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Technical Analysis Project on N.S.E. listed companies


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Technical analysis project on Companies of National Stock Echange (NSE)

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Technical Analysis Project on N.S.E. listed companies

  1. 1. Project Report on Technical Analysis Submitted BY Rang Narayan Submitted to Amit Bagga P.G. “A” 11318
  2. 2. 1 ACKNOWLEDGEMENT I would like to thank Amit Bagga for providing me the opportunity to work on this project. My sincere thanks continue to our institute for providing me the opportunity to work on this project. It was a great part and a source of learning for me. Last but not the least, I would like to thank all the people who helped and contributed me knowingly or unknowingly during this project. Signature: Rang Narayan
  3. 3. 2 DECLARATION I Mr Rang Narayan declare that this project report is the record of authentic work carried out by me. This project has not been submitted to any other university or institute for the award of any degree or diploma. Rang Narayan 11318
  4. 4. 3 PREFACE Technical Analysis is the forecasting of future financial price movements based on an examination of past price movements. Like weather forecasting, technical analysis does not result in absolute predictions about the future. Instead, technical analysis can help investors anticipate what is "likely" to happen to prices over time. Technical analysis uses a wide variety of charts that show price over time. "One way of viewing it is that markets may witness extended periods of random fluctuation, interspersed with shorter periods of nonrandombehavior. The goal of the chartist is to identify those periods
  6. 6. 5 INTRODUCTION Technical analysis is applicable to stocks, indices, commodities, futures or any tradable instrument where the price is influenced by the forces of supply and demand. Price refers to any combination of the open, high, low, or close for a given security over a specific time frame. The time frame can be based on intraday (1-minute, 5-minutes, 10-minutes, 15-minutes, 30-minutes or hourly), daily, weekly or monthly price data and last a few hours or many years. In addition, some technical analysts include volume or open interest figures with their study of price action. The Basis of Technical Analysis At the turn of the century, the Dow Theory laid the foundations for what was later to become modern technical analysis. Dow Theory was not presented as one complete amalgamation, but rather pieced together from the writings of Charles Dow over several years. Of the many theorems put forth by Dow, three stand out:  Price Discounts Everything  Price Movements Are Not Totally Random  "What" Is More Important than "Why" Price Discounts Everything This theorem is similar to the strong and semi-strong forms of market efficiency. Technical analysts believe that the current price fully reflects all information. Because all information is already reflected in the price, it represents the fair value, and should form the basis for analysis. After all, the market price reflects the sum knowledge of all participants, including traders, investors, portfolio managers, buy-side analysts, sell-side analysts, market strategist, technical analysts, fundamental analysts and many others. It would be folly to disagree with the price set by such an impressive array of people with impeccable credentials. Technical analysis utilizes the information captured by the price to interpret what the market is saying with the purpose of forming a view on the future. Prices Movements are not Totally Random Most technicians agree that prices trend. However, most technicians also acknowledge that there are periods when prices do not trend. If prices were always random, it would be extremely difficult to make money using technical analysis. In his book, Schwager on Futures: Technical Analysis, Jack Schwager states: "One way of viewing it is that markets may witness extended periods of random fluctuation, interspersed with shorter periods of nonrandombehavior. The goal of the chartist is to identify those periods (i.e. major trends)." "What" is More Important than "Why" In his book, The Psychology of Technical Analysis, Tony Plummer paraphrases Oscar Wilde by stating, "A technical analyst knows the price of everything, but the value of nothing". Technicians, as technical analysts are called, are only concerned with two things: 1. What is the current price? 2. What is the history of the price movement? The price is the end result of the battle between the forces of supply and demand for the company's stock. The objective of analysis is to forecast the direction of the future price. By focusing on price and only price, technical analysis represents a direct approach. Fundamentalists are concerned with why the price is what it is. For technicians, the why portion of the equation is too broad and many times the fundamental reasons given are highly suspect. Technicians believe it is best to concentrate on what and never mind why. Why
