Actuality June 6, 2007

   Just recently only the few knew about the stock exchange, but today the financial competence of people constantly grows. And everyone who disposes some available sum of money can send them at work to gain profit from the securities motion at the market. If it goes about you, it means you are a potential investor! The present investor has investment tools and to spare, i.e. the opportunities to sent money to the stock market.

   The first way of money investing is mutual funds or bank-managed mutual funds. They are schemes of collective trust management. It means that a man who does not understand the stock exchange trade issues and does not have free time for independent operations on a stock exchange, gives his facilities to a management company (mutual funds) or a bank (bank-managed mutual funds). This company or bank collects all investors’ money into one pool and a competent trader manages them in terms of a strategy stated in the prospectus. But in this case a shareholder can not influence manager activities and determine the number of one or other assets in portfolio by himself.

 Portfolio is a collection of securities (assets) for facilities investment. Efficient portfolio counterbalances riskfree assets (e.g. bonds) by high-risky assets (e.g. stocks), and is called "diversification" in the managers’ language, i.e. capital stakes’ distribution in different securities.

   Apart from collective trust management, at the market of investments also exists the individual trust management. It allows an investor to form the investments portfolio by himself taking into account the desired profit, risks stability, managed by the private strategy. This is the second way to send money at work successfully.

   Investor’s capital is divided into two unequal parts. The lesser is invested into the options, highly reliable market tools allowing controlling risks hard and gain the unlimited profit at a favorable market situation. The bigger part is invested into bonds, low risky securities, which insure a capital part invested into the options. It enables to gain high profits at the complete control over a risk.

   Though these structural products are flexible, comfortable and have the variety of opportunities of individual portfolio forming, this service is not available for each investor, as the minimal investment sum into such product varies from $100 000 to $1 mln due to higher options cost.

   The third way of a present investor to the stock market is independent trade on a stock exchange. But a private investor can directly operate on a stock exchange only through a broker company which is the professional stock market participant, i.e. it is certified at the stock exchanges and has the proper licenses for the activity realization.

   In fact, broker companies (brokers) are intermediaries between a stock exchange, where circulate the securities and investors, who want to invest the money into these assets. When you conclude a contract with a broker, you have the opportunity to dispose your capital by yourself and spend it to purchase those securities which seem most interesting and profitable. Relations with a broker are formed by means of the broker and depositary service agreement signing. This agreement lists detailed cooperation terms with a company. And then a broker sets up two accounts for you: broker one, to keep money, and a deposit, to keep the assets purchased on a stock exchange.

   You can proceed to trading right after your facilities have been credited to the account. If you do not have the required skills for this, almost any large broker company will invite you to take the special training courses. The market professionals will tell you in details how stock exchanges function and what complications expect at you at transactions settlement. At extra charge, of course.

   Classic broker service implies several access paths to the equity market. If your PC is connected to the Internet, the special trading platform is installed to it, allowing to settle transactions at your convenience and from any point of the world (within the framework of trading session, of course). If you do not have Internet access, you can take advantage of the traditional method and make a bid by simply calling a broker and say you want to sell or purchase one or another asset. In this case a broker works on a stock exchange on behalf of the client. The third variant is a workplace lease in a broker dealing room.

   Dealing room is a special place in the office of a broker company, where a client gets a workplace for extra charge, equipped with all necessary tools to operate at the stock market (computer with installed trading platform, telephone etc.).

   Internet-trading is the form of stock exchange transactions settlement through the computer program. It provides the opportunity to operate on all accessible stock exchanges in the real time mode, and also react quickly to the changes of market movements.

 Broker companies develop their own trading computer programs quite often and offer them free, taking extra charge for the platforms of other developers.

   Three types of costs expect the investor in the process of cooperation with a broker company. First and foremost, the source of brokers’ profit is a commission from the clients’ transactions. As a rule it is a percent from the transactions volume for the period indicated in your tariff plan (trading day or month). Its size directly depends on the clients’ daily turnover sum. For example, the bigger turnover within the indicated term (day or month), the lesser is broker’s fee. However, another variant is possible. If a turnover is lesser than the indicated sum, the commission is not paid, and a small percent will be collected only from that turnover part, which has exceeded this indicated sum.

   The client is in the favorable position in terms of commissions paid monthly. The interest rate goes down at the accumulation of bigger transactions volume, and an investor saves at daily commissions, paying a broker only at the end of month. In any case, a player-beginner should study carefully the tariff policy of a broker. On the whole, all companies’ commissions are approximately the same today, quite available in terms of hard competition at the market.

   Secondly, an investor pays the stock exchange commission, which in no way depends on a daily turnover and transactions’ volumes, but is the one for all stock exchanges. The third type of costs is a fee for keeping and record of securities in a broker depositary. It can be collected as a monthly subscriber fee or for each position change on the deposit account. You should not forget about the income tax which a broker withholds in case of taking the facilities out of a company or upon calendar year end.

   Brokerage is rather developed; therefore the services package rendered to the investor by a broker can be named a model. All companies provide a client with the opportunity to settle transactions by the Internet, give the maximal information access (analytics, digests, informative line) and teach investors-beginners a stock exchange nuances. Hundreds thousands companies operate at the broker market, and you should pay attention at several important points so not to get confused with this overabundance and make a single correct choice.

Make sure, that a company you are interested in has all required licenses for broker, dealer and depositary activity and for trust management also.

