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A STUDY ON

PREDICTION OFSTOCK MOVEMENT USING TECHNICAL

INDICATORS

AT

CAPSTOCKS AND SECURITIES (INDIA) PVT. LTD

Submitted in partial fulfillment of requirement for the award of Degree

Master of Business Administration

UNIVERSITY OF KERALA

Submitted by

KRISHNADEV S.S

Reg. No.0905123

Under the guidance of

Faculty Guide Project Guide

V.N. Babu Mithun

INSTITUTE OF MANAGEMENT IN KERALA

UNIVERSITY OF KERALA

POOJAPPURA EXTENSION CENTER
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ACKNOWLEDGEMENT

The completion of this report Prediction of Stock Movement using technical

indicators at Capstocks And Securities(India) PVT LTD. Thiruvananthapuram is due to

the courtesy of all those who were involved with my efforts. This project report will not be

complete without my expression of gratitude to them.

I grateful Dr. Chandrasekhar Director, Institute of Management in Kerala, (I.M.K)

for his valuable support and motivation.

I express my sincere gratitude to my guide Dr. R.Jayalekshmi Course Co-ordinator,

Mr. V.N Babu Faculty guide Institute of Co-operative Management, Poojappura who is

always been a source of incessant motivation and encouragement to me and who has always

extended their unstinted support in making this project report.

I am also grateful to Mr. Mithun (Technical Analyst) and all staff members of

Capstocks And Securities India PVT LTD for their valuable input and for their support while

doing this project.

Place: Poojappura

Date: Krishnadev S.S


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TABLE OF CONTENT

Chapter No. Particulars

List of charts

Executive summary

1 Introduction

2 Industry profile

3 Company profile

4 Data analysis and interpretation

5 Findings conclusion and suggestions

Bibliography

EXECUTIVE SUMMARY


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Stock market may move upward downward or sideways. Technical analysis is the study

of past financial market data, primarily through the use of charts, to forecast the price trends and

to make investment decisions.

The project study on stock movement using technical analysis was undertaken with a

objective of how to make efficient buying and selling decisions in stock markets. A study was

conducted how effectively technical analysis can be used for making trading and investment

decisions. As a part of project stock price movement was analyzed using candlestick charts and

technical indicators.

Charts are records of past market movements. Candlestick charts are mostly used. By

analyzing chart patterns and candlestick patterns market trend can be analyzed. Chart patterns

may be continuation / reversal. When these patterns are identified in the charts the future trend

can be identified. Some of the import technical indicators like moving averages , MACD, ROC,

RSI, OBV, Bollinger oscillator & stochastic were also covered in this study. By comparing the

indicator chart with the price movement future stock market movement can be identified.

From this analysis it is revealed that a analysis of charts and indicators are enough to

arriving at an accurate selling or buying decisions. A conjunction of all this is required for

making accurate decisions. So technical analyst no only required knowledge but also good skills

for perfection.

Two well-known saying among technical analysis are Trend is your friend, and Forget the

fundamentals and follow the money. Technicians do not claim that all price movements are

predictable: their goal is to forecast movements in price and magnitude. The market is bullish or

bearish successful trading depends on understanding market psychology.

1. INTRODUCTION


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Capital market offers a very important avenue for investment purpose though people

have various options for investment such as deposits real estate insurance gold etc. Equity

market stands for most important avenue for investment as this stands out more glittering

opportunity in terms of return despite the possibility of inherent risk involved. The equity market

is affected by various factors both micro and macro. So prices of the shares will be fluctuating

according to the market conditions.

Technical analysis is one of the tools that are used to predict the share price

movements. Technical analysis is the process of analyzing a securitys historical prices in an

effort to determine probable future prices. It is the study of financial market action.

Technical analysts believe that the historical performance of stocks and markets are indications

of future performance. Technical analysts use charts and other tools like technical indicators and

oscillators to identify patterns that can suggest future activity. The rationale behind technical

analysis is that share price behavior repeats itself overtime and analysis attempt to derive

methods to predict this repetition.

Technical analysis is used as an important tool for security analysis. It helps to determine

the share price movement of individual securities and to take a better investment decision.

2. STATEMENT OF THE PROBLEM
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The study was conducted at Capstocks & Securities (India) Pvt Ltd to identify how

technical analysis is used to predict stock price movement. Capstocks is one of the leading stock

broking firms in India. This study is also done with an aim of getting awareness of the

functioning of the firm.

Stock price are moving in an erratic manner and so they are unpredictable. There are lots

of factors affecting stock prices like human expectations to some other real factors. So

investment decisions in stock market are very risky and difficult. The chart patterns, candlestick

patterns and indicators of technical analysis can be used to know the buying and selling points so

that risk on stock price fluctuations can be minimized.

3. REVIEW OF LITERATURE

Here the study is aimed to know how technical analysis is used to predict

stock price movement. For the research work secondary data relating to stock movement

and technical analysis was collected from reference books, journals, magazines and reports.

Some of the literatures that has been reviewed for the purpose is listed below,

Report on prediction of stock movements conducted in Geojit financial services Ltd,

which was carried out in the year 2008, the study was focused on prediction of stock

movement using technical indicators and charts.

Report on Technical Analysis Published by the Equity Research Department in

Capstocks & securities (India) Pvt Ltd.


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All these studies have focused at the tools that are used in technical analysis.

So my study is aimed at directly linking the technical analysis to stock price movement.

4. OBJECTIVES OF THE STUDY

The study is conducted at Capstocks is aimed at putting light on,

To analyze how to make buy or sell decisions using technical analysis.

To know about the various tools that is used in technical analysis.

To identify how effectively technical analysis can be used in making investment

decisions in stock market.

5. RESEARCH DESIGN

5(i) Type of Research design

A research design is plan for a proposed research work. Analytical research design

was used for this study. In analytical research researcher has to use information already available

and analyse these to make a critical evaluation of material. In this study charts and closing share

prices of the companies are analyzed using technical analysis to evaluate stock movements.

5(ii) Data collection from primary sources


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Discussion with the technical analyst in Capstocks.

Direct observation.

5(iii) Data collection from secondary sources

Secondary data are those which have been published for some other purpose. In this

project most of the data are collected from secondary sources. Secondary sources include

Journals & Books.

Following websites

-www.calloptionputoption.com

-www.nse.com

-www.capstocks.com

5(iv) Data analysis tools and techniques

The tools used to analyse and predict stock movements are

1). Candlestick charts:

- Analysis of chart patterns

- Analysis of candlestick patterns

2).Technical indicators:

- Moving Averages

- MACD
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- On Balance Volume

- Relative Strength Index (RSI)

- Bollinger Band

- Stochastic Oscillator

6. SCOPE OF STUDY

The study is the analysis of various aspects of technical analysis. This study

covers various tools like charts and indicators in technical analysis. Among the various

charts candlestick charts are mostly used in stock exchanges. So various chart patterns

and candlestick patterns are included in this study. Major technical indicators that are

used to analyse the stock market movement are also covered in this study.

7. LIMITATIONS

The limitation of the study includes:

An in depth study was not possible within a short period in this is a vast topic.

Only important chart patterns, candlestick patterns and indicators are covered under

this study.


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8. CHAPTERISATION

Chapter 1 - Introduction

Chapter 2 - Industry profile.

Chapter 3 - Company profile

Chapter 4 - Data analysis and interpretations.

Chapter 5 - Findings, conclusion and suggestions.


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INDUSTRY PROFILE

The Indian Financial service industry is one of the fast growing industries in world. The industry

is also becoming more vibrant, with new types of product and services being offered to meet the

needs of the booming economy. The Indian financial sector is on a roll, driven by a strong

investor interest and an expanding market, the Indian stock market rose to record level with the

popular Sensex crossing 21000 point and Nifty crossing the 6000 mark for the second time. The

year 2007 saw Indian stock markets scaling in new peaks. It has emerged as the third best

performing market in the world. From there the market began to come down due to the global

financial crisis. Now in 2011 once again in reach the previous high.

