Equity Market: Technical Analysis & Fundamental Analysis

Answer: Technical Analysis focuses on price movements, chart patterns, and trading volumes to predict future price movements. It's primarily used for timing trades. Fundamental Analysis, on the other hand, examines a company's financial health, management quality, industry position, and intrinsic value to determine if a stock is overvalued or undervalued. Technical analysis is short-term oriented while fundamental analysis takes a long-term investment perspective.

Answer: No single indicator is 100% reliable, but commonly trusted indicators include:

• Moving Averages (MA): Helps identify trend direction
• Relative Strength Index (RSI): Shows overbought/oversold conditions
• MACD: Identifies trend changes and momentum
• Bollinger Bands: Measures volatility and price extremes

The key is to use multiple indicators together for confirmation rather than relying on just one.

Answer: There's no universal "good" P/E ratio as it varies by industry and market conditions. However, general guidelines include:

• P/E < 15: Often considered undervalued or value stock
• P/E 15-25: Average or fairly valued
• P/E > 25: May be overvalued or growth stock

Always compare a company's P/E ratio with its industry average and historical P/E. Growth stocks typically have higher P/E ratios, while mature companies have lower ratios. Also consider PEG ratio (P/E adjusted for growth) for better context.

Answer: Support and resistance levels can be identified using:

• Historical Price Levels: Where price has bounced or reversed multiple times
• Round Numbers: Psychological levels like ₹100, ₹500, ₹1000
• Moving Averages: 50-day and 200-day MAs often act as dynamic support/resistance
• Trend Lines: Connect highs (resistance) or lows (support)
• Volume Clusters: Price levels with high trading volume
• Fibonacci Retracements: Key levels at 38.2%, 50%, 61.8%

The more times price respects a level, the stronger that support or resistance becomes.

Answer: Start with these essential ratios:

• P/E Ratio: Valuation - is the stock expensive?
• ROE (Return on Equity): Profitability - how efficiently does it use shareholder money?
• Debt to Equity: Leverage - is the company over-leveraged?
• Current Ratio: Liquidity - can it pay short-term obligations?
• Net Profit Margin: Profitability - what percentage of revenue is profit?
• EPS Growth: Earnings trend - is the company growing?

These six ratios give you a quick snapshot of valuation, profitability, financial health, and growth prospects.

Answer: Yes, but with modifications. For long-term investing:

• Use Longer Time Frames: Weekly and monthly charts instead of daily
• Focus on Major Trends: Long-term trend lines and moving averages (200-day MA)
• Combine with Fundamentals: Use technical analysis for entry/exit timing, not stock selection
• Key Levels: Identify major support/resistance for buying opportunities

However, fundamental analysis should be primary for long-term investment decisions, with technical analysis as a supplementary tool for timing.

Answer: DCF is a valuation method that estimates a company's intrinsic value based on projected future cash flows, discounted to present value.

Steps to use DCF:

1. Project Future Cash Flows: Estimate free cash flow for next 5-10 years
2. Determine Discount Rate: Usually the Weighted Average Cost of Capital (WACC)
3. Calculate Terminal Value: Value beyond projection period
4. Discount to Present Value: Apply discount rate to all future cash flows
5. Sum All Values: Add present values to get intrinsic value
6. Compare with Market Price: If intrinsic value > market price = undervalued

Formula: DCF = CF₁/(1+r)¹ + CF₂/(1+r)² + ... + CFₙ/(1+r)ⁿ + Terminal Value/(1+r)ⁿ

Where CF = Cash Flow, r = discount rate, n = year

Answer: The best time frame depends on your trading style:

• Scalping (Minutes): 1-5 minute charts - Very short-term, multiple trades per day
• Day Trading (Hours): 5-60 minute charts - Close positions same day
• Swing Trading (Days): 4-hour and daily charts - Hold for 2-10 days
• Position Trading (Weeks/Months): Daily and weekly charts - Hold for weeks to months

Pro Tip: Use multiple time frame analysis:

• Higher time frame (e.g., daily) for overall trend
• Lower time frame (e.g., 1-hour) for precise entry/exit

Choose based on your available time, risk tolerance, and trading capital.

Answer: Volume is extremely important and acts as confirmation for price movements:

• Volume Confirms Trends: Rising prices with high volume = strong uptrend
• Breakout Validation: High volume on breakout confirms its validity
• Reversal Signals: Sudden volume spikes may indicate trend reversal
• Divergence Warning: Price rising but volume falling = potential reversal

Key Principles:

• High volume = Strong conviction in price move
• Low volume = Weak move, likely to reverse
• Volume precedes price = Professional traders accumulating/distributing

Always analyze price action together with volume for reliable signals.

Answer: It depends on your investment goals and time horizon:

Choose Technical Analysis if:

• You're a short-term trader (days to weeks)
• You want to time market entry and exit
• You trade based on price action and momentum
• You have limited time for deep research

Choose Fundamental Analysis if:

• You're a long-term investor (months to years)
• You want to identify undervalued stocks
• You focus on company quality and intrinsic value
• You can dedicate time to detailed research

Best Approach - Combine Both:

• Step 1: Use Fundamental Analysis to select quality stocks
• Step 2: Use Technical Analysis to time your entry at favorable prices
• Step 3: Use Technical Analysis for exit signals or trailing stops

This combined approach leverages the strengths of both methods for optimal results.