28810141 project-report-on-technical-analysis


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28810141 project-report-on-technical-analysis

  1. 1. “TECHNICAL ANALYSIS” Dissertation Submitted to the Mumbai University in partial fulfilment of the requirements for the award of the Degree of MASTERS of MANAGEMENT STUDIES (M.M.S.) Submitted by: VISHAL SOPANRAO NABDE (Roll No.18) Project Guide: Mr.K.K.Surenranathan IBSAR® Institute of Management Studies, Karjat University of Mumbai March’ 2010 [1]
  2. 2. DECLARATION I hereby declare that the dissertation “Technical Analysis” submitted for the Master’s of Management Studies (M.M.S.) Degree at Mumbai University’s IBSAR® Institute of Management Studies, Karjat, is my original work and the dissertation has not formed the basis for the award of any degree, associate ship, fellowship or any other similar titles. Place: Karjat Date: Signature of the Student [2]
  3. 3. Certificate This is to certify that the dissertation entitled “TECHNICAL ANALYSIS” is the bonafide research work carried out by Mr. Vishal Nabde student of MMS, at IBSAR® Institute of Management Studies, Karjat during the year 2008 -2010, in partial fulfilment of the requirements for the award of the Degree of Master of Management Studies and that the dissertation has not formed the basis for the award previously of any degree, diploma, associate ship, fellowship or any other similar title. (Dr. Jayanti Gokhale Dy. Director IBSAR® Institute of Management Studies, Karjat) (Dr. M.L. Moonga, Director, IBSAR® Institute of Management Studies, Karjat) [3]
  4. 4. ACKNOWLEDGEMENT In the first place, I thank Mr. K.K. Surendranathan for having given me his valuable guidance for the project. Without his help it would have been impossible for me to complete the project. I would be failing in my duty if I do not acknowledge with a deep sense of gratitude the sacrifices made by my parents and thus have helped me in completing the project work successfully. Place: Karjat Date: Signature of the student. [4]
  5. 5. TABLE OF CONTENTS S.NO. PARTICULARS PAGE NO. Chapter 1. Introduction 06 Chapter 2. Technical analysis 10 Chapter 3. Drawbacks / limitations of technical analysis 13 Chapter 4. Tools & Instruments in technical analysis 16 Chapter 5. Trends In Technical Analysis 36 Chapter 6. Why Volume Is Important 46 Chapter 7. Chart Patterns 48 Chapter 8. Technical Indicators 74 Chapter 9. Technical analysis of Stock “Power Grid” 85 Chapter 10. Bibliography 99 [5]
  6. 6. INTRODUCTION :- WHAT’S THIS EQUITY ANALYSIS? Professional investor will make more money & less loss than, who let their heart rule. Their head eliminate all emotions for decision making. Be ruthless & calculating, you are out to make money. Decision should be based on actual movement of share price measured both in money & percentage term & nothing else. Greed must be avoided patience may be a virtue, but impatience can frequently be profitable. In Equity Analysis anticipated growth, calculations are based on considered FACTS & not on HOPE. Equity analysis is basically a combination of two independent analyses, namely fundamental analysis & Technical analysis. The subject of Equity analysis, i.e. the attempt to determine future share price movement & its reliability by references to historical data is a vast one, covering many aspect from the calculating various FINANCIAL RATIOS, plotting of CHARTS to extremely sophisticated indicators. A general investor can apply the principles by using the simplest of tools: pocket calculator, pencil, ruler, chart paper & your cautious mind, watchful attention. It should be pointed out that, this equity analysis does not discuss how to buy & sell shares, but does discuss a method which enables [6]
  7. 7. the investor to arrive at buying & selling decision. The financial analysts always need yardsticks to evaluate the efficiency & performances of any business unit at the time of investment. Fundamental analysis is useful in long term investment decision. In Fundamental analysis a company s goodwill, its performances, liquidity, leverage, turnover, profitability & financial health was checked & analysis with the help of ratio analysis for the purpose of long term successful investment. Technical analysis refers to the study of market generated data like prices & volume to determine the future direction of prices movements. Technical analysis mainly seeks to predict the short term price travels. The focus of technical analysis is mainly on the internal market data, i.e. prices & volume data. It appeals mainly to short term traders. It is the oldest approach to equity investment dating back to the late 19th century. [7]
  8. 8. Assumptions for the Equity Analysis. 1. Works only in normal share-market conditions with great reliability, it also works in abnormal share-market conditions, but with low reliability. 2. Equity analysis is purely based on the INVESTMENT PHILOSOPHY , so the investment object has vital importance associated to return along with risk. 3. Cash management gets the magnitude role, because the scenario of equity analysis is revolving around the term money 4. Portfolio management, risk management was up to the investor s knowledge. 5. Capital market trend is always a friend, whether it is short run or long run. 6. You are buying stock & not companies, so don t be curious or panic to do post-mortem of companies performances. [8]
  9. 9. 7. History repeats: investors & speculators react the same way to the same types of events homogeneously. 8. Capital market has a typical market psychology along with other issues like; perceptions, the crowd Vc the individual, tradition s & trust. 9. An individual perceptions about the investment return & associated risk may differ from individual to individual. 10. Although the equity analysis is art as well as sciences so, it also has some exceptions. EQUITY ANALYSIS. ENVIRONMENT & ECONOMICAL ANALYSIS. FUNDAMENTAL TECHNICAL ANALYSIS ANALYSIS [9]
  10. 10. Technical analysis :- “Technical analysis refers to the study of market generated data like prices & volume to determine the future direction of prices movements.” Technical analysis mainly seeks to predict the short term price travels. It is important criteria for selecting the company to invest. It also provides the base for decision-making in investment. The one of the most frequently used yardstick to check & analyze underlying price progress. For that matter a verity of tools was consider. This Technical analysis is helpful to general investor in many ways. It provides important & vital information regarding the current price position of the company. Technical analysis involves the use of various methods for charting, calculating & interpreting graph & chart to assess the performances & status of the price. It is the tool of financial analysis, which not only studies but also reflecting the numerical & graphical relationship between the important financial factors. The focus of technical analysis is mainly on the internal market data, i.e. prices & volume data. It appeals mainly to short term traders. It is the oldest approach to equity investment dating back to the late 19th century. [10]
  11. 11. It uses charts and computer programs to study the stock’s trading volume and price movements in the hope of identifying a trend. In fact the decision made on the basis of technical analysis is done only after inferring a trend and judging the future movement of the stock on the basis of the trend. Technical Analysis assumes that the market is efficient and the price has already taken into consideration the other factors related to the company and the industry. It is because of this assumption that many think technical analysis is a tool, which is effective for short-term investing. History of Technical Analysis: Technical Analysis as a tool of investment for the average investor thrived in the late nineteenth century when Charles Dow, then editor of the Wall Street Journal, proposed the Dow theory. He recognized that the movement is caused by the action/reaction of the people dealing in stocks rather than the news in itself. Technical analysis is a method of evaluating securities by analyzing the statistics generated by market activity, such as past prices and volume. Technical analysts do not attempt to measure a security's intrinsic value, but [11]
