Chart analysis of various equity stocks, MBA finance project

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Primary objective: The study’s primary objective is to execute a through technical analysis on a select set of equity stocks by interpreting their price chart patterns and indicators to find out the key entry and exit points for trade to make good returns.

Recommendations :

To trade successfully, the use of technical indicators is highly recommended and mandatory to prevent losses.
Two (or) more indicators need to be used and trade should be executed on the consensus of their trend, entry and exit signals.
The recommended combo tools for technical analysis are 3 SMAs with RSI, Volume and Chaikin Money flow.
One should not completely rely on technical tools for trading, but also have a close watch on the economy, industry and the company performance and corporate actions.

Tools used:
1.Line Chart
2.Bollinger Bands
3.Chaikin Money Flow (Ch Mf)
4.Moving Average Convergence Divergence (MACD)
5.Relative Strength Index (RSI)
6.Simple Moving Average (SMA)
7.Exponential Moving Average (EMA)
8.Volume

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Chart analysis of various equity stocks, MBA finance project

  1. 1. 1. Introduction :1.1 Industry Profile :The BSE and NSE:Most of the trading in the Indian stock market takes place on its two stock exchanges: theBombay Stock Exchange (BSE) and the National Stock Exchange (NSE). The BSE has beenin existence since 1875. The NSE, on the other hand, was founded in 1992 and startedtrading in 1994. However, both exchanges follow the same trading mechanism, tradinghours, settlement process, etc. At the last count, the BSE had about 4,700 listed firms,whereas the rival NSE had about 1,200. Out of all the listed firms on the BSE, only about500 firms constitute more than 90% of its market capitalization; the rest of the crowdconsists of highly illiquid shares.Almost all the significant firms of India are listed on both the exchanges. NSE enjoys adominant share in spot trading, with about 70% of the market share, as of 2009, and almosta complete monopoly in derivatives trading, with about a 98% share in this market, also asof 2009. Both exchanges compete for the order flow that leads to reduced costs, marketefficiency and innovation. The presence of arbitrageurs keeps the prices on the two stockexchanges within a very tight range.Trading Mechanism: Trading at both the exchanges takes place through an open electronic limit order book, in which order matching is done by the trading computer. There are no market makers or specialists and the entire process is order-driven, which means that market orders placed by investors are automatically matched with the best limit orders. As a result, buyers and sellers remain anonymous. The advantage of an order driven market is that it brings more transparency, by displaying all buy and sell orders in the trading system. However, in the 1
  2. 2. absence of market makers, there is no guarantee that orders will be executed.All orders in the trading system need to be placed through brokers, many of which provideonline trading facility to retail customers. Institutional investors can also take advantage ofthe direct market access (DMA) option, in which they use trading terminals provided bybrokers for placing orders directly into the stock market trading system.Settlement Cycle and Trading Hours:Equity spot markets follow a T+2 rolling settlement. This means that any trade taking placeon Monday gets settled by Wednesday. All trading on stock exchanges takes place between9:55 am and 3:30 pm, Indian Standard Time (+ 5.5 hours GMT), Monday through Friday.Delivery of shares must be made in dematerialized form, and each exchange has its ownclearing house, which assumes all settlement risk, by serving as a central-counterparty.Market IndexesThe two prominent Indian market indexes are Sensex and Nifty. Sensex is the oldestmarket index for equities; it includes shares of 30 firms listed on the BSE, which representabout 45% of the indexs free-float market capitalization. It was created in 1986 andprovides time series data from April 1979, onward.Another index is the S&P CNX Nifty; it includes 50 shares listed on the NSE, whichrepresent about 62% of its free-float market capitalization. It was created in 1996 andprovides time series data from July 1990, onward.Market Regulation:The overall responsibility of development, regulation and supervision of the stock marketrests with the Securities & Exchange Board of India (SEBI), which was formed in 1992 as 2
  3. 3. an independent authority. Since then, SEBI has consistently tried to lay down market rules in line with the best market practices. It enjoys vast powers of imposing penalties on market participants, in case of a breach.1.2. Company Profile: VERTEX is a premier brokerage house in India on the fast growth track. In the last one- decade, we have emerged as a powerhouse in the financial services industry. We started functioning in the stock market in 1993. Over the years, we grew from strength to strength to become a major player in Indias broking services sector. Today VERTEX is one of the foremost brokerage houses, being a member of various exchanges in the capital and commodity markets. VERTEX is a member of the National Stock Exchange of India (NSE), the Bombay Stock Exchange, the National Multi Commodity Exchange of India Ltd (NMCEIL), the National Commodities Derivatives Exchange Ltd (NCDEX), and Multi Commodity Exchange of India Ltd (MCX). VERTEX is a full-fledged depository participant of the National Securities Depository Ltd. VERTEX constantly infuses quality into service. We provide our clients full expertise to play in the market with confidence. They avail full-fledged trading facilities and services through our nation-wide offices in securities and in commodities. To help our clients better, we have located our offices in major towns and placed highly qualified and experienced financial experts to man them. A team of dynamic finance professionals with decades of experience leads them. These professionals share a common vision not only to transform 3
