8/3/2019 Technical Analysis- Dipak Pr
1/90
1
8/3/2019 Technical Analysis- Dipak Pr
2/90
2
A PROJECT REPORT ON
TECHNICAL ANALYSIS OF INDIAN TELECOM
SECTOR
With Reference To
BHUBANESWAR STOCK EXCHANGE LIMITED, BHUBANESWAR
SUMMER INTERNSHIP PROJECT REPORT SUBMITTED TO BPUT FOR THE PARTIAL FULFILLMENT OF THE
REQUIREMENTS OF MASTER OF BUSINESS ADMINISTRATION DEGREE
Submitted by:
DIPAK RANJAN BASANTRAYREGD.NO. 1006206004
(SESSION 2010-12)
Under The Guidance of
External Guide: Internal Guide:
BIPIN BIHARI DUTTA (Asst. Manager)
BHUBANESWAR STOCK EXCHANGE
(BHSE)
PROF.DEBENDRA KUMAR OJHA
ABIT-JRD TATA INSTITUTE OF
MANAGEMENT
ABITJRD TATA INSTITUTE OF MANAGEMENT
SECTOR-1, CDA, CUTTACK
Recognised to AICTE, New Delhi Affiliated to BPUT, Odisha
8/3/2019 Technical Analysis- Dipak Pr
3/90
3
I hereby declare that the project report entitled TECHNICAL ANALYSIS OF INDIAN
TELECOM SECTOR is submitted by me for partial fulfilment of the requirements of the degree of
MBA, as a course curriculum under BPUT, is an authentic record of study carried out by me under
professional guidance and supervision.
Due acknowledges and references have been made where ever necessary. This project
report is a result of my original work and except some conceptual aspects, technical charts and
some images as prescribed, no portion of the said report has been copied or duplicated nor has
any project report similar to this one ever been submitted to any of the university or any other
organization of this sort.
Date:
Place:
(DIPAK RANJAN BASANTRAY)
8/3/2019 Technical Analysis- Dipak Pr
4/90
4
Certificate From Internal Guide
This is to certify that the project work entitled Technical Analysis of IndianTelecom Sector is an original piece of work done by Dipak Ranjan Basantray (Regd.No-
1006206004), student of ABIT-JRD TATA INSTITUTE OF MANAGEMENT, under myguidance and supervision for the partial fulfillment of the requirement for the degree in
M.B.A under BPUT.To the best of my knowledge and belief, the thesis embodies the work of the candidate
himself and has been duly completed. Simultaneously, the thesis fulfills the requirements of
the rules and regulations related to the Dissertation of the institute and I am assured that the
project is up to the standard both in respect to the contents and language for being referred to
the examiner.
Prof. Debendra Kumar Ojha(Sr.Faculty, MBA)
ABIT-JRD TATA INSTITUTE OF MANAGEMENT
8/3/2019 Technical Analysis- Dipak Pr
5/90
5
Certificate from the h.o.d.
This is to certify that the project work entitledTechnical Analysis of IndianTelecom Sector is an original piece of work done by Dipak Ranjan Basantray Regd.No-
1006206004), student of ABIT-JRD TATA INSTITUTE OF MANAGEMENT, under myguidance and supervision for the partial fulfillment of the requirement for the degree in
M.B.A under BPUT.To the best of my knowledge and belief, the thesis embodies the work of the candidate
himself and has been duly completed. Simultaneously, the thesis fulfills the requirements of
the rules and regulations related to the Dissertation of the institute and I am assured that the
project is up to the standard both in respect to the contents and language for being referred to
the examiner.
Prof. Joysingh Mishra(H.O.D, MBA)
ABIT-JRD TATA INSTITUTE OF MANAGEMENT
8/3/2019 Technical Analysis- Dipak Pr
6/90
6
The money which is earned is partly spent and the rest saved for meeting future expenses.
Instead of keeping the savings idle, people like to use savings in order to get return on it in the
future. This is called Investment. One needs to invest to:
earn return on his idle resources
generate a specified sum of money for a specific goal in life
make a provision for an uncertain future
As per return is concerned Stock Market is treated as the best place to earn higher returns as
compared to other means of investment. A huge number of companies are listed there to facilitate
effective mobilization and utilization of savings.
In todays world companies become known or considered big when they are listed on
reputed Stock Exchanges namely NSE (NIFTY) & BSE (SENSEX) for India, DOWJONES for USA,
HANGSENG for Hong Kong, NIKKEI for Japan, RTS for Russia, etc. Once the company is listedeverything a company does / doesnt is reacted upon by the public and the prices of the share of
the respective company fluctuate. Now the company would always want a true picture of the
company to be represented by share price, they wouldnt mind if its overvalued but it hurts when
the stocks get undervalued. But this uncertainty of the price gives people a chance to make money
both in long term & short term. Long term investment is mainly based upon studying fundamentals
of the company and its growth potential. But the real piece of magic lies in making money by
trading shares either Intraday or holding for a short term. If one wants to make money in this way,he / she need to know the technical side of the stock i.e. charts, trends etc.
Its not hard to guess how fascinating it is and so it has been decided to unlock the mystery
as far as possible in these two months of time. This field is very difficult to be taught in classroom
8/3/2019 Technical Analysis- Dipak Pr
7/90
7
perhaps beyond scope. One has to see to believe, understand and implement it and that was my
main objective after all to find out the answers of following questions:
1. Where will NIFTY/SENSEX go from here?
2. Which stock will rise today and which ones will fall?
3. Should I hold it or square off my positions?
4. Why is hedging required / how is it done?
To find the answer of the above questions and many more it has been chosen to do
summer internship in the field of Technical Analysis. Hope the project report will serve thenecessity of the needy students, investors and research scholars to find out strategic implications
of technical analysis at the time of taking investment decisions and will guide them to unlock the
market-sutrato sustain in the financial market.
8/3/2019 Technical Analysis- Dipak Pr
8/90
8
I would like to express my gratitude to all those who gave me the possibility to complete
this thesis. I would like to thank my college authorities and my H.O.D. Prof. Joysingh Mishra first
for providing me the opportunity to work with one of the most prestigious organization.
I express my hearty thanks to Mr. Bipin Datta(Asst. Manager), Bhubaneswar Stock
Exchange Ltd., Bhubaneswar, my company guide who gave and confirmed this permission and
encouraged me to go ahead with my thesis.
I am deeply indebted to my faculty guide Mr. Debendra Kumar Ojha(Sr. Faculty, Finance),
whose help, stimulating suggestions and encouragements helped me in all the times of research
and for writing the thesis.
I also want to thank other faculty member and my parents who always stood beside me and
encouraged me to complete my project work.
My friends who have supported me in my research work, I want to thank them for all their
help, support, interest and valuable hints.
Especially, I would like to give my hearty thanks to my parents, their love and blessings
enabled me to complete this work.
Date:
Place:
(DIPAK RANJAN BASANTRAY)
8/3/2019 Technical Analysis- Dipak Pr
9/90
9
Executive Summery 8
Objective of the Study 12
Scope of the Study 12
Limitations of the Study 13
Introduction to the Project 14
Company Overview 55
Research Theory 65
Methodology 67
Data Analysis & Interpretation 69
Findings 89
Suggestions &Conclusion 90
Bibliography & References
8/3/2019 Technical Analysis- Dipak Pr
10/90
10
INTRODUCTON
WHATS THIS EQUITY ANALYSIS?
Professional investor will make more money & less loss than, who let their heart rule. Their
head eliminate all emotions for decision making. Be ruthless & calculating, you are out to make
money. Decision should be based on actual movement of share price measured both in money &
percentage term & nothing else. Greed must be avoided patience may be a virtue, but impatience
can frequently be profitable.
In Equity Analysis anticipated growth, calculations are based on considered FACTS & not on
HOPE. Equity analysis is basically a combination of two independent analyses, namelyfundamental
analysis & Technical analysis. The subject of Equity analysis, i.e. the attempt to determine future
share price movement & its reliability by references to historical data is a vast one, covering many
aspect from the calculating various FINANCIAL RATIOS, plotting of CHARTS to extremely
sophisticated indicators.
A general investor can apply the principles by using the simplest of tools: pocket calculator,
pencil, ruler, chart paper & your cautious mind, watchful attention. It should be pointed out that,
this equity analysis does not discuss how to buy & sell shares, but does discuss a method which
enables the investor to arrive at buying & selling decision. The financial analysts always need
yardsticks to evaluate the efficiency & performances of any business unit at the time of
investment. Fundamental analysis is useful in long term investment decision. In Fundamental
analysis a company s goodwill, its performances, liquidity, leverage, turnover, profitability &
financial health was checked & analysis with the help of ratio analysis for the purpose of long term
successful investment.