  12. 12. instead use charts and other tools to identify patterns that can suggest future activity. Just as there are many investment styles on the fundamental side, there are also many different types of technical traders. Some rely on chart patterns, others use technical indicators and oscillators, and most use some combination of the two. In any case, technical analysts' exclusive use of historical price and volume data is what separates them from their fundamental counterparts. Unlike fundamental analysts, technical analysts don't care whether a stock is undervalued the only thing that matters is a security's past trading data and what information this data can provide about where the Security might move in the future. Basic premises of technical analysis: 1. Market prices are determined by the interaction of supply & demand forces. 2. Supply & demand are influenced by variety of supply & demand affiliated factors both rational & irrational. 3. These include fundamental factors as well as psychological factors. 4. Barring minor deviations stock prices tend to move in fairly persistent trends. 5. Shifts in demand & supply bring about change in trends. [12]
  13. 13. 6. This shift s can be detected with the help of charts of manual & computerized action, because of the persistence of trends & patterns analysis of past market data can be used to predict future prices behaviors. Drawbacks / limitations of technical analysis: 1. Technical analysis does not able to explain the rezones behind the employment or selection of specific tool of Technical analysis. 2. The technical analysis failed to signal an uptrend or downtrend in time. 3. The technical analysis must be a self defeating proposition. As more & more people use, employ it the value of such analysis trends to reduce. Why we use TECHNICAL ANALYSIS? 1) Technical analysis provides information on the best entry and exit points for a trade. 2) On a chart, the trader can see where momentum is rising, a trend is forming, a price is dipping or other events are developing that show the best entry point and time for the most profitable trade. With the constant movement of various currencies against each other in the Forex market, most traders will focus on using technical indicators to find and place their [13]
  14. 14. trades. IS TECHNICAL ANALYSIS DIFFICULT? 1) Technical analysis is not difficult, but it requires studying different types of charts such as the hourly or daily charts, knowing which technical indicators to use and how to use them. 2) Computers and the Internet have made this process much easier. Most brokers provide basic charts and technical indicators for free or at a very low cost. 3) One way to avoid getting frustrated by all the lines, colors, and graphics is to focus on using only a few indicators that will provide you with the information needed. Try not to clutter your chart with too much information. Fundamental vs. Technical Analysis Technical analysis and fundamental analysis are the two main schools of thought in the financial markets. As we've mentioned, technical analysis looks at the price movement of a security and uses this data to predict its [14]
  15. 15. future price movements. Fundamental analysis, on the other hand, looks at economic factors, known as fundamentals. Fundamental analysis takes a relatively long-term approach to analyzing the market compared to technical analysis. While technical analysis can be used on a timeframe of weeks, days or even minutes, fundamental analysis often looks at data over a number of years. The future can be found in the past If prices are based on investor expectations, then knowing what a security should sell for (i.e., fundamental analysis) becomes less important than knowing what other investors expect it to sell for. That's not to say that knowing what a security should sell for isn't important--it is. But there is usually a fairly strong consensus of a stock's future earnings that the average investor cannot disprove. Technical analysis is the process of analyzing a security's historical prices in an effort to determine probable future prices. This is done by comparing current price action (i.e., current expectations) with comparable historical price action to predict a reasonable outcome. The devout technician might define this process as the fact that history repeats itself while others would suffice to say that we should learn from the past. [15]
  16. 16. Usually the following tools & instruments are used to do the technical analysis: Price Fields Technical analysis is based almost entirely on the analysis of price and volume. The fields which define a security's price and volume are explained below. Open - This is the price of the first trade for the period (e.g., the first trade of the day). When analyzing daily data, the Open is especially important as it is the consensus price after all interested parties were able to "sleep on it." High - This is the highest price that the security traded during the period. It is the point at which there were more sellers than buyers (i.e., there are always sellers willing to sell at higher prices, but the High represents the highest price buyers were willing to pay). Low - This is the lowest price that the security traded during the period. It is the point at which there were more buyers than sellers (i.e., there are always buyers willing to buy at lower prices, but the Low represents the lowest price sellers were willing to accept). Close - This is the last price that the security traded during the period. Due to its availability, the Close is the most often used price for analysis. The [16]
  17. 17. relationship between the Open (the first price) and the Close (the last price) are considered significant by most technicians. This relationship is emphasized in candlestick charts. Volume - This is the number of shares (or contracts) that were traded during the period. The relationship between prices and volume (e.g., increasing prices accompanied with increasing volume) is important. Open Interest - This is the total number of outstanding contracts (i.e., those that have not been exercised, closed, or expired) of a future or option. Open interest is often used as an indicator. Bid - This is the price a market maker is willing to pay for a security (i.e., the price you will receive if you sell). Ask - This is the price a market maker is willing to accept (i.e., the price you will pay to buy the security). [17]
  18. 18. Price Styles Price in a chart can be displayed in four styles: 1. Bar Chart. 2. Line Chart. 3. Candlestick Chart. 4. Point and Figure Charts 1) Bar Charts : The highs and lows of a foreign currency are plotted in a diagram and the points are joined with vertical lines (bars). A small horizontal tick to the left denotes the opening level while a small horizontal tick to the right represents the closing price of each interval. [18]
  19. 19. 2) Line Chart. It gives the detailed information about every aspect. The exchange rates for each time period are plotted in a diagram and the points are joined. Prices on the y-axis, time on the x-axis. The line chart chooses for example the closing price of consecutive time periods, but can also work with daily, official fixings. [19]
  20. 20. The relatively easy handling of line charts is a great advantage. Line charts do not show price movements within a time period. This can be a problem because important information for exchange rate analysis can be lost. This problem was remedied with the development of bar charts that represent a more sophisticated form of line chart. 3) Candlestick Chart. A candlestick is black if the closing price is lower than the opening price. A candlestick is white if the closing price is higher than the opening price. [20]
  21. 21. In the 1600s, the Japanese developed a method of technical analysis to analyze the price of rice contracts. This technique is called candlestick charting. Steven Nison is credited with popularizing candlestick charting and has become recognized as the leading expert on their interpretation. Candlestick charts display the open, high, low, and closing prices in a format similar to a modern-day barchart, but in a manner that extenuates the relationship between the opening and closing prices. Candlestick charts are simply a new way of looking at prices, they don't involve any calculations. Because candlesticks display the relationship between the open, [21]
  22. 22. high, low, and closing prices, they cannot be displayed on securities that only have closing prices, nor were they intended to be displayed on securities that lack opening prices. The interpretation of candlestick charts is based primarily on patterns. The most popular patterns are explained below. Bullish Patterns 1) Long white (empty) line. This is a bullish line. It occurs when prices open near the low and close significantly higher near the period's high. 2) Hammer. This is a bullish line if it occurs after a significant downtrend. If the line occurs after a significant up-trend, it is called a Hanging Man. A Hammer is identified by a small real body (i.e., a small range between the open and closing prices) and a long lower [22]
