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
 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

 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
 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
 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 security’s 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

 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.

 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

  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
 - 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.
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.

 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).
2.1 MARKET SEGMENTS

The securities market has two interdependent and inseparable segments; the primary and the
secondary 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
 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 1990’s. 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 of
securities. 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.
 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 holder’s 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 the
turnover in excess of Rs. 1 Crore.
.
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)

 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 Trading
in 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
malpractice’s 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.
 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.
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
 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
investor’s 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.
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 company’s 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 NSE’s 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
 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.
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 NRI’s 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.
Data analysis and Interpretation
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 of
Dow 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
technicians—point and figure analysis.
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
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
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
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
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 of volatility. If you feel confident about making a trade near a support
or resistance level, it is important that you follow this simple rule: do not place orders directly at
the support or resistance level. This is because in many cases, the price never actually reaches the
whole number, but flirts with it instead. So if you're bullish on a stock that is moving toward an
important support level, do not place the trade at the support level. Instead, place it above the
support level, but within a few points. On the other hand, if you are placing stops or short selling,
set up your trade price at or below the level of support. 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.
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.
Bar Charts

The bar 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).
Candlestick Charts

The candlestick chart 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 the
period'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 day’s 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 to
signal 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
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.
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
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 price
again 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.
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.
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.
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
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 this
length 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.
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.
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.
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.
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.
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
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
 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. A White Marubozu contains a long white
body with no shadows. The open price equals the low price and 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 meanings
depending 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.
 • 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.
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 occurs
when 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.
 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
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 day’s close. Then, however, the price moves
upward instead of downward, ending with a small white candle with a range that is entirely
within the first day’s candlestick body.

The implications of this candlestick pattern are easy to see. The second day opened at the
previous day’s close, showing that there was no downward movement during off hours. This
might be a continuation if not for the fact that the second day shows upward movement. While
the movement doesn’t 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 day’s closing and continues downward, closing
with a black candlestick. However, it still closes above the first day’s 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
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 day’s 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
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.
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
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.
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 day’s 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.
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 next
day 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.

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.
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 been
moving 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.
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.
TECHNICHAL INDICATORS

A technical indicator is a series of data points that are 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. An indicator can act as an alert to study price action a little more closely.
If momentum is waning, it may be a signal to watch for a break of support. Or, if there is a large
positive divergence building, it may serve as an alert to watch for a resistance breakout.
Indicators can be used to confirm other technical analysis tools. If there is a breakout on the price
chart, a corresponding moving average crossover could serve to confirm the breakout.

Different Indicators

RELATIVE STRENGTH INDEX

The Relative Strength Index, or RSI, is a leading indicator, in that it can predict a stock's price
movement before it happens. This is because the RSI is a momentum indicator, and indicates
overbought and oversold conditions. In overbought conditions, the price of the stock is bound to
retreat and stabilize in the near future. Similarly with oversold conditions. Whereas moving
averages are based on a stock's closing price, the RSI is based on gains and losses. Basically, the
number and size of gains and losses are used to calculate the relative strength for a particular
period, say a 14-Day period. Subsequent relative strengths are then used to plot the RSI chart.
The RSI ranges from 0 to 100, but a stock is considered overbought if it reaches the 70 level,
meaning that you should consider selling. When it is a true bull market, an RSI of 80 might be a
better level since stocks often trade at higher valuations. Likewise, if the RSI approaches 30, it is
a strong buying indicator. and the relative strength index, which indicates to the investor whether
or not an issue's price action is created by those over-buying or over-selling it. The well-known
formula for the relative strength index is

RSI = 100-[100/(1+RS)]

Where RS is the gain per day / average loss per day

RSI

The above is the chart of drug maker CIPLA. The indicator used above is Relative Strength
Index (RSI). It is used to find the oversold and over bought situation. Here RSI index is at 25.
Which means that the stock is over sold. There is a chance for this bearish trend to reverse. The
share can be buy in 300 Rs level to target of 355 in medium term. As there is a hammer is seen
on march 14, which is bearish reversal signal.