Technical analysis refers to the study of market generated data like prices & volume to
determine the future direction of prices movements.
8/3/2019 Technical Analysis- Dipak Pr
11/90
11
Technical analysis mainly seeks to predict the short term price travels. The focus of
technical analysis is mainly on the internal market data, i.e. prices & volume data. It appeals mainly
to short term traders. It is the oldest approach to equity investment dating back to the late 19th
century.
Assumptions for the Equity Analysis:
1. Works only in normal share-market conditions with great reliability, it also works in abnormal
share-market conditions, but with low reliability.
2. Equity analysis is purely based on the INVESTMENT PHILOSOPHY, so the investment object has vital
importance associated to return along with risk.
3. Cash management gets the magnitude role, because the scenario of equity analysis is revolving
around the term money.
4. Portfolio management, risk management was up to the investor s knowledge.
5. Capital market trend is always a friend, whether it is short run or long run.
6. You are buying stock & not companies, so don t be curious or panic to do post-mortem of
companies performances.
7. History repeats: investors & speculators react the same way to the same types of events
homogeneously.
8. Capital market has a typical market psychology along with other issues like; perceptions, the crowd
Vs. the individual, tradition s & trust.
9. An individual perceptions about the investment return & associated risk may differ from individual
to individual.
10.Although the equity analysis is art as well as sciences so, it also has some exceptions.
8/3/2019 Technical Analysis- Dipak Pr
12/90
12
TECHNICAL ANALYSIS:
Technical analysis refers to the study of market generated data like prices & volume to
determine the future direction of prices movements.
Technical analysis mainly seeks to predict the short term price travels. It is important
criteria for selecting the company to invest. It also provides the base for decision-making in
investment. The one of the most frequently used yardstick to check & analyze underlying price
progress. For that matter a verity of tools was consider.
This Technical analysis is helpful to general investor in many ways. It provides important &
vital information regarding the current price position of the company.
Technical analysis involves the use of various methods for charting, calculating &
interpreting graph & chart to assess the performances & status of the price. It is the tool of
financial analysis, which not only studies but also reflecting the numerical & graphical relationship
between the important financial factors.
EQUITY ANALYSIS
ENVIRONMENT &ECONOMICAL ANALYSIS
FUNDAMENTAL
ANALYSIS
TECHNICAL
ANALYSIS
8/3/2019 Technical Analysis- Dipak Pr
13/90
13
The focus of technical analysis is mainly on the internal market data, i.e. prices & volume
data. It appeals mainly to short term traders. It is the oldest approach to equity investment dating
back to the late 19th century.
It uses charts and computer programs to study the stocks trading volume and price
movements in the hope of identifying a trend. In fact the decision made on the basis of technical
analysis is done only after inferring a trend and judging the future movement of the stock on the
basis of the trend. Technical Analysis assumes that the market is efficient and the price has already
taken into consideration the other factors related to the company and the industry. It is because of
this assumption that many think technical analysis is a tool, which is effective for short-term
investing.
History of Technical Analysis:
Technical Analysis as a tool of investment for the average investor thrived in the late
nineteenth century when Charles Dow, then editor of the Wall Street Journal, proposed the Dow
theory. He recognized that the movement is caused by the action/reaction of the people dealing in
stocks rather than the news in itself.
Technical analysis is a method of evaluating securities by analyzing the statistics generated
by market activity, such as past prices and volume. Technical analysts do not attempt to measure a
security's intrinsic value, but instead use charts and other tools to identify patterns that can
suggest future activity. Just as there are many investment styles on the fundamental side, there are
also many different types of technical traders. Some rely on chart patterns; others use technical
indicators and oscillators, and most use some combination of the two. In any case, technical
analysts' exclusive use of historical price and volume data is what separates them from their
fundamental counterparts. Unlike fundamental analysts, technical analysts don't care whether a
stock is undervalued the only thing that matters is a security's past trading data and what
information this data can provide about where the Security might move in the future.
8/3/2019 Technical Analysis- Dipak Pr
14/90
14
Basic premises of technical analysis:
1. Market prices are determined by the interaction of supply & demand forces.
2. Supply & demand are influenced by variety of supply & demand affiliated factors both
rational & irrational.
3. These include fundamental factors as well as psychological factors.
4. Barring minor deviations stock prices tend to move in fairly persistent trends.
5. Shifts in demand & supply bring about change in trends.
6. This shift s can be detected with the help of charts of manual & computerized action,
because of the persistence of trends & patterns analysis of past market data can be used to
predict future prices behaviors.
Drawbacks / limitations of technical analysis:
1. Technical analysis does not able to explain the rezones behind the employment or selection
of specific tool of Technical analysis.
2. The technical analysis failed to signal an uptrend or downtrend in time.
3. The technical analysis must be a self defeating proposition. As more & more people use,
employ it the value of such analysis trends to reduce.
Why we use TECHNICAL ANALYSIS?
1. Technical analysis provides information on the best entry and exit points for a trade.
2. On a chart, the trader can see where momentum is rising, a trend is forming, a price is
dipping or other events are developing that show the best entry point and time for the
most profitable trade. With the constant movement of various currencies against each
other in the Forex market, most traders will focus on using technical indicators to find and
place their trades.
IS TECHNICAL ANALYSIS DIFFICULT?
1. Technical analysis is not difficult, but it requires studying different types of charts such as
the hourly or daily charts, knowing which technical indicators to use and how to use them.
8/3/2019 Technical Analysis- Dipak Pr
15/90
15
2. Computers and the Internet have made this process much easier. Most brokers provide
basic charts and technical indicators for free or at a very low cost.
3. One way to avoid getting frustrated by all the lines, colors, and graphics is to focus on using
only a few indicators that will provide you with the information needed. Try not to clutter
your chart with too much information.
The future can be found in the past
If prices are based on investor expectations, then knowing what a security should sell for
(i.e., fundamental analysis) becomes less important than knowing what other investors expect it to
sell for. That's not to say that knowing what a security should sell for isn't important--it is. But
there is usually a fairly strong consensus of a stock's future earnings that the average investor
cannot disprove.
Technical analysis is the process of analyzing a security's historical prices in an effort to
determine probable future prices. This is done by comparing current price action (i.e., current
expectations) with comparable historical price action to predict a reasonable outcome. The devout
technician might define this process as the fact that history repeats itself while others would
suffice to say that we should learn from the past.
Usually the following tools & instruments are used to do the technical analysis:
Price Fields
Technical analysis is based almost entirely on the analysis of price and volume. The fields
which define a security's price and volume are explained below.
Open - This is the price of the first trade for the period (e.g., the first trade of the day). When
analyzing daily data, the Open is especially important as it is the consensus price after all interested
parties were able to "sleep on it."
8/3/2019 Technical Analysis- Dipak Pr
16/90
16
High - This is the highest price that the security traded during the period. It is the point at which
there were more sellers than buyers (i.e., there are always sellers willing to sell at higher prices,
but the High represents the highest price buyers were willing to pay).
Low - This is the lowest price that the security traded during the period. It is the point at which
there were more buyers than sellers (i.e., there are always buyers willing to buy at lower prices,
but the Low represents the lowest price sellers were willing to accept).
Close - This is the last price that the security traded during the period. Due to its availability, the
Close is the most often used price for analysis. The relationship between the Open (the first price)
and the Close (the last price) are considered significant by most technicians. This relationship is
emphasized in candlestick charts.
Volume - This is the number of shares (or contracts) that were traded during the period. The
relationship between prices and volume (e.g., increasing prices accompanied with increasing
volume) is important.
Open Interest - This is the total number of outstanding contracts (i.e., those that have not been
exercised, closed, or expired) of a future or option. Open interest is often used as an indicator.
Bid - This is the price a market maker is willing to pay for a security (i.e., the price you will receive if
you sell).
Ask - This is the price a market maker is willing to accept (i.e., the price you will pay to buy the
security).
Price Styles
Price in a chart can be displayed in four styles:
1. Bar Chart.
2. Line Chart.
3. Candlestick Chart.
4. Point and Figure Charts
8/3/2019 Technical Analysis- Dipak Pr
17/90
17
1) Bar Charts :
The highs and lows of a foreign currency are plotted in a diagram and the points are joined
with vertical lines (bars). A small horizontal tick to the left denotes the opening level while a small
horizontal tick to the right represents the closing price of each interval.
