technical analysis project on n.s.e. listed companies

Project Report on Technical Analysis

Submitted BY

Rang Narayan

Submitted to

Amit Bagga

P.G. “A”

11318

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ACKNOWLEDGEMENT

I would like to thank Amit Bagga for providing me the opportunity to work on

this project. My sincere thanks continue to our institute for providing me the

opportunity to work on this project. It was a great part and a source of

learning for me. Last but not the least, I would like to thank all the people who

helped and contributed me knowingly or unknowingly during this project.

Signature:

Rang Narayan

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DECLARATION

I Mr Rang Narayan declare that this project report is the record

of authentic work carried out by me. This project has not been

submitted to any other university or institute for the award of

any degree or diploma.

Rang Narayan

11318

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PREFACE

Technical Analysis is the forecasting of future financial price movements based on an examination of past price movements. Like weather forecasting, technical analysis does not result in absolute predictions about the future. Instead, technical analysis can help investors anticipate what is "likely" to happen to prices over time. Technical analysis uses a wide variety of charts that show price over time.

"One way of viewing it is that markets may witness extended periods of random fluctuation, interspersed with shorter periods of nonrandombehavior. The goal of the chartist is to identify those periods

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INDEX

TABLE OF CONTENT PAGE NO. ACKNOWLEDGEMENT 1 DECLARATION 2 PREFACE 3 INDEX 4 INTRODUCTION 5 TECHNICAL ANALYSIS TOOLS: CHAPTER 1 : CANDLESTICKS PATTERN

IT SECTOR

PHARMACEUTICAL SECTOR

FMCG SECTOR

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CHAPTER 2: CHART PATTERN

DOUBLE TOP PATTERN

DOUBLE BOTTOM PATTERN

HEAD AND SHOULDER PATTERN

SUPPORT AND RESISTANCE

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CHAPTER 3: TECHNICAL INDICATORS AND OSCILLATORS: LEADING INDICATOR

RELATIVE STRENGTH INDEX

STOCHASTIC OSCILLATOR ( FAST AND SLOW)

LAGGING INDICATORS :

RATE OF CHANGE

MOVING AVERAGE CONVERGENCE / DIVERGENCE

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CHAPTER 4: FIBONACCI RETRACEMENT

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BIBLIOGRAPHY 39

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INTRODUCTION

Technical analysis is applicable to stocks, indices, commodities, futures or any tradable instrument where the price is influenced by the forces of supply and demand. Price refers to any combination of the open, high, low, or close for a given security over a specific time frame. The time frame can be based on intraday (1-minute, 5-minutes, 10-minutes, 15-minutes, 30-minutes or hourly), daily, weekly or monthly price data and last a few hours or many years. In addition, some technical analysts include volume or open interest figures with their study of price action.

The Basis of Technical Analysis

At the turn of the century, the Dow Theory laid the foundations for what was later to become modern technical analysis. Dow Theory was not presented as one complete amalgamation, but rather pieced together from the writings of Charles Dow over several years. Of the many theorems put forth by Dow, three stand out:

Price Discounts Everything

Price Movements Are Not Totally Random

"What" Is More Important than "Why"

Price Discounts Everything

This theorem is similar to the strong and semi-strong forms of market efficiency. Technical analysts believe that the current price fully reflects all information. Because all information is already reflected in the price, it represents the fair value, and should form the basis for analysis. After all, the market price reflects the sum knowledge of all participants, including traders, investors, portfolio managers, buy-side analysts, sell-side analysts, market strategist, technical analysts, fundamental analysts and many others. It would be folly to disagree with the price set by such an impressive array of people with impeccable credentials. Technical analysis utilizes the information captured by the price to interpret what the market is saying with the purpose of forming a view on the future.

Prices Movements are not Totally Random

Most technicians agree that prices trend. However, most technicians also acknowledge that there are periods when prices do not trend. If prices were always random, it would be extremely difficult to make money using technical analysis. In his book, Schwager on Futures: Technical Analysis, Jack Schwager states:

"One way of viewing it is that markets may witness extended periods of random fluctuation, interspersed with shorter periods of nonrandombehavior. The goal of the chartist is to identify those periods (i.e. major trends)."

