TECHNICAL ANALYSIS

OF STOCK TRENDS

PRESENTED BY
CA MANISH R. CHOKSHI
INTRODUCTION TO TECHNICAL ANALYSIS - BASIC

PRINCIPLES, PHILOSOPHY , SCOPE & OBJECTIVE

WHAT IS TECHNICAL ANALYSIS ?

Technical analysis is an organized and systematic

study of market action through use of charts, of a
particular script or index for the purpose of
identifying trend changes at an early stage with
the help of price and volume data of any share or
index. Technical analysis is basically studying the
price action or behaviour only . There is a Chinese
proverb which says : A single picture speaks more
than a 1000 words
TECHNICAL STUDY IS AN ART AND
EMPIRICAL SCIENCE AS WELL

 Technical study remains more

as an art . At best it can be
considered as an empirical
science wherein judgment
plays an important role in
successful performance of the
science.
BASIC ASSUMPTIONS OF TECHNICAL
ANALYSIS
 Price discounts everything. Price is supreme.
 The price which of any script is the result of all
the factors affecting it , which are far reaching
and to narrate a few it may be -
 MICRO FACTORS :-the industry prospects to
which the company belongs or the performance
of the company or the management of the
company, brand image of the company ,
monopolistic element , competitors strength ,
financial strength and in country like India
political strength may too play an important
role in determining the price of particular
script.
BASIC ASSUMPTIONS OF TECHNICAL
ANALYSIS
 MACRO FACTORS:- Political condition
( to which ours like markets are too
sensitive ) , economic health of the
country, , climatic conditions , even
nuclear blasts or who is the finance
minister .
BASIC ASSUMPTIONS OF
TECHNICAL ANALYSIS
 Market moves in trend and when
established remains in force until there is
evidence of change.
 Market has Rhythm . It moves in trend and
hence it is possible to interpret, the
market, since history repeats because
human nature does not change .The
market moves are cyclic and repetitive, The
market does not move in random.. Once
the trend is set it continues in that
direction and before reversing its direction
it will give proper signals indicating change
of trend .
BASIC ASSUMPTIONS OF
TECHNICAL ANALYSIS
00BSE Sensex 30 C (5,487, 5,556, 5,487, 5,541) 4700
1- MARKET MOVES IN RYTHM 4650
4548 4600
4550
4500
4450
4400
4350
4300
4250
4200
4150
4100
4050
4000
3950
3900
3850
3800
3750
3700
3650
3600
3550
3500
3450
3400
3350
3300
3250
3200
3209 3150
3100
3050
June July August September October November December 1998 February
BASIC ASSUMPTIONS OF
TECHNICAL ANALYSIS
 Market action is repetitive :
 The charts patterns are repetitive ,
hence one can interpret the future
behaviour of the price, e.g. Head and
Shoulder pattern is bearish formation
and on break out from such pattern
prices can be expected to fall. This is
because human nature tends to react to
similar situations in consistent ways.
BASIC ASSUMPTIONS OF
TECHNICAL ANALYSIS
 Market discounts future :
 We usually see , when the good news
for a particular scrip is announced , the
price of that script falls
 The reason is , market has collective
intelligence , which is supreme
 Only market can foresee not any single
individual
 Teji starts when there is no hope and all
is bad around you. So Teji starts in
gloom and Mandi starts in Boom.
BASIC ASSUMPTIONS OF TECHNICAL
ANALYSIS
 Technical Analysis is an Art. It is based on
past observation.
 Technical analysis is workable in any free
market economy
 Technical Analysis is complete tool in itself
 Market is usually ahead of news
 Do not marry any script
 Do not buy on news.
 Do not buck the trend.
 Do not buy because prices are low or sell
just because the prices are high
 The wise & intelligent can foresee the
market
BASIC
DEFINITIONS/TERMINOLOGY:-
 Line Chart :- Chart drawn on the basis of daily
closing prices of each script.
 Bar Chart :- Open High Low Close Bar for each day
 Volume :- The number of shares traded during a
trading session .
 Stop Loss: When a trader enters into any long /short
position it is necessary for him to determine the stop
loss level and to book loss if the market moves
against him
 A price chart is a pictorial presentation of price
movement by plotting price on Y axis and date on X-
axis ..
 Speculation and Gambling : - Speculation is generally
a dirty word in stock market and usually
misunderstood. Speculation is intelligent reasoning of
mind. Speculation is not equal to gambling .
LINE CHART – Connects the closing
prices of a scrip.
BAR CHART – OPEN HIGH LOW
CLOSE
DOW THEORY

 The Dow theory is the grandfather of all

technical studies. Mr. Charles H. Dow is the
inventor of technical analysis. Following are
the Tenants of Dow Theory -
 The Market (Price) Discounts Everything
 The Three Trends :-
 The Primary Trends :-
 The Secondary Trends :-
 The Minor Trends :-
 Primary trends cannot be manipulated; it
would train the resources of the Apex bank of
any country.
 The price movement can be compare with
ocean waves.
 DOW THEORY- PRIMARY,
SECONDARY AND MINOR TREND
00BSE Sensex 30 C (5,487, 5,556, 5,487, 5,541)
4200
4150
4100
4050
uplsoping trendline 4000
3950
3900
3850
3800
3750
3700
3650
3600
3550
3500
3450
3400
3350
3300
3250
3200
3150
3100
3050
3000
2950
2900
2850
2800
2750

