Technical analysis of stocks is gaining popularity amongst investors and traders as advancements in charting patterns, and trading platforms are making it easy for investors to use this method for security analysis. However, for an amateur investor, understanding technical analysis of stocks can be intimidating and challenging.
Stock market technical analysis is a method used to examine the price movements of stock by studying the historical charts and specific indicators and determine the future price of the stock. Quite simply, it is analyzing the pictorial representation of the past and present price movements and using it establish patterns and identify the trend for the future price of the stock. As opposed to fundamental analysis, which analyses a stock based on its intrinsic value and impact of external factors on the price of the security, technical analysis of stocks is purely based on identifying patterns on a chart to determine the future price movement.
Key assumptions for technical analysis of stocks
Technical analysis is based on studying the market action and the function of demand and supply of the stock. Few key underlying assumptions are:
- Believes in the theory of the efficient market and reflects all information
The first assumption of technical analysis of stocks is that the current market price of the security reflects all the information and it is the fair price of the stock and should be the basis of analysis.
- The price movement of stock follows a trend
The price of the stock moves in a trend until reversed. So, analysts need to identify the trend by reading the price pattern.
- Patterns repeat itself
The beauty of technical analysis of stocks is that close monitoring of the charts reflects the same patterns being repeated hence making it easier to predict future price movements.
To perform technical analysis, you need to use charts to identify trends and also any reversal in trend. These technical analysis charts are a visual representation of the price of the security over a period. The vertical axis is the price scale, and the horizontal axis is the time scale.
The three important technical analysis charts are-
- Line charts- It is formed by connecting the closing price of the stock over a specific period and does not include any other information like open, high, or low of the stock.
- Bar charts- Bar charts provide a better visual of the price of the stock as it shows the opening, high, low, and closing (OHLC) of the stock.
- Candlestick charts- The candlestick chart provides the same information as bar charts, but the representation makes candlesticks charts easier and quicker to understand.
Technical Analysis Indicators
Indicators are the basis of technical analysis of stocks and play an important role in helping analysts in identifying trading opportunities by giving entry and exit signals in the stock markets. These technical analysis indicators broadly fall in two categories-
Leading Indicators –These lead the price movement and indicate the probability of trend reversal in advance. Some of the common leading indicators are the Relative Strength Index(RSI), Stochastic Indicator, etc.
Lagging Indicators- These follows the price movement and are trend-following indicators. Some of the common lagging indicators are moving averages (MA), moving average convergence/divergence (MACD), etc.
- Trend line indicator
This is one of the simplest indicators used in technical analysis and is important to identify the market trend. The price movement of a stock is represented in peaks and troughs series, and these series represent the trend in which the price moves. The three market technical analysis of stock trends are-
- Uptrend- Uptrend is defined as a series of higher highs and higher lows
- Downtrend- Downtrend is defined as a series of lower highs and lower lows
- Sideways- The market is said to be flat when the prices move in a horizontal range.
Using trend lines is one of the many techniques for analysis, and once the then trend line is broken, it should be used as a warning for a reversal in trend. Once there is a breakout in the trend line additional tools should be used to identify the change in trend.
- Supportand Resistance Indicators
Support and resistance levels are two critical levels that define the meeting point of the forces of demand and supply and help analysts determine the market psychology.
Support – It is the level where the demand is strong to keep the security from sliding any further.
Resistance- It is the level where the supply is strong to keep the stock from moving any higher.
When either of the levels is broken, then the supply and demand have moved on, and new support levels will be established.
- Momentum Indicators
Momentum indicators are usually leading indicators and tell you how strong the current trend is and if the trend is likely to change. Some of the common momentum indicators include
- The moving average convergence/divergence (MACD) indicator- It shows the relationship between two moving averages.
- Relative strength index indicator- It measures the speed and strength of the price movement in the market by comparing the current price to the past performance.
- Oscillating Indicators
Oscillating indicators are used for the analysis of securities that are not trending but are trading in a range. Oscillating indicators are beneficial when the security is moving in a horizontal pattern and discover potential entry and exit points as they help determine oversold and overbought conditions. A Stochastic oscillator is the most frequently used indicator.