STOCHASTIC OSCILLATOR
 A technical indicator that compares where a security's price closed relative to its price
range over a given time period. The theory behind this indicator is that, in an upwardly trending
market, prices tend to close near their high. Whereas, during a downward trending market, prices
tend to close near their low. . Developed by George Lane, this indicator measures the
relationship between an issue's closing price and its price range over a predetermined period of
time. Fourteen is the mathematical number used in the time model, and it can, depending on the
technician’s goal, represent days, weeks, or months. The chartist may want to examine not
a specific stock, but an entire sector. For a long-term view of a sector, the chartist would
start by looking at 14 months of the entire industry’s trading range.

The premise of stochastics holds that a stock’s closing price tends to trade at the high end of the
day’s price action. The Stochastic Oscillator measures where the close is in relation to the recent
trading range. The values range from zero to 100. Values over 75 indicate an overbought
condition; values under 25 indicate an oversold condition. In this indicator there will be both fast
stochastic & slow stochastic. When the Fast one crosses above the slow one, it is a buy signal;
when it crosses below, it is a sell signal. Price action is the prices at which a stock traded
throughout the daily session. Stochastics is measured with the %K line and the %D line, and it is
the %D line that follow closely, for it will indicate any major signals in the chart.
Mathematically, the %K line looks like this:

%K = 100[(C – L5close)/(H5– L5)]

C = the most recent closing price

L5 = the low of the five previous trading sessions
H5 = the highest price traded during the same 5 day period.

The formula for the more important %D line looks like this:

%D = 100 X (H3/L3)
STOCHASTIC

This is the chart of TATA STEEL from january to march of 2011. To predict the stock
movement stohastic indicator is taken here. By analysing the graph it is seen that the price is
falling. When the price reached 580 level the stochastic indicator falls to level of 10. It means
that the share is oversold. Interpreting the graph it is seen that indicater has changed the
downward trend and started moving up. So the buyers will gradually come up and demand will
increase causing an upward rally. The price can go to target of 660Rs in the coming trading
session.
BOLLINGER BAND

A band plotted two standard deviations away from a simple moving average. Because
standard deviation is a measure of volatility, Bollinger bands adjust themselves to the market
conditions. John Bollinger, a long-time technician of the markets developed this technique of
moving averages by using two trading bands, not unlike using envelopes on either side of a
moving average. when the markets become more volatile the bands widen (move further away
from the average), and, during less volatile periods, the bands contract (move closer to the
average).This is among one of the most popular technical analysis techniques. The closer the
prices move to the upper band, the more overbought the market, and the closer the prices move
to the lower band, the more oversold the market.
Unlike using a percentage calculation from a normal moving average, Bollinger bands simply
add and subtract a standard deviation calculation. Standard deviation is a mathematical formula
that is a measure of volatility that shows how the stock price can be spread around it's true value
or, in this case, using two bands or envelopes, the technician is relatively certain that almost all
of the price data needed will be found between the two bands.

Bollinger Bands consist of a centerline and two price channels, one above the centerline and one
below. The centerline is an exponential moving average and the price channels are standard
deviations of the stock, the chartist is studying. The bands will expand and contract as the price
action of an issue becomes volatile (expansion), or becomes bound into a tight trading pattern
(contraction).

To better see the trend, traders use moving averages to filter the price action. This way, traders
can gather important information regarding how the market is trading. For example, after a sharp
rise or fall in the trend, the market may consolidate, trading in a narrow fashion and criss-
crossing above and below the moving average. To better monitor this behavior, traders use price
channels, which are designed to encompass the trading activity around the trend. The markets
trade erratically on a daily basis even though they are still trading in an uptrend or downtrend.
Upper resistance and lower support lines are first drawn and then extrapolated to form channels
within which the trader expects prices to be contained. As long as prices do not move out of this
channel, the trader can be reasonably confident that prices are moving as expected. Traders know
that when the stock price continually touches the upper band of the Bollinger Bands, the price is
thought to be overbought and conversely, when they continually touch the lower band, the prices
are thought to be oversold, and thus a buy signal would kick in.

The calculations of three bands are:

*Middle Band= Simple Moving Average.