The purpose of a stock exchange is to facilitate the exchange of securities

between buyers and sellers, thus providing a marketplace. it is important just like the networks

for transport, electricity and telecommunications function properly so is it essential that, for

example, payments can be transacted, capital can be saved and channeled to the most profitable

investment projects and that both households and firms get help in handling financial uncertainty

and risk as well as possibilities of spreading consumption over time. Financial markets constitute

an important part of the total infrastructure for every society that has passed the stage of largely

domestic economies The financial system performs three main tasks: first, it handles transfer of

payments; second, it channels savings to investments with a good return for future consumption;

and third, it spreads and reduces economic risks in relation to the players targeted returns. The

stock market is one of the most important sources for companies to raise money. Experience has

shown that the price of shares and other assets is an important part of the dynamics of economic

growth. Rising share prices, for instance, tend to be associated with increased business

investment and vice versa.

Indian stock markets are one of the oldest in Asia. Its history dates back to nearly 200 years.

Mainly there are two stock exchanges in India Bombay stock exchange (BSE) and National stock

exchange (NSE).


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2.1 MARKET SEGMENTS

The securities market has two interdependent and inseparable segments; the primary and thesecondary market. The primary market provides the channel for creation of new securities

through issuance of financial instruments by public limited companies as well as Governments

and Government agencies and bodies whereas the secondary market helps the holders of these

financial instruments to sell for exiting from the investment. The price signals, which subsume

all information about the issuer and his business including associated risk, generated in the

secondary market, help the primary market in allocation of funds. The primary market issuance

is done either through public issues or through private placement;. A public issue does not limit

any entity in investing while types of issuers who issue securities. The corporate entities manly

issue debt and equity instruments (shares, debentures, etc.), while the governments (central and

state governments) issue debt securities (dates securities, treasury bills).

The secondary market enables participants who hold securities to adjust their holdings in

response to change in their assessment of risk and return. They also sell securities for cash to

meet their liquidity needs. The exchanges do not provide facility for spot trading.

All the 24 stock exchanges in the country provide facilities for trading of corporate securities.

2.1.1 Primary Market:

Securities generally have two stages in their lifespan. The first stage is when the company

initially issues the security directly from its treasury at a predetermined offering price. This is

the primary market offering. It is referred to as the Initial Public Offering (IPO). Investment

dealers frequently buy initial offerings from the primary market and resell the securities in the

secondary market.

Corporate Securities: The Disclosure and Investor protection (DIP) guidelines

prescribe a substantial body of requirements for issuers/intermediaries, the broad

intention being to ensure that all concerned above high standards of integrity and fair


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dealing, comply with all the requirements with due skills, diligence and care, and disclose

the truth. The guidelines aim to secure fuller disclosure of relevant information about the

issuer and the nature of the securities to be issued so that investors can take informed

decisions. The investors however have the option of subscribing to securities in either

the physical form or dematerialized form. Every public listed company making IPO of

any security of Rs.10 crores more is required to do so only in dematerialized form.

Government Securities: the government securities market has witnessed significant

changes in 1990s. With giving up of the responsibility of allocating resources from

securities market, government stopped expropriating seignior age and started borrowing

at near market rates. Government securities are now sold at market related coupon

rates through a system of auctions instead of earlier practice of issue of securities at very

low rates just to reduce the cost of borrowing the government.

2.1.2 Secondary Market:

The second stage is when an investor or dealer makes the shares, bought from a company

treasury, available for sale to other investors on the secondary market. In the secondary market,

the trading of shares is between investors. The trading usually takes place through a stock

exchange.

Corporate Securities: The stock exchanges are the exclusive centers for trading ofsecurities. Through the area of operation/jurisdiction of an exchange is specified at the

time of its recognition, they have been allowed recently to setup trading terminals

anywhere in the country. With the extensive use of information technology, the trading

platforms of a few exchanges are accessible from anywhere through the internet and

mobile devices.

Exchange Movement: Most of the exchanges in India are organized as mutuals which

was considered beneficial in terms of tax benefits and matters of compliance. The trading

members, who providing brokering services, also own, control and manage the

exchanges.

Membership: The trading platform of an exchange is accessible only to brokers. The

broker enters into trades in exchanges either on his own account or on behalf of clients.


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No stock broker or sub-broker is allowed to buy, sell or deal in securities, unless he or

she holds a certificate of registration granted by SEBI.

Trading Mechanism: The exchanges provide an on-line fully-automated screen based

trading system (SBTS) where a member can punch into the computer quantities of

securities and the prices at which he likes to transact and the transaction is executed as

soon as it finds a matching order from a counter party.

Trading rules: Regulations have been framed to prevent insider trading as well as unfair

trade practices. The acquisitions and takeovers are permitted in a well defined and

orderly manner. The companies are permitted to buy back their securities to improve

liquidity and enhance the share holders wealth.

Price Bands: Stock market volatility is generally a cause of concern for both policy

makers as well as investors. To curb excessive volatility SEBI has prescribed a system of

price bands.

Demat Trading: It refers to trading that is done in the electronic form by first converting

the securities from the physical form to the dematerialized form. This has almost

eliminated the bad deliveries and associated problems.

Charges: A stock broker is required to pay a registration fee of RS. 5,000 every financial

year, if his annual turnover does not exceed Rs. 1 Crore. If the turnover exceeds Rs. 1

Crore during any financial year, he has to pay Rs. 5,000 plus one-hundredth of 1% of theturnover in excess of Rs. 1 Crore.

.


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2.2 BOMBAY Stock Exchange

The Bombay Stock Exchange Limited popularly called BSE is the oldest stock exchange

in Asia It is located at Dalal Street Mumbai. Bombay stock exchange was established in

1875.There are around 5000 Indian companies listed in the stock exchange.

As of July 2010, the market capitalization of the BSE was about Rs.22 trillion i.e. US $

466 billion. The BSE SENSEX is the short form of SENSITIVE INDEX also called the BSE 30.

It is a widely used market index in India and Asia. As of 2005, it is among the 5 biggest stock

exchanges in the world in terms of transactions volume. Along with the NSE the companies

listed on the BSE have a combined market capitalization of US$ 125.5 billion. In 1990 the BSE

crossed the 1000 mark for the first time. It crossed 2000, 3000 and 4000 figures in 1992.

2.2.1 BSE SENSEX

The BSE SENSEX also known as the BSE 30 is a value-weighted index composed of 30 scrips,

with the base April 1979 = 100. The set of companies which make up the index has been

changed only a few times in the last 20 years. These companies account for around one-fifth of

the market capitalization of the BSE. Apart from BSE SENSEX, BSE uses other stock indices as

well.

BSE 500

BSEPSU

BSEMIDCAP

BSESMLCAP

BSEBANKE

2.3 National Stock Exchange (NSE)


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The National Stock Exchange of India (NSE) is one of the largest and most advanced

stock markets in India. The NSE is the world's third largest stock exchange in terms of

transactions. It is located in Mumbai. The National Stock Exchange of India was promoted by

leading Financial Institutions on behalf of the Government of India. It was incorporated in

November 1992 as a tax-paying company. In April 1993 it was recognized as a stock exchange

under the Securities Contracts Regulation Act 1956. NSE commenced operations in the

Wholesale Debt Market (WDM) segment in June 1994. The Capital Market (Equities) segment

of the NSE commenced operations in November 1994.

NSE has remained in the forefront of modernization of India's capital and financial

markets, and its pioneering efforts include:

Being the first national, electronic limit order book (LOB) exchange to trade securities in

India. Because of the success of NSE the existent market and new market structures have

followed the "NSE" model.