  4. 4. the company into a highly professional organization, but also make their clients earn themaximum from their hard-earned money.Transwarranty Finance Limited (TFL) is a Mumbai (India) head quartered full serviceInvestment Bank providing a wide range of Financial Services to over 400 large and midcap companies and thousands of retail clients all over India since 1994.Since the activities are diverse and governed by different regulatory authorities, thebusinesses are structured under Transwarranty Finance Limited as the flagship companyand its subsidiary companies.Transwarranty Finance Limited is a Reserve Bank of India (RBI) registered Non BankingFinance Company (NBFC) with active business in Investment Banking, Corporate Finance,Project Finance, Real Estate & Infrastructure and Trade Finance.The board of directors of TFL comprises of eminent professionals like solicitor Mr. S. N.Talwar (Chairman), banker and author Mr. Raghu Palat, former Executive Director(Finance) of Godrej Industries Ltd Mr. K. K. Dastur, former director of Goldman SachsMr. Pravin Khatau and Mr. Kumar Nair (Managing Director), who was part of the coremanagement team in Kotak Mahindra Finance Limited till 1994.All the retail branches distribute and service the entire suite of retail finance products,which include “Equity Broking”, “Commodity Broking”, “Mutual Funds”, “IPOs”, “Otherinvestment products like RBI Bonds” etc. Other products like “Insurance”, “PersonalLoans”, “Forex – Money Changing”, “Money Transfer” etc shall be launched in duecourse.Over the past 12 years, Transwarranty Group has developed a strong client base comprising 4
  5. 5. of majority of the large and mid cap companies, most of the banks and financial institutions, Mutual funds and Asset Management Companies and thousands of retail clients.1.3. PRODUCT PROFILE:The various products and services that Vertex Securities offer are: 1. Equity 2. Commodity 3. Mutual Fund 4. Derivatives 5. Currency Futures 6. IPO 7. Online Trading1.4. ABOUT THE TOPIC:The topic, “A study on chart analysis on various equity stocks to determine the pricemovements” is the study of market action, using price charts, to forecast future price direction.The cornerstone of the technical philosophy is the belief that all of the factors that influencemarket price fundamental information, political events, natural disasters, and psychologicalfactors are quickly discounted in market activity. In other words, the impact of these externalfactors will quickly show up in some form of price movement, either up or down. Chartanalysis, therefore, is simply a short-cut form of fundamental analysis.A rising price reflects bullish fundamentals, where demand exceeds supply; falling priceswould mean that supply exceeds demand, identifying a bearish fundamental situation. Theseshifts in the fundamental equation cause price changes, which are readily apparent on a pricechart. The chartist is quickly able to profit from these price changes without necessarily 5
  6. 6. knowing the specific reasons causing them. The chartist simply reasons that rising prices areindicative of a bullish fundamental situation and that falling prices reflect bearishfundamentals.Another advantage of chart analysis is that the market price itself is usually a leading indicatorof the known fundamentals. Chart action, therefore, can alert a fundamental analyst to the factthat something important is happening beneath the surface and encourage closer marketanalysis.Charts Reveal Price Trends Markets move in trends. The major value of price charts is thatthey reveal the existence of market trends and greatly facilitate the study of those trends. Mostof the techniques used by chartists are for the purpose of identifying significant trends, to helpdetermine the probable extent of those trends, and to identify as early as possible when theyare changing direction.Types of Charts Available:The most popular type of chart used by technical analysts is the daily bar chart. Each barrepresents one day of trading. Japanese candlestick charts have become popular in recentyears. Candlestick charts are used in the same way as bar charts, but present a more visualrepresentation of the day’s trading. Line charts can also be employed. The line chart simplyconnects each successive day’s closing prices and is the simplest form of charting. 6
  7. 7. 7
  8. 8. Any Time Dimension:All of the above chart types can be employed for any time dimension. The daily chart, whichis the most popular time period, is used to study price trends for the past year. For longerrange trend analysis going back five or ten years, weekly and monthly charts can beemployed. For short-term (or day trading) purposes, intraday charts are most useful. [Intradaycharts can be plotted for periods as short as 1-minute, 5-minute or 15-minute time periods]. 8
  9. 9. 1.5. REVIEW OF LITERATURE:1.5.1. CHART ANALYSIS:SUPPORT AND RESISTANCE TRENDLINES AND CHANNELS:There are two terms that define the peaks and troughs on the chart. A previous trough usuallyforms a support level. Support is a level below the market where buying pressure exceedsselling pressure and a decline is halted.Resistance is marked by a previous market peak. Resistance is a level above the market whereselling pressure exceeds buying pressure and a rally is halted (See Figure 4-1). Support andresistance levels reverse roles once they are decisively broken. That is to say, a broken supportlevel under the market becomes a resistance level above the market. A broken resistance levelover the market functions as support below the market. The more recently the support orresistance level has been formed, the more power it exerts on subsequent market action. Thisis because many of the trades that helped form those support and resistance levels have notbeen liquidated and are more likely to influence future trading decisions (See Figure 4-2).The trendline is perhaps the simplest and most valuable tool available to the chartist. An uptrendline is a straight line drawn up and to the right, connecting successive rising marketbottoms. The line is drawn in such a way that all of the price action is above the trendlinedown trendline is drawn down and to the right, connecting the successive declining markethighs. The line is drawn in such a way that all of the price action is below the trendline. An uptrendline, for example, is drawn when at least two rising reaction lows (or troughs) are visible.However, while it takes two points to draw a trendline, a third point is necessary to identifythe line as a valid trend line. If prices in an uptrend dip back down to the trendline a thirdtime and bounce off it, a valid up trendline is confirmed (See Figure 4-3).Trendlines have two major uses. They allow identification of support and resistance levelsthat can be used, while a market is trending, to initiate new positions. As a rule, the longer a 9
  10. 10. trendline has been in effect and the more times it has been tested, the more significant itbecomes. The violation of a trend line is often the best warning of a change in trend.THE INTERPRETATION OF VOLUMEChartists employ a two-dimensional approach to market analysis that includes a study of priceand volume. Of the two, price is the more important. However, volume provides importantsecondary confirmation of the price action on the chart and often gives advance warning of animpending shift in trend (See Figure 9-1).Volume is the number of units traded during a given time period, which is usually a day. It isthe number of common stock shares traded each day in the stock market. Volume can also bemonitored on a weekly basis for longer-range analysis.When used in conjunction with the price action, volume tells us something about the strengthor weakness of the current price trend. Volume measures the pressure behind a given pricemove. As a rule, heavier volume (marked by larger vertical bars at the bottom of the chart)should be present in the direction of the prevailing price trend. During an uptrend, heaviervolume should be seen during rallies, with lighter volume (smaller volume bars) duringdownside corrections. In downtrends, the heavier volume should occur on price selloffs. Bearmarket bounces should take place on a lighter volume 10
