A RESEARCH REPORT

ON
TECHNICAL ANALYSIS OF SELECTED SECURITIES
IN
Indian Stock Market
RESEARCH PROJECT REPORT
SUBMITTED TOWARDS PARTIAL FULFILLMENT
OF
POST GRADUATE DIPLOMA IN
BUSINESS MANAGEMENT
(APPROVED BY AICTE,GOVT. OF INDIA)
( AS EQUIVALENT TO M.B.A)
ACADEMIC SESSION
2007-2008

SUBMITTED BY:

HARVINDRA SINGH
ROLL NO.0607370035

UNDER THE GUIDANCE OF:

MISS.NISHI VERMA
FACULTY OF NMC MEERUT

ACKNOWLEDGEMENT

Hope and misery, toll and revelry, cheer and dejection.

Are all that go behind the success of any project

This report bears the imprint of many people and without their support it would not
have existed.
First of all I would like to express my sincere indebt ness and profound sense of
gratitude to my parents whose continuous support in all manner had made me
capable to complete this project.

I acknowledge my deepest thanks to my project guide MISS NISHI VERMA for all her
care and encouraging words and giving suggestion at the crucial stages of the
project.

I express my profound sense of gratitude to Mrs. ROOPALI SHARMA

who has rendered constant guidance, advice and help as and when needed to
complete this project work successfully.

CONTENTS

1.

INTRODUCTION

Objectives

METHODOLOGY

SCOPE FOR FUTURE STUDY

Limitations

2.

SECURITIES MARKET IN INDIA

National Stock exchange

FACTS AND FIGURES

OPPORTUNITIES FOR FOREIGN INVESTORS

Factors Affecting Stock market

3.

OVERVIEW OF FACTORS

TECHNICAL ANALYSIS A CONCEPTUAL FRAMEWORK

Dow Theory

MOVING AVERAGE.

Elliott Wave Basics

TREND IS BEST FRIEND

TECHNICAL ANALYSIS OF SELECTED SECURITIES

ACC
BHEL.
CIPL A
G AIL
INFOSYS
ITC
M AH I N D R A & M AH I N D R A
R E L I AN C E
SBI
TISCO

5.

CONCLUSION

Conclusion
BIBLIOGRAPHY

STEPS INVOLVED IN MY FINAL PROJECT STUDY

P r oble m de finition

Es ta blis hing Obje c ti ve s

R es e a rc h D es ign

D e fine Pr oble m

D ec ide m e thod of c olle c ting da ta

D ec ide a bout the te c hnic a l the or ie s to be a pplie d

An a l ys i s a nd inte r pr e ta tion

Edit the c olle c te d da ta

C ode the c olle c te d da ta

An a l ys e the da ta us ing s ta tis tic a l c ha r ts

Inte r pr e t the da ta

D raw s umm a r y a nd c onc lus ion

Pr es e nta tion

Ar r a n ge the r es e a rc h re s ults to a n a ppr ove d

re por ting for ma t

Ge t re por t type a nd bind

Gi ve the c opie s of the re por t to c onc er ne d a uthor it y

& dis c us s

R es e a rc h r es ults

PREFACE

ORGANIZATION OF PROJECT
The pr oje c t is or ga nize d into five c ha pter s :
C ha pte r 1 Intr oduc tor y c ha pte r a nd Obje c tive s , Me thodolog y, S c ope
for futur e s tudy & Lim ita tions of the pr oje c t.

C ha pte r 2 C onc e pt a nd w or king of se c ur itie s ma rk e t in India .

C ha pte r

D e ta il

a bout

the

c onc e ptua l

fr a m ew ork

re la te d

to

te c hnic a l a na lys is

C ha pte r 4

Pr ac tic a l im ple m e nta tion of te c hnic a l the or ie s on 10

s e le c te d Inde x se c ur itie s

C ha pte r 5 C onc lus ion a nd Sugge s tion of the e ntir e pr oje c t

Chapter

INTRODUCTION

OBJECTIVES
METHODOLOGY
SCOPE FOR FUTURE STUDY
LIMITATION

OBJECTIVE
Th e o b je cti ve o f th e p ro j e ct is to stu d y th e va ri o u s the o ri e s o f te ch n i ca l
a n al ysi s , wh i ch he l p u s to un d e rsta nd th e mo ve me n t o f sto ck p ri ce s. Th e
stu d y a l so in vo l ve s un d e rsta nd i n g th e fa cto rs tha t a ffe ct th e mo ve me n t o f
sto ck pri ce s i n th e In d ia n Sto ck ma rke ts. An a l yzi n g th e va ri o u s fa cto rs
wo u l d he l p u s in u nd e rsta n di n g th e sto ck m arke ts i n a be tte r ma nn e r an d
h e n ce e n su ri n g th e sa fe ty o f ou r i n ve stm en ts as we l l as m a xim izi n g re tu rn s
o n su ch in ve stm e n ts.
W e al l wa n t to m ake m on e y in th e sto ck m arke t. W e do so b y sel l in g sto ck
a t a p ri ce h ig h e r th a n wh a t we bu y i t fo r. It ma ke s sen se , th en , th a t to ma ke
m on e y in th e sto ck m arke t, we ne e d to u n de rsta n d wh a t cau se s pri ce s to
ch a ng e . By h a vi n g a n ap p re cia ti o n fo r the thi n g s th a t mo ti va te sto ck p ri ce
ch a ng e , we ca n b e b e tte r a t an ti ci pa ti n g th e d i re ctio n a n d ve l o ci ty o f p ri ce
m o ve s.

METHODOLOGY

Th e stu d y is ca rri ed on in a p ro pe r pl a nn e d a n d syste m a ti c m an ne r.

Th i s m eth o do l o g y in cl u de s: Fa mi li a ri za tio n wi th th e Sto ck Exch a n ge s & te ch ni ca l th e o ri e s
Ob se rva ti o n an d co ll e cti o n o f d a ta

Descriptive research

An i n d ep th stu d y o f se co nd a r y d a ta i s ca rri ed ou t, i n o rd e r to
p re di ct th e sto ck p ri ce mo ve me n ts in the In di a n m arke t.

Sample size

D a ta o f 10 se l e cted in d e x sto cks

D a ta fo r the pe ri od o f l a st 3 ye a rs

Sample technique

D o w the o r y

Mo vi n g a ve ra ge

El li o t wa ve th e o ry

Tre nd is the be st fri en d

Instrument design

C ha rts

SCOPE FOR FUTURE STUDY

Ma ste r th e ba si cs. Mo st in ve sto r sp e nd th e re tim e lo o kin g fo r ea s y mo ne y

(wh i ch i s n o t a n e a sy se a rch ) in ste a d o f le a rn i n g th e ke y fa cto rs

to

se cu ri t y p ri ce s --- sup p l y a nd de ma n d .