"What" is More Important than "Why"

In his book, The Psychology of Technical Analysis, Tony Plummer paraphrases Oscar Wilde by stating, "A technical analyst knows the price of everything, but the value of nothing". Technicians, as technical analysts are called, are only concerned with two things:

1. What is the current price? 2. What is the history of the price movement?

The price is the end result of the battle between the forces of supply and demand for the company's stock. The objective of analysis is to forecast the direction of the future price. By focusing on price and only price, technical analysis represents a direct approach. Fundamentalists are concerned with why the price is what it is. For technicians, the why portion of the equation is too broad and many times the fundamental reasons given are highly suspect. Technicians believe it is best to concentrate on what and never mind why. Why

http://stockcharts.com/school/doku.php?id=chart_school:glossary_d#dowtheory

http://store.stockcharts.com/products/schwager-on-futures-technical-analysis

http://www.amazon.com/The-Psychology-Technical-Analysis-Profiting/dp/1557385432

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did the price go up? It is simple, more buyers (demand) than sellers (supply). After all, the value of any asset is only what someone is willing to pay for it. Who needs to know why?

Technical Analysis Tools

CHAPTER 1

1. Chart Analysis

Candlesticks Charts Patterns Analysis

Candlestick Parts

There are three main parts to a candlestick:

Upper Shadow: The vertical line between the high of the day and the close (bullish candle) or open (bearish candle)

Real Body: The difference between the open and close; colored portion of the candlestick

Lower Shadow: The vertical line between the low of the day and the open (bullish candle) or close (bearish candle)

Types of Candles:

Bullish Candle: When the close is higher than the open (usually green or white)

Bearish Candle: When the close is lower than the open (usually red or black)

Open-High-Close-Low (OHCL) charts: An open-high-low-close chart (also OHLC

chart, or simply bar chart) is a type of chart typically used to illustrate movements in the price of a

financial instrument over time. Each vertical line on the chart shows the price range (the highest and

http://en.wikipedia.org/wiki/Chart

http://en.wikipedia.org/wiki/Financial_instrument

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lowest prices) over one unit of time, e.g., one day or one hour. Tick marks project from each side of

the line indicating the opening price (e.g., for a daily bar chart this would be the starting price for that

day) on the left, and the closing price for that time period on the right. The bars may be shown in

different hues depending on whether prices rose or fell in that period.

Line Charts: A style of chart that is created by connecting a

series of data points together with a line. This is the most basic

type of chart used in finance and it is generally created by

connecting a series of past prices together with a line.

Candlestick Analysis of IT sector companies

A candlestick chart is a style of bar-chart used primarily to describe price movements of a security, derivative, or currency over time. It is a combination of a line-chart and a bar-chart, in that each bar represents the range of price movement over a given time interval. Candlesticks were invented by Japanese. The Japanese traders have been using candlestick charts to track market activity. Eastern analysts have identified a number of patterns to determine the continuation and reversal of trend. These patterns are the basis for Japanese candlestick chart analysis. This places candlesticks rightly as a part of technical analysis. Japanese candlesticks offer a quick picture into the psychology of

http://en.wikipedia.org/wiki/Hatch_mark

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short term trading, studying the effect, not the cause. Applying candlesticks means that for short-term, an investor can make confident decisions about buying, selling, or holding an investment.

Analysis of Candlesticks patterns in HCL Technologies NSE Code: HCLTECH Data time period: 07.05.2013 to 14.02.2014

May 10th 2013, Doji Star: Doji are patterns with the same open and close price. It’s a significant reversal indicator.

On May 10th 2013 it’s a doji in an uptrend market and then market goes down which means Doji

pattern has been successfully affect the market.

July 17th 2013 Shooting Star: The Shooting Star candlestick formation is a significant bearish reversal candlestick pattern that mainly occurs at the top of uptrends. On 17

th July 2013 there is a

shooting star in uptrend market which means market will reverse but the volume is very low so we cannot say that the reverse pattern will continue or not.