2) Line Chart.
It gives the detailed information about every aspect. The exchange rates for each time period are
plotted in a diagram and the points are joined. Prices on the y-axis, time on the x-axis. The line
chart chooses for example the closing price of consecutive time periods, but can also work with
daily, official fixings.
The relatively easy handling of line charts is a great advantage. Line charts do not show
price movements within a time period. This can be a problem because important information for
exchange rate analysis can be lost. This problem was remedied with the development of bar charts
that represent a more sophisticated form of line chart.
8/3/2019 Technical Analysis- Dipak Pr
18/90
18
3) Candlestick Chart.
A candlestick is black if the closing price is lower than the opening price. A candlestick is
white if the closing price is higher than the opening price.
In the 1600s, the Japanese developed a method of technical analysis to analyze the price of
rice contracts. This technique is called candlestick charting. Steven Nison is credited with
popularizing candlestick charting and has become recognized as the leading expert on their
interpretation. Candlestick charts display the open, high, low, and closing prices in a format similar
to a modern-day bar chart, but in a manner that extenuates the relationship between the opening
and closing prices. Candlestick charts are simply a new way of looking at prices, they don't involve
any calculations. Because candlesticks display the relationship between the open, high, low, and
closing prices, they cannot be displayed on securities that only have closing prices, nor were they
intended to be displayed on securities that lack opening prices.
The interpretation of candlestick charts is based primarily on patterns. The most popular
patterns are explained below.
Bullish Patterns
1) Long white (empty) line. This is a bullish line. It occurs when prices open near the low and close
significantly higher near the period's high.
8/3/2019 Technical Analysis- Dipak Pr
19/90
19
2) Hammer. This is a bullish line if it occurs after a significant downtrend. If the line occurs after a
significant up-trend, it is called a Hanging Man. A Hammer is identified by a small real body (i.e., a
small range between the open and closing prices) and a long lower shadow (i.e., the low is
significantly lower than the open, high, and lose). The body can be empty or filled-in.
3) Piercing line. This is a bullish pattern and the opposite of a dark cloud cover. The first line is a long
black line and the second line is a long white line. The second line opens lower than the first line's
low, but it closes more than halfway above the first line's real body.
4) Bullish engulfing lines. This pattern is strongly bullish if it occurs after a significant downtrend (i.e.,
it acts as a reversal pattern). It occurs when a small bearish (filled-in) line is engulfed by a large
bullish (empty) line.
5) Morning star. This is a bullish pattern signifying a potential bottom. The "star" indicates a possible
reversal and the bullish (empty) line confirms this. The star can be empty or filled-in.
6) Bullish doji star. A "star" indicates a reversal and a doji indicates indecision. Thus, this pattern
usually indicates a reversal following an indecisive period. You should wait for a confirmation (e.g.,
as in the morning star, above) before trading a doji star. The first line can be empty or filled in.
Bearish Patterns
1) Long black (filled-in) line. This is a bearish line. It occurs when prices open near the high and close
significantly lower near the period's low.
2) Hanging Man. These lines are bearish if they occur after a significant uptrend. If this pattern occurs
after a significant downtrend, it is called a Hammer. They are identified by small real bodies (i.e., a
small range between the open and closing prices) and a long lower shadow (i.e., the low was
significantly lower than the open, high, and close). The bodies can be empty or filled-in.
3) Dark cloud cover. This is a bearish pattern. The pattern is more significant if the second line's body
is below the center of the previous line's body (as illustrated).
4) Bearish engulfing lines. This pattern is strongly bearish if it occurs after a significant uptrend (i.e., it
acts as a reversal pattern). It occurs when a small bullish (empty) line is engulfed by a large bearish
(filled-in) line. Evening star. This is a bearish pattern signifying a potential top. The "star" indicates
a possible reversal and the bearish (filled-in) line confirms this. The star can be empty or filled in.
8/3/2019 Technical Analysis- Dipak Pr
20/90
20
5) Doji star. A star indicates a reversal and a doji indicates indecision. Thus, this pattern usually
indicates a reversal following an indecisive period. You should wait for a confirmation (e.g., as in
the evening star illustration) before trading a doji star.
6) Shooting star. This pattern suggests a minor reversal when it appears after a rally. The star's body
must appear near the low price and the line should have a long upper shadow.
Reversal Patterns
1) Long-legged doji. This line often signifies a turning point. It occurs when the open and close are
the same, and the range between the high and low is relatively large.
2) Dragon-fly doji. This line also signifies a turning point. It occurs when the open and close are the
same, and the low is significantly lower than the open, high, and closing prices.
3) Gravestone doji. This line also signifies a turning point. It occurs when the open, close, and low are
the same, and the high is significantly higher than the open, low, and closing prices.
4) Star. Stars indicate reversals. A star is a line with a small real body that occurs after a line with a
much larger real body, where the real bodies do not overlap. The shadows may overlap.
5) Doji star. A star indicates a reversal and a doji indicates indecision. Thus, this pattern usually
indicates a reversal following an indecisive period. You should wait for a confirmation (e.g., as in
the evening star illustration) before trading a doji star.
Neutral Patterns
1) Spinning tops. These are neutral lines. They occur when the distance between the high and low,
and the distance between the open and close, are relatively small.
2) Doji. This line implies indecision. The security opened and closed at the same price. These lines can
appear in several different patterns. Double doji lines (two adjacent doji lines) imply that a forceful
move will follow a breakout from the current indecision.
3) Harami ("pregnant" in English). This pattern indicates a decrease in momentum. It occurs when a
line with a small body falls within the area of a larger body. In this example, a bullish (empty) line
with a long body is followed by a weak bearish (filledin) line. This implies a decrease in the bullish
momentum.
8/3/2019 Technical Analysis- Dipak Pr
21/90
21
4) Harami cross. This pattern also indicates a decrease in momentum. The pattern is similar to a
harami, except the second line is a doji (signifying indecision).
Example
4 ) Point And Figure Charts
The point and figure chart is not well known or used by the average investor but it has had a
long history of use dating back to the first technical traders. This type of chart reflects price
movements and is not as concerned about time and volume in the formulation of the points. The
point and figure chart removes the noise, or insignificant price movements, in the stock, which can
distort traders' views of the price trends. These types of charts also try to neutralize the skewing
effect that time has on chart analysis.
8/3/2019 Technical Analysis- Dipak Pr
22/90
22
When first looking at a point and figure chart, you will notice a series of Xs and Os. The Xs
represent upward price trends and the Os represent downward price trends. There are also
numbers and letters in the chart; these represent months, and give investors an idea of the date.
Each box on the chart represents the price scale, which adjusts depending on the price of the
stock: the higher the stock's price the more each box represents. On most charts where the price is
between $20 and $100, a box represents $1, or 1 point for the stock. The other critical point of a
point and figure chart is the reversal criteria. This is usually set at three but it can also be set
according to the chartist's discretion. The reversal criteria set how much the price has to move
away from the high or low in the price trend to create a new trend or, in other words, how much
the price has to move in order for a column of Xs to become a column of Os, or vice versa. When
the price trend has moved from one trend to another, it shifts to the right, signalling a trend
change.
TRENDS IN TECHNICAL ANALYSIS
The Use of Trends
One of the most important concepts in technical analysis is that of trend. The meaning in finance
isn't all that different from the general definition of the term - a trend is really nothing more than
the generaldirection in which a security or market is headed. Take a look at the chart below:
8/3/2019 Technical Analysis- Dipak Pr
23/90
23
Isnt it hard to see that the trend is up. However, it's not always this easy to see a trend:
There are lots of ups and downs in this chart, but there isn't a clear indication of which direction
this security is headed.
A More Formal Definition
Unfortunately, trends are not always easy to see. In other words, defining a trend goes well
beyond the obvious. In any given chart, you will probably notice that prices do not tend to move in
a straight line in any direction, but rather in a series of highs and lows. In technical analysis, it is the
movement of the highs and lows that constitutes a trend. For example, an uptrend is classified as a
series of higher highs and higher lows, while a downtrend is one of lower lows and lower highs.
It is an example of an uptrend. Point 2 in the chart is the first high, which is determined after the
8/3/2019 Technical Analysis- Dipak Pr
24/90
24
price falls from this point. Point 3 is the low that is established as the price falls from the high. For
this to remain an uptrend each successive low must not fall below the previous lowest point or the
trend is deemed a reversal.