   Broker experience at the stock market and his work history are also important. Did a company face the financial difficulties or lose any license? Financial indices also play an important role. They list the size of the company private facilities, turnovers at the market, the amount of active accounts etc. Pay your attention at the client service quality, performance, presence of additional opportunities in the company services package like access to the accounts through the private cabinet on a broker website, opportunity of electronic workflow between a client and a company, opportunity to sign reports by means of electronic digital signature. Study the terms of service in details. These terms list the size of the given leverage (a loan given by a broker as money or securities against your securities, which increases facilities on your account), the size of a primary sum, the amount of trading tools, and the transparency of tariff policy. Broker companies’ ratings represent rather fully a broker reputation, degree of his reliability, and also position stability at the market.

Personal financial planning is drafting of the financial plan for one man or family, where current financial status, personal financial goals and ways of their achievement are reflected.

Set goals for the personal financial planning

What does the private financial plan mean? Everybody strives to save some money to buy a car or an apartment, or even more in terms of giving their children good education or just saving for a comfortable retirement. However it often happens that money is not enough to satisfy all needs. Thus if you don’t plan your budget, you will be constantly coming across the problem of money shortage. It goes without saying your goal should be reasonable, which means it should meet your income. Otherwise you will not succeed. It is appropriate to draught your private financial plan when you set reasonable goals for yourself.

So, you answered the questions "WHEN and WHAT I want to attain?", and defined the number of the personal financial aims and desired temporal frames of their realization for this purpose. Your manager will help you to answer the question "HOW to obtain realization of these goals?".

Estimate the current financial status

If with the goals of the financial planning it is more or less clear, let us understand with the determination of your current financial position. The construction of the personal financial plan begins with the determination what facilities you dispose at the current period of time. It is necessary to define on this stage what an asset is that brings profits, and what a liabilities is that, respectively, makes your charges. Difference between incomes and charges within the certain period of time – is savings that can be invested in various financial instruments. The situation, when charges exceed incomes, says about the wrong application of money and implies taking measures for reduction of charges or increase of incomes. Difficulty of current financial status estimation consists is that a man is not always able to name the exact sum of charges. As a rule, we daily spend money lightly, and forget that considerable part of our incomes falls on different trifles. So, at drafting of monthly plan of incomes and charges, it is necessary to take into account the experience of previous periods, and thus consider not only the most large and meaningful expenses.

Another difficulty lies in estimation of existent assets that are divided by those that bring profit (shares of mutual funds, securities, bank investments) and by those that do not (private car, apartment, summer house). Thus, it is very important to be aware that success of money planning lies in the accurate and correct estimation of current financial status.

Start the financial planning

Since the goals are defined and the financial state is estimated, it is possible to pass to drafting of the personal financial plan. Your manager will help to define, what expenditures of charges can be minimized and, the most important, to choose optimal strategy of facilities investment. However, you shouldn’t consider that your personal preferences will not be taken into account here. Strategy determination and choice of instruments is in the great deal conditioned by the degree of risk you are ready to take

Profitability depends on the degree of risk, because these values are interrelated on the market. The higher risk, the higher can be the potential profit, and vice versa – the less you risk, the lower of possible income. Assuming these criteria, it is possible to select three strategies of means management – conservative, moderate and aggressive. The conservative strategy supposes the means investment into bank deposits, bonds. The moderate approach is based on the use of mixed mutual funds or mutual funds of stocks, bank-managed mutual fund (mutual fund analogue, these funds are organized by banks), individual trust management, mutual funds if it goes about investments into foreign assets. The aggressive strategy implies work with
hedge-funds, independent investing with the use of credit resources and investments into low liquid stocks.

Investment products are effective combination of bonds and options for stocks, indices, oil, gold, currencies etc. They allow taking advantage of the best qualities of such, unlike at first sight, assets – bonds and options for various assets. Bonds are instruments with a small profitability, but a low risk also. Investing into options for stocks, commodities, currencies etc. – enable to gain the unlimited profit at the strictly limited risks. It is a very interesting instrument, allowing to earn at the growth of some assets, not investing all facilities, but only a very small stake of them, and to receive herein the greater part from a price change for an asset. Bonds allow to compensate whether all or a part of losses that an investor can sustain in that part of capital that was invested into options, if a forecast did not verify and options did not bring incomes. Thus, these investment products eliminate the risk of investment errors of a manager, because he does no undertake actions after the purchase of options and bonds. Besides, investments in such heterogeneous assets, as stock indices, oil, gold, currencies etc. allow to obtain a very wide diversification that reduces risks and improves the final result.

So, the best method to attain financial prosperity is to compel your money to work for you and obtain the increase of the personal welfare in the end.
The professional approach to the financial planning of your facilities is the way to your financial welfare and prosperity.

Let’s consider the example of financial plan drafting.
Given data:
The initial sum of investments of equivalent is $20 000. An investor chooses the moderate strategy with the middle potential profitability 30% per annum. The account will be refilled at $10 000 annually.
Goals:
An investor plans to retire within 12 years, and would like to save no less than $1 mln by this term.

Year Planned profitability, % Planned result
2007 Investment 20000 dollars
2008 30.00 36 000
2009 30.00 56 800
2010 30.00 83 840
2011 30.00 118 992
2012 30.00 164 690
2013 30.00 224 096
2014 30.00 301 325
2015 30.00 401 723
2016 30.00 532 240
2017 30.00 701 912
2018 30.00 922 486
2019 30.00 1 199 231

Thus, the set goal is attained

Conclusion

At the current moment, the consumer loans entered our life very stable, allowing getting the desired product or service right here and right now, not shelving or indulging oneself anything. However, behind all attractiveness of similar loans there is the other side of the coin – the danger of getting to the debt pit, repaying different loans for years, and sometimes for decades. Personal financial planning and facilities investment into different investment instruments will allow to obtain not only the financial goal you set without running into debts, but will also provide you financial independence and will allow to find the source of well-to-do existence for years.

