EXECUTIVE SUMMARY

Technical analysis is a method for forecasting the direction of financial

instruments through the study of past market data such as prices, chart
indicators and trends.

The objective behind this research to analyse the scripts which are AXIS
BANK , BHEL, INFOSYS, L&T, RIL and S&P CNX NIFTY (Market itself) .

As per technical analysis, we have taken indicators such as – MACD, ROC,

RSI and EMA based on which we have analyse the above scripts and come to
a decision.

As per research, the combination of above all indicators shows that except
reliance majority of the indicators are giving the buy signal. Only reliance
does not give any signal so investors should stay away from RIL. All other
shares as well as NIFTY index are to be purchased as per technical analysis.

Technical analysis is based on the assumption that people will continue to

make the same mistakes they have made in the past.

The advantages of timing the market over the buy and hold approach were
particularly marked between 1992 and 2003 when Nifty persistently gave
negative returns. It is not that this happens only when an investor is caught in
a bubble, there are numerous examples to contrary, when investors have lost
money even though they have manage to enter at absolute lows, their only
fault is that they did not sell out, when prices went up, but decided to hold on
forever.

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 BACKGROUND

The ULTIMATE GOAL of any speculative investment is to earn

profits. The purpose of this report is to review the evidence that strategy of
technical analysis (simple moving averages) helps to determine the
profitability for speculation in trading in Indian stock market. To achieve this
purpose, the report comprehensively reviews survey, theoretical and
calculative studies regarding technical trading strategies. We begin by over
viewing survey studies that have directly investigated market participants’
experience and views on technical analysis.

The survey literature indicates that technical analysis has been widely used by
market participants in futures markets and foreign exchange markets, and that
about 30% to 40% of practitioners appear to believe that technical analysis is
an important factor in determining price movement at shorter time horizons
that is less than two years.

Early studies indicated that technical trading strategies were profitable

in foreign exchange markets and futures markets, but not in stock markets
before the 1980s. Modern studies indicated that technical trading strategies
consistently generated economic profits in a variety of speculative markets at
least until the early 1990s. Among a total of 92 modern studies, 58 studies
found positive results regarding technical trading strategies, while 24 studies
obtained negative results. Ten studies indicated mixed results.

Future research must address deficiencies in order to provide conclusive

evidence on the profitability of technical trading strategies.

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 LITRATURE REVIEW

Technical analysis is a forecasting method of price movements using past

prices, volume, and open interest. Pring (2002), a leading technical analyst,
provides a more specific definition:

“The technical approach to investment is essentially a reflection of the idea

that prices move in trends that are determined by the changing attitudes of
investors toward a variety of economic, monetary, political, and psychological
forces. The art of technical analysis, for it is an art, is to identify a trend
reversal at a relatively early stage and ride on that trend until the weight of the
evidence shows or proves that the trend has reversed.”

Technical analysis includes a variety of forecasting techniques such as chart

analysis, pattern recognition analysis, seasonality and cycle analysis, and
computerized technical trading systems. However, academic research on
technical analysis is generally limited to techniques that can be expressed in
mathematical forms, namely technical trading systems, although some recent
studies attempt to test visual chart patterns using pattern recognition
algorithms. A technical trading system consists of a set of trading rules that
result from parameterizations, and each trading rule generates trading signals
(long, short, or out of market) according to their parameter values.

Technical analysis has two main ways that indicators are used to form buy
and sell signals in technical analysis is through crossovers and divergence.
Crossovers are the most popular and are reflected when either the price moves
through the moving average, or when two different moving averages cross
over each other. The second way indicators are used is through divergence,
which happens when the direction of the price trend and the direction of the
indicator trend are moving in the opposite direction. This signals to indicator
users that the direction of the price trend is weakening.

Among the most popular technical indicators, moving averages are used to
gauge the direction of the current trend. Every type of moving average
(commonly written in this tutorial as MA) is a mathematical result that is
calculated by averaging a number of past data points. Once determined, the
resulting average is then plotted onto a chart in order to allow traders to look
at smoothed data rather than focusing on the day-to-day price fluctuations that
are inherent in all financial markets.

The technical analysis approach to capital market evaluation has received little
attention and acceptance as compared to fundamental analysis. But in recent

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years the popularity of technical school of thought is increasing among
academicians and practitioners. A brief review of literature is given below.

Alexander (1961) examined the profitability of using a mechanical filter rule

for stock trading. His study indicated substantial profits from filters. Cootner
and James Jr(1962) tested the Moving Average technique. They believed that
this technique averages out random fluctuations and thus changes in the
directions of basic trends can be isolated. Fama and Blume (1966) conducted
a study of the Dow Jones Industrial stocks using 24 different filters, ranging in
size from 0.5 % to 50 % for the time period from 1957 to September 1962.
The conclusion of their test was that filter rules were not profitable when the
effect of interim dividends and brokerage commissions are considered. Levy
(1967) tested the Relative Strength technique. This technique selected those
stocks that were performing the best, relative to their average prices of the
previous 26 weeks. Sharma and Kennedy (1977) compared stock price
behaviour across three exchanges: Mumbai, London and New York during
1963-73. The runs test and spectral analysis that were employed both
confirmed the random movement of stock indices for all three stock
exchanges. Sharma (1983) tested the random character of stock prices for the
developing economy, supporting the independence assumption of the random
walk model. This study also suggested that markets are weak form efficient
and trading rules cannot lead to extra-normal returns.

Nefti and Policano (1984) used the moving average and the slope method to
analyse the future market. The results suggest that by characterising the actual
behaviour of the market participants, improved price predictions can be
obtained in future market. Dawson (1985) tested whether investors could have
outperformed the market by using actual share recommendations based solely
upon technical analysis outperformed the market but after adjusting for
trading commissions, market trends and risk. Brock, Lakonishok and Le
Baron (1992) tested the two simplest and most popular trading rules- Moving
Average and Trading Range Break- by utilising the Dow Jones from 1897 to
1986. The results provide strong support for technical strategies. Consistently,
buy (sell) signals generate returns which are higher (lower) than normal
returns.

Blume, Easley and O’Hara(1994) investigated the informational role of

volume and its applicability for technical analysis. In their model, technical
analysis is valuable because current market statistics may be sufficient to
reveal some information , but not all. The uncertainty in the economy is not
resolved in one period and sequences of market statistics may be sufficient to
reveal some information that is not impounded in a single market price.

Batten and Ellis (1996) analysed the technical trading performance of the
Australian All Ordinary Index. The trading system employed were able to
generate a return greater than buy and hold strategy without considering
transaction costs.

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Seghal & Garhyan (2002) evaluate whether share recommadations based on
technical analysis provide abnormal returns in the Indian capital market. The
study involves 21645 recommenadations for 21 companies using 13 technical
indicators. The mean return was found statistically significant for the total
period. Mitra (2002) examined the applicability of moving average based
technique and filter rule techniquefor investments on trading in Indain stock
market. The study found that profit is high in moving average crossover with
periods 2 and 10 days.

