A Project Report On
Technical analysis
Submitted by: Nikhil Kumar J Pansale (Reg No: 4NM11MBA89)
Internal Guide:
Prof. Ashalatha Professor JKSHIM, Nitte
External Guide:
Mr. Amith S modi Dealer Kotak securities
Submitted in partial fulfillment of MBA course to N.M.A.M. INSTITUTE OF TECHNOLOGY (An autonomous Institute under VTU, Belgaum)
Department of Studies in Business Administration (Justice K.S.Hegde Institute of Management)
CERTIFICATE
This is to certify that Mr Nikhil Kumar J Pansale is a bonafide student of Master of Business Administration Course of our Institute affiliated to Vishweshwaraya Technological University, Belgaum. This report on, “Technical analysis ” is prepared by him under the guidance of Prof Ashalatha, Professor, Justice K. S. Hegde Institute of Management, in partial fulfilment of the requirement for the award of the Degree of Master of Business Administration of Vishweshwaraya Technological University.
Head of the Department Business Administration Place: Nitte Date: Principal
‘Valued by’ Sl. NO 1. 2. Name of the Examiner Signature Date
CERTIFICATE This is to certify that the Project Report on “Technical analysis” is prepared by Mr Nikhil Kumar J Pansale (4NM11MBA89) in partial fulfilment of the requirement for the award of the degree in Master of Business Administration under my guidance and supervision.
Place: Nitte
Prof. Ashalatha (Internal Guide)
Date:
Justice K S Hegde Institute of Management Nitte
DECLARATION
I do here by declare that this project report entitled “Technical analysis” at “Kotak securities” Bangalore is a benefice work, done and submitted in partial fulfilment of the requirement of M.B.A. Master Degree program to VTU University in my own work carried out by me under the guidance of the organisation, staff and my faculty guide. This report or any part of it has not been previously submitted to any institute/university elsewhere.
Places Date
Nikhil Kumar J .Pansale Reg. No:
ACKNOWLEDGEMENT
Many people have helped me in completing this project. I express deep sense of gratitude to each one of them who have shouldered me in completing this project. I wish to thank our internal guide, Dr. Ashalatha Madam for his extensive help in reviewing for his timely advice and constant encouragement throughout this project I would also like to thank “Kotak securities” Ravidar Sir, for giving me permission to carry out project report in their esteemed organisation I also thank Mr Amith. Modi Sir, for guiding me on the Technical analysis of the projects Finally, I express I thank the staff of Kotak securities, my Parents, family member and friends who have backed me throughout this venture.
TABLE OF CONTENTS
Sl.No. Chapters Page No
1.
Design of the study Conceptual introduction Objectives of the study Need for the study Scope of the study Methodology Review of Literature
1-4
2.
Introduction Company Profile Conceptual overview
5-13
3.
Data Analysis and Interpretation
14-20
4.
Summary of findings, Recommendations and Conclusion Bibliography
21-24
25
5
List of Tables
Table no. 4.1 4.2 4.3 4.4 4.5 Particular Infosys technologies ltd Reliance industries Bharti Airtel Housing development finances corp ltd ITC ltd: Page no. 21 21 22 22 22
List of Graphs
Chart no. 3.1 3.2 3.3 3.4 3.5
Particular Infosys technologies ltd Reliance industries Bharti Airtel Housing development finances corp ltd ITC ltd:
Page no. 14 15 16 18 19
Chapter 1 Design of the study
Introduction of company
Kotak Securities Limited, a subsidiary of Kotak Mahindra Bank, is the stock broking and distribution arm of the Kotak Mahindra Group. One of the oldest broking houses in India, its operations include stock broking and distribution of various financial products. It is a corporate member of both the Bombay Stock Exchange and the National Stock Exchange of India. Kotak Securities was founded in 1994 and is headquartered in Mumbai, India
Brief Introduction to Project
In finance, technical analysis is a security analysis discipline used for forecasting the direction of prices through the study of past market data, primarily price and volume. Behavioural economics and quantitative analysis use many of the same tools of technical analysis. Which, being an aspect of active management, stands in contradiction to much of modern portfolio theory. The efficacy of both technical and fundamental analysis is disputed by efficient-market hypothesis which states that stock market prices are essentially unpredictable
Design of solution
? ? ? To know the advantage of using technical analysis To know the return on investment by using technical analysis To know how many investors use technical analysis before investment
Methodology
? Selecting of top 5 Blue chips Company according to Dow Jones India Titans 30 Infosys technologies Reliance industries Bharti Airtel Housing development finances corp ltd ITC ltd
Using most popular 5 technical indicators
Bollinger band: Developed by John Bollinger, Bollinger Bands® are volatility bands placed above and below a moving average. Volatility is based on the standard deviation, which changes as volatility increases and decreases. The bands automatically widen when volatility increases and narrow when volatility decreases. This dynamic nature of Bollinger Bands also means they can be used on different securities with the standard settings. For signals, Bollinger Bands can be used to identify M-Tops and W-Bottoms or to determine the strength of the trend. RSI: 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 centreline crossovers. RSI can also be used to identify the general trend. MACD: the Moving Average Convergence-Divergence (MACD) indicator is one of the simplest and most effective momentum indicators available. The MACD turns two trendfollowing indicators, moving averages, into a momentum oscillator by subtracting the longer moving average from the shorter moving average. As a result, the MACD offers the best of both worlds: trend following and momentum. The MACD fluctuates above and below the zero line as the moving averages converge, cross and diverge. Traders can look for signal line crossovers, centreline crossovers and divergences to generate signals. Because the MACD is unbounded, it is not particularly useful for identifying overbought and oversold levels. SMA: A simple moving average is formed by computing the average price of a security over a specific number of periods. Most moving averages are based on closing prices. A 5-day simple moving average is the five day sum of closing prices divided by five. As its name implies, a moving average is an average that moves. Old data is dropped as new data comes available. This causes the average to move along the time scale. Below is an example of a 5day moving average evolving over three days.
