A Study on Technical Analysis With Reference to Technical Indicators in Capital Market

1. INTRODUCTION

The methods used to analyze securities and make investment decisions fall into two very

broad categories, fundamental analysis and technical analysis. Fundamental analysis

involves analyzing the characteristics of a company in order to estimate its value. Technical

analysis takes a completely different approach, it doesn't care about the "value" of a

company or a commodity. Technicians (sometimes called chartists) are only interested in

the price movements in the market.

Despite all the fancy and exotic tools it employs, technical analysis really just studies

supply and demand in a market in an attempt to determine what direction, or trend, will

continue in the future. In other words, technical analysis attempts to understand the

emotions in the market by studying the market itself, as opposed to its components. If you

understand the benefits and limitations of technical analysis, it can give you a new set of

tools or skills that will enable you to be a better trader or investor.

The field of technical analysis is based on three assumptions:

1.     The market discounts everything.

2.     Price moves in trends.

3.     History tends to repeat itself.

1. The Market Discounts Everything:

A major criticism of technical analysis is that it only considers price movement,

ignoring the fundamental factors of the company. However, technical analysis

assumes that, at any given time, a stock's price reflects everything that has or could

affect the company - including fundamental factors. Technical analysts believe that

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the company's fundamentals, along with broader economic factors and market

psychology, are all priced into the stock, removing the need to actually consider

these factors separately. This only leaves the analysis of price movement, which

technical theory views as a product of the supply and demand for a particular stock

in the market.

2. Price Moves in Trends:

In technical analysis, price movements are believed to follow trends. This means

that after a trend has been established, the future price movement is more likely to

be in the same direction as the trend than to be against it. Most technical trading

strategies are based on this assumption.

3. History Tends To Repeat Itself:

Another important idea in technical analysis is that history tends to repeat itself,

mainly in terms of price movement. The repetitive nature of price movements is

attributed to market psychology; in other words, market participants tend to provide

a consistent reaction to similar market stimuli over time. Technical analysis uses

chart patterns to analyze market movements and understand trends. Although many

of these charts have been used for more than 100 years, they are still believed to be

relevant because they illustrate patterns in price movements that often repeat

themselves.

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1.1 NEED AND SCOPE

Need for Study

The share price movement is analyzed broadly with two approaches, namely, fundamental

approach and the technical approach. Fundamental approach analyses the share price on the

basis of economic, industry and company statistics. If the price of the share is lower than its

intrinsic value, investor buys the share. But, if he finds the price of the share higher than the

intrinsic value, he sells and gets profit. The technical analyst mainly studies the stock price

movements of the security market. If there is an uptrend in the price movement investor

may purchase the scrip. With the onset of fall in price he may sell it and move from the

scrip. Basically, technical analyst and the fundamental analyst aim at good return on

investment.

Scope of the Study

It is the process of identifying trend reversals at an earlier stage to formulate the buying and

selling strategy. With the help of several technical indicators they analyze the relationship

between price – volume and supply – demand for overall market and the individual stocks.

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1.2 OBJECTIVES OF THE STUDY

To understand the concept of Technical analysis.

To know about various indicators and tools used in technical analysis.

To study how the indicators help to predict the future of a stock.

To identify various factors that influences the behavior of global market, Indian market and the behavior of the stocks.

To generate long and short positions using the indicators.

To offer suggestions based on my findings.

1.3 RESEARCH METHODOLOGY

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Research Design

For the present study the research design is drafted as giving buy and sell calls for the

intraday traders and short term investors. The period for short term investors is 15 to 30

days.

The intraday calls and positional calls are generated by using some of the technical

indicators like Candle Sticks, Relative Strength Index, Moving Average Convergence

Divergence, Volumes, Simple Moving Averages, and Crossovers.

Data Collection

The various sources for data collection include websites and stock exchange. Primary data

and secondary data is collected for this research. The graphs for intraday calls are obtained

by online trading application Power Indiabulls (PIB) and graphs for positional calls are

collected from websites.

Websites

www.nseguide.com

www.indiabulls.com

www.stockcharts.com

www.icharts.com

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2. LITERATURE REVIEW

1. An alternative test for weak form efficiency based on technical analysis.

Elaine Y. L. Loh

This study suggests a test for weak form efficiency based on the analysts approach to

technical analysis. In the previous days those studies make implications on weak form

efficiency based on the empirical results of testing only one class of trend indicators. On the

other hand the analysts typically involve the use of trend indicators simultaneously with the

other confirming indicators because trend indicators do not sufficiently capture the

information content in past prices. By combining trend indicators with confirming other

technical indicators and are also based on the past practices.

The patterns and rules suggested by the analysts using technical indicators are

applied on five of the Asian-Pacific markets, the result obtained suggests that a test for

weak form efficiency based solely on trend indicators is ineffective than the alternative test

proposed in this study. An examination of weak form efficiency based on this alternative

test suggests that weak form efficiency is determined by factors other than technological

progress.

2. Emerging Markets and Stock Market Bubbles: Nonlinear Speculation?

Ehsan Ahmed, J. Barkley Rosser Jr., and Jamshed Y. Uppal

The article displays different methods are used to test the absence of excessively rapid

movements of price movements in daily stock market indices in 27 emerging market

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economies from the early 1990s through 2006. The absences of nonlinearities beyond

autoregressive conditional heteroskedasticity (ARCH) effects are also tested.

Daily returns of stock markets in emerging markets in Asia, Africa, South

America, and Eastern Europe from the early 1990s through 2006 are analyzed for the

possible presence of nonlinear speculative bubbles. The absence of these is tested for by

studying residuals of vector autoregressive–based fundamentals, using the Hamilton regime

switching model and the rescaled range analysis of Hurst. For the first test, absence of

bubbles is rejected for twenty-four countries (except Mexico, Sri Lanka, and Taiwan), for

the second test, it is rejected for 26 countries (except Malaysia). BDS testing on these

residuals after autoregressive conditional heteroskedasticity (ARCH) effects are removed

fails to reject further nonlinearity (except for Israel). Policy issues are discussed, noting that

what is appropriate varies from country to country and time period to time period.

Theoretical Problems of Speculative bubbles has been to identify it as a price of an

asset staying away from the fundamental value of the asset for some extended period of

time.

3. Frequency of Corporate Announcements via Stock Exchange Web Sites and Market

Efficiency

Asheq Rahman, Roger Debreceny

The Online trading softwares setup by the brokerages and the platform set up by their

online trading applications of the brokerages have been creating a well organized

environment for the clients to trade and invest.

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Continuous corporate reporting is gaining prominence in the current real-time

reporting environment. This has added a new dimension to corporate reporting, the

frequency with which firms report their material information. This article tells about the

impact of frequency of online material information disclosures on market efficiency. The

measure of frequency of online material information disclosures is the monthly frequency

of corporate announcements via stock exchange Web sites. It is found that the frequency of

announcements is positively associated with returns and volume metrics and negatively

associated with bid-ask spread. We infer from the results that the frequency of material

online disclosures has a beneficial impact on market efficiency.

4. Product Market Competition, Insider Trading and Stock Market Efficiency

Joel Peress

The competition of products of different firms’ in the stock market is influencing the

behavior of equity markets, the situation examined shows that the product market

imperfections may spread to equity markets.

The author explains these concepts in the article saying, How does competition in

firms’ product markets influence their behavior in equity markets? Do product market

imperfections spread to equity markets? These questions are increasingly of interest as

product markets are becoming more competitive in many countries. Firms use their

monopoly power to pass on shocks to customers, thereby insulating their profits. This

encourages stock trading, expedites the capitalization of private information into stock

prices and improves the allocation of capital. Several implications are derived and tested.

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In this paper, the author analyzed that these questions using a noisy rational

expectations model in which firms operate under monopolistic competition while their

shares trade in perfectly competitive markets. The model is guided by recent empirical

work showing that stock returns are affected by the intensity of product market competition.

Gaspar and Massa (2005) and Irvine and Pontiff (2009) document that more competitive

firms have more volatile idiosyncratic returns, and Hou and Robinson (2006) show that

such firms earn higher risk-adjusted returns. The model is also guided by a direct

examination of the data. Our starting point is the finding in Gaspar and Massa (2005) that

analysts’ earnings forecasts about firms operating in more competitive industries are more

dispersed. Since differences in opinions.

5. Stock Market Declines and Liquidity.

Hameed, Allaudeen Kang, Wenjin Viswanathan

The different trends of stock markets the declining trend, the rising trend, the reversal trend

and the trends some cause effect of illiquidity are considered to be important. Liquidity dry-

ups are argued to occur because market participants engage in panic selling (a demand

effect), financial intermediaries withdraw from providing liquidity (a supply effect), or

both. In this paper, the work done is on what happens to market liquidity after large market

declines and whether supply effects exist in equity markets.

Consistent with recent theoretical models where binding capital constraints lead to

sudden liquidity dry-ups, we find that negative market returns decrease stock liquidity,

especially during times of tightness in the funding market. The asymmetric effect of

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changes in aggregate asset values on liquidity and commonality in liquidity cannot be fully

explained by changes in demand for liquidity or volatility effects. The research brought up

the economically significant returns to supplying liquidity following periods of large drops

in market valuations.

6. Stock Market Mispricing: Money Illusion or Resale Option?

Carl R. Chen, Peter P. Lung, and F. Albert Wang

The Stock Market mispricing the very happening thing in the stock market, the reason for

this cannot be assumed as one particular one the money illusion or resale option or any

other. In this article these two reasons are focused and made clear to understand.

Here in the article two hypothesis are used to explain stock mispricing:

i) the money illusion hypothesis (Modigliani and Cohn (1979)) and

ii) ii) the resale option hypothesis (Scheinkman and Xiong (2003)).

We find that the money illusion hypothesis may explain the level, but not the Volatility of

mispricing in the U.S. market. In contrast, the stock resale option hypothesis, which stems

from heterogeneous beliefs about future dividend growth rates and short-sale constraints,

can explain both the level and the volatility of mispricing. The evidence suggests that while

the two hypotheses complement each other in explaining the level of mispricing, the resale

option hypothesis provides a more coherent explanation for asset price bubbles, in which

extraordinarily high price levels are often accompanied by excessive volatility and frenzied

trading.

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7. Tests of Technical Analysis In India

Sanjay Sehgal and Meenakshi Gupta

The study evaluates the economic feasibility of technical analysis in the Indian stock

market. It discusses that technical indicators do not outperform simple Buy and Hold

strategy on net return basis for individual stocks. Technical indicators seem to do better

during market upturns compared to market downturns. However, technical based trading

strategies are not feasible vis-à-vis passive strategy irrespective of market cycle conditions.

Technical indicators also do not provide economically significant profit for industry

as well as economy based data. Combining fundamentals with technical information, we

find, that technical indicators are more profitable for small stocks compared to big stocks

and for high value stocks compared to low value stocks. However, the economic feasibility

of fundamentals’ based technical strategies is still questionable. Our results seem to confirm

with the efficient market hypothesis.

8. The Role of the Media in the Internet IPO Bubble.

Bhattacharya, Utpal1 Galpin, Neal , Ray, Rina, Yu, Xiaoyun

Internet has brought greater improvement in the concept of online trading, the introducing

of IPO has become much easier by online trading platform by the brokerage companies.

People are aware of the news items that came out between 1996 and 2000 on 458

Internet initial public offerings (IPOs) and a matching sample of 458 non-Internet IPOs (a

total of 171,488 news items) and classify each news item as good news, neutral news, or

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bad news. The information is first documented that the media were more positive for

Internet IPOs in the period of the dramatic rise in share prices and more negative for

Internet IPOs in the period of the dramatic fall in share prices. Then media hype is unable to

explain the Internet bubble was documented. A 1,646% difference exists in returns between

Internet stocks and non-Internet stocks from January 1, 1997, through March 24, 2000 (the

market peak), and the media can explain only 2.9% of that.

9. Technical indicators: A statistical approach

Michael Gutmann

The article discusses trading techniques to improve the performance of the futures industry.

It mentions that in order to manage one's financial assets, analyzing price and volume data

should be practiced. It notes that in trading securities market, relying on time frame

indicator and making technical indicators robust are important factors in financial

management.

The technical analyst seeks tools that are independent of any particular market or

time frame. We need to modify your indicators to work with other markets. We just need to

make them robust. Some of the best known technical indicators are asset-specific and may

not be robust. For example, the well-known and widely used moving average convergence

divergence (MACD) indicator outputs the difference between two exponential moving

averages, and the moving averages are based on the price of the underlying asset.

The most common method of estimating the spread, or dispersion, of a data set is

Standard Deviation. The data set's mean, or average, is first calculated. The Greek letter

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]i ("mu") stands for the data set's mean value. The data set's standard deviation is then

calculated as the average distance of the data points from their mean.

10. Getting  technical   with economic data.

McCurtain, Robert

The article discusses the application of technical analysis to analyze the data in the financial

market and the economy. It stresses the distinct role of the technical and the fundamental

analysts. It explains how the stock market can be analyzed with a top-down approach with

four coincident indicators. Moreover, the exceptions to the rule in looking for linkage

between data as well as the importance of considering two separate markets in combining

with second fundamental data are expounded.

Because of the nature and historical relationship of technical analysis indicators

with financial markets data and the tenuous traditional relationship of technicians with

fundamental analysts, the latter who study earnings, economic data, and other "non-price-

oriented" statistical information, there has always been an intellectual gulf between the two.

Technical analysts have tended to assume that fundamental data have already been

discounted by the time the numbers become known. Thus, fundamentals have limited value

as market timing tools. On the other hand, fundamental analysts claim that fundamental

factors drive all prices in the financial markets. The question remains: "Can fundamental

data be used to help with market timing decisions?"

