technical analysis along with few indicators like star patterns,MACD,RSI.Williams %R , Stocahstic Indicator, Money Flow Index

1. Technical Analysis
Presented By
Kanchan Agrawal
BBA 6th Semester

2. Introduction
 Technical Analysis is the forecasting of future stock price movements based on
an examination of past price movements.
 Technical analysts believe past trading activity and price changes of a security
can be valuable indicators of the security's future price movements.
 Technical analysis may be contrasted with fundamental analysis, which focuses
on a company's financials rather than historical price patterns or stock trends.

3. History of Technical Analysis
 Technical analysis is, perhaps, the oldest form of security analysis.
 The first technical analysis occurred in 17th century Japan, where analysts used
charts to plot price changes in rice.
 But whereas in Asia, technicalanalysis is said to be developed by Homma Munehisa (Fatherof
candlesticks) during early 18th century which evolved into the use of candlestick and is today a
technicalanalysis chartingtool.
 Laterin 20thcentury many technicalanalyzing tools weredeveloped and many books werewritten
byseveraltechnicalanalyststoforecast the directionof pricesof astock.

4. Charts
 Line
 Bar (OHLC)
 Candlestick
 OHLC Candle Stick

5. Charts of Tata Consultancy Services
• Line Chart

6. Charts of Tata Consultancy Services
 OHLC

7. Charts of Tata Consultancy Services
 Candle Stick

8. Indicators of Technical Analysis
 Candlestick Analysis (Three candle pattern)
 Evening Star
 Morning Star
 Moving Average
 Moving Average Convergence and Divergence(MACD)
 Momentum Oscillators
 (RSI) Relative Strength Index
 Stochastic Indicator
 William % R
 Money Flow Index

9. Candlestick Analysis
 Evening Star
 The Evening Star is a bearish, top trend reversal pattern that warns of a potential reversal of an uptrend. .
 Construction:
 First candle
 a candle in an uptrend
 Long white body
 Second candle
 white or black body
 the candle body is located above the prior body
 Trading range remains smaller
 Third candle
 black body
 the candle body is located below the prior body
 the candle closes at least halfway down the body of the first line

10. Example of Evening Star


11. Candlestick Analysis
 Morning Star
 The morning star is a bullish, bottom reversal pattern which warns of a potential reversal of a
downtrend.
 Construction
 First candle
 a candle in a downtrend
 black body
 Second candle
 white or black body
 the candle body is located below the prior body
 Third candle
 white body
 the candle body is located above the prior body
 the candle closes at least halfway up the body of the first line

12. Example of Morning Star

13. Moving Average
 Simple Moving Average
 The simple moving average (SMA) is the average price of a security over a specific period.
 Exponential Moving Average
 The exponential moving average (EMA) provides more weight to the most recent prices in an attempt
to better reflect new market data.
 Formula –
 Initial SMA = 10 period sum / 10
 Multiplier = (2/(Time Period)+1)
 EMA : {Close – EMA(previous day )} x Multiplier + EMA(previous day)

14. Moving Average Convergence Divergence
 The MACD ("Moving Average Convergence/Divergence")Line is the difference between two
moving averages of prices. The MACD was developed by Gerald Appel, publisher of Systems
and Forecasts.
 Calculation
 MACD can be calculated by subtracting the value of a 26 period Exponential Moving Average (EMA)
from a 12 period EMA.
 A nine day EMA of the MACD called the signal line is then plotted on the top of MACD line which
function as a trigger for buy and sell signals.

15. How MACD works
 When the MACD line crosses above the signal line, the indicator is considered bullish.
Thus traders should buy the security.
 When the MACD line crosses below the signal line, the indicator is considered bearish.
Thus traders should sell the security.

16. MACD OF ICICI Bank
MACD ICICI bank.xlsx

17. Relative Strength Index
 The Relative Strength Index (RSI) is a momentum oscillator that measures the speed and change of
price movements.
 RSI oscillates between 0 and 100.
 According to Wilder, RSI is considered overbought when above 70 and oversold when below 30.
 Calculation of RSI
 RSI = 100-[100/(1+RS)]
 RS =
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑔𝑎𝑖𝑛 𝑝𝑒𝑟 𝑑𝑎𝑦
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑙𝑜𝑠𝑠 𝑝𝑒𝑟 𝑑𝑎𝑦

18. Interpretation of RSI
 The RSI is one such indicator that analysts use to determine whether the asset is in an oversold or
overbought territory. If it shows a value less than 30, it indicates that the stock, or the index, is in
the oversold territory, while a value higher than 70 suggests an overbought status.
 Overbought – Overbought region refers to the case where RSI oscillator has moved into a region
of significant buying pressure relative to the recent past and is often an indication that an upward
trend is about to end.
 Similarly the oversold region refers to the lower part of momentum oscillator where there is a
significant amount of selling pressure relative to the past and is indicative of an end to downward
trend.

