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Technical Analysis OF stock markets


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Completed A project on technical analysis using principles of DOW theory And various statistical TOOLS.

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Technical Analysis OF stock markets

  2. 2. Objective of the project: <ul><li>To understand the process of carrying out technical analysis of stock markets. </li></ul><ul><li>To carry out technical analysis of companies under capital goods sector listed on NSE. </li></ul><ul><li>To define the buy and sell points for traders in stock markets. </li></ul>
  3. 3. Data, Methodology and Scope: <ul><li>Five companies were randomly selected from the top 10 companies as per market capitalization from the capital goods sector for analysis. </li></ul><ul><li>The companies are: ABB, BHEL, POWERGRID, SIEMENS & SUZLON. </li></ul><ul><li>The data essential for carrying out analysis is collected from : </li></ul><ul><li>The period taken for carrying out analysis is taken from 1 st Jan2008 to 31 st Jul2008. </li></ul>
  4. 4. Data, methodology & scope contd.: <ul><li>Eight statistical tools were selected for carrying out technical analysis of these 5 companies to define buy and sell points. </li></ul><ul><li>These eight statistical tools selected are: </li></ul><ul><li>a) EMA b) MACD c) MOM, ROC, S-ROC d) Wm%R </li></ul><ul><li>e) ACC/DIS f) ELDER RAY g) FORCE INDEX </li></ul>
  5. 5. Limitations: <ul><li>The project is not applied for INTRA-DAY traders. </li></ul>
  6. 6. Analysis: MACD tool <ul><li>Steps: </li></ul><ul><li>Calculate a 12-day EMA of closing prices. </li></ul><ul><li>Calculate a 26-day EMA of closing prices. </li></ul><ul><li>Subtract the 26-day EMA from the 12-day EMA, and plot their difference as a solid line. This is the FAST MACD line. </li></ul><ul><li>Calculate a 9-day EMA of the fast line. And plot the result as a dashed line. This is the SLOW line. </li></ul>
  7. 7. MACD FOR ABB:
  8. 9. Trading Rules: MACD <ul><li>When the fast MACD line crosses above the slow Signal line, it gives a buy signal. </li></ul><ul><li>When the fast line crosses below the slow line, it gives sell signal. </li></ul>
  9. 10. Analysis: <ul><li>As shown the graph of MACD tool, like wise the technical analysis is carried of 5 companies using the 8 statistical tools. </li></ul><ul><li>The analysis is carried out using Microsoft excel and all the sheets are attached. </li></ul>
  10. 11. Observations and Findings: <ul><li>The eight statistical tools used here for analysis are selected from a wide no. of tools based on their extensive use and proven results in the US markets. </li></ul><ul><li>Moving averages are some of the oldest technical indicators, and remain some of the most useful indicators for market analysts. Moving averages with different time spans show different stories. The shorter the time span, the more sensitive the moving average will be to price changes. The longer the time span, the less sensitive or more smoothened the moving average will appear. </li></ul>
  11. 12. Observation and Findings: <ul><li>3) The most common price used is the ‘closing price’ for a particular day. However, technicians use several other variations. They are (high + low)/2; (high + low + close)/3; (open + high + low + close)/4. Closing prices are significant because they represent positions that investors are willing to carry Overnight. </li></ul><ul><li>4) If a simple moving average is centered, the signal is delayed. To overcome this, many technicians use a EMA where the data are weighted in favour of the more recent data. </li></ul>
  12. 13. Observations and Findings: <ul><li>5) Moving averages can become more powerful when multiple moving averages are plotted. MACD combines three moving averages into two lines. </li></ul><ul><li>6) The stochastic oscillator, compare a security’s price closing level to its price range over a specific period of time. With this indicator, in an upward-trending market, prices tend to close near their high; and during a downward-trending market, prices tend to close away from their low. </li></ul>
  13. 14. Observations and Findings: <ul><li>7) The acc/dis is used where the trader wants to track the relationship between opening and closing prices, along with volume. </li></ul><ul><li>8) Elder-ray combines the features of trend-following indicators and oscillators. You need to find when bulls or bears are in control and trade with the dominant group. It helps to see when bulls and bears become stronger or weaker. </li></ul><ul><li>9) Force index measures the force of bulls behind every rally and of bears behind every decline. </li></ul>
  14. 15. Observations and Findings: <ul><li>10) If a trader uses these eight statistical tools for taking trading decisions he may get different calls from each of the tool. The trader have to stick to the tool by which he has taken the first call and see the results. Its not the better option of trading if the buy signal is taken from one tool and sell signal from another tool. The same tool should be used for taking both the buying and selling decisions. </li></ul><ul><li>11) All the tools described here are good and have some special characteristics. The trader himself gradually by experience will come to know as to which tool is suitable for INDIAN markets. </li></ul>
  15. 16. BIBILOGRAPHY: <ul><li>Sites: </li></ul><ul><li> </li></ul><ul><li> </li></ul><ul><li>Books: </li></ul><ul><li>Technical analysis of stock trends – Edward Magee </li></ul><ul><li>Technical analysis of stock markets – John Murphy </li></ul><ul><li>Trading For Living – Dr. Alexander Elder </li></ul>
  16. 17. <ul><li>THANK YOU </li></ul><ul><li>Any questions please …….. </li></ul><ul><li>“ A successful trader does not forecast the future – he monitors the market and manages his trading position.” - Alex </li></ul>