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Introduction :
transparency, by displaying all buy and sell orders in the trading system. However, in the
absence of market makers, there is no guarantee that orders will be executed.
All orders in the trading system need to be placed through brokers, many of which provide
online trading facility to retail customers. Institutional investors can also take advantage of
the direct market access (DMA) option, in which they use trading terminals provided by
brokers
for
placing
orders
directly
into
the
stock
market
trading
system.
Market Regulation:
The overall responsibility of development, regulation and supervision of the stock market
2
rests with the Securities & Exchange Board of India (SEBI), which was formed in 1992 as
an independent authority. Since then, SEBI has consistently tried to lay down market rules
in line with the best market practices. It enjoys vast powers of imposing penalties on
market participants, in case of a breach.
1.2. Company Profile:
VERTEX is a premier brokerage house in India on the fast growth track. In the last onedecade, we have emerged as a powerhouse in the financial services industry. We started
functioning in the stock market in 1993. Over the years, we grew from strength to strength
to become a major player in India's broking services sector.
Today VERTEX is one of the foremost brokerage houses, being a member of various
exchanges in the capital and commodity markets. VERTEX is a member of the National
Stock Exchange of India (NSE), the Bombay Stock Exchange, the National Multi
Commodity Exchange of India Ltd (NMCEIL), the National Commodities Derivatives
Exchange Ltd (NCDEX), and Multi Commodity Exchange of India Ltd (MCX). VERTEX
is a full-fledged depository participant of the National Securities Depository Ltd.
VERTEX constantly infuses quality into service. We provide our clients full expertise to
play in the market with confidence. They avail full-fledged trading facilities and services
through our nation-wide offices in securities and in commodities. To help our clients better,
we have located our offices in major towns and placed highly qualified and experienced
financial experts to man them. A team of dynamic finance professionals with decades of
experience leads them. These professionals share a common vision not only to transform
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the company into a highly professional organization, but also make their clients earn the
maximum from their hard-earned money.
Transwarranty Finance Limited (TFL) is a Mumbai (India) head quartered full service
Investment Bank providing a wide range of Financial Services to over 400 large and mid
cap
companies
and thousands
of retail
clients
all
1994.
Since the activities are diverse and governed by different regulatory authorities, the
businesses are structured under Transwarranty Finance Limited as the flagship company
and its subsidiary companies.
Transwarranty Finance Limited is a Reserve Bank of India (RBI) registered Non Banking
Finance Company (NBFC) with active business in Investment Banking, Corporate Finance,
Project
Finance,
Real
Estate
&
Infrastructure
and
Trade
Finance.
The board of directors of TFL comprises of eminent professionals like solicitor Mr. S. N.
Talwar (Chairman), banker and author Mr. Raghu Palat, former Executive Director
(Finance) of Godrej Industries Ltd Mr. K. K. Dastur, former director of Goldman Sachs Mr.
Pravin Khatau and Mr. Kumar Nair (Managing Director), who was part of the core
management
team
in
Kotak
Mahindra
Finance
Limited
till
1994.
All the retail branches distribute and service the entire suite of retail finance products,
which include Equity Broking, Commodity Broking, Mutual Funds, IPOs, Other
investment products like RBI Bonds etc. Other products like Insurance, Personal
Loans, Forex Money Changing, Money Transfer etc shall be launched in due
course.
Over the past 12 years, Transwarranty Group has developed a strong client base comprising
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of majority of the large and mid cap companies, most of the banks and financial
institutions, Mutual funds and Asset Management Companies and thousands of retail
clients.
1.3. PRODUCT PROFILE:
The various products and services that Vertex Securities offer are:
1.
2.
3.
4.
5.
6.
7.
Equity
Commodity
Mutual Fund
Derivatives
Currency Futures
IPO
Online Trading
indicative of a bullish fundamental situation and that falling prices reflect bearish
fundamentals.
Another advantage of chart analysis is that the market price itself is usually a leading indicator
of the known fundamentals. Chart action, therefore, can alert a fundamental analyst to the fact
that something important is happening beneath the surface and encourage closer market
analysis.
Charts Reveal Price Trends Markets move in trends. The major value of price charts is that
they reveal the existence of market trends and greatly facilitate the study of those trends. Most
of the techniques used by chartists are for the purpose of identifying significant trends, to help
determine the probable extent of those trends, and to identify as early as possible when they
are changing direction.