  11. 11. MOVING AVERAGESIn the realm of technical indicators, moving averages are extremely popular with markettechnicians and with good reason. Moving averages smooth the price action and make it easierto spot the underlying trends. Precise trend signals can be obtained from the interactionbetween a price and an average or between two or more averages themselves. Since themoving average is constructed by averaging several days’ closing prices, however, it tends tolag behind the price action. The shorter the average (meaning the fewer days used in itscalculation), the more sensitive it is to price changes and the closer it trails the price action. Alonger average (with more days included in its calculation) tracks the price action from agreater distance and is less responsive to trend changes. The moving average is easilyquantified and lends itself especially well to historical testing. Mainly for those reasons, it isthe mainstay of most mechanical trend-following systems. 11
  12. 12. Popular Moving Averages:Bollinger Bands:These are trading bands plotted two standard deviations above and below a 20-day movingaverage. When a market touches (or exceeds) one of the trading bands, the market isconsidered to be over-extended. Prices will often pull back to the moving average line.Moving Average Convergence Divergence (MACD):The MACD is a popular trading system. On your computer screen, you’ll see two weightedmoving averages (weighted moving averages give greater weight to the more recent priceaction).Trading signals are given when the two lines cross.OSCILLATORS:Oscillators are used to identify overbought and oversold market conditions. The oscillator isplotted on the bottom of the price chart and fluctuates within a horizontal band. When theoscillator line reaches the upperlimit of the band, a market is said to be overbought and vulnerable to a short-term setback.When the line is at the bottom of the range, the market is oversold and probably due for arally. The oscillator helps to measure market extremes and tells the chartist when a marketadvance or decline has become overextended.Relative Strength Index (RSI):This is one of the most popular oscillators used by technical traders. The RSI scale is plottedfrom 0 to 100 with horizontal lines drawn at the 70 and 30 levels. An RSI reading above 70 isconsidered to be overbought. An RSI reading below 30 is considered to be oversold. The mostpopular time periods for the RSI are 9 and 14 days (See Figure 13-1). 12
  13. 13. Stochastics:This oscillator is also plotted on a scale from 0 to 100. However, the upper and lower lines(marking the overboughtand oversold levels) are at the 80 and 20 levels. In other words, readings above 80 areoverbought, while readings below 20 are oversold. One added feature of stochastics is thatthere are two oscillator lines instead of one. (The slower line is usually a 3-day movingaverage of the faster line). Trading signals are given when the two lines cross.A buy signal isgiven when the faster line crosses above the slower line from below 20.A sell signal is givenwhen the faster line crosses beneath the slower line from above 80.The time period used bymost chart analysts is fourteen days (See Figure 13-2). 13
  14. 14. Any Time Dimension: As is the case with most technical indicators, these oscillators can be employed in any time dimension. That means they can be used on weekly, daily, and intraday charts. It’s a good idea to use the same time span in all time dimensions. When plotting the stochastics lines, for example, use 14 weeks on the weeklychart, 14 days on the daily chart, and 14 hours on an hourly chart, etc. Another reason forkeeping the same numbers is that computers allow you to switch back and forth betweenweekly, daily, and intraday charts with a keystroke. Using the same time spans in all timedimensions makes your work a lot easier. 14
  15. 15. Chaikin Money Flow:Chaikin Money Flow (CMF) is an oscillator that fluctuates between -1 and +1. Rarely, ifever, will the indicator reach these extremes. It would take 20 consecutive closes on the high(low) for 20-day Chaikin Money Flow to reach +1 (-1). Typically, this oscillator fluctuatesbetween -.50 and +.50 with zero as the centerline.Chaikin Money Flow measures buying and selling pressure for a given period of time. Amove into positive territory indicates buying pressure, while a move into negative territoryindicates selling pressure.Chartists can use the absolute value of Chaikin Money Flow to confirm or question the priceaction of the underlying. Positive CMF would confirm an uptrend, but negative CMF wouldcall into question the strength behind an uptrend. The reverse holds true for downtrends. 15
  16. 16. 1.6. NEED FOR THE STUDY:Successful participation in the financial markets virtually demands some mastery of chartanalysis. Consider the fact that all decisions in various markets are based, in one form oranother, on a market forecast. Whether the market participant is a short-term trader or long-term investor, price forecasting is usually the first, most important step in the decision-makingprocess. To accomplish that task, we need to study the Technical analysis.Technical or chart analysis, by contrast, is based on the study of the market action itself.While fundamental analysis studies the reasons or causes for prices going up or down,technical analysis studies the effect, the price movement itself.That’s where the study of price charts comes in. Chart analysis is extremely useful in theprice-forecasting process. Charting can be used by itself with no fundamental input, or inconjunction with fundamental information. Price forecasting, however, is only the first step inthe decision-making process.Market Timing:The second, and often the more difficult, step is market timing. For short-term traders, minorprice moves can have a dramatic impact on trading performance. Therefore, the precise timingof entry and exit points is an indispensable aspect of any market commitment. To put itbluntly, timing is everything in the stock market. For reasons that will soon become apparent,timing is almost purely technical in nature. This being the case, it can be seen that theapplication of charting principles becomes absolutely essential at some point in the decision-making process. 16