  7. 7. 6 did the price go up? It is simple, more buyers (demand) than sellers (supply). After all, the value of any asset is only what someone is willing to pay for it. Who needs to know why? Technical Analysis Tools CHAPTER 1 1. Chart Analysis  Candlesticks Charts Patterns Analysis Candlestick Parts There are three main parts to a candlestick: Upper Shadow: The vertical line between the high of the day and the close (bullish candle) or open (bearish candle) Real Body: The difference between the open and close; colored portion of the candlestick Lower Shadow: The vertical line between the low of the day and the open (bullish candle) or close (bearish candle) Types of Candles: Bullish Candle: When the close is higher than the open (usually green or white) Bearish Candle: When the close is lower than the open (usually red or black)  Open-High-Close-Low (OHCL) charts: An open-high-low-close chart (also OHLC chart, or simply bar chart) is a type of chart typically used to illustrate movements in the price of a financial instrument over time. Each vertical line on the chart shows the price range (the highest and
  8. 8. 7 lowest prices) over one unit of time, e.g., one day or one hour. Tick marks project from each side of the line indicating the opening price (e.g., for a daily bar chart this would be the starting price for that day) on the left, and the closing price for that time period on the right. The bars may be shown in different hues depending on whether prices rose or fell in that period.  Line Charts: A style of chart that is created by connecting a series of data points together with a line. This is the most basic type of chart used in finance and it is generally created by connecting a series of past prices together with a line. Candlestick Analysis of IT sector companies A candlestick chart is a style of bar-chart used primarily to describe price movements of a security, derivative, or currency over time. It is a combination of a line-chart and a bar-chart, in that each bar represents the range of price movement over a given time interval. Candlesticks were invented by Japanese. The Japanese traders have been using candlestick charts to track market activity. Eastern analysts have identified a number of patterns to determine the continuation and reversal of trend. These patterns are the basis for Japanese candlestick chart analysis. This places candlesticks rightly as a part of technical analysis. Japanese candlesticks offer a quick picture into the psychology of
  9. 9. 8 short term trading, studying the effect, not the cause. Applying candlesticks means that for short-term, an investor can make confident decisions about buying, selling, or holding an investment. Analysis of Candlesticks patterns in HCL Technologies NSE Code: HCLTECH Data time period: 07.05.2013 to 14.02.2014 May 10th 2013, Doji Star: Doji are patterns with the same open and close price. It’s a significant reversal indicator. On May 10 th 2013 it’s a doji in an uptrend market and then market goes down which means Doji pattern has been successfully affect the market. July 17th 2013 Shooting Star: The Shooting Star candlestick formation is a significant bearish reversal candlestick pattern that mainly occurs at the top of uptrends. On 17th July 2013 there is a shooting star in uptrend market which means market will reverse but the volume is very low so we cannot say that the reverse pattern will continue or not. July 18th 2013 Bearish Engulfing: The Bearish Engulfing Candlestick Pattern is a bearish reversal pattern, usually occurring at the top of an uptrend. On the given date there is a bearish Engulfing candle but after that date the market didn’t go down so it is a failure of bearish Engulfing. August 22nd 2013 Bullish Engulfing: The Bullish Engulfing Candlestick Pattern is a bullish reversal pattern, usually occurring at the bottom of a downtrend. The bearish candle real body of Day 1 is usually contained within the real body of the bullish candle of Day 2. The power of the Bullish Engulfing