Setting up the first clearing corporation "National Securities Clearing Corporation Ltd."

in India. NSCCL was a landmark in providing novation on all spot equity market and later

derivatives market trades in India.

Co-promoting and setting up of National Securities Depository Limited, first depository in India.

2.3.1 SETTING UP OF S&P CNX NIFTY. NSE pioneered commencement of Internet Tradingin February 2000, which leads to the wide popularization of the NSE in the broker community.

Being the first exchange to trade ETFs i.e. exchange traded funds in India.NSE brings an

integrated stock market trading network across the nation. Investors can trade at the same price

from anywhere in the country since inter-market operations are streamlined coupled with the

countrywide access to the securities. Delays in communication, late payments and the

malpractices prevailing in the traditional trading mechanism can be done away with greater

operational efficiency and informational transparency in the stock market operations, with the

support of total computerized network. Currently NSE has the following major segments of

the capital market.


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Equity

Futures and Options

Retail Debt Market

Wholesale Debt Market

Wholesale debt market operations are similar to money market operations, institutions and

corporate bodies enter into high value transactions in financial instruments such as government

securities, treasury bills, public sector unit bonds, commercial paper, certificate of deposit etc.


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Indices

NSE also set up as index services firm known as India Index Services & Products

Limited (IISL) and has launched several stock indices, including:

S&P CNX Nifty

CNX Nifty Junior

CNX 100

S&P CNX 500

CNX Midcap

2.4 Other stock exchanges in India

Ahmadabad Stock Exchange

Bangalore Stock Exchange

Bhubaneswar Stock Exchange Association

Calcutta Stock Exchange

Cochin Stock Exchange

Coimbatore Stock Exchange

Delhi Stock Exchange Association

Gauhati Stock Exchange

Hyderabad Stock Exchange

Inter-connected Stock Exchange of India

Jaipur Stock Exchange

Ludhiana Stock Exchange Association

Madhya Pradesh Stock Exchange

Madras Stock Exchange

Mangalore Stock Exchange

Mumbai Stock Exchange

OTC Exchange of India

Pune Stock Exchange

Saurashtra-Kutch Stock Exchange

Uttar Pradesh Stock Association


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COMPANY PROFILE

3.1 INTRODUCTION

In this ever-changing financial world, when it comes to investment in the stock markets,

it is very much difficult to make wise decisions. For this, he needs the most precise and credible

market information and a sound analysis of facts and figures affecting the markets and the

investors investments. The lay investor cannot keep pace with the fast moving markets and the

flood of information on a day-to-day basis. This is where an investor needs the advice and

partnership of an expert.

Capstocks is a professionally managed stock broking company having a distinguished

service history of Nineteen years and a vibrant tradition of trust, loyalty and reliability.

Capstocks was started by Mr. Rajendran.V, who is the present managing Director of the

company, in the year 1989. It is the first ISO 9001:2000 certified stock broking firm in India for

all services in stock broking and allied activities.

Capstocks has about 75 outlets in various states in India and an international office in

Sharjah, UAE. The head office is situated at Winsol Towers, Thakaraprambu Road, Fort,

Thiruvananthapuram.

Capstocks is a member of the National Stock Exchange of India (NSE), Bombay Stock

Exchange (BSE), Depository Participant with the Central Depository Services (CDSL) and

SEBI-registered Portfolio Manager. Capstocks is also a member of the Multi-Commodity

Exchange of India (MCXD) through its subsidiary company, Capstocks Financial service.


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3.2 MANAGEMENT

The company Management rests on:

1 Mr. Rajendran.V,(Chairman & Managing Director) He is an Engineer by Profession,

with in-depth knowledge and experience in market analysis.

2 Mrs. Leela Jeyakumar. (Director) She is a Post Graduate with over 16 years experience in

stock broking and the in charge of companys Tamil Nadu operation since 1992.

3 Mr. Meera Sahib.B. (Director) He is a Post Graduate with LLB & CAIIB and 28 years of

experience in officer / executive cadre in a major public sector bank.

4 Mr. Amjad Hydari (Assistant Vice President) He is NSEs NCFM Certified Professional

with over 10 years experience in stock broking with Capstocks.

3.3 SERVICES OFFERED

1. Online Trading

Capstocks has a network of branches with online terminals of NSE and BSE in the

Capital market and Derivative segments. The clients are assured of prompt order execution

through dedicated phones and expert dealers at the offices.

2. Internet trading

Capstocks offers Internet trading through website. One can trade through the internet

from the comforts of his office or home, anywhere in the world. The dedicated IT systems

ensure service up time and speed, making internet broking through Capstocks hassle-free.

Using the easiest facility provided by CDSL, the clients can transfer the shares sold by

them online without delivery instruction slops. Additionally, digitally signed contract notes can

be sent to clients through E-mail.

3. Depository Services


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Capstocks is a member of the Central Depository Services Limited (CDSL), offer

depository services with minimum Annual Maintenance Charges and transaction Charges.

Account holders can view their holding position through Internet. Capstocks also offer the

easiest (Electronic Access to Securities Information) facility provided by CDSL through which

clients can give delivery instructions via the Internet.

4. Derivative Trading

Capstocks offer trading in the futures and options segment of the National Stock

Exchange (NSE). Through the present derivative trading an investor can take a short-term view

on the market for up to a three months perspective by paying a small margin on the futures

segment and a small premium in the options segment. In the case of options, if the trade goes in

the opposite direction the maximum loss will be limited to the premium paid.

5. Equity Research Department

Capstocks have a full-fledged Investment Research & Analysis Department to help the

clients to make investment decisions. The clients can get information on any share they hold to

purchase. Capstocks publish a monthly newsletter named Capstocks infoline, which contains

Capstocks views on the latest trends in the markets, scrip recommendation, tutorials, news items

etc. Capstocks also issue a daily newsletter, caps trend, which is available in the site

6. Portfolio Management Services

Capstocks is a SEBI-approved portfolio manager. Capstocks portfolio management team

keeps track of the markets on a daily basis and is exposed to a lot of information and analytic

tools which an investor would not normally have access to. Other technicalities pertaining to

shares like dividends, rights, bonus, buy-back, Mergers and Acquisitions were also taken case of

by Capstocks.

7. Commodity Trading

One can trade in commodity futures like gold, silver, crude oil, rubber etc. and can take

the advantage of extended trading hours (10 am to 11pm) in commodities trading. The trading is

done through the subsidiary company named Capstocks Financial Services Ltd.


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8. Mutual Funds, Bonds etc.

Capstocks also offer Mutual Funds and Bonds. One can select from a wide range of

Mutual Funds and Bonds available in the markets today.

9. NRI Cell

Capstocks have a well-organized NRI cell functioning exclusively to meet the

requirements of the clients residing outside India. Capstocks is committed to provide them timely

assistance by placing their orders, giving them valuable suggestions concerning their investments

etc. Also help those NRIs who desire to open accounts on repatriation basis. Facilities are

offered to those clients who are interested in Internet trading by activating it, in co-ordination

with the e-trading department.

10. Assistance in availing loan against Demat Shares

If a client has DEMAT shares lying idle, Capstocks can assist in availing loan against

such shares. Capstocks has a tie-up with Banks to bring this service to clients.

11. Mobile Trading

In 2011 Capstocks has started trading through mobile phones. It enable the client to watch the

price of stocks lively and can trade.


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Data analysis and Interpretation


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TECHNICAL ANALYSIS

A method of evaluating securities by analyzing statistics generated by market activity,

such as past prices and volume. Technical analysts use charts and other tools to identify patterns

that can suggest future activity. The rationale behind technical analysis is that share price

behavior repeats itself over the time.

