Devashish Final

A SUMMER PROJECT REPORT

ON

A STUDY OF TECHNICAL ANALYSIS FOR THE INVESTMENT DECISION IN

CAPITAL MARKET UNDER TAKEN AT DEVASHIS SECURITY PVT

LTD ,BARDOLI.

BY

MS SONAL PARMAR

108120592011

BATCH: 2010-11

UNDER THE GUIDANCE OF

MS MUNEZA KAGZ1 (Internal)

Asst. Professor TMES, MANDVI

SUBMITTED TO

GUJARAT TECHNOLOGICAL UNIVERSITY, AHMEDABAD

FOR THE PARTIAL FULFILMENT 0F REQUIREMENT OF THE AWARD FOR

THE DEGREE OF

MASTER OF BUSINESS ADMINISTRATION

THROUGH

THE MANDVI EDUCATION SOCIETY INSTITUTE OF BUSINESS

MANAGEMENT AND COMPUTER STUDIES, MANDVI

College Code: 812 BATCH CODE: 9

TABLE OF CONTENT

SR NO. PARTICULARS PAGE NO.

1) PART-1 General Information Chapter - 1 Company information & Product profile

10-27

2) PART-2 Primary Study Chapter - 2 About the topic 2.1 Introduction 2.2 Assumption 2.3 Objective 2.4 Important Of The Study

27-33

3) Chapter-3 Research Methodology 3.1 Problem Statement 3.2 Objective 3.3 Research Design 3.4 Sample Size

34-41

4) Chapter-4 Data analysis & Interpretation

42-84

5) Chapter-5 Finding 85-86

6) Conclusion 87-88

7) Bibliography

PART -1 GENERAL INFORMATION

1.1 International Stock MarketMajor Markets International Investing Values Trend The global major stock market value trend this month, after having risen five

consecutive months, was to decline a bit. The Morgan Stanley Capital Index

(MSCI) dropped 1% in local terms and 2.3% in US dollar terms. Over the

month, fourteen global major stock markets advanced and four fell.

Major Markets International Investing Values Appreciation The global major stock market with the highest appreciation was in the

Netherlands (up 3.8%). France (up 2.5%) and Belgium (up 2.2%) followed this

lead. Over the last 12 months the top global major stock markets have been

Austria rising 62.1. % with Norway up 41.9% and Belgium up 36.1%.

Major Markets International Investing Values Lowest Appreciation The worst performing global major stock market for the month was Hong Kong

(-3.8%), the U.S. was down 2.5% and Japan down -1.4%. The lowest rising

global major stock market for the last year is Switzerland (up 7.1%), U.S. (up

7.4%) and Germany (up 8.%).

The six top value global major stock markets are Belgium, Denmark, France,

Germany, Italy, Netherlands and Norway at equal weights. The seven major

markets international investing values that have a low rating and are

recommended as sell candidates are Austria, Canada, Hong Kong, Japan,

Singapore, Switzerland and the U.S.

International Investment Update for August Spotting Trends expert Michael Keppler continually researches every major

global stock market and compares their value based on current book to price,

cash flow to price, earnings to price, average dividend yield, return on equity

and cash flow return. He compares these to each global major stock market

history and from this develops his global major stock market value strategy.

Here is his most recent review.

International Investment Recent Developments & OutlookInternational investment equity markets experienced their highest monthly

gain since December 2003. For the month, the Morgan Stanley Capital

International (MSCI) World Total Return Index advanced 3.8 % in local

currencies, 3.5 % in US dollars and 3.2 % in euros.

All eighteen international investment markets covered advanced both in the

month and year to date. Germany (+6.6 %), Singapore (+6 %) and Hong Kong

(+5.8 %) gained most (in local currency). The Netherlands (+1.7 %), Japan

(+2.2 %) and Australia (+2.7 %) had the lowest monthly gain. Year to date

Norway (+28.2 %), Austria (+25.2 %) and Denmark (+24 %) gained most of

any international investment market, while the United States (+3 %), Japan

(+4 %) and Hong Kong (+9.5 %) came in last.

1.2 National Market

NSE is the 9th largest stock exchange in the world by market

capitalization and largest in India by daily turnover.

NSE: The National Stock Exchange (NSE) is India's leading stock exchange

covering around 400 cities and towns all over India. NSE introduced for the

first time in India, fully automated screen based trading. It provides a modern,

fully computerized trading system designed to offer investors across the length

and breadth of the country a safe and easy way to invest or liquidate

investments in securities. Sponsored by the industrial development bank of

India, the NSE has been co-sponsored by other development/ public finance

institutions, LIC, GIC, banks and other financial institutions such as SBI

Capital Market, Stockholding corporation, Infrastructure leasing and finance

and so on.

India has had a history of stock exchanges limited in their operating

jurisdiction to the cities in which they were set up.NSE started equity trading

on November 3, 1994 and within a short span of 1 year became the largest

exchange in India in terms of volumes transacted. Trading volumes in the

equity segment have grown rapidly with average daily turnover increasing

from Rs.7 crores in November 1994 to Rs.6797 crores in February 2001 with

an average of 9.6 lakh trades on a daily basis. During the year 2000-2001,

NSE reported a turnover of Rs.13, 39,510 crores in the equities segment

accounting for 45% of the total market.

