An Abandoned Baby Pattern is a type of candlestick pattern that signals the reversal of a bullish or bearish trend. It is made up of three candles, each of which varies based on the trend.

Bullish Abandoned Baby Pattern

• Candle #1: Red in color & forms during a downward trend
• Candle #2: Forms a Doji Star below Candle #1’s closing price
• Candle #3: Leads to a bullish trend & forms above the Doji Star (similar size to Candle #1)

Bearish Abandoned Baby Pattern

• Candle #1: Green in color & forms during an upward trend
• Candle #2: Forms a Doji Star above Candle #1’s closing price
• Candle #3: Leads to a bearish trend & forms below the Doji Star (similar size to Candle #1)

Acceptance Credit is a way for buyers to authorize fund transfers to sellers at a specific date when various terms & conditions are met.

This is done through a letter of credit which is a creditworthy bank’s promise that the payment will be made.

There are two types of Acceptance Credit:

• Confirmed: Bank guarantees payment in case the buyer defaults
• Unconfirmed: Bank does not guarantee payment in case the buyer defaults

An Accumulation/Distribution Indicator is used to figure out the trend of a stock based on the relationship between the price and volume. There are two parts to the name Accumulation Distribution Indicator:

• Accumulation: Denotes demand or the buying levels of a particular stock
• Distribution: Denotes the supply or the selling levels of a particular stock

Long story short, A/D tells you whether a stock is facing buying or selling pressure. A rising A/D depicts an upward trend while a falling A/D depicts a downward trend.

An Advance/Decline Line can help you plot the daily difference between the number of advancing and declining stocks.

As a result, the Advance/Decline Line is a technical indicator used to gauge market sentiment, price trends, and trend reversals.

Here’s how the Advance/Decline Line is calculated:

• Calculate the number of stocks that finished in the red.
• Calculate the number of stocks that finished in the green.
• Subtract #1 from #2 to find out the net movement aka Net Advance.
• Repeat #1, #2, and #3 the next day and add the values for Net Advance.
• Add both the previous day’s and the present day’s Net Advance. Repeat for future calculations.

An Advance Payment Guarantee or Advance Payment Guarantee Bond is a contract issued by a third party willing to take responsibility for fulling the terms of an agreement or payments owed by one party to another.

The guarantee could be:

• Primary: Indemnity (fulling payments)
• Secondary: Guarantee (assuring that the outcome will be met)

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)

Averaging down means buying more shares when the price drops, thereby bringing down your overall average cost of investing. For example:

Day 1 (Normal price)

• Shares bought of XYZ: 10
• Price of each share: Rs. 1000
• Total cost of investing: Rs. 10,000
• Average investment cost: Rs. 1000

Day 2 (Lower price)

• Shares bought of XYZ: 10
• Price of each share: Rs. 900
• Total cost of investing: Rs. 9,000
• Average investment cost: Rs. 900

Averaging Down

• Initial average cost of investing (Day 1): Rs. 1000
• New average cost of investing (Day 1 & Day 2): Rs. 950

A balance sheet is a financial statement that reveals a company’s assets, liabilities, and shareholders’ equity. It can help current and potential investors understand the financial health of a company.

These are some of the key components of a balance sheet:

• Current assets : Cash & cash equivalents, marketable securities, accounts receivable, inventories, prepaid expenses, and other liquid assets


• Fixed assets : Property, equipment, furniture, machinery, software, and other intangible assets


• Current liabilities : Short-term debt, unearned revenue, accounts payable, other accrued expenses & liabilities


• Long Term liabilities : Long-term loans, bonds, and others


• Shareholders’ equity : Paid-in capital and retained earnings

Basis trading means futures trading strategies that use the difference between the spot price and the futures contract price of a stock or commodity.

The difference between the spot and futures prices forms the “basis” for the trading strategy. Hence the name basis trading. These are the two ways in which a trader may use the basis:

• Short the basis : Done if the price difference or basis is expected to reduce


• Long the basis :Done if the price difference or basis is expected to increase

The basis of allotment is the criteria to allocate shares to investors, most commonly during IPOs. Criteria or basis for allotment lays out the following information:

The difference between the spot and futures prices forms the “basis” for the trading strategy. Hence the name basis trading. These are the two ways in which a trader may use the basis:

• Share allocation ratio
• Bids
• Demand
• Final price

The basis of allotment can vary based on the type of investor in question. Bidders during an IPO for whom a different basis of allotment applies include:

• Retail Individual Investors (RII)
• Qualified Institutional Buyer (QIB)
• Non-Institutional Buyers (NIBs)
• High Net-worth Individuals (HNIs)
• Anchor Investors

A benchmark is a standard used by investors to compare the performance of a stock, commodity, or other securities.

Stock indices like Nifty 50, Sensex, Nifty Bank, and others are often used as benchmarks to evaluate the performance of one or more stocks.