HISTORY

The principles of technical analysis derive from the observation of financial markets over

hundreds of years. The oldest known hints of technical analysis appear in Joseph de la Vega's

accounts of the Dutch markets in the 17th century. In Asia, the oldest example of technical

analysis is thought to be a method developed by Homma Munehisa during early 18th century

which evolved into the use of candlestick techniques, and is today a main charting tool. In the

1920s and 1930s Richard W. Schabacker published several books which continued the work ofDow and William Peter Hamilton in his books Stock Market Theory and Practice and

Technical Market Analysis. At the end of his life he was joined by his brother in law, Robert D.

Edwards who finished his last book. In 1948 Edwards and John Magee published Technical

Analysis of Stock Trends which is widely considered to be one of the seminal works of the

discipline. It is exclusively concerned with trend analysis and chart patterns and remains in use to

the present. It is now in its 9th edition. As is obvious, early technical analysis was almost

exclusively the analysis of charts, because the processing power of computers was not available

for statistical analysis. Charles Dow reportedly originated a form of chart analysis used by

technicianspoint and figure analysis.


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DOW THEORY

The generally accepted technical analysis today has it root in the dow theory. It was

formulated by Charles H. Dow who was the editor of wall street journal in U.S.A. H e

formulated the hypothesis that the stock market does not move in a random basis. It is influenced

by three distinct cyclical trends. These movements are primary movements, secondary reactions

and minor movements. The primary is the long range cycle that carries the entire market up or

down. The secondary reaction act as a restraining force on the primary movements. These are in

opposite to the primary movements. They are also known as corrections. The minor movements

are the day to day fluctuations in the market.

According to this theory the price movement in the market can be identified by mean of

line chart. In this chart the closing price of share or market value of the index may plotted against

the trading days. The chart will help in identifying the primary and secondary movements.

CHARECTERITICS OF TECHNICHAL ANALYSIS

Technical analysis employs models and trading rules based on price and volume

transformations, such as the relative strength index, moving averages, inter-market and intra-

market price correlations, cycles or, classically, through recognition of chart patterns. Technical

analysis stands in contrast to the fundamental analysis approach to security and stock analysis.

Technical analysis analyses price, volume and other market information, whereas fundamental

analysis looks at the actual facts of the company, market, currency or commodity. Most large

brokerage, trading group, or financial institution will typically have both a technical analysis and

fundamental analysis team.

Technical analysis is widely used among traders and financial professionals, and is very

often used by active day traders, market makers, and pit traders. In the foreign exchange markets,

its use may be more widespread than fundamental analysis. This does not mean technical

analysis is more applicable to foreign markets, but that technical analysis is more recognized

there as to its efficacy there than elsewhere. While some isolated studies have indicated that

technical trading rules might lead to consistent returns in the period prior to 1987, most academic
http://en.wikipedia.org/wiki/Relative_strength_indexhttp://en.wikipedia.org/wiki/Moving_averagehttp://en.wikipedia.org/wiki/Fundamental_analysishttp://en.wikipedia.org/wiki/Day_traderhttp://en.wikipedia.org/wiki/Foreign_exchange_markethttp://en.wikipedia.org/wiki/Fundamental_analysishttp://en.wikipedia.org/wiki/Relative_strength_indexhttp://en.wikipedia.org/wiki/Moving_averagehttp://en.wikipedia.org/wiki/Fundamental_analysishttp://en.wikipedia.org/wiki/Day_traderhttp://en.wikipedia.org/wiki/Foreign_exchange_markethttp://en.wikipedia.org/wiki/Fundamental_analysis


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work has focused on the nature of the anomalous position of the foreign exchange market. It is

speculated that this anomaly is due to central bank intervention, which obviously technical

analysis is not designed to predict. Recent research suggests that combining various trading

signals into a Combined Signal Approach may be able to increase profitability and reduce

dependence on any single rule.

BASIC PRINCIPLES OF TECHNICAL ANALYSIS

1. The market value of the security is related to demand and supply factors operating the

market

2. There are both rational and irrational factors affecting demand and supply of market.

3. Securities price behaves in manner that their movement is continuous in a particular

direction for some length of time.

4. Trends in stock market have been tends to change when there is a shift in demand and

supply.

5. The shift in demand can be detected through charts prepared specially to show market

action.

Trend line

A trend line is a straight line connecting multiple points on a chart. A trend line is used in

technical analysis to determine the direction and strength of a trend. An up trend line has a positive slope

and connects at least two low points on a chart. A down trend line has a negative slope and connects at

least two high points on a chart. The magnitude of the slope of a trend line, or steepness, indicates the

strength of the trend. A trend line is formed when a diagonal line is drawn between two or more

price pivot points. They are commonly used to judge entry and exit investment timing when

trading in securities


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SUPPORT

Support is the price level at which demand is thought to be strong enough to prevent the

price from declining further. The logic dictates that as the price declines towards support and

gets cheaper, buyers become more inclined to buy and sellers become less inclined to sell. By the

time the price reaches the support level, it is believed that demand will overcome supply and

prevent the price from falling below support.

RESISTENCE

Resistance is the price level at which selling is thought to be strong enough to prevent the

price from rising further. The logic dictates that as the price advances towards resistance, sellers

become more inclined to sell and buyers become less inclined to buy. By the time the price


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reaches the resistance level, it is believed that supply will overcome demand and prevent the

price from rising above resistance.

Role Reversal

Once a resistance or support level is broken, its role is reversed. If the price falls below a

support level, that level will become resistance. If the price rises above a resistance level, it will

often become support. As the price moves past a level of support or resistance, it is thought that

supply and demand has shifted, causing the breached level to reverse its role. For a true reversal

to occur, however, it is important that the price make a strong move through either the support or

resistance

IMPORTANCE OF RESISTENCE AND SUPPORT

Support and resistance analysis is an important part of trends because it can be used to make

trading decisions and identify when a trend is reversing. For example, if a trader identifies an

important level of resistance that has been tested several times but never broken, trader may

decide to take profits as the security moves toward this point because it is unlikely that it will not

move past this level. Support and resistance levels both test and confirm trends and need to

be monitored by anyone who uses technical analysis. As long as the price of the share remains

between these levels of support and resistance, the trend is likely to continue. It is important to

note, however, that a break beyond a level of support or resistance does not always have to


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be a reversal. For example, if prices of the shares moved above the resistance levels of an

upward trending channel, the trend has accelerated, not reversed. This means that the

price appreciation is expected to be faster than it was in the channel.

Being aware of these important support and resistance points should affect the way that you

trade a stock. Traders should avoid placing orders at these major points, as the area around them

is usually marked by a lot ofvolatility. If you feel confident about making a trade near a support

or resistance level, it is important that you follow this simple rule: do not place orders directly at

the support or resistance level. This is because in many cases, the price never actually reaches the

whole number, but flirts with it instead. So if you're bullish on a stock that is moving toward an

important support level, do not place the trade at the support level. Instead, place it above the

support level, but within a few points. On the other hand, if you are placing stops orshort selling,

set up your trade price at or below the level of support. There are four main types of charts that

are used by investors and traders depending on the information that they are seeking and their

individual skill levels. The chart types are: the line chart, the bar chart, the candlestick chart and

the point and figure chart.

Change of polarity principle

"Change of polarity" refers to the process through which support levels can become resistance

levels and resistance levels can become support levels. A support (resistance) level that has held

the market at least twice is likely to provide resistance (support) to the pullback rally after a

breakdown (breakout). Candlesticks confirm this retest of the new resistance (support) as a target

for the pullback rally (decline) and a point for taking fresh short (long) positions.