Stochastic: Developed by George C. Lane in the late 1950s, the Stochastic Oscillator is a momentum indicator that shows the location of the close relative to the high-low range over a
set number of periods. According to an interview with Lane, the Stochastic Oscillator "doesn't follow price, it doesn't follow volume or anything like that. It follows the speed or the momentum of price. As a rule, the momentum changes direction before price." As such, bullish and bearish divergences in the Stochastic Oscillator can be used to foreshadow reversals. This was the first, and most important, signal that Lane identified. Lane also used this oscillator to identify bull and bear set-ups to anticipate a future reversal. Because the Stochastic Oscillator is range bound, is also useful for identifying overbought and oversold levels. ? Duration of period of 5 months
Literature review
Cooter (1962) found that the stock prices move at random when studied at one week interval. The data for his study was week-end prices of forty five stocks from New York stock exchange. He tested randomness of share by means of a mean square successive difference test. He concluded that there was not one random walk model. He concluded that the share price trends could be predicted when studied at fourteen-week interval. But in total the stock prices followed a random walk at weekly intervals. Eugene F.Fama (1965) has answered the questions to what extend can the past history of a common stock price can be used to make meaningful predictions concerning the future prices of the stock? The theory of random walk on stock prices is studied with two hypotheses. They are i) Successive price changes are independent and ii) The price changes conform to some probability distribution. The data for this study consists of daily prices for each of the thirty stocks of the Dow –Jones industrial average. This study concludes that there is strong and voluminous evidence in favor of random walk theory. Ramaswami.K (1996) assessed the relationship among book values, earnings, dividend and market price of share, impact of bonus issues, impact of security scam on equity return .to that end, the author used daily share price of 30 companies included in the construction of BSE sensitive index, daily data of BSESI and NYSE composite index, annual data on BV per share market price per share, EPS and DPS and data on bonus issue made ,during the period of study ,the researcher used correlation ,regression and frequency distribution for interpreting data. Sharma and Robert E. Kennedy (1977) tested the applicability of random walk hypothesis to the stock market in developing country namely India and compare this to that of stock markets in developed countries namely USA, and England. For this purpose the price behavior of Bombay stock exchange is statistically examined both for randomness and independence .The test the random walk hypothesis. The test covers 132 monthly observations for each stock market index of common stock listed in Bombay exchange for eleven years from 19681973.The study indicates that price dependence while statistically significant, is comparably small in the developing countries.
Chapter 2 Introduction
About the Kotak Mahindra Group
Kotak Mahindra is one of India's leading banking and financial services organizations, offering a wide range of financial services that encompass every sphere of life. From commercial banking, to stock broking, to mutual funds, to life insurance, to investment banking, the group caters to the diverse financial needs of individuals and corporate sector. The group has a net worth of over Rs. 100.6 billion and has a distribution network of branches, franchisees, representative offices and satellite offices across cities and towns in India, and offices in New York, London, San Francisco, Dubai, Mauritius and Singapore servicing around 8 million customer accounts.
About Kotak Securities
Kotak Securities Ltd. is a subsidiary of Kotak Mahindra Bank. We have over 1416 outlets in 448 cities, service over 4,70,297 lakh customer accounts and manage assets Rs. 1202 crore under Portfolio Management Services as on 31st Dec, 2011. We have been one of the pioneers in providing many products and services which have now become industry standards. Some of them are: ? ? ? ? ? ? ? ? ? ? ? ? Facility of Margin Trading to the customers Investing in IPOs and Mutual Funds on the phone SMS alerts before execution of depository transactions Mobile application to track portfolios Auto Invest - A systematic investing plan in Equities, Mutual funds and Gold ETFs Provision of margin against securitie Our Accolades Best Broker in India by FinanceAsia for 2009 & 2010 Best Brokerage Firm in India by Asiamoney in 2009, 2008, 2007 & 2006 UTI MF - CNBC TV18 Financial Advisor Awards - Best Performing Equity Broker (National) for the year 2009 Best Performing Equity Broker in India - CNBC TV 18 – Optimix Financial Advisory Awards, 2008 Avaya Customer Responsiveness Awards (2007) in Financial Services Sector
? ?
The Leading Equity House in India in Thomson Extel Surveys Awards for the year 2007 Euromoney Award (2006 and 2007) - Best Provider of Portfolio Management: Equities
Avaya Customer Responsiveness Awards (2006) in Financial Institution Sector
Products
Investment Solutions to suit the varied investment goals of your clients
Equities
For those who are interested in investing in stocks directly, Kotak Securities provides Equity Services. Investors have the choice to select the type of account from our vast range of offerings. Our research analysts and advisors guide you so that you can help your clients in making prudent investment decision
Derivatives
Derivatives are good investment option for aggressive investors. Trading of these investment products requires a high degree of discipline. We, at Kotak Securities, strive to make investing in derivatives simple. Our Derivatives seminars educate new entrants as well as existing traders in the derivatives market to be more equipped with the required knowledge and techniques.
Mutual Funds
Investing in over 3000 different Mutual Fund schemes through us is very simple. And to choose between the various schemes for investment, we offer you our exclusive research. Your customers can invest in Mutual Funds via internet, phone or by simply filling up a form.
Structured Products
Structured products are an ideal investment tool to meet specific investment needs that cannot be met by standardised financial instruments. We offer you a variety of Structured Products that might help in reducing your exposure to risk considerably.
IPOs
Investing in IPOs is not complex process anymore. Kotak Securities has made investing in IPOs very simple. Your clients can now invest by simply making a phone call to us. We also provide you with news on IPOs, updates on forthcoming IPOs and lots more that you can share with your clients.
Third Party Distribution Products
Apart from the above products, Kotak Securities offers you a range of credible financial products that would cater to various investment needs of your clients
Conceptual overview
Introduction Technical analysis is a method of evaluating securities by analysing 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. The field of technical analysis is based on three assumptions: 1. The Market Discounts Everything A major criticism of technical analysis is that it only considers price movement, ignoring the fundamental factors of the company. However, technical analysis assumes that, at any given time, a stock's price reflects everything that has or could affect the company - including fundamental factors. Technical analysts believe that the company's fundamentals, along with broader economic factors and market psychology, are all priced into the stock, removing the need to actually consider these factors separately. This only leaves the analysis of price movement, which technical theory views as a product of the supply and demand for a particular stock in the market. 2. Price Moves in Trends In technical analysis, price movements are believed to follow trends. This means that after a trend has been established, the future price movement is more likely to be in the same direction as the trend than to be against it. Most technical trading strategies are based on this assumption.
3. History Tends To Repeat Itself Another important idea in technical analysis is that history tends to repeat itself, mainly in terms of price movement. The repetitive nature of price movements is attributed to market psychology; in other words, market participants tend to provide a consistent reaction to similar market stimuli over time. Technical analysis uses chart patterns to analyze market movements and understand trends. Although many of these charts have been used for more than 100 years, they are still believed to be relevant because they illustrate patterns in price movements that often repeat themselves Advantage of technical analysis: 1. Technical analysis focuses on price movement. The primary focus of technical analysis is on the movement of prices. Charts show how prices are moving (or not moving), when prices are trending, and the strength of those trends. Volume, oscillators and momentum give a clearer picture of market action. And this information can be obtained at a glance. Unlike fundamentalists, technicians do not use economic reports that analyse the demand for a cure 2. Trends are easily found. Taking a look at a moving average line quickly displays a price that is trending or stuck in a range. Whether it is up, down, or sideways, a chart can quickly display a currency that is exhibiting a trend. Trends are critical to technicians because a currency is likely to continue moving in the direction of the trend. Charts show them clearly and quickly. 3. Patterns are easily identified. One of the basic tenets of market action is that it repeats itself in clear, unmistakable patterns. Using charts helps the trader to find patterns and predict price movements based on these patterns. Like star constellations, patterns can be complex and complicated. Head-and-shoulders patterns, rounding tops and bottoms, ascending and descending triangles, and double and triple tops are proven patterns that many currency prices will follow. Hence, they have strong predictive powers. They can be impossible to detect without using a chart.