July 18th 2013 Bearish Engulfing: The Bearish Engulfing Candlestick Pattern is a bearish reversal pattern, usually occurring at the top of an uptrend. On the given date there is a bearish Engulfing candle but after that date the market didn’t go down so it is a failure of bearish Engulfing.

August 22nd 2013 Bullish Engulfing: The Bullish Engulfing Candlestick Pattern is a bullish reversal pattern, usually occurring at the bottom of a downtrend. The bearish candle real body of Day 1 is usually contained within the real body of the bullish candle of Day 2. The power of the Bullish Engulfing

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Pattern comes from the incredible change of sentiment from a bearish gap down in the morning, to a large bullish real body candle that closes at the highs of the day. Bears have overstayed their welcome and bulls have taken control of the market. On 22

nd Aug, 2013 bullish engulfing candle is there and after that market has change its

sentiment and went up from next day. It is showing a strong reversal downtrend.

October 23rd 2013

Hanging Man: The Hanging Man candlestick formation, as one could predict from the name, is a bearish sign. This pattern occurs mainly at the top of uptrends and is a warning of a potential reversal downward. It is important to emphasize that the Hanging Man pattern is a warning of potential price change, not a signal, in and of itself, to go short.

The Hanging Man formation, just like the Hammer, is created when the open, high, and close are roughly the same price. Also, there is a long lower shadow, which should be at least twice the length of the real body.

When the high and the open are the same, a bearish Hanging Man candlestick is formed and it is considered a stronger bearish sign than when the high and close are the same, forming a bullish Hanging Man (the bullish Hanging Man is still bearish, just less so because the day closed with gains).

After a long uptrend, the formation of a Hanging Man is bearish because prices hesitated by dropping significantly during the day. Granted, buyers came back into the stock, future, or currency and pushed price back near the open, but the fact that prices were able to fall significantly shows that bears are testing the resolve of the bulls. What happens on the next day after the Hanging Man pattern is what gives traders an idea as to whether or not prices will go higher or lower.

On 23rd

Oct, 2013 there is a hanging man in uptrend market and then there is a bearish candle on the next day with a gap down from next day.

November 25th, 2013

Inverted Hammer: The Inverted Hammer candlestick formation occurs mainly at the bottom of

downtrends and is a warning of a potential reversal upward. It is important to note that the Inverted pattern is a warning of potential price change, not a signal, in and of itself, to buy.

The Inverted Hammer formation, just like the Shooting Star formation, is created when the open, low, and close are roughly the same price. Also, there is a long upper shadow, which should be at least twice the length of the real body.

When the low and the open are the same, a bullish Inverted Hammer candlestick is formed and it is considered a stronger bullish sign than when the low and close are the same, forming a bearish Hanging Man (the bearish Hanging Man is still considered bullish, just not as much because the day ended by closing with losses).

After a long downtrend, the formation of an Inverted Hammer is bullish because prices hesitated their move downward by increasing significantly during the day. Nevertheless, sellers came back into the stock, future, or currency and pushed prices back near the open, but the fact that prices were able to increase significantly shows that bulls are testing the power of the bears. What happens on the next day after the Inverted Hammer pattern is what gives traders an idea as to whether or not prices will go higher or lower.

In a downtrend there is an Inverted Hammer which reverse the market as seller came back to the market and bulls take over the bears from this day.

http://www.onlinetradingconcepts.com/TechnicalAnalysis/Candlesticks/Hammer.html

http://www.onlinetradingconcepts.com/TechnicalAnalysis/Candlesticks/CandlestickBasics.html

http://www.onlinetradingconcepts.com/TechnicalAnalysis/Candlesticks/ShootingStar.html

http://www.onlinetradingconcepts.com/TechnicalAnalysis/Candlesticks/CandlestickBasics.html

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14th

January, 2014

Bearish Harami:A bearish Harami occurs when there is a large bullish green candle on Day 1 followed by a smaller bearish or bullish candle on Day 2. The most important aspect of the bearish Harami is that prices gapped down on Day 2 and were unable to move higher back to the close of Day 1. This is a sign that uncertainty is entering the market. On 14

th Jan, 2014 there is a bearish harami candle is being made in the market.

