“TECHNICAL ANALYSIS”
Dissertation Submitted to the
Mumbai University
in partial fulfilment of the requirements for the award of the Degree of
MASTERS of MANAEMENT STUD!ES
"M#M#S#$
Submitted by%
&!S'A( S)*ANRA) NA+DE
"Roll No#,-$
*ro.e/t uide%
Mr#0#0#Surenranathan
!+SAR
1
!nstitute of Management Studies2 0ar.at
University of Mumbai
Mar/h3 45,5
[1]
DECLARATION
I hereby declare that the dissertation “Technical Analysis” submitted
for the Master’s of Management Studies (M.M.S.) Degree at Mumbai
University’s IBSAR
®
Institute of Manageent Stu!ies"
#a$%at, is my original work and the dissertation has not formed the
basis for the award of any degree associate shi! fellowshi! or any
other similar titles.
Place: Karjat
Date:
Signature of the Student
6ertifi/ate
[2]
This is to /ertify that the dissertation entitled 7TE6'N!6A(
ANA(8S!S9 is the bonafide resear/h wor: /arried out by Mr# &ishal
Nabde student of MMS2 at !+SAR
1
!nstitute of Management Studies2
0ar.at during the year 455- ;45,52 in partial fulfilment of the
requirements for the award of the Degree of Master of Management
Studies and that the dissertation has not formed the basis for the award
previously of any degree2 diploma2 asso/iate ship2 fellowship or any other
similar title#
"Dr# !NAN6!A( RAT!)S2
plottin0 o 6'ARTS to e9tremely sophisticated indicators.
$ 0eneral in1estor can apply the principles by usin0 the simplest o
tools: pocket calculator2 pencil2 ruler2 chart paper " your cautious mind2
watchul attention. It should be pointed out that2 this e3uity analysis does not
discuss how to buy " sell shares2 but does discuss a method which enables
the in1estor to arri1e at buyin0 " sellin0 decision. The inancial analysts
always need yardsticks to e1aluate the eiciency " perormances o any
business unit at the time o in1estment. 4undamental analysis is useul in lon0
term in1estment decision. In 4undamental analysis a company s 0oodwill2
[6]
its perormances2 li3uidity2 le1era0e2 turno1er2 proitability " inancial health
was checked " analysis with the help o ratio analysis or the purpose o lon0
term successul in1estment.
Technical analysis reers to the study o market 0enerated data like
prices " 1olume to determine the uture direction o prices mo1ements.
Technical analysis mainly seeks to predict the short term price tra1els.
The ocus o technical analysis is mainly on the internal market data2 i.e.
prices " 1olume data. It appeals mainly to short term traders.
It is the oldest approach to e3uity in1estment datin0 back to the late
1*th century.
Assumptions for the Equity Analysis#
[7]
1. %orks only in normal share;market conditions with 0reat reliability2 it also
works in abnormal share;market conditions2 but with low reliability.
2. 73uity analysis is purely based on the IUNDAMENTA( TE6'N!6A(
ANA(8S!S ANA(8S!S
Te/hni/al 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 tra1els.
It is important criteria or selectin0 the company to in1est. It also pro1ides the
base or decision;makin0 in in1estment. The one o the most re3uently used
yardstick to check " analyAe underlyin0 price pro0ress. 4or that matter a
1erity o tools was consider.
This Technical analysis is helpul to 0eneral in1estor in many ways. It
pro1ides important " 1ital inormation re0ardin0 the current price position o
the company.
Technical analysis in1ol1es the use o 1arious methods or chartin02
calculatin0 " interpretin0 0raph " chart to assess the perormances " status
o the price. It is the tool o inancial analysis2 which not only studies but also
relectin0 the numerical " 0raphical relationship between the important
inancial actors.
The ocus o technical analysis is mainly on the internal market data2
i.e. prices " 1olume data. It appeals mainly to short term traders. It is the
oldest approach to e3uity in1estment datin0 back to the late 1*th century.
It uses charts and computer pro0rams to study the stockBs tradin0
1olume and price mo1ements in the hope o identiyin0 a trend.