4. Charting is quick and inexpensive.
Computers have relieved us from the burden of performing complex mathematical operations. The Internet has a wealth of different technical indicators available that can help the trader to make more profitable and more reliable trades. Many brokers offer these types of technical indicators to their clients as part of their package. Technical analysis is less time consuming and less costly than fundamental analysis. It can be performed in less than five minutes and the services are very often offered for free or at a nominal cost. 5. Charts provide a wealth of information. Charts and indicators can provide a huge amount of information in only a few moments. Trends are easily found. Support and resistance levels are quickly identified. Momentum, volatility, and trading patterns appear quickly and easily. There are more than fifty kinds of indicators and they each provide information on different aspect of how a currency is moving. This information is critical to technicians to make sound and profitable trades. Charts tell a story about the personality and price movement of a currency. The story can be complex with many different plots and twists or quite simple with only a few characters and single narrative. Charts are the same way. They can provide only the most basic information on a trend or support and resistance. Disadvantage of technical analysis 1. At their heart, all technical indicators - no matter how complex - are based on price, which always reflects what has already happened in the market. Thus, technical analysis is reactive not truly predictive of what will happen. 2. Today's markets are much more chaotic and choppy compared to previous decades. This is because of hedge funds and computerized ultra-stockstackup.com" title “short term trading “short term trading activity. The result is more false signals and ill-formed patterns from technical analysis techniques. 3. The bulk of technical traders still rely on a handful of indicators first created in the 1970's. This result in their overuse and, thus, the markets adjust and render them less effective. 4. The majority of technical traders attempt to do trend-following. While trend following techniques can make big money over time, they have a low accuracy rate and a high draw down (most trades are losses and it’s not uncommon to be down 50-60% at some point). Most traders
cannot handle this psychologically. They end up overriding stockstackup.com" title="Trading Signals">Trading Signals and/or switching between systems. 5. Classical trading chart patterns can be found in graphs of non-market related activities, including temperature charts. Also, chart patterns can appear and disappear depending on the scaling of the chart. This strongly suggests that chart patterns are a trick of the human eye and have no predictive value
DOW THEORY ITS CORNERSTONE
New tools and theories have been produced and existing tools have been enhanced at a rapid rate in recent decades, with an increasing emphasis on computer-assisted techniques. Technical analysis is not concerned with why a price is moving but rather whether it is moving in a particular direction or in a particular chart pattern. Technical analysts believe that profits can be made by "trend following." In other words if a particular stock price is steadily rising (trending upward) then a technical analyst will look for opportunities to buy this stock. Until the technical analyst is convinced this uptrend has reversed or ended, all else equal, he will continue to own this security. Additionally, technical analysts look for various price patterns to form on a price chart and will take positions in anticipation of the expected move following that pattern. The various tools of technical analysis assist the technician in determining when trends have formed, ended, etc. and when particular patterns are unfolding. One of the forecasting tools very popular among practitioners is technical analysis. Technical analysis is the examination of past price movements in order to forecast future price movements. Technical analysis is open to interpretation. Many times two technicians will look at the same chart and paint two different scenarios or see different patterns. Both would be able to come up with logical support to justify their position. In addition, even if stock prices completely followed a random walk, people would be able to convince themselves that there are e patterns having a predictive value. It has become more and more popular, as it offered an unlimited set of tools and signals and seemed to be an interesting method of market analysis. It has been proven that stock prices most of the time approximately follow a random walk pattern. Psychologists have described a number of ways in which people deal with randomness. Additionally, market participants may be subject to herd behavior.
Technical analysis is applicable to stocks, indices, commodities, futures or any tradable instrument where the price is influenced by the forces of supply and demand. Price refers to any combination of the open, high, low, or close for a given security over a specific time frame. The time frame can be based on intraday (1-minute, 5-minutes, 10-minutes, 15-minutes, 30minutes or hourly), daily, weekly or monthly price data and last a few hours or many years. In addition, some technical analysts include volume or open interest figures with their study of price action. Economists have traditionally been skeptical of the value of technical analysis, affirming the theory of efficient markets that holds no strategy should allow investors and traders to make unusual returns except by taking excessive risk. Chart pattern 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 Types 1. Head and Shoulders 2. Cup and Handle 3. Double Tops and Bottoms 4. Triangles 5. Flag and Pennant 6. Wedge 7. Gaps 8. Triple Tops and Bottoms 9. Rounding Bottom
Indicators . Indicators are calculations based on the price and the volume of a security that measure such things as money flow, trends, volatility and momentum. Indicators are used as a secondary measure to the actual price movements and add additional information to the analysis of securities. Indicators are used in two main ways: to confirm price movement and the quality of chart patterns, and to form buy and sell signals. Types 1. Accumulation/ distribution 2. Average directional index 3. Commodity channel index 4. Stochastic 5. MACD 6. Momentum 7. Money flow index 8. On balances volume 9. RSI 10. Relative Vigor index 11. William % R 12. EMA 13. SME
Chapter 3 Data Analysis and Interpretation
3.1) Infosys technologies ltd Bollinger band width: It indicates Infosys technologies ltd. For the period 1 August 2012 to 31 Dec 2012
Analysis As shown in the above Bollinger band which indicates the buying and selling signals which is got by using 20 day simple moving average and 2 period standard deviation On 23 august the stocks has touch the upper band which indicates the stock has reach its limit of raise and further the stock has fallen and touched to middle band and reveres it back it signal of bullish in the stock This means the stocks move within the upper and lower band. If the stocks cross the upper band which means bearish and if the stocks reach to the lower band that means bullish. One can hold the stock till it reaches the middle band.