December 1996 February March April May June July August

IMPORTANT REVERSAL &
CONTINUATION PRICE PATTERNS

 HEAD & SHOULDER REVERSAL

PATTERN
 HEAD & SHOULDER REVERSAL PATTERN
00BSE Sensex 30 C (5,487, 5,556, 5,487, 5,541)
4200
head 4150
4100
4050
left 4000
shoulder 3950
right 3900
shoulder 3850
3800
3750
3700
3650
neckline 3600
3550
3500
3450
3400
3350
3300
3250
3200
3150
3100
3050
3000
2950
2900
2850
2800
2750
2700
2650
2600
December
1996 February March April May June July August September November
HEAD AND SHOULDER PATTERN-
RULES OF RECOGNITION.
 It is a MAJOR reversal pattern and one of
the most reliable one.The head and
shoulder pattern appearance signifies
reversal of bull market and hence a valid
pattern is seen at the top of the market
 LEFT SHOULDER:- A strong rally , on
which trading volume becomes very heavy,
followed by a minor recession on which
volume runs considerably less than it
during the days of rise .This is the LEFT
SHOULDER.
HEAD AND SHOULDER PATTERN-
RULES OF RECOGNITION
 HEAD: Second high volume advance which
reaches a higher level than the top of the left
shoulder , and then another reaction on less
volume which takes prices down to somewhere
near the bottom level of the preceding reaction
but lower than the left shoulder top, which is
the first sign of weakness . This is the HEAD.
 RIGHT SHOULDER :- A third rally , on less
volume (compared to the left shoulder or head)
which fails to reach the head before another
decline starts and the prices come down near
to the bottom of the left shoulder and head.
This is the RIGHT SHOULDER.
HEAD AND SHOULDER PATTERN-
RULES OF RECOGNITION
 D:- FINALLY :- The decline from the
right shoulder which breaks the
neckline and when the prices go
below it , it completes the Head and
Shoulder pattern signifying end of a
major bull run
HEAD AND SHOULDER PATTERN-
RULES OF RECOGNITION

 i. Volume behavior is very important .

A head and shoulder pattern not
following the rules of volume may not
be reliable.
 ii.Neckline :- It is the line drawn
across the bottoms of reactions
between the left shoulder, head and
right shoulder.
HEAD AND SHOULDER PATTERN-
RULES OF RECOGNITION
 iii. Breaking the neckilne : The breach of
neckline should occur with force (volume
plays very important role here). A technical
analyst should be alert and if the prices
tends stay around the neckline and the
downfall is not intensified , there is a
chance that the pattern may fail and prices
may start to rise again. iv. Rising of Falling
Neckline : A horizontal neckline is ideal but
even rising or falling neckline can make a
successful pattern
 iv. Rising of Falling Neckline : A horizontal
neckline is ideal but even rising or falling
neckline can make a successful pattern.
HEAD AND SHOULDER PATTERN-
RULES OF RECOGNITION

 v. Multiple Head and Shoulder: This is one

variation of the pattern , whereby there are
multiple left/right shoulder. Generally the
number of left and right shoulders would be
equal. This pattern is famous for its
amazing symmetricity.
 vi. The top price of left and right shoulders
may (and usually are) not be equal
HEAD AND SHOULDER PATTERN-
RULES OF RECOGNITION

vii. The Measuring Formula or Target :- In order to

determine the minimum objective of the
decline draw a vertical line from the top of the
HEAD to the neckline and reduce the number
so derived from the point at which the price
has cut the neckline after completing the right
shoulder .
vii. Inverted Head & Shoulder :- It is just the
reverse of Head and Shoulder pattern . The
inverted Head & Shoulder pattern appearance
signifies beginning of a major bull run after its
breakout from neckline.
vii. Pull Back Action : After crossing the neckline ,
the price comes back and touches the neckline
, this is called as pull back action.
 HEAD & SHOULDER REVERSAL PATTERN


CONTROVERSIAL DECISION OF UTI IN BUYING RELIANCE
01Reliance (F&O)
head 220
right 215
shoulder 210
left
shoulder 205
200
195
190
185
neckline 180
175
170
165
160
155
150
145
140
135
130
125
120
115
110
April May June July August September October November 1995 February
 HEAD & SHOULDER REVERSAL PATTERN
03Hero Honda (F&O) (400.0, 420.1, 399.0, 412.0)

HERO HONDA
HEAD & SHOULDER - BULLISH PATTERN
minimum target =390 400

350

neckline 300

right
shoulder 250

left
shoulder
200

head

150

100

O N D 2001 M A M J J A S O N D 2002 M A M J J A S O N D 2003 M A M J J A S O N D 2004

 ROUNDING TOP AND ROUNDING BOTTOM
FORMATION
Reckitt & Colman 430
ROUNDING TOP FORMATION 420
410
400
390
380
370
360
350
340
330
320
310
300
290
280
270
260
250
240
230
220
210
200
190
180
170
160
150
1996 M A M J J A S O N D 1997 M A M J J A S O N D 1998 M A M J J
 ROUNDING TOP AND ROUNDING BOTTOM
FORMATION
00BSE Sensex 30 C (5,487, 5,556, 5,487, 5,541)
4400

4300
ROUNDING BOTTOM FORMATION
4200

4100

4000

3900

3800

3700

3600

3500

3400

3300

3200

3100

3000

2900

2800

2700

Dec 1998 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 1999 Feb Mar Apr
ROUNDING TOP AND ROUNDING BOTTOM FORMATION
RULES OF RECOGNITION

 Rounding Top formation is a phenomenon

of gradual distribution of stocks , over a
period of time and is a major reversal
pattern which appears at market top and
has bearish implication
 ROUNDING BOTTOM :- Rounding Bottoms
are commonly referred to as ‘BOWL’ OR
‘SAUCER’ patterns . The Rounding bottom
pattern appears at the bottom of the
market and has bullish implications
TRIANGLES
(USUALLY CONTINUATION PATTERN):