S tu d y va ri o u s o the r the o ri e s o f te ch n i ca l a n al ysi s l i ke ca n d le sti ck e tc

In cre a se th e sam pl e si ze o f the da ta (p ri ce s & vo l um e ).

To g ai n acce ss to ma xi mu m nu mb e r o f sto ck cha rts .

10

Limitations

Relying on the past data

Th e m aj o r li mi ta ti o n o f te chn i cal an a l ysi s is i tse l f de a l s wi th pa st
d a ta . An a l ys t is stu d yi n g th e p a st tre n d s wh i ch m a y or ma y no t rep e a t
i n th e fu tu re . So , a n u n ce rta i n ty i s a l wa ys the re i n th e te ch n i ca l
a n al ysi s .

Late entry& late exit

Th e re a re ce rtai n co n di ti o n b e fo re wh i ch o ne co u l d no t m ake en tr y o r
e xi t i n a p a rti cu l a r sto ck. Fo r e xa m pl e o n l y du e to in cre a se in th e
vo l u me s on e ca nn o t ma ke en tr y un ti l th a t sto ck i n di ca te th e up wa rd
tre n d . Th e ti me wh e n we m ake e n try in a p a rti cul a r sto ck th a t sto ck
h a s a l re a d y i n cre a se a su b sta n tia l a mo un t.

Expect only reasonable return from technical analysis

Th e l a st l im i ta tio n i s te ch n i ca l a n al ys t i s th e tre n d fo l lo we r so h e can
o nl y ma ke re a so na b l e re tu rn from te ch n i ca l th e o rie s th ou g h th e m aj o r
g ai n s are m ad e b y i n si d e rs( com pa n y d i re cto rs o r m aj or sto ck h ol d e rs)
o nl y.

Not a guarantee way of predicting share prices

Tech n i ca l an a l ysi s is no t a g ua ra n te e wa y o f p red i cti ng sha re p ri ce s i f
i t wa s, e ve ryb o d y wo u l d use i t an d i f e ve ryb o d y use d i t, i t wo u l d n t
wo rk an ywa y. At b e st te ch n i cal an a l ysi s wi l l p ro vi d e yo u wi th a m i xed
b a g o f re sul ts. So me ti me s th e te ch n i ca l i n di ca to rs wi l l co me g oo d an d
yo u wi l l m ake mo ne y, a t o th e r ti me s.
11

12

Chapter

SECURITIES MARKET IN INDIA

13

SECURITIES MARKET IN INDIA

NATIONAL STOCK EXCHANGE

W h at m ake s NSE th e d yn a m i c an d en te rp ri si n g en ti t y th a t i s? The a n swe rs
l ie wi th i n th e p o rta l s o f th i s se cti on . Ab o u t th e ma na g em en t, th e fi n a n ci a l s,
th e n e w ag e te ch n ol o g y, the me mb ers, th e tra d in g s ys te m an d m uch m ore .
A l l th e fa cts th a t wi l l ma ke yo u re a li ze th a t N SE i s mo re th a n a m ere ma rke t
fa ci li ta to r. It' s th a t fo rce wh i ch is g ui d i ng th e in d u stry o f th e re g io n , to wa rd s
n e w ho ri zon s an d g re a te r op p o rtu ni ti e s.

MILESTONES

N S E wa s in co rp o ra te d on - No ve m be r 27 , 19 9 2 .

N S E sta rte d i ts o pe ra ti o n s on Ju n e 30 , 1 9 94 wh e re a s th e N SE Ca p i tal

Ma rke t se gm e n t sta rte d i ts op e ra ti on s on No ve m b e r 3 , 1 9 94

S e ttl e me n t Gu a ra n te e Fu nd se t u p i n Jun e 1 9 96

N S DL se t up a s a fi rst d e po si to ry i n In d ia - N o vem b e r 1 99 6

N S E com me nce d trad i n g i n De ma te ria l i ze d se cu ri ti e s from

De cem be r

2 6 , 1 9 96

R eg i o na l cl e a ri n g fa cil i t y go e s l i ve - Fe b rua r y 19 9 7

N S E l au n ch ed N IFTY (N SE-5 0 In d e x) - Ap ri l 2 2 , 1 99 6

14

Facts And Figures

D E VE LOP ME NTS O N T HE E X CHANGE

NSE and NSCCL went live with the inaugural session for Automatic Lending
and Borrowing Mechanism (ALBM) for lending and borrowing of securities on
February 10,1999. This is the first time an Indian agency approved b y SEBI
will be conducting the securities lending & borrowing transactions based on
international practices.

M E MB E RS HIP

890 trading members on the Capital Market segment, of which around

86% account for corporate and the remaining are individuals and firms.

Out of these 890 trading members, 89 trading members are also

members of W holesale Debt Market segment, all of which are corporate
and there are 7 trading members exclusively on W holesale Debt Market
Segment.

G E OGRAP HIC D IS TRIB UT ION

Over 6839 trading terminals given to the members as on November 25,

1999

Over

2342

VSAT's

across

the

country

wi th

24

hour

Network

monitoring system in over 291 cities as of November 01, 2003.

15

N UMB E R

OF

C OMPANIE S

On the Capital Market segment, Equity Shares of 685 companies are

listed and 572 companies are permitted to trade as of October 31,
2003.

On the W holesale Debt Market segment, 797 securities are listed and
517 securities are permitted to trade as of October 31, 1999. Of the 797
securities listed, 369 are Government Securities/T-Bills and the balance
account for other securities.

C LE A RING & S E TT LE MENT

Completed

562

settlements

successfully

without

an y

dela y

or

postponement as on December 02, 2003.

Value of shares handled b y the Clearing house per week has increased
from Rs. 30 crores in November 1994 to over Rs.4432 crores per week
in September 2003.

Inter-Region Clearing : NSCCL has Regional Clearing Centers at Delhi,

Calcutta, Chennai and a Central Clearing Centre at Mumbai. Members
have the option of delivering/receiving the securities at a clearing
centre chosen by them.

16

O PP ORTUNIT IES F OR F ORE IGN I NV E STORS

D IRE CT I NV ES T MENT
Foreign companies are now permitted to have a majority stake in their Indian
affiliates except in a fe w restricted industries. In certain specific industries,
foreigners can even have holding upto 100 percent.

I NV ES T MENT

THROUGH

S TOCK E XCHA NGES

Foreign Institutional Investors (FII) upon registration with the Securities and
Exchange Board of India (SEBI) and the Reserve Bank of India (RBI) are
allowed to operate in Indian stock exchanges subject to the guidelines issued
for the purpose by SEBI.
Important requirements under the guidelines are as under :
1. Portfolio investment in primary or secondary markets will be subject to
a ceiling of 30 percent of issued share capital for the total holding of all
registered FII's. In any one company an FII holding is subject to a
ceiling of 10 percent of the total issued capital. Howe ver, in appl ying
the ceiling of 30 percent the following are excluded:

Foreign investment under a financial collaboration which is

permitted upto 51 percent in all priority areas.