3. PROFILES

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3.1 INDUSTRY PROFILE

3.1.1 INDUSTRY OVERVIEW

The securities market achieves one of the most important functions of channeling idle

resources to productive resources or from less productive resources to more productive

resources. Hence in the broader context the people who save and investors who invest focus

more towards the economy’s abilities to invest and save respectively. This enhances

savings and investments in the economy, the two pillars for economic growth. The Indian

Capital Market has come a long way in this process and with a strong regulator it has been

able to usher an era of a modern capital market regime. The past decade in many ways has

been remarkable for securities market in India. It has grown exponentially as measured in

terms of amount raised from the market, the number of listed stocks, market capitalization,

trading volumes and turnover on stock exchanges, and investor population. The market has

witnessed fundamental institutional changes resulting in drastic reduction in transaction

costs and significant improvements in efficiency, transparency and safety.

3.1.2 STOCK EXCHANGE

A stock exchange, share market or bourse is a corporation or mutual organization which

provides facilities for stock brokers and traders, to trade company stocks and other

securities. Stock exchanges also provide facilities for the issue and redemption of securities,

as well as, other financial instruments and capital events including the payment of income

and dividends. The securities traded on a stock exchange include shares issued by

companies, unit trusts and other pooled investment products and bonds. To be able to trade

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a security on a certain stock exchange, it has to be listed there. Usually there is a central

location at least for recordkeeping, but trade is less and less linked to such a physical place,

as modern markets are electronic networks, which gives them advantages of speed and cost

of transactions. Trade on an exchange is by members only. The initial offering of stocks

and bonds to investors is by definition done in the primary market and subsequent trading is

done in the secondary market. A stock exchange is often the most important component of a

stock market. Supply and demand in stock a market is driven by various factors which, as in

all free markets, affect the price of stocks.

There is usually no compulsion to issue stock via the stock exchange itself, nor must

stock be subsequently traded on the exchange. Such trading is said to be off exchange or

over-the-counter. This is the usual way that bonds are traded. Increasingly, stock exchanges

are part of a global market for securities.

History of Stock Exchanges

In 12th century France courtier de change were concerned with managing and regulating

the debts of agricultural communities on behalf of the banks. As these men also traded in

debts, they could be called the first brokers.

Some stories suggest that the origins of the term "bourse" come from the Latin

bursa meaning a bag because, in 13th century Bruges, the sign of a purse (or perhaps three

purses), hung on the front of the house where merchants met.

However, it is more likely that in the late 13th century commodity traders in Bruges

gathered inside the house of a man called Van der Burse, and in 1309 they institutionalized

this until now informal meeting and became the "Bruges Bourse". The idea spread quickly

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around Flanders and neighboring counties and "Bourses" soon opened in Ghent and

Amsterdam.

In the middle of the 13th century, Venetian bankers began to trade in government

securities. In 1351, the Venetian Government outlawed spreading rumors intended to lower

the price of government funds. There were people in Pisa, Verona, Genoa and Florence

who also began trading in government securities during the 14th century. This was only

possible because these were independent city states ruled by a council of

Influential citizens, not by a duke. The Dutch later started joint stock companies,

which let shareholders invest in business ventures and get a share of their profits - or losses.

In 1602, the Dutch East India Company issued the first shares on the Amsterdam Stock

Exchange. It was the first company to issue stocks and bonds. In 1688, the trading of stocks

began on a stock exchange in London Stock Exchange.

The role of Stock Exchanges:

Stock exchanges have multiple roles in the economy, this may include the following:

Raising capital for businesses

The Stock Exchange provides companies with the facility to raise capital for expansion

through selling shares to the investing public.

Mobilizing savings for investment

When people draw their savings and invest in shares, it leads to a more rational allocation

of resources because funds, which could have been consumed, or kept in idle deposits with

banks, are mobilized and redirected to promote business activity with benefits for several

economic sectors such as agriculture, commerce and industry, resulting in a stronger

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economic growth and higher productivity levels.

Facilitating company growth

Companies view acquisitions as an opportunity to expand product lines, increase

distribution channels, hedge against volatility, increase its market share, or acquire other

necessary business assets. A takeover bid or a merger agreement through the stock

exchange is one of the simplest and most common ways for a company to grow by

acquisition or fusion.

Redistribution of wealth

Stocks exchanges do not exist to redistribute wealth although casual and professional stock

investors through stock prices increases (that may result in capital gains for the

Investor) and dividends get a chance to share in the wealth of profitable businesses.

Corporate governance

By having a wide and varied scope of owners, companies generally tend to improve on their

management standards and efficiency in order to satisfy the demands of these shareholders

and the more stringent rules for public corporations imposed by public stock exchanges and

the government. Consequently, it is alleged that public companies (companies that are

owned by shareholders who are members of the general public and trade shares on public

exchanges) tend to have better management records than privately held companies (those

companies where shares are not publicly traded, often owned by the company founders

and/or their families and heirs, or otherwise by a small group of investors). However, some

well-documented cases are known where it is alleged that there has been considerable

slippage in corporate governance on the part of some public companies (pets.com (2000),

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Enron corporation (2001), One.tel (2001), Sunbeam (2001), Webvan (2001), Adelphia

(2002), Mci world com (2002), or paramalat(2003), are among the most widely scrutinized

by the media).

Creating investment opportunities for small investors

As opposed to other businesses that require huge capital outlay, investing in shares is open

to both the large and small stock investors because a person buys the number of shares they

can afford. Therefore the Stock Exchange provides the opportunity for small investors to

own shares of the same companies as large investors.

Government capital-raising for development projects

Governments at various levels may decide to borrow money in order to finance

infrastructure projects such as sewage and water treatment works or housing estates by

selling another category of securities known as bonds. These bonds can be raised through

the Stock Exchange whereby members of the public buy them, thus loaning money to the

government. The issuance of such municipal bonds can obviate the need to directly tax the

citizens in order to finance development, although by securing such bonds with the full

faith and credit of the government instead of with collateral, the result is that the

Government must tax the citizens or otherwise raise additional funds to make any regular

coupon payments and refund the principal when the bonds mature.

Barometer of the economy

At the stock exchange, share prices rise and fall depending, largely, on market forces. Share

prices tend to rise or remain stable when companies and the economy in general show signs

of stability and growth. An economic recession, depression, or financial crisis could

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eventually lead to a stock market crash. Therefore the movement of share prices and in

general of the stock indexes can be an indicator of the general trend in the economy.

Major Stock Exchanges

Twenty Largest Stock Exchanges by Market Capitalization as of July 12, 2008 (in trillions

of US dollars)

NYSE Euro next

Tokyo Stock Exchange

NASDAQ

London Stock Exchange

Hong Kong Stock Exchange

Toronto Stock Exchange

Frankfurt Stock Exchange (Deutsche Brose)

Shanghai Stock Exchange

Madrid Stock Exchange (BME Spanish Exchanges)

Australian Securities Exchange

Swiss Exchange

Nordic Stock Exchange Group OMX (Copenhagen, Helsinki, Iceland,

Stockholm, Tallinn, Riga and Vilnius Stock Exchanges)

Milan Stock Exchange (Boras Italian)

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Bombay Stock Exchange

Korea Exchange

Sao Paulo Stock Exchange Bovespa

National Stock Exchange of India

Moscow Interbank Currency Exchange

Johannesburg Securities Exchange

Taiwan Stock Exchange

Stock Exchange & Shares

The market or place, where securities, viz. shares are exchanged/traded or simply where

buying and selling takes place, is called stock exchange or stock market. Presently, the

stock market in India consists of twenty three regional stock exchanges and two national

exchanges, namely, the National Stock Exchange of India (NSE) and Bombay Stock

Exchange (BSE).

The Bombay Stock Exchange (BSE) is the largest Stock Exchange, in the country, where

maximum transactions, in terms of money and shares take place. The other major stock

exchanges are Calcutta, Madras and Delhi Stock Exchanges. Other one at Ahmedabad,

Jaipura, Bangalore, Kanpur, Rajkot, Hyderabad, Cochin, Pune, Bhubaneshwar, Guwahti,

Indore, Mangalore, Ludhiana, Patna, Saurashtra, Vadodara, Coimbatore, Meerut, and Surat.

Functioning of Stock Exchange

Listing:

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Listing of shares, on a stock exchange, means, such shares can be bought and sold, in stock

exchange. A Company, which intends to issue shares, through prospectus, shall have to

apply to one or more stock exchanges, for getting its shares listed.

The detailed and elaborate procedure of getting the shares listed on a stock

exchange is monitored by SEBI. The SEBI, issues guidelines and notifications, from time to

time, with regard to listing of securities

Once the shares are listed, they are divided into two categories:

1. GROUP “A” SHARES

2. GROUP "B" SHARES

Group "A" Shares are referred to as “Cleaned Securities” or “specified shares". The

facility for carrying forward a transaction from one account period to another is available

for these shares. Group "A" shares represent companies, with huge amount of capital, and

equally a large scope for investment. These shares are frequently traded and command

higher price earnings multiples.

Group "B" Shares are referred to as none cleaned securities or non-specified shares. For

these groups facility of carrying forward is not available.

Whenever a share is moved from Group "B" to Group "A" its market price rises, likewise,

when a share is shifted from Group "A" to Group "B", its market price declines. There are

some criteria and guide lines, laid down by stock exchange, for shifting stocks from the

non-specified list to the specified list.

3.1.3 PRIMARY MARKET

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Since 1991/92, the primary market has grown fast as a result of the removal of investment

restrictions in the overall economy and a repeal of the restrictions imposed by the Capital

Issues Control Act. In 1991/92, Rs62.15 billion was raised in the primary market. This

figure rose to Rs276.21 billion in 1994/95. Since 1995/1996, however, smaller amounts

have been raised due to the overall downtrend in the market and tighter entry barriers

introduced by SEBI for investor protection .SEBI has taken several measures to improve

the integrity of the secondary market. Legislative and regulatory changes have facilitated

the corporatization of stockbrokers. Capital adequacy norms have been prescribed and are

being enforced. A mark-to-market margin and intraday trading limit have also been

imposed. Further, the stock exchanges have put in place circuit breakers, which are applied

in times of excessive volatility. The disclosure of short sales and long purchases is now

required at the end of the day to reduce price volatility and further enhance the integrity of

the secondary market.

The primary is that part of the capital markets that deals with the issuance of new

securities. Companies, governments or public sector institutions can obtain funding through

the sale of a new stock or bond issue. This is typically done through a syndicate of

securities dealers. The process of selling new issues to investors is called underwriting. In

the case of a new stock issue, this sale is an initial public offering (IPO). Dealers earn a

commission that is built into the price of the security offering, though it can be found in the

prospectus.

Features of Primary Market

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1. This is the market for new long term capital. The primary market is the market where the

securities are sold for the first time. Therefore it is also called New Issue Market (NIM).

2. In a primary issue, the securities are issued by the company directly to investors.

3. The company receives the money and issue new security certificates to the investors

4. Primary issues are used by companies for the purpose of setting up new business or for

expanding or modernizing the existing business.

5. The primary market performs the crucial function of facilitating capital formation in the

economy.

6. The new issue market does not include certain other sources of new long term external

finance, such as loans from financial institutions. Borrowers in the new issue market may

be raising capital for converting private capital into public capital; this is known as ‘going

public’.

Methods of issuing securities in the Primary Market

1. Initial Public Offer,

2. Rights Issue (For existing Companies) and

3. Preferential Issue

3.1.4 SECONDARY MARKET

The secondary market is the financial market for trading of securities that have already been

issued in an initial private or public offering. Alternatively, secondary market can refer to

the market for any kind of used goods. The market that exists in a new security just after the

new issue is often referred to as the aftermarket. Once a newly issued stock is listed on a

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stock exchange, investors and speculators can easily trade on the exchange, as market

makers provide bids and offers in the new stock.

Function

In the secondary market, securities are sold by and transferred from one investor or

speculator to another. It is therefore important that the secondary market be highly liquid

(Originally, the only way to create this liquidity was for investors and speculators to meet at

a fixed place regularly. This is how stock exchanges originated; see History of the Stock

Exchange).

Secondary marketing is vital to an efficient and modern capital market.

Fundamentally, secondary markets mesh the investor's preference for liquidity (i.e., the

investor's desire not to tie up his or her money for a long period of time, in case the investor

needs it to deal with unforeseen circumstances) with the capital user's preference to be able

to use the capital for an extended period of time. For example, a traditional loan allows the

borrower to pay back the loan, with interest, over a certain period. For the length of that

period of time, the bulk of the lender's investment is inaccessible to the lender, even in

cases of emergencies. Likewise, in an emergency, a partner in a traditional partnership is

only able to access his or her original investment if he or she finds another investor willing

to buy out his or her interest in the partnership. With a securitized loan or equity interest

(such as bonds) or tradable stocks, the investor can sell, relatively easily, his or her interest

in the investment, particularly if the loan or ownership equity has been broken into

relatively small parts. This selling and buying of small parts of a larger loan or ownership

interest in a venture is called secondary market trading.

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Under traditional lending and partnership arrangements, investors may be less likely

to put their money into long-term investments, and more likely to charge a higher interest

rate if they do.

Private equity secondary market

In finance, the private equity secondary market (also often called private equity secondary

or secondary) refers to the buying and selling of pre-existing investor commitments to

private equity and other alternative investment funds. Sellers of private equity investments

sell not only the investments in the fund but also their remaining unfunded commitments to

the funds. By its nature, the private equity asset class is illiquid, intended to be a long-term

investment for buy-and-hold investors. For the vast majority of private equity investments,

there is no listed public market; however there is a robust and maturing secondary market

available for sellers of private equity assets.

Driven by strong demand for private equity exposure, a significant amount of

capital has been committed to dedicated secondary market funds from investors looking to

increase and diversify their private equity exposure

Laws Governing Capital Market:

The four main legislations governing the securities market are:

(a) The SEBI Act, 1992 which establishes SEBI to protect investors and develop and

Regulate the Markets.