  17. 17. 1.7. SCOPE OF STUDY:Some of the crucial questions being asked by Forex traders include "Is the market overpriced?”,"Which levels are the good entry points?"Trading would become much easier, if one would know the answers to such questions.Though an accurate forecast of future prices is a difficult task, technical analysis makes itsimpler to handle.Technical analysis includes the study of chart patterns, candlesticks, moving averages, andother indicators. It is easy to apply in any market, in which the raw data (prices and volume) isavailable. With the help of technical analysis, it is easy to understand the sentiments(psychology) of the market and to forecast the prices, without looking at the fundamentalfactors of a particular currency.Trend Analysis:The biggest advantage of technical analysis is that is helps investors and traders predict thetrend of the market. Up trend, downtrend, and sideways moves of the market are easy topredict, with the help of chart analysis.Entry/Exit Point:Timing plays an important role in trading and investing. With the help of technical analysis,traders and investors can predict the right time to enter and exit a trade thereby enabling goodreturns. Chart patterns, candlesticks, moving averages, Elliot wave analysis, and otherindicators are very useful for traders to make entry and exit points. 17
  18. 18. Provides Early Signal:Technical analysis gives early signals and also paints a picture about the psychology ofinvestors and traders regarding what they are doing. Price-volume analysis also indicates themovement of market makers and their activities related to a particular market. Another mainadvantage of technical analysis is that it gives an early signal when it comes to trend reversal.Quick and Less Expensive:In currency trading, technical analysis is less expensive as compared to the fundamentalanalysis and there are so many companies that provide free charting software. Technicalanalysis gives a quick result for traders who use 1 minute, 5 minutes, 30 minutes, and 1 hourcharts. For instance, the formation of a head and shoulder on 1 minute and 5 minutes chartgives fast results, as compared to the daily chart.Provides Lots of Information:Technical analysis is helpful for short term trading, swing trading, and long term investing.Technical charts provide a lot of information that helps the traders and investors build theirpositions and take trades. Information like support, resistance, chart pattern, momentum of themarket, volatility, and trader’s psychology are just some examples of types of informationprovided by technical analysis and used by traders in the Forex market. 18
  19. 19. 2. RESEARCH OBJECTIVES:2.1 Primary Objective: The study’s primary objective is to execute a through technical analysis on a select set of equity stocks by interpreting their price chart patterns and indicators to find out the key entry and exit points for trade to make good returns.2.2 Secondary Objective: To find out the support and resistance levels of individual stocks with the help of past price behavior and guide individuals to make entry and exit. To apply the technical indicators and identify the buy and sell situations. To understand the pattern formation and breakout levels for ideal entries. 19
  20. 20. 3. RESEARCH METHODOLOGY:Research methodology is a way to systematically solve the research problem. It may beunderstood as a science of studying how research is done scientifically. It is necessary forthe researcher to know not only the research methods/techniques, but also themethodology.Research Design:A research design is the arrangement of conditions for collection and analysis of data in amanner that aims to combine relevance to the research purpose with economy inprocedure. In fact, the research design is the conceptual structure within which research isconducted. It constitutes the blue print for the collection, measurement and analysis ofdata.3.1. Analytical research:The research design carried out is analytical research design. This research will mainlydeal on facts or information already available, and analyze them to make a criticalevaluation of the material and finding a solution to the problem. The analytical researchis mainly done based on the secondary data which is already published.3.2. Sources of Data:Secondary data means data that are already available in the hands of the public which arecollected by the government, companies, regulatory authority to ensure the transparencyin the trading activity. The secondary data may either be published or unpublished.Published data will be available in News papers Websites Journals, books Reports by management, scholars, researchers, brokers ets… 20
  21. 21. As this study involves usage of secondary data, such as the price of the scrip for the day and volume of the scrip. This data will contain the day’s high, low, open and close prices of the scrip which will help in formulating the chart and hence this information will be analyzed to solve the problem.3.3. Area of study:The area of study involves various equity stocks chosen from various industries withrespect to National stock exchange (NSE).3.4. Sampling Plan:A sample design is a definite plan for obtaining a sample from a given population. Itrefers to the technique of the procedure the researcher would adopt in selecting items forthe sample. Sample design may as well lay down the number of items to be included inthe sample i.e., the size of the sample. Sample design is determined before data arecollected.Judgmental sampling:Judgment sampling involves the choice of subjects who are most advantageously placedor in the best position to provide the information required. Judgment sampling maycurtail the generalizability of the finding due to the fact that we are using a sample ofexperts who are conveniently available to us. However it is the only viable samplingmethod for obtaining the type of information that is required from very specific pocketsof people who are very knowledgeable are included in the sample. 21
  22. 22. 3.4.1. Sample Size:The sample size of the research study consists of the following companies listed in theNational Stock Exchange.They are as follows: 1. Asian paints 2. Axis Bank 3. BPCL 4. Infosys 5. ITC3.5. Tools needed for analysis and data interpretation: 1. Line Chart 2. Bollinger Bands 3. Chaikin Money Flow (Ch Mf) 4. Moving Average Convergence Divergence (MACD) 5. Relative Strength Index (RSI) 6. Simple Moving Average (SMA) 7. Exponential Moving Average (EMA) 8. Volume 22