TYPE OF TREND
There are three types of trend:
1. Uptrend
2. Downtrend
3. Sideways/Horizontal Trends
As the names imply, when each successive peak and trough is higher, it's referred to as an
upward trend. If the peaks and troughs are getting lower, it's a downtrend. When there is little
movement up or down in the peaks and troughs, it's a sideways or horizontal trend. If you want to
get really technical, you might even say that a sideways trend is actually not a trend on its own,
but a lack of a well-defined trend in either direction. In any case, the market can really only trend
in these three ways: up, down or nowhere.
Trend Lengths
Along with these three trend directions, there are three trend classifications. A trend of any
direction can be classified as a long-term trend, intermediate trend or a short-term trend. In terms
of the stock market, a major trend is generally categorized as one lasting longer than a year. An
intermediate trend is considered to last between one and three months and a near-term trend is
anything less than a month. A long-term trend is composed of several intermediate trends, which
often move against the direction of the major trend. If the major trend is upward and there is a
downward correction in price movement followed by a continuation of the uptrend, the correction
is considered to be an intermediate trend. The short-term trends are components of both major
8/3/2019 Technical Analysis- Dipak Pr
25/90
25
and intermediate trends. Take a look a Figure 4 to get a sense of how these three trend lengths
might look.
When analyzing trends, it is important that the chart is constructed to best reflect the type of
trend being analyzed. To help identify long-term trends, weekly charts or daily charts spanning a
five-year period are used by chartists to get a better idea of the long-term trend. Daily data charts
are best used when analyzing both intermediate and short-term trends. It is also important to
remember that the longer the trend, the more important it is; for example, a one-month trend is
not as significant as a five-year trend.
Trend Lines
A trend line is a simple charting technique that adds a line to a chart to represent the trend
in the market or a stock. Drawing a trend line is as simple as drawing a straight line that follows a
general trend. These lines are used to clearly show the trend and are also used in the identification
of trend reversals.
An upward trend line is drawn at the lows of an upward trend. This line represents the
support the stock has every time it moves from a high to a low. Notice how the price is propped up
by this support. This type of trend line helps traders to anticipate the point at which a stock's price
8/3/2019 Technical Analysis- Dipak Pr
26/90
26
will begin moving upwards again. Similarly, a downward trend line is drawn at the highs of the
downward trend. This line represents the resistance level that a stock faces every time the price
moves from a low to a high.
Channels
A channel, or channel lines, is the addition of two parallel trend lines that act as strong areas
of support and resistance. The upper trend line connects a series of highs, while the lower trend
line connects a series of lows. A channel can slope upward, downward or sideways but, regardless
of the direction, the interpretation remains the same. Traders will expect a given security to trade
between the two levels of support and resistance until it breaks beyond one of the levels, in which
case traders can expect a sharp move in the direction of the break. Along with clearly displaying
the trend, channels are mainly used to illustrate important areas of support and resistance.
8/3/2019 Technical Analysis- Dipak Pr
27/90
27
A descending channel on a stock chart; the upper trend line has been placed on the highs and the
lower trend line is on the lows. The price has bounced off of these lines several times, and has
remained range-bound for several months. As long as the price does not fall below the lower line
or move beyond the upper resistance, the range-bound downtrend is expected to continue.
The Importance Of Trend
It is important to be able to understand and identify trends so that you can trade with rather
than against them. Two important sayings in technical analysis are "the trend is your friend" and
"don't buck the trend," illustrating how important trend analysis is for technical traders
IMPORTANCE OF VOLUME :
What Is Volume?
Volume is simply the number of shares or contracts that trade over a given period of time,
usually a day. The higher the volume, the more active the security. To determine the movement of
the volume (up or down), chartists look at the volume bars that can usually be found at the
bottom of any chart. Volume bars illustrate how many shares have traded per period and show
trends in the same way that prices do.
8/3/2019 Technical Analysis- Dipak Pr
28/90
28
Why Volume Is Important?
Volume is an important aspect of technical analysis because it is used to confirm trends and
chart patterns. Any price movement up or down with relatively high volume is seen as a stronger,
more relevant move than a similar move with weak volume. Say, for example, that a stock jumps
5% in one trading day after being in a long downtrend. Is this a sign of a trend reversal? This is
where volume helps traders. If volume is high during the day relative to the average daily volume,
it is a sign that the reversal is probably for real. On the other hand, if the volume is below average,
there may not be enough conviction to support a true trend reversal. Volume should move with
the trend. If prices are moving in an upward trend, volume should increase (and vice versa). If the
previous relationship between volume and price movements starts to deteriorate, it is usually a
sign of weakness in the trend. For example, if the stock is in an uptrend but the up trading days are
marked with lower volume, it is a sign that the trend is starting to lose its legs and may soon end.
When volume tells a different story, it is a case of divergence, which refers to a contradiction
between two different indicators. The simplest example of divergence is a clear upward trend on
declining volume.
Volume And Chart Patterns
The other use of volume is to confirm chart patterns. Patterns such as head and shoulders,
triangles, flags and other price patterns can be confirmed with volume, a process which we'll
describe in more detail later in this tutorial. In most chart patterns, there are several pivotal points
that are vital to what the chart is able to convey to chartists. Basically, if the volume is not there to
confirm the pivotal moments of a chart pattern, the quality of the signal formed by the pattern is
weakened.
8/3/2019 Technical Analysis- Dipak Pr
29/90
29
Volume Precedes Price
Another important idea in technical analysis is that price is preceded by volume. Volume is closely
monitored by technicians and chartists to form ideas on upcoming trend reversals. If volume is
starting to decrease in an uptrend, it is usually a sign that the upward run is about to end. Now
that we have a better understanding of some of the important factors of technical analysis, we can
move on to charts, which help to identify trading opportunities in prices movements.
CHART PATTERNS :
A chart pattern is a distinct formation on a stock chart that creates a trading signal, or a
sign of future price movements. Chartists use these patterns to identify current trends and trend
reversals and to trigger buy and sell signals.
In the first section of this tutorial, we talked about the three assumptions of technical
analysis, the third of which was that in technical analysis, history repeats itself. The theory behind
chart patterns is based on this assumption. The idea is that certain patterns are seen many times,
and that these patterns signal a certain high probability move in a stock. Based on the historic
trend of a chart pattern setting up a certain price movement, chartists look for these Patterns to
identify trading opportunities. While there are general ideas and components to every chart
pattern, there is no chart pattern that will tell you with 100% certainty where a security is headed.
This creates some leeway and debate as to what a good pattern looks like, and is a major reason
why charting is often seen as more of an art than a science. There are two types of patterns within
this area of technical analysis, reversal and continuation. A reversal pattern signals that a prior
trend will reverse upon completion of the pattern. A continuation pattern, on the other hand,
signals that a trend will continue once the pattern is complete. These patterns can be found over
charts of any timeframe. In this section, we will review some of the more popular chart patterns.
8/3/2019 Technical Analysis- Dipak Pr
30/90
30
1.Head And Shoulders
This is one of the most popular and reliable chart patterns in technical analysis. Head and
shoulders is a reversal chart pattern that when formed, signals that the security is likely to move
against the previous trend. As you can see, there are two versions of the head and shoulders chart
pattern. Head and shoulders top (shown on the left) is a chart pattern that is formed at the high of
an upward movement and signals that the upward trend is about to end. Head and shoulders
bottom, also known as inverse head and shoulders (shown on the right) is the lesser known of the
two, but is used to signal a reversal in a downtrend.
Head and shoulders top is shown on the left. Head and shoulders bottom, or inverse head and
shoulders, is on the right.
Both of these head and shoulders patterns are similar in that there are four main parts: two
shoulders, a head and a neckline. Also, each individual head and shoulder is comprised of a high
and a low. For example, in the head and shoulders top image shown on the left side, the left
shoulder is made up of a high followed by a low. In this pattern, the neckline is a level of support
or resistance. Remember that an upward trend is a period of successive rising highs and rising
lows. The head and shoulders chart pattern, therefore, illustrates a weakening in a trend by
showing the deterioration in the successive movements of the highs and lows.
8/3/2019 Technical Analysis- Dipak Pr
31/90
31
2.Cup And Handle
A cup and handle chart is a bullish continuation pattern in which the upward trend has
paused but will continue in an upward direction once the pattern is confirmed.
The price pattern forms what looks like a cup, which is preceded by an upward trend. The
handle follows the cup formation and is formed by a generally downward/sideways movement in
the security's price. Once the price movement pushes above the resistance lines formed in the
handle, the upward trend can continue.