The NSE represented an attempt to overcome the fragmentation of regional

markets by providing a screen-based system, which transcends geographical

barriers. Having operationalised both the debt and equity markets, the NSE is

planning for a derivative market, which will provide futures and options in

equity. Its main objectives has been to set up comprehensive facilities for the

entire range of securities under a single umbrella, namely,

To set up a nationwide trading facility for equities, debt instruments and

hybrids;

To ensure equal access to investors across the country through an

appropriate communication network;

To provide a fair, efficient and transparent securities market to investors

using the electronic trading system;

To ensure shorter settlement cycles and book entry settlement

systems; and

To meet the current international standards prevalent in the securities

Industry/markets.

COMPANY INFORMATION & PRODUCT PROFILE

COMPANY PROFILE: Shri.Krishnakant Desai is the chairman & shri.Ashish Desai is the managing

director of the Devashish Securities Pvt. Ltd., as well as Devashish

Commodities Pvt. Ltd. During June 1996, they have started it as Devashish

Investment, a family firm with partners of Krishankant Desai and his son

Ashish Desai. Senior Partner Krishnakant Desai had long experience as

Accountant in Bardoli Sugar Factory and in Sardar Bagayat. Devashish

Investment with a gallop start as Financial Advisors due to overwhelming

support from surrounding residents of Bardoli areas was converted into

Devashish Securities Pvt. Ltd. within few years.

Since 1893, in their family they had agency of government of India. Father of

Ashishbhai was an employee of “Bardoli sugar factory” holding a key position

of an accountant earned goodwill of hundred of farmer member of the sugar

factory. With this background, they launched in June 1996; a partnership firm

called “Devashish Investment” Those were the day when there were no official

share brokers in Bardoli. Interested customer had to go to Surat for their share

dealing. Telephone facility was poor, on-line trading and E-mail facilitates

came in to the picture year later.

Devashish Securities Pvt. Ltd is a recognized sub-broker of SEBI, their

network Partner being Messrs. Kisan Ratilal Choksey, Bombay based Share

Brokers. Gradually they started other departments – Mutual Fund – Insurance

Company Deposits etc.

Their office accommodation when they have started their Business Activities

was of 150 Sq. Ft. of their own. Now it is one of the established companies in

these areas having 4500 Sq. Ft. office space.

They have full modern on-line equipments and infrastructure. They have also

established their website. So that their clients can track their portfolio, can

also know market related day- to-day news and information’s.

Growth of the commercial activity of DSPL & DCPL demanded extension of

areas of departments. Hence opening of branches at Navsari in January 2005

& at Vyara in may 2006.

In the pervious year in June they successfully completed eleven year of their

existence. Presently strength of their manpower on their payroll is 32 in the

main office at Bardoli, 12 in Navsari branch 13 Vyara branch.

In January 2003 DSPL becomes the sub broker of messes “Kishan Ratilal

Choksey share & security Pvt. Ltd.”, Mumbai. DSPL is also approved as sub

broker firm of SEBI. DSPL manage DEMAT as section as sub-department of

messes “K R Choksey”. Their DP-CDS registration number is 12010700.

Their clients run their DP Account with Devashish in their office only.

DCPL is a direct no of “Multy Commodity exchange”, Mumbai. Their member

registration no. being 29745. As registration approved the broker of MCX, and

due to all on-line e-business machinery & equipment installed in their all of

three offices. Their clients do their commodity dealing from Devashish office.

In their head office at Bardoli & branch in Navsari and Vyara they have main

three departments – equity dealing, commodity dealing, saving investment viz,

mutual funds, insurance schemes & company deposit.

DEPARTMENTATION OF DEVASHISHDepartmentation:The departmentation of the company is based on function performed by different departments i.e. Finance, personnel, Marketing, system and operation, etc. Each of this basic function is classified in subsidiary unit. Here each department wise the responsibility of a particular work is assigned to an expert.

List of Departments:1. Personnel department2. Finance department3. System and operation department

4. Marketing department5. Research Department6. Product and service management department1).PERSONNEL DEPARTMENT:Personnel management is also known as human resource management. HRM

is concern with the people dimensions in the organization. Personnel

department includes recruitment-selection, training & development,

performance appraisal, wages & salary, labor relation activities, transfer-

promotion

“Personnel management can be defining as the process of accomplished

organizational objective by acquiring, retaining, terminating, development, and

properly using the human resource in an organization.

Mr. Ketul Patel is the head of Human Resource Department at Devashish

Securities.

Labour Relation Activities:In Devashish Securities Pvt. Ltd. Relation among employees and

management is healthy and there is no union system. For maintaining good

and healthy relations employees can contact management directly via mail or

employees can discuss their problems to their executives and then the

problem flows in hierarchal order to the top management.