  23. 23. 4. Limitations of the Study:1. Misleading Concept of Technical Analysis: The first thing we are misguided by theTechnical Analysis is the core principal of Technical Analysis which define historyrepeat its self. History often repeats its self but not all the time. Some time we see it neverrepeat or sometime it takes long time to be repeated. So investors or traders should take alook of this misleading concept before use of Technical Analysis.2. Partial use Of Technical Analysis: If you are familiar with phrase of “A littleknowledge is a dangerous thing” This is the most appropriate phrase for investors andtraders in financial market. We see investor and trader learn a little part of technicalanalysis and use it and at the end result the partial uses of technical analysis fail most ofthe case of financial market. Never try to use your partial knowledge of TechnicalAnalysis cause its drop down you most of times of your investment life cycle.3. Misunderstand of Technical Indicators Direction: Many investors and traders aretrapped by the direction of technical indicators. As many of the technical indicators doestwork in most of the case its give false buy or sell signal. The technical indicators havebeen created on the basic concept of market movement and mathematical calculation. Soinvestor or trader who wants to use this sort of indicators they should have the coreconcept and calculation of that indicator and use it after analysis of present marketmovement.4. Unconsciously uses of Technical Analysis without a System: Technical Analysis is abroad concept and a systematic approach of determining the future price movement. Anyinvestors or traders cannot use in unconsciously. He may have good knowledge ontechnical analysis but if they do not use it in appropriate way it may be bring a dangeroussituation. Technical Analysis can only work with long term value of your investmentwhen you use it in a systematic way. The systematic way refers to control emotions orpsychological development and an idea of your portfolio management. 23
  24. 24. 5. Certain Powerful Control Fail the Technical Analysis: we are very much familiarwith market maker who can manipulates market any time during trading session. Marketmakers are the powerful market controllers who always trade against most of the traderswith huge volume of trade. Technical Analysis doest work in case of market makershandling as market doest moves in a certain level when they enter into the market. Sowhen we will use technical analysis we should keep it mind of their powerful control ofMarket maker. 24
  25. 25. 5. Data Analysis and Interpretation:Technical Analysis of Asian Paints:Line Chart:Interpretation:Buy analyzing the above price trend; we come to know that the support level held verystrong at the levels indicated as “black stars” and the resistance levels held good at theindicated “red stars”. 25
  26. 26. Bollinger Bands:Interpretation:Bollinger Bands, a chart indicator developed by John Bollinger, is used to measure amarkets volatility. Basically, this little tool tells us whether the market is quiet orwhether the market is loud. When the market is quiet, the bands contract and when themarket is loud, the bands expand.By analyzing the above BBand, we can infer that the Asian paint stock prices increasedwhile the bands expanded during time frames (5 Nov 2102, 27 Nov 2012, 29 Jam 2013and 7 Mar 2013) and the prices went down during the band contractions during (28 Dec2012, 22 Feb2013 and 1 April 2013) throughout the 6 months observation period for thisanalysis. 26
  27. 27. Simple Moving Average:A crossover occurs when a faster Moving Average (i.e. a shorter period MovingAverage) crosses either above a slower Moving Average (i.e. a longer period MovingAverage) which is considered a bullish crossover or below which is considered abearish crossover.From the analysis, we can find out that the SMA (10) crosses the SMA (50) from abovewhich indicates an uptrend, a bullish pattern from 5 March 2013 for recorded prices asfollows. Open = 4347, High= 4450, Low= 4292, Close= 4434.9 and Volume =78527units. 27
  28. 28. Chaikin Money Flow:Positive CMF would confirm an uptrend, but negative CMF would call into question thestrength behind an uptrend. The reverse holds true for downtrendsThe highest value of CMF was +.3 during 19 March 2013.The lowest CMF value was -.17 during 14 Jan 2013.The CMF values went below the Zero line 3 times and sustained for certain periodsduring 23 Oct 2012, 01 Jan 2013 and 28 Feb 2013. 28
  29. 29. Moving Average Convergence Divergence:The MACD Line oscillates above and below the zero line, which is also known as thecenterline.Positive MACD indicates that the 12-day EMA is above the 26-day EMA. Positivevalues increase as the shorter EMA diverges further from the longer EMA. This meansupside momentum is increasing.Negative MACD values indicate that the 12-day EMA is below the 26-day EMA.Negative values increase as the shorter EMA diverges further below the longer EMA.This means downside momentum is increasing. 29
  30. 30. Highest MACD (12, 26) = 134.47 was recorded on 20 March 2013.EMA (9) = 88.37Divergence = 46.1Lowest MACD (12, 26) = -26.35 was recorded on 04 March 2013EMA (9) = 4.86Divergence = =31.21MACD line was negative from 28 Feb 2013 till 07 March 2013. 30
  31. 31. Relative Strength Index:RSI oscillates between zero and 100.RSI is considered overbought when above 70 andoversold when below 30.RSI (14) values were above 70 and were overbought on the following trade days: 1. 07 Nov 2012 (70.98) 2. 08 Nov 2012 (72.5) 3. 09 Nov 2012 (75.64) 4. 30 Nov 2012 (71.81) 31
  32. 32. 5. 03 Dec 2012 (72.21) 6. 04 Dec 2012 (72.86) 7. 05 Dec 2012 (73.07) 8. 06 Dec 2012 (74.19) 9. 21 Dec 2012 (70.44) 10. 05 Feb 2013 (72.51) 11. 15 Mar 2013 (73.19) 12. 18 Mar 2013 (76.71) 13. 21 Mar 2013 (70.81)No RSI value is below 30. This means that the Asian Paints stocks were not oversold. 32
  33. 33. Volume Indicator:Volume precedes price. Typically, before a stock price moves, volume comes into play.Changes in volume can be used intra-day to determine short-term price movement orover several days to determine a stocks two to three day trend direction.The basic theory is this: if price and volume are moving in the same direction, the trendof the stock price will continue. If they are running counter to each other, the trend willreverse.Volume High of 309341 units was recorded at 15 March 2013.Volume Low of 8477 units was recorded at 13 Nov 2012. 33
  34. 34. Technical Analysis of Axis Bank:Line Chart:Interpretation:Buy analyzing the above price trend; we come to know that the support level held verystrong at the levels indicated as “black stars” and the resistance levels held good at theindicated “red stars”. 34
  35. 35. Bollinger Bands:Interpretation:Bollinger Bands, a chart indicator developed by John Bollinger, is used to measure amarkets volatility. Basically, this little tool tells us whether the market is quiet orwhether the market is loud. When the market is quiet, the bands contract and when themarket is loud, the bands expand.By analyzing the above BBand, we can infer that the Asian paint stock prices increasedwhile the bands expanded during time frames (17 Oct 2012, 23 Nov 2012, 28 Jon 2013,1 Mar 2013) and the prices went down during the band contractions during (11 Feb 2013and 13 Mar 2013) throughout the 6 months observation period for this analysis. 35