3.Double Tops And Bottoms
This chart pattern is another well-known pattern that signals a trend reversal - it is
considered to be one of the most reliable and is commonly used. These patterns are formed after
a sustained trend and signal to chartists that the trend is about to reverse. The pattern is created
when a price movement tests support or resistance levels twice and is unable to break through.
This pattern is often used to signal intermediate and long-term trend reversals.
8/3/2019 Technical Analysis- Dipak Pr
32/90
32
A double top pattern is shown on the left, while a double bottom pattern is shown on the
right.In the case of the double top pattern, the price movement has twice tried to move above a
certain price level. After two unsuccessful attempts at pushing the price higher, the trend reverses
and the price heads lower. In the case of a double bottom (shown on the right), the price
movement has tried to go lower twice, but has found support each time. After the second bounce
off of the support, the security enters a new trend And heads upward.
4.Triangles
Triangles are some of the most well-known chart patterns used in technical analysis. The
three types of triangles, which vary in construct and implication, are the symmetrical triangle,
ascending and descending triangle. These chart patterns are considered to last anywhere from a
couple of weeks to several months.
The symmetrical is a pattern in which two trend lines converge toward each other. This
pattern is neutral in that a breakout to the upside or downside is a confirmation of a trend in that
8/3/2019 Technical Analysis- Dipak Pr
33/90
33
direction. In an ascending triangle, the upper trend line is flat, while the bottom trend line is
upward sloping. This is generally thought of as a bullish pattern in which chartists look for an
upside breakout. In a descending triangle, the lower trend line is flat and the upper trend line is
descending. This is generally seen as a bearish pattern where chartists look for a downside
breakout.
5. Flag And Pennants
These two short-term chart patterns are continuation patterns that are formed when there
is a sharp price movement followed by a generally sideways price movement. This pattern is then
completed upon another sharp price movement in the same direction as the move that started the
trend. The patterns are generally thought to last from one to three weeks.
There is little difference between a pennant and a flag. The main difference between these price
movements can be seen in the middle section of the chart pattern. In a pennant, the middle
section is characterized by converging trend lines, much like what is seen in a symmetrical triangle.
The middle section on the flag pattern, on the other hand, shows a channel pattern, with no
convergence between the trend lines. In both cases, the trend is expected to continue when the
price moves above the upper trend line
8/3/2019 Technical Analysis- Dipak Pr
34/90
34
6. Wedge
The wedge chart pattern can be either a continuation or reversal pattern. It is similar to a
symmetrical triangle except that the wedge pattern slants in an upward or downward direction,
while the symmetrical triangle generally shows a sideways movement. The other difference is that
wedges tend to form over longer periods, usually between three and six months.
The fact that wedges are classified as both continuation and reversal patterns can make
reading signals confusing. However, at the most basic level, a falling wedge is bullish and a rising
wedge is bearish. We have a falling wedge in which two trend lines are converging in a downward
direction. If the price was to rise above the upper trend line, it would form a continuation pattern,
while a move below the lower trend line would signal a reversal pattern
7. Triple Tops And Bottoms
Triple tops and triple bottoms are another type of reversal chart pattern in chart analysis.
These are not as prevalent in charts as head and shoulders and double tops and bottoms, but they
act in a similar fashion. These two chart patterns are formed when the price movement tests a
level of support or resistance three times and is unable to break through; this signals a reversal of
the prior trend.
8/3/2019 Technical Analysis- Dipak Pr
35/90
35
Confusion can form with triple tops and bottoms during the formation of the pattern
because they can look similar to other chart patterns. After the first two support/resistance tests
are formed in the price movement, the pattern will look like a double top or bottom, which could
lead a chartist to enter a reversal position too soon.
8. Rounding Bottom
A rounding bottom, also referred to as a saucer bottom, is a long-term reversal pattern that signals
a shift from a downward trend to an upward trend. This pattern is traditionally thought to last
anywhere from several Months to several years.
8/3/2019 Technical Analysis- Dipak Pr
36/90
8/3/2019 Technical Analysis- Dipak Pr
37/90
37
Round Numbers and Support and Resistance:
One type of universal support and resistance that tends to be seen across a large number of
securities is round numbers. Round numbers like 10, 20, 35, 50, 100 and 1,000 tend be important
in support and resistance levels because they often represent the major psychological turning
points at which many traders will make buy or sell decisions.
Buyers will often purchase large amounts of stock once the price starts to fall toward a
major round number such as $50, which makes it more difficult for shares to fall below the level.
On the other hand, sellers start to sell off a stock as it moves toward a round number peak, making
it difficult to move past this upper level as well. It is the increased buying and selling pressure at
these levels that makes them important points of support and resistance and, in many cases,
major psychological points as well.
Role Reversal
Once a resistance or support level is broken, its role is reversed. If the price falls below a
support level, that level will become resistance. If the price rises above a resistance level, it will
often become support. As the price moves past a level of support or resistance, it is thought that
supply and demand has shifted, causing the breached level to reverse its role. For a true reversal
to occur, however, it is important that the price make a strong move through either the support or
resistance.
8/3/2019 Technical Analysis- Dipak Pr
38/90
38
For example, as you can see, the dotted line is shown as a level of resistance that has
prevented the price from heading higher on two previous occasions (Points 1 and 2). However,
once the resistance is broken, it becomes a level of support (shown by Points 3 and 4) by propping
up the price and preventing it from heading lower again.
Many traders who begin using technical analysis find this concept hard to believe and don't
realize that this phenomenon occurs rather frequently, even with some of the most well-known
companies. For example, this phenomenon is evident on the Wal-Mart Stores Inc. (WMT) chart
between 2003 and 2006. Notice how the role of the $51 level changes from a strong level of
support to a level of resistance.
In almost every case, a stock will have both a level of support and a level of resistance and will
trade in this range as it bounces between these levels.
The Importance of Support and Resistance
Support and resistance analysis is an important part of trends because it can be used to
make trading decisions and identify when a trend is reversing.
Support and resistance levels both test and confirm trends and need to be monitored by
anyone who uses technical analysis. As long as the price of the share remains between these levels
8/3/2019 Technical Analysis- Dipak Pr
39/90
39
of support and resistance, the trend is likely to continue. It is important to note, however, that a
break beyond a level of support or resistance does not always have to be a reversal.
For example, if prices moved above the resistance levels of an upward trending channel, the
trend have accelerated, not reversed. This means that the price appreciation is expected to be
faster than it was in the channel.
Being aware of these important support and resistance points should affect the way that
you trade a stock. Traders should avoid placing orders at these major points, as the area around
them is usually marked by a lot of volatility. If you feel confident about making a trade near a
support or resistance level, it is important that you follow this simple rule: do not place orders
directly at the support or resistance level. This is because in many cases, the price never actually
reaches the whole number, but flirts with it instead. So if you're bullish on a stock that is moving
toward an important support level, do not place the trade at the support level. Instead, place it
above the support level, but within a few points. On the other hand, if you are placing stops or
short selling, set up your trade price at or below the level of support.
MOVING AVERAGES :
Most chart patterns show a lot of variation in price movement. This can make it difficult for
traders to get an idea of a security's overall trend. One simple method traders use to combat this
is to apply moving averages. A moving average is the average price of a security over a set amount
of time. By plotting a security's average price, the price movement is smoothed out. Once the day-
to-day fluctuations are removed, traders are better able to identify the true trend and increase the
probability that it will work in their favor.
Types Of Moving Averages:-
There are a number of different types of moving averages that vary in the way they are
calculated, but how each average is interpreted remains the same. The calculations only differ in
8/3/2019 Technical Analysis- Dipak Pr
40/90
40
regards to the weighting that they place on the price data, shifting from equal weighting of each
price point to more weight being placed on recent data. The three most common types of moving
averages are simple, linear and exponential.
1. Simple Moving Average (SMA)
This is the most common method used to calculate the moving average of prices. It simply takes
the sum of all of the past closing prices over the time period and divides the result by the number
of prices used in the calculation. For example, in a 10-day moving average, the last 10 closing
prices are added together and then divided by 10. As you can see in Figure 1, a trader is able to
make the average less responsive to changing prices by increasing the number of periods used in
the calculation. Increasing the number of time periods in the calculation is one of the best ways to
gauge the strength of the long-term trend and the likelihood that it will reverse.
Many individuals argue that the usefulness of this type of average is limited because each point in
the data series has the same impact on the result regardless of where it occurs in the sequence.