Investment

by

FII's

through

offshore

single/regional

funds,

GDR's and euro convertibles.

2. Disinvestment is allowed through a broker of a Stock Exchange.
3. A registered FII is required to bu y or sell onl y for delivery. It is not
allowed to offset a deal. It is also not allowed to sell short

17

B ROK ING B US INE SS

Foreign brokers upon registration with the SEBI are no w allowed to route the
business of registered FIIs. Guidelines for the purpose have been issued b y
SEBI.

D E RIVATIVE S
As soon as regulatory approvals are obtained, NSE plans to launch
a futures and options segment. NSE initially plans to launch trading
of futures and options on Nifty, an index that is uniquel y suited to the
demands of index-based products. The Exchange will subsequentl y initiate
trading in options on individual stocks and select securities. The Exchange
also has plans to launch fixed income derivatives. The Clearing Corporation
will guarantee settlement through a separate settlement fund. There will be
an equall y focussed margin and risk management system in place to monitor
and manage the clearing and settlement of the derivati ves segment

18

F AC TORS A FFE CT ING S TOCK M ARK E T

One of the major factors causing todays volatility is the unanimity in

investors inclination towards new economy stocks and their shunning of old
economy stocks. This has led to a huge polarization in the markets. Toda ys
markets are characterized by large investment flows into companies with
emerging businesses -- which typ ically have low floating stock -- leading to
wild price swings.

Volatility has gone up as activel y managed funds churn their portfolios more
often. This gets exacerbated by momentum investing b y da y traders and fund
managers

19

A N O V E RVIE W O F T HE F AC TORS
We all want to make money in the stock market. We do so by selling stock at
a price higher than what we buy it for. It makes sense, then, that to make
money in the stock market, we need to understand what causes prices to
change. By having an appreciation for the things that motivate stock price
change, we can be better at anticipating the direction and velocity of price
moves.

W HAT

IS

P RICE ?

To begin, we must first understand what price is. Financial theorists define
stock price as the present value of all future earnings expectations for the
compan y, divided by its number of shares outstanding. W hat this means is
that the earning capacity of the company is what defines price. Often,
companies can get significant value out of a relativel y small investment in
assets because the ability for those assets to make mone y is significant.

Even companies that lose mone y today can have a high share price because
price is based on the future earnings of the compan y. No enterprise is in
business to lose money, so the expectation is that every business will make
money some da y. So long as there is the potential for future revenue streams
to shareholders, there will be a price that someone is willing to pa y for the
shares.

The earnings that a company could make in the future, the growth that the
compan y could realize and the time to the realization of those goals are all
factors which affect the estimate that the market makes on the earnings
potential of the compan y

20

W HAT A FFE CTS P RICE ?

There are four main factors that cause movements in stock price:

New information

Uncertainty

Psychological Factors

Fear

Greed

Suppl y and Demand

I NFORMATION
If you read a financial textbook, yo u ma y find only this factor mentioned as
the determinant of share price. Information is key, as it gives the market a
reason to value a stock at a particular price level. The market will price a
stock based on all information that the public is aware of. As new information
comes into the public realm, the market will adjust prices up or down based
on how the market perceives the information will effect the future earnings
capacity of the company.
It is important to understand how information flows from the compan y to the
public. The public is supposed to learn about significant new information
through the issuance of news. The reality is that the information usuall y
makes it out before the news is released. Rumor pla ys a big part in the flow
of information, particularly today when technology allows for the rapid and
wide dissemination of information. Those close to a compan y often have
access to privileged information that they act upon b y bu ying and selling in
the market.

The ramification of this is that investors who wait for news to make
investment

decisions

often

get

into

stocks

long

after

the

information

contained in the news has alread y been priced in. "Buy on rumor, and sell on
news", is a saying that has grown popular because it is often the case that
stocks move up in anticipation of positive news and then sell off when
expectations have been answered b y the news release.
21

Technical analysis is very useful because it provides tools that allow

investors to identify the signs that new information is being priced into a
stock before news is released. Stocks that trade abnormally often do so
because of significant new information, both positive and negative. In this
wa y, technical anal ysis helps to reveal fundamental changes in the compan y
before the broader market is aware of it.

U NCE RTAINT Y
W hat a company will make in the future is far from certain. For this reason,
we should expect stocks to bounce around a little bit because of the
nervousness of the market about the future of the company. The uncertain
future of the compan y will bring some volatility in share prices even during a
period in which there is no new information.
Companies that have established a performance record will tend to show less
volatility as determined by uncertainty. General Motors, which is a wellestablished company with many ye ars of revenues, will show less volatility
than an upstart technology compan y that has not yet had an opportunity to
establish a track record of revenues and earnings. Because of uncertainty,
these stocks will trade differently and will present different kinds of trading
opportunities.

P S YCHOLOGICA L F ACTORS
Humans are behind the trading activity of the stock market. That means
human

characteristics

are

also

factors

in

how

share

prices

move.

Understanding human psychology is extremely valuable when evaluating

investment

opportunities

because

human

psycholog y

creates

and

accentuates many of the opportunities that investors can capitalize on.

For example, greed often causes stocks to go higher than they deserve to go.
B y deserve, I mean that the y go higher than the present value of future
22

earnings potential can justify. New information can cause a frenzy in the
market that makes investors lose sight of rational valuation and simply bu y
the stock for fear of being left behind. This phenomenon is the basis for some
great speculative bubbles that we have see in history.

At the same time, fear motivated b y negative information can cause everyo ne
to rush for the exit door at once and take a stock, or entire markets,
dramatically lower very quickly. Much of the selling pressure that prevails
during market crashes is out of fear, not a rational thought process based on
information.

Fear and greed present incorrect valuations in the market that can exist for
relativel y short periods of time but long enough for smart investors to
capitalize on. Emotion in the market can be viewed as an amplifier for new
information. It can make moves more extreme than the y should be. Howe ver,
often the power to this amplifier is pulled and the stock moves back to where
it should reside based on the information that is known about the company.