In act the decision made on the basis o technical analysis is done only
ater inerrin0 a trend and 8ud0in0 the uture mo1ement o the stock on
[1!]
the basis o the trend. Technical $nalysis assumes that the market is eicient
and the price has already taken into consideration the other actors related to
the company and the industry. It is because o this assumption that many think
technical analysis is a tool2 which is eecti1e or short;term in1estin0.
'istory of Te/hni/al Analysis%
Technical $nalysis as a tool o in1estment or the a1era0e in1estor
thri1ed in the late nineteenth century when Charles Dow2 then editor o the
%all +treet Cournal2 proposed the Dow theory. 5e reco0niAed that the
mo1ement is caused by the action/reaction o the people dealin0 in stocks
rather than the news in itsel.
Technical analysis is a method o e1aluatin0 securities by analyAin0 the
statistics 0enerated by market acti1ity2 such as past prices and 1olume.
Technical analysts do not attempt to measure a securityDs intrinsic 1alue2 but
instead use charts and other tools to identiy patterns that can su00est uture
acti1ity. Cust as there are many in1estment styles on the undamental side2
there are also many dierent types o technical traders. +ome rely on chart
patterns2 others use technical indicators and oscillators2 and most use some
combination o the two. In any case2 technical analystsD e9clusi1e use o
historical price and 1olume data is what separates them rom their
[11]
undamental counterparts. Enlike undamental analysts2 technical analysts
donDt care whether a stock is under1alued the only thin0 that matters is a
securityDs past tradin0 data and what inormation this data can pro1ide about
where the +ecurity mi0ht mo1e in the uture.
+asi/ premises of te/hni/al analysis%
,# =arket prices are determined by the interaction o supply " demand
orces.
4# +upply " demand are inluenced by 1ariety o supply " demand ailiated
actors both rational " irrational.
B# These include undamental actors as well as psycholo0ical actors.
C# /arrin0 minor de1iations stock prices tend to mo1e in airly persistent
trends.
D# +hits in demand " supply brin0 about chan0e in trends.
E# This shit s can be detected with the help o charts o manual "
computeriAed action2 because o the persistence o trends " patterns analysis
o past market data can be used to predict uture prices beha1iors.
Drawba/:s F limitations of te/hni/al analysis%
1. Technical analysis does not able to e9plain the reAones behind the
employment or selection o speciic tool o Technical analysis.
[12]
2. The technical analysis ailed to si0nal an uptrend or downtrend in time.
3. The technical analysis must be a sel deeatin0 proposition. $s more "
more people use2 employ it the 1alue o such analysis trends to reduce.
=hy we use TE6'N!6A( ANA(8S!S@
1F Technical analysis pro1ides inormation on the best entry and
e9it points or a trade.
2F 6n a chart2 the trader can see where momentum is risin02 a
trend is ormin02 a price is dippin0 or other e1ents are de1elopin0 that show
the best entry point and time or the most proitable trade. %ith the constant
mo1ement o 1arious currencies a0ainst each other in the 4ore9 market2 most
traders will ocus on usin0 technical indicators to ind and place their
trades.
!S TE6'N!6A( ANA(8S!S D!>>!6U(T@
1F Technical analysis is not diicult2 but it re3uires studyin0
dierent types o charts such as the hourly or daily charts2
[13]
knowin0 which technical indicators to use and how to use them.
2F Computers and the Internet ha1e made this process much easier.
=ost brokers pro1ide basic charts and technical indicators or
ree or at a 1ery low cost.
3F 6ne way to a1oid 0ettin0 rustrated by all the lines2 colors2 and
0raphics is to ocus on usin0 only a ew indicators that will
pro1ide you with the inormation needed. Try not to clutter your
chart with too much inormation.
>undamental vs# Te/hni/al Analysis
Technical analysis and undamental analysis are the two main schools
o thou0ht in the inancial markets. $s weD1e mentioned2 technical analysis
looks at the price mo1ement o a security and uses this data to predict its
uture price mo1ements. 4undamental analysis2 on the other hand2 looks at
economic actors2 known as undamentals.
4undamental analysis takes a relati1ely lon0;term approach to
analyAin0 the market compared to technical analysis. %hile technical
analysis can be used on a timerame o weeks2 days or e1en minutes2
undamental analysis oten looks at data o1er a number o years.