 THERE ARE THREE TYPES OF

TRIANGLES :-

 SYMMETRICAL TRIANGLES
 ASCENDING TRAINGLES
 DESCENDING TRAINGLES
 SYMMETRICAL TRIANGLES

02IPCL (F&O) (217.5, 219.5, 214.1, 215.4) 190

180
170
SYMMETRICAL TRIANGLE
2 160
AREA OF DOUBT
4 150
140
130

120
3 110
1
100
90

80
70
60

50
40
30

Volume (350,101)
10000
x100
M A M J J A S O N D 1997 M A M J J A S O N D 1998 M A M J J A
SYMMETRICAL TRIANGLES
RULES OF RECOGNITION
 . It is formed by the price movement such
that the successive tops are lower than the
predecessor top , and it fails to attain the
height of the preceding rally and the
successive bottoms are higher than the
preceding bottom .
 2. The lower tops can be connected by
down sloping line and the higher bottoms
can be connected by upsloping line , thus
forming a geometric triangle.
SYMMETRICAL TRIANGLES
RULES OF RECOGNITION
 3. The area of triangle is called as Area of
Doubt /Area of Congestion .
 4. The volume diminished within the triangle
 5. Finally the prices breakout from the triangle
with significant pickup in volume . The trend
picks up in the direction of the breakout. The
formation of Triangle suggests that the market
is uncertain at the moment it is looking for
direction . Generally ( but not necessary ) the
breakout is in the direction of the long term
trend , hence the triangles are termed as
continuation patterns.
SYMMETRICAL TRIANGLES
RULES OF RECOGNITION
 6. The center of the triangle is called as the
Apex.
 7. For a valid Triangle formation there
should be two alternate tops and two
alternate bottoms . Hence it has four touch
points , two touch points on sown sloping
line and two on the upsloping line .
 8. For an effective price movement the
breakout should occur at a point
somewhere between three & half quarters
of the horizontal distance from the base to
the apex. The price movement may be less
effective if the breakout occurs near the
point of apex.
SYMMETRICAL TRIANGLES
RULES OF RECOGNITION
 9. Quite often pull back action is seen after the
price breakout which means that the prices pull
back to touch the boundary lines (either the
upsloping or the down sloping boundary lines
depending on the direction of the breakout.)
or even to the Apex.
 10. Minimum Price Target : The minimum price
target can be calculated once the prices
breakout of a Triangle. Draw a vertical line
from the point of rally to the bottom boundary
and measure its points in terms of price . The
minimum target price will be the same number
of points measured from the point of breakout.
 SYMMETRICAL TRIANGLES

00BSE Sensex 30 C (5,487, 5,556, 5,487, 5,541)

SYMMETRICAL TRIANGLE ON BSE

6000

5500

5000

4500

4000

3500

3000

2500

1999 2000 2001 2002 2003 2004

 ASCENDING - RIGHT ANGLE TRIANGLE

01Ranbaxy (F&O) (1,119.7, 1,133.0, 1,108.3, 1,124.3)

1150

RANBAXY 1100
ASCENDING TRAINGLE
BULLISH PATTERN 1050

1000

950

900

850

800

750

700

650

600

550

Volume (257,083)
50000
x10

February March April May June July August September November 2004
ASCENDING - RIGHT ANGLE TRIANGLE
RULES OF RECOGNITION
 This pattern is the cousin of
Symmetrical triangle . The Ascending
triangle is usually a bullish pattern ,
since it takes support at higher levels.
All the rules of construction of this
pattern are same as Symmetrical
Triangle . The only difference is , instead
of the upsloping boundary line we have
almost horizontal boundary line. Usually
the breakout is in the upward direction
from the horizontal boundary line.
 DESCENDING - RIGHT ANGLE
TRIANGLE
03Nat.Alum. (F&O) (179.50, 180.35, 174.10, 176.20)
55
DESCENDING TRIANGLE

50

45

40

35

30

25

20

15

Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 1998 Feb Mar Apr May Jun Jul
DESCENDING - RIGHT ANGLE TRIANGLE
RULES OF RECOGNITION
 This pattern is the cousin of Symmetrical
triangle . The Descending triangle is
usually a bearish pattern. All the rules of
construction of this pattern are same as
Symmetrical Triangle . The only difference
is , instead of the down sloping boundary
line we have almost horizontal boundary
line. Usually the breakout is in the
downward direction from the horizontal
boundary line . In fact the formation of an
Ascending/Descending triangle gives an
advance warning to the trader about the
direction of the breakout .
 MORE TRIANGLES

01HDFC (F&O ) (618.0, 622.0, 611.0, 615 .8)

650
T RIANGLES ON HDFC

600

550

500

450

400

350

300

2002 Dec 2003 Feb Mar Apr Ma y Jun Jul Aug Sep O ct Nov Dec 2004
 RECTANGLES

01Cipla (F&O) (1,225.0, 1,293.0, 1,216.5, 1,278.7)

1350

1300

1250

RECTANGLE ON CIPLA 1200

1150

1100

1050

1000

950

900

850

19 26 2 9 16 23 30 7 14 21 28 4 11 18 25 2 9 16 24 30 6 13 20 27 3 10
April May June July August September
 RECTANGLES

01Infy (F&O) (5,082, 5,325, 5,060, 5,256)

9000 9000

8500 8500

8000 8000

7500 7500
INFOSYS- WEEKLY LINE CHART
7000 7000

6500 6500

6000 6000

5500 Channel Trendlines / Rectangle 5500

*
5000 5000

4500 4500

4000 4000

3500 3500

3000 3000

2500 2500

2000 * = breakout from channel 2000

2000 A M J A S O N D 2001 A M J J A S O N D 2002 A M J J A S O N D 2003 A M J J A S O N D 2004 A M

RECTANGLES
RULES OF RECOGNITION
 A Rectangle consists of price
movements between two parallel
boundaries (horizontal lines) , which
may be called as ‘Trading Area’ . A
slightly sloping lines may be
considered to be a valid Rectangle.
The formation of a Rectangle
suggests balance in the market.
RECTANGLES
RULES OF RECOGNITION
 The price movement between the two
boundaries also suggests perfect balancing
of force of the two opposite groups , the
bulls and the bears. Ultimately the strong
party kicks off the ball out of the rectangle
, which we call as breakout, and the trend
picks up in the direction of the breakout
.The volume diminishes as the price moves
within the rectangle and it picks up after
the breakout. Quite often we see a pull
back action which brings the prices back to
touch the boundaries. Rectangles appear
more frequently at the bottom rather than
at the top.
RECTANGLES
RULES OF RECOGNITION
 Measuring implication:-The minimum
target is given by the width of the
rectangle . The prices can be
expected to go us much points from
the boundary of breakout as the
distance between the two boundaries.
Appearance of Rectangle is relatively
rare.
 DOUBLE AND TRIPLE TOPS & BOTTOMS
(MAJOR REVERSAL PATTERN):-
01ITC (F&O) (1,020.0, 1,020.0, 980.3, 986.5)
DOUBLE TOP 1150
1 2