S UP P LY

AND

D E MA ND

W hile popular stocks like Dell Computer or General Motors trade millions of
shares every da y, the majority of stocks that we can choose to invest in do
not have such liquidity. As a result, stocks that trade smaller volumes of
shares are subject to fluctuations because of supply and demand. If a large

shareholder wants to sell a large number of shares into a market with weak
liquidity, that shareholder can dramaticall y move share price. The flip side is
also true when a large buy order comes into a market that lacks sellers.
Suppl y and demand can take the short-term balance out of the stock market
and present opportunities for investors who have the patience to see that
balance restored. Investors who can anticipate abnormal suppl y or demand
variations can also capitalize.
23

M AR KE T R IS K
Compan y risk is still easy to contend with, but what do we do about market
risks? Out of the number of factors affecting markets, our experience tells us
that market declines under man y of these factors are temporary and provide
excellent buying opportunities for the patient investor who thinks and bu ys
good companies (W e love this kind of an investor or company)

24

Chapter

TECHNICAL ANALYSIS A
CONCEPTUAL FRAMEWORK

25

T E CHNIC AL A N ALYS IS A C ONCE P TU AL F R AM E WORK

What is Technical Analysis?
Technical anal ysis takes a panoramic vie w of the market with an objective of
achieving a full understanding of the various forces, which reflect in the
market price of the security. The emphasis of this approach is to assist the
investor in facilitating his entry and exit from the market at the best possible
time.

D IFFE RE NT T HE ORIE S O N T ECHNICA L A NA LYS IS

D OW T HE ORY
The ideas of Charles Do w, the first editor of the Wall Street Journal, form the
basis of technical analysis today. Dow created the Industrial Average, of top
blue chip stocks, and a second average of top railroad stocks (now the
Transport Average). He believed that the behaviour of the averages reflected
the hopes and fears of the entire market. The behaviour patterns that he
observed appl y to markets throughout the world.

T HRE E M OV E ME NT S
Markets fluctuate in more than one time frame at the same time:
Nothing is more certain than that the market has three well defined
movements which fit into each other.
The first is the dail y variation due to local causes and the balance of buying
and selling at that particular time (Ripple).

26

The secondary movement covers a period ranging from days to weeks,

averaging probabl y between six to eight weeks (Wave).
The third move is the great swing covering anything from months to years,
averaging between 6 to 48 months. (Tide).

Bull markets are broad upward movements of the market that may last
several ye ars, interrupted by secondary reactions. Bear markets are long
declines interrupted b y secondary rallies. These movements are referred to
as the primary trend.
Secondary movements normally retrace from one third to two thirds of the
primary trend since the previous secondary movement.
Dail y fluctuations are important for short-term trading, but are unimportant in
anal ysis of broad market movements.
Various

cycles

have

subsequentl y

been

identified

within

these

broad

categories.

27

Primary Movements Have Three Phases

Look out for these general conditions in the market:

Bull Markets
Bull markets commence with reviving confidence as business conditions
improve.
Prices rise as the market responds to improved earnings
Rampant speculation dominates the market and price advances are
based on hopes and expectations rather than actual results.

Bear Markets
Bear markets start with abandonment of the hopes and expectations
that sustained inflated prices.
Prices decline in response to disappointing earnings.
Distress selling follows as speculators attempt to close out their
positions and securities are sold wi thout regard to their true value.

Ranging Markets
A secondary reaction may take the form of a line which ma y endure for
several weeks. Price fluctuates within a narro w range of about five per
cent.

28

Breakouts from a range can occur in either direction.

Advances above the upper limit of the line signal accumulation and higher
prices;
Declines below the lower limit indicate distribution and lower prices;
Volume is used to confirm price breakouts.

Trading Ranges for more detail.

B ULL T RE NDS
A bull trend is identified by a series of rallies where each rally exceeds the
highest point of the previous rall y. The decline, between rallies, ends above
the lowest point of the previous decline.

SUCCESSIVE HIGHER HIGHS AND HIGHER LOWS.

29

The start of an up trend is signaled when price makes a higher low (trough),
follo wed by a rall y above the previous high (peak):

Start = higher Low + break above previous High.

The end is signaled b y a lower high (peak), followed b y a decline below the
previous low (trough):

End = lower High + break below previous Low.

W hat if the series of higher Highs and higher Lo ws is first broken b y a lower
Low? There are two possible interpretations - see Large Corrections.

Bear Trends
Each successive rall y fails to penetrate the high point of the previous rall y.
Each decline terminates at a lower point than the preceding decline.

30

SUCCESSIVE LOWER HIGHS AND LOWER LOWS.

A bear trend starts at the end of a bull trend: when a rally ends with a lower
peak and then retreats below the previous low. The end of a bear trend is
identical to the start of a bull trend.
W hat if the series of lower Highs and lower Lows is first broken by a higher
High? This is a gray area - see Large Corrections .

LARGE CORRECTIONS
A large correction occurs when price falls below the previous low (during a
bull trend) or where price rises above the previous high (in a bear trend).

31

Some purists argue that a trend ends if the sequence of higher highs and
higher lows is broken. Others argue that a bear trend has not started until
there is a lower High and Low nor has a bull trend started until there is a
higher Low and High.
For practical purposes: Onl y accept large corrections as trend changes in the
primary trend:
A bull trend starts when price rallies above the previous high,
A bull trend ends when price declines below the previous lo w,
A bear trend starts at the end of a bull trend (and vice versa).

32

M OV ING A V E RA GE

A line on a price chart is actuall y meaningless. W hat I will show yo u is that a

simple moving average can guide yo u to where you should be looking - prior
price areas. These prior price areas are where traders have committed their
money to an index or stock in the past, and mone y is what moves the market.
A prior area of price support or demand is what can reverse a downtrend, not
an oversold indicator. Price resistance or supply overhead is what causes
prices to decline or consolidate, not an overbought indicator.
Mo ving averages can quickly guide you to look for those areas. There's no
hol y grail here, just a faster, less subjective wa y of doing analysis. Once you
see a moving average, yo u now need to look to the left of it to confirm the
area. Then consider a trade onl y when and if a reversal, or changing of the
guard as we call it, occurs. These points are where the probabilities of the
current trend reversing are likely, after a changing of the guard. If there is no
price data to the left of the moving average you are viewing, consider the
area of the moving average, if a reversal pattern occurs, questionable.
Lets look at a fe w examples of different moving averages.

33

Simple Moving Average (SMA)

A simple moving average is formed by computing the average (mean) price of a security over
a specified number of periods. While it is possible to create moving averages from the Open,
the High, and the Low data points, most moving averages are created using the closing
price. For example: a 5-day simple moving average is calculated by adding the closing prices
for the last 5 days and dividing the total by 5.

The calculation is repeated for each price bar on the chart. The averages are then joined to
form a smooth curving line - the moving average line. Continuing our example, if the next
closing price in the average is 15, then this new period would be added and the oldest day,
which is 10, would be dropped. The new 5-day simple moving average would be calculated
as follows:

34

Over the last 2 days, the SMA moved from 12 to 13. As new days are added, the old days
will be subtracted and the moving average will continue to move over time.

35

THE

C H A RT A B O V E I S A P L O T T H AT C O N TAI N S T H E D ATA S E Q U E N C E I N T H E TAB L E .