*Upper Band= Middle Band + (D*Std.Dev)

*Lower Band== Middle Band- (D*Std.Dev)

The above is the chart of TATA chemicals from January to March. The price will move inside
the band. The price is now on the top of the band. So the price will move down according to this
indicator. It can be also interpret that now there is a trend in the market as the band width is
larger. Price is also at the level of it resistance at 750Rs.
MOVING AVERAGE

The moving average is one of the most useful, objective and oldest analytical tools around. Some
patterns and indicators can be somewhat subjective, where analysts may disagree on if the
pattern is truly forming or if there is a deviation that is might be an illusion. The moving average
is more of a cut-and-dry approach to analyzing stock charts and predicting performance, and it is
one of the few that doesn't require a genius intelligence to interpret.

The most commonly used moving averages are the 20, 30, 50, 100, and 200 day averages. Each
moving average provides a different interpretation on what the stock price will do. There really
isn't just one "right" time frame. Moving averages with different time spans each tell a different
story. The shorter the time span, the more sensitive the moving average will be to price changes.
The longer the time span, the less sensitive or the more smoothed the moving average will be.
Moving averages are used to emphasize the direction of a trend and smooth out price and volume
fluctuations or "noise" that can confuse interpretation. The general assumption behind all moving
averages is that once the stock price moves above the average that it may substantial momentum
behind it and is worth buying. The opposite is true if the price of a security moves below the
moving average. It's a pretty simple approach to technical analysis, perhaps the simplest of them
all, but plain and simply it works, and it is the base for many other complicated indicators.
SMA 15 DAYS

The above is the simple moving average (SMA) chart of MARUTI. Here the SMA is taken for
10 days. This indicator is used for determining the short term trend of the stock. The stock has
slipped down below the moving average. The SMA of 10 day is a short term support. This
support is crossed it will cause short term down trend in the stock. Price can go to 1100 level.
SMA 50 DAYS

This is the chart of Dr. REDDY’. The indicator used here SMA of 200 days. This shows the long
term trend of the stock. Here the stock break down the long term support and slipped down. So
the price may go down to 1550 where it takes support two times. If the stock doesn’t take
support there the price may go even low.

This the chart of M&M. The indicator used here is SMA of 50 days. The stock touched that
resistance 3 time and cannot get through. So the medium term trend is still down. This SMA is
acting as a strong resistance for the stock. A bullish momentum can be seen when the stock move
above the level.The stock may move down to the target of 600. This a simple tool to understand
the medium term trend.

MOVING AVERAGE CONVERGENCE DIVERGENCE (MACD)

The "MACD" is a trend following momentum indicator that shows the relationship
between two moving averages of prices. To Calculate the MACD subtract the 26-day EMA from
a 12-day EMA. A 9-day dotted EMA of the MACD called the signal line is then plotted on top of
the MACD. There are 3 common methods to interpret the MACD:

1. Crossovers - When the MACD falls below the signal line it is a signal to sell. Vice versa when
the MACD rises above the signal line.

2. Divergence - When the security diverges from the MACD it signals the end of the current
trend.

3. Overbought/Oversold - When the MACD rises dramatically (shorter moving average pulling
away from longer term moving average) it is a signal the security is overbought and will soon
return to normal levels.

Divergence occurs when the price of an asset and an indicator, move in opposite directions.
Technical analysts identify situations of divergence, where the price of a stock and indicators,
such as the MACD moves in opposite directions. Positive divergence occurs when the price of a
security makes a new low while the indicator starts to climb upward. Negative divergence
happens when the price of the security makes a new high, but the indicator fails to do the same
and instead closes lower than the previous high.
MACD with crossover

Reliance capital is the scrip taken here. The graph is taken for the period for 3 month starting
from January 2011. MACD is the indicator used here to predict the stock movement. In this
graph a positive causing is happened when the MACD line crossed the zero line from below.
The volume is also increasing. When the price reach 400 level the MACD indicator also start
moving in the same direction as that of price. So there is a bullish trend in this stock. The stock
can move to 700 level. The MACD line also above the signal line. This will give additional
strength to the trend.
MACD with divergence