1100

1050

1000

950

900

850

800

750

700

650

600

Sep Oct Nov Dec 1999 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
 DOUBLE BOTTOM

01ACC (F&O) (230.5, 234.0, 229.0, 230.6) 200

195
190
185
180
175
170
165
160
155
150
145
140
DOUBLE BOTTOM FORMATION 135
130
125
120
115
110
105
100
95
90
85
80
75
70
B1 B2 65
60
Apr May Jun Jul Aug Sep Oct Nov Dec 1999 Feb Mar Apr May Jun
DOUBLE TOP/BOTTOM
RULES OF RECOGNITION

 1.The prices of the script rises to a certain

level with high volume and then recedes
with lower volume . Again activity picks up
and the prices starts rising with high
volume , and reaches almost the same
level , but this time the volume is
relatively lower as compared to the first
top, thereafter the prices starts declining
.Double bottom is the same picture but
upside down and having reverse
implication. In case if two tops are formed
very close to each other there is a suspicion
that it may not be double top .
DOUBLE TOP/BOTTOM
RULES OF RECOGNITION
 2.For a reliable pattern there should be time
lag of 3 to 4 weeks between the tops and the
prices reduces by 20 % of the top value .The
time element is more important than the price
decline for the formation of a reliable double
top.
 3.Double Tops and bottoms are primarily
reversal phenomenon. The double top is said to
be confirmed when the price breaks the bottom
of the valley (formed at the time of first decline
) and a technical analyst should take position
only after the price breaks the point of valley
and not in anticipation .
 4. Double Tops are called as “ M “ formations
and Double bottom are called as “W”formations
 THE BROADENING FORMATION

ITC Ltd (1,020.0, 1,020.0, 980.3, 986.5) 850

BROADENING - BEARISH PATTERN

800

750

700

650

600

550

15000
10000
5000
x1000
22 29 5 12 19 27 9 16 23 2 9 16 23 30 6 13 20 27 12 18 25 1 8 15 22 29
1998 February March April May June July
THE BROADENING FORMATION
RULES OF RECOGNITION

 1.The boundaries of the Broadening Formations

widen out and diverges from each other. It is
just reverse of a Triangle and hence often
referred to as the “Inverted Triangles “ . The
Broadening Formations suggests a market
lacking intelligent sponsorship and out of
control . They are bearish in purport suggesting
that the situations is nevertheless approaching
dangerous stage. They appear most often at
or near an important topping out of trend.
 2. The volume is high and erratic , making the
whole picture - price and volume both , one of
wild and apparently “unintelligent swings “
THE BROADENING FORMATION
RULES OF RECOGNITION

 3. The market is expected to move in

the direction of the breakout ,
usually downwards.
 4. There are no broadening Bottom
formation . This pattern is typically
seen at the top.
 5. Like in all other patterns one
should trade only when prices
breakout from the pattern.
 THE DIAMOND

ABB
490
DIAMON PATTERN 480
470
460
450
440
430
420
410
400
390
380
370
360
350
340
330
320
310
300
290
280
270
260
250
240
230
220
210

Jun Jul Aug Sep Oct Nov Dec 1999 Feb Mar Apr May Jun Jul
THE DIAMOND
RULES OF RECOGNITION
 1.As the name suggests the shape of the
formation is like diamond. The diamond
reversal pattern might be described either
as a complex Head & Shoulders with a V -
shaped neckline OR as a Broadening
formation which goes furthur to form a
Symmetrical Triangle . It is not a common
pattern.
 2. It rarely occurs at the bottom as its
natural habitat is major tops , and it is a
Major reversal pattern usually at the top.
 THE WEDGE - FALLING WEDGE
-RISING PRICES

Nestle (India) (642.0, 652.0, 641.1, 650.1) 350

345
340
335
330
FALLING WEDGE - RISING PRICES
325
320
315
310
305
300
295
290
285
280
275
270
265
260
255
250
245
240
235
230
225
220
215
210
205
200

February March April May June July August September November 1998 February March
 THE WEDGE - RISING WEDGE –
FALLING PRICES
BSE Sensex 30 C (5,487, 5,556, 5,487, 5,541) 4800
RISING WEDGE - FALLING PRICES 4700
4600
4500
4400
4300
4200
4100
4000
3900
3800
3700
3600
3500
3400
3300
3200
3100
3000
2900
2800
2700
2600
2500
2400
2300
2200
2100
2000
1900
Jun Jul Aug Sep Oct Nov Dec 1994 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
THE WEDGE
RULES OF RECOGNITION
 1. The wedge is chart formation in which
the price fluctuations are confined within
converging boundaries and both the
boundaries are either upsloping are
downsloping .The wedge formation which
is made up of rising upsloping boundaries
is called as Rising Wedge and the now with
downsloping boundaries is called as falling
wedge. The Rising Wedge has bearish
implication and the Falling Wedge has
bullish implication .
THE WEDGE
RULES OF RECOGNITION
 2. When the prices breakout from the
Rising Wedge , the prices go down and
when the prices breakout from the falling
wedge the prices go up.The Wedge
formation are usually not Major Trend
reversal. However classic wedges are seen
right at the top of the market acting as a
major trend reversal , as seen on BSE 30 in
Sept 94 .
 3. The volume diminishes as the prices
gradually moves towards the apex of the
wedge.
 FLAGS
CONTINUATION PATTERN ONLY
Dabur India Ltd (86.50, 91.80, 86.25, 91.05) 95

