1. Module 2 Understanding the Financial Markets

2. “The stock market exists to transfer wealth from the uneducated to the educated” The financial markets are a market place where buyers and sellers meet to exchange financial products Market Behaviour is driven by Two forces: Supply and demand Supply and Demand reflect current buying and selling decisions Supply and Demand

3. Supply and Demand create the underlying market cycle Three types of market: More buyers than sellers = price rise or bull market More sellers than buyer = prices fall or bear market Equal numbers of buyers and sellers = sideways or flat market. Market Types

4. So what typifies each of the markets?

5. Bull Market In a Bull Market: Share prices are rising Demand is greater than supply (More buyers than sellers) Buyers arewilling to accept current, and higher and higher prices; therefore prices are rise over time Optimism is strong in the market.

6. Bullish Market More buyers than Sellers = Bullish Market Buyers or Demand Sellers or Supply

7. Bullish Market

8. Bear Market In a Bearish Market: Share prices are falling Supply is greater than demand (More sellers than buyers) Buyers are not willing to accept current prices; therefore prices are depress over time Pessimism is strong in the market.

9. Bearish Market More Sellers than Buyers = Bearish Market Sellers or Supply Buyers or Demand

10. Bearish Market

11. Flat Market In a Flat Market: Share prices are moving sideways Supply and demand is in equilibrium (equal buyers and sellers) Indecisiveness is strong in the market

12. Flat or Sideways Market Same buyers As Sellers = Flat Market Sellers or Supply Buyers or Demand

13. Sideways Market

14. Market Patterns The share market cycles have 5 distinct patterns Ground Swell – where the early buyers begin to see value in the market and buy Uptrend or bullish Peak – followed by consolidation period where supply and demand is temporarily in equilibrium Downtrend or bearish Trough – followed by consolidation period where supply and demand is temporarily in equilibrium.

15. Market Patterns 3. Peak 4. Down Trend 2. Up Trend 5. Trough 1. Ground Swell

16. Our Market Australian Stock Exchange (ASX) is the primary market in Australia Why invest here? Invest in what you know and can understand 12% PA average returns over last 50 years 100 shares per option contract as of May 2011

17. Two forces impacts supply and demand? The economic climate Emotions in the market