Company Name: MPHASI S LIMITED NSE CODE: MPHASIS DATA TIME PERIOD: 01-05-2013 TO 14-02-2014

GRAVESTONE DOJI: The Gravestone Doji is a significant bearish reversal candlestick pattern that mainly occurs at the top of uptrends. The Gravestone Doji is created when the open, low, and close are the same or about the same price (Where the open, low, and close are exactly the same price is quite rare). The most important part of the Graveston Doji is the long upper shadow.

The long upper shadow is generally interpreted by technicians as meaning that the market is testing to find where supply and potential resistance is located.

The construction of the Gravestone Doji pattern occurs when bulls are able to press prices upward.

However, an area of resistance is found at the high of the day and selling pressure is able to push prices back down to the opening price. Therefore, the bullish advance upward was entirely rejected by the bears.

http://www.onlinetradingconcepts.com/TechnicalAnalysis/Candlesticks/Windows.html

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Date Candlestick pattern Success/Failure

8-05-2013 Doji Star Success

14.05.2013 Gravestone Doji Failure

31.05.2013 Doji Success

14.06.2013 Inverted Hammer Failure

18.06.2013 Bullish Engulfing Success

02.07.2013 Doji No signal

03.07.2013 Hammer No signal


19.07.2013 Bearish Engulfing

22.07.2013 Shooting Star Success

29.07.2013 Bearish Engulfing Failure

31.07.2013 Hanging Man success

5.08.2013 Hanging Man Success


13.08.2013 Bearish Engulfing Success

12.09.2013 Bearish Harami Success






27.11.2013 Inverted Hammer Success

02.12.2013 Inverted hammer Success


05.12.2013 Bullish Engulfing Failure


11.12.2013 Doji Failure




31.01.2014 Doji No Signal

03.02.2014 Doji No Signal

13.02.2014 doji Success

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Candlestick patterns for Pharmaceuticals companies

Company Name: Piramal Enterprise Ltd. NSE code: PEL Data Record Date: 01.05.2013 to 19.02.2014

Date Candlestick Pattern Success / Failure





05.07.2013 Bullish Engulfing Failure




16.07.2013 Doji & Dragonfly Doji Success

22.07.2013 Bearish Harami Failure









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02.12.2013 Inverted Hammer Failure


17.12.2013 Shooting star Success




07.01.2014 Bearish Harami Failure



Company Name: GlenmarkPharma NSE code: glenmark Data Record Date: 01.05.2013 to 19.02.2014


13.06.2013 Bearish engulfing success



24.06.2013 Bullish engulfing Success

12.07.2013 Bearish engulfing Failure



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26.07.2013 Doji success



02.09.2013 Inverted hammer Failure



04.10.2013 Bullish engulfing Failure

11.10.2013 Bearish Engulfing success






30.12.2013 Bearish engulfing Success


10.01.2014 Hammer Success


Candlestick patterns for FMCG companies

Company Name: Imperial Tobacco Company of India Ltd. NSE code: ITC Data Record Date: 01.05.2013 to 19.02.2014

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20.05.2013 Gravestone Doji Failure











03.10.2013 Bearish Engulfing No signal










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Company Name: Colgate Palmolive (India) NSE code: COLPAL Data Record Date: 01.05.2013 to 20.02.2014






25.07.2013 Bearish engulfing Success


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02.09.2013 Bullish engulfing success



08.11.2013 Bullish engulfing Failure


21.11.2013 Inverted hammer Failure



12.12.2013 Bearish harami Success





22.01.2014 doji Success



20.02.2014 Shooting star success

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Chapter 2 Chart Patterns

2. Chart Patterns:A Price pattern is a pattern that is formed within a chart when prices

are graphed. In stock and commodity markets trading, chart pattern studies play a large role

during technical analysis. When data is plotted there is usually a pattern which naturally

occurs and repeats over a period. Chart patterns are used as either reversal or continuation

signals.

Different chart patterns:

Double Top Pattern

Double Bottom Pattern

Support and Resistance Head and Shoulder Pattern

And there are many other patterns but in this project I am going to explain the

above mentioned patterns.