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 CHAPTER – 1

INTRODUCTION

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 The methods used to analyze and predict the performance of a company’s stock fall
into two broad categories:-

(1)Fundamental analysis

(2)Technical analysis

Fundamental analysis is a type of stock selection discipline. If you conduct

thorough research of a company's accounting statements before deciding to
purchase stock in the company for investment purposes, you are said to be
following a fundamental analysis approach to investing. Another very
common approach is technical analysis, which is almost the opposite type of
approach.

A fundamental analysis approach attempts to determine whether the company

is financially sound and will continue to earn money. A technical analysis
approach to investing is almost entirely concerned with how the price of the
stock has performed over time and attempts to predict what it will do in the
future based on this. Sometimes, the two approaches are combined, with a
fundamental analysis approach used to select the stocks and a technical
analysis approach used to time the investment in the stocks of interest.

When performing a fundamental analysis of the stock of interest, one tries to

determine whether the stock is worth investing in. In this approach, one looks
at how well the company is performing financially. What are the company's
earnings? Have they been growing? How does the ratio of the price of the
stock versus the earnings per share, the P/E ratio, compare with other similar
companies?

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This approach attempts to answer some basic or fundamental questions about
the financial health of the company and the industry in which the company
operates. How large is the company? How long has it been in business? What
is the management of the company like? What is the outlook for the industry
that the company is in?

Fundamental analysis is usually viewed as a more conservative approach to

stock selection than technical analysis. It is certainly a more exact science.
The price earnings ratio is easy to calculate; it is simply the price of each
share of the stock divided by the earnings per share. The book value of the
company can easily be determined from the company's financial statements,
and the earnings are easily calculated from the financial records.

In contrast, the mathematics behind most Technical Analysis is much more

complex and frequently requires much more of a judgment call on the part of
the investor. In a technical analysis approach, the investor attempts to predict
crowd behavior, while a fundamental analysis simply attempts to determine
whether the company has been earning money and at what rate it will likely
continue to earn money.

The price of the stock in the short term is not that important in a fundamental
analysis, since the theory is that if the company is earning money and
continues to earn money, then the stock price will eventually go up. A
technical analysis approach is much more concerned with short term price
movements.

Investing in stocks is much more likely to be successful if a systematic

approach is used. A fundamental analysis approach is the easiest to understand
and learn, and as such, it is perhaps the best place to start for a beginning
investor. However, both approaches have their strengths, and knowledge of
both will benefit any investor and result in improved investment returns.

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 CHAPTER – 2

RESEARCH METHODOLOGY

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Study Objectives

 To learn about various type of techniques used for forecasting of future stock price
 To analyze the type of trend on basis of various charts
 To find out appropriate time to buy and sell securities
 To forecast the future target price of various stock on long term basis, Intermediate
basis and short term basis.

Scope of Study

This project can help investors in maximizing the returns and preserving capital while
investing their money in stock market

Methods of Data Collection

Primary Data

• Metastock Professional Software

• Personal interaction with Mr. Deepak Ankleshwaria (C.M.D. of Interface Financial
Services)
• I-charts. in – the official website for accessing the various charts of stocks

Secondary Data

• From Books
• From Internet
• From Research Reports

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Statistical Tools

We have used following tools in this project

• Concept of Technical Analysis viz. Support and Resistance

Limitations

One of the limitation was that the field is so large that an in depth study of the all the avenue
is not possible.

• Lack of time.
• We were not able to find all chart patterns. For e.g. patterns like head and shoulders,
Elliot wave theory, Fibonacci retracement, Key Reversals, etc…..

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 CHAPTER – 3

ABOUT STOCK BROKING

INDUSTRY

Stock Market of India

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Introduction

Stock markets refer to a market place where investors can buy and sell stocks.
The price at which each buying and selling transaction takes is determined by
the market forces (i.e. demand and supply for a particular stock).

Let us take an example for a better understanding of how market forces

determine stock prices. ABC Co. Ltd. enjoys high investor confidence and
there is an anticipation of an upward movement in its stock price. More and
more people would want to buy this stock (i.e. high demand) and very few
people will want to sell this stock at current market price (i.e. less supply).
Therefore, buyers will have to bid a higher price for this stock to match the
ask price from the seller which will increase the stock price of ABC Co. Ltd.
On the contrary, if there are more sellers than buyers (i.e. high supply and low
demand) for the stock of ABC Co. Ltd. in the market, its price will fall down.

In earlier times, buyers and sellers used to assemble at stock exchanges to

make a transaction but now with the dawn of IT, most of the operations are
done electronically and the stock markets have become almost paperless. Now
investors dont have to gather at the Exchanges, and can trade freely from their
home or office over the phone or through Internet.

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History of the Indian Stock Market - The Origin

One of the oldest stock markets in Asia, the Indian Stock Markets have a 200 years old
history.

18th Century East India Company was the dominant institution and by end of the century,
busuness in its loan securities gained full momentum
1830's Business on corporate stocks and shares in Bank and Cotton presses started in
Bombay.
Trading list by the end of 1839 got broader
1840's Recognition from banks and merchants to about half a dozen brokers
1850's Rapid development of commercial enterprise saw brokerage business
attracting
more people into the business
1860's The number of brokers increased to 60
1860-61 The American Civil War broke out which caused a stoppage of cotton supply
from
United States of America; marking the beginning of the "Share Mania" in
India
1862-63 The number of brokers increased to about 200 to 250
1865 A disastrous slump began at the end of the American Civil War (as an
example,
Bank of Bombay Share which had touched Rs. 2850 could only be sold at Rs.
87)

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Pre-Independance Scenario - Establishment of Different Stock
Exchanges

1874 With the rapidly developing share trading business, brokers used to gather at a
street (now well known as "Dalal Street") for the purpose of transacting
business.
1875 "The Native Share and Stock Brokers' Association" (also known as "The
Bombay Stock Exchange") was established in Bombay
1880's Development of cotton mills industry and set up of many others
1894 Establishment of "The Ahmedabad Share and Stock Brokers' Association"
1880 - 90's Sharp increase in share prices of jute industries in 1870's was followed by a
boom in tea stocks and coal
1908 "The Calcutta Stock Exchange Association" was formed
1920 Madras witnessed boom and business at "The Madras Stock Exchange" was
transacted with 100 brokers.
1923 When recession followed, number of brokers came down to 3 and the
Exchange was closed down
1934 Establishment of the Lahore Stock Exchange
1936 Merger of the Lahoe Stock Exchange with the Punjab Stock Exchange
1937 Re-organisation and set up of the Madras Stock Exchange Limited (Pvt.)
Limited led by improvement in stock market activities in South India with
establishment of new textile mills and plantation companies
1940 Uttar Pradesh Stock Exchange Limited and Nagpur Stock Exchange Limited
was established
1944 Establishment of "The Hyderabad Stock Exchange Limited"
1947 "Delhi Stock and Share Brokers' Association Limited" and "The Delhi Stocks
and Shares Exchange Limited" were established and later on merged into
"The Delhi Stock Exchange Association Limited"