90
FLAG FORMATION
85

80

75

70

65

60

55

50

45

40

35

30
Volume (796,784) 10000
5000
x100

February March April May June July August September October November December 2004
 THE PENNANT - A POINTED FLAG
Great Eastern Shipping (142.5, 144.8, 140.6, 141.7)
140
135

PENNANT FORMATION 130

125
120
115
110
105
100
95
90
85
80
75
70
65
60
55
50
45

2003 February March April May June July August September November 2004
FLAGS & PENNANT
RULES OF RECOGNITION
 1. A Flag looks like a flag on the chart . It
can be described as a small compact
parallelogram of price fluctuations or tilted
rectangle which slopes back moderately
against the trend . Flags appearing like
downsloping rectangle are seen in an
uptrend while upsloping flags are seen in
an downtrend.
 2. The volume shrinks markedly and
constantly as the pattern develops .
FLAGS & PENNANT
RULES OF RECOGNITION
 3. The flag should occur after a straight
line move , and looks like half mast since it
develops almost in the middle of the trend.
 4. Usually the time taken within the flag is
3 to 4 weeks i.e the price should break
out within four weeks time . Any pattern
which extends beyond 4 weeks should be
watched with suspect.
 5. The flag is a Continuation pattern only .
FLAGS & PENNANT
RULES OF RECOGNITION
 6. The minimum measuring implication:-
The price is expected to reach at least
the same number of points from the
breakout as measured from the bottom
of the trend from where the trend begin
, till the point from where the flag
started to form .
 7.The flags rarely fail in their
implication . They are most dependable
patterns.
COMMON FACTORS WITH ALMOST ALL
PATTERNS

 1. Trade only in the direction of

breakout and not in anticipation .
 2. Usually prices will pull back on to the
upper side of boundaries.
 3. Volume Shrinks during within the
pattern.
 4. There are minimum four to five
points of contact at the boundaries .
GAPS

 A gap is a chart pattern that consists of two

adjacent bars , where the low of one bar is
higher than the high of the previous bar. It
shows that no trades took place at a certain
price . Gaps occur when prices jump in
response to a sudden imbalance of demand
and supply .
 All gaps can be divided into four major
groups
 1. Common gaps 2. Breakaway gaps 3.
Continuation gaps 4. Exhaustion gaps.
 One needs to identify them since each of
them has different implication and calls for
different trading tactics.
BREAKOUT GAPS
BSE Sensex 30 C (5,487, 5,556, 5,487, 5,541) 3850
3800
3750
3700
3650
3600
3550
3500
3450
3400
3350
3300
* 3250
3200
3150
3100
3050
3000
2950
2900
2850
2800
2750
2700
* = Breakaway Gap 2650
2600
2550
2500
Jun Jul Aug Sep Nov Dec 2002 Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2003 Mar Apr May Jun Jul
 CONTINUATION AND EXHAUSTION
GAPS
BSE Sensex 30 C (5,487, 5,556, 5,487, 5,541) 4400
4350
4300
4250
4200
4150
* = Exhaustion Gap * 4100
4050
4000
3950
* = Continuation Gap 3900
* 3850
3800
3750
3700
3650
3600
3550
3500
3450
3400
3350
3300
3250
3200
3150
3100
29 5 12 19 27 2 9 16 23 2 9 16 23 30 6 13 20 27 4 12 18 25
1998 February March April May
ISLAND REVERSAL

03Wipro Ltd (F&O) (1,690, 1,711, 1,674, 1,700) 10500

10000
9500
9000
ISLAND REVERSAL 8500
8000
7500
7000
6500
6000
5500
5000
4500
4000
3500
3000
2500
2000
1500
1000
500
0

D 1999 M A M J J A S O N D 2000 M A M J J A S O N D 2001 M A M J J A S O N D

 TRENDLINES

 AS we have understood so far that prices move in

Trends , and amazingly and quite frequently the
Primary as well as secondary trends appear on the
charts as though their courses had been plotted
with a straight edge ruler . This phenomenon is in
truth the most fascinating , impressive and
mysterious of all the stock charts .
 How To Draw Trendlines : In an uptrend the trend
line(s) ( straight line) is drawn connecting the
bottom tips while in an downtrend the trendline is
drawn connecting the upper tips of the swing.
Trendlines can be drawn connecting tips of Primary
or Secondary or Minor Swings having the same
time frame implication.
 TRENDLINES

00BSE Sensex 30 C (5,487, 5,556, 5,487, 5,541)

4200
4150
4100
4050
uplsoping trendline 4000
3950
3900
3850
3800
3750
3700
3650
3600
3550
3500
3450
3400
3350
3300
3250
3200
3150
3100
3050
3000
2950
2900
2850
2800
2750

December 1996 February March April May June July August

 TRENDLINES

02Colgate (158.4, 159.4, 155.5, 156.1)

390
380
370
360
350
340
330
320
310
300
290
280
270
260
250
240
230
220
210
200
190
180
170
160
150
140
S O N D 1997 M A M J J A S O N D 1998 M A M J J A S O N D 1999 M A M J
 TRENDCHANNELS

03IOC (F&O) (440.0, 443.0, 428.5, 433.0) 460

minimum target=475 450
Channel Trendline 440
430
420
* 410
400
390
380
370
360
350
340
330
320
310
* = point of breakout. 300
290
280
270
260
250
240
230
220
210
200
190
180
170
160
150
140
130
March April May June July August September October November December 2004
 TRENDCHANNELS

00BSE Sensex 30 C (5,487, 5,556, 5,487, 5,541) 4700

4650
4600
4550
4500
TREND CHANNEL 4450
4400
4350
4300
4250
4200
4150
4100
4050
4000
3950
3900
3850
3800
3750
3700
3650
3600
3550
3500
3450
3400
3350
3300
3250
3200
3150
3100
3050
Mar Apr May Jun Jul Aug Sep Oct Nov Dec 1998 Feb Mar Apr May Jun
SUPPORT & RESISTANCE