Interpretation If the investors had brought the stock when it has touched lower band on 15 November the prices was 2296 Rs per share and hold till touches the upper band on 26 November the prices was 2417 Rs per share. This means that the investor had gain Rs 121 per share Rs within 11 trading section. 3.2) Reliance industries: Relative Strength index:-It indicates Reliance industries. For the period 1 August 2012 to 31 Dec 2012
Analysis When the RSI has crossed the 30 line from below to above and is rising, a buying opportunity is indicated. When it has crossed the 70 line from above to below and is falling, a sell signal is indicated On 22 August the RSI indicator in at 70 % which means the stock has been over brought so it has started reserve and further the graph as broke the middle line which means it is bearish signal in stock
These mean the stock will be according the movement of 70 to 30. If the stock graph reaches 70 which the particular stock has been over brought and if the stock touches the 30 which indicates the stock has been oversold. Interpretation If the investor had brought the share when it has reached to 30 on 6 September when the prices of the share was 786 Rs per share and hold it till reached 70 lines on 17 September when the price of the share was 873 Rs per share. This means the investor had gained Rs 87 Rs per share within 11 days of trading section 3.3) Bharti Airtel MACD (Moving Average Convergences Divergence): It indicates Bharti Airtel. For the period 1 August 2012 to 31 Dec 2012
Analysis As its name implies, the MACD is all about the convergence and divergence of the two moving averages. Convergence occurs when the moving averages move towards each other. Divergence occurs when the moving averages move away from each other. The shorter moving average (12-day) is faster and responsible for most MACD movements. The longer moving average (26-day) is slower and less reactive to price changes in the underlying security. On 1 august the MACD line is negative territory as the 12-day EMA trades below the 26-day EMA The initial cross occurred at the end of July it is bearish and the MACD moved further into negative territory as the 12-day EMA diverged further from the 26-day EMA. On 7 November area highlights a period of positive MACD values, which is when the 12-day EMA was above the 26-day EMA it is bullish on the stock. Interpretation If the investor had brought the share at the diverged on 7 November the price of the share was 271 Rs per share and hold till the lines convergences on 7 December the price of the share was 322 Rs per share. This means the investor would has gain Rs 51 Rs per share within 30 days of trading section
3.4) Housing development finances corp ltd: SMA (simple moving average): It indicates Housing development finances crop ltd. For the period 1 August 2012 to 31 Dec 2012
Analysis A simple moving average is formed by computing the average price of a security over a specific number of periods. Most moving averages are based on closing prices. A 20-day simple moving average is the twenty day sum of closing prices divided by twenty. As its name implies, a moving average is an average that moves. Old data is dropped as new data comes available. This causes the average to move along the time scale On 4 October the stock has broken the simple moving average line which means its bearish signal and it have been the reverse it back try to break the simple moving average with is the bullish signal. The line acts as the support and resistances to the stock. Where the investor can keep stop loss and booking profit to the stocks.
Interpretation If the investor as invest when there was reserves signal of the graph on 30 October when the price of the share was 750 Rs per share and hold till bearish signal on 7 November again when the price of the share was 799 Rs per share. This means the investor would have gain 49 Rs per share within 7 days trading section. 3.5) ITC ltd: Stochastic: It indicates ITC ltd. For the period 1 August 2012 to 31 Dec 2012
Analysis The Stochastic Oscillator is a momentum indicator that shows the location of the close relative to the high-low range over a set number of periods. The Stochastic Oscillator "doesn't follow price, it doesn't follow volume or anything like that. It follows the speed or the momentum of price. As a rule, the momentum changes direction before price." As such, bullish and bearish divergences in the Stochastic Oscillator can be used to foreshadow reversals
On 31 august the indicator is showing the bearish signal since it because it has been overbought and showing bullish signal on 10 September where the stock has been oversold. As a bound oscillator, the Stochastic Oscillator makes it easy to identify overbought and oversold levels. The oscillator ranges from zero to one hundred. No matter how fast a security advances or declines, the Stochastic Oscillator will always fluctuate within this range. Traditional settings use 80 as the overbought threshold and 20 as the oversold Interpretation If the investor has on 20 September when the price of the share was 256 Rs per share and hold the stock reach the overbought on 1 October when the share price of the 273 Rs per share this means the investor has gain 17 Rs per share within 10 days of trading section.
Chapter 4 Summary of findings, Recommendations and Conclusion
FINDINGS ? Majority of the dealer use technical analysis for the purpose of trading and investment ? By using technical analysis the dealer can maximise the profit and minimises the loss of the portfolio of the investors and traders ? The study focused on five companies that selected from Dow jones India Titans 30 Company. Even though many different charting techniques are available, one method is not necessarily better than the other. The choice of charting methods, to use will depend on personal preferences and trading or investing styles. Once you have chosen a particular charting methodology, it is probably best to stick with it and learn how best to read the signals. Switching back and forth may cause confusion and undermine the focus of your analysis. Infosys technologies ltd Table no 4.1
TECHNICAL INDICATOR Bollinger Bands Width BUY SIGNAL SELLING SIGNAL
November
December
Reliance industries Table no 4.2
TECHNICAL INDICATOR RSI BUY SIGNAL September, November SELLING SIGNAL October ,December
Bharti Airtel Table no 4.3
TECHNICAL INDICATOR MACD BUY SIGNAL November SELLING SIGNAL August, December
Housing development finances corp ltd Table no 4.4
TECHNICAL INDICATOR SMA BUY SIGNAL December SELLING SIGNAL October ,December
ITC ltd Table no 4.5
TECHNICAL INDICATOR Stochastic BUY SIGNAL September SELLING SIGNAL August, November
RECOMMENDATIONS Technical analysis will improve the investment decision. ? Technical analysis is simple and more reliable then fundamental analysis because the information required for technical analysis is free available as compared to fundamental analysis
? Investor should have knowledge regarding the market terms so that they can take maximum return from maximum investment
? In case a trader entering in new industries first he has to select stock to buy in new industries after making careful study prospects and charts of the stock
? Even though technical analysis is enough for making decision In stock market, simultaneous usage of both fundamental and technical analysis will reduce errors in forecasting future prices
CONCLUSION Technical analysis is a useful technique in guiding investment decisions. In light of our study on five companies, we have seen how technical analysis can be used to predict the possible futures swings of stock prices. After analysing the companies, the following conclusion was drawn. In general, we can conclude from the result that technical indicators can play useful role in the timing stock market entry and exit. By applying technical indicators brokers or investors enjoy substantial profit. Technical analysis cannot be answer for the questions faced by analyst. It has to be in combination with fundamental analysis to have maximum effect. It can be said that some tools of technical analysis are more useful than others. However, none of them can be termed an analysts panacea. The stock price movements are influenced by various fundamental factors and the economy as a whole. Even though there are some universal principles and rules that can be applied, it must be remembered that technical analysis is more an art form than a science. As an art form, it is subject to interpretation. However, it is also flexible in its approach and each investor should use only that which suits his or her style. Developing a style takes time, effort and dedication, but the rewards can be significant. Analysis can offer great insight but if used improperly, they can also produce false signals. While trend lines have become a very popular aspect of technical analysis, they are merely one tool for establishing, analysing, and confirming a trend. Trend lines should not be the final arbiter, but should serve merely as a warning that a change in trend may be very useful. In some situation, this principle is violated. By studying 5 companies, it can be stated that technical analysis does not provide 100% accuracy to the investor. As the stock prices are dynamic in nature, combination of Fundamental analysis and technical analysis will increases the percentage of accuracy and thus giving an idea to the investor to invest in that stock which will yield him good returns.