  23. 23. shadow (i.e., the low is significantly lower than the open, high, and lose). The body can be empty or filled-in. 3) Piercing line. This is a bullish pattern and the opposite of a dark cloud cover. The first line is a long black line and the second line is a long white line. The second line opens lower than the first line's low, but it closes more than halfway above the first line's real body. 4) Bullish engulfing lines. This pattern is strongly bullish if it occurs after a significant downtrend (i.e., it acts as a reversal pattern). It occurs when a small bearish (filled-in) line is engulfed by a large bullish (empty) line. [23]
  24. 24. 5) Morning star. This is a bullish pattern signifying a potential bottom. The "star" indicates a possible reversal and the bullish (empty) line confirms this. The star can be empty or filled-in. 6) Bullish doji star. A "star" indicates a reversal and a doji indicates indecision. Thus, this pattern usually indicates a reversal following an indecisive period. You should wait for a confirmation (e.g., as in the [24]
  25. 25. morning star, above) before trading a doji star. The first line can be empty or filled in. Bearish Patterns 1) Long black (filled-in) line. This is a bearish line. It occurs when prices open near the high and close significantly lower near the period's low. 2) Hanging Man. These lines are bearish if they occur after a significant uptrend. If this pattern occurs after a significant downtrend, it is called [25]
  26. 26. a Hammer. They are identified by small real bodies (i.e., a small range between the open and closing prices) and a long lower shadow (i.e., the low was significantly lower than the open, high, and close). The bodies can be empty or filled-in. 3) Dark cloud cover. This is a bearish pattern. The pattern is more significant if the second line's body is below the center of the previous line's body (as illustrated). [26]
  27. 27. 4) Bearish engulfing lines. This pattern is strongly bearish if it occurs after a significant uptrend (i.e., it acts as a reversal pattern). It occurs when a small bullish (empty) line is engulfed by a large bearish (filled- in) line. 5) Evening star. This is a bearish pattern signifying a potential top. The "star" indicates a possible reversal and the bearish (filled-in) line confirms this. The star can be empty or filledin. [27]
  28. 28. 5) Doji star. A star indicates a reversal and a doji indicates indecision. Thus, this pattern usually indicates a reversal following an indecisive period. You should wait for a confirmation (e.g., as in the evening star illustration) before trading a doji star. 6) Shooting star. This pattern suggests a minor reversal when it appears after a rally. The star's body must appear near the low price and the line should have a long upper shadow. [28]
  29. 29. Reversal Patterns 1) Long-legged doji. This line often signifies a turning point. It occurs when the open and close are the same, and the range between the high and low is relatively large. 2) Dragon-fly doji. This line also signifies a turning point. It occurs when the open and close are the same, and the low is significantly lower than the open, high, and closing prices. [29]
  30. 30. 3) Gravestone doji. This line also signifies a turning point. It occurs when the open, close, and low are the same, and the high is significantly higher than the open, low, and closing prices. 4) Star. Stars indicate reversals. A star is a line with a small real body that occurs after a line with a much larger real body, where the real bodies do not overlap. The shadows may overlap. [30]
  31. 31. 5) Doji star. A star indicates a reversal and a doji indicates indecision. Thus, this pattern usually indicates a reversal following an indecisive period. You should wait for a confirmation (e.g., as in the evening star illustration) before trading a doji star. Neutral Patterns 1) Spinning tops. These are neutral lines. They occur when the distance between the high and low, and the distance between the open and close, are relatively small. [31]
  32. 32. 2) Doji. This line implies indecision. The security opened and closed at the same price. These lines can appear in several different patterns. Double doji lines (two adjacent doji lines) imply that a forceful move will follow a breakout from the current indecision. 3) Harami ("pregnant" in English). This pattern indicates a decrease in momentum. It occurs when a line with a small body falls within the area of a larger body. In this example, a bullish [32]
  33. 33. (empty) line with a long body is followed by a weak bearish (filledin) line. This implies a decrease in the bullish momentum. 4) Harami cross. This pattern also indicates a decrease in momentum. The pattern is similar to a harami, except the second line is a doji (signifying indecision). [33]
  34. 34. Example 4 ) Point And Figure Charts The point and figure chart is not well known or used by the average investor but it has had a long history of use dating back to the first technical traders. This type of chart reflects price movements and is not as concerned about time and volume in the formulation of the points. The point and figure chart removes the noise, or insignificant price movements, in the stock, which can distort traders' views of the price trends. These types of charts also try to [34]
  35. 35. neutralize the skewing effect that time has on chart analysis. When first looking at a point and figure chart, you will notice a series of Xs and Os. The Xs represent upward price trends and the Os represent downward price trends. There are also numbers and letters in the chart; these represent months, and give investors an idea of the date. Each box on the chart represents the price scale, which adjusts depending on the price of the stock: the higher the stock's price the more each box represents. On most charts where the price is between $20 and $100, a box represents $1, or 1 point for the stock. The other critical point of a point and figure chart is the reversal criteria. This is usually set at three but it can also be set according to the chartist's discretion. The reversal criteria set how much the price has to [35]
  36. 36. move away from the high or low in the price trend to create a new trend or, in other words, how much the price has to move in order for a column of Xs to become a column of Os, or vice versa. When the price trend has moved from one trend to another, it shifts to the right, signalling a trend change. TRENDS IN TECHNICAL ANALYSIS The Use of Trends One of the most important concepts in technical analysis is that of trend. The meaning in finance isn't all that different from the general definition of the term - a trend is really nothing more than the general direction in which a security or market is headed. Take a look at the chart below: [36]
  37. 37. Isn’t it hard to see that the trend is up. However, it's not always this easy to see a trend: [37]
  38. 38. There are lots of ups and downs in this chart, but there isn't a clear indication of which direction this security is headed. A More Formal Definition Unfortunately, trends are not always easy to see. In other words, defining a trend goes well beyond the obvious. In any given chart, you will probably notice that prices do not tend to move in a straight line in any direction, but rather in a series of highs and lows. In technical analysis, it is the movement of the highs and lows that constitutes a trend. For example, an uptrend is classified as a series of higher highs and higher lows, while a downtrend is one of lower lows and lower highs. It is an example of an uptrend. Point 2 in the chart is the first high, which is determined after the price falls from this point. Point 3 is the low that is established as the price falls from the high. For this to remain an uptrend each successive low must not fall below the previous lowest point or the trend is deemed a reversal. [38]
  39. 39. Types of Trend There are three types of trend: 1.Uptrend 2.Downtrend 3.Sideways/Horizontal Trends As the names imply, when each successive peak and trough is higher, it's referred to as an upward trend. If the peaks and troughs are getting lower, it's a downtrend. When there is little movement up or down in the peaks and troughs, it's a sideways or horizontal trend. If you want to get really technical, you might even say that a sideways trend is actually not a trend on its own, but a lack of a well-defined trend in either direction. In any case, the market can really only trend in these three ways: up, down or nowhere. Trend Lengths [39]