(b) The Companies Act, 1956, which sets out the code of conduct for the corporate sector in

relation to issue, allotment and transfer of securities, and disclosures to be made in public

issues.

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(c) The Securities Contracts (Regulation) Act, 1956, read with the Securities Contracts

(Regulation) Rules, 1957 which provide for regulation of transactions in securities through

control over stock exchanges; and

(d) The Depositories Act, 1996 which provides for electronic maintenance and transfer of

ownership of demat securities.

Regulators

SEBI is the primary regulator of the Securities Market and the entities operating therein.

The SEBI Act and the Depositories Act are mostly administered by SEBI. The rules under

the securities laws are framed by government and regulations by SEBI. All these are

administered by SEBI. The powers under the Companies Act relating to issue and transfer

of securities and non-payment of dividend are administered by SEBI in case of listed public

companies and public companies proposing to get their securities listed

Market Value

The current quoted price at which investors buy or sell a share of common stock or a bond

at a given time. Also known as "market price” The market capitalization plus the market

value of debt. Sometimes referred to as "total market value".  

In the context of securities, market value is often different from book value because

the market takes into account future growth potential. Most investors who use fundamental

analysis to pick stocks look at a company's market value and then determine whether or not

the market value is adequate or if it's undervalued in comparison to its book value, net

assets or some other measure.

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Stock

A type of security that signifies ownership in a corporation and represents a claim on part of

the corporation’s assets and earnings. There are two main types of stock common and

preferred. Common stock usually entitles the owner to vote at shareholders' meetings and to

receive dividends. Preferred stock generally does not have voting rights, but has a higher

claim on assets and earnings than the common shares. For example, owners of preferred

stock receive dividends before common shareholders and have priority in the event that a

company goes bankrupt or when liquidated, also known as "shares" or "equity".

A holder of stock (a shareholder) has a claim to a part of the corporation's assets and

earnings, in other words, a shareholder is an owner of a company. Ownership is determined

by the number of shares a person owns relative to the number of outstanding shares. For

example, if a company has 1,000 shares of stock outstanding and one person owns 100

shares, that person would own and have claim to 10% of the company’s assets stocks are

the foundation of nearly every portfolio. Historically, they have outperformed most other

investments over the long run.

Shareholder

Any person, company, or other institution that has own at least 1 share in a company. A

shareholder may also be referred to as a stockholder. Shareholders are the owners of a

company. They have the potential to profit if the company does well, but that comes with

the potential to lose if the company does poorly.

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Share

A unit of ownership interest in a corporation or financial asset. While owning shares in

a business does not mean that the shareholder has direct control over the business's day-to-

day operations, being a shareholder does entitle the possessor to an equal distribution in any

profits, if any are declared in the form of dividends. The two main types of  shares are

common shares and preferred shares.

In the past, shareholders received a physical paper stock certificate that indicated

that they owned "x" shares in a company. Today, brokerages have electronic records that

show ownership details. Owning a paperless share makes conducting trades a simpler and

more streamlined process, which is a far cry from the days were stock certificates needed to

be taken to a. Brokerage before a trade could be conducted. While shares are often used

to refer to the stock of a corporation, shares can also represent ownership of other classes of

financial assets, such as mutual funds.

3.1.5 INDEX

An Index is used to summarize the price movements of a unique set of goods in the

financial, commodity, forex or any other market place. Financial indices are created to

measure price movements of stocks, bonds, T-bills and other type of financial securities.

More specifically, a stock index is created to provide investors with the information

regarding the average share price in the stock market. Broad indices are expected to capture

the overall behavior of equity market and need to represent the return obtained by typical

portfolios in the country. BSE SENSEX and NSE NIFTY are major indices in India.

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Sensex

SENSEX is India's first Index compiled in 1986. It is a basket of 30 constituent stocks

representing a sample of large, liquid and representative companies.

The base year of BSE-SENSEX is 1978-79 and the base value is 100. The index is

widely reported in both domestic and international markets through print as well as

electronic media. Due to its wide acceptance amongst the investors, SENSEX is regarded to

be the pulse of the Indian stock market. All leading business newspapers and the business

channels report SENSEX, as it is the language that all investors understand.

As the oldest index in the country, it provides the time series data over a fairly long

period of time (from 1979 onwards) to be used for various research purposes. The Index

Cell of the exchange is responsible for the day-to-day maintenance of the index within the

broad index policy set by the Index Committee. The Index Cell ensures that the SENSEX

and all other BSE indices maintain their benchmark properties by striking a delicate balance

between frequent replacements in index and maintaining its historical continuity.

SENSEX is calculated using a market capitalization weighted method. As per this

methodology, the level of the index reflects the total market value of all 30- component

stocks from different industries related to particular base period. The total market value of a

company is determined by multiplying the price of the stock by the number of shares

outstanding Statisticians call the index of a set of combined variables (such as price and No.

of shares) a composite index. An indexed number is used to represent the results of this

calculation in order to make the value easier to work with and track over a time. It is much

easier to graph a chart based on indexed values than one used on actual values. World over

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majority of the well known indices are constructed using “Market Capitalization Weighted

Method”.

In practice, the daily calculation of SENSEX is done by dividing the aggregate

market value of the 30 Companies in the index by a number called the Index Divisor. The

Divisor is the only link to the original based period value of the SENSEX. The Divisor

keeps the Index comparable over a period of time and the reference point for the entire

index maintenance adjustments. SENSEX is widely used to describe the mood in the Indian

Stock Markets.

Nifty

The National Stock Exchange of India was promoted by leading Financial institutions at the

behest of the Government of India, and was incorporated in November 1992 as a tax-paying

company. In April 1993, it was recognized as a stock exchange under the Securities

Contracts (Regulation) Act, 1956.

NSE is mutually-owned by a set of leading financial institutions, banks, insurance

companies and The National Stock Exchange of India Limited (NSE), is a Mumbai-based

stock exchange. It is the largest stock exchange in India in terms of daily turnover and

number of trades, for both equities and derivative trading.[1]. Though a number of other

exchanges exist, NSE and the Bombay Stock Exchange are the two most significant stock

exchanges in India, and between them are responsible for the vast majority of share

transactions. The NSE's key index is the S&P CNX Nifty, known as the Nifty, an index of

fifty major stocks weighted by market capitalization.

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3.2 COMPANY PROFILE

3.2.1 INTRODUCTION

Indiabulls Group is one of the top business houses in the country with business interests in

Real Estate, Infrastructure, and Financial Services, Retail, Multiplex and Power sectors.

Indiabulls Group companies are listed in Indian and overseas financial markets. The Net

worth of the Group exceeds USD 3 billion. Indiabulls has been conferred the status of a

“Business Superbrand” by The Brand Council, Super brands India.

Indiabulls Financial Services is an integrated financial services powerhouse

providing Consumer Finance, Housing Finance, Commercial Loans, Life Insurance, Asset

Management and Advisory services. Indiabulls Financial Services Ltd is amongst 68

companies constituting MSCI – Morgan Stanley India Index. Indiabulls Financial is also

part of CLSA’s model portfolio of 30 Best Companies in Asia. Indiabulls Financial

Services in partnership with MMTC Limited, the largest commodity trading company in

India, has set up India’s 4th Multi-Commodities Exchange.

Indiabulls Real Estate Limited is India’s third largest property company with

development projects spread across residential projects, commercial offices, hotels, malls,

and Special Economic Zones (SEZs) infrastructure development. Indiabulls Real Estate

partnered with Farallon Capital Management LLC of USA to bring the first FDI into real

estate. Indiabulls Real Estate is transforming 14 million sqft in 16 cities into premium

quality, high-end commercial, residential and retail spaces. Indiabulls Real Estate has

diversified significantly in the following business verticals within the Real Estate Space:

Real Estate Development, Project Advisory & Facilities Management: Residential,

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Commercial (Office and Malls) and SEZ Development. Power: Thermal and Hydropower

Generation.

Indiabulls Securities Limited is India’s leading capital markets company with All-

India Presence and an extensive client base. Indiabulls Securities possesses state-of-the-art

trading platform, best broking practices and is the pioneer in trading product innovations.

Power Indiabulls, in-house trading platform, is one of the fastest and most efficient trading

platforms in the country. Indiabulls Securities Limited is the first brokerage house to be

assigned the highest rating BQ – 1 by CRISIL.

Promoters for Indiabulls

Sameer Gehlaut, Rajiv Rattan and Saurabh Mittal are the promoters of Indiabulls Financial

Services Limited. While Sameer Gehlaut will have a 23.0% stake in the company post the

IPO, Rajiv Rattan and Saurabh Mittal will have a post issue holding of 11.5% and 10.1%

respectively. All the three promoters of the company are engineering graduates while

Saurabh Mittal is a management graduate as well.

Figure 3.1: Block diagram of Indiabulls group

32

IndiabullsGroup Structure

Financial services

Securities Real Estate Retail Power

About Indiabulls group

The Indiabulls Group is one of the top fifteen conglomerates in the country with businesses

in several significant sectors.

The group companies have a market capitalization of over Rs. 25,000 crores (US$

6.25 billion) while group revenues have grown at a cumulative annual rate of over 100% to

now reach Rs. 3100 crores (US$ 775 million) and the group profit has surged to over Rs.

1200 crores (US$ 300 million). Its companies, listed in important Indian and overseas

markets, have distributed over Rs. 700 crores (US$ 175 million) as dividend in the year

2008.

Indiabulls Financial Services Limited was accorded the highest rating P1+ for short

term debt and the highest rating of AAA (SO) by CRISIL for loan receivables securitization

while Indiabulls Securities Limited is the only broker in India to be assigned CRISIL’s

highest broker quality grading of BQ1.

In December 2007, Indiabulls acquired Pyramid Retail including Pyramid

Megastores and Trumart, their chain of lifestyle and convenience outlets.             

            Indiabulls’ growth has been nothing short of stupendous. In less than eight years

since the company was first registered, it has grown from just five employees to 21,000 and

from one office to 600 across the country.The Indiabulls Financial Services stock is the best

performing stock in the MSCI Index – the global benchmark for equity investments.

A person who bought Indiabulls shares in the IPO at Rs. 19 (US$ 0.48) in

September 2004 has been rewarded almost 100 times in three and a half years – a feat

unparalleled in the history of Indian capital markets

33

Indiabulls Real Estate Limited partnered Farallon Capital Management LLC of the

US to bring the first Foreign Direct Investment into real estate.

BOARD OF DIRECTORS OF INDIABULLS GROUP

Mr Rajiv Rattan  - Vice Chairman

Mr Saurabh Mittal  - Vice Chairman

Mr Gagan Banga  - Group Spokesperson

Mr Ashok Kacker  - Group President

Mr Saket Bahuguna   - Group CLO

Mr Ashok Sharma  - Group CFO

Mr Ajit Mittal  - Group Director

Mr Gurbans Singh -  Group Director

Mr Tejinderpal Singh Miglani  - Group CIO

3.2.2 SECTOR

Since Indiabulls derives most of its revenues from the brokerage business, its fortunes are

very much dependent on the Performance of the capital markets, i.e. debt, derivative and

equity markets.

The Indian equity markets have grown from strength to strength in the last decade

with combined daily volumes of all segments on the BSE and the NSE touching Rs 232 bn

in April 2004, from Rs 5 bn in FY96.

Total shareholders in the country are over 20 m (2% of population) and this is the

third largest after the US and Japan, in absolute terms.

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Senior Vice PresidentYuv Raj Singh

Regional ManagerDashmeet Singh

Branch ManagerSenior Sales ManagerSujeet Roy Chowdary

Sujeet Roy Chowdary

However, if one were to compare the percentage of all households in India that are invested

in the stock markets, it is only about 1.9% as compared to an estimated 52%(including

indirect ownership by way of mutual funds) of all households in the US. This highlights the

long-term potential for the sector. Apply

Indiabulls Securities Ltd main strength lies in its formidable team. This team

comprising highly qualified and experienced personnel has been responsible for the overall

management of the company and has provided direction in diverse areas of business

strategy, operating management, regulatory reporting, human resources development and

product development.

Indiabulls Securities Ltd is listed on the National Stock Exchange (NSE) and the

Bombay Stock Exchange (BSE) and its global depository shares are listed on the

Luxembourg Stock Exchange.

Indiabulls Securities Limited

Mr Divyesh Shah – CEO

Mr Vijay Babbar – DMD

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Back OfficeExecutive

Ifran Khan

Local ComplianceOfficerChary

DealerBadri Nath

Figure 3.2: Organizational structure of ISL

3.2.3 PRODUCTS

India bulls Securities Limited  (ISL) is the pioneer in Retail Broking Industry having a pan

India presence and providing services to a customer base exceeding half a million. ISL is in

the business of providing securities broking and advisory services and is a corporate

member of capital market and derivative segment of NSE, BSE & member of wholesale

debt market of NSE . ISL is the first and only brokerage house to be assigned the highest

rating BQ-1 by CRISIL.

The company through various types of brokerage accounts provides product and services

related to purchase and sale of securities listed in NSE and BSE. It also provides depository

36

services, equity research services, mutual fund, and IPO distribution to its clients. The

company provides these services through on-line and off-line distribution channel.

IPO Online You can quickly and seamlessly apply to the latest public offerings with just a

few clicks.

Currency Derivatives Indiabulls offers trading in the Currency Derivatives Segment

in National Stock Exchange.

NRI Trading Non-Resident Indians (NRIs) can also enjoy the state-of-the-art online

trading Platforms of Indiabulls to trade in Indian Capital

Indiabulls Equity Analysis Indiabulls Equity Analysis complements its equity broking and

advisory services with high quality comprehensive report which can be accessed online.