Types of Charts Available:
The most popular type of chart used by technical analysts is the daily bar chart. Each bar
represents one day of trading. Japanese candlestick charts have become popular in recent
years. Candlestick charts are used in the same way as bar charts, but present a more visual
representation of the days trading. Line charts can also be employed. The line chart simply
connects each successive days closing prices and is the simplest form of charting.
trendline has been in effect and the more times it has been tested, the more significant it
becomes. The violation of a trend line is often the best warning of a change in trend.
THE INTERPRETATION OF VOLUME
Chartists employ a two-dimensional approach to market analysis that includes a study of price
and volume. Of the two, price is the more important. However, volume provides important
secondary confirmation of the price action on the chart and often gives advance warning of an
impending shift in trend (See Figure 9-1).
Volume is the number of units traded during a given time period, which is usually a day. It is
the number of common stock shares traded each day in the stock market. Volume can also be
monitored on a weekly basis for longer-range analysis.
When used in conjunction with the price action, volume tells us something about the strength
or weakness of the current price trend. Volume measures the pressure behind a given price
move. As a rule, heavier volume (marked by larger vertical bars at the bottom of the chart)
should be present in the direction of the prevailing price trend. During an uptrend, heavier
volume should be seen during rallies, with lighter volume (smaller volume bars) during
downside corrections. In downtrends, the heavier volume should occur on price selloffs. Bear
market bounces should take place on a lighter volume
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MOVING AVERAGES
In the realm of technical indicators, moving averages are extremely popular with market
technicians and with good reason. Moving averages smooth the price action and make it easier
to spot the underlying trends. Precise trend signals can be obtained from the interaction
between a price and an average or between two or more averages themselves. Since the
moving average is constructed by averaging several days closing prices, however, it tends to
lag behind the price action. The shorter the average (meaning the fewer days used in its
calculation), the more sensitive it is to price changes and the closer it trails the price action. A
longer average (with more days included in its calculation) tracks the price action from a
greater distance and is less responsive to trend changes. The moving average is easily
quantified and lends itself especially well to historical testing. Mainly for those reasons, it is
the mainstay of most mechanical trend-following systems.
11
12
Stochastics:
This oscillator is also plotted on a scale from 0 to 100. However, the upper and lower lines
(marking the overbought
and oversold levels) are at the 80 and 20 levels. In other words, readings above 80 are
overbought, while readings below 20 are oversold. One added feature of stochastics is that
there are two oscillator lines instead of one. (The slower line is usually a 3-day moving
average of the faster line). Trading signals are given when the two lines cross.A buy signal is
given when the faster line crosses above the slower line from below 20.A sell signal is given
when the faster line crosses beneath the slower line from above 80.The time period used by
most chart analysts is fourteen days (See Figure 13-2).
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chart, 14 days on the daily chart, and 14 hours on an hourly chart, etc. Another reason for
keeping the same numbers is that computers allow you to switch back and forth between
weekly, daily, and intraday charts with a keystroke. Using the same time spans in all time
dimensions makes your work a lot easier.
14
15
Successful participation in the financial markets virtually demands some mastery of chart
analysis. Consider the fact that all decisions in various markets are based, in one form or
another, on a market forecast. Whether the market participant is a short-term trader or longterm investor, price forecasting is usually the first, most important step in the decision-making
process. To accomplish that task, we need to study the Technical analysis.
Technical or chart analysis, by contrast, is based on the study of the market action itself. While
fundamental analysis studies the reasons or causes for prices going up or down, technical
analysis studies the effect, the price movement itself.
Thats where the study of price charts comes in. Chart analysis is extremely useful in the
price-forecasting process. Charting can be used by itself with no fundamental input, or in
conjunction with fundamental information. Price forecasting, however, is only the first step in
the decision-making process.
Market Timing:
The second, and often the more difficult, step is market timing. For short-term traders, minor
price moves can have a dramatic impact on trading performance. Therefore, the precise timing
of entry and exit points is an indispensable aspect of any market commitment. To put it
bluntly, timing is everything in the stock market. For reasons that will soon become apparent,
timing is almost purely technical in nature. This being the case, it can be seen that the
application of charting principles becomes absolutely essential at some point in the decisionmaking process.