According to Change of polarity principle where a prior resistance area, once broken,

became support. This was just one aspect of the change of polarity. The second way we can use

change of polarity is when prior support becomes new resistance. Anybody who bought near the

support area and making money incurs loss when the market breaks support. And they would use

rallies to get out of their now losing positions anywhere near their breakeven level that is the

prior support level at which they bought.
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This is the chart of Dr.REDDY lab. In this chart it can be seen that change of polarity is

happened. The stock take support at 1625 range. When it is break down that level started acting

as a resistance for the upward movement.

TYPES OF CHART

Line Chart

The most basic of the four charts is the line chart because it represents only the closing prices

over a set period of time. The line is formed by connecting the closing prices over the time

frame. Line charts do not provide visual information of the trading range for the individual points

such as the high, low and opening prices. However, the closing price is often considered to be the

most important price in stock data compared to the high and low for the day and this is why it is

the only value used in line charts.
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Bar Charts

Thebar chart expands on the line chart by adding several more key pieces of information

to each data point. The chart is made up of a series of vertical lines that represent each data point.

This vertical line represents the high and low for the trading period, along with the closing price.

The close and open are represented on the vertical line by a horizontal dash. The opening price

on a bar chart is illustrated by the dash that is located on the left side of the vertical bar.

Conversely, the close is represented by the dash on the right. Generally, if the left dash (open) is

lower than the right dash (close) then the bar will be shaded black, representing an up period for

the stock, which means it has gained value. A bar that is colored red signals that the stock has

gone down in value over that period. When this is the case, the dash on the right (close) is lower

than the dash on the left (open).
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Candlestick Charts

The candlestickchart is similar to a bar chart, but it differs in the way that it is visually

constructed. Similar to the bar chart, the candlestick also has a thin vertical line showing theperiod's trading range. The difference comes in the formation of a wide bar on the vertical line,

which illustrates the difference between the open and close. And, like bar charts, candlesticks

also rely heavily on the use of colors to explain what has happened during the trading period.

There are two color constructs for days up and one for days that the price falls. When the price of

the stock is up and closes above the opening trade, the candlestick will usually be white or clear.

If the stock has traded down for the period, then the candlestick will usually be red or black,

depending on the site. If the stock's price has closed above the previous days close but below the

day's open, the candlestick will be black or filled with the color that is used to indicate an up day.

REVERSAL PATTERN

Price movement exhibit up trends and downtrends. The trend reverse direction after a period of

time. These reversal can be identified with help of certain chart formation that typically

occurring during these trend reversal. Thus reversal patterns are chart formation that tend tosignal a change in the direction of earlier trend.

Head and shoulder formation

The most popular reversal pattern is the head and shoulder formation which usually occur at the

end of a long uptrend. This formation exhibit a top followed by a still higher top or peak and
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another hump or lower top. The formation resemble the head and shoulder of man and hence the

head and shoulder formation. The first hump known as the left shoulder is formed when the price

reaches the top under a strong bullish buying impulse. Then trading volume becomes less and

there is a short downward swing. This followed by another high volume advance which take the

price to a higher top known as the head. This is followed by another reaction on less volume

which takes price down to a bottom near the earlier down swing. A third rally now occurs now

taking the price to height less than the head but comparable to the left shoulder. A horizontal line

joining the bottom of formations known as the neckline. As the price penetrate this neckline the

head and shoulder pattern is completed.

Inverse head and shoulder formation

This pattern is the reversal of head and shoulder formation described above and is really an

inverted head and shoulder pattern. This occurs at the end of a bear phase and consists of a three

distinct bottoms. The first bottom is the left shoulder, then comes a lower bottom which forms

the head, followed by a third bottom which is termed the right the right shoulder. The neck line is

drawn by joining the top o from which the right shoulder and head originate. When the price

raises above the neck line the formation of the pattern is considered to be complete. The inverse

head and shoulder is indicative of oncoming bullish phase. In the formation of this large increase

in volume is necessary.


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Triple Tops and Bottoms

Triple tops and triple bottoms are another type of reversal chart pattern in chart analysis. These

two chart patterns are formed when the price movement tests a level of support or resistance

three times and is unable to break through; this signals a reversal of the prior trend.

TripleTop

This bearish reversal pattern is formed when a security that is trending upward tests a

similar level of resistance three times without breaking through. Each time the security tests the

resistance level, it falls to a similar area of support. After the third fall to the support level, the

pattern is complete when the security falls through the support; the price is then expected to

move in a downward trend.

The first step in this pattern is the creation of a new high in an uptrend that is stalled by selling

pressure, which forms a level of resistance. The selling pressure causes the price to fall until it

finds a level of support, as buyers move back into the security. The buying pressure sends the

price back up to the area of resistance the security previously met. Again, the sellers enter the

market and send the security back down to the support level. This up-and-down movement is

repeated for the third time; but this time the buyers, after failing three times, give up on the

security, and the sellers take over. Upon falling through the level of support, the security is expected

to trend downward.

This is the triple top pattern formed by M&M motors from December 2010 to February 2011.

Price of the stock touched 800 three times. It failed to cross the 800 level. The stock started
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falling from that high and marked a low of 580 on March 1. This 800 level will act as a strong

resistance for the stock in the future.

Triple Bottom

This bullish reversal pattern has all of the same attributes as the triple top but signals a reversal

of a downward trend. The triple-bottom pattern illustrates a security that is trading in a

downtrend and attempts to fall through a level of support three times, each time moving back to a

level of resistance. After the third attempt to push the price lower, the pattern is complete when

the price moves above the resistance level and begins trading in an upward trend.

This pattern begins by setting a new low in a downtrend, which is followed by a rally to a high.

This sets up the range of trading for the triple-bottom pattern. After hitting the high, the priceagain comes under selling pressure, which sends it back down to the previous low. Buyers again

move back into the security at this support level, sending the price back up again, usually to the

previous high. This is repeated a third time, but after failing again to move to a new low, the

pattern is complete when the security moves above the resistance level to begin trading in an

uptrend.

The above is the triple bottom chart pattern formed by TCS. This pattern is formed in period of

February to march 2011. The stock take support at the level of 1050 three times and shows a

signal of bouncing back. From this level stock can again reach the high of 1200. It will be a

major resistance for the stock.
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Rounding Top

A chart pattern used in technical analysis which is identified by price movements that, when

graphed, form the shape of an upside down "U". A rounding top may form at the end of an

extended upward trend and indicates a reversal in the long-term price movement. The pattern can

develop over several weeks, months or even years, and is considered a rare occurrence by many

traders. This pattern is also described as an inverse saucer. A rounding top represents a sell signal

to technical analysts. The initial upwards trend becomes exhausted as the demand for the stock

dries up. The reversal to the downward slope of the rounding top indicates that demand has

tapered off and a surplus supply is present, basically there are more sellers than buyers. A

rounding top represents a bearish take on the stock.

The chart shown above is of PANTALOON from April 2010 to March 2011. The chart shows a

rounding top pattern. Which indicates the continuous down trend of a stock. The stock move

from 400 to 520 and then started declining and touched the low of 225 at starting of February

2011. From there the trend changed. The stock is now in a upward move.


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Rounding Bottom

Rounding Bottom is a decline to a new low on strong volume, several weeks of light

trade with limited downward progress and several more weeks of light trade with a decided

upward bias, followed by a sharp move higher on strong volume.

Rounding Bottoms generally do not lend well to price targets because the pattern is meandering.

In most cases one can expect a decline back to the longer-term support level following a break

below key support.