Power Indiabulls (PIB) is the advanced online trading platform from Indiabulls

Securities Limited. PIB provides the best in the class internet trading features and delivers a

seamless and rich online trading experience for its users. PIB comes with a whole host of

online features for the internet trading users ranging from real-time stock prices, to live

trading reports, charting, News Room. PIB provides an integrated online trading platform

for the internet trading community to invest in equity, F&O, Online IPO and base their

decision on sound fundamental research and technical analysis. It also provides various

kinds of trading reports, each developed to cater to internet trading users’ distinct needs.

37

Why (PIB) PIB is the internet based stock trading application, which provides you an

unparalleled edge to trade in Indian stock markets. Here are some of the compelling

reasons, why you should subscribe for Power Indiabulls (PIB)

Integrated market watch for Equities and Derivatives

Live Streaming Quotes & Market News

Fast Order Entry

Tic by Tic Live Intraday Charts

Technical Analysis

Customizable Alerts

Extensive Reports

Real Time Market Statistics

World Market Summary

Introducing Intraday Futures

Indiabulls Signature Account helps to remain on top of your investments. It provides you

the platform to trade in Equity and Derivatives. With an unmatched service and nationwide

presence, the Indiabulls Signature account comes bundled with a variety of exclusive

features.

Ease of Trading with Indiabulls Signature account you have the flexibility to place

your orders either by logging on the website, calling at the branch or walking in the branch.

Dedicated Service Branch and Relationship Manager You can get in touch with your

Relationship Manager and Service Branch for all your trading related requirements.

38

Online payment Gateways Use our online payment gateways facility and get instant credit

in your Trading Account. We currently provide online gateway payment facility with four

major banks – HDFC, ICICI, AXIS and IDBI.

IPO’S Indiabulls provides you the flexibility to apply in ongoing IPO’s through online &

offline channels. For applying online, you do not need to fill tedious forms and write

cheques. You can apply conveniently in IPO’s from the comfort of your home / office

through our Website/PIB. For applying offline, you can contact your Relationship Manager/

Service Branch.

Portfolio Tracker You can track your investments online through our portfolio tracker

functionality. You can conveniently track the daily movement, notional / booked profits and

losses in your portfolio.

Equity Analysis Reports A qualified and dedicated team of equity analysts at Indiabulls

publishes various research reports. You can view these reports to gain insight into the

companies of your interest.

News Room The News Room provides real-time news from stock-markets, corporate

sector, economy and other segments that have a bearing on the market sentiment.

Market Statistics This functionality facilitates tracking the market trend by providing you

real time data on top gainers, top losers, volume toppers and most volatile stocks.

39

Mobile Power Indiabulls (MPIB) MPIB is a mobile-phone based application, developed

exclusively for Indiabulls customers. Using MPIB, you can view the live market rates of

your favorite stocks and futures contracts on your mobile device. Thus with MPIB, you can

always remain connected with the market, even on the move.

Electronic contract notes on Email This facility enables you to get digitally signed

Electronic Contract Notes on email within 24 hours of executing trades in your Trading

Account.

Introducing intraday Futures Intraday Futures Product enables you to take intraday

positions in various future contracts at lower margins. These positions have to be

necessarily squared-off at the day end.

Security Token the new age security tool to make your trading experience totally secure by

using two factors authentication mechanisms.

Comprehensive Reports Track your financials and portfolio efficiently through various

reports like Ledger Statements, Account Summary, Net Portfolio Report, Daily Transaction

Report, Daily Transaction report etc.

40

Currency Derivatives Trade in Currency Derivatives which are similar in nature to Stock

or Index Futures contracts. Currency Future Contracts, with INR: USD exchange rate as the

underlying, are available with a monthly expiry.

Depository Services Indiabulls is a depository participant with the National Securities

Depository Limited and Central Depository Services (India) Limited for trading and

settlement of dematerialized shares. Indiabulls performs clearing services for all securities

transactions through its accounts. We offer depository services to create a seamless

transaction platform – execute trades through Indiabulls Securities and settle these

transactions through the Indiabulls Depository Services. Indiabulls Depository Services is

part of our value added services for our clients that create multiple interfaces with the client

and provide for a solution that takes care of all your needs.

4. TECHNICAL INDICATORS USED FOR TECHNICAL ANALYSIS

4.1 TECHNICAL ANALYSIS

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

by market activity, such as past prices and volume. Technical analysts do not attempt to

measure a security's intrinsic value, but instead use charts and other tools to

identify patterns that can suggest future activity.

Just as there are many investment styles on the fundamental side, there are also

many different types of technical traders. Some rely on chart patterns, others use technical

indicators and oscillators, and most use some combination of the two. In any case, technical

analysts' exclusive use of historical price and volume data is what separates them from their

fundamental counterparts.

Origin and Development of Technical Analysis

The principles of technical analysis derive from the observation of financial markets over

hundreds of years. The oldest known hints of technical analysis appear in Joseph de la

Vega's accounts of the Dutch markets in the 17th century. In Asia, the oldest example of

technical analysis is thought to be a method developed by Homma Munehisa during early

18th century which evolved into the use of candlestick techniques, and is today a main

charting tool.

4.1.1 TECHNICAL VS FUNDAMENTAL ANALYSIS

Technical analysis and fundamental analysis are the two main schools of thought in the

financial markets. As we have mentioned, technical analysis looks at the price movement of

42

a security and uses this data to predict its future price movements. Fundamental analysis, on

the other hand, looks at economic factors, known as fundamentals.

Charts Vs Financial Statements

At the most basic level, a technical analyst approaches a security from the charts, while a

fundamental analyst starts with the financial statements.

By looking at the balance sheet, cash flow statement and income statement, a

fundamental analyst tries to determine a company's value. In financial terms, an analyst

attempts to measure a company's intrinsic value. In this approach, investment decisions are

fairly easy to make, if the price of a stock trades below its intrinsic value, it’s a good

investment.

Technical traders, on the other hand, believe there is no reason to analyze a

company's fundamentals because these are all accounted for in the stock's price.

Technicians believe that all the information they need about a stock can be found in its

charts.

Time Horizon

Fundamental analysis takes a relatively long-term approach to analyzing the market

compared to technical analysis. While technical analysis can be used on a timeframe of

weeks, days or even minutes, fundamental analysis often looks at data over a number of

years.

The different time frame that these two approaches use is a result of the nature of

the investing style to which they each adhere. It can take a long time for a company's value

to be reflected in the market, so when a fundamental analyst estimates intrinsic value, a

gain is not realized until the stock's market price rises to its "correct" value. This type of

43

investing is called value investing and assumes that the short-term market is wrong, but that

the price of a particular stock will correct itself over the long run. This "long run" can

represent a timeframe of as long as several years, in some cases.

Trading Vs Investing

Not only is technical analysis more short term in nature that fundamental analysis, but the

goals of a purchase (or sale) of a stock are usually different for each approach. In general,

technical analysis is used for a trade, whereas fundamental analysis is used to make an

investment. Investors buy assets they believe can increase in value, while traders buy assets

they believe they can sell to somebody else at a greater price.

Intraday Traders

Intra-Day trading is generally called day trading too. Day trading is a trading activity which

involves buying and selling stocks, commodities, etc., with in the same trading day.

For example, one could buy 100 stocks of ABC. If he or she sells it off on the same

day (sale of 100 of ABC), you have no stocks to carry home. This is basically day trading.

Short Term Investors

Investors comprised of low-risk investments with the goal of protecting capital and

providing are turn that beats a bench mark rate, such as treasuries. Short-term investments

can include cash, notes and other short-term debt. These people form the biggest clientele

base of both the Brokers and the Technical Analysts.

Hedgers

These are generally big investors, who have lot of money at stake and hence they look to

have some hedging of their risk. The strategy followed by this section of investors is that

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they compare the stock in consideration with the index and on the basis of the result of this

comparison they take their position in the stock.

Technical Analysis is done by identifying the trend from past movements and then using it

as a tool to predict future price movements of the stock. It can be done by using any of the

following methods:

4.2 CHARTS:

In technical analysis, charts are similar to the charts that you see in any business setting.

A chart is simply a graphical representation of a series of prices over a set time frame. For

example, a chart may show a stock's price movement over a one-year period, where each

point on the graph represents the closing price for each day the stock is traded

Figure 4.1: Chart representation of SBI

It is a representation of the price movements of a stock over a 3month period. The

bottom of the graph shows horizontally (x-axis) is the date or time or month scale. On the

right hand side, running vertically (y-axis), the price of the security is shown. By looking at

45

the graph we see that in 28/04/ 2011, the price of this stock was around Rs.2933, whereas

on 26/05/2011 the stock's price is around Rs 2176. This tells us that the stock has fell

Rs.757 between the given days.

Chart Properties

There are several things that we should be aware of when looking at a chart, as

these factors can affect the information that is provided. They include the

Time Scale

Price Scale

Price Point Properties

The Time Scale

The time scale refers to the range of dates at the bottom of the chart, which can

vary from decades to minutes. The most frequently used time scales are Intraday, Daily,

Weekly, Monthly, Quarterly & Annually and in Intraday we have five minutes, 10 minutes,

15 minutes, 20 minutes, 30 minutes and one hour. The shorter the time frame, the more

detailed the chart. Each data point can represent the closing price of the period or show the

open, the high, the low and the close depending on the chart used. Intraday charts plot price

movement within the period of one day. This means that the time scale could be as short as

five minutes or could cover the whole trading day from the opening bell to the closing bell.

Weekly, monthly, quarterly and yearly charts are used to analyze longer term trends

in the movement of a stock's price. Each data point in these graphs will be a condensed

version of what happened over the specified period. So for a weekly chart, each data point

will be a representation of the price movement of the week.

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The Price Scale and Price Point Properties

The price scale is on the right-hand side of the chart. It shows a stock's current price

and compares it to past data points. This may seem like a simple concept in that the price

scale goes from lower prices to higher prices as you move along the scale from the bottom

to the top. The problem, however, is in the structure of the scale itself. A scale can either be

constructed in a linear (arithmetic) or logarithmic way, and both of these options are

available on most charting services.

4.2.1 TYPES OF CHARTS

There are six types of charts, though there are six types of charts only four out of

them are commonly used by investors and traders on the information that they are seeking

and their individual skill levels.

Important chart types are:

1. Line Chart

2. Bar Chart

3. Candlestick Chart

4. Point and Figure

5. Kagi

6. Renko

1. Line Chart:

The basic of the four charts is the line chart because it represents only the closing

prices over a set period of time. The line is formed by connecting the closing prices over the

time frame. Line charts do not provide visual information of the trading range for the

47

individual points such as the high, low and opening prices. However, the closing price is

often considered to be the most important price in stock data compared to the high and low

for the day and this is why it is the only value used in line charts.

Figure 4.2: Line chart of SBI

2. Bar Charts:

The bar chart expands on the line chart by adding several more key pieces of

information to each data point. The chart is made up of a series of vertical lines that

represent each data point. This vertical line represents the high and low for the trading

period, along with the closing price. The close and open are represented on the vertical line

by a horizontal dash. The opening price on a bar chart is illustrated by the dash that is

located on the left side of the vertical bar. Conversely, the close is represented by the dash

on the right. Generally, if the left dash (open) is lower than the right dash (close) then the

bar will be shaded black, representing an up period for the stock, which means it has gained

value. A bar that is colored red signals that the stock has gone down in value over that

48

period. When this is the case, the dash on the right (close) is lower than the dash on the left

(open).

The highest price for the day

Closing price

Opening price

The lowest price for the day

Figure 4.3: Bar Chart of SBI

3. Candlestick Charts:

History

Candlestick charting can be traced back to the 1700's as a tool used for rice trading. One of

the great rice traders of the 1800's, Homma is widely credited for developing the

49

candlestick charting basics used today. In the west, Candlestick Charting has grown in

popularity and use, thanks to the efforts of Steve Nisson and Greg Morris. Candlestick

charts are visually appealing and can be a valuable tool in the technicians toolbox as it gives

insight into current investor sentiment, allowing for the determination of short term tops

and bottoms.

The candlestick chart is similar to a bar chart, but it differs in the way that

it is visually constructed. Similar to the bar chart, the candlestick also has a thin vertical line

showing the period's trading range. The difference comes in the formation of a wide bar on

the vertical line, which illustrates the difference between the open and close. And, like bar

charts, candlesticks also rely heavily on the use of colors to explain what has happened

during the trading period. A major problem with the candlestick color configuration,

however, is that different sites use different standards; therefore, it is important to

understand the candlestick configuration used at the chart site you are working with. There

are two color constructs for days up and one for days that the price falls. When the price of

the stock is up and closes above the opening trade, the candlestick will usually be white or

clear. If the stock has traded down for the period, then the candlestick will usually be red or

black, depending on the site. If the stock's price has closed above the previous day’s close

but below the day's open, the candlestick will be black or filled with the color that is used to

indicate an up

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Figure 4.4: Images representing candle sticks with shadows

The candle is comprised of two parts, the body and the shadows. The body

encompasses the open and closing price for the period. The candle body is either filled with

red or blue color then the security closed below the open, when the candle is transparent

irrespective of color then the security is closed above the open price. The candlestick

shadow encompasses the intra period high and low. Long shadows, show that the trading

extended well beyond the opening and/or closing price, while short shadows, show that

trading was confined closely to the open and/or closing price.