  40. 40. Along with these three trend directions, there are three trend classifications. A trend of any direction can be classified as a long- term trend, intermediate trend or a short-term trend. In terms of the stock market, a major trend is generally categorized as one lasting longer than a year. An intermediate trend is considered to last between one and three months and a near-term trend is anything less than a month. A long-term trend is composed of several intermediate trends, which often move against the direction of the major trend. If the major trend is upward and there is a downward correction in price movement followed by a continuation of the uptrend, the correction is considered to be an intermediate trend. The short-term trends are components of both major and intermediate trends. Take a look a Figure 4 to get a sense of how these three trend lengths might look. [40]
  41. 41. When analyzing trends, it is important that the chart is constructed to bestreflect the type of trend being analyzed. To help identify long-term trends, weekly charts or daily charts spanning a five-year period are used by chartists to get a better idea of the long-term trend. Daily data charts are best used when analyzing both intermediate and short-term trends. It is also important to remember that the longer the trend, the more important it is; for example, a one-month trend is not as significant as a five-year trend. Trend Lines A trend line is a simple charting technique that adds a line to a chart to represent the trend in the market or a stock. Drawing a trend line is as simple as drawing a straight line that follows a general trend. [41]
  42. 42. These lines are used to clearly show the trend and are also used in the identification of trend reversals. An upward trend line is drawn at the lows of an upward trend. This line represents the support the stock has every time it moves from a high to a low. Notice how the price is propped up by this support. This type of trend line helps traders to anticipate the point at which a stock's price will begin moving upwards again. Similarly, a downward trend line is drawn at the highs of the downward trend. This line represents the resistance level that a stock faces every time the price moves from a low to a high. [42]
  43. 43. Channels A channel, or channel lines, is the addition of two parallel trend lines that act as strong areas of support and resistance. The upper trend line connects a series of highs, while the lower trend line connects a series of lows. A channel can slope upward, downward or sideways but, regardless of the direction, the interpretation remains the same. Traders will expect a given security to trade between the two levels of support and resistance until it breaks beyond one of the levels, in which case traders can expect a sharp move in the direction of the break. Along with clearly displaying the trend, channels are mainly used to illustrate important areas of support and resistance. A descending channel on a stock chart; the upper trend line has been placed on the highs and the lower trend line is on the lows. The price has bounced off of these lines several times, and has remained range- bound for several months. As long as the price does not fall below the lower line or move beyond the upper resistance, the range-bound downtrend is expected to continue. [43]
  44. 44. The Importance Of Trend 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 "don't buck the trend," illustrating how important trend analysis is for technical traders IMPORTANCE OF VOLUME :- What Is Volume? Volume is simply the number of shares or contracts that trade over a given period of time, usually a day. The higher the volume, the more active the security. To determine the movement of the volume (up or down), chartists look at the volume bars that can usually be found at the bottom of any chart. Volume bars illustrate how many shares have traded per period and show trends in the same way that prices do. [44]
  45. 45. Why Volume Is Important? Volume is an important aspect of technical analysis because it is used to confirm trends and chart patterns. Any price movement up or down with relatively high volume is seen as a stronger, more relevant move than a similar move with weak volume.Say, for example, that a stock jumps 5% in one trading day after being in a long downtrend. Is this a sign of a trend reversal? This is where volume helps traders. If volume is high during the day relative to the average daily volume, it is a sign that the reversal is probably for real. On the other hand, if the volume is below average, there may not be enough [45]
  46. 46. conviction to support a true trend reversal. Volume should move with the trend. If prices are moving in an upward trend, volume should increase (and vice versa). If the previous relationship between volume and price movements starts to deteriorate, it is usually a sign of weakness in the trend. For example, if the stock is in an uptrend but the up trading days are marked with lower volume, it is a sign that the trend is starting to lose its legs and may soon end. When volume tells a different story, it is a case of divergence, which refers to a contradiction between two different indicators. The simplest example of divergence is a clear upward trend on declining volume. Volume And Chart Patterns The other use of volume is to confirm chart patterns. Patterns such as head and shoulders, triangles, flags and other price patterns can be confirmed with volume, a process which we'll describe in more detail later in this tutorial. In most chart patterns, there are several pivotal points that are vital to what the chart is able to convey to chartists. Basically, if the volume is not there to confirm the pivotal moments of a chart pattern, the quality of the signal formed by the pattern is weakened. [46]
  47. 47. Volume Precedes Price Another important idea in technical analysis is that price is preceded by volume. Volume is closely monitored by technicians and chartists to form ideas on upcoming trend reversals. If volume is starting to decrease in an uptrend, it is usually a sign that the upward run is about to end. Now that we have a better understanding of some of the important factors of technical analysis, we can move on to charts, which help to identify trading opportunities in prices movements. CHART PATTERNS :- A chart pattern is a distinct formation on a stock chart that creates a trading signal, or a sign of future price movements. Chartists use these patterns to identify current trends and trend reversals and to trigger buy and sell signals. In the first section of this tutorial, we talked about the three assumptions of technical analysis, the third of which was that in technical analysis, history repeats itself. The theory behind chart patters is based on this assumption. The idea is that certain patterns are seen many times, and that these patterns signal a certain high probability move in a stock. Based on the historic trend of a chart pattern setting up a certain price movement, chartists look for these Patterns to identify trading opportunities. While there are general ideas and components to every chart pattern, there is no chart pattern that will tell you with 100% certainty where a security is headed. This creates some leeway and debate as to what a good pattern looks like, and is a major reason why charting is often seen as more of an art than a science. There are two types of patterns within this area of technical analysis, reversal and continuation. A reversal pattern signals that a prior trend will reverse upon completion of the pattern. A continuation pattern, on the other hand, signals that a trend will continue once the pattern is complete. These patterns can be found over charts of any timeframe. In this section, we will review some of the more Popular chart paterns. [47]