Prior Trend: Ideally, the low of a rounding bottom will mark a new low or reaction low. In

practice, there are occasions when the low is recorded many months earlier and the security

trades flat before forming the pattern. When the rounding bottom does finally form, its low may

not be the lowest low of the last few months. The first portion of the rounding bottom is the

decline that leads to the low of the pattern. This decline can take on different forms: some are

quite jagged with a number of reaction highs and lows, while others trade lower in a more linear

fashion. The low of the rounding bottom can resemble a "V" bottom, but should not be too sharp

and should take a few weeks to form. Because prices are in a long-term decline, the possibility of

a selling climax exists that could create a lower spike. The advance off of the lows forms the

right half of the pattern and should take about the same amount of time as the prior decline. If the

advance is too sharp, then the validity of a rounding bottom may be in question. Bullish

confirmation comes when the pattern breaks above the reaction high that marked the beginning

of the decline at the start of the pattern. As with most resistance breakouts, this level can become

support. However, rounding bottoms represent long-term reversal and this new support level may

not be that significant.


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This the chart of Indian Bank April 2010 to February. The continuation pattern rounding bottom

is formed june to august 2010 in this stock. The stock is rallied to a high of 550. After that the

sock falls.

CONTINUATION PATTERN

They are certain pattern which tend to provide a breathing space to the earlier sharp rise or fall

and after the completion of these patterns, the price tend to move along the original trend. These

patterns are formed during side way movement of share price and are called continuation pattern.

They indicate the continuation of trend prevailing in the market before the formation of pattern.

Triangles

Triangles are the most important among the continuation patterns. Triangles are formed when the

price movements result in two or more consecutive descending tops and two or more consecutive

ascending bottoms. The triangle becomes apparent on the chart when a consecutive tops are

joined by a straight line and the consecutive bottoms are joined by another straight line. The two


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straight line are upper trend line and lower trend line respectively. A triangle formation may

occur during a bull phase or a bear phase. In either case it would indicate a continuation of trend.

The volume diminishes during the movement within the triangle pattern. The break out from the

pattern will be accompanied by increase in volume.

Ascending Triangle

Ascending triangle is rally to a new high followed by a pull back to an intermediate

support level, a second rally to test the first peak followed by a second decline to a level higher

than the intermediate term support level and finally a rally to fresh new highs on strong volume.

The technical target is derived by measuring the vertical height of the triangle and applying thislength to the new breakout level. Because of its shape, the Ascending triangle pattern can also be

referred to as a right-angle triangle. In contrast to the symmetrical triangle, an ascending triangle

has a definitive bullish bias before the actual breakout. On the ascending triangle, the horizontal

line represents overhead supply that prevents the security from moving past a certain level. It is

as if a large sell order has been placed at this level and it is taking a number of weeks or months

to execute, thus preventing the price from rising further. Even though the price cannot rise past

this level, the reaction lows continue to rise. It is these higher lows that indicate increased buying

pressure and give the ascending triangle its bullish bias.


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This is the chart of VOLTAS from July 2010 to February 2011. An ascending triangle is formed

by the scrip. On august last the stock crossed the resistance at 220 level and make of 260. From

there the stock starts to decline.

Descending Triangle

Descending Triangle is a decline to a new low on news followed by a kick back rally to an

intermediate resistance level, a second decline to test the recent low followed by a second rally

toward but not through intermediate resistance and finally a decline to fresh new lows on strong

volume. The technical target for a descending triangle is derived by measuring the vertical height

of the triangle and applying this length to the new breakout level. The descending triangle is a

bearish formation that usually forms during a downtrend as a continuation pattern. There are

instances when descending triangles form as reversal patterns at the end of an uptrend, but they

are typically continuation patterns. Regardless of where they form, descending triangles are

bearish patterns that indicate distribution. For the descending triangle, the horizontal line

represents demand that prevents the security from declining past a certain level. It is as if a large

buy order has been placed at this level and it is taking a number of weeks or months to execute,

thus preventing the price from declining further. Even though the price does not decline past this

level, the reaction highs continue to decline. It is these lower highs that indicate increased selling

pressure and give the descending triangle its bearish bias.


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DECENDING TRIANGLE

The above is the ascending triangle chart pattern formed by ABAN during December to

February. The stock crossed the support at 700 and falls steeply. The downward trend take the

share to the low of 530. From there stock again started rising up.

Flag and pennants

These are considered to be very reliable continuation patterns. They represent a brief pause in the

fast moving market. They occur mid-way between a sharp rise in the price or a steep fall in price.

The flag formation looks like a parallelogram with the two trend line forming two parallel lines.

The of trading expect to fall to fall during the formation of flag and again pick up on breaking

out from the pattern. The pennant formation looks like a symmetrical tringle. The upper trend

line formed by a connecting the tops stoops downward, whereas the lower trend line formed by

connecting the bottoms rising upwards. The pennant is formed midway between either a bullish

trend or a bearish trends and signals the continuation of the same trend. The break out from the

pattern is marked by increase in volume of trading.


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The above chart is of INDIAN BANK from October 2010 to february2011. In this chart a

pennant is formed in the month of December when the share moved sideways without showing

much trend. The stock breaks the pennant by last of that month. From there the stock moves

down to 200 where it takes support thrice.

Cup and Handle

A cup and handle chart is a bullish continuation pattern in which the upward trend has paused

but will continue in an upward direction once the pattern is confirmed.

In this price pattern forms what looks like a cup, which is preceded by an upward trend. The

handle follows the cup formation and is formed by a generally downward/sideways movement in

the security's price. Once the price movement pushes above the resistance lines formed in the

handle, the upward trend can continue. There is a wide ranging time frame for this type of

pattern, with the span ranging from several months to more than a year.
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This is the cup and holder formed by BHARATI AIRTEL in the july in 2010. The stock break

the cup and holder during the first week of August and started rallying up. It moves up to a high

of 360. Then started declaining.


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CANDLESTICK PATTERNS

Compared to traditional bar charts, many traders consider candlestick charts more

visually appealing and easier to interpret. Each candlestick provides an easy-to-decipher picture

of price action. Immediately a trader can see compare the relationship between the open and

close as well as the high and low. The relationship between the open and close is considered vital

information and forms the essence of candlesticks. Hollow candlesticks, where the close is

greater than the open, indicate buying pressure. Filled candlesticks, where the close is less than

the open, indicate selling pressure.

Long Versus Short Bodies

.

Long white candlesticks show strong buying pressure. The longer the white candlestick is, the

further the close is above the open. This indicates that prices advanced significantly from open to

close and buyers were aggressive. While long white candlesticks are generally bullish, much

depends on their position within the broader technical picture. After extended declines, long

white candlesticks can mark a potential turning point or support level. If buying gets too

aggressive after a long advance, it can lead to excessive bullishness.

Long black candlesticks show strong selling pressure. The longer the black candlestick is, the

further the close is below the open. This indicates that prices declined significantly from the open

and sellers were aggressive. After a long advance, a long black candlestick can foreshadow a
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turning point or mark a future resistance level. After a long decline a long black candlestick can

indicate panic or capitulation.

Spinning Tops

Candlesticks with a long upper shadow, long lower shadow and small real bodies are

called spinning tops. The color of the real body is not very important. The pattern indicates the

indecision between the buyers and sellers. The small real body (whether hollow or filled) shows

little movement from open to close, and the shadows indicate that both buyers and sellers were

fighting but nobody could gain the upper hand. Even though the session opened and closed with

little change, prices moved significantly higher and lower in the meantime. Neither buyers nor

sellers could gain the upper hand, and the result was a standoff. If a spinning top forms during an

uptrend, this usually means there aren't many buyers left and a possible reversal in direction

could occur. If a spinning top forms during a downtrend, this usually means there aren't many

sellers left and a possible reversal in direction could occur.