Liquidity of stocks and capitalization of a company are two terms widely used on the market of securities.

Capitalization is the market value of a company. It is determined by multiplication of stock exchange stock cost by the amount of stocks in circulation. Capitalization of a company changes constantly during trades.

Liquidity is the index, determining the opportunity quickly and without the substantial prices’ fluctuation to make stock exchange transactions with a stock. The more transactions are concluded with a stock the higher volume of daily trades, the higher its liquidity. Liquidity is determined by the volume of trades and amount of the concluded transactions with a stock during a session. One of the ratio of stock liquidity is spread, that is the difference between quotations for a purchase and sale.

Liquidity of a stock is extremely important for the market of stocks, active trades pass only with narrow range of stocks. Small and rare transactions with many lowliguid stocks can strongly move their price.

With the liquidity index is closely related such index as free-float – the amount of stocks in free circulation. Free-float are stocks in circulation except for the state holding and holding belonging to companies’ managers – strategic investors. Low free-float means that lesser amount of stocks is available to the investors for making transactions, that interferes with liquidity growth. The small amount of free circulated stocks of companies poses a problem for investors who are interested in large stock exchange turnovers of liquid stocks.

Dividends are profits distributed by a joint-stock corporation among the shareholders according to year, half-year, rare quarterly results.

In most cases, dividends payment on stocks is not the purpose of their acquisition. More frequent stocks are bought for considerable increase of their market value in course of time. Price growth can multiply exceed any dividend return. Small dividends are paid on most stocks or they can be not paid at all. There are growth stocks on any stock markets on which dividends are not paid. All current profit companies invest in business for the quickest development of a company. But shareholders do not complain. Powerful growth of stocks of such companies brings high profits.

A dividend return is determined as relation of dividend on a stock to the current market value of stock, multiplied by 100%. The more expensive you buy a stock, the lower its dividend return.

As a rule, the general size of dividends is determined in percents from the net income (after taxation). The fixed sum on preferred stocks, paid as a dividend, is approved by corporation statute, for example, in size of 20% net income.

How to receive dividends

There is no necessity to keep stocks the whole year to receive dividends. It is enough to hold stocks on the day of closing of stockholders’ register. The list of people, who have the right to receive annual dividends, is also the list of people, who have the right to participate in the annual general meeting of stockholders. The board of directors takes the decision about calling of the general meeting of stockholders and sets the date of register closing. The date of making the list of people, who have the right to participate in general meeting of stockholders, can not be set before the date of decision making about holding general meeting of stockholders. But sometimes stockholders find out about the date of register closing after it already happened.

It is possible sometimes to notice that after register closing the market cost of stock reduces on the size of dividend.

Registers’ closing and meeting of stockholders take place mainly in spring and summer.

Board of directors recommends the general meeting of stockholders to pay one or another sum of dividends (or not to pay). The telling example: in 2005 Board of directors of the Russian "Sibneft" Oil Company suggested at first not to pay dividends to stockholders according to work results in 2004, then "changed their mind" and offered the stockholders’ meeting to approve payment of dividends in size of 100% net income.
Decision on the size of dividends is finally approved by voting on the stockholders’ meeting.

So, if you got in the register closing, you will receive an invitation to participate in the stockholders’ meeting, but it is better to watch independently.

To stockholders – individual persons – dividends can be transferred to the accounts of cards, transaction accounts and other accounts in banks, paid in cash available in the cash desk of a company, sent by a postal order to the address of a stockholder. To stockholders – clients of brokers – dividends will be transferred to their brokerage accounts.

Payment of dividends can last for a few months, for example, to the end of fiscal year.

   Indicator technical analysis

To increase objectivity of research methods were invented technical indicators that entered the everyday practice with appearance and wide diffusion of computer technique.
According to construction character and types of given signals technical indicators are divided into two basic classes:
- trend-following indicators;
- oscillators.

The trend-following indicators allow selecting the current trend. The majority of tendency indicators are based on averaging and smoothing of price row by means of moving averages. Thereby, all trend indicators are characterized by a certain delay as compared to the dynamics of prices, their signals can be used only for the exposure of trend presence and statement of change of trend direction post factum.

Drawing of moving average (MA) indicator presupposes finding of average values, entering the averaging period (base). At the appearance of new value of price the base moves forward so that the new value got in the period of the average calculation, and the oldest among the before entering values is derived simultaneously. Thus, the average as though "moves" on a price row, and therefore is named the moving average.

In the simple moving average (SMA) is calculated the arithmetic average of prices’ value, entering the averaging period. In other words, each price value is included in the average with equal weight, i.e. all prices are acknowledged identically important. However obviously, that the last values of prices have greater importance for forecasting, than more early ones.

For the account of temporal factor was developed the weighted moving average (WMA), in which each next value of price in the base is given greater weight, than to the previous one.

There also exists the exponentially smoothed moving average (EMA). In it the greater weight is given to the more late values of prices by means of adding of the certain percent of the last price to the last average value, diminished on this percent. The received, in its turn, becomes the last average value etc.

As it was stated above, the moving averages execute actually the function of trend dynamic lines. When prices break through the line of moving average and occupy position above it, it is the signal of upward trend presence. If after some time prices change their position in relation to the moving average, declining under it, it will mean establishment of downward trend.

Another indicator on the basis of the moving average is the family of two or three moving average, drawn on the different periods of smoothing. Moment of positions change of the moving average in relation to each other serves a signal of trend beginning or ending. One of the most popular combinations is combination of 4-, 9- and 18-daily moving averages.