  48. 48. 1.Head And Shoulders This is one of the most popular and reliable chart patterns in technical analysis. Head and shoulders is a reversal chart pattern that when formed, signals that the security is likely to move against the previous trend. As you can see , there are two versions of the head and shoulders chart pattern. Head and shoulders top (shown on the left) is a chart pattern that is formed at the high of an upward movement and signals that the upward trend is about to end. Head and shoulders bottom, also known as inverse head and shoulders (shown on the right) is the lesser known of the two, but is used to signal a reversal in a downtrend. Head and shoulders top is shown on the left. Head and shoulders bottom, or inverse head and shoulders, is on the right. Both of these head and shoulders patterns are similar in that there are four main parts: two shoulders, a head and a neckline. Also, each individual head and shoulder is comprised of a high and a low. For example, in the head and shoulders top image shown on the left side, the left shoulder is made up of a high followed by a low. In this pattern, the neckline is a level of support or resistance. Remember that an upward trend is a period of successive rising highs and rising lows. The head and shoulders chart pattern, therefore, illustrates a weakening in a trend by showing the deterioration in the successive movements of the highs and lows. 2.Cup And Handle A cup and handle chart is a bullish continuation pattern in which the upward trend has paused but will continue in an upward direction once the pattern is confirmed. [48]
  49. 49. The price pattern forms what looks like a cup, which is preceded by an upward trend. The handle follows the cup formation and is formed by a generally downward/sideways movement in the security's price. Once the price movement pushes above the resistance lines formed in the handle, the upward trend can continue. 3.Double Tops And Bottoms This chart pattern is another well-known pattern that signals a trend reversal - it is considered to be one of the most reliable and is commonly used. These patterns are formed after a sustained trend and signal to chartists that the trend is about to reverse. The pattern is created when a price movement tests support or resistance levels twice and is unable to break through. This pattern is often used to signal intermediate and long-term trend reversals. [49]
  50. 50. A double top pattern is shown on the left, while a double bottom pattern is shown on the right.In the case of the double top pattern, the price movement has twice tried to move above a certain price level. After two unsuccessful attempts at pushing the price higher, the trend reverses and the price heads lower. In the case of a double bottom (shown on the right), the price movement has tried to go lower twice, but has found support each time. After the second bounce off of the support, the security enters a new trend And heads upward. 4.Triangles Triangles are some of the most well-known chart patterns used in technical analysis. The three types of triangles, which vary in construct and implication, are the symmetrical triangle, ascending and descending triangle. These chart patterns are considered to last anywhere from a couple of weeks to several months. [50]
  51. 51. The symmetrical is a pattern in which two trend lines converge toward each other. This pattern is neutral in that a breakout to the upside or downside is a confirmation of a trend in that direction. In an ascending triangle, the upper trend line is flat, while the bottom trend line is upward sloping. This is generally thought of as a bullish pattern in which chartists look for an upside breakout. In a descending triangle, the lower trend line is flat and the upper trend line is descending. This is generally seen as a bearish pattern where chartists look for a downside breakout. [51]
  52. 52. 5.Flag And Pennants These two short-term chart patterns are continuation patterns that are formed when there is a sharp price movement followed by a generally sideways price movement. This pattern is then completed upon another sharp price movement in the same direction as the move that started the trend. The patterns are generally thought to last from one to three weeks. There is little difference between a pennant and a flag. The main difference between these price movements can be seen in the middle section of the chart pattern. In a pennant, the middle section is characterized by converging trend lines, much like what is seen in a symmetrical triangle. The middle section on the flag pattern, on the other hand, shows a channel pattern, with no convergence between the trend lines. In both cases, the trend is expected to continue when the price moves above the upper trend line 6.Wedge The wedge chart pattern can be either a continuation or reversal pattern. It is similar to a symmetrical triangle except that the wedge pattern slants in an upward or downward direction, while the [52]
  53. 53. symmetrical triangle generally shows a sideways movement. The other difference is that wedges tend to form over longer periods, usually between three and six months. The fact that wedges are classified as both continuation and reversal patterns can make reading signals confusing. However, at the most basic level, a falling wedge is bullish and a rising wedge is bearish. We have a falling wedge in which two trend lines are converging in a downward direction. If the price was to rise above the upper trend line, it would form a continuation pattern, while a move below the lower trend line would signal a reversal pattern 7.Triple Tops And Bottoms Triple tops and triple bottoms are another type of reversal chart pattern in chart analysis. These are not as prevalent in charts as head and shoulders and double tops and bottoms, but they act in a similar fashion. These two chart [53]
  54. 54. patterns are formed when the price movement tests a level of support or resistance three times and is unable to break through; this signals a reversal of the prior trend. Confusion can form with triple tops and bottoms during the formation of the pattern because they can look similar to other chart patterns. After the first two support/resistance tests are formed in the price movement, the pattern will look like a double top or bottom, which could lead a chartist to enter a reversal position too soon. 8.Rounding Bottom A rounding bottom, also referred to as a saucer bottom, is a long-term reversal pattern that signals a shift from a downward trend to an upward trend. This pattern is traditionally thought to last anywhere from several Months to several years. [54]
  55. 55. A rounding bottom chart pattern looks similar to a cup and handle pattern but without the handle. The long-term nature of this pattern and the lack of a confirmation trigger, such as the handle in the cup and handle, make it a difficult pattern. [55]
  56. 56. SUPPORT AND RESISTANCE :- Once you understand the concept of a trend, the next major concept is that of support and resistance. You'll often hear technical analysts talk about the ongoing battle between the bulls and the bears, or the struggle between buyers (demand) and sellers (supply). This is revealed by the prices a security seldom moves above (resistance) or below (support). [56]
  57. 57. Support is the price level through which a stock or market seldom falls (illustrated by the blue arrows). Resistance, on the other hand, is the price level that a stock or market seldom surpasses (illustrated by the Red Arrows). These support and resistance levels are seen as important in terms of market psychology and supply and demand. Support and resistance levels are the levels at which a lot of traders are willing to buy the stock (in the case of a support) or sell it (in the case of resistance). When these trend lines are broken, the supply and demand and the psychology behind the stock's movements is thought to have shifted, in which case new levels of support and resistance likely be established. Round Numbers and Support and Resistance:- One type of universal support and resistance that tends to be seen across a large number of securities is round numbers. Round numbers like 10, 20, 35, 50, 100 and 1,000 tend be important in support and resistance levels because they often represent the major psychological turning points at which many traders will make buy or sell decisions. Buyers will often purchase large amounts of stock once the price starts to fall toward a major round number such as $50, which makes it more difficult for shares to fall below the level. On the other hand, sellers start to sell off a stock as it moves toward a round number peak, making it difficult to move past this upper level as well. It is the increased buying and selling pressure at these levels that makes them important points of support and resistance and, in many cases, major [57]
