, contributions made to provident and other funds, welfare expenses, and other employee related expenditure.
This is normally shown separately as it is a cost distinct from the normal costs incurred in running a business and would vary from company to company. The normal borrowings that a company pays interest on are: 1.
Bank overdrafts 2. Term loans taken for the purchase of machinery or construction of a factory 3. Fixed deposits from the public 4. Debentures 5. This is also shown separately as the depreciation charge of similar companies in the same industry will differ, depending on the age of the fixed assets and the cost at which they have been bought.
Tax - Most companies are taxed on the profits that they make. It must be remembered however that taxes are payable on the taxable income or profit and this can differ from the accounting income or profit. Taxable income is what income is according to tax law, which is different to what accounting standards consider income to be.
Some income and expenditure items are excluded for tax purposes i. Dividends - Dividends are profits distributed to shareholders. The total profits after tax are not always distributed — a portion is often ploughed back into the company for its future growth and expansion.
The final dividend is usually declared after the results for the period have been determined. The final dividend is proposed at the annual general meeting of the company and paid after the approval of the shareholders.
Transfer to Reserves - The transfer to reserves is the profit ploughed back into the company. This may be done to finance working capital, expansion, fixed assets or for some other purpose. These are revenue reserves and can be distributed to shareholders as dividends. Contingent Liabilities - Contingent liabilities are liabilities that may arise up on the happening of an event. It is uncertain however whether the event itself may happen. This is why these are not provided for and shown as an actual liability in the balance sheet.
Contingent liabilities are detailed in the Financial Statements as a note to inform the readers of possible future liabilities while arriving at an opinion about the company. The contingent liabilities one normally encounters are: o Bills discounted with banks - These may crystallize into active liabilities if the bills are dishonoured. This information is vital for the analysis of financial statements.
The schedules enable an investor to determine which expenses increased and seek the reasons for this. Similarly, investors would be able to find out the reasons for the increase or decrease in sales and the products that are sales leaders. The schedules even give details of stocks and sales, particulars of capacity and productions, and much other useful information. Notes - The notes to the accounts are even more important than the schedules because it is here that very important information relating to the company is stated.
As a consequence, the profit earned might differ. Companies have also been known to change normally increase their profit by changing the accounting policies. For instance, ABC Co. While such interest was fully written off in the previous years, interest charges incurred during the year have been capitalized for the period upto the date from which the assets have been put to use.
Accordingly, expenditure transferred to capital account includes an amount of Rs. The profit before taxes for the year after the consequential adjustments of depreciation of Rs. This means that by changing an accounting policy ABC Co. There could be similar notes on other items in the financial statements. The accounting policies normally detailed in the notes relate to: o How sales are accounted for?
The more common contingent liabilities that one comes across in the financial statements of companies are: o Outstanding guarantees.
Consequently, they detail all pertinent factors which affect, or will affect, the company and its results. Often as a consequence, adjustments may need to be made to the accounts to unearth the true results. The more common notes one comes across are: o Whether provisions for known or likely losses have been made.
The importance of these notes cannot be overstressed. It is imperative that investors read these carefully. The Structure of the CFS The cash flow statement is distinct from the income statement and balance sheet because it does not include the amount of future incoming and outgoing cash that has been recorded on credit. Therefore, cash is not the same as net income, which, on the income statement and balance sheet, includes cash sales and sales made on credit.
Cash flow is determined by looking at three components by which cash enters and leaves a company, its core operations, investing activities and financing activities. Generally, changes made in cash, accounts receivable, depreciation, inventory and accounts payable are reflected in cash from operations. Cash flow is calculated by making certain adjustments to net income by adding or subtracting differences in revenue, expenses and credit transactions appearing on the balance sheet and income statement resulting from transactions that occur from one period to the next.
These adjustments are made because non-cash items are calculated into net income income statement and total assets and liabilities balance sheet. So, because not all transactions involve actual cash items, many items have to be re-evaluated when calculating cash flow from operations. For example, depreciation is not really a cash expense; it is an amount that is deducted from the total value of an asset that has previously been accounted for.
That is why it is added back into net sales for calculating cash flow. The only time income from an asset is accounted for in cash flow statement calculations is when the asset is sold.
Changes in accounts receivable on the balance sheet from one accounting period to the next must also be reflected in cash flow. If accounts receivable decreases, this implies that more cash has entered the company from customers paying off their credit accounts - the amount by which accounts receivable has decreased is then added to net sales. If accounts receivable increases from one accounting period to the next, the amount of the increase must be deducted from net sales because, although the amounts represented in accounts receivable are revenue, they are not cash.
