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Candlesticks

Definition of Candlesticks

Candlesticks are technical charts used in trading to understand price movements. A candlestick chart will show the following information: There are three components to a call option:

  • High (for the period)
  • Low (for the period)
  • Open price
  • Closing price

The main body of the candle will be green if the closing price is higher than the opening price and red if the closing price is lower than the opening price.

Long green candles mean more investors and traders want to buy a stock. Long red candles mean more investors and traders want to exit a stock.

Related Terms

CANSLIM

CANSLIM is an acronym for a seven-step strategy to pick growth stocks by combining fundamental and technical analysis. Here’s the full form of CANSLIM:

  • Current quarterly Earnings Per Share (EPS): compare this fundamental indicator with the same figure from the previous quarter. If the figure grows (by 20% or more as a rule of thumb), the company is fundamentally strong.

  • Annual earnings: Compare this fundamental indicator from the previous years. If there’s year-on-year growth, the company is fundamentally strong. If the year-on-year growth is by 20-25%, even better.

  • New product or service: strong companies continue to innovate. That’s what this letter is about - checking if the company is continuously launching new products, services, or holding events.

  • Supply: a fundamentally strong business should have a good supply and demand when it comes to its goods, services, and stock. Executive supply of shares may reduce the value of the company - that’s why it should always be scarce in supply.

  • Leader: the company should be a leader in its own right, either in or across industries.

  • Institutional holding: a valuable company will have higher institutional ownership, the percentage of which should always be tracked.

  • Market trend: an investor must check whether the company or stock is going or against the trend by comparing it to broader indices.

Company Debentures

A debenture is a debt instrument that a company uses to take out a loan in exchange for a fixed interest rate. Debentures can either be used to refer to bonds or documents created in exchange for a medium to long-term loan.

Average True Range Atr

The Average True Range (ATR) is a technical indicator used to measure market volatility, typically using the average of true ranges from 14 periods that can be daily, weekly, monthly, or even intraday values.

The formula for ATR is:

ATR = Previous ATR (n - 1) + True Rangen / n

n= number of periods
True Range = The greater/highest of these:

  • High - low (Day 1)
  • Absolute value of (Day 1’s high - Day 0’s close)
  • Absolute value of (Day 1’s low - Day 0’s close)

Cash Market

A cash market is a place where assets, goods, and services are bought and sold on the spot. That’s why it is also known as the “spot market”.

A stock market exchange like NSE or BSE is an example of a cash market as trades are settled on the spot at the spot price. Derivatives like futures are not a part of the cash market are trades are settled in the future.

Floating Interest Rate

The rate of interest that changes across the tenure of a loan, generally every quarter, due to the government’s interest rate, market conditions, and other factors is known as a floating interest rate.

Personal loans and home loans are typical examples of borrowing that carry a floating interest rate. A point to note here: the floating interest rate is added on top of a base interest rate that is charged by lenders.

Consumer Price Index

The Consumer Price Index (CPI) measures how costly goods and services have become over time. It is calculated by measuring the weighted average of the percentage change in the price of a basket of goods and services.

If the CPI increases, it means that inflation is on the rise. In India, the CPI replaced Whosale Price Index (WPI) as the primary measure of inflation in 2013.



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