 The support price means the floor price at which

the falling prices take support and bounces back
from that level , and resumes its upward journey
.Similarly Resistance is the roof where the prices hit
and retraces and fall backs perhaps to take support
at lower levels. There are various
support/resistance levels which are described
hereunder ;-
 The previous important tops/bottoms acts as
important support/resistance or resistance/support
levels
 The falling prices may take support at rising moving
average , may be 30 days moving average or 200
days moving average and so on . Similarly the rising
prices may face resistance at falling moving
averages.
 The trendlines act as important support & resistance
levels
FIBONACCI STUDIES

 FIBONACCI RETRACEMENTS :-
Fibonacii Retracement levels are
displayed by first drawing a trendline
between two extreme points. ( i.e. a
significant trough and peak ) . The
Fibonacii levels are drawn at the
Fibonacci levels of 0.0% , 23.6 % ,
38.2 % , 50.0 % , 61.8 % ,100% ,
161.8 % , 261.8 % and 423.6 %
MOVING AVERAGES

 A moving average is a statistical device

which smoothens out the erratic price
fluctuations and gives us a smooth curve
indicating the direction of the trend .A
moving average (MA) shows the average
value of data in its time window. A 5-day
MA shows the average price for the past 5
days, a 20 day MA shows the average price
for the past 20 days, and so on.
 TYPES OF MOVING AVERAGE :-
 There are three main types of moving
averages: simple, exponential, and
weighted.
MOVING AVERAGES

00BSE Sensex 30 C (5,487, 5,556, 5,487, 5,541) 4400

4350
30 DAYS EXPONENTIAL MOVING AVERAGE 4300
4250
4200
4150
4100
4050
4000
3950
3900
3850
3800
3750
3700
3650
3600
3550
3500
3450
3400
3350
3300
3250
3200
3150
3100
22 29 5 12 19 27 9 16 23 2 9 16 23 30 6 13 20 27 12 18 25 1 8
1998 February March April May June
MOVING AVERAGES

 TRADING RULES :-
 Moving averages help us to trade in the
direction of the trend. The single most
important message of a moving average is
the direction of its slope. It shows the
direction of the market’s inertia.
 1. When an MA rises, trade that market from
the long side.Buy when prices dip near or
slightly below the moving average.The
market gets support on a rising moving
average.
MOVING AVERAGES

 2. When the MA falls, trade that

market from the short side.Sell short
when prices rally
 Toward or slightly above the MA.The
market faces resistance at falling
moving average.
 3. When the MA goes flat and only
wiggle a little,it identifies a aimless,
trendless market.
 MOVING AVERAGE CONVERGENCE
DIVERGENCE - MACD (26 X 12)
MACD (141.5)

100

50

-50

-100

00BSE Sensex 30 C (5,487, 5,556, 5,487, 5,541)

4300
4200
4100
4000
3900
3800
3700
3600
3500
3400
3300
3200
3100
22 29 5 12 19 27 9 16 23 2 9 16 23 30 6 13 20 27 12 18 25 1 8
1998 February March April May June
MACD

 TRADING RULES :-
 Crossovers between MACD and Signal lines
identify changing market tides. Trading in
the direction of a crossover means going
with the flow of the market.
 1. When the fast MACD line crosses above
the Signal line, it gives a buy signal.
 2. When the fast line crosses below the
slow line, it gives a sell signal. Go short
MOMENTUM INDICATORS

 INTRODUCTION :-
 Oscillators identify the emotional extremes
of market crowds. When greed or fear grips
a mass of traders, the crowd surges -
Oscillators measure the speed of the surge
and track its momentum. If a ball is thrown
up, when it leaves your hand it has the,
highest speed , when it goes still furthur up
though it continues to go up it goes with a
lower speed , and it has the lowest speed
at the top , and then it takes turn and
starts falling down. .Oscillators allow you to
find unsustainable levels of optimism and
pessimism
MOMENTUM INDICATORS

TRADING RULES :-

 OVERBOUGHT AND OVERSOLD

ZONES

 DIVERGENCES
RATE OF CHANGE - ROC

 For example - a 7 days Momentum of closing

prices equals today’s closing price minus the
closing price 7 days ago, Momentum is positive
if today’s price is higher ; negative if today’s
price is lower ; and at Zero if today’s price
equals the price of 7 days ago. The slope of the
line connecting momentum values for each day
shows whether momentum is rising or
falling.The number of days will depend on the
trading time frame defined by the trader.
Standard ROC days are 5, 7, 12, and 24. It
can be expressed in the form of Percentage
also.
 RATE OF CHANGE – ROC
- Over Bought & Over Sold Zone and Trading
on Divergences

Price ROC (12.82)

30

OVERBOUGHT AREA 25
NEGATIVE DIVERGECNES
20
15
10
5
0
-5
-10
OVERSOLD AREA -15
-20
00BSE Sensex 30 C (5,487, 5,556, 5,487, 5,541)
4500

4000

3500

3000

J A S O N D 1996 M A M J J A S O N D 1997 M A M J J A S O N D 1998 M A

 RELATIVE STRENGTH INDEX

 RSI fluctuates between 0 and 100

 Overbought and oversold levels vary from market to
market and from year to year There are no magical
levels marking all tops and bottoms Oversold and
overbought signals are like hot and cold reading on a
thermometer. The same temperature has a different
meaning in summer or in winter.
 Horizontal reference lines must cut across the highest
peaks and the lowest valleys or RSI They are often drawn
at 30 and 70 Some traders use 40 and 80 levels in bull
markets or 20 and 60 in bear markets .The time span
selected for RSI may be 5 days, 9,14 ..... depending
upon the time frame in which a trader is trading i.e
Short term or medium term or long term.
RELATIVE STRENGTH INDEX

 TRADING RULES :-
 Bullish and Bearish Divergences
Divergences between RSI and price
gives the strongest buy and sell
signals. They tend to occur at major
tops and bottoms . They show when
the trend is weak and ready to
reverse.
 Overbought & Oversold Zones
 RELATIVE STRENGTH INDEX