Double Top Pattern:A term used in technical analysis to describe the

rise of a stock, a drop, another rise to the same level as the original rise, and finally another drop. The double top looks like the letter "M". The twice touched high is considered a resistance level. The double-top pattern is found at the peaks of an upward trend and is a clear signal that the preceding upward trend is weakening and that buyers are losing interest. Upon completion of this pattern, the trend is considered to be reversed and the security is expected to move lower. The first stage of this pattern is the creation of a new high during the upward trend, which, after peaking, faces resistance and sells off to a level of support. The next stage of this pattern will see the price start to move back towards the level of resistance found in the previous run-up, which again sells off back to the support level. The pattern is completed when the security falls below (or breaks down) the support level that had backstopped each move the security made, thus marking the beginnings of a downward trend.

http://en.wikipedia.org/wiki/Pattern

http://en.wikipedia.org/wiki/Chart

http://en.wikipedia.org/wiki/Commodity_market

http://en.wikipedia.org/wiki/Technical_analysis

http://en.wikipedia.org/wiki/Data

http://www.investopedia.com/terms/p/peak.asp

http://www.investopedia.com/terms/r/resistance.asp

http://www.investopedia.com/terms/s/support.asp

http://www.investopedia.com/terms/b/breakdown.asp

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Double Top Pattern:

Company name: Ralles India Limited

NSE Code: Rallis

First high: 31.12.2013 @ Rs. 184.4

Second high: 07.01.2014 @ Rs. 184.9.

Sell signal: 22nd

Jan 2014 @ Rs. 169.1

when the market crosses the neck line or support level

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Double Bottom Pattern: The Double Bottom Reversal is a bullish reversal pattern typically

found on bar charts, line charts and candlestick charts. As its name implies, the pattern is made up of two

consecutive troughs that are roughly equal, with a moderate peak in-between. Note that a Double

Bottom Reversal on a bar or line chart is completely different from Double Bottom Breakdown on

a P&F chart. Namely, Double Bottom Breakdowns on P&F charts are bearish patterns that mark a

downside support break. Although there can be variations, the classic Double Bottom Reversal usually

marks an intermediate or long-term change in trend. Many potential Double Bottom Reversals can form

along the way down, but until key resistance is broken, a reversal cannot be confirmed.

Double Top and Double Bottom Pattern in HDFC Ltd.

Time period: December 2013 – March 2014

NSE Code: hdfc

First high: 16.01.2014 @Rs. 857.6

Second high: 23.01.2013 @ Rs. 856.15

Conformation line: 20. 01.2014

Sell Price with date: 27.01.2014 @ Rs 833

First low: 10.02.2014 @ Rs. 765.4

Second low: 13.02.2014 @ Rs. 766.05

Conformation signal: 12.02.2014

Buy Price with date: Rs.779.3 on 17.02.2014

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Support Level: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.

Resistance Level: 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 reaches the resistance level, it is

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believed that supply will overcome demand and prevent the price from rising above

resistance.

Support and Resistance Level

Company Name: PTC India Limited NSE Code: PTC Data Period: July 2013 – Feb. 2014 Support Level (I): 5/08/2013 @ Rs. 33.2 (II): 19/11/2013 @ Rs. 52.50

Resistance Level: 24/12/2013 @ Rs. 64.25

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Head and Shoulder Pattern:The head and shoulders pattern is generally regarded as a reversal pattern and it is most often seen in uptrends. It is also most reliable when found in an uptrend as well. Eventually, the market begins to slow down and the forces of supply and demand are generally considered in balance. Sellers come in at the highs (left shoulder) and the downside is probed (beginning neckline.) Buyers soon return to the market and ultimately push through to new highs (head.) However, the new highs are quickly turned back and the downside is tested again (continuing neckline.) Tentative buying re-emerges and the market rallies once more, but fails to take out the previous high. (This last top is considered the right shoulder.) Buying dries up and the market tests the downside yet again. Your trendline for this pattern should be drawn from the beginning neckline to the continuing neckline. (Volume has a greater importance in the head and shoulders pattern in comparison to other patterns. Volume generally follows the price higher on the left shoulder. However, the head is formed on diminished volume indicating the buyers aren't as aggressive as they once were. And on the last rallying attempt-the left shoulder-volume is even lighter than on the head, signaling that the buyers may have exhausted themselves.) New selling comes in and previous buyers get out. The pattern is complete when the market breaks the neckline. (Volume should increase on the breakout.)

