Options 360
WEBINAR - 1
Webinar – 1 Topic
Introduction to equity market.
Difference among Cash, Future and Options
Dow Theory
Different kind of charts and their importance (Line chart, candle
chart, Bar chart, Hekin ashi chart)
Basic concept of trends
Support and Resistance
How to draw and decide support-resistance line and trend line
Introduction to equity market
An equity market is a market in which shares are issued and traded,
either through exchanges or over-the-counter markets. Also known
as the stock market
Companies sell stocks in order to get capital to grow their
businesses.
Equity markets are the meeting point for buyers and sellers of stocks.
In the equity market, investors bid for stocks by offering a certain
price, and sellers ask for a specific price. When these two prices
match, a trade occurs.
The place where stocks in the equity market are traded is the stock
exchange like NSE, BSE.
Difference among Cash, Future
and Options
In the cash segment of the stock exchange, you pay the entire
amount in cash and the shares are delivered to you.
In the futures segment, you buy shares and pay only a margin
amount on a future commitment.
In the Option segment, you pay only a small amount of premium.
An Option contract gives buyer the right but not the obligation to
buy (or sell) shares at a specific price at any time, as long as the
contract is in effect while a future contract requires a buyer to
purchase shares, and a seller to sell them, on a specific future date
unless the holder's position is closed before the expiration date.
Options are used mainly for hedging.
Dow Theory
Dow theory is an approach to trading developed by Charles H. Dow
There are six main components to the Dow theory.
1. The Market Discounts Everything.
2. There Are Three Kinds of Market Trends (Bullish, Bearish and Sideway)
3. Trends Have Three Phases (accumulation, public participation and
excess phase) (distribution, public participation phase, and panic
phase).
4. Indices Must Confirm Each Other
5. Volume Must Confirm the Trend
6. Trends Persist Until a Clear Reversal Occurs
Different kind of charts
1. Line Chart- Line chart keeps a record of each day’s closing price.
2. Bar Chart- it is much more informative. bar chart is in the shape of a
vertical line with two horizontal lines which indicates open and close.
3. Candle Chart- Just like a bar chart, a daily candlestick shows the
market's open, high, low, and close price for the day. The candlestick
has a wide part, which is called the body, the body represents the
price range between the open and close of that day's trading.
4. Hekin Ashi- Heiken-Ashi, means "average bar" in Japanese. It's useful
for making candlestick charts more readable and trends easier to
analyze.
Basic Concept of Trends
A trend is the general direction of a market or a stock price. In
technical analysis, trends are identified by trendlines or price action
that highlight when the price is making higher swing high and higher
swing low for an uptrend, or lower swing lows and lower swing highs
for a downtrend.
There are three phase in every trend
Primary trend – Primary trend is the main trend, it could be bearish or
bullish
Secondary trend- secondary trend are just opposite of primary trend
in a long trend.
Minor trend- these trend are generates due to price movement.
Support and Resistance
Support is a price level where a downtrend can be expected to
pause due to a concentration of demand.
Resistance is a price level where a uptrend can be expected to
pause due to a concentration of supply.
Technical analysts use support and resistance levels to identify price
points on a chart where the probabilities favor a pause, or reversal,
of a prevailing trend.
Once an area or "zone" of support or resistance has been identified,
it provides valuable potential trade entry or exit points.
If a stock breaks support or resistance level and continue in its
direction until it hits the next support or resistance level.
Trend Lines
Trendlines are simply lines that connect a series of prices to give the
trader a better idea of where the price of a particular investment is
headed.
Upward sloping trendlines are used to connect prices that act as
support, while the given asset is trending upward and vice versa.
Trendlines can be used effectively by traders to gauge potential
areas of support/resistance, which can help to determine the
likelihood that the trend will continue.