An increase in inventory, on the other hand, signals that a company has spent more money to purchase more raw materials. If the inventory was paid with cash, the increase in the value of inventory is deducted from net sales. A decrease in inventory would be added to net sales. If inventory was purchased on credit, an increase in accounts payable would occur on the balance sheet, and the amount of the increase from one year to the other would be added to net sales.
The same logic holds true for taxes payable, salaries payable and prepaid insurance. If something has been paid off, then the difference in the value owed from one year to the next has to be subtracted from net income. If there is an amount that is still owed, then any differences will have to be added to net earnings.
Cash Flow From Investing Changes in equipment, assets or investments relate to cash from investing. Thus, if a company issues a bond to the public, the company receives cash financing; however, when interest is paid to bondholders, the company is reducing its cash. A company can use a cash flow statement to predict future cash flow, which helps with matters in budgeting.
However, this is not a hard and fast rule. By adjusting earnings, revenues, assets and liabilities, the investor can get a very clear picture of what some people consider the most important aspect of a company: how much cash it generates and particularly, how much of that cash stems from core operations. A complete analysis involves both time series and cross-sectional perspectives. Cross sectional analysis augments the process by using external performance benchmarks Industry or peers for comparison purposes.
Financial ratios in isolation mean nothing. We need to observe them change over time or compare financial ratios of a cross section of firms in order to make sense of them. On the other hand, a company with a low coverage rate should raise a red flag for the investors as it may be a sign that the company will have difficulty meeting running its operations, as well as meeting its debt obligations. The biggest difference between each ratio is the type of assets used in the calculation.
In theory, the higher the current ratio, the better. As of March 31, , with amounts expressed in Rs. By dividing, the equation gives us a current ratio of 3.
The current ratio is used extensively in financial reporting. However, while easy to understand, it can be misleading in both a positive and negative sense - i. In reality, this is not likely to occur. Investors have to look at a company as a going concern. It has an ample margin of current assets over current liabilities, a seemingly good current ratio and working capital of Rs. In this contrived example, company ABC is very illiquid and would not be able to operate under the conditions described.
Its bills are coming due faster than its generation of cash. Try to understand the types of current assets the company has and how quickly these can be converted into cash to meet current liabilities.
This important perspective can be seen through the cash conversion cycle. The quick ratio is more conservative than the current ratio because it excludes inventory and other current assets, which are more difficult to turn into cash. Therefore, a higher ratio means a more liquid current position.
By dividing, the equation gives us a quick ratio of 3. XYZ being in the services sector does not have any inventory on its balance sheet and this quick ratio and current ratio come out to be the same. The assumption is that by excluding relatively less-liquid harder to turn into cash inventory, the remaining current assets are all of the more-liquid variety. Generally, this is close to the truth, but not always.
In some companies, restricted cash, prepaid expenses and deferred income taxes do not pass the test of truly liquid assets. Thus, using the shortcut approach artificially overstates more liquid assets and inflates its quick ratio. By excluding inventory, the quick ratio focuses on the more-liquid assets of a company. The basics and use of this ratio are similar to the current ratio in that it gives users an idea of the ability of a company to meet its short-term liabilities with its short-term assets.
Another beneficial use is to compare the quick ratio with the current ratio. While considered more stringent than the current ratio, the quick ratio, because of its accounts receivable component, suffers from the same deficiencies as the current ratio - albeit somewhat less. Both the quick and the current ratios assume a liquidation of accounts receivable and inventory as the basis for measuring liquidity. While theoretically feasible, as a going concern a company must focus on the time it takes to convert its working capital assets to cash - that is the true measure of liquidity.
By dividing, the equation gives us a cash ratio of 2. The cash ratio is the most stringent and conservative of the three short-term liquidity ratios current, quick and cash.
It also ignores inventory and receivables, as there are no assurances that these two accounts can be converted to cash in a timely matter to meet current liabilities. The cash ratio is seldom used in financial reporting or by analysts in the fundamental analysis of a company. It is not realistic for a company to purposefully maintain high levels of cash assets to cover current liabilities.
While providing an interesting liquidity perspective, the usefulness of this ratio is limited. Profitability Indicator Ratios These ratios, much like the operational performance ratios, give users a good understanding of how well the company utilized its resources in generating profit and shareholder value.
The long-term profitability of a company is vital for both the survivability of the company as well as the benefit received by shareholders. We look at four important profit margins, which display the amount of profit a company generates on its sales at the different stages of an income statement. The last three ratios covered in this section - Return on Assets, Return on Equity and Return on Capital Employed - detail how effective a company is at generating income from its resources.