Chapter 5 Bibliography
Bibliography BOOKS
? Prasanna Chandra, Investment Analysis & Portfolio Management. 3rd edition, 2008 ? John J Murphy, Charting Made Easy.pdf
Websites ? www.Chartschool.com ? www.nseindia.com
? www.ichart.com ? www.chartnexus.com
doc_363986247.pdf
Technical analysis
Submitted by: Nikhil Kumar J Pansale (Reg No: 4NM11MBA89)
Internal Guide:
Prof. Ashalatha Professor JKSHIM, Nitte
External Guide:
Mr. Amith S modi Dealer Kotak securities
Submitted in partial fulfillment of MBA course to N.M.A.M. INSTITUTE OF TECHNOLOGY (An autonomous Institute under VTU, Belgaum)
Department of Studies in Business Administration (Justice K.S.Hegde Institute of Management)
CERTIFICATE
This is to certify that Mr Nikhil Kumar J Pansale is a bonafide student of Master of Business Administration Course of our Institute affiliated to Vishweshwaraya Technological University, Belgaum. This report on, “Technical analysis ” is prepared by him under the guidance of Prof Ashalatha, Professor, Justice K. S. Hegde Institute of Management, in partial fulfilment of the requirement for the award of the Degree of Master of Business Administration of Vishweshwaraya Technological University.
Head of the Department Business Administration Place: Nitte Date: Principal
‘Valued by’ Sl. NO 1. 2. Name of the Examiner Signature Date
CERTIFICATE This is to certify that the Project Report on “Technical analysis” is prepared by Mr Nikhil Kumar J Pansale (4NM11MBA89) in partial fulfilment of the requirement for the award of the degree in Master of Business Administration under my guidance and supervision.
Place: Nitte
Prof. Ashalatha (Internal Guide)
Date:
Justice K S Hegde Institute of Management Nitte
DECLARATION
I do here by declare that this project report entitled “Technical analysis” at “Kotak securities” Bangalore is a benefice work, done and submitted in partial fulfilment of the requirement of M.B.A. Master Degree program to VTU University in my own work carried out by me under the guidance of the organisation, staff and my faculty guide. This report or any part of it has not been previously submitted to any institute/university elsewhere.
Places Date
Nikhil Kumar J .Pansale Reg. No:
ACKNOWLEDGEMENT
Many people have helped me in completing this project. I express deep sense of gratitude to each one of them who have shouldered me in completing this project. I wish to thank our internal guide, Dr. Ashalatha Madam for his extensive help in reviewing for his timely advice and constant encouragement throughout this project I would also like to thank “Kotak securities” Ravidar Sir, for giving me permission to carry out project report in their esteemed organisation I also thank Mr Amith. Modi Sir, for guiding me on the Technical analysis of the projects Finally, I express I thank the staff of Kotak securities, my Parents, family member and friends who have backed me throughout this venture.
TABLE OF CONTENTS
Sl.No. Chapters Page No
1.
Design of the study Conceptual introduction Objectives of the study Need for the study Scope of the study Methodology Review of Literature
1-4
2.
Introduction Company Profile Conceptual overview
5-13
3.
Data Analysis and Interpretation
14-20
4.
Summary of findings, Recommendations and Conclusion Bibliography
21-24
25
5
List of Tables
Table no. 4.1 4.2 4.3 4.4 4.5 Particular Infosys technologies ltd Reliance industries Bharti Airtel Housing development finances corp ltd ITC ltd: Page no. 21 21 22 22 22
List of Graphs
Chart no. 3.1 3.2 3.3 3.4 3.5
Particular Infosys technologies ltd Reliance industries Bharti Airtel Housing development finances corp ltd ITC ltd:
Page no. 14 15 16 18 19
Chapter 1 Design of the study
Introduction of company
Kotak Securities Limited, a subsidiary of Kotak Mahindra Bank, is the stock broking and distribution arm of the Kotak Mahindra Group. One of the oldest broking houses in India, its operations include stock broking and distribution of various financial products. It is a corporate member of both the Bombay Stock Exchange and the National Stock Exchange of India. Kotak Securities was founded in 1994 and is headquartered in Mumbai, India
Brief Introduction to Project
In finance, technical analysis is a security analysis discipline used for forecasting the direction of prices through the study of past market data, primarily price and volume. Behavioural economics and quantitative analysis use many of the same tools of technical analysis. Which, being an aspect of active management, stands in contradiction to much of modern portfolio theory. The efficacy of both technical and fundamental analysis is disputed by efficient-market hypothesis which states that stock market prices are essentially unpredictable
Design of solution
? ? ? To know the advantage of using technical analysis To know the return on investment by using technical analysis To know how many investors use technical analysis before investment
Methodology
? Selecting of top 5 Blue chips Company according to Dow Jones India Titans 30 Infosys technologies Reliance industries Bharti Airtel Housing development finances corp ltd ITC ltd
Using most popular 5 technical indicators
Bollinger band: Developed by John Bollinger, Bollinger Bands® are volatility bands placed above and below a moving average. Volatility is based on the standard deviation, which changes as volatility increases and decreases. The bands automatically widen when volatility increases and narrow when volatility decreases. This dynamic nature of Bollinger Bands also means they can be used on different securities with the standard settings. For signals, Bollinger Bands can be used to identify M-Tops and W-Bottoms or to determine the strength of the trend. RSI: 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 centreline crossovers. RSI can also be used to identify the general trend. MACD: the Moving Average Convergence-Divergence (MACD) indicator is one of the simplest and most effective momentum indicators available. The MACD turns two trendfollowing indicators, moving averages, into a momentum oscillator by subtracting the longer moving average from the shorter moving average. As a result, the MACD offers the best of both worlds: trend following and momentum. The MACD fluctuates above and below the zero line as the moving averages converge, cross and diverge. Traders can look for signal line crossovers, centreline crossovers and divergences to generate signals. Because the MACD is unbounded, it is not particularly useful for identifying overbought and oversold levels. SMA: A simple moving average is formed by computing the average price of a security over a specific number of periods. Most moving averages are based on closing prices. A 5-day simple moving average is the five day sum of closing prices divided by five. As its name implies, a moving average is an average that moves. Old data is dropped as new data comes available. This causes the average to move along the time scale. Below is an example of a 5day moving average evolving over three days.