Another original application of the moving average find in the so-called "envelope". Envelope – is two parallel moving averages on the certain percent distance from above and below from the basic, central moving average. The envelope as though wraps a "ribbon" over the bar chart, which at strong market movements can outstrip the envelope and break forth its limits. Signals for the increase and decline are considered reliable only in that case, when prices, besides crossing of central line, go beyond the limits of the envelope measures.

Oscillators make the most numerous group of technical indicators. Oscillators are outstripping indicators in itself, i.e. they allow forecasting the conduct of prices in the near time, that distinguishes them from the indicators of trends that give only late signals.

The momentum indicator shows an absolute difference between the last value of price and its value N-periods ago. Accordingly, depending on the sign of the received value, the oscillator line will be higher or lower than zero level.

When the line of momentum oscillator approaches a zero mark – trend is already ended and it is necessary to be ready to changing of direction of prices movement.
Crossing of line of momentum indicator with the zero line can also serve a signal to the buy/sale. However, such signals should be necessarily confirmed by trend.

The relative strength index has a scale with the value range from 0% to 100% and is one of the most sensible outstripping indicators, allowing to predict further prices’ movement. The rise of indicator lines higher 70% on the background of ascending trend testifies that the market is in the phase of congestion of purchases and determines the possible price decline. When the indicator line falls below 30% mark at the descending trend, it means that the market is in the state of congestion of sales and determines the possibility of price rise.

Intermediate position among other technical indicators occupies MACD indicator (Moving Average Convergence-Divergence). This unique indicator can be used both as the trend indicator and as the oscillator on any temporal intervals. Its value consists in that it works well both at the periods of trend development and during market movement in the trading range.

Action principle of MACD indicator consists in measuring of convergence or divergence of two lines: MACD line and signal line. Even if both on the bar chart and on the indicator there is the ascending trend, the signal to the purchase comes in that moment when the MACD histogram is under the zero line and turns up. If the descending trend is present, showed both on the bar and indicator charts, the signal to the sale comes when the MACD histogram is placed above the zero line and turns down.

   Elliott theory

At the heart of Elliott wave theory lays the idea that the socially mass conduct of participants of exchange game passes the stages of expansion, enthusiasm, euphoria, calming, decline and depression. In accordance with this idea, the process of the directed market (trend) development can be considered as the specific structure from five waves.
Waves 1, 3 and 5 form the directed movement and are named impulsive, and waves 2 and 4 is movement against trend and are named corrections.

Wave configurations, consisting of five waves, can be broken by the periods of depression, when the character of prices dynamics does not allow defining explicitly the next wave cycle. The phenomenon, when one of the impulsive waves is far longer than another, is named tension. The impulse completion follows the correction stage, usually consisting of three waves, designated as A, B, C. Any wave of the full eight wave cycle can be independently broken into analogical cycles. Thus, the examined cycle itself is only the part of the more long-term wave process, developing at the higher level.
Three rules of Elliott wave theory:
1) final point of wave 2 can not be higher than wave 1;
2) among waves 1, 3, 5 wave 3 can not be the smallest;
3) wave 4 can never end in the price area of wave 1.

In Elliott theory is specially formed the wave diagram, correlations within which are given by the Fibonacci ratios (1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, .). Fibonacci numbers are used to determine time intervals, through which occur changes of trend, and also to determine the length of development of each Elliott wave both by amplitude and period.

   Japanese candlesticks

The first charts, reflecting price changes on the market, appeared in the West at the end of 19th century. But the few knew that Japanese had developed another method more than 300 years ago. The Japanese charts look as a row of candlesticks, laid out on a table, thus the majority has wicks on both sides.
Japanese consider that the highest and lowest price is relatively unimportant. They pay greater attention to the prices of opening and closing, marked as highest and lowest edges of body of each candlestick. If the price of closing is higher than the price of opening, a candlestick is white, and if vice versa – a candlestick is black. If the maximal or minimum prices go beyond the opening and closing measures, the body of candlestick gains "shades" – vertical lines, showing the proper values.

The Japanese stockbrokers consider that analysis of each separate candlestick, and also groups of contiguous candlesticks allows them to predict, in what direction the market will move in the near future. Certain combinations of candlesticks, which are the signals of turn, continuation or strengthening of tendency, are thus selected. There are the followings models of turn: "harami" (absorption – the body of the second candlestick fully covers the body of the previous one) and "hammer" (candlestick with the small body and long "shade", standing out from the general row).

Trend is the directed prices’ movement (growth or falling) during some period of time. Upward ("bullish") trend (uptrend) is observed when every new rise of prices reaches the more high level, than previous growth, and every new price decline stops at the more high level, than preceding slump. Thus, the trend line "supports" the chart from below, connecting the series of local minimums of prices. At downward ("bearish") trend (downtrend) the trend line limits the price chart from above, connecting the series of local peaks of prices.
According to some estimations, up to 70% time on the market of price fluctuations do not reveal any distinct tendency. Trading range, also named "sideways trend", is characteristic of this phase of market. Although, formally only two nearby points are enough for the drawing of trend line, there should exist at least one more tangency point of line and prices, in order to ascertain the stability of exposed trend. After the tendency was determined, the breakout by prices of trend lines can signal about the possible change of its direction. Thus, the following criteria matter:
• Size of breakout
Most widely is used the "three percent rule": price change for 3% and more in the opposite to trend direction the next day after a breakout can serve as the signal of tendency break;
• Time of breakout formation
In addition to the first criterion sometimes apply the "two days rule": in two days of prices’ movement in direction, opposite to the trend, it is possible to state the change of the dominant tendency.