Figure 4.5: Candle stick chart of SBI

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4.2.2 CANDLESTICK TERMS

Long, and Short Bodies, Marubozo and Spinning Tops

Figure 4.6: Candle stick terms image

A long body is a candlestick with a very long body when compared with other recent

candles. White bodies show intense buying pressure, where as black bodies show intense

selling pressures. Long white candles are generally bullish, but are also found at blowout

tops, so they must be interpreted with surrounding candles. Similar long black candles are

generally bearish, but are also found at capitulation bottoms. Long bodies with no upper

and lower shadows are called Marubozo's. Marubozo's are more powerful than long candles

as they show a steady advance (or decline if black) throughout the trading period. A short

candle is the opposite of a long candle and usually implies consolidation, as the stock traded

in a narrow range during the period. Short candles with long upper and lower shadows are

called spinning tops, and are potential reversal signs, as it shows that despite trading in a

wide range, the security closed close to the open. A spinning top becomes a doji as the

closing price approaches the open price.

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Doji's

Figure 4.7: Image representing Doji’s

Doji's are powerful reversal indicating candlesticks and are formed when the security opens

and closes at the same level, implying indecision in the stock price. Depending on the

location and length of the shadows doji's can be categorized into the following formations,

doji, long legged-doji, butterfly doji, gravestone doji, 4 price doji, etc. Doji's become more

significant when seen after an extended rally of long bodied candles (bullish or bearish) and

are confirmed with an engulfing (a long candlestick formed over the next period which

engulfs the doji body).

A long legged-doji is formed when the stock opens at a level trades in a

considerable trading range only to close at the same level as it opened. Long legged-doji's

become more powerful when preceded by small candles, as a sudden burst of volatility in a

relative nonvolatile stock, can imply a trend change is expected.

Dragonfly Doji's are doji's that opened at the high of a session, had a considerable

interperiod decline, then find support to rally back to close at the same level as the open.

Dragonfly Doji's are often seen after a moderate decline, and are bottom reversal indicators

when confirmed with a bullish engulfing.

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Gravestone Doji's are the opposite of the Dragonfly Doji and are top reversal

indicators when confirmed with bearish engulfings. As the name implies, gravestone doji's

look like a gravestone, and could signal impending doom for a stock. 4 price doji's occur

when the stock opens, trades and closes at virtually the same level for the period. These are

very rare, except with thinly traded securities.

Engulfings

Figure 4.8: Images representing Engulfings

An engulfing occurs when the candle body engulfs the previous candles body. White

engulfing candles are bullish engulfing, whereas black engulfing candles are bearish

engulfings. Bullish engulfings are commonly found at short term bottoms, where as bearish

engulfings at tops. Many candlesticks, such as dojis, hammers, hanging mans need

confirmation of a trend change with an engulfing (bullish engulfing at bottoms, bearish

engulfings at tops).

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Hammers/ Hanging Man

Figure 4.9: Images representing Hammers hanging man

Hammers and hanging man's are short body candles with little or no upper shadow, and a

lower shadow at least twice as long as the candle body. Hammers are formed after declines,

and hanging man's after advances. When confirmed they become powerful reversal signals,

especially the hammer. The expression "hammers out a bottom" refers to when after the

open, the downtrend in a stock continues, until at some point, enough buying interest is

generated, to bring prices close to where they open.

Confirmation comes from a bullish engulfing, showing the trader that the uptrend is

established. The color of the hanging man/hammer is unimportant, but some consider white

hammers and black hanging man's more potent reversal signals.

Gaps

Figure 4.10: Image representing Gaps

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A gap occurs when a candlestick body doesn't fall within the range of the previous

candlestick body, a more loosely interpreted definition of a gap, requires no overlap

between the shadows, making it obvious on a bar chart as well. You will often hear "All

Gaps Get Filled", which is untrue. While the vast majority of gaps do get filled, you can

find some charts, where a gap has never filled. Depending on how you define a gap, should

base your definition of a gap fill. For instance I consider a gap when 2 bodies don't overlap,

so I wait for a body fill to call the gap close. If one was using the criteria of shadow

overlap, a gap fill would occur with a shadow fill. Gaps are typically continuation patterns,

and sometimes mark the 50% point of a move. They become more significant as the stock

approaches the level of the gap as it often acts as a magnet. During a gap fill, it is

considered bearish closing below the bottom of the gap and bullish closing above it. Once

formed gap's will often serve as strong support/resistance levels even after being closed for

some time.

Exhaustion gaps signify the end of market bottoms and tops, where initially

overwhelming buying pressure, is soon consumed by selling pressure (and vice versa for

bottoms). Exhaustion gaps have significant volume associated with them, and are often

closed within 3 trading days.

Figure 4.11: Image representing different types of gaps

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Three gap play occurs when a stock gaps in the direction of the trend for close to 3

consecutive periods; with the final gap is an exhaustion gap that is larger then the previous

gaps with respect to size and volume. After the exhaustion gap, the trend changes all of the

gaps immediately get filled. After the final gap is filled, the stock turns and continues well

beyond the initial exhaustion gap. Although pretty rare, they can be very profitable if

recognized early and swing traded.

4.2.3 Chart Analysis

Chart analysis is a technical study whose objective is to determine market trends by

analyzing charts based on share price evolutions and traded volumes. The charts can be

analyzed based upon few parameters and they are:

1. Overall Trend The first step is to identify the overall trend. This can be

accomplished with trend lines, moving averages or peak/trough analysis. As long as

the price remains above its uptrend line, selected moving averages or previous lows,

the trend will be considered bullish.

2. Support Areas of congestion or previous lows below the current price mark

support levels. A break below support would be considered bearish.

3. Resistance Areas of congestion and previous highs above the current price mark

the resistance levels. A break above resistance would be considered bullish.

4. Momentum is usually measured with an oscillator such as MACD. If MACD is

above its 9-day EMA (exponential moving average) or positive, then momentum

will be considered bullish, or at least improving.

5. Buying/Selling Pressure For stocks and indices with volume figures available, an

indicator that uses volume is used to measure buying or selling pressure.

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6. Relative Strength: The price relative is a line formed by dividing the security by a

benchmark. For stocks it is usually the price of the stock divided by the S&P 500.

The plot of this line over a period of time will tell us if the stock is outperforming

(rising) or underperforming (falling) the major index.

The final step is to synthesize the above analysis to ascertain the following:

o Strength of the current trend.

o Maturity or stage of current trend.

o Reward to risk ratio of a new position.

o Potential entry levels for new long position.

4.3 TECHNICAL INDICATORS & OSCILLATORS

Indicators are calculations based on the price and the volume of a security that measure

such things as money flow, trends, volatility and momentum. Indicators are used as a

secondary measure to the actual price movements and add additional information to

the analysis of securities. Indicators are used in two main ways: to confirm price

movement and the quality of chart patterns, and to form buy and sell signals.

4.3.1 MOVING AVERAGES

Moving averages are one of the most popular and easy to use tools available to the

technical analyst. They smooth a data series and make it easier to spot trends, something

that is especially helpful in volatile markets. They also form the building blocks for many

other technical indicators and overlays. The 2 most popular types of moving averages are:

i. Simple Moving Average (SMA)

ii. Exponential Moving Average (EMA)

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Simple Moving Average (SMA)

A simple moving average is formed by computing the average (mean) price of a security

over a specified number of periods. While it is possible to create moving averages from the

Open, the High, and the Low data points, most moving averages are created using the

closing price. For example: a 10-day simple moving average is calculated by adding the

closing prices for the last 10 days and dividing the total by 10.

S.No Symbol Date Series Close Price

SMA1 TCS 9-May-11 EQ 1135.55  2 TCS 10-May-11 EQ 1139.9  3 TCS 11-May-11 EQ 1140.25  4 TCS 12-May-11 EQ 1111.75  5 TCS 13-May-11 EQ 1127.1  6 TCS 16-May-11 EQ 1131.1  7 TCS 17-May-11 EQ 1141.7  8 TCS 18-May-11 EQ 1155.05  9 TCS 19-May-11 EQ 1164.85  10 TCS 20-May-11 EQ 1175 1142.22511 TCS 23-May-11 EQ 1166.55 1145.32512 TCS 24-May-11 EQ 1149.9 1146.32513 TCS 25-May-11 EQ 1128.6 1145.1614 TCS 26-May-11 EQ 1135.75 1147.5615 TCS 27-May-11 EQ 1144.55 1149.30516 TCS 30-May-11 EQ 1151.95 1151.3917 TCS 31-May-11 EQ 1157.15 1152.93518 TCS 1-Jun-11 EQ 1175.4 1154.9719 TCS 2-Jun-11 EQ 1167.75 1155.2620 TCS 3-Jun-11 EQ 1152.1 1152.9721 TCS 6-Jun-11 EQ 1164.35 1152.7522 TCS 7-Jun-11 EQ 1179.3 1155.6923 TCS 8-Jun-11 EQ 1181.4 1160.9724 TCS 9-Jun-11 EQ 1186.35 1166.0325 TCS 10-Jun-11 EQ 1189.2 1170.49526 TCS 13-Jun-11 EQ 1175.3 1172.8327 TCS 14-Jun-11 EQ 1191.05 1176.2228 TCS 15-Jun-11 EQ 1184.25 1177.10529 TCS 16-Jun-11 EQ 1151.15 1175.44530 TCS 17-Jnu-11 EQ 1117.20 1171.95

Table 4.1: Representing SMA of TCS

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Figure 4.12: Chart representing SMA of TCS

Exponential Moving Average (EMA):

In order to reduce the lag in simple moving averages, technicians often use exponential

moving averages (also called exponentially weighted moving averages).

EMA's reduce the lag by applying more weight to recent prices relative to older

prices. The weighting applied to the most recent price depends on the specified period of

the moving average. The shorter the EMA's period, the more weight that will be applied to

the most recent price. For example: a 10-period exponential moving average weighs the

most recent price 18.18% while a 20-period EMA weighs the most recent price 9.52%. As

we'll see, the calculating and EMA is much harder than calculating an SMA. The important

thing to remember is that the exponential moving average puts more weight on recent

prices. As such, it will react quicker to recent price changes than a simple moving average.

Here's the calculation formula.

The Formula for Exponential Moving Average

EMA (current) = ((Price (current) – EMA (prev.) ) x Multiplier) + EMA(prev.)

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For a period-based EMA, "Multiplier" is equal to 2 / (1 + N) where N is the

specified number of periods.

Example: A 10-period EMA's Multiplier is calculated like this:

(2 / (Time periods + 1)) = (2 / (10 + 1)) = 0.1818 (18.18%)

This means that a 10-period EMA is equivalent to an 18.18% EMA.

Symbol

Date Series Close Price

SMA Multiplier

EMATCS 9-May-11 EQ 1135.55      TCS 10-May-11 EQ 1139.9      TCS 11-May-11 EQ 1140.25      TCS 12-May-11 EQ 1111.75      TCS 13-May-11 EQ 1127.1      TCS 16-May-11 EQ 1131.1      TCS 17-May-11 EQ 1141.7      TCS 18-May-11 EQ 1155.05      TCS 19-May-11 EQ 1164.85      TCS 20-May-11 EQ 1175 1142.22

5  1142.225

TCS 23-May-11 EQ 1166.55 1145.325

0.1818 1148.183495TCS 24-May-11 EQ 1149.9 1146.32

50.1818 1151.52252

6TCS 25-May-11 EQ 1128.6 1145.16 0.1818 1151.22755TCS 26-May-11 EQ 1135.75 1147.56 0.1818 1147.11386

2TCS 27-May-11 EQ 1144.55 1149.305

0.1818 1145.047912TCS 30-May-11 EQ 1151.95 1151.39 0.1818 1144.957391TCS 31-May-11 EQ 1157.15 1152.93

50.1818 1146.22864

8TCS 1-Jun-11 EQ 1175.4 1154.97 0.1818 1148.214149TCS 2-Jun-11 EQ 1167.75 1155.26 0.1818 1153.156537TCS 3-Jun-11 EQ 1152.1 1152.97 0.1818 1155.809629TCS 6-Jun-11 EQ 1164.35 1152.75 0.1818 1155.135218TCS 7-Jun-11 EQ 1179.3 1155.69 0.1818 1156.810466TCS 8-Jun-11 EQ 1181.4 1160.97 0.1818 1160.899063TCS 9-Jun-11 EQ 1186.35 1166.03 0.1818 1164.626133TCS 10-Jun-11 EQ 1189.2 1170.49

50.1818 1168.57553

2TCS 13-Jun-11 EQ 1175.3 1172.83 0.1818 1172.32506TCS 14-Jun-11 EQ 1191.05 1176.22 0.1818 1172.86590

4TCS 15-Jun-11 EQ 1184.25 1177.105

0.1818 1176.171773TCS 16-Jun-11 EQ 1151.15 1175.44

50.1818 1177.64039

5TCS 17-Jnu-11 EQ 1117.2 1171.955

0.1818 1172.824441Table 4.2: Representing EMA of TCS

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Interpretation

The Moving Average Technical Indicator shows the mean stock price value for a certain

period of time. When one calculates the moving average, one averages out the stock price

for this time period. As the price changes, its moving average either increases, or decreases.

The most common way to interpreting the price moving average is to compare its

dynamics to the price action. When the stock price rises above its moving average, a buy

signal appears, if the price falls below its moving average, what we have is a sell signal.

This trading system, which is based on the moving average, is not designed to

provide entrance into the market right in its lowest point, and its exit right on the peak. It

allows acting according to the following trend: to buy soon after the prices reach the

bottom, and to sell soon after the prices have reached their peak.

Uses for Moving Averages

There are many uses for moving averages, but three basic uses stand out:

Trend identification/confirmation

Support and Resistance level identification/confirmation

Trading Systems

Trend Identification/Confirmation

There are three ways to identify the direction of the trend with moving averages direction,

location and crossovers.

The first trend identification technique uses the direction of the moving average to

determine the trend. If the moving average is rising, the trend is considered up. If the

moving average is declining, the trend is considered down. The direction of a moving

average can be determined simply by looking at a plot of the moving average or by

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applying an indicator to the moving average. In either case, we would not want to act on

every subtle change, but rather look at general directional movement and changes.