Stochastic: Developed by George C. Lane in the late 1950s, the Stochastic Oscillator is a momentum indicator that shows the location of the close relative to the high-low range over a
set number of periods. According to an interview with Lane, the Stochastic Oscillator "doesn't follow price, it doesn't follow volume or anything like that. It follows the speed or the momentum of price. As a rule, the momentum changes direction before price." As such, bullish and bearish divergences in the Stochastic Oscillator can be used to foreshadow reversals. This was the first, and most important, signal that Lane identified. Lane also used this oscillator to identify bull and bear set-ups to anticipate a future reversal. Because the Stochastic Oscillator is range bound, is also useful for identifying overbought and oversold levels. ? Duration of period of 5 months
Literature review
Cooter (1962) found that the stock prices move at random when studied at one week interval. The data for his study was week-end prices of forty five stocks from New York stock exchange. He tested randomness of share by means of a mean square successive difference test. He concluded that there was not one random walk model. He concluded that the share price trends could be predicted when studied at fourteen-week interval. But in total the stock prices followed a random walk at weekly intervals. Eugene F.Fama (1965) has answered the questions to what extend can the past history of a common stock price can be used to make meaningful predictions concerning the future prices of the stock? The theory of random walk on stock prices is studied with two hypotheses. They are i) Successive price changes are independent and ii) The price changes conform to some probability distribution. The data for this study consists of daily prices for each of the thirty stocks of the Dow –Jones industrial average. This study concludes that there is strong and voluminous evidence in favor of random walk theory. Ramaswami.K (1996) assessed the relationship among book values, earnings, dividend and market price of share, impact of bonus issues, impact of security scam on equity return .to that end, the author used daily share price of 30 companies included in the construction of BSE sensitive index, daily data of BSESI and NYSE composite index, annual data on BV per share market price per share, EPS and DPS and data on bonus issue made ,during the period of study ,the researcher used correlation ,regression and frequency distribution for interpreting data. Sharma and Robert E. Kennedy (1977) tested the applicability of random walk hypothesis to the stock market in developing country namely India and compare this to that of stock markets in developed countries namely USA, and England. For this purpose the price behavior of Bombay stock exchange is statistically examined both for randomness and independence .The test the random walk hypothesis. The test covers 132 monthly observations for each stock market index of common stock listed in Bombay exchange for eleven years from 19681973.The study indicates that price dependence while statistically significant, is comparably small in the developing countries.
Chapter 2 Introduction
About the Kotak Mahindra Group
Kotak Mahindra is one of India's leading banking and financial services organizations, offering a wide range of financial services that encompass every sphere of life. From commercial banking, to stock broking, to mutual funds, to life insurance, to investment banking, the group caters to the diverse financial needs of individuals and corporate sector. The group has a net worth of over Rs. 100.6 billion and has a distribution network of branches, franchisees, representative offices and satellite offices across cities and towns in India, and offices in New York, London, San Francisco, Dubai, Mauritius and Singapore servicing around 8 million customer accounts.
About Kotak Securities
Kotak Securities Ltd. is a subsidiary of Kotak Mahindra Bank. We have over 1416 outlets in 448 cities, service over 4,70,297 lakh customer accounts and manage assets Rs. 1202 crore under Portfolio Management Services as on 31st Dec, 2011. We have been one of the pioneers in providing many products and services which have now become industry standards. Some of them are: ? ? ? ? ? ? ? ? ? ? ? ? Facility of Margin Trading to the customers Investing in IPOs and Mutual Funds on the phone SMS alerts before execution of depository transactions Mobile application to track portfolios Auto Invest - A systematic investing plan in Equities, Mutual funds and Gold ETFs Provision of margin against securitie Our Accolades Best Broker in India by FinanceAsia for 2009 & 2010 Best Brokerage Firm in India by Asiamoney in 2009, 2008, 2007 & 2006 UTI MF - CNBC TV18 Financial Advisor Awards - Best Performing Equity Broker (National) for the year 2009 Best Performing Equity Broker in India - CNBC TV 18 – Optimix Financial Advisory Awards, 2008 Avaya Customer Responsiveness Awards (2007) in Financial Services Sector
? ?
The Leading Equity House in India in Thomson Extel Surveys Awards for the year 2007 Euromoney Award (2006 and 2007) - Best Provider of Portfolio Management: Equities
Avaya Customer Responsiveness Awards (2006) in Financial Institution Sector
Products
Investment Solutions to suit the varied investment goals of your clients
Equities
For those who are interested in investing in stocks directly, Kotak Securities provides Equity Services. Investors have the choice to select the type of account from our vast range of offerings. Our research analysts and advisors guide you so that you can help your clients in making prudent investment decision
Derivatives
Derivatives are good investment option for aggressive investors. Trading of these investment products requires a high degree of discipline. We, at Kotak Securities, strive to make investing in derivatives simple. Our Derivatives seminars educate new entrants as well as existing traders in the derivatives market to be more equipped with the required knowledge and techniques.
Mutual Funds
Investing in over 3000 different Mutual Fund schemes through us is very simple. And to choose between the various schemes for investment, we offer you our exclusive research. Your customers can invest in Mutual Funds via internet, phone or by simply filling up a form.
Structured Products
Structured products are an ideal investment tool to meet specific investment needs that cannot be met by standardised financial instruments. We offer you a variety of Structured Products that might help in reducing your exposure to risk considerably.
IPOs
Investing in IPOs is not complex process anymore. Kotak Securities has made investing in IPOs very simple. Your clients can now invest by simply making a phone call to us. We also provide you with news on IPOs, updates on forthcoming IPOs and lots more that you can share with your clients.
Third Party Distribution Products
Apart from the above products, Kotak Securities offers you a range of credible financial products that would cater to various investment needs of your clients
Conceptual overview
Introduction Technical analysis is a method of evaluating securities by analysing 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. The field of technical analysis is based on three assumptions: 1. The Market Discounts Everything A major criticism of technical analysis is that it only considers price movement, ignoring the fundamental factors of the company. However, technical analysis assumes that, at any given time, a stock's price reflects everything that has or could affect the company - including fundamental factors. Technical analysts believe that the company's fundamentals, along with broader economic factors and market psychology, are all priced into the stock, removing the need to actually consider these factors separately. This only leaves the analysis of price movement, which technical theory views as a product of the supply and demand for a particular stock in the market. 2. Price Moves in Trends In technical analysis, price movements are believed to follow trends. This means that after a trend has been established, the future price movement is more likely to be in the same direction as the trend than to be against it. Most technical trading strategies are based on this assumption.
3. History Tends To Repeat Itself Another important idea in technical analysis is that history tends to repeat itself, mainly in terms of price movement. The repetitive nature of price movements is attributed to market psychology; in other words, market participants tend to provide a consistent reaction to similar market stimuli over time. Technical analysis uses chart patterns to analyze market movements and understand trends. Although many of these charts have been used for more than 100 years, they are still believed to be relevant because they illustrate patterns in price movements that often repeat themselves Advantage of technical analysis: 1. Technical analysis focuses on price movement. The primary focus of technical analysis is on the movement of prices. Charts show how prices are moving (or not moving), when prices are trending, and the strength of those trends. Volume, oscillators and momentum give a clearer picture of market action. And this information can be obtained at a glance. Unlike fundamentalists, technicians do not use economic reports that analyse the demand for a cure 2. Trends are easily found. Taking a look at a moving average line quickly displays a price that is trending or stuck in a range. Whether it is up, down, or sideways, a chart can quickly display a currency that is exhibiting a trend. Trends are critical to technicians because a currency is likely to continue moving in the direction of the trend. Charts show them clearly and quickly. 3. Patterns are easily identified. One of the basic tenets of market action is that it repeats itself in clear, unmistakable patterns. Using charts helps the trader to find patterns and predict price movements based on these patterns. Like star constellations, patterns can be complex and complicated. Head-and-shoulders patterns, rounding tops and bottoms, ascending and descending triangles, and double and triple tops are proven patterns that many currency prices will follow. Hence, they have strong predictive powers. They can be impossible to detect without using a chart.
