How To Calculate SENSEX

How to Calculate Index (Sensex & NIFTY)....!!!
Stock is the smallest unit of ownership of a company in other words stock is a share in the ownership of the company. Stock is also called as share and equity. If a person purchases stocks of a company it means that he is one of the owners of the company, and ownership increases as he goes on purchasing more amount of stocks. Technically speaking a shareholder of a company owns a small part of every assets of the company such as building, furniture, trademarks, etc. A share holder holds ownership in all tangible and intangible assets of the company.
Initially stocks were represented by share certificates which worked as the proof of ownership of the company but now it is dematerialized and every trading transaction happens through computer using DEMAT accounts. There are many stock exchanges in our country like BSE, NSE, Calcutta stock exchange, Bangalore Stock Exchange, etc. But NSE and BSE are major among them most of the stocks are traded in these two Exchanges.


SENSEX
Sensex stands for “sensitive index”, it represents BSE (Bombay Stock Exchange). Sensex indicates all major companies of BSE. Sensex is calculated using share prices of 30 major companies which are listed in BSE. If the Sensex goes up it means that share values of most of the major companies have gone up and vice versa.

NIFTY
Nifty indicates NSE; it is the leading index for large companies in the National Stock Exchange of India. It consists of 50 companies representing 24 sectors of the economy. NIFTY represents approximately 47% of the traded value of all stocks on the National Stock Exchange. It is calculated using base year 1995 and base index value 1000.

Criteria for selecting stocks to calculate Index
Below given are the criteria for selecting stocks to calculate Index
Listing history: The Company should have listing history on BSE for at least one year
Track record: company should have good track record.
Market capitalization: Company should be one among 100 market capitalizations of BSE, and each company should have more than 0.5% of total market capitalization of BSE index.
Frequency of trading: company stocks should be traded on each and every trading day for the last one year.
Industrial representation: company should be a leader in the industry it represents.
Market Capitalisation
Market capitalization is the total worth of all outstanding (issued) shares of a company. It represents the total worth of a company.

Market capitalization= No of shares outstanding x market price of share

Free Float Market Capitalization
Free float concept is an index construction methodology which makes use of free float shares in the market. Free float market capitalization is the total worth of all shares of a company which are available for trading in the open market. These shares are called free float shares and are available for trading by anyone.

Example: Company ‘X’ issues 1000 shares, out of which 200 shares held by government, 500 shares by directors of the company and remaining 300 shares are available in the open market for trading. Market price of share is 10 Rs.

Here;
Total Shares = 1000
Shares Held by Government = 200
Shares Held by Directors = 500
Shares available in the Open Market = 300
Market price of share = 10

Here total market capitalization of the company is 1000 X 10 = 10000 and
Free float market capitalization of the company is 300 X 10 = 3000


According to the rules of BSE any shares which do not fall under the following categories are considered as free float (open market) shares.
Government holding shares as promoters
Holdings by Directors/ Founders
Holdings through the FDI route
Stakes held by private corporate bodies or individuals.
Any cross holdings i.e. equity held by associate or group companies.
Equity held by employee welfare trust.
Calculation of the free float factors
Periodically, every listed company has to submit holdings information i.e. who all are holding the shares of the company, to the exchange. Based on this free float factor for each company is calculated.


Free float factor = No of shares available for trading in the open market / Total No of outstanding shares of the company.






Free float factor of each company has to be rounded of to the higher multiple of 5 and company is considered among one of the free float range.

Free Float ranges
% Free-Float
Free-Float Factor
% Free-Float
Free-Float Factor
>0 – 5%
0.05
>50 – 55%
0.55
>5 – 10%
0.1
>55 – 60%
0.6
>10 – 15%
0.15
>60 – 65%
0.65
>15 – 20%
0.2
>65 – 70%
0.7
>20 – 25%
0.25
>70 – 75%
0.75
>25 – 30%
0.3
>75 – 80%
0.8
>30 – 35%
0.35
>80 – 85%
0.85
>35 – 40%
0.4
>85 – 90%
0.9
>40 – 45%
0.45
>90 – 95%
0.95
>45 – 50%
0.5
>95 – 100%
1

Calculation of SENSEX and NIFTY
Sensex calculation is practiced since 1986. Initially it had been calculated using total market capitalization method but the methodology changed to free float market capitalization since from 2003. Hence these days Sensex is calculated using free float market capitalization of 30 major BSE listed companies and by using base value 100 (1978-79). SENSEX is calculated for every 15 seconds.

Formula for Sensex

SENSEX = (sum of free float market cap of 30 major companies of BSE) X Index value in 1978-79 / Market cap value in 1978-79.








Example: suppose BSE index (SENSEX) consist of only two stocks such as ‘X’ and ‘Y’

Company ‘X’ has 1000 outstanding shares out of which only 500 are available for trading in open market. Market price of share is Rs.100.

Company ‘Y’ has 2000 outstanding shares out of which 1000 shares are held by promoters and remaining 1000 are free float shares (open market shares). Market price of share is Rs.50.