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Post Independence Scenario
The depression witnessed after the Independence led to closure of a lot of exchanges in the
country. Lahore Estock Exchange was closed down after the partition of India, and later on
merged with the Delhi Stock Exchange. Bnagalore Stock Exchange Limited was registered in
1957 and got recognition only by 1963. Most of the other Exchanges were in a miserable
state till 1957 when they applied for recognition under Securities Contracts (Regulations)
Act, 1956. The Exchanges that were recognized under the Act were:

1. Bombay
2. Calcutta
3. Madras
4. Ahmedabad
5. Delhi
6. Hyderabad
7. Bangalore
8. Indore

Many more stock exchanges were established during 1980's, namely:

1. Cochin Stock Exchange (1980)

2. Uttar Pradesh Stock Exchange Association Limited (at Kanpur, 1982)
3. Pune Stock Exchange Limited (1982)
4. Ludhiana Stock Exchange Association Limited (1983)
5. Gauhati Stock Exchange Limited (1984)
6. Kanara Stock Exchange Limited (at Mangalore, 1985)
7. Magadh Stock Exchange Association (at Patna, 1986)
8. Jaipur Stock Exchange Limited (1989)
9. Bhubaneswar Stock Exchange Association Limited (1989)
10. Saurashtra Kutch Stock Exchange Limited (at Rajkot, 1989)
11. Vadodara Stock Exchange Limited (at Baroda, 1990)
12. Coimbatore Stock Exchange
13. Meerut Stock Exchange

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At present, there are twenty one recognized stock exchanges in India which does not include
the Over The Counter Exchange of India Limited (OTCEI) and the National Stock Exchange
of India Limited (NSEIL).

Government policies during 1980's also played a vital role in the development of the Indian
Stock Markets. There was a sharp increase in number of Exchanges, listed companies as well
as their capital, which is visible from the following table:

S. As on 31st December 1946 1961 1971 1975 1980 1985 1991 1995
No.

1 No. of Stock Exchanges 7 7 8 8 9 14 20 22

2 No. of Listed Cos. 1125 1203 1599 1552 2265 4344 6229 8593
3 No. of Stock Issues of 1506 2111 2838 3230 3697 6174 8967 11784
Listed Cos.

4 Capital of Listed Cos. (Cr. 270 753 1812 2614 3973 9723 32041 59583
Rs.)

5 Market value of Capital of 971 1292 2675 3273 6750 25302 11027 47812
Listed Cos. (Cr. Rs.) 9 1

6 Capital per Listed Cos. 24 63 113 168 175 224 514 693
(4/2)(Lakh Rs.)

7 Market Value of Capital per 86 107 167 211 298 582 1770 5564
Listed Cos. (Lakh Rs.)
(5/2)

8 Appreciated value of 358 170 148 126 170 260 344 803
Capital per Listed Cos.
(Lak Rs.)

Trading Pattern of the Indian Stock Market

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Indian Stock Exchanges allow trading of securities of only those public limited companies
that are listed on the Exchange(s). They are divided into two categories:

Types of Transactions
The flowchart below describes the types of transactions that can be carried out on the Indian
stock exchanges:

Indian stock exchange allows a member broker to perform following activities:

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1. Act as an agent,
2. Buy and sell securities for his clients and charge commission for the same,
3. Act as a trader or dealer as a principal,
4. Buy and sell securities on his own account and risk.

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Over The Counter Exchange of India (OTCEI)

Traditionally, trading in Stock Exchanges in India followed a conventional style where

people used to gather at the Exchange and bids and offers were made by open outcry.

This age-old trading mechanism in the Indian stock markets used to create much functional
inefficiency. Lack of liquidity and transparency, long settlement periods and benami
transactions are a few examples that adversely affected investors. In order to overcome these
inefficiencies, OTCEI was incorporated in 1990 under the Companies Act 1956. OTCEI is
the first screen based nationwide stock exchange in India created by Unit Trust of India,
Industrial Credit and Investment Corporation of India, Industrial Development Bank of India,

SBI Capital Markets, Industrial Finance Corporation of India, General Insurance Corporation
and its subsidiaries and CanBank Financial Services.

Advantages of OTCEI

1. Greater liquidity and lesser risk of intermediary charges due to widely spread trading
mechanism across India

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 2. The screen-based scripless trading ensures transparency and accuracy of prices
3. Faster settlement and transfer process as compared to other exchanges
4. Shorter allotment procedure (in case of a new issue) than other exchanges

Traditional Broking

Traditionally In stock Market, the investors invest their money in shares under the guidance
of the Brokers of any stock broking company. This is convenient to those investors who are
not familiar with the computer and the use of internet. But it requires more dealers to the
share broking companies to give guidance related to investment. There was a chance of
inaccuracy of price because it is a time consuming process. The cost of the company also
increases due to more paperwork. The investor point of view, there was a problem of privacy.
The information of investor may leak by the broker. So, to remove these limitations of
traditional broking, there was an emergence of new concept e-Broking.

E- Broking - A small beginning:

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You have some money to dabble with. Trading shares on BSE/NSE has always been your
dream. When will you ever find the time? And besides, the hassle of finding a broker is not
easy. Realizing there is untapped market of investors who want to be able to execute their
own trades when it suits them, brokers have taken their trading rooms to the Internet. Known
as online brokers, they allow you to buy and sell shares via Internet.

There are 2 types of online trading service: discount brokers and full service online broker.
Discount online brokers allow you to trade via Internet at reduced rates.

Some provide quality research, other don’t. Full service online brokerage is linked to existing
brokerages. These brokers allow their clients to place online orders with the option of
talking/ chatting to brokers if advice is needed. Brokerage rates here are higher. 5Paisa.com,
ICICIDirect.com, IndiaBulls.com, Sharekhan.com, Geojit securities.com, HDFCsec.com,
Tatatdw.com, Kotakstreet.com are some of the online broking sites in India. With Net trading
in securities and rapid consolidation between multiple stock exchanges, the international
securities marketplace is fast becoming a "global village" through the creation of a universal
virtual equity market.

Compared to the Western countries, online trading is still in its infancy in India. With trading
turnover at around Rs. 10 crores per day from online trading compared to a combined gross
turnover of around Rs. 9000-10,000 crores handled by the BSE and NSE together, online
trading has a long way to go.

INTERNET TRADING IN INDIA

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In the past, investors had no option but to contact their broker to get real time access to
market data. The Net brings data to the investor on line and net broking enables him to trade
on a click. Now information has become easily accessible to both retail as well as big
investors.

The development of broking in India can be categorized in 3 phases:

1. Stock brokers offering on their sites features such as live portfolio manager, live quotes,
market research and news to attract more investors.

2. Brokers offering on line broking and relationship management by providing and offering
analysis and information to investors during broking and non-broking hours based on their
profile and needs, that is, customized services.