The onset of a bear market is generally in tandem with poor economic conditions.

Benchmarks are not just used for evaluating markets or securities, they can also be used to assess the performance of an investor or wealth manager. Here are some outcomes if the returns are:

• Greater than benchmark: the asset is doing considerably well (great)
• Same as benchmark: the asset is moving with the market (okay)
• Less than benchmark: the asset is performing poorly (bad)

Beta coefficient is used to measure the volatility of stocks in relation to changes in the market. Basically, Beta helps investors understand the risks associated with a stock compared to the market.

The formula to calculate the Beta coefficient is:

Beta (β) = Covariance (Ri, Rm) / Variance (Rm)

Where:

• Ri = a stock's return
• Rm = overall market's return
• Covariance = ups & downs of stock returns versus ups & downs of market returns
• Variance = the difference between market returns and its average

Generally, Beta values are of four types:

• Beta < 1.0: stock less volatile than the market
• Beta = 1.0: stock just as volatile as the market
• Beta > 1.0: stock more volatile than the market
• Negative Beta: stock shares inverse relation with the market

Beta of stocks measures the risk that the shares carry compared to the broader market. Theoretically, the market is said to have a default Beta of 1. As a result, Beta stocks can be of four types:

• High Beta Stocks : typically having a Beta value of more than 1, these stocks are known to be high-risk, high-reward investments
• Low Beta Stocks : typically having a Beta value of less than 1, these stocks are known to be low-risk, low-reward investments
• Negative Beta Stocks : typically having a Beta value of less than zero, these stocks are known to have an inverse correlation with the market
• Same as the market : typically having a Beta that’s equal to 1, these stocks are known to share characteristics with the market

Bonds are fixed income securities issued in exchange for a loan, generally by governments and corporations. A bond will generate a fixed interest rate on top of the principal across a fixed time period. A bond market is a place where bonds are issued, bought, and sold. Bonds are issued in exchange for a loan generally by governments and corporations.

The quality of a bond can be understood by its credit rating, which is nothing but the creditworthiness of the company issuing it. The best bonds in India are known to have the following credit rating:

• SOV: Only for government bonds
• AAA: Highest
• AA+: High-medium
• A+: Upper-medium
• BBB+: Lower-medium
• BB+: Speculative
• B+: Highlight speculative
• CCC+: Risky
• CC: Extremely risky

A book running lead manager is the head or lead of the underwriting process when new shares or securities are issued for their client, most commonly during an IPO.

For context, there was a time when physical ownership certificates were issued. If someone wanted to sell their shares, they’d have to present the ownership certificate and get it transferred to the buyer.

Also known as the book runner, the book running lead manager handles these crucial elements of the underwriting process:

• Perform due diligence
• Determine the final offering price
• Record & track interested buyers
• Confirm orders
• Guarantee purchase

A bought-out deal is a stock offering where an investment bank buys the entire issue of shares from a company. In turn, the investment bank will attempt to sell the shares to other investors. A deal of this kind has two benefits:

• The company need not worry about subscription as the investment bank will purchase the entire offering
• The investment bank can negotiate with the company and get the shares at a discount
  
  

That said, there are risks to a bought out deal like:

• It is up to the investment bank to sell the shares to investors in order to recoup the principal or make a profit
• The investment bank also runs the risk of receiving no interest in the shares from other investors
• Guarantee purchase

If the issue size of the bought-out deal is large enough, the investment bank may team up with others to fulfil the purchase.

A box spread is a trading strategy that involves buying a bull call spread and a matching bear put spread. The components of a box spread are designed as so:

• Bull call spread : two call options with a lower and upper strike price
• Bear put spread : buying and selling puts at different strike prices of the same underlying asset with the same expiration

A bracket order is used in intraday trading to limit downside and lock upside by placing three types of orders together:

• Buy or sell order at market price
• Target order to square off & book profits
• Stop-loss order to limit loss

A call option is a type of derivative contract that gives the right but not the obligation to buy an underlying asset like shares, commodities, currencies, and others at a pre-agreed price and date.

There are three components to a call option:

• Premium: the price paid to buy a call option
• Strike price: the pre-agreed price of the underlying asset
• Expiration date: the day after which the option contract will be worthless

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.

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.

Capital is the total amount of money that a trader can use to buy and sell securities. There are variations of the term, the most common one is “starting capital”. This is the amount of money a trader starts their journey with.

Capital gains are profits, which means they can be taxed. The rate of taxation is based on the type of asset (debt/equity) and holding period. Here is the list of ways capital gains are taxed in India:

The capture ratio is used to measure the performance of an asset during market highs and lows by comparing it to a benchmark.