[14]
The future /an be found in the past
I prices are based on in1estor e9pectations2 then knowin0 what a
security should sell or Gi.e.2 undamental analysisF becomes less important
than knowin0 what other in1estors e9pect it to sell or. ThatDs not to say that
knowin0 what a security should sell or isnDt important;;it is. /ut there is
usually a airly stron0 consensus o a stockDs uture earnin0s that the a1era0e
in1estor cannot dispro1e.
Technical analysis is the process o analyAin0 a securityDs historical
prices in an eort to determine probable uture prices. This is done by
comparin0 current price action Gi.e.2 current e9pectationsF with comparable
historical price action to predict a reasonable outcome. The de1out technician
mi0ht deine this process as the act that history repeats itsel while others
would suice to say that we should learn rom the past.
Usually the following tools A instruments are used to do
the te/hni/al analysis%
*ri/e >ields
Technical analysis is based almost entirely on the analysis o price and
1olume. The ields which deine a securityDs price and 1olume are e9plained
below.
[15]
)pen ; This is the price o the irst trade or the period Ge.0.2 the irst trade o
the dayF. %hen analyAin0 daily data2 the 6pen is especially important as it is
the consensus price ater all interested parties were able to Hsleep on it.H
'igh ; This is the hi0hest price that the security traded durin0 the period. It
is the point at which there were more sellers than buyers Gi.e.2 there are always
sellers willin0 to sell at hi0her prices2 but the 5i0h represents the hi0hest
price buyers were willin0 to payF.
(ow ; This is the lowest price that the security traded durin0 the period. It is
the point at which there were more buyers than sellers Gi.e.2 there are always
buyers willin0 to buy at lower prices2 but the >ow represents the lowest price
sellers were willin0 to acceptF.
6lose ; This is the last price that the security traded durin0 the period. Due to
its a1ailability2 the Close is the most oten used price or analysis. The
relationship between the 6pen Gthe irst priceF and the Close Gthe last priceF
are considered si0niicant by most technicians. This relationship is
emphasiAed in candlestick charts.
&olume ; This is the number o shares Gor contractsF that were traded durin0
the period. The relationship between prices and 1olume Ge.0.2 increasin0
prices accompanied with increasin0 1olumeF is important.
[16]
)pen !nterest ; This is the total number o outstandin0 contracts Gi.e.2
those that ha1e not been e9ercised2 closed2 or e9piredF o a uture or option.
6pen interest is oten used as an indicator.
+id ; This is the price a market maker is willin0 to pay or a security Gi.e.2 the
price you will recei1e i you sellF.
As: ; This is the price a market maker is willin0 to accept Gi.e.2 the price you
will pay to buy the securityF.
*ri/e Styles
(rice in a chart can be displayed in our styles:
1. /ar Chart.
2. >ine Chart.
[17]
3. Candlestick Chart.
!. (oint and 4i0ure Charts
&' +ar 6harts %
The hi0hs and lows o a orei0n currency are plotted in a dia0ram and the
points are 8oined with 1ertical lines GbarsF. $ small horiAontal tick to the let
denotes the openin0 le1el while a small horiAontal tick to the ri0ht represents
the closin0 price o each inter1al.
2F >ine Chart.
It 0i1es the detailed inormation about e1ery aspect.
The e9chan0e rates or each time period are plotted in a dia0ram and the
points are 8oined. (rices on the y;a9is2 time on the 9;a9is.
[18]
The line chart chooses or e9ample the closin0 price o consecuti1e time
periods2 but can also work with daily2 oicial i9in0s.
The relati1ely easy handlin0 o line charts is a 0reat ad1anta0e. >ine charts
do not show price mo1ements within a time period. This can be a problem
because important inormation or e9chan0e rate analysis can be lost. This
problem was remedied with the de1elopment o bar charts that represent a
more sophisticated orm o line chart.
3F Candlestick Chart.
$ candlestick is black i the closin0 price is lower than the openin0 price. $
candlestick is white i the closin0 price is hi0her than the openin0 price.