Figure 4.13: Chart representing directions of SMA of SBI

The second technique for trend identification is price location. The location of the

price relative to the moving average can be used to determine the basic trend. If the price is

above the moving average, the trend is considered up. If the price is below the moving

average, the trend is considered down.

Figure 4.14: Chart representing location of SMA of SBI

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The third technique for trend identification is based on the location of the shorter

moving average relative to the longer moving average. If the shorter moving average is

above the longer moving average, the trend is considered up. If the shorter moving average

is below the longer moving average, the trend is considered down.

Figure 4.15: Chart representing crossovers of SMA of SBI

4.3.2 VOLUME:

Volume is simply the number of shares or contracts that trade over a given period of

time, usually a day. Higher volume means the security has been more active. To determine

the movement of the volume (up or down), chartists look at the volume bars that can

usually be found at the bottom of any chart. Volume bars illustrate how many shares have

traded per period and show trends in the same way that prices do.

Importance of Volume

Volume is an important aspect of technical analysis because it is used to confirm trends and

chart patterns. Any price movement up or down with relatively high volume is seen as a

stronger, more relevant move than a similar move with weak volume. Therefore, if we are

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looking at a large price movement, we should also examine the volume to see whether it

tells the same story

Say, for example, that a stock jumps 5% in one trading day after being in a long

downtrend. Is this a sign of a trend reversal? This is where volume helps traders. If volume

is high during the day relative to the average daily volume, it is a sign that the reversal is

probably for real. On the other hand, if the volume is below average, there may not be

enough conviction to support a true trend reversal. Volume should move with the trend. If

prices are moving in an upward trend, volume should increase (and vice versa). If the

previous relationship between volume and price movements starts to deteriorate, it is

usually a sign of weakness in the trend.

Volume and Chart Patterns

The other use of volume is to confirm chart patterns. Patterns such as head and shoulders,

triangles, flags and other price patterns can be confirmed with volume. In most chart

patterns, there are several pivotal points that are vital to what the chart is able to convey to

chartists. Basically, if the volume is not there to confirm the pivotal moments of a chart

pattern, the quality of the signal formed by the pattern is weakened.

Volume Precedes Price

Another important idea in technical analysis is that price is preceded by volume. Volume is

closely monitored by technicians and chartists to form ideas on upcoming trend reversals. If

volume is starting to decrease in an uptrend, it is usually a sign that the upward run is about

to end. Now that we have a better understanding of some of the important factors of

technical analysis, we can move on to charts, which help to identify trading opportunities in

prices movements.

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When volume tells a different story, it is a case of divergence, which refers to a

contradiction between two different indicators. The simplest example of divergence is a

clear upward trend on declining volume.

Figure 4.16: Chart representing volumes of Shalimar paints

From above chart it is clear that the change in price is after volume shocker. On 9 th

May the stock price of Shalimar Paints is Rs.325 and on 7th June it is Rs.923

.

4.3.3 RELATIVE STRENGTH INDEX (RSI)

The Relative Strength Index (RSI) is a trading indicator in the technical analysis of

financial markets. It is intended to indicate the current and historical strength or weakness

of a market based on the closing prices of completed trading periods. It assumes that prices

close higher in strong market periods, and lower in weaker periods and computes this as a

ratio of the number of incrementally higher closes to the incrementally lower closes.

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The Relative Strength Index was developed by J. Welles Wilder and published in a

1978 book, New Concepts in Technical Trading Systems, and in Commodities magazine

(now Futures magazine) in the June 1978 issue. The RSI method may be classified as a

momentum oscillator measuring the velocity and magnitude of directional price

movements. Momentum is the rate of the rise or fall in price.

Calculation

To simplify our explanation of the formula, the RSI has been broken down into its basic

components which are the RS, the Average Gain, and the Average Loss. To calculate RSI

values for a given dataset, first find the magnitude of all gains and losses for the 14 periods

prior to the time where you wish to start the calculation. (Note: 14 is the standard number of

periods used when calculating the RSI.)

It is important to understand that the RSI is a "running" calculation and the accuracy

of the calculation depends on how long ago the calculations started. The first RSI value is

an estimate subsequent values improve on that estimate. We should calculate at least 14

values prior to the start of any values that you will rely on going back 28+ periods is even

better.

To start the running calculation, the First Average Gain is calculated as the total of

all gains during the past 14 periods divided by 14. Similarly, the First Average Loss is

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100RSI = 100 - ---------

1+RSRS = Average Gain/ Average loss

Average Gain = [(previous Average Gain)*13 + Current Gain] /14First Average Gain = Total of Gains during past 14 periods /14

calculated as the total magnitude of all losses during the past 14 periods divided by 14. The

next values for the "averages" are calculated by taking the previous value, multiplying it by

13, adding in the next Gain (or Loss), and then dividing by 14. This is Wilder's modified

"smoothing" technique in action.

The RS value is simply the Average Gain divided by the Average Loss for each

period. Finally, the RSI is simply the RS converted into an oscillator that goes between zero

and 100 using this formula: 100 - (100 / RS + 1).

When the Average Gain is greater than the Average Loss, the RSI rises because RS

will be greater than 1. Conversely, when the Average Loss is greater than the Average

Gain, the RSI declines because RS will be less than 1. The last part of the formula ensures

that the indicator oscillates between 0 and 100. Note: If the Average Loss ever becomes

zero, RSI becomes 100 by definition.

Overbought/Oversold

The overbought and oversold level for RSI is determined by 80 and 20 respectively.

Generally, if the RSI rises above 20 it is considered bullish for the underlying stock.

Conversely, if the RSI falls below 80, it is a bearish signal. Some traders identify the long-

term trend and then use extreme readings for entry points. In India we consider 70 & 30 as

the limits. If the long-term trend is bullish, then oversold readings could mark potential

entry points.

Divergences

Buy and sell signals can also be generated by looking for positive and negative divergences

between the RSI and the underlying stock. For example, consider a falling stock whose RSI

rises from a low point of (for example) 15 back up to say, 55. Because of how the RSI is

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constructed, the underlying stock will often reverse its direction soon after such a

divergence. As in that example, divergences that occur after an overbought or oversold

reading usually provide more reliable signals.

Centerline Crossover

The centerline for RSI is 50. Readings above and below can give the indicator a bullish or

bearish tilt. On the whole, a reading above 50 indicates that average gains are higher than

average losses and a reading below 50 indicates that losses are winning the battle. Some

traders look for a move above 50 to confirm bullish signals or a move below 50 to confirm

bearish signals.

EXAMPLE

Figure 4.17: Chart representing RSI levels of SBI

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Interpretation

The RSI is presented in a graph below the price chart of a market. Wilder posited that when

price moves up very rapidly, at some point it is considered overbought. Likewise, when

price falls very rapidly, at some point it is considered oversold. In either case, Wilder felt a

reaction or reversal is imminent. The slope of the RSI is directly proportional to the velocity

of the move. The distance traveled by the RSI is proportional to the magnitude of the move.

As a result, Wilder believed that tops and bottoms are indicated when RSI goes

above 70 or drops below 30. Traditionally, RSI readings greater than the 70 level are

considered to be in overbought territory, and RSI readings lower than the 30 level are

considered to be in oversold territory. In between the 30 and 70 level is considered neutral.

As such traders will look for opportunities to go long when the RSI is below 30

and opportunities to go short when it is above 70. As with all indicators however this is best

done when other parts of a trader’s analysis line up with the indicator.

Wilder further believed that divergence between RSI and price action is a very

strong indication that a market turning point is imminent. Bearish divergence occurs when

price makes a new high but the RSI makes a lower high, thus failing to confirm. Bullish

divergence occurs when price makes a new low but RSI makes a higher low.

Wilder thought that "failure swings" above 70 and below 30 on the RSI are strong

indications of market reversals. For example, assume the RSI hits 76, pulls back to 72, and

then rises to 77. If it falls below 72, Wilder would consider this a "failure swing" above 70.

Finally, Wilder wrote that chart formations and areas of support and resistance could

sometimes be more easily seen on the RSI chart as opposed to the price chart. The center

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line for the relative strength index is 50, which is often seen as both the support and

resistance line for the indicator.

If the relative strength index is below 50, it generally means that the stock's losses

are greater than the gains. When the relative strength index is above 50, it generally means

that the gains are greater than the losses.

4.3.4 MOVING AVERAGE CONVERGENCE/DIVERGENCE (MACD):

Figure 4.18: Image of MACD of SBI

MACD is a technical analysis indicator created by Gerald Appel in the late 1970s.MACD

shows the difference between a fast and slow exponential moving average (EMA) of

closing prices. Since it is based on moving averages, MACD is inherently a lagging

indicator. MACD is a form of Absolute Price Oscillator (APO), meaning that it takes the

difference of two price EMAs. An alternate form of price oscillator is the Percentage Price

Oscillator (PPO) which is computed by dividing the difference between two moving

averages of price by the longer moving average value. The relative values generated by a

PPO will differ from an APO (or MACD) in subtle but significant ways, and are preferred

when (a) comparing the oscillator values between different securities, especially of widely

different prices, or (b) comparing oscillator values for the same security at significantly

different times, especially for a security whose value has changed greatly. The APO (and

hence the MACD) will show greater oscillator extremes for higher priced securities, unlike

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the percentage price oscillator. The final member of the price oscillator family is the

Detrended price oscillator. Thomas Aspray added a histogram to the MACD indicator in

1986, as a means to anticipate MACD crossovers, and thereby not miss important moves in

a security.

The set of periods for the averages can be varied. Appel and others have

experimented with different combinations. The usual set of parameters is written as 12,26,9

for the fast EMA, slow EMA and signal line periods respectively.

MACD Calculation

The standard periods originally published by Gerald Appel are 12 and 26 days:

MACD = EMA [12] OF PRICE – EMA [26] OF PRICE

A signal line (or trigger line) is then formed by smoothing this with a further EMA.

The standard period for this is 9 days,

SIGNAL = EMA [9] OF MACD

The difference between the MACD and the signal line is often calculated and

shown not as a line, but a solid block histogram style. was made by Thomas Aspray.

HISTOGRAM = MACD − SIGNAL

Interpretation

MACD lines are often regarded as a trend following indicator designed to identify

trend changes. The MACD histogram as drawn above is sometimes used as an oscillator.

Three types of trading signals are generated:

MACD line crossing the signal line.

MACD line crossing 0.

Divergence between price and histogram, or between MACD line and price.

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The signal line crossing is the usual trading rule. The standard interpretation is to

buy when the MACD crosses up through the signal line, or sell when it crosses down

through the signal line. These crossings may occur too frequently, and other tests may have

to be applied.

The histogram shows when a crossing occurs. When the MACD line crosses

through zero on the histogram it is said that the MACD line has crossed the signal line.

The histogram can also help visualizing when the two lines are coming together. Both may

still be rising, but coming together, so a falling histogram suggests a crossover may be

approaching.

A crossing of the MACD line up through zero is interpreted as bullish, or down

through zero as bearish. These crossings are of course simply the original EMA(12) line

crossing up or down through the slower EMA(26) line.

Positive divergence between MACD and price arises when price makes a new sell

off low, but the MACD doesn't make a new low (i.e. it remains above where it fell to on

that previous price low). This is interpreted as bullish, suggesting the downtrend may be

nearly over. Negative divergence is the same thing when rising (i.e. price makes a new rally

high, but MACD doesn't rise as high as before), this is interpreted as bearish.

The different days oF MACD

20 days - choppy line. It isn't the most accurate, but is probably the most useful for short

term traders.

30 day - similar to 20 day but provides a bit more certainty for the trend.

50 day - moving averages provide a much less volatile, smooth line. This can be used to

detect somewhat longer term trends.

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100 day - similar to the 50 day, it is less volatile, and one of the most widely used for long

term trends.

200 day - even less volatile, more of a rolling chart or smooth line. It doesn't react to quick

movements in the stock price therefore it is rarely used.

MACD Benefits

One of the primary benefits of MACD is that it incorporates aspects of both momentum and

trend in one indicator. As a trend-following indicator, it will not be wrong for very long.

The use of moving averages ensures that the indicator will eventually follow the

movements of the underlying security. By using Exponential Moving Averages (EMAs), as

opposed to Simple Moving Averages (SMAs), some of the lag has been taken out.

As a momentum indicator, MACD has the ability to foreshadow moves in the

underlying security. MACD divergences can be key factors in predicting a trend change. A

Negative Divergence signals that bullish momentum is waning, and there could be a

potential change in trend from bullish to bearish. This can serve as an alert for traders to

take some profits in long positions, or for aggressive traders to consider initiating a short

position.

MACD can be applied to daily, weekly or monthly charts. MACD represents the

convergence and divergence of two moving averages. The standard setting for MACD is

the difference between the 12 and 26-period EMA. However, any combination of moving

averages can be used. The set of moving averages used in MACD can be tailored for each

individual security. For weekly charts, a faster set of moving averages may be appropriate.

For volatile stocks, slower moving averages may be needed to help smooth the data. Given

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that level of flexibility, each individual should adjust the MACD to suit his or her own

trading style, objectives and risk tolerance.

4.4 TREND LINES:

SUPPORT & RESISTANCE

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. 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.

4.4.1 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.

Figure 4.19: Image representing support level of a stock

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4.4.2 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.

Figure 4.20: Image representing resistance level of a stock

After a resistance level is penetrated, it often becomes a support level; this is

because buyers who didn't buy at that price before it went up are now willing to buy at that

price.

Figure 4.21: Chart representing support & resistance levels of ACC

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Support and resistance come in all varieties and strengths. They most often manifest

as horizontal price levels. The length of time that a support or resistance level exists

determines the strength or weakness of that level. The strength or weakness determines how

much buying or selling interest will be required to break the level. Also, the greater volume

traded at any level, the stronger that level will be.

