Equity investing - Adding sheen to your portfolio

The views and opinions expressed are of Mr. Arun Thukral, MD & CEO, Axis Securities.

It is well-established that investing your funds in the stock market can help you grow your wealth exponentially. But, like all good things in life, trading works best when it is combined with the rights skills, technicalities and knowledge. 

As someone interested in conducting technical analysis in equity markets, you might have a fair idea of the kind of charts that data traders typically refer to in order to make decisions. But the key to good technical analysis lies in understanding the data, making conclusions from it and learning how to make the most of the findings. Here are five key points for you to keep in mind, that are sure to point you in the right direction:

1. Stock Trends

As someone essentially new to conducting a technical analysis, the first thing for you to keep in mind is that you should always be able to understand a stock’s trend. Say, you set your eyes on a certain stock and want to figure out its trend, ie. the direction of movement of the stock’s price. 

You should focus on the trendlines, which are the visual representations of the price movement over a period of time, and determine their slope. The stock in question could be in an uptrend, meaning that its price is heading upwards. Or, it could be in a downtrend, meaning that its price is lowering. 

There are two overall aspects to keep in mind here. The first is that the more price points a trendline touches, the stronger it is a mark of confirming the validity of its trend. Secondly, keep in mind that stock trends keep changing all the time. Therefore, they can only be accurately analysed in the context of the time range that is relevant to you. For instance, if you are into day-trading, analysing stock trends over a long period would not be useful for you. The same principle applies vice versa.

2. Support and Resistance Levels:

Support and resistance levels are essentially the price points of a stock that indicate the pause or reversal of a trend. 

Out of the two, support levels indicate the point where there is ample demand and therefore, stock prices are unlikely to fall further. This means that any downtrend will be paused. Resistance levels, on the other hand, indicate the points where there is a concentration of supply and therefore, the price point cannot go any further. This would, therefore, pause any uptrend. 

As an investor, support and resistance levels work as an effective signals of when to enter or exit a particular stock. However, do keep in mind that like all other technical analysis factors, support and resistance levels also keeps fluctuating, so it is important to keep a keen eye on them.

3. Price range of the stock: 

Of course, to truly understand the price point of a stock at any given point, it is important to have an idea of the extremes that the price point can reach. Therefore, apart from specific price points, it is important to incorporate the overall price range of a stock in your technical analysis as well. 

The range of a stock is essentially the difference between the highest and lowest prices for a stock traded for a specific period, which could be as short as a day or as long as a year. If the price of the stock has fluctuated over a broader range, this is an indication of a higher volatility and therefore presents you with more trading opportunities. 

If you are interested in day-trading, a broader stock price range is a good piece of news for you. But, to ensure that your investments always yield the most favourable outcomes possible, a wise move is to invest in equity products through Axis Direct. With our intraday product, you can invest as low as 15% of the price and make the most of stock market opportunities at any given point of time.

4. Moving averages: 

During technical analysis, there is another frequently used tool that helps determine current trends of stock prices. These are known as moving averages, and they help condense the price data of a stock to a constant average price. These moving averages, of course, differ across different time ranges. Hence, the moving average for 30 minutes would be different from the moving average over 30 weeks.

Since moving averages help filter through all the stock price data, they offer a lot of convenience and do the simple job of indicating where the current trend might be headed. If the average is angled upward, it indicates an uptrend, and if it is angled downward, it indicates a downtrend. During a technical analysis, moving averages can also help traders determine support and resistance levels. 

5. Trading volume:

While all of the factors mentioned above revolve around the important point of price, there is another aspect that plays a huge part in technical analysis - volume. Simply put, trading volume is an indicator of the number of trades that have taken place over a given period of time. 

This is incredibly relevant for you as a trader, because while the stock price informs you of the value of money that people are willing to pay for the stock, the volume helps you understand the value of its price movement. The trading volume, therefore, helps you confirm the trends you might have observed with the stock price. For instance, you will observe that large movements in stock prices are almost always followed by large trading volumes. 

Now that you have a firm grasp of the details of technical analysis in equity markets, all that remains is for you to make the right investment decisions, the first of which is to invest with a trusted company. Which is why, purchasing equity products on Axis Direct might just be the most reliable and prudent investment decision for you. 

Our range of equity products comprises of E-margin products, where you can pay as low as 25% of the value now and carry out trades for 90 days. Our range also includes intraday products, where you can pay as low as 15%. Apart from this, we at Axis Direct provide you with a team of award-winning experts to help you in your wealth creation journey, as we have helped over 2 million satisfied customers with theirs.