[1]
In the 1600s2 the Capanese de1eloped a method o technical analysis to
analyAe the price o rice contracts. This techni3ue is called candlestick
chartin0. +te1en A ST)60 :;
[82]
(6%7M-MID2 a
Dissertation Submitted to the
Mumbai University
in partial fulfilment of the requirements for the award of the Degree of
MASTERS of MANAEMENT STUD!ES
"M#M#S#$
Submitted by%
&!S'A( S)*ANRA) NA+DE
"Roll No#,-$
*ro.e/t uide%
Mr#0#0#Surenranathan
!+SAR
1
!nstitute of Management Studies2 0ar.at
University of Mumbai
Mar/h3 45,5
[1]
DECLARATION
I hereby declare that the dissertation “Technical Analysis” submitted
for the Master’s of Management Studies (M.M.S.) Degree at Mumbai
University’s IBSAR
®
Institute of Manageent Stu!ies"
#a$%at, is my original work and the dissertation has not formed the
basis for the award of any degree associate shi! fellowshi! or any
other similar titles.
Place: Karjat
Date:
Signature of the Student
6ertifi/ate
[2]
This is to /ertify that the dissertation entitled 7TE6'N!6A(
ANA(8S!S9 is the bonafide resear/h wor: /arried out by Mr# &ishal
Nabde student of MMS2 at !+SAR
1
!nstitute of Management Studies2
0ar.at during the year 455- ;45,52 in partial fulfilment of the
requirements for the award of the Degree of Master of Management
Studies and that the dissertation has not formed the basis for the award
previously of any degree2 diploma2 asso/iate ship2 fellowship or any other
similar title#
"Dr# !NAN6!A( RAT!)S2
plottin0 o 6'ARTS to e9tremely sophisticated indicators.
$ 0eneral in1estor can apply the principles by usin0 the simplest o
tools: pocket calculator2 pencil2 ruler2 chart paper " your cautious mind2
watchul attention. It should be pointed out that2 this e3uity analysis does not
discuss how to buy " sell shares2 but does discuss a method which enables
the in1estor to arri1e at buyin0 " sellin0 decision. The inancial analysts
always need yardsticks to e1aluate the eiciency " perormances o any
business unit at the time o in1estment. 4undamental analysis is useul in lon0
term in1estment decision. In 4undamental analysis a company s 0oodwill2
[6]
its perormances2 li3uidity2 le1era0e2 turno1er2 proitability " inancial health
was checked " analysis with the help o ratio analysis or the purpose o lon0
term successul in1estment.
Technical analysis reers to the study o market 0enerated data like
prices " 1olume to determine the uture direction o prices mo1ements.
Technical analysis mainly seeks to predict the short term price tra1els.
The ocus o technical analysis is mainly on the internal market data2 i.e.
prices " 1olume data. It appeals mainly to short term traders.
It is the oldest approach to e3uity in1estment datin0 back to the late
1*th century.
Assumptions for the Equity Analysis#
[7]
1. %orks only in normal share;market conditions with 0reat reliability2 it also
works in abnormal share;market conditions2 but with low reliability.
2. 73uity analysis is purely based on the IUNDAMENTA( TE6'N!6A(
ANA(8S!S ANA(8S!S
Te/hni/al 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 tra1els.
It is important criteria or selectin0 the company to in1est. It also pro1ides the
base or decision;makin0 in in1estment. The one o the most re3uently used
yardstick to check " analyAe underlyin0 price pro0ress. 4or that matter a
1erity o tools was consider.
This Technical analysis is helpul to 0eneral in1estor in many ways. It
pro1ides important " 1ital inormation re0ardin0 the current price position o
the company.
Technical analysis in1ol1es the use o 1arious methods or chartin02
calculatin0 " interpretin0 0raph " chart to assess the perormances " status
o the price. It is the tool o inancial analysis2 which not only studies but also
relectin0 the numerical " 0raphical relationship between the important
inancial actors.
The ocus o technical analysis is mainly on the internal market data2
i.e. prices " 1olume data. It appeals mainly to short term traders. It is the
oldest approach to e3uity in1estment datin0 back to the late 1*th century.
It uses charts and computer pro0rams to study the stockBs tradin0
1olume and price mo1ements in the hope o identiyin0 a trend.