The above indicators are significant for analysts and traders for technical analysis of stock trends and for future price movement prediction.
For anyone who is trading or investing in the equity markets, it is important to understand the basics of technical analysis to understand the market movements. However, as stock market technical analysis is a little complex, correct guidance is essential. Our experts at IndiaNivesh can help you guide through the crucial tools and techniques for technical analysis.
Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.
Step by Step Guide on how to file ITR (Income Tax Returns)
Over the last few years, the income-tax department of the country has been very dedicated to making the process for filing of ITR returns easier to ensure robust compliance by the taxpayers. However, many people find still find it intimidating and prefer to pass it on to professionals. How to file ITR online? Filing your ITR online is mandatory, and only super senior citizens who are 80 years or above can file their returns in a paper format. As filing the ITR online has simplified the process manifold, here is a step-by-step guide on how to file ITR- Step 1- Register/Login on the Income Tax Department Portal The first step to filing your ITR online is to register yourself on the Income Tax portal www.incometaxindiaefiling.gov.in. Your Permanent Account Number is your user id for registration, and you are required to set an alphanumeric password for it. Once you have registered on the official website, you need to log in with the same ID and password, and you will get secure access. You will be prompted to put a captcha each time you log in. Step2 –Collect the relevant documents needed to file your returns Before you start filing your ITR, all your documents must be organised and handy at the time of filing returns. Here is a list of documents you will need for filing your ITR online- PAN Card Aadhaar Card Bank Account Statements Bank Account Details TDS certificate( Form 16/Form 16A) Apart from these basic documents, if you have any other income such as rental income, capital gains/losses, then keep all such documents handy. Step 3- Click on the "Filing of the income tax return" to begin the process of ITR filing online Once you have registered yourself on the e-portal, login to your account and click on the “Filing of income tax return” tab on the dashboard. Step 4 - Download the correct form for ITR filing There are different ITR filing forms available based on your source of income. Choose the relevant form based on your income. The various available based on the nature of income are- ITR-1 Form- Individuals earning income from salary, income from house property, and income from other sources. ITR-2 Form- Individuals and HUFs who do not conduct business or profession as proprietors ITR-3 Form- Individuals and HUFs earning an income through business or profession as proprietors ITR-4 Form- Individuals earning income as business professionals ITR-5 Form- It is for firms, Limited Liability Partnerships (LLPs), co-operative societies, body of individuals ITR-6 Form- Those companies that are not claiming tax exemptions under Section 11 of the Income Tax Act ITR-7 Form- It is for trusts, colleges, institutions and political parties It is essential that you choose the correct form for ITR filing as filling in the wrong form will make it invalid, and you will have to re-file it. Step 5- Fill in the relevant information in the ITR form Once you have downloaded the appropriate form, then enter all the relevant details like name, PAN details, address, date of birth, investments, bank details, etc. in the form and validate the details entered by you. Step 6- Compute your taxable income Once you have entered all the relevant information in the form, compute your total taxable income for the financial year by adding the income from all the five heads of income. Step 7- Calculate your tax liability After you compute your taxable income, calculate your tax liability as per your income tax slab. Step 8- Verify your Form 26 AS The next step is to verify your Form 26 AS, which shows all the taxes that you have already paid in the year. You have to go on the quick link menu and open your Form 26 AS where you find details of TDS, advance tax, self-assessment, etc. Form 26 AS is a consolidation of tax credit statement. Step 9- Calculate your final tax liability Calculate your final tax liability after deducting the taxes that have already been paid by you. If there are any additional tax that needs to be paid then you can pay it online. Step 10- ITR filing after paying your dues Once you have paid your taxes in full, you can file your ITR in Excel or Java software utility. ITR1 and ITR 4 forms can be submitted online only. Step 11- Verification of your ITR filing This is the last step in filing ITR. You are required to verify your ITR either electronically or physically. If you opt for electronic verification, then you will receive the acknowledgement receipt immediately. You can also send the ITR for verification by sending a signed copy by post to the Income Tax Department in Bangalore within 120 days, and they will email you the acknowledgement for the same. After the verification is over, the Income Tax Department will process your ITR to cross-check the details and tax paid by you. On completion, they will communicate the same to you via email on the registered email id. Conclusion Over the years, the process of ITR filing has been simplified, and now it is mandatory to e-file your returns except in the case of super senior citizens. If you have any queries or doubts about filing your ITR online, then you can get in touch with our tax experts at IndiaNivesh to help you file your returns. Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.