3. Brokers (now e-brokers) will offer value management or services such as initial public
offerings on line, asset allocation, portfolio management, financial planning, tax planning,
insurance services and enable the investors to take better and well-considered decisions.

In the US, 82 per cent of the deals are done on line. The European on line broking market is
expected to be of $8 billions and is likely to raise five fold by 2002. In India, presently
Internet trading can take place through the order routing system, which will route client
orders to exchanges trading systems for execution of trades on stock exchanges (NSE and
BSE). This will also require interface with banks to facilitate instant cash debit or credit and
the depository system for debit or credit of securities.

Objectives of Internet trading

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 • Increase transparency in the markets.
• Enhance market quality through improved liquidity, by increasing quote continuity
and market depth.
• Reduce settlement risks due to open trades, by elimination of mismatches.
• Provide management information system (MIS).
• Introduce flexibility in system, to handle growing volumes easily and to support
nationwide expansion of market activity.

Besides, through Internet trading three fundamental objectives of securities regulation can be
easily achieved, these are: Investor protection, creation of a fair and efficient market and,
reduction of the systematic risks.

Factors to keep in mind while selecting online brokers:

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Brokerage cost:

It is important to weigh up the subscription and trading costs charged by an online broker
against benefits offered by the site. All online brokers display their charges on their sites.
Some make sure you find the charges easily, while with others you will have to search a bit.

Safety:

Please make sure site has 128-bit encryption to ensure safety of transaction online.
ICICIDirect.com, 5paisa.com are few sites with 128-bit encryption.

You normally get a secured Login id and password. It is always advisable to frequently
change trading password. Ideally online trading site should be fully integrated. The greater
the backward integration, the better it is for the customer. Ideally broking account, demat
account and bank account should be linked electronically.

Rate refresh:

Rate refresh has to be real-time with no time lag. The speed and reliability comes with huge
investment in technology. It is always advisable to check rates of online broking sites with
BSE/ NSE terminal rates.

Speed of execution:

System has to be fast and reliable that does just one job- executes your trades. The last thing
you need is a site that is heavily congested with the users who are downloading heavy jpeg
graphs or pulling the latest story why market is moving. The site should be one click wonder
where squaring off all your positions or canceling all your pending orders takes one click and
a confirmation of action.

Trading limit:

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For trading, all sites provide 4 times buy and sell limit against margin money put in by
customer. For delivery of shares, buying limit is equal to margin money put in by customer.
Couple of sites also provides margin funding for buying of shares.

Free trial period:

Site should allow users free trial period to familiarize yourself with system before you decide
to become trading member of the site.

Intraday chart/ historical chart:

The site should provide intraday chart tick by tick time and price data / historical chart for
technical analysis by investors of particular scrip. Lot of people trade based on charting
packages.

Challenges in Internet Trading:

For Internet trading to succeed it is imperative to have both, a robust business model as well
as a comprehensive technology strategy. Some of the challenges are discussed: Transaction
fulfillment--In the Net-based economy, it is both prudent and essential for a
broker/intermediary to offer total solution to the clients at a single point. Total solutions
would essentially mean offering interfaces with banks, depositories, information feeds, etc.
for efficiency in trade completion and reducing duplication of client information. The service
providers will have to go beyond the stage of mere order execution and emerge as
"informediaries" rather than "intermediaries". This will not only ensure lower trading costs in
terms of offering cross services but will also help in maximizing RoIs.

A true Internet trading system should deliver cost effective transaction fulfillment at a single
point.

National Stock Exchange

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In order to lift the Indian stock market trading system on par with the international standards.
On the basis of the recommendations of high powered Pherwani Committee, the National
Stock Exchange was incorporated in 1992 by Industrial Development Bank of India,
Industrial Credit and Investment Corporation of India, Industrial Finance Corporation of
India, all Insurance Corporations, selected commercial banks and others.

NSE provides exposure to investors in two types of markets, namely:

1. Wholesale debt market

2. Capital market

Wholesale Debt Market - Similar to money market operations, debt market operations
involve institutional investors and corporate bodies entering into transactions of high value in
financial instruments like treasury bills, government securities, commercial papers etc.

Trading at NSE

1. Fully automated screen-based trading mechanism

2. Strictly follows the principle of an order-driven market
3. Trading members are linked through a communication network
4. This network allows them to execute trade from their offices
5. The prices at which the buyer and seller are willing to transact will appear on the
screen
6. When the prices match the transaction will be completed
7. A confirmation slip will be printed at the office of the trading member

Advantages of trading at NSE

1. Integrated network for trading in stock market of India

2. Fully automated screen based system that provides higher degree of transparency
3. Investors can transact from any part of the country at uniform prices
4. Greater functional efficiency supported by totally computerized network

MAJOR PLAYERS OF INDUSTRY

• India Infoline Ltd.

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• ICICI Web trade Ltd.
• HDFC Securities Ltd.
• Angel Broking Ltd.
• Indiabulls Financial Services Ltd.
• Motilal Oswal Securities Ltd.
• Anand Rathi Securities Ltd.
• Karvy Stock Broking Ltd.
• Axis
• BHEL
• Infosys
• L&T
• RIL
• S&P CNX NIFTY

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 CHAPTER – 4

THEORETICAL ASPECTS OF
TOPIC

TECHNICAL ANALYSIS

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Technical Analysis is the science of recording, usually in graphic form, the actual history of
trading (price changes, volume of transactions, etc.) in a certain stock or in “the Averages”
and then deducing from that pictured history the probable future trend.

Technical analysis is a method of evaluating securities by analyzing statistics generated by

market activity, past prices and volume. Technical analysts do not attempt to measure a
security's intrinsic value; instead they look at stock charts for patterns and indicators that
will determine a stock's future performance.

Technical analysis has become increasingly popular over the past several years, as more and
more people believe that the historical performance of a stock is a strong indication of future
performance. The use of past performance should come as no surprise. People using
fundamental analysis have always looked at the past performance of companies by
comparing fiscal data from previous quarters and years to determine future growth. The
difference lies in the technical analyst's belief that securities move according to very
predictable trends and patterns. These trends continue until something happens to change
the trend, and until this change occurs, price levels are predictable. There are many
instances of investors successfully trading a security using only their knowledge of the
security's chart, without even understanding what the company does.

However, although technical analysis is a terrific tool, most agree it is much more effective
when used in combination with fundamental analysis.

THE BASIC ASSUMPTIONS

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Technicians say that a market's price reflects all relevant information, so their analysis looks
More at "internals" than at "externals" such as news events. Price action also tends to repeat
Itself because investors collectively tend toward patterned behavior – hence technicians'
focus
on identifiable trends and conditions.

The field of technical analysis is based on three assumptions:

1. The market discounts everything.

Based on the premise that all relevant information is already reflected by prices, pure
technical analysts believe it is redundant to do fundamental analysis they say news
and news events do not significantly influence price.

2. Price moves in trends.

Technical analysts believe that prices trend. Technicians say that markets trend up,
down, or sideways (flat). This basic definition of price trends is the one put forward
by Dow Theory.