The above is the chart of RELIANCE INFRA. It is taken for 3 months starting from January to
march of 2011. Here also MACD is used to predict the movement. In the last portion of the
graph the price is falling. At the same the MACD line is moving upwards. This means that there
is a sign for positive divergence. The price has the chance of moving in the direction of MACD.
The MACD line is above the signal line here. And MACD is approaching zero. The price is now
at 500 level from where it take support in the last 3 times. The volume is also getting high. The
price can reach 700 level in this rally.
This the chart of the company ROLTA. By interpreting the graph a cross it is clear that a cross
over is happened in the MACD line. In the middle of march MACD line has crossed the zero
line and the signal line from above. This a indication that the price is going to fall. The price is
not able to cross the 150 mark in the past 3 rally. Once it crossed but cannot sustain in that level.
It remains as a major resistance. The downward trend happening now can take the share to the
level of 120Rs.

ON BALANCE VOLUME (OBV)

The On Balance Volume (OBV) is a cumulative total of the up and down volume. When
the close is higher than the previous close, the volume is added to the total, and when the close is
lower than the previous close, the volume is subtracted from the running total. A series of rising
peaks, or falling troughs, in the OBV indicates a strong trend. If the OBV is flat, then the market
is not trending. The On Balance Volume was developed by Joseph Granville.

Generally OBV parallels the price. If the prices are moving sideways and OBV is increasing an
accumulation is occurring. Distribution occurs when the price is moving sideways and both OBV
is falling. When distribution occurs there is a chance that prices should drop quickly. When the
OBV is moving sideways and the price is increasing, there would be a divergence. This
divergence would indicate that the price rise is not being accompanied by strong volume and this
market is weak and could easily reverse. Bullish and bearish divergence signals can be used to
anticipate a trend reversal. A bullish divergence forms when OBV moves higher or forms a
higher low even as prices move lower or forge a lower low. A bearish divergence forms when
OBV moves lower or forms a lower low even as prices move higher or forge a higher high. If the
OBV is flat, then the market is not trending.

OBV

This the graph of RENUKA SUGARS. The candle stick chart for 3 month starting from January
to march 2011 is taken here. Indicator used here is On Balance Volume. In this graph it is seen
that in the month of February the price is falling and the OBV is moving sideways. Which means
that an accumulation is happening. So sooner this downward trend will come to an end and the
share price will rally back to upward direction. For getting better result other indicator has to be
used along with OBV.

AVERAGE DIRECTIONAL INDEX (ADX) INDICATOR

The Average Directional Index, or the ADX indicator for short, acts as a guide to confirm
the signals produced by other technical indicators. The Average Directional Index is an indicator
that measures the strength of a trend. For example, it can measure whether an uptrend or
downtrend is gaining momentum or slowing down. The Average Directional Index (ADX)
indicator is a combination of the positive directional indicator (+DI) and the negative directional
indicator (-DI). The +DI tracks the upward trend of the stock, while the -DI tracks the downward
trend. The ADX indicator combines the two and produces a unified trend strength indicator.
The ADX indicator is an oscillating indicator, ranging from 0 to 100, with 0 indicating flat
trading, and 100 indicating either a skyrocketing or plunging stock. The ADX only indicates
the strength of the trend, and does not indicate its direction.

However, it is unlikely to see ADX indicator values above 60, since such high values indicate a
trend that usually only appears in long bull runs or long recessions. Usually, any ADX value
above 40 is considered to be a strong trend, while any ADX value below 20 indicates that the
stock is in a trading range. The Average Directional Index (ADX) indicator depicts the strength
of a trend, and does not differentiate between an uptrend or a downtrend. ADX indicator values
above 40 indicate a strong trend, while ADX values below 20 indicate a sideways trading range.
As for signals produced by the Average Directional Index (ADX) indicator, a move below 40
from above indicates that the trend is slowing. Since most option strategies rely on large price
movements in short timeframes, a slowing trend is bad. Therefore an ADX move below 40
would indicate that it is time to close our positions.

