• Technical Analysis: The study of price movements and volume using charts and indicators to forecast future market behaviour. Technical analysis involves the use of charts to identify trends that are believed to persist over time. Technical indicators are used to indicate the point of entry and point of exit from a particular stock and the market as well.

• Trend: The general direction in which a stock’s price is moving—upward (bullish), downward (bearish), or sideways (neutral). Trend forms the foundation of technical analysis.

• Pivot point: It is a level at which the market direction changes for the day. This gives an opportunity to trade. If the market opens above the pivot point, then BUY is recommended if price remains above the pivot point. If the market opens below the pivot point then SELL is recommended if the market remains below the pivot point.

• Support: A price level where a stock tends to stop falling due to increased buying interest. Support level acts as a temporary floor where it is expected that buyers will act, supporting the price and preventing additional price decline.

• Resistance: A price level where a stock tends to stop rising due to increased selling pressure. Resistance level acts as a temporary ceiling where sellers are expected to act, providing resistance to any further rise in price.

• Breakout: When price moves above resistance or below support, often signalling a new trend. Breakout trading is a strategy that involves entering a position when a stock moves beyond a defined support or resistance level.

• Reversal: A reversal in technical analysis is a significant change in the direction of a market trend, signalling the end of the current trend and the start of a new one.

• Divergence: When price moves in the opposite direction of an indicator, often signalling reversal.

• Fibonacci Retracement Levels: These levels highlight potential support and resistance zones.

• ADX: Average Directional Index measures the strength of a trend, regardless of its direction, helping traders identify whether a market is trending or moving sideways.

Chart Types

• Line Chart: Connects closing prices over time with a line—simple and clean.

• Bar Chart: Displays open, high, low, and close (OHLC) for each period.

• Candlestick Chart: Like bar charts but visually richer, showing bullish/bearish sentiment through candle bodies and wicks, useful to predict trend and reversals.

• Point and Figure Chart: Focuses on price movements without time, useful for identifying breakouts.

Chart Patterns

• Head and Shoulders: The head and shoulders pattern is a reversal formation that signals a shift from bullish to bearish sentiment. It consists of 3 peaks.

• Double Top/Bottom: Signals potential reversal after two failed attempts to break a level.

Indicators & Oscillators

• Moving Average (MA): Smooths price data to identify trends. Common types: Simple (SMA), Exponential (EMA). Moving average smooths out daily price movements by creating a constantly updated average price and identifies the trend direction of a stock or determine its support and resistance levels.

• Relative Strength Index (RSI): Measures momentum; values above 70 suggest overbought, below 30 suggest oversold.

• Stochastic Oscillator: Compares closing price to price range over time; useful for spotting reversals; values above 80 suggest overbought, below 20 suggest oversold.

• MACD (Moving Average Convergence Divergence): Tracks trend and momentum using moving averages.

• Bollinger Bands: Volatility bands around a moving average (20 days); price touching bands (upper / lower) may signal reversal.

Candlestick Patterns

• Doji: The open and close are nearly equal, signalling indecision in the market.

• Hammer: Small body with a long lower shadow, often appears at the bottom of a downtrend, suggesting potential reversal.

• Inverted Hammer: Small body with a long upper shadow, found at the bottom of a downtrend, hinting at possible bullish reversal.

• Shooting Star: Small body with a long upper shadow, usually at the top of an uptrend, indicating bearish reversal.

• Bullish Engulfing: A large bullish candle fully engulfs the previous bearish candle, showing strong buying pressure.

• Evening Star: It is made of 3 candlesticks, the first being a bullish candle, the second a doji, & third being a bearish candle.

• Three White Soldiers: Three consecutive long bullish candles, showing strong upward momentum.

• Three Black Crows: Three consecutive long bearish candles, signalling strong downward momentum.

• Dark Cloud Cover: Bearish candle opens above the previous bullish close but closes deep into its body, warning of reversal.