   Analysis of trend lines

Foundation of classic trend analysis are lines of resistance and support. All trend lines, models and figures – are just combinations of resistance and support lines.
The resistance line connects important maximums (tops) of market. It appears at the moment when buyers either can not anymore or do not want to buy this commodity at more high prices. Simultaneously with every price movement up grows resistance of sellers and increase sales, that also renders downward pressure on a price.
Trend stops growing and as though rests against the invisible ceiling, it can not break through at the moment. If "bulls" will pull oneself up or "bears" will weaken the grip, a price will probably break through the level of resistance set before. Otherwise, the reverse price movement is inevitable – the so-called "setback".
The support line connects important minimums (bottoms) of market. Origin and existence of support lines is directly opposed to the situation with the resistance line. Here "bulls" change over with "bears". Sellers are active players on the market: they push a price down, and buyers is the defended part here. The more active will be sellers and the more passive buyers, the higher probability that the level of support line will be broken through and a price will go down further.
To draw the resistance and support lines is better through the areas of prices accumulation, but not through their maximal spikes on tops and bottoms. The mass accumulation of prices shows that here the conduct of determining amount of traders has changed the direction, and the maximal spikes of prices in such places indicate aspiration of weak market participants to close the unprofitable positions hastily.

The analysis method of resistance and support lines helps traders to watch after the tendency change – its turn or strengthening. These levels are especially important for giving protective stop-orders.
It is necessary to watch constantly after the dynamics of trend lines. If a trader remembers that recently a price pushed off from some support level and went up, next time he will prefer to make a purchase at this level with the larger likelihood ratio. If a price pushed off from the resistance level and went down and a trader remembers about it, probably, next time he will sell at this level.
However, there is no clear variant of drawing of trend lines; they can be drawn variously on the same chart. It takes place because the trend line usually supposes connection of few relative maximums or relative minimums. If more than 2 points are needed to connect, the exact line will be possible only in that rare case, when their interrelation is strictly linear. In reality the drawn trend line will go only through some relative maximums/minimums, omitting other. The choice of maximums and minimums points, through which will be drawn the trend line, depends on who analyses the chart.

   Basic graphical formations

All price formations are classified by that forecasted value which they bear for further movement:
• formations of trend reversal;
• formations of trend continuation;
• dual formations.

Graphical formations of trend reversal
The major reversal formations include "head and shoulders", "double top", "triple top", "saucer" and V formation. Let’s consider each of them in details.
The "head and shoulders" pattern consists of three successive price peaks, the average among which ("head") rises above two another ("shoulders") by height. "Shoulders" are approximately on one level and identical distance on the left and on the right of the "head". Hence is such an original name. This formation appears at the end of upward trends and signals about the approaching break of tendency and turn of market down.
The reverse situation is observed at the development of downward trends, and in this case proper formation is named "reverse head and shoulders".

The "double top" pattern on the bar charts consists of two successive peaks of prices that have approximately the equal height (difference usually makes no more than 2-3%). This formation reminds the letter "M" and is met in the final phases of strong upward trends.

The "triple top" pattern reminds the "head and shoulders" pattern with only that difference, that the central top has approximately the same height as two another.

Unlike other trend reversal formations, the "saucer" pattern (round top/bottom) is the strongly smoothed, rounded top or bottom, reflecting the slow and gradual change of trend direction to the opposite one. Like other patterns, the "saucer", as a rule, is a rather symmetric figure.
The V pattern is the sharp change of upward trend to the downward and vice versa.

Graphical formations of trend continuation

Formations of trend continuation are formed at temporal pauses in forward prices’ movement that usually arise during development of trends. From the reversal formations they are distinguished by, that in this case usually is only consolidated, and earlier or later continue movement in former direction. The different types of "triangles", "wedge" and "flag" belong to the number of basic continuing formations.
In general case "triangle" pattern emerges during deceleration of growth or price decline in trend, when a market is temporally stabilized before the beginning of the new rise or slump. The typical triangle is formed with two lines converging at the acute angle, executing the role of support and resistance. As a rule, the point of their intersection is on the right and is the top of the triangle. Prices accomplish damped fluctuations between the lines of triangle. Thus, every next rise stops on the more low level, than previous one, and every next slump ends at the more high level, than preceding one.

There are three basic varieties of "triangle": ascending, descending and symmetric.

The "ascending triangle" is characteristic of upward trend where it acts as continuation formation. In it the upper side (resistance line) should run horizontally or with small inclination to the time axis.
The ascending triangle, as a rule, ends in the price breakout up.

The "descending triangle" is the plane reflection of ascending one and the most credible end is the price breakout down.

The "symmetric triangle" is characterized that its sides are inclined symmetric in relation to the time axis. Such triangle often appears both on upward and downward trends in periods of prices consolidation and specifies the continuation of market movement in former direction.

The "wedge" is also the continuation formation that strongly reminds an ordinary triangle. The wedge is formed by two converging lines, connecting few successive peaks and slumps of prices formed during the market fluctuations in the period of consolidation. However, in the wedge these lines are inclined in the same side. The falling wedge usually reflects a temporal pause in the development of upward trend, and the growing wedge is characteristic of corrections on downward trend.

When development of the new strong trend begins on the market and prices direct almost vertically upward or downward, after some time inevitably comes the short pause. At this time the market is consolidated on the threshold of the new strong rush in the direction of trend. Exactly in such pauses, prices form a figure, known under the "flag" name.

The "flag" has the parallelogram form, formed with the support and resistance lines that are almost parallel each other and inclined in direction, opposite to the basic one.