  10. 10. 9 Pattern comes from the incredible change of sentiment from a bearish gap down in the morning, to a large bullish real body candle that closes at the highs of the day. Bears have overstayed their welcome and bulls have taken control of the market. On 22nd Aug, 2013 bullish engulfing candle is there and after that market has change its sentiment and went up from next day. It is showing a strong reversal downtrend. October 23rd 2013 Hanging Man: The Hanging Man candlestick formation, as one could predict from the name, is a bearish sign. This pattern occurs mainly at the top of uptrends and is a warning of a potential reversal downward. It is important to emphasize that the Hanging Man pattern is a warning of potential price change, not a signal, in and of itself, to go short. The Hanging Man formation, just like the Hammer, is created when the open, high, and close are roughly the same price. Also, there is a long lower shadow, which should be at least twice the length of the real body. When the high and the open are the same, a bearish Hanging Man candlestick is formed and it is considered a stronger bearish sign than when the high and close are the same, forming a bullish Hanging Man (the bullish Hanging Man is still bearish, just less so because the day closed with gains). After a long uptrend, the formation of a Hanging Man is bearish because prices hesitated by dropping significantly during the day. Granted, buyers came back into the stock, future, or currency and pushed price back near the open, but the fact that prices were able to fall significantly shows that bears are testing the resolve of the bulls. What happens on the next day after the Hanging Man pattern is what gives traders an idea as to whether or not prices will go higher or lower. On 23rd Oct, 2013 there is a hanging man in uptrend market and then there is a bearish candle on the next day with a gap down from next day. November 25th , 2013 Inverted Hammer: The Inverted Hammer candlestick formation occurs mainly at the bottom of downtrends and is a warning of a potential reversal upward. It is important to note that the Inverted pattern is a warning of potential price change, not a signal, in and of itself, to buy. The Inverted Hammer formation, just like the Shooting Star formation, is created when the open, low, and close are roughly the same price. Also, there is a long upper shadow, which should be at least twice the length of the real body. When the low and the open are the same, a bullish Inverted Hammer candlestick is formed and it is considered a stronger bullish sign than when the low and close are the same, forming a bearish Hanging Man (the bearish Hanging Man is still considered bullish, just not as much because the day ended by closing with losses). After a long downtrend, the formation of an Inverted Hammer is bullish because prices hesitated their move downward by increasing significantly during the day. Nevertheless, sellers came back into the stock, future, or currency and pushed prices back near the open, but the fact that prices were able to increase significantly shows that bulls are testing the power of the bears. What happens on the next day after the Inverted Hammer pattern is what gives traders an idea as to whether or not prices will go higher or lower. In a downtrend there is an Inverted Hammer which reverse the market as seller came back to the market and bulls take over the bears from this day.
  11. 11. 10 14th January, 2014 Bearish Harami:A bearish Harami occurs when there is a large bullish green candle on Day 1 followed by a smaller bearish or bullish candle on Day 2. The most important aspect of the bearish Harami is that prices gapped down on Day 2 and were unable to move higher back to the close of Day 1. This is a sign that uncertainty is entering the market. On 14th Jan, 2014 there is a bearish harami candle is being made in the market. Company Name: MPHASI S LIMITED NSE CODE: MPHASIS DATA TIME PERIOD: 01-05-2013 TO 14-02-2014 GRAVESTONE DOJI: The Gravestone Doji is a significant bearish reversal candlestick pattern that mainly occurs at the top of uptrends. The Gravestone Doji is created when the open, low, and close are the same or about the same price (Where the open, low, and close are exactly the same price is quite rare). The most important part of the Graveston Doji is the long upper shadow. The long upper shadow is generally interpreted by technicians as meaning that the market is testing to find where supply and potential resistance is located. The construction of the Gravestone Doji pattern occurs when bulls are able to press prices upward. However, an area of resistance is found at the high of the day and selling pressure is able to push prices back down to the opening price. Therefore, the bullish advance upward was entirely rejected by the bears.