  58. 58. psychological points as well. Role Reversal Once a resistance or support level is broken, its role is reversed. If the price falls below a support level, that level will become resistance. If the price rises above a resistance level, it will often become support. As the price moves past a level of support or resistance, it is thought that supply and demand has shifted, causing the breached level to reverse its role. For a true reversal to occur, however, it is important that the price make a strong move through either the support or resistance. For example, as you can see, the dotted line is shown as a level of resistance that has prevented the price from heading higher on two previous occasions (Points 1 and 2). However, once the resistance is broken, it becomes a level of support (shown by Points 3 and 4) by propping up the price and preventing it from heading lower again. Many traders who begin using technical analysis find this concept hard to believe and don't realize that this phenomenon occurs rather frequently, even with some of the most well-known companies. For example, this phenomenon is evident on the Wal-Mart Stores Inc. (WMT) chart between 2003 and 2006. Notice how the role of the $51 level changes from a strong level of support to a level of resistance. [58]
  59. 59. In almost every case, a stock will have both a level of support and a level of resistance and will trade in this range as it bounces between these levels. The Importance Of Support And Resistance Support and resistance analysis is an important part of trends because it can be used to make trading decisions and identify when a trend is reversing. Support and resistance levels both test and confirm trends and need to be monitored by anyone who uses technical analysis. As long as the price of the share remains between these levels of support and resistance, the trend is likely to continue. It is important to note, however, that a break beyond a level of support or resistance does not always have to be a reversal. [59]
  60. 60. For example, if prices moved above the resistance levels of an upward trending channel, the trend have accelerated, not reversed. This means that the price appreciation is expected to be faster than it was in the channel. Being aware of these important support and resistance points should affect the way that you trade a stock. Traders should avoid placing orders at these major points, as the area around them is usually marked by a lot of volatility. If you feel confident about making a trade near a support or resistance level, it is important that you follow this simple rule: do not place orders directly at the support or resistance level. This is because in many cases, the price never actually reaches the whole number, but flirts with it instead. So if you're bullish on a stock that is moving toward an important support level, do not place the trade at the support level. Instead, place it above the support level, but within a few points. On the other hand, if you are placing stops or short selling, set up your trade price at or below the level of support. Summary of charts MOVING AVERAGES :- [60]
  61. 61. Most chart patterns show a lot of variation in price movement. This can make it difficult for traders to get an idea of a security's overall trend. One simple method traders use to combat this is to apply moving averages. A moving average is the average price of a security over a set amount of time. By plotting a security's average price, the price movement is smoothed out. Once the day-to-day fluctuations are removed, traders are better able to identify the true trend and increase the probability that it will work in their favor. Types Of Moving Averages:- There are a number of different types of moving averages that vary in the way they are calculated, but how each average is interpreted remains the same. The calculations only differ in regards to the weighting that they place on the price data, shifting from equal weighting of each price point to more weight being placed on recent data. The three most common types of moving averages are simple, linear and exponential. 1. Simple Moving Average (SMA) This is the most common method used to calculate the moving average of prices. It simply takes the sum of all of the past closing prices over the time period and divides the result by the number of prices used in the calculation. For example, in a 10-day moving average, the last 10 closing prices are added together and then divided by 10. As you can see in Figure 1, a trader is able to make the average less responsive to changing prices by increasing the number of periods used in the calculation. Increasing the number of time periods in the calculation [61]
  62. 62. is one of the best ways to gauge the strength of the long-term trend and the likelihood that it will reverse. Many individuals argue that the usefulness of this type of average is limited because each point in the data series has the same impact on the result [62]
  63. 63. regardless of where it occurs in the sequence. The critics argue that the most recent data is more important and, therefore, it should also have a higher weighting. This type of criticism has been one of the main factors leading to the invention of other forms of moving averages. 2. Linear Weighted Average This moving average indicator is the least common out of the three and is used to address the problem of the equal weighting. The linear weighted moving average is calculated by taking the sum of all the closing prices over a certain time period and multiplying them by the position of the data point and then dividing by the sum of the number of periods. For example, in a five-day linear weighted average, today's closing price is multiplied by five; yesterday's by four and so on until the first day in the period range is reached. These numbers are then added together and divided by the sum of the multipliers. 3. Exponential Moving Average (EMA) This moving average calculation uses a smoothing factor to place a higher weight on recent data points and is regarded as much more efficient than the linear weighted average. Having an understanding of the calculation is not generally required for most traders because most charting packages do the calculation for you. The most important thing to remember about the exponential moving average is that it is more responsive to new information relative to the simple moving average. This responsiveness is one of the key factors of why this is the moving average of choice among many technical traders. A 15-period EMA raises and falls faster than a 15-period SMA. This slight difference doesn’t seem like much, but it is an important factor to be aware of since it can affect returns. [63]
  64. 64. Major Uses of Moving Averages Moving averages are used to identify current trends and trend reversals as well as to set up support and resistance levels. Moving averages can be used to quickly identify whether a security is moving in an uptrend or a downtrend depending on the direction of the moving average. When a moving average is heading upward and the price is above it, the security is in an uptrend. Conversely, a downward sloping moving average with the price below can be used to signal a downtrend. Another method of determining momentum is to look at the order of a pair of moving averages. When a short-term average is above a longer-term average, the trend is up. On the other hand, a long-term average above a shorter-term [64]
  65. 65. average signals a downward movement in the trend. Moving average trend reversals are formed in two main ways: when the price moves through a moving average and when it moves through moving average crossovers. The first common signal is when the price moves through an important moving average. For example, when the price of a security that was in an uptrend falls below a 50-period moving average, it is a sign that the uptrend may be reversing. The other signal of a trend reversal is when one moving average crosses through another. For example, if the 15-day moving average crosses above the 50-day moving average, it is a positive sign that the price will start to increase. [65]
  66. 66. If the periods used in the calculation are relatively short, for example 15 and 35, this could signal a short-term trend reversal. On the other hand, when two averages with relatively long time frames cross over (50 and 200, for example), this is used to suggest a long-term shift in trend. Another major way moving averages are used is to identify support and resistance levels. It is not uncommon to see a stock that has been falling stop its decline and reverse direction once it hits the support of a major moving average. A move through a major moving average is often used as a signal by technical traders that the trend is reversing. For example, if the price breaks through the 200-day moving average in a downward direction, it is a signal that the uptrend is reversing. [66]