Marubozu
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Marubozu means there are no shadows from the bodies. Depending on whether the

candlestick's body is filled or hollow, the high and low are the same as its open or close. Check

out the two types of Marubozus in the picture below. AWhite Marubozucontains a long white

body with no shadows. The open price equals the low priceand the close price equals the high

price. This is a very bullish candle as it shows that buyers were in control the entire session. It

usually becomes the first part of a bullish continuation or a bullish reversal pattern. A Black

Marubozu contains a long black body with no shadows. The open equals the high and the close

equals the low. This is a very bearish candle as it shows that sellers controlled the price action

the entire session. It usually implies bearish continuation or bearish reversal.

Hammer and Hanging Man

The hammer and hanging man look exactly alike but have totally different meaningsdepending on past price action. Both have cute little bodies (black or white), long lower

shadows, and short or absent upper shadows. The hammer is a bullish reversal pattern that

forms during a downtrend. It is named because the market is hammering out a bottom. When

price is falling, hammers signal that the bottom is near and price will start rising again. The long

lower shadow indicates that sellers pushed prices lower, but buyers were able to overcome this

selling pressure and closed near the open. More bullish confirmation is needed before it's safe to

pull the trigger. A good confirmation example would be to wait for a white candlestick to close

above the open of the candlestick on the left side of the hammer.

Recognition Criteria:

The long shadow is about two or three times of the real body.

Little or no upper shadow.


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The real body is at the upper end of the trading range.

The color of the real body is not important.

The hanging man is a bearish reversal pattern that can also mark a top or strong resistance

level. When price is rising, the formation of a hanging man indicates that sellers are beginning to

outnumber buyers. The long lower shadow shows that sellers pushed prices lower during the

session. Buyers were able to push the price back up some but only near the open. This should set

off alarms since this tells us that there are no buyers left to provide the necessary momentum to

keep raising the price.

Recognition Criteria:

A long lower shadow which is about two or three times of the real body. Little or no upper shadow.

The real body is at the upper end of the trading range.

The color of the body is not important, though a black body is more bearish than a white

body.

This is the daily chart of the company RELIANCE INFRA from February 15 to march 15. In this

chart a hammer is formed after a downward trend on march7 which is a signal that the downward

move is almost over. A white candle is formed after that. It is a symbol that the correction is over

and the stock is again in a bullish trend.


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Inverted Hammer and Shooting Star

The inverted hammer and shooting star also look identical. The only difference between them is

whether market in a downtrend or uptrend. Both candlesticks have petite little bodies (filled or

hollow), long upper shadows and small or absent lower shadows. The inverted hammer occurswhen price has been falling suggests the possibility of a reversal. Its long upper shadow shows

that buyers tried to bid the price higher. Since the sellers weren't able to close the price any

lower, this is a good indication that everybody who wants to sell has already sold

The shooting star is a bearish reversal pattern that looks identical to the inverted hammer

but occurs when price has been rising. Its shape indicates that the price opened at its low, rallied,

but pulled back to the bottom. This means that buyers attempted to push the price up, but sellers

came in and overpowered them. This is a definite bearish sign since there are no more buyers left

because they've all been sold off.


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INVERTEDHAMMER

This is the Chart of ASHOKLEY LAND from January to March in the year 2011. Here a

inverted hammer is seen after a bearish phase. It means the sellers are almost over. After the

inverted hammer along white candle is formed. Which means that the buyers are bidding for

higher price. The is now on a bullish phase and can go to the target of 65. The trend line is

moving upward.

SHOOTING STAR


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The above is the chart of HCL Technologies from January to march 2011. An shooting star is

formed at the top of the rally. Following the shooting star a long black candle appears which

confirms that the upward rally is over. The holders starting selling off the shares. The price

comes down to 430 by March 1. After that a bullish momentum is happened to the stock.

Bullish Harami

The bullish harami candlestick is a moderate to strong signal of an upcoming reversal. It happens

during a bearish downward trend, and the first day of this pattern appears to be a continuation of

that trend with a long black candle. However, the second day shows that the trend is about to be

broken. It generally opens at or near the previous days close. Then, however, the price movesupward instead of downward, ending with a small white candle with a range that is entirely

within the first days candlestick body.

The implications of this candlestick pattern are easy to see. The second day opened at the

previous days close, showing that there was no downward movement during off hours. This


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might be a continuation if not for the fact that the second day shows upward movement. While

the movement doesnt exceed the opening point of the first day, there nonetheless is obviously

bullish movement that is overwhelming the bears. A reversal in this situation is very likely. The

most sensible thing to do at this point is to wait a third day to see where the market is headed.

However, if this candlestick pattern has occurred after a long bearish trend, then plan to move

immediately as soon as confirmation signals occur. All signs point to a bullish market in the

coming days.

Confirmation in this case could be any of several things. If the third day has upward movement,

such as a gap up, a white candlestick, or a particularly high close, rest assured that the market has

reversed and the bulls are taking over.

Bearish Harami

The bearish harami candlestick pattern is one that may or may not be significant. Wise traders

take note of it, but wait for acting. The first day has a long white candlestick, which is a

continuation of the bullish trend that is happening at the moment. The second, however,

holds a surprise. The day opens below the first days closing and continues downward, closing

with a black candlestick. However, it still closes above the first days opening, which makes it

less significant than otherwise. This two candle formation could indicate that the bullish

trend has reached its ceiling and is beginning to turn.

Understanding this candlestick really takes little more than common sense. While the turn in

tides is not definite, as the black candlestick, while significant, is weakened by its diminutive

length, it is definitely a strong possibility. At the beginning of the second day, the buyers clearly


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have lost steam, and traders respond by getting out while there is still a sizeable gain. The bulls

are failing to rally. Although they may regain it on the third day. People who are experienced

with candlestick analysis will respond by watching for a continuation of the second days losses.

This candlestick pattern occurs relatively often, with varying importance. You should prepare to

act on a downtrend, but save the action itself for the more important third day.

Confirmation of a bearish trend would include any downward movement. If the third trading day

shows more weakness, with a long black candlestick or a large gap down, this is confirmation of

the reversal that this pattern suggests. A relatively neutral day following this pattern is also

suggestive of an impending downtrend.

This the chart of BHEL during the month of January and march. A bearish engulfing is formed

on last days of January. This signals that the price is going to fall. It is confirmed in the next day

when a long black candle is formed. From there the price began to make lower high and higher

bottom. The price came to the level of 1900. A bullish Harami is seen on March 13 and 14. But a

confirmation signal is not get. If a white is get on the next day it can be said that the scrip is now

in a bullish trend.

Doji

Doji candlesticks have the same open and close price or at least their bodies are

extremely short. The Doji should have a very small body that appears as a thin line. Doji candles


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suggest indecision or a struggle for turf positioning between buyers and sellers. Prices move

above and below the open price during the session, but close at or very near the open price.

Neither buyers nor sellers were able to gain control and the result was essentially a draw. There

are four special types of Doji candlesticks. The length of the upper and lower shadows can vary

and the resulting candlestick looks like a cross, inverted cross or plus sign. The word "Doji"

refers to both the singular and plural form. When a Doji forms on chart, pay special attention to

the preceding candlesticks.

Dragon Fly Doji

Dragon fly doji form when the open, high and close are equal and the low creates a long

lower shadow. The resulting candlestick looks like a "T" with a long lower shadow and no upper

shadow. Dragon fly doji indicate that sellers dominated trading and drove prices lower during the

session. By the end of the session, buyers resurfaced and pushed prices back to the opening level

and the session high. The reversal implications of a dragon fly doji depend on previous price

action and future confirmation. The long lower shadow provides evidence of buying pressure,

but the low indicates that plenty of sellers still loom. After a long downtrend, long black

candlestick, or at support, a dragon fly doji could signal a potential bullish reversal or bottom.

