Category: Your Money

Staying Alert


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Most of investing literature revolves around buying decisions. However, in order to truly profit from the markets, it is important to know when to sell as well. An important part of knowing when to sell is keeping informed of actionable market actions in your portfolio, mainly done through what are known as “trailing” alerts.

A trailing alert typically gets triggered when a stock hits a price level that is relative to its previous close. For example, in order to protect my profits, I could set a trailing stop of 2% on DLF. Now if DLF drops below 2% from the previous close, you automatically exit out of the stock, thus monetizing whatever profit you had in that position or preventing more losses.

The trick is setting the percentage at a level that will pick up a true price drop as opposed to normal daily price fluctuations.

You can setup to receive alerts on SMS/email on StockViz by visiting Here’s how I’ve setup mine:


As you can see, I’ve set both up and down trailing alerts for DLF so that I can monitor the stock closely, whereas I’m interested in only drops more than 5% in a day for Reliance and ONGC.

Stay alert & Stay sharp!

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Indian banks: The pendulum swings again

In May SBI’s new chairman announced dire results, with lower lending margins, provisions for pensions and extra charges taken against its loans. The hit, including forfeited profits, was some $2.5 billion, equivalent to over a tenth of the bank’s equity. Since its capital ratios are too low to support fast growth, SBI needs to raise more equity. That means persuading the government, which does not want its 59% stake diluted, to stump up: not an easy task.

With rates rising and the economy slowing, some fear more bad debts could emerge at the state banks that lent freely during the downturn. Meanwhile the private banks seem perkier, with their share of loans beginning to rise. ICICI’s chief executive, Chanda Kochhar, says that after two years of building more branches to suck in sticky deposits, the bank is “in a happy situation” and ready to start increasing credit again. Aditya Puri, the boss of HDFC Bank, which remains the darling of investors thanks to its metronomic performance, plans to keep expanding quickly, too. Other financial firms with banking licences, such as Kotak Mahindra, have been shifting towards the lending business and away from capital markets where profitability has fallen, partly thanks to a rush of foreign investment banks into India.

Indian banks: The pendulum swings again | The Economist.

Candlesticks–light my fire

Office candlestick in brass, made by Skultuna ...

Image via Wikipedia

StockViz charts for individual stocks are what are known as candlestick charts. Candlestick charting first appeared sometime after 1850. Much of the credit for candlestick development and charting goes to a legendary rice trader named Homma from the town of Sakata. It is likely that his original ideas were modified and refined over many years of trading eventually resulting in the system of candlestick charting that we use today. Here’s a chart for RELIANCE on June 9th:


Unlike a straightforward line chart that you see in most places, a candlestick chart gives you a whole lot of information regarding the technicals of the stock. When you hover over one of the sticks, you should be able to see the High, Low, Open & Close prices of the day. There’s a wealth of information hidden in those values and the rest of the article shows you how to decipher them.

Basic idea


Each candlestick provides an easy-to-decipher picture of price action. Hollow candlesticks, where the close is greater than the open, indicate buying pressure. Filled candlesticks, where the close is less than the open, indicate selling pressure.

Generally speaking, the longer the body is, the more intense the buying or selling pressure. Conversely, short candlesticks indicate little price movement and represent consolidation.

After extended declines, long white candlesticks can mark a potential turning point or support level. If buying gets too aggressive after a long advance, it can lead to excessive bullishness. Conversely, after a long advance, a long black candlestick can foreshadow a turning point or mark a future resistance level. After a long decline a long black candlestick can indicate panic or capitulation.

Using shadows


Candlesticks without upper and lower shadows are called Marubozu brothers. A White Marubozu forms when the open equals the low and the close equals the high. This indicates that buyers controlled the price action from the first trade to the last trade. Black Marubozu form when the open equals the high and the close equals the low. This indicates that sellers controlled the price action from the first trade to the last trade.

Long & Short

Upper shadows represent the session high and lower shadows the session low. Candlesticks with short shadows indicate that most of the trading action was confined near the open and close. Candlestick with long shadows show that prices extended well past the open and close.

Candlesticks with a long upper shadow and short lower shadow indicate that buyers dominated during the session, and bid prices higher. However, sellers later forced prices down from their highs, and the weak close created a long upper shadow. Conversely, candlesticks with long lower shadows and short upper shadows indicate that sellers dominated during the session and drove prices lower. However, buyers later resurfaced to bid prices higher by the end of the session and the strong close created a long lower shadow.

Spinning tops

Candlesticks with a long upper shadow, long lower shadow and small real body are called spinning tops. Spinning tops represent indecision. The small real body shows little movement from open to close, and the shadows indicate that both bulls and bears were active during the session. Even though the session opened and closed with little change, prices moved significantly higher and lower in the meantime. Neither buyers nor sellers could gain the upper hand and the result was a standoff. After a long advance or long white candlestick, a spinning top indicates weakness among the bulls and a potential change or interruption in trend. After a long decline or long black candlestick, a spinning top indicates weakness among the bears and a potential change or interruption in trend.


Doji form when a security’s open and close are virtually equal. Doji convey a sense of indecision or tug-of-war between buyers and sellers. A doji that forms among candlesticks with long real bodies would be deemed significant.

As you can tell, candlesticks can be a powerful tool for technical analysts. For those who are interested in a deeper introduction, a hop over to would be worthwhile.

Source: Introduction to Candlesticks

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Technical vs. Fundamental investing

Example of RSI Indicator Divergence

Image via Wikipedia

We had briefly discussed stock and enterprise valuation metrics before. These metrics are collectively called termed “Fundamentals”, i.e., these multiples are intrinsic to the company and not dependent on the broader market. Fundamental investors invest on a stock looking at it’s valuation relative to its peers, its future earnings potential, free cashflow, dividends, etc. There is another breed of investors that trade based on a stock’s past market data, primarily price and trading volume.

Technical analysts examine what investors think about a particular stock and whether or not they have the wherewithal to back up their opinions; these two concepts are called psych (psychology) and supply/demand. They employ models based on price and volume transformations, such as the relative strength index (RSI), moving averages (SMA), price correlations, business & stock market cycles and recognition of chart patterns. The basic underlying premise is that:

  1. all relevant information is baked into the price & volume action of a stock,
  2. prices move in trends (up, down, or sideways), and
  3. history repeats (investors collectively repeat the behaviour of the investors before them)

Technical trading fits nicely into programmed trading – computers are way faster at calculating and executing trades than people. By removing fundamental metrics out of the picture and focusing on pure market driven computation, machines can act in a very quantitative and non-subjective fashion.

Technical analysis alone may not be the best option for most investors. No matter how strong the technicals are, fundamentals eventually catch up. The best approach to investing is one that combines both the approaches: shortlist stocks based on fundamentals and watch their technicals at regular intervals. Execute only when the technicals flash green (or red).

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