4. Charting is quick and inexpensive.
Computers have relieved us from the burden of performing complex mathematical operations. The Internet has a wealth of different technical indicators available that can help the trader to make more profitable and more reliable trades. Many brokers offer these types of technical indicators to their clients as part of their package. Technical analysis is less time consuming and less costly than fundamental analysis. It can be performed in less than five minutes and the services are very often offered for free or at a nominal cost. 5. Charts provide a wealth of information. Charts and indicators can provide a huge amount of information in only a few moments. Trends are easily found. Support and resistance levels are quickly identified. Momentum, volatility, and trading patterns appear quickly and easily. There are more than fifty kinds of indicators and they each provide information on different aspect of how a currency is moving. This information is critical to technicians to make sound and profitable trades. Charts tell a story about the personality and price movement of a currency. The story can be complex with many different plots and twists or quite simple with only a few characters and single narrative. Charts are the same way. They can provide only the most basic information on a trend or support and resistance. Disadvantage of technical analysis 1. At their heart, all technical indicators - no matter how complex - are based on price, which always reflects what has already happened in the market. Thus, technical analysis is reactive not truly predictive of what will happen. 2. Today's markets are much more chaotic and choppy compared to previous decades. This is because of hedge funds and computerized ultra-stockstackup.com" title “short term trading “short term trading activity. The result is more false signals and ill-formed patterns from technical analysis techniques. 3. The bulk of technical traders still rely on a handful of indicators first created in the 1970's. This result in their overuse and, thus, the markets adjust and render them less effective. 4. The majority of technical traders attempt to do trend-following. While trend following techniques can make big money over time, they have a low accuracy rate and a high draw down (most trades are losses and it’s not uncommon to be down 50-60% at some point). Most traders
cannot handle this psychologically. They end up overriding stockstackup.com" title="Trading Signals">Trading Signals and/or switching between systems. 5. Classical trading chart patterns can be found in graphs of non-market related activities, including temperature charts. Also, chart patterns can appear and disappear depending on the scaling of the chart. This strongly suggests that chart patterns are a trick of the human eye and have no predictive value
DOW THEORY ITS CORNERSTONE
New tools and theories have been produced and existing tools have been enhanced at a rapid rate in recent decades, with an increasing emphasis on computer-assisted techniques. Technical analysis is not concerned with why a price is moving but rather whether it is moving in a particular direction or in a particular chart pattern. Technical analysts believe that profits can be made by "trend following." In other words if a particular stock price is steadily rising (trending upward) then a technical analyst will look for opportunities to buy this stock. Until the technical analyst is convinced this uptrend has reversed or ended, all else equal, he will continue to own this security. Additionally, technical analysts look for various price patterns to form on a price chart and will take positions in anticipation of the expected move following that pattern. The various tools of technical analysis assist the technician in determining when trends have formed, ended, etc. and when particular patterns are unfolding. One of the forecasting tools very popular among practitioners is technical analysis. Technical analysis is the examination of past price movements in order to forecast future price movements. Technical analysis is open to interpretation. Many times two technicians will look at the same chart and paint two different scenarios or see different patterns. Both would be able to come up with logical support to justify their position. In addition, even if stock prices completely followed a random walk, people would be able to convince themselves that there are e patterns having a predictive value. It has become more and more popular, as it offered an unlimited set of tools and signals and seemed to be an interesting method of market analysis. It has been proven that stock prices most of the time approximately follow a random walk pattern. Psychologists have described a number of ways in which people deal with randomness. Additionally, market participants may be subject to herd behavior.
Technical analysis is applicable to stocks, indices, commodities, futures or any tradable instrument where the price is influenced by the forces of supply and demand. Price refers to any combination of the open, high, low, or close for a given security over a specific time frame. The time frame can be based on intraday (1-minute, 5-minutes, 10-minutes, 15-minutes, 30minutes or hourly), daily, weekly or monthly price data and last a few hours or many years. In addition, some technical analysts include volume or open interest figures with their study of price action. Economists have traditionally been skeptical of the value of technical analysis, affirming the theory of efficient markets that holds no strategy should allow investors and traders to make unusual returns except by taking excessive risk. Chart pattern 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 Types 1. Head and Shoulders 2. Cup and Handle 3. Double Tops and Bottoms 4. Triangles 5. Flag and Pennant 6. Wedge 7. Gaps 8. Triple Tops and Bottoms 9. Rounding Bottom
Indicators . Indicators are calculations based on the price and the volume of a security that measure such things as money flow, trends, volatility and momentum. Indicators are used as a secondary measure to the actual price movements and add additional information to the analysis of securities. Indicators are used in two main ways: to confirm price movement and the quality of chart patterns, and to form buy and sell signals. Types 1. Accumulation/ distribution 2. Average directional index 3. Commodity channel index 4. Stochastic 5. MACD 6. Momentum 7. Money flow index 8. On balances volume 9. RSI 10. Relative Vigor index 11. William % R 12. EMA 13. SME
Chapter 3 Data Analysis and Interpretation
3.1) Infosys technologies ltd Bollinger band width: It indicates Infosys technologies ltd. For the period 1 August 2012 to 31 Dec 2012
Analysis As shown in the above Bollinger band which indicates the buying and selling signals which is got by using 20 day simple moving average and 2 period standard deviation On 23 august the stocks has touch the upper band which indicates the stock has reach its limit of raise and further the stock has fallen and touched to middle band and reveres it back it signal of bullish in the stock This means the stocks move within the upper and lower band. If the stocks cross the upper band which means bearish and if the stocks reach to the lower band that means bullish. One can hold the stock till it reaches the middle band.