Some figures are dual – in different situations they can be either as breakout formations or as continuation formations of tendency.

Fundamental analysis

One of the forecasting methods of stock prices is fundamental analysis.

As a rule, fundamental analysis is conducted on three stages:
1) Market estimation on the whole: production dynamics, economic activity level, consumption level, inflation rates, financial condition of the state;
2) Exposure of perspective industries of economy;
3) Estimation of companies, working in perspective industries; comparison of companies’ indices with each other; determination of stock "fair price". For calculation of stock "fair price" of any company its current financial and economic position and prospects of its development are important. As basic information sources for such calculation use:
• data of annual and quarterly reports about company activity;
• company publications about itself and public statements of company management;
• news publications;
• researches’ results, conducted by specialized organizations and other stock market participants.

As it is quite difficult to conduct a competent fundamental analysis, private traders and investors, preferring to rely upon fundamental market analysis, orient to the forecasts of the known analysts.

Technical analysis

Another popular method of prices forecasting is technical analysis.

Basis of technical analysis became the theory of Charles Dow – author of the well-known indices: industrial DJIA index and transport DJIA index.
Originally, the Dow theory was directed to the use of general tendencies of stock market as an index of the general state of economy and was no intended for stock prices forecasting. However, all further development of theory was directed to achievement exactly of this aim. Three postulates the technical analysis are based on:
1) Market takes into account everything.
Reasons that somehow can influence the market value of a stock (economic, political, psychological) will certainly find their reflection in its price, i.e any changes in the dynamics of demand and supply affect prices’ movement;
2) Prices’ movement is subjected to tendencies.
Concept of tendency or trend – one of the fundamental in the technical analysis. The charts of changes are compiled with the aim to expose tendencies (dynamics of prices) on the early stages of their development and conduct trades in accordance with their orientation.
Thus select three types of trends:
• bullish – prices move up;
• bearish – prices move dow;
• sideways – no certain direction of price movement. This movement is also named "flat".
3) History repeats.
Graphic price models, which were selected and classified during the last one hundred years, reflect the important features of psychological market condition. And if these models worked in the past, there are all grounds to suppose that they will work in the future.

The typical tasks of technical analysis are forecasting of short- and medium-term market tendencies and providing of recommendations concerning occasions for a purchase/sale. Recommendations are given exceptionally on the basis of historical information with the use of mathematical algorithms.
It is impossible to separate fundamental and technical analyses. Those, who use technical approach, know about influence of fundamental factors and take into account them. Fundamentalists, in their turn, having information about the prices’ level, direction of their last fluctuations and trade volumes, take these information into account.

Graphical technical analysis

The most popular is the bar chart, where the vertical axis reflects prices, and horizontal – time.
Information about price fluctuations is presented as the vertical column, which boundary values reflect minimal and maximal price. The price level of trades opening is represented by the horizontal stroke on the left of column, and the price of closing is specified by the proper stroke on the right.
The volumes of transactions concluded during a day are presented as a histogram in the lower part of the bar chart. The joint study of prices’ dynamics and trades’ volumes gives an opportunity to define whether one or another prices’ movement was supported by the majority of market participants, that gives greater credibility the exposed price signals.
The main instruments of graphical technical analysis are: trend lines, levels of support and resistance, and also different graphical structures.

   Trading types

There are four basic trading types from the viewpoint of duration of positions deduction:

- Day trading is trading in great amount of securities with fixing of small price changes;

- Intraday is day trading that presupposes opening and closing of most trading positions within the trading day;

- Short-term trade is trading lasting for a few days;

- Long-term trade is tradings at which the opened positions hold more than a month.

The choice of trading type to a large extent depends on player character, available free time and size of account.

If you choose a quarterly game, you can consider oneself an investor. A long-term purpose of investor is profit gaining. He carefully chooses stocks for his portfolio, diversifies risks, studies financial statements and indices of companies. The evaluation of stocks by an investor has rather fundamental, than technical character. An investor listens to analysts’ opinion.

Trader prefers different types of short-term trading, he watches prices’ fluctuations during a day and earns by conducting large volume of transactions. At decision making he often follows the signals of technical analysis systems and information from hot news.

Trader, according to the defining dictionary, is the worker of broker company, bank or other financial structure directly participating in exchange trade. However, most traders in the real life are people, working for themselves and risking only their capital. Traders take special pleasure in the process of trade and profit gaining "from air".

   Stocks: types of prices, positions, marginal crediting

Stocks during trades are presented by three prices:
• by bid price – price a buyer wishes to pay for a stock;
• by ask price – price a stockholder wishes to sell it;
• by last trade price.
In trades on an exchange take part great number of sellers and buyers at once, each of them announces own supply and demand price. Thus, the bid price is considered the best at the moment offer from a buyer, and the ask price is the best offer from a seller.

The difference between bid and ask prices creates the so-called spread. Spread of high liquidity securities, as a rule, is small; at low liquidity it can be very substantial.

Conducting business with securities, in most cases, you can use not only your funds, but borrowed also – broker facilities. You borrow some funds from a broker, necessary for stocks purchase, the same increasing the sum of your investments and profit possibility. When you make transactions using borrowed funds, it is called the short trade, or marginal trade. Loan that you repay during a day is usually floated by a broker free of charge. At loan transfer for the next day, you pay a percent until the loan will not be fully floated.

Short sale of stocks or short sale

Trading in stocks, you can open one of two positions:
• "long", that means purchase of securities;
• "short", that means that you sell securities in anticipation that their price drops.

There is a question: how to sell what you do not have? The rules of exchange trading assume a sale of what does not belong to you. Such operation is called "short sale". As if you take securities out a loan at a broker, obligating to repay them by the fixed date and pay a bank percent for a loan and brokerage fee. As security are funds on your account.