• Piercing Line: Bullish candle opens below the previous bearish close but closes deep into its body, suggesting reversal upward.

• Rising Window: Formed during an uptrend, signals continuation of bullish trend. It may appear during an uptrend and is made up of two large bullish candles with a gap between them.

• Falling Window: The falling window is a bearish continuation candlestick pattern formed by two consecutive bearish candles with a downward gap, signalling the strength of sellers and potential continuation of a downtrend.

• Spinning top: A spinning top often appears after a strong trend and signals a potential pause or possible reversal, depending on confirmation from the next candle.

• Marubozu: White Marubozu candlestick has a long bullish body with no upper or lower shadows, which shows that the bulls are exerting buying pressure.

• Dragonfly Doji: The dragonfly doji (T shaped) signals potential a bullish reversal during downtrend.

• Gravestone Doji: The Gravestone Doji (inverted “T”) is a bearish reversal candlestick pattern that signals potential weakness in an uptrend, often appearing at the top of a price rally.

Volume Analysis

• Volume: Number of shares traded during a period; confirms strength of price moves.

• Volume Spike: Sudden increase in volume, often preceding major price moves.

Trend Tools

• Trendline: A straight-line connecting price highs or lows to visualize direction.

• Channel: Parallel trendlines forming a price corridor.

• Moving Average Crossovers: When short-term MA crosses long-term MA, signalling entry/exit points.

Market Conditions

• Overbought: A situation in which the demand for a certain stock unjustifiably pushes the price levels that do not support the fundamentals and its fair value.

• Oversold: A condition in which the price of a stock has fallen sharply to a level below which its true value resides.

Risk & Strategy

• Stop-Loss: A predefined price level to exit a losing trade.

• Risk-Reward Ratio: Compares potential profit to potential loss.

• Back testing: Testing a strategy on historical data to assess effectiveness.

• Confirmation: Using multiple indicators or patterns to validate a signal.

Glossary of Financial Analysis

• Financial Analysis: The process of evaluating businesses, projects, budgets, and financial statements to determine performance and suitability.

• Ratio Analysis: A quantitative method of gaining insight into a company’s liquidity, profitability, operational efficiency, and solvency.

• Horizontal Analysis: Comparison of financial data over multiple periods to identify trends.

• Vertical Analysis: Expressing each item in a financial statement as a percentage of a base amount (e.g., Net sales).

Profitability Ratios

• Gross Profit Margin: (Gross Profit / Net Sales) Measures production efficiency.

• Operating Profit Margin: (Operating Profit / Net Sales) Reflects core business profitability.

• Net Profit Margin: (Profit after Tax / Net Sales) Indicates overall profitability.

• Return on Assets (ROA): (Net Profit / Total Assets) Efficiency in asset utilization.

• Return on Equity (ROE): (Net Profit / Total Equity) Measures shareholder return.

Liquidity Ratios

• Current Ratio: (Current Assets / Current Liabilities) Ability to meet short-term obligations.

• Quick Ratio (Acid-Test): (Cash + Marketable Securities + Receivables /Current Liabilities) Reflects Immediate liquidity.

Solvency Ratios

• Debt-to-Equity Ratio: (Total Debt / Shareholder’s Equity) shows financial leverage.

• Interest Coverage Ratio: (EBIT /Interest Expense) Ability to pay interest.

• Debt Ratio: (Total Debt / Total Assets) Proportion of assets financed by debt.

Efficiency Ratios

• Asset Turnover Ratio: (Revenue / Total Assets) Revenue generation from assets.

• Inventory Turnover: (COGS / Average Inventory) Inventory management efficiency.

• Receivables Turnover: (Net Credit Sales / Average Accounts Receivable) Collection effectiveness.

Valuation Metrics

• Earnings Per Share (EPS): (Net Income – Preferred Dividends / Weighted Average Shares) Profit per share.

• Price-to-Earnings (P/E) Ratio: (Market Price per Share /EPS) Market valuation of earnings.