The result is expressed as a percentage and helps investors understand whether the asset manager was able to steer through volatility the right way. There are two types of capture ratios investors can turn to:

• Up market capture ratio
• Down market capture ratio
  
  

Here’s how to calculate the up market capture ratio:

Returns during market highs / Benchmark returns * 100

Here’s how to calculate the down market capture ratio:

Returns during market lows / Benchmark returns * 100

Cash and cash equivalents are short-term assets or holdings which fall under the current assets of a business. Cash and cash equivalents have very high liquidity. When you take the term literally, you have two components:

• Cash: money like cash holdings in a bank account, petty cash, and others
• Cash equivalents: assets or investments like T-bills, commercial paper, and others that have a short maturity which can easily be converted into cash

A Cash Conversion Cycle (CCC) tells you how many days it will take to convert a company’s inventory or resources into cash. The formula for Cash Conversion Cycle is:

Cash Conversion Cycle = (DIO + DSO) – DPO

• DIO: Days Inventory Outstanding is the average number of days it takes for a company to turn inventory into cash through sales
• DSO: Days Sales Outstanding is the average number of days it takes for a company to collect its receivables
• DPO: Days Payable Outstanding is the average number of days it takes fo a company to fulfil its obligations or payables

The cash flow describes the amount of money that moves in or out of a company or an individual’s pocket. Cash flow can be of two types:

• Positive cash flow: more money earned than spent
• Negative cash flow: more money spent than earned
  
  

Cash flow is an important metric in finance because it helps calculate metrics like liquidity, cash conversion ratio, and others along with giving a broad overview of a company’s financial health.

A cash flow statement is used to present the amount of money that has been earned and spent by a business over a specific period of time. There are three sections or parts to a cash flow statement:

• Operating Activities: cash flows from the core activities of a business that generate income as well as cash equivalents (current assets & liabilities)
• Investing Activities: cash flows from investments or sales of long term assets
• Financing Activities: an action or activity that brings a change in a business’ equity capital and/or borrowings

Cash Reserve Ratio (CRR) is the amount of liquid cash a bank has to deposit with the Reserve Bank of India (RBI), calculated as a percentage of the total deposit of the bank. The latest Cash Reserve Ratio in India is 4.5%.

There are two important uses of CRR:

• It acts as a reserve or collateral because banks borrow money from the RBI
• The RBI decides the interest rate for borrowing based on the CRR
  
  

These two pointers become extremely important during high inflation as the RBI can hike interest rates with the assurance of having collateral from banks.

Cheapest to deliver (CTD) refers to the cheapest or lowest priced security in a futures contract that a seller can deliver to a buyer who holds a long position. Here’s the formula to calculate the cheapest security that can be delivered:

• Short position: Current price of security + accrued interest
• Long position: Settlement price x conversion factor + accrued interest

A circuit breaker or market curb is a measure that exchanges use to put a stop to all trading activities across an index or entire market. This regulatory measure is put in place to curb panic selling, especially when markets are in free fall.

That’s why circuit breakers are also known as trading curbs and are put in place when an index or market reaches a specific level. These are the current circuit breaker limits on NSE:

A commodity refers to physical goods and raw materials like aluminium, cotton, copper, sugar, steel, zinc, and others. Commodities are an essential part of the day-to-day life of individuals, companies, and industries.

But they can’t be traded like stocks in India. Instead, a commodity trader will enter into either of these three contracts to secure commodities or benefit from its price fluctuations:

• Futures contracts
• Options contracts
• Cash contracts
  
  

These derivative contracts are traded on commodity exchanges in India like:

• Indian Commodity Exchange (ICEX)
• Multi Commodity Exchange of India (MCX)
• National Commodity & Derivatives Exchange Limited (NCDEX)
• National Multi Commodity Exchange of India (NMCX)

A commodity exchange is a marketplace where commodities and related derivative contracts are standardized and traded. The commodity exchange can be split into these sub-markets:

• Derivatives market: this is where commodity exchanges allow futures, options, forwards, and other derivatives to be traded
• Spot market: this is where commodity exchanges allow buying and selling of commodities in real-time (on the spot), including cash contracts
  
  

In India, there are 4 commodity exchanges that are popular and widely turned to:

• Indian Commodity Exchange (ICEX)
• Multi Commodity Exchange of India (MCX)
• National Commodity & Derivatives Exchange Limited (NCDEX)
• National Multi Commodity Exchange of India (NMCX)
  
  

Within these exchanges, the most commonly traded commodities include:

• Crude oil
• Coffee
• Corn
• Cotton
• Gold
• Natural gas
• Silver
• Sugar
• Wheat

A common stock is a type of share that gives the holder the right to a part of a company’s profits, voting on key policies and decisions. Common stockholders have an advantage over preferred stockholders because they can:

• Get higher returns
• A part of the assets left after a company is liquidated (in case of default)

A convertible bond is a hybrid security that’s initially designed to be a debt instrument that pays a fixed interest rate in exchange for a loan. Once the loan’s tenure ends, the holder can decide to take one of either action:

A Cost Inflation Index or CII is used to calculate a financial security’s price after adjusting for inflation.