The critics argue that the most recent data is more important and, therefore, it should also have a
higher weighting. This type of criticism has been one of the main factors leading to the invention of
other forms of moving averages.
8/3/2019 Technical Analysis- Dipak Pr
41/90
41
2. Linear Weighted Average
This moving average indicator is the least common out of the three and is used to address
the problem of the equal weighting. The linear weighted moving average is calculated by taking
the sum of all the closing prices over a certain time period and multiplying them by the position of
the data point and then dividing by the sum of the number of periods. For example, in a five-day
linear weighted average, today's closing price is multiplied by five; yesterday's by four and so on
until the first day in the period range is reached. These numbers are then added together and
divided by the sum of the multipliers.
3. Exponential Moving Average (EMA)
This moving average calculation uses a smoothing factor to place a higher weight on recent
data points and is regarded as much more efficient than the linear weighted average. Having an
understanding of the calculation is not generally required for most traders because most charting
packages do the calculation for you. The most important thing to remember about the exponential
moving average is that it is more responsive to new information relative to the simple moving
average. This responsiveness is one of the key factors of why this is the moving average of choice
among many technical traders. A 15-period EMA raises and falls faster than a 15-period SMA. This
slight difference doesnt seem like much, but it is an important factor to be aware of since it can
affect returns.
8/3/2019 Technical Analysis- Dipak Pr
42/90
42
Major Uses of Moving Averages
Moving averages are used to identify current trends and trend reversals as well as to set up
support and resistance levels. Moving averages can be used to quickly identify whether a security
is moving in an uptrend or a downtrend depending on the direction of the moving average. When
a moving average is heading upward and the price is above it, the security is in an uptrend.
Conversely, a downward sloping moving average with the price below can be used to signal a
downtrend.
Another method of determining momentum is to look at the order of a pair of moving averages.
When a short-term average is above a longer-term average, the trend is up. On the other hand, a
long-term average above a shorter-term average signals a downward movement in the trend.
Moving average trend reversals are formed in two main ways: when the price moves through a
moving average and when it moves through moving average crossovers. The first common signal is
when the price moves through an important moving average. For example, when the price of a
security that was in an uptrend falls below a 50-period moving average, it is a sign that the uptrend
may be reversing.
8/3/2019 Technical Analysis- Dipak Pr
43/90
43
The other signal of a trend reversal is when one moving average crosses through another. For
example, if the 15-day moving average crosses above the 50-day moving average, it is a positive
sign that the price will start to increase.
If the periods used in the calculation are relatively short, for example 15 and 35, this could
signal a short-term trend reversal. On the other hand, when two averages with relatively long time
frames cross over (50 and 200, for example), this is used to suggest a long-term shift in trend.
Another major way moving averages are used is to identify support and resistance levels. It
is not uncommon to see a stock that has been falling stop its decline and reverse direction once it
hits the support of a major moving average. A move through a major moving average is often used
as a signal by technical traders that the trend is reversing. For example, if the price breaks through
the 200-day moving average in a downward direction, it is a signal that the uptrend is reversing.
8/3/2019 Technical Analysis- Dipak Pr
44/90
44
Moving averages are a powerful tool for analyzing the trend in a security. They provide
useful support and resistance points and are very easy to use. The most common time frames that
are used when creating moving averages are the 200-day, 100-day, 50-day, 20-day and 10-day. The
200-day average is thought to be a good measure of a trading year, a 100-day average of a half a
year, a 50-day average of a quarter of a year, a 20-day average of a month And 10 day average of
two weeks.
Moving averages help technical traders smooth out some of the noise that is found in day-
to-day price movements, giving traders a clearer view of the price trend. So far we have been
focused on price movement, through charts and averages. In the next section, we'll look at some
other techniques used to confirm price movement and patterns.
TECHNICAL INDICATORS
ACCUMULATION/DISTRIBUTION
Overview
The Accumulation/Distribution is a momentum indicator that associates changes in price
and volume. The indicator is based on the premise that the more volume that accompanies a price
move, the more significant the price move.
8/3/2019 Technical Analysis- Dipak Pr
45/90
45
Interpretation
The Accumulation/Distribution is really a variation of the more popular On Balance Volume
indicator. Both of these indicators attempt to confirm changes in prices by comparing the volume
associated with prices.
When the Accumulation/Distribution moves up, it shows that the security is being
accumulated, as most of the volume is associated with upward price movement. When the
indicator moves down, it shows that the security is being distributed, as most of the volume is
associated with downward price movement. Divergences between the Accumulation/Distribution
and the security's price imply a change is imminent. When a divergence does occur, prices usually
change to confirm the Accumulation/Distribution. For example, if the indicator is moving up and
the security's price is going down, prices will probably reverse.
BOLLINGER BANDS
Overview
Bollinger Bands are similar to moving average envelopes. The difference between Bollinger
Bands and envelopes is envelopes are plotted at a fixed percentage above and below a moving
average, whereas Bollinger Bands are plotted at standard deviation levels above and below a
moving average. Since standard deviation is a measure of volatility, the bands are self-adjusting:
widening during volatile markets and contracting during calmer periods. Bollinger Bands were
created by John Bollinger.
Interpretation
Bollinger Bands are usually displayed on top of security prices, but they can be displayed on
an indicator. These comments refer to bands displayed on prices.
As with moving average envelopes, the basic interpretation of Bollinger Bands is that prices
tend to stay within the upper- and lower-band. The distinctive characteristic of Bollinger Bands is
that the spacing between the bands varies based on the volatility of the prices. During periods of
extreme price changes (i.e., high volatility), the bands widen to become more forgiving. During
periods of stagnant pricing (i.e., low volatility), the bands
narrow to contain prices.
Following are characteristics of Bollinger Bands.
8/3/2019 Technical Analysis- Dipak Pr
46/90
46
Sharp price changes tend to occur after the bands tighten, as volatility lessens.
When prices move outside the bands, a continuation of the current trend is
implied.
Bottoms and tops made outside the bands followed by bottoms and tops made
inside the bands call for reversals in the trend.
A move that originates at one band tends to go all the way to the other band. This
observation is useful when projecting price targets.
ENVELOPES (TRADING BANDS)
Overview
An envelope is comprised of two moving averages. One moving average is shifted upward
and the second moving average is shifted downward.
Interpretation
Envelopes define the upper and lower boundaries of a security's normal trading range. A sell
signal is generated when the security reaches the upper band whereas a buy signal is generated at
the lower band. The optimum percentage shift depends on the volatility of the security--the more
volatile, the larger the percentage. The logic behind envelopes is that overzealous buyers and
sellers push the price to the extremes (i.e., the upper and lower bands), at which point the prices
often stabilize by moving to more realistic levels. This is similar to the interpretation of Bollinger
Bands.
MACD
Overview
The MACD ("Moving Average Convergence/Divergence") is a trend following momentum
indicator that shows the relationship between two moving averages of prices. The MACD was
developed by Gerald Appel, publisher of Systems and Forecasts. The MACD is the difference
between a 26-day and 12-day exponential moving average. A 9-day exponential moving average,
called the "signal" (or "trigger") line is plotted on top of the MACD to show buy/sell opportunities.
(Appel specifies exponential moving averages as percentages. Thus, he refers to these three
moving averages as 7.5%, 15%, and 20% respectively.)
8/3/2019 Technical Analysis- Dipak Pr
47/90
47
Interpretation
The MACD proves most effective in wide-swinging trading markets. There are three popular
ways to use the MACD: crossovers, overbought/oversold conditions, and divergences.
Crossovers
The basic MACD trading rule is to sell when the MACD falls below its signal line. Similarly, a
buy signal occurs when the MACD rises above its signal line. It is also popular to buy/sell when the
MACD goes above/below zero.
Overbought/Oversold Conditions
The MACD is also useful as an overbought/oversold indicator. When the shorter moving
average pulls away dramatically from the longer moving average (i.e., the MACD rises), it is likely
that the security price is overextending and will soon return to more realistic levels. MACD
overbought and oversold conditions exist vary from security to security.
Divergences
A indication that an end to the current trend may be near occurs when the MACD diverges
from the security. A bearish divergence occurs when the MACD is making new lows while prices fail
to reach new lows. A bullish divergence occurs when the MACD is making new highs while prices
fail to reach new highs. Both of these divergences are most significant when they occur at
relatively overbought/oversold levels.