3. History tends to repeat itself.

Technical analysts believe that investors collectively repeat the behavior of the
investors that preceded them. To a technician, the emotions in the market may be
irrational, but they exist. Because investor behavior repeats itself so often, technicians
believe that recognizable (and predictable) price patterns will develop on a chart

Technical analysis is not limited to charting, but it always considers price trends. For
example, many technicians monitor surveys of investor sentiment. These surveys
gauge the attitude of market participants, specifically whether they are bearish or
bullish.

Technicians use these surveys to help determine whether a trend will continue or if a reversal
could develop; they are most likely to anticipate a change when the surveys report extreme

78
investor sentiment. Surveys that show overwhelming bullishness, for example, are evidence
that an uptrend may reverse – the premise being that if most investors are bullish they have
already bought the market (anticipating higher prices). And because most investors are
bullish and invested, one assumes that few buyers remain. This leaves more potential sellers
than buyers, despite the bullish sentiment. This suggests that prices will trend down, and is an
example of contrarian trading.

THE BASIC CHART CONSTRUCTION

As shown in chapter-1, technicians do not believe that the price of securities and that the
overall stock market moves in a random manner. Rather, they contend that a direct
relationship exists between price movements in the past and those that will occur in the
future. Their objective is to determine what this relationship is so that they will be able to
predict accurately whether the stock market or a particularly security’s price will go up or
down.

The primary tool that a technician uses is a “picture” or chart of a stock’s price movement.

TYPES OF CHARTS:

Technician use four types of charts

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1. Bar chart
2. Line chart
3. Japanese candlestick chart
• Bar Chart

A bar chart is the most popular way to display security prices. A bar chart is made up of
vertical bars, with each bar representing the price movement for a time period (i.e., hour, day,
week, month, etc.). Hash marks on the left and right sides of the bar represent the opening
and closing prices respectively. The top of the bar represents the high price and the bottom
of the bottom represents the low price

285 INDO GULF CORP (247.850, 274.000, 241.000, 260.650, +20.3500) 285
280 280
275 275
270 270
265 265
260 260
255 255
250 250
245 245
240 240
235 235
230 230
225 225
220 220
215 215
210 210
205 205
200 200
195 195
190 190
185 185
180 180
175 175
170 170
165 165
160 160
155 155
150 150
145 145
140 140
135 135
130 130
125 125
120 120
115 115
110 110
105 105
100 100
95 95

12000 12000
11000 11000
10000 10000
9000 9000
8000 8000
7000 7000
6000 6000
5000 5000
4000 4000
3000 3000
2000 2000
1000
x100
1000
x100

April May June July August September October November December 2006 February March April

The advantage of using a bar chart over a straight-line graph is that it shows the high, low,
open and close for each particular day. This is the type of chart that will be used to display
various indicators throughout this tutorial.

78
 • Line Chart

A line chart is the simplest type of chart. One price (typically the close) is plotted for each
time period (i.e., day, week, month, etc.). A single, unbroken line connects each of these
price points.

• Japanese Candlestick Chart

The highest and the lowest price of the day are joined by a vertical bar. The opening and the
closing price of the day, which would fall in between the highest and the lowest prices would
be represented by the rectangle so that the price bar chart looks like a candle stick.

78
There are mainly three types of candle sticks:-

• DOJI OR NEUTRAL: - it is the one where the opening price and the closing price
of the day are the same.
• WHITE: - A white candle stick is used to represent a situation where the closing
price of the day is higher than the opening price of the day. It indicates the bullish
trend.
• BLACK: - Is used when the closing price of the day is lower than the opening price
of day. It indicates the bearish trend.

JAPANESE CANDLESTICKS

Candlestick charts have been around for hundreds of years. They are often referred to as
"Japanese candles" because the Japanese would use them to analyze the price of rice
contracts. Similar to a bar chart, candlestick charts also display the open, close, daily high
and daily low. The difference is the use of color to show if the stock went up or down over
the day.

78
 Two different types of color is used. Green color is used when the ending price of
the stock is higher than the opening price while the red color is used when the opening price
is higher than the closing price.

THE BASIC CONCEPTS:

There are two basic concepts of technical analysis through which we can predict the stock
pattern or trend. Viz.
1. Support
2. Resistance

78
Support and resistance represent key junctures where the forces of supply and demand meet.
In the financial markets, prices are driven by excessive supply (down) and demand (up).
Supply is synonymous with bearish, bears and selling. Demand is synonymous with bullish,
bulls and buying. These terms are used interchangeably throughout this and other articles.
As demand increases, prices advance and as supply increases, prices decline. When supply
and demand are equal, prices move sideways as bulls and bears slug it out for control.

• WHAT IS SUPPORT?

Support is the price level at which demand is thought to be strong enough to prevent the
price from declining further. The logic dictates that as the price declines towards support
and gets cheaper, buyers become more inclined to buy and sellers become less inclined to
sell. By the time the price reaches the support level, it is believed that demand will
overcome supply and prevent the price from falling below support.

Support does not always hold and a break below support signals that the bears have won out
over the bulls. A decline below support indicates a new willingness to sell and/or a lack of
incentive to buy. Support breaks and new lows signal that sellers have reduced their
expectations and are willing sell at even lower prices. In addition, buyers could not be
coerced into buying until prices declined below support or below the previous low. Once
support is broken, another support level will have to be established at a lower level.

• WHERE IS SUPPORT ESTABLISHED?

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Support levels are usually below the current price, but it is not uncommon for a security to
trade at or near support. Technical analysis is not an exact science and it is sometimes
difficult to set exact support levels. In addition, price movements can be volatile and dip
below support briefly. Sometimes it does not seem logical to consider a support level broken
if the price closes 1/8 below the established support level. For this reason, some traders and
investors establish support zones.

• WHAT IS RESISTANCE?

Resistance is the price level at which selling is thought to be strong enough to prevent the
price from rising further. The logic dictates that as the price advances towards resistance,
sellers become more inclined to sell and buyers become less inclined to buy. By the time the
price reaches the resistance level, it is believed that supply will overcome demand and
prevent the price from rising above resistance.

Resistance does not always hold and a break above resistance signals that the bulls have
won out over the bears. A break above resistance shows a new willingness to buy and/or a
lack of incentive to sell. Resistance breaks and new highs indicate buyers have increased
their expectations and are willing to buy at even higher prices. In addition, sellers could not
be coerced into selling until prices rose above resistance or above the previous high. Once
resistance is broken, another resistance level will have to be established at a higher level.

• WHERE IS RESISTANCE ESTABLISHED?

Resistance levels are usually above the current price, but it is not uncommon for a security
to trade at or near resistance. In addition, price movements can be volatile and rise above

78
resistance briefly. Sometimes it does not seem logical to consider a resistance level broken
if the price closes 1/8 above the established resistance level. For this reason, some traders
and investors establish resistance zones.