Payroll SystemPayroll system is the fundamental system of all the organization. Every

organization should have fundamentally strong payroll system. If the

fundamental structure of organization is strong than every person satisfy with

the job and after all everyone is primarily concerned with the money.

In Devashish Securities payroll system is fundamentally strong. They calculate

salaries on the basis of attendance record. One casual leave per month is

allowed to each employee and there are no fixed rules for Sick Leave but they

allow sick leaves as per the medical certificate. The salary is being paid after

deducting Provided Fund, Professional Tax and penalties if any. Company

uses electronic punch card machine to keep record of attendance.

Company gives different types of allowances of employee which are added in

salary and wages like:

Dearness allowances

Home rental allowances

Transport allowances

Canteen allowances

Medical allowances

Education allowances

Leave travel allowances

Uniform allowances

Mobile allowances

Petrol allowancees

RecruitmentRecruitment is the process of searching for prospective employee and

stimulating and encouraging them to apply for jobs in an organization.

There are basically two sources of recruiting employees:

1 ) Internal

2 ) External

Company is using both sources to recruit employees.

As a part of internal recruitment company encourages relatives of the existing

employees to apply for the job and they also use promotion and transfer to fill

the vacancy.

Company recruits an employee externally through following way

They give advertisement in the newspaper

Through employment exchange

Through Campus recruitment

Selection

Selection is the process of obtaining and using information about job

applicants in order to determine who should be hired for long- or short- term

positions.

For selecting an employee, company give first advertisement in various

newspapers. After that application form a candidate has to fill up. Then they

take personal interview. The candidate is approved on the basis of personal

interview, qualification and work experience. Once the employee is hired

he/she must continue the job for next two years. If an employee wants to

resign he/she has to give notice before one month of resignation so that

company can recruit new employee and in period of one month the new

recruited employee can take training from that employee.

Performance AppraisalIn Devashish Securities performance appraisal is done on overall performance

or output not on individual performance or output. Though the company gives

appraisal certificate and monetary allowances to the deserved candidates.

Recently company has broken all the record of intraday transaction as well as

delivery transaction. So the company has arranged a function for all the

employees and to motivate them they have given some amount to all the

employees.

Training and Development With the change in technology the training programmed is organized to give

technological knowledge to the worker for lots of advantages. So with the

physical work worker can adjust with new technological environment or new

machineries. Some training for the betterment of worker is also done like

safety training, first aid training.

Training is not only for lower level person but it is also for higher level person.

For higher level person some seminar is conducted or some training program

organized and some practical work given to them for more knowledge.

There are mainly two types of training given to the employee:

On the job training

Off the job training

Devashish Securities provide both type of training. Under on job training

employees learn from their mistakes and from their seniors. All the employees

of company are highly co-operative.

In Off the job training company arrange seminars, lectures, group discussion,

personality development etc. For the training regarding new analysis software development etc. For the training regarding new analysis software

company encourages the employees for imparting training from Mumbai bycompany encourages the employees for imparting training from Mumbai by

paying the entire amount of that particular course.paying the entire amount of that particular course.

Basically, the aim of training & development is to develop some specific skills

and knowledge, to improve employee motivation and to improve productivity

that achieves the organizational goal.

Welfare Activitie s 1.Clean Drinking Water Facility

The Company provides clean drinking water facility to their staff members.

The water cooler facility is provided for cold and clean water.

2.Wash room facility

Wash room is available for the employees. The I-cards of each employee

carry an electronic chip through which they can get entry in wash rooms and

rest rooms. The purpose of this facility is to maintain cleanliness.

3.Tour Arrangement:

Company arranges 1 or 2 day picnic for its employees.

Food and snacks

Advance payment

Birthday celebration

Indoor games on every Saturday

Cricket tournament

2).FINANCE DEPARTMENT

Finance is regarded as the life blood of a business organization. The study of

finance management relates to the process of procuring financial resources &

its judicious utilization with a view maximizing the owner wealth. Efficient

management of every business enterprise is largely depends on the efficient

management of its finance.

All the activity of financial management pertaining to the rising of funds using

of the funds and management of the earning are collectively known as

financial function.

“Financial management means managerial function like planning, controlling,

pertaining to acquisition and using of fund needed in the business”

Sources of FundsIn Devashish Securities both internal and external source is available to raise

the fund. The sources of funds of Devashish Securities are as follows

Profit generated by Devashish Securities Pvt Ltd.

Profit of Devashish Commodities Pvt Ltd.

Profit of Devashish Advisory services Pvt. Ltd.

Loan

Cash Credit

Relationship with other Departments

Marketing Department The finance department maintain all the renewal account related to the

marketing i.e. the claims of distribution the record of payment of investors.

Finance is also linked with marketing department because finance is needed

for every step of marketing. In finance capital budgeting involves planning the

availability, controlling of long term investment funds for promoting products

through advertisement, selling and giving free samples, the finance is first

aspects to be taken care. At the time of deciding cash discount on different

customer and different quantity, both finance and marketing manager sitting

together.

Personnel Department The maintenance charges of rest room are paid by the financial department.