19. RSI of ICICI Bank

20. Williams %R
 Williams %R, also known as the Williams Percent Range, is a type
of momentum indicator that moves between 0 and -100 and
measures overbought and oversold levels.
 Readings from 0 to -20 are considered overbought. Readings from -80 to -100
are considered oversold.
 It compares a stock’s closing price to the high-low range over a specific period,
typically 14 days or periods.
 Overbought simply means the price is near the highs of its recent range, and
oversold means the price is in the lower end of its recent range.

21. Calculation of Williams %R
 The formula used to calculate Williams' %R is similar to the Stochastic Oscillator:
The Williams %R is calculated based on price, typically over the
last 14 periods.
1.Record the high and low for each period over 14 periods.
2.On the 14th period, note the current price, the highest price, and lowest price. It is now possible to fill
in all the formula variables for Williams %R.
3.On the 15th period, note the current price, highest price, and lowest price, but only for the last 14
periods (not the last 15). Compute the new Williams %R value.
4.As each period ends compute the new Williams %R, only using the last 14 periods of data.

22. William % R of ICICI Bank

23. Implication of Williams % R
William %R Indicator indicator is used in two ways:
a. To define overbought and oversold zone-
 One should book profit in buy side positions and should avoid new buy side
positions in an overbought zone.
 One should book profit in sell side positions and should avoid new sell side
positions in an oversold zone.
b. Look for Divergences- Divergences are of two types i.e. positive and negative.
 Positive Divergence-are formed when price makes new low, but William % R fails to
make new low. This divergence suggests a reversal of trend from down to up.
 Negative Divergence-are formed when price makes new high, but William % R fails to
make new high. This divergence suggests a reversal of trend from up to down.

24. Money Flow Index
 The money flow index (MFI) measures momentum in a security by showing the inflow and
outflow of money into a security over time.
 This is done through analyzing both price and volume.
 The MFI's calculation generates a value that is then plotted as a line that moves within a range
of 0-100, making it an oscillator.
 Calculation:-
 Money Flow Index = 100-
100
1+𝑀𝑜𝑛𝑒𝑦 𝐹𝑙𝑜𝑤 𝑅𝑎𝑡𝑖𝑜
Where : Money Flow Ratio =
14 𝑃𝑒𝑟𝑖𝑜𝑑 𝑃𝑜𝑠𝑖𝑡𝑖𝑣𝑒 𝑀𝑜𝑛𝑒𝑦 𝐹𝑙𝑜𝑤
14 𝑃𝑒𝑟𝑖𝑜𝑑 𝑁𝑒𝑔𝑎𝑡𝑖𝑣𝑒 𝑀𝑜𝑛𝑒𝑦 𝐹𝑙𝑜𝑤
Money Flow = Typical Price * Volume
Typical Price =
(𝐻𝑖𝑔ℎ+𝐿𝑜𝑤+𝐶𝑙𝑜𝑠𝑒)
3

25. Interpretation
a. To define overbought and oversold zone- Generally MFI reading above 80 is
considered overbought and MFI reading below 20 is considered oversold. It basically
suggests that:
 One should book profit in buy side positions and should avoid new buy side positions in an
overbought zone.
 One should book profit in sell side positions and should avoid new sell side positions in an
oversold zone
b. Look for Divergences- Divergences are of two types i.e. positive and negative.
 Positive Divergence-are formed when price is making new lows, but MFI fails to
break previous lows. This divergence suggests a reversal of trend from down to up
 Negative Divergence-are formed when price is making new highs, but MFI fails to
make new high. This divergence suggests a reversal of trend from up to down.

26. Money Flow Index of ICICI Bank

27. Stochastic Indicator
 In the late 1950s, George Lane developed stochastic, an indicator that measures the relationship
between an issue closing price and its price range over a predetermined period of time.
 Themost commonly14periodsstochasticisused.
 TheStochasticindicator isdesignatedby“%K”which isjust a mathematical representationof a
ratio.
 Amovingaverageof % K isthen calculatedwhich isdesignatedby% D.The most commonly
3period’s % Disused.

28. Interpretation
 Thestochasticindicator alwaysmovesbetween zeroandhundred, henceitis alsoknown asstochastic
oscillator.
 Most popularly stochasticindicator isusedin three ways:
a. To define overbought and oversold zone
 Generally stochastic oscillator reading above 80 is considered overbought and below 20 is considered oversold.
b. Buy when %K line crosses % D line(dotted line) to the upside in oversold zone and sell when %K
line crosses % D line(dotted line) to the downside in overbought zone.
c. Look for Divergences-
 Positive Divergence
 Negative Divergence

30. THANK YOU….