CONCLUSION

Charts are one of the most fundamental aspects of technical analysis. Regardless of the type
of the chart used, the length of the period examined will vary depending on whether one is
oriented to short-term, intermediate-term or long term investments. Short term roughly
refers to the next three months, intermediate term is about three to six months from the
present time, and long time is considered to be approximately six months to one year from
the current period. Technicians often use hourly and daily charts to determine the short-term
trend of security price movements. They use weekly charts for gaining an intermediate term
perspective. And monthly and yearly charts help technicians examine the long term.

Apart from the type of chart used the main aspect of the trend forecasting is to identify the
key levels of support and resistance establishment, where is established and where it
breakout and where it breakdown etc.

MATHEMATICAL INDICATORS (THEORITICAL PARTS)

Share price do not rise or fall in straight line. The movements are erratic. The mathematical
tool of moving averages is used to smoothen out the apparent erratic movements of share
prices.

3.8.1 Moving Averages

Moving averages are mathematical indicators of the underlying trend of the price movement.
There are Two types of Moving Averages (MA) – the simple moving average and the
exponential moving average. The closing prices of shares are generally used for the
calculation of moving averages.

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Simple Moving Average

An average is the sum of prices of a share for a specific number of days divided by the
number of days.

Calculation of Five-day Simple MA

Days Closing prices Total of prices of 5 days

Five day MA
(1) (2) (3)
(4)
1 33 _
_
2 35 _
_
3 37.5 _
_
4 36 _
_
5 39 180.5
36.1
6 40 187.5
37.5
7 40.5 193.0
38.6
8 38.5 194.0
38.8
9 41 198.0
39.6
10 42 202.0
40.4

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Exponential moving average

• Exponential moving average (EMA) is calculated by using the Following

formula:
• EMA = (Current closing price – Previous EMA)( Factor) +Previous EMA

• Where,
o Factor = 2/n+1
n= number of days for which the avg. is calculated

Calculation of five-day EMA

Days Closing prices

EMA
(1) (2)
(3)
1 33
33
2 35
33.66
3 37.5
34.93
4 36
35.28
5 39
36.51

• Here,
Factor = 2/n+1 = 2/5+1 = 2/6 = 0.33
• The EMA for the first day is taken as the closing price of that day itself.
EMA for second day = (Closing price – Previous EMA) Factor + Previous EMA
 (35 – 33) (0.33) + 33 = 33.66
EMA for third day = (37.5 -33.66) (0.33) + 33.66 = 34.93
• If we are calculating the five day exponential moving average, the correct five day
EMA will be available from sixth day onwards. The period of the average indicates
the type of trend being identified. E.g. five day or ten day avg. would indicate the
short-term trend; 50day avg. would indicate the medium-term trend and a 200 day
avg. would represent the long-term trend.

78
 • Sometimes, two moving avg. one short-term and the other long-term are used in
combination. In this case, trend reversal is indicated by the intersection of the two
moving avg.

Rate of change Indicator (ROC)

• It is very popular ‘oscillator’ (identify overbought and over sold condition and also
the possibility of trend reversals.) This measures the rate of change of the current
price as compared to the price a certain number of day or weeks back. To calculate a
7 day ROC,
• ROC = Current price/Price ‘n’ period ago -1
• Where,
o n= number of days for which ROC is to be found

Calculation of 7 Day ROC

Days Closing prices Closing price Price

ratio ROC = Ratio -1
7 days ago
1 70 _
_ _
2 72 _
_ _
3 73 _
_ _
4 70 _
_ _
5 74 _
_ _
6 76 _
_ _
7 77 _
_ _
8 75 70
1.07 0.07
9 78 72
1.08 0.08
10 80 73
1.10 0.10

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 11 79 70
1.13 0.13
12 78 74
1.05 0.05

The RC values may be positive, negative or zero.

ROC chart

Relative Strength Index (RSI)

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 • This is a power full indicator that signals buying and selling opportunities ahead of
the market which is calculated by using a following formula.
• RSI = 100-(100/1+RS)
• Where,
o RS = Avg. gain per day/Average loss per day
• The most commonly used time period for calculation for RSI is 14 days. The gain or
loss is decided by the difference between current day and previous day’s closing
price.

Calculation of 14 Day RSI

Day Closing Price Change over Change over

previous day previous day

Gain Loss

1 130 - -
2 132 2 -
3 130 - 2
4 135 5 -
5 137 2 -
6 134 - 3
7 136 2 -
8 140 4 -
9 140 - -
10 142 2 -
11 139 - 3
12 141 2 -
13 145 4 -
14 143 - 2
15 145 2 -

25 10
14 Day 25 = 1.786 10 = 0.714
Average
14 14

RS = 1.786/0.714 =2.50
RSI = 100 – [100/(1+2.50)]
= 100- (100/3.50)

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 = 100 – 28.58 =71.42

These values are plotted n and graph as shown below.

RSI chart

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Moving Average Convergence and Divergence (MACD)

• MACD is an oscillator that measures the convergence and divergence between two
exponential moving avg. The MACD value for different days are derived by
deducting the long term EMA from each day from the corresponding short term EMA
for the day. The difference between short- term EMA and the long-term EMA
represent the MACD.
• The buy and sell signals are generated by the cross over of the average line and the
MACD line. When the line are below the zero line, if the MACD line crosses the
average line from below to above it indicated a buying opportunity.
• When the lines are above the zero line crosses the MACD line above to below the
average line signals a selling opportunity

78
 CHAPTER-5

CHART ANALYSIS

78
CHARTS ANALYSIS (PRACTICAL PARTS)

Traditionally, charting is the main approach for technical analysis. However interpreting a
chart or an indicator is a subjective issue. Even you have the experience; your accuracy is
still very limited by looking at a chart, not to mention that the meaningful information is
often swamped by the random component of the prices.

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 AXIS BANK

AXIS – EMA (EXPONENTIAL MOVING AVERAGE)

Decision Rule:- When the price of the share intersects and moves above or below the MA
line, it may indicate the sign of trend reversal.

Application:- In AXIS scripts, EMA cuts closing from above at 761 level where it gives a
SELL signal and when EMA cuts closing from below at 1065 level where it gives BUY
signal.

78
AXIS – ROC (RATE OF CHANGE INDICATOR)

Decision Rule:- In ROC chart the overbought zone is above the zero line and the over sold
zone is below the zero line. Ideally one should buy a share that is oversold and sell a share
that is overbought.

Application:- The chart shows that when ROC cuts from above to 100 at 650 level where it
gives SELL signal While ROC cuts from below to 100 at 886 level where it shows a BUY
signal.

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AXIS – RSI (RELATIVE STRENGHT INDEX)

Decision Rule: - RSI values above 70 are considered to denote overbought condition and
values below 30 are considered to denote oversold condition.

Application: - The chart shows INDIFFERENT situation where a line has NEITHER fall
below at 30 level where it shows BUY signal NOR a line has rise above at 70 level where it
shows SELL signal based on the RSI.