Finance is provided by finance department to fulfill facilities provided to

employees. Many other allowances and any other miscellaneous expenditure

incurred by the employee are paid by the financial department. Salary is being

paid by the finance department.

System and Operations Department The account and finance department arranged the fund for the procurement of

new equipments like computers, printers, soft wares etc. They also monitor

and maintain budget of the expense by System and Operations Department.

Accounting PoliciesThere should not be naked debit in any investors account. That is an investor

having debit without having any securities in his/her account is not allowed.

Credits are allowed to the investors for two days.

Depreciation

Assets valuation

Salaries are paid on monthly basis and if any employee has taken advance

than that amount will be deducted in installation and not on lump sum basis

3) SYSTEM AND OPERATIONS DEPARTMENTA system is an organized, purposeful structure regarded as a whole and

consisting of interrelated and interdependent elements (components, entities,

factors, members, parts etc.). These elements continually influence one

another (directly or indirectly) to maintain their activity and the existence of the

system, in order to achieve the goal of the system.

Operations traditionally refer to the production of goods and/or services

separately, although the distinction between these two main types of

operations is increasingly difficult to make as manufacturers tend to merge

product and service offerings. More generally, operations management aims

to increase the content of value-added activities in any given process.

Fundamentally, these value-adding creative activities should be aligned with

market opportunity (through marketing) for optimal enterprise performance.

Devashish Securities is not a manufacturing organization. So, here System

and Operation refers to maintain the equipments used by the company and to

construct a service layout in such a way that at every stage value is added

with minimum efforts and the process carry out without any obstacles.

Mr. Mayur Panchal is the head of system Department at Devashish

Securities.

4) MARKETING DEPARTMENT

Marketing is the system of business activities. It is designed to plan, price,

promote and distribute any goods & services. Marketing activities are taken

place where goods and services are offered for sell.

Marketing is a set of human activities directed, facilitating and consummating

exchange, it is exchange of goods and the transportation is to satisfy that

human needs and wants. Human efforts, finance and management constitute

the primary sources in marketing.

Mr. Shailesh Bhavsar is the head of Marketing Department at the Devashish

Securities.

Marketing Mix As Devashish Securities is a service organization the marketing mix of

Devashish securities consist of 7ps.

1. Product

2. Price

3. Place

4. Promotion

5. People

6. Process

7. Physical evidence

Product Devashish Securities offers following services to its customers

Demat account

Commodity trading

Pan card

Mutual Fund

Lump sum plan

SIP( Systematic Investment plan)

PriceDemat account: Charge for opening a demat account in Devashish securities

is Rs.500. For the purpose of promotion there are no maintenance charges for

1st year. After completion of 1 year it takes Rs. 350 as maintenance charges

per year. The brokerage of Devashish Securities is 0.07 on intraday

transaction and 0.65 on delivery transaction.

Commodity Account: Charge for opening a commodity trading account is

Rs.350. Traders of gold and silver can also get the physical commodity when

they want to withdraw and the gold they can is 99.95% pure with a mark of

RBI.

Mutual Fund: Devashish Securities offers two types of mutual fund schemes.

In lump sum investment minimum amount to be invested is Rs.5000 and in

systematic investment plans minimum amount debited per month is Rs.500.

PlaceThe head office of Devashish Securities is situated at Bardoli. It has number of

branches and franchisees.

Branches: NAVSARI, VYARA, SURAT, MAHUVA

Franchise:PALSANA,KAMREJ,UNAI,SONGADH,SURAT,BHARUCH,

ANKLESHWAR,NANDURBAR,DEHRADUN,CHANDIGADH,INDORE,

CHHAPRA,MUMBAI, NASIK, JODHPUR.

PromotionDevashish securities uses various communication platforms for promoting its

product and services like advertising, sales promotion, public relations etc.

The company gives advertisement in newspapers and billboards. As a part of

sales promotion it gives discount for new investors and to maintain Public

Relations Company organizes a function every year and invite all the potential

investors.

PeopleThere are more than 40 employees working at Devashish Securities including

Technicians, Market experts, Management expertise, receptionist and peon.

All the employees are experts in their particular field.

ProcessDevashish Securities takes minimum time in delivering its services. A

receptionist on front desk guides the customers and handles their queries. At

market time investors can trade through calls or through their login ID.

Physical EvidenceWhere is the service being delivered? Physical Evidence is the element of the

service mix which allows the consumer again to make judgments on the

organization.

At Devashish Securities employees are busy and sincere regarding their

duties. It maintains smooth flow of providing services. Almost 0 times in

delivering services. Sitting arrangement is there for the investors who want to

trade. There are 2 conference room available for interaction between

employees and management and employees and customers.

5) RESEARCH DEPARTMENTA department in a brokerage or institutional investor with the task of evaluating

securities to determine which to recommend to brokers, clients, and other

interested parties. The research department develops investment strategies

depending on the current and projected future conditions of markets. It may

use technical analysis, fundamental analysis, or any other technique in

performing its duties. Through the research results research analyst helps

portfolio advisor or investment advisor to trade on behalf of the customers.