  12. 12. 11 Date Candlestick pattern Success/Failure 8-05-2013 Doji Star Success 14.05.2013 Gravestone Doji Failure 31.05.2013 Doji Success 14.06.2013 Inverted Hammer Failure 18.06.2013 Bullish Engulfing Success 02.07.2013 Doji No signal 03.07.2013 Hammer No signal 04.07.2013 Bullish Engulfing Success 19.07.2013 Bearish Engulfing 22.07.2013 Shooting Star Success 29.07.2013 Bearish Engulfing Failure 31.07.2013 Hanging Man success 5.08.2013 Hanging Man Success 07.08.2013 Bullish Engulfing Success 13.08.2013 Bearish Engulfing Success 12.09.2013 Bearish Harami Success 16.09.2013 Bearish Harami Success 09.10.2013 Bearish Engulfing Failure 21.10.2013 Shooting Star Success 22.10.2013 Bearish Engulfing Success 18.11.2013 Doji Success 27.11.2013 Inverted Hammer Success 02.12.2013 Inverted hammer Success 04.12.2013 Inverted hammer Success 05.12.2013 Bullish Engulfing Failure 10.12.2013 Doji Success 11.12.2013 Doji Failure 08.01.2014 Shooting Star Success 10.01.2014 Bearish Engulfing Failure 16.01.2014 Doji Failure 31.01.2014 Doji No Signal 03.02.2014 Doji No Signal 13.02.2014 doji Success
  13. 13. 12 Candlestick patterns for Pharmaceuticals companies Company Name: Piramal Enterprise Ltd. NSE code: PEL Data Record Date: 01.05.2013 to 19.02.2014 Date Candlestick Pattern Success / Failure 03.06.2013 Doji Success 10.06.2013 Doji Success 20.06.2013 Doji Success 26.06.2013 Bullish Engulfing Success 05.07.2013 Bullish Engulfing Failure 08.07.2013 Bearish Harami Success 09.07.2013 Shooting Star Success 10.07.2013 Bearish Engulfing Success 16.07.2013 Doji & Dragonfly Doji Success 22.07.2013 Bearish Harami Failure 16.09.2013 Doji Failure 26.09.2013 Bearish Engulfing Failure 15.10.2013 Bullish Engulfing Success 22.10.2013 Inverted Hammer Success 01.11.2013 Inverted Hammer Success 07.11.2013 Doji Success 08.11.2013 Doji Success 22.11.2013 Doji Success
  14. 14. 13 02.12.2013 Inverted Hammer Failure 11.12.2013 Doji Failure 17.12.2013 Shooting star Success 18.12.2013 Doji Success 27.12.2013 Bearish Engulfing Success 31.12.2013 Bearish Engulfing Success 07.01.2014 Bearish Harami Failure 13.01.2014 Doji Success 19.02.2014 Inverted Hammer Success Company Name: GlenmarkPharma NSE code: glenmark Data Record Date: 01.05.2013 to 19.02.2014 Date Candlestick Pattern Success / Failure 13.06.2013 Bearish engulfing success 14.06.2013 Doji Failure 19.06.2013 Shooting star Success 24.06.2013 Bullish engulfing Success 12.07.2013 Bearish engulfing Failure 17.07.2013 Bearish engulfing Failure 23.07.2013 Doji Failure
  15. 15. 14 25.07.2013 Bearish engulfing Failure 26.07.2013 Doji success 29.07.2013 Doji Success 30.08.2013 Doji Success 02.09.2013 Inverted hammer Failure 11.09.2013 Bullish engulfing Success 30.09.2013 Doji Failure 04.10.2013 Bullish engulfing Failure 11.10.2013 Bearish Engulfing success 15.10.2013 Bearish engulfing Failure 07.11.2013 Inverted hammer Success 22.11.2013 Inverted hammer Success 18.12.2013 Bearish engulfing Failure 20.12.2013 Shooting star Success 30.12.2013 Bearish engulfing Success 06.01.2014 Doji Success 10.01.2014 Hammer Success 22.01.2014 Bullish engulfing Success Candlestick patterns for FMCG companies Company Name: Imperial Tobacco Company of India Ltd. NSE code: ITC Data Record Date: 01.05.2013 to 19.02.2014
  16. 16. 15 Date Candlestick Pattern Success / Failure 09.05.2013 Doji Success 20.05.2013 Gravestone Doji Failure 17.06.2013 Hammer Success 19.06.2013 Doji Failure 21.06.2013 Doji Failure 02.07.2013 Doji Success 03.07.2013 Bullish Engulfing Success 15.07.2013 Doji Success 24.07.2013 Doji Success 23.08.2013 Doji Success 20.09.2013 Doji Success 25.09.2013 Bearish Engulfing Failure 03.10.2013 Bearish Engulfing No signal 11.10.2013 Bearish Engulfing Success 21.10.2013 Bearish Engulfing Success 24.10.2013 Doji Success 25.10.2013 Bearish Engulfing Success 29.11.2013 Bullish Engulfing Success 31.12.2013 Bearish Engulfing Failure 01.01.2014 Doji Success 03.01.2014 Doji Success 07.01.2014 Doji Failure
  17. 17. 16 09.01.2014 Hanging Man Success 22.01.2014 Hanging Man Success 05.02.2014 Bearish Harami Success Company Name: Colgate Palmolive (India) NSE code: COLPAL Data Record Date: 01.05.2013 to 20.02.2014 Date Candlestick Pattern Success / Failure 14.06.2013 Doji Success 09.07.2013 Doji Success 12.07.2013 Bearish engulfing Failure 22.07.2013 Doji Failure 25.07.2013 Bearish engulfing Success 31.07.2013 Doji Failure
  18. 18. 17 02.09.2013 Bullish engulfing success 03.09.2013 Bearish Engulfing Success 09.10.2013 Doji Success 08.11.2013 Bullish engulfing Failure 12.11.2013 Inverted hammer Success 21.11.2013 Inverted hammer Failure 22.11.2013 Inverted hammer Success 04.12.2013 Doji Success 12.12.2013 Bearish harami Success 17.12.2013 Doji Success 20.12.2013 Doji Failure 14.01.2014 Bearish engulfing Failure 21.01.2014 Bearish engulfing Failure 22.01.2014 doji Success 24.01.2014 Doji Success 12.02.2014 Hammer Success 20.02.2014 Shooting star success