Relative Strength Index (77.25)

negative divergence 85
80
75
70
65
60
55
50
45
40
35
30
25
20
positive divergence 15

00BSE Sensex 30 C (5,487, 5,556, 5,487, 5,541)

4500

4000

3500

3000

J A S O N D 1996 M A M J J A S O N D 1997 M A M J J A S O N D 1998 M A

 STOCHASTIC
Stochastic Oscillator (95.64) negative diergence
90
overbought area
80
70
60
50
40
30
20

oversold area 10

00BSE Sensex 30 C (5,487, 5,556, 5,487, 5,541)

6000

5500

5000

4500

4000

September October November December 2000 February March April

SUPPORT & RESISTANCE

 The support price means the floor price at which

the falling prices take support and bounces back
from that level , and resumes its upward journey
.Similarly Resistance is the roof where the prices hit
and retraces and fall backs perhaps to take support
at lower levels. There are various
support/resistance levels which are described
hereunder ;-
 The previous important tops/bottoms acts as
important support/resistance or resistance/support
levels
 The falling prices may take support at rising moving
average , may be 30 days moving average or 200
days moving average and so on . Similarly the rising
prices may face resistance at falling moving
averages.
 The trendlines act as important support & resistance
levels
JAPANESE CANDLESTICK
BASIC DEFINATION

 THE BODY : The box that makes up the

difference between the open and close is
called as the real body of the candlestick .
The height of the body is the range
between the day’s open price and the day’s
close price . When the body is black , it
means that the closing prices was lower
than the opening price . When the closing
price is higher than the opening , the body
is white.
JAPANESE CANDLESTICK
BASIC DEFINATION

 THE SHADOWS : The Japanese

candlestick line may have small thin
lines above and or below the body.
These lines are called shadows and
represent the high and low prices
reached during the trading day. The
upper shadow represent the high
price and the lower shadow
represents the low price.
JAPANESE CANDLESTICK
BEARISH ENGULFING PATTERN
A C C Ltd. 283

BEARISH ENGULFING 282

281
280
279
278
277
276
275
274
273
272
271
270
269
268
267
266
265
264
263
262
261
260
259
258
257
256
255
254
253
252
251
250
249
248
247
246
245
244
243
242
241
18 19 20 23 24 25 26 27 1 3 4 5 8 9 10 11 12 15 16
March
JAPANESE CANDLESTICK
BULLISH ENGULFING PATTERN
Grasim Inds. Lt
320

315

310

305

300

295

290

285

280

275

270

265

260

255

250

245

240

235

BULLISH ENGULFING PATTERN 230

225

9 12 13 14 15 16 19 20 21 22 23 26 27 28 29 30 2 3 4 6 9 10 11 12 16 17 18 19 20 23
April
JAPANESE CANDLESTICK
SHOOTING STAR
Grasim Inds. Lt
1225
1220

SHOOTING STAR 1215

1210
1205
1200
1195
1190
1185
1180
1175
1170
1165
1160
1155
1150
1145
1140
1135
1130
1125
1120
1115
1110
1105
1100
1095
1090
1085
1080
1075
1070
1065
1060
1055
1050
1045
1040
1035
1030
3 4 5 6 9 10 11 12 13 16 17 18 19 20 23 24 25 26 27
February
JAPANESE CANDLESTICK
HAMMER (BULLISH) & THREE BLACK
CROW(BEARISH)
Grasim Inds. Lt
1250
1240
BEARISH ENGULFING 1230
1220
1210
1200

THREE BLACK CROW 1190

1180
1170
1160
1150
1140
1130
1120
1110
1100
1090
1080
1070

HAMMER
1060
1050
1040
1030
1020
1010
1000
990
980
970
960
950
16 23 1 8 15 22 29
March April
 FIBONACCI STUDIES
FIBONACCI ARCS
6500 00BSE Sensex 30 C 6500
FIBONACCI ARC 6400
6300
6200
6100
6000 6000
5900
5800
5700
5600
5500 5500
5400
5300
5200
5100
5000 5000
4900
4800
4700
4600
4500 4500
4400
4300
4200
4100
4000 4000
3900
3800
3700
3600
3500 3500
3400
3300
3200
3100
3000 3000
2900
2800
2700

Oct Nov Dec 2003 Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2004 Mar Apr May Jun Jul Aug
 FIBONACCI STUDIES
FIBONACCI RETRACEMENT
6500 00BSE Sensex 30 C 6500
FIBONACCI RETRACEMENTS LEVELS 6400
6300
6200
6100
6000 6000
5900
5800
5700
5600
5500 5500
5400
5300
5200
5100
5000 5000
4900
4800
4700
4600
4500 4500
4400
4300
4200
4100
4000 4000
3900
3800
3700
3600
3500 3500
3400
3300
3200
3100
3000 3000
2900
2800
2700

2003 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2004 Feb Mar Apr May Jun Jul Aug
FIBONACCI NUMBERS-
TREND MAY BE EXPECTED TO CHANGE AT THE
END OF FIBONACCI DAYS, WEEKS,MONTHS OR
YEARS
2BSE Sensex 30 Co 13500