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AXIS – MACD(MOVING AVERAGE CONVERGENCE AND DIVERGENCE)

D ecision Rule: - When the MACD line crosses, the MACD signal line (red) from the below
it gives a buy signal and vice versa. MACD signal line is also known as EMA (Exponential
Moving Average) line.

Application:- It indicates a BUY signal at 851 level and indicates a SELL signal at 1106
level.

CONCLUSION

TOOLS SIGNALS (BUY, SELL, NEUTRAL)

MA – EMA (200 Days) BUY
MACD SELL
ROC BUY
RSI INDIFFERE
NT

78
 BHARAT HEAVY ELECTRICAL LIMITED

(BHEL)

BHEL – EMA (EXPONENTIAL MOVING AVERAGE)

Decision Rule:- When the price of the share intersects and moves above or below the MA
line, it may indicate the sign of trend reversal.

Application:- In AXIS scripts, EMA cuts closing from above at 761 level where it gives a
SELL signal and when EMA cuts closing from below at 1065 level where it gives BUY
signal.

78
BHEL – ROC (RATE OF CHANGE INDICATOR)

Decision Rule:- In ROC chart the overbought zone is above the zero line and the over sold
zone is below the zero line. Ideally one should buy a share that is oversold and sell a share
that is overbought.

Application:- The chart shows that when ROC cuts from above to 100 at 600 level where it
gives SELL signal While ROC cuts from below to 100 at 850 level where it shows a BUY
signal.

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BHEL – RSI (RELATIVE STRENGHT INDEX)

Decision Rule: - RSI values above 70 are considered to denote overbought condition and
values below 30 are considered to denote oversold condition.

Application: - The chart shows INDIFFERENT situation where a line has NEITHER fall
below at 30 level where it shows BUY signal NOR a line has rise above at 70 level where it
shows SELL signal based on the RSI.

78
BHEL – (MOVING AVERAGE CONVERGENCE AND DIVERGENCE)

D ecision Rule: - When the MACD line crosses, the MACD signal line (red) from the below
it gives a buy signal and vice versa. MACD signal line is also known as EMA (Exponential
Moving Average) line.

Application:- It indicates a BUY signal at 851 level and indicates a SELL signal at 1106
level.

CONCLUSION

TOOLS SIGNALS (BUY, SELL, NEUTRAL)

MA – EMA (200 Days) BUY
MACD SELL
ROC BUY
RSI INDIFFERE
NT

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 INFOSYS
INFOSYS – EMA (EXPONENTIAL MOVING AVERAGE)

Decision Rule:- When the price of the share intersects and moves above or below the MA
line, it may indicate the sign of trend reversal.

Application:- In AXIS scripts, EMA cuts closing from above at 533 level where it gives a
SELL signal and when EMA cuts closing from below at 1065 level where it gives BUY
signal.

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INFOSYS – ROC (RATE OF CHANGE INDICATOR)

Decision Rule:- In ROC chart the overbought zone is above the zero line and the oversold
zone is below the zero line. Ideally one should buy a share that is oversold and sell a share
that is overbought.

Application:- The chart shows that when ROC cuts from above to 100 at 450 level where it
gives SELL signal While ROC cuts from below to 100 at 886 level where it shows a BUY
signal.

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INFOSYS – RSI (RELATIVE STRENGHT INDEX)

Decision Rule: - RSI values above 70 are considered to denote overbought condition and
values below 30 are considered to denote oversold condition.

Application: - The chart shows INDIFFERENT situation where a line has NEITHER fall
below at 30 level where it shows BUY signal NOR a line has rise above at 70 level where it
shows SELL signal based on the RSI.

78
INFOSYS – (MOVING AVERAGE CONVERGENCE AND DIVERGENCE)

D ecision Rule: - When the MACD line crosses, the MACD signal line (red) from the below
it gives a buy signal and vice versa. MACD signal line is also known as EMA (Exponential
Moving Average) line.

Application:- It indicates a BUY signal at 681 level and indicates a SELL signal at 1050
level.

CONCLUSION

TOOLS SIGNALS (BUY, SELL, NEUTRAL)

MA – EMA (200 Days) BUY
MACD SELL
ROC BUY
RSI INDIFFERE
NT

78
 LARSEN & TOUBRO
(L&T)
L&T – EMA (EXPONENTIAL MOVING AVERAGE)

Decision Rule:- When the price of the share intersects and moves above or below the MA
line, it may indicate the sign of trend reversal.

Application:- In AXIS scripts, EMA cuts closing from above at 800 level where it gives a
SELL signal and when EMA cuts closing from below at 1065 level where it gives BUY
signal.

78
L&T – ROC (RATE OF CHANGE INDICATOR)

Decision Rule:- In ROC chart the overbought zone is above the zero line and the oversold
zone is below the zero line. Ideally one should buy a share that is oversold and sell a share
that is overbought.

Application:- The chart shows that when ROC cuts from above to 100 at 680 level where it
gives SELL signal While ROC cuts from below to 100 at 886 level where it shows a BUY
signal.

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L&T – RSI (RELATIVE STRENGHT INDEX)

Decision Rule: - RSI values above 70 are considered to denote overbought condition and
values below 30 are considered to denote oversold condition.

Application: - The chart shows INDIFFERENT situation where a line has NEITHER fall
below at 30 level where it shows BUY signal NOR a line has rise above at 70 level where it
shows SELL signal based on the RSI.

78
L&T – (MOVING AVERAGE CONVERGENCE AND DIVERGENCE)

D ecision Rule: - When the MACD line crosses, the MACD signal line (red) from the below
it gives a buy signal and vice versa. MACD signal line is also known as EMA (Exponential
Moving Average) line.

Application:- It indicates a BUY signal at 851 level and indicates a SELL signal at 1100
level.

CONCLUSION

TOOLS SIGNALS (BUY, SELL, NEUTRAL)

MA – EMA (200 Days) BUY
MACD SELL
ROC BUY
RSI INDIFFERE
NT

78
 RELIANCE INDUSTRIES LTD

RIL – EMA (EXPONENTIAL MOVING AVERAGE)

Decision Rule:- When the price of the share intersects and moves above or below the MA
line, it may indicate the sign of trend reversal.

Application:- In AXIS scripts, EMA cuts closing from above at 800 level where it gives a
SELL signal and when EMA cuts closing from below at 1065 level where it gives BUY
signal.

78
RIL – ROC (RATE OF CHANGE INDICATOR)

Decision Rule:- In ROC chart the overbought zone is above the zero line and the oversold
zone is below the zero line. Ideally one should buy a share that is oversold and sell a share
that is overbought.

Application:- The chart shows that when ROC cuts from above to 100 at 700 level where it
gives SELL signal While ROC cuts from below to 100 at 886 level where it shows a BUY
signal.

78
RIL – RSI (RELATIVE STRENGHT INDEX)

Decision Rule: - RSI values above 70 are considered to denote overbought condition and
values below 30 are considered to denote oversold condition.