ABOUT TOPIC:2.1) INTRODUCTIONTECHNICAL ANAYSIS is research of market dynamics that is done mainly

with the help of charts with the purpose of forecasting future price

development. Technical analysis comprises several approaches to study of

price movement which are interconnected in the framework of one harmonious

theory. This type of analysis studied the price movement on the market by the

means of analysis on the basis of three market factors: price, volumes, and in

case of study of future contracts’ market, of an open interest (number of open

position). Of these three factors the primary one for technical analysis is the

prices, while the alterations in other factor are studies mainly in order to

confirm the correctness of the identified price trend. This technical theory, just

like any theory, has its core postulates.

DEFINITION:“A method of evaluating securities by analyzing statics generated by

market activity, such as past prices and volume.”

Technical Analysis do not attempt to measure a security’s intrinsic value

, but instead use charts and other tools to identify pattern that can

suggest future activity. A technical analyst believes that share prices are

determined by the demand and supply forces in the market.

What is Technical Analysis? It is a process of identifying trend reversals at an earlier stage to formulate the

buying and selling strategy. With the several indicators they analyse the

relationship between price-volume and supply-demand for the overall market

and the individual stock. Volume is favorable on the upswing i.e the number of

shares traded is greater than before and on the downside the number of

shares traded.

2.2) ASSUMPTIONS:

1. The market value of the scrip is determined by the interaction of supply

and demand.

2. The market discounts everything. The price of the security quoted

represents the hops, fears and inside information received by the

market players. Inside information regarding the issuing of bonus

shares and right issues may support the price.

3. The market always moves in trend. Except for minor deviations, the

stock prices move in trends. The price may create definite patterns too.

The trend may be either increasing or decreasing. The trend continues

for sometimes and then it reverses.

4. The market technician assumes that past prices predict the future.

2.3)OBJECTIVE : To know which indicator can best suit to understand the price

movement. To catch the proper buy & sell signals to time the market supply. To know the carry out the price forecast. To know the finding the right company where invester can invest

in share is available to easily.

2.4) IMPORTANT OF THE STUDY:

The study is useful for the finding the right company where

Invester can invest in share is available to easily.

The study is useful to pinpoint optimal entry and exit in market.

The study is useful to catch the proper buy & sell signals to

time the market supply.

To learn how traders can avoid mistakes in their trading pattern

with the use of technical Analysis.

2.5) LITERATURE REVEVIEW:This paper tests two of the simplest and most popular trading rules--moving

average and trading range break--by utilizing the Dow Jones Index from 1897

to 1986. Standard statistical analysis is extended through the use of bootstrap

techniques. Overall, their results provide strong support for the technical

strategies. The returns obtained from these strategies are not consistent with

four popular null models: the random walk, the AR(1), the GARCH-M, and the

Exponential GARCH. Buy signals consistently generate higher returns than

sell signals, and further, the returns following buy signals are less volatile than

returns following sell signals. Moreover, returns following sell signals are

negative, which is not easily explained by any of the currently existing

equilibrium models. Copyright 1992 by American Finance Association.

In a comprehensive and influential study, Brock, Lakonishok, and LeBaron

[BrLL92], analyzed 26 technical trading rules using 90 years of daily stock

prices from the Dow Jones Industrial Average up to 1987 and found that they

all outperformed the market.

BROCK, W., J. LAKONISHOK and B. LEBARON, 1992. Simple Technical

Trading Rules and the Stochastic Properties of Stock Returns.

The authors investigate the informational role of volume and its applicability for

technical analysis. They develop a new equilibrium model in which aggregate

supply is fixed and traders receive signals with differing quality. The authors

show that volume provides information on information quality that cannot be

deduced from the price statistic. They show how volume, information

precision, and price movements relate, and demonstrate how sequences of

volume and prices can be informative. The authors also show that traders who

use information contained in market statistics do better than traders who do

not. Technical analysis, thus, arises as a natural component of the agents'

learning The authors investigate the informational role of volume and its

applicability for technical analysis. They develop a new equilibrium model in

which aggregate supply is fixed and traders receive signals with differing

quality. The authors show that volume provides information on information

quality that cannot be deduced from the price statistic. They show how

volume, information precision, and price movements relate, and demonstrate

how sequences of volume and prices can be informative. The authors also

show that traders who use information contained in market statistics do better

than traders who do not. Technical analysis, thus, arises as a natural

http://ideas.repec.org/a/bla/jfinan/v47y1992i5p1731-64.html


component of the agents' learning process. Copyright 1994 by American

Finance Association.process. Copyright 1994 by American Finance

Association.

BROCK, W., J. LAKONISHOK and B. LEBARON, 1992. Simple Technical

Trading Rules and the Stochastic Properties of Stock Returns.

The authors investigate the informational role of volume and its applicability for

technical analysis. They develop a new equilibrium model in which aggregate

supply is fixed and traders receive signals with differing quality. The authors

show that volume provides information on information quality that cannot be

deduced from the price statistic. They show how volume, information

precision, and price movements relate, and demonstrate how sequences of

volume and prices can be informative. The authors also show that traders who

use information contained in market statistics do better than traders who do

not. Technical analysis, thus, arises as a natural component of the agents'

learning process. Copyright 1994 by American Finance Association.