  19. 19. 18 Chapter 2 Chart Patterns 2. Chart Patterns:A Price pattern is a pattern that is formed within a chart when prices are graphed. In stock and commodity markets trading, chart pattern studies play a large role during technical analysis. When data is plotted there is usually a pattern which naturally occurs and repeats over a period. Chart patterns are used as either reversal or continuation signals. Different chart patterns:  Double Top Pattern  Double Bottom Pattern  Support and Resistance  Head and Shoulder Pattern And there are many other patterns but in this project I am going to explain the above mentioned patterns.  Double Top Pattern:A term used in technical analysis to describe the rise of a stock, a drop, another rise to the same level as the original rise, and finally another drop. The double top looks like the letter "M". The twice touched high is considered a resistance level. The double-top pattern is found at the peaks of an upward trend and is a clear signal that the preceding upward trend is weakening and that buyers are losing interest. Upon completion of this pattern, the trend is considered to be reversed and the security is expected to move lower. The first stage of this pattern is the creation of a new high during the upward trend, which, after peaking, faces resistance and sells off to a level of support. The next stage of this pattern will see the price start to move back towards the level of resistance found in the previous run- up, which again sells off back to the support level. The pattern is completed when the security falls below (or breaks down) the support level that had backstopped each move the security made, thus marking the beginnings of a downward trend.
  20. 20. 19 Double Top Pattern: Company name: Ralles India Limited NSE Code: Rallis First high: 31.12.2013 @ Rs. 184.4 Second high: 07.01.2014 @ Rs. 184.9. Sell signal: 22nd Jan 2014 @ Rs. 169.1 when the market crosses the neck line or support level
  21. 21. 20  Double Bottom Pattern: The Double Bottom Reversal is a bullish reversal pattern typically found on bar charts, line charts and candlestick charts. As its name implies, the pattern is made up of two consecutive troughs that are roughly equal, with a moderate peak in-between. Note that a Double Bottom Reversal on a bar or line chart is completely different from Double Bottom Breakdown on a P&F chart. Namely, Double Bottom Breakdowns on P&F charts are bearish patterns that mark a downside support break. Although there can be variations, the classic Double Bottom Reversal usually marks an intermediate or long-term change in trend. Many potential Double Bottom Reversals can form along the way down, but until key resistance is broken, a reversal cannot be confirmed. Double Top and Double Bottom Pattern in HDFC Ltd. Time period: December 2013 – March 2014 NSE Code: hdfc First high: 16.01.2014 @Rs. 857.6 Second high: 23.01.2013 @ Rs. 856.15 Conformation line: 20. 01.2014 Sell Price with date: 27.01.2014 @ Rs 833 First low: 10.02.2014 @ Rs. 765.4 Second low: 13.02.2014 @ Rs. 766.05 Conformation signal: 12.02.2014 Buy Price with date: Rs.779.3 on 17.02.2014
  22. 22. 21  Support Level: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. Resistance Level: 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
  23. 23. 22 believed that supply will overcome demand and prevent the price from rising above resistance. Support and Resistance Level Company Name: PTC India Limited NSE Code: PTC Data Period: July 2013 – Feb. 2014 Support Level (I): 5/08/2013 @ Rs. 33.2 (II): 19/11/2013 @ Rs. 52.50 Resistance Level: 24/12/2013 @ Rs. 64.25
  24. 24. 23 Head and Shoulder Pattern:The head and shoulders pattern is generally regarded as a reversal pattern and it is most often seen in uptrends. It is also most reliable when found in an uptrend as well. Eventually, the market begins to slow down and the forces of supply and demand are generally considered in balance. Sellers come in at the highs (left shoulder) and the downside is probed (beginning neckline.) Buyers soon return to the market and ultimately push through to new highs (head.) However, the new highs are quickly turned back and the downside is tested again (continuing neckline.) Tentative buying re-emerges and the market rallies once more, but fails to take out the previous high. (This last top is considered the right shoulder.) Buying dries up and the market tests the downside yet again. Your trendline for this pattern should be drawn from the beginning neckline to the continuing neckline. (Volume has a greater importance in the head and shoulders pattern in comparison to other patterns. Volume generally follows the price higher on the left shoulder. However, the head is formed on diminished volume indicating the buyers aren't as aggressive as they once were. And on the last rallying attempt-the left shoulder-volume is even lighter than on the head, signaling that the buyers may have exhausted themselves.) New selling comes in and previous buyers get out. The pattern is complete when the market breaks the neckline. (Volume should increase on the breakout.)