  67. 67. Moving averages are a powerful tool for analyzing the trend in a security. They provide useful support and resistance points and are very easy to use. The most common time frames that are used when creating moving averages are the 200-day, 100-day, 50-day, 20-day and 10-day. The 200-day average is thought to be a good measure of a trading year, a 100-day average of a half a year, a 50-day average of a quarter of a year, a 20-day average of a month And 10 – day average of two weeks. Moving averages help technical traders smooth out some of the noise that is found in day-to-day price movements, giving traders a clearer view of the price trend. So far we have been focused on price movement, through charts and averages. In the next section, we'll look at some other techniques used to confirm price movement and patterns. [67]
  68. 68. Technical Indicators ACCUMULATION/DISTRIBUTION Overview The Accumulation/Distribution is a momentum indicator that associates changes in price and volume. The indicator is based on the premise that the more volume that accompanies a price move, the more significant the price move. Interpretation The Accumulation/Distribution is really a variation of the more popular On Balance Volume indicator. Both of these indicators attempt to confirm changes in prices by comparing the volume associated with prices. When the Accumulation/Distribution moves up, it shows that the security is being accumulated, as most of the volume is associated with upward price movement. When the indicator moves down, it shows that the security is being distributed, as most of the volume is associated with downward price movement. Divergences between the Accumulation/Distribution and the security's price imply a change is imminent. When a divergence does occur, prices usually change to confirm the Accumulation/Distribution. For [68]
  69. 69. example, if the indicator is moving up and the security's price is going down, prices will probably reverse. BOLLINGER BANDS Overview Bollinger Bands are similar to moving average envelopes. The difference between Bollinger Bands and envelopes is envelopes are plotted at a fixed percentage above and below a moving average, whereas Bollinger Bands are plotted at standard deviation levels above and below a moving average. Since standard deviation is a measure of volatility, the bands are self-adjusting: widening during volatile markets and contracting during calmer periods. Bollinger Bands were created by John Bollinger. Interpretation Bollinger Bands are usually displayed on top of security prices, but they can be displayed on an indicator. These comments refer to bands displayed on prices. As with moving average envelopes, the basic interpretation of Bollinger Bands is that prices tend to stay within the upper- and lower-band. The distinctive characteristic of Bollinger Bands is that the spacing between the bands varies based on the volatility of the prices. During periods of extreme [69]
  70. 70. price changes (i.e., high volatility), the bands widen to become more forgiving. During periods of stagnant pricing (i.e., low volatility), the bands narrow to contain prices. following are characteristics of Bollinger Bands. • Sharp price changes tend to occur after the bands tighten, as volatility lessens. • When prices move outside the bands, a continuation of the current trend is implied. • Bottoms and tops made outside the bands followed by bottoms and tops made inside the bands call for reversals in the trend. • A move that originates at one band tends to go all the way to the other band. This observation is useful when projecting price targets. COMMODITY CHANNEL INDEX:- Overview The Commodity Channel Index ("CCI") measures the variation of a security's price from its statistical mean. High values show that prices are [70]
  71. 71. unusually high compared to average prices whereas low values indicate that prices are unusually low. Contrary to its name, the CCI can be used effectively on any type of security, not just commodities. Interpretation There are two basic methods of interpreting the CCI: looking for divergences and as an overbought/oversold indicator. • A divergence occurs when the security's prices are making new highs while the CCI is failing to surpass its previous highs. This classic divergence is usually followed by a correction in the security's price. • The CCI typically oscillates between 100. To use the CCI as an overbought/oversold indicator, readings above +100 imply an overbought condition (and a pending price correction) while readings below -100 imply an oversold condition (and a pending rally). ENVELOPES (TRADING BANDS) Overview [71]
  72. 72. An envelope is comprised of two moving averages. One moving average is shifted upward and the second moving average is shifted downward. Interpretation Envelopes define the upper and lower boundaries of a security's normal trading range. A sell signal is generated when the security reaches the upper band whereas a buy signal is generated at the lower band. The optimum percentage shift depends on the volatility of the security--the more volatile, the larger the percentage. The logic behind envelopes is that overzealous buyers and sellers push the price to the extremes (i.e., the upper and lower bands), at which point the prices often stabilize by moving to more realistic levels. This is similar to the interpretation of Bollinger Bands. MACD Overview The MACD ("Moving Average Convergence/Divergence") is a trend following momentum indicator that shows the relationship between two moving averages of prices. The MACD was developed by Gerald Appel, publisher of Systems and Forecasts. The MACD is the difference between a 26-day and 12-day exponential moving average. A 9-day exponential moving average, called the "signal" (or "trigger") line is plotted on top of the MACD [72]
  73. 73. to show buy/sell opportunities. (Appel specifies exponential moving averages as percentages. Thus, he refers to these three moving averages as 7.5%, 15%, and 20% respectively.) Interpretation The MACD proves most effective in wide-swinging trading markets. There are three popular ways to use the MACD: crossovers, overbought/oversold conditions, and divergences. Crossovers The basic MACD trading rule is to sell when the MACD falls below its signal line. Similarly, a buy signal occurs when the MACD rises above its signal line. It is also popular to buy/sell when the MACD goes above/below zero. Overbought/Oversold Conditions The MACD is also useful as an overbought/oversold indicator. When the shorter moving average pulls away dramatically from the longer moving average (i.e., the MACD rises), it is likely that the security price is overextending and will soon return to more realistic levels. MACD overbought and oversold conditions exist vary from security to security. Divergences [73]
  74. 74. A indication that an end to the current trend may be near occurs when the MACD diverges from the security. A bearish divergence occurs when the MACD is making new lows while prices fail to reach new lows. A bullish divergence occurs when the MACD is making new highs while prices fail to reach new highs. Both of these divergences are most significant when they occur at relatively overbought/oversold levels. MOMENTUM Overview The Momentum indicator measures the amount that a security's price has changed over a given time span. Interpretation The interpretation of the Momentum indicator is identical to the interpretation of the Price ROC. Both indicators display the rate-of-change of a security's price. However, the Price ROC indicator displays the rate-of- change as a percentage whereas the Momentum indicator displays the rate- of-change as a ratio. ON BALANCE VOLUME [74]
  75. 75. Overview On Balance Volume ("OBV") is a momentum indicator that relates volume to price change. On Balance Volume was developed by Joe Granville Interpretation On Balance Volume is a running total of volume. It shows if volume is flowing into or out of a security. When the security closes higher than the previous close, all of the day's volume is considered up-volume. When the security closes lower than the previous close, all of the day's volume is considered down-volume. PRICE OSCILLATOR Overview The Price Oscillator displays the difference between two moving averages of a securitys price. The difference between the moving averages can be expressed in either points or percentages. The Price Oscillator is almost identical to the MACD, except that the Price Oscillator can use any two user- specified moving averages. (The MACD always uses 12- and 26-day moving averages, and always expresses the difference in points.) Interpretation [75]