Another use of moving averages is to identify support and resistance levels. This is

usually accomplished with one moving average and is based on historical precedent. As

with trend identification, support and resistance level identification through moving

averages works best in trending markets.

4.5 CHART PATTERNS:

4.5.1 HEAD & SHOULDERS

This is one of the most popular and reliable chart patterns in technical analysis. Head and

shoulders is a reversal chart pattern that when formed, signals that the security is likely to

move against the previous trend. In the Figure below, there are two versions of the head and

shoulders chart pattern. Head and shoulders top (left) is a chart pattern that is formed at the

high of an upward movement and signals that the upward trend is about to end. Head and

shoulders bottom, also known as inverse head and shoulders (right) is the lesser known of

the two, but is used to signal a reversal in a downtrend.

Both of these head and shoulders patterns are similar in that there are four main

parts two shoulders, a head and a neckline. In this pattern, the neckline is a level of support

or resistance.

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Figure 4.22: Image of Head & shoulders top(left) & Head & shoulders bottom(right)

4.5.2 DOUBLE TOPS & DOUBLE BOTTOMS

This chart pattern is another well-known pattern that signals a trend reversal, it is

considered to be one of the most reliable and is commonly used. These patterns are formed

after a sustained trend and signal to chartists that the trend is about to reverse. The pattern is

created when a price movement tests support or resistance levels twice and is unable to

break through. This pattern is often used to signal intermediate and long-term trend

reversals.

Figure 4.23: Image of Double tops(left) and

Double bottoms(right)

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In the case of the double top pattern in above figure, the price movement has twice

tried to move above a certain price level. After two unsuccessful attempts at pushing the

price higher, the trend reverses and the price heads lower. In the case of a double bottom

(shown on the right), the price movement has tried to go lower twice, but has found support

each time. After the second bounce off of the support, the security enters a new trend and

heads upward.

Triple Bottom and Triple Top Patterns are extensions to these double patterns.

4.5.3 TRIPLE TOPS & TRIPLE BOTTOMS

Triple tops and triple bottoms are another type of reversal chart pattern in chart analysis.

These are not as prevalent in charts as head and shoulders and double tops and bottoms, but

they act in a similar fashion. These two chart patterns are formed when the price movement

tests a level of support or resistance three times and is unable to break through; this signals

a reversal of the prior trend.

Figure 4.24: Image of Triple Top(left) & Triple Bottom(right)

Confusion can form with triple tops and bottoms during the formation of the pattern

because they can look similar to other chart patterns. After the first two support/resistance

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tests are formed in the price movement, the pattern will look like a double top or bottom,

which could lead a chartist to enter a reversal position too soon.

4.5.4 TRIANGLES

Triangles are some of the most well-known chart patterns used in technical analysis. The

three types of triangles, which vary in construct and implication, are the symmetrical

triangle, ascending and descending triangle. These chart patterns are considered to last

anywhere from a couple of weeks to several months.

Figure 4.25: Image of triangle chart patterns

The symmetrical triangle in Figure 15 is a pattern in which two trendlines converge toward

each other. This pattern is neutral in that a breakout to the upside or downside is a

confirmation of a trend in that direction. In an ascending triangle, the upper trendline is flat,

while the bottom trendline is upward sloping. This is generally thought of as a bullish

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pattern in which chartists look for an upside breakout. In a descending triangle, the lower

trendline is flat and the upper trendline is descending. This is generally seen as a bearish

pattern where chartists look for a downside breakout.

4.5.5 FLAG AND PENNANT

The two short-term chart patterns are continuation patterns that are formed when there is a

sharp price movement followed by a generally sideways price movement. This pattern is

then completed upon another sharp price movement in the same direction as the move that

started the trend. The patterns are generally thought to last from one to three weeks.

Figure 4.26: Image of Flag & Pennant patterns

A slight difference is observed between a pennant and a flag. The main difference between

these price movements can be seen in the middle section of the chart pattern. In a pennant,

the middle section is characterized by converging trendlines, much like what is seen in a

symmetrical triangle. The middle section on the flag pattern, on the other hand, shows a

channel pattern, with no convergence between the trendlines. In both cases, the trend is

expected to continue when the price moves above the upper trendline.

4.5.6 WEDGE

The wedge chart pattern can be either a continuation or reversal pattern. It is similar to a

symmetrical triangle except that the wedge pattern slants in an upward or downward

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direction, while the symmetrical triangle generally shows a sideways movement. The other

difference is that wedges tend to form over longer periods, usually between three and six

months.

Figure 4.27: Image of Wedge pattern

The fact that wedges are classified as both continuation and reversal patterns can make

reading signals confusing. However, at the most basic level, a falling wedge is bullish and a

rising wedge is bearish. In Figure 17, we have a falling wedge in which two trendlines are

converging in a downward direction. If the price was to rise above the upper trendline, it

would form a continuation pattern, while a move below the lower trendline would signal a

reversal pattern.

4.5.7 ROUNDING BOTTOM

A rounding bottom, also referred to as a saucer bottom, is a long-term reversal pattern that

signals a shift from a downward trend to an upward trend. This pattern is traditionally

thought to last anywhere from several months to several years

A rounding bottom chart pattern looks similar to a cup and handle pattern but without the

handle. The long-term nature of this pattern and the lack of a confirmation trigger, such as

the handle in the cup and handle, make it a difficult pattern to trade.

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Figure 4.28: Image of round bottom chart pattern

4.5.8 GAPS

Gap in a chart is an empty space between a trading period and the following trading period.

This occurs when there is a large difference in prices between 2 sequential trading periods.

Figure 4.29: Image of gap pattern

Gap price movements can be found on bar charts and candlestick charts but will not

be found on point and figure or basic line charts. Gaps generally show that something of

significance has happened in the security, such as a better-than-expected earnings

announcement. There are three main types of gaps, breakaway, runaway (measuring) and

exhaustion. A breakaway gap forms at the start of a trend, a runaway gap forms during the

middle of a trend and an exhaustion gap forms near the end of a trend.

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5. DATA ANALYSIS & PRESUMPTIONS

Data analysis is done by considering 16 different securities using positional calls and

intraday calls. Positional calls are generated for 8 scrips and intraday calls for the remaining

8scrips.

Positional Calls

The prerequisites taken by me for the positional calls:

The time period considered for all the positional calls is 6 months; the short and

long SMAs are taken as 10 & 25 periods for some scirps and 9 & 27 for some scrips. The

ideal and most of the analysts follow is 9 & 27 periods for positional calls.

The RSI is 14 periods, each candle present in the below charts represents a single

day. The MACD is considered as 26, 12 and the exponential considered is 9 periods.

Intraday Calls

The prerequisites taken by me for the intraday calls:

The tick period here is adjusted minutes and as per the minutes the intradays calls

are generated. The candles figured in the intraday charts are represented as 5minutes for

each candle; RSI is maintained as 14 periods.

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5.1 POSITIONAL CALLS

STATE BANK OF INDIA

Figure 4.30: Chart for positional call of SBI

Moving average cross over – Buy MACD -- Buy

Candle stick -- Sell SMA -- Sell

Volumes -- Sell Last Price -- 2910.45

RSI -- Buy Recommended -- Sell

Table 4.3: Positional recommendation for SBI using technical indicators

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The call generated for above State Bank of India Ltd is to sell. The last traded price (LTP)

of the share on 28/04/11 is Rs2910.5 and the share price dipped down to Rs2313 as on

07/06/11. A negative difference of Rs597 is observed i.e. decrease of 20%.

INTERPRETATION

As per the technical indicators the short SMA is above the long SMA which means it’s a

good indication for the stock to hold.

The last candle formed failed to create new high than the previous candles formed

shows the stocks goes downtrend and the stock price decreases.

The volumes that traded on that day are good in number but when compared to the

previous days the volumes are same as the previous days, so if any more volumes are traded

then the stock is said to be in bullish. As if now it’s good to exit.

RSI shows it’s around 50 and it looks in downward trend, its recommended as to

quit this stock.

MACD is positive which means a good indication for the stock.

The short SMA line should be below the candle but here it touches the candle which

is not a good indication.

Here half the indicators recommend to sell and half to hold or buy, as candle sticks

are observed very well at this time this stock is recommended to sell. This stock is mostly

affected by its quarter results which disappointed the investors.

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STEEL AUTHORITY OF INDIA LTD

Figure 4.31: Chart for positional call of SAIL

Table 4.4: Positional recommendation for SAIL using technical indicators

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Moving average cross over – Sell MACD -- Buy

Candle stick -- Sell SMA -- Sell

Volumes -- Buy Last Price -- 167.20

RSI -- Buy Recommended -- Sell

The call generated for above Steel Authority of India Ltd is to sell. The last traded price

(LTP) of the share on 28/04/11 is Rs167.2 and the share price dipped down to Rs145.30 as

on 07/06/11. A negative difference of Rs21.9 is observed i.e. decrease of 13%.

INTERPRETATION

As per the technical indicators the short SMA is below the long SMA which means it’s not

a good indication for the stock to hold.

The last candle formed failed to create new high than the previous candle and the

candles pattern indicates bearish so it is better to exit from this stock and be safe.

The volumes that traded on that day are good in number when compared to the

previous days and are expected to be good in future, so recommended good stock.

RSI shows it’s around 30 and still it looks downward trend, at a level it starts an

uptrend and then rises, this might be a positive indication.

MACD is positive which means a good indication for the stock.

The short SMA line should be below the candle but here it touches the candle which

is not a good indication.

Here half the indicators recommend to sell and half to hold or buy, as candle sticks

are observed very well at this time this stock is recommended to sell.

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ALLIED DIGITAL SERVICES LTD

Figure 4.32: Chart for positional call of Allied Digital Services Ltd.

Moving average cross over -- Buy MACD -- Buy

Candle stick -- Sell SMA -- Sell

Volumes -- Sell Last Price -- 90.75

RSI -- Sell Recommended -- Sell

Table 4.5: Positional recommendation for ADSL using technical indicators

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The call generated for above scrip Allied Digital Services Ltd is sell. The last traded price

(LTP) of the share on 29/04/11 is Rs90.75 and the share price dipped down to Rs46.65 as

on 07/06/11. A negative difference of Rs44.10 is observed i.e. decrease of 48.5%.

INTERPRETATION

As per the technical indicators the short SMA is below the long SMA which means it’s not

a good indication for the stock to hold.

The last candle formed failed to create new high than the previous candle and the

stock is recommended not to hold.

The volumes that traded on that day are low and the stock cannot be recommended

for a buy call or to hold.

RSI is around 60 and it shows downward trend which tends the price to fall down,

and this kind of stock is not recommended to hold.

MACD is positive which means a the stock can be held for a short term.

The short SMA line should be below the candle but here it touches the candle which

is not a good indication.

More number of indicators recommends selling this stock.

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INFINITE COMPUTER SOLUTIONS INDIA LTD.

Figure 4.33: Chart for positional call of Infinite computer solutions ltd

Moving average cross over -- Sell MACD -- Sell

Candle stick -- Sell SMA -- Sell

Volumes -- Sell Last Price -- 165.45

RSI -- Buy Recommended -- Sell

Table 4.6: Positional recommendation for Infinite computer solutions ltd using technical

indicators

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The call generated for above scrip Infinite Computer Solutions India Ltd is sell. The last

traded price (LTP) of the share on 02/05/11 is Rs165.45 and the share price dipped down to

Rs134.10 as on 07/06/11. A negative difference of Rs31.35 is observed i.e. decrease of

18.9%.

INTERPRETATION

As per the technical indicators the short SMA is below the long SMA which means it’s not

a good indication for the stock to hold.

The last candle formed failed to create new high than the previous candle and the

candle shows long shadow than the body, it is recommended not to hold this stock.

The volumes that traded on that day are very high and that did not happen on the

previous days and it might be a false indication. For short term investment it is not good to

hold this stock.

RSI shows below 30 i.e. it is at oversold position which means the next day the

price of the stock rises, which indicates to hold this stock.

MACD is negative which means a bad indication for the stock.

The short SMA line should be below the candle but here it touches the candle which

is not a good indication.

More number of indicators recommends selling this stock.

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SHIVA TEXYARN LTD

Figure 4.34: Chart for positional call of Shiva Texyarn

Moving average cross over -- Buy MACD -- Buy

Candle stick -- Sell SMA -- Sell

Volumes -- Sell Last Price -- 53.50

RSI -- Sell Recommended -- Sell

Table 4.7: Positional recommendation for Shiva Texyarn using technical indicators

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The call generated for above scrip Shiva Texyarn Ltd is sell. The last traded price (LTP) of

the share on 02/05/11 is Rs53.50 and the share price dipped down to Rs34.25 as on

07/06/11. A negative difference of Rs19.25 is observed i.e. decrease of 35%.

INTERPRETATION

As per the technical indicators the short SMA is above the long SMA which means it’s a

good indication for the stock to hold.

The last candle formed failed to create new high than the previous candle and the

candle shows long shadow than the body, it is recommended not to hold this stock.

The volumes that traded on that day are very high and that did not happen on the

previous days and it might be a false indication. For short term investment it is not good to

hold this stock.

RSI shows it’s around 50 and it looks downward trend, intimates that the investors

from this stock should take an exit position.

MACD is positive which means a good indication for the stock.

The short SMA line should be below the candle but here it touches the candle which

is not a good indication.

More number of indicators recommends selling this stock.

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MAN INDUSTRIES INDIA LTD

Figure 4.35: Chart for positional call of Man Industries Ltd.

Moving average cross over -- Buy MACD -- Buy

Candle stick -- Buy SMA -- Buy

Volumes -- Buy Last Price -- 98.50

RSI -- Sell Recommended -- Buy

Table 4.8: Positional recommendation for Man Industries ltd using technical indicators

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The call generated for above scrip Man Industries India Ltd. is buy. The last traded price

(LTP) of the share on 05/05/11 is Rs98.50 and the LTP on 07/06/11 is 124.15, the

difference observed is Rs+25.65 is observed i.e. increase of 26%.