   Stock market indices

Stock market index is a number reflecting the condition of certain group of stocks. Thus, not index value itself is of interest but its change in time. This change allows to judge about general direction of market movement, averaging dynamics of separate stocks.

As there can be many methods of averaging and criteria for the choice of the evaluated stocks, there are also a great number of stock indices on each market. Many brokerage offices and news agencies estimate their own indices.

As index is estimated by some selection of stocks, it is accepted to cite their amount at the end of index name: S&P 500, DJIA 30.

Stock indices of one market are always strongly correlated regardless of selections and methods. Almost all indices increase on the growing market, but their speed of change is different. These differences of indices can be used for forecasting. For example, if a new index maximum of "blue chips" is not confirmed by a new maximum of the wider index, so drop on the market is possible.

Most known stock indices of the USA: DJIA, S&P, NASDAQ.
DJIA index (Dow Jones Industrial Average) appeared in 1897. In the present view is calculated since 1928 as weighted arithmetic average of stocks’ price of 30 largest corporations.

Among the professionals of stock market the most popular are indices, calculated by Standard & Poor’s agency. These are indices, weighed by market capitalizations. S&P 500 and S&P 100 are the most popular, and are calculated by stock prices of the USA largest corporations.

Also there is family of NASDAQ stock indices. If NASDAQ name is given without extension – NASDAQ Composite index is meant, including the overwhelming majority of stocks traded in this system. Mainly, these are companies, specializing in high-technologies: in production of computers and software, in telecommunications, biotechnologies etc. Beginning of indices calculation – on February 5, 1971, initial value – 100. NASDAQ 100 index includes 100 largest companies.

   Main and most known types of securities are: stocks, bonds, futures, options. Stocks and bonds are primary financial instruments, and futures and options are derivative ones.

Stock: a holder of stocks is a company co-owner; he has a right to receive part of company’s earnings as a dividend and participates in a company management by voting on stockholders’ meeting. A company that issued stocks is named a company-issuer.

Bond: a holder of bonds credits a company for the certain date. Upon expiration of the due date he will get money invested in bonds’ purchase and accrued interest back. Percents can be paid gradually during all date or upon its completion. Bonds give the guaranteed profit and, thus, are the less risky investment, than stocks, but at the same time not so profitable.

Futures: a holder of futures is obligated to buy or sell stocks, currency, oil or other values at a predetermined date and price, stipulated in advance at the moment of contract conclusion.

Option: differs from the futures in that gives the right to buy or sell stocks, currency, oil or other values at the predetermined date and price, stipulated in advance by the contract.
Trading in futures and options is related to the high risk and can result both in the large profits and in the large losses.

   Types of stocks

Stocks can be classified in different ways:

1. By rights of the stockholder.
- So, the holder of common stock can participate in the general meeting of stockholders with the voting right on all questions under his competence; has a right to receive dividends, and at company liquidation – to receive part of the property in the cost rate of stocks that belonged him.

- The holder of preferred stock does not have voting rights. Instead of that a certain stable profit on securities is guaranteed him, and also original right to payment of part of property owing in case of company liquidation.
This stock characteristics is interesting rather to investors, than to active players-traders. The costs of common and preferred stocks of one company behave alike, except for the period of dividends payment.

2. By stocks’ liquidity and volatility.
- Liquidity index of stocks reflects the ability of stockholder to convert them quickly into money and get a sum, not less, than spent at a purchase, taking into account received dividends.

- Volatility index reflects the deviation of security return from its average value and, the same, dynamics of price during the accounting period.

High liquidity reduces the risk of investments in a security, volatility, vice versa, increases the risk and possible profit. Stocks volatility can change quite often, therefore it is necessary to reexamine regularly the contents of the portfolio.
Liquidity stocks include all most popular on the market stocks, mainly the so-called stocks of the first echelon.

3. Third classification is named "by investor’s expectations" de bene esse.
- Blue Chip Stocks are stocks of large, stable and respected companies, already well-established by good indices of profitableness; high liquidity. Term "blue chip" came from poker, where blue chip has the highest value. As a rule, dividends on these stocks are not paid.

- Growth stocks are stocks the growth of which is expected in future. These, as a rule, are stocks of the well-known companies or companies, working in perspective at the moment industry. The stocks of Internet -companies in the 90th and biotechnological companies can be an example.

- Income stocks are stocks on which, as a rule, good dividends are paid.

- Cyclic stocks are stocks the cost of which directly depends on the state of economy on the whole. They can slump at the economic decline and rise quickly during the economic recovery. They, in particular, include stocks of motorcar factories, airlines.

- Protection stocks are stocks of those branches of industry that are less influenced by the economic situation in a country. For example, stocks of food companies and enterprises, producing goods of prime necessity.

- Stocks of small capitalization companies are stocks of young, but perspective companies. For example, many enterprises of technological sector. Such stocks have high growth potential, but operations with them have high degree of risk. They are very volatile.

- Speculative stocks are volatile stocks of unstable companies, long ago present on the market.

- Undervalued stocks are stocks, which ratio of profit, dividends and sales/capitalization and other generally accepted fundamental characteristics say about substantial growth potential.

- Seasonal stocks are stocks of companies the profits of which depend on a season. So, trading companies get considerable part of profit in the period of seasonal sales and in holiday periods.

   Stock exchange

Trade in stocks is carried out on stock exchanges (markets). Stock exchange can have a certain location, and can exist only in the electronic form. So, NYSE (the New York Stock Exchange) is located in Manhattan, and NASDAQ (the National Association of Securities Dealers Automated Quotations) exists only in the electronic form.