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Trend Analysis:
The biggest advantage of technical analysis is that is helps investors and traders predict the
trend of the market. Up trend, downtrend, and sideways moves of the market are easy to
predict, with the help of chart analysis.
Entry/Exit Point:
Timing plays an important role in trading and investing. With the help of technical analysis,
traders and investors can predict the right time to enter and exit a trade thereby enabling good
returns. Chart patterns, candlesticks, moving averages, Elliot wave analysis, and other
indicators are very useful for traders to make entry and exit points.
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2.
RESEARCH OBJECTIVES:
2.1 Primary Objective:
The studys primary objective is to execute a through technical analysis on a select set
of equity stocks by interpreting their price chart patterns and indicators to find out the
key entry and exit points for trade to make good returns.
To find out the support and resistance levels of individual stocks with the help of past
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3. RESEARCH METHODOLOGY:
Research methodology is a way to systematically solve the research problem. It may be
understood as a science of studying how research is done scientifically. It is necessary for
the researcher to know not only the research methods/techniques, but also the
methodology.
Research Design:
A research design is the arrangement of conditions for collection and analysis of data in a
manner that aims to combine relevance to the research purpose with economy in
procedure. In fact, the research design is the conceptual structure within which research is
conducted. It constitutes the blue print for the collection, measurement and analysis of
data.
3.1. Analytical research:
The research design carried out is analytical research design. This research will mainly
deal on facts or information already available, and analyze them to make a critical
evaluation of the material and finding a solution to the problem. The analytical research is
mainly done based on the secondary data which is already published.
3.2. Sources of Data:
Secondary data means data that are already available in the hands of the public which are
collected by the government, companies, regulatory authority to ensure the transparency
in the trading activity. The secondary data may either be published or unpublished.
Published data will be available in
News papers
Websites
Journals, books
Reports by management, scholars, researchers, brokers ets
As this study involves usage of secondary data, such as the price of the scrip for
the day and volume of the scrip. This data will contain the days high, low, open
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and close prices of the scrip which will help in formulating the chart and hence
this information will be analyzed to solve the problem.
3.3. Area of study:
The area of study involves various equity stocks chosen from various industries with
respect to National stock exchange (NSE).
3.4. Sampling Plan:
A sample design is a definite plan for obtaining a sample from a given population. It
refers to the technique of the procedure the researcher would adopt in selecting items for
the sample. Sample design may as well lay down the number of items to be included in
the sample i.e., the size of the sample. Sample design is determined before data are
collected.
Judgmental sampling:
Judgment sampling involves the choice of subjects who are most advantageously placed
or in the best position to provide the information required. Judgment sampling may
curtail the generalizability of the finding due to the fact that we are using a sample of
experts who are conveniently available to us. However it is the only viable sampling
method for obtaining the type of information that is required from very specific pockets
of people who are very knowledgeable are included in the sample.
The sample size of the research study consists of the following companies listed in the
National Stock Exchange.
They are as follows:
1.
2.
3.
4.
5.
Asian paints
Axis Bank
BPCL
Infosys
ITC
Line Chart
Bollinger Bands
Chaikin Money Flow (Ch Mf)
Moving Average Convergence Divergence (MACD)
Relative Strength Index (RSI)
Simple Moving Average (SMA)
Exponential Moving Average (EMA)
Volume
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or sometime it takes long time to be repeated. So investors or traders should take a look
of this misleading concept before use of Technical Analysis.
2. Partial use Of Technical Analysis: If you are familiar with phrase of A little
knowledge is a dangerous thing This is the most appropriate phrase for investors and
traders in financial market. We see investor and trader learn a little part of technical
analysis and use it and at the end result the partial uses of technical analysis fail most of
the case of financial market. Never try to use your partial knowledge of Technical
Analysis cause its drop down you most of times of your investment life cycle.
3. Misunderstand of Technical Indicators Direction: Many investors and traders are
trapped by the direction of technical indicators. As many of the technical indicators doest
work in most of the case its give false buy or sell signal. The technical indicators have
been created on the basic concept of market movement and mathematical calculation. So
investor or trader who wants to use this sort of indicators they should have the core
concept and calculation of that indicator and use it after analysis of present market
movement.