THE

S I M P L E M O V I N G AVE R A G E B E G I N S O N D AY

THIS

10

AND CONTINUES.

S I M P L E I L L U S T R ATI O N H I G H L I G H T S T H E FAC T T H AT A L L M O V I N G AVE R A G E S A R E

L A G G I N G I N D I C ATO R S A N D W I L L A LWAYS B E

"BEHIND"

THE PRICE.

THE

PRICE OF

EK

I S T R E N D I N G D O W N , B U T T H E S I M P L E M O V I N G AVE R A G E , W HI C H I S B A S E D O N T H E
PREVIOUS

10

RISING, THE

D AYS O F D ATA , R E M A I N S A B O V E T H E P R I C E .

SMA

W O U L D M O S T L I K E LY B E B E L O W .

IF

BECAUSE

THE PRICE W ERE

M O V I N G AVE R A G E S

A R E L A G G I N G I N D I C ATO R S , T H E Y F I T I N T H E C ATE G O RY O F T R E N D F O L L O W I NG
I N D I C ATO R S .

H OW E V E R ,

WHEN

P R I C E S A R E T R E N D I N G , M O V I N G AVE R A G E S W O R K W E L L .

W H E N P R I C E S A R E N O T T R E N D I N G , M O V I N G AVE R A G E S C A N G I V E

MISLEADING SIGNALS.

36

Exponential Moving Average (EMA)

In order to reduce the lag in simple moving averages, technicians often use exponential
moving averages (also called exponentially weighted moving averages). EMA's reduce the
lag by applying more weight to recent prices relative to older prices. The weighting applied to
the most recent price depends on the specified period of the moving average. The shorter
the EMA's period, the more weight that will be applied to the most recent price. For example:
a 10-period exponential moving average weighs the most recent price 18.18% while a 20period EMA weighs the most recent price 9.52%. As we'll see, the calculating and EMA is
much harder than calculating an SMA. The important thing to remember is that the
exponential moving average puts more weight on recent prices. As such, it will react quicker
to recent price changes than a simple moving average. Here's the calculation formula.

Exponential Moving Average Calculation

Exponential Moving Averages can be specified in two ways - as a percent-based EMA or as
a period-based EMA. A percent-based EMA has a percentage as it's single parameter while a
period-based EMA has a parameter that represents the duration of the EMA.

The formula for an exponential moving average is:

EMA(current) = ( (Price(current) - EMA(prev) ) x Multiplier) + EMA(prev)
For a percentage-based EMA, "Multiplier" is equal to the EMA's specified percentage.
For a period-based EMA, "Multiplier" is equal to 2 / (1 + N) where N is the specified number
of periods.
For example, a 10-period EMA's Multiplier is calculated like this:

This means that a 10-period EMA is equivalent to an 18.18% EMA..

Below is a table with the results of an exponential moving average calculation for Eastman
Kodak. For the first period's exponential moving average, the simple moving average was
37

used as the previous period's exponential moving average (yellow highlight for the 10th
period). From period 11 onward, the previous period's EMA was used. The calculation in
period 11 breaks down as follows:
1.

(C - P) = (61.33 - 63.682) = -2.352

2.

(C - P) x K = -2.352 x .181818 = -0.4276

3.

((C - P) x K) + P = -0.4276 + 63.682 = 63.254

4.

38

Note that, in theory, every previous closing price in the data set is used in the calculation of
each EMA that makes up the EMA line. While the impact of older data points diminishes over
time, it never fully disappears. This is true regardless of the EMA's specified period. The
effects of older data diminish rapidly for shorter EMA's. than for longer ones but, again, they
never completely disappear.

Simple Versus Exponential

From afar, it would appear that the difference between an exponential moving average and a
simple moving average is minimal. For this example, which uses only 20 trading days, the
difference is minimal, but a difference nonetheless. The exponential moving average is
consistently closer to the actual price. On average, the EMA is 3/8 of a point closer to the
actual price than the SMA

39

From day 10 to day 20, the EMA was closer to the price than the SMA 9 out of 10 times. The
only time the SMA was closer was in period number 18, and this did not last long. The
average absolute difference between the exponential moving average and the current price
was 1 and the simple moving average had an average absolute difference of 1.33.
This means that on average, the exponential moving average was 1 point above or below the
current price and the simple moving average was 1.33 points above or below the current
price.

40

When EK stopped falling and started to trade flat, the SMA kept on declining. During this
period, the SMA was closer to the actual price than the EMA. The EMA began to level out
with the actual price and remain further away. This was because the actual price started to
level out. Because of its lag, the SMA continued to decline and even touched the actual price
on 13-Dec.

A comparison of a 50-day EMA and a 50-day SMA for IBM also shows that the EMA picks up
on the trend quicker than the SMA. The blue arrows mark points when the stock started a
strong trend. By giving more weight to recent prices, the EMA reacted quicker than the SMA
and remained closer to the actual price. The gray circle shows when the trend began to slow
and a trading range developed. When the change from trend to trading began, the SMA was
closer to the price. As the trading range continued into 2001, both moving averages
converged. In early 2001, CPQ started to trend up and the EMA was quicker to pick up on
the recent price change and remain closer to the price.

41

Which is better

Which moving average you use will depend on your trading and investing style and
preferences. The simple moving average obviously has a lag, but the exponential moving
average may be prone to quicker breaks. Some traders prefer to use exponential moving
averages for shorter time periods to capture changes quicker. Some investors prefer simple
moving averages over long time periods to identify long-term trend changes. In addition,
much will depend on the individual security in question. A 50-day SMA might work great for
identifying support levels in the NASDAQ, but a 100-day EMA may work better for the Dow
Transports. Moving average type and length of time will depend greatly on the individual
security and how it has reacted in the past.

The initial thought for some is that greater sensitivity and quicker signals are bound to be
beneficial. This is not always true and brings up a great dilemma for the technical analyst: the
trade off between sensitivity and reliability. The more sensitive an indicator is, the more
signals that will be given. These signals may prove timely, but with increased sensitivity
comes an increase in false signals. The less sensitive an indicator is, the fewer signals that
will be given. However, less sensitivity leads to fewer and more reliable signals. Sometimes
these signals can be late as well.

For moving averages, the same dilemma applies. Shorter moving averages will be more
sensitive and generate more signals. The EMA, which is generally more sensitive than the
SMA, will also be likely to generate more signals. However, there will also be an increase in
the number of false signals and whipsaws. Longer moving averages will move slower and
generate fewer signals. These signals will likely prove more reliable, but they also may come
late. Each investor or trader should experiment with different moving average lengths and
types to examine the trade-off between sensitivity and signal reliability.