INTERPRETATION

As per the technical indicators the short SMA is above the long SMA which means it’s a

good indication for the stock to hold.

The last candle formed creates new high than the previous candle and the candles

obtained looks bullish which yields good result confirms to hold this stock.

The volumes that traded on that day are good in number when compared to the

previous days and are expected to be good in future, so recommended good stock.

RSI shows around 90 which mean higher than the oversold region, it means the

price tends to fall so it is recommended to get out of this stock.

MACD is positive which means a good indication for the stock.

The short SMA line should be below the candle but here it shows the same and

recommended is to hold this stock.

Almost all the indicators recommend the stock to be held except RSI and can earn

good returns on this scrip.

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MBL INFRASTRUCTURES LTD

Figure 4.36: Chart for positional call of MBL Infrastructures

Moving average cross over – sell MACD -- sell

Candle stick -- buy SMA -- sell

Volumes -- neu Last Price --193.6

RSI -- buy Recommended --sell

Table 4.9: Positional recommendation for MBL Infrastructures using technical indicators

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The call generated for above scrip MBL Infrastructures Ltd is sell. The last traded price

(LTP) of the share on 10/05/11 is Rs193.6 and the share price dipped down to 154.20 as on

07/06/11. A negative difference of Rs39.4 is observed i.e. decrease of 20.3%.

INTERPRETATION

As per the technical indicators the short SMA is below the long SMA which means it’s not

a good indication for the stock to hold.

The last candle formed created new high than the previous candle which is good

indication and the previous candles formed are not good, but we can go for buy by the latest

candle formed, it can be recommended to hold this stock.

The volumes that traded on that day are not much high for the stock and can be

considered as neutral indication for this stock.

RSI shows below 30 i.e. it is at oversold position which means the next day the

price of the stock rises, which indicates to hold this stock.

MACD is negative which means a bad indication for the stock.

The short SMA line should be below the candle but here it touches the candle which

is not a good indication.

Here volumes can be considered as neutral and the indicators that recommend the

stock to sell are more, so it’s better to sell this stock.

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EXCEL CROP CARE LTD.

Figure 4.37: Chart for positional call of Excel crop care ltd

Moving average cross over -- Sell MACD -- Sell

Candle stick -- Sell SMA -- Sell

Volumes -- Sell Last Price -- 210

RSI -- Buy Recommended -- Sell

Table 4.10: Positional recommendation for Excel Crop care using technical indicators

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The call generated for above scrip Excel Crop Care Ltd is sell. The last traded price (LTP)

of the share on 13/05/11 is Rs210 and the share price dipped down to Rs163.50 as on

07/06/11. A negative difference of Rs46.5 is observed i.e. decrease of 22%.

INTERPRETATION

As per the technical indicators the short SMA is below the long SMA which means it’s not

a good indication for the stock to hold.

The last candle formed failed to create new high than the previous candle and the

candle indicates the shares of this security are sold out and this would further dip, this is not

good to hold the stock.

The volumes that traded on that day are very high and that did not happen on the

previous days and it might be a false indication. For short term investment it is not good to

hold this stock.

RSI shows it’s below 30 and still it looks downward trend, at a level it starts an

uptrend and then rises, this might be a positive indication.

MACD is positive which means a good indication for the stock.

The short SMA line should be below the candle but here it touches the candle which

is not a good indication.

More number of indicators recommends selling this stock.

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5.2 INTRADAY CALLS

HERO HONDAMOTORS LTD

Figure 4.38: Chart for intraday call of Hero Honda

RECOMMENDED

For the above scrip Hero Honda Motors Ltd. the call generated @ Rs 1785 at 13:40hrs is

sell on the day 08/06/11, by the end of the day i.e. at 15:30hrs the price of the stock dipped

to Rs 1764, the amount of reduced loss is Rs 21.

INTERPRETATION

In the above chart the candles started forming new lows when compared to the previous

candles and the action continued to go, which is a symbol to check out the stock for exit.

The down trend RSI shows the shares are in selling position.The volumes show the

shares are sold out in huge quantity this confirms to the investor that he should exit from

the stock.

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HINDUSTAN UNILIVER

Figure 4.39: Chart for intraday call of Hindustan Unilever

RECOMMENDED

The call generated for above scrip HUL is buy @ Rs 309 at 09:50hrs & 14:05hrs with a

stop loss @ Rs 307 on the day 08/06/11, by the end of market closing time i.e. at 15:30hrs

the price of the stock surged to Rs 315, profit yielded by the call is Rs 21.

INTERPRETATION

In the above chart at both the situations the candles formed new highs when compared to

the previous candles and after 14:05hrs the candles continued to move up enormously.

RSI is at 40 i.e. nearer to oversold position, it has more chances to rise.

The volumes were not in more number but maintaining the same during the day,

there was sudden increase in the quantity of the volumes trading which made the stock

move up to day high.

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ROLTA INDIA LTD

Figure 4.40: Chart for intraday call of Rolta India ltd

RECOMMENDED

Rolta India ltd the call generated for above scrip is to buy @ Rs 140.4 at 10:30hrs with a

stop loss @ Rs 139 on the day 08/06/11, the profit booked @ Rs 141.9 at 15:00hrs, the

profit amount is Rs 1.50.

INTERPRETATION

In the above chart at the candles formed very good highs than the previous ones which

indicate a good call to buy these shares.

RSI is at near to 70 and even then the candles were forming new highs it shows the

price rises and time to invest in this share.

The volumes trading are good, at 13:00 it looked like good rise in price and RSI

shows time to exit with maximum profit for the day.

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DR.REDDY'S LABORATORIES LTD

Figure 4.41: Chart for intraday call of Dr. Reddy Laboratories

RECOMMENDED

For the above scrip DrReddy Laboratories Ltd. the call generated @ Rs 1588 at 14:32hrs is

sell on 08/06/11, by the end of the day i.e. at 15:28hrs the price of the stock dipped to Rs

1572, the amount of reduced loss is Rs 12.

INTERPRETATION

In the above chart the candles started forming new lows when compared to the previous

candles and the action continued to go, which is a symbol to check out the stock for exit.

The down trend RSI shows the shares are in selling position.

The volumes show the shares are sold out in huge quantity this confirms to the

investor that he should exit from the stock.

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ADANI ENTERPRISES LTD

Figure 4.42: Chart for intraday call of Adani Enterprise Ltd.

RECOMMENDED

Adani Enterprises ltd the call generated for above scrip is to buy @ Rs 635 at 10:52hrs with

a stop loss @ Rs 631 on the day 09/06/11, the profit booked @ Rs 643.4 at 11:30hrs, a

profit of Rs 8.40 is carried by the investor.

INTERPRETATION

In the above chart at the candles formed very good highs than the previous ones indicating

bullish pattern which indicate a good call to buy these shares.

RSI is at more than 80 at 11:30hrs it shows the time to by booking profit that

obtained.

The volumes traded around 11:30hrs were the day high volumes, presumed that the

volumes quantity traded will not be traded again later so it’s time to exit from that stock.

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AXIS BANK

Figure 4.43: Chart for intraday call of Axis Bank

RECOMMENDED

Axis Bank the call generated for above scrip is to buy @ Rs 1234 at 12:30hrs with a stop

loss @ Rs 1228 on the day 09/06/11, the profit booked @ Rs 1242 at 13:10hrs, a profit of

Rs 8 is carried by the investor.

INTERPRETATION

In the above chart at the candles formed very good highs than the previous ones indicating

bullish pattern which indicate a good call to buy these shares.

RSI is at more than 40 and rising above the level indicating the stock rises.

The volumes weren’t showing any false trend trading in high quantity, so these

volumes trading are good in quantity and presumed by the candle sticks that the stock is

worth to buy and sell at good profit.

106

BHUSHAN STEEL LTD

Figure 4.44: Chart for intraday call of Bhushan steel

RECOMMENDED

For the above scrip Bhushan Steel Ltd. the call generated is sell @ Rs 437 at 10:06hrs on

09/06/11, within 20 minutes at 10:25hrs the price of the stock dipped to Rs 432, the amount

of reduced loss is Rs 5.

INTERPRETATION

In the above chart the candles started forming new lows when compared to the previous

candles and the action continued to go, which is a symbol to check out the stock for exit.

The volumes show the shares are sold out in huge quantity this confirms to the

investor that he should exit from the stock as soon as he can. The candles look completely

in a bearish form these are mostly recommended to sell as early as possible.

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HDFC BANK

Figure 4.45: Chart for intraday call of HDFC Bank

RECOMMENDED

Axis Bank the call generated for above scrip is to buy @ Rs 2355 at 13:02hrs with a stop

loss @ Rs 1228 on the day 09/06/11, the profit booked @ Rs 2370 at 13:12hrs, a profit of

Rs 8 is carried by the investor within 10minutes of trade.

INTERPRETATION

In the above chart at the candles formed very good highs than the previous ones indicating

bullish pattern which indicate a good call to buy these shares.

RSI is at more than 40 and rising above the level indicating the stock rises.

The volumes trading are of good quantity and this indicates the price of the share

increases and to earn good profits it’s recommended to invest in this stock.

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5.3 FACTORS THAT AFFECT STOCK MARKET

Economic factors

Political factors

Global Markets

RBI Policies

Inflation Rate

Financial Results

Economic Factors influence stock markets a lot, the factors in the country and around the

world. For example the bankrupt of Lehman Brothers made the world market to fall down

and which affected the Indian markets to follow the world markets, the Satyam computers

scandal which made the Indian stock market dip down and the share price of the company

dipped down reaching the lowest price of that stock

Political Factors also influence the stock market. In the country the ruling party scams are

affecting the stock market, the scams like 2G scam, Common Wealth Games scam and

freedom fighter Anna Hazare’s demand to implement Lokpal bill. These factors are

influencing stock market.

Global Markets are the major factors that affect Indian markets. The situation in the world

markets will be a replica in the Indian market. The fluctuations in the US markets like

NYSE, NASDAQ, DOWJONES and UK market London Stock Exchange and other

markets like Tokyo Stock Exchange, HENG SENG, NIKKEI these etc. markets influence

Indian markets a lot.

109

RBI Policies affect the market and more influenced is the banking sector. When central

bank brings changes in the repo rate the rate at which banks borrow from the RBI and the

reverse repo the rate at which RBI mops up funds from banks with these changes of the

rates the bank stocks shifts according to the rates.

Inflation Rate of a country is the rate at which prices of goods and services increase in its

economy. It is an indication of the rise in the general level of prices over time. Inflation is

the rate at which the cost of living increases. The cost of living is simply what it costs to

buy the goods and services you need to live. Inflation causes money to lose value because it

will not buy the same amount of a good or a service in the future as it does now or did in

the past.

Financial Results of that particular company affect the share value of that stock.

Customers in the market show interest in the stocks those who show good results i.e. who

show good profits in the succeeding quarters and years. For example considering SBI the

last quarter results of SBI showed 99% loss when compared to previous quarter, that is the

reason the share price of SBI plunged down to Rs.2230 from Rs.2910.

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6. SUMMARY

6.1 LIMITATIONS OF THE STUDY

The study is limited for a short period, due to which the study may not be detailed in

all respects.

There are many tools in technical analysis but i have incorporated my study using

six of them, which are important and widely used by technical analysts.

Due to time constrain all aspects are not covered in the study.

The study is limited to only 16 securities, 8 intraday calls and 8 positional calls.

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6.2 FINDINGS & SUGGESTIONS:

Volumes and candlesticks charts are the major, important and widely used

indicators in the present day around the world. The other indicators like RSI,

MACD, SMA crossovers are used for positional calls for the future

Before investing or trading in any particular stock the share holding pattern of

the company should be checked out. Higher the holding of FIIs than the

promoters is not good for investor to invest in that stock, those types of stocks

should be avoided and stocks with low volumes are also to be avoided.

Prefer the stocks which have good profits and show increasing profits when

compared to the previous results. Beware of the results and profits of the stocks

that you choose, during the results it’s advised to noticing the market, because

big cap companies like Reliance will influence the market a lot.

Considering the sectors to invest, for the long term investment it’s better to

invest in pharmacy & banking sectors.

The intraday trading and short term investing is done on basis of technical

analysis, but for long term investment we need to consider also the fundamental

analysis of those scrips.

Indian markets are mostly depended on global markets, so it’s recommended to

have a glance at the world markets before we invest in stocks in our market and

also many other factors like inflation, RBI policies, economic & socio-political

factors should be considered before we invest.

The daily news and press releases should be sighted for intraday and short term

these factors are more to be considered to gain short term benefits.

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6.3 CONCLUSION

Stock market is the term given to the act of trading company shares, stocks, and other

securities and its derivatives. The stock market has a number of players, which could be

range from an individual stockholder to a very large corporate trader. These players can be

anybody coming from any part of the world. Trading in the stock market can be done

privately with an attorney or with a professional stock exchange dealer who have the power

to execute the order.

For the most part, stock market is very volatile in nature and that's the reason why it

is so hard to predict. But due to persistent studies, the changes in the stock market can now

be calculated in a relatively acceptable precision. Here are the various efforts carried out by

stock market experts to predict the market's movements. Such a tool is Technical analysis

which helps the investors to identify the right stocks at right time with right amounts

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7. BIBLIOGRAPHY

www.nseindia.com

www.bseindia.com

www.nseguide.com

www.makemystocks.com

www.informedtrades.com

www.stockcharts.com

www.indiabulls.com

www.moneycontrol.com

www.tradersedgeindia.com

www.economictimes.indiatimes.com

www.wikipedia.com

www.encyclopedia.com

www.performancetrading.it

www.capitalmarket.com

www.ebscohost.com

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