4. Unconsciously uses of Technical Analysis without a System: Technical Analysis is a
broad concept and a systematic approach of determining the future price movement. Any
investors or traders cannot use in unconsciously. He may have good knowledge on
technical analysis but if they do not use it in appropriate way it may be bring a dangerous
situation. Technical Analysis can only work with long term value of your investment
when you use it in a systematic way. The systematic way refers to control emotions or
psychological development and an idea of your portfolio management.
5. Certain Powerful Control Fail the Technical Analysis: we are very much familiar
with market maker who can manipulates market any time during trading session. Market
makers are the powerful market controllers who always trade against most of the traders
with huge volume of trade. Technical Analysis doest work in case of market makers
handling as market doest moves in a certain level when they enter into the market. So
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when we will use technical analysis we should keep it mind of their powerful control of
Market maker.
Line Chart:
Interpretation:
Buy analyzing the above price trend; we come to know that the support level held very
strong at the levels indicated as black stars and the resistance levels held good at the
indicated red stars.
Bollinger Bands:
25
Interpretation:
Bollinger Bands, a chart indicator developed by John Bollinger, is used to measure a
market's volatility. Basically, this little tool tells us whether the market is quiet or whether
the market is loud. When the market is quiet, the bands contract and when the market is
loud, the bands expand.
By analyzing the above BBand, we can infer that the Asian paint stock prices increased
while the bands expanded during time frames (5 Nov 2102, 27 Nov 2012, 29 Jam 2013
and 7 Mar 2013) and the prices went down during the band contractions during (28 Dec
2012, 22 Feb2013 and 1 April 2013) throughout the 6 months observation period for this
analysis.
Simple Moving Average:
26
A crossover occurs when a faster Moving Average (i.e. a shorter period Moving Average)
crosses either above a slower Moving Average (i.e. a longer period Moving Average)
which is considered a bullish crossover or below which is considered a bearish
crossover.
From the analysis, we can find out that the SMA (10) crosses the SMA (50) from above
which indicates an uptrend, a bullish pattern from 5 March 2013 for recorded prices as
follows. Open = 4347, High= 4450, Low= 4292, Close= 4434.9 and Volume =78527
units.
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Positive CMF would confirm an uptrend, but negative CMF would call into question the
strength behind an uptrend. The reverse holds true for downtrends
The highest value of CMF was +.3 during 19 March 2013.
The lowest CMF value was -.17 during 14 Jan 2013.
The CMF values went below the Zero line 3 times and sustained for certain periods
during 23 Oct 2012, 01 Jan 2013 and 28 Feb 2013.
Moving Average Convergence Divergence:
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The MACD Line oscillates above and below the zero line, which is also known as the
centerline.
Positive MACD indicates that the 12-day EMA is above the 26-day EMA. Positive values
increase as the shorter EMA diverges further from the longer EMA. This means upside
momentum is increasing.
Negative MACD values indicate that the 12-day EMA is below the 26-day EMA.
Negative values increase as the shorter EMA diverges further below the longer EMA.
This means downside momentum is increasing.
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RSI oscillates between zero and 100.RSI is considered overbought when above 70 and
oversold when below 30.
RSI (14) values were above 70 and were overbought on the following trade days:
1. 07 Nov 2012 (70.98)
2. 08 Nov 2012 (72.5)
3. 09 Nov 2012 (75.64)
4. 30 Nov 2012 (71.81)
5. 03 Dec 2012 (72.21)
6. 04 Dec 2012 (72.86)
7. 05 Dec 2012 (73.07)
8. 06 Dec 2012 (74.19)
9. 21 Dec 2012 (70.44)
10. 05 Feb 2013 (72.51)
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Volume Indicator:
32
Volume precedes price. Typically, before a stock price moves, volume comes into play.
Changes in volume can be used intra-day to determine short-term price movement or
over several days to determine a stock's two to three day trend direction.
The basic theory is this: if price and volume are moving in the same direction, the trend
of the stock price will continue. If they are running counter to each other, the trend will
reverse.
Volume High of 309341 units was recorded at 15 March 2013.
Volume Low of 8477 units was recorded at 13 Nov 2012.
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Line Chart:
Interpretation:
Buy analyzing the above price trend; we come to know that the support level held very
strong at the levels indicated as black stars and the resistance levels held good at the
indicated red stars.