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Company Name: GMR Infrastructure Limited NSE Code: gmrinfra Data Period: Apr. 2013 – Mar. 2014 Pattern: Head and Shoulder Pattern Left Shoulder @ date: 10

th May 2013

Head @ date: 17th May 2013

Right Shoulder @ date: 28th May 2013

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Chapter 3

Major Indicators and Oscillators

A Technical indicator is a mathematical formula applied to the security’s price, volume or open interest. The result is a value that is used to anticipate future changes in prices. A technical indicator is a series of data points derived by applying a formula to the price data of a security. Price data includes any combination of the open, high, low or close over a period of time. Some indicators may use only the closing prices, while others incorporate volume and open interest into their formulas. The price data is entered into the formula and a data point is produced. Technical analysts use indicators to look into a different perspective from which stock prices can be analysed. Technical indicators provide unique outlook on the strength and direction of the underlying price action for a given timeframe. Technical Indicators broadly serve three functions: to alert, to confirm and to predict. Indicator acts as an alert to study price action, sometimes it also gives a signal to watch for a break of support. A large positive divergence can act as an alert to watch for a resistance breakout. Indicators can be used to confirm other technical analysis tools. Some investors and traders use indicators to predict the direction of future prices.

Indicators can broadly be divided into two types “LEADING” and “LAGGING”.

Leading indicators Leading indicators are designed to lead price movements. Benefits of leading indicators are early signalling for entry and exit, generating more signals and allow more opportunities to trade. They represent a form of price momentum over a fixed look-back period, which is the number of periods used to calculate the indicator. Some of the well more popular leading indicators include Commodity Channel Index (CCI), Momentum, Relative Strength Index (RSI), Stochastic Oscillator and Williams %R.

Lagging Indicators Lagging Indicators are the indicators that would follow a trend rather than predicting a reversal. A lagging indicator follows an event. These indicators work well when prices move in relatively long trends. They don’t warn you of upcoming changes in prices, they simply tell you what prices are doing (i.e., rising or falling) so that you can invest accordingly. These trend following indicators makes you buy and sell late and, in exchange for missing the early Opportunities, they greatly reduce your risk by keeping you on the right side of the market. Moving averages and the MACD are examples of trend following, or “lagging,” indicators.

Fast Indicators

1. Stochastic Oscillator

Stochastic Fast

Stochastic Fast plots the location of the current price in relation to the range of a certain number of prior bars (dependent upon user-input, usually 14-periods). In general, stochastic are used to measure overbought and oversold conditions. Above 80 is generally considered overbought and below 20 is considered oversold.The inputs to Stochastic Fast are as follows:

Fast %K: [(Close - Low) / (High - Low)] x 100 Fast %D: Simple moving average of Fast K (usually 3-period moving average)

Stochastic Slow

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Stochastic Slow is similar in calculation and interpretation to Stochastic Fast. The difference is listed below:

Slow %K: Equal to Fast %D (i.e. 3-period moving average of Fast %K) Slow %D: A moving average (again, usually 3-period) of Slow %K

The Stochastic Slow is generally viewed as superior due to the smoothing effects of the moving averages which equates to less false buy and sell signals.

Stochastic Buy Signal

When the Stochastic is below the 20 oversold line and the %K line crosses over the %D line, buy.

Stochastic Sell Signal

When the Stochastic is above the 80 overbought line and the %K line crosses below the %D line, sell.

2. Relative Strength Index (RSI)

The RSI is part of a class of indicators called momentum oscillators. Momentum is simply

the rate of change – the speed or slope at which a stock or commodity ascends or declines. Measuring speed is a useful gage of impending change. RSI are referred to as

trend leading indicators.