Cost Of Carry
Cost Of Revenue
Cover Order
Covered Call Option
Covered Interest Arbitrage
Covered Put
Cross Currency
Currency Futures
Currency Options
Currency Trading
Current Assets
Current Liabilities
Current Ratio
Custodian
Cyclical Stocks

A debenture is a legal certificate that a company issues in exchange for a long-term unsecured loan. A debt instrument like a debenture is issued by companies who want to fund their business without diluting existing shares.

The components of a debenture are as follows:

• Principal: The loan amount or the money lent by an investor
• Tenure: The duration of the loan
• Interest rate: The rate of interest
• Repayment: Terms and conditions of the amount to be repaid
  
  

Debenetures can also be issued by small-size companies who may not be creditworthy enough to secure a loan from traditional lenders. Hence, the unsecured aspect of the loan may help achieve their objective.

A deferred tax asset is an item on a company’s financial statement that can be used to get tax relief, generally in the event of overpaying taxes or net losses that are carried forward.

Companies tend to deduct these overpayments or losses for accounting purposes and to reduce their overall taxable income. Common examples of deferred tax assets include:

• Depreciation of fixed assets
• Net financial loss
• Bad debt

A deferred tax liability is line item on a company’s balance sheet that refers to taxes that owed but due in the future. Common examples of deferred tax liabilities include:

• Paying less tax
• Sales in instalments

A derivative is a financial contract that is designed to derive its value from a single or group of underlying assets, generally between two parties or more. It contains a pre-agreed date of delivery and price.

The most common examples of a derivative contract are:

• Futures
• Options
• Forwards
• Swaps

A derivative can be bought and sold on an exchange or over the counter. Since derivatives derive value from underlying assets, their price is known to fluctuate when the underlying asset gains or loses value.

Dividend stocks are shares of companies that redistribute their profits to shareholders in the form of dividends. Such companies are typically industry or sector leaders with stellar reputations and track records.

How much dividend a company offers can be calculated with the dividend yield ratio or dividend per share.

Investors prefer to buy dividend stocks because they can either reinvest the dividends to buy more shares or earn passive income. Examples of dividend stocks in India include:

• Coal India
• Indian Oil Corporation (IOC)
• ONGC
• SAIL
• Tata Steel

The Equity Market is a place where shares are traded, money is raised, and stock is offered to investors. That's why it is divided into two categories:

• Primary Market: An equity market where shares are offered to investors for the first time through IPOs while fundraising also happens through private placements.
• Secondary Market: An equity market where shares, bonds, futures, options, more are traded

The primary market is typically over the counter but may be regulated in the case of exchange traded IPOs. The secondary market is often well-regulated as most securities listed are exchange traded.

Firm Allotment is the process of allocating shares during an IPO to investors who are not considered to be retail public investors. The firm allotment is done as per SEBI guidelines, which dictate that a portion of the IPO can be allocated to the likes of Mutual Funds, regular employees (permanent), and others.

The complete list of firm allotments for investors by allocation is as follows.

• Foreign Institutional Investors (FIIs): 30%
• Development Financial Institutions (DFIs): 20%
• Mutual Funds: 20%
• Regular Employees (permanent): 10%
• Employee of Promoting Company: 10%
• Lead Bankers: 5%

Any leftover percentage can be allocated to promoters.

Government bonds are debt instruments that allow the central banks to raise capital to finance operations. The types of government bonds are:

• Treasury Bills
• Fixed Rate Bonds
• Floating Rate Bonds
• State Development Loans
• Sovereign Gold Bonds
• Zero Coupon Bonds

Every government bond has a credit rating that’s based on the financial health of the country. The government is the apex institution of any country, which is why their credit rating is the high.

In India, you’ll notice government bonds with the credit rating SOV. This is known as a sovereign rating.

Ichimoku Cloud is a group of technical indicators that’s used to understand trends, momentum, support, and resistance by calculating averages. Furthermore, the Ichimoku Cloud indicator is made up of two components:

• TenkanSen: The short-term indicator
• KijunSen: The long-term indicator
  
  

There’s a cloud that’s formed as a result of plotting the averages and using the components on a chart. One glance at this cloud can tell you multiple things like:

• Uptrend: If the price is above the cloud
• Downtrend: If the price is below the cloud
• Neutral: If the price is in the cloud

Moreover, if the cloud and the price are moving in the same direction, there’s much more confidence in the trend that’s forming. In fact, it’s a trading signal.

Ichimoku Kinko Hyo is a combination of 5 lines that’s used to understand trends, momentum, support and resistance. The 5 lines include:

• Tenkan-sen
• Kijun-sen
• Senkou span A
• Senkou span B
• Chikou span