  36. 36. Simple Moving Average:A crossover occurs when a faster Moving Average (i.e. a shorter period MovingAverage) crosses either above a slower Moving Average (i.e. a longer period MovingAverage) which is considered a bullish crossover or below which is considered abearish crossover.For those traders that want more confirmation when they use Moving Averagecrossovers, the 3 Simple Moving Average crossover techniques could be used.The first crossover of the quickest SMA (in the example above, the 10-day SMA) acrossthe next quickest SMA (20-day SMA) acts as a warning that prices are reversing trend;however, usually a buy or sell order is not placed yet. 36
  37. 37. The second crossover of the quickest SMA (10-day) and the slowest SMA (50-day)finally triggers the buy or sell signal.From the analysis, we can find out that: SMA(10) crosses below SMA(20) on 20 Feb 2013 showing a warning that the price trends are reversing. SMA(10) crosses below SMA(50) on 01 Mar 2013 which is a sure buy signal. 37
  38. 38. Chaikin Money Flow:Positive CMF would confirm an uptrend, but negative CMF would call into question thestrength behind an uptrend. The reverse holds true for downtrendsThe highest value of CMF was +.25 during 06 Dec 2012.The lowest CMF value was -.15 during 05 Mar 2013. 38
  39. 39. The CMF values went below the Zero line 3 times and sustained for certain periodsduring 28 Feb 2013, 13 Mar 2013 and 05 Apr 2013.Moving Average Convergence Divergence:The MACD Line oscillates above and below the zero line, which is also known as thecenterline.Positive MACD indicates that the 12-day EMA is above the 26-day EMA. Positivevalues increase as the shorter EMA diverges further from the longer EMA. This meansupside momentum is increasing. 39
  40. 40. Negative MACD values indicate that the 12-day EMA is below the 26-day EMA.Negative values increase as the shorter EMA diverges further below the longer EMA.This means downside momentum is increasing.Highest MACD (12, 26) = 47.59 was recorded on 26 Oct 2012.EMA (9) = 43.26Divergence = 4.33Lowest MACD (12, 26) = -35.94 was recorded on 05 Apr 2013EMA (9) = -29.57Divergence = =-6.37MACD line was negative from 26 Feb 2013 till 05 Apr 2013. 40
  41. 41. Relative Strength Index:RSI oscillates between zero and 100.RSI is considered overbought when above 70 andoversold when below 30.RSI (14) values were above 70 and were overbought on the following trade days: 1. 29 Nov 2012 (72.99) 41
  42. 42. 2. 30 Nov 2012 (76.01) 3. 03 Dec 2012 (77.32) 4. 04 Dec 2012 (77.55) 5. 05 Dec 2012 (77.63) 6. 06 Dec 2012 (79.43) 7. 07 Dec 2012 (82.89) 8. 17 Dec 2012 (71.57) 9. 18 Dec 2012 (72.65) 10. 03 Jan 2013 (70.53) 11. 04 Jan 2013 (71.12) 12. 16 Jan 2013 (70.88) 13. 30 Jan 2013 (73.28) 14. 31 Jan 2013 (76.29) 15. 01 Feb 2013 (76.72) 16. 04 Feb 2013 (77.23)No RSI value is below 30. This means that the Axis bank stocks were not oversold. 42
  43. 43. Volume Indicator:Volume precedes price. Typically, before a stock price moves, volume comes into play.Changes in volume can be used intra-day to determine short-term price movement orover several days to determine a stocks two to three day trend direction. 43
  44. 44. The basic theory is this: if price and volume are moving in the same direction, the trendof the stock price will continue. If they are running counter to each other, the trend willreverse.Volume High of 9092773 units was recorded at 29 Jan 2013.Volume Low of 26330 units was recorded at 13 Nov 2012.Technical Analysis of BPCL:Line Chart:Interpretation:Buy analyzing the above price trend; we come to know that the support level held verystrong at the levels indicated as “black stars” and the resistance levels held good at theindicated “red stars”. 44
  45. 45. Bollinger Bands:Interpretation:Bollinger Bands, a chart indicator developed by John Bollinger, is used to measure amarkets volatility. Basically, this little tool tells us whether the market is quiet or 45
  46. 46. whether the market is loud. When the market is quiet, the bands contract and when themarket is loud, the bands expand.By analyzing the above BBand, we can infer that the Asian paint stock prices increasedwhile the bands expanded during time frames (11 Jan 2013 and 15 Jan 2013) and theprices went down during the band contractions during (22 Jan 2013 and 14 Mar 2013)throughout the 6 months observation period for this analysis.Simple Moving Average:A crossover occurs when a faster Moving Average (i.e. a shorter period MovingAverage) crosses either above a slower Moving Average (i.e. a longer period MovingAverage) which is considered a bullish crossover or below which is considered abearish crossover. 46
  47. 47. For those traders that want more confirmation when they use Moving Averagecrossovers, the 3 Simple Moving Average crossover techniques could be used.The first crossover of the quickest SMA (in the example above, the 10-day SMA) acrossthe next quickest SMA (20-day SMA) acts as a warning that prices are reversing trend;however, usually a buy or sell order is not placed yet.The second crossover of the quickest SMA (10-day) and the slowest SMA (50-day)finally triggers the buy or sell signal.From the analysis, we can find out that: SMA (10) crosses above SMA(20) on 5 Dec 2012 showing a warning for trend reversal. SMA(100 crosses above SMA(50) on Dec 2012 which is surely a sell sign. SMA(10) crosses below SMA(50) on 26 Dec 2012 which is a trend change warning. SMA(10) crosses above SMA(20) on 4 Jan 2013 which is again a trend change warning. SMA(10) crosses below SMA(20) on 11 Feb 2013 which is a tend change warning. SMA(10) crosses below SMA(50) on 26 Feb 2013 which is a clear sell signal. SMA(10) crosses above SMA(20) which is a trend change warning. SMA(10) crosses below SMA(20) which is a trend change warning. 47
  48. 48. Chaikin Money Flow:Positive CMF would confirm an uptrend, but negative CMF would call into question thestrength behind an uptrend. The reverse holds true for downtrends 48
  49. 49. The highest value of CMF was +.17 during 13 Feb 2013.The lowest CMF value was -.31 during 27 Nov 2012.From the chart, we can see that the CMF value was below the Zero line for the majorityof the observation period. Here, we can clearly see that a negative CMF may not meanthe fall in prices, but the strength behind a trend.Moving Average Convergence Divergence (MACD):The MACD Line oscillates above and below the zero line, which is also known as thecenterline. 49
  50. 50. Positive MACD indicates that the 12-day EMA is above the 26-day EMA. Positivevalues increase as the shorter EMA diverges further from the longer EMA. This meansupside momentum is increasing.Negative MACD values indicate that the 12-day EMA is below the 26-day EMA.Negative values increase as the shorter EMA diverges further below the longer EMA.This means downside momentum is increasing.Highest MACD (12, 26) = 19.54 was recorded on 23 Jan 2013.EMA (9) = 14.04Divergence = 5.5Lowest MACD (12, 26) = -6.23 was recorded on 26 Nov 2012.EMA (9) = -4.76Divergence = =-1.47MACD line was negative in the observation periods from 18 Oct 2012 – 04 Dec 2012, 18Feb 2013 – 11 Mar 2013 and from 19 Mar 2013 till the end of the observation period. 50