Calculation of Market Capitalization
Stock
Issued Stocks
Market price
Market Cap.
X
1000
100
100000
Y
2000
50
100000

Calculation of Free Float market capitalization
Stock
Open Market Stocks
Market price
Market Cap.
X
500
100
50000
Y
1000
50
50000

Here;
Sum of free float market cap of company X and company Y is 50000+50000 = 100000
Assume market cap during 1978-79 is 25000

Now Apply formula;
100000*100/25000 = 400

The same method is used to calculate NSE nifty but includes two major changes.
Base year is 1995 and base value (index value) is 1000
Nifty represents stocks of 50 major companies of NSE.
Formula for NIFTY





NIFTY = (Sum of free flow market cap of 50 major stocks of NSE) X Index value in 1995 / market cap value in 1995.

Day Trading Techniques…..

Anyone can become a day trader but not everyone can make money out of it. Day trading is suitable for only those who wish to speculate on the stock market. Generally day traders say that day trading not only gives you the opportunity to make money, but also to lose. No matter whether you are a full time employee or part time employee, you can trade in stocks and enjoy the benefit. Stock market provides you an opportunity to use your knowledge of every-day events and convert them into profits.12 Techniques for Day Trading Following techniques will help you to become a successful intraday trader.
Following the techniques are more important than understanding it.
• Fix a target price
• Wait for the buy/sell price to initiate the call
• Always fix Stop Loss
• Take expert Advice
• Analyze the tips carefully
• Wait, Watch and Trade
• Don't Overtrade
• Always follow Market trend
• Wait for an opportunity
• Don’t expect too much
• Confirm the buying & selling volumes
• Don’t get Panic

Fix a target price Always fix a target price while trading.
If you don’t have a target price, the greediness will make you to lose the entire capital in the stock market. Stock market is such a place it can fluctuate to any level. A fair increase in the price of a particular stock may give you a feel that the price will increase further but in the very next moment it may fall down drastically.

For example; Buy Siemens at Rs.500, target Rs. 530 and stop loss is Rs. 495.In this case you have to buy Siemens stock at Rs. 500 and sell it when it touches Rs.530 so that you can make a profit of Rs. 30. If you hold the share after it achieve the target, there is a possibility that the stock price may come dawn drastically after touching a certain limit. In this case you will lose all your profit and capital because of greediness. So fixing a target price is very important for traders.

Wait for the buy/sell price to initiate the call Before trading in stock market you should fix the buy price and sell price. You should execute the trade only if the stock touches that particular level. For example, if the call is like, buy Unitech at Rs.80 target Rs. 85 and stop loss at Rs. 78. You should not buy below this price; only buy at Rs.80 or slightly higher. Because the given buy price may be the resistance price, if it breaks then share price goes up or else it may not go up. So always buy at given target price.

Always fix a Stop Loss It is very important to maintain a stop loss while trading. This will help you in minimizing the loss in case the stock price is moving is the unfavourable direction. Assume that the share you bought falls down drastically, in this case you may end up with huge loss. But stop loss will help you to restrict your loss to a certain limit.

Take expert Advice. Stock market is a very risky place for a fresher lack of knowledge is very dangerous and it will make you to lose huge money. It is always better to do trading or investing by taking the advice and suggestions of an expert who has proper knowledge about the market. Swiss MS is providing accurate trading calls for its subscribers.

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Analyze the tips carefully. No one is perfect in stock trading; no one can be a master in stock market. So do not blindly trade on the tips given by any one. Before trading observe that stock, check the volume, whether they are increasing or decreasing and then take a decision on your trade.

Wait, Watch and Trade Do not rush into the market without a proper analysis. Wait, watch and trade. Verify the market direction and place the order because most of the stock-tips do not work if market direction changes. Make sure and confirm all your strategies like resistance and support levels and then plan to trade.

Don't Overtrade. One of the most important things that all traders should keep in mind is that do not over trade. Never put all your money in stock, most of the brokers provide margin amount but it is up to you how to make use of this margin amount. It means if you have Rs.100000 in your demat account, you can trade for more than Rs.100000. But before trading you should have a fair idea about how much you can trade, how much you can afford to lose etc.

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Always follow Market trend. Always trade with market trend and don’t move against market direction. Don’t short sell, if the market is going up and don’t buy if the market is falling down. Give more importance to market trends than individual perceptions.

Wait for an opportunity. If you are not sure about market movement then wait for an opportunity and don’t trade vigorously. It is always better to wait instead of losing money.

Don’t expect too much. Greediness will end up in losing all the money. So don’t expect too much from stock market, try to be happy in whatever profit you make. If you try to grab too much from market, the market will grab all your money. Remember that you are doing day trading so square off your positions with appropriate profit instead of waiting for big profit.

Confirm the buying & selling volumes. Before buying a stock check out the buying and selling volumes. If buying volume is increasing then the stock may go up and if the selling volume is increasing the stock price may come down.

Don’t get Panic. Don’t allow sentiments to rule you. If that is the case you are going to lose all your money in the market. During the day market might go up and dawn but don’t change your decisions continuously. Have a clear plan about the day and start trading