Stock Market Basics

There is a lot of difference between simply learning something new and learning that needs you to unlearn a lot of things. We all get various information form various sources. But are they really the right knowledge? So first i start this blog by asking you all to keep an open mind, a lot of unlearning needs to happen.

The main objective here is to make the reader understand the basics of market by visualizing it.

People, in general, be it an investor, a short term trader, or an intraday trader, seek services from external sources, for getting recommendations and advice. Most often, in this case, the logic, the idea, the reason behind such recommendations are not communicated, or understood by the client. There is a lack of knowledge transference in such services. I believe in the importance of customer understanding. I focus on understanding the goals, values, expectations, experiences and needs of the customers ;

and I focus and make it our primary mission to communicate and ensure the customer has a complete understanding and knowledge of the subject. And that the trader can clearly understand and visualise the aims, expectations, the why's and how's of all the recommendations given by us. (the service provider).

I believe in the motto Get Yourself Educated,

I encourage one to develop or join peer groups of similar interests. mindset and goals have discussion, questions and answers and debates.

What are we going to learn?

I am going to start by sharing the knowledge I have about the markets, right from the basics, I feel we need to be 100% clear and have a precise knowledge of the basics in whatever we do. Most of the time, when I work on advanced technical analysis, or when I do some deep learning into fundamentals, there was always a point where I felt ‘ oh, my God, Why and how did I forget this?’…It would be the simplest yet fundamental knowledge that we usually forget in our expansion of learning. Sticking to the basics always is a strength. Most of the time, the very fundamentals are pillars that are essential and of more help, than advanced research.

Let's see how the markets work

Let's see how the markets work

I don’t know how many of you have watched “Scam 1992” a TV series, or were present right there during that period, I bring this example up not to scare anyone or dissuade any traders, but rather I find it essential to learn and visualize how the market functioned before the age of computers, data analysis, tips providers etc and long before the times of Apps like Whatsapp, Facebook, Telegram. To get that visualization, that clarity,I suggest everyone watch it once

Unless you are able to visualize stock market like that… you can never understand the market activity, market participants at any given point of time. Once you understand that then you will get answers for so many questions that have been on your mind.

Imagine a local auction place, way back say about 40 50 years ago… Let’s assume it as a textile auction market or any product of your choice.. Every day there are people who participate in the auction, either to buy or sell. Any particular product derives its price based on 3 major factors, one the actual worth of the product, and two the price that it was bought and sold (traded) yesterday and three, the demand that it has today.

Every seller in the market starts offering his product based on the last 2 things, the price that prevailed yesterday and the demand the product has today. Similarly every buyer has 2 points in mind, one - he expects the price of that product will go higher in future and two - the lowest possible price that he can buy today.

How does the market price open?

Once the market opens every seller decides to start the offer on 2 parameters, either at the price that prevailed at yesterday’s closing time, or a little higher if the demand is more or a little lower if the demand is less…

Say for example a t-shirt in auction sold at 150 rupees at market close yesterday and about 1 lakh t-shirts were sold yesterday, today if I see more than 50 to 60000 people waiting to buy even before the market opens.. Then I, as a seller will fix my offer price at 160 when the market opens.. or if I see very less demand .. say 10 or 20000 then I will start my offer from 140.

Vice versa, as a buyer if I am satisfied with the buyer’s points mentioned above, I buy at the price that I get in the market...or if I foresee that the price will come down in due course of the day, i will wait.

The next major thing that affects the price of any particular product is the demand and the quantity … to understand that, first we should learn about market participants..

The price of any product goes up when there is demand, but what about when there is huge demand?

Or When there is very less supply compared to the actual demand?

Or when there is too much of supply substantially more than the demand?

Understanding market participants, is another major subject and let’s discuss further about it in the next article.