  51. 51. Relative Strength Index:RSI oscillates between zero and 100.RSI is considered overbought when above 70 andoversold when below 30. 51
  52. 52. RSI (14) values were above 70 and were overbought on the following trade days: 1. 08 Jan 2013 (73.07) 2. 21 Jan 2013 (78.68) 3. 22 Jan 2013 (79.78)No RSI value is below 30. This means that the BPCL stocks were not oversold.Volume Indicator:Volume precedes price. Typically, before a stock price moves, volume comes into play.Changes in volume can be used intra-day to determine short-term price movement orover several days to determine a stocks two to three day trend direction. 52
  53. 53. The basic theory is this: if price and volume are moving in the same direction, the trendof the stock price will continue. If they are running counter to each other, the trend willreverse.Volume High of 9101910 units was recorded at 18 Jan 2013.Volume Low of 69564 units was recorded at 13 Nov 2012.Technical Analysis of Infosys:Line Chart:Interpretation: 53
  54. 54. Buy analyzing the above price trend; we come to know that the support level held verystrong at the levels indicated as “black stars” and the resistance levels held good at theindicated “red stars”.Bollinger Bands:Interpretation: 54
  55. 55. Bollinger Bands, a chart indicator developed by John Bollinger, is used to measure amarkets volatility. Basically, this little tool tells us whether the market is quiet orwhether the market is loud. When the market is quiet, the bands contract and when themarket is loud, the bands expand.By analyzing the above BBand, we can infer that the Asian paint stock prices increasedwhile the bands expanded during time frames (10 Jan 2013 and 25 Feb 2013) and theprices went down during the band contractions during (9 Nov 2012, 8 Feb 2013 and 2Apr 2013) throughout the 6 months observation period for this analysis.Simple Moving Average: 55
  56. 56. A crossover occurs when a faster Moving Average (i.e. a shorter period MovingAverage) crosses either above a slower Moving Average (i.e. a longer period MovingAverage) which is considered a bullish crossover or below which is considered abearish crossover.For those traders that want more confirmation when they use Moving Averagecrossovers, the 3 Simple Moving Average crossover techniques could be used.The first crossover of the quickest SMA (in the example above, the 10-day SMA) acrossthe next quickest SMA (20-day SMA) acts as a warning that prices are reversing trend;however, usually a buy or sell order is not placed yet.The second crossover of the quickest SMA (10-day) and the slowest SMA (50-day)finally triggers the buy or sell signal.From the analysis, we can find out that: SMA(10) crosses below SMA(50) on 18 Oct 2012 which is a sure selling and exit point. SMA(10) crosses above SMA(20) at 09 Nov 2012 which is a trend change signal. SMA(10) crosses below SMA(20) at 20 Nov 2012 which is a trend change signal. SMA(10) crosses above SMA(20) at 29 Nov 2012, a trend change signal. SMA(10) crosses below SMA(20) on 13 DEC 2012, a trend change sign. SMA(10) crosses above SMA(50) 11 Jan 2013, which is a sure buy sign, an entry point. SMA(10) crosses below SMA(20) on 07 Feb 2013, a trend change signal. SMA(10) crosses above SMA(20) on 21 Feb 2013, a trend change sign. 56
  57. 57. Chaikin Money Flow: 57
  58. 58. Positive CMF would confirm an uptrend, but negative CMF would call into question thestrength behind an uptrend. The reverse holds true for downtrendsThe highest value of CMF was +.39 during 15 Jan 2013.The lowest CMF value was -.2 during 14 Dec 2012 till 18 Dec 2012.The CMF values went below the Zero line 2 times and sustained for certain periodsduring 06 Dec 2012 and 12 Feb2013.Moving Average Convergence Divergence (MACD): 58
  59. 59. The MACD Line oscillates above and below the zero line, which is also known as thecenterline.Positive MACD indicates that the 12-day EMA is above the 26-day EMA. Positivevalues increase as the shorter EMA diverges further from the longer EMA. This meansupside momentum is increasing.Negative MACD values indicate that the 12-day EMA is below the 26-day EMA.Negative values increase as the shorter EMA diverges further below the longer EMA.This means downside momentum is increasing.Highest MACD (12, 26) = 126.51 was recorded on 23 Jan 2013.EMA (9) = 95.45Divergence = 31.06Lowest MACD (12, 26) = -42.1 was recorded on 29 Oct 2012.EMA (9) = -26.02Divergence = =-16.08MACD line was negative in the observation periods from 15 Oct 2012 – 27 Nov 2012and from 07 Dec 2012 – 10 Jan 2013. 59
  60. 60. Relative Strength Index: 60
  61. 61. RSI oscillates between zero and 100.RSI is considered overbought when above 70 andoversold when below 30.RSI (14) values were above 70 and were overbought on the following trade days: 1. 14 Jan 2013 (80.99) 2. 15 Jan 2013 (83.69) 3. 18 Jan 2013 (79.62) 4. 22 Jan 2013 (78.56) 5. 24 Jan 2013 (76.88) 6. 25 Jan 2013 (77.32) 7. 28 Jan 2013 (78.18) 8. 26 Feb 2013 (74.39) 9. 27 Feb 2013 (77.36) 10. 07 Mar 2013 (71.85) 11. 08 Mar 2013 (74.54)No RSI value is below 30. This means that the Infosys stocks were not oversold. 61
  62. 62. Volume Indicator: 62
  63. 63. Volume precedes price. Typically, before a stock price moves, volume comes into play.Changes in volume can be used intra-day to determine short-term price movement orover several days to determine a stocks two to three day trend direction.The basic theory is this: if price and volume are moving in the same direction, the trendof the stock price will continue. If they are running counter to each other, the trend willreverse.Volume High of 11606571 units was recorded at 11 Jan 2013.Volume Low of 70407 units was recorded at 13 Nov 2012.Technical Analysis of ITC:Line Chart: 63
  64. 64. Interpretation:Buy analyzing the above price trend; we come to know that the support level held verystrong at the levels indicated as “black stars” and the resistance levels held good at theindicated “red stars”.Bollinger Bands:Interpretation: 64
  65. 65. Bollinger Bands, a chart indicator developed by John Bollinger, is used to measure amarkets volatility. Basically, this little tool tells us whether the market is quiet orwhether the market is loud. When the market is quiet, the bands contract and when themarket is loud, the bands expand.By analyzing the above BBand, we can infer that the Asian paint stock prices increasedwhile the bands expanded during time frames (16 Nov 2102 and 23 Jan 2013) and theprices went down during the band contractions during (12 Dec 2012, 19 Feb 2013 and 28Mar 2013) throughout the 6 months observation period for this analysis.Simple Moving Average (SMA):A crossover occurs when a faster Moving Average (i.e. a shorter period MovingAverage) crosses either above a slower Moving Average (i.e. a longer period Moving 65