42

Uses for Moving Averages

There are many uses for moving averages, but three basic uses stand out:
1.Trend identification/confirmation
2. Support and Resistance level identification/confirmation
3. Trading Systems

Trend Identification/Confirmation
There are three ways to identify the direction of the trend with moving averages: direction,
location and crossovers.
The first trend identification technique uses the direction of the moving average to determine
the trend. If the moving average is rising, the trend is considered up. If the moving average is
declining, the trend is considered down. The direction of a moving average can be
determined simply by looking at a plot of the moving average or by applying an indicator to
the moving average. In either case, we would not want to act on every subtle change, but
rather look at general directional movement and changes.

In the case of Disney, a 100-day exponential moving average (EMA) has been used to

determine the trend. We do not want to act on every little change in the moving average, but
rather significant upturns and downturns. This is not a scientific study, but a number of
43

significant turning points can be spotted just based on visual observation (red circles). A few
good signals were rendered, but also a few whipsaws and late signals. Much of the
performance would depend on your entry and exit points. The length of the moving average
influences the number of signals and their timeliness. Moving averages are lagging
indicators. Therefore, the longer the moving average is, the further behind the price
movement it will be. For quicker signals, a 50-day EMA could have been used.
The second technique for trend identification is price location. The location of the price
relative to the moving average can be used to determine the basic trend. If the price is above
the moving average, the trend is considered up. If the price is below the moving average, the
trend is considered down.

This example is pretty straightforward. The long-term for CSCO is determined by the location
of the stock relative to its 100-day SMA. When CSCO is above its 100-day SMA, the trend is
considered bullish. When the stock is below the 100-day SMA, the trend is considered
bearish. Buy and sell signals are generated by crosses above and below the moving
average. There was a brief sell signal generated in Aug-99 and a false buy signal in July-00.
Both of these signals occurred when Cisco's trend began to weaken. For the most part
though, this simple method would have kept an investor in throughout most of the bull move.

The third technique for trend identification is based on the location of the shorter moving
average relative to the longer moving average. If the shorter moving average is above the
longer moving average, the trend is considered up. If the shorter moving average is below
the longer moving average, the trend is considered down.
44

For Inter-Tel, a 30/100 moving average crossover was used to determine the trend. When
the 30-day moving average moves above the 100-day moving average, the trend is
considered bullish. When the 30-day moving average declines below the 100-day moving
average, the trend is considered bearish. A plot of the 30/100 differential is plotted below the
price chart by using the Percentage Price Oscillator (PPO) set to (30,100,1). When the
differential is positive the trend is considered up -- when it is negative the trend is considered
down. As with all trend-following systems, the signals work well when the stock develops a
strong trend, but are ineffective when the stock is in a trading range. Also notice that the
signals tend to be late and after the move has begun. Again, trend following indicators are
best for identification and following, not predicting.

Support and Resistance Levels

Another use of moving averages is to identify support and resistance levels. This is usually
accomplished with one moving average and is based on historical precedent. As with trend
identification, support and resistance level identification through moving averages works best
in trending markets.
45

After breaking out of a trading range, Sun Microsystems successfully tested moving average
support in late July and early August. Also notice that the June resistance breakout near 18
turned into support. Therefore, the moving average acted as a confirmation of resistanceturned-support. After this first test, the 50-day moving average went on to 4 more
successful support tests over the next several months. A break of support from the 50-day
moving average would serve as a warning that the stock may move into a trading range or
may be about to change the direction of the trend. Such a break occurred in Apr-00 and the
50-day SMA turned into resistance later that month. When the stock broke above the 50-day
SMA in early Jun-00, it returned to a support level until the Oct-00 break. In Oct-00, the 50day SMA became a resistance level and that held for many months.

E LLIOTT W AVE B A S ICS A B OUT E LLIOT T W AVES B AS ICS

The Elliott Wave Theory is named after Ralph Nelson Elliott. Inspired by the
Dow Theory and b y observations found throughout nature, Elliott concluded
that the movement of the stock market could be predicted b y observing and
identifying a repetitive pattern of wa ves. In fact, Elliott believed that all of
man's activities, not just the stock market, were influenced by these
identifiable series of wa ves.

46

Elliott based part his work on the Dow Theory, which also defines price
movement in terms of waves, but Elliott discovered the fractal nature of
market action. Thus Elliott was able to anal yze markets in greater depth,
identifying the specific characteristics of wa ve patterns and making detailed
market predictions based on the patterns he had identified.
The whole theory of Elliott Wave can be classified into two parts:

Impulse patterns
Corrective patterns

IMPULSE PATTERNS
The impulse pattern consists of five waves. The five wa ves can be in either
direction, up or down. Some examples are shown to the right and below.The
first wave is usually a weak rally with onl y a small percentage of the traders
participating. Once Wave 1 is over, the y sell the market on Wave 2. The selloff in Wave 2 is very vicious. Wave 2 will finall y end without making new lows
and the market will start to turn around for another rally.

47

The initial stages of the Wave 3 rally are slo w, and it finall y makes it to the
top of the previous rall y (the top of Wave 1).
At this time, there are a lot of stops above the top of Wave 1.

Traders are not convinced of the up ward trend and are using this rally to add
more shorts. For their analysis to be correct, the market should not take the
top of the previous rall y.
Therefore, man y stops are placed above the top of Wave 1 .

The Wave 3 rally picks up steam and takes the top of Wave 1. As soon as the
Wave 1 high is exceeded, the stops are taken out. Depending on the number
of stops, gaps are left open. Gaps are a good indication of a Wave 3 in
progress. After taking the stops out, the Wave 3 rall y has caught the
attention of traders. The next sequence of events are as follows: Traders who
were initiall y long from the bottom finall y have something to cheer about.
The y might even decide to add positions.
48

The traders who were stopped out (after being upset for a while) decide the
trend is up, and they decide to bu y into the rall y. All this sudden interest
fuels the Wave 3 rall y.
This is the time when the majority of the traders have decided that the trend
is up.
Finall y, all the buying frenzy dies down; Wave 3 comes to a halt.
Profit taking now begins to set in. Traders who were long from the lows
decide to take profits. They have a good trade and start to protect profits.
This causes a pullback in the prices that is called Wave 4.
Wave 2 was a vicious sell-off; Wave 4 is an orderl y profit-taking decline.
W hile profit-taking is in progress, the majority of traders are still convinced
the trend is up. The y were either late in getting in on this rall y, or the y have
been on the sideline.