Bollinger Bands:
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Interpretation:
By analyzing the above BBand, we can infer that the Asian paint stock prices increased
while the bands expanded during time frames (17 Oct 2012, 23 Nov 2012, 28 Jon 2013,
1 Mar 2013) and the prices went down during the band contractions during (11 Feb 2013
and 13 Mar 2013) throughout the 6 months observation period for this analysis.
A crossover occurs when a faster Moving Average (i.e. a shorter period Moving Average)
crosses either above a slower Moving Average (i.e. a longer period Moving Average)
which is considered a bullish crossover or below which is considered a bearish
crossover.
For those traders that want more confirmation when they use Moving Average crossovers,
the 3 Simple Moving Average crossover techniques could be used.
The first crossover of the quickest SMA (in the example above, the 10-day SMA) across
the next quickest SMA (20-day SMA) acts as a warning that prices are reversing trend;
however, usually a buy or sell order is not placed yet.
36
The second crossover of the quickest SMA (10-day) and the slowest SMA (50-day)
finally triggers the buy or sell signal.
From the analysis, we can find out that:
SMA(10) crosses below SMA(20) on 20 Feb 2013 showing a warning that the
37
Positive CMF would confirm an uptrend, but negative CMF would call into question the
strength behind an uptrend. The reverse holds true for downtrends
The highest value of CMF was +.25 during 06 Dec 2012.
The lowest CMF value was -.15 during 05 Mar 2013.
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The CMF values went below the Zero line 3 times and sustained for certain periods
during 28 Feb 2013, 13 Mar 2013 and 05 Apr 2013.
Moving Average Convergence Divergence:
The MACD Line oscillates above and below the zero line, which is also known as the
centerline.
Positive MACD indicates that the 12-day EMA is above the 26-day EMA. Positive values
increase as the shorter EMA diverges further from the longer EMA. This means upside
momentum is increasing.
39
Negative MACD values indicate that the 12-day EMA is below the 26-day EMA.
Negative values increase as the shorter EMA diverges further below the longer EMA.
This means downside momentum is increasing.
40
RSI oscillates between zero and 100.RSI is considered overbought when above 70 and
oversold when below 30.
RSI (14) values were above 70 and were overbought on the following trade days:
1. 29 Nov 2012 (72.99)
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42
Volume Indicator:
Volume precedes price. Typically, before a stock price moves, volume comes into play.
Changes in volume can be used intra-day to determine short-term price movement or
over several days to determine a stock's two to three day trend direction.
The basic theory is this: if price and volume are moving in the same direction, the trend
of the stock price will continue. If they are running counter to each other, the trend will
reverse.
Volume High of 9092773 units was recorded at 29 Jan 2013.
Volume Low of 26330 units was recorded at 13 Nov 2012.
43
Interpretation:
Buy analyzing the above price trend; we come to know that the support level held very
strong at the levels indicated as black stars and the resistance levels held good at the
indicated red stars.
44
Bollinger Bands:
Interpretation:
By analyzing the above BBand, we can infer that the Asian paint stock prices increased
while the bands expanded during time frames (11 Jan 2013 and 15 Jan 2013) and the
45
prices went down during the band contractions during (22 Jan 2013 and 14 Mar 2013)
throughout the 6 months observation period for this analysis.
Simple Moving Average:
A crossover occurs when a faster Moving Average (i.e. a shorter period Moving Average)
crosses either above a slower Moving Average (i.e. a longer period Moving Average)
which is considered a bullish crossover or below which is considered a bearish
crossover.
For those traders that want more confirmation when they use Moving Average crossovers,
the 3 Simple Moving Average crossover techniques could be used.
46
The first crossover of the quickest SMA (in the example above, the 10-day SMA) across
the next quickest SMA (20-day SMA) acts as a warning that prices are reversing trend;
however, usually a buy or sell order is not placed yet.
The second crossover of the quickest SMA (10-day) and the slowest SMA (50-day)
finally triggers the buy or sell signal.
From the analysis, we can find out that:
SMA (10) crosses above SMA(20) on 5 Dec 2012 showing a warning for trend
reversal.
SMA(100 crosses above SMA(50) on Dec 2012 which is surely a sell sign.
SMA(10) crosses below SMA(50) on 26 Dec 2012 which is a trend change
warning.