Interpretation If the investors had brought the stock when it has touched lower band on 15 November the prices was 2296 Rs per share and hold till touches the upper band on 26 November the prices was 2417 Rs per share. This means that the investor had gain Rs 121 per share Rs within 11 trading section. 3.2) Reliance industries: Relative Strength index:-It indicates Reliance industries. For the period 1 August 2012 to 31 Dec 2012
Analysis When the RSI has crossed the 30 line from below to above and is rising, a buying opportunity is indicated. When it has crossed the 70 line from above to below and is falling, a sell signal is indicated On 22 August the RSI indicator in at 70 % which means the stock has been over brought so it has started reserve and further the graph as broke the middle line which means it is bearish signal in stock
These mean the stock will be according the movement of 70 to 30. If the stock graph reaches 70 which the particular stock has been over brought and if the stock touches the 30 which indicates the stock has been oversold. Interpretation If the investor had brought the share when it has reached to 30 on 6 September when the prices of the share was 786 Rs per share and hold it till reached 70 lines on 17 September when the price of the share was 873 Rs per share. This means the investor had gained Rs 87 Rs per share within 11 days of trading section 3.3) Bharti Airtel MACD (Moving Average Convergences Divergence): It indicates Bharti Airtel. For the period 1 August 2012 to 31 Dec 2012
Analysis As its name implies, the MACD is all about the convergence and divergence of the two moving averages. Convergence occurs when the moving averages move towards each other. Divergence occurs when the moving averages move away from each other. The shorter moving average (12-day) is faster and responsible for most MACD movements. The longer moving average (26-day) is slower and less reactive to price changes in the underlying security. On 1 august the MACD line is negative territory as the 12-day EMA trades below the 26-day EMA The initial cross occurred at the end of July it is bearish and the MACD moved further into negative territory as the 12-day EMA diverged further from the 26-day EMA. On 7 November area highlights a period of positive MACD values, which is when the 12-day EMA was above the 26-day EMA it is bullish on the stock. Interpretation If the investor had brought the share at the diverged on 7 November the price of the share was 271 Rs per share and hold till the lines convergences on 7 December the price of the share was 322 Rs per share. This means the investor would has gain Rs 51 Rs per share within 30 days of trading section
3.4) Housing development finances corp ltd: SMA (simple moving average): It indicates Housing development finances crop ltd. For the period 1 August 2012 to 31 Dec 2012
Analysis A simple moving average is formed by computing the average price of a security over a specific number of periods. Most moving averages are based on closing prices. A 20-day simple moving average is the twenty day sum of closing prices divided by twenty. As its name implies, a moving average is an average that moves. Old data is dropped as new data comes available. This causes the average to move along the time scale On 4 October the stock has broken the simple moving average line which means its bearish signal and it have been the reverse it back try to break the simple moving average with is the bullish signal. The line acts as the support and resistances to the stock. Where the investor can keep stop loss and booking profit to the stocks.
Interpretation If the investor as invest when there was reserves signal of the graph on 30 October when the price of the share was 750 Rs per share and hold till bearish signal on 7 November again when the price of the share was 799 Rs per share. This means the investor would have gain 49 Rs per share within 7 days trading section. 3.5) ITC ltd: Stochastic: It indicates ITC ltd. For the period 1 August 2012 to 31 Dec 2012
Analysis The Stochastic Oscillator is a momentum indicator that shows the location of the close relative to the high-low range over a set number of periods. The Stochastic Oscillator "doesn't follow price, it doesn't follow volume or anything like that. It follows the speed or the momentum of price. As a rule, the momentum changes direction before price." As such, bullish and bearish divergences in the Stochastic Oscillator can be used to foreshadow reversals
On 31 august the indicator is showing the bearish signal since it because it has been overbought and showing bullish signal on 10 September where the stock has been oversold. As a bound oscillator, the Stochastic Oscillator makes it easy to identify overbought and oversold levels. The oscillator ranges from zero to one hundred. No matter how fast a security advances or declines, the Stochastic Oscillator will always fluctuate within this range. Traditional settings use 80 as the overbought threshold and 20 as the oversold Interpretation If the investor has on 20 September when the price of the share was 256 Rs per share and hold the stock reach the overbought on 1 October when the share price of the 273 Rs per share this means the investor has gain 17 Rs per share within 10 days of trading section.
Chapter 4 Summary of findings, Recommendations and Conclusion
FINDINGS ? Majority of the dealer use technical analysis for the purpose of trading and investment ? By using technical analysis the dealer can maximise the profit and minimises the loss of the portfolio of the investors and traders ? The study focused on five companies that selected from Dow jones India Titans 30 Company. Even though many different charting techniques are available, one method is not necessarily better than the other. The choice of charting methods, to use will depend on personal preferences and trading or investing styles. Once you have chosen a particular charting methodology, it is probably best to stick with it and learn how best to read the signals. Switching back and forth may cause confusion and undermine the focus of your analysis. Infosys technologies ltd Table no 4.1
TECHNICAL INDICATOR Bollinger Bands Width BUY SIGNAL SELLING SIGNAL
November
December
Reliance industries Table no 4.2
TECHNICAL INDICATOR RSI BUY SIGNAL September, November SELLING SIGNAL October ,December
Bharti Airtel Table no 4.3
TECHNICAL INDICATOR MACD BUY SIGNAL November SELLING SIGNAL August, December
Housing development finances corp ltd Table no 4.4
TECHNICAL INDICATOR SMA BUY SIGNAL December SELLING SIGNAL October ,December
ITC ltd Table no 4.5
TECHNICAL INDICATOR Stochastic BUY SIGNAL September SELLING SIGNAL August, November
RECOMMENDATIONS Technical analysis will improve the investment decision. ? Technical analysis is simple and more reliable then fundamental analysis because the information required for technical analysis is free available as compared to fundamental analysis
? Investor should have knowledge regarding the market terms so that they can take maximum return from maximum investment
? In case a trader entering in new industries first he has to select stock to buy in new industries after making careful study prospects and charts of the stock
? Even though technical analysis is enough for making decision In stock market, simultaneous usage of both fundamental and technical analysis will reduce errors in forecasting future prices
CONCLUSION Technical analysis is a useful technique in guiding investment decisions. In light of our study on five companies, we have seen how technical analysis can be used to predict the possible futures swings of stock prices. After analysing the companies, the following conclusion was drawn. In general, we can conclude from the result that technical indicators can play useful role in the timing stock market entry and exit. By applying technical indicators brokers or investors enjoy substantial profit. Technical analysis cannot be answer for the questions faced by analyst. It has to be in combination with fundamental analysis to have maximum effect. It can be said that some tools of technical analysis are more useful than others. However, none of them can be termed an analysts panacea. The stock price movements are influenced by various fundamental factors and the economy as a whole. Even though there are some universal principles and rules that can be applied, it must be remembered that technical analysis is more an art form than a science. As an art form, it is subject to interpretation. However, it is also flexible in its approach and each investor should use only that which suits his or her style. Developing a style takes time, effort and dedication, but the rewards can be significant. Analysis can offer great insight but if used improperly, they can also produce false signals. While trend lines have become a very popular aspect of technical analysis, they are merely one tool for establishing, analysing, and confirming a trend. Trend lines should not be the final arbiter, but should serve merely as a warning that a change in trend may be very useful. In some situation, this principle is violated. By studying 5 companies, it can be stated that technical analysis does not provide 100% accuracy to the investor. As the stock prices are dynamic in nature, combination of Fundamental analysis and technical analysis will increases the percentage of accuracy and thus giving an idea to the investor to invest in that stock which will yield him good returns.
Chapter 5 Bibliography
Bibliography BOOKS
? Prasanna Chandra, Investment Analysis & Portfolio Management. 3rd edition, 2008 ? John J Murphy, Charting Made Easy.pdf
Websites ? www.Chartschool.com ? www.nseindia.com
? www.ichart.com ? www.chartnexus.com
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