Basically, it is the amount of profit at the gross, operating, pre-tax or net income level generated by the company as a percentage of the sales generated. Positive profit margin analysis translates into positive investment quality. The equations give us the percentage profit margins as indicated. However, with the single-step format the investor must calculate the gross profit and operating profit margin numbers. Lastly, the profit margin percentage for all the levels of income can easily be translated into a handy metric used frequently by analysts and often mentioned in investment literature.
The gross profit margin is used to analyse how efficiently a company is using its raw materials, labour and manufacturing-related fixed assets to generate profits. A higher margin percentage is a favourable profit indicator.
Generally, management cannot exercise complete control over such costs. Companies without a production process ex. With this type of company, the gross profit margin does not carry the same weight as a producer type company.
Management has much more control over operating expenses than its cost of sales outlays. Thus, investors need to scrutinize the operating profit margin carefully. Positive and negative trends in this ratio are, for the most part, directly attributable to management decisions. In this case a company has access to a variety of tax-management techniques, which allow it to manipulate the timing and magnitude of its taxable income.
While undeniably an important number, investors can easily see from a complete profit margin analysis that there are several income and expense operating elements in an income statement that determine a net profit margin. This effective tax rate gives a good understanding of the tax rate the company faces.
The variances in this percentage can have a material effect on the net-income figure. Peer company comparisons of net profit margins can be problematic as a result of the impact of the effective tax rate on net profit margins. The same can be said of year-over-year comparisons for the same company. This circumstance is one of the reasons some financial analysts prefer to use the operating or pre-tax profit figures instead of the net profit number for profitability ratio calculation purposes.
However, from a quality of earnings perspective, tax management manoeuvrings though may be legitimate are less desirable than straight-forward positive operational results. Techniques to lessen the tax burden are practiced, to one degree or another, by many companies. The higher the return, the more efficient management is in utilizing its asset base. The ROA ratio is calculated by comparing net income to average total assets, and is expressed as a percentage. The need for investment in current and non- current assets varies greatly among companies.
Capital-intensive businesses with a large investment in fixed assets are going to be more asset heavy than technology or service businesses. Conversely, non-capital-intensive businesses with a small investment in fixed assets will be generally favoured with a relatively high ROA because of a low denominator number.
It is precisely because businesses require different-sized asset bases that investors need to think about how they use the ROA ratio. For the most part, the ROA measurement should be used historically for the company being analysed.
If peer company comparisons are made, it is imperative that the companies being reviewed are similar in product line and business type. Simply being categorised in the same industry will not automatically make a company comparable. Of course, there are exceptions to this rule. An important one would apply to banks, which typically have a lower ROA. The return on equity ratio ROE measures how much the shareholders earned for their investment in the company.
The higher the ratio percentage, the more efficient management is in utilizing its equity base and the better return is to investors. By dividing, the equation gives us an ROE of The ROE tells common shareholders how effectively their money is being employed.
Company peers and industry and overall market comparisons are appropriate; however, it should be recognized that there are variations in ROEs among some types of businesses. While highly regarded as a profitability indicator, the ROE metric does have a recognized weakness. Thus, a small amount of net income the numerator could still produce a high ROE off a modest equity base the denominator.
The answer to this analytical dilemma can be found by using the return on capital employed ROCE ratio. Often, financial analysts will use operating income earnings before interest and taxes or EBIT as the numerator. There are various takes on what should constitute the debt element in the ROCE equation, which can be quite confusing.
Our suggestion is to stick with debt liabilities that represent interest-bearing, documented credit obligations short-term borrowings, current portion of long-term debt, and long-term debt as the debt capital in the formula. Debt ratios can be used to determine the overall level of financial risk a company and its shareholders face. In general, the greater the amount of debt held by a company the greater the financial risk of bankruptcy.
The capitalization ratio details the mix of debt and equity while the interest coverage ratio and the cash flow to debt ratio show how well a company can meet its obligations. There are two types of liabilities - operational and debt. The former includes balance sheet accounts, such as accounts payable, accrued expenses, taxes payable, pension obligations, etc.
The latter includes notes payable and other short-term borrowings, the current portion of long-term borrowings, and long-term borrowings. The debt ratios that are explained herein are those that are most commonly used. However, what companies, financial analysts and investment research services use as components to calculate these ratios is far from standardized. In general, debt analysis can be broken down into three categories, or interpretations: liberal, moderate and conservative.
It includes only long-term debt as it is recorded in the balance sheet under noncurrent liabilities. Remember Me? Last Jump to page:. Indian Stock Market - Art of Stock Investing Leverage on great companies, churning more and more profits every year by Manikandan Ramalingam Its a book that will break the common mis-conception, that Stock Investing is gambling. Register To Reply. Here's my review about this book, I think this is a good book to try for anyone new to stocks and looking to get into it purely for investment purposes and not as a career or day trading, etc.
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