Application: - The chart shows INDIFFERENT situation where a line has NEITHER fall
below at 30 level where it shows BUY signal NOR a line has rise above at 70 level where it
shows SELL signal based on the RSI.

78
RIL – (MOVING AVERAGE CONVERGENCE AND DIVERGENCE)

D ecision Rule: - When the MACD line crosses, the MACD signal line (red) from the below
it gives a buy signal and vice versa. MACD signal line is also known as EMA (Exponential
Moving Average) line.

Application:- It indicates a BUY signal at 900 level and indicates a SELL signal at 1100
level.

CONCLUSION

TOOLS SIGNALS (BUY, SELL, NEUTRAL)

MA – EMA (200 Days) NEUTRAL
MACD NEUTRAL
ROC NEUTRAL
RSI INDIFFERE
NT

78
 S&P CNX NIFTY
NIFTY – EMA (EXPONENTIAL MOVING AVERAGE)

Decision Rule:- When the price of the share intersects and moves above or below the MA
line, it may indicate the sign of trend reversal.

Application:- In AXIS scripts, EMA cuts closing from above at 800 level where it gives a
SELL signal and when EMA cuts closing from below at 1065 level where it gives BUY
signal.

78
NIFTY – ROC (RATE OF CHANGE INDICATOR)

Decision Rule:- In ROC chart the overbought zone is above the zero line and the oversold
zone is below the zero line. Ideally one should buy a share that is oversold and sell a share
that is overbought.

Application:- The chart shows that when ROC cuts from above to 100 at 680 level where it
gives SELL signal While ROC cuts from below to 100 at 886 level where it shows a BUY
signal.

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NIFTY – RSI (RELATIVE STRENGHT INDEX)

Decision Rule: - RSI values above 70 are considered to denote overbought condition and
values below 30 are considered to denote oversold condition.

Application: - The chart shows INDIFFERENT situation where a line has NEITHER fall
below at 30 level where it shows BUY signal NOR a line has rise above at 70 level where it
shows SELL signal based on the RSI.

78
NIFTY – (MOVING AVERAGE CONVERGENCE AND DIVERGENCE)

D ecision Rule: - When the MACD line crosses, the MACD signal line (red) from the below
it gives a buy signal and vice versa. MACD signal line is also known as EMA (Exponential
Moving Average) line.

Application:- It indicates a BUY signal at 841 level and indicates a SELL signal at 1093
level.

CONCLUSION

TOOLS SIGNALS (BUY, SELL, NEUTRAL)

MA – EMA (200 Days) BUY
MACD SELL
ROC BUY
RSI INDIFFERE
NT

78
 FINDINGS

JUDGE
SCRIPTS MACD ROC RSI EMA MEN
T

AXIS SELL BUY INDIFFERENT BUY BUY

BHEL SELL BUY INDIFFERENT BUY BUY

INFOSYS SELL BUY INDIFFERENT BUY BUY

L&T SELL BUY INDIFFERNT BUY BUY

INDIFFER
RIL NEUTRAL NEUTRAL INDIFFERNT NEUTRAL
ENT

NIFTY SELL BUY INDIFFERENT BUY BUY

So, the combination of above all indicators show that except reliance majority of the
indicators are giving the buy signal . only reliance does not give nay signal so an investors
should stay away from RIL. All other shares as well as NIFTY index are to be purchased as
per technical analysis.

78
 Suggestions

Technical analysis offers a great way for investors to make short-term

investment decisions. For many, this means confirming whether or not a
particular moment in time is the right time to enter or exist a position, or if it
may make more sense to wait a little longer before executing that trade.
Although many investors dismiss technical analysis as inconclusive and
arbitrary, there is a lot of empirical evidence to support that technical analysis
will indeed work. Here are three arguments that support the validity of the
technical side of analysis and why investors need to incorporate this type of
analysis in their trading programs.

Based on Statistical Calculations

Since technical analysis is heavily based on statistical calculations, historic

performance can indeed help predict future movements. The simplest example
that can help illustrate the importance of statistics in security price forecasts is
that a volatility is often something that sticks with a security. For example, it
is unlikely that one security will be low-volatility one month and high
volatility the next when the broader market has remained steady. Apple will
almost always be more volatile than General Electric; therefore predicting that
Apple shares will rise more than General Electric shares during the next
market upswing is not an inconclusive and arbitrary argument.

78
Based On Probabilities

Since technical analysis is heavily weighted in probabilities, it may not be a

statistical definite, but it does provide a lot of forward guidance. This speaks
to the fact that a stock price that has been down four days in a row will more
likely be up on the following market day. And the more "down" days this
security records, the higher that probability of an "up" day. While this is an
elementary example, it illustrates the mechanics that drive technical analysis
-- probabilities. And this is exactly what price trends tell us.

Speaks To Price, Not The Security

Unlike fundamental analysis that investigates a security for its future potential
based on clues found in the financial statements, management discussion, as
well as other economic and sector information, technical analysis speaks only
about the security's price. This eliminates any degree of bias that one might
about the security, allowing an investor to make a more objective decision
about the security. For example, an investor who feels strong about ABC
Company might decide on taking a long-term position in a given security.
However, the price maybe seriously overbought or all indications might be
that if the investor waits a week or month, the security price will allow some
kind of savings on the position (easily determined based on the price trend as
well as volatility of the security). By taking an interest in the security's
technical analysis, an investor could save a small fortune which becomes
particularly important when market timing is such a big factor in determining
your investment success.

These three arguments illustrate just how important technical analysis is when
building a portfolio or deciding on your entry and exit points in a given
security. Although technical analysis should never be used in isolation, it most
certainly should be part of any investor's trading and analysis arsenal.

78
 CHAPTER 5

CONCLUSION

78
Technical analysis is based on the assumption that people will continue to
make the same mistakes they have made in the past.

There is no reason why anyone cannot make substantial amount of money in

financial markets, but there are many reasons why many people will not.
People lack knowledge and dedication.

The advantages of timing the market over the buy and hold approach were
particularly marked between 1992 and 2003 when Sensex persistently gave
negative returns. It is not that this happens only when an investor is caught in
a bubble, there are numerous examples to contrary, when investors have lost
money even though they have manage to enter at absolute lows, their only
fault is that they did not sell out, when prices went up, but decided to hold on
forever.

John Maynard Keynes had famously said, “In the long run, we are all dead.”
So timing is important.

Most things done well are also done simply. Because the market operates on
commonsense, the analyst should be very simple.

Technical analysis deals in probabilities, never certainties. One should have

confidence and discipline to make money in this market. Confidence comes
from knowledge and experience of the market. Happy investing!!!

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 Bibliography

• Data collected :

Website: Yahoo.com- closing prices of scripts .

BOOKS : SECURITY ANALYSIS – MADHUMATI

SECURITY ANALYSIS- ASHWINI GUJARAT

• Calculation :
Calculation has done through formulas as per book and at Microsoft Excel .

• Chart analysis :
Chart has made at Microsoft Excel at which we have made analysis on presumptions
(basis) rate.

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