The y consider this profit-taking decline an excellent place to bu y in and get

even

On the end of Wave 4, more bu ying sets in and the prices start to rally again.
The Wave 5 rall y lacks the huge enthusiasm and strength found in the Wave
3 rall y. The Wave 5 advance is caused b y a small group of traders.
49

Although the prices make a new high above the top of Wave 3, the rate of
power, or strength, inside the Wave 5 advance is very small when compared
to the Wave 3 advance.
Finall y, when this lackluster buying interest dies out, the market tops out and
enters a new phase

50

E LLIOTT W AVE B ASICS C ORRECTIVE P ATTERNS

SIMPLE CORRECTION (ZIG-ZAG)
There is onl y one pattern in a simple correction. This pattern is called a ZigZag correction. A Zig-Zag correction is a three-wa ve pattern where the Wave
B does not retrace more than 75 percent of Wave A. Wave C will make new
lows below the end of Wave A. The Wave A of a Zig-Zag correction alwa ys
has a five-wave pattern. In the other two typ es of corrections (Flat and
Irregular), Wave A has a three-wave pattern. Thus, if you can identify a fivewa ve pattern inside Wave A of an y correction, you can then expect the
correction to turn out as a Zig-Zag formation.
Fibonacci Ratios inside a Zig-Zag Correction

A simple correction is commonly called a Zig-Zag correction.

Complex Corrections
(Flat, Irregular, Triangle)
The complex correction group consists of 3 patterns:

Flat

Irregular

Triangle

51

FLAT CORRECTION
In a Flat correction, the length of each wa ve is identical. After a five-wave
impulse pattern, the market drops in Wave A. It then rallies in a Wave B to
the previous high. Finall y, the market drops one last time in Wave C to the
previous Wave A low.

IRREGULAR CORRECTION
In this type of correction, Wave B makes a new high. The final Wave C may
drop to the beginning of Wave A, or belo w it.

52

TRIANGLE CORRECTION
In addition to the three-wave correction patterns, there is another pattern
that appears time and time again. It is called the Triangle pattern. Unlike
other triangle studies, the Elliott Wave Triangle approach designates five
sub-waves of a triangle as A, B, C, D and E in sequence.
Triangles, b y far, most commonly occur as fourth wa ves. One can sometimes
see a triangle as the Wave B of a three-wave correction . Triangles are very
tricky and confusing. One must stud y the pattern very carefully prior to taking
action. Prices tend to shoot out of the triangle formation in a swift thrust.
W hen triangles occur in the fourth wa ve, the market thrusts out of the
triangle in the same direction as Wave 3. W hen triangles occur in Wave Bs,
the market thrusts out of the triangle in the same direction as the Wave A.

THE TREND IS YOUR BEST FRIEND

53

Trading is likely the most exciting wa y to make a living and/or accumulate a

fortune. You are yo ur own boss and your own worst enemy. You alone must
deal with the frustration of yo ur own choices. If yo u lose, there is no one else
to blame. You made the losing decision, even if that decision was to let
someone else make yo ur decision or to follow someone elses approach. On
the other hand, if you win, dont have to say Thank yo u to anyone. You are
not obliged to anyone but yo urself. There is no politics nor an yone to whom
you must cater. You are truly sliding down the razor blade of life.
But here is the problem. Most of the time, the market goes nowhere. Onl y 25
to 40 percent of the time does the market trend, during the remaining 60 to
75 percent of the time the market goes nowhere. Most professional traders
make nearl y all of their profits in a trending market. Here is our problem: we
dont want to spend out time entering and exiting a market that is going
nowhere. If the market is going nowhere, then the opportunity is NO-W HERE.
We want to change that to opportunity is NOW-HERE.

This chart shows that BHEL has been in a trading range since March, 2000.

54

TREND AND TRADING RANGE

Traders try to profit from changes in prices: Buy low and sell high or sell
short high and cover low. Even a quick look at a chart reveals that markets
spend most of their time in trading ranges. They spend less time in trends.
A trend exits when prices keep rising or falling over time. In an uptrend, each
rall y reaches a higher high than the preceding rall y and each decline stops at
a higher level than the preceding decline. In a downtrend each decline falls
to a lower low than the preceding decline and each rally stops at a lower
level than the preceding decline and each rally stops at a lower level than the
preceding rall y. In trading range most rallies stop at about the same high and
declines peter out at about the low.
A trader needs to identify trends and trading ranges. It is easier to trade
during trends than in trading ranges .

THREE IMPORTANT TRENDS

You ma y be asking yourself the question, "W hat is a trend and how long does
it last?" There are countless numbers of trends, but before the advent of
intrada y charts, there were three generally accepted durations: primary,
intermediate and short-term.
The main, or primary trend (TIDE), is often referred to as a bull or bear
market. Bulls go up and bears go down. The y typicall y last about nine months
to two ye ars with bear market troughs separated by just under four ye ars.
These trends revolve around the business cycle and tend to repeat whether
the weak phase of the cycle is an actual recession, or if there is no recession
and just slow growth .

55

Primary Trend

Primary trends are not straight-line affairs, but are a series of rallies and
reactions. These series of rallies and reactions are known as intermediate
trends (WAVE). The y can vary in length from as little as six weeks to as much
as nine months, or the length of a very short primary trend. Intermediate
trends typicall y develop as a result of changing perceptions concerning
economic, financial, or political events. It is important to have some
understanding of the direction of the main or primary trend because rallies in
bull markets are strong and reactions are weak. On the other hand, reactions
in bear markets are strong and rallies are short, sharp, and generall y,
unpredictable. If yo u have a fix on the underl ying primary trend, yo u will be
better prepared for the nature of the intermediate rallies and the reactions
that will unfold. In turn, intermediate trends can be broken down into shortterm trends (RIPPLE), which last from as little as two weeks to as much as
five or six weeks. They are sho wn in the figure below b y the dashed lines.

56

57

Chapter

TECHNICAL ANALYSIS OF
SELECTED STOCKS

58

TECHNIC AL A N ALYS IS O F S E LE CT E D S E CURIT IE S I N T HE S TOCK

M ARK E T

ACC

The above chart is of ACC a well known company I the cement

Industry.

In the initial ye ar May- 03 to May- 04 the stock is moving in the up ward

trend.

According to Dow theory the stock is forming higher tops & bottoms.

According to the Moving Average theory the stock is moving above both
the 50 day as well as 200 da y moving average .
59

During the period of Feb-04 to April-04 the volume is very high this
shows the sign of distribution.

In June-04 this upward trend breaks as we can see the circle in the
above chart.

During the period June-04 to Nov-04 the stock moves in the side wa ys
movement.

After Nov-05 This stock again breaks the moving average and starts
making the upward trend

In Mar-05 the stock again close to its moving average this is the major
support if it breaks then it is possible that the upward trend is over.

60

 BHEL

The above stock is of Bharat Heavy electrical Ltd.

The chart is reflecting very firm trend and investor is getting profit at
every level till ma y- 04.

W hen this stock dips around June-04 we can see the major increase in
the volumes this clearly shows the accumulation that has been done by
the investor at the lower levels.