BLUME, L., D. EASLEY and M. O'HARA , 1994. Market Statistics and

Technical Analysis: The Role of Volume. The Journal of Finance. [Cited by

198] 17.22

Economists have traditionally been skeptical of the value of technical analysis,

the use of past price behavior to guide trading decisions in asset markets.

Instead, they have relied on the logic of the efficient markets hypothesis.

Christopher J. Neely briefly explains the fundamentals of technical analysis

and the efficient markets hypothesis as applied to the foreign exchange

market, evaluates the profitability of simple trading rules, and reviews recent

ideas that might justify extrapolative technical analysis.

"Christopher J. Neely briefly explains the fundamentals of technical analysis

and the efficient markets hypothesis as applied to the foreign exchange

market, evaluates the profitability of simple trading rules, and reviews recent

ideas that might justify extrapolative technical analysis."

NEELY, C., 1997. Technical Analysis in the Foreign Exchange Market: A

Layman's Guide. Federal Reserve Bank of St. Louis Review.

http://ideas.repec.org/a/fip/fedlrv/y1997isepp23-38.html

http://ideas.repec.org/a/fip/fedlrv/y1997isepp23-38.html

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This article reconciles an apparent contradiction found by recent research on

U.S. intervention in foreign exchange markets. LeBaron (1996) and Szakmary

and Mathur (1997) show that extrapolative technical trading rules trade

against U.S. foreign exchange intervention and produce excess returns during

intervention periods. Leahy (1995) shows that U.S. intervention itself is

profitable over long periods of time. In other words, technical trades make

excess returns when they take positions contrary to U.S. intervention - U.S.

intervention itself is profitable, however. This article will first present recent

research on these subjects. Then it will discuss how differing investment

horizons and varying returns and position sizes may reconcile these facts.

This article reconciles an apparent contradiction found by recent research on

U.S. intervention in foreign exchange markets. LeBaron (1996) and Szakmary

and Mathur (1997) show that extrapolative technical trading rules trade

against U.S. foreign exchange intervention and produce excess returns during

intervention periods. Leahy (1995) shows that U.S. intervention itself is

profitable over long periods of time. In other words, technical trades make

excess returns when they take positions contrary to U.S. intervention - U.S.

intervention itself is profitable, however. This article will first present recent

research on these subjects. Then it will discuss how differing investment

horizons and varying returns and position sizes may reconcile these facts.

TECHNICAL INDICATOR: 1) MACD-(Moving Average Convergence/Divergence): Introduction :

Developed by Gerald Appel, Moving Average Convergence/Divergence

(MACD) is one of the simplest and most reliable indicators available.

MACD uses moving averages, which are lagging indicators, to include

some trend-following charistics.

These lagging indicators are turned into a momentum oscillator by

subtracting the longer moving average from the shorter moving average.

The resulting plot forms a line that oscillates above and below zero, without

MACDFormulaThe most popular formula for the MACD is the difference between a

security's 26-day and 12-day Exponential Moving Averages(EMAs).

Out of the two moving averages that make up MACD, the 12-day EMA is

the faster and the 26-day EMA is the slower. Closing prices are used to

form the moving averages. Usually, a 9-day EMA of MACD is plotted along

side to act as a trigger line. A bullish crossover occurs when MACD moves

above its 9-day EMA, and a bearish crossover occurs when MACD moves

below its 9-day EMA

Calculation

MACD: (12- day EMA – 26- day EMA)

Signal Line: 9 – day EMA of EMA )

MACD Histrogram : MACD – Signal Line

Trading Signal

BUY: When the lines are below the zero line , if the MACD Line

Crosses the average line from below to above , it’s indicates

a buying opportunity.

SELL: When the lines are above the zero line , crossing of the

MACD lines from above to below the average line signal

a selling opportunity.

2) RELATIVE STRENGHT INDEX:J. Welles Wilder developed the Relative Strength Index (RSI) and introduced it

in the June 1978 article for Commodities magazine, which is now Futures

magazine. Wilder provided further detail in his classic book, New Concepts in

Technical Trading Systems, which was also published in 1978. This book

provides details on calculation, usage and signals for RSI and many of

Wilder's other indicators including Average True Range, Parabolic SAR and

ADX.

RSI is a momentum oscillator that measures the speed and change of price

movements. RSI oscillates between zero and 100. Traditionally, and according

to Wilder, RSI is considered overbought when above 70 and oversold when

below 30. Signals can also be generated by looking for divergences, failure

swings and centerline crossovers. RSI can also be used to identify the general

trend.

Calculation:

RSI= RS = Average Gain / Average Loss

Trading signal : BUY :When the RSI has crossed the 30 line from below to above and

is rising , a buying opportunity is indicated.

SELL: When it has crossed the 70 line from above to below and is

falling , Sell signal is indicated.