  25. 25. 24 Company Name: GMR Infrastructure Limited NSE Code: gmrinfra Data Period: Apr. 2013 – Mar. 2014 Pattern: Head and Shoulder Pattern Left Shoulder @ date: 10th May 2013 Head @ date: 17th May 2013 Right Shoulder @ date: 28th May 2013
  26. 26. 25 Chapter 3 Major Indicators and Oscillators A Technical indicator is a mathematical formula applied to the security’s price, volume or open interest. The result is a value that is used to anticipate future changes in prices. A technical indicator is a series of data points derived by applying a formula to the price data of a security. Price data includes any combination of the open, high, low or close over a period of time. Some indicators may use only the closing prices, while others incorporate volume and open interest into their formulas. The price data is entered into the formula and a data point is produced. Technical analysts use indicators to look into a different perspective from which stock prices can be analysed. Technical indicators provide unique outlook on the strength and direction of the underlying price action for a given timeframe. Technical Indicators broadly serve three functions: to alert, to confirm and to predict. Indicator acts as an alert to study price action, sometimes it also gives a signal to watch for a break of support. A large positive divergence can act as an alert to watch for a resistance breakout. Indicators can be used to confirm other technical analysis tools. Some investors and traders use indicators to predict the direction of future prices. Indicators can broadly be divided into two types “LEADING” and “LAGGING”. Leading indicators Leading indicators are designed to lead price movements. Benefits of leading indicators are early signalling for entry and exit, generating more signals and allow more opportunities to trade. They represent a form of price momentum over a fixed look-back period, which is the number of periods used to calculate the indicator. Some of the well more popular leading indicators include Commodity Channel Index (CCI), Momentum, Relative Strength Index (RSI), Stochastic Oscillator and Williams %R. Lagging Indicators Lagging Indicators are the indicators that would follow a trend rather than predicting a reversal. A lagging indicator follows an event. These indicators work well when prices move in relatively long trends. They don’t warn you of upcoming changes in prices, they simply tell you what prices are doing (i.e., rising or falling) so that you can invest accordingly. These trend following indicators makes you buy and sell late and, in exchange for missing the early Opportunities, they greatly reduce your risk by keeping you on the right side of the market. Moving averages and the MACD are examples of trend following, or “lagging,” indicators. Fast Indicators 1. Stochastic Oscillator Stochastic Fast Stochastic Fast plots the location of the current price in relation to the range of a certain number of prior bars (dependent upon user-input, usually 14-periods). In general, stochastic are used to measure overbought and oversold conditions. Above 80 is generally considered overbought and below 20 is considered oversold.The inputs to Stochastic Fast are as follows:  Fast %K: [(Close - Low) / (High - Low)] x 100  Fast %D: Simple moving average of Fast K (usually 3-period moving average) Stochastic Slow
  27. 27. 26 Stochastic Slow is similar in calculation and interpretation to Stochastic Fast. The difference is listed below:  Slow %K: Equal to Fast %D (i.e. 3-period moving average of Fast %K)  Slow %D: A moving average (again, usually 3-period) of Slow %K The Stochastic Slow is generally viewed as superior due to the smoothing effects of the moving averages which equates to less false buy and sell signals. Stochastic Buy Signal When the Stochastic is below the 20 oversold line and the %K line crosses over the %D line, buy. Stochastic Sell Signal When the Stochastic is above the 80 overbought line and the %K line crosses below the %D line, sell. 2. Relative Strength Index (RSI) The RSI is part of a class of indicators called momentum oscillators. Momentum is simply the rate of change – the speed or slope at which a stock or commodity ascends or declines. Measuring speed is a useful gage of impending change. RSI are referred to as trend leading indicators. RSI which oscillates between 0% and 100%. You will notice there is a pair of horizontal reference lines: 70% ‘overbought’ and 30% ‘oversold’ lines. The overbought region refers to the case where the 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 the momentum oscillator where there is a significant amount of selling pressure relative to the recent past and is indicative of an end to a down swing. RSI is a momentum oscillator generally used in sideways or ranging markets where the price moves between support and resistance levels. It is one of the most useful technical tool employed by many traders to measure the velocity of directional price movement. The RSI is a price-following oscillator that ranges between 0 and 100. Generally, technical analysts use 30% oversold and 70% overbought lines to generate the buy and sell signals.