After a long uptrend, long white candlestick or at resistance, the long lower shadow could

foreshadow a potential bearish reversal or top. Bearish or bullish confirmation is required for

both situations.
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Gravestone Doji

Gravestone doji form when the open, low and close are equal and the high creates a long

upper shadow. The resulting candlestick looks like an upside down "T" with a long upper

shadow and no lower shadow. Gravestone doji indicate that buyers dominated trading and drove

prices higher during the session. However, by the end of the session, sellers resurfaced and

pushed prices back to the opening level and the session low.

As with the dragon fly doji and other candlesticks, the reversal implications of gravestone

doji depend on previous price action and future confirmation. Even though the long upper

shadow indicates a failed rally, the intraday high provides evidence of some buying pressure.

After a long downtrend, long black candlestick, or at support, focus turns to the evidence of

buying pressure and a potential bullish reversal. After a long uptrend, long white candlestick or

at resistance, focus turns to the failed rally and a potential bearish reversal. Bearish or bullish

confirmation is required for both situations. Before turning to the single and multiple candlestick

patterns, there are a few general guidelines to cover.

Engulfing Candles


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The bullish engulfing pattern is a two candle stick pattern that signals a strong up move may be

coming. It happens when a bearish candle is immediately followed by a larger bullish candle.

This second candle "engulfs" the bearish candle. This means buyers are flexing their muscles and

that there could be a strong up move after a recent downtrend or a period of consolidation. On

the other hand, the bearish engulfing pattern is the opposite of the bullish pattern. This type of

pattern occurs when bullish candle is immediately followed by a bearish candle that completely

"engulfs" it. This means that sellers overpowered the buyers and that a strong move down could

happen.

This the chart of BHEL during the month of January and march. A bearish engulfing is formed

on last days of January. This signals that the price is going to fall. It is confirmed in the next day

when a long black candle is formed. From there the price began to make lower high and higher

bottom. The price came to the level of 1900. A bullish Harami is seen on March 13 and 14. But a

confirmation signal is not get. If a white is get on the next day it can be said that the scrip is now

in a bullish trend.


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Morning Stars

The morning star and the evening star are triple candlestick patterns that can usually find

at the end of a trend. They are reversal patterns that can be recognized through these three

characteristics. The first stick is a bullish candle, which is part of a recent uptrend. The second

candle has a small body, indicating that there could be some indecision in the market. This

candle can be either bullish or bearish. The third candle acts as a confirmation that a reversal is

in place, as the candle closes beyond the midpoint of the first candle.

This pattern begins in a bearish market, with the first candlestick seeming to continue this with a

long black stick. The second day begins at a significant gap down, but may be any color so long

as it is short. This type of candlestick is commonly called a star. A star is suggestive of market

ambivalence and possibly a bottom floor for prices. The third and final day has a long white

candlestick that extends past the midpoint of the first days candlestick. The V pattern of this

candlestick pattern is easy to interpret. The market has been in a steady downturn, but it hits its

lowest point and begins the long climb back upward. Clearly, sellers are losing strength while the

buyers are rallying. Because of this, the morning star pattern is considered a strong indicator of a

bullish reversal in the future.

Next move when see the morning star pattern should be to buy while the price is still low.

Because this is a three day pattern, the reversal that it suggests is even more likely to happen; in

fact, many traders see the third day as confirmation of the first two days. However, if you want

to wait for confirmation on the fourth trading day, it will likely present itself.

Confirmation of this pattern can include any kind of bullish move, such as a sizeable gap up at

the opening of the fourth trading day, a higher close, or a white candlestick of any length. The

higher the third and fourth day compared to the first, the more likely this reversal is to happen.

Again, confirmation is nice, but not necessary.


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EVENING STAR

The Evening Star pattern is a top reversal signal. It is exactly the opposite of the Morning

Star signal. Like the planet Venice , the evening star, it foretells that darkness is about to set or

that prices are going to go lower. It is formed after an obvious uptrend. It is made by a long white

body occurring at the end of an uptrend., usually when the confidence has finally built up. The

following day gaps up, yet the trading range remains small for the day. Again, this is the star of

the formation. The third day is a black candle day and represents the fact that the bears have now

seized control. That candle should consist of a closing that is at least halfway down the white

candle of two days prior. The optimal Evening Star signal would have a gap before and after the

star day.

The uptrend has been apparent. The body of the first candle is white, continuing the

current trend. The second candle is an indecision formation. The third day shows evidence that

the bears have stepped in. That candle should close at least halfway down the white candle. The

longer the white candle and the black candle, the more forceful the reversal. The more indecision

that the star day illustrates, the better probabilities that a reversal will occur. A gap between the

first day and the second day adds to the probability that a reversal is occurring. A gap before and

after the star day is even more desirable. The magnitude, that the third day comes down into the

white candle of the first day, indicates the strength of the reversal. A strong uptrend has been in

effect. The buyers can't imagine anything going wrong, they are piling in. However, it has now

reached the prices where sellers start taking profits or think the price is fairly valued. The nextday all the buying is being met with the selling, causing for a small trading range. The bulls get

concerned and the bears start taking over. The third day is a large sell off day. If there is big

volume during these days, it shows that the ownership has dramatically changed hands. The

change of direction is immediately seen in the color of the bodies.


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Black Crows Candlestick Formation

The three black crows candle formation does not happen very frequently in stock trading,

but when it does occur swing traders should be very alert to the crow's caw.

The candlestick pattern's metaphor is three crows sitting in a tall three. Essentially, it is a reversal

formation that occurs following a strong advance. On the day the first black crow makes its

appearance , the formation is most predictive if the first "crow" -- or dark candlestick -- closes

below the white candle's real body. That is the first step in setting up a Minor trend reversal --

where today's high is lower than yesterday's high and today's low is below yesterday's low.

Two more long-bodied consecutive down days then ensue. On each of these days, it appears as if

the stock wants to regain its former strength, as the stock opens higher than on the previous day.

By the end of each session, however, the sellers regain control and the stock drops to a new

closing low.


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The above is the chart of CENTURY Textiles from the month of December 2010 to march. By

interpreting this chart it can be seen that after a side way movement the stock loss it momentum.

A strong selling off is happened when the indicator three black crow appears on the first week of

January. The stock slipped down to 280 from 440 levels. After that three white soldier signal

arises but it was not strong enough.

Three White Soldiers Candlestick Pattern

The three white soldiers candlestick pattern is an unusual one because its significance depends

on its context. However, the pattern itself is easy enough to recognize. This formation simply

consists of three consecutive days with a white candle, each higher than the last. The appearance

is of three white soldiers standing in a row, hence the name. The bullish significance of this

formation is easy to guess. This indicator is actually quite potent and highly reliable in most

situations, pointing toward a gathering of bullish strength. For instance, if a market has been

stagnant or having mainly sideways movement, the three white soldiers indicate that the bulls are

taking over. If the market has been mired in a downtrend, this candlestick pattern indicates a

reversal. However, if the market has been steadily moving upward, the three white soldiers are

considered less significant. This is because they are consistent with the current pattern and not

really considered even a continuation.

If the market has been in a downtrend, this is a particularly good time to buy. If it has beenmoving sideways, the same recommendation applies. However, if the market has been moving

upward already, you should examine other indicators to determine the best course of action. Of

course, waiting for confirmation on the fourth trading day is always a good idea, especially if

other factors are pointing toward a downturn or further sideways movement.


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Confirmation of the three white soldiers could include any kind of upward movement, whether

that is a white candlestick on the fourth trading day, another gap up, or any kind of generally

higher close. However, in this case, waiting for confirmation may mean a slight reduction in

profits.

Three white crow formed by BRFL on January last is shown in the chart. The indicator is once

again confirmed by another white candle. The stock started a bullish trend. The stock made an

immediate target of 245. After a correction it moved up o 260. Now that level act as a major

resistence for the stock.


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TECHNICHAL INDICATORS

A technical indicator is a series of data points that are derived by applying a formula to

the price data of a

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