In act the decision made on the basis o technical analysis is done only
ater inerrin0 a trend and 8ud0in0 the uture mo1ement o the stock on
[1!]
the basis o the trend. Technical $nalysis assumes that the market is eicient
and the price has already taken into consideration the other actors related to
the company and the industry. It is because o this assumption that many think
technical analysis is a tool2 which is eecti1e or short;term in1estin0.
'istory of Te/hni/al Analysis%
Technical $nalysis as a tool o in1estment or the a1era0e in1estor
thri1ed in the late nineteenth century when Charles Dow2 then editor o the
%all +treet Cournal2 proposed the Dow theory. 5e reco0niAed that the
mo1ement is caused by the action/reaction o the people dealin0 in stocks
rather than the news in itsel.
Technical analysis is a method o e1aluatin0 securities by analyAin0 the
statistics 0enerated by market acti1ity2 such as past prices and 1olume.
Technical analysts do not attempt to measure a securityDs intrinsic 1alue2 but
instead use charts and other tools to identiy patterns that can su00est uture
acti1ity. Cust as there are many in1estment styles on the undamental side2
there are also many dierent types o technical traders. +ome rely on chart
patterns2 others use technical indicators and oscillators2 and most use some
combination o the two. In any case2 technical analystsD e9clusi1e use o
historical price and 1olume data is what separates them rom their
[11]
undamental counterparts. Enlike undamental analysts2 technical analysts
donDt care whether a stock is under1alued the only thin0 that matters is a
securityDs past tradin0 data and what inormation this data can pro1ide about
where the +ecurity mi0ht mo1e in the uture.
+asi/ premises of te/hni/al analysis%
,# =arket prices are determined by the interaction o supply " demand
orces.
4# +upply " demand are inluenced by 1ariety o supply " demand ailiated
actors both rational " irrational.
B# These include undamental actors as well as psycholo0ical actors.
C# /arrin0 minor de1iations stock prices tend to mo1e in airly persistent
trends.
D# +hits in demand " supply brin0 about chan0e in trends.
E# This shit s can be detected with the help o charts o manual "
computeriAed action2 because o the persistence o trends " patterns analysis
o past market data can be used to predict uture prices beha1iors.
Drawba/:s F limitations of te/hni/al analysis%
1. Technical analysis does not able to e9plain the reAones behind the
employment or selection o speciic tool o Technical analysis.
[12]
2. The technical analysis ailed to si0nal an uptrend or downtrend in time.
3. The technical analysis must be a sel deeatin0 proposition. $s more "
more people use2 employ it the 1alue o such analysis trends to reduce.
=hy we use TE6'N!6A( ANA(8S!S@
1F Technical analysis pro1ides inormation on the best entry and
e9it points or a trade.
2F 6n a chart2 the trader can see where momentum is risin02 a
trend is ormin02 a price is dippin0 or other e1ents are de1elopin0 that show
the best entry point and time or the most proitable trade. %ith the constant
mo1ement o 1arious currencies a0ainst each other in the 4ore9 market2 most
traders will ocus on usin0 technical indicators to ind and place their
trades.
!S TE6'N!6A( ANA(8S!S D!>>!6U(T@
1F Technical analysis is not diicult2 but it re3uires studyin0
dierent types o charts such as the hourly or daily charts2
[13]
knowin0 which technical indicators to use and how to use them.
2F Computers and the Internet ha1e made this process much easier.
=ost brokers pro1ide basic charts and technical indicators or
ree or at a 1ery low cost.
3F 6ne way to a1oid 0ettin0 rustrated by all the lines2 colors2 and
0raphics is to ocus on usin0 only a ew indicators that will
pro1ide you with the inormation needed. Try not to clutter your
chart with too much inormation.
>undamental vs# Te/hni/al Analysis
Technical analysis and undamental analysis are the two main schools
o thou0ht in the inancial markets. $s weD1e mentioned2 technical analysis
looks at the price mo1ement o a security and uses this data to predict its
uture price mo1ements. 4undamental analysis2 on the other hand2 looks at
economic actors2 known as undamentals.
4undamental analysis takes a relati1ely lon0;term approach to
analyAin0 the market compared to technical analysis. %hile technical
analysis can be used on a timerame o weeks2 days or e1en minutes2
undamental analysis oten looks at data o1er a number o years.