SMA(10) crosses above SMA(20) on 4 Jan 2013 which is again a trend change
warning.
SMA(10) crosses below SMA(20) on 11 Feb 2013 which is a tend change
warning.
SMA(10) crosses below SMA(50) on 26 Feb 2013 which is a clear sell signal.
SMA(10) crosses above SMA(20) which is a trend change warning.
SMA(10) crosses below SMA(20) which is a trend change warning.
47
Positive CMF would confirm an uptrend, but negative CMF would call into question the
strength behind an uptrend. The reverse holds true for downtrends
The highest value of CMF was +.17 during 13 Feb 2013.
The lowest CMF value was -.31 during 27 Nov 2012.
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From the chart, we can see that the CMF value was below the Zero line for the majority
of the observation period. Here, we can clearly see that a negative CMF may not mean
the fall in prices, but the strength behind a trend.
Moving Average Convergence Divergence (MACD):
The MACD Line oscillates above and below the zero line, which is also known as the
centerline.
Positive MACD indicates that the 12-day EMA is above the 26-day EMA. Positive values
increase as the shorter EMA diverges further from the longer EMA. This means upside
momentum is increasing.
49
Negative MACD values indicate that the 12-day EMA is below the 26-day EMA.
Negative values increase as the shorter EMA diverges further below the longer EMA.
This means downside momentum is increasing.
50
RSI oscillates between zero and 100.RSI is considered overbought when above 70 and
oversold when below 30.
RSI (14) values were above 70 and were overbought on the following trade days:
1. 08 Jan 2013 (73.07)
51
Volume precedes price. Typically, before a stock price moves, volume comes into play.
Changes in volume can be used intra-day to determine short-term price movement or
over several days to determine a stock's two to three day trend direction.
52
The basic theory is this: if price and volume are moving in the same direction, the trend
of the stock price will continue. If they are running counter to each other, the trend will
reverse.
Volume High of 9101910 units was recorded at 18 Jan 2013.
Volume Low of 69564 units was recorded at 13 Nov 2012.
Technical Analysis of Infosys:
Line Chart:
Interpretation:
53
Buy analyzing the above price trend; we come to know that the support level held very
strong at the levels indicated as black stars and the resistance levels held good at the
indicated red stars.
Bollinger Bands:
Interpretation:
54
By analyzing the above BBand, we can infer that the Asian paint stock prices increased
while the bands expanded during time frames (10 Jan 2013 and 25 Feb 2013) and the
prices went down during the band contractions during (9 Nov 2012, 8 Feb 2013 and 2
Apr 2013) throughout the 6 months observation period for this analysis.
Simple Moving Average:
55
A crossover occurs when a faster Moving Average (i.e. a shorter period Moving Average)
crosses either above a slower Moving Average (i.e. a longer period Moving Average)
which is considered a bullish crossover or below which is considered a bearish
crossover.
For those traders that want more confirmation when they use Moving Average crossovers,
the 3 Simple Moving Average crossover techniques could be used.
The first crossover of the quickest SMA (in the example above, the 10-day SMA) across
the next quickest SMA (20-day SMA) acts as a warning that prices are reversing trend;
however, usually a buy or sell order is not placed yet.
The second crossover of the quickest SMA (10-day) and the slowest SMA (50-day)
finally triggers the buy or sell signal.
From the analysis, we can find out that:
SMA(10) crosses below SMA(50) on 18 Oct 2012 which is a sure selling and exit
point.
SMA(10) crosses above SMA(20) at 09 Nov 2012 which is a trend change signal.
SMA(10) crosses below SMA(20) at 20 Nov 2012 which is a trend change signal.
SMA(10) crosses above SMA(20) at 29 Nov 2012, a trend change signal.
SMA(10) crosses below SMA(20) on 13 DEC 2012, a trend change sign.
SMA(10) crosses above SMA(50) 11 Jan 2013, which is a sure buy sign, an entry
point.
SMA(10) crosses below SMA(20) on 07 Feb 2013, a trend change signal.
SMA(10) crosses above SMA(20) on 21 Feb 2013, a trend change sign.
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Positive CMF would confirm an uptrend, but negative CMF would call into question the
strength behind an uptrend. The reverse holds true for downtrends
The highest value of CMF was +.39 during 15 Jan 2013.