• Price-to-Book (P/B) Ratio: (Market Price per /Book Value per Share) Valuation relative to net assets.

• Enterprise Value (EV): Market cap + debt – cash; used in valuation comparisons.

• EV/EBITDA: A popular valuation multiple for comparing companies across sectors.

Cash Flow Analysis

• Operating Cash Flow: Cash generated from core business operations.

• Free Cash Flow (FCF): Operating cash flow minus capital expenditures—indicates financial flexibility.

• Cash Flow Margin: (Operating Cash Flow / Revenue) Efficiency in converting sales to cash.

Other Key Terms

• DuPont Analysis: Breaks Return on Equity (ROE) into profitability, efficiency, and leverage components.

• Common Size Statement: Financial statements where each item is expressed as a percentage of a base figure.

• Sensitivity Analysis: Examines how changes in assumptions affect outcomes.

• Scenario Analysis: Evaluates financial outcomes under different hypothetical conditions.

• Benchmarking: Comparing performance metrics against industry peers or standards.

• Fair Valuation: Fair valuation refers to the intrinsic worth of an asset or security, determined through objective analysis rather than market sentiment. It reflects what a stock should be worth based on its fundamentals—such as earnings, growth potential, risk profile, and industry conditions.

• Methods used for Fair Value: Discounted Cash Flow (DCF), Price Multiples (P/E, P/B), Dividend Discount Model (DDM), and Economic Value Added (EVA).

Glossary of Shariah-Compliant Equity Investments

Foundational Principles
• Shariah Compliance: Adherence to Islamic law (Shariah), which prohibits interest (Riba), excessive uncertainty (gharar), and unethical business practices.

• Halal Investment: An investment permissible under Islamic law, free from prohibited elements like alcohol, gambling, pork, and interest-based finance.

• Riba: Any guaranteed interest on capital—strictly prohibited in Islamic finance.

• Gharar: Excessive uncertainty or ambiguity in contracts or transactions, which is not allowed.

Screening Criteria

• Business Activity Screening: Excludes companies involved in non-permissible sectors (e.g., conventional banking, insurance, alcohol, tobacco, gambling, adult entertainment).

• Financial Ratio Screening: Evaluates financial metrics to ensure compliance:
    • Debt Ratio: Total interest-bearing debt should be below a defined threshold (often <33% of market cap or assets).

    • Interest Income Ratio: Non-permissible income (e.g., interest) must be below a set percentage (typically <5% of total income).

    • Liquidity Ratio: Liquid assets should not dominate the balance sheet, ensuring the investment is in real economic activity.

Key Terms

• Shariah Board: A panel of Islamic scholars who certify and monitor compliance of financial products and companies.

• Purification: The process of donating non-compliant income (e.g., interest earned) to charity to cleanse the investment.

• Tainted Income: Earnings from non-permissible sources that must be purified.

• Zakat: An obligatory charitable contribution; investors may calculate Zakat on their equity holdings based on net asset value.

Valuation & Ratios

• Market Capitalization: Total value of a company’s outstanding shares; used in financial screening thresholds.

• Net Asset Value (NAV): Used to calculate Zakat and assess the real value of Shariah-compliant funds.

• Dividend Purification Ratio: Percentage of dividends that must be donated due to non-compliant income sources.

Investment Vehicles

• Islamic Equity Fund: A mutual fund investing in Shariah-compliant stocks screened by a Shariah board.

• Sukuk: Islamic bonds structured to generate returns without interest, often used alongside equity investments.

• REITs (Shariah-compliant): Real Estate Investment Trusts that invest in halal properties and avoid interest-based financing.

Governance & Oversight

• AAOIFI: Accounting and Auditing Organization for Islamic Financial Institutions—sets global standards for Islamic finance.

• IFSB: Islamic Financial Services Board—regulates and promotes stability in Islamic financial systems.

• Shariah Audit: A periodic review to ensure ongoing compliance with Islamic principles.

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