55 TH MONTH 13000

12500
P 12000

11500

11000

10500

10000

9500

9000

8500

8000

7500

7000

6500

6000

5500

5000

4500

4000

3500

3000

O 2500

1ST MONTH 2000

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
W.D. GANN THEORY
24 NEVER FAILING RULES
 1. Amount of capital to use. Divide
your capital into 10 equal parts and
never risk more than one-tenth of
your capital on any one trade.
 2. Use stop loss orders. Always
protect a trade when you make it
with a stop loss order.
 3. Never overtrade This would be
violating your capital rule.
W.D. GANN THEORY
24 NEVER FAILING RULES
 4. Never let a profit run into loss .
After you once have profit , raise your
stop loss , so that you will have no
loss of capital.
 5. Do not buck the trend. Never buy
or sell if you are not sure of the trend
according to the chart.
 6. When in doubt get out , and do not
get in when in doubt.
W.D. GANN THEORY
24 NEVER FAILING RULES
 7. Trade only in active stocks . Keep
out of slow , dead ones.
 8. Equal distribution of risk . Trade in
4 or 5 stocks , if possible . Avoid tying
up all your capital in any one stock.
 9. Never limit your orders or fix a
buying or selling price . Trade at the
market.
W.D. GANN THEORY
24 NEVER FAILING RULES
 10. Do not close your trades without good
reason. Follow up with a stop loss order to
protect your profits.
 11. Accumulate a surplus . After you have
made a series of successful trades, put
some money in surplus account to be used
only in emergency or in times of panic.
 12. Never buy just to get dividend.
 13. Never average a loss . This is one of
the worst mistakes a trader can make.
W.D. GANN THEORY
24 NEVER FAILING RULES
 14. Never get out of the market just
because you have lost patience or
get into the market because you are
anxious from waiting.
 15. Avoid taking small profits and big
losses.
 16. Never cancel a stop loss order
after you have placed it at the time
you make a trade.
W.D. GANN THEORY
24 NEVER FAILING RULES
 17. Avoid getting in and out of the
market too often
 18. Be just as willing to sell short as
you are to buy. Let your object be to
keep the trend and make money.
 19. Never buy just because the price
of a stock is low or sell short just
because the price is high.
W.D. GANN THEORY
24 NEVER FAILING RULES
 20. Be careful about pyramiding at the wrong time .
Wait until the stock is very active and has crossed
resistance levels before buying more and until it has
broken out of the zone of distribution before selling
more.
 21.Select the stocks with small volume of shares
outstanding to pyramid on the buying side and the
ones with the largest volume of stock outstanding to
sell short.
 22. Never Hedge . If you are long on one stock and it
starts to go down , do not sell another stock short to
hedge it. Get out at the market take your loss and
wait for another opportunity.
W.D. GANN THEORY
24 NEVER FAILING RULES
 23. Never change your position in the
market without a good reason . When you
make a trade , let it be for some good
reason or according to some definite plan ,
then do not get out without a definite
indication of a change in trend.
 24. Avoid increasing your trading after a
long period of success or a period of
profitable trades.
W.D. GANN THEORY
24 NEVER FAILING RULES
 When you decide to make a trade be sure that
you are not violating any of these 24 rules
which are vital important to your success .
When you close a trade with a loss , go over
these rules and see which rule you have
violated , then do not make the same mistake
the second time. Experience and investigation
will convince you of the value of these rules ,
and observation and study will lead you to
protect and practical theory for success. “
 One or two rules may not be
relevant/applicable to Indian market.
W.D. GANN THEORY
ANNIVARSARIES DATES
 The market can be expected to
change its trend on or about
Anniversaries Dates of achieving its
important historical Tops or Bottoms.
 W.D. GANN THEORY
ANNIVARSARIES DATES
3BSE Sensex 30 Co

7000

6500

6000

22 April 1992 22 APRIL 1998 5500

5000

P
P 4500

4000

3500

3000

2500

2000

1500

1000

500

1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
W.D. GANN THEORY
ANNIVARSARIES DATES –
17 MAY 2004 AND 18 MAY 2006
2BSE Sensex 30 Co 5750
5700
2BSE Sensex 30 Co
5650 12900
12800
5600
12700
5550 12600
5500 12500
5450
5400
18 MAY 2006 12400
12300
12200
5350 12100
5300 12000
5250 11900

5200 11800
11700
5150
11600
5100 11500
5050 11400
11300
5000
11200
4950
11100
4900 11000
4850 10900
4800 10800
10700
4750
10600
4700 10500
4650 10400
4600 10300
10200
4550
10100
4500 10000
4450 9900
4400 9800
9700
4350
9600
4300
9500

17 MAY 2004
4250 9400
4200 9300

4150 9200
9100
9000
10 11 12 13 14 17 18 19 20 21 24 25 26
8900
5 8 9 10 11 12 15 16 17 18 19 22 23 24 25 26 29 30 31 1 2 5 6 7 8 9 12 13
June
YOU SAID IT MR. GANN

 1.Nothing can stop the trend .

 2.Do not guess; make a trade on
definite rules .
 3.Human nature does not change and
that is the reason history repeats and
stocks act very much the same under
certain conditions year after year and
in the various cycles of time.
 4. Time change is very important.
YOU SAID IT MR. GANN

 5. Hope can lead to nothing but

losses. A wise man changes his mind
, a fool never.
 6. Action not delay makes money on
stock market .
 7. Do not buy or sell on hope or fear.
 8. Learn the 3 most important factors
- Time , Price and Volume.
YOU SAID IT MR. GANN

 9. Do not overtrade.
 10. Successful investor have definite plans and
rules and follow them .
 11. It is well for any trader to remember that
when he makes a trade , he can go wrong.
Then how can he correct his mistake ? . By
putting a stop loss.
 12. The prices on stock markets are governed
by Supply and demand. No matter whether the
buying or selling is by public , by pools or by
manipulators , prices decline when there are
scarce and when there are more buyers than
sellers.
YOU SAID IT MR. GANN

 13. When news are worst , it is the time to

buy stocks as a Bull market begins in
gloom and ends in glory with nothing but
good news.
 14. Remember stocks are never too high to
buy as long as the trend is up and they are
never too low to sell as long as the trend is
down.
 15. Always go with the trend and not
against it.
 16. Buy stocks in strong position and sell
stocks in weak position .
FINALLY I WOULD LIKE TO SAY
 I would like to conclude with a final
statement that Technical Analysis is a
powerful and complete tool in itself. With
the help of technical Analysis one take
investment as well as trading decision not
only in Stock markets but also in
Commodities, Forex, International markets
and any such markets where the prices of
any item is determined by the forces
demand and supply in a free market
economy.
THANK YOU VERY
MUCH