  28. 28. 27 • Go long when the indicator moves from below to above the oversold line. • Go short when the indicator moves from above to below the overbought line. 3. Moving Average Convergence / Diversion (MACD) MACD stands for Moving Average Convergence / Divergence. It is a technical analysis indicator created by Gerald Appel in the late 1970s. The MACD indicator is basically a refinement of the two moving averages system and measures the distance between the two moving average lines. The MACD does not completely fall into either the trend-leading indicator or trend following indicator; it is in fact a hybrid with elements of both. The MACD comprises two lines, the fast line and the slow or signal line. These are easy to identify as the slow line will be the smoother of the two. The importance of MACD lies in the fact that it takes into account the 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, as opposed to simple moving averages, 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 going to end 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. The MACD indicator is basically a refinement of the two moving averages system and measures the distance between the two moving average. The standard setting for MACD is the difference between the 12 and 26-period EMA. However, any combination of moving averages can be used.
  29. 29. 28 4. Rate of Change (ROC) : The Rate of Change (ROC) indicator measures the percentage change of the current price as compared to the price a certain number of periods ago. The ROC indicator can be used to confirm price moves or detect divergences; it can also be used as a guide for determining overbought and oversold conditions.
  30. 30. 29 5. Support and Resistance: Support and Resistance is one of the most important and fundamental part of technical analysis:  Support: Prices should rise after touching support.  Resistance: Prices should fall after hitting resistance. 6. Bollinger Band: Bollinger Bands is a versatile tool combining moving averages and standard deviations and is one of the most popular technical analysis tools available for traders. There are three components to the Bollinger Band indicator: 1. Moving Average: By default, a 20-period simple moving average is used. 2. Upper Band: The upper band is usually 2 standard deviations (calculated from 20-periods of closing data) above the moving average. 3. Lower Band: The lower band is usually 2 standard deviations below the moving average.
  31. 31. 30 Buy Signal A trader buys or buys to cover when the price has fallen below the lower Bollinger Band. Sell Signal The sell or buy to cover exit is initiated when the stock, future, or currency price pierces outside the upper Bollinger Band.