3)ROC (Rate of Change):

The Rate of Change (ROC) is a simple technical indicator that shows the

percentage difference between the current price and the price n periods ago.

The ROC can be used as any momentum technical indicator by analyzing

positive and negative divergence, looking for high lows and zero line

crossovers. The ROC can be used to define overbought and oversold

markets. The higher ROC is considered a more overbought security and the

lower ROC is a more oversold security. However, in many cases, the

extremely overbought/oversold ROC may indicate a continuation of the recent

trend.

The Rate of Change (ROC) indicator measures the percentage change of the

current price as compared to the price a certain number of periods ago. The

ROC indicator can be used to confirm price moves or detect divergences; it

can also be used as a guide for determining overbought and oversold conditions.

Calculation:ROC = (Close - Close N periods ago) / Close N periods ago * 100

http://www.marketvolume.com/quotes/rate_of_change.asp

Trading signal: Zero line : Identify buying and selling opportunity. BUY: Upside from below to above the zero line that indicates a Buying opportunity.SELL: While downside crossing from above to below the zero line that indicates a selling opportunity.

RESEARCH METHODOLOGY:

3.1) Problem statement: “Study of technical analysis tools for investment decision in capital

market”3.2)Objective: “To know the proper buy & sell signals to invest for getting more return in security market.”3.3) Research Design:A research design is a framework or blue for conducting the marketing

research project. It specifies the detail of the procedure necessary for

obtaining the information needed to structure and solve marketing

research problem.

A three types of research design:

Exploratory Research

Descriptive Research

I selected descriptive research design because the research topic based

on a past data.

The research design is descriptive as it describes the result of technical

analysis tool to buy or sale the security. The study is base on the secondary

data collected from the National Stock Ex. web. The analysis is done using

MS excel. Research employs three major indicators () for three companies

selected on the basis of market capitalization. (Date). Data collection duration

is from Jun 2008 to JUN 2011 for scripts. For data analysis the script’s

opening, closing, high, low prices are considered.

3.4) Data collection: A two types of data collection:

1) Primary data

2) Secondary data Primary Data:

Primary data are freshly gathered data for specific purpose or for specific research project .” Primary data are no one has collect the data the first time search.Ex. Questionaire, Focus group , Interview, Survey etc.

Secondary Data:

Secondary data are data that were collected for another purpose , and already exist some where.”Ex. Internet, Magazine, Research paper.

I Selected a secondary data because data collection through Internet , magazine and research paper.

3.5)Sample Size: Top three Companies as per market Capitalisation:

Reliance

L & T

Tata Steel

A three Indicator Such as: MACD RSI ROC

Data collection Duration:June 2008- to- June 2011

3.6) limitation of the study: Due to unavailability of the data as per the requirement, the process

becomes time consuming.

TECHNICAL INDICATOR MACD

These lagging indicators are turned into a momentum oscillator by

subtracting the longer moving average from the shorter moving

average. The resulting plot forms a line that oscillates above and below

zero, without any upper or lower limits.

RELINCE COMPANY:

BIG ARROW :SHOW THE BUYING SIGNAL

SMALL ARROW: SHOW THE SELLING SIGNAL

Graph1:

Graph 2:

Graph 3:

Graph 4:

Graph 5:

Graph 6

Graph 7

Graph8

Graph 9

TATA STEEL:

1

2

7

8

9

L&T

1

2

7

8

9

INTERPRITATION OF MACD

SR NO. COMPANYNAME

BUY(Time Duration)

SELL(Time Duration)

1) RELIANCE 25-Aug-to-07-Nov-08

22-to-23-Jan-09

27-Feb-to17-Mar-09

08-Jun-to-31-Jul-09

19-to-25-Aug-09

23-Oct-to-13-Nov-09

15-to-30-Dec-09

21-Jan-to-4-Mar-09

20-Apr-to-10-Jan-10

20-Jul-to-09-sep-10

12-Nov-to-13-Dec-10

11-Jan-to-17-Feb-11

18-Apr-to-31-May-11

16-to-30-Jun-11

21-Jul-to-22-Aug-08

10-Nov-21-Jan-09

27-Jan-to-26-Feb-09

18-Mar-to-05-Jun-09

03-to18-Aug-09

26-Aug-to-22-Oct-09

16-Nov-to-14-Dec-09

31-Dec-to-20-Jan-10

05-Mar-to-19-Apr-10

11-Jan-to-19-Jul-10

13-Sep-to-11-Nov-10

14-Dec-to-10-Jan-11

18-Feb-to-15-Apr-11

01-to-15-Jun-11

2) TATA STEEL BUY SELL

(Time Duration)

21-Jul-to-07-Nov-08

23-Jan-to-06-Feb-09

24-Feb-to-13-Mar-09

18-Jun-to-24-Jul-08

17-Aug-to-11-Sep-09

27-Oct-to-18-Nov-09

10-to-22-Dec-09

22-Jan-to-26-Feb-10

23-Apr-to-15-Jun-10

18-Aug-to-01-Sep-10

13-Oct-to-10-Dec-10

11-Jan-to-23-Mar-11

30-Apr-to-06-Jun-11

14-to-23-Jun-11

(Time Duration)