  76. 76. Moving average analysis typically generates buy signals when a short-term moving average (or the securitys price) rises above a longer-term moving average. Conversely, sell signals are generated when a shorter-term moving average (or the security’s price) falls below a longer-term moving average. The Price Oscillator illustrates the cyclical and often profitable signals generated by these one- or two-moving-average systems. VOLUME Overview Volume is simply the number of shares (or contracts) traded during a specified time frame (e.g., hour, day, week, month, etc). The analysis of volume is a basic yet very important element of technical analysis. Volume provides clues as to the intensity of a given price move. Interpretation Low volume levels are characteristic of the indecisive expectations that typically occur during consolidation periods (i.e., periods where prices move sideways in a trading range). Low volume also often occurs during the indecisive period during market bottoms. High volume levels are characteristic of market tops when there is a strong consensus that prices will move higher. High volume levels are also very common at the beginning of new trends (i.e., when prices break out of a trading range). Just [76]
  77. 77. before market bottoms, volume will often increase due to panic-driven selling. Volume can help determine the health of an existing trend. A healthy up- trend should have higher volume on the upward legs of the trend, and lower volume on the downward (corrective) legs. A healthy downtrend usually has higher volume on the downward legs of the trend and lower volume on the upward (corrective) legs. VOLUME OSCILLATOR Overview The Volume Oscillator displays the difference between two moving averages of a security's volume. The difference between the moving averages can be expressed in either points or percentages. Interpretation We can use the difference between two moving averages of volume to determine if the overall volume trend is increasing or decreasing. When the Volume Oscillator rises above zero, it signifies that the shorter-term volume moving average has risen above the longerterm volume moving average, and thus, that the short-term volume trend is higher (i.e., more volume) than the longer-term volume trend. [77]
  78. 78. There are many ways to interpret changes in volume trends. One common belief is that rising prices coupled with increased volume, and falling prices coupled with decreased volume, is bullish. Conversely, if volume increases when prices fall, and volume decreases when prices rise, the market is showing signs of underlying weakness. The theory behind this is straight forward. Rising prices coupled with increased volume signifies increased upside participation (more buyers) that should lead to a continued move. Conversely, falling prices coupled with increased volume (more sellers) signifies decreased upside participation. [78]
  79. 79. TECHNICAL ANALYSIS OF A STOCK:- POWERGRID, a Navratna Public Sector Enterprise, is one of the largest transmission utilities in the world.POWERGRID wheels about 45% of the total power generated in the country on its transmission network.POWERGRID has a pan India presence with around 71,500 Circuit Kms of Transmission network and 120 nos. of EHVAC & HVDC sub- stations with a total transformation capacity of 79,500 MVA.POWERGRID has also diversified into Telecom business and established a telecom network of more than 20,000 Kms across the country.POWERGRID has consistently maintained the transmission system availability over 99% which is at par with the International Utilities. POWERGRID, the Central Transmission Utility (CTU) of the country, is engaged in power transmission business with the mandate for planning, co- ordination, supervision and control over complete inter-State transmission system. POWERGRID, as on July 2009, owns and operates about 71,600 ckt kms of transmission lines at 800/765 kV, 400 kV, 220 kV & 132 kV EHVAC & +500 kV HVDC levels and 122 sub-stations with transformation capacity [79]
  80. 80. of about 81,200 MVA. This gigantic transmission network, spread over length and breadth of the country, is consistently maintained at an availability of over 99% through deployment of state-of-the-art Operation & Maintenance techniques which are at par with global standards. Share Holding Patterns Promoter (Ind) 86.36% Institution 6.40% Non-Institution 7.24% Custodians 0.00% Promoter (For) 0.00% Price’s of Power Grid Month Open Close Oct’2008 92.05 89.90 [80]
  81. 81. Nov’2008 89.90 74.45 Dec’2008 74.45 75.05 Jan’2009 75.05 83.35 Feb’2009 83.35 85.05 Mar’2009 85.05 91.15 Apr’2009 91.15 93.00 May’2009 93.00 95.85 Jun’2009 95.85 119.50 July’2009 119.50 108.75 Aug’2009 108.75 117.65 Sept’2009 117.65 108.45 Technical Analysis of Power Grid: Accumulation/Distribution: [81]
  82. 82. This chart is showing the pattern of accumulation/distribution with the price pattern of Power Grid and we can easily see that the indicator is following the same pattern as the price of power grid. But for now looking at this indicator is showing downward trend in the prices. Because as an when price move to 10m in indicator the price tend to fall and there is one another reason that is prices are going down and indicator is going up that also shows the negative trend in the prices. Bollinger Bands [82]
  83. 83. The chart shows that prices are moving within bollinger band and trading days where this script is very volatile and at some point of time its less volatile. During the Oct – Nov 2008 and May – June 2009 the Script seems to be more trading months.But looking at the current situation the script shows a selling signal but as the prices reaches below the bollinger band the prices would again tend to move upside but it all depends on the santiments and situation which would be prevailing in the market at that point of time. But for now one shold sell the particular script to gain a profit of about 5 – 10% in near future. [83]
  84. 84. Commodity Channel Index: The chart shows that the CCI is moving in line with the prices and the as prices goes up the CCI also goes up and vice versa. By the chart, if we are looking for the current trend its moving downward for short run but it still bullish for medium term. [84]
  85. 85. Envelope: Currently stock is showing that prices will go down but as it will touch its lower envelope band its will move upward [85]
  86. 86. MACD:- Currently looking at the chart the MACD has crossed the EMA 9 from the upside and this is a kind of negative sign and this negativity is going to be there until the MACD move above the EMA cutting it from below [86]
  87. 87. Momentum:- Earlier chart has shown some indication about sell and buy and they come true as it can be seen from the chart itself. Now the chart is showing selling indication for intraday basis and for short term its good when indicator goes to the lower level as it has made earlier [87]
  88. 88. Moving Average:- Looking at the chart one can easily interpret that moving average is roaming around the price but still giving some indication about price movement for [88]
  89. 89. near future. Sometime it shows indication of sale and buy at given point of time Looking forfuture price we cannot easily interpret themovement at thi spoint of time but still some indication of sale is shown in the graph as the price of share take support at the 15 days moving average and futher going down. It shows a downturn for short term period and if price cross moving from below and goes above the moving average that would be the best time to buy the stock. On Balance Volume:- [89]
  90. 90. Currently the indicator is making low high than the previous high and its indicates the downturn in intraday basis. But as it breaks the cuurent trend prices tend to move upside with a bang. Price Oscillator:- [90]
  91. 91. Currently the share prices according to the indicator is trading high and it gave a signal of selling share prices fro short term and go long for medium term Volume:- [91]
  92. 92. Current trend of volume shows that price tend to move upward but the rally will not exceed 2-3 days. After that we need to see the chart again because the indicator is not so trustworthy as others Volume Oscillator:- [92]
  93. 93. The chart shows that price will tend to move downside in short term but on intraday basis it will move upside. BIBLIOGRAPHY www.moneycontrol.com www.googlefinance.com www.yahoofinance.com www.technicalanalysis.com www.nseindia.com www.bseindia.com [93]