  66. 66. Average) which is considered a bullish crossover or below which is considered abearish crossover.For those traders that want more confirmation when they use Moving Averagecrossovers, the 3 Simple Moving Average crossover techniques could be used.The first crossover of the quickest SMA (in the example above, the 10-day SMA) acrossthe next quickest SMA (20-day SMA) acts as a warning that prices are reversing trend;however, usually a buy or sell order is not placed yet.The second crossover of the quickest SMA (10-day) and the slowest SMA (50-day)finally triggers the buy or sell signal.From the analysis, we can find out that: SMA(10) crosses below SMA(20) on 06 Nov 2012, a trend change sign. SMA(10) crosses below SMA(50) on 16 Nov 2012 which is an entry point, a sure buy signal. SMA(10) crosses above SMA(20) on 29 Nov 2012, a trend change sign. SMA(10) crosses above SMA(50) 30 Nov 2012, a clear buy signal. SMA(10) crosses below SMA(20) on 21 Dec 2012, a trend change sign. SMA(10) crosses below SMA(50) on 27 Dec 2012, an exit point, a sure sell sign. SMA(10) crosses above SMA(20) on 24 Jan 2013, a trend change sign. SMA(10) crosses above SMA(50) on 25 Jan 2013, an entry point and a sure buy. SMA(10) crosses below SMA(20) on 19 Feb 2013, a trend change sign. SMA(10) crosses below SMA(50) on 26 Feb 2013, an exit point, a sure sell. SMA(10) crosses above SMA(20) on 15 Mar 2013, a trend change sign. SMA(10) crosses above SMA(50) on 19 Mar 2013, an exit point, a sure sell sign. 66
  67. 67. Chaikin Money Flow: 67
  68. 68. Positive CMF would confirm an uptrend, but negative CMF would call into question thestrength behind an uptrend. The reverse holds true for downtrendsThe highest value of CMF was +.48 during 22 Oct 2012 and 26 Oct 2012.The lowest CMF value was -.19 during 07 Mar 2013.The CMF values went below the Zero line 3 times and sustained for certain periodsduring 21 Nov 2012, 04 Jan 2013 and 27 Feb 2013.Moving Average Convergence Divergence (MACD): 68
  69. 69. The MACD Line oscillates above and below the zero line, which is also known as thecenterline.Positive MACD indicates that the 12-day EMA is above the 26-day EMA. Positivevalues increase as the shorter EMA diverges further from the longer EMA. This meansupside momentum is increasing.Negative MACD values indicate that the 12-day EMA is below the 26-day EMA.Negative values increase as the shorter EMA diverges further below the longer EMA.This means downside momentum is increasing.Highest MACD (12, 26) = 7.05 was recorded on 22 Oct 2012.EMA (9) = 5.13Divergence = 1.92Lowest MACD (12, 26) = -3.58 was recorded on 14 Jan 2013.EMA (9) = -2.4Divergence = =-1.18MACD line was negative in the observation periods on 20 Nov 2012, from 27 Dec 2012– 23 Jan 2013 and from 26 Feb 2013 – 12 Mar 2013. 69
  70. 70. Relative Strength Index (RSI): 70
  71. 71. RSI oscillates between zero and 100.RSI is considered overbought when above 70 andoversold when below 30.RSI (14) values were above 70 and were overbought on the following trade days:1. 16 Oct 2012 (71.64)2. 18 Oct 2012 (72.55)3. 19 Oct 2012 (75.18)4. 22 Oct 2012 (78.99)5. 13 Dec 2012 (70.45)6. 04 Feb 2013 (71.25)No RSI value is below 30. This means that the ITC stocks were not oversold. 71
  72. 72. Volume Indicator: 72
  73. 73. Volume precedes price. Typically, before a stock price moves, volume comes into play.Changes in volume can be used intra-day to determine short-term price movement orover several days to determine a stock’s two to three day trend direction.The basic theory is this: if price and volume are moving in the same direction, the trendof the stock price will continue. If they are running counter to each other, the trend willreverse.Volume High of 32229072 units was recorded at 28 Feb 2013.Volume Low of 670322 units was recorded at 13 Nov 2012. 6. FINDINGS:The various technical tools used in this study are as follows, Line Chart Bollinger Bands Simple Moving Average Chaikin Money Flow Moving Average Convergence Divergence (MACD) Relative Strength Index (RSI) Volume Indicator Technical analysis takes a completely different approach; it doesnt care one bit 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. 73
  74. 74.  It is important to be able to understand and identify trends so that you can trade with rather than against them. Two important sayings in technical analysis are "the trend is your friend" and "dont buck the trend," illustrating how important trend analysis is for technical traders. From our analysis using the various technical tools, we found that the SMA tool is the most effective of them all to identify the trend direction and the buy and sell signals. The more moving averages used will increase the accuracy in trend finding. 74
  75. 75. 7. RECOMMNDATIONS: To trade successfully, the use of technical indicators is highly recommended and mandatory to prevent losses. Two (or) more indicators need to be used and trade should be executed on the consensus of their trend, entry and exit signals. The recommended combo tools for technical analysis are 3 SMAs with RSI, Volume and Chaikin Money flow. One should not completely rely on technical tools for trading, but also have a close watch on the economy, industry and the company performance and corporate actions. 75
  76. 76. 8. CONCLUSIONS: Technical analysis is a particular approach to investing that will appeal to some investors and not to others. Whereas most investors concentrate on the fundamentals of a company (turnover, profits, growth etc), technical analysts are concerned with the share price itself. They believe that prices are driven by the psychology of investors rather than fundamentals. By understanding investor psychology, they can predict which way prices will move. The tool they use for making predictions is the chart. They plot price and volume data on a chart, and look for patterns and trends. There are numerous theories within technical analysis. They all depend on market psychology being predictable, and on chart patterns repeating themselves. By its nature, technical analysis tends to be useful for short-term trading rather than long-term investing. Technical analysis and fundamental analysis are two very different approaches, but one does not completely exclude the other. If you focus on fundamentals, it is still worth checking out the chart of a company you are about to buy or sell. Similarly, if you focus on technical signals, it is worth checking the fundamentals of companies. 76
  77. 77. 9. BIBLIOGRAPHY:Reference Books:1. Prassana chandran, Investment analysis and Portfolio management, New Delhi: TataMc Graw- Hill Publishing Company Limited 2002.2. Avadhani V A, Investment management, Mumbai : Himalaya Publishing House, 19983. Donald E. Fischer and Ronald. J. Jordan, Security Analysis and Portfolio ManagementNew Delhi: Prentice-Hall of India Private Limited.1998.4. S. Kevinn, Portfolio Management, New Delhi: Prentice Hall of India Private Ltd.1998.Reference Websites: 1. www.nseindia.com 2. www.moneycontrol.com 3. www.finance.yahoo.com 4. www.mcxindia.com 5. www.wikipedia.com 6. www.google.com 77

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