[14]
The future /an be found in the past
I prices are based on in1estor e9pectations2 then knowin0 what a
security should sell or Gi.e.2 undamental analysisF becomes less important
than knowin0 what other in1estors e9pect it to sell or. ThatDs not to say that
knowin0 what a security should sell or isnDt important;;it is. /ut there is
usually a airly stron0 consensus o a stockDs uture earnin0s that the a1era0e
in1estor cannot dispro1e.
Technical analysis is the process o analyAin0 a securityDs historical
prices in an eort to determine probable uture prices. This is done by
comparin0 current price action Gi.e.2 current e9pectationsF with comparable
historical price action to predict a reasonable outcome. The de1out technician
mi0ht deine this process as the act that history repeats itsel while others
would suice to say that we should learn rom the past.
Usually the following tools A instruments are used to do
the te/hni/al analysis%
*ri/e >ields
Technical analysis is based almost entirely on the analysis o price and
1olume. The ields which deine a securityDs price and 1olume are e9plained
below.
[15]
)pen ; This is the price o the irst trade or the period Ge.0.2 the irst trade o
the dayF. %hen analyAin0 daily data2 the 6pen is especially important as it is
the consensus price ater all interested parties were able to Hsleep on it.H
'igh ; This is the hi0hest price that the security traded durin0 the period. It
is the point at which there were more sellers than buyers Gi.e.2 there are always
sellers willin0 to sell at hi0her prices2 but the 5i0h represents the hi0hest
price buyers were willin0 to payF.
(ow ; This is the lowest price that the security traded durin0 the period. It is
the point at which there were more buyers than sellers Gi.e.2 there are always
buyers willin0 to buy at lower prices2 but the >ow represents the lowest price
sellers were willin0 to acceptF.
6lose ; This is the last price that the security traded durin0 the period. Due to
its a1ailability2 the Close is the most oten used price or analysis. The
relationship between the 6pen Gthe irst priceF and the Close Gthe last priceF
are considered si0niicant by most technicians. This relationship is
emphasiAed in candlestick charts.
&olume ; This is the number o shares Gor contractsF that were traded durin0
the period. The relationship between prices and 1olume Ge.0.2 increasin0
prices accompanied with increasin0 1olumeF is important.
[16]
)pen !nterest ; This is the total number o outstandin0 contracts Gi.e.2
those that ha1e not been e9ercised2 closed2 or e9piredF o a uture or option.
6pen interest is oten used as an indicator.
+id ; This is the price a market maker is willin0 to pay or a security Gi.e.2 the
price you will recei1e i you sellF.
As: ; This is the price a market maker is willin0 to accept Gi.e.2 the price you
will pay to buy the securityF.
*ri/e Styles
(rice in a chart can be displayed in our styles:
1. /ar Chart.
2. >ine Chart.
[17]
3. Candlestick Chart.
!. (oint and 4i0ure Charts
&' +ar 6harts %
The hi0hs and lows o a orei0n currency are plotted in a dia0ram and the
points are 8oined with 1ertical lines GbarsF. $ small horiAontal tick to the let
denotes the openin0 le1el while a small horiAontal tick to the ri0ht represents
the closin0 price o each inter1al.
2F >ine Chart.
It 0i1es the detailed inormation about e1ery aspect.
The e9chan0e rates or each time period are plotted in a dia0ram and the
points are 8oined. (rices on the y;a9is2 time on the 9;a9is.
[18]
The line chart chooses or e9ample the closin0 price o consecuti1e time
periods2 but can also work with daily2 oicial i9in0s.
The relati1ely easy handlin0 o line charts is a 0reat ad1anta0e. >ine charts
do not show price mo1ements within a time period. This can be a problem
because important inormation or e9chan0e rate analysis can be lost. This
problem was remedied with the de1elopment o bar charts that represent a
more sophisticated orm o line chart.
3F Candlestick Chart.
$ candlestick is black i the closin0 price is lower than the openin0 price. $
candlestick is white i the closin0 price is hi0her than the openin0 price.
[1]
In the 1600s2 the Capanese de1eloped a method o technical analysis to
analyAe the price o rice contracts. This techni3ue is called candlestick
chartin0. +te1en A ST)60 :;
[82]
(6%7M-MID2 a