Income Tax Slabs & Rates in India for 2020-21
Every year, the income that you earn is subject to income tax. Calculation of your tax liability depends on the income tax slabs, which are determined under the Income Tax Act, 1961. These tax slabs specify the rates of tax payable on different levels of income. The higher the income you earn, the higher would be the income tax rate. However, before we understand the income tax slabs and calculation of your tax liability, let's look at the five sources of income that you need to declare when filing your income tax returns. Sources of income Income from salary Income from business or profession Income from capital gains Income from house property Income from other sources Any income that you earn in a financial year should be recorded under the correct head of income. After that, the total income is added together to find your gross taxable income. You can claim eligible deductions and exemptions from your gross taxable income to arrive at the net taxable income, which would then be subject to tax. Income tax slabs Now that you know how you are required to calculate your taxable income, here are the income tax slab rates which are applicable to calculate your tax liability – Income tax slab for individuals and HUF’s Points to note Here are some points which you should note concerning the above-mentioned income tax slabs In all the above-mentioned income tax slabs, there would be an additional health and education cess of 4% on the tax liability calculated. If your net taxable income is up to INR 5 lakhs, you can claim a rebate on the tax payable under Section 87A of the Income Tax Act, 1961. The rebate allowed would be your actual tax liability or INR 12,500, whichever is lower. This rebate reduces your tax liability to zero if your income is limited to INR 5 lakhs Illustration Let’s understand how to use the income tax slab for calculating your tax liability with the help of an example. Mr. Verma is 40 years of age, and he has an income of INR 10 lakhs from salary and INR 2 lakhs from other sources. He invests INR 1.5 lakhs in ELSS schemes and INR 20,000 towards a health insurance policy. His income tax liability would be calculated as follows – Calculation of Mr. Verma’s Taxable Income New Income Tax Slab In the Union Budget 2020, Mrs. Nirmala Sitharaman, India’s Finance Minister, introduced a new income tax slab. In this tax slab, the income tax rates are lower for higher levels of income. The new income tax slab is as follows – Income tax slab 2020-21 Points to note This slab would be applicable from the financial year 2020-21 Health and education cess of 4% would be applicable on the tax liability calculated using the above-mentioned income tax slab If you choose the new income tax slab rates, you would not be able to avail deductions and exemptions available under different sections of the Income Tax Act, 1961 Two deductions can be claimed under the new tax regime from your taxable income. The first deduction will be for your employer's contribution to the National Pension Scheme (NPS) if you are a salaried employee under Section 80 CCD (2). Contribution of up to 10% of your salary would be allowed as a deduction. The second deduction is under Section 80JJAA where expenses incurred on new employment would be allowed as an exemption. The income tax slab 2020-21 is optional. You can either choose the new tax slab or the old one for calculating your tax liability. The rebate under Section 87A would be allowed even under the new tax regime if taxable income is up to INR 5 lakhs Illustration In the above example, if the new tax regime is considered and the employer’s contribution to NPS scheme is INR 50,000, the taxable income and tax liability would be calculated as follows – Calculation of Mr. Verma’s Taxable Income (New Tax Slabs) As you can see, even in the absence of deductions, the new tax regime allows a lower tax liability due to lower tax rates. When you calculate your tax liability, use both income tax slabs, the old and the new, and find out your tax liability. Then choose the tax slab, which offers the lowest tax outgo and file your income tax returns. You can choose tax-deductible investments offered by IndiaNivesh and lower your tax liability using the old tax slabs. So, work out both the alternatives, if you need tax saving options, find them on IndiaNivesh and then file your returns. Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.
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