RSI which oscillates between 0% and 100%. You will notice there is a pair of horizontal

reference lines: 70% ‘overbought’ and 30% ‘oversold’ lines. The overbought region refers to the case where the RSI oscillator has moved into a region of significant buying

pressure relative to the recent past and is often an indication that an upward trend is

about to end. Similarly the oversold region refers to the lower part of the momentum

oscillator where there is a significant amount of selling pressure relative to the recent past and is indicative of an end to a down swing.

RSI is a momentum oscillator generally used in sideways or ranging markets where the

price moves between support and resistance levels. It is one of the most useful technical

tool employed by many traders to measure the velocity of directional price movement. The RSI is a price-following oscillator that ranges between 0 and 100. Generally,

technical analysts use 30% oversold and 70% overbought lines to generate the buy and

sell signals.

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• Go long when the indicator moves from below to above the oversold line.

• Go short when the indicator moves from above to below the overbought line.

3. Moving Average Convergence / Diversion (MACD)

MACD stands for Moving Average Convergence / Divergence. It is a technical

analysis indicator created by Gerald Appel in the late 1970s. The MACD indicator is basically a refinement of the two moving averages system and measures the distance

between the two moving average lines. The MACD does not completely fall into either

the trend-leading indicator or trend following indicator; it is in fact a hybrid with elements of both. The MACD comprises two lines, the fast line and the slow or signal line.

These are easy to identify as the slow line will be the smoother of the two.

The importance of MACD lies in the fact that it takes into account the aspects of both

momentum and trend in one indicator. As a trend-following indicator, it will not be wrong for very long. The use of moving averages ensures that the indicator will eventually

follow the movements of the underlying security. By using exponential moving averages,

as opposed to simple moving averages, some of the lag has been taken out. As a

momentum indicator, MACD has the ability to foreshadow moves in the underlying

security. MACD divergences can be key factors in predicting a trend change. A negative divergence signals that bullish momentum is going to end and there could be a potential

change in trend from bullish to bearish. This can serve as an alert for traders to take

some profits in long positions, or for aggressive traders to consider initiating a short

position. MACD can be applied to daily, weekly or monthly charts. The MACD indicator is basically

a refinement of the two moving averages system and measures the distance between

the two moving average. The standard setting for MACD is the difference between the 12

and 26-period EMA. However, any combination of moving averages can be used.

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4. Rate of Change (ROC) :

The Rate of Change (ROC) indicator measures the percentage change of the current price as compared to the price a certain number of periods ago. The ROC indicator can be used to confirm price moves or detect divergences; it can also be used as a guide for determining overbought and oversold conditions.

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5. Support and Resistance:

Support and Resistance is one of the most important and fundamental part of technical analysis:

Support: Prices should rise after touching support. Resistance: Prices should fall after hitting resistance.

6. Bollinger Band: Bollinger Bands is a versatile tool combining moving

averages and standard deviations and is one of the most popular technical analysis tools available for traders. There are three components to the Bollinger Band indicator:

1. Moving Average: By default, a 20-period simple moving average is used. 2. Upper Band: The upper band is usually 2 standard deviations (calculated

from 20-periods of closing data) above the moving average. 3. Lower Band: The lower band is usually 2 standard deviations below the

moving average.

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Buy Signal

A trader buys or buys to cover when the price has fallen below the lower Bollinger Band.

Sell Signal

The sell or buy to cover exit is initiated when the stock, future, or currency price pierces outside the upper Bollinger Band.