PRICE OF RATE-OF-CHANGE
Overview
The Price Rate-of-Change (ROC) indicator, which is also referred to as simply Momentum, is
a pure momentum oscillator that measures the percent change in price from one period to the
next. The ROC calculation compares the current price with the price "n" periods ago. The plot
forms an oscillator that fluctuates above and below the zero line as the Rate-of-Change moves
8/3/2019 Technical Analysis- Dipak Pr
48/90
48
from positive to negative. As a momentum oscillator, ROC signals include centerline crossovers,
divergences and overbought-oversold readings. Divergences fail to foreshadow reversals more
often than not so this article will forgo a discussion on divergences. Even though centerline
crossovers are prone to whipsaw, especially short-term, these crossovers can be used to identify
the overall trend. Identifying overbought or oversold extremes comes natural to the Rate-of-
Change oscillator.
ROC = [(Close - Close n periods ago) / (Close n periods ago)] * 100
Interpretation
The Price of Rate-of-Change indicator is momentum in its purest form. It measures the
percentage increase or decrease in price over a given period of time. Think of its as the rise (price
change) over the run (time). In general, prices are rising as long as the Rate-of-Change remains
positive. Conversely, prices are falling when the Rate-of-Change is negative. ROC expands into
positive territory as an advance accelerates. ROC dives deeper into negative territory as a decline
accelerates. There is no upward boundary on the Rate-of-Change. The sky is the limit for an
advance. There is, however, a downside limit. Securities can only decline 100%, which would be to
zero. Even with these lopsided boundaries, Rate-of-Change produces identifiable extremes that
signal overbought and oversold conditions.
WILDER RELATIVE STRENGTH INDEX
Overview
Developed J. Welles Wilder, the Relative Strength Index (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 center
line crossovers. RSI can also be used to identify the general trend.
RSI = 100 - (100/ 1+RS)
RS = Average gain/ Average loss
8/3/2019 Technical Analysis- Dipak Pr
49/90
49
Interpretation
When Wilder introduced the RSI, he recommended using a 14-day RSI. Since then, the 9-day and
25-day RSIs have also gained popularity. Because you can vary the number of time periods in the
RSI calculation, I suggest that you experiment to find the period that works best for you. (The
fewer days used to calculate the RSI, the more volatile the indicator.)
The RSI is a price-following oscillator that ranges between 0 and 100. A popular method of
analyzing the RSI is to 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."
ON BALANCE VOLUME
Overview
On Balance Volume ("OBV") is a momentum indicator that relates volume to price change.
On Balance Volume was developed by Joe Granville
Interpretation
On Balance Volume is a running total of volume. It shows if volume is flowing into or out of
a security. When the security closes higher than the previous close, all of the day's volume is
considered up-volume. When the security closes lower than the previous close, all of the day's
volume is considered down-volume.
PRICE OSCILLATOR
Overview
The Price Oscillator displays the difference between two moving averages of a securitys
price. The difference between the moving averages can be expressed in either points or
percentages. The Price Oscillator is almost identical to the MACD, except that the Price Oscillator
can use any two user-specified moving averages. (The MACD always uses 12- and 26-day moving
averages, and always expresses the difference in points.)
8/3/2019 Technical Analysis- Dipak Pr
50/90
50
Interpretation
Moving average analysis typically generates buy signals when a short-term moving average
(or the securities price) rises above a longer-term moving average. Conversely, sell signals are
generated when a shorter-term moving average (or the securitys price) falls below a longer-term
moving average. The Price Oscillator illustrates the cyclical and often profitable signals generated
by these one- or two-moving-average systems.
VOLUME
Overview
Volume is simply the number of shares (or contracts) traded during a specified time frame
(e.g., hour, day, week, month, etc). The analysis of volume is a basic yet very important element of
technical analysis. Volume provides clues as to the intensity of a given price move.
Interpretation
Low volume levels are characteristic of the indecisive expectations that typically occur during
consolidation periods (i.e., periods where prices move sideways in a trading range). Low volume
also often occurs during the indecisive period during market bottoms. High volume levels are
characteristic of market tops when there is a strong consensus that
prices will move higher. High volume levels are also very common at the beginning of new trends
(i.e., when prices break out of a trading range). Just before market bottoms, volume will often
increase due to panic-driven selling.
Volume can help determine the health of an existing trend. A healthy up-trend should have
higher volume on the upward legs of the trend, and lower volume on the downward (corrective)
legs. A healthy downtrend usually has higher volume on the downward legs of the trend and lower
volume on the upward (corrective) legs.
8/3/2019 Technical Analysis- Dipak Pr
51/90
51
VOLUME OSCILLATOR
Overview
The Volume Oscillator displays the difference between two moving averages of a security's
volume. The difference between the moving averages can be expressed in either points or
percentages.
Interpretation
We can use the difference between two moving averages of volume to determine if the
overall volume trend is increasing or decreasing. When the Volume Oscillator rises above zero, it
signifies that the shorter-term volume moving average has risen above the longerterm volume
moving average, and thus, that the short-term volume trend is higher (i.e., more volume) than the
longer-term volume trend.
There are many ways to interpret changes in volume trends. One common belief is that rising
prices coupled with increased volume, and falling prices coupled with decreased volume, is bullish.
Conversely, if volume increases when prices fall, and volume decreases when prices rise, the
market is showing signs of underlying weakness. The theory behind this is straight forward. Rising
prices coupled with increased volume signifies increased upside participation (more buyers) that
should lead to a continued move. Conversely, falling prices coupled with increased volume (more
sellers) signifies decreased upside participation.
8/3/2019 Technical Analysis- Dipak Pr
52/90
52
OBJECTIVE OF THE STUDY
The objectives of the study are stated as under:
1. To learn when to buy, sell and hold the securities. A sample of five is taken for this
purpose.
2. To analyze the recent pattern of price movement and help investor to make profits.
3. To know the method of calculating the various technical indicators and to interpret it.
4. To understand the repetitive trends which reappear in the course of time.
5. To analyze the pattern of price movement and its relation with volume traded,
determining the proper timing of investment.
SCOPE OF THE STUDY
1. The research is based upon the price of five telecom companies i.e. Bharti Airtel, Idea
Cellular, Reliance Communication Ltd., Tale Communication Ltd. And Tata Tele services.
2. The research is based upon oscillators, tool for technical analysis and involves the
calculation of three oscillators that are SMA, ROC, Wilder RSI.
3. The research data includes the monthly closing prices quoted on Bombay Stock Exchange.
4. SMA has been calculated by taking 12 period (Item).
5. ROC has been calculated by taking 12 period (Item).
6. Wilder RSI has been calculated by taking 12 period (Item).
LIMITATION OF THE STUDY
Technical analysis is usually undertaken after taking historical data of of share price ofcompany of longer period, only three year data has been taken.
The market price of shares also get effected by happening on the political and economicfactors or fundamentals of the company i.e. changes in an intrinsic value of the shared ,
hence all the deviations cannot be contributed to the market sentiments.
8/3/2019 Technical Analysis- Dipak Pr
53/90
53
Oscillators are only a tool for technical analysis and cannot be used without consideringother tools. There are several oscillators but only the major one were selected to
interpreting the market trends.
The trends may not hold true circumstances involving profit taking, short selling or anyother scams.
8/3/2019 Technical Analysis- Dipak Pr
54/90
54
COMPANY OVERVIEW
Introduction to Bhubaneswar Stock Exchange (BHSE)
Initial step was taken by the Department of Industry, Govt. of Orissa and Industrial
Promotion & Investment Corporation of Orissa Ltd. (IPICOL) in the early eighties to set up a Stock
Exchange in the State of Orissa. Subsequently, Bhubaneswar Stock Exchange was incorporated on
17th April,1989 as a Public Company, limited by guarantee with an object to facilitate, assist,
regulate and control the business of dealing in stocks, shares and like securities in the State of
Orissa. Ministry of Finance, Govt. of India granted recognition to the Stock Exchange on 5th
June,1989 under the provisions of the Securities Contracts (Regulation) Act,1956 for an initial
period of five years. Thereafter, the recognition of the Stock Exchange is being renewed from time
to time by Securities and Exchange Board of India (SEBI).
On being recognized during 1989, Bhubaneswar Stock Exchange admitted 161 member-
brokers in the first phase and commenced its trading operation on 2nd January, 1991. To impart
greater liquidity in both shares and debentures and to increase the volume of business, the
Exchange has expanded its membership strength during the year 1995 by admitting 75 more
member-brokers.
