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How to Trade in Stock Market Understand Candle Stick Pattern, Trend Analysis, Golden Rules

“We are out there to earn profit and not just to cover up our losses”

Investors are nowadays more concerned about their ROI on their investment. Understanding the Share Market basics such as Candle Stick, trend, and the strategy to be adopted while getting into the Equity Trade is of utmost importance.

Post-COVID investors have started looking into other asset class options rather than just going for Fixed Deposits. Investors are exploring various options for their investment such as Mutual Funds, Equity Markets, Bonds, Gold, Commodity Trading, Futures and Options, IPOs, etc. They have witnessed a tremendous opportunity in the Equity market & IPOs as comparing to the other assets class options available.

But Investors are to be cautious while investing in the Share Market due to its inherent volatility nature. Though we have seen a positive momentum and continuous participation of new investors in the Equity Market still many of the investors out there are still stick with the Fixed Deposits, National Saving Certificates, etc.

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Four things that every investor should follow before investing in the Share Market:

(a) Candle Stick Patter

(b) Time Duration

(c) Trend Analysis

(d) Golden Rules of Investment in Equity Market

share market learning

Candle Stick Patter

Lock Down or rather we can say the COVID period has taught us these terms through various media channels such as Zee Business, CNBC Awaaz, etc.

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Let’s understand what candlestick means? What kind of information do we acquire through candlesticks?   

Normally what we see is a “Green Candle Bar” and a “Red Candle Bar”. Below is the image which depicts the key information that we obtain from the Candle Bar.

candle sticks bar means

These Candle Bars are the price indicators that we need to understand before buying any script in the Equity Market.

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  • Green Candle Bar represent the Bullish part.
S.No.Particulars
(a1) “Day High”A1 represents the Highest Share Price of the script it has touched during the Share market session.
(a2) “Day Low”A2 represents the Lowest Share Price of the script it has touched during the Share market session.
(a3) “Open at”A3 represents the Opening Share price of the particular script on the trading session.
(a4) “Closes at”A4 represents the Closing Share price of that particular script at the end of the trading session.
  • Red Candle Bar represent the bearish part. Red Candle bar is just the opposite pattern of the Green Candle
S.No.Particulars
(b3) “Closes at”B3 represents the Closing Share price of that particular script at the end of the trading session.
(b4) “Open at”B4 represents the Opening Share price of the particular script on the trading session.

Time Duration

Analysis of the candlesticks depends on the time frame in which investor is willing to invest their capital such as Intraday, for a week, for a month(s) or longer period.

If an existing investor is using an existing platform that provides such charts information that can see the time span provided for a chart pattern starts from 1 second to 1 minute to 1 hour to a month.

Depending upon the nature of the investor such as if an investor is an Intraday trader they can refer to chart patter for the last 30 minutes to 1 hour, or if an investor is a short-term trader they can refer to chart on day or monthly basis and so on.

If you have no idea where you can see and study these charts Click Here for a free website that provides you such information.

Trend Analysis

“Trend is my friend” this saying normally proves profitable to the investors.

Normally we have all heard that this particular share is in Uptrend or in Downward trend or it is in sideways. What exactly this terminology refers to?

When your Candlestick chart depicts the incremental trend over a period of time that is an Uptrend/ rising upward with more green candle bars than red bars.

In a downward trend, it is just the opposite of the Uptrend where we see more of a red candle bar than the green bars moving download/ pushing the stock price in the downward position.

Sideways refers to a criterion where there are similar numbers or more or less the same numbers of red and green bars, where we are unable to predict the trend way.

If you are studying these trends then indicators such as EMA, DMA, DEMA, etc. will help you to understand better how to analyze the particular share.

Golden Rules

First of all, we should adhere to the philosophy that “We are here in this Share Market to EARN profit and not just to cover up our losses”

RuleParticular
Rule 1: Stop LossWe as an investor not just only have to concentrate on our profit/ loss we have to protect our capital also.

In the share market, there are times we earn profit or we lose some money in some transactions. What we need to understand here is in case of losses we have to protect our capital amount by putting the stop losses.

Sometimes in various transactions, our stop losses might hit and after that, the price of that particular share might go up, but in volatility first, we need to protect our capital so that we can earn profit out of that capital.

There will be no point in earning a profit if our capital amount will be ceased.   It is better to put an end to our losses.  
Rule 2: When to buyHere we have to under the trend and other aspects related to that particular share like news related with such share, any government move that might affect the price of that script, or any promoter activity, quarter results, etc.  

The entry point is the decisive factor that will be the indicator of our profit or losses. The entry point for any particular stock is of the utmost importance. We have seen people saying the day I bought that particular share it has started falling.  

This is just because the trend analysis, and other aspects like financial ratios, etc. were not considered at the time of buying such a particular share.
Rule 3: Target PriceWhen to sell should be decided in advance, for say if you getting the reasonable amount of return which is much higher than the Fixed Deposit or saving bank account return %, one should consider it and book some profit.  

The greed for more something ends up in huge losses. There is no fault in investing in the share market but one should be cautious about the entry and exit points.  
Rule 4: Quantum of the TradeTrade quantity/ Lot size should be under the risk appetite. One should invest that much amount which is under the risk appetite of the investor.
Loosing and gaining is a part of the Stock market, hedging one loss should be in your mind.  

Investing all the available amounts at one go is not a good Idea in the stock market as it can fall any day, one should have a certain amount to average out the selected stock.  
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