Conversely, an ADX indicator move above 20 from below indicates that the sideways trading is
over, and a new trend is developing. This would indicate that it is time to make a move, either
bullish or bearish .Also, signals can be obtained by looking at where the positive directional
index +DI and negative directional index -DI lines cross each other. When the +DI crosses above
the -DI from below, it is a bullish signal, When the -DI crosses above the +DI from below, it is
bearish.
The formula of ADX = sum [+DI-(-DI) / (+DI+ (-DI)), N] / N

ADX with positive divergence

The above is the ADX chart of VOLTAS company. This is the chart from 2011 December to
march 2011. By interpreting the chart it can be seen that the price of the share is falling from the
half of February but the ADX line is moving sideways. The price fall from 180 to 150Rs. It
mean that this falling trend has no strength. So there is a chance for trend change. The price may
consolidate and an upward rally can be expect in the coming trading session. The in this rally
short term resistance will be 160 Rs. A trend line is also formed in the last part of the chart. For
the upward rally to be strong the price should move above that.
ADX with negative divergence

The above is the ADX chart of WIPRO. This is a three month chart starting from January 2011.
In this chart an upward rally can be seen in share price but at the same time ADX line is going
downward. This mean that this rally has not enough strength to go higher. According to ADX
concept the price will fall soon. After touching 460Rs the share show the symbol of downward
movement. It can be confirmed by the shooting star candle seen on the end of the rally. The price
may go down to 400 level in coming trading sessions.
Findings suggestion and
conclusion
SUMMARY OF FINDINGS

 RSI – When the price penetrates into new support and resistance level RSI value
will not give a clear picture whether to buy or sell.

 STOCHASTIC- The stochastic values present only the position of stock in the
market within a range over previous ‘n’ days. It can help to make decision in the
daily trading.

 MACD- It is one of the best indicators. Crossover between two moving average is
the decision making point. It is the best indicator among the indicator taken for the
study.

 BOLLINGER BAND- When the band of BB get together there was a sharp change
in share price and can be projected by seeing the originating movement of share
price.

 ADX- This a good indicator to understand whether the ongoing trend has good
strength to countinue.

 CHART PATTERN- They are helpful in finding the targets, trend, support and
resistance of the stocks.

 CANDLE STICK- The drawback of this indicator is to get the confirmation signal.
If the confirmation signal get earlier the opportunity can be used effectively.
SUGGESTON

Technical analysis requires both skill and knowledge for its perfection. So it is not
possible for a layman to do technical analysis so perfectly. The more skillful you are the more
accurate the technical analysis will be. Technical analysis will definitely improve the investment
decision; it is simple and more reliable than fundamental analysis because the information
required for technical analysis is freely available as compared to fundamental analysis.

Another important suggestion is that a single indicator is not enough for arriving at a selling or
buying decision. A conjunction of many indicators is required for more accurate decisions.

Two well known saying among the technical analyst are, “The trend is your friend,” and “forget
the fundamental and follow the money”.
CONCLUSION

Today stock market is one the best growth showing indicators of our country. From the
study it is found the stock market technical analysis is doing well in stock market predictions .

The forgoing study showed that Technical Analysis indicators can give a fair idea about future
price movements in stock market . It is easy for anybody to do Technical Analysis because of
the easy availability of information . But it is necessary to use more indicators for reaching a
conclusion regarding the share price movement . Technicians do not claim that all price
movements are predictable; rather, their goal is to forecast movements in price and magnitude
such that large gain from the correct predictions are enough to offset more numerous but smaller
losses from incorrect predictions, leading to a positive return in the long run through proper risk
control and money management.

Technical Analysis is frequently contrasted with fundamental analysis; the study of economic
factors that some analysts say can influence prices in financial markets. Pure technical analysis
holds that price already reflect all such influences before investors are aware of them, hence the
study of price action alone.

The efficient market hypothesis (EMH) concludes that technical analysis cannot be effective.
Human emotions are very important factor of the conversion of theory to practical situations

In reality only minorities of technicians can consistently and accurately determine future prices.
However, even if you are unable to accurately forecast prices, technical analysis can be used to
consistently reduce your risks and improve your profits.
 BIBLIOGRAPHY

REFERENCES

www.investopedia.com

www.calloptionputoption.com

www.capstocks.com

www.nseindia.com

www.stockcharts.com

Portfolio management by kevin