However, the status of the Stock Exchange was converted from a Company limited by
guarantee, to a Company limited by shares during the year 2005 pursuant to The Bhubaneswar
Stock Exchange (Corporatization and Demutualization) Scheme, 2005 approved by SEBI.
MANAGEMENT
The affairs of the Stock Exchange are managed by the Board of Directors. The Board of Directors of
the Stock Exchange comprises of 8 (Eight) Directors of which 2 are Trading Member Directors, 2 are
Public Interest Directors, 3 are Shareholder Directors and a Chief Executive Director. However, the
Board of Directors of the Stock Exchange is under supersession by SEBI w.e.f. 3rd January,2003.
Shri J.P. Verma, IPS (Retd.) was appointed by SEBI as Administrator of the Stock Exchange to
discharge the powers and duties of the Board of Directors. He continued to act as the
Administrator of the Stock Exchange upto 30th September,2006. Thereafter, SEBI, while extending
the period of supersession of Board of Directors of the Exchange, has designated Shri Vivekananda
Pattanayak, IAS (Retd.) as the Administrator of Bhubaneswar Stock Exchange to discharge the
8/3/2019 Technical Analysis- Dipak Pr
55/90
55
powers and duties of its Board of Directors with effect from 1st October, 2006. Accordingly, Shri
Pattanayak, IAS (Retd.) has taken over as the Administrator of Bhubaneswar Stock Exchange w.e.f.
3rd October,2006 to discharge the powers and duties of the Board of Directors of the Stock
Exchange. The Stock Exchange, while recording the valuable service rendered by Shri J.P. Verma,
IPS (Retd.) during his tenure as the Administrator, welcomes Shri Vivekananda Pattanayak, IAS
(Retd.) as its Administrator. The Board of Directors/Administrator of the Stock Exchange is, atpresent, assisted by 11 qualified officials.
AUTOMATION
The entire trading and settlement operation was computerized since inception. However, the
Exchange switched over to Screen Based Trading with effect from 20th May,1997 through which
the member-brokers conducted trading on line thereby bringing to an end to the old tradition of
open out-cry system of trading.
SETTLEMENT SYSTEM
The Settlement system of the Exchange is carried out on Daily Rolling Basis (T+1) as per the SEBI
Guidelines issued from time to time. Pay-in/pay-out, in terms of Settlement Calendar, is affected
well in time through the Centralized Banking System of the Stock Exchange. Canara Bank has
established a Branch to facilitate the pay-in/pay-out operation as well as the banking transactions
of the Stock Exchange and its trading members.
CLEARING HOUSE
Bhubaneswar Stock Exchange has its own Clearing House. The transactions entered among the
trading members of the Exchange are settled by delivery and payment obligations through the
Clearing House of the Stock Exchange in accordance with the prescribed settlement program under
a Centralized Delivery and Payment System.
8/3/2019 Technical Analysis- Dipak Pr
56/90
56
INTER-CONNECTIVITY
Bhubaneswar Stock Exchange has played an instrumental role, among others, in mooting the idea
of establishing of an Inter-connected Market System (ICMS). This effort was resulted in establishing
Inter-connected Stock Exchange of India of Ltd. to provide a nationwide equity market through
the trading members of participating Stock Exchanges. It has also facilitated the trading members
of participating Stock Exchanges including Bhubaneswar Stock Exchange, to trade on the National
Stock Exchange segment.
LISTED STOCKS
Despite introduction of SEBI Delisting Guidelines, 2003, Bhubaneswar Stock Exchange continued to
have listing of securities of several companies having aggregate paid-up capital of around Rs.2, 200
crores.
PRIMARY MARKET
Bhubaneswar Stock Exchange has been playing an active role for the growth of primary market
activities with the support of its trading members. The Stock Exchange ensures promotional steps
for participation of investing public at a large scale, in the public offers of several companies.
CUSTOMERS PROTECTION FUND
Investors protection is the cornerstone of a vibrant market. Bhubaneswar Stock Exchange has
established a Statutory Fund namely, Bhubaneswar Stock Exchange Customers Protection Fund
with an object to protect the customers from the risk of defaulting trading members. At present, as
per the Rules of the said Fund, a customer is entitled to be indemnified to a maximum of Rs.25,
000/-towards his claim against a defaulter trading member of the Stock Exchange.
INVESTORS SERVICE CELL
Bhubaneswar Stock Exchange has an Investors Service Cell which also ensures protection of the
investors. It promptly attends the complaints of various nature lodged by the investors against
companies as well as the trading members of the Stock Exchange and plays an important role in a
8/3/2019 Technical Analysis- Dipak Pr
57/90
57
friendly approach to redress the investors grievances. The Investors Service Cell undertakes due
care to build up confidence of the common investors on the capital market.
LIBRARY
Bhubaneswar Stock Exchange has a good library. It has a list of several books and guidelines
relating to capital market. It also subscribes Periodicals and Financial News Dailies for readers. In
addition to this, prime magazines for new issues, annual reports of several listed companies are
available with it. The library of the Stock Exchange is, thus playing a promotional role for
enrichment of knowledge of the staff, trading members, investors and research scholars at large.
The Stock Exchange with the support of its library also helps the management students to prepare
their project reports.
EMPLOYMENT
Bhubaneswar Stock Exchange has also been instrumental in generating various nature of
employment, both directly and indirectly, in the State of Orissa. As a result, apart from direct
employment for its own purpose, it has created opportunity for generation of a number of indirect
appointments in various capacities such as sub-brokers, authorized assistants, authorized
representatives and other staff in the stock-broking firms.
FUTURE UNDERTAKINGS
Bhubaneswar Stock Exchange has undertaken a number of measures to activate business in
securities and to spread the message of goodwill among the investing public. Such measures are:
To provide Depository Service so that the trading in securities and supporting depository
operation connected to it shall be carried out under an umbrella.
To upgrade the infrastructural facilities to facilitate expansion of trading activities.
To host Training Program for trading member as well as employees of the Stock Exchange.
To introduce, provide and conduct a Course for imparting education on Indian Stock
Market to the aspirants.
To construct a modern hi-tech building of the Stock Exchange.
8/3/2019 Technical Analysis- Dipak Pr
58/90
58
ORGANIZATION STRUCTURE
The affairs of the BHSE are managed by a Board of Directors consisting 8 Directors from the
following categories:
1. 2 (Two) Trading Member Directors
2. 2 (Two) Public Interest Directors
3. 3 (Three) Shareholder Directors
4. 1 (One) Director in the capacity of Chief Executive Officer
CEOShri Debraj Biswal
Public Interest Directors
. Shri VivekanandaPattanayak
Shri Bibekananda Mohanty
Trading Member Directors
Smt. Asha Manjari Mishra
Shri Shankar LalAgrawalla
Shareholder Directors
Shri B.K. Mohapatra
Shri Deelip KumarChoudhury
Shri K.N. Ravindra
8/3/2019 Technical Analysis- Dipak Pr
59/90
59
KEY PERSONNEL
TRADING MEMBERS
The trading membership strength of Bhubaneswar Stock Exchange is 196 at present against the
sanctioned strength of 350.
Corporatization & Demutualization of Bhubaneswar Stock Exchange
Pursuant to Incorporation of new provisions by way of amendment to the Securities Contracts
(Regulation) Act,1956 by the Govt. of India during the year 2004 requiring all the Stock Exchanges
in the country to be corporatized and demutualised, Bhubaneswar Stock Exchange, under a
SR. EXECUTIVES
PRAYABRATA
RAJGURUMAMATA PATTNAIK
CHINMAYA
MISHRAKAILASH CHANDRA
SATAPATHY
ASST. MANAGERS
BIPIN BIHARI DUTTA BIBHU PRASAD CHHOTRAYA ABHAYA KUMAR MISHRA
SECRETARY
CHINMAYA DASH
MANAGERS
GADADHAR MISHRA PRADEEP MUDULI TAPAN RANJAN PATNAIK
8/3/2019 Technical Analysis- Dipak Pr
60/90
60
Scheme of Corporatization and Demutualization approved and notified by Securities and Exchange
Board of India (SEBI) on 15th September,2005, was registered afresh as a Company having share
capital under the Companies Act, 1956 on revocation of license issued previously to it u/s 25 of the
said Act and got itself corporatized. In this exercise, in terms of provisions of BHSE (Corporatization
& Demutualization) Scheme,2005, 18,61,980 equity shares of Re.1/- each of Bhubaneswar Stock
Exchange were issued to 100 interested applicant trading members.
As regards the compliance of the part of demutualizat
Top Related