The lowest CMF value was -.2 during 14 Dec 2012 till 18 Dec 2012.
The CMF values went below the Zero line 2 times and sustained for certain periods
during 06 Dec 2012 and 12 Feb2013.
Moving Average Convergence Divergence (MACD):
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The MACD Line oscillates above and below the zero line, which is also known as the
centerline.
Positive MACD indicates that the 12-day EMA is above the 26-day EMA. Positive values
increase as the shorter EMA diverges further from the longer EMA. This means upside
momentum is increasing.
Negative MACD values indicate that the 12-day EMA is below the 26-day EMA.
Negative values increase as the shorter EMA diverges further below the longer EMA.
This means downside momentum is increasing.
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60
RSI oscillates between zero and 100.RSI is considered overbought when above 70 and
oversold when below 30.
RSI (14) values were above 70 and were overbought on the following trade days:
1. 14 Jan 2013 (80.99)
2. 15 Jan 2013 (83.69)
3. 18 Jan 2013 (79.62)
4. 22 Jan 2013 (78.56)
5. 24 Jan 2013 (76.88)
6. 25 Jan 2013 (77.32)
7. 28 Jan 2013 (78.18)
8. 26 Feb 2013 (74.39)
9. 27 Feb 2013 (77.36)
10. 07 Mar 2013 (71.85)
11. 08 Mar 2013 (74.54)
No RSI value is below 30. This means that the Infosys stocks were not oversold.
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Volume Indicator:
Volume precedes price. Typically, before a stock price moves, volume comes into play.
Changes in volume can be used intra-day to determine short-term price movement or
over several days to determine a stock's two to three day trend direction.
62
The basic theory is this: if price and volume are moving in the same direction, the trend
of the stock price will continue. If they are running counter to each other, the trend will
reverse.
Volume High of 11606571 units was recorded at 11 Jan 2013.
Volume Low of 70407 units was recorded at 13 Nov 2012.
Technical Analysis of ITC:
Line Chart:
Interpretation:
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Buy analyzing the above price trend; we come to know that the support level held very
strong at the levels indicated as black stars and the resistance levels held good at the
indicated red stars.
Bollinger Bands:
Interpretation:
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By analyzing the above BBand, we can infer that the Asian paint stock prices increased
while the bands expanded during time frames (16 Nov 2102 and 23 Jan 2013) and the
prices went down during the band contractions during (12 Dec 2012, 19 Feb 2013 and 28
Mar 2013) throughout the 6 months observation period for this analysis.
Simple Moving Average (SMA):
A crossover occurs when a faster Moving Average (i.e. a shorter period Moving Average)
crosses either above a slower Moving Average (i.e. a longer period Moving Average)
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For those traders that want more confirmation when they use Moving Average crossovers,
the 3 Simple Moving Average crossover techniques could be used.
The first crossover of the quickest SMA (in the example above, the 10-day SMA) across
the next quickest SMA (20-day SMA) acts as a warning that prices are reversing trend;
however, usually a buy or sell order is not placed yet.
The second crossover of the quickest SMA (10-day) and the slowest SMA (50-day)
finally triggers the buy or sell signal.
From the analysis, we can find out that:
buy signal.
SMA(10) crosses above SMA(20) on 29 Nov 2012, a trend change sign.
SMA(10) crosses above SMA(50) 30 Nov 2012, a clear buy signal.
SMA(10) crosses below SMA(20) on 21 Dec 2012, a trend change sign.
SMA(10) crosses below SMA(50) on 27 Dec 2012, an exit point, a sure sell sign.
SMA(10) crosses above SMA(20) on 24 Jan 2013, a trend change sign.
SMA(10) crosses above SMA(50) on 25 Jan 2013, an entry point and a sure buy.
SMA(10) crosses below SMA(20) on 19 Feb 2013, a trend change sign.
SMA(10) crosses below SMA(50) on 26 Feb 2013, an exit point, a sure sell.
SMA(10) crosses above SMA(20) on 15 Mar 2013, a trend change sign.
SMA(10) crosses above SMA(50) on 19 Mar 2013, an exit point, a sure sell sign.
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Positive CMF would confirm an uptrend, but negative CMF would call into question the
strength behind an uptrend. The reverse holds true for downtrends
The highest value of CMF was +.48 during 22 Oct 2012 and 26 Oct 2012.