61

This can be clearl y seen that from Aug-04 the stock come above the
Mo ving average and this time the upward trend is more steep as
compare to the previous one.

Till Mar-05 the stock is in the upward trend and till the stock is
Moving above the moving average the upward trend continue
And investors will get good profit from this stock.

CIPLA

The above chart is related to pharmaceuticals industry.

In the period Ma y- 03 to Ma y- 04 this share is in the upward

62

Mo vement but this was onl y due to the positive market sentiments
because we can see the upward movement does not support large
volumes so when the market corrects in june-04 the stock immediatel y
shows the weakness.

The upward trend starts after July- 04 as we can see in the chart trend
is supported b y higher volumes and the stock price shows 50%
increase in the next 1 year .

After Jan-05 this stock shows the sign of weakness and currentl y the
stock is in the down ward trend.

GAIL

The above chart is of Gas Authority of India Ltd.

Acc to the Dow theory till Jan-04 this stock is making new highs.
63

Then till Aug-04 there is no clear technical trend of this stock

after Aug-04 this stock again cut 200 days moving average and

this

stock again enters into the bull phase but this time the rally is
supported b y low volumes so whenever the market shows weakness this
stock starts moving in down ward trend.

As we can see after Jan-05 this stock is not able to move above the 50
days moving average this is the clear sign of weakness .

In the month of Jan-04 this stock gives higher volumes support a

sudden rise from the price of 200 to 275 but this jump. Acc to the theory
this typ e of phase is known as Distribution

64

INFOSYS

Infosys is one of the most heavy weight stock of the index

We can see from the beginning of the chart this stock is showing
upward trend and no sign of weakness is shown through out the trend
line.
65

In ma y- 04 when the market crashed even then this stock doesnt

cuts 200 days moving average this clearl y shows investors
Interest in this particular stock

After that high volumes supports the up ward trend and as we see in
chart the stock gives high amount of return from the period of Ma y- 04
to Dec-04.

In the future also this stock is going to perform well as till now there Is
no sign of weakness seen in this stock.

66

ITC

From the period of Ma y- 03 to April-04 this stock is moving in the Upward

trend.

In the month of April-04 this stock is not able to sustain over the 50 Da ys
moving average and it dips down.

This stock is very weak during Ma y- 04 to July- 04. In Aug-04

this stock again enters in the upward trend after cutting 200

moving

average, buts very less amount of volume are seen in this stock.
67

After Oct-04 this stock enters in the major upward trend and within 3 or 4
months it increase up to 25 percent.

If this stock rebounded from the current levels then it can even break the
target of 1400.

Mahindra &Mahindra

Mah & Mah is a stock of auto industry.

In the year Ma y- 03 to Ma y- 04 this stock shows upward trend

which Is supported b y high volumes.

As we can see in this chart after Oct-04 the volumes dry in this stock
and the stock starts moving in the side wa ys movement.

68

In the future this stock is not looking good as far as investment

Point of view.

RELIANCE

Reliance is most heavy weight stock of the index.

The best part of this stock is that investors are alwa ys ready to invest in
this stock this can be seen from the volume chart. through out the period
this stock has the same amount of volume.

As per the technical trend from Ma y- 03 to Feb-04 this stock was

In the major up ward trend.

Due to weak market condition this stock was in down ward movement
from Ma y- 04 to Sep-04.

69

After Jan-05 this stock again enter in the upward trend and far as
Future prospects this stock is best to invest for the period of 6 months

As far as the stock is moving above the moving average line there
Is no risk and investor may get high amount of profits from this stock.

SBI

This stock makes higher tops & bottoms till April-04.

After Ma y- 04 this stock was in a major weakness and till Nov-04

This stock moves in a side wa ys movement.

As we see in the chart during Dec-04 there was a sudden increase in the
volume this is the clear cut indication of Bull trend.

Then after Dec-04 to Feb-05 this stock shows major bull trend.

70

TISCO

Tisco is a very good example of Elliot Wave Theory.

Till Jan-04 the stock is in the major upward trend. From Jan-04

to April-

04 the stock moves in the sidewa ys movement.

As we can see during this period this stock is forming Head and
Shoulder formation and after that this stock starts moving in the
Downwards direction.

71

Then when this stock cuts 50 days moving average in the month of Sep05 this stock again enters in the bull trend and till march-05 there is bull
phase going on for this stock.

According to the future prospects also this stock is very good for
making investments.

Tisco is making new highs this is the clear indication of the bull trend.

72

Chapter

CONCLUSION

73

CONCLUSION

As a rule technical anal ysis can appear to be more art than science. It is
not unusual to find a particular chart pattern or price range or time range
giving strong signals but find that the market moves in an opposite
direction than what yo ur analysis would predict. For this reason, people
often become frustrated with technical anal ysis. Howeve r, like any
method that is less than 100% reliable, it is useful to support your price
and time projections based on a number of sources.

B y its nature technical analysis tends to be useful for short term trading
rather than long term investing.

Technical analysis and fundamental anal ysis are two very different
approaches, but one does not completely exclude the other. If yo u focus
on fundamentals it is still worth checking out the chart of a company yo u
are about to buy or sell. Similarl y if you focus on technical signals, it is
worth checking the fundamental of a company.

Dont compound yo ur losses b y averaging down (dont keep

buying additional share at lower prices) it are tempting to think that a
loss doesnt count until the position is closedbut it do.

An ytime yo u own a security, ask yo urself if yo u would buy it toda y. If yo u

wouldnt bu y it you should consider selling it.
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Dont get distracted by others investment prowess. Most investors onl y

discuss their successes, threatening your focus and confidence.

Technical anal ysis, the polar opposite of fundamental anal ysis, is not
concerned with a stock's intrinsic value, but instead looks at past market
activity to determine future price movements.

W hereas most investors concentrate on the fundamentals of a compan y

(turnover, profits, growth etc), technical analysts are concern with the
share price itself.

The y believe that prices are driven b y the psycholog y of investors rather
than fundamentals. By understanding investor psychology, the y can
predict which wa y prices will move.

The tool use for making predictions is the chart. The y plot price and
volume data on the chart, and look for patterns and trends.

There are numerous theories wi thin technical anal ysis. They all depend
on market psycholog y being predictable and on chart patterns repeating
themselves

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BIBLIOGRAPHY

WWW.STOCKCHARTS.COM

WWW.NSEINDIA.COM

WWW.MONEYCONTROL.COM

WWW.RELIGARESECURITIES.COM

WWW.INCREDIBLECHARTS.COM

WWW.TECHNICALANALYSIS.COM

WWW.INVESTOPEDIA.COM

WWW.TRADERSAGEINDIA.COM

WWW.TECHNCALS.COM

WWW.MARKETANALYSIS.COM

WWW.ICICIDIRECT.COM

FISHER AND JORDAN

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