10-Nov-22-Jan-09

09-to-20-Feb-09

16-Mar-to-17-Jun-09

27-Jul-to-17-Aug-09

14-Sep-to-26-Oct-09

19-Nov-to-09-Des-09

23-Dec-to-21-Jan-10

02-Mar-to-22-Apr-10

16-Jun-to-17-Aug-10

02-Sep-to-12-Oct-10

13-Dec-to-10-Jan-11

24-Mar-to-29--Apr-11

07-to-13-Jun-11

24-to-30-Jun-11

3) L & T BUY(Time Duration) SELL(Time Duration)

21-Jul-to-20-Aug-08

07-Nov-to-20-Jan-09

26-Feb-to-13-Mar-09

18-Jun-to-25-Aug-09

09-Oct-to-07-Dec-09

13-Jan-to-19-Feb-10

15-Apr-to-18-May-10

28-Jul-to-08-Sep-10

14-Oct-to-02-Nov-10

15-Nov-14-Feb-11

03-May-to-28-May-11

21-Aug-to-06-Nov-08

21-Jan-to-09-Feb-09

10-to-25-Feb-09

16-Mar-to-17-Jun-09

25-Aug-to-08-Oct-09

08-Dec-to-12-Jan-10

22-Feb-to-13-Mar-10

19-May-to-27-Jul-10

09-Sep-to-13-Oct-10

15-Feb-to-02-May-11

24-May-to-30Jun-11

RSI

Relative strength index (RSI) is a price-following oscillator that ranges

between 0 and 100. When wilder introduce the RSI, he recommended using

a14-days RSI. Since then, the 9-days and 25-days relative strength index

indicators have also gained popularity.

A popular method of analyzing the RSI is look for a divergence in which the

security is making a new high, but the RSI is failing to surpass its previous

high. This divergence is an indication of an impending reversal. When the RSI

then turns down and falls below its most recent trough, it is said to have

completed a “failure swing”. The failure swing is considered a confirmation of

the impending reversal.

Reliance

1

2

7

L & T:1.

2

3

4

7

8

9

TATA STEEL:1

2

3

4

5

6

7

8

INTERPRETATION:

RSI values above 70 are consider to denote overbought condition & values below 30 are consider to denote oversold condition. When RSI crossed the 30 line from below to above & is rising, a buying opportunity is indicated. When RSI crossed the 70 line from above to below & is falling, a sell signal is indicated.

ROCThe Rate of Change (ROC) is a simple technical indicator that shows the

percentage difference between the current price and the price n periods ago.

The Rate of Change (ROC) indicator measures the percentage change of the

current price as compared to the price a certain number of periods ago. The

ROC indicator can be used to confirm price moves or detect divergences; it

can also be used as a guide for determining overbought and oversold conditions.RELIANCE:1

2

3

4

5

6

7

8

TATA STEEL

1

2

3

4

5

6

7

8

L & T:1

2

3

4

5

6

7

8

INTERPRETATION:In the ROC chart the overbought zone is above the zero line & the oversold zone is below the zero line. Many analyst use the zero line for the identifying buying & selling opportunity, upside crossing from (below to above the zero line) indicates a buying opportunity, while a downsize crossing from (above to below the zero line) indicates a selling opportunity.The ROC has to be used along with price chart. The buying & selling signal indicated by the ROC should also be confirmed by the price chart.

FINDINGS

The following are the findings from the analysis:

1. The indicator of

CONCLUSION

Thus from the above analysis it can be concluded that the substantial number of selected stocks listed on NSE does follow random walk. This implies that these stocks can be predicted by using historical information. In other words, technical analysis plays an important role in devising profitable trading rules on the bases of historical information on share price. The indicators of all three companies shows the different position of buying & selling. Each indicator has its each

Bibliography

Books:1. Punithavathy Pandean, “Security Analysis and Portfolio

Management”, vikas publishing House Pvt. Ltd. p.g.283-292. Donald E.Fischer and Ronald J. Jordan, “Security Analysis and

Portfolio Management” By, Sixth Edition (2006) p.g.538-558.3. S.Kevin, Potfolio Management, second Eddition,Prenice-Hall of India

Private LTD.,New delhi-2007p.g.122-132

Web Links For Data used:http://www.nseindia.com/Home > Equities > Market Information > Historical Data > Security-wise Price Volume Data

Sources of literature used:1. http://www.investorhome.com/emh.htm

2. http://en.wikipedia.org/wiki/Efficient_market_hypothesis#Assumptions

3. http://en.1992 by American Finance Association.

http://en.wikipedia.org/wiki/Efficient_market_hypothesis#Assumptions

http://www.investorhome.com/emh.htm

http://www.nseindia.com/content/equities/eq_historicaldata.htm

http://www.nseindia.com/content/equities/eq_mktinfo.htm

http://www.nseindia.com/content/equities/eq_introduction.htm

http://www.nseindia.com/homepage.htm

http://www.nseindia.com/

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