The lowest CMF value was -.19 during 07 Mar 2013.
The CMF values went below the Zero line 3 times and sustained for certain periods
during 21 Nov 2012, 04 Jan 2013 and 27 Feb 2013.
Moving Average Convergence Divergence (MACD):
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The MACD Line oscillates above and below the zero line, which is also known as the
centerline.
Positive MACD indicates that the 12-day EMA is above the 26-day EMA. Positive values
increase as the shorter EMA diverges further from the longer EMA. This means upside
momentum is increasing.
Negative MACD values indicate that the 12-day EMA is below the 26-day EMA.
Negative values increase as the shorter EMA diverges further below the longer EMA.
This means downside momentum is increasing.
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RSI oscillates between zero and 100.RSI is considered overbought when above 70 and
oversold when below 30.
RSI (14) values were above 70 and were overbought on the following trade days:
1.
2.
3.
4.
5.
6.
No RSI value is below 30. This means that the ITC stocks were not oversold.
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Volume Indicator:
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Volume precedes price. Typically, before a stock price moves, volume comes into play.
Changes in volume can be used intra-day to determine short-term price movement or
over several days to determine a stocks two to three day trend direction.
The basic theory is this: if price and volume are moving in the same direction, the trend
of the stock price will continue. If they are running counter to each other, the trend will
reverse.
Volume High of 32229072 units was recorded at 28 Feb 2013.
Volume Low of 670322 units was recorded at 13 Nov 2012.
6. FINDINGS:
Line Chart
Bollinger Bands
Simple Moving Average
Chaikin Money Flow
Moving Average Convergence Divergence (MACD)
Relative Strength Index (RSI)
Volume Indicator
Technical analysis takes a completely different approach; it doesn't care one bit about
the "value" of a company or a commodity. Technicians (sometimes called chartists)
are only interested in the price movements in the market.
Despite all the fancy and exotic tools it employs, technical analysis really just studies
supply and demand in a market in an attempt to determine what direction, or trend,
will continue in the future.
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
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your friend" and "don't buck the trend," illustrating how important trend analysis is
for technical traders.
From our analysis using the various technical tools, we found that the SMA tool is the
most effective of them all to identify the trend direction and the buy and sell signals.
The more moving averages used will increase the accuracy in trend finding.
7. RECOMMNDATIONS:
To trade successfully, the use of technical indicators is highly recommended and
mandatory to prevent losses.
Two (or) more indicators need to be used and trade should be executed on the
consensus of their trend, entry and exit signals.
The recommended combo tools for technical analysis are 3 SMAs with RSI, Volume
and Chaikin Money flow.
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One should not completely rely on technical tools for trading, but also have a close
watch on the economy, industry and the company performance and corporate
actions.
8. CONCLUSIONS:
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They believe that prices are driven by the psychology of investors rather than
fundamentals. By understanding investor psychology, they can predict which way
prices will move.
The tool they use for making predictions is the chart. They plot price and volume
data on a chart, and look for patterns and trends.
There are numerous theories within technical analysis. They all depend on market
psychology being predictable, and on chart patterns repeating themselves.
By its nature, technical analysis tends to be useful for short-term trading rather than
long-term investing.
Technical analysis and fundamental analysis are two very different approaches, but
one does not completely exclude the other. If you focus on fundamentals, it is still
worth checking out the chart of a company you are about to buy or sell. Similarly, if
you focus on technical signals, it is worth checking the fundamentals of companies.
9. BIBLIOGRAPHY:
Reference Books:
1. Prassana chandran, Investment analysis and Portfolio management, New Delhi: Tata
Mc Graw- Hill Publishing Company Limited 2002.
2. Avadhani V A, Investment management, Mumbai : Himalaya Publishing House, 1998
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3. Donald E. Fischer and Ronald. J. Jordan, Security Analysis and Portfolio Management
New Delhi: Prentice-Hall of India Private Limited.1998.
4. S. Kevinn, Portfolio Management, New Delhi: Prentice Hall of India Private Ltd.1998.
Reference Websites:
1.
2.
3.
4.
5.
6.
www.nseindia.com
www.moneycontrol.com
www.finance.yahoo.com
www.mcxindia.com
www.wikipedia.com
www.google.com
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