Other well-known exchanges of America are AMEX (the American Stock Exchange), CHX (the Chicago Stock Exchange).

Market participants: issuer – registrar – depositary – stock exchange – broker – investor

Stock market basis are issuers and investors:

- Issuers are enterprises, different types of companies, bank institutions etc. that issue certain types of securities;
– Investors are companies or individual entities that acquire these securities.

Between issuer and investor there are the following market participants:
- Registrar is an executive officer that maintains a register of joint-stock associations. If the number of stockholders becomes more than 500, an issuer, in accordance with legislation, should conclude a contract with an independent registrar and pass the register maintenance to him;
- Depositary is a professional participant of stock market. He registers ownership rights on securities. Depositaries work by agreement with an investor and client, unlike a registrar who cooperates with an issuer;
- Stock exchange is an organizer of trade on the stock market;

- Broker is a professional participant of stock market. If a broker and client concluded an agency contract, a broker acts on behalf and for account of a client. If the relations of broker and client are confirmed as an agency contract, a broker acts on his behalf, but for account of a client.

1. Stocks
When you buy a stock, you become the owner of a company share. The company is collectively owned by all shareholders. Each stock gives an owner the right for gaining of income part or assets of company.

2. Stocks are different
Stocks are usually divided according to the size of companies (capitalizations), activity of trades (stocks liquidity) or sector (oil, hi-tech companies etc.). Moreover, stocks are common and preferred. Preferred stocks bring high dividends; others are interesting to investors due to considerable growth of market value.

3. Stock cost moves after company profits
On short periods of time the conduct of stocks market depends on enthusiasm and fears, rumors and news. On long periods of time company profits mainly determine, whether the stock cost goes up, down or remains the same.

4. Stocks are a risky choice
In the 20 century, if judge on the average annual growth of stocks market, the return of stocks considerably exceeded inflation rates. Return of stocks exceeded return of market of bonds, real estate and other saving instruments. As a result, stocks is one of the best facilities for holding money for long-term aims, for example, pension savings. But one of the most risky.

5. Separate stock is not a market
A good stock can grow even then, when all market goes down, while a stock-outsider will fall even at the rapid growth of the market.

6. Excellent historical return in the past does not guarantee high results in the future
Costs of stocks are based on suppositions about the future company profits. Excellent growth in the past does not promise the same results in the future, even the best companies can goof.

7. You can not say how the stock expensive is simply looking at its price
As the stocks’ cost depends on company profits, a stock costing $100 can appear cheap, if a company waits for high profits. Also stock costing $2 can be expensive, if a company has dim prospects concerning profit.

8. Investors compare stocks’ cost with different indices to estimate the stocks’ cost
To understand whether a stock is overestimated or underestimated, investors compare its cost with a profit, income, money stream and other fundamental indices of a company. Usually compare efficiency of company with other companies from its industry. Companies of slow growing industries have other estimations, than companies of fast growing industries.

9. Correct investment portfolio of long-term growth contains stocks of strong companies from different industries
As a general rule, it is better to keep stocks from different sectors of economy. If stagnation comes in one industry, you have where to gain profit yet.

10. More correct to buy and keep good stocks, than get involved in active, short-term speculations
Except for permanent high expenses on a commission to a broker, active trade requires every minute attention after prices’ movement. It is not simple, if you work full times yet.

Common and Preferred stocks

Shareholders, holders of association common stocks, can participate in the general meeting of shareholders with the voting right to all questions under his competence, and also have a right to receive dividends, and in case of corporation liquidation – a right to receive part of his property.

Shareholders, holders of association preferred stocks, do not have voting right on the general meeting of shareholders (except for some cases). But according to preferred stocks the size of dividend should be stated in OJSC articles (or order of their determination).

As a rule, higher dividends are paid on preferred stocks, than on common stocks. Sometimes dividends are paid only on preferred stocks. Dividends are the advantage of preferred stocks.

There are some more secondary differences in the rights for holders of common and preferred stocks.

On many Russian joint-stock companies simultaneously circulate common and preferred stocks. As a rule, the costs of these stocks are different and sometimes can change even in various directions or change in one direction with different speed, that depends on short-term demand and supply of stocks in trades on a stock exchange.

Why invest in a stock?

Stocks are one of the best in the world methods to increase the personal means and create a financial capital for any private investor.

Stocks possess a remarkable feature – it is their ability to grow in price considerably in course of time, if a company, that issued stocks, conducts profitable business (it is better if dividends are paid on stocks)

Overwhelming majority of people is engaged in sale of time for money. The labor can be sold, for example, as work by hire daily on workings days from nine to six. One can work more, creep up a carrer ladder, enhance skill for the sake of salary growth. There is, however, another way to become rich, together with the main job – to compel money work for oneself, though time is spent also. Secret of wealth is to compel own money work for oneself. Strange profitable business is the key to creation of capital. For most people stocks are one of not many possibilities to participate in profitable business and make money on this.

Russian stock market is not an exception. Such markets, are named "developing market". It differs on exceptional mobility as compared to 100-year world markets – stock market experiences rapid growth of stocks. The stocks’ cost of the largest issuers increases n-fold for a short period of time. For example, for five years (2000-2004) the stocks’ cost grew 3 times on the average! Separate stocks grew much more.

Growth of stocks on long periods of time exceeds inflation rates and bank rates on holdings. No currency can be compared to growth of stocks. In course of time the cost of companies is overestimated in accordance with inflation, and growth of stocks, as a rule, regains inflation.

According to CNN/Money