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Company with Bollinger Band:

Name of Company: PVR limited

NSE Code: PVR

Data Period: Mar. 2013 – Mar 2014

Oscillator / Indicator used: Bollinger Band

Companies with different Oscillators and Indicators

1. Company Name: Grasim Industry Limited

NSE Code: grasim

Data Period: Sep. 2013 – Mar.2014

32

Indicators used: RSI (14d) and Stochastic (14d)

2. Company Name: Havells India Limited

NSE Code: havells

Data period: Mar. 2013- Mar 2014

Indicators Shown: Rate Of Change (10 d) and MACD (26d,12d)

33

3. Company: Ambuja Cements Limited

NSE Code: ambujacem

Data Period: Aug. 2013- Mar. 2014

Indicators / Oscillators Shown: MACD (26d, 9d) and RSI (14d)

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4. Company Name: SesaSterlite limited

NSE Code: SSLT

Date Period: Aug. 2013 – Mar. 2014

Indicators Shown: MACD (26d, 12d) and RSI (14d)

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5. Company Name: Oil and Natural Gas Corporation (ONGC)

NSE Code: ONGC

Data Period: Nov.2013 – Mar. 2014

Indicator shown: MACD (26d, 12d), RSI (14d), Stochastic (14d), Moving Average (50d)

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CHAPTER 4

FIBONACCI RETRACEMENT

Fibonacci Retracements

Arguably the most heavily used Fibonacci tool is the Fibonacci Retracement. To calculate the Fibonacci Retracement levels, a significant low to a significant high should be found. From there, prices should retrace the initial difference (low to high or high to low) by a ratio of the Fibonacci sequence, generally the 23.6%, 38.2%, 50%, 61.8%, or the 76.4% retracement.

For the examples of this section, the S&P 500 Depository Receipts (SPY) will be used based on the logic that the S&P 500 is a broad measure of human nature, thus the Fibonacci sequence should apply very well. Nevertheless, the Fibonacci sequence is applied to individual stocks, commodities, and forex currency pairs quite regularly. The chart above shows the 38.2% retracement acting as support for prices.

Note that a trend line was drawn from a significant low (beginning of trend) to a significant high (end of trend); the trading software calculated the retracement levels.

Fibonacci Retracement with a Support Level

Company Name: KRBL Limited

NSE Code: krbl

Data Period: Dec. 2013 – Mar 2014

Support Level: 38.2% level

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Calculation of Support level:

Highest top: 48.14

Lowest bottom: 31.68

Difference between highest top and lowest bottom: 48.14-31.68 = 16.46

38.2% of 16.46 = 6.287

Support level = 48.14-6.287 = 41.852

2. Fibonacci Retracement with Resistance Level

Company Name: Colgate Palmolive

NSE Code: colpal

Data Period: July 2013 – Mar. 2014

Resistance Level: 50%

Calculation of Resistance level:

Highest top: 1525

Lowest bottom: 1200

Difference between highest top and lowest bottom: 1525-1200 = 325

50 % of 325 =162.5

Resistance level = 1200+162.5 = 1362.5

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3 Company with Support Level and Resistance Level:

Company Name: Godrej Industry Limited

NSE Code: Godjrejind

Data Period: July 2013 - Mar 2014

Resistance Level: 23.6%


Highest top: 306.6



23.6% of 89.2 =21.05

Resistance level = 306.6-21.05 = 285.55


Highest top: 306.6



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61.8% of 89.2 = 55.12

Support level = 306.6-55.12 =251.47

4 Company with Support Level and Resistance Level:

Company Name: Cipla Limited

NSE Code: cipla

Data Period: Mar. 2013 – Mar. 2014



Highest top: 450.6



23.6% of 86.8 = 20.48

Resistance level = 450.6-20.48 = 430.12


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Highest top: 450.6

Lowest bottom:363.8

Difference between highest top and lowest bottom: 450.6 – 363.8 = 86.8

78.6% of 86.8 = 68.2248

Support level = 450.6- 68.2248 = 382.37

5 Company with Resistance Level:

Company Name: IDFC Limited

NSE Code: IDFC

Data Period: Mar. 2013 – Mar. 2014



Highest top: 165.9



23.6% of 89.77 = 21.18

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Resistance level = 76.13 + 21.18 = 97.31

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BIBLIOGRAPHY http://www.onlinetradingconcepts.com

http://www.nseindia.com/ChartApp/install/charts/mainpage.jsp

http://www.charttrader.in/

http://www.chartpatterns.com

http://www.onlinetradingconcepts.com/

http://www.nseindia.com/ChartApp/install/charts/mainpage.jsp

http://www.charttrader.in/

http://www.chartpatterns.com/

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