Stock Market Basics:
Roadmap
1. What is the Stock Market?
The stock market is a platform where shares of publicly listed companies are traded. It allows
investors to buy and sell ownership in businesses and helps companies raise capital.
2. Key Terms to Know
- Stock: A share in the ownership of a company.
- IPO: Initial Public Offering, when a company first sells shares to the public.
- Bull Market: A market where prices are rising.
- Bear Market: A market where prices are falling.
- Index: A measure of a group of stocks' performance (e.g., Nifty, Sensex).
3. Types of Analysis
Fundamental Analysis: Technical Analysis: Using
Evaluating a company's charts and patterns to
financial health. predict stock movements.
4. Fundamental Analysis
Three Levels of Fundamental Analysis:
Economy Analysis (Macro-Level) Industry Analysis (Meso-Level)
Understand the overall economic environment: Study the sector in which the company
operates:
GDP Growth Rat
Inflation and Interest Rate Industry life cycle (emerging,
Government Policies and Budge mature, declining
Global events affecting markets Demand-supply dynamic
Government regulations or subsidie
Why it matters: A growing economy Competitive landscape
supports business expansion, which
leads to better stock performance. Why it matters: Some industries
perform better in specific phases of
the economy. For example, FMCG does
well in downturns, while real estate
thrives in booms.
Company Analysis Financial Statements:
(Micro-Level) Profit & Loss Statement: Shows revenue, expenses, and profits
Deep dive into the Balance Sheet: Assets, liabilities, and shareholder equity
company’s Cash Flow Statement: Inflow and outflow of cash from
performance: operations, investing, and financing.
Key Ratios:
Earnings Per Share (EPS): Profit per share. Higher = better
Price-to-Earnings (P/E) Ratio: Share price vs earnings. Lower P/
E = undervalued (if other factors are strong)
Debt-to-Equity Ratio: Measures financial health. Lower = safer
Return on Equity (ROE): Profit generated from shareholder
funds. Higher = efficient company.
Qualitative Factors:
Management quality and experienc
Company’s competitive advantage (also called moat
Brand strength and customer loyalt
Expansion plans, R&D, and innovation
Steps to Perform Fundamental Analysis
Start with economy & industry trend
Check company financials for at least 3-5 year
Compare key ratios with competitor
Read quarterly reports, earnings calls & management commentar
Estimate the intrinsic value and compare with the current price
Example:
If a company like ABC Ltd. has consistent profit growth, low debt, a strong brand, and is
trading below its intrinsic value based on earnings potential — it could be a fundamentally
strong stock to consider.
5. Technical Analysis
Technical Analysis is the method of evaluating stocks by analyzing price charts, volume data,
and market trends rather than company fundamentals.
The goal?
To predict future price movements based on historical patterns.
Why Use Technical Analysis?
Identify the right time to buy or sel
Catch short-term trading opportunitie
Understand market psycholog
Make decisions using data-driven patterns
Unlike Fundamental Analysis (which asks what to buy), Technical Analysis answers when to
buy/sell.
Core Tools in Technical Analysis
Price Charts Support & Resistance
Visual representation of stock price Support: A price level where buying
movements over time. is strong enough to prevent further
fall
Popular types: Resistance: A price level where
selling pressure stops further rise.
Line Chart: Simple, tracks closing
prices When price breaks these levels, big
Bar Chart: Shows open, high, low,
close (OHLC) movements often follow.
Candlestick Chart: Most used –
visually rich and easy to interpret.
Trendlines & Channels
Pro Tip: Candlestick patterns can
Trendlines connect rising lows
signal market reversals or
(uptrend) or falling highs
continuation.
(downtrend)
Channels are trendlines running
parallel to price action.
Volume Analysis
Volume = number of shares traded.
High volume during a price move =
strong conviction.
Low volume = weak or uncertain move.
Technical Indicators
These are mathematical calculations based on price/volume. Some must-knows:
Indicator Use
Moving Averages Smooth price data to identify
(MA) trends
Relative Strength Shows overbought/oversold
Index (RSI) levels (0-100)
MACD Spot trend changes and
momentum
Bollinger Bands Volatility and price
range tracking
Example: RSI > 70 = Overbought, < 30 = Oversold
Putting it All Together: A Simple
Strategy
Identify trend using moving average
Confirm with RSI or MAC
Spot support/resistance on char
Wait for candlestick pattern to
confirm entry/exi
Always use stop-loss to manage risk
6. Key Terms to Know
This guide is designed to provide a crisp yet practical foundation for anyone beginning their
journey in the stock market. It covers the two core pillars of market analysis –
Fundamental Analysis and Technical Analysis – giving you a balanced understanding
of how to evaluate stocks both for their intrinsic value and market behavior.