  32. 32. 31 Company with Bollinger Band: Name of Company: PVR limited NSE Code: PVR Data Period: Mar. 2013 – Mar 2014 Oscillator / Indicator used: Bollinger Band Companies with different Oscillators and Indicators 1. Company Name: Grasim Industry Limited NSE Code: grasim Data Period: Sep. 2013 – Mar.2014
  33. 33. 32 Indicators used: RSI (14d) and Stochastic (14d) 2. Company Name: Havells India Limited NSE Code: havells Data period: Mar. 2013- Mar 2014 Indicators Shown: Rate Of Change (10 d) and MACD (26d,12d)
  34. 34. 33 3. Company: Ambuja Cements Limited NSE Code: ambujacem Data Period: Aug. 2013- Mar. 2014 Indicators / Oscillators Shown: MACD (26d, 9d) and RSI (14d)
  35. 35. 34 4. Company Name: SesaSterlite limited NSE Code: SSLT Date Period: Aug. 2013 – Mar. 2014 Indicators Shown: MACD (26d, 12d) and RSI (14d)
  36. 36. 35 5. Company Name: Oil and Natural Gas Corporation (ONGC) NSE Code: ONGC Data Period: Nov.2013 – Mar. 2014 Indicator shown: MACD (26d, 12d), RSI (14d), Stochastic (14d), Moving Average (50d)
  37. 37. 36 CHAPTER 4 FIBONACCI RETRACEMENT Fibonacci Retracements Arguably the most heavily used Fibonacci tool is the Fibonacci Retracement. To calculate the Fibonacci Retracement levels, a significant low to a significant high should be found. From there, prices should retrace the initial difference (low to high or high to low) by a ratio of the Fibonacci sequence, generally the 23.6%, 38.2%, 50%, 61.8%, or the 76.4% retracement. For the examples of this section, the S&P 500 Depository Receipts (SPY) will be used based on the logic that the S&P 500 is a broad measure of human nature, thus the Fibonacci sequence should apply very well. Nevertheless, the Fibonacci sequence is applied to individual stocks, commodities, and forex currency pairs quite regularly. The chart above shows the 38.2% retracement acting as support for prices. Note that a trend line was drawn from a significant low (beginning of trend) to a significant high (end of trend); the trading software calculated the retracement levels. Fibonacci Retracement with a Support Level Company Name: KRBL Limited NSE Code: krbl Data Period: Dec. 2013 – Mar 2014 Support Level: 38.2% level
  38. 38. 37 Calculation of Support level: Highest top: 48.14 Lowest bottom: 31.68 Difference between highest top and lowest bottom: 48.14-31.68 = 16.46 38.2% of 16.46 = 6.287 Support level = 48.14-6.287 = 41.852 2. Fibonacci Retracement with Resistance Level Company Name: Colgate Palmolive NSE Code: colpal Data Period: July 2013 – Mar. 2014 Resistance Level: 50% Calculation of Resistance level: Highest top: 1525 Lowest bottom: 1200 Difference between highest top and lowest bottom: 1525-1200 = 325 50 % of 325 =162.5 Resistance level = 1200+162.5 = 1362.5
  39. 39. 38 3 Company with Support Level and Resistance Level: Company Name: Godrej Industry Limited NSE Code: Godjrejind Data Period: July 2013 - Mar 2014 Resistance Level: 23.6% Calculation of Resistance level: Highest top: 306.6 Lowest bottom: 217.4 Difference between highest top and lowest bottom: 306.6-217.4 = 89.2 23.6% of 89.2 =21.05 Resistance level = 306.6-21.05 = 285.55 Calculation of Support level: Highest top: 306.6 Lowest bottom: 217.4 Difference between highest top and lowest bottom: 306.6-217.4 = 89.2
  40. 40. 39 61.8% of 89.2 = 55.12 Support level = 306.6-55.12 =251.47 4 Company with Support Level and Resistance Level: Company Name: Cipla Limited NSE Code: cipla Data Period: Mar. 2013 – Mar. 2014 Resistance Level: 23.6% Calculation of Resistance level: Highest top: 450.6 Lowest bottom: 363.8 Difference between highest top and lowest bottom: 450.6-363.8 = 86.8 23.6% of 86.8 = 20.48 Resistance level = 450.6-20.48 = 430.12 Calculation of Support level:
  41. 41. 40 Highest top: 450.6 Lowest bottom:363.8 Difference between highest top and lowest bottom: 450.6 – 363.8 = 86.8 78.6% of 86.8 = 68.2248 Support level = 450.6- 68.2248 = 382.37 5 Company with Resistance Level: Company Name: IDFC Limited NSE Code: IDFC Data Period: Mar. 2013 – Mar. 2014 Resistance Level: 23.6% Calculation of Resistance level: Highest top: 165.9 Lowest bottom: 76.13 Difference between highest top and lowest bottom: 165.9-76.13 = 89.77 23.6% of 89.77 = 21.18
  42. 42. 41 Resistance level = 76.13 + 21.18 = 97.31
  43. 43. 42 BIBLIOGRAPHY
  44. 44. 43